Strategic Analysis of Fonterra's International Expansion in Spain

This report provides a strategic analysis of Fonterra's potential entry into the Spanish market, considering the increasing demand for dairy products and the growing health consciousness of consumers. It begins with a discussion of Fonterra's operations and its position as a leading dairy exporter. The...Read More

Running Head: SPAIN 0
Fonterra
Strategic management

SPAIN 1
Contents
Introduction...........................................................................................................................................3
Discussion of Fonterra...........................................................................................................................3
Different international opportunities and Strategies that can be adopted by Fonterra............................4
Appropriate and inappropriate mode of entry into international market................................................5
Future strategic directions for Fonterra in Spain....................................................................................6
Conclusion.............................................................................................................................................7
References.............................................................................................................................................8

SPAIN 2
Introduction
It is true that dairy/agri business sector is diversified. Moreover, it is also estimated to grow
over the next five years due to the increasing diversified and globalised nature of the food
supply chain. Over the last few years, dairy/agri industry of Spain has significantly increased
the efficiency and growth. Due to the shifting mind set of people toward healthy diet,
consumption of vegetables, nuts, and fruits went double. At the same time, high input cost is
also creating different challenges for the Australian dairy/agri industry. In addition to this, the
increasing investment of leading dairy industry in Australia is also increasing growth of the
sector. The increasing health concern of people toward dairy/agri products has led to the
increasing demand of milk and cheese consumption. Therefore, dairy/agri products remain
the continuous trend in the Spain. Due to this, Spain is chosen as the international expansion
for Fonterra. As a leading brand, Fonterra can make its favourable entry in the Spanish. In the
paper, discussion started with the mode of entry that will prove to be favourable for Fonterra
while entering into the Spanish market.
Discussion of Fonterra
Fonterra has started its operation from 2006 in Australia. Fonterra has stated that due to the
world’s biggest dairy/agri exporter, we are able to share our product with around billion of
people every day. By having 30 manufacturing sites across the country, it tends to process
around 16 billion litres of milk each year. Australia is the biggest milk pool besides New
Zealand. Australian dairy/agri brands offer the high quality nutrition as well as great tasting
to people at every stage of life. Fonterra has also highly adopted the standards of corporate
direction and governance. Due to this, it has provided the responsibility to board for
providing direction, guidance as well as oversight about Fonterra. Board tends to report to the
shareholder related to the performance of organisation. At the same time, they also
responsible for reviewing and appointing the performance of CEO as well as engage in the
development of strategic plan.
It is found that the Spain food market has been continuously growing and expected to grow in
the next year also due to the rising healthy concern of people. In the recent time, most of the
consumers taking healthier diet in order to stay fit. The different health benefits of dairy/agri
products have encouraged the people to increase consumption of dairy/agri products. In
addition to this, the packaged condensed milk market in Spain has also gained the higher

SPAIN 3
growth due to its use in the preparation of desserts, baked products, beverages, as well as
confectionaries. At the same time, the increasing sophistication among the Spanish
consumers is demanding the rise in high value added dairy/agri products. Due to this,
manufacturers are also making significant investment in the innovation.
With the increasing diversification and premiumization of consumer needs, the usage of milk
has been expanding with the high added value. This trend is leading to the further growth in
favourable consumer trend. Milk segment is estimated to be the highest share in the overall
dairy/agri product market in the year 2019.
Different international opportunities and Strategies that can be adopted by Fonterra
Due to the increasing healthy concern of people, customers are shifting toward consumption
of healthy dairy/agri products. In such a case, Fonterra has the different opportunities to
expand its wings in other international market by ensuring proper market research. At the
time of entering into any new market, the most significant way is to use appropriate strategy.
By establishing the effective parameters, it is possible to capture the target audience.
Global strategy: It is highly suggested to Fonterra for using global strategy. This strategy
helps inn responding as per the local taste of the particular country. It is seen that the milk
products are highly consumed product in Spain. Therefore, it can work on this area by
offering different milk flavours to consumers. At the same time, Fonterra should also give
more emphasis on the making of cheese because it is the second most consumed dairy/agri
product in Spain (Statista, 2018).
Social media strategies and advertisement: whenever any company enter into new market, it
is not easy for them to attract the customers. Therefore, company can take the assistance of e-
commerce where the Fonterra can discuss the products and its ingredient. This will help it in
creating the awareness among different customers regarding healthy eating. Advertisement is
also one such effective tool to increase the demand in new market. By researching the outlets
and places, it will be able to connect with the target market. Fonterra can also approach the
local grocery stores. By doing this, it will be possible for Fonterra to enter into the new
market. Besides this, advertisement can also be done on the websites, publications,
televisions (Nisar, Prabhakar and Strakova, 2019).

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Penetration strategy: this strategy helps in attracting the customers with low price for some
period. When Fonterra will offer the low price in new market, customers will shift toward its
product for the sake of getting products at low price. Penetration pricing strategy also
generated higher sales quantity by allowing the firm to realise lower marginal cost and
economies of scale. Fonterra will also be able to increase its turnover rate with the adoption f
penetration pricing.
Low pricing strategy: it is probably one of the best strategies for effectively entering into new
market. When Fonterra will enter into Spain, it is beneficial to keep the prices of its product a
quite low in starting. This will definitely help it in getting the attention of customers. Low
pricing strategy will also help it in reaching to the wider audience (Noe, Hollenbeck, Gerhart
and Wright, 2017).
Product diversification: Fonterra can adopt the product diversification strategy in Spain due
to the increasing demand of ice cream. It can also bring several flavours of the ice creams in
order to attract the customers for availing its services. Due to the increasing dairy/agri
consumption in Spain, Fonterra can give emphasis on specialising and diversifying of its
products in order to meet the customer demand. For this, it can ensure the proper research and
development for knowing the changing demand of customers in Spain market.
Appropriate and inappropriate mode of entry into international market
Licensing agreement is the most appropriate entry mode for entering into the international
market. Due to the strong brand image in several countries, Fonterra can sign the contract
with foreign businesses known as licensing (Harms and Meon, 2018). Under this, it can
regularly the licensing fee or can also pay some percentage of its revenue. Licensing will
allow the company to enter into market quickly. Online sales will prove to be inappropriate
market for Fonterra because in the dairy/agri market, people mostly prefer to buy products
offline. Due to the presence of several dairy/agri products already, it will not be too easy for
Fonterra to attract those customers (Ahi, Baronchelli, Kuivalainen and Piantoni, 2017). In this
way, Fonterra should go for the licensing agreement. In addition to this, greenfield
investment can also be done by Fonterra while entering into international market. It will
enable the more effective and easier adaption to the foreign market. by ensuring proper
market research about the international market, it can effectively enter into the market of
Spain (Alvarez, García-Cornejo, Perez-Mendez and Roibás, 2016). Therefore, it is better to

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know the taste and preferences of customers for taking entry with greenfield investment. By
adopting this strategy, Fonterra can adapt both pricing and products to the local condition and
has control over the assurance of its quality. The complete ownership will also help it in
extending its offers to the customers or potential customers like discounts or rebates (De
Toni, Milan, Saciloto and Larentis, 2017).
Future strategic directions for Fonterra in Spain
It is true that dairy/agri is the significant part of food life present in both packaged goods and
food service. Changing consumer behaviour is forcing the dairy/agri products to give more
emphasis on the quality of their offering. Fonterra can work on its sustainable packaging for
attracting the customers in Spain. Due to the increasing shift of the consumers toward healthy
products, it becomes necessary to take care of the packaging also. Therefore, it can work on
providing high quality print registration as well as improvement in the health and safety by
committing itself with the environment sustainability (Collantes, 2016).
The recent report on Spanish market states that more and more people are turning vegans.
Spain also comes under the top of list in the healthy nations of the World. Therefore, Fonterra
can expand its market by offering fresh vegetables to the Spanish consumers. It is better to
source the fresh vegetables form the Spain suppliers. It will also gain the support from
government by providing employment opportunities to the Spain suppliers. Product
innovation has also gained the growth in dairy/agri market of Spain. The consumers demand
for convenient and healthy products is seen as the current market trend (The Local, 2019).
Healthy concerns and more convenient packaging is becoming the top priority in the diary
market of Spain. In this way, it can come up with more fat free products in order to achieve
the positive growth (Statista, 2018).
The biggest dairy/agri market named Calidad Pascual has given the emphasis on consumer
products that helped in responding to the several; nutritional needs with the excellence and
quality. similarly, Fonterra can also give on its sustainable approach in Spain. Food Safety
Program can also be used by Fonterra in order to work according the EU and Spanish
Legislation. In addition to this, the rules applied can also be effectively verified and audited
as per the Food Safety Programs. This directly helps the company in gaining the customer
trust with the brand. Application of agricultural practices is also suggested as the strategic
direction to Fonterra that will help in increasing the production and productivity. by working

SPAIN 6
as per the guidelines of the government rules and regulations, customer trust also increases in
the brand and they make purchase form the same (Nagle and Mullar, 2017).
Product development is one such strategic direction suggested to Fonterra. For example- ice
cream can be brought by Fonterra in order to gain more customers. At the same time, it will
increase the target segment of customers by increasing revenue in the Spanish market. Market
development is also one such best strategic option suggested to the Fonterra. This will further
lead to the gaining of opportunities and thereby favourable growth rate. Fonterra is also
required to ensure the sustainability practices in relation to the several environmental
standards. This will enhance the corporate brand image across the market.
Conclusion
In the limelight of above discussion, it can be concluded that Fonterra can effectively enter
into Spain due to increasing health concern of people. By ensuring the market research, it is
come to know that Spanish people are also giving more attention to the consumption of
vegetarian products. Therefore, it is great opportunity for Fonterra to expand its market in the
vegetarian products. In spite of this, it can give more emphasis on the packaging of its
products because consumers are giving their emphasis on the sustainable packaging of the
products.

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References
Ahi, A., Baronchelli, G., Kuivalainen, O. and Piantoni, M., 2017. International market entry:
how do small and Medium-Sized enterprises make decisions?. Journal of International
Marketing, 25(1), pp.1-21.
Alvarez, A., García-Cornejo, B., Perez-Mendez, J.A. and Roibás, D., 2016. Diversification in
Spanish Dairy Farms: Key Drivers of Performance. International Food and Agribusiness
Management Review, 19(1030-2016-83111), pp.163-188.
Biglaiser, G. and Lee, H., 2019. The effects of different entry modes of foreign direct
investment on labor rights in the developing world. Journal of Human Rights, 18(2), pp.165-
183.
Briones Peñalver, A.J., Bernal Conesa, J.A. and de Nieves Nieto, C., 2018. Analysis of
corporate social responsibility in Spanish agribusiness and its influence on innovation and
performance. Corporate Social Responsibility and Environmental Management, 25(2),
pp.182-193.
Collantes, F., 2016. Food chains and the retailing revolution: supermarkets, dairy processors
and consumers in Spain (1960 to the present). Business History, 58(7), pp.1055-1076.
De Toni, D., Milan, G.S., Saciloto, E.B. and Larentis, F., 2017. Pricing strategies and levels
and their impact on corporate profitability. Revista de Administração (São Paulo), 52(2),
pp.120-133.
Harms, P. and Méon, P.G., 2018. Good and useless FDI: The growth effects of greenfield
investment and mergers and acquisitions. Review of international economics, 26(1), pp.37-
59.
Nagle, T.T. and Müller, G., 2017. The strategy and tactics of pricing: A guide to growing
more profitably. Routledge.
Nisar, T.M., Prabhakar, G. and Strakova, L., 2019. Social media information benefits,
knowledge management and smart organizations. Journal of Business Research, 94, pp.264-
272.

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Noe, R.A., Hollenbeck, J.R., Gerhart, B. and Wright, P.M., 2017. Human resource
management: Gaining a competitive advantage. New York, NY: McGraw-Hill Education.
Statista. 2018. Per capita consumption of dairy products in spain in 2018. [online] Available
from: https://www.statista.com/statistics/443284/per-capita-consumption-of-dairy-products-
in-spain-by-type/
The Local. 2019. Vegans on the rise- why Spaniards are turning away from meat. [online]
Available from: https://www.thelocal.es/20190227/why-is-veganism-on-the-rise-among-
young-people-in-spain