Fonterra: Agribusiness Strategic Analysis Report - MGT5STR

This report provides a comprehensive strategic analysis of Fonterra, a major agribusiness operating in Australia. It begins with an executive summary and introduction, outlining Fonterra's business units and product lines. The core of the report delves into an external environment analysis using the PESTLE framework, examining political, economic, social, technological, environmental, and legal factors affecting the company's operations. An internal analysis then assesses Fonterra's capabilities, core competencies, and competitive advantages, utilizing the VRIO model. The report identifies key strengths and areas for improvement, culminating in strategic recommendations for the future direction of the company. The analysis highlights the importance of adapting to the external environment and leveraging internal strengths to maintain and enhance market share. The report concludes with a summary of findings and references.

Fonterra

Fonterra
Executive summary
It has been observed that it is important for the companies to emphasize on considering the
different strategic concepts as it will help in boosting the market share in the competitive market.
The company selected for the task is Fonterra. In this paper there are various models that are
discussed in this paper such as VRIO MODEL, PESTLE ANALYSIS and also competitive
analysis is made so that it could be easy for the company to maintain the market share in the high
level of competition. The paper has highlighted the key competencies that will help the company
to grow in the market.
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Fonterra
Table of Contents
Executive summary.........................................................................................................................2
Introduction......................................................................................................................................2
Business units and product lines......................................................................................................2
External environment analysis.........................................................................................................3
Political factor..............................................................................................................................3
Economic factor...........................................................................................................................3
Social factor.................................................................................................................................4
Technological factor....................................................................................................................4
Environmental factor....................................................................................................................4
Legal factors.................................................................................................................................5
Internal analysis...............................................................................................................................5
Capabilities of Fonterra...................................................................................................................5
Core competencies...........................................................................................................................6
Competitive advantage identification..............................................................................................6
Recommendations............................................................................................................................7
Conclusion.......................................................................................................................................7
References........................................................................................................................................8
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Fonterra
Introduction
It is important for the organization to emphasize on controlling operations by taking into
consideration internal and external aspects so that it could easy to consider the strategies. The
organization chosen for assignment is Fonterra which is known as largest organizations in the
Agribusiness sector. The organization has a large market share in the Australian market and it is
one of the ASX listed company.
This report emphasizes on the external and internal business environment in relation to Fonterra
Company. The core competencies and competitive advantage will also be discussed in the next
part of the paper. The last part of the paper will elaborate the recommendations that should be
considered by the company so that competitive advantage can be attained.
Fonterra Company is known as the largest organizations in the Agribusiness sector. The
organization emphasizes on the dairy production and also provides dairy ingredients and services
according to the requirement of consumers. The activities of the company are managed by more
than 21,400 workers in Australia and in New Zealand. The director of the organization is Theo
Sperings ( Fonterra, 2019).
Business units and product lines
There are various business units of the organization in the market of Australia. The different
units of the company are concerned with Fonterra brands, NZMP ingredients, Anchor Food
Professionals and Fonterra Milk Supply. By having the diverse business units it can be seen that
the demand of the different segments can be fulfilled. The company is also emphasizing on
fulfilling the needs of the consumers of the diverse product portfolio.
By taking assistance from NZMP, the organization provides dairy products to the food
manufacturers and the organization cater the need of domestic and industrial platform. The
overall revenue of the organization is more than 1.120 Billion and the overall revenue is created
from different units such as customer segment, food segment and supply segment. There are
different customer’s brands that assist in maintaining the brand value of the company (Fonterra,
2018).
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Fonterra
External environment analysis
By considering external environment it is important to make the strategies accordingly so that it
could be easy for the business to attain success. It is same implemented for the Agribusiness
located in Australia. To evaluate the external environment of the Fonterra Company, Pestle
analysis is one of the effective tools that will help to consider different aspects. The analysis will
provide in-depth analysis of the external environment as it will help the company to consider the
strategic actions (Wheelen et al., 2017). Pestle analysis of Fonterra is:
Political factor
One of the essential aspects that should be considered before starting the business is Political
factor and it emphasizes on the future growth of the company. It has been seen that company not
only exist in the Australian market but it is also present in the different countries. Due to the
presence in the different countries there are various political issues that impact the operational
activities of the company (Pinxterhuis et al., 2015). In the present scenario, there is current
instability in the Australian government which is one of the challenges for the Fonterra
Company. The high rate of corruption rate and strict regulations are impacting the operations of
the business. It is analyzed that Australian government is focusing on making trading smooth
with the other countries and this is known as one of the positive sign in relation to the
organization. For Fonterra the current political scenario is favorable but the company requires
maintaining the eye on the political decisions (Delaney and Haworth, 2016).
Economic factor
There are different aspects of the economy that affect the growth of the Agribusiness in
Australian market. The different aspects are interest rate, inflation rate, savings rate and also the
foreign exchange. By emphasizing on the facts and statistics, it is seen that the economic factors
are favorable for the Agribusiness operating in Australia. In the report of Australian Bureau of
Agriculture and resource economics and science (ABARES), it is stated that the Australian
agriculture sector was known as one of the biggest contributors in context to the national income
of Australia. The Agriculture sector also saw 1.9% of the growth in the last year. The overall
value of the Agribusiness in Australia in 2016-2017 was approx $62.8 Billion by ABARES. This
states that the economic conditions of the Australia are in favor of the agribusiness (Bondarenko
et al., 2017).
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Fonterra
Social factor
It has been observed that society has an essential role in the overall development of the business.
The agriculture of the Australian market has driven the economy and also the individuals stay in
the country that is highly dependent on the Agribusiness. This is considered as the positive
impact for the company as the population of the Australian market shows that the company will
achieve growth in the market. The first is the business segment and the next segment is forced
behind the consumption. It is also seen that health consciousness is considered as one of the
aspects that is enhancing in the Australian market. It has been seen that the company focuses on
the products and services that are healthy as it can assist in attracting the audience who are health
conscious (Bentley, Omer and Sharp, 2013).
Technological factor
Latest technology is also one of the assistance for agri-sector in Australia. In the article, Sydney
Morning Herald, it is seen examined that the farmers who are present in Australia are involved in
considering the latest technology. The agri-business is also demanding as it incurs high cost of
production. It has been seen that it has an important part in minimizing the burden of
organization. The Australian government and various other institutions are boosting the digital
agriculture with the motive of integrate the sector of agriculture. The main aim is to integrate all
the operations of farming that will assist in minimizing the overall production cost (CSIRO,
2018).
Environmental factor
In the agriculture business, environment has an important role in relation to attaining the success.
There are various environmental standards that it important for the company to consider at the
time of managing the business in different parts of Australia. The essential factors that should be
considered are waste management and perfect utilization of the renewable resources. According
to the Australian Bureau of Statistics, the agriculture sector is considered as one of the biggest
user of land or water which is now the challenge for the Australian government. From the last
two decades, there is more than 70% water consumption of water in the Australian market which
is consumed by the Agriculture sector (Australian Bureau of Statistics, 2003). Also, the high
demand of the agricultural sector has impacted the environmental aspects such as Wildlife, flow
of rivers and also reduced the soil quality in different aspects of the country. So, this has
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Fonterra
negatively impacted the growing agriculture in the Australian market. Therefore, the entire
environmental condition is not favorable in relation to the agribusiness situated in Australia.
Legal factors
There are different laws that impacted the success of the organization. These laws consist of
labor laws, discrimination laws, employment laws and health and safety laws. It is necessary for
the organization to emphasize on the regulations by ensuring the different areas of the country
and also their laws that are different. The regulatory environment for the Agribusiness is
complex and also the major reason behind relates with the three tiers of the government such as
commonwealth; State level governments such as NSW, Victoria ad Tasmania. It has been
observed that there are more than 24 laws that are important for the company to consider so that
the activities can be managed smoothly (Chudleigh,McKay and Lambert, 2017).
Internal analysis
It is necessary to evaluate the internal environment as it helps to manage the operations in a
proper manner. By emphasizing on the resource based view, it is analyzed that the tangible
resources of the organization relates with the assets such as manufacturing machinery and also
the workers. The location also has an important at the time of managing the operations in the
highly competitive market. If emphasis is on the intangible resources then it is analyzed that
market and brand value are the important aspects of the organization (Kumar et al., 2013).
Capabilities of Fonterra
It is necessary for organization to maintain ability to grow in the market. In the company, it is
examined that there is flexibility in the company that is also known as the internal capability.
Organization emphasizes on taking into consideration the human resource approach that helps in
controlling the operational operations. The market orientation is also the important internal
capabilities that assist the organization to manage the operations according to the situation of the
market. This also helps to offer the products that assist in satisfying the requirements of the
customers. Therefore, it can be stated that it is important to have proper relation in relation to
internal and external capabilities. The management can help in managing the overall capabilities
that will boost the competitive advantage of company (Johnson, 2018).
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Fonterra
Core competencies
One of the important core competencies relates with the operations that should be managed on
the global platform. There are different operations that are managed by the company outside
Australia and New Zealand and it is done by having the joint venture in China and also in other
countries. The main aim is to grab the large market area so that profits can be enhanced. The
business approach is considered by the company in relation to dairy cooperative. It is analyzed
that company emphasizes on sourcing the milk directly from the farmers at it will help in
maintaining coordination. This can also help in boosting the supply of the raw material without
taking assistance from the intermediaries. The competencies can also positively affect the
economic and social status of the farmers (McGiven, 2016).
Competitive advantage identification
To support this concept, the emphasis will be given on the VRIO MODEL. It has been observed
that there are some steps that should be considered in reference to maintaining the competitive
advantage.
Valuable
The overall brand value of the organization is considered as an essential aspect that assists to
maintain the competitive advantage. Just because of this the affect is seen on the entire sales and
demand of the products offered in the market. It has been seen that the company also taken into
consideration the latest technologies that assisted in attaining the high production rate (Knott,
2015).
Rarity
It is analyzed that the farmers have different links with the company. This helps in maintaining
the supply of milk without having any intermediaries. It has also helped the company in
maintaining the large market area that directly assist in taking into consideration the competitive
advantage (Stojkov, Noy and Sağlam, 2016).
Inimitability
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Fonterra
It has been seen that the approach is concerned with the workers that are known as inimitable
and it has helped to maintain the different strategies in relation to the employees. It can be said
that due to this the skills of the workers has also been enhance which impacted the level of
productivity in the competitive market (Shadbolt and Duncan, 2014).
Organizational capability
Fonterra has a good financial status in the overall market which helped to maintain the level of
competition in the market. It has also emphasized on targeting the customers on the global
platform which can boost the demand of the products (Knott, 2015).
Recommendations
It is necessary for Fonterra to emphasize on effective leadership as it will help the employees to
give their best towards the assigned work. If there is no effective management or leadership style
considered then it can adversely impact the performance of the workers. It is also important for
the organization to emphasize on cooperative mode as it can assist in attaining competitive
advantage. Market development strategy should also be considered with the aim of entering into
the foreign market as it will enhance the market share.
Conclusion
It is concluded that Fonterra can attain success in the market if the focus is given on considering
the different strategies. The internal capabilities discussed in the paper emphasize on the scope of
competing in the market with the different competitors. So, it is necessary for the organization to
emphasize on the different strategically tools so that it could be easy to attain large market share.
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References
Australian Bureau of Statistics, 2003.Enviornmental impact on agriculture. [Online]. Available
at:http://www.abs.gov.au/ausstats/abs@.nsf/46d1bc47ac9d0c7bca256c470025ff87/3319eb4d2d1
4bd2dca256cae0015bad3!OpenDocument[Accessed on 2 April, 2019].
Bentley, K.A., Omer, T.C. and Sharp, N.Y., 2013. Business strategy, financial reporting
irregularities, and audit effort. Contemporary Accounting Research, 30(2), pp.780-817.
Bondarenko, T.G., Isaeva, E.A., Orekhov, S.A. and Soltakhanov, A.U., 2017. Optimization of
the company strategic management system in the context of economic instability. European
Research Studies, 20(2), p.3.
Chudleigh,C.,McKay,K., and Lambert, S., 2017.Agribusiness. [Online]. Available
at:https://gettingthedealthrough.com/area/93/jurisdiction/5/agribusiness-2018-australia/
[Accessed on2 April, 2019].
CSIRO., 2018.Digital agriculture. [Online]. Available at:
https://www.csiro.au/en/Research/AF/Areas/Digital-agriculture[Accessed on 2 April, 2019].
Delaney, H. and Haworth, N., 2016. Partnership in Practice in New Zealand: Improving
Productivity in Fonterra’s Whareroa Site. In Developing Positive Employment Relations (pp.
305-325). Palgrave Macmillan, London.
Fonterra, 2019.Fonterra.[Online]. Available
at:https://www.fonterra.com/au/en/our-brands/NZMP_Australia.html [Accessed on 2 April,
2019].
Johnson, R., 2018.Agricultural appointments. [Online]. Available at:
https://www.agri.com.au/agriculture-is-now-the-powerhouse-driving-economic-growth-in-
australia/[Accessed on 2 April, 2019].
Knott, P.J., 2015. Does VRIO help managers evaluate a firm’s resources?. Management
Decision, 53(8), pp.1806-1822.
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Kumar, P., Sharma, N., Ranjan, R., Kumar, S., Bhat, Z.F. and Jeong, D.K., 2013. Perspective of
membrane technology in dairy industry: A review. Asian-Australasian journal of animal
sciences, 26(9), p.1347.
McGiven, A., 2016. The Future Opportunities and Challenges for one of the World's Largest
Dairy Export Firms: Fonterra in New Zealand. Journal of Applied Business and
Economics, 18(3), pp.16-23.
Pinxterhuis, J.B., Beare, M.H., Edwards, G.R., Collins, R.P., Dillon, P. and Oenema, J., 2015.
Eco-efficient pasture based dairy farm systems: a comparison of New Zealand, The Netherlands
and Ireland. Grassland Science in Europe, 20, pp.349-366.
Shadbolt, N. and Duncan, A., 2014. Fonterra as a case study of co-operative capital structure
innovation. International Summit of Cooperatives, Quebec, Canada, pp.6-9.
Stojkov, K., Noy, I. and Sağlam, Y., 2016. The trade impacts of a food scare: The Fonterra
contamination incident. Journal of Agricultural & Food Industrial Organization, 16(2).
Wheelen, T.L., Hunger, J.D., Hoffman, A.N. and Bamford, C.E., 2017. Strategic management
and business policy.pearson.
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