A Strategic Analysis Of Fonterra’s Agricultural Business In Australia

External Business Environment

Strategic management is important for the organizations from all the sectors due to the increase in the competition with the emergence of new players. Agribusiness is a major sector in Australia with contributing a significant amount in the national gross domestic income of Australia. Thus, opportunities are growing in the agribusiness sector of Australia and along with that competition is also increasing (Meyer, Neck and Meeks 2017). This is leading to the increase in importance for effective strategic management for the organizations operating in this sector. Among the leading names in the agribusiness sector of Australia, Fonterra is in the forefront. They are actually based in New Zealand and are the largest dairy firm there. They are also having a huge market presence in the Australian market with Australia being the largest milk pool for Fonterra outside New Zealand.

This report will discuss about the external business environment that is being faced by Fonterra in doing business in Australia. In addition, the internal effectiveness of them including their core competencies and competitive advantages will be identified. This will help to identify the gaps in their strategic intent and in accordance to that; a few recommended steps will be identified and discussed.

Currently, Fonterra is having number of business units in the Australian market with comprising consumer goods section under the Fonterra brand, food service supplies under Anchor food and dairy ingredients supplied under NZMP ingredients (fonterra.com 2018). Thus, they are having diverse range of business units that is helping them in catering to different customer segments and types. Under the consumer goods section, Fonterra is offering wide variety of products such as Western Star butter, Perfect Italino ready to make meals, Bega cheese, Anchor Milk, Mainland cheese and butter. This is denoting that Fonterra is targeting different customer needs in the dairy sector with their diverse product portfolio. Among all their products, Bega cheese is the largest selling cheese brand in the Australian market. Under the Anchor brand, they are offering customized food solutions to the foodservice professionals. Under this brand also, they are offering cheese, butter and cream. With the NZMP Australia, Fonterra is supplying the dairy ingredients to food manufacturers around the world (fonterra.com 2018). Thus, with the diverse business units, Fonterra is catering to both domestic and industrial needs.

The major revenue business units for Fonterra are their consumer division, food supply division and ingredient supply division. The largest revenue business unit for them is consumer goods division (Adenso-Diaz, Lozano and Palacio 2017). This is due to the reason that the under the consumer brands of them, Fonterra is having the major market share in both Australian and New Zealand with having some of the best selling brands. In addition, brand value of Fonterra is heavily determined by their consumer brands.

Political factors Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	· Australia is having favorable political scenario with having government in place. · In addition, government of Australia is promoting livestock sector in order to cater to increasing demand for meat and dairy (O’Connor 2013). · Australia is also having favorable diplomatic relationship with all the major economies around the world and this is helping Fonterra in exporting their products from Australia (Penrose 2017). · However, if the government policies are in favor for meat production, then the diary industry may get affected.
Economical factors	· National economy of Australia is growing and this is increasing the potentiality for Fonterra. · With having provision of export for Fonterra, increase in the demand for dairy products is also having positive economic impacts. · However, with the entry of new brands along with some international brands, competition is increasing for Fonterra in the Australian market (Malik et al. 2014). · Taxation is one of the major problems in doing business in Australia and it is causing Fonterra to have more expensive products in the Australian market (Burkhauser, Hahn and Wilkins 2015).
Social factors	· One of the major negative social impacts for Fonterra is increasing trend of vegan consumption in Australia. This will reduce the demand for dairy products for Fonterra (Pendergrast 2016). · However, the importance of cheese in the Australian cuisines is creating demand for cheese products of Fonterra. · Concern of the customers regarding the fat contents on dairy products is also affecting the potentiality of Fonterra. · With the changing in taste and preference pattern of the customers, it is becoming important for Fonterra to update their product portfolio. · Australian population is becoming more diversified with the more inflow from different countries. Thus, offering specific product items will affect the potentiality for Fonterra (Markus 2014).
Technological factors	· Technology is one of the major forces in the current agribusiness scenario with increase in investments in this sector (Kumar et al. 2013). · Fonterra is a leader in the dairy industry with having technological advancements in breeding and manufacturing process. · They are having automated process for their entire production process. This is helping them to having competitive edge over their competitors (Barkema et al. 2015). · However, investment is also having higher requirement to develop and maintain technologies in place.
Environmental factors	· Agribusiness especially the dairy industry is directly related to the environmental issues due to the issue of air and water pollution (Buckley and Carney 2013). · Australia is having stringent rules and regulations in relation to the environmental standards. It is important for Fonterra to maintain their business operations accordingly. · Fonterra is accused for environmental degradation in past majorly in New Zealand. Thus it is important for them to effectively adhere to the environmental standards. · However, the cost of environmental protection is increasing for Fonterra that may take a toll in their business effectiveness and profitability.
Legal factors	· Legal standards are high in Australia especially in food and beverage sector. · Fonterra is adhering to The Primary Production and Processing Standard for Dairy standards in doing business n Australia. · However, one of the major challenges for them is different standards in different countries (Harris 2016). · Fonterra exports their items to number of countries and stricter regulations mainly in the western counties are creating barriers for them.

Political Factors

Resource based view will be used to determine the internal effectiveness of Fonterra. According to the resource based view, tangible resources of Fonterra are assets such as manufacturing facilities, human resources and their machinery. Strategic location of the facilities, skill and expertise of the human resources and effectiveness of their machineries are helping them in gaining competitive advantages. On the other hand, intangible resources such as brand value, identity, market coverage and quality is helping Fonterra to stay ahead in the competition.

As per the information available, there are number of capabilities being identified for Fonterra. One of their major capabilities is their approach of human resource management. According to the human resource management approach of Fonterra, emotional intelligence is given the major concentration. This helps them to deal with the employee management effectively. In addition, organizational flexibility of Fonterra is another major internal capability (Ruiner, Wilkens and Kupper 2013). This states that internal practices and processes are being designed in such a way that Fonterra will be able to cope up with the change in the business scenario. Thus, the risk being faced by the business organizations from the change in market and business scenario is less for Fonterra. Another major capability of Fonterra is their market orientation. This refers to the fact that business strategies of Fonterra are being initiated in accordance to the market scenario (Bentley, Omer and Sharp 2013). This is helping them to cater to the market effectively and offering products that will meet the requirement of the customers. Therefore, it can be concluded that coordination between the internal and external capabilities of Fonterra is helping them to stay ahead in the competition.

One of the major core competencies of Fonterra is their worldwide presence. Outside of New Zealand and Australia, they are having joint ventures and acquisitions in China, United Kingdom and the United States. This is helping them to cater to the larger customer segments along with more access to financial resources. In addition, this is also helping them to position them as a global brand that is in turn helping them in pushing their new products in the target market. Another major core competency for Fonterra is their diverse product portfolio. As discussed in the above sections, Fonterra is having number of business unites with having different product range. This is enabling Fonterra to cater to both domestic and industrial customers and staying ahead in the competition. Another core competency for Fonterra is their business approach of dairy cooperative (Basu, Banerjee and Sweeny 2013). Unlike their major competitors, Fonterra source milk directly from the farmers and they maintain cooperative with the farmers. This is helping Fonterra in having seamless supply of raw materials and without having any presence of intermediaries. On the other hand, it is also helping to enhance the economic and social status of the farmers.

Economic Factors

VRIO analysis will be used in determining the competitive advantages of Fonterra.

Brand value of Fonterra is one of the major valuable resources due to the reason that it is helping them in creating identity in the market. In addition, the sales of their newly introduced products can get enhanced with the use of their brand names (Knott 2015). In addition, the technological advancement of Fonterra can also be considered as their competitive advantages. This is due to the reason that technologies and machinery are helping them to have less average cost of production and more updated products.

Fonterra is having the access of local farmers in the form of cooperative. This is helping them in having the supply of pure milk without having the presence of any intermediaries (Bondarenko et al. 2017). Majority of the players operating in the dairy industry are not having this advantage and it is rare and not well available. This is helping Fonterra to have advantage over their competitors in terms of lower cost of raw materials and quality.

The approach of human resource management is inimitable in nature due to the fact that Fonterra maintains extensive employee management strategies that are being kept private (Espinoza and Ukleja 2016). In addition, this is helping them to have the added skills and expertise from the employees that creates their competitive advantages in the market.

As discussed earlier, Fonterra is having number of capabilities such as financial, market presence and number of business units. These help them to operate in the global market effectively and catering to the diverse customer segments properly.

• It is recommended that Fonterra should have cooperative mode of business in their foreign countries also. This will help them to gain the competitive advantages that they gain from Australia. It will also help them to have the lower cost of production in the foreign countries.
• Product development is one of the major strategic intent to be considered. It is recommended that Fonterra should introduce dairy based products such as ice cream in the market. This will increase the target customer segments for them along with increase in sales revenue.
• It is also recommended that Fonterra should also initiate market development strategy by means of entering in the potential foreign countries. It is suggested that they can target the developing countries as some of the developing countries are having favorable growth rate and market opportunities.

Conclusion 

Thus, it is concluded that Fonterra is having number of positive and negative external factors being faced by them in the Australian market. In this report, the internal effectiveness of Fonterra including their core competencies, competitive advantages and resources are also identified. It is concluded that internal effectiveness of Fonterra is enough to deal with the external factors in the Australia but it is also important for them to increase their existing market share. In accordance to this requirement, there are few recommended steps are being discussed in this report that will help Fonterra to enhance their market presence and revenue in the foreign market also.

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