Attractiveness of Fonterra
Apparently, factors listed above can to a greater or less extent, drive Fonterra to make changes to pursue success and avoid failure. Now, with Porter’s five forces, the essay focuses on the company’s micro environment, intending to form an opinion on the attractiveness of the dairy industry.
Porter’s five forces analysis can be defined as a framework for identifying the attractiveness of an industry with regards to five competitive forces –new entrants, substitutes, bargaining power of suppliers, bargaining power of customers and level of competition rivalry (Arthur 2011. P. 136). A clear understanding of the degree of attractiveness can help set agenda for action.
As for the dairy industry in New Zealand, it first has a relative high barrier to entry. Fonterra take an absolutely monopoly advantage. What the potential entrants have to face are issues associated with capital, product development, selling networks and advertisements, let alone the invisible barriers like brand effect and customer loyalty.
Secondly, thanks to their unique flavors and extraordinary nutritional value, there are no complete alternatives to most dairy products.
Thirdly, suppliers have poor bargaining powers. The majority of New Zealand’s dairy enterprises are characterized by integrated supply chains. From the collection of raw materials to the selling of finished products to end consumers, they complete the total production line on their own. Besides, the country’s unemployment rate ensures oversupply of labors
Fourthly, buyers’ power is not optimistic, either. Every year, the country’s dairy products are exported to more than 100 countries, implying that decentralized customers have little say in bargaining.
Fifthly, the dairy market in New Zealand overall is saturated, and Fonterra has occupied an absolute share. Competition among the rest peer companies is cutthroat but with rather slow economic increases.
After elaborating the external environments of Fonterra, it’s necessary to have a detailed look at its internal competencies which contribute to its long-term survival and outstanding performance.
Put simply, threshold capabilities refer to elements that are needed for an organization to satisfy the necessary demands to compete in a given market.
Fonterra in the first place should appreciate the resources endowed by nature. As is known all, New Zealand is a beautiful island country with salubrious climate, vast grasslands, and abundant water. These natural resourcesmake a booming stock farming. Meanwhile, the roles played by funds and assets, advanced mechanized equipment should not be overlooked, because they further promotes the prosperity of the dairy industry.
Equally important is Fonterra’s sophisticated management competencies as well as professional knowledge and skills, by which resources are deployed effectively through the company’s activities and processes.
Distinctive capabilities are those that underpin competitive advantage and that can hardly be imitated or obtained easily.
Brand image is an intangible asset for a company. In New Zealand, Fonterra is a household brand name. In other words, the company is highly recognized and has a fixed customer base. Even in a worldwide scale, only a handful of dairy enterprises can contend with Fonterra.
Innovation leads to development. Fonterra spares no efforts to optimize structure, update technologies and skills, and develop new products to cater to the specific needs of different markets.
The adherence to the sustainable development strategies is also a smart move, which not only accords with the appeal of the times, but also helps the company in the aspects of resource saving and environmental protection. Fonterra thereby earns the reputation for one of the most admire companies.
It’s clear that Fonterra as a monopoly in New Zealand, enjoys a rather dominant position whether in resources or market share. However, there are also challenges from both the external and internal environments that cannot be ignored. Hence, the next part tries to propose some corresponding implementation plans to direct the company’s future development.
First, it’s essential to revamp the disadvantageous part in Fonterra’s structure.For instance, unnecessary layers of management can be reduced to improve efficiency and obtain a quick response to markets. In addition, the cultivation of a strong organizational culture is equally, which has a positive influence on the motivation of the staff, especially the contingent workers.
Second, quality decides everything, and sincerity make future. Recently, Fonterra is caught up in the event of botulism, which is really a terrible blow to the company as well as the confidence of consumers. From this lesson, Fonterra is advised to carry on the policy of "good, better & best" for its products, and execute a rigid control on the production quality and eradicate food safety problems.
Third, Fonterra is not supposed to stop expansion in overseas markets. The company has small economic gains in the home market due to its long-term monopoly. Naturally, it should cast the strategic vision to the foreign markets. Global demand for dairy has a sustainable growth because of rising incomes and westernization of diets in many developing countries. However, the supply in these countries is not keeping pace with the demand. Therefore, Fonterra should take these potential markets into considerations seriously.
Last but not the least, Fonterra should shift itself to a learning organization. Widespread changes take place every day and people now are in a society fraught with something new—new ideas, new technologies and new people. If a company sticks to the mud, or works behind the closed doors, it will soon be eliminated from the competition. Therefore, the establishment of a learning organization is a valid conduct to handle globalization.
Much has been discussed about how Fonterra operates, including its structure, external environments and internal competencies. Generally speaking, when it comes to a company’s llifecycle, it grows in a route from start-up, growth, consolidation and maturity. After that, the company will be at a crossroads where it may decline or rebirth.
As for Fonterra, although there are some disadvantages that remain to be improved, it is believed firmly that the company can keep up in the global competition with consistent reformations and a learning mind.