Managing Internal And External Factors: A Case Study Of Fonterra

External Business Environment of Fonterra

It is essential for the company to focus on managing the activities by considering internal and external factors so that strategies can be made accordingly. The company selected for the task is Fonterra which is one of the biggest companies in the agribusiness sector. The company is situated in New Zealand but has a huge presence in the Australian market.

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In this report the discussion will be made on external and internal business environment in context to Fonterra Company. Also the emphasis will be given on the core competencies and competitive advantage in relation to the company. At last recommendations will be made that will help the company to achieve success in future and the operations will be conducted on the basis of that only.

Fonterra is considered as one of the biggest companies in Agribusiness sector. The company focuses on dairy production and offers dairy ingredients and services according to the need of the customers. There are more than 21,400 employees who are conducting the routine activities in Australia and also in New Zealand. Headquarter of the company is in New Zealand and the director of the company Theo Sperings. The activities are also conducted in Australia and have a large market share (Fonterra, 2018).

There are many business units of the company in the Australian market. The business units of the company are related to Fonterra brands, NZMP ingredients, Anchor food professionals, Fonterra milk supply and also Fonterra group manufacturing. So, the diverse business units help to consider the demand of the different segments. It has been examined that company is focusing on the needs of the customers by having diverse product portfolio.

With the help of NZMP, the company offers dairy products to the manufacturers of the food and also the company caters the requirement of both domestic as well as industrial. The revenue of the company is more than 1.120 billion and also the revenue is generated from various units related to consumer segment, food and supply segment and ingredient supply division. By considering the consumer brands it has been seen that overall brand value is maintained by the company (Pinxterhuis et al., 2015).

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Understanding the external environment and making strategies according to them is essential for a business to succeed. Same goes with the agribusiness in Australia. In order to analyse the external environment of Fonterra Company, PESTLE analysis is a perfect tool. This analysis will provide an overview of overall external environment of the company so that Fonterra Company can take strategic actions accordingly. Below is the PESTLE analysis of Fonterra:

Internal Business Environment of Fonterra

Political scenario of Australia is an important factor which decides the future growth of Fonterra. The company is not only available in Australia but also in different other countries and hence there are many political issues that can affect the overall business of the company. The current instability of the Australian government is an issue for Fonterra. Increasing level of corruption and strict regulations are also affecting the business of the company. On the other hand the Australian Government has been trying to make its trade smoother with other countries, which is a positive sign for the company. Overall, political scenario is in favorable condition for Fonterra, the company needs to keep an eye over the political decisions (Bentley, Omer and Sharp, 2013).

There are many macro environmental factors which affect the agribusiness in Australia. These factors mainly include Interest rate, inflation rate, savings rate and foreign exchange. While looking at the facts and statistics, it can be said that economic factors are in favor of agribusiness in Australia. According to a report of Australian Bureau of Agriculture and Resource Economics and Science (ABARES); Australian agriculture sector was one of the largest contributors in the overall national income of Australia. Agriculture sector saw 1.9% growth during last year.  The total value of Agribusiness in Australia in 2016 – 2017 was estimated to $62.8 billion by ABARES (Johnson, 2018). This proves that economic conditions of Australia are in favor of agribusiness.

Society plays an important role in the development of any business. Australia is an agriculture driven economy and people who stay in the country are also highly dependent on the agribusiness. This is a positive sign for Fonterra. Australian population is very much interested in business related to agriculture. The different age group of Australian population proves that Fonterra will grow in future as one segment of the society is interested in such business and another segment is a force behind consumption (Bondarenko et al., 2017). On the other hand it can also be said that increasing health consciousness is an alarm for Fonterra. The company must look for products and services which are healthy so that they can attract health conscious audience.

Modern technology is a great support for the agribusiness in Australia. According to an article published in Sydney Morning Herald, it has been found that farmers in Australia are highly interested in new technology (White, 2018).  Since, agriculture is a demanding business and it has high cost of production; technology plays a significant role in reducing the burden from the company. Australian Government and different institutions are promoting Digital Agriculture with the aim of integrating agriculture in the country. The objective is to integrate all the activities of farming which will further help in reduced cost of production (CSIRO, 2018).

Core Competencies of Fonterra

Environment is the most important factor that decides the success of agriculture business. There are different environmental standards that a company needs to follow while conducting its business in different parts of Australia. Proper waste management, perfect utilization of renewable energy sources are some important factors to consider. According to Australian Bureau of Statistics, agriculture in Australia is largest user of land and water which is a concern for the Australian government. During last two decades, more than 70% consumption of water in Australia is done by the Agriculture sector (Australian Bureau of Statistics, 2003). Not only this; higher demand of agriculture sector has affected other environmental factors such as wildlife, flow of rivers, decreasing quality of water and soil in different parts of the country are the main negative impact of growing agriculture sector in Australia. Thus, overall environmental condition is not favorable for agribusiness in Australia.

There are many laws that directly or indirectly affect the overall business of a company. These laws mainly include Labor laws, Discrimination laws, Employment Laws, Health and Safety Laws and so on. Fonterra needs to follow all such regulations and the company also needs to ensure that in different parts of the country; some laws are different. The regulatory environment for agribusiness in Australia is complex in nature; the reason behind this is the three tiers of the government. These three tiers of governments mainly include Commonwealth; State Level Governments such as NSW, Victoria, Queensland, Western Australia, South Australia, Tasmania, Northern Territory, and Australian Capital Territory; and local councils. There are more than 24 individual pieced of laws which the company needs to know and follow (Chudleigh, McKay, and Lambert, 2017).

It is important to analyze the internal environment so that activities can take place in a smooth manner. By considering the resource based view, it has been investigated that tangible resources of the company are related to the assets like manufacturing, machinery and also the employees. The location where the activities are conducted plays a great role to manage the overall competition level in the market. If focus is given on intangible resources then it has been seen that market coverage, quantity and brand value are the major factors of the company (Hill, Jones and Schilling, 2014).

It has been investigated that it is important for the company to have capability so that growth can be attained. In the workplace, it has been seen that there is workplace flexibility which is considered as one of the major internal capability. Also, the company focuses on considering human resource approach that will helps to manage the entire activities of the company. Market orientation is also one of the major internal capabilities that help the company to conduct the activities according to the market situation or scenario (Wheelen et al., 2017). This also assists in giving products that helps the customers to satisfy their needs and wants. So, it can be stated that there should be proper relation between the internal and external capabilities. The coordination can be analyzed in the overall capabilities of the company which will help to sustain the competitive market.

Competitive Advantage of Fonterra

The major core competency which can be analyzed in context to the company is related with the operations conducted on global platform. The company also conducts the activities outside Australia and New Zealand by having joint venture in China and other countries. This is also focusing on grabbing the large market share. The company also has the business approach related to dairy cooperative (Kumar et al., 2013). It has been seen that company also focuses on sourcing the milk directly from the farmers so that proper coordination can be maintained.  This also assists in having proper supply of raw material without taking help from intermediaries. These competencies have given positive impact on the overall economic and social status of the farmers (Shadbolt and Duncan, 2014).   

To consider the competitive advantage focus will be given on VRIO model. There are few steps in this model

Valuable

The brand value of the company is considered as one of the important factor that helps to sustain the competitive market. Due to this the impact is also seen on the overall sales of the company. The company also considered latest technologies which has given positive impact on the overall production (Sakas, Vlachos and Nasiopoulos, 2014).

Rarity

It has been seen that company have connection with the farmers. This is assisting in having proper supply of milk without any intermediaries. This assisted the company in achieving large market share which will directly help in considering the overall competitive advantage (Knott, 2015).

Inimitability

The approach related to the employees considered by the company is inimitable and it will maintain the overall strategies of the employees so that competitive advantage in the market can be maintained. It will also help to enhance the overall skills of the employees which will affect the overall productivity of the company (Delaney and Haworth, 2016).  

Organizational capability

The company has good financial position in the market that will assist in maintaining the competition level and through this it can be easy to grab the large market share. It will focus on targeting the customers on the global platform.

It is important for the company to focus on proper leadership so that employees can work with dedication and give best towards the activities of the company. If there is proper management or leadership then it can be simple to maintain the performance of the employees. Also, the company should focus on their cooperative mode of business so that competitive advantage can be availed easily. Also, it has been recommended that company should emphasize on considering market development strategy with the motive to enter into the foreign countries. With this the company can easily grab the market opportunities.

Recommendations

Conclusion 

Therefore, it has been concluded that company can easily achieve growth in the market by considering effective strategies. In this paper, the internal capabilities are discussed which states that company has the scope to compete in the market with the competitors. Also the company should focus on enhancing the market share so that growth can be achieved and it will directly impact on the overall revenue of the company. In the section related to recommendation, it has been stated that leadership approach and market development strategy should be considered so that goodwill can be maintained in the market.  So, by considering internal and external factor the company can easily achieve success and can accomplish goals and objectives.

References 

Australian Bureau of Statistics, 2003.Enviornmental impact on agriculture. [Online]. Available at:https://www.abs.gov.au/ausstats/[email protected]/46d1bc47ac9d0c7bca256c470025ff87/3319eb4d2d14bd2dca256cae0015bad3!OpenDocument [Accessed on 23 aug, 2018].

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 on 23 aug, 2018].

CSIRO., 2018.Digital agriculture. [Online]. Available at: https://www.csiro.au/en/Research/AF/Areas/Digital-agriculture [Accessed on 23 aug, 2018].

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, 2018.Fonterra. [Online]. Available at: https://www.fonterra.com/au/en/our-brands/NZMP_Australia.html [Accessed on 23 aug, 2018].

Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: theory: an integrated approach. Cengage Learning.

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 23 aug, 2018].

Knott, P.J., 2015. Does VRIO help managers evaluate a firm’s resources?. Management Decision, 53(8), pp.1806-1822.

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.

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.

Sakas, D., Vlachos, D. and Nasiopoulos, D., 2014. Modelling strategic management for the development of competitive advantage, based on technology. Journal of Systems and Information Technology, 16(3), pp.187-209.

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.

Wheelen, T.L., Hunger, J.D., Hoffman, A.N. and Bamford, C.E., 2017. Strategic management and business policy. pearson.

White, S., 2018.Technology changing face of farming. [Online]. Available at: https://www.smh.com.au/business/workplace/technology-changing-the-face-of-farming-20180307-p4z37p.html [Accessed on 23 aug, 2018].