Executive Summary
This paper is a market entry analysis report about Arla Foods, a global dairy giant that seeks to enter the newly opened markets of Cuba. It commences by analysing the internal systems and processes of Arla Foods. The analysis identifies that Arla Foods has a strong financial position and it is owned by dairy farmers who have a strong focus on innovative products. The products are in three classes –basic, enhanced and organic. The basic is extremely cheap and might be ideal for poorer countries around the world due to the fact that it is cheap and can be easily sold through different outlets.
The external analysis of Cuba identifies that the main competitors of Arla Foods are not appropriately represented on the island. This is due to the fact that the economy has been closed up for years and the country is centrally planned and purely Communist. However, the population seem to be booming and this gives prospects for future growths of businesses and demands.
Based on the findings, it is recommended that Arla Foods must concentrate on entering the Cuban markets through a market penetration approach. This should include the presentation of basic products which are to be sold at a very cheap price to consumers in Cuba. This should lead to the establishment of Arla Food brands as household brands and with time, the interest and presence in the country must be consolidated. It is also recommended that Arla Food focuses on a proactive approach to avoid reputational risks since this has caused serious problems for the company in the past.
1.0 Introduction
Essentially, the dairy market is one of the most lucrative business arenas not only in Denmark but the entire world. In this regard, its importance is based on various factors prevalent in the contemporary society. To start with, the world population is on the rise such that more food is needed to sustain it. Secondly, milk is the most popular basic drink that is produced through a natural process as opposed to other artificially made products such as sodas. In this light, people around the world are seeking to use natural products with the rise of sustainability and the need to curb lifestyle diseases. Now, Arla Food Company is one of the players in this market. It is a Danish dairy company that operates in different parts of the world through mergers, acquisitions and other international arrangements that allows it to sell dairy products around the globe. Arla has a global presence and seeks to expand significantly. Cuba is an island country that has been banned from international participation for close to 50 years. Cuba has recently opened up to the international community through the easement of the diplomatic sanctions placed on the country.
The purpose of this report is to present an international strategic plan for the expansion of Arla Food Company to Cuba. In order to achieve this, various aspects will be considered in the report. First, the report will evaluate the competencies and abilities of Arla Foods and proceed to evaluate the macro-environment of Cuba. Secondly, the report will formulate of a SWOT Analysis which will be used as the basis for the formulation of a strategic recommendation for the expansion of Arla Foods into Cuba. Thirdly, it will also focus on the analysis of the business environment in term of the internal status of the company.
2.0 Theory of Market Environment and Internal Analysis of Arla Foods
2.1 Theoretical Formulation of Market Environment
In a market environment, there are various aspects that a business must pay close attention to. In this case, a company must be aware of the status of its internal and external market environment. The internal environment is concerned with the components and factors within the company’s premises. These factors can be controlled and changed by the management in order to suit the business operations. However, these factors must be controlled in relation to the external environment. Importantly, one of the critical components of the external environment is the competitive component of the market. The competitive environment incorporates a scenario where rival businesses seek to influence a bigger portion of the market. This implies that the company must formulate internal policies that can help it to put up with the competition launched against it by the competitors. Indeed, this is true for all business including Arla Food Company bearing in mind the existence of other players that are in constant pursuit to compete with the company for the market. As such, the section below presents a detailed exemplification of such an analysis focusing on the internal analysis and competitive position of the Arla Food Company.
2.2 Internal Analysis of Arla Foods
In every market report, there is the need for the evaluation and assessment of the main elements of the country that seeks to expand . This is done by examining the core competencies, the market position and the features of competitive advantage . This analysis helps to identify what the strengths and weaknesses of a firm is.
Arla Foods is owned by 10,000 Danish and Swedish dairy farmers who have pooled their resources over the years to establish the company. The collectivised nature of Arla Foods enable the company and its shareholders and directors to work for the attainment of the highest and best benefits in everything they do.
The company has a large range of products including liquid milk (45% of turnover), cheese (25% of turnover) and powdered milk (14% of turnover). The mode of operation is to set up strong brands in different countries and promote it and build a strong relationship with consumers.
The primary markets of Arla Foods is in Europe and it is matured now and the company is growing brands in emerging markets. The process of growth is through investment in research and development and the application of innovative methods in Europe and basic and necessary dairy foods in the developing world.
In terms of expanding into new and unusual markets, mergers and acquisitions are aimed at horizontal integration where they control the diary markets of every country they operate within. This includes the growth and expansion in the Latin American region which allows Arla Foods to operate in countries across different parts of the Caribbean.
However, in spite of Arla Foods’ strengths, it is susceptible to major reputational risks. For instance, it went through a macro boycott in the Arab world and has worked hard to promote and enhance its image since then. This implies that the company has a volatile possibility of getting a major problem in cases where there are issues with the brand and negative ill will by consumers and sections of the markets.
Furthermore, Arla Foods has focused on producing organic products which are more expensive. These products are not popular in the developing world due to the fact that there is so much poverty and people prefer to eat cheaper products. Thus, pushing such organic products onto the markets do not seem to get the right response from consumers.
3.0 Theoretical Formulation of 4Ps and Competitive Position
3.1 Theoretical Formulation of 4Ps
The concept of 4Ps of marketing is one of the most crucial formulations that help in decision making with the aim of becoming competitive. It is concerned with critical components of the market positioning. These include the product, price, place, and promotion. To start with, the product refers to the actual commodity or service that the business provides to the customer. Indeed, this product must be in such a way that it helps to satisfy the needs of the customer and also solve the problems of the client. In regard to the price, it refers to the amount of money that the customer agrees to pay for the commodity. Understandably, this amount of money must be agreed upon between the customer and the seller especially in a free market. When it comes to the place, this focuses on the distribution of the product by the company to ensure the customer access them. Lastly, promotion of the product is particularly involved in the popularization of the product and provision of specific information to the customers in regard to it. In essence, this concept has been applied broadly in the case of Arla Food Company as evident in their competitive position analysis discussed onwards.
3.2 Competitive Position
The findings indicate that Arla Foods has the internal strength and market positioning of focusing and specializing in certain brands and products that are of a sufficiently high quality. This is based on their ability to make capital investments through mergers and acquisitions in the form of foreign direct investments (FDI).
Arla Foods has a presence in different regions around the world which allows the company to control the markets and promote its services and brands in different forms. The procedure indicates that it is able to move its capital around more easily and more appropriately in terms of moving funds and resources around.
There are different brands in the product range of Arla Foods in different markets around the world where it operates. In order to provide its services, Arla Foods undertakes a blend of possible options and procedures and this includes:
Product: Arla Foods has a large number of dairy products that are in three categories – standard products made of basic products; enhanced or high-end products and organic products.
Price: Arla Foods have high end products that are mainly organic and they have mass production brands that are sold for far cheaper. Almost every dairy product they sell has no-frills brands as well as high end brands and organic brands which are extremely expensive.
Place: Arla Foods utilises the normal sales channels for dairy products. They sell through normal supermarkets and provide their services in traditional shops.
Promotion: Each product has a specific profit centre which focuses on the appropriate media channel. Usually adverts are made on radio, television and the standard media.
The main competitors for Arla Foods include Nestle, Unilever and Danone. None of these firms is represented in Cuba.
Market Analysis of Cuba
In order to enter a new market and succeed in such a market, there is the need for an analysis and review of the market conditions by examining the macro-environmental circumstances. This analysis is done through the evaluation of the Political, Economic, Sociological, Technological, Environmental and Legal standards in what is known as the SLEPT Analysis
Sociological: Cuba is known to be a country that is fundamentally Communist and it has become an island that has maintained some old traditions and cultures that was abandoned by its neighbours 50 years ago. Cuba at the moment does not encourage luxury, but necessities. However, the sociological processes are predicted to change at an extremely fast pace if the embargo and international limits change.
Legal: There are major reforms to the laws of Cuba which had banned international entities from investing in its economy due to major laws. The legal changes includethe modernization of the markets and the utilisation of free markets ideologies and systems. The creation of a strong and independent judiciary as well as a law enforcement system and the representation of foreign trade partners in the country.
Economic: Cuba had a tough economic condition due to massive sanctions but all these embargos and limits are due to end. Cuba has had a rather slow economic growth at an average of 1.4% per annum over the past decade. This is rather slow as opposed to the higher birth rate of about 3% which requires a corresponding growth of about 7% per annum to keep the economy growing in Cuba. The other side of this is that it gives promise of a better future for any investment because when the population boom takes the centre stage, the country will have a major economy.
Political: The government of Cuba controls over 80% of the economy. This means that Cuba is centrally planned. However, with the pressures being exerted from outside and the possibility to the international community gaining a foothold in Cuba which has been closed up for several years, there is an opportunity for Arla Foods to gain a strong presence and also invest in order to take over from state domination. There is also a case for the possibility of divestment which will allow state-owned enterprises to be replaced by private entities. This will open the door for a private company like Arla Foods to thrive and build a strong market positioning.
Technology: Cuba has some of the most backward technologies anywhere in the world. This is fundamentally due to the embargos and sanctions that have led to the isolation of the economy in many ways and forms. Thus, there is a fairly easy way and approach through which an international giant like Arla Foods to enter the markets and set up some basic infrastructure that can be used in order to achieve results.
SWOT Analysis
The conclusions of major studies of market entry analysis is done through the presentation of a SWOT Analysis which translates strengths of a given analysis to opportunities and weaknesses into threats based on the internal and external analysis conducted . In line with this, the following inferences are drawn from the case study and market analysis and this includes the following:
Conclusion
The market analysis identifies that Arla Foods is a dairy focused producer that has a global presence. It has three main brands – basic (no frills), enhanced and organic products. It is identified that Cuba, although has a government-planned economy is opening up after the removal of a number of embargos. The Cuban economy is very bad and the technological status of the company is backward. However, the society is bound to be opened to the rest of the world. It is identified that Arla Foods can enter the markets through a market penetration approach. This must be done through a focus on growth and an investment into the long-term future of the brand with the view of localising the products. Also, it has to be proactive in examining and reviewing risks for cultural and reputational issues.
Strategic Recommendations for Arla Expansion to Cuba
After a SWOT Analysis is done, there is the opportunity to present an official recommendation for the achievement of results. And this includes:
Pursue a market penetration strategy with no-frills brands which are cheap and relatively more luxurious than what exists in Cuba. This way, they can build a brand image which they can improve in the long-run.
Focus on the establishment and growth of the Arla Foods brands in order to make it a household name.
Invest in the long-term infrastructure and technology that will allow Arla Foods to expand its operations from the region into Cuba in order to gain a stronger market foot hold.
Localisation of the brands and products to create a unique Cuban identity for their products and services.
Strong customer support and provision of elements of capitalist consumerism which will enhance their influence and make Arla Foods appreciated and respected by the future generation of baby boomers in the country.
Conduct a strong reputation and compliance review in a proactive manner to avoid major macro-reputational risks.
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Appendix
The matrix diagram shows the components of 4P’s of marketing including price, product, promotion and place. Retrieved from Small business marketing: Introducing the Four Ps (2012)
