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ContentsExecutive Summary...................................................................................................4
Introduction................................................................................................................5
Problem Statement....................................................................................................5
Delimitations..............................................................................................................5
Methodology..............................................................................................................6
*Data collection............................................................................................................6
*Models an theories used............................................................................................6
Source criticism.........................................................................................................7
Introduction of the company....................................................................................9
*Mission.....................................................................................................................10
*Vision........................................................................................................................10
*Goals........................................................................................................................10
Conclusion of the business frame..............................................................................10
Internal analysis
Value Chain analysis...............................................................................................10
*Research and Development.....................................................................................11
*Production................................................................................................................11
*Marketing..................................................................................................................11
*Sales and Services...................................................................................................12
*Conclusion of the value chain...................................................................................12
Core competencies....................................................................................................12
Supply Chain analysis.............................................................................................12
*Introduction of the company.............................................................................................. 12
*Raw Materials
*Processing, manufacturing, components
*Research and Development
*Innovation
*Testing and Certification
*Transport and logistics
*Storage and organisation
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*Conclusion................................................................................................................17
Stakeholder Analysis...............................................................................................18
*Identification of Stakeholders................................................................................18
*Existing stakeholders.............................................................................................18
*Internal stakeholders.............................................................................................19
*External stakeholders............................................................................................20
*Potential stakeholders ..........................................................................................21
*Patents, certification, law frames...........................................................................21
*Transportation.......................................................................................................22
Corporate Social Responsibility.............................................................................22
*Implementing CSR................................................................................................22
*Drivers for commitment.........................................................................................23
Identity and Ethics...............................................................................................23
Accountability and trust in CSR...........................................................................24
Partnering with Stakeholders..............................................................................24
Leadership and Employees Capabilities and Competencies..............................25
Conclusion..........................................................................................................25
Financial Analysis...................................................................................................25
S&W of SWOT........................................................................................................26
Strengths.............................................................................................................26
Weaknesses........................................................................................................27
Conclusion of S&W of SWOT..............................................................................27
External Analysis.....................................................................................................28
Porters Five Forces................................................................................................28
Threat of substitutes............................................................................................28
Threat of new entrants........................................................................................28
Rivalry among existing firms...............................................................................28
Buying power......................................................................................................28
Supplier power....................................................................................................29
Conclusion of Porters Five Forces......................................................................29
Competitor Analysis.............................................................................................29
Direct competitors...............................................................................................29
Conclusion of the role of the competitors............................................................33
Benchmarking analysis.......................................................................................33
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Conclusion..........................................................................................................35
PEST Analysis......................................................................................................36
Political Factors...................................................................................................36
Promotional activities..........................................................................................36
Financial activities...............................................................................................36
Economic Factors................................................................................................37
Social Factor.......................................................................................................37
Technological......................................................................................................39
Conclusion PEST................................................................................................40
O&T of SWOT........................................................................................................40
Opportunities.......................................................................................................40
Threats................................................................................................................40
Conclusion of O&T of SWOT..............................................................................40
Strategy....................................................................................................................41
Positioning Strategy................................................................................................41
Positioning decisions..............................................................................................42
Marketing Mix
4P’s...........................................................................................................................42
Conclusion.................................................................................................................43
Recommendations.....................................................................................................45
Source List.................................................................................................................46
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Executive Summary
Arla is a company that moves from one success to another success as well as from one crisis to another crisis. While growing and expanding Arla steps on many toes which builds opposition against the possibility Arla to become a monopolist. Arla is a monopoly in 3 countries so far. In Danish law there is nothing about cooperatives. It will be heard for Arla’s opponents to stop Arla’s expanding worldwide though they might succeed in EU. One of the crises led to a consumer boycott of Arla products in the Middle East and Arla is a company that moves from crisis to crisis. After widespread criticism in Denmark, many Danes seemed to like Arla tried to apologize on behalf of Denmark ( Arla 2009) . The criticism has been both politically and consumer based and Arla has had and will still relate to political criticism, lawsuits and a poor image among some consumers. Many cases were started against Arla but somehow in the end the company in most if not all cases can’t be affected at all. Due to possible restriction regarding its growth in EU, Arla have to start expanding globally in order to be able to sell all the milk produced in the cooperative.
Chinese market is very interesting for Arla for a few reasons. China is polluted and the milk is affected as well, so China needs a big supplier of pure dairy product as Arla with a reasonable price. The second is that China’s government which represents the country and takes decisions is a huge client which is worth keeping satisfied on the long run. By targeting China’s middle class Arla is aiming to the biggest market segment of customers with buying options in China.
Still due to Arla's market-leading status is not uncommon to hear people say that they deliberately avoiding Arla's products when shopping, for example. In one internet debate on Nordjyske Stiftstidende after Arla's acquisition of Hirtshals Mejeri where Lunte Nielsen writes " There will never be milk, etc. on the table from Arla in this house, hope many will boycott them.” (Nordjyske Stiftstidende 2009) . On the popular networking site Facebook , was there even created the group For people who are against the merger of Arla and Hirtshals Andelsmejeri. The group has in writing, and long after the transaction is a real 4,115 members ( Facebook 2009) . It is a bit confusing if we admit that Arla is actually a company living of consumers. One of the targets for Arla could be working on building a more positive image in Europe and just retaining it’s market share without being too aggressive with farmers and retailers and focusing on global expansion in areas where Arla can build a stron brand image from a scratch and avoid any possible negative steps in building a stable ground for growth.
Introduction to Arla
Arla’s net revenue is DKK 63.1 billion, of which 72 per cent comes from Arla’s core markets of UK, Sweden, Denmark, Germany, Finland and the Netherlands. Arla’s profit for the last year is DKK 1.9 billion.
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Arla Foods is a global dairy company and a co-operative owned by dairy farmers with production facilities in 12 countries and sales offices in a further 30, with a total of more than 18,000 employees.
The milk wheel is a snapshot of Arla’s business model. Arla’s owners are Arla’s Suppliers. In other words, milk is both commodity and growth engine. The more milk there is in the wheel, the more power is supplied to the engine and the greater the company's growth. Milk is what drives the company’s earnings and fuels its opportunities to innovate, its product development, branding and efficiencies. Earnings, however, are a precondition for attracting milk. The performance price is therefore Arla’s ultimate goal. After our 2012 mergers, Arla weighs in 12.5 billion kg milk each year. Measured by weighed-in milk, that makes us one of the world’s biggest dairy companies.
Still Arla struggles as every big company with its growth. Entering new markets on new continents is uneasy task while trying to keep a high level of satisfaction for the existing customers. With respect to its efforts today we will evaluate the company’s innovative options, we will share some recommendations, we will go through identity areas and possibilities for improvements by making a few key analyses.
Arla sells full range dairy products and different beverages in Northern Europe and exports high quality cheese, butter and milk powder products all over the world. The Arla brand is both corporate brand and brand across all product categories. http://www.arla.com/About-us/
Arla’s products are sold under the well-known brands Arla®, Lurpak® and Castello® in more than 100 countries and our core markets are Denmark, Sweden, The UK, Finland, Germany and The Netherlands. Through the close to nature concept, Arla is committed to make products free from artificial coloring and flavoring and limit our use of additives. Food additieves are becoming a serious anemy with many side effects. According to the latest researches they might lead to HDID (autism) in kids and adults as a form of food allergy resulting in disconnection in neuron impulses in the brain of humans. Arla is the world’s largest organic dairy company.
Net turnover 2012: DKK 63.1 billion
Milk weighed in: 10.4 billion kg
Cooperative owners, Jan. 2013: 12,256
Number of employees, Jan. 2013: 18,112
1 http://www.arla.com/About-us/
Problem statementCan Arla successfully enter Chinese market with Cocio® milkshake-chocolate drink?
1. What are Arla’s strengths and weaknesses?2. Who are the potential competitors and how is the competition situation?3. What external problems can Arla meet when entering Chinese market?
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4. Who are the potential customers?5. How the concept of the product can be improved?
DelimitationsAs China is a very big market, we narrowed down our research to a concrete area. At this project we observed entering Beijing – the capital of China.
At our project, we decided to enter Chinese market with one of Arla Foods brand – Cocio.
Cocio
Cocio is a brand that lies under Arla Foods. Since 2008 Cocio® was acquired by Arla Foods. Cocio products are made from fresh milk, the best chocolate from Africa and plain sugar.
In early 1950s Cocio was found by Anker Pallesen from Esbjerg after a visit to the US which inspired him to start a production of chocolate milk. Since then there have been many varieties of chocolate drink, with Cocio Light and the organic version of Cocio as popular additions to this classic range.
As the product grew in popularity, the factory had to be expanded and later relocated to accommodate the increased production. Over the years, exports grew and in 2001, a new and modern factory was built to accommodate the approximately 400,000 Cocio bottles leaving the production lines every day.
Cocio is produced at a factory in Esbjerg, Denmark. It is sold in Denmark and also exported to Northern Germany, Norway and Iceland1.
MethodologyTo elaborate on and solve the problems we used the methods and models listed below.
Data collection Desk research
Secondary data:
Company specific data: the company’s website, internet, booksIndustry specific data: internet - to find the necessary information about the industry, competitorsCountry/market specific data: official statistics to find and gather the information about political, economic, social, cultural factors
Field research
1 http://www.arla.com/brands/Beverages/Cocio/ 6
Primary data:
Market specific data: personal phone calls
Models an theories used
The company’s business frame: mission, vision, goals, core competencies – to understand the values and the direction of the company.
Value chain - to examine the activities that take place in the business and to determine how value in each function is created.
Supply chain – to understand how natural resources, raw materials, and components can be transformed into a finished product that is delivered to the end customer.
Stakeholder analysis – to identify the individuals or groups that are likely to affect the business.
CSR – to see the vision of the business accountability. Financial analysis – to evaluate the company’s financial situation. SWOT – to evaluate the strengths and weaknesses of the company, and see the
opportunities and threats within the market. Porters 5 forces – to analyze five competitive forces that shape the industry. Competitor analysis – to identify the potential competitors in the market and to
evaluate their strengths and weaknesses. PEST – to evaluate macro-environmental factors within the particular market. Positioning strategy – to understand how the product should be positioned and what
strategy should be used. Marketing mix – to determine the products and brand's offer
Source criticism : Books:
Blue Ocean strategy: How to create Uncontested Market Space and make the Competition Irrelevant, W. Kim, Renee Mauborgne, 2005
W. Kim is The Boston Consulting Group Chair Professor of Strategy and International Management at INSEAD.Renee Maubourgne is the INSEAD Distinguished Fellow and a Professor of Strategy and Management.
Entrepreneurship: Successfully Launching New Ventures: 3rd edition written by Bruce R. Barringer and R. Duane Ireland.
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Bruce R. Barringer is a professor in the department of management at the University of Central Florida and R. Duane Ireland is a professor of management at Texas A & M University. Both of them are experts in entrepreneurship and management. The book is published by Pearson and has been revised by educators from Asia, Europe, South America, Australia and the Middle East.
Marketing Strategy & Competitive Positioning: Written by Graham Hooley, John Saunders, Nigel Piercy.
This second edition extends the scope of the original to include a number of new topics in marketing strategy. The main trust of the text remains competitive positioning, broadened to cover other aspects of competitive marketing strategy as strategic alliances and networks of development, forecasting methods and techniques, competing through service and innovation and the role of internal marketing in achieving competitive success. Authors are professionals within field of marketing, research and strategy and they are teaching at Aston Business School and Cardiff Business School in University of Wales.
Management accounting, Vol. 1, financial management and planning (with financial and marketing perspective), written by Erik Kroggarger and Jette Lauritzen.
The book covers 4 sections: key business, financial and economic issues within a marketing focused company; accounting, Danish law and financial reporting; a framework for analysing and interpreting financial statements; an introduction to financial management systems.Erik Krogager he has been Senior Lecturer and Business consultant at Lyngby Business College since 1997. He worked as Director of Finance for companies in England and USA.Jette Lauritzen been a senior lecturer at Lyngby Business College since 1990. Besides Jette Lauritzen is teaching at the CBS and the Danish School of Public Administration.
Business Analysis Techniques: 72 Essential Tools, James Cadle, Debra Paul, Paul Turner, 1988
James Cadle has been involved in the field of business systems over 30 years. Debra Paul jointly edited the bestselling BCS publication Business Analysis in 2006. Paul Turner specialises in the provision of training and consulting in the areas of Business Analysis and Change.
James Post, Lee Preston and Sybille Sachs (2002, Managing Extended Enterprise, The new stakeholder View
This book presents a stakeholder view of the corporation in both theoretical and practical terms. Its central proposition is that organizational wealth is created (or destroyed) through a corporation's interactions with its stakeholders. Effective stakeholder management develops and utilizes relationships between a corporation and its stakeholders for mutual benefit, thereby accomplishing the fundamental purpose of wealth creation.
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James E. Post, PhD, Jr. Professor of Management at Boston University where he teaches strategic management, corporate governance, ethics and nonprofit management, he is an author and coauthor in more than 120 publications and books.Lee Preston is an author of many publications imprinted by Stanford University Press.Sybille Sachs is a Professor at the University of Zurich, Switzerland and Head of the Centre for Strategic Management: Stakeholder View
Websites and other:
To get information about Arla we used the official website of the company and gathered the information from their presentation, annual rapport 2012 and materials about Arla as articles. We contacted the company through e-mails and by calls. Arla looks well organized and cooperative but they refuse to cooperate with students and help for their projects as long as they are not interns in the company, still they have a special link on the website in English which is a a great gesture of good will to people researching for Arla. Still it limits the opportunity the research to be fundamental as long as it is one sided view.
Additionally we gathered information from competitor websites, where they, of course, emphasized only good things about their companies, therefore we looked for customer reviews and references through different websites – and then we have remained a bit confused of the fact that Arla is having a strong group of people who dislike Arla and it’s products. Customer references cannot be perceived as 100% truth, because at the same time these „customers” can actually be competitors who just want to make a bad reputation of other firms still are all the over 4000 antigroup on FB compatitors. We don’t think so, they are too many to be false. We looked upon more than one news portal as sometimes at news sites rumors or false information can be written.
We also used several websites as virk.dk and LinkedIn – well known and reliable portal in Denmark, where we could find business and employment related information
We used The World Factbook. This source is popular and reliable and provides information on the history, people, government, economy, geography, communications, logistics, innovation, etc.
MissionTo secure the highest value for our farmers’ milk while creating opportunities for their growth2.
VisionCreating the future of dairy to bring health and inspiration to the world, naturally3.
2 http://www.arla.com/About-us/strategy-2017/Mission/ 3 http://www.arla.com/About-us/strategy-2017/Vision/
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Strategy1. To develop the core business to achieve the full potential of leading positions by
becoming more advanced throughout Arla.2. To create the growth outside EU, mainly focusing on Russia, China, the Middle East
and Africa.3. To become more effective by establishing new relationships, utilising production
capacity better, reducing consumption of energy and water and avoiding waste4.
ValuesLead-sense-create is the way how Arla values can be characterized.
LEAD - taking the lead, being in the driver’s seat in all our actions. It is aboutbeing passionate, striving for leadership and identifying the highest potential in ourpeople, business and relationships.
SENSE - perceiving people, consumers and the world around. It is aboutshowing integrity, having an open mind, seeing opportunities and high potential inpeople, business and relationships.
CREATE - developing and being creative in acquiring expertise, products andmarket relationships. It is about creating and developing strong potential in people,business and partnerships5.
ConclusionArla fallows their mission – to create the highest value to their farmers. They have established close connections to farmers. Farmers are involved in regular workshops, where important factors are absorbed and discussed as greenhouse gas emissions, effect of farms on the local environment, animal welfare, feed, waste, farm economics, working conditions6.
Moreover, to achieve Arla’s vision they have adopted the philosophy „Closer to nature” which stands for product naturalness, reduced waste and improved resource utilisation. As well as, Arla adopts Arlagården quality programme which concentrates on four cornerstones: milk composition, food safety, animal welfare and environmental concerns thus ensuring healthy dairy products that help people to improve their health.
Regarding Arla’s strategy, Arla has recently established relationships with partners in China – Mengniu and COFCO and the China agreement is a forward looking initiative intended to move members’ milk from Europe to China’s growing middle class in the long term7.
Moreover, Arla is using OPEX, Lean, total cost of ownership and design to value programmes, to become more effective, to reduce waste as well as to simplify their business model and to ensure clear lines throughout organisation.
4 http://www.arla.com/About-us/strategy-2017/Strategy/ 5 http://www.arla.com/About-us/strategy-2017/Values/ 6 http://www.arla.com/Sustainability/closer-to-nature/Farm/ 7 http://www.arla.com/Images/arla.com/PDF/annual-report/2012/ENG_2012.pdf pp 27
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Arla has based their values on a lead-sense-create base, where they note that they have to be responsible for their actions, strive for leadership, sense people around Arla and create products that are clean and would meet customer needs and desires.
Internal analysis
Value chainValue chain is a model that helps to identify opportunities to enhance firms’ competitive strategy. By looking at value chain, an organization can identify ways to create additional value and assess whether it has the means to do so8.
At each stage of the value chain exists an opportunity to contribute positively to the firm’s competitive strategy by performing some activity or process in a way it’s better than the competitors, and so providing some uniqueness or advantage9.
Research and development
Arla has one of the biggest milk volumes in Europe in 201310. Arla merged together with MUH and Milk Link, and the production weigh in 12.5 billion kg milk in 2012 and have thereby aggregated one of the biggest milk volumes in Europe11.
Arla has adopted Arlagården quality programme as an investment in the future, which emphasis on milk composition, food safety, animal welfare and milk quality which in turn results in improved products.
Implementing development programmes as Lean and Operational Excellence (OPEX); Total Cost of Ownership and Design To Value and Structural streamlining to simplify their business model and ensuring clear lines throughout the organisation.
Arla is using eco-friendly and energy-saving initiatives, among other things, using excess heat and biogas plants, optimisation of routes for the collection of milk and shipping of goods to save fuel12.
Arla has a Strategic Innovation Centre that focuses its resources in different research areas as sustainability, new food forms, milk power, microbiology, manufacturing efficiency, and, moreover, Arla has established different research partnerships with institutions in Denmark, Sweden, United Kingdom, Netherlands and China13.
8 Barringer, Bruce R. 2010, “Entrepreneurship. Successfully launching new ventures”, Pearson, 3rd Edition, pp 2089 Frandsen T., Sales&Marketing, BA of International Sales&Marketing Management, Edition 1 2013, pp 15710 http://www.arla.com/Images/arla.com/PDF/annual-report/2012/ENG_2012.pdf pp 911 http://www.arla.com/Images/arla.com/PDF/annual-report/2012/ENG_2012.pdf pp 1012 http://www.arla.com/Images/arla.com/PDF/annual-report/2012/ENG_2012.pdf pp 2513 http://www.arla.com/About-us/Research-and-Innovation/Research-partnerships/
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ProductionThe majority of Arlas’ products have always been free of artificial ingredients and additives and they have reviewed the contents of all of the products and are working consistently to make them as natural as possible.14.
Arla is focusing on costs with cost and efficiency programmes (OPEX, Lean, total cost of ownership and design to value, structural streamlining) to simplify Arla’s business model, streamline production and optimise processes15.
Arla closely works together with farmers who are willing to invest in their own milk production and therefore in the business. Arla is owned by 12 300 European members in six countries who together lift a business with global ambitions16.
MarketingArla has revised their strategy by putting more focus on a global scale. The EU’s milk quotas, which will be eliminated in 2015, are one of the driving forces behind the initiative. They have developed a concept of “Arla Foods Strategy 2017” that they are willing to achieve till 2017.
Arlagården quality agreement is expected to have a positive impact on Arlas members’ milk price because Arla can perform a far higher degree of processing of milk that will alternatively be sold in the global industry market where earnings have historically been lower.
Arla is positioning their dairy products as clean and safe by using philosophy ‘Closer to Nature™. This philosophy represents product naturalness, reduced waste and improved resource utilisation. It obligates Arla to ensure that our products are as natural as possible, that the milk is produced at farms in harmony with nature, and that Arla's own processes have minimum impact on nature and the environment17.
Eco-friendly plastic bottles in UK, to reduce CO2 emissions and improve company’s efficiency and competitiveness18.
Sales and service"Get Closer to Nature" internal involvement programme was kicked off by a workshop in Arla’s executive management team. The campaign is still running and helps to create a common understanding of what the company is hoping to achieve19.
Whistleblower programme for employees that will provide colleagues with yet another option to react if they see managers or colleagues violating Arla’s Code of Conduct or other policies20.
14 http://www.arla.com/Sustainability/closer-to-nature/Products/ 15 http://www.arla.com/Images/arla.com/PDF/annual-report/2012/ENG_2012.pdf pp 1416 http://www.arla.com/Images/arla.com/PDF/annual-report/2012/ENG_2012.pdf pp 1017 http://www.arla.com/Images/arla.com/PDF/annual-report/2012/ENG_2012.pdf pp 2318 http://www.arla.com/Images/arla.com/PDF/half-year-report/2013/ARLA_HALF-YEAR%20REPORT_2013_UK.pdf pp 1719 http://www.arla.com/Sustainability/closer-to-nature/Colleagues/ 20 http://www.arla.com/Images/arla.com/PDF/annual-report/2012/ENG_2012.pdf pp 23
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Arla closely works together with their suppliers=farmers. Arla is owned by 12 300 European members around six countries - Denmark, Sweden, Germany, Luxembourg, Belgium and UK. The profits from Arla results go to their owners - the dairy farmers. It is only by ensuring a high milk price for the owners that dairy company can remain strong and produce enough milk so that they can live up to the ambition to make healthy, natural milk products21.
Conclusion of the value chainArla has one of the biggest milk volumes in Europe in 2013 after merging with MUH and Milk Link. And as we found, Arla owns 1.7% market share of worlds milk production and is on the 6th place of IFCN Top 20 milk processors list 2012.
Arla has adopted Arlagården quality programme which emphasis on milk composition, food safety, animal welfare and milk quality which in turn results in improved products. This quality programme is well perceived internationally, for example, the main reason why China Mengniu Dairy has chosen to cooperate with Arla is because they have adopted Arlagården quality programme.
Arla is focusing on cost savings with different cost and efficiency programmes as OPEX, Lean, total cost of ownership and design to value and structural streamlining.
Arla is positioning their dairy products by using philosophy „Closer to Nature” ensuring clean and safe production.
Arla is working closely with their suppliers who are also Arla’s owners, therefore they are more engaged in the business and inwilling to invest in their own milk production.
Moreover, Arla has adopted whistleblower programme which creates favorable working conditions for their employees- they know that in case if they see managers or colleagues are violating Code of Conduct or other policies, they can report and be heard!
Core competencesBy looking at Arlas’ value chain we distinguished Arlas’ core competences – a unique ability that a company develops and that cannot be easily imitated. Core competencies are what give a company one or more competitive advantages, in creating and delivering value to its customers22.
Arlagården quality programme Arla’s philosophy “Closer to nature” Close collaboration with farmers
21 http://www.arla.com/Sustainability/closer-to-nature/Colleagues/ 22 http://www.businessdictionary.com/definition/core-competencies.html#ixzz2mnbSH7GJ
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Supply Chain analysisArla is the first cooperative in the world with owners in 6 different countries. Corporate Supply Chain handles contact with owners, global supply chain efficiency.
Global Categories & Operations has general responsibility for Arla’s three global brands – Arla®, Lurpak® and Castello® – and responsibility for global innovation, quality and environment. This business area also handles milk planning and logistics, industrial sales, production of cheese, butter and spreads and milk powder in Scandinavia, as well as production of cheese in Germany (formerly Allgäuland) under the management of Jais Valeur. Subsidiaries wholly owned by Arla: Arla Foods Ingredients, Rynkeby and Foods, Cocio and Dairy Fruit.
Arla’s value and supply chains are complementary views of an extended business integrating processes flowing in the company and around it. For Arla both chains overlay the same network of companies. Both are made up of companies that interact to provide goods and services. Still when we talk about supply chains, however, we usually talk about a flow of goods and supplies from the source to the customer. Value flows the other way. Thus, the primary difference between a supply chain and a value chain is a shift in focus from the supply base to the customer. Supply chains focus on integrating supplier and producer processes, improving efficiency and reducing waste, while value chains focus on creating value in the eyes of the customer.
Arla’s supply chain activities are connecting its products and the company’s performance and interaction with the world, the whole bond from raw materials to supply and closing the chain with recycling possibilities. It’s a chain among and within such areas as purchasing, logistics, manufacturing and marketing, responsibilities to the environment and all partners the company is interacting with within and out of the company.
Arla’s supply chain is long, very long. It starts with a farm and ends up on the table. There are also many elements that we can focus on speaking of Arla’s Supply Chain.
Logistics In relation to both customers and suppliers, which in turn may include both purchases and sales, transportation, etc. and control of internal flows of materials and commodities in the form of eg production planning. Furthermore, one can see it both in a national and an international perspective, so it's a huge area. http://www.arla.com/Images/arla.com/PDF/about-us/logistikpresentation.pdf
I might also simply start by looking at given milk and its way from cow to consumer. Then you could identify all the issues relating to Supply Chain Management, as you can see and consider how they can best be handled. I am sure that even it can become quite a task. The milk wheel is a snapshot of Arla’s business model. Arla’s owners are the Arla’ssuppliers. In other words, milk is both commodity and growth engine.
Milk is what drives the company’s earnings and fuels its opportunities to innovate, its product development, branding and efficiencies. Earnings, however, are a precondition for attracting
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milk. The performance price is therefore Arla’s ultimate goal.
After 2012 mergers, Arla weighs in 12.5 billion kg milk each year. Measured by weighed-inmilk, that makes us one of the world’s biggest dairy companies. The majority of cooperative members in United Kingdom, Sweden, Denmark, Germany, Luxembourg and Belgium. They adopted a motion to join forces to solidify our strength as a dairy company with new opportunities for stability and growth. Arla is the first cooperative in the world with owners in 6 different countries.
Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to the end customer.
Arla’ Supply chain includes:
Raw materials
Raw milk in million of kilos: Denmark 4,419 UK 2,342 Sweden 2,059 Germany 917 Finland 226 Netherlands 200 Belgium 53 Luxembourg 27 Other countries 166 Total 10,409
The role of the milk is vital for Arla as long as the quality and price of the milk is the key to securing an optimal performance price and product values as taste, consistency and nutrition levels.
Processing, manufacturing, components/ Research and Development, Testing and Certification:
Arla works with suppliers from all over the world. All of them are a smaller parts of the chain and they all have impact on the quality and ethical obligations.
"We challenge and encourage our suppliers to support us in our efforts to abide by our code of conduct. "http://www.arla.com/da/Baredygtighed/Vores-Ansvar1/Indkob/
Arla strives to ensure that our suppliers comply with the requirements set out in our Code of Conduct.
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Key suppliers are contractually bound to comply with Arla’s requirements. Each product used in the production process later on is evaluated and follows up the highest international standarts. Ethics
Arla requires that all employees are aware of and follow our guidelines for procurement and understand the need for ethical behavior. All of the Arla’s suppliers are selected on a high professional, systematic and standardized basis. The negotiation process with all suppliers is direct, based on honesty, always fair. Arla always collect the goods ordered on time and even if they are overproduced in almost most cases Arla cares about the overproduction as well and always pays on time which makes the company reliable and internally stable. Then why for some Arla is a Crook and how this might affect the company’s future in the process of international growth we can only guess. http://www.arla.com/da/Baredygtighed/Vores-Ansvar1/Indkob/
Applications
Bakery Dairy products Ice cream Beverage Clinical nutrition Functional foods Infant nutrition Sports nutrition
Transport, Logistics
Logistics in relation to both customers and suppliers, which in turn may include both purchases and sales, transportation, etc. and control of internal flows of materials and commodities in the form of eg production planning. Furthermore, one can see it both in a national and an international perspective, so it's a huge area. Arla Foods wants to operate in Denmark most efficient and service-oriented logistics system, primarily focusing on dairy and other high-frequency refrigerated goods. We want our customers perceive us as a competent partner that sets focus on optimizing service and minimize costs throughout the supply chain.
Arla Foods' strengths in logistics Electronic (EDI) and Manual order taking Short order cycle (order is placed today at 18.00.
* Delivery the next day before noon
* Early delivery (75% of the stores start up 9.00 o’clock in the morning)
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* Planning, storage and shop dispatching
* High-frequency refrigerated goods from external suppliers
* High degree distribution of the Danish grocery sector
* Effective systems for product management, route planning and following-up
Relevant basic data:
Number of deliveries per week day - 2,668 shops
Number of delivery points - 3,105 shops
4.4 million. rolling pallets / year (= 2.8 million. Euro pallets)
Volume (of which approx. 35% goods from external suppliers)
Drove miles per year - 28,826,000 km
Drivers - 552
Refrigerated trucks for distribution - 277
Cold storage, divided into 4 terminals - 45,900 m²
Fat - 33 million. kg / year
Cheese production - 55 million. kg / year
Drinking milk production - 645 million. liters / year
http://www.arla.com/Images/arla.com/PDF/about-us/logistikpresentation.pdf http://www.arla.com/da/Om-Arla/For-studerende/FAQ/Logistik-og-supply-chain/
Innovation & Development
Advanced technologies are likely to be partly attributable to technological change, both internal and external to the firm. Economies of scale often apply in cases of large investment items within the firm, like high-technology processing systems, information technology particularly those that are bar code–based), packaging systems, logistics, and brand-based marketing. Economies of scale also apply to non–investment-related items such as promotion and market research. Technological forces external to the firm include the availability of reduced transport costs and rapid advances in information technologies.
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The consumer is the heart, the core of all Arla’s activities. Only by serving the - known and yet unknown – can meet the needs of Arla’s consumers. Arla will continue to secure its position in Europe through meeting it’s customers needs while as a parallel activity develops business in Middle East, Northern Africa, Russia and China.
Innovation as an absolute top priority at Arla with main focus on balancing partial and radical innovation across the business with a primary target that 10% of our turnover should come from new product development.
Speaking of Radical innovation it all is about offering the consumer completely new and surprising categories of dairy products. Radical innovation is a clear departure from existing practices and user experiences. Incremental innovation is gradual improvements within existing, defined areas. Another major focus will Arla puts on establishing strategic partnerships with universities, research organizations, suppliers and other private organizations which fuels Arla with external expertise and new perspectives.
http://www.arla.com/About-us/Research-and-Innovation/
One of Arla’s teams of food scientists is created of:
Innovation Manager
Manages Innovation team(s) and resources within the function and translates objectives, goals and decisions to provide effective Innovation procedures, policies and processes supporting Arla Foods' business needs.
Research Technician
Conducts chemical, physical and biological tests to support the scientific and technical development of Arla Foods’ products and processes. Participates in the development of new measuring methods and ensures that all relevant quality standards and requirements are met.
Laboratory Assistant
Analyses and evaluates products and materials to check and analyse results and ensure that quality and approved analysis standards are met.
http://www.arla.com/Job-and-career/Meet-Arla/Our-business/Innovation-Development/
Storage/Locations, organisation, structure
Arla offers cold storage always in its own facilities and trucks with cooling systems.
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Corporate Centre and Global Business Services
Global tasks, which extend across the entire organization, are handled by four global business services, Corporate Affairs, Corporate Finance & IT, Corporate Supply Chain and Corporate Human resources - functions which are responsible for long-term development and provide operational support.
Arla Foods Business Groups:
GCO: Global Categories & OperationsGCO has overall responsibility for the three global brands - Arla®, Lurpak® and Castello® The business group also handles milk planning, international logistics, B2B trading, production of butter and spreads (BSM), cheese and milk powder. GCO work in close collaboration with CSE, CDK, CUK, CGN and CIN. CIN: Consumer InternationalConsumer International (CIN) covers all market and retail sales responsibility outside Denmark, Sweden, Finland, the UK, Germany and the Netherlands for cheese, butter & spreads and milk powder. CUK: Consumer UKCovers production and logistics of fresh milk, butter and fermented products in the UK, as well as market and retail sales responsibility in the UK. CSE: Consumer Sweden & FinlandCovers production and logistics of fresh milk and fermented products in Sweden, as well as market and retail sales responsibility in Sweden and Finland. CDK: Consumer DenmarkCovers production and logistics of fresh milk, UHT and fermented products in Denmark, as well as market and retail sales responsibility in Denmark.
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CGN: Consumer Germany & Netherlands Covers production and logistics in Germany and the Netherlands, as well as market and retail sales responsibility in the two countries.
Among our 100% owned subsidiaries Arla has three significant and strategic subsidiaries:
Arla Foods Ingredients Group P/S
Rynkeby Foods A/S
Cocio Chokolademælk A/S
Countries and areas where the company operates:
Denmark Finland Germany Sweden The Netherlands United Kingdom Rest of Europe The Middle East and Africa North America Asia and Pacific
Global procurement and investments under the management of Povl Krogsgaard. Corporate Affairs comprises group development and communication under the management of Peder Tuborgh. Corporate Human Resources handles colleague training and organizational development issues for the whole group under the management of Ola Arvidsson. Corporate Finance & IT handles finance, IT and legal affairs under the management of Frederik Lotz. In Denmark and Sweden Arla works in 54 district councils or in total 16 regions. The Board of Representatives 169 contains members and 10 employee representatives. The Board of directors is build up by 20 members and 4 employee representatives. We talk about owners’ democracy. Following the new owner situation, a review of owner representation will be conducted during 2013. All elections and polls are held according to the ‘one member, one vote’ principle. The Board of Representatives is Arla’s top decision-making body. Consumer Business Groups are responsible for the production of fresh produce, logistics, marketing and sales of Arla products in the different areas. Consumer Denmark is under the management of Peter Giörtz-Carlsen. Consumer in Sweden, also including Finland, under the management of Christer Åberg. Consumer UK, under the management of Peter Lauritzen. Consumer Germany & Netherlands, under the management of Tim Ørting Jørgensen. Consumer International, including countries outside core markets, under the management of Finn S Hansen.
Locations and offices: Arla Foods Headoffice, Denmark,Arla Foods Ingredients, Headoffice, Denmark, Arla Foods Copenhagen; Akafa; Arinco; Birkum Chees; Bislev
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Dairy, Denmark; Brabrand Dairy, Denmark; Branderup Dairy, Denmark; Christiansfeld Dairy Cente; Danmark Protein; Esbjerg Dairy; Gjesing Dairy; Hobro Dairy Center; Hoco; Holstebro Cream Cheese; Holstebro Dairy;Høgelund Dairy, Korsvej Dairy, Korsvej Dairy, Arla Strategic Innovation Centre Brabrand, Ishøj Distribution Center, Kruså Dairy, etc. Arla locations in German, Netherlands, UK, Italy , Greece, Russia, Noeway, Spain, Middle East, Africa, Dubai, UAEmirates, Kuwait, Le3banon, Oman, Qatar, Saudi Arabia, Canada, USA, Cina, Japan, Korea
Sales and services
Arla is strong in B2B. Among her leading customers are governments. In connection with the crisis during the last few years all markets developed more negatively than anticipated. The downturn for Arla is primarily a result of an unexpected increase in global milk production, which depressed prices. However, it was also due to general caution among European consumers brought about by the economic situation.
http://www.kunde.dk/cases/closer-to-nature%E2%84%A2.aspx Marketing and CSR Pollution and waste responsible Recovery and recycling
Stakeholder AnalysisStakeholder’s analysis provides the innovation side in a better understanding of the needs
Arla might meet and the optimal ways to address it. From this analysis we will try to
understand and describe the process of identifying key stakeholders and isolating their
perceptions about a defined need.
Identification The concept of the stakeholder was first used in 1963, at the Stanford Research Institute. It
defined stakeholders as: Those groups without whose support the organization would cease to
exist23.
It was further developed in the 1980s by Edward Freeman and has subsequently been widely
accepted in the business community. The relationship is linked between an organization and
its stakeholders, particularly in relation to risk and reward:
Practicing managers and management scholars recognize the critical interdependencies that
exist among a firm, its employees, customers, investors, communities, and constituencies.
23 R. Edward, Freeman, Reed, David L. California Management Review, Stockholders and Stakeholders: A new perspective on Corporate Governance, 1983, page 88-106
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Moreover, they recognize that such dependencies cannot be described in terms of simple
contractual exchanges, but involve interactions and network effects.
The stakeholders in a corporation are the individuals and constituencies that contribute, either
voluntarily or involuntarily, to its wealth-creating capacity and activities, and that are
therefore its potential beneficiaries and/or risk bearers
Existing stakeholders
Defining Arls’s Corporate Communication levels by:
focus inwardly upon developing a business culture focus outwardly upon providing more value for customers by matching the organisation and
its strengths meet customers' needs.
Previously, organizations‟ communication could be broadly categorized as marketing communication, organizational communication, or management communication. In each category had its own specific target audiences and flowed from specific organizational sources (van Riel, 1995: 2). Today, however, a new media environment, increased audience fragmentation, new communication technologies as well as new cross-functional organizational roles and departments have changed this orderly arranged picture. In practice this means that communication now flows from a range of different organizational sources, and it is argued that this might negatively affect the organization: “In practice, the large variety of internal communication „sources‟ can lead to fragmented, sometimes even contradictory, external manifestations of the company as a whole” (van Riel, 1995: 3). Therefore, a need for coordinating all forms of corporate communication has emerged. A definition encompassing this view and pointing to the goal of corporate communication is presented below: Apart from this criticism, there seems to be a conflict between the integration ideal of corporate communication – including the entailed need for organizational control – and current ideals of dialogue and stakeholder involvement, which implies that the organization needs to be flexible. In other words, organizations today need able to balance the need for control with the need for flexibility (Christensen et al, 2008: 170). “Corporate communication is a management function that offers a framework for the effective coordination of all internal and external communication with the overall purpose of establishing and maintaining favorable reputations with stakeholder groups upon which the organization is dependent” (Cornelissen, 2008; 5). According to this definition, corporate communication demands an integrated approach to managing communication with the ultimate goal of establishing and maintaining favourable reputations with key stakeholders. Reputation is understood as the sum of evaluations of the organisation over time and its positive effects are widely recognized today. Among the advantages associated with a favorable organizational reputation are its positive effects on the organization’s ability to attract the people necessary for its success, its competitiveness, and its ability to demand
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premium prices for its products and services (Chaket, 1989; Brinkerhof, 1990; Blauw, 1994 - in van Riel, 1995: 76). In other words, “a strong corporate reputation holds similar promises to the organization as a powerful corporate brand: identification, differentiation and profitability” (Christensen, Morsing & Cheney, 20008: 90). Arla publications: http://www.arla.com/da/
It consists of the stakeholders the company is working with at the moment with respect to privacy and humans/animal rights, laws and environment. Arla recognizes the importance of confidentiality and ensures that confidential information received by all its stakeholders.
Internal stakeholdersThe list is endless. It starts with a few countries of strong influence:
United KingdomThe British market is undergoing difficult market conditions. It has been pushed back intorecession, which lasted for most of 2012.
Sweden & FinlandSweden is characterized by an economic downturn and a focus on inexpensive foodproducts. Competition is tough and the presence of private label products on shelves isgrowing. The high level of price sensitivity is lowering the demands.DenmarkDanish consumer confidence remains low, price sensitivity is high and the market is characterized by a drinking milk price war. Consumers are increasingly focused on lower prices.Germany & the NetherlandsThe general economic situation in Germany ispositive. Strong economic development andrelatively low unemployment private label products are purchased across allcategories. This trend puts pressure on both branded and organic products. In the Netherlands, lack of growth and high unemployment have resulted in low consumer confidence.Markets outside Europe (China)The general outlook for global consumption of dairy products is positive, and growth isexpected to continue. Across all markets, there is growing demand for high-quality dairyproducts from Europe. The global growth in discount chains also places demands onincreased cost efficiencies. In China, members of the emerging middle class are seeking outquality products with food safety being a major concern. Consumption of dairy products isgrowing faster than the country’s otherwise rapidly growing dairy production. Revenuegrowth is at approx. 10 per cent per annum, and China is thereby expected to exceed theworld’s biggest market for dairy products in 2020. Those growth rates are currently drivingthe country and will for many years to some making it is critical for Arla to have a solidfooting in the Chinese market. Supplier Relationships? Arla not only act in an efficient but also in a fair, sustainable and reasonable manner when dealing with our suppliers. At the same time the company is striving at all times integrity, honesty and accountability.
2010 2011 2012
Owners in total 7,178 8,024 12,256
- of these in Sweden 3,529 3,865 3,661
- of these in Denmark 3,649 3,514 3,354
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- of these in Germany, Belgium and Luxembourg
(Hansa Arla Milch and MUH, 2012) – 645 3,657
- of these in the UK (Milk Link, 2012) – – 1,584
AFMP members in the UK 1,362 1,330 1,232
Suppliers in Finland 1,060 1,000 813
- of these under contract 260 243 223
Suppliers in Germany (Arla Foods Käsereien) – 1,338 1,388
Motions to the Board of Representatives meeting 5 1 2
Participants in owner seminars 380 200 0
Appeals to Appeals Committees in Sweden and Denmark 43 13 21
Employees, Managers & Owners
Leadership and Employees Capabilities and Competencies
HR play a great role in Arla. The situation now calls for a strengthening of the competencies of directors, managers, and employees on how to engage stakeholders and create results in the matrix. A matrix organisation as Arla includes a complex stakeholder landscape and a complex set-up of roles and mandates. This calls for competencies to feel at ease when facing complexity.
Situational savvy, building relationships, and influencing stakeholders are key competencies to work efficiently, handle complexity, and create results.
In close cooperation with the three pillars of Arla HR - Global HR Services, HR partners and Organisational Design and Health - Workz . This process designs the whole company.
http://www.arlafoodsingredients.com/jobs--career1/
Owners are the farmers who supply the milk. Arla Foods is an agricultural
cooperative owned by 12,256 dairy farmers in 6 countries: Sweden, Denmark, Germany, UK,
Belgium and Luxembourg.
The management team:
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Chairman - Åke Hantoft, Vice chairman - Jan Toft Nørgaard, CEO - Peder Tuborgh, Vice CEO - Povl Krogsgaard
Colleagues, average full time employed :
Denmark 7,536; Sweden 3,599; UK 3,017; Germany 1,135; Finland 362; Netherlands 361; Other countries 2,102; Total 18,112; As of 31 December 2012, the total number of colleagues employed by Arla was 19,646; net revenueDKK 63.1 billion, of which 72 per cent comes from the core markets of UK, Sweden, Denmark, Germany, Finland and the Netherlands.
Owners Owners in total 7,178 8,024 12,256 ; - of these in Sweden 3,529 3,865 3,661; - of these in Denmark 3,649 3,514 3,354; - of these in Germany, Belgium and Luxembourg ; (Hansa Arla Milch and MUH, 2012) – 645 3,657; - of these in the UK (Milk Link, 2012) – – 1,584 ; AFMP members in the UK 1,362 1,330 1,232
Recruitment and friendly approach to students as possible future employees:At Arla Foods there are many working students and graduates. We like the energy and new ideas that students bring to our Company, and we are happy to provide students the opportunity to explore theories in a real-life and practical context, and at the same time give them a chance to build up their personal network. Programmes: F15 Graduate programme: As an F15 graduate in Arla Foods every student enters an individually taliored 24-month programme, consisting of three eight-month rotations in three different parts of the company. We recruit 15 graduates every year. ; Supply Chain Leader Talent Programme: The ideal candidate for the Supply Chain Leader Talent Programme is eager to put knowledge into action at a production site in one of Arla’s core markets. To qualify for the programme you will have a Master’s degree in either Dairy/Food Technology, Supply Chain Management (SCM) or Engineering. ; Summer Internship Programme: In the summer of 2013 Arla launched an international summer internship for 10 top-performing students. The internship is paid and of a duration of 8-10 weeks, and all students are assigned with their own project.
http://www.arla.com/da/job-og-karriere/Studerende--kandidater/
External stakeholdersArla is offering an active fair dialogue with consumers. Consumers can voice their complaints and opinions via Arla Forum, our consumer contact service. The service also responds to questions on various subjects including product quality, packaging, advertising campaigns and recipes via telephone, email and letter. In general, the different types of issues that are raised in different countries and often reflect the topics being debated in society at that time. It is therefore important that we respond on a national basis. During the year several countries also have intensified consumer dialogue via social media channels, for example, Twitter, Facebook and blogs.
Number of contacts 2010 2011 2012 / Denmark 20,500 20,300 20,600/ Sweden 28,000 26,500 26,400/ Sweden (web) 40,000 45,000 45,000/ UK 24,000 25,000 27,000 / Finland 16,000 15,000 14,000 / Germany – 8,000 18,000 /The Netherlands 5,800 6,100 5,500/ USA 1,400 160 250/ Canada – 800 1,500/
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Consumer perception of Arla : In Denmark, Sweden and Finland Arla measures consumer perception of Arla annually. In general Arla’s products are awarded top scores in most cases. In all three countries consumer perception of Arla has decreased slightly. This appears to be a general trend which also applies to other companies. In Sweden and Finland Arla continues to have a very good reputation. Consumers’ feedback is that we should improve communication of company’s activities and aims, where our products originate, and how they are processed. Many believe that we should become more closely engaged in society and engage more in organic production and eco-friendly packaging.
Regarding the consumers’ perception of Arla speak by themselves the numbers below. They show the total scores on a scale from 0 to 100 (where 100 was best), which consumers gave Arla in a survey carried out by Reputation Institute in a research 2012.
2010 2011 2012 / Arla in Denmark 61.0 64.9 62.4/ Arla in Sweden 71.3 77.7 76.4/ Arla in Finland 69.5 73.1 70.5
Good relationships with all our customers are essential. Many of them express appreciation for Arla as a partner and supplier. This reflects the fact that we take our responsibilities seriously and we play an active role in developing the industry. In Denmark, Sweden and the UK, Arla ranks as one of the top three suppliers to the retail sector. In Sweden for the second year in succession Arla is the company that wholesalers in the restaurant and catering industry prefer.
In the UK Arla was awarded the title of ’Own Label Dairy Supplier of the year2012’. In Netherlands Arla took first place in a survey of the country’s largest retailers, called the Advantage Report. In Spain we rank as one of the four best suppliers in terms of developing our product category. In many other countries, including the United Arab Emirates, Oman and Qatar, Arla measures customer satisfaction among our most important customers. In countries where Arla’s products are sold via distributors, it is more difficult to get a clear picture of what our customers think of us. Arla subsidiary
y Rynkeby Foods is number 13 of the top 20 largest suppliers to the Danish retail sector.
Potential stakeholders Global outlook for 2013The global demand for dairy products isexpected to grow over the next five years at anestimated 2.4 per cent per year. While the higher consumption in mature markets isexpected to remain unchanged, growth will primarily be driven by our emerging markets—especially China, Russia, the Middle East and Africa. From 2011 to 2020, these markets areexpected to represent a general increase in consumption of around 30 per cent and thedairy sector will receive its share of this. The list is endless. Still speaking of the future two important events are on the list for Arla. For example examining the human habits is an interesting field of study speaking of potential stakeholders. For example regarding entering the Chinese market it will be critical to research, estimate, evaluate , understand and implement the customers habit (middle class) , consumer shopping habits and tastes. Human need change and reflect consumer’s lifestyle and habits as well as availability and changing constantly in direction to healthier product. Concentration and cost are key factors too, as well as information regarding the products. Larger firm as Arla , with larger volume of
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opportunities can better serve than smaller competitors for example. Urban location is important too. It plays an important role in the size of growth and the control of the growth process and coordination of activities connected with the process. A variety of tests should be considered regarding tastes. For example in China the customers are not too friendly to chocolate taste in a product. Innovation is another key process as thought to be related with market penetration so it builds a proper connection among stakeholders as making the product and the future relationships promising and adequate.
Law frames
Though Arla is following all the patent and certification processes correctly until 2004, Arla Foods charged new dairy supplier members an entry fee to 2 percent of the value ( at basic price) of milk to be supplied. Three Danish farmers brought this matter to the Danish Court, alleging abuse of a dominant position. In august 2001 the Danish Competition Authority ruled that Arla had abused it’s dominant position in procurement of Danish cows’ milk on the ground that the fee exceseeded fair compensation to Arla for the cost of admisiion. In November 2003 the Danish Competition Appeals Tribunal overturned the decision and analysis of the facts. Furthermore the Appeals Tribunal stated that a high fee alone does not constitute evidence of abuse of a dominant position. The farmers took the case to the Danish High Court, which dismissed it in September 2006.
In 2004 the Danish Competition Authority concluded that the series of mergers between Kløver Mælk and MD foods and later MD Foods and Arla had led to higher Danish milk prices than would otherwise have prevailed. The authority stated that under the current legal regime the mergers would probably not have been permitted (Danish Competition Authority 2004, b, 248). Further concerns have appeared over Arla’s market power as a supplier to retailers and as a distributor of other firms’ products to retailers ( Danish Competition Authority 2004 b, ch. 5), but in several instances Arla was found not to have abused its dominant position, particularly with regard to pricing and marketing support in dealing with retailers ( Danish Competition Authority 2002) . Increasing consolidation and concentration has led to a shift in policy interest away from monopoly and toward a balance of market power between stages of the marketing chain.
Before entering a country Arla should focus on meeting the product import requirements in
each country and to find out in which country their products may be patented to be protected,
also certified or certification accepted. If they hold the patents for certain product in a country
this might give them a serious advantage in front of their competitors on that market.
Also regretfully not in all countries a product can be protected from copying, for example
China. All this should be taken into consideration before acting, because any unprotected
product is exposed to a high risk of being copied and sold with a lower quality and price,
which might end with the ruined reputation of the company in certain markets and close the
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further prospective of being active again in this market. So entering a market is supposed to
be a carefully planned operation. Actually it shouldn’t be done without careful preparation.
As long as the company is small and the team is only 31 people, the company may start
investigating in a simple way, on-line for certain rules, regulations, limitations.
TransportationBefore entering a market Arla should have a careful look at the transportation costs and
time included, as long as this will be a serious part of their product price formulation.
Transportation to countries as far as China could be more expensive and make the product
less profitable. There should be prepared a flow of money analysis to identify additional
stakeholders in known and new areas which may set some risks for the need of the
products offered. Still China is so polluted that the milk there probably should be
considered as dangerous for personal use.
Corporate Social Responsibility
Implementing CSRhttp://www.youtube.com/watch?v=5EUYJ5Id5ms
Zero Waste? Is this the first and most impressive side of Arla’s interaction with the worlds. It is a powerful message. To be able to fulfil its zero waste vision, Arla is targeting in three ecofriendly directions:
Target 1: Recyclable packaging: Arla wants to achieve 100 per cent recyclable packaging by 2020 by focusing on the following:
Co-operation with suppliers, researchers and partnerships with key customers
Evaluating and selecting the right packaging in relation to design and materials
Target 2: Reducing food waste
Arla want to help consumers in their efforts to reduce food waste by 50 per cent: Helping them to better plan food purchases and to make full use of products: e.g. online
tips and tricks for using leftovers, weekly dinner plans, climate friendly recipes
Find the ´right´ packaging in terms of portion size and its ability to be completely emptied by consumer
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Target 3 : Waste from production
Arla wants to eliminate waste to landfill from production by:
Using waste product for animal feed or biogas production
Cooperating with waste management vendors or suppliers to recycle or reuse solid waste
The rationales’ for CSR can be based on a moral argument, a rational argument, or an
economic argument24. Arla is growing, and the larger and more global the company becomes,
the greater is the responsibility. It is very reassuring therefore to know that the company is
based on a strong, responsible foundation. All employees as well as all owners and partners
play their part in ensuring that Arla is, and continues to be, a sustainable company, which is
imperative for our success in the long run.
The concept of Corporate Social Responsibility, which includes the question of the role and
responsibilities of corporations in relation to society, has been discussed immensely by
scholars and practitioners for more than half a century in the US and for the last couple of
decades in Europe. It is a widespread perception that understandings of CSR and thereby also
CSR practices differ across countries due to different cultural and institutional frameworks,
i.e. national business systems. Still common values as driver can attract positive attention and
support. Arla saw these possibilities in changing their attitude to environment. Their cables
are environmentally friendly which means not harming the nature as becoming recyclable.
http://www.arla.com/Images/arla.com/PDF/CSR/2012/ENG_2012.pdf
Drivers for commitment
Past and recent commitments can derive from either economic self-interest (a solid business)
or from ethical grounding (of any moral importance).
24 Werther W., Strategic Corporate Social Responsibility, Stakeholders in a Global Environment, 2006
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Working responsibly in Arla is by responsibility through our entire chain. Arla strives to work
in a responsible manner throughout its entire chain, from the work at the farms, through to
operations and distribution, even including recycling of packaging material. To ensure
commitment to the Code internally, Arla has established a CSR committee with CEO Peder
Tuborgh as chairman and with representatives from the senior management team. The
committee prioritizes the areas that need additional focus to ensure the company’s
commitment to responsibility for the long term. A holistic approach . The 11 areas that the
Code describes are the ones covered in this report, from business principles to human rights.
This year we have chosen to group these areas under our themes, see the illustration to the
right. Arla is a global company. Each of our business groups delivers content and material to
this annual report. Arla is succeeding in its work with responsibility and also grows with
respect to all the opportunity to readdress, and clarify, the areas on which are needed to be put
a special focus in the future.
Arla is a responsible company built on: Business principles, Operational principles,
Procurement, Market conduct. Arla is confident with its products by working hard on food
safety & focus on food and health as a whole. Arla is building respectful relations within
workplace, community relations, human rights. Arla cares for the environment and animal
welfare by putting an extra effort in: Environment and climate relations & Agriculture.
Corporate Social Responsibility (CSR) has become a popular topic within western companies.
CSR gives a competitive advantage and can help strengthen a company´s image. Today’s
stakeholders require more transparency in the companies regarding CSR. It has become more
important for companies to communicate their CSR initiatives to their stakeholders and
therefore CSR reporting has become an implemented part of every serious company´s
strategy.
According to Jacob Dahl Rendtorff strengthens social responsibility employee motivation and
attracting skilled labor as it makes them feel that their job makes sense ( Rendtorff , 2007). He
is not alone in this position also theorist Frederick Hertzberg believes that it motivates
employees when they feel a deeper meaning to the job ( Buelens , 2010) . Beyond that, Jacob
Dahl Rendtorff to business ethics is to create a better brand that will be profitable through the
use of values and responsibility and that it strengthens the company 's competitive position. It
can be difficult to measure the precise relationship between CSR initiatives and profit, with
which , however, good theoretical arguments for the connection gives a positive return. A
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responsible approach to achieving economic sustainability in the long term when there is
credible values that strengthen the company's activities in the community ( Rendtorff , 2007).
CSR is not only positive , being asked many critical questions of corporate responsibility .
The criticism voiced include if it diverts attention from the economic profits when a company
undertakes actions that have nothing directly with the company to do. The companies promise
too many things to their stakeholders and, according to critics , it is unlikely to believe that
companies can make everyone happy . It can be discussed on the community and businesses
are the appropriateness of CSR . If companies are utilizing their responsibility to guide the
development for their own benefit takes the concept a completely different turn . In this
situation, it is more a political issue and a struggle for power . This may result in companies
use CSR to dominate the market and gain power over some processes that are not in the state's
interest ( Roepstorff , 2010) . It is discussed whether companies only act in their own interest
or whether they act on the basis of society and they only take into account the primary
stakeholders or whether they act on the basis of social and environmental problems and
satisfy stakeholders regardless of self-interest. These terms may conflict with each other in
some areas where it is necessary for companies to have less profit, in order to contribute to the
social responsibility. The trend is that companies are interested in taking a social and moral
responsibility ( Keppel, Petersen, & Ryberg , 2003).
Identity and EthicsThe Code of Conduct governs Arla’s responsibility work. Arla’s principles for ethics and
sustainable development are contained in Arla Foods’ Code of Conduct. Arla’s Board of
Directors approved the Code of Conduct and it is now available in eight languages and can be
downloaded from www.arla.com. The Code serves as both a tool and a compass, guiding us
on how we should behave and take responsibility within every process and decision in Arla’s
business. There are always a few key attributes that define a company’s essential character.
Is Arla a Cooperative Narrative, a Monopoly, an Innovator and a market’s abuser?
The contemporary global path to input values reflects as an evolutional path and leads to the
so called personality or identity, fingerprint of a company.
Arla becomes from a global company with global brand. Arla Foods addresses ethical and
quality matters in a sustainable and responsible manner, in order to safeguard the company’s
reputation and profitability. Arla Foods is one of the world's largest dairy exporting to more
than 100 countries and subsidiaries around the world. In order to also be one of the strongest
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dairy brands Arla began in 2007 to bring together its global organization and marketing
around one common identity and value position
Arla Foods is the business established through acquisitions and mergers. On the part looks
like Arla Foods many other large enterprises and also with the same challenges when it comes
to the task of assembling the company around one common identity and value position. In
particular, the merger of Danish MD Foods and the Swedish Arla takes up much of Arla
Foods' own consciousness and put in branding terms Arla Foods faced with a particular
challenge. It is clear that the large domestic markets have a special meaning, but in the future
outlook extends Arla Foods far beyond Scandinavia. Therefore launched Arla Foods in 2007 a
comprehensive project aimed to create the foundation for a global Arla brand. Kunde & Co.
was chosen as a partner.
Fragments mixed build becomes a whole new universe. Arla Foods is a fragmented business
partly because it is a global company with subsidiaries in many countries, but also from a fire
point of view. There are few major international brands and a wide variety of product brands
that primarily have a strong national position. In order to create a strong international brand
had Arla Foods grasp the difficult task of finding the strong values that can be collected
across borders and product areas.
Regretfully all the farmers who do not meet the demands of Arla seem to be in a position to
be expelled from the cooperative or never accepted in it. As we understood from our study
Arla is not always fair with it’s partners and is extremely competitive, even is accused in
court for abusing the rights of suppliers ( by asking for an extra profit) and customers ( by
highring the prices just because Arla can afford it behaving as a monopolist) and making the
market presence of all companies out of its network very difficult to barely possible. Let’s
look closer at Arla’s behavior – milking anyone on its way?
Trend Spotting with a partner:
In our efforts to identify the performance and decision making drivers for Arla Foods brand
was leading trend agencies and futurists asked to identify the main trends for dairy products in
a global perspective. Based on their work Arla Foods and Kunde & Co. are showing signs of
facing eight trends, subsequently sent in a quantitative test involving 3,700 consumers in
seven countries.
In addition to the eight trends were there for the test also developed and illustrated various
positions, such as Arla Foods could strive for. The test showed that there was everywhere a
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preference for "natural foods". The testing also showed that within Arla Foods' two primary
product categories - fresh dairy products on one side and butter and cheese on the other - was
a set of brand drivers that were unique to each category. naturalness as "brand driver" The
may seem like a truism that a company that lives by producing products of natural raw
materials, chooses to "naturalness" to the company's "brand driver". But it's more nuanced
than that. First, Arla Foods because of its size in many consumers' eyes a tinge of industrial
producer about it. There has also been a strong trend among consumers towards the stage of
natural. The request is 100% natural foods, but that desire can’t be always met. No producer
in the real world can meet in large this scale 100%.
Arla Foods is already far in efforts to provide as natural products to as many people as
possible. But although Arla Foods is among the world's leaders in this field, it is - because of
the desire for it 100% natural and perceptions of the large dairy giant difficult for the
company to get "credit" for his efforts.
Closer to nature project is a part of Arla’s efforts to create a common global positioning
around "naturalness", so Arla Foods has defined an objective - it must be Arla Foods' case:
"To make natural products available to everyone."This case is translated into Arla Foods' new
corporate concept, consumers and employees: "Closer to Nature" ("Closer to nature").The
promise has two legs. On the one hand promises Arla Foods consumers natural products. At
the same time promise Arla Foods, the company takes the responsibility and respect for
nature when it produces and distributes its products and socially responsible business.
The basic elements in place were made in cooperation with Kunde & Co worked Arla Foods
throughout 2008 along with creating the foundation for the new Arla Foods brand. There was
developed a number of elements that eventually formed the basis for the implementation of
the brand strategy to ensure that Arla Foods wins the desired position.
For the description of Arla Foods brand was developed a "Fire Glass" as Arla Foods wants to
associate with its brand, and six "brand values" are identified and described.
Kunde & Co developed also with Arla Foods, a fire system and brand architecture. It must
ensure that Arla Foods' Corporate Brand future will operate. The objective is to move away
from that Arla Foods sends hundreds of product brands on the market without actually
creating value for Arla Foods' brand. Recent natural logo is a part of the project of creating
one global brand, it was natural to develop a new joint logo for Arla Foods. Kunde & Co's
designers developed a wide range of proposals, from which selected 10 who have been
33
through the same series of tests as the rest of the project. The new logo is both an evolution of
the existing corporate logo while the all parameters signal the naturalness that Arla Foods
would like to stand for. http://www.kunde.dk/cases/closer-to-nature%E2%84%A2.aspx#
Trend spotting with farmers: Farmers in foreign countries have seen their own dairy-
processing operations (whether cooperative or private) face competition from Arla, with the
likely consequence of damage to milk prices.
http://www.mynewsdesk.com/arla-foods/pressreleases/the-charge-against-arla-in-denmark-
760967
As one consequence, local dairy processing firms may be forced out of production of the most
profitable dairy products and left with less possibilities. Arla’s exclusivity regarding
infrastructure and hardware, collaborative pricing arrangements might build other issues
between Arla and its stakeholders especially with Arla’s suppliers and retail customers.
Though such policies may prove difficult to implement because it is difficult does not mean
that it won’t be done in future. http://europa.eu/rapid/press-release_IP-02-1252_en.htm
Accountability and trust in CSRIs CSR walking hand in hand with accountability and trust building? Yes. It’s one of the
processes whereby leaders, teams, employees, the whole company or organization seeks to
ensure integrity, completeness and completion. It’s build in our DNA. In our global
stakeholder society, accountability is among the key challenges of organizations. Responsible
humans and builders of accountability are concerned with meeting the demands, needs,
interests and values of employees, customers, suppliers, communities, shareholders,
governmental and nongovernmental organizations, the environment and society as one. CSR
requires accountability. It is complex as long as it requires interaction between and by leaders,
individuals, and organizations, other stakeholders, customers, and community members.
Reccomendations:
Will Arla’s success turn against Arla? Arla is a persistent and dominant market force. Policy
makers might consider limiting Arla’s market share in the event of any new proposed mergers
and acquisitions. Such a step would require legislators to define a maximum allowable market
share and then defend that definition. Several complicating factors would arise from this
situation:
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* Should market share be defined over the EU as a whole as long as it is politically defined as
a ‘’single market’’ or just for the three markets in which dominance is clear?
*Should market share be defined over all dairy products or just certain ones?
In the past, large, vertically integrated cooperatives have justified their size and influence and
any actions taken to reduce Arla’s ability to act as a counterweight to retailers would face
some if not serious opposition. This opposition will require compensations for the farmers
that my exceed benefits to customers on behalf to Arla. A possible approach may be to
prohibit Ara from operating in markets related to the once in which it has achieved
dominance. Arla might be at some point being excluded from some markets. Such an
approach would require sales of Arla’s product to competing firms which wouldn’t be able to
maintain performance and presence in the industry. This will be the biggest challenge in
Arla’s future. An extreme response to monopolists is a requirement Arla to be broken up into
separate and competing firms. The break up might be regional and vertical by stages and
distribution levels or by market according to the products. Arla is a monopolist in Denmark
and Sweden speaking of buying raw milk. It has been tolerated so far only because Arla is a
cooperative BUT it has to be examined closely and carefully whether cooperatives should be
allowed to become monopolists or the cooperative shaping is just a way to ease a company’s
way to the position of a monopoly? Denmark has no cooperative law even. Still it is possible
the length of Arla’s contracts with suppliers to be restricted and even asked the exclusivity to
be removed from some agreements in order to be guaranteed fare play for all companies in the
sector.
http://www.oecd.org/dataoecd/51/16/34425447.pdf
http://www.foodanddrinkeurope.com/Consumer-Trends/Consumers-snub-Arla-s-Mini30-milk
Then entering a huge new market as the one in China becomes if not vital at least very
important for the future of Arla. Our recommendation is Arla to continue entering new big
stable markets in order to guarantee stability in it’s structure.
In the case with China where the power is government centralized it should be taken into
consideration that governments do are significant buyers of dairy products through their
ownership of hospitals, prisons, schools and other of the kind. Governments could encourage
and sustain Arla’s growth as well as it may control the outcome of this partnership by giving
chance to competing firms in case of unfair game.
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Conclusion Leadership competencies consistent with “responsible” leaders include courage, business
acumen, passion, having a life (“you can’t think out of the box if you are always in the box”),
compassion, kindness, humor and vision for legacy are the new way of achieving results
through interpersonal skills. A leader should be first a great person in order to be able to
design the society as healthy, educated, environmentally conscious and friendly, economically
sustainable and safe. Only then growth will be long term.
According to the literature, there is a growing awareness that business needs to manage its
relationship with the wider society, a multi-stakeholders’ dialogue. It all starts with the role of
the leaders.
The role of the leader in guiding business toward sustainable social responsibility is complex
and vast. The change in management thinking has been from the process to the people and
environment. Managing change is not enough - you have to lead it25.
Financial Analysis
External analysis
Porter’s 5 forces
Threat of substituteDairy products are an important source of calcium, protein, and vitamins D and B12, and still there are substitute products - dairy-free products as almond milk, coconut milk, rice milk, soy milk, oat, hemp and flax milk that contains calcium and vitamin D, however, these substitute products don’t contain all benefits that dairy products provide, and these substitute products are usually consumed by people who suffer from lactose intolerance, milk allergy or people who have addopted veganism as their lifestyle. As we can see – there are a wide variety of milk substitutes, again, these substitutes are not as popular as real milk is, and they are often more expensive, therefore, we consider threat of substitutes as moderate.
Threat of new entrantsTo become s big player, significant resouces are necessary. Brand is important – a new entrant has to compete with other companies that have already marketed their production and possess a large number of loyal customers, quality guarantees and programs, production facilities, start capital is needed and of course access to distribution channels. Moreover, a new entrant can face government and legal barriers, especially when a foreign company is entering a market. In China supermarkets force foreign dealers to pay large commissions to put their
25 http://www.mindtools.com/pages/article/newPPM_82.htm
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products on shelves, which means that in order to make profit, they have to be raise the prices26. Threat of new entrants is low.
Rivalry among existing firmsIs high. There are approximately 737 enterprises operating in dairy industry in 2013, most of which are small or medium in size. The four largest enterprises in the industry, Mengniu, Yili, Bright and Sanyuan, jointly account for about 43.3% of industry revenue in 2013, showing a moderate industry concentration level27. Moreover, foreign businesses view China as an attractive market, not surprisingly – as Chine is the world’s most populous country with a great deal of growth potential and after several dairy scandals, Chinese get more and more interested in foreign production. China has imported 844,000 tons of dairy products, up 28.4 percent compared to the same period last year, statistics from a Chinese organization that tracks the import and export of foodstuffs show28.
Bargaining power of suppliersSuppliers play a huge role into Arla’s operations - Arla Foods is owned by farmers and run for the benefit of farmers. In 2012 Arla had 12,300 milk-producing owners in Denmark, Sweden, Germany, Luxembourg, Belgium and the United Kingdom29 and Arla’s owners are obligated to supply milk, which provides Arla with security of supplies30. Bargaining power of suppliers in the dairy industry is low, as there are many suppliers, and switching costs to other suppliers are low.
Bargaining power of buyersThe power of buyers is moderate as there are many customers, low switching costs, the product is undifferentiated, the customer can choose to pay for the less expensive products, however brand plays a big role, especially, after several scandals within dairy industry in China, many customers are interested in quality certificates, and give preference to foreign brands.
Competitor analysis
PESTPolitical Factors
Taxation system
China has 19 tax categories, i.e. value added tax, consumption tax, business tax, enterprise income tax, individual income tax, resource tax, urban and township land use tax, house property tax, city maintenance and construction tax, tax on the use of arable land, land
26 http://english.caixin.com/2012-10-30/100453771.html 27 http://www.ibisworld.com/industry/china/dairy-product-production.html 28 http://english.caixin.com/2012-10-30/100453771.html?p2 29 http://www.arla.com/Images/arla.com/PDF/annual-report/2012/ENG_2012.pdf pp 2830 http://www.arla.com/Images/arla.com/PDF/annual-report/2012/ENG_2012.pdf pp 28
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appreciation tax, vehicle purchase tax, vehicle and vessel tax, stamp tax, deed tax, tobacco leaf tax, customs duty, tonnage dues, and fixed assets investment orientation regulatory tax. Of which, 17 tax categories are to be collected by tax authorities; the fixed assets investment orientation regulatory tax was suspended to be collected as from 2000 as determined by the State Council; customs duty and tonnage dues are to be collected by the customs, in addition, the import value added tax and import consumption tax are to be withheld by the customs.31
Value Added Tax
(VAT) is 17%
Consumption tax
The consumption tax is imposed on the entity and individual engaged in producing, consigned processing, or importing taxable consumer goods within China.
Business Tax
The business tax is imposed on the entity and individual engaged in providing taxable services, transferring intangible assets or selling immovable property within China. The tax rate applicable to entertainment industry is 20%, except that the tax rate applicable to the billiards clubs and bowling halls in such industry is 5%; the tax rate applicable to all the other tax items is 3% or 5%.
Enterprise Income Tax
All enterprises and other income receiving organizations (excluding sole proprietorship enterprises and partnership enterprise) within China shall be the taxpayers of the enterprise income tax. The tax rate is 25%. Enterprise income tax shall be calculated on the basis of a tax year which shall commence on January 1 and end on December 31 of each calendar year.
Individual Income Tax
The individual income tax is imposed on the taxable income derived by individuals. Progressive tax rate of 7 levels from 3% to 45% is applied to the income from wages and salaries, a progressive tax rate of 5 levels from 5% to 35%.
Resource Tax
The resource tax is imposed on the entity and individual engaged in exploiting various taxable natural resource. The resource tax is collected under the rate on value method and the amount on volume method. The resource tax rate applicable to crude oil and natural gas products is 5% to 10% of the sales volume.
Urban and Township Land Use Tax
31 http://www.chinatax.gov.cn/n6669073/n6669133/6887407.html (reliable government recourse 2013.06.12)
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The urban and township land use tax is imposed on the land in cities, county towns, administrative towns and industrial and mining districts. The tax shall be levied on the entities and individuals who use the land on the basis of the actual area of the land used at the specified tax amount.
House Property Tax
The house property tax is imposed on the houses within the cities, county towns, administrative towns and industrial and mining districts.
City Maintenance and Construction Tax
The city maintenance and construction tax is imposed on the entities and individuals who pay value added tax, consumption tax and business tax.
Tax on the Use of Arable Land
The tax on the use of arable land is imposed on the entities and individuals who use the arable land to build houses or for other non-agricultural construction purposes
Land Appreciation Tax
The land appreciation tax is imposed on the increment value of the transfer of State-owned land use rights, above-ground structures and their attached facilities, and is collected at the specified tax rate. There are four level progressive rates, i.e. 30%, 40%, 50% and 60%
Vehicle Purchase Tax
Vehicle and Vessel tax
Stamp Tax
The stamp tax is imposed on the entities and individuals executing or accepting the taxable instruments specified in tax laws during the economic activities and exchanges.
Deed Tax
The deed tax is imposed on the land and houses the titles to which are transferred through such means as transfer, assignment, purchase or sale, gift or exchange, and shall be paid by the entities and individuals who are the transferees.
Tobacco Leaf Tax.32
32 http://www.chinatax.gov.cn/n6669073/n6669133/6887407.html (reliable government recourse 2013.06.12)
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Governments organization and attitudeChina is a one-party state, with real power lying with the Chinese Communist party. The country is governed under the constitution of 1982 as amended, the fifth constitution since the accession of the Communists in 1949. The unicameral legislature is the National People's Congress (NPC), consisting of deputies who are indirectly elected to terms of five years.33
China have a very serious attitude when it comes to food products, and they are controlling the food quality on daily basis, recently china banned all of the Milk powder import from New Zealand and Australia, as informed in Newspaper (Reuters) on Sun Aug 4, 2013 – ‘’China has halted imports of all milk powder from New Zealand and Australia, New Zealand's trade minister said on Sunday, after bacteria that can cause botulism found in some dairy products raised food safety concerns that threatened its $9.4 billion annual dairy trade.’’ Even though New Zealand is the biggest milk importer to china and over the last year supplied 90% of all the milk powder provided to china, they still banned them form the market, that’s how strict they are in China wen it comes to health issues. 34
Consumer protection
Consumers in China are being protected by Consumer protection LAW. Also a lot of processes are being regulated by China consumer association. 35
Economical factorsFast growth of China’s economy can be explained by the influence of inflows of foreign investments and because of the cheap labor in China, developed countries move their production to China in order to cut expenses. As BBC Financial news inform- China's economy sped up in the July-to-September 2013 quarter to expand at 7.8% year-on-year, according to official gross domestic product (GDP) figures. The Chinese government is aiming for a slower and better balanced economy that can grow more sustainably. 36Average inflation in China in year 2013 is 2.53%37, And it is predicted that the inflation rate will grow during the years as pwcUK informs the inflation could reach 3.4% in year 2015, and GDP growth rate might drop till 7% in year 2015. 38Chinas consumer Confidence index is
33 http://www.infoplease.com/encyclopedia/world/china-government.html (2013.12.09)
34 http://www.reuters.com/article/2013/08/04/us-newzealand-milk-idUSBRE97301K20130804 (Newspaper article Sun Aug 4, 2013 )
35 http://www.reuters.com/article/2013/10/25/us-china-consumer-law-idUSBRE99O05E20131025 (newspaper article Oct 25, 2013)
36(http://www.bbc.co.uk/news/business-24577043 BBC Financial news 18 October 2013)37 http://www.inflation.eu/inflation-rates/china/historic-inflation/cpi-inflation-china-2013.aspx
38 http://www.pwc.co.uk/economic-services/global-economy-watch/gew-projections.jhtml
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declining in a long term since year 1996 till year 2013 it have been declined from 115 till 96. 39
Social FactorsChina have the biggest population of the world that consists from more than 1.3 billion people and still are constantly growing. Chinese culture is slightly different form European culture so Arla should look into this fact when entering the Chinese market. In China people are working for at least 10h a day and that makes a lot of consumer habits different from the average European consumer. Chinese culture in General is very different from European culture. When it comes to buying household products significantly, for the most part women in China remain the decision-makers when it comes to household spending, with both married and unmarried women helping to determine which products and services their families purchase. This adds even more to their importance as the drivers of China’s consumer attitudes and habits. The Misery Index for China in 2011 was 9.4. have stayed up from 5.6 in 2006. In coming years, the perspective for fluctuations is great based on potential inflation rates in fast-growing sectors such as housing and food. 40As well men earn more than women even with the same qualification and education. 41In chine the consumption of coffee is very fair comparing to European country’s in European country people are drinking an average 120 cups of coffee per year per capita, but on other hand china only consumes 5 cups of coffee per capita.42
Technological FactorsChina is well known about its technological development, as in army as in medicine and robotics. China is Investing incredible amounts of money in research and development last year 2012 they invested 1.77% from their GDP for research and development, what is times more comparing to year 2011. China is the biggest Country of development and research. 2.3 million people in china are working in research and development sector, and it is been strongly predicted that china will maintain its status as an leading development country for the next 5 years, however if we look at the percentage, than they are far back form European R&D level that is 2.4% but if its compared of the amount of people working within this sector, it is unbeatable, but china expects to get till European level till year 2020, As well China is developing their own special Network of mobile telecommunications that have different standard then other country’s in the world, as well it is predicted that China in the future will not be a factory country anymore but will turn into a ‘’laboratory’’ a country that is being lead by research and development. 43
39 http://marketrealist.com/2013/10/consumer-confidence-china-declined-long-term/
40 (Euromonitor report: Consumer Lifestyles in China, February 2012, pp. 1-5.)
41 http://chinaperspectives.revues.org/2992 (Salary differentials according to sex in urban China)
42 http://www.sprcoffee.com/Market.html (analyses of china coffee market)43 http://www.youtube.com/watch?v=LrX9yNV63zg (Innovation driving China's economy - Biz Wire - March 11,2013 - BONTV China)
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Conclusion of PEST During PEST analyses we understood that there is a lot of factors that could influence Company ARLA for successfully penetrating market with product COCIO. First of all there is a lot of Political factors that Arla should be aware about, for example the taxes, there is many taxes that could affect import of product COCIO in the market, and as well the government is very strict when it come regarding food, Like said before China recently banned New Zealand’s milk powder from the market because of the bacteria found in it. As well China recently have developed their rules of Consumer protection, and they are very strict when it comes to misleading the costumers with marketing tricks, so that should be taken in to consideration when entering Chinese market. If we look at the economical factors than we can say that it is quite stabile, at this point Chinas economy is speeding up, but it is predicted that it GDP rate might drop by 0.4% in year 2015, and as well inflation rate is getting bigger, as Well we should take in the consideration the consumer confidence index, that is getting lower by every year. Social Factors could be one of the biggest issues to Arla when entering the market with cocio, of course Arla already work in Chinese market, but not with its brand cocio, as found out in our research, Chinese people don’t drink so much coffee of chocolate drinks comparing to an average European consumer, and that is 20 times less coffee per year. Doing analyses on Technological part of China, We found out that China is Investing incredible amounts of money in R&D, and ARLA could see this as an benefit I think especially when Chinese government are supporting development, so Arla could get some help With R&D.
SWOT analyses
Strengths
Arla is a big company with a strong structure. Is a well-known brand in the World Have a big experience working world wide, more than in 100 country’s all around the
world.44
Already started work in Chinese Market 45
Have strong R&D Department46
Have good Marketing Department that is developing and waiting for new birth minds and ideas.47
The Chinese milk in many areas is highly polluted as a result of hyper production in the region, so Arla could be a good alternative as eco-friendly and healthy choice.
Weaknesses
Lack of knowledge about China. Don’t have connections in China to distribute the product Product is made for EU market and should maybe be developed for Chinese market Don’t have a factory in China, which may rise the cost of the products
44 http://www.arla.com/About-us/ (about arla)45 http://www.arla.com.cn/Arla-brands/Milk-and-cream/Cocio/ (Arla in Chinese Market)46 http://www.foodnavigator.com/Financial-Industry/Arla-unites-R-D-resources-with-new-milk-protein-centre(Arla opening new R&D facility)47 http://www.arla.com/Job-and-career/Meet-Arla/Our-business/Sales-Marketing/ (Marketing opportunities)
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Opportunities
Open showrooms, degustation stands in Beijing Find distributers in Chinese Market Establish production in China Establish logistics Do Marketing regarding new product Close contracts with other companies that provide services, like coffee shops.
Threats
Threats of competitors that are working in china for long time Possibility that their product will not be appreciated in Beijing Consumers will choose an alternative product from companies like Mengniu48
PR and Image
Conclusion SWOTDuring the SWOT analyses we understood that Arla have a lot of strung points because it have been such an successful company for all this time and have established business in numerous country’s all around the world and have been in investing in research and development and manufacturing a lot of assets, but company have it weakness as well they have not worked in Chinese market long enough to understand it and they don’t have a factory in china and consumers are totally different by the buying power and culture in china comparing to Europe, But still Arla have a numerous of opportunities that they can use to penetrate this market, that’s is establishing a factory doing more research and so on, but there are some threats as well in such a big country as china there is a lot of competitors that are in the market already for a long time and consumers have already trust for their products, and they might not be so successful with their products in China.
Customer segmentation
Perhaps customer segmentation is the most powerful marketing tools, in view of the
purchasing power of customer is not equal. Thus the profitable and effective customer
segmentation is leading to the whole companies’ profitability directly. We are
targeting China which is the biggest market all over the world; therefore, appeal to
potential customer and then likely to become loyal customer afterwards. We are using
a exist product to enter a new market, market penetration would be undertaken
(Ansoff Matrix 1975), The company should adjust its marketing to wealthy buyers,
because it offers kind of foreign luxury products, well- quality which are usually more
expensive than competitor`s offers. To win market share, therefore, a company must
48 http://www.mengniuir.com/html/about_profile.php (abbout Mengiu)43
ensure that their offers meet customers` needs better than any other at a price they
perceive as providing superior value for money (which does not necessarily mean it
has to be the cheapest). The firm can identify its clients as people belonging to middle
and upper classes who can afford to buy more expensive food (social class
segmentation). For instance our milk powder focus on baby who is under 2 years old,
our main product Cocio and milk shake target 4 to 25 years old group. Due to the
analysis from social phenomenon, based on the pie chart in 2012, modern Chinese
people and Chinese family would like to pay more money for children’s health and
education. So the most potential consumer group is teenagers (4 to 20)
The awareness of brand differs from different ages. 49
www.zdc.zol.com.cn
Recommendations…………..
Source List
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Fusionen mellem MD Foods og Arla. January 24, 2000b. Danish Competition Authority. Documents : Aftale mellem MD Foods AMBA og
KS. April 21, 1999 Barringer, Bruce R. 2010, “Entrepreneurship. Successfully launching new ventures”,
Pearson, 3rd Edition, pp 9-16 Blue Ocean strategy How to create Uncontested Market Space and make the
Competition Irrelevant, W. Kim, Renee Mauborgne, 2005, pp 77-81
49 www.zdc.zol.com.cn 44
Business Analysis Techniques: 72 Essential Tools, James Cadle, Debra Paul, Paul Turner, 1988, pp 91-155
Frandsen T., Sales&Marketing, BA of International Sales&Marketing Management, Edition 1 2013, pp 157
James Post, Lee Preston and Sybille Sachs (2002, Managing Extended Enterprise, The new stakeholder View, page 1-8
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Marketing Strategy & Competitive Positioning, 1998, Graham Hooley, John Saunders, nigel Piercy, pp 267-293
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fee for entering the cooperative society. September 29. 2004a. Documents for 2004: Fusionerne mellem MD Foods /Kløver Mælk og Arla
/MD Foods.
Websites
(some) cases against Arla: http://www.mynewsdesk.com/arla-foods/pressreleases/the- charge-against-arla-in-denmark-760967; http://www.nutraingredients-usa.com/Suppliers2/Spherix-continues-actions-against-Arla; http://www.farmersguardian.com/home/business/business-news/locals-rally-against-arla-mega-dairy/37530.article; http://www.farmersguardian.com/home/business/business-news/locals-rally-against-arla-mega-dairy/37530.article; http://www.petitionbuzz.com/petitions/acrid; http://ec.europa.eu/competition/mergers/cases/decisions/m6611_20120927_20212_2810072_EN.pdf
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