Research Paper: Strategic Analysis of Parmalat Dairy Company
Australia is the third largest exporter of dairy products in the world and its major competitor is New Zealand. The most dairy products in Australia are produced in Victoria and most of regions in the south-east of Australia (Australia 2014). Some of the Dairy production companies include Burro Foods, Fonterra, Murray Goulbun Co-op and Parmalat. Parmalat is a company that has a long history that trace back from the 1930s, when the company was known as Pauls Polar Perfections Pty ltd. Through a series of various acquisitions, the company was able to change its name to Pauls ltd and Parmalat Australia Pty Limited after an Italian investor acquired 100% shares of Pauls ltd. Parmalat is one of the world’s leading supplier of dairy products and other beverages such as juice. Some of the products offered by Parmalat are Milk, vaalia yoghurt, Iced Coffee, Ice Break and Break flavored milk. Parmalat is dedicated to providing high quality and nutritious products throughout the world. As one of the largest dairy companies, the main competitive advantage of Parmalat is its large investment combines with its strong brand. For the many years that the company has been in the industry, it has been able to expand its operations to various parts of the world and improved its operations through acquisitions. Currently, Parmalat operates in more than 18 countries and it has been able to hire over 3600 employees. Parmalat also ensures that it combines various strategies such as engaging in ethical practices such as corporate social responsibility to strengthen its corporate and improve its brand equity.
This essay examines the strategic planning for Parmalat Dairy Company, putting more focus on its plan for expanding its operations in China.
The government of Australia has played a significant role in promoting the dairy industry by creating a business environment that is conducive for the dairy companies. The government offers subsidies to the dairy companies thus helping lower the cost of production. Parmalat sources its raw materials that are raw milk and other dairy products from 500 farmers located in Australia. The dairy industry in Australia is dominated by large companies that engage in the manufacture of different dairy products (Moir & McCarthy 2014).
On of the factors that gives Parmalat a competitive advantage is its strong brands and that extensive presence in the market. The organization operates in 18 countries giving it an advantage over its rivals. Apart from its wide range brands, Parmalat has highly competent workforce that helps in the development of new products and implementing various projects. The huge operational capital gives Parmalat an advantage because it is able to engage in acquisitions of other organizations to enlarge its operations.
New Zealand is the main competitor of Australian dairy industry. In the last decade, the industry has stagnated at 10 billion while New Zealand has increased its liters to 20 billion. However, with the free-trade deal with China, Australia will be able increase its production and effectively compete with the competitors. Although Parmalat is also a strong domestic player, it faces stiff competition from supermarkets such as Coles and Woolworths.
Right from its formation, Parmalat has continued to experience fast growth and expansion through acquisitions and brand development. The company has an extensive market of its products across the world and also a strong market in Australia. Its large scale operations mean that the company has enough resource to launch its products to new markets such as China. Its high level of innovations is important for the production of high quality products. Additionally, Parmalat has a highly trained and competent workforce that helps to achieve its objectives.
Although Parmalat has highly experienced workforce, it has been accused of violating some labor laws. Parmalat has not fully embraced an effective talent management strategy for promoting good relations with its workforce. In July, Parmalat locked out its dairy workers over pay disputes and unfavorable work conditions. The other weakness that the company has is to adjust its operations with the tax structure of the land to avoid clashing with the authority. The organization will also have to address the issues facing its employees and farmers in order to foster a strong relationship with its stakeholders.
The signing of the Free Trade Agreement between China and Australia presents a good opportunity for Parmalat to expand its operations in China. FTA agreement means that the industries from Australia will have an easy access China; one of the largest emerging markets in the world. The trade agreement gives dairy companies to export dairy products to China without tariffs, which means the companies will experience an increase in return on investment. The other opportunity that Parmalat has is the ease with which it will be able to establish new subsidiaries where it can be manufacturing its dairy products. Establishing a manufacturing plant in China can present a good opportunity for Parmalat to enjoy relatively cheaper wages and low cost raw materials. Cheap labors combined with low cost materials that can significantly help the organization to lower its cost of production (EduTV & TVNews 2016).
One of the major threats to Parmalat is the rising cost of labor. The signing of the Free-trade agreement will open both opportunities and new cost of production. With increased demand due to new markets, Parmalat will also have to increase investment on human capital. As new measures are being implemented to standardize labor compensation across the world, it can pose a great challenge for most of the companies that target Asia as their preferred region for their production. The other threat of the dairy company is the increase in competition. The free trade agreement will also make other companies to increase their level of competition in order to win a bigger market share in China.
Use porter Five forces model
Famers are the main suppliers of the dairy products to Parmalat. Because there are many farmers in Australia, they do not have much control of the prices in the market. The companies have much influence on the price as compared to farmers, thus farmers are not a threat to the dairy industry although their contribution is of paramount important.
The numerous dairy products in the market, makes the buyers to have high power because they can switch from one seller to the other with very minimal cost. There are also numerous sellers thus the customers can easily choose from the suppliers with the right products and price that suits the customer. Because of the power of the buyers, it is very important to ensure that the product meets the desires of their client. This means that the organization should conduct market research in addition to use of the information that is given by the customers in order to manufacture products that will suit the clients.
As a well established organization with strong brands in the industry, new entrants do not pose a great threat to Parmalat. First and foremost, investing in a dairy industry requires huge investment to establish a manufacturing plant. Additionally, establishing a strong brand in the market is expensive and requires dedication.
There are diverse products in the market that can be used to substitute dairy products thus posing a challenge to the brands in the market. The substitutes of dairy products may include dairy products that are manufactured in a different form or totally different products such as juice and mineral water.
The dairy industry is faced with stiff competition both locally and internationally. In Australia, the Dairy companies are large scale which requires Parmalat to engage in diverse tactics to counter the stiff competition. Parmalat has also over the years engaged in acquisition as a strategy for expanding its operations and reducing competition. In the recent past, the CEO signed a new acquisition of Harvey Fresh dairy process facility, but decided to maintain the brands of the company (Díaz 2012).
Political influence plays a vital role in the success of international trade. The agreement between China and Australia is a political and economic decision that is meant to boost the trade between the two countries. The signing of the agreement means that Parmalat will experience a simple process in entering the market. Political difference is one of the problems that hinder effective international trade, which have overcome the signing of the agreement.
China’s economy is among the fastest growing economies, a factor that makes it an ideal target for international businesses. However, the government has been criticized for promoting protectionist policies that creates a barrier for effective competition with the local brands. Therefore, to counter such barriers, multinational organizations are often required to work extra hard to effectively compete with the local companies (McLachlan 2013). Parmalat will not only have to engage in extensive promotion, but also reduce the cost of production in order to sell the dairy products that are relatively low priced in China.
Expanding in new market means that Parmalat Company will have to engage in higher rate of production to meet the market demand. Technology is important to achieve a high rate of production, promote efficiency. Additionally, technology such as the internet and social media can be a strategy for promoting the dairy products in China and reach potential clients as well as for conducting market research (Garay 2012).
China has a totally different culture from that of Australia, which may cause some challenges in the new market. Although the high populations means a bigger market for Parmalat products, the company will still require to use brand promotion techniques such as advertising and giving sample in order to attract many buyers in China. Additionally, the free-trade deal enables the two countries to form strong and long lasting relationships.
The signing of the trade deal means that Parmalat will not be faced with legal issues that are mostly geared towards creating barriers. The high population in China gives advantage to the company because it will enjoy cheap labor. However, Parmalat should adhere to all the laws of the land including the labor laws in order to maintain a positive image in addition to avoiding expensive ligation process.
Although China has not fully embraced environmental measures, there is still need for Parmalat to be environmentally conscious in its production. Apart from being environmentally conscious in its production, the organization should also take an active role in countering the various environmental issues affecting the community, this will also contributing to product promotion.
The cultural difference between China and Australia may be a challenge to Parmalat, which is why it is important for the organization to establish strategies to break into the culture. The language barrier may pose a challenge thus the need for hiring the local people especially in functions that will require direct interaction with the clients.
Although the Free Trade Agreement has simplified trade between China and Australia, the two countries have different currency and China has relatively weak institutions. Parmalat will have to undertake all the documentation process required in addition to having a keen eye on the changes of the exchange rate.
One of the areas that the organization can use to improve its competitive advantage is boosting its supply chain. Parmalat will have to look for ways of using the easiest and fastest route to ship its products to China. The political position of both countries is relatively stable thus promoting a business environment that is conducive for the dairy industry.
Although Chinas’ economy is larger than that of Australia, income per capita is still low. The household economic difference in China will require Parmalat to design its product so that it will suit both the low income earners and the emerging middle class.
The focus of the Parmalat should be on continued investment on farming to increase profitability and competitiveness in the industry. Although the free trade agreement will open new markets, Parmalat will also experience stiff competition from the dairy companies in China. In order to counter the competition from the local industry in China, Parmalat will have to engage in product promotion, and incorporate new technology that will enable the organization to reach a wide client. The organization should continue engaging in innovations and productivity by working with the farmers (Garay Leiva 2012).
Parmalat will also have to increase its investment on R&D in order to implement effective methods of production. Innovations will help the organization to develop new products that will synchronize with the desires of the clients in the market. Although the Free-trade is a good opportunity to expand the operations of the organization, there will also be stiff competition because dairy companies from China will prepare for the competition by improving their dairy products. Therefore, Parmalat and other companies in Australia will have to protect and promote the dairy industry in Australia. Sustainable measures should be implemented with the collaboration of the dairy companies in the country (Pathak et al n.d). This may include offering the staffs and other stakeholders such as suppliers and farmers opportunity to enhance their skills.
The other strategy that the organization should focus on is to enhance its corporate social activities. In a country like China, Parmalat should look for ways of engaging with the community. This should be ways that will give the company an opportunity to solve the various problems in the society as well as promote its dairy products. One of the best strategies that Parmalat can use is funding the local sports team in China, helping schools in China and other problems in the society. Additionally, when selling its products in China, Parmalat should hire the locals. Hiring the locals will be a good step because it will be easy for locals to convince the potential customers. Generally, working with the communities will help in promoting its products in addition to formation of a positive corporate image (Australia 2014).
Mode of entry
As a foreign Dairy Company, it is important to first understand that China is not a homogeneous market. This means, Parmalat will first have to identify the right market within China with good potential for its dairy products. According to Wageningen Unversiteit (2008), Beijing, Shanghai, Guangzhou, Zeijiang and Jiangsu are the cities that can make good market for Dairy products. Identifying the right market will help the company to increase its chances of taking strong base in the China and the region. The company should then engage in joint venture whereby it will have to work with companies are already well established. Joint venturing is a strategy that organizations use to break into a foreign market because its saves on the cost of advertising and promotion of the brand. However, it is also be important to have highly differentiated products so that customers will be able to notice the difference. In order to counter the cultural difference, Parmalat will have to work with the local retailers with good reputation in the cities.
Parmalat is among the leading manufacturers of dairy products in Australia. Having been in the industry for a long period of time has enabled the company to establish a strong market presence. Although Parmalat has over the years experienced tremendous growth through acquisitions, the new Free-trade agreement between China and Australia presents a good opportunity for Parmalat to expand its operations in China. Parmalat produces various brands including the fermented milk, cheese, Ice break, Bonnita and Vaalia. In order to effectively enter China and take strong base, Parmalat will have to capitalize on its strengths and embrace its opportunities. As a company with huge operating capital, Parmalat will have to work with local community by engaging in corporate social activities. Additionally, the dairy company will have to carry out a market research so as to identify the market demand. Parmalat will also have to engage in extensive promotion of its brands in order to reach more clients.
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