The Selected Entry Mode - How should Arla Foods enter the Chilean

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50 of flavor and texture profiles, which may not match with Arla Foods’ current products (Yoghurth in Chile).

However, it is perceived that if Arla Foods manages to generate sustained sales volumes, raise brand awareness and increase its understanding of local culture and market dynamics, the Location and Internalization Advantage forces will tend to shift.

In particular, given that the above conditions are met, it is expected that these two forces will change direction or at least their intensity will be mitigated.

In such a scenario, a reassessment of the overall strategy is needed in order to generate competitive advantage, as the motives that led the company to choose a Strategic Partnership are changing.

It is perceived that at this point Arla Foods will need to adapt its strategy and resource commitments according to two variables: the entity of consumer demand and the partnership performance (Molina, 2015). The analysis of these two variables opens up three different strategic scenarios as explained below.

Figure 12: the proposed entry strategy

Source: own contribution

Joint Venture with current partner

Acquire a local player

Market exit Partnership with

local player Export

Present Stage 1 Stage 2 Stage 3

Strategy assessment

51 Stage 1 – Partnership establishment

Arla Foods negotiates and establishes a strategic partnership with a local player.

The partner will focus on distribution, sales, in-store merchandising and will provide key market knowledge and access to networks (Gulati, 1998). A local partner is also key for dealing with the national regulatory framework, which is extremely important.

According to Molina (2015), regulation of food products varies to a significant extent among the Latin American region. Hence, although Arla Foods has already activities in other countries in this region, it might be necessary to partner with a local player to deal with the regulation effectively.

According to findings, the partnership should not involve equity commitments from Arla Foods, so to minimize risks. Instead, it should be based on margins sharing.

Partnering with the right distributor is extremely important to penetrate the market successfully and to avoid resource waste. The target is to find a partner with complementary characteristics and ambition for creating business growth through the alliance with Arla foods. Hence, it becomes essential to define a set of criteria which allow the identification of a suitable partner. According to Molina and Jakobsen (2015) the ideal partner has a deep knowledge of the Chilean market, compensating for Arla Foods’ lack of local knowledge, and comes with a solid reach of distribution. It employs trained merchandisers, who ensure that Arla Foods’ products enjoy a suitable positioning on retailers’ shelves. It understands and complies with Arla Foods’ code of conduct, ensuring that the company’s brand and reputation are not damaged by its activities. Further, it and possesses the ambition to develop the partnership and consolidate a longstanding relationship with Arla Foods.

Table 6 summarizes the partner selection criteria.

52 Table 6: Partner selection criteria

Partner Selection Criteria

• Deep knowledge of the local market

• Wide and strong reach of distribution

• Trained in-store merchandisers

• Understanding and commitment to Arla Foods' code of conduct

• Ambition to develop the partnership with Arla Foods Source: own contribution

Stage 2 – Strategy assessment

At this point Arla Foods has worked with the local partner for some time, gaining consistent market knowledge and experience. It is the moment for a selection of a consistent competitive strategy. Further, Arla Foods must now reassess its operations Chile. Given the setup of current activities being carried out through a partner distributor, it is assumed that the two main elements that can affect Arla Foods’

operations in Chile are Consumer Demand and Partnership Performance (Molina, 2015). Arla Foods must adapt its business structure according to the outcomes of these factors as illustrated in Table 7. The response to these contingencies leads to Stage 3.

Table 7: Strategy reassessment

Consumer Demand for Arla Foods’ products Significant Non-significant

Partnership Performance

High Joint Venture

with partner Market exit

Poor Acquire a local player Market exit Source: own contribution

53 Stage 3 – Strategy Adaptation

The interaction of Consumer Demand and Partnership Performance opens three possible scenarios to which Arla Foods adapts by choosing a specific strategy, as illustrated in the above table.

1) Joint Venture with partner – If the demand for Arla Foods’ products is significant and the partner demonstrates sound capabilities and commitment to the partnership Arla Foods should invest into the development of its current partnership. The company should create a Joint Venture with its partner, establishing a solid presence in the Chilean Market. As highlighted in table 5 the business risk is higher for a Joint Venture than for a Strategic Partnership, due to the increased amount of resources to invest. However, this approach increases control over activities, improves scale and establishes a solid presence in the market. Arla Foods has already solid experience in establishing Joint Ventures in foreign markets (Arla Foods Annual Report 2014). Hence, the company possesses some expertise in managing this kind of processes.

2) Acquire a local player – In case the current partner’s performance doesn’t live up to the expectations but the market responds positively to Arla Foods’

products the company is recommended to turn down the current strategic partnership and acquire a local player, either a distributor or a small milk processor.

3) Market exit – If the demand for Arla Foods’ products is non-significant and shows no potential for growth, it is recommended to exit the market. This allows Arla Foods to direct its resources to other markets that demonstrate a higher attractiveness. The partnership agreement is not expected to constitute an exit barrier, since the partnership does not involve equity commitment from neither of the sides.

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