Summary

As demonstrated in the market assessment and contrary to what the theory has highlighted, SSA is not limited to being a trailing market that scores low in market potential. Instead, SSA should be seen as a region that presents long term market potential that can be converted into profit. The reason for this can be found in a mixture of tendencies in the market. First of all, the economy is growing, which enables consumers to purchase more processed and value added dairy products. In addition, SSA represents great potential in the form of a large population, which at an aggregate level demonstrates the highest growth rates in the world. Furthermore, substantial changes in the market are taking place in the form of growing urbanisation and an increasing middle class. The market potential lies in the fact that a concentrated population can ease distribution. In fact, SSA holds several opportunities for businesses to target various income segments ranging from lower to higher income consumers, which is a unique feature of the region. The higher income segments are often the most obvious target group for companies. However, the potential to conduct business in lower segments should not be overlooked. Indeed, special attention should be drawn to the possibilities at the Bottom of the Pyramid (BOP). The reason for this is that food markets are strong within the BOP market with large shares of income being spent on food products. However, it should be mentioned that the development of the market is fairly slow.

Table 9

The nature of the industry and competitive scope shows that Arla Foods can tap into a dairy industry, which is characterised by a short supply from local players and therefore a high dependency on imports. As global and regional dairy players already operate in the market, Arla Foods can gain certain “follower advantages” from entering these markets. It may even be possible for the company to gain first mover advantages by launching new products. Moreover, the growing presence of supermarkets generates demand for high quality products and the large coverage of supermarkets can help to ease the distribution of Arla Foods‟ products.

Despite the many opportunities in the industry and competitive setup, Arla Foods will also be faced with an industry which is dominated by an informal market and consumption that does not necessarily follow a traditional pattern. The institutional setup in SSA can to some degree constitute a challenge to Arla Foods, because a lack of market information makes it more difficult to acquire knowledge and thereby assess and adjust to the market and industry conditions. Moreover, political risk, infrastructural voids, bureaucracy in customs declaration and protectionist initiatives are obstacles that Arla Foods are likely to come across. However, it is possible to work around these challenges for example by establishing a partnership with an intermediary. Furthermore, the progress in economic liberalisation is a clear indication of the positive direction in which the region is developing.

As already established, the market potential in SSA is not unconditional. However, Arla Foods can rely on its many years of experience from operating in different markets, including the fact that the company has grown from being a local player in home markets to becoming an international player on the world stage. This demonstrates that Arla Foods has developed its business, despite international competition, to encompass new markets, including establishments in more uncertain emerging markets and developing countries. Furthermore, Arla Foods can rely strongly on its solid export experience and intermediary contacts in sub-Saharan markets, which are evident factors to exploit when developing the business further. Consequently, and as a result of Arla Foods‟ current activities in sub-Saharan Africa, the company‟s capabilities are increased by the accumulated portfolio and experience of Consumer International and Global Ingredients. These two divisions know how to serve the demand for processed products at various levels. Moreover, Arla Foods has shown increased revenue performance, which can be utilised to assign more resources to assess the region. Finally, the ownership structure of the company is developing and there seems to be more openness at hand towards revising the company‟s priorities.

At an overall level, it can be established that the external market conditions do represent comprehensive business development opportunities for Arla Foods. Despite the challenges in the markets, Arla Foods can rely on its previous experience and capabilities to work around them, especially the institutional voids. Therefore, there seems to be no doubt that Arla Foods would benefit from entering SSA, taking the challenges into thorough consideration.

A summary of Arla Foods‟ potential successes and challenges of entering SSA is outlined in the table on the next page. The aim is to provide a clear overview of the variables that speak in favour of Arla Foods‟ entry in sub-Saharan Africa.

Why should Arla Foods consider entering sub-Saharan Africa?

External Factors Internal Factors

Market Industry/Competition Institution Previous Experience Capabilities

Po ten ti al

Market opportunities within different consumer segments A growing economy enable consumers to purchase more processed/ value-added dairy products Urban population has higher purchasing power and a concentrated population urban areas ease distribution of products. Growing middle class Expected growing demand for dairy products due to extensively increase in population

Large share of available income is spent on food products

The demand level outgrows local supply, which makes the industry dependent on imported dairy products Rising demand for imported dairy products as a consequence of low local supply and growing purchasing power Potential to serve a new product market as a first mover or follower Growing presence of supermarkets ease distribution of goods and create a demand of high quality products

Increase in FDI in various fields such as infrastructure and bureaucratic initiatives ease doing business

Global tariff agreements and consumer demand are likely to put pressure on further liberalisation initiatives for the ease of business entry Partnerships can ease business by working around the voids

Benefits of trying to convert the informal dairy market and build stronger formal marketing channels Increase in high quality and standard products for the benefit of businesses with high quality products (Arla)

Comprehensive business development experience in the development of becoming a international player

Increasing knowledge about emerging and developing countries more commitment to emerging and developing countries With Consumer International and Global Ingredients Arla has experience of serving various customers‟ need at various income levels Decades of experience with export to SSA. Build up connections with agents and distributors and stronger commitment to adjust to customers‟ need for adjusted products Experience in working in a ever changing

environment which requires continuously adjustment

Arla Foods can serve comprehensive demand of dairy products due to its wide-ranging product portfolio relying on products from both developed and developing countries

Increased revenue to finance expansion on new markets The co-operative structure is currently at debate and a more openness to a revised structure is likely to occur

Ch al le n g e

Income level is still at an absolute low level an unprocessed milk is still demanded despite growing income Middle class is still relatively small Majority of local dairy purchased through the informal economy

Competition from global players and regional players who are already established in the market

Informal markets are still dominating the distributor of food products

Lack of data complicates the process of acquiring knowledge about key patterns and set-up when assessing the market Political instability increases transaction costs and uncertainty about the market Poor infrastructure requires innovative distribution system compared to developed markets Protectionist initiatives limits access of international companies in local markets and increases bureaucracy in trade

Customs and ineffective legal system challenge entry to the market

SSA experience is to a larger degree based on the experience from South Africa and Nigeria Cut on earnings due to complex market environment which is likely to make the company more reluctant to investment into complex markets

The ownership structure can to some extent limit growth opportunities in new markets

A ss es smen t

The market conditions show positive trends with various segmentation possibilities, economic growth and growing middle class and urbanisation (though at from a relatively low level) together with the highest population growth in the world.

The industry and competitive setup is characterised by strong growing demand, dependency and increasing levels of imported dairy products. Moreover, there is the potential to create first mover advantages with a new product launch, because competition is exist. Increase in supermarkets will ease the distribution of products though the majority of local milk is currently distributed through the informal market.

Several institutional voids are likely to challenge Arla Foods‟ business in SSA.

Information is rare, political risks exist and bureaucratic measurement and poor infrastructure can delay operations.

On the other hand, economic liberalisation and focus on stricter quality standards can increase and enhance trade commerce for foreign players.

Arla Foods‟ previous experiences can be used in SSA, because they have experience in developing its business to becoming an international player and can rely on its increasing knowledge about non-traditional markets.

Combined with Arla export experience in SSA where also connections have been built up with agents and distributors, it gives Arla a solid profile.

Yet, more comprehensive knowledge is limited to South Africa and Nigeria and its previous exposures in the Middle East may make Arla more reluctant towards high risk investments.

Arla encompasses comprehensive capabilities to serve the dairy market in SSA in the form of a wide-range product portfolio, an increasing financial performance. The ownership structure is likely to be modified which is expected to ease further entry and investment into new markets.

Table 10