Summary

marketing campaigns and developing more efficient distribution channels, while keeping resources low.

To give an overview of the elaborated points, the summary below outlines the market positioning potentials and challenges in SSA for the business development of Arla Foods based on the identified variables from the analytical framework with focus on the division between internal and external factors. In this way a clear picture of Arla Foods‟ marketing positioning is presented.

Market positioning potentials and challenges in sub-Saharan Africa

Influencing factors Potentials (+) vs.

Challenges (-) Assessment

Segmentation: High, middle,

low income segments

+/-

Potential to build strong brands across the segments

by earning fewer margins per unit than only gaining profit margins per unit/Relatively little experience of operating in the various segments

Marketing opportunities and constraints in consumption pattern within the segments

-/+

Various preferences within middle-high income groups. Still strong consumption via informal channels/Consumption via formal marketing channels (supermarkets) is rising

Product portfolio – Adjusted to

local needs and preferences

+/-

Currently wide product portfolio to serve various preferences for dairy products/Likely need for further product development to stay competitive in the long run

Urban consumer focus to combat institutional voids and maximise resources

+ Potential to reach concentrated population with growing purchasing power and efficient selling, advertising and distribution

the company‟s existing markets in the region. As highlighted in the international business literature, both the psychic and physical distances play an important role in choice of entry.

In a long term perspective, Arla Foods would benefit from approaching a new geographical region (Tanzania, Kenya and Uganda) that represents opportunities for both of Arla Foods‟ overseas divisions to exploit the potential benefits of a joint divisional market entry. This way, selected promising markets in sub-Saharan Africa can be entered in a manner that accommodates and corresponds to the current development of Arla Foods‟ capabilities and market knowledge.

The table on the next page summarises how Arla Foods should enter into sub-Saharan Africa based on entry mode, timing & commitment, and market positioning. A brief recap of which markets Arla Foods should enter is equally added. The second section of the table outlines the proposed 3-step entry into the region. Here, actions for both Consumer International and Global Ingredients are considered.

How should Arla Foods enter the markets in sub-Saharan Africa?

Where to enter sub-Saharan Africa?

Based on a combination of both internal and external factors influencing market assessment:

- Relative to Arla Foods‟ experience in SSA - Ease of doing business

- Level of dairy import - Issues of political stability

- Income distribution and GDP/capita - BOP potential

- Urban demand - Retail development

The following markets were selected based on the above-mentioned variables:

Nigeria, South Africa Ghana, Botswana

Kenya, Tanzania and Uganda

Entry Mode

Arla Foods would benefit from maintaining a low risk entry mode as a result of its previous low-risk internationalisation path and relatively limited experience from the sub-Saharan market. The reason for this it that, although the sub-Saharan market demonstrates positive developments in growth and dairy consumption, it is still characterised by uncertainty, competitor presence and institutional voids.

Using a stepwise internationalisation approach through non-equity means of export and distributor/agent ensures sufficient flexibility in its entry mode. With distributional agreements Arla Foods can work around the institutional voids, even though it would entail a slight loss of control.

If Arla Foods in future wish to strengthen its focus on sub-Saharan Africa and acquire larger market shares, it could be relevant to look into the possibilities of acquisitions of local brands as this will strengthen Arla Foods‟

distributional and sales coverage.

Timing & Commitment

Based on Arla Foods‟ low risk approach and to lower the uncertainty of the external market environment, Arla Foods would benefit from pursuing a “follower”

approach, ensuring that market potential has been identified by other players.

Arla Foods has previously granted distributors control over the local marketing of its products. Through closer collaboration with local distributors/agents, Arla Foods will be better equipped at understanding the market and marketing channels available. Eventually, Arla Foods will be in a better position to develop products that meet the needs and demands of sub-Saharan African consumers.

Making early market entries elsewhere in the region can be considered at a later stage, when the company has become more familiar with market conditions. Early market entry would also require willingness to take on more risks.

Market positioning

Arla Foods can gain several advantages from pursuing a market position that will focus not only on the premium segment but also on the middle and lower segments (BOP), which hold great potential for both of Arla Foods‟

divisions. By focusing on these segments, Arla Foods can rely on and further develop its current segmentation experience.

At an initial stage, it will be sufficient for Arla Foods to rely on its existing portfolio, because of its wide ranging products. However, with a more diversified and adjusted product portfolio, Arla Foods can build long-term profitable markets in sub-Saharan Africa within the distinct market tiers.

In order to work around the institutional voids and fully utilise its experience and capabilities, Arla Foods should emphasise in targeting consumers concentrated around urban areas.

Step 1: Penetrate existing markets in new segments - South Africa & Nigeria

Consumer International will be able to increase sales and market coverage of Arla Foods‟ product in South Africa by tapping into lower consumer segments, while continuously targeting existing high/middle income consumer segments.

Consumer International has been present in South Africa for over 30 years with a product portfolio that corresponds to the preferences of high income consumers in home markets. However, since 75 percent of the South African population is characterised as BOP consumers, it could be valuable to look into the market opportunities within middle/lower income segments to increase coverage and sales. In a longer perspective, this will be of great benefit to Consumer International in the sense that the division can keep track of the consumers as their consumption patterns change. Consumer International should use South Africa as a pilot market for penetrating lower income segments by applying its current portfolio of products from the Middle Eastern market. Using South Africa as a test market entails important benefits, including the fact that Consumer International can build on its experience in a familiar market by targeting new consumer groups and testing the products in lower segments. The success of such approach can be measured in sales numbers. The approach will require only a small increase in investment and enables Aral Foods to tap on Global Ingredients‟ experience of serving lower income segments.

Global Ingredients will be able to increase its existing business in Nigeria by continuing its penetration of the lower income segments, while at the same time serving the higher income segments.

Global Ingredients has experience of selling milk powder in various income segments in Nigeria with its current broad product portfolio. Global Ingredients will gain advantages from incorporating the market potential in the various segments directly into its growth strategy. The reason for this is that Global Ingredients can then strengthen its position further by exploiting its already acquired knowledge and capabilities attained from operating in the Nigerian market.

Global Ingredients should therefore build on existing knowledge and contacts in Nigeria, while continuing to allocate resources.

Step 1 Short-term 1-3 years

Step 2 Medium-term 3-5 years

Step 3 Long-term + 5 years

Penetrate existing markets in new segments - South Africa & Nigeria

Exploit existing advantages by expanding to neighbouring countries – Botswana & Ghana

Joint Entry into new region – East Africa (Kenya, Tanzania, Uganda)

How should Arla Foods enter the selected markets in sub-Saharan Africa?

Proposing a 3-step entry

Step 2: Exploit existing advantages by expanding to neighbouring countries – Botswana & Ghana

Both Consumer International and Global Ingredients would benefit greatly from exploiting the potential of utilising existing knowledge and capabilities from operating in South Africa and Nigeria to expand into Botswana and Ghana, respectively. To a large extent, these countries represent familiar preferences, trends and developments.

Based on the capabilities gained from existing markets, the divisions are better equipped at understanding and exploiting preferences and trends in new neighbouring markets. Botswana and Ghana are particularly interesting, because they represent impressive growth potential within the dairy industry for the benefit of Consumer International and Global Ingredients respectively. Furthermore, Consumer International will most likely benefit from its agent‟s and distributor‟s connections to South African supermarkets, which are already established in the Botswanan market.

Step 3: Joint entry into new region – East Africa (Kenya, Tanzania, Uganda)

In the long run, it could be worth investigating the potential of combining the knowledge and capabilities of Consumer International and Global Ingredients in order to carry out a joint entry into East Africa (Kenya, Tanzania, & Uganda).

This region scores high on market potential for both Consumer International‟s and Global Ingredients‟ products.

At present, neither Consumer International nor Global Ingredients have much experience in providing products to Eastern Africa. However, by focusing on markets with interesting potential for both divisions, Arla Foods has an obvious opportunity to utilise the synergies embedded in each of the divisions‟ previous experience and capabilities.

With a joint approach, the divisions can share costs and benefit from the tacit knowledge that each division possesses with regard to market factors, industry and competitor insight as well as institutional systems in sub-Saharan Africa.

This way, Arla Foods will be able to serve customers‟ various demands for dairy products.

Table 16

In document Arla Foods Arla Foods Arla Foods Driving sales through entry into sub-Saharan Africa (Sider 116-121)