Report on strategic Analysis of Oceania Dairy

Limited——the Competitive Advantages

The report aims to deliver a comprehensive analysis of the Oceania Dairy

Limited regarding its strategic development in terms of marketing, products and

business strategy base on it’s the investigation towards its financial report. It is

focused on the competitive advantages owned by the Oceania Dairy Limited

enterprise resorting to its financial performance, external and internal resources as

well as market preferences in the agribusiness. The objective of this report is to

review the current business strategy of the company and make suggestion towards the

sufficient components, thereby constructing the blueprint of the future marketing

strategy of the Oceania Diary Limited corporation.

1. Introduction

The report is designated to conduct a full investigation to the current business

strategy of the Oceania Dairy Limited, so as to purpose recommendations and

suggestions towards the strategic development of the company. Oceania Dairy was

acquired as a registered start-up in 2013 and became a wholly owned subsidiary of

Inner Mongolia Yili Industrial Group Company Limited (Yili Group). Yili 's vision of

being the most trusted health food provider in the world by 2030 will add to the global

milk community's common interest in helping all nations live together. Oceania Dairy

has an important role to play in ensuring the Yili brand continues to be the world's

most trusted food brand (Oceania Dairy, 2020). As noted from the objectives of
Oceania Dairy Limited aims to achieve, the report stated the external competitive

environment of the agribusiness market in New Zealand faced by the company using

the PEST and Porter’s five forces analyses, as well as explain internal resources and

capabilities of the enterprise. A competitive strategy will thus be formulized based on

the analyses so as the recommendations towards to company’s financial conditions,

thereby revealing the competitive advantages of the Oceania Dairy Limited in the

market.

2. External analysis

In this part, the external environment of the market will be analyzed using two

models. The PEST analysis will be implemented to illustrate the general market

distribution of the agribusiness in New Zealand; the Porter’s five forces model will be

unitized to analysis the competitive industrial market.

2.1. PEST analysis of the general environment

PEST Analysis, inculcating the political, economic, social and technological

asepsis, is a management approach in order to become more competitive in the

market, whereby a company can analyze significant external factors affecting its

operations (Brunel, 2011). The four factors are listed as follow:

Political factor

Agriculture in New Zealand is a consumer-oriented and export-oriented industry,

and domestic agricultural product prices are matched with world market prices. The

level of funding for agriculture in New Zealand is the lowest among OECD countries,

at 1% of farm revenue, and most of its policy interventions are sector-wide,

remains of the pre-1986-88 policies of New Zealand that distorted agricultural

production and commerce. The level of manufacturers' funding is actually the lowest,

after statutory producer organization and marketing board changes, almost all

industries have been deregulated (Sturrock, 1969). By the end of 2010, all limitations

were lifted on who could export dairy products. In this end, the government

interference towards to the market is down to minimum, thereby giving more space

for enterprises to thrive.

Economic factor

In terms of economic development contributed by agriculture and agribusiness,

especially dairy sector, that contributes $7.8 billion to the nation’s GDP. Despite the

recent drop in global milk prices, in the year to March 2016, milk remains New

Zealand's largest export sector for goods at $13.6 billion. It accounts for more than

one-fourth of the products export (Heuer, Healy & Zerbini, 2007). In this end, it is

noted that the agribusiness, specifically dairy products, has been a significant

component to the New Zealand’s economy, as well as contribute massively to the

export business. The economic growth of the business encourages enterprises to

develop in the industry.

Social factor

The agribusiness has impacted significantly to the New Zealand’s societal

environment. More than 40,000 workers are employed in the dairy sector, with 27,500

on the farm and a further 13,000 in dairy processing (Lai et al., 2018). Dairy jobs have
risen at an average of 3.7% per year since 2000, more than twice as fast as total

employment. However, the connection between farmers and society is weak due to

their insufficient social license towards public, research reveals that farmers did not

want to train themselves on a field day because they believed they understood enough

to work on the farm. This widen the gap between farmers and the majority of society.

Technological factor

The technological enhancements in the dairy farming industry have made it more

efficient and lower-costed. These characteristics included a low-cost farm production

system, a manufacturing cooperative system, organized marketing, and the presence

of scientific support services working closely with industry. Taken together, they have

made the dairy industry a unique community which, by creating new markets and new

products, has shown itself capable of responding to the loss of markets for its

traditional products (Vopel, Wilson & Zeldis, 2012). Trends include mechanization

patterns and improved organization on the farm have led to fewer men struggling with

larger herds, more factory amalgamation has occurred, and improvement of herd and

pasture has continued, bringing greater production of units.

2.2. Porter’s Five Forces analysis of the competitive environment

Porter's Five Forces is a model that recognizes and analyzes five competitive forces

that form each market, helping to define the vulnerabilities and strengths of an

industry (Mahat, 2019). The five forces are demonstrated below:

Competition in the industry

In terms of the industrial market shares, the market share of Fonterra 's milk
processed in NZ has decreased from 96% to 82% since 2001, significantly increasing

the number and size of its competitors. Total NZ milk volumes increased by 52%

from 2001 to 2017, despite the recent slowdown in NZ milk demand. Consequently,

while Fonterra's market share has fallen, its milk volume collections have increased

by 37% (Bates & Quin, 2013). The competitive environment is consumed and

saturated with positive distribution of competitors. Therefore, the company should

focus on occupy more market shares by develop the quality of the products and

thorough more comprehensive marketing strategy.

Potential of new entrants into the industry

The new entrants to the industry require more conditions that can correspond

with the standards. Since any new entrant to the factory gate market would need to

contract with farmers and invest in milk collection infrastructure for delivery, the

most obvious candidates for supplying raw milk to the factory gate are other IPS,

either current or future IPs, in the absence of the Raw Milk Regulations (Dobson,

1990). As one of the top players in the dairy market, the Oceania Dairy Limited is not

concentrate on new entrants with less competitiveness, but rather focus on current

entities existing in the market.

Power of suppliers

The long-term support of a major international milk company can now be

enjoyed by local suppliers. They have the security of understanding that they are

contributing to a significant and progressive end user consumer being supported with

a high-quality product. This, in turn, provides suppliers with security and trust to
invest in their firms. With more than $650 million already invested to date in the

development of the Glenavy site, this also means significant local community

involvement (Shadbolt, Apparao, Hunter, Bicknell & Dooley, 2017).

Power of customers

With the fierce competition in dairy industry gives more bargaining power to the

customers. As dairy manufacturers compete to create more sales in terms of dairy and

subsidiary products. Therefore, customers can benefit more from the competitive

environment since companies will lower the price of the products correspondingly

with competitors’ price positioning, as well as trying to meet the consumers’ demand,

this also provided more options with both quality and cost-performance.

Threat of substitute products

Despite gigantic size of the dairy product market, the threats of replacement

products emerge with more focuses directed to obesity and dairy-free conception. In

this end, plant-based milk alternatives emerge to benefit vegetarians as milk items are

exempt from their diets (Jeske, Zannini & Arendt, 2016). Yogurt is also one of the

substitute products as it is made by adding live active bacterial cultures to milk. Such

"good" bacteria help to promote a healthy intestine. Other common substitutes include

soy milk, rice milk, almond milk and oat milk are all competitive products for

customers with different demands. This represents a significant tendency and threat to

the dairy products.

3. Internal analysis

The internal resources and strategy of the Oceania Dairy Limited will be
demonstrated in terms of the internal resources and capabilities. Thus, formulating the

competitive strategy of the company.

3.1. Internal Resources and Capabilities

3.1.1. Resource-based view

The resources of the company include tangible and intangible aspects. The

tangible resources indicate the international supply chain as the company is based in

china, thereby giving the enterprise more supply options from China that lower the

cost of the production process. While the Terta Pak spray dryer provide more

efficiency to the production. On the other hand, the intangible resources stated the

global influence of the company, since the company is a listed company ranking 7th

globally in dairy industry, the company can utilize global influence to create more

benefits for the company. In this end, the Oceania Dairy Limited is capable of making

47000 tonnes of milk each year and cut down its expenditures to create products with

more cost performance. The company thus have competitive advantages in terms of

productivity and cost control, thereby giving the company more competitiveness.
3.1.2. Competencies analysis

The core competency of the company indicates the connection between the

Oceania Diary Limited to its mother enterprise YilI. Not only can the Yili corporation

provide more support in terms of capital investment, human resources, facilities and

supply lines, but the mother enterprise can also help lower the cost expenditures of the

Oceania Dairy Limited. Within the Yili family, Oceania Dairy now sits alongside a

number of collective organizations. These include a research and development center

at the University of Wageningen in the Netherlands, a research centre at the

University of Lincoln, the acquisition of the largest ice cream maker in Thailand,

Chomthana Co Ltd, a cooperative agreement with Conaprole, Uruguay 's largest dairy

firm, and the recent acquisition of Westland Milk Products, the second largest dairy

producer in New Zealand, which includes shares in Rolleston's Pure Nutrition infant

formula factory, reinforces Yili's close ties with the Oceania region (ŞEN &

KARASU, 2020). These institutions can provide significant assistance towards the

manufacturing process of the dairy products. In New Zealand, many of the tycoons in

dairy industry, such as e Open Country Dairy, Synlait Milk Company and Westland

are locally based. They have larger volume in terms of the entity’s size, however, the

Oceania Dairy Limited have global connections to the mother company, which gives

it more competitive advantages in delivering better products, as well as reducing the

cost of manufacturing process.

3.1.3. VRIO model: resources-based analysis

Resource Valuable Rare Inimitable Organize Influence on

capability substitutable Exploit competitive

advantage

Global Yes Yes Yes Yes Sustainable

influence competitive

advantage

Terta Pak Yes No No Yes Temporary

spray dryer competitive

advantage

Cost control Yes Yes Yes Yes Sustainable

competitive

advantage

The VRIO model analysis illustrates the three main internal resources and

capabilities of the enterprise. The global influence underlines the most competitive

resource as other competitors in the market have not international connections,

thereby giving the enterprise sustainable advantage. The Terta pak spray dryer is also

an important resource, however, it can be purchased by other companies in the

markets. Moreover, the dryer can only increase the efficiency in the production.

Therefore, the competitive advantage of the machine is limited and temporarily.

Lastly, the company’s ability to control cost expenditures gives the company

sustainable benefits in increase productivity and net profits. Hence, it creates

3.2. Competitive Strategy

It is utilized the Porter’s generic model to analysis the current marketing strategy of

the Oceania Dairy Limited, thereby identify the current target market for the

company’s products as well as giving comments on the strategy concerning the firm's

resources and capabilities.

3.2.1. Cost focus strategy

As stated in Porter's Generic Strategy, the company is concentrating on the cost

expenditure aspect when charging average industry prices, increasing profits through

cost management, as well as gaining market share through charging lower prices,

while still making a fair profit on each sale because you have lowered costs (Miller &

Friesen, 1986). Since the dairy product market has lower commercial barriers, the

company will have to invest more in technological aspect to develop differentiated

products and create less profits on the other hand. Therefore, the company focuses on

cutting the excess costs as well as scrambling for more market shares with high cost-

performance products.

3.2.2. Target markets

The company concentrate on consumers of all ages. Oceania Dairy Limited

produce a variety of dairy product series from adult dairy products to Infant formula

products. The main consumer sectors of the Oceania Dairy Limited are family

customer groups that demands milk powder formula products for babies; urban

youngsters who demands fresh milk products for nutrition purposes and middle-aged
customers that consume daily dairy products such as milk, yogurt, cheese and cream.

These segments have more consumption demands towards dairy products, therefore

contribute more the company’s revenue.

3.2.3. Comment on the marketing strategy——resources and capabilities

The marketing strategy of Oceania Dairy Limited correspond with the existing

resources and capabilities of the enterprise. The company focuses on lowering the cost

expenditures, thereby enlarging the net profit sector of the products, which

corresponds with the internal resources of the enterprise. Oceania Dairy’s mother

enterprise Yili corporation can provide support in different aspects to conduct cost

management, in order to maximize the profit. The institutions of Yili corporation can

also create more efficiency in production. In this end, the internal resources are

sufficient to support the marketing strategy of the company.

3.3. Financial Performance

The Oceania Dairy Limited performed considerable profits, yet its cost of sales

and operational costs are also overwhelmed, leading to the final loss of the year.

Despite the company achieved $333,129,252 in terms of revenue, which increased

13% of the last year’s revenue. However, the cost of sales over 93% of the revenue,

thereby giving the gross profit only 7% of the total sales. Moreover, the operational

costs including distribution expenses, administration expenses, as well as income tax,

thereby constructing over a billion loss for the year.

The company’s financial performance is reflected on its external and internal

analyses. In terms of the internal factors, the internal resources that can be
implemented in cost management are insufficiently used by the company. The

company was also failed to recognize the income tax required externally as a part of

the company’s costs, as well as the excessive operational expenses. This negligence

enlarges the cost expenditures of the company, causing the loss of the enterprise.

4. Conclusion and recommendations

4.1. Recommended strategy

The Oceania Diary Limited should maintain its strategic approach as stated in the

Porter’s generic strategy. It is recommended that the company should concentrate on

the lowering the cost expenditures and operational expenses, as well as gaining the

market shares by lowering the price of the products. In order to achieve this objective,

it is required a low-cost base in terms of labor, supplies and facilities, as a way to

sustainably cut costs below those of other rivals (Polo & Weber, 2010). In

implementing a cost leadership strategy, the greatest danger is that these cost

reduction sources are not special, and that the cost reduction techniques are replicated

by other competitors. This is why it is important to actively find ways to reduce all

expenses. The Oceania Dairy Limited has empirical advantage in this aspect due to its

capabilities in controlling the costs.

4.2. Analysis

In this regard, the company’s internal resources can fulfil this requirement as the

company’s mother institution Yili can provide support regarding facilities and

supplies. The Oceania Dairy can also conduct the production methods in China,

thereby further reducing the costs. The institutions owned by Yili corporation in
Europe can increase the velocity of the R&D while reduce the operational costs of the

production process. Moreover, the global connections and influence of the company

as attributed to the Yili corporation can assist the distribution process, thereby helping

the Oceania Dairy Limited to reduce distribution costs. The facilities and

technological support provided by Yili corporation can also reduce the cost of sales as

the process of the production is simplified while the costs of the production are

distributed to the mother company. The external analysis also certifies the strategy as

the Porter’s five forces analysis indicate that customer groups will be benefited from

the price competition since the customers will receive a lower price position when

purchasing the products. In this regard, reducing the price of the products can only

increase demand, but also benefit the customers, thereby gaining more reputations.

The marketing strategy designated for the Oceania Dairy Limited can reduce the

cost expenditures of the enterprise while exert its competitive advantages to maximize

the revenue of the enterprise. By utilizing the existing internal resources and

capabilities, the company is able to reduce operational costs, administration costs,

distribution costs and cost of sales while maintaining its productivity. The company

can also takeover more market shares in the dairy products industry as the company is

selling the products with lower prices, while amending the revenue decrease by

increasing supply of the products, since the customers will demand for more products

with lower price. Therefore, the company is expected to turn loss into profit in the

next financial quarter.

4.3. Conclusion
 In summary, this report analysis the internal and external factors of the

competitive environment, as well as interrupted the current status, financial

performance and marketing strategy of the company. Hence, it is purposed a new

marketing strategy for the Oceania Dairy Limited to change the financial performance

of the company.

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