Group Assignment

International marketing strategy-A case study of

Arla Foods

Authors: Mohammad Ahsan Sarwar

Md Shahed Hasan

Md Sajib Uddin Ovi

Supervisor: Anders Pehrsson

Course: International Marketing Strategy

Date: 15th Nov, 2018

Table of Contents
1-Introduction ...................................................................................................................................................................... 1
1.1Background ............................................................................................................................................................... 1
1.1.1Company description (Arla Foods) ................................................................................................................ 1
1.2Problem discussion ................................................................................................................................................. 2
1.2.1 Research Objective............................................................................................................................................. 2
1.4 Purpose of the paper .............................................................................................................................................. 2
1.5 Limitations................................................................................................................................................................ 2
2- Model for the analysis ................................................................................................................................................. 3
3- Method .............................................................................................................................................................................. 4
4- Analysis via PSE model- Arla Foods entering in Nepalese Market.............................................................. 4
5- Discussion........................................................................................................................................................................ 5
6- Conclusion ....................................................................................................................................................................... 5
7- Managerial Implications ............................................................................................................................................. 6
8- References ....................................................................................................................................................................... 7
1-Introduction
1.1 Background
Twarowska and Kąkol (2013) suggest that due to globalization more and more companies
strive to become international in order to gain competitive advantage. They further suggest
that benefits that come from being international varies from company to company. According
to them, in order to tap into international markets managers must study the nature of global
industries as well as understand the dynamics of global competition. They further suggest that
being international requires wide variety of business strategies along with a lot of local
knowledge. They define international strategy as a strategy through which different
subsidiaries of same parent company act independent of one another and operate locally with
very less coordination from the parent company. They further suggest that international
strategy is defined by three main aspects mainly i.e. very less coordination with the parent
company, response to local business needs and subsidiaries are independent of making their
own decisions.

Wu and Zhao (2015) suggest that there are various reasons that companies go international
such as in search of cheap labor, diversification, competitive domestic market, to be the first
to introduce new business and so on but the main reason is growth and company expansion.
According to Pehrsson (2008), international market entry depends upon external and internal
factors. He further suggests that without well-crafted entry strategy it is really challenging for
companies to succeed into global markets. He says from internal factors internal resources
and capabilities are concerned whereas from external factors customers, competitors and
other parties are concerned. According to Azuayi (2016), internationalization catches the
attention of every company but not every company is able to achieve the desired results from
being international. He further suggests that internationalization has changed the entire terrain
for doing business due to dynamic and competitive nature of markets. As per Azuayi (2016)
there are different entry modes that companies use in order to enter into the international
market. He further says that broadly all these modes have been classified into two categories
i.e. non-equity mode such as export, licensing, franchising and contractual agreements and
equity mode such as subsidiaries, strategic alliances and joint ventures.

1.1.1Company description (Arla Foods)

Arla Foods is the largest producer of dairy products in Scandinavia and is based in Denmark.
It came into existence as a result of merger between Swedish dairy company Arla and Danish
dairy company MD foods. The name Arla is Swedish name which means early in the
morning in English. Arla Food is the fourth largest dairy company in the world in terms of
milk volume and turnover. The company develops and manufactures milk based ingredients
such as milk and powder, milk beverages, mozzarella, specialty cheese, spreadable cheese,
butter and spreads, lactose, yogurt and so on for the food industry.

The current strategy of Arla food is “we aim to grow the value of our farmer owner’s milk by
developing our position as a leading global dairy company that adds value to the people’s
lives” (Arla Foods webpage, 2018).

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1.2 Problem discussion
As the strategy of Arla Foods is to become leading global company so it acts as a trigger for
Arla Foods to enter into different markets for growth purposes especially Nepalese market
because Nepal is among those countries that has aging population who is in need of
functional foods. Due to reliable supply and healthy nature of dairy product, Arla Foods has
earned a lot of trust and credibility among its existing customers. After indentifying the
rising preference of healthy food in Nepal, Arla Foods decided to tap Napalese market. The
other reason for Arla Foods to enter into Napalese market is the existence of large no. of
Nepalese middle class families that can afford the products manufactured by Arla foods. But
the challenge for Arla Food to enter into Nepalese market is this that it lacks local Nepalese
market knowledge and there is fear of poor sales due to weak customer base. Besides this,
there is lack of Arla Foods brand recognition in the Nepalese market as well. By entering into
Nepalese market the company will also face strong competition from local manufacturers
having comprehensive knowledge for Nepalese market. Besides this, Nepalese market is also
price sensitive which will make difficult for Arla Foods to earn profits. So, it is very
important for Arla Foods to formulate effective international marketing strategy (Azuayi,
2016).

1.2.1 Research Objective

The research question for this paper is “How entry strategies implemented by Arla foods
helped them to enter into international market and gain competitive advantage in Nepali
market?

1.4 Purpose of the paper

The purpose of this study is to analyze international marketing strategies implemented by
Arla Foods. It will also discuss that how Arla foods identify the most appropriate entry
strategy, what were the challenges that they face in the process of internationalization and it
will also give insight for managerial implications. This study will help in developing
understanding that how companies make decisions regarding being international and what are
the most important aspects that companies consider regarding their business expansion.

1.5 Limitations
Limitation of this study is that there is no empirical data used for analysis rather whole
discussion revolves around secondary data.

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2- Model for the analysis

Entry Barriers

Entry Strategy

Strategy
Competence

The model chosen for studying this case is PSE model for market entry. According to
Pehrsson (2008) PSE stands for perception of entry barriers, strategy competence, and entry
strategy respectively. The reason for choosing this model is its comprehensive and complete
nature. Pehrsson (2008) suggests that it consists of both internal and external factors that are
very important for entry strategy. He further suggests that for market entry model there is
need for considering both internal and external factors in a balanced manner.

As far as Arla Foods case is concerned this model will help Arla Foods to identify entry
barriers in a more holistic way. It will provide the right insight to mangers that what
challenges Arla Food can face as a result of its decision of entering into Nepalese market. By
working on “perceived entry barriers” Arla Foods can identify that where they should focus
their attention such as towards need for capital, access to distribution channels, and
economies of scale, government policies and regulations, customers switching costs and so
on. The second element of PSE model i.e. strategy competence will provide Arla Foods
sufficient information that whether their decision of entering into Nepalese market is aligned
with corporate strategy or not and if not then how can they resolve this. While considering
the third element of PSE model i.e. entry strategy it will help Arla Foods to make decisions
on resource allocations, the accounting system to monitor performance, defining target
market and so on.

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3- Method
For data collection secondary resources has been used such as articles and case studies.
Electronic means have been used in order to gather data used in this study. Database such as
Google Scholar and One Search remained the prime source of searching research articles and
journals. All journals and research articles used in this study are related to marketing and
international marketing strategies. The PSE model will be used in order to analyze how Arla
Foods design its entry strategy to tap Nepalese dairy market. The dimensions of PSE model
are perceived entry barriers, strategy competence and entry strategy. Data analysis will be
done by using secondary data which can also be considered as content analysis. According to
Pehrsson (2008) content analysis is a method that is used in giving contextual meaning to
data. The fact is that the data used in this study is secondary data due to which the reliability
of study can get affected by this. Although peer reviewed articles were given preference.
Careful and thorough selection of articles and case studies increase the level of reliability to
some extent. Internal and external validity used in this study is also relatively low because no
empery has been used and rather it depends upon the secondary sources.

4- Analysis via PSE model- Arla Foods entering in Nepalese Market

As far as “strategy competence” is concerned for Arla foods to enter into Nepalese market, it
has been found that Arla food’s decision to enter into Nepalese market is in line with Arla’s
strategy of being global. Arla Food has required core competency for dairy products and the
quality they are offering in their products is difficult to imitate for other local competitors due
to state of the art technology and effective supply chain network (Azuayi, 2016).

Regarding “entry strategy” there are different options that Arla Food can consider in order to
enter into Nepalese dairy market. “Exporting” is one of such strategies through which Arla
can transport its products produced in one country into another countries for sale purposes.
The other strategy that they can use is “licensing”. In this, Arla Food can transfer the rights to
use their product in Nepal and by this they can achieve their purpose of internationalization.
In addition to this Arla Food can also buy large amount of shares in order to capture Nepalese
dairy market. “Franchising” is also considered as one of the new market entry strategy. Arla
Food can do expansion in Nepalese markets by making effective use of this and as Arla food
has good brand recognition in major countries of the world so by capitalizing on brand
recognition Arla Food can easily capture Nepalese market. “Joint venture” is an another
option for Arla Food to enter into Nepalese market because in this there is need to create a
third company that Arla Food can make with any local business. In this way Arla Food can
also develop its knowledge of Nepalese market in a quick way. “Partnering” can also be done
with another company in Nepal to facilitate Arla Food’s entry into the global market (Azuayi,
2016).

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As far as “perceived entry barriers” are concerned the Nepal is politically instable country so
before making any investment this should be keep in mind. Nepalese government is not so
much into research and development and innovativeness so this can clash with Arla’s strategy
of innovation. The natural calamities such as earthquake are also very common in Nepal and
this lead to mass destruction in whole country. Geographically it is also difficult to access
Nepal as it is a landlocked country which is difficult to access especially in case of export. On
contrary the positive things that attract Arla Food to Nepalese market is cheap labor,
subsidies given by government on dairy business, demand for healthy food, presence of
large number of middle class groups etc. Lack of research and development and innovation
can also act as opportunity for Arla Foods to be the first to introduce their state of the art
technology that they use in milk extraction (Azuayi, 2016).

5- Discussion
From the analysis of Arla food’s case study, it has been found that on the basis of already
accumulated experience of the owners, brand recognition, internationalization knowledge,
Arla adopted “direct import” as an optimal entry strategy. This is because it is cost effective
and less risky. By using direct export as an entry strategy the study suggests that Arla Food
should focus on building its brand internationally so that Nepali customers embrace Arla food
products in less time. From the analysis of both external and internal factors it can be
observed that Nepalese market is highly attractive for Arla Foods and plan should put in
place to take advantage of opportunities that Nepalese market is providing (Azuayi, 2016).

6- Conclusion
The research question for this study is “how entry strategies implemented by Arla foods
helped them to enter into international market and gain competitive advantage in Nepali
market?” And it has been found that Arla Food has entered into Nepalese market through
direct import and as this strategy is cost effective and less risky so it help Arla food to gain
competitive advantage over all. Considering both internal and external factors, it has been
found that Nepal is attractive market for Arla food to enter. And by entering in Nepal, The
Company can also develop relationships to the neighboring countries of Nepal so entry in
Nepal can be considered as big gate for opportunities. And it would be good for Arla Foods
to be the first in Nepal having state of the art technology for milk collection. This will give
big hit to local Nepali businesses in dairy products.

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7- Managerial Implications
It has been found that Arla Foods have considered both internal as well external factors
regarding their decision of entering into the Nepalese market. This case gives a good
managerial insight regarding entry strategies and other international market strategies can
companies can consider during their internationalization. Although this case provides very
holistic and comprehensive approach regarding entrance into new market but it can be further
suggested that Arla Foods should do all required efforts to develop strong relations with the
customers, market and distribution channels. They should first learn from the local businesses
and then on the basis of that knowledge it would be easy for Arla Foods to gain competitive
advantage. Arla Food should go slowly but smartly in order to understand Nepalese dairy
market.

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8- References

- Arla Foods web page 2018. Online: https://www.arla.com/company/strategy/strategy-

2020/

- Azuayi, R., (2016). Internationalization strategies for global companies: A case study
of Arla foods, Denmark. Journal of Accounting and Marketing. SMC University,
Switzerland.

- Twarowska, K., Kąkol, M., (2013). International business strategy reasons and forms
of expansion into foreign markets. International conference 2013.

- Pehrsson, A., (2008). Application of the PSE model for market entry: Ericsson enters
the US market”, Business strategy series, Vol. 9, Issue 4, pp168-175.

- Wu, D., Zhao, F., (2015). Entry modes for international markets: Case study of
Huawei, A Chinese Technology Enterprise. International review of business research
papers. Vol 3, No. 1, pp.183-196