Question 1: Strategic Issues Confronting the Arla Foods as It Expands into Other Countries
Arla Foods is an international dairy products chain and the most dominant in the Scandinavian region (Ichii and Michael, 2012). The company was created in 2000 following a merger between the Danish dairy company MD Foods and the Swedish Dairy cooperative Arla (Grefen and Carmel, 2010). The Company currently operates worldwide but does not have a branch in all the countries in the world (Ichii and Michael 2012). Grefen and Carmel (2010) notes that the Sub-Saharan Africa, for instance, is one of the regions to which Arla Foods is aiming to expand. Bartlett and Beamish (2013) asserts that internationalisation is one of the contemporary phenomena that changes the landscapes of cross-border companies. The international market is incessantly changing and generates dynamic situations with implications and impacts for the international businesses and their competitiveness. Arla Foods is one such company. While it is commonly perceived that exploiting regions like the Sub-Saharan Africa may be challenging, there are instances of good markets in the area. But such markets can only be identified and operated through a comprehensive strategic system of considerations. Freeman (2010) observes that in its bid to internationalise, such strategic considerations as the entry mode, logistics, location, and human resources among other may confront Arla Foods. Besides, the company has to consider the timing and marketing as it expands into the other countries.
As instruments of the discussion on the strategic factors that may confront the business, the various theoretical frameworks and paradigms of internationalisation should be analysed. Thus, for the case of the Arla Foods the eclectic paradigm proves the most suitable. Grefen and Carmel (2010) lauds the development of this model and acknowledges its dominance over the others in the past years. Perhaps that is due to its inclusive since Freeman (2010) explains that the paradigm evaluates the extent to which companies should pursue their international goals. To accomplish the mission, the theory focuses on the non-equity investments rather than the merits of adopting the foreign direct investment. The following diagram demonstrates the most fundamental components of this module theory.
Developed by John Dunning, the OLI model is a source of generic strategies that assists in explicating the internationalisation theory. Bartlett and Beamish (2013) notes that the model incorporates both the location and industrial organisation aspects as evident in the above representation. What makes the theory even more efficient in analysing the Arla Foods case, for instance, is its holistic approach to the various international markets’ strategic conditions for companies. It aids in the discussion of the internationalisation, owner-specific and location-specific advantages (Ichii and Michael 2012). Freeman (2010) postulates that ownership advantages, for instance, are critical in offsetting the demerits of internationalisation. Internationalisation is assumed to be profitable in the sense that the company will be able to exploit new market environments and resources.
However, Arla Foods would have to control the use of its assets as one strategy to minimise the ownership risks attached to going global as well as achieve a monopolistic power that would work to its advantage (Bartlett and Beamish 2013). The second element of the OLI paradigm is the location advantages. Fryna and Mellahi (2015) asserts that these represent the cost of labour, natural resources, materials and establishment that the company will need to access in the host country. The particular concept seeks to explain the choice of an international market with regards to the location advantages. The final aspect of the liberal paradigm focuses on internationalisation; Arla Foods will be faced with surfeit alternatives of entry mode. On that note, the company will have to choose between entering the market from arm’s length transactions or a range of subsidiaries. However, Fryna and Mellahi (2015) suggests that a company should only internationalise its operations in cases where institutions show poor performance, therefore, pegging the greatest risk of the market entry over other considerations.
