Strategic alliances in the dairy industry : with special reference to Arla Foods

Abstract: European dairy firms face intensified competition and continuously new challenges raised by a more dynamic business environment. Many important market players affect the dairy business environment; retailers are subject to structural changes as they are internationalizing and consolidating, food service is a fast growing sector, consumer demand is shifting and changes in the agricultural policy will influence future strategies. To be able to handle all business environmental issues simultaneously firms can benefit from co-operating with others. The top 15 dairies in Europe have initiated more than 200 strategic alliances over the last four years. In this thesis six types of strategic alliances are accounted for; mergers, acquisitions, joint ventures, shares, licensing agreements and general/unspecified co-operating agreements. These types differ in terms of financial and resource integration. The aim of this study is to assess possible choices of alliance formation in the European dairy industry with special reference to Arla Foods and a few of its main competitors. Firms embark into alliances with the aim of supplementing each other's set of resources. To examine these firms' possibilities in the strategic alliance activities the resource-based theory is applied. Arla Foods, Friesland Coberco, Campina (cooperatives) and Danone (IOF), are subject to this study. The three cooperatives have internal disparities when it comes to organizational and financial structure, and apparently, this has implications for their respective choices of strategic alliances. Motives, strategic fit and resources held by firms are important variables when examining the phenomenon of strategic alliances, and differences can be distinguished between firms regarding these factors. Different motives evoke strategic alliances, like international expansion, further penetration on markets where the firms are already present and to strengthen product portfolios. Different motives advocate different types of alliances, so depending on a firm's strategy different types of alliances are more or less appropriate. Other reasons why a firm chooses a certain type of alliance is its ability to take risks and its ability to raise necessary financial means. Strategic fit between two allying firms are of substantial importance if the level of resource or financial integration is high as in the cases of mergers and acquisitions. What kind of resources a firm holds is elementary in these matters. Attractive resources send signals to potential partners. Looking at the resources contributed in different alliances formed by the firms in this study it is obvious that financial resources are the far most important. Arla Foods has taken a leading role in the strategic alliance activities in the dairy industry, forming many alliances utilizing the whole range of alliance types. Arla Foods diverge from Friesland Coberco and Campina to the extent that it has no allocated capital (owned individually by the members). Friesland Coberco and Campina both have cooperative forms that allow them to raise financial means either from members, in Campina's case, or from external investors, in Friesland Coberco's case, which makes them able to form alliances that require substantial financial means. Arla Foods has primarily formed joint ventures, capitalizing on its competence and market position, while Friesland Coberco and Campina have made several acquisitions, using their financial facilities. So, the organizational mode matters when it comes to strategic alliance activities conducted by dairy cooperatives.