Arla Foods - In search for growth: What Entry Strategy should Arla Foods Pursue in North Africa?

Kristine Kvalbein Fjetland

Student thesis: Master thesis


Motivated by a growing interest from Arla Foods (Arla) in the North African market, as well as a growing attention of the attractiveness of emerging markets in the strategic management literature, this paper examines what entry strategy Arla should pursue in North Africa. The entry strategy is designed on the basis of why Arla should enter North Africa, where to enter and how to enter, inspired by the OLI framework. Why Arla should enter North Africa was analyzed through an assessment of market opportunities in North Africa, and Arla’s internal capabilities, previous experience and strategic objective. The section found that the North African market constitute a large population growing at a high rate, as well as a growing middleclass and increasing urbanization. Arla’s objective for entering foreign markets were identified as market seeking investment, why there was seen to be a strategic fit. With previous experience from emerging markets, Arla has the opportunity to exploiting its already acquired knowledge and capabilities in an entry into North Africa. Where to enter was determined on the basis of potential market demand, competitive environment, business environment and country risk. With Arla’s objectives being market seeking, potential demand was seen as being critical for the evaluation of market attractiveness. Egypt was found to be the most attractive market for Arla. With 80 million residents, a growing middle class and high forecasted dairy consumption, Egypt pose high potential market demand. Nevertheless, a weak institutional environment and high country risk are factors that must be account for when determining how to enter. How to enter was analyzed through an assessment of transaction cost theory, resource based view, institution based view and cultural distance, and concluded that Arla ought to enter Egypt through a JV. Being a large firm with strong financials and knowhow from multinational experience provides Arla with resources and capabilities that are needed to enter Egypt through direct investment. Moreover, Arla are in possession of strong innovation capabilities that needs protection, particularly as the risk of misuse are enhanced in weak institutions. Network and relationship where identified as key success factors, which are best access through JV, due to the risk of company- and political resistance following a takeover. JV also helps overcome corruption, government bureaucracy, policy instability, as well as difficulties with organizational- and management practices following cultural distance, which are inefficiencies Arla will face in Egypt. Accordingly, entry through JV are seen to be optimal, as in enables Arla to access the high market potential in Egypt, while at the same time limit the high risk that are present due to a weak institutional environment and high country risk.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2012
Number of pages106