Strategy in Practice – Tatua Dairy Company and the Dairy Industry
External Analysis:
Industry Profile: The New Zealand Dairy Industry is a mature and large market involving six main competitors: Fonterra, Tatua, Westland, Open Country, Synlait and Miraka. Consequently, the scope of competitive rivalry is not only national but also global with NZ accounting for over a third of the world’s international dairy trade. The Dairy Company supplies a very wide range of dairy products in various segments that include: dairy ingredients, speciality nutritionals, flavour ingredients, bionutrients, foodservice, and consumer products to end-customers. The products that are accessible are fundamentally consistent across all competitors therefore companies differentiate themselves through innovative and high quality products such as the ‘Dairy Whip’, consolidated relationships with customers and ease of acquiring. Evidence of vertical integration is present in this industry as Tatua is supplied by its own shareholders however there is also horizontal integration as many companies have merged to gain market share. Economies of scale in this industry are high because it is essential to gain a profit. The six main competitors also have large facilities at their disposal that are used at full capacity to efficiently produce the correct quantity and product to supply to their numerous customers. Since the industry has high economies of scale, the barriers to entry/exit are very high, as it requires a significant amount of capital and skill. Industry profitability sees the big players making moderate-high profits.
Porters Five Forces: Threat of New Entrants is low to moderate. The reason being that the quality of the product is high and the competitiveness of large companies are seriously reducing new entrants. They will struggle as the main competitors have already established reputable brands and have limited the capability for a new entrant to gain any market share within the industry. Bargaining power of buyers is moderate to high, due to the variety of dairy products available, individual customers can easily decide on a substitute. Hence, there will be competition between companies on brand power and the quality of product before they compete by price. Bargaining power of suppliers is moderate, because most suppliers are largely linked with the main company. However, this also gives the suppliers a sense of control and power. The Threat of Substitutes is moderate to high because the variety of dairy substitution products widely available has a low switching cost and the prices are relatively reasonable. The dairy industry has had a substantial growth in recent periods but due to the main companies expanding their capacity on a larger scope and scale, as well as differentiation in products becoming ever so problematic. Exiting the dairy industry is very difficult, creating a high industry rivalry.
Driving Forces: A political legal driving force that has affected the Dairy Industry is the legislation that is the Dairy Industry Restructuring Act. This has seen two main co-operatives merge into Fonterra, however, they are required to supply competitors. Though the DIRA was in effect, government saw a change in regulation therefore one of the main competitors were no longer supplied, nevertheless the supplied milk would be used to compensate for the loss of valuable trading relationships with smaller NZ dairy companies that occurred when Fonterra was formed.
Key Success Forces (KSF): Within the Dairy Industry, Key Success Forces include companies attaining differentiation and competitive advantage through amalgamations of factors such as high quality, innovative and supplier/customer loyalty. Companies ought to respond quickly with customer needs as well as being agile when the marketplace experiences change. Since there are obviously larger companies, economies of scale obviously gives the larger companies power over setting the price.
Competitor Profile and Strategic Groups: Within the New Zealand Dairy Industry there are two strategic groups operating, measured in relation to: sales and target markets. The first strategic group focuses on which group generates a large revenue

Internal Analysis:
Strategic Profile: Tatua’s Co-operative Dairy Company’s vision is to excel within its niche markets and provide high quality value added milk products to both domestic and global customers but this is complemented by their mission being that they simply want to do what is best for the shareholders. This includes building a bigger and better brand image/loyalty, expanding the supplier base, and continuing to hold the firms successes and sustain their strong customer relationships and reputation. Tatua also aims to focus on more complex, higher margin products by providing added-value products in six key product areas: dairy ingredients, speciality nutritionals, flavour ingredients, bionutrients, foodservice, and consumer products. With a large range of products for dairy customers and at a high quality, Tatua’s culture aspires and prides itself on providing these products through its value of integrity, teamwork, respect, creative/flexible, innovation, and passion. This is correspondingly highlighted by their ability to maintain supplier loyalty and surround their environment with family values by giving supplier/shareholder higher farm gate milk prices and the chance to have an influence within the strategic direction of the company. Tatua’s has up to 270 staff members and 109 shareholder farmers, they have various institutions committed to research & development as well as factories and plants built to increase capacity, efficiency for their long range of products. In addition to these they have a Tokyo sales subsidiary named Tatua Japan so that they were able to enter the Japanese market effectively and an Insurance Limited established to help manage present and future insurance concerns. Though Tatua has a subsidiary in Japan and makes 20% of revenue through there, they have also entered the USA, China, Latin American, Europe and many other markets where they have built and maintained effective and beneficial relationships. On a business level, Tatua uses a Focused (niche) differentiation strategy, it is targeted to a narrow and niche market which has been explained in the vision. Tatua offers many products and they are most certainly differentiated. An example is at one point Tatua were the sole producer of this particular product, the aerosol cream in the Southern Hemisphere. On a corporate level, Tatua operates a concentration backward vertical integration strategy by having 109 local dairy farms become shareholders in the co-operative and become a source of supply of milk.
Financial Analysis: While Tatua’s capital expenditure has increased by $9.55 over 5 years, they have also increased in revenue from $184.4 in 2008 to $228 in 2012 and have so far shown huge growth within the company and has the capability to become much more profitable in the future as New Zealand continue to feed more than 100 million people worldwide, meaning that the industry will only continue to grow.
Value Chain Analysis and VRIO: Tatua’s is a small player in the global dairy industry, however the culture with a focus on passion, respect, teamwork, innovation and loyalty is a sustainable competitive advantage for Tatua. This is very valuable to the company, because it creates a path for innovative ideas, high quality product and team based environment that leads to lower turnover rates of staff thus increasing profitability. Since Tatua has a rich history and is close to celebrating 100 years, the culture has been well established within the company. Another sustainable competitive advantage is their quality and added-value products, producing complex products that differentiate themselves from competitors. This is difficult and rare to imitate because it is interconnected with the culture of the company. The temporary competitive advantage Tatua has is their ability to produce a successful marketing campaign. The majority of marketing was direct and face-to-face with customers to build more relations and tailor the products to meet the customer’s needs. This gave Tatua a great brand image, appearing engaged and of high value in front of its competitors. Tatua has also excelled overseas, this is a temporary competitive advantage because they have efficiently entered new markets by investing significant time and money to maintain and capitalise on business opportunities. It has resulted in Tatua selling its specialty products directly to a wide and complex range of international customers. The competitive disadvantage Tatua faces is post-2016 where they lose access to milk through the DIRA. Many of the possible suppliers are obviously supplying other companies therefore it is difficult during the transition period and could result in a lower asset utilisation. One other competitive disadvantage is that Tatua utilises a single location for all processing. This exposes Tatua to the possibility of contamination from pathogens or natural disaster that could leave them in a vulnerable state. Tatua’s core competency is their successful use and utilization of the supply chain and the relationships they’ve built & sustained with their suppliers/customers. This is valuable as it allows them to control their operations through the supply chain, keeping a high-value, low volume strategy, which enables them to remain focused to their vision of having high quality value-added products. Tatua has a range of entry modes from direct partnerships with customers to access foreign markets, overseas sales subsidiaries, joint ventures as well as agents. This is beneficial if Tatua wants to strengthen and further expand in the future in foreign countries, the cost would be minimized due to these partnerships. It is rare and can be costly to imitate through the time it takes to develop good relationships.
Strategic Issues: