Devondale’s Export Products to China Free Essay

Executive Summary

This paper is an analysis of Devondale milk powder (Australia) export to the Chinese market’s Tianjin area. Devondale is an Australian cooperative dairy company owned and controlled by Murray Goulburn’s dairy farmers. It is amongst the largest Australian dairy companies and possesses an outstanding position in the dairy supply chain markets within both Australian and international markets. Devondale’s key products include; ingredients, retail and food products, and nutrition. The ingredient products include; milk powders, cheese merchandise, whey powder, lactose, milk fats, creams, casein, and concentrates. The retail and food products include UHT milk, pasteurized milk, butter, dairy spread, cheeses, and cream. The nutritional include; protein isolates, milk minerals, sports proteinaceous merchandise, supplements, and infant Nutritionals (“Devondale,” n.d.).

This paper is limited to only Devondale’s milk products exports to Chinese markets. With the signing of the Australia-China free trade agreement, Devondale maximized on the opportunities that the deal put forth. After the signing of the free trade agreement, the company relaunched and refurbished its Chinese outlets to tap the entire potential and value of high Chinese market appetite for safe and dependable dairy products. In 2013, the Chinese market was the largest milk product importer globally having imported over 2 million tonnes. That was an increase from its previous years (“MG-welcomes-China-FTA,” n.d.). The increase in Chinese demand for international milk products can be attributed to the milk scandal where melanin was reportedly added to milk products which had catastrophic effects.

China’s market trust Australia’s dairy products due to the products quality and safety and constantly considers these products the premium choice. Devondale took this opportunity and in the 2012-2013 financial year, the company announced that 51 percent of its revenue was accrued from the exports and in particular, the Chinese market brought in $200 million from milk powder and other products. Devondale packaging helps its products by improving the shelf-allure and is designed in a special way for the Chinese market. The new packaging is based on broad insights and reviews on the local Chinese market. The packaging has a clear message that asserts that the products are wholly and purely Australian. It also has family gift packets accompanying them. The company has undergone many structural changes in the quest to meet the market demand (“MG-welcomes-China-FTA,” n.d.). In analyzing Devondale milk products, this paper examines the situational analysis, business objectives, marketing strategies, and the financial analysis of the company.

3.0    Situational Analysis

3.1 Devondale Brand

Murray Goulburn was established in 1950 as a dairy farmer-controlled co-operative society and hitherto, it’s estimated 2600 farmers who are also considered shareholders own 100 percent of the company (“4-murray-goulburn-annual-report-2017,” n.d.). It has approximately 2400 employees to undertake its manufacturing and delivery operations within and outside of Australia. The company receives an estimated 3.6 billion liters of milk which represents 37 percent of Australian milk. The company is the largest Australian dairy export company to Asia, America, and the Middle East. In terms of market segments, it offers a range of ingredients, nutritional, and dairy products. The company supplies their merchandise and services globally through their many stores, and Devondale is most recognizable one of the 3 flagship brands.

The mother company, Murray Goulburn has processing plants in Edith Creek, Leongatha, Cobram, Kiewa, Rochester, and Korait. Devondale Murray Goulburn has officers spread across the globe. It has 12 distributors for its exports in China. The processing mechanisms used by Devondale are modernized as most are automated and uses high-speed lines. This has eased the processing operations for the company and reduced the dependence on human labor. In addition, the fast production has enabled it to meet the market demand in China (“Murray Goulburn,” n.d.).

In the Australian market, Devondale Murray Goulburn has positioned itself as a giant since it gets over a third of the milk produced in Australia. The communication on the pack of its products where it is affirmed that the origin of the milk products is Australian farms, as well as the fact that the company is farmers owned adds the advantage (“Devondale | Full Cream Milk Powder,” n.d.). It has 25 stores and 6 fertilizers depots to supply farmers with agricultural needs. In 2016, the Australian dairy products delivered double-digit sales in income growth and the key drivers of this growth included Devondale’s products. Most of the products attained over 33 percent of the market share (“Devondale Modified Milk Powder 1kg,” n.d.). In addition, the company won various awards including the most successful launch of the year, most innovative products, and best packaging awards.

Its brand positioning is ranked as number 16 in the list of top 100 valuable Australian brands (“brand_finance_australia_100_2017,” n.d.). Its overall position is 164/2000 Australian corporations. The key marketing strategies that have earned Devondale its position are operational excellence and innovation. The former asserts the investment efforts in up-to-date, flexible, and market competitive dairy products as well as ensure the supply network that is efficient and delivers cost leadership. The latter is the orientation to change to value addition of merchandise within its niche. The financial results include; equity of over $800 million, both domestic and export revenue hovering at over $2 billion each (“4-murray-goulburn-annual-report-2017,” n.d.). The company has over 10 subsidiaries and joint ventures including MG China, Tasmanian, Intermix Australia among the rest.

4.0    Business Objectives

4.1 Financial

These objectives include;

  • Attain net revenue of over $3 billion.
  • Achieve a net profit rise to $40 million.
  • To deliver a Farmgate Market Price of over $6.5 per kg to suppliers of milk.
  • Increase the dividends per share to up to 15 cents per share.
  • Increase the cost of shares to up to $5 per share up from its current value.
  • Implement a new capital structure to access funding of over $900 million in order to support the growth plans in Tianjin markets (“4-murray-goulburn-annual-report-2017,” n.d.).
4.2 Marketing

In the Chinese markets, the milk powder products should be packaged in a way that attracts the people. The packaging should meet the value code of the people there (Wang et al, 2008). The company should invest heavily in online shopping which is still a new entity in the Tianjin market, therefore, is poised to gain big attention (Anderson et al., 2014). The online shopping should have a section where clients can give their feedback or reviews about the company. The milk powder should be branded alongside other Devondale’s merchandise as an incentive to get more customers. Devondale should increase the social media platform interactivity and advertise their products through the platforms. Key retailers prove to be a source of marketing therefore, the company should partner with them in order to market the product well.  In addition, Devondale’s milk powder sponsor community activities such as sporting events (Anderson et al., 2014).

4.3 Operations
  • Attract key talents in Tianjin area including distributors who have a good knowledge of the area (Fuller & Iowa State University, 2004).
  • Increase employee safety.
  • Attain a cost-to-income ratio of over 40 percent in the Tianjin market within two years.
  • Modernize the processing mechanisms (Arnold, n.d.).
 4.4 Key Personnel goals
  • Devondale milk products that are exported to Tianjin should be enacted by Gary Helou, the Managing Director and assisted by Albert Moncau, the Executive General Manager in charge of dairy food in the company (“Devondale | Full Cream Milk Powder,” n.d.).
  • Aditya Swarup, the Executive General Manager in charge of strategy should engage with Chinese marketing consultants to engage them in the best strategy for Tianjin market penetration (“Devondale hits the shelves,” n.d.). In addition, the regional manager of the Tianjin milk products together with his team of able employees should be trained on the best customer practices.
  • It is prudent to employ an apt bilingual Chinese advocate who will provide legal direction in every step the company undertakes in the market.
  • An expert business consulting agency should be contracted to easily understand the dynamics of the market and guide the Devondale worker’s operations (Czinkota & Ronkainen, 2007).

5.0    Marketing Strategy Evaluation

5.3.4 Evaluation of product pricing/service launch

In order to establish Devondale’s product pricing for milk powder strategy in the Chinese Tianjin market, there is a need to make a perspicacious assessment and evaluation of the internal and external aspects (Crawford &Fletcher, 2017). The internal aspects that need to be considered include; the proposed marketing mix stratagem, the product mix strategy, the costs, and the corporation concerns. On the other hand, the external concepts that are to be assessed include; the prevailing Tianjin and Chinese market at large demands, the prices that have been set by the competitors on similar products as well as incentives, the sociopolitical and economic factors that are experienced in Tianjin. In addition, there are the legal concerns that should be considered.

In consideration of the above, Devondale should enact the following steps;

  • Milk powder prices in the market are about $13 dollars per kilogram in Australia. However, in the Chinese market, the competitors have placed theirs at an average estimate of $12.6 per Kilogram (“Devondale Modified Milk Powder 1kg,” n.d.). It would be then prudent to price a kilogram of Devondale’s milk powder at $11.99 for the first year until the sales are at an optimum level.
  • The transportation of milk powder produced within Australia could cost a fortune and therefore the company should contract a carrier company that with continued loyalty could lead to reduced prices.
  • The company should join efforts with distributors to determine the pick-up points of the products. This will have helped in cost-sharing thus the pricing of milk powder can be affordable and reasonable.
  • The company should enact a psychological pricing move for example, instead of pricing the product at $6.00, they should price it at $5.99 which has some allure in the market.
  • In addition, bundle pricing of the products of the company such that an incentive or offer is placed at a group of products (Marburger, 2015).