Question

Dairyworld is a wholly owned subsidiary of Saputo based in Montreal and they produce all kinds of milk products, in particular, fresh dairy milk. Saputo now wants to explore the Asian market and has targeted the Philippines as a prime location for their first expansion into Asia. The Board of Saputo has given the green light for Senior Management to pursue aggressively more international markets particularly with the growing population and the economic growth in Asia.

1. If Saputo wishes to explore the entry into the Philippines via Foreign Direct Investment (FDI), which particular option of market entry should they use and why?

2. With the market entry option that you have selected in question 1, who would be the most appropriate partner for them to explore and give at least 3 solid reasons why this partner should be chosen (e.g. characteristics of partner).

3. If Saputo is interested in another country like Malaysia, name at least 3 advantages why Malaysia would be better than Australia?

4. How would you suggest Saputo finance this market entry and please support your argument.

Answer 1

1. If Saputo wishes to explore the entry into the Philippines via Foreign Direct Investment (FDI), market entry in the form of joint venture with an established local partner ( Magnolia Inc which is one of the largest dairy company in the country ) should be used because of following reason.

As we know entering a local market can be tricky with presence of new culture, competition from new players, as well as new laws and regulations. Having a sound local partner would smoothen the process of entering the local market.

2. As mentioned above, the largest local dairy company, Magnolia Inc, should be chosen for following three reasons:-

( I ) The local company has well established supply chain across the country.

( II ) In the local market it is one of the most preferred brand.

( III ) The company already has one of the largest market share in the domestic market.

( 3 ) Following are the three advantages:-

( I ) Malaysia being a developing economy has higher change of growth.

( II ) Larger population in Malaysia than Australia provides greater number of sales and consequently profits.

( III ) Australia being a high income developed country has already many brands and entering Australia would mean a very stiff competition, whereas market if Malaysia is still not fully saturated.

( 4 ) Saputo should use accumulated cash to available with the company to finance its investments as financing this way wouldn't put extra burden of debt on the company in its initial stage of new launches.