Analysis of Saputo Inc Expansion

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Introduction

Saputo Inc is a Canadian dairy product producer that operates internationally in five countries: Canada, the United States, the United Kingdom, Australia, and Argentina. It is among the largest companies in the industry with a revenue of over $10 billion. Typically, its international ventures have been conducted in the form of acquisitions of other companies. With that said, its expansionary operations have not always been successful. In particular, the company has previously attempted a venture into Germany but eventually had to abandon it, never resuming operations in the country.

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This failure warrants an investigation into the reasons behind it based on four factors: motivation, ownership advantage, location, and entry mode. This essay will also make the case that China is a promising market for future expansion using the same four factors.

Motivation

The reason for Saputo’s international expansion is the opportunities on which it can capitalize in new markets. Per Heidcamp and Morrissey (2018), Germany’s dairy market was worth over 14 billion Euros in 2016. As such, it offers an excellent opportunity for an entry, as, if a company can capture a sufficient share of the market, it stands to increase its revenue substantially. As such, Saputo had adequate motivation to enter Germany and attempt to establish a robust presence there. The reason it ended the venture is unlikely to be a loss of interest in the German or European markets. With that said, China also presents an extremely attractive market, with an estimated dairy market size of $30 billion (Kotler et al. 2019). As such, from a motivation standpoint, Saputo has an excellent reason to move into it.

Ownership Advantage

Saputo tends not to take advantage of its domestic strengths, letting its foreign branches succeed on their own merits. As such, it does not use its main brand on the products it manufactures, instead engaging in a multi-brand approach (Schram, 2019). This strategy succeeded in Canada and some other markets where it operates, but not in Germany. Marowits (2013) claims that the reason was the high consolidation of the German dairy industry, with large and powerful brands. Saputo did not have powerful international brands that could compete, and its local offerings struggled to establish a reputation for themselves, as well.

As such, the Canadian company could not extend its foothold and increase sales, eventually deeming the venture nonviable and closing it down. Its leadership did not deny the possibility of a future return to Europe (the UK notwithstanding), but stated that a powerful incentive would be required (Marowits, 2013). As such, ventures elsewhere in the region also appear not to be attractive, as the dairy industry is likely similarly consolidated there.

While the same problem of lacking international brands will face Saputo in China, its dairy industry is also much smaller compared to Germany when the population difference is taken into consideration. While it has more than 15 times more people, the dairy industry is only twice as large, in part due to a history of limited cow farming in the region. With that said, with the advent of globalization, the nation was introduced to milk and embraced it strongly, with a growing market (Kotler et al., 2019). As such, it is likely to be more decentralized, enabling Saputo to make a local entry to study the market and expand from there. Additionally, there is likely a demand for foreign products, as they should be seen as more authentic than their Chinese-made counterparts due to the producers’ experience in creating them.

Location

Both Germany and China present highly attractive geographic locations for Saputo’s operations. Distance between different nations where it works does not matter significantly, as each branch is entirely localized within a nation. It buys milk from local suppliers and outputs products that it can sell in the country or export to nearby countries. As such, it is logical for Saputo to try spreading its operations throughout the world to cover as much territory as possible with minimal investment. Germany provided Saputo with access to Europe, and it should be noted that, at the time of entry into the nation, it had not yet obtained any UK holdings (Marowits, 2013).

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China presents a similar case, as Saputo currently does not have access to the Asian market. It is promising both internally and externally, potentially permitting Saputo to capitalize on markets in most of the world.

Entry Mode

In the past, Saputo has exclusively relied on acquisitions for its foreign ventures, and this approach is likely to continue in the future. Marowits (2013) states that it acquired the American company Stella in the 1980s, the German Spezialitäten-Käserei De Lucia GmbH in 2006, and Dansco Dairy Products Ltd. In 2007. Gotts (2017) adds that in 2013, it bought Warrnambool Cheese Co. in Australia, and presumably the Argentinian expansion was similar.

All of these entries but the one into Europe succeeded, and, despite initially failing in the UK, Saputo still operates there (Marowits, 2013). As such, the mode of entry likely cannot be faulted for the company’s failure to enter the German market and stay there. Instead, the reasons described above are more likely to have contributed to the ultimately unsuccessful conclusion of the venture.

With that said, Saputo’s reliance on this method may be beneficial when considering an expansion into China. It is likely to have developed strategies that minimize or avoid the issues typically associated with the approach through repetition. Moreover, due to the nation’s busy environment, many international entries are made through either partnerships with local companies or acquisitions. As such, the country may be amenable to an offer from Saputo, and it can happen without significant difficulty. Kotler et al. (2019) describe another company, Vinamilk, that is considering an expansion into China through an acquisition. This case serves as proof that Saputo’s preferred approach is an effective mode of entry, even for smaller companies.

Conclusion

Overall, Saputo’s failure in Germany can be attributed to the lack of ownership advantages that it could exploit. While overall, Germany and Europe as a whole present an extremely attractive market, it is dominated by brands that have defeated its small-scale offering. The lack of an internationally recognizable name prevented Saputo from expanding its operations. With that said, this failure can also be attributed to the company’s lack of awareness of the European market’s conditions. With improved study and understanding before entry, this problem can be avoided. As such, Saputo should engage in extensive research of China’s dairy industry.

The market is promising, located in a desirable region, does not appear to have dominant brands, and maybe receptive to acquisitions. As such, yet-undiscovered problems notwithstanding, China should be a high priority for Saputo’s future growth.

References

Gotts, I. K. (Ed.). (2017). Merger control review (8th ed.). Law Business Research Limited.

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Heidcamp, C. P., & Morrissey, J. (2018). Towards coastal resilience and sustainability. Taylor & Francis.

Kotler, P., Kartajaya, H., Hooi, D. H. (2019). Asian competitors: Marketing for competitiveness in the age of digital consumers. World Scientific Publishing Company.

Marowits, R. (2013). Saputo to exit Europe with plans to close plants in U.K. and Germany. Global News. Web.

Schram, S. (2019). Constructing trade: The negotiation of the comprehensive economic and trade agreement (CETA) in Quebec. Nomos Verlag.

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