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Business Environment Fonterra Co-Operative

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Discuss about the Management System of the Enterprise and applies Fayal's principles to the leadership style of this Company. 



Fonterra Co-operative Group Limited is one of the leading dairy cooperatives in the world with its roots in New Zealand. The company was established in the year 2001 through the merging two New Zealand's dairy section players; Kiwi Cooperative Dairies and the New Zealand Dairy Group. Currently, the company takes a share of about 30% of the total world’s dairy exports and is now the biggest company in New Zealand. Therefore, its existence in the country has positively impacted on the economy of New Zealand employing millions of the people to work in the company ("Home," n.d.).

Fonterra operates in an international context and has many subsidiaries in the world. The primary business of Fonterra is to collect, manufacture and sell milk and milk-products in the market. It also handles fast moving consumer goods (abbreviated as FMCG), together with the food service business where it has employed many professionals for restaurants and bakeries. Therefore, the company sells its products directly to the consumers and also provides some out-of -home food service in various parts of the world. Besides, the organization has also partnered with many food companies where it supplies them with dairy products.

The company has established five segments through which it operates. Each segment has its various activities of operation that work together to form the complete organization. The first part of Fonterra is the Global Ingredients and Operations (GIO), which deals in processing and production of milk and milk products together with marketing these products. The second segment is the Oceania, which specializes in the consumer goods in New Zealand ("Home," n.d.). The third section is the Greater China which operates in China dealing FMCG, food service and farming businesses mostly in the region of the greater China. Also, there is a segment called Oceania, handling the company's business in Africa, Asia, and the Middle East. Lastly, there a section called Latin America serving the Caribbean and South America. It handles the FMCG and it ingredients businesses.


Management of Fonterra

Fayol’s management principles of division of work, centralization and remuneration can be applied to the operation of Fonterra Co-operative Group Limited for effectiveness. The performance of Fonterra is greatly attributed to the management decisions (Brunsson, 2008). Firstly, principle of division of work is important; where the work load is divided among employees or various groups of employees to ensure they are the focus and concentrate on one task. In as much as Fonterra has shown efforts of embracing division of work, there is need to do more about it. The company can divide its operation task and then mandate its various segments to deal in these portions of work. This likely to help employees increase specialization which in turn improve their productivity (Cran, 2016).

Also, the degree of centralization is another principle of management that Fayol suggested that it needs to be considered. Depending on the size of the company, there should be efforts to balance management and decision making (Van, 2009). Organizations should strive to maintain this balance for effectiveness. Fonterra has centralization in its structure and a lot of decision making authority lies on the senior management staff in the company. The organization should make efforts to ensure that the balance in decision making is attained (Angelo & Ricky, 2009).

Besides, Fayol discussed remuneration is one of the key aspects of successful management. Employees need sufficient compensation both financial and non-financial. Remuneration contributes to the satisfaction of the employees thus increasing their motivation (McLean, 2011). The company should consider various factors in determining the remuneration of the workers. These factors include the cost of living, the general business conditions and the business success among many other aspects. Sufficient remuneration package will motivate the employees, reduce their financial stress and thus increase their productivity in the organization thus it should never be under looked at any point (Almashaqba&Nemer, 2010).

Fonterra’s Culture

Every company has its own culture, which defines the way an organization does things.The corporate culture entails various areas such as the company’s expectations, its experiences, the philosophy and the values that guide the organization’s working and its general operation. It is based on a shared belief of the team that is expected to help it perform better. The business leaders are usually responsible for formulating the culture and communicating at the workplace (Tsai, 2011).


Regarding the Fonterra's culture, the organization founded on a mission of working towards being the leader in the provision of dairy products all over the world, and positioning its products and services above all similar products on the globe (The Tipster, 2013).The organization is driven by a vision statement of sharing the natural source of proteins to the world by reaching the every person, everywhere and every day. The company operates on values to enable them to combine personal strengths with those of others to Fonterra stronger, better more innovative (Costanza et al., 2015).Therefore, the vision, mission and value statements have played a major role in communicating the culture of the company.

Also, Fonterra runs on a cooperative philosophy which has been incorporated into the organizational culture. Some of these philosophies include the restriction that shares in Fonterra Group can only be held the supplying shareholders who agree to a dual commitment to supply milk and invest their capital to the business (Kleinbaum, 2013). The supplying parties must also own shares in the co-operative and also shares the financial benefits proportionally according to the shares they hold in the co-operative. The management control of Fonterra is controlled by the supplying shareholders who elect through voting. Fonterra maintains the culture of mutual benefit and sustainability and the transparency in the transactions of the company. This culture governs Fonterra and has the power of control on the way things are done at Fonterra (Boddy, 2011).

Fonterra’s Business Environment

Fonterra operates in a business context just like any other business. The operation, decision and moves of the company are influenced by the corporate environment in which the business operates. It is important to establish both the macro and micro environment in which the business operates. The macro business environment of Fonterra can be analyzed using PESTLE analysis which covers all contextual factors that affect the company. PESTLE is an abbreviation for Political, Economic, Social, Technological, Legal and Environmental factors (Steven & Britt, 2008).


Politically, the decisions and operations of Fonterra are influenced by the politics of the countries in which it carries out business. In some cases, the company experiences restrictions of trademarks, labeling actions, bio-diversity and quota's arguments. Regarding economic factors, Fonterra experiences influence in its operations due to these factors. They usually come from the economic state of the world, variations in foreign currency and also the changing demands for dairy products (Michael, 2008). These economic factors mainly cause general economic effects in the world. Socially, there is a rapid increase in the dairy needs in the world consumer markets. Thus, Fonterra is currently enjoying the social effects of the growth in nutrition demands (Charles, 2012).

Fonterra’s environment is also affected by the technological factors. New technologies that affect the operation of the company are coming to the market, and Fonterra has to adopt them. Some of these technologies include the technology for cooling, heating and also transportation. Environmental factors also affect the operation of the company. The atmospheric conditions of New Zealand vary a lot like increased greenhouse effect, and this affects the performance of his dairy company. Besides, the existing legal systems affect the operation of Fonterra in the market. Some policies and regulations influence the operation of the business such permissions or restrictions to conduct certain businesses (Hamlin, 2015). Also, there are various legal structures that exist regarding the legal rights of the employees, the farmers and other people living in the system.

Apart from the macro environmental factors, Fonterra is also affected by the micro environmental factors. These are factors that exist internally within the organization such as their leadership and other in house aspects of Fonterra. The company has experienced a fall in the share of the milk products in New Zealand market due to tight competition in the industry, and this has affected the operation of this organization. Also, the demand for milk products is not easily predicted and thus affects Fonterra's business. These internal factors among others have influenced the performance of the organization (Philip& Gary, 2014).



As a summary, managing a business organization entails many aspects for consideration. The success of a given business enterprise is greatly attributed to its management. Fonterra, just like other business organizations in the world, has dedicated itself to deliver the milk, milk products, and food service to people all over the world. The company has an established management structure in place which guides its operation. Various Fayal's theories can be applied to the process of Fonterra. The organization has adopted a mechanistic governance structure and therefore,it employs most of the Fayal’s principles. Some of these theoretical principles include centralization where the organization has a hierarchical management structure, the division of work and specialization where employees are the workers are assigned specific tasks for a long time for mastery. Fonterra also emphasizes on Fayal's principle which emphasizes on the remuneration of the employees.

The organization has a culture in place that dictates its operation. Formulation and adoption are cultures a responsibility resting upon the management of this business enterprise. The company has its mission, vision, values, and principles laid in place. This aspect of the corporate culture dictates the way Fonterra runs its business. Also as a summary, Fonterra is also influenced by the macro environment (factors outside the business organization) and micro environmental factors (those from within the company). An understanding of both the internal and external business environment is important for the management of the organization that helps it for its success.

Recommended Strategies for Fonterra

Fonterra has the potential of sustaining its top position for a long time. The company needs to put in place appropriate management strategies to ensure that the profitability of the organization increases continuously. The management should concentrate on reaching many customers around the globe for its growth. One of the best strategies to achieve this is through partnering with various food and nutrition organizations. The partnership will increase the volume sales of Fonterra's products and services improve the brand name and reach more customers. Fonterra should expand its efforts to target the global market. This increases diversification of the market thus increasing profitability and its general sustainability (Teixeira et al., 2012).

Organizational culture is also a critical tool that the management team of Fonterra can adopt for effectiveness. Culture is a robust element that has control on the operation of the company, either positively or negatively. Fonterra should capitalize on the power of corporate culture through formulation, policies, and procedures that can be useful for the performance of the company. Internal culture will guide employees on the expectations of the company and also help manage successions when one employee leaves the company. Therefore, there is need to identify all important aspects necessary for the success of Fonterra and then communicate them effectively to people (Cameron, 2014).

Besides, Fonterra's management must consider adopting appropriate marketing strategies for the organization. The Segmentation, Targeting, and Positioning (STP) strategies are effective in the management and the success of the company. Fonterra's management has shown efforts to embrace STP strategies. However, the company needs to do more about this. Firstly, Fonterra should segment its market further depending on various factors or characteristics of the available market. The company can divide the market based on various aspects such as their consumption patterns, the purchase ability, their geographical location, their age and many other issues. This is necessary for successful management.

It is also recommended that the management team of Fonterra should also consider targeting the segmented groups of customers. The company should produce the milk products that suit the characteristics of these specific groups of people. For example, the milk products should be packaged into smaller quantities that suit the suits consumers with lower purchase ability. Also, the company should continue positioning its products and services in the market above many others to ensure that the brand name stays top in the market. Combining these management strategies is likely to help increase the profitability of the organization thus giving it a competitive advantage over other players in the environment. This is likely to increase its sustainability and ensure it remains a top player in the dairy market



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Angelo S. & Ricky G. (2009). Human Resources Management, Biztantra Publication, New Delhi 2nd edition.

Boddy, R. (2011). Corporate Psychopaths: Organizational Destroyers, Palgrave Macmillan

Brunsson, K. (2008). "Some Effects of Fayolism." International Studies Of Management & Organization. 38 (1): 30–47.

Cameron, B. (2014). Management. Strategic Leadership Review, pp. 22-27.

Charles L. (2012). Essentials of Marketing (7e ed.). Mason, OH: South-Western Cengage Learning.

Costanza, David P., Nikki B., Meredith R., Jamie B., and Arwen H. (2015). “The Effect of Adaptive Organizational Culture on Long-Term Survival.” J Bus Psychology Journal of Business and Psychology, 1-21. Web.

Cran, C., (2016). The Art of Change Leadership: Driving Transformation In a Fast-Paced World, Wiley, Hoboken, N.J.  pp. 174–75

Hamlin, R. (2015). "Niche Marketing and Farm Diversification Processes: Insights From New Zealand And Canada." Renewable Agriculture and Food Systems.

Home. (n.d.). Retrieved from

Kleinbaum, A. (2013). Creating a Culture of Profitability, Probabilistic Publishing, ISBN 978-0964793897

 McLean, J. (2011). "Fayol-Standing the test of time". British Journal of Administrative Management (74): 32–33.

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Philip K. & Gary A, (2014). Principles of Marketing, Pearson

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Teixeira, R., Koufteros, X. &Peng, D. (2012). "Organizational Structure, Integration, and Manufacturing Performance: a Conceptual Model and Propositions." Journal of Operations and Supply Chain Management. 5 (1): 69–81.

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