Free Range Foods

...

3. Forming Strategic Alliances

Another possible globalization option to consider would be forming a strategic alliance. According to Jones (2013) strategic alliances are a common strategy to manage interdependencies between companies by forming an agreement with two or more companies to share resources in order to increase business opportunities, with agreements ranging from informal long-term contracts to the formal joint ventures (p.329). One possible option available to Free Range would be to sign a contract with an organic milk co-op based overseas company to supply milk for production. There are numerous advantages and disadvantages associated with these strategies that Free Range must consider if they decide to enter into a strategic alliance with companies that are already based in the European markets.

3.1 Advantages of Forming Strategic Alliances

Stable Cost of Raw Materials: By forming a strategic alliance with an organic dairy co-op, they may be able to set a price for their raw materials that will not be affected by the volatile dairy market.

Exchange of Knowledge: Dairy farming throughout the world is an industry that does not see many new entrepreneurs, which means many of the dairy farmers have been in business for an extensive period of time and have similarly extensive knowledge of the industry and its consumers. Through an alliance, Free Range could take advantage of this wealth of knowledge to aid market analysis.

Market Entry: Strategic Alliances allow companies to enter markets with greater ease than they would on their own. By forming an alliance, Free Range would be able to enter into the European market with pre-established suppliers rather than being forced to form new relationships with unfamiliar farmers or more expensive still, having to establish a company-owned dairy farms.

Advantage over Competitors: One of the major factors for beginning a strategic alliance is to gain an advantage over competitors. If Free Range forms a strategic alliance to enter in a new market, they will be taking away a portion of the supply of raw materials their competitor needs and establishing a steady supply for themselves.

3.2 Disadvantages of Forming Strategic Alliances

Costs: While locking in a contract for raw materials will allow prices to be more stable, this does not allow a company to take advantage of the market price for these materials. Milk prices in Europe are on the decline (Short-Term Outlook for EU, 2015, p. 8) and if Free Range is locked in at a higher price, they will not benefit from the decline.

Risk of Partnership: It is necessary when forming a strategic alliance to choose your partner very carefully. If Free Range forms an alliance with a company that cannot meet their requirements, their business can be negatively affected in the new market. Examples of this could be, a partner not producing enough milk or supplying milk that does not meet food quality requirements.

Company Reputation: Free Range puts a high emphasis on operating with a concern for the environment. If they enter into a strategic alliance with a company that does not share this same value, it can have a negative effect on Free Range’s reputation as being environmentally friendly.

4. Factors to consider before going global

Prior to embarking on any international endeavors, Free Range Foods must examine the organizational environment that it intends to operate within, the resource dependencies that may exist or develop in the global market, and the transaction costs of doing business in these new areas. This self-examination will be critically important in helping Free Range determine the most appropriate structure and strategy to find success in the European markets.

4.1 Examine Specific and general Environment: The first step is to examine the specific and general environments that Free Range is planning to enter, initially the dairy markets of France and the United Kingdom, with an eye to how certain factors will affect their ability to obtain the necessary resources to produce the same high-quality, eco-friendly products as it has domestically. Jones (2013) defines the specific environment, as the external elements (including but not limited to government, suppliers, distributors, customers, competitors, and unions) that can affect a company’s ability to obtain necessary resources (p. 317). He goes on to say that the general environment is defined by the economic forces (wages, prices for goods), technological forces (process/production advances), and political, ethical, and environmental forces (taxes, laws, norms) that in turn dictate how a company should operate if it wants to succeed (p. 319-321). An analysis of these environments may also identify uncertainties, for which Free Range can develop mitigating strategies. The three types of uncertainty to be aware of, according to Jones, are: environmental complexity, or how many, how big, and how tangled are the forces at work in the market; environmental dynamism, or how fluid/changeable are market forces; and environmental richness, or how much can the market support in terms of labor, resources, etc. (p. 322-323). An in-depth examination of these markets is required but just to illustrate one particular uncertainty on the horizon, a recent article describes the debate about the potential departure of the United Kingdom from the European Union and how it could affect regulations and taxation on dairy products crossing the channel (Burnyeat, 2015, p. 16).

4.2 Examine Resources: Once Free Range Foods has better defined the global environment into which it will expand, an examination of resources to determine which are critical and could create dependencies that could leave the company vulnerable to price or supply fluctuations. According to Jones, the resource dependence theory sets the goals of an organization as the minimization of dependence on others for critical resources and the influence over others to secure the same (p. 325). In his article on this theory, Nienhüser (2008) reasons that resource availability corresponds directly to power within a market and therefore the reliance of organizations on these resources will dictate organizational behavior (p. 12). Therefore, upon analysis of the specific environment, Free Range Foods will be able to identify which resources are critical and develop their globalization strategy to acquire them, whether through symbiotic interdependencies, competitive ones, or both.

4.3 Transaction Cost: Another aspect to consider is the transaction costs associated with this new effort. According to Jones,