Answer

Table of Contents

1.0          Company Introduction   4

1.1          SWOT Analysis  5

2.0          External Environment  6

2.1          PESTEL Analysis  6

3.0          Internal Analysis  9

3.1          Porter’s 5 Forces Analysis  9

3.2          VRIO Analysis  12

4.0          Business Strategy  13

4.1          Porter’s Generic Competitive Strategies  13

4.2          Corporate Strategy  14

4.3          International Strategy  15

5.0          Recommendations  15

References  17

Executive Summary

                This report adopts various analytical models, tools, and theories to evaluate the competitiveness of Kuwait Danish Dairy Company (KDD). The company is based in Kuwait but operates in Gulf Corporation Countries (GCC). The SWOT analysis shows that the company has more strengths and opportunities than weaknesses and threats. The PESTEL analysis highlights factors that could contribute towards the opportunities and threats. For instance, accenting to WTO and GCC agreements create both opportunities and threats depending on how KDD exploits them. Porters five forces creates an image that favours the sustainability of KDD and the incumbents. The VRIO analysis outlines factors that create sustainable competitive advantage, partial advantage, temporary advantage and competitive disadvantage. Through this analysis, areas for improvement are identified in order to boost create more sustainable competitive advantage. Porters generic strategy identifies that KDD uses differentiation focus or hybrid strategy where it targets niche markets with unique products charged at a premium. The company adopts the diversification strategy as evident with its wide range of products and the export international strategy.

Strategic Analysis of Kuwait Danish Dairy Company

• Company Introduction

The Kuwait Danish Dairy Company (KDD) is the longest established and pioneering manufacturer and distributor of dairy products in Kuwait and the Middle East. The company was established in 1962 (KDD 2020). The owner of the company had to vision of introducing a modern dairy industry to the country. As a result, he adopted best practices from the dairy industry in Denmark, thus the name ‘Kuwait Danish’. Because of its unique and differentiated processes and products, the company became the leader in production and distribution of dairy products first in Kuwait, after which it internationalized into the other Gulf countries. While operating locally, the company suffered the intensely during Iraqi invasion against Kuwait in 1990 to 1991 (KDD 2020). This event motivated KDD to expand its operations by penetrating neighbouring markets in the Middle East. In addition, the company leveraged its supply chain to cushion it from shocks from the home market in Kuwait. The continued success of KDD motivated new entrants into the market.

Today, the country’s dairy market has attracted international regional, and local dairy companies. WEF (2020) explains that the entry of regional and foreign firms into Kuwait was triggered by the country’s ratification of the World Trade Organization (WTO) agreement in 2005. This move was followed by Kuwait’s decision to join the Gulf Cooperation Council (GCC) in 2007. Both trade agreements mandated the country to integrate its market into an international and regional market respectively. This meant the Kuwait market was open to access by international and multinational corporations. These factors have forced incumbents to adjust their cost structures to survive intensive competition. In addition, the Kuwait government continues to regulate the industry to meet high standards of health and hygiene requirements. Doronin (2013) adds that the Kuwait market is also accessible to foreign trade in dairy products through imports and exports. Because of these factors, KDD continues to experience overwhelming rivalry from both international and GCC dairy companies in some categories of dairy products. In response, KDD has diversified into juices, ice-cream and culinary (cooking) products.

• KDD’s Mission and Vision Statement

As the market leader in Kuwait and GCC, the company has the vision of continuously fulfilling customer’s needs by introducing innovative products that satisfy the needs of the regional and local markets.

KDD’s mission is to produce quality products as reflected by its huge investments in sourcing of raw materials, production processes, machinery and quality control that ensures excellence of its products.

• SWOT Analysis

SWOT analytical model details the strengths, weaknesses, opportunities and threats of KDD.

Table 1: SWOT Analysis for KDD

Strengths denote internal factors that contribute towards competitiveness of KDD. Weaknesses are internal factors that decrease the competitiveness of the firm. Opportunities are macro environmental factors that when exploited would improve returns of the organization while threats are external forces that disadvantage the organization.

• External Environment

The external environment denotes factors beyond the control of an organization. PESTEL analysis is a suitable tool for analysing and understand the macro environment.

• PESTEL Analysis

1. Political Factors

The Kuwait government is supportive of its businesses. This is noted in its 2011’s decision by the government to operate a closed economy. However, protectionism from the government made local firms uncompetitive, prompting the government to join WTO and GCC (Lucintel. 2016). Secondly, in an effort to reduce overdependence on oil and mining, the government has encouraged growth of the private sector and firms thus injecting incentives into the economy to boost the growth of firms such as KDD. In the process, KDD has expanded its operations and employs more than 5,000 people (KDD 2020). Third, the decision to join WTO and GCC creates opportunities for Kuwait firms to internationalize. On the other hand, it exposed its market to new entrants. This is both an opportunity and a threat.

1. Economic Factors

The Kuwait economy is dependent on an industrial sector that contributed 74.8% of the country’s GDP in 2015. Quarrying and mining contributed to 57.4% of the GDP during this period (WEF 2020). The country’s new development plan is to empower other sectors and industries to diversity its economic activities. Such initiatives are aimed at increasing the disposable income among individuals and households. This government plan will likely create more demand for KDD’s dairy products among Kuwaiti citizens.

1. Social Factors

Dairy products are an important part of the Kuwait’s national culture. A study by Alkazemi and Saleh (2019) revealed that children in the country exceeded their recommended daily servings of beverages and dairy products. A comparison of consumption of dairy products among boys and girls showed that former loved flavoured milk compared to girls. The research further showed that the daily intake of these products was not connected to weight issues and obesity. However, government reports have shown a possible correlation between dairy products such as cheese, flavoured milk, and milk-based dessert to health-related issues especially obesity. Wood (2014) reports that the poor eating habits and lavish lifestyles are causing health issues such as diabetes and obesity which have become a major threat to the Kuwaiti’s population. This report is seconded by the Global Burden of Disease Study which claims that Kuwait is the fourth most obese country in the world. Because of these reports, consumers are changing their eating habits in favour of organic and functional dairy products such as sour milk and probiotic yogurt. KDD has responded to this trend by introducing No-Fat, Added-Minerals and probiotic dairy products options. The probiotic market has grown significantly since 2016 as evident in chart below.

Figure 1: Market Growth (Mordor Intelligence, 2019)

1. Technological Factors

As part of its development agenda, the Kuwait government has allocated and spend huge sums of money on technological infrastructure. This includes investing in fast internet to boost information technology such as electronic commerce. The country has a reliable transport and communication system where 69 stations are connected to the metro (Wood, 2014). In spite of these investments, KDD has not fully capitalized on emerging technologies to create lean processes. The company could therefore invest in technologies to create lean processes that will help optimize profitability. In regard to the industrial best practices, most Kuwait firms are yet to fully adopt technologies as those used in Danish dairy industry.

1. Environmental Factors

Kuwait is a desert. This creates hot and dry climate unfavourable for dairy farming. Dairy farmers and companies incur high costs of cooling of the animals during summer. Razzaque et al. (2009) add that because of the hot arid environment, Kuwait has a high calf mortality. In addition, the extreme weather conditions increase costs of acquiring animal feeds.

1. Legal Factors

According to the World Health Organization, (WHO), Kuwait is the tenth most polluted country in the world. To tackle the pollution challenges, the government has enacted regulations to safeguard each sector. Al-Qallaf, Haider and Rizvi (2018) report that the Kuwait government, through the Kuwait Environment Public Authority (KEPA) are using satellite-based techniques to measure air quality and conduct Human Health Risk Assessments (HHRA). It is essential that firms such as KDD adhere to the regulations. Secondly, the government has enacted regulations on the content of the dairy products (Alkazemi & Saleh 2019). Dairy firms such as KDD are required to produce healthy and hygienic foods for the customers.

• Internal Analysis
  • Porter’s 5 Forces Analysis

This analytical model evaluates the internal environment of a business by assessing five factors; the threat of new entrants, bargaining power of buyers, threat of substitute products, bargaining power of suppliers, and intensity of rivalry within the industry.

1. Threat of new entrants

Incumbents are always afraid of new entrants because they disrupt industries and reduce their market share. Therefore, they create barriers to entry through controlling key resources, investing in innovations, and lowering their prices to discourage potential entrants. An analysis of the dairy industry in Kuwait shows that it has low threat of new entrants. Basically, the dairy industry in Kuwait is capital intensive. This is because of the harsh climatic conditions which translate to high costs and risks of maintaining dairy animals. Razzaque et al. (2009) report that the country lacks natural grazing. Companies are therefore required to invest in smart farming through the use of irrigation systems. Razzaque et al. (2009) add that the hot climate is a big challenge in maintaining calves and it is a leading cause of high mortality. Because of these factors and the high threat of retaliation by the incumbents, new entrants require to have deep pockets to operate sustainably.

1. Power of Suppliers

Suppliers play an important role in maintaining the supply chain. In the process, they influence the pricing of raw materials and other components required by the dairy farms. When suppliers charge higher prices, they increase costs of acquiring essential inputs which reduces profit margins. Špička (2013) notes that in Kuwait, the suppliers determine the quality and quantity of raw materials supplied to the companies. Dairy firms such as KDD counter the high bargaining power by owning their sources of vital raw material such as milk. As a result, suppliers’ power is moderate. The power of the suppliers is further lowered by the government which controls the pricing of dairy products.

1. Power of Buyers

This factor denotes the pressure customers put on companies and industries to either reduce prices, improve quality or meet some regulatory requirements. High bargain by customers lowers profit margin. According to KMEFIC (2013) the bargaining power of customers is low. There are few dairy firms in Kuwait which leaves customers with few options. This contrasts the high population which increases demand for the available dairy products. KDD lowers bargaining power of customers by providing high quality products.

1. Industry Rivalry.

The intensity of rivalry among incumbents is dependent on the number of key players currently operating in the market. Locally, the intensity of rivalry is low. However, when the whole industry is factored, there are several international rivals. The fiercest rivals include Starbucks, Minute Main, Mindbloom, Vitmarks and Guernsey Farms Dairy. Collectively they compete based on after sale service and price discounting. In spite of the intensive competition, KDD has retained its market share by using technology to produce high quality products. As a result, the threat of competitors is low.

1. Threat of Substitutes

Substitutes are products that meet same customer needs in a different way. They are produced by industries outside the dairy industry and offer attractive prices which lowers switching cost for buyers. The threat of substitutes in Kuwait dairy industry ranges from low to moderate depending on the nature of products. For instance, dairy products have healthier substitutes such as organic beverages and juice smoothies (KMEFIC 2013). There are non-healthy alternatives such as soft drinks and carbonated drinks. Likewise, there is threat of substituting fresh dairy products with their variables such as milk powder. The figure below summarizes the findings made in this analysis.

Figure 2: Porters 5 Forces Analysis (KMEFIC, 2013)

• VRIO Analysis

A VRIO framework is an abbreviation for valuable, rare, imitable, and organization. These attributes are represented in the table below. It further illustrates the level of competitive advantages gained by KDD.

Table 2: VRIO Framework for KDD

As illustrated in this analysis, KDD gains its competitive advantage from its brand image, employees, management, and effective management of operation systems. These resources tick all the boxes for VRIO. KDD derives partial competitiveness from market reach, inventory management, and market position. These resources fail to meet the organization element of the VRIO model. KDD derives temporary competitiveness from sales, technology and product range which meet the criteria of being valuable and rare. KDD’s relations with suppliers are a competitive disadvantage since they fail to meet the principles of rarity, non-imitability, and organization.

• Business Strategy
  • Porter’s Generic Competitive Strategies

Porter classifies a business’s competitive strategy into three main groups; differentiation, cost leadership and focus strategies. Cost leadership strategy is applied by firms that seek to achieve the lowest possible operation costs thus translating to low prices. Most of the firms using this strategy derive cost advantage by maintaining large scale operations which create economies of scale. In addition, low cost can be derived through use of proprietary technology, and preferential access to some raw materials. According to BnB (2020), KDD does not apply this strategy because of the high cost of maintaining dairy operations in Kuwait. Instead, the company adopts the differentiations strategy.

Porter explains that organizations using the differentiation strategy invest in processes that are unique from those used by other competitors. In the process, they are able to produce innovative and differentiated products that contribute to a superior value proposition that attracts and retains customers. BnB (2020) reports that Kuwait customers value their brands and thus, the uniqueness of KDD endears it to its local customers. Consequently, the superior value proposition has enabled KDD to attract customers in the Gulf region and international markets. In reward for the differentiated dairy products, KDD charges a premium price for its products thus making good profit margins. The profits are then reinvested into technologies and innovations, as well as research and development which further differentiates the company and cushions it against attacks from the incumbents.

The focus strategy entails narrowing the scope of competition within an industry by targeting niche markets. A company using this strategy will identify a small market segment and customize its strategy to exclusively serve the particular market. The focus strategy has two variations, namely; differentiation focus and cost focus. Whereas cost focus involves selling to a narrow customer segment composed of price sensitive customers, differentiation focus focuses on selling to customers who value quality products. A critical analysis of KDD shows that it extensively applies the differentiation focus strategy. This statement is justified by the firm’s investment into diverse and innovative products targeting niche market segments. For instance, KDD produces a range of goods under varied product categories such as juices, ice-cream and culinary (cooking) products.

According to KDD (2020) the company has diversified its products to target customer groups composed of adults, teenagers and children. It has 24 types of dairy products, 75 varieties of ice-cream, 27 types of fruit drinks and natural fruit juice and additional culinary products. These products are sold in Saudi Arabia, Bahrain, Iraq, Oman, India, Lebanon, Jordan, Qatar, and Bahrain. By using this strategy, the company narrows its competitive scope by providing unique and high-quality products to high value niche customers willing to pay a premium price for the products. The differentiation focus strategy is sustainable since it perfectly complements the VRIO framework where KDD is noted to have the necessary resources including a dedicated management team to effectively implement the strategy. The focus strategy perfectly fits the lavish lifestyles of most Kuwaiti lifestyles where the citizens have a preference for opulence and extravagance.

• Corporate Strategy

                Diversification is driving industrial growth in Kuwait. These sentiments are expressed by the Oxford Business Group (2020) which outlines that the government is playing a vibrant role in encouraging incumbents to diversity. The government is also encouraging start-ups and small and medium enterprises (SME’s) to provide employment opportunities to its citizens (Oxford Business Group, 2020). Because of these efforts, Kuwait Danish Dairy Company which started as a dairy company has diversified its operations into nine consumer brands sold as beverage franchises and MENA food. This includes producing tomato paste, ice cream, and juices.

• International Strategy

KDD is a private company owned by a closed group of investors. This ownership structure limits its access to funding for growth. The company currently exports its products to GCC countries such as Jordan, Oman, Qatar, UAE, Bahrain, Iraq, Lebanon, and Saudi Arabia (Rugman & Verbeke, 2017; KDD, 2020). The company’s export market has been growing rapidly into Asian countries such as India.

• Recommendations

In the light of this analysis, the following recommendations should be adopted by the management.

First, KDD should reinforce its strengths and reduce its weaknesses. Creating a positive reputation and lessening the complexity of its operations will create more strengths that will allow the company to explore opportunities such as internationalizing into America and Europe. The weaknesses align with some of the opportunities, where the company can create a win-win situation by introducing more advanced technologies such as smart dairy framing that uses both IoT and AI (Akbar et al. 2020). The proposal to improve its technologies are seconded by the PESTEL analysis which shows that KDD’s supply chain could benefit from introduction of technologies to foster decision making and create lean supply chain processes.

Secondly, KDD needs to use the results of the VRIO analysis to improve its competitive advantage. For instance, the company should properly organize its market reach, inventory management, and strengthen its market positioning. In addition, it needs to organize and make the following resources non-imitable; sales, technology, product range and relations with suppliers.

Third, KDD needs to expand its supply chain and market. First, the company should explore options of sourcing raw materials such as milk from countries with comparative advantages such as Denmark and Argentina (Porter, 2011). This option will reduce the high cost of maintaining firms in Kuwait. Additionally, the company should internationalize into other Asian countries, Europe and America.

• Conclusion

This paper acknowledges the need for strategic analytical tools in evaluating and informing business strategies and decisions. These tools are applied to KDD which is the longest established and pioneering manufacturer and distributor of dairy products in Kuwait and the Middle East. A SWOT analysis established that the company is properly leveraged since it is reputable, has high equity and technologies that create competitive advantage. Its strengths include negative reputation because of using the word Danish in its name, complex operations and product boycotts. It could derive opportunities from the use of smart dairy farming and entry into new countries. Its main threats are government regulations and intensive rivalry. A clearer understanding of KDD’s external environment is enabled by the introduction of a PESTEL analysis which identifies political, economic, social, technological, environmental and legal forces that affect dairy industry and the individual companies such as KDD. Porters five forces and VRIO analysis are then used to evaluate the internal environment of the industry and KDD respectively. The analysis elaborates that the dairy and foods industry in Kuwait is lucrative yet the country has hostile environment which discourages larges scale farming. The VRIO analysis classifies brand image, employees, management and management of operation system as presenting KDD with sustained competitive advantages. The analysis is further strengthened using the generic strategies, corporate strategy and international strategy. Guided by the analysis, this report recommends that KDD reinforces its strengths and eliminates its weaknesses. Secondly, KDD should use the results of the VRIO analysis to improve its competitive advantage. Third, the company should expand its supply chain and pursue international growth.