Malaysia Dairy Industries Private Limited

Malaysia Dairy Industries Private Limited (MDI) began in 1963 as a joint venture between a Singapore entrepreneur, Mr. Thio Keng Poon and the Australian Dairy Produce Board. Five years later, the company became a locally owned entity after Mr. Thio and his family bought over the Australian interest in the company.

MDI become the first manufacturer of evaporated milk and cultured milk in Singapore and Malaysia. Besides, it also the first to produce 100% fruit juice in both countries. Later, the company also became the first to install an Alfa-Laval UHT Steritherm plant in Asia.

In 1994, MDI received the ISO 9002 certificate for Quality Management System in Production and Installation.

Over the last decade, MDI has seen a tremendous growth in demand for its perishable products. Demands for pasteurised products have increased form 50,000 litres per month to more than 1.3 million litres per month today. At the same time, Vitagen has become so popular among peoples especially children, that lead MDI has had to expand production capacity to meet the growing demands.

Therefore, a trend of continued growth leading well into the next century is expected. As MDI prepares to this growth, it has already built a 5-storey extension to its headquarters to provide greater capacity and scope for manufacturing in the future. While Malaysia Milk Sdn Bhd, its Malaysian subsidiary has also completed its sophisticated new building to meet the needs of the Malaysian consumers.

Today, MDI manufactures as many as 21 various product lines, which under the brand Marigold include sweetened condensed milk, evaporated milk, cultured milk, full cream milk powder, pasteurised milk, high calcium milk, long-life milk, fruit juices, yoghurts, and dessert etc.

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(see appendix for the overview of products). Besides, MDI’s research and development laboratory has always played an important role in MDI and especially so in the last few years in order to manufacture products that meet its high standards.

In today’s environment, companies are operating in an uncertain and turbulent environment, especially due to the US war that will be launch soon. The firms will experiences very high uncertainty while external environmental factors change rapidly. This is because the firms do not have sufficient information about environmental factors to understand and predict environmental needs and changes. Moreover, It will reduce the planning horizon because if the firm operates in an uncertain environment, its management is unlikely to develop plans for more than a few years ahead as they accept that will be subject to large margins of error. Thus, MDI must respond by designing its firm to adapt to the external environment and to influence that environment. The external environment for any organisation includes all elements existing outside the boundary of the organisation that have the potential to affect the organisation, which are the Political, Economic, Social cultural and Technological.

Political

The political dimension that affects MDI includes government regulations at the local, state, and federal levels as well as political activities designed to influence company behaviour. For the entire product, which produce by the MDI shall in all other aspects comply with the requirements of the legislation that currently enforced in Malaysia i.e. The Food Act 1983 and Food Regulations 1985 which set product standards and particular labelling requirements for milk and milk based products. Each product may by arrangement with a recognised certification body, be marked with the certification mark of that body, provided the product conforms to the requirements of this Malaysian Standard. On the other hand, dairy imports such as milk powder, cheese and butter are required to be certified halal by the Malaysian religious authority, for direct consumption and usage as ingredients for further processing. An import license, issued by the Department of Veterinary Services and Ministry of International Trade and Industry is necessary for consignments of dairy products entering into Malaysia.

Economic

The economic represent the general economic health of the country or region in which the organization operates. With the uncertainties over the economy in 2001 and 2002 which due to the war on terrorism since last year, there was softness in demand of dairy product in the local dairy market. The environment today became more turbulent as the terrorism happens everywhere such as the explosion that take place in the Bali in Indonesia, and the Philippine city of Zamboanga. (See appendix about more current issue) Besides, US president was declared to launch war with the Iraq. If this situation takes place, it will mainly affect our economic growth, especially in the Asian countries because the economic problems in US have had a significant impact on the Asian countries as well as the stock market. The world dairy raw material prices will increase due to the inflation of the countries. The dairy product price will therefore increase due to the high cost of raw material. The consumer purchasing power also affect here that the demand of the milk product will be reduces. The consumer may go for select the substitute product which was cheaper than the milk product e.g. soya bean. The unemployment may also take place due to the downturn of economic.

Social Cultural

The social cultural dimension of the general environment represents the demographic characteristics as well as the norms, customs and value of the general population. In order to meet the consumer satisfaction, MDI have to consider needs of the consumer based on their attitude, taste, age, and the family size. For instance, for the milk it self, it should aimed at various sections of the market i.e. pregnant women, breast feeding mothers, toddlers, children, adolescents, slimmers, active adults, pensioners. For example, a fruit yogurt in Thailand emphasizes health and low calories and is targeted at young women; in Europe, a drinking yogurt in a bright container and featuring a cartoon character on the packaging is aimed at children; elsewhere, a drinking yogurt fortified with vitamins is aimed at active women between the ages of 30 and 40. In this respect, it often seems as if a product is available for every age and occasion.

On the other hand, the family also one of the factors affects the producing of milk product. For example, standard packaging of milk in litre and half-litre containers, is well adapted to home consumption, but not well adapted to competing with soft drinks sold from vending machines. For this market, the size of the packaging needs to change (often to between 200 and 350 ml) to encourage sales of milk products, such as flavored milk and chilled coffee, which can compete with soft drinks.

Technological

Technological dimension includes scientific and technological advancements in a specific industry as well as in society at large. This factor will also affect MDI since the company is using new technology equipment to develop their innovative products. With unceasingly introducing of new technology will be able to develop the innovative products with high quality and high standards.

Globalisation means an adherence to universal business principles and practices, which are recognized, respected and understood by the regional and global corporate communities. It is regardless of goods and services that flow across international borders and across vast oceans with few impediments. This also a process which tends to increase the interdependence between national economies. Global markets could offer greater opportunity for people to tap into more and larger markets around the world. It means that they can have access to more capital flows, technology, cheaper imports, and larger export markets. It can be seen, as a movement towards the formation of a single market for goods and services, in which there is no discrimination based on the geographical origin of producers and consumers. Rules of business are changing rapidly and if management is not sensitive to change, their business will be severely affected. Therefore, to survive in the market place, management will have no choice but to quickly adapt to continuous changes of globalisation to remain competitive.

Opportunity and Threat

Today the will to constantly upgrade and to stay at the frontier of the industry remain the key to the company’s vision. To meet the challenges ahead, MDI is focusing on the vision which will cover every aspect of business, involving every member of its staff and at every level of the company. Thus, such vision and the principles such as ISO, HACCP become the guiding lights that will plot the company’s course in the future. The opportunity to take part in the emerging global economy will also comes to the company. The company will not only establish himself in Malaysia and Singapore but also in other Asia countries such as Thailand, Indonesia, China, Vietnam, and Myanmar etc.

However, over recent months, there had been increasing concern over the global economic slowdown, which was most clearly seen in the US and to a lesser extent, in Europe and some countries in Asia. Apparently, the events of Sept 11 had a significant impact on the global business activities. Foreign direct investment worldwide has declined by nearly 50%, indicating a lack of consumer and investor in the light of growing uncertainties in the global business and geo-political environment. This may become one of the threats to MDI in developing its global business.

The company also face tough challenge in competitive environment because the competition in the global market is intense, with several major producers vying for the market share. In order to help the company understand their competitive advantage or disadvantage relative to competitors, and to give an informed basis for developing future strategies to sustain or establish advantage over competitors, competitor analysis of the following are necessary here.

Competitor Analysis

Porter argue that competition in an industry is determined by its basic underlying economic structure, which are the following five force models:

* Rivalry among existing competitors

The competitor strategic would be one of the main factors to influence the business of MDI. Competitors such as Dutch Lady Milk Industries, Premier Milk/F&N Dairies, Nestle Products, New Zealand Milk Products and the Dumex (Malaysia) are constantly coming up with their own market promotional programs by introducing new and improved products and innovative packaging, in order to gain and maintain their market share. These companies often conduct product demonstrations and conduct sampling in shopping complexes and supermarkets.

* Threat of new entrants

The second model is the barrier to entry the industry. Where barriers to entry are high, the new entrants are likely to be deterred. While the low barriers generally mean that the responses will be slower and offering more opportunity. The barriers to entry the dairy industry are consider medium. The main barrier that the new entrant face would be the creation of strong brands of the competitors such as Nestle and Dutch Lady.

* The bargaining power of suppliers

This means the behaviour of supplier and their relative power which can squeeze industry profits. This power may affect MDI as most of the raw materials to produce the dairy products are imported from the foreign country such as Australia, Europe and US. Such countries are playing a major player in the world trade of dairy product and they may attempted to dominant the price of the raw material e.g. raises their price to the industry and hence take over part of the profit for themselves.

* The bargaining power of buyers

Buyers use their power to trade around the industry participant to gain lower prices or improvement to product quality will also affect profitability of MDI. The high standard of milk product that produced by MDI normally offers a lower price compare to other competitors and thus attract more consumer to buy it, for example the low fat of HL milk.

* The threat of product substitutes

The substitute products which bring the same need to satisfy consumer will bring down the purchases power of the milk product especially when the price move upwards. For example, when the price of the pasteurised milk move up, the customer may look for soya milk which is more cheaper and healthy than the pasteurised milk.

In order to tackle the challenges and competitive environment and to expand the company business to the global market, planning consider the main action to MDI to decide where the company to be in the future and how to get it. In fact, the organization such as Shell, IBM, Royal LaPaige, Mazda and United Way have been undertaken a strategic planning exercise each year for reviewing their missions, goals, and plans to meet environment changes or the expectations of important stakeholders. Thus, planning is an important fundamental action for every organization to achieve their goals. There are four main stages in the planning process, which are the following.

Establishing Objectives

For planning purpose, it is necessary for MDI to define the company’s objectives as to provide a sense of direction. The company’s objectives are important because company exist for a purpose and such objectives define and state that purpose. Strategic or long-range planning therefore begins with the specification of the objectives towards which future operations should be directed. The attainment of objective also aimed to create the source of motivation and commitment among the employees because the company’s goal will facilitate employees’ identification with the organisation and help motivate them by reducing uncertainty and clarifying what they should accomplish.

The first objective that MDI should define is the mission of the company, which describes the broad purpose and its reason for existence, the nature of business and the customers it seek and satisfy. For instance, the business scope of MDI is manufacturing of dairy products. Meanwhile the purpose of the company is to improve the growing demands of the dairy products towards global economy.

Another important objective which relate to the organisation as a whole is the corporate objectives. They are normally measurable and are expressed in financial terms such as desired profits or sales levels, return on capital employed, rate of growth or market share. It is important that senior managers of MDI understand clearly where their company is going and why and how their own role contributes to the attainment of corporate objectives. Once the overall objective of the company have been established they must be broken down into subsidiary objectives relating to areas such as product range, market segmentation, customer service etc.

Identify Potential Strategies

The following stage to the above is to identify a range of possible course of action or strategies that might enable the objectives of MDI to be achieved. Prior to developing strategies, it is necessary to undertake a strategic analysis to better understand the organisation’s present strategic situation. This involves SWOT analysis of MDI that assess company’s strengths and weakness, opportunity and threats in relation to the internal and environmental factors. Once we understand the SWOT of the company, we will be able to identify alternative strategies for the company. The following are some of the strategic that MDI could be use.

* Cost leadership

This strategy is the aim at being the lowest cost producer in the industry. A firm that bases its competitive strategy on overall cost leadership must construct the most efficient facilities and obtain the largest share market so that its cost per unit is lowest in the industry. It has the ability to lower price in time of severe price competition and provides a cushion to defend profit levels against competitors. Therefore, experience with building the product is very important such as process of production, delivery and service, which lead to further their cost reductions.

To bring the cost to the lowest, MDI have to reduce the import of the dairy raw material form foreign country and examining alternatives suppliers who will give the lowest price of ingredients to the company. MDI also can reduce costs through supporting research into new technologies, and using new technology to improve product value, and increasing productivity, and thus bring down the cost. Besides, the company also can use the incentive pay system in order to motivate worker to produce more of the dairy product.