Describe the factors that generally determine choice

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Reference no: EM133342916

The Jarlsfell story

Professor Ole N. Ostgård and his students at the Norwegian Agricultural School developed Jarlsfell in the 1960s. The project started with an unsuccessful attempt to produce Emmental cheese. Later, by adding a specially developed bacteria culture that created the large holes in Gouda cheese, the famous Jarlsfell was born. The process remains a closely guarded secret.

Jarlsfell in the US

Jarlsfell cheese first arrived in the US in 1963. In the beginning, the Jarlsfell management team travelled around the country to demonstrate how the cheese could be used for both everyday meals and at parties. After just two years, Jarlsfell had reached a sales volume of 450,000 kg in the US market, and senior management at KJERNE SA - the Norwegian dairy company that owns and produces Jarlsfell - soon realized that they had created a popular product and decided to set up Norsefood Inc. in 1978. The purpose of this company, which is a wholly owned subsidiary of KJERNE SA, was to market and distribute Jarlsfell and other Norwegian cheeses in the US market. Norsefood's strategy is to sell exclusive cheeses only, and the company commands respect in the US retail trade.

Nearly 60 years after entering the US it is now the imported cheese with the biggest market share of its category (hard, 'Swiss-like' cheese) in the competitive US supermarkets. Up until recently, cheese was exported from Norway on quotas set by the World Trade Organization (WTO). To increase sales volume, KJERNE SA has established a wholly owned subsidiary, including a brand-new dairy (production unit), in Ohio, which will produce all Jarlsfell for the US market. This is the second foreign subsidiary that KJERNE SA has established; in 2016 the company set up a production unit in Ireland to handle all dairy production for the EU market; this production facility was also built from scratch.

The US cheese market
In 2018, the total US market for hard cheese was approximately 500,000 tons, but the market also consumed a lot of soft cheese. Although Jarlsfell only has a small market share in the total hard cheese market (in 2018 the company sold 15,000 tons in the US), this represented
the largest market share in the Swiss-like cheese category. The largest producer of cheese for the US market is Kraft, which makes and sells the popular soft cheese, Philadelphia.

In general, the tendency to consume cheese is higher in the Eastern part of the US. There is also a clear tendency to eat more imported cheese as household income increases. Jarlsfell cheese definitely has some snob appeal. Jarlsfell has become a high-status product, served
by celebrities at high-society parties. Jarlsfell commands a comparatively high price - as customers also buy this cheese brand to show that they have good taste. The mild and creamy taste appeals to Americans, as many find the taste of Emmenthal - the traditional Swiss cheese, too sharp. Characteristics of the typical Jarlsfell buyer are:

• female
• earning more than US$90,000 per year
• over 40 years old.

It is important to these customers that Jarlsfell is a specialty cheese, although the fact that it is a Norwegian cheese is not important and Norsefood does not use this in its marketing of Jarlsfell. Norsefood's objective is to attract new and younger consumers for its Jarlsfell cheese. To achieve this objective, it wants to establish contracts with retail chains like 7- Eleven, which also uses cheese in sandwich preparation, among other things.

Growth
In 2008 KJERNE SA started exporting Jarlsberg SA to Asia by entering into an agreement with a Shanghai-based distributor. Initial results were favorable, but exports from Norway to China became more difficult after the Chinese human rights activist Liu Xiaobo was awarded the Nobel peace prize in 2010. It is only recently, from 2019 onwards, that political relations have stabilized again. This has allowed the Shanghai distributor to resume marketing efforts in China - and so far, results have showed tremendous potential. KJERNE SA's current plans for Jarlsfell are to establish sales in 2-3 European markets (sourced from its production unit in Ireland), and to expand in the growing Asian market.

1.Describe the process you would follow, and in particular the factors you would emphasize - for selecting markets for Jarlsfell to enter in:
a) The EU
b) Asia

2.KJERNE SA has recently established production units in the US and in Ireland
a) Describe the factors that generally determine choice of entry mode and explain why you think management at KJERNE SA has chosen the hierarchical (FDI) mode of entry for both the US and Ireland.

b) In both the US and Ireland, KJERNE SA has built its new production units from scratch. Explain why you think KJERNE SA has built its own production facilities - rather than buying a local dairy or licensing production from a local dairy.

3.Further growth - into Asia
Imagine you are in charge of KJERNE SAs Asia expansion plans and have been informed that although current results are very positive, senior management at KJERNE SA headquarters in Oslo are still uncertain as to whether KJERNE has what it takes to succeed in the Asian markets and are not willing to consider full-scale FDI (foreign direct investment) in Asia at this time. You have been asked you to recommend either maintaining the current agreement with the Shanghai-based distributor or some form of intermediate entry mode.

a) Discuss the pros and cons of these two entry modes for this type of product in general.

b) You believe there is good potential for Jarlsfell in Asia and hope to convince head office at KJERNE SA to go for an intermediate mode of entry. How would you argue in favor of choosing an intermediate mode? Which specific type of intermediate mode would you recommend for KJERNE SA and their Jarlsfell brand?

Reference no: EM133342916

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