Sadafco
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CASE : SADAFCO
What are the strategies and business models of SADAFCO and the MNCs?
SADAFCO in accordance to other MNC:s managed to diversify their business in order to maintain and possibly also strengthen their position within their industry. SADAFCO went from initially being a milk producer to becoming a producer of other food products that had a similar production process as their milk production. They managed to successfully take advantage of synergy effects and scale economies and did so by reallocating production. The diversification strategy was a respond to a decline in the milk market. SASAFCO, already being an established actor on the food market did not want to loose momentum. On the contrary they wanted to become the number one supplier of food in within their segment in the Middle East. So they decided to diversify their business in order to sustain their previous position and also possibly experience a continuous growth. The new products such as tomato paste, hummus, ice cream, mineral water etc. were all products that could be made with the same production capability as the milk production. They cooperated with Tetra Pak on some of their products thus giving them another edge against competitors or new entrants on the market.
Their goal was to gain competitive advantage against their competitors by utilizing their extensive distribution network, which they had built on the milk market and by using their legitimacy on and knowledge of the Middle Eastern market. In the Middle East women are not allowed to drive and therefore they do a lot of their shopping close to their home. In addition to this trust is an important matter and SADAFCO was a well-established brand with a high legitimacy. Therefore their extensive distribution network would play an important role when they launched their new products. For example by utilizing local distributors such as small stores and bagallas they managed to dominate a large share of the ice cream market. SADAFCO managed to enter into a lucrative agreement with bagallas where they would provide them with freezers for the ice creams with the condition attached that only SADAFCO ice cream would be stored in those freezers. By entering in to such an agreement with the local distributors, that in the Middle East play a very important role on the market, they managed to create entry barriers for competitors.
The other MNCs such as NestlД© tried to penetrate the market by focusing on other distribution channels such as supermarkets. They fought over the best shelf space and they had high marketing expenses. Initially their products were not as successful as they had hoped and they quickly realized that they had to adapt to the local conditions and local preferences that differed a lot from the western ones.
Why have MNCs entered the ice cream market recently?
Saudi