Expansion of Saputo Inc. into Germany, China and South Africa

Table of Contents

Introduction
Cultural Distance
Administrative Distance
Geographic Distance
Economic Distance
Conclusion
References

Introduction

Saputo Inc. is a Canadian dairy company with a history of more than 60 years. Currently, Saputo not only in Canada but also in the USA, Argentina, the UK, and Australia (Saputo, 2017). The current paper examines the profitability of Saputos expansion into Germany, China, and South Africa from the perspective of the CAGE distance framework. The conducted analysis reveals that it will be more profitable for Saputo Inc. to enter the German market than the Chinese or South African one.

Cultural Distance

Cultural distance between different states is created by various social norms, ethnicities, languages, and religions. The food industry is susceptible to these differences because food consumption in most cultures is dissimilar. To begin with, China seems to be the most remoted from Canada option out of the three given ones. According to Stober (2014), linguistic peculiarities are a barrier that distinguishes this country from the rest of the world. The study conducted by Hofstede Insights (n.d.) reveals that Chinese and Canadian cultures have little in common. More precisely, Canada cherishes individualism, while Chinese culture is a collectivist one. Chinese people are also two times more prone to develop long-term strategies in comparison with Canadians.

The difference between Canadian, German, and South African cultures are less striking. Hofstede Insights (n.d.) analysis shows that these three countries are more or less equal in terms of power distance, individualism, masculinity, uncertainty avoidance, and indulgence. It also essential that both in Canada and South Africa, English is a widespread language. Even though English is not an official language in Germany, it still belongs to the same language family and much closer to English than Chinese characters do.

Finally, the essential local feature that will hinder Saputos entrance into the Chinese market is that Chinese people prefer soy milk to a traditional bovine one. In recent years, in supermarkets, it became possible to find dairy products and milk. Nevertheless, the local population steel prefers soy milk and tofu to dairy products made from animal milk. From this, it could be inferred that if Saputo decides to expand into Germany or South Africa, it will have to compete with other dairy companies. In the case of China, the competition will primarily be not with other dairy companies but with firms that produce demanded soy milk and soy products. In other words, in China, Saputo will have to struggle to change peoples attitudes to dairy products.

Administrative Distance

Before entering a new country market, it is essential to consider administrative details, including trade policies, political situation, and currency. In some cases, colonial ties might also matter. Canada, China, Germany, and South Africa are members of the World Trade Organization (WTO) and, therefore, have to follow the same regulations on international trade. Nonetheless, bilateral trade relations between each of these states are different.

China is Canadas second-largest national two-way trade partner after the US and will be crucial to Canadas economic future over the next 50 years (CAFTA, 2020, para. 1). In addition to this, in 2017, the governments of China and Canada signed a Policy Paper on Expanding Canadas Agriculture and Agri-Food Exports to China. This paper indicates that the two countries are willing to enhance trade with one another. At the same time, it is noted that currently, agri-food trade with China is hindered by high tariffs and non-tariff barriers that must be reduced in the future (CAFTA, 2017). Thus, from one point of view, Saputos decision to expand into China corresponds with Canadian policy. From another point of view, high tariffs, quotas, and non-tariff barriers are a severe impediment to this expansion.

Germany is also a crucial economic partner of Canada. In 2017, the EU and Canada signed a Comprehensive Economic and Trade Agreement that establishes free trade between the two parties. This means that, in contrast to China, it is much easier for Saputo to export products to Germany than to Chins because, in this case, it does not incur losses due to tariffs. South Africa and Canada have well-established trade relations in the mineral and mining sectors. However, in the field of food and agriculture, trade ties are relatively weak. What is more, Canada does have free trade agreements with any of the African states. Therefore, for Saputo, it will be more beneficial to enter the German market because of the absence of tariffs.

Geographic Distance

All of the examined countries have no common borders with Canada and have no direct sea or river access. Nonetheless, Canada has close trade ties with China, Germany, and South Africa, as it has been previously mentioned. Thus, it becomes apparent that the physical remoteness is not a dissolved problem. Still, for Saputo, it is more rational and less costly to export goods to Germany since it is only 4,200 miles away from Canada. China is almost 6,000 miles away, and South Africa is nearly 9,500 miles away. Simultaneously, it should be noted that if Saputo establishes its own production of dairy products in one of these countries and does not export goods from Canada, then the issue of transportation is not that topical.

Economic Distance

Economic distance is characterized by differences in states wealth, possession of resources, infrastructure development, and social division. In terms of GDP PPP, the gap between China, on one side, and Canada, Germany, and South Africa is great (The World Bank, 2020). Furthermore, China is richer in natural resources than Germany and South Africa. The societies of South Africa and China are marked by a considerable gap between rich and poor compared to the other two countries discussed above (OECD, 2017). The analysis of economic distance illustrates that Canada is much closer to Germany than to China and South Africa. This means that Saputo should expand into Germany because the economic conditions there are roughly equal to those in Canada. Hence, the administration should not adapt to new and unfamiliar circumstances.

Conclusion

The present paper compared Chinas, South Africas, and Germanys cultural, administrative, geographical, and economic differences with Canada, where the headquarters of Saputo is located. The conducted analysis results in the conclusion that Germany is the best choice for Saputos profitable expansion venture. Overall, economic and social conditions in Germany do not exhibit a striking difference with those of Canada. Thus, for Saputo Inc., it will be easier to enter the German market because the company could employ the already existing experience. China and South Africa are not inherently wrong choices for expansion. However, the company is expected to bear more costs related to dissimilarities in culture or economic development while setting up a business in these countries.