Competitive Analysis to Innovate the Business Model of Small and Medium-Sized Enterprises in the Dairy Industry: A Study from an Emerging Market

Abstract

Around the world, innovation strategy is becoming necessary for companies of all sizes. In any case, a solid innovation strategy results from a planned examination of the competitive environment. The selection of the relevant factors to consider for a suitable competitive analysis that supports the decision-making process to establish an innovation strategy could be a challenge for firms, particularly for small and medium-sized enterprises (SMEs). This chapter develops two main elements to fulfill a meaningful competitive analysis oriented to the innovation of prevalent conditions in the Mexican dairy industry: A sectorial competitive analysis focused on innovation conditions and a benchmarking of innovation efforts of a leader in the market. The study enlightens the opportunities for innovation in the business model of SMEs in the dairy industry in Mexico, with practical managerial implications transferable to other sectors.

1. Introduction

Today’s companies of all sizes and industry sectors face the challenge of staying relevant in a complex and turbulent global economy. Defending and increasing the competitiveness of their firms is a topic of interest to managers. In the specific case of small and medium-sized enterprises (SMEs) in emerging markets, there is evidence that business model innovation contributes to improving their performance and achieving competitive advantages [1]. Although there is no single way to understand the business model concept—it can be a description, an architecture, a conceptual tool, or a framework […]—this explains how an organization creates and captures value [2]. In this regard, Teece points out that the business model reflects management’s hypothesis about what customers want, how they want it, how the company can organize itself to meet customer needs, and how it can generate profits from customer payments [3].

Modifying the business model through the design and launch of new products or the reorganization of internal or external structures and relationships can be a high-risk task for organizations since it involves mobilizing human, technological, financial, and administrative resources. An effort of this nature requires a strategic plan that includes specific information about the environment and the perspective of the innovation leaders in the sector.

Small and medium-sized enterprise (SME) owners and managers require attractive, affordable, and understandable information to form a viable innovation strategy that positively impacts the business model. However, what information to collect and how to structure and interpret it can be a problem for the decision-makers of these companies since, in general, the resources they allocate to strategic planning are usually limited. In response to this issue, this chapter proposes a competitive analysis of a traditional, mature industrial sector, with many players of different sizes and in the context of an emerging market such as the Mexican dairy sector. For this purpose, the relevant information is collected from the environment that conditions the development of the industry and is categorized in a practical sense; likewise, the perspective of a leading player in the sector on the role of innovation strategy in the current environment and the evolution of the processed milk and its derivatives in the immediate future is collected and analyzed.

2. Competitive analysis, benchmarking, and innovation

Innovation is a crucial driver for business development and success. In the current context, adapting and generating new and valuable ideas is essential to maintain a sustainable competitive advantage. In this theoretical framework, the relationship between innovation and business strategy is explored, focusing on its definition and relevance as well as on the implementation challenges and implications of the business models of SMEs. The first section examines the definition of innovation and its importance. It discusses how the ability to innovate drives economic growth and can lead to sustainable solutions to social and environmental challenges. In addition, the interaction between innovation strategy and business success is explored based on Barney’s resource-based view and Drucker’s theories.

The second section focuses on competitive analysis and its role in formulating innovation strategies. Specifically, it describes how Porter’s five forces analysis and other approaches enable organizations to identify market opportunities and threats and make informed decisions about how they generate and capture value. It also considers the specific factors that SMEs should address in the competitive analysis and how they can capitalize on their advantages in this process. The third section focuses on using benchmarking as a starting point for innovation strategy in SMEs. We will see how benchmarking can help companies identify the best practices used by market leaders and adapt them to improve their performance and boost their competitiveness. It also examines how benchmarking can reveal innovation opportunities and how SMEs can use them to differentiate themselves and add value to the market.

2.1 Innovation and business strategy

2.1.1 Definition of innovation and its importance in the business context

In business, innovation is the ability to generate and apply new ideas, technologies, processes, or products that add value and improve an organization’s competitiveness [4]. Innovation can manifest at different levels: substantial process improvements, radical changes that modify a firm’s business model, or disruptive transformations that completely revolutionize an industry. Companies that adopt an innovative mindset and foster a culture of creativity can maintain a competitive edge and lead in their market.

The importance of innovation lies in its ability to drive a society’s economic and social development. Innovation enables companies to be more efficient and effective in their operations, increasing productivity and economic growth [5]. In addition, innovation is critical to addressing global challenges, such as climate change and sustainability, by promoting more sustainable and environmentally friendly solutions. In short, innovation is an engine for business and social progress, and its effective integration into a business strategy can make the difference between success and stagnation.

2.1.2 Description of the innovation strategy and its relationship to business success

Innovation strategy is a systematic approach that guides organizations in creating, managing, and implementing innovations that significantly impact their performance and competitiveness [6]. It involves a combination of activities ranging from the exploration and generation of new ideas to the effective implementation and commercialization of innovations. The innovation strategy must be aligned with the objectives and resources of the company as well as with the business environment in which it operates.

Business success and innovation are closely linked. According to Barney’s resource-based view [7], a company can gain a sustainable competitive advantage by developing and using its unique resources and capabilities to carry out valuable, rare, difficult-to-imitate, and non-substitutable innovations. The ability to continuously innovate and adapt quickly to changing market conditions is crucial to maintaining a competitive position and long-term leadership. Companies that adopt an effective innovation strategy are better prepared to face competition, overcome barriers, and capitalize on new market opportunities.

The innovation strategy must maintain a close relationship with how the firm interprets and applies its business model since the strategies do not replace the business model but complement each other [2]. Thus, the fruits of the innovation strategy, such as new products, new services, new ways of delivering value to customers, or novel relationships with the links in the supply chain, may be inputs that modify companies’ business models.

2.1.3 Challenges of implementing the innovation strategy in SMEs

Implementing an innovation strategy can present particular business challenges, and SMEs are no exception. These companies often need more financial, technological, and personnel resources, hindering innovation [8]. The investments needed to research and develop new technologies or products can significantly burden SMEs, deterring them from undertaking innovative initiatives. In addition, a flexible organizational structure and a culture of innovation can help adopt significant changes in these companies.

However, SMEs also possess advantages in adapting quickly and making agile decisions, which can be a strength for implementing an innovation strategy. Collaboration with other companies, universities, or research centers can help SMEs overcome resource constraints and access expertise [9]. In addition, niche identification and segmentation allow SMEs to find innovation opportunities where they can stand out and compete effectively with larger companies.

2.2 Competitive analysis and decision-making to foster innovation

2.2.1 Relevance of competitive analysis and critical factors for innovation strategies

Competitive analysis is an essential tool for formulating innovation strategies, as it allows companies to understand the structure of their industry and evaluate the position of their competition [10]. Porter’s five forces analysis, which includes the threat of new competitors, the bargaining power of suppliers and customers, the rivalry between existing competitors, and the threat of substitute products, provides a solid foundation for identifying opportunities and threats in the business environment. By knowing these factors, organizations can make informed strategic decisions to differentiate themselves from their competitors and achieve a competitive advantage.

Competitive analysis involves evaluating internal and external factors that affect a company’s competitive position. Internal factors include organizational capabilities, resources, and culture [7], whereas external factors may be related to the economic, political, social, and technological environment in which the company operates. By understanding these factors, organizations can make informed decisions about directing their innovation efforts toward areas that provide them with a sustainable competitive advantage.

In the context of decision-making for innovation strategy, a competitive analysis can be especially relevant to identify innovation opportunities that address market needs and wants while at the same time outperforming competitors’ offerings. By focusing on areas where competition is less intense or where the company has distinct advantages, a company can design innovation strategies that maximize its odds of success in the marketplace.

2.2.2 Specific challenges for SMEs in conducting a competitive analysis

Small and medium-sized enterprises may face challenges in conducting competitive analysis and decision-making for their innovation strategy. One of the most common constraints is the need for more financial and personnel resources, making it difficult to obtain detailed data and analysis on the competition and the market [11]. In addition, SMEs may need more experience and knowledge to conduct an in-depth analysis of the industry, and consequently, may make suboptimal decisions regarding innovation.

However, SMEs can also benefit from their ability to be agile and flexible in decision-making. They can adapt quickly to changes in the market and pivot to innovation opportunities more quickly than large corporations. In addition, SMEs can use competitive analysis to collaborate with other companies, forming strategic alliances that allow them to compete in the market with greater strength [8]. By overcoming these challenges and capitalizing on their advantages, SMEs can position their innovation strategy for business success.

2.3 Benchmarking and innovation opportunities for SMEs

2.3.1 Benchmarking as a starting point for the analysis of the innovation strategy

Benchmarking, a business practice consolidated for decades, has emerged as a powerful innovation and market leadership tool. Benchmarking can be defined as “the pursuit of industry best practices that lead to superior performance” [12]. Through analysis and comparison with leading companies, an organization can identify the most successful strategies and approaches used in the industry and adapt them to improve its competitiveness and achieve a leading position in the market.

In today’s business environment characterized by rapid technological evolution and increasing competition, benchmarking has become an invaluable ally to drive innovation. By knowing the effective and successful practices implemented by market leaders, a company can overcome the barrier of the unknown and focus its innovation efforts on areas with a high probability of success. According to research in this context [13], organizations that employ benchmarking strategies for their innovation process are better positioned to achieve sustainable competitive advantage and be recognized as leaders in their industry. By leveraging the knowledge available through benchmarking, companies can optimize their innovation efforts and differentiate themselves in the market, thus meeting their leadership and sustainable growth goals.

Using benchmarking, SMEs can identify best practices and approaches used by successful companies and adapt them to improve their performance and drive their innovation strategy [12]. By comparing their processes, products, or services with those of industry leaders, SMEs can set realistic and achievable goals to improve their competitiveness and meet market expectations.

The benchmarking process can also reveal innovation opportunities for SMEs by highlighting areas where they can differentiate themselves from their competitors and add value to the market. By comparing their performance with leading companies, SMEs can detect gaps in their offer and find opportunities to improve and differentiate themselves. For example, by looking at the marketing strategies of a market leader, an SME can identify new ways to reach its target audience and increase its market presence [14]. In addition, by studying the technological innovations leaders adopt, SMEs can find ideas to develop products or services better suited to customer needs.

2.3.2 Managerial implications of identified innovation opportunities

The identification of innovation opportunities through benchmarking has important managerial implications. First, SMEs must be willing to modify their current practices to incorporate the best practices identified through benchmarking [15]. This may require changes in organizational culture, structure, and resource allocation. In addition, SMEs should be aware that not all practices adopted by industry leaders may directly apply to their particular situation. Customizing these practices to the needs and characteristics of the company is essential for the success of innovation.

Another important aspect is the need to establish metrics and monitoring systems to measure the impact of innovations implemented from benchmarking. Continuous evaluation of progress and results will allow SMEs to adjust and improve their innovation strategy as they move forward. Top management must lead the innovation process and ensure a firm commitment to innovation throughout the organization [16]. Promoting a culture of learning and continuous improvement is essential for the long-term success of SME innovation strategy.

The theoretical framework presented here provides a comprehensive view of how innovation and business strategy are interconnected and how SMEs can meet challenges and seize opportunities to develop a successful innovation strategy that helps them generate and capture value. By understanding these aspects, organizations will be better prepared to meet the challenges of today’s business environment and achieve sustainable and competitive growth. To illustrate these ideas better, the methodology used in this research to propose a comprehensive way of understanding the competitive environment and direction of a particular industry is mentioned below.

3. Methodology

To understand the relevance of making a competitive analysis to establish an innovation strategy in an SME to innovate in its business model, we used the data obtained through a case study of the Mexican dairy industry. This analysis was made in two parts. First, a competitive analysis was conducted, considering the industry’s key factors. Then a benchmarking of the innovation strategy of a large leading company in the national market and with a presence in the international market was made.

The competitive analysis considers the elements of the environment that, from a holistic point of view, co-produce the performance of the innovation strategy of SMEs in the sector: the regulatory framework, supply chain, competitors, consumer trends, available technologies, sources of knowledge, and sources of funding [17]. The information is obtained from the sector’s scientific, dissemination, and market literature.

The benchmarking was developed from the case study elaborated with the interviews carried out in the field, face to face with eight company senior managers. The interviews were conducted with the support of a semi-structured questionnaire to collect the interviewees’ vision regarding the local and international competitive environment of the dairy sector in Mexico as well as the innovation strategy implemented by the firm. The interviews were audiotaped, totaling more than twelve and a half hours. In order to have an accessible and structured format for its analysis, the case study was integrated narratively with the statements of the interviewees and was divided into the following sections: the environment of competition and competitive strategy, innovation strategy, processes for innovation, ways to identify innovation opportunities, sources of knowledge for innovation, barriers to achieving innovation, ways to measure innovation, innovation capabilities, dynamics of innovations.

In the development of this study, the capacities, possibilities, and limitations of small and medium-sized enterprises are considered in the face of the power and forcefulness of large companies as a fundamental methodological perspective.

4. Competitive analysis of the dairy industry in Mexico

Next, the elements of the environment that co-produce the innovation performance of SMEs are developed.

4.1 Regulatory framework

The mandatory regulations in Mexico regarding dairy products are extensive. There is a standard for classifying different dairy products: different types of milk, butter, combined dairy products, creams, cheeses, derivatives, milk formulas, and whey. Some standards establish the sanitary conditions of finished products and their production, which describe trade names and specifications of processes and products; likewise, general rules define processes applicable to production units, packaging, and labeling processes. In addition, there are general rules for establishments manufacturing and selling preceding products. The regulatory framework is decisive in the competitive environment of the dairy industry in Mexico. About innovation, regulations are both a set of restrictions and a guide to venture and prevail in the sector.

4.2 Supply chain

The Mexican milk production chain and its transformation are made up of different economic units of the primary sector, the industrial sector, and marketing, as shown in Table 1.

Main activities	Milk	Inbound logistics	Elaboration	Outbound logistics	Commercialization
	Milk production	Milk collection; Quality control; Storage	Standardization and pasteurization of milk; Elaboration of different products; Packaging	Distribution; Sales to supermarkets, shops, and exports	Marketing; Sale; Distribution

Table 1.

Milk production chain in Mexico.

Source: Adapted from [18].

From the technological, agroecological, and socioeconomic points of view, Mexican production of bovine milk is very heterogeneous. Although less economically crucial than cows, goat’s milk is produced and consumed in Mexico. Cow and goat milk production is seasonal, increasing in summer and decreasing in winter.

Milk can be obtained from the cow in two main ways: industrial and artisanal. Industrial milking aims to supply technified industries capable of maintaining the cold chain and processing large milk volumes. Artisanal milking satisfies the demand of producers who do not maintain the cold chain and process lower milk volumes. The dairy value chain, from barn to consumer, is shown in Figure 1.

Figure 1.

Milk value chain in Mexico. Source: Adapted from [19].

Industrial milking and cold milk handling largely determine the sanitary quality of milk for its industrialization. To maintain the cold chain in inbound logistics, it is necessary to have storage tanks and stainless steel pipes, sanitary pumps, cooling equipment, and instrumentation for temperature measurement and control. Artisanal milking and the handling of hot milk compromise its sanitary quality and put its commercial viability at risk.

As for the outbound logistics of dairy products, this is divided into products that require refrigeration (cold chain) and products that do not require refrigeration. The percentage of wholesale trade establishments that handle dairy products susceptible to refrigeration of the national total is 6.43 [20]. By this measure, the milk and other dairy products category ranks fourth below fresh fruits and vegetables, chemicals for the pharmaceutical industry, and pharmaceuticals.

The supply chain is the axis of the industry in which value is added to products. In the Mexican case, there are complexities inherent in the diversity of production units in terms of size, sources of supply of raw materials, and markets they serve.

4.3 Competitors

According to the National Statistical Directory of Economic Units (DENUE) in Mexico, there are 4614 companies dedicated to the production of milk and dairy products [21]; of these, only 53 are companies with more than 251 people on the payroll (large companies), 111 have between 51 and 250 people on the payroll (SMEs), and the remaining 4450 are companies with 50 or fewer people on the payroll (microenterprises) [21]. SMEs are concentrated in the country’s center and west: 50% are in Guanajuato, Jalisco, Querétaro, Michoacán, and Estado de México [21].

The Mexican milk and dairy products market has national, transnational, and global competitors. In the first two places of market share are Mexican companies; however, the presence of foreign companies is relevant not only for their percentage of participation but for the diversity of brands and products they offer. Among the most important competitors are Grupo Lala, Alpura, Nestlé, Sigma Alimentos, Lactalis, Danone, and Yakult, among others.

We can affirm that the Mexican competitive environment for producing milk and dairy products is complex and conditioned by the milk production chain. The most recognized and value-added products, presentations, and brands belong to large companies, mainly due to the technological disparity in milk processing, incoming and outgoing logistics, and production processes.

4.4 Consumer trends

In 2022, the value of total sales of milk products and their derivatives—fluid milk, powdered milk, infant milk, milk formula, condensed milk, evaporated milk, dairy cultures, cheeses, creams, butter, yogurts, desserts, food products and powdered flavorings, by-products, waste, and other non-generic products—was $ 201,815,715 [22]. Although pasteurized whole milk remains the main product in terms of sales value, there is a significant share of other kinds of milk, yogurts, cheeses, secondary products, and by-products.

The Mexican dairy industry follows industry product trends in developed markets, mainly in Europe and North America. Some of the international trends in products and packaging are:

• Foods from a unique culture gained popularity due to their healthy properties [23].

• Healthy and natural products without added ingredients [24].

• New foods are popularized locally and brought to national and international markets [25].

• Hybrid foods have unique flavors or nutritional benefits [25].

• Flavored cheeses [23].

• New dairy ingredients and cheese flavorings [23].

• Packaging with better functionality [25].

• Pack in sterile sachets [26].

Currently, the milk segment is threatened by plant-based substitutes. It is expected that in the coming years, innovation will be a determining factor for companies to maintain or improve their competitive position in the milk category. Likewise, segmentation will continue to be a trend for launching new products designed for specific groups [27]. As for the cheese segment, the most dynamic product recently is packaged matured cheese due to its new presentations and packaging and more outstanding communication to the consumer about the forms of consumption. However, fresh cheeses remain the most popular [27].

The yogurt segment is a segment that continues to grow; new developments have mainly focused on the addition of grains such as quinoa and amaranth, among others [27]. Yogurt with fruits is a product with greater dynamism and is consumed in different ways, at breakfast, as a snack, and even as a dessert; the favorite flavors are still strawberry and peach. Yogurts with healthy options (without preservatives or other additives) are expected to remain a niche product, although products will continue to diversify [27]. For its part, butter is gaining a share over margarine because it is beginning to be perceived as a product with higher nutritional content due to its milk origin. Regarding this trend, packaged butter is mainly consumed in Mexico over bulk butter [27].

In short, the consumption of milk and dairy products shows stable growth at the national level. The consumption of fluid, powdered, and evaporated milk will likely maintain a slightly positive trend in the coming years. On the other hand, dairy products and ferments will continue to grow at a higher rate than the milk segment. To this is added an emerging trend of gradual growth of differentiated products with high dynamism in the market.

4.5 Available technologies

In Mexico, acquiring various equipment for handling, transporting, and producing milk and dairy products of various capacities and qualities is possible. The most sophisticated equipment with state-of-the-art technology is integral solutions and automated production lines provided by large, specialized transnational companies. However, it is also possible to acquire equipment according to medium and small operations. Various equipment is available for handling and reception of milk, such as tanker trucks, storage silos, sanitary pumps, sanitary drums, temperature measurement and control equipment, and cooling systems.

In the process equipment market, the following are available: homogenizers, mixers, membrane filtration equipment that can be a spiral, plate and frame, or tubular membrane, pasteurizers, spray dryers, standardization equipment, UHT (ultra high temperature) heat treatment equipment, vats for cheese curd, drainage equipment, pressing and forming of cheese blocks, fermenting tanks, etc. In the case of the filling process, various technologies are available: pasteurized milk filling and aseptic filling machines; fillers of liquid, semi-liquid, and viscous products; fillers of cans, bottles, and pouches. The type of packaging depends on the type of barrier desired: cardboard, aluminum, glass, metal, plastic, etc.

Dairy manufacturing technologies have evolved in recent years. Some new technologies that are beginning to be present in the industry are:

• Alternative pasteurization technologies preserve milk flavor, reduce energy consumption, preserve protein characteristics, and reduce the “cooked” taste effect. These new technologies include ultraviolet light, membrane filtration, and electrical pulse treatment. These technologies face the barriers of high investments and regulatory requirements [25].

• Specialized equipment for specific products. This item depends fundamentally on the developments of large international companies, for example, new equipment with high performance and energy efficiency for cheddar cheese manufacture [25].

• The high-pressure process to permeabilize and solubilize casein [23].

There are also new trends in technologies to support the manufacture of dairy products:

• Wireless sensors are integrated throughout the processing chain to provide real-time information and immediate control [25].

• Data management software with artificial intelligence capability for detecting plant problems and laboratory information management systems [25].

• Genetic identification of bacteria in cheese ripening [23].

• Visualization of cheese structure through non-destructive 3D computerized thermography [23].

It is visible that the dairy industry is highly dependent on the production and transportation technology. In a mature market, cost control is significant for companies to stay current. Implementing new manufacturing technologies depends on consumers adopting the innovations or representing an operational advantage for firms.

4.6 Sources of knowledge

The food industry is a low-tech industry whose source of innovation is mainly suppliers and quality standards or rules. In the dairy sector, the sources of knowledge for innovation are varied. Knowledge can come from within the organization or from related external agents. Among the different organizations or institutions that can potentially provide knowledge and influence the innovation strategy of SMEs in the dairy sector are:

• Machinery and equipment suppliers

• Ingredient suppliers

• Suppliers of packaging materials

• Dairy farmers

• Research centers, universities, and technology

• Industrial cameras

• Other similar companies

• Certifiable quality standards and systems

In addition to the agents above, knowledge can come from consultants, advisors, newly hired personnel, industry events, and food sector exhibitions of machinery and ingredient equipment, among others.

4.7 Sources of funding

Recently in Mexico, government financing options have been limited, leaving mainly the options of private banks and the Trust Funds for Rural Development (FIRA) that provide funding services through financial intermediaries, registered and authorized. FIRA credits can be granted to companies of any size related to the agricultural, forestry, or fishing sectors in the handling, beneficiation, conservation, transformation, or storage of products of these sectors. The types of credit this mechanism grants are reactionary credit, credit for supply and working capital, pledge credit, lease, factoring, report, chirographic loan, liquidity credit, rural financing, and microcredit [28].

5. Benchmarking the innovation efforts of a market-leading company

The benchmarking carried out according to the methodology previously described allows to observe the best practices in the innovation processes in an ongoing operation, with objectives defined by an innovation strategy and aligned to a competitive strategy. Being a large company, the differences with SMEs must be treated according to their advantages and limitations, as shown inTable 2.

Advantages	Limiting
The company…; Covers the main activities of milk and milk products production. Has a broad and deep knowledge of the sector. Has a local administration, does not respond to a foreign strategy. Competes mainly in the Mexican market. Has a stable operation. Has made and continues to make innovations in its different modalities.	The company…; It has large budgets dedicated to innovation and access to financing from private banks. Its organizational structure is complex and specialized. Has strong business relationships with suppliers of high technology, machinery and equipment, and other inputs. It is an attractive work center for specialized human capital. Has a long history of innovation.

Table 2.

Advantages and limitations of benchmarking large companies for an SME.

Below is the benchmarking of the innovation efforts of the leading company segmented by each of the categories studied of the leading company and its implications for SMEs in the sector.

5.1 The competitive environment and competitive strategy

The competitive environment in the sector is intense, and rivalry between participants is expected to increase. Large and transnational companies have become sophisticated in terms of knowledge and conceptualization of the market; this causes launches of new differentiated products, with more excellent added value, in less time and more frequently, which increases the pressure for all players. The trend is for innovation to become an essential part of firms’ profitability.

Large companies’ market reach and operational capacity are superior to those of SMEs in the sector. In this environment, it seems appropriate that the competitive strategy of SMEs must be developed with a vision of market niche and the creation of competitive advantages, considering the elements of the environment (demand, milk production, consumption trends and new products, technological changes, economic and social changes, etc.) and their evolution over time. In particular, the use of new technologies that offers a clear update or differentiation and those information technologies that do not represent significant investments and are available to all companies regardless of their size.

5.2 Innovation strategy

The innovation strategy of companies in the dairy sector must respond to the overall competitive strategy and be consistent with the operational strategy to develop innovation and operational capacities in the long-term. The culture of innovation and change is fundamental at all levels to implement and execute innovation strategies.

In addition to seeking incremental innovations, large companies are interested in radical innovations of products and processes aimed at the consumer. This practice requires specialization of functional areas, strengthening of research and development, and improvement of decision-making processes by international trends, which also implies applying specialized methodologies for innovation. Innovation in SMEs is subject to more significant resource constraints, so the innovation strategies of these companies cannot be copies of the strategies of large ones. Understanding and formalizing innovation processes in SMEs is required to establish functional strategies for these companies.

5.3 Processes for innovation

The innovations of companies in the dairy sector in Mexico can come from different innovative activities, inside and outside research and development: development of new products and processes, innovation in the business, and digital innovation, among others. To carry out these activities, it is necessary to have models and structures that allow the planning and management of innovation projects, depending on the impact of innovation. Investments in technological, human, and administrative resources are required to develop innovative products in the Mexican market. SMEs often need help to make these investments quickly. Although innovation processes in SMEs cannot have the magnitude of the processes of large companies in the sector, they should have delineated processes to plan and execute innovative activities, allowing them to visualize the projects’ challenges and take previous actions.

5.4 Ways to identify innovation opportunities

The sources for innovation can be internal or external to the company. In both cases, collecting and assimilating ideas or needs requires adequate procedures that allow their direction and relief to become innovative activities and, eventually, innovations. There are no impediments to establishing internal idea detection procedures and areas of opportunity in SMEs. In the case of the detection of external innovation opportunities, this can be established according to the scope of the target market of SMEs.

5.5 Sources of knowledge for innovation

Relationships with machinery and equipment suppliers, packaging materials, and ingredients are critical regarding product and process innovations. Relations with research centers and universities are also important. However, it is recognized that bureaucracy in these institutions limits progress toward innovations. Links with other actors in the production chain are not as relevant for the innovation of companies in the sector (industrial chambers and competitors) as relationships with suppliers. With this reality, SMEs must expand their contact networks with suppliers and other actors to identify innovation opportunities by their objectives and possibilities.

5.6 Barriers to innovation

Barriers to innovation in dairy companies in Mexico can come from internal and external sources. Examples of internal barriers are poor strategic decisions, resistance to change, lack of budget, insufficient technological knowledge, and complexity of innovation projects. Examples of external barriers are technological dependence, the bureaucracy of research centers and universities, regulatory restrictions, and lack of fiscal support. Companies in the sector have technological dependence on companies supplying milk industrialization equipment, which are entirely foreign; only some minor accessories are of national origin, which restricts the possibilities of local innovation in products and processes. In SMEs, the restrictions above are likely to be more pronounced due to these companies’ tight resources (financial, human, and technological). As for milk processing technologies, these represent higher costs for SMEs, which hinders the possibility of innovating high-value-added products and sophisticated processes.

5.7 Ways to measure innovation and innovation capabilities

There are many ways to measure innovation in dairy companies. Metrics can be established according to the objectives of each company, although customer focus and profitability are paramount. Firms can also clearly identify the innovation capabilities in the execution of the innovation strategy of the large company: R + Dresearch and development, operations, marketing, and finance. These capabilities are indispensable to develop innovations and in principle, are valid for large companies and SMEs. Innovation capabilities are built or strengthened in different ways: hiring specialized personnel, training at different levels and in different ways (awareness-raising, communication, learning by doing), contracting consulting, purchasing process, and laboratory equipment, purchasing software licenses, and building new facilities. In the case of large companies, the creation and strengthening of capacities are carried out through different generic innovative activities and with investments in different areas; in the case of SMEs, generic innovative activities will be of lesser importance due to resource constraints and the scope of innovation objectives.

5.8 Dynamics of innovations

In the dairy sector, product innovations are constantly emerging (including the transformation process that allows obtaining differentiated products or packaging), in quality and safety as well as incremental innovations in processes that involve new forms of inter and intradepartmental organization, organization with a focus on customer service, and in the same sense, commercial that imply reorganization within the company and with new market players. However, not all innovation efforts are successful. Project failures can come from misreading consumer and customer needs, regulatory constraints, poor management of the innovation process, etc.

6. Conclusions

This chapter develops two methodological components for a meaningful and robust competitive analysis for SMEs in the dairy sector in Mexico to innovate their business model. The first component is the sectoral analysis of the industry, which allows placing the company in its context taking into account those factors that co-produce the innovative performance of the companies in the sector: regulatory framework, supply chain, competitors, consumer trends, available technologies, sources of knowledge, and funding sources. It is important to note that these factors are circumstantial in each industry and may differ in each case. Also, their weighted influence may vary depending on the particular market.

The second component is benchmarking a leading competitor in the market and innovation in the sector. In this case, the categories used are the environment of competition and competitive strategy, innovation strategy, processes for innovation, ways to identify innovation opportunities, sources of knowledge for innovation, barriers to achieving innovation, ways to measure innovation, innovation capabilities, and dynamics of innovations. Benchmarking allows identifying those good practices that can be replicated to obtain competitive advantages, including terminology and structures created expressly for innovation. In any case, benchmarking information can be an orientation of the innovation strategy and the business model for SMEs and not necessarily a path traced for direct adoption.

A relevant lesson learned from the study is that both the analysis of the sector and benchmarking must be considered from the perspective of SMEs interested in innovation in their business model. The differences between companies, their capacities (financial, administrative, and technological), sizes, and conditions must be taken into account from the planning of the exercise to delimit the scope and applicability of the discoveries that are detected in the identification of customer needs, the establishment of new or different relationships with links in the value chain, the adoption of transformation processes, new product launches, and novel ways to monetize and capture business value.

Finally, regarding general applications to other industrial sectors, some of the factors suggested that must be considered by SMEs wishing to develop innovation strategies with an impact on the business model are:

• The current business model that the company has according to the main factors that condition the performance of the sector.

• The convenience of establishing an innovation strategy that considers the market trends guided by industry leaders and innovation.

• The recognition of weaknesses and threats, the recognition of the technological level, and the application of practices and strategies tested by other companies.

• Align the firm’s internal capabilities to an innovative business model taking advantage of the opportunities of the environment.

• The need to orient the business model toward niche markets and services to large companies rather than competing in mass product markets.

Acknowledgments

We want to express our sincere gratitude to Universidad Iberoamericana Ciudad de México and the different areas that provided support to publish this chapter, including the university editorial (Ediciones Ibero), the Research and Postgraduate Department (DINVP), the Division of Social Studies (DES) and the Division of Science, Art, and Technology (DICAT), for their financial support in translating this article and covering the publication fee. Their generous assistance has allowed sharing this research with the international scientific community. We are immensely thankful for their unwavering commitment to promoting academic excellence and facilitating the dissemination of knowledge.