maintaining competitiveness with globalization in agriculture
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Maintaining competitiveness with Globalization in AgricultureTRANSCRIPT
Maintaining Competitiveness with Globalization
in AgricultureMohd. Murray Hunter
SME Unit, University Malaysia Perlis
The World has become a somewhat integrated market
over the last few decades through the phenomena known
as globalizationTraditional economics
would explain this phenomena in terms of
specialization, comparative and
relative advantage
Sociologists would talk in terms of the ‘cosmopolitan
man’
Success in the global market would depend upon……
Competitive advantage grows fundamentally out of value a firm is able to create for its buyers that exceeds the firm’s costs of creating it. Value is what buyers are willing to pay, and superior value stems from… providing unique benefits that more than offset a higher price. According to Professor Michael E. Porter
This presents three major issues:
1. Is ‘Globalization’ more ‘reality’, than ‘myth’?
and if so and we understand it’s dynamics
2. What are the potential opportunities?
and
3. How do we exploit these potential opportunities?
1. Is Globalization more reality than myth?
Globalism Vs. Localism
Malay Fashion
Thai Fashion
Hong Kong
Fashion
Breakfast in the World
Or
Where is this? Thailand
Australia
USA
Asian Influence
Sesame, wasabi, ginger, noodle and
Asian cabbage
Indian Influence
Fruit, spice and toasted nuts, chutney, quince pear, roasted
coriander, pistaschio,almond &
walnut
Blue and goat cheese
Mexico
Tarmarind, squash flowers, huitlacoche (corn mushroom),
portobello mushroom, duck meat
North America
Cuisines with most potential for growth
Mediterranean influence
Indian influence
Middle East influence
Slow Food
Europe
Fusion style
Thai, Indonesian, Vietnamese influences
Contemporary cuisine
Mediterranean influence
Exotic combinations
South America
Fusion style
Thai/ChineseWestern/ChineseIndonesian/Thai
American/Mediterranean
Italian
French
Asia/Pacific
Underdeveloped
Market
Developing
Market
Developed
Market
• Most Items Imported
•Fragmented with few large customers
•Heavy use of intermediaries
•No market segments
• Local production following international trends
•Cooperation with international firms
•Large customers developing although market still fragmented
•Beginning of market segmentation •Open market to the world
•Own production with exports
•Markets adequately covered with products
•Full market segmentation
Hunter (1993)
A Market Typology
Malaysia
Underdeveloped
Market
Developing Market
Developed Market
Beginning to rely on imports again:
Colgate, Unilever
Aspect of market globalisation
Market segmentation still weak; along ethnicity lines only
Large customers developing bringing more market concentration
Still undeveloped logistic systems
Category management still in infancy
Local firms exporting to the world
Still many market gaps
Global trends do not necessary follow
Poor Innovation
So Globalization brings market and supply chain concentration
Yet at the same time it creates diversity and market segmentation
Sty
le
TechnologyLow High
Lo
wH
igh
Hotel Coffee Shop
Kedai Kopi Fast Food
Coffee Bean
Technology/Market Positioning
Which creates opportunities
Fir
ms
Opportunities
Market Concentration
Figure 6.8. The Relationship Between Opportunities and Market Concentration
Example: Growth in self employment in US
FMCG Market Fragmentation/Concentration Comparison Between Malaysia, Thailand, Hong Kong
and Australia Outlet Type Malaysia Thailand Hong Kong Australia
Hyper & Supermarkets (Chain Owned)
20% 68% 91% 85%
Independent Hyper & Supermarkets
20% 2% 2% 10%
Wholesale Trade – Sundry & convenience Stores
57% 10% 2% 3%
Other 3% 20% Convenience
Chains
5% 2%
A rough indicator of market globalization
Technology State of the art and emerging technology Re-evaluating existing technology
Product Opportunity
Gap Economic State of the economy Shift in focus on where to spend money Level of disposable income
Social Social and cultural trends and drivers. Reviving historical trends
Cagan, J. and Vogel, C., M., (2002),
The effect of globalization is influenced by the factors below
History of the Development of the Malay Archipelago
• Portuguese
• The Dutch
• The British East India Company• British
Colonial and Post Colonial Companies
• Companies here to benefit from comparative advantage
• Companies here to exploit the local market
The replacement of existing technologies is happening so fast that 40% of the Fortune 500 companies that existed in 1975
do not exist today. Griffin, A., (1997), The Drivers of NPD Success: The PDMA Report, Chicago,
Product Development & Management Association
Now, on average new products launched in the last five years make up 33% of most successful
companies profits.
Foster, R., N., (2000), ‘Managing Technological Innovation for the Next 25 Years’, Research-Technology Management, 43, 1., Jan/Feb., P. 20.
The cost of new technology is a powerful driver for firms to expand product distribution over a large
number of international markets to recover investmentcosts quicker. New technologies are thus a push factor for the globalisation of companies due to the need to
obtain greater economies of scale.
This has provided new opportunities for small specialised firms to develop specific technologies as we see in the
information technology and biotechnology industries.
Economic growth through innovation rather than of FDI
2. What are the potential opportunities?
To learn about opportunities we must look at successes and failures
Swiftlet Farming
Collocia Aerodramus
Market Size
World market estimated at 500 Tonnes
USD 735 Million
Production
Indonesia 250 Tonnes
Thailand 100 Tonnes
Vietnam 100 Tonnes
Malaysia 50 TonnesGrowing at around 25% per annum
Significance to Thailand Economy (Agriculture Industries)
Rank Industry Exports (USD) 5 years Growth
(%)
Last Years Growth (%)
1 Natural rubber and similar natural gums 3694645 179% 8.2%
2 Crustaceans, molluscs and aquatic invertebrates 2496774 24.1% 10.9%
3 Rice 2321682 47.1% -13.7%
4 Pearls and precious or semiprecious stone 989895 76.94% 17.59%
5 Meat and edible meat offal, prepared or preserved, n.e.s. 878513 122% 36.58%
6 Sugars, molasses and honey 798453 4.34% -8.4%
7 Edible products and preparations, n.e.s 788382 127.7% 25.6%
8 Fruit, preserved, and fruit preparations (excluding fruit juices) 656935 56.9% 10.9%
9 Paper and paperboard 571437 54% 22.77%
10 Starches, inulin and wheat gluten; glues 535797 73.41% 10.3%
11 Feeding stuff for animals (not including unmilled cereals) 498150 83% 15.1%
12 Fish, fresh (live or dead), chilled or frozen 475850 24% 12.6%
13 Fruit and nuts (not including oil nuts), fresh or dried 282298 56.9% 19.35%
14 Vegetables, roots and tubers, prepared or preserved, n.e.s. 254699 40.4% 4.76%
15 Crude vegetable materials, n.e.s. 147587 55.2% 8%
16 Raw and Refined Birds' Nest 147058 400% 25%
17 Milk and cream and milk products other than butter or cheese 143886 43.24% 4.86%
18 Fixed vegetable fats and oils, soft, crude, refined or fractionated 97060 46% -25%
19 Tobacco, unmanufactured; tobacco refuse 63220 10.71% -10.53
Sources: International Trade Centre UNCTAD/WTO
Big capital investment
Bird Cities
Traditional Producer Kenya
Through R&D Tasmania is now second
Largest producer in World even though
Comparative disadvantage
Pyrethrum Industry: Tasmania, Australia
Success through:
• Standardization
• Marketing direct to end users
• Turning a commodity into a value product
OTOP Thailand
Farming in Fiji
Farming is primarily subsistence agriculture
Taro Yam Cassava Ginger
Chillis
Sunday
Monday Morning
Monday Afternoon at the Melbourne Wholesale Market
All found new sources of competitive advantage
• Swiftlet Farming: Niche market, Limited geographical area of possible production
• Pyrethrum Industry, Tasmania: Use of technology to standardize product, repositioning commodity as an organic insecticide,
customer relations management
• OTOP: Product differentiation, Selected channels, Appeal to consumers with story
• Fijian Farmers: Service to customers, reliability, innovative use of supply logistics
Failure to grapple with the forces of globalization
(comparative advantage)
Tea tree Industry in Australia• High capital Investment Industry
No major producers left in Australia
China taking over as the largest
producer
2000
2001
2002
2003
2004
2005
2006
Australia
0
2040
60
80
100
120
140
160
Tonnes
Comparative Production Australia & China of Tea Tree Oil
Australia
China
Failure of the Australian
Industry to take a global
business view
3. How do we exploit these potential opportunities?
Some Examples
Swiftlet Farming
3 Ft 3 Ft
6 Feet
5 Feet
9 Feet
23 Feet
End View
14 Feet
8 Feet 1 Ft
9 Feet
23 Feet
Side View
Top V
iew (R
einfo
rcemen
ts)
By developing novel applications of technology
Organic Farming
Comparison of the Industrial and Biological Models of Agriculture
Industrial Model Community Model
Energy Intensive Information Intensive
Linear Process Cyclical Processes
Farm as a Factory Farm as an Ecosystem
Enterprise Separation Enterprise Integration
Single Enterprise Many Enterprises
Monoculture Diversity of Plants and Animals
Low-Value Products Higher Value Products
Single Use Equipment Multiple Use Equipment
Passive Marketing Active Marketing
Look for new ways to exploit the exponential
growth of organic farming around the world
Natural Enzyme Based Products
Natural Based Enzyme Products
Existing Thai Organic Products
Essential Oil Based Fungicides/Insecticides
Control
Timorex 0.5 %
Nimgard + Kocide
Timorex 1 %
New Foreign Products
Five foliar sprays at 7-d intervals
0
1
2
3
4
5
6
7
Dise
ase
ratin
g (
1-1
0 )
Control Neemgard 1% Timorex 0.5% Timorex 1%
Treatment
a
b
b
b
Powdery Mildew in Sage
Field results Sage
0
10
20
30
40
50
60
70
Control Timor 0.5% Heliosulfur 0.5%
Treatment
Per
cen
t in
fect
ed c
lust
ers
1st Rating 1.7.03
2nd Rating 15.7.03
grape PM- Chardonnay 2003grape PM- Chardonnay 2003
Field Results Grapes
0
10
20
30
40
50
60
70
Control Timorex 1% Kocide 0.25%
Treatment
Per
cen
t in
fect
ed le
aves
Control of grape DM- 2003Control of grape DM- 2003
5 foliar sprays at 7-d intervals
Powdery Mildew by TimorPowdery Mildew by Timor
Timor 0.5% Control
Organic Herbicides
Product Reported Results*
Control O
Round Up Pro[i]
10
All-Down Organic[ii]
Range 0.5 – 3.8
[i] Registered Trademark of Monsanto.[ii] http://alldownherbicide.com/
Before
After Perlis Test
Halal & ToyyibaanLook at non traditional markets
Clean
Healthy
Non Exploitive
No Najis/Haram
Sustainable
Community Benefit
Toyyibaan
See Halal as only part of a whole system of production
Halal Foods does not
necessarily mean ‘Malay’
Foods
Look at product other than foods
GDP % share of GDPrank country country pop % GDP World Islam
1 Indonesia 866 88.0 761.7 1.3 13.92 Turkey 572 99.8 570.9 0.9 10.43 Iran 562 98.0 550.4 0.9 10.14 India 3,611 13.4 483.9 0.8 8.95 Pakistan 393 97.0 381.6 0.6 7.06 Saudi Arabia 338 100.0 338.0 0.6 6.27 Egypt 304 90.0 273.2 0.4 5.08 Bangladesh 304 83.0 252.6 0.4 4.69 Algeria 233 99.0 230.9 0.4 4.2
10 Russia 1,589 12.5 198.6 0.3 3.611 Malaysia 290 55.0 159.6 0.3 2.912 Morocco 138 98.7 136.5 0.2 2.513 France 1,816 7.5 136.2 0.2 2.514 China 8,859 1.5 132.9 0.2 2.415 US 12,360 1.0 123.6 0.2 2.316 UAE 111 96.0 106.8 0.2 2.0
Muslim
The top Islamic economies
rank Country GDP pop GDP1 US 12,360 1.0 123.62 China 8,859 1.5 132.93 Japan 4,018 0.0 1.64 India 3,611 13.4 483.95 Germany 2,504 3.7 92.66 UK 1,830 2.7 49.47 France 1,816 7.5 136.28 Italy 1,698 1.5 25.59 Russia 1,589 12.5 198.6
10 Brazil 1,556 0.1 1.611 Canada 1,114 1.9 21.212 Mexico 1,067 0.1 1.113 Spain 1,029 1.5 15.414 Korea, South 965 0.2 1.915 Indonesia 866 88.0 761.716 Australia 640 1.5 9.6
Muslim %
Muslim share of population and GDP in major economies
Ethical Products
K-OTOP Model Network
Umbrella Brand (Direct Marketing Company)
Health Beverages
Herbs & Cosmetics
Nutraceuticals
Others
Funding Through
Prospectus
Integrated Farming
Organic Farming
R&D Cluster
Entrepre-neurship
Govt. Support
Graduates Under University Supervision
• Drive Marketing
• Product Development
• Business Operations
University Training
• Students
• Farmers
Application of University R&D
Initial Grant
• UNDP
•Prospectus
• Zakat
• VC
Initial Grant & OTOP Program Status
I-OTOP
• An enterprise developed by graduate students with skills and knowledge in technology, business and it’s organisation together with local farmers and small-holders in particular geographic regions to create an enterprise utilising local resources into value added products in collaboration with a major business partner, supported by university and government in the incubation stage.
I-OTOP Model International companies
Umbrella Brand (Direct Marketing Company)
Health Beverages
Herbs & Cosmetics
Nutraceuticals
Others
Funding Through
Prospectus
Integrated Farming
Organic Farming
R&D Cluster
Entrepre-neurship
Govt. Support
Technology
What does technology do, remembering it is one of the drivers of globalization?
The Past
Present time
We know the past and present Without any changes our
timeline will remain relatively unaltered
The effect of competitor innovation will bring
product evolution
This changes the parallel of the market gradually
A Radical change in technology
Will radically change the timeline into a new industry
Just as in any other industry technology in agriculture is rapidly
changing due to technology, consumer tastes and regulation
•Technology
•Consumer style change
Change the way you see your business
Primary
Producer
Consumer
Marketing Company
Manufacturer
Processor
Trader
Conclusions
Market segments missed by large companies allow evolution of SMEs to develop
to boutique enterprises with high value/low volume products
Be sensitive to the local market
Play with barriers to entry
Market FragmentationCentralisationMerchandisingThe way of doing business
Look for novel strategies
New technologies can produce new markets and industries (not just develop but apply)
Technology and changing tastes creates new markets
Changing Technology (slow to Change)
Changing Lifestyles
Cheap Clothes Available (substitute)
Had to Reinvent the Company due to Slow Product Development
Emerging Processed Food Flavour Trends
Exotic Infusions
A spicy kick of lemongrass, curcuma, pepper, coriander, ginger, basil, cardamom,
cinnamon, oregano
Red Pleasures
Strawberry, cranberry, pomegranate, roobos, greengage, rhubarb, plum, blood
orange, cherry variants, black current, huckleberry
Black Health
Black tea, black vinegar, black sesame seeds, black soybeans, black rice, black
sugar, malt
Botanical Power
Honeysuckle, lavender blossom, elderflower, hibiscus, sunflower blossom,
rose
Attracting Opposites
Spicy/mild, sweet/sour, hot/cold, fire/ice
Ethnic Revival
Traditional tastes and flavours, African hibiscus, Japanese cherry blossom, or
Maroccan kumquat
Flavour Migration
Different categories start to mingle, desert drinks, coffee, cocktails
Greater competition means shorter product lifecycles
leading to greater innovation in the market
Pioneers Early followers
Early
Majority
Late
Majority
Late
Followers
Product LifecyclePotential Profitability
Time
Concept
Risk Taking
Competitive
Risk Taking
IP Value &
Novelty
Profits squeezed in traditional areas as
they become commodities
0 10 20 30
Length of Life Cycle (Years)
Cosmetics
Toys
Tools
Food Items
Pharmaceuticals
Fifty Years Ago
Today
Figure 6.7. The Product Life Cycle Has Shortened Dramatically Over the Last 50 Years
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
Pate
nt A
pplic
atio
ns F
iled
Figure 9.1. Worldwide Patent Filings
Non-Resident Filed Applications
Resident Filed Applications
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Source: WIPO Statistics
Patent Filings as an Indicator of Increasing Innovation
The Innovation of the The Innovation of the EagleEagle
Idea - Food
Scans Opportunities, Spots, Evaluates & Selects (resource choices)
Targets
Realises his catch
Perfect Creativity, Strategic Thinking & Focus
Thank You