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Maintaining competitiveness with Globalization in Agriculture

  1. 1. Maintaining Competitiveness with Globalization in Agriculture Mohd. Murray Hunter SME Unit, University Malaysia Perlis
  2. 2. The World has become a somewhat integrated market over the last few decades through the phenomena known as globalization Traditional economics would explain this phenomena in terms of specialization, comparative and relative advantage Sociologists would talk in terms of the ‘cosmopolitan man’
  3. 3. 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
  4. 4. 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?
  5. 5. 1. Is Globalization more reality than myth?
  6. 6. Globalism Vs. Localism
  7. 7. Malay Fashion Thai Fashion Hong Kong Fashion
  8. 8. Breakfast in the World Or Where is this? Thailand Australia Changing Tastes Make New Trends and create new markets
  9. 9. 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/Chinese Western/Chinese Indonesian/Thai American/Mediterranean Italian French Asia/Pacific
  10. 10. Underdeveloped Market Developing Market Developed Market <ul><li>Most Items Imported </li></ul><ul><li>Fragmented with few large customers </li></ul><ul><li>Heavy use of intermediaries </li></ul><ul><li>No market segments </li></ul><ul><li>Local production following international trends </li></ul><ul><li>Cooperation with international firms </li></ul><ul><li>Large customers developing although market still fragmented </li></ul><ul><li>Beginning of market segmentation </li></ul><ul><li>Open market to the world </li></ul><ul><li>Own production with exports </li></ul><ul><li>Markets adequately covered with products </li></ul><ul><li>Full market segmentation </li></ul>Hunter (1993) A Market Typology
  11. 11. 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
  12. 12. So Globalization brings market and supply chain concentration
  13. 13. Yet at the same time it creates diversity and market segmentation
  14. 15. Which creates opportunities Example: Growth in self employment in US
  15. 16. FMCG Market Fragmentation/Concentration Comparison Between Malaysia, Thailand, Hong Kong and Australia A rough indicator of market globalization
  16. 17. Cagan, J. and Vogel, C., M., (2002), The effect of globalization is influenced by the factors below
  17. 18. History of the Development of the Malay Archipelago
  18. 20. <ul><li>Portuguese </li></ul><ul><li>The Dutch </li></ul><ul><li>The British East India Company </li></ul><ul><li>British </li></ul>
  19. 21. Colonial and Post Colonial Companies
  20. 22. <ul><li>Companies here to benefit from comparative advantage </li></ul><ul><li>Companies here to exploit the local market </li></ul>
  21. 23. 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 investment costs quicker. New technologies are thus a push factor for the globalisation of companies due to the need to obtain greater economies of scale.
  22. 24. This has provided new opportunities for small specialised firms to develop specific technologies as we see in the information technology and biotechnology industries.
  23. 25. Economic growth through innovation rather than of FDI
  24. 26. To learn about opportunities we must look at successes and failures 2. What are the potential opportunities?
  25. 27. Swiftlet Farming Collocia Aerodramus
  26. 28. Market Size World market estimated at 500 Tonnes USD 735 Million Production Indonesia 250 Tonnes Thailand 100 Tonnes Vietnam 100 Tonnes Malaysia 50 Tonnes Growing at around 25% per annum
  27. 29. 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
  28. 31. Big capital investment Bird Cities
  29. 32. Traditional Producer Kenya Through R&D Tasmania is now second Largest producer in World even though Comparative disadvantage Pyrethrum Industry: Tasmania, Australia Success through: <ul><li>Standardization </li></ul><ul><li>Marketing direct to end users </li></ul><ul><li>Turning a commodity into a value product </li></ul>
  30. 33. OTOP Thailand
  31. 36. Farming in Fiji Farming is primarily subsistence agriculture
  32. 37. Taro Yam Cassava Ginger Chillis
  33. 38. Sunday Monday Morning Monday Afternoon at the Melbourne Wholesale Market
  34. 39. All found new sources of competitive advantage <ul><li>Swiftlet Farming: Niche market, Limited geographical area of possible production </li></ul><ul><li>Pyrethrum Industry, Tasmania: Use of technology to standardize product, repositioning commodity as an organic insecticide, customer relations management </li></ul><ul><li>OTOP: Product differentiation, Selected channels, Appeal to consumers with story </li></ul><ul><li>Fijian Farmers: Service to customers, reliability, innovative use of supply logistics </li></ul>
  35. 40. Failure to grapple with the forces of globalization (comparative advantage)
  36. 41. Tea tree Industry in Australia <ul><li>High capital Investment Industry </li></ul>
  37. 42. No major producers left in Australia
  38. 43. China taking over as the largest producer
  39. 44. Failure of the Australian Industry to take a global business view
  40. 45. 3. How do we exploit these potential opportunities? Some Examples
  41. 46. Swiftlet Farming By developing novel applications of technology
  42. 47. Organic Farming
  43. 48. 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
  44. 49. Look for new ways to exploit the exponential growth of organic farming around the world
  45. 50. Natural Enzyme Based Products
  46. 51. Natural Based Enzyme Products
  47. 52. Existing Thai Organic Products
  48. 53. Essential Oil Based Fungicides/Insecticides Control Timorex 0.5 % Nimgard + Kocide New Foreign Products
  49. 54. Five foliar sprays at 7-d intervals Powdery Mildew in Sage Field results Sage
  50. 55. Field Results Grapes Powdery Mildew by Timor Timor 0.5% Control grape PM- Chardonnay 2003 Control of grape DM- 2003 5 foliar sprays at 7-d intervals
  51. 56. Organic Herbicides [i] Registered Trademark of Monsanto. [ii] Before After Perlis Test Product Reported Results* Control O Round Up Pro [i] 10 All-Down Organic [ii] Range 0.5 – 3.8
  52. 57. Halal & Toyyibaan Look at non traditional markets 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
  53. 58. The top Islamic economies
  54. 59. Muslim share of population and GDP in major economies
  55. 60. Ethical Products
  56. 61. <ul><li>K-OTOP Model </li></ul>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 <ul><li>Graduates Under University Supervision </li></ul><ul><li>Drive Marketing </li></ul><ul><li>Product Development </li></ul><ul><li>Business Operations </li></ul><ul><li>University Training </li></ul><ul><li>Students </li></ul><ul><li>Farmers </li></ul>Application of University R&D <ul><li>Initial Grant </li></ul><ul><li>UNDP </li></ul><ul><li>Prospectus </li></ul><ul><li>Zakat </li></ul><ul><li>VC </li></ul>Initial Grant & OTOP Program Status
  57. 62. I-OTOP <ul><li>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. </li></ul>
  58. 63. <ul><li>I-OTOP Model </li></ul>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
  59. 64. Technology What does technology do, remembering it is one of the drivers of globalization?
  60. 65. The Past Present time The Future 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
  61. 66. Just as in any other industry technology in agriculture is rapidly changing due to technology, consumer tastes and regulation <ul><li>Technology </li></ul><ul><li>Consumer style change </li></ul>
  62. 67. Change the way you see your business Primary Producer Consumer Marketing Company Manufacturer Processor Trader
  63. 68. Conclusions
  64. 69. Market segments missed by large companies allow evolution of SMEs to develop to boutique enterprises with high value/low volume products
  65. 70. Be sensitive to the local market
  66. 71. Play with barriers to entry
  67. 72. Look for novel strategies
  68. 73. New technologies can produce new markets and industries (not just develop but apply)
  69. 74. 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
  70. 75. 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
  71. 76. Greater competition means shorter product lifecycles leading to greater innovation in the market Profits squeezed in traditional areas as they become commodities
  72. 78. Patent Filings as an Indicator of Increasing Innovation
  73. 79. The Innovation of the Eagle Idea - Food Scans Opportunities, Spots, Evaluates & Selects (resource choices) Targets Realises his catch Perfect Creativity, Strategic Thinking & Focus Thank You