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Maintaining competitiveness with Globalization in Agriculture
Maintaining Competitiveness with Globalization in Agriculture Mohd. 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 globalization Traditional 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?
Breakfast in the World Or Where is this? Thailand Australia Changing Tastes Make New Trends and create new markets
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
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
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
Which creates opportunities Example: Growth in self employment in US
FMCG Market Fragmentation/Concentration Comparison Between Malaysia, Thailand, Hong Kong and Australia A rough indicator of market globalization
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
<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>
<ul><li>Companies here to benefit from comparative advantage </li></ul><ul><li>Companies here to exploit the local market </li></ul>
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.
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
To learn about opportunities we must look at successes and failures 2. What are the potential opportunities?
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>
Sunday Monday Morning Monday Afternoon at the Melbourne Wholesale Market
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>
Failure to grapple with the forces of globalization (comparative advantage)
Tea tree Industry in Australia <ul><li>High capital Investment Industry </li></ul>
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
Essential Oil Based Fungicides/Insecticides Control Timorex 0.5 % Nimgard + Kocide New Foreign Products
Five foliar sprays at 7-d intervals Powdery Mildew in Sage Field results Sage
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
Organic Herbicides [i] Registered Trademark of Monsanto. [ii] http://alldownherbicide.com/ Before After Perlis Test Product Reported Results* Control O Round Up Pro [i] 10 All-Down Organic [ii] Range 0.5 – 3.8
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
<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
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>
<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
Technology What does technology do, remembering it is one of the drivers of globalization?
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
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>
Change the way you see your business Primary Producer Consumer Marketing Company Manufacturer Processor Trader
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 Profits squeezed in traditional areas as they become commodities
Patent Filings as an Indicator of Increasing Innovation
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