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