Yoongi Nam Dept.of Agricultural Economics and Rural Development The Graduate School Seoul National University
As the opening-up of agricultural products market becomes active, our agricultural industry will face limitations as labor-intensive and low value-added businesses, and face competitive industry disadvantage and will likely be on a decline. In addition to the opening-up of the agricultural products market, its conversion is also gaining attention. Already in developed countries, the domain of the agricultural industry is not limited to the primary industry, with continuous expansion as value-adding enterprises through convergence of bio and information technology. Therefore in order for our domestic agricultural industry to gain competitive advantage, we need to encourage global agricultural products businesses and systemization of livestock businesses that is internationally competitive, through business management and the expansion of the domain of the agricultural industry. The purpose of this research is to, through analyzing successful case studies of diversification strategies for the agricultural industry, identify the factors required for successfully introducing new businesses, and offer a benchmarking model for the agricultural corporations considering diversification.
This research will examine the Easybio Group as an example of businesses based on the agricultural industry and how through strategy based on diversification and vertical systemization in their development process, they have gained a competitive position, and identify their core competencies and external environmental factors.
The analysis of the external environment utilizes Porter.M’s 5Forces model, and the analysis of the internal management resources identifies management resources as revealed by the primary and support activities, through the value chain analysis of the example business. With the external environmental factors and internal management resources drawn in this way as the basis, the BMO test, used to analyze the validity of business models, is modified to suit the research objectives and evaluate the validity of the strategy.
The diversification process of the example business is categorized generally into feed additives→feed sector, feed→pig farming sector, pig farming→poultry farming sector, but in regards to the evaluation of the validity of diversification, related diversification was omitted.As the result of research, strategies with high validity due to diversification and external and internal factors were observed in the order of poultry farming, pig farming, and feed sector diversification, and as a result of strategy validity analysis, clear factors for strategy and characteristics of the strategy were identified in regards to agricultural diversification.
First, regarding the characteristics of the external environmental factors, the entry strategy of the new businesses was to choose an industry with a big market size, with guaranteed income and high probability of sales. On the other hand, when managing a business in industry with low growth rate and high competition, active measures are taken towards the potential dangers, mainly through increasing the size through forward integration strategy, and domination of competition through increase in shares. Furthermore, the strategy is carried out in a way that eliminates the main dangers related to the consumer, supplier and competitive goods, and deals with dangers
inherent in entry businesses through follow-up strategies.
Furthermore, the high standard for hygiene and quality set by societal regulations are complied with in order to produce more environmentally friendly and safe livestock products, using this as an opportunity.
Second, in order to successfully carry out the agricultural industry's diversification strategy, technology, finance and human resources are necessary internal management resources. The diversification of the case study business increased the understanding and applicability at the entry of new businesses through research and development of biotechnology, and is evaluated as having successfully executed the strategy. Furthermore, the accumulated capital in existing businesses are utilized effectively in a systematic financial management so that when a new business opportunity is found, immediate entry is possible, and thereby increasing the success rate of M&A. In regards to human resources, full support of a management which is specialized knowledge of related field and experience, and those with livestock related know-how and specialization are seen as core competencies which led the pre-diversification process to success,
Third, successful establishment and execution of strategy is possible through discovering and raising utilization potential of materials procurement capability, tangible resources, organization resources, which have shown relatively low rate of utilization. The example business, as a part of its follow-up strategy, has endeavored to internalize material procurement related to input factor with strong influence, and utilizes grains, feeds, breeding stock (pigs or chicken) etc within the group. The tangible resources of the example company was made up by consistent investment regarding livestock related infrastructure and showed increasing rate of utilization. Furthermore, the organizational resources showed difficulties in integrating with organizational structure in due to regional division, independent
decision-making and at present is endeavoring to achieve organizational integration.
With this research as a background, we offered suggestions of how strategies by agricultural industries considering diversification could achieve success, identified what the appropriate external factors and management resources are, as well as the disadvantageous environmental factors and follow-up strategies for insufficient resources. As this essay is a single case study analysis on Easybio, it is limited in its capacity to objectify the drawn theory, but it is meaningful in that the research outcomes of the external environmental factors and appropriate management resources of an industry which the agricultural company wishes to enter can be benchmarked by other companies.
Key Words : Agro-enterprise, Diversification, Vertical Integration, 5Forces, Value Chain, Easybio
Student ID: 2010-21162