C A T T L E I N A S I A
C o u n t r y s e l e c t i o n a n d m a r k e t d e s c r i p t i o n s
Names in this thesis are fictive
Authors: Steven Oosterloo
s1273426
Tom Westendorp s1274872
Animal Supplies
Supervisor: Ing. C. Roest
University of Groningen
First supervisor: Prof. Dr. Jos van der Werf
Second supervisor: Drs. Huib Stek
Groningen, January 2007
Allocation of tasks
This research was too large to be conducted by one person. Therefore this research is conducted by two persons, Steven Oosterloo and Tom Westendorp. To meet the thesis requirements of the University of Groningen, the individual contribution to the result must be determined objectively. Therefore this chapter about the allocation of tasks is added. Beneath an overview is given of which part of the research was done by whom.
Ten countries are considered in this research. Each researcher has taken into account five countries. Steven Oosterloo has analysed; China, South Korea, Lao PDR, Taiwan and Thailand. The countries Tom Westendorp has analysed are; Indonesia, Malaysia, Myanmar, The Philippines and Vietnam. All the country specific information is written by the assigned researcher and corrections and suggestions were made by the other author. In the table below, all the parts written by the individual author are summed up.
There also parts that are designed by the two authors together, but written by one author where the other had the task of correcting the parts and giving suggestions for improvements. Steven Oosterloo has written most of chapter three and Tom Westendorp has written most of chapter two. The exact chapter and paragraphs are summed up in table 0.1 below.
Individual paragraphs Author: Steven Oosterloo
China, South Korea, Lao PDR, Taiwan, Thailand
3.3.1, 3.3.3, 3.3.4, 3.3.8, 3.3.9, 4.1, 4.1.1, 4.1.2, 4.1.3, 4.1.4, 4.1.5, 4.3, 4.3.1, 4.3.2, 4.3.3, 4.3.4 and 4.3.5.
Individual paragraphs Author: Tom Westendorp
Indonesia, Malaysia, Myanmar, The Philippines, Vietnam
3.3.2, 3.3.5, 3.3.6, 3.3.7, 3.3.10, 4.2, 4.2.1, 4.2.2, 4.2.3, 4.2.4, 4.2.5, 4.4, 4.4.1, 4.4.2, 4.4.3, 4.4.4 and 4.4.5.
Joint paragraphs
Author: Steven Oosterloo
Corrections and suggestions: Tom Westendorp
1.1, 1.2, 2.2.2, 3.1.1, 3.1.3, 3.1.4, 3.2, 3.4.1, 3.4.2, 3.4.3, 3.4.4, 3.4.5, 3.4.6 3.4.7, chapter 5 and epilogue.
Joint paragraphs
Author: Tom Westendorp
Corrections and suggestions: Steven Oosterloo
1.3, 1.3.1, 1.3.2, 2.1, 2.1.1, 2.1.2, 2.1.3, 2.1.4, 2.1.5, 2.2, 2.2.1, 2.3, 2.3.1, 2.3.2, 2.3.3, 3.1, 3.1.2, chapter 5 and epilogue.
Management Summary
Animal Supplies is a business unit of the global AHS organization. The focus of this research is on supplement A compounds, complementary feed for cattle. To profit from the global convergence, Animal Supplies wants to expand their business to obtain a more strong position worldwide. Therefore the management of Animal Supplies selected the following ten countries in East/Southeast Asia which could be attractive to enter: China, Indonesia, Laos, Malaysia, Myanmar, The Philippines, Taiwan, Thailand, South Korea and Vietnam.
The management is interested in the answer to the following research question: “Which of the ten East/Southeast Asian countries have markets for supplement A compounds which are attractive to enter and what are country specific points of attention when forming entry strategies?”
To answer this research question, this research is divided into two separate parts. In the first part the most attractive countries are selected and in the second part a detailed market analysis is done for these countries.
In the first part of this research, a business specific country scan, based on theory of Aaker (2005), is used to select the four most attractive markets for supplement A compounds. The attractiveness of each country is based on scores on the variables; market size, market growth, the degree of farming intensity and the logistic possibilities. China, Indonesia, South Korea, Thailand and Vietnam were identified as the five most attractive countries. Since Animal Supplies is already present on the Thai supplement A compound market, Thailand was not further analysed in the detailed market analysis.
In the second part of the research, the four most attractive supplement A compound markets are analysed more detailed. All the gathered information is structured on the basis of three definitions of the dynamic market theory of De Jong (1989); market structure, market situation and their developments. The demand side (cattle farmers) as well as the supply side (manufacturers of competing and additional products) are taken into account. These are analysed in the light of the marketing entry strategy, which consists of an entry mode and a marketing strategy.
South Korea appears to have the market where success with supplement A compounds on the short term can be made. An entry mode with higher risk, involving equity investment on the long term should be considered. Most farmers in South Korea use supplement A compounds already, so strong differentiation on one of the product characteristics (price, product, distribution and promotion) should be made.
A successful entry mode in the other three countries; China, Indonesia and Vietnam, appears to be one with low risk involved. Because most farmers currently do not perceive added value in the use of supplement A compounds, product awareness should be created first. Entering on longer term with an export or licensing entry mode should be considered.
The difference between the countries lies not in the entry mode but in the marketing strategy. For each of the countries, different points of attention which should be considered when forming marketing strategies are stated below.
◊ China
In the beef sector as well as in the dairy sector most of the cattle farms are of small size, therefore a five kg supplement A compound would be more appropriate. For the larger specialized farms a larger sized (ten kilogram) supplement A compound could also be appropriate.
For the distribution, Animal Supplies should take account of the facts that the Chinese cattle industry is characterized by hundreds of thousands of small producers and that there is no strong extension system in China. Animal Supplies should focus their organizational efforts on specialized regions; in particular the province of Heilongjiang could be interesting.
The supplement A compounds from competing companies have parameter interdependence with the supplement A compounds from Animal Supplies, this implies that Animal Supplies should differentiate their supplement A compounds in one of more of the parameters.
Animal Supplies should take account of the current price levels, which vary between € 0.50 and € 4,- for five kg supplement A compounds. € 4,- is the price level of an imported supplement A compound which is comparable to Animal Supplies supplement A compound.
◊ Indonesia
Most cattle lives in stables permanently and the average dairy farm size is small, with most farms having no more than three to four head of milking cows. Therefore, five kilogram supplement A compounds would be suitable. In the beginning market size will be too small to develop new products special for Indonesia. If the entrance in Indonesia becomes a success over time, a possibility for product development would be a two kilogram supplement A compound.
With regard to the distribution of supplement A compounds in Indonesia, Animal Supplies needs the help of cooperatives in which all farmers are organized. It would be recommended to focus on Java when entering Indonesia.
Since the market for supplement A compounds is still in the introduction phase, the promotion of supplement A compounds should be very intensive. Creating awareness among farmers by providing training, sales promotion or free samples could be used to entice trial. Cooperatives could be of help here.
Competition will come from local production only since there are no other imported supplement A compounds in Indonesia. These supplement A compounds are not comparable to Animal Supplies’ supplement A compounds and parameter interdependence is very low. As competing products do not exist in Indonesia, Animal Supplies will enter a market with characteristics of a monopoly. This should be taken into account when setting prices.
◊ Vietnam
The average dairy farm size is small with four to five cattle per farm and most cattle lives in stables permanently. Therefore, five kilogram supplement A compounds would be suitable. In the beginning the market size will be too small to develop new products special for Vietnam. If the entrance in Vietnam becomes a success over time, a possibility for product development would be a two kilogram supplement A compound. Another possibility would be to develop a supplement A compound containing calcium and phosphor since cattle have deficiencies in these minerals. More research to the exact deficiencies is needed then.
When entering the market it is recommended to distribute the supplement A compounds in the south of Vietnam. Farmers are affiliated to milk processing companies. These milk processing companies might be interested to distribute supplement A compounds among their farmers since it will increase the health and productivity of their cattle.
The market for supplement A compounds is still in its introduction phase. Only around five percent of the dairy cattle farmers use supplement A compounds. For this reason, the promotion of supplement A compounds should be intensive. Awareness among farmers should be created before actually entering the market.
The prices of competing products range from € 10,- to € 15,- for a 20 kg carton. These prices are very high in comparison to neighbouring countries. Animal Supplies’ supplement A compounds are of higher quality than local products. A price strategy with higher prices than local products
would be appropriate then. The supplement A compound market in Vietnam has characteristics of a starting oligopoly. This should be taken into account when setting prices.
Preface
This thesis analyses the possibilities for selling supplement A compounds for dairy- and beef cattle in a number of East/Southeast Asian countries. The total research process was not easy and had many challenges. To overcome these challenges, a lot of patience and creativity was needed. Therefore the process has taken some more time than expected, but in the end we can look back on a pleasant and instructive time.
This outcome could not have been realized without help from several persons. First we want to thank the people from Animal Supplies who gave us input and a working place to gather more input to write this thesis. In special we want to thank Clementine Roest, Klaas Leeuw, Cees Schut and Raoul Diederen, the people who worked most close to us.
Also we want to thank our supervisors from the University of Groningen; Jos van der Werf en Huib Stek for their critical, but constructive feedback. Without their support, we would not have come to this result.
Special thanks goes out to Bertus Talsma for his patience and time to give feedback on all matters involving calculations.
After a long period of working together, the time has come to go our own way.
Steven Oosterloo and Tom Westendorp
Table of Content
CHAPTER 1. INTRODUCTION TO THE RESEARCH ...10
1.1 OCCASION...10
1.2 MANAGEMENT QUESTION...10
1.3 CLARIFICATION OF THE MANAGEMENT QUESTION...11
1.3.1 Animal Supplies ...11
1.3.2 Supplement A compounds...11
CHAPTER 2. RESEARCH DESIGN ...13
2.1 PROBLEM STATEMENT...13
2.1.1 Research objective...13
2.1.2 Research question ...13
2.1.3 Sub research questions...14
2.1.4 Research constraints...15
2.1.5 Definitions ...16
2.2 THEORIES AND CONCEPTUAL MODEL...17
2.2.1 Country Selection...17
2.2.2 Detailed market description ...21
2.3 RESEARCH METHOD...26
2.3.1 Research type...26
2.3.2 Quality of the research ...27
2.3.3 Data collecting...28
CHAPTER 3. COUNTRY SELECTION...30
3.1 COUNTRY SELECTION VARIABLES...30
3.1.1 Market size...30
3.1.2 Market growth ...31
3.1.3 Degree of farming intensity...33
3.1.4 Logistic possibilities...34
3.2 WEIGHTING FACTORS...34
3.3 INFORMATION ON VARIABLES PER COUNTRY...35
3.3.1 China ...35
3.3.2 Indonesia ...37
3.3.3 South Korea...39
3.3.4 Lao PDR ...41
3.3.7 The Philippines...45
3.3.8 Taiwan ...48
3.3.9 Thailand...49
3.3.10 Vietnam...51
3.4 SELECTING THE COUNTRIES...54
3.4.1 Exclusions...54
3.4.2 Market size...54
3.4.3 Market growth ...56
3.4.4 Degree of farming intensity...57
3.4.5 Logistic possibilities...58
3.4.6 Attractiveness grid...58
3.4.7 Sensitivity analysis ...59
3.5 CONCLUSIONS...61
CHAPTER 4. DETAILED MARKET ANALYSIS...62
4.1 CHINA...62
4.1.1 Market structure on the demand side...62
4.1.2 Market situation on the demand side ...64
4.1.3 Market structure on the supply side ...69
4.1.4 Market situation on the supply side...69
4.1.5 Conclusion ...70
4.2 INDONESIA...73
4.2.1. Market structure on the demand side...73
4.2.2. Market situation on the demand side ...74
4.2.3 Market structure on the supply side ...77
4.2.4 Market situation on the supply side...77
4.2.5 Conclusion ...77
4.3 SOUTH KOREA...80
4.3.1 Market structure on the demand side...80
4.3.2 Market situation on the demand side ...81
4.3.3 Market structure on the supply side ...83
4.3.4 Market situation on the supply side...84
4.3.5 Conclusion ...85
4.4 VIETNAM...87
4.4.1. Market structure on the demand side...88
4.4.2. Market situation on the demand side ...89
4.4.3 Market structure on the supply side ...94
4.4.5 Conclusion ...96
CHAPTER 5. CONCLUSION...101
EPILOGUE...106
Chapter 1. Introduction to the research
In this first chapter the occasion of the research will be outlined and the management question will be discussed. To clarify the management question, a description of the Animal Supplies organization and the working of supplement A compounds, the product on which is focussed, are given as well.
1.1 Occasion
According to advocates of the global convergence perspective, the growing similarity and integration of the world can be argued by pointing on extensive economic statistics, showing significant rises in foreign direct investment and international trade. Global convergence, it is argued, is largely driven by the ease, low cost and frequency of international communication, transport and travel. This has diminished the importance of distance (De Witt & Meijer, 1998).
For firms, global convergence is changing the rules of the competitive game. In the past, most countries had their own distinct characteristics and there were few international economies of scale. Growing similarity between nations offer organizations the enormous opportunity of delivering resources across borders.
An equally important aspect of international integration is that suppliers, buyers and competition can also increasingly operate as if there were no borders. The ability of suppliers and competitors to reap global economies of scale and sell everywhere around the world creates global industries, in which competition takes place on a world-wide stage (De Witt & Meijer, 1998).
1.2 Management question
To profit from the global convergence, Animal Supplies wants to expand their business to obtain a stronger position in the supplement A compound markets worldwide. A supplement A compound is complementary cattle feed. The management of Animal Supplies selected ten countries in East/Southeast Asia which could be attractive to enter. These countries are: China, Indonesia, Laos, Malaysia, Myanmar, The Philippines, Taiwan, Thailand, South Korea and Vietnam. The ten countries were identified by the management of Animal Supplies during conversations at an agricultural fair in Bangkok, Thailand. Asia is chosen since Animal Supplies is already active in two Asian countries and wants to be more explicitly present in the region. The management is interested in the possibilities of doing business in these countries. To fill in the knowledge gap about these ten countries, they called for a scientific research. More specifically, the management wants to know which of the ten countries in East/Southeast Asia are attractive to enter. Of the most attractive countries they want detailed information about the
Board of Management
Corporate staf/ Central services
Animal Healthcare Animal Supplies
Board of Management
Corporate staf/ Central services
Animal Healthcare Animal Supplies
market for supplement A compounds. The strategic points of attention derived from this detailed market information will help the management of Animal Supplies forming market entry strategies.
1.3 Clarification of the management question
In the management question the company Animal Supplies and the product supplement A compounds are mentioned. In this paragraph these two elements will be taken further into the matter.
1.3.1 Animal Supplies
With 61,500 people subdivided into 13 business units, operating subsidiaries in more than 80 countries, AHS is an example of an organization that operates in a global industry. Animal Supplies is a business unit of the global AHS organization, as can be seen in figure 1.1.
Figure 1.1: Organization chart AHS
As an independent business unit of the worldwide-operating AHS concern, Animal Supplies is headquartered in Amsterdam (the Netherlands) and has more than a century of experience in the supplement A business. Animal Supplies is one of the world’s leading supplement A specialists, supplying high-quality products for all different kind of applications. Animal Supplies exports its products throughout the whole world.
1.3.2 Supplement A compounds
Supplement A compounds are sold in the agricultural segment. Within the agricultural segment, Animal Supplies occupies a strong position in several countries in Western Europe (among others Netherlands and Denmark), supplying the main players in the animal feed industry. Supplement A, minerals and trace elements are vital feed elements for the agricultural industry and livestock. Animal Supplies produces supplement A for use in the production of animal feed and mineral premixes (Animal Supplies, 2006).
For thousands of years it has been known that domestic and wild animals need supplement A just as man does, and not just for flavour. The virtues of supplement A for animals were extolled by the ancient Greeks. Early explorers in Africa, Asia and North America recorded observations of grazing animals travelling to supplement A springs or deposits to satisfy ravenous appetites for supplement A. Animals deprived of supplement A will risk grave danger or resort to unusual behaviour to obtain it.
Because most plants provide insufficient sodium for animal feeding and may lack adequate chloride content, supplement A supplementation is a critical part of a nutritionally balanced diet for animals. In addition, because animals have a definite appetite for supplement A, it can be used as a delivery mechanism to ensure adequate intake of trace elements.
There are seven trace minerals that have been shown to be needed in supplementing animal diets. They are iron, copper, zinc, manganese, cobalt, iodine and selenium. They are needed in very small amounts, or traces, in the diet, and hence their name ‘trace minerals’. Supplement A is a natural carrier for trace minerals, since all farm animals have a natural appetite for supplement A. Moreover, when cattle, horses, sheep and other animals are on pasture with little, no or varying amounts of concentrate feeding, producers can supply trace mineralized supplement A free-choice in the form of a supplement A compound or as loose trace mineral supplement A in a box (Saltinstitute, 2006)
In this research the focus is on supplement A compounds for cattle made by Animal Supplies. Although these supplement A compounds enriched with minerals and trace elements are used for sheep, horse and games as well, these sectors are less attractive than the cattle sector. When it comes to supplement A compounds, Animal Supplies has a strong position in the Netherlands and France (Animal Supplies, 2006).
As stated before, a supplement A compound is complementary feed for animals. Cows eat these 5, 10 or 25 kg compounds in order to assure that they get their necessary amount of supplement A, minerals and vitamins. Farmers using normal cattle fodder can use supplement A compounds for fine-tuning. The use of supplement A compounds secures productivity and health of cattle. Normal cattle fodder covers the needs of minerals and vitamins on average for about 95%. If cattle do not get enough supplement A, minerals and vitamins, they get less healthy and will produce less milk. This can go up to 10% less in a short period of time. The advantage of using supplement A compounds is that each cow gets exactly the amount of supplement A and minerals, according to their own needs. This is because cows have a self regulating mechanism and will stop eating once they have had enough supplement A.
Chapter 2. Research Design
To be able to answer the management question as stated in chapter one, the backbone of the research is designed; the research design. The research design consists of a problem statement, an explanation of the theories and conceptual model, and the research method.
2.1 Problem statement
The function of the problem statement is twofold. It takes care of the attuning to the customer (Animal Supplies) and it takes care of the internal control of the research (De Leeuw, 2001). The problem statement discusses which questions have to be answered for who and why.
It takes into account the research objective, research questions and sub research questions. Furthermore, research constraints and definitions are given.
2.1.1 Research objective
In the first chapter it is discussed why Animal Supplies wants to expand their business.
Animal Supplies is interested in expanding their supplement A compound business to ten countries in East/Southeast Asia. It is important to know for Animal Supplies which of these countries are attractive to enter and how they could enter them. Ultimately, this research will first lead to recommendations about which countries are attractive to enter for Animal Supplies. Secondly, a more detailed description of the markets for supplement A compounds in the most attractive countries will lead to strategic points of attention which need to be taken into consideration when forming entry strategies. This helps the management of Animal Supplies to make well thought-out decisions about market entry strategies for the different countries.
The above mentioned leads to the following research objective:
To select the most attractive markets for supplement A compounds out of ten East/Southeast Asian countries and to provide the management of Animal Supplies with country specific strategic points of attention for entering these markets.
2.1.2 Research question
Which of the ten East/Southeast Asian countries have markets for supplement A compounds which are attractive to enter and what are country specific points of attention when forming entry strategies?
2.1.3 Sub research questions
The above mentioned research question can be divided into sub research questions. These sub research questions are mainly based on the market analysis theory of Aaker (2005) and the dynamic market theory of De Jong (1989).
1) Which of the ten East/Southeast Asian countries have markets for supplement A compounds which are attractive to enter for Animal Supplies?
1a) What are the potential market sizes for supplement A compounds in the ten countries?
1b) How large is the market growth in the ten countries? 1c) What is the degree of farming intensity in the ten countries? 1d) What are the logistic possibilities?
The second part of the research will only take the most attractive countries into consideration. The sub research question for this part is formulated as follows:
2) To what degree will farmers in each country perceive value in the use of supplement A compounds and what are other country specific points of attention that have to be considered by Animal Supplies when forming market entry strategies?
2a) Which country specific factors in the market structure, market situation and their developments influence the willingness of farmers to stimulate the productivity per cow? 2b) Which other country specific factors in the market structure, market situation and their developments are of influence on the market entry strategy?
The first sub research question deals with the first part and the second sub research question with the second part of the research question. The research steps and the deliverables can be seen in figure 2.1. The first step, to make a research design, is done in this chapter. In the research design it is discussed how the following two steps are completed. Therefore it can be seen as an input to the following two steps.
These following two steps are consistent with the different sub research questions. In the country selection scan (chapter 3) the attractiveness of the supplement A compound markets in ten East/Southeast Asian countries will be analysed. In this preliminary scan the countries will be examined by a number of selection variables. The choice of the selection variables is explained in paragraph 2.2.1. The deliverable for this part of the research is a list of countries which will be further analysed in the following step.
Figure 2.1: research steps and deliverables
The next step is done in chapter 4 and contains a detailed market description for each of the most attractive countries. In paragraph 2.2.2 it is explained how this is done. The deliverables of this step are country specific strategic points of attention which are of help for the management of Animal Supplies when forming entry strategies.
2.1.4 Research constraints
De Leeuw (2001) differentiates two kinds of constraints for a scientific research. Both constraints regarding the result and constraints regarding the process are discussed underneath.
◊ Constraints regarding the result
• The focus of the research is limited to the following countries: China, Indonesia, Laos, Malaysia, Myanmar, The Philippines, Taiwan, Thailand, Republic of Korea and Vietnam;
• Due to time limitations, of the ten countries, the four with the best potential are selected for further investigation;
• Supplement A compounds are used by cattle, calf, sheep, horse and game. The market for cattle is most important for Animal Supplies since it is the most profitable. Because of the limited
Management question: Possibilities of doing business in East/Southeast Asia
Research design
Selected countries
Detailed market description Strategic points of attention for entry strategies
Research steps
Deliverables
Country selection
Input Output
Management question: Possibilities of doing business in East/Southeast Asia
Research design
Selected countries
Detailed market description Strategic points of attention for entry strategies
Research steps
Deliverables
Country selection
Input Output
time available, the scope of the research is limited to the use of supplement A compounds by cattle.
• The report has to meet the methodological requirements of the Faculty of Management and Organisation, University of Groningen;
• The content of the report is confidential so a public version of the report has to be made as well;
• A thesis done by two or more students is permitted if the individual contribution to the result can be determined objectively.
◊ Constraints regarding the process
• The available time for this research is six months. The research started on April 1, 2006;
• The research must be conducted by the scientific methods of the Faculty Management and Organisation, University of Groningen;
• The research will be executed in The Netherlands mostly, but when needed visits to one or more of the ten countries will take place;
• The process and content of the research has to meet the Animal Supplies business principles of 2006.
2.1.5 Definitions
Definitions are the first entrance to the research. For an empirical research, good definitions are needful (De Leeuw, 2001). Underneath definitions which are important for this research are stated.
Attractive: Aaker (2000) states that marketing analysis has two objectives. One is to determine the attractiveness of the market and sub markets. He uses the terms size, growth and profitability to measure the attractiveness. Lambin (2000) defines attractiveness by three different variables: size, life cycle and profit potential. This is similar with Aaker, because the life cycle is a method for analyzing growth over time. In this research the variables to measure attractiveness will be based on the following three terms: size, growth and profit potential.
Market entry strategy: The market entry strategy reflects the most effective means of entering and marketing supplement A compounds in the target markets (Cateora & Graham, 2002)
Markets: Albaum, Strandskov, Duerr and Dowd (1989) state that in export marketing a common way of defining and describing markets is in terms of export countries. However, De Jong states in his 1989 book that there is no market definition that can be used in a common and universal
way. The market that is relevant depends on the purpose why the market is examined. In this research the purpose is to select countries with attractive markets for supplement A compounds and to give strategic points of attention which need to be taken into consideration when the management of Animal Supplies will form entry strategies. Therefore we define markets as supplement A compound markets with producers of supplement A compounds on the supply side and cattle farmers on the demand side.
Supplement A compounds: supplement A – most of the time supplemented with minerals and trace elements - compacted in the form of compounds.
2.2 Theories and conceptual model
Sub research questions are formulated for every step in the research. To come to an answer to these questions, various concepts and theories will be used. In this paragraph for each step in the research process, the conceptual model and the underlying theories are explained.
2.2.1 Country Selection
The first stage of this research has the task of bringing the research object, ten countries in East/Southeast Asia, back to four countries. This has to be done, because a complete and secure description for ten countries can not be done in the available time. In this preliminary scan, China, Indonesia, Laos, Malaysia, Myanmar, The Philippines, Taiwan, Thailand, South Korea and Vietnam are examined by different generic selection variables. The choice for these countries is made by the management of Animal Supplies since they are already active in two Asian countries and want to be more explicitly present in the region.
Given its importance, international market selection (IMS) attracted significant research attention from the 1960s to the mid-1980s. However, this interest waned in later years, mainly because of the difficulty in developing IMS models that could be generalized to various industries while also having adequate predictive power for business (Papadopoulos, Chen & Thomas, 2002). Therefore we do not use an existing complete selection model. Instead, we will only use variables which are of importance for the specific industry of supplement A compounds.
The choice for the variables is made in agreement with the management of Animal Supplies. The variables “market size”, “market growth”, “market trends” and “logistic possibilities” are used. The different variables are based on the market analysis theory of Aaker (2005). His model includes the following dimensions: emerging markets, actual and potential market size, market growth,
For two reasons not all variables are taken into account in this research. As said before, not all variables are relevant to the specific industry. The second reason is that within the amount of time available it is not possible to examine all variables thorough enough to be able to compare them among ten countries. Examining all these variables would not be good for the efficiency as well as the reliability of the research. However, when researching systematically, it is approved to choose at least more than two variables when comparing the countries (Day, Fox & Huszagh, 1980).
The dimensions emerging markets, key success factors and market profitability are not taken into account.
The variable emerging markets is not important anymore because the management of Animal Supplies has already decided which countries are going to be analysed.
A key success factor is any competitive asset or competence that is needed to win in the marketplace (Aaker, 2005). Since it would take too much time to identify all key success factors for each country, they are not analysed in the preliminary scan, but in the second part of the research for the four most attractive countries.
In this research market profitability is determined by logistic possibilities and trends in the market as well as size and growth of the market. This means market profitability is captured in the four variables which are used.
As stated in the definitions (paragraph 2.1.5), attractiveness is decided by the variables size, growth and profit potential. Size and growth are two variables used by Aaker (2005) and Lambin (2001) as well. Profit potential is determined by logistic possibilities and trends in the market as well as size and growth of the market. Therefore we use these four variables for selecting the most attractive countries. The variables are discussed beneath.
◊ Market Size
A basic characteristic of a market is its size. An analysis should consider the market’s potential (Aaker, 2005). Potential market size is a very important variable since it determines the potential sales for the ten countries. A country with higher sales potential is more attractive since in general more sales lead to higher profits. Efficient operations due to large demand enable economies of scale as well.
To compare the countries on market size, the number of cattle, divided in dairy and beef cattle, will be measured for each country. On the basis of the number of dairy and beef cattle a potential market size for supplement A compounds for each country will be calculated. Because it is not possible in this stage to make an exact estimation of the number of cattle using supplement A compounds already and the potential market share for Animal Supplies in each country, this is
the market size if every cow will use supplement A compounds. Each country will get a score on the basis of their potential market size.
◊ Market growth
The second variable in the country selection scan is market growth. The level of growth within the market is included in the scan because it provides indicators of the market potential in the coming years.
An investment in a declining market is not always unwise, but it would be if Animal Supplies held the erroneous impression that it was a growth situation. Conversely, it is important to recognize growth contexts even though they will not always be attractive investments for a given firm (Aaker, 2005).
It is important to discover the forces that drive the growth or decline of markets. However, within the time available for this research it is not possible to examine all the indicators for growth for each of the ten countries. For the country selection scan it is satisfying to predict future growth on the basis of past growth. In the second part of the research the forces that drive growth or decline in the market will be determined for the remaining four countries.
Therefore, trend lines based on the annual growth percentages from 1999 to 2005, are calculated for each country. This will bring to light a positive or negative trend. Each country will get a score on the basis of the estimated growth rate for the year 2006.
◊ Market trends
Trends within the market can affect current or future strategies and assessments of market profitability (Aaker, 2005). In this research we will focus attention on the trend farming intensity since in an intensive farming system, farmers are more likely to use supplement A compounds. Of course, only cattle farming is taken into consideration.
Intensive agriculture is an agricultural production system characterized by the high inputs as relative to land area. It usually relies heavily on the use of chemical fertilizers, herbicides, fungicides, insecticides, plant growth regulators, pesticides. It is associated with the increasing use of modern practices and agricultural mechanization.
Intensive agriculture made it possible to greatly increase productivity during the twentieth century, and helped ensure a proper and stable food supply for the growing population while at the same time decreasing the amount of land needed.
When the cattle sector in a country is focused at increasing productivity, it relies more on the use of external feed sources (Hendy, Kleih, Crawshaw & Phillips, 1995). Since the use of supplement A compounds secures productivity and health of cattle, intensive farmers will be more likely to
In short, a high degree of farming intensity will have a positive affect on the attractiveness of the country. We distinguish three degrees of intensity; not intensive (small-holder or traditional), semi intensive and intensive. This distinction is up to the researchers, so certain subjectivity is involved. Each country will get a score based on the degree of farming intensity.
◊ Logistics
Instead of using the variable “distribution channels” of Aaker (2005), in this research the focus is on logistic possibilities. In international business, the major intercontinental links are surface (water) and air. Although relatively slow, modern sea transport is a highly effective method of transporting large quantities of non-perishable goods. Transport by water is significantly less costly than transport by air for trans-continental shipping.
A financial characteristic of a supplement A compound is that it is a product with relative small margins. To keep these margins small, transport by air would be way too cost expensive. Transport by water is the only left option for Animal Supplies. A country is therefore less attractive when it is land locked, because direct transport by water is not an option. As a consequence, costs for logistics would be higher due to for example double import taxes.
We therefore state that a country is more attractive, when it has a seaport. Each country will get a score based on logistic possibilities.
The above mentioned generic variables and the relationships between them form the conceptual model of the country selection. The complete conceptual model of the country selection scan is shown in figure 2.2.
Figure 2.2: Country selection scan model
For comparing the scores of the variables among the ten countries, the country-attractiveness grid of Daniels & Radebaugh (1998) will be used. In consultation with the management of Animal Supplies, each variable will be given a certain weight factor before the scores are added and the four most attractive countries are selected.
Market attractiveness Market size
Logistic possibilities Market growth
Market trends
Potential consumption salt licks Estimated market growth 2006
Degree of farming intensity
Seaport availability Market attractiveness Market size
Logistic possibilities Market growth
Market trends
Potential consumption salt licks Estimated market growth 2006
Degree of farming intensity
◊ Reduction of variables
The four above discussed variables are the remains of a larger model. During the research it became clear that some variables were impossible to measure for all ten countries in the time and budget available. For other variables it became clear that they did not contribute to the attractiveness of a country. These variables are discussed beneath.
Market trends – Buyer power: In the initial model, buyer power was added to the variable “Market trends” as well. The Gross Domestic Product (GDP) per capita and GDP of the agricultural sector would be used to measure this. However, since only the buyer power of cattle farmers is of importance for this research, GDP per capita and GDP of the agricultural sector would not be sufficient. Examining the buyer power of cattle farmers in each of the ten countries in a more exact way would require too much time and budget since local visits were needed then.
Distribution – Accessible types of distribution: The number and sorts of distribution types would be of influence on the attractiveness of a country. More different types of possible distribution would make a country attractive. However, it would take too much time examine this for all ten countries. Therefore we simplified the variable by only looking at sea port availability. In the second part of the research more distribution possibilities will be examined for each of the attractive countries.
Distribution – Company ownership: It soon became clear that it does not matter for the attractiveness of a country whether a farmer is the owner of the farm or he works for a commercial company. Therefore this variable is skipped.
Distribution – Organization degree: This variable would take into account to what degree farmers cooperate with each other. For instance, if a country has input cooperatives it would be more attractive. However, it would take too much time examine this for all ten countries. In the second part of the research it will be examined for the remaining four countries.
Market risk – PESTEL: A PESTEL analysis contains information on the political, economical, socio-cultural, technological, environmental and legal situation in a country. This analysis would lead to a general overview of the ten countries. However, for this research we would fill in the PESTEL analysis on an industry specific level. During this process most of the variables were left open. The ones which could be filled in did not differ significant among the countries. Therefore, no difference in attractiveness could be made. Therefore it is decided to not use this scan in deciding market attractiveness.
2.2.2 Detailed market description
country. For the descriptions of the markets, the dynamic market theory of De Jong (1989) will be used. In this paragraph the reasons for using this theory and the way the theory will be used are explained.
◊ Static versus dynamic market theory
To analyse the most attractive markets more detailed, the Economics of Industrial Organizations is used. The Economics of Industrial Organization is the field of economics that studies the strategic behaviour of organizations, the structure of markets and their interactions. A central issue in the Economics of Industrial Organization is the “Structure-Conduct-Performance” paradigm (Rogier, 1998). The name of this approach reflects exactly the content of it: the structure of the market determines the conduct of organizations and the industry, what subsequently is determinative for the outcomes realised in the industry.
There are two general versions of this paradigm. In the original version, this causal relationship is a one-way road; market structure is determined by exogenous factors. This is also known as the static market theory. Later on, more attention came to the influence that organizational behaviour can have on the market structure, resulting in a more dynamic approach (Van Hulst & Willems, 1989).
In the later version the relationship between structure and process in a market economy is dynamic, in other words, structure and process influence each other. This is more realistic than the static version of the market theory. Therefore the dynamic market theory is used to describe the most attractive markets.
◊ Dynamic market theory
The dynamic version of the Economics of Industrial Organization is par excellence the movement that analyses markets and competitors in the market. De Jong (1990) calls the static analysis in the traditional Economics of Industrial Organization “situational analysis”. They form the frames in a movie, while the movie itself is the “dynamic analysis” (Rogier, 1998).
But what is the main subject of the movie in the second part of the research? The main subject is the supplement A compound market with its supply and demand side. This is because the label of the dynamic market theory indicates that it is not just the supply side of markets which is the subject of analysis, but the demand side as well. That marks the difference between an industry (composed of suppliers only) and a market. Beyond that conceptual difference, a point of substance is that the static market theory hardly discusses the relationships between supply and demand (De Jong, 1990) (Rogier, 1998).
◊ Stucture, situation and development
De Jong (1989), a well known author in the field of dynamic market theory, has got three central definitions in his version of the dynamic market theory, knowing: market structure, market situation and market development.
The market structure are all of the characteristics that, at a given market situation, represent the articulation, construction and mutual relationship of market parties on the supply and demand side of the market. It only refers to the number of companies, the quality –like the proportion large -small organizations- and the relationships between companies, - like cartels, joint ventures (Van der Werf, 1989).
The market situation is the coherent whole of supply and demand factors that at a certain moment or during a short period characterize the characteristics of the market of a given product. Matters like economies of scale and product differentiation comprise market situation (Van der Werf, 1989).
Market development is the sequence of different market situations in the growth life cycle (De Jong, 1989).
These three definitions will be used to structure the gathered information about the most attractive markets. For each attractive market, information on the market structure, market situation and their developments, which should be considered when market entry strategies are formed, will be given.
◊ Demand
As stated before, the market theory analyses the demand- and supply side. When the demand side is analysed, it is interesting to know when a cattle farmer would perceive value in the use of supplement A compounds. It is important to notice that there is a general agreement in the literature that customer value is determined by customers’ perception and not by suppliers’ assumptions or intentions. Value is defined by the customer in the marketplace, not by the supplier in the factory. Value is “not what the producer puts in, but what the customer gets out.” (Khalifa, 2004).
In this case the dairy and/or beef farmer could get several advantages out of a supplement A compound. The value, a cattle farmer gets when using supplement A compounds is the securing of a good health and a high productivity of their cattle. A supplement A deficiency manifests itself in a lot of health aspects of a cow, like for instance: weight loss, breeding problems and decline in natural resistance.
Supplement A for lactating dairy cows is critical to maximize production because of the obligatory loss of these nutrients in milk. A deficiency of supplement A results in a decreased appetite. This is followed by a loss of appetite and body weight. Milk production decreases as appetite
Usually the first sign of a supplement A deficiency in beef cattle is a craving or abnormal appetite for supplement A. Cattle may eat various objects such as rocks, wood and soil. Sometimes, no other visible symptoms occur for months. Then appetite begins to decline, the animal subsequently develops an unthrifty appearance with a rough hair coat. This is followed by a rapid loss of body weight. Eventually, a sudden death will follow a prolonged supplement A deficiency (Berger, 2001).
The above mentioned leads to the conclusion that cattle farmers will perceive value and thus be interested in buying supplement A compounds when they try to maximize the productivity per cow. The use of supplement A compounds will then secure the productivity and health of their cattle.
Therefore, when the market structure, market situation and their developments on the demand side in the supplement A compound market are analysed, the focus will be on the positive and negative factors in a country on the productivity per cow. This comprises matters like for instance whether farmers have the financial resources to increase productivity or whether farmers are pushed by the government to increase productivity.
All positive and negative factors will be depicted in a table per country. From this table it can be seen whether there is a consistent pattern in a country. If for instance, there is a consistent positive pattern in a country, it is likely that farmers perceive value in the use of supplement A compounds. Subsequently, points of attention for market entry strategies can be derived from this.
Other issues on the demand side which should be taken into consideration when forming entry strategies will be discussed as well.
◊ Supply
Besides the demand side of the supplement A compound market, the supply side is also analysed in the light of entry strategies for Animal Supplies. Information on the market situation, market structure and their developments on the supply side of each country will be analysed. Aspects one could think of are; number of competitors, price levels and information on the use of supplement A compounds.
Only aspects of the market structure, market situation and their developments at the supply side of the market which are of influence on entry strategies for Animal Supplies will be outlined.
◊ Market entry strategy
Entry strategy forming for international markets is a comprehensive plan. Managers need to plan the entry strategy for each product in each foreign market, because it is foolhardy to assume that the response to a particular entry strategy would be the same across different products and
different country markets. Therefore for each attractive country in this research, points of attention for an entry strategy will be given.
The design of a company’s market entry strategy for a given product/target country requires the formulation of a marketing plan as well as the choice of an entry mode. The entry mode is intended to penetrate the foreign target country; the marketing plan is intended to penetrate the foreign target market (Root, 1994).
Regarding entry modes, companies normally face a trade-off between the benefits of increased control and the costs of resource commitment and risk. In many cases this is an evolving process over time, which is pictured in figure 2.3.
Figure 2.3: Risk, control and time trade off Source: Root, 1994 Many companies, once started in international business, will gradually change its entry mode decisions in a rather predictable way. Increasingly, they will choose entry modes which provide greater control over foreign marketing operations. But to gain greater control, companies will have to commit more resources to foreign markets and thereby assume greater market and political risk. Growing confidence in its ability to compete abroad generates progressive shifts in companies’ trade-off between control and risk in favour of control. Consequently, evolving international companies become more willing to enter foreign target countries as equity investors (Root, 1994).
The international evolution of an organization can roughly be divided in four stages. Stage one is indirect/ad hoc exporting and also includes unsolicited licensing arrangements. In this stage there is still a weak commitment to foreign markets.
Stage two includes efforts to penetrate foreign markets through agent/distributor or branch/subsidiary exporting. It may include active solicitation of licensing arrangements. International business is viewed as separate and distinct from domestic business (Root, 1994).
with authority over all forms of international business replaces the export department. But international business is not integrated across countries and regions. Nor is international business strategy integrated with domestic business strategy.
The fourth and last stage implies that multiple national markets are served from multiple national sources. Some companies replace the international division with a global organization based on area or product group. International business strategy thoroughly integrated with domestic business strategy to form corporate business strategy. The home country is treated as one of many national markets in which the company “happens” to have its corporate headquarters (Root, 1994).
To design a marketing plan for target markets, decisions on the products, pricing, channels, logistics, and promotion must be taken. Taken together, these decisions comprise the “marketing mix” of the plan. The foreign marketing plan is intimately related to the entry mode. Most significantly, the entry mode determines the degree of a company’s control over the marketing program in the target country. Some entry modes (indirect exporting and pure licensing) allow a company little or no control over the marketing program. Other modes afford limited control (agency/distributor exporting and joint ventures), while still others allow full control (branch/subsidiary exporting and sole ventures) (Root, 1994).
On the basis of the table with positive and negative factors on productivity per cow on the demand side and other findings on the demand and supply side of the market, strategic points of attention concerning the market entry strategies for each country will be given.
If for instance, farmers in a particular country are generally focused on maximizing productivity per cow, the added value of supplement A compounds is high. Therefore farmers are more likely to buy supplement A compounds. The risks of doing business in such a country would be lower than for a country where farmers are not stimulated to increase productivity per cow. This will then have implications for the market entry strategy of these countries.
2.3 Research method
In this paragraph the research method is discussed. Subsequently, the research type, the quality of the research and the way of collecting data are taken into account.
2.3.1 Research type
This research can be characterized as a policy supportive research. According to De Leeuw (2001) a policy supportive research delivers tangible (in the problem statement specified) knowledge which is useful in a specific situation to a particular customer, and satisfies a part of the total knowledge needed.
In this research, the management of Animal Supplies is the specific customer. They want to expand their business to a number of countries in East Asia. By selecting markets and giving points of attention which should be taken into consideration when forming market entry strategies, just a part of the total knowledge needed will be answered by this research. The product of the research will support the execution of the policy. The eventual decision whether and how Animal Supplies is going to expand their business will be made by the management.
2.3.2 Quality of the research
Quality of the research is very important. De Leeuw (2001) defines quality of organizational knowledge as usefulness. Research results are useful when: (a) they are connected with the problem issue of the customer and (b) you can trust on them. These two aspects are described as relevance and reliability. As a matter of course, when looking at quality, efficiency is taken into account as well. The relevance, reliability and efficiency of this research are discussed beneath.
Relevance shows that the produced knowledge corresponds with the knowledge needed. To assure this correspondence, the research is designed in accordance with the management of Animal Supplies. Several temporary meetings with this management are arranged. Because the knowledge needed is very broad, getting to know supplement A compound markets in ten different countries could result in a lack of thoroughness because of time limitations. This is taken care of by doing a preliminary country scan at first so only the attractive countries will be investigated further. In this way the management of Animal Supplies will get extensive insights about the most attractive countries. The results must be timely available. Agreed is to finish the research in six months.
Reliability comprises matters like correctness, precision and consistence (De Leeuw, 2001). Correctness can be achieved by basing conclusions strictly on facts. This will not always be possible, but it is tried by using scientific sources and information from governmental sources. Precision will be achieved by using recent resources and by not stating conclusions without justifying them. The third factor is consistence; results are not useful if they are inconsistent.
Efficiency deals with the consideration between costs and benefits. For this research a consideration will for instance be made whether on site research in particular countries is needed. This will bring extra costs, but could be relevant when there is much chance for good profits in the particular market. In the first place the research will take place from Groningen and Amsterdam in the Netherlands.
2.3.3 Data collecting
The way of collecting data will be very diverse and the data will be mainly qualitative of nature. Primary data will be collected by interviews with people from within and outside Animal Supplies. Secondary data like literature, statistical information and internet sources will be important as well.
To secure the validity of the research, we used a strategy called: triangulation. Braster (2000) notes that triangulation is important in a scientific research. Triangulation means using different types of data collection and combining this to answer different research questions.
◊ Country selection
The management of Animal Supplies decided, primary to the start of this research, which ten countries were to be investigated. To come to the four most attractive countries we formulated a country selection model on the basis of literature on country selection and discussions with the management and other employees of AHS. Conversations with Jan Stokkers and Bert van den Hoven (Process & Manufacturing consultants, AHS) gave insights in the process of developing new supplement A compounds, the motives and reasons for farmers to use supplement A compounds and the most important characteristics of supplement A compounds for farmers. The visit to two Dutch test farms taught us how supplement A compounds are used on a farm. An export meeting with members of Fenedex (Federation for the Dutch export), where experiences in export of around thirty managers of different large companies were exchanged, gave insights in what other companies find attractive in new markets..
The above helped us in identifying the variables for the country selection. The data collection for each of the four variables is discussed underneath.
Market size: Information on the market size for each country is obtained from the Food and Agriculture Organization of the United Nations (FAO). This organization keeps up a database with among others, the number of live animals per species in every country in the world. Conversations with Mr. Leeuw (manager Export & Business Development, Animal Supplies) learned us more about the average consumption of supplement A compounds per cow per year. Combining the number of cattle and the average consumption per year enabled us to calculate a potential market size for supplement A compounds.
Market growth: The market sizes from 1990 to 2005 were used. The data collection is the same as for the variable “market size”.
Market trends: Primary sources to get to know more about farming intensity were interviews by telephone and mail with Dutch embassies in the several countries, local Intervet managers in several countries, employees of the Agency for International Business & Cooperation (EVD). Secondary sources like articles, scientific papers and the internet were used for examining each
country as well. Because of the fact that there is not an even proportion of information available for each country, a judgment about the degree of intensity is always liable to a certain amount of subjectivity of the researcher.
Logistic possibilities: Seaport availability is obtained from a secondary source; the Central Intelligence Agency keeps up a world fact book on their website. They list major ports and terminals primarily on the basis of the amount of cargo tonnage shipped through the facilities on an annual basis.
◊ Detailed market description
For the detailed market description of the four most attractive countries, primary and secondary sources were used. The secondary sources were mostly livestock reports from governmental institutions and the Food and Agriculture Organization of the United Nations (FAO). Furthermore, statistical data from the FAO is used.
The primary sources used for the country selection, like counsellors of the Dutch embassies, local Intervet managers and managers of the EVD were used in the second phase of the research as well. Furthermore, in this phase possible distributors were sought. These possible local distributors, and other organizations that were of use in finding local distributors, gave us much useful information on the several markets. Information was obtained from organizations like for instance the milk processing company of Friesland Foods in Vietnam, Bogor Agricultural University in Indonesia and many local distributors. Conversations by telephone and e-mail with people from these organizations helped us in getting to know the markets better.
Chapter 3. Country selection
With more than 200 sovereign countries in the world, no organization is likely to have the resources to develop profitable businesses in all of them. Selecting the right market(s) to enter is critical for the future success of businesses (Rahman, 2003). International market selection (IMS) is the first and most important step in export strategy, making it a critical success factor for both smaller exporters and mature multinational firms (Papadopoulos et al., 2002). Koch (2001) also acknowledges that selection of overseas markets and entry modes lies at the very heart of any international strategy. In this chapter we will start with the heart of an international strategy, by selecting the four most attractive out of ten countries in East/Southeast Asia for Animal Supplies. The countries considered are China, Indonesia, South Korea, Laos, Malaysia, Myanmar, The Philippines, Taiwan, Thailand and Vietnam.
A key issue with country selection models is the indicators used to measure market attractiveness. In a nutshell, there is no agreement on which indicators to use and how they might be weighted to reflect their relative importance (Papadopoulos et al., 2002). In chapter two it is already mentioned that supplement A compound market specific indicators, based on Aaker (2005), are used to measure market attractiveness; market size, market growth, degree of farming intensity and logistic possibilities. Each of these variables are measured and weightings are assigned. This results in a score on attractiveness for each of the ten countries.
In paragraph 3.1 the way in which each variable is measured will be explained. Subsequently, in paragraph 3.2 the weight factors are attributed to the variables. In the following paragraph for each country, information on the four variables will be given. Next, in paragraph 3.4 two countries are excluded from the country selection and the information on the ten countries comes together in a country attractiveness grid like Daniels & Radebaugh give in their 1998 book. Scores will be attributed and the four most attractive countries are identified. To be certain that the right countries are identified, a sensitivity analysis is done in this paragraph as well.
3.1 Country selection variables
In this paragraph it is explained how the four variables are measured. For each variable the way in which scores are attributed is explained as well.
3.1.1 Market size
For thousands of years it has been known that domestic and wild animals need supplement A just as man does. For this reason the total number of dairy- and beef cattle are analysed when examining the market size. On the basis of these figures the theoretical supplement A compound
consumption by dairy- and beef cattle in a country per year can be calculated. In accordance with Mr. Leeuw (manager Export & Business Development, Animal Supplies), it is stated that an average dairy cow uses 60 grams supplement A compound a day and an average beef cow uses 40 grams a day. The theoretical market size for supplement A compounds in tons can be calculated by using the following formula:
For an example, see figure 3.1.
Country X Stock (head) 2005 Supplement A compound market (tons) 2005
Total 200,000 10
Dairy 100,000 6
Beef 100,000 4
Table 3.1 Supplement A compound market calculation example The largest/most attractive market sizes for dairy as well as for beef cows are attributed 10 points. Both markets in each country are attributed a number of points in proportion to the largest one. Next the scores for dairy cattle are weighted 0.7 and for beef cattle 0.3. The sum of these scores result in a ranking, where the largest sum is attributed ten points and the others a number of points in proportion to the largest one.
The reason for the different weighting for dairy and beef cattle is that supplement A compounds are used more in the dairy farming sector than in the beef farming sector. By addressing weightings, the market size will be estimated more secure.
3.1.2 Market growth
This analysis needs to assess the growth trend for the industry. Market growth serves as a proxy for industry attractiveness.
For determining market growth, percentages instead of absolute growth figures will be used. Absolute growth gives the growth in the number of cattle. Market size, which is already given a score, will be of huge importance again then. Therefore small countries will not be able to get a high score then. Another reason for using percentages is that when a market is growing, it does not only tell something about the increase in market size, but also about the developments in the market.
We will not use the average growth over a certain period, but scores will be attributed to each
100,000 Theoretical supplement A compound market
(tons per year) =
when for example the growth in the first period is negative and growth is positive in the last period, the average growth could be zero while it might be likely to say that there is growth in the coming years.
To estimate the growth percentage in 2006, the linear regression technique will be used. A trend line is calculated on the basis of growth percentages per year from 1999 to 2005. The reasons for starting in the year 1999 are the heavy fluctuations between 1990 and 1999 as can be seen in figure 3.1 and figure 3.2. If we calculated the trend line from 1990 to 2005, it would not give a realistic reflection of the growth in the past recent and coming years.
The scores on “market growth” are calculated in the same way as for the variable “market size”. This means that in the end the country with the highest growth percentage in 2006 is attributed 10 points and the other countries are attributed points in proportion to this country. Like for the “market size” weighting factors of 0.7 for dairy and 0.3 for beef are applied here as well.
Growth level (%) per year (in number of dairy cattle)
-60 -40 -20 0 20 40 60 1990 1991 199 2 1993 199 4 1995 199 6 1997 199 8 199 9 200 0 200 1 200 2 200 3 200 4 200 5 Year G row th l e v el (% ) ChinaIndonesia Korea, Republic of Laos Malaysia Myanmar Philippines Thailand Viet Nam
Figure 3.1 Growth level (%) per year (in number of dairy cows) Source: Food and Agriculture Organization of the United Nations Growth level (%) per year (in number of beef cattle)
-20 -15 -10 -5 0 5 10 15 20 199 0 1991 199 2 1993 199 4 1995 199 6 1997 199 8 1999 200 0 2001 200 2 200 3 200 4 200 5 Year G ro w th le ve l ( % ) China Indonesia Korea, Republic of Laos Malaysia Myanmar Philippines Thailand Viet Nam
Figure 3.2 Growth level (%) per year (in number of beef cows) Source: Food and Agriculture Organization of the United Nations
