DEVELOPMENT OF MARKET
ORIENTATED COMPETENCES IN
AN INTERNATIONAL PERPECTIVE
Author:
Egbert Hietberg
Rijks Universiteit Groningen
Faculty Business administration
II
Preface
There is a proverb which says: “Daring ideas are like chessmen moved forward. They may be beaten, but they may start a winning game”. . Doing business in a competitive environment is often
seen as playing a chess game. Doing the right (unexpected) move at the right time, to try to put a competitor checkmate, are important business moves. The title of this report “Development of market orientated competences in an international perspective” refers to playing that business game. A multinational company named CRV Holding BV, operating in the cattle improvement industry, should develop its market orientation to improve its playing (performance) in the international business game. In the cattle improvement market because of liberalization and globalization, boarders and geographical barriers are disappearing, which implies a new kind of game, has to be played. To remain independent and a financial healthy company in this changing market, the company (CRV Holding BV) decided it has to change out of power and, develop itself to a globally leading company. However because the process towards the global leadership develops itself by fits and starts, the company had a ready ear for knowledge to improve the internationalization process.
In this master thesis study, executed within the framework my study business administration, at the Rijks Universiteit of Groningen, I have examined CRV Holding BV should improve its’ market orientation. However operating market orientated in an international market requires specific and unsuspected competences. Therefore this study is aimed at designing a market orientated company, which can utilize its’ competences on multinational and global level, to grow to an authoritative globally leading company.
In the context of this study the proverb implies that by means of the market orientated concept CRV Holding BV should dare and be able! to do clever and sometimes surprising moves. Only by doing these moves the company can win games and, put someone else checkmate.
Before one can start reading the report, first I want to thank the company CRV Holding BV, especially manager Business Development mr. Frank de Graaf, for the opportunity to examine the company and, time and effort to support and help me with my research. Besides I want to thank drs. Nihat Daĝ for his criticism, advice and evaluation of this report. At least I want to thank my girlfriend Annet Oostveen and, my parents for their absolute support.
By now I hope one will enjoy reading the report. If someone loses the attention during the reading, ask oneself the question:
What’s more interesting than knowing how to conquer the world market by seeing it just as a chess game, in which one only has to learn to play it clever to make it winning?
“Development of market orientated competences in an international perspective”
III
Management abstract
This study has been executed for CRV Holding BV, a company operating in the cattle improvement industry. Most important activities of the company are breeding and Artificial Insemination (AI).
Approximately two years ago, by means of a new vision “Visie 2010” CRV Holding BV planned to change out of power. The objective was to be an authoritative globally leading company in the year 2015. Therefore focus should be on international expansion, the (international) customer and cost reduction. However the company experienced gaining foreign market share and, reaching the international customers is difficult. The company decided it had to gain more knowledge about the international market(s), market processes, customers and competitors, since they experienced an increasing rivalry. Therefore the following management question has been formulated:
How can CRV create a structural flow of knowledge about international markets (and processes), to be able to build a successful global leading company?
It was assumed an extensive preliminary investigation was necessary to determine a normative context around this management problem. Therefore the external environment and, the internal environment of the company have been examined. By using the open system model of Cummings and Worley (2005) the influence of the external forces on the internal environment have been considered. The findings of the preliminary research are connected in a TOWS analysis (Weihrich, 1982) to determine their importance. On the basis of these results a new strategy has been formulated.
By means of the preliminary research it was examined that indeed the company had to increase its’ market knowledge, but it also has to improve its’ competences of translating the knowledge into customer value and competitive strategies. Therefore the company should improve its market orientation. Market orientation is defined by Kohli and Joworski (1990) among other things:
Market orientation is the organization wide generation of market intelligence pertaining to current and, future customer needs, dissemination of the intelligence across departments and, organization wide responsiveness to it.
The market orientation principle can be seen as the core element of this study (report). To examine the concept and the possibilities to introduce the market orientation by CRV Holding BV, the following research question has been developed:
What implies being market orientated and, how can a multi-national company develop this orientation, to be able to grow in a liberalizing and globalizing market to market leadership?
IV
Global winning companies do not have a ‘world product’, but perfectly matching strategies for each markets in which they operate (Hout et al, 1982). Thereby the company should be focused on markets in which it can create a leading position, to be able to change the market dynamics and, build up entry barriers. At least it has been described that the market orientation supports the cost reduction strategy, because of efficient and effective business operations and, investments.
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Table of contents
INTRODUCTION ... 1
1.0 COMPANY DESCRIPTION... 1
1.1 Introduction CRV Holding BV (Source: Deltanet, “Company profile CRV Holding”)... 1
1.2 Company structure... 1
1.3 Cattle improvement and activities... 2
1.4 Mission CRV... 2
1.5 Strategy ... 2
1.5 Finances and staff (source: Annual report 2006) ... 3
1.6 Customers... 3
2.0 PROBLEM INDICATION... 4
2.1 Research motive... 4
2.2 ‘Visie 2010’ (Source: Visie 2010, CRV Delta)... 4
2.2.1 Approach home market and technology ...4
2.2.2 Internationalization ...5 2.2.3 Vision...5 2.2.4 Explanation ...5 2.5 Management question ... 6 2.6 Problem analysis... 7 2.7 Method of investigation... 7
2.7.1 Research methods preliminary investigation ...8
2.8 Sources of information ... 10
2.9 Bookmarker ... 10
EXTERNAL ANALYSIS... 11
3.0 MACRO ENVIRONMENT ANALYSIS... 11
3.1 Destep Demographic factors ... 11
3.1.1 Feedback Visie 2010... 11
3.2 dEstep Economic forces ... 12
3.2.2 Feedback Visie 2010... 12
3.3 deStep Social and Cultural forces... 12
3.3.1 Feedback Visie 2010... 13
3.4 desTep Technological forces ... 13
3.4.1 Genetic improvements... 13
3.4.2 Feedback Visie 2010... 14
3.5 destEp Ecological forces... 14
3.5.1 Feedback Visie 2010... 14
3.6 desteP Political/ legal forces ... 14
3.6.1 Feedback Visie 2010... 15
3.7 Conclusion... 15
4.0 MESO ENVIRONMENT: THE INDUSTRY STRUCTURE... 16
4.1 Market definition... 16
4.2 Market structure ... 16
4.3 Internal rivalry ... 16
4.4 Potential entrants in the market... 17
4.5 Bargaining power of buyers ... 17
4.6 Substitution threat and complement... 18
4.7 Bargaining power of suppliers... 18
4.8 Conclusion... 18
INTERNAL ANALYSIS... 20
5.0 MICRO ENVIRONMENT... 20
5.1 Strategy ... 20
5.1.1 Mission statement ... 20
5.1.2 Goals and objectives ... 20
5.1.3 Strategic intent... 20
VI
5.3 Structure... 21
5.3.1 Formal structure... 21
5.3.2 Differentiation and integration... 21
5.4 Measurement systems... 22
5.5 Human Resource systems ... 22
5.6 Organizational culture ... 23 5.7 Conclusion... 23 EVALUATION RESULTS... 24 6.0 TOWS ANALYSIS... 24 6.1 External... 24 6.2 Internal... 24 6.3 Explanation ... 25 6.3.1 Strength – opportunities ... 25 6.3.2 Strength – threats ... 26 6.3.3 Weaknesses – opportunities... 26 6.3.4 Weaknesses – threats ... 26 6.4 Conclusion... 27 6.4.1 Strategy... 27 RESEARCH DESIGN ... 29 7.0 PROBLEM STATEMENT... 29 7.1 The objective... 29 7.2 Research question... 29 8.0 THEORETICAL FRAMEWORK... 30 8.1 Market orientation ... 30
8.1.1 Market orientated organizations... 31
8.2 Liberalization and globalization... 35
8.2.1 Conclusion liberalization and globalization... 36
8.3 Final conclusion theoretical framework... 36
8.4 Conceptual model ... 37 8.5 Sub questions... 38 ANALYSIS... 40 9.0 CUSTOMER FOCUS... 40 9.1 Diagnosis... 40 9.1.1 Concept ... 40
9.1.2 Customer focus and CRV... 41
9.2 Conclusion... 42
10.0 COMPETITOR FOCUS... 43
10.1 Diagnosis... 43
10.1.1 Concept ... 43
10.1.2 Competitor focus and CRV... 43
10.2 Conclusion... 45
11.0 INTER-FUNCTIONAL COORDINATION... 46
11.1 Diagnosis... 46
11.1.1 Concept ... 46
11.1.2 Functional coordination and CRV... 46
VII
REFERENCES ... 59
APPENDICES Appendix I Company structure ... 2
Appendix II Mission and Strategy CRV ... 3
Appendix III Macro environmental information ... 5
Appendix IV Import and Export Bovine semen ... 7
Appendix V Herfindahl index ... 8
Appendix VI Competitor information ... 10
Appendix VII Interview ... 11
Appendix VIII Substitution products ... 13
Appendix IX Analysis Strategy ... 14
Appendix X Research model ... 16
Appendix XI Market driven processes for learning (Day, 1994) ... 17
Appendix XII figure Kasper (2005) ... 19
1
Introduction
In this section the research elements will be introduced. At first a short description of the principal and, research object 'CRV Holding BV' will be given. Next the motivation for this study, the management question and, the research methods will be discussed.
1.0 Company description
In this section the company and its’ context are described. The company structure, the activities, customers, mission, vision, strategy and finances will be discussed.
1.1
Introduction CRV Holding BV
(Source: Deltanet, “Company profile CRV Holding”)CRV Holding BV (in this report will be revert to as CRV) is an international (multinational) company in the field of cattle improvement. CRV stands for Cooperatie Rundvee Verbetering (Cooperation Cattle Improvement) and has got two shareholders. The 37.000 members of the cooperation are Dutch and Fleming cattle breeders, whom have an influence in the organization.
The head office is located in Arnhem and, CRV employs 1250 people. The products and services of CRV are distributed around the world to more than 70 countries with 50,000 direct customers. In addition, CRV’s products are sold by distributors found on every continent. The annual revenue amounts to approximately 122 million Euro.
1.2 Company
structure
The two shareholders of CRV are: Koninklijke Cooperatie Rundveeverbetering Delta u.a. (80%) located in Arnhem and Vlaamse Rundveeteelt Vereniging VRV (20%) located in Oosterzele.
VRV originates from a merger of five (Felmisch) provincial associations in 1993. CR Delta originates from a merger of provincial firms, NRS and HG in 1998. In 2002 CR Delta and a part of VRV merged. Since 2002 CR Delta and VRV are working together in a work organization.
Besides the head office which is established in Arnhem, there are three regional offices; these are located in Deventer (NL), Heerenveen (NL) and Rijen (NL). At several production stations, CRV houses top breeding cows and proven bulls. After the semen is collected from these bulls it is exanimate on genetic processes in a special laboratory.
The CRV holding consist of three departments: “Breeding and International”, “Management and data processing” and “Sales and services the Netherlands and Flanders” (see the figure 1.1.1, company structure below and, appendix I, “Company structure”).
Figure 1.2.1: company structure
The structure is put into use in the summer of 2006. At that time the new structure was chosen because of a new strategy. In this structure there is a central authority and the culture is business oriented. The responsibilities have to be clear, the lines short and the communication has to be efficient. The three divisions are steered by three executives and 12 managers.1
In foreign countries, CRV has got six subsidiaries. These are located in:
Brazil: Lagoa da Serra
Czechoslovakia: CZ Delta
Germany: HG Deutschland
1 The new structure which is in use since the summer of 2006 implies a further efficiency improvement. This means that
2
Luxemburg: GenLux
Spain: HG Espaňa
New Zealand: Ambreed
The most activities take place in Europe, North America and Brazil. By means of the software program IRIS, CRV supports the herd book (registration) in Luxembourg, South Africa and Ireland.
1.3
Cattle improvement and activities
CRV is working in the cattle improvement. For CRV the cattle improvement means:
The development, production and sales of genetic products (semen and embryo’s) and information products. Also services are a part of the cattle improvement.
CRV is engaged in the following activities: breeding accompaniment (type classification and Sire Advisory Program (SAP)), milk production registration (MPR), herd book registration, online management support (Veemanager), semen, embryo transplantation (ET), artificial insemination (AI) and development of genetic products. At this moment and, in the future (because of the cooperative background among other things) the core activities are the MPR, herd book registration, semen and AI. All the other activities (products and services) will only be marked if profitable.
Part of the development in genetic products are the Delta test-locations. On a few farms CRV is testing mothers of proven bulls under equal conditions. By means of these tests CRV is trying to discover new cow families for breeding new proven bulls. A good proven bull will make a contribution to the return of the cattle farmer.
In the development of new cow families and proven bulls, CRV has started to make use of genetic markers. A genetic marker is a piece of DNA that gives a reliable indication about the presence of hereditary qualities in an animal, or in which way the hereditary qualities will express itself. The increasing use of genetic markers gives advantages in the breeding program. By means of the markers it is possible to predict qualities of an animal, select the proper embryos, select animals in early stages of their development. Besides it is possible to develop and utilize strong qualities of cow families or to improve the less developed qualities by making better choices (based on better information) in the breeding program. The increasing use of genetic markers will improve the test results on the Delta test-locations. Besides the cattle improvement CRV supports farmers also in the mineral administration by means of the NRS-Minas.
1.4 Mission
CRV
CRV is an international leading cattle improvements cooperation that delivers added value to cattle breeders by means of: (see appendix I, mission and strategy)
• High-grade products and services;
• Active commitment of members and employees; • Continues innovation;
• Permanent attention to sustainable developments.
1.5 Strategy
The market proposition is cost leadership. To be a successful player on the market CRV strives to the following aspects: (see appendix I, mission and strategy)
• Creating market and customer value (focus on market and customer); • Grow of the turnover;
• Continuity;
• Healthy financial results;
• Propagate the cooperative consideration.
Where does CRV stand for?
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respond appropriately to this and tries to offer economic and long-lasting added value through a wide assortment of high quality products and services. This package contributes towards growth, profitability and efficiency.
1.5
Finances and staff
(source: Annual report 2006)In short the most important financial data of CRV will be portrayed. Within the framework of this research it is not necessary to show an extensive picture of the finances. In the table 2.5.1 below you can find the nett-return, result after tax, company capital, balance (total) and the solvability. To make the data more reliable and realistic the data of the last four financial years have been calculated.
Table 1.5.1: Finances
A solvability (is: company capital/ total capital) of more than 0,5 is normally seen as healthy. CRV has scored the last 4 years above this ratio.2 The average number of staff (in fte’s) in the financial
year of 2005-06 was 729 in the Netherlands, 44 in Flanders and 461 international.
1.6 Customers
The customers are (international) cattle farmers and organizations which support farmers in their management, for example veterinarians and animal feed producers. Also internal departments and divisions of CRV are customer.
All the customers have different needs about individual products, but on organization level the needs all over the world are the same: reliable products, quality, service and return on investment.
The number of farms and cows in the Netherlands and Flanders is decreasing since the introduction of the milk quota in 1984 (Vision 2010). The numbers of customers (framers) of CRV are reflected below:
Table 1.6.1: customer
One can see the negative trend in the number of farmers, cows and CRV activities. For example the number of dairy cows is decreased from 1980 till 2005 with 39,1 per cent, whereas the number of MPR companies is predicted to decrease with 31,9 per cent in 2010. The numbers of activities in the table (1.6.1) above are of the Dutch market, however the Flemish market shows the same trend of activities.
This decreasing number of farmers affects the operational activities of CRV. Another division of the company has to look after the consequences of a shrinking customer portfolio in the home market. CRV its’ response is the development of a new vision (Visie 2010). This will be discussed in the next section.
2 The differences in result after tax consist because in the years 2004-05 and 2003-04 CRV paid out dividend before tax.
Finances
(thousands of euro's) 2005-06 2004-05 2003-04 2002-03 nett-return 124.935 122.124 115.151 108.627
result after tax 3.374 471 448 4.530
Company capital 57.276 55.395 53.734 54.401 Balance (total) 93.152 88.273 91.770 79.956
Solvability 61,5% 62,8% 58,6% 68,0%
1980 1990 1998 2005 2010
Numbers of the Dutch market (www.cbs.nl)
Total number of agricultural companies 144.994 124.903 81.830
Total number of cattle 5.225.857 4.926.023 3.798.804
Total number of dairy farms 67.167 46.977 23.520
Total number of dairy cows 2.355.986 1.877.684 1.433.202
Development CRV
MPR companies 28.494 22.233 19.400
MPR cows 1.465.793 1.379.210 1.367.500
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2.0 Problem indication
The construction of this section is build up as follows. At first the occasion to this research will be portrayed. Next an overview of the new vision (Visie 2010) will follow, because the execution of ‘Visie 2010’ is involved with the research motive. After that the management question and objectives of the research will be discussed, before the research methods will be determined.
2.1 Research
motive
As described in the introduction the number of farmers (the main customers of CRV) is decreasing. This aspect together with other changing market qualities resulted in a critical look by CRV itself (in 2005) at the organizational performance. On the basis of results of that research the board of directors decided that organizational changes were necessary to develop a financial healthy and competitive company. Therefore ‘Visie 2010’ was developed.
Significant in the new plans were extensive international activities and investments (the objective is being the world market leader in 2015), however up to now the company has not always been very successful with its’ operations on international scale. The subsidiaries perform from moderate to very well, but other activities and investments failed or are unsatisfactorily. Besides the awareness, results of the current subsidiaries and, other international activities (sales) should be improved, CRV experienced that entering new markets and gaining market share is very difficult as well. Therefore, to realize its' ambitions, CRV has a ready ear to information and knowledge about international business development, for instance how to be successful in entering new markets.
2.2 ‘Visie
2010’
(Source: Visie 2010, CRV Delta)A yearly customer research demonstrated that cattle breeders in The Netherlands and Fleming were to a large extent satisfied with CRV and, did see them as reliable and as expert. CRV is defined as a financial healthy company and the customers are loyal and satisfied.
However, CRV must look ahead and predict the future. Several trends were noticeable, which did (and still do) influence the market position and financial situation of CRV (ten per cent shrink of market size in The Netherlands market among other things). Therefore, they developed the strategy “Visie 2010”. In the beginning of 2005, CRV decided that an organization development3 was necessary to keep the
market share on a high level and to be competitive. Research showed that a number of business activities were not competitive or profitable. Besides, the focus had to be more globally oriented. CRV wanted to ‘change out of power’! Thereby the attraction of the company for the customers had to be continued on a high level as well.
The 'Visie 2010' implies more than just a change of strategy. The whole organization has been reflected with respect the future. The main goals in the 'Visie 2010' are cost reduction and internationalisation. CRV changed its proposition into a cost leadership approach (operational excellence). Thereby CRV selected four areas in which an organizational change was needed:
1. The approach to the home market (The Netherlands, Flanders), focus on cost leadership; 2. The supporting services and technology;
3. The international focus;
4. The main structure (see section 1.2, company structure).
2.2.1 Approach home market and technology
A very short attention will be paid to the first two areas of organizational change. Within the framework of this research is in not necessary to make an elaborate description.
To be a cost leader in the domestic market CRV had to change its activities as follows: ! The commercial assortment had to be aimed at controlling the costs;
! CRV wanted to be a fast follower in the market;
3 An organization development is a system wide application and transfer of behavioral science
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! CRV had to create skills to copy successful formula’s; ! Focus on efficiency;
! Standardization of processes to customers, reliability and customer comfort; ! Less product diversity
! Strict leadership, clear formulas.
The objectives with regard to supporting service and technology are mainly aimed at the internet. By now in the agricultural sector the internet is an important application for the exchange of information. CRV expects that more and more cattle farmers will buy their products via the internet. In 2010 CRV strives to do 90 per cent of the sales by means of the internet. Besides the internet CRV developed digital processes and electronic programs to be more efficient.
2.2.2 Internationalization
In the last ten years CRV has developed itself from a Dutch-Flemish organization to a more international operating organization. At this moment 25 per cent of the turnover is generated by foreign subsidiaries and the export of semen. In the financial year 2005-06 1.5 million doses semen were sold and that was an increase of 13 per cent compared to the year before (semen is sold via the subsidiaries and directly to international distributors). As mentioned earlier, further internationalization is seen as a necessity for giving the firm a healthy future (as an autonomous company). Because of the international expansion it is possible to sustain the breeding program, to control the costs and to do strategic research on a large scale. Also by housing bulls in different countries, CRV reduces veterinarian risks. Another advantage of international investments is the possibility to develop local breeding programs to serve the local market. The ambition of CRV is to grow to a world market leader.
The consequence of being an important player on the world market means a considerable foreign expansion. The current turnover of the foreign subsidiaries is 25 million euro and this turnover has to be doubled twice to increase to a level of 75 million euro.
Export will remain an important pillar under the international turnover, but for the international growth, the primary strategy is aimed at acquiring existing parties. These parties need to have the potential to grow to a substantial player in its' home market.
To make the desired increase possible, CRV is trying to invest in international oriented managers. CRV wants to attract four to five people whom can be mobilized in the acquisition processes as well as for leading new acquired firms for a few years.
2.2.3 Vision
To be an important player in the world market CRV developed a number of goals which had (and still have) to be achieved (before 2015). The main goals in the opinion are:
1. International growth by means of export, acquisitions, alliances and other strategies of global expanding;
2. The strategy is offensive, business oriented and pragmatic;
3. The strategy of CRV is not only aimed at the cooperation members in the Dutch and Fleming market, but also (expressly) at the customers in other home markets
4. The structure will change from multinational to global;
2.2.4 Explanation
CRV has chosen for an offensive internationalisation strategy. In the next years, the heart of the strategy will be driven by the increase of the sales of CRV semen, to keep sufficient volume of the Holstein breeding program. This is in essence the defensive strategy, which CRV used for many years. But the ambition to be a top player in the market implies that CRV has also chosen for an offensive strategy. The goal is to be active in the markets, in which CRV can make money with its’ knowledge, experience and entrepreneurship. The Holstein breeding will remain until 2010 the most important market for CRV.
Part of the offensive strategy is thinking in more than just one home market. The label “home market” will be utilized in all markets in which CRV is a substantial player. Thereby CRV wants to invest in customer networks for building long term relationships.
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But from the view of pragmatism, CRV can also choose for maintaining a relation with another cattle improvement partner. For investing in a merger, sometimes a lot of patience and investments in long term relationships are needed. Alliances are a possibility, but will be done with a business oriented intention. The alliances will be build up for creating access to new markets, but also for sharing knowledge, R&D and reducing veterinarian risks.
CRV wants to develop an international strategy of the information products as well. With regard to these products, there will be a focus at the establishment of partnerships with governments, large dairy companies of other parties which have an advantage with long term investments in the information products. The current product information development is still too much aimed at the needs of the Dutch and the Flemish market. By further investments in development of these products, there will be scope for applications which can fulfil local needs.
Part of the global focus is the establishment of the new international department. This means that the focus of the firm will be divided in a national and an international perspective. The global strategy needs a more specific orientation. The divisions which execute international operations are: International business development 6 fte, International Sales 7,6 fte and International relations 1 fte. These divisions report to the director International and Sales.
Towards 2015 the core of the concern structure will be repositioned from a model of a multinational organization, towards a model of a global organization. Therefore CRV needs to make another increase and, change the focus of the head office into a more international orientation. Also more coherence and, direction are needed for a few core processes. This coherence is needed for developing and, utilizing synergy inside the company. The core processes CRV is thinking of, are research programs, breeding techniques, production and branding.
2.5 Management
question
In the preceding section, the future plans of CRV with regard to the international activities have been portrayed. CRV its' ambition is global leadership. Thereby the focus is aimed at the market and customer, supported by an operational excellence strategy.
In a first conversation with Frank de Graaf, manager business development, the progress of the plans has been discussed, because the company is not completely satisfied with the current activities.
During the discussion it became clear that the company experienced a shortage of knowledge about the (current) international market trends, processes and market effects, for instance the effects of liberalization and, increasing competition. The company also experienced difficulties with fulfilling needs of foreign customers, thereby a former research already made clear that the internal information flow is underdeveloped.
Therefore, the company is looking for current market information, especially for business management knowledge, to be able to create a clear strategy, or strategic direction, which can create a structural flow of valuable information about the international market processes, competitions and competitors and customers, on which CRV can assess its international investments. On the basis of these considerations the following management question is formulated:
How can CRV create a structural flow of knowledge about international markets (and processes), to be able to build a successful global leading company?
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2.6 Problem
analysis
In the section before the management question has been formulated. The question is developed on the basis of a number of (rough) organizational, management and environmental aspects. Actually one can distinguish two phases in this research assignment. First the current problems and behavior of the organization and, the situation in which it performs have to be laid bare and connected to be able to develop a problem statement (De Leeuw, 2003). This implies a preliminary research is needed to examine the management question and the situation in which the question has been arised. A further analysis (which can be seen as the real investigation) can be executed to diagnose the problem statement and develop a design by which the situation of CRV (with regard to its international activities) should improve. The research methods applied in the preliminary investigation will be explained in this section.
2.7 Method
of
investigation
The management question suggests that the company should have a structural knowledge flow, to be able to build a successful global leading company. Thereby the knowledge should consist of knowledge about international markets and processes. A structural knowledge flow can be seen as a sort of market focus, in which the market information shapes the guideline for the international activities. The question ensues from the findings that the company experienced a shortage of market knowledge, has an underdeveloped internal information system and, is not able to fulfill the needs of the foreign customers among other things.
It has been considered that before making plans to develop such a knowledge flow, first information should be collected about the possibilities to create and employ such a knowledge flow. Probably every company needs market information to execute (international) operations and activities, however it depends on the market and the company(ies) to what degree market knowledge is a necessary good, or a competitive advantage to be successful (on a global level). Therefore the benefit in this market of being focused on market information has to be examined.
To determine the benefit several factors have to be considered. First market forces have to be mapped to determine their importance. After all to make the knowledge flow valuable it should consist of relevant knowledge, which strengthen CRV its’ international trade activities. Therefore market forces which are significant for CRV its’ activities have to be examined, for instance the degree of liberalization, the customer demand or the degree of competitiveness.
The company itself has to be examined to determine the possibilities to utilize the collected market information. For creating a global leading position the company should be able to collect and filter (especially) market knowledge that is significant and supports the company in its’ international processes. Besides, the company should be able to translate the knowledge into improved activities.
However, sometimes market knowledge is not available or unreliable, for example because of backward technology, governmental restrictions, illegal activities etc. A few years ago CRV itself already experienced difficulties with collecting market information in France, which finally has lead to a failed investment. Therefore the availability of information has to be considered.
Taken these considerations together the following questions arise: 1. What are the main market forces CRV should be focused on? 2. Is the market information CRV needs available?
3. Is the organization able to manage and utilize the market knowledge and what factors have to be improved?
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internal possibilities to improve the knowledge flow. Organizational aspects are seen as internal (environmental) forces and external environmental aspects are seen as external forces. Internal forces are affected by external forces.
Stated briefly, the examination of the internal environment is important for determining the strengths and the weaknesses of the company and, the external environment will be analyzed to determine market opportunities and threats. These four factors (strengths and weaknesses, opportunities, threats) will shape the guideline of this study, since they can create a picture of a possible strategy or tactic route CRV should follow (use) to improve its’ international processes and, thus being able to create a structural flow of significant knowledge about the international market factors. The founded strategy or tactic can be translated into the problem statement.
Analyzing the problem statement can be seen as the second part of this research, which will be called “Strategy analysis and design”. This analysis can be seen as the real investigation. The basis of this part of the research is the problem statement, which consist of the research objective and the research question (De Leeuw, 2003). The meaning of this part is to give sufficient support to the strategy developed in the preliminary research and besides, to examine the current operational activities with regard to this strategy and how they should be developed and designed. The completion of the analysis is described later on in the report.
2.7.1 Research methods preliminary investigation
As described the management question is aimed at developing a system for collecting knowledge about international market factors like market processes, customers and, competitors, on which CRV wants to develop itself to a globally leading firm. To be a global firm, there need to be a balance between the organization and the environment.
There are many models/ approaches for diagnosing organizations (Cummings & Worley, 2005). Typical for a business administration method of approach is a problem oriented system approach, aimed at coherence and methodic (De Leeuw, 2003). Because in this research as well as external as internal environment information is needed, the open system model of Cummings & Worley (2005) will be used. The open system model introduces system theory, which is a set of concepts and relationships describing the properties and behaviors of things called systems – organizations, groups and people (Cummings & Worley, 2005). Systems can vary in how open they are to their outside environment. According to Cummings & Worley; “Open systems, such as organizations and people, exchange information and resources with their environment. Organizations are affected by environmental conditions. Understanding how these external forces affect the organization can help explain some of its' internal behavior. Any open system is composed of three related parts: inputs, transformations and outputs. Every part can be influenced by the environment”.
On the basis of these statements one can assume that by using the open system model it should be possible to collect the right external and internal information to be able to develop a strategy. 4
Open systems display a hierarchical ordering. There are three levels: organization level, group level and individual level (Cummings & Worley, 2005). The key to effective diagnose is knowing what to look for at each level as well as how the levels affect each other. The model describes the input that the system has to work with, the key design components of the transformation subsystem and the system’s outputs.
To diagnose CRV and its’ external environment, only the top level of organizational system, thus the organization level, will be portrayed. This choice is made, because the research is aimed at the strategic level of the organization.
The organizational level of analysis is the broadest systems perspective. The model proposes that an organization’s transformation processes, or design components, represent the way the organization positions and organizes itself within an environment to achieve specific outputs. There are two key inputs
4 Because the research is focused on the internationalization process, the examination will take place within
9 Management question Preliminary investigation External analysis Internal analysis Macro environment DESTEP method Meso environment Five forces (Porter)
Internal environment Open system model
TOWS analysis Relation forces;
Strategy CRV
affecting the way organization designs its’ strategic orientation: the general environment and industrial structure.
In short, one can distinguish three levels of analysis, firm specific (internal analysis), general environment (Macro environment) and industrial structure (Meso environment) (Leidecker, 1984).
The general environment represents the external elements and forces that can affect the attainment of organizational objectives. It can be described in terms of the amount of uncertainty present in social, technological, economic, ecological and political forces. These forces will be portrayed by means of the DESTEP method. The organization’s industry structure (Task environment) is another important input to strategic orientation. As defined by Porter (1982) and, organization’s task environment consists of five forces: supplier power, buyer power, threats of substitutes, threats of entry and, rivalry among competitors. These forces will be described as well. The environment- and industry analysis will be used to identify the significant threats and opportunities facing the firm (Leidecker, 1984).
Thus, the description of the general environment and the task environment form the external analysis. The internal analysis is based on the design components and the output. The design components (the resources) consist of strategy, technology, structure, measurement systems and human resource systems and the intermediate output culture (Cummings & Worley, 2005). Again, the internal analysis can assist in identifying strengths and weaknesses of the company.
The output of the model can be portrayed by means of a TOWS analysis (Weihrich, 1982). By means of a TOWS analyses it is possible to connect the external forces with the internal forces (Leidecker, 1984). Then one is able to decide which strategy should be formulated and developed.
Thus the results of the TOWS analysis are very important, because they will shape the guideline for a further analysis with regard to the management question.
Because an organization is affected by its’ external environment, the most logical and chronological system of this examination is examining the external environment first, followed by the internal environment.
In figure 2.7.1.1 the research model of the preliminary investigation is shown:
Figure 2.7.2.1
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question a strategy for CRV will be formulated. The strategy can be seen as a sort of normative outcome of the management question, by which a further (final) research will be executed.
This research can be classified as a “praktijkonderzoek” (fieldstudy) (De Leeuw, 2003), because the product of this research is useful by a specific management problem, thereby it can be defined as probleemoplossend (study solving), because it takes into account the entirely problem of the customer.
2.8
Sources of information
Information will be collected by means of several systems. First information of the macro analysis will be collected from papers of the FAO (World Food and Agricultural Organization) and the OECD. These organizations do much research to macro trends and, therefore are very reliable and applicable. Information for the meso-scan will be reached from papers of CRV itself and by means of conversations with people whom are involved in the internationalization operations. These people are selected at random (different aggregation levels), but the requisite is they have experience with the international market. Information for the micro-scan will be reached by means of internal papers and conversations as well. The conversations consist of open interviews (de Leeuw, 2003)5 (see appendix VII, interview) and informal
conversations (participating observations, Braster, 2000). Other literature will be reached including scientifically papers and online database (Business Source Premier) from the University of Groningen.
2.9 Bookmarker
By now it is clear which methods will be used in this investigation. In this final section of the “Introduction” the bookmarker for research will be explained. As mentioned the research consist of two parts; first the preliminary investigation and, second the analysis of the problem statement, called strategy and analysis. The preliminary investigation includes a macro and meso environment scan, a micro environment scan and, a TOWS analysis.
The elements of the macro scan are all worked out in a different subsection. At the end of each subsection the findings will be connected and evaluated with plans and findings described in 'Visie 2010'. These feedback moments will give a clear picture about the current situation in which CRV can find itself, which again is important to define the problem. Feedback moments are marked by means of the title “ Feedback Visie 2010”. The section finishes with a total conclusion.
The elements of the meso scan are also worked out, each in a different subsection. Also feedback is giving to the findings of CRV itself.
Next to the external scans, the company itself will be examined. The section consists of seven subsections, including a final conclusion. In the conclusion the findings will be connected to the organizational changes executed on the basis of ‘Visie 2010’.
The results of the three scans will be worked out in the TOWS analysis. The TOWS analysis is constructed in such a way that the reader will first get a clear picture of the opportunities, threats, strengths and weaknesses. Next these elements will be connected and the relations will be discussed. The section finishes with a final conclusion, which shapes the introduction to the problem statement.
In the report many appendixes are added to give support to the findings. By means of references as well as in the text, as footnotes, is referred to the appendices.
(In “appendix X, research design” the complete research model has been represented. The complete research model consist of the model portrayed in figure 2.7.2.1 (see previous page 9) and the phases and methods used in the following research (“Strategy analysis and design”).
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External analysis
The external analysis consists of an analysis of the macro environment and the meso environment (the industry structure).
3.0 Macro environment analysis
The goal of the environmental analysis is to identify economical, political and social forces that will and, are impacting the industry and/ or firm’s performance and, thus the information flow. There is a broad category of approaches that identify the different forces (Leidecker, 1984), but as described in this research the DESTEP method is a very usable tool. The DESTEP method consists of:
1. Demographic forces 2. Economic forces 3. Social/ cultural forces 4. Technological forces 5. Ecological forces 6. Political/ legal forces
The information used in this section is derived from the OECD6 and FAO7.
3.1
Destep Demographic
factors
The major demographic forces are world population growth, the changing age distribution and the rise in the number of two-income households (Jobber, 2004). Also consumption trends will be portrayed in this subsection.
At first the growth of the world population is gradually decreasing. The population in developed economies is expected to be stable or shrinking, whereas countries of Africa, India and Latin America are expected to increase the population during the twenty-first century. Thereby as the less developed countries grow more youthful, the developed countries will play host to an aging population. In 2025, half the population of Europe will be over 45 years old (Jobber, 2004). In 2015, 750 million more world citizens need to be fed (see appendix III, macro environmental information).
The population growth, together with urbanization, increased prosperity and high disposal income change the consumption pattern, to a higher demand of animal protein and manufactured products and animal fat. The OESO and FAO have predicted the consumption trends of beef and milk for the next ten years, see appendix III (Macro environmental information). It is obvious that the consumption of beef products will remain relative stable (however the consumption of meat in developing countries has doubled since 1980 from 14 kg/caput/year to 29 kg in 2002, especially in East Asia, led by China). On the other hand, consumption of milk demonstrates mutations. In Oceanic countries the consumption of fresh milk will decrease with an average of eight per cent in ten years, but in China the consumption of fresh milk is predicted to increase with 71 per cent.
3.1.1 Feedback Visie 2010
Concluded one can say that because of the increase in consumption of dairy products, the demand to milk, cows and, also (quality) semen will increase. In the ‘Visie 2010’ CRV describes this trend as well, with the addition that because of liberalization the dairy market is growing to a world market, (especially in the developed blocks of the world market). CRV has ascertained increases in consumption of dairy products in most of the developing countries.
6 www.oecd.org/document/62/0,2340,en_2649,_201185_37032958_1_1_1_1,00.html
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3.2 dEstep Economic
forces
The economic environment can have a critical impact on the success of companies through its effect on supply and demand (Jobber, 2004).
The macro economic circumstances appear favorable. The annual growth of the world economy is four per cent and the economic grow creates a rise in the demand to foodstuffs and agricultural materials. The agricultural net production increased annually by 2,2 per cent. This growth has been mainly in the developing world which an increased output by almost 3,4 per cent per year, while the developed countries increased by just over 0,2 per cent per year.
Besides the economical growth other important economical forces CRV should be focused on are: ! Profound changes in food and agricultural systems in developing countries and economies-in-transition. Along with rising per capita incomes, technological advances, trade liberalization and urbanization, the role of the private sector is expanding, smallholder farming is becoming increasingly commercialized and, agribusiness and agro-industry are playing an ever more important role in the socio-economic development. In the food chain a few big players will remain;
! Increasing economic competitions and environmental restrictions will tend towards a migration of intensive production, in particular of monogastric species, to countries with less stringent regulations and, with available land, production technology and feed (Pomar et al, 2004);
! Despite policy reforms, the business environment in many developing countries remains far from conductive to agribusiness and agro-industries. Many countries continue to have complicated business regulations, ineffective enforcement of property rights, inadequate commercial services and infrastructure and, weak information systems;
! The influence of agricultural superpowers Brazil, China, India and Russia is increasing, see appendix III, Macro environmental information;
! In the diary market the OESO countries will continue to dominate (Europe, New Zealand, and Australia), see appendix III, Macro environmental information;
! New players on the world market which will play a significant role in the dairy market are Argentina and Ukraine;
! Animal diseases have had a significant impact on the international trade in meat products and probable will have in the future;
! The prices of most agricultural materials will follow (adjusted by the inflation rate) a downward spiral. This affects the trade margins;
3.2.2 Feedback Visie 2010
The strategy of CRV is aimed at as well as developed markets as developing markets. CRV sees opportunities because of increasing production of dairy and beef products in countries like (especially) China, Brazil, India and Argentina. Thereby investments in those markets are much cheaper than in developed markets. However CRV sees competitors investing in those markets as well and, the experience has learned that the Angelsaksian companies are authorative (more information about the competitors one will find in the next section “Meso environment”). Therefore one can suggest CRV should be focused at the effects of the macro economical forces because they influence the markets, what implies markets are changing and new opportunities could arise.
3.3 deStep
Social and Cultural forces
Agricultural markets are often fragmented and locally oriented. From social cultural perspective, one can explain this because of a combination of traditions, taboos, values and basic attitudes of the whole society in which an individual lives (Jobber, 2004). Cultural differences have implications for the way in which business is conducted. Because many agricultural markets are still closed, or just opened, many of these differences still exist.
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is individual, but in Italy it is a group. Firms from Italy are also organic, Dutch firms are systematic etc. These organizational differences should be considered by investing in foreign markets.
Cultural differences between consumers should also be appreciated. The preferences for local products have proven to be barriers to enter for foreign breeders. However consumption trends seem to converge globally.
3.3.1 Feedback Visie 2010
The above implies that international operating firms have to learn and anticipate to the local culture for being successful in foreign markets. CRV experienced that entering markets is very difficult. In many countries the AI organizations are still protected by the governments. Besides, local preferences are still significant for the demand. CRV concluded that it is most easy to enter developing markets.
CRV is using a mix of internationalization strategies, but when entering a new market, CRV always breaks through tradition, values etc. of these markets. This means that investments not always have been (or will be) successful and that new partners (subsidiaries) have to remain relative autonomous. In the future when the market will be more global, a more global orientation could be operated.
3.4 desTep Technological
forces
Technology is a powerful force, which drives the world toward a converging commonality. It has proletarian zed communication, transport and, travel (Levitt, 1983). The result is a new commercial reality – the emergence of global markets for standardized consumer products on a previously unimagined scale of magnitude. This means that technology can have a substantial impact on people’s lives and companies’ fortunes. Many technological breakthroughs change the rules of the competitive game. Monitoring the technological may result in the spotting of opportunities and major investments in new areas (Jobber, 2004).
Because technology international trade is much easier, not only products have been improved, also distribution and communication channels are much better organized (information technology) and do open new markets. Therefore agricultural markets slowly globalize and the competition increases.
Technological changes can also pose threats to those companies that gradually find they cannot compete effectively with their more advance rivals (Jobber, 2004). To be a market leader one has to keep up with its’ competitors.
An important technological force in the agricultural market is the entrance of private organizations, which invest in science and technology and support private sector innovation and product development and, collaboration in enhancing the effectiveness of regulatory frameworks. Other important technological forces are (www.fao.org):
1. Intensive systems; 2. Genetic improvements;
3. Improvements in marketing that lead to greater market efficiency, convenience and equity.
3.4.1 Genetic
improvements
Genetic improvement is an important source of productivity in livestock. Moreover, animal genetic resource contributes to cultural heritage (Notter, 2004). Human development has created the breeds found today, but current economic and social trends have the potential to erode them very rapidly. Because of the intensifying of systems and higher productions there is a matter of erosion of breeds. Therefore there is a potential danger of loss of within-breed genetic diversity in commercial breeds. Globalization of cattle breeding has improved selection intensity, but has also led to an increased relationship among animals and thus higher risk for inbreeding with its related problems (Mark et al, 2002). Increased rates of inbreeding may thus be a worldwide problem which requires actions to be taken on international level.
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3.4.2 Feedback Visie 2010
In 'Visie 2010' CRV describes that the role of research program’s, breeding techniques, production and branding have to be improved and aimed at the international market. These plans still have to be developed. CRV does not pay any attention in its plans to utilize the rising opportunities and threats with regard to communication, travel and transport and globalization. Nevertheless one can assume these forces will have their effect on the market, which means CRV should increase its’ attention to these forces.
3.5 destEp Ecological
forces
Environmentalists attempt to protect the physical environment form the costs associated with producing and marketing products and services (Jobber, 2004).
Over the past 50 years, human activity has altered ecosystems more rapidly and extensively than in any comparable period in history, largely to meet demand for food, fresh water, timber, fibre and fuel. Today, about 60 per cent of the ‘ecosystem services’ evaluated in the UN Millennium Ecosystem Assessment are being degraded or used unsustainable and, degradation could worsen during the first half of this century. Environmental sustainability in the agriculture is no longer an option but an imperative.
The FAO did a research to the relation between livestock and environment. The study showed that livestock production is one of the major causes the world’s most pressing environmental problems. The Committee On AGriculture (COAG) of the FAO outline the major corrective measures urgently needed to address livestock’s environmental impact:
1. Efficiency through adequate market prices; 2. Correcting for environmental externalities; 3. Accelarating technological change;
4. Reducing negative environmental and social impacts of intensive production. The environmental problems created by industrial systems – which account for 80 per cent of total livestock sector growth – derive mostly their concentration in areas favored by market access or feed availability. Instead, industrial livestock units need to be located as close as possible to cropland that can be used to dispose of the waste.
5. Reorienting extensive grazing toward provision of environmental services. The opportunity cost of extensive livestock production is changing, as competition increases for other uses of grazing land, such as water-related services, biodiversity conservation and bio-fuels.
3.5.1 Feedback Visie 2010
It is clear that ecological conditions will remain the dominant concern over the coming years with regard to the agricultural sector. CRV has strategies for sustainable production. With regard to the international market, the company does not describe any measures for being (pro) active in reacting on ecological forces. Important is the fact that animals will be concentrated in area’s favored by market access and feed availability, one can assume these are markets with potency in the long term and, thus markets CRV should be focused on.
3.6 desteP
Political/ legal forces
Political and legal forces can influence market decisions by determining the rules by which business can be conducted. The relationships between government and business organizations can have major implications not only for the respective parties, but also other companies. Governments can play a role in optimizing the impacts and improving the fairness of industry standards and requirements (FAO).
Because of trade barriers, quota’s (an example is the milk quota), the cooperative structure, corruption (Russia) and environment regulations, (The Netherlands) and regulations with regard to animal diseases, one can suggest that this environmental force is still one of the most important forces.
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Thus governments restrict livestock movements within the country for trade or disease control, or control the trade of breeding material thus potentially favoring certain production systems and related breeds. Some governments influence the availability of semen of certain breeds, directly through importation and distribution, or indirectly by setting semen prices, setting up AI stations or linking sales of genetic material and breeding stocks with health programs. Often in developing countries, semen of local breeds is not available.
The trends towards increasing concentration, vertical coordination and contracting in agriculture worldwide will almost certainly continue, says the FAO. Therefore governments will need to rebalance agricultural policies, institutions and services to focus on agribusiness and agro-industry development. However, only a few governments have a coherent vision of the sector and, coping with the complex challenges it creates; it exceeds the capacity of most public sector agencies. Many options to support agro-industries and value chains have been applied and described, but in most countries one can assume these improvements will be long term projects.
3.6.1 Feedback Visie 2010
The market can be portrayed as follows. At this moment the governments still have a lot of influence on the markets. It has been described that because of government regulations substantial changes of a strategy on national basis have to be made. However the proliferation of standards and quality requirements do ask for more vertical coordination and worldwide business. This means that the markets will privatize and liberalize. This is in accordance to what CRV expects if its' vision, where they see the globalization process as a long term project.
3.7 Conclusion
The macro environment analysis has showed there are a few clear trends which determine the market.
At first and probably the biggest opportunity of the market is the increasing demand to dairy products. This trend requires an enormous growth in the number of cows and thus also in semen. Besides, the sector will integrate vertically and the market liberate.
Technical developments create also new opportunities, the time-to-market decreases and distribution and communication systems improve. CRV is involved in the genetic improvements and can use this strength to enter new markets in an increased pace. However CRV should increase its knowledge about the effects of technology developments with regard to communication, transport etc. To create a structural knowledge flow CRV should utilize the opportunities arising because of technology.
Knowing needs of local customers is another important factor of the macro environment. Because the most markets have been closed for long (or are still closed) and, because of cultural and social differences, there are still many local preferences one has to react to.
Besides opportunities, some threats are noticeable with regard to the international operations of CRV. The environmental problems caused by livestock production, can reduce the expected growth of the market. Animal diseases have shown their negative impact on the market and, because of the commercialization there is a negative spiral of prices and trade margins.
Nevertheless, it is clear that CRV has a good picture of the several changes the market will meet. They see the opportunities and they know the difficulties, thus one can assume there is enough knowledge about the macro environmental forces. This implies there could be possibilities to utilize the opportunities and overcome the threats.
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4.0 Meso environment: The industry structure
Competition is at the core of the success or failure of firms. In any industry, whether it is domestic or international or produces a product or a service, the rules of competition are embodied in five competitive forces: the entry of new competitors, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers and the rivalry among existing competitors (Porter, 1985). Porter said that the collective strengths of these five forces determine the ultimate profit potential of an industry. This section will examine the current and future state of the international market with respect to the five forces Porter identified. The template portrayed by Besanko et al (2004) will be the guideline for analysis of the industry structure. It is assumed the examination of the five forces is necessary to determine the forces which will be important to employ the knowledge flow. Before examining the five forces, first a definition of the market will be represented.
4.1 Market
definition
The market definition requires identification of both a product market and a geographic market. The product of the market is bovine semen, thus as well as semen for dairy cattle as beef cattle. Because the research is aimed at the world market, geographic boundaries will not be taken into account. The organization of the export and import market of (bovine) semen is reflected in “appendix IV, import and export rates”.
4.2 Market
structure
The market structure refers to the number and distribution of firms in a market. The structure is important because it can profoundly affect the conduct and financial performance of its firms. A market structure can be determined by means of the Herfindahl index (Besanko et al, 2004). The Herfindahl index equals the sum of the squared market shares of all the firms in the market. Results of the Herfindahl index are represented in “appendix V, Herfindahl index”.
The market structure of the cattle improvement market can be classified as a monopolistic competition. The qualities of a monopolistic competition are also explained in “appendix V, Herfindahl index”. Important in a monopolistic competition is the role of the customer. Prices are set according to the willingness of the customer, to switch from one seller to another. In markets with disloyal customers with low search costs, competitors may lower process to steal business from their competitors. Loyal customers are prepared to pay higher prices, for instance in Mexico, at where farmers are prepared to pay higher prices for USA semen than for CRV its’ semen.
Since none of worlds’ players is able to create sustainable advantage by means of product quality and in markets with customers with idiosyncratic preferences, it is suggested being able to understand competitors’ moves and customer’ needs, will be significant.
4.3 Internal
rivalry
In the international market one can distinguish between only six main competitors which are operating on an international scale and, which have the potential and resources to dominate the market8, see “appendix VI Competitor information”.
The six main players in the market serve 15 per cent of the total world market. This means that the largest part of the market is served by small, (local) organizations and, explains the fragmentation once again. Although CRV expects that big export markets (Germany and France) will soon consolidate and grow to an international competitor. Nevertheless in the 15 per cent served market the competition is fierce. These markets are mostly developed and because firms cannot compete on product quality, one can say they have to compete on prices and extra services. In practice one can see that idiosyncratic preferences still play a role in the transaction decision. Therefore it is difficult to determine why customers prefer specific products and, much market knowledge is needed to be able to understand them.
Outside the developed markets the rivalry is less. In these often closed markets product differences are considerable and customers are loyal to their sellers. Because of liberalization and open borders one can suggest that the loyalty will decrease and this will influence the rivalry towards more competition.
