AGRANA – From a local supplier to a global player Essay
AGRANA – From a local supplier to a global player
The home market from the European Union is one market which everyone has free movement with goods, services, capital and people. This was not always the way if we look back before the time of the EU we had a Europe which was overfilled with conflicts and wars. Because of the foundation of the EU we got a lot of opportunities in the Western Europe and in Central and Eastern Europe but also challenges because it’s not easy to bring so many different countries together with different rules, cultures, norms and ethics under one big Union.
The Western Europe refers to the countries in the west of Europe, where the distinction is different depending on the context. But the borders between Western Europe and CEE were once determined by the ratio of power between USA and UDSSR during the Cold War. Europe was then divided in half by the Iron Curtain. Opportunities:
One big opportunity for Western Europe is that the firms can get cheap human capital for their own work. Even today a blue-collar worker in Germany earns a lot more than in Poland. Another point is that the firms can invest in other enterprises from the CEE. So they can grow extremely fast as we have seen this with the AGRANA Company. With the difference in culture between Western Europe and CEE the firms can enter in a new market which can be really profitable. Challenges:
But the fact, that the firms can get so cheap human resources, is on the other hand also a problem. Because of the cheap human resources, the own home country workers will lose their job and the unemployment rate of the country will rise. Another challenges is, that firms from the CEE area can expand to the Western Europe area, so there is the danger, that it will get dumping prices. The other culture and norms makes the whole situation a lot harder. The firms have to consider lots of different aspects. When they don’t do that the new branches cannot rise and flourish in the CEE countries. These are a few challenges for the Western part of Europe and it is not easy to solve these problems. Central and Eastern Europe
The Central and Eastern Europe countries include all the Eastern bloc countries west of the Iron Curtain, which was collapsed in 1989-90. Also included are the three Baltic States Estonia, Latvia and Lithuania. Opportunities:
For the CEE states the integration of EU markets brought with it many opportunities to grow economically and politically. One of the big opportunities is that the CEE countries can benefit from the higher level of living from the Western Europe countries. Everybody can work easier and live in another country. So if you want to leave your home country and settle down somewhere else that is no longer a problem. We still see this phenomenon to this very day in the Western European countries. More and more people are coming to live in the country than emigrate. The firms which can make business in the CEE countries are creating new workplaces and paying taxes on the profit. So the whole country and the government have the chance to raise their level of living. Challenges:
Of course there are on the other side also challenges for the CEE countries. One of them is that the countries have to pay attention to their own experts in the country. A lot of firms in the Western part of Europe want to win the elite of the country over. This can be very dangerous for the own economy. The second aspect is that because of the globalization the poverty gap is getting bigger and bigger every day. The CEE countries have to be very careful that they don’t lose the access to the industry states.
Question 2: From a resource-based view, what is behind AGRANA´s impressive growth?
“AGRANA was founded in 1988 as a holding company for the Austrian sugar and Starch industry. Operations started with 3 sugar plants, a potato starch plant and a corn starch plant.” “Nowadays, AGRANA is one of the leading suppliers to the multinational brands around the world with revenues of US $ 2.6 billion and capitalization of $1.4 billion. In the last two decades, it has become a global player with 52 production plants in 26 countries with three strategic pillars: sugar, starch and fruit.” The resource-based view focuses on a firm´s internal resources and capabilities, for instance rare knowledge in the refining and processing of agricultural raw materials like AGRANA. These specific knowledge is a big advantage for the AGRANA company and not easy to copy by other competitors. “After the reorganization of the European sugar market by the European Union, AGRANA was motivated to look for new directions to ensure future growth of the enterprise.
AGRANA decided to diversify into the fruit-processing sector in the future.” This was a really well-chosen decision, because AGRANA was able to transmit their core competence of the refinement process comparatively easy to the fruit sector. With the existing knowledge “AGRANA focused on fruit preparations and the manufacturing of fruit juice concentrates to sell them globally to fruit juice and beverage bottlers and fillers.” An analysis of the dates of the Tables 4.1a and c (AGRANA plant locations) shows, that the fruit sector is mostly responsible for the impressive growth of the AGRANA Company in the last years. In only four years (from 2002/3 to 2006/7) AGRANA´s plant locations increased from totally 20 plant locations (15 Sugar, 5 Starch, 0 Fruit) to 53 (10 Sugar, 4 Starch, 39 Fruit). It is noticeable that during these four years the reduction of the number of sugar and starch plants was completely compensated by the new fruit plant locations.
Moreover, AGRANA expanded during the growth period across the world. Especially with the fruit sector AGRANA practiced plant´s in countries like Argentina, Brazil, China and USA for example. The key to the impressive growth of AGRANA and particular the fruit sector were firstly acquisitions and secondly “the ability to integrate those acquired into the group to realize synergistic effects” . It started with the acquisitions of Denmark´s Vallo Saft (presence in Denmark and Poland) and Austria´s Steirerobst (presence in Austria, Hungary, Poland Romania, Ukraine and Russia) in 2003. Furthermore, this was followed by acquisitions of France Atys Group (largest acquisition, 20 plants across every continent), Belgium´s Dirafrost and Germany´s Wink Group. “AGRANA´s most recent expansion was a 50-50 joint venture with Xianyang Andre Juice Co. Ltd. in China.”
The chosen consistent acquisitions policy of AGRANA´s CEO Johann Marihart was only possible because of existing relationships and a huge amount of capital. AGRANA benefited from existing relationships to the food and beverage industry from the sugar and starch sector, whereby the diversification into a new sector was a bit more straightforward. With the existing relationships it was easier to find on the one hand acceptors for the new AGRANA products and on the other hand new business partners in the area of distribution for example. Furthermore, “Johann Marihart believes that growth is an essential requirement for the manufacturing of high-grade products at competitive prices.” For this very reason, AGRANA is prospecting for new growth opportunities in the future. Hence, AGRANA has started to diversify into the biofuel sector to ensure future growth and expansion of the company.
Question 3: From an international perspective what challenges do you foresee AGRANA facing as it continues its expansion into other regions such as Asia?
The impressive growth of the AGRANA Company is connected with an expanding strategy in Europe as well as in other continents like America and Asia. With this strategy AGRANA discovers new regional, cultural and language challenges for instance. AGRANDA already have a lot of experience in Asia because in 2006 they acquired a 50 % stake in concentrates manufacturer Xianyang Andre Juice Co. Ltd the company is located in the province Shaanxi China and also in 2008 AGRANA started a second joint venture for apple juice concentrate in Yongji China. But maybe they might have the problem of adapting to a different business culture. The business model that AGRANA use in Europe and the western world might not work as well in Asia. AGRANA will have to be flexible and adapt to the business characteristics of that certain country that they expand too.
Many Asian countries have certain business characteristics that are deeply related to the countries tradition and these traditions will not in most cases be changed. Because of this many of AGRANA’s business standards such as work ethics and management styles may not match up well with Asian culture. In Asia a lot of administrative tasks that have been made easy in the west can be very time consuming. Many procedures that would be handled electronically in the West need a lot of paperwork which need to be filled out and stamped by hand. Cultural misunderstanding from miscommunication could be one of the biggest challenges that AGRANA will have to face. It might be very hard to make a business deal in Asia because of communication problems as there are a lot of English speakers in Asia but not many of them would have a strong enough understanding of both Chinese and western culture to help in business negotiation situation.
Also Many Asian countries have high context cultures and AGRANDA would be more used to operating in low context cultures like in most of Europe. “In high context cultures communication relies upon unspoken conditions or assumptions.” This means that “yes” does not necessarily mean “yes” and this could be a major challenge for AGRANDA as they would not be used to this. Also another challenge that AGRANA might face would be that their products might not be as popular in these regions and because of this it might not be as profitable for the company to open a branch in Asia. Some of the infrastructure might not be very good in some eastern Asian countries so things like transportation of their products might not be delivered very safe or as efficient as in their European branches.
Also because of climate and pollution it might cost more money to keep the products fresh. ARGANDA might have trouble with human resources because in the western world employees give a lot of responsibility and would have more flexible lines of authority whereas most of the Asian workers are more accustoms to a hierarchical structure in which each worker has their own role. All in all AGRANDA cannot guarantee success in another region but if they stay sensitive to the areas culture and local traditions for instance they can at least avoid some basic mistakes.
Question 4: Compare the growth strategy of AGRANA to that of Danisco, one of its competitors in the sugar market. Which strategy do you expect to be more sustainable in the long run?
To sum up the second question, AGRANA´s impressive growth strategy is affected by acquisition associated with the diversification into the fruit sector. AGRANA acquired competitors particularly in Europe and expanded around the World and led them to be one of the biggest players.
“The Danisco Company is a Danish bio-based company with activities in food production, enzymes and other bioproducts as well as a wide variety of pharmaceutical grade excipients.” “Danisco employed 6800 people in 17 countries” and “is one of the world’s leading producers of ingredients for food and other consumer products and was also one of the biggest sugar producers in Europe until the divestment of its sugar division to Nordzucker in 2009.” However, to look at the things in the right sequences:
“Danisco had been created in 1989 by a merger of three companies aiming to create a strong Danish company that could compete in the EU common market after its completion” The new company reinforced the foods, food ingredients and packaging businesses, particularly in the sugar sector, “Danisco first consolidated its dominant position and Denmark, and then grew by acquisitions.” But after the reorganization of the European sugar market and also because of the intensity of competition in the sugar market, Danisco was motivated to alter and started a longtime transformation process. In 1997, the new CEO Alf Duch-Pedersen of Danisco “started focusing on becoming a global food ingredients company.”
During the following years, Danisco started to acquire lots of ingredient and similar companies to initiate the transformation. The first step to become a global food ingredients company was to acquire the Finnish ingredient company Cultor in 1999 and at the same time the divestment of the De Danske Spritfabrikker Company (spirits and liqueurs) and branded foods and food packaging.
In June 2004, “Danisco acquired the Rhodia Food Ingredients Company which becomes Danisco´s dairy cultures division. The division is one of the two leading producers of dairy cultures and food safety products”. Rhodia is located in France and is an international operating company with a worldwide presence in Asia Pacific, Latin America and North America for instance. This will be followed by the acquisition of Genencor International in 2005, “which became Danisco´s enzymes and bio-chemicals division”. Furthermore, Danisco invested in new research establishments in Shanghai, China for example. In contrast to AGRANA, Danisco divested as well, for example the flavor division to Firmenich. But the most important decision was the divestment of Danisco´s sugar division to the German Nordzucker AG.
With the divestment of the sugar division, which was one of its main divisions in the past, the transformation process was completed. During the transformation process the internationalization of sales of the company increased rapidly. It is mentioned that the sales outside of Denmark rose from “69 per cent 1995 to 88 per cent in 2004 and over 95 per cent after the sale of the sugar division”. In addition, it is impressive to see that the turnover of Danisco was € 1.7 million in 2009 and that the turnover consisted mostly of all the continents, that means that Daniso has become a global player operating all over the world. “After the transformation, Danisco was positioned as a specialized supplier of food ingredients based natural raw materials. Its customers included global food giants such as Unilever, Kraft, DANONE and Nestlé, as well as regional and local players in all major economies.” In a final step, Danisco were acquired by the DuPont Company in 2011.
“Danisco´s attractive industrial enzymes and specialty food ingredients businesses have clear synergies with the DuPont Applied BioSciences and Nutrition and Health businesses.” This merger advances both companies ‘global efforts to provide sustainable solutions and to ensure future growth and expansion of the company. Summing up one can say that AGRANA grew by acquiring a lot around the world and by diversifying their business. Danisco grew by internationalizing their sales, transforming their business to the leading producers of ingredients for food and selling their previous businesses in order to focus on the new ones. The most important difference between these two growth strategies is that AGRANA wanted to ensure future growth by diversifying into other products with their existing knowledge. Danisco wanted to guarantee future growth by transforming themselves into a leader in a niche market.
To answer the last question we want to define “Sustainability in the long run”. Sustainability or sustainable strategy at its most basic level “suggests that a company will improve its chances of survival in the future by ensuring that resources used by the business are responsibly managed and maintained.” Moreover, “in business, it is the ability of a company to develop and implement winning strategies that lead to long-term success” and the ability to decide “when to stay on course with the proven strategies or when it is time for change.”
We expect the AGRANA’s strategy to be more sustainable in the long run thanks to their diversified sources of income such as their three main pillars: starch, sugar and fruit. AGRANA has more sectors to play on so AGRANA is not as dependent of a specific product sector like Danisco if business does not go as planned. The opportunities of growth are also bigger, because AGRANA has more capital and AGRANA has more companies to sell their AGRANA products to in the future because AGRANA is present worldwide and especially in emerging markets. In addition, AGRANA is part of a safe market, AGRANA´s three pillars are always in demand also due to the fact that the earth population will grow. Moreover, AGRANA could enlarge their product line by diversifying to another sector with their existing knowledge as well as the fruit sector. All in all, AGRANA has a very good sustainable business strategy and we think that AGRANA will continue to be very successful in the future.
http://www.danisco.com/about-dupont/duponttm-daniscor/history/ http://www.agrana.com/en/agrana-group/about-agrana/history-of-agrana/ http://www.us-pacific-rim.net/the-five-biggest-challenges-for-businesses-in-china.html http://www.mapconsulting.com/articles1-177/BusinessSustainabilityTheStrategiestoAchievetheLeadershiptha- tMakesItHappen
http://www.wisegeek.com/what-is-long-term-sustainability.htm http://www.rhodia.com/en/about_us/worldwide_presence/index.tcm http://en.wikipedia.org/wiki/Agrana#History