INDUSTRY EXPERT TELLS HOW TO CATCH THE BIG FISH
The old farmer taught me, "where it’s hardest to fish, that’s where the fish are."
After 25 years of doing business throughout Asia and the U.S., I’ve come to understand that the fundamentals are the same everywhere, but they sure can look different in practice depending on where you decide to conduct business. Nevertheless, if we do our homework and figure out how to implement well, there are big rewards.
The Asian market indeed offers big rewards. The U.S. exported 43 percent of its total agricultural exports to Asia/Pacific in 1996, the year before the recent financial crisis; that amounted to $26 billion of agricultural products. Exports to Asia were down to 33 percent during the recent economic crisis but are on the rapid incline again this year. Add to this the crop protection exports and ag equipment and the export total soars. Asia is also an important source of goods for import for commerce; $6.5 billion of agricultural products are imported for processing and sale in the U.S. And a significant portion of the $9 billion ag machinery parts business is sourced from Asia.
Some of the export markets are for unique speciality products. Ten percent of the 39 million bushels of soybeans sold to Japan are Natto beans, which are fermented and eaten cold and stringy for breakfast. Natto lovers may even be in the minority in Japan, but the market is valuable and the U.S. is the dominant supplier.
And then some of the unique markets are for American commodity products. Ninety-five percent of the 39 million bushels of U.S. #1 soybeans sold to South East Asia are consumed as "Tempeh." Tempeh is to Indonesians what French fries are to Americans.
"American growers develop these Asian markets through the consistent efforts of their American Soybean Association and the United Soybean Board," I was told by Gil Griffis, Asia division director of the American Soybean Association. This is an excellent example of doing the homework along the entire value chain. An ongoing breeding program develops varieties to match the users needs, growers develop contract-production relationships, and overseas offices support international customers with technology and marketing.
Opportunities are not the exclusive right of large organizations; individuals and entrepreneurs do well also. CBI (Cooperative Business International, Inc.) is an agricultural business development company headquartered in Worthington, Ohio. They were originally organized around two equal pillars; international trade and strategic consulting. Their trade beginnings were predominantly import. Fifteen years later business is thriving and trade surged to 70 percent of their effort. CBI conducts business in 14 countries and has added international investments to their portfolio. And this year exports will exceed imports.
"Opportunities just keep presenting themselves," is the humble explanation of Bob Clark, president of CBI.
Cultural differences present some surprising opportunities. A Korean agricultural conglomerate invested $10 million in the Oklahoma panhandle to make Korean soup stock. They buy the fresh femur bones from slaughterhouses that are spread from Texas to Kansas and process it into a traditional Korean cooking ingredient.
"This is a higher value use for what would have gone into animal feed," says Lou Bradley, regional manager for Asia, Oklahoma Department of Commerce.
DOING THE HOMEWORK
While culture and differences in business style provide opportunity, it is also the very reason to do one’s homework well. The fundamental questions are the same in business; but the answers will be different by country and by culture.
Even the big companies have had surprises introducing everything from brand names to biotech. Intercultural business legend has it that when Coca-Cola developed the phonetic translation of its famous name in Chinese characters, one version came out as "bite the wax tadpole."
Biotech has suffered from cultural differences, too. The ag biotech industry has done an unprecedented amount of work to introduce this new technology and to prove the science is sound. Nevertheless, this technology is attacked on questions of ‘economic imperialism’ and its potential impact on international food trade. The industry is now engaged in serious and expensive efforts to communicate with the Asian markets.
Asian markets are as competitive as anywhere. Pricing can be a hot issue culminating in complaints of unfairness and dumping. The most common cause of this disagreement is the different accounting practices in each country. China and Taiwan often base pricing on variable cash costs in commodity businesses. Their view of a ‘fair’ price looks downright predatory from a GAAP (generally accepted accounting practices) perspective.
Winning strategies can be found, however. One global herbicide was struggling in China by trying to compete with the low price of a low-quality local product of similar chemistry. The international company reversed its strategy, raised price, promoted their quality brand and went on to succeeded phenomenally. Savvy price and positioning unlocked new growth.
IMPORTANCE OF RELATIONSHIPS
In Asian business, relationships are more important, take more time and arguably yield more results.
The Korean investment described earlier is a relationship success story. The Oklahoma State Commerce Department courts its international alumni of Oklahoma universities. One friend of Oklahoma State became chairman of the powerful Cheil Jedang Corporation. During a courtesy call with that gentleman, the Oklahoma State Commerce officers discovered that Cheil had a need for a source of soup bone, which Oklahoma could provide. And a new business was born.
The ability to have access to such conversations, especially at such a level, only comes with relationships nurtured over time.
A 20-year relationship between Charoen Pokphand (CP), the leading ag-based conglomerate in Thailand, and DeKalb Genetics Corporation yielded the highest penetration of hybrid corn in Asia (outside Japan/Korea). It achieved 85 percent in Thailand.
"However, it is more than just making a business partnership," an old Asia-hand said, "Marriage is easy, the skill is to dream the same dream."
DeKalb has applied that same philosophy in China and enjoys rare profitability in its first decade. Very often a Western company has specific know-how that can help their partner achieve their own local goals. Your in-house know-how that is taken for granted in the West may create real value for your partner, and greater depth to that all-important relationship.
TENACITY IS REQUIRED
A universal, fundamental requirement is tenacity. In a new market you will have unforeseen steps, seemingly unnecessary steps. Some are a deliberate run-around, but most are not. Once you have gone through a new process, you learn the ropes and are ready to handle the new reality.
One of the great cases of tenacity in the face of extreme requirements is the story behind the first McDonalds restaurant in Japan. The first site negotiated was a prime location and worth the time invested. A permit was issued to construct a restaurant in the space of a street-side show-window of a leading department store in the fashionable Ginza shopping district of Tokyo. One stipulation was no disruption to regular shopping customers. They were allowed only 36 hours to complete the entire installation, from close of business Saturday to opening on Monday morning. The construction team had to practice in a warehouse until they got their time down. But they did it and achieved a profitable launch.
Tenacity can require patience as well. Cargill began its approach to the Indian market back in the early ’80s when regulations required majority local equity. After five years of effort, the Indian government was convinced to modify rules so that foreign companies could hold 51 percent in cases where high technology was brought in. Application was then made to demonstrate that hybrid seed is a high tech activity, which quickly qualified for a 51 percent venture. Today, Cargill is recognized and rewarded by the market. It is a paradox that Western business is respected in the East for its impatience for results, but that a business style can only develop trust if it demonstrates patience.
LEARNING THE ROPES
The good news is that there are ways to "learn the ropes" other than by trial-and-error. The State Department has declared that its number one priority is to help American business. The U.S. government has many services, some of which are free. Trade Associations and the American Chamber of Commerce chapters are brimming with experience and a willingness to share experience.
For in-depth services, there are specialized consultancy companies. Clark of CBI suggests, "The use of consultants pays dividends because they show both what can be done and how to avoid the pitfalls." It does take time, but others have gone before and are there to lend encouragement and more.
Lawrence Taylor founded Aziotics after working and living in Asian markets for 25 years and having extensive new-business development experience. Aziotics specializes in customized consulting to the technological industries that serve agriculture, either enabling it as input or creating value from its output. AM