Chapter 2Literature Review and Related Studies2.0. IntroductionThe methodology used in the research employs the review of the literature and available resource which may included secondary data from other sources as the main way of getting access to relevant data. Thus, the review of the literature is not only important in the development and mastery of the theories that are important to this thesis but is also an important element in the methodology used in retrieving data in this research.
It is worth noting that accuracy of data and information retrieved from the research is of importance to progress and accuracy of the entire dissertation and should be ensured to maintain focus on the issues and ensure integrity of the dissertation.2.1 Market Potential Theory and AnalysisThe market is one of the most complex variable in any business operation. A number of theories have been developed to try and explain the nature of the market and therefore create an undertaking of the factor that are relevant to the need of the market thus determine the nature of the market. Mastery of the concept and nature of the market is important to understanding the dynamics of the market and it is only by understanding the nature of the market will one be able to develop strategies that are relevant to the market and ensure the market needs are met effectively (Wood & Smith, 2005). It is worth noting that the market is central to operation of all business entities in that the market is the endpoint to all business processes thus all processes are aimed at meeting some objective that is market oriented or has a bearing on the market. The definition of a market is so dynamic and largely depends on the context of use. System, institution, procedures and infrastructures can all be referred to as market depending on the context of use of the term market (Willard, 2007).
Irrespective of the nature of entities involved in the definition of a market, goods and services are often exchanged and the activities involved affect the economy in one way or the other. Markets may vary in range, scale, size and nature of people involved in the market. The complex nature of the current market and the diversity of factors that affect its behavior are some factors that has led to the development of theories that try to explain the nature of the market so as to help foster an understanding of its nature. A market as used in this dissertation is any structured platform that allows structured exchange of goods and services (Block, 2008). In analysis of the market it is worth remembering that key players involved are sellers and buyers, and that the market is just a platform that facilitates trade between these two entities.
A look at theories that try to explain the market concept is important in developing an understanding of principles involved in marketing. The following are some of theories involved in analyzing the market:2.1.1 Macro Environment TheoryMacroenvironment is used in reference to factors that affect operations that are without the operational environment. It is worth noting that the environment is a key factor in the development of strategies and should always be considered if the strategies developed are to be of any relevance to the needs of the market (Applebaum, Lefrancois,Shapiro & Tonna, 2007).
The market in itself is part of the macroenvironment though it may be within an organization’s microenvironment. In a monopolistic economy, the market is placed under the control of industry players and therefore is within the control of the industry (Bouras, Gkamas ; Sevasti, 2002). The market as an operational variable is however without the unilateral control of the industry players in a liberalized economy. To put the term macroenvironment into context, there are a number of variables that affect operation in an industry that are without the control of industry players. The players therefore have to deal with these factors by developing strategies that will deal with threats they pose or harness opportunities they present (Abby, Harris ; Khatchadourian, 2006). Most of these variables are within the external environment that the industry is imposed on and therefore they have to develop mechanisms to deal with them rather than manipulate the variables. It should be noted that a key philosophy in marketing is increase in profit margins thus all other strategies will always revolve around this concept. A continuous analysis of the macroenvironment is necessary to ensure relevance to the nature of the operational environment.
It should be noted that the macroenvironment is without the control of individual entities and therefore without their everyday operations. However, the effects of these variables are considerable and affect operations in a manner that may lead to failure if the threats are not dealt with. Moreover, nearly all opportunities are a result of changes in variables that are without the control of individual organizations thus failure in continuously monitoring the operational environment leads to inefficiency in harnessing opportunities thus chance for growth are limited.There have always been questions on whether the market is a variable that is within the control of the industry or if it is the market that defines the nature of operations. This has always been a contentious subject and has led to the development of several theories that try to explain the nature of the market and its interaction with the industry.
The market is a key variable that has to considered in the development of operational strategies. Most organizations develop their strategies in consideration of market conditions thus the market is deterministic of the nature of processes of the industry and is therefore a macroenvironment variable. A look at the modern day capitalistic economy and the nature of competition in the present day operational environment may however lead to a different conclusion (Truss, 2005). Capitalism is characterized by control of the market by a few player who have considerable influence on the nature of products and therefore industry dynamics. Reputation is everything and industries that have it are also presented with the opportunity to set pace in the development of both industry and market standards (Christianson ; Leathem, 2004).
Therefore, under this consideration the market is within the control of the industry and is thus a microenvironment variable.A look at modern day operational environment spells out one fact; the operational environment is so complex and all variable are important in the development of strategies (Tregeagle ; Treleaven, 2006). Thus, all industrial entities that are interested in success and ensuring their customers are satisfied thus development of profit margins and market share will always consider their operational environment which include both the micro and macro environments (Gorchels, 2005). The market is a meeting point of both macro and micro environment factors thus its nature should not be such a controversial issue. Analysis of variables that affect the market is important in formulation and development of strategies that will ensure effective operations.2.1.
2 Competitive Advantage of NationsCompetitive advantage is a key variable in an environment characterized by high levels of competition (Thurlow, Lengel ; Tomic, 2004). To gain advantage over other industry players is central to minimizing the negative effects of stiff competition in the market and is a key state or variable in operations that most organizations seek. Gain of competitive advantage either eliminate the effects of competition on an individual entity or in some cases minimize the effects of competition (Rothwell ; Kazanas, 2003).
It should be remembered that competition is central to the development of free trade and liberalizations, globalization and development of better information system components are all systems aimed at development of perfect competition which goes along way in ensuring that the need of the consumer are met effectively and that the consumer is spoilt of choice (Dockrell ; Lindsay, 2007).There is stiff competition in nearly all areas of operation and most organizations structure their operations in a manner that is aimed at harnessing any opportunity and dealing with threats in a manner that will ensure they gain some competitive advantage over other players (Surratt, 1999). Since opportunities and threats all manifest themselves in the operational environment, most organization adopt a research oriented approach to their operations (Surratt, 1999). Competitive advantage from academic and business theories is in deed a position occupied by an organizations that gives it some advantage over other players (Gilad, 2003). Competitive advantage can be of two forms and all manifest themselves in ways that either increase the presence of a particular product in the market or ensure increased returns. Cost advantage is one of the two forms of competitive advantage and is attained when a firm deals in a product or service at a cost that is lower than its competitors (Fernando ; Chard, 2003). On the other hand, it is possible for a firm to deliver better services than its competitors at the same cost as its competitors thus developing what is referred to as differentiation advantage (Flaherty, 2005). These two are positional advantages since they are used in reference to a firm’s position with regards to other industry players.
In reality, competitive advantage cannot be held for a long time thus industrial players must use their advantage effectively to develop a base that will ensure they succeed in gaining more leverage over other industry players (Fernando & Chard, 2003).Competitive advantages at a national level is used in reference to the leverage that a country has over other nations in a particular trade segment (Young, 2001). The advantage under this case may be temporary or permanent since nations are highly static and their strategies are highly dependent on the nature of processes they can support and their resource ability. When a nation sustains an incomes that is higher than the average income of other nations in global economics, the country is said to have some competitive advantage over other nations. It is noteworthy that a key business goal in the development of international trade goals is achievement of competitive advantage that is sustainable (Fernando & Chard, 2003).
It should be noted that though some opportunities that can help develop a competitive advantages are without control of countries, they can use their resources in a manner that will lead to the development of competitive advantage over other nations (Fernando & Chard, 2003). In other words, while other nations wait for opportunities to develop, nations that are well informed on the principle of competitive advantage utilize their natural and man made resources in a manner that help them gain competitive advantage and therefore develop a superior value (Fernando & Chard, 2003). The development of superior value is basically what competitive advantage is.Competitive Advantage Modela) ResourcesResource capabilities is a central factor to the development of competitive advantage. There is little that a country can do to determine the amount of natural resources at its disposal but there is a lot that organization can do to ensure that they harness their natural resource in a manner that will ensure they benefit optimally from their natural resources. Availability of natural resources in a country is in itself not a competitive advantage. If this were the case most countries in tropical Africa like Zaire would be controlling global trade, this is not the case since countries that have limited natural resource like Japan are controlling global economics (Dodes, 2003).
According to the competitive advantage model, a country must have resource that are better than its competitors to be able to develop a competitive advantage over other competitors. A key differential that determines the shift in competitive advantage is the quality of natural resources. In the modern times, having rich fertile lands cannot be compared with having oil reservoirs in that the latter is more profitable and therefore provides a larger advantage (Dodes, 2003). Therefore, as far as natural resources is concerned the key consideration that have to be put into mind is the quality of natural resource that a country is blessed with and the management of exploitation and conservation of these natural resources.The aspect of management of natural resources brings a new dimension to use of resources in gaining competitive advantage: human resource. This a key differential and is a factor that is highly influential in the development of competitive advantage global trade (Firstbook, 2007). The first nations and the fast developing nations have human resource capabilities that surpass those of the developing third world nation (Douglas, 2004).
Every revolution that led to the development of economic capabilities and advantage in trade had basis in the development of quality human resource. Development of technology and advent of machines has led to an operational environment where quality is preferred to quantity in reference to human resources and other man made resources. A stark difference between countries that have competitive advantages in international trade to those that do not is the level of educational attainment and quality of educations in those countries (Dodes, 2003). Educational attainment and quality of education are two measures that effectively define the quality of human resource and level of appreciation of development in other man made resources. Increase in educational attainment is associated with enlightenment that puts pressure on the government to develop social amenities and infrastructure thus the development of resources that are central to gain of competitive advantage (Douglas, 2004). The management and availability of human and man made resource is central to the development of competitive advantage. Management is especially important as it determines the levels of sustainability thus competitive advantage that the country has in international trade. Other aspects that may lead to gain of competitive advantage that may not be include in the normal definition of resource include patents, proprietary knowledge, existing customer base, reputation of products from certain nations and equity of brands (Douglas, 2004).
b) Capabilities Capabilities as used in this context references the ability to effectively utilize national resources. A good example of this is the ability to market a product faster than other nations. It should be noted that capabilities tend to be specific to countries and are a manifestation of a well developed work culture and attitude towards work. Most capabilities are not documented and are a result of the interplay of a number of factors that are intrinsic to a nation and are therefore nearly impossible to cause or copy (Subramaniam & Ashkanasy, 2001). Capabilities is more like individual ability in a team approach and the capabilities should be supplemented with inputs which in this case comes in the form of resources (Subramaniam & Ashkanasy, 2001).
c) Distinctive Abilities Availability of resources an capabilities is not enough to create competitive advantage. The interaction between these two important factors in the development of competitive advantage is key to the nature of advantage that a country will gain (Subramaniam & Ashkanasy, 2001). Competitive advantage is in essence a result of differences in levels of innovation, efficiency, quality and response to the needs of customer that combine to create a leverage that is responsible for the development of cost and differentiation advantage (Soros, 2008). These are in fact the distinctive capabilities that are central to the development of competitive advantage thus the interaction between capabilities and resources should be facilitated and made as productive as possible to ensure efficiency in operation and gain of competitive advantage.2.1.3 Market AttractivenessModern day markets are so complex and any attempt to harness opportunities or deal with a threat in the market should be based on a thorough analysis of prevailing market conditions. Market attractiveness is a key aspect in the development of operational strategies especially if they are customer based.
Most countries and business entities are aimed at developing their profit margins and ensure sustainable growth thus their focus in formulation of strategies is the market (Subramaniam & Ashkanasy, 2001). Assessment of the attractiveness of markets is central to decisions on whether the opportunities will be harnessed and often involve analysis of the costs and benefits associated with a particular venture and analysis of factors that affect the market which include their expected behaviors in the short and long term. Market assessment is of extreme importance before entry into any market segments and should be carried on thereafter since the variables that affect operations in the modern operational environment are dynamic. Market assessment is therefore a key operational process that should be continuous to ensure relevant facets and dimensions of operations are dealt with (Smith, 2005). There are a number of key factors that have to be analyzed in the assessment of the market and form the basis of market assessment.a) Substitutes The availability of substitutes is a key consideration in assessing any market.
Analyzing substitutes is aimed at establishing options present in the market and determining elasticity of the demand (Simard, 2006). There are a number of factors that have to be considered in analyzing substitutes which include buyers’ propensity for substitution, relative price to performance ratio of substitutes, costs that the buyer has to incur in switching from one seller to the other and the level of differentiation of products displayed by the market. These factors are important in determining the effects of substitutes on demand.
b) Potential Entrants Profitability of a market is not just known to one entity and any profitable market is bound to attract many others. Effect of increased entry include falling levels of profit due to increase in the number of players while the market remain relatively constant. Profits will continue falling till a constant level is reached due to the principle of perfect competition (Schweigert, 2007). There are a number of factors that have to be considered in analysis of threats posed by new entrant which include economies resulting from product differences, brand equity, costs involved in switching, amount of startup and working capital required to harness the markets, the level of access that new entrants have to distribution, retaliation from existing players and government policies and their effect on entrants.c) Competitors Levels of competition in any industry or market segment is a key factor in determining the level of competitive advantage an industry player will attain.
It is worth noting that competition may be aggressive where competition is on the basis of market factors and in some cases the dimension of competition may be non-price (Schweizer, 2002). There are a number of factors that have to be considered in analysis of the level of competition in the market which include the number of industry player in the market, rate of growth of industry, rate and propensity for overcapacity, barriers that inhibit exit from the market, diversity displayed by competing entities, nature and availability of information regarding the markets and other players, cost allocation with addition of value, cost of advertisement, economies that come with scale and the level of competitive advantage that can be gained by improvisation of organizational processes (Subramaniam ; Ashkanasy, 2001).d) Customers A key factors that has to be analyzed in the market that is directly related to the customer is their bargaining ability. Bargaining power is definitive of the ability of the market to put pressure on the industry players to meet their needs more effectively and is a key factor in determining the nature of the market. The following variables have to be determined: Consumer to industry player ratio, bargaining leverage, number of buyers, buyers’ switching cost, availability of information to the markets, buyer backward integration abilities, availability of substitutes, sensitivity of buyers to changes in price and uniqueness of different products in the market (Schraeder & Self, 2003).e) Suppliers Bargaining power of suppliers is sometimes referred to as the market for inputs.
All business processes have inputs and outputs and so do firms. Supplier just like the market are a key factors in analyzing the nature of the market for they determine the cost of operations and the effectiveness with which the needs of the market will be met. There are a number of factors that musts be analyzed in determining suppliers’ bargaining power thus the viability of the market which include the cost that firms incurs in switching from one supplier to the other, the degree with which the industry players can differentiate different inputs, availability of substitutes from inputs, concentration of suppliers with respect to number of entities or firms in need of their services or products, threat of supplier forward integration compared to backward integration of firms and lastly cost of inputs required compared to the selling price of the resultant products (Peppers ; Rogers, 2004).2.
1.4 Market Potential MeasurementThere are a number of approaches that can be taken in analyzing market conditions and development with regards to the market conditions. Measurements may take on different values due to the varied nature of variables that affect the market. Quantitative assessment of the market is a complex process and requires application of highly specialized tools and techniques for instance use of cost and benefit analysis which is an approach that has been widely accepted by most businesses. The problem in assessment of market condition arose not from the large number of variables that have to be considered rather it is from the nature of the variables that makes it difficult to assign them quantitative values (Subramaniam ; Ashkanasy, 2001).
A qualitative approach to analysis of market conditions is simple since the characteristics of variables are well understood. In making decisions, most organizations prefer quantitative research since this approach is associated with increased specificity to issues being discussed and provide a factual approach to the development of strategies. Documentation is also made easy under qualitative approaches since number rather than ideas is what is recorded. Qualitative approaches are discouraged due to their heavy dependence on researchers and their propensity to failure (Subramaniam ; Ashkanasy, 2001). A common approach to the assessment of the potential of market that many countries and nations adopt is the evaluation of profits made by existing players. A key motivation for the development and engagement in business activities by many organizations is profits (Paul, 2005). Profits are made in a number of ways and may be a manifestation of favorable market conditions or good organizational processes.
If an organizations makes profit, it does not necessarily mean that their area of specialization is profitable (Peneder, 2003). Therefore, the basis for assessment of markets on profits made by existing players is a wrong approach and though widely adopted should be discouraged. Making profits is a result of a number of factors within and without the environment that combine in a manner that leads to profitability. By basing the assessment of the market on profit margins of existing players, organizations fail to appreciate the effect that the operational approaches and the microenvironment have on profitability and relevance to needs of customers (Subramaniam ; Ashkanasy, 2001). There is also the risk of ignoring the microenvironment thus the analysis in its totality could be wrong phrased and irrelevant to both the micro and macro environment. To fully assess the market existing players must be assessed, organizational or national capabilities determined and any change in capabilities determined moreover, the macroenvironment and changes expected in it have to be ascertained. After the assessment of these key variables a quantitative cost and benefit assessment of the variables should be done to ensure relevance to ‘ground situation’ (Subramaniam ; Ashkanasy, 2001). Results derived form such an assessment will be relevant to organizations capabilities and to the real conditions in the market and is therefore relevant to all operational variables.
2.2 Thai Food IndustryThailand is a typical Asian country that deals with the problems and challenges that are characteristic of all third world nations. Thailand is an agricultural nations and its labor market is basically dependent on this sector of the economy as agricultural production accounts for about 60% of Thailand’s labor force. Nearly 45% of Thailand’s 513,115 square kilometers is used for agriculture which it does at both subsistence and commercial scale (Soros, 2008). Though the contribution of agriculture to the GDP is only 13 % which is small compared to the industrial sectors which contributes to nearly 32% of the GDP, Thailand is the only net exporter of food in Asia (Soros, 2008). Levels of production are high and the country is nearly self sufficient when it comes to its food requirements. Factors that have been central to its high level of production include its fertile soils and availability of water.
Its climate and weather patterns are also suitable for farming and have been central to its development to the current status. The average levels of production currently stand at over 24 million tons and is one of leading producer and supplier of pineapples, tapioca and sugar (Soros, 2008). Being a tropical nation tropical fruits are in abundance and Thailand is currently the world’s leading producer of logan, mangos teen and longeing. The food manufacturing industry in Thailand is a key earner to its economy and contributes to nearly ten billion US dollars per year to its GDP (Soros, 2008).
Though food manufacturing is a recent development in Thailand’s economy, the level of growth of this sector have been tremendous and Thailand is currently one of leading exporter of canned pineapples, canned seafood especially tuna, frozen shrimps and frozen chicken. Thailand’s food exports in 2001 contributed to 15% of the nations total export, there are currently close to nine thousand factories in Thailand which are responsible for the employment of 0.6 million people (Soros, 2008). Though Thailand produces a variety of agricultural product, their processing industries only deal in fruits and vegetables, seafood, poultry, food products, rice, grains, sugar, confectioneries and beverages. Development in food production and food related industries in Thailand can be attributed to entry of Thailand into nearly all areas of international trade and their increased participation and emphasis on international trade.
Before the 1960’s government efforts to ensure development of the agricultural sectors were limited, 1970’s saw the development of government promotional privileged that led to increase in production as food importation was reduced due to increase in internal production (Soros, 2008). These strategies also led to earnings derived from food processing industries though production was limited by lack of technological skills on bulk production and marketing. The 1980’s was characterized by high rate of development in technological fields, high levels of educational attainment and import of technologies from Western Europe and the US (Soros, 2008). Currently, the food industry is aimed at growth in quality and quantity and is developing mechanisms that will ensure it competes effectively in global markets. More emphasis is being placed on hygiene and sanitation, standards, environment and value additions all of which are aimed at gaining competitive advantage over other major food industry players in the global markets. Joint efforts between the department of medical science, industrial standards institute, the ministry of agriculture, fisheries and livestock are aimed at development of standards that have to met. Under the current system these parties have been certifying quality of the products independently, the WTO agreement however has made it a requirement that they be HACCP certified of which Thailand’s government is working to ensure they are all certified (Soros, 2008).
In an industry wide effort to foster safety in food production and thus ensure competitiveness in global trade, there have been a number of collaborative efforts with internationally accredited programs like CCFRA to ensure that the HACCP standards are adhered to (Soros, 2008).2.3 Turkey’s Food IndustryThe republic of Turkey was established in the mid 1920’s as a secular modern nation and is more of a bridge between the West and the East due to its geographic positioning (Soros, 2008). Turkey is a country that has many religions, social backgrounds and is a meeting place of a number of cultures. The land area covered by this European nation which some consider an Asian nation is 78 million hectares and the nations has a population of nearly 72 million people (Soros, 2008). Turkey like most European nation is largely urban as population demographics show that only 35% of the people live in a rural setting (Soros, 2008).
As at 2004, Turkey which has managed to maintain a neutral stand in global politics had 11.3% of its GDP originating from agriculture (Soros, 2008). Food establishment were slight over 27000 most of whom were in the small and medium scale. It is generally believed that one third of Turkey ability has not been used. The key areas of interest in agriculture are cereals, dairy, milk and F;V.
Though the county is largely dependent on imports to meet its food needs, Turkey exports its food stuffs to countries in the European union. Turkey as a nation is largely industrial, about 9.7 million people are employed in agriculture based industries (Soros, 2008).
Compared to the average contribution of agriculture to the GDP in other EU nations Turkey is largely agricultural based. The development of agriculture and production industries associated with this area of the economy is low due to a number of structural deficiencies and harsh climate (Soros, 2008). Turkey is largely dry and a small percentage of its land area is used for farming. Due to this, the level of fragmentation of land is high leading to low production. Moreover, farming is not as attractive to farmers due to the low level of returns. Though agriculture employs a large number of people than the average in other EU nations, it generates an income of 54 billion dollars whereas the EU average is 134 billion dollars. This disparity is blamed on poor farmers organization that makes agricultural less productive. Over 40 % of its rural population depends solely on agriculture and Turkey aims at reducing this proportion to 10 % (Olsen, 2006).
In 1996 Turkey joined the EU with the aim of promoting its agro-industry and adoption of recognized international standards by integrating with other members of the EU in the long and medium term. Turkey’s agriculture is controlled by a number of complex variables and there is little chance for development in term of agricultural land coverage due to the restriction resulting from poor weather conditions. Turkey deals in the following cash crops: Wheat, vegetables, fresh and dried fruits, potato, tobacco, sugar beets, potato, sunflower, nuts and barley. The country has a number of agricultural exports which include hazelnuts, figs, tobacco, citrus, pome, melons, cereals, cotton, dried raisins, pulses and apricots (Marks, 1999). Developments in the Turkish economy are aimed at industry based growth and this has always been the objective of the government in developing of economic policies.
Like all developed economies or highly developing economies the private sectors is a key player in economic activities. The level of involvement of the public sectors in industrial activities have decreased in the recent years due to increased privatization. Currently, over 80% of production is by the private sector (Moro & Pamela, 2004). Turkey produces more food than can be consumed domestically and thus has traditionally participated in the food export market. However, in the recent years there have been a change in this trends as agricultural exports have decreased and agro-industry product exports increased.2.4 Previous Relevant StudiesFood sufficiency is a key concern to any nation, in fact from Mavlov’s theory food security is a basic need that has to be fulfilled before other needs can be addressed (Lodorfos ; Boateng, 2006). Most developing nations face challenges in their development due to problems they are faced with in meeting their food needs.
Most Asian countries are sufficient in their food needs and it is generally believed that the situation is likely to remain so for the next couple of years. Countries like Japan and British Malaya are however insufficient in their production of rice which is a staple food in this region (Soros, 2008). Other nations in the same region which include Thailand and Burma are some of the leading producers of rice in the world and therefore complement countries that have a deficiency in their food production (Lefkowith, 2001). The food situation in the world has however been a key area of concern to all member of the society. Conventions and meeting have been held to chart a way forward with regard to challenges that the globe is currently faced with in ensuring food security.
It is worth noting that environmental changes and especially global warming has been a major worry to food security. Changes in climate which are a result of the activities of man and increase industrialization have had a negative effect on production and the situation is tipped to get worse if relevant measures are not taken to deal with it. Global warming has been a central issue in increase in environmental awareness. It should be remembered that environmental awareness under this consideration is of key concern to the people and if relevant measures are taken the amount of land allocated to farming may be reduced thus the effect in the short term may be reduced production (Kruse, 2003). If the measures are successful, the short term effect may be superseded by the long term benefits which include better food security and sustainable use of the environment and other natural resources. Food prices is central to the high level of inflation as basic food prices are soaring at levels that have never been recorded before.
Asia and the pacific region is home to over half of the world’s population and has one of the target population growth rates. The high rates of population growth have put pressure on their food production leading to general increase in food importation in this region. Increase in demand for food in Asia is the highest leading to an increase by over 30% in food importation (Kotler, 2003).
Thailand is among the few Asian countries that has a positive net food status. Others include Australia, New Zealand, Indonesia and India. The level of net food status between Thailand and Turkey is such that Thailand is above Turkey a fact that has been attributed to good soil and climate that the Thais were blessed with.
Food problem is a reality that is not just restricted to the Asian countries, for instance the International nominal prices of food commodities reached its highest level for the past fifty years in the firsts three months of 2008 (Soros, 2008). This may have been assumed to be the norm since agricultural markets are no strangers to volatility however, the current state of events is unique in that in the normal sequence of activities high prices tend to be short lived compared to the persistent low prices. A look at the present day markets shows that the high prices are persistent and are not restricted to few commodities since nearly all major food commodities have been affected. Researchers and market specialists are of the view that the current high prices will persist even after the initial shock have dissipated.
2.4.1 Why Prices Sky Rocketed?The situations and events leading to the 2008 economic crisis have been analyzed from all quarter to try and understand the nature of the crisis (Soros, 2008). The truth is that the events that led to the crisis are mostly associated with the volatile nature of the economic environment and the effects of capitalisms which is aided by liberalization of trade, globalization and technological development. A key characteristic of the crisis is the high food prices which many agree is a direct result of cyclic factors like droughts and disease (Keen, 2007). Though such factors may have played a great role in the crisis structural factors relating to market dynamics of supply and demand played a great role in the high food prices. First, the level of cereal production fell for whatever reasons below the utilizations of cereals in industries and as food leading to high level of volatility since the markets respond sharply to changes in variables. The second factor is the rise in price of energy which can be traced to prices of crude oil (Kahr, 2008).
Oil prices bear a close correlation to prices of fertilizers and food prices due to the role played by petroleum in modern day production and farming (Gunkel, 2007). Another reason that is a direct result of high oil prices is that people sought for alternative biofuels the high demand led to high prices of cooking oil prices which had an effect on oil prices.Chapter 3Business Environment Analysis3.0. IntroductionIt is clear from the literature review that analysis of the environment is of importance if any opportunity is to be harnessed. Differences in production levels and dynamics of trade clearly show that there is a market potential for Thai food in Turkey. However, that is all there is and there is little known about the nature of this potential and business strategy cannot be based solely on the differences. This chapter looks at the exact nature of the food industry in Thailand and the market in Turkey to analyze the nature of opportunities, threats and environment that characterize such a venture with the aim of determining if such opportunities are viable.
3.1 Competitiveness of Thai FoodCompetitiveness is the ability to gain competitive advantage and is a key factor in the assessment of any opportunity. Competitive advantage assessment is important if the area that will be dealt with is already occupied by other players (Hansen, 2002). An existing market has a number of of preset dynamics that define the levels of competitive advantage that a new entrants will gain which also depend on the nature of services or products offered by the new entrants. In assessing the competitiveness of Thai food emphasis is placed on the nature of Thai foods and the advantage they have over other food provided to the Turkish market. A key advantage that Thai food has over existing Turkish market products is seafood. It should be noted that the Turkish environment provides them with little seafood due to the geographical location of Turkey. Turkey has limited access to sea food and developments in this area are limited resulting in low competition.
The sea food segment is least developed in that imports of sea foods to Turkey are small, sea food processing industry few thus processed sea food are all imports from other nations. On the other hand, Thailand is a leading exporter of shrimps and packed seafood. Thailand is well placed due to its strategic geographical location that makes it one of the leading marine industry producer in Asia. The currents that govern the nature of its oceans make its coastline and marine very productive.
Thais have developed the art of fishing over the centuries and are currently adopting specialized and better approaches to fishing. Emphasis is placed on development of standards and the role of the government in ensuring all industries are developed both quantitatively and qualitatively is a key factor that provides its marine industry with an advantage over other poorly organized players in Turkey. Another key factor that gives Thai food a competitive edge is the reputation that is has developed in the global industry. Thailand is the only Asian nation that has managed to maintain a positive net exportation, this is a plus in its resume as a food producer and is key in development of trade association as it provides a guarantee for continued production. A key consideration in depending on other nation in meeting food needs of a particular country is that the nation should guarantee continuous supply (Hanson, 2007).
Secondly, Thailand is a leading exporter of seafoods and frozen shrimps. Global economics are such that the development of reputation is central to efficient operations (Keen, 2007). Reputation is important and provides business entities with an edge in the highly competitive global sphere. Being the leading producer of shrimps and seafood gives Thailand a chance to control the dynamics of the seafood industry.
Competitive advantage is obviously developed by reputation since having high levels of control of industry dynamics makes Thailand’s food industry more attractive (Harrison ; Hoek, 2005). It is generally easy to deal with an industry player that controls the dynamic of the industry than it is to deal with players that are being controlled. Diversity in areas of production is another dimension in which Thailand has a competitive advantage. The food industry in Thailand is so diverse and involves all sectors responsible for a self sufficient food industry.
The Thais produce food from their ocean, animals and land giving them a diversity that cannot be afforded by many nations. The nature of their climate and land also ensure diversity in crop farming (Kahr, 2008). This diversity is a key advantage as it gives Thailand varied platform to engage in food exportation. Consolidation is a catch phrase in modern day business processes as development in businesses are aimed at development of standard dimensions or view.
Being diverse makes Thailand a suitable trading partner as it meets most of its partner’s needs. To put it more clearly, Thailand is an all in one trading partner and is thus attractive to markets since creating trade relations with such a diverse nation minimizes the challenges associated with dealing with a large number of partners. Meeting food needs is a key area of concern to most nation and the decisions made regarding food are often a result of a thorough analysis of available partners to determine their current offering and what is expected of their future. Thailand has been developing its food situation and if the trends is a depiction of the future; the country has a bright future in food production (Head, 2001).
Government interest in the development of food industry, research and joint efforts aimed at development of food processing are a clear depiction of the seriousness with which food production is taken in Thailand. This display of seriousness, focus on the development of food production and placement of mechanism to ensure food production objectives are met are key variables that any market that is analyzing Thailand will consider (Hewett & Roth, 2003). Its history and government policies which are aimed at development in food production and processing industries are important competitive advantages and makes it a more sustainable source of food to its markets. A key factors that is often left out in discussing Thailand is Bangkok. This city has been central to the development and growth attained by Thailand as a nation.
Bangkok has grown in stature and is the key access point to Thailand. Developments in aviation and use of Bangkok as a connecting destination to many other Asian countries has helped it develop its transport infrastructure. The same can be said of its maritime infrastructure which have developed with increased participation in international trade. Well developed infrastructure and commitment to ensuring infrastructural development are key in assessing a trading partner and under this consideration Thailand scores highly.3.2 Market Potential in TurkeyAnalysis of industrial condition is half of analysis required in determining the nature of the environment. Analysis of market conditions is important as it determines the viability of a market.
It should be remembered that Thailand is a third world nation and Turkey is a second world nation thus there is a difference in the industrial and market dynamic in these two nations. Market potential should be analyzed before entry into any market segment and should be carried on during operations since variables that affect the market are so dynamic and change with time thus need for updates. Mastery of trends of the market is important in not just ensuring relevance of operations to real market conditions but are also a key source of opportunities that exist in the market and should be ensured and appreciated by all entities that are serious about operating in a manner that will ensure they develop both their market share and profit margin. There is therefore need to analyses the macroenvironment that defines the Turkish food market to determine threats and opportunities that exist in the market and therefore determine the viability of Thai food industries engaging the Turkish market. The two main approaches that will be used in analyzing the market are PEST and Porter’s model. The pests analysis is important in analyzing the macroenvironment and the porters’ analysis helps in breaking down the dynamics and nature of variable that affect the Turkish food industry.
3.2.1 Macro Environment AnalysisPEST analysis is an approach to analyzing the political, economic, social and technological environment in Turkey to determine opportunities and threats that exists thus determine the viability of the market.a) Social Turkey’s social composition is so diverse. The country has lived up to its founding philosophy of being a bridge between the east and the west. The country is considered by some as an Asian country while others are of the view that it is a European nation. In 1996, Turkey joined the European Union and has ever since participated as a member of the EU but at a lower level. The country has since participated in the UEFA EURO football tournament.
The population is made up of predominantly Muslims and a number of Christian. The population growth rate is below 2% per year and it has a population of over 75 million people 65% of whom live in urban areas. Though the population is largely urban, there is little farming land due to limited fertile land. Standards of living are higher than those of typical third world nations though slightly lower than those of Western Europe nations. Its standards of living measures to those of typical Eastern Europe nation and the level of educational attainment is one of the highest in the Asian and pacific region. The following are some of the opportunities that result from considerations on Turkey’s social environment:l The diversity of the population creates demand in different areas of food productions the diversity of Thailand would be a perfect fit.l The considerable high standards of living is a depictions of the market’s buying ability.
The large population provides a large market base since food is a basic need thus the market is proportional to the population.A number of threats arise from consideration on the social environment of Turkey. They include:l Dealing in a diverse market can be so complicated as the number of variable that define the needs of the market is large thus meeting the need of the market is hard.l Diversity of the market attracts a large number of different players thus the level of competition in such a market is expected to be large.l High levels of educational attainment is associated with high information consciousness thus the market is expected to be highly specific in their needs and expectations. Such specificity is associated with increased cost in trying to meet the needs of the market.b) PoliticalTurkey is located in a very volatile region as it border Iraq and is quite close to Iran. However, over the years the country has enjoyed immense peace due to neutrality of its successive governments in global politics.
Though diverse in its compositions, Turkey is politically stable and its entry into the European Union (EU) in 1996 was a key development in its politics. The approach taken by governments in the management of business processes is basically capitalistic where the government’s role is limited to developing environment that ensures equal operational environment for all players. The following are some of the opportunities associated with the political environment:l Limited interference by the government presents a fair competitive environment thus giving chance to industrial entity strategies to define levels of success they will attain.l Turkey’s involvement with the European Union could be an avenue for Thailand to involve itself more in the profitable European Union.c) Technological Istanbul has developed over the years and is a key stop over city to most international travelers.
The level of development of infrastructure is considerable as the country has developed its roads and has at least three international airports. Information system especially information technology has developed over the years due to government policies that are aimed at increasing information availability to ensure better business environment. The following are some opportunities that are presented by the technological environment.l Availability of information makes it ease to keep track of variables involved in operation thus reducing operational costs.l The well developed physical infrastructure and good transport system makes Turkey accessible.These are some of the threats presented by the technological environment:l Availability of information is associated with increased entry of new players thus high levels of competition.l The well developed infrastructure attracts competition which is associated with decreased returns.
d) EconomicTurkey’s economy is largely supported by manufacturing industries. There is little effort by the government to increase the number of people involved in agriculture, in fact the government is interested in reducing the number of people involved. Manufacturing industries employ a large part of the labor as farmers are largely local. The recent economic crisis has hit the manufacturing industry considerably and for the short term the economic conditions may be strained though the country has enjoyed a large spell of sustainable economic growth. The following are some of the opportunities presented by the economic environment:l Turkey’s dependence on manufacturing and poor development of agriculture creates a deficit in supply to food based industries. This is an opportunity that Thailand can fill by providing Istanbul with the required input.l The economic crisis largely affected industrialized nations thus local food industry players in Turkey have been affected more than their Thai counterparts. Thus, Thais have a competitive advantage which may be used to their advantage to develop a market base at the expense of existing industries.
The following are some of the threats associated with economic environment:l Cost of operations and harnessing the market in Turkey may be high due to the high inflation costs that are characteristics of the economic crisis.l The economic crisis may lead to development of restrictive government policies that may hinder harnessing the Turkish market.3.2.2 National Competitiveness AnalysisSustainable industrial growth cannot be achieved if the basis of competitive advantage is only inherited natural variables. In fact the abundance of natural resources may at times undermine the levels of competitiveness that a country attains. There are four interlinked factors that are independent of inherited variables like natural resources and population size that affect competitiveness of a nation.a) Firm Strategy and Rivalry Industrial firms in the food industry generally compete at the level of profit margin achieved and capitalization.
Food processing industry entities are generally aimed at developing their profit margins and ensuring their capital base improve, there is little emphasis on the needs of customer due to their control of customer needs. Rivalry is high due to high levels of competition and there is little effort by industry players to join their effort for the sake of the market or industry.b) Demand Conditions Food is a basic human needs and the demand for food in Turkey is continuous and shows little changes in its trends. However, recent development show that there is a general movement towards preference for canned food a trend that is attributed to increase in the pace of life in Turkey.c) Supporting Industries Turkey’s industrial condition is just short of developed. Most industries are in their exponential growth period. The transport industry for instance is well developed and is developing at a fast rate as a number of highways are being turned into superhighways. The banking and financial service provision industry is at per with the average European union level.
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