Ploughing the Market

with Michael Spandern

Reconsider Diversification

September 2nd, 2010 Posted in Business Style, Production, Sustainability
Sep, 02 2010
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We all try to focus, to streamline our businesses, to be as precise as a laser beam. We have de-cluttered our product portfolios and have sold, spun off or terminated everything that does not represent the core of the business. I was the dogma of the 80s and 90s that was carried into this millennium and demanded purity and simplification.

This development – call it a movement- was backed by economic observations finding that products with small market share and products with slow or stagnating growth where chewing up relatively more company assets compared to the strong company heroes named ‘cash cows’ and ‘stars’ that promised a high return of investment.

Diversification need diverse visions

The movement was also driven by consumers (which we all are) who were overwhelmed by the multitude of goods and services that were available making it harder and harder to decide. Like kids in a candy shop, not knowing where to look first, the economists stated that cutting back diversity is the way forward. A simple message with a simple solution, simple to understand but hard to follow. What is my core competency? Which product it the star? Which one is the sleeper? Which one is the old dog?

Managers started cleaning up their companies. They cleaned and polished and streamlined until their organisations became perfectly trimmed. They now perfectly matched customer needs – or at least what was thought to be customer needs. What had happened to the breweries where all beers taste the same or the automobile industry where all cars look the same had happened to many organisations. The character was lost. Yes, we find strong brands that stand for values and history but the companies behind these brands are replaceable. Which is constantly proven by the ongoing acquisitions and mergers.

It is a new conclusion: Simplifying the product portfolio makes a company more efficient but possibly also replaceable. The question now is not ‘What is my core business or product?’ but rather ‘Who are we?’ and ‘What do we stand for?’ Interestingly those companies who seem quite stable towards acquisitions and buy outs have a very diverse product portfolio in a wide range of markets. A stable company like this could have feed mills, seed production, a trade department, real estate and a bank with all departments linked to each other. Yes, it could spin off the capital intense production and focus on finance but would it be the same company? Would it be a wealthy company with a safe and prosperous future?

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Strategies for Sustainable Agriculture in Africa

July 14th, 2010 Posted in Education & Training, Market & Strategy
Jul, 14 2010
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Amongst a myriad of ideas it makes sense to pick the most promising actions that allow to create longterm solutions and can be implemented easily under a different conditions.

More emphasis on healthy soils.
The sub-optimal conditions for agriculture in Africa and a changing climate require a stronger focus on physical and biological soil characteristics: soil organic matter, soil biology, soil structure and soil water holding capacity.

Use biological nitrogen fixation.
The benefit of soil fertility improvement using leguminous, nitrogen fixing plants is evident. The use of this organic practice needs to be upscaled and promoted in programs and projects that are aimed at improving agriculture in Africa

Combine water harvesting with organic fertilization.
In the Sahel and other dry areas, susceptible to frequent droughts, a combination of water harvesting and concentrated organic fertilization is required. Water harvesting alone will not be sufficient to increase crop yields, because soils are too poor. Organic fertilization alone will not be sufficient if it is spread to thinly over the field, and if water runoff and soil erosion are not controlled. The combination has shown spectacular effects: yields have increased enormously.

Use the available biodiversity.
Africa is rich in a large number of food crops and varieties, many of which have not yet been subject to breeding or improvement programs. This richness is a key resource underpinning the resilience of agriculture in Africa.

Involve farmers in the adaptation of agricultural practices.
Farmers’ situations are highly diverse and the impact of climate change is ongoing. This means that there will be a need for many different adapted recommendations for improved farm practices. Research and extension should involve farmers, in order to guarantee that the recommendations will be relevant for farmers and will be subject to continued adaptation and improvement.

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Seven Principles of Food Sovereignty

June 23rd, 2010 Posted in Business Style, Market & Strategy, Sustainability
Jun, 23 2010
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Via Campesina has published a catalogue of action points to fight world hunger. Key is finding the right structure in agricultural systems and policies. No all of it will be aplicable to every market but the list sure gives some food for thought.

1. Food: A Basic Human Right.
Everyone must have access to safe, nutritious and culturally appropriate food in sufficient quantity and quality to sustain a healthy life with full human dignity. Each nation should declare that access to food is a constitutional right and guarantee the development of the primary sector to ensure the concrete realization of this fundamental right.

2. Agrarian Reform.
A genuine agrarian reform is necessary which gives landless and farming people – especially women – ownership and control of the land they work and returns territories to indigenous peoples. The right to land must be free of discrimination the basis of gender, religion, race, social class or ideology; the land belongs to those who work it.

3. Protecting Natural Resources.
Food Sovereignty entails the sustainable care and use of natural resources, especially land, water, and seeds and livestock breeds. The people who work the land must have the right to practice sustainable management of natural resources and to conserve biodiversity free of restrictive intellectual property rights. This can only be done from a sound economic basis with security of tenure, healthy soils and reduced use of agro-chemicals.

4. Reorganizing Food Trade.
Food is first and foremost a source of nutrition and only secondarily an item of trade. National agricultural policies must prioritize production for domestic consumption and food self-sufficiency. Food imports must not displace local production nor depress prices.

5. Ending the Globalization of Hunger.
Food Sovereignty is undermined by multilateral institutions and by speculative capital. The growing control of multinational corporations over agricultural policies has been facilitated by the economic policies of multilateral organizations such as the WTO, World Bank and the IMF. Regulation and taxation of speculative capital and a strictly enforced Code of Conduct for TNCs is therefore needed.

6. Social Peace.
Everyone has the right to be free from violence. Food must not be used as a weapon. Increasing levels of poverty and marginalization in the countryside, along with the growing oppression of ethnic minorities and indigenous populations, aggravate situations of injustice and hopelessness. The ongoing displacement, forced urbanization, repression and increasing incidence of racism of smallholder farmers cannot be tolerated.

7. Democratic control.
Smallholder farmers must have direct input into formulating agricultural policies at all levels. The United Nations and related organizations will have to undergo a process of democratization to enable this to become a reality. Everyone has the right to honest, accurate information and open and democratic decision-making. These rights form the basis of good governance, accountability and equal participation in economic, political and social life, free from all forms of discrimination. Rural women, in particular, must be granted direct and active decision making on food and rural issues.


Source: Via Campesina www.viacampesina.org


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20:80 all the time and everywhere

June 14th, 2010 Posted in 20/80 Rule, Business Style
Jun, 14 2010
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In 1906, Italian economist Vilfredo Pareto created a mathematical formula to describe the unequal distribution of wealth in his country, observing that twenty percent of the people owned eighty percent of the wealth. In the late 1940s, Dr. Joseph M. Juran inaccurately attributed the 80/20 Rule to Pareto, calling it Pareto’s Principle. While it may be misnamed, Pareto’s Principle or Pareto’s Law as it is sometimes called, can be a very effective tool to help you manage effectively.

Where It Came From
After Pareto made his observation and created his formula, many others observed similar phenomena in their own areas of expertise. Quality Management pioneer, Dr. Joseph Juran, working in the US in the 1930s and 40s recognized a universal principle he called the “vital few and trivial many” and reduced it to writing. In an early work, a lack of precision on Juran’s part made it appear that he was applying Pareto’s observations about economics to a broader body of work. The name Pareto’s Principle stuck, probably because it sounded better than Juran’s Principle.

As a result, Dr. Juran’s observation of the “vital few and trivial many”, the principle that 20 percent of something always are responsible for 80 percent of the results, became known as Pareto’s Principle or the 80/20 Rule.

What It Means
The 80/20 Rule means that in anything a few (20 percent) are vital and many(80 percent) are trivial. In Pareto’s case it meant 20 percent of the people owned 80 percent of the wealth. In Juran’s initial work he identified 20 percent of the defects causing 80 percent of the problems. Project Managers know that 20 percent of the work (the first 10 percent and the last 10 percent) consume 80 percent of your time and resources. You can apply the 80/20 Rule to almost anything, from the science of management to the physical world.

You know 20 percent of your stock takes up 80 percent of your warehouse space and that 80 percent of your stock comes from 20 percent of your suppliers. Also 80 percent of your sales will come from 20 percent of your sales staff. 20 percent of your staff will cause 80 percent of your problems, but another 20 percent of your staff will provide 80 percent of your production. It works both ways.

How It Can Help You
The value of the Pareto Principle for a manager is that it reminds you to focus on the 20 percent that matters. Of the things you do during your day, only 20 percent really matter. Those 20 percent produce 80 percent of your results. Identify and focus on those things. When the fire drills of the day begin to sap your time, remind yourself of the 20 percent you need to focus on. If something in the schedule has to slip, if something isn’t going to get done, make sure it’s not part of that 20 percent.

There is a management theory floating around at the moment that proposes to interpret Pareto’s Principle in such a way as to produce what is called Superstar Management. The theory’s supporters claim that since 20 percent of your people produce 80 percent of your results you should focus your limited time on managing only that 20 percent, the superstars. The theory is flawed, as we are discussing here because it overlooks the fact that 80 percent of your time should be spent doing what is really important. Helping the good become better is a better use of your time than helping the great become terrific. Apply the Pareto Principle to all you do, but use it wisely.

Pareto’s Principle, the 80/20 Rule, should serve as a daily reminder to focus 80 percent of your time and energy on the 20 percent of you work that is really important. Don’t just “work smart”, work smart on the right things.

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Attracting Funds in Emerging Markets

May 10th, 2010 Posted in Business Style, Sustainability
May, 10 2010
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Excerpt from talk at
Institute of Brewing and Distilling, Sustainability Conference,
Kwazulu-Natal, South Africa, March. 2009


Introduction

Over the last decades several countries around the world have managed to overcome the problems of the post colonial era and have now found their own identity. Their new and strong self consciousness is also backed by a new middle class and growing national consumer markets. These also open up opportunities for the production and marketing of alcoholic beverages.

When analyzing the challenges for business entities in emerging countries three major inhibiting factors can be identified:

1) To new projects finding the right financing model often represents a huge challenge. In these markets access to loan or equity money is often very difficult, extremely expensive or insecure. Quick loans are available merely anywhere but finding a long term partner is crucial for any manufacturing business.

2) The hunt of governments for solid currencies has built a spiral of cheap exports of raw materials against the subsidised imports of manufactured goods. The European Union in particular is regulation it’s domestic price structure by ”dumping” surplus agricultural goods into third world markets. On the one hand this has reduced the availability of raw materials and on the other is poses a strong competition to local added value business.

3) Dwarfed by the marketing power of multinational beverage companies the credibility of start up ideas may appear highly questionable. Brands like Carlsberg beer, Bacardi rum or the Coca-Cola soft drink range dominate the global industry and each individual beverage category. This paper and presentation therefore aims to describe a strategy of raising funds by targeting a different source of finance and – more importantly – by promoting a particular project correctly to optional donors.

Finding and selecting financiers

Since the beginning of this century a new movement can be observed in the financial world. It has proven to be very consistent and is constantly growing. It was even almost immune against the challenges of the global financial crisis of 2008. It is based on the desire for an ideal world and is lead by the ongoing search for justice and sustainability. Observations showing how traditional donations constantly fail have led to the belief that honest and fair business can achieve more. Therefore a new conscious investors looking beyond the pure figures of return on equity and maximum interest rates add ethical guidelines to their money. It has shown to be a profitable approach and has therefore led to the new strap line, “Doing well by doing good”.

The drivers behind this new development are the Worldbank and various national banks trying new routes, fund managers trying to differentiate themselves, non government organisations such as the Melinda and Bill Gates Foundation and, silent philanthropists who wish to remain unnamed. These lenders help designing and controlling the business plan and may offer their money to far cheaper conditions than usually found in the banking world. They have also found ambassadors for their new approach in celebrities such as Victoria, the Princess of Sweden, former UN-Secretary General Kofi Annan and famous Hollywood actors like Leonardo Di Caprio and Angelina Jolie, who also personally have revised their own financial planning in this matter.

Key areas of interest are sustainable added value entities associated with agriculture such as food production and distribution, animal husbandry, bioenergy and, forestry. Projects showing an interdisciplinary character and involving a broad range of skills are highly appreciated. This can benefit the alcoholic beverage industry in particular.

Whoever wishes to access these funds should design the business plan in a way it may withstand a cascade of questions that cover not only financial but furthermore socioeconomic, political and environmental criteria:

Sustainability-Filter

    Step 1: Country -Filter
    Investors will target emerging market countries where they find safe fundamentals of an enabling environment.

    Step 2: Industry-Filter
    Investors seek industries that derive some advantage from a complex and not easily imitated cluster of related and supporting firms.

    Step 3: Entrepreneur-Filter
    Entrepreneurs must not only be capable of executing and managing a business themselves, but must also be respected in the business community.

    Step 4: Strategy-Filter
    Target firms must produce a differentiated product for which an attractive customer segment is willing to pay a premium.

    Step 5: Sustainability-Filter
    Firms must be founded on a basis of continued innovation.

The right environment
Corporate entities in emerging markets often operate in very challenging business environments. On the one hand, being in geographies where there is comparably little competition, they face tremendous growth opportunities. On the other, they operate in places where both resources and information are limited, which makes it difficult to pursue those opportunities. Leaders and managers in emerging markets are full of great ideas on how to grow their businesses, but have to constantly “struggle” with an unforgiving business environment. At the same time emerging market entrepreneurs are highly confident operating in uncertain markets. This makes it very exciting to investors from abroad.

Conscious investors are not always politically active but in any case they are well informed about world economics and the political situation in various regions. They are willing to take the financial risks of lending to a new project but feel irritated by the erratic risks of international money transfer, inflation and corruption. Lenders therefore must thoroughly evaluate the legal, administrative and political environment of the proposed project and should be able to demonstrate the benefits of choosing a particular country or region. In addition it may be important to place a business in an enabling environment that welcomes new entities and not just accepts them. Most desired are projects that lie off the beaten tracks of Brazil, Russia or China but focus on the ‘second row’ emerging economies such as Vietnam, Tanzania or the smaller countries of Eastern Europe

The right strategy

In the past many investments in emerging markets dealt with rather ’flat’ industries that promised fast returns but showed very little integration with other businesses. Typical examples were tourism, mobile phone networks, TV stations, agricultural commodities, and mining. Investors today seek industries that derive some advantage from a more complex and not easily imitated cluster of related and supporting firms. This is a characteristic of in the brewing and distilling industry making it extremely attractive. Alcohol production by its nature is interdisciplinary. It involves engineering, biotechnology, marketing and communication. It is related to food sciences and agriculture and also touches a broad range of cultural and socioeconomic aspects. This will be important to many emerging countries where the population generally is of younger average age than in the industrialized nations. The beverage markets in emerging countries are also far from saturation. The consumption per capt still rises. In addition the brewing and distilling industry also educates and promotes highly skilled personnel and is full of job opportunities. This not only creates stability to entrepreneurial start-ups but also gives investors several different opportunities to identify themselves with a particular project.

The advantage of working with local people who share a high level of experience in their own local business environment has already been mentioned. However, in addition entrepreneurs who wish to attract funds must not only be capable of executing and managing a business themselves, but they must also be respected in the business community. A good public image, business testimonials and personal references make an impact. Investors like to look forward and prefer to work with partners who can possibly act as originators for additional deal flow. At the same time target firms must produce a differentiated product range for which an attractive customer segment is willing to pay a premium. Pure commodity business or the simple exploitation of the comparative advantages of low-cost labour or low-cost inputs are rejected. Competitiveness should be based on advanced skills, high-tech, strategic differentiation and continued innovation.

Conclusion

The production of alcoholic beverages truly matches the criteria that motivate investors to fund projects in emerging markets today. Despite the ongoing discussion in the industrialised countries about health risks, the moderate consumption of alcoholic beverages generally expresses a positive image as it stands for public wealth, leisure time and, a sociable and independent citizenship. With all agglomerated professions around it, from farming to bar tending alcoholic beverages always have significantly contributed to the cultural identity of a society – weather in Bavaria or India. This emotional momentum should not be underestimated as a business plan is presented to a potential lender – weather it’s for a bank loan or for private equity.

full paper pdf

M. Spandern
www.spandern.com

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Michael Spandern
Agribusiness Consulting
Kiel - Seattle