Morality and the Americans -

Morality and the Americans -

Smithfield Foods

About a century ago, the meat industry was quite limited, basically formed from small farms, owned by individuals, growing animals and selling them for meat. The times were quite prosperous, but the first problems aroused in the 1970s, when newer growing processes were developed. The family farms came to balance during the 1990s, when the first corporate, or factory farms, were introduced. The Smithfield Foods was one of these large and competitive farms. "Large metal sheds with concrete floors were built, each designed to hold up to 1,000 hogs. Feeding was by means of a mechanized conveyor that carried food alongside both walls. Waste was removed by hosing it off the floors to a central trough that carried it to a storage lagoon. Temperature was controlled by huge fans at each end of each shed. Every effort was made to reduce costs" (Hosmer, 2004). Smithfield's primary competitors are the Cargill Meat Solutions, Hormel and Tyson Foods (Hoovers, 2008).

However, the role of the family farms has decreased to a certain extent, they still represent important players, which are in the end responsible for the success or failure of the factory farms. The players in the industry today use family farms to raise the hogs, and then purchase them and sell the produced meat items. "The responsibility of the farm family was to raise those hogs to marketable weight as quickly and as efficiently as possible. This was termed contract farming" (Hosmer, 2004). The operational risks of the farmers and the buying organization are shared in varying proportions.

Regardless of the family farms of the factory farms, fact remains that the industry has developed significantly, and most importantly, this growth has led to the creation of additional jobs.

Smithfield Foods bases their business model on various strategic approaches, a relevant and highly successful one being that of using franchising operations. Also, they were able to combine franchising with exclusive contracts. Through these operations, the meat producer was able to get constant access to fresh meat, which would they then transform into high quality products; also, the exclusive contracts ensured the manufacturer that the competition would be restricted from their raw materials and that the items they produced would be unique. Ergo, the competitive state is quite strong from this instance. "The company had exclusive U.S. franchise rights to a proprietary breed of SPG sows that accounted for about 55% of its herd and provided live hogs for its best-selling Smithfield Lean Generation Pork products" (Hosmer, 2004).

Another successful strategic approach was given by the international expansion implemented by the executives at Smithfield Foods. In this order of ideas, the company began small, through several acquisitions in the United States. An acquisition in 2002 for instance, turned them into the U.S. fifth largest producer. More recently, the organization has become increasingly aware of the opportunities presented by the expansion of the European Union. All in all, since 1981, the company has signed 32 deals of mergers and acquisitions. "Management believed its acquisitions and joint ventures gave the company strong market positions, high quality manufacturing facilities, and excellent growth and exporting" (Hosmer, 2004).

In terms of their pork operations, the company implemented a vertical integrated strategy. This basically refers to the degree to which the organization owns its upstream suppliers and its downstream buyers. The advantages of this approach are given by reduced transportation costs, increased supply chain coordination, increased control over the inputs and as such better diversification opportunities, better control over the suppliers, and as such better chances of limiting the competitors' access to raw materials. Finally, a most important advantage is given by increased access to a wide palette of customers (Quick MBA, 1999-2007).

Another successful strategy implemented by the officials at Smithfield Foods was centred on reducing the operational risks. In this order of ideas, based on the legislative opportunity to offer farming contracts, the manufacturer offered deals to family farms that would raise the hogs. This basically meant that the capital invested would belong to the farmer, and therefore the company was subjected to few risks. "Why invest your own capital when you can get a farmer to take the risk? Why own the farm when you can own the farmer?" (Hosmer, 2004)

However this particular strategic approach was rather useful for the corporations, the industry was facing a quite serious problem. As such, industry analysts were concerned with the huge freedom and capabilities of the large companies. To better explain, since they took no risks, but only purchased the hogs from the farmers, organizations had the possibility to change the contractual terms and impose drastic conditions upon the farmers. They could easily request lower prices, and the farmers would have to grant them, as they could not do anything else with the hogs but sell them. "Industry observers [...] worried about the practice of saddling hundreds of small farmers with thousands of dollars of debt. [...] the problem foreseen [...] was the possibility that a company could cancel its contract with only 30 days' notice, leaving the farmer with the debt and no income to repay it, or it could threaten to cancel and then renew the contract only with a sharply lower price per animal" (Hosmer, 2004). Smithfield' approach to the matter resulted in a more equitable sharing of the incurred risks, meaning basically that the corporation owning the hogs would risk more than the farmer growing them.

Another key issue in the industry is given by the difficult tasks the employees in factory farms have to deal with. Not only are these tasks sometimes difficult to complete, they are also unpleasant, to say the least. The basic example is given by the staff members who have to kill the hogs or disembowel them. In replying to this particular challenge, Smithfield ensures that the killing of the hogs is painless and that the disembowelling is automatically performed by machineries.