Besagi Case Study: External Environment Strategy Analysis

Issues and Problems Impacting Besagi

Because Besagi competes in the international marketplace, it is affected by a number of forces common to all organizations as well as some specific to its industry. The major issues are described below.

a. Drought and unpredictable climate conditions in Australia and for overseas suppliers of generic seeds. According to U.S. government analysts, "Drought, robust import demand, and a strong currency have pushed the trade deficit up in recent years, while infrastructure bottlenecks and a tight labor market are constraining growth in export volumes and stoking inflation" (Australia, 2008, p. 3).

b. Paucity of casual harvesters for seasonal work in Besagi's seed production business unit. This problem appears to be recurring, and the company's response to date has been inadequate — and may be highly counterproductive in the future for reasons discussed further below.

c. Dispute between management and labor concerning layoffs of redundant employees from ProSeed. This level of animosity between management and labor is uncharacteristic of historic patterns of labor relations in Australia and has adversely affected the company's ability to accomplish its organizational goals in a cost-effective manner. This is not to say that the vertical integration sought by Besagi was misplaced, but rather that it was mismanaged. The approach itself was highly congruent with that of a number of other companies competing in the seed production industry. According to Schurman, Doyle, and Kelso (2003), "In recent years, the life sciences firms have integrated vertically and now encompass much of the commodity supply chain, from chemical inputs to seed companies to farming (in the form of production contracts)" (p. 7).

While becoming more vertically integrated represents a worthwhile enterprise in many situations, the numerous consequences and challenges associated with mergers between organizations are well documented and should not have been unanticipated by Besagi's leadership team. Simply categorizing hundreds of employees as "redundant" without making some type of plan to ease the transition is a sure recipe for a human relations disaster, and the impact on local communities can be pronounced and long-lasting. Any potential benefit the company stands to gain from its acquisition of a smaller competitor has therefore been offset by its loss of community goodwill and the need to compensate these redundant employees.

d. Increased pressure in global markets as a result of exchange rate fluctuations and increased governmental regulations, which adversely affect the seamlessness of international trade. These issues also compound several of the other problems currently being experienced by Besagi.

e. Geographic supply chain constraints and inordinate use of overtime by manufacturing staff, stemming from the company's reliance on IntraOz as its sole distributor. IntraOz enjoys a commanding lead in the market with a 70% share and only one competitor. Australia is a large country, and the geographic distances between Besagi and its customers can be daunting. Nevertheless, this problem appears to have an inordinately severe effect on the company, given its need to resort to expensive overtime to satisfy the distributor's unpredictable scheduling demands.

f. Loss of domestic and foreign market share to Bettaseeds Ltd., by virtue of the economies of scale Bettaseeds realizes through outsourcing to overseas suppliers. Notwithstanding Besagi's own acquisition of a smaller competitor, it is clearly being "out-outsourced" by its major rival.

g. Need to identify additional overseas customers to prevent further erosion of its canned pet food profit base. This problem may be more complicated than it appears at first glance, given Australia's geographic proximity to many Western nations with high levels of pet ownership. Pet ownership in China, which is much closer to Australia for shipping purposes, is not yet on par with that of the United States. Moreover, the case study makes clear that Besagi's leadership team failed to discern a recent trend toward competition from manufacturers of healthy and nutritious pet foods — increasingly preferred over traditional brands — and did not capitalize on the opportunity to supply seed products to these manufacturers. According to the Besagi case study, "This market is now firmly held by another of Besagi's Australian competitors, Nutriseed Ltd. Resulting losses to the company are in the order of $550,000 per year" (p. 4). While the company's strategic relationship to fund research with Seedscience may help offset some of these losses in the future, given the strength of the forces arrayed against it, this response may be too little too late.

h. Contracts with private pet shop owners are in jeopardy. Like the seed producing industry itself, pet shops have become increasingly concentrated among a few large concerns. The profitability of Besagi's contracts with private pet shop owners has dwindled in recent years, and even the company's efforts to counter this trend by establishing contracts with two major pet shop franchises are threatened by increasing pressure from overseas suppliers and from Bettaseeds.

Three Key Problems: Causes and Management Responses

Complex problems require complex solutions. Three of the most significant problems facing Besagi are examined below, together with an assessment of how the company has responded.

1. Geographic supply chain constraints and inordinate overtime use. Besagi's reliance on IntraOz as its distributor means the company has responded to that distributor's unpredictable demands by scheduling highly costly overtime for its unionized employees. This reactive approach is both expensive and unsustainable.

2. Paucity of casual harvesters. The company's response to the lack of available casual harvesters has been to sacrifice 15% of its crop. This problem will not resolve itself without aggressive action from Besagi management — ultimately including higher wages for seasonal work — if the company expects to avoid the levels of crop loss experienced in the past. The company's plans to cease cultivation in response to these problems are deemed ill-advised, as noted further below.

3. Need to identify additional overseas customers to prevent erosion of the canned pet food profit base. The company does enjoy certain strengths that can help it manage this challenge. The case study reports that "growth in the Australian agricultural industry is at an all time low, and this is not expected to change. Whilst competition therefore is not expected to increase in the domestic market, Besagi will need to ensure it develops further strategies to withstand intense competition from overseas companies that produce seed products" (p. 4).

Despite the company's failures to date, the domestic market for high-quality pet foods in Australia remains strong. One industry observer notes that "while Australian society has seen many changes in recent years, the value Australians place on their relationships with their pets remains constant. Pets are part of the family in 63% of Australian households" (Pet statistics, 2008, p. 1). Although Besagi's primary competitor Nutriseed holds a commanding advantage in supplying nutritious canned pet foods domestically, the market is enormous: "The pet care industry is one of the largest in Australia. It contributes around $4.62 billion to the economy annually and employs 44,700 people" (Pet statistics, p. 3). The reasons the company appeared willing to forego this domestic opportunity in favor of sourcing overseas are unclear, but the issue should be prominent on Besagi's management agenda going forward.

1. Geographic supply chain constraints and overtime. Today, Australia boasts 38,550 kilometers of railroad tracks that could be used to reduce sole reliance on IntraOz. According to Wildfong, the geographic distances involved in shipping seed products in Canada are not dissimilar from those affecting Australia, and rail transportation could be used to good effect: "Once efficient rail transportation and especially a reliable rural parcel post service became common, the inventories of seed companies from coast to coast became available to nearly all Canadians. It was no longer necessary for farmers and gardeners to purchase their seeds locally" (p. 12). A similar rail-based strategy could substantially reduce Besagi's vulnerability to IntraOz's scheduling unpredictability.

2. Paucity of casual harvesters. Sacrificing 15% of an entire crop is a significant loss, and the managers responsible should carefully review seasonal labor demand and make arrangements well in advance of need. Harvest time should not come as a surprise to these professionals, and with adequate notice and preparation, a sufficient number of casual laborers could be employed for the period required to complete the harvest in a timely fashion. The company's strategy to close down cultivation had the concomitant effect of further eroding labor-management relations and cost the company approximately half a million dollars in addition.

3. Identifying additional overseas customers for pet food products. Besagi would be well advised to look to the growing economic powerhouse of China and its neighbors as potential markets. Although not yet on par with many Western countries, pet ownership in China is rising and is expected to continue to increase. According to Zhuang (2005), "Pet ownership in China is on the increase and attitudes towards pets are changing, with Chinese people demonstrating greater love and care towards their pets. China's fast-paced economy and increasing levels of disposable incomes are having a positive impact on the pet industry" (p. 1). In the past, the Chinese pet food market suffered from limited governmental oversight of production standards; however, that too has changed, with new regulations having generated greater confidence among pet owners. Zhuang adds that "new research shows that pet ownership in China substantially increased between 1999 and 2004. Driven by the growing population of pets, demand for pet food products has also been stimulated to a large extent. Although small in scale compared with Western developed countries, the Chinese pet food market offers high growth potential as it becomes increasingly regulated" (p. 1).