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Integration of SME into Agribusiness
Global Value Chain
Chackrit Duangphastra,PhD
Director of Transportation Institute , Chulaongkorn University, Thailand
Chackrit Duangphastra, PhD 1
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Outline of Presentation
Global Value Chain (GVC)
in agricultural business
Research finding on the
promotion of participation
of SME in Agro business in
GVC in APEC region
Way forward for SME
involvement in APEC GVC
Chackrit Duangphastra, PhD 2
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Global Value Chain : GVC
Chackrit Duangphastra, PhD 3
Full range of activities that are required to bring a product from its concept, through its design, its sourced materials and intermediates inputs, its marketing and distribution, and its support to final consumer in international context.
Increasing GVC activities in Agro based industry resulting from growing local and international market demand, more production in some countries needed for export, seek greater competitiveness from globalization to lower production cost, labor, tax incentive, better logistics connectivity, and trade and investment liberalization
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Snapshot of development of Agro based and
Food Industry in Thailand
Chackrit Duangphastra, PhD 4
Prior to 1960: production to serve local demand Employed low technology and local wisdom to preserve food and little link to
global market
1960 to 1970: start production to substitute import Import raw materials and technologies to start modernize production system
such as canned food, sweeten condensed milk
1970 to 1980: start exportation Start exportation but still lack of production skills and lack of standard and quality
improvement
1980 to 1990: growing period Used labor cost competitiveness and import high technology from Europe and
APEC economy. Economy of scale and OEM is key. Product champion: canned seafood, rice, canned and processed fruits, frozen chicken and frozen seafood
1990: trade liberalization and greater international competition More competition from lower cost agro based makers
Value added and quality standard are key issues.
Pressure from MNC and buyer to show food safety and quality standards such as ISO and HACCP
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
New Challenges for Agro Based and Food
Industries in Asia
Chackrit Duangphastra, PhD 5
Food safety and Food quality are outstanding issues to doing business
From Farm to Table Value Chain
Need market diversification and product diversification to avoid competition
Labor shortage
Attitude to work in agro based and food industries compared to other production and service sector such as telecom, banking, automotive sectors, and E-commerce
Too many standards
CODEX, HACCP GMP, Low Acid Canned food, Seafood standard, Animal welfare, Halal, Greendot, and more to come
Non Tariff Measures, especially SPS, contamination, product standard, accreditation, labor and environmental issues
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Chackrit Duangphastra, PhD 6
Analysis of Diamond Model to realize competitiveness
Demand Conditions (+) Various patterns of consumption (ready to eat, ready to cook, eat out)
(+) consumer sophistication
(+) competition in food retails and franchise increase consumer sophistication
(+) Production gradually move from PUSH to PULL
Factor Conditions (+) local raw materials are available
(-) labor shortage
(-) lower quality of soil and water
Supporting Industries (+) emergence of production cluster and contract farming
(-) many trade association (but limited link to unorganized SME)
(-) R&D and investment in technology is limited
(-) only supply chain but no supply chain management
Strategy, Structure and Rivalry (+) Value added, quality improvement, focus on production and distribution standard
(-) lack of branding
(-) complicated government procedures along international value chain
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Big players in Agro based Business in APEC:
Food Processing
Chackrit Duangphastra, PhD 7
Players from APEC Food processing
USA: Mondelez International, Archer Daniels Midland, Kraft Foods, Tyson Foods, Campbell Soup, JM Smucker, Coca-Cola, Pepsi Co
Singapore: Olam International, Golden Agri Resources , Wilmar International
China: China Mengniu Dairy, WH Group, Inner Mongolia Yili, Tingyi Holding, New Hope Liuhe
Taiwan: Uni President
Korea: CJ group
Thailand: Charoen Pokphand Foods, Thai Beverage
Malaysia: IOI Group
Japan: Nippon Meat Packers, Asahi Group, Kirin Holdings, Ajinomoto, Meiji Holdings
Players from Non APEC but located in APEC region Food Processing
Switzerland: Nestle
Denmark: Carlsberg
Netherlands: Heineken
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Big players in Agro based Business in APEC:
Food Retail
Chackrit Duangphastra, PhD 8
Players from APEC Food retail
Japan: Seven & I Holding, Aeon
Australia: Wesfarmers, Woolworths
USA: Kroger, Sysco, Whole Foods Market,
Thailand: CP All
Taiwan: President Chain Store
Players from Non APEC but located in APEC region Food retail
France: Carrefour
UK: Tesco
Netherlands: Royal Ahold
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Big players in Agro based Business in APEC:
Restaurants
Chackrit Duangphastra, PhD 9
Players from APEC
Restaurants
USA: McDonald’s, Starbucks
Players from Non APEC but located in APEC
region
Restaurants
France: Carrefour
UK: Tesco
Netherlands: Royal Ahold
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Chackrit Duangphastra, PhD 10
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Chackrit Duangphastra, PhD 11
Global Value Chain of Thai Rice
29% The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Chackrit Duangphastra, PhD 12
Global Value Chain of Thai Cassava
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Chackrit Duangphastra, PhD 13
Global Value Chain of Thai Fruit
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Chackrit Duangphastra, PhD 14
Global Value Chain of Thai Processed Fruit
8 8
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Chackrit Duangphastra, PhD 15
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Chackrit Duangphastra, PhD 16
Global Value Chain of Thai Shrimp
8% 8%
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Chackrit Duangphastra, PhD 17
Global Value Chain of Thai Processed Seafood
8 8
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Chackrit Duangphastra, PhD 18
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Chackrit Duangphastra, PhD 19
Global Value Chain of Thai Chicken
3% 3%
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Chackrit Duangphastra, PhD 20
Global Value Chain of Thai Sugar
11% 11%
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Critical Success Factors for developing Global
Value Chain
Chackrit Duangphastra, PhD 21
Identify Value from Chain
Assess scenario of competitiveness within sub sectors
and prioritized value chain or cluster
Actors in global value chain from producers to
consumers. Alliances are important
Direct Actors who are members of chain through which product
moves (such as harvesters, traders, manufacturers and
consumers)
Indirect Actors who influence marketing of products (such as
researchers, government, NGOs)
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Dr.Chackrit Duangphastra 22
Procurement
Research and Development
Human Resource Management
Firm Infrastructure
Inbound
Logistics Operations Outbound
Logistics
Sales &
Marketing
Service
The Value Chain
Global Value Chain extended from Normal Value Chain to Incorporate Stakeholders and Opportunities and Risks in International Production and Marketing Networks
Customer Value
Different between
what is paid & benefits gained
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Dr.Chackrit Duangphastra 23
Value Proposition Product
Performance, quality, features, brand, selection, search, easy to use, safe
Price Fair, visible, consistent, reasonable
Access Convenient, location, nearby, at-hand in a
reasonable time
Service Ordering, delivery, return, check-out
Experience Emotional, respect, atmosphere, familiarity,
fun, relationships, community, ambience
Competitive Advantage
• Availability
• Cost
• Differentiation
• Flexibility
• Speed
• Continuous Improvement
SME SME
SME LE
Group SME LE
LE LE
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Chackrit Duangphastra, PhD 24
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Dr.Chackrit Duangphastra 25
1. Value for the Consumer
2. Efficiency, Effectiveness, and
Differentiation
3. Shareholder Value
4. Demand and Supply Planning
5. Leverage Tools and
Technology
6. Seamless Integration
7. Core Competencies
8. Outsourcing a Strategic
Alternative
9. Security and Visibility
10. Global Mindset and
Capabilities
11. Change and Reinvent
The Ten+1 Promises of for SME
involvement in Agro Based GVC
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Dr.Chackrit Duangphastra 26
Leverage Tools & Technology
Demand Visibility to Drive Supply Chain
Suppliers Mfg. Plant Mfg. DC Retail DC Store Consumer
Seamless Supply Chain Visibility
Accelerate the Supply Chain
Gain a Competitive Advantage
Real Time Visibility
Replace Inventory with Information
Lower Supply Chain Costs
Improve Forecast Accuracy and Increase Perfect Orders
Forecasts Suggested Orders
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Dr.Chackrit Duangphastra 27
Effective Supply Chains Should Strive
for “Full” Collaboration
Manufacturer #1
Retail Store #1
Distributor #1
Supplier Network #1
Retail Store #2
Distributor #2
Manufacturer #2
Supplier Network #2
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Dr.Chackrit Duangphastra 28
Example Functions Being
Questioned for Core
Competency
Manufacturing
Transportation
Warehousing
Information Technology
Order Management
Integrated Logistics Services
Business Process (BPO)
Core Competencies: Three Questions Each
Supply Chain Organization Should Ask Itself
Do We Have The
Skills We Need? If Not,
How Do We Get Them?
Expertise
Consistent With
Organizational
Mission? Is It a Good Use
of Our Resources?
Strategic
Fit
Ability to
Invest
Is the ROI
Attractive?
What’s The Best
Way to Do It?
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Dr.Chackrit Duangphastra 29
Not understanding customers’
needs
Lack of synchronization and
collaboration upstream/
downstream in supply chain
Absence of visibility
throughout supply chain
Too much focus on meeting
objectives of individual supply
chain organizations
Lack of integrated information
technologies
• Continued existence of “functional silos” within supply chain organizations
• Insufficient senior executive attention to logistics and supply chain issues
• Reluctance to search for and implement innovative, creative customer-focused solutions
• Challenge of dealing with supply chain complexity
• Inability or unwillingness to change
Ten Impediments to Getting ‘Change’
from Supply Chain Management
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Chackrit Duangphastra, PhD 30
Integrating and Managing Processes Across the Supply Chain S
up
ply
Ch
ain
Bu
sin
es
s P
roc
es
se
s
Tier 1 Supplier
Tier 2 Supplier Logistics
Purchasing Marketing & Sales
R&D
Customer
Consumer/End-user
CUSTOMER RELATIONSHIP MANAGEMENT
CUSTOMER SERVICE MANAGEMENT
DEMAND MANAGEMENT
ORDER FULFILLMENT
MANUFACTURING FLOW MANAGEMENT
PROCUREMENT
PRODUCT DEVELOPMENT AND COMMERCIALIZATION
RETURNS
PRODUCT FLOW Production Finance
Manufacturer
Information Flow
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Chackrit Duangphastra, PhD 31
Global Food Supply Chain Challenges
• Understanding consumers needs
• Forecasting consumer trends
• Determining supply capacity
• Balancing supply with demand
• Benefiting from the global market
• Ensuring food safety
• Ensuring food quality
• Driving supply chain efficiency
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
Chackrit Duangphastra, PhD 32
Food Supply Chains
Business Suppliers Customers Supplier’s
Supplier
Customer’s
Customer
Business Suppliers Customers Supplier’s
Supplier
Customer’s
Customer
Business Suppliers Customers Supplier’s
Supplier
Customer’s
Customer
Business Suppliers Customers Supplier’s
Supplier
Customer’s
Customer
Business Suppliers Customers Supplier’s
Supplier
Customer’s
Customer
Business Suppliers Customers Supplier’s
Supplier
Customer’s
Customer
Business Suppliers Customers Supplier’s
Supplier
Customer’s
Customer
Business Suppliers Customers Supplier’s
Supplier
Customer’s
Customer
Business Suppliers Customers Supplier’s
Supplier
Customer’s
Customer
Business Suppliers Customers Supplier’s
Supplier
Customer’s
Customer
Business Chain
Category Chain
Logistics Chain
Planning Chain
Information Chain
Transactional Chain
Inventory Chain
Food Safety Chain
Management Chain
Technology Chain
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
GVC brings opportunities and change to SMEs
Chackrit Duangphastra, PhD 33
GVC brings opportunities (sometimes pressures) to SMEs.
Reorganization of production at international level, through increased outsourcing and development of GVC, effects on SME suppliers. New niches for supply of products and services continuously emerge from fragmentation of products, where small firms can quickly position themselves, exploiting flexibility and ability to move fast
Key benefit of SME Participation in GVC enhances SME internationalization and growth
SME focusing on multipurpose technologies have secured their position in market by becoming specialized suppliers
SME increasingly choose to outsource, even offshore, non core activities to gain competitiveness from production rationalization
Cooperation with partners upstream and downstream improves small firm’s efficiency
Innovating and keeping up with new technologies are required
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016
GVC brings opportunities and challenges to SMEs
Chackrit Duangphastra, PhD 34
Key challenges of SME Awareness and understanding of structure and dynamics of
GVC by SMEs
Major of SME across different countries are not able to identify competitive strengths within value chain
SMEs are mainly concerned with both inadequate availability of managerial and financial resources, skill, and inability to upgrade, protect in-house technology and to innovation
Compliance with strict product quality standard required to participation in GVC
SMEs want frameworks that assist them to better manage their intellectual property
To Move up GVC, SMEs need to take up larger and more complex set of tasks as well as formulate value chain cluster.
The Integration of SMEs in
to
Agribusiness Global Value Chains 2016
March 7 – 8, 2
016