Executive Summary
For a long time, this report recognizes that Australia has held a top position in the global agribusiness industry. It identifies Australia as one of the leading exporters of the leading agricultural exporters. Australia’s agricultural production accounts for 3 per cent of worldwide production. The report also identifies the international opportunities available for JBS Australia. They include emerging markets of Africa and Asia. It also identifies the international strategies suitable for JBS Australia. It also identifies exporting as the most appropriate mode of entering foreign markets for JBS Australia and foreign direct investment as the most inappropriate mode of entry. Finally, the report recommends expanding into Africa and Asia by establishing subsidiaries in these markets as the best future strategic direction for JBS Australia.
Introduction
The agribusiness sector, which comprises of activities performed from the farm to the point when its placed on the consumer’s table, is considered a major sector in the global economy. Since the global population is expected to increase to approximately 90 billion people by 2050, the demand for food and agricultural products is expected to increase significantly (Mohsin, 2015, p.1). The agribusiness sector will therefore continue playing a critical role in meeting the ever-increasing demands for food. Due to the economic and social importance of agribusiness, the sector has received increased global attention. Like in most countries, Australia’s agribusiness sector is considered as a very critical sector for the social and economic wellbeing of the Australian population.
Australia’s agribusiness sector has, for a long time, held a strong legacy and maintained a top position in the global agribusiness industry. Australia is one of the world’s largest agricultural exporters ranking fourth behind Brazil, Argentina and the Netherlands (Mohsin, 2015, p.1). It is estimated that the value of Australian agricultural production accounts for 3percent of global food production, which is threefold the country’s domestic demand (Mohsin, 2015, p.1). In the period 2012 and 2013, Australia export value from agribusiness was $38 billion while the value of imports was $12 million. Studies also estimate that Australian farm and fisheries production was $42 billion during the same period with the value of food export estimated to be approximately 30.5 billion (Mohsin, 2015, p.1). Additionally, important to note is that Australia’s agribusiness sector is one of the five pillars and one of the high growth sectors of the country’s economy.
International Opportunities for JBS Australia
JBS Australia is Australia’s largest meat processing company. JBS Australia has been supplying the finest grain and pasture-fed meat to domestic and export consumers for more than 20 years. The company’s highest revenue is generated from the meat processing unit. For instance, in 2018, the company’s revenue from beef was R$78.6 billion, representing a 13% increase compared to 2017 (Perrett, 2019). The company’s major external market is China and Asian countries. The company has, however, not explored other potential international opportunities for its products. It is, therefore, necessary for the company to consider other potential international markets apart from China and Asian countries.
The demand for livestock derived foods such as beef is growing modestly in developed countries and rapidly in Africa and Asia (Tarawali, 2019, p.8). According to Tarawali, the rapidly growing demand for livestock derived foods in Africa is mainly due to rising population while in Asia, it is motivated by rising population and incomes. It is, for instance, projected that by 2030, Africa’s demand for livestock derived foods would increase by 80 per cent. The projections show that in 2030, Africa will consume 125% of beef (Tarawali, 2019, p.8). The projected high demand for beef in Africa is based on the current population growth trends. Africa is expected to witness dramatic population growth in the coming years with projections showing that Africa’s population will hit 4.5 billion by 2100. According to OECD and FAO statistics, Africa’s overall meat consumption is expected to increase by 28% between 2018 and 2027 (Tarawali, 2019, p.9). Based on the growing demand for livestock derived foods in Africa and the ever-growing population, Africa, therefore, provides a potential opportunity for meat processing companies such as JBS Australia. JBS Australia should therefore explore the African market by expanding its presence in this untapped market.
Other international opportunities for JBS Australia are India and China. The OECD and FAO estimate that between 2018 and 2027, the overall consumption of livestock derived foods in these markets is expected to increase by 25 per cent and 16 per cent for India and China respectively (Tarawali, 2019, p.9). According to Tarawali, other studies project that by 2030, Asia’s consumption of livestock derived foods will continue to increase to approximately 600 metric tonnes per year. The demand for meat consumption in China alone is expected to exceed 100 million metric tonnes per year by 2030.
International Strategies Suitable for JBS Australia
Joint ventures and acquisitions are important international strategies suitable for JBS Australia. The company can, for instance, identify a company in a target country where it intends to enter and form a joint venture with the identified company. Forming joint ventures with local companies will be the only way of expansion into competitive and saturated markets (Kumar, 2016, p.318). Acquisitions involve purchasing an existing company in a target country and taking full control of the operations. Acquisitions will be effective for JBS Australia because they enable the company to move directly into establishing a good position in the target market than starting establishing operations from scratch (Durmaz & Taşdemir, 2014, p52).
The other international strategy suitable for JBS Australia is the global web strategy. With the internet and web, the company will not be required to exhibit its products in overseas trade shows (Kumar, 2016, p.319). The company can use the web to reach customers outside Australia. Customers living abroad will source for JBS Australia products from international e-commerce suppliers such as Amazon and Alibaba. The global web strategy will also the company to build its global brand awareness (Kumar, 2016, p.319).
Diversification to fish, poultry, pig meat processing is one of the notable international strategies suitable for JBS Australia. JBS Australia mainly focuses on beef processing. It is therefore high time it considers processing other types of meat such as poultry, fish and pigmeat so as to maximize its profits take the market leadership position in meat processing. For instance, there is an increasing demand for poultry in countries such as Viet Nam, Ghana, Angola and the Republic of Korea and imports into these countries have significantly increased (FAO, 2019, p.2). Poultry production in these countries is inadequate hence the need to import. There is also an increasing demand for pig meat in countries such as China, Japan, and the Republic of South Korea (FAO, 2019, p.5). By diversifying into poultry pig meat processing, JBS Australia will be able to tap into these readily available markets and increase its earnings and become the world’s leading meat processing company.
Modes of Foreign market entry
As companies grow and expand internally, they also seek to expand externally and the needs to enter foreign markets arise. Companies must therefore decide how to enter a foreign market. Like most ambitious companies, JBS Australia must also decide its mode of entering the foreign market. Deciding on the mode of entry into a foreign market means the company must establish an institutional arrangement for selling products in a foreign market (Kumar, 2016, p.317). According to Kumar, the choice of mode of entry depends on the company’s level of commitment to the targeted foreign markets. The mode of entry is chosen once a target country has been identified. There are many modes of entering a foreign market that can be considered by JBS Australia. The modes are categorized into three categories namely exporting modes which include indirect and direct exporting, contractual modes such as licencing and franchising, and investment modes including foreign direct investments (FDI) which involves setting up foreign branches and subsidiaries.
The Most Appropriate Mode of Entering Foreign Markets for JBS Australia
An evaluation of all the modes of entering a foreign market establishes that exporting is the most appropriate form of entering foreign markets by JBS Australia. Exporting involves marketing and direct selling of goods produced domestically in a foreign country. Exporting is a natural consequence of growth since it often arises when a company has achieved an appropriate volume of production and has reached all its domestic capabilities (Kumar, 2016, p.317). Following its tremendous growth that has elevated JBS Australia to Australia largest meat processing company, it can therefore consider exporting its products to foreign markets. The company can either adopt direct exporting or indirect exporting. Indirect exporting involves using a domestic agent or intermediary to sell products in a foreign market ((Daszkiewicz & Wach, 2012, p.136). On the other hand, under direct exporting, the company can decide to export its products into the foreign market by itself. It involves the use of foreign agents, intermediaries and distributors to sell its products in the foreign market (Daszkiewicz & Wach 2012, p.136).
Exporting has many advantages making it the most appropriate mode compared to other modes. For instance, exporting is the easiest way of entering a foreign market, and it is usually the first model used by companies seeking international markets (Mariadoss, 2019, Chapter 7). Exporting is also less costly compared to other modes. Expanding into global markets through exporting does not require the company to put up an office in a foreign country. Therefore, the company will not incur the costs of establishing operations in a foreign country.
Despite the advantages, exporting, however, has some shortcomings. For instance, the exporting company has limited control over the marketing and distribution of its products in a foreign country (Mariadoss, 2019, Chapter 7). They also incur substantially high costs and charges through tariffs. For example, exporters incur high transportation costs since they are required to transport goods to the country. Also, the high tariffs imposed by some countries on incoming goods have an impact on profits. Exporters are also required to pay distributors for various services (Mariadoss, 2019, Chapter 7). Besides the costs, exporting does not allow the company to have firsthand experience in staking out a competitive position in a foreign country. It is also not easy for the company to customize its products and services to local tastes and preferences (Mariadoss, 2019, Chapter 7).
The most Inappropriate Mode of Entering Foreign Market for JBS Australia
Foreign direct investment (FDI) will be the most inappropriate mode of entering foreign markets for JBS Australia. Foreign direct investment is the establishment of business operations in a foreign country easy for the company to customize its products and services to local tastes and preferences (Mariadoss, 2019, Chapter 7). It includes building factories, setting up sales offices and distribution networks to serve the local market. FDI, therefore, involves direct ownership of facilities in a foreign country. There are many forms of FDI. However, the common form of FDI is the subsidiary (Daszkiewicz & Wach 2012, p.139).
Entering foreign markets through FDI is inappropriate for JBS Australia because it is the most expensive mode of entering a foreign market. It is also the most expensive commitment to the company since it must assume all risks be either financial, currency, economic, or political risks (Mariadoss, 2019, Chapter 7). The process of establishing subsidiaries in a foreign land is complex and costly. Though inappropriate, entering foreign markets through FDI provides the company with exclusive control of all the operations in the foreign market (Daszkiewicz & Wach 2012, p.139).
Future Strategic Direction
In the future, JBS Australia should consider FDI investments in Africa and Asia. The main reason why the company should consider investing in Africa is because of the increasing demand for meat due to the rapidly growing population (Tarawali, 2019, p.8). Also, Africa provides JBS Australia with a great investment opportunity since other companies have not yet explored the market. JBS Australia should, in the future, set up factories in Africa to avoid high costs of transporting goods from Australia to various African countries. It should be noted that traditionally, some African communities are pastoralists with large stocks of livestock and therefore, raw meat will be easily available for processing. Investing in Asia will also be less costly due to the availability of resources and a highly-skilled workforce (Tarawali, 2019, p.8).
Conclusion
The agribusiness sector is to the social and economic development of any country. Due to its significance, it attracts a lot of attention from the government. Australia’s agribusiness sector has a longstanding legacy and it is one of the leading in the world’s agribusiness industry. Australia is among the lead net exporters of food and agricultural products behind Brazil, Argentina and the Netherlands. Among Australia’s leading Agribusiness companies is JBS Australia. JBS Australia is Australia’s leading meat processing company. It processes meat for domestic consumption and export. There are many international opportunities available for JBS Australia. They include extending its operations to emerging markets such as Africa and Asia. For easy entry into foreign markets, the company should carefully evaluate all modes of entry and select the most appropriate mode of entry. The most appropriate mode of entry for JBS Australia upon careful evaluation is exporting. Exporting will be appropriate because it is less costly and less complicated compared to other modes. JBS future strategic direction will be expanding into the African and Asia market by setting up subsidiaries in these markets