First 4 Farming Ltd: A Strategic Analysis

1.0 Introduction and company background

Internationalisation refers to the process through which businesses expand their operations beyond national borders (Haberberg and Rieple, 2007). The internationalisation strategy is often embraced by organisations in realisation of the fact that their growth objectives may not be fully satisfied by operating exclusively in one market. Among the factors that organisations consider before making a decision are the level of market rivalry in the domestic market, economic growth rates and market characteristics in the markets the business considers to expand to (Haberberg and Rieple, 2007). The decision on whether or not to internationalise should therefore be done after a thorough analysis of the internal and external environments of the firm. The internal analysis should reveal the strengths, weaknesses and the strategic capabilities that could help the firm gain a competitive advantage in the market (Barney, 2010). External analysis on the other hand helps identify the threats and opportunities that could impact on the business.

First 4 Farming is a business that specialises in providing business solutions for agricultural industries in the UK (Onesource information services, 2012). It provides a platform through which agricultural produce can be bought and sold online hence helping agricultural farms to find customers for their produce with ease and at attractive prices. It also avails information on the goings on around the country with information on events, trade shows, regional and national weather forecasts, and technical information aimed at improving the efficiency and effectiveness of the agricultural organisations (IMN, 2011). First 4 Farming is a private subsidiary of Global Range Limited and has about 25 employees. In the financial year ended December 2010, the company recorded an asset base of $1.768 million (Onesource information services, 2012). The business conducts most of its operations online and has expressed the desire to expand to other countries while taking advantage of the growing popularity of E Commerce across the world.

2.0 Understanding the internationalisation processes

The internationalisation process describes the process through which firms expand from their domestic markets into being international and global organisations. One of the frameworks that have been very useful in understanding the internationalisation process is the Uppsala model. This model identifies two main variables that firms must consider: the level of commitment of resources and the level of exposure and knowledge that the firms have on the market in question (Kogut and Zander, 1993). The theory proposes entry into international markets on an incremental basis with the initial entry being through activities that require low levels of commitment of resources. The lowest form of commitment is believed to be the conduct of occasional exports. The interactions resulting from these activities give the organisations the exposure needed to know more about the market and this leads to increased levels of confidence that then motivate the firm to commit more resources into such markets (Johanson and Vahlne, 2009). The commitment level thus moves from occasional exports to the contracting of independent sales representatives. Subsequent exposure gives the firm the confidence to set up their own sales subsidiaries before moving on to set up full operations in the foreign markets.

First 4 Farming may not be able to apply the recommendations of the Uppsala model to the letter. However, the underlying principles remain relevant: the consideration of the level of knowledge and the incremental commitment of additional resources. Being an online shop, First 4 Farming first farming could begin by occasional exports to customers purchasing products on offer. Subsequent engagement would see the company set up full operations in the country in question with products from that market also added on to the range available from the UK market.

3.0 Internal analysis

Internal analysis enables organisations to understand their strengths and weaknesses. It helps them diagnose what capabilities are in their possession that could help yield a competitive advantage. The dominant theoretical framework that informs most internal analyses is the resource based view of the firm and the VRIO framework which helps in identifying which capabilities can help the organisation yield a sustainable competitive advantage (Barney, 2000). The resource based view of the firm visualises an organisation as a bundle of resources which can be used to achieve the organisational goals. The VRIO framework on the other hand helps in pointing out which resources and capabilities can yield a strategic advantage for the firm (Barney, 2000). The SWOT analysis framework is also very useful in carrying out an internal analysis. It outlines the strengths that a firm could use to its advantage, weaknesses that the firm needs to work on, opportunities arising from the external environment and threats that the firm must be aware of to survive in the market (Hubbard, Rice and Beamish, 2008).

3.1 Strengths

First 4 Farming operates with a small number of employees and is essentially a small cohesive organisation (Onesource information services, 2012). This small size helps in developing stable relationships among staff members hence eliminating the inefficiencies often associated with communication breakdowns. The technologies used are also useful in helping employees handle large volumes of work per employee. By working online, an average employee can handle much more than an average worker would do (Reed Business Information, 2011). This helps keep operations less costly hence allowing the organisation to charge less for their services. The company’s employees also have plenty of experience and have established working relationships with key stakeholders hence they are able to gather information on upcoming events and technical issues ahead of most competitors.  

3.2 Weaknesses

The small scale nature of the business restricts its ability to deploy resources to mount an aggressive expansion campaign. With an asset base of less than $2 million, the company is unable to marshal the kind of resources required to expand as desired (Onesource information services, 2012). The company is little known hence their inability to market with ease in the market.

3.3 Opportunities

There is a growing preference for lower prices as consumers become more price-sensitive. This gives First 4 Farming the opportunity to improve its performance. Agricultural industry players are also realising that their survival depends on how well they embrace modern technology and this creates demand for services offered by the company (Bryceson, 2006). The growing popularity for ecommerce and online transactions further creates opportunity for the company to improve its performance.  

3.4 Threats

There has been growing competition as businesses enter the same line of service. The amount of capital needed to set up online portfolios is quite low and this has led to increasing levels of competition (Bryceson, 2006). Many producers of agricultural products are also opting to market their own products with some setting up online operations to make such distribution more efficient. These new portfolios compete for the same market served by First 4 Farming Ltd.

4.0 External analysis

External analysis focuses on the goings on in the external environment with an aim to establish how best the firm can achieve its organisational objectives. The analysis helps establish whether the internal capabilities in the organisation can be adequate to deliver on the objectives set or if certain capabilities need to be developed for the same purpose (Dunning, 1993). External analysis can be done on two levels: the microeconomic level (industry level) and the macro economic level.

4.1 Industry analysis

The agribusiness industry in the UK is composed of agricultural farms, processors and manufacturers of agricultural inputs, marketers and distributors of agricultural produce and others. Major supermarkets stocking agricultural produce in physical and online stores are also strong competitors to the company (Onesource information services, 2012). The customers served are two fold: individual buyers of agricultural products, and the agricultural firms which benefit from the services offered by the company (Onesource information services, 2012). This means that the suppliers of the agricultural produce also double up as customers as they purchase software and technical solutions aimed at boosting the effectiveness of their operations. Industry analysis is best done under the porter’s five forces model. This model enables a balanced evaluation of the major factors in the industry and therefore helps in diagnosing the chances of success that an organisation has. The five factors considered under this framework include the market rivalry, buyer power, supplier power, threat of substitutes, and the threat of entry (Haberberg and Rieple, 2007). An analysis of the industry reveals that the overall industry rivalry in the UK market is high. This implies that First 4 Farming stands low chances of fast growth and they would therefore need to consider looking up to international markets to achieve their growth objectives.

4.11 Market rivalry

The strongest source of competition comes from supermarkets stocking agricultural produce. Giant retailers such as Tesco and Sainsbury have numerous agricultural products in their product range and are therefore well placed to compete effectively (Onesource information services, 2012). Their target market is similar to that targeted by First 4 Farming. Moreover, these giant retailers are also running online portfolios hence heightening market rivalry. The distribution systems of these giant retailers are good and enable them to serve the market more effectively. They also tend to have own brands for some products and have been able to establish their brands remarkably well (Dahlman, 2010). First 4 Farming tries to beat the competition through diversification. In addition to being an online shop for agricultural products, it also provides information and solutions to the agricultural firms. This establishes a symbiotic relationship that turns the suppliers into customers and helps in securing supplies at lower costs. This enables them to charge lower for their products. Moreover, this diversification enables them boost their revenues and financial performance. Despite this, overall market rivalry can be said to be high.

4.12 Buyer power

The business serves two major categories of buyers: the individual consumers of agricultural produce and the business firms purchasing technical expertise and information (Onesource information services, 2012). Individual consumers are numerous and not likely to organise themselves into groups that could force the company to adjust its prices. However, they are increasingly price sensitive and well informed of the market developments. The two respective factors lower and raise buyer power hence overall buyer power is moderate. 

4.13 Supplier power

The main suppliers are the producers of farm produce. These producers are numerous in number and are in most cases disintegrated and not organised in unions that can significantly impact pricing (Market research, 2012). However, the buyers and distributors are equally many. Retailers, online retailers and distributors compete for the supplies with farmers supplying only to those that pay desirable prices. Moreover, producers also have the option of setting up their own distribution services. The overall supplier power is therefore moderate.

4.14 Threat of entry

Online operations involve a very low capital base and are therefore very easy to start (Market research, 2012). Besides, customers that typically look for products online have low brand loyalty tendencies. This makes it easy for them to switch from company to company depending on the attractiveness of the offers made. Moreover, there are low restrictions on the legal frameworks needed to set up online operations. Most laws revolve around the need to assure confidentiality and security of customers’ information. On the whole, the threat of entry is quite high.

4.15 Threat of substitutes

Substitutes to agricultural produce are not that many. Many of the products are foods: products with no close substitutes (FAO, 2006). Some agricultural products such as leather products could have synthetic substitutes. However, such cases are quite few. On the whole, the threat of substitutes is therefore low.

4.2 Macro environment analysis

The macro environment refers to the section of the environment which affects more than one industry, entire national economies or even the global economy. Various frameworks have been formed to help analyse the macro environment with the most popular one being the PESTEL model. The PESTEL model helps in ensuring that analysis is balanced by focusing the major aspect of the environment. These factors are the Political factors, legal factors, environmental, economic, social and technological factors (Haberber and Rieple, 2007). An organisation wishing to make these analyses should also analyse the potential markets for entry and make a decision based on which markets are found to be most favourable.

4.21 Political and legal factors

Political factors can refer to the governance philosophies that are dominant in the given economies. The UK government has embraced the free market philosophy and only effects regulation only where disclosure and governance issues are concerned (Market research, 2012). There has also been a proactive move to provide funding for entrepreneurs and SMEs and this illustrates the country’s political will towards the establishment of businesses across the country. Similar approaches are seen globally with countries appearing to compete for FDI by creating atmospheres conducive to investments (Dahlman, 2010). The legal frameworks have also been modified with taxation regimes modified to accommodate business interests. Political stability should also be put into consideration with political factors such as the risk of war, civil unrest and others being critical (Barney, 2010). The UK is known to be one the most politically stable countries in the world alongside the USA, many of the West European countries, Australia and Japan (Dahlman, 2010). Some of the emerging economies bear some level of political risk and should therefore be evaluated with caution.

4.22 Economic factors

The UK economy is growing at a modest rate having just recovered from the global recession. The economic growth rate in the UK between 2009 and 2011 have remained at levels lower than 2% with projections indicating that this trend is likely to continue for the next few years (Deloitte, 2012). This makes it difficult for businesses already facing high rivalry levels within the economy to achieve impressive rates of growth. Emerging markets such as China, India and Brazil are on the other hand growing at impressive rates (Bosworth, 2010). China has for instance been growing at an average of 9% with the per capita income also set to increase significantly (Deloitte, 2012). Economic growth rates provide the indication on how well a firm can perform and should therefore be a major factor for consideration when making a choice on which country to enter. First 4 Farming would therefore be well advised to enter an emerging economy in order to experience high rates of growth and acquire the much needed funds to re-launch in the more developed markets where the per capita income is much higher. 

4.23 Social factors

Social factors refer to customer preferences and include changing trends in people’s perceptions towards products and their approach in going about their shopping activities (Haberberg and Rieple, 2007). The market is increasingly embracing the internet as the primary source of the information they seek. Surveys conducted on different parts in the US indicate that most customers tend to counter check for information in the internet before making a decision on what products to buy (Onesource information services, 2012). Similar studies have indicated that with the global recession and subsequent reduction in consumers’ disposable incomes; people are opting to shop around for the cheapest offers around (Onesource information services, 2012). This has seen more people turning to the internet in search of the information. There has also been a growing acceptance for internet transactions with online shops seen to grow at impressive rates. In fact, it is estimated that the rate of growth in the online business is at least twice as much as the rate in the traditional store models (Bryceson, 2006). This has also been aided by the increased vigilance of the authorities in ensuring that cyber crime is prevented. The increasing popularity of online business among consumers is a good opportunity for online businesses such as First 4 Farming to achieve their objectives. It must however be noted that online transactions are not yet very popular in the emerging markets and the business would need to conduct a massive campaign in popularising them if they were to opt to enter an emerging market.

4.24 Technological factors

Technological advancements determine to what extent a firm can employ certain technologies. Online transactions must be supported by the presence of technological infrastructure with consumers able to transact with ease at any particular time (Dahlman, 2010). The speed of the internet and the ability of consumers to access the internet from various devices such as phones and televisions affect the extent to which online business can succeed in a market.

4.25 Environmental factors

The agribusiness is one of the sectors that have been most exposed to the hazards of environmental degradation. The climatic changes have virtually made it impossible for profitable agriculture to be carried out without relying on artificial technologies for irrigation, temperature control and others (Saunders, Barber and Taylor, 2006). Focus on the environment also means that players in the industry have to take all reasonable measures to minimise further degradation to the environment. This affects the choice of inputs and the manner in which the land is tilled among others. The concern for the environment can be an opportunity for First 4 Farming. Agricultural firms are likely to be on the lookout for newer information that would not only be more cost effective but also good for the sustainability agenda (Meijerink and Roza, 2007). By providing information on the developments in the industry and events happening regionally and nationally; First 4 Farming could tap into this rising demand and achieve the growth objectives.  

5.0 Company’s internationalisation strategy and strategic positioning

First 4 Farming provides solutions for agricultural farms and helps them to keep their operations more efficient and cost effective (Reed Business Information, 2011). This approach was taken after identifying the needs in the market and establishing that many of the players in the agricultural sector tend to avoid investing in technology. Mistakes associated with the manual billing systems and poor synchronisation of information between employees and departments in the same firms were noted to be some of the main causes of losses in the businesses (Reed Business Information, 2011). Such inefficiencies would raise the operation costs and in turn push up the prices of raw materials. By focusing on the client needs, the company was able to come up with a business that easily caters for these needs.

First 4 Farming has its primary focus on the UK market (Onesource information services, 2012). However, it considers the option of expanding into other international markets in order to achieve its vision of being a global leader in the provision of business solutions to organisations in the agricultural sector and an online shop for agricultural produce. By concentrating on consolidation within the UK market, the company is likely to gather the resources needed to launch an aggressive internationalisation program. It is expected that the level of investment would be minimal in view of the fact internet operations are not costly to set up. In line with the recommendations of Uppsala’s internationalisation theory, the company embraces the incremental investment process with lower levels of commitment preceding heavier investments prior to the gathering of knowledge and exposure in such markets (Luo, 2003). The company intends to predominantly serve foreign markets using the UK stocks and incrementally factor in local products and information in their foreign operations. This approach would ensure that no unnecessary risks are taken.

The growing popularity of online transactions is expected to serve the company well. With the rapid developments in the market, it will always be expected that new innovations would be made in the market to help in saving costs and contributing to the sustainability agenda (De Wit and Meyer, 2010). By being very well informed about the goings on in the market, First 4 Farming distinguishes itself as a reliable source of information and a reliable partner when it comes to staying ahead of the competition. The small business model that the company embraces also helps keep their operational costs low. This enables them to keep their prices low hence they are able to capture the increasingly price sensitive consumers. Their small size also enables them to embrace change and respond to developments in the market with ease (Reed Business Information, 2011). The company also has a wealth of experience that could be used to identify the factors that would normally be of interest to farmers. The relevance of information is an important tool as market players tend to find excess information undesirable (Drejer, 2002). Business organisations like to have the confidence that the provider of information has done their research and provided only the useful information and not just gathered it haphazardly. This is an advantage provided by the highly experienced staff of First 4 Farming. Flexibility, low pricing, and experience combine to form a unique set of capabilities that could easily yield the company a competitive advantage.

6.0 Comparison with strategies of principal competitors

As has been observed, the main competitors in the industry are the giant retailers of food and non food items such as Tesco and Sainsbury (Onesource information services, 2012). There are also numerous online shops that either stock agricultural produce exclusively or stock them in addition to other categories of products. The main approach taken by giant retailers is the strengthening of their brands and ensuring the effectiveness of the distribution systems. These giant retailers have physical outlets in every part of the UK and this helps in consolidating their market shares (Onesource information services, 2012). They have also been keen to ensure that their product offers are just as good, if not better than that offered by stores that exclusively offer agricultural produce. By having a variety of products in both the agricultural and non agricultural sectors, these giant retailers are able to attract customers who intend to shop conveniently. The pricing strategies in these organisations have been dependent on the cost with many retailers opting to charge at the lowest prices possible. The same approach has been taken by other online retailers whose preoccupation has been the provision of a wide range of products to attract and retain market share. These competitors therefore present themselves as one-stop shopping stores for retailers to get all they need.

First 4 Farming on the other hand presents themselves as experts and professional distributors (Onesource information services, 2012). They mainly stock agricultural produce and gather information on the goings on in the economy. Consumers wishing to get the latest information on the products are therefore attracted to them. Moreover, the company maintains a low cost low pricing strategy. By keeping their operation costs low, they are able charge lower than most of their competitors. The company also has the advantage of serving their suppliers who also double up as the consumers of their technical products and software. By partnering with these firms, First 4 Farming is able to gain insights into the market and use it to their advantage. They can also receive preferential treatment in accessing the produce where there is scarcity due to this relationship. This gives them an advantage and helps them stand out as a reliable outlet where products will always be in stock.

7.0 Recommendations

The internationalisation process at First 4 Farming should consider the recommendations of the Uppsala theory of internationalisation. Entry into any given foreign market should be incremental (Grant, 2007). The company could take advantage of the fact that internet access is universal globally to market some of the UK products demanded in such market by exporting on order. The occasional exports would then culminate into more frequent exports which would warrant the setting up of independent subsidiaries in such a market. Once an independent subsidiary is in place, focus should be shifted towards pursuing a localisation strategy. Each country has its own preferences as influenced by their unique cultural practices (Grant, 2007). Importing a global strategy tends to be counterproductive in most countries. The range of products stocked for offer on the online stores should therefore be reflective of the local preferences. The same applies to the kind of information and technical support that is provided to farmers and agricultural firms. The approach to negotiation and handling of transactions should also be matched to the practices in such markets (Haberberg and Rieple, 2007). Only reporting procedures should be synchronised with the parent company for accountability. The company should also maintain its low cost low price strategy and use it to penetrate the market. This is due to the fact that it is a little known brand and customers are not likely to be willing to pay a brand premium on it.

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