Farmlands Cooperative Society - Industry Analysis and Business Environment - Case Study Example

Farmlands Cooperative Society Name Institution Tutor Date History and Structure The launch of Farmlands Cooperative Society dates back to the mid-1960’s , after the establishment of two farmer cooperatives; Outram’s Otago Rural Trading Society and Hawkes Bay’s Economic Trading Society. The organizations were initiated due to farmers’ dissatisfaction with how investor-owned companies were handling their affairs. The two inspired the formation of other smaller institutions throughout New Zealand, and these later merged to give rise to two larger entities; Farmlands, which is the largest in North Island and Combined Rural Traders (CRT), which is the largest in South Island. In 2013, the two also combined, making the National Farmlands Co-operative, and as a company, the Farmlands Cooperative Society Limited (Farmlands Cooperative Society, 2016). Farmlands Cooperative Society Limited is a business entity registered within the framework of the New Zealand Co-operative Companies Act (1996). It has over 60,000 members, mainly rural businesses and farmers, and runs a total of 83 stores around the country. The members transact with it, and dividends are never paid, but rather converted into rebates on goods purchased from its outlets. The approach helps to instill a sense of ownership and welfare amongst the farmers. Farmlands Cooperative primarily ensures the balancing of the power of big suppliers and small-scale buyers. It runs a highly diversified business portfolio, ranging from grain and seeds, retailing, finance, livestock medicines, fencing solutions, real estate, horticulture, real estate, agricultural technical assistance, fuel and lubricants. It is currently seeking to extend its business interests into the water industry (Farmlands Cooperative, 2013). Value Chain Analysis Regulatory Environment Fig.1: Flow Chart Summary of the Value Chain for Water To participate in the water industry, Farmlands Cooperative requires the appropriate skills and expertise (Lussier, 2008). Whether it opts for retail stores, on-farm sales and support or consulting work, there has to be an adjustment of the skills sets available (Price, 2011). Selling of components and equipment is also a considerable venture, and this will also require good suppliers who can offer the appropriate contracts that will enable bulk purchasing and forwarding of the pricing benefit to members who are also customers. The next stage of value addition will then be centralization of water services management. At the company headquarters, the various services and products will be allocated and distributed to outlets, which for Farmlands Cooperative, are already established and spread out across the country. Considering the legal, competitive and other aspects of the business environment, effective marketing can be carried out and the outlets enabled to attract interested customers. The clients expected in this case will, however, go beyond the typical members to other kinds of nonmembers whose terms can be adjusted and different from the preferential ones for members. Industry Analysis A Porter’s Five Forces Analysis of the water industry in New Zealand reveals the nature of prospects for the business (Grundy, 2006). a. Buyer Bargaining Power. The bargaining power of the buyers in the industry is high. This is because they are already exposed to a variety of firms dealing with different aspect of product, consultancy and other kinds of service provision, for which there are many entities to be opted for. In sale of gadgets and equipment, any late entrant always has to match prices with the market because of a relatively high level of awareness amongst buyers. b. Supplier Bargaining Power. The bargaining power of the suppliers is high. The industry is dominated by monopolies and large private firms, so that most suppliers have bulk contracts and are therefore likely to be comfortable. For suppliers of equipment and components however, such power is less because they are many, and this makes it relatively easy to switch to other suppliers whenever it is necessary. c. The Threat of Substitutes. The threat posed by substitutes for water and water services is low. This is because the services required by anyone interested in water supply are well-defined. While there may be many other private entities offering the same water-related goods or services, Farmlands Cooperative will retain the advantage of having a large number of members who are buyers, as these will be attracted by the reduced prices for them at the cooperative outlets. d. Market Rivalry. There is likely to be a high level of rivalry among firms. This is mainly because the market is already dominated by older consultancies, local authorities and their affiliated agencies, leaving limited room for participation of small firms. Competition among the long established firms is likely to be strong, as they have stronger brand names. e. New Entrants. Barriers to new entrants are high because of high infrastructure cost and negative sentiment relating to private business involvement in water issues. Regulatory frameworks, however, encourage investors, especially in infrastructure projects, although such incentives are not adequate. Business Environment The water industry is expanding and a matter of concern in New Zealand, mainly because of scarcity due to irrigation, urban water demand and quality deterioration due to a reduction in water-flows and increase in nitrate leaching (Kaye-Blake et al., 2014). The business opportunities presented by this are appealing because just like any others in New Zealand, there is a notable stability, security and safety (International Business Publications, 2015). State entities which happen to be competitors will on their part be competing fairly with the private sector, as is exemplified by Farmlands Cooperative Limited. There are large private businesses that have gone as far as engaging in bulk water supply service for instance, WaterCare in Auckland. Although state agencies have the ultimate role of supply, private entities, for instance, Downer NZ, Veola and others are often sought to provide services, and this is where Farmlands can explore its opportunities. Private companies are often the providers of capital expenditure, operations, maintenance and asset management (Deloitte, 2014). The relatively low level of participation by the private sector in the water industry is mainly due to the existing regulatory framework (Dinar et al., 2015). However, there are serious firms in the industry that are likely to pose great competition to any entrant. Some of the biggest firms that could be competitors include for instance, Southern Water Engineering. This is a consultancy based in Marlborough, and engages in the designing, building, installation and servicing of all features of effluent, stock-water, wastewater, civic water and irrigation projects. It also provides advisory services (Southern Water Engineering, 2016). Considering that Farmlands Cooperative will be targeting farmers as a primary base for their services, WaterForce is another likely competitor. This engages in the servicing and installation of various irrigation and water management products, for instance, sprinklers, irrigators, water treatment and filtration, pumping systems and effluent systems (Waterforce, 2012). Problem Statement Farmlands Cooperative intends to diversify further into the water industry, although the exact business to engage in is still under consideration. The company has the advantage of a well spread out distribution channel, which could be useful for instance, in either the sale of water-related equipment and components or advisory services or both. Its cooperative status could however make a joint venture with another established consultancy a better idea, because it is likely to facilitate the funding of growth and entry of new markets, hence overcoming barriers to entry and acquiring relevant expertise easily from their partners without the need for training. According to Hill & Jones (2012), a joint venture would enable the business to be able to take advantage of its core competencies, which include its distribution networks and close relations with farmers, while strengthening on its weaker areas for instance, familiarity with the markets. The challenge arising is therefore the need to establish the best way of setting up structures that will enable utilization of the opportunities presented to Farmlands Cooperative Society Limited by the water industry in New Zealand. References Deloitte. (2014). Water Country Profiles. London: Deloitte Touche Tohmatsu Dinar, A, Pochat, V and Albiac-Murillo, J. (2015).Water Pricing Experiences and Innovations. New York: Springer Books Farmlands Cooperative Society. (2016). History. Retrieved on 1 August 2016 from Farmlands Cooperative. (2013). Annual Report, 2013. New Zealand: Farmlands Cooperative Grundy, T. (2006). Rethinking and Reinventing Michael Porter’s Five Forces Model. Strategic Change. Vol. 15: 213-229 Hill, C and Jones, G. (2012). Essentials of Strategic Management. Mason: South- Western/Cengage Learning. International Business Publications. (2015). New Zealand Investment and Business Guide: Strategic and Practical Information. Washington DC: IBP Kaye-Blake, B, Schilling, C, Nixon, C and Destremau, K. (2014). Water Management in New Zealand. Wellington: New Zealand Institute of Economic Research Lussier , R. (2008). Management Fundamentals: Concepts, Applications, Skill Development. Mason: South-Western/Cengage Price, A. (2011). Human Resource Management. Andover: Cengage Learning Southern Water Engineering. (2016). About Us. Retrieved on 3 August 2016 from Waterforce. (2012). GPS Precision Corner Arm. Winton: WaterForce Read More