Benefits of Biotechnology - Research Paper Example

Introduction Enzymes are important in food processing because of the rapid reaction rates and the ability to work at low temperatures and under mildconditions (Tucker, 1996). At times the continued presence of enzymes in food processing may become detrimental to the final product quality or sometimes the activity of the enzymes may need to be enhanced. Biotechnology is used to enhance the use of enzymes in the food industry. Biotechnology is expected to alter healthcare, agriculture, commercial and industrial products. The tools of biotechnology have been widely used for science seed research and plant breeding. Commercial products based on this research have come to the market and this has had meaningful impact on the agribusiness. Major consequences are visible in the areas such as insect-resistant crops, herbicide-tolerant crops, virus resistant crops, crops with improved composition (specialty oils and starches), modified crops to produce high-value specialty chemicals, and novel hybridization systems (Renkoski, 1997). All these suggest that there is a dynamic shift in the biotech firms and any firm that wants to have sustainable competitive advantage has to bring about changes in its operations and its marketing efforts. Benefits of biotechnology Biotechnology is being used to modify crops for improved or tailored end-use characteristics (Renkoski, 1997). Hybrid crops can be produced using biotechnology which means there is reduced dependency on chemical pesticides. Through the manipulation of genes it is possible to lead the plants and animals to require less feed or fertilizer and yield more food and fibre. It can help to alter the chemical composition of plants and animals to improve the nutritional value of food obtained from them. Biotechnology offers the potential to produce cheaper tastier foods. For instance, to make tomato puree the tomatoes can be genetically modified which slows down the action of the enzyme and more of the thickening agent pectin can be retained (Ahson, 1997). The food processors find savings as waste is reduced, the energy required to process the food is also reduced while the end consumer sees cost benefits. Hence the benefits from biotechnology extend to everyone in the supply chain including the end consumer and for a healthier tastier food. Eurofins Eurofins is a leading international group of laboratories offering a wide range of testing and support services to the pharmaceutical, food, environmental and consumer products industries and to the government. They employ about 8000 people across 150 sites in 29 countries (Eurofins). They have business interests in the pharmaceutical industry, food and feed testing and in environmental protection. In the pharma division they offer complete management right from strategic planning through project conduct. They offer highly customized service and have developed one of the largest networks of experienced scientist in the CRO (Contact Research Organization) landscape. Internal scientific capabilities is essential for knowledge exploitation (Casper & Matraves, 2003) which Eurofins has and it has been able to leverage this to its advantage. Eurofins are the world leaders in food and feed testing. They undertake nutritional testing, analyses for traces of residues and pesticides, allergen testing and determining the origin and authenticity. However there is strong consumer resistance and the acceptability of such food is low. Eurofin contributes to a clean and safe environment by providing market-leading laboratory testing, monitoring and consultancy services to a wide range of industrial companies, environmental consultants, contractors, retailers and government authorities. They are the global market leaders in dioxin testing. The data supplied by them can be relied upon which is why they have been appointed by the Danish government as National Reference Laboratory for testing soil and water. The robust quality of the food, pharma and environmental testing markets is evident from the growth in revenues by 33 percent in 2008 (Media centre, 2008). Despite a strong position Eurofins faces certain challenges due to macro drivers like regulations, the global supply chain, and consumer awareness. Eurofins is planning to close two European facilities and one US site as they want to consolidate and assign assets (GenomeWeb, 2007). It has recently acquired three genomics companies with facilities in Germany and the US and Japan. This has taken place to the competitive market scenario as there is over capacity in the market and investments are not justified. Industry dynamics Until the mid 1990s, Europe’s biotech industry was closely modeled on the strategies and institutional support structures as in the United States. Any commercialization of biotech research took place directly between academics and the pharmaceutical company. Some firms go in for royalty-bearing licensing like Mycogen to Ciba while others have non-loyalty bearing licensing like AgrEvo and then some even enter into royalties and fees like Monsanto (Renkoski, 1997). The German biotech industry has suddenly taken off whereas the UK biotech industry has become stagnant. According to Casper and Kettler (2001) there is no one right way to organize commercial biotechnology. Firms can become radically innovative but the radical innovation may not receive the support even in a liberal environment due to insufficient incentive mechanisms. Governance and institutional framework have supported the biotechnology industry in the US and this strong supply-side factor has helped the country to perform strongly in emerging technologies. Technology transfer is easy as universities have ownership of the technology even though it has been federally funded and they have incentives even to transfer technology. Venture capitalists fund the start-up biotechnology firms because they find high returns through IPO when these smaller firms are sold to larger firms. This has brought in a large number of small firms to enter into the field of biotechnology thereby increasing competition. Thus Eurofins has intense competition in its field of operation. There are a large number of SMEs in the biotech sector and the sector is described as a highly turbulent and large population of innovators (Mangematin, Lemarié, Boissin, Catherine, Corolleur, Coronini & Trommetter, 2003). The large firms mainly integrate new discoveries into their products after the SMEs have developed them. the SMEs and the large firms are entering into collaboration and the SMEs, where the founders have a scientific background are located close to the universities with which they have alliance. Biotechnology firms have string connections to academia (Nilsson, 2001). Firms need to collaborate to expand their competencies. Firms that have large external networks and a string internal capacity are more likely to stay in the front line of research and have a positive development. The large pharmaceutical companies link up with small firms which makes the large firms free to create internal expertise in order to absorb the technology and the tacit knowledge that comes with it. However, Gurau (2004) contends that biopharmaceutical product development process is not only complex, but also highly expensive and risky. The initial development can take ten years or longer and the costs involved can be phenomenal. This is difficult to be controlled by SMEs. This new product development sector has led to the fragmentation of the sector as everyone tries to be exclusive in their own field. A large number of strategic alliances and join ventures is evidence of high fragmentation of competencies required in the value added chain. The SMEs find it difficult to survive because they are dependent on the financial institutions. Hence Eurofins has not much to worry about competition from the SMEs. Being in a cluster has several benefits which the biotechnology on both the demand and the supply side. Location becomes important on the supply side because of availability of specialized labour, specialized intermediate inputs and spillovers of knowledge (Swann & Pervezer, 1996). It also gives them access to communication networks. On the demand side, clustering benefits the biotechnology firms as they could interact with important users in other industry. Firms within one sector gain market share when they move closer to other established firms. However congestion costs may also affect the benefits of the location. Such clustering helps the new entrants who gain from the specialized knowledge and skills and most SMEs opt for clustering. Value chain DuPont Biotech has selected corn and soybeans as target crops. Instead of making the crop insect or disease resistant, they focus on improving the grain quality for end users (Renkoski, 1997). Value chain in the biotechnology industry refers to the process required to convert technology into a value-added product. The grain farmers convert the seed to grain and then the elevators serve as collection and storage point for the grains. The grain and transportation companies move the grain to the processors who convert it to value-added products. This chain is already well developed so DuPont so they focus on the customer need for improved products. The end users are the primary beneficiaries since they capture the cost savings and improved efficiency in production. They conducted focus groups with swine and dairy producers to determine why corn is used so heavily. They thus got an idea how to pack more nutrients to every feed. How the biotech firms market the technology would depend on the value of the trait, the markets they seek, and the degree of participation needed to capture the value. As biotechnology has commercialized the vertical value chains have become shorter and the standard commodity markets have diminished. GMO (genetically modified organisms) Accepting the GMO products has met with resistance among the consumers. GMO in an increasingly complex world is a challenge. New GMOs demand new intelligent testing strategies to avoid GMO contaminations through out the food chain. There is no evidence of any food safety problems with the GM crops that are used for human consumption (D’Souza & Quazi, 2005). Several multinational biotech companies such as Monsanto, Novartis and AgrEvo have invested heavily in the development of GM crops and there is general consumer pressure to avoid such products. This along with the issue of proper labeling is shaping global issues in marketing and sales of these products. This has prompted the food retailers to remove the GM foods from their shelves. The restaurants and the fast food outlets have to necessarily inform the consumers if they are suing any GM products. The GM industry has been successful in marketing their products to farmers but it has faced resistance among the consumers. Marketing of such products first requires understanding the consumer needs. Consumers today question the reliability and validity of risk assessments both with regard to health safety and environment. There is a mixed consumer response in Europe although it is widely accepted in the US. Media coverage on the technology has increased in Europe thereby increasing the awareness levels but this does not mean that the consumers have the right perception; the knowledge remains limited thereby giving rise to resistance in acceptance. Apart from the consumers’ side, there are product bans on GM crop varieties, the producers have to abide by mandatory labeling policies and strict trace back requirements. To market these products the consumers must be able to see value in buying such products. The risks have to be minimum and the labeling must be accurate. To market the GM products the external environment has to be considered for strategic initiatives to satisfy the consumer. Eurofins would be able to sustain in the industry only when consumer perception changes. The consumers look towards the legal and regulatory bodies to obtain satisfactory answer to their concerns and hence any firm operating in this industry has to be cognizant of the external environment of the industry. In Europe, it has become mandatory to label all food and animal feed containing GMO irrespective of whether DNA or protein of GM is detectable. There is no such enforcement in the US and the developing countries too have no such regulations which make it easier to market the GM products in the developing countries. In fact the future of the biotechnology industry rests with the consumer satisfaction and hence manufacturers and marketers have to address the issues raised by the consumer activists. This requires effective marketing communication strategies, proper labeling enabling informed choices by the consumers. Facts about the benefits and harms from such products need to be informed to the consumers. The consumers in Europe also need to be informed and made aware that they have been eating products from animals raised on GM feed for years without any problems (Knight, Mather & Holdsworth, 2005). The consumers will buy the GM products provided there is consumer benefit and they are reasonably priced. Very recently certain biotechnology products like maize products have been rejected on grounds of environmental safety as it is supposed to be causing risk to butterflies and other insects (O’Donnell, 2007). The European Federation of Biotechnology has reacted to this claiming that this information is based on discredited scientific arguments. The biotechnology firms claim that they have been growing this for the past nine years with no adverse impact on the environment. This would set the global biotechnology industry at a disadvantage because they all look towards the European biotechnology industry as an example. Europe is the only region in the word to have a real strategy for biotechnology but the inadequate implementation of EU regulation on the biotech sector hinders innovation and blocks access to the market (EurActiv, 2005). Technological innovation and economic growth are interlinked. Intellectual capital of a firm becomes a source of sustainable competitive advantage, the driver of profitability and source of value creation (Bose & Oh, 2004). The strategic direction of firms must shift from the proper management of and leveraging benefits from the intellectual capital. Developing a GMO costs $200-400m to the US multinationals and takes 7 to 10 years to develop it. However there is resistance in the acceptance of new products basically due to competitive pressures (Alexandre, Furrer & Sudarshan, 2003). The market can bear only a few variants at a time and the company should focus on converting a product concept into a commercial product very rapidly. The cycle time has to be reduced and enhanced communication is essential between and among the various departments and commercial partners. Most biotech companies feature ethics in their mission statement but very few actually implement it or put it to practice (Finegold & Moser, 2006). There have been scandals involving insider trading at ImClone and off–balance sheet financial arrangements at Elan. The industry needs to differentiate between legal compliance and behaving ethically. Unethical practices prevail in the biotechnology industry as in most business sectors. The multinationals have established close links with the EU institutions and they finance the election campaigns or support the education system (Demirbas, 2003). They even distribute free GMO seeds to farmers to gain recognition. This has given rise to the need for an independent global business regulation. The ethical committees should not have representation from the multinationals and there has to be regional and national standards. Recommendation and conclusion Eurofins has also come under the impact of competitiveness in the industry. The industry is undergoing consolidation as there is over capacity and firms are unable to get the returns on investment. In the pharma sector there is excessive competition as many SMes have entered the market. The SMEs have the advantage because they are normally financed by the venture capitalists and they locate themselves close to the academics thereby leveraging the advantage of skills and expertise. Once they achieve success, through the IPO they are taken over by large firms. There are many such SMEs in the biotechnology sector that has increased competition and forced the large companies to undergo consolidation. Most SMEs try to locate themselves within a cluster to derive benefits both on the supply side and the demand side. Eurofins is trying to shut down several of its units because of cost pressures. They should outsource their functions to smaller firms while maintaining control over their activities. Technology transfer would have to be done but this can be under a wholly owned subsidiary agreement. This way the patent and rights could be protected. This would also help Eurofins to keep their costs under control while remain competitive in the field of the latest and innovative products. The GMO sector is turbulent due to two reasons – lack of consumer confidence and lack of legislation. As far as consumer confidence is concerned, Eurofins needs to create consumer awareness through effective marketing communication about its products. While the industry has been able to convince the farmers, it has not been able to convince the consumers. Research suggests that the consumers have been consuming certain products for years without realizing that they were GM produced and they have not had any adverse health effects. This has to be highlighted in the marketing communications with specific details. Consumers want value for the money they spend and hence the marketing communication should highlight the potential benefits to the consumer in consuming the GM products. While it is popular in the US or at least there is less resistance that the other regions, the GM products are facing the most resistance in Europe. It is also not difficult to sell them in the developing countries as there are no regulations about product information. Label and product information are mandatory in the EU which makes it important that all facts have to be communicated in the right way. If the consumer is well informed he feels comfortable and would move to the next step of considering the purchase. Due to lack of information they would not even consider buying the GM products. The EU regulations regarding the GM products also are not strong enough to support the industry. This is leading to consolidation and closing down of units. Under the circumstances Eurofins should focus on setting up units in the Asian countries and the US where it is comparatively easier to operate. The added advantage in the developing countries would be the costs involved. They could be closer to the supply side as well as the demand side thereby having a strong well integrated value chain. They could create a new market in the developing countries where such products are just being introduced. By changing its strategy, Eurofins could overcome the issues of resistance and the regulations, thereby sustain competitive advantage. Reference Ahson, K 1997, What is actually happening in agro-food biotechnology?, Nutrition & Food Science, no. 1, pp. 26–31 Bose, S & Oh, KB 2005, Measuring strategic value-drivers for managing intellectual capital, The Learning Organization, vol. 11, no. 4/5, pp. 347-356 Casper, S & Matraves, C 2003, Institutional frameworks and innovation in the German and UK pharmaceutical industry, Research Policy, vol. 32, pp. 1865–1879 Casper, S & Kettler, H 2001, National Institutional Frameworks and the Hybridization of Entrepreneurial Business Models: The Germany and UK Biotechnological Sectors, Industry and Innovation, vol. 8. 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