Key words:Blue Ocean Strategy, Repeatable Scalable Model, Growth Path, Strategic Expansion, Strategic Focus, Starting from the Core, Harvard Classic Cases, Benchmarking Research.
Introduction:Profitable growth is the instinct of a business, but few companies are able to succeed consistently.
As external dividends fade, businesses are under unprecedented pressure to grow. Some companies are eager to open up new growth space by opening up new battlefields;Another part of the company has to start breaking its wrist because it is chasing lofty goals in the bonus period, entering too many new businesses around the city but not being profitable.
How exactly should the relationship between core business growth and expansion into new markets be handled?How to control the high uncertainty in the expansion process?This article will take the low-key young OLAM Group, the world's top grain merchant, as an example to dismantle its textbook growth path.
Agricultural products** is an industry with a long history and many giants, with an average growth rate of only 2%. But the company started from scratch in Nigeria, a small country in West Africa, and in less than 30 years, it has rapidly developed into the world's top agricultural product ** group, and has advanced to the world's top 500. Its rise has also attracted curiosity from top management research institutions such as Harvard Business School, Cambridge, Accenture, and others.
OneWest Africa's Entrepreneurial Road The core business is born
Olam was founded in Nigeria in 1989 by Sunny George Verghese, a businessman of Indian origin. The young Indian, who is not yet 30 years old, initially buys cashew nuts from various warehouses in Lagos for export, and later buys cashew nuts directly from small producers. Olam employs the village**, toRural direct purchasemodel, build your own warehouse locally or rent it, and then organize transportation to the port for export.
Don't underestimate the innovation in this approach. In the 80s of the 20th century, most of the agricultural products were monopolized by the local government. Decision-making is not transparent, inefficient, and corruption is rife, and farmers can only get back 1.3 percent of the value of grain exports. OLAM, on the other hand, rewrites the rules of the game by sourcing directly from farmers, allowing farmers to get back 70% of the value of their exports. OLAM has increased its investment in the procurement of raw materials in producing countries and in its logistics systems to fill the gap. At the same time, we will strive for raw material procurement outsourcing opportunities for downstream customers to help customers reduce the huge risks brought by direct participation in Ivory Coast**.
IIRepeat scalable mode
After the cashew nut export chain was opened, because of the seasonal nature of monocrop production, Olam began to look for other operable products in Nigeria to make full use of the company's fixed assets and personnel, and thus entered the export business of shea nuts, cocoa, rubber and coffee beans. The acquisition of "multiple products" in the same region with a repetitive process gives OLAM an advantage over single-category buyers in terms of cost. Nigeria's cash flow gave Alam its first pot of gold.
After learning that Indian cashew processors source raw materials from 19 countriesOlam has used the same "village direct" model to expand its sourcing activities to Benin, Côte d'Ivoire, Ghana ...... AfricaFrom Africa, we have expanded into emerging Asian countries such as India, Vietnam, Thailand, and Chinaand eventually operate and establish a repeating pattern in 55 countries around the world. It has become the global buyer of many large international food companies such as Nestle, Kraft, Mars, and General Foods.
OLAM works closely with cashew nut producers to expand production and improve quality;In 1995, it began to reverse its ** chain, importing agricultural products from Asia to Nigeria and Ghana, and then distributing them through the company's transportation network and warehouses to the places closest to consumers. Not only that, the company invested in the construction of a local processing plant, which removed 76% of the weight of the product before transportation, which greatly reduced the costThe same cocoa beans are processed into cocoa butter, powder, and cocoa wine;Coffee beans are hulled and graded as green coffee;Peanuts are shelled, dried, graded ......This not only greatly improves the efficiency of the first chain and improves the relationship with food companies, but also becomes a direct channel for OLAM to obtain information on the current and future needs of food companies.
Over the next 10 years, Olam also developed the best chain services in freight, insurance and information technology and risk managementContinuously optimize its "farm-to-factory door-to-door" business model and efficiency。When OLAM is able to provide a stable and high-quality supply to food companiesIt realizes the replacement of some customer purchasing departments and processing plantsThe client freed up capital to focus on growing its core business, and working with Olam alone greatly simplified the uncertainty and complexity of their globally dispersed procurement.
Relying on this purely organic development model (no acquisitions and no capital leverage), OLAM's revenue reached S$2.5 billion in 2004. At the same time, some categories are nearing their limits, which will slow down growth.
In 2005, OLAM was listed in Singapore, gaining access to capital and international markets. Between 07-08,Olam drove eight M&A activities, optimised and complemented its existing asset portfolio, and helped it enter new agri-products such as cotton, palm and riceAnd in a very short period of time, it has established a global leading position in this category. These attempts have also accumulated professional experience in investment and M&A management.
OLAM's principles for investing in expansion are very clear: 1) the company needs to be among the top three in the world in terms of this product; 2) the product business must cooperate with all major producing countries; 3) The new product has a high correlation with the current core products and origins, as well as the customer market share; 4) In terms of financial criteria, it is necessary to achieve both turnover growth, profit growth and return above the cost of capital. These investment projectsIt makes full use of OLAM's ability to ensure that each round of expansion only takes a small step out of the boundary.
In 2008, OLAM comprehensively analyzed the macro trend of the agricultural economy and the direction of the profit zone of the industrial chain, and found that the global agricultural supply will be suppressed due to the loss of agricultural population and the decline in productivity growth. After the outbreak of the financial crisis, the liquidity crisis and risk of commodity companies skyrocketed. On the customer demand side, two important changes are also taking place: first, multinational food companies such as Unilever and Nestle are paying more and more attention to food safety and chain traceability, and they need stronger and more reliable supply capabilities, but they prefer to build a complete chain through outsourcing rather than investing in themselves. Second, the level of urbanization in emerging markets has increased, and consumer incomes have increased, and they are shifting from bulk agricultural products to bagged goods and fast food products.
Therefore, Olam has decisively launched the second largest investment expansion plan since 09. Significant investments and acquisitions with the help of capital leverageInvest along the industrial chain in upstream farming, downstream processing and brand distribution. This series of measures allows OLAM to increase its income through self-operated high-premium links, while effectively controlling the best risks, and finally being able to use itThe whole chain management ability provides customers with customized solutions. This round of expansion has directly established OLAM's market position as one of the top ten grain merchants in the world.
Data- and technology-driven sustainability is its new growth driver. As early as 2012, many leading and multinational companies proposed to pay attention to food safety, agroecology, social responsibility and sustainable development. But in the absence of technical means, it is tantamount to slogans and brand marketing means.
Through more than ten years of efforts, Olam has personally promoted the digital transformation of all links in the industrial chain. While improving the efficiency of chain integration and enhancing the controllability of management, it has fulfilled its commitment to the sustainable ecosystem of agricultural population such as poverty alleviation, traceability and decarbonization. At the same time, these digital businesses have also become the service value that OLAM Holdings (formerly OLAM VENTURES) can export to serve its ecological partners and customers.
Stay tuned, the expansion of the new generation of international grain merchants OLAM (Part II) We will reveal the secret of his success.
Author of this article:
Ms. Duan Ying, Consulting Director of Wanwei Junzhuo Enterprise Management Consulting Company, was the Director of Chinese Talent Development of LG Chem and the Director of Shenzhou Academy of UCAR. He has accumulated rich theoretical and practical experience in organizational change, innovation capacity building and leadership transformation.