The Austria-based company, Agrana was founded in 1988 with operations consisting of the production of sugar and starch. While relatively small, the company only operated two starch factories and three sugar factories. As the years passed, the company has also focused on the production of fruit preparation, fruit juice concentrate, and ethanol. The new business strategy has enabled the company to not only grow, but expand across multinational borders while increasing the number of buyers to whom they supply their goods and services to.
In this paper, an analysis on Agrana’s emergence will be discussed from an industry-, resource-, and institutional-based view. The challenges in which AGRANA might face as it continues its expansion into other regions, such as East Asia will also be a topic of discussion. Since Agrana’s beginning, the industry has been quite challenging and competitive. Prior to European integration in 1989, the company had to operate on small economies of scale. Many markets in other countries were not open to outsiders, therefore limiting the scope of customers to only local buyers.
When applying Porter’s Five Forces Framework, the industry consisted of fierce rivalry from larger competitors, threat of substitution, little to no differentiation which increased the threat of potential entrants, high bargaining power of its buyers, and low bargaining power from suppliers. However, with the integrations of the European Union (EU) and the Central and Eastern European (CEE) in 1989, Agrana was able to compete with larger rivals and expand to markets in other countries. The regional and global integration allowed Agrana to aggressively expand its foreign direct investment (FDI) throughout CEE (Peng, p. 82).
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This move increased their economies of scale. With their new profound strategy, the company was able to improve the quality of its products as they pursued and formed partnerships with larger buyers like Coca-Cola, Pepsi, Nestle, and Danone. As they have continued to grow, Agrana added to their production by focusing on fruit processing and through the acquisitions of other companies. The growth of Agrana is quite impressive as you consider how small the company was, their limitations, and how little they had in order to compete with their rivals.
Despite these disadvantages, Agrana capitalized on its resources and capabilities through the improved manufacturing of high-grade products at competitive prices and by a strategy that promotes expansion. Prior to their emergence, the company had little value in its resources, no rarity in its industry, wide-spread imitability and no competitive advantage. The VRIO Framework for Agrana was in need of help. Through restructuring, and increased profits, Agrana diversified by adding a fruit processing division.
With fruit being a complementary good to sugar and starch, this move fell in line with the business strategy and production already established. To further their diversification, the company turned to acquisitions of companies in the fruit industry. Between 2003 and 2007, the company acquired Denmark’s Vall Saft Group (fruit juice concentrate), Austria’s Steirerobst (fruit preparation and fruit juice concentrates), Belgium’s Dirafrost (fruit concentrate) Germany’s Wink Group (fruit juice concentrate), and acquired a 50% stake in a joint venture with Xianyang Andre Juice Co. Ltd (fruit juice concentrate) [p. 384-385].
The numerous acquisitions have not only added to its growth but its value as well as the company had gained access to numerous markets in various countries. The competitive advantage of Agrana is a result of the value added by its acquisitions and their integration, market knowledge, global growth, and their means of finding new ways to develop other products such as biofuel. An institution-based view is a perspective that argues that in addition to industry- and firm-level conditions, firms also need to take into account wider influences from sources such as the state and society when crafting strategy (p. 3).
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This includes formal and informal institutions surrounding laws, regulations, cultures and ethics. Early in Agrana’s existence, much of its challenges were a result of the restrictions placed on Western European companies to enter CEE markets and the EU. The opening of the CEE markets, in 1989, presented new opportunities for Agrana and others to expand regionally and internationally. FDI proved to be effective in CEE countries as it lead to be increased profits, production and growth.
As stated earlier, Agrana was able to produce goods for major companies; allowing them to better cater to the expanding needs of its corporate buyers (p. 382).
As the company reduced its challenges, the EU encouraged the company to diversify its operations in order to grow. Though the EU imposed challenges for Agrana prior to its integration, many of the CEE countries have become members which have helped the company increase its opportunities.
However, with a strong EU presence in sugar reforms, regulating prices, and tariffs on imports and exports, Agrana has encountered new challenges and looks for new opportunities. Currently, Agrana has a huge presence in most European countries as well as plants in Mexico, China, South Korea, and China. Though China and South Korea are countries of East Asia, further expansion into other regions may present challenges surrounding culture. A presence in North Korea is far from foreseeable and while business in the CEE is similar to Vienna, Austria, the culture in East Asia are hugely different.
There will also be challenges when you consider how Agrana plans to duplicate its European working environment in countries where employees and management operate on more of a hierarchical management style that stems of culture and tradition. More importantly, the biggest challenges that Agrana will face will be linked to the laws and regulations of the local government. Each country has different laws and regulations regarding imports/exports, employee relations, production, working conditions and acquisitions.
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Agrana will also face challenges in competition presented by local companies operating in similar industries. Agrana’s rise to dominance starting a small company is similar to the story of Google, Inc. With strict limitations and an overwhelmingly grounded industry, the company chose to remain and capitalize on the opportunities presented. Through FDI, restructure, innovation and expansion; Agrana has gained a competitive advantage in its industry. Their business strategy of this company is one to marvel over and imitate.