Smithfield food’s vertical integration strategy
1. What are the most important elements of Smithfield Food’s strategy?
1. They chose the food industry – in particular the red meat sector.
2. Their core business focus was on mainly pork, and beef to a lesser extent.
3. The company opted for an aggressive growth strategy which is primarily based on amongst others a geographic expansion: o They carried out 32 acquisitions since 1981. o They expanded into foreign markets – Smithfield made acquisitions in Canada, France, Romania and Poland. Acquired meat processors in Poland and Romania; including a hog farming operation in the latter country.
4. They followed a product diversification strategy, in order to grow:
5. This resulted in…show more content… They saved local farms and brought jobs to this region. They also shouldered the risk of hog prices, thereby protecting the farmers. Smithfield was also able to satisfy customer demands of better products at lower prices. The local farming community showed their tacit support by their eagerness to do business with Smithfield as there was a two year long waiting list in 1998 for farmers wishing to enter into contract farming! o The company should be proud of its business model. A business model refers to how and why the business will generate revenues, cover costs, and produce profits and a positive ROE. Annual sales in 2006 of $11 billion from $1.5 billion in 1995 and an average compound growth rate of 24% during the decade speak volumes. However attention is required in addressing the following:
• Concerns from the industry observers on contract farming – more specifically their “debt laden” nature
• Allegations of unfair labour practices- low pay/ low quality, in addition the recruitment of migrant labour from Central or South America that may be open to exploitation.
• Allegations of detrimental environmental practices – impact of concentrated cluster of hog farms on the environment.
• Limited purchase of feed, machinery and fuel from local sources.
• Although, trivial the issue of the “smell” in the air
Essentially this business model was able to ensure profitability and sustainability of the company, because economies of scale in