Wednesday, February 17, 2010

Porter in Banana Industry

In my attempt to explain Porter’s 5 forces, I present the banana industry as a model to put these 5 forces in the spotlight. The demand for a certain commodity, such as banana, dictates the relevance of a certain product within a certain context. For Banana Companies who are into exporting, it is also vital to note the “potential market” wherein they are able to determine where to drop its produce. Japan as the major importers of Cavendish bananas imposes their policy of protectionism to control the inflow of Philippine products into their nation. In such case, banana companies and Growers are dependent to the cutting order from Japan.
In the Philippines, particularly in Mindanao, there are many existing players in the field of banana industry like Lapanday, Del Monte, Dole, Sumifru and many more. Following the usual way to gain profit, one has to acquire land as primary capital. It is costly in the sense that several factors are to be considered just to maintain the condition of the land, the plants and at the same time control the existence of pest and disease. In fact, land preparation per se, already entails a huge amount. So, there really is a high barrier to entry in this kind of industry since it entails a huge amount of investment just to have a mark among the giant players.
Knowing land as the primary capital, it creates a notion that landowners become the suppliers of this kind of business. Landowners are basically suppliers in the first place because they cater the needs of these capitalists to generate and increase their production. Because of the intangible value of land, smaller big scale growers who use their land and labor resources, tie up in the form of contract with the exporting company who needs the vital raw material-land. In return, the exporting company provides financial, technical and marketing services by providing standard operating procedures for implementation by all growers in order to consistently produce high yield of premium- quality bananas for export market.
How about those small banana exporting companies who are not that big compared, for example, to Dole? How do they survive in the tight competition considering of their limited land? Amidst the existence of dominant in size and strength competitors, still, other small-sized banana companies survive because of their marketing strategies. Farm-owners ties up with giant “Japan-based intermediary” who have already established a big market in Japan. In that way, they are sure enough that their products will be patronized outside the country. In terms of supplying the materials to be used in the packaging of bananas, direct access of which is provided by the intermediary depending on the specification requirement in JapanThey also provide customer-supplied materials such as Kartons, banana protectors, hand separators, stickers, etc. that are needed for the packaging of the bananas. In this case, it exhibits a backward integration wherein the supplies are directly provided to their partners in business.
We know that Japan, as buyers, has the strong position to choose their commodity that depends on their quality standards and culture. Banana has become the staple food in their diet and it cannot be easily substituted by other products and so, players in the industry do whatever they can just to raise their products high. Some banana companies would undergo ISO certifications to be in the right track of tough competition and just to highlight “quality.”

1 comment:

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