Value added can help Western companies in China's animal protein market

WESTERN companies looking to establish themselves in China’s animal protein market need to add value to the supply chain to succeed. This is one of the insights to be gleaned from Rabobank’s latest report, "Bulls in a China Shop," which acknowledges the complex and challenging path faced by foreign companies penetrating the China industry.  

 

The report also states that Western companies will benefit from forging partnerships with local partners already established in the market. In addition, they need to invest in establishing good working relationship with local governments and diversify strategies to manage risks better.

 

According to Rabobank analyst Chenjun Pan, infrastructural and cultural challenges have weakened the competitiveness of Western companies in China’s animal protein industry and prevented them from making sustainable profits. "However, as the industry accelerates the consolidation and modernization process that is underway, more opportunities are opening and this is likely to continue," Pan said.

 

Despite showing strong market potential, China's animal protein industry remains fragmented and underdeveloped. Recent consolidations and modernization efforts fail to address supply chain inefficiencies and accessibility problems. 

 

To isolate and protect their business, some Western players establish vertically integrated (VI) operations. These, however, serve only as a temporary solution and require much greater capital. 

 

In order to differentiate themselves clearly in the market and justify higher operation costs, foreign companies must bring significant value additions. This added value can take the form of new products, Western culture, or better services.

 

Another crucial element of success is political goodwill. Foreign companies are expected by local governments to establish best practices in terms of food safety, traceability, and technological improvements. Besides building political good will, enforcing these practices will contribute in simplifying bureaucratic procedures.

 

In addition to forging connections with the government, Western companies need to recognize the value of dealing with farmers and understanding local culture in order to adapt to the local government and navigate China’s growing economy better. 

 

Even with these challenges, however, Western companies still have many advantages over local companies, especially in the areas of quality assurance, food safety, and other aspects of advanced technology.