Growth and Expansion Strategy
Marine Harvest is a Norwegian firm operating in the aquaculture industry. Marine Harvest is currently one of the market leaders in the production and sale of salmons. With time, Marine Harvest has expanded and internationalized its operations. With the aquaculture industry fast growing, it is pertinent that Marine Harvest makes plans to expand further and grow to strengthen its position as a market leader. This paper analyzes the aquaculture industry, identifies the resources available to Marine Harvest for expansion and lastly evaluates and recommends the best growth option Marine Harvest ought to pursue. Analysis indicates that for optimal growth, Marine Harvest should expand its value-added distribution through extensive integration and also increase its production capacity but only in Chile.
The Aquaculture Industry
The aquaculture industry is made up of firms that cultivate fish under controlled conditions. The aquaculture industry is one of the fastest growing industries in the world. In 2010, the industry produced 120 million tons of fish which constituted 30% of the world’s total protein supply. The industry’s immense rate of growth is expected to increase for the unforeseeable future as its products increasingly record higher demands. In fact, the United Nations Food and Agriculture Organization (FAO) forecasted that its total output will reach 180 million tons of fish by 2030. The aquaculture industry is, thus, expected to offer significant solutions to food insecurity issues in the world especially given the fact that the wild fishing stocks are declining.
Marine Harvest, being one of the market leaders, has a vast amount of resources it can call upon to facilitate its expansion. Most of these resources also double up as the strengths that have helped Marine Harvest to cement its position as a market leader. The first major strength is extensive capital. Marine Harvest had capital equity of US $2160.5 million in 2010 and grossed over US $ 2.75 billion during the same period. This financial muscle enables it to undertake many projects and expand its operations in viable markets. Another of its major strengths is a huge number of employees. Marine Harvest had 5000 strong employees spread across the 21 countries it has operations in. The vast number presents an opportunity to expand without necessarily experiencing diseconomies of scale. Another of its strengths is its possession of several seawater farms and production procession plants that are spread across the globe. These resources spread the risk hedging against huge loss-making in the case of an adverse occurrence, for instance, an outbreak of sea diseases.
The experienced management team is also a core strength that Marine Harvest continues to leverage. The team led by the CEO Alf-Helge Aarskog, COO Marit Solberg, and CFO Jorgen Andersen is well versed in the cost-effective ways of salmon farming. Furthermore, Marine Harvest has a wholly-owned distributing firm in Bruges, Belgium that it uses for its value-added tasks. The firm is continually expanding and has netted significant hotel industries and supermarkets as its clients. The last major strength is the reputation resource. With time, Marine Harvest has built a reputation as a reliable and profit making venture. The major disadvantage is capital restraint that has limited its capability to adequately expand its operations. Some of the ventures also require specialized knowledge that its employees do not have, thus limiting its expansion efforts.
Marine Harvest can be valued at US $ 4.5 billion. It already has assets worth around 4 billion. If the value of goodwill and the potential it holds to optimize its profitability are added, then its market value should be placed at US $ 4.5 billion. Marine Harvest does not enjoy any considerable competitive advantage. In fact, the opposite is true. Marine Harvest is hamstrung by the various regulatory frameworks instituted by the Norwegian authorities. Since the public opinion is generally against the seawater farms establishment, the government tends to increase the licensing fees and other measures that are detrimental to Marine Harvest’s operations.
Marine Harvest has some growth options it can pursue to expand its scope of operation. The first major growth option is to grow its production volume. Increasing the salmon-raising capacity should increase the company’s potential to maximize profits. This option involves optimizing the production methods in the developed markets including in Norway, Scotland, Canada and Chile. Since there is a ready market for salmon, expanding production volume guarantees higher returns. The major opportunity exists in Chile where there are significantly less regulations and easy availability of seawater farms for purchase and leasing. The major challenges are that the firm is nearing the market share limit in Norway, which stands at 25%. It already has acquired 23% of the market share; unless the market further expands, increasing the production volume in Norway will not work as it will be curtailed by the existing market regulations. Another challenge is that increasing the capacity is capital intensive with a payback period of between 6 and 14 years which is not apt for such a fast-moving business.
The second option is to explore value-added distribution. This will involve integrating forward into value added fish products, for instance, whole, sectioned, filleted and smoked fish. The company has an operational market-leading distribution firm, MHVAP, located in Bruges, Belgium. The firm has been extremely profitable grossing an average EBIT of NOK 144 million per year. It also already has some high profile customers including Tesco, Metro and Sainsbury among others. The major challenge will be raising the necessary capital to replicate the MHVAP model in other countries.
The last option is to integrate backward into aquaculture feed. The fish feed business remains one of the underexplored ventures. Fish feed is in low supply yet it accounts up to 55% of the aquaculture production costs. Integrating backward, therefore, has the potential of bestowing immense synergetic benefits to the company and may save it up to 30% of the production costs if it takes control of its supply chain and formulate the optimal nutritional blend for its salmons. However, this option presents grave capital and logistical challenges. The aquaculture feed products are diverse, aquaculture feed also necessitates a complicated production process and its transportation to seawater farms requires special vessels.
Criteria and Recommendation
The criteria for selection of the most viable option should be based on the payback period; the opportunities presented, sustainability and the risks involved. The lower the payback period, the better for the company as the money can be reinvested back into the business. The more the opportunities for growth presented, the better as the company can further expand its operations. As for sustainability, the longer the impact of positive implications, the more attractive the growth option becomes. Lastly, high risks projects should be avoided. Given the aforementioned criteria components, I recommend that Marine Harvest should pursue the second growth option, to integrate forward into value-added fish products. Marine Harvest already has considerable experience in that area and has a working model that has proved profitable and is, therefore, less risky. It should also expand its salmon raising capacity but only in Chile where there are apt ecological and legal environments for expansion.
In conclusion, it is evident that the aquaculture industry is one of the fastest growing industries with an immense potential for profit maximization. Marine Harvest can pursue some growth strategies to expand its operations. It can raise its salmon production capacity, integrate forward into value added fish products, integrate backwards into aquaculture feed or choose a hybrid combining any of the three approaches. The choice should, crucially, be based on the scores of the attractiveness of their payback periods, sustainability, opportunities for further growth and the risks entailed.