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Jin Weidong: Four Major Puzzles of China's Top 30 Feed Enterprises

2019/02/27 18:26
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Localization or Internationalization

The foreign-funded enterprises represented by Zhengda Group of Thailand have made great success in opening up their territory in China, and the local enterprises represented by Hope Group have made remarkable achievements in attacking cities and extricating villages in Vietnam and other countries. Facts tell us that business has no borders. The development of many great enterprises has proved that there are no famous enterprises in the country. China's powerful process is bound to accompany the outward expansion of capital, technology and market, which stimulates the leading enterprises in China's feed industry to try to internationalize. The opposite view holds that China is the most potential market in the world, and that the internationalization of local enterprises is a process of closing the door to the distant end. Moreover, the quality of Chinese feed enterprises, whether shareholders or management teams, can not meet the requirements of internationalization. Blind internationalization is tantamount to moths fighting fire and killing themselves. Western proverb says, "The farther away from home, the nearer to failure."

This argument has been going on for a long time, and it is difficult to draw a conclusion. My view is that Chinese feed enterprises should first base themselves on the domestic market and look around after gaining a dominant position, especially Vietnam, Laos, Cambodia, Myanmar, Korea, Kazakhstan and other neighbouring countries. For India, Russia, South Korea, Japan and other neighbouring countries, although the market is large, it is also difficult to enter, and it is not easy to invest.

Focus or Diversify

Although most enterprises around the world rely on the "Nokia model", i.e. specialized operation, focusing on the only selected areas and achieving success, there are also those like GE (General Electric Company) who emerged from the world and achieved great success with diversified development. China is in a period of transition from chaos to orderly and mature society. The vivid examples are: Oriental Hope Group started from feed, but became the leader of Chinese private enterprises by electrolytic aluminium industry; New Hope Enterprises made feed by thousands of horses, and its biggest profits came from inadvertent investment in the banking and real estate industry. In recent years, the new hope of relying on capital to invest in holding or investing in a number of agricultural and animal husbandry enterprises has become a distinct case of success due to diversification. In today's Chinese society, there is a close relationship between government and business, which has accumulated sufficient funds and huge social resources because of the prosperity of the industry, and thus is more conducive to the development of diversified operations. Sticking to specialization, resisting pluralism and finally embarking on the road to success is a proven experience of the world, but not in China. The group of highly specialized enterprises is strong and efficient, such as Microsoft, IBM and Intel, which make the United States the dominant IT industry because of their high division of labor and close cooperation; while the huge and complex enterprises, such as the Japanese and Korean consortia, which make them rise rapidly, eventually hinder the progress of the industry and even endanger the social justice.

Diversification or specialization depends on whether our goal is to expand our wealth indefinitely or whether we are willing to devote ourselves to the cause we like and contribute to the country we grow up in. I tend to "do something, do nothing".

3. Specialize or integrate

It is our tradition to refine, refine, expand and strengthen feed professionally. This tradition first meets challenges in the broiler industry. The trend recognized by the world is that it is very difficult to have a single commercial broiler feed producer in the future, but it is necessary to integrate the industry from breeding to hatching, feed supply to epidemic prevention, breeding to slaughtering and meat processing. Will this trend in the broiler industry be extended to pigs, laying hens and ruminant production? The trend of integrated management in the Americas is very obvious. The "breeding trust" enterprises represented by Smithfield Company have a huge scale and completely control the market price, making animal husbandry production more planned, but there is a risk of monopoly. In recent years, the performance of Smithfield Company has suffered a huge loss, which shows that the operation of this model is not perfect. If China's future trend is towards integration, we must take the initiative to change - or form a complete industrial chain by ourselves, or combine with other relevant enterprises to complete the integrated operation. Although the risk of industrialization is huge, we have to face this realistic challenge. Compared with North America, Europe has a strong specialization. A large number of family farms are managed on a moderate scale. The government does not encourage the expansion of farming scale. Instead, it implements quota restrictions. Professional feed enterprises, professional slaughter and processing enterprises sign contracts with farms and perform their duties. Through policies, the government directly intervenes in the production process of animal husbandry, divides periodic risks into different production links and a large number of farms, and reduces the production style. Risk shortens the time of crisis.

I still think that the European model is more suitable for China's national conditions, but its effectiveness in Europe depends, first, on a specialized animal husbandry government management department, which can not only prevent from rainy days but also be able to stop the storm. Second, it depends on a highly honest commercial culture and the effective implementation of contracts in all production links.

Private or Public

In recent years, it has become a popular practice for Chinese enterprises to raise funds through listing in the capital market. There are many pioneers in feed industry. In China's incredibly high price-earnings ratio capital market environment, these enterprises became rich overnight, significantly widening the capital strength gap with their peers. The Great Attraction Caused by the False High Stock Price