Business Case Study

3

Marine Harvest Ltd, a company that specializes in Salmon farming, wasformed in 2006 through a union of three aquaculture companies (Bell &ampJohnson, 2016). Between 2006 and 2011, the company was able toestablish itself, control a significant market share, and find ameans of reliable and cheap production. After the initial stages ofcolonization, Marine Harvest is looking for a means to increase itsproductivity. The three options available to the company areincreasing the production capacity, integrating forward by valueaddition on their products, or integrating backwards through theproduction of fish feed. The case analyzes the company’s financialposition and looks at the three cases in greater detail by addressingthe merits, demerits, and the risks. Each of the options comes at aprice and with an associated risk. This report seeks to address thethree growth prospects for Marine Harvest and it providesrecommendations.

Recommendations

  • Marine Harvest should increase its production capacity in countries that do not have a market share limit. The efficient cages, technology usage, and environmental knowledge should be transferred to the other countries in which Marine Harvest has its presence.

  • The company should explore new markets. Countries such as South Africa do not have a dominant market leader in the fish industry.

  • Backward integration is also necessary. Marine Harvest Ltd should venture into producing its own fish feed even if it will not be commercially.

Analysis

Increasing the production capacity in the Norway market would not bea wise idea because the company already produces 23% of all the fishproduced in the country (Marineharvest.com, 2016). In a bid toprevent the fish market from being domineered by a monopoly, theNorway government set a limit of 25% of all the fish production by asingle company. In this regard, it will be unwise to for Marineharvest to invest in increasing her production capacity in Norway.However, the company can maximize efficiency in order to produce the23% at a lower cost. Top of the things that it should consider iscross contamination caused by close cages. In 2010 alone, the companylost 10% of its fish to diseases (marineharvest.com, 2016). The useof antibiotics seems to be failing and it is a high time the companyconsidered adopting biological means of control. The control of sealice by using another predator fish species was a brilliant idea itshould be extended to other infections.

Governments’ caps on the percentage of fish that a single companycan produce do not limit the growth potential of Marine harvest inScotland, Canada, and Chile. In 2010, the company produced 4% of thefish in Scotland. If compared with Norway, the production capacity inScotland is low by far. However, there is light at the end of thetunnel owing to the fact that many Scots love fish. On average, afamily will buy salmons three times in a year. The popularity ofsalmon in Scotland marches that of the Dutch. Chile has the potentialof growth due to the minimum restrictions and cheaper productioncosts. In addition, Chile has a ready market for the product becauseof her large population. The company should take advantage of theseconditions to increase its production capacity in Chile.

Investing in other countries that lie along the coast would be a goodway to increase the production and sales of salmon. Among the hurdlesthat the production of salmon faces is that it is very capitalintensive. However, the production cost of salmon in developingcountries would be significantly lower than that encountered in theEU and the Americas. Marine Harvest should try its hand in the SouthAfrican and the Asian Market.

Fish is a treasured delicacy in these countries whose demand shallnever be fulfilled. In addition, the inputs for fish farming,especially labor and feed, will be comparatively low because of theweaker currencies of these developing countries. The company can thenopt to sell the produce in these developing countries or export it todeveloped countries for a better price. Another advantage is thatcountries which do not have a well-established aquaculture industrydo not have tough regulations such as those witnessed in Scotland.

Backward integration into the fish feed production will reduce thecost of salmon production significantly (Malla et al, 2013).Currently, fish feed accounts for 55% of the entire cost ofproduction of salmon. The percentage could go higher considering thatthe prices of the feed could go higher any minute. The market forfish feed has limited players hence the high cost of the commodity.Worse still, the unexplored market has led to a short supply inimportant components of fish feed- fishmeal and fish oil. Using thenumerous resources that the company has at its disposal, it can setup a plant for producing fish feed. The production should be for thecompany’s sole use and not for selling to other farmers. The highprice of fish feed is not because of the expensive productionprocess, but because of the limited supply of the product. If thecompany produces the precious commodity, it can reduce the cost ofsalmon production significantly.

Even then, Marine Harvest could still venture into the fish feedbusiness. The low supply of fish feed in the market is a keyindicator of an existing market niche. Although the industry has keyplayers, Marine harvest has a competitive advantage over them. Forstarters, the company has enormous resources and establisheddistribution links in the EU and North America. Contact with otherfish farmers in other countries means that the company will have awide market if it ventured in the business. Secondly, Marine harvesthas easy access to fish, which happens to be the raw material in theproduction of fish feed. The waste product in the processing plantsof the company can be used for making fish feed instead of going towaste. In addition, the fish feed that is currently in the market hasnumerous vegetable components that make it indigestible for salmon.This development implies that there is a niche in the production offish feed that is specifically for salmon.

Conclusion

In conclusion, this report recommends possible ways through whichMarine Harvest can increase its dominance in the salmon productionindustry. The company can begin by increasing its production volumein Canada, Chile, and Scotland. As for Norway, it can only increaseits production efficiency. It can also venture in the developingworld where inputs for fish farming are way cheaper. The uncertaintyof the fish feed industry should drive the company to produce her ownfish feed. Since the commodity is short in supply, the company couldsell excess fish feed to other fish farmers.

Exhibits

Exhibit1: The production cost of salmon. Fish feed takes the highestpercentage in all the four countries (intrafish.com, 2016).

Exhibit2: world map showing the low capacity of fish produced along theSouth African Coast. Marine harvest should invest in that market(fishsite.com, 2016)

References

Bell, D. E., and Johnson, R., 2016. Marine Harvest Leading salmonaquaculture. Harvard Business school Case study

Intrafish.com. 2016. Production cost of salmon. Retrieved from&lthttp://www.intrafish.com/news/649850/cost-of-producing-salmon-in-chile-44-percent-higher-than-in-norway&gtaccessed June 16, 2016.

Malla, G., Pandey, M., Prasad, S., Warsi, V. and Kumar, C., 2015.Backward Integration of Short Shelf Life Period Perishables atSupermarkets: A Case Study. i-Manager`s Journal on Management,10(1), p.33.

Marineharvest.com. 2016. Annual report, 2010. Retrieved from&lthttp://www.marineharvest.com/investor/annual-reports/&gtaccessed June 16, 2016.

Thefishsite.com. 2016.FAO State of World Fisheries, AquacultureReport – Fish production. Retrieved from&lthttp://www.thefishsite.com/articles/1447/fao-state-of-world-fisheries-aquaculture-report-fish-consumption/&gtaccessed June 16, 2016.