Smithfield food’s vertical integration strategy
What are the most important elements of Smithfield Food’s strategy?
They chose the food industry – in particular the red meat sector. 2.
Their core business focus was on mainly pork, and beef to a lesser extent. 3.
The company opted for an aggressive growth strategy which is primarily based on amongst others a geographic expansion: o
They carried out 32 acquisitions since 1981.
They expanded into foreign markets – Smithfield made acquisitions in Canada, France, Romania and Poland. Acquired meat processors in Poland and Romania; including a hog farming operation in the latter country. 4.
They followed a product diversification strategy, in order to grow: 5.
This resulted in diversification into new product segments – they marketed chops, roasts, lions, ground pork, bacon, hams, sausages, sliced deli meats 6.
Most importantly, they followed a vertical integration strategy into the pork business: o
This entailed a full or partial integration (depending on location), with operations ranging from operations in hog farming, feed mill, meat packing plants and distribution. 7.
They also carried out joint ventures
Established joint ventures in Spain, Mexico, and China
In addition to that they sought to become a low cost provider: 10.
They employed the newest technology available, their plants were efficient, their wages were low and operating costs were relatively low. The pricing was as such very competitive. “Every effort was made to reduce costs” There was a concerted effort to lower costs and push up sales.
Not withstanding the company’s financial performance, this strategy has facilitated the rapid adoption of new technology, improved quality control, assured markets for the hogs and provided a steady flow of hogs for processing. This essentially created economies of scale and lowered production costs. The customers benefited as the company was able to respond to their changing preferences for quality and convenience type products.
Is there a moral problem with Smithfield Food’s vertical integration strategy and its resulting concentration of thousands of hog farms and several meat-packing plants within a relatively small geographic area? Is it socially responsible for a company like Smithfield Foods to pursue a rapid growth strategy when that strategy poses environmental problems and adversely affects living conditions in the communities where it operates? Should the company be proud of its business model and strategy?
No, there is no moral problem with this strategy. Neither the vertical integration strategy nor concentration of operations in small geographic areas poses a moral dilemma. “A company’s strategy relates broadly to competitive initiatives and action plan for running the business” Hough et al (2008: 7). In a free, capitalist society, this remains the prerogative of the individual firm on how to compete, to make profit and grow the business. Against this background, the company’s strategy is an attempt to contain volatile pricing in the market by controlling the every stage of production, thereby ensure the satisfaction of consumers’ changing preferences. The case study does not make reference to unfair competitive practices, but rather the focus is on ethics and social responsibility. o
The local communities where Smithfield ran its hog farming operation complained about its imposition on them, implying lack of consultation. More importantly, there were allegations of substantial adverse effects of low wages and environmental degradation. Lack of consultation in running business operation is neither paramount nor mandatory; however allegations of environmental damage and unfair labour practices infringe laws of any democratic country. They must therefore be seen in serious light and investigated by authorities. It must be borne in mind that prior to Smithfield’s introduction of the concept of factory farming; the prices of hogs...
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