Shrimp Farming in Ecuador I. PROBLEM(S) 1. What can Xavier do to turn the economical and his entrepreneurial weaknesses into strengths? 2. What can Xavier do to turn the economical and environmental threats into opportunities’sub-problems which will be answered in the recommendation: a. What investment alternatives can Xavier consider in order to expand his shrimp business in Ecuador? b. Would the problems of Ecuador prevent a joint venture with a foreign partner? II. SWOT ANALYSIS To get a full understanding of the case, first we need to put information into order.
By understanding the strength, weaknesses, opportunities and threats to Xavier’s shrimp business, the greater picture will help us to get closer to a solution to the problem(s). Strengths 1. Xavier’s shrimp business: •He is a leader in the creation of a public research institute; analysis of genetics to ensure longer life expectations and resistance of shrimps; •He developed is own hatchery system, solving technological problems; •He build his ponds in order to make his farming environmentally sustainable; •Special feeding system for baby shrimps; Two other family members are involved shrimp business (Ecuador and US); Weaknesses 1. Xavier’s shrimp business: •Xavier does not understand the concept of hedging. 2. Economy •Japanese shrimp businesses learned the art of shrimp farming from Ecuadorian shrimp farmers (copying the methods); Opportunities 1. Health concerns: •People throughout the world shift towards consumption of more fish; eventual increase of demand; •Expanding his business by considering investment alternatives to stay competitive. Threats 1. Economy: Depletion of fish in natural habitats throughout the world would likely lead to higher fish prices in the future. •World price of shrimp fell by 50 per cent over the 1986-96; global expansion of shrimp farming would depress shrimp prices in the future; •Japanese shrimp industry is on the rise; •Real interest rates are extremely high: oBorrowing from other countries brought debt repayment in US Dollars; oBorrowing from neighbor countries (Colombia and Uruguay) might fear of using drug money and resulting in undesirable consequences. result of political instability) oSignificant foreign exchange risk •The emergence of a disease known as white-spot virus has jeopardized the industry’s growth; •The long-term cost of shrimp / prawn farming already has been devastating; 2. Environment: •Prawn farms have destroyed an estimated 800,000 hectares of mangrove forests and created improbable saline deserts in some of the world’s wettest countries. •Impact on other species and vegetations. III. ALTERNATIVE COURSES OF ACTIONS …concerning problem no. : What can Xavier do to turn the economical and his entrepreneurial weaknesses into strengths? 1. Since Xavier does not understand the concept of hedging, he would be advised to hire additional personnel. Advantage: The newly hired is taking charge of the hedging aspect, while Xavier can be more focus on the administration of his business. Disadvantage: Additional costs and training. 2. Japanese farmers studied the art of shrimp farming at Xavier’s public research institute and have brought the methods to their own country.
Xavier’s institute should keep certain information on their method procedures in the shrimp business as a company’s secret. Advantage: This discretion of certain information of their business will secure the uniqueness Disadvantage: International relationships might suffer. …concerning problem no. 2. What can Xavier do to turn the economical and environmental threats into opportunities? (Comment: The threats in this case are varied and deeper to be analyzed in reality since the economical and environmental solutions are beyond Xavier’s capabilities.
However, this paper is an attempt to find probable solutions. ) 1. To avoid depression shrimp prices in the future, Xavier needs to expand his business into the value-added parts. Advantage: Innovations of product line will secure a wider consumer market. Disadvantage: Expansion involves big funds of new equipments to be obtained which might lead Xavier into considering investment alternatives. Thus, his business might fall into debts. 2. Real estate rates from outside investors shall be considered.
Advantage: Asking for loans from foreign investors will give Xavier the opportunity to expand his business and ensure that it is not “blood money” from its neighboring countries. Disadvantage: Xavier’s business is forced to repay the loan in a given time period with added interest rates in Dollar. Thus, the business must run well to repay the loaned amount. 3. Environmentally, Xavier needs to upgrade and up stock his equipment to ensure naturally friendly methods in his shrimp business.
Advantage: In that way he is helping to lessen the burden of the natural environment, and avoid issues with NGOs that see an environmental threat of his business. Disadvantage: Obtaining the equipments needed to ensure natural friendly methods will require Xavier to invest into his business, making him consider loans from banks, other national or international institutions who give financial aid (with interest). IV. RECOMMENDATION First recommendation is to hire an additional staff that takes care of the hedging since Xavier is total unfamiliar with its concept.
This will give him ample time and space to keep focus on the entire business rather than on little flaws that might just hinder the progress. Second, keeping good business relations is a vital aspect in business in general. It is difficult to say rather to disclose important method procedures in Xavier’s business to ensure the business secrecy or value the Japanese relationship. However by assessing and comparing cases, we can see that businesses like Microsoft, Bosch, Fastfood chains like McDonalds or KFC live from keeping their specialty ingredients and methods disclosed to public, especially to competitors.
That is why it is recommended to withhold certain business information. With regard on what Xavier can do to turn economical threats into opportunities, it is important for his business to jump on the train of innovation. Through the process of including value-added parts to his shrimp business will open new markets. The expansion of varieties will give him the edge over his competitors. However, this step will involve substantial amounts of funds to buy the equipments. Therefore, I recommend Xavier to consider foreign investments although his business might be charged with higher interest rate.
That is always a game and a risk in business, especially if you deal on international level. I believe that would be the better choice over a) asking for loans from a bank in Ecuador, since the economy and governance is known to be unstable and easily trapped in inflation, and b) getting loans from neighbor countries since it is known to be “blood money”, and in cases of being unable to repay, it might become quite uncomfortable to that person and eventually to his/her family. This answers the two sub-problems.
With concern to the environmental aspect, there will be always problems arising in the future. However, it is believed that today’s technologies are technologically overhauled and built with considering the fact of lessen the burden of Mother Nature. At the end, it is a call to Xavier’s business to realize its social responsibility in upgrading his equipment to the best and most environmental friendly standard. Yet, that leads him back how he is going to choose his investment alternatives.
