Thailand's CP Group became Asia's largest agro-industrial company through the development and geographic expansion of its unique, vertically integrated system. In this Case Study, Peter Williamson, Professor of International Management and Asian Business, and Keeley Wilson, Research Analyst, explain how CP used alliances and joint ventures to expand beyond its core business and into processed foods.
From its roots in 1921 as an importer of seeds, the CP Group followed a measured path, building new capabilities step by step. In the 1950s the founders branched out from seeds into chicken feed. During this time they saw that if they could improve feed, farmers' production would dramatically increase, bringing benefit to both the farmers and CP. This philosophy expanded to include the breed of chickens, which CP felt they could improve, therefore further enhancing yields. CP purchased high productivity, disease-resistant hybrid breeding stock from US supplier Arbor Acres.
Again, one expansion led to another. Having seen the supply and distribution chain first-hand, CP recognized that "it is no use being able to raise productivity dramatically if the market remains underdeveloped." The company reacted by setting out to actively create the market for chicken and meat. Instead of following the US contract farming system (which entails industrial scale farming), CP system focused its attention on its competencies: providing feed, breeding stock, and purchasing the output for processing, leaving the farming to the local farmers.
Following its success in the chicken business, CP applied the same formula to other agricultural products, including swine and duckling, and eventually black tiger prawns and fish. The company continued to expand geographically and in 1979 won the first foreign investor license to enter China.
Key to the company's expansion, say the authors, has been its use of partnerships. CP has focused on three types of partnerships: partnering to enter new markets; partnering to acquire new skills (CP's Crop Integration Business that has partnered to transfer flower growing technologies from the Netherlands and tropical fruit know-how from Australia and Brazil); and joint learning partnerships (working with other companies to expand the frontiers in disease-resistant seeds and new types of aquaculture).
As CP moves further into the value-added food-processing end of the chain, partnerships have again proven invaluable. A partnership with UK-based supermarket chain Tesco, for example, allowed CP to gain access to the European processed food market and to learn the kinds of products, packaging and presentation that appeal to European customers. Now, CP's new 'Kitchen of the World' mission means it will need to rapidly understand and flexibly adjust to ever-changing and often fickle consumer tastes and fashions in food. How will its skills and capability base need to be extended? Where should it go to learn? What new partnerships would be required? Would it need to further integrate its international operations not only vertically, but across borders as well?