Country Factbook Between Seden and Denmark on Organic Food Industry Essay Example for Free

Country Factbook Between Seden and Denmark on Organic Food Industry Essay 1. Executive summary The organic food industry is suitable for business investments in both Sweden and Denmark due to several factors. First of all, efficient local intermediary firms and certain broader macro-level institutions facilitate business and provide location advantages. Moreover, studying the business/industry culture can be used to gain insights in the business environment of Sweden/Denmark in the field of organic food. However, the complex natures of harvesting organic goods make it impossible to indicate the best location for production, as this depends on the particular product being produced. As a result, demand and supply across Sweden and Denmark are met by means of a widespread retail sector, intra-industry trade and export. Only by making an estimation of sectorial breakdown and its counterparts an (somewhat) informed investment decision can be made. Either way, it is evident that organic food industry as a whole has gained popularity due to several reasons. One example is that CSR profiles of firms have become an customary element in the product purchasing decision in recent times. It can be said that recent developments in technological- (information technology revolution) and political nature (subsidies) have contributed to this trend, documents playing an important role in particular. Since culture consists of documents and culture is more available to document analysis today it has been our choice in our data collection method. In turn, for data analysis we have made use of coding, series of events and semiotics. It is these that have allowed us to assess macroeconomic performance of Sweden and Denmark as well as its historical developments, socio-cultural conditions and the nature of competitiveness in the organic industry field. Despite the fact that Sweden and Denmark share many similarities in each one of these areas there are some differences. However, these are considered to be subtle and highly context-dependent. Therefore, we would also not like to answer our research question, ‘’How and why do the organic industry conditions differ between Sweden and Denmark? ’’ in this section, but hope that you will find an answer what is best for you in the pages of the remainder of this report. Ultimately, we will provide major findings of comparisons and recommendations, based on our views and experience gained during our research. It might be possible to ‘’tweak’’ this information in such a way in making it applicable for your particular business scenario or business plan. 2. Introduction This section is meant to state the goal, relevance and purpose of our Factbook. Furthermore, it will give rise to our lead question, being ‘’How and why do the organic industry conditions differ between Sweden and Denmark? ’’ To boot, we hope to achieve appraisal and recognition for our deliverables from whom ultimately might use and/or buy our Factbook. Like the CIA Factbook, our focus is on the industry. However, it is important to note that we have tried to achieve more than the already existing Factbooks, as they are often too comprehensive or lacking in value. We have tried to overcome the first problem by linking theory to application and writing about it. In this, our main challenge has been to take into account all aspects that somehow matter for the bottom line, the profitability of an investment project. Yet, since profitability is a relative term it might be better to speak of opportunity costs. This terminology is crucial to understand for correct business decision making to take place and also forms the backbone for our final recommendations in our Factbook. Moreover, Pugel (2009) has showed that many industries incur rising, rather than constant, marginal opportunity costs. For instance, efforts to expand Denmark/Sweden organic wheat production would fairly quickly run into rising costs caused by limits on (1) how much more land could be drawn into wheat production and how suitable this additional land would be for wheat production, (2) the availability of additional workers willing and suitable to work on the farms, and/or (3) the availability of seeds, fertilizers, and other material inputs. As for the second problem, we focus mostly on institutionalism and culture as they are lacking in other country Factbooks. Examples of institutions that can facilitate business in Sweden and Denmark are efficient local intermediary firms and certain broader macro-level institutions, both being considered to be generally available location advantages (Verbeke 2010). Concerning culture, we are particularly interested in business/industry culture. This is based on logic that our analysis is mainly on the industry level. Furthermore, Hollensen (2008) has showed that business/industry culture of business behavior and ethics is similar across borders, i. e. expected to be the same for Sweden and Denmark. By learning about the industry culture the decision maker will be aware of important ‘rules of the game’ (Hollensen 2008). Concerning the purpose, this Factbook is meant to facilitate a document that will be considered important for decision makers, i. e. policy makers but especially business investors. From an investment perspective, several hierarchical modes (domestic-based sales representatives, mergers and acquisition, alliances, greenfield) are possible. However, retailer alliances and mergers and acquisition are most popular. To illustrate, in the case of Sweden retailer alliances control 90% of the food retail stores (http://www. snee. org/filer/papers/193. pdf). Furthermore, because the organic food market in Denmark and Sweden and Europe in general is rather fragmented, mergers provide benefits and interest to investors through economies of scale (http://www. nytimes. com/2011/05/24/business/global/24organic. html). Lastly, market growth, political support and complimentary resources in both Denmark and Sweden stimulate and attract business investors. These and other issues will be elaborated in the remainder of this report. All in all, we will provide the examiner with information of which we believe to be relevant for decision makers and can be used for deciding which company, or which industries of this company, to invest in. Hereby, we have tried to identify the major dimensions relevant to comparative country studies. These have been chosen carefully and matter for the organic food industry and a wide spectrum of business within this industry. In turn, these dimensions can be used to compare the countries Sweden and Denmark. Ultimately, the contents of this Factbook are meant to stay closely connected to the country set Sweden/Denmark and it’s organic food industry, yet still is general to the extent that it allows applying the information to a concrete business case. With the final product of our Factbook we hope to have provided the reader with a clear understanding of the conditional differences between Sweden and Denmark and as such an answer to our research question. Concerning the structure of the remainder of this paper, we will subsequently discuss: methods and frameworks, introduction to organic food sector, methods and frameworks, country comparison, major findings of comparison and recommendations and the bibliography. 3. Methods and frameworks 3. 1 Method for Factbook compilation As method for our Factbook compilation we have opted to first focus on the country and then on the region. It can be described as a region-based compilation (RBC) technique. For example, if you look at technology, technology is taking place in Eindhoven in The Netherlands and not in Delfzijl. If you are going to do something with energy then you end up in Delfzijl rather than in Eindhoven. However, making such a comparison for Sweden or Denmark in terms of organic food proves difficult. To explain, people that argue that organic food is simply being harvested on the most fertile agricultural land are likely to mix up terms. That is, fertility should be clearly set aside from productivity or even best land. Indeed, you can have a highly fertile area but deficient in its use do its limited crop sizes. Moreover, a certain area of agricultural land might be appropriate to harvest a particular organic product, but is less appropriate or least suitable for other organic products. Lastly, in general organic material levels go up as you go north. But productivity does not necessarily follow the same trend because the same shorter season and lower temperatures that helped build and maintain that organic material, limits growing seasons and crops growth. In order to prevent complexity we have decided to focus more on the retail sector of Sweden and Denmark than the production sector. The retail sector will include exports as over 70 percent of the exports of industrialized countries are shipped to other industrialized countries, and nearly half of total world trade is industrialized countries trading with each other (Pugel 2009). Sweden and Denmark are no exception, as they are known to have an established intra-industry trade relationship. Besides physical locations we also like to discuss official statistics as another compilation issue. The main issue is that official statistics often rely on incomplete information and therefore involve estimation. In our report we have made use of two types of estimation, sectorial breakdown and its counterparts. We have chosen to select these two types in order to facilitate the decision maker with a reflection opportunity of a wide variety of activities he/she might be interested in. Furthermore, in an attempt to ‘standardize’ statistics we will use figures of the Central Statistics Office (or a comparable source) as much as possible for both Denmark and Sweden. We believe it is advisable to use comparable or equal sources between the two countries as it strengthens the reliability of our research. Based on previous experience and narratives we believe the Central Statistics Office (also known as Central Statistics Bureau) is one of the most easily accessible and reliable sources to be found on the Internet. Furthermore, in order to prevent possible ambiguity we will use equal terminology for both countries as much as possible, including definitions of sectors and instrument categories. Moreover, we would like to briefly discuss the overall structure of the Factbook. First of all, the executive summary is meant to provide background information on the topic of organic food as an industry and can act as a quick-review guide of what the examiner is likely to expect in the report. In this, the executive summary contains several main ideas reflected in the report itself. Furthermore, the introduction discusses more distinct the Factbook and the underlying principles. Then, data collection and data analysis show arguments for the choices we have made in conducting our empirical research. As to the chapters that follow, these are simply a representation and a more in-depth analysis of what has been announced in the previous chapters and act as to share our findings in terms of describing legal, political, environmental, institutional and cultural dimensions. Lastly, we finalise our report by concluding with major findings of comparisons and recommendations. 3. 2 Prime theories and approaches There are different theories to be utilized for compiling this Factbook. One of the main drivers for organic farming is environmental reason, which are often associated with care for the environment. Moreover, it can be argued that the choice for buying ‘’organic’’ is also driven by social cultural reasoning, having this care for the environment being embedded as part of the culture. Indeed, this is mainly the case in the Western market where awareness towards environmental issues has risen in recent times. It is terms like corporate responsibility and sustainability that have become a part of the decision making process of Western consumers as to what to buy and to whom to buy it from. In this, environmental and socio-cultural values have become an important facet in the decision making process of the consumer in general, the organic food industry being no exemption. In an attempt to verify and examine these trends we will make use of theory of Schwartz (1999) combined with the theory of planned behaviour to determine if organic food consumption offers potential for business investment to take place. As we shall see later on, Schwartz his cultural values can be used to assess the main characteristics of the average Swedish and Danish inhabitant and how these assist in making inferences about core values, behaviour and its relation to the organic food industry. In order to find more specific similarities and differences we have made use of the framework as proposed by S. Ruiz de Maya et al. (2011), who offer us a theoretical approach to the organic food industry from the consumer side. It is this that provides us with socio-cultural factors and helping the investor to decide whether Sweden or Denmark is more ‘suitable’ to invest in, depending on a particular context. In addition, the PESTLE analysis will also be utilized in this report. It is important to note that we will not be focusing on the whole framework but on the political, social and legal factors provided. By examining the political factors we can determine how these influence the organic food industry. For instance, some administrations can be beneficial for the organic food industry. For instance, by stimulating farmers to dedicate more land for organic farming and usage of organic food in government institutions. However, in another term a different administration might not be so favourable to organic farming and food, which could lead to a different situation. For example, abolishing organic farming grants. As mentioned before, the social side of organic food consumption is important. Health and environmental issues have become more important for the general public. Furthermore, the investor should keep in mind that views concerning organic food can change. These factors can have an influence on the demand. Last aspect is the legal aspects. For example, determine the definition of organic food and who or how they uphold this standard. This factor is related to the political part of the PESTLE analysis. Legislation concerning organic food is important for the Factbook. There can be differences between Denmark and Sweden concerning organic food industry. 3. 3 Method for data collection and analysis. This section will discuss our chosen method for data collection and analysis. We will start by addressing the data collection technique, after which the data collection analysis approach will follow. First of all, it can be said that our study involves both qualitative research (a focus on text) and quantitative research (a focus on numbers). However, since institutionalism and culture are clearly more qualitative we have opted to focus on qualitative data collection techniques. In the end, we have made use of solely documents as a qualitative data collection technique. Although we would have liked to include interviews and fieldwork in our research, we experienced that it is difficult, if not impossible, for us to carry out these activities successfully. First, we could not find any suitable individuals or focus groups being knowledgeable about our subject. Second, we do not believe ourselves to be proficient enough in fieldwork as to ensure reliable and valid results. Moreover, the duration of the necessary fieldwork was also expected not to fit within the given timeframe set to create the Factbook. In either case, there are some advantages of using documents as opposed to interviews and fieldwork. For example, documents are relatively cheap and quick to access (Payne Payne, 2004). It is usually much easier to obtain data from documents than from interviews or fieldwork. Also, if there are many documents on a subject, which we believe to hold true for our case, triangulation is possible to study developments over time. In terms of sources of data, our research is limited to secondary data only. Indeed, we did not make use of any unpublished data being gathered directly from people or organizations. Instead, we have made use of published books, webpages, newspaper articles and journal articles. Somewhat surprisingly, we found that these sources were able to provide us with sufficient empirical data for our research, especially with regard to culture related aspects. Concerning the latter, we would also like to refer to Altheide (1996), who said that documents are studied to understand culture. He has pointed out that a large part of culture consists of documents. Furthermore, he has showed that culture is more available to document analysis today because of the information technology revolution. (Altheide, 1996). Finally, in order to assess the quality of the documents used, we have made use of four criteria as proposed by Scott (1990): (1) authenticity, (2) credibility, (3) representativeness (4) meaning. Concerning the method for data analysis, we have chosen to make use of several approaches for analyzing qualitative data. Probably the one being used the most is coding. We have chosen this approach primarily because it is one of the easiest ways to analyse qualitative data. In addition, it offers many advantages. For instance, it allows reducing the size of the data and is useful for retrieving, organizing, and speeding up the analysis (Miles Humberman, 1994). Although this method has been used throughout the entire report, it has been particular helpful in our literature review on the organic food industry, as making use of buzzwords has helped in defining the scope of our research. Moreover, it was found helpful for the executive summary and the introduction, as these are more restricted in terms of length. Here coding has acted as an instrument to make distinctions between either ‘too detailed’ or ‘too general’ more easily. Another data analysis approach we have made use of is series of events. We have made use of this approach as we considered it to be helpful to compare relevant historical developments for our industry. Listing a series of events by chronological time periods and subsequently assigning events to categories has helped to identify similarities and differences over time. As such, it allows us to pinpoint more precisely when historical developments have been most evident and how it has changed the view of the industry. Due to its very nature this approach was utilized in the historical developments section of our report. Lastly, we have made use of semiotics, which is concerned with the meaning of signs and symbols. For business and management research, semiotics is most useful in marketing, management, consumer research and information systems. This is because in these segments, signs are very important. For example, form of brand names and logos are considered to be highly important. In our view semiotics also play an influential role in the organic food industry. Currently, there is some debate about the future growth of the organic food industry; it either being with brands or retailer private labels. It has been argued that large food retailers are taking advantage of the ‘organic’ brand without making any of the associated investment. While the industry has been built by certification agencies and pioneering brands, their presence in terms of logos and brands is diminishing in supermarkets and mainstream retailers (http://www. organicmonitor. com/r0811. htm). As such, investment scenario’s in the organic food industry are less clear-cut than in the past and require careful examination of conventions governing the use of signs and sign systems. In our report, semiotics has been found crucial to explain the socio-cultural and market/industry conditions more fully. 4. Introduction sector/industry In order to provide the examiner with an introduction of the organic food industry, general trends, definitions and boundaries will be discussed. To boot, the European organic food market has a total revenue of $24. 7 billion in 2010, representing a compound annual growth rate (CAGR) of 8. 9% between 2006 and 2010 based on research of DATAMONITOR (2010). The European organic food market grew by 6% in 2010 to reach a value of 24. 7 billion and it is predicted that in 2015 the European organic food market will be worth $36. 8 billion, an increase of 48. 8% since 2010. According to UNCTAD, organic agriculture is defined as a holistic production management whose primarily goal is to optimize the health and productivity of interdependent communities of soil, life, plants, animals and people. Moreover, According to Chen (2009) organic products are goods that respect the environment and that are manufactured without the use of synthetic pesticides, herbicides, chemical fertilizers, growth hormones, antibiotics or gene manipulation. By viewing the production side, organic producers should combines best environmental practices, a high level of biodiversity, the preservation of natural resources and application of high-animal welfare standards, providing higher quality products to respond to a certain consumers’ demand. Nowadays, the concern of Western society on how products may be profoundly harmful to the environment has led to a higher demand for organic products, sustainable business activities and stricter regulations from national governments (Gurau and Ranchod, 2005). Due to this increasing concern and higher demand in European countries, it can be argued that the organic food industry is becoming a more interesting and challenging sector for investors to invest in. Furthermore, organic food industry generates revenue as the second largest market within Europe and is continuously growing. However, some boundaries as to this sector do exist. Three main boundaries we found to be of importance are price premiums, quality and availability and time factor. Of these three, price premium is expected to be the most important. This is due to the fact that organic food more often than not requires another form of processing and is more difficult to conserve. Moreover, the costs of quality control are also expected to be higher as no pesticides are used as to protect large crops. As such, it is rational that the price is more expensive than conventional food products. In effect, consumers with lack of knowledge will reconsider buying organic products because of this simple fact. Considering quality of the organic products, consumers believe that by charging a higher price this is equivalent to a higher quality. This view is based on the rationale of human beings, sometimes depicted in phrases such as ‘pay more, get more’. Whilst this ‘rule’ not always holds true, our (inner) convictions and background study has verified that this is in fact the case in the organic food industry. An example of the organic food retail sector is that high priced restaurants tend to favour organic (natural) ingredients. Based on the above, the organic products will meet consumers’ expectation by providing the products above the conventional product’s standards, with a price tag to match its difference in quality. The last constraint we would like to discuss is availability and time factor. The availability of organic products do not vary as much as that of conventional products. As organic products are often less well exposed, they are more difficult to find in stores. This is an important consideration and largely influences issues such as sales expectations, storage costs and risk of decay. Furthermore, in the following part we will discuss and analyse how the conditions of organic food provide the investor with a broader view of the organic food industry. In this, we will consider four conditions as factors being relevant for organic food: political-, cultural-, legal- and labor systems. 5. Country comparison 5. 1 Macro-economic indicators A country comparison on macro-economic indicators can be considered to be beneficial for decision makers as it gives them food for thought on the expected macroeconomic performance of that country, i. e. the behavior of a country’s output, jobs, and prices in the organic food industry in the face of changing world conditions. This judgment call about performance is basically what drives most macro-economic analysis. It can be used to assess issues such as how well a country’s economy is performing and how close it is to achieving broad desirable objectives, such as stability in average product prices (no inflation) and low unemployment (Pugel 2009). The most relevant macro-economic indicators for the organic food industry are considered to be economic indicators and financial indicators. Demographic indicators do not seem important to us as research has shown that gender or age does not have any significant effect on whether people decide to buy organic food or not (http://newhope360. com/organic-consumers-share-values-not-demographics). In order to ensure reliability we have chosen to attain all figures of these indicators from one source, namely De Grote Bosatlas (2002). Fig. 1 STATISTIEK EUROPA (part 1) Fig 2. STASTIEK EUROPA (PART 2) From figure 1 we can infer that Denmark had a higher agricultural contribution in terms of percentage towards the GDP. Moreover, Denmark has a substantial higher percentage of agricultural grounds (62. 4% versus 7. 9%) Furthermore, Denmark has a higher contribution to GDP per capita. Besides, inhabitants from Denmark are slightly wealthier than those in Sweden, when looking at GDP. Lastly, Denmarks development of the GDP in 1990-1999 has risen more than was the case for Sweden. Then, from figure 2, we can infer that Denmark has a stronger economy than Sweden, but only by a small margin. Furthermore, inflation rate for Denmark is lower, yet also again only by a small margin. Moreover, Denmark has more government spending in terms of percentage of GDP. Concerning education, Denmark spends more in terms of percentage of GDP. Besides, Denmark inhabitants generally enjoy a higher purchasing power than is the case for Swedish inhabitants. It also shows that more Danish people are working in both the agricultural and industrial sector than Sweden, these tend to work more in the service sector. Lastly, Denmark has a lower percentage of the work force being unemployed. From this preliminary analysis we can infer that in terms of economic indicators investments in Denmark are likely to require a higher yield on an investment than were the case of Sweden. This assumption is made based on the simple fact that as for many elements Denmark performs better than Sweden on compared elements. The same holds true in terms of financial indicators. Although the data may be easily said to be ‘outdated’, we believe this is not quite the case. That is, our analysis on historical development has not provide any conclusive evidence as to not believe that the relationship of these economical and financial figures to be that much different as they are today. Yet, since we do not know when the actual investment is to take place it is always advisable to check the results of a more recent research. Although we would have loved to use a more recent version of De Grote Bosatlas ourselves, we could not find ourselves in the position to get access to one during the course of this research. Luckily, we were able to find a recent figure for gross domestic expenditure on RD as a percentage of GDP that verified our assumption. [pic] From the figure above it can be concluded that Denmark spends between 1. 01% and 2. 00% of its GDP on RD activities. Sweden on the other hand spends a little more with 2. 01% and above. This corresponds with our financial records of the Grote Bosatlas, where government spending in Sweden was higher than that of Denmark in general. Furthermore, since the RD expenditures on RD as a percentage of GDP are larger than that of most other parts of the world, we expect no real problems for investors in this area. Background information as to why Sweden and Denmark support expenditures on the organic food industry is discussed extensively in both the chapters about socio-cultural conditions and market/industry conditions. 5. 2 Historical developments relevant for the industry. The issues with the environment have many different facets. These range; from deforestation, loss of biodiversity, pollution and many others (EBS 295, 2008). The attitude concerning these issues by the general public can change over time. Values change over time and this applies for the public perception of organic food as well. Likewise, one could say that the organic food industry is driven in a sense of improving and protecting the environment. In addition, consumers also attitude towards the environment also contribute in how they value organic food. Furthermore, not only concern for the environment but also growing awareness by the general public concerning their food and the production involved. These issues related to food production range from; health, food safety and animal welfare. (Sippo manual, 2011) The origins for organic farming in both countries are similar. In the same manner consumers started become more aware of the environment. Farmers also become more aware and began with organic farming. Both countries have had organic farming since early eighties in the general concept of the term organic farming. If we take into account the establishment of organizations concerning organic food then Denmark was a few years earlier with the founding of Danish Association of Organic Farmers in 1981. The Swedish counter part is called the Ecological Farmers Association, which was founded in 1985. Both organizations are private initiatives of organic farmers organizing themselves. (http://www. fao. org) Since the 1990s the governments of both Denmark and Sweden have introduced various regulations concerning the organic food industry. These regulations include assigning certificates that label products as organic. In addition, the European Union also implemented regulations concerning the organic food industry. Likewise, the organizations that control and label organic foods also found their origins in late eighties early nineties. In Denmark the first organic food legislation was implemented in 1987. The government assigns the O logo to organic food. (www. fvm. dk). This state approved logo is only given to products that are conforming to the standards of â€Å"organic† as stated by Danish regulations. In addition, in Denmark only state approved farms may carry the â€Å"organic† label. In Sweden the organization that is tasked with the certification of organic food is called KRAV. Founded in 1985, this organization was formed from the Ecological Farmers Organization in order to standardize the various interpretations of the term â€Å"organic farming† and bring both farmers and food producers together. (Gunnar Rundgren, 2002) However, it should be noted that the KRAV organization is a non-governmental organization. While, it’s Danish counterpart is part of the Ministry of Agriculture. 5. 3 Socio-cultural conditions Cultural systems From the point of view of the investor, it is important to know the differences and similarities between the two countries Denmark and Sweden. In this section, we will focus on this in terms of cultural assessment. In order to describe the cultural systems of both Denmark and Sweden we have made use of five cultural dimensions as proposed by Schwartz (1999): harmony, egalitarianism, effective autonomy, mastery, and conservatism. It is these cultural dimensions that will help to describe each countries culture and detect any important similarities and differences. The cultural values focus in the article of Schwartz is on the national culture. The national culture being introduced for heterogeneous nations refers primarily to the value culture of the dominant, majority group. In this case, Schwartz tries to interpret the value priorities that characterize a society by aggregating the value priorities of individuals (e. g. Hofstede’s framework). It is depicted that individual value priorities are a product of both shared culture and unique personal experience. Moreover, Schwartz has placed his list of researched countries into different segments (clusters). Denmark and Sweden put in the first group (cluster), Finland and Italy in another, Spain as a third group and Germany, Greece and the United Kingdom in a fourth group.