When a company is managed correctly and happens to be in the right place at the right time, success is achieved as was the case for the Austrian company Agrana. With only five factories in Austria in 1988, the company successfully grew under a well working strategy to spread operations to 55 factories throughout Europe in 2007. While they opened strong with the production of sugar and starch, Agrana’s largest success came from fruit preparation, a section of the company that grew very rapidly when they diversified into this segment in 2003.
This case study reviews the careful steps that Agrana took to become the successful company they are today and the strategic acquisitions that were made to build their competence and strength in fruit processing. 1. From an industry-based view, how would you characterize competition in this industry? The timing of formation for Agrana was indeed fortunate. Just after arriving, Central and Eastern Europe (CEE) were opened up to the larger markets in Western Europe in 1989. This gave them the ability to finance their operations through foreign direct investment in the CEE.
This was necessary in order to boost their economies of scale to compete with larger rivals from Western Europe. Being an Austrian company, Agrana also had a slight advantage over other Western competitors because of their ties with the CEE from before the Cold War. They understood the market better than others and were able to react faster to the opportunity. Competition in this industry was probably fairly strong which makes the Agrana story even more interesting as they were fairly small when they entered the market.
Potential entry of other firms could have been a concern for Agrana since they produced two very generic products: sugar and starch. This made differentiation a problem, until their fruit processing sector began giving them a unique upper hand with solid knowledge of the refinement process and thus a strong new product. Since Agrana produced sugar and starch from scratch, suppliers were probably not a huge issue and neither were substitutes since sugar and starch are very uniform products with uniform prices.
The bargaining power of buyers could have been a concern for Agrana because with generic products that are undifferentiated across the industry, buyers could easily search for the best prices. With these threats in place, it was very important for Agrana to capitalize on the situation it had with the opening of the CEE. Cultural and linguistic ties with the CEE and smart investment led to dominating the industry there and with large corporations moving to the CEE as well, Agrana was given a multitude of buyers for their product. 2. From a resource-based view, what is behind Agrana’s impressive growth?
To complement their strategy in the industry, Agrana made a very successful move to further their business by utilizing their resources to the best of their ability. In 2003, sugar markets began to be reorganized leading to problems for this sector of Agrana and so their strategy switched and they added the processing of fruit to their core competencies. The first resource that benefitted this addition was the knowledge of the refinement process which could easily be translated from sugar and starch to fruit. Also, excellent knowledge of the market was a huge help in making a smooth transition.
It was also helpful to have contacts in the food and beverage industries (from their starch sector) in order to build a base of buyers for their new fruit sector. Physically, in less than 20 years, Agrana was able to acquire 55 factories for production across their three sectors. This gives them a locational advantage in delivering fresh products to buyers no matter where they are. The ability to aggressively make acquisitions can also be attributed to strong financing as was mentioned earlier with extensive FDI when Western and Central European markets were opened.
These acquisitions were also integrated into the organization very quickly. Most companies were acquired for the fruit processing sector of Agrana and in just two years, they became a prominent global player in the market. This rapid growth was gained through very competent organizational planning and strategy and managerial skills. The case presents very strong resources in every area of Agrana which are conducive to the success that the company has had starting out as the underdog and working its way to the top of the industry.