The international marketplace is changing, and one of the main changes occurring in the milling industry globally is the way customers place orders and do business. It’s a development that has been taking place over the past four or five years, particularly in the grain storage sector but is true across a range of milling activities.
What we are seeing more and more is that key companies are continuously growing but not by increasing their core business sales, but by buying existing companies.
That obviously makes for higher growth in the market sector you’re operating in but it does not mean that there’s a larger market in total; only that these companies are growing and achieving higher growth for themselves and taking more market share.
This is particularly true for the silo and storage sector where we work. Our company recently created a new division by buying an Engineering and Manufacturing Feed Mill company, therefore creating the feed milling division.
This strategy puts companies in a better position in nearly every single market they are operating in. By simply buying existing companies, which may be complimentary and not always competitive, you can easily penetrate into a market that you’re interested in.
These are not companies that are already in markets you’re relatively successful in, but they tend to be in the markets that you want to develop into. They are in the market you are trying to penetrate.
Immediate market access
For some American companies, buying a European company is the easiest way for them to penetrate the European market, especially given that European markets have different design parameters which the host company, in this case the Americans, are not familiar with.
So, by buying these companies they are immediately in the market and are already competitive. We are doing the same and other companies are following. We are penetrating into Latin America and Australia, for example.
This new trend has been developing over the past four or five years and the strategy has not yet been fully established to know if it will continue, however, what we have seen is that companies operating in this way are doing well, and we are doing well.
Of course, risk is always there and this is not quite as easy as it would appear. Achieving growth this way requires a lot of investment, it requires a period of establishment and the building up of the brand involved and then there is the period of stability over which you need to start achieving a return.
But overall, the strategy works well for companies wanting to achieve a global position in the marketplace rapidly.
Underpinning this development is the change occurring at the customer level in terms of what he is expecting from his supplier. Customers often prefer to get everything they need from one contractor, and recently there is a clear direction that this is what the customer wants – one single contractor or supplier. Companies used to contact with several suppliers in order to achieve the lowest possible investment, however, this strategy tend to lead to communications problems between the parties involved, misunderstanding in scope of supply, lack of engineering or project implementation&integration.
Even if customers can save money by contracting with several companies, there’s no point on it because of the integration and the engineering processes involved, which are still quite difficult to manage and include different technologies ranging from receiving, to cleaning, drying and storage at one time.
That is why today customers are more and more requesting everything from one contractor and we can see that clearly in government tenders, in communist countries and also among big private companies. They are more and more adopting this approach.
A similar scenario is when the supplier is not the manufacturer of all the components involved in a project, but he does have the capacity to do the total integration to get customers satisfaction, delivering the complete package.
Suppliers looking to secure contracts need more than an offer of economic and technical solutions. They also need to identify the financial solution, particularly in some of the most difficult markets and regions. Either there’s no government support or interests rates are too high. So what does industry do? In this case, it is the supplier’s own country that can provide the loans necessary. For example, Germany and Spain provide loans at very low interest rates and even underwrite the project making them completely safe for the supplier.
This is also happening in Russia and some former Soviet States.
Trends in business may come and go, however I believe we will see company takeovers, mergers and acquisition in the milling industries continuing well into the future.
Pablo Fernández Moriana
International Sales Director – Silos Córdoba, Spain