Cargill is one of the largest privately held businesses with sales of just under $120 billion and operations in 70 countries that deals in agricultural products, food, and risk management. It has been in business for over 150 years. The company has a long history of organic growth. This means that it has avoided acquisitions and has instead grown its business through internal expansion. This has been the case even in recent years.
The company uses multiple approaches for its international growth, choosing to identify the best alternative for building a successful business in each market. Their preferred option if they have a choice, however, is organic growth.
Their normal route to a new geographic market is a traditional approach of being gradual and low risk. It includes beginning with trading offshore with that market’s customers, then onshore trading, followed by a representative office, and only then ultimately building a presence there. There are certain businesses, however, that require an on-the-ground presence due to transportation costs and raw materials of which the animal feed business is an example.
Cargill regularly “Piggybacks” when entering a market by establishing an operation in a country in which they already have a presence with another Cargill business unit. They find that having a presence in a country makes an entry with a new business much easier – it provides knowledge about local issues, laws, business practices, and customer preferences. Without that input, they need to build that knowledge, which can take a considerable amount of time.
They also utilize the “beachhead” effect of entering a market by using a temporary facility to gauge customer demand. An example of the combination of piggybacking and employing the beachhead effect was seen in the way in which the company entered the animal nutrition market in Vietnam.
Cargill entered the Vietnamese market in 1994 with a rep office and by partnering with a local Vinh Hoan, to help them navigate the challenges and opportunities in the market. Cargill has also invested in a shrimp hatchery and farm in Vietnam to help meet the growing demand for shrimp in the country. Having relationships with suppliers, customers, banks, and the government allowed them to move more quickly with setting up the animal feed operations.
Cargill set up a temporary feed mill built on skids, which they then put in the best location based on previously conducted market research. They used this temporary structure from which to build a local business in that location. When a business grew to a viable size, they constructed a permanent feed mill. Cargill has been able to replicate this low-risk process with great success throughout Asia, taking between six months to three years to move from a temporary to a permanent facility.
Cargill’s durable success in Vietnam is due in part to its focus on sustainability and its commitment to working with local partners.