Shuanghui to Boost Smithfield Exports as First Priority
Companies Already Began Integrating Sales Staff, Say Executives in Joint Interview
The Wall Street Journal, David Kesmodel, September 26th 2013
Smithfield Foods Inc. and Shuanghui International Holdings Limited announced they have entered into a definitive merger which values Smithfield at approximately $7.1 billion. Shuanghui International is the majority shareholder of Henan Shuanghui Investment and Development Co., which is China’s largest meat processing enterprise and China’s largest publicly traded meat products company as measured by market capitalisation (Kesmodel, D. 2013).
In this essay the focus will be on an analysis on how the above acquisition has significance from a resource based view, and how it broadens strategic decisions for achieving a competitive advantage that is sustained over a period of time.
In this example of leveraging resources via an acquisition, the resources are seen as the following for Shuanghui International;
Additional 45,000 strong employees of Smithfield Foods
Advanced production facilities and technology (increased sow rates)
Additional 460 farms in the USA (land, water, corn resource)
High profile meat brands which Smithfield Foods are renown for and,
Foreign expertise in food handling and safety
Increased number of sales personnel
How Shuanghui uses these resources and in turn their capabilities will only be effective on their strategy moving forward and how they are exploited in the external environment in which they operate (Grant, R. M 1991).
Resources and capabilities provide the basic direction for a firm’s strategy and are the primary source of profit for the firm (Grant, R. M 1991). The clear strategy put in place for Shuanghui International is to become a global leader in pork production with strict adherence to the highest standard of quality control and safety standards. How Shuanghui plans to implement this strategy is by careful use of their resources acquired and how they would be used to achieve profit for the firm.
Capabilities rest on resources and how Shuanghui utilise these resources (competencies) which contribute to the long term survival of the firm. According to Penrose E. (1960) in terms of planning expansion the company would consider two groups of resource pools, its own previously acquired and those it needs from the market in order to carry out the strategic program. In the case for Shuanghui’s future strategy the most value would derive from the any key learnings or capabilities from Smithfield Foods. Examples of these are their high food safety standards, quality systems and know how in pig production.
For example pig production in producing sow has been perfected in USA. Chinese producers cannot replicate this capability and as a result are producing 40% less pigs which has an effect on supply, but more importantly is expensive to produce as they are not achieving the same form of scale to that of their American counterparts. The transfer of the capabilities mentioned above may or may not prove successful, as there is a level of tacit knowledge, or level of organisational routines perfected over time which occurs with Smithfield staff, that just cannot be read in the employee manual.
They would also involve very complex patterns of coordination between Smithfield and Shuanghui. If this tacit knowledge is instilled within the worker who leaves the company, then these resources are likely to impact any future gain in developing the above capabilities after the acquisition is made (Vlaars P. et al. 2005, Hamel G. and Prahalad C. K. 1991). Shuanghui were perhaps mindful of this issue and as soon as the acquisition was made final, they committed to maintaining all of Smithfield operations, staff, management, brands and factories. Shuanghui was still in learning mode and it seemed evident to keep Smithfield operating as normal to allow for both learning and reduced cost curve in
