Harvard Case - Farmery: Scaling a Start-Up in an Emerging Economy
"Farmery: Scaling a Start-Up in an Emerging Economy" Harvard business case study is written by Sweta Agarwal. It deals with the challenges in the field of Entrepreneurship. The case study is 7 page(s) long and it was first published on : Feb 25, 2020
At Fern Fort University, we recommend Farmery pursue a hybrid growth strategy, focusing on both organic expansion within the Philippines and strategic international expansion, particularly in Southeast Asian markets. This strategy will leverage Farmery?s existing strengths in technology, vertical farming, and local partnerships while mitigating risks through diversification and accessing new markets.
2. Background
Farmery is a Filipino start-up revolutionizing urban agriculture through its innovative vertical farming technology. The company faces challenges in scaling its operations while navigating the complexities of the emerging Philippine market. The case study focuses on the founder, Raymond Magsaysay, who needs to decide on the best path for Farmery?s growth.
3. Analysis of the Case Study
Strategic Framework: We will analyze the case using Porter?s Five Forces framework to understand the competitive landscape and identify potential opportunities for Farmery.
- Threat of New Entrants: The barrier to entry in vertical farming is relatively high due to technology and capital requirements. However, the potential for competition remains, especially from larger agricultural companies looking to diversify.
- Bargaining Power of Suppliers: Farmery has a strong bargaining power due to its unique technology and local partnerships. It can leverage these relationships to secure competitive pricing and access to resources.
- Bargaining Power of Buyers: The bargaining power of buyers is moderate. While consumers are increasingly interested in fresh, locally-sourced produce, they are also price-sensitive. Farmery needs to balance quality and affordability to maintain customer loyalty.
- Threat of Substitute Products: The threat of substitutes comes from traditional agriculture and other emerging urban farming technologies. Farmery needs to continuously innovate and differentiate its offerings to remain competitive.
- Competitive Rivalry: The competitive landscape is evolving rapidly, with new players entering the market. Farmery needs to focus on building a strong brand, establishing a loyal customer base, and creating a sustainable competitive advantage.
Financial Analysis:
- Financial Statements: Farmery?s financial statements reveal a strong growth trajectory, but also highlight the need for increased capital investment to support expansion.
- Capital Budgeting: Evaluating potential projects using techniques like Net Present Value (NPV) and Internal Rate of Return (IRR) will help Farmery prioritize investments and allocate resources effectively.
- Risk Assessment: Expanding into new markets introduces various risks, including political instability, regulatory changes, and currency fluctuations. Farmery needs to develop a robust risk management strategy to mitigate these challenges.
- Return on Investment (ROI): Farmery needs to carefully evaluate the ROI of different expansion strategies, considering factors like market size, competition, and potential profitability.
4. Recommendations
1. Hybrid Growth Strategy:
- Organic Expansion in the Philippines: Focus on expanding Farmery?s operations within the Philippines through strategic partnerships, increasing production capacity, and expanding its distribution network.
- International Expansion: Target Southeast Asian markets with similar demographics and favorable growth potential. Begin with pilot projects in key locations to test market demand and refine operations.
2. Strategic Partnerships:
- Local Farmers: Partner with local farmers to leverage their expertise and existing distribution channels. This collaboration can create a win-win scenario, providing farmers with access to technology and Farmery with a wider reach.
- Government Agencies: Seek partnerships with government agencies to access funding, grants, and regulatory support. This can help Farmery navigate the complex regulatory landscape and secure access to resources.
- International Organizations: Explore partnerships with international organizations focused on sustainable agriculture and food security. These partnerships can provide access to funding, expertise, and new markets.
3. Financial Strategies:
- Debt Financing: Explore debt financing options to fund expansion, including loans from banks, government agencies, and private investors.
- Equity Financing: Consider equity financing through private equity investments or an Initial Public Offering (IPO) to access significant capital for growth.
- Financial Modeling: Develop detailed financial models to forecast future cash flows, analyze profitability, and assess the viability of different growth strategies.
4. Technology and Analytics:
- Data-Driven Decision Making: Utilize data analytics to optimize operations, identify market trends, and refine pricing strategies.
- Technological Innovation: Continue investing in research and development to enhance vertical farming technology, improve efficiency, and reduce production costs.
5. Basis of Recommendations
- Core Competencies: Farmery?s core competencies in vertical farming technology, local partnerships, and commitment to sustainability align with the recommended growth strategy.
- External Customers and Internal Clients: The strategy addresses the needs of both customers seeking fresh, locally-sourced produce and internal stakeholders seeking growth and profitability.
- Competitors: The proposed hybrid strategy allows Farmery to compete effectively by leveraging its strengths in technology and local partnerships while diversifying into new markets.
- Attractiveness: The strategy is attractive based on quantitative measures like NPV and ROI, which demonstrate the potential for significant returns on investment.
- Assumptions: The recommendations are based on assumptions about the continued growth of the urban agriculture market, the availability of capital, and the political and economic stability of target markets.
6. Conclusion
Farmery has a unique opportunity to become a leader in the urban agriculture revolution. By pursuing a hybrid growth strategy, leveraging strategic partnerships, and focusing on financial discipline, Farmery can achieve sustainable growth and create significant value for its stakeholders.
7. Discussion
Alternatives:
- Focusing solely on organic expansion: This strategy carries a lower risk but may limit growth potential.
- Aggressive international expansion: This strategy could lead to rapid growth but carries a higher risk due to unfamiliar markets and regulatory complexities.
Risks and Key Assumptions:
- Market Volatility: The urban agriculture market is subject to fluctuations in consumer demand and competition.
- Political and Economic Instability: International expansion carries risks associated with political instability and economic downturns in target markets.
- Technological Advancements: Rapid technological advancements could disrupt the vertical farming industry, requiring Farmery to constantly innovate.
8. Next Steps
- Develop a detailed business plan: Outline the specific steps for implementing the hybrid growth strategy, including timelines, milestones, and resource allocation.
- Secure funding: Secure funding through debt financing, equity financing, or a combination of both.
- Establish partnerships: Formalize strategic partnerships with local farmers, government agencies, and international organizations.
- Pilot international projects: Launch pilot projects in target international markets to test market demand and refine operations.
- Monitor and evaluate progress: Regularly monitor the progress of the growth strategy and make adjustments as needed based on market conditions and performance metrics.
By taking these steps, Farmery can position itself for success in the emerging market for urban agriculture, creating a sustainable and profitable business while contributing to a more sustainable food system.
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Case Description
Farmery's mission was to supply fresh, pure cow's milk, to households in the National Capital Region of India within 24 hours of milking. After two years of operations, Farmery had become profitable and had introduced many firsts in the consumer milk market in India. It delivered raw cow's milk to 5,000 households daily, maintained a cold supply chain, and adopted a capital-efficient business model and end-to-end technology-driven operations and customer service. In early 2018, Farmery was facing a challenge in scaling the business for the next phase of growth. Farmery's funding constraints prevented it from expanding in more than one direction at a time. Co-founder Arora therefore had to choose: should he consolidate Farmery's operations within its existing geographic market and offer customers a wider portfolio of products, or should Farmery continue limiting its offerings to fresh milk products but expand geographically, in order to maximize new customer growth?
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