Tilapia Farming in Recirculating Aquaculture Systems NettlesAndrew_Spring2013

Tilapia Farming in Recirculating Aquaculture Systems

Presented to: Professor Dr. Martin J. Gannon

Submitted by: Nick DeKeyzer Dustin Hanson Andrew Nettles

Issue Date: April 27,2013

Tilapia Farming in Recirculating Aquaculture Systems

Presented to: Professor Dr. Martin J. Gannon

Submitted by: Nick DeKeyzer Dustin Hanson Andrew Nettles

Issue Date: April 27,2013

Contents

1. Hitt’s seven external segments of the general environment affecting the industry ................................ 3 a.

Economic (2) ................................... ................. .................................... ................................... ................................... .................................... ................................... ........................... .......... 3

b.

Demographic (2) ................................... ................. ................................... ................................... .................................... .................................... ................................... ..................... .... 4

c.

Political / Legal (3)..................... (3)... .................................... ................................... ................................... .................................... ................................... ................................. ................ 4

d.

Technological Technolo gical (1) ................................... ................. ................................... ................................... .................................... .................................... ................................... ..................... .... 5

e.

Global (3)....................... (3)...... ................................... .................................... ................................... ................................... .................................... ................................... ........................... .......... 6

f.

Sociocultural Sociocultu ral (1) .................................... .................. ................................... ................................... .................................... .................................... ................................... ..................... .... 6

g.

Physical (2) ................................... ................. .................................... ................................... ................................... .................................... ................................... .............................. ............. 7

2. Five forces of competitive strategy in the industry .................................................................................. 7 a.

Rivalry among competing firms (2) ................................. ................ ................................... .................................... ................................... .............................. ............. 7

b.

Threat of new entrants (2) ................................... ................. ................................... ................................... .................................... ................................... ........................ ....... 8

c.

Bargaining power of suppliers (1) ................................... .................. ................................... .................................... ................................... .............................. ............. 9

d.

Bargaining power of buyers (2)......................... (2)....... ................................... ................................... .................................... ................................... ......................... ........ 10

e.

Threat of substitute products (3) ................................. ................ ................................... .................................... ................................... ............................... .............. 11

3. Two-dimensional strategic group map for the industry ......................................................................... 12 4. Specific competitors in the industry ....................................................................................................... 14 a.

Competitive Environment .................................... .................. ................................... ................................... .................................... .................................... ...................... .... 14

b.

Immediate Competitors .................................... .................. .................................... ................................... ................................... .................................... ......................... ....... 15

c.

Impending Competitors .................................... .................. .................................... ................................... ................................... .................................... ......................... ....... 19

d.

Invisible Competitors .................................. ................ .................................... ................................... ................................... .................................... ............................... ............. 22

5. Major Competitors and their market share............................................................................................ 25 6. Why is our startup a good idea? ............................................................................................................. 26 a.

Macro Economics and Competition.................. Competition ................................... ................................... .................................... ................................... ......................... ........ 27

b.

Tilapia itself .................................. ................ .................................... ................................... ................................... .................................... ................................... ............................ ........... 28

c.

Tank Design and Technology ................................. ................ ................................... .................................... .................................... ................................... ................... .. 29

d.

Organic, Halal, Kosher and Made in America ................................... ................. .................................... ................................... ............................ ........... 31

e.

Production method: inexpensive energy ................................. ............... .................................... .................................... ................................... ................... .. 32

f.

Production method: inexpensive organic feed.................. feed. ................................... .................................... ................................... ......................... ........ 33

7. Our current and projected strategy ........................................................................................................ 34

BA-690 Strategic Management Thesis: Tilapia Farming in Recirculating Aquaculture Systems

1|P a g e

8. An update on your selected competitor since the case ended. ............................................................. 35 9. Competitor’s current and projected strategy ......................................................................................... 37 10a. Izumi Dai Growth-Share Matrix .......................................................................................................... 38 10b. Our competitor’s growth-share matrix............................................................................................... 39 11. Critical resources, strengths, core capabilities, core competencies, and weaknesses......................... 40 12. External threats and opportunities in this industry .............................................................................. 41 a.

Opportunity - Changes in consumer habits (2):.............................................................................. 41

b.

Opportunity - Natural fish stocks decreasing (1): ........................................................................... 42

c.

Opportunity - Technology reducing labor (3): ................................................................................ 42

d.

External Threat - Regulation and labeling (1): ................................................................................ 43

e.

External Threat - Adjacent aquaponic industry (3):........................................................................ 43

f.

External Threat - Distribution channels (2): .................................................................................... 43

13. Strategy canvas and strategy curves..................................................................................................... 44 14. Suggested changes to current strategic plan........................................................................................ 47 a.

Create a certified healthy source of fish protein (1):...................................................................... 47

b.

Raise supply availability to year-round operation (1):.................................................................... 48

c.

Eliminate seasonal fluctuations in supply (2): ................................................................................ 48

d.

Reduce harmful ecological impacts (3): .......................................................................................... 48

15. Concrete and specific strategic and major tactical actions .................................................................. 49 b.

Win all without fighting: Prioritize markets and determine competitor focus .............................. 51

16. Implementation plan and time line ...................................................................................................... 53 17. What do you expect the competitor to do? ......................................................................................... 54 Implication Wheel ................................................................................................................................... 58 18. Business Startup Scenario ..................................................................................................................... 59 a.

Phase 2: Pilot stage, proof of concept: ........................................................................................... 59

b.

Phase 3&4: Acquisition and Production ......................................................................................... 60


2|P a g e

Tilapia Farming in Recirculating Aquaculture Systems 1. Hitt’s seven external segments of the general environment affecting the industry a. Economic (2) This section will cover key items only, as the economic environment is covered in great detail in other sections of this report. The tilapia industry in the United States relies primarily on inexpensive imports from South East Asia and Latin America where labor costs are much lower compared to the United States. The fish are bred in rivers and ponds that are often polluted with nitrates, heavy metals, pesticides and other carcinogens (The State of World Fisheries and Aquaculture, 2012). Our research also indicates that overseas producers are finding it increasingly difficult to supply tilapia in sufficient amounts to satisfy U.S. demand. Local competition is minimal and consists mostly of small aquaponics companies with limited reach. Aquaponics is the combination of aquaculture and hydroponics (cultivating plants without soil) in a symbiotic environment. Often these companies have multi-product strategies that dilute their focus from breeding tilapia. In closing, demand for animal protein in general and for healthy animal protein in particular is rising quickly in the United States.

According to the USDA, organic products are now

available in nearly 20,000 natural food stores and at nearly 75% conventional grocery stores (United States Department of Agriculture). The trend is anticipated to persist well into the future.


3|P a g e

b. Demographic (2) Izumi Dai’s (our startup company name in this thesis) customer demographics are segmented across two groups: 1/ African-Americans, Asian-Americans and Hispanics with incomes above $25,000 and with minimal education, and 2/ Caucasian consumers with bachelor degrees and higher incomes (Dettmann, July 2008). Research has also indicated that households with graduate degrees were less likely to buy organic foods, while households with children under 18 were most likely to buy organic foods. Consumers with 3 or more children or older than 50 years old are less likely to become Izumi Dai’s customers. c. Political / Legal (3) According to Karen Mitchell, Staff Environmental Scientist for the California Department of Fish & Game in Sacramento, with whom we conducted a phone interview on 11/5/2012, tilapia farming in recirculating aquaculture systems does not require an aquaculture registration if meant for personal use or for proof of concept. In other words, it is not required for an operation devoted to the propagation, cultivation, maintenance, and harvesting of aquatic plants and animals for non-commercial purposes. Izumi Dai must register its operation with the Department of Fish and Game the moment the operation converts to a commercial business. Leaflet No. 35 of the State’s Department of Fish and Game provides the specific information required to register the aquaculture (California Department of Fish and Wildlife, 2013). In addition, restrictions exist with regards to breeding tilapia in California due to the resilient, invasive nature of the species itself. Leaflet No. 35 states the following: “tilapia will be approved only in San Bernardino, Los Angeles, Orange, Riverside, San Diego, and Imperial counties. It may be stocked there only in waters approved by the Department of Fish and


4|P a g e

Game. Only tilapia mossambica and tilapia hornorum may be stocked and recipient waters must be approved by the the Department. No tilapia may be imported until the genetic genetic integrity of the stock has been certified. certified. This certification may be required required for every shipment.” No additional legal requirements exist outside of the various certifications that Izumi Dai would like to pursue. d. Technological (1) As described in great detail a bit later in this document, Izumi Dai does not plan to compete on price. Instead, we want want to adopt a differentiation strategy strategy that will render render competition irrelevant in the short run, thus allowing allowing us to operate in a Blue Ocean. Ocean. We have identified two main categories of competitors: aquacultures and aquaponics. Research has indicated that nearby aquaculture aquaculture companies companies are very low tech.

Their

seasonal operation relies extensively on manual labor as well as on the physical environment. Tanks are located in inland desert areas where the summer heat warms the water free of cost. These harsh areas areas hold few employment opportunities opportunities for the local population. Thus the aquaculture companies companies have access to minimum minimum wage workers. As a result, the aquaculture aquaculture owners have few reasons to leverage expensive technology given this context. Our interview with Richard Foxx, a local aquaponics company owner, on 10/4/2012 confirmed that aquaponics operations are usually very high tech (Farming with Fish Aquaponics, 2013). Owners use technology technology to help with all all aspects of the business such as managing pumps and filters, monitoring water quality, oxygenation and flow as well as dispensing nutrients and medication. Technology also helps with fine tuning the the parameters of the operation to maximize maximize yields. Aquaponics are are mostly geared towards fruits and vegetables


5|P a g e

with fish as a necessary necessary element to process and fertilize the water. These high tech breeders sell tilapia in relatively small quantities to the local organic grocery stores and fish f ish markets. Izumi Dai’s smaller separate closed loop tanks and modular equipment design approach is highly conducive for the implementation implementation of heterotrophic technology. Such design greatly mitigates costly disease spread, spread, complex maintenance maintenance and repair, and total kill scenarios. scenarios. Our technology strategy also reduces energy consumption by capturing biogas that originates from farm detritus and horse manure. In addition, Izumi Dai plans to minimize costly costly manual labor through the implementation of automated supervisory control and data acquisition (SCADA) systems (Daneels & W.Salter, 2012). e. Global (3) According to the FAO’s “The State of World Fisheries and Aquaculture 2012”, global demand for fish has increased 3.2% year over year. World per capita fish supply increased from 9.9 kg in the 1960’s to 18.6 18.6 kg in 2010. Per capita consumption consumption in the U.S. is 24.1 kg per year. The rate of growth with regards to fish supply from capture fisheries and aquaculture is outpacing the increase in the world population by a factor of 2. In recent years climate change vulnerabilities and extreme weather events have particularly affected fish production in underdeveloped underdeveloped areas. These areas produce most of the tilapia that that is currently consumed in the United States. f. Sociocultural (1) Izumi Dai’s initial findings regarding psychographics about tilapia farming in recirculating aquaculture systems were confirmed during an interview with Sage Hospitality’s Corporate Senior Vice President of Operations David Marsh (Sage Hospitality, 2010). He deepened our


6|P a g e

belief that tilapia is currently a commodity item that is used as filler when fish is not the issue. In his experience, demand for higher quality tilapia is extremely extremely limited in restaurants, and organically bred fish will be a really tough sell in the restaurant arena because tilapia is seen as one step above junk. Patrons would would order halibut, sole, salmon; not tilapia. David suggested that if Izumi Dai wanted to sell to restaurants, it had to become a price leader to compete against imported fish. “Restaurants just won’t pay more for this low end product” product” said Marsh. “The fact that that it is known known as a Chinese fish does not help either.” either.” In addition he mentioned that we we would have to overcome the distrust for farm raised fish. “People that want higher quality quality fish want wild fish as opposed opposed to farm bred.” David strongly suggested suggested differentiating ourselves in terms of branding and quality to cater to a growing demographic of health conscious consumers that would prepare and consume the fish at home. g. Physical (2) The external environment in Southern California is close to ideal for the production of tilapia in recirculating aquaculture systems thanks to the ubiquitous availability of inexpensive desert land, the warm climate, utilities and transportation infrastructure, as well as the proximity of 37 million potential consumers.

2. Five forces of competitive strategy in the industry a. Rivalry among competing firms (2) Small scale competing tilapia farms appear to be dispersed in Southern California without an established established major player. As demand for fresh tilapia filets in the the various local markets outpaces seasonal production, the local market does not appear to be characterized by major visible rivalry. Rivalry from tilapia imports are a concern because of their low cost and and


7|P a g e

high supply. In a coastal region within a day’s transport from a major shipping port, Izumi Dai may be targeted as a competitor by importers. However, the production levels at Izumi Dai will most likely not create a disruption in the local industry until a strong brand is created and distribution channels are established. b. Threat of new entrants (2) Barriers to entry for an aquaculture operation focused on farming tilapia in a recirculating system are medium to high. Large initial startup costs including facilities and equipment are substantial. Tilapia feed is a major recurring cost and critical supply chain component. According to a 2002 report from the North Carolina Department of Aquaculture and Consumer Services, a recirculating tilapia farm with approximately 114,000lb production capacity would require $301,000 in initial construction and equipment costs and $78,000 in first year operating costs (Tilapia Aquaculture in North Carolina, 2002). Knowledge of tilapia aquaculture processes and fish biology is also needed. Academics in the fishery sciences typically focus on species studies, with fishery students working at established operations.

New entrants into the local market from outside established

aquaculture operations may occur if a high demand for live fish is discovered in Southern California. However, as will be described in Section 5, Major Competitors, existing firms use very large scale operations. Therefore, opening a new aquaculture farm in a new region would be risky.


8|P a g e

c. Bargaining power of suppliers (1) Aquaculture farms are dependent on several supplier inputs, without which the fish growing operations would cease. Tilapia fry, specialized filter equipment and tanks, control systems, and, most importantly, feed are typically supplied to aquaculture firms. Feed usually represents over 50% of total intensive recirculating aquaculture costs (Gjedrem, Robinson, & Rye, 2012). The growing rate of tilapia is directly related to the feeding rate and high quality protein rich feed will grow fish to market size in approximately 6 months. With fishmeal and feed ingredients becoming more expensive, as well as regulated for ecological reasons, fish producers will need to look into alternative feeds to sustain fish production demand (The State of World Fisheries and Aquaculture, 2012). Feed suppliers have a high bargaining power and demand large bulk shipments with lead times for discounts which enable aquaculture farms to remain profitable. Purchasing fingerlings or fry from breeders is a common practice in aquaculture. Hatcheries hold brood stock mating pairs which produce desired characteristics of fish. Tilapia hatcheries have high bargaining power over farms with no internal breeding. Hatcheries could convert from supplier to competitor by opening a grow out farm or partnering exclusively with an aquaculture farm. To lessen the power of Suppliers Izumi Dai will be employing a vertical supply chain strategy to cultivate feed and breed the supply of fish, thereby eliminating feed and hatchery suppliers. As a result of this strategy, additional labor and infrastructure will be required. However, the long term feed independence will be a defining strength of Izumi Dai.


9|P a g e

Cultivating feed will allow a sustainable food source and possibly provide excess feed to sell to agriculture firms. Specialized hatcheries are a requirement for some fish species with complex breeding habits. However, tilapia are aggressive breeders when provided the correct conditions. By breeding tilapia internally in dedicated hatcheries, Izumi Dai will not only cut supplier power but also decrease fish transportation stress, disease introduction and acclimation difficulties, and maintain a consistent proprietary genetic strain within Izumi Dai products. d. Bargaining power of buyers (2) Buyers for tilapia will be defined as live fish markets, fish processors, fish distributors, and local consumers. Izumi Dai anticipates the chokepoint of distributors to produce the highest competitor rivalry. Distributors are the second tier of three between fish supplier and customer retail, and take a markup between the supplier and retail price. Distributors that control access to a large book of restaurants, hotels, and supermarkets have a high bargaining power. Live fish markets allow fish trade and business relations for a small fee. Fish market and farmers market buyers have a moderate power due to the lower lot size and low sales pressure. Moving customers from fish markets sales to recurring sales will be the key to sustained sales. After initial local distribution is established, Izumi Dai will attempt to focus on associating quality to branding and become a recognizable niche brand. Pull marketing would then be used to increase customer points of sale and restaurants at grocery stores.


10 | P a g e

e. Threat of substitute products (3) Substitutes to organic tilapia exist in the forms of other lean organic animal proteins including fish and poultry. However, as populations of wild fish continue to dwindle and global demand continues to grow, fish substitutes will inevitably decrease. Izumi Dai will market the fish as a healthy alternative to wild caught fish, which is at a higher risk of containing pollutants, and imported fish farmed in unknown conditions. By focusing on these differences Izumi Dai will distance itself from fish substitutes. In summary, the combination of an apparent low level of visible rivals, the medium to high barriers to entry, Izumi Dai’s vertical integration strategy and the reduced threat of substitute products renders tilapia farming in recirculating aquaculture systems a viable business opportunity in Southern California.


11 | P a g e

3. Two-dimensional strategic group map for the industry Figure 1: Strategic Group Map for the Industry

The two factors evaluated in the strategic group map are output and quality. Output refers to the amount of tilapia the farm produces and sells on the market. Quality deals with the tilapia product itself. A high quality product is defined as a tilapia fish which was farmed without growth or gender reversal hormones, antibiotics, or other harmful chemicals or substances. Also taken into account are the overall farming conditions in which the fish is raised. A high quality product is raised in a clean, controlled environment in water which is free of contaminants or pollutants.


12 | P a g e

The strategic group map reveals five distinct groups into which the selected competitors fall. Group 1 is characterized by high output and low quality. In this group are the fresh and frozen tilapia imports, which primarily come from Latin American and Asian countries. As will be further examined in this report, such countries, while an economical choice for lower labor costs, also have lax standards regarding food and safety regulation. This has led to various health concerns regarding the seafood products they produce. Group 2 is characterized by moderately high levels of output and similarly high levels of quality. Even though the companies in this group are categorized by a moderately high level of output, their total yield is really quite small, as low as 1%, when compared to the amount of tilapia imported into the US by companies in group 1. Companies in group 2 are local US companies which boast of a certified organic product grown in a clean, controlled environment. It is important to note here that Premier Foods Farms is actually located in Texas and, based on market research, presumably does not sell its tilapia in the California market. Group 3 is characterized by moderate output and above average quality. Although these products are not certified organic, they are produced in a controlled environment which is monitored and kept clean of contaminants and pollutants. Another factor which may preclude these producers from receiving certification is the type of feed which they give to the fish. Organic feed is more costly and, as such, is probably cost prohibitive for farms operating in this group. The companies in group 4 have a mild level of output and a high level of quality. This is the group in which Izumi Dai will compete. It is important to note that, even though it is classified


13 | P a g e

in the same group below, Blue Ridge Aquaponics currently operates solely out of Virginia and presumably does not have any tilapia coming into the California market. The companies in group 5 are characterized by very low levels of output and a high level of quality. The reason for the lower levels of output is emphasis or specialization. Some of these companies may be aquaponics operations whose primary focus is produce, and they only use the tilapia to complete the symbiotic environment. Others, like Sarasota below, are hatcheries who do not focus on fish to market operations, rather they breed and raise their tilapia to sell as fry and fingerlings.

4. Specific competitors in the industry a. Competitive Environment The competitive environment in the aquaculture industry is highly fragmented with numerous individual companies operating in various countries around the world. For the purposes of this report, only companies with a relevant focus in tilapia production will be considered and analyzed as competitors. The global competition presents itself in the form of imports. America holds the title of the second-largest seafood importer in the world, with tilapia being the third most imported seafood product in the United States. Most of these imports come from Latin American and South-East Asian countries where labor costs are low and food-safety regulations are mostly inexistent. However, incidences in recent years have spurred concerns from US consumers regarding the safety and quality of such products. Additionally, demand for fish in these countries’ local markets is increasing due to rapid population growth. As a result, there is an increasing demand in the US for safer, higherquality, locally farmed seafood products.


14 | P a g e

“Because of increasing seafood demand and low yields from wild fishery resources, aquaculture products in the US market have significant growth potential over the coming five years (McBee, 2012).” This is where local competition comes into play. Our research shows that tilapia, however, has yet to become a fish of choice for the larger-scale, US-based aquaculture farmers. Some aquaculture farmers raise tilapia seasonally during the summer months, but have yet to specialize exclusively in tilapia. The most significant competition on US territory comes from smaller-scale aquaculture farms and aquaponics operations.

The

distribution reach of these operations tends to be more limited, thus restricting the tilapia farmed by these entities to be sold and distributed within a closer vicinity of the farm’s operations. A growing threat comes from the increasing popularity of local aquaponics operations. The threat from this growing trend is twofold. First, although raising tilapia is not the emphasis of such operations, some of these operations may have a large enough tilapia output to meet a portion of our target segment’s needs. Secondly, some firms are selling aquaponics setups which would allow our prospective customers to reach protein independence by growing their own tilapia as opposed to buying ours. With this competitive landscape in mind, competitors have been categorized into three categories: immediate competitors, impending competitors, and invisible competitors. b. Immediate Competitors Foreign Importer (1) The US is a net importer of seafood and has a small aquaculture industry compared to other countries. Consequently, imports of farm-produced seafood into the US are large. According to


15 | P a g e

the National Oceanic and Atmospheric Administration (NOAA), Americans consume between 6 million and 7 million tons of wild and farmed seafood annually, and about 84% of that total comes from imports, half of which is farmed. Total US seafood production only accounts for about 2% of the country’s consumption. Tilapia is imported into the US either frozen or fresh. Both the fresh and frozen products are imported as either a whole fish product or a fillet product. The perishable nature of fresh fish makes countries closer to the United States more suited for operating with fresh fish products, Hence, the majority of fresh tilapia imports are sourced from Latin America, while Asian countries, specifically China, continue to dominate the frozen tilapia import market (United States Department of Agriculture, 2013).” With the growing health concerns discussed earlier and the increasing trend of organic products, it is possible that a foreign competitor could diversify into the organic tilapia market and directly compete with Izumi Dai. Such a competitor is classified as a very threatening level 1 competitor because of their established distribution and supply chain operations and economies of scale.

Competing

against such a competitor would be difficult for Izumi Dai. However, Izumi Dai intends to position itself not only as an organic tilapia farmer, but as a local farmer with environmentally friendly farming operations raising tilapia in the US, a differentiation strategy that the foreign competitor would not be able to duplicate. Grow Foods Inc (1) Grow Foods’ offices are located in San Marcos, California. It is composed of four different divisions: Grow Foods Aquaponic Systems, Grow Foods Farms, Grow Foods Gardens, and Grow Foods Water Management Systems. In addition to producing its own produce and


16 | P a g e

seafood for market, Grow Foods also acts as a consulting agency, designing and manufacturing a variety of garden and aquaponic systems for homes, businesses, resorts, and municipalities. Unfortunately, little is known about Grow Foods Inc. Although attempts have been made to acquire additional information regarding their operations and tilapia output, none has been provided. In spite of the lack of information available regarding Grow Foods, it has been classified as an immediate, very threatening competitor. Grow Foods Farms, a division of Grow Foods Inc, grows seafood in “land, river, and ocean based farms” which it sells to “individuals, restaurants, and super markets (Grow Foods, 2012).” With its headquarters in San Marcos, California, the assumption is that these farms are operating in California and, even more threatening, in Southern California. With the possibility of a large, commercial-scale competitor operating within Izumi Dai’s target market location, and with little information regarding the specifics of this competitor’s operations, Izumi Dai should consider the threat significant until additional information can be acquired. Future Foods Farms (2) Future Foods Farms (FFF) is one of the largest aquaponic farms in the State of California (Future Food Farms, 2013). Located on 25 acres in Brea, California, FFF produces organically grown produce and tilapia, which is used by FFF creator and Chef Adam Navidi in his restaurants and catered events. Some of FFF’s output is also sold at the local farmers markets. FFF has been categorized as an immediate, threatening competitor because of its geographic location in Southern California and its strategic alliances with key players in the aquaponics industry.


17 | P a g e

FFF is classified as a threatening competitor primarily because its focus is aquaponics and not aquaculture and, as such, it has yet to reach a tilapia output level that presents a significant threat. However, with FFF operating in the heart of Izumi Dai’s target market, it still poses significant threats which have contributed to its “immediate competitor” classification. FFF has an ambitious vision and a strategic marketing strategy. In its mission statement, FFF states that it is their “mission to create a sustainable farm concept that will change both agriculture and the restaurant industry forever and provide our customers with the ultimate food experience (Future Food Farms, 2013).” With their evangelical approach, FFF proselytizes the benefits and advantages of its sustainable farming practices and high quality products. Farm tours and tastings hosted by the Chef himself are available to the public and can be booked online via FFF’s website. More of their marketing prowess is evidenced in their specialty line of products that certain grocers and restaurants will soon carry. FFF’s founder established a strategic alliance early on with aquaponic guru, Eden Aquaponics, which is discussed later in this section as a competitor. An additional strategic alliance was formed with aquaponic powerhouse, Aquaplanet. In addition to these strategic alliances, FFF boasts of several scientists who consult at their aquaponic garden along with several college professors and interns who maintain and study the garden on a daily basis (Future Food Farms, 2013). These alliances and partnerships give FFF a competitive advantage by providing FFF with valuable knowledge and input from leading industry experts and academics.


18 | P a g e

c. Impending Competitors Blue Ridge Aquaculture (1) Blue Ridge Aquaculture is located in Martinsville, Virginia and operates out of a 100,000 square foot facility. It was founded in 1993 and boasts of being the world’s largest producer of tilapia using indoor recirculating aquaculture systems (RAS) (About us, 2013). “Each year, Blue Ridge Aquaculture produces 4 million pounds of tilapia, shipping between 10,000 and 20,000 pounds of live tilapia every day. These fish are raised without the use of antibiotics or hormones, and are free of mercury (undetectable levels from independent studies) and other industrial pollutants (About us, 2013).” Blue Ridge Aquaculture is classified as a very threatening competitor because of its ambitious strategic growth plans. Currently, Blue Ridge ships an estimated 75,000 pounds of live tilapia per week from the facility to distributers in major metropolitan markets in New York, Boston, Toronto, and Washington D.C. Since Blue Ridge is located on the East Coast, it would be costly to transport live tilapia to markets in California, Izumi Dai’s target market. However, Blue Ridge is keeping no secrets when it comes to its desire to grow. According to the Blue Ridge’s website, Blue Ridge’s vision is “to become the leading domestic producer of high quality seafood using indoor recirculating aquaculture systems (RAS). The company plans to accomplish this goal by 1) sequentially expanding its tilapia production capacity to 10 million pounds (phase I), then to 100 million pounds (phase II), 2) developing a fresh fillet product which will provide access to larger markets, and 3) developing the production of other species in similar systems (Strategic growth plans, 2013).”


19 | P a g e

The threats posed by Blue Ridge’s strategic expansion plans are twofold. First, although specifics are not given regarding the markets into which they wish to expand, Blue Ridge does mention that its primary customer base is Asian and Hispanic individuals (About us, 2013). With this information in mind and considering that it has a strong presence on the East Coast, there is substantial risk that Blue Ridge could expand into Izumi Dai’s target market in California. However, even if Blue Ridge does not expand its physical operations into California, it still has plans to develop a fresh tilapia fillet product. The purpose of developing a fillet product is to “provide access to larger markets.” Distributing fresh fillets is less capital intensive than distributing a live product. Thus, without ever setting foot in California, Blue Ridge could potentially penetrate Izumi Dai’s California market with its fillet product. In either of these scenarios, Izumi Dai strategic advantages would be significantly undermined. It would be difficult for Izumi Dai to compete with the economies of scale achieved by Blue Ridge. Additionally, Blue Ridge Boasts of 20 years of experience in the aquaculture arena. They have had the time to fine tune their operations as a result of their extensive industry experience. Izumi Dai’s strategy to differentiate from foreign imports is closely aligned to Blue Ridge’s strategy. This means that Izumi Dai would differentiate solely based on organic certification, something presently not touted by Blue Ridge. Premier Farms (2) Located in Dallas, Texas, Premier Farms is an aquaponics farming enterprise that “combines organic growing practices in controlled ecological environments (Home, 2011).” The mission statement of Premier farms is “to grow organic tilapia, organic Butter/Boston lettuce, and organic herbs through the utilization of environmental and ecologically balanced farming


20 | P a g e

practices (About our tilapia, 2011).” In 2009, Premier became the largest organic tilapia producer in the US, producing a half-million pounds of organic tilapia per week. Premier has been categorized as an impending, threatening competitor because of the possibility that some of its tilapia output may be entering into Izumi Dai’s California target market and that it could possibly expand its operations into California. Additional threat comes from its business model, which shares a close resemblance to Izumi Dai’s model. The only factor limiting Premier’s ranking to only a level 2 competitor is its geographical location. Had Premier been located in California, its ranking would be a very threatening competitor. Premier sells a fresh tilapia product, harvesting the fish after six months of growth at an average weight of 1-1/4 to 2 pounds. The fish are harvested into tanker trucks and are then transported “fresh off the boat” to market (Operations, 2011). Selling a fresh product limits Premier’s distribution reach. However, the extent of their distribution reach remains unknown. Although efforts were made to acquire this information, Premier did not share it. At this point, it can be assumed that cost efficiency would preclude Premier from distributing a fresh product in the southern California market. Regardless of whether they have a large distribution reach or not, California is a popular state for tilapia farming, and there is a risk that Premier could expand its current operations into California soil. While the largest number of tilapia farms were located in Hawaii (19 farms) and Florida (18 farms), California (15 farms) ranked first in sales (over $8.1 million) (tilapia profile, 2013). This fact, along with the growing number of specialty and health food markets in the area, increases the desirability of the California market and the probability that Premier


21 | P a g e

may use their current operations as a template for expansion into the California market, putting them in direct competition with Izumi Dai. If Premier did expand into the California market, its current business model would significantly inhibit Izumi Dai from competing with a differentiation strategy. Currently, Premier incorporates integral elements of Izumi Dai’s business model like automated technologies and remote management, organic certification and quality, and a fresh tilapia product rather than a processed fillet, be it frozen or unfrozen. Furthermore, Premier promotes its tilapia product as farmed in the US, boasting strict control and quality standards, another strategy adopted and employed by Izumi Dai. d. Invisible Competitors Eden Aquaponics (2) Eden Aquaponics is an aquaponics farm located in Vista, California. They specialize in custom system design, fabrication, and installation for residential and commercial applications. They also offer instructional classes that teach participants how to use and maintain an aquaponic system. Currently, Eden Aquaponics’ focus is not to farm tilapia for market, but rather to equip individuals and businesses with their own aquaponic systems in order to meet their specific production needs. As is, this business model does not directly compete with Izumi Dai’s focus of tilapia farming, but it could possibly pose potential threats. Eden Aquaponics is classified as an invisible competitor because of its current position as a manufacturer of custom aquaponic systems and not as a farm focused on tilapia output. It is classified as a threatening competitor because of its potential to compete on a commercial


22 | P a g e

scale in tilapia production in Southern California and because its service allows individuals in Izumi Dai’s target segment to become protein independent. If Eden Aquaponics decided to move into large-scale tilapia farming with its aquaponics systems, it could possibly have an advantage over Izumi Dai because of its extensive industry experience. As an example, Tim Eden, co-founder, “brings over 16 years of farming experience, over nine years of construction contracting, and over three years of hydroponic gardening” to the company (Who are we?, 2013). Additionally, Eden Aquaponics has market presence, brand recognition, and goodwill that could work in its favor if it were ever to diversify from its current position into a position focused on tilapia production. Eden Aquaponics’ current offerings indirectly compete with Izumi Dai by providing individuals within Izumi Dai’s target segment the means to farm their own organic tilapia. Their aquaponics systems appeal to the same health conscious consumers that Izumi Dai is targeting. Realizing the increasing trend of DIY (do it yourself), this threat might continue to increase. Although not every individual in Izumi Dai’s segment has the means or desire to purchase, operate, and maintain an aquaponics system, some may, which would nullify their need to purchase such a product from a grocery store. Sarasota Organic Tilapia Farms (3) Sarasota Organic tilapia Farms is an organic tilapia farm located in Sarasota, Florida. Sarasota operates a tilapia hatchery, “which produces tilapia fry and tilapia fingerlings available for fish farms worldwide,” and a grow out section, where tilapia are raised to market size, “available locally in the Sarasota, Florida area (About us, 2013).” Sarasota boasts of the best tilapia available anywhere. They attribute their high quality to “using organic, low intensity


23 | P a g e

methods” and feeding “them organically with a natural diet high in omega3 fatty acids (About us, 2013).” Sarasota is classified as a competitor because of its working knowledge of tilapia aquaculture operations and its potential to expand into other markets, specifically California. However, it is regarded as a less threatening, invisible competitor due to its distant geographic location and because its primary focus is as a hatchery and not as a distributor of consumablegrade tilapia. California’s health conscious segment is a desirable market for anyone in the health foods or organic foods industry. A CNN article states that “Californians in general tend to have healthier habits, ranking 10th for physical activity, fourth for healthy blood pressure and fifth for a diet high in fruits and vegetables compared with other states, according to America's Health Rankings (Park, 2012).” As mentioned earlier, California was number one in sales with regards to aquaculture tilapia output. Sarasota’s experience in the aquaculture industry gives it a strategic advantage over Izumi Dai if it were to expand into California. Additional threat comes from their expert tilapia breeding knowledge. With their primary focus as a tilapia hatchery, Sarasota prides itself on breeding three different tilapia species. Their tilapia are “selectively bred for body form, color, and growth rates. Consequently, Sarasota would have a significant advantage in breeding and stocking tilapia that were only of the highest quality. Although its focus is as a hatchery and not as a distributor, Sarasota does offer wholesale purchases of its tilapia for local restaurants. With such orders, the purchaser is responsible for


24 | P a g e

pickup of the live, unprocessed fish from Sarasota’s grow out facility. Minimum order size is 50lbs (Wholesale farm pickup, 2013). Escondido Tilapia Farm (3) Little is known about the Escondido tilapia farm. An insightful commentary regarding one individual’s visit to the farm is given on an internet blog site and, other than that, no additional information can be found (Coburn, 2011). From the blog post, it appears that the Escondido tilapia farm is a newer operation with plans to grow and expand. Some of its operations are rather innovative. For example, in order to heat the water used in its tanks, the farm uses a two story high pile of compost whose internal temperature stays around 140 degrees Fahrenheit. Through the center of the compost pile is coiled a plastic irrigation hose. Water from the fish tanks is pumped through this hose which then renters the fish tanks around 80 degrees. They are classified as a less threatening level 3 competitor because their focus, according to the blog entry, is as a hatchery and not a fish to market farm. With their current assets and industry knowledge, Escondido tilapia Farm could possibly diversify into a fish to market position. At this point, however, it is decided that they are more of a hobbyist, backyard operation rather than a commercial operator.

5. Major Competitors and their market share According to the IBISWorld Industry Report of Fish and Seafood Aquaculture in the US, there are no major domestic players in the aquaculture industry. Consequently, “concentration in the Fish and Seafood Aquaculture industry is minimal. Many small operations compete for


25 | P a g e

the total market share, with no sole operator cornering more than 5.0% of the total market in 2012 (McBee, 2012, p. 24).” To illustrate this concept, consider the example of Southern Pride Catfish, a subsidiary of American Seafoods Group LLC. Southern Pride Catfish operates a substantial aquaculture operation, employing about 775 people and processing more than 80 million pounds of farmraised catfish each year. However, it is estimated that Southern Pride Catfish has a market share of less than 1% (McBee, 2012). Southern Pride Catfish’s operations are much more sizable compared to the competitors analyzed in this report. The reason for this is because the competitors analyzed in this report focus solely on tilapia farming. Thus, with tilapia production being much smaller in terms of output and volume compared to that of catfish, it is reasonable to conclude that the market share held by the tilapia farming competitors is even smaller than Southern Pride’s, which is still less than 1%. Therefore, a market share pie chart or other graphical depiction would be extremely difficult to produce and would add little to no insights into competitor or strategic analysis.

6. Why is our startup a good idea? From a progress point of view, we have completed our research and we are now in prestartup mode. If all goes as planned, we believe to be able to produce our first fish 12 to 18 months from now. For additional information, please refer to our implementation plan and timeline in section 12 of this document. Currently we are extending efforts towards the engineering components of the initiative.

We are documenting processes, establishing

flowcharts and engineering designs to facilitate construction. We are also designing a small


26 | P a g e

scale trial as a proof of concept. At the same time we are meeting with potential buyers such as specialized organic distributors, other aquacultures in the area as well as potential investors to cautiously validate some of our ideas. When these action items have been taken care of, we’ll be sufficiently informed to calculate break-even point, cost object pricing, and to establish a viable implementation strategy. We believe that starting a tilapia aquaculture in San Diego is a worthwhile business for the reasons below: a. Macro Economics and Competition Humanity currently faces numerous interconnected challenges that range from the impacts of the ongoing economic crisis, climate change and extreme weather events, population growth, armed conflicts and pollution.

All of these challenges impact food production in

general and fish and seafood aquaculture in particular. According to the Food and Agriculture Organization of the United Nations, in 2012 the aquaculture industry supplied the world with 154 million tons of fish of which 131 million tons (18.4kg per capita) was destined as food. While capture fisheries production remains stable, aquaculture production continues to develop. Aquaculture is one of the fastest-growing animal food-producing sectors and, in the next decade, total production from both capture and aquaculture will exceed that of beef, pork or poultry. US aquaculture generated $1.2B in revenues with profits of $59M. Because of increasing seafood demand and falling harvests from wild fishery resources due to overfishing, aquaculture products in the US market have significant growth potential over the coming five years.


27 | P a g e

Izumi Dai’s analysis of its competitive environment revealed global and regional competition. The global competition comes in the form of imports. Most of these imports come from Latin American and South-East Asian countries where labor costs are low and foodsafety regulations are mostly inexistent. However, incidences in recent years have spurred concerns regarding the safety and quality of such products. Additionally, demand for fish in those local markets is increasing rapidly due to quick population growth. As a result, in the US there is a growing demand for safer, higher-quality, locally farmed seafood products. This trend is further confirmed by the rise of retailers such as Whole Foods, Henry’s, Trader Joe’s, Sprouts and others that have emerged and expanded substantially during the past 5 years. Following key insights from blue ocean strategy (Kim & Mauborgne, 2005), by looking across time, Izumi Dai has recognized the market growth, the demand for healthier fish, and the increasingly limited imports as an opportunity to develop a blue ocean strategy and to win the market space without much fighting (McNeilly, 2013). b. Tilapia itself Most tilapia in the U.S. market originate with one of three species: Blue, Mozambique and Nile. These species have been cross-bred for many years by farmers trying to maximize fish size, cold tolerance, desirability of color variations for the market place, retention (fillet yield is 30 to 35% of the whole body weight) as well as to reduce cycle times and disease risks. The differences between the breeds are minute and along the lines of point of natural origin or water temperature requirements. Tilapia is a prolific, invasive species that can take over a pond or lake in short order. If cultured together, females will be half the size of the males (0.75


28 | P a g e

lbs vs. 1.5 lbs). Males reach marketable size within 5 to 7 months from birth (Tank Culture of Tilapia, June 2009). Tilapia hold certain characteristics that make them suitable for tank culture. They can tolerate the fish stocking density that is essential to the viability of the business. Their slime coat protects them better from bacterial infections compared to other fish. Tilapia’s hardy nature reduces the need for pesticides, antibiotics, drugs and other added chemicals. They grow quickly given good water quality and ample food, but can also thrive in water of variable quality. They are omnivorous, in that they can be fed vegetable matter and/or animal protein. Fingerlings are produced by the females all year long. This in turn results in the steady production of new fish which facilitates a year-round tank operation. From a nutrient point of view, tilapia contains unsaturated fat (1.3 g in 4 oz.), saturated fat (56 mg in 4 oz.), calcium (11.3% of the daily value), potassium (10% of the daily value) as well as a large amount of protein (23 g in 4 oz.) (Banna, 2011). Given the economic, demographic, political, technological, global, sociocultural and physical criteria that define demand as discussed on pages 3-7, Izumi Dai’s diversification strategy hinges greatly on tilapia’s health and low technology reproduction characteristics. c. Tank Design and Technology Izumi Dai’s modular flow-through tank design allows for scaling to meet demand in local markets. It also allows for quick expansion to new markets or to scale up production to meet demand. The design is centered around the concept of intensive tank culture to continuously produce high yields on small parcels of land. The smaller, separate, closed-loop tanks and modular equipment design approach is contrary to the current mass production customized


29 | P a g e

setups or pond systems. Izumi Dai’s design greatly mitigates costly disease spread, complex maintenance and repair, and total kill scenarios. The company’s tank design includes the use of heterotrophic or “biofloc” technology (Avnimelech). Through mixing and aeration the nutrients that would otherwise collect at the bottom of the tank are brought to a state of saltation, which makes them available to the fish as well as to heterotrophic bacteria. The water exchange is limited to allow organic residues to accumulate. This creates an ideal environment for these protein-rich bacteria to develop profusely in the water. Research has indicated that the application of biofloc technology reduces external feed requirements to up to 70%, which represents substantial cost savings to the company.

Another benefit is the reduction of toxic residues such as sulphides and

ammonia in the water. This translates to energy savings related to pumping, oxygenation, and filtering compared to a regular system in which the volume of water in the tank is completely replaced every 90 to 120 minutes. Finally, fish growth and intensification are positively affected by biofloc technology and so is Izumi Dai’s bottom line. Additionally, given the industry’s minimal use of technology, Izumi Dai’s strategy relies on a competitive advantage that reduces expensive manual labor through the implementation of automated SCADA systems which would control feeding stations, temperature and water quality control as well as alarms. The system would be augmented with day/night cameras and configured to escalate alarm notifications from onsite personnel to offsite stakeholders by phone, text and/or email.

Control system parameters can be monitored centrally on a

dashboard website. System configuration changes can be implemented on the fly locally or remotely over the internet.


30 | P a g e

d. Organic, Halal, Kosher and Made in America Research has indicated that psychographics surrounding tilapia and recirculating aquaculture systems have improved with our target demographic. Product quality and demand creation are central to our strategy. We aim to reach beyond existing demand (3rd principle of blue ocean strategy) through finer segmentation by tailoring our offering to better meet customer preferences for high quality healthy fish. In order to differentiate ourselves from the cheap, low quality imports, we intend to brand the product with the tag line “Made in America”. In addition, research has indicated that organic, local farm fresh products have gained in popularity within agricultural products in Southern California. Izumi Dai’s plans to leverage this new trend by breeding fish without pesticides, herbicides, and artificial additives. The company will comply with organic production standards regarding breeding, processing, storing, packaging and shipping to ensure organic certification by the US Department of Agriculture and CCOF (About CCOF Organic Certification, 2013). Additionally, we intend to apply for Kosher certification by committing to the Jewish laws of shechita and nikkur. These laws involve habitat, slaughter practices, and animal feed mostly. Given that the Jewish laws don’t represent a departure from Izumi Dai’s planned operational processes, obtaining Kosher certification would be achievable with minimal efforts. The company’s strategic plan also intends to follow Islamic law to achieve Halal, which means permissible. In this context, Halal relates mostly to the packaging of the fish so that Muslims are permitted to consume the animal. Since Muslims must eat halal food regardless of price (unless not available), Izumi Dai’s fish would have an advantage compared to the less expensive imported tilapia.


31 | P a g e

The organic seal, Hechsher seal, and Halal seal would be applied to the product packaging to raise customer awareness. Given Izumi Dai’s aspirations to certify and label its “healthy” fish (while avoiding enological terminology to keep things simple), the company has decided to minimize customers making trade-offs across less expensive alternative industries by competing largely on feelings as our appeal to buyers is emotional. This strategy represents a blue ocean in Southern California because the competition consists of low quality imports from dubious origin (Kim & Mauborgne, 2005). Compared to what’s available on the market today, Izumi Dai’s offering represents a leap in value which will rapidly earn brand buzz and a loyal following in the marketplace (Kim & Mauborgne, 2005). Additionally, this strategy erects barriers to imitation as well. e. Production method: inexpensive energy Izumi Dai intends to go far beyond its competitor Escondido tilapia Farm’s use of horse manure and compost to generate inexpensive farm energy. Hansen International is making the manure available to us ubiquitously at no cost beyond pick-up labor and transportation. We plan to acquire inexpensive steel shipping containers that are readily available due to the trade imbalance between the US and Asia. Shipyards sell these for approximately $2,500 each. These containers would be filled with horse manure (and farm waste) and laced with water hoses to collect heat. The hermetically sealed containers would be painted black to attract heat. They would also be transformed to allow for easy access at the top and other surface areas per our proprietary engineering design. The naturally occurring anaerobic digestion of the manure by microorganisms would yield energy in the form of heat and methane, also called


32 | P a g e

biogas. Biogas consists of 60 percent methane and 40 percent carbon dioxide. It burns cleanly, thus greatly reducing or eliminating the need at the farm for fossil fuels that produce harmful greenhouse gases. Biogas would be collected in tanks and used for electricity generation (Youtube; Frishberg). In addition, the water from the aquaculture would be recirculated through the containers for heat exchange purposes as well.

When the manure has decomposed to levels of

diminishing returns with regards to energy creation (the organic nitrogen has been converted to ammonia) it can be removed from the process and used or sold as fertilizer. Our startup’s innovative ideas make the process attractive for waste management compliance, especially given the strict California laws regulating odor, groundwater contamination, and greenhouse gases.

After some time, we might even become “Green

Business Certified” by the SBA and/or others so that we can apply the “Eco label” to our products (Green certification and ecolabeling). Such action would add to the buyer’s emotional perception of Izumi Dai as a better choice. f. Production method: inexpensive organic feed In nature tilapia will feed mostly on plankton and detritus. The industrial production of tilapia in controlled aquaculture environments requires the use of commercial fish feed. The use of 40-50% protein feeds increases fish growth up to tenfold compared to fish bred in ponds where no supplement feed was given. At $6 per pound, certified organic pellet fish food for tilapia that consists of 31% protein is very expensive. Feed cost is especially relevant when realizing that each fish requires a daily feed intake of 2-5% of its body weight. Tilapia’s feed conversion is at about 2 lbs of feed per pound of gain.


33 | P a g e

In order to control feed cost, our startup intends to use the decomposed horse manure as the main ingredient to feed a renewable source of animal protein (red worms) in a closed-loop system (Rasing earth worms, 2013). The only elements of concern for a red worm habitat are moisture and temperature. They are very easy to breed and can double their population every 90 days. They eat half their weight each day which further processes the horse manure to a high quality fertilizer (soil humus) that could be resold at premium pricing (Humus-the foundation of living soil, 2006). We intend to purchase rice and/or other inexpensive organic plant-based feeds to balance the tilapia’s diet to reach maximum yield. Izumi Dai’s use of SCADA technology, biogas and horse manure byproducts to keep costs low represents a substantial competitive advantage (entry barrier) towards the company’s local competition. At the same time, the company’s cost strategy brings its product pricing closer to the low quality imports which simplifies the consumer’s decision to buy our products.

7. Our current and projected strategy Izumi Dai intends to leverage its tangible and intangible assets, its capabilities and core competencies to obtain a competitive advantage and long-term strategic competitiveness. As discussed in the previous section, Izumi Dai has free access to large amounts of horse manure that can be used for a variety of cost reducing practices. Other tangible assets that are currently in our possession are computer equipment, vehicles, machines, and land in sufficient quantity for the company’s proof of concept. Intangible assets are the company partner’s core capabilities such as newly gained business management knowledge, our professional experience in the fields of engineering, technology, and farming, as well as software necessary to run back-of-house administration functions.


34 | P a g e

Izumi Dai’s disruptive strategy of “Organic, Halal and Kosher and Made in America” product certification enables a narrow market segment focus.

This initial focused

differentiation will further distinguish the company from its competitors regarding customer value. Soon after inception, we anticipate demand to increase beyond the aquacultures’ maximum annual output.

At that time the company will reinvest profits towards swift

expansion into other premium markets by leveraging our unique modular aquaculture design and technology. As Izumi Dai’s footprint increases, the company will require a broader market to sell its products.

The company’s strategy will gradually shift towards cost leadership thanks to

economies of scale by reaching the highest levels of efficiency in high cost categories such as feed, energy, and labor. Reaching a cost leadership position in the US market space will be beneficial in the long run given previously described economic factors, as well as the ongoing ecological degradation of water quality in Asia and South America. In short, the projected increase in demand for healthy sources of animal protein in the US ensures a successful outcome for aquaculture companies that are able to produce large quantities of fish at affordable pricing to the middle class.

8. An update on your selected competitor since the case ended. In light of the market share data discussed earlier in this report, a single competitor will not be selected. Instead, imports, representing both frozen and fresh tilapia, will be consolidated and categorized as a single competitor, although this category will be comprised of various farms from different countries.

The logic behind this choice is that it is near


35 | P a g e

impossible to identify any one, single competitor because of the minimal concentration and high fragmentation of the competitive landscape. The bulk of frozen tilapia imports come from China, while Latin American countries with a closer proximity to the US dominate the fresh tilapia import market. Although the products from these countries are cheaper because of the low cost of labor and less stringent regulatory policies, recent incidences have led to growing concerns regarding the safety of the seafood products produced in these countries. One such startling and recent example is published in Bloomberg Businessweek. According to the article, the tilapia at an aquaculture farm located in China’s Guangdong province are fed partly with feces from hundreds of pigs and geese. These same fish are purchased by exporters and sold to US companies. “This practice is dangerous for American consumers, says Michael Doyle, director of the University of Georgia’s Center for Food Safety. The manure the Chinese use to feed fish is frequently contaminated with microbes like salmonella,” says Doyle, who has studied foodborne diseases in China (Uyen & Bi, 2012).” The article explains that this is not an isolated incident. In fact, a purportedly growing number of farmers are adopting this practice in order to cut costs because of competition, with some farmers abandoning commercial feed entirely and switching over to feces. The FDA only inspects about 2.7% of food imported into the US. Since 2007, the FDA has rejected 820 Chinese seafood shipments, 187 of which contained tilapia (Uyen & Bi, 2012). Similarly undesirable farming conditions have been practiced in Latin American countries, where the bulk of fresh tilapia imports to the US come from. One practice of concern is farming tilapia in lakes or ponds where the fish excrement is unable to be filtered out or


36 | P a g e

removed, thus polluting the water. Dr. Jeffrey McCrary, an American fish biologist who works in Nicaragua said, “We wouldn’t allow tilapia to be farmed in the United States the way they are farmed here, so why are we willing to eat them (Rosenthal, 2011)?” Further concerns are raised from tilapia’s invasive nature.

Reportedly, tilapia has

“squeezed out native species in lakes throughout the world with its aggressive breeding and feeding (Rosenthal, 2011).” In the US, the use of cages to farm tilapia in lakes is generally forbidden. If tilapia escape from their enclosures, then they can potentially destroy the existing ecosystem within the lake or pond, as was the case with Lake Apoyo in Nicaragua. When the tilapia escaped from the cages, they consumed an aquatic plant called charra, which the other fish fed off of. As a result, some species of plants and fish that once inhabited the lake are now extinct.

9. Competitor’s current and projected strategy With more health concerns and disturbing stories regarding aquaculture operations coming to light, foreign farmers are growing more conscientious with regards to their farming practices. The importers current and projected strategy focuses on strengthening consumer confidence by qualifying for accreditation from industry watchdogs. Such certifications are received by complying with specific standards which require farmers to adopt environmentally responsible farming practices. Regal Springs, which operates tilapia farms in Mexico, Honduras, and Indonesia, is one such importer who is employing this strategy. Regal Springs tilapia’s Honduras plant has been awarded the Global Aquaculture Alliances Best Aquaculture Practices (BAP) certification (Regal Springs Honduras Farm Receives BAP Certification, 2013). They are also the first fish farm to be


37 | P a g e

certified by the Aquaculture Stewardship Council (ASC).Such certifications and practices help aquaculture farms and processors to do business with large corporate customers like Costco (Rosenthal, 2011). Similar initiatives are improving farming conditions in Chinese aquaculture farms. In 2012, the ASC began work in China with the objective of “developing more sustainable methods of tilapia farming (ASC to help China tilapia farming, 2012).” The project was planned to last two years. Its three primary objectives are: first, to make more details on the tilapia supply chain in China available; second, to introduce ASC standards to China and encourage Chinese tilapia producers to seek ASC certification; and third, drum up public and consumer support for ASC-certified tilapia from China (ASC to help China tilapia farming, 2012).

10a. Izumi Dai Growth-Share Matrix


38 | P a g e

Izumi Dai will have an initial focused product of fresh, organic tilapia. Tilapia consumption in the US is increasing steadily and will continue to increase. Izumi Dai and similar domestic aquaculture firms use the live fish market with higher market price to circumvent the Asian and South American importers with low-price, frozen tilapia fillets. Increasing market share is critical to moving into the “Star” investment quadrant, as the industry growth is expected to continue to increase domestic supply. Growing demand in developing nations may reduce the supply of imported tilapia. Izumi Dai will penetrate the mass frozen fillet market when import supply decreases and thus price increases. Operations will need to support not only live fish, but increase production and invest in processing and packaging for frozen tilapia. By increasing the frozen fillet market share captured from imports Izumi Dai will realize “Cash Cow” conditions.

10b. Our competitor’s growth-share matrix


39 | P a g e

Chinese tilapia farms process and export tilapia to the US in frozen whole and fillet portions. In addition to supporting US fish demand, the Chinese aquaculture industry is seeing an increase in Chinese domestic demand. Exported US frozen fillets are currently “Cash Cows”. Low labor and low regulation allow imports to dominate the US market share. As more South American and African aquaculture programs are established, the market share will decrease towards the “Dog” quadrant. Chinese farms may see the opportunity of live or fresh regional tilapia as more attractive and move the Domestic tilapia category from “Star” to “Cash Cow”. With this move, Izumi Dai will attempt to secure US market share.

11. Critical resources, strengths, core capabilities, core competencies, and weaknesses The competitive analysis in this thesis has identified the imports from China and South America as our main competitor. Other competitors described in this paper represent an estimated 1% of US tilapia market share only. Izumi Dai versus overseas imports Izumi Dai

Critical Resources



Modular tank des ign, SCADA Technology (1)



3 MBA students with proven profess ional track records (2)



Easy access to intellectual capital (2) Low local competition (2) 37 million potential consumers locally (2) Made in San Diego (1)



“Green” energy and feed



Strengths

 

Core Capabilities C ore Competencies

Overseas imports



Acces s to inexpensive la bor (1) Access to inexpensive feed (1) Access to offshore processors (1)



Mas s production and cos t leadership (1)



 

 

Fresh, Organic, Halal, Kosher genetic strain

Consis tent proprietary

Price point much higher than imports (3) Reliance on technology (2)



 

Minimal regulatory requirements (1) Existing distribution channels (1)

Their abili ty to manage the individual components of the process from start to finish 



 

High volume production Inability to provide fresh, organic to the US market (1) Psychographics of cheap imports from ques tionable origin (3)

Startup iss ues: seed funding, dis tribution, pla nt, equipment, Increasing demand for Tilapia in the respective local markets property, no client-base (3) affects their ability to supply to the US in sufficient quantities (3) 

Weaknesses

    



Need 12-18 months to s tart the company (2) Never done this before (1) Psychographics (3) Regulatory requirements and compliance (3) Low volume production (3)

     

Water pollution (2) Rising labor rates (2) Reliance on inexpensive labor (1) Dis tance to market / carbon footprint (2) Low technology (3) Red ocean (3)


40 | P a g e

Izumi Dai versus the weaknesses of overseas imports Izumi Dai

Critical Resources







“Green” energy and feed



Core Competencies

3 MBA s tudents with proven profes sional track records (2) Easy access to intellectual capital (2) Low local competition (2) 37 million potential consumers locally (2) Made in San Diego (1)

 

C ore Capabilities

Modular tank des ign, SCADA Technology (1)

 



Strengths

Overseas imports (WEAKNESSES) 

 

Increasing demand for Tila pia in the respective local markets affects their ability to supply to the US in sufficient quantities (3) 



 

Fresh, Organic, Halal, Kosher Consis tent proprietary genetic



s train

Rising labor rates (2) Reliance on inexpensive labor (1) Low technology (3)



Psychographics of cheap imports from ques tionable origin (3)

Water pollution (2) Dis tance to market / carbon footprint (2) Inability to provide fresh, organic to the US market (1) Red ocean (3)

Izumi Dai’s weaknesses versus overseas imports Overseas imports

Critical Resources

  



Strengths

C ore Capabilities Core Competencies

 

Access to inexpensive labor (1) Access to inexpensive feed (1) Access to offshore processors (1) Mass production and cost leaders hip (1) Minimal regulatory requirements (1) Existi ng dis tribution channels (1)

Their abili ty to manage the individual components of the process from start to finish

Izumi Dai (WEAKNESSES)

Reliance on technology (2) Startup is sues : s eed funding, distri bution, pla nt, equipment, property, no client-base (3)  



Price point much higher than imports (3) Regulatory requirements and compliance (3) Need 12-18 months to s tart the company (2) Psychographics (3)



Never done this before (1)



Low volume production (3)

  





High volume production

12. External threats and opportunities in this industry Opportunities in the eatable fish market sector favor the organic sustainable product strategy of Izumi Dai. Changes in consumer habits, global environments, and natural food stocks create an immediate need for innovation and growth in the aquaculture industry.

a. Opportunity - Changes in consumer habits (2): The US Millennial generation, born between 1982 and 2001, differ in their food buying habits from older generations. Millennials are willing to spend more on fresh, organic, and healthy food (How 'Millennials' Are Changing Food as We Know It, 2012). Processed and canned foods are falling out of favor with Millennials who are starting families and entering into careers


41 | P a g e

after schooling. Izumi Dai believes the buy local and organic trend will grow and steadily increase fresh tilapia demand. This benefits local aquaculture, agriculture and aquaponic companies. b. Opportunity - Natural fish stocks decreasing (1): Lower ocean food stocks are at the root of the initial aquaculture interest from Izumi Dai team members. Global populations are growing and the per person fish consumption is increasing as well. With nearly 85% of global fish stocks over-exploited, depleted, fully exploited or in recovery from exploitation, the global population will need to increase alternative fish stocks to maintain natural ecosystems (Vince, 2012). In addition, man-made and natural disasters are affecting natural fish stocks. Oil spills, El Niño’s and climate change, along with hydraulic fracturing pollution are wiping out lake, river, and coastal environments natural ecosystems.

As a result of decreasing natural food stocks, the aquaculture industry was

expected to increase 4.6% in 2012 (McBee, 2012). c. Opportunity - Technology reducing labor (3): Increased off the shelf technology with internet integration is changing the way Izumi Dai is approaching the traditional aquaculture labor resources. Our research shows that few competitors have adopted such an off the shelf strategy. Innovations in residential pond equipment, home reef aquarium alarm and control systems, as well as SCADA industrial control systems will allow Izumi Dai to reduce traditional fish labor resources. Fish grow out oversight, including water quality parameters, feeding, and alerts will be recorded and modified by automated systems with visible dashboards available to stakeholders over the internet. Izumi


42 | P a g e

Dai will move the saved labor to auxiliary support tasks, which allow for the vertical integration of the feed and hatchery operations. d. External Threat - Regulation and labeling (1): Izumi Dai’s major differentiator with the major import market is organic, hormone, and chemical free. Research indicates no major governmental or academic agencies monitor the labeling and claims or organic and hormone use in aquaculture. Izumi Dai believes tilapia importers, as well as US competitors, may use the organic and hormone-free labels without oversight, thus nullifying a major marketing effort. Izumi Dai will work with academics and food agencies to propose and construct food practice oversight in aquaculture. e. External Threat - Adjacent aquaponic industry (3): Aquaponics is a related field to aquaculture. By taking the effluent from fish populations and using plants to filter out organic waste, aquaponic operations produce both fish and plants. With the organic and fresh food opportunity described in the above section, Izumi Dai may be challenged by a stronger, locally grown marketing scheme and perceived to be more “green”. Izumi Dai is not initially interested in aquaponics, as the tradeoffs between fish and plant population would reduce the density and capacity of fish production. f. External Threat - Distribution channels (2): Farmed tilapia imports, as well as ocean-caught fish, have mature distribution channels already in place. High volume grocery chains and restaurants typically contract food distributors and do not allow independent suppliers, which overlap with distributor products. Distributors of course will stock products that will allow high margins and have consistent dependable supply chains. With the low labor costs and economies of scale farmed imports have


43 | P a g e

unbeatable prices, in order for Izumi Dai to break into distribution it must first work independently to distribute product and build branding until distributor clients ask for organic local tilapia.

13. Strategy canvas and strategy curves Figure 2: Strategic Canvas for the Industry

Izumi Dai created a strategic canvas which covers 6 attributes of an aquaculture firm: ease of buying, supply chain risk, responsiveness, health conscious, sustainability, and price. The attributes were given values from low to high based on producing tilapia and selling them in the southern California region. The players who received values were Izumi Dai, in the initial production years, Blue Ridge Aquaculture, a major, large-scale US aquaculture competitor, and an East Asian importer of frozen tilapia. BA-690 Strategic Management Thesis: Tilapia Farming in Recirculating Aquaculture Systems

44 | P a g e

Ease of buying is defined by the number of point of sale locations to consumers. Izumi Dai will initially have a low footprint of retail locations. This will be a large challenge for Izumi Dai. Blue Ridge aquaculture was low to moderate ease of buying, due to limited geographical range. They have a large portfolio of locations in the Midwest and East. We believe their national connections would give them an advantage in Southern California. Asian importers have a high ease of buying, as frozen fillets can be packaged by multiple distributors and transported through a wide network of buyers. Tilapia supply chain risk includes supplier product flaws, and timing and inventory issues which can affect fish production and quality. Izumi Dai has a low supply chain risk. By investing in self-grown sustainable feed, off the shelf equipment, and tilapia breeding, the exposure to risk from suppliers is low and internally managed. Blue Ridge has a moderate supply chain risk with its large operation. Unique, large-scale filtration systems are believed to be used along with commercial feed. Asian importers have a high supply chain risk based on downstream partners including shipping and distributors. Packaging and shipping across the Pacific, along with lead times, adds risk to the quality and distribution to customers. Responsiveness evaluates the time it takes to adjust to customer requests including packaging and quantity. Izumi Dai has a moderate responsiveness score. This is attributed to the fact that the modular tank systems can be scaled with demand, although an upper limit for initial capacity exists.

Time to market is low as Izumi Dai is close to local markets and

customers. Blue Ridge aquaculture has a high responsiveness with its large production capacity and experience in growing production levels and distribution. Asian importers have a low


45 | P a g e

responsiveness rating due to long lead times and their model of offloading frozen fish at full capacity to lower prices. Health conscious is a rating assessing the consumer expectation of pollution and chemical free, hormone-free, safe and nutritious fish. Izumi Dai has a high health conscious rating. Marketed as organic and hormone-free, Izumi Dai will make quality the differentiator with imports. Blue Ridge Aquaculture also received a high rating for health conscious, since it is marketed as hormone and pollutant free. Feed sources are not revealed publically. Asian importers received a low health conscious score. Importers have been discovered to have poor, unregulated tilapia raising conditions with measured pollutant levels found in their fish (Barboza, 2007). Sustainability is the effect of the tilapia farm on the environment, balance of resource inputs and reuse of outputs. Izumi Dai rated high in sustainability due to plans to create a sustainable food source, thus eliminating the demand for protein feed. Blue Ridge rated moderate to high. Like Izumi Dai, Blue Ridge uses the recirculating aquaculture model to reduce water usage. However, it is unclear whether Blue Ridge uses a sustainable feed source or relies on commercial protein feed, which commonly consists of fishmeal. Asian importers received a low sustainability score since they typically use outdoor pond setups which utilize large amounts of water and runoff. Antibiotic and hormone use have unknown effects on the natural ecosystem. Price is the fillet gate price per pound. Izumi Dai has a high price for fillets. Labor and infrastructure costs are required for implementing a vertical supply chain strategy and setting up facilities in Southern California. Izumi Dai believes consumers will pay the high price for safety, piece of mind, and quality. Blue Ridge has a moderate price, with Asian


46 | P a g e

importers at a low price. Although Blue Ridge has a large economy of scale advantage it still cannot beat Asian import prices. According to Virginia Tech professor Dr. Lori Marsh, US aquaculture producers cannot raise tilapia for the sale price of Chinese and Thai imports (Valencia, 2011). By reviewing the strategy canvas one can see that Izumi Dai understands it cannot beat imports on price. Instead, Izumi Dai will focus on sustainability and quality as food sources become further scrutinized in the media, and supply is limited further.

14. Suggested changes to current strategic plan Given that this thesis represents a startup company as opposed to a case study of an existing company, all items included in this paper are of strategic importance to the viability of the undertaking. Additionally Izumi Dai does not plan to copy its competition because of its reconstructionist approach that transcends market boundaries and industry structure. Rather the company intends to differentiate themselves on quality in an attempt to establish a Blue Ocean in Southern California. The sections below are based on Blue Ocean Strategy’s four actions framework and highlight the importance of remaining true to our current strategy. a. Create a certified healthy source of fish protein (1): Health conscious consumers in Southern California do not have ubiquitous access to healthy fish protein of proven origin. Izumi Dai’s strategy to certify its food as Organic, Halal and Kosher will mitigate this shortcoming. Additionally, the “Made in America” tag line will mitigate undesirable psychographics related to tilapia and aquacultures. The company’s insight and deep understanding of what its competitors and customers are about allows it to maximize the power of market information, which relates to Sun Tzu’s Deception and foreknowledge.


47 | P a g e

Furthermore, the company’s focus, divergence, and compelling tagline is anticipated to lift buyer value and create new demand. b. Raise supply availability to year-round operation (1): Izumi Dai’s intention to leverage proximity to market as well as heterotrophic, SCADA, and modular tank technology to keep operational expenses low year-round represents a substantial advantage compared to the company’s US-based competition that relies mostly on seasonal climate and labor. This strategy will allow the company to capture the fresh and healthy tilapia market without fighting with the local competition. Izumi Dai’s fresh products and unique brand will be in front of customers year-round which will increase their confidence to pick our product over a seasonal competitor’s. It also allows the company to attack its competitors at their weakest point because they are unable to provide high quality fresh tilapia to the local market space given their geographical location and ecologically harmful practices. c. Eliminate seasonal fluctuations in supply (2): Izumi Dai’s strategy of vertical integration ensures constant production quality. The strategy also reduces the bargaining power of suppliers as well as buyers because no other local aquaculture will have the capability to consistently produce tilapia of the same quality in the short run. Speed and preparation will be central to the success of the initiative. d. Reduce harmful ecological impacts (3): Izumi Dai’s differentiating strategy to build an ecologically friendly and self-sustaining facility represents a substantial departure from the traditional overseas fish farm that depletes the nutrients in natural bodies of water and that generates substantial pollution in the form of residual chemicals, nitrates, and carbon footprint. This strategic approach is anticipated to


48 | P a g e

result in free recognition by customers and local media, which in turn will help with demand creation and branding.

15. Concrete and specific strategic and major tactical actions The IBISWorld Industry Report notes that, “Local producers will continue to face competition from imports...Imports will continue to challenge the viability of many US aquaculture producers and limit growth in company numbers and employment” (McBee, 2012). In order to address the competition from tilapia imports, Izumi Dai has developed a strategic plan which focuses on avoiding the strengths of the import competition and exploiting its weaknesses and prioritizing specific market segments. a. Avoid strengths and attack weaknesses The main strengths of tilapia importers, which will be analyzed collectively and not individually, are high volume output and low price. Izumi Dai acknowledges that it could not profitably compete in the areas of volume and price when stacked against foreign importers. Consequently, Izumi Dai has evaluated the weaknesses of these competitors in order to find solid footing upon which it can compete. Izumi Dai has concluded that the primary weaknesses of the import competition which it plans to exploit are quality and location. Quality: Izumi Dai will farm high quality, organic tilapia. Organic certification is a key differentiator because it is a quality benchmark that imports have not attained. In addition to organic certification, Izumi Dai plans to qualify for Halal and kosher certifications, thus differentiating its tilapia further and appealing to a broader market segment. Also related to quality is the farming environment. Izumi Dai has plans to farm tilapia using environmentally friendly aquaculture practices. To emphasize this portion of its strategy, BA-690 Strategic Management Thesis: Tilapia Farming in Recirculating Aquaculture Systems

49 | P a g e

Izumi Dai plans to offer both physical and virtual tours of its operations. The virtual tour will be experienced via Izumi Dai’s website. On the website, a patron can explore an illustrated layout of Izumi Dai’s aquaculture operations. The patron will be able to see actual photos and videos regarding specific aspects of the aquaculture process by selecting links available on the illustrated layout. Izumi Dai is confident that this degree of transparency will result in increased confidence from clients. Location: Izumi Dai will leverage its advantageous location in Southern California by establishing a network of strategic alliances with local grocers, processors, restaurants, and markets. As discussed in section 17 of this report, there is a growing trend among consumers to purchase and support locally farmed products.

Izumi Dai knows it can help the local

commercial players capitalize on this emerging trend. Similarly, Izumi Dai understands that these commercial players could also significantly increase its brand awareness and presence in the local community. One idea of how this reciprocity could be realized is to have informational pamphlets or other materials about Izumi Dai on display at participating sites. For example, pamphlets could be displayed at a local, specialty grocer for customers to take while visiting the seafood section. The specialty grocer knows that its customers want a high quality, locally farmed fish. By sharing the pamphlet with its customer, the specialty grocer markets its unique product and wins the confidence of the customer. Izumi Dai benefits by receiving exposure.


50 | P a g e

b. Win all without fighting: Prioritize markets and determine competitor focus Through market prioritization, Izumi Dai has decided to make the Southern California specialty food market its primary target segment. This market has been selected because of its location and growth and profitability potential. In order to secure footing in this market, Izumi Dai is planning to launch a marketing and branding campaign aimed at increasing both brand awareness and loyalty. The first phase of the campaign will be focused on creating a website for Izumi Dai. A website is a critical component for businesses operating in this day and age. The website will serve as a window, allowing individuals to have an intimate glimpse into the operations and culture of Izumi Dai. By visiting the website, individuals will be able to learn about who Izumi Dai is and why it is unique, for example, highlights regarding Izumi Dai’s community outreach and involvement initiatives. Once the website is completed, Izumi Dai will be ready to move onto the second phase of the campaign. The second phase of the campaign is a series of video journals that will be released on Izumi Dai’s website. The video journals will chronicle Izumi Dai’s pre-production operations, like tank set-up, to its post-production operations, such as its first harvested tank of tilapia. The purpose of the video journals is to promote brand awareness and loyalty by allowing viewers to participate in Izumi Dai’s journey and experiences. The third phase of the campaign, which will also begin and run concurrently with the second phase, is the creation of Twitter and Facebook accounts. The timing of such action will be critical as speed and deception are central to the success of the initiative. Pre-production, Izumi Dai plans to use these social networking sites to keep potential clients and customers informed regarding its production schedule. These sites will be a perfect platform for releasing


51 | P a g e

and disseminating video journals, photos, and other updates. Post-production, Izumi Dai plans to use the sites to communicate news, updates, promotions, and other relevant and exciting material to its customer base. All three of these phases combine to form a brand experience. Customers within the specialty food segment do not only want high quality food, but they also want to be a part of a cause—the bigger picture. By showing its clients what it does and what it stands for, Izumi Dai will be able to give their consumers an opportunity to participate in a cause which promotes responsible farming, healthy lifestyle, and community cohesion.


52 | P a g e

16. Implementation plan and time line


53 | P a g e

17. What do you expect the competitor to do? An implication wheel is a visual tool used for strategic decision making. It addresses the possible actions a competitor may take in response to a strategic move made by a competing firm. In this case, the strategic move proposed by Izumi Dai is the central node, shown in figure 1.2. The arrows branching off the central node point to the perimeter nodes, which are the possible actions Izumi Dai’s competitor may take. The counterpunch nodes detail Izumi Dai’s counter measures which it plans to implement in order to counter and mitigate the effect of the competitions various responses. As discussed earlier, the competition is comprised of both Latin American and Asian imports.

The various nodes of the implication wheel specify which of the two types of

competitors is being analyzed. The analysis of the implication wheel begins with the node in the upper left hand corner and then proceeds clockwise. As discussed in section 5, the competitive landscape of the aquaculture industry is highly fragmented, with low levels of concentration. Thus, the actions of one firm will more than likely not elicit a direct response from competing firms. Consequently, Izumi Dai estimates that the probability that the importers will take no action in response to their strategic move is 30%. Izumi Dai estimates that the probability of Latin importers responding by offering a fresh, organic tilapia fillet is 20%. Section 9 of the report addresses the growing trend for Latin importers to conform to higher health and quality standards. A natural extension for these importers would be to convert a portion of their farms to accommodate organic farming conditions, thereby capitalizing on the growing demand for organic products in the US.


54 | P a g e

However, qualifying for organic certification can be a lengthy process. Therefore, the estimated time to implement such a strategy would be anywhere from six months to a year. Izumi Dai anticipates such a move from Latin importers and, as such, is planning to immediately differentiate itself by marketing its tilapia as farmed locally in the US under US standards. A growing trend among consumers is the desire to support local farmers. In fact, “When the National Restaurant Association (NRA) unveiled the results of its “What’s Hot in 2012” chef survey in December, few were surprised that locally sourced meats and seafood secured the No. 1 spot on the list of top 10 menu trends for this year. Or that the term local showed up in three other trends on the list” (Fletcher, 2012). Izumi Dai plans to leverage this growing trend in its favor by establishing strategic alliances with local restaurants, markets, and grocers. The probability that a Latin importer will respond by opening a US based aquaculture farm in order to compete in the fresh, organic, locally raised tilapia market is 20%. For example, Regal Springs, which operates tilapia farms in Honduras and Indonesia, has also expanded into Mexico. Since these companies are exporting their tilapia to the US, it makes sense for them to have operations with a closer proximity to their destination market, thereby cutting back on transportation costs and shortening the length of the supply chain. Such a transition would be lengthy, taking at least one to two years before the farm was producing. Knowing that such a move by a foreign competitor may be a possibility, Izumi Dai has developed a three-pronged approach to bolster the loyalty of consumers, distributers, and communities.


55 | P a g e

First, Izumi Dai plans to start immediately building brand awareness and brand loyalty. With an emphasis on its local presence, Izumi Dai hopes to be a gregarious and transparent operator within its community. Tours of the farm will be open to the public. A Facebook page and other social media websites will be used to disseminate information and promotions. Izumi Dai wants consumers to know who they are and what they do. Second, Izumi Dai will form strategic alliances with local restaurants, distributors, processors, and markets. Currently, in the Southern California area, there is a scarcity of local tilapia farms. Therefore, Izumi Dai will have the first move advantage when establishing relations with these players. With time, Izumi Dai is confident that it will establish loyalty through its unprecedented quality and service. Finally, Izumi Dai wants to strengthen its ties to the community by embracing value added initiatives in the form of community outreach.

Izumi Dai is already in talks with

individuals about concepts such as Spectrum Farming.

Spectrum Farming is a program

designed to help individuals on the autism spectrum find fulfillment, receive treatment, and have meaningful experiences through work. Izumi Dai will devise a plan to allow individuals on the autism spectrum contribute and work on the farm as a part of their healing process. Now addressing the Asian importers, the probability that Asian importers respond by offering a frozen, organic tilapia fillet is 20%. The estimated time to implement such a strategy is one to one and a half years. As a countermeasure, Izumi Dai would eventually like to source a processor such as Pacific Seafood or Ocean Beauty who could help bring a frozen, organic fillet to market. Such a fillet would allow Izumi Dai to reach a broader market outside of its local presence. This


56 | P a g e

product would help Izumi Dai maintain market share that it may have potentially lost if such a product was not introduced. The probability that an Asian company responds by opening a US based aquaculture farm in order to compete in the fresh, organic, locally raised tilapia market is 10%. The reason that the probability is lower for the Asian companies than for their Latin counterparts is because the Latin companies are already firmly established in the fresh tilapia supply chain, whereas the Asians are not, dominating the frozen supply chain. As a countermeasure, Izumi Dai plans to implement the same three-pronged strategy mentioned earlier.


57 | P a g e

Implication Wheel


58 | P a g e

18. Business Startup Scenario a. Phase 2: Pilot stage, proof of concept: Funded by initial business partners with private capital, the pilot stage will be an initial grow out of tilapia to test assumptions and to have a product for additional investors and customers. This stage will include breeding tilapia and growing to selling weight. This will allow monitoring and control of water health levels and system fluctuations. The alternative feed solutions will be setup at a reduced scale, and feasibility will be analyzed to reduce feeding costs. The pilot stage will be a scaled down and accurate representation of the full production stage. Assumptions include free facilities and free labor provided by funding team members. Facilities require approximately 300 square feet with electricity and water on residential property. All equipment will be reused in the production phase. Tank and Equipment Cost Breakdown:

Tanks

$2,000

Biological filters

$2,000

Pump

$500

Plumbing and fittings

$300

SCADA Monitoring

$600

tilapia Breeding Pairs

$800

Heating

$300

UV filter

$200

Electricity/year

1000

Feed

2000

Total

$9,700


59 | P a g e

b. Phase 3&4: Acquisition and Production Initial production will require approximately 5,000 square feet of enclosed area for fish breeding and grow out. Utilizing an existing greenhouse or manufacturing structure, Izumi Dai will rent or lease property in San Diego County with electricity and water access. With a site obtained, tank construction and equipment procurement will proceed along with transport of the proof of concept tilapia and equipment. A sample layout is proposed below. Main tanks will be 30 feet in diameter with a depth of 4 feet. Equipment including filters, heaters, aeration and monitoring equipment will be collected to two pods next to each tank. The hatchery area will include tilapia breeding pairs and new fry holding. Fry tanks allow young tilapia to grow in a special feed and filtering environment up to a size allowing introduction to the main tanks. Sample layout below:


60 | P a g e

Costs associated over the first 5 years are detailed in below. Again, capital will be provided by Izumi Dai owners with equal equity. Equipment in the first year will be major upfront costs. Equipment costs in the following years are assumed to be approximately 20% on initial investment for maintenance and replacement. Unused equipment will be an opportunity split between equipment upgrade and sales and marketing. Labor will include one full-time employee on site; labor provided by Izumi Dai partners will not be compensated until the company reaches profitability. Additional labor provided through internships will be explored with California agricultural colleges. Land lease was estimated from open land with existing greenhouse structures in Escondido, California. For the purpose of a technical summation of fish production costs, fully independent, alternative feed and energy were not included. Savings from these initiatives will be considered a long range opportunity. Feed costs include 50% alternative feed and 50% commercial feed. Commercial feed will supplement the alternative feed through full sustainment to cover the risk of an internal feed breakdown. Marketing will include distributor media, consumer education through social media, and activity in aquaculture organizations. The long range plan produces a net profit between the fourth and fifth year of operation at a very conservative estimate of $2 per lb.


61 | P a g e

Year 1

Year 2

Year 3

Year 4

Year 5

Tanks

$35,000

$3,500

$3,500

$3,500

$3,500

Biological filters

$28,000

$2,800

$2,800

$2,800

$2,800

Pump

$7,000

$700

$700

$700

$700

Plumbing and fittings

$2,500

$250

$250

$250

$250

SCADA Monitoring

$5,000

$500

$500

$500

$500

Breeding Pairs

$1,600

$160

$160

$160

$160

Heating

$2,000

$200

$200

$200

$200

UV filter

$2,000

$200

$200

$200

$200

Aeration

$2,000

$200

$200

$200

$200

Equipment Subtotal

$85,100

$8,510

$8,310

$8,310

$8,310

Electricity/year

$20,000

$20,000

$20,000

$20,000

$20,000

Water

$5,000

$5,000

$5,000

$5,000

$5,000

Commercial Feed

$15,000

$15,000

$15,000

$15,000

$15,000

Labor

$60,000

$63,000

$66,150

$69,458

$72,930

Rent

$36,000

$36,000

$36,000

$36,000

$36,000

Truck and transportation

$20,000

$4,000

$4,000

$4,000

$4,000

Marketing

$10,000

$10,000

$10,000

$10,000

$10,000

Total

$251,100

$161,510

$164,460

$167,768

$171,240

Production (live lb)

20,000

100,000

120,000

120,000

120,000

Cash Inflow ($2/lb)

$40,000

$200,000

$240,000

$240,000

$240,000

Cumulative Returns

($211,100)

($172,610)

($97,070)

($24,838)

$43,922

Expense

********


62 | P a g e

Bibliography (n.d.). Retrieved from Youtube: http://www.youtube.com/watch?v=JCJyyA8LlnY (n.d.). Retrieved from Youtube: http://www.youtube.com/watch?v=8ng5cHEQwQQ About CCOF Organic Certification. (2013). Retrieved from Certified CCOF Organic:

http://www.ccof.org/certification About our tilapia. (2011). Retrieved from Premier Organic Farms:

http://www.premierorganicfarms.com/fish.html About us. (2013). Retrieved from Blue Ridge Aquaculture:

http://www.blueridgeaquaculture.com/aboutus.cfm About us. (2013). Retrieved from Sarasota Organic Tilapia Farms:

http://www.sarasotaorganicTilapiafarms.com/content/about-us ASC to help China tilapia farming. (2012). Retrieved from Seafood Source: your global seafood solution:

http://www.seafoodsource.com/newsarticledetail.aspx?id=18773 Avnimelech, Y. (n.d.). A practical guide book on Biofloc Technology. World Aquaculture Society. Banna, J. (2011, February 9). Is tilapia fish healthy? Retrieved from LIVESTRONG: http://www.livestrong.com/article/377292-is-Tilapia-fish-healthy / Barboza, D. (2007). In China, Farming Fish in Toxic Waters. Retrieved from The New York Times: http://www.nytimes.com/2007/12/15/world/asia/15fish.html?pagewanted=all&_r=0 California Department of Fish and Wildlife. (2013). Retrieved from

https://nrm.dfg.ca.gov/FileHandler.ashx?DocumentID=3256&inline=true Coburn, R. (2011). Escondido Tilapia Farm. Retrieved from Born Activist: http://bornactivist.com/archives/esondido-Tilapia-farm/ Daneels, A., & W.Salter. (2012). Joint Accelerator Conferences Website. Retrieved from http://accelconf.web.cern.ch/accelconf/ica99/papers/mc1i01.pdf Dettmann, R. L. (July 2008). A Demographic Profile of Organic Produce Consumers. Economic Research Service, USDA. Farming with Fish Aquaponics. (2013). Retrieved from www.farmingwithfish.com

Fletcher, J. (2012). A Case for Sourcing Locally . Retrieved from QSR: http://www.qsrmagazine.com/ingredients-dayparts/case-sourcing-locally


63 | P a g e

Frishberg, M. (n.d.). How to Make a Biogas Plant at Home With Cow Dung. Retrieved from eHow: http://www.ehow.co.uk/how_5966772_make-plant-home-cow-dung.html Future Food Farms. (2013). Retrieved from http://www.futurefoodsfarms.com /

Gjedrem, T., Robinson, N., & Rye, M. (2012). The importance of selective breeding in aquaculture to meet future demands for animal protein: A review. Aquaculture. Green certification and ecolabeling. (n.d.). Retrieved from US small business administration:

http://www.sba.gov/content/green-certification-and-ecolabeling Grow Foods. (2012). Retrieved from http://www.growfoodsinc.com/hydronov.html

Hitt, Ireland, & Hoskisson. (n.d.). Strategic Management: Competitiveness & Globalization. Cengage Learning, Part 2: strategic actions: strategy formulation, slide 44 . Home. (2011). Retrieved from Premier Organic Farms:

http://www.premierorganicfarms.com/home.html How 'Millennials' Are Changing Food as We Know It . (2012). Retrieved from Forbes:

http://www.forbes.com/sites/bethhoffman/2012/09/04/how-millenials-are-changing-food-as we-know-it/ Humus-the foundation of living soil . (2006). Retrieved from Bio-Dynamic Assocation of India (BDAI):

http://www.biodynamics.in/humus.htm Kim, W. C., & Mauborgne, R. (2005). Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. Harvard Business School Publishing Corporation.

McBee, J. (2012). IBISWorld Industry Report 11251: Fish and seafood aquaculture in the US. IBISWorld Inc. McNeilly, M. (2013). The Art of Business – Sun Tzu. Oxford University Press. Operations. (2011). Retrieved from Premier Organic Farms:

http://www.premierorganicfarms.com/operations.html Park, M. (2012, February). California sets trend in health regulation. Retrieved from CNN: http://www.cnn.com/2012/02/10/health/california-leads-health-laws Rasing earth worms. (2013). Retrieved from Red Worm Composting:

http://www.redwormcomposting.com/raising-earth-worms / Regal Springs Honduras Farm Receives BAP Certification. (2013). Retrieved from Regal Springs:

http://www.regalsprings.com/certifications /


64 | P a g e

Tilapia Farming in Recirculating Aquaculture Systems NettlesAndrew_Spring2013

Recommend Documents