Shrimp Farming in Ecuador

Problem: Xavier's shrimp prawn farm has been innovating and expanding over past years. It is facing the bottleneck of how to become more profitable in the future and should Xavier expand using value chain and valued added parts of shrimp business.

Analysis: the industry of shrimp has value chain which includes: shrimp farming, wholesaling, cleaning, frizzing and packaging; direct retailing or exporting, cooking and retailing. Xavier's company is at the farming process which is a very fragmented segment. The product is only raw shrimp which has low diversification and has less power on both supplier and buyer. The competition is relatively high and farmers are price takers not makers. The demand of shrimp is increasing but so is the supply. The price decreased during the past ten years suggest that the supply increase faster than demand.

The objective of Xavier's shrimp farm is to develop a profitable and environmentally sustainable shrimp farm in Ecuador. Its key success factor is its technological innovation including sophisticated system of intakes and outflows of water, feeding system, cleaning process and genetic shrimp innovation. These KSF allow Xavier to produce uniformly large size, high quality shrimp and increase the profit. The weaknesses of Xavier's farm include its weak branding, and low diversification in product. Another concern is how fast Xavier can expand.

The threats (criteria) to achieve expansion:

* The high interest rate hinders Xavier to require capital for expansion.

* The unstable business environment in Ecuador affects Xavier's production and export.

There are many opportunities (alternatives) that Xavier's could exercise.

* Expanding horizontally its farm size to achieve economy of scale; it allows Xavier's to increase profit by reducing its cost and increase its power against its buyer and seller. There are several options that Xavier could use for expanding.

- M&A or franchising: Xavier can patent his expertise and replicate the farming process quickly and increase production instantly. Since the farming segment is very fragment, it is a good opportunity for Xavier to acquire other farms to grow rapidly or licence the patent and create an alliance between them. The disadvantage is that both strategies require substantial amount of capital but one way to solve it is to buy undervalued farms and use the technology to increase the value after.

- Joint venture is the third option, by joint another famous branded company using Xavier's expertise. The new company will have the capital for expansion and innovation, however, Xavier may lose part of the control of its company.

* Consolidating vertically through the value chain; Xavier could cook, package, and export different products to different