Introduction to Agribusiness Management

Chapter 2. Agribusiness Management:

Organization and Context
Overview

Agribusinesses may engage in a variety of activities that are related to the production,
processing, marketing, and distribution of food and fiber products. Though the one-person or
one-family agribusiness is not uncommon, most of the actual business volume in agribusiness is
conducted by enterprises that employ hundreds or even thousands of people.

Every agribusiness is owned by someone, and it is the circumstances of ownership that

give an organization its specific legal form. There are five basic business forms: the sole
proprietorship, the partnership, the corporation, the limited liability company (LLC), and the
cooperative. The form of organization is not necessarily dictated by the size or type of
agribusiness: nearly every conceivable size and kind of agribusiness may use any of these five
business organization forms. In addition to these five forms, strategic alliances are also used by
agribusinesses as a form of business organization. Strategic alliances can take a variety of
forms, and represent an important way that food and agribusiness firms can work together.

Objective

At the end of the chapter, the students can explain agribusiness organization and
context.

LESSON I. THE ORGANIZATION OF AGRIBUSINESS

Pre-discussion

This lesson will discuss the important characteristics of each of the five forms of business
organization as well as strategic alliances, and outline the factors that affect their choice for a
specific agribusiness situation.

What to expect?

At the end of this lesson, student can:

 Identify the important factors involved in selecting the best organizational form for an
agribusiness
 Summarize the advantages and disadvantages of each of the organizational form

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 Discuss some of the special forms of partnership and their relative advantages
 Describe the role and impact of current individual and corporate tax laws on a firm’s
organizational structure

Lesson Outline

Factors influencing choice of business form E ach form of business organization has its
own individual characteristics. Owners and managers must choose the most appropriate form
for their unique circumstances. An agribusiness may want to change its legal form of
organization as it grows or as economic and other conditions change. When deciding which
form of organization is best, an owner or owners must answer several important questions:

 What type of business is it, where will it be conducted, and what are the owners‘
objectives and philosophies for the agribusiness?
 How much capital is available for the firm‘s start-up?
 How much capital is needed to support the agribusiness?
 How easy is it to secure additional capital for the agribusiness?
 What tax liabilities will be incurred and what tax options are available?
 How much personal involvement in the management and control of the agribusiness do
the owner‘s desire?
 How important are the factors of stability, continuity, and transfer of ownership to the
firm‘s owners?
 How desirable is it to keep the affairs of the agribusiness private, and carefully guard any
public disclosure?
 How much risk and liability are the owners willing to assume?
 How much will this form of organization cost and how easy is this form of agribusiness to
organize?

The sole proprietorship

The oldest and simplest form of business organization is the sole or individual proprietorship, an
organization owned and controlled by one person or family.
The legal requirements necessary to organize as a sole proprietorship are minimal. About all
that is required is an individual‘s desire to start a business and the purchase of a license, if one
is required for that particular kind of business. If the owner wishes to do business under an
assumed name, that is, if the business is to be conducted under a name other than that of the
owner, most states require that the assumed name be registered (this is where you will see
something like ―Mike Jones dba Jones Feed and Supply‖ on legal documents, where dba
means ―doing business as‖).

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Jessica Alverson is a good example. She decided to start a fl oral shop, which she wanted to
call Fragrant Floral rather than using her own name for the business. Consequently, she
registered the new name. Thereafter, those who did business with Fragrant Floral were aware
that they were really doing business with Jessica Alverson.
The proprietorship gives the individual owner complete control over the business, subject only to
government regulations that are applicable to all businesses of that particular type. The owner
exerts complete control over plans, programs, policies, and other management decisions. No
one else shares in this control unless the owner specifically delegates a portion of the control to
someone else. All profits and losses, all liability to creditors and liability from other business
activities are vested in the proprietor. The costs of organizing and dissolution are typically low.
Whenever capital is needed it is supplied by the owner from personal funds or is borrowed
against either the owner‘s business or personal assets. Personal and business assets are not
strictly separated as they are in some other business forms; therefore, if the owner as an
individual is financially sound, lenders will be more likely to extend funds. A proprietor can sell
their business to whomever they wish, whenever they wish, and for whatever price they are
willing to accept. They can take on as much risk or liability as they wish, but it is important to
note that they are personally liable for whatever risk they assume.

Disadvantages of proprietorships

Perhaps the most important disadvantage of the proprietorship is the owner‘s personal liability
for all debts and liabilities of the business, which can extend even to the owner‘s personal
estate. In a proprietorship, there is no separation between business assets and personal assets.
Consequently, this form of business organization is characterized by what is called unlimited
liability. The owner‘s liability does not stop with business assets; it also extends to personal
assets. Such assets can be, and often are, used to satisfy financial obligations. Thus, if Fragrant
Floral starts losing money, and the bank demands payment on a loan made to the business,
Jessica Alverson is personally liable for the payment of the loan. If the business cannot cover
the loan, the bank can typically demand payment from Jessica‘s personal savings and
investments, or other assets she owns.

Another important disadvantage relates to the generally limited amount of capital funds that one
person can contribute. Lenders are also somewhat reluctant to lend to an individual owner
unless the owner‘s personal equity can guarantee the loan. Proprietorships often find that they
are starved for capital, and this serious disadvantage may do more than stunt growth.
Thousands of bankruptcies each year can be traced to a serious shortage of capital when a
business is started. While freedom from business taxes is generally an advantage, it may also
be a disadvantage. Since business pro t in a proprietorship is considered personal income to
the owner, a high business profit may throw the owner into a higher tax bracket than would the
corporate form of business organization. This is especially disadvantageous if extensive funds
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are needed for the growth and expansion of the business. Corporate tax rates along with other
tax regulations may provide an advantage in such cases.

The concentration of control and profits in one individual may also be a disadvantage. Many
highly trained and motivated employees want to participate financially in the business where
they work (i.e., they may have a desire to own a portion of the business). They may also be
uneasy about the fact that their futures depend on the health and viability of a single person.
Thus, proprietorships may experience some difficulty in hiring and keeping good people.
Without good, highly motivated employees, the owner may find as the business grows— that he
or she is ―wearing too many hats‖— with the end result that the business suffers. Finally, the
proprietorship lacks stability and continuity because it depends so heavily on one person. The
death or disability of that one person, in effect, ends the business. Proprietorships may be
difficult to sell or to pass on to heirs. This is particularly true if they become sizeable businesses.
Individual shares or parts of the business cannot be parceled out to several individual owners or
to heirs in the same way that shares of a corporation can.

Partnerships

A partnership is the association of two or more people as owners of a business. There is no limit
to the number of people who may join a partnership. Apart from the fact that a partnership
involves more than one person, it is similar to the proprietorship. Partnerships can be based
upon written or oral agreements, or on formal contracts between the parties involved.

However, it is strongly urged that if you consider joining a partnership, that the partnership
agreement should be in writing to avoid disagreement and misunderstanding among partners at
a later date.

There are basically two kinds of partnership: general partnerships and limited partnerships.
Below we discuss how each of these partnership arrangements works in agribusiness.

General partnerships

By far the most common form of partnership is what is called a general partnership. Continuing
with our Fragrant Floral example— after a couple of years in operation, Jessica Alverson has
been very impressed with one of her employees, Erika Lewandowski. Erika has expressed an
interest in becoming involved in the business, and has some money from an inheritance she is
willing to invest in the business. Jessica and Erika decide to enter a partnership, and rename
the business Fragrant Floral and Perfect Gifts. The new name reflects the partner‘s desire to
expand the business into a broader line of gift items. So, with Erika‘s commitment of capital and
her desire to be further involved in the business, a new partnership is formed.

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In a general partnership, each individual partner— regardless of the percentage of capital

contributed— h as equal rights and liabilities, unless stated otherwise in a partnership
agreement. A general partner has the authority to act as an agent for the partnership, and
normally participates in the management and operation of the business. Each general partner is
liable for all partnership debts, and may share in profits, in equal proportion with all other
partners. If the partnership struggles and has financial problems, all liabilities are shared equally
among the partners for as long as sufficient personal resources exist.

However, when one partner‘s resources are exhausted, remaining parties continue to be liable
for the remaining debt. General partners may contract among themselves to delegate certain
responsibilities to each other, or to divide business revenues or costs in some special manner
(e.g., according to funds invested or job responsibility). Each general partner can bind the
partnership to fulfill any business deal made. While the partnership is usually treated as a
separate business for the purposes of accounting, it is not legally regarded as an entity in itself,
but as a group of individuals or entities. Thus, there is no separate business tax paid by the
partnership. Like the proprietorship, partners may not pay themselves a salary. Money left at
year‘s end is divided among the partners and this is their profit or ―salary‖ from the partnership.
The income is taxed at the individual rate.

Limited partnership

All partnerships are required by law to have at least one general partner who is responsible for
the operation and activities of the business, but it is possible for other partners to be involved in
the business on a limited basis. A limited partnership permits individuals to contribute money or
other ownership capital without incurring the full legal liability of a general partner. A limited
partner‘s liability is generally limited to the amount that the individual has personally invested in
the business. The state laws regulating limited partnerships must be strictly adhered to and
these acts spell out the limited status of partners: first, the limited partner can contribute capital
but not services to the partnership, and second, the limited partner‘s surname cannot appear in
the business‘s name (unless the partnership had previously been carried on under that name, or
unless a general partner has the same surname). Limited partnerships are relatively few in
number; therefore, the balance of the discussion of partnerships will apply to general
partnerships. However, it is important to note that if a limited partner takes an active role in
managing the business, their limited liability may cease.

Advantages of partnerships

Partnerships are just about as easy to start as proprietorships. They require very little expense,
although an attorney competent in partnership law should be engaged to draw up the

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partnership agreement. The partnership may operate under an assumed or fictitious name,
provided it is registered in accordance with state laws. A partnership can generally bring
together many more resources than a proprietorship because of the increase in the number of
people involved. These added resources are not only financial in nature; the business also
benefits from the variety of unique talents that many different individuals can bring to it. Partners
are a team, and because each team member shares in the responsibility and profits, partners
are more likely to be motivated than employees of a single proprietorship or corporation.
Additional partners can be brought in if more money or talent is needed.

Disadvantages of partnerships

By far the biggest disadvantage of the partnership is the unlimited liability of each general
partner. There are many known cases where one partner has generated financial obligations for
the partnership, and then because that individual has been personally insolvent, the other
partners have had to pay the bills. Even limited partners must be very careful that they do not
give any appearance of being active in the management of the business. The law has frequently
been enforced on the basis of a person‘s actions rather than on the basis of the written
documents. If a person acts as a general partner would act, then that partner may be forced to
accept all the liabilities that such status would incur, even if the formal, written agreement says
the individual is a limited partner.

Another disadvantage is the lack of continuity and stability of a partnership. When a partner
leaves the partnership as a result of withdrawal, death, or incapacity, a new partnership must be
formed. The old partner‘s share must be liquidated, and this can often place a severe burden on
the partnership‘s capital position. Another problem is that which occurs if one of the partners
becomes incapacitated by accident, ill health, old age, or for some reason fails to pull a full
share of the load. Often the only way to remove such a partner is to liquidate the entire
business. When a partner leaves, it is often hard to determine what that individual‘s share is
worth. For this reason, a formula and pay-off method should be incorporated in the original
partnership agreement. Then the business may more easily be dissolved and a new one can be
formed. If the means for establishing the value of the partner‘s share and the process for
transfer and acceptance of new partners has been firmly established in the written partnership
agreement, this transition can be reasonably smooth. While being taxed on income as separate
individuals can be an advantage in some situations, it can be a disadvantage in others (just as
with the sole proprietorship

The corporation

A corporation is a special legal entity endowed by law with the powers, rights, liabilities, and
duties of a person (in fact a corporation is sometimes referred to as an ―artificial‖ person). The
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corporate form of business organization typically facilitates the accumulation of greater amounts
of capital when compared to proprietorships and partnerships. Without the corporate form of
organization it is impossible to imagine the creation of today‘s large business entities, which
employ hundreds of thousands of people.

Nonprofit corporations

Most corporations are formed for profit-making purposes; however, there are thousands of non-
profit corporations in existence. These nonprofit corporations embrace many areas of activity,
including those of religious, governmental, labor, and charitable organizations. Federal and
state laws specify the numerous forms that these nonprofit corporations may take, along with
very specific regulations as to their purpose and operation. A competent attorney can advise
whether a nonprofit corporate form of organization is the most appropriate for a particular
agribusiness situation. Again, the legal interpretation will be made on the basis of the ways in
which the corporation acts, and not on the basis of how it is described in written legal
documents.

Stock of the corporation

When corporations are formed, shares of stock are sold to those who are interested in investing
and risking their money in the enterprise. A share of stock is a piece of paper, in prescribed
legal form, which represents each person‘s amount of ownership in the corporation. Common
stock normally carries the privilege of voting for the board of directors that oversees the
activities of the corporation. Preferred stock differs from common stock in that it is usually
nonvoting, and has a preferred position in receiving dividends and in redemption in the case of
liquidation. Thus, voting rights are exchanged for lower risk on the investment of capital in the
corporation.

How the corporation functions

The common stockholders in a corporation elect the board of directors, the number of which
may vary according to the bylaws of the organization. The responsibility of the board of directors
is to supervise the affairs of the corporation. In a large corporation, the thousands of individual
stockholders exercise very little actual control. Those they vote for to serve as directors may be
unknown to them and are often preselected by a small group of majority stockholders who are
allied with top management of the corporation. The board represents the interests of the
stockholders, and their major function is to elect officers, hire top management, and evaluate
the progress of the business. Also, the board usually has a major role in shaping the vision and
mission for the business. In a small corporation there is usually a very close relationship

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between stockholders and the board of directors; in fact, there could be only one stockholder
who, in effect, is in complete control of the corporation.

Advantages of corporations

The primary advantage of the corporate form of business organization is that the stockholders
(owners) are not personally liable for the debts of the organization, and in most cases are not
responsible for the liability that occurs through the corporation‘s business activities. The assets
of the corporation are all that are at risk in settling most claims. The stockholders can, therefore,
only lose the amount they have invested in the firm. With the corporate structure it is possible to
delegate authority, responsibility, and accountability, and to secure outstanding, highly
motivated personnel. Corporations can offer their personnel such benefits as profit sharing and
stock-purchase plans, which encourage a high degree of dedication and loyalty to the
corporation.

Disadvantages of corporations

The greatest disadvantages of the corporate form of organization are taxation and regulation.
The corporation is taxed on funds it earns as profit; then, after it has paid dividends to its
stockholders, the stockholders must again pay income tax on the amount that is received as
dividends— i n effect a ―double taxation‖ on these profits. (This may not always be a
disadvantage, as will be discussed later in this chapter.) In addition, there are many states that
impose special levies and taxes on corporations, and there are many more laws and regulations
controlling the activities of corporations than there are for other organizational forms.

The corporation must accept a lack of privacy because reports must be made to stockholders
and states and because the federal government may require disclosure whenever a stock
offering is made to prospective purchasers. A corporation that is chartered to do business in one
state may not do business in another state unless it complies with the second state‘s laws of
registration, taxation, and so forth. Finally, individual owners (stockholders) of larger
corporations have little, if any, control over management and policies of the corporation. Often
their only recourse in the event of dissatisfaction is to sell their stock

Cooperatives

Owned, operated and controlled by members, a cooperative is a distinct form of the corporate
form of business. Cooperatives are committed to helping members improve the prices they
receive for the products they produce and/or reduce the prices paid for the inputs necessary to
grow those products. Cooperatives also exist to help members‘ find markets, and/or improve the
negotiating position of members. Cooperatives provide economic and/or operational benefits to
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member-owners, and then return the profit to the member-owners based on each member‘s use
of the cooperative. The user-member is the total emphasis for the cooperative. In contrast,
generating profit for the owners of the firm is the purpose of the non-cooperative business
enterprise. This is a very important difference.

Characteristics of food and agricultural cooperatives

Cooperatives resemble other forms of business in some ways. They must follow sound
business practices and may perform similar functions. Cooperatives have facilities to maintain,
employees to hire, advertising to develop, and so forth. There are bylaws, policies, and activities
that must be performed to carry out the business at hand. Ultimately, cooperatives must
generate a return (member benefits plus direct financial returns) on the investment of their
members, which justifies continued membership in the cooperative.

But, in some ways, cooperatives are distinctly different from other businesses. The ownership
structure, the way they are controlled, their purpose and how benefits are shared or distributed
are unique to cooperatives and how they operate. Three specific features delineate
cooperatives from non-cooperative businesses:

 Member owned, member controlled

 Operation at cost
 Limited returns on capital

Summary

Agribusinesses represent nearly every conceivable kind of business organization. A great many
are owned and controlled by one person as a proprietorship, or by two or more people as a
partnership. These forms of business are the simplest forms and allow their owners complete
flexibility, minimize red tape, and incur no corporate profits tax. But owners are personally liable
for any debts or lawsuits against their business. Also, the longevity of the business is limited to
the life of their owners.

The corporation is an organization created for the purpose of carrying on business. Because it is
a legal entity, it can own property in its own right, sue or be sued, and carry on business on its
own behalf. Its owners are separate legal entities; thus their liability is limited to the amount of
their investment in the fi rm. Also, the life of a corporation does not depend on how long its
owners live. However, corporations must pay a special corporate profits tax and must regularly
report their activities to federal and state governmental units. The S-corporation is a special type
of corporation for small firms; they gain the benefits of a corporation, but are exempt from
corporate profits tax.

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Cooperatives are a type of corporation that allows individuals and/or businesses to work
together or ―cooperate‖ in marketing products or in buying inputs. They are an important part of
the agribusiness landscape and have a focus on the member-user.

Selecting the best form of business organization for a particular agribusiness is an infrequent
business decision for both management and owners, but an extremely important one. As an
agribusiness firm grows, it must often consider moving toward becoming a regular corporation.
And the timing of that decision is highly import.

Assessment. Answer the following questions. Write your answer on the blank space provided.

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1. What are some of the characteristics of the sole proprietorship which make it an
attractive form of business?
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2. Explain the concept of unlimited liability as it relates to sole proprietorships

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3. Cooperatives are ―member-owned, member-controlled.‖ How does this unique structure

differ from non-cooperative corporations and what advantages and/or disadvantages
does this allow?
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4. How does an agricultural cooperative benefit its member owners (i.e., what is the
economic basis of their advantage over other types of businesses)?
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5. What are some of the questions that business managers/owners should consider when
deciding on which form of business organization is best?
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LESSON 2. INTERNATIONAL AGRIBUSINESS

Pre-discussion

The role of agriculture in the Philippine economy has undergone dramatic changes. Its
contribution of agriculture to Gross Domestic Product (GDP) and exports of the Philippines is
declining, consistent with the country's transition to middle income status. Structural change and
population growth has caused a shift in its position from net food exporter to net food importer in
the late 1980s. Nevertheless the country continues to source most of its food domestically;
moreover, agriculture still accounts for a third of total employment, despite a GDP share of only
one-eighth. This highlights the continuing importance of the sector for food security and
inclusive growth

What to Expect?

At the end of this lesson, the student can:

1. explain the role of agriculture in Philippine economy

2. describe international marketing and its function.
3. explain the different factors in choosing international market
4. discuss different ways why Philippines is Attracting International Trade

Lesson Outline

What is International marketing?

In simple terms, international marketing means making decisions for your marketing mix based
on potential markets outside of your company‘s home market. Some would call it the
coordination of marketing strategies by a company that are necessary to sell goods or services
in a foreign marketplace.

Why do businesses need international marketing?

A very good reason why companies need to consider international marketing is to get a piece of
the over 10 trillion dollars of goods and services that are traded across borders each year. For
the company that markets itself properly on an international level, this can lead to a huge boost
in revenue.

Not only do businesses have a great opportunity to grow their revenue if they market
themselves internationally, but they will also run into a lot of obstacles that are not typically
encountered in domestic marketing.
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FACTORS TO CONSIDER FOR INTERNATIONAL MARKETING

International marketing is very different from domestic marketing. There are a whole host of
issues when marketing internationally that a business does not normally have to deal with when
marketing in their own country. The following are some key things to consider when making any
international marketing decision.

Cultural Factors

A. Language

Language, more specifically translation, needs to be paid very close attention to when doing
international marketing. There have been some embarrassing mistakes in international
advertising that most likely did not help companies sell their product. A great example is when
Coca-Cola was first translated into Chinese it meant ―bite the wax tadpole‖ or ―female horse
stuffed with wax‖ depending on which Chinese dialect it was translated into. No one at General
Motors realized the translation for the name of their car, the ―Nova‖, meant ―it won‘t go‖ in South
America. Gerber used the same packaging with the cute little baby on it they had used in
America for packaging its baby food in Africa; they did not realize that with the high illiteracy rate
in Africa that it was common for food packaging to display a picture of the contents inside.

These types of language problems are funny to an outsider but can spell financial disaster for
your international business if you are not careful.

B. Taste

Entering international markets can be very difficult for some companies because of some
countries‘ eating habits. McDonald‘s had to totally make over its image when it came to
marketing itself in a country like India that sees beef consumption as being ‗off limits‘; they
ended up being successful there by introducing vegetarian and regional choices to the menu
selection. Many international fast food chains such as Kentucky Fried Chicken, Wendy‘s and
McDonalds had to start offering menu selections with rice dishes in order to break into the Asian
market.

C. Regional Values

Many times a country to which you would like to sell a product has extreme regional differences
that must be accounted for when marketing. A perfect example of this is Canada; they have
large French speaking populations around Montreal and Quebec that are culturally much
different than the English speaking communities found throughout the rest of the country.

D. Consumer Habits

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Culture and personality combine to shape consumer behavior in every particular region of the
world or country. When you want to market a product to a foreign country you need to first
determine whether it is an individualistic society (free-thinking culture) or a collective society (the
peer group has the most influence on buying decisions). You also have to consider other
societal and psychological factors that influence buying decisions in the country you are
targeting to sell your goods or services to.

E. Age/Demographics

Age and other demographics play a key role in international marketing just as they do in
domestic marketing; companies have to pay very close attention to them. Your company is
probably not going to want to market laptops to senior citizens in a third world country where
there is very little internet and where a large percentage of the citizens over 60 are computer
illiterate. This illustrates the importance of understanding age and other demographics on a
potential country that you might sell your goods or services to since they are both reliable and
used in making marketing decisions.

Economic Factors

A. Per Capita Income

Of course a country‘s wealth is a huge factor when determining potential target market countries
and how to market your product to those countries. For instance, Eritreans have a per capita
income of less than $800 a year; it is probably not going to be a good market to sell your $1000
side-by-side washers and dryers.

Then again you don‘t always need an overwhelming number of people in a certain income
bracket in a foreign market if your product is considered high end. Say your company sells
luxury automobiles that are in the $60,000 – $80,000 range, maybe less than 1% of the people
in a country such as Estonia can afford a car in that price range, but if that group numbers
10,000 people and you think you can get 5000 to buy your product, that country is still relevant
as far as potential sales go.

B. Relevant Class Structure

When you are marketing your product or service internationally you must also take into
consideration class structure because it varies widely from country to country. Most countries
have an upper, middle and lower class, but the numbers of people in these classes can be
significantly different from country to country. An example of this are countries like the USA that
have a very large proportion of their citizens located in what is termed ‗middle class‘, as
opposed to the Philippines where there is a very small middle class because the country
consists mainly of a small percentage of upper-class individuals and many poor people.

C. Supply and Demand

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Of course supply and demand will play a major role in trying to market your products anywhere
in the world. These days a company has to take a deeper look at potential markets than ever
before because just about anything will sell if you market it the right way and in the right place.
Imagine how surprised the makers of Bali‘s Civet Cat Coffee (Kopi Luwak – made from the
animal‘s poop) were when they took their product internationally and it soon grew so popular it
became the world‘s most expensive cup of coffee.

D. Financial Transactions and Banking

Considering how you will get paid for the products and services you market and sell
internationally is important too. In the more prosperous countries it is taken for granted that you
can buy goods internationally and pay for them with such things as credit cards, debit cards,
online payment processors and cash transfer businesses, but that is clearly not the case
everywhere in the world. These types of financial realities will greatly impact your marketing
strategy.

Political and Legal Factors

A. Laws

There are laws in some countries that will greatly affect your ability to do business in them or
prohibit it altogether. One such example is Thailand which has specific laws stating no foreign
person or company can own more than 49% of a business in Thailand, so you must be willing to
take on a Thai partner in order to do business there. You must be aware of laws like this if part
of your product marketing strategy includes manufacturing or distributing your wares in a foreign
target market country.

B. Licensing and Permits

There is a chance that the only way you can do business in a foreign country is to give out an
expensive permit or license of another business in that country to manufacture and sell your
product for you. Governments do these things as a way of making sure a larger percentage of
income from sales stays in the home country. An example of this is Pepsi‘s license to Heineken
to bottle and sell Pepsi products in the Netherlands.

C. Taxes

Taxes are another way that governments can cash in on foreign businesses operating and
selling products in their country, so their citizens‘ spending does not allow much money to leave
the country. Taxes can and do impact your ability to make a profit selling goods and services in
a foreign country and will shape your international marketing strategy because of that. High tax
rates on goods sold, like those in the USA, can make it hard for a business to stay on the right
side of that fine line between profit and loss.

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D. Fees

When you market your products for sale in a foreign country, you may be subject to pay certain
fees for the right to do that. These fees can be a one-time deal or recurring, and they can also
be quite high in some circumstances if they involve what might be considered luxury items.

E. Tariffs

Tariffs have long been used to balance trade between countries and to protect national
companies from losing business to foreign competitors. This can be a big factor when it comes
to international trade and marketing your company‘s products or services for sale. An example
of this is China‘s 105.4% tariff on chicken that is shipped from the USA; it is easy to see how a
high tariff like this can push a country‘s citizens toward buying domestically raised chicken.

F. Currency risks

There are always risks when doing business in the currency of a foreign country that you are
marketing your product or services to. If you have your money tied up in a foreign currency and
economic events fall just right, your company could stand to lose millions. From September 24,
2012 – October 2, 2012 Iran‘s Rial dropped almost 60% from 24,600 for one US$ to 39,000 for
one US$; these types of currency events can and do happen.

G. Other Political Risks and Restrictions:

 Investment restrictions: Many countries have strict requirements on who can own businesses
and do other business-related investments in their country. Your marketing department needs to
be aware of these things. For instance in Malaysia, if you are an agricultural business and you
want to buy land to produce fruits and vegetables to sell there, any land purchase over
$163,000 is subject to approval by the government and may come with other restrictions too.

 Operational restrictions: Just how much operational control you will have over your overseas
business remains to be seen, and that is a concern for some. Because of some of the
restrictions that have been discussed and other requirements for doing business in a foreign
country, chances are your business will need an international management team. This will affect
the operational control of your business and has to be factored into any marketing decisions that
your company makes.

 Discriminatory restrictions: Discriminatory practices in a foreign country may inhibit or prohibit

marketing your goods and services to that country too. In many Middle Eastern countries
women are not allowed to wear makeup, so if your business is cosmetic sales, then that would
be a big marketing factor. There are other types of discrimination that impact marketing
decisions too, such as price discrimination. If a country makes the goods in their own country
cheaper to buy than similar imported goods (such as through tariffs and quotas), chances are
you may have a hard time selling your goods in that country.
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 Quotas: Quotas work a lot like tariffs when it comes to restricting foreign business profits in
another country. Quotas are also designed to encourage domestic business within a country or
state. An example of this is Indonesia, which only allows 60,000 tons of red onions to be
imported into the country every 6 months. This quota ensures Indonesian farmers they will have
a place to sell their onions and encourages them to continue growing them. Your business and
your international marketing team must be aware of any quotas a particular country may have in
place when you are deciding where to market your goods and services internationally.
H. Stability

These days the stability of a country has to be considered very strongly before you market your
product in a foreign country.

 Wars: Wars can have a very large impact on your business in a foreign country. There were
many businesses and business customer bases that became extinct almost overnight when war
broke out in Libya.

 Political Unrest: Political instability in a foreign country can affect your ability to market a product
or service to a foreign country too. If you were to invest in marketing products or services in a
country such as Egypt now, you would run the risk of losing your customer base if a war breaks
out because of the current political instability in the country.

PHILIPPINE AGRICULTURE

Production

In the 2000s, GDP growth has been fairly stable at about 4.7%. Growth rate of agriculture has
averaged just under 3%. This is somewhat but not remarkably higher than growth rates in the
1980s and 1990s but far below those of the 1970s (averaging 5.4).

Crops account for 60% of agricultural gross value added or GVA (Figure 1). Among the crops,
the largest is rice, which by itself accounts for more than one-fifth of agricultural GVA, followed
by other traditional crops: corn, coconut, sugarcane. The remainder is split between livestock
and poultry as well as fisheries; the former accounts for nearly one-fourth of agricultural GDP. In
2011, rice has the biggest area harvested (more than one third) followed by coconut; corn
accounts for about a fifth of area harvested. Far behind are banana and sugarcane;
miscellaneous other crops account for a little over one-tenth of area harvested. Contrary to
diversification trends in other countries, area of traditional crops has been growing (Briones and
Galang, 2012).

The large share of area and output going to rice production serves a food security purpose –
rice being the primary Filipino staple. However it traps farmers into an inferior means of

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livelihood; there is a reason why alternatives are called "high value" crops. A cursory look at DA
data shows that palay and corn production have among the lowest net returns per ha.

Comparisons of course should take into consideration that some of the high earning crops
(mango, pineapple, coffee) are perennials, while the rest are temporary crops for which
cropping intensity may exceed unity. Moreover vegetable production, which exhibits highest
returns, also require the most inputs, are highly perishable, and exposed to high production risk.
Nevertheless the reality that higher returns are available from successfully overcoming entry
barriers to crops other than rice and corn should be evident.

Palay production was mostly increasing in the 2000s, peaking in 2008 at 16.8 million t; this was
succeeded by two years of decline owing to adverse weather. Similar movement is observed for
corn and to some extent for coconut. The largest year-to-year gyrations are observed for
sugarcane. The most consistent upward trend is shown by bananas.

Trade

In the late 1980s the Philippines became a net agricultural importer, a status that has persisted
up to the 2000s. While exports have been growing consistently, imports have been growing
even faster, resulting in a widening agriculture deficit. Imports, mostly driven by rice, soared in
2008, the year of the rice price crisis, and remains high consistent with elevated world prices.

The non-traditional crops exhibit the most consistent export performance, with banana, mango,
and other fruits leading the way performance. Exports of fishery products, spearheaded by
aquaculture have likewise been robust. Coconut oil, the top export, has behaved very erratically
since the late 2000s; similar volatility is exhibited by other commodities.

The country was over 90% self-sufficient in rice in the early 2000s but the ratio deteriorated to
about 80% in 2010, before recovering sharply to nearly 95% in 2011. SSR remains around 90%
or better for pork and chicken, though SSR of beef can be quite low, dipping below 80%. Lower
reliance on imports is observed for corn, which ranges from 95% – 100% SSR.

5 Ways the Philippines is Attracting International Trade

1. Programs and Organizations

There are many government and non-government organizations that promote foreign
investment and exporting. These organizations do everything from developing programs to
making lists of registered exporters. This helps foreign businesses navigate the Philippine
market.

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The Philippine Exporters Confederation, the Bureau of Export Trade Promotion, and the
Philippine International Trading Corporation are the most popular of these groups. The
Philippine government is ramping up these organizations. By doing so, they hope to sell their
country as a destination for foreign investment and exporting.

The Philippines also works with US-based organizations to ease the international trade process.
Some examples include the Millennium Challenge Corporation. The MCC works with many
partner countries, including the Philippines, to identify key risk and constraints to investment by
analyzing the nation‘s private and public sectors.

Businesses in both countries have everything to gain as both nations invest in their trade
relationships. These groups also help to negotiate trade agreements which would open the
floodgates for exports and imports.

2. Trade Agreements

The Philippines has a history of establishing fruitful trade agreements. They were one of the
founding nations of the World Trade Organization (WTO) in 1995, and have reaped the benefits
of the Association of South East Asian Nations (ASEAN) since 1967. This trade agreement
makes its member nations attractive to Philippine exporters. It‘s no wonder why Japan is the
nation‘s largest trading partner.

Though healthy, the US and the Philippines have yet to establish a trade agreement that
outshines these.

TIFA, the Trade and Investment Framework Agreement between the two nation‘s works to
create fair and balanced trade between international suppliers and US businesses.
But, so far, nothing has been established in the way of free trade. However, things may be
changing.

The US and the Philippines are reportedly working towards an FTA. Such a deal would
skyrocket the already healthy trade relationship between the two countries. The US hopes to
outdo the benefits of ASEAN with this proposed agreement. Though it‘s still in its early stages, a
future agreement between the Philippines and the US would create opportunities for businesses
and investors.

3. Relaxing Foreign Ownership Limitations

We mentioned the Philippines‘ well-known foreign ownership limitations as a major issue. These
limitations look to bolster domestic innovation. However, they forbid international businesses

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from conducting operations from a remote location. For example, a US-based business in the
Philippines cannot be managed from the US in some sectors.

The upside is that newly elected President Rodrigo Duterte is relaxing these limitations. The
Philippine Constitution currently caps foreign investment in key sectors at 40%. Though foreign
leaders have urged the nation to ease these limits, the government has only recently moved on
this issue. The effort would increase the nation‘s competitiveness in the global market.

Relieving these barriers may even be the first steps in establishing a new agreement with the
US. The opening of the Philippine economy reveals previously unreachable markets. Whether
you‘re looking to set up a business there, or simply find a supplier, the future is bright.

4. Monetary and Tax Incentives

Though this entire list falls under the umbrella of ―incentives,‖ we haven‘t talked about the direct
benefits.

The Asia Development Bank (ABD) offers financing to businesses looking to invest in the
Philippines. Depending on the sector, US companies can apply to the bank to help fund specific
projects.
The Philippines also boasts 326 ―ecozones,‖ which are composed of export processing zones,
free trade zones, and certain industrial estates. Doing business with companies in these zones
gives you preferential tax treatment. ―Ecozones‖ are outside customs territory and can import
goods free of customs duties. Some taxes and other import restrictions are also exempt.

Businesses can also avoid local taxes, duties on event materials, and travel fees. This all
depends on the circumstances, though.

The Philippines uses these incentives to attract investment from foreign nations.

5. Privatization

Maybe the biggest development for international businesses is Philippine privatization.

President Duterte plans to move many publicly-funded companies into the private sector. This
would allow domestic businesses and investors to contribute to previously unavailable
industries.

The process started with the country‘s water and energy industries and has recently expanded
to airports. The plan is that shifting from an insular to an international economy will create
investment opportunities.

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There are domestic concerns, however. Philippine people fear that privatizing these industries
allows companies to exercise unchecked power. But, a hike in pricing may increase innovation.
Along with attracting foreign investment, this seems to be the goal of this process.

Assessment. Answer the following questions. Write your answer on the space provided.

1. Discuss comprehensively the term ―international marketing‖.

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2. Why do we need to consider ―taste‖ as one of the factor in international market? Give
example.
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3. How can you imagine the Philippines without engaging in international market?
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4. If you are an investor from other countries, will you invest in Philippines? If yes, what
kind of business is that? If no, explain your answer.

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5. In your own observation, explain how does investor affected by the pandemic arising
today?
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References

Anastasia Belyh, 2019, Factor to Consider for International Marketing

Barnard, F, et.al, 2016 Agribusiness Management,. Fifth Edition. Routledge, 2 Park Square,
Milton Park, Abingdon, Oxaon
Downey, W.D., Trocke, J. Agribusiness Management, McGraw-Hill, Inc., USA
https://www.slideshare.net/akmgolamkausarkanchan/lecture-1-62098342
https://www.slideshare.net/teshale/distinctive-features-of-agribusiness-management-and-the-
importance-of-good-management-29481118
https://www.veem.com/library/5-ways-philippines-attracting-international-trad/
https://www.cleverism.com/factors-to-consider-for-international-marketing/

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