Tilapia Farming in Recirculating Aquaculture Systems

67 Pages·2013·2.31 MB·English

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
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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) ............................................................................................................................. 4

d. Technological (1) ............................................................................................................................... 5

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

f. Sociocultural (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) ....................................................................................................... 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 ................................................................................................ 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 ............................................................................... 33

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

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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

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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.

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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
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Game. Only tilapia mossambica and tilapia hornorum may be stocked and recipient waters
must be approved by the Department. No tilapia may be imported until the genetic integrity of
the stock has been certified. This certification may be 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 to adopt a differentiation strategy that will render competition
irrelevant in the short run, thus allowing us to operate in a Blue Ocean. We have identified two
main categories of competitors: aquacultures and aquaponics.
Research has indicated that nearby aquaculture 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 hold few employment opportunities for the local population. Thus the
aquaculture companies have access to minimum wage workers. As a result, the 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 to help with 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 parameters of
the operation to maximize yields. Aquaponics are mostly geared towards fruits and vegetables
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with fish as a 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 markets.
Izumi Dai’s smaller separate closed loop tanks and modular equipment design approach is
highly conducive for the implementation of heterotrophic technology. Such design greatly
mitigates costly disease spread, complex maintenance and repair, and total kill 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 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 kg in 2010. Per capita 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 areas. These areas produce most of the tilapia 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
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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 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 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”
said Marsh. “The fact that it is known as a Chinese fish does not help either.” In addition he
mentioned that we would have to overcome the distrust for farm raised fish. “People that
want higher quality fish want wild fish as opposed to farm bred.” David strongly 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 major player. As demand for fresh tilapia filets in 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
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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.
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