Brief introduction to agro-based industry
On average over the last couple of decades till now, the prices of agricultural commodities have been decreasing. Given that agricultural commodities are typically demand inelastic, export earnings especially for developing countries have also declined per unit of agricultural commodity. As such, it is increasingly difficult for agricultural communities in developing countries to escape poverty since agricultural export contributes significantly to their respective GDPs.
There are 43 countries (predominantly from Sub-Saharan Africa, Latin America and the Caribbean) earning more than 10% of their total agricultural merchandise export revenue from just one agricultural commodity. This is worrying considering that 32 of them are least-developed countries, where due to inadequate agricultural output diversity, commodity trade performance and economic growth and food security are all tightly linked, a scenario which is undesirable (for further reading, refer to http://www.fao.org/docrep/006/Y4344E/y4344e03.htm).
However, value additions in agriculture by contrast, have been generating progressively better returns. Value additions also create jobs, thus capable of off-setting job losses resulted from mechanisations of economic activities related to agricultural commodities. As consumer preferences diversify (e.g. growing middle class in developing countries), specialised value addition provides a venue for SMEs to create a niche. Without value addition, it will be harder for SMEs to compete against MNCs as the latter have economies of scales to push the production cost down beyond the means of SMEs.
The role of boutique engineering in value chain of agro-based manufacturing
In these potentially complex value chains (business to business), there are demand side stakeholders and supply side stakeholders which are not necessarily and easily identifiable. Barrier to communication between demand side and supply side stakeholders is typically due to inadequate highly specialised technical knowledge on both sides to facilitate economic transactions between themselves. It is not uncommon that the demand side stakeholders may not necessarily be aware of who their supply side stakeholders are, and vice versa. There is thus a gap that needs to be bridged between the demand side and the supply side. This is the role that boutique engineering fills, the ‘bridging specialist’ which is considered to be value added services (a knowledge based economy) that are important in turning non-high income country into a high income country. Such proficiency is unlikely to be automated in the foreseeable future since the skills needed are technical mastery, creativity, commercial awareness, and stakeholder engagement.
Local boutique engineering’s strengths even in the face of “cheaper-than-the-Chinese” inquisition
The boutique engineering addressed here includes value added services that cannot be provided via B2B (business to business) platform such as Alibaba. It is not uncommon of late where potential clients would grill engineering firms on how their products would be economically competitive against cheaper Chinese products, as potential client themselves can easily access B2B Alibaba platform to get access to a large catalogue of China-based engineering products. This is where boutique engineering in agro-based manufacturing can play to its strength in the form of value added services that cannot be provided by Alibaba, i.e.:
- Knowledge tailored to specific sub-sectors within the agro-based sector such as HACCP (Hazard Analysis and Critical Control Points) and GMP (Good Manufacturing Practice);
- Improving production and product margins according to engineering principles of resource recovery and/or energy efficiency, whereby the production line requires a customisable/customised series of equipment (which may, may not or partially be obtained via Alibaba) arranged in a cost-effective way but without compromising product quality;
- Speedy service support, bearing in mind that oversea product/service providers will have a slower response time whereby even a halt of production/manufacturing for a couple of days, weeks or months, can be economically ruinous for manufacturing firms should there be any urgent need for external troubleshooting expertise;
- Providing commercial pathways to manufacturing readiness for innovation driven product development and diversification. In agro-based manufacturing, future is bright especially in the area pharmaceutical and relatively newer nutraceutical sectors due to aging population in developed countries and society that is increasingly wealthier and more health conscious;
- Reports show that 5-10% of start-ups will succeed, and traditional innovation processes only has 17% success rate. Hence, there is still a significant market opportunity for boutique engineering to capitalise on by addressing these innovation inefficiencies, i.e. improving innovation success rates by managing technical risk associated with manufacturing readiness.
There are two conditions which should further favour the growth of boutique engineering in agro-based manufacturing especially in the pharmaceutical and nutraceutical sectors, i.e.:
- The world’s largest reservoirs of herbs containing pharmaceutical and nutraceutical properties are located within the tropics which are currently under-utilised and under-explored;
- The World Economic Forum has indicated that the total early-stage entrepreneurial (TEA) activity is the highest in Sub-Saharan Africa, followed by South East Asia, and Latin-America/Carribean (for more information, refer to https://www.weforum.org/agenda/2017/03/europes-most-entrepreneurial-country/). These regions happen to be located in the tropics where virtually all the countries have not yet achieved the status of a high income developed country.
Locally based product innovation driven SMEs typically have insufficient resources to engage MNC type engineering consultancies, thus resulting in under-developed value chains and wastages that are of high economic value. For example, in the high value herbal extract sector (e.g. Eurycoma longifolia at ~USD1733/kg of extract, and Labisia pumila at ~USD1300/kg of extract), it is not uncommon for SME manufacturers to experience product losses of 20-30% due to the lack expertise from of boutique engineering. For Eurycoma longifolia, boutique engineering could have helped to recover USD$360 to USD$670 of those losses, while for Labisia Pumila, it would have been USD$325 to USD$560. Boutique engineering as such, plays an important role to further develop these value chains of non-high income and non-developed countries.