3 - Diversification and vertical integration in traditional industries

Summary

We know best practices in baking. We travel around the globe looking closely at all practices in baking plants. We can compare everywhere, and we can detect a good number of opportunities to raise productivity.

Daniel Servitje, CEO, Grupo Bimbo (quoted by Siegel 2008: 13)

Only renowned brands enable you to play in the global economy. This does not mean that if you lack such a brand you cannot grow, but it is a requirement for playing in the big leagues.

Josep Lluis Bonet Ferrer, Chairman and CEO, Freixenet

The agro-food and beverages industries belong to the set of “traditional” industries in which natural endowments and comparative advantage have historically shaped the structure of competition. However, fundamental technological and competitive changes over the last three decades have enabled the rise of numerous new multinational firms in these industries. In addition to the incorporation of new technologies, foreign direct investment involving firms in the industry has increased sharply. Whereas in 1990 the cumulative stock of outward FDI from the agriculture, fishing, food, beverages, and tobacco industries amounted to just $77 billion, by 2007 it had grown to $472 billion, a rate of change slightly faster than for the manufacturing sector as a whole. While only about 1 percent of the stock is attributable to firms from developing countries, activity by the new multinationals has increased ten-fold, from $0.6 to $6.0 billion (UNCTAD 2009: 219).