Creating New Competitive Advantages

Last month, I demonstrated that the competitive advantages that have sustained the fishing industry in Atlantic Canada for a long time are no longer advantages for us.

Our once-abundant resources are no longer as abundant as they were, and others we compete with have similar resources in greater abundance. Because of free-trade agreements and globalization of supply chains, we have access to good markets on favourable terms — but others have access to the same markets on similar terms, so competition for those markets is now much more intense than it used to be.

We have no distinctive technologies that others do not have access to. And others also have lower labour costs and weak currencies, giving them cost advantages we don’t have and can’t achieve.

In recent years, we haven’t suffered too much from the erosion of our competitive advantages, except for reduced catches due to diminishing resources, especially of shrimp and crab. Although there are variations by species, demand for seafood has generally been growing faster than supply, so market prices have been strong, helping offset the revenue lost because of the lower catches.

s-w-nova-1-may-29-jun-01-2006-001-157We have even found new markets in Asia for lobster, to bring market demand into better balance with our increasing catches, with the extra demand driving an increase in prices. And we shouldn’t forget that weakness in the Canadian dollar has given us a strong tail wind — giving us more Canadian dollars, even when customers pay the same prices in their own currencies.

But strong market demand, good prices and favourable currency exchange rates are false friends. We benefit from them simply by being in the right place at the right time. They can change dramatically and quickly, for reasons beyond our control.

Enjoy the ride while it lasts but don’t expect it to last forever. It wasn’t so long ago those factors were working against us and there will come a time when they will work against us again.

As our industry makes the adjustment to lower volumes of shrimp and crab and becomes more dependent on cod and other lower-priced groundfish, for which there are large markets but also large supplies from other sources, it will become increasingly important for us to have some clear competitive advantages. Otherwise, why would anyone want to buy our products?

They can get similar and possibly better or cheaper products from many other suppliers. The market has survived quite well over the past 25 years, since we imposed moratoriums on fishing those species.

So what do we have to do to create new competitive advantages that are sustainable over time?

Ultimately, the answer to that question must come from the market, because customers are the ones who choose what they are willing to spend their money on from a whole array of products offered to them. They may decide they don’t want fish at all, preferring to eat meat or poultry. They may decide that a fish species from a completely different part of the world offers them a better taste experience or better value for their money. Or they may decide they like the species and products we have to offer but find similar offerings from other suppliers that are more to their liking.

Just because we catch fish doesn’t mean people will want to buy it or choose our fish over what others can provide. These are things we should never forget.

Ultimately, competitive advantages depend on providing the market with something it can’t get from others. That may be a distinctive product no one else can provide, better service related to the product, or a similar product to what others offer but at a lower price.

glace-bay-12-41Distinctive products come from distinctive resources others don’t have or distinctive capabilities to exploit resources, turn them into products and get them into the right place at the right time and the right price. In other words, unless the species is rare and in high demand, competitive advantage does not come from just catching fish — a lot of people can do that, in many parts of the world.

Maybe before we get into identifying what our potential advantages might be, it is worth ruling out some things.

We do not have an advantage in the fish species we harvest. Others harvest the same species, often in larger quantities.

We also do not have an advantage in the quality of the fish we harvest. Canada has long had a reputation for inconsistent quality — some good, some not so good — so buyers are never sure what they are getting.

As has been discussed before, we do not have advantages in the technologies we use for harvesting and processing. We buy most of the major items we need from other countries and don’t always use the latest or the best.

We don’t have an advantage in the products we sell, because they are mainly commodity products sold in bulk, little different from products that can be purchased from others.

And, of course, we do not have cost advantages, because others pay lower wages, operate for much longer periods of the year, and may have currencies even weaker than the Canadian dollar.

However, we do have some potential advantages.

As has been the case for most of our history, our principal advantage is proximity to two of the largest, most affluent seafood markets in the world — the United States and the European Union — where people are familiar with the species we have to offer and like them. But proximity is not enough, because other suppliers want shares of those highly desirable markets, too.

Capitalizing on our advantage depends on our ability to serve those markets better than others — not on providing products at lower costs. And serving the markets better than others is possible only with top quality raw materials, harvested at the right times, to maximize possibilities for processing and marketing. If anyone can think of another potential advantage, I would be happy to hear from them, but I can’t think of one.

So what can we do to serve those markets that others can’t?

Currently, very little, other than harvest high-value species in limited supply relative to strong market demand. But there are some possibilities, if we want to take advantage of them.

Sustainable competitive advantages come from solving problems competitors do not have better solutions for. Buyers and consumers of fish products are essentially looking for a limited number of things that are often in short supply in this industry. Those things are quantity, quality, consistency, trust and cost.

lobster-ballentynes-cove-23Quantity does not mean all customers want large quantities. It means they want the quantity that satisfies their needs, whether that is a small, medium, or large amount. If you want to sell to a large chain of supermarkets, you need a large quantity to sell – and you need a distribution system that can deliver the products where and when they are needed.

Chain restaurants need smaller quantities but you still need a distribution system that allows them to offer the same products wherever they are located. Stand-alone fish markets or restaurants need relatively small quantities at any one time, so they require a lot of sales effort to sell a substantial quantity of product and they still present a distribution problem.

These challenges are the main reasons our industry is content to sell truck-load or container-load lots through brokers and wholesalers, who look after the distribution problem. But we give up a lot of value in the process.

Quality represents seafood buyers’ and consumers’ greatest fear. Even if they can get the quantity they want, they are never certain about the quality. That factor alone has limited purchases of seafood for home consumption ever since humans began buying their groceries from stores, rather than capturing or growing their own.

Consumers’ lack of confidence in their own abilities to buy good quality fish and prepare it for home consumption is the main reason most people prefer to eat it in restaurants, because the restaurant operator solves the consumer’s problem.

Consistency represents another fear and it is related to the quality issue. Fish products are notoriously inconsistent in quality. But they are also notoriously inconsistent in availability of supply, size, and price. Aquaculture’s big advantage over capture fishing is its ability to deliver consistency in supply, quality, size, and price, something the market values highly.

Trust is critical to the overall functioning of our economy.

People need to trust that the bills and coins they have in their pockets are really worth more than the value of the paper or metal they contain. They have to trust others they do business with to pay for what they buy or deliver what was purchased. However, trust has long been an issue in the fishery, throughout the entire value chain.

Partly, it is related to the inconsistencies in supply, quality, and price. But it is also related to a history of unethical practices, whereby something is represented as something it is not, whether that is through mislabelling of species, assurances of quality that prove to be unfounded, or fluctuating prices that make buyers uncertain about whether they are getting good value for their money and harvesters uncertain about whether they are being treated fairly.

Cost concerns don’t mean buyers always want the lowest price. It means they want a fair price for what they are getting but they are often uncertain about the value-for-money proposition offered to them. To some extent, that reflects concerns about quality, consistency, and trust.

But it is also related to other risk factors. For example, if a restaurant operator prints a menu with fixed prices that will be in use for several months, it is taking a risk, because the prices of the ingredients it uses to make the dishes on the menu may change during the period the menu is in use. That risk is greater for fish products than it is for many other items.

If we want to create new competitive advantages as we build the fishery of the future, these five areas are good places to start.

Being the best in any one of them can be an advantage, but they are stronger in combination, so the more of them we can master, the stronger our advantages will be. However, creating advantages this way is not as simple as living in a place where resources are either abundant or in limited supply relative to market demand. It requires a lot of commitment and hard work. But it can be done — and has been done.

Iceland does not have the proximity advantage we have or the resource abundance Norway has, but it has created competitive advantages by focusing on high-value markets and excelling at quality, consistency of supply and trust.

The aquaculture industry in Atlantic Canada has benefited from the same proximity advantage that is available to our capture fishery.

Both the United States and Canada import large quantities of aquaculture products from other parts of the world, notably salmon from Norway, Chile and even Scotland. But those products are either preserved through freezing or other methods, reducing the prices that can be obtained for them, or flown in fresh at high cost. Producers in Atlantic Canada serve the same markets better by selling fresh products into the U.S. market at higher prices than frozen and lower cost than air freight.

They still have to be competitive on production costs but it’s the proximity advantage combined with doing things others can’t that has allowed one of them to expand and be profitable enough to buy out other aquaculture operators and, more recently, capture fishing companies in other parts of the world.

In the capture fishery in Atlantic Canada, Clearwater and to some extent, Highliner, have also positioned themselves to be able to do things others can’t, allowing them to improve profitability and use the capital generated to expand further.

As the foregoing discussion and examples illustrate, true competitive advantages can come only from being able to do things our competitors can’t.

Essentially, we have to live by the lyrics Irving Berlin wrote for Annie Get Your Gun, the well-known musical about Annie Oakley — “Anything you can do, I can do better.”

Robert Verge

Managing Director of the Canadian Centre for Fisheries Innovation — Newfoundland

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