1. Executive Summary
From humble beginnings in the 1970s, Ecuadors shrimp industry expanded rapidly and
aggressively, targeting vital coastal ecosystems in which to build gigantic shrimp farms.
Today, Ecuadors shrimp industry occupies 500,000 acres of former mangrove forests, salt
flats and agriculture lands along the countrys Pacific coast. After two decades of solid
growth, in the early 1990s, viral diseases and challenges from the environmental
community began to impede the development of traditional shrimp farming. Now, a new
way to farm shrimp has evolved that protects shrimp from disease and protects the
environment from shrimp farming, creating the possibility that shrimp farming could
become the cleanest agriculture industry in the world!
Xavier is a shrimp farmer and owns 150 hectares of shrimp ponds in Ecuador. Typically,
he will sell his shrimp to a packing plant which will clean and froze the shrimp and either
export the frozen shrimp directly or sell them to an exporter. The foreign processors will
then prepare the final products to be sold to the distributors and retailers. Upon learning
about the chain his shrimp goes through, Xavier is now considering if he should try to
expand into the value-added parts of the shrimp business.
This paper presents a strategic external analysis on the shrimp industry using two tools,
namely, PEST analysis and Michael Porters Five Forces Model. Environment analysis is
then summarised with the help of SWOT Analysis model.
Global expansion in this industry has put forward many opportunities for future growth.
Xaviers core competency and capability in the industry leverages competitive advantage
for him. We have analysed the option of joint venture with foreign company which will
help Xavier to solve many international business problems and also give him edge over
others by providing further expertise in processing and marketing, as well as required
investment funds.
2. PEST Analysis
PEST analysis is concerned with the environmental influences on a business. The acronym
stands for the Political, Economic, Social and Technological issues that could affect the
strategic development of a business. We have conducted PEST analysis of Ecuadors
shrimp industry to assess opportunities and threats in the long run.
Political Scenario
External Environment Analysis
Political factors affecting industry/firm operations are tax policies, employment laws,
environmental regulations, trade restrictions, tariffs and political stability. These factors are
considered givens for an industry and contribute to decide the attractiveness of an industry.
Ecuador is politically unstable. Despite its impressive wealth of natural resources and other
advantages, Ecuador is impoverished as a result of years of political mismanagement and
staggering corruption. As Ecuadors public sector is inefficient and suffers from endemic
corruption the economy would benefit from increased privatization. To mark the progress
in this area the government has made efforts to reform and streamline Ecuadors outdated
tax system; tax collection accounts for an increasing share of government revenues.
Ecuadorian banks turned a profit in 2001 and 2002 for the first time in years. However, the
financial system remains weak, with few viable banks and virtually no effective regulation.
Internal Environment Analysis
As ASIA became producer of shrimps along with Ecuador, world prices of shrimps fell by
50% during the decade 1986-1996. But, at the same time the production increased to
generate $1500 – $4000 US Dollar per hectare of shrimp pond. Due to unstable political
situation, frequent power cuts might be real threat to expanding shrimp industry. This
might become more vulnerable if Xavier also had to consider the packaging and
processing of shrimps. Xavier uses some form of prescribe antibiotics that are added to the
ponds as the diseases appeared which may limit his market for shrimps.
Its like a double-edged sword, it could help with the Chinese thing, but it could also lower
the local demand. It is felt, shrimpers, as low on the political food chain as their prey,
would never get the trade protections that farmers, sugar refiners and steel mills enjoy.
Economic Scenario
Economic factors affect the purchasing power of potential customers and firms cost of
capital. Typical examples of economic factors are inflation rate, economic growth, interest
rate and exchange rates.
External Environment Analysis
In 1999 and 2000, Ecuadors economy collapsed which was the reason for adoption of the
U.S. dollar as legal tender. Today, all commerce is conducted in the dollar hence currency
risk is absent. In 2002, Ecuadors economy expanded at a 3.4% rate and the Central Bank
projects that GDP will grow by 3.5% in 2003.
Interest rate was very high due to high inflation running in the region. When inflation was
at 20%, interest rate was at 40%. The main reason for such high interest rate was probably
due to low competition in financial sector in Ecuador. Faced with this situation, some
businesses have to borrow money from other countries and had to return the same in US
dollars. Some business borrowed from Colombia and Uruguay, and always had a fear that
if money is not repaid, then they may have to face undesirable consequences.
Internal Environment Analysis
Economically, on the global positioning level, the unforgiving economics of shrimp
business is due to its seasonal activity and other natural calamities. The rhythms of nature
are such that the first two weeks of the brown-shrimp season, in May, and the first two
weeks of the white-shrimp season, in late summer, are when Xavier can hope to make
most of his money. That number shrinks quickly. On the other hand, the maintenance cost
increases, especially fuel, groceries and storage on deck. For Xaviers case, he would
completely drain the ponds to remove any plants and algae that had accumulated since and
