Development of Agribusiness Enterprises - Asian Productivity ...

(b) When recommended by manufactures or the Korea Food Research Institute, the
operation of machinery and facilities might be very complex. In such cases, it is
necessary to hire maintenance specialists, thus creating additional costs. In other
words, a stable production system will be at risk if specialists are not hired;
(c) When importing machinery and facilities, it is difficult to ensure an adequate supply
of parts and components. Operating the machinery is also difficult due to the high
costs incurred by bringing in specialists from overseas to maintain the systems; and
(d) Difficulties can occur with financing and as a result of failure of projected demand to
materialize.
Marketing Problems
Rural food-processing enterprises with a deficit operation have difficulties in
establishing a sales network due to low rates of sales. Other difficulties may exist with sales,
although well-balanced enterprises have relatively stable sales networks.
1. Lack of Product Discrimination
The primary reason for a poor sales network is low product quality, especially in terms
of poor packing, design and quality management. Therefore, consistent efforts are needed
to improve product quality and achieve diversification.
2. Limitations on Establishing Retail Sales Networks
In the case of the food-processing industry, difficulties exist in establishing retail sales
networks. The difficulties are mainly due to high prices, small-scale production systems, a
lack of funding, and strong competition.
For example, general retail marketing firms such as department stores, which are
popular food markets in the Republic of Korea, require high marketing margins and large
quantities of products. Rural food-processing enterprises therefore experience difficulty in
entering those types of markets due to the small-scale production systems being used.
Department stores sometimes require sales persons specialized in food marketing, which
means extra costs for rural food-processing enterprises. Generally, the preference is to avoid
those producers charging high prices and supplying small volumes of products, both for
wholesale and retail stores.
In the case of direct transaction groups or large retail outlets, negotiating power may
be a problem. Because competitive firms are continually entering the market, buyer groups
often change business connections in order to keeping prices low, resulting in delayed
purchases and discontinuance of orders.
3. Weak Sales Promotion Activities
Rural food-processing enterprises prefer cost-effective methods for their sales
promotion campaigns. Most promotional activities depend on local newspapers, agricultural
journals, pamphlets, brochures, leaflets, and exhibitions. Local mass communication
channels such as television and radio can provide alternative advertising sources, but are
usually avoided due to the high costs involved.
4. Heavy Marketing Costs
Because limited quantities of products from small-scale producers are sold to a wide
range of markets, the unit cost of marketing is relatively more expensive than for large-scale
producers. Small retail stores, in particular, usually order small quantities, which increases
marketing costs (including the cost of transportation).
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