Charles Han, Chairman of DaChan Greatwall Group
Choosing Blue Ocean over Red Ocean
Food industry veteran Charles Han sees the sector's recent problems in part as the result of negative market forces squeezing producers. His company has sidestepped the turmoil by forged its own "blue ocean."
Choosing Blue Ocean over Red OceanBy Ming-ling Hsieh, Kuo-chen Lu
From CommonWealth Magazine (vol. 559 )
The chairman of feed producer and chicken breeder DaChan Greatwall Group, Charles Chia-yau Han, has been around the food industry for 20 years. To this industry veteran, the recent series of food scandals in Taiwan that have tarnished the sector's image were not a big surprise because the writing had been on the wall for some time.
Han observes that beyond ethical problems, Taiwanese food makers have been tempted to sidestep laws and regulations because their profit margins have been squeezed razor thin in recent decades by changes in the distribution system and consumers' unwillingness to accept price hikes.
Dachan was founded by Han's father Han Ho-jan in 1957 and is now run by the younger Han and his three brothers. In Dachan's early days, it produced soybean oil (for direct sale to consumers), but in recent years it has only produced edible oils for commercial clients because selling to end consumers through large supermarket chains means competing on cost in a hotly contested "red ocean" market. It is in such a market that companies like Changchi Foodstuff Factory Co., which came under investigation last year for selling adulterated cooking oils, were able to thrive.
While competition is a reality of doing business, companies should not be left with "cutting prices to eek by" or "cutting costs by using inferior ingredients" as the only alternatives.
DaChan insists on consistent quality control throughout the supply chain and has taken the initiative to adjust its business model in recent years by targeting the high-end market. It has launched safe premium products such as shrimp that are organically farmed in Indonesian mangrove forests, the Lu-Yeh free range chicken series, and Kagoshima Black Pig pork.
"Food safety is a must and then quality must be good, too," declares Han, who is an engineer by training.
The following are excerpts of Han's comments from his interview with CommonWealth Magazine.
Why is everyone engaging in these bad practices?
Leaving aside the ethical problems, the government should look at the situation in the industry, including profits. When an industry is at a point where it can't turn a profit, it will probably do those things (illicit practices) to survive or make money.
Therefore, we need to look at profit distribution within the industry.
If a country wants to develop its economy in a very healthy way, each link in the industrial supply chain must be able to make a reasonable profit. That is better for the industry. The government must look at every link, upstream, midstream and downstream, and see whether their profits are reasonable.
Also, whenever prices for any items have gone up in the recent past, there has been a media outcry. Can you call this reasonable?
Of course, the sluggish economy is also a factor. But if most manufacturers find it harder and harder to do business, the government must figure out why the situation has changed that much.
The industry has changed and profit distribution has changed. If there are no profits to be made, bad practices and products will probably emerge.
This is not just a matter for the Ministry of Health and Welfare but also for the Ministry of Economic Affairs.
Because the shockwave sent through society by the current food scandal has been so massive, however, I'm convinced that Taiwan's food industry will make a new start once the entire affair has been investigated.
In order to improve the situation, it will definitely take a combination of measures. The government could promote, for instance, a three-tier quality control regime consisting of industrial self-control, external certification and governmental checks.
On top of that, tax regulations must be amended as well as the GMP system.
Brand manufacturers must also control their contract manufacturers. At DaChan, we check, first, the certifications of a contract manufacturer and, second, send people to the contract manufacturer's site during production.
DaChan puts a high priority on quality inspections and management. In chicken breeding, for instance, the use of some drugs is allowed but they cannot be present at the time of consumption. Therefore, you need a window of a few days to ensure there are no drug residues. That's why we check three days before slaughter. We are the only ones inside the industry who are really carrying out such inspections.
Also very important is the business model. All enterprises pursue profits. Of course, we will adjust our business model toward the one that is better, just like all other companies – why compete in the red ocean if you can compete in the blue ocean?
Presently, we produce several brands aside from feedstuffs and broiler chickens such as our [Tarakan] organic shrimp, Lu Yeh native chickens and crabs. We need to safeguard food safety, make sure that our brands are trustworthy.
Good Quality Fetches High Prices
DaChan implements strict quality inspections and quality control, so our production costs are relatively high. But because we started out as a bulk commodity company, our brand management was not good enough in the past, and we were not able to sell our products at a reasonable price – that was a pity.
The costs of producing our organic shrimp in Indonesia, for instance, are relatively high. The shrimp are not raised on feedstuffs so they won't contain any residues hormones or drugs. We are the largest producer of naturally farmed shrimp worldwide with an annual output of more than 3,000 tons. In the past, we sold them to Japan at a high price.
We thought it would be impossible to promote them in the Taiwanese market because their price is 30 percent to 50 percent higher than those of competitors. In seafood stores, shrimp imported from Vietnam cost NT$30 per shrimp; ours cost as high as NT$80.
We took a gradual approach in marketing them and worked hard to educate consumers. As it turned out, sales exceeded our expectations.
We need to tell people where our strengths are. If consumers are willing to pay a little more, you can build your business.
After consumers have experienced this recent series of food-related incidents, they will make even higher demands on food safety. This environment allows us to create brands, to march in that direction.
Translated from the Chinese by Susanne Ganz