Part 1

Introduction

Founded by a small group of pioneer cotton growers, from Wee Waa New South Wales in 1962, Namoi Cotton was formed. Namoi Cotton was partially publicly listed on the Australian Stock exchange, but as of 2016 they have become Namoi Cotton Limited, a 100 percent publicly listed company on the Australian Stock Exchange.

Namoi cotton primarily operates in the Australian cotton industry and the global cotton industry.

Namoi cotton is Australia’s leading cotton processing business with twelve cotton gins (processing facilities) in New South Wales and Queensland.

The organizations primary activities are the ginning of the raw seed cotton, the marketing of cotton and other functions associated with to producing and selling cotton including packaging, warehousing and logistics for example. The functions of the entity are not solely based on the facilities owned entirely by Namoi Cotton; however, some functions are executed through the use of subsidiaries of the organization such as the joint ventures including the Moomin cotton Gin and Wathagar cotton Gin used for the processing of the cotton. The joint venture Namoi Cotton alliance the primary tool in marketing their products domestically and internationally. Subsidiaries such as Australian Classing services and NC packing services have been entirely owned by Namoi Cotton.

The Australian Cotton Industry

Cotton seeds where brought to Australia on the first fleet in 1788, although only 3 bags of cotton were grown it was the beginning of the Australian cotton industry. The cotton industry in Australia became successful in the late 1800’s after the opportunity arose to export cotton to the United States after the American Civil war. However as of 1954 the cotton industry became nearly non-existent. The late 1960’s the industry began to grow with the introduction of irrigation systems in Namoi Valley and the use of water from Keepit dam in Wee Waa. As of February 28^th, 2019, the Australian cotton ginning industry has a revenue of $2.9 billion with a profit of $88.7 million. The annual growth for the industry for the previous five years (2014-2019) was a decline of 0.4% annually. However, the industry is expected to grow by

1.2% per year in the following five years (2019-2024). There are 40 businesses operating in the cotton ginning industry Australia, exporting a total of $2.4 billion in produce annually. 63.9% of the cotton ginning establishments can be found in New South Wales, while the other

36.1% are found in Queensland.

The industry is in a mature stage of the industry life cycle. Due to a low growth in share of economy and a low growth in number of establishments. The industry has high competition levels between the existing organizations and the globalisation levels are high and increasing. Due to the high costs associated with the establishment of ginning facilities and the vast amount of land required to grow cotton, the industry has medium barriers to entry and medium industry concentration.

Namoi Cotton Limited has a 19.1%. market share, the next closest in market share is LDC enterprises Australia pty Limited who have a market share of 12.7%, and then Olam Investments Australia who hold 9% market share (IBISWorld, 2019).

Business units, products and services lines.

1. Cotton crop: Namoi Cotton Limited grows cotton throughout New South Wales and Queensland with the use of irrigated farming systems. Namoi Cotton limited grow the crop on their own farms removing the need to negotiate with external growers. Namoi Cotton invests in their farms to ensure they have been as productive as possible resulting in optimum yields of cotton.
2. Ginning: Namoi Cotton Limited is comprised of twelve operational ginning facilities which have been strategically placed throughout New South Wales and Queensland. Namoi cotton’s core business is the cotton ginning. Namoi achieves this through the permanent 150 employees and the integrated ginning warehouse network across New South Wales and Queensland. Of the twelve cotton ginning facilities, two of which have been formed as of a Namoi Cotton joint venture, including the Moomin Gin and the Wathagar Gin. Namoi Cottons Ginning has revenue of $87 million and a profit of $12 million (IBISWorld, 2019).
3. Marketing: Namoi Cotton limited formed a joint venture in 2013, resulting in a 51% share in Namoi Cotton Alliance with Louis Dreyfus company. Namoi Cotton Alliance market on average 16% of the Australian cotton crop. 100% of Namoi Cotton’s produce is exported to markets such as China, Bangladesh, Indonesia, Japan, Korea, Turkey, India, Thailand and Vietnam. Namoi Cotton alliance focusses on the risk management, logistics and marketing of the cotton produced by Namoi Cotton limited (Namoi Cotton, 2018).
4. Commodities: Namoi Cotton Commodities Pty Ltd is a subsidiary of Namoi Cotton limited that produces grains such as cotton seed, chickpea, canola seed for examples and exports them domestically and internationally. Namoi Cotton Limited has a 96% share in Namoi Cotton Commodities Pty Ltd.
5. Classing: The quality of each product produced by Namoi Cotton Limited has to be of quality standards and meet the legal requirements before being able to export the produce or sell to domestic markets. Australian Classing services is a wholly owned subsidiary of Namoi Cotton Limited.
6. Oil Seeds: Namoi Cotton Limited is the beneficial owner of Cargill oilseeds Australia and Cargill processing limited with a 100% share. Cargill produces, processes and markets various oil seeds for domestic and international markets.
7. Packing: The subsidiary NC packing services, which Namoi Cotton has a 51% share of, primarily operates as a packing service of cottonseed and grains.

Largest revenue units.

In 2019, Namoi Cotton Limited generated a total revenue of $89.4 million (IBISWorld, 2019). The largest three revenue generators for Namoi Cotton Limited are the Cotton Ginning, Marketing and the Commodities. These three revenue generators hold majority of Namoi Cotton Limited’s market segments.

The cotton ginning as stated by Ibis world report, as of 28^th of February 2019 Namoi Cotton Limited generated $87.2 million through cotton ginning alone. The profits made from cotton ginning total $12.2 million

The marketing segment of Namoi Cotton Limited is the joint venture known as Namoi Cotton Alliance which generated a revenue of $2.1 million. Though the 2018 season the total cotton lint marketing volumes procured totalled 817 thousand bales according to Namoi Cotton Limited’s Annual report (p.5, 2019) (Namoi Cotton Limited, 2019), an increase of 28% from the previous season. The lint marketing gross margins are under pressure due to competition to secure cotton and with distribution costs rising due to the limited opportunity to share rail services with reduced packing volumes. As stated by Namoi Cotton Alliance (Namoi Cotton Limited, 2019), they provide the following services,

• Export sales: The main export destinations for Namoi Cotton Alliance as stated earlier are China, Bangladesh, Indonesia, Japan, Korea, Turkey, India, Thailand and Vietnam with 100% of their crop being sold to these markets. The organization is able to differentiate from their competitors as they provide high quality products and services, as well as being highly reliable to their consumers.
• Packing: Namoi Cotton Alliance commodity packing business, packed 55 thousand metric tonnes in 2018, a significant reduction in comparison to 2017’s 168 thousand metric tonnes. The product packing services provided allow for the organizations logistics to operate efficiently as it removes the need to outsource a packaging organization.
• Logistic services: Namoi Cotton Alliance logistic services provides the organization with transportation needs required to export their products. This includes integrated roads and railway transport. NCA contractually deals with a minimum number of shipping services in return for a guaranteed sufficient storage and the necessary equipment is available to transport the products appropriately. This ultimately reduces the amount of time in the process and the shipping companies used have an understand of NCA’s requirements. NCA pride themselves on the fast shipping speeds of their produce as they are able to get product from Australia to china in 15 days, Indonesia 12 days and, Bangladesh and India 28 days.
• Warehousing: NCA operates 3 of their own warehousing facilities throughout the cotton farming regions. They are able to store the cotton that has been directly purchased from the farmers. Additionally, warehouse contracts are offered to other farmers and merchants. Due to the undercover storage NCA is able to store their cotton and maintain a high quality and consistent standard.

Commodity trading is another aspect of revenue generation for Namoi Cotton Limited. This is however nominal for the organization in relation to the total market segment. As stated by IBIS world report it was not applicable for the previous year

Although this organization has many revenue generators, the largest percentage of their market segments in relation to revenue is the Cotton ginning and the marketing. Ultimately, the total revenue relies on the marketing and ginning of cotton segments of the organization.

PART 2

Different Business Level Strategies

For an organization to determine its success profitability plays a vital role. Firms have to engage in different strategies which help in attaining objectives and organizational goals. Information about firms internal and external environment’s helps in developing some effective strategies (Porter, 2007). porter uses 3 generic strategies for an organization to choose from to be successful and beat the competition.

1. Cost leadership
2. Differentiation
3. Focus

Due to significant rise in global competition a new strategy has formed Integrated cost leadership/differentiation. This strategy would be the combination generic strategies.

Cost leadership

In a certain market segment offering at the lowest prices for the products compared to the competitors is knows as Cost Leadership strategy. Cost leadership strategy can be applied in an organisation in two ways. One is by providing at as low costs as possible and the other is by having a larger market share with average prices (Porter, 2007). In both cases the main objective is to keep the costs as low as possible. To be successful in cost leadership organisation should analyse and evaluate the sources of cost advantage

Obtaining cost advantage

• State of art facility to reduce the production cost
• Better R&D
• Better customer service
• Keeping production and overhead costs as least as possible

Usually an organisation to be effective in this strategy has a significant amount of funds at its disposal to obtain best technology which help bring down the production costs, efficient logistics, low cost base which includes labour and Raw Materials for the production process (Baack and Boggs, 2008).

Risks in employing cost leadership strategy

• Technology
• Imitation

Constant upgradations in innovation makes the technology to outdate quickly so that is a threat to business. As the cost reduction sources are not unique there is a chance that competitors can easily copy and can compete with the price.

Differentiation

As the name implies Differentiation strategy means being unique in its market by providing products as exclusive as possible and also by providing better service than competitors. Providing products with value added options and personal customisations along with the lower prices than the competitors (Hafeez, YanBing Zhang and Malak, 2002).

Obtaining differentiation strategy

• Providing high quality products
• Better features
• Value oriented customer service
• Innovation and technological advancements
• Sustainable products

Risks involved in differentiation strategy

• Imitation
• Uniqueness

In a marketplace competitors are more likely to follow a successful product and tries to offer them a lower price or a slightly upgraded product with less defects than the original one. A way more uniqueness in product can keep you out of market as well.

Focus

Porter initially represented focus strategy as one business strategy, further this strategy is implemented as a combination of two strategies. General strategy of focus depends on the selection of an industry’s or market’s limited competitive scope (Porter, 2007). In order to exclude others, the focuser chooses a segment or group of segments form an industry and tailor made those segments with the strategies. Competitive advantage can be achieved by optimizing this strategy in selected segments. The combinations of Focus strategy are

• Cost focus
• Differentiation focus

Cost focus strategy is defined as lowest prices are offered by targeting specific segment by understanding dynamics of active markets and understanding the needs and wants of public. Whereas in differentiation focus strategy products and services provided must be unique in the targeted segment. This strategy also involves brand name and loyalty among consumers. Advantages of cost focus strategy are the cost variations in specific segment. Whereas advantages of differentiation focus would be targeting the unique necessities of the customers in target markets.

Integrated cost leadership /differentiation

This new hybrid strategy which has become even popular as with the increase in global competition was a combination of porter’s generic business level strategies. From companies relying on single general strategies, they had to integrate them to adapt, learn new skills and improve for environmental changes in the markets. It would leverage core competencies more efficiently across company production values and also assist to manufacture products with differentiated characteristics that consumers appreciate and offering them at price lower than those of competitors (An and Lifen, 2017).

In addition, the “stuck-in – the-middle” approach should be a combination of competitive strategy’s. Since it is hard to maintain cost-based and differentiation benefits, companies pursuing a combination approach can perform more effectively than companies pursuing a particular strategy. Pursuing Integrated cost leadership/ differentiation strategies the advantages would be with differentiation you would provide differentiated products at lower price achieving the cost leadership strategy simultaneously, the business would have a competitive advantage.

NAMOI Business Level Strategy

Among the different business level strategies, the below mentioned strategies are being followed by the company to achieve objectives, goals and to survive in the competitive markets

Integrated cost leadership Strategy

NAMOI cotton has been offering the people its products at low price without compromising the quality. Whereas in the context to NAMOI the company deals in both domestic and international markets so the company implements Integrated cost leadership strategy. The company has customer base of selling cotton seeds in Australia, Japan and china. Well organised supply chain management of the company allows effective collection of harvested cotton from the growers and supplying the product on national and foreign markets. The company is also regarded as a market leader, achieving constant growth in Australian Market (Powell, Welsh and Eckard, 2017).

NAMOI has approximately twelve operational cotton gins and three warehouses facilities with 1.5 million bales per season with the assistance of enough individuals. It has been seen with this large quantity of stock per season company has a better chance of attaining competitive advantage in the market as well. The company is recognised as the pioneer leaders by achieving efficiency through research and development into ginning technology (Mo, 2018). By employing this strategy not only significant growth is observed but also enhancement in the profits of company are seen and it also helped the company to sustain in competitive markets (Bijman, 2016).

Cost focus Strategy

The company has considered this strategy to compete in the markets by focusing on the competitors that participate in the target market. The firm competes in certain market after analysing the prices and trends of the target market. As a result of using this strategy it the focus of the company has resulted in marketing the cotton seeds in various regional areas namely NSW and Southern Queensland by maintaining the quality of the products which enriched the firm’s market image and increases the demand for production quantity (NAMOI 2019).

To take out the advantage of the large market share position, the firm took the necessary measures and concentrated to minimize its costs, by anticipating the additional overhead costs and over production. They have emphasized more on the efficiency of their production, by avoiding more on the advertising as they sell the inputs which are essentially required to manufacture the desire products. By taking advantage of this general necessity of providing the input products, the firm has minimized and cut its costs on market research, R&D. The firms have relied on economies of scale by aggregating market share (Hill, Schilling and Jones, 2019)

Integrated Differentiation Strategy

NAMOI has accepted the proposal of joint venture agreement with Louis dreyfus commodities, NAMOI took the differentiation strategy into account. Goondiwindi, wee waa, moree, Toowoomba and Trangie are where regional workplaces situated and the operations of grower services of the company takes place. NAMOI offers differentiated products at a low price on the market which has an impact for the company as a whole. This strategy has been employed so that in case any environmental changes are observed the company is prepared to adapt leading edge technological improvements and also learn new skills (Brenes, Montoya and Ciravegna, 2014)

NAMOI cotton encourages environmentally Sustainable practices and also conducts workshops on safety and environment to empower growers and workers. By employing sustainable practices NAMOI has built a good image in the market for cotton in domestic and international context. The company has tie ups with the Australian growers as well as international spinning mills, in order to maintain the high product quality for the standard markets. The firm has initiated different marketing strategies to encourage growers and thereby increasing the demand in the market. To ease up the demand of products in the market, the firm upheld its supply chain division to distribute the products in a timely manner to carry out all the divisions efficiently and effectively (Rueda, Garrett and Lambin, 2017).

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