MLBA12: December / January 2010
Innovation, reinvention and investment in Asian meat processing
On the other hand, Asian meat processing has endured a succession of economic heart attacks. Food safety scandals, bird flu outbreaks, tainted feed, nasty recessions, cheap imports, export restrictions, unethical farmers, common people who lack home refrigerators: All of these have played key roles in holding back the growth of an otherwise promising industry. In the case of Thailand, they nearly killed Asia's most promising meat processing industry.
However, we must focus not on the eternal, ongoing actual clash between opportunity and crisis, but the way different countries respond to it. Some like the Thais, first use new circumstances to reinvent an underlying comparative advantage, then build a bigger innovation on top of it. Hence, industrial chicken cooking technology, originally brought in to cope with bird flu, was then leveraged to create a much more value-added product: ready-to-eat-meals.
Other countries like China, at first react more defensively than Thailand but wisely allowed market forces to determine the reaction to a recession and questionable food safety. Net Result: Investment rose during the recession but much of it was placed into ensuring the food's safety, rather than expanding actual capacity.
With regards to imports, some like the Philippines blocked them out for years. Others like the Koreans and Japanese migrated up market into niche products that are immune to price competition. Lately, the Philippines is coming around to the Korean approach but old habits cannot be changed: The domestic Philippine oligarchs who lobbied for import protection are still resting on their laurels, making very few new investments. If Philippine meat processing survives, it may only be due to some plucky smaller producers that adapt to the new circumstances.
All this follows the great Austrian economist Joseph Schumpeter's theory of 'creative destruction.' According to Schumpeter, real innovation and new capital formation occurs not by preserving outdated processes but by letting them die out and creating something better in their place. Merely investing less when demand falls is an uncreative response that creates no long-term value.
We can see Schumpeter's ideas at work when comparing the Philippines and Thailand: Each faced plunging demand for processed meat. The Philippines reacted in a textbook manner to lower demand: invest less. The Thais repeatedly opted to think out of the box: If a crisis destroys your products, invest to reinvent them in a more acceptable, value-added form.