An Uzbekistan fruit processing company seeks solutions to improve raw material supplies through industry cooperation (cooperative development) or through backward integration (agribusiness system management) On 15 March, 2001, Ms. Gauhar Kubekova, owner of Fruit Preserves of Namangan Ltd. looked at the notes she had taken from two studies made about the fruit and vegetable industry in the Uzbekistan The problem she was trying to solve was guaranteeing the availability of raw material supplies for her marmalades, jellies and preserves business.
This problem was two-fold: 1) obtaining the right quantity and quality of raw materials at the right time and 2) to keep labor and equipment center fully occupied in her processing center fully occupied. One of the studies she reviewed suggested cooperation among the different members of her industry. The second study suggested integrating backwards through the purchase of land and growing the raw materials, fruits and vegetables, independently. Company background Ms. Kubekova’s business evolved from her hobby of making strawberry jams for her friend’s 15 years ago.
Ms. Kubekova converted this hobby into a business in 1999 by expanding into tree fruits and vegetable preserves (See Annex 1 for the company’s objectives). Her initial marketing efforts were directed to the Uzbekistan market. In her promotional material, she differentiated her products from others by claiming the following distinguishing features: • honey flavor; • homey touch in “putting up” (an old Uzbekistan farm-kitchen term); • folk origin of her recipes and procedures not to be found in cookbooks.
The Case has been written by professor Gerrit de Vos, Ph. D. of the Maastricht School of Management with the cooperation of Kimep’s lecturer Ms. Dilbar Gimranova for the sole purpose of class discussion without judging the administrative practice of Fruit Preserves of Namagan, Ltd. Copyright: Tacis-Kimep 2001 Her conservatory, as Ms. Kubekova called her production centre, was a home-style kitchen covering a floor area of 60 sq, meters on the third floor of a high-rise building in Namangan. The company had total assets of Monats 3,908,030. After three years of operation, the company had remained a single proprietorship.
The December 1999 issue of Gourmet Magazine published in the United States and distributed worldwide, highlighted the gift market and the specific target market towards which the company wanted to direct its marketing efforts. The following is a quotation from that magazine: “Though fashion changes, one gift that remains timeless is the gift of food. In an age of ever increasing commercialism, homemade edibles have become all the more preciousness. Their personalized quality and the time invested in their preparation bespeak a graciousness and “special caring that are often submerged in today’s mass-marketing world”
While developing this target market in the Uzbekistan and to a limited extend in Kazakhstan and Kyrgyzstan, the company also sought a more global clientele; so far, stores in Australia, Hong. Kong, Japan, the United States and Federal Republic of Germany had placed trial orders. The motivation to enter into export marketing had come from the owner’s perception that competing in international markets would enhance the company’s market knowledge, extend the product line’s life cycle, reduce risks through geographical diversification, and improve the company’s overall return on investments.
By selling directly and indirectly through importers, the firm had been able to increase its 2000 sales by 49 per cent in 2000 and expected to increase this figure by 20 per cent in 2002. The company used a cost-plus pricing strategy by adding a 40 per cent mark-up to its labor, materials and overhead costs. The company’s sales performance is presented below: To produce 2,700 cases of bottled preserves (12 bottles per box at 450 grammes per bottle), a production lead-time of 90 days was needed. All of the tropical fruits were processed in small batches to ensure the most natural quality of the fruits.
The preserves were hand-made from processing to packaging. They did not have artificial coloring or flavoring and no preservatives were added. Because of their low sugar ratios to the fruits, they were considered health foods (see Annex II for the company’s production process). The fruit processing industry The Uzbekistan fruit processing industry had traditionally perceived itself as a separate entity from the farmers and the distributors. Raw materials were often bought in the open market when the fruits were in season to be followed with a concentrated effort to process the fruits into pulp and store and freeze the pulp for future use.
The increasing dependence of the industry on export business put into focus the problems associated with inadequate quality and quantity of raw materials for export needs. The short season for various fruits, such as strawberry, raspberry, red current resulted in unreliability of supply and high prices during the off-season, and inconsistent quality and discoloration after processing (see Annex III for the seasonality of fruit supplies in Uzbekistan).