Multinational seed companies achieve localization in China

The Chinese version of this paper has been written by Tong Pingya, then translated and edited into English by CCM and issued in CCM’s latest monthly newsletter, Seed China News 1304. Tong Pingya, Researcher in the Chinese Academy of Agricultural Sciences, has been involved in the scientific study on corn and agricultural development strategy for a long time. With his great experience, Mr. Tong acts as a senior consultant for both government departments and non-government organizations.

With its huge market, China is the second largest consumer of crop seeds, attracting great attention from multinational seed companies. The Chinese seed market has a great potential for commercial interests. Indeed, for multinational seed companies, China is not only a large consumer market, but also an unmatched production base for crop seeds. Entering the Chinese market and developing along with the development of the Chinese seed industry becomes an important strategy for multinational seed companies to achieve a global victory in the intense competition of seed market.

Considering the disparity of culture and values between China and the West, multinational seed companies know well that they have to adopt a localization strategy to settle, develop and expand in China, especially workforce localization. Following the saying "When in Rome, as do as the Romans do", they try to tap into Chinese economy and society as soon as possible in terms of talent training and reserve, from germplasm resources collection to variety breeding, corporate culture to the public welfare, technology transfer from home to R&D in China, etc. With a solid base for the localization in China, multinational seed companies have a clear path to achieve a rapid expansion.

There are generally four major strategies for multinational seed companies to achieve their localization in China.

The first is setting up joint ventures. Multinational seed companies clearly understand that they can't set up a company and dominate the Chinese market by themselves in a short time. Nevertheless, they can do so by cooperating with large seed companies in China. For example, in the 1990s, Monsanto respectively set up joint ventures with local seed companies in Hebei Province and Anhui Province, successfully introducing its Bt cotton variety in China. Some other multinational enterprises like DuPont, Syngenta and KWS followed this kind of strategy and successfully tapped into the Chinese seed market.

The second is setting up R&D bases. Aiming to strengthen technology export and market-oriented R&D, multinational seed companies have built a variety of R&D institutes in China. For example, in Oct. 2008, Syngenta established a biotechnology R&D center in Beijing, China's first agricultural biotechnology research institution set up by foreign capital. Then, in Oct. 2012, Syngenta jointed the Hubei Academy of Agricultural Sciences to set up an innovation center for natural products in Wuhan City, Hubei Province. Besides, in 2009, Monsanto established a R&D company named Monsanto Biotechnology Research (Beijing) Co., Ltd. The same year, Monsanto started conducting a collaborative research with the Chinese Academy of Agricultural Sciences in various ways by signing a Memorandum of Understanding with the latter.

The third comes with the employment of senior consultants. This is another crucial step for multinational enterprises to achieve their localization in China though it demands some preparatory work. For example, some multinational seed companies or international consulting institutes provided a financial aid for a number of scientific researchers who went abroad for study or training in the 1980s and 1990s. After returning China, most of these researchers occupied a position in research institutes, universities, associations or even government agencies. Many of them became senior consultants in multinational seed companies, including those who were promoted as academicians or important officials influential in certain field. With the combination of their senior consultants and capital strength, multinational seed companies are likely to influence the Chinese political, economic and scientific decision-making, helping to accelerate their localization in China.

Training professionals is another far-sighted and prepared strategy for multinational seed companies to completely tap into the Chinese market. Since 2000, DuPont has established scholarships in China's key universities such as Tsinghua University, Peking University, China Agricultural University, etc., with a total annual grant of USD100,000 divided among 2,000 students. In Oct. 2010, with the help of China's Ministry of Agriculture, Monsanto launched the Monsanto Scholarship Program in the Chinese Academy of Agricultural Sciences, China Agricultural University, Shandong Agricultural University, etc. Monsanto tends to award the outstanding undergraduate and graduated students determined to engage in R&D or industry in agriculture and life sciences' fields. It is worth mentioning that some masters and PhD hold key positions in research institutes and seed companies that had granted them, like Monsanto.

The disorder and underdevelopment of the Chinese seed industry means a great business opportunity for multinational seed companies. Their localization strategy paves the way to their sole proprietorship in the future. Currently, multinational seed companies are still prohibited for sole proprietorship or operation holding in China, but their acceptance is only a matter a time after their localization in the Chinese market. After all, being confident with the Chinese seed market, policy and law, multinational seed companies will transfer their joint ventures into sole proprietorship rather than withdraw their investment,

In the operating strategy, multinational seed companies comply with the Law of Global Chain, namely "customers' following" and "global key accounts". They tend to study seriously the local seed market, sales network, management localization and appropriate partners before expanding their business chains into a country. They won't hesitate to tap into a market when they believe that there is an opportunity with desirable customers or appropriate partners. Therefore, the Chinese seed market is not only facing world-class leading multinational seed companies, but also the huge and effective international industrial chain.

Table contents of Seed China News 1304:

Winall Hi-tech' M&A gets reward in 2012

Seed business of DBN develops stably in 2012

Shandong Denghai performance sees growth in 2012

China's first fund for seed industry set up

Second batch of seed enterprises gain operation license nationwide

Multinational seed companies achieve localization in China

Domestic fresh corn industry under vigorous development

Domestic potato seed companies hard to become bigger

Large grain growers: thriving but in straits

Wang Feng: "Super Rice" subjective gauge rather than objective standard

China's soybean import dramatically reduces in Q1 2013

Seed China News, a monthly publication issued by CCM at the end of every month, mainly covers a diversity of topics, including market dynamic, company dynamic, crops, seed market, etc. With the latest news in seed industry and in-depth analysis on government direction and market competition, Seed China News can provide you with valid information which would help you make rational decisions in investment, production, marketing, etc.

About CCM

CCM is dedicated to market research in China, Asia-Pacific Rim and global market. With a staff of more than 150 dedicated highly-educated professionals, CCM offers Market Data, Analysis, Reports, Newsletters, Buyer-Trader Information, Import/Export Analysis, and consultancy service. 

For more information, please visit http://www.cnchemicals.com.

Guangzhou CCM Information Science & Technology Co., Ltd.
17th Floor, Huihua Commercial & Trade Mansion, No.80 Xianlie Zhong Road, Guangzhou 510070, China

Tel: 86-20-37616606

Email: econtact@cnchemicals.com

How far can Chinese-style commercial breeding go?

The National Development Plan 2012-2020 for Modern Crop Seed Industry (hereinafter referred as Seed Industry Plan 2012-2020), promulgated by the State Council, aims at encouraging seed enterprises to gradually take the place of the higher education and other scientific institutes in the dominance of breeding seeds. Only in this way can Chinese seed industry develop much better in future, according to Seed China News 1303 issued by CCM in March. 

Seed breeding research of commercialization is different with the one dominated by research institutes in that the former is market-oriented and aims at the company development by generating new varieties suitable for mechanized operations with a high & stable yield, a good quality, a wide adaptability and stress tolerance, while the latter is generally targeted at a variety approval, paper publication and professional title application. To a great degree, they isolated from each other in terms of target, strategy, plan, resource, information, etc., which has led to an overall low-level research quality and waste of resources. Indeed, it's the market dynamics and the profit that predominate the course of commercialization seed research.

Chinese seed industry is somewhat deformed in the former planned economic system, with no connection in variety breeding, seed production and technology promotion. Over 90% of germplasm resources and breeders are concentrated in higher education and other scientific institutes. The same percentage of the research funds is invested into applied technology research. Seed companies only concern about the market but R&D, the reverse is true for scientific research institutes.

Since the new century, large seed companies started to set up research institutes and smaller ones founded research departments. Retired experts from agricultural research units were hired as consultants of seed companies, recruiting graduate and undergraduate students to undertake breeding work. Seed companies attempted to rapidly become the main body of scientific and technological innovation, relying on their own resources. However, some major limiting factors including heavy R&D costs, inadequate funds, insufficient germplasm resources and talents, etc., have not changed the high uncertainty in variety breeding.

Domestic seed companies already feel enormously constrained with only 2% of revenue put into R&D, compared with foreign counterparts' proportion of 15% to 20%. Puzzled by the heavy R&D investment and unpredictable achievements, business owners in seed industry have to change their development strategy and find other shortcuts.

There are usually three shortcuts taken by domestic seed companies.

The first is purchasing variety rights. Eager to make money, owners of seed companies spare no expense to acquire variety rights from scientific research units or breeders. For example, Origin Agritech Limited bought Lin'ao1, Beijing Doneed Seeds Co., Ltd. bought Zhengdan958, Anhui Longping High-tech Seeds Co., Ltd. bought Ludan981, Hefei Fengle Seed Co., Ltd. bought Xundan18, etc. Relying on purchasing variety rights, seed companies are able to rapidly enter seed market and make huge profits, accordingly reducing the pressure in R&D and also the risks of failure.  A quite number of seed companies just pursue short-term benefits and almost completely stop their own R&D. Meanwhile, seed companies' thirsty for varieties has boosted the price of varieties. As is reported, national approved corn variety Jingke968 is sold at the price of USD3.18 million (RMB20 million), Zhongdan909 at USD3.34 million (RMB21 million), Jixiang1 at USD4.43 million (RMB27.80 million). Seed companies have been competing with each other to bid for the operating rights of excellent varieties, with the aim to make multiple profits as soon as possible. (All the varieties mentioned above are corn varieties, noted by Editor)

The second is farming out breeding R&D. Some seed companies expect to continuously obtain new varieties through the long-term cooperation with research institutes rather than bidding for varieties from the latter. The common practice of seed companies is initiatively sighing an agreement with research institutes. Under the agreement, seed companies shall annually pay a certain amount of R&D funding to research institutes, usually between USD0.16 million (RMB1 million) to USD0.32 million (RMB2 million), and in return, the varieties bred by research institutes will give the priority to seed companies for operating. Generally speaking, research institutes only transfer the operating rights of varieties to seed companies but keep the property of varieties. For example, Shanxi Tunyu Seed Industry Co., Ltd. carried out the breeding cooperation with Shandong Academy of Agricultural Sciences, Hefei Fengle Seed Co., Ltd. with Rice Research Institute, Fujian Academy of Agricultural Sciences, Grand Agriseeds Co., Ltd. with China National Rice Research Institute, etc. However, some seed companies tend to hesitate on the long-term investment in breeding as there are no time limits for research institutes to breed new varieties.

The third is acquiring intermediate breeding materials from breeders. Many seed companies pay close attention to the newly developed varieties of research institutes or individual breeders. When finding some interested breeding materials or hybrid combinations, seed companies seize the opportunity to buy out them. After secretly sighing transfer agreement with research institutes or individual breeders, seed companies obtain the property of breeding materials or hybrid combinations and the transferors receive a considerable compensation. As is reported, seed companies have bred increasing varieties in recent ten years and they have become the main force of breeding innovation. However, the reports are only the appearance. Most varieties held by seed companies are actually the finished or semi-finished products purchased from research institutes or individual breeders!

To survive under intense competition, domestic seed companies are willing to obtain reliable varieties with a comparatively low capital investment. Seed companies' purchasing varieties is equivalent to an investment in fixed assets. Since the production cost and price of seeds is basically stable, seed companies are able to achieve profitability from variety investment after reaching the breakeven point.

After the Suggestions for Accelerating Development of Modern Crop Seed Industry was released by the State Council, the campaigns like "cooperation of enterprise and research institute" and "strategic alliance" have been widespread, with an atmosphere of planned economy led by officials. For example, the Ministry of Agriculture supported the cooperation of 8 enterprises and 1 research institute, while the Ministry of Science and Technology led the "strategic alliance" of 33 research institutes and seed companies. The similar campaigns also put on in many provinces or regions. However, all those grandstand actions are only an expedient measure responding the new policies of Chinese industry, not touching the structural reform and improving the weak R&D capacity of seed companies. How far can Chinese-style commercial breeding will go? Let us wait and see.

Table Contents of Seed China News 1303:

Hubei Jingchu obtains the exclusive operating rights for the corn hybrid Huayu11

Winall Hi-tech's subsidiary's corn production suffered from a frost damage

Another agrochemical company, Jiangsu Huifeng, enters the seed industry

China's first law for agricultural insurance becomes effective

How far can Chinese-style commercial breeding go?

Exclusive interview with Luo Haiping on domestic pepper breeding

Chinese scientists map out the D genome of wheat

Quo of tropical cucumber seed market in China

China's soybean imports still climb in 2012

Alfalfa grass import saw an obvious increase in Jan.

Longshikui3, an improved open-pollinated edible sunflower variety

Seed China News, a monthly publication issued by CCM at the end of every month, mainly covers a diversity of topics, including market dynamic, company dynamic, crops, seed market, etc. With the latest news in seed industry and in-depth analysis on government direction and market competition, Seed China News can provide you with valid information which would help you make rational decisions in investment, production, marketing, etc.

About CCM

CCM is dedicated to market research in China, Asia-Pacific Rim and global market. With a staff of more than 150 dedicated highly-educated professionals, CCM offers Market Data, Analysis, Reports, Newsletters, Buyer-Trader Information, Import/Export Analysis, and consultancy service. 

For more information, please visit http://www.cnchemicals.com.

Guangzhou CCM Information Science & Technology Co., Ltd.
17th Floor, Huihua Commercial & Trade Mansion, No.80 Xianlie Zhong Road, Guangzhou 510070, China

Tel: 86-20-37616606

Email: econtact@cnchemicals.com