BSP3001 - Project Report

Strategy analysis of
Qian Hu Fish Farm Trading

Prepared by:
Chen Xiaoyang

U0905169

Bui Thanh Mai

A0074419

Pham Anh Thu

A0074402

Phan Thi Nhat Thanh

A0074320

I. INTRODUCTION
Qian Hu Corporation Limited (The Group) is an integrated "one-stop" ornamental fish
service provider whose activities include breeding of Dragon Fish (Arowana), farming,
importing, exporting and distributing of ornamental fish as well as manufacturing of
aquarium and pet accessories and distributing them to local and overseas customers. The
Group has three divisions, i.e Qian Hu Fish Farm Trading, Yi Hu Fish Farm Trading, and
Wan Hu Fish Farm Trading.

Qian Hu
Corporation
Limited

Qian Hu Fish
Farm Trading

Yi Hu Fish Farm
Trading

Wan Hu Fish
Farm Trading

Import and export

ornamental fish

Specialize in
accessories

Breed and export

Arowana

Figure 1 - Qian Hu Corporation Limited Group Structure

Qian Hu Fish Farm Trading is one of the most established Aquatic Trader in Singapore. Its
main business activities are importing and exporting ornamental fish. Yi Hu Fish Farm
Trading deals with accessories and Wan Hu Fish Farm Trading specializes in breeding and
international exporting of quality Asian Arowana. This report focuses only on the strategy
analysis of Qian Hu Fish Farm Trading Division (Qian Hu or The division).
The report starts by analysing the core competency of Qian Hu, followed by an analysis of
the external business environment in which it is operating using Porters Five Forces model
and PESTEL framework. From the analysis, we will identify the major issues that the
division is facing and provide strategic suggestions for the division in the next five years.

II. EVALUATION OF THE DIVISIONS CURRENT

SITUATION
1. Internal Analysis - Core Competency
1.1. People
The competency of the division is reflected in its "People first" culture that is leveraged into
different aspects of its business and bring about sustainable growth.

Qian Hu has a strong standpoint that the development of new products and innovations can
only be achieved through managing the internal knowledge and by doing so it can
differentiate itself from competitors and provide higher benefit to customers. As such, it
considers employees as the biggest asset and the main factor to eventually decide the growth
of the whole organization.
Qian Hu makes an effort to develop their employees knowledge, feeling of belonging and
empowering them so that they can advance into their highest potential and make valuable
contribution to the growing process of the company. Specifically, Qian Hu encourage the
involvement of employees of all level in the decision making process so that the division can
look at their problems and opportunities in all aspects to move ahead of its competitors.
Moreover, this further pushes the flow of knowledge throughout the organization and resulted
in many important innovations and new products that deliver considerable financial benefits.
The knowledge within Qian Hu also cannot be imitated easily since it is obtained through the
very hands on experiences that employees gain from their day to day work.
Mr Kenny Yap once said, The ornamental fish industry is indeed a knowledge- based
industry. Therefore, managing the knowledge and enhancing it continuously is essential
in sustaining our business. We must also ensure that the knowledge we gained over the
years stays within the division regardless of staff turnover. Qian Hu has succeeded in
retaining the knowledge over the time such as industry expertise and the tactics to deal with
obstacles it had faced so that if needed it can be drawn out to reapply and resolve matters
quickly.
Consequently, all the investment that Qian Hu put into its employees also leads to a division
of capable and enthusiastic individuals who strike to provide the best service to the customers
and reaching the organizations goal. Particularly, each person understands the significance of
achieving high quality service standard through assisting customer and contributing their
capabilities to the company. Along over 20 years of operating in the industry of Qian Hu,
13% of the total workforce has been with the group for more than 10 years and 25% of which
has been between 5 to 10 years.
1.2. Relationship
Over the years, thanks to its reputation and continuous effort in networking, Qian Hu has
been able to establish several connections with other parties in many countries around the
world. As shown in the recent data, Qian Hu has set up its own farm in China, Thailand,
Malaysia, and Indonesia to breed and distribute fish in each corresponding countries. The
divisions presence in these countries helps it gain market understanding and the knowledge
of what is going on in these regions. This kind of knowledge gives Qian Hu a major
advantage in the sense that it can reduce the purchasing cost from identifying suppliers who
offer the most favourable price or take in time action to avoid unexpected crisis such as
hedging if it can project a rise in price of fish in the future. According to the divisions Asst.
Operation Manager, Mr Teoh Ai Huat, this also gives Qian Hu a better position in the
competition with other companies since they were unable to launch new farms outside their
countries like Qian Hu because of the lack of connection in the end. In our opinion, business
relationship is a valuable intangible asset of Qian Hu that its competitors cannot imitate over
a short period.

2. External Analysis
2.1. PESTEL Analysis
Political/ Regulatory Drivers: Singapore is considered to be the most stable political
environment in the world and companies that do business here can expect little volatilities.
This is a favourable condition for Qian Hu as its operation is mainly based in Singapore.
However, political issues in foreign countries have created many problems for the division.
For example, the political riots in Bangkok were cited by Qian Hu as one of the reasons why
they experienced a plunge in operating profit in 2010.
Economic Drivers: Singapore is the leader in ornamental fish industry in the world. Its
reputation gives Singaporean players an advantage to enter into exporting contracts with
other foreign companies. High standard of living in Singapore also supports domestic sales of
ornamental fish. However, the economic crisis in the recent years has created negative
impacts on the business of Qian Hu. This factor will be further elaborated in later part of the
report.
Social - Cultural Drivers: In Feng shui, the fish symbol has long been associated with
abundance and wealth, so many Chinese families keep fish at home to wish for prosperity.
Keeping fish as pets to bring happiness is also a habit of many Westerners. Hence, it can be
said that social and cultural factors are in favour of the ornamental fish industry in both Asian
and Western countries.
Technological Drivers: Singapore is currently the leader of ornamental fish industry in the
world. Operating in this country give Qian Hu access to the most advanced technology in fish
keeping and monitoring developed by Agri-food and Veterinary Authority of Singapore such
as water recirculation systems, fish quality evaluation system, enhancement of stress
resistance, and control of Salmonella and Vibrio cholera (Ling & Lim, 2006). Qian Hu also
focuses on technology development and over the year there have been several innovations
that contribute to the improvement of efficiency of operation, cost cutting and profit
enhancing.
Environmental Drivers: Weather is among the factors that have the biggest impact on fish
farming. Weather affects Qian Hu in many ways, both directly and indirectly. Firstly, it
affects the fish breeding process of Qian Hus suppliers. Secondly, it also affects Qian Hus
own fish keeping and growing. While the hot and humid nature of Southeast Asias climate is
considered the ideal environment for fish breeding, it has many disadvantages, such as its
instability. For instance, the severe hot and unstable weather in 2010 caused a decrease in
supply for Dragon Fish, the symbolic product of the company. Thirdly, weather also affects
the transportation process. Cancellation of flights or closures of airports due to bad weather
such as snow storms may have impacts on Qian Hus profit.
Legal Drivers: Complicated national policies, especially financial laws in countries like
Egypt, China and Vietnam has caused many difficulties in trading with customers in those
countries.

2.2. Porters Five Forces

Figure 2 - Porters Five Forces Analysis

Suppliers: Since most of the fish farms in foreign countries such as Malaysia, Indonesia,
Taiwan and Thailand do not have export license, Qian Hu does not purchase directly from
them, and instead its major suppliers are trading companies in these countries. The bargaining
power of these suppliers varies along with purchase quantity, payment term as well as their
negotiation skills. Mr Teoh disclosed that Qian Hu seems to have an advantage thanks to its
reputation and large size purchasing. However, the division still have concern about product
quality as they are not able to control the whole production process of the producers.
New Entrants: The threat of new entrants is not a major concern for the division. Technical
knowledge in breeding, quarantine, conditioning and farming process is an important success
factor to operate in this industry as fish are delicate and need to be nurtured, groomed and
monitored under strict environment. Qian Hu perceives itself as a knowledge-based division
that continuously learn and accumulate experience in this area; hence, potential entrants will
face a unique entry barrier when they try to enter the market.
Buyers: Apart from selling to Singapore markets, the divisions major customers are
importers in Europe countries as well as Japan. Currently, there is a risk of customer
backward integration when its customers are trying to source for products directly from
exporters in Malaysia, Indonesia, Thailand and Taiwan, whose fish Qian Hu purchases from,
instead of purchasing through Qian Hu itself. This issue will be further analysed in the later
parts.

Substitutes: The threat of substitute products such as other kind of pets or ornament is
remote or contingent.
Incumbent Rivals: Existing rivals of Qian Hu includes Sunbeam Aquarium, Sunrise
Quarium, Aquanatic, Aqua Technology, etc. The threat of incumbent rivals is increasing when
Qian Hus market is shrinking due to customer backward integration and the negative impact
of the global financial crisis. Concurrently, the financial crisis does have a global effect so
Qian Hus rival will also bear the same difficulties as the company. Therefore, this can be a
good opportunity if Qian Hu can come up with the right strategy to help it get ahead of the
others.

III. CURRENT CHALLENGES

From the external analysis, our group have identified two outstanding problems that the
division is facing, i.e industry crisis and customer backward integration.
1. Economic Crisis - a challenge faced by the industry
With the on-going economic crisis around the world, it is expected that some of Qian Hus
export markets shrink and there has been a decrease of S$2.8 million or 3.1% in revenue
primarily as a result of the low purchasing power of European market following the reduction
in government spending to deal with the high government debt level. Qian Hu have
experienced three consecutive years with decline in total revenue. In 2011, ornamental fish
export from Singapore to the top 6 European countries saw a drop of 4.3% or about 7.6%
excluding Germany (Figure 4). The national export downturn is clearly reflected in the
condition of several traditional markets of Qian Hu which also includes Europe and other
countries such as Thailand, hence the prot from the business reduced accordingly. In its
2011 Annual Report, the group reported a decrease since 2010, with the latest number being
4.4% in 2012. This is also the first year that Qian Hu reported operating loss instead of profit.
For the ornamental fish segment, the core business segment of the group saw a 15.1%
decrease in revenue in 2012 compared to 2011 while the accessories segment saw a 7.5%
increase). This shows that Qian Hu is struggling to make profit out of its main business
segment, and relies more on its secondary segment to generate cash flow.

Figure 4 Top 10 Export Destinations in 1st Half of 2012 & 2011 and %
Change (Year-on year)1

Similar to many other companies in Singapore and all over the world, Qian Hu has been hit
hard by the global financial crisis and the subsequent economic slowdown. As households are
affected by the depression, less people are interested in keeping ornamental fish in their
houses. This trend is opposite to what Qian Hu predicted in 2009. In its 2009 Annual Report,
Qian Hus board expressed their prediction that their revenue will remain stable despite poor
economic conditions, as people stay at home more and are likely to keep pets, or fish in
particular, as a hobby during such depressing time. Nonetheless, during economically
difficult periods, people tend to cut back costs other than basic necessities, especially luxury
goods, and ornamental fish is considered one of them. Thus, for the recent revised projection,
Qian Hu realize that this trend will continue for another few years, which means the
ornamental fish market is not likely to grow for the next five to six years. Hence, the division
might have to think of some other business solutions to adapt to the industry before the
traditional ornamental fish market recovers. Overcoming this challenge will allow Qian Hu to
surpass other competitors and lead the industry.
2. Customer Backward Integration - a challenge specific to Qian Hu
Another factor contributed to Qian Hus weakened performances in recent years is the change
in their business customers behaviours. A major part of Qian Hus revenue is from
ornamental fish exporting. Qian Hu acts like a middleman between fish suppliers and fish
importers. It imports fish from suppliers in Malaysia, Indonesia, Thailand and Taiwan then
wholesale to fish importers from other European countries, Japan, China, India and Middle
Eastern countries. These importers then sell fish to retail shops in their countries (Figure 5).
However, a recent trend noted by the division is that their business customers, in particular
the fish importers in Europe and China are beginning to buy fish directly from the original
suppliers in Malaysia, Indonesia and Thailand. According to Mr Teoh of the company, the
widespread use of the Internet in recent years allow Qian Hus customers to find sources of
cheap products more easily compared to the previous description, hence they tend to source
the products by themselves instead of going through Qian Hu. In addition, Qian Hu also
experienced a slight increase in expenses. According to their latest financial report, operating
expenses rose by 2.8% from 2011 to 2012, mainly due to increase in staffs salary and
inflation. Operating costs being transferred to selling prices is another factor that discourages
its customers to purchase through the company.

1 Retrieved from http://www.vimaxmagazine.it/sito/it/newsen/entry/singaporeornamental-fish-export-trade.html on 20/03/2013

Figure 5 - Supply chain of ornamental fish industry

With the reduction in retail sales revenues due to the economic slowdown and the possibility
to lose many business customers as they begin to import directly from suppliers, Qian Hu is
left with many challenges for years ahead.

IV. SUGGESTIONS
1. Global Strategy
Recent data indicated that there have been slight recoveries from European markets
comparing to 2011 (Figure 6). Specifically, ornamental fish export rose 2.3% for the first half
of 2012 from the previous year and positive growth has been recorded over the last 3 quarters
of 2012. This sign can show that demand is starting to increase again and Qian Hu may
expect a minor comeback in those markets for the next year. Despite all the good figures,
Qian Hu should not just wait for the market to recover since ornamental fish is an industry
that gets saturated very quickly and all Qian Hus current markets are facing fierce
competition. Therefore, Qian Hu should look for new markets which potentially have high
demand and have not yet reached out by many competitors. In spite of the crisis which
caused the economic growth of US or European countries to slow down, China and India
seem to have been able to take advantage of the situation and became very promising markets
that are expected to grow fast and steady.

Figure 6 Quarterly % Change (Year-on-year) in Export Value (2010

2012)2

In China, as the market is booming and the disposable income is growing, people now have
more to spend and with a population of over 1 billion, Qian Hu can expect a huge demand for
its product. As shown in our previous analysis, Qian Hu has good networks in many countries
around the world including China thanks to its effective communication and years of good
business reputation. At the moment, the division has 300 distribution points, two fish farm
and two pet shops operating in China but we believe that with the correct strategy it can
create a much stronger presence in the country. Moreover, since Qian Hu originates from
Singapore where the languages and culture have several commonalities with China, the
division will be in an advantage position doing business there as one of the reasons many of
its competitors were reluctant to enter this market was the language barrier. More
importantly, the Chinese has long been associating fish with the symbol of abundance and
wealth according to Feng shui, a very popular system in Chinese culture. Thus, they have the
habit of keeping fish in their house or work place to depict prosperity with several different
types of fish. The cost of operating in China is also expected to be significantly lower as the
logistic and labour cost are known to be lower comparing to Singapore.
Similarly, India is also an attractive destination where Qian Hu can consider extending its
business as a part of the global strategy. According to the latest annual report, Qian Hu has
created the very first connection in India through a joint venture. This joint venture is
between Qian Hu and a boutique division that was owned by an Indian who has several years
of expertise in ornamental fish. The business is just at the initial stage and nothing can be told
about the near future. However, our group has a firm belief in the success of the expansion if
Qian Hu pays more attention to this market. By looking at the recent data over Indias
economic condition, many economists have indicated positive outlook on growth and India is
considered one of the largest emerging markets. With the rapid economic growth rate, there
are more and more of affluent individuals who would want to have fish of high value
decorate their house as it is the culture of Indian to show their prosperity. Another reason for
us to believe that Qian Hu will continue to grow in the Indian market is they have a strong
expertise in ornamental fish industry as well as technology handling and there is limited
number of companies with similar level of knowledge there. Similar to China, India has a
large population and people with income ranging from high to medium can be potential
targets for the division to look for. Even though Qian Hu does cater to end customers, its
major businesses are distributors who will buy in large quantity and sell back to other
distributors or end customers. Therefore, at the early stage of entering the market in India,
Qian Hu should focus on this core segment and in the future when the business is established
the division can start developing more on their marketing plan to target end customers instead
of only distributors.
As attractive as those market can be, Qian Hu also need to notice certain barriers that it have
to or soon to face when expanding into them. Though China has been known to be much
more opened to trade currently comparing to the 10 years ago, the government still put strong
protection on their local businesses especially exportation and complex regulation to foreign
companies to deter competition from them. As a result, since different region in China have
different regular, it is important that Qian Hu understand and comply with the requirement
2 Retrieved from http://www.vimaxmagazine.it/sito/it/newsen/entry/singaporeornamental-fish-export-trade.html on 20/03/2013

from the local government. Besides, the threat of being copied of the technology and
operation process should be aware of as they are an important factor for Qian Hus success.
For India, the weather can be one of the major concerns to the division as most types of fish
are very sensitive to change in temperature and India is considered hotter than Singapore.
Therefore, proper shipment needs to be done so that the fish do not die during transportation
but with an insight of ornamental fish for many years, we expect Qian Hu can handle this
without incurring extra cost.
2. Business-Level Strategy
The available of information on the internet make it easy for Qian Hus customers to compare
prices between distributors and sometime Qian Hu cannot offer the most attractive price so
the customer ends up sourcing for the products by themselves. To deal with the threat of
customer backward integration, we suggest Qian Hu to improve its position so that its
customers can realize better benefit when purchasing through the division rather than
purchasing directly from Qian Hus suppliers. Besides, the division should position itself as a
cost leader in the market by taking action to cut cost to become more competitive in the
market.
Increasing bargaining power over Qian Hus suppliers in Indonesia, Malaysia, China, etc. is
an important step to help the division reduce purchasing price. This can be done by offering
future business and making fast payment to the suppliers. For instance, Qian Hu may sign
contract to commit to purchase a specific quantity of products for the next three years or five
years. The payment term for invoices can be faster than the industry average. This gives an
incentive for the suppliers to give discount to Qian Hu and helps reduce purchasing cost.
However, the division needs to take into account the problems arising from cash flow
shortage as well as other opportunity costs.
In addition to strengthening its purchasing power by offering favourable terms to current
suppliers, Qian Hu should continue to develop its relationship with other suppliers so that the
division does not depend too much on any specific supplier.
Some may argue that the customers who now want to purchase directly from Qian Hus
suppliers can do the same thing, i.e increasing purchasing power just the same way as
mentioned above. However, this may not be the case considering the fact that Qian Hu has a
core competency that the others cannot imitate over a short period of time: network and long
lasting relationship with other suppliers. Since the division has an advantage over the
others, it should continue to maintain such position.
While positioning itself as a cost leader, the division still can take advantage of its available
conditions to provide the customers with additional services such as technical support and
immediate problem solving. This is not meant to be contradiction to the cost leader strategy
as we expect that the additional services are provided by the employees who already have
sufficient knowledge and skill and will not result in high financial costs, yet still help enhance
Qian Hu customers value.

IV. CONCLUSION

Through our analysis of Qian Hus internal and external factors, we have identified some
substantial problems and attempted to give our own recommendation. In order to regain
performance and cure shrinking demand resulted from customers backward integration, Qian
Hu should increase its competitiveness through lowering price and improve the value of its
products through additional services. At the same time, Qian Hu should also lessen the
dependent on some major suppliers by reaching out to a broader network of suppliers so as to
increase its bargaining power. Additionally, for the global strategy to deal with the current
financial crisis which affects the demand of Qian Hus tradition market, the division should
allocate more resources to widen the existing distribution network in China and India, the two
most prominent markets. Essentially, Qian Hu should make use of its core competency, the
people, to help get over the current challenges by combining with the proposed strategies. We
have a strong belief in the success of these suggestions and if the division can overcome the
challenges, it can become the world leader in the ornamental fish industry.

Reference
1. Ling, K.H., Lim, L.Y, The Status of Ornamental Fish Industry in Singapore Singapore, J
Pri Ind 32: 59-69 2005/06
2. Singapore
Ornamental
Fish
Export
Trade,
retrieved
from
http://www.vimaxmagazine.it/sito/it/newsen/entry/singapore-ornamental-fish-exporttrade.html on 20/03/2013
3. Qian Hu Corporation Ltd 2009 Annual Report
4. Qian Hu Corporation Ltd 2011 Annual Report
5. Qian Hu Corporation Ltd 2012 Annual Report