International Trade Systems: JBS S.A. Deep Dive Research Paper

Assessment of the governmental trade policies

In international trade systems, free trade implies an open market where individuals have the benefit of choice among goods with greater competition and likely more affordable prices. Meanwhile, mercantilism implies a restriction of imports while maintaining a trade surplus and exporting more, which leads to lesser competition, higher prices, and a lack of choice for consumers (Hill, 2020). Brazil maintains a mixed economy largely based on a free-market and capitalist system, adopted in the 1990s with its international expansion to global markets, but retains some government controls. The country maintains a trade surplus of $4 billion annually. Brazil’s trade policies do contribute to restricting export into the country. First, the country maintains high tariffs on imports, questionable customs systems, unpredictable tax systems, and overwhelmed legal system. Furthermore, its regulatory environment makes it highly challenging for foreign firms to establish a business in Brazil, as there is evidence of “duplicative, arbitrary, and sometimes discriminatory regulations as barriers to trade” (International Trade Administration, 2022, para. 1). Therefore, on a scale, Brazil’s trade policy leans towards mercantilism, while maintaining aspects of a free market economy, with some scholars labeling it as neo-mercantilism.

Elements of international read theory

Two relevant theories applicable to JBS are the New Trade Theory and Porter’s Diamond of National Advantage. JBS has been able to achieve significant international success but attaining economies of scale while reducing costs and having the first-mover advantage. As one of the largest animal protein companies in the world, it has been continuously building economies of scale through product optimization, reducing fixed costs, and maintaining a privileged position in negotiations and sales with supporting industries. JBS achieved rapid international growth by purchasing smaller competitors and rapidly establishing a presence in major global markets for meat. Within 5 years, the firm consolidated its global protein production platform, essentially standardizing standards and processes, which led to both reduced cost and increased quality. It also sought to diversify its products, focusing on products beyond beef by purchasing other large meat makers, such as Pilgrim’s Pride, for access to the chicken sector (Teixeira et al., 2010).

Meanwhile, JBS is a perfect case for the application of Porter’s diamond theory. Brazil’s natural resources allowed the company to create expertise in the industry, as it initially started as a butchering business. The demand for meat in Brazil and the region has always been high, creating ripe conditions. There are also various supporting industries present such as agriculture to aid in livestock growth and processing plants that specialize in co-packing. Finally, despite achieving success due to scale and competitiveness, JBS has expanded and retained its leading position by adopting innovative strategies going beyond scale and operational excellence but focusing on adapting to global markets with a range of products (Teixeira et al., 2010).

Four basic strategies

JBS pursues a global standardization strategy as part of its international approach. According to Hill (2020), this strategy seeks to increase profitability through economies of scale, location economies, and learning effects, with the main production and other activities concentrated in few favorable locations. JBS is a global conglomerate, having subsidiaries in virtually major markets. The firm has achieved this strategy through international expansion via acquisitions and subsidiaries, gradually spreading to more markets where demand was viable. The more markets it spread to, the greater the economies of scale and standardization it was able to adopt. For its primary product, which is beef, it has production plants in the four major producers of beef in the world, which are Brazil, Argentina, US, and Australia. Similarly, with other meats like chicken, it owns production plants in major poultry-producing locations. Its major offices are typically located in those countries as well. The products are then shipped worldwide and distributed by regional sub-brands and subsidiaries, allowing to mitigate risks and work around trade barriers (JBS, n.d.). Since meatpacking is not much of a customizable product unless later turned into other value-added products, there is not significant customization for local markets ongoing with JBS. Instead, JBS has a relatively standardized, high-quality approach to its products, maximizing the effects of economies of scale and aggressive pricing in global markets, which it is able to achieve by buying out or undercutting many of its competitors (Neto, 2019).

Organizational Architecture

JBS governance consists of the Board of Directors and respective advisory committees with a focus on specific topics, the Global Compliance Department, and a permanent Fiscal Council. There is also the Global CEO, and three strategic areas report to them, including Food Safety and Quality, Global Sourcing, and Human Resources, each with their respective heads of departments. CEO of JBS USA oversees the various regional branches in Western countries and North America, and CEO of JBS Brazil oversees various product sub-brands and other global subsidiaries, with both reporting to the global CEO. The board of directors is a 9-member executive body, with the CEOs are not a part of. The various branches work together and report to respective department heads, with decision-making being consolidated at the top. JBS maintains tight communication and mechanisms for checks and balances along with audits to maintain tight integration that it sees as critical to operational efficiency.

The Global Compliance Department oversees compliance to standards within JBS global operations, ensuring that adequate treatment and training of workers is present, that the company takes ethical approaches within its supply chains, and general adoption of ethical business practices with the goal of influencing the value chain. Meanwhile, the fiscal council is an independent management body of external auditors, responsible for accounting and administrative oversight (JBS, 2019). The firm purports a culture of responsibility, trust, and sustainability, with an emphasis on quality and innovation. It values reputation and seeks to provide the best business and product and maintaining positive relationships with clients, suppliers, and shareholders.

Examples of MNC entering a new national market

JBS has a highly successful record of entering new markets, countries, and product categories. Since its earliest days of rapid international expansion in the early 2000s, the firm has utilized largely the same strategy. JBS goes into the country and either acquires or initiates a joint venture with a local distributor and retailer. For example, in the US, JBS owns a majority in key brands such as Smithfield Beef, Pilgrim’s Pride, and Swift. It then sells its meat products under locally recognized brands, providing as much as 22% of US beef despite most people never knowing the company JBS itself. In such a large market, JBS has a subsidiary along with its own production plants. Meanwhile, in a growing market such as China, JBS has partnered with the largest Chinese firm Alibaba and has recently made a deal with a Hong Kong-based distributor, allowing to ship its products across China, expanding into a highly promising market. Meanwhile, entering some new markets via new product categories, JBS purchases local companies outright. For example, JBS acquired Australia’s largest meat processor Rivalea Holdings in an attempt to garner market share but also expand its investment into value-added products (Dolan, 2019). All of the ventures were successful to date as JBS maintains a significant or dominant position in most markets it enters.

Since JBS has become a global conglomerate, it has significantly raised the levels of export of meat from Brazil, which carries its costs in supporting the industry through national subsidies and environmental costs, among others. Brazil has become reliant on these exports to maintain a trade surplus. However, JBS is one of the few firms that have become central to the national economy. The firm provides hundreds of thousands of jobs and supports many sectors in Brazil, while also paying corporate taxes on the billions in revenue that it brings. This applies to all three cases, particularly as all of the countries are significant trading partners for Brazil (Sharma, 2017).

Assessment of the production strategy and supply chain of the MNC

For the majority of its meat products, the company uses a standard supply chain. For example, in the firm’s home country of Brazil, livestock or poultry is selected, fed, and raised by producers and farms, some of which are company owned. JBS purchases the animals from the producers and transports them to the nearest regional processing plant. The animals then undergo processing industrialization, following production procedures with adherence to international standards of ethics and food safety. The products are then entered into the warehousing and distribution system. JBS maintains specialized warehousing and distribution systems based on type of product, location, and food safety requirements to ensure that quality is maintained. The products are then supplied to local markets, where they are distributed by JBS local subsidiaries, working with retailers and wholesalers, at which point the point of sale is reached (JBS, 2019).

The technical processes may differ significantly based on the type of meat, as well as JBS plans to invest in value-added products. However, the company has constructed plants and continues to invest in capacity expansion to create the final product for distribution. As evident, JBS primarily outsources its meat sources to both large and small local farms. There are likely a range of other elements the company outsources or brings externally, ranging from packaging to transportation to software. Supply chain participants are obligated to follow laws and regulations, and JBS seeks trustworthy relationships for long-term cooperation based on shared values. As mentioned previously, TQM is overseen by the company’s governing body, particularly the Global Compliance Department. Also, all suppliers must be certified under one of several external auditors. The company also has internal quality management mechanisms at each level of the supply chain and regional distribution. JBS is generally known for its quality products and aims to achieve high operational efficiency and effectiveness (JBS USA, 2020).

Inter-organizational relationships of upstream/downstream entities

As the leading global meat processing company, JBS maintains an intricate web of inter-organizational relationships in order to conduct its operations. JBS works with more than 100,000 suppliers globally for its various products and needs. The company which relies strongly on producers of livestock, poultry, and other meats strongly values its sources, providing technical and management support while integrating sustainability efforts. Any information regarding unethical animal treatment, use of slave labor, or highly unsustainable practices are investigated and commonly results in removal of the supplier from the value chain (JBS, 2019). The company tends to maintain transparent and respectful relations, but also utilizes its position as such a large corporation to drive prices down across the supply chain in order to reduce costs. However, the company consistently invests in its suppliers and vendors, many of which it owns, by seeking to increase operational efficiency and finding other means to boost margins (Freitas, 2022).

JBS distributes its products in over 100 countries, particularly via wholesalers, food services, and retailers. That inter-organizational relationship is challenging but strong. JBS actively markets and sells its products to these parties, which then typically resell directly to consumers. Through its different sub-brands and subsidiaries, JBS provides a wide range of critical meat products, making it highly profitable for retailers to work with the firm. However, there have been some inquiries regarding JBS in terms of antitrust and price manipulations, driving up prices for resellers. It is not an uncommon practice among meatpacker firms but has been legally challenged by grocery stores, which may have strained the relationship (Davies, 2022).

References

Davies, S. (2022). JBS first of big packers to settle price manipulation claims. Web.

Blankfeld, K. (2011). JBS: The story behind the world’s biggest meat producer.Forbes. Web.

Freitas, T. (2022). JBS sees global beef-industry margins at new heights.Bloomberg. Web.

Hill, C.W. L. (2020). International business: Competing in the global marketplace (13th Edition). McGraw-Hill Higher Education (US).

International Trade Administration. (2022). Trade agreements. Web.

JBS. (2019). Governance and ownership structure. Web.

JBS. (n.d.). Competitive advantage. Web.

JBS USA. (2020). Suppliers. Web.

Neto, O.A. (2019). The spatial strategy for the internationalization of Brazilian companies in the meatpacking sector: The case of JBS and Minerva. Bol.Goia Geogr. 39, 2-25. Web.

Sharma, S. (2017). The rise of big meat: Brazil’s extractive industry executive summary. Web.

Teixeira, C.H., de Carvalho, D.E., & Feldmann, P.R. (2010). The international expansion of JBS and a discussion of Porter’s diamond. Future Studies Research Journal, 2(1), 175-194. Web.