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In the hot and humid hatchery of his crocodile ranch in the small .doc

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In the hot and humid hatchery of his crocodile ranch in the small .doc Powered By Docstoc
This case was written by Daan Strauss, Coordinator, Small Enterprise Development, Institute for Management and Leadership
Training (IMLT), Namibia, under the ITC/PRODEC Project for Improving International Business Training at selected African
institutions. The case is intended for use in training programs and is not meant to illustrate correct or incorrect handling of business

sOURCE: African Cases in International Business, International Trade Centre and PRODEC, Geneva, 1995.

                          I             n the hot and humid hatchery of his crocodile ranch in the small Namibian

town of Otjiwarongo, Mr. van Dyk was worriedly stacking the plastic crates containing 1,350 newly laid
crocodile eggs into the limited space. It was December 10, 1993, and he knew that he had to expand the
hatching and nursing facilities of this crocodile ranch before January 1996 in order to provide the necessary
space to accommodate twice the present production of eggs expected in the 1996 breeding season.
   To finance this expansion, Mr. van Dyk hoped to enter a stable and regular market for his supply of
crocodile skins. With his limited experience in marketing, he was not sure as to how and where to start
   Mr. van Dyk was also considering the option of exporting processed crocodile skin products, like
handbags, shoes, and belts. Without the resources to construct his own tannery, he would have to find
processing and manufacturing facilities. There was the possibility to send the skins to South Africa for
processing into finished products before exporting them. Thinking about options to finance the expansion,
Mr. van Dyk also remembered the proposal for a partnership he had received from an investor in Europe
who could process the skins into quality products: during a visit in September 1993, a German tourist had
expressed interest in investing in Mr. van Dyk’s crocodile ranch.
   Stepping out of the hatchery into the equally hot, but less humid, nursery where he raised the young
crocodiles, Mr. van Dyk knew he had to take some action well before the 1996 breeding season.
Mr. van Dyk started the Otjiwarongo Crocodile Ranch in 1986. Prior to this, he had his own motor service
station and a bakery in Khorixas, a town in the far north of Namibia. He has also farmed with cattle and
sheep, but due to droughts and a high theft rate, he abandoned his farming operations. He sold his business
and made the decision to start up a crocodile ranch because he considered himself to be a farmer at heart
and also because he was very interested in tourism. He visited various crocodile farms in South Africa and
Botswana, where he made a thorough study of crocodile farming during 1985.
   Mr. van Dyk chose Otjiwarongo as the ideal location for his business. The climate of Otjiwarongo—hot
during summer months and warm in winter—was favorable for crocodile farming. It was on the main
tourism route of Namibia, and he could find a regular supply of meat to feed the crocodiles as the
Otjiwarongo abattoir was prepared to supply him with unborn calves.
   Breeding crocodiles was a capital intensive venture. A hatchery and nursery were built next to the
breeding yard to ensure that the eggs could be hatched and the crocodiles raised in ideal conditions. The
buildings on Mr. van Dyk’s property were valued at N$800,000 in 1988. The planned expansion was
expected to cost about N$600,000 (US$1.005N$3.60).
   Mr. van Dyk had also built a curio shop which served as entrance to the ranch. In the curio shop, he kept
various crocodile products like eggshells, skulls, and skeletons, along with a few crocodile skin products
made from skins he had sent to South Africa to be manufactured into shoes and belts. Mr. van Dyk and his
wife regretted the fact that they could not stock the shop with more products, but supplies had to be kept at
a minimum due to the lack of funds.
   Ever since they started the crocodile ranch, Mr. van Dyk and his wife had been inviting tourists to visit
the ranch in Otjiwarongo, in the northern highlands of central Namibia. The crocodile ranch received an
average of 1,000 tourists per month. The visitors’ entry fees represented a substantial means of income
before exports of crocodile skins started in 1991. In 1993, tourists still contributed N$6,000 per month to
Mr. van Dyk’s income, although exporting crocodile skins had become the main source of income.
   Additional income for the crocodile ranch was earned by selling crocodile meat to interested restaurants
in Namibian towns. During 1993, Mr. van Dyk sold 1,100 kg of crocodile meat. He planned to slaughter
600 crocodiles in 1994, which would mean that he could sell 15,000 kg of meat. There was a possibility for
exporting crocodile meat to Singapore, but the dealer he spoke to in Singapore wanted at least four tons of
meat at a time. This meant that Mr. van Dyk would have to slaughter at least 1,500 crocodiles at a time to
be able to fill up a container for exporting purposes, which was not possible for him in 1993. He planned to
start                                               exporting                                           meat
by 1998.
   Mr. van Dyk was a member of the Transvaal Crocodile Breeders’ Association in Pretoria, South Africa.
In 1991, he obtained his license to trade in endangered species from CITES (Convention on International
Trade in Endangered Species of Wild Fauna and Flora) in Lausanne, Switzerland, which had a membership
112            countries           worldwide.           Membership           in          CITES           was
a          condition          for          exporting          crocodile        skins,        as         most
crocodilians           were          on         the         endangered          species        list        of
the CITES.
   According to an article published in the Industrie du cuir in Paris in February 1992, raising was
considered a good method of preserving those species which had become rare while continuing trading in
their skins. Two types of “farming” crocodilians had been developed:
    “Ranches,” particularly in Southern Africa (notably Zimbabwe), which tended to concentrate on Nile
   crocodiles. Eggs were taken from the wild and the young were raised in captivity until the commercial
   length of 1.5 m to 2 m was attained, when they were slaughtered.
    “Farms,” which, in general, handled the whole reproduction cycle. There were numerous “farms” in

   Thailand and the United States.
   The article assumed that 80 percent of the current world supply of crocodile skins, estimated at around
400,000 per annum, were sourced from farms. Ten years earlier, before legislation on the protection of
endangered species had been passed in many countries, the figure of world supply had been around 2
million skins per year.

Crocodile Breeding
Mr. van Dyk bought his original breeding stock of 49 adult Nile crocodiles from a farmer in Botswana in
1986 for N$220,000. The hatchlings from the first eggs were kept and after spending four years in the
nursery, these 58 female crocodiles were housed in a second breeding yard that Mr. van Dyk had been
developing since 1987. These females were expected to start producing in the 1996 breeding season.
   Having adapted to their new environment, the adult crocodiles steadily increased production of eggs.
van Dyk managed to successfully hatch crocodile eggs as follows:

        1986       58 hatchlings out of    71 eggs
        1987      364 hatchlings out of    408 eggs
        1988       488 hatchlings out of      530 eggs
        1989       540 hatchlings out of      630 eggs
        1990       630 hatchlings out of      714 eggs
        1991       705 hatchlings out of      838 eggs
        1992       936 hatchlings out of     1,273 eggs
        1993     1,050 hatchlings out of     1,356 eggs

   During the mating season, outside temperatures influenced the fertility rate of the eggs. In 1993, 12
percent of the eggs were unfertilized, while the figure for 1992 was 23 percent.
   The amount of eggs laid by a female crocodile depended on her age. The younger ones laid an average
21 per breeding season and the mature ones could lay up to 75. This gave an average of 48 eggs per female.
As soon as the female crocodiles laid their eggs, they were packed into crates and taken to the hatchery. To
further ensure successful hatching of the eggs, they had to be stacked into the crates in exactly the same
position as they had been laid.
   To maximize profits, Mr. van Dyk had to ensure that he produced first-grade skins. The newly hatched
crocodiles were kept in a nursery for two and a half years, at which age they were about 1.4 m long and
provided skins of 35 cm wide, fetching the best price. The nursery was free of stones to avoid scratches on
the crocodile’s skins. Maintenance of high humidity and ideal temperatures, a regular supply of vitamins to
the young crocodiles, and clean and hygienic conditions were necessary to keep the young crocodiles
healthy, which in turn meant a more favorable environment to ensure first-grade skins.
   At the slaughter age of two and a half years, the crocodiles would normally start to fight among each
other, resulting in skins being scratched or damaged, and thus reducing their value. This was also the age at
which they became dangerous and would attack workers cleaning the nursery.
   Being extremely sensitive creatures, the young crocodiles could easily be upset by loud noise, sudden
movements, light, and vibrations. Because of the influence tourists had on the crocodiles, Mr. van Dyk kept
only 10 percent of the young crocodiles on view for visiting purposes, and the tourists were always
requested to keep their voices low and move slowly.

Costs and Revenues
Mr. van Dyk raised start-up capital for the crocodile ranch through a commercial bank and through a
development corporation in Namibia. In 1993, he was still indebted to both institutions for loans taken in
1988, payable over a five- and thirteen-year period respectively.
   Mr. van Dyk’s monthly expenses in the last quarter of 1993 were as follows:

            Water and electricity:          N$2,200
            Crocodile feeding:              N$4,000
            Wages:                          N$2,000
            Veterinarian costs:             N$150
            Administrative costs:           N$100
            Other (including his salary):   N$5,000
            Installments and interest:      N$5,000

   For December 1993, Mr. van Dyk expected the following revenues:

            Export of 150 skins:            N$30,000
            Sales of meat:                  N$8,000
            Tourists’ entry fees:           N$6,000

  December 1993 was, however, an exceptional month because of a planned initial export of 150 skins to
Germany, an order that had not yet been confirmed. The average monthly income was N$20,000.
The constitution of the Transvaal Crocodile Breeders’ Association stipulated that each individual breeder
was responsible for the marketing of his own products. This left the responsibility for marketing and selling
with Mr. van Dyk, who did not have much experience in this field.
   Although the Otjiwarongo Crocodile Ranch was the only one of its kind in Namibia, it faced worldwide
competition for exports of crocodile skins. Crocodilians, including caimans and gharials, alligators and
crocodiles, were to be found all around the world: caimans in Central and South America, alligators in the
southeast of the United States and in China. The more than 20 different species of crocodiles were scattered
far more widely: north of Australia, Africa, Southeast Asia, India, Central and South America, and the
West Indies. Size of the crocodilians varied with the species, from 1.5 m to 2 m in dwarf species, such as
the dwarf crocodile and Schneider’s caiman, up to 5 m to 7 m for the Nile and Indopacific crocodiles. In
Southern Africa alone there were 23 competitors breeding crocodiles, most of them in the province of
Natal, South Africa, but also in Zimbabwe, Zambia, Botswana, Malawi, and Mozambique. Zimbabwe was
the leading exporter of Nile crocodile skins in southern Africa and was the second largest producer after the
United States of America.
   Other exotic hides, like ostrich and buffalo skins, formed part of the competition Mr. van Dyk faced.
The trade in exotic skins was subject to fashion trends. Mr. van Dyk considered this to be one reason for
fluctuating prices, which ranged from US$9.00 per centimeter in 1991 to US$3.00 in 1993 for first-grade
skins of 30 cm wide.
   Because of his limited funds, Mr. van Dyk did not advertise. “I have to first look after my crocodiles
before I can find the money to advertise,” he stated.
   Mr. van Dyk had started exporting crocodile skins in December 1991. Quantities and destinations of
exports were as follows:

1991    163 skins to Spain       (Direct transaction)
1992    250 skins to Spain       (Direct transaction)
1993    100 skins to Singapore   (Direct transaction)
1993    150 skins to Singapore   (Through a South African agent)

    In November 1993, he managed to secure an order from a German buyer for an initial 150 skins
followed by 50 skins per month through an agent in South Africa. The German buyer indicated that he
would be in South Africa by the beginning of December 1993, but failed to show up. This left Mr. van Dyk
quite unsure as to whether the deal would go through.
    The few times that he had exported skins, he contacted embassies in Windhoek for addresses of
potential buyers, or alternatively was contacted by buyers who had come to know about him.
    The most recent order from Germany in November 1993 quoted the following prices per centimeter for
first-grade skins:

                    20–24 cm:      US$1.80
                    25–29 cm:      US$2.80
                    30–34 cm:      US$3.50
                    35 cm11:       US$5.00

   Prices for second-grade skins were 25 percent less, while third-grade skins were not accepted on the
   For international business, Mr. van Dyk preferred to deal with German buyers. As Namibia had
historical links with Germany, most of the tourists visiting the crocodile ranch were German speaking. Mr.
van Dyk also communicated well in German and found direct communication with other countries difficult.
If he were to enter into a partnership, he would prefer a German or Swiss partner. This preference,
however, did not prevent him from selling to non-German buyers.
    To do business with buyers abroad, Mr. van Dyk would deal with them either directly, through an agent,
or eventually through a prospective foreign partner. However, both Mr. van Dyk and his wife were very
reluctant to enter into a partnership because of a previous unpleasant incident with a partner abroad, who
became disinterested when revenues were not as quickly forthcoming as he thought they would be. While
still considering this as an alternative, the van Dyks were not sure whether the advantages outweighed the
disadvantages. The potential German investor had indicated that he would visit them in January 1994 to
take up further discussions, and Mr. and Mrs. van Dyk were thinking about the terms and conditions they
should propose for an eventual partnership. Mr. van Dyk hoped to enter into an agreement where the
partner would be responsible for all marketing activities, while he himself would see to the smooth running
of the ranch and the visiting tourists.
    Because of the pressing need for funds to finance expansion, Mr. van Dyk also thought about the
possibility of exporting processed crocodile skin products. This could be done through a tannery in South
Africa, but he knew that this would be expensive because of the time span between sending of the skins for
processing and eventual sales of the finished products. He would have to carry the costs for the tanning and
manufacturing of the products in the meantime. In 1993, the cost of tanning alone was N$2.50 per
centimeter, amounting to approximately N$75.00 per skin. He also considered selling the products in his
curio shop at the ranch, but these up-market products did not sell fast enough in Otjiwarongo. It was only
the occasional well-off tourist that would buy some of the products, but it was a possible source of income
nonetheless. The other option was to have the skins processed through the intended partner in Europe, so
that the finished products would be nearer to the user.
    There was another possibility—to do business with an Italian buyer who had announced his visit to the
ranch for January 1994. This was not definite as yet and Mr. van Dyk was worried about dealings with
buyers who did not seem to be reliable. However, he had got some information on the Italian market (see
appendix) and was ready to explore any business opportunities.
    In December 1993, Mr. van Dyk had 600 crocodiles ready for the market out of the 2,100 growing
young crocodiles in the nursery. He forecasted a production of 2,000 hatchlings for 1994 and 3,000
hatchlings for 1995. As from 1996 he could double this production, when the females in the second
breeding yard started producing. This implied that he would have to find a way to build the second hatchery
and nursery before 1996. His average monthly income was only adequate to ensure the smooth running of
the ranch. His forecasts for 1996 onwards promised enough income for expansion, but if the necessary
facilities were not ready before 1996, he would not be in a position to cater to the increased
    As the only crocodile farmer in Namibia and responsible for his own marketing, Mr. van Dyk wondered
what action he should take to ensure the necessary expansion of his operations before 1996.
QUESTIONS                      FOR          DISCUSSION
1. What are the advantages and disadvantages of options open to Mr. van Dyk?
2. Which criteria should Mr. van Dyk use in selecting his market(s)?
3. Depending on the suggested selection criteria, what additional information would Mr. van Dyk need to
formulate his marketing strategy?
4. What should be the most urgent steps in Mr. van Dyk’s export marketing action plan?

Appendix: International Trade in Nile Crocodile

The Crocodile Skin Markets in Italy and France*

Overview     World prices for Nile crocodile skins dropped tremendously since the late 1980s and
demand was steeply going down. Changes in fashion trends and consumer tastes as well as the world
recession had greatly contributed to this decline in demand for farmed skins of the crocodylus niloticus (the
Nile crocodile from Africa).
   Competition in the supply of wet-salted Nile crocodile skin was reported to come from Zimbabwe,
Zambia, Malawi, Botswana, and Mozambique and also from Ethiopia, Kenya, Madagascar, and Tanzania,
who had a reservation on the species and therefore traded under a specified annual export quota system. As
indicated in the table below, Zimbabwe was the leading exporter of Nile crocodile skins and the second
largest producer of crocodile or alligator skins after the United States.
   Since the 1990s, competition from the United States was increasing, flooding the market with cheaper
skins from its farms. South America was also providing large quantities of wild skins of the caiman
   Skins from the United States were cheaper than African skins, with an average price of about
US$3.00/cm in the early 1990s, while skins from South America were larger and therefore preferred for the
production of handbags, which required skins of more than 35 cm across the belly.

The Italian Market             The report stated that Italy imported crocodile skins from various sources
around the globe, and indicated the origin of imports as shown in the following table.
   According to the views of the tanners interviewed for the report, the erratic import figures were a
reflection of limited availability from the supplying countries, which forced the tanners to buy the
maximum of available quantities from whatever source as the demand for the commodity was very high at
the time.
   All the interviewed tanners said they were currently operating about 50 percent below capacity due to
declining demand, and were getting most of their raw skins from South America and the United States,
which were cheaper sources. In addition, skins from South America were also larger. None of the
interviewed processors was interested in a joint venture for the production of crocodylus niloticus skins.
   Most crocodile skins were imported into Italy by tanneries who processed the skins and treated them
into different colors as specified by manufacturers of crocodile items. Items included belts, handbags,
wallets, and shoes for sale either in the local market or for export.
   The majority of Italian tanners imported directly from farmers in the export countries. The import of raw
skins did not attract any duty regardless of source of supply. Skins were air-freighted into Italy packed in
double jute bags with labels indicating the number of skins and the weight.
   The average CIF price indicated by CITES in 1990 for different types of skins were:

            Nile crocodile          US$12–14/cm
            Porosus                 US$12–14/cm
            Caiman crocodile        US$45–48/sq. ft.
            Mississippi alligator   US$6–8/cm

   CITES estimated that these prices had fallen by 50 percent in 1991.

The French Market             Due to the oversupply of the French market with farmed skins from the United
States at a lower price than that offered by African farmers, a competitive factor had been introduced which
hitherto had been totally absent. African farmers faced a steadily increasing price competition among
different African countries producing crocodylus niloticus skins, as well as the strong price competition
from the United States.
   Most French tanners were buying from the United States not only for the lower prices but also because
of the assured United States market for the processed skins and items. French importers sourced their skins
directly from farmers by air. Companies interviewed for the report were interested in importing farmed
skins from Africa in the future, but at a price lower than US$5.00/cm. In 1991, skins from the United States
were sourced in France at US$2.50/cm for skin sizes 18–24 cm, US$4.50/cm for skin sizes 25–35 cm and
US$10.00/cm for skins above 35 cm.
   With respect to joint ventures in Africa, French companies felt that market requirements with respect to
delivery time, quality, and color specifications of crocodile items would make a tanning operation located
in Africa difficult to manage. Their position was that they would get in touch with African farmers when
the demand situation in Europe improved.
World     Imports    of                                            Nile           Crocodile                     Skins
(in number of skins)

YEAR                                              WORLD IMPORTS

1986                                                     18,753
1987                                                     24,147
1988                                                     29,524
1989                                                     35,515

sOURCE: CITES Annual Returns.

Exports of African Countries (in number of skins)
 Country 1986 1987 1988 1989
Zimbabwe           7,216         7,924          11,609        10,647
Malawi               684         1,173          1,329         2,104
Tanzania             763         1,724          2,311         1,715
South Africa         87            758          1,905         4,326
Madagascar           673         4,338          3,177         4,543
Kenya                —             150          1,400         2,499
Mozambique           —             529            795         1,554
Botswana               10           65             69             204
Zambia             3,117         3,235          3,738         2,389

sOURCE: CITES Annual Returns.

*Excerpts from the PRODEC Market Research Report No. 12/91 by Ms. Queen Sachile, “The Markets for Zambian Wet-Salted
Crocodile Skins in Italy and France,” Helsinki, 1991. Published by the Programme for Development Cooperation at the Helsinki
School of Economics (PRODEC), Töölönkatu 11A, 00100 Helsinki, Finland.

Crocodylus      Niloticus                                                Imports               in               Italy
(in number of skins)

  ORIGIN          1985      1986         1987       1988          1989

Kenya              —         —             2            600       —
Madagascar         —         92              100            100     —
Malawi             —         191             —              766     700
South Africa       —         —               —              570     —
Sudan             108        289            1,251           —       —
Tanzania           —            3            —               1      —
Zambia              3           4            256            566     —
Zimbabwe            1        —               —          1,937       —
Total             112        569            1,609       4,540       700

sOURCE: CITES Annual Returns.

Crocodylus     Niloticus                                                   Imports   in   France
(in number of skins)

  Origin 1986                   1987                1988          1989
Botswana            —                  60              66           193
Kenya               —                 150             551         2,184
Madagascar           418            4,231            3,074        4,525
Malawi               403              572             507           741
Congo                332              649             150           150
Mozambique          —                 529             795         1,554
South Africa            40            757             633         3,612
Sudan              2,650            2,499            1,500           54
Zambia             2,082            1,552            2,692        2,385
Zimbabwe           4,714            7,159            6,042        10,237
Total             10,639            18,158          16,010        25,635

sOURCE: CITES Annual Returns.

Crocodylus Niloticus Imports in Other Major Importing

COUNTRY            1990             1991             1992         TOTAL

Belgium           3,945                3               4          3,951
Egypt               900              —              7,900         8,800
Japan            12,979             7,075           11,693        31,747
Singapore               1           7,010           32,946        39,958
Switzerland         342             1,401             407         2,150

sOURCE: World Conservation Monitoring Centre, Cambridge, United Kingdom.

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