Organization and Transaction Cost
I worked at a company in Rome, Italy as an intern previously. The companies' goal was to make the processes of getting foods from farms directly to restaurants and stores much more efficient through the use of data analysis and automation. Initially, it was difficult for me to get a grasp of the environment and structure of the company especially since I'm not fluent in Italian. But after working there for about three months, I believe I have a somewhat good understanding of the organizational structure of the company and the transaction costs it took in order to limit the amount of problems that occurred.
As for the organizational structure of the company, the highest level was the CEO, and under the CEO were three main sectors, and then each sector had many branches that stemmed from it, each of which followed the order that were given to them by the higher up people in the main sectors. The CEO mostly took care of many of the big business conversation with other companies while also overseeing that everything was going on the right paths.
The three sectors which were, the delivery sector, the trading sector, and the technology sector. The delivery sector was in charge of the processes that included getting foods from farms and directly transporting them to the restaurants. The trading sector would take care of making deals with the farmers and also the international delivery across countries which contained much more transaction costs than just delivery food within the country. The technology sector, which is the one I worked in, was in charge of the processes of data analysis and automating the ordering/processes of the food. These three sectors acted as the three pillars of the company and they must act harmoniously with each other or else if one of the processes were delayed then that delay would affect many other processes which would then be delayed as well.
As for the transaction costs of the company within the country, the company would have to provide incentives to the farmers in order to do business with the company and to fully trust that the company was working in the farmer's best interests such as meeting with the farmers and showing them the data from the data analysis in which they would be tell the farmers which food produce to grow and not to grow in order to optimize the selling of their food produce. By providing these incentives they were able to make better deals when buying the produce and selling those produces to the customers at a better price as well.
The company's transaction costs for business out of Italy in the trading sector was much more troublesome. The trading sector would have to do a lot of research in order to see what foods they could and could not send to different countries as well as how much they were allowed to send of each food product. Each country has their own strict rules on the shipping and selling of food products from different countries and if those rules are broken then the food products would be sent back out of the companies expense and this could cause many other issues as well. Problems such as food going bad by the time it was sent back because it was supposed to last by the time it was sent to the customers and then further be preserved. But the biggest issue was the customer's trust in the company, if the customers didn't receive the food products that they needed, it would affect their businesses as well, so the customers may start buying from a different company.
So overall, there were many transaction cost made, most of which were made in order to make sure that processes were run smoothly and efficiently because if issues occurred, it could be detrimental to the business relations that the company had with it's customers.
As for the organizational structure of the company, the highest level was the CEO, and under the CEO were three main sectors, and then each sector had many branches that stemmed from it, each of which followed the order that were given to them by the higher up people in the main sectors. The CEO mostly took care of many of the big business conversation with other companies while also overseeing that everything was going on the right paths.
The three sectors which were, the delivery sector, the trading sector, and the technology sector. The delivery sector was in charge of the processes that included getting foods from farms and directly transporting them to the restaurants. The trading sector would take care of making deals with the farmers and also the international delivery across countries which contained much more transaction costs than just delivery food within the country. The technology sector, which is the one I worked in, was in charge of the processes of data analysis and automating the ordering/processes of the food. These three sectors acted as the three pillars of the company and they must act harmoniously with each other or else if one of the processes were delayed then that delay would affect many other processes which would then be delayed as well.
As for the transaction costs of the company within the country, the company would have to provide incentives to the farmers in order to do business with the company and to fully trust that the company was working in the farmer's best interests such as meeting with the farmers and showing them the data from the data analysis in which they would be tell the farmers which food produce to grow and not to grow in order to optimize the selling of their food produce. By providing these incentives they were able to make better deals when buying the produce and selling those produces to the customers at a better price as well.
The company's transaction costs for business out of Italy in the trading sector was much more troublesome. The trading sector would have to do a lot of research in order to see what foods they could and could not send to different countries as well as how much they were allowed to send of each food product. Each country has their own strict rules on the shipping and selling of food products from different countries and if those rules are broken then the food products would be sent back out of the companies expense and this could cause many other issues as well. Problems such as food going bad by the time it was sent back because it was supposed to last by the time it was sent to the customers and then further be preserved. But the biggest issue was the customer's trust in the company, if the customers didn't receive the food products that they needed, it would affect their businesses as well, so the customers may start buying from a different company.
So overall, there were many transaction cost made, most of which were made in order to make sure that processes were run smoothly and efficiently because if issues occurred, it could be detrimental to the business relations that the company had with it's customers.
Interesting post. I wonder how you found the job and how you got along without knowing Italian well. I did once spend a month in Portugal as a visiting scholar, but at least on the job they spoke English. Ordering food in a restaurant was a different matter.
ReplyDeleteI could use more background information about this company and about its potential competition. Did the company start just recently or has it been around for a while. I'm thinking that with the revolution in supply chain management over the last 20 years or so, others would have had this idea as well. Are there regulations in Italy that prevent outsiders from starting such a business? In any event, since you said the farmers needed to be lured into the business, do you have some idea about what the farmers did before that?
Italy is part of the EU and as such should be able to freely export to EU neighboring countries. This is quite different from exporting overseas (or if Brexit does occur, exporting to the UK). Do you have any sense of how much of the business was internal to the EU? Frankly, I didn't understand the part where you said each country has it own rules about food production. I thought that one purpose of the EU, was to be more uniform on such rules.
Also, while I don't know a lot about agriculture, living in the midwest for such a long time, I have a sense of the crops raised here in bulk, versus the more boutique items that one can find at the farmer's market in Urbana on Saturdays. I gather this company is mostly into the bulk crops. What I don't know, and I wonder if you do, is if Italy is unique this way or if there are similar crops, for example, in Spain. If the latter, then I didn't get why the company is focused just on Italy. So that could use some explaining.
With that sort of background provided, one then wonders if the business model is similar to U.S. companies that do this sort of thing. Do you have any thoughts on the matter?
Previous to this job, I have visited many places in the U.S and many different countries all over Asia, however I had never been to Europe yet so I was very interested in learning and exploring this part of the world in the summer of 2017. However, my dad said that I should get an internship for the summer instead. So in order to compromise, I decided to search the internet for internships in Europe that would also be flexible enough for me to travel around to other countries as well.
DeleteAs for the language barrier part, I learned a lot of conversational Italian by myself before going to Italy, however it was still really difficult to communicate in the beginning. What really helped me out when I was there was that my superior or boss spoke pretty good English so I was able to understand everything through him. But also towards the end of the internship, I was able to learn a lot more Italian so I was able to communicate with everyone on a semi-advanced level (unfortunately after two years of not speaking Italian often, I forgot a lot of it).
The company started about 4 years ago and there are some other big competitors competing in the market as well as competitors from different countries. I'm not really that knowledgeable on the subject of regulation in Italy that prevent outsiders from starting such a business but it did seem like the barriers to entry of this market seemed somewhat high especially now since there are already a couple of already established companies trying to prevent new companies from entering.
As for the farmers, previously they would sell whatever produce they grew at markets or to restaurants that would come to their farms but the quantity wouldn't be that large because each restaurants don't need that much produce. Also, in Italy there aren't many big grocery stores like in the U.S such as Costco or Walmart, mostly everything is on a much smaller scale so most farmers wouldn't be able to sell their produce in big quantities.
But since farmers have already been doing this process of selling their produce for many years and it works to an extent, it is somewhat difficult to convince farmers to change the way they are already doing things, so the company would have to convince them with proof. And they used data analysis for. Now the farmers are able to sell their produce at higher quantities for an overall more profit, while the company is able to buy them for cheaper in bulk while making a profit when selling to customers.
As for the international trade part within the EU, I'm not that knowledgeable on subject as I was on the data analysis team. But during the internship I remember there being a meeting where one of the teams was talking about their research on what was required for the company to export to London. And I remember them talking about there being various restrictions on products such as alcohol, chocolate, and cheeses. So I would guess that it is probably easier for countries in the EU to ship within the EU, there may still be some regulations that have to be followed.
DeleteLike I said previously, there aren't many big grocery stores in Italy as the people there value the quality of the produce over quantity. And the people tend to associate the big grocery store that contain everything with having lesser quality of goods so they would rather go from small shop to small shop that specializes in each good that they are getting such as butchers and bakeries which would have higher quality of that good.
As for the the bulk crops and goods getting shipped outside of Italy, the company is mostly shipping goods that are unique to Italy and can't normally be obtained in other countries such as wines, cheeses, and cured meats. So there are other companies that have a similar business plan in other countries such as Spain, but they can't canter to the customers who would want more unique Italian goods so the customers order from companies in Italy. And the same concept is the same in other countries.
So I believe what this company and other companies with similar business models are doing exactly what the big chain groceries stores in the U.S are doing, such as Costco and Walmart, in order to delivery food products to their branch stores all over the country. However since Italy doesn't have many big grocery stores, the company is just delivering the food products to various little stores rather than owning the stores themselves.