“With FOB Busan pamphlets, you lose every time”… For agricultural machinery exports, packaging ‘value chains and finance’ determines success or failure

[Korea Agricultural Technology Newspaper = Reporter Baek Cheol-hyun] “When domestic agricultural machinery and agtech companies enter the global project market and the ODA (Economic Development Cooperation Fund and grant aid) market targeting developing countries, they must abandon outdated supplier-centered sales practices and propose comprehensive solutions centered on the ‘agricultural value chain,’” Kim Yong-bin, head of the Development Marketing Institute, pointed out at the 50th anniversary academic conference of the Korean Society for Agricultural Machinery held in Jeju on the 14th.

The biggest mistake made by Korean agricultural machinery companies seeking global expansion is that they still go looking for overseas markets armed only with pamphlets listing ‘FOB Busan’ (free on board, Busan port) prices. Rather than marketing that waits for traffic to come through local websites, when sitting at actual negotiating tables in places such as Tashkent, Uzbekistan, they must be able to immediately present quotations based on DDP prices including all tariffs and logistics costs up to the buyer’s warehouse, or at minimum CIF terms. If they cannot even calculate the delivered price on the spot and delay their answer, it is proof that they lack both preparation for exports and genuine commitment.

In particular, to succeed in project-based exports, strategic thinking must come first to move beyond simply selling a single machine and instead package ‘training + maintenance + parts + finance + operating platform’ into one bundle.

◆ Abstract ODA project titles must be broken through with ‘value chain analysis’

Director Kim said, “In the international aid market, ODA projects with intuitive names such as ‘agricultural machinery procurement project’ virtually do not exist, and most are ordered under abstract nouns such as ‘agricultural productivity improvement project.’” This means that rather than emphasizing only the technical excellence of machinery, companies can gain competitiveness in winning contracts only by precisely designing and proposing the agricultural value chain from a business perspective.

Looking at sugarcane and sugar factory models in Africa and Central Asia, for example, the profitability of the farm itself (IRR of about 5%) is far lower than that of the factory (roughly 25%). To bridge this gap, global developers secure project rights from developing-country governments by combining zero-interest or low-interest loan financing such as World Bank funding or Korea’s EDCF funds. At that point, local farmers often lack farming skills as well as dedicated agricultural inputs and machinery. Only companies that propose, from the project planning stage, a value chain that bundles agricultural input financing and agricultural machinery lease systems can preempt the massive flow of ODA capital.

Ultimately, the true value of agricultural machinery arises not from the machine’s own specifications, but when it resolves a ‘bottleneck’ that occurs in the local farming workflow.

◆ Solving social value issues leads to chain exports… the miracle of Uzbekistan’s cotton harvester

A representative success case in which agricultural machinery solved a chronic local social bottleneck is the Korea Institute for Advancement of Technology (KIAT)’s early ODA project for cotton harvesters in Uzbekistan.

Uzbekistan cultivates cotton on a large scale, but the harvest window is extremely short at just two to three weeks. As the performance of existing Soviet-style machines deteriorated and 40% of the cotton could not be harvested, even young children were mobilized en masse into the fields to pick it by hand, spreading into an international scandal over ‘child labor exploitation.’ Korean companies and the Korea Minting and Security Printing Corporation, which purchased this cotton to make banknotes, also faced a national crisis amid fierce criticism from global NGOs.

Against this backlash, Korean agricultural machinery engineers developed and deployed a high-performance prototype that harvested 100% of the cotton simply by passing through. This project, which began with KRW 6.6 billion in grant aid, was designed based on Korean-made parts, and as a result produced a windfall of KRW 13.6 billion in exports of Korean parts. Furthermore, as neighboring countries with similar conditions (Kyrgyzstan, Tajikistan, Kazakhstan, etc.) saw the changes in Uzbekistan and requested purchases, it even created a chain effect in which Uzbekistan imported and assembled Korean parts and re-exported them to surrounding countries—“the first machinery export record since the founding of Uzbekistan.”

◆ Must abandon fixation on product categories and proactively combine financial products

Director Kim’s two core recommendations for winning on the global stage are as follows. First, abandon supplier-centered fixation on product categories. The mechanic-style approach of saying, “We make this machine, so please buy it,” will fail. Even if starting from a blank slate, companies must communicate with local governments and buyers and flexibly tailor solutions to the projects they truly need, such as irrigation systems or hygienic slaughter and distribution.

Second, proactively combine financial products. If you sit at the negotiating table with only the machine’s unit price, you will face nothing but bone-cutting pressure for price reductions. Companies must identify in advance the financing products that can be attached to the machinery—such as export-import finance or public funds—and package them to seize the initiative in negotiations.

In addition, Director Kim emphasized, “The Southeast Asian (ASEAN) market also must not be approached as a single homogeneous market. Countries where both concessional and non-concessional aid are possible, countries that already operate their own aid agencies and have turned into donor nations, and countries excluded from aid targets must be thoroughly separated, and detailed customized global expansion strategies must be established.”