On the Innovation of Marketing Channel Modes of China's Seed Industry

Bican LUO，Yunhai FU，Chunxia LUO，Ya Zhu

1.Hubei Provincial Seed Group Co.，Ltd，Wuhai430070，China；2.Supervision，Inspection＆Testing Center of Agricultural Products Quality and Security of Jingmen City of Hubei Province，Jingmen 448000，China；3.Agricultural Bureau of Jingshan County in Hubei Province，Jingshan 431800，China

In China，the seed industry competition is fierce in recent years.Due to factors such as seed industry system，marketenvironment，and industry maturity level，the competition will become further deepened and complex.In the competition，there aremany problems，such as toomany entities，weak scientific research innovation，lowmanagement level，not smooth channel，and not reciprocal risk benefit，etc.The marketing channel is too simple，and structural conflict between resource and profit distribution is increasingly prominent，which greatly hindersnormal developmentof the seed industry［1］.The two-level distribution channel mode widely applied in the seed industry（enterprise→ county-level agent→ township distributor→ farmer household）is experiencing severe test，and it is urgent to make innovation of the channel mode.

1 Majormarketing channelmodes of China's seed industry

1.1 Historical development path of China's seed industry marketing channelmodesFrom themiddle of the 20th century，China's seed industry started to enter commercialized path.In planned seed supply phase，seed was adjusted and supplied by government and there was nearly no commercialized seed supply.After the 1980s，with rise and popularization of crop hybrid technology，especially hybrid rice，the seed industry started to enter semi-commercialized path，and the seed circulation basically followed the channel structure of＂provincial level company（station）→ prefecture（city and county）level company→ township agricultural technical service station（former seed farm）→ production team→ farmer household＂，namely，three-level distribution channelmode＂production wholesaler→ intermediate trader 1→intermediate trader 2→ retailer→ farmer household＂.Thismode laid solid foundation for extension and application of China's hybrid technology.This three-level distributionmode depends largely on administrative function of government and has deep regional characteristic.Thismode is based on regional agricultural structure，so it can not be called a seed company（station）in real sense.However，this channel mode has clear drawbacks.With implementation of reform and opening up policy and China's entry to WTO，various industries and sectors have opened their threshold，opening-up of seed industry was also brought into schedule，and incorporating the seed industry into commercialized and completely market-oriented track has becoming an urgent subject of sustainable development of seed industry.At that time，low competition strength，backward industrial service level，and weak industrial innovation ability were major threats of China's seed industry，obstructing survival and development of China's seed industry.

In themiddle of the 1990s，the pattern of seed industry was changed again，government administration was separated from enterprisemanagement，and seed industry formally entered commercialized operation stage.Marketing of seed products gradually changed from common varieties to special varieties，and circulation of industrial seed broke original regional limit and stated free regional exchange.To survive，enterprisesmake effort to seek new path in new variety development，production control and customer network innovation.At this stage，the new channelmode combi-ning the original three-level distribution channel mode became popular，namely，＂enterprise→ provincialwholesaler→ prefecture（city and county）level intermediate trader→ township retailer→ farmer household＂.This mode produced three positive influences：（i）itbroke original regional limitand promoted commercialization process of the seed industry；（ii）it optimized industrial structure through distributing，reorganizing and converting and eliminating someweak entities；（iii）it stimulated technological innovation，service innovation and new variety research and development of enterprises.At the same time，there were also problems：chaoticmarket ordermade rights and interests of enterprises fail to be effectively protected and internal consumption due to unordered seed supply reduced profit space of seed product.To reconcile this conflict，the seed industry started implementing a new marketing channelmode from the end of the 1990s，i.e.regional agent distribution mode，namely，the existing three-level and two-level agentmarketingmode＂producer→ provincial agent→ county（city）level agent→ township terminal retailer→ farmer household＂and＂producer→ county（city）level agent→township terminal retailer→ farmer household＂.Thismode is a major distribution mode of crops and continues to use at present.

1.2 Characteristics of existing marketing channelmode of the seed industryAt present，marketing of the seed industry mainly adopts regional agent and terminal direct selling［2］，the former ismajormode and the latter is still in trial stage.At the early stage of separating government function from enterprisemanagement，production enterprises started using three-level and twolevel agent marketing mode＂producer→ provincial agent→county（city）level agent→ township terminal retailer→ farmer household＂to explore new market and overcome drawbacks of old distribution mode.Provincial agents having regional exclusive agency authority have exclusive right in sales of single product at regionalmarket，do nothave competitors，and are highly active in making plan，fixing price，propaganda，and marketmanagement.With gradual penetration of production enterprises to externalmarket，the controllability of enterprises to inferiormarketing network is gradually increasing.To overcomeweakness of provincial agent in management，save profit consumed in provincial agent，and strengthen competition vigor，production enterprises gradually abandoned the provincial agent，implemented flat management principle，and adopted the two-level distribution mode＂producer→ county（city）level agent→ township terminal retailer→farmer household＂.Due to growth ofmanagement efficiency and increase of profitmargin，the two-level distributionmode iswidely applied and becomes the leading channelmode.

This two-level distribution mode features rapid market response，excellentmanagementeffect，and high profit space.Firstly，county（city）level agents are engaged in supply and sales at terminal，have sensitive response of terminalmarket，can identify and screen terminal market information at first time，and feed back to enterprises in time，for enterprisesmaking adjustment of production and work.Secondly，due to self characteristic of agent mechanism，the verticalmanagement system promotes activemanagement of allmain bodies of the channel system to the regional market.Rich profit of special variety encourages all parties to improvemanagement quality and themanagement efficiency gets lifted.Besides，it abandoned two-levelmode of provincial agentand realized large profit space of enterprises，agents，and terminal retailers.

1.3 Problems of existing marketing channel modesThe existingmarketing channelmode also influences survival order of the seed industry pattern.Those enterprises having certain research and developmentability，rich variety resource，highermanagement efficiency and marketing network survive in this mode，while other enterprises have tomake reorganization，quit or die.Even so，numerous entities of the seed industry still test the survival endurance of the seed industry，and the conflict between excessive entities and two-level agent distribution channel system is unceasing［3］.Under homogeneous channelmanagement，homogeneous products lead tomeager profit of enterprises，andmany enterprises even operate with negative profit.This brings great pressure to national seed industry.Apart from encouraging enterprises tomake sci-tech innovation，thismode has limited historical function.Secondly，thismode is easy to follow up and ithasno specific requirement for size and strength of enterprises，and qualification and type of distributors.Too low threshold leads to market disorder.On the one hand，the channel chain management has fine start but poor finish；on the other hand，themarket is full of inferior products.Due to imperfect industry management system，fake and inferior seed problems are serious.The third problem is unreasonable benefit distribution and unequal dialogue between front and back ends in the channel chain.At present，there are 6900 seed enterprises registered in China，255 enterprises have license issued by the Ministry of Agriculture，while there are only 10-20 township seed distribution stores.To include numerous varieties，the right is naturally controlled by township retailers.As a result，township terminals obtain larger portion of profit，countylevel agents obtain certain profit，while enterprises have to obtain meager profit.On the other hand，since the major motivation of terminals selecting products lies in the profit space，many excellent and high quality varieties are neglected and fail to be popularized in production.

2 Necessity for innovation ofmarketing channelmode of China's seed industry

2.1 Inevitable trend of promoting reorganization of China's seed industry and building of new orderSmooth and high-efficient channel can lay excellent foundation for enterprisesmaking business expansion and is direct reflection of enterprises realizing profit.China's national seed industry is stillweak and it needs resource reorganization and survival of the fittest in a certain period.Even though there aremore than 6900 seed enterprises，and the market value of seed industry rose from 25 billion yuan in 2000 to 100 billion yuan in 2012.However，less than 80 enterprises have registered capital lower than 30 million yuan，and only 69 enterprises have realized integration of breeding，reproduction and promotion.Market share of all individual enterprises is lower than 5%；top ten seed enterprises have total market share less than 20%；most enterprises have less than 5%of the proportion of research and development input to sales volume，much lower than 10%of the advanced level of developed countries.Reorganization of the seed industry ismainlymanifested as resource complementation and integration.Apart from talent，capital，variety，technology andmanagementmodes，channel resource also playsa very important role in reform of seed enterprises，because the existing two-level distribution channel mode has become not suitable for deep development of enterprises.In all factors of the reform，enterprises have mature experience or higher feasibility in capital，talent，technology and variety，but they find noway in channel innovation.The channel innovation has become the bottleneck of another reform of the seed industry.In otherwords，channel innovation willbecome the key and core of the next reform of the seed industry，and the restriction action of channel in enterprisemaking profit is obvious and obvious.

2.2 Necessary arm for dealing with competition of large trans-national seed industryIn the gamewith large trans-national seed industry，China's seed industry has large gap in capital accumulation， financing ability， research and development strength，and management concept.The only advantage is local resource，specifically，the existing customer network resource，namely，channel resource.If trans-national seed industry weakens this trend through the local penetration in rent years，China's seed industrywillhave higher difficulty in survivaland development.In 2012，25 trans-national seed enterprises entered China，including top 10 enterprises，like Monsanto，Pioneer，Syngenta，Bayer，and Limagrain.Only for the corn varieties，themarketshare of foreign invested companies rose from 0.13%in 2001 to11%in 2011with growth up to 84 times.In such fierce competition，China's national seed industry should rapidly lift the variety innovation ability，brand infection ability，and enterprise management ability.Besides，they should consolidate channel innovation，create more persuasive channel value，and prevent invasion of foreign enterprises through building powerful channel barrier.

2.3 Necessary measure for improving agricultural service level of the seed industryIntensive，specialized，mechanized and high sci-tech developmentofmodern agriculture hashigher requirement for agricultural services in related fields and level.Grass-roots agricultural technical service station is major entity providing grass-roots agricultural service.With separation of government administration from enterprisemanagement and commercialization of seed industry，the service function of grass-roots agricultural technical service station isweakened.The lower part of the commercialized seed industry channel chain is distribution store of grass-rootsmeans of agricultural production，which gradually becomemajor entities providing leading agricultural services，especially the seed stores.The seed industry is parent industry of agricultural production，and service level of the seed industry decides development process and depth of agricultural industrialization.Seed industry services includemarket services and technical services，closely connected with downstream interaction quality of the channel chain.Therefore，a criterion for judging innovation effect of channel chain is to check the improvement degree of grass-roots service level.The recognition degree ofgrass-roots producers to seed products and technical service quality and level determines trustand loyalty of seed consumers in enterprises，brands and products.Within the framework of existing channel system，the commerciality and subjectivity of grass-roots service，but the fairness and obligation are weak.To really winmarket and obtain loyal customers，it is necessary to improve service level.

2.4 Essentialmeasure for going w ith the stage development of China's agricultureFlat treatmentof channels is the necessity of enterprises，and also the necessity of stage development of agriculture.Urbanization process promotes transfer of rural labor to urban areas.Atpresent，the rural labor structure takeson three characteristics：（i）old age and serious loss of young and middleaged labor；（ii）shortage of labor，especially farming and management labor；（iii）old labor knowledge.From trend analysis，combining national grain security strategy，governmentneedsenergetically supporting intensive，industrialized and simplified development of agriculture，and encouraging centralized management and cooperative operation of agricultural land through stimulating land circulation policy.Seed isessentialmeansofagricultural production.As suppliers of agricultural production，seed enterprises should gowith this trend，directly serve large planting households，and establish customer network without restriction of intermediate traders.This needs innovation of seed enterprises in seedmarketing channelmode.In the past，enterpriseswere unable to handle services directly for huge number of families，and an individual farmer household is unable to influence survival and growth of enterprises.However，land intensification will influence performance ofenterprise in an area and itsbrand perception.In this situation，enterprises have to go with such change to realize long-term sustainable development.

3 Factors to be considered in innovation of seed marketing channel

3.1 Structural characteristics of existing rural and agricultural production factorsAs essential factor of agricultural production，land，labor and equipment structure undergo great changes，so the service methods and depth should have corresponding changes.Centralized circulation of agricultural land to few，specialized and investment planting owners is an overall trend，mainly because of loss of rural labor and low comparative benefit of scattered planting.In addition，with extension and popularization of crop simplification technologies，new agricultural equipment is applied more and more in agricultural production.Many crops have realized sowing，fertilization application，intertillage，pesticide spraying，harvesting，and shelling.Thiswill lay technological foundation for intensive，specialized and industrialized agricultural development.These new situations of rural areas and agriculturewill influence seed industry，and changesof planting households will exert impact to existing distribution channel mode，and accordingly stimulate innovation of seed marketing channel.The innovation of seed marketing channel should not neglect such structural changes of existing agricultural production factors.

3.2 Sci-tech development level of the seed industryThe seed industry hasmade outstanding achievements in recent years.Wide application three-line and two-line hybrid ricemakes great contribution to China's grain security；popularization of hybrid insect resistant cotton greatly reduces input in pesticide；popularization of hybrid rape greatly lifts level of national edible oil.China's crop technology has become ranked in the advanced level and some fields even have reached the leading level.Even so，as key industry of converting existing science and technology to production application，the seed industry has low research level，excessive repeated research，chaotic resource utilization，and weak sophisticated technology breakthrough.From the perspective ofmarket，it ismanifested toomany homogeneousproductsand technologies.Such situation will notbe transformed fundamentally in short term.To seed scientific research breakthrough，enterprisesmust seek vitality in other fields，especiallymanagement.The key point ofmarketmanagement lies in network construction.Therefore，it is necessary to organize innovation ofmarketing channel and the innovation should not be separated from existing sci-tech development level.

3.3 Deep demand of industrialmarket and servicesAfter experiencing price war，advertisement war，and variety war，the core fields of industrialmarket competition graduallymove to services.With improvement of technological content and increase of quality and yield of seed products，market requirements for enterprise services are higher，wider and deeper.For innovation of enterprises in distribution channel，service is a key judgment element.It is required to change the situation of excessively relying terminal service of intermediate traders in the past and improve service level and efficiency，to really obtain loyal terminal customers，so as to really raise recognition of enterprise brand.

3.4 Reasonable adjustment and distribution of the profit of seed industryAt present，the distribution of profit in seed industry is not equal and themanagement quality is uncoordinated，which is not favorable for healthy development of the whole channel chain.On the one hand，the enthusiasm of producers is dampened，not favorable for innovation and expansion of enterprise.On the other hand，benefit of distributors is greatly enlarged，easily leading to deviation from operating philosophy and concept.New channelmechanism must overcome this conflict and manifest the equal distribution of profit.Only through seeking and starting a proper and fair channelmode，may the added profitof the seed industry be distributed reasonably andmay the seedmarketing return to rational developmentway.

3.5 Core fields of differentiated competitionTo stand out among numerous seed entities，enterprises need implementing differentiated strategy in core competition field.To form differentiated advantage，enterprises should get rid of pastmethods in price，variety and propaganda，but place hope on channel.It should focus on following points：（i）ensuring new，unique and exclusive channelmode，to bring real channel benefit；（ii）ensuring flat principle of channel building，to increase benefit of channel chain on the basis of high-efficientmanagement，so as to enhance operating strength.

4 Innovation attempts and recommendations formarketing channel of China's seed industry

4.1 Innovation attempts of marketing channelmode of the seed industryAt present，the seed industry has fully realized the restriction of distribution channelmode to seed industry development，and many enterprises have started innovation in distribution channel，butmostare stillatstage of fumbling and successful cases are few.Apart from traditional two-level distribution channel mode，there are several othermodes.（i）Direct sellingmode：establishing direct selling point in key towns with reference of ecological and administrative division or production scale，the finance is not dependent and subordinate to production enterprise.Such mode has advantages of directly selling products to terminal，swift service and powerful brand building force，but the management cost is high and human resource pressure is heavy［4］.（ii）Supermarketmode：supermarket directly connectswith enterprises，and farmers can select brands or varieties on their own.Thismode has advantages of directly selling products to terminals and reducing loss of intermediate profit.The disadvantage is poor propaganda effect and difficult to establish brand loyalty.（iii）Order-oriented mode：enterprises cooperate with agricultural product processing factories.Through orders of processing factories，it is expected to promote implementation of various businesses.Thismode can significantly increase sales volume of specific varieties.However，it is difficult for enterprises to own tiptop variety resources in a certain field.（iv）Channel bindingmode［5］：some seed enterprises cooperatewith fertilizer factoriesor planthormone factories to popularize their products in bindingmode.Through this，it is expected to realize sharing of network resource and reduce promotion cost，but it is difficult to obtain recognition of main products.Apart from the above fourmodes，some enterprises are undertaking researches of some new channelmodes，which isworth attention and reference.

4.2 Recommendations for construction of innovation environment

4.2.1Establishing fair and justmarket competition order.For the seed industry，there is still a long way to realize fair and just competition environment，which is closely connected with local protectionism and lack of industrialmanagementconceptand ability.Many enterprises need notmaking effort in innovation，and they cling to old practices and refuse to accept new things and the internal pressure of development is transferred to local government and competent agricultural authorities.The innovation cost is high，so enterprises are unwilling to make innovation.Accordingly themarketing channel innovation lags behind.

4.2.2Issuing relevant innovation guiding policy to encourage reform of seed industrymarketing channel.As an attempt，innovation needs cost and also risks.The overall strength of China's enterprises is limited and internal strength is weak.To catch up with trans-national seed enterprises，China's enterprises need drawing support of certain external force.Government should issue relevant supportpolicy to promote innovation incentivemechanism for seed industrymarketing channel and boost rapid development of seed industry.

4.2.3Setting foot on industry development trend，invigorating large enterprises while relaxing control over small ones，and shortening the seed industry reorganization process.

From the development trend of seed industry，the present seed industry is realizing capital reorganization and resource integration.Someweak entities or individualswith small contribution to society are gradually exiting from the seed industry market.This is amark of an industry entering the high end and also the inevitable trend of the seed industry realizing reasonable and sustainable survival and development.China should go with this trend，support powerful and high potential seed enterprises to make channel innovation，widen the gap with those weak entities，butnarrow the gap with trans-national seed enterprises.For example，it is feasible to support those seed enterpriseswith integrated capacity of breeding，reproduction and promotion，and ability of conducting international trade.

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