Strengthening the Halal Value Chain for Competitive Advantage:

Evidence from Bionesia Organic Foods

Risdy Absari Indah Pratiwi, Mirza Ayunda Pratiwi, Nur Bayti, Rafky R. S., Dodi Dermawan,

Imalinda Deryane and Sufnirayanti

Management Department, Universitas Maritim Raja Ali Haji, Dompak, Tanjungpinang, Indonesia

Keywords: Competitive Advantage, Halal Value Chain, Halal Industry, Bionesia, Coconut Manufacturer.

Abstract: This research attempts to find sources of competitive advantage in companies producing organic coconut

derivative products, Bionesia Organic Foods, which is one of the largest coconut industries in Indonesia. By

applying Porter's value chain model, researchers examined nine activities along the company's value chain.

The development of interview techniques, observation, document analysis, content analysis, and literature

study was done to acquire a comprehensive understanding of the company's business processes. Empirically,

Bionesia gains its competitive advantage through the implementation and compliance with halal standards

throughout the company's value chain and innovation in the development of organic coconut products which

makes Bionesia superior in terms of costs.

1 INTRODUCTION

Competition is a term used to describe a business

environment where companies compete to gain

superiority over their competitors in terms of markets,

customers, innovation, efficiency, and profitability.

Success in a competitive context is often determined

by a company's ability to create and maintain

competitive advantages that differentiate them from

competitors and enable them to achieve better results

In terms of how a company is expanding and

becoming more profitable.

In order to create a competitive niche for a

company in the industry, it needs to establish its

competitive strategy. The objective of competitive

strategy is to establish a sustainable and advantageous

position to fight against the determining forces of

industry competition (Porter, 1985). Competitive

strategy is the plan and approach that a company

employs to compete effectively, while competitive

advantage is the result of successfully executing that

strategy.

Companies can achieve competitive advantage by

offering high-quality products or services at lower

prices than their competitors (cost advantage), or by

offering products or services that can be tailored to

customer needs quickly and easily (responsive

advantage) (Simatupang et al., 2018).

The primary tool for identifying and improving

competitive advantage is value chain analysis. This

tool examines how each activity in a company

contributes to the overall value of its products or

services by dissecting it into its core activities. By

comprehending the value chain, companies can

discover areas where they can boost efficiency, lower

expenses, and set themselves apart from their rivals

(Porter, 1985).

The halal industry is on the rise due to the

increasing demand for halal products and services.

According to the Global Islamic Economy Report,

Muslims around the world spent an estimated USD2

trillion in 2021 on food, pharmaceuticals, cosmetics,

fashion, travel, and media/recreation. The ethical

consumption needs of Muslims, who follow Islamic

dietary and lifestyle guidelines, have an impact on all

these sectors. There is also evidence that non-

Muslims are increasingly demanding halal products

because they perceive them to be safer and more

natural than their counterparts (Farouk et al., 2020).

There is a lack of research that connects Porter's

value chain model with the halal concept. Halal Value

Chain is usually synonymous with Halal Supply

Chain. Even though these two concepts are

interconnected, the supply chain is actually an

important part of the value chain (Antonio et al.,

2020).

Pratiwi, R., Pratiwi, M., Bayti, N., S., R., Dermawan, D., Deryane, I. and Sufnirayanti, .

Strengthening the Halal Value Chain for Competitive Advantage: Evidence from Bionesia Organic Foods.

DOI: 10.5220/0012646500003798

Paper published under CC license (CC BY-NC-ND 4.0)

In Proceedings of the 2nd Maritime, Economics and Business International Conference (MEBIC 2023) - Sustainable Recovery: Green Economy Based Action, pages 79-85

ISBN: 978-989-758-704-7

Bionesia Organic Foods, a manufacturer of

coconut-based products, is the focus of this research.

For Bionesia, as a food ingredients producer,

maintaining halal compliance in every pre-

production, production, and post-production process

is important because it relates to reputation and

customer trust.

According to Mordor Intelligence, the coconut

products market is predicted to be worth USD 4.51

billion in 2023 and USD 7.26 billion by 2028, rising

at a CAGR of 9.98% during the forecast period

(2023-2028). As a result of this expansion, the

coconut goods business has become one of the most

competitive in the world.

Plant-based dairy products are gaining popularity,

particularly because of the COVID-19 pandemic's

emphasis on the importance of a healthy diet and

plant-based protein to enhance the immune system.

Additionally, there is a growing demand for halal-

certified and clean-label plant-based food and dairy

alternatives.

2 LITERATURE

“Halal” is an Arabic term that means “permissible” or

“in accordance with Islamic law”. In the context of

food and drink, the term “Halal” refers to products

that comply with the rules of sharia (Islamic law) and

are considered legal and suitable for consumption by

Muslims. In Indonesia, the institution authorized to

provide halal product guarantees or legal certainty

regarding the halalness of a product as proven by a

halal certificate is called the Halal Product Guarantee

Organizing Agency (BPJPH).

The concept of value chain was first introduced in

Competitive Advantage: Creating and Sustaining

Superior Performance by Michael Eugene Porter, an

American academic. The value chain is a framework

for analyzing how a company creates value for its

customers by identifying the primary activities and

support activities within the company (Figure 1.).

Primary activities are activities that are directly

involved in the physical creation of a product to after-

sales assistance, while support activities enable

primary activities to be carried out effectively by

providing technology, procurement functions, human

resource management, and firm infrastructure. Porter's

value chain model has been a valuable tool for many

companies for nearly four decades because it helps

them discover the sources of their competitive

advantage.

In a halal context, value chain analysis can

incorporate halal considerations into these two types

of activities. The Halal Value Chain (HVC) is a

comprehensive system that ensures that Islamic law

is adhered to while producing, distributing, and

marketing halal products. This includes careful

consideration of the ingredients used, processing

methods employed, and the packaging materials

selected. The goal is to ensure that the final product is

clean and halal, and meets the needs of Muslim

consumers (Subianto, 2018).

Primary Activities:

1. Inbound logistics in the context of the halal value

chain refers to the steps and processes involved in

managing the supply of raw materials or product

components used in the production of halal goods

or food. This is part of the halal value chain that

focuses on the initial stages of production or

supply of ingredients that will be used in halal

products. The process in halal inbound logistics

includes selecting suppliers who comply with

halal principles in the production and supply of

raw materials; separation and protection of raw

materials from contamination with non-halal

materials during the shipping process and storage

in the warehouse; halal certification and labeling;

audit and supervision of their raw material

suppliers to ensure compliance with halal

standards (Tieman, 2015, 2020a).

2. Production or operations in a halal context refers

to all processes and activities involved in

manufacturing, processing, and providing

products in accordance with halal principles. This

includes meeting strict cleanliness and sanitation

standards in production facilities; and strict

monitoring and control in the production process,

including maintenance of equipment, machinery,

assembly, packaging. Companies must ensure that

there is no cross-contamination between halal and

non-halal ingredients in the production process

(Tieman & Darun, 2020).

3. Outbound logistics in a halal context refers to

activities related to collecting, storing and

distributing products by ensuring that the products

remain in accordance with halal principles during

storage and travel to the market or to customers.

Logistics is an important part of the halal supply

chain (Tieman & Ghazali, 2014).

4. Marketing and sales are related to providing a

means by which customers can buy products. In

the halal context, halal marketing not only ensures

that products meet halal standards but also meet

the expectations of Muslim consumers. Activities

related to halal marketing and sales, namely

MEBIC 2023 - MARITIME, ECONOMICS AND BUSINESSINTERNATIONAL CONFERENCE

advertising policies, promotions and selecting

marketing channels that are in accordance with

Islamic ethics and principles (Tieman, 2020b).

5. Service refers to activities related to providing

services to increase or maintain product value.

These activities include customer support,

complaint handling, and problem solving in

accordance with halal principles. Companies can

also provide information about products and how

to use them in accordance with Islamic principles

(Windasari et al., 2023).

Support Activities:

1. Procurement refers to the function of purchasing

input, not purchasing input. Procurement in the

halal context relates to activities such as

qualifying suppliers to comply with halal

standards; and strict auditing and monitoring of

suppliers and the entire supply chain to ensure that

halal requirements are adhered to (Shari et al.,

2022; Zakaria et al., 2020).

2. Technology development refers to a series of

activities that can be broadly grouped into efforts

to improve products and processes. Technology is

embedded in the entire value chain. Technological

change can create a competitive advantage if it

leads to differentiation or reduced costs (Porter,

1985). In the halal industry, technology

development also includes the use of technology

to track the source, processing, and distribution of

products (halal traceability). It also includes the

development of software and tools for managing

halal compliance (Dilla & Fathurohman, 2021).

3. Human Resource Management in a halal context is

an approach to human resource management that

focuses on managing aspects related to halal

principles in Islam. Halal HRM includes activities

such as selecting individuals with good Islamic

character and ethics; fair reward and compensation

policies; providing support for work-life balance

that allows employees to carry out their religious

obligations; working conditions in accordance with

Islamic principles; improvement of relevant skills

(Gharbi et al., 2022).

4. Corporate infrastructure refers to a set of

activities, such as planning, accounting and

finance, legal, and quality management.

Infrastructure supports the entire value chain and

can be a source of strong competitive advantage

(Porter, 1985). In the halal context, infrastructure

refers to the establishment of an ethical

framework and governance structure that

prioritizes halal compliance. These activities

include adherence to ethical business practices,

appointment of a halal supervisor, or

establishment of an oversight committee

responsible for ensuring halal integrity.

3 METODOLOGY

The research used a qualitative approach involving in-

depth data collection to understand halal value chain

practices at Bionesia Organic Foods. Interview

techniques, observation, document analysis, content

analysis, and literature study were developed to

identify sources of the company's competitive

advantage.

Figure 1: Porter’s Value Chain Model.

Strengthening the Halal Value Chain for Competitive Advantage: Evidence from Bionesia Organic Foods

4 RESULTS AND DISCUSSIONS

The research results and discussions in this section

are separated by the nine activities that were

analyzed.

4.1 Inbound Logistics

The halal inbound logistics process is a series of

stages that include the management and inspection of

raw materials and supporting materials entering the

company so that they meet Islamic halal standards.

Bionesia ensures that the selected supplier can

provide raw materials or supporting materials that

meet halal requirements by considering the supplier's

reputation, supplier compliance with halal standards,

as well as halal documents and certificates.

Raw materials are sent from organic coconut

plantations in Jambi and Riau, and the average time

required to arrive at the facility is 1-2 days.

Meanwhile, auxiliary materials and packaging are

sent from Jakarta with an average time of 5 days. The

main bottlenecks that companies face in the inbound

logistics process are obstacles in sea transportation

and Free Trade Zone (FTZ) port status, which require

more complex documents. To optimize the inbound

logistics process, the raw materials ordered must be

adjusted to the sales forecast.

When raw materials arrive at the company's

facilities, the receiving department will carry out

physical inspections, and tests and check documents

related to halal to ensure that the materials meet halal

standards.

By ensuring halal status in the inbound logistics

process, Bionesia can maintain a consistent and

sustainable supply of raw materials, which is very

important for maintaining production continuity. This

sustainability of supply can be a competitive

advantage because the company can fulfill customer

demand well and on time (Khan &

Rattanawiboonsom, 2019; So et al., 2006).

4.2 Production

With facilities located in a modern industrial area,

Bionesia produces high-quality coconut milk,

coconut water, low-fat and high-fat desiccated

coconut, virgin coconut oil (VCO), coconut chips,

and coconut flour.

To optimize the production schedule, Bionesia

adjusts the production schedule to the inventory held

in the warehouse (inventory control). Meanwhile, to

meet compliance with halal standards, the company

prepares a production plan that includes cleanliness

and sanitation of production equipment and facilities

so that they are free from contamination that does not

comply with halal standards. Training on halal

standards and the importance of complying with

established procedures is also provided to employees

involved in the production process.

Complying with halal standards can help

companies avoid potential legal problems and

financial losses, as well as create a competitive

advantage by reducing risks (Fauzi & Mujaddid,

2023).

4.3 Outbound Logistics

Bionesia partners with logistics companies to send

products to the domestic market (Jakarta) which takes

an average of 3 weeks and the global market (US)

which takes an average of 1 month. To prevent

contamination from non-halal products, physical

separation in storage warehouses, different vehicles,

even different distribution times is necessary.

The key indicator used by Bionesia to measure

effectiveness in the outbound logistics process is

customer satisfaction. Bionesia benefits from

customer satisfaction by increasing customer

retention and loyalty. Companies can create

competitive advantages through a strong customer

base because high customer retention can reduce

customer acquisition costs and increase sustainable

profitability (Pei et al., 2020; Sultoni & Sudarmiatin,

2021).

4.4 Marketing and Sales

Bionesia prioritizes marketing strategies that reflect

halal values and principles. Customers can locate

clear halal labels on all products as well as halal

certification on the company's official website.

Bionesia also ensures that advertising and promotion

policies do not violate Islamic values and ethics.

Products that communicate Islamic principles

have strong differentiation advantages. This

differentiation advantage can help Bionesia compete

in a competitive market (Joudeh et al., 2022; Sarkum

& Syamsuri, 2021).

4.5 Service

Activities that involve providing services to enhance

and maintain product value. Apart from providing

services related to sales, Bionesia also provides

factory tour services. Factory tours provide

customers, business partners, or the general public

MEBIC 2023 - MARITIME, ECONOMICS AND BUSINESSINTERNATIONAL CONFERENCE

with the opportunity to see how their products are

made and processed.

This can create a competitive advantage for the

company by increasing customer trust and providing

a better understanding of the latest products,

technology, and innovations in the industry, as well

as improving the company's image and reputation as

an organization that is transparent, trustworthy and

committed to product quality and halal.

Some companies use factory tours as a tourist

attraction. Bionesia can take advantage of this

opportunity to generate additional income and help in

promoting brands and products (Lee, 2015, 2016).

4.6 Procurement

Halal procurement is a procurement approach that

ensures that the raw materials, products, or services

purchased and used meet halal standards.

Apart from the availability of goods and

competitive prices, Bionesia also audits and selects

suppliers that meet quality requirements, laws, and

halal standards. This helps Bionesia build a strong

supply chain, which can increase operational

efficiency and reduce risks in the supply chain (Shari

et al., 2022).

The SAP system (System Application and Product

in Data Processing) helps Bionesia increase

effectiveness and efficiency in procurement activities.

4.7 Technology Development

Technology development is one of the keys to

creating a competitive advantage for Bionesia. The

company budgets around 20% of operating costs for

research and development. The company collaborates

with a tech provider from Singapore to support

technology development and collaboration with

educational institutions (IPB University) to

standardize production processes.

The technology developed is used to automate

the production process. This technology allows

Bionesia to increase operational efficiency, reduce

production costs, and produce products that are more

competitive in price.

Bionesia also develops technology that can help

companies become more efficient in their use of

energy and natural resources. This can create a

competitive advantage as companies can meet

increasing market demands for sustainability and

environmental responsibility.

The transfer of knowledge and research findings

into the production process is also carried out through

a weekly 'Food Safety Talk' culture.

In a highly competitive business world,

companies that invest in technology development and

can make good use of that technology have the

potential to create sustainable competitive

advantages. The ability to innovate, respond quickly,

and better understand market changes can be a

powerful differentiator in the marketplace

(Dymitrowski & Mielcarek, 2021; Tilabi et al., 2019).

4.8 Human Resource Management

Human Resource Management practices can create

competitive advantages for companies (Pham, 2020).

Bionesia realizes that to maintain the company's best

talents is by creating a comfortable work

environment, following applicable laws and

regulations regarding the implementation of fair and

competitive policies, and providing rewards to

employees.

Bionesia not only pays attention to the welfare and

safety of workers, but also highly appreciates the hard

work of farmers. The company has its own

agricultural department and educates farmers about

organic farming.

Skilled farmers can reduce production costs and

increase agricultural yields, this practice allows

Bionesia to obtain raw materials that comply with the

required quality and halal standards, thereby

increasing the company's competitive advantage.

4.9 Firm Infrastructure

The infrastructure owned by the company has a

significant influence on the company's competitive

advantages (Kibebe M’mbwanga & Anyieni, 2022).

As a producer of coconut-based products, Bionesia

operates in the modern industrial area "Bintan Inti

Industrial Estate" with a land area of 4,000 hectares.

Bintan Inti is the first industrial zone to receive Halal

certification in the Riau Islands and the first marine

industrial zone in Indonesia.

As an area manager, BIIE provides support to all

tenants by providing buildings, electricity, air, and

waste disposal systems. Bionesia has a production

information system (SAP) and is currently

developing an information system that focuses on

payroll based on performance.

5 CONCLUSIONS

Compliance with halal principles throughout the

value chain, as well as innovation in the development

of organic coconut products that differentiate

Strengthening the Halal Value Chain for Competitive Advantage: Evidence from Bionesia Organic Foods

Bionesia from its competitors, provides a competitive

advantage for Bionesia.

ACKNOWLEDGEMENTS

We would like to thank the Raja Ali Haji Maritime

University Research and Community Service

Institute (LPPM) for sponsoring this research and also

thank Bionesia Organic Foods for supporting this

research.

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Strengthening the Halal Value Chain for Competitive Advantage: Evidence from Bionesia Organic Foods