Global Expansion Issues

International expansion involves several factors that should be taken into consideration when developing a strategic plan.

By Greg Kitzmiller

Many nutraceuticals firms think about global issues because they use ingredients from other countries. The degree to which companies think about global business, however, seems to vary. Size of the firm usually, but not always, determines the extent to which the firm will conduct business in other countries. Some small to medium size firms unnecessarily enter international business, which stretches their resources beyond reason. There are three important pieces of information to consider for most firms. First, most international business is regional. Second, firms must “think global and act local.” Third, customers in global regions are very different. Finally, keep in mind that nutraceuticals in world regions are different, which has thus far limited the number of global nutraceuticals products.

Regional Matters

Most business is local (meaning within one country) or regional, not global. Additionally, there is strong evidence that suggests much of the production on any given continent remains on that continent. For example, the number one trading partner of the U.S. is Canada and number two is Mexico. The same is true of trading blocks in Europe and in Asia as their greatest partners are usually in the same world region. The number three trading partner of the U.S. is Japan, which brings up “the global triad.” A majority of world trade outside of continents is exchange between Europe, North America, and Asia. The E.U., the U.S. and Japan are the strong exporters and importers within each of these regions.

Most multinational enterprises are based within the triad. This certainly does not apply fully to a few truly international firms such as PepsiCo, McDonalds and a handful of firms with truly global presence. However, it does apply to most firms, especially those involved in the nutraceuticals market. If the firm itself is international, the products and marketing are normally national or regional. For example even McDonald’s, which is known for burgers and fries in the U.S., sells beer in Europe and no beef in India.

Thinking Global & Acting Local

In terms of thinking global and acting local, probably the best advice for firms planning international strategy is to first think of similarities and not differences. The greatest advantage comes in selling the same product in many countries and being able to promote that product in the same way. However, there are differences in many cultures that total standardization of products and promotions are rarely possible. This is one reason to take advantage of the firm’s own world region first. There are fewer differences between the U.S., Mexico and Canada in culture and product use than there are between the U.S. and Japan, for example. However, in order to expand, firms must consider localization at some point. An example that comes to mind was the attempt to extend the popular “Got Milk” campaign into Mexico with the unfortunate result that the term, if directly translated, would be interpreted as applying to a new mother who would be lactating—not the intended meaning!

Keep in mind that customers and nutraceuticals are different, certainly within the global triad. Europeans seem to believe that good health begins in the gut and the popularity of probiotics and prebiotic dairy products supports this. However, similar products have yet to catch on in the U.S.
Examining Globalization

So what about the theory of globalization? The term “globalization” has received a bad name in the past decade because the expansion of businesses to other nations is frequently associated with destruction of the rainforests and corporate greed. In the era of Enron and Tyco, this theme may increase in print and among action groups. However, if you examine the largest multinational enterprises you find that they are rather evenly distributed throughout the triad and do not necessarily wield political power. For example, if you look at two large retailers, Wal-Mart and Starbucks, while they are clearly expanding globally the number of current stores and locations outside the U.S. is not impressive.

It may be of greater interest to those involved with nutraceuticals to focus on the fact that Ahold of the Netherlands and Carrefour of France are the world’s leading food retailers. Ahold has over 9000 stores (compared to 4300 for Wal-Mart, with 3200 in the U.S.) and operates in 28 countries on four continents. Most Americans would know Stop-and-Shop or BI-LO but not the parent Ahold. Clearly there is an expansion of the largest multinationals yet most of the business is locally based. Globalization in business is more about expanding and trading within the triad.

This is not to suggest that firms can be complacent with only doing business nationally. A firm that does not think outside its own country may find that it is eventually left in the dust, if only because they face foreign competition. Also remember, increased business opportunities may be far greater through regional expansion than domestic expansion if a company has the resources to handle it. Yet some firms have gotten burned because they exported a product or a process only to find that some local firm in the foreign market simply investigated their product and made a local version much cheaper. This calls for a careful strategy for any global expansion.

Investigating New Markets

The first strategy for international expansion generally depends on national demand and a forecast of demand in other countries. Firms generally want to expand to take advantage of increased efficiency and an opportunity to increase their total market. Careful expansion means a cautious investigation of any new market. While many mid-sized U.S. firms often think of entering the European market, most are far better off looking within North America first. Canada has a strong nutraceuticals business and customer base. Mexico does not. While nutraceuticals are sold in Mexico, the current market there attracts mostly the wealthy and is solidly located mostly in Mexico City and the industrialized Monterrey. What can be learned from examining a market like Mexico is that firms need to fully understand a new market. Assumptions cannot be made about Mexicans based on national statistics and the same is true for doing business in many other countries.

Conclusion

As stated in the beginning of this article, the steps to international business include the following: (1) Recognize the regional nature of global business. Look for similarities in the region, as with U.S. and Canada, but do not neglect the differences. Canadian food law is different than U.S food law or DSHEA and Canadian labeling requires both French and English; (2) Understand the differences and similarities between nations and markets within the global triad, particularly the U.S., E.U. and Japan and (3) Gather customer information in the country of interest and look for similarities first. Market and customer similarities lead to the greatest efficiencies. Always use someone from the foreign market to better understand differences such as language nuances, regional differences within the country and other nuances that are hard for any foreigner to pick up. There is much to be gained by careful international expansion, however, there is also much to be lost with an ill conceived expansion plan.NW