International Expansion of Nutrion Company in Thailand

                         South Pacific Natural Ltd

                                     International Business Management

Name: Sven Hurks

Student ID: 15885945

International market analyse

According to a nutraceutical market research global nutraceutical market reached $142.1 billion in 2011 and is expected to eclipse $250 billion by 2018 (Bourne-Partners, cited in sector report 2013). As developing markets continue to expand, nutraceutical products will become a larger portion of disposal income spend, especially in the Asia/Pacific region (Bourne-Partners, cited in sector report 2013). The global market of nutraceutical supplements will increase as developing countries increase nutraceutical consumption. Also, because of the rising health costs and aging population, people will focus on a more healthy lifestyle. According to statistics from U.S. State Department and United Nations Department of Economic and Social Affairs roughly 13% of the population are over the age of 65 by 2030 (Bourne-Partners, cited in sector report 2013).

To find a new international market for SPN we have to look at the benefits, cost and risks. There are always liabilities of foreignness. Think about the geographical distance, costs, time, lack of experiential knowledge, competition and social-cultural factors. In order to find a new suitable market for SPN we have to think about all those liabilities. Despite of the fact that SPN is relatively a small company I do assume they have some kind of experience with ‘doing business abroad’. As mentioned in the assignment they do business in Australia and have experience with doing business in the U.S.

I don’t think Europe and North America are a profitable market to enter. The competition for nutraceutical products is very high. Especially in Canada and the USA, where all of the top 10 biggest nutraceutical companies are located. Europe has a lot of different cultures and languages, and is geographically on the worst spot. Because of the big distance to Europe transport costs will be high. The markets in Europe are small and there must be a different marketing strategy for each country (because of different cultures and languages). The social-cultural environment of business is almost the same as in New Zealand. This would be the only benefit of doing business with EU or the USA.

In South-America, Africa and in the Middle-East the demand for nutraceutical products is too low according to research (Bourne-Partners, sector report 2013). There is a lot of corruption and the social-cultural environment is way different from New Zealand.

If SPN is a financial healthy company I would say they should sell their brand in China. As research from Bourne-Partners says it is the most promising market for nutraceutical products. According to research the most consumers of nutraceutical supplements are currently people from the USA and Japan (Bourne-Partners, sector report 2013). According to statistics China is expected to be the largest consumer of nutraceutical ingredients by 2020 (World Nutraceutical Ingredient Industry, Freedonia, November 2011). Before I arrived in New-Zealand I have lived and worked for two months in Hong Kong for a multinational company. For my work I had to travel a lot to some big city’s in China. What struck me was that Chinese consumers prefer western brand over their own domestic brands.

Social-cultural factors:

As I mentioned before China will be the biggest market for nutraceutical supplements by 2020.

Nutraceutical supplements are mostly consumed by the middle and upper class (Bourne-Partners, sector report 2013). According to research there is a relation between disposable income and consumption of nutraceutical supplements (Bourne-Partners, sector report 2013) . Therefore, the huge increase in disposable incomes in China will lead to an increase in consumption. As disposable income was rising in Europe and the USA people started caring more about their healthy lifestyle. According to statistics from United Nations, Department of Economic and Social Affairs

The population of China is aging. This will also lead to a higher demand for nutraceutical products.

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 TheAmerican Century | Common Sense. N.d. Photograph. Common Sense. Web. 3 Mar. 2014. 

The population amount in China is currently 1.4 billion. A lot of people probably think expanding to China is not smart because the market is too big for a company from New Zealand. To reduce the risk SPH could start by focusing on one region in China instead of the whole country.  The cultural aspect of doing business in China is a disadvantage. The level of corruption in China is higher than in Europe and America. The first step of doing business with China requires understanding of the nation itself. China is driven by a Confusian culture that is totally different from the western Individualism. It is necessary for SPN to cooperate with locals, since the cultural gap between New-Zealand and China is too big. Without any kind of local support or cooperation it is too risky to expand SPN to China.  Almost every aspect of ‘doing business’ in China is different from a western society. Think about Marketing, Distribution and Communication. As people in China get richer, education will improve and Chinese people will improve their English. Currently, most of Chinese people barely speak English and because of this language barrier, it is hard or even impossible to do business without local support.

SPN could start a joint venture or use reliable agents or distributors in China. Local agents or distributors will give SPN access to local knowledge, contacts when dealing with legal problems, potential customers and sales channels. This will reduce the costs and save time. In the office there should be a mix of expats and locals. Good intern communication between the two cultures is very important.  It’s very important to adapt the marketing to Chinese preferences and taste. On the other hand, it is important not to localize too much that SPN will lose their unique western appearance.

In my opinion McDonalds has discovered the right balance between localizing to a specific market and keeping their own western appearance. Besides the Embassy of New Zealand in China there are a lot of official agencies that supports western businesses establish in China.

Competitive advantages & low competition

There are only a few big Chinese nutraceutical brands. Chinese companies tend to avoid the nutraceutical market since it is not easy to enter because of the strict regulations and registration procedures that apply to nutraceuticals in China. Because of the less saturated market in China it is easier to distinguish from competitors. SPN will have a competitive advantage because, as I mentioned earlier, Chinese consumers prefer western brands over their own domestic brands. I think Chinese people see western brands as more reliable and assume the products are from better quality. Especially for healthcare the reliability of the brand would be important for customers. New Zealand does have a good reputation for having a clean environment and a food safety record.

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