The following is an academic research paper on factors impacting new food introductions in emerging markets around the globe. New product decisions are made due to factors related to the company, the region and the product itself. Two case studies of a new product by Danone and another by Nestle were investigated.
[NOTE: This paper was the foundation to understanding one of the driving forces behind “Clean Labels.” As multinational corporations market the same packaged foods in different countries, those formulated with a shorter list of less “complicated” ingredients face less regulatory barriers.]
The Diffusion and Distribution of New Consumer Packaged Foods in Emerging Markets and What it Means for Globalized versus Regionally Customized Products
Claudia Dziuk O’Donnell, MSc, MBA
Unpublished paper written for a Masters in Business Administration degree, Department of Marketing, Northern Illinois University, DeKalb, IL 60115, Spring 2005
Dr. Tanuja Singh, supervising professor
© Global Food Forums, Inc.
Excerpts may be used if credited to Claudia D. O’Donnell, Global Food Forums, Inc.
- Why Global Products
- Why adapt products/brands for a market
- Factors influencing product decision/ Purpose of research
- Interest in emerging markets
- Regional Specific Factors
- Influence of culture
- Influence of international politics and government policy
- Country on label versus country of origin
- Other region-specific factors
- Product Specific Factors
- Country of origin
- Product composition, brand identity and standardization
- Company-specific factors: Management to culture Local vs. global brands
- Organizational structure and brand/product management
- Research and Analysis #1
- Research and Analysis #2
- Research Study #1:
- Research Study #2:
- Discussions and Observations:
- Diffusion of Two Global Brands
- Suggestions for Further Research
The consumer packaged food industry (including beverages) is increasingly global due to a number of factors. These include advancing information / communication technologies, economies of scale to be had in the development, manufacturer, distribution and marketing of foods, development of a global culture and increased disposable incomes in developed and emerging economies, to name a few. Such factors encourage multinational companies to take a global strategy and introduce products with the same characteristics the world over. However, other factors spur companies to regionally customize products. These forces influence a multitude of decisions that must be made in regards to new products; not only price and the promotional mix, but the place (including market entry) and product characteristics.
A literature review on region-, product-, and company-specific factors impacting new food product decisions is made. Data from London-based Mintel International’s Global New Products Database (GNPD) are used to examine decisions behind new product introductions as they relate to these factors. This paper theorizes that the extent of centralization of authority (which relates to the use of a global brand) as well as food companies’ investment in an emerging market is manifested in market entry decisions made for branded foods. These two factors are studied by two methods. The first method quantifies the number of domestic vs. foreign countries that appear on the packaging of new products introduced into a market. Specifically, consumer food product introductions in emerging markets (Brazil, China, Egypt, India, Malaysia, Mexico and Vietnam) are compared with those in three developed countries (Germany, Singapore, USA) in regards to “country of origin” as identified on packaging labels. The second method examines global diffusion patterns for two branded products (Nestlé’s Omega Plus and Danone’s Actimel).
The Diffusion and Distribution of New Consumer Packaged Foods in Emerging Markets and what it Means for Globalized versus Regional Customized Products
In November 2003, Niall FitzGerald, then co-chairman of the London-Rotterdam–based multinational giant Unilever, was touring the company’s Knorr brand innovation center in Germany. Products for the Knorr line, a $2.7 billion global business in soups and bouillon cubes, were generally regionally manufactured and marketed with individual countries able to request that the Germany-based center develop customized products for their market.
The end result? Fitzgerald was informed the center had some 900 projects on its task list. The customized Knorr products meant the brand could be found in packages with varying color schemes and logos depending in which country the item was marketed. And, product launches were often slow. FitzGerald was told that the European launch of Vie, a health beverage, would take an estimated 18 months since each country intended to do its own consumer testing (Ball 2005).
New product speed-to-market and improving on-time project completion has been a top priority in many companies (Swink 2002). Unilever felt its organizational structure of decentralized authority left it at a disadvantage as it competed with rivals such as U.S.-based Procter & Gamble Co. and French-owned L’Oreal SA.
Why Global Products:
Some within Unilever argued that the more-centralized operations of these later companies meant they could respond more quickly to changing consumer tastes. The reasoning was that centralization means better coordination and increased operational efficiencies. The resulting savings could then be invested in more efficient product development and marketing that would, in the end, benefit consumers (Ball 2005). Others have agreed with this line of reasoning, noting that internationalization indirectly benefits consumers because it helps companies through economies of scale cost savings that are then passed on to consumers (Arnold 2004).
The consumer packaged food industry is increasingly global due to factors such as advancing information/communication and entertainment technologies (Steenkamp 2001); economies of scale to be had in the development, manufacturer, distribution and marketing of foods; and, increased disposable incomes in developed and emerging economies alike. These forces help drive homogenization of food products and brands.
On both an operational and marketing front, it has been increasingly easy for companies to provide food products on a global scale. “Modern technologies and financial networks aid the globalization of mass food production and marketing, providing better distribution networks and marketing communications to people all over the world,” notes Wright, Nancarrow & Kwok (2001). Marketing on a global scale, in turn, leads to increased numbers of global brands. Besides economies of scale benefits, this also assists a company in the establishment of a worldwide identity (Hsieh 2002).
Mistry (1997) also says that although establishment of a global brand can be “reassuring” for consumers, even though a brand may carry different connotations in different markets. However, Mistry says that global brand benefits are mainly for the companies through their economies of scale cost benefits. A central thesis of Arnold’s book, “The Mirage of Global Markets: How Globalizing Companies Can Succeed as Markets Localize,” is in agreement with Mistry. Arnold states that businesses are globalizing faster than end-consumer markets and that globalization is not generally a consumer benefit. For example, he points out that many have argued for well- traveled international consumers who, as they travel, establish a relationship with global brands. However, he also notes that the world’s population today actually is less mobile than it was in the year 1900.
That not withstanding, Hsieh (2002) quotes various papers supporting the concept that globally-positioned brands are of value to at some segment of consumers in that they convey credibility and authority, value and power, and the feeling of belonging to a specific global segment. Arnold does agree that consumers may be attracted to globally branded products when that is part of the product’s appeal. This is primarily true with youth and premium products. Belch & Belch (2004) also said global brands are very appropriate for products with “nationalistic flavor” if the country has a reputation in that area, also known as the country of origin effect.
In 1999, Fitzerald’s Unilever started a “Path to Growth” program that consisted of a series of reorganization plans to centralize authority and reduce the power of local country bosses. It replaced numerous senior managers with those willing to support its global brand strategy and planned to reduce the company’s portfolio by some 1,200 brands to some 400 by 2004. Many were packaged consumer foods. See APPENDIX I – Selected Food Brands.
Ball (2005) notes that the firm reduced the number of ad agencies and market research firms it employed, arguably to develop a more uniform global approach.
However, many of the reasons why Unilever originally permitted the degree of decentralized authority that it did still remain today. The challenge of multinational corporations (MNCs) in regards to global branding policy is, as Arnold notes, how to take advantage of international economies of scale in marketing while remaining flexible to adapt local products.
Why adapt products/brands for a market
As companies develop their global strategy, Parmar (2002) says decisions must be made as to whether to use similar consumer segmentation for all foreign markets or develop different strategies to target varied consumer interests in world regions. This in turn impacts brands, products and adaptation of products that are introduced into various regions.
A major theme in Arnold’s “The Mirage of Global Markets” is that a company’s objectives and mode of market entry generally determines how much its products will remain standardized versus adapted for a regional market. In choosing alternative avenues of market entry, a managerial trade-off exists between risk and control. Low-intensity modes of entry minimize financial risk but the firm exerts less control in how its products are marketed and positioned. Arnold argues that this should actually be thought of as a trade-off of financial versus marketing risk.
Consumers’ interest and beliefs do greatly vary by region. Hsieh (2002) notes that various papers support the stance that consumer behavior in the marketplace is influenced by persistent personality traits that can be described as “national characteristics” and that since these characteristics impact consumer behavior, the success of a marketer’s global campaign could be limited.
A variety of factors drive food product customization, in particular, for geographical regions. Few consumer products are more closely tied to culture, tradition and innate likely than food. Food and beverage products must cater to widely varying tastes, says Parmar (2002). Mistry (1997) quotes Jill Marshall, a client services director at a packaging design firm notes that for product areas such as cigarettes, alcohol and perfume, global packaging works since “they trade in the same international currency.” Food is different, however, in that it’s more parochial and regional.
Additionally, factors such as government regulations influence food product characteristics such as its composition, labeling, packaging, marketing and so on. Indeed, the regulatory posture of national governments toward foreign companies is one of the principal criteria used by companies when assessing the attractiveness of market entry in the first place (Arnold 2004). And, consumers the world over are said to be changing. In regards to brands, Arnold argues that globalization is a myth, that consumers are now reasserting their local heritage through purchasing patterns.
Interest in emerging markets
Indeed, the importance of offering products that appeal to local taste may be especially true in emerging markets. “Retailers, raw-material suppliers and consumer habits varied dramatically, especially in developing countries, and the chairmen were given significant freedom to run their own businesses, including making acquisitions,” notes Ball (2005) in reference to Unilever’s original approach to markets.
Emerging markets have intrigued companies facing slow growth in developed regions of the world. One funds manager, Philip Ehrmann, head of Pacific and Emerging Markets at Gartmore Investment Management, noted the increasing consumer disposable incomes in Asia and Latin America. He was particularly positive about the smaller Asian economies of Thailand, Indonesia and Malaysia and on consumer sectors, such as food and electronics…even in China, where policymakers are trying to slow growth rates (Sharma 2005).
Arnold cautioned, however, that there was a “gold rush” mentality as corporations assessed the desirability of emerging markets in the 1990s. This was partially due to the belief that there was a limited window of opportunity in regards to entering an emerging market. And, for example, stockholder pressure led companies to act without proper market assessment.Arnold felt emerging markets do present an opportunity, but that a company should differentiate between short- and long-term potential and that market entry strategies should be based on market, not country analysis.
Factors influencing product decision/ Purpose of research
Factors impacting such new product decisions can be placed into three categories (Singh 2005). The first is region-specific (e.g., government regulations, stage of economic development, maturation and nature of distribution channels, culture, demographic variables, competition). The second is product-specific (e.g., brand, width of product line, composition, country of origin, historical reputation). The third is company-specific (e.g., culture in regards to decentralization of authority, how attractive it perceives a market, its core strengths and weaknesses, etc.)
This paper theorizes that the extent of centralization of authority in regards to decisions involving introduction and distribution of global brands into emerging marketplaces can be partially ascertained by examining the country identified on a processed food’s packaging label. Also, by quantifying the number of domestic vs. foreign countries that appear on the packaging of new products introduced into a market, one may be able to surmise international interest in that country as an emerging marketplace. Using data from Mintel International’s (London) Global New Products Database (GNPD), the paper first focuses on new foods and beverages launched in 2001 and 2004 into six emerging economies (Brazil, China, Egypt, Malaysia, Mexico, and Vietnam) and makes comparisons to three relatively developed ones (Germany, Singapore, USA).
Secondly, global diffusion patterns for two branded products (Nestlé’s Omega Plus and Danone’s Actimel) are investigated both quantitatively and qualitatively.
Regional Specific Factors
There are hundreds, if not thousands, of regional specific factors that significantly impact the decisions companies make about their products. Political, sociological, cultural, demographic and other differences exist between countries. Current and future activities and decisions by direct and indirect competitors are also highly influential.
Influence of culture
Culture, whether on a global, pan-regional, national, or micro level influences the beliefs and decisions that consumers make about products. Steenkamp (2001), quoting paper by Tse et al. (1998, p. 82), noted that culture is reflected in “general tendencies of persistent preferences for particular states of affairs over others, persistent preferences for specific social processes over others, and general rules for selective attention, interpretation of environmental cues, and responses.”
A preliminary model was proposed by Samli, Wills & Jacobs (1993) that integrates culture, brand influence, consumer psyche, mediating factors (e.g., peer group values, Maslow’s needs hierarchy), and product importance as influences that impact consumer involvement with a product that, in turn, drives purchase. See Figure 1 – Factors Influencing Involvement in World Markets.
Of these, Samli et al. felt that culture was potentially the critical factor in international consumer behavior.
Culture may be unusually influential in a food product’s acceptability and thus success. From ancient days to the modern world, food taste preferences have been closely linked to cultural development. “Supposedly natural tastes are in fact founded on social construction which has been elaborated over generations,” note Wright, Nancarrow, & Brace (2000). The authors argue that food taste preferences reflect, in part, the consumer’s social and cultural origins, social ambitions and the cultural capital acquired. This makes a marketer’s task of researching taste complex, especially in societies where upward social mobility is taking significant numbers of people away from their roots.
Rachel Herz, a researcher at the Department of Psychology, Brown University, reports that aroma likes and dislikes are all learned and that by age eight, most children’s hedonic responses mimic those of the adults in their culture. Thus there are ethnic differences in food preferences. For example, Asians find the aroma of nato, or fermented soybean, pleasing, while Westerners often find it reminiscent of burning rubber. On the other hand, fermented dairy products, such as cheese, possess a pleasing aroma to those in Western cultures, but are considered offensive to many Asians. Herz also relayed a study in the 1960s where consumers in the United Kingdom ranked wintergreen as one of the least pleasing aromas in a set presented to them, while it was rated one of the most pleasing by consumers in the USA The difference was attributed to associations: in the U.K., wintergreen was the aroma of an analgesic commonly used in and remembered by those who had lived through World War II; in the U.S.A, it was a traditional confectionery flavor (R. Herz, public presentation, 15 Feb 2005).
Cultural preferences also change. In India, for example, a growing middle class of consumers are being introduced to foreign companies and foreign flavors. “As a result, the center of gravity for food lovers has likewise shifted, perhaps forever, from the spice-choked back alleys of Old Delhi, and its renowned Muslim kebab shops known for superior treatment of meats since the time of the invading Moguls, to the upscale shopping enclaves and malls of South Delhi, penetrated by U.S.-style Formica and the good-time ethos of Chuck E. Cheese,” notes one food journalist (Krich 2005).
Marketers need recognize the unease that can result when consumers must choose between traditional foods and enticing new alternatives. Tensions can exist between values associated with deep-rooted local cultures and new choices from other countries. For example, in countries such as Italy, France and Japan, older generations reacted very differently to McDonalds as compared to younger generations (Wright, Nancarrow, & Kwok 2001).
The national cultural framework as developed by Hofstede (1980, 1991) has been very influential in marketing research and has been used to investigate international marketing issues such as response style tendencies, consumer responses to market signals of quality, consumer tipping decisions, new product development and brand market share among other things, notes Steenkamp (2001). Steenkamp developed a unified national cultural framework that combines aspects of Hofstede’s framework with that of Swartz (1994, 1997). From this, Steenkamp developed the following “culture areas.”
- Anglo (USA, Australia, New Zealand, Israel)
- Western Europe (Germany, Switzerland, France, Spain)
- Nordic (Denmark, Sweden, Finland, The Netherlands)
- Latin (Italy, Portugal, Greece, Mexico)
- Far East (Hong Kong, Malaysia, Singapore)
- Other (Brazil, Taiwan, Thailand, Turkey)
However, although national boundaries do not necessarily coincide with homogenous societies, Steenkamp says literature supports the concept that there is a “meaningful degree of within-country commonality and between-country differences” in regards to culture. He quotes a study by Smith and Schwartz (1997, p. 112) where the cultural differences found within three regions of China, three in Japan and five in the U.S. were dwarfed by the much greater differences found between countries. This supports investigation of products and brands on a country-by-country basis.
For example, the country of China, with its hierarchical systems, is an economy of planning and control where indigenous culture and food tastes are strongly rooted. Wright et al. (2001) says, however, that even in commercialized areas, interest in imported foods exists. In another example, in Greece, family and community ties are strong and foods are an important part of Greek orthodox culture. In this culture, a significant distinction is made between “in-group” members (family members, relatives and friends) and all others or an “out-group.” Indigenous food products are symbolically favored while other products “with all the attributes, values and meanings associated with external or foreign out-group offerings” are less favored generations (Wright, Nancarrow, & Kwok 2001).
Cultural influences extend far beyond the preference for a particular food to impact other factors involving product’s acceptance such as the perception of its brand (Hsieh 2002). This may be a particularly challenging notion to research in emerging nations. Some have argued that the concept of brand loyalty as understood in developed countries such as the USA may not be universally applied. Samli, Wills, & Jacobs (1993) maintained that “product features, price, involvement, and particularly cultural context are more critical purchase determinants than brand in most third world countries for the masses (not the elite).”
On the other hand, the concept of a “brand” in emerging markets may be especially important to a company’s business strategy. Arnold says that a brand can play a role in a company’s “first mover” advantage as it enters a market before its competitors. He argues that first mover advantages occur if there is a scarce resource in a market that a company can tie up and make unavailable to competitors. Brand awareness could be thought of as a scarce resource for the “front of a consumer’s mind.” That is, a brand can take “an established position in the limited attention or memory” of a consumer who will devote only so much thought to a category.
Influence of international politics and government policy
Governmental policies and regulations influence a company’s interest in, or even its ability to introduce new food products in a geographical area.
Developing a business strategy for markets segmented according to ethnogeographic trade areas often is a reasonable approach since trade barriers are eliminated through agreement or, similarly, are instituted through disagreements. “Trading agreements will result in foreign product availability, which in turn influences the level of consumers’ awareness of and familiarity with the brands,” notes Hsieh (2002).
Hsieh (2002) advises that South Korea and Mexico were two of the top four export countries for U.S.food processors in the early 1990s. Korea had lowered import barriers to certain U.S. foods and Mexico “unilaterally cut tariffs and revised import quotas on a broad range of U.S. products even before formal negotiations began on a North American Free Trade Agreement (NAFTA),” says Epps and Handy (1993). U.S. government funded export promotions helped as well. Its Targeted Export Assistance (TEA) and the Market Promotion (MPP) programs provided up to $200 million per year, much of it for processed foods,
In another example, Egypt’s prime minister, Ahmed Nazif, drove through tariff cuts of 40% in 2004 and signed trade deals with the USA and Israel (Leggett 2005).
The establishment of trading blocks also can create a competitive disadvantage for companies outside the block. For example, one Australian foreign trade document advised that that country’s suppliers were at a disadvantage in trying to market to Mexico due to Mexico’s free trade agreements with large trading blocks (Doing Business in Mexico: A practical guide on how to break into the market, 2002).
Governments’ trade negotiations can have an impact on diffusion of food products not only between countries directly involved, but may also have a more widespread influence. For example, during the World Trade Organization talks in 2003, the USA, Canada and Argentina argued that the 1998 European Union’s moratorium on foods from genetically modified organisms (GMO) amounted to unfair trade practices. Besides the EU nations, countries such as Uganda and South Africa were taking the EU’s lead to also ban such products (Anonymous 2003). The GMO issue is a major concern to U.S. food producers. By 2001, the U.S.was the world’s largest producer of biotechnology crops (i.e., GMOs) as it accounted for 68% of the world’s acreage, noted Gruber (2004). Many of the foodstuffs of these crops are processed into value-added, branded foods that are still considered biotechnically derived. Since then, the EU has “softened” the restrictions to require products to have extensive and expensive traceability of their individual components and the equivalent of warning labels on packages. While Gruber felt that the EU is generally concerned about food safety and the right for their consumers to know what is in the foods they consume, the EU’s request for “the recognition of consumer preferences by the WTO severely underestimated the dangers of disguised producer protectionism.”
While developed countries are on the defensive in regards to GMO-based foods, emerging nations also can be put at a disadvantage in exporting products. For example, industrialized countries may resist lowering their higher standards. It is “difficult to disentangle trade liberalization from other domains such as environmental policies, human rights standards, competition policies, intellectual property, and health and consumer protection,” notes Gruber (2004). Consumer “preferences” could be extended to concerns over labor and animal rights, government procurement rules, and other controversies over how a product is made, rather than its innate characteristics. These all potentially influence a government’s efforts to set up non-tariff related trade barriers that would disrupt product diffusion (Ambrose 2000). They also may impact consumer attitudes towards a product’s country of origin.
Overall, factors tend to make diffusion of foods from developed countries to less developed more easily accomplished than the reverse. For example, developed countries have more resources (basic research, technical, financial, political clout, etc.) to influence international standards such as set up by the World Trade Organization or Codex Alimentarius. Gujadhur (2003) noted one study that found that due to financial and other constraints, five out of six developing countries investigated did not participate at the technical committee level that formulates various sanitation standards. The exception was Malaysia, which played an active role in developing several Codex Alimentarius standards although India also was proactive when it came to international standard-setting for tea.
Additionally, Gujadhur (2003) noted that developed countries can afford to set higher standards for imported products than emerging nations can for themselves. For example, Gary Jay Kushner, an attorney with aWashington,D.C., law firm of Hogan & Hartson, is quoted as saying that the FDA can refuse to admit a product into the U.S. for a number of reasons. This includes if they were processed or packaged under unsanitary conditions, adulterated or misbranded, despite passage of NAFTA, which was to ease trade (Anonymous 1994).
In another example of the ability of wealthier nations to assist its firms in exporting products, Australia’s Export Finance and Insurance Corporation helps that country’s exporters by providing short term financial coverage for products being sold to Mexican companies (Doing Business in Mexico: A practical guide on how to break into the market, 2002).
Developed countries also have greater influence in establishing global culture, which, in turn, supports developed countries’ brands; have more marketing dollars to promote the brands of developed countries; and are often first to develop their own internal regulations in regards to product policy, standards and regulations which developing countries then adapt for their own.
Nations also regulate types of business ventures that may provide for market entry. For example, Mexican law allows for a variety of ways that a company may access that market. This includes direct sales, representation (with an in-country office), agency agreements to service large customers, distributorships, franchises (where a trademark may be licensed), branch office or to establish a subsidiary company, which is considered to be a Mexican entity (Business in Mexico: A practical guide on how to break into the market, 2002).
However, less-developed economics can erect subtle barriers to product imports. For example, Mexico also requires import licenses for certain foods such as chicken, dry beans and milk powder. “Some are a mere formality but others are nearly impossible to obtain,” (Anonymous 1994). Additionally, packaged foods exported to Mexico for retail consumption must have Spanish labeling and contain such information as metric weight, country of origin, the importer’s Ministry of Finance taxation number as well as the importer’s and exporter’s name and address.
Country on label versus country of origin
“Country of origin” is a liberally used term by government, academia and industry alike. Just a few of the definitions that can be found on the Internet include “Country where merchandise was grown, mined or manufactured,” (Terminology); “The country in which a good was produced, or sometimes, in the case of a traded service, the home country of the service provider,” (Deardorff 2005); and “the country in which a product is substantially manufactured,” (Glossary of Terms 2001). Simply put, “The phrase “rules of origin” has many different definitions that vary on a product basis and that also vary among countries and within countries,” (Gatti 1999).
Still, many to most countries require that a “country of origin” be indicated on an imported food product. In the U.K. “Imported goods must be clearly marked with a distinct indication of the country of origin, failure to give such particulars might mislead a purchaser to a material degree as to the true origin of the food (Exporter Assistance: Labeling Requirements 2003).
A small sampling of other country regulations covering which countries and languages are required to be named on a food package label is as follows (United Nations Conference on Trade and Development-Trade Analysis and Information System, (Egypt) (Malaysia 2001) (Singapore 2003) (Vietnam 2001).
- In Singapore, “pre-packed foods are subject to labeling requirements concerning the contents of the package, operational warning as well as information on the origin and the local importer. All imported goods should be labeled in English.”
- In Malaysia, “Under the Food Act (1983) and Food Regulation (1985), every package containing food for sale should include the designation and weight of the product, as well as information on the manufacturer (name and address, country of origin), and name of the importer. The information has to be in Bahasa Malaysia or English.”
- In Vietnam, “In accordance with Decision No. 178/1999/QD-TTg of 30 August 1999, labels must be in Vietnamese with the exception of trademarks.”
- In Egypt, “Decision No. 16/1993 provides for the compulsory use of the Arab language on all labels.”
- In Bahrain, “Labeling requirements are similar to all other GCC countries… products must have Product Brand Names, Manufacture’s name and address, Country of Origin,” and that “All information must be on the original label of primary package,” and “Bilingual labels are permitted, provided one of the languages is Arabic.”
And, products that are to be sold, processed or imported into Mexico must meet label requirements according to Mandatory Mexican Standards (NOMS). The information, in Spanish, “generally includes product description, net weight, usage, safety instructions, name and contact information of the importer and producer, and country of origin (Doing Business inMexico: A practical guide on how to break into the market 2002).
The economic status of a consumer group should be considered in making product decisions. This is of key concern in emerging markets. For example, data gathered by theUSA’s CIA shows a large gap in GPD per person in the emerging nations of Mexico, Malaysia and so on, versus Singapore, Germany or the USA. See APPENDIX II – Economic Statistics.
Mexico’s growing population and increased number of families with two incomes means it could become a major market for USA and other countries with a developed food processing industry. However, in 1998, some 84% of its population of 93 million had yearly per capita incomes below $865 (Rosson et al. 1998).
Arnold offers this piece of advice in regards to emerging markets. “…MNCs compete with each other for the business of the small elite who value their brands and can afford their prices,” and that there has been rapid growth of local brands, many of which imitate their global competitors. He charges that MNCs must embrace a mass-marketing mindset, which includes the need for aggressive attention to price competitiveness. “The affordability gap will only be breached when companies reach down to them by offering products at affordable prices; it will not be realized by emerging market populations increasing wealth to the point to which they trade up to the products currently on offer,” (Arnold 2004, p. 79).
Arnold also provides a case study of Kellogg’s who offered RTE breakfast cereals to India in mid-1990s, but eventually introduced inexpensive breakfast biscuits under the Chocos brand name with extensive distribution.
Still, there are growing numbers of consumers in developing countries who can afford more expensive, processed foods (Rosson et al. 1998). For example, consumer-ready food product exports from the USA to Mexico surpassed intermediate product exports in during the 1991 to 1993 time period.
It is for this segment of consumers with disposable income that global brands, as driven by a global culture, are also most likely to be accepted. That is, consumers who were inclined to assimilate a global culture where better educated, more exposed to mass media and vicarious mass migrations such as tourism and having friends and relatives residing in foreign countries (Steenkamp 2001).
Other region-specific factors
Factors beyond culture and geopolitical issues impact product decisions in regard to the introduction of a new branded food product into a region. For example, a 1994 article noted in the previous seven years, major brands including Pillsbury, Green Giant, Sara Lee, Healthy Choice, Tyson and Minute Maid had created a demand for frozen products in Mexico. However, frozen food costs were twice as high in that country as in the USA and a lack of international banking systems, monetary stability and modern distribution and transportation networks impeded normal trade practices. Additionally, most Mexican supermarket chains did not have perishable storage or had very limited store space (Lewis 1994).
Regional climate and underlying agricultural economics has a profound effect on where raw materials for a food product are sourced, what kind of products are produced, where value-added foods are manufactured and to whom and how they are shipped and marketed (Regmi et al. 2005). Regmi et al. notes that the resource endowment of two countries is often a fundamental economic factor motivating trade between those two country partners. That is, the differences in availability of natural resources generate incentives for countries to specialize in certain food products. This also is likely one basis for “country of origin” effects.
The maturity of a market also impacts product decisions. See Figure 2 – Market Maturity.
In more mature market regions, companies tend to emphasis consolidation and efficiency rather than become concerned about early developmental objectives such as the trade-off between commitment and control.
Although branded food products may appear similar on the surface, due to a myriad of factors innate to a region, a product may need to be altered or adapted for that region. This can slow or stop diffusion of products into new markets. Ball et al. (2004) gave a series of examples where products were altered for a market due to various regional factors.
- Consumer health awareness – Kellogg’s All-Bran cereal sold in Mexico has some one-third the sodium as that sold in the USA.
- Food storage and shipping conditions – Kraft Foods Inc.’s turkey and cheese U.S. Lunchables has 56% more sodium than in the U.K .due to the 90-day longer shelf life required. Higher fat solid levels are required in margarine spreads in countries with warmer climates.
- Other lifestyle practices – Denmark did not allow Kellogg Co. to introduce vitamin-enriched cereals as it did in other parts of Europe since its over half of its citizens already took dietary supplements.
- Products use – Kraft Foods’ Philadelphia cream cheese is denser, more calorie-laden in the U.S. since it’s frequently used as a baking ingredient compared to Italy where it’s more often used as a bread spread.
- Government policy – Kraft Foods added calcium to its Ritz crackers in China since the Chinese government has been promoting increased calcium consumption.
- Traditional food preferences – To appeal to U.S. palates, Kellogg’s had to reduce the fiber, add sodium, and add honey and brown sugar flavors to an All-Bran cereal bar that had originally been introduced in Mexico.
- Genetic differences – Cadbury Schweppes PLC’s milk chocolate is less sweet and “milky” in China to suit their low-dairy diets. (Note: Lactose intolerance is much higher among Asians than those of Northern European dissent.)
In another example, even though it has one of the world’s top global brands, Coca-Cola also offers local brands such as Thums Up in India. “Coca-Cola is operating in the extremely culture-bound food and drink category in which local variation in taste is pronounced, notes Arnold (2004).”
For an example of where new products failed due to lack of consideration of lifestyle/culture in a region, Nestlé and Unilever, two MNCs lauded for their international marketing prowess, had invested heavily in Saudi Arabia ice cream market in 1990s before withdrawing. Women in that country did not drive and thus lacked efficient transportation to and from grocery stores. Also, consumers simply didn’t eat ice cream at home (Arnold 2004).
Product Specific Factors
Companies recognize equity inherent to a brand and also invest heavily to support them. For example, Mars Inc.’s Masterfoods USA spent an estimated $200 million global advertising blitz for its Pedigree dog food that has some $3 billion in annual sales (Steinberg 2005).
Promoted brands help drive international sales. World trade in processed foods, estimated at $205 billion in 1990, has steadily increased. At that time, two dozen countries supplied 80% with the top three being France at 9.8% of all trade, The Netherlands at 8.9%, and the USA at 8.5%. The greatest volume of exports grew from medium-volume processing industries, which also had more industries that produced brand-name products. Between 1988 and 1991, distilled liquor exports rose 65%, bread and bakery products and breakfast cereal exports all about double. Many less processed commodities items such as condensed milk and processed fish exports fell (Epps & Handy 1993).
Pepsico, Inc. uses a proprietary model called Equitrak™ to track the brand value, based on consumer recognition and regard, of its major brands in 14 countries. Additionally, some 40-plus competitor global brands and up to 30 local brands in individual countries are tracked for benchmarking purposes (Kish, Riskey, & Kerin 2001). One insight was that the source of an individual brand’s equity and manner by which that equity is nurtured varies from country to country.
Pepsico’s model separates out two elements—recognition and regard—as belonging to the concept of a “brand.” Arnold goes further to say that “brand policy can be decomposed into issues of brand name, brand identity, brand positioning and product.” This distinction between a brand name and a brand meaning (or positioning) allows corporations to act on the advice “think globally, act locally.” Thus, a company’s global branding efforts for a product can be restricted to its name and visual appearance while localizing the brand meaning and product properties. “In effect, the brand’s overall identity can be disaggregated into hierarchical levels of benefit bundles, some of which offer returns to global scale (e.g., universal recognition) while others offer returns to localization (e.g., brand personality and meaning),” says Arnold.
At the beginning of the 1990s, brand-name products were seen as growing in importance. It was noted that 1991, USA exports of distilled liquors and beer, highly advertised brand name products, had exceeded $500 million for each category. Branded breakfast cereals, wines, and soft drinks each topped $100 million and together added another $500 million to export value (Epps & Handy 1993).
By 1998, processed food imports into the USA were of greater value than that exported. However, a variety of highly processed products showed strong export performance. Bread and other bakery products increased 11 percent to $276 million, breakfast cereals increased 25 percent to $229 million and potato chips increased 35 percent to $303 million. China (Mainland) was the only East Asian country to which the USA increased its exports (up 30 percent over 1997). The sharp decline to other countries in the area was attributed to the Asian economic crisis. The USA’s largest export market was Japan(with 19.3 percent of its processed food exports, Canada with 17.9 percent and Mexico with 9.7 percent (Handy 1999).
When the USA was increasingly exporting branded (vs. unbranded commodity) food products in the early 1990s. Epps & Handy offered that the appeal of American brand names and the influence of U.S.-based multinational firms would help these firms succeed in the face of stiff world competition. Arnold, however, has since said that consumers’ love affair with western brands in the early 1990s, particularly in major emerging economies such as China, India, and Russia, have since increased their desire and respect for many local brands. Not only are these local products are of improving quality, but a growing “anti-globalization” lobby has encouraged emerging strong local competitors who launch and develop new brands.
Although developed countries have led the way in branded, processed foodstuff, developing counties are interested in producing more value-added products as well. Value-added products, by their nature, are easier to brand than little processed commodities. For example, in the early 1990s, the Hungarian government was said to be interested in increasing exports by 20%, with emphasis on processed foods. “Due to low productivity in the processed food sector, a high percentage of agricultural products are presently exported with little or no value-added processing, notes one paper (Bruder, 1992). The Hungarian government hoped that that foreign investment would improve the technological status of its food processing industry, which would in turn increase the competitiveness of its food products abroad. The Hungarian Ministry of Agriculture was said to also encourage joint-venture arrangements that would create local production of Western-style food products.
Country of origin
Wright, Nancarrow, & Kwok (2001) point out that consumer acceptance of a product is affected by many attributes. “Taste is ‘colored’ not just by the gustatory properties of the food itself, but its smell, sound and appearance as well as by expectations generated by marketing communications and even country of origin.”
A country’s reputation for producing a foodstuff extends beyond consumers and can be an influential factor even at the international policy making level. This, in turn, can provide marketing advantages such as increased ease of market entry in many ways. As mentioned, India helped formulate WTO standard on tea.
Anhold (2002) says that country of origin is hard equity. He notes that consumers are asking brands from where do they come and that they then have beliefs about the country of origin that influences both the brand’s and company’s reputation. He further says that in developed western nations, “‘brand America’ no longer carries the cache it once did, which opens the door for brands from emerging markets that promise ‘exoticism and integrity.’”
Arnold agrees with Anhold saying there is a growing movement towards preference of “citizen brands” with local heritage and identity. In China and India, improved new products are challenging global brands. Arnolds ays there is a typical evolution in regards to consumer value offered by global brands. At first, local brands dominate over global brands, then global brands come into their own, but eventually local brands catch up as global brands loose their allure. See Figure 3 – Consumer Value Global Local Brands.
Other unexpected factors also can create a desire for local brands. For example, in Russia, a suspicion of imported food products and interest in domestically provided food was attributed, in part, to psychological factors where Russians felt that their deteriorating economy was cause for inferior products to be marketed to them (Patico 2002).
Perceived inferior quality from a country will inhibit new product introductions. For example, an Egyptian export support agency wrote in one document “Egyptian processed foods are suffering from a bad image brought on by a history of poor quality and lack of customer service.” Egyptian exporters were advised to emphasis their renewed commitment to quality with international customers (An Industry Rapid Analysis of Market Opportunities in the Gulf 2000).
A consumer’s impression of a product’s “country of origin” can be influenced by packaging label elements such as what language(s) is used, what logos, the product’s name, what images are present and what countries are identified.
Belch & Belch (2004) have said that information carried in package labels is an important way to “communicate with consumers and create an impression of the brand in their minds.” Brand image becomes increasingly important when competing products are so similar that it difficult to differentiate them on based their properties. Brand equity results “from the favorable image, impressions of differentiation, and/or the strength of consumer attachment to a company name, brand name, or trademark.
Through these visible elements, companies can influence the perception of what is the “country of origin.” Arnold advises that when foreign-origin products are thought to have superior quality (novelty effects can be considered a superior quality), then that country origin effect should be used. In emerging markets where processing is likely to be less developed, “foreign origin products may more likely succeed with fewer adaptations.”
The potential inability of consumers to identify a product’s country of origin is due not only to marketers wishing to convey a country of origin effect, but also to the nature of global trade. An excellent article, “International Licensing of Foods and Beverages Makes Markets Truly Global,” explains why “country of origin” is a complex subject (Henderson, Sheldon & Thomas, 1994).
Gleaning information from corporate annual reports, Henderson et al. said that the production of food under license is at least as great as that from product exports and imports. They defined an international license as a contract by a food manufacturer “which owns a brand name that is well established in one country (the licensor), with a firm in another country (the licensee) to manufacture and sell the brand product in the licensee’s home country and/or third countries.” For example, while U.S food manufacturers export some $20 billion in products annually, they sell more than $80 billion in products produced by foreign affiliates. Of 120 publicly held U.S.companies with sales of $100 million or more, at least half are involved in international product licensing. This is both in the form or “outbound licensing,” where U.S. branded products are manufactured and marketed by licensors, and “inbound licensing,” where U.S. companies produce and market branded products from foreign firms. The authors estimated that the book value of a firm’s licensed brand names exceeded, on average, 12 percent of their total assets.
Arnold reports that the largest group of “country of origin” or “export brands” is American. Coca-Cola, Disney, Hershey and Frito-Lay are examples. Large MNCs have a multitude of brands. Again see APPENDIX I – Selected Food Brands. Many of these are likely to be licensed. Henderson et al. notes that many licensing companies are in the confectionery and beverage industry. For example, Cadbury Schweppes and Britvic Corona bottle and distribute Coca-Cola and Pepsi Cola respectively. A licensor may provide product formula, supply critical ingredients such as flavor extracts and provide financial or market-development assistance.
At times, licensor’s can have great flexibility to adapt a product to their market. Arnold relays that Disney licenses its characters to Chinese companies that have considerable control in designing products on which the characters will be used.
Where the foodstuff found within a package is grown, processed and/or packaged can also take place in different countries. For example, “Imported from Italy,” which appears on packages of olive oil label, does not necessarily mean that oil was grown and/or processed in Italy. Commonly, the oil is from olive trees from any number of countries in the Mediterranean region that was harvested, processed, then shipped to and bottled in Italy, said one high-ranking official with the U.S.-based distributor Costco (G. Kotzen, public presentation, 12 Apr 2005). The purpose is to use a country of origin effect in that Italy, and in particular the Tuscany region, has a worldwide reputation for olive oil.
Product composition, brand identity and standardization
Since a distinction can be made between product, brand name (which generally refers to visual identify), and brand positioning, companies can choose to make decisions about a product composition that are separate from brand name and positioning. Since brand name and positioning are also different, it allows MNCs such as Unilever and Proctor & Gamble to reduce and standardize their global brand portfolio while still having the flexibility to adapt those brands to local markets by adapting their positioning and meaning.
For example, companies with already developed product lines can choose to take those products global using the same brand name but adapting the product for a market, or, can market products with the same or similar composition but under a different name. An example of the later is Masterfoods’ Milky Way-named confectionery bar marketed in the U.S. but renamed Mars bar when marketed in Europe (Arnold 2004).
In a second example, in 2000, Coca-Cola Co. moved away from global ad campaigns for its Coca-Cola Light to more locally relevant executions. The brand is sold as Diet Coke in North America, the U.K., the Middle and Far East, and as Coca-Cola Light in the rest of the world (MacArthur 2000).
Arnold argues that product decisions are utilitarian and “made on the basis of the product-specific production considerations, such as whether manufacture can be consolidated into a few plants serving all the world or whether the bulk-to-value ratio demands a dispersed network of local production facilities.”
If a company’s objective is manufacturing economies of scale or it is taking a low intensity mode of market entry (e.g., through export/import or trading companies), then it will lean towards global product standardization.
Company-specific factors: Management to culture
Decisions about a product are influenced not only by the region into which it will be marketed and the product’s own properties, but by characteristics of the company manufacturing/marketing the product.
Arnold says that one prime reason a company internationalizes is due to the disposition of senior management. Factors such as company culture and attitude toward international operations, toward risk tolerance with new ventures and even toward individual countries can all impact the decisions involving new product introductions.
Nestlé provides one example of how a firm’s head drove interest in new markets. A 1993 article on the MNC, a $366 billion company at the time, reported that its chairman, Helmut Maucher, had made over $10-billion in acquisitions in the previous eight years and intended to double sales in the next decade. His strategy would be to enter new markets and businesses and decentralize decision making to seven strategic business units. Emerging countries were seen as offering great potential (Templeman 1993).
Another article described how a “elegant and self-assured” Sara Lee Corp. chief executive, John Bryan discussed the company’s overseas expansion that included a 1978 acquisition of Europe’s Douwe Egberts consumer packaged consumer goods company. Sara Lee also entered Hungary by acquiring Compack Trading and Packing and had plans to establish its brands in the former Soviet Union. Mexico and Southeast Asia were also priorities. The article also noted that many variables would decide which brands would be pan-European or regional (Ryan 1992).
Regmi et al. points out the illogical decision of some countries (which could be extended to companies) to trade in certain world areas. He said that the most beneficial country trading partners occurs between two nations in which one lacks a resource that the other is rich in and vice versa. They note, however, that “Such differences do not, however, explain why Canada, a food-surplus country having a resource endowment similar to that of the United States, recently became the largest importer of U.S.high-value foods.”Arnold offers “psychic distance” as one explanation. That is, USA companies will tend to enter the U.K. or Canada before Mexico, and Spain is a heavy investor in Latin America.
Arnold has argued that well-established business and market strategies often are not followed when a company enters an emerging market. For example, entering a new country is similar to a start-up situation where there are no sales, no marketing infrastructure and perhaps little marketplace knowledge. However, risk-adverse companies often take tactics to minimize financial exposure by limiting investment in foreign ventures while the traditional advice for start up situations is just the opposite. Low cost, indirect means such as local independent agents or distributors thus are chosen for market entry.
A company’s expansion objective in a foreign market is one of the greatest factors impacting product decisions. Companies often see foreign markets as a place for incremental sales of existing products and adopt a “sales push” tactic rather than follow a basic principle of marketing: to first determine what consumers want and what’s appropriate for the market place. Arnold refers to this as an “export” strategy. Management will feel that its product(s) is differentiated and desirable enough that it does not need to be adapted. Such companies may take a “replication strategy” as they enter different countries and do little to alter their marketing mix.
This lack of investment is not necessarily illogical in that, for example, a company’s decision to enter a market may be for learning reasons such as to gain marketplace knowledge so as to later offer appropriate products. Or, corporations may enter foreign markets to follow competitors that have already established a presence or because they see it as a needed activity in order to be considered a global player. Arnold notes a small, weak player may enter a “leader country” in that the exercise of simply trying to compete with a market leader on its home turf provides invaluable experience. Arnold also says that it common for a company to enter the home market of a competitor in retaliation for that competitor entering its own territory. In these cases, a company may enter a country even though it did not see it as particularly attractive marketplace.
For all these reasons, risk-avoiding / low-intensity modes of market entry; use of a replication strategy to export a differentiated brand; or, market entry for reasons such as learning or retaliation means little investment would be put into adapting a product/brand adaptation for consumers within a country.
Sometimes, the actual target market of a company is not always as it appears on the surface. Doing Business in Mexico: A practical guide on how to break into the market (2002) says that at times, a company may do business in one country (e.g., Mexico) with the strategy that it would allow easier access to a larger market (e.g., USA) with which it has favorable trade agreements.
Another factor, the stage of a company’s involvement in a market also influences product decisions. For example, typically, when a company initially enters a market, very little product adaptation for that market occurs, says Arnold. As the company takes greater control of the distribution and marketing of their products, rapid product line extensions tends to occur, with products more adapted to regional markets. This can manifests itself in the reformulation, repackaging and/or introduction of a “flurry” of new products. Eventually, a company will seek synergies across their global marketing network and may have fully developed subsidiaries in developed markets.
Arnold also presents the concept of “born global” companies which have international distribution at the outside. These companies tend to have unique differentiated products and/or enter marketplaces due to a customer that is already there.
Local vs. global brands
Individual companies also vary in their philosophy in regards to establishing a global versus a local brand. The term “global brand” is not defined. A 2001 report by ACNielsen said 43 brands had at least $1 billion in sales annually. Of these, 26 were food or beverage products. The top four were Coca-Cola with over $15 billion in sales followed by Pepsi with $5-$15 billion. USA-based Pepsico had six brands on the list, with Philip Morris (that owns Kraft Foods and Proctor & Gamble each with five brands.) See “APPENDIX III – 43 Billion Dollar Brands.
There are indeed driving forces behind global brands, but it is not consumers, argues Arnold. It is rather consolidating distributors and media. Distributor (i.e., retailers) such as Wal-Mart, Carrefour and Royal Ahold have internationalized their own operations and are requesting that their suppliers offer more “consistent” products across regions. A retailer that is instituting pan-European purchasing will prefer global and regional brands over a portfolio of local brands. In the case of media, it makes the most economic sense to use world-class events such as the Olympics or World Soccer Cup to support global rather than local brands (Arnold 2004).
Mistry (1977) quotes one Mars marketing manager located in the U.K. is quoted as saying that Mars was “into building global brands” and attributed that to the fact that people were becoming more globally aware with the world becoming smaller. Unilever took a more middle ground, however with one spokesman saying, “Of course there are certain values in having a global brand; it stands for the same thing in every country, but there’s no such thing as global foods and we advocate both approaches.” Mistry noted that a marketing and development director at Sara Lee’s agreed with this. In another example, in 1997, Lipton Teas sold in the same pack around the world and Cadbury Schweppes’ represented the Schweppes brand the same across 20-plus countries (Mistry 1977).
Another example yet is when Nestlé also reduced the number of items in its Kit Kat line of chocolate bars when consumer testing indicated that its combination of milk chocolate and wafers was accepted across cultures “despite the fact that different countries’ sweet tooths are famously quirky” (Parmar 2002).
Arnold argues that now, many consumer product multi-national corporations are adding local brands to their portfolio “as eagerly as theyare investing in global power brands.” When the decision is made to target a brand to a local market, a company can do this through new product introductions, adapting current brands or through acquisitions.
Parmar (2002) quotes Rajeev Batra, Professor of Marketing at University of Michigan Business School as stating that European companies tend to be better versed in local customer segmentation strategies than U.S.-based companies. For example, Switzerland-based Nestlé SA “is capable of endless variations on its localized, sometimes microtargeted, strategies.” Its Nescafe brand of coffee comes in 200 different variations.
Adaptations can occur by where companies can “simply” rename brands. Kellogg’s Fruit and Fibre was renamed Optima. Mars’s Marathon chocolate bar was renamed Snickers in the UK in 1990 (the brand went from fifth best-selling confectionery to third) and about 1997, Mars started rebranding Opal Fruits to Starburst, the brand name found in rest of the world (Mistry, 1997).
According to Francois Xavier Perroud, corporate communications at Nestlé, a Nescafe sachet with coffee, sugar and creamer was popularity with occasional coffee drinkers in developing countries such as Indonesia and China due to its affordability and because consumers could learn the proper proportions required for a good cup of coffee. In Japan, Nestlé sells freeze-dried coffee in glass jars that targeted more sophisticated consumers (Parmar 2002).
The decision by management to acquire local brands might be the only option for consumer food companies looking for opportunities in Asia’s emerging markets opines one author (Hill 1999). He says the trend among consumer food groups is toward brand shuffling and reselling rather than all-out mergers. For example, in 1999, H. J. Heinz purchased a majority stake in ABC Foods, a company that controlled 40% to 75% of the market for seven Indonesian brands.
Organizational structure and brand/product management
Corporations’ organizational structures significantly impact product decision in both the marketing and operational areas. For example, the degree of centralization of decision-making is influential. Arnold reports on an article by John Quelch and Edward Hoff (Customizing Global Marketing, Harvard Business Review May-June 1986), which contrasts the centralization of Coca-Cola’s decision making process with Nestlé, which allows local managers greater autonomy. Thus, “Brand names and advertising copy are both fully controlled from Coca-Cola’s Atlanta headquarters, while Nestlé’s country-based executives have partial autonomy over brand name and full authority over advertising copy.”
As noted, it’s often difficult for consumers to determine, from a product’s label, where the food was harvested or produced, where manufactured, or which company “owns” the product line.
Companies’ manufacturing structures and distribution systems influence product and to some extent, brand design. For example, it’s been argued that the economics of finished food products often favor shorter distribution distances and thus multiple manufacturing locations. Thus, the baked good, snack food, confectionery and beverage industries often manufacture closer to consumer markets rather than a central location from which they are exported (Regmi et al. 2005). The paper’s authors also states that manufactured foods with longer shelf lives of both raw materials and finished products such as breakfast cereals, infant formula, candy, beer and soft drinks means that such products can be widely produced through the world. What this means is that, “to minimize transportation costs, for example, a beer of Australian origin is brewed in Canada, where it is sold and exported to the United States under its Australian name.”
Minimizing transportation cost is important and can, in fact, drive a market. “Piggybacking” is a low intensity mode of entry where advantage is taken of an already existing distribution channels. Arnold gave an example of the Italian rice firm F&P Gruppo, owners of the leading Gallo brand, who entered Poland via their Argentinean subsidiary. This resulted in Spanish labeled rice being marketed to Poland with Polish stickers on it. F&P Gruppo was merely trying to fill back-hauls from Argentina back to Poland.
Transportation was one factor, but tariffs, competition, market maturity and other factors have meant USA companies do relatively little manufacturing in the U.S. and then exporting those products as compared with licensing of brands to foreign manufacturers to produce and distribute. In 1990, the USA’s top four markets for processed foods were Japan, Canada, Mexico and South Korea. Large U.S. MNCs heavily relied on foreign subsidiaries, joint ventures, and licensing operations to access foreign market. MNC sales from foreign subsidiaries were some nine times greater than sales from USA exports. Epps and Handy’s data on the 34 largest U.S. MNCs (representing about 37% of total U.S. food processing sales) showed they received an average of 27% of their worldwide processed food sales from their foreign subsidiaries in 1991, while exports from their U.S. food processing operations accounted for only 4.1% of sales.
Arnold states that often as companies grow from domestic to become international, their international business evolves in one of two ways. They either expand international sales with little innovation in their product lines (e.g., incremental sales), in which case, area divisions are established as international business grows. This is particularly suitable for consumer packaged goods companies with homogenous products that are distribution intense. Or, companies grow by diversification of their product lines in international markets, in which case their organizational structure based in product divisions are often established. This is more fitting for culture-bound products such as foods, in which products should be adapted for local tastes. “Most companies do the first in which sales grown through developing foreign sales of existing product lines with a typical structure being divisions for North America, Latin America, EMEA (Europe, Middle East, andAfrica) and Asia-Pacific.” See Figure 4 – Area Divisions or Product Divisions.
The number of markets in which a company is involved also drives product decisions. Arnold notes that “the greater the number of countries in which a firm participates, the more it will try to manage them in aggregate.” Advanced MNCs will be organize themselves as an integrated network in which assets such as R&D, production and marketing are dispersed around the world. Strategic marketing planning may be carried out at the country or regional level and local units may specialize in a particular market segment or product technology (Arnold 2004). Such an organizational structure makes it difficult to tell, on the outside, in which country product decisions take. See Figure 5 – Advanced MNCs Network.
Arnold adds that it appears that most international corporations are growing towards a global marketing network in which strategic marketing management responsibility is placed at the supranational (regional or global) level while sales and customer service remain locally focused.
Two types of research and analysis were conducted to investigate the extent of centralization of authority (which relates to the use of a global brand) as well as food companies’ interest in an emerging market is manifested in market entry decisions made for branded foods. The first research and analysis quantifies the number of domestic vs. foreign countries that appear on the packaging of new products introduced into a market. Specifically, consumer food product introductions in emerging markets (Brazil, China, Egypt, India, Malaysia, Mexico and Vietnam) are compared with those in three developed countries (Germany, Singapore, USA) in regards to “country of origin” as identified on packaging labels.
The second research and analysis examines global diffusion patterns for two branded products (Nestlé’s Omega Plus and Danone’s Actimel).
Data for these two research and analysis efforts were gathered from Mintel International’s (London) Internet-based Global New Product Database (GNPD). The GNPD tracks new product introductions of various consumer packaged goods in nearly 50 international markets. [APPENDIX IV-GNPD COUNTRY LIST, APPENDIX V-GNPD OVERVIEW and APPENDIX VI-GNPD FEATURES are obsolete interfaces as of the posting of this web page and will not be shown.] The term “newly introduced” for the purposes of this paper, which also is correlated with settings in GNPD query searches, are products that appear for the first time (or are relaunched after a period of absence) within a specified country. Products entered on the GNPD database are completely new or may have a new product formulation or are line extensions. Products of individual compositions (e.g. formulations) are each considered as a unique new product. For example, if an orange flavored beverage was added to an already existing line of products, all under the same brand, that would be tallied as a “new” product. Products that have been simply repackaged are not considered new, for the purposes of this paper. For products that are offered in several different packaging sizes, only one item is considered to be new.
Data for the GNPD is inputted from an international network of shoppers who become aware of newly launched products through avenues such food marketers’ advertising, in-store displays, press releases, and other promotional and relational activities and through Mintel International’s and the shoppers relationships with retailers. Proprietary processing avoids duplicate entries of a new product within a country.
Research and Analysis #1:
To examine the percent of new products that had a foreign versus a local country on the label and to compare this data in developed versus emerging economies, the following seven emerging markets were chosen: Brazil, China (mainland), Egypt, India, Malaysia, Mexico, and Vietnam. Factors influential in their choice were large populations, countries particularly significant to the USA (e.g. Mexico), and that they may have been named by Steenkamp as belonging to one of seven global culture areas. The three developed economies (based on relatively high GNPs per person) were Germany, Singapore and the USA. They were chosen somewhat at random as representing three different world geographical markets.
Spreadsheets detailing new product introductions for each of these countries were downloaded as follows. [“APPENDIX VII – GNPD USER GUIDE” not shown, obsolete as of this posting.]
The query: The Internet-based database was accessed using a login password at http://www.GNPD.com. Upon entering the database, all fields were left at default including, on the first screen, that the language chosen was “English” and the focus was “Product.” The Search tab was then clicked, which brought up the search page. Again, everything was left at default with the exception that “30000” was typed into the “Maximum number of records” field and the “Search Across” field was set at “All Food & Drink” records. In the “Date Published” fields, the year of interest was chosen by setting the fields to the right of the “between” label at “January-[year]” and “December-[year].” The country of interest was then selected in the country field and the “search button” clicked.
Downloading: When the query produced a set of records, all fields were left at default with the exception that the middle left field at the bottom of the page, which was positioned to the left of the word “as,” was set at “whole list” and the field immediately to the right of it set at “CSV/ Excel.” The download button was then hit and the CSV file saved to a local computer’s hard drive.
Data manipulation: The CSV spreadsheets were called up in Microsoft’s Excel program. The spreadsheets listed records of new, relaunched, and reformulated products introduced into the country within the time frame as specified. Each record had dozens of fields that appeared as columns on the Excel spreadsheet. The two most relevant columns (fields) for the research to be conducted were titled “Record ID” and one titled “New Product Count.” This later column/field identified the number of products in the line that had been introduced for that one record. If no value appeared for a record in the “New Product Count” column that meant the record listed a product in which only the packaging was new.
In order to reduce file size and allow for better spreadsheet navigation, some 30-35 columns were deleted that were irrelevant to the analysis for this paper. For example, many columns related to packaging were removed. Additionally a blank column titled “Country on Label” was inserted and highlighted in yellow. Data for this column was populated as follows. The “Record ID” number appearing in the first column for a record was cut and pasted into the GNPD’s “quick search” field on its Internet search page. When the “go” button was hit, the individual record (product) under consideration was found. That record was again clicked on, which brought up a page with product data including photo(s) of the packaging and a “Company” link. The photo allowed observations such logos, colors and the language used on the packaging. When the Company link was clicked on, a pop-up window appeared that listed the country that had appeared on the label for that particular record. This information was then noted in the “Country on Label” column for the record under consideration. For year 2001, Mexico and Singapore, the language appearing on the front package label was noted as well.
For each year and country, rather than looking up every record to note its “Country on Label,” every “nth” record was chosen that would provide at least 100 new products to analyze. That is, every second “Record ID” was chosen for countries with total records 200 to 500, but every 100th record was chosen for the USA which had over 11100 records in 2004. When no country was identified in the database, a “?” was put into the “Country on Label” field.
The spreadsheets were then sorted by the “Country on Label” field which allowed easier quantification of the number of new products (appearing in the “New Product Count” column) attributed to the various Countries on Label. For each country and year, the number of new products with the local, foreign, or unknown country appearing on the packaging label were tallied. No alterations in data were made with the exception that one out lying record in theUSA found in the search results was not included in the tally due to how greatly it skewed results. See USA note in APPENDIX VIII – Results Country on Label Analysis.
Research and Analysis #2:
To track the international rollout (diffusion) of Nestlé’s Omega Plus line of dairy-based products promoting the presence of nutritional omega-3 fatty acids, http://www.GNPD.com was again accessed. All fields were left at default with “English” chosen as the language and the field to its right set at “Product Focus.” On Product tab page, a product entered as a “new product” or a “new variety / range extension” or a “new formulation” or a “new packaging” were all included in the results.
For the Nestlé’s Omega Plus product, the search terms “Omega Plus” with quotations, was typed into the “Full Text Search” field and a search was conducted. This brought up a list of records in which the term “omega plus” was found in one of the fields of each record. The entire list was downloaded as a RTF document in order to see package images and the individual products were reviewed to see if they were a Nestlé’s product. For those items, the time period (quarter of the year) the product was introduced, the country and product types were all noted on a spreadsheet. A second “omega” query was conducted where all settings were as in the first query search, but the search terms “omega” and Nestlé” were typed into the Full Text search field.
Twenty records were found in the first search during the time frame August 1999 to December 2004. Before downloading, the individual records were opened on the GNPD web site and seven records removed. These seven were neither manufactured / marketed by Nestlé or did not have the identifying brand logo of a red “O” in the word Omega in a heart shape. This left 13 new products/extensions records plus 1 new package and 1 reformulation. The second query, using terms “omega” and “Nestlé” together in the search field produced 68 records. These were downloaded in a RTF format and manually searched for relevant products. Three more Nestlé “Omega Plus” type records were added to the 13 found in the first query. Two had the Omega heart logo and one was a Nestlé product under the Klim brand, which was launched in Taiwan. Thus, a total of 16 records (for 19 new products) were found that show the global new products rollout for that Nestlés’ product line for the years 1999 through first quarter 2005.
Additionally, in order to determine the competitive environment and degree of innovation that these products represented in the markets that they were introduced, a search of other foods and beverages touting the presence of beneficial omega-3 fatty acid was made using the term “omega.” The number of products before and after the initial Nestlé Omega Plus introduction where tallied.
Similarly, the term “Actimel” was used to search for newly introduced products, line extensions, reformulations or repackaging under that Danone brand name. Again results were downloaded in an RTF format to view the logos on packaging, time period (quarter of the year) and country into which the Actimel products were introduced. These were noted on a spreadsheet. A line diagram was also constructed that charted the cumulative number of new product introductions in various regions of the world against time.
Research Study #1:
Results of research into the percent of new products that had foreign versus the specified country on the label can be seen in APPENDIX VIII – Results Country on Label Analysis.
The countries differed widely in regards to the percent of new products with foreign countries listed on the package and there was no obvious correlation in regards to whether the country was considered an “emerging nation” versus one with a relatively high GNP per person. For example, for the year 2004, 86% of new products in Mexico, 97% of new products in the USA, and 98% of the new products in Brazil had “Mexico,” “USA,” and “Brazil” named on their labels respectively. However, for the same year, only 19% of the new products in Egypt and 25% of the new products in Singapore had Egypt or Singapore named on their labels, respectively.
Further investigation showed both similarities and differences between Egypt and Singapore in regards to the nature of the country names appearing on their food products. For example, in 2004, 68% (77) of Egypt’s sampled new food products had an identified foreign country on their label. When the individual records for these new products were sorted by country on the label, 26 different nations (including Egypt) appeared. See APPENDIX IX – Fractured Egyptian Marketplace.
To quantify the extent of how fractionated (by country on label) is the Egyptian marketplace, 77 (i.e., number of new product records) was divided by 26 (number of different countries appearing on labels) for a figure of 3.0 (i.e., new products per country). Furthermore, of these 26 countries, roughly four others (Lebanon, Syria, United Arab Emirates and maybe Turkey) could be considered “Middle-Eastern” regional countries most closely related to Egypt. A large variety of Western European and Far Eastern countries had introduced new products on Egyptian marketplace. Most importantly, a relatively large portion of these new products appear to be “exported brands” often with little adaptation to the local market in regards to images and languages appearing on labels. See APPENDIX X – 2004 Export Brands to Egypt.
Similarly, in 2004 in Singapore, a total of 23 different countries appeared on the labels of the 62 records sampled. An effort was made to estimate the extent of local product adaptation by quantifying languages on the label. See APPENDIX XI – Language on Singapore Products.
In 2001, only four to seven of the 98 labels sampled appeared not have English on the front label. Some 39 did have East Asian characters on their labels.
In contrast, of the 112 new product records sampled for the USA market in 2004, all had USA on the label with the exception of two from Canada, and one each from China, France and Germany (plus three unknown). Calculating a “fractionated index” using the same method as was done for Egypt gives a figure of 22 (i.e., 112/5). Mexico was also found to have a very high “fractionated index” of 30 with seven different countries contributing their name to the labels of 211 products. Additionally, a review of the package graphics associated with the 103 product records sampled in 2001 for Mexico shows that only two of did not have a label in Spanish. In most cases, all the text, except for logos, was in Spanish.
When comparisons were made between the years 2001 and 2004 in regards to the percentage of foreign countries on labels within countries, 11 or fewer percentage points differences were noted for China, Egypt, Malaysia, Mexico, Singapore and Vietnam. Brazilian foods with “Brazil” on the label increased from 67% to 98% during that time period, while India foods with “India” on the label decreased from 65% to 22%. (Further investigation is warranted.) Year 2001 figures for neither the USA or Germany were determined since casual observation and logic dedicated that these mature markets would show small shifts at best in the number of imported products.
Research Study #2:
With the exception of one product launched in Greece, all products were introduced only in the South American or Far East markets. Thus, a total of 16 records (for 19 new products) were charted. See APPENDIX XII – Nestle Omega Plus Diffusion Pattern and APPENDIX XIII – Nestle Omega Plus Brands.
According to the time frame searched (the beginning of the GNPD at year 1999), the Nestlé Omega Plus products appear to be some of the first products of their kind introduced.
Both the Omega Plus and Actimel products diffusions are examples of global brands with minor market adaptations. One exception was a halal certified Omega Plus product, which means it met certain formulation and processing criteria dictated by Muslim law, which was introduced into Malaysia, a country with a high Muslim population. However, the brand introductions were restricted specific world regions. Danone in Europe with a few “test” forays into other regions of the world. See APPENDIX XIVa – Danone Actimel Diffusion Pattern Spreadsheet and APPENDIX XIVb – Danone Actimel Diffusion Pattern Line Chart.
A variety of forces drive the consumer packaged foods industry to be increasingly global. Economies of scale in both manufacturing and marketing spur multinational companies to take a global strategy and introduce products with similar characteristics the world over. However, many argue that standardized products generally benefit companies, at both the manufacturing and distribution levels, more than end users. Counter influences pressure companies to customize products for specific markets. This may be particularly true for culture-bound foods and beverages.
Region-, product-, and company-specific factors impact product decisions, for one, the decision as to how much a new branded food will be customized for a market. The degree of centralization of authority in a company is an important factor driving global brands and increased product standardization. Additionally, interdependent factors drive market entry decisions with the mode of market entry being a key influence on the extent to which a new product will be customized for a market. It is theorized that both these factors, degree of centralization of authority and mode of market entry, are manifested in the country name appearing on a food’s packaging label.
When the percent of new products introduced into seven emerging and three more developed countries is reviewed — and subjective observations made — it appears difficult to determine the degree of centralization of authority of the company manufacturing / marketing that food. This is in agreement withArnold’s view that MNC (multinational corporations) are organized into area divisions as the percent of its sales in foreign countries grow but into product divisions as the diversity of its foreign products increases. Eventually, large, sophisticated MNCs manage product development, manufacturing, marketing and distribution in a network structure. A complex interaction of region, product and company factors determine the physical location where a product is manufactured and shipped and where its regional headquarters are. These country locations are what appear on a product’s label.
Besides these factors, it also should be pointed out that, due to the common practice of licensing, the “Country on Label” is not synonymous with “country of origin.” Again, this makes it difficult to predict the degree of globalization of a product based on either element. Henderson et al. estimated that, on average for the firms they studied, the book value of licensed brand names exceed 12 percent of those firms’ total assets. It is more common for food manufacturers in developed countries to license brands to manufactures in an emerging economy. Developed countries have advantages over emerging countries in regards to marketing home country brands since they have greater influence in establishing global culture and their firms have greater marketing dollars. See APPENDIX XV – Licensed Brands Characters.
Thus, when looking at the “Country on Label” data, it is far more common tofind the names of developed countries (USA, Germany, Australia, etc.) on new products in the emerging nations than the reverse. However, the concept of “psychic distance” and the importance of geographical distance and trading partnerships are hinted at since the countries of Portugal and Spain appeared on products in Brazil and Mexico more often than expected. The names of Far Eastern countries also commonly appeared on the labels of foods introduced within that region.
Overall, evidence of integrated network structures, complex distribution channels and brand licensing can be seen whereby products from the same company in a given market will have different countries listed on the label. For example in Malaysia in 2001, Nestlé’s Nespray children’s milk powder (GNPD # 120071) and Maggi cooking sauce (GNPD #119690) both list Malaysia on the label but its Frutips candy (GNPD #119599) lists Thailand. Also in Malaysia, Campbell Soup Company’s Erin brand soup (GNPD #310522) has Ireland on label; its Campbell’s brand seafood soup (GNPD #269549) has the USA, another Campbell’s instant soup (GNPD #302069) has Malaysia, and a Campbell’s beef stock (GNPD #250397) has Australia on the label.
However, for the ten countries in the years under consideration, a key discovery is that unique differences exist in the nature of new products introduced into these marketplaces in regards to countries appearing on the label. And, to some extent, the degree that a product’s brand image or logo will be customized for a country can partially be predicted by the pattern of country names appearing on food labels in a specified country market.
For example, in countries such as Egypt, Singapore, Vietnam and perhaps India, which have a relatively large percent of new products with foreign countries on their labels, foreign firms appear to more likely approach them through low intensity modes of entry. At times, it can result in new products with a “confusing” image and history. For example, one Danone branded product (GNPD #296938) was introduced to the Vietnamese market in 2004. Russia is the country on the label and the package’s text is in Russian and English. See APPENDIX XVI – Confusing Images.
In order to best interpret data derived from the countries appearing on new products in a region, more thorough investigation of any specific market is needed in order to put the label data in context. Here are a few brief examples of observations and further analysis for several markets.
A relatively large percent of products introduced to Egypt clearly convey the image that they are from outside of that country. One could even theorize that a “reverse” country of origin effect is being used. It has been noted that this country has a poor reputation for quality food products. Locally produced packaged foods tend to be less value-added and also more shelf stable such as flour, dates, juices, honey, jams and canned goods. Additionally, the market position of one local company, Egyptian Company for Advanced Foodstuff Industries, is that its main goal has been to “produce healthy and quality foodstuff products of international standards.” The label is conspicuously in English. Perhaps, the growing trend for consumers to be interested in local brands and disenchantment with MNC global brands is overridden by the poor reputation of locally produced foods. That is, companies do not yet see a benefit in presenting a food as being Egyptian, especially highly value-added, processed foods.
Neither Brazil nor Mexico will have economics comparable to developed countries in the near future. Brazil’s GDP per capita is $7,000 and 22% of its population lives in poverty. These figures are $9,000 and 40% for Mexico. Yet, both countries have a high percent of products with Brazil and Mexico listed as the “country on label” respectively. Their products appear fairly adapted to their market in that labels are usually in Portuguese or Spanish and with Latino ethnic groups or other consumer relevant images on the label. All Unilever products in Brazil had, in fact, “Brazil” on their label (as opposed to countries from other geographic area). Also, many higher-value added products appear to be launched into these two countries. Not withstanding Arnold’s criticism that MNCs are too intent on marketing “expensive” products to emerging market’s elite populations, both countries do have large populations and reasonably stable governments. Likely MNCs are more comfortable in increasing their investments in these markets as they move to higher intensity “modes of entry” with regional offices and subsidiaries. For example, there is a “Kraft Foods of Mexico,” “Kellogg’s of Mexico,” and Effem Mexico (a Masterfoods Inc. subsidiary). Again, in 1991, Epps and Handy’s reported that the 34 largest U.S. MNCs received an average of 27 percent of their worldwide processed food sales from their foreign subsidiaries compared to 4.1% of sales in products manufactured in the USA and exported.
On the other hand,Vietnam suffers from both a smaller population and, along with China, may present a higher risk for private enterprises. For example, a recent Wall Street Journal article (Chazan 2005) cautions its readers that investing in Russia is perilous due to increasing bureaucracy. “Capitalism has shallow roots in Russia,” Chazan notes.
Diffusion of Two Global Brands
The second research project examines global diffusion patterns for two branded products (Nestlé’s Omega Plus and Danone’s Actimel). The GNPD starts tracking products in the year 1999. No information was available on the initial introduction of either line with either the GNPD or through an Internet search.
Both Danone and Nestlé are sophisticated MNC known for their prowess in international marketing. Both the Omega Plus and Actimel brand diffusions are intriguing case studies of brand globalization.
The Omega Plus line, which touts the presence of omega-3 fatty acids that are nutrients shown to be beneficial to the development of infants, appears almost exclusively in the Latin American and Far East markets. Visual investigation of the product labels supports a “think global, act local” stance. The products carry a common logo, but have regional adaptations such as halal certification and the language and image changes depending upon the part of the world in which they are marketed. However, from the immediate data observed, a “push” strategy also appears. While the data is subject to further verification (for one, the country data contained in the GNPD was relatively small back in 1999 and 2000), it appears that Nestlé was one of the first companies to promote the omega fatty acid nutrient content in its products in a country.
Diffusion of the Danone Actimel brand is much greater and more complex in terms of numbers of countries entered and types of alterations of the product and logo. One clever adaptation can be seen in how it adapted its logo and brand colors for the Israeli market. See APPENDIX XIII – Nestle Omega Plus Brands.
As with the Omega Plus line, the Actimel line is limited to very specific regions of the world. The European market has seen much penetration with relatively little in Latin America or the Far East. One immediate theory as to why the Far East has not been approached is based on that region’s competitive landscape. Actimel’s point of differentiation is that it contains probiotic cultures (bacteria beneficial to health). The belief in these health properties has been long established in the Far East with competitors such as Yakult very entrenched. Overall, the Danone appears to be operating from a corporate core competency in the area of probiotic cultures, but is leveraging a global brand with some country adaptation.
Tracking and quantifying the countries that appear on the labels of packaged consumer foods in a market provides important information on that market, the companies that participate in the market, and, to some extent, the products themselves. However, it is difficult to predict the degree of adaptation that will be required for a global brand (either for its image or the product itself) in order to succeed in the marketplace. Still, such new product information benefits marketers needing to become more familiar with the environments in which they intend to launch new products. Additionally, new product diffusion patterns as seen with Danone’s Actimel and Nestlé’s Omega Plus brands provide interesting case studies in managing global brands.
Suggestions for Further Research
Each country under consideration in this study, from Brazil to Vietnam, is a singular marketplace. The GNPD is a unique tool that offers clues to where further research is needed or it can provide objective data to theories that already exist. For the short term, in regards to this paper, additional research could be undertaken to clarify confusing and/or intriguing results. For one, the large increase from years 2001 to 2004 inIndiain the number of products that had a foreign country on their label should be investigated. Or, it would be useful to investigate the diffusion of non-western MNC brands and/or also look at local competitors to the Nestlé Omega Plus and Danone Actimel brand.
One could expand on research in this paper both in terms of more quantitative and qualitative investigation of the types of products introduced into a market. Examples include determining the percent of products into a market that are shelf-stable versus refrigerated or types of products (chocolate confectionery, meats, etc.). It would be useful to see how the types of locally produced packaged foods differed from those marketed by MNCs and to investigate why. Products could be categorizing in a country for how adapted they to local needs. For example, how many labels (or how much of the label) is in the native language(s), how relevant is the imagery to the local market, do people on the package resemble those in the market, and so on.
One could work to quantify how competitive a marketplace is for companies targeting more affluent consumers in an emerging market. The types and amounts of goods that are priced over a certain price point or that provide high degrees of convenience (e.g., complete meals) or that have specialty compositions such as being dietary fiber fortified could be investigated. The diffusion of low cost items, such as Kellogg’s Chocos brand would also be an intriguing topic.
Although only mentioned in passing in this paper, a wealth of information and insights could be gained by researching product diffusions by retailers / distributors such as Wal-Mart, Carrefore and Trader Joes.