When I ask companies in the nutrition industry how they set up international business, a common response is: "They walked up to us at a trade show and we've been selling to them ever since."
Although developing an international business has been a point of interest for many companies, it always seems to take a backseat to domestic business. Even with the recent economic downturn in the United States, the growth opportunity at home for nutritional products has remained solid, prompting many companies to remain content with a small international business revenue stream or to push development plans back another year.
Evaluating international opportunities can be daunting. Which countries are best to target? Do I partner with another company or do I build infrastructure? What are the regulatory guidelines, and if regulatory approvals are needed, does it make sense to pursue?
Global market trends
Nutrition Business Journal estimates that the global nutrition industry surpassed $300 billion in 2010. The United States remains the world's largest market at $117 billion, representing more than a third of global sales. Other significant markets include the developed Western European countries, along with Japan and China. Along with these current statistics, it is important to look forward and predict where the opportunity will be 20 years from now. The following four trends will typify the nutrition industry landscape going forward:
- Trend 1: By 2030, the middle class in Asia will make up the significant majority of consumer spending.
- Trend 2: With the increased enforcement actions of the U.S. Food & Drug Administration and its proposed New Dietary Ingredients (NDI) guidance, it should come as no surprise that the industry will be held to a higher standard. This trend will be dominant over the next decade. Strict EU regulations currently make it very difficult to implement new product innovation and to make health claims associated with nutritional products.
- Trend 3: The industry has already grown up in relation to the scientific support needed in order to introduce a new product, but as regulations become stricter and GMPs become a worldwide requirement, more science will be necessary in order to grow the industry. While most finished product companies have relied on ingredient suppliers to provide supporting science, data on end product formulations will eventually be required from manufacturers.
- Trend 4: Awareness of "self-care medicine" continues to grow along with aging populations. The proliferation of information available on the internet has made consumers savvier than ever before. They are finding out how nutrition can help them live longer and healthier lives. This phenomenon is important as populations age in developed countries such as the United States and Japan— already large markets for nutritional products.
Methodology for prioritization
It seems to be an exception rather than the norm for a company to have an international business plan that prioritizes opportunities and focuses on developing appropriate resource allocation to build a viable business.
To analyze how a company should prioritize its efforts and identify countries for focus, I've found the following methodology effective. It consists of a weighted analysis based on four criteria. These criteria are:
- Sales & Market Potential—40% weighting to total analysis
- Intellectual Property Position—25% weighting
- Regulatory Position—25% weighting
- Infrastructure—10% weighting
Sales & market potential
Make sure to obtain nutrition industry market information for standardized data across regions, including historic results as well as future forecasts. For one's category of interest, rank the top 20 countries for market value and market share. You may even choose to specify a category segment from the data and develop a market potential estimate for your product line. For purposes of this example, I'll keep things simple and score the countries based on overall market share for the entire category.
The category selected is dietary supplements. A score based on market share will be given to each of the top 20 countries. Example 1 illustrates results for the largest supplement markets outside of the United States. A ranking system is shown below on a 1 to 5 scale (1 lowest opportunity to 5 best opportunity) based on the market share of each country relative to the overall market size:
- >10% Total Market = 5
- 7.5% to 10% = 4
- 5.0% to 7.5% = 3
- 2.5% to 5.0% = 2
- 0% to 2.5% = 1
From these data we're able to demonstrate a country rank as well as assign a market score that will figure in at a 40% weighting in the final analysis. Keep in mind that, as a company, you can assign the weighting percentages at your discretion. However, I recommend that the overall market potential be the most significant factor when establishing priorities.
Intellectual property position
Securing and protecting intellectual property (IP) is of utmost importance when conducting international business. If you have a unique, proprietary position and want to enter a market, it is vital to protect your position with appropriate patents and trademarks. If you seek partnership with a distributor or manufacturer, strong IP will enhance your credibility and attract quality partners. Both patents and trademarks are important. If you don't take the time to register your IP, another company may swoop in. Trust me—you don't want to go through the process of trying to secure back intellectual property that was assigned to someone else because you neglected to register.
Developing an intellectual property plan with an attorney who has an international network and is familiar with patent and trademark registrations for nutritionals is critical to success.
As previously, rank the 20 countries and review your existing IP position. For the scoring system, evaluate your current position along with the IP climate. The climate takes into account how respect ful a particular country is for honoring your IP. Example 2 provides an example of this evaluation process. A strong position is evident based on the number of issued patents or pending patents. A weak position constitutes no issued patents or trademarks.
- Strong, Strong = 5
- Good, Strong = 4
- Good, Good = 3
- Weak, Good = 2
- Weak, Weak = 1
Evaluating the regulatory situation with your products is a critical step to take before entering a particular market. Regulatory approvals can be time consuming and costly. A regulatory assessment can be developed through market research, by working with consultants, or by contacting respective regulatory authorities. The regulatory analysis should take into account product clearance, regulatory timeframes, and a country's regulatory climate. Example 3 evaluates the regulatory position of a particular product.
- Approved = 5
- Registration in process = 4
- Easy to moderate registrations = 3
- Moderate registrations = 2
- Difficult, not known = 1
Given that the regulatory situations change frequently in the nutrition industry, it is important to have an understanding of the regulations beforehand. You must also be willing to adjust accordingly as regulations change.
When it comes to developing presence in a particular international market, a company has these two options for building infrastructure:
- Build infrastructure by establishing your own presence. This means building an office in the market. This option allows a company to focus in a particular market and provides for a high degree of control. The con is that the option is very costly and not viable for companies just starting their international efforts.
- Find a local partner. Make an agreement with a distributor or manufacturer. The advantage here is that a company can select a partner with experience in the market without having to build costly infrastructure. The disadvantage is that most distributors represent a number of products. There are examples of either option that have led to success. The fundamental reason for success centers around the organization becoming fully committed to building an international platform. The infrastructure analysis takes into account whether you have already established infrastructure, whether it is in process, or if you have limited connections and resources. Example 4 demonstrates how this analysis can be completed.
Putting it all together
Once you've compiled the information for each of the four components and scored them, now you can complete the final prioritization. Again, for our example, we have only utilized five countries. My recommendation is to complete this process with 20 countries. Example 5 shows the results for each of the countries, weighted as specified, to get a final rank of 1 through 5, 5 being the best opportunity.
This process is only a suggested framework in order for you to effectively research and prioritize your international opportunities. You may choose to adapt this for your particular needs. Based on my experience, it usually takes as much time to develop a great opportunity as it does to develop one that will never reach expectations. Therefore, why not focus on opportunities that promise the best reward for your business. Following this framework, or a similar one, establishes clarity for your business plans and serves as a road map for a successful international business.
Steve Hanson is owner of GRIP IDEAS, a company focused on business development strategies in the nutrition industry. Hanson is an expert in ingredient branding and has been involved in the creation of such mainstays as FloraGLO, Ester-C, MEG-3, Meriva and Regenasure.