A N I NSTRUMENT FOR S YSTEMATIC
C OUNTRY S ELECTION
S TAY O UT OF A LCATRAZ !
Femke Gerarda Dekker
Master Thesis
University of Groningen
Faculty of Management and Organization Department of International Business Supervisors: Prof. Dr. A.M. Sorge
Drs. G.J. Nooij
Advisors: Drs. S.D. Noordermeer Drs. C.B. Benckhuijsen Groningen, June 1
st, 2004
The author is responsible for the contents of this thesis; the copyright
of this thesis belongs to the author.
Preface
After a seven week internship, I started writing my thesis in November 2003 at Campina International in Veghel with the division DEO. This research has been realized as part of my Masters Thesis for the faculty of
Management and Organization of the Rijsuniversiteit Groningen. I greatly enjoyed my stay at Campina. It was very interesting and educational and I would like to thank Sandor Noordermeer and Cathelijne Benckhuijsen for their invaluable support and feedback at Campina. And of course I would like to thank all of my colleagues for bearing with me and helping me with all the questions I had for them.
I would also like to thank my professors, Prof. Dr. A.M. Sorge and Drs. G.J. Nooij for their feedback and support.
A special thanks goes out to Jaap Bekkering for supporting me and giving me advice when I needed it. Mamma, pappa, Marleen and Sabine, thank you too for supporting me and giving me feedback.
Groningen, June 2004
Femke Gerarda Dekker
Management Summary
The division Direct Export Overseas (DEO) of Campina International wishes to sell more restitution-independent products like yogurts, drinks, and desserts from its factories. These products will be referred to as Campina Long Life products (CLL, see appendix one). New markets for these products have to be found and evaluated in a structured and controllable manner. The turnover of these products has to increase and this has to be realized with a limited amount of personnel, time and budget. To achieve this, criteria should be formulated and presented in a model that can aid sales managers to analyze country-markets in a more efficient manner. In order to develop such a tool, it is important to gain knowledge about which criteria influence chances of success when entering and manipulating a market with CLL products. Both theory and policy are to be analyzed here to discover the most relevant aspects.
The following research goals and questions were formulated:
Definition of Research Goals
1. To develop a controllable method to select countries, to make better use of existing resources (time, efforts and money).
2. To advise Campina on which new markets to enter with the Campina Long Life range, using the newly developed model, in order to increase turnover of the CLL products.
Definition of Research Question
Which criteria are important for the selection of interesting markets for the CLL products, considering the current internationalization and marketing policies of Campina?
Approach
In order to answer this research question, various steps were undertaken. The research approach can be seen in the model below.
Figure 0.1 Research Model
Primarily, the internationalization of Campina has been reviewed, investigating both theory and policy. This analysis consisted of a thorough review of different aspects, namely mode of entry, timing, marketing-mix and the choice of countries. Secondarily, international marketing theory and policy have been analyzed. On the basis of these findings a model was constructed and recommendations concerning the implementation were given.
The review of the internationalization theory and strategy showed that Campina took a somewhat passive approach and that internationalization is moving at a slow pace. Campina is always on the look out for companies
Testing new countries Model of criteria
for selection of countries
Marketing policy Campina Marketing theory
Gap Internationalization strategy
theory
Internationalization strategy Campina
Gap
Recommendations on organization and implementation
of CLL project
An Instrument for Systematic Country Selection Management Summary
available at low cost, rather than actively searching for interesting companies that meet all the demands. In certain cases this has lead to high costs later in the entry-process. Another important conclusion was that Campina has made some decisions which were not completely supported and did not receive the desired input to make a success out of it. This has led to high costs and lost investments and chances.
When reviewing the marketing theory and policy, it became apparent that DEO maintains a defensive attitude towards its traditional products. Regarding the range of CLL products, the attitude is more offensive and proactive.
DEO’s approach could be characterized as a sales approach, focusing on the short run, without systematic selection methods for target markets. In order to develop a model for systematic country selection, criteria were abstracted from international marketing theories and policy. For this reason, an analysis of the modus operandi of DEO was performed, as well as a survey, which formed the basis for the formulation of the model of criteria and the selection of the criteria.
The Survey
The results revealed a number of constraints, advantages, disadvantages and prerequisites to enter a market with the CLL products and successfully sell them. The survey revealed that DEO’s main focus when analyzing new country-markets is the market-structure. Political and economical trends and facts are not explicitly analyzed by DEO, nor are the population of a country, its growth, preferences and culture considered. These aspects were considered important according to the literature reviewed. Therefore DEO should more explicitly review political and economical trends and facts as well as the population. In the model the most important topics will be discussed and presented for use by the sales managers.
The Model
Subsequently, criteria were formulated and presented in a model. The model was designed in such a manner as to leave ample room for the expertise of the individual sales managers. It is a method to help them analyze in a more structured and broad manner, but not to exclude their valuable input from the decision-making process.
The criteria were characterized as hard or soft and were presented in a model, creating a practical, flexible, and understandable tool for the sales managers. The model is not to be seen as an exhaustive list of criteria, but the sales managers should use the model applying their expert knowledge of a specific market. Validating the model was achieved by realizing case studies. A summary of the model can be seen below.
Implementation
Finally, recommendations for the implementation of the model and the CLL project have been given. For a successful implementation, it is important that all relevant actors, both management and sales managers, support the implementation of the model. Problems concerning resistance, control issues and politics can occur and should be prevented. The model should be implemented within the structure of the process and implementation should be controlled.
Recommendations
The recommendations cover several topics, namely the organization of the CLL project, long term visions, marketing, the importance of a distributor and some general recommendations.
DEO should maintain its more proactive approach towards the CLL range when searching for new country- markets. DEO should also try to shift its sales approach towards an entry strategy approach, focusing more on the long term horizon, making selections of target markets, based on the analysis of market/sales potential. The dominant objective in this approach is to build a permanent market position. Keeping in mind the different required approach for the CLL range and a long term vision, more efforts should be put into marketing the Campina brand.
The research has indicated that the distributors are the key factor to the successful entry of a market. Therefore a great deal of attention needs to be paid to handling the distributors and helping them in entering the market with the CLL products. DEO should carefully choose its own distributors, selecting them on the criteria which are most important, instead of being chosen by a distributor.
Another aspect which DEO could look into is inter-firm cooperation. One could investigate if there are possibilities to save on costs by working together with other divisions of Campina. The division could gain access to additional resources or enhance revenues in a manner not possible for the division alone.
Alcatraz
Yes to all Yes to all
No
No No
Middle Class The Bronx
Silver Medal Market Potential
• Target group
• Consumer knowledge & preferences
• Lactose tolerant
Distributor
• Finances
• Attitude
• Distribution
• Relationship
Economical Environment
• Inflation rate
• Stable currency
Grand Champion Hard Cconstraints
• Codex Alimentarius
• Regulations concerning packaging and recipe
• Registration
• Politically stability
Profitability
• Acceptable margin
• Introduction expenses
• Marketing budget
• Infrastructure
Competitive Advantage & Competition
• Quality - price
• Local competitioin
• International competition
Economical Environment
• Inflation rate
• Stable currency
Distributor
• Finances
• Attitude
• Distribution
• Relationship
Market Potential
• Target group
• Consumer knowledge & preferences
• Lactose tolerant
Figure 0.2: Summary Model of Criteria
An Instrument for Systematic Country Selection Index
Index
CHAPTER 1 – INTRODUCTION ... 9
CHAPTER 2 – RESEARCH PROPOSAL ... 10
2.1INTRODUCTION... 10
2.1THESIS... 10
2.1.1 Definition of Research Goals... 10
2.1.2 Definition of Research Question... 10
2.1.3 Definition of Secondary Questions ... 10
2.2BOUNDARIES... 11
2.3RESEARCH MODEL... 11
2.4PRECONDITIONS... 12
2.5CONCEPTUAL MODEL... 12
2.6APPROACH... 13
CHAPTER 3 – CAMPINA’S INTERNATIONALIZATION... 14
3.1THEORY ON INTERNATIONALIZATION... 14
3.1.1 Degree of Internationalization ... 14
3.1.2 Reasons for Internationalization... 14
3.1.3 Strategies of Internationalization ... 14
3.2CAMPINA... 15
3.3CAMPINA INTERNATIONAL... 15
3.3.1 Campina International’s Mission... 15
3.3.2 Campina International’s History ... 15
3.3.3 Steps of Internationalization by Campina International ... 15
3.3.4 Conclusion... 17
3.4DIRECT EXPORT OVERSEAS... 17
3.4.1 DEO’s Mission ... 17
3.4.2 DEO’s History ... 17
3.4.3 Steps for Internationalization by DEO ... 18
3.5MODEL OF INTERNATIONALIZATION... 18
3.6CONCLUSION... 19
CHAPTER 4 – INTERNATIONAL MARKETING ... 20
4.1INTRODUCTION... 20
4.2 MACRO-ENVIRONMENT... 20
4.2.1 Economic Environment ... 20
4.2.2 Political and Legal Environment ... 21
4.2.3 Cultural Environment ... 21
4.3MARKET CHARACTERISTICS... 22
4.4CONCLUSION... 22
CHAPTER 5 – MODUS OPERANDI DEO ... 23
5.1DEO’S MODUS OPERANDI... 23
5.2CAMPINA LONG LIFE PRODUCTS... 24
5.2.1 Dairy At Your Service ... 25
5.2.3 A New Assortment... 25
5.3THE CHOICE OF COUNTRIES... 25
5.4MARKETING... 26
5.4.1 The Consumer... 26
5.4.2 Marketing Activities ... 26
5.5CONCLUSION... 27
CHAPTER 6 – THE MODEL OF CRITERIA ... 28
6.1SURVEY... 28
6.2RESULTS... 28
6.2.1 Hard Constraints ... 29
6.2.2 Soft Constraints ... 29
6.3MODEL... 30
6.4VALIDATION... 33
6.4.1 Angola ... 33
6.4.2 Bahrain ... 33
6.4.3 Nigeria ... 34
6.4.4 Pakistan... 34
6.4.5 Trinidad and Tobago ... 35
6.4.6 Conclusion Validation ... 35
6.5CONCLUSION... 36
CHAPTER 7 – IMPLEMENTATION ... 37
7.1INTRODUCTION... 37
7.2POSSIBLE PROBLEMS... 37
7.3IMPLEMENTATION... 37
7.4CONCLUSION... 38
CHAPTER 8 – COUNTRY SELECTION ... 39
8.1INTRODUCTION... 39
8.2BLACK LIST... 39
8.2.1 Company Structure ... 39
8.2.2 Geographical Characteristics and Country Size... 39
8.2.3 Political environment and regulations... 39
8.3LONG LIST... 40
8.4SHORT LIST... 40
8.4.1 Economical Environment... 40
8.4.2 Infrastructure ... 40
8.4.3 Emerging Markets ... 40
8.5CONCLUSION... 40
CHAPTER 9 – CONCLUSIONS AND RECOMMENDATIONS... 41
9.1CONCLUSIONS... 41
9.1.1 What is Campina’s policy concerning internationalization?... 41
9.1.2 What are important aspects, according to existing literature, to evaluate countries for introduction, sales, and manipulation?... 41
9.1.3 What are the working methods and policies of DEO and specifically of the DEO-sales managers? ... 41
9.1.4 Which criteria may be used to select countries, and how should these be applied?... 42
9.1.5 In what manner should the model be implemented?... 42
9.1.6 Which countries may be interesting for DEO? ... 42
9.2RECOMMENDATIONS... 42
9.2.1 Organization of the CLL Project ... 42
9.2.2 Long Term Vision ... 42
9.2.3 Marketing... 43
9.2.4 Distributor ... 43
9.2.5 General... 43
9.3DISCUSSION... 43
LIST OF LITERATURE ... 45
APPENDIX 1 – CAMPINA LONG LIFE PRODUCTS ... 49
APPENDIX 2 – SURVEY SCHEDULE ... 52
APPENDIX 3 – TABLE OF CRITERIA... 53
APPENDIX 4 – CODEX ALIMENTARIUS COUNTRIES ... 55
APPENDIX 5 – BLACK LIST ... 57
APPENDIX 6 – LONG LIST ... 59
An Instrument for Systematic Country Selection Index
APPENDIX 7 – SHORT LIST ... 61
APPENDIX 8 – LIST OF EMERGING MARKETS ... 62
Table of Figures
FIGURE 1.1:Organizational Chart ... 9FIGURE 2.1:Research Model... 11
FIGURE 2.2:Conceptual Model ... 12
FIGURE 3.1:Timeline Internationalization of Campina ... 15
FIGURE 3.2:Model of Internationalization ... 19
TABLE 5.1: Alternative approaches to foreign markets... 23
FIGURE 6.1:Model of Criteria... 32
Chapter 1 – Introduction
Campina is an international cooperative which applies itself to the development, production and sales of dairy- products. To Campina, Europe is the most important market for consumer products.
Campina consists of five divisions, of which Campina International (CI) is one. CI is responsible for the sales of consumer products outside the Netherlands and Germany. CI has factories in Belgium, Poland, Russia and Romania and sales-offices in Spain and the United Kingdom. In addition to this, there are three business units that operate from Veghel, the Netherlands (CI’s headquarters):
DWE – Direct Export Western Europe DEE – Direct Export Eastern Europe DEO – Direct Export Overseas
FIGURE 1.1:Organizational Chart
The DEO business unit concerns itself with the sales of products with a long shelf life for export outside Europe.
The principal products for DEO are milk powder, evaporated milk (evap), cream and butter oil. These traditional products have a shelf life up to two years. This market is in decline, and the restitutions which Campina is receiving for these products are difficult to predict and are also in decline. The European Union is planning to abolish export subsidies on dairy products in the near future. Aside from these more traditional products, a range of long life dairy drinks, desserts and yogurts is being offered. These products are referred to as Campina Long Life products (CLL) and consist of amongst others Yazoo, Yogho Yogho, and Campina Fruttis (see appendix 1).
These products have a shelf life of three to nine months, due to a special heating treatment. DEO is searching for new channels for the sales of this range of products, in order for Campina to establish a stronger position in new segments and markets. Hence a new range of CLL products has been developed.
Staff Services Cooperative Services The Netherlands
Campina Nederland Campina GmbH
DEO DEE DWE Belgium Russia Poland Romania United Kingdom Spain
Campina International Cheese & Butter Industrial Products Executive Board
An Instrument for Systematic Country Selection Research Proposal
Chapter 2 – Research Proposal
In this chapter, the definition of the problem will be explained and the research proposal will be discussed.
2.1 Introduction
Campina has set itself the target of creating permanent value from milk for her members/dairy farmers (who are the owners of the company), customers and consumers. For the members/dairy farmers this results in a milk-price which has been above the average consistently for a number of years1. Campina claims to need sufficient scale to be able to meet this target in the long run. This is one of the reasons that Campina has been expanding
internationally since the beginning of the 1990’s. This international expansion focuses mainly on Europe (with special attention for Poland and Russia). Campina’s expansion is to be attained through internationalization.
In this thesis, the history of Campina will be analyzed. It is important to determine in which ways the company has internationalized through the years. The reasons and strategies for these steps, as well as the characteristics of the destinations and the results of the steps, will be discussed. Also, the market manipulation of DEO will be analyzed. Using these analyses, criteria will be formulated, which will be used to assess potential new markets and to make recommendations about the type of market manipulation to be used. The research also intends to point out where DEO should place its strategic emphasis, in order to maximize the probability of success of the CLL range of products.
2.1 Thesis
Campina wishes to sell more restitution-independent products like yogurts, drinks, and desserts from its factories.
DEO has created its own assortment of Long Life products. New markets for these products have to be found and evaluated in a structured and controllable manner. The turnover of these products has to increase and this has to be realized with a limited amount of personnel, time and budget. It is essential to discover which aspects (success factors) are important when analyzing countries, to determine if and why they should be considered and whether investments (time, efforts, and money) should be made in these countries. DEO has only limited resources at its disposal and wishes to spend its resources in the most efficient and effective manner. Therefore, a model needs to be constructed, aiding sales managers with country analyses. The following Research Goals have been
formulated:
2.1.1 Definition of Research Goals
3. To develop a controllable method to select countries, to make better use of existing resources (time, effort and money).
4. To advise Campina on which new markets to enter with the Campina Long Life range, using the newly developed model, in order to increase turnover of the CLL products.
In order to develop a method to aid sales managers with the selection of countries with the best chances for success, it is important to be knowledgeable about which criteria influence chances of success when entering and manipulating a market with CLL products. Both theory and policy are relevant to be analyzed here to discover the most important aspects.
2.1.2 Definition of Research Question
Which criteria are important for the selection of interesting markets for the CLL range of products, considering the current internationalization and marketing policies of Campina?
2.1.3 Definition of Secondary Questions
• What is Campina’s policy concerning internationalization? (Chapter three)
- What are, according to existing literature, important aspects to consider when evaluating the degree of internationalization of a company?
- Which steps has Campina undertaken in the past to internationalize?
• What are important aspects, according to existing literature, to evaluate countries for introduction, sales, and manipulation? (Chapter four)
• What are the working methods and policies of DEO and specifically of the DEO-sales managers? (Chapter five)
1 <http://www.campina.com> (December 1st, 2003)
• Which criteria may be used to select countries, and how should these be applied? (Chapter six)
• How should the model be implemented? (Chapter seven)
• Which countries may be interesting for DEO? (Chapter eight)
• Which recommendations are in order? (Chapter nine) 2.2 Boundaries
In the first part of this research, the primary focus will be on the various steps Campina has undertaken towards internationalization. The divisions of “Butter and Cheese” and “Industrial Products” will not be taken into consideration here. These two have developed into highly independent divisions, both with their own unique strategies and approaches, and are aiming at different segments than CI is. These divisions sell large quantities of bulk-products and are significantly more active in the ‘business-to-business’-realm. This research will focus on the approach of CI, particularly that of DEO. The following boundaries will be taken into consideration:
Organization
• A specific emphasis will be placed on the range of CLL products.
• DEO has a limited budget to promote the CLL assortment: 200,000 in 2004. The budget is intended for both new and existing clients. For following years the budget may be increased to 650,000.
• An average margin of 35% is desired.
• DEO is a sales division and not a marketing division.
• DEO does not have a long term vision for the project.
• DEO does not have a structured plan on how to realize its CLL goals.
Product
• Only the current assortment of CLL products is available for export (including Mixed Container concept products).
• Some of the products do not meet the demands of the Codex Alimentarius2. Packaging
• The packaging cannot be changed within the next 8-10 months.
2.3 Research Model
FIGURE 2.1:Research Model
The research model provides a schematic overview of the research proposal. This thesis has been written based on theories of Internationalization and International Marketing, aiming at the development of a model to aid sales
2 <http://www.codexalimentarius.net>, (March 2004), The Codex Alimentarius Committee was established in 1963 by the de Food and Agriculture Organization (FAO) of the United Nations and World Health Organization (WHO) to determine standard guidelines to protect the health of consumers.
Testing new countries Model of criteria
for selection of countries
Marketing policy Campina Marketing theory
Gap Internationalization strategy
theory
Internationalization strategy Campina
Gap
Recommendations on organization and implementation
of CLL project
An Instrument for Systematic Country Selection Research Proposal
managers with the analysis and choice of a country. The developed model should be implemented and used by the sales managers to work in a more efficient manner, limiting the strains on budget, time and effort.
The theory of internationalization-strategies and Campina’s specific internationalization policy will be reviewed as well as theory on international marketing and the policy within Campina International. Analyzing both theory and practice should reveal aspects not covered by one or the other. These analyses will form the basis of a model adding to the knowledge of the company and possibly to existing literature. Using these reviews, criteria will be formulated for the analyses of potential new markets for the range of CLL products. The model will be tested on existing markets for its accuracy. After a selection of the countries based on the criteria, recommendations will be provided on how new countries may be entered and served, and which countries are best suited to the specific needs and wants of DEO. This will be done on the basis of the criteria, the policy and the theory. On the basis of the criteria and the recommendations of the modus operandi to approach and handle the markets,
recommendations will be made concerning the organization and implementation of the CLL project. The organizational issues that need to be dealt with to make the CLL project a success will be reviewed here.
2.4 Preconditions
• This thesis will meet the demands formulated by the Rijksuniversiteit Groningen
• This thesis will provide Campina International with a solution to a business-administrational problem
• The relevant research will be conducted in the period between November 17th 2003 and May 14th 2004
• Both knowledge and skill will have to be put into practice 2.5 Conceptual Model
FIGURE 2.2:Conceptual Model
Criteria
Chapter six
Market-structure Political environment and law
Economical environment
Recommendations on organization CLL project Chapter nine
Working methods DEO
Chapter five Theory
Chapter four
DEO’s Policy
Market entry
Sales
Market manipulation
Market criteria Internationalization of Campina
Chapter three
Theory Policy
Mode of entrance
Timing
Marketing mix
Choice of countries
Implementation Chapter seven
Country Analysis Chapter eight
The conceptual model will provide a rendition of the relations between the various aspects this research embodies. Primarily, the internationalization of Campina will be reviewed, investigating both theory and policy.
This analysis will consist of a thorough review of the different aspects, namely mode of entry, timing, marketing- mix and the choice of countries. Secondarily, international marketing theory and policy will be analyzed. These two steps result in a number of criteria that are seen as relevant factors for analyzing a country’s potential in regard to a successful entry and market manipulation with CLL products. These criteria will form the basis of a survey, which will lead to the development of a tool. These criteria will be presented in a clear and straightforward model.
Subsequently, this model will be utilized to analyze countries on their potential. In conclusion, recommendations on the implementation and organization of the CLL project will be given.
2.6 Approach
The research will consist of different parts. Primarily, there will be an examination of the history of the company.
For this purpose, year-accounts, presentations, budgets, reports and strategic reports will be analyzed. Also, interviews have been conducted with various managers and members of the board of directors. In order to ensure the least possible amount of guiding the answers in the interviews, these interviews were of an open nature.
Beforehand however, guidelines on the topics to be covered in the interviews had been set. To be able to gather a correct image of CI’s internationalization, interviews have been conducted with 12 persons inside the organization.
Secondarily, criteria will be prepared to evaluate countries and predict the chances of success in markets, using relevant literature, in combination with both the history and experiences of Campina International. These criteria will be linked back to the managers by way of a survey and interviews, in order to determine whether the criteria are correct by their standards, and to find out which of these should be weighted more heavily.
A survey will be designed in order to give an appreciation to these criteria. The survey will be held among five sales managers of DEO and one sales manager with a marketing-background active with DEE. The written survey covers several topics based on the literature and preliminary interviews within the company. The purpose of this survey, and any interviews to be held relevant to the survey, will be to formulate relevant criteria in such a manner that they will be useful for DEO.
The resulting criteria will then be presented in a model to be used by sales managers to systematically select country-markets. This model will be validated through case studies discussed with sales managers. The
instrument should be implemented in the division and therefore recommendations concerning this implementation will be made.
In chapter eight, country-markets will be analyzed, focusing on macro-environmental levels. A Black List will be presented with countries that should not be tried to enter, followed by a Long List and a Short List with the most interesting countries. These lists will provide DEO with a preliminary selection of countries which they can further analyze.
Finally, recommendations will be given to the division and a discussion will be held to review the strong and weak point of this thesis.
An Instrument for Systematic Country Selection Campina’s Internationalization
Chapter 3 – Campina’s Internationalization
This chapter reviews the relevant history of Campina. As mentioned in Chapter 2, this review will exclude the divisions of “Butter and Cheese” and “Industrial Products”. The extent of internationalization, the different steps undertaken by Campina and the underlying reasons for internationalization are the subject of this chapter.
3.1 Theory on Internationalization
According to Daniels and Radebaugh3, when a company internationalizes, it should consider its mission, its objectives and its strategies. In this chapter, these aspects will be discussed for the internationalization of Campina. In this paragraph, theories on the degree of internationalization, the objectives and the possible strategy will be discussed.
3.1.1 Degree of Internationalization
There are different models to utilize when assessing a company’s degree of internationalization. These models consist of different stages which indicate the degree.
Some authors state that each stage involves an increased commitment to international activities4. Commitment increases as firms learn more and therefore become less uncertain about foreign markets5. Others state that the internationalization of the firm entails the process of adapting firms’ operations to international environments. This means that internationalization can also take the form of disinvestment, according to Calof and Beamish. It is important to note that companies can de-internationalize or even leapfrog, skipping stages in the process.
3.1.2 Reasons for Internationalization
There is a variety of factors which may prompt the organization to re-examine its position and decide to expand its degree of internationalization. According to Daniels and Radebaugh, there can be one or more of the following reasons for internationalization:
• the increase of sales;
• the acquisition of resources;
• the geographical spread of resources for sales and delivery;
• the decrease of the dangers inherent in competition.
According to S.P. Douglas and C.S. Craig6, there are several triggers to internationalization; namely
• saturation of the domestic market,
• movement of customers overseas,
• the desire to diversify risk,
• identification of advantageous sourcing opportunities,
• retaliation to the entry of foreign competition,
• the desire to keep abreast of technological change,
• government incentives and
• advances in transportation and communication technology.
Any one or a combination of these factors may stimulate investigation of developments in markets overseas, and of opportunities for sourcing and/or marketing products and services in other countries and trigger initial entry into international markets.
3.1.3 Strategies of Internationalization
In this chapter, the aspects generally considered before deciding on a specific strategy of internationalization will be discussed. These aspects are: the company’s attitude towards international business, the preferred mode of entry, the choice of country (similarity of the country), and timing.
3 J.D. Daniels & L.H. Radebaugh, Part one Background for International Business, 9th edition, Upper Saddle River: Prentice Hall, 2001.
4 J. Johanson & J.E. Vahlne, ‘The Internationalization Process of the Firm: a Model of Knowledge Development and Increasing Market Commitments’, Journal of International Business Studies, Vol. 8, 1977, p. 23-32.
5 J.L. Calof & P.W. Beamish, ‘Adapting to Foreign Markets: Explaining Internationalization’, International Business Review, Vol.4, no 2 1995, p. 115-131.
6S.P. Douglas and C.S. Craig, ‘Evolution of Global Marketing Strategy: Scale, Scope and Synergy’, Columbia Journal of World Business, 24 (Fall), 1989, p. 47-59.
3.2 Campina
Campina has set for itself the target of creating permanent value from milk for her members/dairy farmers (owners), customers and consumers. For the members/dairy farmers this results in a milk-price which has been above the average consistently for a number of years. Campina aims to increase the price for milk every year.
Campina maintains a long-term vision. It claims to need sufficient scale to be able to meet this target in the long run. This is one of the reasons that Campina has been expanding internationally since the beginning of the 1990’s.
This international expansion is attained by means of acquisitions, with a primary emphasis on consumer products in Europe.
In order to obtain an above-average growth, Campina strives for both autonomous growth and acquisitions. There is a preference for deepening rather than for broadening. This means that Campina has a clear focus, and wishes to pursue a specific course in her policy regarding internationalization. Campina has placed a priority on further expansion on a geographic leadership in the market for dairy-drinks in Western Europe, as well as an above- average growth for desserts in Eastern Europe and Russia. Consequently, these fields will hold Campina’s attention, and deepening will be strived for.
3.3 Campina International
Campina International is a professional, market-oriented dairy-group within Campina, showing profitable growth in selected markets outside its own home-markets.
3.3.1 Campina International’s Mission
CI will attempt to realize a defendable market-position in selected markets through the development of concepts, brands and consumer products in the field of dairy, with a geographical focus on Eastern Europe and a categorical focus on value-added products, such a yogurts, drinks and desserts.
3.3.2 Campina International’s History
The first cooperatives of dairy-farmers in the Netherlands came into existence near the end of the year 1800.
These cooperatives were established to be able to create a power block against the traders. In 1979, the dairy cooperative of DMV Campina (southern Netherlands) was established, which merged with the dairy cooperative of Melkunie Holland (western Netherlands) in 1989. Melkunie Holland was established in 1980.
In order to attain its goals, Campina began the process of internationalization. In 1991, the first step was made with the acquisition of “Comelco NV” of Belgium. In 1993, the company acquired a majority interest in “Südmilch AG” of Stuttgart, Germany, which already had sales offices in Spain and the United Kingdom. Campina continued her internationalization with the 1997 acquisition of “Baja” and “Tojo” in Poland, and the establishment of a joint- venture with “Milchwerke Köln/Wuppertal” (MKW) in Germany. This was the same year that the take-over of
“Menken” consumption milk-activities (Netherlands) took place, followed by take-overs of “Menken Dairy Food”
and “Menken Polderland” of the Netherlands, “De Vereeniging” (ecological dairy) of Limmen and ”Nupron” and
“Emzett” of Germany in 1998. In the year 2000, Campina established her first yogurt factory in Stupino, Russia. In 2001 came the accession of cooperatives“De Verbroerdering” from Belgium and “Michwerke Köln/Wuppertal” into the co-operation of Campina. In the year 2002, “Tuffi Campina Emzett” and “Campina GmbH” merged into
“Campina GmbH”. In 2003, Campina completed the take-over of “Molkerei H. Strohtmann” from Germany, and started her own production on a production-line in Romania. DEE has an export-manager in the Baltic states as well as in the Ukraine.
3.3.3 Steps of Internationalization by Campina International
The Netherlands are a relatively small country, and around two thirds of produced milk is exported7. To be able to ensure the future sales of milk, and to be able to guarantee prices for milk to the dairy-farmers, it is important for Campina to have sufficient representation abroad. In the following section the various steps will be explored more in-depth.
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Campina Melkunie
Belgium Germany
Spain UK
Poland Germany China
Germany Germany Russia Belgium Germany
Germany Romania
FIGURE 3.1:Timeline Internationalization of Campina
7 Interview, M. van den Hoven, November 25th 2003.
An Instrument for Systematic Country Selection Campina’s Internationalization
1991: the Acquisition of “Comelco NV” in Belgium
In order to ensure growth as well as the realization of her goals, Campina had to expand internationally. In the early 1990’s, Campina noticed the emergence of strong competition from Belgium and France. Campina wished to protect its existing market and decided this was the time to start implementing her strategy and to start growing.
By means of the acquisition of “Comelco NV” in Belgium, Campina employed a ‘direct market-entry’ strategy, and started the production of dairy products in Belgium. “Comelco NV” possessed a factory capable of producing drinks, amongst which were yogurt-drinks.
1993: the Acquisition of a Majority Interest in “Südmilch AG”
In 1993 the acquisition of a majority interest in “Südmilch AG” in Germany took place. This company possessed sales offices in Spain and the United Kingdom, as well as a factory in the United Kingdom. There were already previously established contacts between “Comelco NV” and the sales office in the United Kingdom. One important reason for this acquisition was the desire to gain new resources.
1997: the Acquisition of “Bacha” and “Tojo” in Poland
Campina had been exporting dairy products to Poland. Here, Campina gained a considerable market share and exported vast quantities to this country. Being a large country waiting to be admitted into the European Union, it is expected for Poland’s welfare to increase, and in conjunction with that its buying power. Campina decided to enter the Polish market with as little investment as possible. When this decision was made, a number of other
multinationals were already active in the Polish market. It was subsequently decided to start producing locally, however no funds were being put into action to support this decision. Therefore it was decided not to build a new plant, but rather to purchase an older, cheaper factory. This factory turned out not to be capable of producing the high standard of quality that Campina demands for its products, and consequently additional substantial investments were required in order to enter the market in Poland. At the present, there is fierce competition in Poland between numerous international companies wishing to enter and conquer the Polish market. This condition will inevitably lead Campina towards more investments before being able to gain any real profits from Poland. It is Campina’s goal to always be one of the top three players in the market. Currently, it is not.
1997: Joint Venture China
CI was approached by Dutch entrepreneurs, having a company in China, with a proposal for establishing a joint venture. CI recognized a great deal of potential in China, and decided to use the joint venture to supply the Chinese (primarily Shanghai) market with milk powder. In the beginning the sales of this joint venture were highly successful. However, the products were being produced in Belgium, where the largest dioxin-problem in history came into existence in 1999.8 To protect the health of their population, many countries closed their borders for poultry, meat, dairy and eggs originating from Belgium, France and the Netherlands.
China was one of the countries to no longer accept dairy products from the abovementioned three countries. This created serious problems for the joint venture, and consequently it started to produce losses. Usually, a setback may be cushioned by both parties in a joint venture, but the company that Campina had partnered with turned out not to have the financial means to properly deal with the situation. Following this situation, Campina felt it had no choice but to end the joint venture. The fact that branding and quality are considered very important in China greatly contributed to this decision.
2000: Establishment of a yogurt-producing factory in Stupino
Campina had been exporting large quantities of dairy products to Russia, around 100 truckloads every week. It would even be profitable to build a new factory in Russia to supply the market from there. This would considerably reduce the costs of the products, because of cheaper resources, decreased logistical costs and the avoidance of import duties. Campina was a first-mover in this market9. A ‘Greenfield’ investment10 was made, and Campina is currently market-leader in Russia.
2001: Entry of cooperatives “De Verbroedering” (Belgium) and “Milchwerke Köln/Wuppertal” (Germany) into the cooperative of Campina
Campina wished to guarantee the influx of milk in order to continue growing. This made Campina decide to enlarge the cooperative. This was the main reason for Campina to increase the cooperative in size.
8 <http://www.elsevier-voedselveiligheid.nl/Dossiers/DossiersDioxine.htm> (January 15th, 2004) Dioxin is a carcinogenic agent, which may be produced by the combustion of organic materials during oxygen-low conditions. A Belgian fat-melting plant later turned out to be the point of origin of the contamination.
9 Interview, R. Poelstra, January 5th 2004.
10 R. Gilpin, Global Political Economy: Understanding the International Economic Order, Princeton: Princeton University Press, 2001.
2003: Production-line in Romania
Romania is one of the countries of which Campina has high expectations. Campina already exported dairy products to Romania, and since 2003 has its own production-line in the country11. CI had contacts with a local producer and is using one of its production lines to produce Campina products locally.
3.3.4 Conclusion
In order to realize and expand upon its internationalization and growth, Campina remained alert for any possibilities for acquisitions to arise, focusing on companies offering themselves for sale, for example due to an impending bankruptcy. Campina took a somewhat passive approach, rather than actively searching for interesting companies that met all the demands, for example by having a pre-established presence in a certain market or country. The modus operandi was to browse for any available well-priced acquisitions. In certain cases this has led to high costs later on in the entry-process.
Campina has made some decisions which were not completely supported by all the relevant actors and did not receive the desired effort and budgetary resources to make a success out of it. This has led to high costs and loss of both investments and chances. It is extremely important to make decisions concerning internationalization based on sufficient and relevant information in order to realize bearing within the company on all levels and to invest sufficient time and efforts to support the decision. This will decrease chances of failure.
Campina’s internationalization is running at a slow pace, because Campina is a co-operation. Its members/dairy farmers demand proof of a successful internationalization before granting permission for the next large investment for internationalization.
3.4 Direct Export Overseas
3.4.1 DEO’s Mission
Campina views DEO as a cash-cow12: the aim is to sell as much as achievable, with the least possible investment. It is primarily thought of as an exporting division. Export is considered the most common foreign market entry mode, due to the minimal business risks, low resource commitment and high flexibility of action it offers.13 DEO wishes to defend her existing markets for traditional products (milk powder, evaporated and condensed milk, cream and butter oil) for as long as this remains profitable, but as soon as the costs begin to outweigh the benefits, no new investments will be made into these markets. In order to spread risks and seek new opportunities, there is a search for new product-market combinations. The range of Campina Long Life products has been developed especially to suit this need. The division has several reasons to export, some are internally driven, others externally. Their actions can be proactive or reactive. The reasons for DEO are both internally proactive (managerial urge, growth and profit goals, economies of scale, unique product/technology competence) and internally reactive (risk diversification, excess capacity of resources) 14.
3.4.2 DEO’s History
By the late 1960’s, “Holland Canned Milk” (HCM) was a trade company selling dairy products directly for the dairy farmers. The main purpose of this trade company was to sell these products, profitability was of secondary importance. No milk-quotas15 had been established by the government at that time, and production of milk was as high as possible. Campina wanted HCM to start selling their products exclusively, and therefore decided to take over HCM. Thanks to this trade office, Campina now had an expanding worldwide network of contacts at its disposal.
Through the years, Campina’s presence in different countries has varied a great deal. Every year, a number of countries are added to the list Campina exports to, and a number is dropped from that list because of decreasing sales.
11 Interview, J. van Zeeland, December 16th 2003.
12 DEO Strategic Plan 2002-2006.
13 L.C. Leonidou & C.S. Katsikeas, ‘The Export Development Process: an Integrative Review of Empirical Models’, Journal of International Business Studies, 3rd quarter 1996.
14 G. Albaum, J. Strandskoc & E. Duerr, International Marketing and Export Management, Essex: Pearson Education Ltd., 1989/2002, p. 35.
15 A farmer is only allowed to produce as much milk as he owns quotas for. Trade is possible with quotas.
An Instrument for Systematic Country Selection Campina’s Internationalization
Campina is well represented in Saudi Arabia, where it sells its products under a private label16. Saudi Arabia represents almost one third of DEO’s turnover17 and therefore receives extra attention. Apart from the Middle East, DEO also sells the traditional range of products in Africa, Asia and Central America. Campina’s main product in these markets is Campina Coast (milk powder). DEO does not trade, however, in the continent of North America. For example in Canada, import duties are extremely elevated (for yogurts, this level reaches 244 per cent18), rendering export there virtually impossible. In the United States, there is fierce competition, and very little potential for growth. Should Campina wish to enter the market in the United States, it will be necessary to buy a market position by taking over another company19. Campina’s current policy does not allow for such a large investment in this region, and consequently, the United States are not viewed as a potentially interesting market for Campina’s products.
3.4.3 Steps for Internationalization by DEO
As mentioned before, DEO was originally a trade office. Since becoming a part of Campina, the existing connections have been used to sell the available products. These connections are widespread across the globe.
In the past, these contacts have been realized by means of an exploratory effort and by means of networking by the company, managers and their customers. Oftentimes, sales managers would travel to a specific region in order to assess the suitability of the market and the potential customers. Recently they have initiated a more proactive approach with the CLL project.
3.5 Model of Internationalization
Based on the findings of this chapter, the internationalization of Campina will be positioned in the model below20. This provides a clear picture of the degree of internationalization of the company.
Campina maintains a defensive attitude towards its traditional products. Regarding the range of CLL products, the attitude is decidedly more offensive and proactive. Campina has entered markets employing numerous different approaches. Campina exports directly into a large number of countries and sometimes indirect re-exports exist. It possesses sales offices and factories abroad, has undertaken various acquisitions in foreign countries and has even undertaken a ‘Greenfield’ investment’. Campina maintains a presence in many different regions, lacking only presence in the North American markets (even though the Industrial Products division of Campina does have a presence there). Therefore, there are significant differences to be noted between the different markets abroad on the one hand and Campina’s home-market on the other hand. The model reflects the high degree of
internationalization in most of the pillars. Only the attitude towards international business lags behind compared to the other pillars. As mentioned before, there is a shift of attitude noticeable within Campina. This shift has started with the introduction of the Dairy at Your Service (DAYS) project and is continued in the realization of the CLL range of products.
16 Products are being manufactured by Campina, and sold by the customer under its own brand name.
17 Budget 2003
18 Pascual, Import Duty Information, 2003.
19 Interview, R. Poelstra, January 5th 2004.
20 A. Sorge e.a., `Organisational Learning in SMEs-Feedback Effects of Growing International Commitment´, Internationalisation of European SMEs, p. 106-120 (Syllabus: Reader International Strategic Management 2002).
FIGURE 3.2:Model of Internationalization
3.6 Conclusion
This chapter discussed the reasons for and the degree and strategies of internationalization for Campina.
Concluded was that Campina has made some decisions which were not completely supported and did not receive the desired efforts needed to make a success out of it. This has led to high costs and lost investments and chances.
Campina may be characterized as having an overall defensive attitude, but with the CLL project, it is moving towards a more offensive and proactive approach. Campina reflects a high degree of internationalization in most of the pillars of the model. Only the attitude towards international business lags behind when compared to the other pillars.
In the following chapters, a focus will be made on the division DEO. International marketing theories will be reviewed as well as the policy within the division. This will be done in order to abstract the most important criteria for the analysis of new countries to develop a tool for the sales managers.
Number of world regions in which a firm does
business
Number of entry modes
Foreign entry modes Attitude towards
international business
Degree of similarity between foreign and domestic countries (psychic distance)
HIGH
MEDIUM
LOW One
Several Many
Quite similar Moderately
similar Very
dissimilar
One
Several
Many
Export ISAs
Foreign subsidiaries Offensive attitude
Defensive attitude
Domestic Business
An Instrument for Systematic Country Selection International Marketing
Chapter 4 – International Marketing
In this chapter, the basis of the assessment of country-markets will be laid down for this thesis. The potential assessment criteria will be abstracted from existing literature and will be presented here.
4.1 Introduction
When a company internationalizes it may view the entire world as made up of a variety of potential markets.
Because of limited resources, companies cannot serve all potential markets, but they must select the most appropriate ones. Some companies focus on product-markets (groups of customers seeking shared benefits or to be served with the same technology), emphasizing their similarities regardless of the geographic areas in which they are located. Other companies focus on country-markets, seeking customers with differences due to the physical location of the customer groups 21.
For Campina it is important to know where in the world groups of customers are located that fit into their product- market. Therefore this chapter will discuss the factors which may be considered when analyzing a country’s attractiveness according to international marketing theories. An overview of these factors will be provided in accordance with the theories of Mühlbacher, Dahringer and Leihs.
Primarily, the relevant aspects of the macro-environment will be discussed, followed by the aspects of markets.
4.2 Macro-Environment
According to Mühlbacher, Dahringer and Leihs, global marketing processes should be initiated with an assessment of potential country-markets. When assessing the macro-environment, one should look at the economical environment, the political and legal environment, and cultural environment. These aspects will be discussed in terms of their effects on country-market attractiveness. When a suitable country-market is found, the manager can search within a country for a suitable product-market.
4.2.1 Economic Environment
A comparison of the current states of the economic environments in the country-markets served or being
considered, and their potential developments, allows the marketer to decide how to ‘manage’ those environments.
To evaluate the economic environment, the bases and indicators of economic wealth should be considered.
Economic wealth, based on a country’s human, natural as well as technical resources, affects a nation’s ability to produce and to offer a viable market for products. To assess a country’s economic environment, the following aspects should be considered.
• The population should be reviewed, including its size and growth, immigration, age distribution, urbanization and capabilities. The population provides a potential local product-market and is therefore important. Size and growth of the population can be an indicator of the sales potential in a country. Populations can also grow through immigration. The age distribution can be used to estimate the potential target group (young families, children, etc.). The degree of urbanization (this represents concentrations of potential customers) can also be an indicator of potential target groups. The capabilities of the people in a country influence its economic wealth (available knowledge, literacy, technology, etc).
• The natural environment represents an important source of potential wealth for its population. To assess the natural environment, the natural resources, topography, climate, its impact on country-market viability and sustainability should be reviewed.
• Technological resources, including transportation-, communication-, and commercial infrastructure should be examined. When a country lacks technological resources this may cause a considerable barrier to entry. A company’s needs should be related to the available resources.
• The economic system, including industrial sectors, economic decision making, centrally controlled
economies, economies in state of transition and mixed economies should be analyzed. When considering the economical sectors it is relevant whether the economy is to be considered a monoculture, meaning that a single industrial or agricultural sector is dominant. A country will then rely upon a commodity, with strong price cycles and relying on the mercy of the world-market price for the commodity. This price may fluctuate and cause economic instability.
• Indicators of economic wealth should be examined, such as the national product (Gross National Product (GNP) and Gross Domestic Product (GDP)), balance of payments, exchange rate, and the foreign investment
21 H. Mühlbacher, L. Dahringer and H. Leihs, International Marketing: A Global Perspective, London: International Thomson Business Press, 1999.
ratio. In general, the higher the level of economic development, as measured by the GNP, the more economically viable a country’s economy is likely to be. The GDP per capita can be used as an assessment- criterion for individual purchasing power.
A decision has to be made as to which characteristics of the economic environment are relevant to the company’s business. In order to assess the attractiveness of a country-market’s economic environment, the international marketer or manager needs to establish a list of evaluation-criteria against which to systematically compare potential and served markets. Those criteria that have been chosen should be relevant to the product-markets of the company. If this analysis yields positive results, the manager may continue the evaluation process.
4.2.2 Political and Legal Environment
Most companies are not able to influence their political and legal environment directly, but their opportunities for successful business activities largely depend on its structure and content. Therefore an overview of these aspects will be given. When assessing the political environment, the following are important:22
• The political regime’s stability, form of government, parties and interests groups are significant.
• The major political objectives in the country, including political sovereignty, national prestige and prosperity, national security and the protection of the cultural identity are relevant aspects to consider.
• For companies wishing to enter a market, the international trade policy, consisting of export/import policy (export/import assistance, trade barriers, investment policy, foreign direct investments, subsidies, take-overs, and operating conditions) and trade sanctions should be analyzed.
Reviewing the legal environment, there are a number of aspects to consider, namely:
• The international business law (legal systems, agreements and conventions, extraterritoriality, and the court system),
• Regulations concerning competition (deregulation of markets, anti-trust controls and dumping)
• The regulations concerning the marketing mix (protection of industrial property rights, product liability, restrictions of sales-promotions, price regulations, regulations of distribution and sales and regulations of business relations) should also be considered.
A comparison of the environments’ impact in the served or considered country-markets will allow the international manager to decide how to attempt to manage those environments.
4.2.3 Cultural Environment
All behavior takes place within the framework of a culture. According to Mühlbacher c.s., culture may be defined as the prevailing standards of beliefs, perception, evaluation and behavior shared by the members of a social group. A marketer must determine the specific role culture plays in the company’s product-markets. It may influence business success via consumer culture (the cultural factors determining consumer decision making and behavior) and through business culture (all cultural factors influencing business behavior). It is important to understand the cultural differences and similarities. The following should be considered:
• Consumer culture, including national cultures (individualism, power distance, uncertainty avoidance, and competitiveness) and international subcultures as well as
• The business culture, including the layers of business culture (national-, industrial- and corporate cultures), business manners, business negotiations, business relationships and business ethics should be examined when thought is being given to entering a country or product-market.
It is important to recognize which factors are of influence on the behavior of potential customers in the firm’s product-markets. To obtain this knowledge, the following aspects should be reviewed: 23
• Values and norms (religion, work, achievement and wealth, risk taking and change, and consumption).
These factors not only influence consumer behavior, but they influence the manner of conducting business too.
• Communication (language, paraverbal and non-verbal communication and context relatedness),
• Aesthetics. This aspect is important, because it affects customers’ responses to the product, design, labeling and packaging.
• The social organization, including the social roles and social groups are important aspects to review. The social organization provides the framework of a culture. It entails the basics of a society, in terms of what consumers and organizational buyers are expected to do or not to do.
22 C.S. Craig & S.P. Douglas, International Marketing Research, West Sussex: John Wiley & Sons Ltd, 2000.
23 G. Albaum, J. Strandskov & E.Duerr, International Marketing and Export Management, Essex: Pearson Education Limited, 2002.
An Instrument for Systematic Country Selection International Marketing
Marketing practices in a country are very much culturally dependent. Adaptation of the marketing mix is needed in many cases when the target customers belong to different cultural environments. The international
manager/marketer must determine a list of cultural factors specific to its product-market(s) which are important for business success.
4.3 Market characteristics
An international marketer needs to assess a market’s characteristics before entering the market. Important aspects to analyze are:
• Market structure, including potential, volume, import/exports and the development.
• Consumers, including their buying power, buying and usage behavior, product-specific physiological characteristics, lifestyles, preferences and needs.
• Intermediaries, including number, reliability, margins expected, size, buying habits.
• Competition, including number, market shares, apparent strategies, product lines, price levels, size, profitability, positioning, distribution policy, promotion policy.
4.4 Conclusion
In this chapter many criteria were mentioned which were abstracted from international marketing theories. To create a valid and useful model of criteria for the analysis and choice of countries to enter for Campina, it is important to assess which of these criteria are especially relevant for the company. For this reason, an analysis of the modus operandi of DEO was made as well as a survey, which formed the basis for the formulation of the model of criteria and the selection of the criteria.
In the following chapter the Modus Operandi of DEO will be presented, focusing on important criteria for the entry and manipulation of country-markets. In Chapter six, the abstracted criteria will be presented in a Model of Criteria.
