Looking from the surface, the Gross National Income (GNI) per capita would be an indicator telling the market potential in the sense of market size. From the above statistics, using Hong Kong, our host region, as a base for comparison, most probably Indonesia, the Philippines, and Vietnam would not be a satisfactory choice for reentering. Their GNI per capita is far below Hong Kong’s which means limited potential for further development.
Then, we look into the health expenditure per capita of each country. Even though health expenditure not only composed by the spending on health products, the figure can reveal the need of people on health care. Since our products are classified as health product field, this indicator would be worth considering. For the already kicked out countries, we can see that their health expenditures are far way behind some favorable countries like Australia, Canada, the USA and the Netherland, which account for over thousands US dollars per capita in those countries.
Elimination till now leaving four choices left, they are Australia, Canada, the USA and the Netherland. By checking up the rules and regulations, Netherland would not be a favorable option since she implements the strict rules and regulations of the EU lately which is unfavorable to Chinese herb supplements, saying that the usage and ingredients are in doubt according to their authority’s point of view.
We further look into the population pyramids of the countries:
Source: US Census Bureau
Our products’ target customers are mainly 50-59 aged population because people at this life stage are more health conscious and more willing to spend on health supplements according to research findings. In order to find the most suitable country choice, we have to see where more potential customers are.
From the population pyramids, it is not difficult to see that the three countries have potential aging populations and there are not few populations in our target customer age. We have to look carefully into the units that the graphs used. Although the bars of the 50-59 aged populations in Australia are outstanding, the unit is in thousands. In fact from the statistics, the most potential country is the USA with over 40 million of the targeted populations there.
According to the analysis of our choices for reentering market, we make up the conclusion of choosing the America as our decision. We believe that with the substantial market potential, it is worth reentering with more resources and further introduce the Chinese herb supplements into non-Chinese customer market. With more lenient regulations on Chinese herb supplements and the arising awareness of Chinese health philosophy, we would have an advantage to distinguish ourselves from the natural health product market.
Porter’s Diamond Model
USA: A Strategic Location Choice
In this section, we shall evaluate the competitive edges the USA may provide Wai Yuen Tong with in terms of government regulations and factors in the conventional Porter’s Diamond Model.
Government
The relevant laws and policies in the USA indeed appear to be very much in favour of Wai Yuen Tong.
Dietary Supplement Health and Education Act (DSHEA)
The DSHEA provides a clear definiation of “dietary supplements” as distinguished from pharmaceutical products. Insofar as is material to Wai Yuen Tong, a “dietary supplement” is ‘a product that is intended to supplement the and contains … a or other … or a concentrate, metabolite, constituent, extract, or combination of any of the above.’ It must also ‘be intended for ingestion in pill, capsule, tablet, powder or liquid form ... ’ The majority of Wai Yuen Tong’s products fulfills such definition and would therefore be categorized as “dietary supplements” under the US law.
Regulations by the Food and Drug Administration (FDA)
Such categorization of its core products provides a clear advantage to Wai Yuen Tong. Its products need not be pre-approved by the FDA before being pushed to the market. The FDA has also adopted a Current Good Manufacturing Pratices (cGMP) policy to ensure the manufacturing standards in the industry. Wai Yuen Tong has already been awarded the certification of GMP by the Chinese Medicine Council of Hong Kong and the Australian Therapentic Goods Administration. We are very confident that Wai Yuen Tong’s manufacturing practices are up to the standards as set by the cGMP policy.
Office of Dietary Supplements (ODS)
The ODS has been established to coordinates research efforts on dietary supplements. The availability of authoritative papers have significantly boosted
consumer confidence in dietary supplements.
Firm Strategy, Structure and Rivalry
According to the Nutrition Business Journal, the data shows that in the US dietary supplement market, herbal supplements accounted for 1/5. With the continuous improvement of quality, the market continues to expand, it proves that US have great acceptability towards the herbs.
Strategy
The most important strategy in the dietary supplement industry is to pass the quality tests regulated by the US government, such as GACPs (Good Agricultural & Collection Practices), GMPs (Good Manufacturing Practices) and so on. And Wai Yuen Tong has met the above qualifications.
In addition, a 2011 economics research report also pointed out that dietary supplements got stable prospect, because the market environment has been very mature. And the U.S. health-conscious people in general prefer dietary supplements than a prescription drug or surgical procedures that can be avoided, so the businesses will not be affected significantly even during the recession.
Structure
Four-firm and eight-firm concentration ratios (CR4 and CR8) and Herfindahl-Hirschman indexes provide preliminary information that is useful in determining the structure of the market. Based on the information in the Nutrition Business Journal 1997, the CR8 for the herbal and botanical raw material market was 36 percent. It showed that small-medium sized herbal supplements companies could success in US market in the 1990s.
However, small companies become harder to reach customers due to the regulations and new establishing standards for DS products by NNFA (National Nutrition Foods Association). The trend is superior to Wai Yuen Tong, the company that of large-scale and got enough capital to fulfill the testings.
Rivalry
Currently, some of the U.S. companies have become strong competitors in traditional Chinese medicine industry, their annual income is about half of the worldwide spending on Chinese medicine while the Chinese company only got 3%. The reason is that many U.S. companies know that Chinese companies rarely apply patent for the medicine, so they have mastered the skills of traditional Chinese medicine from the Chinese companies and apply patent one step ahead. Fortunately, the selling point of Wai Yuen Tong is mainly their own developed products, like Young Yum Pill, we believe there is still a certain market,
Demand Conditions
Population
According to the U.S. Census Bureau, U.S. population has already reaching 308,745,538 people in 2010. It is forecasted that the number will continuously increase to about 311,800,000 in mid-2011, and to stay third in the world population ranking, following China and India.
The U.S. Census Bureau also expects the number of U.S. population will keep growing in the following 40 years and reach 420,080,587 until 2050. Chinese-American is the largest Asian group in the United States. Until 2009, the number of Chinese descent in the U.S. has reached nearly 3.8 million, while the percentage growth of the Asian population equals 2.6%, which is the second fastest-growing minority group in the country.
With the population growth, aging population becomes a serious issue for the U.S.
The age group 60 or above is predicted to growth by 7.1% from 56,986,401 in 2010 to 112,036,396 in 2050. This issue is additionally expected to offer an advantageous business case for herbal supplements.
The growing popularity of natural herbs
Also, according to New Report by Global Industry Analysts, Inc, driven by the growing popularity of preventive healthcare and consumers increasing preferences towards natural herbs, the world herbal supplements and remedies market is expected to reach US$22.9 billion by the 2010.
It is believed that the main factor that triggers the acceptance of herbal supplements to grow is the growing public awareness of health and dietary issues. Increasing availability of information from media sources has enhanced peoples’ knowledge about curative properties of different herbs, together with factors such as scientific research, clinical trials backed claims of product safety and efficacy of products, peoples’ confidence in herbal supplements has significantly and effectively increased.
Factor Conditions
The most important advanced factor that we may choose USA is the management staff. It mainly consists of two segments including overseas Chinese and American mangers.
American mangers
According to Occupational employment and wages by major occupational group, United States 2010, there are 4.7% of the overall workforces working in the management occupation group. It seems that the supply of managerial labor is large enough to find someone to support the branches of Wai Yuen Tong in the USA. Besides, it is well-known that the managerial professionals in USA are experienced and efficient. They are good at approaching to change and empowerment. For approaching to change, they may revise the sales plan regularly to find the most flexible way to obtain the maximum benefit. For the empowerment, employees will be delegates so they can make their own decision in the field of the job responsibility without any complex procedures.
Overseas Chinese
According to U.S. Census Bureau, American Community Survey 2009, there were 750,000 foreign born in the USA where China is about 5.2% of the overall contribution. This statistic really reveals that Wai Yuen Tong will have a high opportunity to find the oversea Chinese as staffs who will bring a large benefit. The main advantage is that they can act as a bridge between the American mangers and the Wai Yuen Tong because they may approach the Chinese medicines more easily and find the major idea of what they are and how to work. Therefore, they can help explain the major concept of herbs products of Wai Yuen Tong to the American managers so they can find the most suitable way to sell the products.
Related and Supporting Industries
Express Carrier Support
The interstate highway system in USA is perfect enough that it is easily to distribute the herbs products directly to all cities. Besides, there are many express carrier services provided locally such as Quality so they can further deliver the products efficiently with a large coverage.
Direct Marketing/Sales Reps Supports
There are three main distribution channels for herbal products in USA including Mass market, Specialty Shops and Direct Sales. Mass market includes food/grocery, drug, mass merchandise, club and convenience stores, including Wal-Mart, Costco, etc. Specialty Shops include supplement and specialty retail outlets, including Whole Foods, GNC, sports nutrition stores, etc.Direct Sales include Mail Order (including catalogs), direct mail and direct response TV and radio; practitioners representing conventional and alternative practitioners selling to their patients, including ethnic herbals and herb shops; Multilevel (MLM) or network marketing representing firms like Advocare, Herbalife, Nature's Sunshine, NuSkin (Pharmanex), Nutrilite (Amway/Quixtar), Shaklee, etc. Among these three channels, Direct Sales contributes to the largest proportion which is about 51.4%.
International business strategy
In considering which international business strategy to apply, two key points should be noted, namely the cost reduction pressure and the local responsiveness pressure.
As to cost reduction pressure, since the costs of production of WYT products are quite high, we consider our products as mid-range to high end products. Moreover, there is not much resemblance of similar kind of herbal supplements in the US market. So, the pressure for cost reduction is rather low.
Next, we have to consider local responsiveness pressure. This factor is further divided into 3 sub-factors in our case.
First of all, consumer taste has to be taken into consideration. In the US, quite a number of people take supplements like blueberry essence and omega3 fish oil in tablet or capsule form. Since WYT products are mainly in the form of capsule and tablet, unfavorable or pungent odor of Chinese herbs could be avoided. Thus, people in the US should be familiar with this kind of supplements and should get used to intaking Chinese herbal supplements.
Besides, the US Government has regularly lax regulations on herbal supplements. Most of the regulations only require simple labeling which could be easily complied with. It is also noted that strict rules on pharmaceutical products will not apply to WYT herbal supplement products.
Thirdly, we also have to be aware of the differences in distribution channel. Multiple steps shall be carried out. We will first copy the way of selling practice in Hong Kong, which is to open flagship stores and enable online shopping. When the people in the US become familiar with WYT products, we will start to practice direct-selling method. This is a popular method used in many foreign countries for selling supplements. So, these 2 steps should not be difficult to carry out.
Combining all the three sub-factors of local responsiveness pressure, the pressure is deemed to be low. Also, the pressure for cost reduction is low, too. We, therefore, will choose ‘International’ as our international business strategy.
Mode of entry
In consideration of the entry mode, we have to first analyze the present situation. We are now re-entering the USA market to rectify the rooted problem hindering the expansion of Wai Yuen Tong to overseas market. Wai Yuen Tong is now exporting their goods to USA through an agent, named Uncle Bill (USA) Trading Inc. However, the revenue in exporting Wai Yuen Tong goods to USA is very small. (the international revenue, except Hong Kong (country of domicile), other regions in the PRC and Singapore, contributes less than 3% of the total revenue)
Uncle Bill is a trading company distributing different kinds of brands. Uncle Bill may not allocate much of its resources on Wai Yuen Tong goods, leading to lower brand awareness and lower sales. Thus, a new entry mode would be used to ensure that Wai Yuen Tong goods are selling right and selling good.
There are four common modes of entry that we can consider, namely, exporting, international licensing, wholly-owned subsidiaries and strategic alliance. These require different lead time, cost and level of risk-bearing and we will discuss it one by one. As far as exporting is concerned, it requires least time, cost and possesses least level of risk. However, the problem of Uncle Bill may persist for either direct or indirect exporting. Intra-corporate transfers may be considered. Regarding international licensing, time, cost and level of risk-bearing is also low. As franchising is the key strategy to business development for Wai Yuen Tong at Hong Kong, Wai Yuen Tong is ready for international licensing. Wai Yuen Tong
has already developed a comprehensive training system and standardized code of shop design, uniform design and so on. However, US investors may not be interested in entering into franchise agreement due to the low name recognition of Wai Yuen Tong in USA. For wholly-owned subsidiaries, time, cost and level of risk-bearing is the highest among the four. Time consumed may be lesser in the case of Brownfield strategy, acquiring existing entities or assets. However, as there is no local entity selling dietary supplement with suitable size and price is available for sale, Greenfield strategy, building new entity, is more likely to be adopted if wholly-owned subsidiaries of Wai Yuen Tong is established. In term of strategic alliance, time, cost and level of risk-bearing depend on the way of strategic alliance. Acquisitions are mergers is too expensive for Wai Yuen Tong. Joint ventures may not suit Wai Yuen Tong for their special tradition Chinese medical nature and global vision. Joint venture with other dietary supplement manufacturing might lead to lose of control over the tradition Chinese medical ingredients, a major element of Wai Yuen Tong’s products. It might also impede global coordination of Wai Yuen Tong, as Wai Yuen Tong is aiming to be a local brand with a global presence. Networks may be a better strategic alliance for Wai Yuen Tong as it does not require any formal code sharing agreement but it still allow synergy for Wai Yuen Tong and other organization.
Therefore, balancing the cost and benefit, Wai Yuen Tong should choose its entry mode from intra-corporate transfers, wholly-owned subsidiaries and networks. Mix of entry mode will be used to enjoy full benefits of them. A progressive entry of US market will be conduct.
Started with establishment a wholly-owned subsidiary, Wai Yun Tong (USA), intra-corporate transfers and networks will be followed. During the lead time for the establishment of WYT(USA), Hong Kong mangers will be sent to recruit staff and collect market information. At the same time, opportunity of networking will be explored. A likely partner will be P&G. As Wai Yuen Tong and P&G has cooperated since 2009, to deliver the Chinese herb shampoos to consumers, trust and networks have been built between Wai Yuen Tong and P&G. With the cooperative relationship, P&G can produce new products fearing the use of traditional Chinese medicine and gather information for the dietary supplement market for the fear of its competitor.(his competitor, Unilever has already get a line of dietary supplement under the brand of Knorr). P&G is famous for its marketing and supply chain management. Wai Yuen Tong can learn those from P&G and navigate around the barriers of the market, such as insufficient market knowledge and lack of distribution channel network and so on, entering the market rapidly while keeping the costs down.
Even if P&G refuse to cooperate with Wai Yuen Tong, the wholly-own subsidiary, WYT(USA) can still operate on its own to import the goods of Wai Yuen Tong by intra-corporate transfer. By intra-corporate transfer, externality can be reduced while high control can be maintained.
The mix of entry mode will be conducted in stages for lower cost, lower risk and higher penetration of market.
Implementation
Human resources
Hong Kong managers will be sent to the US subsidiary. Hong Kong managers have knowledge about Wai Yuen Tong, so they will take up the leading role in setting up the company. They can also utilize knowledge gained from overseas Chinese market since the location is close to China Town. US sales reps and managers are employed as frontline staff. Wai Yuen Tong has been focusing on the Southeast Asian market, it has limited exposure to the Western market. Therefore, US staff can provides local market knowledge of which WYT is lacking of. Due to cultural differences, there may be communication problems between HK managers and US staff. Thus, we will also employ overseas Chinese to act as a cultural bridge. Overseas Chinese possess knowledge about Chinese medicine and are proficient in both Chinese and English, so they can facilitate communication within company.
Marketing-4P
Our target market is high income group, including both overseas Chinese and local American.
Product
Since the health concern in America is rising, and those who have high income are more willing to spend money on health, we will position our products as high quality natural products that facilitate health.
Pricing
WYT’s products are high-end product. Therefore, we will set a higher price. We believe a higher price will not stop our customers from buying the products since our target market is high income group whose sensitivity to price is low.
Promotion
We will seek strategic alliance with P&G. The alliance is beneficial to both WYT and P&G. P&G can make use of WYT’s technology in Chinese medicine to develop new products in order to differentiate from its counterpart such as Uniliver while WYT can make use of P&G’s sales network in US and market knowledge in entering US market. Moreover, WYT has cooperated with P&G before. Strategic alliance is possible.
To reach our target customer, we will advertise in magazines that concern about health issues (e.g. Reader’s Digest, Cosmopolitan). We will also put our advertisement on various websites. Since the coverage of websites is very large, we can raise public’s awareness of our brand.
Place
We will open a flagship store near China Town in New York. The flagship store can help to build reputation. We choose a location near China Town because we can secure sales from overseas Chinese market to sustain daily operation and collect information of US market at the same time. We will also make use of direct selling and online shopping as they are popular distribution channel in US. When we have built up reputation in US, we will look for franchisee to further expand our market share in US.
“Overview of Dietary Supplements”, US Food and Drug Administration, .
, US Food and Drug Administration, .
“Company Introduction”, Wai Yuen Tong’s Offical Website, .
“About the Office of Dietary Supplements at the National Institutes of Health”, Office of Dietary Supplements, .
Journal Articles: Alexander Kasterine and Kerry Hughes(2011), “ The North American Market For Natural Products” International Trade Centre, 13.
Mary K. Muth, Donald W. Anderson, Jean L. Domanico, Jennifer B. Smith and Brett Wendling, “Economic Characterization of the Dietary Supplement Industry”, Research Triangle Institute, 5.14-5.16.
(1/5/2007)，「外商拓展大陸中藥市場面臨的問題」，香港經貿商會
http://www.hketa.com.hk/art_detail.asp?tp=234
http://www.prweb.com/releases/herbal_supplements/herbal_remedies/prweb707734.htm
http://www.bls.gov/ro6/fax/oes_dfw.htm
www.census.gov/prod/2010pubs/acsbr09-15.pdf
