How to Manage International Expansion

You can’t run foreign plants from Springdale or Buffalo, but you can put in place the proper local infrastructure to increase the chances of success.

By David Feder, Contributing Editor

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Going global is a given. As overseas economies move toward creating a universal middle class with increased individual spending power, food and beverage makers recognize vast untapped demographics of consumers.


Note to the CEO
James Rice, vice president and country manager-China for Tyson Foods Inc., has recommendations for companies moving into China, or anywhere outside of the U.S. for that matter. 
Be ready to adjust your business model, both culturally and structurally, for the market you’re going into. You cannot copy and paste the American business model to another culture or country; U.S. companies that do this always fail.
Review your business model every year. Don’t come in with the attitude, “It’s the American way or the wrong way.”
 Low cost means you have to enter a market with a value proposition relevant to the local consumer. Outside the U.S., this is generally low margin-high volume.
You must hire a local team to run the local operation. You cannot run an overseas business by remote control.
For the Chinese market, there are three key factors: speed, flexibility and low cost. These are strengths of the Chinese companies which you will compete with, and is something American companies still are not naturally good at.

This is especially important when considering the tighter purse strings of the middle-class consumer here at home. But before going overseas, anyone planning to build, manage or link up to an international operation has to lay the groundwork or risk all.

“It starts with having the right people on the ground, those who really understand the marketplace,” says Kevin Malchoff, president of the international business group for Rich Products Corp., Buffalo, N.Y. “That will ensure you have an accurate understanding of the unique cultural aspects of the country you are attempting to do business in, and ultimately will resonate with the customers with whom you’re attempting to build a relationship.”

That said, Malchoff also points out there are certain values that are universal across cultural barriers. “All of our customers across the globe are highly focused on product quality and safety,” he says. “While laws and regulations may differ from country to country, demonstrating your ability as a company to produce high quality, safe products, in a safe process are the table stakes of doing business anywhere in the world.“

The standards Rich’s sets for itself in the U.S. are the same standards it follows everywhere else. The company’s motto on the subject is, “Do what’s right no matter what.” Based on that, Rich’s doesn’t compromise safety or quality, even if the standards are lower in the host country.

Another critical aspect to consider when planning international expansion is logistics, especially for food companies with refrigerated or frozen products. “The distribution infrastructure in developing countries just aren’t as advanced as they are in North America, and it can be a challenge to find a reliable cold-chain transportation and warehousing network to meet your needs,” Malchoff says.

To solve this problem in China, Rich’s established a joint venture relationship with a local cold chain logistics company, KX Logistics. “The partnership we developed with KX provided us with much greater distribution access in China and confidence our products will be warehoused and delivered in a quality-preserving and safe manner,” explains Malchoff. “It’s been a key driver in the accelerated growth we’ve experienced in China.”

Rich’s has built an international manufacturing network that includes locations in Brazil, Canada, Mexico, China, South Africa, Thailand, India and the U.K. And this month, the company will be celebrating the grand opening of a state-of-the-art non-dairy topping and icing facility in Vietnam.

Because of its global plant experience, Rich’s is forming a consulting service to help other companies looking into setting up operations in foreign countries, with a focus on China. “We’ve been doing business internationally for more than a quarter century, so we’ve dealt with many of the challenges companies new to international business expansion may encounter,” Malchoff continues. “We think we can leverage our global expertise to help guide other companies as they begin to expand beyond their borders.”

Avoiding cereal killers

Establishing a global operation can happen without leaving North America. While most persons thinking of a foreign plant focus on Asia, it’s easy to forget the two major markets in our back — and front — yards: Mexico and Canada.

One of the most recent expansions for U.K.-based Weetabix Co. was into Canada. The ready-to-eat cereal giant had long “gone global” when it took over cereal, bar and cookie-maker Barbara’s Bakery, Petaluma, Calif. Its expansion to the U.K.’s “other colony,” Canada, posed its own challenges.

“While certainly Canada has a culture much like the U.S., it also has its own consumer complexities to consider,” says Kent Spalding, vice president of marketing of Weetabix North America/Barbara’s Bakery. “We worked to understand the taste preferences — especially flavor profiles — that are most popular.”

The company then looked at both competitive and out-of-category offerings to determine trends that appeared to be emerging. Ideally, Spalding explained, a company should seek a trend or functionality it already is well positioned to compete with through both its intellectual and process capabilities.

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