GlobalBusiness Research Project
GlobalBusiness Research Project
Forthe last couple of years, heart disease has emerged as the leadingcause of death for men and women in the U.S. According to the CDC(2016), about 610,000 Americans succumb to a heart condition on anannual basis. Additionally, approximately 735,000 people in the U.Sexperience heart attacks on an annual basis. It is within thiscontext that the Heart Juice Company came into being. Two friends,namely Ray Li and John Vitug, founded the company. They report thatthe idea to come up with a beverage that would be friendly to theheart initially came up in 2009 when they were still in college, butit was not until 2011 when they produced and marketed their firstever bottle of Heart Juice. The main ingredient in the Heart Juice isHawthorn berries, fruits known to be rich in antioxidant properties.The berries are also known to help lower high blood pressure andcounter angina while at the same time strengthening the heartmuscles. According to the business founders, their company does notonly seek to generate profits, but also aims at making people awareof the negative effects of heart diseases and the benefits of healthyliving. Currently, Heart Juice, as a brand, is only available inabout 200 stores in New Jersey, Pennsylvania and New York (HeartJuice, 2016). As the first beverage company solely focused onpromoting heart health in the U.S, going global promises to make thecompany and its products even more popular because of the highprevalence rates of heart disease on the global front.
BriefAnalysis of the Company and its Products
Theidea to develop a product aimed at promoting heart health first cameto Ray Li when he was still a student at Rutgers University after helearned that one of his professors had suffered a heart attack. Lidecided to talk to the professor later on, bringing up the topic ofHawthorne berries and their antioxidant properties. He was surprisedto learn that the professor was not aware of these fruits (HeartJuice, 2016). Upon sharing the story with a friend, John Vitug, theydecided to produce the Heart Juice. While still in the planningstages, the idea won the Rutgers Business Plan Competition. It isthrough the prize money from this competition, their savings andsupport from family and friends that they established the Heart JuiceCompany, producing their first batch of product in 2011 (Heart Juice,2016). The Heart Juice is unique among the many beverages currentlyin the U.S market due to its proprietary combination of resveratroland Hawthorn berry extract, all known for the important role theyplay in keeping the heart healthy. From producing a single flavor ofHeart Juice, the company has three flavors currently and has expandedits presence from New Jersey to Pennsylvania and New York. As thefirst commercial product of its kind, the prospects for Heart Juiceseem promising. By reaching out to a wider market, both within andoutside the U.S, the company has the potential to generate a lot ofprofits while at the same time contribute to a healthier globalpopulation.
TheNeed for Expansion into the Global Market
Theprevalence of heart disease, clinically known as CardiovascularDiseases (CVD), has not only been high in the U.S, but also in othercountries, both developed and developing. Approximately 17.5 millionpeople around the globe die from CVDs each year. CVD is reported toaccount for 31% of all deaths around the world, making it the leadingcause of death. The death rates as a result of CVDs are expected toincrease to 23.6 million people per year by 2030. Over 75% ofCVD-related deaths take place in low and middle-income countries.Vilahur et al. (2012) indicate that despite CVDs prevalence ratesreceding in most developed nations, their prevalence continues tosoar in low and middle-income countries. They posit that acombination of factors has contributed to this turn of events, keyamong them being the inadequate prevention programs, higherexposition to cardiovascular risk factors as well as limited accessto quality health care services. Lifestyle-related activities such aspoor diet, lack of proper exercises and smoking have been identifiedas some of the leading risk factors for CVD (Deaton et al., 2011).Making proper diet choices has been singled out as one way throughwhich people in both developing and developed countries can ensurethey do not develop heart complications.
Thehigh prevalence of CVD on the global level as well as the fact thatlifestyle choices such as proper diet lower the risk of developingCVD has witnessed the emergence of many companies aimed at promotingheart health. Leading beverage companies such as Coca-Cola and Pepsihave introduced a range of products with low sugar levels. Similarly,hundreds of start-up companies marketing organic foods and beverageswith numerous health benefits have emerged. Many consumers of foodand beverage products have also become health conscious, with most ofthem demanding products that are organic and low in calorie content.According to Euromonitor (2016), the demand for healthy beverages hasbeen on a steady rise over the past two decades, with recent yearswitnessing a shift away from purely low-calorie variants towardsthose that also have specific health benefits.
Approximately51 million millennials and 76 million baby boomers are estimated tolead the demand for healthy beverages (Factsfiguresfuture, 2013). Forthe different groups of consumers, it is reported that each has itsreasons as to why they want healthy beverages. Moloughney (2015)reports that an increasing number of consumers are showing apreference for the “grab and go” type of consumables, a fact thathas led to an increase in companies that offer beverages that are notonly natural, but also nutritious. He reports that apart from lookingfor products that are great regarding taste, consumers are alsoshowing a preference for products that have simple “clean” labelsand which incorporate ingredients that are healthy and natural. Thismove towards natural and nutritious ingredients is slowly giving thebeverage industry a new image. Industry reports indicate that therehas been increased consolidation, a fact that will lead to theintensification of competition. Heart Juice operates in an industrythat promises to be quite competitive in the next few years. However,its focus on heart health, a leading cause of morbidity around theglobe, promises to make the company one of the strongest performersin the market.
Lamb,Hair and McDaniel (2011) describe a target market as a group ofpeople or organizations for which a firm designs, implements andmaintains its marketing mix with the aim of meeting the needs of thatgroup. Markets are made up of consumers with varying characteristicsand variations in tastes and preferences. As such, it is importantfor an organization seeking to expand into other markets to determinewhether the consumer characteristics and their tastes and preferencesmatch what the company has to offer. Income levels, lifestyles aswell as socio-economic backgrounds are some of the consumercharacteristics that a firm needs to take into consideration whenidentifying a target market. There exist three main strategies, whichbusinesses use to identify a target market, and they includeundifferentiated targeting, concentrated targeting as well asmulti-segment targeting (Lamb, Hair & McDaniel, 2011).Undifferentiated targeting involves adopting a mass marketingstrategy in which the target market is assumed as having noindividual segments. On the other hand, a concentrated targetingstrategy acknowledges that the market is heterogeneous and dividedinto many segments. Under the strategy, a firm concentrates on asingle segment in a given market.
Thesoft-drinks industry falls into a number of segments, one of them isthe healthy drinks segment. Heart Juice, as part of this segment,targets health-conscious consumers who wish to avoid heartcomplications. A concentrated targeting strategy would be the mostappropriate for the company in its quest to go global. There are 43countries where the prevalence of coronary heart disease is veryhigh. Saudi Arabia, the target market for foreign expansion, is atposition 27. Kalaf et al. (2016) posit that Saudi Arabia is one ofthe countries in the Gulf region with the highest rates of CVDprevalence. In their investigation, they report that the number ofrisk factors for CVD among Saudi Arabians increases between the agesof 25 and 30 years, meaning that young people are at the highest riskof developing heart complications in the country. Aljefree and Ahmed(2015) argue that the prevalence of CVD in the country stands at5.5%. They report that most Saudis practice poor dietary habits, withmany consuming fatty foods as well as a lot of sugar.
Despitethe high prevalence rates of CVD, many people in Saudi Arabia arechanging their dietary habits, a fact that has led to the increaseddemand for healthy and nutritious foods and drinks. Winter (2011)posits that the healthy food and drinks market was worth $374 millionas of 2009, and was growing at a rate of 11.8% per annum. He pointsout that the expanding market for healthy foods and drinks in SaudiArabia and the rest of the Gulf region offers a lucrative opportunityfor further developments to be realized. Regarding healthy beverages,Winter (2011) posits that the market in Saudi Arabia is growing at afaster rate, with some international and domestic players alreadysetting up shops. Euromonitor (2016) posits that there has been agrowing concern in Saudi Arabia regarding the high rates of obesityand obesity-related complications. Thanks to numerous awarenesscampaigns by the government and non-governmental organizations, agrowing number of people in Saudi Arabia are now aware of the risksthat lead to the development of CVD. Traditional foods and drinksremain popular among Saudi Arabians, but a significant number ofconsumers are now opting for foods and drinks that are low in caloriecontent and which offer health benefits (Euromonitor, 2016).
Manysupermarkets and hypermarkets across Saudi Arabia have introduced newproduct lines and expanded their available lines to offer morehealthy and nutritious consumables (Euromonitor, 2016). These turn ofevents points to the increasing demand for healthy foods and drinks.The increased demand is a strong reason Saudi Arabia is the mostviable market to expand into. Euromonitor (2016), in its report onHealth and Wellness in Saudi Arabia, indicates that there was astrong performance as far as the health and wellness awareness indexis concerned, with young working women being the most educated. It isreported that domestic food and beverage companies have reacted tothe increased demand for healthy consumables by providing a range ofnutritional information on their labels, including protein, sugar andfat content. Other companies are reported to be promoting theirproducts as being vitamin fortified (Euromonitor, 2016). Despite theincreased demand for healthy foods and beverages, no single productin the Saudi Arabian market focuses on heart health, a fact thatgives Heart Juice an opportunity to be the first product of its kindin this market.
Anotherreason Saudi Arabia is an ideal market to expand into is that itsbeverage market is the largest with regard to both volume and valuein the Gulf region. One key factor that has contributed to thebeverage sector emerging as the largest in the region is the hot andarid climate, which usually compels people to drink a wide range ofsoft drinks, including bottled water, sodas and juices. Industryestimates indicate that the country’s beverage market is on apositive growth trajectory. Besides that, consumers of soft drinkshave been reported to be brand-loyal and very much interested insampling out new and innovative products. As an innovative productthat promises a wide range of health benefits, Heart Juice is likelyto be a hit in the Saudi Arabian market.
Thesuccess of any startup firm seeking to enter the global marketlargely depends on the global market entry mode that the managers ofthe said company decide to use. Spulber (2007) describes mode ofentry as the extent to which a business integrates the internationalmarket into its production and distribution. He opines that very fewfirms are sufficiently large and diverse to serve the global marketon their own. Hill and Hult (2015) argue that the main modes used byfirms globally to enter the global market include turnkey projects,joint ventures, exporting, licensing, franchising and wholly ownedsubsidiaries. However, for the current project, Heart Juice has tochoose only one entry strategy. The choice of an entry mode into aforeign market depends on a wide range of factors, including thefirm’s capital outlay, the socio-cultural conditions in the targetmarket as well as the type of product marketed by the firm.
Baenaand Cerviño (2015), in their investigation of the best foreignmarket entry modes into emerging markets, report that despite thesemarkets being very attractive, very little information on the factorsthat firms should consider when choosing entry modes is available.Some of the factors they identify include the political stability inthe target market, the geographical distance between the host andhome country as well as the unemployment rates. Christiansen, Turkinaand Williams (2013) identify factors such as the intensity ofcompetition in the target market, industry type as well as domesticbusiness experience as having a significant influence on the choiceof a global entry mode. They argue that, in general, firms seeking toenter a foreign market need to consider both the internal andexternal factors, stating that failure to take into consideration anyof the internal and external factors may lead to undesirableconsequences.
TheHeart Juice Company is a relatively new company, which produces andmarkets a relatively new product (Heart Juice, 2016). Besides, thecompany is yet to attain a nationwide presence. It is also importantto consider the fact that the company’s capital outlay isrelatively low, meaning that it is not in a position to set up amanufacturing plant in the target market. The distance between HeartJuice home country, the U.S, and its target market, Saudi Arabia, isquite long. Thus, adopting exporting as an entry strategy would endup being very costly due to complexities in logistics. Licensingseems to be the best entry mode that the company can utilize to enterthe Saudi Arabian market. Hill and Hult (2015) describe licensing asa global entry strategy in which a company operating in the targetmarket is authorized to produce and market a good or service withinspecific territories and at a certain fee agreed upon by both thelicensor and licensee. Schlegelmilch (2016) argues that this entrymode involves renting out intellectual property to a third party, thelicensee. The licensor is then compensated through a lump sum androyalties specified in the license agreement.
Schlegelmilch(2016) points out that there are many forms of licensing, includingknow-how agreements, trademark and copyright licensing as well asfood and beverage licensing, which Heart Juice will utilize in itsbid to enter the Saudi Arabian market. Schlegelmilch (2016) statesthat food and beverage licensing has proved quite lucrative and goesahead to highlight some of the licensing agreements that beveragecompanies entered into. The agreements include that between Coca-Colaand Danone for the production and distribution of a drink by the nameEvian as well as the agreement between Snapple, Dr. Pepper and Hallsfor the production and distribution of Cadbury Schweppes. Apart fromrequiring little capital outlay, licensing allows foreign firms tocircumvent trade barriers such as culture and government policies.Additionally, it allows the firm to tap into the local knowledge base(Hill & Hult, 2015). This entry mode is also the most appropriatefor firms venturing into the international scene for the first timeand allows them to lay the foundation for future investments in theforeign markets (Schlegelmilch, 2016).
Cavusgiet al. (2014) argue that apart from not requiring substantial capitalinvestment, licensing does not require the direct involvement of thelicensor in the foreign market. As such, this approach is verysuitable for small and medium-sized enterprises such as Heart Juice.They opine that this approach of entering a foreign market makes itpossible for firms to gain a market presence without having to takethe Foreign Direct Investment path. The approach is not onlybeneficial to the licensor, but the licensee also gains keytechnology or process component at a significantly lower cost.Additionally, the new technology or process is obtained within ashorter time compared to if the licensee opts to develop it on his orher own. On the downside, the royalties that the licensor gets fromthe licensee largely depend on the sales volume. Failure of a productto attain high sales volumes would translate into lower levels ofroyalties. This strategy also limits the licensor’s ability tocontrol how their product or idea is utilized. If the licenseeproduces a product that is substandard regarding quality, then thereputation of the licensor is at risk of damage. Licensing alsoincreases the risk of creating a future competitor as it involvessharing intellectual property with other firms.
Selectingand evaluating a potential strategic business partner is not an easytask. The first step that the business will have to undertake is tovalidate and define its market. The step will involve theidentification of the target market and the minimal functionalitythat the business can deliver. The next step that the business willhave to do is to develop a partner selection criterion. Whenselecting a partner, the business has to take into consideration anumber of factors, including the potential of the partnering firm todeliver value to the business, the compatibility of the two firms aswell as the alignment of the firm’s goals and strategies.
Toenter the Saudi Arabian market, the company will have to identify andapproach the most viable partner. There are many producers andmarketers of healthy juices in Saudi Arabia, one of them is Al RabieSaudi Foods Co. Ltd. Apart from leading in the production andmarketing of dairy products and juices in Saudi Arabia, the companyhas a formidable presence in the larger Middle East. Entering into alicensing agreement with Al Rabie Saudi Foods Co. Ltd will not onlymake Heart Juice available in Saudi Arabia, but also in othercountries in the Gulf region. The company’s popularity and strongcapital outlay are also bound to give Heart Juice a significant booston the international arena. The revenues gained from this partnershipcan then be directed into expanding the Heart Juice Company furtherdomestically.
HeartJuice Company, a New Jersey-based company, offers a unique productnamed Hear Juice. The company founders were concerned with the highprevalence rates of heart diseases in the U.S. Heart Juice promisesto be a great alternative to other soft drinks full of calories,which present very limited health benefits to consumers. Despitebeing available in a limited number of stores in the U.S, expandinginto the international market offers a great opportunity for thecompany and its product to gain both national and internationalrecognition. This paper recommends Saudi Arabia as the company’sfirst target market in its quest to expand globally. Apart from thecountry having one of the highest rates of heart diseases, itsbeverage market is growing at a fast rate, providing a perfectopportunity for Heart Juice to tap into it. The Saudi Arabian markethas a big customer base, and the fact that an increasing number ofconsumers are asking for healthy drinks promises to push up thecompany’s sales volumes. The hot and arid climate usually compelspeople to drink a wide range of soft drinks, including bottled water,sodas and juices. Industry estimates also indicate that the country’sbeverage market is on a positive growth trajectory. Besides that,consumers of soft drinks have been reported to be brand-loyal andvery much interested in sampling out new and innovative products. Asan innovative product that promises a wide range of health benefits,Heart Juice is likely to be a hit in the Saudi Arabian market.Licensing is recommended as the main entry mode that the companyshould adopt. For a relatively small firm like Heart Juice, licensingoffers a wide range of advantages, including less capital outlayrequired, the opportunity to circumvent trade barriers as well asallowing the firm to tap into local knowledge expertise.
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