Walk into a supermarket these days and it is not uncommon to find noodles from South Korea, sauces from Japan, soup mixes from the US, and snacks from Germany—all in the same aisle. This is the result of today’s global trading environment.
Buoyed by greater economic growth and technological advancements, manufacturers are no longer serving their domestic markets alone, but extending their reach to the rest of the region and the world. This has been made much easier with the increasing number of free trade agreements (FTAs) in effect, which has connected Asian manufacturers to major economies and new markets.
For instance, the ASEAN Free Trade Area enables all ten member countries to enjoy tariff reductions when trading with each other. ASEAN as a whole also enjoys FTAs with established economies like Japan and South Korea, as well as developing nations like China and India.
Agreements like these, also available on a country to country level, are pivotal in enhancing overall trade as they remove barriers that include cost and regulations, making it much easier for exporters to explore new markets.
On the flipside, the rise in international trade has enhanced competition at home. Gaining a slice of the domestic pie has become much harder, and manufacturers may have to seek greener pastures abroad in order to achieve sustainable growth.
Facing Challenges Head-On
Sam Le Van, Philadelphia, US
According to S Jai Shankar, trade commissioner at Malaysia External Trade Development Corporation (MATRADE), one obvious challenge of globalised trade is competition.
There are a fair number of developing economies in Asia which, when exporting to another nation for the first time, tend to enter traditional sectors like food and beverage. Simultaneously, companies that formerly concentrated on the lower end of the food chain are now moving upstream to processing.
This “encroaches upon an existing market for us. There are a lot more competitors coming to our sector, which essentially means we need to innovate and move up the value chain, and look at other ways of competing,” he said.
Commonly perceived to be negative, competition serves as an impetus for innovation and improvement in process improvement and technical capabilities. This could include expanding and tweaking one’s portfolio to cater to a specific niche (eg: gluten-free, low sugar) or reaching out to a new segment (eg: getting halal certified).
Improving in terms of product quality also helps companies cross over the hurdle of regulations. Overcoming regulations are part and parcel of entering new markets, which by itself is essential when existing markets become too saturated for growth. However, regulatory requirements are getting harder to achieve, especially in Europe, and they often translate into extra costs.
“As the EU expands, the requirements are also being strengthened and becoming far more stringent,” said Mr Shankar. Nonetheless, he adds that this is not necessarily a bad thing as “once you achieve that, then it makes it so much easier to export to the rest of the world.”
Indeed, as consumers are becoming more vested in aspects like safety and hygiene apart from taste, adhering to regulatory requirements ensures that the product is of a particular standard that matches consumer expectations.
Meeting regulations may help companies enter a market, but excelling in it requires much more. To gain a foothold, it is important to develop a unique selling point.
For Unifood, it is providing a healthy alternative to dairy milk. Producing powdered soy milk made from organic beans, the company caters specifically to the affluent crowd across various markets, which include Thailand, Indonesia, Vietnam, Hong Kong and Taiwan among others.
They target the higher end segment by placing their products at a higher price point. “Being a ‘Made in Singapore’ product is one of the advantages, but it is also more expensive, so all your business target is premium,” explained Andy Oh, marketing manager at the company.
By marketing their soy milk as a premium product found in selected high end food markets, the company avoids competing with local brands, which are considerably cheaper. According to him, the company has been seeing double digit growth in the last three years alone.
While part of this can be attributed to increasing affluence in the region, another reason is the growing clean label movement. As consumers become more educated, they seek healthy options that are functional and clean in general.
“In order to grow the business, our plan for the next three years is to go into more soy plus and soy deluxe products,” said Mr Oh. This includes functional products, such as adding fortified nutrients like calcium and other vitamins, as well as plant-based omega 3s. This would also help the company reach out to another group of consumers—the vegans and vegetarians, and possibly the ageing population as well.
Echoing the need for a product that is suitable for the market is Jimmy Soh, MD of Chye Choon Foods, who believes that every product has a specific market that they would address. As a result, his company takes on a different approach depending on where they are exporting to.
In Asia for instance, the company’s rice vermicelli products often face stiff competition from other manufacturers in the region. To circumvent this, they have positioned their products to satisfy a market that looks for imported products rather than those with a local origin.
Out of Asia however, the target audience would be the mainstream and ethnic market chains, especially as people are opening up to Asian cuisine. A tangible result of this is the company’s foray into Italy with its rice spaghetti, which has been seeing consistent sales and growth.
Another example that rides on ethnicity is the company’s Singapore Fried Noodles, which it markets outside of Singapore. According to Mr Soh, it boils down to how you position and package your product.
Reinventing The Wheel
Fredmeyer by lyzadanger
Along with the fact that nothing in this world is stagnant, achieving growth entails keeping up with times and making changes as demands shift.
Taking this cue is 104-year old Yuen Chun, which has expanded its line of sauces to include organic and gluten free options, so as to cater to the natural trend. According to Lim Yew Hock, director and GM of the firm, this was driven by the need to do something unique that competitors are not doing.
Offering these products both as an OEM and under private labels, he added that the trend of gluten-free started in Australia, where “they were the ones who turned the market from non-gluten free to gluten free. They led the market and they will continue to lead the market in many things because they do a lot of R&D.”
Research has become a core component in manufacturing as regulatory bodies and consumers alike are becoming more particular and demanding for research-backed claims. Companies have to obtain a seal of approval—often through certification—before they can make justifiable claims like organic, gluten-free or halal. This is all part of the evidence-based approach that the industry is taking.
“You have to be certified before you can put those logos,” said Mr Lim, referring to the ubiquitous green Euro Leaf logo or USDA symbol that consumers look out for on organic goods. One way of achieving this is opting for international bodies as they provide objectivity, which is crucial when exporting to a variety of markets.
But as much as standardisation is important, so is diversity. In particular, there is a need for manufacturers to localise products as demands vary vastly from country to country.
“Due to the weather and lifestyle, consumption requirements and expectations are totally different,” said C L Tan, senior divisional manager of the international sales division, Pokka Corp (Singapore). For instance, demand for the company’s beverages are higher in Singapore because of the hot weather, but in Europe, they are more of a summer product.
Due to the fact that Europe itself is huge on food and beverage processing, coupled with the costs of exporting, the company has to prime their drinks as a niche product in order to stay competitive.
“Basically, you have to find your competitive edge, how to sell, and most importantly, to find the right partner who helps you put the right product in the right distribution area, then chances of success will be higher,” said Mr Tan.
Making First Entry
Jacqueline Munoz, Baltimore, US
Nathalie Dulex, Blonay, Switzerland
Rafael Vila, Marble Falls, US
Now that you have a product primed for export, what is the best mode for entering a certain market?
This decision is based on a variety of factors that includes market size, and the strength of competition among others. For instance, if volume has reached a point where it is no longer economical to ship, manufacturers may have to consider setting up shop in the area.
Generally, companies entering markets for the first time tend to start small by partnering with distribution partners. This was the case for Tee Yih Jia Food Manufacturing (TYJ)—known for its spring roll pastry—which started their frozen distribution back in 1969 with a very specific focus.
“We linked up with all the Chinatown importers and we sent all our frozen pastry and distributed it to restaurants. That’s our first wave into Europe, mostly into the Chinatown food market. The second wave was entering into retail, which was the Asia retail food market,” recalled Gary Lee, VP of regional sales and marketing at the company.
To date, Europe is its biggest market, followed by the US. After firmly establishing itself in the ethnic markets, it was time to evolve. “After that evolution, we started to look at different channels. We focused on the mainstream, which is the Western supermarkets and food services,” said Mr Lee.
One way of achieving this is through contract manufacturing, where companies can better enter the mainstream space by leveraging on the labels of huge brands in Europe or the US for example, rather than using their own.
Collaboration can also take place in a network to network exchange in terms of distribution, which is part of TYJ’s master plan up to 2018.
This is driven by the fact that while Asian producers want to enter the mainstream space, mainstream brand owners are also looking to enter the Asian space.
For instance, TYJ is working with two pizza companies in Germany and the Netherlands to create a pizza roll with toppings that utilise its products. This would help the company expand its European presence, while at the same time, it is open to helping the pizza companies distribute their range of products into Asia.
“We see multiple angles when working with right partners. We can do brand distributions with them, bilaterally; we can do private labels under their brand, or we can even—in a broader context—set up a joint venture with them for local manufacturing,” said Mr Lee.
This includes collaborating with companies who are already exporting to Asian countries to reduce cost of production. Foreign companies like McCain and Quaker are also increasingly looking to enter Asian space through contract manufacturing.
While these are some of the entry strategies that can be employed, there are times when companies do not have much of a choice. For instance, most exporters cannot ship meat products to Europe due to the need for certification. The same applies for products with more than 49 percent of uncooked seafood. The only alternative is to work with factories based in Europe.
Other limitations include insufficient resources, especially in the case of start-ups. One such instance is Soyato, a Singapore-based soy ice cream producer, who overcame this by teaming up with Chinatown Foods as a distributor. They are also working together on a program called ‘Working In Partnership’, which is a consolidation program that allows buyers to order products from over 20 companies and consolidating it into one container.
“In other words, we are trying to remove the hurdle of minimum order quantity for overseas buyers,” said Alan Phua, business development director at Soyato, who explained that buyers are wary of buying an entire container of product for the very first purchase. This consolidation program makes it easier for them to commit to their first order.
At the end of the day, exporting to new markets is not as straightforward as it seems, but involves a lot of nuances. Aptly summing it up, Mr Lee said: “Getting the right certification is important, but the right product, the right price, the right channel, the right distribution contacts, it all has to be aligned and it’s almost quite important because if one of them is not aligned, you need to spend a lot of time doing it.”