Doing Business Overseas

Selling your brand in a foreign market poses potential risk, but even greater reward for those that plan and partner well. NIE offers case studies of companies that have done it, and insights from associations guiding those markets.

The dream of becoming a global brand is an attainable reality as foreign consumers are receptive to products that originate from the United States. Whether it’s a well known branded product or a clinically proven ingredient, “Made in the U.S.A.” is a halo that denotes quality.

But this dream is not for the timid.There’s a great divide between the U.S. market and those in other countries—it takes thorough understanding of regulatory systems and consumer preferences.Strong partnerships will allow companies to confidently become a presence, provided they are vigilant in ensuring their reputation as a quality brand is upheld.

Global Immune Health 

Since launching its immune ingredient, Wellmune WGP, a beta 1,3/1,6 glucan from a proprietary strain of baker’s yeast, in 2007, Minnesota-based Biothera has actively worked to introduce it to more than 50 countries around the world in foods, beverages and supplements.

Part of Biothera’s strategy to build a global brand with Wellmune WGP is to secure the appropriate governmental approvals for the ingredient’s use in foods, beverages and supplements in major countries. “This is a requirement for multinational manufacturing companies whose products are in markets worldwide,” said Richard G. Mueller, the company’s CEO, noting that the regulatory requirements can vary greatly from country to country so the registration and approval process can take years. “Wellmune became one of the few ingredients originating from outside of China to receive authorization from the Ministry of Health in China for use as a novel food ingredient.

“To varying degrees, consumers in all countries are receptive to importing brands and, more specifically, using ingredients like Wellmune that originate in the U.S. Regardless of the region, there is a need and an expectation for ingredients that are backed by credible, peer-reviewed science,” he added. “Our multiple published clinical studies and overall science support is the top reason Wellmune WGP has been able gain customer acceptance in markets around the world. Our strong science package has allowed Biothera to obtain rapid regulatory approval in these markets.” 

Biothera’s sales strategy is to partner with specialty ingredient distributors in each major market, and it currently has 23 distributor relationships in other markets around the world that can provide immediate access to key food, beverage and supplement company contacts.“Trying to build our own international distribution network would take years and may never replicate the strong relationships these companies have created over generations. In addition, some distributors have the capability of formulating prototype products with Wellmune based on local taste preferences,” said Mueller. “These companies provide in market sales marketing and regulatory support for Wellmune WGP. They also understand the nuances of each market more quickly than Biothera could accomplish on its own.” 

While Biothera had already been doing business in China for several years, it recently entered into a distribution agreement with Shanghai Toong Yeuan Food Technology Co. Ltd.

“China is the largest consumer market in the world and obviously important for every major company,” said Mueller. “In our first six months working with Shanghai Toong Yeuan Food Technology, we are very pleased with the number of Chinese companies that are excited about our technology and are already in the process of developing and formulating new products with Wellmune.” 

But to use Biothera’s marque ingredient means following the company’s rules. It requires that partners formulating with Wellmune use daily serving amounts that correspond with the efficacious serving amounts used in its peer-reviewed clinical studies. “In other words, we do not allow ‘pixie dust’ amounts of Wellmune to be used just so our brand can be touted on the label,” said Mueller, adding that Biothera and its distributor partners monitor the efficacious use of Wellmune in finished products and provide analytical/ assay support to ensure compliance and label claim verification.

In closing, Mueller highlighted the snags companies should seek to avoid when entering a foreign market: “A successful marketer is going to recognize that each market has unique requirements that will differ from their home Markets. The biggest pitfall most companies make is the assumption that people in other markets are like you,” he said. “Also, a company expanding into new markets needs local in-country support for your ingredients, ranging from science, sales, marketing, regulatory and formulation support.”

Heart Health in South-East Asia 

Forbes Medi-Tech, a division of New Jersey-based Pharmachem Laboratories, Inc., has a lot of experience working with foreign partners, particularly in Europe, according to Laura Wessman, the company’s senior vice president of operations. So when it sought to spread its proprietary LDLcholesterol- lowering ingredient, Reducol, to the Philippines, India, other Indian subcontinent territories and Myanmar, it went in search of a partner with the skill to not only utilize the brand in a way that those consumers would connect with, but with the integrity to uphold the standards Forbes Medi-Tech has put in place.

It found the partner it was looking for in Del Monte Pacific Ltd., which in December 2009 launched the Heart Smart pineapple juice product featuring Reducol. A popular TV commercial for Del Monte’s Heart Smart Tetra-Pak notes that “one out of three Filipinos aged 20 and older have borderline to high cholesterol.”

“People in emerging markets have a desire to live longer, healthier lives, just as they do in North America. And with our experience working with foreign partners, it made sense to build upon that [in other markets],” said Wessman. “Asian consumers are ‘hungry’ for nutraceutically enhanced foods and beverages and appreciate the convenience and taste such products also afford them. Del Monte’s Heart Smart fits the bill.” 

She noted that a walk through a Manila shopping center quickly resolves any doubts one may have about the acceptability of foreign brands to local shoppers. “The scope and breadth of the Filipino market is quite breathtaking.When it comes to food, Filipinos share some fascinating preferences for very localized taste profiles.” 

Del Monte Pacific has been an ideal ambassador for Reducol, according to Wessman, who noted the company has successfully expanded the Heart Smart product range and is actively looking to develop new territories. And the experience has given Forbes Medi-Tech a greater appreciation for the market and its potential.

“We have learned that in many respects there are more similarities than differences between South-East Asian consumers and North American consumers: obesity and high cholesterol are increasingly prevalent risk factors for heart disease, consumers are price conscious and although there may be some halo effect associated with ‘Western’ ingredients, ultimately product choices are value driven, and women remain the primary decision makers about what purchases are made for family wellness,” said Wessman.

But a good partnership offers a mutual respect for checks and balances. According to Wessman, use of the company’s branded ingredient comes with a requirement to present the finished product in a way that safely and efficaciously delivers to an informed consumer. Forbes Medi- Tech has agents working on the ground that communicate with the company on a daily basis and supplement that with onsite visits as required.

And that hands-on approach will serve others well seeking entry into the market.“If companies lend the same concerted time and attention to South-East Asian customers and partners as they do to those in home markets, I suspect that the process will go relatively smoothly,” said Wessman. “We were surprised to hear of numerous examples whereby local partners in the Philippines invested extensively in product development only to find out that their foreign counterparts were not really taking them that seriously.”

An Omega Presence in China 

California-based Nordic Naturals began offering premium quality fish oil in the United States in 1995, and started exporting to Canada, The United Kingdom and Singapore in 2003. Today, it exports to more than 30 countries on six continents.

China, however, was one market where Nordic Naturals saw great potential, but had yet to gain entry. “China truly has a bright future for health food supplements.All this is especially true for products for babies. With an estimated 30 million new babies born in China in 2013, baby products are in great demand,” said J.P. Sidaner, the company’s international sales manager, who noted Chinese consumers are driven to supplements due to rising health insurance costs, and the interest and consumption of the omega-3 DHA is on the rise.

“Further, China has been hit by a few food scandals in the past. Consumers therefore do not trust food and food supplements made in China, and are increas-Ingly looking into consuming imported food and food supplements,” he added.“American brands are very well perceived and experience great success in China.”

While the company did not belong to any organizations outside of the U. S., although some of its distributor partners do in their home countries, that all changed when Nordic Naturals set its sights on China.

“We joined the U.S.-China Health Products Association (USCHPA) in 2012 in order to show our support to the health and nutrition market in China,” explained Sidaner. “As a member, we get exposure (media, trade shows, magazines) that further allows us to present our company and products to the People’s Republic of China. Nordic Naturals is also able to gain market knowledge in order to perfect our business strategy for the country. Being a member also benefits our company from a regulatory standpoint, as the association is the voice of all members.” 

This membership has proven invaluable to the company as it gained a stronger understanding of the Chinese market and how its consumers shop.For example, Sidaner offered that online shopping of health products, including omega-3 fish oil, represents around four percent of the overall Chinese market.

Although the market is growing fast, Sidaner admits it is riddled with inconsistencies and problematic entry regulations, which was another area where membership in USCHPA helped immensely. “Companies can register their products as foods, but if they don’t fall into that category, they have to be registered as drugs, and that is very costly, lengthy, does not guarantee registration, and limits what can be said about a product,” he explained.“Once registration has been granted, companies have to deal with Chinese customs and it is necessary to either have a great importer able to work in China, or hire staff on the ground to clear customs and make products available for sale.” 

Beyond its membership in USCHPA, Nordic Naturals uses U.S. government programs through the U.S. Commercial Services, which represents a great help for companies willing to develop business in any country. According to Sidaner, it is a cheap and easy way to get to know a market and get in touch with distributor partners.

Sidaner offered a parting thought for manufacturers: “The Chinese market is estimated to surpass the U.S. within the next few years as the largest market for finished dietary supplements. Chinese companies are aware of this tremendous potential. Among the many ethical and legitimate companies exist more nefarious companies offering counterfeit products, low-quality products and even dangerous goods. American brands can expect to see copies of their products on the market in China. This is inevitable, but can happen even if the American companies don’t sell in China.Intellectual property must be protected as well as possible.” 

Extra! Extra!

Visit www.niemagazine.com for insights from EAS Strategic Advice on the European and ASEAN markets.

FOR MORE INFORMATION:

Biothera, (651) 256-4606 

EAS Strategic Advice (Asia office), www.eas.asia, +65 68 38 12 70 

EAS Strategic Advice (Europe office), www.eas.eu, +32 2 218 14 70 

Forbes Medi-Tech (div of Pharmachem Laboratories), (604) 227-0295 

Nordic Naturals, (800) 662-2544 

USCHPA, www.uschinahpa.org, info@uschinapa.org

ASEAN Market Insights

The Association of South East Nations (ASEAN) is a widespread market—comprised of Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam—and it presents unique challenges to companies seeking entry, according to Daniel Quek, chairman of the ASEAN Alliance of Health Supplement Associations (AAHSA), the regional health supplement industry association.

“The main issue is that there are currently 10 different regulatory regimes with different requirements.So, to enter ASEAN, will require a great deal of time and effort, not to mention costs in terms of adapting the products (such as formulation and labeling) to each ASEAN country’s regulations,” he said, adding that the ASEAN will have a harmonized regulatory framework by 2015 that will be more stringent than the U.S. market.

But ASEAN poses tremendous potential: it is the world’s fastest growing health supplement market currently at about 10 percent yearon- year sales growth. Consumers are getting better educated and more sophisticated, according to Quek, and they seek quality products from established brand names. “This is especially so because of the existence of adverse events caused by illegal products that have been adulterated,” he explained. “While there are several pan-ASEAN brands, these are relatively few. Hence, there is a strong demand for U.S. and E.U. manufactured products because of their perceived high quality standards.” 

Quek noted that companies interested in ASEAN would need to find out the respective country’s product placement requirements well in advance. He strongly suggested they track and support the ASEAN regulatory harmonization for health supplement products, including supporting local health supplement industry associations as well as AAHSA.Further, companies should consider working with a consultant who has a strong track record for successfully assisting companies in entering the ASEAN market.

“It would be wise for companies to start by looking for established distributors with good track records.If they are smaller manufacturers, they should consider banding together to work with one established distributor, so as to achieve better economies and so as to have better bargaining power,” Quek added. “But their first point of contact should be the local health supplement industry association.”

China: Regulatory Insights & Resources

The biggest difference between the U.S. and Chinese markets is the regulatory systems, according to Jeff Crowther, executive director of the U.S.-China Health Products Association (USCHPA), the only nonprofit association solely focused on China’s developing natural health product industry. Both countries have placed dietary supplements under the regulatory guidance of their Food and Drug Administrations (U.S. FDA and CFDA, respectively), but that is where the similarities end.

Crowther described the U.S. notification- based system for new ingredient approvals as “streamlined” compared to the Chinese system. “The process takes 75 days for new ingredient approvals, in most cases free of fees, and is conducive to investment, industry growth and consumer access to safe, effective nutritional products.

“China, on the other hand, operates under a registration system that approves products, not ingredients,” he explained. “The registration process is similar to getting a drug approval in that there are animal and/or human testing required. And like drug approvals, there is a sizeable investment in both time and capital. A typical product registration will take 24 to 36 months and cost on average $50,000.” 

Not all but some dietary supplements can enter the country as food, which only requires some label adjustments and sanitation testing when landing in China. This is controlled by China’s Customs and the Administration of Quality Supervision Inspection and Quarantine (AQSIQ).These agencies oversee all imports.

“If your product can enter China as a food, this saves huge amounts of time and money by avoiding CFDA’s dietary supplement registration process. However, the distinction between food and dietary supplements is clear,” said Crowther, adding that food cannot make claims of any kind or be advertised. “Further some sales channels will steer clear of dietary supplements that are imported as food because they fall into a gray area in terms of Chinese law.

According to CFDA, this is not a legal way to enter the country. However, AQSIQ allows it and if the products pass customs and AQSIQ testing, the products will receive a sanitation certificate that allows it to enter and be sold.” 

Since China is clamping down on food safety, importing dietary supplements as food is getting more difficult.“Recently a number of foreign companies have lost shipments due to testing standards or label issues,” said Crowther. “Many are jokingly describing the import process as a game of chance: you win some, you lose some.Risk assessment and liability have to be part of any companies’ China strategy.” 

From entry, to finding a partner as well as dealing with retailers, the whole process is a struggle without the appropriate trusted assistance, according to Crowther, who suggests that companies have a China team dedicated to their endeavors and work closely with the U.S. Commercial Service, U.S. Agriculture Trade Office and definitely join the USCHPA.

“Trusted partners and relationships are key to success in China, and the U. S. Commercial Service is a great place to start,” said Crowther, adding that every large U.S. city has an Export Assistance Center, which is part of the U.S. Commercial Service.“They can assist with the preliminary steps of getting your China questions answered as they have direct access to the U.S. Embassy’s commercial staff in Beijing, Shanghai, Guangzhou, Shenyang and Chengdu. They also offer gold key service, which for a fee gets companies over to China on their own personal trade mission.” 

For ongoing and in-depth assistance, the USCHPA can assist with sourcing, partner search, trademarking, customs clearance, label design/approval, product registrations as well as many other essential tasks/information that companies need to be successful in China, said Crowther.