IBES Group Report

MSc International BusinessBUSI48355 International Business Environment and Strategy: Group ReportWord count: 2863

A criticalevaluation of theInternational

Strategy of VitaliaNokola Ltd.

1Group member:

N0256874 Elizabeth Adekoya

N0429499 Yun Zhang

IBES Group Report

Abstract

The following report presents an evaluation of the international

strategy of Macedonian born Vitalia Nikola Ltd. The report begins

with an initial review of the existing literature on the topic of

international, as well as evidence of its practice within the food

industry. Subsequent to this is a complete environmental analysis,

considering both macro and micro factors, and the behaviour of the

company’s immediate competitors. Contributions from the literature

review, environmental analysis, along with any relevant theories and

models will be used to analyse the company’s international strategy,

which will form the basis of all conclusions and any recommendations

made at the end of the report.

2

Group member:

N0256874 Elizabeth Adekoya

N0429499 Yun Zhang

IBES Group Report

Introduction

VITALIA Nikola Ltd (VN) is the brainchild of the father of current

manager and co-owner Iskra Vetadzhokoska – Mucunska. Established in

1993, and located in Macedonia’s capital Skopje, VN now operates

with 100 full time employees working departments ranging from R&D to

production. The company prides itself of its competitive advantages

which include; excellent quality for reasonable prices, as well as a

rich palette of natural and tasty healthy foods prepared by original

recipes and ingredients. Macedonian sourced products, innovation,

and BRC & HACCP certification. With 18 years’ experience in the

health industry, VN is rapidly establishing itself in a leading

position in Eastern Europe.

As all offices and production is still based in Macedonia, VN’s

exports its products which available throughout the Balkan region,

and most parts of the EU, USA, Canada, Australia and the Middle

East. Particular key markets include Serbia, Cyprus, Portugal,

Montenegro and Romania, and VN’s key clients include the likes of

Carrefour, Metro, Billa, Kaufland, Spar, Veropulos, CBA, Mercator,

and Konzum (Vitalia.com 2013).

Literature review

Internationalisation processes of Small and Medium Enterprises

(SMEs) contains large amount of published literature. All the

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IBES Group Reportliterature is within the fields of international business and

strategic management.

Importantly, the discussion of the increasingly integrative and

competitive global environment has resurfaced. (Ohmae 1989,

Robertson 1992). Internationalisation is defined as the process of

increasing involvement in international markets. (Welch and

Luostarinen 1988, p. 36).

Strategy is the means of meeting of organization’s objective to

reconfigure of its value chain of activities on a global scale by

international context. The purpose of this action is to

competitively position itself against competitors. A value chain of

activities is the manner in which an organization delivers value,

transferred through its product or service offering to consumers.

(Porter 1985).

Traditional models are significant contributions to the theory of

internationalisation that are characterised by incremental processes

and sequential (Vernon 1966, Johanson and Vahlne 1977).

Commonalities unified the traditional models, regarding the scope,

sequential order, psychic distance, investment. The restriction of

the flow of information between potential or actual suppliers and

consumers, especially for the country based diversities are psychic

distance. Language differences, cultural issues, political, legal

and economic situation are the key factors (Johanson and

Wiedersheim-Paul 1975, Johanson and Vahlne 1977). Initially an SME

commits a limited amount of resources in its internationalisation

efforts, by exporting to a small number of countries with low

psychic distance to their home country, has been suggested by

traditional models. The investments within the country have been

gradually increased by the SME. This action may relinquish a part of

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IBES Group Reportits autonomy as it begins to adopt inter-firm practices, continuing

to export using independent domestic representatives and agents from

the foreign markets

Due to the establishment of subsidiaries, the investments were made

with the foreign country as the company becomes more familiar with

the market.

Finally, a decision is made to set up a base in the country with the

confident in its ability within the foreign market, similar to that

of its domestic market, for the foreign market, operations such as

productivity and R&D will eventuate.

Over time the SME repeats the same processes in a higher scope of

foreign markets covering those with more psychic distance. Two

important traditional models are: the 5-stage globalisation model

(Ohmae 1990) and Uppsala Internationalisation Process Mode (Johanson

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IBES Group Reportand Wiedersheim-Paul 1975, Johanson and Vahlne 1977 and 2009)

Figure 1: 5-stages of globalisation model Ohmae’s (1990)

Figure 2: Uppsala Internationalization Process Model.

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IBES Group Report Source: provenmodels.com 2013

Traditional explanations have been challenged by more recent

contributions. On the grounds activity of Born Globals (BG) or

International New Ventures (INV) has been failed to be considered

(Rennie 1993, Knight and Cavusgil 1996, Oviatt and McDougall 1994

and 1995, Rialph et al. 2005, Weerawardena et al. 2007).

These concepts describe organizations which seek international

activity from their inception, wasting no time in selling to

numerous countries (Weerawardena et al. 2007).

The introduction of Born-Again Global concept (BAG) (Bell et al.

2001 and Bell et al. 2003) is a further challenge to traditional

approaches. BAGs suddenly decide to embrace internationalisation

even though they are well established within their own domestic

markets, due to internal or external incidents. Internal incidents

encompass factors such changes of management, while external

incidents could be a company’s decision to follow its clients who

have ventured abroad (Bell et al. 2003).

Another perspective of internationalisation that is frequently

discussed is relates to the balance between global integration and

local responsiveness. The related literatures are Ethnocentric,

Polycentric and Geocentric model (EPG) which is developed by

Perlmutter (1969) and Integration-Responsiveness framework (I-R)

that is set up by Prahalad and Doz’s (1987) and Bartlett Ghoshal’s

(1989).

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Figure 3: I-R Framework adapted from both Bartlett and Ghoshal(1989), Prahalad and Doz (1987). Source: Swoboda et al. 2012

Vernon (1966) created a model called International Product Life

Cycle. Figure 4 demonstrates that in the early stage of product's

life-cycle production and human resource stem from the original

invented place. With the increasing demands of consumers from

international markets, production gradually moves away from the

original place. When products become mature, the number of

competitors will increase. Ultimately, the innovator becomes

challenged in their domestic market, Production are done either by

competitors in developing countries or in the innovator’s subsidiary

countries which have lower costs.

Figure 4: Vernon (1966) International Product Life Cycle model.

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IBES Group Report

Macro environmental analysis

1. Health food industry

The health food industry is a global industry currently experiencing

rapid expansion, and expected to reach the $1 trilion mark for the

first time in 2017, according to Euromonitor International

(Starling, 2012).

While health food were originally considered to be premium goods,

these products are going mainstream, entering the mass market,

present in many fast growing economies including the US, UK,

Germany, China, Canada, France and Italy. Growth has been spurred by

an increasing knowledge about foodstuffs, better tasting foods, and

recession driven concerns to avoid healthcare costs (Starling,

2012).

Concerning strategic clusters, in 2007 the Food Cluster Initiative

has been launched with the purpose to establish food European

consortia in order to share knowledge and experiences and improve

the economic development of food companies.

In 2011 the global Food Security Cluster (gFSC) was established and

based on a partnership of 35 institutions from the UN, NGO,

International Red Cross and Red Crescent Movement with the aim to

strengthen food security (Food Security Clusters, 2013).

2. PESTEL and SWOT analysis

Complete PESTEL and SWOT analysis of health food industry is showed below:

Table 1. PESTEL Analysis

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IBES Group ReportPolitical The Macedonia is one of the EU candidate

countries, and Balkan countries. Macedonia mustfollow part of EU regulation.

Economic The candidate countries – Montenegro, Serbiaand the Former Yugoslav Republic of Macedonia -are about 60 % or more below the EU-28 average.The lowest price levels – half the EU averageand below – are found in Romania, Serbia,Bulgaria, Albania and in the Former YugoslavRepublic of Macedonia. Food products are one ofmain export products in Macedonia ()

Social In recent years, people's concerns of healthare increasing, (Eurominitor, 2013). It trendsto make many multinational companies to investin the food products of highest safety andquality standards.

Environment Macedonian agriculture income is 10% of thegross national product (MacedoniaOrg, 2012).This means that there are enough food resourcesin Macedonia. Thus, food industries haveability to find relatively cheap suppliers inthis country.

Legal Macedonia has a relatively complete legalsystem covering a lot of aspects. For example,there are several most important regulationsfor strategic development that include TheNational Environmental Action Plan NEAP (1996),the National Strategy for Economic Developmentof the Republic of Macedonia (1997), theNational Environmental Health Action Plan NEHAP(1999), the Agricultural Development Strategyin the Republic of Macedonia to 2005 (2001),the Spatial Plan of Republic of Macedonia, andthe Poverty Reduction Strategy Paper (Public ofMacedonia, 2002).

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IBES Group Report Table 2. SWOT Analysis of Healthy Food Industry

STRENGTH Supplying a serious of

natural, nutritional and organic foods

Customers ‘concern of health issue is increasing(Euromonitor International, 2013)

WEAKNESSES Still there are some people

do not aware how to eat health food

OPPORTUNITIES The increasing demand of

healthy food (European Union, 2012)

THREATS The political risks The unstable economy and

crisis Intensive competitions

Table 3. SWOT Analysis of VITALIA Nikola Ltd

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IBES Group Report

4. BCG matrix

VN’s line of business would fall into the star category of the

Boston Consultancy Group Matrix (1968) (For more details, please

refer to Appendix 1). This is because the health food industry

currently occupies a reasonable portion of the global market, and

has potential for substantial growth. Market research and recent

publications from significant publishing bodies like Eurominitor

International, support this, making predictions for significant

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STRENGTH A long production history: 18

years’ experience of healthy food sector

Excellent quality for reasonable prices for consumers

Completing individual service to our customs

Quick adaptation to fit the market and custom demand

Flexible production units and shout delivery time

Convenience and innovation-------- 20 new products

WEAKNESSES Some risks about a family to

run company, such as: the corporation interest would be mixed, some family members would be lack of work.

OPPORTUNITIES Win one million Euro to

support the company’s furthergrowth in EBRD(European Bankfor Reconstruction andDevelopment) (Vitalia, 2011)

Company has receivedgovernment financing supportfund for export marketing(European Union, 2012)

Low labor of production

THREATS Company needs more support

from relevant countries’ government institutions or organizations to increase the brand image in third countries(Vitalia,2011)

IBES Group Reportgrowth within the industry (Scott-Thomas 2010, Starling 2012, Mintel

2012 and Food Insight 2013).

Micro environmental analysis

1. Go for Internationalise

To address the question why some enterprises decide to

internationalize their activities, Dunning (1993), presented three

motives: the first one is the opportunity for a firm to obtain

natural sources and so a company can exploit foreign assets by using

own capabilities. The second motives that pushes a company to

establish an investment in a foreign country is the reduction of

labour and materials costs, deriving from a better integration of

international activities. The last one refers to the firm’s

capability to obtain knowledge sources and learn from different

customers’ perceptions.

To internationalise, SMEs require financial aid from public bodies

at national and European level: at national level, national economic

diplomacy networks are required and, for the food sector,

specialized services of the food related ministries.

On the other hand, EU should provide to SMEs services to seize the

opportunities exiting in foreign markets (Market Access Data Base,

European Enterprise Network, etc.) (FIAB, 2011).

Moreover, the scheme developed in the EU Common Agricultural Policy,

based on the Council Regulation (EC) No 3/2008 of 17 December 2007,

plays a fundamental role in order to support the reputation of

European food products in foreign markets (FIAB, 2011).

2. Porter’s Five Forces of Health Food Industry

13

IBES Group ReportThreat of new entrants:

The threat is high because the packaged food retail industry was

limited influenced by the economic crisis. The demand of the healthy

food remains stable. (Euromonitor International, 2012) Secondly,

brand equity of Vitalia Nicola is relatively low comparing to larger

brands. In addition, the capital requirements for this industry are

not too much. Thus, it is not too hard for new companies to enter

the market

Bargaining power of suppliers:

The bargaining power of suppliers is relatively low. This is because

there are wide range of suppliers that are available for raw

materials and labors for nutrition packaged food. However, in order

to find the best quality to price ratio supplier, the switching

costs may occur.

Bargaining power of buyers:

The bargaining power of buyers is low because of increasing numbers

of chained supermarkets. This makes VN flexible in choosing buyers.

Along with the health, wellness and convenience food trend, the

value of nutrition packaged food increased too. Therefore, the

retail channel will be stable.

Threats of substitutes:

Quite high due to large number of similar or substitute packaged

food available in the market. For this industry, it is very easy to

imitate the current products.

Competitive rivalry:

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IBES Group ReportThe competition between rivalries is medium in health food field.

The competitive advantage like reasonable price and innovation and

convenience enhanced the benefits of the company.

Vitalia Nikola’s strategy

In the beginning, VN run their family business in Public of

Macedonia. Then it expanded its network to countries like Czech

Republic and Slovenia and then Albania. Then VN expanded gradually

to European Union, America, Canada and then African Continent. In

total, they have 30 exporting countries (Vitalia Health Food, 2011).

Currently, VN is based in Macedonia and have no subsidiaries

developed in other countries yet. According to the transcript of

interview with Iskra Vetadzhokoska- Mucnska, the manager in VN, they

have famous retail chains like Carrefour, Metro, Billa, Spar,

Mercator, Konzum in many countries. According to Ohmae’s (1990) 5-

stages of globalization model, VN is currently on the first stage

which is focusing on Direct Exporting activities in international

markets. VN is still relying on the retail chain like supermarkets

to sell products within new markets. Based on the model of Uppsala

Internationalization Process Model mentioned in the literature

review, the company is now lies in the second process—exporting with

independent representatives in foreign markets.

Based on Bartlett and Ghoshal’s definition (1987), international

strategy is that the company repeatedly uses the same strategy and

same products in its domestic market and international markets. It

makes sense because VN’s core value is healthy and when the products

first launched, few companies have the similar concept and products

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IBES Group Reportat that time. Thus, the firm faced comparatively low pressures for

local responsiveness and low international integration.

It is very wise that VN decided to enter African continent in time.

Recently, the healthy food is highly recognized by customers and

competitors. When the market in developed countries like UK and

Canada tend to be saturated, VN immediately look for new markets

which have possible opportunities. In addition, in order to attract

more customers in Muslim families, VN adapt the Halal—standards for

safe and health food products that meet the religious requirements.

Competitor’s strategyOne of the competitors of VITALIA Nikola Ltd, is Podravka d.d.. Ithas different internationalization strategy and product lines withVN. Podravka use transnational strategies to overcome the pressuresof local responsiveness and integration. It produces products notonly in the original country but also expand the production line toother countries such as Poland. For Upsalla international processmodel, Podravka already reached to the last stage—production inother countries. For globalization strategies, they reached thefourth step which can tailor their products with local consumersneeds properly (Podravka, 2013).

Recommendations1. Participating varies international fairs is a very useful way to

enhance the brand image of VITALIA in the world. The investment

and participation should not be cut down or even need to increase

the investment to maintain the brand image constantly in

consumers ‘minds.

2. VN is a family business; it sometimes may cause problems if the

company is not well operated. Thus, training and education is

essential to this situation. One time in a while, not only

employees but also managers should participate in business

related training to update their knowledge and broaden horizons.

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IBES Group Report3. VN continually create new product type and expand product line.

However, VN should prepare a complete product profile specifying

that which product is the Cash Cow, Star, Question mark and Dog.

Thus, managers can clearly decide which product is good to

produce in a large volume and which one is need to reduce or even

stop the product line.

4. Considering the globalization model, it is time to consider

entering the second stage: set up local sales in order to better

understand what customers’ needs and wants in local market.

Conclusion

This report used PESTEL and SWOT to analyse the macro environment of

international marketing of health food industry and the micro

environment analysis used Porter’s five forces tool. As a result,

the development trend of the health food industry is raising

steadily, the increasing customers’ concern lead to the high market

demand. However, health food industry still has a lot of aspects

need to be improved such as pay more attention to staff training,

maintain brand image, product portfolio analysis and better

understand customers’ requirements.

ReferencesDUNNING, J., 1993. Multinational Enterprises and the Global Economy. Harlow:

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IBES Group ReportANON. World’s largest food countries [online]. Available at:

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IBES Group ReportEuromonitor International, 2013. Packaged Food in Macedonia,

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IBES Group ReportBELL, J., McNAUGHTON, R., YOUNG, S., and CRICK, D., 2003. Towards an

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Appendix 2:

Reflection of teamwork

We have five group members in total for IBES assignment team. In the

beginning, we decided the wine industry and already contacted a

company which would like to provide us some information of

internationalization strategy. However, two weeks past, we did not

get any useful respond from them. It wasted our two weeks. After

that, we decided to move to another industry and begin to write the

report. When the Christmas started, four of us went back to our own

country and the contact of each other is very slow. The main issue

of our teamwork was connection with each other. Except for taking a

relatively long time to assign the tasks, we did try our best to

finish the work together.

Other Barriers for SMEs to go to international market can be listed

below:

1. Lack of capital for FDI

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IBES Group Report2. Inadequate expenditure on marketing, acquisition of inoromation,

salaries or product adaptation.

3. Lack of access to funds or higher costs of capital than for MNCs.

4. Inadequately developed international networks.

5. Difficulty in recruiting and paying top-quality executives

6. Lack of management with international experience

7. Difficulty in establishing a clearly differentiated niche

8. Weak brand name

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