IBES Group Report

MSc International Business

BUSI48355 International Business Environment
and Strategy: Group Report
Word count: 2863

A critical evaluation of the

International Strategy of
Vitalia Nokola Ltd.

Group member:

N0256874 Elizabeth Adekoya

N0429499 Yun Zhang

N0474549 Han Lin

N0524741 Xiaowen Jin

N0547193 Simona Carbonari

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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.

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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 literature 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).

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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 its 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

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(Johanson and 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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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).

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

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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.

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).

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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

Political The Macedonia is one of the EU candidate countries, and Balkan

countries. Macedonia must follow part of EU regulation.

Economic The candidate countries – Montenegro, Serbia and the Former

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

Social In recent years, people's concerns of health are increasing,

(Eurominitor, 2013). It trends to make many multinational
companies to invest in the food products of highest safety and
quality standards.

Environment Macedonian agriculture income is 10% of the gross national

product (MacedoniaOrg, 2012). This means that there are
enough food resources in Macedonia. Thus, food industries
have ability to find relatively cheap suppliers in this country.

Legal Macedonia has a relatively complete legal system covering a lot

of aspects. For example, there are several most important
regulations for strategic development that include The National
Environmental Action Plan NEAP (1996), the National Strategy
for Economic Development of the Republic of Macedonia (1997),
the National Environmental Health Action Plan NEHAP (1999),
the Agricultural Development Strategy in the Republic of

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Macedonia to 2005 (2001), the Spatial Plan of Republic of

Macedonia, and the Poverty Reduction Strategy Paper (Public of
Macedonia, 2002).

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)
OPPORTUNITIES
 The increasing demand of healthy food
(European Union, 2012)
WEAKNESSES
 Still there are some people do not
aware how to eat health food
THREATS
 The political risks
 The unstable economy and crisis
 Intensive competitions

Table 3. SWOT Analysis of VITALIA Nikola Ltd

STRENGTH WEAKNESSES
 A long production history: 18 years’  Some risks about a family to run
experience of healthy food sector company, such as: the corporation
 Excellent quality for reasonable prices interest would be mixed, some family
for consumers members would be lack of work.
 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

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OPPORTUNITIES THREATS
 Win one million Euro to support the  Company needs more support from
company’s further growth in relevant countries’ government
EBRD(European Bank for institutions or organizations to increase
Reconstruction and Development) the brand image in third
(Vitalia, 2011) countries(Vitalia,2011)
 Company has received government
financing support fund for export
marketing (European Union, 2012)
 Low labor of production

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

growth 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.

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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

Threat 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:

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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:

The 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 at 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

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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 strategy
One of the competitors of VITALIA Nikola Ltd, is Podravka d.d.. It has different
internationalization strategy and product lines with VN. Podravka use transnational
strategies to overcome the pressures of local responsiveness and integration. It produces
products not only in the original country but also expand the production line to other
countries such as Poland. For Upsalla international process model, Podravka already
reached to the last stage—production in other countries. For globalization strategies, they
reached the fourth step which can tailor their products with local consumers needs properly
(Podravka, 2013).

Recommendations
1. 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.

3. 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.

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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.

References
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foods [Accessed: 14 November 2013].

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usa.com/Suppliers2/Consumer-interest-in-health-and-wellness-on-the-rise [Accessed: 14

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Ingredients.com [online]. Available: viahttp://www.nutraingredients.com/Consumer-

Trends/Global-healthy-foods-to-hit-1-trillion-in-2017-Report [Accessed: 12 November 2013].

VITALIA NIKOLA LTD., 2013., News: About Vitalia [online]. Vitalia.com. Available via:

http://www.vitalia.com.mk/?ItemID=2FFC7E16457D9B4B9C5AD4B63A7EBDC3 [Accessed:

10 December 2013].

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OHMAE, K., 1989. Managing in a Borderless World. Harvard Business Review [online], (May).

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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

2. Inadequate expenditure on marketing, acquisition of inoromation, salaries or product

adaptation.

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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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