Nutraceutical Globalization

Nutraceutical Globalization
by Gary Troxel

Leveraging growth in today's nutraceutical industry requires venturing beyond the boundaries of North America. One recent visit to key customers and distributors entailed a 12-day trip to five countries. It took six airports, ten taxis, five trains, two buses, two shuttles, one suitcase and a generous helping of resilience, but success made it all worthwhile.

The market has changed in the past decade. In the 1980s, the international market for nutraceutical products was confined to small import-export companies and regulation varied wildly. Retaining qualified international representation was constrained by lack of experience with nutraceuticals and limited distribution channels. Poor communication with government regulators, trade barriers, limited corporate resources, and low per capita income within those countries further limited market access. Twenty years later, much has changed and the international market has become one of the fastest growing segments of our business.

This evolution has brought about revolutionary industry changes. Now, thinking globally is key to survival. Consolidation, through a wave of mergers and acquisitions, has transformed the nutraceutical industry into a global, brand-driven environment. Core companies are doing battle for brand dominance. In the race to dominate shelf space and cyberspace, the fittest will thrive and the rest will hit a tailspin wondering what the heck happened to their once profitable business.

The prize is well worth pursuing. Just like U.S. baby boomers, the world's population is aging and driving the growth of nutraceuticals. The increasing dominance of Japan's aging population is a prime example of this power shift. They not only demand foods, beverages and supplements that promote health and well being, but they have the disposable income with which to buy them. In Japan, shelves are lined with traditional foods such as tofu now fortified with DHA and other nutraceuticals. As more populations extend the length and quality of their lives, similar growth will follow in those regions.

Science is also facilitating growth through product development, structure/function claims and validation of efficacy through research. Leveraging science, nutraceuticals have made the leap to mass appeal and begun to build brand awareness. Transition from in vitro and in vivo to human clinical research is further accelerating that growth and definitively demonstrating the value of nutraceuticals from vitamins to herbs.

Science and accompanying intellectual property rights (patents and trademarks) are the basis for proprietary products that are key to long-range profits. Only proprietary positioning and strategic branding can effectively eliminate knock-offs and commodity-driven pricing that can annihilate product life cycles.

Getting Products to Market

Even with the best proprietary products, reaching the world marketplace requires presence. While companies could invest in costly personnel and infrastructure, a better choice would be to develop strategic alliances with indigenous distributors and/or agents. Today's growing nutraceutical market and emerging interest among chemical wholesalers combine to make establishing those relationships much easier then just a few years ago.

Traditional fine chemical wholesalers and distributors that serve the food, beverage, cosmetic and pharmaceutical industries are prime partners for raw material manufacturers. They recognize our industry's growth potential and its broadening consumer appeal. They understand the value of researched products and the needs of their customers who can increase margins and provide enhanced returns for shareholders by adding the value of nutraceuticals to their products.

Wise distributors, confident in their abilities and secure in relationships with suppliers and customers, offer full transparency that keeps suppliers aware and involved in all aspects of customer development. When they make initial contacts and key introductions, and pre-qualify prospects, they show recognition that the ingredient sale is a collaborative effort that also involves discussion of label claims, stability, safety, efficacy, manufacturing processes, quality control methods, pricing, cooperative promotional and public relations work, third party testing and more. That's where raw material suppliers can add the value difference that helps companies leverage science-based nutraceuticals and research that translates to sales.

It takes more than just finding a partner. For example, while U.S. companies take a "full speed ahead" approach to business, that's not the way of the world. International negotiations--hurry up and wait. While the ceremonious niceties and slow approach to business that are considered good form in much of the rest of the world are acknowledged by most international business people, they are often a source of repressed frustration. Without true acceptance of those customs, it's easy for frustration to surface and kill a deal and relationship. Altering this mindset will be rewarded with success. Another important key is to maintain perspective--don't make the mistake of over-negotiating for a short-term benefit that may jeopardize a long-term relationship. Also keep in mind the ethics of negotiation vary from country to country, so understand the ground rules of your environment.

As with sales, distributors and raw material suppliers must join together in the marketing effort. While proprietary products offer exponentially greater profit potential, they also require strategic marketing to leverage the science and build the brand. Investment in integrated marketing programs of advertising and public relations is key to consumer education in order to create demand. Without it, a proprietary product can get lost in the shuffle, leaving the door open to market-killing, commodity-driven pricing. With it, a product can build the brand equity and market leadership.

E-commerce is also changing the world of business across the board, globalizing it more rapidly than we ever thought possible. With the explosion of business-to-business Web portals, trade of both raw materials and finished nutraceutical products is also accelerating exponentially and changing the face of the industry. This marketing channel will continue to exert downward price pressure on commodity raw materials, squeezing margins and companies into nonexistence.

However, for astute manufacturers of branded and proprietary ingredients e-commerce is a rich opportunity. Developing their own web-based purchasing platforms, they add value for finished product companies through links to detailed product research, features and benefits which helps in the R&D process. Perhaps even more importantly, when this information is used to educate consumers, it engenders product confidence, repeated use and loyalty.

The Rewards

Without a doubt, venturing into the international marketplace presents new challenges. However, with foresight, cultural understanding, and a strategic focus, those challenges can be readily met. In today's business world, taking that step is not a matter of choice, but one of survival. The rewards are long-term growth, increased profits, enhanced shareholder satisfaction and a world of promising opportunity.

Gary Troxel is the vice president of international sales with InterHealth^® Nutraceuticals Inc.; contact the company at www.interhealthusa.com.