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Emerging Markets – Asia
Expansion of Kraft Heinz into Asian Markets
Stacey Troup
International Business/MGT-316
December 23, 2016
Dr. Jacqueline Gilliard
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Emerging Markets – Asia
For this Signature Assignment in International Business, I will review specific details
involved with expanding a food business into the Chinese emerging markets. Within this review,
I will discuss the company, Kraft-Heinz Company, as well as their mission and social
responsibility globally. In addition, the management responsibilities including their roles in a
global business, managing the company and unit within a global environment and the role of a
global team will be reviewed. Specific ideas into why an expansion into China should be carried
out as well as what cultural issues will be specific to this expansion will be reviewed. A review
of the sales figures for 2015 in other emerging markets offices as well as the sale numbers of our
competitor serving in the Chinese market will also be reviewed as part of the overall decision
making process of this expansion in order to provide a performance speculation to our success
should we have a plant operational by 2018. These overall components will make up a
management presentation as to a mock expansion into China for Kraft-Heinz Company.
About Us
The Kraft-Heinz Company, currently the fifth largest food and beverage company in the
world, is a trusted provider of quality foods. Providing food and beverage for both the home and
restaurant consumer, we strive on quality products at affordable prices (Overview, N.D.).
With offices in over 40 countries, we produce locally sourced foods specific to the
markets in which we are present. In 2015, through a successful merger between Kraft and Heinz
brands, we officially became Kraft-Heinz Company with Alex Behring serving as our Chairman.
This merger resulted in Kraft-Heinz Company becoming the third largest producer of food and
beverages in the U.S. (Kraft-Heinz Merger, 2015).
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Mission & Social Responsibility
Our Mission Statement and Social Responsibility go hand in hand. Through our
partnerships with energy experts, we are always striving to bring the best quality food and
beverages to consumers while not only reducing energy during production but also our
greenhouse gas emission effect (Sustainability, N.D.).
Through these energy efficient savings within our production model, we are able to not
only source local products which adhere to our strict guidelines but we are also able to provide
food to the hungry throughout the U.S via partnerships with Feeding America as well as Stop
Hunger Now (Fact Sheet, N.D.).
In the last decade, we have been able to provide more than 2 billion meals to the hungry
(adults and children) through this commitment to our social responsibility and our communities
which we serve. We believe in a lasting charitable commitment within these communities which
are focused on fighting hunger while reducing our carbon footprint (Fact Sheet, N.D.).
In addition to our national programs, we also work at the local level to help stomp out
hunger. For children and their families, through a partnership with Boys and Girls Clubs, the
Kraft Great Futures Kitchens program has been rolled out. This program has provided 10
refurbished kitchens to the Boys and Girls Club locations where facilities were in substantial
need of help in order to continue their mission. This program provides cooking classes to youth
and families as well as club based fruit and vegetable garden planting in order to help teach the
fundamentals of cooking. Finally, this program installs local food bank partnerships with Boys
and Girls Clubs to ensure that no child goes hungry (Community Involvement, N.D.).
The partnership with the American Red Cross, while a Federal program, is structured
more for the immediate needs of a community and not a donation on a national level. We at the
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Kraft-Heinz Company provide cash and food donations to emergency situations such as
tornadoes, natural disasters and the like as well as provide volunteers to help not only feed those
in need during these times of crisis, but to help restore hope to the communities (Community
Involvement, N.D.)
Finally, in our efforts to ensure everyone has access to the food they need to sustain life,
we offer partnerships with local food banks. These partnerships address specific needs of the
communities while providing access to fresh, affordable, healthy food regardless of financial
ability (Community Involvement, N.D.).
Role of the Global Manager
The global manager in this proposed expansion will be responsible for building teams
and managing them in a way that is conducive to the customs of the host country. By honoring
the customs of the host country, the manager will be better able to relate to the employees in
their care as well as to understand specific issues that might arise from these cultural specific
issues (Dessler, N.D.).
In addition to these cultural responsibilities, the global manager will also be responsible
for institution and development of strategies in order to maximize the profits and brands within
the host countries. Through a collaborative effort with their marketing and executive teams to
identify product niches and holes in specific markets, they will be able to take a foothold on the
markets while building both brand loyalty as well as brand expansions (needs) of the
communities/country (Global Manager Job Description Dueies and Requirements, N.D.).
Sales Performance – 2015
The decision to expand into the China market seems a very lucrative idea when the raw
data is analyzed. When we review the sales number (in millions) for our European subsidiary,
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for example, we can see that in the third quarter of 2016 that amounted to $1,644 (in millions), a
decrease of 11% from the year previous. This was due to divestitures and a weak market amidst
environmental issues globally. Once the plants were sold off in the divestiture which were poor
performing, the net result was a 7% increase in organic sales over 2015 (Kraft-Heinz Third
Quarter 2016 Results, 2016). While these numbers have room for improvement, Nestle boasted
a whopping $7,060 (CHF) ($6,871 million USD) of sales for 2015, more than 5 times our
numbers for the entire European market alone (2015 Financial Statements, 2015).
When we evaluate the numbers of our competitor, Nestle, who has had a long standing
presence in China with extensive growth since the 1990’s, it is easy to see why a presence in that
sector is paramount to the success of our growth. Nestle established its first plant in 1908 in the
city of Shanghai and other plants of both the R&D as well as manufacturing which followed
(Decorvet, Roland, 2012).
Nestle, the number one manufacturer of these products globally, has long understood the
need for a presence in this country and has reaped the benefits and rewards of product loyalty
over time. They boast a massive 35 million products sold every day sales figure while selling
over 90% of the locally produced goods to local neighborhoods (Decorvet, Roland, 2012). In
addition to these products sold, they offer brand specific products which are geared toward
different income levels to ensure all people can afford their products while standing fast in their
commitment to quality products and food for all (Decorvet, Roland, 2012).
If we are to grow as a company, we must embrace this emerging market as our number
one competitor has for years. We must provide in the manner they have, for the local people and
economies that are belonging of the host country so that we may offer our products to a more
diverse landscape of people.
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Business Strategy for Expansion into Asian Markets
As we look to expand into the Asian markets to become a viable competitor to Nestle
while, at the same time, expanding our brand on a more global level, it is important to consider
key factors within the expansion plan. Among these considerations are identifying product
“holes” the market, establishing locations for agricultural growth as well as plant operations in
accordance with Chinese Zoning Laws, taking into consideration the local and federal
government laws which must be abided by, market research, hiring, due diligence, and
establishing an International Property Rights strategy to say the least.
To consider the holes in the market, we can conduct market research to consider these
needs and our ability to fill these holes as well as introduce new products which fit the tastes and
needs (both taste and fiscal) of the consumers we serve. As China has very strict locations on
establishment of agricultural locations as well as plant (canning) operations as well as
considerable laws which must be understood and followed if operations are to be conducted there
(Hedley, N.D.).
Our competitors have found favor in the market research aspect whereby the provide the
needed “holes” they are able to produce in the markets as well as expanding their brands within
the area. We, too, will find favor through our use of locally grown products from Chinese
farmers, hiring upper management teams to work with our U.S. executives in order to properly
staff management and plant operations and solidify our International Property Rights (Branding)
locally with the help of a legal team (Hedley, N.D.).
While hiring is a major problem within the Chinese markets, we should seek employees
with the skills to handle our volume as well as able to follow our corporate culture while
integrating local cultures for their benefit and well-being. Through the due diligence process, we
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can get a better understanding of our suppliers (growers, raw material manufacturers, etc.) while
implementing proper supply chain agreements for expectations and worker safety (Hedley,
N.D.).
Thanks to local tax incentives on a multitude of levels, we will be able to successfully
gauge our building process of our facilities, taking into consideration these incentives as they
impact our bottom line of business (Lin, 1998). Industry experts and competing food companies
speculate that the condiment market, alone, will have substantial growth in the coming years as
consumer spending on these items is on the rise. One can only speculate that all food will have a
positive impact on sales and local economies as they are offered in new and innovative ways
which are appealing to the markets they serve (Canadean Company Reports, 2014).
Decision Making Model & Negotiating Methods
Within this division, the decision making model needs to encompass rational decision
making methods. This method includes a full SWOT analysis of the situation and subsequent
solutions for problems identified. Within the negotiation methods, we need to take into
consideration that the hiring practices of China vary from that of the U.S. and that negotiations of
our teams to both seek out and hire people to fill the needs of the foreign location (Papadakis,
Lioukas, & Chambers, 1998).
By using standard methodology for decision making processes, inclusive of contingency
planning, we will solidify plans on a more rational and viable scale prior to execution. As we
head into negotiation methods for expansion, the understanding of local customs, laws and
guidelines will be imperative to the success of our expansion into this emerging market
(Papadakis, Lioukas, & Chambers, 1998).
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As plant operations for canning are likely the first to be implemented in this market, the
need to negotiate with local law enforcement, code enforcement and zoning officials in order to
ensure our compliance to their local ordinances, customs and laws is paramount. We also need
to negotiate our local supplier contracts for agricultural needs and ensure that we can adhere to
our energy efficient production models while we manufacture products in this market as we do in
the U.S. (Hedley, N.D.). Taking into consideration the standard model for negotiation in
business, we should adapt the “1. Orientation/Fact Finding; 2. Resistance; 3. Reformulation of
Strategies; 4. Hard Bargaining and Decision Making; 5. Agreement; and 6. Follow-Up” models
in order to ensure we have considered, negotiated and reconsidered every option prior to
execution for a flawless integration into the Asian markets (Drishtikon, 2010).
Performance Indicators for the Asian Market
Taking cues from both our competitors who have established a presence in Asia as well
as market indicators from industry experts, we are best able to see how our success will begin to
blossom with the establishment of an Asian presence.
As we can tell from our research, the trends for sugar related production of foods will
continue to drop through 2019 which should give us a leg up on our competitor Nestle as their
main products contain sugar while ours are more vegetable based. Upon review of the
agricultural data for 2015, we can see that China is failing on their export of these products so it
can be assumed that we could be highly responsible for the success and turnaround of this
industry should we establish a presence in China (Asia Pacific Food and Drink Insight, 2016).
Reviewing the numbers for our competitor, Nestle, we can see that they have found
significant favor in the Asian markets as indicated previously by posting net sales of over $6
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million dollars in the third quarter of 2015 alone (Nestle, 2015). If we follow in the footsteps of
Nestlé’s success, we should, too, find favor in our emerging markets plans to expand into Asia.
Role of Global Management Team
The global management team is primarily responsible for the overall success of the newly
formed locations. Reporting into global managers who will help drive their education and
success, they are on the front lines of our business success through production efforts.
Mid-level managers may be put into place to help serve as intermediaries in between
labor workers and management as well as to unburden upper management from the tedious
events of the day. Mid-level managers will help with performance, performance reviews,
production goals, education, and the overall success and happiness of the workers under their
care. These managers will take a greater sense of care toward employees as they will be sourced
locally and have a full understanding of the customs and societal “norms” present in the Asian
markets.
Cultural issues with Implementation of Expansion Plan
The Guanxi Principle dictates that a hierarchal problem with Chinese worker culture
which limits individualism. The Chinese people tend to work in groups rather individually in
order to reach specific goals for the team. As discussed previously, the presence of mid-level
managers is a societal “norm” for Chinese companies and is more welcomed by Asian
employees for this reason (Feldman, 2014).
As our managers at any level come from these cultures, they will help to alleviate cultural
problems between these employees and those of the U.S. which could help smooth the way for
our expansion plans overall. The firm knowledge of the local management teams we put in place
will be able to deal with the strife, success and implementation problems that may arise as they
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are more connected to the rules and regulations of the plan, thereby helping us smooth the way to
international emerging market expansion success (Feldman, 2014).
Managing Company & Unit in Digitized Global Environment
As we move forward with our emerging markets expansion plans, we at the Kraft-Heinz
Company need to be thinking ahead in terms of what we can do to innovate. We have already
put into place energy saving methods as well as carbon footprint corrections but as we move into
China we will have to consider how we can innovate our plant operations, streamline
communication globally and create a cohesive international brand that is at the forefront of
technology.
Suggestions for plant operations advancements including computer driven and laser
driven stamping and pressing machines as well as other advancements in technology could help
increase productivity. We need to be able to take ideas from all levels of the employees in terms
of what technology is being sought after as our local employees are the keys to our success in the
market sector when we expand.
Managers should hold regular meetings and allow for ideas (with rewards) to come from
all levels of employees. Individual meetings with those employees to discuss use and
implementation of those ideas deemed viable should be conducted to ensure we do not miss
anything that could prove useful as we move forward in this digital age should we desire to stay
growing and ahead of the markets.
Conclusion
As we concluse our research relating to costs and incentives from the local governments
in order to build the Asian plants, we must embrace the local culture through our management
employees. Management should be sourced from the local company while upper management
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should be a combination of both local and international (US) staff so that we may embrace the
cultures and learn more from the local environment.
Through our corporate Social Responsibility policy we will be able to better provide for
locals in the host country to assist them with needed essentials (food) as the local economy
struggles from the worker perspective. Wages in China tend to be a fraction of those paid with
our US operations while workers stammer for jobs. Through our firm commitment to employee
well being, good work environment and educational opportunities, we should become a very
highly sought out employer for local employees. In addition to these employment issues, we
should be able to stimulate the local agricultural markets through our production of our offerings.
As we expand into China, we should be able to grasp a greater percentage of the market
as our competitors have found this very lucritive in years recently. Though the research of local
markets and futures trading, we should also be able to assist the Chinese enconomy beyond
hiring and benefits made available but also in terms of their exports and local products which
may become exports as well.
Embracing the local laws and traditions, we will find loyalty among employees while
also attracting top talent into management opportunities. In addition, we can take from these
local people in terms of our tehnological advancements. Being they are on the front lines of the
productions and are very familiar with the local needs, regular staff meetings should be open to
all and all ideas considered. Should an idea be presented, a prize should be offered to the
employee including incentive in pay as well as a promotion showcased in front of all for the
purposes of pride and thanks.
Thorough planning needs to be done for these emerging markets expansion plans as
building laws and local zoning laws are very strict and will require us to consult with a local
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bank of people in order to ensure plant operations are smoothly carried out from build forward,
that supplier contracts are not only put into place but firmly carry our corporate mission of
employee health and happiness along with them to the people under our employment, and that
we have a firm grip on the holes in the market where our products could serve while, at the same
time, working with locals to come up with new products to help all levels of income sustain their
families.
Asian operations would prove very fruitful for profits, growth and expansions of our
brand globally as we head into the new year. Expected plant operations can be completed and
functioning by Q3, 2017 should we deem them ready to build. European teams stand by to assist
with these expansions alongside our US executives to enure we build swiftly, profitably and
within our energy efficient guidelines we utilize within the US.
As product exports from China grow, our brands developed within China will no doubt
find their way back to ethnic markets in the US, thus furthering our brand beyond that we could
have imagined. All of this is only a reality if we embrace the people, cultures and laws of the
host country and adapt some of our internal policies and procedures to fit these cultures.
Favor is there to be found, we just have to embrace the emerging market offerings and
grab success by the reigns.
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References
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Papadakis, V. M., Lioukas, S., & Chambers, D. (1998). Strategic Decision-Making Processes: The Role of Management and Context. Strategic Management Journal, 19, 115-147. Retrieved from http://web.b.ebscohost.com.lb-proxy9.touro.edu/ehost/pdfviewer/pdfviewer?vid=5&sid=b1777974-f526-46da-9193-3f47e43f4ea2%40sessionmgr101&hid=102
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