Super Foods: Camu Camu in Peru

“Superfoods is a new term attributed to physician Steven Pratt who used it as title for his book
in 2003. He pointed out that there are certain types of foods that are beneficial to human health beyond
the conventional nutritional values. Although there is no legal or technical definition, the term
“superfoods” has become a trendy topic. A Google search yields more than six million results.
Superfoods promise an ideal goal sought by many customers: a product that improves life expectancy
and also combats increasing obesity that developed countries, like the United States are facing.
Superfoods originated in Japan in the 1980’s. Health authorities recognized that an increased life
expectancy should be accompanied by improved quality of life for the expanding elderly population.
Also, health care costs could be controlled through the consumption of healthy food. Superfoods are a
dynamic product within a larger market, called the function foods market. According to Health Canada:

A functional food is similar in appearance to, or may be, a conventional food that is consumed as part of a
usual diet, and is demonstrated to have physiological benefits and/or reduce the risk of chronic disease
beyond basic nutritional functions, i.e they contain bioactive compounds.

Functional foods and beverages account for roughly $40 billion of U.S. retail sales. For the past
decade, several products have been showcased in the market with emphasis on their nutritional
properties. For example, Oprah Winfrey and Dr. Oz raised the antioxidant properties of acai berries.
Supermodel Miranda Kerr explained her consumption of maca powder along with noni juice and acai
berry powder as part of her daily diet. In global terms, Japan is the leading market for these products,
followed by the United States. The functional food and drink market is outpacing the conventional food
and drink market in terms of global growth by about 4 percent per year, according to a Leatherhead
Food Research report from June 2011. The fastest growing category within the functional foods market
are beverages.

However, in spite of its growth, this segment suffers from a high rate of product failure for
newcomers; as many as 80 percent launches fail to catch on due to inadequate marketing, consumer,
and trade education.

THE POTENTIAL OF NATIVE PRODUCTS: CAMU CAMU

Camu Camu (Myrciaria dubia) is a small tree or shrub that grows in the Amazon regions of Peru.
It typically grows in the flooded areas near the river. Its fruit contains high levels of natural vitamin C,
ranging from 1,500 to 2,000, and in some exceptional cases 3.130 mg of ascorbic acid per 100 grs of
fresh pulp.to put this into context, camu camu contains up to 30 times more vitamin C than an orange.
In addition to its antioxidative power, this fruit has proven to have anti-inflammatory properties, making
it effective at promoting a healthy diet. Other key properties include astringent, anti-viral, emollient,
and nutritive properties, and it contains natural beta-carotene, calcium, iron, niacin, phosphorus,
protein, riboflavin, thiamin, and the amino acids valine, leucine, and serine. Camu camu has the
potential to be used as a dietary supplement as well as for functional beverages such as Coca Cola’s
Minute Maid “Camu Camu & Vitamin” drink in Japan and the Super Fruits Mix variety of the Fanta brand
that includes a blend of camu camu with other fruits like pomegranate, mangosteen, and white grape.
Companies in the natural ingredients sector are starting to capitalize on the potential of camu camu as a
“super fruit.” An example of this trend coms from Navitas Naturals, a U.S. company that started with
maca (another Peruvian ingredient) and now sells a range of 25 products, all of which are functional
food.

UNDERSTANDING MARKET BARRIERS

Although accessing international markets is not an easy path for “superfoods”, success also has
its complications. Even when a superfood, like camu camu, is known in its country of origin. It is not
necessarily easily accepted in other countries. The following are examples of market access barriers that
represent a challenge for making camu camu a bigger star. The same rules apply to any other exotic
food.

U.S Market

When entering the U.S., all products for human consumption must have an FDA authorization
for the commercialization of that product. The FDA’s website provides for an interesting compilation of
warning letters regarding compliance or misclassification of products. The main barrier occurs when
marketing the product. If a company which wants to sell the product makes health claims, it must
request permission to sell the product as a drug with all paperwork and information that comes with
that request. However, if the company sells it as a food, or eventually as a dietary supplement under the
Dietary Supplement Health and Education Act of 1994 (DSHEA), then permissions are handled on a
different basis.

Camu camu is currently sold in U.S. as a dietary supplement in the form of liquid concentrate,
extract in capsules, juices, powder, as well as in chocolate bars and shakes.

The European Union Market

Camu camu is considered a novel food in the European Union according to Regulation
EC258/97, which states the following: Foods and food ingredients that have not been used for human
consumption to a significant degree in the EU before 15 May 1997 are “novel foods” and “novel food
ingredients.” The above statement covers all exotic foods coming from countries with a rich biodiversity.
This regulation represents a considerable challenge to any company that wants to sell novel foods or
beverages in any EU country. It must present dossier of the product in its specific presentation with
supporting evidence of its safety. The cost of preparing novel food dossier ranges between US$390,000
and US$780,000, a sum unattainable for small businesses. The novel food regulation does not cover uses
of specific ingredients or products such as camu camu as a dietary supplement. The latter category is
monitored under Directive 2009/39/EC. Firms need to recognize that:
  The role of governments to assure safety for their citizens, as well as the prevention of
false claims, is getting stronger.
 Consumers are increasingly informed. The internet has become not only a good source
of information but also a place where many people can find reports or scientific support
to any health.
 The “newer” the product in a market, the more it will have to support its properties with
sufficient evidence or historical record of usage. Many products are based on tradition
and use by the native population for centuries.

NAVITAS NATURALS BET ON FUNCTIONAL FOOD

Navitas is the Latin word for “energy” and “zest.” According to its founder, Zach Adelman, this
word embodies the company spirit of bringing ancient power foods to modern consumer, and also how
consumers feel after consuming these products.
Back in 2003, Incan nutritional wisdom was an unexpected discovery for Adelman. His first
encounter was with maca, an Andean tuber that grows in the high-altitude regions of Peruvian Andes.
The promise of its nutritional value and properties made it a commercial success.
The company began to grow rapidly. To remain true to its vision, it searched the world for
functional foods that have been used by traditional cultures for both medicinal and nourishment
purposes. Many of these foods have been consumed for thousand of years.
New additions were like cacao nibs, goji berries, and incan berries by 2005. Increasing demand
grew the product range to 26 over the past five years. Camu-camu did not go unnoticed. Navitas added
the miraculous super-fruit to its product list in 2010 and named in “Camu Powder.”
In July 2011, the company launched a healthy snacks line, combining the powder of all
superfoods within their product range with camu camu as part of one combination: the Citrus Chia
Powder Snack, along with chia seeds, maca, and lucuma superfoods, as well as apricot, raisin, cashew,
and coconut flakes.
Navitas started in a tiny facility on Hamilton Drive in Novato, California, back in 2003, but the
steady growth forced it to move to larger quarters in Pamaron Way in the same city in 2011. The firm
achieved GMP/HACCP third-party certifications in 2009.
Nowadays, navitas Natural imports food from Peru(maca, camu camu, lucuma, yacon, and
cacao), Colombia(incan berries), Brazil (acai), China (goji berries), Mexico (chia seeds), and Turkey
(mulberries),while expanding its sales throughout North America. Distribution channels not only include
retailers like Whole Foods or Mrs.Green’s in the U.S., but also dietary supplement stores like Manna
Foods or Canadian National Nutrition.

IDENTIFYING A STRATEGY

It is important to note that with the increasing demand for healthy foods, consumers are also
seeking products with special certifications, such as organic, that ensure truly natural products.
Functional foods comprise most often these types of products, as well as Fairtrade products, which adds
social sustainability into the equation.
 Navitas Naturals’ strategy to capitalize on the functional foods market is clearly aligned with the
company’s philosophy:

 Provide high-quality superfoods.

 Special certifications as a differentiation element: Organic, raw, Fairtrade, and Kosher.
 Social responsibility approach.
 Consumer education in order to sustain market growth. As an example, the company took
advantage of Internet tools such as YouTube to spread the company’s story and values with
short videos about its products.
 Mostly Wild Crafted (as an added-value feature).

Navitas’ mission is “to provide premium organic functional foods that increase energy and enhance
health.” Along with a healthy lifestyle comes also the responsibility of buying from local businesses to
give back to the communities providing these resources. “an essential part of our mission is to create
economic opportunities among indigenous people in developing countries,” says Zach. The company’s
support of native agriculture helps to expand the development of global organic farming practices and
economic development among indigenous people by increasing demand for the health-enhancing foods
they produce. Thus the firm creates a virtuous cycle for suppliers, consumers, and itself.
QUESTIONS FOR DISCUSSION

1. If no immediate change regarding the Novel Food Regulation (EU) is foreseen, what could be an
alternate use of camu camu?

Camu camu is a small, bushy riverside tree that grows in the Amazon rainforest inPeru and
Brazil. It’s considered the richest source of vitamin C in the Amazon, as well as containing
potassium, iron, calcium and phosphorous (Browne 2014). The European Union’s Novel Food
Regulation states that Foods and food ingredients that have not been used for human
consumption to a significant degree in the EU before 15 May 1997 are “novel foods” and “novel
food ingredients” (Czinkota & Ronkainen, 2013). This poses a threat to small businesses that
wish to sell camu camu in the EU because a dossier of the product with specific evidence of its
safety must be presented before it can be sold. If no immediate change is foreseen, camu camu
can be sold as a dietary supplement because these dietary supplements do not fall under the
rule of the Novel Food Regulation.

2. What brand strategy is Navitas following to “adapt” camu camu to the U.S. market?

The brand strategy that Navitas followed in order for camu camu to appeal to the U.S market
was by providing high-quality superfoods that are very popular in the U.S. today. They are using
special certifications such as organic, fair-trade, and kosher as a differentiation element. They
are also using customer education as a way to build brand loyalty and make their customers
believe in their products(Czinkota & Ronkainen, 2013).
3. Would you recommend that Peru use the same brand strategy Navitas is using in the U.S. and in
other international markets?

The marketing environment of the U.S. is significantly different to that of Peru. The brand image
may need to be tailored to a foreign market based on that country’s core values and it’s
consumers’ preconceived notions of product value.
Navitas in the US: dietary supplement.
Navitas in Peru: focus on the promoting the essential vitamins and minerals.
A firms branding strategy should be reflective of the businesses vision and mission. To be able to
differentiate themselves by adopting a different brand strategy altogether, a company will have
different strengths. ts natural health benefits and its all-around positive effect whereas a lot of
people in the U.S. may only want camu camu as a dietary supplement. Peru should make use of
some convinced portions of brand strategy of Navitas however differentiate themselves for the
Course Project4reason that consumers do not desire to see the similar brand strategy. Peru
should implement merely those plans of Navitas which are convinced and should develop its
own strategies so that its uniqueness can be sustained since unique products are preferred by
clients. (Mckie, 2014).
4. Amazon Herbs follows in the U.S. camu camu. Would you recommend this strategy to other
American importers of camu camu?

I would not recommend Amazon Herbs follow the same strategy as camu camu toother
importers of United States because of market obstacles that camu camu is facing both here in
the United States and in the EU. Each should develop its own strategy with their own thinking so
that they can utilize their opportunities since following others makes humans dependent on
others.

5. What international marketing strategy would you recommend to Peru in order to promote camu
camu in the North American market?

The two main options that Peru has as far as marketing strategies are concerned are
standardization and adaptive marketing. Standardizing is not recommended in a market like the
functional foods market because different areas of the world may have different views on
superfoods and beverages. The globality of a brand has a clear role in building a sustainable
competitive advantage (Johansson & Ronkainen, 2005).Adaptive marketing would make more
sense because then Peru can personally tailor camu camu for each target market that they are
attempting to enter.
Working Towards Better Vision

Since 1992, Essilor had been the world leader in corrective lenses with €3.8 billion annual
revenue (approximately $5.6 billion). Although the global market was growing slowly at approximately 3
to 4 percent, Essilor was able to achieve high profits and sales growth. The economic downturn in the
U.S. and Europe did not affect its financial performance. In 2010, many large optical lens manufacturers
faced financial hardship, but Essilor earned net profits of 11 percent. The company planned to maintain
its leading position as well as its sales growth and profits.

COMPANY BACKGROUND

Essilor International S.A. was a French company that manufactured ophthalmic lenses and
ophthalmic optical equipment. Formed in 1972, Essilor was formed from a merger between Essel, a
small network of eyeglass assembly workshops, and Silor, a lens manufacturer. In the late 1970s, Essilor
started to pursue a geographical expansion strategy by acquiring manufacturing plants in the U.S.,
Ireland, and the Philippines. Subsequently, Essilor transferred part of its lens production to emerging
markets and expanded its sales in other countries. Geographical expansion was achieved by acquiring
the local distributor, setting up new subsidiaries, or partnering with local companies. Since 2003, Essilor
had acquired close to 100 companies, primarily in the prescription laboratory market, and formed
partnerships with more than 60 companies worldwide. In 2010, the company operated in over 100
countries by owning three R&D centers, 14 manufacturing facilities, 332 prescription laboratories, and
12 distribution centers.

The cope of its business operations was rather concentrated. Essilor was heavily dependent on
its corrective lens segment, which contributed 93 percent of the company’s total revenues. In the
fragmented global ophthalmic industry, Essilor was the market leader with only 27 percent share.
Europe and the U.S. were its major markets, contributing over 80 percent of its revenue.

ESSILOR’S STRATEGY

The success of Essilor rested on its product innovation, efficient distribution network, and
production tooling. To meet the demands of customers (both optical professionals and consumers), it
developed a large number of new products combining different materials, optical surfaces, and coatings.
For instance, sun protection lenses were designed for athletic presbyopes (people with farsightedness
due to aging), and computer lenses for those presbyopic glass wearers who experienced tired eyes,
blurred vision, headaches, or neck and shoulder pain. Essilor had the largest product offering in the
market with 580,000product items. Through a broad range of lenses, Essilor could provide solutions for
correcting myopia (nearsightedness), hypermetropia (farsightedness cause by eye imperfections),
astigmatism (blurred vision due to the inability of the eye to focus), and presbyopia. New products
launched during the 2007-2010 period generated about 50 percent of its total revenue.
 It continued using its financial strength to acquire businesses to facilitate its entry into new
market segments and to expand its presence in high-growth markets. For instance, it took over FGXI, a
leading designer and marketer of nonprescription reading glasses and sunglasses in the U.S. This allowed
Essilor to participate outside its prescription lens segment. In India, Essilor bought Lens and Spects Inc., a
distributor with two prescription laboratories in four cities in western India. This helped Essilor to gain a
strong foothold in one of the fastest growing markets. The company also invested heavily in logistics to
distribute lenses to retailers.

BUSINESS SEGMENTS

Essilor operated in three business segments, optical lenses and instruments, equipment, and
nonprescription glasses. For optical lenses and instruments, the company designed, manufactured, and
customized corrective lenses to meet individual users’ vision requirements. It also sold lens edging
instruments to optician and prescription laboratories, and vision screening instruments to eye care
professionals, schools, and other institutional users. The nonprescription glasses segment consisted of
premade vision-corrective glasses that users purchased without a prescription. Many non-ophthalmic
stores sold these glasses on an over-the-counter basis. In 2010, the lens and optical instruments
business represented 93 percent of Essilor’s revenue.

Exhibit 3 classifies the optical and market based on price levels, life-styles, and product benefits.
For the high-end market, Essilor offered several brands covering various situations as part of the
“modern-life and aging,” “outdoor,” and “active” lifestyles. For example, Varilux Progressive lenses
provided clear natural vision at all distances. The Crizal brand had the benefits of antireflective lenses,
and anti-scratch and antistatic surface coatings. Anti-fatigue lenses were advanced single vision lenses
specially designed to relieve the symptoms of visual fatigue from reading or computer usage. In the mid-
range price and entry level segments, Essilor had more limited product choices.

Approximately half of Essilor’s revenue derived from selling antireflective lenses, following by
easy cleaning and progressive lenses. For antireflective lenses, some countries like Japan and Germany
had reached a high saturation level while penetration rate was low in, for example, France and the U.S.
Other new premium lenses such as anti-fatigue lenses and those for computer use still accounted for
only a small fraction of Essilor’s total lens production.

THE OPHTHALMIC LENS INDUSTRY STRUCTURE

Eyeglasses were distributed through two major channels- the channel for prescription lenses
(RX), and another for premade over-the-counter glasses (OTC glasses). The market size for prescription
lenses was larger with about 1 billion RX lenses produced annually while the OTC marker was only 200
million lenses.
 In acquiring prescription lenses, users visits an optical eyeglass store to select frames and semi
finished lenses, have their eyes tested, and pick up new glasses at the store after the lenses are returned
from a prescription laboratory. A prescription laboratory finishes semi finished lenses based on
individual specifications. For the OTC market, users can obtain premade glasses immediately. The global
prescription lens industry was organized into four distinct business according to the stages in fitting
lenses to individual needs: raw materials suppliers, lens manufacturers, lens finishers and distributors,
and retailers.

Raw Materials Suppliers

Basic materials were composed of glass and polymerizable thermoset resins and injectable
thermoplastic resins. Glass manufacturers developed and made glass lenses. Chemical companies sold
polymerizable thermoset resins and injectable thermoplastic resins for plastic lenses.

Lens Manufacturers

Using these raw materials, lens manufacturers produced single-vision finished lenses and a
variety of semi finished lenses. There were about 150 to 200 small operators for prescription glasses
worldwide and 200 to 300 manufacturers for nonprescription lens manufacturers.

Lens Finishers and Distributors

Based on the specifications from a retail optical shop, a prescription laboratory polished the
semi finished lenses and then applied coatings. The coating options included tinting, anti-UV, scratch-
proofing, antireflective, smudge-proofing, antistatic, light-filtering, and others. Approximately 1,500 to
2,000 operators worldwide served as laboratories and distributors.

Retailers

There were a large number of optical outlets in the world, and the retail structures in different
countries varied. For instance, there were 14,000 optical stores and 16,000 optometrist’s offices in the
U.S. The opticians’ stores in the U.S. were rather concentrated, controlled by the 50 largest optical
chains, such as Luxottica (LensCrafters and Pearle Vision), U.S. Vision, and Eye Care Centers of America.
Together they held about60 percent of the market share. In India, the retail optical sector was more
fragmented with more than 3.5 million outlets. These outlets were small, and large optical chains
accounted for less than 4 percent. Indians living in remote areas did not have access to optical shops.

Essilor bought chemicals and glass from manufacturers around the world. It functioned as a lens
manufacturer and owned prescription laboratories in various parts of the globe. It supplied ophthalmic
lenses to optical retailers and chains worldwide and sold edging-mounting instruments and laboratory
equipment to prescription laboratories. It also helped retailers in promoting its lenses to customers. It
did not acquire retail operations since this would compete directly with independent retailers who
influenced consumers’ choices of lenses. Nevertheless, in some emerging economies like India where
retail outlets were limited, Essilor cooperated with a not-for-profit charitable eye hospital to send
mobile eye clinics to villages in rural south India. These mobile units were equipped with modern
comprehensive eye examination instruments.

For the nonprescription market, spectacles were sold in pharmacies, grocery stores, mass
merchandisers, other retail outlets, and eyeglass websites without a prescription. By acquiring FGX
International in 2010, Essilor had entered into this market segment. FGX was the North American leader
in the design and sale of reading glasses and sunglasses. Its glasses were distributed in North America
(the U.S., Canada, and Mexico)and the United Kingdom. The customers of FGX International were large
retail companies (Walmart, Target, etc.), pharmacies (Walgreens, CVS, etc.), specialized retail outlets
(Barnes & Noble, etc.), and airport and rail station boutiques.

TRENDS IN THE OPTICAL INDUSTRY

The ophthalmic optical market was affected by several trends, which would influence the
growth of this industry.

Demographics

Numerous demographic factors favored the increasing need for eyeglasses. Several factors
contributed to this potential industry growth. Nearsightedness, especially in younger adults, was caused
by hereditary factors and the visual stress of to much close work. In 2010, there were approximately 2
billion people with nearsightedness; this was projected to be 2.1 billion in 2050. The size of the older
population with farsightedness was about 2 billion, expected to grow to 3.8 billion by 2050. Corrective
lenses were the cheapest option for age-related farsightedness. Other vision problems also increased as
the world’s population expanded.

Retailing

The retail market for optical products n developed was facing some structural changes. Retail
chains already controlled about half of the U.S. market. In Europe, chains and buying groups together
accounted for the majority of the market. For example, in Germany, Fielman was estimated to control
25 percent of the market in terms of value and 45 percent in terms of volume. This trend could spread
to other parts of the world. The ongoing retail consolidation would further reduce the bargaining power
of lens manufacturers. Typically, gross margins of lens manufacturers were lower for products
distributed through chains. Although the volume of corrective lenses sold through the Internet was still
relatively low, purchasing eyeglasses through this new outlet had gained more acceptance among price
conscious buyers. A buyer could get her eyes tested and send her prescription to an online vendor.

Geographic Locations

The number of lenses and selling prices were related closely to GDP per capita. Low-income
countries tended to use cheap mineral lenses. As incomes rose, mineral lenses were replaced by basic
plastic lenses and, subsequently, by premium lenses such as those with multicoating layers and antiglare
lenses. Developed countries with a high GDP per capita such as the U.S., France, the UK, Germany, and
Spain were the primary markets for glasses. Although these countries would continue to be important,
their market growth rates were low. In contrast, emerging markets like China, India, Indonesia, Mexico,
and Brazil had more growth potential. However, much of the population in developing countries who
needed eyeglasses did not have access to eye care or were unable to afford eyeglasses.

Substitute Products

Instead of wearing glasses, contact lenses and Lasik surgery to correct eyesight were
alternatives. The worldwide contact lens market was estimated at $6.1 billion in 2010 an projected to be
$11.7 billion by 2015. Despite the popularity of contact lenses, many users still wore both contacts and
glasses. Also, there were more than 18 million people who had Lasik surgery. However, the operation
was still costly, and not all eyeglass wearers were good candidates for Lasik surgery. Only those who did
not have problems with cornea disease, dry eyes, unstable diabetes, or arthritis were appropriate for
the Lasik procedure.

Replacement Markets

Replacements controlled the majority of the industry sales volume. Eyeglasses needed to
maintained and inspected regularly. If there were scratches on the surface of a lens, its optical
corrective performance would deteriorate. However, many people kept their eyeglasses beyond their
service life, especially during times of economic hardship. They waited until the eyeglasses broke or
could not be used anymore.

Insurance Programs

In several developed countries, state social security systems partially reimbursed prescriptions.
The high government deficits in these countries may lead to the removal of prescription lenses from the
list of reimbursable items. This would affect the demand for eyeglasses and corrective lenses in these
lucrative markets.

COMPETITION

Although the optical market was fragmented, composed of a large number of small local
players, there were several multinational optical companies operating in this industry such as Hoya, Carl
Zeiss-Sola, Rodenstock, Seiko, and Indo. As the market leader, Essilor was more than three times larger
than the second largest operator, Hoya. Essilor operated only in the corrective lens segment, while most
of its competitors had expanded into related industries.
Hoya

It was the first specialized manufacturer of optical glass products in Japan. Its businesses were in
the areas of optical technology, including electronics, photonics, eyecare, and health care. For visual
care, Hoya was a manufacturer of specialty lens design that incorporated optics with high-end materials
and coatings. Revenue from visual care products accounted for a quarter of its revenue. Like Essilor,
Hoya took pride in innovation. For instance, its measuring devices and software were installed at
eyeglass retailers to help customers get lenses customized for their prescriptions, frame and face
shapes, and individual lifestyles. It also owned a chain of contact lens specialty stores in Japan. Although
Hoya was represented in over countries worldwide, Japan and other Asian countries were its main
markets. The company controlled the largest market share in Japan but was the second largest player in
the global market. In 2010, Hoya experienced lower revenues as a result of the declining population in
Japan and falling prices in several countries.

Carl Zeiss-Sola

The company was established from the merger between Sola Optical and the ophthalmic lens
division of German manufacturer Carl Zeiss in 2005. It operated in 30 countries. In addition to producing
ophthalmic lenses and lens coatings, Carl Zeiss was in the business of semi-conductor technology,
medical systems, and microscopy. While Hoya and Essilor had acquired prescription laboratories, Carl
Zeiss did not enter the lab business. Instead, it supported independent laboratories to compete with the
integrated laboratories.

Rodenstock

The company was a German manufacturer of ophthalmic lenses and spectacle frames. It
specialized in producing high quality optical lenses for cameras and enlargers. It was the fourth largest
lens manufacturer in the global market, operating In more than 80 countries with sales subsidiaries and
distribution partners. Rodenstock had 14 production sites for ophthalmic lenses in 12 countries. In 2009,
Rodenstock achieved record annual revenue of €345 million.
QUESTIONS FOR DISCUSSION

1. How was Essilor able to achieve outstanding financial performance? Did it employ strategies
differently from other lens manufacturers?

Essilors success depended on three (3) features:

 Product innovation – Huge number of new products designed for specific purpose.
Essilor had the largest product offering in the world (580,000). And Essilor allocates
more than €150 million to research and innovation every year to bring new, more
effective products in the market.
 Efficient distribution of network
 Product tooling – Essilor had a good product tooling. It operated in 3 business segments.
The optical lenses and instruments, equipment, and non-prescription glasses.

2. What were the opportunities and threats in the optical industry? How did these trends affects
industry growth?

The opportunities are:

- New product launches
- Acquisitions – Essilor strengthened its presence in the domestic and foreign markets
through several acquisitions. It reinforced its prescription laboratory network in Europe and
U.S. through e.g., Sinclair Optical Services, United Optical in UK, Premier Optics, and Gold
Optical Enterprises. Acquisitions enabled Essilor to enhance its competitive position in the
corrective lens market, provide a more local service to opticians.
- Strong Demand for eyeglasses in Europe
- And Essilor has taken the initiative to help those people in reural areas who cannot travel to
the city to get eyeglasses due to costly transport fares.

Threats:
- Competition from Hoya and Pentax – These 2 companies mutually utilize respective
manufacturing sites and customer base to secure competitive against newly emerging
players. If Essilor is unable o compete successfully in the market in the future, it may
adversely affect its commercial opportunities.
- State reimbursement regulations – Essilor can be affected by a change in the way corrective
lenses are subsidized by state health insurance systems.

In may affect the trend in:

Retailing – the increase in retail outlets for optical products will positively impact on the
industry growth.
Geographic locations – most of the customers of optical products are from developed
countries. However, growth rate is stagnant in these countries.
 Substitute products – lens manufacturers can be negatively impacted by growing availability
and acceptability of vision correction alternatives to lenses. However, some of the people
still opt for eyeglasses because of the relatively higher cost of Lasik surgery and many were
not eligible for it.

3. In order to sustain strong financial performance, what options did Essilor have? How should it
expand geographically, if at all? Should its marketing strategies differ between advanced and
lesser developed countries?

Essilors one option is growth through acquisitions. Essilor has been expanding its business
through strategic acquisitions. He has signed 6 new partnerships in U.S., Canada, Brazil in
January 2014. Essilor conducts business in every category of lenses under various globally
recognized brands. Its readers business offers non-prescription reading glasses and non-
prescription sunglasses. This is well positioned with its strong brand portfolio.

Economic turmoil and reduced consumer wealth in Europe and America, customers
unable/willing to purchase Essilor’s products. Intense competition from Carl Zeiss, Hoya, and
Luxottica Group. Most competitors have larger scale operations and strong presence emerging
markets. Essilor high dependence on few markets to generate revenue competitive
disadvantages some factors like pricing control. WHO estimated 285 million people were visually
impaired in August 2014. 90 percent of world’s visually impaired live in low-income settings,
need to change customer’s mindset and long-held routines in emerging markets.

Be more technologically- savvy and compete against strong competitors to provide lenses that
adopt to specific needs of customers. Value quality over cost market and Branding is important.
African Producers in the Cut Flower and Foliage Trade

The floriculture constitutes the production, export, and consumption of cut flowers, foliage,
young plants, and trees. It is one of the flourishing industries between the developed and developing
countries in recent times.

When the trade started in the seventeenth century, both production and consumption
concentrated at and around the same destinations; i.e., the consumers themselves mostly produced the
product. The leading actors included Germany, France, and Japan. In the last 30 years, the trade has
gradually grown to involve other participating countries. Now a trend has evolved where much of the
production is carried out in new emerging production centres mostly in developing countries, which
have better climatic conditions and cheaper labour and energy supplies. These countries include
Ethiopia, Kenya, Zimbabwe, and Ghana in Africa, and Colombia, Ecuador, and Israel.

Cut flowers and foliage are considered together because both of them have similar uses; they
could be combined to make bouquets. Additionally they both have the same markets and same or
similar marketing channels. The factors leading to the involvement of African producers in both the
flower and foliage trade and concludes on what African producers can do to sustain their place in the
chain. It will focus mostly on Kenyan, Ethiopian, and Ghanaian producers (Kenya and Ethiopia are
already advanced producers whilst Ghana has a very young industry) and the Netherlands, which is the
main market for African producers.

The products under review are described by the Combined Nomenclature (CN) for statistics in
the European Union as follows:

 Cut flowers and flower buds of a kind suitable for bouquets or for ornamental purposes
(060310).
 Foliage, branches, and other parts of plants, without flowers or flower buds, suitable for
bouquets or for ornamental purposes (0604).

Cut Flowers

In 2009 the exported value of fresh cut flowers amounted to $6,466,810 billion according to the
International Trade Centre (ITC) Trade Map Statistics (COMTRADE). The Netherlands was the leading
exporter with a value of $3.4 billion, followed by Colombia ($1 billion), Ecuador ($498,489), Kenya
($245,692), Belgium ($164,632), Ethiopia ($131,440), and Zimbabwe ($115,565). The main product
traded was roses. Anthurium and heliconias are, however, gaining importance as tropical flowers from
Africa.
FOLIAGE

Foliage cultivation and exports from Africa do not command the same significant place as cut
flowers. They are relatively lower and less attractive than flowers because of high transportation costs
(due to the exceptionally heavy weight or volume of many tropical species) and relative monotony of
their colors. Additionally, they can be replaced by other flora products in a bouquet. In 2009, total
foliage exports according to the ITC Trade Map amounted to US$1.1 billion with Netherlands being the
main exporter. Ghana exported US$519,000.

MARKET FOR AFRICA’S CUT FLOWERS AND FOLIAGE

The main market for cut flowers and foliage from Africa is the European Union, as it is for much
of its horticulture product. The obvious reasons are proximity to the market, lower cost of
transportation, and longer shelf life of these delicate products. (It is for these same reasons that
Colombia is the major market for United Stated of America).

The total value of exports of all cut flowers, foliage and cut greens, and pot plants amounted to
€10 billion worldwide in 2009 according to the Union Fleurs International Flowers Association, whose
membership accounts for around 80 percent of this value. Here again, the major players in the
worldwide export and import floricultural trade, e.g., the Netherlands, Colombia, Kenya, Ecuador,
Germany, and Italy, are represented in the organization.

Foliage and tropical flowers constitute a growing niche market for African producers. Bouquets
enjoy comparative advantage because as a specialty product, they involve a labor-intensive process,
which is cheaper and more available in Africa and other developing countries. However, this is still not
captive market for developing countries because of two major challenges: the ever-changing
fashions/trends with regards to colors and combinations; and the strong negative influence on quality of
dense packing of foliage for transportation in order to reduce freight costs.

Demand for different foliage varieties (particularly small-leafed foliage to make cheap bouquets)
is becoming a trend for importers who use tropical foliage. Price competition has become a strong
determinant towards growing flowers and foliage in low-cost countries, in particular developing
countries enjoying duty-free status. However, with a view to minimizing high air freight costs it is more
economical to send large quantities to one single destination, primarily Amsterdam when it comes to
exports into Europe. This is why the Netherlands has become an important trade destination for Africa
for the flower trade. Through the auction markets, the Netherlands imports large quantities of cut
flowers and re-exports to other countries in the European Union. In the same vein, producers from
Africa do less direct exports to wholesalers because of high air freight costs.
USAGE OF FLOWERS AND BOUQUETS IN AFRICA

It is noteworthy that the local consumption of flowers in Africa (apart from South Africa) is
almost nil; flower usage is not a cultural practice in most African countries. Many Africans do not value
and therefore do not use flowers the way they are used in the developed countries. According to a
grower in Ghana, Ghanaians are not familiar with fresh cut flowers. Out of the 300,000 kilos of
heliconias the company produced in 2010, the local market consumed less than 1 percent. Indeed, the
little that were bought were not for individual use in homes nor given as gifts. They were rather bought
by hotels, by government institutions for use during the organization of international programs, and the
rest for wreaths during funerals. Some affluent people may grow some flowers and foliage in their
homes and keep nice landscapes and large potted plants which are prepared to last for years. During
occasions like Mothers’ Day, Christmas, and Valentine’s Day, people prefer to give and receive “multi-
purpose” gifts such as dresses, shoes, and sometimes chocolates. The story is not very different from
Kenya, Ethiopia, and Tanzania.

This low to nil competition between the local and international consumption of African-
produced flowers is significant; it could be considered as one of the reasons why exports of cut flowers
from Africa to the European Union is flourishing. South Africa produces flowers and foliage, but it also
consumes much of its own production. China has also become one of the largest cut flower producing as
well as consuming countries in recent years, Kenya, Ethiopia, and Ghana export almost all of the flowers
and foliage they produce.

In spite of not being familiar with the use of flowers to express emotion, the men and women
who work in flower fields in Africa have been trained to understand the intricacies involved in producing
good quality and nice flowers, which must reach the final consumers in good time and condition.

The Cut Flower Chain

Cut flowers are highly perishable and very quickly lose their usefulness if their production and
handling is not properly done. The chain process is therefore marked by a highly efficient coordination
of activities between the producers from Africa and the final consumers in homes and offices in Europe.

The Structure of the Production

The participation of African producers in the cut flower trade is as a buyer-driven commodity
chain. Buyer-driven commodity chain are those industries in which large retailers, marketers, and
branded manufacturers play the pivotal roles in setting up decentralized production networks in a
variety of exporting countries, typically located in the Third World. This pattern of trade-led
industrialization has become common in labor-intensive, consumer goods industries such as garments,
footwear, toys, housewares, consumer electronics, and a variety of handicrafts. Production is generally
carried out by tiered networks of Third World contractors that make finished goods for foreign buyers.
The specifications are supplied by the large retailers or marketers that order the goods.
 Many of the successful flower and foliage producers in Africa are part of the production process
of bigger chains in Europe. Even though cut flower farming cannot be said to be as industrialized as the
garment industry, it is a very labor-intensive industry. The production process cannot be mechanized;
humans are needed to plant, weed, water, nurse, harvest, sort, clean, and pack the products for the
market. Close to 60,000 people are employed in the Kenya cut flower industry. MDK in Ghana currently
employs 100 workers on its 15-hectare farm. This kind of labor is definitely not available or cheap in
Europe.

As in a typical buyer-driven commodity chain, it is also the buyers that determine and dictate
the ‘design’ and trends in the trade. Codes and quality requirements are given by the market and must
be complied with by flower producers. In Kenya, small holder cut flower farming is decreasing because
of the inability of these farmers to comply with the many ever changing quality requirements.

Ghana

The floriculture industry is relatively young in Ghana even though endogenous factors like good
climate, strategic location on the equator to guarantee all year-round production, and cheap labor exist
to facilitate production of the product. Many Ghanaian producers are interested in products that could
also be eaten in the event f their not being exported. Some local flower farm workers in Ghana
expressed their initial skepticism about the industry as follows: “… why produce cut flowers if you also
can produce rice which at least you can eat!” Consequently, many indigenous Ghanaian farmers have
invested in other horticultural products like pineapple, mangoes and papaya.

Two of the known cut flower and foliage farms belong to Dutch investors. There are no flower
associations and clusters in Ghana as in Kenya. The government has also not injected any conscious
support for the flora industry as it has done for mangoes and pineapples for example. Currently, only
one farm is fully operational-MDK Ghana. This company produces exclusive foliage such as monster,
philodendron, and anthurium. The parent company in Holland undertakes all the sales and marketing
activities, 90 percent through the auction market and 10 percent directly to wholesalers in Germany.

MDK Ghana was established in 2007 and produced and sold mono bouquets. Currently, it has
reached a much higher level of professionalism which allows it to produce fresh bouquets composed of
many different flowers in various styles. It has 15-hectare farm with access to large areas of water
bodies. It employs 100 permanent workers, many of whom were originally rice farmers. At the
beginning, of 2010, it introduced a new line of tropical flower bouquets. The flowers are grown in the
open fields by local trained to turn the products into bunches and mixed sprays and sold as such in
European supermarkets. Consumption of mixed bouquets is gaining a lot of popularity.

Cultivation of the products is done under shades and some in the open field. The company has
its own refrigerated van which transports finished products to the airport within one hour. The farm is
headed by an experienced Dutch cut flower farmer who has worked in other farms in Africa.

Another farm, Gold Coast Foliage, which is currently not in operation, was also established and
fully funded by Dutch investors who themselves were traditional growers of flowers in the Netherlands.
They have other flower farms in Ethiopia. Products from the farm were marketed and sold by a buyer
called Flueriplus in the Netherlands, who was one of three investors of the farm in Ghana.

Unlike MDK, this farm cultivated just two types of foliage-monstera and asparagus virigatus.
Unfortunately, the asparagus virigatus was attacked by a fungus which became difficult to fight.
Additionally, the farms were located very far away from the airport, more than three hours drive away.
Even though the farm invested in a lot of infrastructure, it did not have a refrigerated van of its own to
expeditiously transport finished products to the airport. All these were compounded by the river it
depended on to irrigate the farms becoming salty in the dry season. The Ghanaian manager of the farm
had no previous knowledge in floriculture farming.

ETHIOPIA

Ethiopia is the second-largest producer of roses in Africa, with Kenya leading and sixth in the
world after Holland, Colombia, Ecuador, Kenya, and Israel. Ethiopia has earned US$186 million from
horticulture exports out of which 80 percent was generated by flower exports in 2008. The flower farms
employs between 30,000 employees and 60,000 according to the Ministry of Trade and Industry.
Seventy percent of the flowers produced in Ethiopia go to Netherlands, and the rest to Russia, the U.S.,
and Japan.

The first private flower companies, Meskel Flower and Ethio-flora, started activities around 1997
on a few hectares of land. As of 2008 the investment authority had given permits to 251 investors, many
of whom are traditional growers from the Netherlands. The sector is governed by the Ethiopian
Horticulture Producers and Exporters, which offers tremendous support to its members.

KENYA

Kenya is the oldest, most successful and major producer of flowers in Africa. The sector is now
the fastest growing in the Kenyan economy, outpacing its traditional hard currency earners-coffee and
tourism. About 60,000 people have been employed by the sector with the majority being women. The
industry has expanded from a small scale trade in the 1950s/1960s to become one of the most
important “off-season” suppliers of cut flowers in the World. Cut flowers are a major source of foreign
exchange for Kenya, exporting $245 million worth of flowers in 2010 (ITC statistics based on COMTRADE
statistics).

In contrast to the situation in the 1970s and 1980s when only one or two companies accounted
for the bulk of cut flower exports, as is the present case in Ghana, Kenya currently has more than 600
producers/exporters growing cut flowers. Production for export is largely concentrated on some 60 or
so medium to large scale flower operations, of which the 25 largest producers account for over 80
percent of total exports. The larger flower operations range in size from 20 to over 120 hectares
employing between 250 and 6,000 people.
 Many of Kenya’s farms (50 to70 percent) are located around the Lake Naivasha. Lake Naivasha
District is situated about 100 kilometer northwest of Nairobi, in the Great Rift Valley, at an altitude of
1,800 to 2,000 meter above sea level, and it comprises an area of 2,000 hectare. The management of
these farms is usually by foreigners with extensive knowledge in the sector. These farms have also
invested heavily in infrastructure to support their operations. Over the years, the number of
smallholders in Kenya who are mostly indigenous farmers is decreasing rapidly owing to their inability to
comply with the many production codes and requirements. The category of farmers in Kenya is
represented as follows. Ghana can learn from the experience of Kenya and Ethiopia to increase its
shares in the flora trade.

SUCCESS FACTORS

The rapid growth of floriculture in Africa is due to different factors like suitable climatic and
natural resources, high level of support by the government, favorable investment laws and incentives,
proximity to the global market, efficiency of the transport systems, and availability of abundant and
cheap labor.

Another important factor is access to water. Flower farming requires more water than
conventional farming, because a flower is said to be 90 percent water. Many of the African flower farms
are located near rivers and water bodies. The farms further invest in irrigation equipment for consistent
supply and distribution of water for the plants. It is important for these water bodies to be nourishing
and clean and free from harmful materials. One of the main factors which adversely affected a foliage
farm in Ghana was the presence of salt in the river, River Okye in the Mankessim District in the Central
Region of Ghana, where it was located. It is ironic that cut flowers compete with humans for clean
sources of water.

THE CUT FLOWER TRADE IN EUROPE

The EU is the largest market for trade in fresh cut flowers in the world. A CBI Market Intelligence
Survey on Cut Flowers reports that in 2008, the total EU flower market amounted to approximately €13
billion. The largest flower markets in the EU were: Germany (23percent market share), the United
Kingdom (15 percent), France (15 percent), Italy (11 percent), the Netherlands (7.6 percent), Spain (5.7
percent), Belgium (3.3 percent), and Poland (3.2 percent).

Despite sub-optimal climatic conditions, EU companies can grow top-quality flowers using
heating and advanced cultivation technologies like assimilation lighting and additional carbon dioxide
(𝐶𝑂2 ). The value of cut flower production in the EU amounts to approximately €9.5 billion. The
Netherlands is by far the major producer in the EU, accounting for 40 percent of total production value.
Other major producers are Italy, Germany, and France. In recent years, a larger number of countries
report a decline in the number of active growers.
 As a result of the increasing competition and search for lower costs, some European growers
(particularly in the Netherlands) have relocated their production to lower cost countries, which offer-
favorable cultivation circumstance. An increasing number of rosa and summer flower growers have set
up flower farms in countries such as Kenya and Ethiopia.

Other new products like heliconia are mostly imported. Heliconias are true exotics, unable to
withstand prolonged periods of temperatures below 15◦C. the flower comes in many different shapes
and sizes, of which heliconia caribea accounts for about 40 percent of traded heliconias. Heliconia is one
of the products of MDK Ghana produces and supplies at the auction market.

Also, the floral industry is essentially a labor-intensive one, which is why although the biggest
market still is the Dutch one at Aalsmeer, the flowers are from Third World producers in Kenya, Ethiopia,
Ecuador, Colombia, and India.

THE ROLE OF THE NETHERLANDS AND THE AUCTION MARKET IN THE

FLOWER CHAIN

Despite the advent of direct buying by supermarkets, the bulk of the world flower trade is
channeled through auction houses in Holland. The Dutch auctions have a strong position in the flower
chain-over 60 percent of world trade in flowers and plants takes place via Dutch auctions. They process
around 40 million blooms a day, taking them in from Dutch growers and from exporters like Kenya,
Zimbabwe, Israel, Colombia, and Ecuador.

The Flora Holland flower auction house in Naaldwijk is the largest cut flower and plant auction
house in the world and is responsible for over 90 percent of Dutch trade in those products. It has a
turnover of €1.9 billion, 3,000 employees, and a market share of 56 percent in the Netherlands and 52.3
percent worldwide. It is specialized in cut flowers (70 percent of the turnover) and pot plants (30
percent). About 7.6 billion products are sold in this marketplace, mainly Dutch products (5.8 billion) but
also a growing number of imported products (1.8 billion). Flora Holland does business with about 16,000
suppliers, 4,600 traders, and 2,600 exporters. Many African producers use the auction market to
distribute their products.

TO WHAT EXTENT CAN AFRICAN PRODUCERS SUSTAIN THEIR PRESENCE IN

THIS CHAIN?

Apart from 2009 during the global crisis, the cut flowers trade has been growing since the last 30
years. The trade is characterized by an efficient and flourishing production and consumption chain
between the main importers in Europe and producers from developing countries. Factors like the high
cost of labor and energy, concern for environmental pollution, the quest for new exotic tropical plants
and perhaps the need to promote trade between the north and south led to this shift. The chain process
has been facilitated by the proximity of producing countries to the import markets as well as favorable
trade agreements between these countries.

In Africa, Kenya and Ethiopia have taken a lead in this sector. They both enjoy support from their
governments, they have organized the trade into strong clusters and associations that team up to
support each other, and they are able to comply with the codes and standards required by the market.
Another characteristics of these successful farms is that they are usually owned and or managed by
traditional European growers who have relocated to Africa. Young producing countries like Ghana can
learn from this practice to increase their market share.

However, like fashion, the flower industry is “subjected” to seasonal colors, shapes, and
varieties. Consumers continually are seeking products which offer diversity in flower and leaf color, good
texture and form, as well as better performance in interior environments. This makes research and
development an important aspect of the chain. Much of this is dictated by the buyers, who also have the
resources to undertake the research. In Holland, the Rijnplant has lately developed a new variety of
anthurium plant, which it has patented for 20 years. Research and development costs a lot of money,
which indigenous producers from Africa cannot afford. The ability to introduce new varieties or lines of a
product is a critical success factor for flower producers.

The Netherlands is an important player for African producers. More than 50 percent of flowers
produced in Africa pass through the flower auction markets in the Netherlands. However, Poland,
Belgium, and Sweden imports are becoming leading growth markets in the EU, importing traditional
flowers directly from Africa and other developing countries.

If African has to sustain its participation in the trade, she must make efforts to develop
techniques which will reduce its production costs and ultimate cost to the consumer. The industry is
capital-intensive; as such there must be efforts to identify and use low cost production technologies and
reorientation of imported technology to suit Africans’ requirements. There is also an urgent need for
African producers to identify varieties that are most tolerant of the stresses of long shipping and storage
in order to remain competitive and sustain their position in the chain.

Another pertinent issue is the continuous supply of clean water to feed the floriculture industry.
A flower is 90 percent water, needing more water than conventional horticulture products. This water
must also be free from contamination and be fit for human consumption. How long can the water
bodies in Africa continue to feed flower production and still have enough for human consumption and,
importantly, remain unpolluted?
QUESTIONS FOR DISCUSSION

1. One of the challenges for African flower and foliage is the need to ensure that the products
reach the final consumers in good quality. Must then they produce and market their own
products that are more tolerant to the stresses of long shipping or continue to produce
traditional European flowers which are difficult and expensive to transport?

One challenge the African producers face is the urgent need to identify varieties that are most
tolerant of the stresses of long shipping and storage in order to remain competitive and sustain
their position in the chain. Since there is a high demand for European flowers, African flower
producers most definitely need to keep producing traditional European flowers. Although
producing and marketing their own products would have a benefit as well, it wouldn’t be near
as successful as continuing to produce European flowers.

2. What types of upgrading can producers in Africa conveniently adopt to ensure increased
recognition and participation in the floriculture chain?

Cut flowers are highly perishable and very quickly lose their usefulness if they are not handled
properly. The chain process is therefore marked by a highly efficient coordination of activities
between the producers from Africa and the final consumers in homes and offices in Europe.
Producers should work towards increasing the efficiency of the coordination activities between
them and the final consumers. Kenya and Ethiopia, with support from their governments, have
organized the trade into string clusters and associations that team up to support each other, and
they are able to comply with the codes and standards required by the market. Another
characteristic of these successful farms is that they are usually owned and or managed by
traditional European growers who have relocated to Africa. Producers in other countries should
try to adapt these strategies. The flower industry is subject to seasonal colors, shapes, and
varieties. Consumers are continually seeking products that offer diversity in flower and leaf
color, good texture and form, as well as better performance in interior environments. This
makes research and development an important aspect of the chain. Producers could try
partnering with Europeans who could conduct the research and share the findings with them.
Producers must make efforts to develop techniques which will reduce production costs and the
ultimate cost to the consumer. The industry is capital-intensive. There must be efforts to
identify and use low-cost production technologies and reorient imported technology to suit
Africans’ requirements. There is also an urgent need for African producers to identify varieties
that are most tolerant of the stresses of long shipping and storage in order to remain
competitive and sustain their position in the chain.
3. How much value does the agent or distributor add to a bouquet or bunch of roses from Africa
before it reaches the final consumers? How can this be accurately calculated to ensure fair
prices to the men and women who work on flower farms in Africa?

Cut flowers are highly perishable and very quickly lose their usefulness if their production and
handling is not properly done. The chain process is therefore marked by a highly efficient
coordination of activities between the producers from Africa and the final consumers in homes
and offices in Europe. A bouquet of flowers or bunch of roses from Africa reaches the consumer
in the following ways:
 Grower/exporter to agent to auctions to retailer to consumers
 Grower/exporter to agent to wholesalers to retailer to consumers
 Grower/exporter to agent to retailer to consumers
The intermediary agents play an important role in seeing to it that the consumers receive the
flowers in good condition. So, the agents do add value. The value that the agents add to the
flowers may be calculated by keeping in mind that once the growers or exporters hand over the
flowers to the agents, the risk shifts to the agents. The perishability factor comes into play and
the agent has to do his or her best to ensure that the flowers reach the consumers before the
flowers perish.

4. Knowing that flower production depends on availability of water, how long can the water bodies
in Africa continue to feed flower production and still have enough for human consumption and
importantly, remain unpolluted?

 A flower is 90 percent water, needing more water than conventional horticulture products.
This water must also be free from contamination and be fit for human consumption.

 As of now, many of the African flower farms are located near rivers and water bodies. The
farms further invest in irrigation equipment for consistent supply and distribution of water for the
plants.
La Casa de Las Botas

What do the following people have in common: the founder of a worlds famous Italian fashion
brand (Luciano Benetton), a U.S. actress and wildlife preservation (Stephanie Powers), the Prime
Minister of Malaysia (Dato’ Sri Mohd Najib), the two daughters of a former U.S. President (Jenna and
Barbara Bush), and Olympic athletes from around the world (e.g., Frederic Cottier and Martin Mallo)
Imagine boots, but beautiful leather boots, custom0make by La Casa de Las Botas. There is nowhere
better in the world to buy exquisitely handcrafted riding boots that in the Argentine capital.

Because of the high profile of their customers, La Casa de Las Botas could be one of these fancy
companies with luxurious retail space in downtown Buenos Aires. Far from being the case, the little
workshop is located about 10 kilometers to the West. Contrasting with chaotic parts of town, this quiet
side of the Palermo neighborhood offers the charms of old-fashioned cobbled streets, shaded by tall
jacaranda trees. With an utterly unnoticeable façade and a 160 square feet show room, La Casa de Las
Botas is nothing but modest and traditional. Almost every day of the year, el Señor Jorge Da Silva
Villagran, the company founder and owner, supervises the ten highly trained craftsmen he employs in a
little workshop, at the back of the showroom. One of his two sons regularly comes and gives a hand in
marketing and selling their luxury boots. Being the only one in the company who speaks English, the
young man is especially helpful with foreign customers. Even though the walls of the show room are
covered with autographed pictures from the many celebrities among their customers, it is hard to
imagine the international success of this small company, shipping products to over 15 countries.

BEGINNINGS AND BUSINESS PHILOSOPHY

Jorge De Silva Villagran was born in Uruguay in 1952. In his early twenties, Jorge decided to
make the three hour-boat trip from Montevideo to Buenos Aires and try his luck at working in the large
neighboring country. He first started as an apprentice for the Pierri Company, a renowned workshop for
equestrian boots. During the following 15 years, Jorge learned all of the techniques and secrets for
manufacturing first-class leather boots, from European (mainly French and Italian) emigrants. In 1989,
Jorge Da Silva Villagran chose to buy the business from Mr. Pierri who was retiring along with several of
his employees. Jorge renamed the firm La Casa de Las Botas and first specialized in riding boots. Soon,
he created a new line of fashion boots to attract non-horse riding customers. From the beginning, Jorge
applied a business philosophy entirely oriented towards product quality and customer satisfaction.

“I keep telling my employees that the work they do must always be beyond reproach. I tell them:
do not forget that what you are making a living out of are the boots. Remember to always
respect the client’s money. […] We cannot tell a client that his boots are not ready. The
company’s response to customer requests after delivery is also very important; we have to
respect the client. Respect is essential to growth.” [Interview, May 2010]
THE INTERNATIONALIZATION OF A SMALL COMPANY

Starting in 2000 with the set-up of the company website, La Casa de Las Botas internationalized.
Using a pre design form, customers from any location in the world could order a pair of custom boots.
By 2010, about 60 percent of overall sales were made outside of Argentina. Customers reside in all of
Latin America (especially in Mexico, Costa Rica, Panama, Bolivia, Ecuador, Chile, and Brazil) but also in
Europe, the United States, Japan, Hong Kong, and the Arab Emirates. Jorge mainly saw further growth
opportunities further penetrating first-world markets. Emerging markets (such as Russia, India, South
Africa, and Turkey) could also represent avenues for future development. Indeed, new elite classes with
high purchasing power all around the world were eagerly “westernizing” their lifestyle and consuming
fashionable and luxury products, such as equestrian boots. Yet, the issue for La Casa de Las Botas was
not simply to acquire and retain customers. In 2010, a thoughtful strategic marketing plan was needed
to maintain the benefits from international expansion while avoiding its pitfall.

On the one hand, Jorge was not interested in expanding his business significantly. Selling better,
yes, but not necessarily selling more. Moving production up to larger quantities risked going against La
Casa de Las Botas’ high standards of quality and customer service. The products could not be
standardized and their exclusivity was part of the company’s positioning. In addition, expanding foreign
sales would continue to strain limited production capacities. Because good employees for
manufacturing boots were difficult to find and tool a long time to train (about five years are needed to
reach the required “savoir-faire”) and because of current space limitations (which may require
ultimately a move to a new facility), Jorge was not willing to hire and increase the workforce. A common
belief in Argentina is that the economy will collapse every 8 to 10 years. The 2001 economic meltdown
was still very memorable. For Jorge, maintaining his business in the long run was far more important
than any spectacular short term peak in business development. Finally, none of Jorge’s sons were
interested into taking over the family business. Considering all these elements and his retirement
sometime within the next decade, Jorge was not highly motivated to undergo major changes.

On the other hand, production capacity could still be improved (by some 20 percent) with
current resources. Furthermore, the foreign markets which contributed to stabilizing incomes over the
year were especially attractive. Indeed, some seasonality in the riding boots business could be observed
with slower sales in the equestrian “offseason” in the Southern hemisphere offset by increased sales in
the Northern hemisphere. The company could thereof benefit from complementary foreign markets and
exploit the link between climate and intensity of equestrian activities. In addition, international sales
helped mitigate fluctuations due to economic slowdowns around the world.

“The way of marketing products has changed with globalization and the Internet. For some
companies, globalization has been hurtful, for others-like us- it has been beneficial. For those
who have found a way to enter international markets, the Internet has been a real work tool. […]
All countries do not experience economic turndowns the same way or at the same time. Despite
the current world crisis and demand slowing down in many of our markets, we have received a
wealth of orders from Australia. Apparently, Australia was not impacted as hard as others and
we have received many orders from this country last year.” [Interview, April 2010]
ON EXPLAINING SUCCESS FROM ARGENTINA

In the custom-made boot business, key success factors revolve around product quality and a
good corporate reputation, maintained over time. The quality of boots is dependent on two main
elements: skins and skills. Surprisingly, Argentina did not seem to produce the kind of superior quality in
skins suggested by its worldwide leadership in meat exports. Leather treatment and availability were
certainly not the issue. Instead, a volume-oriented techniques used to raise the cattle and a fragmented
supply chain impeded the development of a strong competitive advantage in leather (against word
famous Italian leathers, for instance). To produce superior quality, upstream supply chain actors in
Argentina needed to understand the value of abandoning both barbed wires for fences and the use of
branding irons for marking the cattle. A more efficient control of ticks and other parasites would
contribute to obtain better skins without scratches and marks. The quality of skins and of cuts was
indeed of central importance for boot making as well as for other specialty leather-based
manufacturing. For instance, stories abounded of Brazilian and Argentinean saddle manufacturers
importing leather from Italy for their production. Exhibit 1 illustrates the main activities and actors
involved in the value chain.

Las Botas had managed to develop reliable local procurement sources. Skills in selecting the
leather and in measuring for a perfect fit of the boots were fundamental for being competitive in the
custom-made business. Finally, the creativity and know-how to interpret customers’ personal desires
were also considered key factors in producing high-value boots.

In terms of corporate reputation, the quality of products as described previously was an obvious
primary success factor. In addition, customer service and personalized attention were critical for both
the Equestrian and Fashion segments. Service to customers often took the form of answering questions
in the pre-purchase phase (about the quality of the boots, how they were made, what were the
payment options, what would happen if the boots did not fit perfectly) and in addressing after-sale
situations (adjusting the boots to weight loss or gain, for instance). Business stability over time was the
key to build trust and long-term relationships with customers. Since the life time of boots was of about
ten to fifteen years, a long-term horizon was most important for capturing re-purchases and building up
word-of-mouth recommendations.

All these factors explained the international competitiveness of La casa de Las Botas. Yet, when
compared to direct competitors, the company hardly differentiated its offer. Full customization,
technical know-how and innovative designs in products, as well as personalized attention in customer
service, were also offered by most competitors in Italy, the U.K., and Russia. In this case, a positive
“country of origin” effect seemed to play an important role in explaining the company’s international
success. Indeed, Argentina is well-known for some products, places, and activities such as quality meat
and wine, polo, tango music, and dancing, clothing and design, soccer champions and fervor, and last
but not least, Patagonia and “Pampa” field with their many cows, horses and gauchos. Interestingly,
wearing boots like the classy ones produced by La Casa de Las Botas is highly relevant in most “typical”
contexts(let alone playing soccer and dancing tango, for obvious reasons). The company’s products
somehow encapsulated authentic Argentine experiences.
TWO HIGH-END CUSTOMER SEGMENTS

In 2010, the customer base of La Casa de Las Botas included more than 1,000 end-users. The
niche market for custom-made boots could be segmented based on psychographic and demographic
characteristics e.g., the product’s use (purpose and frequency) as well as gender and purchasing power.

Traditionally, La Casa de Las Botas has targeted the “Equestrians” segment (70 percent of overall
sales). This segment is composed of adults, teenagers, and children of both genders passionately
undertaking equestrian activities and sports. In this segment, professional users need to be
distinguished from recreational users because of the high frequency of use, and the intensity of their
practice of specific activities (e.g., polo, horse ball, jumping, dressage, endurance, cross-country
jumping, hunting). Usually, dedicated horse-riders own two pairs of boots and wear them alternately in
order to spare them the strain of daily use. Although professionals make a very minor contribution to
overall sales (less than 1 percent), they are very important to the company because of their advocacy
power. Like in any sport, recreational users strongly look to professionals and are motivated to purchase
the equipment “as seen on TV” in major competitions. Generally, professionals put emphasis on the
boots’ technical qualities (such as comfort, durability, flexibility, and quality of contact with the horse).

In recent years, the “Fashion” segment has grown to represent about 30 percent of overall sales.
This segment is mainly composed of women with superior purchasing power who like the equestrian
boots style but use the products for regular pedestrian activities. These customers tend to look for
unique designs and color combinations rather than for technical qualities. Jorge has started to wonder if
his company should further attend to the demand from this segment. First, the number of potential
buyers was much larger than in the Equestrian segment. In addition, margins could even be more
interesting considering the lack of direct competition (impeding price comparisons, for instance) for
products falling entirely into the luxury category. However, doing so would represent a significant move
away from La Casa de Las Botas core business. Furthermore, Jorge was unsure of how much strain a
strategic move in this direction would place on the company’s production capacity.

PRODUCT HIGH-VALUE BOOTS

La Casa de Las Botas were considered high-value products for their quality and durability, as well
as for their high degrees of customization. Not only were the boots entirely adapted to the customers’
legs and feet (according to eight specific measures for each leg) but they were also entirely customized
to individual needs and tastes.

Depending on the activity for which the boots were used (e.g., polo, dressage, jumping, country,
or multi-purpose), clients were advised to choose among an unlimited number of colors and shades and
various attribute combinations. These attributes related to the finish of leather (“thick,” “regular,”
“soft,” “polo”), the type of piping-upper top design (“regular,” “dressage,” “Italian”), the type of sole
(“grooved rubber,” “rimless rubber,” “classic rubber”), toe style (“square or round), the vamp
design/toe cap design (“straight,” “double line,” “line with circles”), spurs rest (with, without), and thin
leather straps (with, without).

The labor-intensive production process for a pair of boots lasted for about a week and included
the steps of setting up the boot shape according to measurements, humidifying the leather to make it fit
and hand-sewing each shoe. Production could not be standardized and therefore capacity was strongly
tied to the number of craftsmen employed. This represented an important limitation for La Casa de Las
Botas in considering automated sales over the Internet or to further target the Fashion segment, for
instance. The company could quickly become unable to fill the demand for its products. For Jorge, this
situation needed to be avoided by all means. Maintaining customer satisfaction and a certain exclusivity
to his business corresponded to the strategic positioning of La Casa de Las Botas.

“You cannot be selling to be selling and then lose prestige.” [Interview, April 2010]

DIRECT AND INDIRECT DISTRIBUTION CHANNELS

End users could purchase La casa de Las Botas’ boots through several direct and indirect
channels. First, they could buy products directly at the workshop store in Buenos Aires or else at stands
at local and regional equestrian events staffed personally by Jorge or his son. Second, customers could
order their boots by phone or through the company website. In this case, the boots were shipped via
International couriers (such as FedEx and UPS) and customers were charged with the additional shipping
costs (typically USD 200 for U.S. or Europe residents). Usually, they received the boots about a month
after placing the order. Third, exports took a more indirect form through sales to distributors around the
world. The nature and number of these intermediaries varied according to the targeted segment and
evolved largely over time.

For the fashion segment, retailers and designer boutiques have shown an interest in offering the
custom-made boots service. For instance, a French footwear retailer with presence in the Parisian
upscale department store “Le Bon Marche” models at €735. For the Equestrian segment, distribution
has been established historically through individual representatives. In 2010, La Casa de Las Botas
counted with about 11 active representative in: France (2), Spain (1), Italy (1), U.S.A. (3), Venezuela (2),
Costa Rica (1), and the Dominican Republic (1). These people were mostly competitive horse-riders who
had first purchased boots as end users and then personally approached Jorge to manifest their interest
in distributing the products in their own country. International riders also offered a more extensive
geographic coverage, selling products in the various countries hosting competitions. Requirements for
being a representative for La Costa de Las Botas included: high credibility (i.e., being knowledgeable
about equestrian practice to advise customers); strong visibility (attendance at events and participation
in competitions); and a good reputation. The company also asked representatives to work with local
shoemakers to reduce delays and costs in the case of minor repair. Once awarded the exclusive
representation for La Casa de Las Botas (through verbal agreements), these individuals were delegated
many marketing tasks, from promotion to pricing. They typically started by taking with them a couple of
previously purchased boot models to the many competitions they attended for display on-site. They
were also in charge of taking the clients’ measurement and communicating them to the manufacturer in
Argentina. Finally, they received and delivered the products in person or else the boots were sent
directly to the buyer’s home address.

Because they are part of the equestrian “milieu,” representatives are well-informed about local
market conditions for leather boots. They know the type of quality and prices of products available to
their potential clients. For this reason, they are entrusted with determining their own mark up above the
price they pay for each pair of boots.

Generally, exports were not much of a hassle once the paperwork for customs requirements in
each country was well understood. Yet, experience had sometimes reserved unpleasant surprises such
as in Mexico where several pair of boots had arrived lacerated. Indeed, custom officers at the Los Cabos
entry point were in the habit of conducting content verification with a big knife, not taking much care
for what was in the package.

LITTLE ADVERTISING, LOTS OF WORD OF MOUTH PROMOTION

Advertising efforts by La Casa de Los Botas were limited compared to the coverage obtained in
paper and online media. The only expenses incurred were for a half-page ad renewed yearly in
Ecuestrian, a specialized Argentinian magazine. Beyond this, La Casa de Los Botas receive free publicity
from a significant number of specialized on-line portals and directories about equestrian activities as
well as magazines, newspapers, guides and reviews addressed to travelers, such as The New York Times,
The Wall Street Journal, Forbes, and National Geographic in the united States or Marie-Claire in the
United Kingdom.

The writers of these notes mentioning La Casa de Las Botas could take pride in making
suggestions to their readers and displaying their flair for finding genuine local specialties and offering an
exclusive experience. This experience could later result in the story telling of how they had visited an
old-fashioned little shop, had a true boot maker take their measures and handcraft precious boots just
for them.

Boots by La Casa de Las Botas are regularly promoted by local representatives at competitions,
fairs and exhibitions held around the world. For instance, the company has been represented at the
1999 Salon du Cheval in Paris, the largest annual equestrian fair in France, and at the 2010 World
Equestrian Games (the rough equivalent of the World cup for soccer), in Kentucky (USA). Referring to
work ethics, Jorge Da Silva Villagran has been vigilant to avoid ‘short cutting’ his distributors by
attending these events himself. Indeed, with his presence at a fair stand, consumers would certainly be
interested in placing direct orders with the manufacturer in Argentina. Jorge considers this as unfair to
the distributors, who have invested and spent large sums for their commercial presence at such events.
Maintaining healthy distributor relationships also comes with some opportunity costs. Indeed, the
branch of the government in charge of promoting exports of national products (the “Ministerio de
Relaciones Exteriores, Comercio Internacional y Culto” also called “Cancilleria”), has offered twice to
finance a direct presence for La Casa de Las Botas. For the 2010 Games in Kentucky, Jorge was invited at
the Palacio San Martin along with other craftsmen enjoying international recognition and whose
products would contribute to promote the brand “Argentina.” They were offered a booth valued at USD
40,000 to share among six companies. For the second time in recent years, Jorge declined this offer for
the above-mentioned reasons.

The only promotional paper material developed by La Casa de Las Botas is a small-format
catalog. Set to inform clients about the wide array of customization possibilities and inspire them into
‘designing’ their very own pair of boots, it presented glossy pictures of about 30 models of boots. Many
models were named after famous riders, like Katty Kitterman who accepted to pose in the 2010 edition,
wearing “her” boot model. In addition, each picture was accompanied by sophisticated short texts,
describing with a somewhat poetic touch the model’s specifics in Spanish, English, and French. The
catalog was made available to visitors at the workshop and to distributors in large qualities.it was re-
edited every year to include more recent designs, which followed Jorge’s creativity in interpreting
customers’ new ideas.

Finally, La Casa de Las Botas had an online presence which conveyed the image of a traditional
and small company dedicated to craftsmanship. In addition, a page on Facebook was also created mid-
2010. The website contents were available in Spanish, English, French, and German. The website was
not equipped to conduct full transactions but included a form for customers to place orders (by email,
phone, or fax) with all the required measures of their two legs and feet. According to the company
owner, the reasons why online payments were not possible was due to high costs of the system, the
inflationary risk, the willingness to keep a certain control over the number of accepted orders (for
production limitation), and finally, a sense of comfort with the current payment system, as described
hereafter.

A MONTH’S PAY FOR A PAIR OF BOOTS?

End users could pay for their boots directly in the store in cash or by bank draft, the only
option for foreign customers. Sales to distributors for several pairs of boot were not concluded through
formal contracts but by simple verbal agreements. Once the distributors had passed on an order, they
had to make a deposit for the amount due with the Central Bank of Argentina. In order to retrieve the
funds, La Casa de Las Botas had to prove to the Bank that the merchandise had been shipped abroad
(notably showing customs certifications). This system provided some reassurance to foreign distributors.
For instance, they could cancel an order even after having deposited the money and be sure to be fully
reimbursed by the Central Bank. In this sense, the Central Bank of Argentina intervened as a risk
moderator.

Price determination for international markets is generally delegated to distributors who are
knowledgeable about local conditions. Representatives are only asked to fix their prices to end-
customers above USD 800 in order to preserve their margins in case the manufacture in Argentina
should face unexpected cost increases. For instance, it happened in the past that increased
transportation costs of raw materials to the workshop (due to erratic increases of oil prices) had to be
incorporated into the prices of boots sold to distributors. By absorbing minor adjustments of costs,
distributors avoided temporary price fluctuations for international final customers, and contributed to
stability. The margin charged by distributors depends on the country where they are located and usually
ranges from 30 percent to 100 percent. In 2010, a pair of boots made by La Casa de Las Botas was sold
by representatives, on average for: €700 in Spain, €1,000 in France, and USD 1,250 in the United States.
In Argentina, these boots were sold for AR$ 1,600, the equivalent of USD 400. Jorge saw a direct relation
between the price of his boots and the local minimum wage.

“The price is defined according to the purchasing power in each country. Even though people
who ride horses usually tend to have a high purchasing power […] the criteria used is more or
less that of a blue collar worker’s monthly earnings. […] Typically, a pair of boots costs a month’s
pay at the minimum wage level. […] There is always a relation with the minimum wage which
varies from country to country. [Interview, April 2010]
QUESTIONS FOR DISCUSSION

1. Should La Casa de Las Botas embrace expansion or should it maintain the status quo? If you
think Jorge should expand his business (perhaps to better sell the company when he retires),
which geographic markets and which customer segments should he focus on? That is, should La
Casa de Las Botas further penetrate existing markets or develop new markets, and in this case
which ones? Should the company further develop the fashion segment or should it stick to its
core business, the equestrian segment? Building upon your recommendations, establish an
international marketing plan for the company.

Production capacity could still be improved (by some 20 percent) with current resources.
Furthermore, the foreign markets which contributed to stabilizing incomes over the year were
especially attractive. Indeed, some seasonality in the riding boots business could be observed
with slower sales in the equestrian “offseason” in the Southern hemisphere offset by increased
sales in the Northern hemisphere. The company could therefore benefit from complementary
foreign markets and exploit the link between climate and intensity of equestrian activities. In
addition, international sales could help mitigate fluctuations due to economic slowdowns
around the world.
A thoughtful strategic marketing plan is needed to maintain the benefits from international
expansion while avoiding its pitfalls. Thus, the marketing plan could contain some of the
following elements:
 In terms of corporate reputation, the quality of products is an obvious primary success factor.
In addition, customer service and personalized attention are critical. Service to customers
should take the form of answering questions in the pre-purchase phase (about the quality of the
boots, how they are made, what are the payment options, what would happen if the boots did
not fit perfectly) and in addressing aftersale situations (adjusting the boots to weight loss or
gain, for instance). Business stability over time is the key to building trust and long-term
relationships with customers. Since the lifetime of boots is about ten to fifteen years, a long-
term horizon is most important for capturing re-purchases and building up word-of- mouth
recommendations. An online presence which conveys the image of a traditional and small
company dedicated to craftsmanship is also critical.

2. How can the demand for custom-made boots be estimated in an underserved foreign market?

Entering an underserved market is considered to be more lucrative than taking market share
from competitors in a stable market. However, estimating the demand for the particular
product can be crucial. An analysis, at a macro level, for the need for the product in that market
may be one of the first steps. This analysis can be carried out by a research firm. If the research
indicates that the market is viable, La Casa de las Botas could start by catering to orders via the
Internet or exporting.
3. How should la Casa de Las Botas address online ordering and customer payment methods for
both individual customers and distributors?

At present, La Casa de Las Botas has an online presence which conveys the image of a traditional
and small company dedicated to craftsmanship. In addition, a page on Facebook was also
created mid-2010. The website is in Spanish, English, French, and German. The website is not
equipped to conduct full transactions but includes a form for customers to place orders (by
email, phone, or fax) with all the required measures of their two legs and feet. According to
Jorge Da Silva Villagrán, the reasons why online payments are not possible is due to the high
costs of the system, the inflationary risk, the willingness to keep a certain control over the
number of accepted orders (for production limitation), and finally, a sense of comfort with the
current payment system. Although, the online ordering system seems to be working, Jorge
should consider introducing an online customer payment system. Online payment service
providers like Amazon Payments and PayPal should be considered.

4. Do you think Jorge should modify his views about promotion at fairs and exhibition and
establish a direct presence or is he right to give priority to his distributor’s interests? List the
possible advantages and disadvantages of his policy in this regard on the short and the long
term. For instance, how would La Casa de Las Botas benefit from further participating into the
Government’s effort to promote the “Industria Argentina” label abroad?

Boots by La Casa de Las Botas are regularly promoted by local representatives at competitions,
fairs and exhibitions held around the world. Referring to work ethics, Jorge Da Silva Villagrán has
been vigilant to avoid ‘short cutting’ his distributors by attending these events himself. With his
presence at a fair stand, consumers would certainly be interested in placing direct orders with
the manufacturer in Argentina. However, Jorge considers this as unfair to the distributors, who
have invested and spent large sums for their commercial presence at such events. But,
maintaining healthy distributor relationships also comes with some opportunity costs. Indeed,
the branch of the government in charge of promoting exports of national products, has offered
twice to finance a direct presence for La Casa de Las Botas. For the 2010 Games in Kentucky,
Jorge was invited at the Palacio San Martín along with other craftsmen enjoying international
recognition and whose products would contribute to promote the brand “Argentina.” Jorge
declined this offer for the above-mentioned reasons.