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Ateneo de Manila University John Gokongwei School of Management Project Information Cataloging System (PICS) Class Project Information

and Cover Sheet Name of Student/s: (Surname, Firstname, MI) School Year: 2009-2010 Sem: 1st Subject Code: Mkt172 Course Name: International Marketing Teacher(s): Mr. Senen Perlada (Information below this line and in this colunm for use by Faculty &/or PICS staff only.) Grade: Call Number: Project Title: Adentro Coco Sugar Target Market: United States of America Industry Category: Sugar and Artificial Sweeteners Industry Abstract (150 words or less) This is an export paper proposal directed to the exportation of Coco Sugar (sugar derived from coconut sap) to the United States. Coco Sugar is a healthier type of natural sugar which contains a lesser glycemic index (GI), which signifies that it is indeed the healthier option for sweeteners. To diabetics, this coco sugar would be the best option for them as sweeteners, as the US has been ranked as the country with the 3rd highest level of diabetes prevalence. This paper aims to explore the possibility and advantages of exporting the coco sugar produced by a local manufacturer and aided by an Export Management Company. Functional Area:

Comments:

Author(s)’ Recommended Key Words: Coconut sugar, Export product, United States America, Healthy and Alternative Sweetener

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Table of Contents
GOAL SETTING ....................................................................................................................... 3
Long-term Goals .............................................................................................................................3 Short Term Goals............................................................................................................................3 Strategies to achieve Long-term and Short-term goals.....................................................................3

PURPOSE OF ENTERING EXPORT BUSINESS ............................................................................ 5 BACKGROUND OF THE SUGAR INDUSTRY ............................................................................... 5
BACKGROUND OF THE BUSINESS ....................................................................................................7

METHODS OF EXPORTING...................................................................................................... 7 INTERNATIONAL SKILLS ......................................................................................................... 8
Export Management Company .......................................................................................................8 Freight Forwarders .........................................................................................................................9

PERSONNEL ........................................................................................................................... 9
Distribution Manager (in the Philippines) ........................................................................................9 Delivery Personnel ....................................................................................................................... 10 Packing Agents ............................................................................................................................. 10 Warehouse manager .................................................................................................................... 10 CONSULTANTS/ ADVISORS ........................................................................................................... 10 WRITTEN POLICIES ....................................................................................................................... 10

PRODUCTS / SERVICES ......................................................................................................... 11 TARGETING MARKETS AND CUSTOMERS ............................................................................. 11 SUPPORT FUNCTIONS .......................................................................................................... 13 COMPETITIVE ANALYSIS ...................................................................................................... 14
Product ........................................................................................................................................ 14 Price ............................................................................................................................................ 15 Place ............................................................................................................................................ 16 Promotions .................................................................................................................................. 16 International Overhead Expenses ................................................................................................. 16

Projected Financial Statements ............................................................................................ 17 Financial Strategy ................................................................................................................ 18

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GOAL SETTING
Long-term Goals
As a company that aims to introduce and provide a sustainable outlet for the exporting of Philippine Coconut Sugar to the United States market, Adentro has the following long-term objectives: 1.) Become the market leader in the Coconut Sugar industry in the United States, providing innovative coconut sugar and other products derived from coconuts or coconut sap from the Philippines; 2.) To be the most efficient and preferred Coco Sugar exporter in the Philippines, with a receptive management team that responds well to changes in the external environment; and 3.) Establish a strong brand that will be the preferred choice for institutions or consumers looking for healthier alternatives to current sweeteners and other food products.

Short Term Goals
1.) To establish an efficient and reliable network of distributors and sales agents in the United States (US) through partnering with an Export Management Company (EMC); 2.) To facilitate the entry of Adentro Coco Sugar products in the United States through

strengthening the partnership with an EMC and by adhering to regulations and standards set by US authorities. 3.) To create brand awareness among members of the target market in the United States (particularly North and South California) by tailoring the marketing of the Coco Sugar products to suit the lifestyles and preferences of the said target market.

Strategies to achieve Long-term and Short-term goals
a. Aggressive Marketing and Market Penetration through differentiation – To be the best known export of Coco Sugar in the Philippines, Adentro shall concentrate on and develop the needs of its target market by differentiating its products from competitors’ products through tailoring its marketing and advertising activities according to the tastes and lifestyle of Americans, particularly those who place an emphasis on adopting a healthy lifestyle through purchasing organic and healthy products, and by putting an emphasis on its products’ nutritional properties (e.g., Coco sugar has a low glycemic index at 35, making it an option for diabetics who are looking for sweeteners that will not exacerbate their health condition)1 whilst offering the market a variety of serving options/ container sizes to choose from (e.g., sachets, 500-gram bags, and 1 kilogram bags). To accompany
1

http://business.inquirer.net/money/breakingnews/view/20080420-131617/RP-coco-sugar-finding-markets-overseas

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penetration, the group must invest in increased marketing efforts to allow the presence of Coco Sugar and its benefits to be conveyed to the target market. With these increased efforts such as web interface and print promotions, products offers for bulk shipments, discounts and more, the export of Coco Sugar to the US market will be well received. b. Geographic Expansion – given that the US represents a substantially large amount of shares of sugar imports from all over the world (approximately 2.3 million metric tons from October 2009 to August 2010)2, it is a very viable option for the company to export to the said country. With 50 states and with several large Filipino communities in some of the said states (particularly in Northern and Southern California - Sacramento, Stockton, Fresno, Los Angeles, Historic Filipinotown, East Hollywood, etc. 3), there is already a viable market for the product which can support and ease its distribution and visibility requirements. A leading exporter of the Coco Sap Sugar that hails from Balingasag, Misamis Oriental has been exporting its products to the U.S. through a Filipino-owned OMMI Herbal Trading shop in California, and has so far exported 300 metric tons of coco sugar.4 Therefore, the group sees it fit to export in these Filipino-dominated states as mentioned, so as to have more product, as well as market, familiarity. c. Technological Advancement – commonly known as 100% natural (free from additives), the Coco Sugar is made from the coconut sap. This process stems from crude beginnings as by using a “farm-level” technology5 which collects the sap for the production of the sugar. With the introduction of newer and more advanced equipment for the sugar making process, the company would be able to invest in these pieces of equipment so as to meet the increasing demand and production of the raw materials, to be efficiently utilize the amount of capacity that the land for coco sugar production provides. Providing an advanced packing mechanism to safely and neatly pack these products will benefit the company by cutting operation time and costs. d. Product Development – currently, most of these coco sugars which abundant in production in the Philippines (Misamis Oriental, Davao, etc.) are being packed in its crude form and without really a serious attention to its appearance. Physically, the general appearance in which these coco sugars are packed in are not as appealing to the eye. To be able to improve its appeal to attract the target market, the company seeks to elevate its aesthetic make by revamping its packaging and design. By doing so, it will not

2

United States Department of Agriculture Foreign Agricultural Service. “Sugar Monthly Import and Re-Export Data Report- U.S. Monthly Sugar Imports, Fiscal Year 2010,” September 2010. <http://www.fas.usda.gov/itp/imports/Sugar/Monthly/2010/Sept/Aug10sugar.asp>. Accessed 5 October 2010. 3 http://en.wikipedia.org/wiki/List_of_U.S._cities_with_large_Filipino_American_populations 4 http://www.ucap.org.ph/112306.htm 5 http://www.philippinechamber.com/index.php?view=article&id=436%3Aa-sweet-success-cdos-growing-coco-sugar-industry&option=com_content&Itemid=224

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only add to the improvement of its physical qualities, but as a recognition of a brand distinct from the rest.

PURPOSE OF ENTERING EXPORT BUSINESS
Diabetes: Coco Sugar not as the immediate solution, but as an option. The US has been dubbed as the 3rd country to have the most numberof diabetics, following India and China. According to recent studies, it has been said that for every 17 Americans, 1 is diabetic or that almost 10% of the population is diagnosed with diabetes.6 There is a sense of urgency that needs to be addressed: lifestyle changes have to take place and exporting Coco Sugar is a step towards giving Americans the option to adopt a healthier lifestyle. With the trend towards adopting healthier lifestyles, recent Food and Nutrition Research Institute (FNRI) researches have suggested that coco sugar is the best type of sugar which diabetics can take, without having to worry about glucose intake.7 With a glyemic index of 35 as opposed to that of normal refined sugar (64)8 it is ideal for diabetics who are searching for a healthier and organic option as regards sweeteners, proving to be the most viable and best alternative to normal refined sugar. To capitalize on this trend, and coupled with a perceived growth in demand for coco sugar products, Adentro has decided to enter the export business, with a keen eye on exploiting the narrower and lower trade barriers of the United States towards the Philippines (in comparison to the US trade barriers to high-income countries).9

BACKGROUND OF THE SUGAR INDUSTRY
From the 1970’s until today, sugar has been one of the top agricultural exports of the Philippines. Alongside that is the noticeable trade relations of the US and the Philippines in connection with sugar, with the Philippines exporting sugar to the US in hundreds of thousands of metric tons from the 1990s up to the fiscal years 2007-2008.10 However, it can likewise be noted that, albeit the Philippines exports sugar to the United States, it always does so below the latter’s established quotas, thus gaining preferable tariff treatment. However, in the fiscal year 2008-2009, a sharp decline in imports and a considerable divergence from quota ensued (from sugar exports of 125,200.67 tons in 2007-2008, to sugar exports of 51,785 tons in 2008-2009).11In a recent dialogue by our new DA Secretary Alcala with the administrator of the Sugar Regulatory Administration (SRA), part of the latter’s goals to uplift the agricultural sector was to “make the sugar industry in the Philippines globally competitive, in the light of the implementation
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http://www.cdc.gov/nchs/fastats/diabetes.htm http://www.pna.gov.ph/index.php?idn=&nid=7&rid=299255 http://business.inquirer.net/money/breakingnews/view/20080420-131617/RP-coco-sugar-finding-markets-overseas 9 http://www.fao.org/docrep/006/y4343e/y4343e05.htm 10 http://www.psma.com.ph/index.php?option=com_content&view=article&id=1&Itemid=2 11 Ibid.

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of the ASEAN Free Trade Agreement (AFTA).12”In this light, the divergence from quota can serve as an opportunity for Coco Sugar to, albeit in a small way, increase the competitiveness of the Philippines in the sugar industry. It is quite an undertaking to participate in such an environment with rapid external changes. Since most of these agricultural products are produced in vast farms, some make underestimate the production capacity and deem to take this product as incapable of entering such a market, especially in the United States. However, the exports demanded for other organic products along with coco sugar (virgin coconut oil, organic rice, etc) have earned our country about $10 Million, which accounts for about 40% of total domestic production. The company can safely say though that entering this market is a bold move but would in the end, prove to be fruitful. Despite the global slowdown and economic crises, the demand for natural and organic products will not cease since health concerns will remain constant, as evidenced by a Euromonitor International study on food trends in 2006, where it was discovered that around “70% of adults in the US are trying to eat healthier foods.”13 The said trend is further corroborated by a perceived growth in demand for coco sugar exports from the Philippines. According to the Philippine Coconut Authority, “the United States remains the country’s main market,” although other markets, such as Japan, the Middle East and China have likewise been explored through trial marketing.14 It is estimated that the average demand from the U.S. and Japanese markets total around 10 metric tons of coco sugar per month.15The Coco Sugar industry has seen the emergence of several industry players, particularly in the areas of General Santos, North Cotabato, Zambaonga16, Cagayan de Oro17, and Lanao del Norte.18 Companies such as OMMI Herbal Trading and CocoNatura, and cooperatives such as the Aroman Natural Food Producers Multi Purpose Cooperative in North Cotabato are some examples of Philippine Coco Sugar industry participants. However, the Coco Sugar industry is not only composed of or served by Philippine companies. There are likewise organizations and companies in Indonesia and Thailand that produce Coco Sugar. The Philippine Coconut Authority, however, maintains that Philippine coco sugar is of better quality than those produced in competitors’ countries.19

12 13 14

http://www.sra.gov.ph/ Euromonitor International. “Food trends- meeting consumer expectations of health, taste and convenience.” 22 May 2006 http://business.inquirer.net/money/breakingnews/view/20080420-131617/RP-coco-sugar-finding-markets-overseas 15 http://www.bworldonline.com/main/content.php?id=18501 16 Ibid. 17 http://www.malaya.com.ph/11172009/busi1.html 18 Sun Star. “Lanao farmers train on coco sugar production.” 16 November 2009. 19 http://business.inquirer.net/money/breakingnews/view/20080420-131617/RP-coco-sugar-finding-markets-overseas

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BACKGROUND OF THE BUSINESS
A coco sugar business is usually established in rural areas, owing to its land requirement. An investment model created by the Philippine Coconut Authority detailed that a rate of return of 28% is to be expected if one invests Php329,000 per hectare for coconuts from which coconut sap sugar will be derived, with a capital recovery period of 3 years.20 Furthermore, it is estimated that a “one hectare land with one hundred trees and monthly yield of 7,500 liters per hectare of coconut sap can produce 937.5 kg of cocosugar. 21” As Adentro plans to subsume the operations of the Sinawal SCF Cooperative of General Santos City, it stands to have 3.5 hectares of coconut land in General Santos City, with production currently at a level of 6 metric tons per month.22

METHODS OF EXPORTING
Table 1 Summary of Advantages and Disadvantages of Indirect and Direct Exporting23 Direct Exporting  Price and Brand Control  Personal understanding of customer’s Advantages wants and needs  Maintains good customer relationship  Preference of customers to deal directly with producer is attainable Indirect Exporting  Risk-free beginning  Can take advantage on existing markets  Less complications in finding sales agents and distributors  In-market experience (Contacts)  Info on foreign competitors & new technologies  Minimal involvement in transaction  In-depth personal handling Disadvantages  Slow Growth  Time and Money consuming  Cultural differences may hinder after sales services/support  May require additional visits in case of  Less control over marketing  Loss of control of foreign sales  Intermediary seeking margin  no direct contact with the end customer  Less control over the actual final transaction

emergencies/troubles  No info on overseas market at hand DECISION: INDIRECT EXPORTING THROUGH AN EXPORT MANAGEMENT COMPANY (EMC)  Need to be physically present in market acting as a Commission Representative. Based on the given data, the company has thoroughly weighed the pros and cons of each possible venture. As a manufacturer of Coco Sugar based in General Santos, Philippines, we have chosen to engage the
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Philippine Coconut Authority [Secretaria, Millicent I., et al]. "Production of Natural and Nutritious Sugar, Concentrate, Juice and Vinegar from Fresh Coconut Sap." Ibid. Philippine Coconut Authority [Secretaria, Millicent I., et al]. "Production of Natural and Nutritious Sugar, Concentrate, Juice and Vinegar from Fresh Coconut Sap." 23 Contents of the table/ factor disadvantages and advantages are from http://www.nzte.govt.nz/develop-knowledge-expertise/export-guide/ways-of-entering-a-new-market/pages/direct-and-indirect-exporting.aspx

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services of an Export Management Company (EMC) to minimize risk associated with exporting. The EMC shall act as a commission representative, while still bearing the following responsibilities: 1. Gather market information on the United States demand and market for the product 2. Select overseas customer locations that will be served and select a target market (with Adentro’s concurrence) 3. Communicate and establish relations with distributors 4. Prepare and negotiate for Logistics (Shipping, Freight, etc) 5. Plan avenues for exposure through Trade Fairs, Expos, etc. 6. Report to the Adentro Co. top management based in the Philippines 7. Set up effective and efficient distribution channels This arrangement can help the company learn more about the market by being given access to it through trade contacts, while minimizing expenses by merely allocating a portion of our earnings as payment to the EMC. By doing so, we are still in control of our own name and at the same time, we shall not bear the bulk of financial risks in the sale of goods. We collect payment from the customer, but our actual involvement in the transaction is really minimal. With this approach, Adentro is still capable of finding foreign markets and buyers for its products. The EMC can still retain considerable control over the process of the sale in so far as to counter check the credit and the financials. As the EMC is expected to have more experience in the market chosen by itself (with the concurrence of Adentro), strategies for penetrating the market can be more easily devised and implemented, knowledge about the market can be shared with Adentro (in case the company decides to do direct exporting once the brand has been established), and sales and distribution, as well as other processes involved in logistics, can be expertly planned, arranged, and established to ensure maximum exposure and availability of Adentro Coco Sugar to its target market.

INTERNATIONAL SKILLS
Being a new exporter, Adentro needs a competent EMC and freight forwarders to ensure the timely delivery of goods and proper, efficient, and effective distribution and sale of its products.

Export Management Company
An export management company is an independent market intermediary that operates as the export sector of the exporting company. They handle two or more manufacturers having different product lines. Adentro will need an export management company because as earlier mentioned, the company still do not fully grasp the American market so it will need the assistance of an independent distributor. The export

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management company, being a constant player in the industry, have the capacity to market and distribute the product in the market. Although this may cause the company additional costs, the company believes that the benefits that having an export management company outweighs the additional costs. But for the company’s longterm plans, it will have to forego the export management company. The company will just seek the assistance of the export management company during its introductory years.

Freight Forwarders
The freight forwarders shall serve to coordinate and execute the shipment of the Adentro Coco Sugar products from General Santos to the United States, particularly North and South California. It is the responsibility of the freight forwarder to bring the product from the country of origin to the country where the products will be imported. Adentro will be exporting to the United States of America (specifically North and South California) because of the increase in the health awareness of the people in the said country. There is an increase in the awareness and people have gone conscious with their health particularly heart diseases, obesity, and diabetes.24 The Americans, most especially, are now more conscious with their diet especially since according to a survey conducted by the International Diabetes Federation, in 2007 United States has around 19.2 million people who have diabetes, making them the 3rd country with the highest number of diabetic cases.25 Adentro will have to closely work with the Customs and Border Protection of the United States of America which is in-charge of regulating the international trade in the United States. The company must be able to do the requirements set upon by the agency such as merchandise clearance from the customs department, declaration of dutiable value of merchandise, and determination of the classification number of the merchandise.26

PERSONNEL
Distribution Manager (in the Philippines)
The distribution manager is responsible for coordinating with the EMC in the United States of America to ensure that the distribution of the goods by the EMC is timely and meets current demand patterns. It is the responsibility of the distributions manager to ensure that all of the export requirements will be met by the company, and that demand that has been projected by the EMC is met with supply from Adentro.

24 25 26

http://www.wikinvest.com/wiki/Sugar_Prices http://www.worlddiabetesday.org/files/docs/Top_10_countries.pdf http://www.americanimporters.org/pages/marketing/USimportrequirements.html

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Delivery Personnel
The delivery personnel takes charge of the logistics of delivering Adentro Coco Sugar products from the warehouse in the US to respective distributors, wholesalers, and/or retailers. These personnel must be employed by the EMC.

Packing Agents
Packaging is one of the most important tasks in exporting mainly because the products that will be exported will need to be shipped to the market country in pristine condition and in containers with labels that will distinguish the product. Packing agents must be hired by the EMC to re-pack Adentro Coco Sugar into different container sizes/forms such as packets, sachets, and the 500 gram-1 kilogram bags.

Warehouse manager
The warehouse manager makes sure that Adentro Coco Sugar products are well kept in the warehouse. He makes certain that the warehouse that the company will be using is suitable for storing and maintaining the quality of Adentro Coco Sugar products. Being a company, it is very important that it will have written policies from the start of the establishment of the company. Written policies are very important as these will determine the way the people in the organization will act. This will ensure that each and other one in the company will do his/her job in compliance with the rules and regulations of the company.

CONSULTANTS/ ADVISORS
In order to ensure that the export plan is sound before it is presented, discussed, approved and implemented by both Adentro and our EMC, the Bureau of Export Trade Promotion (BETP) of the Philippines shall first be consulted. The BETP’s three functional groups, namely the Trade Information and Assistance Group (TIAG), the Market Strategy and Consultancy Group (MSCG), and the Product Research and Strategy Group (PRSG), can serve to advise Adentro and EMC on possible export strategies, help in streamlining export-import procedures (from the Philippines to the US), and can also provide Adentro and EMC updated regional and country information so as to help chart the course of Adentro’s Coco Sugar business.

WRITTEN POLICIES
As Adentro is dealing with an EMC, several guidelines have to be drawn to ensure that the transparency of dealings and transactions are maintained. Internally, Adentro can adopt a Code of Corporate Governance to ensure that proper committees (such as the Audit Committee, the Nomination Committee and the Compensation or Remuneration Committee) are established and that relations among employees and management are regulated. The adoption of such a Code will serve to attract other investors to invest

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in Adentro, thereby hastening its growth and enabling its expansion with increased capital. The adoption of such a Code is likewise mandated by the Philippine Securities and Exchange Commision.27

PRODUCTS / SERVICES
Adentro will be offering granulated coconut sugar to the American market (more specifically North and South California). This is so because of the convenience it will provide the exporting company and the importing company as well. Shipping liquid entails the observance of certain precautions and the use of specific types of containers which can contribute to increasing the cost of the product. In addition to that, shipping liquid/syrup may be prone to spoilage which means that the company must invest more on its shelter life. The granulated form of coconut sugar is made by boiling the sweet coconut juices (sweet nectar from the coconut tree) in a kettle in order to form thick caramel. After a thick caramel paste is formed and soonafter crystallized, it will then be grounded to fine particles. The product will be packaged in variations. It will be in 1 kilogram, 500 grams, and 1 gram sachet to give the customers different choices. The 1 kilogram and 500 grams packages are targeted for home use while the 1 gram sachet can be for restaurant/café/ office use. This divergence from the usual way of packing Coco Sugar (as in the case of Golden Harvest Coco Sugar)28 shall set Adentro Coco Sugar apart, especially as regards convenience of obtaining and using Coco Sugar.

TARGETING MARKETS AND CUSTOMERS
Several factors were considered in the selection of the target market for the exportation of the coconut sugar. The size of the markets, national trade laws, regulations, taxes, and standards, geographical features of the country, demographics, and the like were evaluated to see the opportunities in promising export markets. Primary research, such as population figures and export product standards, and secondary research, such as market reports, country analysis, and historical export data, were conducted to arrive at the decision. With these, country comparisons were employed and as a result, the United States was presented as the country that would render the company the most opportunities as its primary target export market. The main factors that were crucial to the decision of choosing the United States as the target market for the coconut sugar vary from its net sugar imports to its rank as the one of top ten countries in terms of the prevalence of diabetes. First, the United States is the second largest net sugar importer in the world.29 Along with this, its projected sugar supply for the fiscal year of 2010 to 2011 has increased to 101,000 short tons

27 28 29

www.dlsu.edu.ph/research/centers/.../Corporate_Governance.pdf http://www.brandexports.com.ph/index/index.php http://www.wikinvest.com/wiki/Sugar_Prices

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due to higher beginning stocks and production. Sugar use is increased 275,000 tons in line with the increase for 2009 to 2010. At the same time, imports are increased 105,000 tons and high-tier imports more than offsetting increased shortfall under the tariff rate quota.30 Under the World Trade Organization and other free trade agreements, “the United States has committed to minimum annual low-duty access amounts for certain sugars and sugar-containing products. Sugar and any related products paying the high tariff may enter in unlimited quantities.”31 These make the United States, in terms of its demand for sugar, a possibly very profitable market. The country’s policies regarding trading across borders also provide advantages for the company to select it as its target market. The United States’ evaluation of the length of importation to the country is very positive, showing only five days, compared to the eleven days, which is the average of OECD or the highincome countries, where US is also a part of. The documents required to engage into importation is also at the OECD’s average, which is at five.32 With these, considering the free trade agreements and tariff policies already imposed, the United States can be an efficient location for the importation of the coconut sugar. For the United States’ economic stability, the period of recession is slowly fading away so this situation does not really pose any problem. With a population of 304,060,000 and a Gross National Income per capita set at $47,576.50, the country is considered as one of the high income and industrial, welldeveloped countries. In addition to this, the US demographic factors show that there is a growing demand for artificial sweeteners, despite sugar and corn syrup presently dominating the market. The market for alternative sweeteners has reached $1.1 billion and continues to increase its share of sweetener consumption.33 This growing trend might be the result of the increasing public health concern, particularly regarding obesity, heart disease, and diabetes. In 2007 based on studies conducted by the International Diabetes Federation, the Unites States posted 19.2 million of its citizens having diabetes, ranking third in the world behind India and China. Aside from this, this number is expected to reach 25.4 million in 2025 if the trend of unhealthy eating continues.34 As a result, consumers in the US are starting to look for sugar substitutes and this resulted to the revenues of the artificial sweetener industry to grow by around 8% from 2005 to 2008.35 With these, it comes as no surprise that there are already some Filipino companies that have started exporting coconut sugar to this huge market, proving that there is indeed a demand for the product in the US. An opportunity to capitalize on the increasing health-conscious consumers market segment in the United States can be answered by the exportation of a low-cost coconut sugar product.

30 31 32

http://usda.mannlib.cornell.edu/usda/current/wasde/wasde-09-10-2010.txt http://www.fas.usda.gov/itp/imports/ussugar.asp http://www.doingbusiness.org/ExploreEconomies/?economyid=197#TradingAcrossBorders 33 http://www.americanchronicle.com/articles/view/98051 34 http://www.worlddiabetesday.org/files/docs/Top_10_countries.pdf 35 http://www.wikinvest.com/wiki/Sugar_Prices

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SUPPORT FUNCTIONS
According to local reports late last year, a cooperative in North Cotabato “has filed for an application for organic certification, which will attest the cooperative's non use of chemical fertilizers or pesticides on their coconut production process. Such organic certification, usually filed with the Organic Certification Center of the Philippines, is essential to maximizing the health claims of the coconut sap sugar.”36 With such request for an organic certification, expansion in terms of the coconut production must be undertaken in the country. The technology that is employed in the manufacturing of the coconut sugar has been known to other countries, such as Thailand and Indonesia, which is more reason for the local production to be expanded in order to stay competitive in the coconut sugar export market. Further, according to Mr. Ramon Rivera, Philippine Coconut Authority-Zamboanga Research Center deputy director, retail prices may be lowered should the technology for processing the coconut sugar becomes more advanced. A facility for removing the water from the tuba or lyofelizer costs P5 million. As for labor, this could be easily done through coordination with various farmer associations in the country, ready to be tapped for collaboration to increase the production of coconut sugar. Given that the company has chosen the United States to be its primary export market, several product support functions must be considered, which will mainly focus on the packaging of the product. Positioned as a healthy alternative to sugar and other related sweeteners, coconut sugar holds real commercial viability with its already proven health benefits directed particularly towards diabetics. This is one aspect the company’s coconut sugar will focus on in its packaging: the health aspect. “Research showed that the sugar level of diabetics remained stable with the use of coco-sugar. The glycemic index of cocosugar is 35, which is good for the proper control of diabetes mellitus.”37 This relevant information will be communicated in the product’s labelling. “With the trend towards natural and organic ingredients being no longer new, this is still one with plenty of mileage remaining. The trend is reinforced by developments such as the growth of Glycemic Index (GI) labelling, the growing consumer interest in portion control, and the decline and fall of the low carbohydrates lifestyle.”38Another health benefit that will be presented in the packaging will be how the coconut sugar is good for weight maintenance, as it reduces lower total and LDL cholesterol levels. The coconut sugar is also rich in nutrients, such as potassium, phosphorus, magnesium, sulfur, calcium and Vitamin C.39 This will be one of the company’s focus in the packaging of the product to complement its positioning for its export market.

36 37 38

http://www.mb.com.ph/articles/236436/coop-export-coconut-sap-sugar-us http://www.abs-cbnnews.com/business/04/13/08/pca-eyes-more-coco-sugar-exports Euromonitor.com, Food trends – meeting consumer expectations of health, taste and convenience 39 http://www.abs-cbnnews.com/business/04/13/08/pca-eyes-more-coco-sugar-exports

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COMPETITIVE ANALYSIS
As mentioned already, there are already some existing companies that have began exporting coconut sugar from the Philippines to the United States. An example would be the Filipino-owned OMMI Herbal Trading in California. “The company has so far shipped at least 300 MT of coconut sugar to the U.S. Currently the source of coconut sugar export is Balingasag, Misamis Oriental although due to increasing demand, other sources are being considered. A cooperative in the province exported 1,000 kilos of coconut sugar to Korea as well at a price of P100 per kilo, compared to P40/kilo of regular sugar from sugarcane.” 40 Aside from them, “a group of farmers in Misamis Oriental that originally produced the first commercial coconut sugar in the Philippines is also now exporting the product to Canada through a repacking process done in Ontario for the coconut sap sugar brand Coco Natura.”41 The company that handles the distribution of the said product is Xtreme Foods Merchandising. As for competitors in the Asian market, coconut sugar is being produced and sold already in India and Thailand; the only difference is that they are primarily used as confectionery sugar for making sweets and desserts.42 With these information at hand, the company plans on spearheading the establishment of the Philippines as being the top exporting country of coconut in the world, with our marketing mix heavily focusing on the health-consciousness trend in the United States and convenience brought about by its accessibility. The company’s business model is distinguished from its competition because of its emphasis on making the product more accessible to people on the go through its different container forms and sizes 1 gram packet-size containers, 500 gram Adentro Coco Sugar bags, and 1 kilogram Adentro Coco Sugar packs. These shall be distributed by the EMC to wholesalers, retailers, and organic restaurants and other establishments offering organic products to underscore its natural elements/composition and its catering to a market of health-conscious consumers.

Product
Coconut sugar is a traditional sugar made from the sap of coconut flowers. It is boiled down to create dry sugar blocks, a soft paste, or a granulated form. It usually tastes much lighter than unrefined cane sugar, maple syrup, and honey. Coconut sugar is not quite as sweet as cane sugar. As for its nutritional content, the coconut sugar’s Glycemic index (GI), as mentioned already, is at a low 35. In terms of its composition, sucrose is its major component (70 to 79%), followed by glucose and fructose (3 to 9% each). Minor variations in sugar content between samples were observed, probably due to differences in processing, raw material quality and variety of coconut.43 With all of its health benefits, the coconut sugar has a great potential as a natural and cheaper alternative sweetener in the global market.

40 41 42

http://www.ucap.org.ph/112306.htm http://www.mb.com.ph/articles/236436/coop-export-coconut-sap-sugar-us http://www.americanchronicle.com/articles/view/98051 43 http://www.thenourishinggourmet.com/2008/11/in-my-kitchen-coconut-sugar.html

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Price
Pricing strategy for Adentro Coco Sugar is directed towards emphasizing its difference from other brands in terms of quality, benefits, and convenience, with due regard to the lifestyle and spending pattern of American consumers. In comparison with the prices of other Coco Sugar products from the Philippines, such as CocoNatura (at Php400/kilo or Php0.40/gram)44, and the Philippine Coconut Authority’s (PCA) own coco sugar (at Php180/kilo or Php0.18/gram)45, as well as the average price of coco sugar (at Php 115/kilo or Php0.115/gram)46 and the price of each Equal packet/sachet (at $5 per box of 100 packets or Php2.00/gram)47, Adentro Coco Sugar shall utilize the median price of the aforementioned coco sugar product prices at Php25048 per kilo, or Php0.250/gram, making it more expensive compared to the PCA coco sugar, but still cheaper compared to CocoNatura coco sugar products, as well as Equal. This pricing strategy is justified by the goal of the company of stressing the premium quality of Adentro Coco Sugar, its primary difference from the products of other brands and other countries such as Thailand and Indonesia, whilst offering a cheaper and organic alternative to the well-known artificial sweetener Equal (thus providing an incentive for Equal users to shift to Adentro Coco Sugar packets) and to CocoNatura coco sugar products to attract wholesalers, retailers, organic restaurants and shops to purchase and order Adentro Coco Sugar products in greater quantity as opposed to competitors’ products. The price of Adentro Coco Sugar products is thus set at a level that is affordable to existing users of refined sugar and artificial sweeteners (at Php0.250/gram as opposed to Equal’s Php2/gram). As the product is targeted to a market whose primary consideration is benefits of consumer goods to health rather than price, Adentro Coco Sugar is poised to generate revenues (with coco sugar syrup costing a mere Php15.00), with a Gale study predicting that “health consciousness will remain one of the dominant drivers of consumer markets in the 21st century,” and with expectations that basic foods “must address issues of calorific content,” among others.49 To maintain the stability of the price of the product, Adentro Coco Sugar supply shall be maintained at a level that is sufficient to meet demand by ensuring that shipment of the products is done in accordance with the Free Carrier (FCA) international commerce term, whereby the chosen EMC shall be held responsible for all transportation costs associated with a.) obtaining the finished goods from the manufacturing plant of Adentro, and b.) transporting said goods to the final destination (i.e., the United States), with Adentro only bearing the responsibility of a.) making the goods available for pick-up by the EMC’s agents and b.) of clearing Adentro Coco Sugar products for export. This effectively minimizes the cost of selling and distributing the products, at least with respect to Adentro Co.
44 45 46 47

http://www.malaya.com.ph/11172009/busi1.html http://www.abs-cbnnews.com/business/04/13/08/pca-eyes-more-coco-sugar-exports Sun Star. “Lanao farmers train on coco sugar production.” 16 November 2009. http://www.nextag.com/equal-sweetener/stores-html 48 Price computed by summing CocoNatura price, PCA price, and ave. coco sugar price. 49 http://go.galegroup.com/ps/retrieve.do?sgHitCountType=None&sort=RELEVANCE&inPS=true&prodId=GVRL&userGroupName=phadmu&tabID=T003&searchId=R1&resultListType=RESULT_LIST&contentSegment=&search Type=BasicSearchForm&currentPosition=1&contentSet=GALE|CX1552100199&&docId=GALE|CX1552100199&docType=GALE&role=

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Place
As mentioned already, the company will be targeting the United States as its export market for its initial years of operations, particularly states where a considerable number of Filipino-Americans reside (e.g., California). Given the country’s demographics, economic, political and legal environment, geographical factors, and market characteristics, as well as the existing, yet relatively small competition, the company deemed the United States as the country with the most potential for exporting the coconut sugar.

Promotions
The company will mainly use conventional means of promotions (such as print advertisements directed at wholesale buyers and retailers), personal selling through electronic mail, and participation in fairs for its coconut sugar product. Aside from this, the company will also push for endorsements from institutions or offices that handle the quality assurance of sugar and other related agricultural product, such as the coconut sugar, to certify that our coconut sugar will be perceived by our consumers as one of high quality. The company will also participate in trade shows, capitalizing on the health, organic-ness and natural aspect of the product. Another aspect that can be used in the company’s promotional activities would be the importance of the Filipino farmers in the production of the coconut sugar. The product can be deemed as not only a healthy and natural alternative to sugar and other sweeteners, but also a 100% Filipino product, raising awareness to the local coconut sugar industry in the United States market. Aside from this, given the emerging consumer demand regarding convenience as a trend fuelling the continuing growth of the food industry, the coconut sugar will be packaged not only in bulk but also in downsized packages, one which is ready to be used by the customer. According to a study in Euromonitor, changes in consumption patterns are changing the way convenience products are packaged, and this is one trend the company is planning to capitalize on. The coconut sugar can be retailed as single serve sachets, making it more convenient for consumers to use.

International Overhead Expenses
Overhead Expense Consumption Entry Fee Classification Fee (1 line free) Additional Invoice Single transaction Bond per Entry minimum FDA Clearance Fee Forklift Fee Rate $150 per shipment $6 per line $10 $60 or $5 per $1,000 $40 $200 per CBM

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Documentation Fee Handling Fee

$50 per shipment $100 per shipment

Projected Financial Statements
2010 Net Sales Cost of Goods Sold Gross Income % of Net Sales Selling and Delivery Advertising and Promotions General and Administrative Total Expenses % of Net Sales Net Income % of Net Sales 9,000,000.00 1,080,000.00 7,920,000.00 88.00% 900,000.00 2,250,000.00 2011 11,700,000.00 1,242,000.00 10,458,000.00 89.38% 1,170,000.00 2,925,000.00 2012 15,210,000.00 1,452,600.00 13,757,400.00 90.45% 1,521,000.00 3,802,500.00

5,111,040.00 8,261,040.00 91.79% -341,040.00 -3.79%

5,111,040.00 9,206,040.00 78.68% 1,251,960.00 10.70%

5,111,040.00 10,434,540.00 68.60% 3,322,860.00 21.85%

The first year net sales is derived from 50% of the 6 metric ton supply multiplied by Adentro Coco Sugar’s Php250 selling price per kilogram spread throughout the first year of production (Php250*3000 kg*12 mos.). A 30% increase in supply occurs each succeeding year. Raw materials and direct labor make up the Cost of Goods Sold. The cost of raw materials is based on Php15 per kg of coconut sap multiplied by 3000 kg of supply needed per month (Php15*3000 kg*12 mos.). Direct labor (caramelizing, crystallizing and grinding of coco syrup) is based on the minimum wage rate in General Santos City multiplied by 10 personnel working for 20 days per month in a year (Php225*10 personnel*20 working days*12 mos.). Since supply increases each year, the raw materials cost increases by 30% per year while the direct labor cost remains the same, assuming minimum wage does not change within the timeframe. A fixed selling and delivery expense is based on 10% of net sales. This serves as the commission for the export management company. Adentro allotted 25% of its net sales for advertising and promotions

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for trade shows. As for the general and administrative expenses, 2 managers will be paid $58,080 per year under the assumption that a US Dollar is equivalent to Php44 ($58,080*2 managers*Php44). General and administrative expenses are constant for the given 3 years. The first year shows a 3.79% loss from net sales but based on this projected income statement, Adentro will bounce back by its second year with Php1.25M net income.

Financial Strategy
As regards credit investigation on the EMC to ensure its financial stability and a good credit standing, the United States is home to a host of private firms and nonprofit organizations that keeps records of the “creditworthfiness” of both business entities and individuals, which can be utilized or consulted by Adentro to select the right EMC to partner with (as regards credit standing) so as to ensure sustained operations and growth of the export business. As the United States has a 100% private credit bureau coverage50, meaning private firms and nonprofit organizations have a database on all adults regarding their credit standing (including “repayment history, unpaid debts or credit outstanding from the past 5 years), Adentro will not be hard-pressed to evaluate possible EMCs based on their credit standing, and information regarding how to obtain credit from banks and financial instutions can easily be obtained.

Breakeven Analysis
Break-even Point (in units) = Fixed cost/Contribution Margin = 5,111,040/(250-15.75) = 21,818.74 Break-even Point (in sales) = Break-even point in units x Selling price = 21,818.74 x 250 = P5,454,685.17 The Adentro company will achieve its break even point in units after selling 21,818 units. As for its break even sales, the company needs to sell at P5, 454,685.

50

http://www.doingbusiness.org/ExploreEconomies/?economyid=197

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