A Study of the International Market of Neilson Dairy

As the producer of Canada's top selling chocolate bar, "Crispy Crunch", and the overall top manufacturer of chocolate bars in the country, Neilson should expand internationally. Although Neilson sold 29.4% of all chocolate bars in 1991 and 28.1% in 1992 (highest in both years), they are belittled by four other larger companies, one being Hersey/Lowney, and should therefore look into smaller markets. Although risky, they have facts in their favor: out of all the manufactured food in the world, chocolate was the most consumed, and countline was the segment that grew the fastest.

That being said, Neilson also has some experience in expanding into and exporting to other countries. They had some success while exporting to the Far East to countries such as Japan, Korea, and Taiwan. They had many orders secured for "Crispy Crunch", "Mr. Big”, and the "Canadian Classics" boxed chocolates. While these products were popular and profit was good, they had some eventual trouble with the distributors. A similar problem arose while entering the Unites States market – a joint-venture went bad.

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Nonetheless, Neilson products still made a name for themselves and sold in a different market, especially in the Far East.

Now that they are looking into expanding into Mexico, I argue they should. Mexico is an untapped market that scored well on the market study, and nearly half of its population falls within the company's target age group. Not to mention, Neilson is already the top seller and very popular in Canada. If they learned anything however, they must be careful in choosing a partner/entering into a joint-venture.

Like any country Neilson looks into expanding to, Mexico has is many opportunities and risks. Some of Mexico's opportunities that could benefit Neilson are that 50% of Mexico's population is within the confectionery-producing company's target age group, there are a limited number of competitors in the market (compared to Canada where Neilson was in competition with other companies such as M&M/Mars and Cadbury Schweppes), and Mexico scored high in the market evaluation study, standing out in categories such as product fit and target market.

Another opportunity includes the fact that around this time period, Carlos Salinas of Mexico opened up trade with Canada and the United States known as the North American Free Trade Agreement, or NAFTA. Although these are fantastic opportunities Neilson must consider, Mexico's risks are just as important.

One of the most important risks involved in expanding into Mexico's untapped market is the volatile Mexican peso. Currency fluctuations can hinder and/or even hurt business transactions after converting the profits in pesos, back to Canadian dollars. For example, if the economy in Mexico was in turmoil for a certain amount of time, it would evidently negatively affect the peso, causing Neilson to lose money. Neilson could enter into swap agreements and forward contracts to hedge against risks, but that may not be path they wish to take. Since the peso was and still is known to be a volatile currency, Neilson must keep an eye out. 

Another risk involved in expanding into the central American country involves politics - not only political differences (beliefs, parties, treatment of citizens, etc.), but possible political unrest and corruption, and regulations. Without even having knowledge of international business, one will know how large of a problem drug trafficking in Mexico was and still is. 

In the 1990s in particular (around the time Neilson was thinking about expanding), the Tijuana Cartel, arguably the biggest cartel in Mexico then, controlled many geographical parts as well as businesses in the country. Having a problem such as this causes political fighting/unrest, and could easily damage Neilson's business there. There have also been different types of political unrest, such as rigged elections and widespread fraud. Other risks include such things as language barriers and diversification risk.

Going global is all about being efficient; having comparative advantage. Neilson wants to distribute and manufacture their chocolate bars the cheapest yet most efficient way possible. If the company cannot find a way to do this in Mexico, it is not worth expanding to that country. Neilson was approached by three distributors - Gruppo Corvi, Gruppo Hajj, and Sabritas - all bringing something different to the table in terms of efficiency. After Sabritas did more research of the Mexican market, Bateman realized that their finding of pricing at two pesos, would not actually give the company comparative advantage while compared to similar American brands. Sabritas later suggested that downsizing the product to forty grams and only one peso will be a much better strategy and provide some comparative advantage.

While expanding into another country, Neilson should not enter alone, due to the fact of unfamiliarity. Out of the choice of three distributors/partners, Neilson should choose Sabritas, the division of Pepsico. Although the company does not have experience with handling and distributing chocolate, they do have experience distributing other types of goods to nearly 500,000 stores. Aside from that, they want to brand some of the popular Neilson chocolate bars under the product line named, "Milch," a fake, catchy word in Spanish that sounds like milk.

 Sometimes brand names can mean everything in business. If the joint branding effort goes through, Sabritas will handle everything from promotion to distribution. There has been a concern about removing the Neilson name from some of the chocolate bars, but compared to the other two distributors, I believe Sabritas will be the best.