Eac Nutrition: Regional Expansion Strategy

This case can be used in management of international business courses to illustrate the analysis of market attractiveness, the importance of fit between firm capabilities and market requirements, and the effects of multimarket competition. It describes the international expansion challenges facing EAC Nutrition, the infant formula division of a Danish conglomerate, in early 2002.Growth in EAC's core markets of Thailand and Malaysia has stagnated and EAC is contemplating three expansion options: entry into India, geographic expansion within China, and product line expansion in existing markets. Excerpt UVA-BP-0449 EAC NUTRITION: REGIONAL EXPANSION STRATEGY In 2002, the senior management team of the East Asiatic Company (EAC), a Danish trading conglomerate, convened a planning meeting at the Group Operations Centre in Singapore to chart a growth strategy for its nutrition business. Over the last five years, EAC had gone through a period of aggressive corporate restructuring and was now focused on growing its core nutrition business in Asia. The nutrition business was primarily involved in the production and distribution of milk powder products for infants and growing children under the Dumex, Plus, Mamex, and Mamil brands. The recent economic downturn, coupled with the need to increase consumer prices in view of spiraling raw material costs, had weakened EAC Nutrition's already saturated core markets in Thailand and Malaysia. The only market that remained relatively strong was the increasingly competitive Chinese market. Investor skepticism over the Asian economy and fears of intense competition had resulted in a stock price that management believed was undervalued. Even though—due to the successful restructuring of the company—EAC's share price had increased greatly over the past four years (from [Danish Krone] DKK30 in June 1998 to DKK170 in 2002, see Exhibit 2), analysts had target levels of over DKK200 for EAC's stock, and most analysts had a strong buy on the EAC share. Consequently, a key priority of the senior management team was to enhance stock price performance by focusing on creating expectations of increased shareholder value through enhanced earnings growth. Plotting a new Asian growth strategy would now be essential to ensuring that EAC would continue to thrive in the next millennium. EAC Nutrition needed to decide whether to continue to expand into the region and increase its investments or to adopt a wait-and-see attitude. Should it expand geographically in China, enter new markets in India, or introduce new product lines to boost sales in existing Asian markets? History of EAC The East Asiatic Company was founded in 1884 by a Danish captain who dreamed of creating a vibrant trade network between Europe and the Far East. Captain Andersen opened the first EAC office in Bangkok, Thailand, offering a direct shipping line to Denmark. Over the next century, the firm expanded its range of traded goods to include rice, oilseed, timber, and spices. Trade routes were also extended to encompass South Africa, the West Indies, North and South America, and Australia. . . .