cage analysis wilson yuen final

13Country Attractiveness Portfolio & CAGE Analysis for Hydra Diets

CAGE Part 1Prepared by:Wilson YuenINBS 561April 11, 2014Section 1: CAPI am consulting on behalf of Hydra Diets, a dietary supplements company based in North New Jersey, United States. They are considering to expand their operations to one of these two countries, France and Hungary.DemographicsMarket

Country NamePopulation (Millions)Population that is overweight and obese (Millions)Sales ($ M USD)

France65.8025.14379

Hungary9.945.0320

(CIA, 2013) (WHO, 2013) (World Population Statistics, 2013)

For the y-axis, I have decided to use the cross section of the population that is obese and overweight. This was calculated using the WHO obesity and overweight rate multiplied by the countrys population. Children and adults alike struggle with obesity and weight control daily. The most effective way to fix this is through exercise. It is not the easiest way and takes a great deal of time investment on the individual. This is only feasible if the person has great time management skills. However, people are either genuinely too busy at their jobs or will come up with excuses to stop them from exercising. In the last decade, many diet plans and fat burners have been advertised to be the all-in-one solution for a persons weight problems. This is more prevalent for overweight and obese persons who do not want to exercise and instead take a daily pill and hope that their bodies will be ready for the summer season.Right off the bat, France looks like the more attractive country due to the fact their dietary supplement sales completely dwarfs Hungarys. However, when one takes a closer look at industry data for the two countries, things get more interesting. Euromonitor International projected that the French market is expected to stagnant for 2014 as due to forecasted excess supply due to cheaper substitutes as well as intense intra-industry competition. (EM Intl, 2013) As for the Hungary, their dietary supplement market is growing because Hungarians are embracing self-medication as well as improving general macroeconomic conditions. (EM Intl, 2013) In January 2013, Bloomberg ranked Hungary the 18th top emerging market with 5-year projected GDP growth of 15.6% and ranked their ease of doing business near the top 50. (Bloomberg Markets, 2013, Slide 18) In comparison, the United States market is expected to reach $4.4 billion USD in total food and health supplement sales for 2014, up 2.5% from 2013. (C Barnes & Co., 2013, Page 98) Therefore, I have to analyze this further utilizing the CAGE framework of Professor Ghemawat to get a more definitive picture and solve this conundrum.Section 2: CAGE Adjusted CAPAll variables were rated on a scale of 0 to 5, and negative scores were given if it was warranted.Cultural DistanceCultural (35% Weight)

Factor Compared to USFranceScoreHungaryScore

Ability to speak English (in millions)25.7231.99-2

Ethnic GroupsMixed2Hungarian4

Food DietVaried3Meat5

Alternative Medicine UsePopular3.5Popular5

Total Score11.512

CAP influence score4.034.2

I gave cultural distance a weight of 35% as it will be primarily driven the ability to speak English, food diet, and alternative medicine use. I believe this will be the most important gap that Hydra Diets needs to close if they get into either France or Hungary.The first cultural distance variable that I considered was the English speaking ability in each country. Hydra Diets has mainly English-speaking persons in their company. With English being the primary language, they will need to engage with people who can carry on a conservation without the need for a translator. A translator will slow negotiations and present additional risks as the translator may be biased in their interpretation of English to their native language. While not the only factor, without good communication, Hydra Diets will have a very hard time getting over the hurdle to expand their operations. With a conversationally fluent person, it should speed negotiations up with the government and other third parties. With 230 million U.S. residents age 5 and older being able to converse in English in some capacity, I gave scores of 3 to France and -2 to Hungary. (Ryan, 2013)The second cultural distance variable that I considered was the mix of ethnicities. Its important to know that different ethnic groups have different views on medicine, government, and other categories. France has a wider mix of ethnicities such as the Chinese and North Africans although it is nowhere near the melting pot of the United States. (CIA, 2013) Hydra Diets might have a hard time dealing in France. Chinese people have been taught that dietary supplements are the same as medicine. This has led to dietary supplements having a negative connotation among the Chinese. (Culliney, 2012) This is validated when the Chinese FDA (CFDA) recently tried to slow down imports of dietary supplements. (Long, 2014) Natural Products Insider writer Josh Long cited an April 2013 Euromonitor International report belief among Chinese consumers that absorbing nutrition from food is far healthier than from specific dietary supplements, which might cause side effects. (Long, 2014) Hungarians, on the hand, are more homogenous. With the population moving toward embracing self-medication, Hydra Diets should have an easier time in Hungary.The third cultural distance variable that I considered was the food diet. Generally, people that tend to eat healthier with more fruit and vegetables in their diet would be less likely to buy dietary supplements and exercise more. Hungarians love meats and their national dish is meat stew or otherwise known as goulash. They also enjoy fish and pastries. A typical Frenchs food diet is more varied with cabbage and seafood, however, they also enjoy escargot, duck, and rabbits. (Advameg, Inc., 2014) Americans traditionally have been primarily meat eaters. (Shannonhouse, 2013) With the risk of running high cholesterol and fat levels, dietary supplements will help decrease the effect of it. Therefore, it should have a medium impact in France and a very high impact in Hungary as compared to the United States.The final variable that I considered was both countries view on alternative medicine and more specifically self-medication. Self-medication is the medication of oneself especially without the advice of a physician. (Merriam-Webster, 2014) It may be very risky for one to self-medicate, however, it may heal them at one-hundredth the cost. Dietary supplements are a disrupting force to the hospital industry. The adoption of self-medication remains sluggish in France due to socio-cultural patterns associated with drugs consumption and will remain a key challenge over the next few years. (EM Intl, 2013) A majority of Hungarian respondents in a pharmaceutical survey done by the Hungarian Chamber of Pharmacists said that they would prefer to cure their various issues with nutritional and dietary supplements. (Imrik, 2010) Compared to the United States, 38% of American adults use alternative medicine. (Wong, 2013) Hungary scored a 5 based on the proportionally high use of alternative medicine. France, with its positive social-cultural trend and mixed product demand news as compared to the United States, will get a score of 3.5.Based on the factors involved in examining the cultures of Hungary and the United States, my conclusion is that the distance is very large. Based on the factors involved in examining the cultures of France and the United States, my conclusion is that the distance is also large.Administrative DistanceAdministrative (25% Weight)


TariffsFree5Free5

Government Effectiveness87.56370.812

Control of Corruption89.47364.59-2

Access to OTC productsGood4Great5

Total Score1510


I gave administrative distance a weight of 25% because many factors here are out of the end consumers hand, however, still affects indirectly if they would like to purchase dietary supplements.The first variable that I considered was the tariff rate. According to the WTO, both France and Hungary have a zero tariff rate when it comes to vitamins and nutritional supplements as they are both members of the EU. (WTO, 2013) The United States general tariff rate for vitamins, provitamins, and hormones is also zero. (USITC, 2014, Ch. 29, Sec. 9-2936) This means that there is no tax to Hydra Diets if they export their products to France and Hungary and it implies that France and Hungary will not shield domestic supplement producers. This will lead to lower producer costs.The second variable that I considered was government effectiveness. According to the World Bank, France scored an 87.56 and Hungary scored a 70.81. The United States got a score of 90.43. (World Bank, 2013) Therefore, one must assume that Hungarys government is much less capable to conduct day to day operations and fraught with more red tape than the United States or French government.The third variable that I considered was corruption control. France scored an 89.95 and Hungary scored a 64.59. The United States scored an 89.47. (World Bank, 2013) Corralling corruption means it is less likely that business can bribe their way through political and other proxies and engage in anti-competitive practices. Hungary seems to be a more corrupt country given this data. This is further validated by Transparency International employee Jozef Martin comment that Hungarys transparency is on the same level of Algeria, Iran, and Mali. The Hungarian government responded with their new anti-corruption measures. (Financial Times, 2013) As compared to the United States, France is much more able to keep corruption down to a minimum than Hungary.The final variable that I considered was access to OTC products. This is usually heavily regulated by the government. If there are more OTC products on the market, then people will have more access to medicines and dietary supplements that do not require a doctors prescription. Complemented with a populations views on self-medication, high access should increase market attractiveness for producers like Hydra Diets. In France, there is a push for increase in generics and self-medication from the French national health insurance agency, Ameli. This could create a renewed incentive from pharmaceutical companies to push out cheaper non-prescription drugs for the masses. French pharmacies have begun to lobby for consumer health in the government to remain competitive in the market. (EM Intl, 2013) In Hungary, OTC drugs are determined by the open market. Dietary supplements are widely available, but Hungarians usually like to consult pharmacists before they buy. (EM Intl, 2013) According to the Consumer Healthcare Products Association, OTC medicines are valuable due to the shortage of primary care physicians in the United States. Drug cost savings alone have saved the U.S. healthcare system about $25 billion. (CHPA and Booz and Co., 2012, Page 7) Therefore, in comparison to the United States, the Hungarian government is allowing quite free access to OTC products, more so than their French counterpart. However, they are both moving the right direction in regards to access.Based on the factors involved in examining the government and its fiscal policies of Hungary and the United States, my conclusion is that there will be a more negative impact on projected sales due to government corruption. Based on the factors involved in examining the government and its fiscal policies of France and the United States, my conclusion is that there will be a generally positive impact on prospective sales based on tight government controls.Geographic DistanceGeographic (20% Weight)


Urban Population86%470%3

Air Transport4,554.14 M ton-km47.61 M ton-km2

Roadways1,028,446 km3199,567 km1

Waterways8501 km31622 km1

Total Score147


I gave geographic distance a weight of 20% as there are many ways to transport the dietary supplements throughout France and Hungary. The method, however, will affect overhead costs.The first geographic distance variable that I considered was the urban population. With more urbanization, there is more diffusion and centralization of activities and available goods. People tend to be wealthier in urban areas. It would seem to be easier for Hydra Diets to market their dietary supplement in France than Hungary since the population is somewhat more centralized in large and modernized areas.The second geographic distance variable that I considered was the volume of air transport. This would show the viability of exporting dietary supplements via air freight as it can be packaged into pallets and easily processed at a local warehouse. It is implied that France seems to have a better infrastructure to handle higher air transport volume. (MSU, 2014) This coupled with the fact that France has over 170 airports to Hungarys 41. (CIA, 2013) However, both countries are still dwarfed by the United States which transported about 39,000 million ton-km in 2012. (Trading Economics, 2014)The third geographic distance variable that I considered were the state of the roadways. This would clue me into the general infrastructure of the country. If the country has good paved roads, it would facilitate more interstate commerce. France has 5 times the roads than Hungary has. However, if I were to compare the amount of roadway versus the amount of land France and Hungary have, Hungary would come out ahead with a factor of 2.23 against Frances 1.6. By comparison, the United States would have a factor of .71. (CIA, 2013)The final geographic distance variable that I considered were the amount of waterways available. France has once again 5 times the amount of waterways in kilometers that Hungary has. However, it still pales in comparison to the United States. (CIA, 2013) Therefore, a score of 3 was given to France and 1 to Hungary.Based on the factors involved in examining the geography of both Hungary against the United States, my conclusion is that their infrastructure is somewhat lacking and will not drive up prospective sales. Between France against the United States, my conclusion is that France is more up to date with their infrastructure and therefore, will have a small positive impact on prospective sales.Economic DistanceEconomic (20% Weight)


Cost of LivingHigh-2Low3

Corporate Tax Rate33.33%-119%3

Life Expectancy82 575 4

Healthcare expenditures per capita$4,690 3$9872

Total Score510

CAP influence score12

I gave economic distance a weight of 30% as it will affect pricing strategy as well as product demand forecasting.The first economic distance variable that I considered was the cost of living. In France, a typical cheap restaurant meal would cost $16.66 USD. (Numbeo, 2014) In Hungary, the same item would cost $6.33 USD. (Numbeo, 2014) Compared to the U.S., the same meal would cost $10.00 USD. (Numbeo, 2014) I also gathered pricing data on dietary supplements for comparison. A Hungarian-based sports supplement store was selling a 100-capsule HCA fat burner for 4,390 Hungarian Forints or $19.75 USD. (Langsport, 2014) Sport Nutrition Center of Vallauris, France was selling dietary supplements from 22 to 30 euros or $30 to 40 USD. (Sport Nutrition Center, 2014) A 120-capsule fat loss supplement product Shred Matrix had a retail price of $42.95 USD but was on sale of $28.95 USD on the U.S. based Bodybuilding.com online store. (Bodybuilding.com, 2014)The French and Americans can treat health supplements as more of a discretionary expense due to good substitutes such as fruits and vegetables that are readily available. Frances high COLA compared to the U.S. led me to give them a score of -2. For Hungary, I gave a score of 3 for their lower cost of living.The second economic distance variable that I considered was the corporate tax rate. In France, the corporate tax rate is 33.33% and in Hungary, its 19%. (KPMG, 2014) In comparison to the United States of roughly 35%, Frances corporate tax rate is much closer. Also, the Hungarian government promotes womens employment by giving tax breaks for companies who hire women of a certain age and education level. (EM Intl, 2013) This means that Hydra Diets would incur more in corporate taxes in France. As compared to the United States, France gets a score of -1 and Hungary gets a score of 3 for Hungary being much more corporate-friendly.The third economic distance variable that I considered was life expectancy. People are now taking to exercise and living healthier. As a result, they are living longer lives. The Preston Curve shows a positive correlation between life expectancy and per capita income with diminishing returns to scale. (Bloom and Canning, 2006) People with lower incomes will not readily have access to luxuries such as gym memberships. They may be more stressed out due to harder life obligations, and as such, not pay attention to their diet. This implies that they are more likely to resort to using dietary supplements. Both countries are very close to the United States when it comes to life expectancy, with the French population living longer than Americans. (CIA, 2013)The final economic distance variable that I considered was healthcare expenditures per capita. This accumulates health services, nutrition activities, and emergency aid. I have to consider this along with the fact that GDP per capita for France is around $36,000, $50,000 for the U.S., and $20,000 for Hungary. (CIA, 2013) Hungarians spending about a $1,000 USD out of pocket when their GDP per capita is 40% of the U.S. is significant to me. Even though it looks like the average Hungarian has invested less in the healthcare infrastructure than the average Frenchman and American, it validates Hungarys growing self-medication movement.CAGE Adjustment to CAP GraphCAGE ElementElement WeighingFranceHungary

Cultural35% (.35)4.034.2

Administrative25% (.25)3.752.5

Geographic20% (.20)1.40.7

Economic20% (.20)12

Totals10.189.4

CAGE CAP AdjustmentDivide the total by 4 CAGE factors2.54 2.35

As compared to the United States., both France and Hungary have the largest cultural distance. France has medium administrative distance and low geographic and economic distance as compared to the United States. Hungary has medium administrative and economic distance as compared to the United States, but low geographic distance.DemographicsMarketCAGE

Country NamePopulation (Millions)Population that is overweight and obese (Millions)Sales ($ M USD)CAGE multiplierCAGE adjusted sales

France65.8025.14379 2.54963

Hungary9.945.0320 2.3547

The CAGE multiplier had little effect in market attractiveness as France had over 20 times of Hungarys health supplement sales revenue in 2013.Section 3: RecommendationsHydra Diets is at a crossroads. Does the company enter the dietary supplements market with the expected upside in Hungary or do they enter the stable but stagnated and increasing competitive market in France? With the CAGE framework analysis done, we can now make more specific conclusions for each country.Hungary is a small, but hot emerging market and filled with a population that is high on alternative medicine. Their population is also only somewhat urbanized. The countrys corporate tax rate is about half of Frances. On the flip slide, Hungary has somewhat less purchasing power and more corruption in their government.With multinational companies like Novartis (EM Intl, 2013) dominating the market, a joint venture is out of the question, because they can reverse engineer the Hydra Diets formula and perhaps draw Hydra Diets out to extensive patent litigation in the future. Due to its large cultural distance, Hydra Diets should employ a licensing strategy. (QuickMBA.com, 2010) Hydra Diets can potentially earn a high return on its investment due to the low startup costs. However, direct product revenue will be lost. If the product becomes popular enough, however, Hydra Diets can sustain itself on only Hungarian licensing revenue, given the tradeoff of loss from lack of economies of scale. With the local company marketing the product, they can get around many cultural and administrative barriers. Also, Hydra Diets could potentially avoid a price war with the local Hungarian competition.France has a large, stagnant, and very competitive dietary supplement market. France is much more urbanized, however, has a higher cost of living, and corporate tax rate. However, they have very strong regulatory controls as well as a more responsible government. They have much more obese and overweight persons than Hungary.In December 2013, AFIPA reported, 16,170 pharmacies had self-selection non-prescription medication available. This represented over 70% of the total French pharmacy market. Internet sales only accounted for .1% of all French sales during the year. (Wilkes, 2014) This discourages opening up an online store and exporting to France due to very low percentage of online sales. Therefore, I would suggest Hydra Diets engage in a joint venture with a French pharmacy, big supplement distributor, or supermarket chain such as Carrefour. I foresee Hydra Diets having a high sales potential mostly due to the size of the supplement market and having the benefit of blending in on the strength of their partners brand. However, Hydra Diets will lose direct control over their product. (QuickMBA.com, 2010) With the partnership, Hydra Diets should be able to penetrate the French food and health supplement market and stand a better chance of attaining higher profit in spite of the higher corporate tax imposed.I must conclude to Hydra Diets that the French dietary supplement market is the safer and therefore better choice to enter at this time. The Hungarian market is still quite nascent, and too risky to enter for the small dietary supplement company Hydra Diets. Below is my opportunity-risk matrix to further show the market attractiveness.

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