Cola Cao in China

Degree: Tourism Management

Subject: Digital Marketing
Student: Marisa Brandão R2100036
Teacher: Javier Muñoz
 The company Nutrexpa was born in 1940 through an association formed by two
businessmen from the neighborhood of Gracia (Barcelona), José Ignacio Ferrero
Cabanach and José María Ventura Mallofré. From the beginning he dedicated himself to
the elaboration of food products for the domestic market, and in 1946 he began to
market cola cao cocoa powder, his star product. The company promoted it widely
through a song on the radio “Yo soy aquel negrito del África tropical” which reached great
popularity. Nutrexpa continued to promote its products through television advertising
campaigns and sports sponsorships, which allowed it to gain fame in the Spanish market.
In the 1970s it diversified its offer with the purchase of the soluble cocoa manufacturer
Phoscao (1962) and the Girona biscuit galletas Paja, with which it entered the industrial
pastries sector and launched brands such as Phoskitos. Its expansion abroad began in
1980, when it began to produce and sell ColaCao in Chile. The product expanded to other
states in South America and reached Poland, Russia and China.

Nutrexpa chose China for its partner in the 1990s, after an official visit by President
Felipe González to China, followed by the presentation of a proposal by the current
Nutrexpa’s partner company to the delegation of businessmen that were accompanying
him. In the 1980s, the Spanish company already examined several proposals for
interconnection with Chinese companies, but none of them proved appropriate for the
desired partnership. From the outset, the objective of a partnership for the marketing of
Cola Cao product in China was to increase milk consumption in the country, an interest
demonstrated by the Chinese Minister of Agriculture after analyzing that Cola Cao would
have aided this same effect in Spain. The need to increase milk consumption in China
remained and in the 1990s the nutritional deficiencies of the population were still
notorious.

“China is not the market of the future, is the market of the present” (Joan Cornellà,
2013)

Joan Cornellà, general director of Nutrexpa in China, utters this sentence with the
intention of demonstrating that the Chinese market is a market of great opportunities,
but at the same time of huge risks.
All this experience in the Chinese market stems from clearly errors and outdated
complications, because in the 1990s there was almost no legal and cultural experience of
how trade relations between European and Chinese companies were established and
how the Chinese people would accept their product in the first instance, because the
consume of milk was almost 0 on that time and they don’t even know the taste of cacao,
was an unknown product for them. Based on these problems, it was first necessary to
develop a detailed market study to understand the needs of the that population, which
would be nutritional deficiencies and sensitivity to cacao flavor, and so the product
needed to be adapted.
Two buildings were built in Tiajin, the first in 1990 and the second in 1999, located in
a technological development zone, with a production capacity of 15 000 square meters,
which enabled the creation of 3 production lines, where they employed more than 200
people in the factories and another 150 people in the sales team. The three production
lines are subdivided into:
 • Soluble beverages, composed of 3 products: Cola Cao powder but with
higher nutritional value (created especially for the Chinese market); Original Cola
Cao and Colao powder to mix in water;
• Fruits;
• Pastry, composed of cereal bars and cupcakes, in cooperation with a Tiajin
company.

As for the work teams, these were quite difficult to establish at the beginning due to
lack of training, however over the years there began to be more people trained in both
local and foreign universities. And so, it was necessary to create a retention plan to keep
these people, because a high turnover of employees implies a great expense, because
although production costs are less expensive than in Spain, the efficiency with each
passing day is decrease.
Another of the main problems were the legal issues, legal Issues are considered an
important part throughout the macroeconomic landscape and focus on issues such as
product safety, consumer rights, equal opportunity laws, discrimination laws, antitrust
laws, labor laws, copyright laws, patents, and health and safety laws. For companies to
operate successfully, they must not only know, but must also respect the rules and
regulations of the country in which they are operating. Of course, companies need to
know what is and what is not legal to negotiate successfully and ethically. If an
organization trades globally, this becomes especially complicated because each country
has its own set of rules and regulations, but at that point there were no contractual and
legal references, which led to the need of many trips to China, until it was possible to
reach a final agreement. In addition, they needed to be aware of possible changes in
legislation and the impact this may have on their business in the future.
Cultural shock was another of the main problems faced by Nutrexpa, the cultural
differences are notorious, but as mentioned earlier there was clearly an unfamiliarity with
the customs/ideas of Chinese culture on the part of the Spanish company, which
generated some situations not very common and unexpected for them, problems that
had to be solved, to please the partner company and at the same time not to be harmed
by those same decisions. In China, relationships are everything, when a foreign company
tries to build and strengthen its business relationships, it is often asked to share stories
or information of a personal nature, that means, what the Chinese do is build
relationships, a fundamental part of the business process in China- Guanxi. Therefore, it
is necessary to develop a business plan in the medium/long term, Chinese appreciate the
constant and continuous endeavor to develop commercial relations, consolidate and
maintain them. This means multiple visits, lots of socialization and daily communication
between entrepreneurs, that need to maintain an open-minded spirit and ability to deal
with marked cultural differences, adapting to both the business model and daily activities.

Addressing a more external analysis in competitiveness, the first of the five forces of
Porter, refers to the number of competitors and their ability to undercut a company. The
larger the number of competitors, along with the number of equivalent products and
services they offer, the lesser the power of a company. Suppliers and buyers seek out a
company's competition if they are able to offer a better deal or lower prices. Conversely,
when competitive rivalry is low, a company has greater power to charge higher prices
and set the terms of deals to achieve higher sales and profits. We can conclude that at
the beginning of its activity the company had a very limited competition, since there were
almost no foreign companies in the sector operating in China and the national ones were
not direct competitors, which allowed, in addition to other factors, the investment in
advertising that led to the creation of a brand with great name and recognition in the
country. After the company gained this recognition through its products, clearly come up
the copies and years later began to deal with a little more competition, the appearance
of Thai, Japanese, Korean, and large American and European multinational companies
began to be common, and also the process of exporting products by companies such as
Nestlé.
Despite the great recognition of this brand for its image, with a recognition rate of
90% in large cities, this was also different from the original, in various parameters, such
as the name, instead of "Cola Cao" is known as “Gao Le Gao” that means "Tall and happy"
or "Grow tall and happy", name well represented by the television ad created, where
Chinese children jump and play with each other in a school. Some packaging are also
different to live up to the existing flavors, however the original colors have remained
because they are well accepted colors by Chinese culture since yellow is an imperial color.
However, a particularity of the packaging also had to be changed, the placement of the
labels of "250 grams", because 250 grams translated into Mandarin means "idiot". Prices
have also changed in certain terms, in promotions it was necessary to put the price to
always end with the number "8", because "8" is the lucky number.
 As for the company's positioning, it was segmented to the children of large cities,
becoming the "dream" for any Chinese parent but over the years the company expanded
its distribution, from 10 cities (the largest) to more than 300 cities, thus achieving the
children's audience of other second, third and fourth level interior cities but as a larger
dimension than most Spanish cities, thirsty for high quality products.
This whole experience of introducing Cola Cao in China was a great learning, both for
Nutrexpa and for other companies that in the following decades followed in its footsteps.
Learning had a very high cost, since if this merger were to take place today, with the
knowledge they acquired, many years would have been spared and many mistakes would
not have been made, however nothing was in vain, the company gained experience and
also served as a study to better know the Chinese market segments.

Sources:
https://rockcontent.com/br/blog/5-forcas-de-porter/

https://internacionalmente.com/que-es-el-guanxi/