An Olive Oil that Has Global Aspirations
Exporting is not an activity reserved exclusively for large multinational corporations. Many small and midsize companies are daring to undertake their own international adventures in which they confront the same obstacles that face large companies. The difference is that for midsize companies, some challenges can become almost insurmountable barriers. Companies such as Spain’s ArteOliva, which exports olive oil to more than 80 countries, understand how a shortage of funds needed for registering the trademarks of their products everywhere in the world inflicts a significant disadvantage every time they set out to conquer a new country. The chief executive of ArteOliva, Felipe Silvela, shares his experiences as an exporter with Universia-Knowledge@Wharton.
Universia-Knowledge@Wharton: What were the first steps that you took when you decided to export?
Felipe Silvela: From its beginnings back in 1999, ArteOliva has understood that it cannot limit itself to competing solely in the Spanish market, especially because Spain is a mature market. ArteOliva began to export when it saw that extra virgin olive oil enjoys enormous prestige [globally]. Although the volume of bottled Spanish oil was insignificant compared with Italian products, we realized that it had a great potential for growth. Our product strategy wasn’t limited to olive oil, but also included sauces, tunas, vinegars, creams, soups, gazpacho and so forth.
The company began to export in 2000, although only at a symbolic level, almost €34,000 ($50,000). In subsequent years, exports generally grew at a very high rate: €1,180,000 ($1,750,000) in 2002; €3,182,000 in 2003; €6,931,000 in 2004; €10,355,000 in 2005; and €8,700,000 in 2006.
In 2001, we created a four-person team in our export department. The head of the department had a great deal of international trade experience. The team members were fluent in such languages as English, French, German, Italian, Russian and Chinese (in addition to Spanish.)
It is essential for different departments in a corporation to coordinate their efforts. For example, there are regular meetings between the heads of our departments of exportation, production, quality, finance and logistics. In those meetings, people coordinate various activities while respecting the competency of each team member. That prevents mistakes and compliance failures that can have an effect on customers. Those things often happen when various departments work in an uncoordinated way.
The team chose their target countries with the assistance of ICES (The Spanish Institute for Foreign Trade) and Extenda (a regional organization in Andalucia), and principally after working at international food fairs. Currently, ArteOliva exports its products to about 80 countries.
UK@W: Within the world of olive oil, which places is it easier to export to, and which are the most difficult?
Silvela: I don’t know of any place that is both worth the effort and is also simple. Exporting is not easy anywhere; there are [always] experienced competitors. Nevertheless, there are some countries where problems can especially mount up. For example, there can be differences of culture, language, distance and complex communications. Other factors include tariffs, local protectionism, trademark registration, the commercial risk involved when payments are postponed and well-established competitors that have close relationships with distributors.
The member-states of the European Union enjoy a higher level of legal guarantees but competition is much more developed, which means there has to be a strong relationship between quality and price. Other countries that are accessible [for our exports] include the United States, Canada, Australia and Japan, provided the products are high quality.
Other countries, including Russia and some republics of the former Soviet Union, require precise knowledge of the local market because you have to deal confidently with [local] distributors. You always need to export high-quality products. However, you don’t necessarily have to open the market with extra virgin olive oil but with products that cost less to consumers such as canned tuna. Once you have proven that your products are high-quality, you can gradually expand the range of your offerings, even bringing in some higher-cost products.
Asian markets have similar characteristics, and there is great potential for growth there, especially in China. Other important markets include South Korea, Malaysia, Thailand, Vietnam and the Philippines. Regarding the Middle East and the Arab world, we Spanish companies must make a greater effort to improve the image of our oils.
Latin America is another area of great interest for a smaller company like ArteOliva. That’s because of the cultures of many countries in the region. The leading markets are Chile, Argentina, Mexico, Colombia, Ecuador, Peru, Venezuela and some tourist locations in the Caribbean. To one degree or the other, in each of these countries you have to constantly emphasize efforts to collect payments for your merchandise.
When it comes to Africa, South Africa is of special interest. Generally speaking, a company such as ArteOliva must resist the temptation to sell those products where you are not competitive, no matter how low the price, just because you can meet the sanitary standards of the target market. The future is not so much about high-volume, high-priced markets but about offering high-quality products that are as affordable as possible and prestigious brands that provide guarantees and security for consumers.
UK@W: What are the main barriers for exports? And how do you overcome them?
Silvela: Bureaucratic barriers, tariffs, important and essential cultural differences, as well as how to find people and companies that you trust. Also, a shortage of funding; a lack of clarity about how long it will take to get a return on your investment and determining how long it will take you to transport products (especially outbound shipments). Perhaps the factor that can be most discouraging for exporting is a lack of legal guarantees; there are few guarantees that you can get paid within a reasonable time period.
Some barriers involve brand ownership. I consider it an abusive practice when people and organizations – normally, distributors – in a particular country register the brands of European companies with the sole intention of improving the conditions under which they enter the region. To counter these opportunists, you can gain an advantage by registering your brands in every country, but that is very expensive for a small or midsize company. This unfair practice brings serious problems for those small and midsize companies that export. When it comes to registering trademarks, beyond the need for specialized legal advice, you need to find someone you trust among the importers and distributors in a country when you negotiate the way you issue trademarks.
UK@W: What brands do you sell abroad? How much do your international sales contribute to your total sales? In which countries do you sell the most?
Silvela: Outside Spain, we market these brands: ArteOliva, Solvita, Mediterranean Vita, ArteSur, and BioArteOliva (for organic foods). At the moment, international sales contribute almost 70% of the company’s total revenues. The countries where ArteOliva sells the most are Russia, Japan, the United States, Canada and some member-states of the E.U. We have just opened markets in China and India.
UK@W: How much does it cost your company each year to protect its trademarks on an international level? What problems have you discovered in that regard?
Silvela: It is quite expensive, especially if you have the bad luck of facing obstacles that, while they have little [legal] foundation, are promoted by certain law firms, as evidence sometimes reveals. Registering trademarks, renewing them and promoting them cost us about 160,000 euros each year. The main problem is when someone unscrupulous goes ahead and registers a trademark in a specific country and then tries to sell it to us for a higher price. We don’t have enough money to register our main trademarks in every country. Fortunately for us, in the European Union, a community-wide trademark extends protection to all of its member-states [including Spain].
UK@W: Are international fairs useful for a small company?
Silvela: From the outset, ArteOliva has always been clearly aware that internationalization was an essential part of our strategy. International fairs are an excellent way to display our products, and there is no better opportunity than these fairs to introduce them to distributors from around the world. That’s why, despite our budgetary limitations as a smaller company, ArteOliva has participated in the most important fairs: The Anuga de Colonia Fair (Germany); the Sial Fair in Paris (France); and the Food Fair in Barcelona (Spain). When it comes to organic products, we usually attend Biofach as well as important local shows in specific countries, such as Prodexpo in Moscow.
For a small company, these meetings are very useful. They enable many potential buyers (distributors) to acquire in-depth knowledge of our products and innovations. They also lead to a lot of sales contracts. The team sent to the fair must have an active presence at the booth, and they must work together both before and after the event. One good sign that you have prepared well for the fair is when most of the people who said in advance that they wanted to visit your booth actually come to it, and when most of those people sign firm purchase orders.
UK@W: How do cultural differences affect the way you manage your business in various countries?
Silvela: Cultural differences affect the way a business is managed but not always in a negative way. Culinary differences, for example, provide enormous surprises. Our experience is that you must not dismiss the idea of selling any particular product in your line-up without giving it careful consideration. Clearly, every manufacturer must adapt itself to consumer tastes but it also turns out that some products are well-received by consumers who try them out [for the first time]. One example is the excellent reception to [our] tunas by consumers in Russia and Ukraine. Another is the surprising welcome giving to the mayonnaise we prepared for some customers in Ulan Bator, Mongolia. Another strange situation is that in countries with Hindu influence, they use olive oil not as a food but as a cosmetic.
Perhaps a key characteristic that differentiates a midsize company like ArteOliva is its flexibility. We have a capacity to make customized products for people who demand something that a large company or multinational would find it unprofitable to manufacture. This enables us to tend to a series of customers who are looking for a very special sort of product. Along the way, this has provided an opportunity for them to buy other products [we make] that they initially had no interest in.
UK@W: Outside Spain, have you adapted of any products that you don’t sell at home?
Silvela: ArteOliva relies on making innovations so it can launch new products in only a short period of time. The technology we have developed also enables us to make small batches of products that would not be very profitable for any manufacturer that makes massive volumes of products. More specifically, we create products for specific manufacturers, both Spanish and foreign. In some cases, those products have unusual physical, chemical and organic characteristics, or they use raw materials that are different from those used in Spain. For example, on behalf of a French customer we made an exclusive type of mayonnaise that has Dijon mustard.
UK@W: Are there any tariff restrictions on the exportation of [olive] oil? If so, how do they affect you?
Silvela: Yes, too many. Free trade is not a reality, even in a world that is supposedly globalized. The situation has truly improved in recent years, but not enough. In some countries, selling olive oil is absolutely prohibited, although those are usually extreme cases. The normal thing, in some specific countries, is that high tariff barriers turn our product into something prohibitively expensive. Sometimes, that happens in countries that do not produce olive oil at all, but do produce other vegetable fats.
Other countries choose a different approach, deploying financial restrictions: In such cases, you can export only up to a certain quantity [to that country]. This sets limits on free markets, and protects their local currencies.