Case study: Expanding into new markets

The story

In 2009, Eurofragrance, a Spanish company specialising in the design and production of fragrances and flavours for the food, perfumery and personal hygiene industries, had already achieved success through market diversification. About 80 per cent of its annual production was for export outside Spain and 70 per cent to outside EU.

But Eurofragrance was eyeing the fast growing Muslim market: 23 per cent of the world’s population was Muslim and, at 3 per cent growth annually, Islam was the world’s fastest growing religion.

Combined with an increase in living standards in many Muslim countries and the growth of Muslim minority populations in Europe, the market for halal goods looked set to explode.

After successfully exporting to north African Muslim countries such as Egypt, Eurofragrance’s flavours division was now looking to expand into Indonesia and Malaysia.

The challenge

Islamic law determines what can be classified as halal. Eurofragrance needed to ensure its meat flavours were halal compliant for sales in other Muslim countries.

Indonesia and Malaysia have much stricter halal guidelines than other Muslim countries in north Africa or the Middle East, which often only required Eurofragrance to list that pork and alcohol were not present. In addition, there was no single, universally recognised halal certification and the criteria varies between different bodies.

Recognised, not-for-profit certifiers have complex processes which slow down production and increase costs, while other certifiers that operate on a purely commercial basis are less demanding.

The executives were faced with the dilemma of choosing between going for a less complicated process that would likely lead to quick sales growth and a longer, more demanding system that would provide a higher quality certification (hoping that the investment would pay off long term by giving them an edge in certain key Muslim countries).

The strategy

 Eurofragrance opted for quality over quick growth. It aligned itself with the Halal Feed and Food Inspection Authority (HFFIA), a not-for-profit body based in The Hague which had strict guidelines and was recognised in Indonesia and Malaysia.

The collaboration with HFFIA allowed Eurofragrance to gain access to a bigger market, but it also proved to be more complicated and costly than initially assumed.

The organisation’s halal certification process was painstakingly slow. HFFIA protocols required that, in order to certify any product as halal, a theoretical and physical inspection had to take place first. Meanwhile, the difficult documentation requirements frequently prevented the certification of certain flavours. At the same time, some of Eurofragrance’s suppliers were sluggish when it came to providing documentation.

A team of HFFIA halal auditors inspected all areas related to production – such as the processing and packaging plants and even how the company was managed.

By May 2011, no new raw materials had been halal-certified since the company began the process in September 2010.

Despite this slow process, Eurofragrance persevered and when the certifications began to be approved, it was in a strong position to expand to Muslim countries beyond north Africa. It now has customers in more than 60 markets and the Middle East and Asia account for 60 per cent of its sales.

Eurofragrance also decided to renew its halal certificate in May, obtaining strong praise from the three-strong HFFIA auditor.

The lessons

Eurofragrance’s success shows that deciding to focus on quality – going above and beyond the minimum need for halal certification – despite higher short-term costs, can pay off when expanding into new markets.

By fully understanding the market, Eurofragrance was able to save time and effort later on trying to adapt to changing halal standards. 

- Financial Times, 18 June 2012