Belgian chocolates are world famous. Together with Switzerland, Belgium is internationally known as the country of chocolates. Belgian chocolatiers win many international awards. Belgium is also the largest chocolate exporter in the world, exporting over 1 billion € of the sweet stuff every year. In a joint project of Vlerick School, the KU Leuven and the National Bank of Belgium, researchers Filip Abraham, Zuzanna Studnicka and Jan Van Hove take a closer look at this astonishing chocolate story. Based on very detailed export data in the period 1998-2010, they unravel the DNA of Belgian chocolate exporting firms and identify the factors that drive their export strategies.
What are the characteristics of Belgian chocolate exporters? A first striking fact is that they are a large and diversified group of companies. Every year an average of 447 companies were involved in the business of exporting Belgian chocolates. The group includes smaller, medium-sized and larger companies, exporting one or many chocolate products with different quality levels, and charging prices ranging from less than 10 € to more than 1000 € per product. Chocolate exporting firms are involved in both business-to-business in business-to-consumer relationships.
Another interesting observation is that most chocolate producers are selling more than only chocolate in foreign markets. Less than 25% of all chocolate exporting firms export only chocolate products. The other 75% or so are active in a variety of sectors such as food products, machinery and chemicals. Having said this, the largest chocolate exporters are focusing primarily on chocolate, realizing around 90% of their total exports from sales of chocolate products.
A large share of Belgian chocolates is exported to neighboring countries such as France, Germany, the Netherlands, the UK, Italy and Luxembourg. This geographic focus on close-by EU markets is typical for Belgian exports in general. But Belgian chocolate exporters successfully introduced their products in more distant markets such as the US, Canada and Japan. In recent years, they penetrated countries including Russia, China and new EU member states in Central and Eastern Europe. In short, the Belgian chocolate export business has spread from being a local to a global success story.
What are the export strategies followed by Belgian chocolate firms? Many chocolate firms engage in trial-and-error strategies. They introduce new products in one or more markets and see whether they catch on. Often they do not so that the products are withdrawn after a short time. More than 50% of export transactions cease within the first two years. A typical chocolate export product is on the market for 2.5 to 3.5 years.
The next step up in export strategies is to establish a beachhead for a chocolate product. This happens when the exporting firm starts selling large volumes of the chocolate product in a specific geographic market. The beachhead is strengthened when the firm sells the same product in more and more destinations. The beachhead strategy allows the company to recuperate the fixed investment costs of becoming a chocolate exporter. In doing so, it creates the foundation for a longer term presence in export markets.
The competitive advantage of Belgian chocolate exporters comes from a focus on core competences. The core competence of a chocolate firm is to master the art of making chocolates. Companies, whose total exports consist of a large share of chocolate products, are better equipped to stay competitive in international markets.
Belgian chocolates are renowned because of its excellent quality. The research project looks at the impact of set of quality indicators based on price segmentation, the information on quality on the companies' websites, the content of cocoa butter and the distinction between pralines and other chocolates. All indicators lead to the same conclusion. Higher quality is a powerful force in explaining the export success of Belgian chocolates. This is not only true for the top quality products but also for chocolates it the medium-to-high quality segment.
Does the reputation of Belgian chocolates imply that exporting firms can smoothly surf on the waves of a wide blue ocean? Not at all. International business is like a box of chocolates: exporting firms never know what they will get. Despite Belgian chocolates’ strong international reputation, the Belgian crown jewel is facing growing worldwide competition. As an example, “Belgian” chocolates, produced by Chinese firms, are already sold in the Chinese market today. This relentless pressure from global competition pushes Belgian exporters to be innovative, to upgrade their quality and to reinvent themselves. If they fail to do so, sweet chocolate dreams end in a bitter nightmare.
Source: ‘Evidence and determinants of the duration of Belgian chocolate exports’ by Filip Abraham (Professor at Vlerick Business School and KU Leuven), Zuzanna Studnickay (researcher at KU Leuven) and Jan Van Hove (researcher at KU Leuven).