Supplement Perspectives

The International Supply Game Fuels Worldwide Competition

<p>Mark Becker provides his usual thorough overview.</p>

Despite constant criticism from the mainstream media and Big Pharma, dietary supplements and functional foods continue to generate profound interest worldwide. Consumers continue to include dietary supplements and functional foods as part of their regular buying profiles in the health space. And these profiles are growing. Therefore, manufacturers worldwide are investing more than ever in new formulas and delivery systems to keep consumers returning.

According to Euromonitor International, in the United States sales of dietary supplements grew from $19.7 billion in 2009 to $24.6 billion in 2013. Sales keep growing. That said, these numbers indicate that dietary supplements and functional foods truly do have global impact and that the international health community, including manufacturers, impact the U.S. market significantly.

There are several factors here, most notably, how international companies impact the U.S. supply chain. According to Eugene Ung, CEO of Best Formulations, a GMP Certified, FDA Drug licensed contract manufacturer of softgels based in City of Industry, CA, price is a key factor.

“The global economy and global supply chain forces manufacturers to be more competitive with their pricing,” he explains. “Classical economic theories such as comparative advantage come into play.” In other words, an economy benefits by being able to produce a commodity at a lower cost than other economies. The international community works hard to establish a comparative advantage, which, in the end, will drive down prices for the consumer.

While it is true that international companies can provide competitive pricing, this can be a double-edged sword when it comes to overall supply chain. According to Ung, “when a country dominates a certain product category, this creates an oligopoly of sorts.”

When a few countries control the market for a certain product or service, they have huge influence over price and other aspects of the market. This differs from a monopoly where one body would sell the product or offer the service. Thankfully, a true monopoly rarely exists—and with good reason: if there is no competition, increased business for the company holding the monopoly will generate price hikes and cause reduced production. That company will see huge profits. That is good for the company. For consumers? Not so much.

Ung cites China as an oligopoly. “China manufactures a large portion of vitamin C and most B vitamins,” he says. “China manufactures the vast majority of these raw materials worldwide. Chinese manufactures can offer much lower pricing and have practically driven out other manufacturers.”  Interestingly, when there is a major event in China, such as the 2008 Beijing Olympics, the price of these materials increases dramatically because Chinese manufacturers will cease production. Additionally, no other countries can provide adequate supply.

Finally, technology has become a beast that has made the world very small. Consumers are demanding more of everything, including variety, science, and innovation. “International companies offer products that cannot be found locally,” Ung explains. “This dynamic is an important part of our industry’s research and product development process.”

The importance of the international supply game cannot be understated. The health-conscious consumer is not a passing fad. Consumers are becoming increasingly aware of innovative dietary supplement ingredients and delivery systems. Many previously specialized supplement categories are becoming more mainstream. These trends should guide manufacturers worldwide in ingredient selection, development, and marketing in order to meet consumer demands with focused products. The worldwide dietary supplement and functional food landscape will continue to get more and more competitive. This is great news for the health conscious consumer. 

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