International Business Strategy for Lotte Confectionery Co., Ltd

Background

LOTTE Confectionery is No1.confectionery Company that holds multiple No1 merchandising merchandises of gum, confect, cocoa and biscuit sections in Korea domestic market. LOTTE Confectionery stands in matchless place by Xylitol and occupies strong place in cocoa by Ghana cocoa and Dream Cacao.

Orion Confectionery international sale exceeded domestic sale in 2009.

Orion Confectionery ranks 1st in international sale among Korean confectionery companies and possesses tremendous growing rate at international market, because Orion Confectionery releases gentrified domestic merchandises to international market.

Domestic confectionery market is Red Ocean, late gross has been decreased. Domestic confectionery market is saturated in fact ( EDaily. 2011.01.11 ) . Even Foreign confectionery companies are fall ining and escalating competition in Korea.

The graduated table and profitableness of international market are larger and higher than domestic market. Therefore, Korean Major Food companies decided to come in oversea markets. Among them, Orion Confectionery ranks at 1st in international confectionery concern.

Current scheme of LOTTE Confectionery

Me Too scheme

‘Me Too ‘ scheme is a concern scheme that following company emulates a market taking company ‘s scheme. It is called as ‘Market follower scheme ‘ or ‘Imitation scheme ‘ . With this scheme, a follower can derive many advantages. The market leader frequently bears the immense disbursals of developing new merchandises and markets, spread outing distribution, and instruction the market. By contrast, as with rivals, the market follower can larn from the leader ‘s experience.

LOTTE Confectionery is a typical company to utilize ‘me excessively strategies ‘ for merchandises. There are many instances that LOTTE Conf. emulates rival ‘s successful merchandises.

Table1. Me excessively merchandises instances in LOTTE Confectionery

Beginning: Interview with ORION employee

LOTTE Confectionery applies ‘Me excessively Strategy ‘ for abroad concern. The Main states where LOTTE Conf. constructed merchandise mills by itself are China, Vietnam, Russia and India. Except India, the entry timings of LOTTE for 3 counties are recognized as ‘me excessively scheme ‘ .

In China market, ORION entered in 1993 and LOTTE entered 1 twelvemonth subsequently. Vietnam where LOTTE entered in 2007 as acquisition of BBICA, 2nd biggest confectionery company in Vietnam, was unfastened to ORION 2 old ages early. ORION established a local subordinate company, OFV ( ORION Food Vietnam Company ) , in 2005 and constructed local mill in 2006.

In Russia market, ORION established OFR ( ORION Food Russia Company ) in 2003. ORION constructed a cocoa mill near Moscow in 2004 and 2nd mill for overall confectionery industry in 2006. But LOTTE established LOTTE KF RUS LLC in 2007.

Table 2. ORION – LOTTE Confectionery Overseas entry clip

Beginning: Fiscal News, “LOTTE, Following ORION? ” February 25.2008, LOTTE Confectionery online home page, “History” ( hypertext transfer protocol: //www.LOTTEconf.co.kr/images/company/pic_hi05.jpg )

M & A ; A Scheme

LOTTE confectionery has invested 500 billion KRW to abroad market by 2010. LOTTE focused VRICs ( Vietnam, Russia, India, China ) with acquisition local companies and factory building. Gross saless consequence was under than outlook. LOTTE oversea gross revenues consistantly increased and last twelvemonth recorded 500 bil KRW.

They have a 650 bil KRW gross revenues mark this twelvemonth.

LOTTE sped up their planetary concern as come ining China, India, Vietnam, Belgium, Russia and Pakistan ( 6th largest population ) .

China

LOTTE confectionery established “LOTTE China nutrients limited liability company” in Beijing, China in 1994 and in 2005 it acquired “Qingdao nutrients limited liability company” which renamed later “LOTTE Qingdao nutrients limited liability company” . In 2006 it besides acquired “Shanghai nutrients limited liability company” and renamed it as “LOTTE Shanghai nutrients limited liability company” .

The gross in China in 2005 was about 90 billion Korean Won and easy increased to 100 billion KRW in 2006, as the cocoa merchandise which is chief merchandise of LOTTE Shanghai nutrients LLC hit its paces in 2006, the gross jumped up to 140 billion KRW in 2008.

Goosefish China nutrients limited liability company- Choco Pie, Gum Production

LOTTE Confectionery ‘s enlargement into the Chinese Market was particularly singular. Even through the het competition of Global Food Industries, LOTTE was able to capture the Chinese Flavor.

LOTTE indicates that it was possible because “Steady exportation and Improvement of the Corporate image from the early 80 ‘s and the supply of eminent merchandises due to the constitution of Local workss in the Mid 90’s.” Before any diplomatic dealingss between Korea and China, LOTTE Confectionery concentrated on providing high trade name merchandises through Hong Kong.

Therefore LOTTE has succeeded in set uping long term religion. Let ‘s take a expression on a twosome of instances. Supporting Horse Racing hosted by local merchandisers, production and publicity of CafAA© Coffee Gum to assist Chinese discontinue smoke, run to assist victims of inundation harm and other activities to capture the bosom of the Chinese.

Through these attempts, in August of 1994, LOTTE Confectionery established the ‘LOTTE China nutrients limited liability company ‘ in the Economy Technology Development Zone in Beijing. Thus it has made possible to provide suited local merchandises.

The first established local mill was wholly co-operational. LOTTE Confectionery, Japan LOTTE, and Mitsui invested in the mill and are now developed in 3 divisions. The 1st mill produced Choco-pie, Cream Cake, Koalamazzi, The 2nd mill produced home base gum, and bubble gum. The 3rd mill produced Xylitol gum, Coating gum.

Among these merchandises, it can be said that GUM represents LOTTE Confectionery. Chewing gum started being produced and sold in September of 2001, Xylitol gum, home base gum in 2002 and Coating gum in 2003.Products from these mills were sold in Beijing, Shanghai, Tianjin, and other countries of China. Besides the market portion in China exceeded 30 % .

Goosefish Qingdao Foods Limited Liability Company- bites, biscuit production

In 1996 the ‘Qingdao Foods Limited Liability Company’was established at the scientific discipline and engineering park of Qingdao. Based on deriving the trust of Chinese, LOTTE Confectionery entirely invested and acquired Qingdao Foods Limited Liability Company in 2005.

Main merchandises of that company were bites and biscuits such as Myball, Peanut-cuttlefish ball, Choco-pie, Custard, Strawberry pie and other pies. Particularly the popularity of the Custard and Choco-pie is aggressively increasing and is expected to renew the CRAZE in Korean Market.

Goosefish Shanghai Foods Limited Liability Company- Production of natural liquid of cocoa.

In 2006 ‘LOTTE Shanghai Foods Limited Liability Company ‘ was entirely acquired by LOTTE Confectionery, established in 1993. This mill was chiefly bring forthing the natural liquid of cocoa. In January of 2007, LOTTE Confectionery and Hershey ‘s signed a strategic confederation to fabricate and sell the chief merchandises from this mill. And from October 2007, LOTTE Confectionery started to fabricate and provide its popular merchandises, Ghana and Dream CaCao into all over the Chinese market.

India

LOTTE acquired Parry ‘s in May 2004. It was a exclusive invest, non joint venture. LOTTE foremost acquired 60.39 % stock and gained the remainder subsequently. Stock acquisition cost was approximately 23.2 Bil KRW. Parry Confectionery Ltd, established in 1914, was one of the representative confectionery companies in India. Annual gross revenues are over 22 Bil KRW. By geting Parry ‘s, LOTTE could preoccupy India confectionery market every bit good as secured the monetary value fight doing India as production base for exporting to Africa and Middle East country.

Vietnam

In 2007, LOTTE acquired 30 % stocks of BBiCa which was the 2nd largest confectionery company with one-year gross revenues 20Bil KRW in Vietnam. Using BBiCa ‘s gross revenues web over the state, LOTTE expected to spread out market presence in Vietnam, the population was about 84 Mil in 2007.

Pakistan

LOTTE Confectionery acquired Pakistan Kolson company ‘s ( K. S. Sulemanji Esmailji & A ; Sons ( Private ) Limited ) stock 69.45 % ( 20 Bil KRW ) and became the biggest shareholder. Through this acquisition, LOTTE could get down a countrywide concern in Pakistan.

Pakistan confectionery market size was the 1/3 of Korean ‘s. However it was expected to turn 10 % each twelvemonth, since the population under the age of 14 was 37 % . ( Beginning: LOTTE Confectionary Internal Data )

Kolson was founded in 1942, one of the taking company with plus 53.2 bil KRW and one-year gross revenues were approximately 33 bil KRW. Kolson had the 2nd largest market portion ( 29 % ) in bite, 4th ( 6 % ) in biscuit, the 1st ( 44 % ) in pasta market in 2010.

Synergy with LOTTE group ‘s affiliates

LOTTE has a vision to do a planetary trade name merely like Samsung and Wal-Mart. One of the cardinal schemes for accomplishing this end is constructing “LOTTE Town” LOTTE has already opened “Moscow LOTTE Town” on last October, 2010, which is dwelling of luxury hotels and section shops. That was the first oversea “LOTTE Town” Besides in Hanoi, Vietnam and in Shenyang, China are under building “LOTTE Town” which is be aftering to finish the terminal of 2013 in Hanoi, and to finish the terminal of 2015 in Shenyang.

Building LOTTE Town in China and Vietnam

By 2018, LOTTE will construct more than 10 LOTTE Town in Nanjing, Shanghai, Chengdu – in China- , Ho Chi Minh in Vietnam, and Jakarta in Indonesia, etc, to function them as a growing base for the LOTTE ‘s planetary concern. Additional oversea LOTTE Town will be constructed chiefly concentrating on VRICs ( Vietnam, Russia, Indonesia, China ) In China, Nanjing Jenye District, Shanghai Zhabei District, Sichuan Province, Chengdu Jin Jiang District, Wuxi, Jiangsu Province, Zhongshan, Shandong Weihai, Chongqing, and Wuhan, LOTTE is discoursing with those metropoliss and authoritiess for confer withing the land, constructing size, concern information in LOTTE Town. Those complex undertakings are aiming to finish in 2014 to 2015. In Vietnam, following Hanoi, Ho Chi min and Danang are be aftering to build LOTTE Town. Jakarta in Indonesia and St. Petersburg.in Russia -following Moscow- , are forcing in front for LOTTE Town.

LOTTE Town and LOTTE Confectionery planetary concern

LOTTE group is be aftering LOTTE Town building, chiefly aiming on lifting states such as China. Those states are merely about to make consumer markets based on high-growing economic development and high-growing disbursement fling. If LOTTE Confectionery is get downing planetary concern based on LOTTE Town, it can magnify the synergism to advance gross revenues and maximise net incomes.

Overseas company direction with Japan LOTTE

LOTTE Confectionery has a batch of local subordinate companies. And most of them are operated in coaction with Japan LOTTE. It seems to do more stable concern circumstance. Japan LOTTE has more abroad experience ( Established LOTTE USA in 1978, and so on ) and funding capacity ( Low Yen Carry involvement, and so on ) . Therefore LOTTE could portion Japan LOTTE strengths and hedge against abroad concern hazards.

Table 3. Abroad coaction subordinates

Decision

LOTTE Confectionery SWOT analysis

For scheme proposal, we analyze SWOT of LOTTE confectionery as below.

& lt ; Table 4. SWOT Analysis & gt ;

LOTTE Confectionery ‘s key schemes

Given fortunes and above analysis, we can happen 4 cardinal schemes for LOTTE Confectionery in footings of International Business Management.

First, Strengthening M & A ; A ( Brownfield method ) based on abundant capital power

• Economy clip for market incursion
• Hazard hedge

Table 5. Entry manner of Lotte and Orion

Second, Synergy consequence through Group ‘s alliance

• Economy of graduated table & A ; economic system of range
• Cooperating with LOTTE Town

Third. Decentralization for determination devising

• Localization scheme for specific fortunes of each state
• Seasonably reactivity

Last, Market taking through invention scheme

• Allocating investing in R & A ; D
• Recruiting and educating planetary experts