LOTTE Confectionery: Strategy Evaluation

troller Confecti matchlessry Strategy Evaluation1. Background lotte Confectionery is No1. candy store society that holds multiple No1 marting merchandises of gum, candy, chocolate and biscuit segments in Korea domestic mart. angel shark Confectionery stands in unrivaled position by Xylitol and occupies strong position in chocolate by Ghana chocolate and Dream Cacao.Orion Confectionery world(prenominal)ist sale exceeded domestic sale in 2009.Orion Confectionery ranks world-class in international sale among Korean confectionery companies and possesses enormous growth rate at international foodstuff, because Orion Confectionery releases gentrified domestic products to international market.Domestic confectionery market is Red Ocean, recently revenue has been decreased. Domestic confectionery market is saturated in fact (EDaily. 2011.01.11). thus far Foreign confectionery companies are joining and increase competition in Korea.The ordered series and profitability of internation al market are larger and higher than domestic market. Thus, Korean Major Food companies decided to insert abroad markets. Among them, Orion Confectionery ranks at 1st in international confectionery business.2. Current strategy of LOTTE Confectionery1) Me likewise strategyMe Too strategy is a business strategy that following caller-out emulates a market leading companys strategy. It is called as Market follower strategy or take-off strategy. With this strategy, a follower can gain many advantages. The market leader often bears the huge expenses of developing new products and markets, expanding dispersion, and education the market. By contrast, as with challengers, the market follower can learn from the leaders experience.LOTTE Confectionery is a typical company to uses me too strategies for products. There are many cases that LOTTE Conf. emulates competitors happy products.Table 1. Me too products cases in LOTTE ConfectioneryCompetitor Product(Company)LOTTE Conf.ProductRemarks Competitor Product(Company)LOTTE Conf.ProductRemarksChocopie(huntsman)ChocopiePie(HAITAI)stingHomerunball(HAITAI)MyballSnackDR.YOU(huntsman)Mothers fingerPremiumProduct BrandSource Interview with ORION employeeLOTTE Confectionery applies Me too Strategy for overseas business. The Main countries where LOTTE Conf. constructed product factories by itself are chinaware, Vietnam, Russia and India. Except India, the entry timings of LOTTE for 3 counties are recognized as me too strategy.In China market, ORION entered in 1993 and LOTTE entered 1 year later. Vietnam where LOTTE entered in 2007 as acquisition of BBICA, 2nd biggest confectionery company in Vietnam, was open to ORION 2 years early. ORION found a topical anaesthetic subsidiary company, OFV (ORION Food Vietnam Company), in 2005 and constructed local factory in 2006.In Russia market, ORION open up OFR (ORION Food Russia Company) in 2003. ORION constructed a chocolate factory near Moscow in 2004 and second factory for overall confectionery manufacture in 2006. But LOTTE established LOTTE KF RUS LLC in 2007.Table 2. ORION LOTTE Confectionery overseas entry timeCountryORIONLOTTEChinaIn 1993, Establishing capital of Red China OfficeIn 1994, Establishing local subsidiaryVietnamIn 2005, Establishing ORION Food Vietnam CompanyIn 2007, Acquiring 30% stocks of BBICARussiaIn 2003, Establishing ORION Food Russia CompanyIn 2007, Establishing LOTTE KF RUS LLCSource Financial News, LOTTE, Following ORION? February 25.2008, LOTTE Confectionery on-line homepage, History (http//www.LOTTEconf.co.kr/images/company/pic_hi05.jpg)2) MA StrategyLOTTE confectionery has invested 500 billion KRW to overseas market by 2010. LOTTE focused VRICs (Vietnam, Russia, India, China) with acquisition local companies and factory construction. Sales result was under than expectation. LOTTE oversea sales consistantly increased and last year recorded 500 bil KRW.They have a 650 bil KRW sales target this year.LOTTE sped up their internation al business as entering China, India, Vietnam, Belgium, Russia and Pakistan (6th largest population).1 ChinaLOTTE confectionery established LOTTE China foods limited liability company in Beijing, China in 1994 and in 2005 it acquired Qingdao foods limited liability company which renamed later LOTTE Qingdao foods limited liability company. In 2006 it also acquired Shanghai foods limited liability company and renamed it as LOTTE Shanghai foods limited liability company.The revenue in China in 2005 was about 90 billion Korean Won and easy increased to 100 billion KRW in 2006, as the chocolate product which is main product of LOTTE Shanghai foods LLC hit its strides in 2006, the revenue jumped up to 140 billion KRW in 2008. LOTTE China foods limited liability company- Choco Pie, Gum ProductionLOTTE Confectionerys expansion into the Chinese Market was especially remarkable. Even through the heated 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 incarnate image from the early 80s and the supply of eminent products due to the establishment of Local plants in the Mid 90s. Before any diplomatic relations between Korea and China, LOTTE Confectionery concentrated on supplying eminent brand products through Hong Kong.Thus LOTTE has succeeded in establishing long term faith. Lets take a go out on a couple of cases. Supporting Horse Racing hosted by local merchants, production and promotion of Caf Coffee Gum to help Chinese end smoking, campaign to help victims of flood damage and other activities to capture the heart of the Chinese.Through these efforts, in August of 1994, LOTTE Confectionery established the LOTTE China foods limited liability company in the Economy Technology Development Zone in Beijing. Thus it has made possible to supply suitable local products.The first established local factory was completely co-operational. LOTTE Confectioner y, japan LOTTE, and Mitsui invested in the factory and are now developed in 3 divisions. The 1st factory produced Choco-pie, Cream Cake, Koalamazzi, The 2nd factory produced plate gum, and bubble gum. The 3rd factory produced Xylitol gum, Coating gum.Among these products, it can be said that GUM represents LOTTE Confectionery. grind gum started being produced and sold in September of 2001, Xylitol gum, plate gum in 2002 and Coating gum in 2003.Products from these factories were sold in Beijing, Shanghai, Tianjin, and other areas of China. likewise the market share in China exceeded 30%. LOTTE Qingdao Foods hold in Liability Company- snacks, biscuit productionIn 1996 the Qingdao Foods Limited Liability Companywas established at the science and technology park of Qingdao. Based on gaining the trust of Chinese, LOTTE Confectionery solely invested and acquired Qingdao Foods Limited Liability Company in 2005.Main products of that company were snacks and biscuits such as Myball, Peanut -cuttlefish ball, Choco-pie, Custard, Strawberry pie and other pies. Especially the popularity of the Custard and Choco-pie is sharply increasing and is expected to regenerate the CRAZE in Korean Market. LOTTE Shanghai Foods Limited Liability Company- Production of raw liquid of chocolate.In 2006 LOTTE Shanghai Foods Limited Liability Company was solely acquired by LOTTE Confectionery, established in 1993. This factory was mainly producing the raw liquid of chocolate. In January of 2007, LOTTE Confectionery and Hersheys signed a strategic alliance to manufacture and sell the main products from this factory. And from October 2007, LOTTE Confectionery started to manufacture and supply its popular products, Ghana and Dream CaCao into all over the Chinese market.(Source Journal The Buyer 2008)2 IndiaLOTTE acquired Parrys in May 2004. It was a sole invest, not joint venture. LOTTE firstly acquired 60.39% stock and gained the rest later. Stock acquisition cost was about 23.2 Bil KRW. Parr ys Confectionery Ltd, established in 1914, was one of the representative confectionery companies in India. Annual sales are over 22 Bil KRW. By acquiring Parrys, LOTTE could preoccupy India confectionery market as well as secured the price competitiveness making India as production base for exporting to Africa and Middle East area.(Source 2004/5/21 food new media)3 VietnamIn 2007, LOTTE acquired 30% stocks of BBiCa which was the 2nd largest confectionery company with annual sales 20Bil KRW in Vietnam. Using BBiCas sales profits over the country, LOTTE expected to expand market presence in Vietnam, the population was about 84 Mil in 2007.(Source 2007/10/05 Medical now media)4 PakistanLOTTE Confectionery acquired Pakistan Kolson companys (K. S. Sulemanji Esmailji Sons (Private) Limited) stock 69.45% (20 Bil KRW) and became the biggest stockholder. Through this acquisition, LOTTE could begin a nationwide business in Pakistan.Pakistan confectionery market size was the 1/3 of Koreans. However it was expected to grow 10% each year, since the population under the age of 14 was 37%. (Source LOTTE Confectionary Internal Data)Kolson was founded in 1942, one of the leading company with asset 53.2 bil KRW and annual sales were about 33 bil KRW. Kolson had the 2nd largest market share (29%) in snack, 4th(6%) in biscuit, the 1st(44%) in pasta market in 2010.3) Synergy with LOTTE groups affiliatesLOTTE has a vision to make a global brand just like Samsung and Wal-Mart. One of the key strategies for achieving this address is building LOTTE Town LOTTE has already opened Moscow LOTTE Town on last October, 2010, which is consisting of luxury hotels and department stores. That was the first oversea LOTTE Town Also in Hanoi, Vietnam and in Shenyang, China are under construction LOTTE Town which is proviso to complete the end of 2013 in Hanoi, and to complete the end of 2015 in Shenyang.1 Building LOTTE Town in China and VietnamBy 2018, LOTTE will build more than 10 LOTTE Town in Nanjing, Shanghai, Chengdu in China-, Ho Chi Minh in Vietnam, and capital of Indonesia in Indonesia, etc, to serve them as a growth base for the LOTTEs global business. Additional oversea LOTTE Town will be constructed mainly focusing 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 discussing with those cities and governments for consulting the land, building size, business information in LOTTE Town. Those complex projects are targeting to complete in 2014 to 2015. In Vietnam, following Hanoi, Ho Chi min and Danang are planning to construct LOTTE Town. Jakarta in Indonesia and St. Petersburg .in Russia -following Moscow-, are pushing ahead for LOTTE Town.2 LOTTE Town and LOTTE Confectionery global businessLOTTE group is planning LOTTE Town construction, mainly targeting on rising countries such as China. Those countries are just about to create consumer markets based on high-growing economic developing and high-growing spending spree. If LOTTE Confectionery is starting global business based on LOTTE Town, it can amplify the synergy to promote sales and maximise profits.3 Overseas company management with Japan LOTTELOTTE Confectionery has a lot of local subsidiary companies. And most of them are operated in collaboration with Japan LOTTE. It seems to make more stable business circumstance. Japan LOTTE has more overseas experience (Established LOTTE USA in 1978, and so on) and financing capacity (Low Yen Carry interest, and so on). Therefore LOTTE could share Japan LOTTE strengths and hedge against overseas business risks.Table 3. Overseas collaboration subsidiariesLocal subsidiaryCountryOverseas collaboration companiesLOTTE China Foods Co., LtdChinaJapan LOTTE, Mitsui Co, LOTTE Confectionery etc.LOTTE Philippines Foods Co., IncPhilippinesJapan LOTTE, Japan Taiwan porti on out, Philippines Nugget FoodLOTTE Vietnam Foods Co., LtdVietnamJapan LOTTE, Marubeni Co.LOTTE Packaging(Beijing) Foods Co., LtdChinaJapan LOTTELOTTE Taiwan Co., LtdTaiwanJapan LOTTEShandong FengCheng snappy beverage Limited liability companyChinaLOTTE Invest Limited liability company, Shandong FengCheng Food Limited liability companyLOTTE Trade And Distribution. PTIndonesiaJapan LOTTESource Korea Information Service. INC, LOTTE Confectionery Contingent liability and Contract clause (http//www.kisline.com/)3. Conclusion1) LOTTE Confectionery ram analysisFor strategy proposal, we analyze SWOT of LOTTE confectionery as below.Table 4. SWOT AnalysisStrengthsWeaknessesA huge domestic and global distribution network and its affiliatesA variety of No. 1 family brand heldExcellent production facilitiesAbundant capital for investmentLimitation of Me-Too strategy on indemnity productPoor performance in overseas investmentWeak innovation strategyCentralized decision makingOpportunitiesTh reatsSynergy with LOTTE Groups international strategyTarget countrys (VRICs) population growthKeen competition with local and global companiesDiversity of local consumers tastes2) LOTTE Confectionerys key strategiesGiven circumstances and to a higher place analysis, we can find 4 key strategies for LOTTE Confectionery in terms of International Business Management.First, Strengthening MA (Brownfield method) based on colossal capital powerSaving time for market penetrationRisk hedgingTable 5. Entry modal value of Lotte and OrionEntry modeLOTTEOrionRemarkOwnershipMAOXGreenfieldOTradingExportingOOImportingXXCollaborationstrategiesLow commitment (Licensing)XXHigh commitment(JVs)OXSecond, Synergy effect through Groups alignmentEconomy of scale economy of scopeCooperating with LOTTE TownThird. Decentralization for decision makingLocalization strategy for specific circumstances of each countryTimely reactivityLastly, Market leading through innovation strategyAllocating investment in RDR ecruiting and educating global experts