International Business Team Project Commerce Essay

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It was established in 1967 and its plants are located in Seoul, Daejeon, Yangsan, Pyeongtaek and Siheung. It manufactures and sells more than 200 products to more than 70 countries. It is the No.3 chewing gum manufacturer in the world. It is a subsidiary company of Lotte Group.

Lotte Confectionery produces ‘Crunky' candy bar and the ‘Chic-Choc' cookie (a chocolate chip cookie), one of the most famous brands in South Korea. Additionally, they produce other baked snacks, including the ‘Margaret' cookie.

  • Vision 21st

Lotte Confectionery will take a great leap in order to become the ASIA No.1 confectionery company in 2018. It will travel throughout the world by investing and opening in new overseas markets.

With quality as its top priority, Lotte Confectionery will create products that are traditionally flavored, but have a global touch.

  • History

Founding and leaping (1960s - 1970s)

o Established Lotte confectionery (Mar. 1967)

o Opened branch offices in 5 major cities(Seoul,, Busan, Daegu, Daejeon, Kwangju) (June 1968)

o Completed construction of Yeongdeungpo Plant (Feb 1969)

o Started to operate Siheung Plant (Gum Base Production) (Mar 1970)

o Started gum production at Yeongdeungpo Plant (Dec 1971)

o Listed shares in stock exchange (1974.2.16)

o Started chocolate production at Yeongdeungpo Plant (Feb 1975)

o Completed construction of Yangsang Plant (Feb 1975)

Growth (1970s - 2000)

o Completed construction of Pyeongtaek Plant (Aug 1983)

o Established branch office in LA (Jul 1984)

o Selected as official supplier for Olympics (1988)

o Recognized for export volume of USD 10 Million(Nov 1989)

o Established branch office in Beijing (Jul 1984)

o Established LOTTE CHINA FOODS CO.,LTD (Jul 1994)

o Established branch office in Moscow (Jul 1995)

o Completed construction of Daejeon Plant (Apr 1996)

o Established GimhaeLogisticsCenter (Nov 1997)

o Launched premium ice cream Natuur (Apr 1998)

o Completed construction of Vietnam Plant for chewing gum production and started sales (Sep 1998)

o Opened PI Integrated information System (Dec 1999)

o Achieved sales of KRW 1 trillion, a record in the domestics Confectionery industry (Dec 2002)

Expansion of overseas business (2000 - Present)

o Acquired 80% of Parry's shares (in India)(currently Lotte India Co., Ltd) (May 2004)

o Acquired 100% of Lotte Qingdao Foods Co., Ltd. (May 2005)

o Established Lotte Taiwan Co., Ltd. (Sep 2006)

o Established Lotte Food Holding Co., Limited (Dec 2006)

o Established Lotte KF Rus LLC (Apr 2007)

o Acquired 30.15% of Vietnam BBICA Corporation (Mar 2008)

o Investment in kind for Lotte Europe Holding B.V.(May 2008)

o Took over Guylian Corporation (Jul 2008)

o Established Lotte Food India Private Limited (Aug 2008)

  • Organization Chart for Lotte Confectionery
  • Major products and sales in 2009

The company's flagship is its line of chewing gums, and Lotte's brand family of chewing gums dominates its markets. In addition to chewing gum, Lotte Confectionery produces a wide range of candies, ice cream as well as cookies and other baked goods.

Lotte Confectionery in Korea

Business area


Major Brand name, etc

Sales (%)

Food Manufacturing & Sales

Chewing Gum



193,567 (14.7%)


Anytime, Herb Throat Candy, etc

64,522 (4.9%)


Custard, Magaret,etc




Pepero, Dream Cacao, etc

272,574 (20.7%)


World Cone,Seol-Lae-Im, Precious Bar, etc

391,085 (29.7%)


Kko Kkal Corn, Cheetos, Choco Rice Cake, etc

192,250 (14.6%)


1,316,786 (100%)

** note : including export sales

** Lotte Sales by districts in 2009

Overseas Companies (VRICs etc)

Business area



Major brand name etc


Food Manufacturing & Sales

Chewing Gum, Candy, Biscuits, Chololate


Chocopie, Orris, Koala Biscuit, Pie

249,830 (100%)


Xylitol, Chocopie, Dream Pie


Dream Cake, Pepero, Xylitol, Chocopie,


Chocochip Orris,Koala Biscuit, Pie

  • Consolidated financial status in 2009

Lotte Confectionery Co.Ltd















Sales revenue




Operating Income


- 12,809


Net Income




2. Business Expansion in VRICs

First of all, it is necessary to define the range of overseas market.

Generally, we can divide the whole into 3 parts.

  1. Developed countries such as north America, Euro-zone
  2. Developing countries including VRICS
  3. the other countries those not belong to
  4. 1 or 2.

We would like to focus on ii) intensively, this is due to keen interests of Lette conf.

The keen interests are based on growth rates, the portfolio of this company has strong correlation with the number of teenagers of below them.

(Lotte Confectionery defined the initial term VRICS, actually this is not a popular term rather than BRICS is common, including Brazil instead of Vietnam)

To be more detail, we could receive a diagram from an inside source within the company,which shows how much Lotte Confectionery has interest in.

We will make other steps to explain the business history of each countries, China, Russia, India/Vietnam.

Status of Lotte Confectionary's business in VRICs

  • Vietnam

Centric site of south-east Asia

Vietnam has proper volume of population, natural resources, cheap labor cost and geographic accessibility to close country.

Thus Lotte Confectionery launched oversea branch in Vietnam to export product in early 1990's.

Financial Crisis
Unfortunately, As we know well there was financial crisis in south east Asia in 1997. Lotte Confectionery had to discard the chance to expand sales and profit.

Base camp for south-east Asia

But potential strength of Vietnam was not destroyed.

The strength and potentials including geographic strength of Vietnam made another bull market from foreign investor.

Nowadays Vietnam was recommended as herb of this area.

  • Russia

Business Launching

The Russian market has been another potential market to investors.

As a matter of fact, to Lotte Confect, this market is not attractive to penetratebecause there has been a competitor ORION(well known as Cho-pie's originator). ORION launched ‘Cho co' pie business in early 2000, and has staked the fame. It has 2 manufacturing lines in Russiaand has secured market leadership firmly.

In our opinion Russia market has less priority in comparison with other VRICs. The Reason why is listed below.

  1. The brand power of ORION is too strong
  2. Difficult to forecast market (Political Uncertainty)

Manufacturing base for Europe

And so, we have to review why Lotte Confectionery launched business in Russia, despite these bad circumstances.On Aug. 22, 2008 Lotte Confectionery merged Guillian, the famousBelgium chocolatecompany.

Lotte Confectionery might think value of the European market. But it's almost impossible to establish plant in Europe, considering the pain of high cost, labor strike and strong government regulations. Russia might be appropriate to provide low cost, close distance to Europe and population.

Russia manufacturing line is under construction since Feb 2008, prior to Merging of Gullian.

  • India

This market has sufficient population density, strong growth of income and young generation. This will probably provide a good opportunity to the confectionary companies.

The strategy of Lotte Confectionery was prompt and careful. They already took over the 3rd candy company ‘Parrys' in May, 2004.

  • China


The domestic market growth has slowed down and is not able to find high market potential.As an alternative to expand and increase the current sales, they had to head for the overseas market,especially the China market. As China opened their market and their incomes improved, more demand for snacks was expected to increase.

Lotte Confectionery became the first confectionary company to open a branch office Beijing and officially start their business in 1991. The China's market is showing a growth rate of 20~25% annually due to a large consumption of high income customer group.

However the Chinese government restricted market activities thus the branch had only a few employees(1 Korean staff, 3 Chinese employee) and had restrictive function(Research, excluding marketing & sales, importing).

Lotte Confectionery overseas investments(China)

3. Business Entry Mode


Entry Mode (As is)



(1) Exporting

(2) M&A

(3) Greenfield Operation

- Exporting ‘Cho co' pie (1992)

- Took over 30% of ‘BIBICA'(2008)

- Established gum plant (1998)

- Opened factory in Ho Chi Min(May, 2010)


(1) Greenfield Operation

- Factory to be opened in June 2010


(1) M&A

- Took over 30% of ‘PARRYS' (May, 2004)


(1) M&A

(2) Joint Venture

(3) Greenfield

- Took over Kuemho LLC in Chingdao

- Lotte Shanghai Foods Co.Ltd (Mar. 2006)

- Lotte Chingdao Foods (50%, 2005)

- Hershey's (Jan.2007)

-Established Lotte Stone food (1994)

  • Vietnam

Lotte Confectionery started export to Vietnam in 1992. However, it stopped the export in 1997 when the global financial crisis occurred

In order to resume the business in Vitenam, Lotte Confectionary searched for a business partner and chose BIBICA. BIBICA was the M/S 2nd Confectionery in Vietnam and highly considered to be a good business partner to satisfy Lotte Confectionery's strategy to be the No.1 Confectionery company in Vietnam.

It acquired 30% of BIBICA, and this will create synergy in terms of products diversification with Lotte Confectionery's advanced technology.

  • Russia

Lotte Confectionery is to be strategic production site for European market, and as a first step it will open a factory for June 2010, and the main product portfolio will be well-being & functional ones (e.g. Sugar free, Low Calories).

By utilzing collaboration with Lotte Group, it will bring a synergy in terms of distribution and sales promotion.

  • India

In order to enter into Indian market, it acquired 30% of “Parrys”, the 3rd Candy Company in India. Through this, Lotte Confectionery could expand production categories (e.g. Gum, Pie, Cholate

  • China

Lotte Confectionery M&Aed several China's confectionery companies e.g. Kuemho LLC , Shanghai Foods, Chingdao Foods etc., also it set up strategic alliance with Hershey's by joint venture in 2007.

Lotte Confectionery currently maintains M/S 2nd place in Gum market, and has a various products & catagories e.g. Gum, Snack, Choco, Bis etc.

4.Strategic Alternatives for IB(Global Efficiency, Local Responsiveness)

  • Present - Transnational Strategy

-There are two aspects of Lotte Confectionary portfolio.

First, mostly there is no significant difference in terms of ingredients, flavors and process of confectionary among VRICs countries.(Main products such as gum, Cho co pie etc use the same type of packaging)

Second, even though the unique flavor, image and brand power became accustomed more and more, we can't deny that there is much demand for traditional flavor.

It is apparent that Lotte Confectionery has to merge local company which manufactures traditional products to achieve more market share in VRICs. We conclude that's why Lotte Confectionery concentrates on M&A in VRICs and their strategy belongs to transnational strategy.

  • To be model - Multidomestic Strategy

We thought there is a remarkable reason why Lotte Confectionery focus on VRICs.

If Lotte Confectionery becomes the market leader in Asia, the multidomestic strategy will not guarantee sustainable growth. This is due to inefficiency of the strategy. We can solve this problem by decentralization. For example, Vietnam will take charge of MI, R&D, Manufacturing, Sales, Marketing and entire managing of Southeastern Asia.

5.Conclusion and recommendation

Considering the fact that Lotte Confectionary is well known for its ‘Me too' corporate strategy, it is a astonishing attempt to launch overseas operation.

We reviewed the overall strategy of Lotte confectionary and reached a recommendation as the following.

  • Right direction to VRICs

VRIC's has a large population and especially high rate of young generation.

This means the markets have a sufficient potential of growth.

In addition, eachcountry of VRICs has a competitive position geographically and logistically(Vietnam, Russia) and huge size of population which can secure independent economical region(China, India).

  • Nice Aviation

Lotte Confectionary executed a diversified method of entry strategies,in notion of each country's specific circumstances.

In Vietnam, they exported a few items with quite good performance but they suffered financial crisis. The first trial ended up in withdrawing branches.

They continued to penetrate the market with M&A and establishing new subsidiaries. Nowadays they regard Vietnam as a portal of Southeastern Asia.

In China and India, Lotte Confectioneryregards these as sole and exclusive markets.
each of these has sufficient demands derived from huge population.
Finally, in Russia, Lotte Confectionery aims to be market leader. However thers is strong domestic competitor, ORION.
We can sense distinctive movement of Lotte Confectionery, differenciation.
they established huge size of manufacturing line and took over the finest chocolatecompany, Guylian. It could be they want take off the land of common to luxury. Lotte Confectionary will take a chance to be the luxury confectionary in Europe, including Russia sooner or later.