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London Biscuits Berhad (LBB) Group is a home grown Malaysia company owned by the Liew family which manufacturing confectionary under four main categories: cakes, candies, wafers and snacks. The main philosophy of the company is hinges on manufacturing and marketing cakes and snack food which score high in terms of product safety and quality. The company strongly believes that this is the only way to ensure the customer satisfaction and loyalty to the product and the brand it embodies. (LBB, 2009)
London Biscuits’ headquarter is based in Ulu Tiram, Johor, Malaysia and there are 12 factory premises with over 600 employees under production, warehouse and office facilities. These facilities are located in Ulu Tiram and Pasir Gudang in Johor, Seri Kembangan and Telok Panglima Garang in Selangor for easy distribution as it is near to Pasir Gudang and Klang port respectively.
London Biscuits is listed in second board of Bursa Malaysia at 31 January 2002 and listed in main board of Bursa Malaysia since 5 September 2003. The company is currently exporting about 50% of its products to 65 other countries worldwide mainly in South East Asian, Middle East Region and Asia Pacific.
These are some popular brand names marketed by LBB: Lonbisco, London, Kinos, Gega, Caca, Mizu, Hiro. London Biscuits Berhad is the pioneer in Malaysia for manufacturing cake products. Their products can last for about 8 – 12 months without refrigerating because of the process of manufacturing.
In 2005, LBB acquisition Kinos Food Industries Sdn Bhd via 77% stake of the company with a cash payment of RM12.3 million. LBB’s stake holding in Kinos increased to 95.49% in November. This decision was made because of the existing factory and food industry business of Kinos can increase the production capacity with minimal capital expenditure. In 2007, LBB acquired a majority stake in Khee San Berhad. Khee San Berhad is a company listed on main board of Bursa Malaysia which is the biggest domestic manufacturer of Wafer Snacks and Candy. LBB acquired 32% stake in TPC Plus Berhad, a poultry farmer listed on the main board of Bursa Malaysia in 2010. (LBB, 2011)
The growth strategies of LBB including commitment to adopt the latest technologies and manufacturing capabilities in food manufacturing, brings their high quality, variety choices of products to the right place for the right person, customize their distribution network effectively to suit the target market, build up trust in the company’s products by strictly followed to HALAL standards and any other relevant international food safety regulations to ensure the safety of their products.(LBB, 2009)
Current Expansion Strategy
Before London Biscuits Bhd. (LBB) decides which expansion strategy they want to use, they need to consider the mode of entry of their business. LBB is choosing exporting as their mode of entry to foreign countries. Exporting means that home country will produce, stored and supply items to another country. It is a traditional method which is less risky because LBB can understand the cultures of the host country before entering to the market. After understand the host country, the company can enter on a full scale. This mode is cheaper compared to the other mode because it need more money to set up a factory in that host country compare to distribute the product to one of the company in host country to sell the product (Scribd, 2012). The main overseas markets are China, Hong Kong, Macau, Indonesia, Singapore, Taiwan, Thailand, Vietnam and the Middle East. LBB will continuous penetration into new markets which plans to add another export markets such as United Stated, Europe and Africa in future. About nearly 60% of revenue is derived from the exporting activities in year 2005.
LBB is using global standardization strategy in their organization currently. Global standardization strategy focus on increasing the profitability by reducing the cost that comes from economies of scale, learning effects and location economies. Global standardization is an approach that connects a same product internationally. This strategy is strong in pressure for cost reductions while the pressure for local responsiveness is low. It means that it will not customize their product offering and marketing strategy to localization which will increase the cost. High in local responsiveness will results in focus on customers’ need and this will increasing the cost which is not suitable in this strategy that have high pressure of cost reduction (Global Business Today, 2011).
LBB using the same advertising and promotional activities in different countries likes Malaysia, Hong Kong, Vietnam and Singapore (London Biscuit Bhd. 2011). This actually will cut down the cost in making different advertisement based on different countries culture by using same advertisement. LBB is selling the same product such as Swiss roll and Layer cakes in different countries (London Biscuits Bhd., 2004-08). Levitt (1983) says that with the presence of the technology will help to produce high quality product and lower costs needed for world markets (Nanda K. & Peter R., 2006). This actually means that LBB can manage their production line more efficient and effective and the quality can be maintained. LBB believe that by using this strategy will improve their performance although they will facing some difficulty and challenges because of every country have different cultures and desires (Nanda K., Peter R., 2006). Although there is a risk of focusing on the product only but not the customers’ taste and preferences but LBB is very confident with the product that they are producing can fit the need of their customers.
LBB was successfully listed on the Second Board of Bursa Malaysia Securities in year 2002. They were initiated an Initial Public Offering on the Malaysian Stock Exchange where the main objective is to collect more and more funds to expand business to create a presence in the Malaysian corporate world. LBB also signed a licensing agreement with Fun Character International to use certain popular Disney Character on it product wrappers to attract more children customers and reinforce company reputation in December the same year. The Disney character that use in the packaging is Mickey, Minnie, and Winnie the Pooh. This actually increase the public awareness to their brand name (Derrick & Brad, 2010).
Based on history, LBB acquired 95.49% of Kinos Food Industies in year 2005 and 32% stake in Khee San Berhad in year 2007. Nowadays, LBB continuously using acquisition strategy such as acquired all the shares of poultry firm TPC Plus Bhd for company expansion. It means that TPC Plus Bhd is now the takeover for LBB at year 2010. This perception of the deal could be that LBB diversifying into another new business and guarantees constant supply of eggs. This takeover plan is a win-win deal to bring benefits such as help TPC Plus Bhd to boost its revenue and LBB obtain lower cost resources. Besides that, LBB will also have one less worry about the fluctuation of egg prices to deal with in the future. London Biscuits CEO Datuk Seri Liew Yew Chung said that the company will soon have a new production line for roll cake that will enhance its capacity substantially. As a result, the demand for ingredients such as eggs will rise in tandem as the group ramps up production. He also said that the new commissioning production line will put LBB in a dominant position become the largest manufacturer of long shelf-life packaged ready-to-eat cakes (Fong, 2010).
Future expansion strategy
It is important for London Biscuits Berhad (LBB) to consider the timing of entry. An entry is early when an international business enters a foreign market before other foreign firms, and late when it enters after other international businesses have already establish themselves (Global Business Today, 2011). In this case, LBB is not consider as the first-mover which first entering foreign markets whereby LBB was established in the year 1994, whereas their competitor Apollo Food Holdings Berhad had been exporting its products through HHFI Singapore (an exporter of food products) since the year 1985 (Apollo Food Holdings Berhad, 2002). Hence, LBB is not considering in the right timing of entry since it lose its first-mover advantage in confectionery industry.
Furthermore, LBB has been using exporting, mergers or acquisitions, and licensing as their currently expansion strategies and entry modes. There are some drawbacks among exporting, mergers or acquisitions and licensing entry modes. For the exporting, there will be high transport costs involved and this can make exporting uneconomical. Similarly, the tariff barriers also may make exporting uneconomical whereby the threat of tariff barriers by the host-country government can make exporting activities become very risky in term of relation between governments. This occurs when governments may change to the new sanctions and increased barriers. In addition, when LBB acquires a company, it acquires an existing corps of employees, with their own routines and culture (Hennart and Reddy, 1997). Integrating such employees is difficult, particularly so if there are cultural differences between the two firms (Jemison and Sitkin, 1986). Other than that, licensing may result in less profitable than other alternatives in which the revenues must be shared between LBB and Walt Disney as stated in agreement.
As the preceding discussion demonstrated, the entry modes of LBB have both advantages and disadvantages. It is recommended for LBB selecting an entry mode of joint ventures. A joint venture entails establishing a firm that is jointly owned by two or more otherwise independent firms (Global Business Today, 2011). It represents an agreement between two parties to work together on a certain project or operate in particular market especially for market entry (Zekiri and Angelova, 2011). This form of entry is recommended for LBB is has been a popular and efficient mode for entering a new market. Firstly, LBB can access to partner’s local knowledge of the host country’s competitive condition, culture, language, political systems and business systems. According to Top Malaysian Small CAP Companies (2007), mentioned that LBB plans to increase its presence in the more developed countries such as U.S. and Europe. Therefore, a 60:40 joint ventures will be benefit for LBB in which U.S. and Europe’s company can provide the marketing expertise and local knowledge for competing in their country while LBB provide them the technological and products. Besides, Balakrishnan and Koza (1991, 1993) see joint ventures as a mechanism to reduce the costs incurred when acquiring other firms. Hence, LBB might gain by costs and risks sharing with that local partner when opening a foreign market.
There is another way for LBB to make future expansion, which is wholly owned subsidiary in a foreign market. Wholly owned subsidiary means that the company still can hold 100 percent of stock of the company that set up in a foreign country (Global Business Today, 2011). There are two methods to wholly owned subsidiary in foreign country. One is through greenfield investment strategy and another one is through acquisition. Greenfield investment strategy involves the establishment of a new operation in a foreign country, whereas acquisition is acquiring or merging with an existing firm in the foreign country (Global Business Today, 2011). Currently LBB’s factories are only located in Johor, it is possible for LBB to set up a new operation in those foreign countries that LBB exporting its product for its future expansion. This will help LBB to gain more competitive advantages in the market. Greenfield investment strategy is more suitable for LBB rather than acquisition because it gives the firm greater ability to build the kind of subsidiary such as operation routine that it wants rather than change it to the acquired unit operating style (Global Business Today, 2011).
By wholly owned subsidiary, it offers the benefit of total profit and full control over the foreign subsidiary (Chan, P. S., 1995). LBB is suitable for this entry mode because LBB is a family business. It is more secure to protect their own family business by reduce the risk of losing control of their competence. According to Brouthers et al. (as cited in Hu, S. H. & Fan, X. A., 2011), a firm tends to choose a low entry mode (exporting and licensing) if lack of overseas experience, whereas if the firm has more multinational experiences, high possibility to choose a high control entry mode (joint venture and wholly owned subsidiaries). It is because this will improves the firms’ familiarity with overseas markets, and enhances the firms’ confidence and ability of managing global operations. In this case, LBB has high multinational experiences since it exported its products over 65 other countries worldwide. It has more familiar with the oversea market. By using this entry mode, LBB able to engage in the global strategic coordination and has more chance to realize location and experience the economy in the host countries (Global Business Today, 2011).
According to the Buckley and Casson paper (as cited in Georg, 2008), assumes that a foreign firm entering the market has to incur additional costs of market entry. They are marketing costs that the firm has to incur in order to acquire market knowledge, adaptation costs in order to adapt the product to the preferences in the new market, and costs of building trust in newly acquired production or distribution facilities in the foreign market. Although the cost is high to establish a new plant in foreign market, but in this case, LBB has gained some advantages by using lower cost to enter into the market. It is because LBB already know the market demand and the products that preferred in the particular country that they want to invest in, this is due to LBB products has been established in the place by exporting. The market already knows its products and LBB can save some cost on promoting its products to the particular marketplace.
By using greenfield investment strategy, LBB able to increase its competitive level in the market. LBB able to fully control on its operation and it is able to sell its products in lower prices in the particular market since it does not need to pay for the high transportation costs and exporting costs. This will help to improve the welfare of consumers because they can purchase the products in lower price. It may increase the productivity of the firm because of the high demand on its products. On the other hand, it also eases LBB to expand its business by access into larger market in that particular country.
LBB has used the exporting, global standardization strategy, licensing, and acquisition strategies as their current expansion strategies. These strategies are appropriate modes of entry that selected and implement by LBB. However, there will be some advantages along with disadvantages. For the exporting, it has a high transport costs involved and this can make exporting uneconomical. The tariff barriers also may make exporting uneconomical whereby the threat of tariff barriers by the host-country government can make exporting activities become very risky in term of relation between governments. Besides that, resistances will occur for the employees from the acquired company because they have their own routine and culture.
The timing of entry for LBB is late, therefore it can implements the joint venture and wholly owned subsidiary strategies as company future expansion to gain the competitive advantage. Joint venture is allowing the LBB to work more efficiently on their production planning which can lead to reduce in cost. Moreover, it also allows the host country to provide the marketing expertise and local knowledge for competing in their country while LBB provide them the technological and products. Besides, wholly owned subsidiary can allow LBB to decrease in the risk taken of losing of control of their competence. It also provides opportunities for LBB to gain wider market demand in that particular country. Both of the strategies can prevent their own family business from losing control of their competence.
LBB is not necessaries to implement different mode of entry with the different of market. However, it can implement the joint venture with the more advanced country such as U.S and Europe to obtain expertise and technological in the production area.
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