Lindt Chocolate Expansion on South Korean Market - Research Paper Example

Lindt chocolate goes to South Korea Table of Contents Executive summary p.3 2. Introduction p.4 3. Reasons for selection of South Korea for entry by Lindt : p.5 4. Two alternative markets which are not selected : p.6 5. Proposed market entry strategy, including rationale : p.7 6. Recommended marketing mix four Ps: price, product, promotion, and place : p.7 a. Product : p.8 b. Price : p.9 c. Promotion : p.9 d. Place : p.11 7. Conclusions : p.13 8. Recommendations : p.13 9. References : p.15 10. Appendix : p.16 Executive Summary Globalization has brought revolutionary changes in the business world. Exchange of workforce, outsourcing and offshoring like new business strategies were evolved out as a result of globalization. Competition for attracting foreign direct investments or GDP is increasing day by day among different nations. Majority of the big companies are currently trying to offshore their business units to cheap labour oriented countries to increase their competitive power in the global market. Lindt is one of the leading chocolate manufacturers in the world. It has huge brand value and reputation in international market. Since chocolate is one of the favourite food items for people all over the world, Lindt has huge business potential in most of the countries. South Korea is one of the rapidly emerging countries in Asia at present. It is often said that global wealth is shifting from American and European continent to Asian continent at present. Moreover, political, economic, social and cultural climate in South Korea are suitable for foreign direct investment. This paper analyses the business potentials of Lindt in South Korean market. Introduction International business and marketing are growing rapidly at present because of globalization and the increased readiness of nations in attracting foreign direct investments. The entry of foreign companies has been watched with lot of concerns by the states in the past. However, even communist China is currently trying to attract foreign capital as much as possible. This is because of the awareness that domestic resources alone may not help a country to develop in the right direction. “International marketing is the performance of business activities that direct the flow of a company’s goods and services to consumers and users of more than one nation for a profit”(Ghauri, and Cateora, 2005, p.8). Domestic market is almost saturated for many companies. Therefore, internationalization of business is inevitable for such companies. Hollensen (2008) pointed out that “international expansion helps a company to; explore new and potentially more profitable markets, increase competitiveness, and facilitates access to new product ideas, manufacturing innovations and latest technology” (p.5). In short, it is almost impossible for major companies to limit their activities in one country alone and stay competitive. International marketing and cross cultural businesses are getting popularity because of the above awareness. Established in 1845, in Switzerland, and operating in more than 100 countries, Lindt & Sprüngli is believed to be the leader in the chocolate manufacturing industry. “During more than 160 years of Lindt & Sprünglis existence, it has become known as one of the most innovative and creative companies making premium chocolate, with six production sites in Europe, two in the USA and distribution and sales companies on four continents” (The Lindt & Sprüngli Group, n.d.). The market of premium quality Chocolates is growing as time goes on. People of all cultures, including children and adults, are interested in tasting chocolates. As a result of that, Lindt has huge possibilities in overseas markets. Because of the huge brand value and reputation, Lindt can enter any market without an introduction. South Korea is a country which is developing rapidly at present along with India and China. Lindt has already established business units in China. However, they do not have business units in South Korea, India and Pakistan. Reasons for selection of South Korea for entry by Lindt South Korea is the leader in global electronics and shipbuilding industries. Samsung, LG Hyundai and Daewoo like big companies are operating from South Korea. Moreover, South Korea is one of the rapidly emerging economies in the world at present. Even though recent recession caused huge problems in many developed countries such as America and UK, South Korea seems to be less affected by these problems. “The Gross Domestic Product (GDP) in South Korea expanded 0.40 percent in the fourth quarter of 2012 over the previous quarter. Historically, from 1970 until 2012, South Korea GDP Growth Rate averaged 1.74 Percent reaching an all-time high of 6.80 Percent in March of 1988” (South Korea GDP Growth Rate, 2013). (See appendix for more details). Compared to many other countries, governance in South Korea is extremely good. Even though South Korea has some political problems with North Korea, South Koreans are generally accepted as the peace loving people. South Korean government is keen in attracting FDI as much as possible. Moreover, legal frameworks and cultural traits of South Korea are business friendly. The government is providing single window clearances to foreign companies investing in South Korea. Since, Switzerland and South Korea are under democratic administrations, Lindt may not face many political problems, while operating in South Korea. Two alternative markets which are not selected India and Pakistan are the two countries in which Lindt is not operating currently. One can understand why Lindt is reluctant in investing in Pakistan. It should be noted that political problems, cultural problems, terrorism and violence are currently haunting Pakistan. International companies may think twice before taking decisions about investing in Pakistan. Moreover, economic growth in Pakistan is extremely poor in recent times. However, India’s case is entirely different. Being the greatest and biggest democracy in the world as well as one of the rapidly emerging economies in the world, India offers huge business potentials to international companies. The current GDP growth in India is second only to China. Moreover, Indian market size is extremely huge and international companies would definitely benefit from it. Amidst all these favourable market conditions, India has some problems also. The population in India is extremely diverse. Moreover, the plus points of economic growth are not distributed evenly in Indian communities. The gap between the rich and poor is still very big in India. In fact, the growth is visible only in the metropolitan cities and urban areas whereas the people in rural areas are still struggling. The per capita income of Indians is still less than that of the South Koreans. The purchasing abilities of rural people in India are still not so good. All these factors encouraged me to propose South Korea instead of India or Pakistan for the future expansion of Lindt. Proposed market entry strategy, including rationale Hoyer & MacInnis (2008) pointed out that “Understanding consumer behavior helps marketers determine which consumer groups are appropriate targets for marketing tactics” (Hoyer & MacInnis 2008, 19). Under such circumstances, joint venture seems to be the better market entry strategy for Lindt for its Korean operations. Switzerland and South Korea are entirely different countries in terms of culture, geography, environment and economy. “A successful joint venture can offer: access to new markets and distribution networks; increased capacity; sharing of risks and costs with a partner; access to greater resources, including specialized staff, technology and finance. A joint venture can also be very flexible” (Joint Ventures And Partnering, n. d.). It is difficult for Swiss employees to know the South Korean market peculiarities and consumer behaviours. Only the South Koreans know the taste and other preferences of locals. Under such circumstances, it is vital for Lindt to have a partnership with a local chocolate manufacturer in South Korea. It should be noted that even Wal-Mart like big retailers are opting for joint venture when they try to establish business units in overseas countries. For example, Wal-Mart has business alliances with Bharti group in India for its Indian operations. In short, the rationale of opting joint venture as the market entry strategy is well justified. Recommended marketing mix four Ps: price, product, promotion, and place One of the most common definitions given to marketing is: Putting the right product in the right place, at the right price, at the right time.(The marketing mix and 4 Ps, 2013). In other words, product, price, promotion and place are the four major marketing mixes. Product Product seems to be the most important marketing mix. Good quality products often move well in the market, whereas cheap quality products struggle to survive for longer periods. At the same time, marketers should realize that a product which is successful in one country needs not be successful in another country. The purchasing abilities and the purchasing preferences of different consumers are different. For example, luxury cars may move well in American and European market, whereas such things may not move well in poor countries. That is why Hollensen (2010) argued that “Demand conditions may be different in the domestic market from other international markets” (p.50). South Korea is still a developing country, even though huge economic growth is taking place there at present. Therefore, Lindt should not try to introduce expensive chocolates in South Korean market now. South Korean consumers are giving more importance to quality products. At the same time, they are not ready to pay much for such products. In short, moderately priced quality chocolates should be introduced in South Korea by Lindt. Moreover, Lindt should conduct an extensive research to know the taste preferences of South Koreans. Based on the results of this research, Lindt should produce customized chocolate products for South Korea. “Ability to define and develop new products and services and deliver them to market is the fundamental source of value creation in companies and an important enabler of competitive advantage” (Bordia, et al, n.d, p.1). South Koreans are looking for new tastes all the time. At the same time, they are conscious about their health. Chocolates usually contain fatty ingredients. Lindt should develop new items which are rich in nutrition rather than fatty contents. Price “Motivation is the basic concept in human behavior and thus, also in consumer behavior” (Evans et al, 2009, p.4). Motivation is the driving force, when a consumer takes decision to purchase a product. Price is one factor which motivates or demotivates a consumer while taking purchasing decisions. For example, most of the people like to purchase BMW or Benz cars; however, only those with enough financial resources purchase these expensive cars. People with poor financial abilities may go for cheaper cars even though they like expensive cars. If Benz and BMW are ready to reduce the prices of their cars considerably, even poor people will be motivated to purchase them. In short, price is one factor which forces people to attract towards a product or repel away from a product. Lindt should reduce the prices of its products as much as possible while marketing them in South Korea. Recent financial crisis has created problems in South Korea, and South Koreans started to reduce their expenditure as much as possible. For an average purchaser, chocolate is not at all an essential commodity. Such purchasers will go for chocolates only when the prices are less. In short, Lindt should reduce the prices of its chocolates as much as possible as a marketing strategy to establish their brand in South Korean market. Promotion Even poor quality products sometimes excel in market with the help of effective marketing and sales promotion strategies. At the same time, there are plenty of good quality products which failed in the market because of the absence of effective advertising. In short, sales promotion and advertising can make or break a product in the market. Lindt should conduct an extensive advertising campaign to attract the customers in South Korea. They should formulate customized marketing and promotion strategies for South Korea. “Many writers have argued for a standardized, instead of a differentiated approach, to international markets” (Bradley, 2005, p.5). Some product manufacturers have the illusion that same marketing strategy is enough everywhere in the world, for a particular product. For example, Parker Pen Company tried to market its pen products all over the world with the help of a unique promotion strategy, at the beginning of globalization. They thought that same products need same promotion strategies everywhere in the world. However, their calculations went wrong. They failed to realize the fact that even though product remains the same, markets are different. Lindt should learn lessons from such examples and they should implement a customized promotion strategy in South Korea. Sachin Tendulkar could be a good brand ambassador in Indian conditions, whereas he may not be so in South Korea. In South Korea, Lindt should seek the services of local celebrities to promote their products. A term called “viral marketing” has evolved out in recent times. It is a type of marketing in which consumers mutually share and spread marketing-relevant information (Hinz et al, 2011, p.55). Word Of Mouth (WOM) or mouth publicity is the core principle behind viral marketing. Social networks can help a lot in conducting viral marketing. Lindt should try to promote its products with the help of social networks such as Facebook, Google plus, Twitter etc. In social networks, people often discuss the features of products they purchased. These discussions often generate a lot of arguments and counter arguments and thereby people get a lot of valuable information about a particular product. East et al (2008) stressed the importance of discussion with others to know the pros and cons of a product when a consumer makes an important purchase for the first time (p.7). Place “Cultural difference often poses major difficulties in international marketing management” (Hollensen, 2008, p.18). As mentioned earlier, Lindt is a Swiss company. They are trying to market their products in a culturally different market. The tastes and preferences of South Korean could be entirely different from that of the Swiss people. Moreover, business philosophies and strategies in Switzerland and South Korea could be entirely different. Lindt should account for the local preferences while formulating marketing strategies for South Korea. Bradley (2005) pointed out that “A major difficulty facing many firms attempting to internationalize is that they respond to an unknown but complex environment and international competition” (p.1). The business environment in South Korea and Switzerland could be entirely different. It is not necessary that Lindt may face the same competitors both in South Korea and Switzerland. Competition could be high or low in South Korea compared to that in other markets. In any case, customized marketing strategy is necessary for South Korea. “School of thought which favours differentiation argues that because few markets are exactly alike, it is necessary to adapt marketing mix to ensure that sufficient customization exists to satisfy the buyer needs” (Bradley, 2005, p.6). “The major elements of culture include; language, institutions, material productions and symbolic productions” (Usunier and Lee, 2009, p.5). South Korean language and Swiss language are entirely different. Moreover, the nonverbal communication means of South Koreans and Swiss people are also different. It should be noted that more than 60% of the ideas are communicated through nonverbal channels like eye contacts, facial expression, gestures, etc, in a communication process. HR managers of Lindt should provide enough training to the Swiss employees who are working in South Korea with respect to the South Korean language as well as nonverbal communication means. Swiss people usually shake hands with others to mark their respect, whereas South Koreans bow their heads in front of others to mark their respect. Such cultural traits should be well accounted in the training of Lindt employees, who are going to work in South Korea. “Symbolic and sacred elements represent the relationship between the physical and metaphysical world. Moral and religious assumptions in various cultures affect the individual and group behaviour” (Usunier and Lee, 2009, p.6). Religion, social organization and social structure of Switzerland and South Korea are entirely different. Religion plays an important role, not only in the spiritual life, but also in the social life of people. For example, Muslims often like to purchase halal chicken whereas others do not have such preferences. Halal is a ritual associated with Muslim culture. Such cultural traits can play vital roles in controlling the consumer behaviours. Lindt should consider all such things before the formulation of marketing strategies for South Korea. “Most consumers support product certification because it provides some shopping assurances as to which products are less damaging to the environment than others” (Schiffman and Kanuk, 1997, p.623). Modern consumers are well aware of the importance of sustainable business practices and environmental protection. They respect only those companies which demonstrate corporate social responsibility and follow sustainable business practices. Unethical business behaviors are not at all tolerated in South Korea. Conclusions South Korea is one of the rapidly emerging countries in the world at present. It has huge potential for foreign direct investments. South Korean government is doing everything possible to attract foreign companies. Moreover, brand value and reputation of Lindt in international market are extremely good. They need no introduction to enter in any global market. Lindt can definitely exploit such opportunities with the help of suitable marketing strategies. Even though South Korea has some political problems with North Korea, its internal politics is comparatively good for foreign direct investments. Moreover, economic growth in South Korea is comparatively better and the purchasing abilities of the people are good. In short, favourable market conditions are awaiting Lindt in South Korea. Recommendations South Korean culture and economy are entirely different from that of Switzerland. Moreover, demand conditions and consumer behaviors in different markets are different. Therefore, Lindt should formulate customized business and marketing strategies for South Korean market. Lindt should opt for joint venture as a mode of market entry to South Korea. This market entry strategy would help them to know the do’s and don’ts in South Korean market in depth and to formulate suitable marketing strategies. They should formulate customized marketing strategy for South Korea. Lint’s marketing strategies should account for the cultural traits and purchasing behaviors of South Korean people. Local celebrities should be appointed as the brand ambassadors by Lindt for its South Korean operations. Lindt should try to catch the South Korean market with the help of different pricing strategies. They should promote expensive items only in the wealthy regions of South Korea. In all the other regions, they should promote cheaply or moderately priced chocolate items. Lindt should conduct a research to know the taste preferences of South Korean, so that they can manufacture special items for South Korean people. Lindt should demonstrate its social responsibility through actions to convince the South Koreans. References Bradley, F. 2005. International Marketing Strategy. 5th Edition. US, Prentice Hall Bordia, R., Kronenberg, E. & Neely, N., n.d. Innovations. [Online] Available at: http://www.boozallen.com/media/file/145808.pdf [Accessed 07 March 2013] East, R. Wright M. & Vanhuele, M. 2008. Consumer Behaviour Applications in Marketing. US, SAGE. Evans, M. Jamal, A. & Foxall, G. 2010. Consumer behaviour. 2nd edition. US, John Wiley & sons Ghauri, P and Cateora, P, 2005. International Marketing Management. 2nd edition. US, McGraw-Hill Higher Education; Hinz, O Skiera, B, Barrot, C and Becker, J, U, 2011. “Seeding Strategies for Viral Marketing: An Empirical Comparison.” Journal of Marketing, 75, 55–71. Hollensen, S, 2010. Global Marketing: A decision Oriented approach, 5th Edition. US, Prentice Hall Hollensen, S, 2008. Essentials of Global Marketing, US, Prentice Hall Hoyer,W,D and MacInnis D,J, 2008. Consumer Behavior. US, Cengage Learning Joint Ventures And Partnering, n.d. [Online] Available at: http://www.infoentrepreneurs.org/en/guides/joint-ventures-and-partnering/ [Accessed 7 March 2013] Schiffman, L,G and Kanuk, L,L, 1997. Consumer Behaviour. US, Prentice Hall The Lindt & Sprüngli Group, n.d. [Online] Available at: http://www.lindt.com/swf/eng/company/ [Accessed 7 March 2013] The marketing mix and 4 Ps, 2013. [Online] Available at: http://www.mindtools.com/pages/article/newSTR_94.htm [Accessed 7 March 2013] Usunier, J,C and Lee, J, A, 2009. Marketing Across Cultures, 5th Edition. US, Prentice Hall Appendix (South Korea GDP Growth Rate, 2013) Read More