Case study

Successful case in FDI

(2012-06-08)

Team J

1. Introduction We found various successful companies which did FDI. Many companies are trying to do FDI because of various reasons. Some companies do FDI for raw material, some company do FDI to find new market. Some industry which needs lots of labor go to labor-plenty country. We found Orion has grown as a global bakery company among Asia and Russia. Orions case is exceptional success among many Korean companies which tried to expand their market to abroad. We are going to explain what they did and why they should success in China, Russia, Vietnam.

2. Introduction of Company
It is company that makes snacks. Orion has not only corporation in Korea, but also have foreign corporations in China, Vietnam, Russia. Orion's sale in China is increase explosively, and their sale estimated second grade in foreign direct invest company to China. It is expected to increase their profit with quantitative growth in China.

3. Present condition of Company Dong Yang bakery established in 1975. Dong Yang bakery made Choco-pie in the world. Dong Yang bakery found corporation in China, in 1997. And it manufactures Choco-pie in China. Dong Yang bakery changed name to Orion in 2003. And accumulated sale of their item 'Choco-pie' exceed 1 trillion won. Orion's Choco-pie sold in Korea exceeds 85-trillion in now. It mean every Korean ate about 180 Choco-pie, in average.

4. Motivation of Orions FDI There are 4 main reasons why Orion operated FDI. First one is Not promising Korean market. Korea was suffering from financial depression when Orion decided to operate FDI. Decreasing young consumers and expand of fast food made bakery company lose their market. Choco-pie faced mature step of its development. They operated marketing strategy to expand domestic market but it failed. Second reason is collapse of communism. After collapse of communism, many countries involving Russia, China and Vietnam became a new market. Third reason is globalization. Trading wall is collapsing at that time by WTO. Regulation was also decreasing.

Last one is their confidence of their product. Orion tried to become a main stream of world bakery market. And they thought their Choco-pie can be the world standard.

Story about their FDI. Choco-pie launched in China with name haoriyuyou() which means good friend at the beginning of 90s. Orions exporting has began at the middle of 70s while they selling gums to Middle East. Middle Eastern market was their most popular market. But Middle East has its limitation of variety of product. So they decided to export to Russia by themselves. At that time Russian private importer already boomed Choco-pie in Russia. Orion set their strategy to expand their market to South East Asia, Russia, China. They launched TVCF in Moscow at 1994 and they set up huge billboard on Tiananmen(Heavenly gate) China at 1995.

Localization plan Orion built local office and manufacturing facility on their market. After building Tokyo office in 1990, Beijing office in 1993 to analyze local market more closely. They build manufacturing facility in Hebei for Choco-pie in 1995 and established local company. They also established Shanghai office and Moscow office in 1996, Hochiminh office in 1997. Orion have their own manufacturing facility in Hebei, Shanghai right now. Orion wanted to make synergy from those two facilities by sharing product, raw material, technology, human resources.

China Foreign direct investment strategy

(1) STP strategy China market segmentation Orion thought that China market is complex market like the EU market , rather than the concept of the single market, such as South Korea. It was come from the world's largest with a population of 1.3 billion, the vast territory ,and the various social and cultural diversity. Orion categorized vast China market as six sector(Beijing, Northeast region, Shanghai, Guangzhou, South West region, Inland region ).

(2)4P strategy Product Orion access to the market as 'A good friend' with STP strategy. In real, Orion had changed the color of Choco-pie's wrapping paper to red in 1993, because Chinese prefer to red color . Choco-pie launched in China with name haoliyou in 1994.

Price Orion's Choco-pie sold to 1.5 Yuan. Choco-pie is recognized as a quality product, because Choco-pie sold to package sales, rather than type of individual sales.

Place Orion build a distribution channel in 1995, from Busan to resellers of China, via

Hong Kong. Product deterioration was caused, because of China's steamy climate and massive distribution time. As for the measures, Orion invent new packging

technology, and Planning to produce in local. OrionLocal plant completed in 1997.

Promotion At the time of Orion advanced China, Their products are not famous. In this situation, it is the most effective way of expression is free tasting events. However, up to 4 times, free tasting events are failed. In order to solve the problem, Orion open measures meeting, and they feel the need to make strong image of Choco-pie. Orion invest 1 year advertising budget, make large signs in front of Tiananmen square subway station. Reaction was explosive. In addition Orion executed advertising strategy, such as star marketing, housewife targeting who have elementary school children, image incidence 'A good friend'. As a result, Orion take unique position in China pie mearket.

Vietnam

(1) Effect of entering in Vietnam Orion entered Vietnam market in 1997. They established local office and they exported products manufactured in domestic facility. They finally established local manufacturing facility in Hochiminh and Hanoi in 2006 and 2009. Hochimin is charging south area and Hanoi is charging north area. Vietnam facility is also charging South East Asian countries such as Thailand and Malaysia.

(2) Marketing strategy The main reason why they succeed in Vietnam is localization and competitiveness of their product. Orion studied Vietnam market precisely. They focused on Vietnamese culture and mind. This made Choco-pie becoming premium product which is used for ancestral rite in Vietnam. Local culture and economy is important issue. But the most important issue is competitiveness of product. Taste should appeal local people. But many company failed by the reason. In 1998, Vietnam economy collapsed by the Foreign money exchange shock, Vietnam government decided to regulated import. But Orion did not stop investing on the

Vietnam market and finally Vietnam economy healed from now on. Orion recovered their sales and even expanding their sales.

(3) Recent Orion in Vietnam Orion is claiming Orion Global. They are expanding to foreign market. They established manufacturing facility in Hochiminh in 2006 and expanding market in south Vietnam. In 2009, They established Hanoi factory and expanding market in north Vietnam. Hanoi is focused on biscuit. With these localized facility, Orion is expanding their market through Malaysia, Singapore, Thailand and also India.

(4) Achievement Important factory for South East Asia in Vietnam was very successful. Their product is recognized by Vietnamese as a premium product. Their proportion of Vietnamese domestic market of pie is about 60% and their sales were 10.05 million Dollars in 2010. Their average sales growth rate is 17% and also they recorded more than 20% in 2008 and 2009. Orion Food Vina Co. is the 5
th

established foreign local company and Vietnam is 3

rd

country they entered

after China and Russia. They are also planning to provide their product to Middle Eastern area with Vietnamese factory.

Russia

(1) Entering Russia Before the Moratorium, after they entered Russia in 1993 with 1 million$, Orion amazingly expanded their sales 34 million$ in 1997. Moratorium in 1998 made many companies entered in Russia. But Orion invested in Russia more aggressively and finally they made the threat to opportunity. Most of Korean food companies entered in Russia is not collapsed. However, Orion Choco-pie is the only brand which survived after the moratorium. Orion succeed in not only the far east market which is near the Korea, but also the western market which is main market of Russia.

(2) Early movement of Orion In 1993, Many companies in Korea was struggling to expand their sales in domestic market. But

Orion established long term strategy to transform their domestic industry to global industry. Vice president at that time Mr.Dam established the global project of Choco-pie. He said globalization would be a standard. Bakery industry should not stay in domestic market, we should expand our market globally. There is no barrier of the market anymore. We have to think our product is globally competitive. The rule of the game is Global-standard. He rearranged the foreign business organization. Orion started with far east, Vladivostok and expanded to west step by step. The reason for focusing on the far east first is they can deliver products from the Korea easily. It takes 3-4 days from the Busan to Vladivostok. After the success in far east, they consisted premium image. First, they cared the price Many Korean companies used dumping and low price strategy. But Orion banned dumping importing. This made Russian buyers to think Orion Choco-pie is not easy to make a deal with price and they do not move by the market situation. This is connected to the faith of the product. Second, They should be paid before the delivery Orion made more premium image to the Russian buyers with the taking money in advance rules. This rules were successful and the premium image of Orion Choco-pie made the product more competitive. After that, Orion tried to expand their market to Moscow and Saint Petersburg. The first thing they did in the area was informing the name of product and let them to recognize it as a high quality product. They started tasting event in the main street. Orion local office in Moscow said there were lots of episodes about its great success. So many people came to the event and podium was collapsed and finally police came to the event to control the chaos. They saw the opportunity of their products taste. They launched their product after that and the response was surprising. Buyer who bought 10 box came to order 450 box 2 days later. Too many orders were made and it was difficult to follow the high demand. They launched TVCF right away. They changed their package of their product to red. They marked the letter with Russian and English for various distribution channels. Also they made different packaging for each distribution such as 24peices in a box for big discount store, 12peices for middle sized mart, 6peices for kiosk for comfort of the consumer. This strategy was unprecedented for European companies at that time. This case shows their competitiveness they have during competing in small domestic market in Korea.

(3) Transforming threat to opportunity In 08.17.1998, Russia announced moratorium which means postponing every payment outward. Rapidly growing Orion Choco-pie for 40% every year stopped all the activity. Every products price imported to Russia soared 4 times and market fall in chaos. Orion Choco-pie lost all the branches of buyers. Most of the Korean company escaped from the Russia and employees of Orion also thought they would better get out from there. But Orion decided to keep their local office in Moscow. And they decided to sell their product for their original price. Employees in local office go to sell Choco-pie in a truck to meet the buyers. And they sold their product for cash. World stopped selling foods to Russia. This made scarcity of food in Russia. Price for food soared 5 to 10 times. Orion Choco-pie, which sold in same price as before the moratorium gave faith to Russian consumers. Russian market is very important for entering European market. Sales of Choco-pie in 2008, China is 135 billion$, Vietnam is 24 billion$, Russia is 38 billion$. Russia was not the biggest market but Russia can be a basement for European market. So Orion didnt give up the Russian market. Now they are running two factories in Russia, Tver and Novo. They sell 300 thousand boxes of Choco-pie every month. It is 100 thousand boxes more than China. They sold 40 billion$ in 2007 which is No.1 sales of Korean company.

5. Conclusion Orion succeeded in global markets because they developed their product as a globally competitive one. After that, they targeted the market with unique strategy which can appeal local consumers. They followed the demand with local manufacturing facilitys supply after they have good response from the market. Their sales for foreign market are 546 billion\ and domestic sales are 597.7 billion\. This shows huge increase of business abroad. They are still expanding their domestic and foreign market right now. Their great success story will be remembered in history.

References

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