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Analysis of LOTTE's market penetration strategy in Vietnam FMCG industry

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International Journal of Educational Research and Studies

International Journal of Educational Research and Studies

www.journalofeducation.net
Online ISSN: 2664-6811; Print ISSN: 2664-6803; Impact Factor: RJIF 5.46
Received: 26-09-2020; Accepted: 11-10-2020; Published: 29-10-2020
Volume 2; Issue 2 2020; Page No. 20-23

Analysis of LOTTE's market penetration strategy in Vietnam FMCG industry

Nguyen Hoang Tien
Saigon International University, 8C, Tong Huu Dinh street, Thao Dien ward, district 2, Ho Chi Minh City, Vietnam

Abstract
LOTTE is a Korean corporation that penetrated the Vietnamese market in the field of fast-moving consumer goods. LOTTE has
successfully and quickly opened its business branches mainly in two major cities of Vietnam, Hanoi and Ho Chi Minh City. With the
business strategy on commercial premises with a large area, with the size of investment capital and advantages of management capacity,
few domestic enterprises can match and compete with LOTTE in the same way. This article will provide useful assessment results for
large foreign corporations to consider whether to penetrate the Vietnamese market in this way and it entails potential opportunities and
risks.

Keywords: LOTTE, penetration strategy, FMCG industry, Vietnam

1. Introduction
Vietnam is a country with a population of over 90 million people, marketing activities with large costs of the world's leading
ranking 14th in the world (World Bank, 2013). In addition, with enterprises have failed or been inefficient, causing great losses to
the average age of the population of 28.7 and 60% of the investors because the model of international knowledge is not
population under 30, Vietnam is considered a country with a fully adapted to the specific characteristics of Vietnam market.
young population. In the next 10 years, about 17 million people For domestic small and medium-sized businesses, branding and
currently aged between 10 and 19 will become a major source of marketing are really new while the costs of marketing and
labor and consumption in society. From these figures, Vietnam is advertising activities are very large. The effectiveness of
considered to be entering a period of golden population structure. marketing activities usually does not come immediately, resulting
Moreover, Vietnam is a developing country with a high growth in many businesses failing. The study of LOTTE's strategy to
rate among the region. Increasing standards of living and income penetrate the Vietnamese market (Korea) will help us draw
have led to an increase in people's spending ability. Despite just lessons for domestic and foreign businesses when entering
passing the economic recession threshold, Vietnam is still Vietnam market.
considered a potential market for the retail industry. Retail sales On the basis of studying the basics of the FMCG Vietnam market
of services and services were rising constantly rising over period penetration strategy, the article analyzes, evaluates and compares
of 2009-2012, showing that the revenue of this industry still grew with the current situation of Vietnam's FMCG market. As a result,
steadily with turnover of next year higher than that of previous the identified limits and difficulties need to be overcome, based
year. on which we can propose solutions to help foreign corporation to
This is why so many foreign investors see Vietnam as a promising implement market penetration strategy in Vietnam.
destination for the retail industry. And recently, the Ministry of
Industry and Trade has approved the planning to develop the 2. Theoretical framework
network of supermarkets and trade centers and forecast that by 2.1 Market penetration strategy
2020, the proportion of retail sales through supermarkets and The market entry strategy is to increase the consumption, increase
trade centers will account for 45% of the total retail of social the competitiveness of existing products in the current market of
goods. This is considered a golden opportunity for domestic and the trading company, in order to seek to increase the market share
foreign investors. Although not having big names like Wallmart, of existing products through increased marketing efforts. Market
but Vietnam's retail market has witnessed the entry of many penetration strategies are widely used as individual strategies and
foreign investors such as Casino (France), Metro QC Cash & linked with other strategies. Market penetration includes
Cary (Germany), AEON (Japan), and most recently LOTTE increasing the number of sellers, increasing advertising costs,
(South Korea). broadly offering sales promotion names, or increasing public
Vietnam is a special market with many opportunities but also relations efforts.
many unique characteristics is a big challenge for domestic and
foreign traders and investors. In order for a business to be First-In Strategy on the market
successful, it is important to have a deep understanding of The first presence in the market is the market penetration strategy
consumer behavior, traditional culture, legal factors and before all other competitors. Being first in the market allows the
infrastructure to enhance the ability to apply international company to reap the benefits that other competitors are unlikely
marketing knowledge in the most appropriate way. Many to achieve. The goal of this strategy is to create a leading position

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in the market that competitors can hardly keep up. Pursuing this distributors work closely to represent the interests of the
strategy requires businesses to meet many strict requirements company. They become the face of the company and therefore it
such as: is important to choose companies that work hard. This is the most
 Be ready and able to take risks traditional and easiest method to penetrate into the international
 By all means keep leading the market market because the capital requirement is low while the risks are
 Expand advertising promotion campaigns not high. Most Vietnamese enterprises are using this method to
 Create basic needs penetrate the international market. However, this method often
 Assess your strengths carefully has high transportation costs, is easily prevented by trade barriers,
 Have the qualifications necessary to maintain a distance and cooperation with representatives is also difficult [5, 8, 9].
from your competitors.
Licensing
It is the rigorous requirements required to pursue this strategy that It is a form of franchise contract to use intellectual property
only a few corporations can achieve great success. The first products (for example: patent patents, copyrights of works,
strategy in the market can help businesses reduce costs through trademarks, technological processes, etc.) to proceed with the
experience, constantly increasing growth, market share and manufacture and sale of products in foreign markets for a certain
profits. period of time. It is a particularly useful strategy if the license
buyer has a relatively large market share in the market the
Strategy of early market entry company wants to penetrate. However, the profits earned from
The strategy of early market entry is the strategy of rapid entry licensing are often low and the company is easily involved in
and success after the market leader. The purpose of this strategy complex disputes. Through licensing, manufacturers can enter a
is to prevent the creation of a fortress of first market entry. hard-to-reach market because of restrictions on foreign exchange,
Strategies of early market entry are often used in the following import quotas or prohibitive tariffs. On the other hand, the
cases, when: licensee can learn everything that can be learned so that they can
 The company can create loyal customers base due to the conduct independent production when the license expires [5, 8,
awareness of product quality and maintain their loyalty as 9].
the market develops.
 The company is able to develop a broad product line that can Franchise
discourage early marketers and compete with competitors It is a special form of licensing where the franchisor not only sells
who choose a single market gap. intellectual property but also forces the franchisor to agree to
 The current investment is insignificant or when the meet strict requirements on how to run the business. Franchising
technological changes are predictable. works well with firms that have a repeat business model. For
 The early invaders are based on the experience curve that is example, grocery stores such as Highland coffee, Domino’s
difficult for the opponents to follow. pizza, etc. can easily switch to other markets. Development costs
 Absolute advantages can be achieved by capturing raw and modal risks are low but lack of quality control (eg KFC's food
materials, distribution channels. case in 2011 in Malaysia) and difficult to coordinate global
 The starting price in the market is high. strategy [5, 8, 9].
 Potential competitors can be discouraged because the market
is not decisive for them. Joint Venture
It is a special type of partnership that involves creating a third
Intrusion-followed strategy (Laggard-entry Strategy) degree management company. It's a 1 + 1 = 3 process. The two
Following strategy is the strategy to enter the market following companies agree to work together in a specific market, or
the development stage or the saturation phase of the market. geography or product, and create a third company to do this.
There are two types of intrusions followed: intrusion as imitators Risks and profits are often divided evenly. The best example of a
or as initiators. Mimic intruders are intruders who launch joint venture is Sony / Ericsson mobile phone. The joint venture
products with similar characteristics to previously available helps the company to facilitate its access to attractive foreign
products. Intrusion intrusion is the innovation, turning products markets by utilizing the knowledge of its local partners, the
into a completely new product into the market. Mimic intrusion development costs and risks are divided equally, and has the
usually doesn't last long. Intrusion initiation has a lot of inherent advantage of politic. However, the venture also has drawbacks.
benefits, creating great profitability when pursuing this strategy. That is the lack of technological control, the difficulty in
The benefits are: the availability of the latest science and integrating the global strategy, the disagreement between the two
technology, the ability to win better conditions for suppliers and sides on the business strategy, profit sharing [5, 8, 9].
customers, the ability to offer low prices. That's why, although
there are no top-notch skills but the invasion strategy can bring a Direct investment
lot of success. This is the highest form of entering the foreign market. The
company invests capital in the host country to establish its
2.2. Modes of market penetration manufacturing enterprise. The company decides to invest directly
Export abroad when it has enough experience in exporting activities, and
It is selling products directly into the market that has been the demand of the foreign market is large enough. Direct
selected. Many companies choose to set up a sales program for investment will have many advantages such as taking advantage
agents or distributors to represent them in that market. Agents and of cheap labor and raw materials from the host country and

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International Journal of Educational Research and Studies www.journalofeducation.net

incentives of the host country to attract foreign investment; (2018). LOTTE Mart is a subsidiary of LOTTE Group of Korea,
reduce transportation costs due to production near consumption a major supermarket chain that sells a wide range of groceries,
markets; building close and friendly relationships with the clothing, toys, electronics and other goods. LOTTE Mart opened
Government and the public of the host country (for example by its first branch in Guui-dong, Gang Byeon and Seoul (South
creating many jobs for local people,..); better understand the Korea) on April 1, 1998. In 2008, LOTTE Mart expanded to
needs of customers to implement the motto of selling what they overseas markets in the following countries: China (May),
need; control the entire investment capital and production process Indonesia (November), Vietnam (December). As of February
and product consumption, thus take the initiative in building and 2018, LOTTE Mart has a total of 294 supermarkets across the
executing business plans. Direct investment also has globe: Korea 123 supermarkets, China 112 supermarkets,
disadvantages such as high risks due to political, legal, cultural Indonesia 46 supermarkets and Vietnam 13 supermarkets.
and economic turmoil that lead to strikes, etc. Direct investment The first LOTTE Mart supermarket in Vietnam is LOTTE Mart
also requires the company to have Good management team, South Saigon built in District 7, Ho Chi Minh City, which is also
fluent in the host country environment [5, 8, 9]. the headquarters of LOTTE Mart Vietnam. LOTTE has invested
13 LOTTE Mart supermarkets in Vietnam and has the ambition
3. Research results and discussion to open 60 supermarkets by 2020. In the last 4 years, LOTTE
3.1. All about LOTTE corporation Mart's revenue increased by 400 million USD per year, in 2016
LOTTE (Hangul: 롯데 그룹) is a multinational corporation exceeded 2 billion USD. However, despite a sharp increase in
headquartered in Korea and Japan. LOTTE Group was founded sales, during the past 10 years, LOTTE Mart continuously
by Mr. Shin Kyuk-ho in June 1948 in Tokyo, Japan, formerly reported losses. The highest peak was in 2015 when the loss
LOTTE Company. Mr. Shin Kyuk-ho was born on October 4, exceeded 200 million USD. In 2016, LOTTE lost about 11
1922 in Korea but he lives, studies and works in Japan. He million USD. In total, after 10 years of doing business in
graduated from Waseda University Chemistry. In April 1967, Mr. Vietnam, LOTTE accumulated losses of about 87 million USD.
Shin Kyuk-ho expanded his business to the Korean market by With this result, the largest retail giant in South Korea made many
establishing LOTTE Confectionery Company in Seoul. LOTTE people think of the business activities of many "giants" such as
Group has two branches: Japan LOTTE Group and Korea Coca Cola, Pepsi, BigC, Metro Cash & Carry suspected to show
LOTTE Group. The current president of LOTTE Group Korea is signs of transferring prices and tax evasion in Vietnam when
Mr. Shin Dong Bin - his son Shin Kyuk-ho. Currently, LOTTE constantly reporting losses and continuous expansion. According
Korea Group is present in 22 countries around the world and is to the financial report from LOTTE Shopping Korea, as of
the 5th largest corporation in South Korea with total assets. The December 31, 2016, LOTTE Vietnam Trade Center Joint Stock
name LOTTE was coined by founder Shin Kyuk-ho, inspired by Company has total assets of about 400 million USD, charter
the beautiful, talented and popular heroine CharLOTTE in the capital of 171 million USD. Despite constant losses, debts near
novel The Pain of Werther (1774) by German writer Johann the threshold of tens of trillion, LOTTE Mart continues to expand
Wolfgang von Goethe. With the hope that LOTTE Group will the system in Vietnam. According to information from this group,
receive the love and trust of everyone like the main character in since entering the Vietnamese market, LOTTE Mart is estimated
the story, the beautiful and talented CharLOTTE. LOTTE Group to have spent more than 400 million USD investing in
operates in 6 fields: infrastructure and equipment for 13 trade center and supermarket
 Food: LOTTE Confectionery, LOTTE Chilsung Beverage, belonging to LOTTE Mart system. Also according to the group,
LOTTE Foods, LOTTERIA, Angel-in-us Coffee. LOTTE Mart system attracts an average of nearly 80,000 visitors
 Retail: LOTTE Department Store, LOTTE Mart, LOTTE and shop every day (equivalent to more than 30 million visitors /
Super, LOTTE Home Shopping, LOTTE Hi-mart, year).
LOTTE.com.
 Travel / Services: LOTTE Hotel, LOTTE Duty Free, LOTTE 3.2. Discussion
Cinema, LOTTE Logistic, LOTTE Asset Development, LOTTE brand wants to become a super corporation in Asia in the
LOTTE Data Communication. coming years with Samsung and Toyota. In order to realize this
 Chemical / Construction / Manufacturing: LOTTE ambition, LOTTE is promoting overseas investment activities as
Chemical, LOTTE E&C, LOTTE Aluminum, Korea the domestic market continues to grow slowly. For example, in
Fujifilm, Canon Korea Business Solution. the retail segment, LOTTE is currently facing a new barrier in
 Finance: LOTTE Card, LOTTE Insurance, LOTTE Capital. Korea. Because a law in 2012 forced big brands like LOTTE Mart
 Development research / Support: LOTTE R&D Center, to close supermarkets at least twice a month and not open 24
LOTTE Academy, LOTTE Scholarship Foundation. hours a day, in order to facilitate smaller-scale retail chains. Can
compete equally. And yet, in Korea, during the campaign, one of
Some Korean LOTTE Group companies are currently present in the candidates' promises is to impose a ban on opening more
Vietnam: LOTTERIA (1998), LOTTE Mart (2008), LOTTE supermarkets in cities of less than 300,000 people. This means
Cinema (2008), Angel-in-us Coffee (2008), LOTTE Rental that even large retail chains like LOTTE Mart are not allowed to
(2008), LOTTE-Sea Logistic (2009), LOTTE Data open more supermarkets in 50 of the 82 cities in Korea. On the
Communicatioon - LDCC (2009), LOTTE Coralis (2009), other hand, Korea is in the trend of aging population, low birth
LOTTE E&C (2009), LOTTE Asset Development (2009), rate. Consumer trends are forecast to change significantly.
LOTTE DatViet Homeshopping (2012), LOTTE Hotel (2013), Therefore, LOTTE has stepped up investment in Indonesia,
LOTTE Department store (2014), LOTTE E-Commerce (2016), Vietnam and Myanmar over the past time. To date, LOTTE has
LOTTE.vn (2016), LOTTE Duty Free (2017), LOTTE Finance spent more than 9.6 billion USD on M&A deals in Asia.

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Regarding the retail segment, LOTTE Mart is targeting 700 being retail focusing primarily on fast-moving consumer goods.
supermarkets in the region in 2018. Regarding the expansion Vietnam's population is increasing, living needs are increasing,
strategy in Asia, LOTTE Group's Chairman, Mr. Shin Dong Bin, time is limited so people need to use items with high convenience
said LOTTE will look for positions that can allow the deployment and cost savings. LOTTE is tapping into the tastes of Vietnamese
of many types of businesses such as supermarkets, convenience consumers. If this group continues to promote operations and
stores, hotel and fast food chain LOTTEria. build a strategic business strategy, this will certainly be a very
Vietnam is currently considered as one of the three important developed corporation, since then, boosting Vietnam's economy
markets of LOTTE Mart in Asia, besides China and India. From to develop strongly.
the beginning, instead of investing directly in the retail industry,
LOTTE used the pedal strategy to penetrate the Vietnamese 5. References
market. According to the investment certificate issued to LOTTE 1. http://smestac.gov.vn/Tin-tuc/chien-luoc-cua-LOTTE-mart-
Mart in October 2006, the charter capital of this business is 65 tai-viet-nam-quoc-te-hoa-hng-viet--334.html
million USD. In particular, Minh Van Private Enterprise 2. http://massogroup.com/vietnam/local-updates/7734-chien-
produces 13 million USD, accounting for 20% of charter capital. luoc-tham-nhap-thi-truong-qua-maa-cua-LOTTE.html
LOTTE contributed 52 million USD, equivalent to 80% of 3. http://tradecircle.vn/LOTTE-chuan-bi-tham-nhap-vao-thi-
charter capital. After that, LOTTE bought the capital contribution truong-tai-chinh-tieu-dung-tai-viet-nam/
from a domestic partner to turn it into a 100% foreign-owned 4. https://www.brandsvietnam.com/6409-Chien-luoc-thong-
enterprise, and also increased its charter capital from USD 65 tri-cua-LOTTE-Mart
million to 120 million USD. Although the growth rate of LOTTE 5. Nguyen Hoang Tien, Nguyen Minh Ngoc (2019),
Mart in Vietnam is still not comparable with China or Indonesia, Comparative Analysis of Advantages and Disadvantages of
in terms of revenue, the Vietnamese market has more potential, the Modes of Entrying the International Market. “Internatio-
with an annual growth of 47.5 %; while China is 7.8% and nal Journal of Advanced Research in Engineering and Ma-
Indonesia is 13.7%. nagement”. 5(7):29-36. http://www.ijarem.org/papers/v5-
Present in Vietnam for 10 years, LOTTE owns 12 companies i7/1.IJAREM-D5055.pdf
operating in many fields from confectionery (Bibica, LOTTE 6. Nguyen Hoang Tien, Nguyen Minh Ngoc. Coping with
Vietnam), fast food (LOTTEria), retail (LOTTE Mart, LOTTE Challenges and Taking Opportunities in International
Department Store), entertainment (LOTTE Cinema), real estate Business Strategy of Foreign Enterprises in Vietnam. “Inter-
(LOTTE Hotel & Resorts), e-commerce (LOTTE.vn), national Journal of Advanced Research in Engineering and
information technology. Among them, the most prominent is the Management”. 5(7):18-23.
presence of the central chain system. LOTTE Mart commercial http://www.ijarem.org/papers/v5-i7/1.IJAREM-D5053.pdf
and supermarket. LOTTE is having difficulties in China when 7. Nguyen Hoang Tien, Nguyen Minh Ngoc. Related and Non-
many LOTTE Mart supermarkets are closed after sanctions. To related Diversification Strategy of Domestic Business
compensate for the increasing risks and losses in China, LOTTE Groups in Vietnam. “International Journal of Advanced Re-
Group has shifted its focus from China to Vietnam, a country search in Engineering and Management”. 5(7):12-17.
where many Korean companies are on a steady growth http://www.ijarem.org/papers/v5-i7/1.IJAREM-D5052.pdf
momentum and are eager to open. Wide presence. LOTTE Mart 8. Nguyen Hoang Tien. Global Strategic Marketing
only operated 12 stores in China after 74 stores were forced to Management, Ementon Publisher, Warsaw, 2017.
close and 14 others voluntarily stopped operating. Now, 9. Nguyen Hoang Tien. International Economics, Business and
according to South Korean media, the company is planning to Management Strategy, Scientific Publications Publisher,
withdraw from China and sell its stores there. Dehli, 2019.

4. Conclusion and Recommendation

From the analysis and evaluation of LOTTE's business data and
situation in Vietnam, it can be seen that LOTTE has not been in
Vietnam market for a long time but has achieved great
developments. In the context of the current strong international
economic integration, the Party and the State of Vietnam always
focus on creating favorable conditions for foreign investors to
have the best investment and development opportunities. LOTTE
is a South Korean enterprise, a country that has had good
diplomatic relations with Vietnam for many years, its investment
in Vietnam is a right step, showing that this corporation has
noticed many potential of Vietnam market
Vietnam is a country belonging to the gateway region of
Southeast Asia, with extremely favorable natural and climatic
conditions, a modern and synchronized transportation system, a
coastline of more than 3260 km, and a land border adjacent to it,
sucg as China, Laos and Cambodia. With favorable trade
conditions, businesses like LOTTE, AEON have seen the
potential and have invested in Vietnam, with the main industry

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