Case study

Successful case in FDI

(2012-06-08)

Team J1. 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. Orion’s 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 Orion’s 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(好麗友) which means good friend at

the beginning of 90s. Orion’s 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

① 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

①Product

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.

② 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.

③ 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.

④ 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 5th established foreign local company and Vietnam

is 3rd 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 it’s 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 product’s taste. They launched their product after that and the

response was surprising. Buyer who bought 10 box came to order 4-50 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 didn’t

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 facility’s

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

www.orionworld.co.kr

· 김훈철 마케팅 찬스 : 새로운 마케팅 기회를 포착하는 25 가지 기술 다산북스 2009

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