BA (Hons) Global Business Management


Course: Marketing Management



Lecturer:


BBA (Hons), MBA, Dip. M, MCIM, FHKIM, MCMI, CPM(HK), Chartered Marketer (UK)


Coursework Assignment (I)


“Using the company you work for (or a selected choice of your own) as example, investigate which of the alternative concepts under marketing management philosophies (e.g. production, product, selling, marketing etc.) are being used to guide the management efforts?


Justify your answer with cases of company tasks being carried out to achieve desired exchanges with target market.”


Format: A4, Typed, single spacing


Individual project


Word Limit: 1500 words


Deadline for submission: Lecture 8


Coursework Assignment (II)


Case Study Analysis: Marketing Hardee’s in Korea


*After reading and analyzing the case thoroughly, answer the 3 questions below:


Q1. What aspects of Korea’s economic, political-legal, and cultural environments were important for Hardee’s to understand. (20 marks)


Q2. Why had Hardee’s and other companies in the case decided to enter foreign markets and why they selected Korea? Do you agree with their decisions? (20 marks)


Q3. What decisions had Hardee’s made about its marketing program in Korea? What recommendations could you make about this program?


(40 marks)


Format: A4, Typed, single spacing


Group Project: 5-6 persons per group


Word limit: 1500 words


Deadline for submission: Lecture 10



MARKETING HARDEE’S IN KOREA



DOWNTOWN SEOUL



“There should be more fast-food restaurants,” exclaimed Moon Yong, a 21-year-old college student, as she downed another french fry and sipped a Coke with a friend at the Hardee’s in Seoul. Moon Yong and her female friends liked fast-food restaurants, especially American ones. Korean kids found it fashionable to hang out in fast-food restaurants. “We’ll stay here all afternoon,” Moon Yong proclaimed.


In fact, American fast-food companies that had ventured into Korea target young people. Fast-food restaurants were especially appealing to young girls, who made up 70 percent of all customers. The girls liked french fries and beverages, and they sat in the restaurants for hours. As a result, South Korean fast-food restaurants were bigger than their American counterparts — about 300 seats versus about 150 seats for U.S. restaurants.


Furthermore, despite the sometimes strong anti-American sentiment in Korea, Korean young people were drawn to the slice of Americana that the restaurants represented. Young Lee, president of Del Taco Korea Co., pointed out that “they like American and European music. So they want their food the same way. It is in this area that America is the leader, not electric parts or TVs.” As a result, Mr. Lee and other fast-food executives in Korea made only a few subtle changes in the American menus to account for local tastes. In other countries, firms often made substantial changes.



DOING BUSINESS IN SOUTH KOREA



South Korea might seem to be the promised land for American fast-food chains. Faced with a saturated and highly competitive U.S. market, one would think that the chains would be flocking to South Korea. However, McDonald’s had only four stores in the country —- one store for every 10.8


million Koreans.Similarly, Wendy’s had only 13 outlets in South Korea, and Burger King had only l2.


Why had U.S. fast-food restaurants been so slow to enter South Korea? To examine the reasons,


The Wall Street Journal published a ranking of 129 countries based on the risk of doing business in each. The rankings combined each country’s rankings on the basis of political risk, financial risk, and economic risk into an overall composite risk score. South Korea fell into the low-risk category with a composite score of 73.5 out of a possible 100. It ranked twenty-seventh on the list, just behind Portugal and ahead of Botswana. The low-risk category, which covered scores from 70 to 84.5, also included the United States, which ranked ninth with a composite score of 83.5. South Korea’s political risk score was 63 out of 100, and it had scores of 47 out of a possible 50 on financial risk and 36.5 out of 50 on economic risk.

Even though South Korea’s overall score suggested a low level of risk, analysts pointed out that it was a tough market. Land prices were especially high. A high-traffic site in Seoul, the capita1 city, could cost million to buy or require a -million deposit to rent. The land for a factory might cost more than the factory. Raw material costs were the highest in Asia. Governmental restrictions, such as high tariffs and limits on certain imports, such as cheese and beef, frustrated fast-food chains. Gaining governmental approval for investment took time and could be very difficult.


Companies also found it difficult to bring additional capital funds into the country. Korean firms, fearing new competition, resisted entry and investment by foreign firms. Foreign firms also suspected that the Korean government doesn’t really want foreign investment, especially if it would adversely affect domestic products.


All of these factors had resulted in a low level of foreign investments in South Korea. The Korea Development Institute, a government-funded think tank, indicated that the ratio of foreign investment to gross national products is 1.46 to 1 in Singapore and 1.61 to 1 in Taiwan but only 0.36 to 1 in South Korea.



ENTER HARDEE’S



If entering the market in South Korea is so tough, why did Hardee’s, McDonald’s, and other firms even bother to try? For one thing. these firms saw the flip side of rapidly rising Korean wage rates — disposable income was rising equally quickly, making Korea the largest consumer market in


Asia after Japan. The average urban household in South Korea had an annual income of ,400. Ten percent of the population had college degrees, and the number of two-income families was on the rise. These factors created demand for convenience foods and higher-quality products. Overall, however, the Korean consumer market lagged behind that of other Asian countries having about the same level of economic development. For example, Korea lacked modern convenience stores and large supermarkets that offered wide variety to consumers.


Still, Hardee’s believed it had found a way around all of these stumbling blocks. Hardee’s selected Kim Chang-Hwan, a wealthy local businessman, as its Korean franchisee. Mr. Kim’s older brother managed a chain of retail shoe stores that had many outlets near student hangouts. The Kims were converting several of the shoe stores into Hardee’s restaurants. In an “in-your-face” move, the Korean franchise opened its first Hardee’s in downtown Seoul just a few yards down the street from a


popular McDonald’s. Mr. King Nam-Young, the franchisee’s general manager, admitted that Hardee’s executives were concerned about the strategy, but so far his store’s sales had equaled McDonald’s.


McDonald’s entered the country in 1986 by forming a 50-50 joint venture with a Korean accountant and entrepreneur, Mr. Ahn Hyo Young, and had planned to open 14 stores by the early 1990s. However, the first store didn’t open until 1988 and expansion has been very slow, resulting in part from the illness and death of Mr. Ahn. McDonald’s employees also claimed that the local franchise did not have enough capital when it started and that McDonald’s had balked at the high cost of real estate.



COORS AND PURINA TRY THEIR HANDS



Coors Brewing Company has announced that it too was moving into the South Korean market. Although it was not unusual for American brewers to do business in foreign markets, they had typically expanded through contract brewing, licensing agreements, or direct exports. However, Coors announced that it would enter into a joint venture with Jinro Ltd., a Korean distiller, to build its first offshore brewery. Thus, it would become the first U.S. brewer to own part of a foreign-based brewery. The joint venture hoped to gain a 5 percent to 6 percent share of the Korean market in a few year’s time.


Analysts suggested that the U.S. brewers were showing more interest in foreign markets because of the slow growth in the U.S. market. A Coors spokesperson noted that to gain more business in the United States, you had


to take it from someone else. In Korea, he noted, the beer market was growing 15 percent a year, and a company had a chance to earn some of that growth itself. American brewers were well positioned to expand. One industry executives states, “There is a movement toward lightness in all beverages (around the world) and American beers have always been very light compared to European beers.”


Prior to the Korean agreement, Coors had only licensed its beer in Canada and Japan and exported it to three other countries. Coors was entering South Korea despite Miller Brewing’s recent departure. Miller pulled out of Korea because of high tariffs and the rising value of Korea’s currency, the


yuan. Coors wouldn’t have an easy time of it, even if its agreement worked. The Korean government had licensed only two other brewers. These two national breweries produced severa1 Korean beers and marketed Carlsberg beer under license. Also, one was licensed to sell one of Coors’s toughest competitors—Budweiser.

Like Coors, Ralston Purina had also decided to go against conventional wisdom. It had constructed a -million plant in Korea to produce its Chex breakfast cereal. But unlike Coors and the fast-food companies, Purina had some advantages. First, it would enter a market containing no strong local producer. Second, Purina was not a newcomer to the Korean market — it has been operating in Korea for 25 years. Purina began in Korea by producing feed for cows, hogs, poultry, and fish and later moved into cat and dog food.


Purina had paid careful attention to the Korean market’s development. It had found that the consumption of breakfast cereal closely followed the consumption of milk throughout the world. When it noted rising income levels and milk consumption in Korea, it decided that the time was right to dive into cereals.



MAKING IT EASIER



Despite the efforts of the fast-food companies, Coors, and Purina, the Korean government was still concerned about the low level of foreign investment. As a result, the government was slowly changing the rules. It now grants automatic approval for projects valued at less than million, up from the previous -million limit. Moreover, foreign companies could now establish wholly-owned subsidiaries. The government might also make it easier for foreign companies to bring in additional capital, and it was granting tax breaks to high-tech electronics companies and might offer cheap land to high-tech companies that located in Korean industrial parks.


However, the government had been slow to offer similar benefits to processed foods or packaged-goods companies, and it had been reluctant to allow foreigners to build modern warehouses and distribution networks—facilities needed by consumer-product companies. Furthermore, the government often held up products at customs and sponsored anti-consumption campaigns to turn public opinion against imported goods.


As a result of the positive changes and despite the problems, more foreign companies were establishing import offices and sales and distribution channels in Korea. Some businesspeople believed that if a company could find its way through the maze of Korean political, economic, and cultural barriers, it could reap substantial rewards.



BACK IN DOWNTOWN SEOUL



Meanwhile, Moon Yong and her friend had finished their Cokes and fries at Hardee’s and decided to walk down the street to McDonald’s to see what’s happening there. They threw away their trash, waved to some friends, and left the restaurant. The Hardee’s manager watched them leave and wonders whether the fascination for things American would continue or whether Korean political, economic, and cultural forces would blunt their efforts to open the Korean market. What could he do to keep Moon Yong and others like her coming back to Hardee’s?




Credit:ivythesis.typepad.com


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