Discuss about the possibility of market entry for Primo into the South Korean Meat Market.
The study is about the Primo which is widely popular and is the largest manufacturer in Australia for ham, salami, bacon and deli meats. The success story had begun back in the year 1957 by Hungarian migrant Andrew Lederer when he used his homeland traditional recipe to prepare delicacies as such as smoked hams, sausages and salamis. Since then, Lederer had continuously focused on buying up the neighboring butcher shops in Sydney to strengthen up its network. Additionally, Lederer had also focussed on improving its manufacturing facilities with the help of latest and innovative technologies. As a consequence of such strategies, Lederer was able to develop a strong network in Sydney and hence, this has laid an official establishment of Primo as a brand. Primo as a brand was launched in the year 1985 (Primo.com.au. 2018).
Primo is itself an established name and is the largest producer of bacon, ham and smallgoods in Australia. JBS which is the largest meat processing company worldwide had acquired Primo Smallgoods in 2014 (Ausfoodnews.com.au 2018). The study is focussed on understanding whether the decision to move to the South Korean Meat Market will be beneficial from the Primo’s perspectives. Processed meat is notably popular among the South Korean Adults. Notably, the market for processed meat grows by 2.8% every year. On the other hand, the market for sausages grows by 6 percent on an average. The market for bacon increases by an approximate 9.6% every year (Worldwatch.org 2018). Such trends are attributed to a reduced size of family and increasing popularity of camping. This is also because a reduced family or a family of two love being in homes and enjoy their drinks as well.
The trend as of now on the basis of the discussion which has continued suggests that it is a good idea for Primo to enter the South Korean Meat Market. However, the study finds in the later sections whether the stated facts remain the same.
Foreign market entry happens after an extensive thought process which is put to the ample of areas such as marketing, external business environment analysis, competitor analysis, consumer behavior and lot more. This particular study is not focused on a business that has decided to enter a particular market but rather, finds the answers to suggest whether the South Korean market will be a good choice or else. To fulfill the purpose of the study, it is important that every important factor in terms of a foreign entry is effectively studied. Hence, the section covers specifically the external environment (PESTLE) analysis, Porter’s five forces analysis and consumer behavior analysis of the target market “the South Korean Meat Market”.
PESTLE analysis
Political: The World Bank has rated South Korea a lot higher for governance in every area. Approximately, 72% of exporters from Australia are expecting a fair and a lasting business performance in South Korea (Quansah and Ahn 2017). A free trade agreement with Australia is another boost to the Australian businesses in the South Korean market. Understandably, trade tariffs will not be a case meaning that the imported goods will retain its uniqueness which usually gets affected by trade tariffs and other government policies (Jensen and Snaith 2016). However, the instability in North Korea is identified as a major security threat (Doucette and Lee 2015).
Considering the fact as stated above, threats and opportunities in the South Korean market can be identified. The free trade agreement is a boost for Primo as their exported goods to South Korea will be freed from traded tariffs. Hence, the different varieties of processed meat will remain cost-effective to the South Korean customers (Quansah and Ahn 2017). This is necessary as well to compete with the local service providers.
Economic: South Korea is the fourth largest trading partner of Australia and the third largest market for exports. This means that doing business with South Korea by means of exporting the processed meats should never be a constraint to Primo Smallgoods. From the economic perspectives, South Korea is the 12th largest economy worldwide. There has been a gradual transformation from middle-income economy to high-income in the last 50 years. However, the per capita income lags behind to many developed nations (Efic.gov.au. 2018). The transition from a middle-income economy to a high-income just suggests that buying capability of people living in the country is higher and that it is nothing but appears like an opportunity for Primo. However, this further depends on the South Korean culture whether they like the concept or else. The country may face the economic challenges due to an over-reliance on exporting practices, aging population and a less productivity growth (Efic.gov.au. 2018).
Social: The local language, culture and the way of doing business differ a lot from other parts of the world; hence, these are most frequently viewed as risks for doing business in South Korea. South Korean consumers are very health conscious and are often selective with the range of brands. They are more inclined to the product quality and the brand image. They also seek an impeccable customer service from the brand. South Korean customers search their required items for its quality and price-competitiveness on the internet, especially on the social media platforms. It means they love to be well informed before they actually make the purchase (Import-export.societegenerale.fr 2018).
Social trends in South Korea can be divided into two parts like medium shoppers and high-end luxury shoppers. The medium shoppers due to their increased debts and the reduced income growths are highly concerned with product pricing. On the other hand, high-end luxury shoppers have no such limitation. They are rather fond of showing their assets in public which means making a public image with every new purchase. Both the medium shoppers and the high-end shoppers are highly passionate about internationally made products due to its quality and price competitiveness (Import-export.societegenerale.fr 2018).
Technological: South Korea is one of the most connected nations worldwide. Online food and drink purchases are already very high with an existing figure of $4.8B which is expected to grow even further and touch $7.7B by 2020 (Agr.gc.ca 2018). The per capita spending on food and drinks products is $2,321 and the online spending for the same is $94 (Agr.gc.ca 2018). There are verities of methods which the South Korean people use to access the internet for shopping. The number of mobile phone users in South Korea is 34 million. Approximately, 29 million people have their personal computers (Agr.gc.ca 2018). The total number of tablet users is equal to 9.9 million (Agr.gc.ca 2018). A close to 46% of the online purchase is made through mobile phone (Agr.gc.ca 2018). There are places for technological improvements as local retailers have become increasingly inclined to introduce the e-commerce models (Agr.gc.ca 2018). These all mean that Primo will get a favorable business environment in South Korea as the local people are very tech savvy and also that the online booking is the most preferred form for booking the varieties of food and drinks items.
Environmental: There are huge environmental impacts of foods especially of the varieties of meats. Beef supposed to emit the largest greenhouse gases in its entire life cycle which is equal to 26.61 kg (Weforum.org 2018). Lamb stands at the second position with 25.58 kg (Weforum.org 2018). Pork is at the third spot in regards to emitting the greenhouse gas (Weforum.org 2018). Chicken, fish and eggs are simultaneously equal to 3.65 kg, 3.49 kg and 3.46 kg (Weforum.org 2018). This just suggests that animal farming and breeding is seriously threatening to environment considering a fact that animals are a strong contributor to greenhouse gas emissions and also that the incrementing greenhouse gas emissions are a serious threat to the environment. However, in context of the proposed exporting business of Primo, this has probably no relevance at all. This is because a fact that food products will only be exported, they will not be processed. Hence, it has better chances of being safe from legal proceedings and also from rising awareness in people for environmental sustainability.
Legal: The free trade agreement between Australia and South Korea which is known as Korea-Australia Free Trade Agreement (KAFTA) can expectedly support the Australian exporters (Efic.gov.au. 2018). Korea has failed to meet the rising demands for beef in recent times due to its lower production of beef. Subsequently, the KAFTA had come to the existence in 2014. KAFTA is a world-renowned bilateral agreement between Australia and South Korea which eliminates the barriers to trade and investments in between the two countries. The trade agreement was made to provide an equal footing to Australia in the South Korean Market and also to safeguard it from the extensive competitions in the form of the United States, South East Asian Nations (ASEAN), Chile and the European Union (Quansah and Ahn 2017).
Organizational readiness to internationalize
Primo has had its foundation laid in 1957. A close to 61 years in the industry, the company has learned a lot from its mistakes and also from its supremacy to dominate the meat processing industry in Australia to become the leading service provider of bacon, ham and smallgoods (Primo.com.au. 2018). There can be many aspects of goodness which the company possesses; however, seeking a continuous change in regards to infrastructural development and the modernization of production facilities is one of those assets. The study is based on identifying whether the entry in the South Korean market will be feasible to Primo. This looks much evident from a fact that Primo and JBS are now partners. JBS, the world’s largest meat processing company, has now acquired Primo (Mercyforanimals.org 2018). It looks a sensible partnership indeed. JBS has its roots at the global level which also includes the Asian countries. On the other hand, Primo is relatively small and has restricted market growth in terms of exporting foods to other markets. The export business of Primo is very small as stated and lacks to have the support of extensive and superior distribution infrastructure. The partnership with JBS will expectedly fulfill the much-needed distribution infrastructure and hence, will support in expanding to markets beyond Australia as an exporter of processed meats (Jbs.com.br 2018). The fact also suggests that Primo is now ready to look beyond the Australian market and that the purpose will be supplied from the partnership venturing between Primo and JBS.
Porter’s five forces
Bargaining power of suppliers (Medium)
Suppliers of meat in South Korea can be classified into two categories such as local suppliers and the foreign suppliers. Local suppliers, in context to this study, are the local manufacturers of processed meats. Foreign suppliers are the countries that export processed meat to South Korea. Local production of meat is not sufficient to fulfill the market demands for the processed meat of beef, pork and others (Grasso et al. 2014). Hence, the urgency has encouraged for free trade relationship with the United States and Australia. The free trade relationship between the United States and South Korea is popularly known as KORUS. The free trade relationship between Australia and South Korea is known as KAFTA (Quansah and Ahn 2017). This is due to the initiatives taken by the local government of South Korea that the foreign meat supply to South Korea has increased (Quansah and Ahn 2017). The stated facts indicate that the market demands for meat in South Korea are fulfilled by both the local manufactures of processed meats and the foreign suppliers. The imports are on the increase which means dependency on local manufacturers will consequently decrease. Hence, local suppliers of meat who are working with local manufacturers will also get weakened (Kr.usembassy.gov 2018). On the other hand, the rising market demands for meat in South Korea are getting increased (Kr.usembassy.gov 2018). The fact has created enough interests and is attracting the foreign suppliers of meat. In either of the cases, the suppliers are getting affected by market behavior. The local suppliers are losing their bargaining capability whereas the foreign suppliers are dependent on the market behaviour
Bargaining power of customers (High)
Processed meat is increasingly popular in the South Korean market. Adults love the varieties of processed meat such as bacon, ham, smallgoods and others (Kr.usembassy.gov 2018). They are the drivers for market trends which can be understood from a fact that the domestic processed meat market in Korea is decreasing. The trend has now shifted more towards the varieties of processed meats such as bacon and ham imported from the foreign countries in specific from the United States (Trade.gov 2018). Consumers always have the high bargaining capability and their choice for taste set the trends for the market (Roe and Bruwer 2017).
Industry rivalry (Medium)
There are few local meat processing companies such as Buchi, Watson-Marlow, Tomra, Kahl and Honeywell. Local companies are not able to meet the rising demands of customers. Hence, the fact has provided the opportunity for business to foreign suppliers such as to the United States. In fact, the United States of America is the world’s largest beef supplier to the South Korean market (Trade.gov. 2018). Hence, in context to Primo, the industry competition will be a lot higher because the US is an established and successful trade partner of South Korea. On the other hand, the demands for processed meats are incrementing which suggest that there are still spaces left for others to take the advantage from. The demands in Market for processed meats increase by 2.8 percent every year (Mercyforanimals.org. 2018). The demands for bacon rise by 9.6 percent every year (Mercyforanimals.org. 2018). It just suggests the incrementing opportunities for foreign suppliers.
Threat of new entrants (Medium)
It is always there as the demands for processed meats is growing in popularity among the South Korean adults. The United States is currently the biggest exporter of beef to South Korea (Trade.gov. 2018). However, Australia is also a potential country which is in high demands for beef. In fact, the Australian beef is in huge demand for its export to other parts of the world.
Threat of substitutes (Medium)
This is quite possible as the South Korean adults have already shown their drift from using bacon as a side dish to actually love it the most.
Primo possesses an image of being the largest producer of bacon, ham and smallgoods in Australia (the Guardian.com, 2018). Now, it is partnered with JBS, the world’s largest manufacturer of processed meats. JBS already exist in different parts of the world which also includes the Asian market. The venturing is thought as profitable for Primo for a fact that JBS with its efficient distribution channel will provide extensive opportunities to Primo enter the different markets. Additionally, Primo is relatively a small player in terms of exporting relationship with foreign countries (Primo.com.au. 2018). Hence, it is expected that the partnership deal between Primo and JBS will work for Primo and help to enter a few of potential foreign markets. Hence, the sales will expectedly increase.
There are various modes of market entry (De Villa, Rajwani and Lawton 2015):
Exports: This is one of the modes of entry to the foreign market. It is advantageous because it does not facilitate the direct entrance of company in the form of physical existences. Physical existence can incur big losses to business and market reputation of the company, if not handled appropriately and strategically. Exporting includes small consignments as a starter for exports. Even if it does not work, the loss will be much lower than opening a subsidiary branch in the target country.
Wholly owned subsidiaries: The parent company holds the control on the operation as the subsidiary companies have to follow the operational policies as set by the parent company. The parent company has opportunities to start up new companies by providing monetary means to the wholly owned subsidiary. Credit claims and liabilities remain confined to the subsidiary company. The parent company, therefore, remains safe and away from such burdens. Joint ventures with other firms can also be created with the help of its existing subsidiary firm. Subsidiary companies lack to have the freedom and have to wait for a call from the parent company for even the smallest of decisions. Legal works are also delayed.
Joint venture: This is done to serve few objectives like market entry, sharing of technology, risk/reward sharing, getting help on government regulations and facilitating the joint product development. It has also a list of disadvantages such as one of the partnering firms may not be fulfilling or justifying their participation in the partnership relationship. Additionally, the committed exchange of technological advancements or others may not be happening.
The recommended entry into the South Korean Market will be the exports. The business partners who assist the export business are as follows (Musso and Francioni 2014):
Primo must take an attempt to enter the South Korean market by means of exporting the processed meats. This is advisable because of the free trade agreement between Australia and South Korea, known as KAFTA. It is advisable also because the South Korean people have good respects for the Australian products. Additionally, the demands for processed meats are incrementing among the South Korean adults.
Conclusion:
Therefore, Primo must plan an entry to the rising South Korean Meat Market by means of exporting the processed meats. Primo is good at and is the largest producer of bacon, ham & smallgoods. The company must utilize its expertise in a market which is booming for the varieties of processed meats. It is recommended because of a healthy bilateral trade relationship between Australia and South Korea. Summarizing the findings, a market entry into the South Korean market by means of exporting the processed meats is a healthy idea
References
Agr.gc.ca. 2018. Retrieved from https://www.agr.gc.ca/resources/prod/Internet-Internet/MISB-DGSIM/ATS-SEA/PDF/6831-eng.pdf
Ausfoodnews.com.au. 2018. Brazil’s JBS buys Primo Smallgoods | Australian Food News. Retrieved from https://www.ausfoodnews.com.au/2014/11/24/brazils-jbs-buys-primo-smallgoods.html
De Villa, M.A., Rajwani, T. and Lawton, T., 2015. Market entry modes in a multipolar world: Untangling the moderating effect of the political environment. International Business Review, 24(3), pp.419-429.
Doucette, J. and Lee, S.O., 2015. Experimental territoriality: Assembling the Kaesong industrial complex in North Korea. Political Geography, 47, pp.53-63.
Efic.gov.au. 2018. Retrieved from https://www.efic.gov.au/media/3281/sme-information-series-south-korea.pdf
Grasso, S., Brunton, N.P., Lyng, J.G., Lalor, F. and Monahan, F.J., 2014. Healthy processed meat products–Regulatory, reformulation and consumer challenges. Trends in Food Science & Technology, 39(1), pp.4-17.
Import-export.societegenerale.fr. 2018. South Korean Market: Consumer. Retrieved from https://import-export.societegenerale.fr/en/country/south-korea/market-consumer
Jbs.com.br. 2018. Retrieved from https://jbs.com.br/en/
Jensen, M.D. and Snaith, H., 2016. When politics prevails: the political economy of a Brexit. Journal of European Public Policy, 23(9), pp.1302-1310.
Kr.usembassy.gov. 2018. Retrieved from https://kr.usembassy.gov/wp-content/uploads/sites/75/2016/06/Food-Consumption-Trends-in-Korea_Seoul_Korea-Republic-of_6-10-2014.pdf
Mercyforanimals.org. 2018. The Net Profits of the World’s Largest Meat-Processing Company Have Plummeted 80 Percent. Retrieved from https://www.mercyforanimals.org/the-net-profits-of-the-worlds-largest-meat
Musso, F. and Francioni, B., 2014. International strategy for SMEs: criteria for foreign markets and entry modes selection. Journal of Small Business and Enterprise Development, 21(2), pp.301-312.
Primo.com.au. 2018. About Primo Smallgoods | History of Primo. Retrieved from https://www.primo.com.au/our-story
Quansah, K.A. and Ahn, W.C., 2017. The Effect of the Korea-Australia Free Trade Agreement (KAFTA) on the Korea-Australia Trade Structure. The Asian Journal of Shipping and Logistics, 33(4), pp.229-235.
Quansah, K.A. and Ahn, W.C., 2017. The Effect of the Korea-Australia Free Trade Agreement (KAFTA) on the Korea-Australia Trade Structure. The Asian Journal of Shipping and Logistics, 33(4), pp.229-235.
Roe, D. and Bruwer, J., 2017. Self-concept, product involvement and consumption occasions: Exploring fine wine consumer behaviour. British Food Journal, 119(6), pp.1362-1377.
The Guardian.com. 2018. JBS Australia to buy Primo Group in $1.45bn meat processing deal. Retrieved from https://www.theguardian.com/business/2014/nov/21/jbs-australia-to-buy-primo-group-in-145bn-meat-processing-deal
Trade.gov. 2018. Why a U.S.-Korea Trade Agreement?. Retrieved from https://www.trade.gov/fta/korea/
Weforum.org. 2018. Here’s the real impact of the food we eat on the environment. Retrieved from https://www.weforum.org/agenda/2016/12/your-kitchen-and-the-planet-the-impact-of-our-food-on-the-environment
Worldwatch.org. 2018. Global Meat Production and Consumption Continue to Rise | Worldwatch Institute. Retrieved from https://www.worldwatch.org/global-meat-production-and-consumption-continue-ris
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