[IB - Group 5] Kit Kat case study PDF

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FOREIGN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS---------***--------RESEARCH PAPERSubject: INTERNATIONAL BUSINESSCULTURAL DIFFERENCES BETWEEN THE UKAND JAPAN AND ITS EFFECT ON KITKATBUSINESS DECISIONSGroup : 5 Phạm Tùng Dương 1711140024 Nguyễn Thị Huệ 1711140036 Nguyễn Đỗ Tuệ ...

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FOREIGN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS ---------***--------

RESEARCH PAPER Subject: INTERNATIONAL BUSINESS

CULTURAL DIFFERENCES BETWEEN THE UK AND JAPAN AND ITS EFFECT ON KITKAT BUSINESS DECISIONS Group : 5 Phạm Tùng Dương

1711140024

Nguyễn Thị Huệ

1711140036

Nguyễn Đỗ Tuệ Minh

1711140060

Hoàng Hà Phương

1711140069

Đỗ Thị Phương Thảo

1711140078

Class: Advanced Program of International Business Economics - Cohort: 56 Instructor: Ms. Nguyen Hong Hanh

Hanoi, September 10, 2020

CONTENTS I. Introduction ............................................................................................................. 2 II. About KitKat: ........................................................................................................ 3 1. Introduction about KitKat company:.................................................................... 3 2. KitKat's international business background: ........................................................ 4 3. KitKat's expansion to Japan ................................................................................. 6 III. Cultural differences between KitKat’s home country - the United Kingdom and Japan .......................................................................................................................... 9 1. Overview of the UK and Japan culture ................................................................ 9 2. KitKat infused into the UK culture .................................................................... 11 3. Japan culture highlight and KitKat adaptation ................................................... 12 IV. Implication and lessons for international business............................................... 16 V. Conclusion ........................................................................................................... 18 REFERENCES: ........................................................................................................ 20 GROUP CONTRIBUTION: ..................................................................................... 23

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I. Introduction In this day and age, thanks to globalization and free trade, business companies are allowed to expand across borders and the global marketplace becomes increasingly accessible for both large and small international companies. Multinational companies, definitely, take advantage of an increasingly diverse knowledge, labor and customer base. Along with the benefits of new sources, global companies may unavoidably encounter an enormous number of challenges in order to succeed when it comes to a new market other than their home country. In particular, one of these hurdles may come from cultural differences, which may either negatively or positively affect the company’s performances in the local market it is targeting. While there are several ways to define culture, yet, simply it is a set of common and accepted norms shared by a society. As taking a closer look at cultural differences, there can be more concepts to be taken into account, such as low-context and high-context cultures. In low-context cultures like the United States, United Kingdom and Canada, communication is explicit and clear while the opposite situation holds in high-context cultures like Russia, China, Japan and France: communication is nuanced and implicit with more hidden content. People’s cultures often shape their attitudes and perceptions towards issues of morality and values or virtues as well as how they interact with their environments. Therefore, normally, doing international business in high-context culture countries may be more challenging due to its focus on underlying context, meaning and tone in the message instead of just words themselves. Without thorough local market research regarding local culture and well-prepared strategies before expanding business into these complicated foreign markets, there have been many failure experiences of international companies in the past of creating misunderstandings in ways of marketing and communicating the message of products, which can lead to incredible loss in their revenues and even boycott from local customers as threat to their survival. Nevertheless, there are also many cases of cross-cultural companies which have taken time to address these differences and successfully had a better chance of remaining competitive and becoming the top brand of sales in the international business environment. Thus, in this essay, we will make a discussion on cultural differences as

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obstacles of KitKat company when it entered the hard-to-please Japan market since the early 1970s and how it adapted to continue flourishing and finally, figure out some lessons to succeed that might be applied to other multinational businesses.

II. About KitKat: 1. Introduction about KitKat company: KitKat is a chocolate-covered wafer bar confection created by Rowntree's of York, United Kingdom, and is now produced globally by Nestlé, which acquired Rowntree in 1988, with the exception of the United States, where it is made under license by the H. B. Reese Candy Company, a division of The Hershey Company. a) Rowntree's Rowntree's is a British confectionery business based in York, England. Rowntree developed the KitKat (introduced in 1935), Aero (introduced in 1935), Fruit Pastilles (introduced in 1881), Smarties (introduced in 1937) brands, and the Rolo and Quality Street brands when it merged with Mackintosh's in 1969 to form Rowntree Mackintosh Confectionery. Founded in 1862, the company developed strong associations with Quaker philanthropy. Throughout much of the 19th and 20th centuries, it was one of the big three confectionery manufacturers in the United Kingdom, alongside Cadbury and Fry. In 1981 it received the Queen's Award for Enterprise for outstanding contribution to international trade. By the time the company was acquired by Nestlé in 1988, it was the fourth-largest confectionery manufacturer in the world. The Rowntree brand continues to be used to market Nestlé's jelly sweet brands, such as Fruit Pastilles and Fruit Gums. b) Nestlé Nestlé S.A. is a Swiss multinational food and drink processing conglomerate corporation headquartered in Vevey, Vaud, Switzerland. It is the largest food company in the world, measured by revenues and other metrics, since 2014. It ranked No. 64 on the Fortune Global 500 in 2017 and No. 33 on the 2016 edition of the Forbes Global

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2000 list of largest public companies. The company was started in 1886 by Henri Nestlé in Switzerland. Nestlé's products include baby food, medical food, bottled water, breakfast cereals, coffee and tea, confectionery, dairy products, ice cream, frozen food, pet foods, and snacks. Twenty-nine of Nestlé's brands have annual sales of over CHF1 billion (about US$1.1 billion), including Nespresso, Nescafé, KitKat, Smarties, Nesquik, Stouffer's, Vittel, and Maggi. Nestlé has 447 factories, over 2000 brands in 189 countries with 339,000 employees. It is one of the main shareholders of L'Oreal, the world's largest cosmetics company. The company grew significantly during the First World War and again following the Second World War, expanding its offerings beyond its early condensed milk and infant formula products. The company has made a number of corporate acquisitions, including Crosse & Blackwell in 1950, Findus in 1963, Libby's in 1971, Rowntree Mackintosh in 1988, Klim in 1998, and Gerber in 2007. Nestlé’s success with product innovations and business acquisitions has turned it into the largest Food Company in the world. Today, Nestlé markets a great number of products, all with one thing in common: the high quality for which Nestlé has become renowned throughout the world. The Company's strategy is guided by several fundamental principles and can be summarized as: “Thinking globally - acting locally” 2. KitKat's international business background: KitKat bars are produced in 16 countries by Nestlé: Brazil, Mexico, United Kingdom, Canada, Australia, New Zealand, South Africa, Germany, Russia, Japan, China, Malaysia, Thailand, India, Turkey, United Arab Emirates, Bulgaria and Algeria. KitKat bars in the United States are produced under licence by The Hershey Company, a Nestlé competitor, due to a prior licensing agreement with Rowntree. The origin of KitKat was traced back to 1935, the original four-finger bar was developed after a worker at Rowntree's York Factory put a suggestion in a recommendation box for a snack that "a man could take to work in his pack". The bar launched on 29 August 1935, under the title of Rowntree's Chocolate Crisp, and was sold in London and

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throughout southern England. Rowntree's Chocolate Crisp was renamed KitKat Chocolate Crisp in 1937. Following its success in the United Kingdom, in the 1940s KitKat was exported to Canada, South Africa, Ireland, Australia, and New Zealand. In 1958, Donald Gilles, the executive at JWT Orland, created the iconic advertising line "Have a Break, Have a KitKat". The brand further expanded in the 1970s when Rowntree created a new distribution factory in Germany to meet European demand, and established agreements to distribute the brand in the US through the Hershey company, and in Japan through Fujiya. In June 1988, Swiss company Nestlé acquired KitKat through the purchase of Rowntree's, giving Nestlé global control over the brand, except in the US, and production and distribution increased with new facilities in Japan and additional manufacturing operations set up in Malaysia, India and China. Variants in the traditional chocolate bar first appeared in 1996 when KitKat Orange, the first flavour variant, was introduced in the United Kingdom. Its success was followed by several varieties including mint and caramel, and in 1999 KitKat Chunky was launched and received favourably by international consumers. Variations on the traditional KitKat have continued to be developed since then. In 2000, Nestlé acquired Fujiya's share of the brand in Japan, and also expanded its marketplace in Japan, Russia, Turkey, and Venezuela, in addition to markets in Eastern and Central Europe. As dark chocolate has seen increased demand and favour worldwide because of its purported health benefits, in September 2006 the four-finger KitKat Fine Dark was launched in the United Kingdom as a permanent product, and packaging for the entire brand was changed. Twist by Mars, Hershey’s, Galaxy, Kinder Bueno and Time out by Cadbury are some of KitKat’s main competitors. Despite the heavy competition, KitKat remains as one of the UK’s bestselling chocolate bars. In 2014, Kit Kat was ranked the third best selling chocolate bar in the United Kingdom, after Dairy Milk and Galaxy.

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3. KitKat's expansion to Japan According to the Japan Tourism Agency, in 2018, the number of foreign tourists visiting Japan reached 31.19 million, ranked 11th in the world. International travelers are appearing all over the country, flooding the local markets with fresh cash. One of the souvenirs most likely to catch their attention is Japanese candies, especially the green tea - flavoured KitKat. Nowadays, these dark green candy bars line display windows in souvenir shops around Tokyo's train stations and airports, and there seems to be no end to international tourists clamoring to snatch them. However, the unusual thing about this trend is that KitKat isn’t a Japanese candy. It’s an international brand, invented in England and now sold by Nestlé, the Swiss megaConglomerate, the world’s biggest food corporation. Although sold in over 100 the market that a number of people in Tokyo have said that Kit Kat was a Japanese product.countries like China, Thailand , India, Russia, the U.S., KitKat is one of the best-selling Japanese chocolate brands, and it has gained such a unique position on: a) History Like Japan itself, KitKat is a confection with a long and storied history. Over 50 years after it first came to Japan, the country has grown to become the brand’s biggest consumer in terms of both sales and profits, with Nestle as the present-day owner. From convenience stores to Kit Kat branded boutiques in Tokyo and Osaka, the sweet treats can be found at practically every turn. This chocolate was originally launched in Japan in 1973, and so there was a fair amount of time while it was being sold in Japan without any significant flavor changes, but it was explained that during this time they were developing the shape. Just like the UK, the four-finger bar was the main item, but in the 1980s they expanded to selling familytype bags which had mini two-finger bars. Yet the story of how Japan made the snacking staple entirely its own begins in 1990, in Hokkaido, Japan’s northernmost main island, known for its skiing, hot springs and beer. KitKat’s marketing team believed the island’s souvenir shops — in fact, souvenir shops nationwide — could stand to diversify their snack offerings. “Wherever you went, you could only find rice cakes,” said Takuya Hiramatsu, a spokesman for Nestle Japan. “But people got kind of bored with traditional rice cakes.” 6

After trying different product variations of the original milk chocolate bar, they decided to try a new strategy which could work with Japanese people’s preference for new things. For a limited time a new flavor was sold as a trial, so in 2000, Nestlé Japan released its first non-chocolate flavor: strawberry, during strawberry season in Hokkaido, which proved to be a hit with customers and really flew off the shelves. Since then, Kitakat has created around 350 varieties and embedded itself in Japanese culture, becoming a Kit Kat signature in Japan. The reason for this variation is the demand for Japanese convenience stores to constantly rotate items on their shelves. However, keeping up with the demand requires a steady flow of new ideas. By producing smaller runs of flavors, the company was better able to control its production costs. It was also economically viable in Japan because there is no initial product fee for listing new products in Japanese convenience stores. The KitKat makers leveraged local products into exotic flavors. In time, exotic and strange KitKats began appearing all over, including on Honshu, the nation’s largest island. There, in Shizuoka prefecture, the candy-makers offered Tamaruya-Honten brand wasabi KitKats; in the Kanto region, adzuki bean sandwich KitKats; in Hiroshima, KitKats flavored like momiji manju, a locally produced pastry made of rice and buckwheat. Many Japanese prefectures even develop Kit Kats based on local specialties. This leaves plenty of room for experimentation. An interview with Kaori Murata of Nestle Japan, who developed around 100 of the 350+ flavors, reveals the difficulties getting KitKats to actually taste like the flavors they’re supposed to represent. New KitKat varieties, Nestle said, take about six months to develop, from idea to shelf, which makes failures all the more disappointing. One of their greatest failures came about eight years ago — an assortment of cola- and lemonade-flavored KitKats. In 2009, “sports drink,” a citrusy concoction, also fell flat. About the success of KitKat in Japan, Nestle says their sales in this country have risen 50% between 2010 and 2016. The KitKat brand took the number one sales position from Meiji chocolate in 2012, though Meiji remains the leading confection company in Japan overall. In 2014, KitKat retail sales in Japan reached 17 billion yen, equivalent to

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96 million pounds, although still less than 243 million pounds in sales in the UK, but sales increased continuously since 2011. In contrast, UK KitKat sales have fallen for 4 consecutive years due to the fear of obesity and diabetes. From 2014, to now, KitKat was the top-selling confection in the country. More recently, in 2017, the company opened its second manufacturing plant in Japan to keep up with local demand. Also in this year, a new KitKat specialty store in Tokyo’s ritzy Ginza district — called Chocolatory — established the chocolate bar as a premium brand. Chocolatory has sold “orange cocktail noir” and “Sakura green tea,” containing cherry leaf extract. The store, which also sold gold leaf bars, once offered a limitededition that was distinctively Japanese — sushi KitKats. No tuna, no mackerel. Just funsized bars with KitKats (pumpkin pudding, Hokkaido melon, raspberry) laid on puffed rice and wrapped in seaweed. During 50 years of development in Japan, KitKat has made some smart partnerships. In 2009, the company created ‘KitKat Mail,’ a partnership with Japan’s postal service that allowed students to send KitKats as good luck charms before the country’s highpressure January university entrance examination. Some KitKat wrappers contain blank spaces for students to scribble in heartwarming messages The promotional packages were sold out within a month. In March 2011, after an earthquake, tsunami and nuclear disaster devastated a swath of Japan’s Pacific coast, people sent KitKats to the region, appending the message: kitto fukkyu kanau, or, ‘you’ll surely recover.’ Nestle Japan threw its support behind the damaged Sanriku Railway — it released a special line of KitKats and donated some of the proceeds to reconstruction. It decorated two rail cars and in 2014, to celebrate the rail’s return to full operations, allowed riders to use some limited edition KitKats as tickets. Nestlé also develops flavors in collaboration with famous local companies and retailers. One example of this is the popular “Kit Kat Itoh-Kyuemon Uji-Matcha” flavor, named for a famous Uji tea seller founded in Kyoto in 1832. Recently, candies flavored with Uji matcha have gained a lot of traction in the market, and Itoh-Kyuemon is seen as a definitive example of the best-known tea sellers in Uji. When they hear the name “Itoh-

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Kyuemon,” customers can instantly visualize the legendary tea growers and the famous shops that to this day exist as the “face” of Uji. b) Product KitKats are now produced at Nestlé-owned factories in Himeji and Kasumigaura. The milk chocolate used for KitKats is made from whole-milk powder and Nestlé buys most of its cacao beans from West Africa. The most popular kind of Kit Kat in Japan is the mini — a bite-size package of two ingots — and Nestlé estimates that it sells about four million of these each day. KitKat is multicolored, multilayered, sometimes so difficult to find. In any given year, there are about 40 flavors available, including the core flavors — plain milk chocolate, strawberry, sake, wasabi, matcha, Tokyo Banana and a dark-chocolate variety called “sweetness for adults”. The company develops 20 new flavors every year, and replaces flavors on convenience store shelves every two months. “That’s how the cycle has been ever since strawberry". Some of these flavors can only be found in regions in the country in which a sense of uniqueness and collectivity is encouraged. The company claims that seasonally limited edition versions provide consumers with "rare and scarce value." However, while they are developing products according to the market and customer needs, they feel the most important thing is in fact the quality of the original KitKat. That is the key product, and like other brands the key product creates the brand’s value. They explained that if they just focused on developing new flavors, that is something that any company could just copy and do. They want to improve the evaluation of the brand as a whole, as well as its core products.

III. Cultural differences between KitKat’s home country - the United Kingdom and Japan 1. Overview of the UK and Japan culture As mentioned above, KitKat was first delivered as a fresh, four-finger chocolate wafer bar during the 1930s, in the UK, by the chocolate maker Rowntree's. In the 84 years 9

since then, the brand has become a global phenomenon in Japan where KitKat is considered a lucky charm, and has been made available in more than 300 weird and wonderful flavours including sweet potato, ch...