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Transfers of Food Business Marketing Knowledge in Asia

Presented at EAMSA World Congress 2014 on October 31, 2014 at Thammasat

University, Bangkok, Thailand by Hiroshige HAYASHI, Visiting Professor, Xi’an Jiaotong University School of Management

Abstract

This paper discusses the transfer of marketing knowledge in Asia relating to consumer food business by the three (3) Japanese corporations of AJINOMOTO (seasonings), EZAKI Glico (chocolate confectioneries) and Otsuka Pharmaceutical NC Division (sports drinks). By offering their products, they all aim to provide ‘happiness of life or spiritual value’, promoting it as ‘the joy of enjoying tasty foods with family’ (AJINOMOTO), ' the joy of sharing pleasure with someone precious to you’ (Glico), and ‘the sheer pleasure of doing your body good’ (Otsuka). The most competitive dimension for them is therefore ‘competence’ in consumer spiritual value creation in different cultural settings. The transfer of consumer marketing knowledge for spiritual value creation across cultures by the three corporations will be analyzed and its generalization will be hypothesized through the applications of the marketing transfer model by Hayashi. Key word Ajionomoto, Ezaki Glico, Otsuka Pharmaceutical marketing transfer model, 4Ps of marketing knowledge, Product/Program/Process/People, civilization product and culture product, SA transfer and AI transfer

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Chapter 1. Introduction

This paper discusses the transfer of marketing knowledge relating to consumer food businesses, with particular attention to AJINOMOTO Co., Inc., EZAKI GLICO Co., Ltd. and Otsuka Pharmaceutical Co., Ltd. Neutraceuticals Division, in the geographical region of ASEAN countries and China. See Exhibit 1.

1.1 AJINOMOTO Co., Inc.

About 80% of AJINOMOTO’s overseas consumer food businesses are concentrated in Asia, mainly in six ASEAN countries – Thailand, Indonesia, Malaysia, Vietnam, the Philippines and Singapore. The local subsidiary in each country has grown to become a general food manufacturer. AJINOMOTO has established its own brands in many product categories, ranging from a global brand of umami seasoning 'AJI-NO-MOTO' to strong local-specific brands, and despite food being generally considered the most conservative aspect of the local culture, these brands have taken firm root in each country’s culinary repertoire. At present, AJINOMOTO is actively carrying out a consolidating-growth strategy, including the introduction of new products and market expansion into South-West Asia and the Middle-East. AJINOMOTO’s business performance in China has been quiet. 1.2 EZAKI GLICO Co., Ltd.

Business Performance in Asia (2012)

AJINOMOTO

JPY 1172.4B

Overseas 35%Overseas

JPY407.B

B2B 51%

B2C 49% JPY 154B or

80% Overseas

Consumer Business

EZAKI GLICO

JPY 293B

Confectioneries 28%

Overseas 27%

Overseas

JPY22B

ASIAJPY19B or 85%

Overseas

Consumer Business

Otsuka

JPY 598B

NC 22%

Asia 21%

Asia

JPY27~28B

IndonesiaJPY22B or 80% of

Asian

NC Business

ASIA

Exhibit 1

Source: IR data of each company

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Over 80% of EZAKI GLICO’s overseas sales occur in Asia, mainly of 'Pocky' and 'PRETZ', originally from Japan and now growing to become global brands. The core target is wealthy middle-class children, particularly female high-school and university students, and cultural marketing with a soft value focus, featuring the target audience's favorite pop culture has been employed to successful effect. Among EZAKI GLICO’s Asian operations, Thai and Chinese operations have a longer history and are becoming the two main sales pillars. In Thailand, sales areas are spreading from urban districts like Bangkok to rural districts, and even to neighboring countries like Indonesia and Vietnam. In China, sales development has been scaled up from key regions, including coastal areas, to large cities across the nation. 1.3 Otsuka Pharmaceutical Co., Ltd. Neutraceuticals (NC) Division

The core products of Otsuka Pharmaceutical NC Division include 'POCARI

SWEAT' and 'SOY JOY'. The Division has carried out marketing in Asia in the same way as in Japan; they sell scientifically-proven health foods and drinks through constant consumer education. Their sales tactic is one of tenacity and continuity, reluctant to abandon a program until success is achieved.

As of 2013, Indonesia is their biggest sales arena in Asia. The growing sales network covers the whole national archipelago, which consists of 18,000 islands of various sizes, spanning 5000km from east to west. Otsuka Pharmaceutical NC Division now aims for penetration in Thailand and Vietnam. In China, they have experienced slow growth.

Chapter 2. Transfer of marketing knowledge(1)

A company’s global marketing is 'a business management activity carried out by globally and reciprocally transferring and practicing the company’s marketing knowledge, a source of customer value creation, while learning from its origin country and host countries, with the aim of global optimization of the company’s business performance (sales and profit)'. I explain below my theory of marketing knowledge transfer, which constitutes the framework for this section. 2.1. 4P strategies for marketing knowledge

First, we look at the marketing knowledge that is transferred globally and reciprocally by Japanese companies in terms of the 4P strategies (Product, Program, Process, People). Product strategy guides product development, which creates customer value. Focusing on competitive advantages. Program strategy facilitates the establishment and execution of the 4P marketing strategies, consisting of strategic measures for individual products and brands, advertising and promotion, distribution and pricing. Process strategy concerns the marketing management process for planning and implementing program strategy. Hence, as marketing knowledge is passed on from

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person to person, People strategy is needed to optimize the diversity of human resource management (HRM) globally. 2.2 Global evolution of marketing knowledge (Exhibit 2)

Japanese companies learn overseas marketing knowledge; transfer and internalize it within themselves; and evolve – we define this mode as three-step AI transfer or AI evolution, which realizes internal globalization. Product transfer stages, typically, follow this pattern: a Japanese company learns about a certain product category (such as home electric appliances) from the West, adopts and imitates it, and produces a second-and-cheaper product to launch as Japan’s first-to-market exploration. Next, by adapting and improving what has been learned, the company makes a second-but-better (performing/functioning) product and evolves the existing market. Eventually, the company becomes adept and innovative, enabling the delivery of a first-and-best product on the world market, with a view to creating a new niche. Meanwhile, the transfer operation carried out by Japanese companies seeking growth opportunities overseas can be described as a two-stage SA transfer, of standardization and adaptation, facilitating external globalization. It is still fresh in our memory that in the home electric appliance sector, Japanese companies once swept the world with successful SA exports and SA local production while undergoing AI evolution. Japanese companies are now learning from consumers worldwide, and in addition to taking the adaptation stage of SA transfer, by conducting AI transfer in local markets, they are developing and selling localized products or local-specific brands.

Into Japan Out of Japan

Japan

Overseas

Japanized

KnowledgeAI transfer

SA transferLocalized

Overseas

Knowledge

Marketing Transfer Model

AI Transfer and SA Transfer of Marketing Knowledge

Into Japan (AI) Out of Japan( SA)

Adopt and Imitate Standardize

Adapt and Improve Adapt

Adept and Innovate

Exhibit 2

Source: Author

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First-and-best values for customers are being created locally through localization and AI transfer. In the case of local-specific models of automobiles and home electric appliances, reverse innovation is carried out by developing products locally, and later those products can also be sold to low to middle-income consumers in the markets of developed countries. In the case of foods and cosmetics, local lifestyles are studied to develop wholly new products and brands to be marketed locally. 2.3 Global transfer: 'civilization' versus 'culture' products (Exhibit 3)

To work on product strategy, it is necessary to divide products into 'civilization' and 'culture' typology (There are also hybrid products sharing characteristics of both types). Moreover, individual products need to be characterized as representing either 'physical' or 'spiritual' features. See Exhibit 3. For civilization products such as cars and home electric appliances, the product’s competitive advantages can be evaluated objectively by technology-determining function and performance. Therefore, the global development of this product type concentrates on standardization that makes few changes to the 'physical' side of Japan-born products, and on the adaptation to local cultures through effective communication, thereby modifying the product’s 'spiritual' features to meet local psychological/emotional needs and wants. As the civilization values of 'physical' features, such as function, performance, usability and price, are hardly affected by cultural differences, they are culture-free and their global transfer is based on a trade-off relationship with cost. Until recently, Japanese companies excelled at

Marketing Transfer ModelCivilization Products and Culture Products

Civilization Products Culture Products

Offering physical features of

convenience and solution to daily

life all over the world.

Offering “Japaneseness” of

psycho-spiritual features to other

countries and cultures.

Culture

Products

from Japan

Civilization

Products

from Japan

Competitive dimensions

are performance,

function, cost, etc.

Competitive dimensions

are life value, psycho-

spiritual value, etc.

Spiritual (Emotional)

Benefits

Physical (Functional)

Benefit

Barrier/conflict

Exhibit 3

Source: Author

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globalization with civilization products; automobiles and home electric appliances are typical examples, and these industries have produced numerous global companies. In contrast, the global development of culture products, such as foodstuffs and animation media, focuses on standardization, preserving the cultural values of 'Japan-only/Japan-like', which constitute a 'spiritual' feature, and on the adaptation to local cultures by modifying 'physical' aspects such as flavors and fragrances. In some cases, without changing 'physical' or 'spiritual' features, completely ‘Japan standardization-only transfer is carried out. Alternatively, in some cases, by moving away from Japan-origin foods and studying local food culture from the basics, 'physical' and 'spiritual' features are created through localization and local-based AI transfer, developing local-origin food products. Japan-origin culture values are not universal, but specific values to those who appreciate and are willing to accept them, so they are tied to cultural acceptance, or culture-bound. In recent years, even in the civilization product range including cars and electric home appliances, such local-based AI transfer starting with locally-made 'physical' and 'spiritual' features (= designs and concepts) has progressed, particularly in emerging markets. Japanese electrical appliance manufacturers were behind this trend and gave way to Korean counterparts, while Japanese motor manufacturers realized the situation and have tackled AI transfer in local markets, gradually regaining competitiveness. 2.4 Foodstuffs as 'culture' products

Although these companies are emphatic about the 'physical' aspects of their products’ flavors and quality, they all aim to provide 'happiness', a 'spiritual' aspect and a culture/soft value, promoting it as 'The joy of enjoying tasty food with family' (AJINOMOTO), 'The joy of sharing happiness with someone precious to you' (GLICO) and 'The sheer pleasure of doing your body good' (Otsuka). So key issues in their competition are less differentiation in technological advantages, but are more competitive advantages in soft values, which can enhance the user’s lifestyles. Therefore, the most important competitive dimension will be competence in customer value creation, supported by a deep understanding of local cultures as well as great imagination and creativity. We will now analyze each company’s marketing development in Asia from the viewpoint of transferring marketing knowledge using the 4P strategy,.

Chapter 3. Marketing in Asia by AJINOMOTO Co. (2)

3.1 Positioning of Asian marketing for AJINOMOTO AJINOMOTO’s consolidated sales for FY2012 was JPY1172.4 billion, and overseas sales of JPY407.5 billion account for 35% of this. Overseas sales in consumer food business alone reached JPY199.3 billion, of which nearly 80% (JPY153.5 billion) came from Asia. Asian business also showed the highest growth

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and profitability. AJINOMOTO's largest Asian operation is in Thailand, where it also has its ASEAN Headquarters. Thai AJINOMOTO and its regional ASEAN Headquarters were the main drivers in creating the business model (see below) leading to AJINOMOTO’s success in ASEAN . The Thai operation was the first to thrive, and its successful model was introduced to other ASEAN countries via SA transfer, bringing a series of successes in those countries. AJINOMOTO’s strategic plan for future growth in Asia is to make Thailand and Indonesia the base of product development and production, and expand business operations further into South-West and Mid-East Asia. 3.2 AJINOMOTO’s marketing in Asia (3) 3.2.1 ASEAN business model: upward-migration marketing We review AJINOMOTO’s business operation in ASEAN, focusing on Thailand, as their business model here has been and continues to be successfully adapted to local markets across the whole ASEAN area. Looking at the FY2012 business performance of Thai AJINOMOTO, consumer products sales are over JPY80 billion, 60% of all ASEAN sales, and their growth rate is also high. Thai AJINOMOTO has now become the country’s representative general food company. Following Thailand, sales in Indonesia (JPY23 billion), Vietnam (estimated JPY15 billion) and the Philippines (estimated JPY10 billion) are increasing. Thai AJINOMOTO has expanded for over 50 years by honing its capability to deliver results according to upward shifts in the core target, from the poor (Bottom of Pyramid: BOP) to the middle-classes (Middle of Pyramid: MOP) and the rich (Top of Pyramid: TOP)(4). In the early days of operation, from the 1960-70s, nearly 90% of Thailand's population was poor. Therefore, the focus was on penetrating the kitchen culture of the BOP households comprising the overwhelming majority of the population, and the umami seasoning 'AJI-NO-MOTO' achieved great success among BOP and lower MOP households. Home-cooking centered on rice, vegetables and fish is a common characteristic of food cultures in ASEAN countries, particularly among BOP households where meat is usually unaffordable. In such cooking, 'meaty taste or umami' is crucially lacking, which is what 'AJI-NO-MOTO' has provided. Starting in Thailand, the acceptance of 'AJINOMOTO umami' as a universal value eventually spread across all of ASEAN. 3.2.2 Product strategy (Exhibit 4) 'AJI-NO-MOTO' is a global brand, and the standardization step of SA transfer was carried out without changes to the product’s 'physical' or 'spiritual' features. When this product took root in the market, it became possible for the company to start diversified development of brands and products. After the 'umami' of the product ‘AJI-NO-MOTO’ and 'trust, safety assurance and confidence in the company' of AJINOMOTO were established, new products were locally developed and sold following identification of needs and wants of MOP housewives; A wholly new semi-premium compound seasoning, 'ROSDEE', was a chicken or pork stock suitable for standard Thai home cuisine such as tom yum kung soup, and 'ROSDEE MENU' was a menu-specific seasoning. These products were created through AI transfer and during the transfer, both 'physical' and 'spiritual' sides were derived from Thai

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experience. AJINOMOTO adapted the manufacturing technology of its Japanese-market product 'Hondashi' to Thai culinary culture and lifestyle. The 'ROSDEE' range emerged as a market leader, with 60% share – they are 'first-and-best' products.

After that, by adapting the Japan-origin product categories to Thai flavors and tastes and targeting the MOP, the company launched a series of products including canned coffee, 'Birdy', and instant noodles, 'Yum Yum'. Surpassing Nestle, 'Birdy' maintains a market share exceeding 60%. These products were an outcome of SA transfer of product categories originating from Japan, and the products’ 'physical' and 'spiritual' aspects have been adapted to local culture; in particular, 'physical' features such as sweetness/bitterness of the coffee taste and length/thickness, texture and flavor of the noodles, reflect local preferences. In summary, Thai AJINOMOTO’s strategies regarding products consist of the following;

- Two types of brand strategy (Global and Local) - Three types of transfer strategy (Standardization transfer of the product

'AJI-NO-MOTO'; AI transfer to develop products locally from a blank sheet; and SA-adaptation of Japan-origin product categories to local markets to launch local-specific products)

- Three-phased target strategy (BOP MOP TOP) In principle, AJINOMOTO aims to be a market pioneer, making market entries as a front-runner with first-and-best products. Originating from Thailand, this strategic approach to product introduction has spread throughout ASEAN through SA transfers. 3.2.3 Program strategy

Umami seasoning ‘AJI-NO-MOTO’

(1962)[rice & vegetable-centered culinary

culture & lifestyle]

①Global brands: SA Standardization

(35% of business)

•Ramen noodles ‘Yam Yam’ (1973)

•Canned & stick coffee’ Birdy’ (1993)

②Local brands: SA Adaptation (both

physical & spiritual) of Japan-origin

product categories=Culture Adaptation

(35% business)

•Flavor seasoning ‘ROSDEE’ (1979)

③Local brands: AI First-and-Best of

both physical and spiritual

features=Culture Assimilation (30%

business)

Culture Distance (Short)

Cultu

reA

ccepta

nce

(Stro

ng)

AJINOMOTO : Up-ward Migration Product Strategy in Thailand

and elsewhere in ASEAN

①→③→②

Exhibit 4

Source: Author

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In principle, strategic programs are established and implemented through AI transfers based on learning from local culture/markets. However, as discussed later regarding establishing and implementing programs, a standardized process is transferred for use, subject to AJINOMOTO’s global standard manual. As SA-standardized marketing rules, '3A Principles of Marketing Practice, or Program Strategy' has been used in Thai AJINOMOTO and across ASEAN. This is actually a code of marketing practice established through local-based AI transfers within ASEAN, particularly in Thailand, and 3A means Applicable, Available and Affordable. 'Applicable: The products must fit the needs and wants of local food culture and lifestyles', which is a fundamental philosophy running through all products. 'Available: The products can be purchased anywhere in the country', so AJINOMOTO has created a nationwide direct sales network covering retailers in every town. 'Affordable: Price setting must reflect the purchasing power of the core target', which is the most basic condition of pricing strategy. For instance, the umami seasoning 'AJI-NO-MOTO' is well used in almost all Thai home cooking. Taking into account daily spot purchases for same-day consumption, the price is set at JPY2-5 for 3g-10g portions, an affordable level for BOP and MOP consumers. In addition, Sangen Shugi (or Three Actuals: actual place, actual product, actual money) has been applied by AJINOMOTO. By visiting several hundred thousand small retailers nationwide, mostly tenants in large-sized 'wet' markets, local needs are fully grasped on-site. Products are delivered to retailers’ shop fronts for direct sales, and the takings collected in cash on the spot. The sales taskforce of 1,400 members carry out sales activities on the actual retail locations. Not only in Thailand but across all of ASEAN, AJINOMOTO relies on this sales route for 80-90% of its product distribution. Advertising and promotional events are organized as locally-driven activities. When they involve communication concerning local food culture, especially creative expressions are used to convey the savoring or happiness of home cooking. External host-country designers are deployed under the direction of AJINOMOTO host-country managers(HCNs=Host Country Nationals). From years of experience, AJINOMOTO is very certain about one thing - 'Better not to stick to the Japanese concept or way of expressing deliciousness'. 3.2.4 Process strategy Strategic processes are subject to AJINOMOTO’s global standardization process. In other words, a process to create marketing strategies is standardized for control under the 'AJINOMOTO MARKETING MANAGEMENT MANUAL', a universal manual which, naturally, is strictly confidential. On one hand, sharing marketing knowledge is promoted, and on the other, the process of marketing is standardized according to the manual. Strategic programs for mixing marketing tools are driven by local subsidiaries, which then execute a complex blend of SA transfers and AI transfers while consulting with the Overseas Food Department of the Head Office. At Head Office, personnel with extensive ASEAN work experience are employed. Brand management system: AJINOMOTO’s global brands are centrally managed at the Head Office. Regional and local brands are managed on a local-driven basis; each local subsidiary executes management while discussing with the Overseas Food Department of the Head Office. To establish brand equity, a uniform format,

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'AJINOMOTO Brandspoon', is used all over the world for both global and local brands: 'The AJINOMOTO Brandspoon’ determines the core value of each product brand and clearly defines its supporting brand equity dimensions such as differentiation, personality factors and consumer benefits. It is a strategic format effective to ensure the brand’s competitiveness in the practice of brand marketing. 3.2.5 People strategy The heads of the management teams at AJINOMOTO’s local subsidiaries in ASEAN, including Thai AJINOMOTO, are Japanese (MNCs=Mother Country Nationals). Executive-level positions in sales and marketing are often assigned to ASEAN host-country nationals. The Japanese expatriates have high adaptability to cultural diversity and excellent language skills, capable of working not just in English but also in local languages. At strategy planning meetings at local-subsidiary head offices, the members, including ASEAN-national executives, speak English. However, transactional operations such as daily business activities at sales companies are carried out in local languages. The Japanese assignees have empirical knowledge obtained from familiarization with AJINOMOTO marketing in Japan, but are at the same time learning from the empirical knowledge of the home-country national staff about local marketing, along with the standardized manual (or process) to pursue their missions to create and execute marketing programs most suitable to each country and to achieve their business targets.

Chapter 4. Marketing in Asia by EZAKI GLICO Co. (5) 4.1 Positioning of Asian marketing for EZAKI GLICO EZAKI GLICO’s consolidated sales for FY2012 were JPY293 billion, 28% of which, around JPY82 billion, was from its confectionery division. The company’s overseas business is in fact its confectionery division’s operations, whose overseas sales in the same year is estimated at around JPY22 billion. The confectionery division's proportion of overseas sales in total confectionery sales is 27%. 85% of overseas sales come from Asia; where the company’s two main bases are in Thailand and China. EZAKI GLICO’s biggest brand is 'Pocky', a chocolate confection currently sold in 30 countries. However, until quite recently, "we saw no necessity to get deeply involved in overseas business as we had an established niche in the domestic market, guaranteeing our survival. Only when we had some opportunity and the foreign market had adequate space to accept our products, did we decide to go – that was the level of our overseas operations" (Senior Corporate Officer, International Operations). Three years ago, EZAKI GLICO diverted its policy into very active global marketing. The major objective is to grow their two products, 'Pocky' and its pretzel 'PRETZ', into global brands both in name and reality, and growth in Asia is crucial.

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The criteria for being a global brand is world sales of USD1 billion (about JPY100 billion) at the retail price level, to rank with Nestle’s 'Kit Kat' or Kraft’s 'OREO'. Thai GLICO Co., Ltd. : In 1970, Thai GLICO was founded as a joint venture, starting production and sales. 'Pocky' and 'PRETZ' are its chief products. As the base of EZAKI GLICO’s business operation in ASEAN countries, Thai GLICO exports to Singapore, Malaysia, Indonesia, Vietnam, and also Hong Kong and Taiwan. Since 2012, substantial expansion into neighboring countries has increased. Two local subsidiaries in China : Responding to the enterprise invitation in 1995, EZAKI GLICO launched business operations in China, starting production and sales. They sell locally-developed local-specific products as well as 'Pocky' and 'PRETZ'. Currently, two subsidiaries, Shanghai Ezaki GLICO Foods Co., Ltd. and Shanghai Ezaki GLICO Nanfeng Foods Co. Ltd., are in operation. Until 2012, the focus was put on five areas (Sichuan Province, Chongqing, Hebei Province, Beijing and Tianjin) to raise brand awareness of 'Pocky' and 'PRETZ', achieving a good market penetration. 4.2.EZAKI GLICO’s marketing in Asia 4.2.1 Enhancing competitiveness through MOP marketing

The rapid growth of the MOP class(6) in Asia has become a business opportunity for EZAKI GLICO. Their primary target is high school and university-age offspring of families with annual household income of USD 8,000-9,000 or more in Thailand and China. The users are mostly females, but under their influence the number of male consumers is increasing. These young people buy 'cute, fashionable, fun' confectionery products with their pocket money and enjoy sharing them with friends. In China, a particular segment of semi-luxury adult confectionery, purchased by women in the late 20s - 30s age group is growing. Business performance in Thailand : Sales peaked in 2008 at JPY6.825 billion, and after that competition from domestic and foreign manufacturers became tougher, causing a gradual sales decline. Meiji Seika from Japan, Korean manufacturers Lotte and Orion, and a local leading company, OISHI, have all introduced rival products. Nestle’s 'Kit Kat' and Kraft’s 'OREO' are also powerful competitors. Competition in fully-fledged marketing has become intense. In 2013, when operations were fully restored from the production shut-down caused by Thailand's 2011 floods, recovery marketing was initiated, and Thai sales of 'Pocky' and 'PRETZ' restored to pre-flood levels. The sales target is JPY10 billion, i.e. 190% of the 2012 performance. Business performance in China: Sales have been growing steadily in China, with little influenced coming from the boycott on Japanese products in autumn 2012. Sales in that year stood at JPY15.855bn, almost double 2009 sales. This was largely due to increasing sales in the coastal area of 'Pocky' and 'PRETZ', together accounting for about 50% of the total sales; sales of local-specific China-developed products also grew. Domestic sales grew by 20% over the previous year. 2013 sales were aiming at a 10% increase over the previous year, and it is planned to explore markets in South China (including Guangdong and Hainan Provinces) and West

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China (including Hunan and Hubei Provinces) where marketing has so far been relatively sparse. 4.2.2 Product strategy (Exhibit 5)

EZAKI GLICO’s products are categorized as 'culture' type, as they convey Japanese 'spiritual' or Japan-like aspects. "We don’t sell our products by explicitly stressing Japanese things. However, Japanese culture or Japan-like features are liked and that works as favorably for us, that is undeniable" (Senior Corporate Officer, International Operations). The emphasis is on the Japanese origin products, 'Pocky' and 'PRETZ', and their 'spiritual' aspects, such as deliciousness and Japanese 'loveliness with a touch of playfulness', have been preserved, while 'physical' features like sweetness have been adapted to local tastes. As for packaging design, a standardized graphic design is applied, but with localized detail such as color shades and labeling languages. In the case of 'Pocky', the image color of red is standard. The Thai packaging has an English/Japanese

display of 'GLICO, Pocky, いちご' on the front, and Thai/Japanese labeling on the

back. In Thailand, Japanese language is viewed positively; but Chinese packaging

has an English/Chinese display of 'GLICO 格力高, Pocky 百奇', with no Japanese.

Japanese language labeling is considered risky in China. In China, China-specific products, developed locally through AI transfers, are also

sold. The product range includes 'Vegetable Crackers 菜園小餅'and chocolate

cookies 'Q 巧', and both 'spiritual' and 'physical' features have been designed for

Chinese application. Praline chocolate 'Mousa' is a dessert chocolate targeted at

Japan-origin global brands

•Chocolate Confectionery ‘Pocky’

•Pretzel ‘PRETZ’

SA: Standardization with necessary

cultural adaptations of mostly

physical features.

China

*Pocky & ‘百奇’*GLICO & ‘格力高’

Local brands （China）

•Vegetable Crackers ‘菜園小餅’

•Chocolate Cookies ‘巧’•Chocolate ‘Mousa’

SA: Culture Adaptation of Japan-

origin categories, and both

physical and spiritual features are

locally developed by HCN’s.

Culture Distance (Short)

Cultu

reA

ccepta

nce

(Stro

ng)

EZAKI GLICO : MOP-focus Product Strategy (Thailand & China)

Exhibit 5

Source: Author

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adults. The product concepts and recipes for the product range have been the work of Chinese staff from the start. 4.2.3 Program strategy/Process strategy Brand management : As for 'Pocky' and 'PRETZ', the brands’ core values are maintained through worldwide standardization, and in principle their packaging designs are also uniform across the world. To meet this end, global-scale centralized management is carried out under a Global Brand Manager (GBM), working from the 'Global Brand Rulebook'. The core value of 'Pocky' is described as 'Share Happiness', meaning to share happiness with someone precious through shared appreciation of 'Pocky'. A suitable occasion to deliver this would be when 'you are having a good time, to share this snack with your friends and munch away at it with a snapping noise ('poki poki')'. In other words, what is meant to be offered to users is not 'Pocky' the physical product, but its psychological value, or the relationships generated through sharing 'Pocky'. For other products, local-specific programs are put in place. To establish these, Japan-born programs can be adapted for use in the local market, or original programs are developed locally through local-base AI transfers. Either is acceptable as long as the program planning is carried out on a local-driven-basis with advice from the GBM and Head Office approval to go ahead. Strategy regarding advertising and sales promotion : Communication strategy is subject to the 'Global Brand Rulebook', so a standardized process is used, and planning and implementation are led by marketing officials in local areas with support from the GBM. Making creative expressions in advertising is "a job for Japanese creators who have good knowledge of the local youth culture" (GBM), because they have the ability to adapt the 'physical' aspects of the adverts, such as actors, situations and settings, to local youth culture, and even to lead a new trend in the culture while keeping Japanese 'spiritual' aspects alive in the adverts. Meanwhile, the creators have to maintain a sharp awareness and keep up with the volatility of youth culture. In Thailand and China, a promotion was launched in November 2012 to initiate a 'Pocky and PRETZ Day'. This promotion has developed since 1999 in Japan on November 11 (the date being numerically expressed as four vertical bars), and it is planned to spread a similar awareness of this date in other Asian countries. In Bangkok, after being selected in the 'Pocky Contest', three actresses performing in TV commercials made a special appearance at the promotional event, winning huge popularity. In China, on November 11 (Singles Day), GLICO employees ran spot-sales shops in the forecourts of the major supermarkets in Shanghai and Qingdao, under the theme of 'romantic relationships'. "It is important to continue promotional activities focusing on the same theme for many years; such efforts will eventually lead to the creation of a new youth culture centered around GLICO products" (GBM). Strategy for distribution and sales : Localization is stressed. Sales activities are carried out in line with each country’s retail situation, as described in 'What is available to GLICO', and according to the sales ability of each subsidiary company. In Bangkok, GLICO’s major sales destinations are discount chains and convenience stores, and Thai GLICO directly contacts their headquarters to negotiate deliveries. 80-90% of the food distribution goes to wet markets and family-

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run shops, and Thai GLICO has begun a sales drive at them by sending two-employee teams in 'cash vans' to carry out business on the basis of 'actual place, actual product, actual money', in a similar way to AJINOMOTO. What kind of sales activities should be done to expand the business in rural areas is a big issue. In China, the main outlets are discount chains and convenience stores, and GLICO sales teams make bulk deals with their headquarters and put much effort into merchandizing at each shop. To other retailers, GLICO products are supplied via distributors, and in such indirect trading, it is hard to see GLICO’s sales tactics working effectively on shop shelves. Pricing strategy : Affordable pricing for the local target group is a prerequisite. Product prices are set to a level that high school or university-age MOP offspring in each country can buy with their pocket money if they stretch themselves a little. In the case of 'Pocky', in ASEAN a 40g pack is sold at JPY50-60, in China a 60g pack costs JPY70, and in Japan a 70g pack sells at JPY150. 4.2.4 People strategy As of spring 2013, the presidents and marketing executives of GLICO’s subsidiaries in Thailand and China were Japanese; the appointment of HCNs to executive positions is yet to come. 'Local operations managed by locals' is aimed for, but in reality, there is a long way to go. GLICO has 1100 employees in Thailand, and 2000 in China. "At Head Office, there is an endless discussion about which should come first, skill development or hand-over of responsibilities. Instead of such discussion, the Head Office itself must change first. The company has hardly nurtured globally-capable business people, who can carry out management under the pressures of diverse cultures, systematically or organizationally. At present, positions are filled with suitable people from outside, but we urgently need to develop skills internally. In overseas operations, it is necessary to assign responsible jobs to HCNs and develop their skills at the same time" (General Manager, International Operations).

Chapter5. Marketing in Asia by Otsuka Pharmaceutical Co., Ltd. Neutraceuticals Division

5.1. Positioning of Asian Marketing for Otsuka Pharmaceutical NC Division The NC Division is a business unit of Otsuka Pharmaceutical Co. Ltd., a group company of Otsuka Holdings Co. Ltd, with FY2012 sales of JPY598 billion. The proportion of NC Division sales in Otsuka Pharmaceutical's total sales is around 22%.(7) The Division’s mission statement is 'with a view to making people in good health even healthier, we offer the world unique scientifically-proven products'. 'Unique' here is explained as the creation of new values never seen in the market before. The Division’s overseas sales are not made public. The figures below are the author’s estimates based on information collected from various sources in Asia. The main products sold in Asia are 'POCARI SWEAT' and 'SOYJOY'; sales are estimated

15

at around JPY27-28 billion at factory-price level. According to calculations, about 20% of the Division’s sales come from Asia, probably over 90% from 'POCARI SWEAT'. Sales from a Korean venture business (estimated at around JPY10 billion) are not included in the above calculations. Nearly 80% of Asian sales are made in Indonesia, where Otsuka has achieved considerable business growth through substantial marketing support and tenacious efforts to explore the market. The remaining 20% is from other ASEAN countries and China, Hong Kong and Taiwan. At present, Otsuka products are exported to ASEAN countries from Indonesia. Recently, work on intensified marketing has begun in Vietnam, and its results, as well as operations in other ASEAN countries, depend on systematic SA transfers of the marketing knowledge that has worked successfully in Indonesia. Otsuka Holdings Group has six subsidiaries in Indonesia, including a pharmaceutical business division. Among them, P.T. Amerta Indah Otsuka, founded in 1997, is the local operation to which the business of Otsuka Pharmaceutical NC Division is allocated, producing and selling 'POCARI SWEAT' with 900 employees. In China, the Group has twelve companies, including a holding company, and NC Division business is allocated to two of them; VV Food & Beverage Co., Ltd. and Tianjin Otsuka Beverage Co., Ltd. 5.2 Otsuka Pharmaceutical NC Division: Marketing in Asia 5.2.1 Success in Indonesia from local-focus marketing. (8) First-aid for dengue fever : Like other ASEAN countries, Indonesia frequently experiences epidemics of mosquito-borne dengue fever. 'POCARI SWEAT' has been regarded by medical specialists as effective in replenishing body fluids during high fever, and their recommendations have led to the product becoming an essential item in dengue fever treatment. This usage constitutes a significant proportion of the product’s sales. Post-Ramadan drink : Indonesia has the world's largest Islamic population, at 86% of its 240 million citizens. During Ramadan, for a month Muslims eat between sunset and sunrise, and fast between sunrise and sunset. Replenishing water is essential just after fasting, and for this purpose, Otsuka’s HCN employees came up with the idea of promoting 'POCARI SWEAT' as an alternative to water, with greater health-enhancing ingredients. The product’s newly-discovered positioning has brought a change to the Muslim lifestyle. In other words, the universal idea of POCARI SWEAT’s functionality as 'good for you because it supplies ions similar to body fluids' has been adapted to Islamic culture. This approach allows a conjunction between 'POCARI SWEAT' and Islamic culture, and while the product’s 'physical' features remain standardized as Japan-origin, the 'spiritual' aspects have been adapted to the local market or assimilated to the local culture, making a major marketing success story. Everyday use : 'POCARI SWEAT' occasions have diversified. Due to Indonesia's hot climate, people customarily drink something before and after sleeping to replenish fluids, and the product is now often consumed on such occasions. At present, the phrase 'ion-supply drink' referring to 'POCARI SWEAT' carries powerful benefit-associated images that no other products have, leaving a strong impression on people’s minds. 'POCARI SWEAT' is an ion-supply drink, so

16

associated images are 'refresh', 'recover' or something similar like 'shakitto suru' (= energizing) in Japanese. The unit price of 'POCARI SWEAT' is JPY60 for 500ml bottle, twice as high as competitors’ products. Its operating profit margin is also high, probably a two-digit figure. In the early years of Indonesian production and sales, 'POCARI SWEAT' was promoted as a 'sports drink', as in Japan, but business remained 'quiet' as the local sporting population was small. In the year following a dengue fever outbreak in 2004, sales shot up, and between 2004 and 2012, grew about tenfold. 5.2.2 Product strategy (Exhibit 6)

The policy is to develop Japan-origin world-class products into global brands. No other options are considered, which means they have no intentions of developing local-specific products or brands. While world standardization is applied to the products’ 'physical' features, with minimum adaptation of sweetness or flavor, 'spiritual' features undergo adaptation to local cultures. 'POCARI SWEAT' is a good example of this. 5.2.3 Program strategy/Process strategy

Japan-origin global brands

Soft Drink ‘POCARI SWEAT’

•Snack ‘SOY JOY’

SA: Standardization

POCARI SWEAT

From Sports/ Drink to Health Drink

Culture Distance (Short)

Cultu

reA

ccepta

nce

(Stro

ng)

Otsuka NC : Product Strategy

Exhibit 6

Source: Author

17

Strategic programs are all locally-driven and executed based upon local decisions. There are no particular marketing manuals used as explicit knowledge, but 'sophisticated marketing' specific to local markets follows tacit unwritten rules. Marketing communications : Marketing 'POCARI SWEAT' and 'SOYJOY' never build on 'selling Japaneseness or taking advantage of Cool Japan trends'. Instead, maintaining a link with the lifestyles of individual countries, the product’s functional benefits have been persistently explained to consumers. By long and diligent pursuit of this approach, localization of the products’ 'spiritual' features can be achieved. As for creative advertising, at present it seems most effective that Japanese creators familiar with the product do the job by acquiring a good understanding of local culture and projecting effective communication into local drink-use occasions. In November 2012, an Indonesian pop-idol group 'JKT48', a counterpart of Japan’s 'AKB48', was hired for a 'POCARI SWEAT' TV commercial, which raised the product’s profile among young people. In addition to the serious tone of existing advertising about Ramadan and dengue fever uses, the new commercial suggests 'hard-working young people' should drink it to 'feel refreshed', aiming to further expand the target audience and consumption opportunities. Distribution and sales strategy : Otsuka has two distribution routes to retailers, direct sales and wholesale distribution, and the actual situation of local retailers is studied to develop local-oriented operations. The entire archipelago nation is covered by one or the other route. Direct trading is handled by Otsuka’s sales teams for discount chains and retailers in wet markets in Djakarta, the capital of Java, and other large cities, including Bandung, Surabaya and Kota Yogyakarta. The sales-force, about 500 company employees working in pairs, covers individual retailers in the big cities. The wholesalers’ route covers the rest of the country –from the east, Banda Aceh in the north end of Sumatra, to the west, New Guinea. Pricing strategy : 'POCARI SWEAT' targets middle and higher-income households, and its price setting is in a rather premium range, double that of rival products. It offers scientifically-proven benefits, and is now an essential item for dengue fever and the end of Ramadan. Therefore, the price matches the product’s values, which are coherent or compliant with local lifestyles and culture. 5.2.4 People strategy Before November 2012, Otsuka had only two Japanese expatriates in Indonesia; one engineer and one top-management executive. The executive returned to Japan for a while, but came back in the summer of 2013, as Representative Director and Chairman. However, the position of President at P.T. Amerta Indah Otsuka has been taken by an Indonesian. The company has 900 employees now, and the policy of 'local operations managed by locals' is being put in practice. 'By giving responsible jobs, grow skills' has been thoroughly practiced. All functions, from production to marketing and sales, are fully taken care of by HCN employees, and the trust put in them will return. "It’s been good to have only one Japanese official, just myself, in the management team. Being alone, I have to rely on HCN employees and enlist competent people, and as a result, their skills grow more" (Representative Director and Chairman). "If there were

18

two or three Japanese officials, decisions would be made among the Japanese, leaving the HCNs out of the loop and preventing their skill development". Having said that, there is an issue that makes it difficult to leave 100% of the management to HCNs. Indonesia is a multi-ethnic and multi-faith nation, and there is a concern that a top-management official of a particular ethnic or religious group might bring in only people in their own peer group and treat them favorably. To balance the diversity, it is better for management to be handled by Japanese, being ethnically and religiously outside the culture. Also, many Indonesians have a rather short time perspective, and little idea of working in the same company throughout one’s life. There are no easy solutions, and perhaps the best way would be to make employees want to stay longer by helping to build the company's success and appeal. 5.2.5 Universality of Indonesian model By learning from the local culture and through trial and error, Otsuka’s Indonesian marketing has made 'POCARI SWEAT' one of the biggest brands in the domestic beverage market. However, in other ASEAN countries, awareness of the brand remains low due to a lack of substantial marketing support. When the successful model applied in Indonesia becomes explicit knowledge and is SA-transferred to neighboring countries, it will also be essential to consider SA transfer of tacit knowledge by sending someone with experience of the model, i.e. a role model to physically demonstrate how to do it.

Chapter 6. Summary and Next Step (Exhibit 7)

19

As we have seen, AJINOMOTO, EZAKI GLICO and Otsuka Pharmaceutical NC Division have successfully transferred their marketing knowledge in Asia, and we have verified qualitatively the usefulness of the marketing transfer model in explaining how they have transferred the 4 Ps of marketing knowledge either in SA or AI or using both approaches their businesses to be successful as of the time of writing this paper. We have also hinted that the transfer model has the qualitative robustness to read the future courses of marketing actions for them to gain a success in the new markets they will enter.

Despite their businesses being in very different food categories, they share several common aspects as below. 6.1 Small but significant overseas sales in Asia Looking at the figures from FY2012 business results, AJINOMOTO received 35% of its consolidated sales from overseas business, of which nearly 50% was from consumer products. Asia represents around 80% of its consumer business. As for the breakdown of operating profit margins, overseas operations account for 52%, 60% of that in Asian operations. EZAKI GLICO’s overseas sales is only 7.5% of the consolidated sales, but it should be noted that 85% of overseas sales are in Asia, and that Thai and Chinese operations account for 26% of the whole company’s operating profit margin. Of total sales by Otsuka Pharmaceutical NC Division, 20% was from operations in Asia excluding Korea, and 80% of Asian sales was from business in Indonesia. Each company realizes Asia will be the hub of future growth. 6.2 Building and internalizing affinities with local food cultures

Summary Business Models in Asia

AJINOMOTOBusiness Orientation:

Upward Migration

(BOPMOPTOP)

EZAKI GLICOBusiness Orientation:

Focus on MOP

Otsuka NCBusiness Orientation:

Focus on MOP

Product

Strategy

Program

Strategy

Process

Strategy

People

Strategy

1) Global & Local Brands

2) 3 types of transfer

* SA: Standardization

* AI: to develop local-origin

products

* SA: Adaptation of Japan-

origin categories

1) Global & Local Brands

2) SA Transfer

* Standardization

* Adaptation of Japan-origin

categories

1 )Global Brands

2) SA Transfer

* Standardization

Philippines (1958)

Thailand (1960), etc.Thailand (1970)

China (1995)

Indonesia (1997)

AI: local development by

HCN’s based on

standardized Process

SA: Adaptation of Japan-

origin experience (Ad & Pro)

AI: local development by

HCN’s (Dist. & Sales)

AI: Almost 100% developed

locally with HCN’s initiatives in

line with lifestyle cultures

SA: Global Standardization,

Mkng Manuals & Brand

Manulas

SA: Global Standardization,

Brand Mgmt Manuals

AI: No manual/ standard

procedure with a little input

from Japanese experience.

* Top management by MCN’s

* Middle management by

both HCN’s and MCN’s

* Top management by MCN’s

* Middle management by

HCN’s

* 90~95% run by HCN’s

Exhibit 7

Source: Author

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Asia consists of many diverse cultures, like a layered mosaic, so in carrying out marketing for cultural products, adaptability or the ability to comply with the host cultural environment is particularly necessary, as discussed earlier in this paper. By imparting a universal 'umami' flavor to the most conservative home-cooked meals, AJINOMOTO has become an indispensable domestic cuisine manufacturer in the ASEAN area. EZAKI GLICO is still at a developing stage, but is creating a new confectionery culture among the youth of the affluent classes of sharing snacks with friends. Otsuka Pharmaceutical NC Division has accommodated 'POCARI SWEAT', a scientifically-proven healthy drink, to local lifestyles of fluid replenishment at times of illness or religious custom.

6.3 Current limits to success in Asia AJINOMOTO may be thriving in ASEAN countries, but business in China has been flat for a long time and a breakthrough is awaited. EZAKI GLICO’s operations in Thailand and China are moving towards further growth, and work has begun to establish a beachhead in other ASEAN countries. For Otsuka Pharmaceutical NC Division, Indonesia is the most successful venture in Asia, and the development of substantial marketing in other countries is pending. 6.4 The challenge of universalizing marketing knowledge Company marketing knowledge relating to success in a certain country or culture will tend to be universalized and explicated to be shared globally and used for standardizing process strategies. At the same time, with guidance from people with successful experience in several different countries or cultures and their resultant tacit knowledge, a composite combination of stages of SA transfer and AI transfer will be arranged in order to establish and execute marketing programs specific to a new country or culture. To facilitate this practice, a company needs to pursue globalization of its marketing knowledge systematically and organizationally. AJINOMOTO's future challenge lies in China. EZAKI GLICO's challenge is in ASEAN countries outside Thailand, and for Otsuka Pharmaceutical NC Division, it is in ASEAN countries other than Indonesia and China. 6.5 Controlling the three actuals (actual place, actual product, actual money) of sales For these three companies, small retailers in so-called wet markets are their major outlets in South-East Asia, and their number ranges from several tens to hundreds of thousands, depending on country. A company’s sales staff needs to regularly visit the outlets or send their distributors for delivery and shelving to increase in-shop shares and shop-owners’ sales motivation. By such means may success be found in the competition for efficiency and effect in selling activities. AJINOMOTO has established its own sales organizations for all of South-East Asia, but the other two companies have limited autonomous control over operations. Also, in China, where major retail chains are strong, EZAKI GLICO has been managing sales and distribution in the Coastal Region well, but the other two companies are struggling. Next Steps

21

We are now expanding our study to cover various other product and service

categories including both civilization and culture products and services such as toiletries, cosmetics, cars, home electronics, retailers, tourism, education, etc. Upon completion of the study, we will then conduct a pan-Asian consumer survey to quantitatively measure the level of competitiveness of brands in terms of the effectiveness of marketing transfer mix and the strength of consumer acceptance, relative to the competition from both other multinational and local corporations. NOTES (1) HAYASHI, Hiroshige [2013] 'Marketing to create competitive customer values in

Asia' Marketing Researcher 121: 11-13, revised for this article. (2) For performance data relating to AJINOMOTO, the FY2012 investor relations

information was referred to. For the description of the company’s Asian marketing in this section, see HAYASHI, Hiroshige [2012] AJINOMOTO Global Competitive Strategy, Dobunkan Shuppan, pp78-132. The description is also based on the author’s research of June 2012 in Bangkok (Thailand), Shanghai, Guangzhou and Xi’an (China).

(3) As Note 1. (4) According to the World Bank's definition, at purchasing power parity (PPP) level,

annual household income below USD5,000 is BOP/poor; USD5,000-15,000 is MOP/lower middle; USD15,000-35,000 is upper middle; and over USD35,000 is TOP/rich.

(5) This section is based on interviews with three EZAKI GLICO executive officers, investor relations information, and the author’s research of June 2012 in Bangkok, Shanghai, Guangzhou and Xi’an. The interviews with Mr. MATSUKI Tsuyoshi, Global Brand Manager, Marketing Division on May 29, 2013; with Mr. KUSAMA Mikio, Senior Corporate Officer, International Operations; and Mr. HOTTA Satoru, General Manager, International Operations & Thai GLICO President were held on June 5, 2013.

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(6) As of 2012, there are said to be 300 million middle-class people of about 600

million populations in ASEAN, and in China a middle-class of around 600 million out of about 1.3 billion population.

(7) According to Public Affairs Department, Otsuka Chemical Co., Ltd. (8) The descriptions here are based on Nikkei Business May 22, 2012; SAPIO

October 3 & 10, 2012; a lecture at Hosei University on July 26, 2013 by Mr. BANDO Yoshihiro, then-executive officer of Otsuka Pharmaceutical (at time of writing Representative Director and Chairman of P.T. Amerta Indah Otsuka), and the author’s research in June 2012 in Djakarta, Indonesia.