YuFong Fan (ID No. 0655330)
&
Jitin Kochhar (ID No. 0654351)

ITM151: Global Trade Research

Assignment #2

Research Outline 1

Oct. 14, 2012

Professor Floyd Simpkins

St. Clair College

COUNTRY A: JAPAN

1. Political Environment
Political Stability: Political stability of the country indicates towards the positive or negative affect on the Trade of a particular product. Our product is Canadian chocolate which can have a great potential to perform business in Japanese market because of its strong Political Stability. The Political Stability is based on a given country's record of peaceful transitions of power, ability of a government to stay in office and carry out its policies vis a vis risk credible risks of government collapse. Japan’s Political Stability index is 9 on a scale of 10. This shows a high Political stability. (Watch, 2011-2012)

Barrier: Import Tariff Rate: 10% (Tariff, 2011)

Risks: • Strict Trade policy for chocolate trading. • Diplomatic events in surrounding countries, results in less trade.

Opportunities:
Japan is the world’s fifth largest agri-food importer and one of the most significant export destinations for Canadian agri-food products. More and more Japanese consumers are willing to pay a premium price for quality food with healthy ingredients, as these consumers are increasingly interested in their health. This makes Japan a potentially attractive market for Canadian exporters of high-quality chocolate and products used as ingredients in cereal bars. There may also be more opportunities for Canadian confectionery products that focus on health-related positioning. (AAC, “Japanese Confectionery”, 2010)

2. Legal/Regulatory Environment

Barrier: Obesity law regulations
New Japanese Law Required Employers to Combat Obesity in the Workforce.
The law that went into effect April 1 forces companies and government, the two sources of health insurance in Japan, to measure the body fat of employees ages 40 to 74. ( Jeremy Smerd, 2008)

Risks:
Consumers will reduce to eat candy, snacks/desserts in order to control the weight and maintain slimmer figures, it will impact the consumption of confectionery market.

Health Consciousness an Opportunity
Health consciousness will inspire health food products, such as dietary supplements, and functional foods.

high-quality chocolate and products used as ingredients in cereal bars Japanese health concerns are similar to those of other developed countries and include: weight maintenance, metabolic syndrome, fatigue, diabetes, and allergies. There are market opportunities for products addressing these concerns, especially for seniors who are not satisfied with their health status. (AAC, “Japanese Confectionery”, 2010)

3. Economic Environment
The Gross Domestic Product (GDP) in Japan expanded 0.20 percent in the second quarter of 2012 over the previous quarter. Historically, from 1980 until 2012, Japan GDP Growth Rate averaged 0.5 Percent reaching an all time high of 3.2 Percent in June of 1990 and a record low of -3.9 Percent in March of 2009. The Gross Domestic Product (GDP) growth rate provides an aggregated measure of changes in value of the goods and services produced by an economy. Japan's industrialized, free market economy is the second-largest in the world. Its economy is highly efficient and competitive in areas linked to international trade. (“Japan GDP GR”, 2012)

Risk: Existing competitors
Japan has large chocolate processing and packaging facilities to supply domestic and export markets. The leading chocolate producers in Japan are Lotto Group, Meiji Seika Kaisha Ltd, and Ezaki Glico which, in 2008, had market shares of 22%, 22% and 21%, respectively. The remaining 35% of the chocolate industry was divided among Bourbon Corporation, Nestle S.A., Morinaga & Co, Fujiya, Kabaya Foods Corporation, and Cadbury. Private label chocolate had less than 2% of the market in 2008 (Datamonitor). (AAC, “Japanese Confectionery”, 2010)

Opportunity:
Japan and Canada’s Trade Relationship:
Japan is the world’s fifth largest agri-food importer and one of the most significant export destinations for Canadian agri-food products. Japan is the largest confectionery market in Asia for chocolates with a market value of $9.1 billion. The market is expected to grow by 14% between 2008 and 2013, increasing to $11.4 billion.
Canada is recognized as a high-quality food and ingredients supplier among Japanese buyers. The confectionery and chocolate products market in Japan may provide opportunities for Canada’s high-end chocolate and specialty sugar confectionery producers and exporters, as well as specialty ingredients exporters.
In 2008, Japanese consumers spent $78 per capita on confectionery products. This was high relative to other Asian countries (see Figure 1) (AAC, “Japanese Confectionery”, 2010, page 3)

Figure 1
[pic]
4. Market Infrastructure Environment
Distribution system –Wholesale, retailer and on-line sale

Japan is known for convenience living, Japanese society is a tech-savvy culture with more than 85% of households owning a personal computer, of which 90% are internet enabled. Consumers frequently shop for groceries and nutritional supplements on-line. (AAC, “The Japanese Consumer”, 2010)

5. The Socio-Cultural Environment
Risks: Aging population Low birth rate
Japan has an estimated population of 127,078,679, with a growth rate of minus 0.19% (The World Fact Book, July 2009). In the future, the declining population will result in a neutral or even negative influence on the demand for food products.
The country faces a rapidly aging population with 22% over the age of 65 years (male 11,964,694 / female 16,243,419). Another 64% of the population is between the ages of 15 to 64 years, and 13.5% is between the ages of 0 to14 (The World Fact Book, 2009). (AAC, “The Japanese Consumer”, 2010)

Opportunities
1) Aging population
Pensioners are the biggest consumers of confectionery products such as chocolate, candy, and cereal bars, accounting for 28% of total confectionery product consumption. (AAC, “Japanese Confectionery”, 2010)

2) Work Stress and Busy Lifestyle
Busy professionals do not have much of time to take care of eating food. So maximum of the people working under stress eat chocolates and candies while driving and at work. (AAC, “Japanese Confectionery”, 2010)

3) As a Gift:
The sales of confectionery products tend to concentrate around certain holidays. It is a Valentine’s Day tradition in Japan for women to give chocolates to men as a token of their love.
Women buy chocolates for their male relatives, friends, co-workers and bosses. Valentine’s Day is one of the busiest days for chocolate sales in grocery, department and convenient stores. In
1980, the Japanese confectioners created the “White Day (March 14th)” when in turn men are expected to buy chocolate, especially white chocolate for women. The Christmas period is also very popular for higher-end European chocolate gifts. (WCF, Economic “PJCI”)

4) High-end function product
Chocolate confectionery in Japan can be divided into six main segments: solid chocolate bars, chocolate-covered bars, boxed chocolate assortments, bagged chocolate snacks, seasonal chocolate, and other chocolate. In 2008, solid chocolate bars were the most popular type of chocolate confectionery in Japan, with 34% ($1.9 billion) of the total chocolate market. The Japanese chocolate market offers growing potential for Canadian producers of high-end or specialty chocolate. (AAC, “Japanese Confectionery”, 2010)

COUNTRY B: SOUTH KOREA

1. Political Environment
Political Stability: Korea’s Political Stability index is 8 on a scale of 10. This shows a high Political stability but it is less then that of Japan. (Korea, 2011-2012)

Tariff Rate: Tariff rate increased from 12.6% in 2011 to 13.3% in 2012. (Trade, 2009-2012)

Opportunities:
South Korea’s stability index is quite strong which gives an impression of a strong ruling cabinet, which motivates international trade. This is a positive point for our Chocolate Company to export the different variety of chocolates in South Korea, as the Koreans love chocolates.

Risk: • South Korean Import/Export restrictions Korea is ranked as having a moderately free economy their trading freedom is fairly low in ranking at just 66.4% according to the index of economic freedom. The reason for such low ranking is due to importing and exporting restrictions. (Business, 2011-2012) • The Tariff rate of Korea is 13.3% which is more than that of Japan Tariff rate. This can also be considered as a barrier and a risk towards getting chocolates exported to Korea.

2. Legal Environment
Korea attaches high priority to making its laws transparent and readily accessible, including by foreigners; many laws are available in English on Internet sites maintained by relevant ministries and agencies. Regulatory reform has progressed with emphasis on stimulating economic growth, and action taken to, inter alia, help overcome the global economic crisis included revising, suspending or mitigating the implementation of some burdensome regulations. Korea has taken steps to fulfill its transparency obligations at the multilateral level by, inter alia, meeting its WTO notification requirements, though notifications in certain areas (e.g. state trading, special safeguards, agricultural export subsidies, and government procurement) have been subject to long submission gaps. (Korea R. o., 2011)

Strong IPR in Korea:
South Korea has an outlook similar to the United States in regards to intellectual property rights. In fact, Korea ranks fourth in the world for number of patent applications. Like the United States, South Korea protects intellectual property through tools such as patents, trademarks, and copyrights. Also similar is their culture’s apparent lack of respect for certain aspects of the rights that these tools give to the creator of the intellectual property.
(Business, http://internationalbusiness.wikia.com/wiki/Intellectual_Property_Rights_in_South_Korea, 2011)

Opportunity:
The legal system is strong in Korea with great focus on IPR. The chocolate products of our company will not be having any specific issues related to trademark and copyrights.

3. Economic Environment:
Economic Performance
Following strong growth of over 5 percent per year in 2006 and 2007, real GDP slowed to 2.2 percent in 2008 and below 1 percent in 2009 as the economy was hit by the global economic crisis. Real GDP growth rebounded in 2010 to an estimated 6.1 percent. Inflation rose sharply to 4.3 percent in 2008 from 2.3 percent in 2007, driven by surging global commodity prices, before falling to around 2.5 percent in 2009 and 2010. Reflecting the slowing economy and the fiscal stimulus, the fiscal surplus narrowed from 3.5 percent of GDP in 2007 to 1.2 percent of GDP in 2008. The country saw a deficit of around 3 percent of GDP in 2009 and an estimated 4.6 percent in 2010. (korea, 2011-2012)

Economy Type: South Korea has a market economy which ranks 14th in the world by nominal GDP and 12th by purchasing power parity (PPP), identifying it as one of the G-20 major economies. (Wikipedia, 2012)

Fiscal Policy: During the review period, monetary policy, by and large, kept inflation within the target of 3±1%, even in 2011, amid rising food and fuel prices. Korea's prudent fiscal policy, reflected in continuing modest fiscal surpluses during much of the period under review (which have contributed to its current account surpluses), and consequently low central government debt (31.9% of GDP) in 2010, have also served it well. (Korea R. o., 20011)

GDP: Korea's current account registered a substantial overall surplus, averaging roughly 2.3% of
GDP during the review period, reflecting the excess of gross national saving (31.4% of GDP) over gross domestic investment (29.0% of GDP). Foreign exchange reserves increased from some US$200 billion in 2008 to over US$300 billion in 2011 (equivalent to nearly seven months of imports), making Korea's reserve holdings the seventh largest in the world. The economy has continued to be outward oriented, with trade in goods and services rising from 107.2% of GDP in
2008 to 110.3% in 2011. Manufactured goods still account for the bulk of exports (85.3% in 2011).

Risks: • More competition from other chocolate companies of different countries. • Higher cost of raw materials used for making chocolates.

4. Market Infrastructure Environment • E-Commerce Laws of South Korea : Electronic Commerce, more commonly known as E-Commerce, is based on the concept of buying and selling products and/or services over the Internet business market. One country that has gained access into the online business world and is known as China’s third largest trading country is South Korea. (Infrastructure, 2011) • Hi- tech savvy infrastructure supporting all needs and requirements of manufacturing, logistics and distribution of chocolates.

5. Socio-Culture Environment
South Koreans are a people obsessed with nature in general, and with mountains in particular. With China to the west and Japan to the east, the country has been unwilling host to centuries of war games. However, no matter how many times its larger neighbors have tried to conquer it, South Korea has managed to stay independent. South Koreans attribute their tireless culture to the uniting forces of Confucianism, language and pride. The topography and geography have also contributed to creating a cohesive Korean identity.

Generally, Koreans are very proud of their country and its history. It is important that you do not to confuse the history and culture of Korea with other Asian countries, especially Japan. Some older Koreans who grew up during the time of the Japanese occupation may not appreciate gifts from Japan or comparison of Korea with Japan.

Living Conditions:
Higher incomes led to significant shifts in consumption patterns. For example, in 1963 the average family spent 57.4 percent of its budget on food. Twenty years later, the share going to food had fallen to 40 percent and was expected to continue to fall (but not as rapidly as in the past). Despite the decreasing share of food in the consumer budget, the absolute value of food consumed grew regularly in the 1970s and 1980s and was expected to continue to do so in the 1990s. Rising incomes, the increased mobility of the average person, and a high literacy rate demonstrated evident socio-economic progress.

Opportunities:
South Koreans enjoy many different types of desserts, but there is at least one example that suggests that chocolate may be received favorably. South Koreans enjoy European style waffles, which are usually eaten with honey, apple jam or chocolate. Kids love chocolate, South-Korean women send it to men on Valentine's Day and give it as gifts to couples at their weddings. • Demographic changes in terms of geography and age of population • An increasing emphasis on health that has led to the adoption or threat of surplus taxes on chocolate and the curbing of child-focused product launches
References/Sources:

Watch, C. (2011-2012) http://www.countrywatch.com.rap.ocls.ca/cw_topic.aspx?type=text&vcountry=86&topic=POSTB&GLOBAL=true. Canada: Country Watch.

Tariff, C. &. (2011). http://www.customs.go.jp/english/tariff/2012_4/data/i201204e_18.htm.

AAC, “Japanese confectionery”, 2010 http://www.gov.mb.ca/agriculture/statistics/agri-food/japan_confectionery_en.pdf Jeremy Smerd, 2008, “New Japanese Law Required Employers to Combat Obesity in the Workforce” http://www.workforce.com/article/20080703/NEWS01/307039996

“Japan GDP GR”, 2012 http://www.tradingeconomics.com/japan/gdp-growth AAC, “The Japanese Consumer”, 2010 http://www.gov.mb.ca/agriculture/statistics/agri-food/japan_consumer_report_en.pdf WCF, Economic “PJCI”, http://worldcocoafoundation.org/wp-content/uploads/Economic_Profile_of_the_Japan_Chocolate_Industry_20111.pdf

Business, I. (2011). http://internationalbusiness.wikia.com/wiki/Intellectual_Property_Rights_in_South_Korea.

Business, I. (2011-2012). http://internationalbusiness.wikia.com/wiki/South_Korean_Import/Export_restrictions.

Business, I. (n.d.). http://internationalbusiness.wikia.com/wiki/Intellectual_Property_Rights_in_South_Korea.

Infrastructure, I. B. (2011). http://internationalbusiness.wikia.com/wiki/E-Commerce_Laws_of_South_Korea.

korea, C. W. (2011-2012). http://www.countrywatch.com.rap.ocls.ca/cw_topic.aspx?type=text&vcountry=92&topic=MAOVR.

Korea, C. W. (2011-2012). http://www.countrywatch.com.rap.ocls.ca/cw_topic.aspx?type=text&vcountry=92&topic=MAOVR.

Korea, C. W. (2011-2012). http://www.countrywatch.com.rap.ocls.ca/cw_topic.aspx?type=text&vcountry=92&topic=PORIK&GLOBAL=true.

Korea, R. o. (20011). Trade Policy Review- WT/TPR/S/268.

Trade, E. (2009-2012). http://trade.ec.europa.eu/doclib/docs/2009/october/tradoc_145133.pdf.

Wikipedia. (2012). http://en.wikipedia.org/wiki/South_korea#Economy.