LMC International's Continuing Expansion Into Asia - June 1998,

Over the last six years Asia's economy has grown dramatically with many of its countries recording double digit growth rates year after year. Home to over half of the world's population, Asia now represents the world's largest growing consumer market and this has encouraged a growth in foreign company expansion in the region.

Fueling Asia's economic growth is the growth of its middle class. The presence of a middle class is a recent phenomenon in Asia, and it has proven to be both a catalyst for, and a by-product of, the regions' economic growth. The increase in the middle class' combined income has been a contributor to the increase in overall consumption which in turn has promoted further economic growth. In 1996 the Asia/Pacific confectionery market reported an increase in consumption to an all time high of $16.5 billion dollars. Most analysts agree that the confectionery market will continue to grow at an average rate of approximately 8% annually. This has further increased interest from foreign investors.

LMC International, through its Latini Products Company and Hohberger Products Company divisions, is one of these interested foreign companies. Based in the USA and a producer of confectionery and bakery machinery, LMC International has witnessed first hand the expansion of Asia's confectionery market.

LMC International began selling machines to Asia in the late 1950's and most recently sold equipment to Khee San Confectionery in Malaysia, Serg's and the Philippine Cocoa Corporation in the Philippines, Meng Seng in Thailand, P.T.Union, P.T. Helios and P.T. Hawaii in Indonesia and the Shanghai Food Company in China. In 1996 sales to Asia accounted for 58.9% of LMC's international sales, an increase of 172 % over 1994. 'Although we enjoy excellent sales the world over, we are going after Asia in a big way,' LMC said.

LMC believes finding a good agent combined with knowing your potential customers is essential to success. 'When choosing an agent, it is important to hire a native of that country. Being able to converse in the local dialect is not enough. Buyers are more comfortable talking to and buying from a compatriot who brings a degree of comradeship to the negotiating table. Locating your client base can be equally challenging, advertising and trade show attendance has proved invaluable in generating sales inquiries.'

LMC International's lollipop production lines have proven to be especially popular in Asia. This is not surprising upon further investigation of Asia's confectionery market. Traditionally, confectionery consumption was not part of the Asian diet. This tradition is changing and confectionery consumption is rising steadily. In most Asian markets, the domestic consumption of sugar based products such as boiled sweets and chewing gum far exceeds consumption of chocolate confectionery. According to official estimates, 90% of Thailand's, 70% of the Philippine's, 50% of China's, over 50% of Japan's, and 60% of South Korea's confectionery consumption is sugar based confectionery.

Climatic conditions is one contributor to this phenomenon. The shelf-life of products with high chocolate content is extremely limited given the fact that a large number of point of purchase sites for confectionery, (with the exception of Singapore and Japan), are not air-conditioned. With temperatures averaging 27 - 33 degrees Celsius, chocolate confectionery spoils at a faster rate than hard sugar candies.

Discussions of business expansion into Asian is incomplete without including China. Home to 1.2 billion consumers, China's emergence from a state run economy into a less regulated market economy has encouraged foreign investment and market expansion. LMC International is no exception. Having already sold equipment in Shanghai, LMC is targeting other confectionery producers in the area. 'Successfully breaking into the China marketplace is every company's dream. China is an exciting market, but for American companies, it is also the most challenging,' Latini said. According to Latini, the volatility lay in Sino-American government relations. 'When the US government tries to influence Chinese domestic policy with threats of removing MFN (Most Favored Nation) status or implementation of trade sanctions, conducting business in China becomes very difficult and relationships are compromised. American companies, however, remain undeterred and committed to expanding their presence in China.'

The differences between western and Asian cultures and business practices pose challenges to western companies conducting business in the region. Unlike the western business idiosyncrasies they are accustomed to, Asia has a different set of rules. For example, business between two companies in Asia is dependent on the often fragile personal relationships between the company's representatives; contract negotiations take longer and follow a different pattern; fluctuations in investment costs are resultant from circumstances never experienced by the foreign companies; unforeseen expenses such as gratuities arise; and infrastructure taken for granted in the west, may not exist in some regions.

In spite of these challenges, foreign companies remain dedicated to catching the Asian economic wave. With patience and appreciation of the differences between East and West, foreign companies will learn from a region rich in culture and history and from the collaborative joining of these two very different worlds.

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