Hsu Fu Chi was registered by Hsu brothers in 1992, and Hsu brothers had 16 years of successful experience in food sales in Taiwan that made Hsu Fu Chi developed rapidly. In 1997, Hsu Fu Chi cooperated with Trandspac industrial(Singapore) to establish BVI Hsu Fu Chi international group, and it registered Dongguan Hsu Fu Chi food limited company to focus on building Hsu Fu Chi brand in China market. By 2006, there were about 56 operating sales office and more than 13,000 retailers point were established. Nowadays,Hsu Fu Chi enables to produce more than 6,000 different kinds of confectionery products, such as candy, chocolate,pudding, sachima,pasty, and jelly. Hsu fu chi has already become one of the leaders in food industry and the largest candy maker in China(Hsu Fu Chi,2011).
Hsu Fu Chi is popular in China market at the same time it is focus on expanding foreign markets. It built strategic alliances with Sunkist,and EBL. Moreover, Hsu Fu Chi had established distribution agreements with most of the country's major retailers, like Carrefour, RT Mart, Trustmart and Wal-Mart. These agreements improved the its Hsu Fu Chi brand greatly and it expanded its outputs and market share in foreign market(Hsu Fu Chi,2011). Nowadays, Hsu Fu Chi food are sold around the world, and it reported sales of CHF 669 million in 2010. (Hsu Fu Chi Annual Report,2011)
3. PEST analysis of Chinese confectionery market
3.1.1 Political stability: As China confronts the challenges of the second decade of the 21st century, the nation can look back upon its economic reform. Chinese government insists its economic the economic policy of reforming and opening, china already made the optimal choice that the foreign trader invests. Moreover, owing to Macro-economic Control, china has avoided most of the more tumultuous upheavals that its regional neighbours have faced,such as 1997 Asian financial crisis, and Subprime mortgage crisis(Liang-Xin,2010). Political stability provides a safety environment for Nestle to run its business and expand market share in Chinese confectionery market.
3.1.2. Competition among confectionery industry: The competition among confectionery industry was intensive. There are many competitors in it, such as Mars, Kraft Foods, Unilever and so on. In the past, the Chinese government has been seen as taking a hard line toward overseas companies buying famous local brands. For example, Coco-Cola offered US 2.4 billion to acquire Yinlu foods and it was rejected by the government due to monopoly concerns. Nowadays, Chinese government gradually open its market to multinational firms(Economics Week,2011). A competitive and free environment enables them to come out with more strategies. As the competition keeps moving on, it helps to create awareness to the public. This would be one of the advantages for Nestle to acquire Hsu Fu Chi.
3.2 Economic analysis
3.2.1 Economy growth in GDP
Since the Chinese economic reform , China's GDP has kept an annual growth rate of over 8%. China has transformed itself from a supplier of labours into a potential multi-sector economy. (Liang-Xin,2010).The high GDP means that there are more business activities and better business environment to some degrees in China.Hence, high GDP creates an opportunity for expanding businesses in confectionery industry. Nestle would be able to distribute more franchises in China in a profitable way.
3.2.2 Increase in disposable income
In 2010, the average disposable income is CHF 19,109 in China(Liang-Xin,2010). As increasing in disposable income, Chinese will have higher purchasing power and more willing to spend. Thus, it helps to stimulate economic growth when people has willing to spend, and China becomes the ideal country for Nestle to target.
3.2.3 Increase in food consumption
Since the adoption of the policy of reform and opening-up, there is a growth in expenditure on food consumption. In 2010, China's average food consumption in cities increases 14.84% while China's average food consumption in countries increases 41.20%. So it can be shown that there is a golden opportunity for Nestle to expand its market as well as expanding their businesses. In the long term basis, Nestle will be able to apply their specific strategic marketing plan in order to build up their business and sustain their market share in the future.
3.3 Social analysis
According to Chinese custom, people should visit their relatives and friends during the festivals, especially Chinese New Year . A small gift may be need by people when visiting friends. Some confectioneries are the best choice for people to give friends as a present. Moreover, Chinese traditional wedding asks brides to give wedding candies to children to get fortune in the future. There is a large demand of confectionery in Chinese market, so Nestle acquires Hsu Fu Chi is a correct choice to expand its market share in China.
3.4 Technological analysis
The confectionery industry has seen significant technological advancement in the recent decade, ranging from areas of food science and technology, food preservation ,transportation and distribution. Advanced technologies are used in all the stages of confectionery production. For instance, automatic ordering system reduces the waiting time and it develops good services to customers(Candy industry,2007).
Moreover, Chinese government is more willing to invest in technology innovation to ensure food safety, such as preservation technology recently. (Candy industry,2007).The technology advancement in China increases the maximum efficient production levels and it benefits confectionery industry by eliminating limitations in quality, quantity and reducing costs. Nevertheless, foreign confectionery producers still have an advantages over Chinese producers in technological section. As the leader in world confectionery industry, Nestle has technological superiority competing with Chinese confectionery producers.
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Alliance strategy marking
Prior to the acquisition with Nestle, Hsu Fu Chi had built strategic alliances with Sunkist,and EBL. Moreover, it had established distribution agreements with Carrefour, RT Mart, Trustmart and Wal-Mart. After acquisition, Hsu Fu Chi's alliance strategy should be changed. Firstly,Hsu Fu Chi should terminate or alter the strategic alliance with Sunkist,and EBL. The alliances between Hsu Fu Chi and Sunkist,EBL are aimed to sale their products to each other's market, and develop each other's brand(Elmuti,2001). With this acquisition, Hsu Fu Chi can use Nestle's sales network to sale its products around the world, at the same time Nestle can use Hsu Fu Chi's sales network to expand its market share in China. This acquisition can meet their strategic goals set by both Nestle and Hsu Fu Chi, so there is no need for Hsu Fu Chi to keep the alliances with Sunkist,and EBL. Perhaps, Hsu Fu Chi may keep the alliances with Sunkist,and EBL in food technology. Secondly, Hsu Fu Chi should keep the distribution agreements with Carrefour, RT Mart, Trustmart and Wal-Mart. These agreements enable Hsu Fu Chi to expand its marketing channels and improve its brand significantly. These powerful retailers have a great ability to influence the sales of products, and this is that Nestle can not reach(Osano, H. & Kyoto, U,2011). As a result, Hsu Fu Chi has to rely on these major retailers. Lastly, Hsu Fu Chi should seek to establish distribution agreements with big retailers, especially Chinese retailer. The purpose of this acquisition is to expand Chinese market for Nestle, and Hsu Fu Chi has a powerful sales network in China but it still needs to expand marketing channels for Nestle. Only in this way can Nestle truly achieve its goals to dominate Chinese market.
5. Conclusion
Chinese confectionery market is potential and active market, this acquisition makes Nestle expand its global market share and become the leader in Chinese confectionery market. With this acquisition, Hsu Fu Chi should change his alliance strategy. Because Nestle has a global sales network, Hsu Fu Chi should terminate sales alliance between other confectionery producers only remain technological cooperation. Moreover, Hsu Fu Chi should keep the distribution agreements with major retailers and it should seek to establish distribution agreements with other big retailers, especially Chinese retailer. Only in this way can Nestle truly achieve its goals to dominate Chinese market.
Reference
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