In August 2022, Lotte Group announced plans to build its last Lotte Department Store store in Chengdu, which means that Lotte Group's business in China is nearing its end.
Previously, in March this year, South Korea's SBS TV reported that Lotte Group would withdraw its Chinese headquarters and turn to the Southeast Asian market. Lotte Group first entered the Chinese market in 1994 and owns a number of industries such as Lotte Mart and Lotte Department Store.
However, what made Lotte Group have to make this decision after nearly 30 years of operating in the Chinese market?
Lotte Group: A South Korean multinational enterprise originating from Japan Lotte Group is a large-scale comprehensive multinational enterprise, one of the world's top 500 companies, and one of the five largest groups in South Korea.
Although Lotte Group is now a Korean company, its birthplace is actually in Japan. In 1921, the founder of the Lotte Group, Shin Ge-ho, was born in Sangnam-myeonjeeon, Ulsan, Gyeongnam, South Korea, at a time when Korea was under Japanese rule and the social situation was unstable.
In search of a better life or to avoid military service, the 19-year-old went to Japan in 1940 to study at Waseda University in Tokyo.
Under the pressure of economic difficulties, Singhao adopted a part-time work and study method to maintain a balance between study and life. He used his spare time to work part-time jobs such as delivering milk and newspapers to earn living expenses.
After two years of hard work, Xin Gehao successfully graduated from Waseda University and chose to work in Japan. However, Japan was not stable during this time, and the Japanese economy was weak after the defeat and its international status declined, which also had a great impact on Singhao's life.
Although he received 50,000 yen to start a business**, it did not lead to great commercial success. In September 1945, Japan signed the unconditional surrender and a large number of American troops were stationed in Japan, and Singhao found business opportunities in their way of life.
With his keen business insight, Xin Gehao discovered the love of American soldiers for chewing gum, and combined with the situation in the Japanese market, ** chewing gum has a huge consumption potential in Japan.
Not only did he learn how to make chewing gum himself, but in 1948 he founded Rakuten Confectionery Co., Ltd., which specializes in the production and sale of chewing gum. The company's name "Lotte" is derived from the English word "lotte", taken from the character "charlotte" in "The Troubles of Young Werther", and the name is full of Singhhao's love for literature and art.
He once said that if he hadn't started his own business, maybe he would have become a writer. Although Singhao has established himself in the Japanese business community with his chewing gum, due to his Korean background, he is often discriminated against and ostracized by the Japanese, and it is difficult for him to enter the mainstream business circle.
This brought his chewing gum business to a plateau. In order to change this situation, Singhao actively pursued the Japanese woman Shigemitsu Hatsuko and changed her name to Shigemitsu Takeo as a way to strengthen his position in Japanese society.
Shigemitsu Hatsuko's family has an important position in Japanese politics, and her uncle was a Japanese Class-A war criminal Shigemitsu Aoi during World War II. Using this background, Singhao has achieved remarkable success in the business world.
Not only that, Chongguang Chuzi also gave birth to two sons for Xin Gehao, Xin Dongzhu and Xin Dongbin. In the years that followed, Mr. Singh was active in the Japanese business community. In 1965, with the signing of the Treaty on Basic Relations between Japan and South Korea, the two countries normalized diplomatic relations, and Singhhao began to expand his business territory to South Korea.
Soon after, he founded Lotte Confectionery Korea Co., Ltd., whose main product is chewing gum. Relying on years of capital accumulation in Japan, Lotte Group grew rapidly in South Korea and quickly gained a good reputation.
In 1973, Park Chung-hee, who was then the first in Korea, met with Singh-ho and handed over the renovation of the Peninsula Hotel to him, which was the origin of the later Lotte Hotel.
In the next few years, Lotte Group successively established companies such as Seven Star Beverage, Lotte Chemical, Lotte Food, Lotte Department Store, and Lotte Mart in the fields of beverages, chemicals, food, department stores, and Lotte Mart, and began to actively expand the international market outside of Japan and South Korea.
In 1994, Lotte Group set its sights on China, a market with huge consumption potential, and first set foot in Beijing and invested in a factory that mainly produced chewing gum and cream pie.
China's large population base and strong consumer demand allowed Lotte Group to achieve good growth in the Chinese market in the early days, and soon set up factories in Qingdao and Shanghai.
Over time, the Lotte Group's performance in the Chinese market has become more and more impressive, and its business scope has gradually expanded from chewing gum to multiple categories.
Since 2006, when Lotte Investment was established in China with a capital of US$30 million, Rakuten Group has been deeply interacting with the Chinese market. At that time, Lotte Group's supermarket industry had become the second largest supermarket company in Korea, and it was successfully listed in London and Tokyo.
In 2008, Lotte Group's supermarket business began to enter the Chinese market, and cooperated with China's Yintai Group to establish the Lotte Yintai Department Store in Wangfujing, Beijing, and later opened branches in Chengdu and Tianjin.
In the same year, Lotte Mart officially entered the Chinese market by acquiring 8 stores of Beijing Makro. By the following year, Lotte Group had established more than 70 stores in China.
In 2012, Lotte Group established Lotte Corporate Management*** in Shanghai to manage its many enterprises in China. By the end of 2016, Lotte Group had 22 subsidiaries in China, distributed in Beijing, Shanghai, Shandong and other regions, with a total of more than 20,000 employees.
In 2016, Lotte Group's business in China performed strongly, with a total turnover of more than 11 trillion won. However, since February 2017, Rakuten Group's business in China has been declining.
The roots of this change can be traced back to the founder of the Lotte Group, Singh Hao. On July 13, 2016, South Korea decided to deploy the U.S. THAAD anti-missile system in Seongju County in southeastern China, claiming to be aimed at countering the North Korean threat.
However, the real purpose of the THAAD system may be to monitor China and Russia, because it has a powerful surveillance function, and when deployed in South Korea, it can monitor most of China's northeast, northern, and southeastern coasts, which may affect international relations between China and South Korea, and may also have a certain impact on China's strategic missile tactics.
Rakuten Group's decision on February 27, 2017, to donate the Seongju Golf Course to the THAAD system sparked a wave of boycott in China. Although Rakuten Group has made a lot of profits in the Chinese market, it has supported the actions of the United States, which has sparked criticism of its "eating inside and out".
At that time, major supermarkets and convenience stores in China removed Rakuten's products from their shelves, and the operation of Rakuten stores was also seriously affected. On March 1, 2017, the official website of Lotte Mart China even fell into a state of paralysis.
In this regard, Lotte Group's founder Xin Gehao said in an interview with Korean media that he believes that the boycott will only last for a while, as long as Lotte appropriately reduces the price and discounts, this boycott will soon pass.
Singhhao's remarks exacerbated the tension between the Chinese and South Korean markets, and the Chinese side took drastic measures in response, and within a few days, dozens of Lotte Mart stores were closed for rectification due to fire problems.
In addition, the masses spontaneously held ** activities, calling for "Lotte to get out of China". On March 6, Lotte Group officially issued an urgent statement, saying that Singhao's speech was maliciously edited, that they have deep feelings for China, and insisted that the "THAAD" incident was a decision made by South Korea, and that Lotte had no right to choose as a company.
In order to recover the Chinese market, Lotte Group has added an additional 360 billion won to its Shanghai branch to cope with the losses caused by the THAAD incident. However, due to the cold attitude of the Chinese market, Lotte Group's business in China began to decline.
On May 10, 2017, after South Korea's Moon Jae-in took office for the 19th time, relations between China and South Korea gradually eased, and the official website of Lotte Mart was re-launched.
Rakuten's market in China has been severely affected, and since early August 2017, 13 of Lotte Mart's 112 stores have been temporarily closed and more than 70 have been ordered to close due to local public resistance.
There is even a ** said that Lotte Group will ** some supermarkets in China, and Lotte Mart will withdraw from the Chinese market. Rakuten Group's sales in 2017 were only 263 trillion won, a drop of more than 400%, and Lotte Mart, as a direct "victim" of the "THAAD" incident, lost sales of up to 7 billion yuan.
1.Lotte Group has suffered a setback in the Chinese market, and 96 of the 112 stores in China have been **, and the remaining stores will be gradually closed, making it difficult to find Lotte Group products in the Chinese market in the future.
2.After the setback of the Lotte Group in the Chinese market, it has also been caught in a series of turmoil in South Korea, among which the founder Singh Hao has been sentenced to prison for failing to protect himself in the evening. In March 2017, Lotte Group was prosecuted for illegal business operations and other crimes, and its founder Xin Gehao, his wife Xu Meijing, his second son Xin Dongbin, eldest son Xin Dongzhu and daughter Xin Yingzi appeared in court together.
Singhhao, a 95-year-old man, once roared loudly in the courtroom, shouting "Who dares to sentence me" in Japanese. In December 2017, he was sentenced to four years in prison by the ** court in Seoul, South Korea, on suspicion of operating in violation of regulations.
In October 2019, South Korean prosecutors granted Singh's request for a stay of his sentence after confirming his health. On January 19, 2020, Singhao passed away due to illness at the age of 99.
In July 2019, Japan** announced that it would impose controls on three types of semiconductor materials exported to South Korea, and in August of the same year, it removed South Korea from the "white list".
These events sparked a "boycott of Japanese products" movement in South Korea, and Japanese clothing, cosmetics, automobiles and other goods became the target of boycotts by Korean consumers. Because Lotte Group is related to many Japanese conglomerates, South Korean people began to question whether Lotte Group belongs to South Korea or Japan, so Lotte Group's products have also received a certain amount of resistance in South Korea.
Due to the shrinking Chinese market and local boycotts, Lotte Group's profitability continued to decline from 2019 to 2020, with a cumulative loss of up to 8 billion yuan.
In order to reverse the decline, Lotte Group decided to adjust its strategy and shift its focus to the Southeast Asian market, especially Vietnam and Indonesia. In a short period of time, Rakuten has opened 23 subsidiaries in these countries.
However, despite Rakuten's rapid expansion in Southeast Asia, these subsidiaries are not currently delivering the expected benefits to the group. The financial report for the first half of 2021 showed that more than 14 of Rakuten's 23 subsidiaries in Southeast Asia were in the red.
In March 2022, Rakuten Group officially closed its headquarters in China and almost completely withdrew from the Chinese market, focusing its capital on business investment in Southeast Asia.
By September 2022, Lotte Group's expansion momentum in Southeast Asia is quite strong, especially in Vietnam, where 270 Lotte fast food restaurants and 15 Lotte Mart supermarkets have been successfully opened.
Regarding the current situation of Lotte Group, South Korea** has expressed its opinion that Lotte no longer values the Chinese market. However, this is not the case. The Chinese have blacklisted Rakuten, causing its market in China to be hit hard.
Although the population and spending power of Vietnam and Southeast Asia may attract Rakuten's attention, it is difficult for the Lotte Group to regain its past glory in China due to the impact of the new crown epidemic.
Through the entire Lotte incident, we can see that China has the ability to deal with various risks and crises. We welcome friendly and harmonious development of enterprises.
And for those enterprises that only pursue wealth and have ulterior motives, we resolutely resist. References: 1. Interface News: "Lotte 9 Stores Are Closed, Retail Giants Dream Shatter China"; 2, Image Network: "The 99-year-old founder of Lotte died because of"THAAD"Anger China".