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AEON CO. (M) BHD.

(AEON or the Company) was set up in the first place to assist modernization in Malaysia retailing industries as a result of Malaysian Governments invitation to AEON Japan.

The rationale of choosing Malaysia to enter is because, AEON has planned an AEON Groups 3-year Medium-term Management Plan initiated in 2011(from 2011 to 2013), and one of the strategies is shift to Asian markets which strives for major growth in China and the ASEAN region. (AEON, 2013)

Furthermore, to establishing general merchandise stores in the form of shopping centers, AEON is planning to advance the groups multiple businesses including supermarkets, specialty stores, and financial services in the future. (AEON, 2013)

AEON recognizes that besides expanding its operation in their home country, Japan, they should not ignore other regions of Asia in order to attain sustainable growth. As Asia have both populations and economies showing an increasing growth rate which represent an attractive market to them. (AEON, 2013)

In year 2013, in the moment of improving ASEAN headquarters that commenced full-scale operations under review, AEON decides to implement an integrated growth strategy for the Group across ASEAN based on the new dual-HQ structure for the region. While AEON Co. (M) Bhd. is in the process of creating synergies with AEON BIG (M) Sdn. Bhd., which recently became a Group subsidiary. (AEON, 2013) AEON appears to be confident about Malaysias economy regardless of the unfavorable forecasting. The chairperson of AEON Co. (M) Bhd., Abdullah Mohamad Yusof, stated that although there is a global recession but they are prepared for the slowdown. This statement was made based on their past experience in 1997 Asian financial crisis, AEON gone through the turmoil with just a 2% decrease in sales. This also explains why they will be continuing the

expansion

that

they

have

been

doing

in

the

past.

(Ho,

2009)

Another rationale is AEON Groups 3-year Medium-term Management Plan key strategy is shift to urban markets. The strategic locations in the suburbs as well as its products that are cheaper are the success factor for AEON. AEONs stores are mainly located in suburban residential areas, catering to Malaysias large middle-income group who possess the purchasing power to afford its cheaper product. With the high economic growth, consumer lifestyle is changing, especially in the urban area whereby the need for convenient retail stores is on the rise which consumer can easily access to groceries they want. AEON seize this

environmental changes as an opportunity for its global expansion strategy. Thus, AEON has been aggressively preparing to develop its retail stores in Malaysia.

Malaysia as a developing countries demonstrated its economies that have grown extensively over past two decades. Despite the global financial crisis, which has forced companies to reduce costs and has weakened consumer demand, Malaysia's food, drink and mass grocery retail (MGR) sectors have performed positively in the second quarter, as can be seen in BMI's newly published Malaysia Food and Drink Report for Q209. (Research and Markets: Both Japan's AEON And The UK's Tesco Are To Invest MYR250mn (US$69.3mn) On Store Openings In Malaysia According To The Q2 2009 Food And Drink Report, 2009) The company had effectively rebranded its previous trading name from JUSCO to AEON, conforming to the AEON Group of Japans globalizatio n path. In addition, the rebranding exercise assists AEON in establishing a clearer brand identity for its business in Malaysia. Simultaneously, AEON had launched a new tagline, AEON Enriching Your Lifestyle to reinforce its brand identity which provides each customer an enriching shopping experience, adding value to customers life. (AEON Annual Report, 2012)

From the past, JUSCO has established a brand name that associated with family concept in the mind of customer. Thus, now is the perfect opportunity for AEON to further strengthen its position as market leader and make AEON accessible to more Malaysians. (AEON Annual Report, 2012)

use of entry modes

JUSCO had opened its first overseas store in Malaysia through a joint venture company that established in September 1984. This was operated by Jaya JUSCO Stores SDN. BHD., a company originally jointly owned with Cold Storage (Malaysia), a premier supermarket chain store and Peremba, a leading government-owned property company. It was the first time that a Japanese company had entered into a significant joint venture in the Malaysian retail industry. JUSCO chooses joint venture (JV) as their first mode of entry. Since that was the first time a Japanese company enters Malaysian retail industry, they can shares costs, risks and profits with 2 local partners. Hence, providing them a certain degree of control while limiting risk exposure. Second, JUSCO can gain access to knowledge about operating business in Malaysia. Meanwhile, those 2 local firms benefits from JUSCOs advanced management expertise. As one of their partners was Paremba, which was a government owned property company, JUSCO may be politically more acceptable. This will lessen their trouble doing business in Malaysia. AEON also uses Wholly Owned Subsidiaries (WOS) which is an equity mode to enter Malaysia. It uses acquisition, which the transfer of control of assets, operations, and management occur from one firm (Carrefour) to another (AEON).

Unlike other typically Japanese retailer, part of Aeon's growth strategy has been to acquire stores from failed competitors. On 11 November 2012, Japanese Aeon

Co. announced that it has bought the Malaysian operations of France's Carrefour SA leading them becoming the second-biggest industry player in the Southeast Asian nation. ((Update) Japan's Aeon Buys Carrefour Malaysian Biz, 2012)

Aeon had spent 147 million euros to buy over Carrefour's Malaysian hypermarket unit, Magnificient Diagraph Sdn. Bhd., and a related entity. The acquisition is expect to improve Aeon's annual retail sales in Malaysia to around 120 billion yen, lifting Aeon to the second place from third in the Malaysian distribution industry. ((Update) Japan's Aeon Buys Carrefour Malaysian Biz, 2012)

As Aeon had successfully operated its business and grow big throughout the years, Aeon planned to expand globally. However, the nature of JV does not give Aeon the tight control over their Malaysian subsidiary that it may need for global coordination. Consequently, they shift from JV entry mode to acquisition entry mode. Acquisition allows Aeon to have complete equity and operational control. Therefore, giving them ability to coordinate globally. Moreover, Aeon could protect its know-how in operating business by not sharing its world s most advanced management expertise. Finally, acquisition strategy provides fast entry speed, which in line with Aeon's efforts to accelerate expansion into other Asian markets. In addition, AEON Malaysia expand via new store openings, store refurbishment and changes to its current store offering. Although it plans to maintain the

supermarket format as its main focus, there has also been speculation that AEON may shift into a new concept, such as fresh/organic food supermarkets or discount stores in order to achieve both growth and competitive differentiation.

Besides, the development of its Jusco Selection private-label brand is also an important element to its expansion strategy. To increase its market share to 10%

by 2012, AEON plans to increase four times the contribution of the private-label range over the next three years.

The move is part of Aeon's efforts to accelerate expansion into other Asian markets in the middle of hypercompetition in Japan. Currently, the company operates 30 supermarket stores in Malaysia since it enters into this country in 1984. Aeon is looking forward to increase the number of its outlets in Malaysia to 100 by 2020, emphasizing that it wants to become the most favored supermarket operator in Malaysia. In raising its number of outlets Aeon hopes to strengthen its nation-wide distribution network and reduce inventory risk to allow them effectively and efficiently allocate their resource globally.