CULTURAL DIFFERENCES BETWEEN THE UK AND JAPAN AND ITS EFFECT ON KITKAT BUSINESS DECISIONS

FOREIGN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS ---***---RESEARCH PAPER Subject: INTERNATIONAL BUSINESS CULTURAL DIFFERENCES BETWEEN THE UK AND JAPAN AND ITS EFFE

FOREIGN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS

-*** -RESEARCH PAPER

Subject: INTERNATIONAL BUSINESS

CULTURAL DIFFERENCES BETWEEN THE UK

AND JAPAN AND ITS EFFECT ON KITKAT

Class: Advanced Program of International Business Economics - Cohort: 56

Instructor: Ms Nguyen Hong Hanh

I Introduction 2

II About KitKat: 3

1 Introduction about KitKat company: 3

2 KitKat's international business background: 4

3 KitKat's expansion to Japan 6

III Cultural differences between KitKat’s home country - the United Kingdom and Japan 9

1 Overview of the UK and Japan culture 9

2 KitKat infused into the UK culture 11

3 Japan culture highlight and KitKat adaptation 12

IV Implication and lessons for international business 16

V Conclusion 18

REFERENCES: 20

GROUP CONTRIBUTION: 23

I Introduction

In this day and age, thanks to globalization and free trade, business companies areallowed to expand across borders and the global marketplace becomes increasinglyaccessible for both large and small international companies Multinationalcompanies, definitely, take advantage of an increasingly diverse knowledge, laborand customer base Along with the benefits of new sources, global companies mayunavoidably encounter an enormous number of challenges in order to succeedwhen it comes to a new market other than their home country In particular, one ofthese hurdles may come from cultural differences, which may either negatively orpositively affect the company’s performances in the local market it is targeting

While there are several ways to define culture, yet, simply it is a set of common andaccepted norms shared by a society As taking a closer look at cultural differences, therecan be more concepts to be taken into account, such as low-context and high-contextcultures In low-context cultures like the United States, United Kingdom and Canada,communication is explicit and clear while the opposite situation holds in high-context cultureslike Russia, China, Japan and France: communication is nuanced and implicit with morehidden content People’s cultures often shape their attitudes and perceptions towards issues

of morality and values or virtues as well as how they interact with their environments.Therefore, normally, doing international business in high-context culture countries may bemore challenging due to its focus on underlying context, meaning and tone in the messageinstead of just words themselves Without thorough local market research regarding localculture and well-prepared strategies before expanding business into these complicatedforeign markets, there have been many failure experiences of international companies in thepast of creating misunderstandings in ways of marketing and communicating the message ofproducts, which can lead to incredible loss in their revenues and even boycott from localcustomers as threat to their survival

Nevertheless, there are also many cases of cross-cultural companies which have takentime to address these differences and successfully had a better chance of remainingcompetitive and becoming the top brand of sales in the international business

environment Thus, in this essay, we will make a discussion on cultural differences as

obstacles of KitKat company when it entered the hard-to-please Japan market since the early 1970s and how it adapted to continue flourishing and finally, figure out

some lessons to succeed that might be applied to other multinational businesses

II About KitKat:

1 Introduction about KitKat company:

KitKat is a chocolate-covered wafer bar confection created by Rowntree's of York,United Kingdom, and is now produced globally by Nestlé, which acquired Rowntree

in 1988, with the exception of the United States, where it is made under license bythe H B Reese Candy Company, a division of The Hershey Company

a) Rowntree's

Rowntree's is a British confectionery business based in York, England Rowntree developed the KitKat (introduced in 1935), Aero (introduced in 1935), Fruit Pastilles (introduced in 1881), Smarties (introduced in 1937) brands, and the Rolo and Quality Street brands when it merged with Mackintosh's in 1969 to form Rowntree Mackintosh Confectionery.

Founded in 1862, the company developed strong associations with Quakerphilanthropy Throughout much of the 19th and 20th centuries, it was one of the bigthree confectionery manufacturers in the United Kingdom, alongside Cadbury and Fry

In 1981 it received the Queen's Award for Enterprise for outstanding contribution tointernational trade By the time the company was acquired by Nestlé in 1988, it was thefourth-largest confectionery manufacturer in the world The Rowntree brand continues to

be used to market Nestlé's jelly sweet brands, such as Fruit Pastilles and Fruit Gums

b) Nestlé

Nestlé S.A is a Swiss multinational food and drink processing conglomerate corporationheadquartered in Vevey, Vaud, Switzerland It is the largest food company in the world,measured by revenues and other metrics, since 2014 It ranked No 64 on the FortuneGlobal 500 in 2017 and No 33 on the 2016 edition of the Forbes Global

2000 list of largest public companies The company was started in 1886 by Henri Nestlé in Switzerland.

Nestlé's products include baby food, medical food, bottled water, breakfast cereals, coffee and tea, confectionery, dairy products, ice cream, frozen food, pet foods, and snacks Twenty-nine of Nestlé's brands have annual sales of over CHF1 billion (about US$1.1 billion), including Nespresso, Nescafé, KitKat, Smarties, Nesquik, Stouffer's, Vittel, and Maggi Nestlé has 447 factories, over

2000 brands in 189 countries with 339,000 employees It is one of the main shareholders of L'Oreal, the world's largest cosmetics company.

The company grew significantly during the First World War and again following theSecond World War, expanding its offerings beyond its early condensed milk and infantformula products The company has made a number of corporate acquisitions, includingCrosse & Blackwell in 1950, Findus in 1963, Libby's in 1971, Rowntree Mackintosh in

1988, Klim in 1998, and Gerber in 2007 Nestlé’s success with product innovations andbusiness acquisitions has turned it into the largest Food Company in the world

Today, Nestlé markets a great number of products, all with one thing in common: the high quality for which Nestlé has become renowned throughout the world The Company's strategy is guided by several fundamental principles and can be summarized as: “Thinking globally - acting locally”

2 KitKat's international business background:

KitKat bars are produced in 16 countries by Nestlé: Brazil, Mexico, United Kingdom,Canada, Australia, New Zealand, South Africa, Germany, Russia, Japan, China,Malaysia, Thailand, India, Turkey, United Arab Emirates, Bulgaria and Algeria.KitKat bars in the United States are produced under licence by The HersheyCompany, a Nestlé competitor, due to a prior licensing agreement with Rowntree

The origin of KitKat was traced back to 1935, the original four-finger bar was developedafter a worker at Rowntree's York Factory put a suggestion in a recommendation box for

a snack that "a man could take to work in his pack" The bar launched on 29 August

1935, under the title of Rowntree's Chocolate Crisp, and was sold in London and

throughout southern England Rowntree's Chocolate Crisp was renamed KitKat Chocolate Crisp in 1937.

Following its success in the United Kingdom, in the 1940s KitKat was exported to Canada, South Africa, Ireland, Australia, and New Zealand In 1958, Donald Gilles, the executive at JWT Orland, created the iconic advertising line "Have a Break, Have a KitKat" The brand further expanded in the 1970s when Rowntree created a new distribution factory in Germany to meet European demand, and established agreements to distribute the brand in the US through the Hershey company, and in Japan through Fujiya.

In June 1988, Swiss company Nestlé acquired KitKat through the purchase of Rowntree's, giving Nestlé global control over the brand, except in the US, and production and distribution increased with new facilities in Japan and additional manufacturing operations set up in Malaysia, India and China.

Variants in the traditional chocolate bar first appeared in 1996 when KitKat Orange, thefirst flavour variant, was introduced in the United Kingdom Its success was followed byseveral varieties including mint and caramel, and in 1999 KitKat Chunky was launchedand received favourably by international consumers Variations on the traditional KitKathave continued to be developed since then In 2000, Nestlé acquired Fujiya's share ofthe brand in Japan, and also expanded its marketplace in Japan, Russia, Turkey, andVenezuela, in addition to markets in Eastern and Central Europe

As dark chocolate has seen increased demand and favour worldwide because of its purported health benefits, in September 2006 the four-finger KitKat Fine Dark was launched in the United Kingdom as a permanent product, and packaging for the entire brand was changed.

Twist by Mars, Hershey’s, Galaxy, Kinder Bueno and Time out by Cadbury aresome of KitKat’s main competitors Despite the heavy competition, KitKat remains

as one of the UK’s bestselling chocolate bars In 2014, Kit Kat was ranked the thirdbest selling chocolate bar in the United Kingdom, after Dairy Milk and Galaxy

3 KitKat's expansion to Japan

According to the Japan Tourism Agency, in 2018, the number of foreign touristsvisiting Japan reached 31.19 million, ranked 11th in the world International travelersare appearing all over the country, flooding the local markets with fresh cash One ofthe souvenirs most likely to catch their attention is Japanese candies, especially thegreen tea - flavoured KitKat Nowadays, these dark green candy bars line displaywindows in souvenir shops around Tokyo's train stations and airports, and thereseems to be no end to international tourists clamoring to snatch them

However, the unusual thing about this trend is that KitKat isn’t a Japanese candy It’s aninternational brand, invented in England and now sold by Nestlé, the Swiss mega-Conglomerate, the world’s biggest food corporation Although sold in over 100 the market that a number of people in Tokyo have said that Kit Kat was a Japanese

product.countries like China, Thailand , India, Russia, the U.S., KitKat is one of the selling Japanese chocolate brands, and it has gained such a unique position on:

best-a) History

Like Japan itself, KitKat is a confection with a long and storied history Over 50 years after it first came to Japan, the country has grown to become the brand’s biggest consumer in terms of both sales and profits, with Nestle as the present- day owner From convenience stores to Kit Kat branded boutiques in Tokyo and Osaka, the sweet treats can be found at practically every turn.

This chocolate was originally launched in Japan in 1973, and so there was a fair amount of time while it was being sold in Japan without any significant flavor changes, but it was explained that during this time they were developing the shape Just like the UK, the four-finger bar was the main item, but in the 1980s they expanded to selling family-type bags which had mini two-finger bars.

Yet the story of how Japan made the snacking staple entirely its own begins in

1990, in Hokkaido, Japan’s northernmost main island, known for its skiing, hotsprings and beer KitKat’s marketing team believed the island’s souvenir shops — infact, souvenir shops nationwide — could stand to diversify their snack offerings

“Wherever you went, you could only find rice cakes,” said Takuya Hiramatsu, aspokesman for Nestle Japan “But people got kind of bored with traditional rice cakes.”

After trying different product variations of the original milk chocolate bar, they decided to try a new strategy which could work with Japanese people’s

preference for new things For a limited time a new flavor was sold as a trial, so

in 2000, Nestlé Japan released its first non-chocolate flavor: strawberry, during strawberry season in Hokkaido, which proved to be a hit with customers and really flew off the shelves Since then, Kitakat has created around 350 varieties and embedded itself in Japanese culture, becoming a Kit Kat signature in Japan The reason for this variation is the demand for Japanese convenience stores to constantly rotate items on their shelves However, keeping up with the demand requires a steady flow of new ideas By producing smaller runs of flavors, the company was better able to control its production costs It was also economically viable in Japan because there is no initial product fee for listing new products in Japanese convenience stores.

The KitKat makers leveraged local products into exotic flavors In time, exotic and strange KitKats began appearing all over, including on Honshu, the nation’s largest island There, in Shizuoka prefecture, the candy-makers offered Tamaruya-Honten brand wasabi KitKats; in the Kanto region, adzuki bean sandwich KitKats; in Hiroshima, KitKats flavored like momiji manju, a locally produced pastry made of rice and buckwheat.

Many Japanese prefectures even develop Kit Kats based on local specialties This leaves plenty of room for experimentation An interview with Kaori Murata of Nestle Japan, who developed around 100 of the 350+ flavors, reveals the difficulties gettingKitKats to actually taste like the flavors they’re supposed to represent New KitKat varieties, Nestle said, take about six months to develop, from idea to shelf, which makes failures all the more disappointing One of their greatest failures came about eight years ago — an assortment of cola- and lemonade-flavored KitKats In 2009,

“sports drink,” a citrusy concoction, also fell flat

About the success of KitKat in Japan, Nestle says their sales in this country have risen50% between 2010 and 2016 The KitKat brand took the number one sales positionfrom Meiji chocolate in 2012, though Meiji remains the leading confection company inJapan overall In 2014, KitKat retail sales in Japan reached 17 billion yen, equivalent to

96 million pounds, although still less than 243 million pounds in sales in the UK, but sales increased continuously since 2011 In contrast, UK KitKat sales have fallen for 4 consecutive years due to the fear of obesity and diabetes From

2014, to now, KitKat was the top-selling confection in the country.

More recently, in 2017, the company opened its second manufacturing plant in Japan to keep up with local demand Also in this year, a new KitKat specialty store inTokyo’s ritzy Ginza district — called Chocolatory — established the chocolate bar as

a premium brand Chocolatory has sold “orange cocktail noir” and “Sakura green tea,” containing cherry leaf extract The store, which also sold gold leaf bars, once offered a limited-edition that was distinctively Japanese — sushi KitKats No tuna, nomackerel Just fun-sized bars with KitKats (pumpkin pudding, Hokkaido melon, raspberry) laid on puffed rice and wrapped in seaweed

During 50 years of development in Japan, KitKat has made some smart

partnerships In 2009, the company created ‘KitKat Mail,’ a partnership with Japan’s postal service that allowed students to send KitKats as good luck charms before the country’s high-pressure January university entrance examination Some KitKat wrappers contain blank spaces for students to scribble in heartwarming messages The promotional packages were sold out within a month

In March 2011, after an earthquake, tsunami and nuclear disaster devastated a swath of Japan’s Pacific coast, people sent KitKats to the region, appending the

message: kitto fukkyu kanau, or, ‘you’ll surely recover.’ Nestle Japan threw its support behind the damaged Sanriku Railway — it released a special line of

KitKats and donated some of the proceeds to reconstruction It decorated two rail cars and in 2014, to celebrate the rail’s return to full operations, allowed riders to use some limited edition KitKats as tickets.

Nestlé also develops flavors in collaboration with famous local companies and retailers One example of this is the popular “Kit Kat Itoh-Kyuemon Uji-Matcha” flavor, named for

a famous Uji tea seller founded in Kyoto in 1832 Recently, candies flavored with Uji matcha have gained a lot of traction in the market, and Itoh-Kyuemon is seen as a definitive example of the best-known tea sellers in Uji When they hear the name “Itoh-

Kyuemon,” customers can instantly visualize the legendary tea growers and the famous shops that to this day exist as the “face” of Uji.

b) Product

KitKats are now produced at Nestlé-owned factories in Himeji and Kasumigaura The milk chocolate used for KitKats is made from whole-milk powder and Nestlé buys most of its cacao beans from West Africa.

The most popular kind of Kit Kat in Japan is the mini — a bite-size package of two ingots — and Nestlé estimates that it sells about four million of these each day KitKat is multicolored, multilayered, sometimes so difficult to find In any given year, there are about 40 flavors available, including the core flavors — plain milk chocolate, strawberry, sake, wasabi, matcha, Tokyo Banana and a dark-chocolate variety called “sweetness for adults” The company develops 20 new flavors every year, and replaces flavors on convenience store shelves every two months “That’s how the cycle has been ever since strawberry".

Some of these flavors can only be found in regions in the country in which a sense

of uniqueness and collectivity is encouraged The company claims that seasonallylimited edition versions provide consumers with "rare and scarce value."

However, while they are developing products according to the market and customerneeds, they feel the most important thing is in fact the quality of the original KitKat.That is the key product, and like other brands the key product creates the brand’svalue They explained that if they just focused on developing new flavors, that issomething that any company could just copy and do They want to improve theevaluation of the brand as a whole, as well as its core products

III Cultural differences between KitKat’s home country - the

United Kingdom and Japan

1 Overview of the UK and Japan culture

As mentioned above, KitKat was first delivered as a fresh, four-finger chocolate wafer bar during the 1930s, in the UK, by the chocolate maker Rowntree's In the 84 years

since then, the brand has become a global phenomenon in Japan where KitKat

is considered a lucky charm, and has been made available in more than 300 weird and wonderful flavours including sweet potato, cherry blossom, wasabi and sake In this report, we will go together to investigate and discover what is comparative and diverse between Kitkat in its original nation - the UK and Japan There are exceptional highlights that make Kitkat so popular and loved in Japan.

British culture is influenced by the combined nations' history; its historically Christianreligious life, its interaction with the cultures of Europe, the traditions of England,Wales and Scotland, and the impact of the British Empire First spoken in earlymedieval England, English is the official language of the UK, and is spokenmonolingually by an estimated 95% of the British population The British culture ofeating is very different from the world The British take tea making as an art form,and they take it very, very seriously Everyone's opinion on how to make a good cup

of tea is very different, so they have a lot of respect for how each person brews tea.Beside drinking tea, the British also love eating chocolate Britain has been a nation

of chocoholics since the 19th century If you are invited to the home of a nativeBritish person, it is normal to bring along a gift, such as chocolate, wine, or flowers

to say thank you In the UK, Kitkat positions themself as the best snack for peoplewho love to indulge in chocolate It climbed to national favorite with its endorsement

by Churchill's wartime government as healthy, cheap food With their famous tagline

“Have a Break, Have a Kit Kat”, KitKat has became a go-to cheap chocolate snackfor everyone when they need to “have a break”

On the other hand, early Japanese culture was intensely impacted by China During theEdo period, Japan practiced a severe neutralist strategy, shutting its ways to allassociations with the rest of the world Being isolated for thousands of years hadallowed Japan to experience different cultural evolutions in solitude, creating a trulyunique traditional culture After the fall of that time in 1868, Japan turned around thiswork on, receiving social practices from everywhere the world and blending them in withwhat was set up during the Edo period Throughout the long term, Western culture hasimpacted all parts of Japanese culture including craftsmanship, way of life and food

The Japanese care a lot about mutual respect and politeness in the way theycommunicate Manners are very important amongst the Japanese and you should makesure you are aware of the basic rules The Japanese are also very proud of theirlanguage and they have their very distinctive expressions Japanese culture andtraditions are incredibly unique, making it a dream destination for a lot of travelers Thatsaid, the fact is that Japan can be an intimidating country for first-time visitors, and notjust because of the language barrier In Japan, giving Kitkat is a sign of exchanging luckand giving each other best wishes This is also a gift of the culture of giving gifts to eachother There are additionally painstakingly picked joint efforts that gain by Japan's way oflife of omiyage, which can be inexactly characterized as coming back from movementswith presents for companions, family and partners.

2 KitKat infused into the UK culture

Since its launch in 1935, KitKat has established itself in British culture and continues to be one of the biggest confectionery brands in the world, spreading its chocolate fingers far and wide that is sold in more countries than any other chocolate brand (KitKat website)

Britain has been a nation of chocoholics since the 19th century According to the Guardian,

“sweet is part of our daily diet, contributing to the 30kg (66lb) a year or more of sugars consumed by the average UK adult Some of our sugar consumption is obvious

–, in our fondness for confectionery, cakes and puddings, for instance The UK tops the European league table in sales of sweets, cakes and biscuits” The popularity of sugar and sweets in the UK can be traced back to the wartime, when slavery made sugar cheaper, and the cheaper it grew the more central it became to the British diet When tea and coffee, both naturally bitter, became popular in the 18th century, sugar was theirindispensable sweetener During the war, it was something of a luxury like other

chocolate, but the way the bars could be divided up among children made it

tremendously popular Its advertising during wartime suggested it was 'What active people need' The Kit Kat logo looks almost exactly as it did when the name first

appeared, making it a common and familiar choice when it comes to chocolate bars