Build to Last, Discount, or Defer?: Examining Lotte's Entry into the Beer Industry

Abstract

This case represents the first part of a two-part case that analyzed the entry of LotteChilsung ("Lotte") into the Korean beer industry. With regards to market structure, the market was characterized by a duopoly that was commanded by Oriental Brewery Co. ("OBC") and HiteJinro ("HJ"). Lotte would be up against stiff competition should it go through with its intended plans to enter the beer industry. On the one hand, Lotte announced a two- step entry plan that began with a small plant. This case highlights the small plant as a real option since the two- step plan was not financially justifiable under classical NPV analysis. With the real option, Lotte could either expect to buy OBC or HJ at a much cheaper price, or wait for better timing to minimize potential losses from investment in a large plant while remaining a minor player in the beer market. Rather than highlighting a typical success or failure study, this case places participants in the driver's seat of current events and asks them to critically analyze costs, benefits, and strategy.