Assignment II - IBE Research Paper on Aurora Cannabis’ Market Entry into South Korea

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12/2/2024 Professor Joseph Pancratius Assignment II - IBE Research Paper on Aurora Cannabis’ Market Entry into South Korea
Table of Contents EXECUTIVE SUMMARY ................................................................................................................................ 2 INTRODUCTION ........................................................................................................................................... 3 PORTER’S FIVE FORCES ANALYSIS .............................................................................................................. 4 1. Threat of New Entrants: ...................................................................................................................... 4 2. Bargaining Power of Suppliers: ........................................................................................................... 4 3. Bargaining Power of Buyers: ............................................................................................................... 4 4. Threat of Substitute Products: ............................................................................................................ 4 5. Competitive Rivalry: ............................................................................................................................ 5 MODE OF ENTRY ANALYSIS ........................................................................................................................ 7 Mode of Entry 1: Wholly-Owned Subsidiary .......................................................................................... 7 Mode of Entry 2: Joint Ventures/ Partnerships ...................................................................................... 8 Mode of Entry 3: Exporting and Distributorship .................................................................................... 9 Industry Analysis: Cannabis in South Korea ........................................................................................... 9 DECISION CRITERIA ................................................................................................................................... 10 1. Initial Investment: ......................................................................................................................... 10 2. Potential Market Penetration ........................................................................................................... 10 3. Risks: ................................................................................................................................................. 11 4. Ability to Protect IP: .......................................................................................................................... 12 DECISION MATRIX ..................................................................................................................................... 13 RECOMMENDATION ................................................................................................................................. 14 IMPLEMENTATION PLAN AND TIMELINE ................................................................................................. 15 Scale: ..................................................................................................................................................... 16 CONCLUSION ............................................................................................................................................. 17 REFERENCES .............................................................................................................................................. 18 Page | 1
EXECUTIVE SUMMARY Leading international cannabis business Aurora Cannabis is well-positioned to investigate and profit from the developing South Korean market, which is becoming more and more open to the health and wellness benefits of cannabis. The goal of this executive summary is to provide a thorough implementation plan that will enable Aurora Cannabis to successfully enter the South Korean market. South Korea's regulatory landscape, with recent medical cannabis decriminalization, opens avenues for Aurora's entry. However, stringent compliance is imperative, and the plan advocates for close collaboration with local authorities and stakeholders. The recommended entry mode is a joint venture or partnership, balancing access to local expertise with risk-sharing. In determining the optimal entrance strategy for Aurora Cannabis into the South Korean and global markets, key decision criteria were considered. These criteria included the balance of initial investment to ensure financial stability, the strategic importance of market penetration, the multifaceted risks associated with South Korea's regulatory and cultural landscape, and the critical need to protect intellectual property (IP). The recommended strategy involves a medium- sized initial investment with a focus on market penetration, acknowledging the challenges of the regulatory environment and cultural norms. Mitigating risks through potential joint ventures, effective differentiation strategies, and careful consideration of operational challenges is emphasized. Furthermore, prioritizing the protection of intellectual property through legal measures is highlighted as critical for sustaining Aurora Cannabis' innovative impact in the dynamic cannabis industry. Cultural sensitivity is paramount, necessitating employee training and public education campaigns aligning with South Korean norms. Strategic alliances with regional entities, robust distribution networks, and targeted marketing campaigns emphasizing therapeutic benefits are integral to Aurora's success. The phased implementation plan underscores adaptability, starting with non-psychoactive CBD products, testing market responses, and gradually expanding. In essence, Aurora Cannabis aims to establish itself as a pioneer in South Korea's evolving cannabis industry by aligning with local dynamics, fostering strategic partnerships, and Page | 2
navigating regulatory intricacies. This executive summary encapsulates a roadmap designed to ensure Aurora's successful entry, growth, and sustainability in this dynamic market. INTRODUCTION In response to the dynamic global evolution of the cannabis industry, this study delineates the purpose and scope of developing a targeted implementation plan for introducing Aurora Cannabis into the South Korean market. With the South Korean regulatory landscape showing signs of openness to cannabis-based products, the purpose of this study is to strategically position Aurora Cannabis to leverage this burgeoning market. The scope encompasses a multifaceted approach, including regulatory navigation, cultural adaptation, product portfolio strategy, and the establishment of key partnerships. By addressing these facets, the study aims to guide the development of a robust implementation plan that aligns with the unique characteristics of the South Korean market, ensuring the success and sustainable growth of Aurora Cannabis in this emerging sector. Page | 3
PORTER’S FIVE FORCES ANALYSIS Porter's Five Forces analysis is a valuable framework for evaluating the competitive environment of a company when entering a new market. In the case of Aurora Cannabis' potential entry into the South Korean market, we can assess the following forces: 1. Threat of New Entrants: The South Korean cannabis market is relatively new and tightly regulated. The government has strict control over cannabis products, and the legal framework is evolving. The threat of new entrants is limited due to these regulations and the significant capital required for compliance and market entry (Moon, 2020). Additionally, there may be cultural and social barriers to entry, as South Korea has a conservative attitude towards drug use, including cannabis. 2. Bargaining Power of Suppliers: In the cannabis industry, suppliers can include both cultivators and equipment manufacturers. South Korea may not have a robust domestic cannabis cultivation industry, which could lead to a reliance on international suppliers. This could potentially reduce Aurora Cannabis's bargaining power and increase costs associated with sourcing raw materials and equipment (Shin, 2021). 3. Bargaining Power of Buyers: South Korean consumers may have limited options when it comes to legal cannabis products due to the nascent state of the market. Aurora Cannabis, as an international player with a reputation for quality, could initially have a relatively strong bargaining position in setting prices and product offerings. However, as the market matures, buyer power may increase (KOTRA, 2020). 4. Threat of Substitute Products: The threat of substitutes in the South Korean cannabis market is relatively low, given the strict regulations and limited alternatives to legal cannabis products. However, illegal or unregulated sources of cannabis could pose a threat, as well as alternative wellness products that claim similar benefits (Moon, 2020). Page | 4
5. Competitive Rivalry: The competitive landscape in the South Korean cannabis market is currently evolving. Aurora Cannabis would face competition not only from other international cannabis companies but also from local players that emerge as the market grows. The company would need to differentiate itself through product quality, branding, and compliance with South Korean regulations (Shin, 2021). While regulations and the use of medical cannabis remain strictly monitored, there does exist rivalry in this growing industry for firms engaged in investments and research and development in this sector. Some of the main competing firms which can pose a threat to Aurora’s entry into this market are outlined below. Company Details Aurora Cannabis Hwail Pharm Co. Ltd CTC Bio Inc. Overview Aurora Cannabis Inc., together with its subsidiaries, produces, distributes, and sells cannabis and cannabis- derivative products in Canada and internationally Engaged in the manufacture and distribution of pharmaceutical raw materials Engaged in the manufacturing and distribution of pharmaceutical products, veterinary medicines, feed additives, feed ingredients and functional foods. Formerly named Se Chuk Co., Inc. Date of Establishment 2006 1974 1996 Location Edmonton, Canada Hwaseong, South Korea Seoul, South Korea Main Operation Healthcare - Healthcare - Animal Food Page | 5
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