Lucky Union Food (LUF)
A Case Study from the Seafood Processing Industry in Thailand
The month of December would ordinarily be a season of festive holidays. However, for Vantanee Seang-U-Tai, Managing Director of Lucky Union Food (LUF), Co. Ltd., December 2015 was proving to be a time of great anxiety and worry. LUF, in joint venture with International Seafood Quality (ISQ), had opened the now closed Laos outlet in October 2014 as a distribution centre for surimi and frozen seafood exports from its factory in Thailand. She had recently learned, in October, that the government of Laos had not approved the company's request to operate at its existing minimart outlet, a refusal that had forced LUF, a processor and exporter of ground fish (surimi) products to close this outlet. Its joint venture partner, ISQ, faced too severe financial hardship to assist LUF to deal with this situation. To further complicate decision making concerning what LUF should do at this point, the company had also run into a conflict with wholesalers at the Thai-Laos border whom LUF had traditionally relied on to distribute products in Laos. They were threatening to drop the company's products altogether if LUF pursued its plan to aggressively venture into the Laos via the establishment of company-owned outlets.
Lucky Union Food ("Luf")
Established in 1991 in Samut Sakhon Industrial Estate, Thailand, LUF's processing plant for surimi-based products was a joint venture between Thai and Korean partners. LUF's surimi-based products appeared in many forms, such as crab sticks, imitation shrimp and fish tofu. Its raw material was sourced from its business partner in Vietnam. Because its main export markets were the EU and the USA, LUF's production system was strictly operated under various international standards, such as Good Manufacturing Practice (GMP) and Hazard Analysis Critical Control Points (HACCP).
Luf's Domestic Experience
Prior to LUF's commitment to the domestic market, its products had been sold under the "Kani" brand, which was licensed to Venturetec Marketing Co. Ltd., which was granted an exclusive right to sell to modern trade channels in Thailand. Because of this pre-existing arrangement, LUF now had to venture into different outlets, i.e., traditional trade and small businesses. Focusing on these markets proved challenging because LUF had long been more familiar with and accustomed to, supplying high quality surimi to large supermarket chains in Europe. However, buyers in Thailand were much smaller and had diverse needs. The challenge in adjusting LUF's operation to the local situation was seen in the company's dealings with the largest users of surimi products- street-vendors selling deep-fried snacks on sticks. Its superior quality of crab stick turned out to be its weaknesses. For instance, because there was no preservative added, LUF surimi products turned slimy when street vendors did not refrigerate them properly. In the endeavour to convince wholesalers to promote its products, LUF offered an exclusive right to wholesales in major markets and a deep discount when buying in a large volume. Alas, this tactic brought forward other challenges. That is, the quantity discounts only tempted wholesalers to aggressively negotiate for larger discounts for larger orders, with the wholesaler selling the surplus in other markets. Consequently, LUF faced difficulty in recruiting new wholesalers and had to strive constantly to avoid any conflict with these powerful wholesalers. Despite these obstacles, LUF's
persistence brought some success. It captured sixty-three percent of market share in the lower end of crab stick sales.
1.Analyse the strengths and weaknesses in light of market opportunities and external threats of LUF in the seafood processing industry.
2.LUF uses the Laos market to gain more experience before investing in other CLMV countries*.
Examine any THREE (3) strategic considerations that LUF needs to make before competing in the international market.