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

Government’s invitation to AEON Japan.

 The rationale of choosing Malaysia to enter is because, AEON has planned an

AEON Group’s 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 group’s 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 Malaysia’s 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 Group’s 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. AEON’s stores

are mainly located in suburban residential areas, catering to Malaysia’s 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 Japan’s globalization 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

customer’s 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 JUSCO’s 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.