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

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

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

Pharmaceuticals Pharmaceuticals Manufacturing | Pharmaceutical and Medicine Workforce Size 1338 130 206 Revenue (USD) 225.18M 31.71B 138.2`B Entering the South Korean market presents both opportunities and challenges for Aurora Cannabis. While the evolving regulatory landscape and market offers a first-mover advantage, the company must navigate significant barriers to entry, a potentially powerful bargaining position of buyers, and a high threat from substitutes. The success of Aurora Cannabis in South Korea will largely depend on its ability to adapt to local market conditions, comply with stringent regulations, and effectively compete against traditional treatments. MODE OF ENTRY ANALYSIS Page | 6

Aurora Cannabis's General Market Entry Strategies Aurora Cannabis Inc., a leading medical marijuana company, has aggressively expanded its international presence through mergers and acquisitions (M&A). Since 2016, Aurora has completed 14 acquisitions, including significant players like MedReleaf Corp. and CanniMed Therapeutics Inc. This strategy has been pivotal in expanding Aurora's global footprint, especially in Europe and South America. Aurora, with operations across 18 countries, is known as Europe's largest distributor of medical marijuana. Mode of Entry 1: Wholly-Owned Subsidiary Table 1 Table showing advantages and disadvantages of Wholly-Owned Subsidiaries Advantages Disadvantages Full Control: Establishing a wholly-owned subsidiary gives Aurora Cannabis complete control over operations, strategy, and decision-making without the need to compromise (Peng, 2019). High Initial Investment: Setting up and running a wholly-owned subsidiary requires significant capital investment, which can strain financial resources (Deresky, 2020). Brand Image: The company can establish and maintain its global brand image, ensuring consistency in product quality and marketing (Kotabe and Helsen, 2014). Regulatory Hurdles: Dealing with South Korean regulations and compliance without local expertise can be challenging and time- consuming (Dimitratos et al., 2019). Long-Term Perspective: This mode allows Aurora to take a long-term view of the South Korean market and make strategic investments accordingly (Hitt et al., 2020). Cultural and Language Barriers: Overcoming cultural and language differences may be more challenging without a local partner, potentially affecting business relationships (Kim and Cavusgil, 2019). Mode of Entry 2: Joint Ventures/ Partnerships Page | 7

Advantages Disadvantages Low Initial Investment: Exporting products to South Korea through a distributor or local agent typically requires less initial investment compared to other modes (Peng, 2019). Limited Control: Aurora would have limited control over its products once they are in the hands of distributors, potentially affecting branding and customer experience (Deresky, 2020). Speed to Market: This approach allows Aurora Cannabis to enter the market quickly and test consumer preferences without setting up a local operation (Hitt et al., 2020). Dependence on Distributors: Relying on distributors exposes the company to the risk of distributor performance, pricing decisions, and distribution issues (Peng, 2019). Flexibility: It provides flexibility to adjust strategies and partners based on market feedback and changes in regulations (Kotabe and Helsen, 2014). Competitive Challenges: Competing with other global and local brands in South Korea may be more challenging without direct control over marketing and distribution (Kim and Cavusgil, 2019). Industry Analysis: Cannabis in South Korea South Korea's cannabis industry is primarily focused on medical marijuana, with stringent regulations governing its use and distribution. While the market is relatively new, it offers growth potential, especially given the increasing global acceptance of medical marijuana. However, companies like Aurora would face challenges such as navigating complex regulations and building market awareness in a conservative society. DECISION CRITERIA Based on this study, we identified the potential benefits and drawbacks for the entrance points selected by Aurora Cannabis. The ability to safeguard intellectual property (IP), simplicity Page | 9

of entrance, initial cost of investment, and ability to endure were the main factors considered while evaluating all the options. Based on these factors, the most optimal and finest option is selected as Aurora Cannabis' way of entrance into the South Korean market as well as the global market. 1. Initial Investment: A medium-sized company dealing in Aurora Cannabis should strike a correct balance between the initial investment and other components to succeed in the South Korean market. Moreover, it has to spend the remaining resources on a successful launch that does not jeopardize the firm’s stable financial status over time. This means that striking a balance “to a significant” degree is necessary to keep this high-end position in the market. This is a twenty percent rated marketing strategy that shows that initially, it will be strategic and very successful. Through doing so, a company can show potential investors that it is focused on its work and does not overspend on funds. 2. Potential Market Penetration Market penetration is of vital importance for Aurora Cannabis’ operations in South Korea. One critical aspect of fast market entry involves setting tactical goals for harnessing new ventures as well as responding to the volatile environment of the South Korean marketplace. The table below shows the ease of doing business in South Korea. Evident through the ratings, operating in South Korea appears feasible, however due to the nature of this business and the political climate and cultural norms, market penetration can be rather challenging. A marketing strategy of 30% shows that Aurora gave priority to their entry into a ruthless industry market. Through such an approach, the company intends to project itself as very responsive to changing circumstances within the restricted cannabis market in South Korea. Diagram 1 Diagram showing the Ease of Doing Business in South Korea Page | 10

4. Ability to Protect IP: Protection of intellectual property will be critical to Aurora’s sustainability and competitive advantage in an ever-changing cannabis environment. This explanation notes that the industry focuses on innovation and states that protecting IP, especially novel strains and techs, is critical. These priceless resources are critical for sustainable success and, therefore have the highest importance ranking of “critical”. Focus on highlighting the firm’s excellent IP protection methods which make it a trailblazer looking for expanding the innovative impact of cannabis. Therefore, the company, like Aurora Cannabis, should hire lawyers specializing in South Korean intellectual law to assist in determining specific conditions, and procedures for registration as well as any relevant new regulations. According to CEO Miguel Martin, “Aurora is a pioneer in terms of the company's genetics work in the Canadian cannabis industry and will not hesitate to continue to take the steps necessary, including legal action, to protect and enforce our intellectual property rights when necessary.” (Newswire, 2023) DECISION MATRIX Decision Matrix 1 = Unfavourable 5 = Highly favourable Criteria Wholly Owned Joint Venture Exporting Page | 12

Subsidiary Initial Investment (30%) 1*0.30 = 0.30 Investing in establishing operation of a wholly owned subsidiary involves large sums of money, which are very burdensome to the company budget. 3*0.30 = 0.90 Additionally, Aurora will share its financial and operational risks with a local partner thus limiting her exposure to market uncertainties and regulatory changes 4*0.30 =1.20 It normally takes low up- front expense to export products to South Korea using distributors and local agents as compared to others . Potential Market Penetration (30%) 3*0.30 = 0.90 Market penetration as a new company poses great challenges. Aurora will be required to navigate this new market on its own while adhering to local policies, regulations and cultural norms to name a few. 5*0.30 = 1.50 The joint venture into South Korea enables local support for Aurora Cannabis’s entry to markets making this operation more acceptable and successful due to the complexity of market entry and cultural integration. 3*0.30 = 0.90 A quick and inexpensive entry of Aurora Cannabis into the South Korea market through exporting makes this an attractive option. Exporting though has drawbacks to such a strict society as it cannot be monitored. Risks (20%) 3*0.20 = 0.60 Through this mode, Aurora is able to look at the South Korea market in the longer run and make appropriate strategic investments, however they will absorb the full extent of risks on their own. 3*0.20 = 1.00 By creating an alliance, the company has to give its power over decision making in that regard which might cause problems for its strategic control. 3*0.20 = 0.60 The company relies upon distributors who may be subject to performance deficiencies, price setting challenges and distributional problems. Ability to Protect IP (20%) 4*0.20 = 0.80 Aurora Cannabis retains full control over Intellectual Property Rights through the Wholly Owned Subsidiary option. 3*0.20 = 0.60 Shared knowledge can risk IP rights with Aurora however with the right strategies in place, this partnership can make the company stronger. 5*0.20 = 1.00 Aurora is able to maintain IP Rights and full control through exporting. Sensitive information will not be at risk compared to partnering with another firm. Total 2.60 4.0 3.7 RECOMMENDATION Page | 13

IMPLEMENTATION PLAN AND TIMELINE Developing an implementation plan for Aurora Cannabis to enter the South Korean market involves a detailed approach, focusing on timing, scale and human resources. Below is a high-level outline of a three phase approach to be utilized for implementation into the South Korean market. Scale: Page | 15 Phase 1: Research and Pre-Entry 0-6 Months Market Analysis: Conduct in-depth research on the existing competitive environment, legal landscape, consumer attitudes, and potential market size for cannabis in South Korea. Engage in negotations for potential joint venture. Regulatory Framework: Collaborate with legal experts to navigate South Korea's cannabis laws, focusing on medical cannabis. Stakeholder Engagement: Identify and build relationships with government bodies, potential business partners, and healthcare providers. Branding and Positioning: Develop a brand strategy aligning with South Korean cultural values, emphasizing health and wellness. Phase 2: Pilot Launch and Market Entry 6-18 Months Pilot Project: Implement a small-scale pilot in a major city with medical cannabis products to test market response through JV proposal. Compliance and Licensing: Ensure compliance with South Korea’s cannabis regulations, obtaining necessary licenses and permits. Marketing and Promotion: Launch targeted marketing campaigns focused on the medical benefits of cannabis . Phase 3: Expansion and Growth 18-36 Months Assess Pilot Results: Evaluate pilot outcomes for insights on market expansion. Scale Operations: Expand to other regions based on pilot success, ensuring supply chain and distribution efficiency. Product Diversification: Introduce a broader range of medical cannabis products suited to the South Korean market.

Initial efforts will commence with a controlled launch, focused on targeting specific demographics, primarily in areas with higher acceptance of medical treatments. Emphasis will be placed on the medical sector where efforts will be concentrated on collaborating with healthcare providers and professionals. Next, as Aurora Cannabis moves into gradual expansion, the scale of operation will be based on the response and feedback from the initial market entry. The company will focus on building a reliable supply chain and distribution network to support expansion, with efforts directed to quality and compliance. Finally, the long-term strategy will align with having a nationwide presence while adapting strategies based on regional market dynamics and consumer behaviour. During this time, Aurora Cannabis will seek partnerships with local businesses and organizations to enhance market penetration and brand visibility. The scale of operations in South Korea will extend to other factors including recruitment, training and development, management best practices, culture and market adaptation along with regulatory considerations. Such areas for consideration are critical to ensure a seamless market entry strategy is executed and the business continuity is secured for the foreseeable future. Aurora Cannabis should prepare for a dynamic market environment, requiring agility, a strong understanding of local nuances, and a commitment to long-term growth and adaptation. In crafting its human resource strategy, Aurora Cannabis emphasizes a dual approach to recruitment, blending local talent acquisition for nuanced market insights with the infusion of international expertise to uphold global brand standards. The training and development facet prioritizes industry-specific knowledge, ensuring staff proficiency in cannabis products, industry dynamics, and regulatory nuances. Cultural sensitivity training underscores the importance of understanding South Korean norms for seamless business operations. Leadership and management strategies focus on cultivating a bicultural leadership team, marrying local insights with international best practices. The implementation of a performance management system aligns individual contributions with strategic objectives and adapts to the unique characteristics of the South Korean market. Page | 16

REFERENCES Deresky, H. (2020). International Management: Managing Across Borders and Cultures. Pearson. Dimitratos, P., Plakoyiannaki, E., & Thanos, I. (2019). International Entrepreneurship and International Business: Relevance, Efficacy, and theoretical implications. Management International Review, 59(5), 623-639. Economy Profile Korea, rep. - World Bank . World Bank Org - Doing Business . (n.d.). https://archive.doingbusiness.org/content/dam/doingBusiness/country/k/korea/KOR.pdf Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2020). Strategic Management: Concepts and Cases: Competitiveness and Globalization. Cengage Learning. https://www.kotra.or.kr/user/globalMarketGW/BD_MktResearchView.do? setIdx=2439&dataGubn=stp&boardIdx=15489&pageFlag=1&column=&search=&search AreaCd=&searchNationCd=&searchPeriod=&searchYear=2020 Inc., A. C. (2023, October 24). Aurora Cannabis Announces Settlement Of Patent Litigation . Cision Canada. https://www.newswire.ca/news-releases/aurora-cannabis-announces- settlement-of-patent-litigation-840188499.html Jung-a, S. (2018, November 27). South Korea legalises medical marijuana. https://www.ft.com/content/ff715088-f2ba-11e8-ae55-df4bf40f9d0d Kim, S. H., & Cavusgil, S. T. (2019). Export performance and international marketing strategy: Role of export assistance programs. International Business Review, 28(1), 116-129. Kotabe, M., & Helsen, K. (2014). Global Marketing Management. John Wiley & Sons. KOTRA. (2020). South Korea's Medical Cannabis Industry. Korea Trade-Investment Promotion Agency. Retrieved from Moon, S. (2020). Marijuana and Drug Policies in South Korea: A Historical and Cultural Analysis. International Journal of Drug Policy, 80, 102731. Peng, M. W. (2019). Global Business. Cengage Learning. Shao, G. (2019, July 15). Medical cannabis is gaining momentum in Asia. CNBC. https://www.cnbc.com/2019/07/15/medical-cannabis-is-gaining-momentum-in-asia.html Shin, S. (2021). Cannabis industry: Growth and challenges in South Korea. Korea Times. Retrieved from https://www.koreatimes.co.kr/www/nation/2021/07/720_317005.html Page | 18