Greetings from the President

Key success factors

- How were new Lotte businesses established? Why, beginning with confectionery production company went to retailing and hotel business, and not, for example, automobiles or telecommunications business?

– Lotte is Korean chaebol, but historically it was incorporated as Japanese company because the chief chairman [Shin Gek Ho] studied in Tokyo (that time Korea was Japanese colony) and founded the company there after the end of the Second World War. Later, he began to invest into Korea. Level of economical development of Japan and Korea that time was absolutely different and chief chairman decided: in addition to products manufacture it would have been nice to open up department store in Korea. He foresaw large growth in retailing in Korea - and that is exactly happened. This has become one of the key success factors of Lotte. We started as operator of department stores, later we added hypermarkets, supermarkets, neighborhood stores and duty-free.

- Your company’s name Lotte comes from to the protagonist name of "Die Leidendes jungen Werther" by Goethe - Charlotte. Do you know why your father chose this name for his company?

- (Laughing.) My father loves Goethe and once he said that he dreamed to become Werther. We shall keep in mind that that time he was a student, he studied in the foreign country and, obviously, suffered away from home and loved ones. Everybody love Lotte in Goethe's novel and choosing this name for his company,  my  father also wished that it to be loved by all clients.

–There is "Die Leidendes jungen Werther" book in every room in every hotel of yours. And how many editions of this book do you have in your home library?
 

- There are editions in Korean, Japanese, English and German. Many years ago I studied German, but I must admit I didn’t read "Die Leidendes jungen Werther” in original (laughing).

- Nikkei Agency once wrote about you: "Using his experience gained in London office of Nomura Securities, Chairman of the Board of Lotte Group Shin Dong -Bin since 2002 acquired about 40 companies, spending $9.6 billion on these acquisitions. Which development path of Lotte Group do you think more perspective due to natural growth or by acquisitions?

- Since 2001, LOTTE Group acquired 60 companies. Natural growth gives us 2/3, acquisitions - 1/3 in the growth. But we don't want to get involved in the business areas quite new for us preferring to develop in those that are familiar and understandable for us. We are not going to get into shipbuilding, cars or planes. We wish to stay close to end-users.

- The only exception is petrochemical industry. But even in petrochemical industry, we also work for the end customers, being the supplier of various components for telecommunications and automotive companies. The largest petrochemical company in Korea is LG Chem and we are competing with it. They are slightly bigger than we, but we have higher growth rates.

 – And LOTTE Group got engaged in hotel business of your father’s will or it was your own business decision?

- My father began to develop hotel business upon Korean government request. Our first hotel [five-star]  Lotte  Hotel Seoul [1120 rooms], was opened in 1977 - before that time there were no high class hotels in Korea and Korea did not exist as tourist destination. Situation today is radically different. Of course, summer Olympic Games hosted by Seoul in 1988 helped a lot. Till now main stream of foreign tourists is concentrated in Seoul. But in 2018 Korea will host winter Olympic Games, and I hope after that event  tourists will start coming to Korea for  skating as well as and to meet new people and to learn Korean nature. That, for sure, will be quite good for LOTTE Group as well.

- I was in Sochi three or four years before the Games. That time many objects were just in the beginning stage of construction, and I, frankly speaking, had doubts whether they would be able to complete everything on time. But the Olympic Games in Sochi were so brilliant that we, the Koreans, now have to work very hard for the arrangement

- Lotte Group is famous for its skyscrapers, which your group designed and built by yourself. In Lotte CenterHanoi there are 65 elevated floors, and currently being under construction Lotte World Tower in Pusan will be 107 elevated floors, Seoul Lotte World Tower will have more than 123 elevated floors. What is the most difficult in such projects: to obtain permission, build or manage?

- It is not so difficult to design and construct. The most difficult is to obtain permission. We have spent almost 20 years to obtain permit for Lotte World Tower in Seoul. The point is that close to our tower there is a small airport mainly used by Korean air force. There was a serious discussion: whether our skyscraper will violate the height regulations determined by the airport or not. Negotiations continued for almost 20 years, and finally we spent almost $100 million to change runway of airfield to three degrees.

- There are other high buildings In Seoul, probably they are not so impressive. While in Hanoi, your skyscraper looks an absolute monster in the background of the existing buildings. Was it difficult to get construction permit in Vietnam?

- No, because government intended to get complex of buildings of this level in the city centre. Offices, apartments, shops, and embassies of seven countries, including Germany and Malaysia are placed in Lotte Center Hanoi.
- Will headquarters of your company be moved to Seoul Lotte WorldTower, when skyscraper is completed?

- Yes, and not only headquarters. There will be apartments from the 61st to the 85th floor in the tower, including my new apartment. And even higher, at the 86-119th floors there will be six star world's highest hotel. I hope with relevant - highest in the world - price (laughing).

- The Seoul Lotte World Tower will employ more than 20,000 people, and there will be much more shops visitors. How do you ensure transport accessibility?

- Part of our land plot where Lotte World Tower is placed, was transferred to the city authorities so they could expand the adjacent roads. There will be huge parking space for 3,500 cars underground, including parking for buses. So there should not be any traffic jams. I believe that high building with adjacent wide roads is much better than the small one with narrow roads.

- Lotte Group annually performs scheduled managers’ skills improvement trainings. How is this process arranged and what contributions it makes to the company?

- Historically, only superiors used to evaluate skills of the juniors but now we have changed this system for 360 degrees: now juniors evaluate the skills of their superiors as well as employees of comparable positions. It provides more objective picture. Moreover it promotes democracy development in our company.  Based on Korean corporate culture chief is god and his order is law. We wish to make this system more flexible. Of course, this is not a fast process – changes have been in process for 10 years, since I became Vice-Chairman of Lotte. In particular, we try to learn from the experience of our business partners such as PepsiCo, Canon, - we learn a lot from them, combining their best business practices with our corporate culture.

- LOTTE Group announced that it wishes to increase share of female among the top management to 30%. What are you going to gain out of it?

- First of all, why we have taken this decision. Because female constitute 70% of our confectionery buyers as well as buyers in our stores. 20 years ago, when I started working in Lotte Department Store, all decisions focused on female as well, were taken by male. It is quite strange put it mildly. Even that time I understood such system shall be changed, otherwise we won't survive. Today there are about 5% of female among our Directors. Of course, in absolute numbers it is still very few, but compared to other Korean companies they are quite many. By 2020 as minimum 30% of our Directors will be female. Definitely they will. According to Korean mentality construction or petrochemical industry are male industries. No. We have to change this mentality.

- You develop global group, aimed to become one of 10 largest companies in Asia by 2018. Do you need foreign managers to achieve it?

- We employ local managers in the local markets. For example, in Kazakhstan, we have confectionary and we have only two Korean managers there, the rest are locals. And managers’ enhancement program covers not only Korean managers, but also the foreign ones. For example, last year two managers were introduced in top management (executive posts): manager of Lotte Hotel Moscow Morten Andersen - he's a Dane and Joseph Buntaran, head of wholesaling in Lotte  MartIndonesia. While we have targets only on female percentage in the company management, but in 3-5 years, I think, there will be the next one on share of foreigners in top management. That time I think our Board Meeting will be held in English instead of Korean. Rather, such practice has been already implemented: in the beginning of March in Vietnam we are going to held annual meeting of the  company Directors, engaged in food sector, there will be managers from Korea, Japan, Russia, Kazakhstan, the USA and all our other countries and we will speak English there.

- Every Wednesday at the offices of Lotte Group is Family Love Day when employees can leave work earlier. Why have you entered such a day and how it is organized?

- We wish to improve our labor efficiency and Family Love Day is one of the measures to achieve this goal. Koreans are accustomed to spend too much time at work. And in some cases just because colleague stays in the office: I have nothing to do, but I'm going to sit at work because my colleague is sitting. This is stupid. That is why we introduced Family Love Day: to encourage people to work more efficiently and leave work place earlier. Initially, when we introduced this day, people still continued to stay up to 10p.m. But now we just switch off [at 6 p.m.] conditioning and Internet, so people could not work and went home to their families.