Final

SWOT:

Backgroud

CJ CGV is the largest multiplex cinema chain in South Korea including 125 sites, and 925 screens. It was founded in 1996, by CJ Groups, which is the mother company. CGV takes its name from the first letter of thsese three words; Cultural, Great, and vital. It provides CGV theaters whih are traditional cinemas, and CGV IMAX, 4D Plex, Starium, and Cine de Chef which are their current porducts. The headquarters is located in Seoul.

Its major competitors in the Korean cinema market are Lotte cinema and Megabox. Lotte cinema is ranked at the second place followed by Megabox as a third rank. CGV has recently expanded to abroad. It has branches in china, Vietnam, and United States. It has 38 sites in China, 21 sites in Vietnam and it dominates the Vietnam market.

Strength

The first strength of CGV is its mother company, CJ is so strong that CGV benefits from CJ in many ways. The positive brand image of CJ encourages many customers to choose CGV. As an informal pool, many respondents believe that CGV would also give them high satisfaction as CJ does. A huge amount of capital that CJ has helps CGV expand to abroad like China and East Asia aggressively. The sales profit of CGV is lower than that of Megabox because it invests enormous capital in expansion to abroad. Nevertheless, CGV continuously invests in China and East Asia thanks to CJ’s strong capital.

The second strength of CGV is customer’s high satisfaction in service and positive brand image. CVG provides clean and sophisticated facilities. For example, 4D technology-based movie theaters are equipped in CGV. Also, CGV makes great effort to train employee in order to provide high-quality service. For example, it recently established CGV University that educates its employees. Besides of improving customer service, CGV works hard in improving its brand image. For instance, CGV employees the elderly citizens that other companies are unwilling to hire.

(screen number, market share)

Weakness

CGV has threes weaknesses: controversy of monopoly and oligopoly, flexibility of profits depends on the success of movies or season, and lack of connected entertainment environment. In detail, the first weakness of CGV is controversial screen monopoly and oligopoly with other cinema companies. CGV has 925 screens out of 2,322, and 48.6% of market share(2014. 4Q) in Korea. Including Lotte Cinema and Megabox, the three major companies account for 96.1% at the same time. So there exist common critics which can make a bad image. The second weakness is that its sales profit depends on the success of movies and high season. Its profit rate has been higher in third and fourth quarters which are considered to be high seasons than in first and second quarters. This makes the profits and growth of CGV vulnerable. The third weakness of CGV is that it lacks of supporting environments to attract more moviegoers compared to the major competitor, Lotte Cinema, which is usually located within multiple complex including Lotte Department stores, or Lotte World.

Opportunity

The first opportunity of CGV is expansion to East Asia and China. For Vietnam, CGV stands first in movie market. Specifically, CGV now has opened 23 sites and its market share is 50%. In this situation, Vietnam GDP’s growth rate has stably increased since 2001. So, more Vietnamese can afford to enjoy their leisure including watching movies. For China, although CGV has not made any surplus because of huge investment it made in the early stage, CGV is expected to have a better performance in 2016 when it finishes its early investment. Also, Chinese movie market is expanding rapidly, so the benefits to CGV will be explosively increased.

The second opportunity of CGV is increased holidays in Korea. After 2014, if a national holiday is on weekend, Korean workers can replace the holiday with another day. Also, these days Korean students spend more time on leisure because of increased short breaks. This kind of increased holidays encourages people to enjoy watching movies during their spare time.

The third opportunity of CGV is its connection with movie-making companies. CGV has collected big data based on movies that attracted lots of people. CGV provides big data to those companies in order to let them know which kinds of movies will be popular to people. So, it is getting easier for them to make the movies that will be potentially successful. This will lower the chance of failure that makes the company

Threat

CJ CGV mainly has 3 threats from its rival companies in both South Korea and China. The first threat to CGV is its poor conditions of marketing compared to Lotte Cinema. Lotte Group is the mother company of Lotte Cinema, and it has Lotte World and Lotte Department Store. Thus, Lotte Cinema is often within Lotte World or Lotte Department Store. So, people can conveniently enjoy not only movies but also shopping at the same time. However, CJ does not have such multi-complex as department store that can attract people to cinemas. In other words, CGV lacks the cooperation with other CJ subsidiary companies to draw people. Therefore, CGV loses many customers who prefer shopping and entertainment at the same place. For example, the parents with children will prefer going to Lotte Cinema.

The second threat to CGV is that it doesn’t provide unpopular films and only focus on blockbuster movies. Compared to its competitors which are Lotte Cinema and Megabox, CGV doesn’t provide various movies and some small-scale movies are not released in CGV. So, some people who want to watch unpopular movies have no choice but to go to Megabox because it releases both popular and unpopular movies. People criticize CGV about making profit by exclusively maximizing screens of blockbuster movies and minimizing low-budget movies, so CGV image is getting bad. Megbox produces more stable profit than CGV because it does not rely on the profit from blockbusters. Furthermore, the expectation on blockbuster movies’ success can be wrong and small-scale movies can hit.

The third threat to CGV is that it cannot guarantee success in overseas film markets although CGV keeps investing huge amount of money in China and East Asia. According to the statistics, the operating profit percentage of CGV is 11.9%, which is lower than 20% of Megabox. CGV expects that cinema markets in China will make profits. However, market expansion in China is expected to be very competitive. Specifically, Wanda Cinemas has become the largest movie theater in China. Like Lotte, Wanda group operates in four major industries—commercial property, luxury hotels, culture and tourism, and department stores (Wanda Plaza). Therefore, CGV must have more effective promotions to attract customers and compete with Wanda Cinemas and Lotte Cinema in China. Otherwise, CGV might make more losses on overseas investment and get low-operating profit.

References

1. CJCGV. (2015). IRdata. Retrieved May 8,2015 from http://corp.cgv.co.kr/company/ir/data/data_list.aspx (This IR data is suggested by CGV, on its website, delivering profits, screen numbers, attendance, market share(including records of competitors), its growth through years, and its scores abroad.)
2. UXKOREA. 메가박스 vs CGV 페이스북 페이지 분석. Retrieved May 8, 2015 from http://www.uxkorea.com/archives/2839 (This article suggests another strong point of CGV in terms of social network management, the company is a lot more popular on facebook than any other competitors.)
3. Gang, H. G. (2015). [어벤져스2 개봉 임박] CJ CGV 스크린 독과점 우려 ‘솔솔’. Retrieved May 8, 2015 from http://m.sisaweek.com/news/articleView.html?idxno=41320 (This linked news shows that there is some controversy about monopoly of CGV in the market.)
4. Sin, W. S. (2014). [CJ 4D플렉스]①CJ CGV, 500억 쏟아붓고도 ‘날샐라…’. Retrieved May 8, 2015 from http://www.bizwatch.co.kr/pages/view.php?uid=11979 (This news article analyzes that the 4D movie theater which is one of the major investment of CGV has not been successful until now.)
5. Park, G.S. (2015). 이단의 영화계를 꿈꾸며: 대형극장의 네 가지 횡포. Retrieved May 8, 2015 from http://slownews.kr/40495 ( The article criticized CGV focuses on blockbuster movies.)
6. Fnnews. (2015). CJ CGV, 중국시장 구조적 성장 따른 수혜 여전..목표가↑. Retrieved May 8, 2015 from http://www.fnnews.com/news/201505040946207582 ( Expand to East Asia/ China)
7. (2013).CJ CGV, 중국진출 7년만에 20호점…심양 금융중심 http://m.newsjeju.net/news/articleView.html?idxno=140066
8. Hong, W.S. (2015). [NCSI] CJ CGV, 8년 연속 정상… 고객 불평률 가장 낮아. Retrieved May 8, 2015 from http://biz.chosun.com/site/data/html_dir/2015/03/29/2015032901384.html (The article analyzes that CGV has received less complains than other rival companies, and customers’ satisfaction is the highest one.)
9. Kim,K.M. (2015). 운 좋아야 대박은 옛말… 흥행, 빅데이터에 달렸다. Retrieved May 8, 2015 from http://m.news.naver.com/read.nhn?mode=LSD&mid=sec&sid1=101&oid=011&aid=0002674084 (CGV analyzes information and provides data to movie-making companies.)

Tax Response:

Thank you for the email.

In 2015, the Korean tax laws were revised for the purpose of making more corporate income flow back into the economy. By enacting this law, the government expects economic recovery. (force businesses to spend more of their earnings for economic recovery instead of hoarding them in corporate coffers) This new tax law is Corporate Income Tax Law (“CITL”). We understand that CGV is wondering whether CITL is applicable to CGV.

CITL is applicable to any corporates that meet both these two criteria: The first criterion is equity capital should be over KRW 50 billion. The second one is the money spent on wage payment, investment and dividend payment should be less than 80% of annual earning. The applicable period of CITL is until the end of 2017. There are two types of tax computation that companies can choose. One is to deduct wage payment, investment and dividend payment from 80% of annual earning and multiply 10%. The other is to deduct wage payment and dividend payment from 30% of annual earning and multiply 10%. This is the amount of money that companies should pay the tax.

Both results of these two computations show that CGV is subject to CITL. However, we found that your company can pay less tax if you choose the second computation which excludes the investment. Therefore, we suggest you to choose the second computation.

We hope that our answer could helpful for your query. Thank you.

Tax Reflection:

In my opinion, tax is very important. Government needs money to run the country. Without tax, a country cannot be developed. Education needs money, the military needs money, medical research also needs money from tax. And politicians and public service works get paid from tax. So, tax is very important for a county’s development. If the government makes good tax law, and make good use of tax, it will be very helpful for the country and the citizens. So, I think I have to pay tax for those reason. However, I wonder that if the government makes the best use of tax for communities, and invest the money on the right thing. Most Korean citizens said the government is unreliable. I think that means Korean government does not do their jobs well. And according to CITL, government can get a lot of money from companies.

Business Writing Reflection:

For the half of the semester, with my group members, we have learned how to write SWOT for a company, and how to start to find useful resources and analyze them together. Since our group members do not have knowledge of economics, so at the beginning, we all worried about that. But my group members and I try to understand the information of laws, graphs and figures. The most difficult moment is that when we start to learn how to write tax response, because first we should understand the Tax Incentives Limitation Law(CITL), and try to figure out CGV’s situation. When I read the Korean CITL, suddenly I was shocked by those strange law languages. And my other members also feel the same feeling as mine. We all feel difficult, but we discussed together, then I understand gradually under the help of my group members. Finally, we finished our tax response which is really amazing in my view. Through the three activities, I just felt I learned something beyond my ability, but it is very important and useful experience to me, because someday when I work in a company I may need to know how to analyze SWOT or Tax Response. I am very thankful that my group members and professor help me a lot with business writing.