Establishment of a Sales and Management-Type Umbrella Company in China

In December of 2004 an application was submitted by Yakult Honsha Co., Ltd. (President, Sumiya Hori) to the Shanghai city government for the establishment an umbrella sales and management-type company to oversee the Yakult business in China, and on April 12, 2005 permission was received from the Shanghai city government for the establishment of Yakult (China) Co., Ltd.
At present, both the GDP and urban populations in China are increasing and a heightening in health-consciousness is apparent. The fermented milk drink market centered around “Yakult” is also rapidly expanding, so it has become possible for our company to quickly develop our business not only in our current markets in Guangdong province and Shanghai, but also in other areas of China.
Yakult (China) Co., Ltd. can achieve a rapid business development in China though a series of expansions, such as establishing a sales and management type umbrella company in China (Yakult [China] Co., Ltd.), bringing Guangzhou Yakult and Shanghai Yakult under the same sales and management umbrella, establishing a new manufacturing company under the umbrella, and then expanding the sales network. In addition, through the overall management of the entire China business and the preparation and implementation of business plans and overall strategy for China by Yakult (China) Co., Ltd., further penetration of the market and trust in the Yakult brand can be achieved.
And also through this, we are aspiring to our current goal of a daily average sales of 1,000,000 bottles per day in China as soon as possible.
Our business development in mainland China began in June of 2002 with the beginning of sales and manufacturing of “Yakult” in Guangdong province. Sales in Guangdong were initially undertaken through store channels, such as supermarkets and convenience stores. However, in 2004 a home delivery service by “Yakult Ladies” began. At present, 157 Yakult Ladies in 6 sales centers in the city of Guangzhou are implementing a home delivery service just as it is carried out in Japan, and we think that in the future this service can be expanded from Guangdong province to all of China. Furthermore, in August of 2004 Shanghai Yakult was established in the city of Shanghai, and Shanghai Yakult’s factory, which is currently under construction, will begin operations in early 2006. At present in China, there are 300,000 people drinking our product each day.

Please see the next page for details regarding Yakult (China) Co., Ltd.

Summary 

1. Company Name: Yakult (China) Co., Ltd.  
2. Address: 15F-B Majesty Building, 138 Pudong Avenue, Shanghai, China, 200120
3. Legal Representative: Naomasa Tsuritani (Yakult Honsha Co., Ltd. Managing Director, Head of the International Business Department)
4. Scope of Business:
   (1) Sales of Yakult across all of China
   (2) Overall management of business in China
   (3) Efficient investment activities in China
5. Registered Capital: US $30,000,000 (Approx. 3,175,000,000 Yen; [$1 = 105.8 Yen])
   *Investment is 100% by Yakult Honsha Co., Ltd.

Regarding Sales and Management-Type Umbrella Companies

• For the establishment of an umbrella company, a starting capital of at least US $30,000,000 (November 10, 2004 Rate: $1 = 105.8 Yen) is necessary.
  *At the end of 2004, around 60 Japanese umbrella companies have been established in China
  
• An umbrella company is allowed a business scope that other foreign companies do not have (for example, sales of products of companies within, and overall management under, the umbrella), and that business scope is gradually expanding. Within the various types of umbrella-type companies, those which have a function of selling the products of companies under their umbrella are referred to as sales and management-type umbrella companies.
• Besides the headquarters-like overall management function, sales and management umbrella companies also have the right to sell products made by the companies under their umbrella. Standing out in particular at present are the aggressive establishments of umbrella companies by food manufacturers who attach great importance on quality control in their sales network. Both a growing necessity in companies for the overall management of their entire China business due to the consolidation of various functions shared with local corporations, as well the increasing importance of full sales (sales of umbrella companies products) expansion into the growing China market have been mentioned as a background for this increase in establishments.
  Also, it is necessary for the umbrella company to own at least 10% of companies under its umbrella.

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