The agreement, announced yesterday, will allow Hershey to begin manufacturing some of its most popular confectionery ranges including Hershey's Kisses and Reese's, at Lotte's Jinshan production plant near Shanghai.
The deal follows on from Hershey's announcement last week of disappointing fourth quarter sales, with the company looking to new markets within Asia as a way to offset a €13m fall in net income through its US operations.
The market for confectionery - and in particular chocolate in China is showing huge potential for processors.
Though currently smaller than mature markets like Japan, demand for chocolate in the country is estimated to be growing by around 10 - 15 per cent a year, with China's Food Industry Association predicting it could become the global leader in the sector over the next few years.
Taking into account this potential, Heshey's senior VP, J.P. Bilbrey is confident that by working with Lotte, the company can become a major player in the country.
"We know our brands appeal to Chinese consumers, and we are taking a significant step in building the supply chain capabilities to bring our products to market," he said.
"Working with Lotte, we'll be able to produce affordable products in the right flavors and formats for the local Chinese market, as well as regional Asian markets," he added.
According to a company statement, the plant in Jinshan will be operational by June of this year, with output expected to reach Chinese consumers by August.
Along with sharing production facilities in the country, the two companies will also work together on distributing their products throughout both China and some of Asia's other major markets including Korea and Japan.
Conversely, the deal will also see Hershey assisting Lotte with their ambitions to break into the US market.