International Business, Apparel Retailing - Term Paper Example

? International Business Apparel Retailing Table of Contents Table of Contents 2 Introduction 3 Apparel Retail Business: A Brief Overview 3 VRIO Framework 4 China: External Business Environment 5 PEST Analysis 6 Hofstede Cultural Dimension 11 Porter’s Five Forces 11 Strategic Objectives of Entering China 12 Strategy for Entering China 13 Marketing Mix for China 13 Works Cited 15 Introduction Organizations around the world are considering international expansion as a way of generating more revenue and expanding the customer base. Some of the eminent scholars have highlighted that international expansion help companies to earn more revenue and cater to a wider customers. Moreover, the market size also increases to a large extent (Firat and Dholakia 118). International marketing can be defined as a process by which companies market their products and services in the foreign countries. In other words international marketing involves exchanging of products and services with the consumers of other countries (Peng and Meyer 6). Also opening up of the world economy and reduced trade barriers has immensely contributed towards the growth of foreign trade. Now the business which we have selected to initiate is apparel retail shops. Nowadays, the popularity of apparel retail shops has increased drastically and people consider shopping as a leisure activity. Hence it gives our business a great opportunity to achieve success. Apparel Retail Business: A Brief Overview In this context of the project the business which has been chosen is apparel retail business. The business is presently operating in USA. The target foreign country where the business is going to start its operation is China. The apparel retail industry of USA comprises of selling women’s wear, menswear and children’s wear. The US apparel retail industry is one of the fastest growing industries of USA (“Apparel Retail in the United States”). According to the reports, the industry has a total value of $329.4 billion in 2011, which reflects a growth of 2.7%. In comparison, the Asia pacific market grew by 3 % and is valued at $301.8 billion in 2011. Moreover, the growth rate in China was much more, as it managed to reach 6.3% in 2011 with a value of $125,275.6 million (“Apparel Retail in China”). According to some reports, apparel retail industry of China is forecasted to reach a value of $151,403.3 million by the year 2016, which reflects a staggering growth of 20.9% (“China: In-depth PESTLE insights”). Therefore it provides a great opportunity for the business to excel in the Chinese market and earn more revenue. However, the business needs to consider certain aspects prior entering the Chinese market. The report will therefore carry out an in-depth analysis of the Chinese external business environment. In addition, the apparel retail industry of China will be also thoroughly examined. The cultural differences between the two countries will also be examined. Based on the outcome of the study suitable strategies will be recommended. Finally the marketing mix for the business in the context of the Chinese market will also be highlighted. VRIO Framework According to Barney and Hesterly, VRIO framework can be regarded as one of the useful tool for assessing and examining the internal environment of a firm. According to them, VRIO framework is mainly comprises of four questions in order to determine a company’s competitive advantage (Barney and Hesterly 584). In general a company possesses three types of resources namely tangible resources, intangible resources, and organizational capabilities. The tangible resources are financial, technological, physical and organizational resources. The intangible resources are human, reputation and innovation & creativity resources. The organizational capabilities are the ability of the organization to combine intangible and tangible resources. For example product development capabilities, superior customer service etc. In the context of our business, the resources which give a competitive advantage to our firm are product quality, product design, and technical expertise. The Question of Value: Our products offer high value for money and contribute towards the fulfillment of customer needs. We are also offering wide range of trendy as well as traditional apparels which will neutralize the external threat. The Question of Rarity: Since there are large numbers of suppliers of apparel products, there is high threat of rarity. This creates problem to the business from gaining competitive advantage over the competitors. The Question of limitability: All the products that we manufacture require high level of technical expertise. Our products are manufactured by employing modern technology. However since it is an apparel business, competitors will not find much difficulty in imitating the design of our products. The only area we can focus is to maintain its quality. The Question of Organization: Our business is well structured and has well defined management policies. Moreover our inventory control system is also well designed. Valuable? Rare? Costly to Imitate? Organized Properly? Competitive Implications Economic Implications Yes Yes Competitive advantage Above Normal Yes No Parity Normal Yes No No Competitive Disadvantage Below Normal Yes No No Yes Competitive Advantage Above Normal (VRIO Framework) China: External Business Environment For any new business to start its operation in a foreign country, it is important to assess the external business environment of the target country. The external factors are mainly political factors, legal factors, social factors, technological factors, economical factors and environmental factors (Blythe 19). However factors such as demographics and culture of the target country also play a crucial role. The market is dependent upon all these mentioned factors and therefore an in-depth analysis of each of the factors is required to be conducted. Now in order to analyze the external business environment of apparel retailing business in China, PEST analysis will be used. In addition, to uncover the cultural difference between the two countries HOFSTEDE’s cultural dimension model will used. Meanwhile, it is also imperative to get insights about the industry in which the business will be operating in the foreign country. This will help to understand the industry attractiveness, the entry barriers and also the competitiveness. Now in order to analyze the apparel retail industry of China, Porter’s five forces model will be used. China is one of the fastest growing markets of the world. The country is characterized by strong economy, stable political environment and is the considered as the hub of manufacturing industry. The country considers foreign direct investment as one of the ways of developing the economy. The major religions of China are Taoist and Buddhist. However there are Christians as well Muslims which accounts to 4 % and 2 % respectively (“People and Society: China”). Now to assess the business condition of China, in depth PEST analysis is carried out. PEST Analysis Political Factor Stability of the government The Communist Party of China (CPC) in China has been ruling the country for the past 60 years. Therefore from this fact it is clear that the people of that country have faith in the government. Moreover the involvement level of the Chinese public in politics is also low. These factors make China as a politically stable country. Business & Trade Freedom The business freedom in China is considerably less due to the stringent regulations of the government. The country always tries to protect its domestic industries by creating several trade barriers. However, recently the Chinese government has allowed foreign direct investment, which makes favorable business condition. Tax Policies Tariff Rate 3.9 % Corporate Tax Rate 25 % Income Tax Rate 45 % GDP Per Capita $ 4,940 GDP $ 7.3 trillion Inflation Rate 5.9 Unemployment Rate 4.2 Tax Burden 18.3 Based on the above table, it can be stated that China has high income tax rate and moderate corporate tax rate. The government of China is also encouraging foreign businesses to enter the Chinese market. Therefore the tax policies and government intentions can be also cited as favorable factor for our apparel retailing business. Economical Factors Economical Statistics The current GDP of China is $ 7.3 trillion and the per capita income is $4,940 (“China Overview”). The GDP growth rate of the company is 9 %. These data clearly reflects that China is one of the strongest economies of world. Disposable Income of Buyers In order to spend on luxury items, people rely heavily on the disposable income. The disposable income of the Chinese population is assessed to be high. Therefore it provides a great opportunity for the apparel retail business in China. Credit Accessibility The government of China indirectly or directly controls the banks and financial institutions. The investments made in China are also regulated by the concerned authorities and highly vulnerable to political influences. Unemployment, Inflation and Interest Rate According to the latest data, the unemployment rate of China is 4.2 %. The inflation rate of the country is around 5.9 % in 2008. Suddenly, it dropped to -0.7% in the year 2009. The reason behind the vast decline of inflation is due to the stability of Chinese Currency. The central bank discount rate of China is 2.79 % and the commercial prime lending rate is 5.31%. Fiscal Freedom China has high income tax rate and moderate corporate tax rate. The Chinese government encourages new technology businesses and foreign companies to start their operation in China. This policy has paid off to a large extent as a number of multinational companies have already started their operations in China. Monitory and Investment Freedom The economic freedom score of China is 51 out of 100. Therefore it can be stated that the Chinese economy is characterized by a combination of control market and free market. The product prices are mainly determined by the quantity of the product demanded. Nevertheless, government arbitrates on some products and services to maintain price stability. Social Factors Population The total population of the country is 1,343,239,923 as of 2011 and the population growth rate is 0.481%. The major religions of China are Taoist and Buddhist. However there are Christians as well Muslims which accounts to 4 % and 2 % respectively. Changes in Trends and Lifestyle The lifestyle of China changes in many ways such as its consumption level, attitude towards a new product or service etc. Apart from that, alteration in trends can also be seen in the level of fashion sense among the Chinese citizen. The people of China now tend to buy striking and colorful apparels leaving behind dull and light colored clothes. Education Levels The literacy rate in China is 92.2%. Among them the male population is 96 % literate while 88.5 % female population is educated. Corruption Corruption is one of the biggest causes of concern for China. Due to high corruption levels, the country is getting adversely affected. Corruption affects the government procurement, construction sector, banking sector and to some extent the manufacturing sector. Technological Factors Research & Development The research and development infrastructure of China is considered to be strong. The government has also invested huge sums of money to develop their R & D facilities. For example Torch Program and Scaling Heights Program are some of the initiative of government to strengthen research and development. Information & Communication Technology China is characterized by strong information technology infrastructure. The country has attained superiority in both hardware and software section. Some of the renowned companies such as Lenovo, IBM, HP, Dell and Accenture among others operate in China. The country also has a well developed communication infrastructure, which makes the business condition favorable. Therefore based on the finding it can be stated that the external environment of China is offering favorable business situation. Now the next section will analyze the cultural difference of the two countries. Hofstede Cultural Dimension Figure 1 (Source: “What about the USA?”) The study reveals that there are substantial cultural differences between the two countries. Cultural distance is the dissimilarity between the two countries in terms of some identifiable dimensions such as individualism (Peng and Meyer 631). Furthermore, since the business is apparel retailing, culture will play a major role. Now to operate effectively in China, the products or the apparels of our company needs to match with the Chinese culture. Studies reveal that Chinese people often like wearing traditional dresses; hence a separate section of traditional wear will help to serve the purpose. The people of China also like to wear bright colored dresses and like experimenting with new things. Porter’s Five Forces Buyer power: - Buyer’s bargaining power in the apparel retail industry of China is low due to less number of apparel retailers. Moreover, all the existing apparel retailing companies have large number of individual customers which further reduces the bargaining power of the buyers. Supplier Power: - The suppliers of apparel industry include clothing whole sellers and manufacturers. The suppliers are basically small and medium sized enterprises. The fragmentation level of the suppliers is also not high as other countries. However due to the lack of diversity between the supplier, the bargaining power is assessed to be low. Threat of Substitute: - As such there is no alternative of apparel or retail apparel shops. However to some extent the online retailing organizations can be regarded as the substitute of this business. Due to the growth of online business, most of the apparel retail companies have already opened online shops. Apart from the online channel Counterfeit clothing can be also signified as the substitute of apparel retail companies. However, the threat of substitutes to apparel retail is assessed at moderate overall. Existing Rivalry: - The apparel retail market of China is fairly fragmented and consists of large number of retailers. Despite of that, the industry has the potential to hold more number of players as the demand is increasing. The intensity of rivalry is assessed as moderate overall in China. Threat of New Entrant: - The threat of a new entrant is characterized by the possibility of a new player entering the industry and increase the intensity of competition. In order to set up apparel retail business in China, the companies have to invest large sums of money to develop infrastructure. Moreover the entry barriers are also high as the Chinese government tries to safeguard the domestic players. Overall, the threat of a new entrant is assessed to be moderate. Strategic Objectives of Entering China The strategic objective of entering China for the business is formulated by considering a SMART approach. In other words, the objectives are measurable, specific, realistic, timely as well as achievable. The objectives are as follows: - To increase the revenue of the company by 8-10% annually. To increase the sales by 8-10% by the end of 1st year. To decrease the operational expenses by 5 %. Strategy for Entering China In order to enter the Chinese market a suitable strategy needs to be designed and implemented. Since the business is apparel retailing, the company somehow needs to control its operation. Control over the business is necessary for ensuring that the business runs smoothly and remains productive. However, if the business considers FDI, it will have to pay large amount of corporate tax and other taxes. Moreover, entering a foreign market and developing infrastructure needs large investment and will also take long time to startup the venture. Hence it is not a viable option. The other modes of entry are franchising, wholly owned subsidiary, exporting and joint venture among others. Now considering the business environment of China and requirements of the business, the business will consider wholly owned subsidiary. A wholly owned subsidiary is a partially or fully owned company and is known as the holding company. This strategy will allow the business to control the operation and will also provide opportunities to deal directly with the suppliers of apparel products. Most importantly, it will help to assess the demand properly and hence the production will remain consistent (Richter 22). Our first store will be opened in Beijing, as according to Beijing is a potential market of China and is also the capital of the country. The best time to enter the Chinese market is anytime in January. Moreover, in this period of the year people of China celebrates Spring Festival and consider purchasing new clothes. Therefore it can offer high chances of success to our business. Marketing Mix for China The marketing mix of a company plays a decisive role towards its success. Moreover, since in this case the business needs to market its products in the foreign market, the marketing mix strategy needs to be well formulated. The recommended marketing mix for our apparel retail business for the Chinese market is presented below: - Product Mix: - We will try to offer wide range of products to the customers. The apparel products that we are going to offer to our customers include men’s clothing, women’s clothing, children’s clothing, Jackets, and Hosiery products. In addition, we will also sell add-on products such as belts, footwear, as well as traditional Chinese dresses. We will mainly offer bright and colorful products as the study reveals that Chinese people like to wear bright colored dresses. The primary cause of offering wide range of product is that, it will allow us to target customers from all the sections of the society. Price Mix: - Since, it will be a new venture in China the business will employ penetration pricing to gain initial market share. This will also act as a competitive advantage to the business. The study also reveals that Chinese customers are price sensitive and prefer products which offer high value. Place Mix: - The stores of the company will be mainly opened in busy areas or in prominent market places. At the initial stage, the business will have its first store in Beijing. Based on the market response, we will inaugurate new shops. The warehouses will be manufactured in the adjacent areas of the shops as it will reduce the cost of logistics and will also help in increasing the product availability. Promotion Mix: - Since it’s a new venture, we will have to spend more time and money for promoting it. The promotions will be mainly carried out through television advertisements, newspaper advertisements and also by using social media. All the three mediums have mass reach and therefore will be helpful to target large number of customers. Internet Cost Television Cost Newspaper Cost From 1st January to 31st March 2013 100 Renminbi From 1st January Jan to 31stMarch 2013 The cost is 350 Renminbi From 1st Janaury to 31st March 2013 200 Renminbi (Promotional Budget) Works Cited “Apparel Retail in China.” Marketline. Marketline, 2012. Web. 11 Jan. 2013. “Apparel Retail in the United States.” Marketline. Marketline, 2012. Web. 11 Jan. 2013. Barney, Jay B, and William S. Hesterly. Strategic Management and Competitive Advantage. New Jersey: Prentice-Hall, 2006. Print. Blythe, Jim. Marketing. London: SAGE, 2006. Print. “China Overview.” The World Bank. The World Bank Group, n.d. Web. 11 Jan. 2013. “China: In-depth PESTLE insights.” Marketline. Marketline, 2012. Web. 11 Jan. 2013. Firat, A. Fuat, and Nikhilesh Dholakia. Consuming People: From Political Economy to Theaters of Consumption. London: Routledge, 1998. Print. Peng, Mike W, and Klaus Meyer. International Business. Connecticut: Cengage Learning, 2011. Print. “People and Society: China.” Central Intelligence Agency. The World Fact book, n.d. Web. 11 Jan. 2013. Richter, Christian. Establishing Dispersed Operations in Mexico for an Automotive Systems Supplier - A Diagnostic Approach. Munich: GRIN Verlag, 2007. Print. “What about the USA?” Geert-hofstede. ITIM, n.d. Web. 11 Jan. 2013. Read More