Li Ning Company Limited Organizational Background and Audit - Assignment Example

Li Ning Company Limited – Organizational Background and Audit I. Organizational background Li Ning Company Limited is a publicly-traded company inChina. Its main line of business is in the sports industry, dealing with sports-related products such as footwear, apparel, equipment, and accessories. It is engaged in manufacturing, distribution, retailing, and franchising of such products, under the brand name LI-NING. But aside from marketing its own home-grown sports products, it also distributes foreign-licensed brands such as Lotto, an Italian sports fashion brand, and Aigle, a French brand for outdoor sports products. Li Ning has a joint venture with Aigle, authorizing it to manufacture and distribute products exclusively under the Aigle brand name. Li Ning has its headquarters in Beijing, the Chinese capital. According to its website, Li Ning has extensive presence in the entire country. It has reportedly a reliable network of retailers and manufacturers for its supply chain, and a host of franchise owners distributing the products. Li Ning, therefore, is well-entrenched throughout the country, and has probably perfected the art of marketing and selling which have made the company successful in all its current businesses. The company started operations in 1989, the same year LI-NING was registered as a trademark. Since then, it has sponsored numerous sports delegations of China to various national and international events, where the sponsored teams brandished their Li Ning sportswear. In 1993, the company started franchising its business operations, a strategic move that helped it reach its target market in distant areas and remote provinces, thereby helping the company established its foothold in the country’s huge market for footwear and sports-related products. Li Ning is a multi-faceted business operation that is pro-active and a leader in the industry. It has its own research and development center, and a design center established in 1998. It is a proud company to claim that it is the first sports business in China to have implemented an Enterprise Resource Program (ERP) system, a system which uses internet technology that integrates its supply chain with its internal operations. In 2002, it streamlined its operations, and formally established a set of corporate values and principles to guide its business strategies. During this year, it announced its corporate mission and vision, core values, and business development strategy. It has also adopted a brand positioning strategy with the slogan “Anything is possible!” Li Ning became a publicly traded company in 2004 when it made its first appearance at the main board of the Hong Kong Stock Exchange, becoming the first Chinese sporting company to do so. Between 2004 and 2008, it was able to raise huge funds to finance its massive industrial park, and develop breakthrough technologies in its footwear products that it patented for intellectual property protection rights. In 2009, Li Ning launched the grand opening of its flagship brand in Singapore, reaching out not only to its Chinese market residing outside mainland China, but to a microcosm of international market represented by the Singaporean market. Further realizing its potential to become a global brand, in 2010, it started to re-shape its logo and re-launched its brand slogan, now to read as “Make the change!” With this move, the company has forged that henceforth, it will be moving towards the promotion of its brand toward becoming a globally recognized brand of quality sports products. This has become a corporate reality, when, on the same year 2010, it successfully launched its grand opening of its first Li Ning retail branch in Portland, Oregon, in the United States. Li Ning’s Corporate Values According to its website (Li Ning, 2013), Li Ning is guided by the following set of corporate values and principles: Mission: Through sports, we inspire people the desire and power to make breakthroughs Vision: A world’s leading brand in the sporting goods industry Core values: Live for dream, integrity, and commitment. We are for culture, achieving excellence, breakthrough. We are consumer oriented. With these guiding principles, Li Ning is poised to expand its market by going beyond its national territories, exploring the overseas market to satisfy its corporate objectives. In between the successful launches of the Singapore and the U.S. retail stores, it continues to receive numerous accolades in China as a successful business enterprise worthy of emulation and role model status. Li Ning has also sponsored numerous international events, and teams of other countries that greatly contributed to the recognition of LI-NING as a global brand. II. Environmental trends (opportunities and threats) in the overseas market. There are a number of opportunities in the global market for Li Ning. Current trends suggest big market potentials for the company to take advantage of. These opportunities and trends include: Increasing desire for a healthy lifestyle More and more people are becoming health conscious, and are now more desirous to live a healthy and balanced life-style. Everybody is concerned about eating right, striking a balance between work and family or social life, and being physically active. Various dietary regimens are now popular to control body-mass index (BMI), and health spas and sports facilities have sprouted due to increasing demand for facilities that can help one become physically active and fit. Daily exercise has been emphasized to be as important as the diet, and this has become part of the routine for those who are embarking on a healthy lifestyle routines. Given these trends, it is obvious that sportswear and apparel, particularly footwear, and other sports accessories and paraphernalia, would be in demand. Such trends would definitely boost the demand for sporting goods because people will have to wear proper attire, and accessories, not only for the purpose of being fashionably trendy and hip, but also because it is quite important that appropriate sporting gears are worn to prevent injury or body harm while engaging in physical, rigorous activities. Sporting equipment and apparel, obviously, are scientifically designed to give its users a safe outfit to protect its users from injury, aside from designing it to maximize winning potentials of those users engaged in competitive sports. Popularity of sports events and sports competition The recently concluded 2012 London Olympics is the latest sporting events in the world to inspire the millions of generations of sports enthusiasts. But the drama of sports victory and defeat was an awe-inspiring event that it could not have only inspired sports fans but every feeling individual who saw the events unfold. For sure, many young children, and even adults alike, would have been inspired and encouraged to engage in a sporting activity of their liking. Not only would they feel like acting out their dream scene carved out of an Olympics episode, but would also have the opportunity to be physically active and healthy. Encouraging people to engage in sports and in competition is a worthwhile policy option of any country, in order to promote the general health and welfare of its citizens. Such scenarios would therefore be favorable to sporting companies such as Li Ning, where a market for sporting products would become wide open. Trendy sports fashion and casual lifestyles for younger generation The trendiness of sports fashion has become part and parcel of casual lifestyles of young people, especially young adults. Sports apparel are worn to school, during night outs, weekend meet-ups, and other activities outside sports that young adults normally engage in, when they are with their peers. Hip designs are sought after, and would probably sell like hotcakes, especially when endorsed by celebrities. Initial threats identified: Economic recession, foreign exchange Companies engage in global marketing face the risk of an abrupt decline in its market value due to economic instability in the offshore country where it is doing business. As sports is a leisure activity, leisure is the first to be given up during economic recession and hard times, when people will tend to prioritize basic needs such as food and medicine, over leisure, such as sports and entertainment. Another threat that can be caused by an economic event would be the fluctuation in currency exchange. Any abrupt, abnormal fluctuation in the foreign exchange would impact on the viability of trade. Exporting company should therefore do some currency hedging in order to protect the value of its assets while in an offshore country. Competition, both legitimate and from counterfeit products Popular products are bound to be copied, imitated, and passed off as originals by unscrupulous merchants aiming to profit from counterfeiting. In countries with weak anti-piracy laws, the risk of losing millions of money in investments will be greater, due to competition from counterfeiters and other illegal forms of business. The sports industry is a competitive business with well-known brands already firmly established in the market. New entrants in the market, therefore, must have a very competitive strategy to engage the competition, or risk of losing out at the first round of battle. Increasing cost of inputs The rising cost of input is another threat that could easily compromise the viability of the company operations engaged in international trading. Depending on the sources of raw materials, cost of inputs will impact on the pricing of the product, and therefore will also affect the bottom line profit. If abnormal shortage of raw materials is experienced, the more critical for the company to have alternative sources in order to prevent economic losses brought about by disturbances in its supply chain. Other geo-political factors in the global market Other factor that may affect business operations in the target country would be political strife, peace and order, natural calamities, and unexpected changes in economic policies. China is a major player in the geo-political arena of the world, and has been very vocal and active on many occasions, running on head-on collision with other countries. The degree of “friendliness” of certain countries into welcoming Chinese-made sportswear may be a factor to consider when choosing a market to enter. III. Overseas market selection In 2009, the company has ventured in the overseas market by launching its first overseas retail store in Singapore. While Singapore is an Asian country with majority of its citizens of Chinese descent, it has a vibrant and cosmopolitan market consisted of its young, urban, professionals, its large expatriate communities, foreign tourists on shopping spree, and the general population who are either sports enthusiasts or are into trendy sports fashion. In 2010, Li-Ning was launched in the United States. It opened its retail outlet in Portland, Oregon, and got celebrity endorsers to introduce the product in the U.S. market. According to Mr. Brian Cupps, Brand Initiatives Director, the Li-Ning brand has “little to no real consumer following…” (Sauer, 2013) But because of celebrity endorsers such as Dwayne Wade, Mr. Cupps recognized that “we have a very strong pull right now and demand for our products because of Wade. Now we have to feed that demand.” (Sauer, 2013) The initial difficulties encountered by Li Ning in marketing its products to the U.S. market is the usual bias attached by Americans to anything made in China. As written by Sauer, Chinese brands face “a mountain of existing consumer prejudice against China”. Besides, there is a seeming pre-occupation in the U.S. media to highlight anything that is negative about China, such as pollution and scandals. This is the challenge that Li Ning has to overcome, thanks to celebrity endorsement. With the partnership of Li Ning with Mr. Wade as endorser, an effective marketing strategy has been put into effect, as this move slowly diverted consumer attention from the brand Li Ning as something that is made in China, to what Li Ning shoes can give (satisfaction) and do (functionality) to its users. Besides, as what Mr. Cupps soon realized, the target market for Li-Ning are young U.S. market consumers, who may not be too keen on the China-U.S. politics (Sauer, 2013). He was right to remark that "China-U.S. relations is more of an adult topic. The 14, 15, 16-year-old kids that play ball and buy sneakers are much more at a level of do I like Dwayne Wade, yes or no, and do I think his products are cool, yes or no." After conquering the U.S. market, Li Ning will now embark on exploring a new market territory further up North. Canada is a market quite similar to the U.S., in terms of culture and general lifestyles of the population. Aside from its sizeable Chinese population, it has a number of immigrants who may not have the “made in China” stigma. Establishing a retail shop in Canada should be a logical conclusion considering a latent demand for sportswear and footwear, the low barriers to entry, similarity of market structure as that of the U.S., and an advertising campaign in the U.S. may simply be as effective for the Canadian market, with only slight modifications needed. IV. Canadian market: sporting goods and footwear industry The Canadian footwear and sporting goods are two separate industries as categorized by Industry Canada. The footwear industry, accordingly, includes the manufacture of athletic shoes, boots, work boots and shoes, golf shoes, infants and childrens footwear, orthopaedic shoes, slippers and skate boots (Industry Canada, 2011). The sporting and athletic goods industry, on the other hand, is defined as being consisted of all those engaged in the manufacturing of sporting and athletic goods, except footwear and apparel (Industry Canada, 2011). For the Canadian footwear industry, there is no major homegrown manufacturer that can supply the entire demand of local consumers (Industry Canada, 2011). According to Industry Canada, the growth rate of the industry is pegged at 3.3 percent. For several years, according to the same report, foreign imports have increased annually, totaling to about CAD$1.8 billion in 2008 (Industry Canada, 2011). The importation is meant to meet the entire demand for the local market. During this year, CAD$1.99 billion worth of footwear were sold in the domestic market. Domestic production for local consumers was almost negligible. The same story can be said about the sporting and athletic goods industry, where importation plays an important role in meeting Canadian consumer demands for such products, although there are some suppliers that bring in a small quantity to the local market. Importation is growing by 2.2 percent annually. In 2010, a total of CAD$2 billion was demanded by Canadian consumers, and at least CAD$1.4 billion was supplied through importation. Only about 30 percent, therefore, was supplied by local manufacturers. With the foregoing statistics, one can easily glean a demand-supply gap that Li Ning can easily take advantage of. The absence of local industry to supply the domestic needs for footwear and for sporting goods present a gap in the demand and supply situation that is currently being filled in by importation. There is low barrier to entry in Canada, according to Industry Canada, thereby a welcoming country for foreign businesses in most areas of consumer products. Given that Li Ning is already doing business in the U.S., introducing Li-Ning brand to the Canadian market, and opening retails outlets in Canada, will just be a walk in the park, given the proximity of the country to U.S. V. SWOT analysis A. Strengths Li Ning is an established company in China. Its manufacturing facilities, research and development centers, and marketing expertise constitute the main strengths of the company. It has financial strengths, with the ability to raise capital funds easily. It is backed by years of experience, supported by numerous awards and recognition from reputable organizations. With its chairman and president being a former Olympian and an active supporter of the Olympics and national sports teams of China, the company has tremendous goodwill to wield. B. Weaknesses In the international market, anything that is branded “made in China” has a stigma attached to it – low quality products, child labor, sweat shops, counterfeits. The image that is conjured for products coming from China will be the weakness of Li Ning that it has to overcome in the international market. C. Opportunities The trends toward healthy living, and desire to become physically active to avoid serious diseases, are pointing to an expected increase in the demand for sporting goods and sportswear. In the Canadian market, there is no apparent local industry to support a growing demand for footwear, and for sporting and athletic goods. There is definitely a demand-supply gap that Li Ning can fill in, given the low barriers to entry in doing business in Canada. Moreover, it has geographical proximity to the U.S. where Li Ning is currently doing business. D. Threat Some factors in the international economy may be beyond the control of most corporations doing international business. The rivalry between U.S. and China may impact on some of the operations of Li Ning, with American consumers naturally becoming more averse to Chinese-made products. Foreign exchange fluctuations will also impact on the financial position of the company if an abrupt currency movement occurs due to volatility in the international market. Bibliography Boston Consulting Group, 2010. Winning in Emerging Market-Cities. [Online] Available at: www.bcg.com [Accessed 17 March 2013]. Industry Canada, 2011. Footwear Industry Profile. [Online] Available at: http://www.ic.gc.ca/eic/site/026.nsf/eng/h_00072.html Accessed 17 March 2013]. Li Ning, 2013. Li Ning Company Limited. [Online] Available at: www.lining.com [Accessed 15 March 2013]. Nickels, W. et al., 2010. Understanding Canadian Business. Seveth edition ed. s.l.:McGraw Hill Ryerson. Sauer, A., 2013. Brand Channel. [Online] Available at: http://www.brandchannel.com/home/post/Way-Of-Wade-030413.aspx [Accessed 17 March 2013]. The Huffington Post Canada, 2012. Health and Food Trends 2013. [Online] Available at: http://www.huffingtonpost.ca/2012/12/28/health-and-food-trends-2013_n_2370772.html [Accessed 17 March 2013]. Read More