Internationalization Strategy of Koyo Jeans from Hong Kong - Case Study Example

Internationalization Strategy of Koyo Jeans from Hong Kong TABLE OF CONTENTS TABLE OF CONTENTS 2 Iinternationalization Strategy of Koyo Jeans from Hong Kong 3 Introduction 3 Environment Audit 3 a)SWOT Analysis 3 b)Macro, Micro and Lifecycle Analysis of Koyo Jeans 5 Internationalization 8 a)Evaluation of National Competitive Advantage 8 b)Market Entry Mode 10 Conclusions and Recommendations 10 Iinternationalization Strategy of Koyo Jeans from Hong Kong Introduction For the last ten years, Koyo Jeans has enjoyed a good time with the increasing trend of economic globalization. The owner of Koyo Jeans made the brand international that gave the company a crucial business strategy for developing competitive advantages. From the information available on Koyo Jeans, it is evident that the fashion brand successfully transformed from a local garment wholesaler and retailer to become an international brand. The company’s internationalization focuses on deliberate design and long-term strategy that uses current capabilities of the company and leverages its unique abilities in location specific advantages (Colpan & Hikino, 2013, p. 11). The analysis focuses on internationalization of Koyo Jeans through its value chain, strategic abilities, and SWOT analysis. Environment Audit a) SWOT Analysis SWOT analysis of Koyo Jeans provides a summary of central issues from value chains and the strategic abilities of the company. It is imperative to align the company’s strength and weaknesses to the available opportunities and threats (Caprarescu, Stancu & Aron, 2013, pg. 52). Concerning the strength of this brand, Koyo Jeans built a strong international reputation over a period of ten years. The firm put in place a computer-based system that is advantageous to control and plan inventory as well as ordering. It is clear that Koyo Jeans built a universal reputation through application for admission to Harbor city, which was an excellent shopping mall. Similarly, strength of the brand was in the creation of low-end products for wholesale at reduced prices. This enabled the short period of an inventory cycle as well as capital returns. Meanwhile, the high-grade brand created a reputable brand name and clientele loyalty in the long term. Cheung, the owner of Koyo Jeans had a strategy of choosing experienced franchise companies that assured brand quality and reputation. Concerning the weaknesses, the company lacked adequate skilled personnel about rapid expansion. The limited personnel comprised of regional managers and visual merchandisers. At first, Cheung worked alone to expand the company with many mistakes that saw the company risking losses. However, as the company continued to expand, Jeffiny Yau and Grace Kwok joined the company in 2001. Yau had studied fashion design and brought in much help to the company ensuring increased expansion. As the company expanded in terms of scale, Yau moved from the design assistant position to brand manager. Kwok was in charge of all administrative and human resource activities. Second weakness of Koyo Jeans is outsourcing some of its production processes. According to Fayol-Song, 2012, strategies such as those used may expose a company to increased risks of paying outsourced expertise (p. 49). The external environments of Koyo Jeans indicate that the firm faces a range of opportunities. The first opportunity lies in the potential markets in North China and expansions in online operations so that the company can meet current needs of young clients (Parke, 2004, p. 129). In the advent of globalization, Koyo Jeans had a greater opportunity to go international through as a unique culture. Cheung insisted on keeping his personal style whereby administrative duties were centralized. The main threat to Koyo Jeans emanated from increasing competition and rapid change in fashion trends. The company faced stiff competition from international brands such as GUESS, Levi’s, and G-Star. Continuous shift in fashion required that Koyo Jeans undertake seasonal market survey to ensure that they are not left out on the design. For purposes of seizing the available opportunities and reducing on threats, the company decided to cooperate with some foreign companies. It also qualified franchisee to move into potential markets and development space. According to Fayol-Song (2012), a company should focus on using the system advantage and management ability to better market capability and production effectiveness. Concerning outsourcing, which is the company’s main weakness, Koyo Jeans could focus on hiring more local talents to curb the problem of inadequate skilled personnel like regional managers and visual merchandisers. b) Macro, Micro and Lifecycle Analysis of Koyo Jeans Koyo Jeans’ Lifecycle analysis is in line with the company’s value chain. According to Porter (1998), value chain comprises of activities undertaken by a company and relate to the firm’s strengths and weaknesses. Value chain activities may be primary or supporting activities. Primary activities have a direct relationship with production and delivery of products or services (Lu & Beamish, 2001, p. 121). Porter outlines these activities as inbound logistics, operations, outbound logistics, marketing and sales, and services. In relation to the Koyo case study: inbound logistics are that the company’s headquarter is in Hong Kong. The Humen factory manufactures the Jeans. This implies that Koyo Jeans can source raw material from China in which case this is cost-effective. Similarly, the ports of Hong Kong are suitable in reducing logistics costs and cycle. When it comes to operations, Cheung maintains that Koyo Jeans has two diverse production lines. The first line is the low-end products geared at meeting wholesale markets. A second production line is that of high-grade Koyo products. In addition, the firm runs two types of store: proprietary and franchise stores. Through the proprietary stores, it is possible for an individual to receive the fast and direct feedback from the client. Furthermore, gauging of market response is immediate through these stores. According to Cheung, the wholesale product line ran on short in the inventory cycle and assisted high-brand products proceeding. Branding Koyo products are imperative in helping the company establish a competitive advantage and clientele loyalty in the long-term (Askar, Imam & Prabhaker, 2009, p. 96). Considering outbound logistics, Koyo entered international markets through franchising. The firm only decides to use experienced franchisee to improve the reputation of the brand within the universal markets. Because of increased demand on online business and shifting fashions among the youth, the company introduced a computer system that produces a complete evaluation report for franchisee so that they can easily plan and manage their orders and inventories. Fast and direct customer feedback serves well in collecting market response and meeting clientele requirements (Wen & Arokiasamy, 2011, p. 22). This reduces the gap between customer perception and satisfaction in line with service delivery. On the other hand, the franchise store serves to improve expansion and adaption to domestic markets. Based on an analysis of Koyo Jeans’ marketing strategy, it is evident that the company continuously conducts fashion shows and participates in exhibitions for improving products. As evident in the article, the company spent several resources on establishing events and exhibitions, and sponsoring the garments of singers, actors, and program hosts. The decision to sponsor singers, actors, and program hosts’ outfits served to promote brand exposure and identification in the emerging market scale. Cheung perceived marketing as the responsibility of company’s management team. Marketing serves to establish a positive influence on customers. It was vital to developing market for a wide variety of products (Roth & Morrison, 1992, p. 473). During this time, the company had two brands: Koyo Jeans and Koyo William. Koyo William positioned as a high-end fashion brand. In the same way, Koyo has stringent needs for store decoration and exhibition to establish a unique image and exemplary visual effects for clients. The computer system of the company has pictures of all shops, their sizes, and other information. For this reason, the computer system shows simulations of how to display when launching new products. Available information on lifecycle analysis reveals that support activities are backup activities that not directly incorporated in manufacturing (Lu & Beamish, 2001, p. 121). They serve to improve efficiency and effectiveness. Such activities may include human resource management, research, and development, and store management. The case study reveals that Koyo has some shortcomings when it comes to human resource management because of rapid expansion. At the beginning, the firm faced shortages concerning skilled personnel like regional managers and visual merchandisers. Based on the expansion, employees received promotions fast, and appropriate administrators were delegated especially the office of infrastructure purchase in Mainland China (Guarda, Santos, Pinto, Augusto & Silva, 2013, p. 17). Moreover, the design and development sections of the firm are accountable for catching up fashion movement and quality improvement. Continued efforts prove critical for Koyo to maintain universal standards of business engagement. With regard to facility management, the case study reveals that the company put in place a computer system to manage ordering and controlling market responses. Similarly, the company relies on diverse balance sheets to manage two production lines for efficiency purposes. An understanding of the value chain is vital in identifying strategic abilities of Koyo Jeans. It is paramount for strategic managers of any corporation to clarify activities in the value chain related to building competitive advantages for the company. Strategic capabilities concern competence and appropriateness of the assets and adequacies of a firm for it to remain sustainable and profitable (Verisan & Achimescu, 2011, p. 613). Only in case strategic capability is clear to other players in the same industry, other competitive advantages prove indispensable. Strategic capabilities in this case are threshold capabilities and that are necessary for competitive advantage. With respect of Koyo Jeans’ case study, the threshold capabilities are physical assets like the Humen factory and Wenzhou franchising stores. Competences are, for instance, online shopping opportunities and system management software in sale and inventory orders. On the contrary, competitive advantage capabilities for Koyo in the universal market include some selected resources and major competences. The tangible resources involve two different product lines that target two groups of clients to generate profits and divide losses. The two categories of product lines include the unified store strategy offering unique and exceptional experience for consumers and stored established in Harbour City to showcase the initial tier fashion brand (Fayol-Song, 2012, p. 54). However, intangible assets for Koyo may include brand reputation. These are hard to be accomplished by competitors within the industry of fashion design. Koyo’s exceptional leadership style equips the company with acute fashion understanding and design abilities. Internationalization a) Evaluation of National Competitive Advantage Because Koyo Jeans operates in Hong Kong as headquarter, there are a number of competitive advantages associated with business operations in Mainland China through Hong Kong. Hong Kong was a British protectorate and, therefore, has a quality legal system in place. The legal system is an imperative factor for firms using Hong Kong as a regional center. Another national competitive advantage for Koyo operating in Hong Kong lies in the efficient judicial system (Oviatt & McDougall, 2005, p. 7). The system enables effective business dispute resolution. For example, in June 2011, Hong Kong reformed its arbitration Ordinance Cap. 609. Currently, the country has a unitary regime of arbitration established on UNCITRAL Model Law for all forms of arbitration. It abolished the difference between domestic and international arbitration. Because of the reforms, specific commercial judgments by China and/or Hong Kong courts may be implemented reciprocally. Because of the company existing in the home environment, it had an upper hand when it came to laws that governed business operations in such a region like Hong Kong. For instance, it was easier for Cheung to officially register Koyo as an independent company. His intention was to propel the company to a global scale of firms in fashion and design. Similarly, he added design components to the trademark to protect his intellectual property. Competitive advantage for Koyo Jeans is based on the fact that Hong Kong is a worldwide city separated from mainland China by a different legal system and the manner in which people lead their lives through the “one country, two system” policy (Lu & Beamish, 2001, p. 121). This is a region with many production opportunities. Currently, Hong Kong experiences a growing demand for consumer power. The country is also a service provider for mainland corporations that wish to associate with universal marketplace. With China’s entry to the World Trade Organization, there are many opportunities set to surge. The management of every international business entity understands that the Chinese mainland has many opportunities. For instance, in 2002 exports increased by 22 percent to approximately $326 billion. Statistics shows that 34 percent of the Chinese exports flow to Hong Kong. The main beneficiary when regarding export shares is Koyo Jeans. Apart from the growing international demand for Chinese made products, local celebrities are looking for ways of promoting their local companies so that they can directly contribute to economic growth (Lauzikas, Tisinaite & Genyte, 2010, p. 87). A clear example from the case study is Alan Tam who settled on William Cheung’s local design amid the many international designs. Koyo Jeans produces quality products that compete on the global scene. Domestic singer, actors and program managers would prefer to use their local items. b) Market Entry Mode The case study is clear that William Cheung had a unique strategy for Koyo Jeans’ market entry. In the first place, Koyo’s owner worked for a modest wholesaler reputable for its design and apparel industries. This gave Cheung an opportunity to sharpen his design instincts through creation of hit apparel products for the wholesale firm. To ensure that the business operated effectively, Cheung needed to acquire knowledge about the whole supply chain, beginning with raw material acquisition to manufacturing, sales, and delivery. The business was profitable but had a number of shortcomings concerning creativity. At the time, Cheung worked on entering the global market, and ensuring that there is an increase in product output, he tried his creativity through opening his personal boutique shop. After the first breakthrough, he had to source fashionable but affordable designs to meet increased customer demand. In the process, he went to South Korea and in conjunction with a local designer, gained a perfect reputation, and chose to attend a show in Paris, France. The experience in Paris was disillusioning since their products did not measure to the standards of other global designers. However, Cheung took the positive side of the exhibition and turned to benchmarking so that he could provide better products based on customer needs. The company’s entry into the international market was through increased exposure to other company profiles (Melin, 1992, p. 99). Product innovation became critical for eventual undertakings of Cheung. Lastly, his market entry mode was through market survey to understand what was fashionable and how other companies gained success within the same market. Conclusions and Recommendations From the scenario, it is evident that there are diverse challenges with business concerning the internationalization of Koyo Jeans. The current reputation both locally and internationally required spirited efforts to move the company forward. William Cheung is at the center of the firm success and profitability. The analysis focused on both internal and external environments of the company. A number of strengths were eminent in this case study. Notably, Koyo Jeans built a strong international reputation over a period of ten years. The firm put in place a computer-based system that is advantageous to control and plan inventory as well as ordering. It was clear that Koyo Jeans built a universal reputation through application for admission to Harbor city, which was an exceptional shopping mall (Lu & Beamish, 2001, p. 121). Similarly, strength of the brand was in the creation of low-end products for wholesale at reduced prices. However, a number of recommendations are eminent with regard to the threats that the firm faces concerning market penetration. To seize the available opportunities and avoid effects of threats, the company should: i. Cooperate with some foreign companies; ii. It should also qualify franchisee to move into potential markets and development space; iii. The company as well should focus on using the system advantage and management ability to better market capability and production effectiveness; and iv. When it comes to outsourcing, which is the company’s main weakness, Koyo Jeans could focus on hiring more local talents to curb the problem of inadequate skilled personnel like regional managers and visual merchandisers (Lauzikas, Tisinaite & Genyte, 2010, p. 100). Bibliography Agyapong, A. & Boamah, R.B. (2013). "Business Strategies and Competitive Advantage of Family Hotel Businesses in Ghana: The Role of Strategic Leadership". Journal of Applied Business Research, 29(2), 531-543. Askar, M., Imam, S. & Prabhaker, P.R. (2009). "Business Metrics: A Key to Competitive Advantage". Advances in Competitiveness Research, 17(1), 91-109. Caprarescu, G., Stancu, D.G. & Aron, G. (2013). "The SWOT Analysis between Myth and Reality". Knowledge Horizons.Economics, 5(1), 38-42. Colpan, A.M. & Hikino, T. (2013). "Internationalization of East Asian firms". Asian Business & Management, 12(1), 1-13. Collette, M. (2011). “Hull Structures as a System: Supporting Lifecycle Analysis”. Naval Engineers Journal, 123(3), 45-55. Fayol-Song, L. (2012). "Internationalization of Chinese Executives". Global Journal of Business Research, 6(1), 47-54. Gabriel, M., Tschandl, M., & Posch, A. (2014). Sustainability-Oriented Lifecycle Costing”. Annals of the Faculty of Engineering Hunedoara, 12(1), 33-40. Guarda, T., Santos, M., Pinto, F., Augusto, M., & Silva, C. (2013). “Business intelligence as a competitive advantage for SMEs”. International Journal of Trade, Economics, and Finance, 4(4), 187. Lauzikas, M., Tisinaite, R. & Genyte, A. (2010). "Impacts of Internationalization on Strategies and Business Models of Lithuanian Financial Companies while Implementing MiFID”. Socialiniu Mokslu Studijos, no. 4. Lu, J.W. & Beamish, P.W. (2001). "The internationalization and performance of SMEs". Strategic Management Journal, 22(6), 565-586. Martin, N.L. & Mykytyn, P.P., J.R. (2010). "Business Method Patents and Sustained Competitive Advantage". The Journal of Computer Information Systems, 50(4), 88-96. Melin, L. (1992). "Internationalization as a strategy process". Strategic Management Journal, 13, 99. Oviatt, B.M. & McDougall, P.P. (2005). "The internationalization of entrepreneurship". Journal of International Business Studies, 36(1), 2-8. Parke, D. (2004). "SWOT Analysis". The Chronicle of the Early American Industries Association, Inc., no. 177, 2. Roth, K. & Morrison, A.J. (1992). "Business-Level Competitive Strategy: A Contingency Link to Internationalization". Journal of Management, 18(3), 473. Torrie, R. (2013). "Same Greenhouse Gas 3 Different Stories.” Alternatives Journal, 39(1), 35-37, 6. Verisan, C. & Achimescu, G. (2011). "The Strategy of Internationalization of the Business". Economics, Management and Financial Markets, 6(1), 610-619. Wen, L.J. & Arokiasamy, L. (2011). "Integrated Business Strategy For Internationalization Process: Case Study on Korean Companies Enter China Consumer Electronic Market". Interdisciplinary Journal of Contemporary Research in Business, 3(2), 1695-1706. Yiu, D.W., Ng, F.W. & Ma, X. (2013). "Business group attributes and internationalization strategy in China,” Asian Business & Management, 12 (1), 14-36. Young, S. (1987). "Business Strategy and the Internationalization of Business: Recent Approaches". Managerial and Decision Economics, 8(1), 31. Read More