Strategic Analysis of Li Ning Company - Case Study Example

Strategic Analysis of Li Ning Company Contents Introduction 3 Main Body 4 Strategic issues internal and external that would have an impact on the performance of the organization 4 Two key strategies adopted by the company 10 Evaluation of the strategies and its impact on the future development of the company 14 Recommendations 16 Conclusion 17 References 19 Introduction Li Ning Company is located in China and is one of the leading and is one of the leading sports brand company in the country. The company has adopted the brand of LI-NING and it manufactures a variety of products including apparels, footwear, accessories, and equipment for leisure as well as professional purposes. The company has its headquarters in Beijing and amongst its resource capabilities the company has various capabilities in the form of brand marketing, distribution, research and development, manufacturing, design, and even the capabilities of a retail business. The company has already established a retail chain network in China and also maintains well its supply chain network. The company is one of the major athletic companies in China and it’s known for its sporting goods and athletic shoes. The branded products of the company has a specific target group of customers as the products are specially designed for those customers who participate in various sports such as badminton, football, basketball, fitness and tennis. Li Ning Company has endorsed a number of teams and athletes in China or internationally. The company was founded by Li Ning in 1990 who was a former Olympic gymnast in China. The company over the years has adopted many strategies so as to gain competitive advantages as well achieve sustainability in the competitive business environment. The company in the year 2005 has entered into a joint venture with AIGLE which is a sports apparel company. This kind of initiative was made by the company so as to gain the exclusive rights to be one of the distributors of the products manufactured by AIGLE and it has been able to carry on such an operation over 50 years in China. The company in the recent years in order to facilitate the revitalization of the brand associated with sport products has even adopted a new slogan and a new logo. The company with the aim of expanding its distribution in the US market has also joined hands with Acquity Group that is located in Chicago. The product of the company such as shoes and sportswear are mainly for the Chinese market. In the past years the company has been witnessed by a large growth in the sales of the shoe products. The product line of the company is denoted by names such as Flying Feather, Flying Armour series etc. The hallmark product of the company is Li Ning Bow and even it has set up its small operation of branding and sports marketing. The company in order to raise its profile has continuously undertaken many deals of sponsorship in China as well as abroad in association with sports team or athletes. The company though faces a tough competition from all the strong players from the same industry but it has continuously adopted measures so as to be appealing to the target market and even incorporates various strategies in the system so that they can be considered to be a socially responsible group. Main Body Strategic issues internal and external that would have an impact on the performance of the organization Li Ning has been able to maintain its brand name in terms of fashion and manufacturer of shoe through its capability of the extensive network for distribution in China. Though the company has been maintaining its position down the years but the market is now comprised of fierce competition and even consists of some of the giant foreign brands for sportswear such as Nike, etc. In such a situation proper analysis of the external and internal environment is essential so as to determine the impact of the environmental factors on the performance of the company in the future. The market for operations by the company is China. The GDP of the country is about 33.53 trillion RMB. The company not only focuses on its home country but also sets plans to expand its operations in the US market as the athletic products sales accounts for just 0.2% of the total GDP in the Chinese market but this figure shows an increase in the US market which is about 2%. The target group for the company is the customers belonging to the age group between 20 to 30 years and NBSC (National Bureau of Statistics of Chin) states that over 897.42 million of the total population of China belongs to the target group or are the potential customers for the company. With the growth in the Chinese economy this had an impact on the athletic product market. However the annual growth of the market has shown an abnormal patter where the growth was 30% in 2008, it became 11% in 2009 and the estimated growth rate till 2015 is of 10%. This figure is shown in the diagram below- (Source: Wang, 2013, p.67) The Chinese athletic product market has many players and the market share analysis of each of the brand is shown in the diagram below – (Source: Besanko, Dranove, Shanley and Schaefer, 2013, p. 140) Amongst all the brands the major players in the market are Nike, Adidas, and Lining. The international brands mainly target the tier 1 cities in Chinese market such as Shanghai and Beijing. On the contrary the other Chinese brands including Li Ning are the market leaders in the tier 3 cities such as Wuhan. As more of the controllable income of the population increases their preference towards the branded products also increase which seems to be a very favourable condition for brands such as Li Ning. The company has variations in its revenue generations in various regions of the country. The difference in the revenue is shown in the diagram below- (Source: Grant, 2013, p.112) As per the chart the company has more sales in the Northern China compared to the Southern part this is simply because the Southern part comprises of richer section of the society who prefers more famous brands such as Adidas and Nike. This indicates that the company needs to be focused on brand building so as to achieve more market share in the future years and even trigger its revenue generation. The market in which the company operates is a slow changing market and facilitates more of traditional products. Compared to other developed markets the market growth of the Chinese market is stable and even costlier for the new entrants to develop a strong brand like that of Nike or Li Ning in the athletic product market of China. The predictability and the future visibility of the market are high but the rate of environmental change is very slow. The external analysis of the company is done using a strategic analysis framework known as PESTEL which stands for political, economical, social, technological, environmental, and legal. China is one of the last five in the communist states across the world. The government of such a country has imposed restrictions on various areas such as press, internet, freedom of religion, reproductive rights, etc. Though the people of this country may be bounded by many rights but they are satisfied in the form of structured operations that takes place in China. However the political factors are not very related to the athletic product market as it is a highly competitive market and there are no such barriers from the government’s end and neither there exist any form of state owned enterprises. The economic factors are very important for the organizations operating in this industry of athletic products. The athletic products do not form a part of the basic necessities of the people and so if the economical environment is not that good then it would make people spend less money on such products. The financial crisis in 2008 had a great impact on many international brands whose revenue growth had shown a negative impact. On the other hand the Li Ning Company was not affected to that extent simple because of its large operations in Mainland China and even because of the positive impact created by the Olympic games of Beijing. The controllable income of the Chinese people has grown over the year which is a very good indication for all the companies operating in this sector and also for the new entrants who wants to establish its operations in the athletic product market of China (Johnson, Whittington and Scholes, 2011, pp. 201-204). The sociological factors are not related to this industry as these factors do not have an impact on the growth or decline in sales of the companies which are a part of the athletic product industry. The technological factors are much related to this market and have a significant on the company operating in this market. There are two basic elements that are very much essential in the athletic products one is that of comfort and other is quality. This kind of basic requirements is not a big problem for the branded product items. Technology forms the strategic tool in the athletic product market. This even adopted by some of the companies so as to design special products for the best known athletes in order to create a perception amongst the people that their products are advanced and best. Thus this factor would have an impact on the future performance of Lining this is simply because is there products are not technologically advanced then it would result into loss of sales and market share. The environmental factors are not that much related to this industry. This is because climate change and weather are the factors concerned with the environment which has not that much impact on the athletic products. The legal factors are a matter of concern for Chinese companies such as Li Ning and many more as there are non tariff barriers and even anti dumping tariffs issued by the government of other countries on many Chinese textile enterprises. This would greatly affect the export strategy of Li Ning for its future growth and sustainability. Even in the Chinese market it has been estimated that about of 20% of the products of Li Ning available in the market is fake and this greatly affects the reputation and the quality level of the original brand (Wang, 2013, pp. 145-147). However the Chinese government’s strict regulation to prevent piracy of products would be very much beneficial for Li Ning as well as other companies. Porter’s five forces analysis is also another strategic tool to analyze the various micro environmental factors that may affect the future performance of the company. (Source: Sadler, 2003, p. 134) The major competitors of the company comprise international brands such as Adidas and Nike, and the competitors in the domestic market are 361, Anta, Peak, etc. The potential for the new entrants is high and the small companies which are non-branded may achieve higher levels of profit margins. The competition in the athletic product market would turn out to be fiercer as there are many new entrants that are coming up into the industry. The bargaining power of the suppliers is high because like Nike Lining is just a designer and all its products are made by manufacturers outside the company. This greatly has an impact on the performance of the company as it needs to build good relationships with it suppliers so that there is no compromise on the quality of the products under the Li Ning brand name. The bargaining power of buyers is high as the target market for the company is consumer belonging to the age group of 20 to 30 years. These age groups are more likely to change their preference and switch to some other brand as the switching cost is low. The consumers even have a wide range of options available which has increased their bargaining power. The threat of substitutes for the company is very high as the consumers can even opt for cheap products and other casual clothing’s instead of going for any branded products. The SWOT analysis identifies the internal strengths and weakness and external threats that can affect the performance of the organization and some opportunities that can be explored by Li Ning. The strength of the company is its brand reputation, the platform of Olympic games which has made the brand name be known to many foreigners, the company has even done brand endorsements with many celebrities, and it has a moderate pricing and professional technology that effectively meets the consumer demand of China. The weakness of the company is that it has not expanded its international market which can restrict its growth in the future. The sales that the company generates in the market abroad are only 1.1% of the total revenue. The company even does not possess any global supply chain management system. The brands operating in the athletic product market are more concern towards developing new designs and in this aspect the company cannot compare with its competitors that are Adidas and Nike. The opportunity for the company is that of Chinese economic development and the tremendous potential for the sportswear industry. China has been hosting various sports events which have created an interest amongst the consumer market towards the athletic products. The threats for Li Ning are the presence of international brands in the Chinese market as these brands have more advantages in the form of fashion and technology. The other Chinese brands have price advantages as that of Anta and Peak, and can even perform resource concentration. The export market is very large of China and so many companies would be keep on coming to produce sports products with greater level of investment in the future and hence there would be no stop for competition for Li Ning Company. Two key strategies adopted by the company Li Ning has been one of the most successful and leading sports goods manufacturing and selling companies in the Chinese sports goods industry. The company has been implementing corporate and business strategies in different areas of the business with the aim of increasing the market share and profitability of the business and improving the overall efficiency and sustainability of the brand in the sports goods market. The company has been financially strong and omnipresent in every corner of China. However, in the light of the continuously evolving business environment, Li Ning has been facing several challenges in the business which required and still requires new corporate and business strategies to be formatted and implemented in order to improve the sustainability and ensure the future success of Li Ning in the corporate world. Li Ning has adopted major strategies in the recent years in order to increase the growth and profitability of the company in its operations in China. The Chief Executive Officer of Li Ning, Zho Yong has implemented a brand remodelling strategy from 2010. The company has introduced a new logo and a new slogan for marketing the brand. The ‘slogan of the company which was everything is possible’ has been recently changed as ‘Make the change’. The motive behind the brand remodelling is to create a fresh dimension for the company in the minds of the consumers. The inspiration of the new logo of Li Ning comes from the pommel horse action created by Li Ning and the new slogan of the company is more colourful and representative of different characteristics related to the brand. The brand remodelling strategy has been taken up by Li Ning to create a differentiated image on the minds of the consumers which will help the consumers to separate the Li Ning brand from similar brands like Nike and Adidas with respect to logos and slogan. Also, another major motive behind the brand remodelling strategy is to reconstruct the image of the brand and establish the brand strongly among the new generation of customers. A stark change has been done to the image of Li Ning by removing the trustworthy, active and gentle Li Ning brand and adapting an internationalized, fashion conscious and cool brand image of Li Ning. The main customer segment for sports goods industry is the age group of 14-45. Since, Li Ning operates in the sports goods industry, the core consumers of the company belong to the age group of 35 to 40 years. The company has altered its brand image, logo and slogan in order to reach the new generation of consumption customers and to increase the overall base of core customers for the sports goods company. The strategy of remodelling the brand has been implemented strongly by Li Ning with extensive promotional activities done in order to increase the visibility of the changed brand image among the consumers of the company. Li Ning has done extensive brand campaigning though traditional mediums of promotion like the audio, visual and print media and the unconventional mediums of promotion like retail displays and the promotions on the internet and popular websites. The strategy of remodelling has been based on the future goal of the company to widen the customer base from the focused age group to the young generation customers or the ‘after 90s customers’ in the industry. Li Ning Company is a major sports goods manufacturing and selling company that has moved into the second stage of the sports goods industry which means more opportunities as well as higher levels of risk for the business. As such, the company has to implement suitable strategies and refresh the brand image in the minds of the consumers in order to ensure sustainability and continued success. Li Ning also introduced another main strategy to improve the operations and meet the strategic objectives of the company. Li Ning focused on addressing the over expansion issues existing in the sports goods industry of China as well as in the company itself by strengthening the retail operations of the sports goods company. The company introduced a new merchandising model in the beginning of 2013. The new merchandising model was aimed at strengthening the retail position of Li Ning. The merchandising model had the key characteristics of fast replenishment and prescriptive trade orders. This was aimed to improve the overall merchandising and retail activities of the business by enhancing the order guidelines folded in the business and by creating suitable arrangements with the distributors of the company. Therefore, Li Ning shifted towards a more retail oriented business model in order to meet the demands of the customers on a timely manner both inside and outside the trade fair processes and cycles. This enhanced and demonstrated the ability of Li Ning to capture the emerging market potentials and improve the turnover in the retail stores. The new business model helped the supply chain and distribution system of Li Ning to support the direct distribution of the products to retail outlets. In addition to the retail based business model, a retail management program was introduced by the business to support the new merchandising model of Li Ning. The retail management program improved the operating efficiency of the retail stores of Li Ning. The retail management plan was introduced for the main retail outlets and top distributors of Li Ning and was aimed at supporting them by providing a framework to improve their operational efficiency and thereby to improve the overall operational efficiency of Li Ning Company. The company aimed to attain success thorough the effective implementation of the retail management program by introducing proper order tracking, improving the operating methods on the stores and by enhancing the product management of Li Ning. The retail operations strategy helped in improving the performance of the distributors and stores of Li Ning. By the end of 2013, the participant stores and distributors of Li Ning showed significant improvement and growth in the retail based performances as compared to the operating periods before the introduction of the retail management program by Li Ning. The company also improved the internal capabilities in order to provide better products and timely services to the customers. The internal capabilities of Li Ning in the areas of replenishment of on-shelf products, introduction of new goods, data systems and logistic and supply chain capabilities were significantly improved after the introduction of the retail management plan. Thus, the retail operations strategy improved the functional and operational efficiency of Li Ning. Evaluation of the strategies and its impact on the future development of the company Li Ning has been a hugely successful company in the sports goods industry of China. It continued to be one of the largest and most profitable companies operating in the sports goods segment in the country for almost 20 years. Li Ning operates with more than 8000 stores in all corners of China and has plans to increase the number of stores to 1100 by 2014. However, the company is facing major challenges for sustainability and strategic growth due to the evolving dynamics of the market. The most critical weakness identified for Li Ning is the declining and fading brand image. The brand is often linked by the customers with old fashioned products. As such the company loses its competitiveness in front of innovative companies in the sports goods industry like Nike, Adidas, Puma, and Reebok etc. Therefore, Li Ning took up the brand remodelling strategy in order to renovate the existing brand image and position the brand as a cool and fashionable international brand among the consumers of different groups. However the new brand remodelling strategy was not as successful as it was expected to be. The anticipated growth for the company was not achieved and the strategy led to further decline of Li Ning. The stock prices of Li Ning in the Hong Kong stock exchange declined stably from the day the new brand strategy was introduced by the company. After the launch of the brand remodelling strategy, the stock prices of Li Ning declined continuously from 25.8 Hong Kong Dollars in 30 April 2010 to approximately 7.09 HKD in 13 November 2011. The stable decline of the stock prices of Li Ning and the overall position of the stocks of Li Ning in the capital markets clearly indicated that the inventors could not identify with the new strategy taken up by Li Ning and did not think that the company had high prospects in the future. Not only did the new brand strategy become unsuccessful but it also did not meet any of the expectations of the company of increasing the profitability by revamping the brand image. The new generation customers were not attracted by the brand strategy and the existing customers and investors also started losing interest in the brand. The strategy of brand remodelling was aimed to differentiate Li Ning from the undifferentiated local sports brands and also from the established companies in the sports industry (Abraham, 2012, p.44). But the Chinese domestic sportswear brand did not gain from this strategy due to the non-acceptability of the customers towards the sudden metamorphosis of the brand image. Thus, the strategy created more brand dilution than brand remodelling. Li Ning had a perception that the new target customers of the next generation would be attracted to a fresh brand image. Therefore, it considered the brand remodelling strategy to be effective for the business in the current situation and position for Li Ning in the sports goods industry. However, the company failed to identify the key characteristic behaviour of the next generation of consumers which is that they are attracted to new things but change their buying decisions continuously. The shortcoming of the company to properly assess the market and devise the strategies according to the market situations led to the failure of the new strategies of the company (Mazzucato, 2002, p.178). The company did not consider the risks associated with targeting the young generation of customers. This resulted in the loss of the existing customers and also Li Ning was unable to acquire new customers for the business. The retail operations strategy of Li Ning was a successful strategy because the fast replenishment system helped to increase the sales of the company and the introduction of the new products establishment the adequate responsiveness of the company towards the emerging customer demands. The retail strategy also improve the operational efficiency of Li Ning and helped in transforming the company as well as in reshaping the way the sports goods industry was developing in China. The success of the retail strategy encouraged the company to make suitable investments in other phases of its Transformation Plan. Li Ning experienced high operating cash flows and the overall financial position of the company showed a positive trend after the implementation of the retail operations strategy. This strategy improved the profitability of the distributors of Li Ning and helped the company to move closer to the achievement of the vision, mission and objectives set for the business. Li Ning expected to improve the stakeholder relationships and deliver more value to the shareholders of the company with the success of this business strategy devised and implemented by the company as a part of their strategic management plan (Hill and Jones, 2012, p.220). The Transformation Plan was devised as a major corporate strategy with relevance to the three strategic pillars on which Li Ning was based on. These strategic pillars of Li Ning included the core brand of Li Ning, the core market of China and the prevailing sports culture in China. The Transformation Plan was focused on the areas of improving the financial health of the channels of Li Ning, restructuring and resizing the company, improving the performances of the products of Li Ning and rationalizing the existing capital structure of Li Ning by improving the cash flows in the business. The retail operations strategy of Li Ning including the Transformation Plan was a success in terms of controlling the over expansion in the sports industry and in the company by underpinning significant improvements in the operational aspects of the business as well as in the financial position of the business. Recommendations Li Ning must implement suitable strategic decisions in order to respond adequately to the changing consumer demands. The company should take lessons from the failure of the brand remodelling strategy introduced in 2010. One of the reasons for the failure of the brand remodelling strategy was that the company could not adequately identify the market demands and conditions (Kozami, 2002, p.60). Therefore, Li Ning should conduct in depth marketing research to assess the market conditions properly. Li Ning can develop innovative product lines to meet the emerging customer demands. Li Ning may diversify the product ranges by entering into designing and selling sports goods for evolving sports activities. Li Ning can start integrating with key suppliers and distributors in the sports goods industry. It can enter into horizontal integration with other companies in the industry which sell promising and different sports items. This will help Li Ning to acquire new product ranges and resources of the acquired companies. The strategic alliances with other companies in the sports industry will help Li Ning to widen its market share and customer base (Cunningham and Harney, 2012, p.112). Li Ning should ideally adopt a B2C electronic commerce model so that the customers get an option to buy the products of Li Ning from the website of the company. Li Ning had taken the sponsorship of Olympics when it was held in Beijing, China. This enhanced the brand awareness and brand image of Li Ning to a great extent. Therefore, Li Ning should continue sponsoring sports championships and events to remain in the limelight. Also, Li Ning may contribute to the welfare of the public in China by setting up or donating in sports training academies to promote the brand. Conclusion Li Ning operates in the highly competitive market place of China. The company is part of such an industry that has been saturated by many international and domestic athletic product market companies. The company has been subjected to many strategic issues that has been affecting the company or can even pose major threat for the company in the coming years. Li Ning had implemented different marketing campaigns but it failed because the consumer market was not well analyzed by the company. The athletic product market needs two basic factors in all its operations such as comfort and quality. Though Li Ning has been able to give the market varieties of design in its product line but it has not been able to adapt the latest technology into the system so as to be at par with the other strong players in the market. The company has the vast opportunity in terms of evolving demand towards sportswear in China as well as abroad. The international market expansion though initiated by the company has not been explored more in the current years. The scope for growth in the markets of US and other foreign countries is more in comparison to that of China. The revenue growth of company can be enhanced by following certain strategies such as expanding the product line by incorporating more kinds of apparels related to sports, expanded its market presence, and by facilitating more of brand marketing. The company needs to build a strong brand image which would serve as a competitive advantage for the company and even help in achieving a sustainable position for long run. 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