UNIQLO Company, Global Marketing Analysis - Essay Example

?UNIQLO Company, Global Marketing Analysis Table of Contents Section One 3 Introduction 3 History 3 Operations, strategies, markets and distribution channels 5 Section Two 6 The internationalization process 6 Internationalization frameworks 7 1.The internationalization process framework 7 2.The Uppsala Model 8 Section Three 11 Macro environmental analysis 11 Market specific analysis 14 Section Four 16 Market Entry Modes 16 List of references 19 Section One Introduction Uniqlo Company limited is a Japanese clothing company. The name Uniqlo was as a result of the combination of ‘Unique’ and ‘clothing’ (Frankel, 2011). This company specializes in the manufacturing and retailing of casual wear (Uniqlo, 2012). It was first established in 1984 by Tadashi Yanai and opened its first shop in Hiroshima in that same year. The company was originally a division of the Fast retailing Company limited, a retail holding company. Fast retailing company owns many other brands that include Aspesi, foot park, National Standard and Princess Tam-Tam among others (Fast Retailing, 2010). Uniqlo has continued to be in existence in the fashion industry for a long period of time making impact and changing the perceptions people hold of the fashion industry. In 2005 its management restructured it and separated it from Fast Trading Company to form a new wholly owned subsidiary called Uniqlo Company Limited. It was during the same period of time that it became listed on the Tokyo Stock exchange (Fast Retailing, 2010). Uniqlo is currently headed by Yadashi Yanai who was its founder and president but has other managers in the various outlets of the company. History Uniqlo first began its operations in Hiroshima where it opened its first shop in 1984. The company has since grown to become one of the largest clothing companies in the world with various stores across the globe. Before the company was born, there existed a parent company under the name Ogori Shoji in Ube Yamaguchi that used to operate Men’s clothing shops (Fast Retailing, 2010). The company opened a unisex casual wear store in various towns in Japan including Fukuro-Machi and Hiroshima and these operated under the name unique clothing warehouse. Uniqlo was founded during this time by Tadashi Yanai (Fast Retailing, 2010). The parent company continued its operations under its original name Ogori Shoji until 1991 when it rebranded to Fast retailing company. Unique began a spirited effort to expand its market and by the end of 1994 the company had over 100 stores in Japan only (Fast Retailing, 2010). The company was fast growing and therefore had to think of strategies that would enable it to continue serving its markets. This necessitated it to come up with the SPA strategies adopted from The Gap- an American retailing giant, which aimed at producing and selling their clothing exclusively (Fast Retailing , 2011). The company then set out for overseas expansion after sales turnover and gross profit from their operations in Japan peaked in 2001, boasting of over 500 stores in Japan only. In 2002, the company established Fast Retailing Apparel Company in china and began operating the first Uniqlo outlet in Shanghai China. Uniqlo then made a huge move in 2002 from the Asian market to venture into the European market and established four outlets in London (Fast Retailing, 2010). The England market proved difficult to work in with as sales were below the company’s expectations. This caused a sharp drop in profits in 2003 and the company began working jointly with other Japanese companies and celebrities in order to boost its dwindling sales. Since 2005, the company has engaged itself in an aggressive expansion plan and has opened stores all over the world including, The United States with stores in New York City, In China with stores in Hong Kong and formed a joint venture with Lotte in order to enter the South Korean Market. It has continued its operations in Europe opening more stores since the profits and sales began to improve after a difficult period in the entry stage (Fast Retailing, 2010). Operations, strategies, markets and distribution channels Currently the company boasts of stores in USA, China, France, Hong Kong, Japan, Korea, Malaysia, Russia, Singapore, Taiwan, Thailand and the UK with major projects still in progress for continual expansion into other untapped global markets (Uniqlo, 2012). Uniqlo’s business model as explained earlier is borrowed from the US retailing giant, The Gap. The Model called SPA (specialty store/Retailer of Private label Apparel) brings together all the stages of the business from the initial design, to production and the final sale of the products (Fast Retailing , 2011). This model has made it possible for Uniqlo to continue offering unique products in the market by differentiating itself from other competing retail companies. This model has been continually refined and allows for various adjustments to be made in the process of production in order to reflect the current sales environment and this helps to minimize store-operation costs that include personnel costs and rent. This model has therefor given the company an upper hand over their competitors enabling it to continue offering high quality clothing at reasonable prices (Fast Retailing , 2011). The above mentioned model has resulted in the company employing the cost leadership strategy as its overall business strategy. This strategy charges low pricing for products and services and is used with companies that have a big market share (Peng, 2008, p. 45). Their business philosophy that, clothes do not have to be for the select few makes it clear and supports this strategy (Elliott, 2011). This strategy has been made possible from the optimized processes that range from research in the fashion industry to identify trends and the procurement of large volumes of materials directly from the manufacturers at lower costs making it able to sell clothes at lower prices (Fast Retailing, 2011). Uniqlo distributes its products using its stores in various cities around the world and on the internet. The flagship stores aim to popularize the company at the same time selling its products (TT, 2011). Other stores are located in urban areas away from the major cities in order to facilitate access by the low income. Online stores serve many people across the globe where experiential shopping is fostered. Section Two The internationalization process Many companies with a huge resource base are venturing into international markets in order to increase their market size. The process of internationalization is tedious and many companies fail because of the inability to select the best framework or approach on which to base their international expansion (Waldman, 2008, p. 4). The blind entry into many international markets has been detrimental to firms and some have even collapsed because of the huge amount of investment that is usually made and the risks that are taken to establish these companies. In the end they fail to sustain businesses because of poor planning before entry into such markets (Hollensen, 2008, p. 1-10). There are two major problems that affect companies during the internationalization process. First during the process of internationalization a company must choose a suitable entry mode and this is the biggest task that comes have to accomplish (Dawson & Mukoyama, 2006, pp. 34-35). The problem that is seen here concerns which foreign markets to enter, when to enter, the scale of entry and the choice of entry mode. Firms must considers the above mentioned factors and they should not enter blindly into a market following an entry strategy used by a given company but rather they should look at all possible modes before selecting the best for them. The second problem that has been identified is the control of management and this is because of increased competition that necessitates companies to sustain control over their international operations (Dawson & Mukoyama, 2006, pp. 34-35). The process of internationalization cannot be easily understood without looking international retailing. International retailing can be seen as the management of retail operations in markets that are different from each other in their regulation, economic development, social conditions, cultural environment and retail structures (Waldman, 2008, pp. 11-12). From the above statement, the internationalization of retailing therefore can be defined as the transfer of retail management technology or the establishment of international trading relationships that bring to a retail organization a level of international integration that establishes the retailer within the international environment in such a way as to transcend regulatory, economic, social, cultural and retail structural boundaries (Waldman, 2008, pp. 11-12). The process of internationalization is therefore affected by various factors and these include political and regulatory, cultural, economic, social and retail factors. All these must be understood before a company internationalizes its operations (Dawson & Mukoyama, 2006, p. 35). Internationalization frameworks 1. The internationalization process framework Various strategies or frameworks for internationalization have been put forward by scholars and these are applied by different companies differently in order to succeed. Many companies will use a hybrid of the frameworks and not necessarily one because of the various risks involved in the process of internationalization. Carlson was one of the earliest scholars to study the internationalization process by observing that firms intending to invest abroad suffer from lack of knowledge about how to conduct business in a foreign market (Forsgren & Hagstrom, 2002, pp. 2-3). He concentrated on the decision process itself and went ahead to formulated a hypothesis that firms tend to firms tend to address this risky venture by way of trial and error and by the gradual acquisition of information about foreign markets. His reasoning gave rise to what became the dominant internationalization process framework. This theory puts forward two predictions: (a) firms internationalize through increasing commitments to foreign markets, and (b) firms choose new markets sequentially based on their perceived proximity. The former is based on incremental learning in a given foreign market while the later builds on subjective perceptions which are used to determine which specific geographic markets to enter (Forsgren & Hagstrom, 2002, pp. 2-3). 2. The Uppsala Model The Uppsala Model is the most well-known theory of internationalization. This model has been claimed to be very general and therefore it has been applied to many different firms and different situations. The main reasoning behind the Uppsala model is that the internationalization of a profit-maximizing but risk-averse firm is a process in which the organization gradually increases its international involvement in its search for new markets (Johanson & Vahlne, 2009, pp. 1- 10). A firm becomes increasingly involved as a result of a step by step process due to the interaction between increasing market knowledge and market commitment. Specifically an interplay between state and change is posited. The state aspect here refers to certain degrees of market knowledge and market commitment that the form has at different levels in the internationalization process. The change aspect denotes an on-going process of the present business activities and present commitment decisions. These two aspects affect each other in the process of internationalization (Forsgren & Hagstrom, 2002, pp. 4-5). The central argument behind this model is that every firm begins with a certain level of knowledge concerning the foreign market and commits a certain amount and degree of resources to that market. This state will influence the changes that the firm will make as concerns its current commitment to the market and consequently to its current activities. These alterations in the change aspects cause the state aspect to alter. Therefore the process consists of causal, path dependent cycles. The main stimulus for this process is the firm’s stock of knowledge (Forsgren & Hagstrom, 2002, pp. 4-5). The firm with this knowledge then will start expanding its operations in those new markets but this expansion is limited. The theory talks of psychic distance which means that firms first enter markets that are culturally and geographically proximate to the home market and expand into countries characterized by successively greater cultural and geographic distance (Forsgren & Hagstrom, 2002, pp. 4-5). As a result of knowledge and experience deficits, firms tend to make moves to markets that they can most easily understand. In the process of entering these markets firms initially employ entry modes with low resource commitments and then set up modes that require greater commitment and risks. The inexperienced firms in this theory are considered to be uncertain, unwilling and unable to commit a huge amount of resources. As these firms gain experience in these foreign markets, the uncertainty is reduced that results in more commitment. This theory in summary sees the firm as going through the following four stages that show the changing inclination towards modes that require more resources as their knowledge of the foreign market increases and their uncertainty reduces: (1) no regular export- activity, (2) selling through an agent, (3) a sales subsidiary and eventually (4) a production subsidiary (Forsgren & Hagstrom, 2002, p.6). Uniqlo can be seen to have employed the Uppsala model in its internationalization process. The company began its operations in Hiroshima Japan where it opened its first store in 1984. With time the company expanded to have more than 100 shops within Japan. According to the Uppsala model, this can be seen as expansion within a cultural and geographic distance that a company understands or has knowledge of the operations of these markets. Due to the good profits the company was making in the home country and the increased resource base as a result of the growing shops in Japan Uniqlo decided to adopt the SAP strategy and ventured into the Chinese market. It is still evident that this company is still working in the Asian market. The Chinese market is within the same geographical area and therefore expansion was not difficult for the company. The company managed to open shops in Shanghai china easily because of the knowledge of the Asian market. During this period the company decides to venture into overseas markets opening stores in London, England. This is the first real headache for the company that results in a drop in sales and profits. The company is seen to have approached the European market with the same strategy as the Asian market and this was an oversight that would have cost the company a lot in terms of investments in the foreign markets. It is evident that due to the dropping sales and profits in the European market, the company did not continue to invest in resources in the area because of lack of knowledge of this market. The uncertainty makes Uniqlo to change strategy and begins forming joint ventures with other companies in order continue with its presence in the European market. The use of celebrities is also seen as another strategy that helps the company gain acceptance in the European market. The challenges faced by Uniqlo are not unique as most European companies that venture into the Asian markets experience similar problems and vice versa. The problem is replicating the retail operations of the parent company in the different geographic location with different cultures. The markets do not easily accept the products and thus the company begins to make losses. In such cases the best approach is to form joint ventures with other companies that operate in these markets in order to better operate in these areas and avoid losses. Section Three Macro environmental analysis Every company must conduct a macro environmental analysis of the international market before venturing into it. This is very crucial for any operations in such environments as failure to do this will result in losses and even the closure of such companies (Badu, 2002, p. 263). Macro environmental analysis is an integral part of strategic management and requires that an organizations looks at the following five areas of concern: Socio/cultural, legal, political, technological and economic factors within the international market in order to find the best approach to use in entering these markets and sustaining their operations. The socio/cultural factors are concerned with values, attitudes, and behaviour of individuals in a given society. The international markets have different cultures in terms of how people conduct business and in terms of values and beliefs held by people (Mullins & Walker, 2010, p. 77). It is important for any company to understand this before venturing into these foreign markets. International culture is varied and will comprise of different language, religion, aesthetics, values and attributes social organization and material culture (Doole & Lowe, 2006,p. 120). Uniqlo will need to understand the German language and the German culture if at all the company is planning to enter this market. This is the biggest challenge because many people in the country speak German and not English that would have been easy to understand. The company has to invest in training of staff to understand German or use a common language acceptable to all the parties involved considering the Uniqlo is a company with headquarters in Japan. Political factors affect the operations of many international corporations because these form the basis upon which any company may be accepted or rejected in any country. Political factors are comprised of operational restrictions where a company is not allowed to operate in that country or restricted to particular activities, discriminatory restrictions where companies are forced not to engage in certain activities within the foreign countries for example supporting political candidates and lastly physical actions (Doole & Lowe, 2006,p. 120). Uniqlo faces a challenge to adapt to the new political system in German. German has a federal system of government with three levels, the federal government, state and local government. Adapting to this kind of government will be difficult putting in mind that the company is used to operating in the Asian countries most of which are monarchical. Legal issues are an everyday problem that companies face while moving into international markets. These laws are regulatory in nature and will limit the extent to which a company operates in the international market. These laws are seen to fall in three categories: the home laws and these include those that dictate or regulate operations in foreign countries, International laws that govern the relationship between a country and a company wanting to operate within an international market and the local laws that are found within the specific countries that the company is planning to venture into (Mullins & Walker, 2010, p. 78). All these laws are important and affect a company’s activities. Some of these laws may be bad and thus make it difficult for any company to venture into the country. Some may be less strict and good and thus allow companies to venture in the country. Uniqlo will find a challenge in German especially during advertising. The country has enacted laws that prohibit comparative advertising. Uniqlo just like many fashion companies will need to compare their products with others in the market to show their differential advantage and this will bring problems to the company. Economic environment is affected by many factors. When people’s income rise or fall, when the fiscal policy of governments results in increased or decreased government spending, the entire sectors of the economies are influenced deeply and sometimes suddenly. Some of the factors to consider in the internationalization of a company is whether the country is a developed economy, an emerging economy or a less developed economy (Doole & Lowe, 2006,p. 125). Of critical importance also is currency movements as these may have a potential impact on the business transactions of a particular company. German is a developed economy as well as Japan. Most of the spending habits that are found in developed economies are similar. Uniqlo will not find any challenge operating in the German economy because of the perceived similarity of the economy. The only problem that may exist is the problem of currency movements as the two companies use different currencies and this may affect the operations of Uniqlo. The technological environment represents the changes in technology that will impact the entry of a company into the international market. This may be as a result of the economy of a specific country (Mullins & Walker, 2010, p. 79). For example most developing countries rely on retail stores to purchase their goods and services. Therefore to them business is only possible where the stores are available so that they can buy the products or services. For the developed economies, technology is used in their everyday life and therefore purchase can be made online or in the stores. Uniqlo will find it very easy to operate in German and especially on the online platform and this is because most of the consumers prefer to make purchases online rather than visiting the stores. They find it easy and convenient for them. Market specific analysis The 12C’s framework tool is used to provide a more accurate analysis of a specific market by taking into consideration various aspects of the specific market. The following represent the twelve components that are analysed: Country, Consumer behaviour, channels, commitment, currency, communication, capacity to pay, caveats, contractual obligations, consumption, choices, and concentration (Doole & Lowe, 2006,p. 150). The country German is a good place for business and this is because of the many international companies that have established themselves here (Doole & Lowe, 2006,p. 152). Together with favourable laws and a supportive government, Uniqlo should be able to operate well in this market. Consumer behaviour represents activities or drives that lead people to buy certain products or services. The fashion industry is a well-established industry in German and this should be a driving force to enable Uniqlo venture into this market easily because consumers are already exposed to casual wear and thus it will be easy for them to use Uniqlo’s products. Channels represent the distribution mechanisms for the products. Uniqlo can easily establish stores in this area and also venture into internet selling as this is possible in German. Commitment refers to the ability of the consumers to continue buying the products and the company’s ability to continue supplying the products (Doole & Lowe, 2006,p. 154). Uniqlo has the ability to continuously supply clothes to the German fashion industry. Currency is important in the exchange process. Though the currency in German is different from that in Japan there are no big variations as both economies are developed and exchanges should not be a problem. Communication can be seen in terms of advertisements and promotions about the products or service (Doole & Lowe, 2006,p. 155). Uniqlo has a potential to advertise its products worldwide and design effective communication campaigns and these should help it during the entry stage into the market. The people in German are able to pay for their products and this is because they are in a developed economy where most people are well off above the poverty line and therefore Uniqlo will not experience payment problems on goods purchased. Caveats are warnings and these exist in every business transactions in the international business. If international companies cannot follow regulations they may be warned or sent out of a given country. Such are there in the German market and influence companies’ decisions to a large extent. Contractual obligations are part of businesses which must be upheld by parties in the agreement. The fashion industry has such contracts and Uniqlo with its vast experience in the fashion industry should be able to work well with these. The consumption patterns of people in German are high as would be expected of any developed economy (Doole & Lowe, 2006,p. 156). Therefore Uniqlo will find this an advantage that will contribute immense to its fast growth in the German market. Various choices are seen to influence fashion or clothing. Age, climate conditions and culture are some of the factors that influence the clothing choices of people. Uniqlo with its experience in the clothing industry should be able to supply different types of clothing for different ages and weather patterns for people in German. Concentration refers to the availability of supply stores in a given area in order to serve a given market effectively. Areas with a large population require more shops and distribution facilities and vice versa. Uniqlo has the ability to set up distribution channels and stores so that people have access to their products wherever they are. In line with the above analysis it is evident that German as a country has a favourable business environment that is supportive of business activities. There are few barriers that would make a company’s entry into its market difficult. A few factors such as language and some legal issues may pose a problem for countries aspiring to enter this market. But these are very few compared to the many opportunities that exist within the country. On the other hand Uniqlo is a big company that has already diversified its activities in other overseas markets. It has a huge resource base and should be able to facilitate the entry into this market. From the specific market analysis it is evident that the company can support its activities in German and therefore I would support it in entering the fashion industry in German. Section Four Market Entry Modes According to the Uppsala model discussed in the second section of this report, there exist four modes of entry into the international markets and these include the following: (1) No regular export activities, (2) Export via independent representatives (agents), (3) establishment of overseas sales subsidiaries and lastly (4) overseas production/ manufacturing units (Wu & Zhao, 2007, pp. 183-185). The above identified modes follow a sequence from low to high degree of internationalization. This is attributed to the fact that companies are uncertain over entry into new markets because of the little knowledge they have of these markets (Wu & Zhao, 2007, pp. 183-185 (Klug, 2006)). But with time as they gain experience they are able to establish themselves and even open manufacturing or production units for their products and service. The above mentioned stages are found to go hand in hand with other strategies that include exporting, competitive alliances, mergers and acquisitions/foreign direct investment (Wu & Zhao, 2007, pp. 183-185). Apart from the Uppsala Model modes of entry there are also other entry modes that have been suggested by various scholars and these include: export entry modes, contractual entry modes and investment modes. A variety of factors come into play when a company is planning on what entry mode to use (Wagner, 2009, pp. 3-5). The contractual entry mode involves a variety of arrangements and these include licensing which is common in pharmaceutical companies, franchising which is common in the fashion industry, management contracts, turnkey contracts, non-equity joint ventures and technical knowhow or co-production arrangements (Klug, 2006, pp. 34-36). The investment entry mode on the other hand will take the form of acquisitions that involve the purchase of stock in an existing company in an amount that is sufficient to acquire control of that company, joint ventures and start-up investment. The export mode involves having agents in a given country who receive and supply products within a given market (Hollensen, 2008, p. 150). To achieve the objective of internationalization the following three factors must therefore be put into consideration before selecting an entry mode: firm factors, environmental factors and moderators. Firm factors include the firm specific advantage, its experience and strategy (Hollensen, 2008, pp. 5-10). The environmental factors include demand and competition, socio-cultural conditions, political and economic conditions (Wagner, 2009, pp. 3-5). The firm factors and the environmental factors are influenced by five characteristics which include control, dissemination risk, resource commitment, flexibility and ownership. The moderators on the other hand include aspects such as government policies, corporate policies and the firm’s size (Wagner, 2009, pp. 3-5). Uniqlo has a choice of using various modes as entry into the German market. This is because it has strong firm factors as identified earlier and also that the German business environment is conducive for business activity. The Uppsala stage model will not be effective for a fashion company such as Uniqlo because many fashion companies do not use it. The best approach would be the contractual mode and specifically franchising. This is because of the ability to replicate the fashion industry products to other countries. With this approach, the problem of language will have been solved and some of the regulatory laws will also be dealt with. Another possible entry mode is the investment mode and specifically joint ventures with other companies. Uniqlo has been engaged in joint ventures over the years with many companies and therefore this mode should also work for them in the German market. List of references Badu, E. E. (2002). Macroenvironmental Analysis for Strategic Management: stakeholders' view of Ghana's University Libraries. Libri, 52: 263-275. Dawson, J., & Mukoyama, M. (2006). retail internationalization as a process. In R. Larke, J. Dawson, & M. Mukoyama (Eds.), Strategic Issues in International Retailing (pp. 31-35). New York: Routledge. Doole, I., & Lowe, R. (2006). International marketing strategy. London: Thompson Learning. Elliott, S. (2011, September 5). 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