Internationalization of Koyo Jeans from Hong Kong - Term Paper Example

? Evaluating Internationalization Strategy: Koyo Jeans Lecturer Contents Introduction 3 2. Environment Audit of the Current Market 3 2.1. Industry Life-cycle 3 2.2. PESTEL 3 2.2.1. Political factors 4 2.2.2. Economic factors 4 2.2.3. Socio-cultural 4 2.2.4. Technological factors 5 2.2.5. Environmental factors 5 2.2.6. Legal 5 2.3. Porters Diamond Analysis 6 3.0. Internationalization Environment 6 3.1. PESTEL 6 3.1.1. Political factors 6 3.1.2. Economic factors 7 3.1.3. Socio-cultural factors 7 3.1.4. Technological 7 3.1.5. Environmental factors 7 3.1.6. Legal factors 8 3.2. SWOT Analysis 8 3.3. Market Entry Strategies 8 4. Conclusion 10 5. Recommendations 10 Bibliography 10 Au, K., Suen, B., Shen, N. and Tang, J. 2011. Internationalization of Koyo Jeans from Hong Kong.  Richard Ivey School of Business Foundation Pp. 11  10 Bardhan, p. 2003. International Trade, Growth, and Development. Wiley-Blackwell. pp.296 11 Brigham, E.F and Ehrhardt, M. 2010. Financial Management: Theory & Practice (with Thomson ONE - Business School Edition 1-Year Printed Access Card) South-Western College Pub 1184 11 Bomann-Larsen, L. and Wiggen, O. 2004. Responsibility in World Business: Managing Harmful Side-Effects of Corporate Activity. Tokyo, United Nations University Press, Pp.305 11 Blenkhorn, D.L. and Fleisher, C.S.2005. Competitive Intelligence and Global Business. Westport, CT, Praeger Pp.308 11 Cullen, J.B. and Parboteeah, K.P. 2010. International Business: Strategy and the Multinational Company. Routledge. pp.528 11 Kline, J.M. 2005. Ethics for International Business: Decision Making in a Global Political Economy. London, Routledge. Pp.285 11 Matthew, H. 2012. Demands of Supply: The Illicit Pathways of Global Supply Chains: Journal of International Affairs, Vol. 66 (1). 11 Magretta, J. 2011. Creating Value: The Core--Staking Out Your Company's Unique Competitive Position Using Michael Porter's Elements of Strategy. Harvard Business Press Chapters. Pp.29 12 Magretta, J. 2011. Understanding Michael Porter: The Essential Guide to Competition and Strategy. Harvard Business Press. Pp.2008 12 Montgomery, C.A and Porter M E. 1991. Strategy: Seeking and Securing Competitive Advantage Harvard Business Press. Pp.350 12 Porter M. E. 2008. On Competition, Updated and Expanded Edition. Harvard Business Press. Pp. 576. 12 Wettstein, F. 2009. Multinational Corporations and Global Justice: Human Rights Obligations of a Quasi-Governmental Institution. Stanford, CA, Stanford Business Books. Pp.425. 12 1. Introduction Koyo Jeans’ business was started by William Cheung in 2003 in Hong Kong. Though he had started a small business targeting the local clients in Hong Kong, today the business has spread to China and Spain. The management is targeting to explore other parts of the globe; specifically Singapore and Brazil (Cavusgil.et.al, 2011, p. 457). Technological advancement, political climate, socio-cultural, environmental and legal factors relating to specific nation affects the performance of trading activities in that country (Au.et. al, 2011, p.3). The expansion of Koyo Jeans’ business to other countries like Singapore and Brazil will require thorough understanding of prevailing conditions in the target market and a strategic approach to enable them overcome those. 2. Environment Audit of the Current Market 2.1. Industry Life-cycle When Koyo Jeans sets up business, sales are normally low since clients are not familiar with the business. The owner is not able to enjoy economies of scale hence high overhead cost. With time, the production efficiency and the number of customer increases, hence the owner starts enjoying benefits due to large scale production resulting to low overhead cost. Later on, other producers join the market, the total sales volume of individual investor declines resulting to decline in business growth (Cavusgil.et.al, 2011, p. 463). When the market becomes oversaturated with investors, revenue of the individuals starts declining due to increasing operation cost (Au.et. al, 2011, p.4). At this point, some investment becomes inefficient hence forcing their owners out of the market. 2.2. PESTEL 2.2.1. Political factors Koyo Jeans is doing well in the local market of Hong Kong. They have also established their activities in China and Spain. The company has been favoured by a number of factors in the local market. Running business in China is easy due to supportive government rules which encourage free importation of inputs. The traders in China are free to import inputs from Hong Kong (Bomann-Larsen and Wiggen, 2004, p. 128). Also, Spain has low tax rates which favours establishment of business activities in the nation. This has favoured Koyo Jeans to establish their activities in China. The open market economy of Hong Kong and small tax levied on imports has encouraged Koyo Jeans to purchase inputs from China. This has encouraged the expansion of trading activities of Koyo Jeans in the domestic market in Hong Kong. 2.2.2. Economic factors The increase in rate of inflation in Hong Kong between October 2011 and October 2012 led to increase in overhead cost and cost of materials (Cavusgil.et.al, 2011, p. 493). This reduced returns from the trading activities of the Koyo Jeans. On the other hand, China has low inflation rate compared to Hong Kong which provides better opportunity for Koyo Jeans to reduce cost of running the business. 2.2.3. Socio-cultural The people of Hong Kong are stylish hence are free to buy fashionable Koyo Jeans. Similarly, Chinese are willing to purchase Koyo Jeans because they fit their life style. China market offers an appealing business opportunity for the jeans products due to high population and the way of life. Majority of the clients are from the youth generation due to demand for the style. The urban dwellers between the ages of fourteen to forty five years in china have a rapidly growing demand for stylish wear (Cullen and Parboteeah, 2010, p.245). Initially, the Koyo jeans were designed for the local market in Hong Kong. However, the demand for the Koyo jeans in the local market was not very attractive. The markers are targeting to extend their business to Singapore and Brazil in order to boost their sales. In Spain, there is religious freedom for people to wear attires of their taste. This has resulted to increased demand for fashionable Koyo Jeans. Therefore, there is a high demand for Koyo Jeans which are made in different styles to suit varying tastes of the clients in these countries. 2.2.4. Technological factors China, Hong Kong and Spain are technologically advanced. Many potential buyers own mobile phones which are internet enabled. Therefore, these have helped to advance Koyo Jeans market because they can make online purchasing (Matthew, 2012). The traders can also purchase inputs online or establish direct contact with their clients. Spain relies mainly on renewable sources of energy, and this has resulted to low cost of production and steady power supply hence favouring growth of Koyo Jeans in those countries. 2.2.5. Environmental factors China, Hong Kong and Spain are rapidly growing economies and rely mostly on industrial activities. This has influenced demand for Koyo Jeans since the nations are wealth and want to live superior lives (Wettstein, 2009). 2.2.6. Legal Hong Kong market is free which allows traders to import inputs from outside countries at a low cost. Also, due to free export in Hong Kong, Koyo Jeans are able to sell their products to other countries at a lower cost (Au.et. al, 2011, p.2). In China, the government has not put any restriction on export to Hong Kong residents. Therefore, Koyo Jeans purchase inputs and sell their products in China at a low cost. 2.3. Porters Diamond Analysis Koyo jeans producers have experienced and inexpensive workforce and resource endowment. This has given them competitive benefit over their rivals in the domestic market (Porter, 2008, p.34). Due to low domestic demand for jeans, Koyo producers have been forced to invest in technology in order to win more domestic clients. This has placed them in a better position than their rivals in the domestic market. Koyo marketers have focused on placing attractive show rooms and carrying out intense promotion activities (Cavusgil.et.al, 2011, p. 474). This has given them extra benefit than their rivals because they are able to make more sales. The Hong Kong government has given the jeans trader’s freedom to establish their businesses and have impacted their existence much. The occurrence of trade fairs in Hong Kong enabled Koyo jeans producers to acquire more knowledge in jeans production and acquire knowledge about what most clients requires (Brigham and Ehrhardt, 2010, p.789). This placed this company in a better position compare to their rivals. 3.0. Internationalization Environment 3.1. PESTEL 3.1.1. Political factors The countries of both Singapore are Brazil is quite peaceful and stable. They have enjoyed a long moment of political stability hence steady business regulations (Brigham and Ehrhardt, 2010, p.789). Therefore, the business environment in these countries is stable and offers prospect for Koyo Jeans to establish their activities in those countries. The due to low government restrictions on businesses, the Koyo Jeans will be able to move their products freely from one country to another, cost effectively. 3.1.2. Economic factors Both Brazil and Singapore have rapidly growing economies in the world. Their currencies are stable and investors’ confidence is high. This has offered an advantage for Koyo Jeans to invest in the jeans industry in Brazil and Singapore because the risk associated with loss of capital is low (Brigham and Ehrhardt, 2010, p.789). Due to increasing economic stability in these two countries, consumers are willing to spend more of their earnings in making purchases and also, financial institutions are will to advance their activities in those countries. 3.1.3. Socio-cultural factors There is freedom of worship in both Singapore and Brazil. People are at liberty to use any fashionable clothes in these countries and this has raised the prospects of Koyo Jeans to make better earnings from this business. 3.1.4. Technological Since most of the companies are selling their products online, Koyo Jeans will experience increasing business growth since many clients will be able to purchase their products online and through other means. Online selling is also cost effective and results to both capital and expenditure reduction (Bardhan, 2003, P. 67). 3.1.5. Environmental factors The surroundings of both Brazil and Singapore are favourable for the establishment of Koyo jeans business. There are no known factors relating to surroundings which can cause any hindrance to the establishment and growth of business in those countries. 3.1.6. Legal factors In the modern society, states are encouraging businesses to expand their operations across the globe (Cavusgil.et.al, 2011, p. 474). Therefore, countries like Singapore and Brazil are acting to eliminate all trade barriers across the globe. As a result, expanding businesses like Koyo Jeans will be able to take advantage of low cost of entry into foreign market to establish their own businesses in the international field. 3.2. SWOT Analysis The Koyo Jeans’ products are affordable, of high quality, unique and attractive to the consumers. The producer selects and trains their franchisee. Koyo Jeans producers are not familiar with the global market, lack experienced personnel, have limited knowledge to produce various products to suit diverse needs of the clients. They have not established consumer loyalty in any market. Their growing innovation in design in Hong Kong, tax free products, and cheap outsourcing of expertise in Hong Kong (Magretta, 2011, p.67). Koyo Jeans have a chance to expand their operations to other parts of the world. There are many rivals offering similar products both in domestic and global market. Also, the market is saturated with alternative products. 3.3. Market Entry Strategies Due to the market nature of Jeans industry and economic, social and cultural conditions of Singapore and Brazil, the best option for Koyo Jeans to get into these markets is through franchise. There are many rivals in the market such as DNKY, 7 For All Mankind and Levi’s in Brazilian market. Also in Singapore, EVISU have established their market for the same products. They clients have variety of Jeans from different producers to choose from. This will result to revenue and high expenditure due to intense market campaign (Wettstein, 2009, p.234). Koyo Jeans should use the local investors in Singapore and Brazil who are already known by the clients in order to gain access to the market. Koyo Jeans should educate their partners on how to display their items neatly in the show rooms and virtually in the internet. They will also us this opportunity to train their partners how handle their clients and ensure their maintain them. This will help them to establish a pool of experienced staff that will be able to produce and market their products to their clients across these nations (Cavusgil, Knight and Riesenberger, 2011, p.234). It will also help them to differentiate their products in terms of similarity of services and products quality they will offer to their clients. Basically, the franchisees are the local citizens of the countries in which the franchiser want to establish a business. In the case of Koyo Jeans, they will mainly network with the citizens of Singapore and Brazil to start business in those countries (Kline, 2005, p. 124). This will give them an advantage in the sense that the local citizens are already familiar with the environment of their country hence they will easily be accommodated by the clients than foreigners. This approach is effective due to low capital requirement. The start up capital is raised by the franchisee and will also bear most of the risk especially financial risks (Au.et. al, 2011, p.3). The Koyo Jeans will deal with management aspect of the business across the countries involved. However, their partners will deal with other roles of the business. 4. Conclusion In conclusion, Koyo Jeans has a higher opportunity to expand their operations by investing in the global market. This will help them to increase their sales and income. They will achieve this if they ensure high quality products and at an affordable prices. Koyo Jeans also requires expertise in production and marketing. The producers are favoured by international market due to less government restrictions, low cost of operation and few legal requirements. Since it is not easy to establish customer loyalty in these undifferentiated products, Koyo Jeans should increase their sales by intensifying their sales campaigns. They can achieve through use of current technology like use of internet. 5. Recommendations I would recommend Koyo Jeans to continue producing at a lower price than their competitors. They should also set up more out lets across the globe to maximize their sales. They should also focus on improving the quality of their products. They can achieve this by intensifying their technology to increase efficiency of production. Bibliography Au, K., Suen, B., Shen, N. and Tang, J. 2011. Internationalization of Koyo Jeans from Hong Kong.  Richard Ivey School of Business Foundation Pp. 11  Bardhan, p. 2003. International Trade, Growth, and Development. Wiley-Blackwell. pp.296 Brigham, E.F and Ehrhardt, M. 2010. Financial Management: Theory & Practice (with Thomson ONE - Business School Edition 1-Year Printed Access Card) South-Western College Pub 1184 Bomann-Larsen, L. and Wiggen, O. 2004. Responsibility in World Business: Managing Harmful Side-Effects of Corporate Activity. Tokyo, United Nations University Press, Pp.305 Blenkhorn, D.L. and Fleisher, C.S.2005. Competitive Intelligence and Global Business. Westport, CT, Praeger Pp.308 Cavusgil S. T., Knight, G. A. and Riesenberger, J. R. 2011. International Business: The New Realities (Second Edition). Prentice Hall. Pp.656 Cullen, J.B. and Parboteeah, K.P. 2010. International Business: Strategy and the Multinational Company. Routledge. pp.528 Kline, J.M. 2005. Ethics for International Business: Decision Making in a Global Political Economy. London, Routledge. Pp.285 Matthew, H. 2012. Demands of Supply: The Illicit Pathways of Global Supply Chains: Journal of International Affairs, Vol. 66 (1). Magretta, J. 2011. Creating Value: The Core--Staking Out Your Company's Unique Competitive Position Using Michael Porter's Elements of Strategy. Harvard Business Press Chapters. Pp.29 Magretta, J. 2011. Understanding Michael Porter: The Essential Guide to Competition and Strategy. Harvard Business Press. Pp.2008 Montgomery, C.A and Porter M E. 1991. Strategy: Seeking and Securing Competitive Advantage Harvard Business Press. Pp.350 Porter M. E. 2008. On Competition, Updated and Expanded Edition. Harvard Business Press. Pp. 576. Wettstein, F. 2009. Multinational Corporations and Global Justice: Human Rights Obligations of a Quasi-Governmental Institution. Stanford, CA, Stanford Business Books. Pp.425. Read More