Country Attractiveness of a Hong Kong - Essay Example

of your Essay Sub Paper Due Contents Country attractiveness 3 Market/Industry Attractiveness 4 Target market segment 5 Potential distribution strategy 6 Critical Operational issues 8 International Marketing Issues 9 Recommendations 10 Works Cited 11 Country attractiveness Hong Kong is open to international trade with a 0% average tariff rate and minimum barriers to foreign direct investment (The Heritage Foundation, 2014). The economic and financial structures are robust and transparent. The environment is highly competitive with no restrictions on foreign banks, which makes Hong Kong a global hub. Hong Kong’s economic freedom score is 90.1 which makes it a top rated economy in the index. It is considered a free economy with a high degree of market openness. There is trade, investment and financial freedom, all of which is overseen by regulatory bodies that are largely transparent to prevent corruption (The Heritage Foundation, 2014). (The Heritage Foundation, 2014) The GDP of Hong Kong was recorded at $369.4 billion and it showed a 5 year compound annual growth of 2.5%. The picture above shows some of the factors which have contributed to making Hong Kong number 1 in the world in the economic freedom index (The Heritage Foundation, 2014). It has fiscal freedom, regulatory efficiency, market openness and rule of law, making it the perfect place for direct investment. This is also evident by looking at the FDI inflow into Hong Kong which stands at a staggering $74.6 billion (The Heritage Foundation, 2014). Market/Industry Attractiveness The growth in the tourism industry of Hong Kong has led to an increase in the numbers of mainland tourists visiting Hong Kong. The stable job market has also increased local positive spending with the retail industry increasing by 11% in current value terms in 2012 (Colliers International, 2013). In 2012, there was an increase in the number of international brands opening their stores in Hong Kong, an act which is a testament to the confidence in the market. There has been an increase in the number of retail outlets in Hong Kong which has attracted even more shoppers from mainland China. The total value of retail sales growth was recorded at an 8.5% YoY growth in November (Colliers International, 2013). Inbound visitors support the retail sector and the figures from the Hong Kong tourism board shows that Hong Kong received a total of 13.5 million inbound visitors during 2013 (Euromonitor International, 2013). This influx of tourists means that there are a lot more potential shoppers in the market than the existing population figures show. The market is ideal for retailing as tourists shoppers are likely to shop and indulge in positive local spending. Another aspect worth noting is the fact that retail rents of shops in key shopping districts and expected to decline by 5% over the next year (Euromonitor International, 2013). As mentioned in the presentation, Hong Kong has a world class business infrastructure, its geographic positioning is strategic and it has ample government support with its populist’s policies. There are tariff benefits and a skilled labor force available for easy recruitment. Hence overall the country and industry are perfect for John Lewis to enter into. Target market segment Shopping is considered to be an integral part of the lives of the Hong Kong population. There is generally no restriction in the age group which frequents malls and retail outlets. People treat shopping is a functional and a leisure activity. Approximately 30% of household budgets are spent on retail purchases (Yip, et al., 2012). The portion of disposable income spent on durable goods, clothing and footwear is close to 9%. An online survey conducted indicated that the world’s biggest shopaholics were found in Asia. 90% of respondents from Hong Kong admitted to shopping as a form of amusement Hong Kong people ranked for shopping once a week for entertainment (Yip, et al., 2012). The younger segments of the population in the 18 to 25 age group are frequent visitors to retail shops with high brand awareness. They have knowledge about fashion trends and are more savvy consumers in the retail landscape. The Asian youth have been labelled as a crisis resistant market especially after there was no serious effect on them by the global financial crisis (Yip, et al., 2012). The youth is a major target market for the retail industry since most malls in Hong Kong specifically cater to the youth and have created an environment where the youth are encouraged to shop. Malls such as the APM are known for catering to the youth in Hong Kong. However the consumers can be broadly divided into various segments, with each segment having a defined criterion. These segments are described below: Segment 1: Established Wealthy High Socio economic status index ( SESI ) High income Professionally employed Have postgraduate/ college degrees Are white collar workers Married and have children Segment 2: Professionals above average SESI average income; Have generally above average educational background white-collar workers fewer families with children Segment 3: average middle class average SESI average income average educational background high frequency of married couples with children Segment 4: disadvantaged families lowest SESI very low income; little to no education lowest occurrence of married couples; highest frequency of female householders with children Once the segments have been made, John Lewis can target each segment for different products available in their stores. The promotional strategy will have to be adjusted for different products based on product qualities and the segment conditions. Potential distribution strategy John Lewis is the leader in multi-channel retailing. The same concept will also be applied in Hong Kong since one of its goals is to expand into online sales, and for that to be successful, a multi-channel retailing strategy will be necessary. John Lewis’s online sales passed the £1bn mark and 40% of their web traffic originates from mobile phones and tablets (Brooks, 2013) A model based on the John Lewis Omni channel strategy should be employed. This channel is about allowing customers to interact with the company at any stage of the buying process. This entails order placement, changing orders, receiving orders and returning it as well. A study indicates that 2/3rd of the total consumers of John Lewis interact with them in a multichannel way. Some research in shop and buy online, some do the opposite and others use mobiles to research before they make the final purchase (Brooks, 2013). However a physical presence is essential even if the focus is going to be on online selling. For the click and collect operations, it is necessary to have a physical location. However, be it click and collect or next day delivery, stock availability is crucial for order fulfillment. At John Lewis, all online orders will be fulfilled from stock from the warehouse rather than stores as store stock visibility shouldn’t decrease in order to cater to online orders. The basic distribution model will consist of E-commerce, wholesale distribution and specialized distribution. E-commerce will allow retailers direct access to customers all over the world and specialized distribution will consist of its click and collect and next day delivery services. This traditional warehouse distribution model will ensure that there is stock availability at all times however this will lead to high inventory holding costs and material handling costs. But the transport costs will be minimized. The first retail store should open in Central Hong Kong where other retailers such as Lane Crawford and Harvey Nichols are located. This location is easy accessible and has already established a reputation for having big retailers located there. This means that this area has heavy traffic of shoppers already and would be a prime location to set up the retail outlet of John Lewis. The storage centers should also be located nearby or in Western district of Hong Kong. The level of involvement will be high from the get go since the investment is also high. The entire multichannel model is being implemented in Hong Kong hence the size of this project is large. John Lewis should recruit locally since reports show that there is an increase in the amount of cheap and skilled labor available in Hong Kong. Product sourcing however should be done locally as well as from abroad. Areas where John Lewis is known for specialization, such as electronic products, should be imported from abroad. Critical Operational issues There are numerous issues which can arise especially when offering a multichannel distribution model. Such a strategy can have many supply chain challenges which can be difficult to meet. For example, as part of the e-commerce distribution, if a product is shown as being in stock and for some reason, it’s not available in the warehouse then you not only lose the customer but also credibility in the market. E-commerce distribution has to be done from the warehouse and not the retail outlets since shipping products out of the retail out will reduce visibility of the products and then affect brick and mortar sales of the company. Another operational issue which can arise is that of inventory management. When offering a multichannel solution, there are many supply mistakes which can occur in the merchandise quantities, order location and purchasing rates. Wrong goods can be sent to the wrong location and this can make order fulfilment difficult (Brooks, 2013). Inventory tracking difficulties can also arise especially if a system is in place which relies heavily on paper based data collection or legacy EDI systems where data is only available sporadically. When this happens, there is little track over what or where the inventory is gone. It is also difficult to spot trends if the data is not available on a regular basis. If the distribution centers and retail outlets are not in sync then managing inventory levels, becomes a difficult task. At the end of the day, if the inventory levels are not upto the mark, it can lead to either of the two things: 1. The retail outlet runs out of stock and you lose product visibility and on customers 2. You stock up too much on inventory when there was no demand and end up with high inventory holding and management costs. So overall, miss-ships and misplaced inventory can cause a lot of supply chain issues which can lead to a loss for the company. International Marketing Issues There are various issues which can arise when marketing John Lewis in Hong Kong. One of these issues is dilution of the brand name (Hill, 2013). Even though the company might be a big name in UK markets, it might not have the same power in foreign markets. This can cause a long delay in people trusting the company and its products. There might even be resentment at first since intrusion of foreign companies is at times seen as an invasion to drive out the local companies. Another issue can that be of cultural nuance, at times what is considered appropriate in one culture is considered inappropriate in another. Marketing and promotion of John Lewis will have to take into account the local culture, customs, moral and religious views so that the message is not lost in the translation (Hill, 2013). Even intercompany communication might be effected due to this. Since recruitment will be done locally, there might be barriers to effective communication apart the obvious language differences. Western business culture emphasizes upon hurrying negotiations and decreased power distance; whereas eastern business cultures have large power distances and focus on building relationships before business deals (Hill, 2013). Another aspect that John Lewis must keep in mind is that they must cater to a direct need of the customers. Identifying the true need in a foreign environment is not an easy task and at times there can a misunderstanding of the needs of the consumer. Top executives from abroad tend to think their needs and habits coincide with that of the local population. This can lead to not only need fulfillment issues but also issues with the company’s communication strategy, promotional strategy and their long term strategy as well. Recommendations In order to effectively penetrate into the market, the marketing strategy of John Lewis should take into account cultural and local customs so that the communication is clear and concise. Moreover, the recruitment should also be done where only those who are the best fit for the company are selected. In terms of operational efficiency and effective warehouse management, the following methods should be used to ensure that there is a focus on monitoring the flow of products: Use of Barcodes Use of scanners Use of RFID systems allowing for automatic identification (Brooks, 2013) This will also allow for maintaining up to date accounting records and help inventory management. Inflows and outflows of products should also be maintained to ensure that the optimal inventory level is maintained. If the inventory level is too high then the holding cost would negatively affect the company and if the inventory level is too low then it may disrupt business operations. Other than the above methods to improve operational efficiency, John Lewis should follow expansionist policies in order to penetrate the highly lucrative market. The online shopping portal (Ocado) should be made fully functional along with click and collect distribution. John Lewis should also expand into the Mainland where there is a bigger market of ‘shoppers’. Rather than relying on mainland tourists to come into Hong Kong, John Lewis should become more accessible to the mainland population and improve ease of access to its products. Overall, John Lewis should offer the full range of its services in Hong Kong which means retail outlets, warehouse based deliveries and click and collect services as well. It should improve its operational efficiency, especially when it comes to inventory management. And in order to fully take advantage of the untapped market, it should improve its ease of access to its products by offering an online portal for shopping and opening retail outlets in the Main Land so that it can take advantage of the market. Works Cited Brooks, D., 2013. Drapers: Putting supply chain at the heart of multichannel strategy. [Online] Available at: http://www.drapersonline.com/in-business/putting-supply-chain-at-the-heart-of-multichannel-strategy/5054127.article#.Uy8kx_mSw7s [Accessed 24 March 2014]. Colliers International, 2013. Research and Report: Hong Kong retail, s.l.: Colliers International. Euromonitor International, 2013. Retailing in Hong Kong, China, s.l.: Euromonitor International. Hill, B., 2013. What Are Some Challenges That Firms Face for International Marketing?. [Online] Available at: http://smallbusiness.chron.com/challenges-firms-face-international-marketing-3356.html [Accessed 23 March 2014]. Segal, M. N. & Giacobbe, R. W., 1994. Market Segmentation and Competitive analysis for supermarket retailing. International journal of distribution and retail management, Volume 22, pp. 38-48. The Heritage Foundation, 2014. 2014 Index of Economic Freedom. [Online] Available at: http://www.heritage.org/index/country/hongkong [Accessed 23 March 2014]. Yip, T. C. Y., Chan*, K. & Poon, E., 2012. Attributes of young consumers’ favorite retail shops: A qualitative study. Journal of consumer marketing, Volume 29, pp. 545-552. Read More