Doing Business in India - Assignment Example

Marketing Case Study The current business market has become increasingly competitive calling for companies to come up with new strategies to gain a competitive advantage over their rivals as well as increase their profitability. This explains why companies are investing in international market as a way of increasing their sales and improving their brand recognition. Additionally, the recent meltdown that took place in Europe and US has had a negative impact on investments in these markets calling on companies to try their luck in emerging markets (Christie et al., 2003: 263) The bottom line is that while companies in the Western nations are under increasing pressure from this meltdown, companies that have invested in the emerging markets are doing relatively well. It can also be observed that companies invest in emerging markets to diversify their investments. This report gives a case study of Li-Ning Company Limited that wants to introduce its brand of sportswear in the Indian market. Company and Industry Analysis The sports industry is highly lucrative and competitive and Li- Ning is one of the key brands that rose from a local based company to an international player with a considerable market share in various parts of the globe. Li- Ning is a major company that is based in China and produces sporting goods as well as athletic shoes. Its products targets sportsmen that take part in various activities fitness, football, tennis, badminton, basketball and running. Li Ning who was an Olympic gymnast who is the chairperson of the entity’s board of directors (Li Ning Company Limited, 2014) started the entity in 1990. Later in 2005 Li Ning entered into a partnership with Aigle that is a sports apparel company in France (Li Ning Company Limited, 2014). The company has been making increased profits over the years and has over four thousand retail stores. Some of these stores are franchised while others are directly owned. The most recent developments within the entity were in 2010 when its flagship store and headquarters were established in Portland Oregon. In 2011, the company got into a partnership with Acquity Group that is based in Chicago to facilitate brand awareness and distribution of its products across the US. In 2012, Li- Ning entered into a contract with Dwayne Wade, an NBA player in a move to improve the products popularity in the US (Li Ning Company Limited, 2014). It can be observed the company makes sportswear and shoes that are mainly sold in the Chinese market. The entity has been experiencing increased growth in the recent past in its main lines that include Flying Feather shoes that have been designed for running and the Flying Armor shoes that have been designed for playing basketball. Information from the company’s products states that the trademark of Li-Ning’s products is referred to as the “Li-Ning Bow”. The company has also established a minor branding and marketing operation (Li Ning Company Limited, 2014). The entity keeps upgrading its products to keep up with the fast pace in the industry as well as the dynamic needs of their customers. The company’s continuing success has enabled it to venture into emerging markets and has contributed to its accomplishments in the overseas market. One of the main reason behind the company’s success lies in the management and leadership. The founder is an Olympic gold medalists that is respected across the globe and the the World Sports Correspondent Association named him as the “Worlds Most Excellent Athletes in the 20th Century” (Li Ning Company Limited, 2014). This contributes positively to the entity’s reputation and credibility in the local and international markets it operates in. The board of directors is made up of members that have a comprehensive understanding of the consumer markets for example, Mr. Zhang Zhi Yong (Li Ning Company Limited, 2014). Additionally, it works with qualifies management directors that specialise in investments in emerging markets including Hong Kong Philippines, Australia and Japan. The entity has focused its resources and capacities towards research and development that is part of growth in the highly competitive sports wear industry. The company has research and development stations in various parts of the world including the US, China and Hong Kong. This shows the entity’s commitment towards achieving increased diversity in expertise. This helps the company to come up with new and creative designs for customers in various parts of the world. The most impressive research and development achievements to date include the ventilation apparel, better moisture absorption and the anti-shock footwear technology. Li- Ning has achieved various milestones in the pasts and won the “China Innovative Design Red Star Award” and the “Most Successful Product Design” which have helped in its grown in emerging markets (Li Ning Company Limited, 2014). It has been observed that Li-Ning makes high quality products by using minimal costs that contributes to the entity’s competitive over its rivals in the global market including Nike, Fila, Adidas and Reebok (Jian, 2010: 45). The sportswear industry in across the globe in a niche segment and the same case applies to India. In this segment of the market sponsors, athletes or players, sports federations and manufacturers play an imperative part in the decision-making proves. This coupled with the dynamic lifestyles and increased health awareness together with increasing per capita income are some of the major contributing factors for growth in the sportswear industry (Tong et al., 2009: 262). Until recently, India had been making sports gear using conventional methods and the major cities that were popularly known for manufacturing sport gear include Gurgaon, Meerut and Ludhiana (Budhwar, 2001: 549). However, the number of sports gear brands in the country increased dramatically following the economic liberalisation. The sportswear market can be broken down into various sections including sports accessories, sports gear, sports foot wear and sports apparels. In the present times, the market is dictated by the sports apparel section and this section is predicted to continue in future. Amongst the key players in the sports wear industry, the presence of the Big- 4 including Puma, Nike, Adidas and Reebok is one of the key aspects in the industry (Jian, 2010: 15). Adidas and Reebok entered the Indian market in the early 1990s followed by Nike while Puma was the last to venture into the market in 2005. The branded sportswear market in India is estimated to be $750 million and is likely to increase in the future (Christie, 2003: 263). The sportswear market industry is divided into two main parts: domestic players and international players. 60 percent is dedicated to local players while 40 percent is carved up for international players. Reebok takes up 45 percent, Adidas 25 percent while Puma takes up 18 percent. Other companies including Li- Ning will therefore compete for the remaining 10 percent with New Balance, Converse, Lotto and Fila (Christie, 2003: 263). Although Li-Ning has made huge steps in the sportswear industry it is advised to seek for new ways to gain a competitive advantage over well-established players in the market Market Specific Issues, Challenges and Risks Venturing into emerging markets is complex for companies because they face increased competition from local and international players in the markets. Asides from this they are required to invest a huge amount of capital towards establishing their business in the emerging markets. The advertising costs in these markets are high owing to the fact that the products are new to the consumers (Yiu, 2007: 519). There are potential risks that are linked with emerging markets including increased taxes and rules and regulations applying to the sportswear industry. The Beijing Olympic Games held in 2008 were a gold mine for Li- Ning and the entity made exceptional sales in profits in the preceding years (Li-Ning, 2014). However, this did not last for long as Li-Ning and other sportswear companies in the region were caught up in a serious decline. This resulted to reduced profits over and this explains why these companies are venturing into emerging markets as a way to regain their profitability. This decline has been caused by various factors including increased discounting on good, inventories that are too high to control, aggressive plans to increase the entity’s business and rising costs of labour and raw materials. On top of this, the market in China has become oversaturated by the top brands in the country and this has caused Li-Ning to think of emerging markets as a way of this crisis (Li-Ning, 2014). On the other hand, the customers’ needs in the Chinese market have become increasingly complex as well as their consumption patterns. Further, globalisation poses a major challenge to Li-Ning owing to the fact that Adidas continues to grow its market in China and no Chinese based company has managed to take its activities to the international market let alone the international market. The company faces distribution setbacks that are as a result of drastic technological advancements and the fast pace of globalisation that present in the contemporary world. In the current times, transport and distribution have evolved considerably as there are diverse methods that are available to manage these key functions within businesses in the present times. The company is at the initial stages of expanding its business to the global market and this explains why it is dealing with difficulties in transport and distribution (Yiu, 2007: 539). Additionally, the entity has only been operational for a short while in comparison to other key players in the market explaining the lack of well-established distribution networks. The company has a wide range of products and has to deal with the issues of growing individualisation of demand. Fluctuation in the consumer purchasing power and individualised consumer choices have made it increasing difficult for the company to effectively plan on warehousing and distribution (Yiu, 2007: 537). Based on these issues the entity must find a way to improve its distribution network as well as establish an effective distribution plan in emerging markets. Li-Ning’s distribution plans should be based on the policies of market liberalisation and globalisation. The company is faced by mounting completion from well-established companies and other medium-sized entities in the sportswear industry. It can be observed that the presence of the Big-4 (Puma, Nike, Adidas and Reebok) could have a considerable impact on Li- Ning operations in India. As earlier mentioned, domestic companies dominate the sportswear industry in the emerging market while the international companies are left to share the remaining market share. To make the matters worse, Reebok and Adidas dominate the market share that is held by international companies (Tong, 2009: 265). Penetration in the Indian market will therefore be an uphill task and this explains why the entity should come up with a solid plan to venture into this market. This division of the market share is likely to continue in future and the stringent barrier of entry into the field only makes penetration for Li-Ning harder. The sportswear industry calls for economies of scale concerning high capital investments, distribution and manufacturing. Over and above this, there should be continuous innovations in the market as the entity will be focusing towards making a name in the emerging market (Yiu, 2007: 519). This is because the customers are willing to spend on internationally recognised brands. It can be observed that the Big 4 are concerned with satisfying the needs of the high end customers and leave the mass market to the domestic companies and other firms that are new in the market. The company faces numerous risks from the global and local markets. To start with, there is the threat of new entrants into the Indian market because it is a favourable sportswear market for emerging companies. The recent economic crisis across the globe negatively impacted on the consumers’ purchasing power meaning that they are less likely to buy the company’s products resulting to a decline in profitability. Consumers across the international market have a preconception that Chinese products are outdated and substandard when compared to US brands. This is because China has been largely viewed as a manufacturer of imitation products therefore; individuals have minimal confidence in their products. This poses a huge risk to Li- Ning that will be faced by a major challenge in trying to prove that their products are authentic and are of the same quality with the Nike brand from the US and Adidas from Germany (Yiu, 2007: 525). The company should come up with a strategy to promote its products in the international products based on the fact their products are of a superior quality and can compete with those of key sportswear brands. Political and Economic Analysis India is the commonly known as one of the best places to conduct business in the modern world. This is because the government makes minimal interference on international companies operating in the economy. Additionally, the employment policies that are employed in the market are favourable for local and international business operators. The economy is open to foreign investments and this will works towards Li-Ning’s advantage owing to the fact that it will not be hard to establish its stores in India. In the recent times there are some areas that require government authorisation while others do not. However, new joint ventures have to play by onerous conditions. The political environment can be described as being legal, stable and equitable. However, the court process is marred by corruption, court delays and widespread bureaucracy (Christie, 2003: 273). Unlike its African counterparts, the emerging economy has minimal political risks. However, there is a coalition government that is present meaning that the decision-making process is cumbersome and time consuming. Furthermore, most studies have shown that volatility within the Indian market has declined significantly after the implementation of derivatives of trading. The political environment has had a significant impact on the rules and regulations in the market operations in India. In the past, the Indian economy was highly conservation but after the advent of globalisation the economy became more receptive to foreign investors. This has made it into one of the fastest growing economies across the globe making it a favourable investment market for Li- Ning. It can be observed that the capital market in the country is highly unstable and the stock returns fluctuate on a regular basis. The flow of capital into the economy is impacted by the political environment in the country (Christie, 2003: 273). It can be observed that political events in the country impact on business within the country. The previous general election was peaceful and this restored the faith of investors in the economy. This is viewed as a motivating factor to Li- Ning that is highly encouraged to invest in the Indian market. The economic environment in the country is friendly for companies willing to invest in emerging markets. There is an 8 to 10 percent growth rate the boosts foreign investment. However, it is important to observe that these growth rates fluctuate between various regions. Companies are advised to evaluate the commercial viability of their plan (Jian, 2010: 25). The tax regime within the Indian economy is confusing. The economy should be required to limit their tax liability employing off-shore frameworks. India economy is cheaper in terms of investments owing to the fact that it has cheap labour that covers local demand and can be outsourced as well. The BRIC economy is characterised by increased economic growth owing to the fact that it was not adversely affected by the credit crunch. The economic policies that have been adopted by the government have a positive relationship on the international businesses venturing into the economy. For example, the government’s economic policies support foreign investments in the country (Jian, 2010: 37). Recent studies have shown that there have been continuous improvements in the economic growth that has a direct impact on the purchasing power of consumers. There are four important aspects to consider with regards to the economic analysis. These include inflation rate, exchange rate, inflation rate and economic growth. The inflation rate in India was lastly reported to be 9.7 percent while the interest rate was reported to be 5.25% in 2010. The exchange rate fluctuates according to changes in the global economic environment. From the above discussion its can be observed that India is an economically sound environment for Li- Ning to introduce the sportswear (China Internet Information Centre, 2003). This is because from the analysis of the political and economic conditions in India it is clear that the entity will operate freely and the economy holds promise for future investors. As earlier mentioned India should be a favourable emerging market for Li-Ning because it was not affected by the credit crunch that crippled other economies that it could have invested in. Entry Strategy Plan Introducing a company’s products in the global market is never easy owing to the challenges discussed earlier in the analysis. The situation will be more difficult for Li-Ning that is not an international brand and faced stiff competition from the Big 4 sportswear companies. There are various approaches that may be adopted by the firm to venture into the Indian market including franchising, licensing, direct investment, exporting and joint ventures. The appropriate method of entry into the emerging market is based on various factors including the regional and global competitiveness of the firm and its presence in the international market (Yiu et al., 2007: 519). Owing to the industrial forces, level of competition, brand recognition and Li- Ning’s capital it would be advisable for the entity to employ the joint venture approach in introducing its sportswear in the Indian market. This is owing to the fact that the domestic players take up approximately 60 percent of the market share and other companies working towards introducing their products in the market and left to share 10 percent of the remainder (Yiu et al., 2007: 519). This means that Li-Ning has limited chances to make it on its own based on the fact that is not a commonly known brand in the international market. A joint venture refers to a strategic arrangement between a local collaborator and a foreign entrant. There will be various benefits for Li- Ning if it explores this option. This includes leverage to get signals from the government, reduced capital risk, taxes and subsidies offered to local companies. However, there are various issues that are likely to arise from such a method including differences in coordination of business and management policies. It can be observed that in some instances, companies that have the capacity and ability to get into the emerging markets may still opt for joint ventures. This situation applies in emerging markets where governments have laid down policies that require international companies to enter into joint ventures with local companies (Yiu et al., 2007: 519). At this point it is imperative to note that India has a clearly spelt out policy that states that international companies cannot have absolute ownership in specific industries. This means that Li- Ning will be required to find a suitable domestic company with similar business policies and start producing their products in the Indian market. This will be a strategic advantage for the company that will benefit from a reduction in the production and advertising costs. It is widely accepted that entering into a joint venture is one of the ways of toning down the risks that are present in this emerging market. There are various political implications that are linked with the move to venture into the Indian market. To start with, the move may result into improved relations between India and China in the political sphere (China Internet Information Centre, 2003). The government may come up with policies that ensure that these international companies that venture into these economies make use of locally produced materials in the production process and make use of locally available labour. Finally, policies that govern tax laws may be reviewed to ensure that the international companies are taxed accordingly. Recommendations It can be seen that Li-Ning is in its early stages of growth and is encouraged to make use of the internet to reach its customers in the international market. In relation to this point, Li- Ning should set up an online store. This is by developing its website that is mainly used to inform the customers about their merchandise (Kottler, 2009: 15). This is also a convenient way of venturing into emerging markets as the company will not be required to establish physical stores in the emerging markets. The other important recommendation that should be adopted by the entity is that Li- Ning should take part in international events such as the Olympics and the World Cup and sponsor famous players in a move to improve its exposure on the international scene (Kottler, 2009: 22). This strategy has proven to be successful for brand names including Adidas, Nike and Puma. Finally, emerging economies are a source of cheap labour. India is the best example of an emerging market and has a work force that is not appropriately skilled (Kottler, 2009: 33). For this reason, Li- Ning is advised to invest in research and development in the emerging market. Conclusion In conclusion, investing in emerging markets is difficult and this explains why Li- Ning is advised to come up with a solid plan to venture into the Indian market. Based on the industry analysis it is clear that the company faces numerous challenges such as increased competition and insufficient exposure in the global market. From the analysis of the political and economic factors in India, it is clear the entity will be successful if it enters into a joint venture with a domestic company. References Budhwar, P. (2001) ‘Doing business in India’ Thunderbird International Business Review, vol. 43, no. 4, pp. 549-568. China Internet Information Centre (2003) Li Ning: Anything Is Possible, viewed 11th February 2010 . Christie, P.M.J., Kwon, I.W.G., Stoeberl, P.A. & Baumhart, R. (2003) ‘A cross-cultural comparison of ethical attitudes of business managers: India Korea and the United States’ Journal of Business Ethics, vol. 46, no. 3, pp. 263-287. Jian, M. (2010) ‘Measures and Suggestions to Improve the Independent Innovation Ability of Chinese Sports Wear Industry’ Journal of Chengdu Sport University, vol. 4, no. 002. Kolter, P. et al. (2009). Marketing management; An Asian perspective. 5th edn. Singapore: Pearson Prentice Hall. Li Ning Company Limited (2004) Welcome to Li Ning Company Limited, viewed 11th February . Tong, X. & Hawley, J.M. (2009) ‘Measuring customer-based brand equity: empirical evidence from the sportswear market in China’ Journal of Product & Brand Management, vol. 18, no. 4, pp. 262-271. Yiu, D.W., Lau, C. & Bruton, G.D. (2007) ‘International venturing by emerging economy firms: the effects of firm capabilities, home country networks, and corporate entrepreneurship’ Journal of International Business Studies, vol. 38, vol. 4, pp. 519-540. Read More