UGG Boots Exporting to China - Case Study Example

UGG Boots Exporting to China Name: UGG Boots Exporting to China Course: Tutor: Institution: Date: Table of Contents Table of Contents 2 1.0 Business Problem 4 2.0 Background Information 4 3.0 Company situational Analysis 5 3.1 SWOT Analysis 5 3.1.1 Strength 6 3.1.2 Weakness 6 3.1.3 Opportunities 7 3.1.4 Threats 7 3.2 Porters Five forces Model 7 3.2.1 Buyers Bargaining Power 7 3.2.2 Suppliers Bargaining Power 8 3.2.3 Competition Rivalry 9 3.2.4 Threat of New Entrants 9 3.2.5 Threat of Substitutes 9 4.0 Possible Solutions 10 4.1 Expatriates Use 10 4.2 Joint Ventures and Partnerships 10 4.3 Increased Marketing Activities 11 5.0 Strategy Solutions Critical Review 12 6.0 Recommendations 13 7.0 Conclusion 14 References 16 1.0 Business Problem Globalization as has been largely argued has led to a mixture of both positive and negative implications on the business market. On one hand, Gangopadhyay and Chatterji (2005, p.70) stated that despite the positive implications, it has led to increased market competition as well as saturation in other markets. Consequently, this necessitated the need for increased multinational organisations development and establishment. In particular, this has led to increased market concentration and saturation in the developed markets such as the USA, Europe and Australia. Consequently, Park (2006, p.62) noted that organisations are increasingly focusing on the emerging markets especially in China. One among the markets closely monitored are the Chinese market that has exhibited enormous growth and development potential on the global platform. However, exporting to these markets is proving a laborious and challenging task. In this regard, differences in the market conditions and cultures serve as key among the challenges. Therefore, this as reported by Nolke (2014, p.34) led to the failure of numerous venture strive to venture in the market. Therefore, the potentiality of this market and the high rate of failures, necessitate the need for an evaluation of the challenging factors and as such develop the relevant strategies and recommendations to overcome them. Findings in this report evaluation will serve as a key approach to facilitating increased international trade development. 2.0 Background Information UGG Boots Australia is a global entity initially registered in the American market. On its production line, UGG Boots has focused on the manufacturing of ship skin boots targeting both men and women consumer segments in the Australian market. Due to its unique style and manufacturing designs, the organization has acquired an increased market influence and reputation in the Australian market. However, increased local domestic market competition in the Australian wear industry led to its products diversification (“UGG Australia”, 2014). As such, the organization ventured onto the production and manufacturing of additional products such as ship skin handbags. However, trademark legal suits and competition reduced the overall development and success for the venture. Therefore, the organization resolved to venture onto the global market in a bid to expand its market base as well as ensure revenue stability. As such, the organization developed a strategic plan to expand on the global platform through an export approach. In this regard, the venture resolved to venture onto the Chinese market among other Asian markets. However, this has posed a major development and expansion challenge in the Chinese market. Consequently, this evaluation report will evaluate the cause of this challenge with respect to the organizational features as well as the Chinese wear industry analysis. Consequently, the report will offer relevant recommendations for the organizational increased exportations to the Chinese market. 3.0 Company situational Analysis In order to develop a relevant situational analysis on the exportation challenges to China by the organization, this report develops two evaluation approaches. On one hand is an evaluation of the organizational SWOT analysis as well as the Chinese wear industry porters’ analysis in order to develop an informed conclusion based on facts on both the organizational factors as well as the industry analysis. 3.1 SWOT Analysis An organizational analysis using the strength, weakness, opportunities and threats (SWOT) analysis on the organization offers a strategic internal systems analysis on the reasons and capability of the venture exporting to the Chinese market. Pahl and Richter (2007, p.27) argued that the strategy application offers a concrete organizational resources audit. 3.1.1 Strength A key organizational strength is the brand image and reputation developed by UGG Boots. In this regard, over its production and market development in the domestic Australian market, the venture has developed a strong brand reputation on the manufacturing of quality products in the market. The organisation unlike its competitor such as Nike and Puma the organisation manufactures ship skin boots offering it a unique brand identity that is an imperative brand positioning and sales enhancement element for its retained market influence. This offers it a competitive edge over other in the exportation market endeavour. In addition, the reduced costs of exportation as an internationalization approach will ensure on the reduction of production costs. As such, this will avail the organizational products to the Chinese market at a relatively reduced price cost. 3.1.2 Weakness Despite its quality reputation, the organizational brands are inclined to style. As such, this implies that they develop and manufacture stylish and fashion oriented products. In fact, the organisational sheep skin boots are seasonal and highly sensitive to climate changes. Therefore, they are worn and bought on the warm weather seasons. Thus, unlike competitor products that have no off peak seasons, the organisational products seasonality is their key weakness for the proposed Chinese market. In addition, the organization exportation strategy faces the execution weakness for the lack of the relevant experience with cultures such as the Chinese market culture. 3.1.3 Opportunities The proposed exportation strategy presents the organization with a hugely large expansion and development potential for UGG Boots. In this regard, one of the fundamental opportunities for the organization is an increased sales and consumer base. The Chinese market as Zhang (2011, p.753) stated, is a large population base, a trend expected to project into the future. A major boast for the UGG Boots products success in China is the extended weather varsity in the nation’s respective regions. Therefore, the organisation has the opportunity to sell its products in the different regions around the year ensuring that there are no sales variations in the Chinese market as experienced in Australia. 3.1.4 Threats Despite the huge future market expansion potential emerging from the strategy development, the approach faces a series of challenges. One among them is the price challenge. Due to off shoring activities by multinational organisations and the availability of labour and raw materials, products costs in the market are relatively low. Therefore, the venture will face declining revenue gains and even the risk of loss due to domestic competition. 3.2 Porters Five forces Model This review develops an industry analysis of the Chinese wear industry. In this regard, the report section evaluates the external factors such as buyers bargaining, suppliers bargaining, competition rivalry, threat of new entrants and threat of substitutes respectively. 3.2.1 Buyers Bargaining Power An evaluation of the Chinese clothing industry establishes that the offered products are part of the basic human needs. Therefore, they serve as a necessity to all the consumers in the large population base regardless of age and gender. Consequently, the large population consumer base reduces the consumers bargaining power. On average, China has a higher population that Australia. As such the purchasing power parity in China as of 2013 was 13. 39 while that in Australia was 43. Indicating the high financial bargaining power in Australia against that in China. Thus, this will offer the organisation a reduced market buyers bargaining base as compared to its domestic market. Therefore, UGG would face a reduced buyer’s bargain in China unlike in its domestic market Australia, offering UGG Boots an increased development and expansion opportunity. Moreover, the fact that the consumers buy in minimal quantities and comprise of individual households further reduces their bargaining power in the industry. As such, this implies that the UGG Boots Company has an influence potential upon exporting its products onto the Chinese market. 3.2.2 Suppliers Bargaining Power On one hand, the suppliers bargaining power is increased due to the high population and consumer base. As such, this implies a reduced supplier’s number and thus the command of a significant consumer base for each of the industry suppliers. Therefore, UGG that is faces a declining market base in Australia due to the rise of other footwear organisations in the economy such as Nike and Puma that have multinational operational advantages. However, this bargaining power is gradually eroded by the low switching costs allowing for consumes brand change ease. Moreover, the diverse distribution channels cause indirect relationships with the consumers with the manufacturers except for organisations such as UGG that have strong market brand images (Horney, 2011). This development as two implications of UGG exports strategy. On one hand, it will increase its penetration ease while on the other hand it will lead to reduced power and control on the consumers upon establishment in the industry. 3.2.3 Competition Rivalry A major challenge in the Chinese clothing industry is the high competition rivalry. This is in particular characterized by the increased number of multinational and large size organisations in the market such as the Bosideng Company (“Bosideng”, 2014). The Company manufacturing of footwear’s and its strategic market knowledge offers it an added market advantage over UGG Boots Company. However, despite the high rivalry rates, the industry growth rate is relatively high. In this case, it implies that despite the high competition levels in the industry, there is the increased opportunity and probability that UGG will acquire an increasing market share and profitability levels into the future. 3.2.4 Threat of New Entrants The emergence of the Chinese market as a regional developing and large market base has attracted a wide range of investments. As such, this is especially propagated and stimulated by the development of FDI support regulations by the Chinese government encouraging a free market situation evidenced by the Entry of China onto the BRICS that forms a free trade bloc between member states. Therefore the free entry and exit approaches eposes the market to the risk of increased new entrants into the market. 3.2.5 Threat of Substitutes One of the highest industry threats in the industry is the risk of new substitute’s development in the market. In this case, the availability of cheap and ready raw materials in the Chinese market as well as the increasing cultural integration exposes the market to increased risk of substitute’s development and emergence into the future (Ganster and Kedl, 2005, p.5). This is especially with the development of challenge in the use of natural resources such as ship skin to manufacture products. As such, this is bound to be replaced by synthetic fibres in the industries future. 4.0 Possible Solutions Based on the above analysis on the organizational internal and external industry evaluation for the Chinese market, this report develops a series of solutions that the organization can apply. In this case, the solutions are developed based on the logical market approach and not necessarily on the ability by the organization to execute and achieve the recommendations. 4.1 Expatriates Use As already discussed one of the fundamental challenges by the organization is its lack of the required relevant experience on the Chinese market and culture. In this case, the evaluation evidences that due to the high cultural disparity between the Chinese and the Australian cultures, the organization faces challenges in understanding the market structures as well as operational systems in the Chinese clothing industry (Boncori, 2013, p.25). Therefore, as a strategic measure to overcome this challenge, the organization can recruit and use expatriates as a part of exportation workforce. In this regard, the venture can employ Chinese based employees who would ensure and propagate increased organizational knowledge and conformance with the required Chinese market needs and operational culture. 4.2 Joint Ventures and Partnerships An alternative resolution for the organization to venture n the Chinese market on its exportation platform would be to introduce and establish market based partnerships and strategic alliances. In this regard, the organization can establish and acquire as well as develop partners in the Chinese market. The partners should especially be established organizations with a good and reputable brand image and reputation in the market especially in the Chinese market that applies the Guanxi culture application (Wilson and Brennan, 2010, p.656). As such, they should have the relevant and sufficient distribution channels across the diverse and geographically dispersed Chinese market. In this regard, the development of partnerships criteria should be based on the ability of the organisations to distribute the venture products across the Chinese market. As such, this would relieve the organization of the need and requirement to directly relate and interact with the market consumers (Morschett, Schramm-Klein and Zentes, 2010, p.286). As such, reducing on the established high rivalry rates in the market that could scuffle the approach exposing it to the risk of failure in its launch and execution. 4.3 Increased Marketing Activities As established in the analysis, the organization as other suppliers in the Chinese market faces the challenge of relationships and contact with the consumer base. As such, in an evaluation of internet marketing in the tourism industry, Elliott and Boshoff (2005, p.46) argued that the organization can apply this approach to counter and overcome this challenge, the organization can roll out a wide national market based marketing campaign across the Chinese nation. In this regard, the campaign should be geared towards the establishment of a brand image as well as loyalty among the consumers. In this regard, the marketing campaigns would be aimed at increasing information floe in the market. As such, the approach would serve to distinguish and single out the organization unique product features and quality against of the numerous peers in the industry. Such could include marketing on both the mainstream physical platform such as the media and endorsements as well as through the informal platform such as the social media platforms. Consequently, the execution of this strategy and the subsequent development of relevant brand image would increase the organizational exporting strategy likelihood (Chitty, 2011, p.3). 5.0 Strategy Solutions Critical Review In order to develop a logical and most appropriate recommendation for the organization exporting into the Chinese market, this report section evaluates the cost benefit analysis of each of the listed possible solutions in order to profile and list them in order of their merits. On one hand, an evaluation of the expatriates use establishes that this would offer the organization an added advantage into competing with the local and established organisations through an acquisition of the required experience and market knowledge. However, a critical analysis on the approach evidences that this would increase the organizational operational costs. This would entail the recruitment of new employees onto its workforce that is a virtual increasing the overall production costs (Ahlstrom and Bruton, 2010, p.397). Moreover, it would expose the organization endeavour to the risk of a failing organizational culture as the new employees would establish a new culture onto the venture. Consequently, though viable in the short run, the approach is unsustainable in the long run period. On the other hand, an evaluation of the marketing approach establishes that its execution would increase organizational products knowledge in the market thus promoting its overall reputation and success rates. Nevertheless, the proposed solution has a series of challenges. Among them include the high implementation costs. Similar to new workforce employment, marketing campaigns are an added costs adding to the overall production costs of the products a major disadvantage for the organizational products against China made products. In addition, the marketing campaigns through a competitive edge enhancement are not a sustainable edge (Charter and Tischner, 2001, p.34). This is based on the fact that the cost of marketing is high and thus cannot be applied as a long term strategy to counter the growing competition in the Chinese clothing industry. Additionally, an evaluation of the joint ventures and partnerships strategic solution establishes that this would reduce the overall organizational venture costs. In this regard, the evaluation as Kirby and Kaiser (2003, p.232) in case study of SMEs expansion argued evidences that through the establishment of the joint ventures the organisations would ride and rely on the organisations distribution and marketing channels to reach out to the market. Therefore, this would offer the organization a cost reduction advantage, thus developing a relatively sustainable competitive edge (Groucutt, Forsyth and Leadley, 2004, p.228). In addition, an evaluation of the study established that through the strategy application the organization would counter its culture knowledge challenge. In this case, the local partners would offer the organizational a platform to counter the existing organisations competitive edge on culture knowledge thus promoting its relative success potential. 6.0 Recommendations Based on the above analysis, this marketing report develops a recommendation for the establishment of joint ventures by the organization in its bid to export into the Chinese market. In this regard, in the execution of this strategic approach, this report describes critical aspects and factors that the organization should consider. On one hand, the organization should consider alliances with Chinese importers. In this case, the importers should have a good and acceptable market financial base and reputation. As Omar, Williams, Robert and Lingelbach (2009, p.179) stated, an organizational reputation and capital base serve as crucial factors in market success. Through alliances with such partners while offering them exclusive selling prices of its products in the Chinese market, the organization would reduce on the internationalization costs. On the other hand, this report recommends that the organization should develop the alliances on a contractual basis. As such, this would include regular supplier and partners’ systems appraisal. Consequently regular appraisal and partners support programs would guarantee the organization a competitive supply and competitive edge in the Chinese market in the present and into the future. The appraisals should include the organisations strategic plans, market reputation as well as competitive edges. Finally, this report recommends that in the development of the partnerships and the proposed alliance, the organization should focus on Chinese domestic organizations. As such, with the changing FDI policies in the market as Tang, Selvanathan and Selvanathan (2012, p.161) argued, the Chinese market , the organization would ensure increased penetration and market influence regardless of the policy changes due to the presence of domestic partners. 7.0 Conclusion In summary, the report develops an analysis of the challenges experienced by internationalizing organisations. In this case, the report argues that increased domestic market saturation and competition increase necessitate globalization and internationalization strategies among them the exporting approach. However, due to market and cultures variances, internationalization approaches have posed numerous challenges to multinational organisations among them the UGG Boots Company endeavour to venture into the Chinese market. A SWOT analysis on the organizational operations establishes that the organization has brand reputation strength but has a weakness in its limited culture knowledge and experience on the Chinese market. Moreover while an opportunities review highlights the potential argue consumer base, a threats review argues that high market competition is projected into the future. Further, an industry analysis establishes low buyers and suppliers bargaining powers, high rivalry, new entrants’ threats as well as substitutes risk respectively. Consequently the report develops three alternative solutions namely expatriates use, joint ventures and marketing respectively. Finally, through a critical evaluation of each of the alternatives, the report recommends the partnerships and joint ventures alternative. Conclusively, the report asserts that with the implementation of the recommended approaches the venture Chinese export strategy will be successful. References Ahlstrom, D., & Bruton, G. D., 2010,. 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