Report Proposing China as a Potential Overseas Market for Real Play Clothing Retailers, Australia

Introduction

Expansion in the Overseas Market is a crucial and significant venture for any local company that has conducted business in the comfort zone of its own country. The purpose of this is to grow, multiply, and excel. Keeping in mind the risks and opportunities, the feasibility is assessed and a well-evaluated plan to be implemented is formulated. But, before entering the Chinese market by this company” Real Play Clothing Retailers”, a thorough market analysis is needed (B2B International, 2016).

Real Play, an Australian company which has it’s based in Sydney, proudly owns many years of expertise in the sector of supplies and manufacture of quality Sports Equipment, Sportswear, Corporate Clothing, and other promotional items.

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Certain Basic Questions to Be Answered Before Doing Analysis

• What is the political situation of the countries and how it can affect the industries?
• What are the prevalent economic factors?
• How much importance does culture have in the market and what are its determinants?
• Is there any current legislation that regulates the industry or can there be any change in legislation for the industry?

To answer the questions the study of micro and macro environment is necessary.

Micro environment factors that are very close to business have a direct impact on its business operations and success. The Real Play Retailers before making their corporate strategy in China, should carry out a full analysis of their microenvironment, that is, factors of the microenvironment of business: competitors, customers, suppliers, public, marketing intermediaries and workers, and their unions. It must also analyze the Macro environment elements of China which consist of broader forces affecting the firm, as well as the other factors of the firm’s microenvironment. This is an area where the firm does not have any control.

China has a population of over 1.3 billion people who live on a land mass that is vaster than the United States, area-wise (RealPlay, 2012). China’s size indicates that conducting, research, business, and marketing practices here would not be easy and a lot of competition can be expected. Especially with a clothing line, though Real Play can be confident as it is sporting slightly specific products within clothing, too. It is a fact that China is a huge market and has potential too, for foreign goods and services, but the fact is also that there has to be a good understanding of how and where these opportunities can be tapped and accessed (Oxlearn.com, 2016). Whether it is a large Western multinational or a small company, establishing one’s presence as a first-time market entrant, remains a challenge.

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PESTLE ANALYSIS

PESTLE analysis (political, economic, social, technological, legal, and environmental) is a tool of marketing that shall be used by Real Play to assess the environment of China before planning to launch their product there. It shall give an overview of the whole of China’s environment, from many different angles (Oxlearn.com, 2016).

Political forces: The political factors refer to the stability of the political environment, and the attitude of the political party or movement of China. Real play must understand government rules and regulations as it is critical for the success of the clothing line in Chinese B2B markets.   China’s political environment has not been very favorable for trade; though becoming a member of the WTO in 2001 liberalized its environment to an extent. Industries like food and medicine are heavily regulated but the good news for Real Play Clothing line is that their industry will not face that many hurdles, and entry could be smooth provided it conducts its activities in compliance with the political environment (Pasco and Le Ster-Beaumevieille, 2007).   As China’s economy is developing at a double rate presently, it is also becoming organized regarding industry-specific regulations. Thus Real Play’s strategy would be to maintain a good standard of products.  It will work in the guidance and control of regulatory organizations that are responsible for industry regulations and laws. Some ministries in China also take a good interest in industry regulations. So, they need to be cooperated with.

Economic factors: China is not a homogenous market.  Despite being a unified geo-political unit, it is economically fragmented and carries different characteristics.  There are uneven economic growth patterns in China thus deepening the already existing economic gaps between different regions. The per capita income, consumer spending patterns, education patterns, literacy quotient, and more, differ hugely from area to area; state to state.  Thus Real Play will have to treat China as a collection of many sub-markets and will have to conduct vast research with different demographic, social, economic, and cultural factors. Then only, it would be able to assess the probable demand and the use of its sportswear, corporate wear, and other products. Past business records show that many businesses from foreign lands have chosen the coastal provinces like Zhejiang and Shanghai, as there are higher populations and higher incomes in these areas. They carry good consumer markets and could be lucrative focus targets for the company to expand overseas. Economic factors represent the wider economy. They include levels of employment and unemployment, incomes, and costs of raw materials such as energy, petrol and steel, fabrics, etc for the foreign manufacturing units. Thus it is a crucial aspect to be analyzed before overseas expansion. Interest rate and monetary policy, exchange rate, and inflation rate vary from one country to another (Pasco and Le Ster-Beaumevieille, 2007).

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Socio-cultural factors: This is naturally important to be researched by Real Play as the products are corporate and Sports related, and it shall be decided by these factors as to how many people are involved in sports, how the working population dresses for work, etc. It is a positive aspect that English-language is commonly used in China. This will help Australia to interact better with the Chinese community, at least initially (Paliwoda, 1993).  This way China shall prove to be a good market for the company as, the people like Sports, dress up in sportswear, and go to the office formally dressed. The young population too, dresses well. This is the primary research on the Chinese market which helps foreign firms to decide whether further and detailed research would be needed.  If there is any scope for the company’s goods, then only other factors come into play. This shall let Real Play set its goals.

Technological factors: These include the rate of new invention and development, change in information and mobile technology, change in internet or e-commerce or mobile commerce, and government spending research. An infrastructure check is necessary for any foreign company to spread its roots in the Chinese Market (Jull Sorensen and Arnould, 2000).

Legal factors: These also determine how favorable Real Play’s overseas expansion will be. The laws of registration are strict and are to be followed properly. The copyrights are taken very seriously and the company entering the market has to change its logo, etc if it is already being used in the country by some organization. However, these laws are for the good of the companies and shall be a favorable aspect while undertaking expansion.  National employment laws, international trade regulations, restrictions’ monopolies, and mergers, rule consumer protection in the Chinese Markets.

Environmental impact: This factor shall study the impact Real Play shall have on the Environment of China, and vice versa. This correlation is related to issues such as limited natural resources, waste disposal, and recycling procedures (Paliwoda, 1993). Chinese procedures are very organized and the foreign company shall find it a pleasure to work in unison if it works in cooperation with the country’s resources and be careful to not exploit them.

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Porter’s Diamond Model

The second model that helps Real Play to analyze the target market of expansion is Porter’s diamond model. The diamond model of Michael Porter for the competitive advantage of nations offers a model that is helpful in the understanding of the competitive position of a nation in global competition. Determining the competitive position of China’s market is imperative to conduct successful business. Thus, Real Play must be analyzed according to the Porter analysis. It is made of two steps. First, clusters of successful industries have been mapped in 10 important trading nations (Jean, Chiou, and Zou, n.d.).

Real Play points on the diamond as a whole affect four ingredients that lead to national comparative advantage. These ingredients are:

• The availability of resources and skills (Yao and Li, 2015)
• The goal of individuals in companies

The points of the diamond are described as follows:

• Factor conditions:
• Important factors such as skilled resources and technological base in China.
• The stock of a factor at a given time is less important than the extent that they are upgraded and deployed (Yao and Li, 2015).
• Local disadvantages in factors of production force innovation adverse conditions such as labor shortages or scarce raw materials may force Real Play to develop new methods and this innovation always leads to a national competitive advantage.

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2)

• China is a demanding local market and well known for shopping. Thus it poses a good scope for Real Play Clothing Retailers.
• A strong trend-setting local market as China helps other local firms anticipate global trends.

3) Related and Supporting Industries:

• When local supporting industries are competitive like in China, foreign expanding firms enjoy cost-effective and innovative inputs.
• This effect is strengthened when the suppliers themselves are strong global competitors. They will help Real Play to get stronger and stronger.

4) Firm Strategy Structure and Rivalry:

• Local conditions affect firm strategy. For example, Australian company tends to be hierarchical, and Italian company tends to be smaller and run more like extended families. Thus, Real Play shall have to carefully adjust its strategy according to Global Markets and the Chinese market (CHINA MARKET ENTRY HANDBOOK 2015 Edition, 2016).
• When one analyses the overseas expansion prospect of Real Play in China, according to the Porter Five Forces model, it is seen that low rivalry makes an industry attractive. This will be a disadvantage for Real Play as it will have to outshine a tough competitive market.
• It is seen that Local rivalry forces firms to move beyond the basic advantage that the home country enjoys such, as low factor cost. This shall intensify product standards in comparison to price and will have to be handled smartly by this foreign country if it does not want to bring its prices very low.

China as a country constantly transforming in terms of its market, is seeing very rapid evolution.  Although there is no one theory and approach recommended for Real Play the strategy is personally applicable to different firms (Smit, 2016). Though Porter’s Diamond Model provides a criterion against which the discussed foreign company can frame its strategy, this company’s strategy for expansion should be informed about the influence of different factors – like industry attributes, product type, company’s economic condition, and culture (Smit, 2016).

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Conclusion

Pursuing the analysis of China’s consumer market in the light of Macro and microeconomics as well as other factors, it is seen that the Chinese market could be a lucrative market for the consumer products of Real Play Clothing Retailers. Moving that first step to capture the China market is a crucial step and would need Ingenuity, smartness, and intelligent planning. If this is accomplished, there is enough scope, in a market that is dynamic and its population huge, especially for something like clothes (pondiuni.edu.in, 2016). As a country, China continues to grow and its economy tends to become lucrative for foreign companies. Many foreign companies are conducting their ventures successfully in this country, thus the difficulty and obstacles seem to be manageable for Real Play too.

Real Play must take time, in planning its approach to the Chinese market through careful perceptual mapping and planning techniques. Real Play must adopt an appropriate business strategy for China.  There are particular ‘Dos and Don’ts’ brought forward by the PESTLE and Diamond Porter’s diamond model Analysis which need to be adhered to carefully by this foreign company to establish its roots successfully in the dynamic market of China (pondiuni.edu.in, 2016).

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References:

B2B International, (2016). Chinese Market Entry | B2B International. [Online] B2B International. Available at: https://www.b2binternational.com/publications/china-market-entry/ [Accessed 4 Apr. 2016].

CHINA MARKET ENTRY HANDBOOK 2015 Edition, (2016). CHINA MARKET ENTRY HANDBOOK 2015 Edition. Pp.2-48.

Jull Sorensen, O. and Arnould, E. (2000). Marketing and development challenges in the 21st century. [S.l.]: International Society for Marketing and Development.

Jean, R., Chiou, J. and Zou, S. (n.d.). International marketing in rapidly changing environments.

Oxlearn.com, (2016). PESTLE – Macro Environmental Analysis. [Online] Available at: http://www.oxlearn.com/arg_Marketing-Resources-PESTLE—Macro-Environmental-Analysis_11_31 [Accessed 4 Apr. 2016].

Pasco, C. and Le Ster-Beaumevieille, H. (2007). Marketing international. Paris: Dunod.

Paliwoda, S. (1993). International marketing. Oxford: Butterworth Heinemann.

pondiuni.edu.in, (2016). Concept of Corporate Strategy. Pp.1-414.

RealPlay, (2012). Home. [Online] Available at: http://www.realplay.com.au/ [Accessed 4 Apr. 2016].

Smit, A. (2016). The competitive advantage of nations: is Porter’s Diamond Framework a new theory that explains the international competitiveness of countries? Pp.1-26.

Yao, F. and Li, J. (2015). Multi-market Contact and Foreign Entry Location Decisions in China. Management International Review, 56(1), pp.95-122.