Reasons for Doing Business Overseas, Essay Sample

Introduction

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Eve Fashion Group is a well-established fashion label. It has already established itself in the Chinese market and is now ready to enter the international markets. However, entry into the global markets is associated with risks that may lead to business failure if not well handled; it is therefore crucial for a business to understand the overseas market it aims to enter and establish appropriate strategies to ensure success. Several Chinese fashion labels have already entered the UK market. This report highlights the reasons for doing business overseas and analyses the UK market. It also recommends suitable marketing strategies that Eve Fashion Group can apply to succeed in the market, and covers the findings of the analysis of the UK fashion industry.

Reasons for Doing Business Overseas

Many established businesses, including fashion labels, have been expanding into international markets, either by increasing exports or opening stores in foreign markets. Several factors motivate firms to enter international markets.

Fashion brands do business overseas to increase sales and profits. International markets offer a business the chance to increase its revenue beyond its domestic revenues, thus improving its profitability (Paul, 2008). Doing business overseas provides an opportunity for growth, especially to companies operating in markets where sales are falling. Some markets are already saturated, with stiff competition limiting revenue growth. Most markets in developed countries are already at or nearing the maturity stage; hence, maintaining high revenue growth is a challenge.

Firms also do business overseas to diversify risks (Paul, 2008). This protects the firm from economic downturns in some countries. If there are economic challenges in one market, the profitability of the firm will not be significantly affected. For instance, the Chinese economy slowed down in 2015 and affected revenues of firms operating in China. For a multinational firm, a reduction in revenue from the Chinese market would be offset by better conditions in other markets. Risk diversification is essential for sustainability.

Companies also wish to do business overseas to gain a competitive advantage over their domestic rivals (Paliwoda, 2013). A multinational business can create synergies that increase its competitive advantage in the market. Overseas markets can help the business acquire new technology and exploit low production costs in other locations. The Chinese market has an advantage over European and US markets due to the low local cost of production. Some UK fashion brands are doing their production in China. Eve Fashion's entry into the UK and other foreign markets can help it gain a competitive advantage if it already does most of its production in China.

Key Issues Behind the Decision-Making Process

Key issues in the decision-making process include industry analysis, internal assessment of the company, determination of market entry and pricing strategies, among other issues.

3.1 UK Fashion Industry Analysis

Analysis of the industry is important, since it enhances understanding of the target market. The management of any business must have a comprehensive knowledge of the industry. This knowledge influences essential marketing and other strategic decisions such as the marketing mix, market entry and other marketing strategies.

3.1.1 Market Size

The UK fashion market is a large industry with favourable growth rates. The UK's large population provides a sizeable market for clothing and other fashion products (Ons.gov.uk, 2018). The market experienced positive growth between 2011 and 2016 (Keynote.co.uk, 2014). The growth of the industry slowed down in 2016 due to economic and political uncertainties following the Brexit vote. However, the industry returned to positive growth in 2017, and this is expected to continue for the next few years. The industry is worth billions of pounds overall (Strijbos, 2007) and is dominated by women's clothing, although men's clothing has also been growing over the last few years (IBISWorld, 2017).

3.1.2 Competitors

The UK fashion market has several competitors. Major fashion labels in the UK include Armani, Ralph Lauren, Debenhams, Burberry, Alexander McQueen, ASOS and Vivienne Westwood, among other labels (Mintel, 2011). According to Mintel (2015), 10% of customers surveyed voted Armani as the most desirable brand. This was followed by Ralph Lauren at 9%, Gucci at 8%, and Prada and Burberry with 6% each. However, 38% of the customers did not know which brand they would choose as most desirable.

Figure 1: Most desirable fashion brands (Mintel, 2015)Competition in the industry is mainly based on price and product quality. According to a Mintel survey in 2011, 62% of customers believe that the main attribute of a luxury fashion brand is the high quality of materials used. 41% indicated that they would not buy luxury fashion unless there was a price reduction or other favourable offer (Mintel, 2011). 2% of customers buy luxury fashion products and are not concerned about their prices. 15% occasionally buy high-end fashion products at full price and believe that they are worth the high prices. Consumers' attitude towards fashion pricing is an essential factor, since competition in the UK fashion market has increased in the last few years. Thus, pricing has become an issue to some consumers due to the increase in competitors.

Figure 2: What defines a luxury brand (Mintel, 2011)

Figure 3: Views on shopping for luxury brands, September 2011 (Mintel, 2011)

3.1.3 Industry Trends

Growth in online sales: Online fashion sales have increased rapidly over the last few years. According to Mintel Online Fashion UK Report (2017), online sales of clothing, footwear, and other fashion accessories in the UK were estimated at PS16.2 billion. This accounts for 24% of total fashion sales, an increase from 17% in 2013 (Mintel, 2017). Mintel analysts expected online fashion sales to increase by 17.2% while total fashion sales were anticipated to grow at only 1.3% in 2017 (Mintel, 2017). By 2020, online sales will contribute 79% of total fashion revenue (Mintel, 2017). Online-only fashion retailers such as ASOS have experienced strong revenue growth. This growth is attributed to the increase in internet coverage and access to smartphones.

Decline in specialist clothing: There has been a decline in the market share of specialist clothing retailers. This is shown by the collapse of Austin Reed and underperformance by Marks & Spencer as the market shares of departmental stores and grocery multiples increase (Mintel, 2017). The Mintel Designer Fashion Report (2015) indicates that 37% of customers made their purchases from departmental stores, while 34% bought online from a third-party website. 30% of customers surveyed purchased from multi-brand stores. Only 15% of customers purchased at stand-alone designer stores (Mintel, 2015).

Figure 4: Where designer fashion is purchased. (Mintel, 2011)

Growth in men's fashion: The UK industry has seen a slowdown in the growth of women's clothing and a rapid growth in men's clothing (Theodosi, 2017). Fashion labels that focus on women's clothing are struggling to maintain high revenue growth rates.

3.1.4 Opportunities

Increased internet access: Eve Fashion Group can take advantage of increased internet access and online sales in the fashion market to increase and diversify its revenues (Bradshaw, 2017).

Large market: The UK market has a large market with a population of more than 65 million, with a growth rate of 0.8% (Ons.gov.uk, 2018). A large and growing population is essential for business growth as it influences consumer demand.

Learning from other brands: The Group also has an opportunity to learn from other Chinese fashion brands that had entered the market. Bosideng entered the UK market in 2012 and exited in 2017. Eve Fashion can analyse the reasons for Bosideng's failure and take appropriate steps to mitigate these factors.

3.1.5 Risks of Expanding into the UK Market

Eve Fashion Group will face stiff competition from other fashion labels. In addition to the high number of firms in the market, luxury fashion brands are also facing competition from departmental stores and other online stores. Even in China, consumers prefer western fashion labels. The UK also faces economic and political uncertainties due to the 2016 Brexit vote (Bailey & Budd, 2017). It is not clear what the country's economic policies will be after the negotiations with the European Union. UK's trade agreements with China and other countries will affect the success of Eve Fashion. This uncertainty has affected the UK's economy. The UK's economic growth for the fourth quarter of 2017 was revised to 0.4% (Watts, 2018). This is below the growth rates of its G7 members.

3.2 Evaluation of Eve Fashion's Strengths and Weaknesses

Strengths

Eve Fashion's advantage is that it has a well-established market in China. It is among the most popular fashion labels in the Chinese market. A strong domestic market is important for successful business overseas. Marks & Spencer also has a strong and well-established market in both the UK and foreign markets.

Eve also has the advantage of its location in China. It enjoys lower pro...