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Factors influencing international fashion retailers entry mode choice.Click to edit Master subtitle style5/4/12 11
Presented by:
v GOWRY Oushita v BANARSEE Purvashee v FAZALKHAN Ibtihaaj
0912806 0917435 0914485
v JOYEKURRUN Hemnish 0913463 v MOOSUN Amir-Shad5/4/12
091099522
INTRODUCTION
Aim of the study: To provide a theory-based
framework that informs a fashion retailers entry mode choice into a foreign market.
An increasing frequency of international activity. This increase has triggered an exponential
growth of fashion retailers in foreign markets in the past two decades.
Critical decision faced by fashion retailers: WHAT33
MODE OF ENTRY TO CHOOSE? 5/4/12
What is mode of entry? Mode of entry is defined its as a the firm arrangements transferring that
institutional develops for
products,
technology, staff and other resources to a foreign country. (Hill et al, 1990) Mode of entry: a pivotal aspect of fashion5/4/12 44
retailers internalisation process.
MODE OF ENTRY
MECHANISM S
Enter
Develo p
Distrib ute
BRANDS IN A FOREIGN MARKET5/4/12 55
Several entry mode theories have been developed. Nevertheless, the application of most of these theories Why?
are disregarded in the fashion retailing sector.
Absence of a unified theoretical framework. Fill in the literature gap &
Therefore, this study has as purpose to:
Identify factors that influence mode of entry of fashion retailers.5/4/12 66
How?Various existing theories of entry mode choice were applied. These theories were integrated.
A series of propositions were generated.
A conceptual framework was developed.
5/4/12
A case study is presented to demonstrate the application of the developed propositions.
77
LITERATURE REVIEWFeatures of international retailing and entry mode choice
What is international fashion retailing?
Fashion retailers operations in which they sell fashion brands and/or operate stores in more than one country (Dawson, 1994).
A variety of entry modes can be selected.
For example: export of products, franchising, involvement in joint-ventures (JV) &88 establishment of wholly owned subsidiaries
5/4/12
More than one entry modes can be selected. For example, Marks and Spencer uses:
Franchising in Portugal, Greece and Hungary and WOS in France and The Netherlands.
These various entry modes: continuum (Sternquist, Continuum
1998) Low Control (e.g. export) WOS)
High Control (e.g.
How do they vary?5/4/12 By
degree of investment risks
99
Control Level
Figure 1. Entry modes characteristic sSource: Adapted from Sternquist, 2007 Resource commitment/ risk/return
HIGH CONTROL ENTRY-
LOW CONTROL ENTRY-
MODE Greater resource
MODE More limited resource
commitment. - Foreign operation5/4/12
commitment which reduces investment risks.1010
Several factors affect fashion retailers mode of entry. For example, by international cultural and fashion in retailing terms is of differences
influenced consumers,
employees
business
practices
(Dawson, 1994).
A fashion retailer should choose an entry mode that
matches its international experiences and cultural disparity of a foreign market (Alexander & Doherty (2004) and Doherty (2000)).
Gripsrud & Benito (2005):
Attractiveness of foreign market, Ease of conducting business in a market,1111
5/4/12
Moore & Burt identified two factors that are crucial for
successful foreign market expansion.
SPECIFIC ASSETS
BRAND EQUITY
Skills and managerial
Value that a brand
know-how that are unique to a fashion retailer.
adds to the firm in terms of product differentiation and consumer recognition.
Used to establish a E.g. Retail
competitive brand.
5/4/12
Has an impact on
1212
Four main theories were analysed and incorporated
in this study to introduce a holistic and theory-based framework so as to better explain fashion retailers mode of entry. These are:1)
Transaction cost theory Bargaining power theory Internationalisation theory Resource based theory.
2)
3)
4)
5/4/12
1313
Transaction cost theory
Focuses
on
the
relative
efficiency
of
different
organisational structures so as to diminish transaction costs while doing business across borders. E.g. Reducing information search costs. Bargaining power theory
Incorporates a political imperative into entry mode decision. Fosters the view that a firms entry mode choice depends on relative bargaining power of the entrant firm. An entry firm should choose the entry mode that either matches or enhances its bargaining power.1414
5/4/12
Internationalisation theory
Provides a dynamic view of entry mode choice. Views internationalisation as a process where firms increase their expansion capability in a foreign market Foreign market entry risky due to uncertainties (political instability/cultural differences).
Resource-based theory
Explains entry mode choice from the perspective of an entrant firms resource deployment (Brown 1515
5/4/12
Present Study:
METHODOLOGYconcerning the entry mode
9
factors
choice for fashion retailers were identified: Asset Specificity Brand Equity Financial Capability International Experience Country risk5/4/12 1616
By further analysis, these factors were grouped in 3
categories: Firm Specific Factors Country Specific Factors Market Specific Factors
Hunt(2002)5/4/12
Proposition were in form of bridge laws.1717
Firm Specific Factors Related to a firms capacities and
characteristics that influence its competitive position in a market. - Asset specificity - Brand equity - Financial capability - International experience
5/4/12
1818
1)
Asset Specificity
Use asset efficiently (Sharma and Erramilli 2004) Better Retail Concept Environmental Friendly Inventory Planning Product Innovation (Park 2008)
Used as a competitive weapon (Jin 2004; Park and
Sternquist 2008)5/4/12 1919
2)
Brand Equity
Most important factor for International Expansion
(Moore and Burt 2007)Lead to competitive advantage However, conflict may arise in international market Franchisees
not concerned with brand equity
(Doherty 2007)
5/4/12
2020
3) Financial CapabilityInternational
Expansion
(Moore
and
Burt
2007)Geographical
Spread
and
Computerised
Management Information SystemsOperating
under WOS Severe financial
constraintsFranchising (Doherty 2000)5/4/12 2121
4) International ExperienceCope with complexities (Doherty 2000) Intangible Resource (Luo 2001) Strategic alliance with local partners Franchising Matching local market knowledge Internationalization theory (Blomstermo 2006) Incremental learning (Brown et al 2003)5/4/12 2222
Country Specific FactorsInvest in an environment in a foreign country
in terms of the countrys economy, legislation, politics, institutions and culture.- Country risk - Government restrictions - Cultural distance
5/4/12
2323
5) Country RiskCountry Specific factors Economy, Legislation,
Politics, Institutions and Culture.Country Risk- Critical to survival and profitability Uncertainties (Sternquist 1998) Transaction
Cost
Theory
Limit
Resource
commitment; low flexibility (Hill et al 1990)
5/4/12
2424
6) Cultural DistanceStrong in retailing (Moore and Fernie 2004) Examples
:
Consumer
Product
Demand,
Key
Consumer Preference Groups, Religious BeliefsResource Based Theory (Sharma and Erramilli
2004)Internationalization Theory consider local norms
5/4/12
2525
7) Government RestrictionsAdopt to Local Laws and Restrictions Impact on Foreign Direct Investment and entry
mode choiceTypes of Government Restrictions Restrictive Media Policies (Huang Sternquist 2007) Bargaining Power Theory (Taylor et al 2000)5/4/12 2626
Market Specific Factors
Defines overall market environment in foreign country
Two critical factors for Entry Mode choice:
Market Potential Market Competition
5/4/12
2727
8) Market PotentialThe size and growth potential of a foreign market Transaction Cost Theory (Brouthers et al 2000) Favorable opportunity for growth Retailers select higher control entry modes
Consumer demand is stagnant Retailers select lower control entry modes5/4/12 2828
9) Market CompetitionBargaining Power Theory Weak Bargaining Power (Taylor et al 2000)
Level of Market Competition Need of substantial resource commitments due
to high level of competitionTransaction Cost Theory5/4/12
Explains fashion retailers preference
2929
Summary of the 9 Factors
By applying the entry mode theories, the 9 factors
were identified. These factors led to the 9 propositions. These propositions bridge the fundamental laws of
the 4 entry mode theories.
5/4/12
3030
A case study of an Italian fashion firms entry into Click to edit Master subtitle style the Chinese market
5/4/12
3131
INTRODUCTION Company X is a leading fashion Company Introducing a new brand (A Brand) in the Chinese
market A Brand- reasonable price & trendy design.
Great popularity in Italy and is well-received internationally Design and marketing are keys to its success5/4/12 3232
Determination of Company Xs entry mode in Asset the 9ps: line with Specificity - Specialised assets, uniquemanagerial capabilities which distinguish the company from local competitorsAsset Specificity, Control entry mode.
Brand Equity - Able to protect, and avoid damage
to5/4/12
brand
image,
from
local
opportunism3333
(counterfeiting and knockoff).
Financial capability Being one of the largest fashion
retailers in Italy, provision of financial support is available level of financial capability, mode control entry
International
Experience
Accumulation
of
considerable knowledge of the Chinese market and their way of doing business International experience,5/4/12
control entry mode3434
Cultural distance between China and the West
appear high but acquired experience (1st entry) reduces risk. Plus point benefits of WOS (as related to other factors)
Govt restrictions Prior to 2005, no independent
entry was allowed. Reforms and simplification of application procedures took place5/4/12
access to3535
Chinese market
Market Potential Due to the advantages of Brand A,
demand in the Chinese market is anticipated promising market. Exploitation of market both in long run & short run is perceived due to the appropriate selection of WOS Market Potential, Control entry mode
Market Competition Increasingly intense due to
growing presence of International fashion brand. However, competitive advantage5/4/12 financial
managerial3636
competence, marketing strength of Brand A, great resources Company X chose a
SUMMARYHigh control over foreign operation preferred by
Company X because: To protect its brand equity Beneficial to Company Gain high profitability in long term operation Sound financial resources & international experience in
Chinese market were available
The case demonstrates that5/4/12 A firm must consider trade offs among all the 9 factors
3737
The success of Company X depends on its
entry mode choiceBy the time the paper was written, 20
stores were already opened in ChinaThrough WOS, more are being
planned( stores)Growth of Brand attributed to Companys
strategy- same brand positioning that has5/4/12
been used in Italy
3838
CONCLUSION This study has important managerial implications for
industry practitioners. This study can help managers deciding on an entry
mode choice. The 9 factors must be considered collectively. The 9 factors may be perceived differently by different
companies. The entry mode choice depends on type of market
being 5/4/12
entered.
3939
THANK YOU!
5/4/12
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