Market In China Diesel example essay topic

The brand Diesel Jeans was born more than 20 years ago thanks to Renzo Rosso who founded the company in 1978. He wanted the brand to be a leader, a company which took chances and carved out a niche for itself in its field. and is today an innovative international design company, manufacturing jeans and casual clothing as well as accessories. It is present in many countries world wide. The company views the world as a single, border-less macro-culture. Ever since the beginning, Renzo Rosso believed in addressing the world with one product and one language, and one of his first steps was building a solid and vast distribution platform stretching across all 5 continents.

The Diesel brand is however, not yet available in China. Given the success that the company has achieved from distributing it products to over eighty countries worldwide it is very likely that this new market will offer the company the same profitability. (web) When assessing the new market it is important for diesel to look at the suitability of the chosen country and the degree of competition that exists in the country. Porter's five forces model is significant in the sense that we use it to examine the competitive environment. Industry Competitors During its 150 years history, Jeans have won a great popularity among men and women at all ages, and it is certainly expected that the popularity will continue in the new century. However, from a business point of view, the industry now comes to a highly competition and challenge time.

According the investigation of Professor Gu from Dong hua University in China, after the expansion of the jeans market in the early 1990's, the China market decreased at the end of 1990's with the impact of the international financial crisis. Although a recover took place in 1999, the market fluctuated again in 2000, by as much as 15.3%. Today, competition in China for the jeans market is very high. (web (main). htm) Power of Buyers and Suppliers The power of buyers and suppliers in the marketplace which affect the business is looked at next, this is important as buyer / supplier arrangements can mean hindrances for certain markets, for example the distribution system for coca-cola / pepsi in pubs and bars where you will only see one brand being sold not both. In other markets buyers / suppliers may be offered exclusive deals in return of buying / supplying only one brand. (web) This could also be the case when Diesel attempts to sell its products in department stores in China. Threat of Substitute The next step of the analysis is to look at the threat of substitute products in the market place, what products are in the marketplace which do the same thing as your products but are not quite the same? For example in China there are many other producers of jeans selling their products.

Examples include foreign producers such as Levis and Da Au jeans which originate from China. Threat of New Entrants The next step is to look at the state of the marketplace and see what the potential new entrants may be, where are the new products coming from? By entering the market in China it is possible that Diesel could be leading the way for other producers of jeans who have also not yet entered the market such as Miss Sixty Jeans. The next step, away from the five forces, which are all internal market factors, is to examine external factors which influence the business. A way of doing this is to use PEST analysis.

Political The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. Influences such as the stability of the political environment, government policy which influence laws that regulate or tax businesses, the government's policy on the economy, and whether the government is involved in trading agreements such as EU, NAFTA, ASEAN. In order to create a congenial investment environment and to encourage overseas firms to invest in China, China has gradually set up a relatively complete legal system. In 1979 the National People's Congress issued The Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures.

In the following 20-odd years, the Chinese government has promulgated and issued a series of laws and statutes concerning the establishment, operation, termination and liquidation of foreign-invested enterprises. After joining the WTO, China will adapt its laws and regulations to conform to the WTO's fundamental rules, improve and develop China's socialist market economy, and create suitable conditions for fair competition between domestic and foreign enterprises. (web) Economic Factors Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. This includes interest rates, the level of inflation, long-term prospects for the economy Gross Domestic Product (GDP) per capita. Chinese consumers are optimistic about the country's economic development in the coming 12 months, the National Bureau of Statistics said Monday. Encouraged by the strong economic performance recorded in 2002, the confidence index reflecting consumers' evaluation of the current economy and expectations for future economic development reached 97.7 points in January, the bureau said in a statement.

A series of figures including an 8-percent growth in its gross domestic product and a 16-percent growth in foreign trade last year indicates that the Chinese economy has entered a stable development period. (web) Sociocultural Factors The social and cultural influences on business vary from country to country. It is very important that such factors are considered. Factors include; attitudes to foreign products, and demographics. The changes in Chinese people's way of thinking have been both extensive and profound.

This becomes apparent when a comparison is made between the conditions in society before and after the opening-up policy. The most obvious general trend has been a drift from traditional to modern values. This is consistent with the direction of China's social development and will further accelerate modernization in China. To move completely from traditional to modern values will not happen all at once.

It takes time for new economic systems, social structures and cultures to mature. For now the values of society draw on a mix of both the traditional and the modern. Over time these will compete for position and eventually merge together into a new composite whole. As this blending process is working through, values may seem less clear-cut while the underlying influences are still neither quite one thing nor the other.

Moreover, there are imbalances in economic, social and cultural development and a more traditional way of thinking still holds sway in the less well developed regions. China officially recognizes 57 distinct ethnic groups and there are seven major Chinese dialects. Religion plays a significant part in the life of many Chinese. Buddhism is most widely practiced with 1 million out of the 1.261 billion people practising it.

Technological Factors Technology is vital for competitive advantage, and is a major driver of globalisation. There are now 46 million Internet surfers in China, compared with 8.9 million two years ago, according to the China Internet Network Information Centre. "The Internet has totally changed the Chinese people's way of life", said Xu Xiao lan, of the Beijing Broad Band Net Company. "Without leaving your room, you can do so many things online ranging from learning, meeting people, playing video games to shopping". (web) Strengths Diesel has a strong brand name. It has grown from a simple jeans and clothing company to a major fashion brand, offering the maximum of creativity and innovation. Licenses are a natural way to expand the offering to the final customer.

Diesel's licensed products are 100% Diesel: they represent accurately the ethos, design and spirit of the company. The Diesel Brand has the advantage in that it is experienced in stationary trade, mail ordering and electronic business. It is globally recognized in communication circles for its progressive interactive media activities. Diesel was one of the first companies to have a major presence on the Internet (web) - opening its site in 1995. Today the site contains information about all Diesel clothing collections, as well as its licensed products, plus a complete archive of all Diesel advertising. Members of the Diesel Club receive new information, exclusive previews and regular updates via email.

Diesel design does not follow established trends. It is largely unaffected by fads occurring within the fashion circles. Collections effectively precede trends and do not respond to them, while at the same time the emphasis on quality is never compromised. This focus on independent working methods and strong quality almost seems to translate within the company into an attitude towards living - the Diesel way. (web) Weaknesses Diesel's main weakness is their lack or market presence or reputation in China. As the brand is not very well known there it will take more advertising to introduce brand awareness. Diesels policy on preceding trends and not responding to them could also be considered a weakness.

This means that the company may not always be producing what consumers demand. Most of Diesel's current production is outsourced, to small and medium-sized companies. Production of denim jeans is based exclusively in Italy. This can prove to be very costly making Diesel's jeans more expensive than many of their competitors Opportunities Parallel to its wholesale distribution through multi-brand stores and corners (in chain and department stores), Diesel embarked on a new adventure: retail.

Flagship stores and single-brand are the ideal vehicle to bring the Diesel concept to life in its entirety, providing enough space to showcase all Diesel collections. While each individual store is unique, they all share a similar atmosphere. The stores help Diesel's retail and wholesale divisions to grow simultaneously because they strengthen the company's image and increase customer product awareness: they guide the market and help immeasurably in communicating the true vibe of the company to the public. Recent openings included Tokyo and Copenhagen but new plans are underway for many new cities including china. The now famous Diesel advertising campaigns started in 1991 and ever since have been characterized by a single creative execution run in every market of the world, helping the company become truly global.

As it was in the beginning, all of this is developed by bringing together the work of Diesel's internal Creative Team and external advertising agencies. The Creative Team is a small group of people with creative and marketing functions within the company: it is their creativity and knowledge of the brand values, together with the execution al skills of advertising agencies, that guarantee that all Diesel communications stay true to the company's particular identity. So far Diesel advertising has been awarded by the Cannes Film Festival in 1995, '96 and '97, by Euro best and by Epica. (web) Threats A major threat to Diesel in China is the huge amount of competition which is present. There are many established producers in China as well as already present foreign producers. The jeans venture is only one of the many in a big group and could easily be abandoned if it seems not to be feasible after a while. The jeans market has a very unsteady component which are the designer jeans.

With the customer's change in taste new competitors enter and leave the market. At the moment all the important designers are coming back into the market. The situation is very much alike the one in the late 70's and early 80's. In the mid 80's the market for designer jeans collapsed and many players had to leave the market.

When entering the market in China Diesel will have to consider the different methods of market entry and consider which is the most appropriate to use. The decision of how to enter a foreign market can have a significant impact on the results. Expansion into foreign markets can be achieved via the following four mechanisms: . Exporting. Licensing. Joint Venture.

Direct Investment (web) Exporting Exporting is the marketing and direct sale of domestically-produced goods in another country. Exporting is a traditional and well-established method of reaching foreign markets. Since exporting does not require that the goods be produced in the target country, no investment in foreign production facilities is required. Most of the costs associated with exporting take the form of marketing expenses. (web) Licensing Licensing essentially permits a company in the target country to use the property of the licensor. Such property usually is intangible, such as trademarks, patents, and production techniques. The licensee pays a fee in exchange for the rights to use the intangible property and possibly for technical assistance.

Because little investment on the part of the licensor is required, licensing has the potential to provide a very large ROI. However, because the licensee produces and markets the product, potential returns from manufacturing and marketing activities may be lost. (web) Joint Venture There are five common objectives in a joint venture: market entry, risk / reward sharing, technology sharing and joint product development, and conforming to government regulations. Other benefits include political connections and distribution channel access that may depend on relationships. Such alliances often are favourable when: . the partners's trategic goals converge while their competitive goals diverge; . the partners's ize, market power, and resources are small compared to the industry leaders... partners' are able to learn from one another while limiting access to their own proprietary skills. (web) The key issues to consider in a joint venture are ownership, control, length of agreement, pricing, technology transfer, local firm capabilities and resources, and government intentions. Potential problems include: . conflict over asymmetric new investments. mistrust over proprietary knowledge. performance ambiguity - how to split the pie. lack of parent firm support. cultural clashes. if, how, and when to terminate the relationship (web) Foreign Direct Investment Foreign direct investment (FDI) is the direct ownership of facilities in the target country. It involves the transfer of resources including capital, technology, and personnel.

Direct foreign investment may be made through the acquisition of an existing entity or the establishment of a new enterprise. Direct ownership provides a high degree of control in the operations and the ability to better know the consumers and competitive environment. However, it requires a high level of resources and a high degree of commitment. (web) In the case of Diesel, the method entry which will be used at first will be exporting. As Diesel designs and produces all its jeans in Italy this is unlikely to change in the near future. This can be advantageous in that it minimises risk and investment. It also allows the speed of entry to be faster than company who may be thinking about foreign direct investment which requires more resources and commitment as carries a higher risk.

It is however possible that in the future diesel may wish to open one of flagship stores which will give diesel a greater knowledge of the market in China. It will also allow Diesel to be viewed as more of an insider. Diesel also have several licenses from other countries and it is possible that in the future this may happen with China. Present license agreements include: Eyewear (an extensive collection of glasses by Sa filo, Italy), Footwear (by Global Brand Marketing, U.S.A. ), Fragrances and Cosmetics (featuring two different scents, "Diesel Plus Plus" and "Zero Plus" by Mar bert, Germany), Luggage and Small Leather Goods (by Principe, Italy) and Watches (produced and distributed by Fossil, U.S.A. ). Conclusion Today Diesel is a global concern with a consolidated annual turnover of 575 billion Lire (US$330 millions), 85% of which is generated outside Italy. With figures like these it is clear that Diesel has achieved world wide success and there is no reason why this shouldn't be the case in China.

Bibliography

Books Frank McDonald and Fred Burton, International Business Websites web web web web web web.