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Mode of entry of
Transcript of Mode of entry of
into Chinese market
1. External Environment
2. Internal Environment
3. Mode of entry of Zara into Chinese market
1. The external factors
Communist State provides a stable environment for not only citizens but also for business.
“One country, two systems” offers two independent markets in China: Hong Kong and Macaw.
Recent transfer of sovereignty advocate rectification which affects not only corruptions but also economy and purchase
Open policy since 1970s, till 2013, GDP ($13.73 trillion) ranked 3rd worldwide
Government Trade Agreement between Finland and China - Exports > Imports
A member of WTO (143rd one since 2001)
High import duty and luxury tax (60% - 120%)
Moderate corporate tax rate & high income tax rate
Low labour cost
Around 0.91 billion population is 15-60 years old
The gap between the poor and the rich is deep
“Face” has significant meaning in Chinese culture (indicating appearance)
Traditional thoughts are still influencing in Chinese culture
Emerging social phenomenon leads the social values
Over 500 million internet users
Rapid development in science and technology
Technology is becoming cheaper
Hundreds of airports and train stations supply sufficient transport
Environment got influenced by the rapid growth of economy in China
Recently the quality of air is an emerging issue
Legislations and laws in preventing and controlling pollution are trying to release the damage
Clean energy and low carbon technology are highly demanded
Civil law is required to obey
Opening time is 09:00---18:00 every day in urban areas (public holidays are considered to be peak trading times)
Labor regulations effects on employment
fashion trend in China.
China has been regarded as a global leader in luxury clothing sales
-> the casual yet widely applicable,
-> comfortable yet confident and
-> low-key, simple yet elegantly noble outlook
the vital importance in representing the power of women -> equality in Asian nations.
Effective information technology investments
Fast and responsive communication within the entire supply chain
Minimal inventory, which creates a sense of exclusivity
Inspired, fast, and responsive design team
Up-to-date designs at attractive prices
Resist outsourcing, which creates high labour costs
Among several Asian markets, China is the most important for Zara, as this is the second biggest market, after Spain.
The main arguments Zara considered prior to internationalization in China are: labor and distribution cost, and productivity.
Zara's stores in China are 100% owned by Inditex Group
The pace of expansion on Chinese market was rapid, Zara has multiplies the number of open stores in the period 2006-2013.
The company opened 179 new stores in Asia in 2011, 156 of which were in China. By the end of 2012, Inditex had increased the number of Chinese stores to 400.
Overview of Zara’s stores in China
(Source: authors’ creation based on ARs)
Keeping a China-focus has given significant rewards.
The domestic apparel market has some of the healthiest projections of any sector in China, with a market worth ¥854 billion ($140.4 billion) in 2012, according to market research firm Marketline.
Good China performance also means good global performance -> Inditex Group’s profit rose by 22 percent between 2011 and 2012
Zara’s franchises follow the same business model as their own subsidiaries regarding
the product, store location, interior design, logistic and human resources.
However, they are responsible for investing in
recruiting the staff
Zara gives franchisees the chance of
returning merchandise and exclusivity in their geographic area
, although Zara has the right to open its own stores in the same location
A luxury boom followed in the 2000s, rapidly introducing new brands.
China’s luxury consumption skyrocketed from less than US$800 million in 1998 to an estimated US$12 billion in 2010.
Nearly every major luxury clothing brand can now be found in first-tier cities like Shanghai and Beijing.
Zara are just beginning to expand to lower-tier Chinese cities, a task not without pitfalls.
The gap is not always easily bridged between them and second-tier cities, where consumers typically earn less and have less exposure to foreign brands.
But these secondary markets can definitely support stores, albeit on a smaller scale.
Their strong presence in first-tier cities means many shoppers in second-tier city already know the brand.
International strategy at Zara is defined by the combination generic strategy of cost leadership and differentiation strategy.
There are considerations, however, such as when selecting the Chinese market, labor cost and productivity, distribution cost and shipment cost of raw materials were considered other considerations are characters or behaviors of consumer and income per capita.
Regulation from government and local producers' protection issues are other considerations.
Possible imitations of goods
Lawsuit related to Sweatshops
Dilution of Brand Equity
Increasing Asian market, especially in China
Opportunity to build distribution center in developing countries to lower costs
Cooperation with new designers
Rising environmental issues
By penetrating on Chinese market, Zara faced with large number of customers and possibility for additional exploiting the economies of scale.
ZARA also faces cost disadvantage in China since rivals such H&M & Mango already source a greater proportion of their merchandise from the region