Since 2006, Burberry has become the top luxury brands as the internationally recognized, and the networks of products selling are around the world. Recently, because of the high cost of producing in Welsh factory, Burberry decided to close it and move to China. In UK it almost takes 12 Pounds to make one of the polo shirts while 4 Pounds in the Far East. It is an issue of costing. Burberry attempts to reduce the cost and makes more margin profits. However, the closure results in the loss of three hundred jobs, which means that three hundred workers will be laid off. The workers campaign to try to keep their jobs. It is difficult for Burberry to make a decision whether they move or not.
In this report, I will analyze the environment of China by using the tools of PESTLE and SWOT analysis. As for moving to China, there are advantages and disadvantages. I will compare the opportunities and threats to help the company make a wise decision. Finally, according to the determination, I will give some recommendations. And an action plan will be put forward as well.
PESTEL in China
Nowadays, more and more luxury brands have entered or intended to enter the Chinese market. PESTEL is a tool to analyze the external environment in the market, which comprises of political, economic, social, technological, environmental and legal factors. (Leslie W. and Philip W, 2009)
← Political: The government in China has provided a board policy for the luxury goods industry. Foreign-funded enterprises will enjoy the same tax policy as the Chinese domestic enterprises. The Chinese government pursues a strategy of opening up in foreign investment, and treats foreign-funded enterprises and domestic enterprises equally without discrimination. Also the luxury goods industry has made a contribution for the promotion of economic development. In China, in order to attract foreign investment and promote economic development, the taxation legal system provides various forms of tax incentives. Therefore, this is a good opportunities for the companies to set up plants in China.
← Economical: With reforming and opening up, China is a broad and stable, and the most potential development big market. It also has great appeal for foreign business. In the early 21st century, China continues to maintain high economic growth rate, and is still one of the countries with faster economic growth in the world. Chinese luxury goods market develops at an alarming pace. In 2008, China’s luxury goods market got over the U.S. and became as the world’s second largest luxury market only after Japan. By 2014, China is expected to become the world’s largest luxury goods consumer market.
← Social: With the improvement of living standards and the higher pursuit of material, more and more people in China began to buy luxury for self-satisfaction. Luxury is seen as a symbol of social status, and people prefer to purchase them for satisfying their own vanity. This is a utilitarian age.
← Technological: Advanced communication technology makes communication more convenient and lower cost of communication between the companies. Nowadays, China has built up a modern communication network in order that parent companies can share the information quickly with the branches in China.
← Environmental: Compared to the miserable foreign luxury goods market, the Chinese luxury goods market has not been greatly affected. And the government provides a fair competitive environment for the foreign companies.
← Legal: The new tariff which fights against overseas purchasing agents aims to lead the luxury goods consuming moves inside. The price of luxury goods in purchasing agents is much cheaper than that in the official stores because of free tax. Chinese government has introduced some new regulations and rules to restrict the purchasing from foreign countries. (http://www.oppapers.com/essays/Pestel-Analysis-For-Luxury-Exchanging-Store/405964, 2010)
According to the above analysis of PESTEL, the opportunities and threats can be identified, which is combined with the strengths and weaknesses of Burberry to produce a SWOT analysis. The key issues and strategic capabilities of the company can be summarized as well.
As we can see from the case, Burberry is an international luxury brand. The company’s strengths are the brand, trademarks and other intellectual property. Brand image is the most important factor for the luxury goods to develop the competitive advantages. The most famous products in Burberry are coats, handbags, perfumes and wraps, and they are also the most popular and favourite products among the customers. With the rapid change of the modern fashion trend, Burberry is successful to keep pace with and design the unique and novel products to satisfy customers’ needs. As to the employees, Burberry encourages and motives them through providing a good work environment. The rewards are related to the contributions made to the company.
Every worker in Burberry tries his/her best to work for the company, so the productivity is high. But there are also some weaknesses in Burberry. They have the manufacturing problems in the supply chain. The suppliers are always changed to support and enhance product quality, which leads to a bad effect on the relationship establishment between the suppliers and the company. (Kelly P, 2009) And the high cost of producing shirts is also a weakness in manufacturing. This is why Burberry moves the factory to China to reduce the cost. However, its brand recognition is less popular than LV, Gucci and Chanel in China.
There are opportunities and threats of moving the factory to China. In recent years, with the pace of opening up and China’s rapid economic development, the purchasing power of Chinese consumers gradually increased and the share of luxury goods consumption is also increasing every year. China not only continues to adhere to the policy of opening up, but also in the future there will be new policies introduced to encourage more foreign investment into China in various forms. So this is a good time for Burberry to move the factory from Wales to China in order to reduce the cost. But there also exist some threats. Although the cost of production has decreased, the difficulty and cost of transport channel has increased. Due to the low cost in China, many other brands will move their factory to China as well. The rivalry is intensive. (Janet M, 2002)
Advantages and Disadvantages of the Factory Move
← Advantages: The cost of one polo shirt in UK is twice as much to make it in China. Burberry can save the cost in many aspects, such as raw materials, labour, equipments and so on, especially in labour. Wages of workers are much higher in UK than those in China. And the employees in China are more efficient. This means that the company can not only save time but money as well. The purpose of manufacturing is to use less time and money to make products as much as possible. And if the factory moves to China, the pollution during the process of producing in UK will reduce.
← Disadvantages: In Wales, employees work in a good environment, health and safe, fair pay, but if the factory moves to China, the environment may be worse and the welfare for employees is less than that in UK. And because of the closure, three hundred workers will lose their jobs. It has a bad effect on brand image. People demonstrate and campaign for against the decision of Burberry, which leads to a bad imagination among the customers. Britain is a country that is focused on the human rights for its citizens.
There are four approaches in International Human Resource Management, which are ethnocentric, polycentric, geocentric and regiocentric. (Dowling, Welch and Schuler, 1999)
← Ethnocentric is the approach that home country is superior to others and only sees similarities in other countries. They assume that products and practices at home will be successful everywhere. It leads to a standardization strategy. Burberry uses it at the home country. ← Polycentric approach is that each country is unique, so each subsidiary develops its own unique business and marketing strategies. It leads to an adaptation strategy which used by Burberry in China. ← Geocentric orientation is that entire world is a potential market, and the company strives for integrated global strategies. It is also known as a global or transnational company. ← Regiocentric is that a region is the relevant geographic unit. Some countries serve the global markets on a region basis. (Samar Baddar, 2010)
Standardization is the opposite of adaptation. International product standardization strategy refers to offer the same products to all markets of the countries or regions around the world. The precondition of product standardization strategy implementation is market globalization. Adaptation refers to the strategy adopted that enterprise tries to integrate into the target market, strive to become a member of the target market. It requires companies not to consider themselves as foreign invaders, but as inherent member of the target market with integration into a local culture, which emphasizes the enterprises to adapt to the environment in order to gain more space for development.
Burberry decided to move the factory in Wales to China, so they should take some measures to adapt to the environment in China. In my opinion, adaptation is the better way to be adopted. The demand of consumer has put a big pressure. Many business areas have a strong characteristic of the country or region, so they must meet a variety of consumer demands. Burberry implements adaptation to take advantage of the cost of production, human resource costs and low manufacturing costs in China so as to reduce overall costs and improve overall efficiency, therefore they have always taken up an important market share in the increasingly fierce market competition. Obviously there are many differences in the human environment and consumption concept of consumers, the Government’s legal system geographical natural conditions, the supply of raw materials, and the substitutes of markets. Burberry has to adapt to these different environments to survive better profits.
In this report, the main issue is that Burberry intended to close the factory in Wales and move it to China. As the international famous luxury brand, Burberry should make a cautious decision. Therefore, As the HR director in the company, I have analyzed the situation in Modern China and the benefits and drawbacks of moving. Brand image is the most important thing for Burberry, so when taking any steps, they must consider the factor.
From the above analyzing, an understanding of the environment in China is clear through PESTEL and SWOT analysis. Advantages and disadvantages of the factory move are also given to help to decide whether move or not. After comparing the standardization and adaptation strategies, I recommend the adaptation strategy to be used in Burberry Chinese Branches. In the end, I give some recommendations for moving the factory to China, and an action plan as well.
First one is the choice of geographic position. It is better to find a place which has the ready-made raw materials and low-cost labour. Meanwhile, the traffic there should be convenient so that the products can be easily transported to other areas and the channel also can save the cost.
Second one is the environmental protection. In order to gain the support of the government and society, environmental problems need to be paid more attention. In China, the green production lines and green products are promoted. People focus more on the environmental and ecological protection.
Third one is the choice of the designers. They should be possessed by expertise knowledge and skills. It is much better to have several years working experience. If the designers are recruited from China, they must keep a frequent touch with the parent company to make sure that the products made are consistent with the original edition. Burberry has a good brand image among the customers. It is very vital to maintain the awareness.
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Janet, M. (2002), PESTEL analysis The International Business Environment,
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