With the rapid development of economy and society, Chinese market has attracted a great number of attentions from foreign companies. Therefore, how to enter into Chinese market and how to be a successful company in China has become a realistic issue faced by business managers, entrepreneurs and consultants. This essay will focus on introducing one Australian local brand “Kathmandu” which is an outdoor sport equipment company into Chinese market. Thus, a detailed analysis of the current situation of the Chinese market and this foreign company is indispensable.
Firstly, this paper will analyze the current situation of the Chinese outdoor sport market and the Chinese economy, and then identify the strengths and weakness of the Kathmandu Company when entering into Chinese market. Subsequently, selection of entry modes and partner and recommendations will be provided to deal with or to reduce the risks when enter into the Chinese outdoor sport market.
Kathmandu Holdings Limited was established by John Pawson and Jan Cameron in 1987.
The company started off as a small outdoor apparel shop in New Zealand and in 25 years has grown to a multi-national brand primarily producing outdoor sport clothing and equipment which combine with the advanced technology, high quality and high comfort level. Such as, tents and shelters, packs and luggage, sleeping gear, outdoor clothing, footwear and other accessories of outdoor. In 2006, one Australasian private equity company fully acquired Kathmandu for NZ$275 million.
Currently Kathmandu does the business in Australia, New Zealand and England. The company slogan aims to capture young and adventurous individuals and the marketing strategy has been built around this notion (Kathmandu, 2012).
Along with the development of economy and living stander, outdoor sport becomes increasingly popular in China. In China, outdoor sport was started at Beijing, Shenzhen and Shanghai in 1999(Chinese News, 2011).
Currently, combing with pressure reducing, such sport increase quite fast and become one kind of society fashion. There are four outdoor sport activities which include High Mountain, exploration, rock climbing and bicycling in China (Chinese outdoor Sport Association, 2012). The outdoor sport is an professional sport activity not only require a good physical quality but also good clothing and equipment to resist the bad environment. Therefore, fast increase of the outdoor sport contributes to sharp augment on demand of outdoor sport clothing and equipment.
As reporting by China Outdoor Sport Association, the number of annual sales from existing manufactories of outdoor equipment was 800 million RMB in 2010, while the number of that in 2000 was 60 million RMB, and the number of Chinese participation in the outdoor sport has reached one hundred million (China Outdoor Sport Association, 2012). Hence, along with the unbelievable development of the outdoor sport and the higher demand of outdoor products, obviously, the potential of the Chinese outdoor sport market is quite considerable.
Basic the market research, currently, there are approximately 200 Chinese local outdoor sport brands and around 1100 outdoor clothing and equipment stores. Although the outdoor industry of China is at beginning phases, every year increase 50%. The CEO of the GORE Company which is one of the beat 100 American outdoor equipment companies pointed out that such fast increase would maintain at the least 5 years in China (Simone, 2002). It can be calculated that the Chinese outdoor sport market should be worth around two billion.
However, even though the outdoor sport is obtaining swift development, the outdoor market is relatively backward. The local manufactures only produce or provide elementary products or services, lack of the leading company and well-known brand is a serious issue in the local market. Therefore, it is a favorable opportunity for Kathmandu to expend to the Chinese outdoor market, because of the sharp escalation of market demand and insufficient supply of the local outdoor market.
China already had around 200 local brands in outdoor sport market. However, in such new industry market foreign companies occupied the main position. According to the research, there are four main competitors for Kathmandu in the Chinese outdoor market, which include The North Face that is an American company, it has a long history and produce fine workmanship products, one company of France named ALGLE which entered into China in 1997, and its products are practical and noble.
OZARK which is a Switzerland Company and the design of their products is following the characteristic of the Chinese. The last one competitor is Salewa from German (Chinese News, 2011). Compare with these foreign companies, the technology and quality of the local brands are at lower level, particularly, at the aspect of technology. Company is difficult to survive without advanced technology supporting, especially, in the outdoor sport market.
Therefore, the outdoor market that has a small number of strong competitors will supply an opportunity for Kathmandu to obtain the biggest market share by adopting the advanced technology.
For the financial reason, the Chinese market is quite appropriate for the Kathmandu to enter. According to the National Bureau of Statistics (NBS) recourses, in 2010 the number of average disposable personal income of cities and towns was 21033 RMB, which was higher 11. 3% than that in 2009.
Meanwhile, the recourses also mentioned that the number of average disposable personal income in cities and towns was 7414 RMB in the first quarter 2011, which was higher 14. 1% than that in 2010 (National Bureau of Statistics, 2011). The increase of the disposable personal income of the Chinese offered an ideally material guarantee for consumption of the outdoor sport, which also means that Chinese has obtained higher purchasing power than before. The Nominal GDP per capita continues experiencing increase since 2001 to 2010 from 8. 3% to 10. 3% (National Bureau of Statistics, 2011).
Following the acceleration of the urbanization progress, increasingly Chinese has selected outdoor sport, particularly, the young people. As the China Outdoor Sport Association report 2010, 90% of the participators already have attained high education degrees and the wages in the 65% of them over 5000RMB per month, 20 to 40 years old people occupied 84. 1% (Chinese News, 2011). China possesses the most enormous consumer groups which attract the vision of the world. Such consumer groups will contribute more benefits than England and New Zealand for Kathmandu.
According to the National Development and Reform Commission, there is a police of 5 years plant from 2011 to 2015, which will focus on inequality of wealth distribution and shifting emphasis from investment to consumption (National Development and Reform Commission, 2011). Therefore more money will be spent in rural and inland development. So that Kathmandu can expect a growing number of potential customers in the coming 5 years. Therefore, the current situation of the Chinese market is ideally for Kathmandu to attract more customers and to sales more outdoor products.
Kathmandu has sufficient experience on oversea expending. According to the Kathmandu office report, currently, the company of Kathmandu has totally 107 retail stores, 65 located in Australia, 39 in New Zealand and 6 in United Kingdom respectively. In 2003 and 2004, the company entered into the market of United Kingdom, and speedy became one of the top two outdoor brands in the UK. The office report also mentioned that the Kathmandu Company made 237 million AU$ sales and obtained 7 million profit in 2011(Kathmandu, 2012).
Therefore, the Kathmandu has sufficient expending experience, which enables to reduce risks that are bought by the insufficient of experience when enter into China. Furthermore, owning of advanced technologies is able to guarantees the leading position in Chinese outdoor market. Specifically, the technologies of anti-wind, anti-fire, waterproof and high heat preservation are adopted by all of their products with high comfortable level. Such advanced technologies are what the Chinese local outdoor equipment market and customers need. However, there are some weaknesses of Kathmandu can not be ignored in Chinese market.
Firstly, lack of Guan XI (special relationship) will be the main issue for the company. In Chinese market, it is difficult to obtain long-term profit that making the business without a favorable Guan Xi, particularly, the closing relationship with the Chinese government. The Kathmandu may face some restriction from the Chinese Government. Such as, polices changing, law modifying and the controlling on some local resources, which will bring a great number of obstacles on operation of the Kathmandu company in China. Secondly, low brand awareness will lead to high cost in Chinese market.
Obviously, although there is an increase in the demand of western products for the Chinese customers, the products selection of customers is quite cautious, especially on unacquainted brands. The Kathmandu may needs more patience to the Chinese clients to know more about the products of the Kathmandu, in other words, more time is required by the Chinese market. In addition, in such situation, more capitals will be spent by the company on advertising in order to build the name recognition. Thus, these weaknesses may bring some risks for the Kathmandu company operation in China.
The selection of entry modes is crucial for every company when enter into a new market. There are two major entry modes, which include non-equity modes and equity modes (Chen Hui, 2002). As a multinational company and has good expending experience in the UK and New Zealand, it is undeniable that equity modes is appropriate to the Kathmandu when enter into Chinese market. The entry modes contain joint-venture, acquisitions and green-fields (Peter, 2008). Merger and acquisition can assists the Kathmandu directly entering into Chinese market by purchasing the company that already has established in China.
However, a large number of capitals are required by the Kathmandu company to merger the Chinese local company, which means more cost will occur when choose this entry method. In addition, social-cultural environment issue should be considered by the western companies, acquisition entry method may be related to a sort of aggression by Chinese duo to the Chinese history, so that some threatens will be faced by the Kathmandu Company, for instant, anti-products and service of the company. The green-fields entry method also requires large number of capitals to support, and this approach is quite complicate to operate.
While more freedom in designing the plant, selecting suppliers, and hiring a work force will be contributed by green-field (Ilkaka, 2007). Compare with acquisition and green-field, joint-venture entry method is more appropriate to the Kathmandu Company to enter into the Chinese outdoor market. The reasons as follow, firstly, Beamish pointed out that joint-venture is cheaper to exit compare with green-fields and also has the advantage that benefits the company to directly enter the market of other countries (Beamish, 2001).
Secondly, the Kathmandu Company is not familiar with Chinese institutions and regulations, finding a Joint-Venture partner can help understand rules of running business, and the Guan Xi of the Chinese partner can be used by the Kathmandu in China. Moreover, such method will provide strong bargaining power with Joint-Venture partner for the company, as Kathmandu can provide high technical resources and product line which is the crucial issue facing by the Chinese outdoor companies. However, there are some disadvantages that lead to the risks to the Kathmandu Company from the joint-venture entry method.
Firstly, the joint-venture may modify the partner to competitor (Swierczak, 1994). Specifically, it is dangerous that giving the advanced technologies to the partner to control. Perhaps the primary goal of the local partner is to control the leading technologies of the Kathmandu; such technologies will be used by other local companies on their products in order to obtain the bigger market share and to make more profit, which should be the most primary risk for the Kathmandu Company. Secondly, shared ownership can lead to conflict over goals and control.
The ownership and administrative power will become the main conflict between the partner and the foreign company (Swierczak, 1994). In order to control and make the biggest profit to their own company, both local and foreign company adopts various approaches to attain the beneficial position in the joint-venture company. Such as, increasing the investment and controlling the resources. Balancing the advantages and disadvantages for the Kathmandu Company to select the entry modes in Chinese market, joint-venture is the ideally entry modes for the company. However, which Chinese partner should be selected by the Kathmandu is another issue.
There are a great number of local outdoor or sport brands in China. However, it is difficult to find a well-known outdoor sport brand because of the new outdoor market. Thus selecting a famous sport equipment company as the joint-venture partner is the best selection for Kathmandu Company. The Chinese sport companies include 361, ERKE, ANTA, PEAK, DOUBLE STAR, Xtep and LI NING (Chinese sport research, 2011).
According to LI NING annual report 2010, the capitalization of the company has reached 8. 387 billion and has had 8156 sales shops in 1800 cities in China, and The number of LI NING brand retail stores is 7478 Moreover, LI NING has the highest reputation as the company is sponsoring several of Chinese sport national teams. The company already cooperated with AIGLE, LOTTO and Kason using joint-venture entry modes, which means that LI NING has had sufficient experience on such entry modes, and the high experience will assists the Kathmandu to reduce the risks on joint-venture (LI NING, 2011).
Therefore, LI NING should be the most appropriate joint-venture partner for the Kathmandu Company, the large number of LI NING sales network and capitalization will contribute the convenience to the Kathmandu to enter into Chinese outdoor market.
China has become the biggest market for the foreign company duo to the rapid development of economy and society. Such development specifically expressed in the GDP and the average disposable personal income continually increase, which also represent high purchasing power in China.
In the same period, the fast development of Chinese outdoor sport market contributes to the high demand not only for the outdoor clothing and equipment but also for the advanced technologies of the outdoor equipment in the Chinese outdoor market, and the lower strong competitors also provide a God-given opportunity for the Kathmandu outdoor equipment company to enter such ideally market. Hence, how to enter Chinese market will be the first issue faced by every foreign company manager.
The joint-venture entry modes should be the possible modes selected by the foreign company, particularly, the Kathmandu Company duo to the lower cost, easily access the market. The Kathmandu enables to use the local resources and Guan Xi network of the LI NING Company, which are the weaknesses of the Kathmandu, via joint-venture in order to become a successful company operating in China after into the outdoor market. Both companies will obtain the benefits that they want from joint-venture entry modes.