Managing in a Global Economy Essay
Managing in a Global Economy
Hollister Co. is an American lifestyle brand by Abercrombie & Fitch Co. The company was launched by July, 2000. It is headquarter at New Albany, Ohio. Till 2012, Hollister already has 571 stores in the world [Appendix 1]. Like its parent company, Hollister sells casual apparel which include knit layers, tanks , graphic tees, polo shirt, plaid, classic, sweaters, hoodies, outwear, jeans, pants & shorts, skirts, dresses, sweatpants, and yoga; and the accessories which include totes, belts, socks, and fragrance. The concept was originally designed to attract consumers aged 14–18, at a lower price than the parent brand through its California-style inspired image and casual wear.
Goods are available in-store and through the company’s online store. It was ranked as the second most preferred clothing brand of US teens on a long list of actual West Coast companies in 2008 by Piper Jaffray. (Hollister official website, 2012) According to Abercrombie & Fitch’s latest 10-k form, Hollister’s net sales in 2011 and 2010 are $2,022,002,000 and $1,552,814,000, separately. There is 30% increase of net sales from 2010 to 2011. Based on the data, we can figure out that Hollister’s net sales are almost two times to its parent company.
Foreign Markets Expanding Motivation
The motivations for Hollister to expand in foreign markets will be defined as two categories. First of all, Abercrombie & Fitch wants to get rid of its lower sales in U.S market and earn profit from outside expansion. Abercrombie began to launch its expansion plan outside the USA since 2007, driven at least in part by a weakening of its domestic market. For the quarter ended July 28, Abercrombie reported a profit was dropped by nearly 52%. According to media reports, more than 135 of its American stores have been closed since 2010 and there will be 180 closures in the following year. However, based on Abercrombie & Fitch’s 10-k form, the net sales of international stores are increased steadily. The company therefore has high hopes for the European and Asian markets, where its expansion is being pushed forward. (WSJ, 2012) Hollister, as one of its subsidiaries, plays a crucial role in the expansion plan because it has good performance with higher net sales and large numbers of shop.
Another reason for Abercrombie & Fitch is Asia apparel market is keep growing. Asia’s fashion and apparel market will continue to grow at a healthy clip through 2011-2015. The reason why we focus on Asia area is because as forecast last year, clothing demand in Asia is higher than the demand in Western Europe and North America in 2011 [Appendix 2]. “Many economists predict that demand will be driven by rising personal disposable income levels and an increased focus on fashion apparel, especially in the main cities.” Said by Carrie Yu. As we known, many foreign apparel brands are already present in Asia, and they will spread steadily. Here we have a figure to show the market demand growth in different Asia countries [Appendix 3]. After analysis the data and GDP per person at purchasing-power parity [Appendix 4], we choose three countries-Japan, Singapore and Hong Kong-that are good for Hollister to expand in.
Three Study Countries: Singapore, Japan and Hong Kong
Our first choice is Japan. Here we have two reasons to support our idea. First of all, it goes without saying that Japan is one of the most potential countries in Asia. For years, Japan has been Asia’s richest and most powerful economy. It was the first Asian economy to industrialize, and the emerging Asian tigers—Hong Kong, Singapore, South Korea. There are three advantages for Japan to become a good expansion country. Firstly, the economy of Japan is the third largest national economy in the world after the United States and the People’s Republic of China and is the world’s second largest developed economy (Oced library, 2010).
According to the International Monetary Fund, the country’s per capita GDP was at $34,739 or the 25th highest in 2011. Besides, according to Wipo resources, Japan is the world’s 3rd largest automobile manufacturing country, has the largest electronics goods industry, and is often ranked among the world’s most innovative countries leading several measures of global patent filings. Summing up all these data, we can figure out that Japan is a growing market.
The strength for Japan is it got the high purchasing power. According to Appendix 5, the GNI of Japan is 45180 US dollar in 2011, while GNI of US is 48450. However, it doesn’t mean that the purchasing power of Japanese is lower than America citizen. The consumer spending is enormously high in Japan. Spending is an important role of consumers. Consumer spending plays a significantly economic factor since it usually coincides with the overall consumer confidence in a nation’s economy. High consumer confidence indicators usually relate to higher levels of consumer spending in the economic market.
Consumer confidence provides governments and businesses with an analysis on consumer perception. (EconomicsHelp, 2011) From CIA factbook, we can figure out that Japanese is the third country which got higher purchasing power parity toward to Asia area, besides China and India. Moreover, The Japanese are very loyal to foreign prestigious fashion brands such as Louis Vuitton and Gucci. The sales of these companies have been growing steadily with support from young consumers. As a subsidiary of Abercrombie &Fitch, Hollister must play a leading role in fashion trends if we focus on marketing promotion.
The main weakness for Japan divided by two parts. Obviously, the first weakness is the unpredicted geography phenomenon. Everybody knows that Japanese business have got a tough time by tsunami and earthquake in recently years. These two disasters are having large negative economic effects on Japan since it is a major role in global supply chain and as a producer of final products. Based on this fact, we think Japan is not a good place to set up facility in order to produce clothes. Second of all, According to Reuters (2011), Japan’s new government faces a dilemma over how to keep its campaign promises while reining in huge debt, a fragile economy that could slip back into recession, and strains in ties with close security ally the United States. Thusly, we think Japan will not be an appropriate country because it got unstable political risk.
No doubly that Japan is the core of fashion in Asia area. It is famous by its creativity and design toward to the whole world. As a result, as an apparel company, Japanese market has potential opportunity to be entered. According to Japanese fashion market report (2011), here we have two advantages to prove that Japan is a country full of fashion. 1. Japan is a critical fashionable country because it holds many fashion events annually. Thusly, Japanese consumers are sensitive to trend cycles in the international fashion market because there are so many brands enter into Japan market every year. 2. They are significantly influenced by Fashion Magazines. Although technology is developed these years, magazine is still playing an important role in Japanese teenagers’ life, like Mina, Rays, Vivi and etc. So if Hollister invest in Japan, focusing on magazine will be a good choice for this company when they doing marketing promotion.
Everything has two sides. Since Japanese fashion market is full of opportunity, it is also highly competitive. According to Imported Luxury Brands Market in Japan: Key Research Findings 2011, imported luxury brands market in 2010 is estimated at 831.4 billion yen, 92.9 % of the size in previous year. This data means that there are many companies already in the market. The number of competitors in Japan is huge. According to Appendix 6, 24% market is owned by US brands. After doing research, we known that Hollister’s main competitors, Gap and American eagle outfitters, have already entered Japanese market. What’s more, even though they are owned by the same company, Abercrombie & Fitch, probably another biggest competitor, entered Japanese market since 2009. [Appendix 7] In a conclusion, although Japan got higher purchasing power and fashion opportunity, it is still not an appropriate country to be entered because of the political risk and high competition.
Singapore is located in southeastern Asia at the southern tip of the Malay Peninsula; the city-state of Singapore consists of a main island and some 60 islets. The country has a population of 4,740,737 in which the capital and major cities occupy 3,654,103 people according to the data last year. Although the country seems not as large as many other countries, Singapore’s gross domestic product was $326.8 billion and its per capita GDP of 61,103.36 US dollars in 2011 estimates is comparable to that of leading Western European nations, and its high standard of living and strong trading links have secured its position as one of ASEAN’s leaders (Global Road Warrior, 2012).
1) Outstanding tax system.When Japan cuts its corporate tax rate this Sunday, the U.S. will have world’s highest tax rate on business income. The following chart has shown the data. (Figure Source: Isidore (2012), CNNMoney)
However, Singapore’s corporate income tax rate is low which in a flat of 17% since 2010. It is often cited as the leading example of countries to reduce corporate income tax rates and introduce various tax incentives to attract and keep global investments. Since January 1, 2003, Singapore has adopted a single-tier corporate income tax system, which means there is no double-taxation for stakeholders. Tax paid by a company on its chargeable income is the final tax and all dividends paid by a company to its shareholders are exempt from further taxation (Janus, 2012). Two of Singapore’s unique advantages are its low effective personal and corporate tax rates. Personal income tax has a tier system that starts from just 0% and goes up to 20% for income above $320,000. Similarly, effective corporate tax rate for Singapore private limited companies for profits up to $300, 000 is 8.5% and capped at a flat rate of 17% for profits above $300, 000 (Janus, 2012).
What’s more, there are no dividend or capital gains taxes in Singapore. 2) High purchasing power.The GDP per Capita, in Singapore, when adjusted by Purchasing Power Parity is equivalent to 278 percent of the world’s average. Consumer Spending in Singapore increased to 27,485.40 in May of 2012 from 27,467.20 in February of 2012. Historically, from 1975 until 2012, Singapore Consumer Spending averaged 12,752.67 reaching an all time high of 27,485.40 in May of 2012 and a record low of 3,553.90 in February of 1975 (Trading Economics, 2012). 3) Exchange rate & Labor cost.The USDSGD spot exchange rate depreciated 0.0194 or 1.56 percent during the last 30 days. According to Janus (2012), The Singapore dollar has been consistently appreciating against major currencies. It also got about $260 billion based on average exchange rates or $252 billion based on year-end currency rates last year.
Historically, from 1980 until 2012, Singapore Labor Costs averaged 96.00 reaching an all time high of 129.93 in February of 2009 and a record low of 57.37 in May of 1980. These data are all lower than Hong Kong and Japan’s (Trading Economics, 2012). 4) Political stability.Singapore is rated No.1 as the most politically stable country in Asia (Janus, 2012). 5) English is main language.Singapore has a 10-year compulsory education program commencing at the age of 7 years. English is the first language and the medium of instruction in schools (Global Road Warrior, 2012). This means almost 100 percent of People in Singapore speak and understand English well, which would bring much easier communication for Hollister to enter into the country, especially to the communication within the management level of Singaporean while doing business. 6) Quick and easy registration.
It only takes about 1-2 days to incorporate a company in Singapore, with the government providing assistance along the way (Janus, 2012). As the easiest place to do business in the world, Singapore company registration is a quick and easy process, which involves just two procedures that can be completed online within 24 hours for a retail outlet. A Singapore subsidiary can be wholly owned by a foreign company and is considered a separate legal entity from the parent company. Also, a Singapore subsidiary is generally treated as a local resident company and therefore is entitled to tax benefits available to local companies (Janus, 2012).
1) If you want to set up a limited liability company (LLC), there are two conditions that are required: it must have two agents acting on its behalf in the country; and one of them must be a Singapore resident, a native Singaporean, or someone who has a Singapore employment pass. 2) Singapore is among the most expensive in the world, as the cost of living here is very high. 3) Hollister has to hire Singapore resident and qualified Singapore auditors to do the business accountings to work with government.
1) Singapore is one of the world’s famous shopping paradises. Its central business district has a lot of upscale shopping square: from the latest fashion clothes, jewelry, watches, perfume, cosmetics to the sports goods and daily necessities etc. Singapore’s retail sector has done well in 2010 and well into this year on the back of the tourism sector’s robust performance and in spite of a slowing economy in recent months. According to the latest retail sales index released by the Singapore Department of Statistics, Singapore’s retail sales excluding automobiles increased 7.4% year-on-year in August 2011(Janus, 2012). Hollister, as the subsidiary brand under Abercrombie & Fitch, has very large opportunity to get benefits from opening retail stores in the country. 2) Singapore is also ranked the No. 1 in tourism so there is the potential to do business.
Fashion is a highly competitive industry worldwide, but Asia stands out for its stylish and practical design. Although Hollister is also a very famous American brand under A&F, it still faces strong competition from Asiatic fashion. Since Singapore emerges as global fashion apparel hub with large amounts of upscale shopping squares, the opportunity to open shops in this fashionable country could also become a big threat.
Hong Kong is a Chinese special administrative region situated in eastern Asia, with a 455-mile coastline on the South China Sea and a 19-mile border with China. Hong Kong’s population is 95 percent Chinese, with the majority coming from neighboring Guangdong province or within Hong Kong itself. The population was about 7,122,508 in 2011. Cantonese and English are the two official languages. Hong Kong’s free-market economy was vulnerable to the global economic crisis of 2008, but its increasing integration with China helped it to quickly recover (Global Road Warrior, 2012). The GDP in Hong Kong was worth 243.67 billion US dollars in 2011, which roughly equivalent to 0.39 percent of the world economy (Trading Economics, 2012).
1) Well located.Hong Kong is located at the heart of Asia, alongside many of the region’s most exciting business market such as Guangzhou, Taipei, Manila, and Bangkok etc. And it is the gateway to Mainland China. 2) Free trade port.Easy government policies for foreign fashion brands. Hong Kong is known for its free port status and easy customs procedures. Duty is paid on very few products. 3) Tax-friendly economies.Hong Kong’s profit tax is capped at 16.5 percent according to the 2011 study, and there are no capital gains and dividends taxes (InvestHK, 2012).
1) Most of good locations have already occupied by large local fashion chains or early entering foreign fashion brands. 2) After the global financial crisis in 2008, the economies of Hong Kong still need to recover. 3) Hong Kong has the lowest GDP in 2011 compared to Singapore and Japan.
1) There are large fashion-hungry population in the Hong Kong market, especially many people from Mainland China love to go shopping in Hong Kong. 2) Some foreign retailers are successful in the Hong Kong retail market. In addition, Abercrombie & Fitch was prepared entering into the country, which would in a sense lay a good foundation to its subsidiary, Hollister.
1) Competition with Many local fashion brands, such as GIORDANO, BALENO, Bossini, Esprit and so on. And what is worsening is that these local brands all offer very cheap prices. 2) Many other foreign fashion competitors: Hong Kong shopping malls are creating space for Swedish brand Monki and U.S brands Gap, Forever 21 and American eagle. Others like H&M, Zara, Mango and Japanese brand Uniqlo have already established outlets in the city (Thondup and Tsang, n.d.). After reviewing the strength, weakness, opportunity, and weakness in the three countries, we chose to expand business into Singapore. We strongly recommend Hollister Co. to invest in Singapore where is a stable and strong economic, and a low risk country in political change.
Singapore is an island country. The land area is 714.3 Square kilometers. The population in 2011 is 5,260,000. The population density in 2011 is 7,257 per Square kilometers. Shenton Way is the fourth largest financial center, the adjacent Keppel port is one of the world’s busiest ports. According to Singapore’s economic structure, the manufacturing sector accounted for 25%, the construction industry accounted for 5%, wholesale and retail trade accounted for 16%, transportation and telecommunications accounted for 11%, the financial services industry accounted for 12%, business services accounted for 12%, the hotel and catering industry accounts for 3%, the other accounts for 16%. Due to it is a small country, shopping is considered a kind of sport in Singapore. The government draw up a lot of plans on developing their shopping market. For one thing, many shopping malls almost per square mile are located in Singapore. Orchard Road, one of the famous shopping streets, is a 2.2 km long street and it is a retail and entertainment centre in Singapore. Orchard Road also contains a large number of high-end restaurants, coffee chain, nightclubs and hotels.
There are many famous building and variety of retail store as well as there is large number of luxurious products with well-known brand. There’s practically a shopping sale of sorts all year round in Singapore, with the most notable one being the Great Singapore Sale. On the other hand, it’s a year-round shopping paradise. You only need to take a walk down Singapore’s iconic shopping districts to find out what’s in store for you. The best time to visit is during its annual eight-week Great Singapore Sale, when all kinds of discounts and deals pop up island-wide from late May through July. Great Singapore Sale 2012 will be held for 8 weeks from Friday, 25 May 2012 to Sunday, 22 July 2012. The Great Singapore Sale 2012 has been timed to coincide with the peak travel seasons to enable visitors to enjoy the fantastic deals all around.
During the Great Singapore Sale 2012, you can enjoy up to 70% discount for everything on sale, anywhere in Singapore. From posh shopping centres in Marina Bay and Orchard to small stores in the suburbs, you will find fabulous deals for clothes, gadgets, beauty treatments, spa, attractions, and even food! (Great Singapore Sale, 2012) Furthermore, Singapore set large variety shopping malls to meet the different requirement of various groups. The ethnic shopping enclaves in Singapore include Little India and Chinatown – both are tourist attractions in their own right, steeped in ethnic colors and flavors. (Singapore Shopping Madness, Yong Shu Hoong)
For instance, Chinatown mainly offers authentic Chinese products including tea, herbs, medicines, foodstuffs, silks, cheongsams, handicrafts, household items and antiques. Finally, Singapore duty free shopping prices at all three terminals are competitive with most places in Asia. The slippery greenback means rates are fluctuating constantly. Pick up a 50ml Dior j’adore eau de toilette for around S$96 (US$76), Chanel Alure EDP 50ml at S$112 (US$89). (Singapore Shopping Madness, Yong Shu Hoong) Human Resource Management
◆Human Resources Management Practice
Due to the explosive growth of the Asian economies over the past two decades, considerable attention has been focused on the human resource management (HRM) practices of Asian businesses. Cultural diversity of workforce in modern business organizations against the backdrop of globalization has attracted the attention of many researchers and analysts. By the 21st century, Singapore has developed into advanced and high-income economies, specializing in areas of competitive advantage. As one of the four little dragons in Asia, Singapore can be an interesting subject to study and it is also important for MNCs to understand Singapore’s advantages and disadvantages of its human resources management practice. Hollister Co. is an American lifestyle brand by A&F Corporation.
The concept was at a lower price point than the parent brand through its SoCal-inspired image and casual wear. Hollister Co. could take some advantages of Singapore’s human resources management practice to expand its business in Singapore. According to a demographic survey, as of 2011, the population of Singapore is 5.18 million people, of whom 3.25 million (63%) are citizens while the rest (37%) are permanent residents or foreign workers. The government is considering capping these workers, although it is recognized that they are crucial to the country’s economy, as foreign workers make up 80% of the construction industry and up to 50% in the service industry. (Building and Construction Authority, April 2011) Singapore is a multicultural country with a majority population of Chinese (74 percent), with substantial Malay (13 percent) and Indian minorities (9.2 percent). The country has four official languages consisting of Mandarin, Malay, Tamil and English.
English is the main working language and is the mandatory first language in all schools in Singapore. Most Singapore’s Chinese derived from southern China, especially in Fujian, Guangdong and Hainan, of which 40 percent is Fujian, the followed is Chaoshan, Cantonese, Hakka, Hainan and Fuzhou. To developing human resource management practice for Hollister Co., we should understand Singapore’s basic Human Resource Management (HRM). Hollister Co. is categorized as a service business while Singapore is a country which workforces are highly related to services sectors. In addition, considering the features of Singapore’s location, demography and other fields, its human resources is consisted of Western and Asian features. We will focus on Singapore’s HRM style and features of workforces to develop the human resources management practice for Hollister.
◆Human Resources Management Style
“Leadership and the Workforce in Singapore” is a survey that evaluated by the Singapore Human Resources Institute. Data were obtained from 192 respondents who were engaged in a wide variety of Singaporean industries. A total of 68 per cent of the respondents are HRM practitioners. Many of the respondents are supervisors reporting to senior management such as CEOs and managing directors. (Chart 1) All the data shows that globalization has had its impact on Singapore in a much more pronounced way. Singapore has been reputed for very advanced HRM practices both at the national and the international levels. In addition, Singapore has been especially known for its international HRM practices in a small city state. On the other hand, Singapore didn’t focus on manufacturing; it is a city state with a greater focus on financial services and other services instead, such as banking and insurance.
Moreover, Singapore has a similar diversity culture of shopping centers manned by equally culturally diverse workforce. (Malikanrs, 2010) Singaporean enhances on performance record and job experiences, appropriate training and seniority when considering promoting its employees. Singapore has no set patterns of recruitment for either the entry level or middle level positions due to affecting by the Western model. However, Hofstede (1984) found that the national culture of Singapore is high in power distance. In high power distance cultures, superiors and subordinates treat each other as unequal. Singapore is also called a “nanny state’ in which people are supposed to do exactly what they are told. The mixed unique feature of national culture therefore makes Singapore’s HRM practices more complicated.
◆Hiring and Retention
The unemployment rate in Singapore was last reported at 2 percent in the second quarter of 2012. Historically, from 1992 until 2012, Singapore Unemployment Rate averaged 2.4 Percent reaching an all time high of 4.8 Percent in September of 2003 and a record low of 1.3 Percent in September of 1997. The employment rate for older residents made good progress. A record 61.2% of residents aged 55 to 64 were working in 2011, up from 59.0% a year ago. The employment rate for both males (from 75.0% to 76.4%) and females (from 43.4% to 46.3%) in this age group rose to new highs in 2011. Singapore’s workforce is inherently diverse due to their multi-racial community. Employees from different generations, gender, nationalities and cultures often work together in the same organization. It is therefore important for organizations to put in place policies and practices to build an inclusive and harmonious workplace. A diverse workforce that is well-managed can bring about better business performance and higher employee engagement.
◆Training and Advancement
The improvement in educational profile of older residents was another contributing factor as the better educated were more likely to participate in the labor market than those less educated. The educational profile of the labor force continued to improve, as the better educated younger residents enter the labor force and the relatively less educated older cohorts retire progressively. The share of degree holders in the labor force almost doubled from 15% in 1999 to 28% in 2010. Conversely, the lower educated labor force from 36% to 22% over the same period. (Chart 2)
Chart 3, 4, and 5 in appendix show the average salary, turnover rate, and worked hours of Singaporeans. The average salary for Singaporean to work 46.3 hours per week is around Singapore $ 4,000(about $ 3,000). The average over-time work hour is 3.7 hours a week. (Employment Situation in Fourth Quarter 2010, 2011)
◆Ideal Human Resource Management
First of all, we would like to talk about language skill. As mentioned above, English is the official language in Singapore. In addition, Singaporeans have high level of education and language skills in average. Therefore, the company can hire local employee without worrying about language barrier. Furthermore, we’ll analyze workforce. Due to the mixed unique feature of national culture, Singapore’s workforce is inherently diverse. Employees from different generations, gender, nationalities and cultures often work together in the same organization. On the one hand, it is easy to train and educate new employees to understand Hollister’s organizational cultures and requirements. On the other hand, Hollister Co. also has to understand the mixed unique feature of national culture. With the aging of population, Singapore government also encourage foreigner to go there and look for a job. In the meanwhile, Singapore advocates foreign enterprise producing products which is suitable for the elderly.
This is another opportunity for Hollister Co. to expand their business in Singapore. Finally, we’ll talk about hiring, training, retention, promotion and salary. The unemployment rate in Singapore is very low, the educational background of workforce is becoming higher and higher, the low labor turnover and high level of wage show the Singaporeans are likely skill oriented workforces. The average monthly wage in Singapore is around 4,000 Singapore dollars which equals $3,000. It is a little bit lower than the average income that American household makes. (How much does the average American make breaking down the us household income numbers, 2011) Because Hollister Co. does not have to pay so much money for workforce training, we suggest Hollister Co. offer a somewhat high wage than the current clothing stores in Singapore and use bonus to motivate employees.
Political and Legal Environment
The Republic of Singapore has a legal system largely based on the British Westminster model, where the power to govern and administer the country is divided between the Executive, the Legislature and the Judiciary. Ranked by the World Bank’s report, “Doing Business 2007: How to Reform” as the most accommodating country to do business in the world, Singapore is a strategic and reliable base for foreign investors to invest in the emerging Asian markets. (Overview of the Legal Environment of Singapore, RSM Chio Lim) Singapore is well known as “the Switzerland of Asia.” With a population of approximately 5 million people, Singapore has an astounding 90% literacy rate, and over 85% of inhabitants have a secondary or higher education. The country has almost zero crime, zero corruption and no drug problem. (Singapore Incorporation Advantages) (International rankings of Singapore, Wikipedia)
One of characteristics in Singapore is its pro-business environment. It means that Singapore has an environment that is favorable for foreign investments and can attract many foreign entrepreneurs. Furthermore, it is easy for investors to set up businesses and make higher profits. Compared to other countries, investors only have to take 1-2 days and they can incorporate a company in Singapore. Because of pro-business environment, Singapore has become one of favorite countries for investment (Singapore Incorporation Advantages, 2012).
In order to help start-up companies to gain funding, the Singapore government agencies set up several financial assistance schemes to let start-ups gain access to funding to turn their business ideas into reality. Moreover, Singapore government sets up many private sectors to help investors improve efficiency strengthen capabilities of their company (Singapore Incorporation Advantages, 2012).
Great tax system:
For a starting business, taxes cost is always a top priority. One of features in Singapore is its low effective personal and corporate tax rates. For the personal income tax, Singapore government is based on personal income to design a tier system that starts from 3.5% to 20%. For corporate tax, ”Singapore private limited companies for profits up to SGD 300,000 is below 9% and capped at 18% for profits above SGD 300,000.＂(Singapore Incorporation Advantages) After 2010, corporate income tax rate will decrease from 18% to 17% in Singapore. Furthermore, there is no capital gain tax. It represents that Singapore government uses a single -tier tax policy. This policy is that when the income has been taxed at the corporate level, companies can give shareholders dividends for tax free (Singapore Incorporation Advantages).
Singapore government has an open attitude and its vision is broad to the whole world. Its political system is using a rational, pro-business way to enact laws, decide priorities and sets regulations. For example, there is almost no restriction on foreign investment including manufacturing and service activities. Any business is supported by political infrastructure and given maximum encouragement from the government. This support is an important way to let businesses grow and prosper (Singapore Incorporation Advantages). In addition, the immigration policy is open and flexible in Singapore. It assists the relocation of foreign investors to set up businesses here. If a business entrepreneur needs to run his business or and hire foreign professionals, the government can make appropriate Singapore work visa provisions to meet his needs and wants (Singapore Incorporation Advantages).
Free trade agreements:
Free Trade Agreements is a significant system in Singapore. It means that most products can be imported without barrier. Businesses can enjoy many benefits including tariff concessions, preferential access to certain sectors, faster entry into markets and Intellectual Property protection. Moreover, Free Trade Agreement is a way to connect Singapore to their trading partners such as United States, Europe, China, Hong Kong and, Japan (Singapore Incorporation Advantages, 2012).
(Singapore Incorporation Advantages, 2012)
High Quality of Life
One of reasons why many investors set up their business and relocate to Singapore is the quality of life. Singapore is in a convenient location and provides a great public and private transportation, a safe and clean environment to live. It also offers an outstanding support system for businesses. Singapore is suitable for work and living.
(Singapore Incorporation Advantages, 2012)
Economic and Financial Environment
In fact, the economic situation in Singapore is very strong and stable, because the attitude of government is open-minded and this country is anti-corrupt. The economic growth is also steady. Singapore is one of countries in the world that has the largest per capital Gross Domestic Product (GDP). The Gross Domestic Product (GDP) is equal to the total expenditures for all final goods and services produced by a country in a period of time and measures national income and output for a country’s economy. According to the World Bank, the Gross Domestic Product (GDP) in Singapore was worth 239.70 billion US dollars in 2011. The GDP value of Singapore is roughly equivalent to 0.39 percent of the world economy. Historically, from 1960 until 2011, Singapore GDP averaged 51.8 billion USD reaching an all time high of 239.7 billion USD in December of 2011 and a record low of 0.7 billion USD in December of 1960 (Trading Economics, 2012).
(Trading Economics, 2012)
The annual growth rate in Gross Domestic Product (GDP) measures the increase in value of the goods and services produced by an economy over the period of a year. It considers a full year of economic activity and avoids the need to make any type of seasonal adjustment. The Gross Domestic Product (GDP) in Singapore expanded 2.00 percent in the second quarter of 2012 over the same quarter of the previous year. From 2007 until 2012, Singapore GDP annual growth rate averaged 5.1 percent reaching an all-time high of 19.8 percent in June of 2010 (Trading Economics, 2012).
(Trading Economics, 2012)
Singapore exchange rate is range from $1.30 to $1.50 for the last 10 years. It is kind of stable. Monetary Authority of Singapore (MAS) manages the exchange rate of the Singapore dollar. Investors can transfer funds in and out of Singapore freely in any currency. Furthermore, Singapore government bond has very good rating. Standard & Poor’s (S&P) in August 2011 gave it AAA and Moody’s gave it Aaa in 2008. According to China Post, Singapore banking system is rank top four in the world. When other country have problem with financial crisis, most of Singapore banks were rated B by Moody. We have to realize more about Singapore’s banking system for doing business.
Cash and Check
In Singapore, for foreigners or tourists, it is very convenient to bring their own currency and exchange from market to airport. Foreign currency banknotes and travelers checks can also be changed easily at most banks. In addition, ATM link to global banking networks can be found everywhere. Foreigners or tourists can pay for most things by using a credit card in Singapore. (Singapore Banking System, 2012) Singapore banks issue checks that can be processed electronically. Writing check can only use black and blue inks. If a person only wants to deposit and does not cash the check, he has to draw two parallel diagonal lines in the upper left corner. If he crosses out ‘or bearer’, to the right of the payee line – the check can only be deposited into the account of the named payee. When a person deposits check, he has to write his name, account number and telephone number on the back of the check. (Singapore Banking System, 2012)
ATM-Automated Teller Machine
ATM machines for local banks are everywhere in the Singapore. In fact, all of the Singapore local banks and some of the international banks such as Citibank, HSBC and Standard Chartered have issued ATM cards. It considers that foreigners and investors have to withdraw money immediately in a place. However, there are not many branches and ATMs in the international banks. Here is a limitation and daily withdraw amount from ATM cannot exceed SGD$3,000. (Singapore Banking System, 2012)
Because using check will take time to clear the bank, companies have to take that into consideration for their cash flow. There is a well-established banking system with three major local banks that offer a full service of consumer banking in Singapore. It includes ATMs, telephone banking and internet banking. In addition, besides local banks, some international banks in Singapore are doing the same business. Recently, those international banks have been allowed to set up branches and 15 ATMs. (Singapore Banking System, 2012)
Singapore accounting standards are followed the International Accounting Standards and International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board. Financial Reporting Standards (FRS) is accounting standards in Singapore. All companies with financial period starting on or after January 1, 2003 have to comply with Financial Reporting Standards (FRS) (Introduction to Accounting Standards in Singapore, 2012). One of the main principals of Singapore accounting standards is accrual-based accounting. It is the same as United Stated General Accepted Accounting Principle (GAPP). Under accrual basis, the revenue and expenses are recognized and recorded in the period when they occur but not receive or pay cash.
They are recorded in the accounting records and reported in the financial statements in a period of time. The function of preparing financial statements on the accrual basis is to inform users not only of past transactions including the payment and receipt of cash, but also of duties to pay cash and funds that have received in the future (Introduction to Accounting Standards in Singapore, 2012). Actually, there are contains about 39 different standards with each standard named as FRS X in Singapore’s accounting system. For example, FRS 1 represents Financial Statement, FRS 2 represents inventories and FRS 18 means revenues. In addition, each standard involves a specific topic like presentation of financial statements, recognition of revenue, accounting for inventories, and so on. (Introduction to Accounting Standards in Singapore, 2012)
Cultural of Singapore
In Hofstede’s theory, there are five dimensions of culture, which are power distance, individualism, masculinity/femininity, uncertainty avoidance, and long-term orientation. The five dimensions are used to make a distinction between country and country. The society of Singapore is basically consisting of Chinese people. Around 77% of Singaporeans are Chinese. Therefore, the culture of Chinese does influence Singapore a lots. For example, the Buddhist-Shinto societies have an additional dimension which is long-term orientation (Geert Hofstede, 2011). Singapore Five Dimensions Culture Asian Countries Dimension Culture http://www.geert-hofstede.com/hofstede_singapore.shtml (Geert Hofsted Cultural Dimensions-Singapore, 2011)
With Chinese population, Singaporeans are affected by Confucian thinking and values, so they adhere to a hierarchical relationship in their society. They believe that their society is composed of people who are in different standing and unequal relationship. The differences in standing are the signal for people to evaluate each other. The lower standing people should heed what a superior says. In addition, junior and less experienced people are expected to keep their opinions in their hearts. This kind of high power distance has been characterized in Asian society for at least two thousand years (Geert Hofstede, 2011).
In an individualistic society, we can find the relationship of people is loose. The United States is the most individualistic society, but Singapore is ranked 53th out of 66 countries (ClearlyCulture, 2009). In Singapore or other Asian societies, children are raised to stay with the family. Children are educated to be a part of the group and stay in the group when they are infants. Children are taught to be dependent on the group, to make decisions which benefit the group, to support the group, and to maintain the honor of the group. The group can be family, school, or company. All of the decisions which are made by the elders for the children are common. After the Singaporean children become adults, they are not expected to cut off the former relationship (Geert Hofstede, 2011).
A high score on this dimension means competition can drive this society to success. Traditional Chinese culture is a typical masculinity. Singapore has almost 77 percent of populations are Chinese. Children are always taught to compete with other people in the school. Singapore is in the almost middle of the scale but a little on the feminine side. That means that there are still some softer aspects of culture like leveling with others and sympathy for loser in Singapore (Geert Hofstede, 2011).
Comparing with other countries in the world, Singapore is a country with low degree of uncertainty avoidance. Singaporean comply with their rules because their high PDI. That is why Singapore is a “Fine” country (Geert Hofstede, 2011). Because Singaporeans are indirect and implicit in their communications, they will not publicly use the word “no”; likewise, their “yes” does not usually mean assent (Kwintessential, 2011). Unlike other Asian cultures, the western cultures also affect Singapore’s culture. Therefore, the degree of facing uncertainty avoidance is lower than other Asian countries.
The short-term orientation is related to truth and the long-term orientation is related to virtue. Singapore’s cultural qualities show the perseverance and sustained efforts support the long term investments. People believe that the truth depends a lot on situation and time in a society with a long-term orientation (Geert Hofstede, 2011). Doing business in Singapore, the relationship with other people is very important; especially you must respect the elders. Also, you must be more patient because the organization will show their purpose which is for long-term profit, not short-term gains (Kwintessential, 2011).
An organizational structure is setting the company into different levels, including person and work, so each person needs to perform and accomplish the company goals (Chapman, 2008). There are two types of organizational structures which are flat organization and hierarchical organization. A flat organization is an organization which is few or no levels between managers and employees. The advantage of a flat organization is top management contact directly with the staff level employees. Middle managements are eliminated, so it can also reduce the organization’s budget costs. In this structure, the communication between managers and employees would be improved and the organization is fast to respond to consumers and market conditions.
The disadvantage of a flat organization is difficult to maintain when the organization grows bigger. A hierarchical organization is the layout of a pyramid. Every employee obeys someone else in this organization. The advantage of a hierarchical organization is the management can control closely. Also, the role and responsibility of each employee are distinguished clearly. The disadvantage of this organization is the decisions will be difficult to make because the organization is consisted of a multilayer management. It costs a lot to maintain a multilayer management and the communication would be slow from the bottom to the top (Colette).
Hollister Co. is a subsidiary company of Abercrombie & Fitch, so the management chart of the Hollister is the same with Abercrombie & Fitch. The following table is Hollister’s organizational structure. In this table, we can consider Hollister is a hierarchical organization. An Executive VP or senior VP head all major business processes of the company. The CEO at the top, EVP/SVP on the second, EVP/SVP on the third and SVP on the fourth level are four basic layers at senior management.
This hierarchical structure makes Hollister’s management make decisions quickly and let employees in each group understand their roles and responsibility clearly. On the other hand, there are still some disadvantages, which are high costs and many layers of communications, in this structure. For example, the SVP of Supply chain needs to go through two management layers in order to reach the CEO of Hollister. The hierarchical structure delays the communications between management and employees. A hierarchical structure costs a lot to maintain for Hollister. Hence, in a recession, Hollister might restructure to reduce costs and improve communication.
Source: http://www.cogmap.com/chart/abercrombie-fitch-co (2010)
Hollister still can use its hierarchical structure into its international markets such as Singapore. Singapore is an open country and there is no limitation in Singapore, so Hollister can use any types of organizational structure they want. If Hollister use the hierarchical structure successfully in its home country and in other international markets, Hollister should use the same structure when they expand to Singapore. Singapore is also a hierarchical structure country because its high power distance.
Hollister’s International Expansion Strategies
After review Hollister Co. and Singapore cultures and structures, we put forward three strategies which Hollister can use to expand its business to Singapore by exporting, licensing or wholly owned affiliates. Exporting is the first way the company can expand into a new market. By exporting, Hollister does not need to invest in Singapore and can test Singapore’s market. The disadvantages of exporting are Hollister has to suffer tariff and non-tariff barriers, high transportation costs and depend on foreign importers for product distribution. The second strategy is Hollister can give a license of its design to a Singapore Apparel Company. This way Hollister can earn profit without investing and suffering tariff and non-tariff barriers. The disadvantage of licensing its design, Hollister might be subjected to the local apparel company becomes its competitor.
Hollister also cannot control the quality of products which the licensee produces, so Hollister’s brand or reputation is on risk. The third strategy is that Hollister can expand to Singapore’s market by itself. Hollister can choose a place where there will be a lot of people, including domestic residents and tourists, to visit such as CentrePoint, the most popular mall in Singapore. The advantages of expanding itself are that Hollister can have complete control and receive all of the profits. The disadvantages of expanding itself are the high costs and the greater loss if it fails.
After review three strategies, we recommend Hollister to expand itself in Singapore. Hollister has enough capital to invest into Singapore because it has a powerful backing, Abercrombie and Fitch. This way Hollister can keep their quality of products and have complete control. Hollister can test the market and the market condition by opening the first in Singapore. In order to be success, the most important things are that Hollister needs to learn Singapore’s culture and establish the relationship with the consumers and suppliers. Hollister can adapt to the Singapore’s culture and consumer taste by reviewing a quarter of sales. After its sales grow stably, Hollister should continue to open more stores in Singapore.
University/College: University of California
Type of paper: Thesis/Dissertation Chapter
Date: 20 December 2016
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