Fashion论文模板 – International Market Entry by Fashion Companies

Chapter 2: Literature Review

This section of the dissertation surveys the literature on international business. According to Ridley (2013), a literature review section is meant to detail the interpretation of concepts by different contributors to in the quest to inform the research problem being addressed. This section contains the published information with regards to globalisation and internationalisation of business activities revolving around the retailers motivations to expand internationally and barriers to internationalisation efforts. In addition, it covers the market entry methods, their justifications, and benefits and accompanying demerits. The last element covers the attributes of a suitable retailing market that is supportive of fashion industry, with special emphasis towards the China’s environment. It also addresses challenges incurred by international organisations in their pursuance of establishing and obtaining competitive edge.

Globalisation and Internationalisation of Retailing

Motivations for Retailer Internationalisation

A key element in the literature on retail internationalisation has been the motivations behind international retail activities. According to Hutchinson et al., (2007), the initial understanding of the retail internationalisation was detailed in the 1970s in the quest to explain increasing international retailing by companies in the United States and United Kingdom. Most of the literature was thus observational, and it was during the 1990s when literature became more empirical. The result was reconceptualization of the developments and better understanding of the presence and extent of varying stimuli on retail organisation’s intention to internationalise. Amongst the emerging knowledge was that many small size organisations had not substantially exploited the opportunities in their domestic markets and lacked strong brand identity that was functional in international extent, a notion supported by Moore, Fernie, and Burt (2000).

The reasons for international expansion are given varying names by different scholars and authors. These include ‘initiating and auxiliary forces” (Aharoni 1966), ‘antecedents’ (Vida and Fairhurst, 1988), “facilitating factors” (Treadgold and Gibson, 1989), triggering cues” (Wiedersheim-Paul, Olson, and Welch, 1978), amongst others. For the objectives of this part of literature review, subsequent evaluation of literature considers the primary themes in international retailing literature that is associated with the motives behind the decision to expand internationally, highlighting prevailing studies on international specialty retailing when necessary.

Early studies, such as Jackson (1976) have indicated a wide range of factors that contribute towards retail firms’ intention to internationalise, while empirical evaluations such as Alexander (1990, 1995) document and explain the complexities and extent of influences on internationalisation decision making. Treadgold (1988) records various push and pull classifications of motives along the micro and macro firm level dimensions. Amongst the push factors analysed include industry competition, domestic saturation, legislation and economy. Pull factors revolve around political and economic stabilities in other foreign markets, which inherently provide an opportunity to increase revenues through increased customer base or cheaper sourcing and production. However, research in the 1990s indicated that push factors were losing influence on international development, rather, it was retailers’ personal operations and abilities to react to international opportunities for expansion that were more determining internationalisation efforts. As a result of this review, it is paramount to detail the reasons for internationalisation through the perspective of internal elements specific to an organisation, and as well the external factors.

Existing studies (Moore, Fernie, and Burt, 2000; Holtbrügge, and Baron, 2013; Martinez, and Jarillo, 1991) have identified that retailers, especially small scale, are more predisposed to internationalise to exploit a differential of competitive advantage. The understanding is that a unique and original concept of a product is a competitive leverage item for international retailers. For comparatively smaller specialty retailers who have international activities, differentiation is determined by a niche strategy and band recognition, which in most cases focus on a limited group of products, a specific group of customers, or a specific market sector, all of which can be easily localised in foreign markets. A formidable brand identity is a paramount differential advantage in global internationalisation efforts and is closely associated with major speciality retailers.

In addition, internal motives associated with critical management of factors have been contained in international retailing literature. Because managerial factors and perceptions influence decision-making, Vida, Reardon and Fairhurst (2000) argue that strategies and decisions directed towards growth in foreign markets are not actualised unless the management demonstrates positive view with regards to the international opportunities and the accompanying barriers in international expansion. This notion is reiterated by Hutchinson et al., (2007), who express the view that management views obstacles as manageable, smaller retailers can focus on growth-oriented and proactive mechanisms in international marketplaces.

According to Hutchinson et al., (2007), several theories from the extended international business literature, such as resource- based and process models, have been refereed in empirical research in internationalisation to explain why even small companies engage in international operations. However, despite the challenges on traditional internationalisation theories by network based international activities, research by Hollenstein (2005) reveals that revolutionary political, technological, economic, and social changes that are currently being made manifest, and additionally the sophisticated entrepreneurs and managers can induce and sustain organisations in international markets.

According to Hollenstein (2005), modern research attests to the significance of ownership advantages in propelling internationalisation. These ownership advantages, which Vida, Reardon, and Fairhurst (2000) refer to as the firm specific attributes and capabilities that differentiate and make an organisation superior to others, may be related to the uniqueness of the organisation’s product offerings, especially as attention evokers internationally. This may incentivise firms to enter into international markets. Particularly, literature indicates that proactive pursuance of international niches is not curtailed to firms operating in knowledge intensive industries, but is evidenced by even craft and retail sectors. While in pursuit of and using niche based differentiation methodologies overseas, companies may not significantly influence the market explicitly, but rather may satisfy shallowly defined markets segment in international markets. Although this may incentivise retail firms to internationalise, recent research has documented the implications of electronic-commerce as a factor and facilitator of foreign market expansion.

Barriers to Internationalisation

Globalisation and internationalisation are promising developments for organisations suffering from domestic saturation, competition and reducing market share, or even those seeking to expand their financial productivity. However, many organisations are cautious of internationalising their operations and market. According to Arndt, Buch and Mattes (2012), a number of studies have documented specific factors hindering internationalisation initiatives by both exporters and non-exporters. Through the evaluation of literature, the barriers to entry can be classified under five primary categories (Hutchinson, et al., 2009). These are financial barriers, both domestic and international market-based barriers, managerial barriers, firm specific barriers, and industry-based barriers. It is also apparent from the literature that any stage of internationalisation can be subject to the barriers, and the intensity of the implications of barriers differs from an organisation to another.

Burpitt and Rondinelli (2000) cite financial barriers as significant hindrances to internationalisation activities. Lack of or shortage of funds to create working capital that can support internationalising makes it difficult to allocate and/or justify sufficient expenditure towards the research of foreign markets and the adaptation of marketing strategies, leave alone funding the investment. Shaw and Darroch (2004) add the lack of insurance for investments in foreign markets. In addition, there is limited access to capital and credit for international investments, especially when expanding countries that are highly economic and political polarised.

The managerial barriers include the management’s attitudes towards international ventures (Gilligan and Hird, 2013). When an organisation’s management understands the opportunities in the international markets and the ways to utilise using the resources and abilities, it is more predisposed to consider international expansion. Another management issue is the level of expertise in international business, an item Vida, Reardon, and Fairhurst (2000) strongly consider. An international investment is essentially considered a risk initiative. Lack of prior experience in introducing products in foreign markets, managing human resources, and localisation of products can cause panic that can reverberate across a firm’s management, thereby hindering international expansion efforts. In addition, just like commitment towards specific initiatives highly determines investment in local expansion, it also influences the extent to which management prioritise international expansion. Karagozoglu and Lindell (1998) also add that some entry methods demand partnerships, and a manager’s inability to establish and sustain partnerships can compromise entry into these markets.

Market based barriers are many, with Nachum (2003) talking of liabilities of foreignness, whereby foreign firms have more expenses than local firms, Andersson (2001) citing environmental perception, and Campbell (1996) strongly arguing on the implications of tariff and non-tariff elements amongst other government regulations. Economic conditions are as well significant determining influencers of entry into international markets, as they determine the disposable income of a population. The market-based barriers also entail the availability and sufficiency of information on the market and the cultural aspects such as communication, workplace etiquette, and hierarchy (Nachum, 2003). Other market-based barriers include distribution infrastructure and the position of the domestic markets. Industry specific barriers encompass competition, technology, and the outputs. This is especially in some countries in which production of some products is highly regulated and even conducted by governments. Firm specific barriers entail the availability of resources, the operational size of an organisation, and the liabilities of newness in a foreign market (Shaw and Darroch, 2004).

The perception of these barriers by organisations governs the extent to which a market is considered manageable and lucrative. Whereas some of the barriers are difficult to address, for example the financial and economic, others can be addressed by employing a myriad of methodologies and practices (Tan, 2009). These include the cultural differences, government regulations for foreign companies, and management. Cultural barriers can be addressed by incorporating host country nationals in the workforce and management, and government regulations and marketing challenges can be handled through entry market strategies (Jain, Lawler, and Morishima, 1998). For example, many companies, including multinationals, see entry into Asian markets, specifically china, as impossible. However, through modifications of marketing, sourcing, and investment and control, some organisations have established and fortified market positions in China, some being Ikea, Starbucks, Apple, and Coca Cola. Others have failed miserably and incurred massive losses, examples being Uber, EBay, and Google. Some companies have failed in other foreign markets, examples of Starbucks underperformance in Australia, Walmart in South Korea, and Wendy’s in Japan. This implies that the benefits of specific countries offer are almost as diverse as the methodologies required to address the challenges, and this raise the need for products adaptation and standardisation as discussed below.

Standardisation and adaptation

Standardisation

International marketing incorporates the identification, anticipation, and satisfaction of customer needs across international demarcations (Brei et al., 2011). Within international marketing, an organisation’s decisions encompass at least a single variable of the marketing mix. Firms that want to penetrate and international markets encounter the challenge of choosing whether to standardise the products and their marketing mix or adapt them. The standardisation strategy is the representation of all components and attributes of a product or service, including the product name, quality, materials used, and packaging, without a bias based on geographical location. For many organisations, identifying the extent to which a product should be standardised is herculean, as it must incorporate operational decision-making and activities in operations, research and development, organisational structure, finance and marketing mix. The motive behind standardisation is contingent on the perception of business environment differences though ethnocentric, geocentric, and polycentric lens. Ideally, standardisation is based on the understanding that ‘one size can fit all’.

Standardisation, as Toyne and Walters (1989) postulates, is highly efficient in reducing costs with little impact on quality. By minimising the different attributes of a product, an organisation is able to decrease raw materials, increase production, and rationalise distribution. In addition, it can help in product brand reinforcing. The most rewarding standardisation strategies enable multinationals balance the need for intended adaptation with the possible standardisation cost savings. Toyne and Walters (1989) add that achieving maximum productivity through product, service, service design, and distribution standardisation can help companies enjoy global economies of scale at the lowest costs per unit. It as well helps communicate consistent and coherent international brand of a company and/or its products and services. However, standardisation limits the number of choices customers have, hinders dynamism and flexibility, and is prone to competitive vagaries.

Adaptation

According to (Brei et al., 2011), product adaptation is the process of changing and modifying products and their attributes to adjust to local market. Usually, adaptation relies on older products and services, which are subjected to various upgrades based on the demands of the regional or national markets for which they are intended. This, however, does not represent innovation. In this quest, a company considers whether to create and establish a brand globally or customise it for a local market. Adaptation is inherently the most determining aspect of multinational organisation’s operations, and the underpinning factors include the package and design, culture, religion and ingredients amongst others. The result of adaptation is product variation, innovation, differentiation, or even elimination.

Adaptation can be through varied mechanisms (Tantong, et al., 2010). Adaptation can be based on the target market, whereby an organisation breaks a market into distinct market units and then direct and capitalise their marketing efforts on at least one segment. Packaging and processing considers the implications of symbols, colours, and words, as they can be offensive depending on country. Ingredients of some products especially foods, soaps and cosmetics are modified to address the climate, senility and taste differences. Language adaptation is based on varying expressions, gestures, and languages. Religion is also a determining adaptation determinant as it determines use and consumption of some products. Both of the standardisation and adaptation have advantages and demerits. If customers have identical wants and needs, standardisation is most appropriate. If customers have varying needs and preferences, adaptation strategies are mostly suitable, but in practical reality, most company seeking and operating in foreign countries use a hybrid of these strategies. The next section details the market entry methods deployed and available to organisations in their quest to address challenges and as well increase their operational and financial output.

Market Entry Methods

This section looks at concept of market entry strategies. It also details the literature on different methods of entry strategy, including the direct and indirect production and exporting, and the advantages and demerits associated with the major methods. According to Chung and Enderwick (2001), organisations wiling to expand internationally encounter three basic issues. The first is marketing, which entails countries and segments factors, the management, and implementation of marketing efforts, and methods of entry. The second is sourcing, which entails the considerations of the manner to obtain products. The third is investment and control, which is associated with the presence and magnitude of control an organisation should exercise on the pursued international initiatives.

The question on the best ways to entry foreign markets is the initial and in many aspects the most fundamental to be encountered by a marketer. This is based on the significance of the choice in influencing and sharping the entire international marketing programme. Holtbrügge and Baron (2013) give an example by saying that a distribution or licensee agreement can limit the presence and extent of influencing pricing and promotion. If an organisation, by contrast prefers its own manufacturing subsidiaries, the degree of control exerted can be comparatively higher, but this would be reflected on both the direct operating costs and the initial set up. 

In essence, therefore, foreign market entry decision encompasses evaluation and balancing risks, control, and costs (Chung and Enderwick, 2001). With this understanding in mind, a marketer is required to consider the various distribution alternatives that can be envisioned and weigh against the objectives of market entry. This is because once a selection has been made, the likelihood of noticing that a long-term commitment has been change that can be changed with high costs and difficulty increases. Recognising this, three major classifications of entry strategy are considered: direct exports, indirect exporting, and ownership, also refereed to as ownership.

Before evaluating the models of foreign market entry, it would be quintessential to evaluate the factors underpinning the selection of a strategy. Whereas there prevails many factors for consideration, Gilligan and Hird (2013) list seven factors. The first is an organisation’s objectives and targets of the volumes of products and/or services to be generated. The second is financial endowment of an organisation and its operational size. Third is the methodologies and patters of involvement in the international markets, especially in the specific country of interest. The fourth is the levels of international marketing and managerial culture and expertise. Competition nature and degree is considered a major determinant as well. Gilligan and Hird (2013) also mention the nature of a product, as that determines its distinctiveness and competitive advantages with regards to patents, trademarks, and technology. They conclude with markets political setting, which influences the prevalence of both tariff and non-tariff barriers, or the likelihood of their establishment.

As posited by Anderson (2009), decisions with regards to the marketing area are geared towards the value chain. These decisions are meant to cover product support, which includes production sourcing and control, and product management and testing. It also includes price support, which covers prices, discounts, and distribution of pricelists. Decisions also cover promotion support, and this revolves around advertising, trade shows, and promotions. The fourth is inventory support, and considers aspects such as warehousing, distribution, and inventory management. Distribution support convers the provision of insurance, order processing amongst others. The seventh is service support, and is characterised by elements such as technical assistance, customer care, data processing, and legal processes. Financial supports include hiring, billing, and auditing. The significance of strategy or entry methodology is manifested when its ability to ensure that value chain activities are executed and integrated is demonstrated.

Cunnningham (1986) contends that there exist five major strategies deployed by firms seeking entry to foreign markets. The first is technical innovation, which entails provision of perceived and actual superior products. Then there is product adaptation, and this entails executing modifications on products under the existing portfolio. Availability and security strategy revolves around overcoming transportation risks by avoiding and countering possible risks. The low price strategy is whereby an organisation leverages on pricing to attract customers when pursuing awareness and competitiveness. The total adaptation or conformity strategy is depicted when the a firm pursuing international expansion adopts a holistic approach by assimilating all the information the potential market or customers might need with regards to the products, development, handling, and as well delivery.

It is apparent that the first four of Cunnningham (1986) are similar to those documented by Porter (2014), which he termed as generic marketing strategies. Porter mentioned of cost leadership, differentiation, and focus. Cunningham’s (1986) low price strategy seems like Porter’s (2014) cost leadership, while product adaptation is apparently differentiation. Porter (2014) suggested that focus is manifest when there is specialisation on either differentiation or costs, and Cunnningham (1986) argues of transportation with a general emphasis on either conformity or total adaptation. It is also apparent that the major objective of both Porter’s and Cunningham’s strategies are to gain or increase market share, and it is the evaluation of these strategies that determine the best approach to be applied in a specific market.

Entry Strategies

Exporting

According to Hansotia and Rukstales (2002), there are various ways in which organisations can enter and exploit foreign markets. Essentially, the three major are direct export, indirect export, and production. Exporting is considered the most established and traditional methodology of operating in foreign markets. Vida and Komac (2007) define exporting as the marketing of goods and services in a country different from where it was produced. Significant investments in marketing are quintessential, despite the absence of direct manufacturing in the host countries. The justifications are several, with the major being protection from current and potential risks in the host country. Pavord and Bogart(1975) express the view that exporting gives firms opportunities to explore and learn the new markets before initiating inflexible assets such as bricks and mortar buildings. The disadvantages are based on the understanding that a firm is at the mercy of overseas operators, and this disadvantage of lack of control is so significant it can be weighed against the cumulative advantages.

Nieminen (1996) argues of the types of exporters, with the passive exporters engaging in the activity because of orders that come to them by chance. An aggressive exporter, in the other hand, capitalises on developing marketing strategies on which a broad and clear picture of its intentions in the foreign market is anchored. Aggressive firms have out- rightly cleared plans and strategies focusing on product promotion, pricing, and distribution amongst other paramount aspects. The degree of passiveness over aggressiveness is dependent on the motivation to engage in exports. Some countries that have employed structural adjustment programs have their firms being encouraged to export as there are high foreign exchange earnings, relief from saturated domestic markets, economic expansion objects, and as well, the intention to repay debts incurred through financed programs (Tesar, 2010). They response towards the type of export depend on how decision makers perceive the pressures. Kowalewski and Weresa (2008) express the notion that the extent of involvement is influenced by the exogenous versus endogenous motivation factors, that is, whether intention to export was a culmination of active or aggressive behaviours based on an organisation’s internal (endogenous) situation or reaction to external environmental (exogenous).

According to Yaşar (2015), exporting can be either direct or indirect. In direct exporting, a firm may utilise a distributor, agent, of a subsidiary located overseas. In addition, it can execute through a government agency. A government, through a board, can be a permitted product exporter, and some industrial bodies can perform as promotional bodies with their activities revolving around information flows and advertising. In addition, they can be exporters as well and giving approval for all exportation documentation. A major limitation of direct exportation is market information. A core role of an exporter is to select a market, identify a representative, establish the physical documentation and distribution, and as well promote and determine the price of a product. The presence of control or lack of it therefore is a critical problem, and usually influences decisions on product pricing, promotion, and certification.

Direct exporting is conducted in-house by an organisation’s export department. The merchandise is then sold overseas by other companies, through a dedicated sales subsidiary or agent. According Abel-Koch (2013), on balance, direct exporting provides for higher sales than when indirect exporting is employed, although the impact on profits is contingent on the extent to which investments increase as an implication of setting an export department. The assortment of marketing activities deployed in direct exporting is also wider than that of indirect exporting. When compared to indirect exporting, direct exporting has more advantages especially with regards to the greater control that can be exercised, a better communication and information system, and the accumulation of marketing expertise. The reality that all of the costs are borne by a single manufacturer demands a lot of considerations on objectives, costs, benefits, and both short and long term operational and financial expectations.

Martinez and Jarillo (1991) inform that exporting demands a partnership between an exporter, importer, transporters, and governments. Inability of these parties to coordinate results in an increased risk of failure. Trust-based contracts between buyers and sellers are mandatory. Agents and forwarding parties can have a significant role in logistic activities, including but not limited to arranging documentation to booking space in the mode of transport.

According McCann (2013), indirect exporting is less complicated and lowest cost alternative for distribution for many companies, especially for the first time. Indirect exporting is whereby a company’s products are sold through other companies, and the accompanying benefits are attributed to the minimal expertise and skills needed. This is because the strategy is essentially an extension of a company’s distribution. However, Bernard, Grazzi and Tomasi (2011) are of the opinion that it can help open up markets with insignificant investments, although this benefit is not immune from a firm’s lack of control. This is not only in the markets selected for exploiting, but as well the existing markets, degree of commitment, and marketing strategies already in use. Nonetheless, indirect exporting still remains an attractive entry method. Indirect exporting can be executed through three distinct forms. The first is overseas sales, essentially implemented through domestic buying departments’ piggyback operations, and export management companies.

Licensing

As abovementioned, exporting and foreign production are amongst the most widespread foreign market entry strategies. Under foreign production are licensing, foreign ownership contract manufacture, franchising, and joint ventures amongst others. According to Madden et al., (2014), licensing is a foreign market entry method depicted when an organisation in a particular country agrees to permit another company in the intended country’s market to utilise the manufacturing, processing, expertise or other skills specific to the manufacturer or trademarks. Duvall (2008) posits that it is mostly similar to a franchise arrangement. Licensing does not demand substantial involvements and expenses, with the only major consideration being the compliance with, signing the agreement, and policing the execution.

Moore, Doherty, and Doyle (2010) opine that licensing gives firms an avenue to commence foreign operations and open the door into manufacturing relationships that support minimal risks. They add that licensing provides a way for balanced benefits for the both of involved parties. Licensing ensures that operation capital is not tied up in an external operation. In addition, it provides options for buying into a prevailing partner and opportunities to obtain royalties in stock. Vecchi and Buckley and IGI Global (2016) add that licensing can help introduce a brand to a market, thereby creating a brand recognition, especially if the licensing company retains the right to state that the new entity has obtained the license, and this can promote brand recognition and credibility.

Despite the abovementioned benefits of licensing, it has several limitations. Amongst them is the limited communication and participation. This is because most of the communication is determined by the length of an agreement, process, product, and even trademark. This is especially as the licenses are short, and a partner develops expertise, thus promoting their autonomy. Lu, Karpova, and Fiore (2011) add that potential revenues from manufacturing and marketing may be lost. Siebert (2015) states that s licensor is not protected from the licensee with regards to them being a potential competitors, especially as they benefit from cross technology transfer. Licensing is also demanding in terms of initial establishment, especially concerning fact-finding, research, planning, evaluation, and interpretation. Organisations that decide to license are usually open to further ways of improving and extending market participation, some of the benefits paving way for joint ventures with a licensee.

Joint Ventures

The other method of international expansion is through joint ventures. According to Palmer and Owens (2006), a joint venture is an establishment for which two or more organisations take ownership, and monitor and control operations and property rights. A joint venture is considered an extended form of licensing or exportation. A joint venture is a standalone entity that is separate from other business interests belonging to the owning parties. A company that wants to penetrate into a foreign market can use a joint venture approach by supplying products to local establishments, thus gaining the advantages of an already established distribution network. Many countries have sophisticated restrictions towards entry by foreigners, and this makes joint ventures with a host country entity the only way to gain entry. A strategic joint venture is an entity established when organisations want to perform specific goal without the need for permanency.

Joint adventures offer various advantages to international organisations. Amongst them is the sharing of risks and as well the ability to pool host country’s in-depth knowledge with an international partner with expertise in processes and technologies. Wigley and Provelengiou (2011) add that joint ventures avail organisations with joint financial strength. Harrigan (2003) argues that in some avenues, a joint venture maybe the only way to enter a market, especially in countries where domestic investments are revered over multinationals. Joint ventures also may provide an appropriate opportunity to obtain supply for a third country.

Joint ventures have their disadvantages as well. According to Groot and Merchant (2000), joint ventures are not entirely controlled by a single partner, as they do not possess full management control. In addition, despite the big pool of skills, there may be impossibilities of recovering invested capital. Because of varied opinions and growth intentions, disagreements, especially on further expansion in third party markets may prevail. Partners also have varying views on their objectives and the intended results for investing and engaging in operations in the host country.

Franchising

Franchising business model is commonplace especially in the hospitality arena Lymbersky (2010). Franchising involves giving another organisation rights to use the parent company’s trademarks or retail its products or services. When compared to licensing, franchising agreements are usually longer and support many rights including use of equipment, training, managerial approaches, site approval and even desired support. All these are in an effort to ensure that business is run as the parent company is. According to Bellin (2016), three major payments are submitted to the franchisor. These are the trademark, reimbursement for any services provided to the franchisees including training and advice, and a certain percentage of revenues from the franchisees sales. These may be combine to form a single management feel. In addition, there is a separate front-end disclosure fee.

A franchise agreement is time bound, which is essentially broken down into several shorter periods. These periods are renewable. A franchise is meant to serve a particular region or territory and its surroundings. According to Dhir and Bruno (2004), most franchise agreements have a duration of between five and 30 years, with a premature terminations of cancellations being financially catastrophic for franchisees. A franchise is not a purchase of a business with the intention of ownership; rather it is a temporary business which Terry and Di (2009) terms as a wasting asset because of its finite license.

According to Mukheibir (2002), franchising offers an organisation opportunities to expand without injecting capital. This allows them to expand without being subject to debt risks and cost of equities, and through this, a company can increase its foothold using the resources of others. Lymbersky (2010) adds that a franchising provides for a motivated workforce, especially as the manager of a franchisee outlet is the owner. This provides for long term commitment, innovation, better operations productivity, advanced quality management. It also gives organisations staffing benefits through leaner operations. In addition, franchising provides for easy supervision, increased productivity, increased valuations, and risk free penetration to secondary and tertiary markets.

However, Doherty (2007) has some reservations for franchising. He argues that in times of business slowdowns, a franchisee’s manager can lose initiative for his business, and a franchisor has no opportunities to motivate the workforce. In addition, such situations can result in disputes, and when they become publicised, thus tainting a company’s reputation. In some instances there are inconsistent quality problems when a franchisee does not distribute the product and services following a franchisor’s specifications, and this may affect the brand name and other operations. The lack of contact with customers minimises the opportunities to understand their needs, and thus, the best level of customer relationship is that intended by a franchisee.

Total Ownership

Licensing and Joint Ventures, despite being amongst the most widespread ways of gaining international markets do not provide optimum benefits for an organisation seeking international expansion. Total ownership provides some of the benefits unrealised through other ways of international markets entry. Ownership, as stated by Unite and Sullivan (2003) is the most extensive mode, whereby an organisation invests and participates 100%, thereby demanding greatest managerial effort, capital, and commitment. However, a firm needs 100% ownership to exercise control, effective management can be actualized with disproportionate shareholding. This implies that the predominant feature of total ownership is the degree of control, not its completeness. The benefits of control and communication substantially outweigh the limitations of licensures and joint ventures. However, Weigel, Gregory, and Wagle (1997) display their discontent with the method, by arguing that the repatriation of capital and earnings demands great monitoring, and unstable environments may leave ownership as the less likely option.

Acquisitions

Acquisition entails purchasing an existing venture in the country in which expansion is intended Jackson (2007). It is amongst the easiest means, and is founded on an assumption that there exist companies ready for acquisition. The concept of an acquisition demonstrates dominance of a company by another, with the motive of making the new entity a subsidiary or an addition to the current businesses. It can achieved through several mechanisms and conditions (Chandra, 2012). It can be friendly, which is executed under friendly terms. It can also be reverse, which executed through public trading and installing own management and even renaming. It can be a backflip, whereby the purchasing entity becomes a subsidiary of a purchased company. It can be done by force, also called hostile acquisition. Companies that utilise acquisitions are considered religious acquirers, with most of their strategies geared towards acquisition. However, if the choices of companies are insufficient, a decision may be formulated based on expediency instead of suitability. According to Shukla and Gekara (2012), the notion that acquisitions can help save time, especially when compared to establishment and organic growth may be impractical. In addition, it can cost organisations substantial amount of time in searching and evaluating possible acquisition targets.

Acquisitions provide for speedy and flexible items for acquisition, for example intellectual property, real estate or liquid assets. It also gives organisation a leeway to decide the liabilities it can cover. Another major benefit of acquisition is the opportunity to possess and gain experience, assets, and goodwill of the acquired business. It also excites shareholders, who usually have a positive outlook as it informs their understanding of stock price and equities. Another benefit of acquisition is the availability of a diverse culture, thus increasing an organisation’s knowledge base. Jackson (2007) mentions that acquisitions are associated with reduced overheads and costs, and this can be effected through increased purchasing power, and shared marketing budgets. It is also apparent that purchasing an established facility is less demanding than acquiring and building.

However, an investment acquisition can be expensive, which implies that an organisation must have sufficient financial endowment to finance the acquisition and as well maintain its normal operations. Employee retention is also a major challenge, as in some instances, dismissal of redundant employees is unavoidable. The above-mentioned benefit of cultural diversity can be affected when the organisations have highly distinct and dominating cultures, for example hierarchical versus Laissez Faire leadership. Acquisitions also result in redundant and worthless duplication.

Fashion Retailing Market

The fashion industry is highly complex. This is attributed to some elements intrinsic to fashion because of the diversity for novelty’s sake. Other elements are external. In reality, the fashion market grows because of its flexibility and diversity that is sufficient to satisfy any customer’s desire to either embrace of reject fashionability. By summarising the findings of Christopher, Lowson, and (2004), Cristopher and Towill (2001), Sull and Turconi (2008), it is apparent that several concepts characterise the fashion market and industry. These are globalisation, variety, high volatility, seasonality, low predictability, volume, short lifecycles, lead times, and velocity. Ciarniene and Vienazindiene (2014) add that manufacturers of apparel, home textiles, footwear, and accessories usually produce items that are either style-based or non-style based. The size and colour combinations within a style can be a foundation for a vast number of finished products, which coupled with low batch sizes, persuades increased order volumes. Concurrently, customers are forcing organisations to make decisions quickly through their demand for shorter least times.

Demand for fashion products is rarely stable or even linear (Bhardwaj and Fairhurst, 2010). This is because it is highly sensitive to vagaries of weather, art, and celebrities. If an item is highly fashionable, its demand is unpredictable because of its intrinsic nature. In addition, the volatility of demand makes it difficult to forecast even with minimal accuracy the demand within a specific period, let alone item-by-item or week by week demand.

As the industry becomes international, many firms have acquired or established production capacities in different nations, and as well outsourcing production to contract manufacturers (Lu, Karpova, and Fiore, 2011). In addition, the concept of vertical integration is gaining foothold. According to Sheridan, Moore, and Nobbs (2006), this all propagates more supply chain complexities, which makes the process of decision making on products of different styles over time complicated.

Fabrics demand long lead times, and this in addition to the significant distances between the units of production and retailers can raise the need for purchasing and production against a forecast (Bhardwaj and Fairhurst, 2010). Several fashion companies are adopting and deploying business models that support the sourcing of initial push in a low cost region or country, and the sourcing replenishment from a local area at a cost penalty. The model is considered hospitable to more flexibility and helps avoid excessive exposure of inventory, but increases planning complications.

The reality of fashion trends and their seasonal nature implies that styles have short lifecycles, and are usually produced for a few weeks in the quest to address seasonal peaks, production load is often balanced across several sites or smoothed backwards (Moore, Doherty, and Doyle, 2010). Another element of the fashion industry is impulse buying. A consumer can make a purchasing decision when they are confronted with an item at the location of purchase.

When consumers visit a fashion retailer’s premises, they identify difference ranges of products and methods of presentation. Quality customer service is also a determining item (Sull and Turconi, 2008). However, the customers may not be aware that the products might have been subjected to a myriad of stages to become items suitable for sale, before finally reaching them. The fashion industry is characterised by notoriously long, inflexible, and long apparel pipelines and this structure is induced long buying cycles. These became unsuitable for the requirements of the modern fashion industry and highly selective fashion consumers.

Because of the complexities indicated above and the intricacy of the industry, management of a supply chain demand substantial care. This is specifically with regards to timeliness of specific supply chain functions such as production, transportation, and marketing. Agility, organisation, and co-ordination determine strategic benefits of retailers. By summarising the publications of Bruce, Daly, and Towers (2004), Burns, Mullet, and Bryant (2016), Christopher, Lowson, and Peck, (2004), and Runfola and Guercini (2013), the supply chain and activities in the production and marketing of a typical products in the fashion industry.

The fashion industry is trend-driven and fast moving and has operations within three sectors of an economy that are classified under four major stages (Ciarnienė and Vienazindiene, 2014). The first state is the sourcing and production of raw materials, specifically textiles, fibres, fur, and leather. The second is the production of the products by manufacturers, contractors, and designers amongst others. Then there are retail sales. There are also promotions and advertising stages. These four stages are dependent on separate but interdependent sectors whose devotion is towards the objective of satisfying the client’s demand for products under conditions that facilitate the participation of various entities in the industry to make a profit. These operations and activities proceed and are driven by the demand in a fashion market, the level of inventories in the entities, and as well, rules that govern the sizes of production lot (Ciarnienė and Vienazindiene, 2014).

Firms in the fashion industry engage in activities in production, storage, and distribution of various fashion items and are in perpetual lookout for their optimal multiproduct flows to their markets, while still considering total cost and total time minimisation and utilisation (Şen, 2008). The significance of time as a competitive weapon has characterised the fashion industry, and the ability to address the demands of clients ever-shorter delivery periods and ensuring supply synchronisation to cater for troughs and peaks of demand is of essence, just as Jung and Jin (2014) demonstrate. This is because of the three critical lead times: time to market, which is the time taken for a firm to recognise a market opportunity and inform production of a product of service, time to serve, which is the time taken to capture a customer’s order and satisfactorily deliver, and time to react, which represents the time taken to regulate the output of a firm in response to uncertain demand. A core problem in fashion organisations is the time taken to deliver a product into a market is perpetually longer than a client is prepared to wait. Hines and McGowan (n.d.) state that a solution to this challenge lays in the responsiveness of an organisation’s supply chain.

Concerning the firms in the fashion industry, Lu, Karpova and Fiore (2011) are of the opinion that the entry strategy should be dependent firm specific factors, including but not limited to brand equity, international experience, and financial capabilities. In addition, counter specific factors are also paramount, and include the cultural distance, government regulations, and country risks. Market factors, including the level of competition and size of the market are worth considering. The evaluation of these elements would result in a fashion retailer being able to understand the level of control over the foreign operation, and if the benefits outweigh the loss of control, a company can deploy licensing strategy. If the control is more significant, then total ownership or acquisition is ideal. This finding explains the difference in the entry strategies deployed by fashion and apparel companies operating internationally.

China’s Fashion Industry

China’s fashion industry has experienced a significant transformation over the last decade, and there is an understanding that it will continue to growth exponentially (Brienza, 2014). Between 2000 and 2010, the fashion market tripled, with the Boston consultancy group expecting the industry to grow threefold from 2010 to 2020 (Brasó-Broggi, 2015). This has been attributed to the increasing income endowment and rising living conditions as they have supported a growing market for both high end and low-end clothing. In addition, china has a substantial modern population that is continually valuing being more fashionable and differentiating clothing. With rapid economic growth and a high population of 1.4 billion, the country offers a lucrative opportunity for fashion businesses. With new technologies influencing the approach of fashion retailers and designers, online presence is becoming widespread, with apparel, bags, and accessories being major products in china’s online market place.

China’s fashion retail market is transforming as quickly as it expands. With the increasing affluence and improving incomes, fashion consumers in the country are demanding improved quality and as well unique products and services (Montgomery, 2011). It was not after around 15 years ago that the department stores lost their importance as fashion distribution channel. Currently, the situation is very different as shopping malls have been highly welcomed in the modern fashion retail landscape (Luo, 2000). The increase of modern malls in china is indicative of a transformation of shopping habits by the Chinese who dominate malls where they can obtain everything and as well spend quality time. Although there is apparent fierce competition between the shopping malls and other modern channels, especially online retailing, shopping malls are a preference for many customers when prospecting for highly priced and famous brand items.

The high-end malls in major cities in china are usually well managed and strategically located in the quest for better convenience by professional, affluent, and young shoppers (International Trade Centre UNCTAD/WTO.2008). Usually, the owners and developments of the malls work together with the flagship retailers on marketing activities and joint promotions. These mechanisms driver high shopper traffic and this increases both the retailers and mall owners. The mall developers always look for famous international fashion brands, besides the first and second line brands. They target trendy brands that have a regular flow of new collections that can appeal to the fast changing preferences of the dynamic Chinese shoppers. Because of the increase in retail property supply, owners of shopping malls are pursuing china’s leading fast flagship and luxury brands to increase foot traffic, trying as far as waiving flat rent rate (Sinkovics, 2009).

It is because of these benefits that international brands are setting up in China. Most of these international brands beginning with introducing themselves in the first tier cities and then to second and third tier cities. Most of the customers in the second and third tier cities are inclined towards buying from well-known retailers, thereby making it mandatory for firms to establish first in the first tier regions to achieve their brand awareness. The middle class in china view Hong Kong as a trendsetter, while in the mainland, shanghai is considered a trendsetter. With most of the media located in Beijing, most international fashion and luxury brands locate their public relationship offices in Beijing, and many big fashion events in the country happen in the city.

Generally, overseas brands such as Burberry, Chanel, and Armani amongst others dominate china’s high-end domestic market, and the country is amongst the largest markets of luxury products, while still being lucrative for mass fashion. A mix of foreign and domestic brands such as tommy Hilfiger, adidas, and Nike dominate the middle and low ends of the market. China’s population and the growth rate also supports fast fashion industry, with international brands such as Zara, H&M, and Uniqlo, which consider the country as a major source of their revenues. Despite the apparent massive market for fashion products, several foreign companies have failed to establish a niche. For example, Asos, a British fashion company exited the Chinese market in April 2016, citing its inability to understand Chinese customers and competition.

Challenges

With all the untapped opportunities it avails, penetrating the Chinese market also encounters many challenges. Amongst the reasons is the country’s comprehensive system that regulates the entry of raw materials and finished products of textiles, apparel, and footwear (Hsueh, 2016). The country has safeguards that control the physical and chemical requirements for footwear and textile products. The requirements, which also include performance, category, labelling have been made compulsory nationally for them to gain entry into the country. While the rules and regulations might be complex to comprehend, it is certainly not impossible to succeed, but vigilance is recommended.

Another challenge revolves around the intellectual rights. Chinese laws on intellectual property rights are strict and comprehensive, but the implementation is not as guaranteed and thorough in comparison to western standards. It remains significant for companies to register their brands and this registration is done in a first come first serve dimension, despite the original ownership. A myriad of mechanisms can be executed to protect a brand from emulation, a major tool being the media. Inability to protect intellectual properties can give opportunities to other companies to copy products.

There is a fierce competition for employees who can understand and speak English fluently, because of the high competition for them (Tian, 2016). In addition, they are not necessarily loyal, especially to foreign companies, but the channels of sales are still not completely understood by foreigners. This is not only for fashion retailers, but also other companies and supermarket chains. There is always an incomprehensible area when conducting business in china, and this raises the significance of an experienced agent or local distributor in the collection of first-hand information and conducting marketing and marketing related activities (Tian, 2016). This is in the quest to avoid transplantation of home methods in a local market that inherently demands the incorporation of local conditions and factors in establishing a consumable product. In addition, some corporations generalise and transplant operational and business strategies across Asian countries while customers in China and Hong Kong have differing demands and expectations (Olivier, 2014).

The concept of Mianzi in China as a major impediment towards foreign entry is can never go unmentioned. Doing business in china, or the entire Asia demands an exclusively different mind-set (Zolkiewski and Feng, 2011). Running of corporations are guided by a strong culture of obedience and deference. Ethos can build or break a corporation in China, and this is attributed to the Asian’ culture sensitive radar towards flaws and failures and is extremely unforgiving. This can explained using Hofstede’s cultural dimension of china, as detailed in (Hofstede, n,d). Based on Hofstede’s power distance dimension, china scores high, indicating that inequalities are acceptable, and relationships between superiors and subordinates are highly morally based than performance. In addition, it scores low on individualism, implying that the country is highly communal and collective, and therefore, the interests of a team or a group essentially surpass that of individuals. Employees can be committed more towards a team than the entire organisation. This can be the explanation behind the inability of some of the biggest multinationals to manage their human resources and obtain a market position.

The purpose of this chapter was to inform the dissertation in terms of the background knowledge that has been published on concepts central to the study. It has covered the concepts of globalisation and internationalisations and the motivations behind these growing business trends, and as well, the difficulties encountered. It has evaluated content on international market entry methods, including the factors that are usually considered and the resulting market entry methods. Lastly, the section has detailed information on the current situation of Fashion industry in China, including the exponential growth, and thus the opportunities it offers. It has also indicated some of the various impediments in establishing in the country. The following section is the methodology, which analyses and justifies the methods applied in this research.

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