Comparative Study of The Markets of China and Europe

Question: Discuss about the Comparative Study of The Markets of China and Europe. Answer: Introduction R.M. Williams company was founded by Reginald Murray in the year 1932. The company was started in his fathers factory with very low capital investment. Gradually, the business of RM grew and diversified into bush saddler and equipment. The company today has over 50 retail stores in Australia along with one of its stores in London (R.M. Williams, 2017). The company exports to more than 15 countries and has over 900 stockists around the world (R.M. Williams, 2017). The core product of R.M. Williams is handcrafted riding boots and over the period of time the company has introduced t-shirts, caps, leather wallets and polo shirts. The company now designs and produces products for both men and women that include shirts, t-shirts, boots, boots care accessories, skirts, jeans, jackets, bags, wallets, buckles and customized shoes. The company has mastered premium Australian craftsmanship over the span of 80 years. The company produces boots that are beautiful, durable and appropriate for the needs of the customers. In 2013, LVMH purchased 49.9% of companys stake and the company is now owned by global Luxury brand Louis Vuitton Moet Hennessy (Carruthers, 2016). After a huge investment of 50 million dollars, it has become necessary to analyze the market potential to assess the market demands. The paper would thus, make an attempt to carry out a comparative study for the market of China and Europe and find out which market has more potential for the brand. An external environmental analysis would be carried out using PESTEL analysis. Comparative Environment Analysis Economic and Financial Environments China has become the worlds second largest economy after the adoption of economic reforms in 1978 (Focus Economics, 2017). The country became a manufacturing hub and attracted the countries of the world to outsource their work to China because of its low product prices. It was due to this fact that the country was able to survive the global recession of 2008. Further, the corporate tax in China is only 15% for large scale companies, that is very small as compared to western countries (Worldwide Tax, 2014). China witnessed inflation due to which the prices of transport and communication and clothing rose by 2% and 1.3% that would be a challenge for the company as the manufacturing cost of products would increase (Trading Economics, 2017). Further, the company would benefit from the low labor cost of China and abundance of skilled labor in the country. Thus, the company would benefit from growing economy, low labor cost and abundance of labor in the country. China has begun to embrace FDI by reducing the trade barriers for the foreign companies and the country has witnessed growth of 6% in its inward flow of FDI (Export.gov, 2016). The country has been able to attract foreign companies because of its growing and sustainable economy. The five largest banks of China are Industrial and Commercial bank of China, Bank of China, China construction Bank, Bank of Communications and Agricultural Bank of China (CNBC, 2013). The bank lending rose from 32 trillion yuan to 67 trillion yuan from 2012 to 2008 (CNBC, 2013). This shows that the market of China has great liquidity that would facilitate with the means of finances for the company to set up its operations within the country. Though the company is likely to face challenges due to countrys restricted policies for FDI. It would have to submit Letters of Guarantee along with acceptable collaterals. The economy of Europe has been expected to grow at a consistent pace for 2017 and 2018. Euro zone has witnessed a rise in GDP for the last 15 consecutive quarters which was supported by private consumption. It has been projected to grow by 1.6% and 1.8% in 2017 and 2018 respectively (European Commission, 2017a). The exports market has been estimated to grow for the following two years after a weak 2016. Further, inflation has also been expected to increase by 1.7% and 1.4% in 2017 and 2018 respectively (European Commission, 2017a). On the other hand, BREXIT is also most likely to have a negative impact on the economy of Europe. Europe would lose one of its most contributing members through BREXIT that could lead to downfall of the economy (Blenkilsop, 2016). R.M. Williams may take advantage of the growing economy and increasing inflation but need to stay alert to shield itself from the impact of BREXIT and rising cost of goods and services. The financial sector of Europe has been greatly affected by the 2008 global crisis. Low oil and commodity prices, negative interest rates and lower credit and equity markets have affected the profitability of banks, though liquidity of banks remain unaffected (Goffinet, 2016). Political and Legal Environments The Republic of China has communist party system with a stable political system (BBC News, 2017). The government of China strongly supports trade and investment opportunities for foreign companies. The country has gone through many structural changes that include equity joint ventures, reorientation of FDI and growing service sector (Davies, 2013). With the spread of global financial and economic crisis, the country has strongly reinforced FDI. This could be an advantage for LVMH to introduce R.M. Williams product in the market of China and it would be strongly supported by the government. China has strict laws and regulations for foreign companies that restrict their market growth in the country. Though the country has removed some of its restriction and has been making efforts to promote FDI in the country. Earlier, almost three fourth of the industries were required to enter into a joint venture with a Chinese company and one fourth industries were subjected to the clause that Chinese firm should hold the majority of the stake (Cheung and Jin, 2014). This policy has been eased down in the country and numerous industries including garments and shoes industries have now been opened for FDI. In spite of Chinas opening arms for FDI, challenges lie ahead for the foreign companies. The policies of China are more directed towards state owned firms due to which foreign investors face consistent challenges to promote their products and services (Wu, 2016). The company has strict laws that limit foreign investment after a certain limit. They face the challenges due to discriminatory laws, corruption and non-transparent anti-monopoly enforcement (Export.gov, 2016). Thus, the company would have to face legal challenges in China in order to establish and grow its market because of countrys discriminatory policies for foreign and state owned firms. The company would have to make sure that the trademark and patents are not owned by a Chinese company otherwise, it would have to face IPR infringement as faced by Hugo Boss (ICBC, 2017). Europe has gone through series of political instabilities after the economy of Greece fell apart. The impact was severe on the entire European zone as efforts were contributed by the major countries including Germany and France. The impact seems to be rising again with Syriza party in Greece and anti-euro parties in France, Spain and Greece (Spiegel, 2015). The situation of the zone seems to have become worse with the BREXIT deal that has created chaos in the entire Europe (Blenkilsop, 2016). This is likely to pour challenges in the establishment of the brand in the market in the form of changes in policy structure and international trade barriers. Since R.M. Williams has now been overtaken by LVMH, which is a France based company, therefore, it would not have to face the trade barriers of European zone. Instead, the company would enjoy all the rights as that of a home company. Cultural Environments China has the highest population in the world and thus, is an emerging market in the world. The companies have been chasing after the market of China to expand their market and grow their sales revenue by capturing the Chinese market. This change is because of enhanced standard of living of Chinese people. China has witnessed the highest growth rate in terms increasing standard of living of the people (Ross, 2013). Further, shoes market is also growing in China and the people are attracted towards global brands. The shoe market is witnessing a steady every year (Yau, 2016). Further, the fashion industry is also growing in the market of China and country is considered as potential target with 1.4 billion population (Consulate General Shanghai, 2014). The country has become one of the primary lifestyle shopping market with its increasing standard of living and demand for global products (Young, 2015). The Chinese perceive global brands as their aspiration product. Thus, China has huge potential for the brand with its growing population and increasing trend among the consumers. Europe has diversified population from all parts of the world that varies in their culture and traditions. The zone has very high standards of living and the people are very conscious about the brand they wear. The people of France, Germany, Italy and Switzerland have a passion for premium luxurious brands. Garment and shoe market had a turnover of 166 million euros in 2013 (European Commission, 2017b). Further, the demand for luxurious shoes and garments has been constantly increasing due to high standards of living. Thus, in terms of socio-cultural factors, the market has great potential for R.M. Williams. Strategic Recommendations The growing economy and low cost labor of China would facilitate smooth operations in the country, but strict government policies for credit facility for the foreign companies would pose challenges for the brand. Further, inflation rate would also surge the cost of manufacturing products in China. On the other hand, Europes stable and growing economy would facilitate growth but the BREXIT deal would have a negative impact. Finance would be comparatively easier in Europe but profitability of banks is in danger. Thus, economic and financial environmental conditions of Europe offer greater opportunity as compared to that of China. The company is likely to face challenges due to discriminatory policies and lack of transparency in China. Further, government policies are more state owned firms oriented due to which the company would have to face great number of challenges in China. On the other hand, the company would not have to face any legal challenge in Europe because LVMH, France based company, has acquired R.M. Williams, that makes R.M. Williams a domestic company. China and Europe both are politically stable, except that Europe faces the threat of BREXIT and Greece is also politically unstable after the breakdown of its economy. China has great market for western brands because of changing consumer lifestyle, yet the majority of the people cannot afford premium brands. On the other hand, Europes countries are among the countries with high purchasing power and standard of living. An average European is inclined to buy luxurious products that are perceived very expensive by Chinese people. Thus, the above analysis states that market of Europe is better in terms of economy, financial borrowing and liquidity, flexibility of legal policies and standard of living of people. Thus, Europe is the recommended market and has more potential as compared to China. Conclusion The analysis and discussion thus, reveals that Europe has more market potential as compared to market of China. China in spite of being the fastest growing economy of the world does not provide the suitable legal and political environment for the company to establish and grow its market. Chinas discriminatory policies and lack of transparency do not support the growth of foreign companies and its policy structure is more directed towards state owned firms that hinders the operational activities of foreign companies. The foreign companies face intellectual infringement challenges and the ruling goes in the favor of Chinese domestic companies. 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