Kathmandu Enter Into Chinese Market
The outdoor sport is an professional sport activity not only require a good hysterical quality but also good clothing and equipment to resist the bad environment. Therefore, fast increase of the outdoor sport contributes to sharp augment on demand of outdoor sport clothing and equipment. As reporting by China Outdoor Sport Association, the number of annual sales from existing manufacturers of outdoor equipment was 800 million ARM in 2010, while the number of that in 2000 was 60 million ARM, and the number of Chinese participation in the outdoor sport has reached one hundred million (China Outdoor Sport Association, 2012).
Hence, along tit the unbelievable development of the outdoor sport and the higher demand of outdoor products, obviously, the potential of the Chinese outdoor sport market is quite considerable. 3. 2 Situation of Chinese outdoor market Basic the market research, currently, there are approximately 200 Chinese local outdoor sport brands and around 1100 outdoor clothing and equipment stores. Although the outdoor industry of China is at beginning phases, every year increase 50%.
The CEO of the GORE Company which is one of the beat 100 American outdoor equipment companies pointed out that such fast increase would maintain at the east 5 years
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The local manufactures only produce or provide elementary products or services, lack of the leading company and well-known brand is a serious issue in the local market. Therefore, it is a favorable opportunity for Katmandu to expend to the Chinese outdoor market, because of the sharp escalation of market demand and insufficient supply of the local outdoor market. . 3 Competitors in Chinese outdoor market China already had around 200 local brands in outdoor sport market. However, in such new industry market foreign companies occupied the main position.
According to the research, there are four main competitors for Katmandu in the Chinese outdoor market, which include The North Face that is an American company, it has a long history and produce fine workmanship products, one company of France named OZARK which is a Switzerland Company and the design of their products is following the characteristic of the Chinese. The last one competitor is Sale from German Chinese News, 2011). Compare with these foreign companies, the technology and quality of the local brands are at lower level, particularly, at the aspect of technology.
According to the National Development and Reform Commission, there is a police of 5 years plant from 2011 to 201 5, which will focus on inequality of wealth distribution and shifting emphasis from investment to consumption (National Development and Reform Commission, 2011). Therefore more money will be spent in rural and inland development. So that Katmandu can expect a growing number of potential customers in the coming 5 years. Therefore, the current situation of the Chinese market is ideally for Katmandu to attract more customers and to sales more outdoor products.
Katmandu has sufficient experience on oversea expending. According to the Katmandu office report, currently, the company of Katmandu has totally 107 retail stores, 65 located in Australia, 39 in New Zealand and 6 in United Kingdom respectively. In 2003 and 2004, the company entered into the market of United Kingdom, and speedy became one of the top two outdoor brands in the I-J. The office report also mentioned that the Katmandu Company made 237 million CIA$ sales and obtained 7 million profit in 2011(Katmandu, 2012).
Therefore, the Katmandu has sufficient expending experience, which enables to reduce risks that are bought by the insufficient of experience when enter into China. Furthermore, owning of market. Specifically, the technologies of anti-wind, anti-fire, waterproof and high heat preservation are adopted by all of their products with high comfortable level. Such advanced technologies are what the Chinese local outdoor equipment market and customers need. However, there are some weaknesses of Katmandu can not be ignored in Chinese market.
Firstly, lack of Guan XSL (special relationship) will be the main issue for the company. In Chinese market, it is difficult to obtain long-term profit that making the business without a favorable Guan X’, particularly, the closing relationship with the Chinese government. The Katmandu may face some restriction from the Chinese Government. Such as, polices changing, law modifying and the controlling on some local resources, which will bring a great number of obstacles on operation of the Katmandu company in China. Secondly, low brand awareness will lead to high cost in Chinese market.
Obviously, although there is an increase in the demand of esters products for the Chinese customers, the products selection of customers is quite cautious, especially on unacquainted brands. The Katmandu may needs more patience to the Chinese clients to know more about the products of the Katmandu, in other words, more time is required by the Chinese market. In addition, in such situation, more capitals will be spent by the company on advertising in order to build the name recognition. Thus, these weaknesses may bring some risks for the Katmandu company operation in China. . 5. 1 Selection of the entry modes The selection of entry modes is crucial for every company when enter into a new market. There are two major entry modes, which include non-equity modes and equity modes (Chem. Hut, 2002). As a multinational company and has good expending experience in the UK and New Zealand, it is undeniable that equity modes is appropriate to the Katmandu when enter into Chinese market. The entry modes contain Joint-venture, acquisitions and green-fields (Peter, 2008).
Merger and acquisition can assists the Katmandu directly entering into Chinese market by purchasing the company that already has established in China. However, a large number of capitals are required by the Katmandu company to merger the Chinese local company, which means more cost will occur when choose this entry method. In addition, social-cultural environment issue should be considered by the western companies, acquisition entry method may be related to a sort of aggression by Chinese duo to the Chinese history, so that some threatens will be faced by the Katmandu Company, for instant, anti-products and service of the company.
The green-fields entry method also requires large number of capitals to support, and this approach is quite complicate to operate. While more freedom in designing the plant, selecting suppliers, and hiring a work force will be contributed by green-field (Alkali, 2007). Compare with acquisition and green-field, Joint-venture entry method is more The reasons as follow, firstly, Beamers pointed out that Joint-venture is cheaper to exit compare with green-fields and also has the advantage that benefits the company to directly enter the market of other countries (Beamers, 2001).
Secondly, the Katmandu Company is not familiar with Chinese institutions and regulations, finding a Joint-venture partner can help understand rules of running business, and he Guan Xi of the Chinese partner can be used by the Katmandu in China. Moreover, such method will provide strong bargaining power with Joint-venture partner for the company, as Katmandu can provide high technical resources and product line which is the crucial issue facing by the Chinese outdoor companies. However, there are some disadvantages that lead to the risks to the Katmandu Company from the Joint-venture entry method.
Firstly, the Joint-venture may modify the partner to competitor (Scrawnier, 1994). Specifically, it is dangerous that giving the advanced technologies to the partner to control. Perhaps the primary goal of the local partner is to control the leading technologies of the Katmandu; such technologies will be used by other local companies on their products in order to obtain the bigger market share and to make more profit, which should be the most primary risk for the Katmandu Company. Secondly, shared ownership can lead to conflict over goals and control.
The ownership and administrative power will become the main conflict between the partner and the foreign company (Scrawnier, 1994). In order to control and make the biggest profit to their own company, both local and reign company adopts various approaches to attain the beneficial position in the joint-venture company. Such as, increasing the investment and controlling the resources. Balancing the advantages and disadvantages for the Katmandu Company to select the entry modes in Chinese market, Joint-venture is the ideally entry modes for the company.