Assignment title exporting garment products to south korea and germany

Course/ Program: BSc (Hons) Business Management Module: BAM6003 Global Marketing Tutor: Dr David Ratcliffe Assignment Number: One of One Assignment Title: Exporting garment products to South Korea and Germany Assignment Length: 5021 words Submission Deadline: September 16th, 2019 Student name: Tran Vu My Linh Student ID: 1908299 BA Business Studies Bolton Business School Table of Contents Introduction PEST Analysis South Korea3 Political Factors Economical Factors Social Factors Technological Factors Germany Political Factors Economical Factors Social Factors 10 Technological Factors 10 11 Marketing Mix – 4ps Analysis 11 South Korea11 Product 12 Price 13 Place 13 Promotion Germany 14 15 Product 15 Price 16 Place 16 Promotion 17 Marketing Entry Strategy 17 South Korea17 Germany 18 Market Selection and Justification 19 Conclusion 22 Bibliography 23 Figures Figure Interest rate of South Korea Figure Inflation rate of South Korea Figure Population pyramid of South Korea Figure Online shopping transaction volume in South Korea from 2009 to 2018 (in trillion Korean won) Table Table Indicators for screening 20 Introduction In this report, we will analyze PEST factors and marketing mix concept with 4ps After analyzing, we will decide which method is suitable to enter the markets, and the reasons why we choose South Korea to export our products We are a company providing designed clothes and have several years experienced in the fashion industry and have been one of the outstanding domestic companies After the second branch officially operated, the company profit increased significantly thanks to high-quality products and customer support, the company decided to carry out foreign markets The two products we choose to export are also the best-selling products of the company, which are fashionable dress with trendy design and inner wears with heat-technology (Heattech) After considering carefully, we chose two potential markets from two different continents, which are from Asia and Europe The first one is South Korea, because of the high demand for fashionable items, and young or adult Koreans have a tendency of showing their personality through their outfit, this market will be beneficial for our company The other one is Germany, although there are many famous luxury brands and famous designers have the German root, the majority of Germans not have the habit of pursuing latest fashion trends like Koreans but have the preference of functional wearing PEST Analysis PEST analysis (political, economic, social, technological factors) is a broad framework to help managers understand the environment in which their business operates Managers can simply use this framework as a checklist to ask themselves questions as to how political, economic, social, or technological developments might influence their industry and their company (Frynas and Mellahi, 2015) 2.1 South Korea 2.1.1 Political Factors: Bilateral agreement between South Korea and Vietnam: In 2015, Vietnam and South Korea officially signed Vietnam-Korea Free Trade Agreement (VKFTA), which helped trade exchanged between two countries increased rapidly Korean side has committed to offer Vietnam with the preference of tariff elimination and applying quota for 11,679 tariff lines, including the Vietnamese key- export goods such as fisheries, agricultural products, fresh flowers, tropical fruits, industrial products of textile, garment, mechanical instruments (Ly, 2015) This is a great advantage for garment export company like us, we will not encounter obstacles with tax fees, therefore, our products will not be highly priced and can compete with domestic products of the country 2.1.2 Economic Factors: Gross domestic product (GDP) and gross national income (GNI): South Korea ranked 11 in top 20 largest economy in the word (Silver, 2019) and is a member of the G20 and the OECD The GDP growth rate of this country was 2.7% in 2018, decreased by 0.4% compared to 2017 The GNI per capita was recorded at $30,600 (current US$) This figure classifies South Korea is a high-income country (The World Bank, 2018) If we want to bring luxurious items to this market, there may not have any difficulty Interest rate and inflation rate: Figure 1: Latest figure for the Interest rate of South Korea (Trading Economics, 2019) By July 2019, the interest rate of South Korea dropped from 1.75% to 1.50% This percentage is very low compared to Vietnam, which is 6.25% (Trading Economics, 2019) The difference indicates that more consumers are able to borrow money, leading to the purchase power in South Korea is stronger, which boost national economy and inflation rate may increase as well Figure 2: Latest figure for the Inflation rate of South Korea (Trading Economics, 2019) South Korea's annual inflation rate edged down to 0.6 percent in July 2019 from 0.7 percent in the previous month and compared to market expectations of 0.85 percent (Trading Economics, 2019) Low inflation will create a stable macroeconomic environment and a favorable business environment Moreover, low prices can encourage consumption, thereby increasing demand, which is an important factor for long-term economic growth 2.1.3 Socio – Cultural Factors: Population Structure: By July 2018, the population of South Korea was estimated about 51,418,097 with the growth rate of 0.44% South Korea ranked 27 compared to other countries in the world The age structure of the country is – 14 years: 13.03%; 15 – 24 years: 12.19%; 25 – 54 years: 45.13%; 55 – 64 years: 15.09%; 65 years and older: 14.55% (CIA, 2018) Figure 3: Population pyramid of South Korea (CIA, 2019) As shown in the population pyramid and the age structure, the age group in South Korea focuses more on young people and adults This is also the group that has a certain interest in fashion trends and influences the consumption of garment products that shows an opportunity for our company to bring fashionable dress to the market Education and Literacy: South Korea has compulsory education through the ninth grade, with 95 percent of school-age children attending high school The literacy rate is 98 percent (Library of Congress, 2005) According to QS World University Rankings, in 2019, South Korea has five universities in top 100, which have shown the high educational level of Korean Cultural environment in business: Vietnam and Korea have similar cultural traits In business, both countries have cultures such as building good relationships and giving gifts or drinking and dinning culture that may influence in improving relationships between peers Thanks to these similarities, doing business in South Korea will not be culturally constrained for a Vietnamese company like us Consumer trends toward fashion items: “Newtro” is a combination of “new” and “retro”, which is a biggest trend in the fashion industry, especially South Korea This trend refers to modern items with details that bring back memories of the 1990’s fashion styles such as dress with bubble sleeves or flared jeans (World.kbs.co.kr, 2019) This trend is attractive especially for young adults in their 20s or even people in their 30s or 40s, and the demand for items such as clothing with the “newtro” design is really high On aggregate, with our fashionable dress that we are going to export to this market, we will adjust the design to match the demand of the consumer 2.1.4 Technological Factors: Internet penetration: With the highest internet speed in the world (28553.69 KBps; Trading Economics, 2017), 95% of the population in this country are internet users (The World Bank, 2017) There are 44.1 million internet users in 2018, it is expected to grow steadily to 45.02 by the year 2022 (Statista Research Department, 2018) Opportunity for company’s online business: Figure 4: Latest table chart shows online shopping transaction volume in South Korea from 2009 to 2018 (in trillion Korean won) (Statista Research Department, 2018) High number of internet penetration leading to high transaction of online shopping As the table shows above, the online shopping transaction was calculated more than 113 trillion won (approximately $94 billion), increased drastically from around 92 trillion won (approximately $76 billion) in the previous year Therefore, it creates opportunities for our company when we plan to approach online consumers 2.2 Germany 2.2.1 Political Factors: Bilateral agreement between the EU and Vietnam: By the end of June 2019, in Hanoi, the Vietnam-European Union Free Trade Agreement (EVFTA) and the Investment Protection Agreement between Vietnam and the European Union (IPA) were signed The completion of negotiations and signing of this agreement strengthens bilateral relations on a strong development in many areas between Vietnam and the EU – where Germany is a member, deepening the trade and economic relations, bringing benefits to sides EVFTA will help to expand the market for Vietnam's exports and commit to abolish import duties up to 100% including textiles and garment products However, in order to enjoy preferential tax rates, Vietnamese garments must meet strict testing requirements of origin 2.2.2 Economic Factors: Gross domestic product (GDP) and gross national income per capita (GNI): Germany is the fourth largest economy in the world and the Europe’s largest economy (Silver, 2019) Germany is a member of the G7 and the OECD The GDP growth rate of the country had been stable from 2016 to 2017 (2.2%), but then dropped to 1.4% in 2018 (The World Bank, 2018) The GNI per capita of Germany in 2018 was $40,450 (in current USD), there is no doubt that Germany is a high-income country (The World Bank, 2018) Inflation rate: The inflation rate was confirmed at 1.7% by July 2019 For clothing and footwear, the prices have been lowered to 3.4% compared to the previous month, which is beneficial for consumers (Trading Economics, 2019) Lower price encourages the consumption, thus, increasing the productivity of business On the contrary, the profit of the company may be reduced Therefore, the company must take this figure into consideration to plan suitably Unemployment rate: Germany has always remained one of the countries with lowest unemployment rate in the world, with 3.0% by July 2019 (Trading Economics, 2019) Degrees of economic freedom: According to 2019 Index of Economic Freedom, Germany’s score is 73.5 and is a mostly economic freedom country among other countries Germany has good protection of property rights as well as well-functioning and modern financial sector providing full ranges of services, along with an open market to global trade, all these advantages will help to support long-term competitiveness and business development for the company 2.2.3 Socio – Cultural Factors: Population and level of education: The population calculated till 2018 was almost 83 million with the growth rate of 0.3% (The World Bank, 2018) Germany is one of the countries that has the highest education level in the world, most young German adults leave school with at least an upper secondary qualification education (Education at a Glance, 2018) One of the top priorities for German government spending is education, the federal and Lander governments have taken strong initiatives to improve quality of early childhood education and childcare, especially for children with disadvantaged of socio - economic background (OECD, 2018) Cultural environment in business: 10 Target market: We choose fashionable dress to export to South Korea market because we see clearly that appearance in this country is highly appreciated, and the customers tend to show their characteristics through what they wear The company targets females in their 20s to 40s, living in urban area with middle income These age groups have a certain demand for new trend clothing and with their affordability, the price we are setting out will be reasonable 3.1.1 Product Product description: As mentioned before, “newtro” design is a big trend in Korea and Korean females have a tendency not to wear clothes that reveal their skin too much such as sleeveless dress They often wear medium length dresses, even in the warm or cold weather Therefore, the fashionable dress that we are carrying out has medium length and short bubble sleeves, and it is made of silk fabrics decorated with printed mini flowers, these details are very popular as well as bring the 1990s vibe that suit the taste among females in their 20s to 40s There will be a wide range of colors and sizes for different preferences and body shape Type of consumer product: Fashion dress is a shopping product This type of consumer product is purchased less frequently than convenience products, and consumers often spend more time on comparing alternatives with quality, price and style Product benefit: Fashion items are often considered to have self-expressive benefits, so our products Customers who purchase our products will own a dress with the latest designs, helping them to show that they are a fashionista and up to date with the latest trends Labeling requirements: 12 According to the packaging and labeling regulations in South Korea, all the labeling of products sold in the market must be written in Korean and may include English instruction Also, mark of origin of products is compulsory and we must follow the labeling requirements such as product name, size or volume, materials, etc (Santander.com, 2019) Acknowledge this, we have to convert our company name to Korean letters and follow the requirements for the information of the products 3.1.2 Price Pricing approach: The average annual salary of Koreans is US$57,372, which is US$4,781 per month (Averagesalarysurvey.com, 2019) and they are willing to spend about 10% of their salary for quality clothes For new entrants in the market, Korean consumers tend to consider carefully whether the quality of products is worth the price, so the penetration pricing strategy will be applied to this market Although the consumers are quite particular, there is a psychological term among Korean consumers which is “Fear of Missing Out” We believe with a low price for our quality products, this psychological force may affect, and the sales response will be quick and strong Our product is one of the products that are entitled to the tax rate of 0% from the VKFTA, after calculating the costs and the value added tax of 10%, the company decided the initial price would be $20 per product, it will then gradually increase to a final sale price of $30 per product Although setting a low price for initial stage, the company still ensure that the price is not lower than its cost or lower than charges in the Vietnamese market, since the living standard of South Korean is higher than Vietnamese 3.1.3 Place Distribution channel: Our company’s products are shopping products so the distribution must be selective We choose indirect marketing for our product and the retail sale channel we are going to cooperate is 13 Lotte Department Store The scale of this distribution channel as well as the number of visitors at their stores will help us to reach potential customers faster, and their reputation will help build customer trust in our products Moreover, Lotte distribution channels has largely contributed to bringing many Vietnamese brands to its home market E – commerce: We also going to associate with an online distribution channel that only focus on fashion items called “W.Concept” This channel helps domestic customers to approach brands that are new to the market, not too popular, or independent brands However, they are very selective with products that want to be sold, these must satisfy the quality requirements and especially, must have a trendy design For the age group we are targeting, this site is the most appropriate 3.1.4 Promotion Marketing message and online advertising: The company came up with a slogan “Get that trendy newtro look” that strikes customers’ mind With the message, our company will create a viral video not only introduce our product but also promote special offers to customers, then advertise it on two most – used social media: Facebook and Instagram Customer service: Korean consumers are very attracted to samples Therefore, on the launching day, the company will run a promotion that first 1,000 customers buying the product will be given free cosmetic samples After acquiring a certain number of customers, the company will issue membership cards and have special offers only for them Also, on the website of W.Concept, customers can post feedbacks, or they can contact us through emails and we make sure that their feedbacks or questions will be answered within hours 14 For product exchange, the product will be exchanged within one week from the time of payment for cases of wrong size or defective products due to the manufacturer The product must be fully tagged, and customers have the receipt There is no other charges or fees for this process 3.2 Germany Target market: The products we are going to export to this market is inner wear with a special technology feature The company target consumers in their 30s to 40s regardless of gender, who live in big cities with high income from $40,000 to $50,000 annually 3.2.1 Product Product description: The product we bring to this market is inner wears with heattech This technology was introduced in Japan, they are long sleeves t-shirts made from special fabrics, of which the fibers will convert body moisture into heat and keep customers warm during cold weather They are called inner wears because these t-shirts are very thin and fit to the body shape that customers can wear them under their daily clothes Based on the German consumer behavior, they not like to wear clothes with bright colors or too much patterns Therefore, we provide plain inner wears in black, white and grey color along with sizes for different body shape for both women and men The special fabric can be stored and worn for up to five years, ensure the longevity of the products and suit the German consumers preference Type of consumer product and product benefit: Inner wears are shopping product and we consider the product has functional benefit These t-shirts keep warm to their body without putting too much layer of clothes Labeling requirements: 15 European Union has regulations on labeling products that products must be labeled in native language of the member state, which means we have to convert our name into German (Hodakel, 2019) Moreover, there are requirements such as fiber content or mark of origin we have to follow strictly 3.2.2 Price Pricing approach: The exclusive fabrics used to make the t-shirts are directly imported from Japan, a country that has also signed free trade agreement with Vietnam Therefore, based on the EU preferential tariff regulations, our products are still labeled “Made in Vietnam” and enjoy tax incentive After calculating all the costs with standard VAT in Germany is 19% (evz.de, 2019), the company decide for each product will be €100 This price will not be too high for a quality product with a long life Moreover, heat-tech inner wears is only used in the cold season, then the customer can store and reuse in the following years, which will extend the use time of the product We apply the static pricing strategy to this market, which means we cannot satisfy most part of the market Moreover, our products are made with high quality materials that makes the cost higher, that is why we target customers with high income 3.2.3 Place Form of distribution and E-commerce: Since the products that we are going to export were deluxe and had a special feature, so we want full control of our distribution and sales activities, and the price of our products and promotion will not be interfered by any intermediary Therefore, the company choose direct distribution by establishing our own retail store in Germany We also create a website of our company to communicate and distribute products directly to customers through that site Despite the preference of visiting store to touch and try the products, online shopping have recently been a tendency among Germany consumers Of the 72 16 million internet users in Germany, more than 70% buy goods online The average buyer profile is from 30 to 40 years old who lives in an urban area, and clothing is one of the most purchasing products in the e – commerce market (Satander.com, 2019) 3.2.4 Promotion Message and online advertising: We take the advantage of the program “Go – Digital” to help us with online marketing We run an advertise video which focus on the function as well as the long – wearing of the products, but that does not mean we not mention the design With the message “Keeping warm but still light – wearing” that give customers the general description about the products, also curious enough for customers to give the products a look Customer Service: German consumers have a preference to call for customer service instead of using emails, and knowing native language is essential Therefore, the company will recruit local employees to handle calls from customers and must ensure that they are well – trained to give customers accurate information about our products At the same time, the company should consider developing a mobile app since the age group we are targeting tend to order and contact brands through in-app chat interaction Market Entry Strategy The company decided to export products to both South Korea and Germany, since it was our first time to penetrate the two markets There are three options of exporting, but we only consider two methods which are direct and indirect exporting 4.1 South Korea Mode of entry: 17 We choose indirect export for South Korea market With the assistance of intermediary company, our products will easily penetrate markets where we not have much experience, guarantee of output and reduce business risks In addition, intermediaries have certain capabilities in terms of capital and human resources, helping us to save costs and time for the exporting process On the contrary, indirect export will not create a direct relationship between customers and the company We only have a little control over our products and how it is going to be marketed in the market, also, the company profit will be reduced due to the commission for intermediary Process of entry: We are going to corporate with Lotte Group, they are a kind export management company and business in retail channel They have Lotte Logistic that responsible for receiving, transporting and handling customs procedures, then there is Lotte Department Store, where our products are going to be sold to consumers  Lotte Logistic: The company will work with this department to give them a certain amount that we will export, schedule, consult them to devise appropriate  shipping options to save shipping costs and limit storage costs Lotte Department Store: For this department, the company will propose a discussion for both sides to agree on the display area of products in the mall, propose product prices and negotiate the profit for their retail channel At the same time, discuss the responsibilities of each party in case of having customer complaints 4.2 Germany Mode of entry: For the Germany market, we decide to export directly due to the desire of having full control over our products when it is exported to this market Selecting this method meaning the 18 company has to handle all stages of the market from the procedures, documents, transportation, to implementing the marketing plan Direct export could bring us more profit since we had not used any intermediary, as well as we can have direct contact with the market, so that we have the understanding the changes in customer demands, thereby adjusting our plan On the other hand, the demands on resources—human and financial—are much more intense than with indirect exporting (Kotabe and Helsen, 2004) Because there is no help from an intermediary company, if the company not have the proper analysis of the market, it may lead to an inappropriate strategy and low consumption on products Process of entry: In order to conduct direct export, the company needs a domestic organization responsible for export operations and a sale branch in Germany market  Domestic organization: We will establish an export department to perform operations from finding customers to organizing export contracts These are  conducted by full-time, knowledgeable export staff Germany sale branch: Based on our market target, this branch will be located in Heilbronn city, where the average income is suitable The establishment of a new branch acts like a distribution channel that helps the company not only have a showroom, but also has the opportunity to interact directly with customers, helping to quickly solve issues related to customers Market Selection and Justification 5.1: South Korea Preliminary screening: After investigation and deliberation, we want the location for the first exporting of the company to be located in one of East Asia countries For garment products, we narrow down to 19 countries where Vietnam has built a long-term and stable trading relationship, and these countries are South Korea, Japan and Taiwan Although China is the leading partners in importing Vietnamese garments, the company consider this country is not an appropriate market for developing our business Because of the political risk is quite high due to the conflict between China and America, which has reduced exports to China as many businesses not have new orders, the Chinese currency is devalued that cause foreign goods relatively expensive At the same time, when China could not export goods to the United States, they have to boost domestic consumption, which will reduce the demand for importing goods into their country This has a negative impact on the exporting of Vietnam to China Therefore, the company decided not to target China market in our plan Hong Kong is also one of the major partners importing Vietnamese garment products However, currently, the country is experiencing a political crisis that has seriously affected the economic situation and is expected to last until the end of 2019 The company acknowledge that at the moment, this is not the right time for business development, therefore, we have to eliminate Hong Kong Indicators for screening: To conduct more detailed screening, we evaluate based on criteria that have a weighty impact on business development, which are income per capita, population, competition, and political risk For each country, the company has collected data on those indicators which provided by Global Edge and The World Bank Per capita Country income Population Competition Political risk Score South Korea 45 50 40 10 4175 Japan 50 60 45 10 4775 Taiwan 30 20 15 30 2325 Weights 35 30 25 10 20 (45 x 35) + (50 x 30) + (40 x 25) + (10 x 10) = 4175 Table 1: Indicators for screening After analyzing and evaluating, our company decided South Korea to be the market that we are going to make a debut stage The selection we have made could be justified based on: Consideration of the opportunities: In the last two years, Vietnamese textile and garment products have a breakthrough in exporting to the South Korea market, being one of three commodity groups with a turnover of over $1 billion, accounting for higher than 40% of export turnover Compared to the previous years, the market share gap between China and Vietnam from 40.18% and 29.52% increased almost equal to 34.46% and 32.67% (Trang, 2018) These figures represent a great opportunity for the company to export garments like us Moreover, Vietnam's textiles and garments only account for about 30% of the market share in South Korea, showing that there is still plenty of room for Vietnamese exporting company to go deeper into this market Consideration of threats: Because South Korea is a big fashion center, so despite the potential, the quality requirements in this market are quite strict In addition, due to the large number of imported Chinese goods, but they are labeled as "Made in Vietnam", the origin inspection process before being officially put into the Korean market could be seen as a challenge for our company Consideration of risks: We choose to export indirectly, so the risk ratio will be lower when it is professionally supported by the intermediary company If there is a risk to be concerned, it will be the level of responsibility of the intermediary company, because there were cases, intermediary companies took higher commissions which cause company profit reduction, or in some cases, they did not take responsible when customers claimed for lawsuits or compensation Therefore, the exporters will be the one who lost the most 21 Consideration of advantage: After the VKFTA was signed, the South Korean side committed tariff preferences for textile and garment products With 24 product lines in this group of products, which consists clothing line, have the advantage of lower tax compared to other countries in the ASEAN region, which is a privilege for our company to setting out more competitive price Moreover, because of the political factors between South Korea and Japan lately, leading to Korean consumers taking into consideration when purchasing products with Japanese origin This can also be considered as an advantage for companies from Vietnam like us, when Vietnamese products are winning the hearts of Korean consumers and the consumption are increasing, with the affordability of Koreans as well as the competitive price that we are setting out, the company can easily approach potential customers Conclusion The Government of Vietnam has been always encouraging businesses to upgrade the quality of the garment products, in order to bring to other countries the best we have However, this industry showed a little slowdown in export turnover in 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PEST Analysis South Korea3 Political Factors Economical Factors Social Factors Technological Factors Germany Political Factors Economical Factors Social Factors 10 Technological Factors 10 11 Marketing... their industry and their company (Frynas and Mellahi, 2015) 2.1 South Korea 2.1.1 Political Factors: Bilateral agreement between South Korea and Vietnam: In 2015, Vietnam and South Korea officially... tend to order and contact brands through in-app chat interaction Market Entry Strategy The company decided to export products to both South Korea and Germany, since it was our first time to penetrate