(Tiểu luận) south america – a new market for uniqlo an analysis on uniqlo potential expansion

Brazil also has better established distribution channels anda massive e-commerce sector, which will be critical for the apparel business.Although being inferior to Brazil in terms of dem

FOREIGN TRADE UNIVERSITY

HO CHI MINH CITY CAMPUS

-*** -GROUP ASSIGNMENT

Major: International Business Economics

SOUTH AMERICA – A NEW MARKET FOR UNIQLO:

AN ANALYSIS ON UNIQLO POTENTIAL EXPANSION

Subject: International Marketing Lecturer: Nguyễn Thị Thu Thảo Class code: MKTE401

Group: 6

Ho Chi Minh City, March 2022

INDEX 1

LIST OF GRAPHS 2

LIST OF TABLES 2

I EXECUTIVE SUMMARY 3

II MARKET OVERVIEW 5

III MARKET SELECTION PROCESS 8

1 Preliminary Screening 8

2 Fine-grained Screening 10

2.1 Market Attractiveness 10

2.2 Competitive Strength of UNIQLO 12

2.3 The Market Attractiveness - Competitive Strengths (MA-CS) matrix 13

3 Brazilian Market and Waterfall Approach 14

IV MARKET ENTRY MODE 15

1 Market Entry’s Criteria Evaluation 15

1.1 Psychic Distance 15

1.2 Demand Uncertainty 15

1.3 Market Size 15

1.4 Intensity of Competition 15

2 Select Joint Venture as the Market Entry 16

3 Advantages and Disadvantages of Joint Venture 17

4 Mid and Long-Term Objectives 17

V UNIQLO’S RECOMMENDED TACTICS 19

1 Tactics on Product 19

2 Tactics on Communication and Advertising in Brazil 19

VI CONCLUSIONS 22

REFERENCE 23

1

LIST OF GRAPHS

Graph 1-1: Distribution of UNQLO retail stores globally as January 31, 2023 3Graph 1-2: Uniqlo’s annual sales and the number of stores worldwide

from 2003 to 2013 4Graph 2-1: Age structure graphs of Brazil & Argentina, 2021 6Graph 2.2: Inflation Rate (%) of Brazil and Argentina, from 2017 to 2021 6Graph 2-3: Year-on-year growth of sales generated by small and

medium-sized retailers 7Graph 4-1: The Hofstede’s Cultural Dimensions between Japan and Brazil 15Graph 5-1: Most popular social media platforms in Brazil as of

3rd quarter 2022 21

LIST OF TABLES

Table 4-1: Retail Sales of Fashion in Brazil in 2020 16

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I EXECUTIVE SUMMARY

The Asian apparel industry keeps growing in global markets while the global apparelindustry becomes highly volatile with increasing internationalization (Lopez & Fan2009) The active international expansion of Asian apparel brands is one noticeableindustry trend One of the leading Asian brands, Uniqlo from Japan, is the case Withmore than 800 retail locations in Japan alone, the brand has expanded to more than 2416stores in 25 countries across Asia, Europe, and the United States as of January 31, 2023(Figure 1.1)

Graph 1-1: Distribution of UNQLO retail stores globally as January 31, 2023(Source: Data from Fast Retailing, graphed by author group, 2023)

Based on its vertically integrated business model, which encompasses product design,manufacture, distribution, and retail, Uniqlo has experienced rapid expansion byproviding low-cost, high-quality casual wear The net sales of Uniqlo's owner, FastRetailing, have consistently climbed In the most recent period, Uniqlo International'ssales were nearly twice as high as Uniqlo Japan's sales according to the Uniqlo AnnualReport in 2021 As shown in Figure 1-2, the overall number of retailers worldwide keepsgrowing It is now clear that the brand is becoming global

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Graph 1-2: Uniqlo’s annual sales and the number of stores worldwide from 2003 to 2013(Source: Data from Uniqlo Annual Report, graphed by author group, 2023)Although Uniqlo has a sizable global retail store footprint, the South American market,particularly Brazil and Argentina, still presents significant untapped potential Thus, thefocus of this paper will be on analyzing entries for those two countries (in comparison tothe region).

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II MARKET OVERVIEW

Brazil and Argentina have two of South America's major economies However, bothcountries have undergone significant economic and political changes in recent years,causing its current stressing political status and economic instability, which affected theirdesirability as attractive foreign investment destinations The table below highlights somekey features of both countries:

Demographics Large population, especially in the

legal working age Relatively older population

Hypermarkets, supermarkets take

up the most market share Large

in e-commerce market ($18

Billion in 2017)

Hyper and supermarkets taking more of market share Growth in e-commerce, $5.1 (2016) to $5.9 billion (2017)

These features make Brazil more enticing to international enterprises than Argentina.Brazil has a huge population and a falling poverty rate (Alcides Costa Vaz, 2014), whichcontributes to overall demand Brazil also has better established distribution channels and

a massive e-commerce sector, which will be critical for the apparel business

Although being inferior to Brazil in terms of demographic aspects and recessed economy,Argentina has tremendous prospects due to its expansion in the retail business,particularly in the e-commerce sector

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Graph 2-1: Age structure graphs of Brazil & Argentina, 2021

(Source: PopulationPyramid.net)

Graph 2.2: Inflation Rate (%) of Brazil and Argentina, from 2017 to 2021

(Source: Data from FocusEconomics, graphed by author group, 2023)

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Graph 2-3: Year-on-year growth of sales generated by small and medium-sized retailers

in Argentina in February 2020, by category and channel

(Source: Statista)

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III MARKET SELECTION PROCESS

1 Preliminary Screening

The preliminary Screening is conducted based on the criteria listed in the BERI index.The following scores are graded based on the overall situation in the country in terms ofeach criteria in comparison to South America and also the world

Political Stability Democracy but with certain instability

Economic Growth Stable, minimal growth GDP declines since 2018High debt

Currency Convertibility Stable, fully convertible

1 USD ~ 5 Brazilian Real

Highly inflated

1 USD ~ 190 Argentine Peso

Labour cost/ Productivity ~ 100 million labor force ~ 25 million labor force

Short-term credit 13.75% interest rate High interest rate (75%)

Long-term loans/venture

capital Funds are fairly accessible for technology sectors

Attitude towards the foreign

investors and profits

Regulatory risks (taxation and fiscal system)

Foreign investment friendly

intervention in economy

Left-wing party leads the country

Monetary Inflation ~ 6% (Normal) ~ 94% (significantly high)

Enforceability of contracts Average in rankings of Corruption, Rules of law and

Government effectiveness

Bureaucratic delays Relatively complex

despite changing efforts

Leniency program and promoting private litigation

Communications: phone,

fax, internet access Developed and effective

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Local management and

partner Skilled labor force but with high crime rate

Professional services and

Score (scale of 0-4)

Overall BERI score

Score (scale of 0-4)

Overall BERI score

Attitude towards the foreign

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Enforceability of contracts 1.5 2 3 2 3

Communications: phone, fax,

Professional services and

Market size Population: 216,589,492 (87.6

% urban)

Population: 46,302,122 (92.8 % urban)

Market growth GDP/capita growth: 4.1%

Growing middle class

GDP/capita growth: 9.4% Growing middle class with demand for international brands

Economic and

Political Stability

Volatile economy with fairly unstable politics (due to corruption)

Recession of economy with more unstable politics

Entry barriers Higher applied tariff rate High import duties

Infrastructure Strong E-commerce Decent E-commerce

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Medium infrastructure Well-established infrastructure

Analysis of Brazil and Argentina’s market attractiveness is converted into scoresheetbelow:

Score (1-5)

Overall Index

Score (1-5)

Overall Index

of the countries

2.2 Competitive Strength of UNIQLO

The two markets are endowed with some noteworthy features Brazil's market is huge buttight and dominantly domestic, while that of its south-western neighbor is much smallerand only engaged by some key players, including some of UNIQLO's internationalcompetitors With this acknowledged, here are some criteria that can help the firmidentify their position before entry

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Brazil (compared to Zara and leading domestic retailers)

Argentina (compared to Zara)

Marketing capability High market capability worldwide

Prices & conditions

More attractive than ZaraExpensive (compared to locals)

More attractive than Zara

Product’s fit to

market demands Suitable with more modern and simple fashion demand

Sustainability Highly appreciated in sustainability and ethical practices

Technology Lower position to Zara but

higher than local competitors

At a lesser position than Zara in quantity and variety

Product quality High quality and durability at reasonable price

Brand recognition Fairly low compared to local competitors and ZaraAnalysis of the competitive strength of UNIQLO in the two markets is converted intoscoresheet below:

Score (1-5)

Overall Index Score

Overall Index

Total: 3.7 3.45 2.3 The Market Attractiveness - Competitive Strengths (MA-CS) matrix

The scoresheets have been transferred into the MA-CS matrix below as the Brazilianmarket, in contrast to Argentina, shows a high value and can be considered an attractivemarket to enter according to the matrix

3 Brazilian Market and Waterfall Approach

Both the preliminary screening and fine-grained screening show the potential of twocountries However, due to high risks arising from Argentina’s recent recession, themarket becomes less attractive and friendly Therefore, the Brazilian should be the firstmarket to do further in-depth analysis in entering while remaining aware of Argentinesituation This also indicates the use of the Waterfall approach, which is to enter and grow

in a particular market first then expanding to another; in this case, market entry to Brazil

is conducted first

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IV MARKET ENTRY MODE

1 Market Entry’s Criteria Evaluation

1.1 Psychic Distance

Japan and Brazil fairly have great physic distance especially in cultural aspects TheHofstede insights gave an overview of the cultural differences between Brazil and Japan.Brazil shows low scores in Individualism, Masculinity and Long Term Orientation, thussignifying the easy-going, emotionally attached lifestyle of Brazilians

Graph 4-1: The Hofstede’s Cultural Dimensions between Japan and Brazil (Source: Hofstede Insights, graphed by author group, 2023)

1.2 Demand Uncertainty

The Demand uncertainty of Brazil, deriving from its underperformed growth in recentyears, has affected the purchasing power of Brazilians as they are less likely to spend onconsumer goods in a recessive economy

The retail market in Brazil is dominated by a wide range of local brands that have the know-how of the market and are adored by the customers due to their cheap prices and local preferences

2 Select Joint Venture as the Market Entry

There are three main groups of ways to approach a new market, based on the amount ofcommitment and flexibility that a company wishes Export modes are safe and mostsuitable for small businesses in small markets Hierarchical ones thrive in great and richoceans, but they mean a huge gamble for the Japanese retailer Considering someaforementioned factors of the Brazilian market, we recommend UNIQLO to seek forsome assistance from the locals themselves and approach the market throughintermediary modes instead, including licensing, franchising and joint ventures.While licensing and franchising can be less costly, with such stature that UNIQLO yields,along with some problems that can emerge from weak yet complex regulations andcorruption in Brazil, decent operation costs are acceptable; therefore, hindering thisadvantage that these two modes bring about With more budget at disposal, UNIQLO canlook to establish a stronger foothold in the market through joint ventures This modeprovides a greater amount of control and deeper understanding than the previous two,

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meaning that problems such as miscommunication, though still happen, may less likelyoccur and pose less danger Forming joint companies with the natives may also helpcreating and solidifying a better relationship with government officials, which is evenmore significant in a nation that is politically infamous like Brazil Last but not least,risks of failure are shared, easing the pressure of success for UNIQLO in such a strangemarket.

All things considered, joint ventures tops the list of possible entry modes for UNIQLO if

it decides to start its conquest of Brazil, as the initially higher costs can be covered by thestature of the company, and many risks can be reduced, while giving the company theamount of control it needs

3 Advantages and Disadvantages of Joint Venture

In deeper analysis, it is shown that there are advantages and drawbacks of the jointventure as the market entry for UNIQLO which need to be discussed:

Access to the Distribution Networks: joint venture helps gain access to establisheddistribution channels in Brazil, which speeds up the market entry process.Brand Awareness: partnering with a local firm helps capitalize on the partner'scurrent brand recognition in Brazil and build on its reputation to gain a footing inthe market

Potential Conflicts: legal issues against local partners can negatively impact on thebusiness’s operations

In conclusion, while a joint venture can provide major benefits to UNIQLO inentering the Brazilian market, it is critical to carefully weigh the risks and benefits beforemaking a final choice

4 Mid and Long-Term Objectives

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UNIQLO should concentrate on building a strong brand presence in Brazil over the nextfew years by developing flagship stores in strategic places and spending money onmarketing and advertising efforts to increase brand awareness This would assist inbuilding a devoted consumer base and developing a reputation for offering high-qualitygoods

With the company's position as a minimalist, durable, non-trending fashion brand,UNIQLO's products do not meet the fashion of the outfit While Zara is always copyingthe latest high fashion trends and H&M is always on trend, UNIQLO still only sells a fewkey lines year-round This makes UNIQLO clothing unable to meet the demand fordiversity in clothing in some countries such as Europe and America

Consequently, in the long term, UNIQLO should aim to expand its product offerings anddevelop localized product lines that cater to the Brazilian market's unique preferences andtastes It can also consider partnering with Brazilian designers and influencers to createexclusive collections that appeal to Brazilian consumers

By adopting a long-term view and investing in its operations in Brazil, UNIQLO canestablish a strong foothold in the Brazilian market and achieve sustainable growth

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