TO HONG KONG
Flying Tiger Development Project expansion to Hong Kong Paola Andrea Elli L6 Fashion Marketing and Communication MIED 606 | CWK 3 International Markets Sergio Costa Sant’Anna
Flying Tiger Development Project
INDEX 1. INTRODUCTION PAGE 5 2. WHY EXPAND YOUR BUSINESS
PAGE 6
3. INTERNAL ANALYSIS PAGE 7 A. COMPANY MISSION PAGE 8 B. COMPANY VISION PAGE 8 C. COMPANY ORGANIZATIONAL STRUCTURE PAGE 9 4. COMPANY’S LOCAL ENVIRONMENT
PAGE 10
5. THE INTERNATIONAL ENVIRONEMT PAGE 12 A. HONG KONG MARKET AUDIT PAGE 12 B. COMPETITORS ANALYISIS PAGE 22 1. COMPETITIVE ANALYSIS PAGE 23 2. COMPETITORS’ SWOT ANALYSIS PAGE 24 3. COMPETITORS’ ANALYSIS PAGE 29 C. MARKET ANALYSIS/ PURCHASING PATTERNS PAGE 30 1. PURCHASING BEHAVIOURS PAGE 30 2. CULTURAL ASPECTS PAGE 34 6. MARKET ENTRY STRATEGY PAGE 35 7. MARKET PRICING STRATEGY PAGE 36 A. PRICING B. POSITIONING 8. SALES AND DISTRIBUTION PAGE 37 9. OPERATION OVERVIEW PAGE 28 A. DESCRIPTION PAGE 28 B. IMPLEMENTATION PAGE 29 10. CONCLUSION PAGE 40 REFERENCES
Flying Tiger Development Project
1. INTRODUCTION Tiger is a 100% danish company found in 1995, specialised in selling design low-cost products. The name dates back to the first Danish original store of the company in the neighbourhood of Copenhagen. The first store was called Zebra but the eight-years old owner’s daughter at the opening of the second retail said “We have a zebra, and now we can have a tiger too”. Therefore, they changed the name in Tiger which in Danish also means both tiger the animal and 10-crown coin that was the average price of all the items in those two first stores. In 2000 the company owned 38 Tiger stores in Denmark. One year later they achieved the goal of opening the first non-danish retail in Reykjavik, Iceland. In 2010 Tiger possessed 10 stores in 10 different countries, by 2015 it conquered more than 80 million consumers across Europe, US and Japan. Recently they count more than 600 stores in 29 different countries. (Copenhagen, 2017)
Flying Tiger Development Project
2. WHY EXPAND YOUR BUSINESS? The expansion of Flying Tiger to Hong Kong is the consequence of a series of reacting and proactive reasons which have also been pushing the brand in the European expansion. Due to the organisation’s peculiar nature, it has already conquered a large market share but still it has room for improvement and to achieve new goals and objectives, Flying Tiger has decided to look outside the box and land in Hong Kong. Proactive reasons: - increase sales and profits - increase worldwide visibility - introduce a new type of retail format in the market - extend the product life cycle of dated European products - increase consumers’s base - strength the presence in the Asian market Reactive: - the proximity to sea and the central position of Hong Kong in Asia can improve the integration of Flying Tiger in the east market - there is no presence of a direct competitors in terms of business plan and retail strategy - the European market is highly competitive and now it is pressured by politic al issues and changes - many players of different industries have already expanded their business in China - the market is still not mature but it is the best environment compared to other emerging countries
Flying Tiger Development Project
3. INTERNAL ANALYSIS Flying Tiger is the international marketing brand’s name of the parental company Zebra. If was founded in Denmark by Lennart Lajboschitz but currently it own 585 stores in 27 countries across Europe, Asia and the US. The organisation is keen on innovative design and product development, every moth the creative department releases 300 new products. Flying Tiger’s offer is composed by any kind of items people will look for. In fact, Flying Tiger products’ categories include: home, toys, hobby, party, snacks, electronics, gadgets, fashion accessories and more. The retail format is bright and easy to navigate, welcoming and engaging for their customers with the distinctive Scandinavian internal decor. In their website they affirm that in their stores people can find “things they never knew existed”. Their items are stylish and colourful, practical and original with an appreciate Danish humorous touch. Their strength rely on the combination between the functionality and the funny aspect of their products with the addition of the highly affordable prices. The company has won several prices related to the products’ design. For example In 2015, the “Tea Bird” teapot won the iF Design Award and the Good Design Award. In January 2016, the water bottle “Hi Haj” won the iF Design Award, and in June 2016 the stackable series of pleated jugs and containers, “Fold”, won the Red Dot Award. (Copenhagen, 2017). Strategy and Business Model The main objective of the organisation structure is to grow its market presence towards Flying Tiger and make this retail concept and the products available for an increasing number of customers to ensure the long-term success. The business model bases on a variety of retail concept with an attractive value proposition which are able to appeal to customers and allow a partner-based expansion model. This model enhances the possibility of a rapid growth and help operations simplifications and support growth together with sustainable profits. Brand and retail concept Through the Flying Tiger retail concept, the Zebra company aims to engage consumers and create a fun shopping experience. Inside the stores, the products are extremely accessible to the clients but many times customers have to visit the whole space doing a sort of treasure hunt to select the preferred item. The company has been proving the Flying Tiger retail concept across all its geographical expansion and it has always resulted successful. The secret are the four core pillars of the activity: value proposition, assortment, store and customer experience. In addition, the environment is tidy, bright, warm and welcoming, a background music is always playing and the stores’ staff is composed by skilled, helpful and friendly employees.
Flying Tiger Development Project
The value proposition is reflected by the company’s mission and vision explained below but in addition, it is relevant underline the fact that Zebra throughout FlyingTiger has the wish to provide its customers with affordable round price products which are able to meet their quality expectations as well as the corporate’s social responsibility requirements.
A.
Company Mission “We want to be a catalyst. We want to help you live out your values, so your life is what you want it to be.”
It is the statement of the founder Lennart Lajboschitz. The aim of the company is to inspire their customers to live their own creative self, try new things with family and friends. Because they believe that relationship and experiences are a must in every individual’s life in order to be a complete person. (Copenhagen, 2017)
B.
Company Vision
Flying Tiger aims to give its consumers access to art. In order to achieve this aim they are collaborating with international artists and designers. They are currently developing a switch from cheap to unique products designed by they own creative team. (Copenhagen, 2017)
Flying Tiger Development Project
C.
COMPANY ORGANISATIONAL STRUCTURE
The company is controlled by a member f the Danish Venture Capital and Private Equity Association (DVCA) therefore, it strives to accomplish the corporate governance guidelines issued by DVACA. In addition, it has to comply with the general accepted corporate governance principles required for being under the Danish Companies Act and the Danish Financial Statements ACT. At Flying Tiger the organisational structure accounted for the local environment is aligned with the one required for the expansion. The powers are distributed between the Board of Directors and the Executive Management. The Executive Management is accounted for the day-to-day operations meaning the ones with short terms implication and it has the responsibility of maintaining an equilibrate and efficient internal control in connection with finances. While the Board of Directors is appointed for the development of the group’s corporate strategy, supervision, financial development and the decision if certain skills and qualifications are needed to support the strategic business objectives. The Board is also in charge of stores’ visits, meeting with partners and updates on the local retail market. In addition, to the two previously explained internal organs, Flying Tiger relies also on the Audit Committee which is composed by three members of the Board of Directors with the purpose of monitoring the financial process, the efficiency of the internal control system and the compliance of laws and regulations. BOARD OF DIRECTORS Chairman Vagn Sørensen
Chairman Vagn Sørensen
Head of EQT Partners Morten Hummelmose Advisor and founder Lennart Lajboschitz
EXECUTIVE MANAGEMENT CEO Xavier Vidal
CFO Henrik Skov Michael Hauge Sørensen
Category Management Creative Department Products Design
Audit Committee Manel Adell Domingo Rolf Erikse Michael Hauge Sørensen
OWNERSHIP AND CAPITAL STRUCTURE EQT, the leading investments company with a long-term, responsible and sustainable ownership’s approach. It owns the 67% of the shares in Zebra through Zebra Lux Holding S.a.r.l. Mitco ApS controlled by Lennart Lajboschitz owns approximately the 29% of the shares and it provides leasing and real estate services. Last, the Board of Directors, the Executive Management and a small number of senior Zebra employees holds the 4% of the shares.
Flying Tiger Development Project
4. COMPANY’S LOCAL ENVIRONMENT. Denmark is located in Northern Europe which government sets in Copenhagen. The country has a population of 5.7 million and a density of 132.96/km2 (344.4/sq mi) developed a modern market economy and it is characterised by the highest standards of living in the world and the economy benefits from government welfare and an equilibrate distribution of income. Denmark is a European Union’s member and it has the world’s highest social mobility, high level of income equality, it is the world’s highest per-capita income and it has one of the world’s highest personal income tax rates. Within the country, Copenhagen is the main urbanised centre and the most powerful city. It is the preferred destination for business, tourism, fashion and the attracting-polo for the youthful population. Its power comes from the position of Denmark itself in the heart of Europe and the easy access via sea and land.
Flying Tiger Development Project
PEST ANALYSIS • political Denmark has played an important role in the general political and economic integration of Europe even though the country has opted out of certain elements of the European Union’s Maastricht Treaty, including European Economic and Monetary Union (EMU), European defence cooperation and some issues about justice and home affairs. The political environment is influenced and determined by individual with political power and the ability of having significant repercussion on country’s happenings such as laws and government agencies, lobbying groups that reinforce or restrict individuals and organisations in society. The form of government is a unitary parliamentary constitutional monarchy and it is itself influenced by economical and international relationships, interests group activity and radical political grouping. Denmark takes advantages on intact and solid tourism and diplomatic relationships. In fact, the greatest benefits come from tourism because people from other countries as well as locals can easily travel without using ID card or Visa. • economical The Danish economy was considered one of the strongest in Europe for its modernity and prosperity characterised by a high-tech agricultural sector, relevant art industry players, worldleading pharmaceutical firms, maritime shipping and renewable energy. Though, currently the country’s competitiveness is under pressure because of the rise of wages costs which is not supported by the same growth in productivity which rise at a slower pace. In addition, the Danish GDP seriously suffered from the European financial crisis. Consequently, the country is now experiencing a higher inflation rate. Nevertheless, corporate taxes has been reduced and business is still strong and improved services and retail. Denmark relies on one of the best export sector and the government is acting towards massive investments in research, education, innovation and entrepreneurship. The country has a totoal GDP of $264.837 billion and GDP per capita of $46,602. • social Generally, the Danish society is characterised by a high level of education reached thanks to the free access to it, the active labor market policies and the well-developed adult learning system. The government undertook reforms to improve the transition of youth into the labor market. In addition, the jobs’ market is highly flexible and it allows an efficient allocation of skills within the market with high possibilities for career’s improvements. Although, in the private sector, people face lower financial incentives. In Danmark, higher standards of living are achieved through higher monetary income. In the country the average household net-adjuste disposal income is $24,628 per year. Individuals look for emotional support through community, 94% of Danish state that they have a trusted person on who rely in case of hard times, the world’s average is 90%. As stated before, Denmark benefits from one of the happiest individuals on heart and the capital Copenhagen hosts the most creative youthful generation in Europe. • technological Productivity growth is slowed by weak competition in some sectors and shortcomings in the innovation framework. R&D spendings are not has higher as the global value chains and the differences in terms of ownership, size regulations, national standards from the international ones, restricts the business’ entry in several sectors. With danish software engineers reaching leading roles in some of the world’s most important programming companies, Denmark should only intensifying competition in the public sector in order to raise productivity. In the market there is still room to engage with efficiency and innovation policies, with a particular focus on young and innovative firms in the software and electronic field. (Market Research Reports® Inc., 2017).
Flying Tiger Development Project
5. THE INTERNATIONAL ENVIRONMENT.
A. HONK KONG MARKET AUDIT
The city-state of Hong Kong is classified as the fourth world’s most densely populated sovereign state. It accounts an area of 1,106 square kilometres (427 sq mi) and a population of over 7.3 million of various nationalities, for a total density of 6,544/km2 (16,948.9/sq mi). According to BMI View (Market Research Reports® Inc., 2017) Hong Kong is still heavily dependent on thermal energy, with coal accounting that approximately reach the66,1% of the city-state’s energy production. In fact, in the future, thermal generation, comprising coal, gas and oil are expected to growth by an average of 0,6% a year from 2016 to 2020. In the same period, the electricity consumption is accounted to increase by a 0,4% every year. The government is active in researching for renewable solutions to lower the highly contaminant dependency but forecasts predict that Hong Kong is more likely to become an regular importer of nuclear, pumps storage and renewable energies, such as natural gas form the near mainland China. Taking into consideration the GDP growth, the city-state increases it by 1,2% in 2016 but BMI is forecasting an annual growth of 2,3% per year from 2016 to 2025. Hong Kong can be considered extremely different for the rest of China because of its geographical position. In fact, by being close to the sea it benefits from economical and cultural exchange with the rest of the world. Therefore, its business environment as well the social patterns are consistently diverse from the rest of the continent. The city-state befits from a flourished economic wealth and it is a cosmopolitan metropolis which hosts several cultures, beliefs and values as a consequence it is remarkably international and open-minded.
Flying Tiger Development Project
P.E.S.T ANALYSIS • Political/regulatory - The Corporate Tax Rate in Hong Kong currently accounts for the 16,50%. Taking into consideration that the Worldwide average reaches the 22,9% (Tax Foundation, 2017) it relevantly and positively lower than the majority of the countries
- In 2014 the Government Debt oh Hong Kong amounted to the 32% of the city’s GDP. It is slightly higher in respect to the world’s average of 29,16%.
- Strong regulation and standard on food and agricultural imports and exports - Hong Kong’s government has almost no involvement in economic affairs - In the city-state it is possible to conduct free enterprise and free trade, consequently it grands and supports the private sector - The government ensures education, health care, communications, and telecommunications infrastructures
Flying Tiger Development Project
- Hong Kong government has the duty of prohibit the imposition of barriers to economic activities therefore businesses are protected from difficult and lengthy processes for registration of economic establishments, various licenses for their activities, restrictions on the transfer of funds from and to Hong Kong, and the imposition of tariffs and restrictive export/import regulations. - To support a sustainable environment for economic growth the Hong Kong government creates the positive non-intervention which stands for low taxed to encourage economic activities and limits government expenditures - For a business to expand in Hong Kong do not require any kind of license’s cost, in fact the only requirement to setting up a business it to register it as a company - There are no restrictions on investments or on financial transactions, including transfer of funds and repatriation of profits and investments - The only concerns related to foreign investors regard their involvement in television broadcasting
•
Economical
- Hong Kong advanced economically by the 0,6% on the quarter in the three months of September 2016. It has been 0,9% slower but 0,3% better than the market’s expectations. - Private spendings decreased from 0,8% to 0,7% - Public consumption from 0,9% to 0,3% - The exports rate synonym of the wealthy condition of Hong Kong consistently dropped at the beginning of 2016 for constantly grow during the year
- The GDP experienced a modest growth of 1,2% in the first half of 2016
Flying Tiger Development Project
- The number of underemployed people consistently feel. Unemployed people declined by around 8.600.000 to 122.000.000. The unemployment rate averaged 3,70% from 1981 till now that lowered to 3,3% in December 2016.
- Employment raised from 2.200.000 to 3.939.1000
Employed persons by occupation (% distribution) (1)
% of the employed persons
Occupation
2011
2015
2016 # (Oct. - Dec.)
10,7
10,9
11,9
6,9
8,0
7,1
Associate professionals
19,9
19,7
19,8
Clerical support workers
14,1
13,8
13,5
Service and sales workers
16,6
16,4
16,0
Craft and related workers
7,0
6,6
6,4
Plant and machine operators and assemblers
5,1
4,6
4,6
19,7
19,9
20,6
0,1
0,1
0,1
100,0
100,0
100,0
Managers and administrators Professionals
Elementary occupations Others Total
Notes : Figures for 2011 and 2015 are compiled based on data collected in the General Household Survey from January to December of the year concerned as well as the mid-year population estimates by District Council district compiled jointly by the Census and Statistics Department and an inter-departmental Working Group on Population Distribution Projections. The General Household Survey covers the land-based non-institutional population of Hong Kong. (1) Based on the International Standard Classification of Occupations 2008 (ISCO-08).
Flying Tiger Development Project
- Inflation rate remains at its lowest level since January 2010. In Hong Kong it averaged 4,48% from 1981 till now
- Hong Kong’s trade deficit rose by 2,9%. It is the lowest deficits since August consequently to the increment in exports by 8,1% and the imports rise by 7,6%. With the exports that generates surplus it is possible to affirm that Hong Kong now has a wealthy economy although it is still recovering from the worldwide economic crises.
-The interest rate in Hong Kong was last recorder at 1%, in line with the developed eastern countries such as Europe, Great Britain or the US (Media, T. 2017)
Flying Tiger Development Project
- Business confidence in Hong Kong has decreased to -1 in the first quarter of 2017. The business expectations have deteriorated in all sectors but the most relevant to this analysis is the figure about the retail which now accounts to -15 while before was -2
- While in the rest of China the foreign direct investment decreased, in Hong Kong increased by 12.844,17 HKD billion in 2015.
- GDP per capita in Hong Kong is equivalent to 286% of the world’s average and in 2015 in accounted to 36173.30 US dollars
Flying Tiger Development Project
- In Hong Kong also the gross national income has seen improvements raising to 629332 HKD Million in the third quarter of 2016
- In the worldwide stock market, Hang Seng increased 22 point (0,10%) reaching 22908 in January 2016.
Flying Tiger Development Project
•
Social/Cultural
- Consumers spendings decreased to 386824 HKD million in the last period of 2016. The drop can be related to the rise of consumers prices in Hong Kong by 1,2% each month starting from November 2016.
- However, consumers’ confidence increased to 95 respect to 86 form the previous period of 2016 it is still lower than the Hong Kong’s average in the previous 10 years when it accounted for 100.53.
-The citizens of Hong Kong are the most early adopters in terms of technological innovators - Hong Kong has a high population density which make universal wireless and broadband a reality - On the contrary of mainland China, social networks are use and popular in Hong Kong. The younger generations mainly use Twitter, Facebook and instant messaging applications. - No Internet censorship in Hong Kong - Business meetings follow certain codes of etiquettes’ standards and professionalism - The Chinese calendar schedules and celebrations differ for the European ones - Gifting, from small to big and sums of money, is part of the Chinese culture - Hong Kong population as in the rest of China can certainly be really superstitious, for example they don’t place a TV, computer or other major electronic equipment in the bedroom because it affects the feng shui better known as karma.
Flying Tiger Development Project
•
Technological / Infrastructural
- Hong Kong is lacking of manpower and the environmental damaged caused by the increasing business damages on the territory as pollution, emission of CO2 and fine dust. Consequently the infrastructures projects are muted over long-term deadlines. - Hong Kong government aims to develop improved transport infrastructures in the respect of sustainable codes - The real-estate market in Hong Kong is definitely mature and the sector of residential and onresidential constructions have no room for further expansion - On the other hand, in the city-state there is still room for public housing and hospitals’ growth, although they are expected to rise slower. - Hong Kong is defined by Forbes as the China’s new tech hub. Microsoft, Yahoo and Google are all recruiting engineering graduates from the city-states. - A bank account in Hong Kong can be opened in 30-60 days while in mainland China the procedures are much more complicated and long - While in the rest of China Facebook is blocked, in Hong Kong the social media finds developers and gaming supporters. - Some China’s leading Internet giants such as Tencent and Amazon, once Google was banned for the mainland decide to move to Hong Kong instead of New York - The government ensures education, health care, communications, and telecommunications infrastructures
Flying Tiger Development Project
INTERNATIONALISATION BARRIERS • In China and Hong Kong is not an exception, politics play an important role. • The main language is mandarin but there are more than 800 different dialects. • In China doing business as a foreign in China is difficult and, with the addition of the language diversity, the support of locals is mandatory in order to expand in Hong Kong • China is an highly corrupted country, however Hong Kong is one of the metropolis with the lowest ratio • There is no an adequate protection for intellectual property • Weakness in the real estate market • Politics instability at Hong Kong’s September 4 Legislative Council elections the opposition pro-democracy gains ground against the ruing pro-Beijing camp by pushing displeasure for the government’s failure. However Beijing still holds the control over the city-state and the Xi administration maintains the traditional and conservative line. In addition to the above quoted facts, Hong Kong has experienced a modest real GDP growth in 2016 with a rate of 1,2%. The forecast for next year 2017 accounts to 1,7%.
Flying Tiger Development Project
B. COMPETITOR ANALYSIS
1. COMPETITIVE ANALYSIS
Flying Tiger Development Project
PORTER’S FIVE-FORCES MODEL
COMPETITIVE RIVALRY
BARGAINING POWER OF BUYERS
- Low investments needed in order to expand the business opening a Flying Tiger store in Hong Kong - Necessity of consistent marketing activities, meaning that the new store must carefully follow the core values of the parental company - High presence of competitors in the market, however taking into consideration the peculiar retail format of Flying Tiger their are not direct competitors but they can compete in terms of single products
- Flying Tiger do not have the threat wholesale customers therefore it can gain higher margins respect competitors that do provide wholesalers - In the Hong Kong market, Flying Tiger cannot count on a strong brand recognition, therefore the bargaining power of the customers is high - Flying Target only distribute through physical stores it lacks of the online channel so important in the modern market and in the customers’ new purchasing habits
THREAT OF NEW ENTRANTS
BARGAINING POWER OF SUPPLIERS
- Customers in Hong Kong are loyal to established brands. Therefore, this can be a threat for Flying Tiger when it firstly enters the Chinese market, but once conquered the target it can turn into a competitive advantage - The economic crises caused the drop of retail sales - Local investors always try to trick the business partner to win and profit on them - Inadequate mechanism to resolve disparing - Hong Kong government still invests in its territory for improvements - Capitalism, economy of scale
- Fundamental necessity of local business partner to expand Flying Tiger in Hong Kong - Flying Tiger is accounted for the design and product development and the marketing operations however, it outsources many activities which compose the supply chain such as production, transportation, logistic, etc. - High presence of different suppliers with the same range of costs - Employees are connected with the brands and therefore are loyal to it - China is known as a market where industries and companies are managed as army with really strict schedules and hard working environment. Flying Tiger has to find local suppliers which respect the Code of Conduct of the organisation
THREAT OF SUBSTITUTES - China has inadequate protection for intellectual property - E-commerce marketing highly developed, Amazon is not prohibited in Hong Kong - Flying Tiger items have a high design content and products which are strictly connected to the Danish culture - The retail format is really peculiar and strictly linked to its European roots therefore difficult to imitate
In conclusion the key success factor of the Flying Tiger expansion to Hong Kong is the distinctive retail concept really connected to the easter world. Even though, the Danish retail can appear as one of the myriad convenience store it brings a fresh innovation for the in-store space innovation. In fact, taking into consideration Hong Kong, it is unique in its category.
Flying Tiger Development Project
2. SWOT ANALYSIS
a. MUJI Strengths - simplistic and rational design - wide product category - price/quality balance - Asian origin Weaknesses - not so established and recognised brand - too simplistic, not appealing - the brand can be perceived as too traditional and strictly linked to the japans culture Opportunities - e-commerce growth - the rise of the authenticity macro trend in the customers’ culture Threats - inadequate protection against facsimile - unstable political situation in China - economic crisis - lower foreign investment in China - drop in retail sales
Flying Tiger Development Project
b. PARKnSTOP Strengths - accessibility - pricing point - products’ rage and availability - local popularity Weaknesses - low quality of the products - high level of competition Opportunities - growth of new interesting markets where to expand the business - became the partner for foreign join ventures - real knowledge of the local environment Threats - economic crises - consumers’ are now switching their behaviours and looking for more personalised purchasing experience - unstable political situation in China - lower foreign investment in China - drop in retail sales
Flying Tiger Development Project
c. VanGO Strengths - wide expansion - accessibility - Chinese organisation - local popularity Weaknesses - quality, although the intention of re-positioning it is still considered as low quality - high level of competition - bargaining power of Tesco, its partner in the join venture Opportunities - deep knowledge of the local business environment - collaboration with foreign partners - growth of new emerging countries where to expand the discount’s business Threats - economic crises - consumers’ are now switching their behaviours and looking for more personalised purchasing experience - unstable political situation in China - lower foreign investment in China - drop in retail sales
Flying Tiger Development Project
d. MiniSTOP Strengths - fresh local gastronomy products - presence of a picnic ares where customers can sit and take a break - pricing point - range of products - retail format Weaknesses - its nature of franchise means that it is under the control of the owner’s company - products’ quality - high bargaining power of suppliers Opportunities - enter a different market segment (food) - growth of new emerging countries where to expand the discount’s business Threats - economic crises - unstable political situation in China - lower foreign investment in China - drop in retail sales
Flying Tiger Development Project
3. ANALYSIS - COMPANY AND PRODUCTS
a. MUJI It is originally founded in 1980 and it offers a wide range of products which have a higher quality compared to the Flying Tiger ones. Their products’ categories are household foods, apparel and food, Their stores around the globe, in Hong Kong as well, carry more than 7,000 items The company’s core principles are: careful selection of materials, integration of the processes and simplification of the packages. MUJI stands for minimalism and simplicity. The quality - price balance is their key strength in competitiveness in fact, although their items are affordable the rationalisation of the manufacturing process allows the company to produce good quality goods at lower prices. The main attributes linked to the Japanese label are “resource-saving”, “low-price”. b. PARKnSHOP It is one of the largest supermarkets chains in the metropolis selected by Flying Tiger for its expansion. The Chinese retail has point of sales in more than 300 outlets in Hon Kong, Macau and Mainland China. They offer products from generic brands in every kind of category from apparel to food and home decor. The peculiarity of this stores’ chain lays in the fact that their point of sales are usually placed in concomitance to a gasoline station. In fact as the name itself suggests, customers can park, buy and go. In addition to this main retail concept, the company operates under different brands names to target a wider audience with different incomes and social positions. Although it is not a direct competitor of Flying Tiger, PARKnSHOP threats the Danish retail because of the lower pricing point, the high accessibility and spread across the metropolis and last for its popularity among Hong Kong citizens. c. VanGO It is the express retail format of the company China Resource Vanguard. They are largely present in the whole China and its market share in Hong Kong accounts to 39,8% while PARKnSHOP, previously mentioned, rates 33,1%. In Hong Kong the Chinese company is also operating as partner for the join venture with the British supermarket Tesco, for the expansion of hypermarket, supermarkets, liquor stores, cash and carry business and finally, the main competition for Flying Tiger, convenience stores under the brand’s name VanGO. VanGo offers the traditional products of every discount stores. The stores is renewed for its recent upgrade, inn fact it has started to follow the sustainable and ecological trend and now it is selling bio products, free from palm-tree oil but still it maintains the lowest price possible. In Hong Kong, VanGo it is well established and customers can find a point of sales at every corner of the streets. As the previous PARKnSHOP, VanGO is to be considered as a competitor for Flying Tiger for the pricing point although it surely can’t compete with the Danish retail in terms of purchase concept and product offer. d. MiniStop It is the convenience store franchise chain of the larger supermarkets company AEON from Japan. The peculiarity of MiniStop which differs it from the other convenience store and that can be a real challenge or example for Flying Tiger is the fact that MiniStop stores are provided with a kitchen that prepares fresh sandwiches, snacks and sushi boxes on request. It also has a seating area where customers can sit and have lunch in tranquility.
Flying Tiger Development Project
C. MARKET ANALYSIS/CROSS CULTURAL PURCHASING PATTERN ANALYSIS
1. Purchasing behaviour
Flying Tiger has a wide customers’ base audience and it is keen on provide them a broad product range which appeals all kinds of customers’ categories across age, income and social groups. The company stand for democratisation and equality, everyone can enter a Flying Tiger store and purchase something for kids, to teenager, young adults, business women, families, single moms or dads, grandparents and so one. The retail format itself stimulate the curiosity of the visitors and it is almost impossible to exit a Flying Tiger store without buying something. The whole retail environment plays an important role in the customers’ decision process. The stores are always located in high footfall locations on high streets or shopping malls in order to have the most number of visitors possible. The internal decoration is the only differentiating characteristic from store to store, In fact, every Flying Tiger is a sort of labyrinth designed with pallet tables where are placed all the products with a discreet but well visible price signs. The maze layout is done on purpose to guide customers in the purchase from one product category to the other therefore, even new clients are able to discover the full range of products while taking a round in store. Warm lights and catchy music make the atmosphere pleasant and welcoming. In the Flying Tiger customer experience employees play an important role: they are dedicated and committed. On daily basis the staff patiently interact with thousand of customers and it is a that they really appreciate when comping into the store. In terms of purchasing pattern the analysis has to start from the description of the consumers’ lifestyle within the local society because it is the key influence on the individual spendings. However, it is important to take into consideration that people’s consumption habits are a sort of personal manifestation meaning that are related to more subtle aspects such as private beliefs and attitudes. For beliefs is intended the structure of values held by the individual. Under a strategical and marketing point of view, therefore it is relevant to examine the sub-groups of beliefs and attitudes present in the Hong Kong society, what type of attitudes are the most influencing when it comes to purchasing patterns and finally how the different attitudes might change in the future.
Flying Tiger Development Project
The figure above is taken from the Association for Consumer Research (Laurent, 2017) and it shows the attitudinal segments created according to demographics, exposure to media, products usage and daily activities. Starting from the younger to older segments: A. Immature teenagers - their age ranges from 15 to 24 years old and a significant portion are students. They tend to aspire to foreign values and are highly influenced by western lifestyle and attitudes. This segment does not feel to belong to the Chinese society, they experience a certain degree of alienation above all from the family but peer groups and conscripts influencers have a great weight on their behaviours. B. Young Independents - this segment is exclusively composed by female because their attitudes differ from the previous segment composed mainly by men. In fact, it is a similar age group, from 15 to 34, but they have a lower socio-economic profile and a significant portion are students or housewives. They have a really modern mind-set and they are fashion conscious. However, they are not particularly confident and lack of ambitions. C. Home Makers - again it is total female group but with a age that is slightly higher from the previous one, from 20 to 40. They are economically independent, fashionable and cosmopolitan, mostly self-confident and family oriented.
Flying Tiger Development Project
D. Assertive Youth - this segment is almost exclusively male aged between 20 and 35 years old. They are well educated and represent the middle class of the society. This group is proud and self centred, as a consequence they tend to be moderately aggressive and highly ambitious. Their value and attitudes are regulated according to the belonging peer group nevertheless, they adopted traditional values such as: business success, making money and generally accomplish a relevant position and status in their life. Therefore, the most representative figure of this group is the successful businessman in the traditional, elegant suit. E. Self Indulgent - the individuals belonging to this group have the same age range of the Home-Makers, 20 to 45. It does not represent a distinctive demographic profile and they do not have an important influence in the Chinese society. They lack of interest towards the environment and generally they are not truly insolvent by the familiar ambient. They do not stand for nothing in particular but just take life as it comes to them without questioning or try to improve. F. Male Conservatives - it is the oldest male group and they are stereotyped as bluecollar workers. Individuals who are part of this segment are mainly man and they are believed to be less well educated respect to the population’s average because of their age and childhood conditions. They are not as traditional as one might expect in fact, they commonly desire to success and in addition, they are keen in taking active part in the social / political environment. G. Traditional Matriarchs - it is the oldest female group, as a consequence they are primarily involved in family’s duties. They are lee involved in society and they are not community oriented but they worry a lot about the generations’ wealth and money. In the structured Hong Kong’s society it is possible to extrapolate diverse key attitudinal aspects which influence in a different way the above analysed segments. A. Family. Hong Kong population is commonly family oriented. On a scale from 2 to 7 the average ratio of family’s commitment is 4.84. Across the segments the ones with more orientation towards the familiar environment are the ones with a strong female bias. Nonetheless, even the self-indulgent and the younger generation have a positive perception towards the importance of the family institution. B. Money. This aspect can be divided in two: making money and how to use it. Taking into consideration the first, 77% of the population agreed about the fact that in terms of job, security is more important than money. However, the 69% of the individuals surveyed when they were in front of the choice between more working hours = more money or less working hour = less money, opted for the first even though both the possibility were offering a stable job. Among the segments the ones more concerned about being wealthy are the “Assertive Youth” and the “Self Indulgent”, while the “Home Marker” and the “Male Conservative” are less attached to this priority. This insight reflect the nature of the life-maturity of the individuals belonging to each group. Now, exploring the second aspect regarding money, in Hong Kong the use of credit was traditionally supported by the Chinese society. However, attitudes are changing and the population is almost neutral to the use of credit with the exception of the younger generations which use it with the purpose of impressing others and aggressively communicate their wealth. 81% of Hong Kong’s citizens prefer to use cash in the day to day transactions a minor youthful segment which accounts the 45% prefers to carry credit or debit card for daily requirements. C. Innovativeness. Overall the population of Hong Kong is always willing to try new things especially if they come from the East of world. The most innovative social segment is the “Assertive Youth” which are leading the country innovation but they are followed by the open minded young women who have a real open-minded and cosmopolitan view of the world. Nonetheless, it is relevant to underline that the younger generations are generally concerned by their public image
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and figure in terms of respectability, prosperity and status. Therefore, they prefer using well-known and recognised brand instead of new and unknown brand that can cause criticism or ridiculousness. D. Permissiveness. This aspect is related to sexual permissiveness. The overall population of the Chinese city is negative towards this aspect. Of course the level of permissiveness changes according to the age and the social group to which the individual belongs. Consequently the least permissive are the “Traditional Matriarch” while the most permissive are the younger segments such as “Self Indulgent” and the “Assertive Youth”. However, has stated before, the general population is consistently more concerned about the sexuality topic respect to eastern countries, even though Hong Kong is an international metropolis. Similarly is the perception of liberalising social laws meaning film censorship, abortion, probation of Google, Facebook and other social networks. All the younger segments are strongly in favour to the abolition of the social laws with the exception of the homosexual laws. The reason behind this aspect is the fact that in Hong Kong homosexual activities are a criminal offence therefore, the population have been constantly threatened under this aspect son that now it is part of their mindset and cultural approach to diversity. E. Ambition. Under this aspect, the Hong Kong society can be divided by genders. In fact, the men are extremely ambitious, they aspire to success which is synonym of good and profitable business. On the other hand, women who have always been told to look after the house and the family, are less ambitious however, in the new generation it is possible to see a considerable increment in the wish of acquire a respected position in the society.
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2. CULTURAL ASPECTS INFLUENCING INTERNATIONALISATION The most important cultural aspect for the expansion of Flying Tiger is the one related to innovativeness. As the company aims to target all the social segments, it is fundamental that the overall Hong Kong population is interested in trying new things especially if they come from the eastern world. Therefore, it is possible to affirm that the high design content and the distinctive concept of the retail format and its products, are key to engage with the new target. However, it is true that Flying Tiger is not a renowned brand in China and consequently it could perceived just as an affordable and low-quality label which is not useful in terms of self-affirmation in public. This threat can be faced by targeting the social group of the “Immature Teenagers” which can perceive the appropriation of Flying Tiger’s products as a act of further alienation from the Chinese society because they are embracing an unknown brand that has a strong competitive advantage and a new distinctive and highly recognisable aesthetic. Another relevant one can be ambition. In fact, if Zebra, the parental company of Flying Tiger, focus its attention on negotiating with a partner who is part of a social segment really keen on achieving business success, for example the “Assertive Youth” or the “Male Conservative”. In fact, they can be key in driving the new store to success thanks to their dedication, with to make money and careful management. As well, permissiveness can have a negative impact on Flying Tiger because China is strongly anchored to its traditions and it suffers the eastern influence. Nonetheless, Hong Kong has a population who proved to be open minded and positive in welcome and adopt new foreign trends, especially if taken into consideration the younger age groups.
Flying Tiger Development Project
6. MARKET ENTRY STRATEGY In order to pursue the establishment of a new Flying Tiger store in Hong Kong the best choice is the direct entering strategy. It is achievable though a join venture characterised by limited partnership with a local associate. This strategy ensures local entrepreneurship expansion and reduces risks when entering the Chinese market. As a consequence, Zebra shares investments, costs and profits with the local partner therefore, it is a business cooperation and not a simple franchise operation. In fact, a mere franchising expansion will result difficult to manage when taking into consideration longterm objectives and further possibility of development. Throughout the partnership, Zebra company remains the owner of the concept and brand, in addition it supplies the products, store interior and marketing material in order to aligned the local retail with core value proposition and aesthetics of the brand. While the local partner is responsible the new store’s step up and launch, the day-to-day operations which include the selection of the staff, training and local marketing. Everything done by the local partner must be in line with the specific guidelines established by the owner company. Taking into consideration that currently Zebra has the control over all the expansion partnerships and they are fully consolidated. Therefore, also the join venture contract that Zebra proposes to the supposed Hong Kong local partner has a contractually defined exit-mechanism. It means that the partner holds the possibility of selling its share to the parental company and at the same time Zebra company has the option of acquire the partner’s participation, both must be agreed upon the defined EBITDA multiples. The local partner is personally selected by the Boards of Director of the Zebra company. They chose individuals or a small group of people after a careful selection process which tests the capabilities of lunching and manage the concept, the experience in retailing, the knowledges of the local market and finally the financial and problem-solving skills. The partner for this expansion strategy is accounted for opening and managing a Flying Tiger retail store in the city of Hong Kong, precisely in an area with a footfall of at least 1.5000 pedestrian in one hour. In addition, the shop must be a space of circa 250m² with an annexed stock provided with an access for loading and unloading bays’ pallet. The investment required ranges from 90 to 150 thousand euros.
Flying Tiger Development Project
7. MARKETING STRATEGY
A. Pricing Strategy
Strategic Objectives ◦ increase marekt share ◦ conquer market share ◦ acquire a strong position in the market ◦ secure future revenues Flying Tiger aims to a penetration prcing strategy. The Danish retail provides items which are have consumption times and a short product life cycle therefore, they are ideal to enter the market with a really low pricing point. However, Flying Tiger does not plan to change they prices which currently vary from 10 to 100 Danish krones meaning from 3,5 to 367 CNY in fact, taking into consideration the quality of the items and the fashionable content it is believed to be a price level which supports the achievement of the objective. B. Positioning Flying Tiger aims to eneter in Hong Kong the market of convenience stores. Although, the Danish brand is aiming to compete mainly with the premium retail MUJI because of the level of design element and quality of the materials, acquiring share thanks to its creative retail concept. + price
MUJI
Flying Tiger standard industrial
MiniStop
VanGO PARKnSHOP
- price
quality design
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8. SALES AND DISTRIBUTION For this expansion strategy the Zebra company starts with only one brick and mortar retail in Hong Kong because it takes reference from the previous Asian expansion in Japan. Where the company started with one point of sale to later expand itself in the country. Therefore, the only channel of distribution in the new market is the physical store in Hong Kong. The product development and design is internally executed by the headquarter in Copenhgaen where it has been established the laboratory for the creative department. Once the product’s patent is done it is shipped do the production factory. Flying Tiger benefits from the support of manifacturers around the globe and one of them is placed exaclty in Japan. It was established to facilitate the supply of the first attempt of expansion in the Asian market in Japan. From the aiport of Osaka,Japan, the merchandise is transported by cargo airplanes to Hong Kong. Once a t the port, the appointed forwarder take the products to the warehouse near the store where they are stocked and organised. The travel roots last: 12.15h from Copenhgen to Osaka and 3.50h from Osaka to Hong Kong.
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9. OPERATION OVERVIEW
A. DESCRCIPTION
The operations which the Zebra company keeps internal during the expansion to Hong Kong are: product selection, innovation and product development. In fact, Flying Tiger’ products together with the reatil concept are the base of the value proposition of the company. Therefore, the control of all the disciplines previously mentioned must be tight to the core company. While, the local partner has to manage all the outsourced operations which are: production to external suppliers who must subscribe to the code of conduct and work under the parental company supervision; logistic that is handled by external operators in order to facilitate the asset and the operations; transportation which as well is provided by forwarders; and last for this expansion strategy it is needed a partner who deals with an external warehouse accounted for inventory, release upon request and other operations. Due to the several steps composing the supply chain needed for the expansion project, logistic is a key activity within the operations’ implementation and it can be visually represented as below.
PARENATL COMPANY Copenhagen
PRODUCT DESIGN creative lab in Copenhagen
RAW MATERIALS SUPPLY & MANUFACTURING Osaka, Japan QUALITY CONTROL TRANSPORT
TRANSPORT
CUSTOMERS Hong Kong
DISTRIBUTION RETAIL STORE Hong Kong, China
WAREHOUSE Hong Kong, China
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The new store in Hong Kong has an operating model for which the management structure is tightly anchored to the core management team. It monitors the financing performances the business operations and it ensures a proactive benefit from targeting the new market’s opportunities and the potential challenges. The focus fall on the supply chain’s performances in order to assure an efficient operation and process which requires low capital investments that can be later employed for further store expansions and partner buyouts. With a view on this objective Flying Tiger in Hong Kong aims to improve inventory, reduce the lead-time from purchase to sale, enhance the forecasting process, better the payments terms with suppliers and generally develop a strong coordination across the local and parental organisations. In 2015 Flying Tiger started to adopt the Microsoft Dynamics AX ERP platform and it has been gradually applied to all its point of sales worldwide. The Hong Kong expansion it is not going to be an exception. In fact, IT Infrastructures are key in the development of a simplified and transparent business, moreover, they ensure a great level of standardisation in the business process and help adaptation to the increasing and specific customers’ demand. Overall, the ERP IT tool is mandatory in the set of the Hong Kong store to support the expected growth, to optimise the future evolutions, to outperform the supply chain operation and support the products’ category management. B. IMPLEMENTATION Flying Tiger aims to open the new Hong Kong store in concurrence with the Chinese’ New Year which next year is going to be the the 18th February 2018. Therefore, the timetable for expansion’s strategy implementation will be the following. Novemebr 1st week of December 2017 Hong Kong market audit analysis and strategic planning 2nd and 3rd week of December 2017
Product design and creative development
4th week of December 2017
Production order
1st to 3rd week of January 2018
Manufacturing
3rd week of January 2018
Quality control
3rd and 4th week of January 2018
Merchandise’s transport
4th week of January 1st week of February 2018
Warehouse and inventory management
1st week of February 2018
Retail design and store decoration
2nd week of Febraury 2018 Merchandise placement in store windows display 18th February 2018
Opening to customers
Logistic is a consistent and necessary operation which is undertaken in all the expansion implementation activities.
Flying Tiger Development Project
10. CONCLUSIONS AND RECOMMENDATIONS It is estimated that throughout this expansion strategy, the Danish Zebra company is able to conquer a larger market share in the Asian market thanks to the implantation of a Flying Tiger’s store in Hong Kong. Thanks to the innovative retail concept, the wide product’s offer and the pricing point, Flying Tiger has all the right characteristic to success in the highly competitive and difficult Chinese market described before, by appealing to the younger target segment of the population which is open and propositive in embracing new trends especially if coming from the western civilisation. However, the first year is probably unprofitable, Flying Tiger has high chance to win the competition and success in the Honk Kong’s market. Therefore, the company expects to cover the necessary investments within the third year of business. The main recommendations concern the relationships established with the local partners. They have to carefully respect the Code of Conducts and the implementation guideline provided by the parental company. As the connection with producers, forwardes, warehousemen and the store’s employees are essential for the success of the first Flying Tiger Hong Kong point of sale, they have to be scrupulously nurtured and handled.
Flying Tiger Development Project
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