Factors influencing international fashion retailers entry mode choice.

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Presented by:

v GOWRY Oushita v BANARSEE Purvashee v FAZALKHAN Ibtihaaj

0912806 0917435 0914485

v JOYEKURRUN Hemnish 0913463 v MOOSUN Amir-Shad

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0910995
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INTRODUCTION

Aim of the study: To provide a theory-based

framework that informs a fashion retailers entry mode choice into a foreign market.

An increasing frequency of international activity. This increase has triggered an exponential

growth of fashion retailers in foreign markets in the past two decades.

Critical decision faced by fashion retailers: WHAT

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MODE OF ENTRY TO CHOOSE? 5/4/12

What is mode of entry? Mode of entry is defined its as a the firm arrangements transferring that

institutional develops for

products,

technology, staff and other resources to a foreign country. (Hill et al, 1990) Mode of entry: a pivotal aspect of fashion
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retailers internalisation process.

MODE OF ENTRY

MECHANISM S

Enter

Develo p

Distrib ute

BRANDS IN A FOREIGN MARKET

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Several entry mode theories have been developed. Nevertheless, the application of most of these theories Why?

are disregarded in the fashion retailing sector.

Absence of a unified theoretical framework. Fill in the literature gap &

Therefore, this study has as purpose to:

Identify factors that influence mode of entry of fashion retailers.

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How?
Various existing theories of entry mode choice were applied. These theories were integrated.

A series of propositions were generated.

A conceptual framework was developed.

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A case study is presented to demonstrate the application of the developed propositions.

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LITERATURE REVIEW
Features of international retailing and entry mode choice

What is international fashion retailing?

Fashion retailers operations in which they sell fashion brands and/or operate stores in more than one country (Dawson, 1994).

A variety of entry modes can be selected.

For example: export of products, franchising, involvement in joint-ventures (JV) &

88 establishment of wholly owned subsidiaries

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More than one entry modes can be selected. For example, Marks and Spencer uses:

Franchising in Portugal, Greece and Hungary and WOS in France and The Netherlands.

These various entry modes: continuum (Sternquist, Continuum

1998) Low Control (e.g. export) WOS)

High Control (e.g.

How do they vary?

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degree of investment risks

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Control Level

Figure 1. Entry modes characteristic s

Source: Adapted from Sternquist, 2007 Resource commitment/ risk/return

HIGH CONTROL ENTRY

-

LOW CONTROL ENTRY

-

MODE Greater resource

MODE More limited resource

commitment. - Foreign operation

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commitment which reduces investment risks.

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Several factors affect fashion retailers mode of entry. For example, by international cultural and fashion in retailing terms is of differences

influenced consumers,

employees

business

practices

(Dawson, 1994).

A fashion retailer should choose an entry mode that

matches its international experiences and cultural disparity of a foreign market (Alexander & Doherty (2004) and Doherty (2000)).

Gripsrud & Benito (2005):

Attractiveness of foreign market, Ease of conducting business in a market,

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Moore & Burt identified two factors that are crucial for

successful foreign market expansion.

SPECIFIC ASSETS

BRAND EQUITY

Skills and managerial

Value that a brand

know-how that are unique to a fashion retailer.

adds to the firm in terms of product differentiation and consumer recognition.

Used to establish a E.g. Retail

competitive brand.

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Has an impact on

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Four main theories were analysed and incorporated

in this study to introduce a holistic and theory-based framework so as to better explain fashion retailers mode of entry. These are:
1)

Transaction cost theory Bargaining power theory Internationalisation theory Resource based theory.

2)

3)

4)

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Transaction cost theory

Focuses

on

the

relative

efficiency

of

different

organisational structures so as to diminish transaction costs while doing business across borders. E.g. Reducing information search costs. Bargaining power theory

Incorporates a political imperative into entry mode decision. Fosters the view that a firms entry mode choice depends on relative bargaining power of the entrant firm. An entry firm should choose the entry mode that either matches or enhances its bargaining power.
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Internationalisation theory

Provides a dynamic view of entry mode choice. Views internationalisation as a process where firms increase their expansion capability in a foreign market Foreign market entry risky due to uncertainties (political instability/cultural differences).

Resource-based theory

Explains entry mode choice from the perspective of an entrant firms resource deployment (Brown 1515

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Present Study:

METHODOLOGY
concerning the entry mode

factors

choice for fashion retailers were identified:

Asset Specificity Brand Equity Financial Capability International Experience Country risk
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 By further analysis, these factors were grouped in 3

categories:
Firm Specific Factors Country Specific Factors Market Specific Factors

Hunt(2002)

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Proposition were in form of bridge laws.

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Firm Specific Factors

Related to a firms capacities and

characteristics that influence its competitive position in a market. - Asset specificity - Brand equity - Financial capability - International experience

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1)

Asset Specificity

Use asset efficiently (Sharma and Erramilli 2004)

Better Retail Concept Environmental Friendly Inventory Planning Product Innovation (Park 2008)

Used as a competitive weapon (Jin 2004; Park and

Sternquist 2008)
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2)

Brand Equity

Most important factor for International Expansion

(Moore and Burt 2007)

Lead to competitive advantage However, conflict may arise in international market Franchisees

not concerned with brand equity

(Doherty 2007)

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2020

3) Financial Capability
International

Expansion

(Moore

and

Burt

2007)
Geographical

Spread

and

Computerised

Management Information Systems

Operating

under WOS Severe financial

constraints
Franchising (Doherty 2000)
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4) International Experience
Cope with complexities (Doherty 2000) Intangible Resource (Luo 2001) Strategic alliance with local partners Franchising Matching local market knowledge Internationalization theory (Blomstermo 2006) Incremental learning (Brown et al 2003)
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Country Specific Factors

Invest in an environment in a foreign country

in terms of the countrys economy, legislation, politics, institutions and culture.

- Country risk - Government restrictions - Cultural distance

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5) Country Risk
Country Specific factors Economy, Legislation,

Politics, Institutions and Culture.

Country Risk- Critical to survival and profitability Uncertainties (Sternquist 1998) Transaction

Cost

Theory

Limit

Resource

commitment; low flexibility (Hill et al 1990)

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6) Cultural Distance
Strong in retailing (Moore and Fernie 2004) Examples

Consumer

Product

Demand,

Key

Consumer Preference Groups, Religious Beliefs

Resource Based Theory (Sharma and Erramilli

2004)
Internationalization Theory consider local norms

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7) Government Restrictions
Adopt to Local Laws and Restrictions Impact on Foreign Direct Investment and entry

mode choice
Types of Government Restrictions Restrictive Media Policies (Huang Sternquist 2007) Bargaining Power Theory (Taylor et al 2000)
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Market Specific Factors

Defines overall market environment in foreign country

Two critical factors for Entry Mode choice:

Market Potential Market Competition

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8) Market Potential
The size and growth potential of a foreign market Transaction Cost Theory (Brouthers et al 2000) Favorable opportunity for growth
Retailers select higher control entry modes

Consumer demand is stagnant

Retailers select lower control entry modes
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9) Market Competition
Bargaining Power Theory
Weak Bargaining Power (Taylor et al 2000)

Level of Market Competition

Need of substantial resource commitments due

to high level of competition

Transaction Cost Theory
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Explains fashion retailers preference

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Summary of the 9 Factors

By applying the entry mode theories, the 9 factors

were identified. These factors led to the 9 propositions. These propositions bridge the fundamental laws of

the 4 entry mode theories.

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A case study of an Italian fashion firms entry into Click to edit Master subtitle style the Chinese market

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INTRODUCTION
Company X is a leading fashion Company Introducing a new brand (A Brand) in the Chinese

market
A Brand- reasonable price & trendy design.

Great popularity in Italy and is well-received internationally

Design and marketing are keys to its success
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Determination of Company Xs entry mode in Asset the 9ps: line with Specificity - Specialised assets, unique
managerial capabilities which distinguish the company from local competitorsAsset Specificity, Control entry mode.

Brand Equity - Able to protect, and avoid damage

to
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brand

image,

from

local

opportunism
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(counterfeiting and knockoff).

 Financial capability Being one of the largest fashion

retailers in Italy, provision of financial support is available level of financial capability, mode control entry

International

Experience

Accumulation

of

considerable knowledge of the Chinese market and their way of doing business International experience,
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control entry mode

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Cultural distance between China and the West

appear high but acquired experience (1st entry) reduces risk. Plus point benefits of WOS (as related to other factors)

Govt restrictions Prior to 2005, no independent

entry was allowed. Reforms and simplification of application procedures took place
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access to
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Chinese market

Market Potential Due to the advantages of Brand A,

demand in the Chinese market is anticipated promising market. Exploitation of market both in long run & short run is perceived due to the appropriate selection of WOS Market Potential, Control entry mode

Market Competition Increasingly intense due to

growing presence of International fashion brand. However, competitive advantage

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managerial
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competence, marketing strength of Brand A, great resources Company X chose a

SUMMARY
High control over foreign operation preferred by

Company X because:
To protect its brand equity Beneficial to Company Gain high profitability in long term operation Sound financial resources & international experience in

Chinese market were available

The case demonstrates that

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A firm must consider trade offs among all the 9 factors

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The success of Company X depends on its

entry mode choice

By the time the paper was written, 20

stores were already opened in China

Through WOS, more are being

planned( stores)
Growth of Brand attributed to Companys

strategy- same brand positioning that has

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been used in Italy

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CONCLUSION
This study has important managerial implications for

industry practitioners.
This study can help managers deciding on an entry

mode choice.
The 9 factors must be considered collectively. The 9 factors may be perceived differently by different

companies.
The entry mode choice depends on type of market

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entered.

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THANK YOU!

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