Question

Q1 is based on the case about fast fashion. However, you are expected to do some research to understand better of the issues of fast fashion industry. Q2 is an independent discussion question based on the Haagen-Dazs' success in China story .

Q1. What are the major challenges that fast fashion retailers facing nowadays? How can these retailers cope with the challenges? Is fast fashion sustainable? Why?

Q2. When going global, companies have the opportunities to reposition their brands from cheap brands to premium or even luxurious brand. However, the Internet creates the issue of transparency. If a company simply changes the price level in different markets, it is hard for them to maintain a consistent brand image. Taken Haagen-Dazs' success in China as an example, discuss what factors can contribute to a company's repositioning success when going global.

Answer 1

Q1.

The social and environmental impact of our clothing is increasingly being scrutinised by consumers, NGOs, politicians and retailers themselves. Recent reports, including the Commons environmental audit committee report, published in February, have focused on the amount of textile waste, the impact on the environment and the social cost of our fashion choices.

Such scrutiny is a key part of encouraging transparency among retailers and manufacturers in both the UK and abroad. British retailers are embracing greater openness by providing better information about where our clothes come from and the ethical standards they adhere to.

Progress has been made, but there’s still more to do

Retailers must provide fashion that is affordable to all income brackets while respecting their societal responsibilities for sustainable production. Articles about “£5 dresses” bring up important questions about sustainability, but also how we reduce the cost of living for those who have suffered years of minimal real wage growth.

The British Retail Consortium (BRC) and our members are trying to mitigate the social and environmental cost of the fashion industry throughout the supply chain. Retailers recognise they have a duty to reduce the impacts of clothing on carbon, water and waste, especially as the industry meets the demands of a growing population.

This impact will occur regardless of the materials used in fashion. Natural fibres such as cotton must be grown, requiring land and water, whereas synthetic fibres like polyester, while recyclable, require fossil fuels to make.

Thankfully, progress is being made. From 2012 to 2016, the amount of water and carbon required to make each tonne of clothing has fallen by 6.5 per cent and 8 per cent respectively. The BRC, working with retailers, manufacturers, consumers and government, aims to create, foster and disseminate good practice across the industry.

And more can be done. Our Better Retail Better World campaign builds on a framework set out by the United Nation’s Sustainable Development Goals (SDGs) to drive industry co-operation on issues such as climate change, deforestation, gender equality and responsible production, all of which are impacting the fashion industry.

Retailers that have signed up to the initiative are committing to meeting targets within the SDGs and working collaboratively to ensure the industry can meet the UN’s own targets for 2030.

Sustainability issues the fashion industry must tackle

Lately, there has been intense media focus on fast fashion and the link to microfibres, microscopic plastic fragments that get into our water systems and harm marine life. Many of these microfibres come from our own clothing, entering the water supplies when we wash our own synthetic clothing, such as polyester and nylon.

The full implications of microfibres entering the marine ecosystems and food chains are yet to be fully understood, but retailers, academics, NGOs and manufacturers are working hard to raise awareness and find viable solutions that will prevent this issue getting worse.

Another issue rising through the media consciousness has been the environmental and ethical implications of animal-derived products in fashion, from wool and leather, to the animal-derived dyes and glues. This has led to the rise in vegan clothing and footwear lines from a variety of retailers. The complex nature of fashion supply chains is forcing retailers to scrutinise the whole journey of their clothing from the farm to the factory to the outlet.

Fashion is incredibly important, not just to the retail industry, but to the UK economy. The BRC is committed to bringing together retailers behind a common set of measurable goals that can ensure a future of sustainable and ethical fashion consumers trust.

Q2.

As protectionist barriers crumble in emerging markets around the world, multinational companies are rushing in to find new opportunities for growth. Their arrival is a boon to local consumers, who benefit from the wider choices now available. For local companies, however, the influx often appears to be a death sentence. Accustomed to dominant positions in protected markets, they suddenly face foreign rivals wielding a daunting array of advantages: substantial financial resources, advanced technology, superior products, powerful brands, and seasoned marketing and management skills. Often, the very survival of local companies in emerging markets is at stake.

Strategists at multinational corporations can draw on a rich body of work to advise them on how to enter emerging markets, but managers of local companies in these markets have had little guidance. How can they overcome—and even take advantage of—their differences with competitors from advanced industrial countries? Many of these managers assume they can respond in one of only three ways: by calling on the government to reinstate trade barriers or provide some other form of support, by becoming a subordinate partner to a multinational, or by simply selling out and leaving the industry. We believe there are other options for companies facing stiff foreign competition.

In markets from Latin America to Eastern Europe to Asia, we have studied the strategies and tactics that successful companies have adopted in their battles with powerful multinational competitors. Vist in Russia and Shanghai Jahwa in China, for example, have managed to successfully defend their home turfs against such multinationals as Compaq and Unilever. Others, including Jollibee Foods in the Philippines and Cemex in Mexico, have built on strength at home and launched international expansion strategies of their own. By studying these examples, managers of other companies from emerging markets can gain insight into their own strategic options.

Aligning Assets with Industry Characteristics

When India opened its automotive sector in the mid-1980s, the country’s largest maker of motor scooters, Bajaj Auto, confronted a predicament similar to what many “emerging-market” companies face. Honda, which sold its scooters, motorcycles, and cars worldwide on the strength of its superior technology, quality, and brand appeal, was planning to enter the Indian market. Its remarkable success selling motorcycles in Western markets and in such nearby countries as Thailand and Malaysia was well known. For the independent-minded Bajaj family, a joint venture with Honda was not an option. But faced with Honda’s superior resources, what else could the company do?

A closer look at the situation convinced Bajaj’s managers that Honda’s advantages were not as formidable as they first appeared. The scooter industry was based on mature and relatively stable technology. While Honda would enjoy some advantages in product development, Bajaj would not have to spend heavily to keep up. The makeup of the Indian scooter market, moreover, differed in many ways from Honda’s established customer base. Consumers looked for low-cost, durable machines, and they wanted easy access to maintenance facilities in the countryside. Bajaj, which sold cheap, rugged scooters through an extensive distribution system and a ubiquitous service network of roadside-mechanic stalls, fit the Indian market well. Honda, which offered sleekly designed models sold mostly through outlets in major cities, did not.

Instead of forming a partnership with Honda, Bajaj’s owners decided to stay independent and fortify their existing competitive assets. The company beefed up its distribution and invested more in research and development. Its strategy has paid off well. Honda, allied with another local producer, did quickly grab 11% of the Indian scooter market, but its share stabilized at just under that level. Bajaj’s share, meanwhile, slipped only a few points from its earlier mark of 77%. And in the fall of 1998, Honda announced it was pulling out of its scooter-manufacturing equity joint venture in India.

Bajaj’s story points to the two key questions that every manager in emerging markets needs to address: First, how strong are the pressures to globalize in your industry? Second, how internationally transferable are your company’s competitive assets? By understanding the basis for competitive advantage in your industry, you can better appreciate the actual strengths of your multinational rivals. And by assessing where your own competitive assets are most effective, you can gain insights into the breadth of business opportunities available to you. Let’s take each question in turn.

Despite the heated rhetoric surrounding globalization, industries actually vary a great deal in the pressures they put on companies to sell internationally. At one end of the spectrum are companies in such industries as aircraft engines, memory chips, and telecommunications switches, which face enormous fixed costs for product development, capital equipment, marketing, and distribution. Covering those costs is possible only through sales in multiple markets. A single set of rules governs competition worldwide, and consumers are satisfied with the standardized products and marketing appeals that result.

Despite the heated rhetoric surrounding globalization, industries actually vary a great deal in the pressures they put on companies to sell internationally.

At the other end of the spectrum are industries in which success turns on meeting the particular demands of local consumers. In beer and retail banking, for example, companies compete on the basis of well-established relationships with their customers. Consumer preferences vary enormously because of differing tastes, perhaps, or incompatible technical standards. Multinationals can’t compete simply by selling standardized products at lower cost. Alternatively, high transportation costs in some sectors may discourage a global presence. In all of these industries, companies can still prosper by selling only in their local markets.

Most industries, of course, lie somewhere in the middle of the spectrum. International sales bring some advantages of scale, but adapting to local preferences is also important. By thinking about where their industry falls on the spectrum, managers from emerging markets can begin to get a picture of the strengths and weaknesses of their multinational competitors. But they need to place their industry carefully. As Bajaj found, industries that seem similar may be far apart on the spectrum—pressures to globalize scooters turn out to be much weaker than those to globalize automobiles. Bajaj may go global in the future, as the Indian market evolves, but it has no need to do so now.

Once they understand their industry, managers need to evaluate their company’s competitive assets. Like Bajaj, most emerging-market companies have assets that give them a competitive advantage mainly in their home market. They may, for example, have a local distribution network that would take years for a multinational to replicate. They may have longstanding relationships with government officials that are simply unavailable to foreign companies. Or they may have distinctive products that appeal to local tastes, which global companies may be unable to produce cost effectively. Any such asset could form the basis for a successful defense of the home market.

Some competitive assets may also be the basis for expansion into other markets. A company can use its access to low-cost raw materials at home, for example, to undercut the price of goods sold in other countries. Or a company may use its expertise in building efficient factories to establish operations elsewhere. Assets that may seem quite localized, such as experience in serving idiosyncratic or hard-to-reach market segments, may actually travel well. By paying close attention to countries where market conditions are similar to theirs, managers may discover that they have more transferable assets than they realize. The more they have, the greater their chance of success outside the home base.

These two parameters—the strength of globalization pressures in an industry and the degree to which a company’s assets are transferable internationally—can guide strategic thinking. If globalization pressures are weak, and a company’s own assets are not transferable, then, like Bajaj, the company needs to concentrate on defending its turf against multinational incursion. We call a company employing such a strategy a defender. If globalization pressures are weak but the company’s assets can be transferred, then the company may be able to extend its success at home to a limited number of other markets. That sort of company is an extender.