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Management Report: Strategic analysis of Yishion Co., Ltd.
1. Background of Yishion Co., Ltd.
Yishion is a Chinese company which could be dated back to 1997, it grows from a small textile manufacturing factory to an international clothing brand by focusing on the clothing industry in China. At present it has more than 200 fashion designers working around the clock and has over more than 3000 stores worldwide (ufonepal.com 201). The company’s current success has closed relationship with the company’s strategic choices which is based on the strategic analysis of the external and internal environment as well as the company’s core capabilities. Below we will first look at the environments that the company is operating in.
2. Environmental analysis
2.1 External environment
PESTEL is one of the most important frameworks of macro-environmental scanning, framework which comprises the most important factors used in environmental scanning; it deals with the major macro environmental factors: political, economic, social, technological, ecological and legal factors (Kennet 2010). Below we will analyze the company’s macro environment which is based in China.
18.104.22.168 Political factors
With a strong government and one party ruling status, irrespective of the democracy issue, a strong government actually ensures a very stable political status and also a safe and stable business environment the companies to operate in. This is in accordance with the fact that more and more foreign companies will choose to locate their business in China not only because of the low labor cost but also because of the stable political status.
22.214.171.124 Economic factors
GDP in China shows strong growth of 9.2% in 2011, with a total GDP reaches $7.5 Trillion (wordpress.com 2012), this rapid growth in term of GDP and other major ecomomic indicators has only been slowed down a little during the global economic crisis, and it has now returned to the rapid growth route. The health and continual economic growth has ensured that the clothing market sector will also see fast growth along with the strong economy.
126.96.36.199 Social factors
With the rapid economic growth, the Chinese consumer behaviours also undergo significant changes which would influence the market a lot. In term of clothing, customers are more and more acceptable to the stylish clothing such as the Korean and western styles, in addition, customer preference is also changing quickly which companies need to take note.
188.8.131.52 Technological factors
Technological factors is also an important aspect of the macro environmental factors. The rapidly spreading computerized modules specifically designed for weaving, mending, dyeing and finishing, together with a backbone infrastructure for sales, design, work in process (apparelsearch.com 2011), and with the fast technolgocial advancement, the whole production process would become more efficient with the investment in the new technology development.
184.108.40.206 Ecological factors
The environmental issues are receiving more and more attentions, as more and more people in China are moving to the city and live a decent life, people are more and more focusing on the environmental impacts created by the human business activities and daily life. As clothing is a major consumer product that will be consumed in large quantity frequently for the whole society, there is an increased awareness requesting the clothing products to be more environmentally friendly and cause as less impacts to the environment as possible.
220.127.116.11 Legislative factors
Since the implementation of the reform and opening up policy in the 1980s, China’s government has been working hard to provide the stable and efficenty public service as well as legislation system to the business development. For example, in 2008 China raised tax rebates for some particular exports to assist the companies to deal with narrower profitability because of the slacking market demand, the currency’s appreciation and increased production costs (mofcom.gov.cn 2008).
2.1.2 Competitive environment
To analyze the industrial environment, we will apply the well known Porter’s five forces framework to check the level of competition in the textile retailing industry.
18.104.22.168 SUPPLIER POWER
The supplier power in the textile retail industry is low because of two major reasons: on one hand, there are a large number of suppliers in the supplying industry to provide various materials and finished goods for the manufacturing or retailing purposes, and because of the large number of suppliers which could be of big or small scale, the bargaining power of them is much reduced; and on the other hand, price war is usually used in the supplying industry to win the market share and also the supplying products are similar to each other.
22.214.171.124 THREAT OF NEW ENTRANTS
The threat of new entrants is strong as the clothing retailing market is a growing market and it has the potential for high profits which attract new firms to enter a market and incumbent firms to increase production (McDonald, Ward & Smith 2007). As just mentioned, many supplying industry of the clothing product are actually facing lowered profitability, and the fast growging clothing retailing industry will be attractive for them to enter.
126.96.36.199 THREAT OF THE SUBSTITUTES
Substitute products are those different in product nature but could offer similar functions to the customers and meet their needs which means that these products could bring threats to the current products. As for the textile industry, the threat of substitutes is very little and could even be neglected because one so far can’t imagine how our life will become if we do not wear clothes though the materials of the clothes are changing with time.
188.8.131.52 BUYER POWER
The buyer power in the textile industry could be very strong or very weak based on their purchasing volume. According to Richard M. Jones (2006), The buyer in the retail sector could have either strong or weak power because of the existence of the wholesalers who have large buyer power while at the same time the final individual customers have little bargaining power because of their little purchasing volume. Therefore, we conclude that the buyer power in the textile retail industry is medium.
184.108.40.206 Competition among the existing players
Though there are already a large number of players in the clothing retail industry, whether they are branded or not branded, the competition among these players is still only in a middle level for two major reasons: first of all, with the fast growth of the economy development in China, the clothing retailing industry is also growing in a fast speed because more and more people become rich and they become the new customers in the cloth retailing industry. Secondly, in the current market, the competition is still not high because many large companies tend to focus on the local market in their respective provinces or cities, and competition for the country level dominance is still not obvious.
Based on the above analysis, we can see that there is medium level of competition in the cloth retailing industry and this condition set the base for the strategic formulation and choices that the company has now used. Below we will check their strategic choices.
2.2 Internal environment: SWOT analysis
Small market share
Market is growing
New entering players
Table 1 The SWOT analysis of Yishion
3. Strategic formulation and choice
3.1 Generic strategy: Diversification strategy
Michael E. Porter had long proposed that in order for a company to enhance its market competitiveness in the industry, it has three major generic strategies that it could use to obtain the competitive advantage; they are cost leadership, differentiation and focus. And Porter’s view is that a company has to identify one of these three strategies or else positioning in the middle would not bring any advantages.
As in the case of Yishion, since the new century, it has adopted the Differentiation strategy to outperform the competitors. It has differentiated the product lines to produce and retail not only the clothes but also the shoes as well as other sporting equipments, in addition it is now covering not only the young customers but a
also the children and the middle aged customers who tend to have more needs in the formal wearing rather than the casual tha the company had been focusing since its establishment. This generic strategic choice has closed relationship with the external and internal environments in which the company has been focusing on. The rationality is three fold. Firstly, the company has witnessed the changing needs and stylish needs of the customers based on which the management of the company had given the mass production strategy and turned to the small volume and differentiated production; secondly, the company had observed the increasing competition in the casual wearing market targeting at the young people, hence it started to develop the sub brands targeting at the minorities such as the children, such differentiation strategy is considered as highly effective; last but not least, the company has successfully market the new brands based on the existing brand in the casual wearing market and prompted the new brands in consistency with the original brand.
3.2 Intensified R&D activities
As mentioned above, lack of strong R&D power is one major weaknesses in the case of Yishion because the company developed from a OEM Small factory, and in order to make up this disadvantage, the company made two major strategic choices: first of all, the company outsourced some of the manufacturing business to the OEM factories and it’s major capital and human talents hence are allocated in the research and development activities; secondly, it strategically replaced some key positions in the R&D center of the company with the industrial top talent in the R&D field by paying a high cost. These talents have become the core of the company in the company’s rapid growth in the past decades. The strategic focus on the R&D activities and outsourcing the production sector is based on two major environmental factors: low bargaining power of the suppliers which makes it possible to control the cost in term of production and also another environmental factor is the changing customer preference.
To conclude that above analysis, we can see that based on the external environmental factors in term of medium level of competition in the textile industry, the company has adopted the differentiation strategy to source its competitive advantage through differentiated product lines and market base; in addition, because of the lower bargaining power of the suppliers, the company has outsourced the production sector to the OEM factories and focus on the R&D capability building which is considered as the weakness of the company, and by concentrating on the R&D team building the company managed to make a turnaround and make the weakness into advantage.
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Kennet, W. 2010. The Futures of Europe. Cambridge: Cambridge University Press.
McDonald, M., Ward, K. & Smith, B. 2007. Marketing Due Diligence: Reconnecting Strategy to Share Price. London: Butterworth-Heinemann
mofcom.gov.cn 2008. China to raise export tax rebates for textile, garment products. accessed on 13 April 2012 [online] available: http://bg2.mofcom.gov.cn/aarticle/chinalaw/taxation/200811/20081105876702.html
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