Strategic analysis, strategy formulation and strategy implementation of Chinese clothing brand – Yishion

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Executive summary

This target aims at applying the strategic management process in the raising clothing brand, “Yishion” which is a Chinese casual clothing brand that focuses on the Chinese market by targeting at the young customers through its own manufacturing and marketing of a self-owned clothing brand. Three major parts are involved: strategic analysis, strategy formulation and strategy implementation.

Content page

List of figures, charts and tables………………………………………………………………………… 3

Case study of Yishion (China) Co., Ltd……………………………………………………………… 4

1.     Introduction……………………………………………………………………………………………… 4

2.     Strategic Analysis………………………………………………………………………………………. 5

2.1      External Environment……………………………………………………………………….. 5

2.1.1     General Environment………………………………………………………………. 5

2.1.2     Competitive Environment: Porter’s 5 Forces………………………………. 8

2.2      Internal Environment………………………………………………………………………. 10

2.2.1     Value Chain Analysis…………………………………………………………….. 10

2.3      SWOT Analysis……………………………………………………………………………… 11

3.     Strategy Formulation, Evaluation and Choice……………………………………………… 12

3.1      Corporate Level Strategy………………………………………………………………… 12

3.2      Competitive positioning using Porter (1980)’s Generic Strategies…………. 13

3.3      Growth strategies – Ansoff (1957)’s matrix……………………………………….. 14

4.     Strategy implementation…………………………………………………………………………… 15

4.1      Marketing strategy implementation…………………………………………………… 15

4.2      Marketing and R&D team building…………………………………………………… 16

4.3      Leadership behaviors………………………………………………………………………. 16

4.4      Change management issues: organizational structure formalization and outsourcing the manufacturing sector…………………………………………………………………………………………………….. 16

5.     Conclusion……………………………………………………………………………………………… 17

Reference……………………………………………………………………………………………………… 19

 

 

List of figures, charts and tables

 

Figure 1 Export market network of Yishion (China) Co., Ltd…………………………. 4

Figure 2 Porter’s Five Forces model (1980)………………………………………………….. 8

 

Table 1 PESTLE Analysis………………………………………………………………………….. 7

Table 2 SWOT analysis of Yishion…………………………………………………………….. 12

Table 3 Marketing efforts and relevant budget table for 2013 financial year…… 15

 

Case study of Yishion (China) Co., Ltd

1.        Introduction

 

Yishion (China) Co., Ltd was established in 1997 and now is still headquartered in Dongguan City in the south China’s Guangdong Province where the first factory was built up. By putting together the elements of fashion, quality, value through an integrated system of design, sourcing, manufacturing and sales of the textile products under its own brand “Yishion” (gzyishion.net 2012), with more than 4,000 specialty stores so far, Yishion (China) Co., Ltd has become one of the major branded clothing manufacturers as well as retailers. Its product categories target at the young people (aged from 15 to 35) by focusing on the building of several major product series: Yishion Casual, Yishion Trendy, Yishion Kids and Yishion Urban. As just said, the manufacturing center is still located in the Dongguan city, closed to the headquarter, through years’ development

 

Figure 1 Export market network of Yishion (China) Co., Ltd

(Source: Yishion.com.cn 2009)

 

As a privately owned company, Yishion (China) Co., Ltd is 100% owned by DongYua Group, and under the leadership of the company’s founder Guo Dong Lin, Yishion through ambitious marketing and also the usage of specialty franchising has become one the most popular clothing brand among the domestic market. Through the right business direction and human resource management strategy, the company has achieved great success, for instance, as earlier as 2007, in the product category of T-shirt, Yishion had topped the branded T-shirt market by selling 315 thousand T-shirt for a month (texindex.com.cn 2007), and now in the total casual wearing market sector, Yishion has firmly established itself as one of the industrial top three leaders with about 5% – 7% market share (cn.sonhoo.com 2011). Below we will probe into the application of the strategic management process of Yishion (China) Co., Ltd to see how it helps the company to achieve and sustain the current success.

 

2.        Strategic Analysis

 

Strategic analysis is a company’s attempt at arriving at a strategy, objectives, and key programs for a company, or performing an intermediate analytical task, by this definition, the term also involves the process or any part of the strategic planning process requires analysis (Abraham 2006, p. 11). The major components of the strategic analysis in the perspective of a company includes internal and the external analysis which again could be divided into general environment such as the political status and economic factors and also the industrial environment such as the industry competitive environment. And the internal environment involves factors such as the value chain, financial measurement, and economy value added and so on.

 

 

 

 

 

2.1    External Environment

 

2.1.1            General Environment

 

2.1.1.1      PESTLE Analysis

 

PESTLE refers to the organization’s external political, economic, social (demographic), technological, legal and ecological environment (Gill 2006, p. 193). PESTLE analysis is a simply tool to assist the company to find out and monitor some weak signals in the environment with the hope of recognizing the discontinuities or fractures shaping the business environment where it operates (Henry 2008, p. 51).

 

Elements Positive Negative Impacts and implications to the company
Political Elements Overall political stability Regional ethnic conflict[1]
Economic Elements Rapid GDP growth; Continuous inflation[2] ; Increasing demand; low price clothes will be preferred
Social Elements More and more young people love casual wearing even in the office Rapid changing popular wearing styles Because of the rapid changing popular wearing styles which are caused by both the trends changes in the domestic as well as the international fashion industry, any casual clothing manufacturers need to respond quickly to the changes in the customer preferences.
Technological elements New technology reduce the reliance of intensified labor inputs Intensified investment in the R&D activities[3] The trend of intensified investment in the R&D activities requires Yishion to react promptly to the technology advancement because of the intensified investment in the R&D activities.
Legal elements Increased tax rebate ratio for garment export[4] The new labor law and contract law has required the business entities to do more and provide more benefits and protection to the employees. The new labor law will increase the cost of the product and squeeze the profitability of the business in clothing, the company need to focus more on the cost control and operating efficiency.
Ecological environment Waste made during product become a top concern A good chance to approach to the CSR (corporate social responsibility) practices to build up competitive advantage

Table 1 PESTLE Analysis

 

From the above analysis of the macro environment, we can see that the macro environment in general is favorable to the company of Yishion since it is targeting at the branded clothing market rather than a competitive manufacturing sector, but also there are changes in the macro environment that need to be noticed such as the enhanced customers’ need of environmentally friendly materials in the clothes.

 

2.1.2            Competitive Environment: Porter’s 5 Forces

 

One of the most used tools to perform an industrial analysis with reference to the competitive conditions in an industry is Porter’s Five Forces model which focuses on the interaction of five forces in deciding the industrial competitive level as well the attractiveness of the industry. These forces are: (a) the risk of entry by potential competitors, (b) bargaining power of the suppliers, (c) the threat of substitutes, (d) the bargaining power of the buyers and (e) the rivalry among the established competitors (Hill & Jones 2010, p. 43). In the following we will carry out an analysis using the Porter’s Five Forces model in the branded casual clothing sector in the textile industry.

 

 

Figure 2 Porter’s Five Forces model (1980)

Source: Adapted from Porter 1980 (The Free Press/Macmillan)

 

2.1.2.1      The risk of entry by potential competitors

 

The risk of entry by potential competitors is strong because of the major reasons: First of all, with the raising material cost as well as the labor cost in China which is enhanced by the widely by the continual inflation in the economic sector as mentioned above, traditional textile product manufacturers have reduced profitability than they used to enjoy in the past. During 2011, more than 30 percent of textile and clothing firms in Jiangsu and Zhejiang are reported to have gone out of business, according to China Business Daily (moneycontrol.com 2012). Therefore when the traditional manufacturing with heavy reliance on the oversea orders and low labor start to fall and industrial transfer slowly become obvious, these old textile pure manufacturer and OEM companies are actually forced to enter into the branded clothing industry; secondly, compared to the low profitability in the traditional textile manufacturing sector, the growing and high profit branded clothing business sector post great attraction to these companies.

 

2.1.2.2      The bargaining power of the suppliers

 

The bargaining power of the suppliers is weak in the textile industry in China because of the large number of suppliers which are varied in term of size. In the past two decades, together with the explosion of the textile manufacturing industry, the supplying market is also enlarged quickly, similar to the suppliers of the TV set, these suppliers in the textile are also facing the problem of the raising price of the raw materials which also cause squeezed profitability in their business, but since their high exist cost to change to another industry or business, their bargaining power are much reduced.

 

2.1.2.3      The threat of substitutes

 

Threat of substitutes refers to other products in other industries that could be substituted for the product in the industry (Desmond 2004, p. 33). In the overall textile industry, there are no obvious substitutes for the various products though the materials are changing and styles are also changing but there is no trend that any clothing products such as pans will be replaced. Therefore the threat of substitutes is actually very low or even can be neglected in any segments of the textile industry.

 

2.1.2.4      The bargaining power of the buyers

 

Bargaining power of buyers refers to the ability of buyers to negotiate and create favorable terms for themselves (Ungson & Wong 2008, p. 66). And in the branded clothing market sector of the Chinese textile industry, the buyers are all individual consumers, and because of the large number and scattered buying in term of different time, different location and small purchasing volume for each time, their bargaining power tend to be largely reduced. But the good news in the buyers’ perspective is that there is increasing competition in the branded clothing market with more and more international brands moving into the market and local brands being created. Therefore we will say that the bargaining power of the buyer is in a medium level.

 

2.1.2.5      The rivalry among the established competitors

 

Rivalry refers to the competitive struggle between companies in an industry to gain market share from each other (Hill & Jones 2010, p. 46). As just said there is increasing competition among the established brands, but here we still consider the rivalry among the established players as of low to medium level. This is based on two considerations: first of all, the branded clothing retail market is growing in a very rapid speed with the enlarging customer demand which is based on the fast economic growth; in addition, the domestic players are still learning to manage a brand and therefore there is further reduction in the rivalry among the market leaders like Yishion.

 

 

 

2.2    Internal Environment

 

2.2.1            Value Chain Analysis

 

The term of value chain defines the evens happen in the business with reference to the competitive advantage of the business. A typical model provided by the famous Michael Porter, suggests that these business practices could be grouped into two categories: Primary Activities and Support Activities (Hill & Jones 2010, p. 81). In the case of Yishion, a new Chinese brand in the clothing market designed for the young people, by reviewing the core competitiveness of the company, we manage to conclude two kind of primary activities that Yishion should keep focusing on: research and development (R&D) and marketing and sales. On one hand, the product R&D activities which involves the design of the clothing products as well as the design of the product process, these two activities aims at increase the efficiency of the production and also ensure the design and material of the clothing products fit in the needs of the customers in term of using quality materials and the provision of the most fashionable clothes to the customers; on the other hand, the marketing and sale activities mainly refers to the management of the brand in term of clear and good positioning of the brand in the fields such as pricing and distribution strategic choices. And this choice of the primary activities as the major and critical part of the value chain to be focused on is depending on the company’s generic choice which is differentiation strategy rather than a cost leadership or focus strategy.

 

2.3    SWOT Analysis

 

SWOT analysis refers to a tool that recognizes the Strengths, Weaknesses, Opportunities, and Threats of an organization (Jones & Loftus 2009). A simple SWOT analysis could help the company to identify its current position and plan for the future steps and decisions making based on the SWOT as a guideline.

Strength

Famous brand (brand awareness)

Low cost in labor

Established distribution network

Market leadership

Weakness

Lack of experience in marketing promoting an international brand
Cost of production material is raising
Lack of the quality talents in the designing jobs as well as higher management level
Weak R&D capabilities

Limited capital

Opportunity

Branded clothing market is expanding

Large oversea market demand

Threat

Entry of new players

Online shopping substituting the traditional outlets

Table 2 SWOT analysis of Yishion

 

From this simple SWOT analysis, we can tell that Yishion has obvious advantages in term of having a leading brand in the casual wearing market sector which benefits its development a lot but like all the players in the industry it also encounters challenges from the market difficulties such as the high material cost. In additional opportunities and threats coexist in the market indicating that the future strategic choices would be of great importance. Below we will look at the strategic formulation and implementation based on our analysis.

 

 

 

 

 

3.        Strategy Formulation, Evaluation and Choice

 

3.1    Corporate Level Strategy

 

The term Corporate Level Strategy describes the range of the different industries and market segments that a company competes within to realize its organizational purpose. Based on the positioning of the company, its business level straegy includes three major parts:

 

l  Continue to focus on the branded casual wearing (textile) market by offering the young people with the most fashionable and quality products to help them show their personality

 

l  To build up a young corporate culture that encourages direct communication and fresh idea expression, this is in accordance with our market positioning

 

l  To become and maintain as the no.1 domestic brand in the branded casual wearing market in China by focusing on the building of brand and R&D capabilities

 

3.2    Competitive positioning using Porter (1980)’s Generic Strategies

 

Based on the finding of Porter (1980), there are three major generic strategic choices if a company want to outperform the competitors and maintain a competitive advantage, they are: overall cost leadership, differentiation and focus strategy. Though there are some speculations regarding a company does not necessarily choose a clear generic strategy among these three in order to be successful and competitive, such as Honda, still the model provides many companies a main direction to choose the competitive strategies that could help them to outperform the industrial average.

In the case of Yishion, as mentioned above, it would adopt a differentiation strategy to enhance its current competitiveness for three major considerations: first of all, it is targeting at the young people who are energetic and fashionable and would like to use the branded clothing to show their personality and hence they will be willing to pay a higher priced cloth if it fit in his or her preference; secondly, low cost could not provide sufficient competitiveness to the company since its production involves high cost R&D activities as well as high marketing cost in promoting the brands; thirdly, the company also can not choose the option of focus strategy since it target widely the young generations by providing special brands for kids, women, men as well as different purposes such as sporting wearing, hence we conclude that the best generic strategy for the company would be pure differentiation strategy.

 

3.3    Growth strategies – Ansoff (1957)’s matrix

 

Ansoff’s product/market growth matrix indicates that a company’ attempts to grow depend on whether it markets new or existing products in new or existing markets (Blythe & Zimmerman 2005), for example, market development could be used when a company uses the existing products to get access to a new market segment which has not been entered by the company before. And based on the two dimensions: current product or new products and current market or new markets, there are four major strategies: market penetration, product development, market development and diversification. And obviously, there is no better choice; decisions should be made based on the particular scenarios.

 

In the case of Yishion, it should adopt a penetration strategy by focusing in the current market as well as the current product offerings for the major reasons: on one hand, the branded casual wearing market is growing as mentioned above, since there are potential entry by the new players, the company needs to enhance its leadership compared with other major competitors; on the other hand, as concluded in the above SWOT analysis, one major disadvantage that the company has is the lack of sufficient capital and thus if there is only two choices: entering by the new market with high cost and high risk and enhancing the current market leadership with lower investment and lower risks, the recommending option should be the first one. The rationality is very simple, extensive investment is not better than putting the majority of eggs in the safest basket, especially while the current market is growing in a fast speed. Therefore, if there should be a capital or other resource constraints, market penetration should be adopted by Yishion.

 

4.        Strategy implementation

4.1    Marketing strategy implementation

 

With the target to enhance the leadership in the current market, intensified marketing efforts should be allocated to the coming marketing strategy implementations; below we will demonstrate how the marketing activities could facilitate our business strategies and focus of the primary business activities.

Events  1 2 3 4

 

5 6 7  8  9 10 11 12 Budget
Advertisement  Promotion ,  √  √  √  √  √  √ 4,610
Brand management  √   √ 410
Sale staff training 310
Channel maintenance 260
Buyer research  √   √ 510
R&D activities  √   √  √  √ 3,010
Total 9,110

In thousand yuan

Table 3 Marketing efforts and relevant budget table for 2013 financial year

 

As we can see from the budget table for 2013 financial year above, the company could invest heavily on the two primary business activities which are mentioned in the value chain analysis part: marketing and sale and R&D activities.

 

4.2    Marketing and R&D team building

 

Based on our findings in the value chain analysis, we had managed to conclude two kind of primary activities that Yishion should keep focusing on: research and development (R&D) and marketing and sales, to enhance these two source of core competitiveness, the company needs to enhance the team building of these two departments to improve the effectiveness and operating efficiency of the company. In order to facilitate the team management, it is recommended that the company source the higher management positions with experienced management talents that are good at building up cohesive teams.

 

4.3    Leadership behaviors

 

Leaders are considered as the soul of the company, this shows the importance of the leaders in shaping a company’s culture, as mentioned above, the company will target at building up a young and open corporate culture that encourages diversity, therefore the company could adopt a charismatic leadership style by making them believe and accept the value of the company through charismatic leadership behaviors.

 

4.4    Change management issues: organizational structure formalization and outsourcing the manufacturing sector

 

With the fast rising of the company from a small textile manufacturing company to branded clothing company that concentrates on building up and promote its self-created clothing brand in the casual wearing market, based on the above analysis regarding the company’s core competitiveness and disadvantage, there are two major changes that the company could do to make its jobs more focused. First of all, the company could formalize its organizational structure by building up the functional departments (such as marketing, R&D & HR), and also within this process, the company should target at building up a flat and efficient company structure which is in accordance with its corporate strategy to build up a young and energetic corporate culture; on the other hand, the company could consider outsourcing the manufacturing sector to the local factories which could help control the cost of production and the mostly importantly, the company could concentrate its limited capital and resource on the primary business activities: brand promotion, sale team building and research and development activities.

 

5.        Conclusion

 

In this conclusion part, we would like to rationalize a seemingly contradicting fact: we recommend the company, Yishion to adopt a diversification strategy in term of generic competitive strategy as a major direction to create the company’s core competitiveness in the market, but on the other hand we also advise the company to focus on the current branded casual wearing market sector and continue to enhance its market leadership in this market segment. But such strategic consideration and plan is actually not self-contradicting for two major reasons: first of all, young people’s wearing market is big enough for the company to diversify its offering by targeting at different sub groups of customers in different functionalities (e. g. sports vs daily wearing); secondly, the diversification strategy is based on a competition perspective which means that Yishion by adopting such a strategy actually source its competitive advantages by differentiating its product offering in term of brand positioning, clothing design and brand perception and so on rather than selecting a different market to compete.

In term of strategic implementation, we recommend the company to focus on the sale team and R&D building as well as changing the company’s corporate culture to such a culture that is young, energetic and direct which is in consistency with its product offering and targeting customers. To do this, leadership style change is also anticipated by adopting the charismatic leadership style.

Reference

 

Abraham, S. C. 2006, Strategic Planning: A Practical Guide for Competitive Success. Bingley: Emerald Group Publishing Limited. p. 11

 

american.edu 2010. Ethnic Conflict and Natural Resources. accessed on 7 Apr 2012 [online] available: http://www1.american.edu/ted/ice/xinjiang.htm

 

bbc.co.uk 2012. China’s inflation rate falls as food prices rises slow. accessed on 6 Apr 2012 [online] available: http://www.bbc.co.uk/news/business-17308845

 

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Desmond, M. J. 2004, Back to basics: how to create good jobs in the Pacific Northwest. Springfield, Oregon: Forestry Financial Services, Inc. p. 33

 

Gill, R. 2006, Theory and Practice of Leadership. London: SAGE Publications. p. 193

 

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Jones, L. & Loftus, P. 2009. Time Well Spent: Getting Things Done Through Effective Time Management. London: Kogan Page.

 

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[1] The Muslim Uyghurs are an ethnic minority in Xinjiang, the most western province of China. With the discovery of oil and other natural resources in the region, the influx of people has intensified the already tenuous relationship between the Han Chinese and the Uyghurs (american.edu 2010).

[2] China and other developing countries have been warned by the International Monetary Fund (IMF) as well as The World Bank to prepare for the effects of a possible global slowdown this year because of the high level of inflation (bbc.co.uk 2012).

[3] A large amount of overseas investment absorbed by the capital diversification brings advanced technology, management, marketing and international management experience to the textile manufacturing industry (cnga.org.cn 2011).

[4] China is raising tax rebates for certain exports to help producers cope with smaller profit margins as a result of slacking market demand, the yuan’s appreciation and rising production costs (mofcom.gov.cn 2008).