Entering a European Market

MIM
-‐
Brodie

Topic
3:
Vogue
Apparels
–

Entering
European
market

International
Marketing

By
Vishal
Gholap
(201051471)

Submitted
to
Prof.
Kevin
Ibeh

Submission
o
eadline:
3rd
December
2010

Submitted
t d Prof.
Kevin
Ibeh

Number
of
Weadline:
3rd

December
2010

Submission
d ords:
2995

Number
of
Words:
2995

Executive Summary:

Vogue Apparels, Indian apparel manufacturer plans to enter the European apparel market. It is
involved only in manufacturing and operates on a B2B model. It wants to create its own brand in
the European market.

Looking at the current growth trend of European countries (economies), and the respective trends
in inflation, consumer expenditure, retail clothing sales volume and other factors, it can be
concluded that Poland can be considered as the most suitable market for Vogue Apparels.

Lack of international marketing experience makes it difficult for Vogue Apparels to enter the
market independently. Thus, entering into a joint venture with one of the local partners is the
most apt entry method for Vogue Apparels. It can continue to leverage on its low production
costs in India and launch a new apparel brand under the new joint venture.

Vogue Apparels will also have to change its marketing mix and adapt it as per the Polish apparel
market. The new joint venture in Poland should adopt a penetration pricing strategy and engage
local fashion designer to recognize the latest fads in fashion and make use of the existing
manufacturing facilities in India.

2

Table of Contents

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

2. Vogue Apparels (VA) .............................................................................................4

3. European Apparel Market .......................................................................................3

4. Mode of Entry .........................................................................................................7

4.1 Analysing VA ......................................................................................................7

4.2 Which mode of Entry? .........................................................................................8

5. Marketing Mix .......................................................................................................10

6. Conclusion ..............................................................................................................11

References ..............................................................................................................13

Appendices .............................................................................................................15

3

1. Introduction
The selection of the mode of entry is influenced by several internal and external factors relating
to the company and the new target foreign market. In this paper we are considering the case of an
Indian apparel manufacturer, Vogue Apparels (VA), which has recently decided to enter into the
European market. For this purpose, a careful analysis of the economies of the European Union
countries and also the apparel market in these countries is necessary to determine the best market
(country) to enter. With certain statistics we will consider the different markets that VA can enter
and then study the external environment of the market using PESTEL analysis. We will also look
at the various options of entry methods and recommend the best alternative that fits the
capabilities and objectives of VA. It cannot continue to operate in the new market with its
existing strategies. Thus we also recommend a new marketing mix for the European market.

2. Vogue Apparels
Vogue Apparels is a clothing manufacturing company based in India, headquartered in Mumbai.
It mainly manufactures knit and woven wear and specialises in manufacturing a range of knit
wear (men’s and women’s wear such as t-shirts, sweatshirts and jumpers) and woven wear such
as formal and informal shirts in different qualities and patterns. They have a manufacturing
facility with a capacity of 200,000 units of knitted & woven apparels per month and employs
around 50 staff and 600 workers. Thus, it is evident that they operate on large scale of economies.
Apparently they don’t have their own brand in the Indian market. They operate on a B2B model
supplying finished apparels to other companies that have their own brands. The major
clients/customers of VA are companies like Pantaloon Retail (India) Limited, Arvind Mills,
Shoppers Stop, etc. Pantaloon Retail (India) Limited is largest retail chain in India and has
brands such as John Miller, Lombard, Bare, DJ&C, Buffalo and RIG in their portfolio (future
group, 2010). Arvind Mills has joint ventures with international brands such as Tommy Hilfiger,
Lee, Nautica, Wrangler, and some others (Arvind Mills, 2010). VA provides its manufacturing
expertise to these companies and helps them achieve a large scale of economy in the domestic
and international markets. With the help of hired vehicles VA handles the distribution network
only upto the warehouses of its clients/customers and is not responsible for the delivery of
clothes to the different points of sale across the country.

4

VA has enough experience in the Indian apparel market, and now plans to launch its own brand
in Europe. It will be difficult for VA to mark a presence in the European market as it does not
have enough experience in marketing its own brand. Europe being a developed country, the
market dynamics are different than in India. Also there exist many established players in the
European apparel industry which have a strong presence across the continent. Assumption: The
words ‘clothing’ and ‘apparels’ can be used interchangeably.

3. European Market
The European continent can be geographically divided into two parts – Western and Eastern
Europe. The Western Europe of comprises of 25 countries; including countries such as Austria,
Germany, Greece, Ireland, Italy, Turkey, United Kingdom and others. In the last two years, this
part of Europe has experienced the most intense recession since 1930. For the year 2009, the
overall GDP of Western Europe fell by 4.2% over the GDP in 2008, and it is expected that it will
grow only by 1.2% in real terms in 2010. The unemployment figures are running upwards to 7.8%
in 2010 from 7.6% in 2009. (EuroMonitor, 2010)

With respect to clothing industry, the economy of Turkey shows a great deal of opportunities. In
spite of the global economic crisis in the 2008, the clothing retail volumes in the Turkish market
show a sign of revival from -1.23% in 2008-09 to 3.86% in 2009-10 (See Appendix A). But the
retailers had introduced many promotional and discount offers to encourage the consumers to
buy clothes thus leading to reduced sales figure. The cheap ‘made in china’ products also
experienced an increase in the sales. The Turquality programme initiated by the government is
providing support to local brands. Also the adoption of European standards in Turkey has
enabled the local brands to adjust their standards accordingly and prepare themselves for the
other European markets. The consumer expenditure is on the rise at present but is expected to
fall in the next 4-5 years (See Appendix B). Thus, considering the level of competition that exists
in Turkish clothing industry and the experience of VA, Turkey cannot be considered best fit
country for VA (EuroMonitor, 2010)

Eastern Europe has 21 countries out of which quite a few are not as developed as the countries in
Western Europe but exhibit a strong potential in some businesses. It is expected that Eastern
Europe will grow at 3% in 2010 after witnessing a negative (6%) growth in the 2009. The private

5

consumption is also expected to increase in the following years. Most of the countries manifest a
good overall growth in the coming years. The major issue that exists in the entire Eastern Europe
are the tense relations with Russia, mainly on the energy supplies. The Clothing industry in
Poland seems to be in a buzzing mode, and thus VA can target Poland as our first European
market. Over the past decade (1999-2008), Poland has posted an average growth of 4.3% per
year, with consistently rising employment figures. “Poland was the only EU member to avoid
recession” (EuroMonitor, 2010). A PESTEL analysis (Johnson G., Scholes K. & Whittington R.,
2008) of Polish clothing industry will give us a better understanding of the external environment
of Polish apparel market.

Political:
-‐ Requires reforms as government systems are weak.
-‐ Tax system requires high social contribution.
-‐ Increase in taxes in medium term because of country’s building public debt.
-‐ Poland - 70th (out of 183) easy country for doing business.
-‐ Government sometimes slow in registering new business.
Source: (EuroMonitor, 2010)

Economic:
-‐ Polish economy expected to grow at 3.4% in 2010 which is considerably high compared
to average growth of European Union.
-‐ Inflation decreased to 3.8% in 2009 from 4.4% in 2008.
-‐ Financial support from EU, in form of cohesion funds, towards development of
infrastructure, innovation, human resources and other growth factors.
-‐ Polish currency (grosz) strengthened itself from 2004 to 2008; but weakened in 2009 to
settle at 3.12 grosz/US$

Social:
-‐ Large rural population directly/indirectly employed in agricultural sector
-‐ In 2009, 71.2% of population belonged to age group 15 to 64 years
-‐ Consumer expenditure in 2009-10 stood at £5201milion and expected to grow at 5.1% in
2010-11 (See Appendix B).

6

-‐ Fashion trends in menswear less significant than those in women wear. Proportion of
females (51.7%) is marginally higher than proportion of males (48.3%).
-‐ Increase in disposable income and lesser in number of children has propelled expenditure
in child wear segment.
-‐ Clothing sales increased by approximately 9.3% in 2008-09 and by 9.6% in 2009-10.
Apparels retail sales value expected to consolidate its fast growth over the past years.(See
Appendix A).

Technological:
-‐ Needs to improve the transport network (just 3% of roads meeting EU standards) to
develop distribution processes of businesses.
-‐ Still operates on a 30year old power generation facility which needs replacement.
-‐ Easy access to newer technologies as Poland is a member of EU.

Environmental:
-‐ Growth of clothes made of organic (for example: soya bean) materials.

Legal:
-‐ High tax rates at 42.3%.
-‐ High Labour tax % contributions at 22.1%.
-‐ Importing in Poland is a long process and involves 5 documents.

4. MODE OF ENTRY

4.1 Analysing VA:

Now that VA has decided to enter into the Polish clothing market, we have to determine what
mode of entry is the most appropriate for VA. Different factors like the size and financial
resources of the company, objective of the company, existing foreign market activities, the skills

7

and capabilities of the company to handle international marketing (IM) and nature of the
competition within the market provide a foundation in determining the mode of entry (Doole and
Lowe, 2008).

i. Size and the financial resources: VA is a well established apparel manufacturing
company in India. Being a manufacturing company it has a large base of semi-skilled and
low-skilled workers and comparatively smaller corporate office. It can be assumed that it
does not have big deep pockets and will have to manage its financial resources efficiently
and carefully for any expansion.
ii. Objectives: It has already achieved large scale of economies with its manufacturing
operations in India. It aims to create an own brand without disturbing the flow of
revenues from its existing manufacturing facility.
iii. Existing foreign market activities: Currently VA is not involved in any of the foreign
apparel markets. Though it can be said that because it manufactures for international
brands it become part of the value chain for international apparel companies.
iv. Skills and capabilities for IM: As VA does not have direct involvement in any of the
foreign market; it becomes evident that it does not possess enough skills to enter into an
international market. Also it lacks brand management skills in both domestic and
international markets. Whereas owing to its excellent manufacturing facility, it is well
aware of the quality of apparels and pricing strategies across brands.
v. Nature of the competition within the market: Poland forms only 1.8% of the entire of the
European Clothing market (DataMonitor, 2010). There is a high level of competition
among other well established companies such as LPP SA, IC Companys, Varner Group
and Vistula Group. LPP SA and Vistula Group are Poland-based companies and have a
strong presence in the Polish apparel retail market.

4.2 Which Mode of Entry?

In formulating a strategy to enter in a new foreign market there are two perspectives-knowledge
based and transaction cost economics (TCE)-that can be considered (Zhao, Luo and Suh, 2010).
A company with knowledge based perspective will focus more on gaining the know-how of the
target foreign market and improve on their learning experience (Zhao, Luo and Suh, 2004) and

8

also the product specific knowledge that exists in the local market (Chang and Rosenzweig,
2001). This learning will help the company to apply their new experiences into the existing
operations and broaden their horizons. In a TCE based perspective the company will focus on
risks relating to asset specificity,country risk and advertising intensity. Asset specificity is the
extent of involvement by the company towards design characteristics or unique resources
specific to the entry strategy. (Williamson, 1996 and Zhao, Luo and Suh, 2004) Country risk is
the external uncertainty that the company might have to face and encompasses the internal
uncertainties like international experience and cultural distance (Zhao, Luo and Suh, 2004).
Advertising intensity is the scope for ‘free riding ‘.”The free-riding risk concerns the probability
that a firm's reputation or image overseas is tempered by its local partner's misconduct, unilateral
pursuit, or wanton behaviour “(Zhao, Luo and Suh, 2004).

VA lacks knowledge of foreign markets and would want to build on its learning experience. It
will also face other external and internal risks in TCE. Adoption of an appropriate entry strategy
can neutralise these risks. The most appropriate entry mode is the one which complements the
different aspects (size, financial resources, capabilities, etc.) of the company to the advantages of
the mode of entry. Broadly, there can be two methods to enter into a new market –non equity
based and equity based (Pan and David Tse, 2000) .

Non-Equity mode: Contractual agreements,direct/indirect exporting,licensing and affiliations to
trading companies are non-equity based entry modes (Pan and David Tse , 2000 and Doole &
Lowe, 2008). In a non-equity entry mode, establishment of a new organisation is not required
(Pan and David Tse, 2000) and does not involve much financial investment. The two parties are
bound by a contract, and thus would eliminate the scope to handle the volatile environment
(Gatignon,1986 and Zhao, Luo & Suh, 2004). This type of entry does not give control to the
home country over its operations in the new foreign market. All the activities are either carried
out by the other party. This kind of approach is beneficial for a company to cover large scale of
economies in the new market but limits the opportunity to understand the local market (Johnson
G., Scholes K. & Whittington R., 2008).

Equity mode: Joint ventures, wholly owned subsidiaries & acquisitions are equity based modes
(Pan and David Tse, 2000; Doole & Lowe, 2008). The investment involved in this kind of

9

approach is very substantial as it involves the establishment of a new company or acquiring
another.The company can gain control over the operations in the new foreign market. Wholly
owned subsidiary allows a company to have full control over its operations in the foreign market,
but insufficient knowledge of the market might come up as a disadvantage for the company. This
approach is generally adopted by companies that are more experienced in the international
markets (Gomes-Casseres,1989; Agarwal and Ramaswami, 1992). Acquisitions provide the
company an easy access to market, technology, and local know-how. However there can be
performance issues in streamlining the processes with the parent company due to cultural
differences, existing management processes in the acquired company (Chatterjee, Lubatkin,
Schweiger, & Weber, 1992;Datta, 1991). Joint venture (JV) is another option which results in the
formation of a new entity in partnership with a local partner.All investments and responsibilities
are shared with the local partner. It enables the company to understand the dynamics of the local
market. JVs also help in overcoming the trade, political and other governmental barriers for
market entry, due to involvement of local partner. It is difficult to identify an appropriate partner
for a successful JV (Johnson G., Scholes K. & Whittington R., 2008).

As VA wants to enter into a market for a longer period and also control the marketing operations
it should employ an equity based entry mode. JV would be most suitable method for VA. VA
can form a JV with a clothing retail chain in Poland. It can continue to leverage on the low
manufacturing costs by producing in India and have a partial control over the branding,
marketing and distribution operations through the new JV which will support the marketing
operations with the local market knowledge.

5 Marketing Mix:
Considering the PESTEL analysis of the Polish apparel market and the mode of entry that has
been recommended to VA we can now design the marketing mix (Kotler, 2000), which will form
the base for the marketing strategy of the joint venture (JV) formed by VA.

Price: The consumer expenditure at present is not very high, but is expected to rise over the next
3 years (EuroMonitor 2010).Thus, to gain consumer confidence it would be appropriate to enter
the market with a low price. The new JV should adopt a Penetration Pricing strategy, wherein the

10

products can be launched at a lower rate and as we gain market share the prices can be moved up
steadily. Also by then, other factors like the consumer confidence, consumer expenditure and
the overall market situation will turn better with increased retail volumes turnover and sales.

Product: The new JV will engage local fashion designers to come up new patterns of clothing (i.e.
t-shirts, sweat shirts, jumpers) that suit the needs of the Polish customers. These designs will be
sent to the manufacturing facility in India where they will be manufactured. The new JV will not
be competing with premium brands. To compete with premium brands either an existing brand
image/heritage or large sum of investment in marketing would be required. The new apparels can
be launched in the medium range where the target group will be the age group 15 to 35 years
belonging to the Polish middle class.

Promotion: The JV being new to the market, it is necessary to create awareness about the JV as
well as the new product range that we offer. To promote the JV, advertisements can be done in
trade journals and other magazines. Also we can sponsor initiatives that involve universities and
colleges; as the target consumers are directly/indirectly associated with universities and colleges.
Apart from this,advertisements in newspapers and other print media will help in getting the
visibility and creating awareness about our brands at a lower cost.

Place: All the apparels will be manufactured in India and will be sent to the central warehouse of
the JV in Poland. The JV will then coordinate with local transport and logistics agencies to make
the clothes available at outlets situated in different parts of the Poland. Initially it will not be
possible to open many retail outlets because of low capital availability. Thus to maximize the
reach of the JV,other retail stores can be contacted for the sale of our clothes on agreed terms and
conditions.

Conclusion
After studying the statistical data of different European countries, we conclude that Poland is the
most appropriate market for Vogue Apparels (VA) to start its European operations. Poland has a
steadily growing apparel market and also and economy with strong foundation which was tested
in the 2008 financial crisis. VA has a knowledge based perspective towards entering a new
market. It aims to broaden its knowledge in international branding and also capitalise on its

11

existing manufacturing capabilities to produce world class apparels. Thus we recommend VA to
enter into a JV with a retail outlet in Poland. This new JV will control the marketing and
distribution operations of the new brands, thus providing VA partial control and also an
opportunity to gain knowledge about the international market. VA will also have to change on
the marketing mix and we recommend changes in their approach towards pricing, product
development, promotional activities and the distribution system.

12

References

Agarwal S. & Ramaswami S. (1992), Choice of foreign entry mode: impact of ownership,
location, and interalization factors. Journal of International Business Studies, Vol. 23, pp. 1-27.

Anderson, E. and Gatignon, H. (1986), Modes of foreign entry: a transaction cost analysis and
propositions, Journal of International Business Studies, Vol. 17, Issue-Fall, pp. 1-26.

Arvind Mills (2010), http://www.arvindmills.com/portfolio.htm (Accessed: 25th November
2010).

Chang, S., and Rosenzweig, P. (August 2001), The Choice of Entry Mode in Sequential Foreign
Direct Investment, Strategic Management Journal, Vol. 22, Issue No. 8, pp. 747-776.

Chatterjee, S., Lubatkin, M. H., Schweiger, D. M., and Weber, Y. (1992), Cultural differences
and share-holder value in related mergers: Linking equity and human capital, Strategic
Management Journal, Vol. 13, pp. 319-334.

Doole, I. and Lowe, R. (2008). International Marketing Strategy, 5th Edition, Cengage: London.

Data Monitor (2010). Industry Profile: Apparel Retail in Poland,
http://globalbb.onesource.com/web/newsandreports/NewsAndReports.aspx?TabId=basic
(Accessed 20th November 2010)

EuroMonitor (2010), Country Profile: Western Europe,
http://www.portal.euromonitor.com/Portal/ResultsList.aspx (Accessed: 20th November 2010)

EuroMonitor (2010), Country Profile: Turkey,
http://www.portal.euromonitor.com/Portal/ResultsList.aspx (Accessed: 20th November 2010)

EuroMonitor (2010), Country Profile: Poland
th
http://www.portal.euromonitor.com/Portal/Magazines/Topic.aspx (Accessed: 20 November
2010)

Future Group (2010), http://www.futuregroup.in/fbrands.asp (Accessed: 25th November 2010).

13

Gomes-Casseres B. (1989), Ownership structures of foreign subsidiaries. Journal of Economic
Behavior and Organization, Vol. 11, pp. 1-25.

Johnson, G., Scholes, K. and Whittington R. (2008). Exploring Corporate Strategy, 8th Edition,
Prentice Hall: London.

Kotler, P. (2000), Marketing Management, Millennium Edition, Massachusetts.

Pan, Y. and David K.T. (2000), The Hierarchical Model of Market Entry Modes: Journal of
International Business Studies, Vol. 31, Issue No. 4, pp. 535-554.

Williamson, OE (1996) The Mechanisms of Governance, Oxford University Press: New York.

Zhao, H., Luo,Y. and Suh,T. (November 2004), Transaction Cost Determinants and Ownership-
Based Entry Mode Choice: A Meta-Analytical Review, Journal of International Business Studies,
Vol. 35, Issue No. 6, pp. 524-544.

14

Appendix A (Retail Volume Sales ‘000units – Growth (%) Y-O-Y growth

2003-‐ 2004-‐ 2005-‐ 2006-‐ 2007-‐ 2008-‐ 2009-‐ 2010-‐ 2011-‐ 2012-‐

04
05
06
07
08
09
10
11
12
13

Men's

outerwear

Hungary
6.8

2.1

-‐2.2

7.2

7.9

-‐0.9

1.5

1.7

2.1

2.5

Poland
-‐5.3
4.6
12.6
18.4
20.4
9.3
8.8
5.5
7.5
4.8

Turkey
1.9
1.8
1.5
2.4
-‐1
-‐3.4
3.8
4.3
4.2
4.5

Women's

outerwear

Hungary
4

9.7

-‐0.3

7.7

8.8

-‐0.3

2.3

2.7

3.2

3.9

Poland
-‐3.8
6.2
8.4
15.3
17.9
7.7
6.8
5.1
5.7
8.3

Turkey
2.2
2.5
2.5
2.4
1.1
0.2
3.3
3.8
4
4.6

Childrenswear

Hungary
0.8

-‐4.9

0

4.7

4.8

-‐0.7

1.6

2.3

3.1

3.6

Poland
2.7
6.4
13.1
13.5
14.5
4.3
3.7
5.6
6.2
6.2

Turkey
2.6
2.4
2.1
2.2
0.3
-‐0.5
4.5
5.4
5.8
6.9

Average

Hungary
3.86

2.3

-‐0.83
6.53

7.16

-‐0.63

1.8

2.23

2.8

3.33

Poland
-‐2.13
5.73
11.36
15.73
17.6
7.1
6.43
5.4
6.46
6.43

Turkey
2.23
2.23
2.03
2.33
0.13
-‐1.23
3.86
4.5
4.66
5.33

Sources:

1.
Clothing
and
Footwear:
Euromonitor

from
trade
sources/national
statistics

Date
Exported
(GMT):
20/11/2010

15:47:44

©2010
Euromonitor
International

15

Appendix B (Consumer Expenditure on Clothing in £mn – Growth Y-O-Y)
2009 2010 2011 2012

2004-‐05
2005-‐06
2006-‐07
2007-‐08
2008-‐09

-‐10
-‐11
-‐12
-‐13

Consumer
Expenditure

on
Clothing
Materials

Hungary

-‐26.5

-‐13.2

-‐9.1

-‐15.7

-‐16.4

-‐7.3

-‐6.2

-‐2.3
-‐0.5

Poland
-‐5
2.9
6
10.9
2.4
2.1
4.4
5
5.2

Austria
3.4
2.5
2.4
1.4
-‐10
-‐1.8
0.6
-‐1.5
-‐3.6

Turkey
-‐8.7
-‐14.7
-‐13.9
11.4
2.8
4.4
5.3
4.3
1.3

Consumer
Expenditure

on
Garments

Hungary

0.3

0.3

7.5

2.9

-‐2.5

3

3.7

4.7
4.8

Poland
0.6
6.9
6.5
9.3
4.3
4.4
5.8
6
6.3

Austria
2.5
1.7
2.1
0.7
0.5
1.1
2.2
1.1
0.3

Turkey
-‐6.7
6.5
3.1
1.4
-‐7.9
-‐9.4
2.6
3.3
4

Average
Consumer

expenditure

Hungary

-‐13.1

-‐6.45

-‐0.8

-‐6.4

-‐9.45

-‐2.15

-‐1.25

1.2
2.15

Poland
-‐2.2
4.9
6.25
10.1
3.35
3.25
5.1
5.5
5.75

Austria
2.95
2.1
2.25
1.05
-‐4.75
-‐0.35
1.4
-‐0.2
-‐1.65

Turkey
-‐7.7
-‐4.1
-‐5.4
6.4
-‐2.55
-‐2.5
3.95
3.8
2.65

Sources:

1.
Consumer
Expenditure
on
Clothing
Materials:
National
s

tatistical
offices/OECD/Eurostat/Euromonitor

International

2.
Consumer
Expenditure
on
Garments:
National
statistical
offices/OECD/Eurostat/Euromonitor
International

Date
Exported
(GMT):
20/11/2010
17:19:53

©2010
Euromonitor
International

16

Entering a European Market

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