1. Industry Report 2013 — Sportswear Retail & Motor Vehicles
Overseas Development Strategy
of Fortune 500 Companies in China
Beijing Internship Project
By David Connor
2. Sportswear Retail
– Summary
– Company Description
– Performance in China
– Expansion Strategy
Motor Vehicles
– Summary
– Company Description
– Performance in China
– Expansion Strategy
In this report, we will discuss two industries; the motor vehicle industry and the
sportswear retail industry. We will make a general introduction of the industry
and depict how the representative companies in Fortune 500 expand their
business in China. This report also illustrates some Chinese local firms of
outstanding achievement. From the comparison, we could evaluate the
overseas development strategy and approach the potential clients to offer some
service they may need.
Brief Introduction
4. In this part, we will do some research of the Western company's performance
worldwide and their presence and performance within China in the recent years.
Fortune/Global 500 companies that have ventured into the Chinese market will be
examined as we have selected two of the major, well established firms; Nike and
Adidas. With such a vast population of over 1.3bn, a retailer has a large market to
target and coupled with cheaper labor than the Western world, China is an
attractive market for both firms to retail in. Following the research of Nike and
Adidas, it is important to examine the leading Chinese firms in this industry and this
part will analyze these domestic firms in a similar way. There is argument that
sportswear retail can prove problematic in China as problems of widespread
competition, the presence of fake and black markets and trade regulations are
present.
Summary
Sportswear Retail
5. Company Description
Sportswear Retail
Nike, Inc. are a consumer retail company, founded in 1968 with world
headquarters in Oregon U.S. The retailer focuses on seven key product
categories: Running, Basketball, Soccer, Men’s and Women’s Training, Nike
Sportswear and Action Sports as well as other minor areas including Tennis and
Baseball. Although designed for specific athletic use, a large proportion of
products are used for casual or leisure purposes. As of May 31st 2012, according
to their annual report, Nike employed approximately 44’000 employees worldwide
that include retail and part-time jobs and senior management regards the
relationship with these workers to be excellent.
‘The adidas Group strives to be the global leader in the sporting goods industry
with brands built upon a passion for sports and a sporting lifestyle.’ Adidas Group
are a sportswear retailing group founded and headquartered in Herzogenaurach,
Germany. Traded on the DAX-30 blue-chip index and employing more than
46’000 people across the globe, the company produce a wide range of quality
sportswear and equipment. Adidas Groups’ annual report says total revenue in
2012 was £14.883bn, a 6% rise on the previous year, however turnover has
stayed steady so far in 2013.
6. Company Description
Sportswear Retail
Li-Ning are a sporting goods company, founded in 1990 by Mr Li Ning himself,
that sell a broad range of apparel and equipment to the competitive Chinese
market. With headquarters in the Beijing, the Group has departments in R&D,
marketing, design and manufacturing. In addition to the Li Ning brand, the
company also sells products under several other brands that include Double
Happiness, AIGLE and the Italian sports fashion brand, Lotto.
A domestic rival for Li Ning comes in the form of Anta Sports Products Limited, a
retailer that primarily designs, develops, manufactures and markets sportswear to
the Chinese market. In the market for 11 years, Anta regard themselves as one of
China’s leading companies in the sector, with a large distribution network in Tier 2
and Tier 3 cities. Using a multi-brand strategy, Anta’s own brand targets the mass
market whilst their other brand, Fila aims at the high end segment.
7. Performance in China — Nike
Sportswear Retail
Nike
Footw
ear
Vietnam
China
Indonesia
Global: Well Done!
During 2013, Nike, Inc. has seen a dramatic rise of 55% in
net income which saw the share price increase by 8.3%.
When results of revenues were published, up by 9% to
$6.2bn, the share price was pushed up by 7.9% in after-
market trading.
China: Just Passable
However, in China, Nike have not faired so successfully.
Despite a sportswear boom of 29% each year from 2006-12
in the country, sales have fallen in the Greater China region,
that includes Hong Kong and Taiwan, for a third consecutive
quarter. Q3 saw revenue fall 9% to $635m. Christian Buss
of Credit Suisse claims ‘Nike lacks enough visibility’ in the
market. Although the company holds the largest market
share (12.1%), it’s biggest competitor, the German firm
Adidas, are growing at a fast pace behind them with 11.2%
of the market.
Footwear: Vietnam Exceeds
The Nike Brand apparel manufacturing is
spread throughout 28 countries with the
majority in East Asia and South America.
The majority of footwear manufacturing is
concentrated in 3 major countries;
Vietnam, China and Indonesia where 41%,
32% and 25% of Nike’s total products are
made respectively.
8. Sportswear Retail
Performance in China — Adidas
Adidas is booming in China. Based in Shanghai, the group produced revenue of
$1.56bn in 2012 in the Greater China region, which includes Hong Kong and
Taiwan. Seeing a 12% rise in sales in the forth quarter, their accounting figures are
revealing many positives. Hot on the heals of Nike, Adidas now hold 11.2% of the
market share, just behind their American counterparts’ 12.1% stake.
➢After Nike, but goes better!
Problems with inventories are not something Adidas has to deal with, employing a
policy that sees each product moving off the shelf within 90 days or less. Having
closed their only factory in China during 2012, cause for the concern may have
been warranted when sighting their ambitions in the region but that is far from
accurate. Adidas aims to target 1’400 Chinese cities by 2015 and hopes to achieve
annual of growth of 15-20% in the years to come.
➢Problems and Blueprints
9. Sportswear Retail
Performance in China — Li Ning & Anta
Li Ning: Slowing Down
In their annual report, the company says global uncertainty and China’s slowing economic growth, aswell
as the inventory problem, is responsible for their unsatisfactory figures. Although implementing new
business strategies in the form of a three year transformation plan, Li-Ning blames their recent lack of
success on the ‘unfavorable market environment’. This plan is an overhaul of the company’s strategies in
order to ‘rebuild and revitalize the Li Ning brand’, a procedure that is necessary to transform their
performance and crucially, their sales figures. With the presence of Nike and Adidas, Chinese firms have
be innovative in order to gain some ground on their multi-national counterparts. In 2010, Li Ning had 8% of
the market, by 2012 the figure had dropped to just 5.4%. Li Ning took in revenue of 6.73bn RMB in 2012,
down a staggering 32% from the 8.93bn RMB worth of products that was sold in 2011. Li Ning reported an
operating loss of 1.5bn RMB.
Anta: To Be Cautious
Following the Beijing Olympics, as Li Ning did, Anta faced serious problems with over stocking and a miss
direction of strategies. This build up of inventories led to deep discounts throughout many sportswear
retailers’ stores and even greater competition within this crowded market. 2012 was a poor year for the
firm, as turnover dropped by 14.4% resulting in profit dropping by 21.5%. Although not in the red, the
figures are worrying for Anta and should show warning signs for the company. According to the annual
report, Anta are to be cautious in the coming period in terms of opening stores and processing future
orders.
10. Sportswear Retail
Expansion Strategy Comparison
Nike, Inc. are beginning to tackle these issues by stopping inefficient
unit growth, closing stores and improving distribution and IT services
throughout Greater China. According to brand president Charles
Denison, the strategy is to reassess the retail landscape; withdrawing
products in some regions and distributing more in others, which will help
reduce the significant problem of a build-up in inventories. The company
has said that it needs a few more quarters to sort itself out. March to
July orders were up by 4% which suggests their strategies are
beginning to be proved effective.
Adidas has clear strategies in their progression that include creating
long-term shareholder value, maintaing a diverse brand portfolio and
investing primarily in the highest potential markets and channels, with
particular emphasis on emerging markets like China and Russia. What
is key in the groups’ strategy is the widening of the adidas brand
beyond the typical shoes and sweats. The German firm is now stocking
many of its outlets with its NEO brand red skinny jeans, fashion
ponchos and button-down gingham shirts. Hiring design talent from
Swedish and Spanish companies, specific consumer groups and
regions are being targeted which is proving effective when in
comparison to their competitors.
NIKE
Distribution
Adjustment
ADIDAS
NEO
Brand
11. Sportswear Retail
Expansion Strategy Comparison—Li Ning & Anta
From the 1992 Olympic games in Barcelona, Li-Ning have supported the
long-term development of the Chinese team.In the most recent Games where
the five national teams, that were sponsored by Li-Ning, won 22 gold medals.
This partnership has been one of Li Ning’s principal promotion strategies
throughout their short history. Performing strongly around the Beijing
Olympics in 2008, the company took advantage of the hype and enthusiasm
that accompanied the sporting event in their home country. This was a critical
mistake as over-stocking and a huge build up of inventories on the back of
their success has crippled their profitability. The same can be said for the six
biggest Chinese retailers in the industry as disastrous inventory management
saw a build up of stock worth up to 372bn RMB.
Focusing on their brand management, Anta signed NBA star Kevin Garnett in
order to endorse their new line of ‘KG’ basketball shoes, a promotional
technique that is popular in China. In May 2013, the group also signed deals
to provide sportswear for the National Boxing, Taekwondo and Karate teams,
taking the number of teams sponsored by the firm to sixteen. In 2013, Anta
became the exclusive sportswear partner of the China Olympic Committee
for the next four years, a strategy designed to market products that are well
recognized by the Chinese government and their top-tier athletes.
Li Ning
Olympic Games
Sponsor
Anta
Sports Stars
12. Sportswear Retail
Expansion Strategy— Analysis
Michael Binetti of UBS says these strategies are will return double digit growth of the sales by the
end of 2014 in China, suggesting prosper in the years to come from the sportswear retailer. With
the leading market share, Nike, Inc. are obviously a significant force affecting the Chinese sports
retail market and should be able to overcome their problems in order to drive forward and to be
prevalent in the industry like they are in the US. and Europe.
Although still a sportswear retailer, the company is using initiative and innovation in order to
succeed and adapt to foreign markets.
Competitiveness is one of the major reasons that these domestic companies have had such bad
fortune. Another general view is that there is no innovation, no individuality and in essence a great
deal of similarity between the products that Chinese firms are selling. Not only are they competing
with eachother, the introduction of Gap and Sweden's Hennes & Mauritz AB sees the introduction
of some casual fashion brands taking even more customers from Li Ning. With the inventory
problem somewhat under control, and their current execution of the transformation, Li Ning may be
able to change their fortunes, find a new direction and grow again.
Sponsoring more well known NBA stars like LeBron James and Kobe Bryant, Nike may be
stronger in this segment of the industry and Anta must be careful if they are to focus on their
basketball promotion. Claiming they have sorted the inventory problem, Anta see stronger brand
equity and innovation as a the method of attracting customers. It will be difficult for the domestic
firm to gain some market share, however, if Adidas or Nike fade slightly, an opportunity for the
smaller company may be available.
Nike
Adidas
Li Ning
Anta
13. Sportswear Retail
Conclusion
Chinese Sportswear firms have to find a way of competing with the popular
brands like Nike and Adidas. A new direction of branding has to be found as it
is argued that there is too much similarity between the products of these
companies which the reason why fashion brands and Adidas’ innovative
range is proving so successful. As Adidas keep growing, and Nike maintain
their prowess, Chinese firms will find it even more difficult to grow in the
coming years.
15. Motor Vehicle
Summary
With over 19 million vehicles sold last year in China, the market for both domestic
and foreign automakers is vast. When analyzing the automotive industry, two groups
of manufacturers must be looked at: foreign companies entering the Chinese market,
and the domestic firms. This research will examine recent performance of both
groups of firms, their place in the market and their future prospects in order to gain a
better understanding of the automotive industry in China.
16. Motor Vehicle
Company Description
“GM’s greatest strengths today are our market-leading positions in the United States and China, the world’s two
largest markets.” General Motors Co. are an American automotive corporation with brands that include Cadillac and
Chevrolet. With over 212’000 employees working in 396 facilities that span 6 continents, GM are a worldwide brand
and sell their vehicles in many markets.
Ford continues to move along in the midst of a challenging auto market. Europe, in particular, is troubling -- the
company announced last year that it would close three factories and cut at least 6,200 jobs there. But there is
some good news for the iconic American automaker: its Ford Focus was recently named the top-selling car in the
world. Before an accounting change reflected a 72% net loss, Ford's full year net income was down from 2011 by
about 6%, at $5.7 billion.
German automobile manufacturer headquartered in Wolfsburg, Lower Saxony, Germany. Volkswagen is the original
and top-selling brand of the Volkswagen Group, the biggest German automaker and the third largest automaker in
the world. Volkswagen has three cars in the top 10 list of best-selling cars of all time.
SAIC Motor Corporation Limited (informally SAIC, formerly Shanghai Automotive Industry Corporation) is a Chinese
state-owned automotive manufacturing company headquartered in Shanghai, China with multinational operations.
One of the "Big Four" Chinese automakers, the company had the largest production volume of any Chinese
automaker in 2012 producing more than 4.5 million units,.
Dongfeng Motor Corporation is a Chinese state-owned automotive manufacturing company headquartered in
Wuhan, China. As well as buses, trucks, and cars, it also manufactures parts and cooperates with foreign car
makers. As of 2011 it has more Sino-foreign joint ventures than any other Chinese automaker. It was the third-
largest Chinese automaker in 2012 by production volume.
17. Motor Vehicle
Performance in China — General Motors
Performance in China is impressive.
In 2012, sales
in China
increased by
11.3% and
2013 can
produce even
better figures.
With nine joint
ventures and two
wholly owned foreign
enterprises, the first 5
months of the year
involved 1.33 million
units being sold,
making GM the largest
car supplier in the
country.
Over 4’200 of their
dealerships are
located in China as
the company sold
261’870 vehicles in
April, which was
actually more than
was traded in the
US.
This shows the
extent of how far
GM have come in
China and if they
can implement the
correct strategies,
the Chinese market
could prove very
profitable in their
future
18. Motor Vehicle
Performance in China — Ford
Ford’s prospects
are showing
promise:
Last year Ford’s Chinese sales increased by 30%. The American
company, a relatively new-comer to China, are beginning to stamp some
manufacturing authority on the Asian superpower.
Ford China sales in April reached 75’331 vehicles, up 37% on the
previous year. Demand has remained strong for the all-new Ford Kuga
and continues to be strong for Ford’s most common automobile, the
Focus. 30’672 of the China’s most popular model were sold in April, a
41% increase year-on-year.
Although only 12th in auto sales with about 3% of the market, Ford has
said it plans to double its production capacity in the region to 1.2 million
vehicles by 2015, making this the company’s most rapid expansion in
any country for 50 years.
By 2020, the company is expected to sell 40% of its products to the
Chinese market, which if projections are correct, China will pass the
United States as the American company’s busiest market.
19. Motor Vehicle
Performance in China — Volkswagen
With a market share of 14.6%, German automaker
Volkswagen have a considerable presence in China.
➢In 2012, 2.8m vehicles were sold in the country by VW, a 24.6% increase on 2011 as growth by
their joint ventures outperformed the Chinese car market as a whole.
➢ Volkswagen were the first overseas auto company to build a plant in China when they joined up
with Shanghai Automotive Co. which has helped them achieve a head start on its competitors and
time to be an establish themselves in the country.
➢ The Group has over 60 models in China from it’s many brands that include Bentley and Audi
and have additionally added models that are specified to the Chinese market; examples include
the Volkswagen Lavida.
➢Although very successful, VW had to spend $1bn in China just on market in order to ‘stay in that
market’ according to Alexi Orlov, their marketing officer. He believes that they can no longer rely
on their reputation and the company will have to do more in order to maintain their status in the
market. Having said this, VW are still one of the strongest companies in China and when
analyzing the whole industry, this problem should be relatively easy to overcome.
20. Motor Vehicle
Performance in China — SAIC & DongFeng
SAIC Motor, China’s biggest domestic automaker, had a fairly ordinary
2012 with income increasing by 10% on 2011 and a net profit increase
of just 2.6%. Their annual reports claims that economic growth being
sluggish is the cause of their average performance last year rather
than any more serious concern. In 2012, SAIC Group sold 4.49 million
units but just 200’000 of these sales were from their solely domestic
branch, SAIC Motor Passenger Co. That branch’s 2012 sales were up
24% compared to 2011 which shows that their brands, Roewe and
MG, are growing relatively well.
DongFeng made sales of 1.74m passenger vehicles in 2012, a modest increase of 5.7%,
however their commercial vehicle branch had a worrying year with a decrease of 21.2% in
their sales figures. This was the prominent cause for their decrease in profits of 13.3%
compared to 2011, however these profits still accumulated a respectable 9’9092m RMB. The
firm insist that the competition of the local market was ‘intense’ and the had become worse
during the second half of 2012. Ambition from the group is visible as they are poised to
acquire more than 40% of the smaller Fujian Motor Industry Group Co., an effort to unify the
country’s fragmented auto market. With less ‘household’ brands in their portfolio, Dongfeng
may face trouble in the future, however, like SAIC, although their domestic brands are not
performing well, their joint ventures will always provide strong sales figures.
21. Motor Vehicle
Expansion Strategy Comparison
! Expansion is on GM’s agenda as in May, they won approval from the relevant authorities to build a $1.3bn plant at Jinqiao
in order to manufacture Cadillacs, a brand they have made improving sales of a ‘priority’.
! Shanghai GM, their partnership with SAIC, will build the plant as the company look to compete more with Daimler and
BMW AG in the luxury car market. Last year, just 30’000 Cadillacs were sold in China which for GM is unsatisfactory as they
aim to sell 100’000 per year by 2016, an ambitious target. The new factory’s production capacity is 150’000 vehicles annually.
! GM said it’s joint ventures plan to invest $11 billion by 2016 to expand their production facilities. An early Western company
to enter the Chinese market, General Motors already has a healthy position with a 14.6% market share and their performance
has been solid. With expansion, the American company will only capture more Chinese customers and continue to grow in
China.
GM: Cooperate with SAIC
Ford: diverse and effective product portfolio
According to Alan Mulally, Ford’s CEO, he and the company are spending ‘more and more time’ in China. He believes
the company’s strategies are particularly strong as they tap into the thriving markets of inner China as well as having a
diverse and effective product portfolio. Ford have doubled their number of dealers, targeting the most prosperous
regions where families are buying their first car or the popular SUV. The company has invested over $2bn into China,
best shown by their 15x15 campaign, an aggressive expansion that involves introducing 15 new vehicle models by
2015. It can been seen that Ford’s Chinese ventures are very much on the rise, and with the right application of this
expansion, the market is there for Ford to become very successful in the ‘Middle Kingdom’.
22. Motor Vehicle
Expansion Strategy Comparison
Volkswagen: New facilities
Volkswagen’s goal is to increase annual capacity of their production facilities to 4 million by 2018. A
new plant in Yizheng is to be soon to opened and in addition to this, decisions have been reached to
construct new facilities in Ningbo and Urmuqi. Expected to invest up to €9.8bn, the German giant are
expected to maintain their grasp of the industry and continue to sell strongly to the Chinese
consumer.
23. Motor Vehicle
Expansion Strategy Comparison — Joint Ventures are very important
The joint-venture program by the Chinese government was designed to let the domestic
companies learn and grow beside the incomers and become major exporting car makers that
supplied the world. This hasn’t happened as the Chinese firms rely too much on their partners in
almost all aspects of the automotive making process. One factor is the gap in quality between
Chinese and foreign built cars. By European standards, many Chinese vehicles have failed or
scored very poorly on safety standards, which is why the exporting of Chinese vehicles to other
parts of the world has never been effective on a large scale and why their expansion has been so
limited. Last year, Algeria was the number one importer on Chinese cars, a sign that they are not
appealing to the developed regions, their own country being one of them.
Their joint ventures with General Motors and
Volkswagen produced 2.67 million sales in 2012 and
have been very successful therefore if SAIC maintain
their joint ventures, the group will continue to perform
well as the VW and GM brands are popular in China.
Even if their domestic brands lose ground, they can
rely on the Western brands to keep their group
profitable and in good shape.
Dongnfeng Motor Corp. have joint venture partnerships
with Honda, Nissan and Peugeot Citreon and with
these foreign companies, command an 11.2% of the
market. SAIC and Dongfeng are just two of the multiple
Chinese owned automakers that flood the market.
FAW, GAC, Changan and BAIC sell between 50’000
and 150’000 cars a month, a modest number but
significantly less than the large foreign companies.
24. Motor Vehicle
Expansion Strategy— Analysis
How will the industry look in the future?
There is argument that the automotive market in China is peaking, or will be in the near
future. In the first few months of 2013, the market increased just 7.5% compared to
same period of 2011. The China Association of Automotive Manufacturers reported that
the inventory ratio was reaching a dangerous level of 1.98, which indicates that there
are almost two cars in stock for every one sold. The organization recommends 1.5.
Furthermore, car restrictions are becoming an ever greater concern after major cities
including Beijing and Shanghai put in place the controlling measures that limits the
number of cars that can be registered each month.
25. Motor Vehicle
Conclusion
With such a competitive market, it is unlikely that the vast number of companies
can be profitable and successful in the future. Experts says that there will be ‘only
a handful’ of automakers in China around 2020, which will see up to a possible 1bn
customers by that year. Those named ‘Tier 2’ or ‘Tier 3’ cities, beyond the giants of
Shanghai, Guangzhou and Beijing are where foreign brands are targeting,
supplying to the ‘rest of China’. A fragmented industry with far too many minor
competitors, I feel the market will gradually become more concise as the stronger
companies can obtain or push out those smaller firms and gain greater market
shares. GM, VW and Ford are all targeting great expansion in China which will
help the industry to grow and give the Chinese consumer wider choice in buying
their automobiles. The industry remains strong and prosperous as foreign multi-
nationals have boosted competition, quality standards and choice for the Chinese
consumer.
26. Advice:
➢The sportswear retail industry in China may suffer in the future, though more
opportunities will occur in the field of brand promotion and public relations.
➢The automotive industry is rising but almost all of the big companies have
found their partners. More transactions will happen between the big firms and
the smaller supplier and the Chinese local producers may need more services in
the supply chain management.
27. Thank You For Your Time
Beijing Internship Project 2013
By David Connor
