Assignment title exporting garment products to south korea and germany

David Ratcliffe Assignment Number: One of One Assignment Title: Exporting garment products to South Korea and Germany Assignment Length: 5021 words Submission Deadline: September 16th, 2

Course/ Program: BSc (Hons) Business Management

Module: BAM6003 Global Marketing

Tutor: Dr David Ratcliffe

Assignment Number: One of One

Assignment Title: Exporting garment products to South Korea and Germany

Assignment Length: 5021 words

Submission Deadline: September 16th, 2019

Student name: Tran Vu My LinhStudent ID: 1908299

BA Business Studies Bolton Business School

Table of ContentsIntroduction 3

Figure 1 Interest rate of South Korea 5

Figure 2 Inflation rate of South Korea 6

Figure 3 Population pyramid of South Korea 7

Figure 4 Online shopping transaction volume in South Korea from 2009 to 2018 (in trillion Korean won) 8

Table

Table 1 Indicators for screening 20

1 Introduction

In this report, we will analyze PEST factors and marketing mix concept with 4ps After analyzing, we will decide which method is suitable to enter the markets, and the reasons why we choose South Korea to export our products

We are a company providing designed clothes and have several years experienced in the fashion industry and have been one of the outstanding domestic companies After the second branch officially operated, the company profit increased significantly thanks to high-quality products and customer support, the company decided to carry out foreign markets The two products we choose to export are also the best-selling products of the company, which are

fashionable dress with trendy design and inner wears with heat-technology (Heattech)

After considering carefully, we chose two potential markets from two different

continents, which are from Asia and Europe The first one is South Korea, because of the high demand for fashionable items, and young or adult Koreans have a tendency of showing their personality through their outfit, this market will be beneficial for our company The other one is Germany, although there are many famous luxury brands and famous designers have the Germanroot, the majority of Germans do not have the habit of pursuing latest fashion trends like Koreansbut have the preference of functional wearing

2 PEST Analysis

PEST analysis (political, economic, social, technological factors) is a broad framework tohelp managers understand the environment in which their business operates Managers can simply use this framework as a checklist to ask themselves questions as to how political,

economic, social, or technological developments might influence their industry and their

company (Frynas and Mellahi, 2015)

2.1 South Korea

2.1.1 Political Factors:

Bilateral agreement between South Korea and Vietnam:

In 2015, Vietnam and South Korea officially signed Vietnam-Korea Free Trade

Agreement (VKFTA), which helped trade exchanged between two countries increased rapidly

Korean side has committed to offer Vietnam with the preference of tariff elimination and applying quota for 11,679 tariff lines, including the Vietnamese key- export goods such as fisheries, agricultural products, fresh flowers, tropical fruits, industrial products of textile,

garment, mechanical instruments (Ly, 2015) This is a great advantage for garment export

company like us, we will not encounter obstacles with tax fees, therefore, our products will not

be highly priced and can compete with domestic products of the country

2.1.2 Economic Factors:

Gross domestic product (GDP) and gross national income (GNI):

South Korea ranked 11 in top 20 largest economy in the word (Silver, 2019) and is a member of the G20 and the OECD The GDP growth rate of this country was 2.7% in 2018, decreased by 0.4% compared to 2017 The GNI per capita was recorded at $30,600 (current US$) This figure classifies South Korea is a high-income country (The World Bank, 2018) If

we want to bring luxurious items to this market, there may not have any difficulty

Interest rate and inflation rate:

Figure 1: Latest figure for the Interest rate of South Korea (Trading Economics, 2019)

By July 2019, the interest rate of South Korea dropped from 1.75% to 1.50% This percentage is very low compared to Vietnam, which is 6.25% (Trading Economics, 2019) The difference indicates that more consumers are able to borrow money, leading to the purchase power in South Korea is stronger, which boost national economy and inflation rate may increase

as well

Figure 2: Latest figure for the Inflation rate of South Korea (Trading Economics, 2019)

South Korea's annual inflation rate edged down to 0.6 percent in July 2019 from 0.7 percent in the previous month and compared to market expectations of 0.85 percent (Trading Economics, 2019) Low inflation will create a stable macroeconomic environment and a

favorable business environment Moreover, low prices can encourage consumption, thereby increasing demand, which is an important factor for long-term economic growth

2.1.3 Socio – Cultural Factors:

Population Structure:

By July 2018, the population of South Korea was estimated about 51,418,097 with the growth rate of 0.44% South Korea ranked 27 compared to other countries in the world The age structure of the country is 0 – 14 years: 13.03%; 15 – 24 years: 12.19%; 25 – 54 years: 45.13%;

55 – 64 years: 15.09%; 65 years and older: 14.55% (CIA, 2018)

Figure 3: Population pyramid of South Korea (CIA, 2019)

As shown in the population pyramid and the age structure, the age group in South Korea focuses more on young people and adults This is also the group that has a certain interest in fashion trends and influences the consumption of garment products that shows an opportunity forour company to bring fashionable dress to the market

Education and Literacy:

South Korea has compulsory education through the ninth grade, with 95 percent of school-age children attending high school The literacy rate is 98 percent (Library of Congress, 2005) According to QS World University Rankings, in 2019, South Korea has five universities

in top 100, which have shown the high educational level of Korean

Cultural environment in business:

Vietnam and Korea have similar cultural traits In business, both countries have cultures such as building good relationships and giving gifts or drinking and dinning culture that may influence in improving relationships between peers Thanks to these similarities, doing business

in South Korea will not be culturally constrained for a Vietnamese company like us

Consumer trends toward fashion items:

“Newtro” is a combination of “new” and “retro”, which is a biggest trend in the fashion industry, especially South Korea This trend refers to modern items with details that bring back

memories of the 1990’s fashion styles such as dress with bubble sleeves or flared jeans

(World.kbs.co.kr, 2019) This trend is attractive especially for young adults in their 20s or even people in their 30s or 40s, and the demand for items such as clothing with the “newtro” design is really high

On aggregate, with our fashionable dress that we are going to export to this market, we will adjust the design to match the demand of the consumer

2.1.4 Technological Factors:

Internet penetration:

With the highest internet speed in the world (28553.69 KBps; Trading Economics, 2017), 95% of the population in this country are internet users (The World Bank, 2017) There are 44.1 million internet users in 2018, it is expected to grow steadily to 45.02 by the year 2022 (Statista Research Department, 2018)

Opportunity for company’s online business:

Figure 4: Latest table chart shows online shopping transaction volume in South Korea from 2009 to 2018 (in trillion

Korean won) (Statista Research Department, 2018)

High number of internet penetration leading to high transaction of online shopping

As the table shows above, the online shopping transaction was calculated more than 113 trillion won (approximately $94 billion), increased drastically from around 92 trillion won (approximately $76 billion) in the previous year.

Therefore, it creates opportunities for our company when we plan to approach online consumers

2.2 Germany

2.2.1 Political Factors:

Bilateral agreement between the EU and Vietnam:

By the end of June 2019, in Hanoi, the Vietnam-European Union Free Trade Agreement (EVFTA) and the Investment Protection Agreement between Vietnam and the European Union (IPA) were signed The completion of negotiations and signing of this agreement strengthens bilateral relations on a strong development in many areas between Vietnam and the EU – where Germany is a member, deepening the trade and economic relations, bringing benefits to 2 sides

EVFTA will help to expand the market for Vietnam's exports and commit to abolish import duties up to 100% including textiles and garment products However, in order to enjoy preferential tax rates, Vietnamese garments must meet strict testing requirements of origin

2.2.2 Economic Factors:

Gross domestic product (GDP) and gross national income per capita (GNI):

Germany is the fourth largest economy in the world and the Europe’s largest economy (Silver, 2019) Germany is a member of the G7 and the OECD The GDP growth rate of the country had been stable from 2016 to 2017 (2.2%), but then dropped to 1.4% in 2018 (The WorldBank, 2018)

The GNI per capita of Germany in 2018 was $40,450 (in current USD), there is no doubt that Germany is a high-income country (The World Bank, 2018)

Inflation rate:

The inflation rate was confirmed at 1.7% by July 2019 For clothing and footwear, the prices have been lowered to 3.4% compared to the previous month, which is beneficial for consumers (Trading Economics, 2019) Lower price encourages the consumption, thus,

increasing the productivity of business On the contrary, the profit of the company may be

reduced Therefore, the company must take this figure into consideration to plan suitably

Unemployment rate:

Germany has always remained one of the countries with lowest unemployment rate in theworld, with 3.0% by July 2019 (Trading Economics, 2019)

Degrees of economic freedom:

According to 2019 Index of Economic Freedom, Germany’s score is 73.5 and is a mostly economic freedom country among other countries Germany has good protection of property rights as well as well-functioning and modern financial sector providing full ranges of services, along with an open market to global trade, all these advantages will help to support long-term competitiveness and business development for the company

2.2.3 Socio – Cultural Factors:

Population and level of education:

The population calculated till 2018 was almost 83 million with the growth rate of 0.3% (The World Bank, 2018) Germany is one of the countries that has the highest education level in the world, most young German adults leave school with at least an upper secondary qualification education (Education at a Glance, 2018) One of the top priorities for German government spending is education, the federal and Lander governments have taken strong initiatives to improve quality of early childhood education and childcare, especially for children with

disadvantaged of socio - economic background (OECD, 2018)

Cultural environment in business:

Because we come from two different continents, the culture in Vietnam and Germany has

a clear difference For instance, punctuality in Germany is seen as an extremely important factor

If in Asian countries like Korea and Vietnam, arriving earlier than the appointment may make a good impression but to the Germans, it shows a lack of time management (Kwintessential, n.d) Appreciating the business etiquettes will help with business negotiations in the future

Consumer behavior that affect business to enter German fashion market:

Germany has not been considered as a “fashion country” Germans prefer practical styles and casual wears, not clothing with trendy design Despite having high income, Germans

spending on fashion quite low (€719) compared to Italy (€834) and the UK (€1,133) (Hunstig, 2019) Germans are in fact disinterested in domestic clothing brand, and brand name is rather unimportant Consumers often seeking for the sustainability and longevity of their clothes, so that they can wear them as long as possible Being aware of this, our company decide t-shirts with heattech will be suitable for this market

2.2.4 Technological Factors:

Technological support with non – financial service from the government:

There is no doubt that Germany is the world’s leader in technology and innovation with thousands of technologic vehicles have been created and exported to other countries Besides, thegovernment have been supporting with programs that directly addressed to small and medium enterprises (SMEs) – which is an advantage since we are a small enterprise One of them called

“Go – Digital”, this program helps SMEs with external consultancy in IT-security, online

marketing and digital business process in general (OECD, 2019)

3 Marketing Mix – 4P’s Analysis

Marketing mix means the product, distribution, promotion and pricing strategies to produce and carry out exchanges and achieve the target market (Išoraitė, 2016)

3.1 South Korea

3.1.1 Product

Product description:

As mentioned before, “newtro” design is a big trend in Korea and Korean females have a tendency not to wear clothes that reveal their skin too much such as sleeveless dress They often wear medium length dresses, even in the warm or cold weather Therefore, the fashionable dress that we are carrying out has medium length and short bubble sleeves, and it is made of silk fabrics decorated with printed mini flowers, these details are very popular as well as bring the 1990s vibe that suit the taste among females in their 20s to 40s There will be a wide range of colors and sizes for different preferences and body shape

Type of consumer product:

Fashion dress is a shopping product This type of consumer product is purchased less frequently than convenience products, and consumers often spend more time on comparing alternatives with quality, price and style

Product benefit:

Fashion items are often considered to have self-expressive benefits, so do our products Customers who purchase our products will own a dress with the latest designs, helping them to show that they are a fashionista and up to date with the latest trends

Labeling requirements:

According to the packaging and labeling regulations in South Korea, all the labeling of products sold in the market must be written in Korean and may include English instruction Also,mark of origin of products is compulsory and we must follow the labeling requirements such as product name, size or volume, materials, etc (Santander.com, 2019) Acknowledge this, we have

to convert our company name to Korean letters and follow the requirements for the information

For new entrants in the market, Korean consumers tend to consider carefully whether the quality of products is worth the price, so the penetration pricing strategy will be applied to this market Although the consumers are quite particular, there is a psychological term among Koreanconsumers which is “Fear of Missing Out” We believe with a low price for our quality products, this psychological force may affect, and the sales response will be quick and strong

Our product is one of the products that are entitled to the tax rate of 0% from the VKFTA,after calculating the costs and the value added tax of 10%, the company decided the initial price would be $20 per product, it will then gradually increase to a final sale price of $30 per product Although setting a low price for initial stage, the company still ensure that the price is not lower than its cost or lower than charges in the Vietnamese market, since the living standard of South Korean is higher than Vietnamese

3.1.3 Place

Distribution channel:

Our company’s products are shopping products so the distribution must be selective We choose indirect marketing for our product and the retail sale channel we are going to cooperate is