South america – a new market for uniqlo an analysis on uniqlo potential expansion

FOREIGN TRADE UNIVERSITY HO CHI MINH CITY CAMPUS GROUP ASSIGNMENT Major: International Business Economics SOUTH AMERICA —- A NEW MARKET FOR UNIQLO: AN ANALYSIS ON UNIQLO POTENTIAL E

FOREIGN TRADE UNIVERSITY

HO CHI MINH CITY CAMPUS

GROUP ASSIGNMENT Major: International Business Economics

SOUTH AMERICA —- A NEW MARKET FOR UNIQLO:

AN ANALYSIS ON UNIQLO POTENTIAL EXPANSION

Subject: International Marketing Lecturer: Nguyen Thi Thu Thao Class code: MKTE401

Ho Chi Minh City, March 2022

1 Preliminary Screening 000.0.000.0 ee. ::iIiIáIIII 8 PN) vi eo ố e (.(lááậI II As 10 2.1 Market Atfractiveness TH HH khen 10 2.2 Competitive Strength of UNIQLO Q2 2 nh nh rau 12 2.3 The Market Attractiveness - Competitive Strengths (MA-CS) matrix 13

3 Brazilian Market and Waterfall Approach - che 14

IV MARKET ENTRY MODE - G1121 1121121111111 1 11111201 151 1n khay 15

1 Market Entry”s Criteria Evaluation L1 22221222111 222111 22211 yeu 15 1.1 Psychic Distance Q L2 TS ng ng Hnn 111k 211k 15 IV) 00 .2 i 1n 6 a4 15 'T ›:.h' a 15 1.4 Intensity of Competition G0 2201112221112 1111110211111 11121111 rhườ 15

2 Select Jọint Venture as the Market Entry - n1 ve l6

3 Advantages and Disadvantages of Joint Venture cà 17

4 Mid and Long-Term Objecfives QL nn nnnn HH nao 17

V UNIQLO’S RECOMMENDED TACTICS - c 2c 221221212 e, 19

II Tactics om Product ee- 19

2 Tactics on Communication and Advertising in Brazil 0.00 0ceee 19

LIST OF GRAPHS

Graph 1-1: Distribution of UNQLO retail stores globally as January 31, 2023 3 Graph 1-2: Uniqlo’s annual sales and the number of stores worldwide

0002010 68190020Eã0000Ẻ08Ẻ0nẺ8Ẻ8 6 ee- 4 Graph 2-1: Age structure graphs of Brazil & Argentina, 202 Ì - -c- 2c s52 6 Graph 2.2: Inflation Rate (%) of Brazil and Argentina, from 2017 to 2021 6 Graph 2-3: Year-on-year growth of sales generated by small and

8199001109230 8n e 7 Graph 4-1: The Hofstede’s Cultural Dimensions between Japan and Brazil 15 Graph 5-1: Most popular social media platforms in Brazil as of

3" quarter 2022 - c2: 1 121212111212121111111211121211121121211212112121211 na 21

LIST OF TABLES

Table 4-1: Retail Sales of Fashion m Brazil 1n 2020 7-25: 222 S22 +22 x++x+s++ 16

The Asian apparel industry keeps growing in global markets while the global apparel industry becomes highly volatile with increasing internationalization (Lopez & Fan 2009) The active international expansion of Asian apparel brands is one noticeable industry trend One of the leading Asian brands, Uniqlo from Japan, is the case With more than 800 retail locations in Japan alone, the brand has expanded to more than 2416 stores in 25 countries across Asia, Europe, and the United States as of January 31, 2023 (Figure 1.1)

Creoted win mepchart net

Graph 1-1: Distribution of UNQLO retail stores globally as January 31, 2023 (Source: Data from Fast Retailing, graphed by author group, 2023)

Based on its vertically integrated business model, which encompasses product design, manufacture, distribution, and retail, Uniqlo has experienced rapid expansion by providing low-cost, high-quality casual wear The net sales of Uniqlo's owner, Fast Retailing, have consistently climbed In the most recent period, Uniqlo International's sales were nearly twice as high as Uniqlo Japan's sales according to the Uniqlo Annual Report in 2021 As shown in Figure 1-2, the overall number of retailers worldwide keeps growing It is now clear that the brand is becoming global

mmm Total sales (US SMillion) === Number of stores worldwide

Graph 1-2: Uniqlo’s annual sales and the number of stores worldwide from 2003 to 2013 (Source: Data from Uniqlo Annual Report, graphed by author group, 2023) Although Uniqlo has a sizable global retail store footprint, the South American market, particularly Brazil and Argentina, still presents significant untapped potential Thus, the focus of this paper will be on analyzing entries for those two countries (in comparison to the region)

Brazil and Argentina have two of South America's major economies However, both countries have undergone significant economic and political changes in recent years, causing its current stressing political status and economic instability, which affected their desirability as attractive foreign investment destinations The table below highlights some key features of both countries:

Strong in agribusiness and

mineral production Currently facing significant

a massive e-commerce sector, which will be critical for the apparel business

Although being inferior to Brazil in terms of demographic aspects and recessed economy, Argentina has tremendous prospects due to its expansion in the retail business, particularly in the e-commerce sector

Brazil - 2021 Argentina - 2021 rợ

| PopulationPyramid.net | Population: 214,326,223 | PopulationPyramid.net | Population: 45,276,780

Graph 2-1: Age structure graphs of Brazil & Argentina, 2021

(Source: PopulationPyramid net)

73,

oN 51,3

a 18,8

Assorted items and gift shops

Shoes and leather goods

Sporting clothing, athletic goods and

recreational items

Household appliances, computers,

phones and electronics

Pharmaceuticals, perfumery and

cosmetics Hardware, electrical and construction

materials Jewellery and watches

Toys and school supplies

Furniture, decoration and home textiles

Tires and auto-parts for cars and

motorcycles

Clothing -12%

TH MARKET SELECTION PROCESS

1 Preliminary Screening

The preliminary Screening is conducted based on the criteria listed in the BERI index The following scores are graded based on the overall situation in the country in terms of each criteria in comparison to South America and also the world

Currency Convertibility Stable, fully convertible

1 USD ~ 5 Brazilian Real

Political Stability Democracy but with certain instability

Economic Growth Stable, minimal growth GDP declines since 2018

Highly inflated

1 USD ~ 190 Argentine Peso

investors and profits system) friendly

7 Skilled labor force but with high crime rate

partner

Peofassienal cos-and Diverse access to professional-comices(lecal

contractors accounting and consultancies, etc.)

Brazil has some strengths in areas such as infrastructure, human capital, and financial sector stability Although there are some significant risks related to politics, it still has a democratic republic form of government, which may be considered politically stable Argentina, on the other hand, is facing much worse problems in political instability and economics, especially high rate of inflation with currency risks and country’s debt level Despite having certain instability in politics, which is usually seen in South American countries, both markets have their advantages as two of the most developed and foreign

Currency Convertibility 2.5 4 10 1 2.5

Labour cost/ Productivity 2 3 6 2 4

| Short-term credit 2 3 6 0 0 Long-term loans/venture capital 2 3 6 3 6

Aude towards eters [is [2 [3 [a [6

Monetary-Inflaten +.5 4 6 g 0

Balance of payments 1.5 2 3 3 4.5 Enforceability of contracts 1.5 2 3 2 3 Bureaucratic delays 1 2 2 2 2 patadeieeebaiieebrabadaane PHUIIC¿ Waa, 1 3 3 4 4

IWEATRCT size

Market growth

% urban) GDP/capita growth: 4.1%

urban) GDP/capita growth: 9.4% Growing middle class with

Buying power of

Growmg middle class

demand for international brands

Stable, tow inflation rate Very high inflation rate

Strong E-commerce Decent E-commerce

Criteria Weight | score] Overall] Score | Overall

(I-5) | Index | (1-5) | Index

h hị - I Loa ne ol Oe De O22 SE ¬ 2 2Š

1, C{CUIHIUIHIIC c1 ï UII[LI(.ii L2 UNHHILY 7,1 i UJI UT

aml 4 1 s ®-+1 = A> = A>

Infrastructure 0.1 2.9 0.25 3 0.5

Total: 3.475 2.1

Based on the evaluation above, it is clear that Brazil by itself can provide foreign apparel retailers with a far more attractive market to function in by having a large-sized and growing market However, there are still many political and economic problems that remain huge red flags for any retailers who are seeking an opportunity to thrive in either

of the countries

2.2 Competitive Strength of UNIQLO

The two markets are endowed with some noteworthy features Brazil's market is huge but tight and dominantly domestic, while that of its south-western neighbor is much smaller and only engaged by some key players, including some of UNIQLO's international

competitors With this

identify their position be

hcknowledged, here are some fore entry

riteria that can help the fmmi

ae rgentina

Criteria compared to Zara and

ren 1 ( i P 1 ue ay (compared to Zara)

ICAU SS (HUIIC SI(C TULA s 7 Marketing capability High market capability worldwide

More-attractive than Zara

Suitable with more modern

market demands nd simple fashion demand

maiket, in contrast to Argentina, shows a high value and can be considered an attractive

market toh Ay ESSN A FRX

3 Brazilian Market and Waterfall Approach

Both the preliminary screening and fine-grained screening show the potential of two countries However, due to high risks arising from Argentina’s recent recession, the market becomes less attractive and friendly Therefore, the Brazilian should be the first market to do further in-depth analysis in entering while remaining aware of Argentine situation This also indicates the use of the Waterfall approach, which is to enter and grow in a particular market first then expanding to another; in this case, market entry to Brazil is conducted first

13

1 Market Entry’s Criteria Evaluation

1.1 Psychic Distance

Japan and Brazil fairly have great physic distance especially in cultural aspects The Hofstede insights gave an overview of the cultural differences between Brazil and Japan Brazil shows low scores in Individualism, Masculinity and Long Term Orientation, thus signifying the easy-going, emotionally attached lifestyle of Brazilians

Hofstede's Cultural Dimensions between Japan and Brazil

1.2 Demand Uncertainty

The Demand uncertainty of Brazil, deriving from its underperformed growth in recent years, has affected the purchasing power of Brazilians as they are less likely to spend on consumer goods in a recessive economy

Rank Company Net revenue in 2020

Ist Renner R$ 6.660 billion

2nd | Guararapes [R$ 4.332 billion

While licensing and franchising can be less costly, with such stature that UNIQLO yields, along with some problems that can emerge from weak yet complex regulations and corruption in Brazil, decent operation costs are acceptable; therefore, hindering this advantage that these two modes bring about With more budget at disposal, UNIQLO can look to establish a stronger foothold in the market through joint ventures This mode provides a greater amount of control and deeper understanding than the previous two, meaning that problems such as miscommunication, though still happen, may less likely occur and pose less danger Forming joint companies with the natives may also help creating and solidifying a better relationship with government officials, which is even more significant in a nation that is politically infamous like Brazil Last but not least,

risks of failure are shared, easing the pressure of success for UNIQLO in such a strange market

All things considered, joint ventures tops the list of possible entry modes for UNIQLO if

it decides to start its conquest of Brazil, as the initially higher costs can be covered by the stature of the company, and many risks can be reduced, while giving the company the amount of control it needs

3 Advantages and Disadvantages of Joint Venture

In deeper analysis, it is shown that there are advantages and drawbacks of the joint venture as the market entry for UNIQLO which need to be discussed:

» Access to the Distribution Networks: joint venture helps gain access to established distribution channels in Brazil, which speeds up the market entry process

» Brand Awareness: partnering with a local firm helps capitalize on the partner's current brand recognition in Brazil and build on its reputation to gain a footing in the market

4 Mid and Long-Term Objectives

UNIQLO should concentrate on building a strong brand presence in Brazil over the next few years by developing flagship stores in strategic places and spending money on marketing and advertising efforts to increase brand awareness This would assist in building a devoted consumer base and developing a reputation for offering high-quality goods

With the company's position as a minimalist, durable, non-trending fashion brand, UNIQLO's products do not meet the fashion of the outfit While Zara is always copying the latest high fashion trends and H&M is always on trend, UNIQLO still only sells a few key lines year-round This makes UNIQLO clothing unable to meet the demand for diversity in clothing in some countries such as Europe and America

Consequently, in the long term, UNIQLO should aim to expand its product offerings and develop localized product lines that cater to the Brazilian market's unique preferences and tastes It can also consider partnering with Brazilian designers and influencers to create exclusive collections that appeal to Brazilian consumers

By adopting a long-term view and investing in its operations in Brazil, UNIQLO can establish a strong foothold in the Brazilian market and achieve sustainable growth