Industry – Fast retail – Uniqlo
Country – New Zealand
You are required to make an FDI in an industry and country of your choice. The aim of the report is to present a country and industry risk analysis to assess the strategic viability of the FDI.
The report must be well presented with synopsis, relevant literature and data, results and conclusion. There should be a comprehensive reference list and all detailed data should be in appendices that are referred to in the body of the report.
The report must include:
6. Risk management considerations
Treat the report as if it is a professional report you have been asked to prepare by the board of the company making the FDI decision. You have been asked to prepare a report evaluating the decision that the company made to enter a foreign country. This should look at all the relevant factors both internal and external, and the mode of entry and make a recommendation as to whether the company’s decision to enter that foreign market was a good one or if it might have been better off either not entering that market or by doing something differently (this could be in terms of their structure, strategy, preparedness of nature of entry).
You want your boss/client to read the report (and they are very busy) so the point of the executive summary is to highlight noteworthy points that are going to create interest in reading further (otherwise the report might just end up in the bin unread).
Name of the institute
1. Executive Summary. 3
2. Analysis. 4
3. Conclusion. 6
4. References. 7
1. Executive Summary
This report has been developed for Foreign Direct Investment (FDI) in New Zealand by the Japanese casual wear retailer Uniqlo which is a subsidiary of Fast retailing limited through Joint Venture. Uniqlois currently present in 17 countries like Singapore, Indonesia, China, Australia, Bangladesh, Hong Kong, Thailand. Uniqlo’s parent company Fast retailing limited has very aggressive growth plans and targets to become top fashion company by outperforming the Zara and H &M, World’s largest apparel chains by 2020. The objective of this report is to analyze and discuss the risks associated with joint venture medium of entry. The report highlights the cultural risks or the change management risks are integral to any joint venture program. There is a fundamental difference in the culture of New Zealand and Japan and to make the joint venture successful, the Japanese employees must learn to work with people from New Zealand culture. The different entry strategies are also discussed in this report and relative importance of joint venture is discussed. It can be said that there are multiple risks associated with joint venture strategy but there is a huge potential of success with this strategy as it would help Uniqlo to have an understanding of local culture and economic factors in New Zealand.
According to JLL, 2 billion worth of New Zealand dollars has flown to retail sector in 2014 which is a record high (Source: http://www.jll.nz/new-zealand/en-gb/research/331/new-zealand-transaction-trends-2014)and country has never seen such huge levels. It is an indicator of potential of retail in New Zealand. This means domestic market is very attractive and its perfect time for Uniqlo to enter in the markets. However, the company should be in a positon to overcome the risks associated with joint venture. The key joint venture risks that Uniqlo would have to manage can be discussed as:
Lack of similar objectives among partners
It can be said that lack of similar objectives among partners is the greatest risk associated with a joint venture. In this joint venture, there would be multiple partners from New Zealand and Japan. It is obvious that the goals and objectives of all the stakeholders would not converge.
There is a huge cultural difference between New Zealand and Japan. New zealand is located quite far from the ecomomic giants like US and Europe. However, its proximity near to Asian countries comes as a respite especially at the time when the Asian countries specially India and China are growing very fast. Although, currently the investments are quite less from Asian countries but seeing their growth, it will only increase in coming time. It is expected that cultural risks could be mitigated in the coming time. However, the impact of cultural risks would be high on any joint venture.
One of the risks that organizations have to overcome to deal with joint venture is legal risks. There is a fundamental difference in the way businesses are done and governed by government in New Zealand and Japan. The legal risks could be mitigated if joint venture is done with a smart partner. In this case, organization should identify a local partner in New Zealand that is well aware of government regulations in the company.
Auckland is the largest city in New zealand however still by world’s standards, it ranks more than 150 in terms of population of largest cities which means there will be smaller consumption markets available but at the same time, smaller size means less domestic and foreign competition(Fam, Merrilees, & Brito, 2015). And since the government is encouraging investment in retail sector and the world fashion giants have already annouced their plans to enter in New zealand, it makes sense to invest in New Zealand. It could be possible that the New Zealand market is not able to respond to Japanese expectations.
Financial or economic risks
In case of a joint venture, different partners have to invest money. There are issues related to profotability and profit sharing. The investors may want the return as per their invetment and the profit sharing could cause conflict among the partners.
Human resource issue
An important aspect of joint venture is that different stakeholders have to work together. This joint venture could be a success only when employees from both the countries can work together. There are always human resource issues and it is possible that team formation is weak among employees from different countries.
There are many strategies exists for entering into the foreign country and each strategy offers its own levels of flexibility, commitment and control.Online presence is an easy approach without much investment and resource allocation in the country and has not much commitment. Using this approach, entry can be made very quickly in less time as well as there is direct control over the brand. However, it is very much possible that company will incur huge logistics costs in shipping the items individually. Also, it would be difficult to provide good warranty and after sales support or at least it is difficult to convince the consumers that company can provide good after sales services even without local presence(Raziq, Perry, & 2012). Licensing refers to contractual model whereby company gives license to foreign firm to use its patents, copyrights and brand name. This will lead to loss of control in the foreign market and often it is difficult to manage foreign partner and it can be a risks to your brand name also. It is also not advisable.Joint venture or strategic partnershiprefers to develop the alliance with partner that already has infrastructure and resources in place. It reduces the economic, politic and legal risks but the downside is that there can be conflict of interest and your partner does not promote your businesses for their internal motives (Sadler, &Chetty, 2000). This is advisable.
- Enderwick, P. (2012). Inward FDI in New Zealand and its policy context.
- Raziq, M. M., & Perry, M. (2012). Foreign direct investment in New Zealand: Does it justify negative assessment?.Regional Science Policy & Practice, 4(2), 155-164.
- Fam, K. S., Merrilees, B., &Brito, P. Q. (2015). Retail Promotion Practices in New Zealand, Australia and Portugal-A Comparison. In Global Perspectives in Marketing for the 21st Century (pp. 339-342). Springer International Publishing.
- Scott-Kennel, J. (2013). Models of internationalisation: the New Zealand experience. International Journal of Business and Globalisation, 10(2), 105-136.
- Sadler, A. and Chetty, S. (2000) „The impact of networks on New Zealand firms‟, in Dana, LP., (Ed.), Global Marketing and Co-operation and Networks, Haworth Press, New York