Case Study of Orenton Luxury Goods entry into the Chinese market

Authors Avatar by lixintong0919gmailcom (student)

Group Consulting Project


International entry and expansion strategy in China

Executive Summary

Oroton is an Australian owned company making luxury goods, from bags to clothing. This study first goes through a resource and capabilities analysis for the Oroton Company. We follow this with an external environment analysis and fashion industry analysis in Oroton’s host market, namely, China. In addition, this study is an analysis on their plan to enter the China luxury goods industry, through setup of a Wholly Owned Subsidiary with a view to using a “Focus” and “Differentiation” strategies. Last but not least, the recommendations are provided for Oroton in terms of how the company can enter into China’s market and further develop its international business efficiently.

Table of Contents


1.0 Introduction

    Oroton was founded in 1938 in Sydney and built their success on luxury products with a relaxed style and high quality. Today, Oroton sells a wide range of products, from various clothing to jewellery and accessories such as wallets and even ties and umbrellas.

We selected Oroton due to an interest in whether or not an Australian fashion label would succeed overseas in a market with other larger global brands.

    As Oroton has already successfully expanded into Hong Kong, Malaysia, New Zealand and Singapore (The OrotonGroup Annual Report, 2012) it makes sense that it would continue its expansion into additional foreign markets to continue this success. China has been chosen as the next market to enter for three key reasons. Firstly, neighbouring to Hong Kong means some of the liability of foreignness will have already been overcome, secondly due to the increased buying power of the emergent middle class and finally because of the strong market growth of the fashion industry.

2.0 Analysis of Orotons Resources and Capabilities

    The Oroton brand is one of the primary value adding components of the company. This is because of the image that they have built up over the last seventy years of business, and the loyalty that their customers have developed towards the brand. Through social media and fashion recognition Oroton have been able to expand their brand awareness both domestically and internationally.

    The brand itself is inimitable as there is only one Oroton brand, and the style of the products and the underlying quality underneath should not be underestimated as being one of the key items in Orotons success. The distinctive metallic mesh is the soul of the brand; this special design was born in 1951 and has become a symbol of elegance, luxury and sophistication (OrotonGroup Annual Report, 2011). Whilst styles can be copied, the style whilst combined with brand recognition adds a great deal of value.

    Another key component of value adding is the staff within Oroton. From high quality designers to driven sales staff within the stores the staff play a key component in driving the success of the brand. Oroton encourage staff to contribute their ideas to the group and view change and challenges as an opportunity to grow. “We want to create a company where one person can and does make a difference” (OrotonGroup, 2012). This attitude which is embedded in the organizational culture of Oroton, and the staff who promote it add strong value to the group.

    Ezquerro (2011) explains that the domestic management of Oroton within Australia over four years from 2006 to 2010 cut back on staff, reducing from one hundred and fifty down to fifty in a focus to cut costs. This was combined with further operational analysis on how they could increase their profit. These hard management decisions provided profit where other companies were struggled. This shows that domestically the management were adding value that other companies were not, and can be considered as strong competitive advantage.

    There Oroton group also strong finances, enabling them to have a twenty million bank facility to support future growth plans (OrotonGroup Annual Report, 2011). Whilst this adds value to the company, it is neither rare nor inimitable. Oroton plans to use this capital to develop future products in the future.

3.0 Analysis of China’s External Environment

    Chart 1 below shows the GDP of China has moved from 1,640 billion in 2004 to 7,298 billion in 2012 (adapted from The World Bank Group 2012). This clearly shows the fast paced growth of the China economy. Chart 2 (adapted from National Bureau of Statistics of China 2012) indicates the average GDP growth rate has shifted from 2.1% to 2.5% from 2011 to 2012.

Chart 1

Chart 2

    Despite a small dip in the second quarter of 2012 the China GDP growth rate is beginning to recover. Also despite a small drop in the demand of luxury goods recently retail sales have grown steadily. Consultancy firm McKinsey & Co predicted that by 2015, China will be the largest luxury goods market in the world (China Daily, 2012).

    Tariffs have been a main factor affecting the development of China’s luxury market. After joining the WTO in 2001 China committed to reduce tariffs. Despite this people still prefer to buy luxury goods overseas because the existing tariffs create higher prices. A survey of 20 luxury brands sold in China shows prices are 45% higher than in Hong Kong and 51% higher than in U.S (Lan, 2011).

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    After 2001 tariffs for jewellery were 20%-35%, clothing 14%-20%, watches 11%-23%, and bags 14%-25% (WTO accession China tariff schedule 2003). Despite an announcement on June 15th 2012 from Yao Jian in the Ministry of Commerce that a further cut would occur on import tariffs the Ministry of Finance has said this has not been planned as yet. (Yu and Wang 2011)

    China’s emerging middle class consumers are based from their relatively high-income level, which is around $12,500 per year. In addition, this group of consumers account for 10% of the disposable income in China’s urban areas (Farrel, ...

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