Discuss about the Australian Ugg BootsCompany.
Australian Ugg boots began by sourcing boots from local manufacturers (Kinkhabwala, 2011). However, things changed overtime as suppliers began cutting corners, others interfered with the selection and other suppliers moved their production facilities abroad aiming to cut the cost of production hurting the operation of Australian UGG boot company (Australian Ugg Boots, n.d.). In most instances, the quality and variety of raw materials was inconsistent and at times it was not satisfactorily for the company as it failed to meet quality standards set by the firm. So, the firm decided to establish its own premises. The company selects components that are of the highest quality for instance natural sheepskin that is premium, quality threads and wearing soles that are hard enough. With all these products, it is apparent the firm manufactures best boots in terms of quality.
Brief Description of the company and the country of operation
Australian Ugg boots is a registered enterprise in Australia that specialized in providing sheepskin boots that are purely Australian (Australian Ugg Boots, n.d.). The enterprise was established over a decade ago and is located in Braeside in Melbourne. It is in Braeside that the company has its manufacturing, distribution facilities and factory outlets. Australian Ugg Boots is a proud member of associations such as the Australian Sheepskin Association Inc.
China has become an emerging economy and thus offers many market avenues for international investments. Though China offers substantial potential for economic prosperity yielding access to a large market and large savings with regards to labor costs, extreme care and caution has to be taken due to variations in political and cultural environment as such variations are the recipe for risk and uncertainty for investors.
Some of the political factors that may impact Ugg Australia™ in China include aspects such as government regulations (Pestle Analysis, 2015). China exercises rules and regulations that are both formal and informal that firms must abide by thus impacting the operation of the firm. Studies conducted reveal that political force is the most volatile force. Over the past few years the government has put emphasis and frameworks that support the development and establishment of e-commerce. Legal issues on the other hand in China provide the legal framework for the establishment of e-commerce though the concept is at its early stage. China is a tyro in matters of drafting legislation pertaining to e-commerce in topics such as intellectual property rights and taxation issues (Gupta, 2013). As far as conducting business in China is concerned, there are no regulations that support the privacy and recognition of signatures digitally, rights of consumers and validating contracts electronically.
One of the marketing concepts is that it is always prudent for enterprises to have their trademarks registered in a bid to protect their enterprises (English, 2017). As a matter of fact, there has been a fairy tale that has been going around particularly targeting UGG boots that Australian companies should not be an Ugg, they should have their trademarks registered before things become ugly (Turkiewicz, n.d.). Though it appears that there are many companies that are using the trademark UGG in one way or another in Australia, the situation however is ambiguous when the word applies in the U.S. markets (BBC, 2017). The primary message being sent from the use of UGG trademarks is that in a global environment it is always critical to have intellectual property rights protected in any nations that are located overseas where the company wishes to sell its products. Fights over the usage of the word have a long history that dates back in the 70s (Cormack, 2016).Back then the name UGH BOOTS was registered by an Australian surfer by the name Shane Stedman for purposes of marketing sheepskin boots. It is thus important that Australia Ugg Boot should extreme caution as it moves to China on the issue of patent rights.
Over the past years, the economy of China has experienced a substantial rate of growth in GDP. Economic reports suggest that if China maintains the same pace at this rate, it may surpass the GDP of U.S. soon. The GDP rate of China indicates that each citizen is adding more value to the economy. This also means that the purchasing power of people is high due large portion of disposable income making it possible to purchase products. The cost of labor in China is also low compared to other nations in the world (Gupta, 2013). This is the primary reason why companies such as Apple are moved in hiring workers from China. The average wage of Chinese laborers is low. The salaries of workers working in Chinese factories are considered meagre compared to those in either Europe or the U.S., for instance, the hourly pay in China is about 75 cents (Gupta, 2013). The workers in China commit themselves to long hours aiming to satisfy the clients of the company making firms earn high profits. Ugg Australia in such a case will be able to capitalize and maximize on using Chinese workers to minimize production costs.
There is also an impressive growth rate in China amidst fears of slowing down. Some of the factors that need to be analyzed as risky is the high rate of inflation and exorbitant property rates in China (Gupta, 2013). Recently, there was increment of interest rates by the People’s Bank China affecting commercial banks as the reserve requirement is nine times higher. The Central Bank is also urging banks to limit their lending capacity and impose limits on people borrowing money for home purchases. As such Ugg Australia may be adversely affected by such moves as people will be limited to purchase home products as banks limit them from borrowing money to purchase home commodities. However, the strong economy as indicated by the growth of GDP is good sign of a good market as people have large disposable incomes that they can spend on purchasing commodities from UGG Australia. The low cost of labor in China is also important for UGG Australia as it means that the cost of doing business in China will be low making the firm maximize its profits (Harrison, 2015).
The social and cultural frameworks in China play a critical role as demographics are highly dynamic (Agee, 2018). For instance, population growth and composition of age keep fluctuating. Such changes can distort social trends and cultural norms. The size of the family and social behavior also impacts on decision making process. Other social factors entail consumer lifestyles, religion and education (Lucintel, 2016). According to Hofstede’s dimensional values, China can be classified as a collectivistic culture. The level of literacy in China is estimated to be over 90% (Gupta, 2013). The policy in China prioritizes on education making the majority of the citizens in the nation to be literate.
China has over 420 million users of the internet. Since there is access to the internet, most of the consumers in China shop online (Gupta, 2013). For instance, Taobao is ranked as one of the China’s largest website where many Chinese people spend their time purchasing online products. According to predictions by the Boston Consulting group, the number of people using the website is expected to increase in future.
E-commerce has transformed the way local consumers do their shopping (Czinkota, Ronkainen, & Moffet, 2011). Conversely, there is a number of consumers who are risk averse when it comes to online shopping and they prefer physical shopping where they have personal contact with the sellers of the products.
As such UGG Australia is better positioned in establishing e-commerce as it is an area that the company has invested heftily. The use of e-commerce in China is a good ground for UGG Australia to conduct its business as the company has been using this strategy by displaying the products it sells in its websites and the consumer are tasked with the responsibility of shopping online.
One primary problem is the issue that in China the establishment of business to consumer market does not provide a safe and stable means of online payment (Dlabay & Scott, 2011). The fact that many Chinese people are risk averse based on long term orientation, this exacerbates the problem. According to reports and findings it is apparent there has only been 1% penetration of credit card usage in China indicating that the most common method of payment has low acceptance in China and thus payment systems that support online transactions face low usage in China (Gupta, 2013). The lack of safe methods when it comes to making online payments in China has been attributed to be the key reasons why there is low usage and penetration of online payment systems.
In conclusion, based on the above factors it is evident that China provides a flourishing market that only needs minor changes. Companies such as UGG Australia can reap great benefits by understanding China’s macroenvironment factors in which they function and operate. The rapid growth rate of the economy and political stability makes the development of e-commerce industry makes it lucrative to investors. However, there are other risks such as mistrust and lack of a secure and stable systems of making online payments. Also, the legal systems fail to give and accord proper protection. All such factors lead to uncertainties and exert challenges on the market players.
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