GLOBAL MARKETING MANAGEMENT

Market Expansion in the Western Garment Business

13 May 2013

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Submitted By: Anuch Babar Essa Nasir M. Hasnain Khokhar M. Waqar Akhtar Omer Farooq Butt Sherbanoo Raza

Executive Summary The following report will entail the plans of a textile manufacturing company aiming to expand its business into 3 other countries. The name of our company is AMMOES Textile. We deal in all western wear i.e. Jeans, T-Shirts, Jackets, Skirts etc. After manufacturing in Karachi for 6 years we have now decided to enter the global market. Our setup entails 3 complete factories in Karachi itself with which we initially sold to whole sellers then moved onto having our own retail outlet in Karachi. Now, we have chosen to export our material to brands that are functioning in Germany, France and the United States of America. Our plans are to initially export to these countries complying to the requirements of their garment policies and make stock as per their requirements. We have large buyers available in these countries who will buy from us as we will be outsourced their requirements. After establishing our name in this business we then aim to open up our own brand retail store but currently we will be supplying garments to these brands.

Introduction Pakistan is the 8th largest exporter of textile products in Asia. This sector contributes 9.5% to the GDP and provides employment to about 15 million people or roughly 30% of the 49 million workforce of the country.1 Initially almost all the production was done in Pakistan due to the low labor costs and efficient cost of manufacturing for all the foreign retailers. Slowly the manufacturing moved towards Bangladesh as well. Bangladeshs $20 billion garment industry represents the second-largest clothing exporter after China and has become a prominent link in the global supply of low-cost clothing for so-called fast fashion and budget retailers in the US, Europe and Canada.2 These large retailers obviously outsource production due to low costs in this part of the world and recent issues have been due to the safety and health hazards as was apparent in the Sept 2012 fire in Pakistan to the most recent building collapse in Bangladesh April 2013. The industry is flanked with many local producers having different product ranges from the low quality cheaper products to the high quality export products. We can find T-Shirts ranging from Rs. 70 to Rs. 5000 depending upon the quality of material, stitching or brand. Our product line will include Jeans, Shorts, T-Shirts, Jackets, Skirts etc both for adults and children alike. SETUP Our company AMMOES Textile initially was working from 3 different smaller locations where cutting was not done by us and we were buying cut cloth and then stitching, over locking and buttoning ourselves and in the end steam pressing and getting it packed from another unit. As is the norm in smaller operations our shirts, jeans, jackets etc. were being made in separate units where only one garment type was being produced in one location. Hence, 3 different product types meant 3 different setups. So once the stock was ready it was then taken to the

1 2

http://tribune.com.pk/story/522292/statistics-on-textile-industry-in-pakistan/ http://www.defence.pk/forums/bangladesh-defence/249443-western-garment-retailers-seek-plans-avoiddisasters.html#ixzz2SsaAv4ky

whole sellers such as Zainab Market, Rex Center, Madina Center etc. to be sold to the direct customer by them. As margins were decreasing and overall business was affected so; after 3 years of supplying we opened up our own shop in Rex Center where we have our own sales people and supply through our own shop. The advantage obviously is the margins but along with that it gives us a chance to make our brand more known and get some brand awareness in the market. Current Setup We are now due to better finances, quality and volume of business running out of 3 full setup factories of which 2 are in Korangi Industrial Area and 1 is in SITE. Which means that instead of having different processes outsourced we are doing it all ourselves which gives us a competitive advantage of being integrated. With the overall quality of the garments getting better we have made ties with companies globally operating and will begin making their brand names in our factories. All production will be done in accordance to their requirements and the companies that we will be providing materials for would be: Germany: Karstadt Store France: Quelle France Catalog company United States of America: Aeropostale, Tommy Hillfiger, Ecko

Ever since a building with garment factories collapsed in Bangladesh last week, killing more than 400 people, Western apparel companies with ties to the country have scrambled to address public concerns about working conditions there.3 The compliances for safety and security are huge issues in this part of the world where the European Union and other countries are stressing for companies to be labor friendly and pro health and safety practices.

http://www.nytimes.com/2013/05/02/business/some-retailers-rethink-their-role-inbangladesh.html?pagewanted=all&_r=0

In our business while complying to these measures whatever wastage/reject that we have will go to the whole sale market of Zainab, Rex etc but the rest will be exported to the countries stated above. Garment Specification: The quality and material specification will be according to the requirements of the client. The label will have their brand on it but with a Made in Pakistan tag. Where will we export? The three countries where we have decided to export our western wear including our wide variety of jeans and t-shirts are Germany, France and U.S.A. There are many cultural specific as well as cultural universal reasons for the selection of the above mentioned countries. Broadly speaking all these three countries are huge importers of textile goods, experiencing a heavy demand for textile apparels throughout the year. Since in all these three countries these western outfits are the most purchased and popular outfit, expanding the business in these countries would be a very safe strategy. Moreover Pakistan enjoys the advantage of cheap labour compared to other developed nations and hence manufacturing these apparels locally in Pakistan and then selling abroad would be profitable. In addition, deprecating currency of Pakistan makes it even more favourable to export these textile apparels to countries abroad. Also we found out that currently Pakistan accounted for just 2.98% or $2.98b of total USs textile imports in the fiscal year 2011-12, whereas Pakistani textile products accounted for a paltry 1.6% or $0.88b of total German textile imports in the fiscal year 2011-12. Hence this provides us with an opportunity to tap these markets, as very less Pakistani exporters have entered in these markets, and our company have a greater chance to explore these markets and become successful. The graph below shows, Pakistans textile industry export performance for the period 2011 2012.

Some country specific factors for tapping these markets are as follows: U.S.A United States of America has the worlds second largest economy, with its nominal GDP to be estimated to $15.7 trillion in 2012. It is home to the worlds largest garment consuming industry and where there is virtually no viable domestic garment making industry. Hence this factor makes, USA one of the strongest prospect to expand operation into. Also, if we analyze from Hofstede cultural dimensions of individuality, the individuality score of United States is 91. This significantly means that people in the United States have a highly individualistic culture, there is high level of competition amongst individual and every individual prefers to be successful and desire to look better than his peers. Hence in this context we can say that such people will have high inclination towards fashion items and will be willing to buy good quality apparels. Also if we look at the foreign exchange rate of USA it is approximately $1.02=100RS, hence exports to USA are more attractive and therefore profitable.

Germany There are many reasons why we have decided to expand our operations in Germany as well. Firstly Germany is the largest national economy in Europe and hence financially stable and strong. Purchasing power is high in Germany. With a current purchasing power of 17,880 Euros per capita, Germany stands at ninth place in Europe in terms of purchasing power. It is higher in Luxemburg, Switzerland, Norway, UK, Austria, Denmark, France and Sweden. Moreover German society is an individualistic one with a score of 67. Indicating that there is a need to achieve, self-actualization is given importance and hence consumerism is high, where people enjoy and cherish to wear new outfits and hence the market appears to be very attractive to us for expanding our textile apparel business there. In addition to this, there is a very direct and open communication in Germany, and if something is disliked or unpleasing it is immediately pointed out. Hence from business perspective conducting business with Germans would be fairly easier and straight forward. France France has long been part of the worlds wealthiest and most developed national economies. This gives us an opportunity to tap in such a country where the economic situation is strong and stable and where there is stable level of income and purchasing power. Also in the work environment, the relationship with work is contract based, the focus is on the task and autonomy is favored. The communication is direct and everyone is allowed to speak up, voice out their opinions even more if they do not agree. The management is the management of individuals and the recognition of ones work is expected. Hence the working methodology in France is very fair and just and there are no fraudulent practices as such.

Expansion strategies As for the expansion into these three countries we have the following two options Begin with exporting to retail stores like Wal-Mart, Karstadt Store, Aeropostale etc To open up our own brand separate retail shops

Exporting to established retail stores Exporting to established retail stores in these countries and selling it with retailers brand name rather than manufacturer brand name is one strategy that we can pursue for expanding the business in the above mentioned countries. This strategy would help us in knowing the political, cultural and social understanding of these countries. What is the consumption pattern in those countries? How receptive consumers are towards our manufactured apparel. This strategy would also facilitate us in knowing the demand pattern for our manufactured products and hence produce and export accordingly. Also selling our products through stores like Wal-Mart and Tesco would guarantee us a predetermined profit and our riskiness in these expansions would be low.

Opening up of independent separate retail stores

In this option we may pursue expansion by opening up separate independent retail stores in the above mentioned countries i.e. Germany, France, USA. This option will provide us with the benefit to sell these textile apparels with our own manufacturer brand name. Profit margins will definitely be high using this option and there is a greater chance that our brand name will be recognized and hopefully become one of the leading global brands. However this comes with some cost attached to it. Including rents for the separate retail shops, employing staff, complying with the rules and regulations of the local government, marketing the products directly and competing with competitors openly. Therefore, we decided to go with the first option of expanding through exporting to established retail outlet abroad. Once our export line is established in those countries, once we become

familiar with the regulatory framework and legal requirements of those countries than we can think of opening up separate independent retail outlets with our own brand name.

Marketing program
As far as our marketing program is concerned, we will use communication adaptation strategy. It will involve not making any alterations to the product, but adapting communication accordingly to suit local needs and demands of consumers.

Straight Extension

Straight Extension

Communication Adaptation

Communication Adaptation
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Conclusion
Having thoroughly examined the opportunities that lie in textile exports for Pakistan, not just through this report but also through commonly held knowledge about the textile sector of Pakistan and some of the major players in it, such as Gul Ahmed and Al Karam we can conclusively claim that exporting readymade fast-fashion textile products also presents immense potential for economic growth. According to international textile studies, value added textile products help derive the greatest margins and hence profitability through foreign exchange for developing countries. There are essentially two main ways of providing these value added textile products to foreign consumers, either through local brands already existing in those societies or by providing a product so superior that it can sell on its own name and hence setting up retail outlets. However setting up a retail network requires in-depth knowledge of the demographics and psychographics of the foreign consumers we are targeting, these tend to also differ from border to border. In light of such factors, we find that some of the common attributes prevalent in the consumers of all the three societies we are targeting, is that there is a strong emphasis on self-expression and maintaining living standards which trickles down to high consumerism. And in order to tap into these consumers pockets while also keeping a small focus on nation-branding, what we hope to do is obtain contracts from several large vendors from each of these countries. We will approach several international and recognized vendors with a proposal and samples of our product and hopefully enter into contract with vendors that have consistent demand, high visibility and offer friendly terms of credit and payment. At the same time we will also focus on strengthening demand for Pakistani textile imports by foreign consumers on the basis of higher quality and competitive prices we offer. This means that B2B marketing of Pakistani textile imports will be another area of focus once we gain some leeway with our garments in these three markets.