Analysis for Akin's Entry into China's Market

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16th Jun 2020 Business Assignment Reference this

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Akin is an up and coming Australian luxury cosmetic brand that prides themselves on their all-natural and organic product. This report aim is to uses pestel analysis to evaluate the attractiveness of the luxury market in China and how and how Akin can utilize WeChat to enter the Chinese luxury market.

Economic

Economic wise China has proven to be one of the most attractive International venture destinations for any Business. China’s significant GDP growth over the past decade has put them at 12.24 Trillion USD representing 22% of the global economy, trailing only behind the United States. (Trading economics 2019) Some predict that China’s GDP is going to eclipse the United States in the near future. The rapid growth of the Chinese economy creates huge growth in the purchasing of the Chinese consumer, especially in the younger segment of the market. China’s disposable income in urban areas is reaching an all-time high especially in the major cities like Shanghai and Beijing, with the average disposable income reaching an average of USD 9500 per capita. (Ceicdata 2019) The excess of disposable income created a new trend in Chinese society purchasing habits, as more and more people in China are financially stable the demand for luxury goods in China skyrocketed. In 2018 Chinese consumer accounted for one third of the world’s luxury market and each luxury consuming household spending at an average of USD 11000 Annually. (Luan et al. 2019) In 2008, China has an estimated 18 thousand billionaires, 440 thousand multimillionaires, and over 250 million upper middle class who have high purchasing power capable of spending on luxury goods on a regular basis. (Degen 2010) According to the research by Bain & Company the Chinese luxury consumer is projected to continue growing at 6% per year, triple the growth of the entire luxury market. (D’Arpizio et al. 2018) By 2025 the Chinese luxury consumer is projected to account for 46% of the global luxury market. (Luan et al. 2019)

Political & Legal Environment

Over the past decade China had implemented major policy that has fueled the growth of the Chinese luxury consumer. In 1990 China implemented “open-door policy” opening the Chinese market to foreign markets which increases the supply of luxury goods in china. (Capitello, Agnol & Begalli 2014) However China’s massive growth of consumption in luxury goods are largely fueled by the implementation of China’s “One-child Policy”. The One Child Policy was enacted by the Chinese government in the 1970s to tackle the Chinese rapid population growth which might lead to overpopulation crisis.

The policy limits Chinese household to only having one child for every couple. Being an only child and born in an era where the Chinese economy is experiencing rapid expansion, the one-child policy has produced a generation of spoiled and privileged kids which are often referred to as “young emperors”.  The 4-2-1 paradigm has become the model of every Chinese household since the One Child Policy was introduced. Where four grandparents and two parents dote on that one child, spending everything on that one child. (Ellwood 2019) Parents spend most of the family income to meet the needs of only sons or only daughters giving them the highest level of education.  Chinese Generation Z which consist of people born since 1998 are among the most privileged generation in the world. They account for 15 percent of their household’s spending, which is more than triple the consumption of generation z in other developed countries like the United States and the United Kingdom. (Bloomberg News 2019) Due to them having a much more privileged upbringing they are more prone to heavy spending and less inclined to save, with surveys stating that only 72% of the Chinese Gen Z has any sort of savings ranking them among the lowest. Research also shows that the Chinese Generation Z are much more likely to purchase luxury goods compared to their predecessor’s generation as the result of the One Child Policy. Over 50 percent of Chinese Gen-Z buyers spent over US $7000 on luxury goods in 2018, compared to only 32 percent of the Chinese millennials. (Achim 2019)

Social & Cultural

For a business aiming to penetrate the Chinese market it is important to understand the Chinese consumer behavior and belief. Culturally China is widely considered as a collectivist culture, where people prioritize the wellbeing of their group over their personal matter. Different from an individualistic society in which individuality and originality are encouraged, people in a collective culture tend to have more desire to fit in and more influenced by the opinion of their society. (Hofstede Insights 2019) “Guan Xi” or social connection plays a huge role in influencing the Chinese consumer decisions. Guan Xi can be referred to as connections, relationships or social networks. Having good, bad or no guanxi will impacts one’s brand and one’s ability to achieve things. (Wende Roth 2019) Thus it is vital for new brand like Akin to develop Guan Xi with the Chinese market. Digital world has become very prevalent in the Chinese society, According to a survey Chinese luxury consumers spend about 3- 5 hours per week keeping up with the latest luxury and fashion trends through social media.(Luan et al. 2019) Applications like WeChat has become one of the major pathways for brands to develop guanxi with consumers. Major luxury brands spend large amounts of money to create an interactive consumer engagement, both through official accounts and through mini programs available within the WeChat system such as hosting interactive digital games and offering product trials, service reservations, consumer advice, etc. (Luan et al. 2019)

Technology

While most countries have switched their payment method from cash to credit, the use of the credit card in China is almost non-existent. (Daxue Consulting 2019) China are much more advanced in terms of payment methods compared to other developed countries. They use mobile payment as their main method of payment with WeChat pay being the front runner of the market share.  WeChat Pay currently having over 1 billion monthly users, making WeChat pay an essential method of transaction for any business. (Daxue Consulting 2019)

Appendix

  • Trading economics 2019, “China GDP”, Tradingeconomics.com, viewed September 8 2019, <https://tradingeconomics.com/china/gdp>.
  • Ceicdata 2019, “China Disposable Income per Capita: Urban”, Ceicdata.com, viewed October 13, 2019, <https://www.ceicdata.com/en/china/disposable-income-per-capita-urban>.
  • Luan, L, Kim, A, Zipser, D, Su, M, Lo, A & Chen, C et al. 2019, How young Chinese consumers are reshaping global luxury, Mckinsey.com, viewed October 13, 2019, <https://www.mckinsey.com/~/media/mckinsey/featured%20insights/china/how%20young%20chinese%20consumers%20are%20reshaping%20global%20luxury/mckinsey-china-luxury-report-2019-how-young-chinese-consumers-are-reshaping-global-luxury.ashx>.
  • Pletcher, K 2019, “one-child policy | Definition & Facts”, Encyclopedia Britannica, viewed October 12, 2019, <https://www.britannica.com/topic/one-child-policy>.
  • Degen, R 2010, Opportunity of Luxury Brand in China, The European Financial Review, viewed October 12, 2019, <https://pdfs.semanticscholar.org/2ac0/c046e305d6b24ef78a479ef3e705f0497298.pdf>.
  • Ellwood, M 2019, “The Purchasing Power of the Only Child | Jing Daily”, Jing Daily, viewed October 12 2019, <https://jingdaily.com/purchasing-power-only-child/>.
  • Bloomberg News 2019, China’s Generation Z Teens Spend More and Worry Less Than You Do, Bloomberg.com, viewed October 11 2019, <https://www.bloomberg.com/news/articles/2019-01-23/china-s-gen-z-teenagers-spend-more-and-worry-less-than-you-do>.
  • Wenderoth, M 2019, “How A Better Understanding of Guanxi Can Improve Your Business in China”, Forbes.com, viewed October 13, 2019, <https://www.forbes.com/sites/michaelcwenderoth/2018/05/16/how-a-better-understanding-of-guanxi-can-improve-your-business-in-china/#49a429d85d85>.
  • Hofstede Insights 2019, “China – Hofstede Insights”, Hofstede Insights, viewed October 12, 2019, <https://www.hofstede-insights.com/country/china/>.
  • Achim, A 2019, “Gen Zers vs. Millennials: How and Why Brands Must Know the Difference | Jing Daily”, Jing Daily, viewed October 12, 2019, <https://jingdaily.com/gen-zers-vs-millennials-how-and-why-brands-must-know-the-difference/>.
  • Daxue Consulting 2019, “Payment methods in China: How China became a mobile-first nation”, Daxueconsulting.com, viewed October 13, 2019, <https://daxueconsulting.com/payment-methods-in-china/>.
  • Capitello, R, Agnol, L & Begalli, D 2014, “Luxury Goods – an overview | ScienceDirect Topics”, Sciencedirect.com, viewed October 13 2019, <https://www.sciencedirect.com/topics/economics-econometrics-and-finance/luxury-goods>.
  • D’Arpizio, C, Levato, F, Prete, F, Fabbro, E & Montgolfier, J 2018, “Luxury Goods Worldwide Market Study, fall–Winter 2018”, Bain.com, viewed October 13, 2019, <https://www.bain.com/contentassets/8df501b9f8d6442eba00040246c6b4f9/bain_digest__luxury_goo

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