FDI (Foreign Direct Investment) plays an important role in the global market. And it is growing very quickly. FDI can provide companies opportunities to develop in new markets or to reduce costs for their existing markets. There are mainly two ways to have FDI, they are Greenfield investment which means companies pay license and set up factories in one countries, and International M&A (mergers and acquisitions) activity that seeks to buy other companies in other countries.
According to Financial Times, recently, Dubai-based retailers Paris Group has saved Gianfranco Ferré from close down. Paris Group is a large group with many subsidiaries. Due to the financial crisis, the subsidiary of IT holding (one Italy State Holding Company) was deeply in debt and IT holding has to sell it to Paris Group. This international M&A activity can let Paris Group fast enter into Italy and enjoy existing brand power of Gianfranco Ferre. There are many companies do the same things like Paris Group. Li&Fung (a Hong Kong company) has purchased Hardy Amies (one British loyal brand); One of Indian Mittal Steel dynasty- Megha Mittal has bought Escada (German luxury brand).
There are great growing demand of luxury goods in eastern areas especially in China and India. Paris Group plans to invest about €30m in Gianfranco Ferré and which allocate €20m for FDI. And it expects this will rise to a profit of €8.2m in 2014. Gianfranco Ferré will focus on luxury accessories and cosmetics. FDI will give Gianfranco Ferré opportunities to recover its business.
People in many developing countries have strong power to consume goods now, especially in China. Many Chinese people are sensitive about their reputation and they are keen to have famous clothing brands, etc. no matter what status they are. I think that’s why Paris Group plans to launching most of its stores in China.
Although Paris Group plans to cut costing, and China has cheap labour and material, it will still keep open a factory in Bologna (in Italy) instead of set up production line in China. One main reason of many companies to have FDI is to reduce their cost, then why not Paris Group? Its reason is that the emerging market consumers are prefer to buy goods “made in Italy”, “made in France”. They may think “made in China” are represent cheap goods with bad quality. Indeed, I also have this strange attitude. I just prefer to buy clothes “made in other countries” instead of “made in China”.
FDI can help one company to develop new markets or recover its business (due to the dramatically profit decreased in its existing market). But the enterprisers also need to have intelligent mind to make suitable judgments. They need to acquire large amount of information to understand the countries which they want to have FDI, such as their culture, situations…
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I agree with one of your opinions in that people always perceiving an attitude on “China makes poor quality products”. That is also the main reason to why people have higher preference on aboard products. However, do you think this reason can acted as the main cause for companies doing FDI? If a UK-based company invests money in China to build their own clothing factory, maybe Chinese customer will still dislike those clothing as there are made in China, even though the main headquarter is in UK. So it seems those foreign companies can not gain higher profits in doing FDI in China, isn’t it??
ReplyDeleteAviva Lee: I do think that Chinese people's preferred attitudes torward aboard products have attracted many companies doing FDI in China, but I don't think this is the main reason why they doing FDI. They are many MNC doing FDI in China in order to reduce cost and to increase competitions. Also Chinese grovenment has given favourable terms to these MNC. Nike, AirJordan, and ADIDAS have set up their factories in China or in Asia. Although their goods will be labeled "made in China", still many young people keen to buy them. likewise, Primark also have set up factory in China, many people still buy its' goods due to its UK brands.
ReplyDeleteHowever, I agree that if there are two products(the same thing,price)and both belong to Primark. If one made in China, one made in UK, then people would prefer the one made in uk.
Luxury goods have high profit margins normally, so it is very important for them to building and maintain their reputation and quality. Some of them are not just 'made in Italy', but also handmade instead of the machine, they convey these value to target customers. But building a brand is not that easy, needs lots of money goes to advertisement, celebrities to promote for its products. They will open stores in China for the fast growing market.
ReplyDeleteI see where all of you are coming from, China and other Asian countries are attracting FDI for a wide range of reasons, and a lot of it has to do with the growing purchasing power of the populations of these countries.
ReplyDeleteMore FDI, is creating more jobs, higher wages, and therefore more exposable income, giving reason for luxury brands to further enter the Asian markets.
Eventhough you may feel a compromise in the quality, you should have more faith in Chinese manufacturers?
And if it's a luxury brand, is it not about the outside Brand itself? Something with Gucci is going to sell, but I do agree there are different associations with 'Made in Italy' and 'Made in China', but do you think the assocation will change, as China's economy continues to grow? Or is this quality problem stemming from China's notorious reputation for 'fake' goods?
Kelly: So you are optimistic about China's products in the future due to the economy continues to grow. You are right that I should have faith in Chinese manufacturers. I know that not every Chinese manufacturers are produce the bad quality. There are also some very good. But just as you refered, there are many 'fake' goods. These 'fake' products may have bad quality and mix with the real one. This is not only the quality problem, but also relate to Patent issues which is a big headache for China.
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