The main reasons for a firm to enter a foreign market can be both global and national in nature, as well as positive dynamic, progressive trends in the evolution and development of companies. It is impossible not to notice how new, modern technologies are changing and emerging with the phenomenal speed in the world; gradual economic, political and cultural integration of the whole world unites society and globalizes any processes, including international private business relations.
The process of globalization, in turn, provides a good basis for the formation of foreign economic relations. There are also certain trends in the domestic market that push firms abroad. As a rule, representatives of medium and large businesses enter international markets as a result of expanding the scope of their activities, the need to maintain and develop the company’s image, and also because of their desire to reduce risks and diversify assets that have resources for business globalization. In addition, domestic businessmen are attracted by the possibilities of access to innovative technologies, international programs for the development of international trade, and promising business partnerships. These factors give rise to the potential for global growth (Hayes, 2021). Taking into account the arguments above, as well as keeping in mind that Sjöö Sandström has the significant product, resources, experience, and capabilities (Sjöö Sandström, 2021), it seems reasonable to state that the internationalization approach is one the company should undertake for now.
In February 2020, global watch market trends changed significantly. For example, there was a significant decline in sales of Swiss watches in all regions due to the impact of the coronavirus pandemic. As a result, exports of Swiss watches fell by 9.2% to 1.6 billion Swiss francs. Steel watches had a nearly two-thirds drop in value and a 90% drop in sales. In total, this sector exported 1.3 million watches, which is 380 thousand less than in February 2019 (-22.2%) (Federation of the Swiss Watch Industry FH, 2020). The fall in sales of all types of these products, especially in the price range with an export value of 200-500 Swiss francs, fell by more than half. There was also a decline in exports in this segment by 18%. The only segment that has not changed is a Swiss watch worth more than 3,000 Swiss francs (Federation of the Swiss Watch Industry FH, 2020).
The production of watches in early 2020 showed an upward trend. Then, during this period, there was an increase in the cost of watches, which is mainly due to the rise in the price of raw materials, although not for all types – some materials became cheaper. The increase in value is observed in the category of precious metals. In monetary terms, the value of steel and other metals increased. Non-metallic materials are projected to become cheaper.
In February 2020, there was a decrease in exports of watches in virtually all countries of the world, as compared to the same period in 2019. At the same time, their value has increased significantly. The increase in exports was recorded only in African countries. In the segment of other types of watches, growth was observed in the EU, North and South America and Oceania.
Against the background of reduced production and sales of watches in the world’s largest countries, China showed a significant increase in demand – exports of the product in focus increased by 47.7% compared to June 2019 (HKTDC Research, 2020). This is due to the fact that China was the first country to overcome the outbreak of COVID-19. According to the data, all major countries of the world experienced a significant reduction in exports and, consequently, sales of watches in the first half of 2020. The smallest decline was recorded in China and Taiwan; the markets of Hong Kong, Great Britain, France, Spain, and Italy suffered the most.
Thus, due to the abovementioned facts, it would be reasonable to enter the Chinese watch market because the country has dealt with the consequences of the pandemic – to an exact extent – better than the others and demonstrates significant interest in luxury watches, as evident from the example of the Swiss products within the scope given. The crucial screening criteria for the market were the demand rates and socio-political situation as they reflect consumer willingness and capabilities to potentially purchase the firm’s products. At this point, it seems rational to turn to the analysis of the chosen market using concrete marketing tools, such as PEST and Porter’s Five Forces.
The Chinese Market Analysis
China is the third-largest country in the world and the first in terms of population. Located in central and eastern Asia, the state also borders 16 states, 1/3 of the borders are in the CIS countries. The economic and geographical position of the PRC is very beneficial since, being located along the Pacific coast, the country has access to the sea from the most remote inland corners through the Yangtze River. The development of the economy and foreign economic relations of the PRC is facilitated by the country’s coastal position. China is a country population that is 20% of all inhabitants of the Earth. Moreover, this country has been the first in terms of population for quite a long time. The PRC is an industrial-agrarian socialist country that has been developing at a very fast pace lately (The World Bank, 2021).
More than half of the production in the agricultural sector is accounted for by the agricultural industry. About 70% of arable land is occupied by food crops, such as rice, wheat, potatoes, and sweet potatoes, and about 18% – by industrial crops (cotton, sugar cane, tea, jute, tobacco); certain regions of the country specialize in vegetable growing, viticulture, and fruit growing (The World Bank, 2021).
Analyzing the political and legal environment, it might be claimed that the political system is associated with the political system of society and the political regime is characterized by the constitution. The regulation of commercial activities is conditioned by various legislative documents. Business development opportunities are determined not only by the legal rule but also by the customs regime that is applied in free economic zones. The latter provides an opportunity for business development both domestically and internationally. Considering the competitive environment, the main conclusion can be drawn: the level of quality of goods in China is growing, and prices are falling. China’s main advantage is its high population. The high working capacity of the Chinese population is due to the increased life expectancy of 75 years (The World Bank, 2021).
Porter’s Five Forces
If to looks at the watch market in China, one will find that there is a lot of competition. Apart from a number of specialty stores, there are jewelry stores offering wristwatches and pocket watches. The main advantage of competing stores brands from a different price category, are cheaper, including Chinese copies of expensive brands. Electronics manufacturers have also taken their place with smartwatches that have attracted many buyers not only for their versatility but also for their design (HKTDC Research, 2020). In addition, there is constant competition with online stores, in which the public is gaining confidence. Competitors from the network attract buyers with low prices and a fairly wide range.
The current economic situation in connection with the pandemic gives hope that new players will not appear on the market in the near future. The steady growth in sales of smartwatches arouses interest in this industry among consumers who have not previously produced this type of good. However, analysts predict that the range of smartwatches will expand, and the cost of this gadget will decrease, which will make our competitors not only watch salons but also cellular retailers. In addition, there is a threat from domestic producers. Chinese brand watches are not well represented on the market (HKTDC Research, 2020). Nevertheless, salons prefer more well-known foreign brands. Moreover, the barrier to entry is the amount of capital investment. At the entrance, this is the capital that is required to form an assortment, rent or purchase retail space and trade equipment.
Suppliers, as a rule, are representative offices of companies in China or large wholesale companies that work directly with several manufacturers. First of all, there is a possibility of increasing purchase prices. With unstable exchange rates and a constant rise in prices for other groups of goods, this is the most likely threat. Vertical integration of suppliers and attempts by wholesalers to form their own retail network are also expected, mainly in order to increase the profitability of their business.
Buyers have a wide choice between sellers; they do not incur losses; therefore, the transition from one seller to another is simplified. Any advantage of competitors in the service, assortment makes it possible for customers to move to other sellers. Falling incomes of the population, inflation and a decrease in consumer activity are causing a serious blow to the watch business. Therefore, it is necessary not only to retain existing customers but also to attract new ones.
Smartwatches have been repeatedly mentioned, the sales of which are gaining momentum. The rapid growth in sales attracts new manufacturers to the said product niche. This leads to lower prices for gadgets; therefore, there is a threat of price competition between wristwatches and smartwatches. Many consumers today will prefer a multifunctional device that is able to measure heart rate, broadcast calls and messages from the phone and has many other interesting functions. Many smartwatches offer the option of choosing a display design that can mimic the display design of a conventional watch with hands. Hence, the threat of substitution is considerable as well.
The conducted analyses allow assuming that the Chinese watch market has a number of considerable threats. However, they seem to be relevant for almost all the appropriate markets for Sjöö Sandström. Meanwhile, China is greatly recovering from the pandemic, and this – accompanied by the significant export/import rates of luxury watches in comparison with the other countries for now – was the crucial factor to make such a choice. PEST and Porter’s Five Forces show that China has many favorable aspects in the framework of the socio-political situation and competitive rivalry currently. Hence, Sjöö Sandström can focus on the exclusivity of its products and adhere to the differentiation strategy. The latter implies striving for superiority over competitors in areas that are important for buyers (quality, service, service, design, etc.). The firm focuses on those characteristics in which it has an advantage, thereby winning back its market share.
Approaches to the 4 P’s
Given the chosen differentiation strategy for gaining a competitive advantage for Sjöö Sandström, its product and prices should not be adjusted. The company’s watch exclusivity implies uniqueness and significance, and this means that prices should not be changed (also taking into account the presented demand rates). The firms’ stores are to be placed at the centers of the big Chinese cities at visible locations. Finally, promotional activities are aimed not only at attracting new segments of buyers but also at creating consumer awareness of the brand. In order to draw attention to these brands, the following activities are offered: sponsorship, promotion on social networks, and sales promotion.
The effectiveness of marketing planning depends not only on the correct implementation of the plan but also on control measures that will assess the progress of the plan, eliminate or prevent errors, and adjust the project in accordance with changing environmental conditions. In order to evaluate the economic effect, it is advisable to use such an indicator as return on invested capital, calculated as the ratio of the profit earned to the invested funds. In addition, it is important to assess the change in public opinion and the degree of awareness after the implementation of communication goals. As a research method, it is permissible to question consumers at the point of sale and on social networks. A comparison of the indicators obtained before the implementation of measures and after their performance will reveal a change in attitude towards the salon, awareness of new brands, and ongoing activities.
Federation of the Swiss Watch Industry FH (2020) Swiss watchmaking in February 2020. Web.
Hayes, A. (2021) Internationalization. Web.
HKTDC Research (2020) China’s Watch Market. Web.
Sjöö Sandström (2021) Sjöö Sandström Homepage. Web.
The World Bank (2021) The World Bank in China. Web.