Haute Couture Fashions Case Study - China

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2.2 MAJOR PROBLEMS

Management should expect to modify their strategic plan according to circumstances that happen. Businesses do come to crossroads demanding major revisions. Tim Berry (2003) highlighted some signs that indicate it’s time to review strategic planning which are, if there are major changes in market situation. Businesses should look especially for changing market factors and changing market behavior and whether the underlying business assumptions changed. Besides that, businesses should acknowledge if there are new competition and whether the competitors emerged, or changed the business landscape so much that you need to review and revise. The most crucial signs to be aware of is when the businesses suffers significant declines in sales, profits, and financial health. Linking these facts and the symptoms explained above, HCF major problem is the sustainability issues to maintain the company in textile industry which lead to dilemma on identifying the strategic option.

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PESTEL ANALYSIS

3.1 Politics factors

For the politics analysis, China has practicing open market policy that make easier for foreign companies to enter the China market. China also promoting foreign direct investment (FDI).In addition, the income from textile enterprises that have (FDI) in China. Although China practicing open market there are also trade barriers such as tariffs, export restrictions .In China, Licenses are required for import and export .Some of the licenses needed to be applied during incorporation process .The process to apply for license is quite straight .The procedure as follow apply for foreign Trade Operator Filling with local branch of the ministry of commerce, register with customs, record filling with China inspection currency exchange. For company that trading goods that are subject with quota need to apply for separate license for each individual batch for that goods. For the company that have calibration with China local company will be easy for get approval.

3.2 Economy factors

China has competitive advantages of textile industry in terms of cheap cost and high quality. The first advantage is human capital .The main features in Chinese labor are they are paid with cheap wages and superior quality .In China the average education of Chinese workers is 10 years but still pay in lower wages compare to other country such as U.S and England. China also expansion of urbanization and improving higher education to increase the labor skills yet with low price human resources for textile industry. Second advantage is China is the world largest producer of cotton and clothes .For the market scale of textile industry, domestic market achieve 70% of aggregate textile output and this advantages does not exist in other developed country. China also have issue in price dumping as some firm even sell products just to cover the cost in order to gain export subsidy or drawbacks compare to other country like us trade restriction applicable and price dumping is not allow.

3.3 Social factors

Chinese enterprises likely to reduce the price due to small profit with quick turnover. This effected by government long term export subsidy for foreign exchange. This lead to force many export firm in China cut the price to achieve the target .In addition Chinese workers is educated and well trained give good impact in business. But there is the issue of an abundant migrant labor force that under poverty line willing to be paid with cheap wages.

3.4 Technology factors

China have advantage in modern equipment for textile industry. The advanced technology and machine increase the quality of the clothes. There is a research that from global economic development 60% to 70% of benefit growth in development countries relief on progress and technology and Chin in 30%.Apart of that, production technology also should be consider. The type of manufacturing technology in terms of fixed costs achievement of economies of scale and flexibility may also influence location decisions. Although China have advantages in term of labor costs and technology but for new comers in market of China, they might incur high cost.

3.5 Environment factors

For textile industry, the chemical usage is give impact to environment. In 2010, 68% of world clothing is made in china .The huge volume of clothes production leads 17% to 20% of industrial water pollution from textile treatment and 77 toxin chemicals in china water originate from textile industry. This issue is concern due to reputational risks for supplier .This also risks for brand reputation of brands if they do not pay attention how their supply chain producing the clothes. China has environmental and social laws but local enforcement is limited. Some manufacturer at China less consider on environment standards to lower costs.

3.6 Legal factors

Legal factors also play significant matter for considering mode of entry to other country. China has policy in give 15% of eligible exporters. Foreign companies that under remote are also given temporary exemption for tax payment. Companies that conduct business in China subject to numerous taxes such as withholding tax on 10% dividends, interest and royalties .Value added tax also subjected which is 13% to 17% and business tax which is 3% to 5% on companies .But for country that have double tax agreement with China will eliminate the risk of double taxation and other relief that can reduce tax burden.

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FINANCIAL ANALYSIS

4.1 Liquidity Ratio:

Liquidity ratio is used to show the correlation between cash and a firm’s current assets with its current liabilities .A firm’s liquidity standing can answer questions as to whether a firm can afford or has the ability to pay off its debts when the date is due

- Current Ratio

This ratio shows the frequency current liabilities are covered by current assets and this is calculated by dividing current assets with current liabilities.

Table 1 (see Appendix 1) shows that during year 2007 and 2008, HCF’s current ratio decreased from 5.02 times to 4.08 times. In 2008, the decrease in ability to pay current liabilities using current assets by 0.94 times compare to 2007 this is due to increase in current liabilities. The company might face difficulties in