European Product
In today’s competitive marketplace, many multinationals have found that in order to sustain a competitive advantage, there is a need to enter new markets. Usually, these markets are found offshore, with Europe being a much-preferred destination particularly for companies in the consumer goods industry. Europe has in recent years experienced a growth in incomes coupled with reduced investment opportunities leaving households with large disposable incomes. Switzerland is one of these nations experiencing a rapid increase in disposable income and coupled with its ease of doing business, the nation presents a fertile hunting ground for multinationals. This paper explores a market entry plan for New Balance, a shoes, and apparel company into the nation. The paper explores the socio-economic climate of the nation and its people before analyzing the viability of the company’s entry plan before making recommendations on what course of action to take next.
Market Analysis
General Information
Switzerland is a small nation located in the middle of Europe bordered by Germany, France, Italy, Austria, and Lichtenstein. It has one of the highest elevations in Europe with its capital located in the city of Bern. The nation is divided into three geographical areas: the Alps, the Jura, and the Swiss plateau. The Alps occupy the largest area but are largely uninhabited due to their topography leaving the Swiss Plateau as home to the nation’s eight million people.
The nation was founded in 1291 as an alliance of three cantons which have since grown to 26 cantons, but it has only existed as a state after its inhabitants decided to adopt the Swiss Federal Constitution of 1848. Early settlements in the area can, however, be dated back to 7,000 years ago when small tribes inhabited the area. The area would continue to exist this way until it was conquered by Emperor Tiberius who integrated it into the Roman Empire. At the end of the fourth century repeated raids by Germanic tribes saw Roman influence wane and by the fifth century, the area was shared by the kingdoms of Alemannia and Burgundy. The area later came under Frankish territory in the 5th century and later Roman influence in 1000 AD. By 1200, some ruling houses who had control of the trade routes formed alliances that later led to the formation of the state (Malssen, Wachter, & Diem, 2016). Since its inception, Switzerland has maintained a neutral role in world affairs that saw it avoid both world wars despite it being bordered by key figures in the conflicts. Its commitment to neutrality has seen it avoid joining the European Union and the European Economic Area, and the nation only joined the UN in 2002.
Cultural and Social Analysis
Switzerland is home to approximately eight million people, with 24% of these being foreigners primarily of Italian, German, Portuguese, French, Serbian, Turkish, Spanish, Austrian, and Tamil descent. About 35% of the population can, however, trace an immigrant background and this has been a cause for xenophobic issues particularly in political campaigns. Switzerland has four official languages (German, French, Italian, and Romansh) spoken by about 90% of the population but there are about seven other languages spoken. German is the most common language spoken by about 64% of the population followed by French at 22.5% and Italian at 8.1%. All official languages are used for federal government communication and over 43% Swiss are multilingual.
Christianity is the dominant religion in Switzerland practised by 72% of the population. Of this, the Roman Catholic, Swiss Reformed, and Eastern Orthodox faiths are the most prevalent. Other religions include Islam practiced by 5% of the population, Buddhism by 0.5%, Hindu by 0.5%, and Jewish by 0.2%. People are not overly religious, however, and church numbers have been declining with 22% of the population claiming not to be affiliated with any religious entity and 12% identifying themselves as ‘convinced atheists.’
The Swiss culture is very diverse due to the centuries of foreign influence and it has a wide range of traditional customs. Its people love literature, art, architecture, music and sciences and the nation is home to over 1,000 museums. The nation hosts several annual art exhibitions and festivals besides it being home to notable writers including Jean-Jacques Rousseau and Jeremias Gotthelf. Due to its mountainous nature, skiing, snowboarding, and mountaineering are the most common sports but people also love watching soccer, ice hockey, alpine skiing, and tennis. The Swiss people are generally happy easy-going people who love to eat. The people also love to socialize and the number of social joints and dining establishments has gone high in recent years.
Economic Analysis
4.6% of Switzerland’s people are aged between 25 and 54 years and the median age is 42 years. 70% of the population is distributed in the major cities including Zurich, Bern, and Geneva and the nation has an urbanization rate of 1.08% (CIA, 2016). Over 60% of Switzerland’s population is in the labor force and of this only 3.2 % are unemployed making the nation one of the best in terms of unemployment. Over 70% of the people are employed in the services sector, 24% are in industry, and 3.4% are in services. As a result of the high employment rate, most of the people have large disposable incomes and only 7.6% of the population live below the poverty line. The nation has one of the largest GDP’s per capita of $ 55,000 that is, however, not evenly distributed.
Switzerland has a GDP of $371.2 billion in purchasing power parity but only a GDP growth rate of 2%. The nation is experiencing a diminishing GDP growth rate due to falling exports caused by a weakening Frank. The matter has been exacerbated by deepening debt crises and a negative inflation rate of 0.4%. Revenues are also more than expenditure leading to an increase in savings that stand at 31.5% of the GDP.
The nation has an extensive transport and communication network with a great interlink of both national and international services. The nation ranks highly for fixed line infrastructure and density as well as extensive cable and radio networks. It has a fixed telephone subscription of 51%, a mobile phone subscription of 144%, and 2 satellite earth stations. 88% of the population also use the network and a majority have access to both local and international private and state-owned radio and television stations. In infrastructure, the nation has 5,651.5 km of railway line, 71,464 km of roadways, 1,292 km of waterway, 63 airports, 12 registered air carriers and over 38 merchant marine vessels.
Switzerland exports roughly $291 billion of goods and services and imports $253 billion of the same. Exports make 63.9% of the GDP while imports make 51.13%. Switzerland’s main trading partners are Germany, the U.S., Hong Kong, Italy, and France. Its main trade goods are precious stones and metals, pharmaceuticals, industrial machinery, precision instruments, and clocks and watches (Bank, 2016). The nation has numerous trade treaties that include double taxation agreements with nations such as the U.S., UK, and Germany. Most of its trade agreements are, however, contained within the context of the EFTA although it has negotiated independent agreements with China, Japan, and the Faroe Islands. Tariffs on Swiss goods are usually low and the market is free, but weak legal legislations and regulations have seen market entry suffer from informal barriers (EC, 2016).
Political and Legal Analysis
Switzerland is a federal republic headed by an elected president who is assisted by a cabinet elected from the Federal Assembly. The president is chosen on an annually rotating basis from among the seven members of the cabinet and he is practically a figurehead as he has the same powers as the other members of the assembly. It conforms to a civil law system with judges of the federal Supreme Court elected on a six-year term basis. The nation has four large political parties who have significant influence over the elections that take part every four years. As a democracy, the people of Switzerland have a significant influence on how their nation is run. Besides voting in representatives to the National Council and the Council of States, the people also have a say in federal proposals (ExpatFocus, 2016). The nation has a strong local autonomy and a largely self-regulating civil society with most powers being delegated to the counties and the cantons.
Switzerland conducts over 2/3 of its business with the EU but it has not joined the union. Its relationship with its neighbors has been popular in political debates with the government calling on the people to join the EU in order to safeguard strategic national interests. The nation has also refused to join the UN and has also refused to join peacekeeping nations which have led many to believe that the nation is losing its international standing.
The nation has developed an open market economy characterized by free initiative and limited government involvement. The constitution guarantees freedom of trade and industry and the state only steps in to provide a favorable economic framework and correct market distortions. The 26 cantons and over 3,000 communes enjoy independence and mostly participate in the market for trade regulation and agriculture protection. Such decentralization has led to weak laws that have enabled the spread of cartels which dominate local businesses. While taxation rates have gone up, the taxation system of the Swiss is fair to all, and foreign companies enjoy the same rate as domestic corporations. The Swiss also have a respect for intellectual property rights (IPRs) and Switzerland is party to numerous international IPR conventions (Love, 2009). Switzerland also has similar IPR laws to those found in other developed nations but cartels form the bulk of the problem as they control large swaths of market share.
Market Entry Strategies
Introduction
New Balance Athletic Shoe is a multinational corporation based in Boston, Massachusetts that manufactures athletic footwear and apparel for both professional athletes as well as amateurs. The company was founded in 1906 by William J. Riley and it produced its first footwear in 1938. The nation was bought during the day of the 1972 Boston Marathon by Jim Davies, the current chairman. The company has since grown to over 5,000 employees and over $3.3 billion in annual revenues, making it one of the wealthiest private companies according to Forbes. It has a global reach with over 200 physical locations and sales to over 120 nations.
The company manufactures a wide range of athletic shoes, apparel, and accessories for all genders and ages. Besides athletic shoes which are its main brand, the company also specializes in sandals, jackets, hoodies, pants, shirts, and skirts mostly for sporting activities. It also provides accessories such as socks, soles, gloves, shoe care products, bags, and other items ideal for sports. Besides the Dunham popular brand, New Balance’s product portfolio also includes the Warrior brand of hockey wear, Aravon comfort performance footwear, and Brine that specializes in soccer, field, hockey, volleyball, and lacrosse shoes and equipment.
New Balance produces 25% of its shoes in the US and it also has a production facility in Flimby, UK. While most of its products are produced in its own factories, the corporation also has licensing deals with companies like Hickory Brands, Fitness Quest, J. Crew, and Moretz Sports. The company sells its products in its physical locations, through its online stores, and through specialized retailers. The firm is currently run by a board of 8 executives with Robert T. Demartini as the CEO and John Withee as the CFO and executive vice president (Bloomberg, 2016).
Situation Analysis
A growing awareness of healthy lifestyles as well as a demand for new innovative designs in footwear has seen sales of sports apparel sales jump 42% to $270 billion in the last seven years. Sales are expected to increase, with reports estimating a 30% growth or an additional $83 billion in sales by 2020 (ReportBuyer, 2015). As a firm, New Balance has averaged a growth rate of 15% over the past five years and is expected to hit $4 billion in revenues this year. In the US, the sportswear and apparel market stands at 258.8 billion while in Western Europe it is estimated at $325.7 billion. The footwear market is divided depending on the type of footwear, the consumer group, and by geography. New Balance specializes in athletic footwear which has the largest segment under a ‘Made in USA’ brand.
Currently, the main competitors in the global footwear market are Nike (the largest), Adidas, Puma, VF Corp, Skechers, and New Balance. New Balance and Skechers have a strong presence in the US while Asics and Puma are the most popular in Europe. The ‘Made in USA’ that New Balance currently commands is, however, being threatened as sports giants Adidas AG and Reebok plan to open new production facilities in the US with a combined production capacity of 1 million shoes. Currently, New Balance produces over 4 million pairs of shoes annually in the US and thus it will see competition for its market proliferate.
Despite the industry experiencing phenomenal growth, there are numerous challenges that face it. Firstly there is the issue of environmental awareness about dumping shoes as well as sourcing for materials that has led some companies like Nike to think up innovations including recycling old shoes into the manufacturing process. The supply of raw materials has also become scarce as most suppliers either venture into Asia or face trade embargoes. Tied to this is the rise of novel technologies such as 3-D printing which despite increasing speed, customization, and product performance lead to intensifying competition that has reduced the profitability of many companies.
The industry currently experiences numerous government controls particularly in relation to workers’ rights and child labor laws. As revenues have dwindled, some competitors have started paying minimum wages while others have even engaged child laborers in their factories. Intellectual property rights have also been infringed upon as Competitors steal trade secrets from their competitors by either poaching their best minds or using unscrupulous means. With consumers having more options of apparel to choose from, firms have been forced to renovate leading some to ‘borrow’ the designs of their competitors and causing an increase in cases of copyright infringement.
Target Market and Positioning
New Balance plans to target the young Swiss adults who have large disposable incomes and thus becomes the sportswear of choice for young athletes. Over the years New Balance apparel have been a preserve for the older non-athletic generation but this is an image the company intends to shake by engaging the youth. Additionally, it intends to capture another underserved market-women and children. With the rise of urbanization in Switzerland, many of the young generation have engaged in sedentary lifestyles that have led to a myriad of lifestyle issues. As a result, the government has of late been promoting the need for healthy eating and exercising in conjunction with private organizations.
The Swiss fashion market stands at $2.23 billion with shoe sales averaging an annual $390 million. This market is dominated by large retailers like H&M and Zara who specialize in non-athletic footwear leaving a large supply void flooded mostly with cheap shoes from small retailers. New Balance thus plans to position itself as the number one brand for footwear dedicated to living healthy through its ‘Made in America’ brand that will cut an exclusive niche for it in the market.
Market Mix
- Product
The company will market and sell the New Balance line of athletic footwear designed to boost athletic performance. The shoes are a perfect blend of fashion and function made in the USA to ensure that the athlete achieves more than he or she set out to do. The shoes have a history of being used by runners and marathoners and are thus proven for quality and performance. The shoes are also made to custom specifications for both men and women using patented designs and modifications that give it an edge over competitors. These modifications include manufacture in multiple widths as well as the inclusion of a wide forefoot that ensure a good fit as well as reduce chaffing. The shoes are also high quality made in the USA and can thus be used everywhere both in the gym and outside.
Switzerland is a landlocked nation and since most of the population is engaged in the services industry, the Swiss are used to importing consumer products, a phenomenon termed as consumer tourism in Switzerland. Most of the consumer goods produced in the nation are also by small companies, which makes quality imported goods by renowned companies that more appealing to the Swiss.
- Price
With a high amount of disposable income, the Swiss have a preference for expensive items and this is exhibited by increasing prices in the nation. New Balance aims to tap into this high-price market by offering quality shoes for a high-end market that is focused on living healthy lifestyles. Since the shoes are different, the objective is to offer different prices for the different prices but not engage in price segmentation. The increasing number of obese people in Switzerland, as well as the government efforts to promote healthy living, mean that the people’s attitude is already tuned towards athletic activities. Additionally, the nation is dominated by small players who offer cheap but low-quality products which make an imported high-quality but a moderately priced product that more ideal. New Balance plans to dominate the athletic shoe market which has a projected growth of 11.3% until 2021 meaning that the company should have projected growth revenue growth rates of a similar amount annually.
- Distribution
Besides opening a few retail locations in the two major cities, New Balance plans on bolstering sales through its online stores. These stores have been the primary source of revenue in recent years as online consumers spend eight percent more than in physical stores. The company also plans to sell through other retailers as well as specialized distributors who also have an online platform. The firm, however, recognizes that there are few constraints to opening distribution stores in Switzerland particularly due to the influence of cartels which may try to inhibit entry. It is for this reason that the company plans to distribute its merchandise through the four channels in order to reduce risk.
- Promotions
As earlier explained, the company targets young adults, women, and children who are not only underserved but also feel a pressing need to engage in more healthy lifestyles. These people are mostly located in urban centers and have access to broadcast media. The kids that are targeted are mostly in school where they are required to engage in a physical activity. Promotion strategies include the recently-unveiled ‘Always in Beta’ promotion that advocates for people to always be in control, always innovating, and always in shape. The promotion will also include engagements with the government to not only campaign for healthy living but also sponsor sports and athletics events through the New Balance Foundation. The reason for these sponsored events is that there has been a shift in global consumer trends with consumers purchasing more from brands they have a close connection to, and sponsoring events is meant to foster that close connection. Additionally, the firm will also run social media campaigns including a photo campaign of athletes in New Balance shoes visiting different locations. Already New Balance has sponsorship deals with numerous international celebrities and it will look to add some from Switzerland. Besides, the company will offer sales discounts on its shoes for the first few months as it builds a brand in Switzerland
Conclusion
Switzerland is a nation with a favorable political, economic, and cultural climate for doing business. It is a landlocked nation that despite its small size and population is well-endowed with numerous infrastructure and a legal system that promotes free enterprise. The company has managed to remain neutral politically which reduces the political risk of doing business there. Its people also have a diverse culture which has made them very accepting of imported products especially if they are of high quality. These factors coupled with high disposable incomes makes Switzerland an ideal location for New Balance to expand its international business. New Balance specializes in sports apparel and footwear and with increasing competition in the US, it has been looking to venture into Europe. New Balance shoes are of a high quality and are moderate- priced meaning they will be well-received in Switzerland. As such, the company should open physical locations, online stores, and team up with local retailers to market and distribute the New Balance brand of merchandise in Switzerland.
References
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Love, J. (2009, June 25). Switzerland’s intellectual property rules are often different from what you might expect. Retrieved from keionline.org: http://keionline.org/blogs/2009/06/25/swis-ip-notwhatuexpect
Malssen, E. E., Wachter, D., & Diem, A. (2016, June 27). Switzerland. Retrieved from britannica.com: https://www.britannica.com/place/Switzerland/History
ReportBuyer. (2015, September 28). Footwear Market – Global Industry Analysis, Size, Share, Growth, Trends and Forecast 2014 – 2020. Retrieved from prnewswire.com: http://www.prnewswire.com/news-releases/footwear-market—global-industry-analysis-size-share-growth-trends-and-forecast-2014—2020-300150372.html