Final Essay- Angelic Vendette

INTERNATIONALISATION AND HIGH FASHION –

THE INFLUENCE OF EMERGING COUNTRIES ON THE FASHION INDUSTRY

Countries of Interest: Brazil, India, China, Russia

GIE 6530 MBA Final Essay Presented to: Mr. André Gascon

Presented by: Angelic Vendette (908 144 107)

Faculté des sciences de l’administration

Université Laval

May 1st, 2013

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Internationalisation and High Fashion – The Influence of Emerging Countries on the Fashion Industry

Executive Summary

The political context in all BRIC countries has shifted towards an open market regarding the fashion industry and luxury brands, making it easier for brands to access the markets. Specific tax laws applicable to Brazil could improve in order to facilitate designer brands’ integration as well as preferential trade tariffs for fashion goods. Russia’s political stability in the last years has also given hope that the economic context will remain as it is. The government of India has also recently invested a lot of money into the Indian retail industry. Developing FDI as well as local production facilities will further encourage luxury brands to migrate on the market as well. Although China’s government is investing in domestic brands, there is still a lot of room for international luxury brands within the market, as it is expanding rapidly. The economic context within the BRIC countries demonstrates how these 4 countries have evolved into promising markets with ever growing GDP’s and PPP’s. Brazil’s economy is now ready for the fashion industry to boom. The demand is there and it promises substantial growth. Russia has shifted from the Soviet Union to open market regarding the luxury business. Middle classes have also emerged and they have new disposable income for the industry. India has taken away its ban on FDI since 1991 and since then the fashion business has grown tremendously. There is also demand in terms of luxury and not many competitors. China’s GDP is expected to become 1st worldwide in the upcoming years. This is a market that luxury brands cannot neglect. The socio-demographic context within BRIC shows how diverse yet similar demands are for luxury designer goods. Although Brazil’s population is diverse, the common sense of style and fashion that is part of everyday life explains the demand and is demonstrated by the fact that Brazil has its own fashion week. Russia has seen great migration of its people to two major cities, mostly that of Moscow and St-Petersburg, which are European influenced. As the population is more educated so grows the fashion education as well. India’s population is comprised by 65 percent of 35 year olds and younger. This represents huge opportunities for the retail market, now, and in the upcoming years. China regards luxury goods as a status symbol and put much importance in the price of things as well as the exclusivity and the power of the brand. This describes the fashion industry perfectly in terms of supply. The technological context within BRIC shows there is a lack in technologies as compared to other countries however significant investment on behalf of governments are being introduced into the fashion industry in terms of innovation. The Brazilian government has decided to invest in new technologies in order to remain competitive with the international fashion scene. The government is in fact looking to invest on many different levels in order to reduce production gaps with other producing countries. Russia has several interesting innovations linked with the retail experience and well as for the industry as a whole. This definitely attracts consumers as much as merchants. Although India does not have any specific technologies linked to the fashion industry, specialization, education and method have made India into one of the most

908 144 107 Vendette

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technologically savvy countries. All new technologies can be beneficial to the industry. China is known for counterfeit goods and although they produce millions per year, technology has not yet been able to reproduce hand-made quality. The environmental context within BRIC shows of bio-diverse lands and environments that have, for the most part, been destroyed and polluted due to industrialization. Brazil for the first part is self-reliant in terms of natural resources. The fashion industry as well doesn't destroy per-se the environment, and its resource self-reliance is an incredible asset to production. Russia is a great polluter and natural disasters have come out of it. This has not yet affected the fashion industry, but other industries rather. Also, it is not recommended to move production to Russia for reputation concerns. The major environmental concern in India is not the pollution that the fashion industry causes but rather the lack of sanitary infrastructures. Store location is thus crucial. Sixteen out of the twenty most polluted cities can be found in China alone. Air pollution is horrid and designers need to help the country move in the right direction by diminishing their carbon footprint.

The legal context within BRIC shows that laws have been changed from more restrictive economies into open markets. Within Brazil, there are law-setting tariffs that can be changed all the time depending on certain situations. Russian law imposes certain limitations on the protection of trademarks, company names and brand names as well. India waved the FDI limitations it had in the retail industry and has since then seen its market flourish. China’s laws regarding counterfeit goods are not applied and cause a copyright and trademark concern.

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Table of Contents

Introduction: ................................................................................................................ 5 Terminology ................................................................................................................................................................. 6 Fashion Industry: ........................................................................................................................................................ 6 BRIC: ................................................................................................................................................................................. 7

Documentation by Country and Recommendations ..................................................... 8 1. Federative Republic of Brazil ........................................................................................................................... 8 Political Context .......................................................................................................................................................... 8 Economic Context .................................................................................................................................................... 10 Socio-‐demographic Context ................................................................................................................................ 12 Technological Context ........................................................................................................................................... 15 Environmental Context ......................................................................................................................................... 16 Legal Context ............................................................................................................................................................. 18

2. Russian Federation ............................................................................................................................................ 19 Political Context ....................................................................................................................................................... 19 Economic Context .................................................................................................................................................... 20 Socio-‐demographic Context ................................................................................................................................ 21 Technological Context ........................................................................................................................................... 23 Environmental Context ......................................................................................................................................... 24 Legal Context ............................................................................................................................................................. 25

3. Republic of India ................................................................................................................................................. 26 Political Context ....................................................................................................................................................... 26 Economic Context .................................................................................................................................................... 28 Socio-‐demographic Context ................................................................................................................................ 29 Technological Context ........................................................................................................................................... 30 Environmental Context ......................................................................................................................................... 31 Legal Context ............................................................................................................................................................. 32

4. People's Republic of China ............................................................................................................................. 34 Political Context ....................................................................................................................................................... 34 Economic Context .................................................................................................................................................... 36 Socio-‐demographic Context ................................................................................................................................ 37 Technological Context ........................................................................................................................................... 38 Environmental Context ......................................................................................................................................... 39 Legal Context ............................................................................................................................................................. 41

Conclusions ................................................................................................................ 43 Political Recommendations ................................................................................................................................ 43 Economical Recommendations ......................................................................................................................... 44 Socio-‐demographic Recommendations ........................................................................................................ 44 Technological recommendations ..................................................................................................................... 45 Environmental Recommendations ................................................................................................................. 46 Legal Recommendations ...................................................................................................................................... 47 Bibliography .............................................................................................................. 48

Annexe ...................................................................................................................... 53


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Introduction:

Over the past few years, the globalization of markets has led to the internationalization of

companies as well as to similar consumer demands throughout the world. It is safe to say

that a product currently trending in Tokyo is also likely to be so in Paris, London, Milan

and New York.

Aside from new technological gadgets (ie: Apple products), the fashion industry has long

been a pioneer in agglomerating and creating same consumer needs worldwide.

Traditions and culture certainly also have their say on the multi-billion dollar industry,

however trends and styles coming from high end fashion and world-renowned designers

are unchanged and unaffected on when it comes to what is NEW, what is IN, and what is

really Fashionable.

Simultaneously, due to globalization, there has also been a shift in economic powers,

mostly within emerging countries due to various factors such as population growth,

technological developments, as well as increased purchasing power on behalf of its

consumers.

Countries making up the popular acronym known as BRIC (Brazil, Russia, India, China)

are gaining influence on the rest of the world as well as the traditionally economically

powerful countries.

This essay combines both of the two recent changes and targets new business

opportunities that can arise for BRIC countries and for the fashion industry leaders alike.

The following: Internationalisation and High Fashion – The Influence of Emerging

Countries on the Fashion Industry aims at exploring how key players of BRIC influence

the fashion industry and in what way the fashion industry can adapt in order to give these

new countries place within this business and how this can be done through various

recommendations

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To do so, each of the BRIC countries will be analysed keeping in mind the fashion

industry, using the framework of PESTEL to determine business opportunities within

each; the risks of going; their business environment analysis, as well as segmented and

specific recommendations; This will give an overview of how these countries differ, but

rather how together bring amazing new markets to luxury goods and couture houses

worldwide.

Terminology

In order to begin however, two key reoccurring terms must be specified in order for the

reader to fully grasp what is being analysed throughout this essay. The meanings for

Fashion Industry, as well as that of BRIC are defined below, as this can lead to different

interpretations, and will be used in the specified manner for the remainder of this

document.

Fashion Industry:

The fashion industry can be divided into different categories varying from low-end all the

way to very high-end. For the purpose of comprehension, here they are in increasing

order of quality and price: (Fashion Industry)

1) Discount brands, which deserve lower-income consumers (ex: Clothing found at

Wal-Mart, Request found at Zellers, etc.)

2) Mainstream brands, which are conceived for the masses and offer almost no

exclusivity (ex: Zara, H&M, etc.)

3) Affordable luxury brands, which offer lower-priced alternatives to luxury brands

(ex: Michael by Micheal Kors, Marc by Marc Jacobs, D&G, all diminutives of the

following luxury brands: Micheal Kors, Marc Jacobs, Dolce and Gabbana, etc)

4) Luxury brands, which often deserve a high-income clientele (Prada, Burberry

Prorsum, Balmain, etc.)


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5) Haute couture, which deserves the world’s wealthiest customers and is the most

expensive and exclusive category seeing as all is tailored and hand-made. (Ex:

Chanel, Giorgio Armani Privé, Givenchy, Christian Dior, etc.)

Throughout this essay, when using the term Fashion Industry, we are referring to mostly

level 4 and 5, known as Luxury Brands as well as Haute Couture. This is for the simple

reason that all Couture Houses (designers of Haute Couture) produce ready-to-wear as

well as couture pieces but because of its extremely high prices (items can be sold for up

to 1 million dollars a dress), the mass-produced luxury ready-to-wear collections are

much more profitable than Haute Couture. At these high levels, the fashion industry is

also unaffected by economic changes. The Luxury and Haute Couture markets are in fact

seeing increases in sales as compared to mainstream, affordable luxury, as well as

discount brands that have lived a decrease in sales because of the latest economic

downfall. (Fashion Industry) This category is also the one directly linked to well-known

fashion designers and its clothing is what is found on runways as well as in magazines

preceding each fashion season.

BRIC:

As mentioned above, BRIC is an acronym referring to the countries of Brazil, Russia,

India, and China and demonstrates the drift in economic powers throughout the world,

leaning away from the traditional G7 towards the developing economies. (Ask the expert:

BRICs and investor strategy, 2008) This term was created in a paper conceived by

Goldman Sachs and also argues that the economies of the four BRIC countries will

eventually become the dominant economies by 2050. (Goldman Sachs Reports)

The Economic potential of BRIC is demonstrated by the fact that these countries account

for a combined GDP of 18.486 trillion dollars, hold a little more than 40% of the planet’s

population and furthermore are comprised of 25% of the world’s land coverage.

(Emerging Markets: Brics sceptics have their backs to the wall)

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Not only do these countries represent a foreseeable increase in demand on behalf of basic

goods but they will also impact higher-priced goods as well, and for this reason the

countries of BRIC will be the subjects of the emerging countries linked to the fashion

industry in this essay, as their high business potential will be proven throughout.

Documentation by Country and Recommendations

1. Federative Republic of Brazil

Political Context

The Federative Republic of Brazil (Brazil) is known as one of the largest democratic

countries of South America and is governed by a woman President, Dilma Rousseff,

which is both head of government as well as head of state. (Brazil Politics and

Government)

There are 26 semi-autonomous states within the country that are organized with their own

traditions and sets of symbols, their own financial independence as well as complete

administrative branches. Each state also exercises an important amount of power in terms

of determining taxes and the allocation of these funds. (Politics: Brazil) The most

important Brazilian states in terms of economic power and in terms of population are Sao

Paulo, Rio de Janeiro, Minas Gerais and Rio Grande do Sul. (Politics: Brazil)

Considering that politics are quite stable in this country and that each state is independent

for its own rules, the fashion industry still has not faced the easiest policies in regards to

international luxury brand products entering the country. In fact, Brazil is currently faced

with overpriced import duties and taxes that keep most luxury brands out of reach for the

country’s wealthiest consumers. (Inside Brazil’s Booming Fashion Industry)


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The government’s import tax protects “industries and produce from foreign competition.

These tariff rates range from 0 to 35 percent according to the product…The import tariff

rate is applied to the customs values of the goods: the sum of the cost price, insurance

covering the goods during shipment or freight.” (Understanding Brazil Taxes on Imports)

As we can imagine, the import tax is thus quite elevated for all luxury goods and thus

halts most designer houses from entering the country.

Recommendations:

In order for the fashion industry to boom or take its place within Brazil, the government

would have to firstly review its out-dated tax structure in order for this industry to grow.

In fact, according to Paulo Borges, President of the company that produces Sao Paulo

Fashion Week, the laws governing labour also need to be modernized: “Brazil is at a very

good place politically and economically, but these changes are necessary to enable the

further development of the creative and design industries” (Inside Brazil’s Booming

Fashion Industry)

Furthermore, on the political scale, seeing as each state can supervise their own tax laws

and conditions, it would be interesting for the fashion industry if Brazil allowed few

states such as Sao Paulo and Rio de Janeiro to experiment with lesser import taxes on

luxury goods, as these states can set their own tariffs anyways. Not only would this create

new jobs and services linked to the industry, but it would also bring in new developments

and maybe even increase areas of tourism for a clientele looking for high-end fashion

brands while in Brazil. This seems to be a very good idea for Brazil, as not only could

local designers gain visibility, seeing as the fashion scene would be enlarged, but this

could also bring a very profitable industry to the developing country. Actually, since

2010, brands like Diane von Furstenberg, Louis Vuitton, Gucci, Chanel and Burberry

have made (or are presently making) large investments in order to import their products

within Brazil and even opening stores in major city centers. As a matter of fact, one of

Gucci’s spokespersons confirmed that one of their top selling stores worldwide was the

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one situated in Sao Paulo. (Inside Brazil’s Booming Fashion Industry) Thus confirming

business potential.

On another note, the Brazilian fashion industry could also take advantage of having a

woman as their President. Dilma Rousseff, first woman to be elected as Brazil's president

(Country Profile), is taking more place on the international scale and this visibility could

also be interesting for any designer dressing her: whether at formal events or even

business meetings and country visits. If we only take for example what has happened to

designers dressing other political women like Michelle Obama being dressed by designer

Jason Wu, or even Kate Middleton and the exposure that she gave to Sarah Burton as

designer of the British label Alexander McQueen.

Economic Context

Over the last few years, Brazil has enormously improved its economic stability and has

slowly grown into Latin America’s largest economy. It is also one of the fastest growing

economies in the world, with an average annual GDP growth rate of a little over 5

percent. (Is Brazil's Economy Getting Too Hot?) In fact, in 2010, consumer and investor

confidence was so high that GDP growth reached 7.5%, the highest growth rate in the

past 25 years for Brazil. (Brasil)

Furthermore, taking into consideration the latest economic downturns worldwide, Brazil

managed to replace the United Kingdom as the 7th largest economy in terms of GDP last

year, and by the end of 2012, is forecasted to surpass France and become 5th worldwide.

(Brasil) This is a lot faster than had predicted the original BRIC document written by

Goldman Sachs, as seen in Table 1 of the Annexe, Brazil’s economy was foreseen to

surpass both France and the U.K only between years 2025-2030. (Stupnytska, 2007)

The economy is thus undeniably one of the main aspects driving the present demand

within the Brazilian fashion market, eased by changing social climate and of course the


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globalization of needs worldwide. Not only has this helped the growth of the industry, but

it has also helped the market’s self-confidence from within.

As one of Brazil’s most famous fashion-journalists pointed out (Erika Palomino),

“Brazil’s new-found self-esteem is as important to the fashion industry as are its

economy’s positive numbers.” (Inside Brazil’s Booming Fashion Industry) Considering

this, it is clear to say that not only will Brazil’s latest bidding wins for the 2014 World

Cup as well as 2016 Olympics impact furthermore Brazil’s economy, but this will also

bring a new demand within the fashion industry as the country grows. In fact, according

to industry statistics and market research done by Plunkett Research Ltd, the firm

concluded that: “The apparel and accessory stores have been enjoying a rebound in sales

around the world. Meanwhile, the luxury apparel, shoes and accessories market is

booming in rapidly growing economies such as Brazil and China. Leading brands are

opening large numbers of new stores in these markets.” (Apparel, Textiles & Fashions

Industry Market Research)

Another interesting aspect linking both Brazil’s fashion industry and economy is the fact

that within its domestic market, there are only two types of clothing brands: low quality

and price brands found at grocery stores and local markets (ie: the local C&A brand), or

independent labels that offer designer quality brands at high price points.

Recommendations:

On an economical standpoint, we can determine that the fashion industry market within

Brazil is far from being saturated. It is still in a start-up phase seeing as international

designers entering the country are testing out the market in order to be first ones there, as

well as trying out luxury labels where there haven’t been any before. It is hence objective

to say that the market and the economy are presently at the right place for high-end

designer fashion to be introduced onto the market, and that large international companies

should be aware of this potential. According to Ross’s Market Phase Model, the fashion

industry is past the Investigation phase, as all economical factors point out, and

companies should move into the Exploitation phase of the market, as demonstrated in

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Table 2 of the Annexe, and should render profitable their entrance to this new

geographical location.

Since some companies have already started doing this, according to Ross, it would be all

in high fashion labels’ strategically advantages to implement themselves in Brazil as well

and they will “come out of it with product/market fit, a critical mass of customers, real

revenue, increasing momentum, strong positioning, a solid foundation of knowledge of

how to reach their target market, and a team that’s up to speed, succeeding, and building

momentum towards success.” (Go-To Market Strategy for Start-Ups). I would also

further recommend any designer firm to implement themselves on the market as quickly

as possible. Being first often leads to very strong positioning within a new market, as it

has been demonstrated with various examples worldwide, or even most basically and

notably the infamous case of KFC being first on the market in China, even before

McDonald’s, and being fast-food winner over there.

Another recommendation linked to the fashion industry and Brazil is the fact that since

the World Cup and the Olympic games will boost furthermore the Latin American

country’s economy, this is the right moment to go on the market. Within 2 years, Brazil

will have increased global exposure and thus more tourism as well. Since there are no

mid-level brands in Brazil, as discussed above, stores like Zara or Mango are inexistent

and this leaves little to no choice to middle and upper class Brazilians to buy designer

brands. It is the lack of luxury brands however within the country that are presently

stimulating the interior fashion industry because it forces consumers to spend on designer

domestic labels. (Fashion Industry)The market is there, now all that is left to do if for

international designer to enter and enjoy.

Socio-demographic Context

Brazil’s population is characterized by a very diversified basin of people. It is rich in

culture and is becoming one of the most important populations in terms of people on the

planet. As a matter of fact, Brazil accounts for being the sixth most populous country in

the world after China, India, the United States, Indonesia and Russia, with a population of


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a little over 190 million. The country’s population growth has grown significantly over

the last decades and is demonstrated in Table 3 of the Annexe. (Brazil population)

Brazil’s population is also described as being predominantly young, with 62% of its

population being under 29 years of age. (Brazil in brief)

The population in this South American country is also composed of richly racially mixed

backgrounds. The majority of Brazilians have ancestors from one of the three following

groups: European (mostly Portuguese), African, and the original indigenous population

from the continent. (Brazil in brief)

Similarly to Canada, Brazil’s average density is also low, as most people live in

proximity to the Atlantic coast from South the North. (Brazil in brief) Furthermore, there

have also been demographic shifts in terms of distribution of wealth. In the past, the gap

was rather between high upper class and low lower class, whereas now the disparity is

lessened. In fact, a great percentage of the population has now joined the middle and

middle-to-upper classes, explained by migration of the population to urban areas. (Inside

Brazil’s Booming Fashion Industry)

Although demand worldwide and growth in the industry has been forecasted to slow

down in the upcoming years, sales and revenue driven by high-end fashion in Brazil is

expected to grow sufficiently to increase domestic demand as well as attract new

international brands. (Women's Wear Daily, 2010) This is mostly due to the fact that

fashion has always had a great place in Brazilian culture. The Brazilian population is

known for valuing aesthetics and quality as well as involves trends in everyday

conversations and investing time in one’s looks is also part of the average Brazilian’s

pastimes. (Inside Brazil’s Booming Fashion Industry)

Recommendations:

From a socio-demographic standpoint, although Brazil’s population comes in after the

other BRIC countries, it is an amazing basin of opportunity because Brazil is the only

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BRIC country with a major fashion industry of its own. Not only does this make room for

international couturiers to come in, but it also allows for domestic designer to flourish as

well. In fact, there are numerous Brazilian ready-to-wear and accessory brands that have

been successful in the past. The best example of this are the Brazilian accessories brand

Havaianas.

Since fashion and aesthetics are also an important part of the Brazilian lifestyle, this will

allow greater and easier brand implementation on this new market. It is thus

recommended that high-end designers and brands introduce themselves to the Brazilian

market through its São Paulo Fashion Week -facilitated through the importance that

fashion plays in Brazilian culture.

Also regarding the country’s socio-demographic standpoint, brands are further

encouraged to go to the Brazilian market because of the advantage that the culture brings

to the industry as a whole. For example, Hermès’ General Director Richard Barczinski

stated that although his work frequently takes him to other BRIC countries like Russia

and China, the way Brazil compared demonstrated greatly of the opportunity designers

had in bringing their goods to this market. “ “In terms of potential, China maybe the

champion because it is experiencing such tremendous growth and has such a huge

population, but culturally Brazil may have an advantage because the consumer here is

highly sophisticated and informed. People here appreciate not just the value of something

expensive, but the value and pleasure of good design and materials.” (Inside Brazil’s

Booming Fashion Industry)

Designer brands also have a lot to gain by entering the Brazilian market because of the

higher return on investment. In fact, couture houses don't need to invest as much in

marketing and branding as the Brazilians are trend savvy and have a flair for what is in

fashion. As stated by Eliana Tranchesi, CEO of Daslu, a high-end department store in

Brazil, “brands can spare the effort of building knowledge regarding new collections,

style and product launches. As collections arrive to national stores, they already have an

enthusiastic client base… Today, the Brazilian customer knows exactly how much they


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are willing to pay for an item and how much it is really worth.” (Inside Brazil’s Booming

Fashion Industry)

Technological Context

On the technological forefront, The Brazilian textile production dropped by 4.3 percent

and the production of apparel also dropped by 10.5 percent in 2012. (Roncato, 2013) This

shows a significant decline in local production, and because of upcoming event like the

2014 World Cup and the 2016 Olympics, the Brazilian government has decided to invest

in new technologies in order to remain competitive with the international fashion scene.

The government is in fact looking to invest on many different levels in order to reduce

production gaps with other producing countries. This will be done through investment in

designers, brands, sustainability, but mostly through innovation.

Moreover, since international brands are beginning to open more and more stores in

Brazil, the Textile and Clothing industries of Brazil are also investing in adding value to

their goods through differentiation in order for local producers and brands to face the

newly arriving international competition. This is being done through working with

attributes in the products that convey values of Brazilian culture, like lifestyle, diversity

and creativity. In terms of innovation, sustainability is being incorporated into production

in order for the Brazilian industry to standout from other products produced in countries

with a less sustainable image, like China for example. (Roncato, 2013)

Various investors from all around the world are attracted to Brazil due to the new

potential for consumption of luxury goods. Brazil on the other hand also sees this interest

as a way of developing new technologies within the country, either through bringing in

innovative ideas from elsewhere or even through the development of technology transfer

agreements. (Roncato, 2013)

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Recommendations:

As a recommendation to designers looking to penetrate the Brazilian market, although the

market is promising right now in terms of sales and exposure, and although the

government is heavily investing in technologies and innovation for the fashion industry,

it is not recommended that designers also shift their production to Brazil. For the time

being, there are still cheaper and more efficient ways of production outside of Brazil,

until more interesting technological innovations come up on this forefront. In 2011, the

industry itself invested about $2.4 billion (Roncato, 2013), and although this will

certainly lead to great production facilities and efficient innovation for the industry,

designers are not yet advised to shift all to Brazil till this is done.

Furthermore, if luxury brands are willing to go to Brazil in order to exploit the amazing

opportunity that the market has to offer, internationally renowned designers also should

take into consideration the local competition in order to penetrate the market

successfully. This means adapting their goods to market as well. This can be done

through a variety of technologies within Brazil already, like using materials that are

adapted to Brazilian climate or even using Brazilian patterns and incorporating geo-

cultural materials into their product line.

Environmental Context

Brazil’s environmental context is also quite unique and important. This obviously plays a

role in various industries within Brazil. In fact, Brazil has a variety of natural resources

that are interesting for national and international companies alike.

Brazil is the world's fifth largest country, with land covering close to 50 percent of South

America and can also be divided into four distinct geographic regions: the coastal area,

the large highlands, the open forest, as well as the Amazon. The latter also accounts for


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one of the world's largest rivers, as well as 30 percent of the world's forest. (Globe

Aware)

This obviously has an impact on the fashion industry in Brazil because the nation, along

with other natural resources, has also become self-sufficient in oil, “ending decades of

dependence on foreign producers.”(BBC , 2012) Which permits for more production

within the country instead of importing already-made goods.

On the other hand however, Brazil is also known for the destruction of its environment

since most of all of the country’s ecosystems are threatened. (Globe Aware) This can also

negatively affect the fashion industry in terms of production. A bad reputation linked to a

garment line can go a long way in terms of public relations, as we’ve seen in the past

with Nike Air.

Recommendations:

In terms of recommendations concerning Brazil’s Environmental context, it would be to

any designers’ great advantage to use Brazilian natural resources as part of their

production. As mentioned earlier, although innovation still has a long way to go, certain

phases of a luxury good can be sourced in Brazil –a lot of natural materials for example,

or even the use rare stones and woods can at the time embellish a product and make it

more desirable to the Brazilian consumers. In fact, “Brazil’s growing national pride,

combined with the country’s relative geographic isolation, has had a positive effect on the

country’s domestic fashion market. Sara Andrade, the influential fashion editor of Vogue

Portugal, thinks Brazil’s self-reliance is one of the country’s greatest assets. “One of the

things Brazil has working for it is that it’s a country that really supports their own —

their own production, their own artists, and even their own trade. That makes it less

dependent on other countries.” (BBC , 2012)

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Legal Context

The legal context in Brazil is multi-faceted and is important to the success of any

business as well as those in the fashion industry.

First of all, importing into Brazil is quite regulated. The laws and regulations applicable

to import luxury goods are generally elaborate, and the government can change

regulations even while good are in the process of being shipped into Brazil.

There are also laws and regulations concerning labour that are important to note whilst

going to Brazil. In fact, Brazil’s trade policies place a heavy emphasis on protecting the

population from increased domestic prices due to foreign trade. This is also very true

concerning designer brands. Although Brazil has also been known to lack skilled labour,

the workforce is plentiful in sectors that support the fashion as well as retail industries.

(Diaz Reus)

Recommendations:

The legal context in Brazil is also particular and designers or couture houses looking to

penetrate the market should take into consideration different laws and regulations there

are regarding their industry as well as business in general in order to make sure they do

not have problems.

It is recommended that most luxury brands shipping products into Brazil are

knowledgeable of the tariffs and regulations there are for their products. As tariffs can

vary, getting insurance for this can kind of fluctuation can help couture houses budget

adequately when sending products for sale into the country.

Since the labour in the fashion and retail industries are plentiful, luxury brands should

also therefore pay close attention to legal limits in place regarding employee workdays as


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well as workweeks and holidays. Regulators in Brazil are said to have paid close

attention to foreign luxury brands in the past. (Diaz Reus)

2. Russian Federation

Political Context

The Russian Federation, also known as Russia, is a referred to as a federal “semi-

presidential” republic because Russia is lead by both the President, Vladimir Putin and

the Prime Minister, Dmitry Medvedev. In fact, according to the Russian Constitution, the

head of state is the President, and he appoints several different party executives to

exercise power within the government. The latter are thus further lead by the Prime

Minister. ( Legislative process in Russia)

This type of two-tiered government is in place since 1993, in order to forge a stronger

political system as a much-needed consequence to the 75 years of Soviet directive, which

collapsed in 1991. (Country Report: Russia, 2013) This has a direct impact on the fashion

industry as well as many others in Russia because with a new constitution and a new

parliament representing diverse parties, Russia’s political power has shown great sign of

stabilization, and with that a new interesting open-economy market for luxury fashion

brands. (Country Report: Russia, 2013)

Recommendations:

In order for the fashion industry to thrive in Russia, luxury brand designers must be

aware of the special role Russia’s politics plays in the Russian economy. Although the

present government has an open-economy towards the luxury fashion, fashion houses are

encouraged to keep a close eye to the country’s political situation and stability as

Vladimir Putin mentioned: “Political stability is very important for Russia’s economic

20


recovery and further growth. When a country is in a difficult, complicated situation, just

emerging from a crisis and finding its feet, elements of stability in the political sphere are

of vital importance.” (Country Report: Russia, 2013)

This being said, luxury brand should keep in mind that although Russia is a very

attractive market, there are risks related to the market because of its politics. In order for

the fashion industry to grow sufficiently in Russia, a period of stable growth is needed.

Moreover, there can be some controversy regarding Russia’s political stance, and couture

houses must pay attention to current events in order for them not to receive negative

publicity, especially if they are considering moving some of their production their as

well.

Economic Context

Subsequently to the fall of the Soviet Union, Russia has experienced significant changes

moving from an auto-sufficient economy to an open market. This is in large part due to

the reforms that took place during the 1990’s. (Russian Economy) Nowadays, Russia is

also a globally competitive producer - being the world's largest exporter of natural gas,

the second largest exporter of oil, and the third largest exporter of steel and primary

aluminum. The government has also taken on a very determined program aiming at

reducing the country’s dependency to its natural resources, and rather investing in

technology, services, and more artistic industries like that of retail and fashion.

( Legislative process in Russia)

This is interesting to note for fashion designers on an economic standpoint because as of

1998, the economy has had an average growth of 7,5%, which is demonstrated in Table 4

of the Annexe. This also doubled the real disposable income of Russians as well as

created a middle class, as can be perceived in Table 5 of the Annexe through its

diminishing unemployment rate. (Russian Economy)

Another important year for Russia, besides 1998, was a decade later in 2008. Although

many countries were affected due to the economic downturn, Russia was especially hit

hard because of the decrease in oil prices. This is another indicator that Russia needs to


21


invest in other industries, like that of fashion, in order to avoid these types of crises in the

future. (Russian Economy)

Recommendations:

Considering the recent growth in disposable income in Russia as well as the new creation

of its middle class, Russia is seen as an interesting market for the designer fashion

industry. Since the fashion industry in Russia is currently mostly based on importing

designer goods, designers have nothing to loose in going on these markets from an

economic standpoint. In fact, it would be recommended to do so as Russia accounts for

the largest retail market in all of Eastern Europe. (Fashion in Russia)

Aside from the economic downturn, the local fashion industry in Russia has been

growing. In fact, Russian designers are opening more and more of their own fashion

houses and labels in Russia. The economy is only positive and growing, and should

therefore be an incentive for luxury brands to pierce the market.


In terms of the socio-demographic situation, Russia has a very interesting history

regarding its population growth. In October 2012, the population of Russia was estimated

to be 143 million. (Mood in Russia) It has in fact been diminishing since its peak in 1991

with a population of 148 million, when the Soviet Union broke up. This is due to

declining births, rising death rates, as well as emigration. (Mood in Russia)

This is interesting for the fashion community because although the population is

decreasing, the GDP is rising significantly. This means there is more disposable income

per capita than there would be in other developing countries, because Russia’s population

is not growing proportionally.

Another very interesting factor of the Russian population is that 75 percent of the

population lives in urban areas near Europe, mostly around Moscow and St-Petersburg.

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Furthermore, the number of Russians living in poverty has also decreased about 50

percent that it was following the disintegration of the Soviet Union in 1991. (Mood in

Russia)

Recommendations:

In terms of recommendations for designer brand looking to go to Russia, since 75 percent

of the population lives near either Moscow or St-Petersburg, this creates a very dense

basin of new market potential. This is due to Russia's consumer boom that has brought

new shopping opportunities for both Russian cities, so that nowadays there are malls and

shopping centers carrying more and more brands, centers which would be ideal location

for new designer labels to begin sales in Russia. (Fashion in Russia)

Moreover, considering the population’s proximity to Europe, similar values to the

European population are shared with the Russians in terms of style and links to fashion in

everyday life. Russians who also have gained new disposable income also value

expensive brand names because they are so rare in Russia, and new to the market since

the collapse of the Soviet Union, that brands also act as status symbols. (Fashion in

Russia) If marketed in the right way, a luxury brand could go a long way by creating

demand by the Russian elite.

Another very important recommendation in order for designers to implement themselves

properly on the Russian market is of course by their presence and support at annual

fashion events held in Russia. These have gained importance tremendously amongst the

higher class and elite of Russia. Russian Fashion Week is indeed the largest fashion week

in Eastern Europe and can be attended by invite only. Moscow has also partnered with

the greatest fashion cities of the world, like London, Paris, Milan, in order to become a

fashion destination of its own. (Fashion in Russia)


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In terms of technology, as stated above, the Russian government has invested a lot of

money into technology in order to reduce the country’s dependency to its natural

resources. One of the major industries that has benefited of these massive investments are

that of retail and fashion.

The St. Petersburg International Economic Forum has recently hosted the signing of an

agreement to launch-the Store of the Future through project RusNano. The investment

into this project has totaled approximately $11,5 million (CAD) in order to create Nano-

enabled solutions within Russia’s retail industry. The project will establish a company-

integrator to introduce RFID technology to domestic retail trade as well. This could be

interesting to designer brands opening various locations within Russia, or even in order to

track their merchandise. (New RFID project to foster demand for nano-enabled products)

Another interesting innovation is Russian based company Gloria Jeans Corporation’s

FastFit360. This is a cloud communication platform in order to sync communication

across global operations. “Designed specifically for the apparel industry, the FastFit360

platform enables truly social business communication – a single location where supply

chain partners, designers and executives alike can track everything from inspiration to

product milestones and pre-production samples without the expense typically associated

with shipping and travel.” (Gloria Jeans adopts FastFit360 cloud communication tool )

These types of innovative ideas coming from Russia will make more efficient a lot of

retail production as well as communication. Brands going to Russia can acquire this here

and use it throughout their processes globally.

Lastly, another innovative technology that will change the way the Russian consumer

buys clothing is through VIPodium. This is “a sophisticated apparel visualization, social

media engagement and educational platform that allows fashionistas to virtually try on

clothes either at home or in store.” (Fitting Reality unveils VIPodium) In fact, the

platforms are designed to help shoppers visualize how different sizes and models of

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garments fit as they would in a fitting room, but without the need to physically try on the

clothes.

Recommendations:

It is thus recommended that designer looking into going to Russia make most use of these

new technologies. Although most mentioned above are in the Russian market, this can

help the designer gain visibility by being early adopters of these new technologies in their

processes or production, through the support of techno-fans as well as the Russian

government itself as well as through brand marketing within the fashion community

through media.


Russia’s environmental context is quite unique. Although Russia comprises the world’s

most extensive forest, more than 8 million km of woodlands, desert, tundra, mountains as

well as grasslands and the Himalayas (Russian Wildlife, 2012), it is one of the most

polluted countries as well. Indeed, nearly 40 percent of Russia’s territory has shown signs

of ecological and environmental damage. (Russia's Environmental Problems) This is in

large part due to the Soviet Union that felt that pollution control was unnecessary and

came in the way of industrialization.

The biggest polluters are the various industries, including that of manufacturing for retail

purposes. They neglect the legislative requests and damage both the environment and the

people in the touched areas. Last year, the NGO Green Patrol found out that the

aluminum plant of the company RusAl is blowing cancer-causing substances in the air in

Krasnoyarsk that is quite toxic. Chemical waste is also directed into the Yenissei, one of

the lengthiest water streams in Russia. (Russia's Environmental Problems)


25


Recommendations:

Since Russia is known as a great polluter, it would be recommended that designers do not

change their production locally if they are to implement themselves within the Russian

market. In fact, this could bring negative press and because a lot of the pollution has in

the past been due to industrialization and manufacturing, designers do not want to embark

on justifying why they are manufacturing in a country with no environmental

consideration.

Couture houses also looking to implement themselves in Russia should also take into

consideration the damage that global warming is doing to the environment. In fact some

repercussions are noticeable today. We can only think of the recent forest fires as well as

the defrosting permafrost that has negative effects on building in all of Russia as well as

other infrastructures. (Russian Wildlife, 2012)

Finally, luxury brands going to Russia can help by investing in new and modern

production complexes as well as energy efficient stores. Saving energy and more efficient

industrial complexes would help produce less waste and contribute in bringing a “green-

buildings” trend. (Russia's Environmental Problems)

Legal Context

The Russian government is presently involved in local projects and legislative changes

that are working towards helping Russia’s international image. They not only concerned

with increasing social quality of life, but also by letting in more and more international

investments into Russia. (Legal protection and intellectual property, 2012)

In terms of why designers should be concerned is mostly relevant to know what types of

laws exist for intellectual property of not only their designs, but also their brand names

and logos. In Russia, international fashion brands are offered general protection. This

protection is usually available in the form of a trademark or through incorporation.

In regards to the designs itself, creative work is offered general copyright protection in

26


Russia although the availability and extent of the protection varies. The most important

aspects affecting the protection are the author's nationality and the place of first

publication as well the relationship between the author and the company. (Legal

protection and intellectual property, 2012) (For example a company named Michael Kors

in Russia, copied from the popular American designer brand, would in fact loose its name

once the brand came into Russia because the American designer’s collection is named

after the owner and creator Mr. Michael Kors himself.)

Recommendations:

Although, as mentioned above, designers are protected through general law for their

brand names, Russian law imposes certain limitations on the protection of trademarks,

company names and brand names as well. It would thus be important to see if the

company’s brand name already exists in Russia, and how they could be sure not to lose

their notoriety through logos and slogans because of that.

3. Republic of India

Political Context

The political context in India has a role to say in how the fashion industry will evolve, as

they will be aiding to finance certain projects, pass various laws, as well as allow more

foreign investment in this area. The Union Government, the name used to call the Indian

Government, is the prevailing authority of the union of 7 territories as well as 28 states.

(Council of States (Rajya Sabha), 2013)

In many aspects, where India is similar to the United Kingdom and Canada, because of

India’s historic colonised state, the legislature is also know as the Parliament. All the


27


Ministers as well as the President need to be elected. (Council of States (Rajya Sabha),

2013) This has a positive effect on many international industries, including the fashion

industry because as the population gains more and more information about the industry as

well as what is going on globally, they also elect members of Parliament with their

similar values and interests.

The current President Pranab Mukherjee has in fact acknowledged earlier this year that

India is trying to turn more towards a knowledge-based society by investing and creating

programs directed at youth. Amongst the investments, there is a mega textile cluster to be

created in the area of Jharkhand, as well as numerous government funded and

acknowledged model colleges as well as technical degrees relating to fashion. (India to

create knowledge based society: President Pranab Mukherjee, 2013)

Recommendations:

As the government is currently investing a lot of effort and budget into the fashion

industry in India, it is a good way to perhaps gain visibility for luxury brands by also

helping to fund certain projects. For example, a firm who is already producing or getting

textile from India would perhaps want to give back to society or even fund a college

named after them in Jharkhand, where the fashion cluster is to be located. Furthermore,

as the President mentioned, these zones will be created in order to bring in more

production into India as well as develop other skills that are knowledge base, probably to

eventually have their own full cycle of production including designers, marketers,

clothing, textile, sales, etc. This helps the international fashion scene, because as India’s

own industry flourishes, this will bring in more international names as well because

people will be more “fashion-aware”.

On the other hand however, if designer labels are to be associated with any projects in

India, they will have to supervise some of the activity to make sure no bad press can

come of it through labour laws or even as the current affairs story of Bangladesh, where

many people where hurt in the recent building collapse. (The Weston group owning

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Loblaws, who manufactures Joe Fresh clothing, was manufacturing their clothes here and

so far they have had to pay a lot in damages as well as handle media)

Economic Context

India’s economic context has seen amazing shifts in the last two decades. India’s

economy is presently the 10th largest in the world taking into account nominal GDP as

well as being 3rd in terms of Purchasing Power Parity. (Explore Economies: India) This

is clearly demonstrated and mapped in Table 6 of the Annexe, where since the early

1990’s, India GDP is showed to keep growing very steeply. (Economy of India) India’s

growth is mainly due to its adoption of a free and liberal market in 1991.

Fashion related, India is also one of the 20 most exporting countries and one of the 10

most importing countries as well. (Emerging Markets: Brics sceptics have their backs to

the wall) What differentiates India from the other 3 BRIC countries is that India is

considered as one of the fastest growing economies primarily because of the fashion

industry on its own. In fact, its retail industry is also quickly becoming a retail destination

and emerging as a leader in terms of retail opportunity. In 2010, India’s retail market

grew to $427 billion (CAD) and became amongst the top 35 most preferred retail markets

in the world. (Retail Industry)

Recommendations:

The Indian fashion market represents enormous opportunity for fashion designers from

around the globe. India is currently experiencing a retail boom due to retail space, malls,

markets as well as the slowly growing presence of renowned international brands like

Chanel and Louis Vuitton in New Delhi. The India market is gaining more visibility to

brands and they even have their own Vogue since 2007. This can represent amazing

visibility for luxury brands that are slowly getting on the market in order for them to start

off their marketing campaigns.


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Another interesting aspect, as will be discussed below in the legal context, is the fact that

the government of India has opened its doors to foreign direct investment. Since then, a

number of foreign retailers have come in, and designer stores should be looking to do the

same. The market is not presently saturated and there is enormous room to grow and

prosper on this market. It would be advised for designer brands to invest in multiple

ways. Not only by opening up shop, but also by investing in huge production houses, by

teaming up with local designers to suit India’s needs (as they are different, demonstrated

by Vogue’s Vogue India success) and by investing in brands that are local, as there are

more and more. (Retail Industry)


The socio-demographic context of India is unique on its own. It is the second most

populous country in the world behind China and accounts for about 17 percent of the

total world’s population. (India population) One of the most interesting aspects of it for

the Fashion industry is that nearly 50 percent of the population is also below the age of

25 years old and more than 65 percent of it is below the of 35 years old. (India

population) This represents huge basin of people for the growing retail market, now, and

in the upcoming years.

Although India also has more than 2,000 ethnic groups, Indian culture is very important

for its population and designers need to be aware of this when presenting their product

selection in order for them to succeed. Its culture not only has a role on the way people

dress, as the traditionally sari wear is still very important, but it also plays on what types

of consumers will be purchasing luxury goods. The caste system is still very dominant in

Indian culture as well as great gaps between income and education levels. (India

population)

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Recommendations:

Indian culture is very important in the socio-demographic context and designers need to

be aware of this when presenting their product selection in order for them to succeed on

the Indian market.

As discussed previously, India has a textile industry that is unique. For designers to make

most of this as well as please the Indian market, they could also look into incorporating

unique designs that incorporate both Western and Indian styles. This can be done through

using Indian traditional textiles that appeal to the Asian and the western market making

the brand a unique and give differentiation to a designer. Designers going to India must

also take into consideration that what is fashionable in India is different. India is the only

BRIC country with as many important differentiation needs in order to incorporate Indian

culture into fashion. Fashion in India also incorporates body jewellery, henna makeup, as

well as the traditional sari. (Retail Industry) Luxury brand going into India must also

target their ads and products towards a younger demographic than in the other BRIC

countries.


India’s technology sector is growing very rapidly in within the country and is attributed

to increase in specialisation, highly educated work force, as well as an increase in

demand internationally. (Economy of India)

Unfortunately however, technology in the fashion and textile sectors is however lagging

behind, according to the strategy director of Global Fashion Industry in India. “Without

the right source of information, without the business intelligence and without the right

data available, it will be difficult for any organization to take up the right decision. The

manufacturers need to be more open in embracing new technology, as there cannot be a

cheaper and easier way for doing everything. In today’s new environment, companies


31


with the right kind of software can excel. This will help the manufacturers to have the

right data to reduce the number of things to guess and increase the things that supports

decision-making.” (Indian textile industry needs to adopt modern technology)

Recommendations:

Although India’s technology and innovation context is quite advanced as compared to the

other BRIC countries, this is not the case for the fashion industry. It is thus recommended

that luxury brands looking into going into the market either invest in their own R&D in

terms of innovation on various fabrics or ways of production, or invest within India as

well in order to be able to move their production here too. However, designers should not

rely on technology here in terms of accessory or garment production.

They can however rely on technology and innovation in terms of retail for stores,

headquarters or even ERM programs linking activities in India to those throughout the

world. This could be a good idea to render more efficient the centralization of operations

and end results.


Similar to the enviromental context in Russia, India has had many enviromental issues as

well. These include air and water pollution, as well as issues with garbage disposal.

Although the situation was worse between 1955 and 1995, India made great progress

regarding this issue between 1995 and 2010. In fact, India is known for having made the

quickest progress regarding addressing its environmental issue as well as improving its

environmental quality. (Data: India) This being said however, India still has a long way

to go in order to assure its environmental state will one day be healthy.

The major causes of pollution in India include its primary source of energy – that of

burning fuel wood as well as biomass made livestock waste. Furthermore, garbage

32


removal is not accurately organized, sewage is not readily available throughout the

country, and extremely polluting high emissions plant that were built between 1950 and

1975, and are government owned, therefore not controlled. (Data: India)

Recommendations:

Considering India’s environmental context, it is advised that designers wisely choose

where they want to implement themselves store-wise because although this won’t have an

effect on the environment as much as an industry would, it would mostly be a burden to

the stores because of lack of garbage disposal and improper sewage and water.

Luxury brands should also be aware of the environmental issues within the country and

make their own efforts as well once there to help achieve better environmental goals. For

example, through recycling, through informatization instead of paper-use as well as

planning efficiently in order to reduce gasoline emissions or transportation to the country.

Legal Context

The Indian retail industry is what it is today because of the legal context encompassing

laws and regulations within the industry. In fact, the retail industry is one of the major

leaders and totals 15 percent of the country’s GDP. The Indian retail market is assessed at

$450 billion (CAD) and amongst the top retail markets in the world. The former Minister

of Textiles indicated that the change within the fashion industry to one of the major retail

industries in the world is a great success of the Government. The Government removed a

number of financial restrictions and allowed immense investment from domestic and

foreign investors. (The Economist, 2012)

The government also passed a law recently last year, in 2012, the government passed the

law allowing 51 percent of foreign direct investment in large retail stores with multiple

brands, as well as 100 percent foreign direct investment for single brand retail stores, or


33


in other words, flagship designer stores like Chanel and Louis Vuitton. (The Economist,

2012)

There are about 30 other laws and regulations regarding retail however. These include

publicity, billboards, signboard licences, as well as measures to prevent stalking and

storing many sizes of the same designer models in order for style to stay in season. There

are also taxes for moving goods and products within India between various cities and

states. (The Economist, 2012)

Recommendations:

Since the law has changed in 2012, designer and couture houses are highly encouraged to

invest in stores in major cities like New Delhi and Mumbai. Not only should designers

look to bring their products to department stores that are now 51 percent owned by large

worldwide department stores, they could even look into buying and opening their own

flagship stores as a long term investment since this is allowed as of last year alone.

Furthermore, because India is now more and more open to foreign direct investment,

luxury brands are still taxed on shipping goods between states. It is this recommended

that brands ship directly to stores from their production location and not a centralized

area where the goods are further shipped within the country afterwards.

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4. People's Republic of China

Political Context

The People’s Republic of China’s political context has always been of great interest

because of its very strict influence on markets as well as industries a like. China remains

a socialist state, and although the Communist Party was the government of the past,

communism still has many influences on the way China is lead today – as there are

severe restrictions on: freedom of religion, as seen in Tibet; reproductive rights, as seen

in the one-child policy; restrictions on the internet as well as the press, as demonstrated

by Google, Facebook, and many other sites and publications not allowed in the country.

(China, 2012)

As China’s government has moved away from Communism, they indeed moved more

towards a political liberalization, where elections are even held in villages and towns

now. The CPC however, is still the party in control of the overall government and is

supported by the Chinese citizens by 86 percent according to the Pew Research Center.

(China, 2012) Amongst its concerns, the government is looking to fight corruption, lessen

the gap between social classes, as well as encourage local products. This is of interest,

especially as luxury brands are being more and more valued in China, the government is

trying to encourage its own locals brands in order to also make them luxury goods there

and abroad as well. (China, 2012) For example, the First Lady of China is now seen more

than ever in all public appearances wearing solely local Chinese luxury brands.

According to the Ministry of Commerce, more and more policies and guidelines will be

stressed to be market-oriented concerning luxury retail goods. For the moment however,

international designer brands remain the key to educating its population on the

importance of such prestigious and elite brands, therefore they remain crucial for the

government for the time being. (Fashion of China's first lady: Part of the Government

Plan, 2013)


35


Moreover, the Chinese Government has as a goal to move away from the common

expression of being the “world’s factory”, where exports dominate the country’s

economy, and move rather towards domestic consumption. Other goals the Chinese

government maintains regard eliminating lavish spending as well as corruption within the

government. (Fashion of China's first lady: Part of the Government Plan, 2013) This ties

hand in hand with its goal to consume domestically because for example, as Audi is no

longer the choice of vehicle for government officials, but rather a local prestigious brand,

less and less Audis will be on the market, and the demand will also go down, as will

government expenditures to acquire these products.

Recommendations:

As there is a certain way the country is governed, designer brands must also incorporate

this within their strategy when going to China. For example, it is important that a luxury

brand market itself within Chinese media as not rely on the traditional American modes

of social media and media. Furthermore, luxury brands need to be aware of what is

politically correct and what is not in order to brand themselves well with the population,

as well as with the government. There have been numerous examples of when people or

companies were banned from China because of behaviour or conduct or symbolism not

appreciated by the government.

Considering the fact that Chinese brands will slowly be more and more encouraged

within the fashion industry within China. Luxury brands worldwide need to play up their

image within China and establish themselves as worldwide brands of high prestige, as

this is what the Chinese are looking for. During my time in Shanghai, I was able to see

the prestige and honour women had in wearing these high designer brands, and this is

what couture houses need to play up. The fact that Chinese women can be like Parisian

women in Chanel or even Italian women in Versace as well as American women in Ralph

Lauren Black Label. This will be a key element in keeping the market leader positions

they already have.

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Economic Context

China’s economic context is just as impressive as important is its political context to the

development of the fashion and luxury brand industry within China. In fact, China is the

world’s second largest economy in terms of GDP as well as Purchasing Power Parity and

is the fastest growing economy in the world. It is also the single most exporter in the

world, thus known as the “manufacturer of the world” and is also the second largest

importer of goods in the world as well. (Explore Economies: China, 2013)

Due to China’s strong economic growth and position, China is even expected to surpass

the United States of America by becoming the world’s largest economy as early as 2020.

(Starr, 2001). It also helps that although the United States is first right now, China is the

United States’ largest creditor and owns about 22 percent of foreign-owed US Treasury

securities. (Starr, 2001) Furthermore, a large middle class is growing with China and as

of February this year, a nationwide minimum wage of 40 percent average urban salaries

to be slowly implemented by 2015. (Starr, 2001)

In terms of the fashion industry, China is also expected to become the largest fashion

market within the next five years. “China’s luxury market is forecast by McKinsey & Co.

to soar to $27 billion (CAD) by 2015, one fifth of the world’s total, up from $10 billion

(CAD) in 2009.” (The Fashion Industry and China, 2013) Moreover, France’s fashion

federation also maintained that China is a country that is passionate about fashion and

China is determined on creating brands and products and wants to become known as a

design and innovation center, and no longer the manufacturer of the world. (The Fashion

Industry and China, 2013)

Recommendations:

As China’s economic context is already a clear indicator that luxury brands and designer

goods must be on the Chinese market, it is also in couture houses to implement

themselves here because of the potential market it will become as well.


37


Furthermore, although the country is trying to shift towards design and innovation in

terms of the fashion industry, they are not there yet and the demand for luxury goods is

there. Therefore, designers must not be afraid of copyright or trademark infringements,

because although this is popular and common in China, the market for the real goods is

just as high or even higher.


Although the socio-demographics of China are usually known for being a very large

population with a small portion of it being in the youth group due to the one-child policy,

other aspects of Chinese demographics are more linked to the fashion industry than not.

Indeed, China’s population accounts for more approximately 1.5 billion people and a

staggering 90% are of the same ethnicity while a little under only 10% are comprised of

minorities within China. (People of China)

Another key aspect to keep in mind is also the fact that China’s demographics accounts

for less and less supply of young labour but rather a quickly aging population. (China

Demographcis, 2012). Aside from this important aspect, we also know that more and

more Chinese are migrating to large cities within China, taking the urban population to

nearly 1 billion people in 2025. (People of China) This is also the major cause of the

increase in disposable revenue per capita, thus the creation of a large middle class that is

growing every day.(People of China)

These above mentioned factors have a huge role on the fashion industry within China.

For instance, women in China are proven to spend more on fashion and fashion literature

than in the Western world according to the New York Times. (The Fashion Industry and

China, 2013) As the CEO of Hearst Magazines International mentioned: We’re going

through this wonderful period where huge numbers of women are coming out of poverty

into the middle class and beyond. Many of these women are choosing to spend on luxury

goods.” (The Fashion Industry and China, 2013) This is in large part due to their

38


exposure and desire of the Western world, which makes Chinese consumers extremely

knowledgeable of global fashion trends. This is demonstrated by the fact that in 2010,

China ranked 6th in the world for spending on luxury goods ranked by country accounting

for a $18 billion (CAD) market where Louis Vuitton, Chanel and Gucci are the industry

leaders.

Recommendations:

Due to its gigantic presence in the luxury market, designers cannot neglect China as a

target market for growth especially since Chinese consumers have learned very quicly

about fashion and haute couture trends. A few years ago, logos and brand names were the

most important aspect to fashion, but now style and trends and uniqueness is also sought

after. Designers can play up these aspects by creating waiting lists for products, by

limiting the supply of them in China, as well as upping their prices within this market.

For Chinese consumers, luxury goods are a social status as well as a lifestyle. Even fast-

fashion companies such as H&M, Topshop and Zara have caught on to this trend and

stores are opening at fast rates. Designers, who aren’t already on the market, definitely

need to jump on the opportunity. It is no wonder that China is the fastest growing market

in terms of number of stores worldwide. (The Fashion Industry and China, 2013)


Chinese retailers and other local companies within the fashion industry have been

aggressive to contend against internationally renowned luxury brands with sought out

models and products of goods. Although China is a the lead manufacturer, they haven’t

been able to compete with couture houses especially in terms of product quality and

characteristics, marketing and media, the level of production technology, as well and

trendiness and customer service quality. Most of this has to do with the lack of practice

and capability and Chinese luxury brand companies’ operation have been relatively short-


39


lived, therefore quality and prestige are not to par. The government is well aware of its

country’s shortcomings and therefore will continue to welcome foreign competitors to

grow alongside Chinese companies, especially in order to gain insight on their

technologies as well as innovation. (Fashion of China's first lady: Part of the Government

Plan, 2013)

Recommendations:

Due to the fact that China’s technology in terms of production is amazing, but lacks

technology and innovation to accurately pose a threat to established fashion houses with

world-wide recognition, it is recommended that designers, while going into China, make

sure that their know-how is not copied nor stolen as it has been in the past with various

subcontractors like Motorola for instance in other industries. Due to the fact that couture

houses are not mass-producing goods, what China is known for being good at, they need

to make sure that their own innovation and technology is not done within China but

rather in-house in order to keep that competitive edge. Chinese local brands are

aggressive and will continue to be so even more, however the key competencies of

couture houses are lacking in that regards.


The environment of China contains various climates and environments however hurried

industrialization, large population development, and negligent environmental regulations

have caused many environmental problems as well as immense pollution. (As Pollution

Worsens in China, Solutions Succumb to Infighting, 2013)

In fact, as China is the worlds lead producer and exporter, and considering the fact that

resources such as coal are widely used due to its low cost, “China’s air pollution will

become a lot worse from the already unbearable level, calling for drastic policy changes

and a strong government will to overcome the opposition from interest groups.” (As

Pollution Worsens in China, Solutions Succumb to Infighting, 2013)

40


China’s pollution and environmental context does not just effect the land and the

environment but rather also the health of the population as a whole. In current news, the

recent incident where more than 16,000 dead pigs were found floating in a river that

allows drinking water to most of Shanghai citizens, and hardly any government officials

addressed the alarming dangerous hazard this would cause to human health. One of the

only topics they do address however is the toxicity of the air in urban areas where visible

smog can be seen on a daily basis. Li Keqiang, the prime minister, “said the air pollution

had made him quite upset and vowed to show even greater resolve and make more

vigorous efforts to clean it up.” (As Pollution Worsens in China, Solutions Succumb to

Infighting, 2013)

Indeed the quick industrialization of China has also contributed to the problem. This can

be seen through the fact that 16 of the 20 most polluted cities in the world can be found in

China. As of last year, there was increased citizen activism regarding government

decisions, which were perceived as being environmentally damaging. (As Pollution

Worsens in China, Solutions Succumb to Infighting, 2013)

Recommendations:

Although the environmental context in China is so heavy and negative regarding its

situation as a whole, and doesn't per se touch the fashion industry solely, it will also

affect the designer brands going into China. It is thus important for brands to be

knowledgeable of their carbon footprint in China, and assure they are not contributing

negatively. Although pollution because of industrialization is normal and had been seen

in all industrialization processes in the Western world as well, China has brought it to a

new level, and designers need to be conscious of this and take the environment to hear to

deepen the problems this brings to the entire planet. Although they are the world’s

manufacturers as of now, as they become more knowledge based and begin

manufacturing less and less, production of many goods will shift elsewhere. It will then


41


be the responsibility of the designers and producers to keep encouraging countries like

Italy and France, where although the cost is more, the environmental repercussions are

also greatly lessened.

Legal Context

The major legal concern regarding luxury goods in China is definitely without doubt

counterfeit products, copied or reproduced to resemble the real couture house’s designs.

The United States even brought up an act called the Innovative Design Protection and

Piracy Prevention Act in front of the Chinese Supreme People’s Court in order to raise

the issue. (Hays, 2008) In fact, pirated and counterfeit items from China are sold

throughout the world, where 75 percent of counterfeit goods seized in Europe are from

China, and the industry is estimated at $25 billion (CAD) a year. Also, the loss of

potential sales by all designers and couture houses is also estimated at $17 billion (CAD)

worldwide. (Hays, 2008)

One of the major issues with counterfeit luxury goods, aside from being illegal is that the

quality of the goods are improving and sometimes these products have made their ways

into real distribution channels where the real goods are also sold –either through returns

or even exchanges of goods. (Hays, 2008)

Although laws have been put in place against these counterifeit goods, Chinese

government officials recently defended the role of these counterfeit goods by stating it

part of Chinese culture and innovation. Liu Binjie, head of the China National Copyright

Administration stated: The luxury brand counterfeit industry is a sign of cultural

creativity of the common people who supplies a market need in China.” (Hays, 2008)

Recommendations:

It is thus recommended that designer brands going into China do not bring their

productivity into China as well. Although it can be tempting because of efficient

42


productivity as well cheap cost of production, the integrity of the product and its

uniqueness will remain more intact should designers take these precautions. Although

there are laws defending copyrights and trademarks and logos and slogans, what was

demonstrated above represents how seriously these are applied by the government and

how they will take Chinese’s workers side in all situations. It is thus advised to go into

business with perhaps lawyers knowledgeable of doing business in China as this will help

solve many questions as well as protect as much as possible couture houses as well as

designers.


43


Conclusions

Due to the shift in economic powers within the emerging countries known as BRIC

(Brazil, Russia, India, China) new business opportunities have arisen for fashion industry

leaders. Several recommendations have been determined through the analysis. Regardless

on risks and contingencies presented above, fashion companies must implement

themselves with all 4 stated-above countries in order to remain industry leaders. They can

only gain from this experience and grow as companies.

Political Recommendations

The political context in all BRIC countries has shifted towards an open market regarding

the fashion industry and luxury brands, making it easier for brands to access the markets.

In order for the fashion industry to thrive the various governments would have to review

their out-dated tax structure in order for the industry to grow.

Seeing as each country and various states within those countries state can supervise their

own tax laws and conditions, free trade zones could be tested in various markets.

Women in power or with influential capabilities should be taken advantage of in the

sense of sponsorship in order to gain visibility.

Political stability should be given close attention as tariffs and regulations change when

governments do as well.

Countries are investing within their own markets, in terms of production as well as new

regulations allowing foreign direct investment, which encourages the industry even more.

44


Although investment in developing local markets to eventually compete with luxury

worldwide brands is in place, designer brands keep a vantage point as governments still

prone international presence.

Economical Recommendations

The economic context within the BRIC countries demonstrates how these 4 countries

have evolved into promising markets with ever growing GDP’s and PPP’s.

Countries are leaving the Investigation phases of the industry and entering the

Exploitation phases where the market is currently almost free. There are few key players

and few competitors as well. It is time to enter these markets.

New disposable income and middle classes have emerged within these countries and a

shift from closed market economies to open-market economies has been underway. There

is potential demand as PPP grows

Countries have taken away their restrictive policies that once hindered international

companies in penetrating the luxury market within their countries. They are also growing

in terms of industries and with its growth comes also international expansion and demand

for brands.

GDP is growing and will soon surpass many present-day leading countries. Designer

brands cannot afford to not penetrate these markets in terms of profit and opportunity.

Socio-‐demographic Recommendations

The socio-demographic context within BRIC shows how diverse yet similar demands are

for luxury designer goods.


45


Although the populations are diverse, common trends in terms of interest for aesthetics

and fashion are similar throughout. This demonstrates the opportunity for high designer

clothing, as trends are worldwide in the fashion community.

Urban centers are developing more and more as migration and educations develops, and

thus create an excellent opportunity for visibility as well as shopping destinations for

people throughout the countries in one concentrated area.

The countries are comprised of very young demographics as compared to the Western

world. This represents huge opportunities for the retail market, now, and in the upcoming

years.

Wearing and owning luxury goods has become more than what it is on the current

markets. Luxury is a status symbol and is part of a lifestyle many people want to be

associated with.

Technological recommendations

The technological context within BRIC shows there is a lack in technologies as compared

to other countries however significant investment on behalf of governments are being

introduced into the fashion industry in terms of innovation.

Production gaps exist with other producing countries in terms of clothing, and

governments are investing more and more in innovation and technologies solely aimed at

the fashion industry. This demonstrates that investment is being made and new ideas and

more efficient ways of doing will soon profit designers coming into these countries as

well.

New and exciting innovations exist in order to give the consumer a great experience

when shopping for luxury goods. Designers can catch on to these early by using these

new technologies and thus captivating and attracting more consumers.

46


Other technologies exist that can benefit a store through ERM, CRM as well as new ways

of centralizing information that the fashion industry and stores can also grow from.

In countries where counterfeit goods are valued, technology still hasn't been able to

reproduce quality exactly as if it were hand-made. Designers need to watch out, however

still keep their competitive edge.

Environmental Recommendations

The environmental context within BRIC shows of bio-diverse lands and environments

that have, for the most part, been destroyed and polluted due to industrialization.

Natural resources are a great asset to any developing country. Not only is the pollution a

lot lessened but also self-reliance is also ideal for fashion production, or for any industry

for that matter.

Countries who are great polluters play a large role in their environment. Fashion

companies need to be aware of the policies and how negatively portrayed bringing their

production there can be seen as.

Infrastructures are not always in place, and environmental concerns include bad garbage

disposal and lack of drinking water. Luxury brand stores must be cognisant of store

locations.

The carbon footprint of the luxury stores can play a big role in how their clients perceive

them. If designers can do anything to diminish pollution or environmental hazards within

a BRIC country that is already showing the locals what is indeed important and trendy.


47


Legal Recommendations

The legal context within BRIC shows that laws have been changed from more restrictive

economies into open markets.

Although certain law sets certain regulations for exporting countries to follow when

shipping goods, luxury houses must plan these accordingly into their budgets for

transportation as well.

Countries do have laws regarding trademarks, logos, brands, names, intellectual property

and design. It is advised that couture houses are very familiar with these laws before

going into a certain country.

Laws of foreign direct investment have widely allowed for the fashion industry to grow.

Designers are encouraged to make most use of this, as it is often preferential to them.

Laws are often in favour of the local country and not international designer brands. It is

advised to have legal advise when entering a new country.

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Annexe Table 1: BRIC Overtaking the G7 Economic Powers

Table 2: Market Phase Model

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Table 3: Brazilian population and population growth

Table 4: Russia GDP Growth since 1998


55


Table 5: Russia Unemployment Rate Decline

Table 6: India Rising GDP

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Table 7: Chinese GDP Surpassing all Countries in Upcoming Years

Documents

Final Essay- Angelic Vendette