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Business Case: Internationalisation of Australian Fashion

Retailer,

International Retailing Strategies

MA Fashion Retail Management
Pooja Das
DAS15465622

Word Count:2587
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Statement of Originality:

“I, Pooja Das certify that:

- This is an original and individual piece of work and that no part of this has been
written by anyone else;
- I have acknowledged (appropriately referenced using the Harvard Referencing
system) all sources and citations;
- No section of this report has been plagiarised (*); 3

- This work has not been submitted for any other assessment.”

(*) Plagiarism forms part of Academic Misconduct.

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Table of Content
1.Introduction…………………………………………………………..4

2.Company Background………………………………………………4

3.Cotton:On Internationalisation Strategy………………………...5-7

3.1 Uppsala Model
3.2 Re-Born Global Strategy
3.3 Standardise V/S Adaptive Approach

4.Motivation for Internationalisation…………………………..…..7-8

5.Market Selection Process…………………………………..…..8-10

5.1 Fast Fashion Market Overview
5.2 Market Scanning

6.Internationalisation Proposal……………………………….…10-17
6.1 Short Term Strategy………………………………….……10-15
6.1.1 Canada
6.1.2 China

6.2 Medium Term Strategy……………………………………15-17

6.2.1 Mexico

7.Conclusion……………………………………………………..…..15

8.References…………………………………………………….18-24

9.Appendix……………………………………………………….25-38
1. Cotton On Clothing Pty Ltd: Performance
2. Cotton:On Vs competitor internationalisation path.
3. In-depth Market Assessment, Enablers and Barriers to Entry.
4. Assessment matrix Measurement Criteria
5. Interaction with RMIT Students- Emails.
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1.Introduction:

Internationalisation can be defined as the growing tendency of corporations to operate across

national boundaries(Alexander and Doherty, 2009). In today’s globalised world, retailers are
increasingly internationalising in response to several push and pull factors(Alexander, 1997;
Vida and Fairhurst, 1998; Wrigley et al., 2005; Hutchinson et al., 2007) within global markets.
In context to fashion retailing Internationalisation can mean brands having design hubs,
manufacturing , distribution centres, logistics, target market,etc outside their home country.
This report focuses on evaluating international strategies of Australian fashion retailer, Cotton
on in comparison to its competitors by applying key theoretical frameworks discussed during
International Retail Strategy lectures. The report includes Cotton On’s current
internationalisation plan, motives to internationalise, global market assessment, market
selection, market entry methods, risk assessment followed by strategic proposal in the form of
business case to suggest Cotton on with short and medium term international growth strategy.

The business case is based on secondary research which includes Cotton on’s background
information, present performance, internationalisation strategies, market trends,etc from
various trade journals, articles and academic sources such as Mintel, Euromonitor, The
guardian, Verdict, Business of Fashion, etc. Other Australian based journals were also referred
as suggested by RMIT students during our collaboration period(appendix 5).

Market assessment was carried based on information collected from Euromonitor and World
bank to rate various assessment criteria. Each criteria were then rated from 1 to 4, 1 being the
lowest and 4 being the highest and an average for each selected counties were calculated to
choose top 5 suitable counties to internationalise(see appendix 4).

2. Company Background:

Cotton on Clothing Pty Ltd is a privately-owned Australian company. It was founded by Nigel
Austin in 1991 in Geelong, Victoria. Its brand portfolio consists of 9 sub brands including Cotton
On, Cotton On Body, Cotton On Kids, Co by Cotton On, T-bar, Factorie, Free, Supré and Typo.
Most of the brands belongs to apparel and footwear sector, except for typo which includes
stationary products(Euromonitor, 2015).

Cotton on targets young urban population between 15-30 years old and competes within fast
fashion value market segment(Info barrel,2013). According to Euromonitor their competitors
include fast fashion brands like ZARA, Uniqlo and H&M. However, the company considers itself
as a value brand rather than fast fashion brand.

The company follows a vertically integrated model with 500 suppliers and 330 factories, mainly
in China and Bangladesh(financial mail, 2015) and operates internationally having headquarter
in Australia, subsidiaries in the U.S., South Africa, Singapore and Brazil, distribution centres in
China, South Africa and the U.S (See figure 1).

Being a privately owned company, limited information was available regarding their country
wise financial performance. However, their overall constant year on year growth in terms of
revenue, net sales(see appendix 1.), no of outlets, rapid international expansion indicates
successful internationalisation process. Cotton On group’s revenue has seen rise from A$ 1
billion in 2014 to A$1.5 billion in 2015 and is forecasted to grow even further to A$ 2 billion by
2017 (Ferrier Hodgson, 2014 and Mitchell,2016).
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3. Cotton On: Current Internationalisation strategy

Cotton on began their international expansion in 2006(Cotton On, 2015). At present their
global footprint accounts to 1400 stores in 17 countries including Singapore, Malaysia, Los
Angeles, UAE, South Africa, Philippines, Thailand, Qatar, Indonesia, Lebanon Oman, Saudi
Arabia and Sao Paulo and plans to expand further in domestic and other international markets
(Business Insider, 2016).

Figure 1.Country map Cotton On (Cotton On, 2016; updated)

Date Market entry/event Date Market entry/event

1991 Launch of first Cotton On store in Geelong 2010 United Arab Emirates
DC opened in Lara, Australia

1994 West Australia 2011 Germany,South-Africa

2005 DC shifts to North Geelong 2012 Philippines, Thailand

Milestone: the 1000th Cotton On store opens

2006 New Zealand 2013 Qatar, Indonesia, Lebanon, Oman

DC opened in Queensland, Australia DC opened in Philippines

2007 Singapore 2014 Headquarters established in Asia, USA,

DC opened in Singapore South-Africa & Brazil
Brazil

2008 Hong Kong 2015 Stores closed in Germany

DC opened in Hong Kong

2009 Malaysia, USA

Milestone: 500th CottonOn store opens
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Figure 2. Internationalisation Timeline

3.1 Uppsala Model

Based on the internationalisation timeline(figure 2.), Cotton On follows a similar

internationalisation path when compared to its main competitors Zara and H&M (see appendix
2). Initially, Cotton on began to internationalise in an incremental manner by developing
domestic operations during 1991-2006 along with entering geographically close markets one
country a year until 2012. This indicates Cotton on followed the four stage Uppsala model
(Johanson and Valne, 1974,1997) .

Figure 3. Uppsala Model, (Johanson and Valne, 1974,1997)

3.2 Re-Born Global Strategy

However, between 2012 and 2014 the company opened another 497 stores, venturing into new
markets including the Philippines, Thailand, Brazil and the Middle East (through franchising),
and lifting total store numbers to more than 1300 (SMH, 2015). It plans to open 300 stores in
2016 and 570 between 2016 and 2018, taking store numbers to almost 2000(Mitchel, 2015).
Also, CottonOn recently announced its plan to open 350 stores in South Africa by 2019(BOF,
16). This implies that the company in the rapid expansion mode .

A similar expansion pattern was observed while studying international expansion strategies of
fast fashion brands Zara and H&M by Byoungho(2014) which indicated that they were following
born-again global concept (Bell et al.,2001). Born-again or reborn global can be defined as a
domestically focused firm that undergoes a strategic change and transforms into a globally
focused company. On comparing Cotton On’s market entry graph with Zara and H&M it can be
suggested that they are following the re-born global concept(see appendix 2).

3.3 Standardise VS Adaptive Approach (Levit, 1993)

Cotton On has been producing three separate ranges simultaneously for northern, southern
and tropical markets(sourcing journal online, 2016). This approach to internationalisation can
be explained further by comparing their consistency in terms of their marketing mix.
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Figure 4. Cotton On Marketing Mix,(Cotton On, 2015)

Thus Cotton on follows and adaptive approach and are willing to make modifications in their
product mix depending upon the location and season. Consequently, it is important for Cotton
on to know their international market well in order to adapt according to the market.

4. Motivation for internationalisation

McGoldrick(1995) devised a framework with push and pull factors at either ends of the
spectrum with inhibitors and facilitators influencing the nature of strategic decisions(see figure
5.) The reasons for Cotton On to internationalise can be understood by analysing the push and
pull factors as listed in table below(Figure 6.)
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Figure 5. Driving Forces of Internationalisation,(McGoldrick, 1995)

Push factors Pull factors

● Cannibalisation of the brand own profit ● Appeal of growing economies to drive

● Excess manufacturing capacity economies of scale.
● Desire to spread overheads ● Potential growth in the global fast fashion
● Desire to create international brand market
● Competitor “benchmarking” ● Lowering of barriers

Inhibitors Facilitators

● Risk of losses, resulting Cotton On to adapt ● Bandwagon effect, seeing competitors

low risk entry strategy. entering new markets.
● Physical distance, resulting into cotton on’s ● Desire to gain international image
strategy to open distribution centres and
subsidiaries in different continents to manage
operations within nearby countries.

Figure 6. Push and Pull Factors, Australia (Euromonitor, 2015)

Cotton On Clothing Pty Ltd plans to remain focussed on store expansion in Australia as well as
overseas. It can be inferred that the local market still has potential and has not yet reached the
saturation point. However, entry of competitors Zara(in 2012),H&M and Uniqlo(in 2014) has
disturbed Cotton On’s monopoly as a fast fashion retailer and took over major share in the
Australian market. This could be one of the major driving forces for Cotton on to expand
overseas and compete with other fast fashion retailers internationally to thrive economies of
scale(Euromonitor, 2015).

Similarly, Threadgold’s(1990) work on international development stages of retailers, suggests

that the company is in the third stage, Ambition where retailers become ambitious and
aggressive in identification of attractive international markets. Here close geographical distance
and cultural proximity are not that important. This is evident by how Cotton on has been
strategically opening distribution centres and subsidiaries in different continents to manage
international operations within nearby countries( Sourcing Journal Online, 2016).

5. Market Selection Process

To select appropriate
markets for Cotton on, market
scanning model (Lie, Perry,
Moore and Warnaby, 2015)
has been followed (see figure
8).

Figure 7. Deloitte China, 2011; Liu, Perry, Moore and Warnaby, 2015
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5.1 Fast Fashion Market Overview

There has been rapid growth in fast fashion

retail business across the globe due to
increasing demand for fashionable and
affordable products within the urban
population(marketreportsonline, 2015). It is
important for Cotton on to scan the global
markets carefully keeping the competitors
move in mind.
The clothing market demand graph (figure
8.) suggests that apparel demand in Asia
and Australasia is predicted to rise
drastically. While, North America, Latin
America, Middle East and North Africa will
see a steady growth and Western Europe
is predicted to remain constant over the
next two years. On the other hand UK’s
27.0% growth in apparel sector between
2015 and 2020 is impressive but the
market is highly saturated and competitive Figure 8. Clothing Market demand-EIU, 2014
which makes UK a less attractive market to enter in
short or medium term. This implies it is important to
take a closer look at the most attractive markets within each region.

5.2 Market Screening: Market Appraisal Matrix (see figure 9.)

Alexander (1997) offered 5 boundaries of the market the retailer is going to enter:
• political• economical• social • cultural • retail structure

Based on these boundaries top 20 countries were selected from AT Kearney’s, 2015 Global
Retail Development Index to rate each of these counties on various factors. An average
assessment (see figure 9.) was conducted to select the most attractive markets for Cotton On
to enter in short and medium term. Most attractive markets identified were Canada, China and
Mexico after an in depth analysis of top 10 countries as per the matrix. South Korea, Botswana
and Costa Rica were eliminated due to political, economic, demographic and infrastructural
instability (see appendix 3).

U.K. was also considered as a potential market for entry as Typo, sister company of Cotton On
entered the U.K.(businessoffashion, 2016) which indicated Cotton On’s interest in UK market.
However, Cotton on made an abrupt exit from Germany in 2015 (textilwirtschaft,2015) after
operating in the market for 4 years. The European failure indicated that U.K. was not suitable
market at present. Several other push factors such as market saturation, culture, high
competition were considered which could act as barriers to entry (see appendix 3).
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Figure 9. Market Appraisal Matrix

6. Internationalisation proposal
The proposed countries for short and medium term entry are Canada, China and Mexico. Short
and medium term goals are priorities that may take two and five years to achieve respectively
(financial literacy, no date)

6.1 Short Term Strategy- Canada & China.

6.1.1 Canada
Canada Ranked no.1 in the market assessment (figure 9.) with most favourable retail
environment, which makes the country most attractive to enter in short term. Cotton On has a
strong foothold in the U.S. having subsidiary and distribution centre in California which adds as
an operational advantage(Business Insider, 2016). Competitors H&M, Zara and Gap have 71,
26 and 72 stores respectively(Annual Report, 2014) which indicates consumers appetite
towards fast fashion brands in Canada. Uniqlo also plans to launch 2 flagship stores in 2016.
Analysing the push factors(see appendix 3), weak economy has hit consumer confidence and
affected the buying behaviour (Fashionweek,2016). Customers have become price sensitive,
therefore providing an opportunity for Cotton on to hit the sweet spot by adapting their prices in
a way that it gains advantage over their competitors.
Moreover, emerging athleisure trend(Euromonitor, 2015) provides an opportunity for Cotton to
address the market demand by launching Cotton On body for the customers. This will also
allow them to gain competitive advantage.
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Market Entry: Cotton On recently has been expanding in international markets through
franchising to build global operation in short period of time(smh,2015). Competitors H&M, Zara
and Gap run company owned and franchise stores mostly located in major cities, such as
Toronto, Vancouver and Montreal making them key entry modes and locations to be consider
while establishing a store respectively(see appendix 3) The proposed entry strategy for Cotton
On is franchising due to some key reasons as discussed in the business case outline below:

Business Case Outline: Canada

Business case Detail

outline: Canada

Proposal " Market Entry through Franchising as a short-term plan.

Reasons " Canada is ranked to be the first in market appraisal matrix among other
19 countries.
" Cotton On Group has been using franchising strategy to aggressively
expand to many international markets.
" opportunity for rapid expansion, Less financial pressure,low risk, limited
financial outlay and local market knowledge(Alexander and Doherty,
2012)

" More than 45% of Canadian retailers are franchised with many
successful franchisors who developed a distinctive presence
nationally(Davis LPP, 2013)

" Low entry cost

Key outcomes and " Gain business experience in the local market and avoid legal issues of
success criteria the market. (Doherty, 2007)
" Franchise partners will provide financial support in paying fees and
store opening (Deloitte, 2012)
" The brand will have access to prime locations, franchisees’ technology
and supply chain management (Deloitte, 2012)
" With experienced partner, Cotton On can roll out its aggressive
expansion plan in the new entered market.

Entry mode " Franchise (Partner choices: department stores, such as Eaton Center
and Yorkdale Mall.)
" E-commerce:To stay competitive, retailers need to implement e-
commerce and an Omni channel retail experience. The lack of these
strategies are the key reasons behind bankruptcies in the Canadian
apparel market (see failures of Comark and Bikini Village). Therefore, it
is proposed that next to traditional stores, Cotton On needs to
implement their online retail channel.

Location " Vancouver (British Columbia), Toronto (Ontario) and Montreal

(Quebec)-- it is essential to present Cotton On in these three high
density cities.
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Options & Costs " According to Treadgold and Davies (1988), franchising is a low-cost,
low control entry mode
" Financial risks are reliable to franchisee-- real estate costs,
maintenance fees and royalties) (Doherty and Quin, 1999)
" Finding the right partner
" Distribution centre in Los Angeles is close to Canada providing lower
shipping costs

Impact Analysis " Urgent to find franchisees in a short period of time

" Need be aware of the differences of consumers between US and
Canada.
" Ethnicity-- different cultures are equally valued by Canadian law.
" Low distribution and custom cost between US and Canada by the North
American Free Trade Agreement (NAFTA).

Risk assessment " Finding the right location.

Mitigate by: finding the right partner who has access to prime location such as Eaton Center
" Sharing profits and low control over the brand.
Mitigate by: After gaining local knowledge of the Canadian market, Cotton On can buy b
" Canada has its own franchise law.
Mitigate by: In the planning stages, Cotton On should have an experienced franchise lawye

Outline plan

6.1.2 China

Although China ranked 10th in the assessment matrix but due to the extraordinary growth of
online sales, fast fashion retail sector and competitors’ move made China emerged as a key
market to be considered for Cotton On (Euromonitor, 2015)
Even though China’s economy has been falling since 2013, retail sector has seen tremendous
growth of 11.6% in 2014 which is expected to surpass U.S. by 2018(ATKearney, 2014). E-
commerce grew 50% to nearly $450 billion in 2014 and is predicted to reach $1 trillion by 2019
(Euromonitor, 2015).
With slow down of luxury market, demand of fast fashion goods have been on rise.
Competitors Zara, Uniqlo and H&M continue to expand and operate through fully owned
stores(see appendix figure 14). On the flip side brands like Topshop, Tom tailor and GU are
using e-commerce as an entry strategy(Mintel, 2015).
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Mode of Entry:
Cotton On has been seeking Chinese Partner to Challenge Zara and H&M’s dominance since
2014(BOF,2014). They expect their asian operations to contribute 20% to total sales.
It is crucial to find a compatible trading partner for Joint Venture (Alexander and Doherty, 2009)
which might take several years. On the other hand, positive online shopping trend among
Chinese consumers provides an opportunity to enter the market through online platforms such
as Tmall. Tmall is China’s largest B2B e commerce retailer. Being run by Alibaba, it generates
€177 billion of transactions and hosts 231 million active users(Euromonitor,2015). It allows full
control on logistics and prices which will allow Cotton On to penetrate within 2 and 3 tier cities.
As per financial times(2016), Alibaba was under investigation of SEC for potential violations of
US securities. This does not mean any violation of federal securities law has
occurred .However, Cotton On should be vigilant about the issues around the case before
selling through T-MALL.

Online entry strategy will also allow Cotton On to test the market before partnering with a Joint
Venture at a later stage. Mintel's senior research analyst agreed that if fast fashion brands like
Zara and Gap were to enter the market today, they might consider e-commerce as an entry
strategy. Tmall is “The” choice for many fast fashion retailers including Zara. This can be further
explained with the help of business case outline below:

Business Case Outline, China

Business case Detail

outline: China

Proposal " Market entry through E-commerce Platform. (T-mall by Alibaba group) for
short term.

Reasons " Increasing online market potential(ATKearney,2015).

" Growing fashion retail sales through e-commerce- 50% growth
(Euromonitor,2015)
" Competitor’s such as Topshop entered through e-commerce in
China(Mintel, 2015)
" Test market- provides direct contact with the market-market know how-
understanding customer(Alexander and Doherty, 2009)
" T-mall is biggest platform to sell online having competitors of Cotton -
On(Mintel, 2015)
" Allows brand to keep control of everything except the payment which
allows to maintain the image of the brand (Mintel, 2015)
" Low entry cost.
" Existing knowledge about operating online.

Key outcomes, " Know how about the market

success criteria " Customer Understanding
" Online market share
" Targeting young consumers and wider customer base.
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Entry mode E-commerce through Tmall

Location NA

Options & Costs " minimum cost involved.

" Manufacturing and distribution centres available.
" Taobao shop business has low cost and low operating risk (daxue
consultancy)
" Dedicated CRM team required who speaks Chinese to address customer
enquiries and complaints.

Impact Analysis " low distribution cost facilitating supply chain management.
" Low investment needed.

Risk assessment " minimum cost involved.

" Manufacturing and distribution centres available

" Taobao shop business has low cost and low operating risk
(daxueconsulting)

" Dedicated CRM team required who speaks Chinese to address customer
enquiries and complaints.
" Cost:
○ Security Deposit: 50,000RMB- 100,000RMB
○ Annual Technology and Service Fee(based on category of
product): services rendering fee.
○ Annual Fee Refund : Tmall.com will refund the annual technology
and service fee if Detailed seller rating (DSR) and annual sales
achieved the requirement. (two returning levels: 50% or 100%)
○ Customer Loyalty Program: Additional 0 .5% deduction per
transaction for Tmall to reward consumers in promotions.
○ Commission Fee (based on category of product):

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Outline plan

7.2 Medium Term Proposal

7.2.1 Mexico
Mexico ranked 3rd in the market assessment matrix. After evaluating the push as pull
factors(see figure 3.), It can be suggested that Cotton On should enter Mexico in medium term
as economic growth is expected to go down in coming years, however will increase in medium
term. Mexico’s has high market growth opportunities in apparel and footwear. According to AT
Kearney’s global retail development Index 2014, market attractiveness is very high but time
pressure is low. Several other factors(see appendix, figure 12.) also support Cotton On’s Entry
in medium term.
Considering its close geographic proximity from its nearest U.S. based subsidiary and
distribution centre (1629 kms), it will involve low operational cost. Apart from this one can use
this as a strategy to further enter into Latin American countries such as Costa Rica and
Columbia in long term.

Mode of Entry: As discussed before, Cotton On should enter through franchising as their
global entry strategy in order to support their rapid expansion strategy. Moreover, Current
regulations have made it easier for international franchisers to enter the Mexican market (ITA,
2016). Many competitors are also adapting similar entry strategy. Competitors H&M, Zara and
Gap entered entered Mexico through self owned, Joint Venture and Franchise partner
respectively. Therefore, it can be advised that franchising is the most suitable entry method to
grow fast keeping cost, risk and Impact analysis as discussed int the table below:
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Business case Detail

outline: Mexico

Proposal Entering Mexico in the medium-term through franchising.

Reasons " Second largest economy of Latin America, with a growth rate of 2.5% in
2015 (Worldbank, 2016)
" Scored 9th at the AT Kearney Apparel Retail Index
" High purchasing power Millennials (Euromonitor, 2016), Cotton On’s
target market.
" Close to distribution centre in California.
" Member of the TPPA agreements (Australian Government, 2016)
" High market attractiveness (AT Kearney, 2015).
" Low barriers of entry (PWC, 2014).

Key outcomes, " Gain business experience in the local market and avoid legal issues of
success criteria the market. (Doherty, 2007)
" Franchise partners will provide financial support in paying fees and store
opening (Deloitte, 2012)
" The brand will have access to prime locations, franchisees’ technology
and supply chain management (Deloitte, 2012)
" With experienced partner, Cotton On can roll out its aggressive expansion
plan in the new entered market.

Entry mode Mexico will be entered using franchising

Why:?
" This requires low resource-commitment
" Mexico is the fifth largest franchise market in the world (ITA, 2016).
" Current regulations have made it easier for international franchisers to
enter the Mexican market (ITA, 2016).
" Cotton On used this approach successfully in Brazil, which has a low
psychic distance to Mexico.
" Gap successfully implemented this approach in Mexico.

Potential partners:
- Group Axo (used by Abercrombie and Fitch)
Distribuidora Liverpool (used by Gap)

Location Tier 1 cities are already saturated. It is therefore proposed that Cotton On focuses
on tier 2 cities (PWC, 2014).

Options & Costs " The cost of negotiating the contract with the franchisee.
" To be successful in Mexico, business strategies need to be modified to
local tastes in order to be appealing to Mexican consumers (ITA, 2016).

Impact Analysis " The distribution centre in California is geographically close to Mexico,
which makes the process of entering Mexico easier and less costly.
" Since Mexico will be entered in the medium-term, there is enough time to
find a potential franchisee partner.
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Risk assessment " The risk that changes in economic conditions or consumer spending
patterns will have a negative impact on the strategies of the company.
" The risk that the franchisee will be unable to successfully enter the
market and grow.

Outline plan

7. Conclusion:
Post entry to the suggested markets, it is also important to evaluate the performance in each
country Cotton On Enters. In case, the brand is not able to perform well in those markets, they
have an alternative to liquidate the stock by sending it to the nearest distribution centre. For
example: In case of Mexico, stock can be shipped to USA.
Apart from the suggested markets for Short and medium term entry, Cotton On can consider to
enter other promising markets such as India, Botswana and Costa Rica in Long term.
 !18

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 !20

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 !21

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 !25

9.Appendix:

1. Cotton On Clothing Pty Ltd: Performance

Year 2014 2015 2016 (forecast) 2017 (forecast)

Revenue A$ 1 billion A$ 1.5 billion A$ 1.8 billion A$ 2 billion

Source Ferrier Mitchell, 2016 Mitchell, 2016 Mitchell, 2016

Hodgson, 2015

(Data retrieved from several sources)

2. Cotton:On Vs competitor internationalisation path.

Source: Journal of Fashion Marketing and Management: An International Journal, 2014

 !26

3. In-depth Market Assessment, Enablers and Barriers to Entry.

#RANK 1: CANADA

ENABLERS BARRIERS

Political
-After nearly a decade of Conservative party
ruled, voters could be ready for a change from
Liberal party, new elected government.
-About 27,000 Syrian refugees have arrived in
Canada by the Syrian refugee resettlement
program.
Retail market
-Apparel and footwear in Canada remained
steady in 2015, experiencing moderate growth.
-Apparel and footwear in Canada therefore has
adopted an interesting blend of national and global
elements in 2015 dominated by trends in fast
fashion and “athleisure”.
-Social Media influences retail sales.
Infrastructure
-more mature e-commerce of fashion retail sector.
- expansion of the off-price retail concept for high-
end and luxury brands is expected to change the
retail landscape.
-Social media
Geographical
Close to Cotton On headquarter and distribution
center in California, US.
#RANK 2: SOUTH KOREA
Economy
-Weaken nominal GDP.
- Government spent nearly $1 billion for the
Syrian refugee resettlement program.
-A downswing in the price of oil.
-Declined value of the Canadian dollar in
global trade.
Retail Market
-apparel and footwear shifted to a more
modern, fashion-driven style affected by the
emergence of fast fashion retailers and the
increasing popularity of “athleisure”-inspired
casual wear.
-no longer sufficient to simply refresh
collections seasonally and expect to compete
in an increasingly crowded marketplace.
-social media drives retail sales.
Demographic
-Low fertility rate
-Variety of race

ENABLERS BARRIERS

Political Political
Good political relations between counties Political instability
High ease of doing business- relax regulatory Economy
Low tax Low GDP growth
Economy Retail Market
Good economy in the country Saturation in apparel and footwear market
Good for international trade Cheaper Alternatives
Low inflation rate Hard to find prime location
Low unemployment rate Cultural
High consumer confidence level Cultural different
Retail market Language barrier
High total retail sales in apparel and footwear Low diversity in ethnicity
market Extremely patriotic culture
The growth of Fast fashion market (Athleisure and Demographic
Comfortable/casual wear) Low fertility rate
Infrastructure
High urbanization and internet access
Geographical
Near Cotton On’s distribution center in China

#RANK 3: MEXICO
ENABLERS
Political:
- Political globalization as a measure of
external political relations is ranked high.
- Low country risk
- Ease of paying taxes
- Rated high in ‘ease of doing business’
- Trans Pacific Partnership Agreement
Economical:
- Low unemployment rate
- Low, but positive inflation rate
- High consumer confidence
- 14th largest economy in the world
Cultural:
- Same ethnicity diversity
- Same religion
- Same body shape & size
Demographic:
- High population growth
- High education levels
- High life expectancy
Retail market:
- High market growth apparel and footwear
- Medium market saturation
- Despite the Mexican economy’s slow
recovery from the 2009 economic crisis, the
apparel and footwear industry remains an
attractive market as it continues to grow. Mexico is
an attractive new market compared with most
European countries, which have reached maturity
or are experiencing economic recession.
- Infrastructure:
- High urbanisation
Geographic:
- Close to distribution centre
!27
BARRIERS
Political:
- Unstable politics/violence
Economy:
- Low per capita GDP
- Low GDP growth
- Low-medium international trade
Not going that well with the economy, BUT
millennial consumers are expected to be the
generation that revives the Mexican economy
with their lifestyles, high purchasing power and
lack of important responsibilities, leading them
to spend instead of save and to use credit
excessively.
Cultural:
- Language barrier
Retail market:
- Per capita total apparel and footwear
sales: low
Mexican textile and footwear business
associations are confident that their respective
industries will continue to see positive
performances over the forecast period. These
associations believe that growth will come
from decreasing quantities of undervalued
imports, greater demand for apparel and
footwear products and an expected increase
in the global apparel and footwear industry.
Infrastructure:
- Low road density
- Low-medium internet users per 100
people
Internet retailing records strong growth rate.
The constant growth of internet penetration
among households and consumers, along with
constant innovations among online retailers,
were key drivers to the strong sales
performance of internet retailing during 2015.
More store-based retailers are opening online
stores in order to reach consumers in areas
where there is no physical outlet.
 !28

#RANK 4: COSTA RICA

ENABLERS BARRIERS

Political Political
-politically stable, with more than 120 years of -bureaucracy
solid democracy. -corruption and lack of transparancy
-Trade agreements with the United States, -slow judicial system
Canada, Mexico, China and Singapore. -delays in custom
international standards for Intellectual -Property -long standing fiscal deficit.
(IP) protection. Economy
-attractive and cost-effective tax incentives -unemployment is one of the highest in the
Demography region, at 7.9%
-high life expectancy rate.
-highly educated and efficient workforce, with a
high literacy rate.

Cultural Cultural
-Diverse ethnic group -some language barrier
-Growing Urban population Demographic
-English widely spoken -Low fertility rate
Retail market -Growing older population (not Cotton On’s
-High total retail sales in apparel and footwear target group).
market Infrastructure:
-increasing popularity of commercial plazas -poor infrastructure
-Fashion and Clothing influence from North
America. (Cotton On’s strong presence in USA
indicated consumer acceptance of the products.)
-High urbanization in the central region.
-an excellent location for business at the heart of
the Americas.
Geographical: Close to Cotton On’s DC- U.S. and
HO- Brazil.

#RANK 5: BOTSWANA

Enablers Barriers

Political Political
-politically stable, economy. -bureaucracy
-Close proximity to South Africa -corruption and lack of transparency
Economy -slow judicial system
-Rising household income -delays in custom
-Growing middle class -long standing fiscal deficit
-Rise in tourism - due to Safari Economy
Demography -unemployment is quite high in the region, at
-high life expectancy rate. 18.2%
-highly educated and efficient workforce, with a -Global connectedness is quite low at 30/100
high literacy rate. Cultural
Cultural -some language barrier
-Close proximity to South Africa
-Growing Urban population
-English widely spoken

Retail market
-Formal Shopping culture
-Increased international exposure.
-Mature retail market
-Continuous development of shopping malls
Geographical: Close to Cotton On’s DC and HO
in South Africa.
#RANK 10: CHINA
ENABLERS
Political:
- Govt. have begun to open its capital markets to
foreign investment by allowing many foreign
institutions to invest in its domestic bond market.
-Communist party started a relatively stringent
anti-corruption movement.
Demography:
-Growing education rate
Cultural
-Young consumers in their 20s tend to prefer
Chinese brands – likely because they are more
affordable.(opportunity for Cotton on to attract
young consumers by offering affordable clothing.)
Mintel, 2015
- diverse ethnic groups, China is composed of 56
ethnic groups.
Infrastructure:
-China is rapidly urbanising.
-focused on improving its infrastructure, with an
emphasis on facilitating trade
-well developed logistical environment, with a
highly developed rail road infrastructure
Retail Market:
-Retail growth was impressive -11.6%(ATKearney,
2014), retail market is expected to surpass U.S. by
2018.
-demand for fast fashion. Competitors such as
Uniqlo, Zara, h&m continue to expand.
-Consumers continue to drive explosive growth in
online shopping. E-commerce grew 50% to nearly
$450 billion in 2014 and is predicted to reach $1
trillion by 2019.
- Larger cities have matured, pure players such as
alibaba and JD are trying to capture smaller cities.
- Competitor Topshop entered mainland china
though Shangpin.com(e-commerce market entry
strategy.)
High demand of Grooming and Fashion products
!29
Demographic
-High HIV/ AIDS rates
Infrastructure:
-poor infrastructure
BARRIERS
Economic:
-Slow economy: China’s economy will
continue to decelerate in medium term.
Growth in real GDP has been falling steadily in
recent years and dropped to 6.8% in 2015.
-worlds highest debt levels is a complicating
factor.
-Rising youth unemployment. Unemployment
in 2015 was 3.3% and it will rise to 3.5% in
2016
-complicated tax payments
-China’s working age population will fall more
than 10% by 2040 in spite of a recent
relaxation of its one child policy.
-China has failed to make sustained
improvements in its position in the World
Bank’s Ease of doing Business ranking.
Political:
-China has complex tax environment, marked
by tedious regulations. (Euromonitor, 2015)
Demography:
-Between 2009 and 2014 the number of those
aged 65 years-old and older increased by
23%, continuing a trend that has significantly
altered China’s population profile.
Cultural
-Language barrier (English is not the official
language, messages lost in translation)
Buinessinsider, 2012
-Body shape and size: Chinese people are
shorter and smaller in size as compared to
Australian/American body sizes.Chinese
women have much narrower variances in bust,
waist and hip than those in the west. Brands
need to adapt to their body sizes having
smaller sizes in their range. (the guardian,
2008)
 !30

Geography: Retail Market:

-Close to Head office based in The apparel and footwear market in China
Singapore(3,835km) continues to slow down but Sporty fashion
-DC available in China leads the way. Apparel and footwear is
expected to register steady performance over
the forecast period. (Euromonitor- Apparel and
Footwear in China
Industry Overview | 15 Mar 2016)

Source: ATKearney(2015), Euromonitor(2015,16), BusinessInsider(2015), Theguardian(2008).

4 . Assessment matrix Measurement Criteria

Rating scales:
1 = Very unsuitable
2 = Unsuitable
3 = Suitable
4 = Very suitable

Criteria Measurements Rating explanation

Political / External Political A measure of external political relations between Australia

regulation Relations and other countries is not available. Therefore, the KOF Index
of Globalization is used. This index is based on three
dimensions; economic globalization, social globalization and
political globalization. For this criterion only political
globalization is used. Political globalization is measure
according to the number of bilateral treaties, embassies and
international organization in which the country is a member.
Countries are indexed on a scale of 0-100. The higher the
number, the higher is the political integration of that country.

On a scale of whole and half numbers:

- 100 = 4
- 75 = 3
- 50 = 2
- 25 = 1
 !31

Stability of Using the ‘Political Stability and Absence of Violence/

political structure Terrorism’ index (World Bank, 2014). This index measures the
probability of instable governments and politically-motivated
violence. It is measured on a scale from -2.5 (weak) to 2.5
(strong). In our sample of countries, Canada ranks the highest
(1.2) and Korea & Colombia the lowest (1.1). So in this case,
a scale between -1.2 and 1.2 is used.

- -0.6 = 1
- 0=2
- 0.6 = 3
- 1.2 = 4
Country risk Using the assessment scales of Euler Hermes (Euler Hermes,
2016). This measure is based on the countries’ economy,
business climate, and political environment.

- Low risk (A-AA) = 4

- Medium risk (B-BB) = 3
- Serious risk (C) = 2
- High risk (D) = 1
Tax policy Overall Paying Taxes Ratings of PWC (PWC, 2016). Tax
policy is rated according to the ease of paying taxes and tax
rates.

On a scale of whole and half numbers:

- 100 = 4
- 75 = 3
- 50 = 2
- 25 = 1
Business Ease of doing business ratings by the World Bank Group
environment according to the ‘distance to frontier’ (World Bank Group,
evaluation 2016).

On a scale of whole and half numbers:

- 100 = 4
- 75 = 3
- 50 = 2
- 25 = 1
Economy GDP Per capita This information was taken from World Bank Data.
Ranking was done as per below:
● 37.5k - 50k = 4
● 25k - 37.5k = 3
● 12.5k - 25k = 2
● 1k - 12.5k = 1
GDP growth rate This information was taken from World Bank Data.
Ranking was done as per below:
● 7% - 10% = 4
● 4% - 7% = 3
● 1%- 4% = 2
● <1% - 1
 !32

Global This index measures the cross-border flow of trade, capital,

connectedness information and people. This was taken from DHL report
(2014 was the most recent one available).
Ranking was done as per below:
● 75 - 100 = 4
● 50 - 75 = 3
● 25 - 50 = 2
● 1 - 25 = 1
Unemployment This was taken from Trading Economics.
rate Ranking was done as per below:
● 1% - 5% = 4
● 5% - 13% = 3
● 13% - 20% = 2
● >20% = 1
Inflation rate This was done based on consumer prices between 2011 and
2015. Taken from World Bank Data.
Ranking was done as per below:
● 0% - 2% = 4
● 2% - 4% = 3
● 4% - 7% = 2
● 7% - 10% and <0% = 1
Consumer This is designed to assess the degree of confidence
confidence levels consumers have in the state of the economy. It is measured
through consumer saving and spending.

This information was taken from Trading Economics.

The ranking was done as per below:
● >100 = 4
● 65 - 100 = 3
● 30 - 65 = 2
● <30 = 1
Cultural Language 1= Very different to english
distance 2= Different to english
3= Similar to english
4= English

Ethnicity Diversity Based on map "A revealing map of the world’s most and least
ethnically diverse countries" developing from WHO data.

1= Least Diverse ( dark orange)

2= Somewhat diverse (medium to light orange)
3= Diverse (yellow to light green)
4= Very Diverse (medium to dark green)
Source: Washington post
 !33

Religion Based on CIA data

1= -
2= Not Christian Dominate
3= Christian Dominate
4=-

Body shape & Body Mass Index (BMI): dividing weight in kilograms by height
size in metres squared.

1= Average BMI 0-19.9

2= Average BMI 20-22.9
3= Average BMI 23-24.9
4= Average BMI 25-26.9 ( Similar to Australia)

Society / Population Population density in billions(worldometer.info)

demographics density Range
>1: 4
0.10-1 : 3
0.05-0.10: 2
0-0.05: 1

Population growth Population growth in% (worldometer.info)

Range
>0 :1
0-1 :2
1-2 :3
>2 :4

Life Expectancy Life Expectancy in years (http://www.data.worldbank.org/

indicator)
Range
>90 :4
70-90 :3
50-70 :2
<50 :1

Education level Literacy rate in% (www.cia.gov)

Range
95-100 :4
90-94 :3
85-89 :2
Below 85 :1
 !34

Retail structure Clothing retail It has converted the local currency into USD fro comparison.
and market spend per capita And keep in two decimals.
4= above 800 USD per capita
3= greater than 500 and lower than 800 USD per capita
2= greater than 200 and lower than 500 USD per capita
1= below 200 USD per capita

Clothing retail Under local currency, since it is aimed at growth rate within
value growth in the domestic market.
USD 4= greater than 12%
3= greater than 8% and lower than 12%
2= greater than 4% and lower than 8%
1= below 4%

Market saturation Based on Euromonitor-PASSPORT and Mintel analysis

of 'fast/value- reports and data.
fashion'

Infrastructure Internet users per 1= 1-25 people

100 people (see 2= 26-50 people
World Bank Data) 3= 51-75 people
4= 76- 100 people

Based on 2014 data

Source:

Road density ( Kilometres per km2 of land):

1= 0-0.85 km
2= 0.86-1.71km
3= 1.72-2.57 km
4= 2.58-3.43km

Based on 2015 data

Source:

Urbanization 1= 1-25%
(percentage of 2= 26-50%
urban population) 3= 51-75%
(see World Bank 4= 76-100%
Data)

Based on 2014 data

Source:
 !35

Geographical Geographical Distance in Km between nearest distribution centre per

distance to country:
nearest ● China: China
distribution ● South-Korea: China
centres ● Japan: China
● India: China
● Vietnam: Singapore
● Taiwan: China
● Chile: USA
● Peru: USA
● Colombia: USA
● Costa Rica: USA
● Georgia:
● Jordan: China
● Armenia: South-Africa
● Botswana: South-Africa
● UK: USA
● Italy: South-Africa
● Spain: South-Africa
● France: China
● Canada: USA
● Mexico: USA
Range:
0-2000 :4
2000-4000 :3
4000-6000 :2
6000-8000 :1

Climate difference Southern(S) or Northern Hemisphere(N)

China - N
South-Korea -N
Japan-N
India-N
Vietnam-N
Taiwan -N
Chile -S
Peru -S
Columbia -S
Costa Rica -S
Jordan -N
Georgia -
Armenia
Botswana -S
UK -N
Italy -N
Spain -N
France-N
Canada-N
Mexico-N
 !36

5. Interaction with RMIT Students- Emails.

14th March’ 2016

22 March’2016

03 April’2016

17 April’2016
 !37

24 April’2016

18
 !38

25 April’2016

28 April’2016