Introduction
Purpose
The purpose of the report is to highlight the appropriate market entry strategy for ASOS in Dubai.
Main contents
This report reviews the company’s expansion strategy and applies it to a proposed expansion into Dubai in the United Arab Emirates. The report considers the business, industry, and consumer factors affecting the suitability of the business location. It then recommends an appropriate market entry strategy.
Company Background
Overview
ASOS is an online fashion retailer from the UK, and it operates country-specific retail fashion businesses.
Description
ASOS has been targeting 20-something year-old customers with its exclusive own-brand label. It also runs more than 800 other brands in its online stores. It serves a fashion conscious age group around the world, relying on website and mobile or tablet apps for its e-commerce business (asos, 2015).
Country and market analysis
Dubai is home to several free economic zones and shopping complexes that make it the shopping capital of the Middle East. The UAE ranks as the fifth strongest emerging market in the world, a position that has made it among the most sought after destinations for retailers (Sambridge, 2013). Dubai has attracted global retail fashion and high fashion giants like Victoria’s Secret, whose market entry depends on the availability of high per capita disposable incomes.
External factors
The UAE currency is pegged to the US dollar, which makes most business transactions certain and attractive for many international companies. In addition, the country has a population of more than 2.3 million people and a high GDP per capita that surpasses 41,000 US dollars annually. The country ranks as number 31 in the World Bank Doing Business 2016 survey. This rank highlights the ease of dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency (World Bank Group, 2015).
The corruption levels are low, the country is politically stable, it follows a free market system, and has low inflation rates. In addition, the private sector debt has been managed well through the banking regulations (Eke, Bhogaita, & Sahu, 2015).
Customer/competitor based factors
Dubai has a high population of high-income consumers. It has sufficient internet access and retail channels to help with fashion distribution. The number of fashion retailers is high and competitors are very competitive with their efficient business practices (Baker, 2001).
Industry and Business-related Factors
The UAE has undergone a decade of booming retail industry trade as shoppers visit malls. However, a rise in consumer confidence in e-commerce is changing the way people shop in the country, as well as their shopping habits. While adoption of e-commerce is a good sign for ASOS, it also comes with additional challenges (Heimbach, Kostyra, & Hinz, 2015). A decreasing global online price is not good for the UAE economy (Boone & Kurtz, 2015).
In fact, consistent low prices have shifted spending patterns in retail. Many consumers are halting their purchase decisions for durable goods like electronics, furniture, and fashion items (Cronin, 2015). The fashion industry relies on imports, as the UAE does not have a robust local production industry for clothing and shoes. The location of Dubai near most production zones like Thailand, Vietnam, and China makes it easier for supply chain management; therefore, online retailers have fewer threats coming from their suppliers (Foreign Direct Investment Office, 2013).
Summary of factors and rating
Trade barriers – Trade barriers that can substantially affect ASOS do not exist, which makes the attractiveness score high; 9/10.
Suitable labor force availability – Dubai depends mostly on labor from third world countries, well-educated labor force and available at an affordable cost. This factor scores 6/10 (Aichner & Coletti, 2013).
Business core competences – Distribution, retail, and fashion supply chain networks are well-developed, thereby attracting a rating of 8/10.
Rate of expansion required/company strategy – The Company will have to expand rapidly to cater for the potential increase in customers as Dubai is a major tourist and migrant destination, with increasing disposable incomes (Maceda, 2014). The rating is 7/10.
Transport costs – The cost of transport remains very low because the UAE is an oil producer. The rating for this factor is 9/10.
Costs of establishment/EoS – ASOS faces low costs for establishing its presence in Dubai as the city has sufficient and affordable internet speeds to support online shopping (Balakrishnan, 2009). The rating is 8/10.
The level of centralized control required – ASOS needs a very high level of control to deal with stiff competition from other local and foreign online fashion sellers. Thus, the rating for this factor is 5/10.
Marketing Mix and Staffing Policy
Product
Fashion items stocked at the ASOS online store in Dubai must meet the needs of conscious consumers. Dubai is connected to a global consumer culture and shoppers are aware of global trends in fashion (Christiansen, Yildiz, & Yildiz, 2014). They expect to shop for the same items distributed in the UK ASOS stores and other developed markets. The company is targeting people who are in the twenties, and this group is also the most active on social media in Dubai and can make comparisons of quality and pricing of goods before making purchase decisions (asos, 2015).
Place/Distribution
The company operates online only and does not need physical distribution. However, it has to collaborate with courier and other delivery services for shipment of goods bought. It also has to acquire warehousing facilities in Dubai to serve the market and support same day deliveries of goods bought (Edmiston, 2015).
Promotions
Social media and internet offer great opportunities for promotion and falls in place with the overall promotion strategy of ASOS, yet many other online retailers are concentrating on the same platform (Evans, O’Malley, & Patterson, 2004). As a result, a typical consumer is blasted with many promotional pitches for shopping, which highlight a high marketing noise level for this channel (Ferrell & Hartlin, 2014; Flipo, 2002). Push strategies will work best in the present economic conditions, where consumers are likely to cut back on their spending and the noise levels in the industry are high (Forlani, Mullins, & Walker, 2002). It will also help establish the entry of ASOS into the Dubai market.
Pricing strategy
ASOS follows a zonal pricing strategy that matches the pricing of brands with local markets. Pricing for high-end fashion is relatively high in most markets because demand is relatively inelastic. The same approach should be used in the Dubai market.
Staffing policy
The online retailing business requires a robust customer service department. The company should have locals as their workers, but getting them will be difficult due to high labor shortage. Many businesses in Dubai rely on migrant workers, thereby justifying a mix of both locals and migrants. In addition, the business should have expat workers from its operations in other countries to help with market and operations development in Dubai (Hartline & Witt, 2004).
Market entry strategy
Advantages and disadvantages of six entry modes
The first strategy is the export strategy, and it would include selling ASOS branded merchandise in existing online stores in Dubai. Alternatively, the company could sell directly to Dubai customers with its UK store and make international shipments. Indirect export limits capital expenditure for ASOS, but it increases the risk of customer dissatisfaction, which risks brand reputation. Direct export improves customer relations, but it does not improve the company’s ability to respond fast to local events and opportunities. Another market entry strategy is intermediate entry through licensing.
The strategy will place ASOS near the customer base and protect the brand’s intellectual properties. However, may lead to problems of re-negotiations and does not address competitor entry loopholes. Franchising is another entry mode that can be explored, where other businesses will run the ASOS online retail store in Dubai as a business format franchise. Franchising may lead to quicker development in new markets, but it may open up internal business knowledge that can create a competitor.
Contract manufacturing is a possible entry mode, but it is not applicable to ASOS because the company does not engage in any manufacturing activity. Another option is to go for a joint venture that would require an agreement with a local company on the setting up and use of brand names and management or operations capacities of either firm. The joint venture may lead to a better relationship with the local businesses and regulatory bodies and may overcome high-risk entry barriers. On the other hand, it may open up cultural differences’ avenues that may jeopardize effective management (Rogmans, 2013).
Mergers or acquisitions are also good entry modes, but they rely on the availability of opportunities. Lastly, the green field strategy will require starting from ground zero and can lead to no risk of technical competence loss.
Recommended and justified entry mode
Based on the review of the different entry modes, ASOS should use the green field strategy and enter the market by setting up its store and maintaining tight control of its operations. ASOS will take time to grow, but the business will have absolute control of its reaction and strategy in the local market (Hoffman & Fodor, 2010).
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