Exporting Italian luxury shoes into China

The Italian Shoe Industry

Political Factors
Strict Political Rule

The people’s republic of China is a communist state based on civil law system; derived from
Soviet and continental civil code legal principles; legislature retains power to interpret
statutes; party organs exercise authority over judiciary.[ CITATION CIA11 \l 17417 ]

The P.R.C. considers Taiwan to be its 23rd province; it has 5 autonomous regions, including
Tibet. [ CITATION Bac11 \l 17417 ] No substantial political opposition groups exist. One major
political party controls state affairs: The Chinese Communist Party or CCP and eight
registered small parties controlled by CCP. [ CITATION CIA11 \l 17417 ] It’s a stringent region
for anyone to conduct business.

Political Instability

Beijing says the island of Taiwan is a part of Chinese territory that must be reunited with the
mainland. The claim has in the past led to tension and threats of invasion, but since 2008 the
two governments have moved towards a more cooperative atmosphere. [ CITATION Chi11 \l
17417 ] It will be necessary to conduct business in a politically stable environment as this
business makes its profit through sales of valued tangible assets.

Importation Regulations

The CCC safety license requirement by the government of China requires manufacturers to
obtain the China Compulsory Certification (CCC) mark before exporting to or selling
products covered in the CCC catalogue in the China market. The system was implemented on
May 1, 2002 and made fully effective on May 1, 2003. Products not meeting CCC
requirements may be held at the border by Chinese Customs and will be subject to other
penalties. [ CITATION May11 \l 17417 ]

Conformation to World Standards

China has been a member of WTO since 11 December 2001. This means a maximum tariff
level which is often referred to as “bound tariffs” or “bindings” (GATT Article II) have been
set. This suggests a more stable tariff rate.[ CITATION Chi111 \l 17417 ]
As China joined the World Trade Organization, the country tried to strengthen its IPR laws to
comply with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS).But still, twenty percent of all consumer products in the Chinese market at
counterfeit. [ CITATION INT05 \l 17417 ]

As part of the WTO, China has had to maintain a Universal Product Code system.

Tariff

Product code 64051090

Product Description Footwear, nes, with leather or
composition leather uppers and other
material outer soles
Country of Origin Italy
Year 2011
[ CITATION Tar11 \l 17417 ]

Applied tariff on import: $ 21.2 per Number of pairs [ CITATION Tar11 \l 17417 ]

Strict Rules Pertaining Media and Advertisement

In 2004, Nike spent $100 million on a TV commercial featuring a popular American

basketball player: LeBron James; it was banned by China later that year following complaints
by the mass media and general public that it insulted China's national pride.[ CITATION Chi11 \l
17417 ]. Fashion especially high end fashion is marketing sensitive; thus care is needed in
passing the desired message across without offending the Chinese government or its people.

Appendix A is a detailed description of the PRC’s Advertisement Laws.

Economic Factors
Economic Strength vis-á-vis FDI

With a GDP of $4,985,461,200,586,[ CITATION Chi112 \l 17417 ] the PRC is now the world’s
second-largest economy, the biggest exporter, and an increasingly important investor.
[ CITATION Peo11 \l 17417 ] It has sustained average economic growth of over 9.5% for the
past 26 years. In 2009 its $4.814 trillion economy was about one-third the size of the U.S.
economy.[ CITATION Bac11 \l 17417 ]

China is one of the world's top exporters and is attracting record amounts of foreign
investment. In turn, it is investing billions of dollars abroad.[ CITATION Chi11 \l 17417 ].

Foreign-invested enterprises produce about half of China's exports, and China continues to
attract large investment inflows. Foreign exchange reserves were $2.39 trillion at the end of
2009, and have now surpassed those of Japan, making China's foreign exchange reserves the
largest in the world. China's outbound foreign direct investment has also surged in recent
years, reaching $52 billion in 2008[ CITATION Bac11 \l 17417 ]

The collapse in international export markets that accompanied the global financial crisis of
2009 initially hit China hard, but its economy was among the first in the world to rebound,
quickly returning to growth. [ CITATION Chi11 \l 17417 ]

The economy appears set to remain on a strong growth trajectory in 2011, lending credibility
to the stimulus policies the regime rolled out during the global financial crisis. The
government vows to continue reforming the economy and emphasizes the need to increase
domestic consumption in order to make the economy less dependent on exports for GDP
growth in the future, but China likely will make only marginal progress toward these
rebalancing goals in 2011.[ CITATION CIA11 \l 17417 ]

Economic Challenges

Two economic problems China currently faces are inflation - which, late in 2010, surpassed
the government's target of 3% - and local government debt, which swelled as a result of
stimulus policies, and is largely off-the-books and it’s potentially low-quality.[ CITATION
CIA11 \l 17417 ]
China's per capita income is below the world average. The Chinese government faces
numerous economic development challenges, including:

a) reducing its high domestic savings rate and correspondingly low domestic demand;

b) sustaining adequate job growth for tens of millions of migrants and new entrants to
the work force;

c) reducing corruption and other economic crimes; and

d) containing environmental damage and social strife related to the economy's rapid
transformation. [ CITATION CIA11 \l 17417 ]

Social Factors
Craze For Luxury Goods and ‘FACE’

China’s passion for luxury goods has increased in this past decade. With the largest
population in the world, it poses to be a promising market.

Luxury demand has increased 30% annually over the past three years and with continued
strong demand, growth will remain in the double digits for years to come. Generating roughly
50% of industry growth, the Chinese represent the primary growth driver of the industry.
Things are advancing fast in Emerging Asia and soon the Chinese will be the biggest buyer of
luxury goods worldwide.[ CITATION Chi10 \l 17417 ]

According to the Merrill Lynch Cap Gemini World Wealth Report from 2010, there are
477,000 Chinese millionaires, 31% more than in 2008. Chinese millionaires spend several
thousands a year on luxury goods. According to the Hurun report, the average Chinese
millionaire owns three cars and 4.4 luxury watches. A PERFECT market for luxury shoes.

The Younger Generation’s interest in Luxury goods

Young Chinese do not mind spending one month’s salary on a handbag or cosmetics. In
contrast to their parents, who save a big part of their salary, notably for health, education and
retirement. For several reasons the younger generation dispense their money much more
easily. Social systems are improving and young Chinese have better education and job
opportunities. This change in spending habits is also supported by the one-child policy.
Young Chinese often have the sole attention of parents and grandparents who would rather
spend their savings on their child or grandchild than on themselves. [ CITATION Chi10 \l
17417 ]. Young Chinese have much higher confidence in their financial future, which is a
good precondition for buying luxury goods, as this always also includes an emotional aspect.
This new spending pattern may be exactly what the luxury brand needs: a younger
generation; that will foster the image of the luxury shoes from Italy.

Craze for Western Brands

The Chinese tend to like status symbols. They like to reward themselves and to show the
world their achievements. Therefore, the Chinese prefer recognisable brands and products
with logos. At least as important is the Chinese culture of gift giving.[ CITATION Chi10 \l
17417 ] As a high-end brand from Italy, this should mean nothing less than opportunity,
opportunity, and opportunity. Giving presents to family, friends or business partners
demonstrates respect, which is best done by buying the best quality product and best-known
brands within a category, eg a Rolex watch or a Hermès scarf.[ CITATION Chi10 \l 17417 ]

Literacy

China has a 94% literacy rate among adults; aged 15 and above[ CITATION Chi112 \l 17417 ];
which will make communication of the products a lot easier.

Social Unrest

In the past few years, the People’s Republic of China (PRC) has experienced rising social
unrest, including protests, demonstrations, picketing, and group petitioning. According to
PRC official sources, “public order disturbances” have grown by nearly 50% in the past two
years, from 58,000 incidents in 2003 to 87,000 in 2005. Although political observers have
described social unrest among farmers and workers since the early 1990s, recent protest
activities have been broader in scope, larger in average size, greater in frequency, and more
brash than those of a decade ago.[ CITATION Tho08 \l 17417 ]

Fears of greater unrest have triggered debates with the Communist Party leadership about the
pace of economic reforms and the proper way to respond to protesters... the eruption of public
demonstrations in areas of heavy foreign investment and well developed communications and
transportation links to the outside.[ CITATION Tho08 \l 17417 ] Following recent unrests in the
Arab world, one can only wonder when the inevitable will happen.
Technological Factors
Promising and Restrictive Internet Marketplace

China’s web filtering system, dubbed the "Great Firewall of China", is one of the "most
technologically-advanced in existence".[ CITATION Chi11 \l 17417 ] With 15.251 million
internet hosts and the largest amount of internet users in the world: 420 million, it’s a market
that cannot be overlooked by any chance.

The rise of this authoritarian-capitalist power, the world’s second-largest economy, has been
accompanied by an outpouring of investment, emigration and proliferation of soft-power
initiatives such as the Confucius Institutes, but also the drawing of a new information curtain
dubbed the “great firewall of China” by Reporters Without Borders. Behind the firewall isn’t
just the world’s largest internet population but also as many as 277 million Chinese access
the internet on mobile phones; 231 million blog, Twitter or use other social-media platforms,
regularly blocked by the Chinese authorities but which can be accessed through third-party
clients.[ CITATION Joh10 \l 17417 ] The Numbers are staggering and are the dreams of any
coporation highly involved in marketing of any sort. For a fashion company, this is more than
an opportunity.

However, Chinese authorities are prepared to sacrifice international standing and national
connectivity to retain stability. As quoted by [ CITATION Joh10 \l 17417 ] “We cannot forget
how far the Chinese government is willing to go – in terms of the expenditure of both
political and economic capital – to protect its sovereignty and political stability”. This is
definitely a factor that cannot be overlooked. The fact that care, much care is needed in an
attempt to communicate with the desired market cannot be over-stated.

Rapid Development in Logistics

China is now the world’s largest manufacturing base as well as the world’s largest market.
Owing to the fast growth in China’s economy and China’s accession into WTO, the demand
for logistics services has been growing significantly in China. As China continues to develop
into a global manufacturing factory, China’s logistics industry will play an important role in
the global supply chain[ CITATION Jia02 \l 17417 ]. The logistics industry in China is set to take
off, and the total logistics value has grown by 29.9 percent year-on-year [ CITATION Chi05 \l
17417 ] New modern facilities such as logistics parks, distribution centers and warehouses are
being built at a record setting pace.

China has begun operating what is, by several measures, the world's fastest rail line: a
dedicated 968-kilometer line linking Wuhan, in the heart of central China, to Guangzhou, on
the south-eastern coast. In trials, the "WuGuang" line clocked peak speeds of up to 394
kilometres per hour (or 245 miles per hour). They have also recorded an average speed of 312
kph in nonstop runs four times daily since the WuGuang's December 26 launch, slashing
travel time from Wuhan to Guangzhou from 10.5 hours to less than three. It also bests
China's first high-speed train, the Beijing-to-Tianjin trains that average 230 kph, as well as
Shanghai's magnetically levitated airport shuttle trains that can hit 430 kph but average less
than 251 kph.[ CITATION MIT10 \l 17417 ]

Plenty more speedy lines are coming in China under an ambitious build-out initiated in 2006
by China's Ministry of Railways, and accelerated with government stimulus funds. A two-
trillion-yuan ($293 billion) plan envisions 16,000 kilometres of dedicated high-speed rail
lines connecting all of China's major cities by 2020. The first East-West segment--a link from
Xi'an to Zhengzhou--could begin operating as early as this month, and work is underway to
extend the Beijing-Tianjin line southward to Shanghai by 2012. WuGuang, meanwhile, is
expected to expand northward to Beijing and South to Hong Kong by 2013. "Over the next
five years there'll be more high-speed rail added in China than the rest of the world
combined," says Keith Dierkx, director of IBM's Beijing-based Global Rail Innovation
Center. WuGuang has 625 bridges with a combined length of 362 kilometres, and 221 tunnels
with a combined length of 177 kilometres, contributing to a total construction cost of 116
billion yuan ($17 billion). The 1,300-kilometer Beijing-to-Shanghai line will cost an
estimated 221 billion yuan.[ CITATION MIT10 \l 17417 ]

However, China Distribution & Trading found that the logistics barriers to international
operations in China include the lack of cargo tracing services, the lack of delivery reliability
for local carriers, the lack of carrier selection, complicated customs procedures, and
geographical fragmentation of transportation networks.[ CITATION TaH \l 17417 ]. According to
Lin, to overcome these barriers, logistics service providers should invest extensively in
information and logistics technologies[ CITATION Chi07 \l 17417 ]. It is my belief that this won’t
be a prominent issue given the country’s efforts toward s the use of technology to knock off
challenges it faced in logistics

China has 502 airports and 2,010 commercial vessels.[ CITATION CIA11 \l 17417 ] Capable of
meeting demands.
Appendix A
http://www.lehmanlaw.com/resource-centre/laws-and-regulations/advertising/advertisement-
law-of-the-peoples-republic-of-china-1995.html
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