Opportunity for Lvmh in China

With the progress of globalization, business external environment, which directly affects organizations’ performance, becomes more complex and changes continually. Various factors in this complex and volatile business environment play the roles of different level in different organization. At the same time, these factors also have the features of time. By 2015, this round of economic recession will come to an end, and a new round of economic growth is going to come, stated by Halal (2009). “China may well have the world’s largest economy”, Shenkar (2004). LVMH as the largest luxury producer should take this as an initial factor which will be the greatest potential global environment factor in China’s market beyond 2015. This paper will first focus on the economy situation of China. Then analysis the reason of that Chinese economic growth is significantly link to LVMH development in the future. In the last part, some actions will be discussed in order to advise LVMH to get massive market share after economic recession from the new emerging market.

Global environment factor in Chinese marketChina’s economic always maintain strong growth momentum. This has become the focus of world attention to China’s, especially during the economic crisis. From 2001 to 2007, China’s economic growth, measured in gross domestic product (GDP) always maintained a high growth rate, and the growth rate climbed year by year, accelerated from 8.3% to 14.2%. In the 2008 economic crisis outbreak situation, though growth slowed, but still kept in more than 9% of the high level. Contrast with the United States and United Kindom’s negative economic growth, China’s performance is surprised. Graph 1, which shows by The World Bank (2011), illustrate that, in economic size, China is surpassed today only by the United States,

in current exchange rate. And China already accounts for approximately 9.3 percent of world GDP. Geoffrey Murray (1998) defined China as the next superpower. An article named the China Price (2004) said U.S. industries are inflicted by destroyed Chinese competitors, from kitchenware and car tires to electronic circuit boards. The future may be predicted by China’s GDP growth rate in the past. In 2015,China’s economic size will likely more than the United States. [pic]

Graph 1: GDP (current US$) Data from World Bank.

Why this factor is important?There are three main elements make the economic growth become the decisive factors of LVMH in China. The first one is citizens do have money to buy goods produced by LVMH. The LVMH products positioning is luxurygoods. Luxury is a type of goods that beyond the range of people existence and development needs. It has distinctive features, such as unique, scarce or exotic. It is beyond the basic needs of consumers. So it is expensive. Customers need a certain economic strength to buy. Because of the growth of economy, China’s urban residents’ income maintained a rapid growth. According to data released by China’s national bureau of statistics: national urban per capita disposable income reached RMB19109 in 2010, increased 82.1 percent by 2005 (RMB10493).

Deducted price factors, a real increase rate is 59.0 percent. The average annual real growth rate is 9.7 percent. An article from Wireless News (2011) stated that the number of Chinese high net worth individuals grows rapidly, the number in 2011 is already two times as 2008, growing to 585,000. In China, people can be called high net worth individuals must have more than 10 million Renminbi in individual investable assets, or the equivalent of $15,00,000 of assets. The two aspects data demonstrate that the number of available consumer increased more than twice in recent years. If China’s economy continues with an expected growth, the number, which can be used by LVMH, will also double after 2015.

The second element is people expecting to buy luxury goods. The increasing of the economic strength give consumers more opportunities to travel or accept education in western countries. According to the COTTM 2012 (n.d.) “…one remarkable change in 2010, with China (US$ 55 billion) moving up into third position, overtaking the United Kingdom (US$ 49 billion). China has shown by far the fastest growth with regard to expenditure on international tourism in the last decade, multiplying expenditure four times since 2000. Ranking as the seventh biggest source market in 2005, it has since overtaken, respectively, Italy, Japan, France and the United Kingdom.”

For the abroad students, the data also increased rapidly in recent years. Yang Ning (2011) demonstrated that the number of Chinese students abroad increased around 20 percent per year on average. According to statistics released by the Ministry of Education, from 2009 to 2010 academic year, the number reached 229,300 in total. It is 30 percent higher than the previous year. All these people who have western life experience affect by the western philosophy of life. Especially the abroad students, subtle change the attitude towards life, improve their requirements of the quality of life. They are more likely understand and love the philosophy expressed by luxury, like the “art of travel”. They also transfer these cultures to other potential consumers. As a result, the demand of the whole market improved.

Compared with soft luxury market in western countries, Chinese rising is a vigorous and potential growth market. According to the classic life cycle theory, western luxury industry has set up a file in the maturity stage.This stage is a relatively long period. In this period, a few manufacturers, which survived in the competition of the industry, monopolize the market, each manufacturer has their own proportion of the market. The chance of changing share proportion in the market may be small, due to close to each other. However, Chinese luxury industry is in the growth stage.

In this period, the market demand is beginning to rise. The market need to have a certain marketing and financial strength enterprise (like LVMH) to gradually lead the market. The new industry products can gradually gain the characteristics mass welcome or preference of its own after the right business activities. New industries also will prosper. Predicted by Boston Consulting, China is expected to promote to the first luxury market in the world in 2015. It will be 32 percent share of total global luxury goods market. This is a remarkably chance for LVMH to gain the competition advantage of the market.