INTRODUCTION OF THE BRAND KHADI IN THE CHINESE MARKETS

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INTRODUCTION

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KHADI
History of Khadi
The brand Khadi took form as a part of the freedom struggle to revive village
industries, under the leadership and encouragement of Mahatma Gandhi, to
provide them with the wherewithal to make their own basic needs for a
comfortable life. Today, Khadi conjures a vision of villages that stand
independent all over India, as a sincere effort to make villagers wholly self-
sufficient. Pure, basic goodness and a gift of nature. It is in a manner - the
essence of India.
The word Khadi imbibes all that is pure, natural, earthy and wholesome. So
far, we are showcasing over 45 aromas of luxuriously handmade soaps made
with essential oils.

The Khadi Vision - Village Industries & Khadi

The Khadi vision is to plan, promote, facilitate, organise and assist in the
establishment and development of Khadi and village industries in the rural
areas in coordination with other agencies engaged in rural development
wherever necessary.

Khadi in Village Industries has been around since during the revolutionary
freedom struggle of India for the socio-economic objectives of creating
employment and increasing self-reliance amongst the rural poor, what with
the setup cost requiring little or no capital. In view of stark income, regional,
and rural/urban inequalities, Khadi and Village industries suits India
tremendously, she being a labour surplus country.

And What's The Khadi Shop's Role?

The Khadi Shop are a passionate bunch who strongly believe in the
marketing of Khadi products in and outside India. They want to take the
brand and give it the recognition it deserves and do this by sourcing only

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from Khadi recognized manufacturers from the length and breadth of Indian
villages.

The Khadi Shop was born of a dream to introduce you, the nature loving and
sustainable living evangelist to a range of bath and skin care products
created on those very principles. They believe that soaps are meant to be
handmade with love, and with using only the purest, most gentle ingredients
that are suitable for all ages and skin types. Their aim is to spread the use of
natural and mild Khadi products to all prospective customers. This allows
them to be instrumental in the path for change in making India country self-
reliant.

Products
The Khadi Shop range consists of soaps, oils, shampoos, face washes, face
toners, creams, bubble bath, conditioner, face packs and scrubs. All the
formulations are 100% organic and use no artificial preservatives or
chemicals.

Made with Love

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They ensuring meticulous and thorough quality checks in the production
process so that you, the customer gets a product that is pure and
unadulterated.

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CHINESE MARKET

PEST Analysis of China

China is among the most attractive locations in the world. It has also grown
to become one of the strongest powers. This rise boosted international
business. The legal system too has been improved. Foreign investors seek
business in China mainly because of 3 things. They are:

Size of the market

The very low cost of labor
Chinas growth potential together

I can say that China has become increasingly integrated with other parts of
the world. It opened itself to an array of cross- border economic activities. It
is not easy to manage international business in China. You will read about
some of the factors which impact China as I conduct a detailed PEST analysis
of China below.

The main challenges for businesses in China are:

Attaining strategic objectives of cost reduction

Local differentiation
The strengthening of core competencies in certain areas and business
activities

You are perhaps aware that China is a formal member of WTO. While Chinas
entry into the world market benefits its national economy, it also boosts
global economic growth.

Political Factors

Political factors which impact China are:

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 Government regulations

Both formal and informal rules, which firms must abide by, impact the
country. Many people claim that the political force is the most unsettled
force. Over the past few years, the government focused on the development
of e-commerce.

Legal issues

The legal framework for e-commerce is still in its early stage. China has little
experience for drafting e-commerce legislation for topics like intellectual
property rights protection and tax. There arent any regulations supporting
the privacy, recognition of digital signatures, consumer rights and validation
of electronic contracts yet.

Economic Factors

Over the past five years, Chinas economy experienced significant GDP
growth rate. Reports suggest that if China continues to excel at this rate, it ill
surpass US GDP soon. Some factors which might help are:

high rate of savings

Abundant and skilled labor
More export business
Potential urban growth

Any economic development could have a major impact on the SMEs and
their actions. Chinas GDP rate suggests that each citizen is adding more and
more values to the society. This is in turn increasing consumers purchasing
power. The labor cost in China is extremely low. This is why leading
companies like Apple are inclined to hire workers from the country.

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The growth rate is impressive, but it can slow down. Some of the worrying
trends in China are:

High inflation rate

High property prices

The Peoples Bank of China has increased interest rates. The reserve
requirement for commercial banks is also nine times higher now. Moreover,
the central bank is urging banks to lend less and impose limits on home
purchases.

Social Factors

The social and cultural aspect of China plays an important role as the
demographics constantly change. For example, population growth and age
distribution fluctuate. These can alter social trends and cultural values.
Family size and social behaviors often impact how decisions are taken. Other
social factors are consumer lifestyles, education, religion, and emigration.
China is a collectivistic culture, based on Geert Hofstedes value dimensions.

The literacy rate in China is over 90%. China emphasizes on education and
majority of the nation are literate.

There are 420 million Internet users in the country. As there is internet
access, Chinese people often shop online. Taobao is the largest local e-
commerce website, and many people spend a lot of their things from the
site. Boston Consulting Group predicts that the volume will increase in near
future.

E-commerce has changed how local consumers see shopping. However,

there is still a group who wish to avoid the perceived risk associated with
online shopping. They prefer physical shopping and like the face to face
contact.

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Technological Factors

Some common technological factors studied in PEST are:

New products being developed

New purchasing mechanisms such as the intranet and extranet
New production technology
New distribution mechanisms like Internet
New methods of working like mobile telecommunications

A major technological problem in China is that the development of the B2C

industry does not have a safe and stable online payment system. As Chinese
buyers are on high Uncertainty Avoidance level and Long-Term Orientation,
the problem is strengthened.

What is more, based on the perspective of Ortolani (2005) there had

been only 1 percent credit card penetration in China suggesting that
the most widely used payment method had low acceptance in China and the
payment system to support online credit card transaction is also facing low
usage. And the lack of safe online credit card payment system is one of the
key reasons for this low usage and penetration.

In conclusion, I can say based on this PEST analysis, that China is a

flourishing market with the need for some small changes. Companies will
benefit if they can understand the external macro-environment in which they
function and will operate in the future. The rapid economic growth and stable
political conditions make the e-commerce industry lucrative to investors.
There are risks like lack of trust. Other risks include lack of stable and secure
online payment systems. Also, there isnt proper legal protection. All of these
create uncertainties and challenges to the market players.

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 What makes China a Suitable Market for Khadi?

Current structure of Chinas consumer market of cosmetic products:

Skincare products: skincare products represent the fastest growing

sector in the cosmetics market.

Shampoos and hair care products: the shampoo and hair care products
market is becoming saturated and its growth has decelerated.

Make-up products: the make-up market is far from saturated,

particularly in rural regions and inland cities. Sales of eye make-up products
recorded significant growth in recent years.

Products for children: sales of cosmetic products designed for use by

children continue to soar.

Sunscreen products: sunscreen products ensure sales in traditional

quiet seasons.

Anti-aging products: cosmetic products that help consumers stay

youthful and fight aging are increasingly popular.

Sports cosmetics: many consumers who love sports and pursue body
fitness are keen to maintain an attractive appearance as well. They need
sports cosmetics that can help prevent the loss of moisture and are anti-
odour, anti-sweat, anti-bacteria and of compact portable size.

Cosmeceuticals: consumers have growing awareness of products which

combine cosmetic and pharmaceutical features, namely cosmeceuticals,
such as spot lightening cream, acne treatment lotion and acne ointment.

Green/natural cosmetics: these cosmetic products contain natural or

nutritional ingredients such as aloe and vitamins.

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 MARKETING PLAN

PRODUCT

PRICE

DISTRIBUTION AND SALES

1. Major sales channels of cosmetic products on the mainland include

wholesale markets, supermarkets and department stores, dedicated
counters, specialty chain stores, drugstores, beauty parlours and direct
selling. Online shopping channels also recorded significant growth in recent
years. Currently, department stores, supermarkets and specialty stores are
the top three sales channels. It is estimated that retail sales of cosmetics
through these three major channels account for approximately two-thirds of
the whole cosmetics market.
2. Dedicated counter is a major traditional sales channel for cosmetics,
adopted by most world-renowned cosmetics brands. Dedicated counters
generate great return in terms of word-of-mouth publicity and are thus highly
effective in establishing brand image. Top global brands such as Lancme,
Este Lauder, Chanel and Dior dominate the sales of cosmetics through
dedicated counters on the mainland. Just a few domestic brands like
Herborist are able to compete with these giants.
3. Some brands expand their business by opening specialty stores,
mainly in the formats of directly-operated specialty stores and franchise
stores. For directly-operated specialty stores, since they can better display
brand image, ensure the quality of service management and enforce unified,
stable pricing, many multi-national cosmetics giants prefer to adopt such
sales format. On the other hand, compared with other sales formats, opening
franchise chain stores is regarded as the most effective format with the least
input and highest rate of success.

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4. Direct selling is a means to sell cosmetic products through distributors
personal networks. Direct selling companies will award the distributors
according to the quantity of goods they sold through their respective
networks. Avon was the first brand to engage in a pilot programme after
the Regulations for the Administration of Direct Sellingwere promulgated in
2005. Subsequently, the authorities also granted direct selling licences to
Amway, Perfect, Longrich and others.
5. Selling cosmetics through drugstores has become a major feature in
Chinas cosmetics market. While the cosmeceuticals market is now
dominated by foreign players, a number of local pharmaceutical companies
have already set foot in this territory. Domestic brand Longrich, for example,
has adopted a two-pronged approach. Apart from distributing through
shopping centres and supermarkets, it also launches its products in local
pharmacies.
6. Cosmetic products can also be distributed through various types of
beauty parlours, such as traditional, pampering and therapeutic beauty
parlours; large and medium-sized high-end beauty spas; franchise chain
stores; and grooming and hairdressing parlours, etc.
7. The retail concept of cosmetics supermarket or one-stop shop is
gaining attention, with the entry of players like Watsons, Sephora of France
and Sasa.
8. Online cosmetics shopping has seen rapid growth and some mainland
consumers are beginning to buy cosmetics and skincare products online.
According to HKTDC Research's China's Skincare and Cosmetics Market 2016,
69% of the female respondents and 65% of the male respondents would buy
skincare products and cosmetics from "online" stores mainly because "online
shopping is convenient/offers delivery service". The survey also found that
female and male consumers spent RMB2,158 and RMB1,681 respectively on
online purchases of skincare products and cosmetics on average in the past
year.

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9. Many foreign brands have entered the mainland market by acquiring
domestic brands and making use of the latters distribution networks. For
example, MiniNurse and MG were acquired by L'Oral, TJoy by Coty for some
time, and Dabao by Johnson & Johnson.
10. Fairs held in China provide an ideal channel for industry players to
gather the latest information and to meet dealers. Selected cosmetics fairs
to be held in China in 2016-17 are as follows:

PROMOTION

PACKAGING

PEOPLE

PYHSICAL EVIDENCE

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SEGMENTATION

TARGETING

POSITIONING

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