Porter five forces – the pure competition model implies that the risk adjusted rate of return should be constant across firms and industries. However, there is number of economic studies have affirmed that different industry could sustain different levels of profitability. Part of the difference is explained by industry structure. Michael Porter has provided a framework to identify an industry as being influenced by five forces (Anon, 2010).
Barriers to entry
It can be complicated to enter into China market due to a lack of set regulations. In fact, the government’s mercantilist policies and there are still many aspects of the market are stunted in bureaucracy due to the central planning. In addition, there is another barrier to consider is the lax enforcement of patent laws (Anon, 2009).
There is lack of transparent set of law, which would spell out rules and regulations for investors. As a result, China’s current legal and regulatory system could be arbitrary. Due to the inconsistent of law implementation and lack of effective Chinese government protection for patent property, it is a damaging issue for Estee Lauder Inc. as it has a number of patented products (Anon, 2009).
China has a complicated system for registration of cosmetics product. It is involving two different government bodies. There are many different requirements between imported and domestically produced cosmetics. Furthermore, the overall approach and regulations are not aligned with any other main regulatory models. The burdensome approach and regulations are increasing the cost of Estee Lauder Inc. and it takes time (Anon, 2007).
The degree of rivalry in China market is relatively high as there are many cosmetics companies go into the country. There are many well-known cosmetics companies, such as L’oreal, Christian Dior, SK-II, Chanel, Lancome, Sisley, Guerlain and etc. They are all producing and providing the luxury cosmetics. They would be strong...