Porter’s Five Forces Framework
-Potential Entrants 3 -Substitutes 4 -Buyer Power 5 -Supplier Power 7 -Degree of Competitive Rivalry
Critical Success Factor
The Hong Kong Jewellery Industry is an attractive sector for existing retailers as the market has been growing steadily. Most revenue is from mainland tourist, they are very powerful to the seller, and the decisions of them can have a huge influence on the sale volume as they are almost half the resources of revenue.
Lots of Newspaper and websites think the market can still be develop further and increase the sales. With the rise of RMB exchange rates and numbers of visitors, the industry is expanding each day. Also, threats of new potential entrants and supplier are low, giving the industry a relatively competitive environment which would benefit the health of precious jewellery industry.
Imitation jewellery is a medium threat, there are both markets for customers who can afford and likely to buy luxury jewellery or pay less for similar looking yet affordable imitation jewellery. However, they might not contradict each other. The attitude towards the development of the industry is positive and supportive.
The jewellery industry is one of the major industries in Hong Kong; it has been well developed since 1950s. Having decades of designing experience, being innovative and fashionable, with excellent quality control and guarantee, makes Hong Kong a well known jewellery business centre. Many consumers, especially tourists are attracted by Hong Kong jewellery and they would spend more than 20 % of their total spending on jewellery! (Hong Kong Census and Statistic Department, 2010)
Since the execution of CEPA in 2004, it has been boosting the local jewellery industry by granting zero tariffs on Hong Kong made products to China. Mainland tourists are important to this industry, according to a report by Hong Kong Census and Statistic Department, among all tourists visited the city; there were 55.7% of mainland tourists in 2010. And mainland tourists tend to buy jewellery as souvenirs, therefore the Hong Kong jewellery industry has a big market potential and play an important role in retail. (Hong Kong Census and Statistic Department, 2010)
So what makes the industry so prosperous? In this report, I am going to analysis the precious jewellery retail industry in Hong Kong by Porter’s Five Forces Framework and evaluate whether this is an attractive sector to compete in. Lastly, I will identify the critical success factors which drive performance in the industry now as well as the near future.
Porter’s Five Forces Framework
Porter’s Five Forces model is aimed to analysis industrial structure and assessing the profit potential of different industries. The five forces are can help to see a clearer situation of the industry and make decisions or solutions.
There are certain barriers to enter jewellery retail industry in Hong Kong. It requires high capital costs of getting established in this industry. According to the annual reports of local jewellery retailers, Chow Sang Sang Jewellery and Luk Fook Jewellery, the cost of 2010 was 9 million dollars and 1 billion dollars (HKD) respectively; potential entrants may face difficulties to such high entry cost. (HKExnews, 2010)
Another major barrier is government policy, there are patent and trademark protection and licensing requirements serve as a barrier to entry of new...