Opportunity for LVMH in China

Topics: LVMH, Economic growth, Luxury good Pages: 6 (2055 words) Published: April 28, 2012
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 market
China'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...

References: Atsmon, Y., Dixit, V., Leibowitz, G., and Wu, C.(2011)Understanding China’s Growing Love for Luxury. McKinsey&Company.
COTTM 2012. (n.d.) Available at [Accessed 20 October 2011].
Halal, W. (2009), ‘The Future Has Arrived Forecasts of the 2015 Economic Boom’, Journal of Futures Studies, vol. 14(1), pp. 103 – 108
KPMG (2008) China 's Luxury Consumers: Moving up the Curve. [pdf] Hong Kong: KPMG. Available Murray, G. (1998) China: The Next Superpower. Dilemmas in Change and Continuity. Richmond
Ning, Y. (2011) More students choose to study abroad, Chinadaily, Available at: < http://www.chinadaily.com.cn/business/2011-04/25/content_12384782.htm> [Accessed 20 October 2011].
The World Bank (2011) GDP, [online] Available at: < http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?page=1> [Accessed 21 October 2011].
Shenkar, O. (2004) Chinese century, the: the rising chinese economy and its impact on the global economy, the balance of power, and your job, 1st ed., Wharton School.
The China Price. (2004), Business Week, 3911, p. 102
Wireless News (2011) ‘2011 China Private Wealth Study: Number of Chinese High Net Worth Individuals Projected to Double’, [online] Available at: [Accessed 14 October 2011].
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