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Lululemon Athletica is an emerging Canadian company that specializes in the retail of athletic apparel including clothes for yoga, fitness, jogging, etc. The target consumer population is active people that lead a sportive lifestyle. Since the company considers its extension to foreign markets, namely, the Italian apparel market, it is proposed to examine potential challenges associated with its market entry.
The most effective way to develop a clear vision of the challenges associated with the entry to the Italian market is to apply the principles of the PEST analysis that implies examining potential barriers in four dimensions: political, economic, sociocultural, and technological (Dransfield 59). Therefore, it is proposed to use the PEST analysis format and put a particular emphasis on three key factors that are most likely to determine the success of Lululemon’s development in Italy: economics, social culture, and politics.
From the economic standpoint, Italy market implies a series of critical challenges for new entrants. The Senior Researcher at Social Policies Department and Coordinator International and EU Affairs Unit, Chiara Crepaldi, notes that the major part of the economic difficulties is associated with the long-term crisis and the general economic regression (6). Thus, for instance, the rate of taxation on labor is very high contrary to other countries in the European market. The poverty rate is likewise high – due to the economic crisis, almost 30% of the population are currently at risk of poverty (Crepaldi 9). It is also essential to note that Italy offers a 1% average tariff rate for EU members, though the rate is higher for other countries beyond the Union. New entrants might receive the assistance from the Strategic Investment Funds, though the chances are low unless the relevant trade agreements have been negotiated like those with the USA and Japan (“Index of Economic Freedom” par. 8).
It is also important to note that the economic environment varies from region to region. Thus, the north is significantly more developed from the economic perspective due to the abundance of heavy industry and emerging private companies. The economy of the south is not so stable since it mainly relies on the agricultural sector that exhibits high unemployment rates (Maclachlan par. 3). Therefore, the geo-economic diversity of the target market features a challenge to new entrants.
Generally speaking, the market environment is not as favorable as in other European countries. Hence, latest statistics shows the negative GDP trend – current GDP rate equals -0.4% growth. The inflation index is likewise relatively high making 0.2% (“Index of Economic Freedom” par. 2). From the economic perspective, these trends are likely to challenge Lululemon’s growth in Italy.
From the sociocultural standpoint, it is essential to take into account the diversity factor that might feature a barrier to the formation of a consistent customer base. Hence, Italy is not a homogenous area in terms of customer needs and values – regional identities have a strong impact on customers’ lifestyles and preferences (Alon 125). Therefore, a complex study of the consumer behavior will be required to work out an effective market entry strategy.
The social indicators of the Italian market are alarming. Hence, the employment rate does not reach the set target – in 2013, it made 59.8% (Crepaldi 9). Consequently, it might be concluded that the buying capacity of the Italian population is lower than in other European countries. From the marketing perspective, the unfavorable social conditions have an adverse impact on the customers’ behavior. Thus, Crepaldi points out such negative social trends as low social inclusion and poor activity among the young population (12). According to the latest statistics, almost 25% of young Italians are not engaged in employment, training, or studies (Crepaldi 17). This social exclusion might feature a critical challenge since Lululemon’s target customers are expected to show positive reinforcement and lead an active lifestyle. In the meantime, the situation might change since the government has implemented its Youth Guarantee Plan that is aimed at enhancing young people’s inclusion in social processes (Crepaldi 35).
From the political standpoint, the most critical challenge that Lululemon can face is the complexity of the regulations and legislature associated with entrepreneurship. Hence, entrepreneurs have to undergo costly registration procedures that are accompanied with delays and cancellations (“Index of Economic Freedom” par. 7). Another point of concern that should be considered within the political dimension is a high rate of corruption which makes the country remain short of other market players in the FDI rating. Thus, the average cost of bribery and corruption that the government has to cover annually is 60 billion dollars (Foreign and Commonwealth Office par. 18).
The business recent Guide for US companies striving to establish successful entrepreneurship in Italy likewise point out the lack of transparency and certainty in the political environment compared with other developed countries in the EU (US Commercial Service 2). Finally, new entrants to the Italian market should necessarily study which regions have an independent status in order to examine their laws and regulations before setting up a business.
Works Cited
Alon, Ilan. Franchising Globally: Innovation, Learning and Imitation, New York, New York: Springer, 2010. Print.
Crepaldi, Kylie. The Social and Employment Situation in Italy 2014. Web.
Dransfield, Chiara. Applied Business, New York, New York: Heinemann, 2005. Print.
Foreign and Commonwealth Office. Overseas Business Risk – Italy 2016. Web.
Index of Economic Freedom 2016. Web.
Maclachlan, Matthew. Challenges of Doing Business in Italy 2010. Web.
US Commercial Service. Doing Business in Italy: 2012 Country Commercial. Web.
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