Why Prada Came To China

We divided the paper into 5 sections. The first section is something about the history of the company. The second one explains the reason of Prada’s coming to China. The third one introduces the form they come to China. The fourth one is to let you know the specific form, which we know as organization structure, Prada has used to enter China. The last one is conclusion.

Our group’s idea is to let everyone of us have a full understanding of Prada instead of each person just knowing some pieces of it when the paper done. On this basis, we first make every group member get involved in completing the first three sections. According to this, we make specific divisions. David, the only boy in our group, takes charge of section one. You can find it in page . Lily and Elaine administer the second section. You can find it in page . Then, Joi and Candice write the third one. You can find it in page . On this condition, everyone can get a wide scan of Prada. When we have done all first three sections, we start section four together. This section is about the specific form Prada use in China. The organization structure is an important issue in this year’s Week of diplomacy, so every one of us needs to grab the main concept of the book we learned in October. Then, we use what we learned to see the organization structure of Prada. This part also needs to answer eight basic questions in chapter 10. The reason for we write section four together is the part needs knowledge in book, we want everyone can get enhanced in researching and evaluating Prada’s organization structure. Take all the factors such as the equality of divided work into account; we divide the eight problems into five parts. Question one to three is done by Elaine and Lily, question four is done by Candice, question six to seven is made by David and Joi is take charge of the last two questions. The conclusion contains four questions, Candice writes the first, Lily is the second, next is Elaine and the last is David. Since we have done the first four sections together, we have made the resource public in our group. It is no different who do this part. So we divide conclusion part by draw.

From now on, we will first introduce the summary of each section.

In section one; you can see a brief history of Prada. Mario Prada is the founder of Prada. In 1913, he established a store selling some luxurious commodities. In 1919, the Italian royal family becomes its consumer because of its good fame. In the past so many years, the company has faced many changes. Hundreds of years later, Prada met a very challenge task. They must enlarge their range of sales to avoid being beaten in the global economy. It plays an important role in its expansion career.

In section two, there is the reason of Prada’s coming to China. It has been explained in section one. This part is concentrated on the details. Prada has been found exploring all over the world.

In section three, we can know the form they come to China. Prada is a wholly foreign-owned enterprise company, and this is not the only option which Prada can choose. There are 3 types of investment forms which are called wholly foreign-owned enterprise, Sino-foreign Joint Venture and representative office.

In section four, we can look the form in detail. We will see it below and will not have more added words here.

I History of Prada

Mario Prada is the founder of Prada. In 1913, he established a store selling some luxurious commodities. Fortunately, his goods sell well at the outset and he became a famous and successful businessman in Europe. In 1919, the Italian royal family becomes its consumer because of its good fame. When Miuccia Prada, the grand-daughter of Mario, met with Patricio Bertelli, an unbelievable change occurred. Patricio Bertelli was a businessman who was able to come up with creative ideas from time to time. He built up IPI spa producing Prada leather goods with the Prada’s official authorization in 1977. Several years later, the two companies were combined together to pursue the greatest profit. A critical innovation happened in 1983 that the managers of Prada decided to show consumers a total new impression by blending tradition elements with modern architectural setting, which proved to be successful later and resulted in creating fresh products. After 1986, some international cities were selected to build chain store by Prada, such as London, Paris and Tokyo. In 1993, a new brand named MiuMiu was designed to appeal to some women who are crazy about purchasing trendy and sophisticated goods.

Hundreds of years later, Prada met a very challenge task. They must enlarge their range of sales to avoid being beaten in the global economy. “‘Sooner or later, it will happen to everyone because Chinese manufacturing is so good,’ Prada designer Miuccia Prada said in an interview.” (Prada moves manufacturing into China, MO http://www.moluxury.com.au/themodown/?p=2012 October 25, 2012, by David) He was the first person to express ideas of expanding the company internationally on the public.

His words reveal a new strategy which Prada has made. It is a time that they paid more attention to the market of Asia. Bertelli, another Prada officer, believed that with the improvement of average salary in China, more and more people will be high on some luxurious goods. Therefore, it is a wise decision to build more manufacturing factories, pulsing selling more goods in China. In fact, from the statistics in Prada Spa, we can make a conclusion that Asia, especially China, contributes to the main part of 60% of Prada’s net profit in 6 months. “Another March report by McKinsey & Co., Bloomberg News said China’s purchases of optional goods will jump to an annual compounded rate of 13.4 per cent between 2010 and 2020. “(Prada Embarks on Ambitious Expansion Plan, Misa, http://au.ibtimes.com/articles/345225/20120524/prada-leather-china-india-brazil-morocco-istanbul.htm , October 25, 2012, by David) That also reminds the leader that China has potential development of economy and lots of Chinese people have enough money to pay for novel goods. Although some experts estimate that the demand for luxurious commodities will fade considering there is a huge distance of salaries between the rich and the poor in China, Prada’s sales are still going up. “For this, Prada Spa has targeted to launch 12 to 15 new stores in China alone this year.”(Prada Embarks on Ambitious Expansion Plan, Misa, http://au.ibtimes.com/articles/345225/20120524/prada-leather-china-india-brazil-morocco-istanbul.htm October 25, 2012, by David) It is good news for newly rich people in some developing cities enjoying their lives better, especially rich women. Unsurprisingly, the rate of Prada’s expanding is over 50% according to some experts’ estimates. It states that the Prada’s situation in China is fine and the leaders of Prada shouldn’t miss this opportunity and make up their minds on grasping it. In addition, in 2011, to strengthen the influences in China, a fashion show named “Prada RTW Spring 2011” displaying a slightly revamped spring collection was hold in Beijing. “Prada’s company wants to tap further into that growing understanding. The show is part of Prada’s plan to continue to expand in the region as it opens more stores in Mainland China and nearby territories.” (Miuccia Prada on China, the Web-and more Amanda Kaiser http://www.wwd.com/fashion-news/fashion-features/prada-takes-spring-summer-to-beijing-3443673?full=true October 25, 2012, by David) The stars like GongLi and Maggie Cheung also attended this fashion show. Miuccia Prada who is CEO of Prada at the present was interviewed by reporters after the end of fashion show. The main idea is that she likes China because China has changed a lot for years and this trend never fade easily. Prada will keep investing the market in China. It is necessary because the first store in China is in Hong Kong but it produces and sells foreign countries mainly. Only big cities such as Beijing and Shanghai can we purchase what we want at present. Meanwhile, the cost of employing a person is relatively cheaper than other countries. If Prada built more factories in China, they can save a lot of money to support more important producing or studying tasks which asked to supply a huge sum of money in time. Some news said that the average of salary in American is 27 times than that in China, while the span of salary of Chinese workers and American workers sounds more exaggerate, which announced that Chinese workers average salary is only 4% of American workers average salary. On the other side, more job positions will be offered if Prada built more factories in China, which is expected by most of the college students considering more and more intense competition is happened in China. Prada can also use local resources to produce more goods if it enters into China. China is a big country and has rich natural resources. If all Prada goods are imported from America, tariff will be a serious problem which Prada must be faced. We think the tariff in China is high and sometimes corrupt power also hinders the development of trade. To some degree, building factories in China may save some expenses. To sum up, we believe that four factors contribute to Prada’s entering into Chinese market. The first is broad market, which makes sure that Prada will have enough sales channels. The second is the improvement of Chinese salary. Chinese people are able to consume luxurious goods now. The third is cost. Employing a Chinese worker cost less than employing an America worker. The fourth is local resources. Using local resources can let up expenditures.

II Why PRADA came to China

Prada as the symbol of luxury fashion has launched in many parts of the world. In its Asia Pacific market, the Chinese parts can not be ignored. Prada has a globalization strategy which contains opening 80 stores per year at the end of 2014, and it was doubted by some experts who said the ambitious strategy may weak the long-term value of the brand. (What Prada’s IPO Says about the Bigger Picture, LUXURY SOCIETY, http://luxurysociety.com/articles/2011/06/what-pradas-ipo-says-about-the-bigger-picture, October 24, 2012, by Elaine), and coming to China is a part of its whole strategy.

China is the country with the most amount of population. These years China has been developing faster and faster, and more and more Chinese who can afford luxury things has appeared. Many famous brands such as Dior, Chanel, and Levis all take China as the new area to raise their sales’ standards. So do the Prada. In fact, Prada develops very well in China though it has some difficulty at the beginning. Prada has made retail on the Internet and China is one of the big markets. The direct retail plays an important role in earning Prada’s salary (Prada Rocks the Trend

Audrey Phoon http://www.divaasia.com/article/4554 October 24, 2012, by Elaine) so it is important for Prada to make good use of the China market.

But as a famous luxury brand, Prada should keep a balance between increasing supply and the desire which consumers want to buy the products. As usual, we fairy men do not want to spend so much money on just something not that useful. But when it comes to people who are rich enough and want to be different and Prada makes sense. If so many people wear or use things same as those rich people, they will loose the desire to buy the products of Prada. Prada needs to know what is the purpose of their expansion and it may do better by always recognizing what kind of people is their customers (What Prada’s IPO Says about the Bigger Picture, LUXURY SOCIETY, http://luxurysociety.com/articles/2011/06/what-pradas-ipo-says-about-the-bigger-picture, October 24, 2012, by Elaine).

As we say above coming to China is just a part of Prada’s globalization, the brand also expands somewhere else. Unfortunately, we did not find the specific answer. However, according to the 2011 annual report, when they did the feedback on the market sales, we can see they have lots of markets such as the Asia Pacific market, the European market, the Italian market, Japan market and the American market. It is not hard to see that the brand has sold itself all over the world. And the condition of each market sales is very well so we can be sure that Prada’s globalization strategy is a right choice (PRADA annual report, PRADA Group, http://www.pradagroup.com/documents/201201/E-Annual-Report.pdf Page36, October 24, 2012, by Elaine)

Prada is an Italian brand. As a result, there are many obstacles for Prada to come to China. There are many differences between Italy and China, including governments, business practice and customs and personal differences.

Firstly, there are many differences in governments between Italy and China. For an example, the taxes of Italy are different from Hong Kong, China. In Italy, the investors are asked to pay the tax called Italian capital gains tax. On this condition, if you make profits from selling your shares, you should pay the tax at a level of 27 percentages. It is as the same as the income tax in the rate they should hand in. However, in Hong Kong, China, it is quite different. As usual, the investors in Hong Kong who are involved in IPO’s don’t need to pay this kind of tax. (What Prada’s IPO Says about the Bigger Picture, LUXURY SOCIETY, http://luxurysociety.com/articles/2011/06/what-pradas-ipo-says-about-the-bigger-picture , October 25, 2012, by Lily)

Secondly, there are many differences in business practice and customs. Their culture is different. With the time passing by, the consumers in China are more nitpick about the luxury brands. In the past, they want to show their strengths, status, and their financial conditions through their clothes. They prefer to brands instead of quality, design and so on. However, this condition has changed. Now, the consumers have a taste which is detailed with high quality and perfect design. This condition make Prada attract more people in China. (China luxury battles shifting tastes, Emily Jane Fox,

http://money.cnn.com/2012/10/03/news/world/china-luxury/index.html?source=yahoo_quote, October 25, 2012, by Lily)

In an interview, the founder of Prada, Miuccia Prada, says that there are many barriers to resolve such as cultural differences. From her opinion, the world has become a global village. So the fashion should adapt the village with different religious, costumes and something else. Prior to this, it images the spirit of a small group. It means that they don’t need to produce peculiar products for peculiar markets. However, they should adapt the world’s trends which is becoming bigger and bigger. She thinks it is a big challenge. Feminists have mixed feelings with love and hate. Feminists want to find facility about the standards of beauty and Women’s externalization. In USA, feminism is not a widely used word any longer, which results from the liberation of women. Miuccia Prada says that it has a long way to go. However, in China, the women’s rights are still a concerned problem. Because a large amount of women are devoting themselves into their work and their buying power is associated with their social power. (Prada and Chinese Feminists, PALM BEACH Woman TM Magazine, http://www.palmbeachwoman.com/business/prada-and-chinese-feminists/, October 29, 2012, by Lily)

Thirdly, there were some personal differences within the company in deciding that China was a good market for Prada. In a report, the news agency declared that the choice of Hong Kong for Prada as a listing site triggered controversy in Italy. However, Miuccia Prada told people that the controversy has been solved and it was an easy decision because of China’s association as a big economy and its large demands on luxury products. (What Prada’s IPO Says about the Bigger Picture, LUXURY SOCIETY, http://luxurysociety.com/articles/2011/06/what-pradas-ipo-says-about-the-bigger-picture#4525 , October 25, 2012, by Lily)

III The form they come to China

Italian brand Prada which was famous at the beginning for its shoes and handbag is one of the leaders among the luxury companies. The products of Prada such as bags, clothes and shoes are all popular with the customers. To some extent, if someone wears Prada clothes, then, people will think that one has good fashion taste and high social status.

With the rapid development of China’s economy and technology, the life of people changes a lot and gets better and better. Meanwhile, people’s demands become much more multiple and complex, not only for the most basic necessities, they begin to pursue a more upscale sophisticated lifestyle, including the purchase and collection of luxury. So, Prada took the notice of China’s potential market and finally, Prada made a right decision that is entering the market of China.

Prada is a foreign investment company. company invests money to open direct in China Prada operates in China through about 25 directly operated stores and a network of selected high-end multi-brand stores and luxury department stores. Whether the sale of Prada is good or bad has nothing to do with the Chinese Government and us Chinese citizens. Prada is responsible for its own profit and loss, as well as the company’s management. (‘Italy keen to bring FDI in fashion, textiles’, Business Line Company, http://www.thehindubusinessline.com/industry-and-economy/economy/article3428719.ece, 11-2-2012, by Joi)

Prada is a wholly foreign-owned enterprise company, and this is not the only option which Prada can choose.

There are 3 types of investment forms which are called wholly foreign-owned enterprise, Sino-foreign Joint Venture and representative office.

Sino-Foreign Joint Ventures need the foreign company’s cooperation with their Chinese partners. Usually, the foreign company provides money and the Chinese company provides human resources and land use rights or the other needed items. Also, the Chinese company should handle problems with the Chinese bureaucracy if any difficulty shows up during the process of producing or purchasing. LV is an obviously example of this investment way. Under this circumstance, both of them don’t need to calculate the contribution ratios so that they can achieve the profit totally according to the terms of negotiate without disagreement. It is often used for BOT projects.

In addition, the first steps for Prada outlet can possibly use the way of Representative Offices, although establish a Representative Office is not the most popular way for foreign investors in China. Strictly speaking, it is barred from many ways like executing direct business activities and it cannot receive the money for it services in some cases. Beside, its staff will not even agree with the terms. To get large profit in this way can be a little difficulty for a company in some conditions. Normally, it is used for purposes just like market liaison, research or product sourcing. The Representative Offices is popular because it’s not only relatively quick and easy, but also inexpensive to establish.

On the other hand, wholly foreign owned enterprises allow the form of 100% foreign ownership. It is so attractive to the foreign investors, whose number has been increased recent years. It is very popular among investors that not only has little experience in investing, but also want to avoid the barriers with the Chinese partner and government’s policy. Also many famous brands, for instance, UGG are a member of this team who also prefers to use this entry vehicle. Nowadays, foreign investors are more willing to take the risk of acting this way, said some financial experts. Thus, wholly foreign owned enterprise is not Prada’s only option, but it can be the best.

(Prada Outlet, http://www.google.com.hk/search?q=prada+outlet1tw9JG2+http%3A%2F%2Fwww.i-arthome.com%2Fforum%2Fforum.php%3Fmod%3Dviewthread%26tid%3D8402&rlz=1C1CHSB_enCN499CN499&oq=prada+outlet1tw9JG2+http%3A%2F%2Fwww.i-arthome.com%2Fforum%2Fforum.php%3Fmod%3Dviewthread%26tid%3D8402&sugexp=chrome,mod=2&sourceid=chrome&ie=UTF-8 ,11-07-2012, by Candice¼‰

IV The Organization Structure Taken by Prada in Coming to China

Miuccia Prada, who is Prada named by, says that “Now fashion embraces the whole world with different religions, costumes, et cetera, et cetera. Before, it reflected the spirit of a small group. There is just one collection, and we don’t make specific things for specific markets, but try to accommodate a world which has become a lot bigger. It’s a lot more difficult in this sense.” (Prada and Chinese Feminists, PALM BEACH Womanâ„¢ Magazine, http://www.palmbeachwoman.com/business/prada-and-chinese-feminists/, October 29, 2012, by Lily) She thinks the world contains so many different cultures and styles. It is hard to make each people satisfied. She argues that it may not that useful to try to appeal to everyone in every different country. But on the other hand, we can try to build a bigger world, let the different styles be mixed and create a new style. It can be more difficult to accomplish due to the different thinking. No matter how the idea will impact the result, we can say Prada is a company which has creative thinking and it can make a big difference from other luxury brand. It is a typical global strategy Prada uses. Organizational structure is the formal system of task and job reporting relationships that determines how employees use resources to achieve organizational goals. Not only the global strategy is the factors that influence a company’s organizational structure, the organizational environment, technology, human resources also do. The outside organizational environment is stable at the second-the hard time is over and Prada gain praise when compared to other related brands. It may result in a decentralized authority system, and the organizational system is not that tight. Of course, the chain of production is always tight and strict. What we say stable here is their structure which is used to hunt overseas’ markets. When it comes to human resources, Prada has hired many talented people who may probable require freedom and autonomy. It may also result in the decentralized and flexible structure. All of above, we believe that the organization is decentralized and flexible. From where we stand, the organization is organized in the best way in the short term. The world is changing fast, so their organization structure can be changed in the long run.

Prada has a large team for development of production. They think creativity is the most important things. To make their product lead the world’s fashion, the standards to enter the company they have set are more difficult to meet. Prada always tries to select best one of their field in the employment market. The company will not miss the chance to grab the talents who are still at school, too. (PRADA annual report, PRADA Group, http://www.pradagroup.com/documents/201201/E-Annual-Report.pdf Page26, October 24, 2012, by Lily) Their fair and pellucid ways to select has drawn many excellences’ attention. It is not hard to see the company has employed many talented people. Their skills vary a lot. Some of them good at designing, some have an advantage in industry manufacturing, some can see higher than others of the whole business cycle. Their different skills can give them the bases to let the idea of a designer become a real product for business. What’s more, Prada is very strict to their cycle of production. Prada even hire specialized people no matter in or out of their local country to take charge of their quality monitoring. External manufacturing is also charged by the checker. (Business Model, Prada Group, http://www.pradagroup.com/en/group/business-model, October 25, 2012, by Elaine) The important reason they are so strict is that they think their task is significant enough for them to devote themselves to it. Prada thinks feedback is also important; the company makes annual report every year. Workers can get direct information about how their job is done. Task significance and skill variety allow employee to realize their job is meaningful. It results in Prada’s all-round and consistent success since most of their employees have high motivation, performance and satisfaction. (PRADA annual report, PRADA Group, http://www.pradagroup.com/documents/201201/E-Annual-Report.pdf Page26, October 24, 2012, by Lily) We can see the employees have much motivation to do their jobs and due to which they become more and stricter to themselves.

As what we say above, China is an important part in its globalization strategy, so the manager who is ready to locate in China needs to pay attention to every aspect. There are many tools for a manager to improve his or her job, and the job enlargement and job enrichment we learned before plays an important role.

At first, we will explain that what is the job enlargement and job enrichment. Job enlargement is to increase the number of tasks for a given job. Job enrichment is to increase the degree of responsibility a worker has over a job can lead to increased worker involvement. With the development of technology, some people in some company feel boring with their work and don’t want to take part in the work. It will decrease the efficiency. On this condition, it’s necessary to conduct job enlargement and job enrichment. We will state my opinion about how a typical job in China can be enlarged and enriched. We choose a middle manager to express my view. Only a group of elites can not constitute an excellent team. The more important thing is that everyone can do his own work well. It’s important to have a good middle manager. At first, the manager should know what he or she should do to achieve their goal and have his or her own thoughts. The manager can divide the works into several groups and make them speak out their opinion about how to do well in their job. Secondly, the manager should distribute appropriate assignments to the subordinates. From our opinion, the appropriate number is two or three. Every task has its requirement and purpose. The manager should set standards for them to estimate. The feedback will be a good choice. Thirdly, the manager can give help to the subordinates. It doesn’t mean that the manager should be responsible for the task. If the manager gives too much help, the subordinates will lose enthusiasm. Then, the manager sometimes should have a meeting to ask for information about the tasks and solve the problems together. Everyone can learn from another one. At last, we think team spirit is the most important. What can a manager do in China to improve cohesion? The manager can create a comfortable atmosphere. For an example, he or she can open a snack corner with food and drinks for the worker to chat or have a break. After work, the manager can get the workers together to have a dinner or go to a KTV to relax. The manager can have a harmonious interpersonal relationship with them and listen for their suggestions.

In general, Prada Company uses the flat organizational hierarchy. Strictly, it is a hybrid structure. It is not a part of a chain, besides, it has the completed structure and the designing organizational structure is divided into different by function and division. Each department can be adjusted easily by functions and divisions so that they can coordinate with each other when the company faces different types of difficulties.

Also, the flat organizational hierarchy with market structure can work. It should be a boundary less organization, there is direct contact between boss and staffs. If it is improve like this, everyone has more chance to play a liaison role to contact with constant other people.

This new structure can improve the employee relationships so that staffs in Prada can feel superiors’ care about themselves and get ready for new challenges, which can let the company get both more effectiveness and efficiency.

As far as I am concerned, the structure can influence the outcome and the organization’s culture. Organizational structure can determine that how employees use resources and how can they achieve the goals. In another word, to some degree, organizational structure can decide the ways in which employees feel, think and behave even affect their values, beliefs, and norms. Advances in technology and the human resource is what an organizational structure depends on. However, the most important thing is the design of a company’s organizational structure.

When people have to work together and accomplish their goals, they have to interact frequently. And after that, with deeply knowing with each other, the harmony in the organization can be better and better. This helps the company accomplish its final goal–earning more money.

(Prada group, organizational structure,

http://www.pradagroup.com/en/group/organizational-structure,

November 2, 2012, by Candice)

“According to the diagram which I found on the Internet, we believe the organization can be divided into four levels.” (Organizational structure, © Prada http://www.pradagroup.com/en/group/organizational-structure, October 28, 2012, by David) The top level is Board of Directors. It is an institution shouldering the responsibilities for stockholders and the company. It has rights to formulate financial budget schemes or final accounting of revenue and expenditure projects. Allocation of profit schemes and covering the deficit is also jobs for Board of Directors. To sum up, Board of Directors is a brain of a company, which decides what to do next and releases the most authoritative commands. The second levels are CEO, Chairman and Deputy Chairman. They receive the consensual messages which Board of Directors has been discussed. All they should do is to study the task and allocate each step to different departments. They are critical in that if they fail to evaluate the situation, the following things which would be done next are not meaningful at all. In general, function is a significant factor influencing the division of the organization, completing that Prada. The leaders of various departments organize their specific manufacturing processes according to the indexes or targets which they are required to reach. The leaders of the bottom level are asked to complete one part of the specific targets. For example, the bottom level may be a workshop producing tyres in a car plant.

Our team supposes that Prada is a decentralized organization. Each level only controls the next level. Everyone in this firm can express ideas about the projects or the tasks. Although Prada was a centralized firm in the past, it has been transforming into a decentralized organization. In history, Prada’s development is depended on the creator, Mario Prada, a merchant who had a sense of business opportunities and investment. However, his successor was not able to manage this business effectively and efficiently compared with Mario Prada, which resulted in the decline of Prada’s sales last century. To avoid this happened again, Prada managers are willing to listen to their employees’ voices and consider the possibilities of practicing their suggestions.

There is no doubt that the present construction of authority is appropriate for Prada. “Patricio Bertelli, owner and CEO of Prada recently stated that he is confident in the future development of the Prada brand and distribution network. Prada has invested ten million euros in the TRANSFORMER project, a design innovation to be presented at Saul, Korea during this month. Miuccia Prada will personally attend to the official launch of the project and she is confident that this investment will be beneficial in the near future for both Korea and the entire region.” (PRADA shows confidence in future and continues investments, http://www.cpp-luxury.com/prada-shows-confidence-for-future-and-continues-investments/, © 2009 cpp luxury, October 28, 2012, by David) Meanwhile, about EUR 1000 million revenues that Prada had achieved in 2011. Prada and Miu Mi