Background and Introduction

Michael Kors should consider expanding its operations in Portugal to help boost the current income levels. The company should put more emphasis on products that have a positive response so far when it comes to the expansion. It is also a high time to bring in more designs and even develop designs specific for this market to help increase the sales levels.

The fashion industry is quite complex and keeps changing from time to time. This is usually based on the functions of individuals involved with the industry that involve seamstresses, designers, factory workers, stores, the media, salespersons, publicist, models pattern makers, and sketch artists among others (Cyr, 2016). For this reason, every company involved invests significantly to help remain relevant in the markets of business. This is an industry where the companies involved have to anticipate what the customers want based on prevailing trends. There are periods where enterprises have to even adapt to changes that they did not anticipate at all.

These dynamics have made the industry very competitive. The presence of close substitutes for the goods being sold has prompted companies to identify different ways of staying ahead of the competition. The competition has contributed to companies getting involved with the global market by operating as multinational companies. Operating in foreign borders makes it possible for these companies to increase revenues by way of acquiring new markets in different economies. Some markets have not yet been saturated, and this makes it possible for these companies to penetrate (Cyr, 2016). However, it is important for a company to assess the dynamics of every market before making the decision to invest.

Portugal provides a good environment for the undertakings of Michael Kors. The country has now recovered from the economic crisis, and the government is looking to see things progress positively without experiencing any forms of laxity. The government is working to remove restrictions on foreign investors to encourage direct foreign investment. Provision of several incentives to help in this quest is already in play (Gov.uk). Among the important things that foreign investors should uphold when doing business in the country is the laws and regulations as they have been outlined. Doing what is required by the law helps to avoid unnecessary fines and restrictions.

The population of Portugal also provide a conducive environment for Michael Kors. The 2011 census estimated the population to be 10,562,178 (Goretti, 2014). The Portuguese are known to be friendly and welcoming when dealing with strangers. This means the company’s activities will be embraced so long as the management takes its time to study the people’s culture. Studying a foreign culture ensures the company acts as expected, which makes it possible for the public to accept the products or services being offered. Studying of the market and making necessary adjustments will not be a problem for Michael Kors since it has delved into different foreign markets. The company commenced business a long time ago thereby exhibiting required market expansion strategies.

Doing Business in Portugal

The World Bank ranks Portugal number 25 when it comes to ease of doing business in the country. Portugal is a European country located in the Iberian Peninsula, which is in Southwestern Europe. Portugal acts as a gateway market to over 250 million people worldwide, and this is enabled by the ties that the country has managed to keep with its former colonies (Gov.uk). These are countries such as Angola, Brazil and Mozambique, which are known as Portugal’s Lusophone markets. The Portuguese market derives its strength from several factors. Among them is that the country has among the lowest operational costs in Western Europe hence making it easy for both small and large firms. Portugal also has competitively priced facilities and locations readily available. Hubs in local universities have also ensured that there is strong technology investment in the country. This is advantageous since technology is known to bring more excitement and progress in the business world.

The PESTEL analysis comes out as a good analytical approach since it helps to assess the different aspects that can affect business in Portugal. Assessing these aspects helps a company to decide on whether to invest or not.

Political Forces

The global economic crisis of 2009 had a significant negative impact on the country’s fiscal outlook. This was evidenced by the country experiencing a 9.5% deficit in 2010 (Goretti, 2014). Consequently, there was a need of coming up with a fiscal consolidation strategy. The government has been planning dozens of projects to help boost the economy even further after the recovery from the crisis. These anticipations have made the government open to direct foreign investments to a wider scale.

The government has ensured that there are no restrictions on foreign shareholders or foreign investment in the country. This is what makes the market lucrative for multinational companies. There is no need for foreign investment operations being registered with Portuguese local and central authorities. However, there is the need of reporting direct foreign investments to the Portuguese Central Bank that exceed €10,000 (Gov.uk). Multinationals with the intentions of investing in the country should also note the weight with which the government gives to employees’ treatment. The Labour Code is the law that regulates employment relationships. The Code is responsible for governing, execution, formation and termination of varied employment contracts. There are several mandatory rules embedded in the code. In respect to this, it is prudent for multinationals intending to operate in the country to get sufficient knowledge regarding the labour laws to ensure they are in good terms with government authorities.

As a way of giving foreign investors the urge to invest in the country, the government also offers several incentives and grants. They include tax benefits, financial incentives, provision of necessary infrastructures and public funding among others.

Social Forces

According to the 2011 census, the population of Portugal stands at 10,562,178. Majority of the Portuguese profess to the Roman Catholic whereas there are few Protestants, Jews, Hindus and Muslims. Portuguese are known to be very friendly and welcoming when it comes to strangers. Most of the times there is sincerity is what they say. Personal relationships have come to be integral elements of the business. For this reason, the citizens prefer doing business with people that they can trust. It is important for a business to build a certain degree of trust before commencing any form of negotiation to fit this bill (Goretti, 2014). The flexibility of a business also matters to people as they enjoy having long-term business relationships as opposed to one-off transactions. Their respect for foreigners makes it possible to embrace other people’s ideas. It is important for foreign businesses to take time and understand the Portuguese culture, values and attitudes before venturing. Failure to do this will likely result to “culture shock” hence realisation of negative impact on the business at hand.

Economic Forces

Portugal is a member of the European Union, and to this effect, most of its international trades are done with other European countries. In 2015, the European Union countries received 72.8% of exports coming from Portugal. During the same year, these countries contributed to 76.5% of all imports coming into Portugal (Portugal.com). Portugal uses the euro (€), and it has been a member of the Eurozone since inception. The country’s economy had plunged after the 2009 global crisis. However, it is now experiencing steady growth as from the third quarter of 2014. In 2016, the country’s nominal GDP was $204.56 billion, and the GDP growth rate was 1.4% (Tradingeconomics.com).

Portugal’s economic recovery has come as a result of respectable export performance and increased domestic demand. The government has now been concentrating on strengthening commercial links with Lusophone markets too. The privatisations that took place after the recession have been beneficial too. The country was engaged in a €5 billion privatisation program that was agreed upon by European  Central Bank, International Monetary Fund and EU as a condition for receiving bailout (Gov.uk).

Foreign investors that desire to operate in Portugal have several options on how to commence. These ways include setting up an agency, exporting directly, forming joint ventures, manufacturing under license, appointing a distributor or acquiring domestic companies; either partly or wholly.

Technological Forces

Technological improvements in Portugal are constant, and there is always the combination of skills sets coupled with creativity and innovation to help bring about quality products and services. There is widespread technological and scientific research conducted within R&D units network. These are usually owned by state-managed research institutions and public universities. The government has been increasing innovation expenditure and output to help move forward as a state.

Environmental Forces

In Portugal, the promotion of environmental protection is regarded as all economic agents’ responsibility.  This includes the citizens, state, small and large enterprises. The financial sector has also been given a role of anticipating new needs experienced by enterprises regarding environmental aspects since it is a risk manager and resource allocator (Goretti, 2014). Companies that promote desirable environmental standards, do not face numerous backlash with authority.

Legal Forces

Portugal employs a civil law system in which most legal provisions are encompassed in statutes. Usages and custom only have legal force if they are provided by law and up to the  extent which they do not contravene the principles of good faith. The country’s legal system has undergone several reforms but remains slow and complex to some extent. It is usually recommended for there to be a 6 months to 1 year trial period before indulging in lengthy agency contracts (Goretti, 2014).

When exporting products to Portugal, one is required to provide all relevant commercial invoices, transport documents and certificates of compliance about sanitary and quality measures. The intellectual property law, particularly for patent protection, has not been totally harmonised within the European Union (Gov.uk). Protection of designs and inventions is usually done through the Portuguese Institute of Industrial Property. It is advisable for businesses to first try and understand the country’s legal system before making any investment to avoid future obstacles.

Analysis of Michael Kors

Michael Kors is an American company involved in the fashion and clothing industry. The company has its headquarters in New York but operates as a multinational in different countries. The company was incorporated in December 2002, and acts as a designer, distributor, marketer and retailer of women’s and limited men’s branded accessories and apparel (Caniato et al., 2014). The company has now been operating through the segments of wholesale, retail and licensing. Retail operations encompass lifestyle stores and collection stores. The company operates both brick and mortar stores, and e-commerce store. Wholesale prospects, on the other hand, are done through speciality stores and major departments across America, Asia and Europe. Michael Kors is also popular for licensing its trademark on products like beauty, fragrances, leather goods, eyewear, watches, jewellery, men’s suits, coats, and ties (Michaelkors.com).

The Porter’s 5 Forces is another valuable tool for assessing the dynamics of Michael Kors as it aspires to expand into the Portuguese market.

Bargaining Power of Buyers

Two types of buyer powers facing Michael Kors are related to customers price elasticity and negotiating power. When it comes to price elasticity, products being sold in the industry are similar and serve the same purpose and this makes the buyer base their purchasing decision on the price (Cyr, 2016). The power of buyers is high in this case. Negotiating power on its part depends on whether it is individual buyers or few large buyers. Individual buyers have little bargaining power, but when it is a case of few large buyers the bargaining power is high.

Bargaining Power of Suppliers

The bargaining power of suppliers for Michael Kors is weak. This is due to the fact that the company relies on numerous suppliers to get the necessary resources. Measures have been taken to ascertain that there is no single supplier that brings in a high percentage of resources that would warrant pressure on the company. These suppliers are also located in different countries. In addition, most of these suppliers view it as an important aspect to be supplying Michael Kors since it is a high-end multinational brand. The company is desirable to these suppliers due to the high volumes involved with the orders (Caniato et al., 2014). The company can also easily substitute suppliers at a very low cost due to the economies of scale.

Threat of New Entrants

The threat of new entrants in the fashion and clothing industry is moderate. New market entrants are faced with the barrier of accessing distribution channels. Finding vacant places with attractive locations for opening new stores is difficult. However, E-commerce is trying to neutralise this advantage to some extent (Cyr, 2016). A company like Michael Kors also enjoys economies of scale; something that new entrants would take time to benefit from. The large capital requirements to help keep up with established companies in the industry is problematic for new entrants too.

Threat of Substitutes

The threat of substitutes is high since it comes from within the industry. There is no brand in the industry that is assured of staying at the top without prioritising the needs of the customers. This applies to both the high-end and low-end products. When it comes to substitutes here it is not about the clothing involved, but the brands. Customers can easily shift from one brand to the other since they are all serving a similar purpose.

Degree of Rivalry

The degree of rivalry in this industry is strong. This comes about since there are many companies in the industry producing similar products. Competition comes in terms of advertising battles, price competition, introduction of new products, guarantees and improved services (Caniato et al., 2014). The rivalry comes about since some of the competitors see a possibility of improving their position or they feel pressured. Once a company employs certain measures they tend to affect others hence the need for introducing retaliatory action.

Conclusion

Portugal’s PESTEL analysis shows that the country has a good environment for expansion of business. The country is at the point where the government is encouraging businesses to invest to help boost the economy further. Going the extent of giving incentives as an indication of the government’s intent. Portugal’s ability to trade with other countries is also an encouraging factor. This acts to show that the buyers easily accept products and brands from other countries. Going with the friendly nature of the citizens towards foreigners works to emphasise this too. The country’s economy has also recovered and is moving in the right direction. The purchasing ability of the citizens will increase based on this due to probable improvements in income levels. Michael Kors should go ahead and expand its business in the country since the factors likely to affect the company are positive. The company is already in this market, but there is potential to grow. It has not yet established itself robustly compared to some of the top brands in that market. The Porter’s five forces seem to favour the company as it will have control in most areas. It is a large company with many years of business experience, and this increases the probability of success.

References

Caniato, F., Caridi, M., Moretto, A., Sianesi, A. and Spina, G. (2014) Integrating international fashion retail into new product development. International Journal of Production Economics. 147 pp.294-306.

Cyr, A. (2016) The Guide to Textile Fibers: Clothing and Fashion Industry. 2nd ed. CreateSpace Independent Publishing Platform.

Goretti, M. (2014) Portugal: Selected Issues Paper. Washington, D.C.: International Monetary Fund.

Gov.uk (2015) Doing business in Portugal: Portugaltrade and export guide – GOV.UK. [online] Gov.uk. Available at: https://www.gov.uk/government/publications/exporting-to-portugal/doing-business-in-portugal-portugal-trade-and-export-guide

Michaelkors.com (2017) [online] MICHAEL KORS. Available at: <https://www.michaelkors.com/>

Portugal.com (2017) Portugal Economy. [online] Portugal.com. Available at: https://portugal.com/portugal/information/economy

Tradingeconomics.com (2017) Portugal GDP | 1960-2017 | Data | Chart | Calendar | Forecast | News. Tradingeconomics.com. Available at: https://tradingeconomics.com/portugal/gdp

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