OUM BUSINESS SCHOOL

SEMESTER JANUARY 2023

BBNG3103

INTERNATIONAL BUSINESS

MATRICULATION NO : 940116145704002
IDENTITY CARD NO. : 940116145704
TELEPHONE NO. : 011-26217013
E-MAIL : nadiahrashiqah@oum.edu.my
LEARNING CENTRE : Negeri Sembilan[op
PADINI HOLDING BERHAD
1.0 COMPANY PROFILE
1.1 Background of the company
Padini is a Malaysian-domiciled investment-holding company headquartered in
HicomGlenmarie Industrial Park, Shah Alam. Incorporated in 1971 as proprietorship
under the trade name Hwayo Garments Manufacturers Company, Padini was initially
engaged in the manufacture and wholesale of ladies wear. The company subsequently
added men’s and children’s lines to its offerings when it established its first three brands
from 1975 – 1987. In 1988, Padini discarded its role as wholesaler to take up the role of
consignor. Thereafter, the first single-brand store distributing Seed was opened in 1992 in
Sungei Wang Plaza, Kuala Lumpur.
The company has nine labels in its family of brands and retail in 330 freestanding stores,
franchised outlets and consignment counters in Malaysia and around the world. The
company’s subsidiaries include Vincci Ladies’ Specialties Centre Sdn. Bhd., which is
engaged in dealing of ladies’ shoes and accessories; Padini Corporation Sdn Bhd., Seed
Corporation Sdn. Bhd., Yee Fong Hung (Malaysia) SendirianBerhad (Yee Fong Hung)
and Padini International Limited, which is engaged in dealing of garments and ancillary
products; Padini Dot Com Sdn. Bhd. (Padini Dot Com), which is engaged in provision of
management services, and Mikihouse Children’s Wear Sdn. Bhd. (Mikihouse), which is
engaged in dealing of children’s garments, maternity wear and accessories.
Tizio was introduced to the public with the opening of its first outlet in Mid Valley
Megamall in Nov 2012 and subsequently in Paradigm Mall on 23 May 2013. Like almost
all of the Group’s Brands, Tizio was developed in-house by, and is registered to the
group. Anticipate more presence from Tizio in the coming years as the brand has been
slated to become an addition to the group’s portfolio of core brands.
On 5 March 1998, the group was listed on the Second Board of Bursa Malaysia Securities
Berhad (Bursa) and thereafter, transferred to the Main Board on 4 August 2004. The
Main and Second Boards merged on 3 August 2009. Major shareholders of the group as
at 8 July 2013 are Pang Chaun Yong with 44% and Skim Amanah Saham Bumiputera
with 5.0%.

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 1.2 organizational charts
HAJI SAHID BIN MOHAMED
YASIN

(CHAIRMAN)

YONG PANG CHAUN

(MANAGINGDIRECTOR)

YONG LAI WAH YEAP TIEN

FOO KEE FATT
CHONG CHIN CHAN KWAI CHING CHEONG CHUNG
LIN HENG YET
(DIRECTOR) (DIRECTOR)
(DIRECTOR)
(DIRECTOR) (DIRECTOR) (DIRECTOR)

(Organisation chart been done by our group)

1.3 company structure

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Today Padini have grown to become one of the country’s prominent fashion companies.
They address fashion-conscious consumers of both genders and all ages through their two
multi-brand labels carrying their own brands – Padini Concept Store with nine brands
(Padini, Seed, Padini Authentics, PDI, P&Co, Miki, Vincci, Vincci Mini and Vincci
Accessories) and Brands Outlet. Each of these labels represents a unique fashion
philosophy and encompasses a comprehensive range of products that fit into their
targeted consumer’s universe. Since Padini’s foundation in 1971, they have grown into a
global brand with an international presence in multiple countries. In total, they have 131
stores, franchised outlets and 10 consignment counters stores in Malaysia and multiple
markets overseas such as Cambodia, Indonesia, Bahrain, Brunei, Myanmar, Oman, Qatar,
Thailand and the United Arab Emirates. As their initiative to build their online presence,
they are also available online via e-Commerce site Padini.com. Beside own website, they
have started Live Sales on social media – Facebook live. They are also tagging along
other online portal, Shopee and Lazada. While they may have grown in size they have
and will always strive to give the best fashion, quality and value to their customers. They
will always strive to exceed our customers’ expectation by providing the best customer
experience.
The vision is to be the best fashion company ever. They aspire to be a global leader in the
fashion and retail industry with the highest standards in design, quality, customer service,
branding and innovation. As a creatively driven and design-oriented group, they want to
create fashion consciousness that is stylish yet affordable within their brand niches. They
underlying philosophy is to lead the change towards a circular and renewable fashion
industry while being a fair and equal company. The vision and strategy apply to all
brands while allowing each of them to maintain their own brand identity. They know that
achieving their vision will not be easy, but they openness to tackling challenges keeps us
alert to opportunity. Their mission is to exceed customers’ expectations and brands’
promise.

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2.0 FOUR major motives the firm undertakes FDI in a particular country and name the
country
China
Besides being the world’s most populous country, China is set to be the world’s largest
retail market, overthrowing the US. Furthermore, backed-up with their rapidly growing
middle-class, Chinese consumer base is continuously growing and is showing significant
potential growth in most industries. This makes China an appealing market to enter.
China is the largest world fashion market with revenue amounts 1,592 billion yuan in
2019. The rising in disposable incomes of China’s workers is pushing forward their
purchasing power. The womenswear category posted a strong sales growth estimating 57
billion yuan. In 2016, the implementation of the two-child policy led to the rise in the
booming market for babywear which occupy almost 30% of the market. Nevertheless, the
fast-moving internet retailing in China has turned into one of the most influential sales
channels for apparel.

2.1 Market segmentation

Market segmentation is a process of determining segments within the existing market and
differentiate customer base into sub-groups. Different segments require different
marketing programs where once potential customer segments have been identified,
marketers must choose which segment to enter. When entering China, Padini investigated
Demographic segmentation where Padini targets Chinese consumers that are derived
between ages of 7 to 60 years old; differentiate according to both gender; comprises all
occupations, as well as it targeted medium income levels as potential customers. Second,
Behavioural segmentation which Padini targets Chinese loyal customers, especially
regular buyers that purchase clothing products at least twice a month.

2.2 Customer characteristics

Firstly, Chinese market can be segmented based on age, like “the twenties,” who are
willing to spend more on various products as they are fond of trendy products. Moreover,
they can also be segmented based on income levels. The middle-income group in China

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is still constantly growing. Additionally, their purchasing power is also increasing,
resulting in them being less price sensitive and more brand-conscious. Lastly,
differentiation based on location. As consumers in East and South of China are highly
urbanized which led them to be more up-to-date in fashion.

2.3 Customer Purchasing Behaviour

In addition, apparel industry in China is expected to maintain steady growth in the
upcoming periods. There is rising demand for good quality products of Chinese
customers. Also, savvy Chinese shoppers are becoming more brand-aware. Rising
income levels is the main driving force for these trends. Furthermore, staggering with 903
million internet users, the dramatic increase in online shoppers is changing the Chinese’s
purchasing behaviour. They now tend to rely on online platforms to purchase things and
put more trust in online review.

2.4 Potential target market segment for the product

Overall, the potential target market for Padini is mainly based on their segmentation,
behaviour, and characteristics. In terms of market segmentation, Padini chose and
focused more on “the twenties” and middle-income groups who are most likely to spend
more on clothing. Moreover, for purchasing attitudes, Padini concentrates on the
customers that have high demand to purchase, such as the online shoppers and savvy
Chinese shoppers. Paying attention to customers’ characteristics is also important for
Padini to meet the potential target customer’s expectations, wants, and needs as well as to
make customers purchase the products.

2.5 Padini’s Market Entry Strategy and Positioning Strategy

In summary, Padini can use Foreign Direct Investment (FDI) as mode of entry strategy
when expanding its business to China. This is due to the net profit margin growth has
remained stable at around 11% and the average return on equity is 25.38% within the last
10 years, shows that Padini has great financial stability. Padini’s motive is attracting new
sources of demand as a strategic alternative to potentially enlarge their product’s demand
base in the host country. This will benefit Padini to increase profitability, boost revenue,

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low risks, as well as engage the market. For positioning strategy, the Global Consumer
Culture Positioning (GCCP) strategy can be proposed by Padini as it is related to the
Padini’s vision which is also connected to the company’s brand values that sells trendy,
casual, and chic fashion clothing. By adapting this strategy, Padini as a global company
sells and offers the same product in different countries. Thus, ‘Being the most fashion
company’ is the message that they are selling to the customer mind.

3.0 Discussion on the benefits of FDI to the host country

3.1. Economic conditions in the foreign market selected

Since China shifted from centralized-economy to open-economy in 1978, China has
experienced around 10% increase in their GDP every year. Following this, Chinese
consumers’ buying power has also increased dramatically. China’s middle class is
consistently growing throughout the years, and are expected to reach 550 million by
2022. The Chinese government has continually encouraged FDI by giving various
incentives for foreign companies. The economic situation holds big potential and will be
very beneficial for Padini. However, one thing Padini should pay more attention to is the
high inflation rate of Chinese market

3.2. Social and Cultural Factors

China is the world's most populous country, with a huge number of 1.42 billion
population. In regard, China offers a massive consumer base for consumer products, and
this is beneficial for Padini. Another substantial social trend is that a large portion of
Chinese tend to shop online. By 2020, there are around 710 million online shoppers in
China, where is great opportunity for Padini if it can include a shopping e-platform in
China. However, one thing that Padini needs to take into consideration is the need of
using Chinese as their main language of communication.

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3.3. Technological Factors
The main technological element driving the Chinese market is the usage of the internet.
There are more than 903 million internet users in China, and this determines their method
of purchasing. E-commerce is the most popular commercial transaction carried out online
via the internet which has become the biggest factor that helps the purchasing power of
Chinese people. In this case, Padini should conduct partnerships with the biggest e-
commerce store in China which is TMall and Alibaba as the majority of the population
access and purchase products from these platforms.

3.4. Political or Legal Factors

China is well-known with their government regulations. The policies implemented had an
effect in foreign traders. As a result, long-term marketing plans are arduous to be carried
out when Padini expands its market into China. An additional factor such as legal issues
(e-commerce legislations, tax policies) are an ardent topic in expanding business into
China. As e-commerce is a fresh sector in China, the legality is to help in the current
developmental model. In such, Padini needs to take note of establishing its business into
the e-commerce sector without interfering with their legal issues.

3.5 Infrastructure, telecommunications, media and information technology environment.

Based on the infrastructure issue, VPN ban may be an important issue to consider when
entering China. China's internet policy had pointed strictly into online censorship. Hence,
clients from China could not reach the official “Padini.com” website from mainland. In
order for Padini to be popular in China, they need to have their own well-developed “.cn”
Chinese official websites to avoid any restrictions. Padini also needs to open Chinese
social media platforms in terms of social networking and marketing to increase and
expose followers.

3.6. Regional Market Characteristics

When doing business in China, the various regional market differences help Padini easier
to position market entry. Padini should take more consideration on market characteristics
in each region. In East China, the market is highly urbanized and advanced economic

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development. Consumers are more stylish and usually follow the latest fashion trends.
However, in the Central of China, there is heavy emphasis on agriculture and more
vulnerable to floods and drought disasters. Therefore, the growth markets can be more
suitable in the South and East of China which can tap into more affluent consumers.

3.7. Ecological Factors

China is one of the most polluted countries. They concerned about environmental
problems that might affect their industry production. Therefore, remove systems that
affect environment is their main concern. However, some China’s fashion industries are
attentive towards carbon footprint and market their brand as an environmentally friendly.
To expand into China, Padini can invest in the environment and sustainability by using
environmentally friendly raw materials, operations and packaging. They may consider
operating in the goal of minimization of carbon footprint and maximizing their
productivity.

3.8. Opportunities and Threats Analysis

The major opportunity is the local manufacturers in China bring benefits to Padini. Padini
can locally produce all its clothing products as it provides opportunities to hire
inexpensive labor and lower product prices with good quality materials. On the other
hand, the threat is the emergence of competitors in the fashion industry. In this case,
Padini should collaborate with the local Chinese manufacturers and designers to come out
with clothing design and innovation that are deemed to be trendy in order to penetrate
whole China’s fashion market industry.

4.0 The negative impact of FDI on host country

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4.1 Profit repatriation

When MNEs make investments in foreign countries their main objective is to maximize
their profit. Some advantageous characteristics of these countries, such as cheap labor
force, natural resource abundance or high-quality expertise, allow MNEs to enhance
their economic performance. MNEs regularly repatriate their profits from investment to
the account of their parent companies in the form of dividends or royalties transferred to
shareholders as well as the simple transfer of accrued profits. It also helps them avoid
larger taxes by using transfer prices. However, this profit repatriation results in huge
capital outflows from the host country to the home country and negatively affects the
balance of payment of the former. Thus the host countries often set limits on the amount
of profits that MNEs can repatriate in order not to have balance of payment deficits or
reduced foreign exchange reserves. Such policy can induce these MNEs to invest profits
in different projects within the host country (Billet, 1991). But there is also a possibility
that such limitations might discourage MNEs from investing in these countries, which
will move FDI to the countries with less profit repatriation limitations. For example, a
survey of chief executive officers from 193 American MNEs revealed that nearly 70% of
them viewed profit repatriation as a main factor positively motivating the FDI behaviour
of them (Kobrin et al). One of the biggest FDI receivers in the world, India, permits
100% profit repatriation for foreign investors in most sectors (NRI Repatriation).

4.2 Dual economy effect

FDI, especially, made in the developing countries can lead them to have a dual economy,
which has one developed sector mostly owned by foreign firms and underdeveloped
sector owned by domestic firms. Since the country’s economy becomes overly dependent
on the developed sector, its economic structure changes. Often this developed sector is
the capital-intensive, while another one is labor-intensive. Therefore, dual economy
effect hampers the economic development of countries as most of their citizens are
located in the non-developed labor-intensive sector. This effect is visible in most oil-rich
countries, where foreign investments made in the oil and gas sector resulted in the
resource boom and left the agriculture and manufacturing sectors underdeveloped. That
negative effect of FDI can lead to Dutch Disease effect in natural resource abundance

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countries. Dutch Disease model postulates that a resource boom, mostly after the huge
investments in the sector, diverts country’s resources away from activities that are more
conducive to growth in long run. First symptom of this phenomenon is an appreciation of
the country’s exchange rate caused by resource boom, which in turn causes a contraction
in the manufacturing exports (Bulte et al, 2003). The booming resource sector draws
capital and labours away from manufacturing, leading its costs to rise (Neary and van
Wijnbergen, 1986). The result is that the competitiveness of country’s non-tradable
commodities rise, while that of tradable – manufacturing commodities falls in the world
markets, reducing the potential for export-led growth of manufactures in the long run.
Since manufacturing sector is regarded as the main “engine of growth”, its decline causes
consequently a growth decline in country’s economy in the long run (Sachs and Warner,
1999). One possible solution to the problem is a diversification of the economy by
investing in different sectors.

4.3 Balance of payment effect

Empirical studies reveal that a bidirectional relationship exists between foreign

investments and imports. An increase in FDI inflows from the home country will result in
an increase in imports in the host country from the home country. It can be due the fact
that the MNE purchases inputs from its traditional suppliers or increased inflation rate
speeded up by foreign capitals in the home country. As more investment flows in, the
host country economy becomes more and more dependent on the production technology
of MNE’s home country. The host country will have to import more inputs and
intermediate goods from the MNE’s home country, which might constrain the
development in the domestic industry. If these investments are not export-oriented, the
host country can suffer from trade deficits (Chaisrisawatsuk S. and Chaisrisawatsuk W,
2007).

4.4 Environmental issues

A large volume of FDI is concentrated in natural resource sectors of developing and less
developed countries. Most of these countries have a less strict or non-existent regulatory
regime. Sometimes countries deliberately attempt to exempt or loosen their regulatory

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requirements to attract FDI. However, while these countries can benefit from positive
effects of investment, the negative effects of FDI on host country’s ecosystems and
environment might bring disaster in the long run (Gray, 2002).

The solution to these problems is to raise host country capacity to regulate and construct
international environmental standards. NGO’s and other civil society groups from home
and host countries can also play a significant role in the improvement of government
regulations and increase of MNE’s responsibility on environmental issues (Mabey and
McNally, 1998).

5.0 Recommended another country for FDI and the reasons

REFERENCES

Davadas, N. (2016).
Padini Authentics Situation Analysis
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Authentics-Situation-Analysis[Accessed 9 Apr. 2016].H, E. (2014).
Fashion could become Malaysia's major export - The Rakyat Post
. [online] TheRakyat Post. Available
at: http://www.therakyatpost.com/business/2014/05/12/fashion- become-malaysias-
major-export/ [Accessed 15 Apr. 2016].http://corporate.padini.com/. (2016).
Padini Holdings Bhd
. [online] Available
at:http://corporate.padini.com/index.php/corporate/index/about_us/
mission_and_vision[Accessed 10 Apr. 2016].http://padini.cudo.my/. (2016).
Padini Holdings Bhd
. [online] Available
at:http://padini.cudo.my/corporate/index/about_us/mission_and_vision [Accessed 11
Apr.2016].Klse.i3investor.com. (2016).

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 Dude, what is up with Padini? - The dude series | I3investor
.[online] Available at: http://klse.i3investor.com/blogs/rarecharms/90715.jsp
[Accessed20 Apr. 2016].Malaysiafreebies.com. (2016).
PADINI 4 Days Special Discount Price Sale Nov 2015
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discount- price-sale-nov-2015/ [Accessed 20 Apr. 2016].Tan, A. (2016).
Asia Value Investing
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Padini-A-popular-and-affordable-Malaysian-clothing-brand/cour/
566ab4480cf2beecdd83209e [Accessed 20 Apr. 2016].Tan, E. (2016).
Spotlight on fashion stocks: Padini gets its concept right
. [online] archive.is.Available at: http://archive.is/DprD0 [Accessed 20 Apr.
2016].Themalaymailonline.com. (2016).
Padini pre-tax profit jumps to RM44.53m in Q2
. [online]Available at: http://www.themalaymailonline.com/money/article/padini-pre-tax-
profit-jumps-to-rmrm44.53m-in-q2 [Accessed 26 Apr. 2016]

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