Strategic Management Report: JD Sports Expansion into Hong Kong Market

This report provides a comprehensive strategic analysis of JD Sports PLC's potential expansion into the Hong Kong market. It begins with an executive summary outlining the report's objectives, which include identifying strategic directions for international growth, developing competitive advantages, and achieving strategic objectives. The report then delves into the external environmental analysis using PEST and Porter's Five Forces frameworks to assess opportunities and threats. Internal analysis utilizes the VRIO framework to evaluate strengths and weaknesses. It identifies competitive strategies based on Porter's Generic Strategies and explores strategic directions for markets, products, and services. The report considers methods of expansion and the application of current tools used in the UK stores to the Hong Kong market. The conclusion summarizes key findings and offers recommendations to guide JD Sports' decision-making process for entering the Hong Kong market. The report analyzes key challenges like COVID-19 and provides recommendations for overcoming them, and it discusses the political, economic, social, and technological factors influencing the market. It also evaluates the threat of new entrants, substitutes, and the bargaining power of buyers to provide a complete competitive landscape analysis. This report is provided by a student on Desklib, a platform offering AI-powered study tools for students.

Strategic management
Lorraine martin
21339199
Hong Kong
Word Count: 3829

Executive summary
The prime purpose of this report Is to provide an in depth prospective to the broad of directors
identifying why JD Sports PLC a UK based retailer should expand their business in an Asian market
this will focus on giving the best strategic direction to grow internationally and developing strategies
that will have a positive impact on the company and gain competitive advantage over their
competitors and achieve strategic objectives. It first examines the external environmental analysis
for identifying opportunities and threats are essential: Macro (PEST) & Micro (5 Forces Framework
for analyzing industry structure and the nature of competition). To understand the Internal
environmental analysis for identifying strengths and weaknesses: VRIO. Identification of Competitive
Strategies (Porter’s Generic Strategies) and why they are necessary for JD Sports success and how it
will impact the business if they open a store in the Hong Kong financial markets. In addition, the
Strategic directions (Markets, Products, Services) & methods of expansion and what current tools
does the business use in there UK stores and what they will bring to their Hong Kong stores when
they choose to build a business over there. Finally, the report concludes by a summarising key
finding of the research and make recommendations accordingly to make sure it is the right choice
for the company to open up a store in Hong Kong

Content page
1) Introduction …………………………………………………………………………………………………………………4
2) Company & industry background, key challenges faced by the selected company).……4
3) External environmental analysis for identifying opportunities and threats: Macro (PEST)
& Micro (5 Forces Framework for analyzing industry structure and the nature of
competition) …………………………………………………………………………………….………………………4-7
4) Internal environmental analysis for identifying strengths and weaknesses: VRIO…………7-
8
5) Identification of Competitive Strategies (Porter’s Generic Strategies) ………………….……8-
9
6) Strategic directions (Markets, Products, Services) & methods of expansion……….……9-10
7) Conclusion and Recommendations………………………………………………………………………….…10
8) Reference and Appendix………………………………………………………………………………………11-13

Introduction
The strategic management process can be summarized into two concepts, strategy making and
strategy executing. According to Thompson, Strickland and Gamble (2007), the strategy-
making, strategy executing process. (Appendix 1) Management needs to proactively organise how a
business will be conducted, setting out a clear business plan that will help businesses profits.
Strategy focused organisations have a stronger bottom-line performance than companies that use it
as their secondary method and putting priorities elsewhere.
In this report I will be addressing JD Sports PLC expanding into the Asian market, entering into Hong
Kong and suggesting the best strategic direction to enable JD Sports to grow internationally.
Developing strategies that will help create competitive advantages and achieving strategic
objectives. JD Sports was founded in Bury, Greater Manchester, 1981(JDPLC) by John Wardle and
David Makin, a retail trade that provides fashionable brands, sports and casual wear. (FAME). JD
sports has over 2,420 stores in 18 countries and 48,852 colleagues. JD Sports supply multiple
different things from example clothing stores as well as online and a gym. Hong Kong is one of the
most densely populated areas in the world and third most leading international financial centre,
capitalising in low taxation and free trade having the highest per-capita income in the world
Key challenges
The main key challenges in 2020 for JD sports is COVID-19, shop closures are affecting net profits for
the business as well as employment for employees this is affecting the retail clothing businesses. A
quarter of JD Sports stories are negative meaning their business is getting a negative reception from
their customers, one of the customers has done a county court judgement against the business for
£144 (Doingbusiness) this will stay on the company’s record for 6 years which has affected their
credit score and could potentially jeopardise them getting more credit or applying for new leasing.
External environmental analysis for identifying opportunities and threats
Political
Hong Kong has a territorial system of taxation employees are charged salaries tax in Hong Kong on
income and assessable profit, which leaves employees limited relevance in terms of domestic
taxation. As a result, both resident and non-resident companies receive similar tax treatment. In
light of the COVID-19 crisis, the 2020-21 Budget has proposed one-off reductions of profits
tax. (SANTANDERTRADE). Salaries tax is charged at progressive rates of up to 17% or at a flat rate of
15%, whichever is lower. An employee must make pension contributions 5% of their relevant income
to a mandatory provident fund scheme. (WESTLAW).
Economic and trade affairs; The Joint Declaration outlines the “One Country, Two Systems” model
for the Hong Kong Special Administrative Region. Foreign employees must obtain a Hong Kong visa
(an employment, dependant or investment visa) to work in Hong Kong, the application takes up to
six weeks for it to be processed. The consumer protection law in Hong Kong is criticized as being
inadequate. In England, the Trade Descriptions Act 1968 (Commons,1999) states that an
advertisement that is misleading is perfectly capable of falling within the control of it. However, in
Hong Kong, the Trade Descriptions Ordinance does not include the aspect of misleading
advertisement.

Economic
In Hong Kong there GDP is expected to rebound, emerging from a two-year recession triggered by
political unrest and Covid-19. A gradual recovery in domestic demand should lead the rebound, with
firmer growth in mainland China. The political situation and the course of the pandemic has affected
the economy. Economy to rebound and grow 4.6% in 2021. In 2022, there is growth moderating to
2.9%. (GOV,2019). The domestic demand improved minimal but stayed weak, as of COVID-19 having
an effect on the economy. The consumer price inflation rate edged down to 0.3% in November.
Looking ahead, overall inflationary pressures are likely to stay very mild in the near term as global
and local economic conditions remain because of COVID-19. The unemployment rate edged down by
0.1 percentage point from August to October 2020 to 6.3% in September to November 2020, and
the underemployment rate decreased by 0.4 percentage point to 3.4%. unemployment and retail
consumption remain on the decline, the increase of virus cases globally and trade tensions between
the UK and China will continue to impact Hong Kong’s growth. Hong Kong consumer prices fell 0.2
percent in November 2020, the fifth consecutive month of decline affected by the economic
conditions. Cost was down for clothing and footwear by -5.5 percent. Overall inflationary pressures
are likely to stay very mild in the near term as global and local economic conditions remain by the
threat of COVID-19.
Social
Discrimination or harassment on the grounds of sex, pregnancy, marital status, disability, family
status and race are prohibited. Hong Kong people are kept well informed by a vigorous media. Hong
Kong is one of the most multicultural cities in East Asia, ethnic diversity is only increasing, as the
non-ethnic Chinese annual population growth rate is at 5.8% as compared to 0.5% for the general
population. Total life expectancy in Hong Kong is now at 83 years of age, with a median age of 44.4
years across the population. It is estimated that by 2033, 26.8% of the population will be above 65
years, (SHRM,2019) which is an increase of 12.1% from 2005 with greater emphasis laid on earning
more money and pursuing higher education. It cost an estimate of £4792 per year for living costs,
including food, leisure, transportation, and personal items. (STUDYINHONGKONG)There is strong
respect for rank and age in Hong Kong work culture. Characterized by hierarchical structures,
decisions are typically made at the top of the company. Subordinates will follow a manager’s
instructions and are not encouraged to express opinions as challenging someone of higher status is
considered disrespectful. Employees in Hong Kong, on average, clocked in 50.1 hours a week, the
longest in the world and 38% more than the global average.
Technological
Public transportation is a popular option in Hong Kong being able to travel from end to end for less
£1.50. In Hong Kong there are various facility that impact business to ensure they function at the
best of their ability. The high levels of construction activity in Hong Kong generate high levels of
construction waste. The management of solid waste is a complex and evolving process in Hong Kong.
The treatment and recycling facility is called WEEE which stands for Waste Electrical and Electronic
Equipment The need to reduce and recycle waste is crucial to Hong Kong, with their large population
and rapidly filling disposal facilities. (GOV.HK)

There are multiple licences that are essential when starting up a clothing, footwear retailing shop.
Business registration certificate and certificate of registration of a non-Hong Kong company.
Planning permission, trade promotion licence (GOV.HK). Hong Kong is a free port; free trade policy
and do not maintain barriers on trade. No tariff is charged on import or export of goods. Although
licensing is required for the import and export of some goods, this is only to fulfil obligations
undertaken by Hong Kong to their trading partners, or to meet public health, safety or internal
security needs. Through participating in multilateral, regional, plurilateral, and bilateral trade
agreements; maintain and improve access to foreign markets for goods and services. Hong Kong
actively supports and promotes a free, open and stable multilateral trading system. The World Trade
Organization (WTO), established in 1995, succeeded the General Agreement on Tariffs and Trade
(GATT). (TID,2020)
External environmental analysis for identifying opportunities and threats
Threat of entry
Barney & Hesterly (2006, p. 43) new entrants are the firms that threaten to begin operations within
an industry soon. The threat of new entrants into retail clothing industry is high, but it does not
require a large capital investment. In Hong Kong business licenses and permits is fairly easy and
straightforward. Typically, it takes 2 to 8 weeks to get approval from the relevant authorities. This
shows that it is fairly easy to start a business the barrier to entry is low, but the current state is high
risk, high rewards this due to the intense competition. Hong Kong being unfamiliar with JD sport it
may be difficult for customers to try out a new business if it is similar price to a shop, they regular
use, as much as it is easy to get in the field it is harder to flourish in. JD will need to find a unique
selling scheme to attract customers, social media and promotions are useful tools using these will
gain brand awareness. JD has a strong brand but in countries that are not aware with the brand It
may be harder to build a profile.
Threat of substitute
There is no direct substitute to the service JD sports provides being clothes wear sports shop they
sell various brands Nike, Puma, Adidas plus many more which are sold out varies prices and qualities.
A business-like JD Sports cannot substitute their clothing for cheaper material as they are 3rd party
business, they are not able to give replicas they have to produce authentic goods. As it being a retail
company a substitute to their physical store could be an online store which is beneficial in this time
because of coronavirus JD Sports would go into negative equity because they wouldn’t be gaining an
income, an online presence increases customer base and brand recognition. This is easily replicated
if potential companies wanted but the positives of JD are having a large following that have
knowledge of the company.
The bargaining power of buyers
The bargaining power of buyers is high because there is an overabundance of companies in the
market. Buyers have low switching costs as it is free to switch one’s purchasing preference from one
brand to another. The buyers for JD Sports are a niche market in Hong Kong are individuals between
the age of 11 to 40 who are interested in sports, gym and buying products from various different
brands to follow fashion trends. These individuals are upper middle and elite class people; these
economic class are concerned with their health and hours of exercise. Building a large customer base

will reduce the bargaining powers of the buyers. To improve competitiveness, JD Sports will need to
provide a service to their customers that their competitors do not provide, this is by going the extra
mile to ensure business is booming for example on birthdays send customers discounts as well as
sending post card to show appreciate this will be a repour with the customers and make them want
to come back because of the great service.
The bargaining power of suppliers
The bargaining power of suppliers is low because there are many suppliers with little differentiation
available. JD Sports being an English company they outsource their products from overseas it will be
cheaper to have access to it if the company was in Hong Kong as many low fashion designer’s
materials are from China. The prices and availability of fabrics such as cotton, blends, synthetics and
wools might fluctuate significantly due to its dependence on demand, crop yields, weather, supply
conditions, transportation costs, government regulations and economic condition among others
(Byoungho 2004a). When the barrier to entry level is low, suppliers could easily become rivals. In
many ways, the bargaining power is related to the threat of new entrants.
The extent of rivalry between competitors.
Rivalry is high because there are a large number of similar retailers including both large and small
companies. Slow growth resulting from the 2020 COVID-19 virus has decreased the level of demand
in the sportswear industry. JD Sports main competitors are Sneaker Street, Footlocker, Air Jordan
Store and 8Five2. Merchandise will always have a competitor which usually fluctuates in size. The
modern market trends for the sportswear industry are globalising and intensified competition, low
profit margin pressures, small quantity with high complex orders and shorter lead times. JD Sports
strives at providing products of high quality, from various brands to enable the company to reach
the highest possible number of customers. According to Tokle (1990), product differentiation is what
separates the top competitors from the rest.
Internal environmental analysis for identifying strengths and weaknesses: VRIO
Valuable
JD Sports is a valuable company even though there are elements that are not overall, the company
has very good rapport with their customers. Employees are a valuable resource to the company,
highly trained which leads to more productive for the organisation. Distribution network is a
valuable resource, helps reaching out to large scale of customers. Research and development are
not a valuable resource, it cost more than the benefits it is providing in the form of innovation. There
have been very few innovative features and breakthrough products which is a competitive
disadvantage. JD Sports Plc receives exclusive clothing and shoes that no other business gets which
brings a valuable aspect to the company.
Rare
JD Sports is a rare company no other organisation can replicate their brand, the financial resources
are found to be rare, strong financial resources are only seen by a few companies in the industry.
The employees are a rare resource, highly trained and skilled they provide a great compensation and
work environment ensuring employees do not leave for other companies. The distribution network
is a rare resource, competitors require a lot of investment and time to come up with a better
distribution.

Imitable
JD Sports is an imitable company other organisation are able to replicate their business planes, the
financial resources are costly to imitate, new entrants and competitors would require similar profits
for a long period. The employees are not costly to imitate because other companies can train their
employees to improve their skills. Companies can also hire employees from JD Sports Fashion Plc by
offering better compensation packages, work environment, benefits, growth opportunities etc. This
is a temporary competitive advantage. The distribution network is costly to imitate by competition
they would have to invest a significant amount if they are to imitate a similar distribution system.
Organisation
JD Sports has high skilled employees that know a lot about the company and enjoy working for
them. The company can exploit their business ideas being able to open up opportunities for
innovative products to ensure the company excels.
When the organisation is in a bust, they may have to dismiss staff to ensure the business doesn’t
become bankrupt. As an international company in the pandemic the company is able to make
money on their online business allowing it to boom. Maintaining competitive advantage is making
sure their employees have competitive salaries, as well as providing new trends as soon as they
come out. Investment in the company for example exploring the option of becoming international in
this case moving to Hong Kong will allow diversity as not all of their competitors have shops in Hong
Kong this will separate them. Elon Musk recently defended the importance of relentless, saying, "If
your only defence against invading armies is a moat, you will not last long. What matters is the pace
of innovation -- that is the fundamental determinant of competitiveness." JD Sports will always need
to adapt their plans to ensure they stay on top in their field and ensure sales are always getting
made to have competitive advantage over their competitors. The best way to track customers
spending for JD Sports is collecting their cookies to be able to see when customers are not spending
with them and send them an incentive such as a discount to enable them to purchase products.
Identification of Competitive Strategies
Michael Porter (1996)
argues that compe##ve
strategy is "about being
diGerent". Porter

adds, "It means
deliberately choosing a
diGerent set of
ac#vi#es to deliver a
unique mix of
value".
Michael Porter (1996)
argues that compe##ve
strategy is "about being
diGerent". Porter
adds, "It means
deliberately choosing a
diGerent set of
ac#vi#es to deliver a
unique mix of
value".

Michael Porter (1996) believes that competitive strategy is “about being different’” as well as
“deliberately choosing a different set of activities to deliver a unique mix of value". Cost leadership is
the main generic strategy and is the current competitive strategy for JD Sports Fashion Plc uses in
various consumer markets. This strategy is to preserve the market leadership position through
efficient value chain management. Expanding the market share by targeting the middle class, makes
the largest proportion of profits from most of the countries. Affordability and easy accessibility of its
produce across the globe, which leads to high sales growth and provides a strong competitive
advantage. Charging low prices by lowering production cost and maximizing supply chain efficiency,
they frequently offer discounts and coupons to achieve sales targets. Discount and promotional
campaigns are to increase brand popularity and encourage consumption. The benefits are cost
leadership strategy has outlined many benefits offered by this generic strategy, such as- gaining
brand recognition, expanding the customer base, encouraging consumption and achieving sales
targets by emphasizing over product’s affordability and accessibility.
JD Sports differentiation is embedding the innovation and addressing the consumers’ growing
concerns. JD Sports have extended their product line to differentiate itself from competitors and
expand the scope of opportunities within the industry. The combination of differentiation and cost
leadership has helped JD Sports Fashion Plc build a strong and loyal customer base. Offering their
products in a way to stand out and be different from the available alternatives. Being the
experienced brand, the company uses differentiation as a tool to reduce the pressure of other
brands. Massive investment in marketing, advertisement and celebrity endorsement is made to
differentiate the brand from their competition. Extensive experience, one of the oldest brands and
strong presence all over the world are various differentiation factors that are highlighted in the
company's marketing and communication strategies. The brand logo is used to set differentiation.
The unique and distinctive brand logo has established a strong brand image in customers’ mind.
Strategic directions & methods of expansion
Market Penetration
The aim of JD Sports Fashion Plc strategies is maximising the profitability and broadening market
share to maintain relevance and ensure long-term business growth. JD Sports Fashion market
penetration strategy is lowering prices through cost leadership and using different marketing and
promotional strategies to impel sales in the existing customer market. The company offers various
discounts and deals, offering product in new attractive packages to achieve sales growth. Low prices
expand the customer base despite the market becomes saturated. Market penetration becomes
costly when a market reaches saturation point. Investment in different marketing and promotional
activities brings a low return, which encourages the company to consider alternative growth
strategies.
Product Development
JD Sports Fashion Plc has extended its product line; product array has become too broad. This allows
the company to compensate the losses incurred from one product line with the gains received from
others. Increase the research and development investments for innovation and new product
development. Minimising the costs and use existing infrastructure to launch new products. Although
the company can use the same resources to extend the product lines, successful new product
development requires research and development and use of new technologies required to pursue
this strategy. Offering new products that share a close association with current product line, offer

new products that replicate the purchase behaviour of current customers and new products that
refresh or reinvent current products.
Market Development
JD Sports Fashion Plc uses market development as a growth strategy that supports market
penetration and product development. The successful entry in new consumer markets has played a
key role in making JD Sports Fashion Plc a global brand. Main reasons behind the worldwide
presence are- affordable prices and strong brand name. The successful marketing and celebrity
endorsed promotional campaigns have also helped JD Sports Fashion Plc in capturing new customers
and becoming the market leader in many countries. Investment in research and development
ensures the companies continuous expansion in the distribution network to reach every worldwide,
particularly in developing countries where the presence is currently weak. Understanding the
importance of culture and integrating local norms and values in marketing campaigns when entering
new geographic regions for example in Hong Kong they are highly fashionable
The most important strategy for JD Sports is market development the strategy supports both market
penetration and product development this is the best growth strategy for the business to ensure
they excel in every aspect, compare to product development. If JD Sport used only product
development, they would have a range of different products but wouldn’t have the customers to
buy their products because their main focus would be on the product and not on the customers, for
example what will increase profits in all aspects. JD Sports going international they may find it easier
to build a partnership with a Hong Kong business that sell the same products and have a good social
representation. This will be the best decision they will be able to form a foundation to gain a
comfortable income and gain a positive repour.
Conclusion and Recommendations
JD Sports opening up a store in Hong Kong will be beneficial for the company it is in the heart of the
Asian pacific allowing the business to gain a further income in another economy. This should not
happen now because of COVID-19 the business will be losing money opening a business that will not
be able to trade but an alternative could be an online site for Hong Kong customers. To maintain
market leading position JD Sports will need to ensure the same concept in Hong Kong as well as
having an advantage over new online competitors like Amazon, Wish, eBay they must invest in to
market research and figure out how these businesses are excelling with only an online business and
ensure they offer what customers demand.
The limitations of opening a store in Hong Kong are that properties have a lack of space and high
rates even though taxes are low there are other complication surrounding it. There is a gap in the
market for JD sports to bring their business to Hong Kong as a unique company that many know
about individuals in Hong Kong will want to shop in JD Sports as a credible business. I do recommend
going to Hong Kong when the economy opens back the business will receive high amount of
business being a new business that will be providing promotions customers will feel intrigued to go
instore to buy products.
The best strategy for JD Sports to use is the market development making sure they understand what
sector they are joining and how they are able to utilise the resources they have to excel when
moving to an international company. Limitation of moving to Hong Kong will be that customers may
be misled by advertisement and boycott the business which will cause the business to close. Long
working hours will impact staff ability to do their job at the best of their ability and there’s room for
mistakes and products going missing which will highlight underperformance in the workplace.

References
Thompson Jr., A., Strickland III, A. J. and Gamble J. E. 2007, Crafting & Executing Strategy. 415
th
Edition, New York: McGraw-Hill Irwin
Tid.gov.hk. 2020. TID: Hong Kong's Trade Policy. [online] Available at:
<https://www.tid.gov.hk/english/trade_relations/trade_policy/trpolicy.html> [Accessed 4 January
2021].
SantanderTrade. 2021. Hongkong Tax System. [online] Available at:
<https://santandertrade.com/en/portal/establish-overseas/hong-kong/tax-system> [Accessed 14
January 2021].
Nationsencyclopedia.com. 2021. Hong Kong International Trade, Information About International
Trade In Hong Kong. [online] Available at: <https://www.nationsencyclopedia.com/economies/Asia-
and-the-Pacific/Hong-Kong-INTERNATIONAL-TRADE.html> [Accessed 5 January 2021].
Pettinger, T., n.d. Economic Booms - Economics Help. [online] Economics Help. Available at:
<https://www.economicshelp.org/blog/glossary/booms/> [Accessed 11 January 2021].
Halton, C., 2019. Bust Definition. [online] Investopedia. Available at:
<https://www.investopedia.com/terms/b/bust.asp> [Accessed 10 January 2021].
Batista, H., 2018. Maintain Your Competitive Advantage By Focusing On Your Most Valuable Asset --
You. [online] Entrepreneur. Available at: <https://www.entrepreneur.com/article/322223>
[Accessed 11 January 2021].
The World Bank, Doing Business. n.d. Rankings. [online] Available at:
<https://www.doingbusiness.org/en/rankings> [Accessed 9 January 2021].
GOV.UK. 2019. Overseas Business Risk - Hong Kong. [online] Available at:
<https://www.gov.uk/government/publications/overseas-business-risk-hong-kong/overseas-
business-risk-hong-kong> [Accessed 12 January 2021].
Pla, C., 2019. Hong Kong: Follow The Basics In Employment Law. [online] SHRM. Available at:
<https://www.shrm.org/resourcesandtools/legal-and-compliance/employment-law/pages/global-
hong-kong-employment-law-overview.aspx> [Accessed 10 January 2021].