Report on Garne Company – Ukraine E-Commerce Market Analysis

Matilda Lukenya Martin

Report on Garne Company – Ukraine E-Commerce Market Analysis

Section 1: The Market:

Product and Competition Analysis

Industry and Competition Analysis

Key recommendations presented in the section:

• E-commerce growth in recent years.
• The company’s target customers
• Trends and challenges in the e-commerce fashion market.
• Garne’s overall position in the current fashion market.

Figure 1: The above image shows the most in-demand products/services in Ukraine’s market

The e-commerce market, especially the fashion industry, has experienced tremendous growth in recent years. The following parts will highlight the market’s growth, target customers, prevailing trends, and potential challenges to enable Garne Company to make the appropriate decision for the internationalization process.

Growth:

The fashion industry is undeniably one of the fastest-growing sectors in the world today. According to Pasquali (2022), in 2021, the global fashion e-commerce market had a value of about $700 billion, a figure expected to reach about 1.2 trillion U.S. dollars by 2025. Such massive growth results from the following factors: Convenience and accessibility of online shopping over the past few years, the increase in social media influence on sales and marketing, and the availability of a wide range of products at competitive prices.

Target Customers:

Almost every age and gender are interested to wear the latest trend, making the fashion industry a sustainable sector today. The e-commerce fashion market appeals to a broad range of demographics, with a growing number of millennials and Gen Z consumers shopping for clothing and accessories online. These consumers are increasingly reliant on their mobile devices to make purchases, with mobile commerce accounting for approximately 45% of all e-commerce fashion sales in 2019. Generation Y is also a target for e-commerce sales. According to Thangavel, Pathak, and Chandra (2019), the factors behind the rise in internet shopping among Gen Y include impulse purchases, convenience consciousness, and in-home shopping tendency.

Figure 2: The demand for fashion products based on age group

One of the main targets of the e-commerce fashion industry is to attract and retain a large customer base, particularly younger generations who are more likely to make purchases online. To achieve this, many companies are investing in technology to create personalized and immersive shopping experiences. Most firms are also expanding their product offerings to include sustainable and ethically made clothing.

Trends:

The two major themes that have been gaining traction in the e-commerce fashion market include sustainability and inclusivity. Today, buyers are more conscious of how they influence the environment. Consequently, most consumers are preferring products that are environmentally friendly while having a wide range of sizes, colors, and materials options to choose from based on their styles and identities.

Another trend is the increase in the popularity of content marketing which has massively impacted the fashion industry. There is also an increased emphasis on usability and website design, general website content, contact feedback dialogue, and sustainability commitment. Some other trends in the e-commerce fashion market include the rise of social commerce, the growing emphasis on sustainability and ethical sourcing, and the use of artificial intelligence and augmented reality to enhance the shopping experience.

Challenges:

The e-commerce fashion market faces several obstacles and potential threats, including intense competition, the challenge of building and preserving customer trust and loyalty, and the balancing act between providing fast delivery and maintaining sustainability. There are other issues regarding data privacy and security, concerns about the environmental impact, and the need for better and scalable supply chains.

There is also the issue of the increasing prevalence of online fraud. According to Majumder, “Online Scammers have rose to 50% in India, Ireland, and Spain whereas it’s at 40% in the USA and 80% in Poland leading to almost $43 billion lost in online scams” (2021, p. 35). Additionally, Russia’s aggression in Ukraine also resulted in a price rise and stock market flip-flop, which has an impact on the consumer psyche and their buying power. These factors are integral to the growth of the clothing and apparel market.

SWOT ANALYSIS

Garne, an online Ukrainian clothing brand based in Rivne, Ukraine, was founded in 2014. The company offers high-quality products at an affordable price, making it an attractive option for customers looking for good value for their money. The Garne clothing collection encompasses a wide range of styles and colors, giving customers a wide range of options (size, material, and cost) for any occasion.

Since 2015, they have sold over 220,000 Garne brand clothing items to women in Ukraine. The company has a strong brand presence in Ukraine, with many loyal customers. Offering quality products at affordable prices and providing excellent customer service has helped the company build a recognition reputation.

Due to minimal intensive marketing strategies, Garne’s products are less popular outside Ukraine compared to most clothing firms. It is a factor that has been limiting its potential to get control of a larger market for greater revenue. Poland is one of the countries where Garne could work well because they share a border, making production and shipping cost-effective.

Yet, Garne faces competition from other women’s clothing brands in Ukraine and abroad. Due to ongoing Russia’s aggression on Ukraine, economic instability has affected the online store Garne. A significant currency devaluation has forced the company to raise the prices of its products in the past months, causing a notable decline in demand. Additionally, the war had made it difficult for the company to ship products to certain. Much of the demand for Garne’s products have also been limited due to the current economic conditions.

New Market Selection and Analysis

To identify the most promising market for Garne, given the political situation of the country and the operations model of Garne, it is important to consider several factors. These include but are not limited to economic, political-legal, social-cultural, physical/geography, and demographic factors.

Physical/Geography Variable

1. Physical distance and location: Due to Garne’s business’s nature and its strategy of fast and quick delivery, a new market location should be a country with proximity to Ukraine and the location should be friendly for business.
2. Transportation Infrastructure: Due to the need to transport clothes from Garne’s factory and sales offices to the different locations of potential customers, there is a need to enter a country with a robust transportation system and infrastructure.
3. Internet Penetration: As a business that sells 99% of its product through e-commerce and online platforms there is a need for the new market to have a very high internet penetration, as this is a key factor in reaching the potential customers in the new country.

Demographic Variable

1. Population and Growth: The population and growth rate of the country plays a key role in the market to be considered for a new market.
2. Sex distribution: The Garne clothing line is more focused on women. Therefore, the sex distribution between the male and females of the country of interest will be instrumental in determining the selected country.
3. Income level: The income level of the selected country will influence the ability of the potential customers to purchase the clothes produced by Garne. Therefore, it is important to consider this when entering a new market.

Political-legal Variable

1. Political Stability: For a business to thrive in any society or country, there must be a stable political condition as this will affect how the ease of business will be promoted. So, Garne must focus on a country that is politically stable and which can guarantee security to its operations.
2. Government System: The system operated by a country also affects the general business environment of the country, this must be well considered before entering into the country.
3. Business Laws: Friendly business laws and regulations guiding international business must be present in the country of choice.
4. International Agreements: There are several trade relations and agreements that guide the operation of businesses amongst various countries. The countries with trade agreements with Ukraine or in which Ukraine is a member would be preferable.

Social Cultural Variable

1. Cultural Differences (Language, religion, etc): Differences in religion, culture and language, and fashion style, are some of the factors to be considered.
2. E-commerce usage: The usage of E-commerce and acceptance of online shopping are other social and cultural factors to be considered to select the country of interest.

Selection of Market	Poland	India	USA	Nigeria
Physical Distance and Location	529km	6528km	9153km	7975km
Transportation Infrastructure	High	Medium	High	Low
Internet Penetration	87% at 2022	47% at 2022	92% at 2022	45.55% at 2022
Population and Growth	41,026,067	1,428,627,663	339,996,563	223,804,632
Sex distribution	48.4% male and 51.6% female	48.04% female and 51.96% male	49.5% male  and 50.47% female	49.31%  female and 50.49 male
Income Level	High	Low-Middle	High	Low-Middle
Political Stability and Government system	Stable and democratic	Stable and democratic	Stable and democratic	Stable and democratic
Business law and International Trade Agreements	Member of EU, WTO, and GATT	Member of WTO and GATT	Member of WTO and GATT	Member of WTO and GATT

Poland Market Analysis

Following the consideration of these key factors, we recommend Poland as a first step for a new market outside of Ukraine as entry into Poland would give Garne a huge potential for quick expansion and adaptation into the market.

Poland has a population of about 40 million people (Demographics of Poland 2021), which is slightly higher than Ukraine, and therefore Garne’s experiences in managing the Ukrainian market could be easily deployed into the Polish market. Similarly, the proximity of Poland to Ukraine will reduce the resources required for expansion into the new market. It will mostly help in logistics and product delivery, which is a key component of Garne’s clothing business.

The rate of internet penetration, acceptance of e-commerce, and online sales platforms are also key requirements for Garne’s new market and recent statistics show that Poland is growing and is expected to have about a 7.5% growth rate in 2023 (Caixabank, 2023). With a female-dominated population of 51% and a decent income level, a relatively stable political system, and existing local and regional laws that promote and guide businesses, the Polish market is one of the most preferable destinations for Garne’s products.

Another important factor that qualifies Poland as a good target market for Garne is the number of Ukrainians migrating to Poland as a result of the war in Ukraine. Statistica.com reports that over 9.8 million refugees have crossed the border to Poland and at least 1.5 million Ukrainians have settled in Poland (Statista, 2023). Therefore, these Ukrainians who understand the uniqueness Garne offers will be among the customers in Poland. They could also be vital in giving a word of mouth adverts for the products.

Political:

• Stable political structure: The political system in Poland has been stable and devoid of any major political issues. The government runs a semi-presidential system with both a president and a prime minister.
• Government Policy: Government policies are favorable for business and they are accommodating to international business. This includes tax incentives.

Economic:

• Strong and Growing Economy: Poland is the 5th largest economy in the EU by nominal GDP and 5th largest by GDP (PPP). Poland experienced an 826.95% GDP growth rate, from 1989 to 2018, with economic growth of 5.9% in 2021 (The World Bank, 2022), therefore it is a great destination for international business.
• Employment rate and Labor cost: Poland has a low labor cost compared to other EU countries and a high employment rate which increases the potential demand for Garne’s products.

Social:

• High interest in Fashion and Personal Appearance: According to a forecast by statistica.com, the total consumer spending on clothing and footwear in Poland was forecast to continuously increase between 2022 and 2028 by a total of 9,009.3 million U.S. dollars (+49.54%). The fashion-related spending is estimated to amount to 27.2 billion U.S. dollars in 2028 (Degenhard, 2022). This means there is a unique opportunity for Garne to expand into the Poland market.
• Young and dynamic population: Poland has a higher number of young females with higher purchasing power who care about their outlook and appearance.

Technology:

• Internet Penetration: Poland has achieved a high level of internet penetration with over 93% of households in the country having internet access which is a key factor for Garne’s business in the country.
• E-commerce: Poland’s e-commerce market has a predicted revenue of $17,340.1 million by 2023, which puts it ahead of Switzerland (ecommerceDB, n.d.). The market is expected to increase by 7.5% and contribute to the worldwide growth rate of 10.4% in 2023.

Environment:

• Sustainability and Environmentally Friendly Practice: New regulations are being developed to tackle the challenges relating to the environment and climate change, therefore Garne needs to work within the regulatory framework.

Legal:

• Constitution and Labor Laws: The legal system in Poland is the 1997 constitution and Poland also has labor laws that guide businesses in the country.
• International and EU Laws: Poland accepts the obligatory jurisdiction of the ICJ (International Court of Justice) but with reservations. Also, as a member of the European Union, its national laws align with the EU’s legislation.
• Intellectual Property and Product Safety Law: Poland has laws that protect businesses and promotes intellectual property laws which Garne would benefit from.

Section II: Operations Management

Key recommendations presented in the section:

• The preferred mode of entry for Garne
• The benefits of the selected mode of entry
• The proposed logistics strategy

Market Entry Mode

Several factors influence entry modes for clothing firms. For instance, cultural differences in consumers and business practices influence international fashion retailing. Therefore, a company may need to select an entry mode that matches its international experiences to effectively cope with the cultural challenges in the foreign market.

Having established itself in the Ukrainian market, Garne Company should go with exporting as the mode of entry into the international market. The two reasons making this the most preferable method of entry include the fact that there is low risk involved and it offers the firm a fast way of getting its products to the global market.

Garne may not have the finances required to move ahead with acquisitions and strategic alliances. Exporting remains one of the easiest and fastest ways the company can start selling its clothing to the rest of the world, specifically because the firm has experience in e-commerce. According to Cassia and Magno (2021), cross-border e-commerce is becoming popular today because of the increased internet coverage and IT capabilities among most small and medium enterprises. For instance, they note that in 2019, cross-border e-commerce made up 7% of all Italian exports of business-to-consumer products. This is critical based on the fact that around 99.99% of Italian firms are SMEs.

The number of companies engaging in cross-border e-commerce implies great opportunities within the industry. So, this allows the company a chance to export directly from Ukraine to consumers located elsewhere within Europe and even United States. If Garne decides to export its apparel to other countries, it will have to invest heavily in marketing for discoverability.

According to the UNCTAD 2017 report, companies using e-commerce platforms can start exporting their products once foreign buyers discover their products (Amornkitvikai, Tham, & Tangpoolcharoen, 2021; Guterres & Kituyi, 2017). This strategy, however, depends on the firm’s ability to conform to legal and fiscal requirements in foreign markets and access proper logistics channels. If foreign buyers do not know about the company, they are less likely to purchase the products.

Exporting is a low-risk option for the company because the company does not need to produce the goods in the target country and does need to invest heavily in foreign production facilities. The company will only incur marketing expenses. Being a fast strategy, it is the most widely used mode of entry by firms.

According to Gerschewski, Scott‐Kennel, and Rose (2020), most SMEs use exporting as the market entry mode due to its minimal risk, high degree of flexibility, and minimal resource commitment requirement. Garne should employ popular online retailers such as Amazon and Alibaba to reach a larger market in Asia and the United States. Many companies have established their brands on Amazon, eBay, and Alibaba, which provides greater opportunities for future strategies such as partnerships and acquisitions with better market visibility and greater brand equity.

Logistics

Garne may not need to build warehouses in Poland because the distance is minimal. However, if the company decides to market its products to the rest of Europe and the United States, it may need warehouses in those locations. Garne can sell directly to the end user in Poland and ship the products from their local warehouse in Ukraine.

For potential customers in the rest of Europe and the United States, Garne could have a third-party logistics company manage the deliveries. An example of such a company is DHL. If the customer orders a few products, the company should arrange for a week to 14-day delivery. This will enable the company to deliver orders in batches to reduce expenses. By selling its clothing on Amazon, Garne can also have fast delivery of its products to customers from a warehouse in the U.S. or Canada.

The United States has a trade-weighted average import tariff rate which is currently 2 percent on all industrial goods (Industrial tariffs). According to DHL, the amount of import tax and duties largely depend on the target country (DHL, 2023). Duty tax usually ranges from 0 to 37.5% with the most common rate being 5.63%. If the e-commerce purchase is in excess of the established US import tax threshold limits, the company pays a 3% rate.

If Garne decides to export products to customers located in the United States, Canada, or Europe, they can pay for these taxes and duties through the guidance from the logistics company. Garne can even get closer to the customer by producing products that match the culture of the target countries such as Poland. They could also come up with a subcategory on their website for Poland-only consumers for better targeting and pricing strategies.

References

Amornkitvikai, Y., Tham, S. Y., & Tangpoolcharoen, J. (2021). Barriers and factors affecting e-commerce utilization of Thai small and medium-sized enterprises in food and beverage and retail services. Global Business Review, 097215092110362. doi:10.1177/09721509211036294

Caixabank. (2023, January 04). Poland. Retrieved February 16, 2023, from https://www.caixabankresearch.com/en/country-outlook/international/poland

Cassia, F., & Magno, F. (2021). Cross-border e-commerce as a foreign market entry mode among smes: The relationship between export capabilities and performance. Review of International Business and Strategy, 32(2), 267-283. doi:10.1108/ribs-02-2021-0027

Degenhard, J. (2022, December 31). Fashion consumer spending in Poland 2028. Retrieved February 16, 2023, from https://www.statista.com/forecasts/1161486/fashion-consumer-spending-forecast-in-poland

Demographics of Poland. (2021). Retrieved February 16, 2023, from https://statisticstimes.com/demographics/country/poland-demographics.php

DHL. (2023). US Customs Tariff & Duty: All You Need To Know: Dhl my. Retrieved February 16, 2023, from https://www.dhl.com/discover/en-my/business/market-intelligence/All-You-Need-to-Know-About-US-Import-Tax-and-Duties

EcommerceDB. (n.d.). ECommerce market in Poland. Retrieved February 16, 2023, from https://ecommercedb.com/markets/pl/all

Gerschewski, S., Scott‐Kennel, J., & Rose, E. L. (2020). Ready to export? the role of export readiness for superior export performance of small and medium‐sized enterprises. The World Economy, 43(5), 1253-1276. doi:10.1111/twec.12928

Guterres, A., & Kituyi, M. (2017). Information Economy Report 2017: Digitalization, Trade and Development. United Nations Publication, switzerland.

Industrial tariffs. (n.d.). Retrieved February 16, 2023, from https://ustr.gov/issue-areas/industry-manufacturing/industrial-tariffs

Majumder, S. (2021). E-Commerce and Future. Global Journal of Management and Business Research, 21(B2), 33-35.

Pasquali, M. (2022). Topic: Fashion E-commerce worldwide. Retrieved February 16, 2023, from https://www.statista.com/topics/9288/fashion-e-commerce-worldwide/

Statista. (2023, February 03). Ukrainian refugees by country 2023. Retrieved February 16, 2023, from https://www.statista.com/statistics/1312584/ukrainian-refugees-by-country/

Thangavel, P., Pathak, P., & Chandra, B. (2019). Consumer decision-making style of gen Z: A generational cohort analysis. Global Business Review, 23(3), 710-728. doi:10.1177/0972150919880128

The World Bank. (2022). The World Bank In Poland. Retrieved February 16, 2023, from https://www.worldbank.org/en/country/poland/overview