How To Improve Competitiveness Of Cashmere Industry In China Business Essay Example

every country as it determines their level of industrial development and position in the global market competition. Therefore, it is a widely discussed topic among countries and businesses.

2.1 Definition of Competitiveness

Various authors such as Johnson (1992), Hammer & Champy (1993), Murths (1998), Barney (2001), and Esty (2001) offer insights into the question of "what is competitiveness." According to Johnson (1992), competitiveness refers to an entity's ability to deliver more value to customers and better satisfy them compared to its competitors.Murths (1998) states that the concept of competition is used to demonstrate the economic strength of an entity within the global market, where there are no geographical limitations on the movement of goods, services, people, skills, and ideas. Esty (2001) further explains that competition can be observed through the assets and processes of an entity. Assets can be divided into inherited resources and created structures, which are then transformed into economic returns through various processes.

In terms of theories of competition, there are two main categories: comparative advantage theory and competitive advantage theory. The comparative advantage theory, proposed by classical economist David Ricardo, suggests that countries should focus on industries with higher production efficiency and trade goods with industries that have lower production efficiency (Chacholiades 1990). This theory was later modified and expanded by Heckscher-Ohlin, who argued that differences in comparative factor endowments between countries also impact trade patterns (Gankhuyag & Ser-Od 2009).In his book 'The Competitive Advantage of Nations', Michael Porter explored the question of why certain societal groups, economic establishments, and countries progress and prosper (Porter 1990). By analyzing the characteristics of national environments, Porter introduced the theory of national competitive advantage.

He argued that traditional economic theories such as comparative advantage theory cannot explain the sources of competitiveness. Instead, industrial competitiveness should be examined through the lens of competitive advantage theory, which examines how different countries or regions within the same industry present varying levels of competition under the same competitive environment (Porter 1990). Comparatively, while comparative advantage theory focuses on the relationship between different industries within one country, competitive advantage theory focuses on the same industry across different countries. Grant (1991) reviewed Porter's book and highlighted that "at all three levels - the firm, the industry, and the nation - Porter offers new insights into the determinants of competitive advantage."

2.3 Michael Porter's National Diamond

According to Michael Porter, the ability to gain and maintain a competitive advantage in the international market is influenced by four direct variables and two indirect variables, which are represented in the National Diamond model (as shown in Figure 1). The four direct determinants are factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and competition. The two indirect variables are opportunity and government. Together, these six variables determine whether a country can have a strong competitive advantage (Porter, 1990).

A brief description of the six variables is as follows:
- Factor conditions are analyzed based on the characteristics of production factors and their relationship to firm competitiveness. These factors can be categorized as "basic factors" including natural resources, climate, location, and demographics, or "advanced factors" including communication infrastructure, sophisticated skills, and research facilities (Porter, 1990).
- For demand conditions, Michael Porter states that domestic demand can be a driving force in enhancing competitive advantage because customer needs can exert pressure

on firms (Porter, 1990).In Porter's book "The Competitive Advantage of Nations" (1990), he introduces the concept of the National Diamond (Figure 1). He emphasizes that an industry's competitive advantage is closely connected to its related and supporting industries. Typically, a successful industry develops in conjunction with a cluster of related industries rather than standing alone (Porter, 1990).

Porter also explains that the competitive advantages of different industries are determined by the unique industrial characteristics within each country. These characteristics include strategies, structures, goals, managerial practices, individual attitudes, and the intensity of competition within the business sector (Grant, 1991). Furthermore, chance events can impact the four direct variables and subsequently affect competitive advantage. Even though governments may not directly participate in industry competition, they can create opportunities and challenges for industries (Porter, 1990).

Moving on to the analysis of the Chinese cashmere industry, it is important to consider the factor conditions. Porter categorizes these conditions into basic factors and advanced factors in his book "Competitive Advantage of Nations" (1990).The significance of fundamental factors has gradually diminished due to the decrease in demand caused by market globalization, enabling multinational companies to purchase goods in a globalized market. Therefore, constructing a competitive advantage based on fundamental factors is unstable (Porter 1990). From the perspective of fundamental factors, China excels in cashmere resources, possessing the highest quality natural cashmere and strong product processing capabilities. Additionally, China is a labor-intensive country, allowing for reduced labor and integrated costs. Scotland also has advantageous cashmere resources, and its cashmere products are highly acclaimed for their quality and finishing. Despite higher labor costs compared to China, the Scottish cashmere industry surpasses China's performance. Thus, determining

industrial competitiveness places less importance on basic factors. Instead, advanced factors play a crucial role in gaining a competitive advantage. These advanced factors require ambitious and continuous investment in skilled labor and technological expenditure. To establish a formidable and sustainable industrial competitive advantage through factor conditions, countries must develop advanced factors rather than relying on basic factors. Unlike basic factors, advanced factors cannot be purchased but must be cultivated through investment (Porter 1990).In China, the capacity for independent invention in the cashmere industry needs improvement. Compared to well-established European cashmere houses, Chinese cashmere houses have significant disparities in technical innovation and product sales. Additionally, there is an imbalance in the capacity for independent invention among Chinese cashmere houses, with large houses investing considerably more in technical innovation compared to small and medium-sized ones that lack creativity. While some Chinese cashmere houses have made progress in dyeing and spinning research, they still lag behind developed countries in certain key technologies. On the other hand, Todd & Duncan, founded in 1867, is a leading European cashmere yarn knitting house that supplies luxury brands like Louis Vuitton, Gucci, Prada, Chanel, Hermes, and Christian Dior with cashmere yarn in the most fashionable colors. Todd & Duncan is renowned for its production technologies and has been at the forefront of cashmere blending techniques since its establishment. Even today, it is well-known for its manufacturing technique of individual strand.Collaboration with advanced fabric engineers allows us to produce the most exquisite and prestigious narratives. In addition, Todd & Duncan utilizes computer-assisted programs in the dyeing process, such as color management. We also employ high-tech facilities like the color matchmaker to ensure color

accuracy, which sets us apart in the industry (todd-duncan 2010). Looking back to the 1980s, it was a focus on advanced factors like processing technology that propelled the Chinese cashmere industry forward. In this era, cashmere companies like Erdos Cashmere Group and Snowlotus Cashmere Group imported the most advanced teasing machines and techniques from Japan. By learning and further improving upon these processes, Chinese caprine cashmere teasing techniques made a significant leap, surpassing international standards in both dehaired cashmere production rate and quality. This led to a new era for the Chinese cashmere industry (China International Cashmere Forum 2005). The examples of Todd & Duncan and Erdos Cashmere Group show that the Chinese cashmere industry cannot solely rely on its resource advantage. The rapid growth of the Chinese cashmere industry over the past 30 years is primarily attributed to the increase in the number of cashmere companies.When the industry enters the fall season, the growth of the industry will be limited due to the finite availability of cashmere resources. The industry will become more complex and divided into smaller sectors that require specialized production. Chinese cashmere companies must improve their capacity for engineering innovation and enhance the scientific and technological aspects of their products to gain a competitive advantage globally. However, there are obstacles that hinder the advancement of engineering innovation in the Chinese cashmere industry. Small and medium-sized cashmere companies face difficulties in accessing sufficient funding and resources for innovation. Additionally, there is a lack of infrastructure, investment policies, and favorable legal environment to support technological innovation. Only when a conducive environment is established can the Chinese cashmere industry develop engineering innovation to produce

high-value products. In terms of firm strategy, structure, and competition, Porter identified that competitive advantage is influenced by various factors within the industry, such as strategies, structures, goals, managerial practices, individual attitudes, and the intensity of competition in the sector (Grant 1991).The article discusses various strategies for house schemes including competitive, selling, and branding schemes. According to Philip Kotler, each company must choose a strategy that aligns with its situation, opportunities, objectives, and resources. Currently, a significant amount of cashmere products are produced in China but fewer Chinese cashmere brands are found in the high-end market. Zhang Zhi, the executive director of Erdos Cashmere Group, believes that the lack of brand building is hindering the development of the Chinese cashmere industry. Most cashmere products exported from China are done so through OEM production, with less than 10% being sold under Chinese brands. The Chinese cashmere industry has essentially become a processing workshop for foreign companies due to the absence of brand building. Loro Piana is presented as an example of successful brand building. Founded in Italy in 1924, Loro Piana is now the largest and leading cashmere manufacturer in the Western world. By sourcing the finest fiber from Northern China and Mongolia and understanding customer needs and lifestyles, Loro Piana produces cashmere goods in its own mills, creating and delivering value to consumers (Loro Piana 2010).According to the Luxury Institute Survey, Loro Piana was ranked as the top luxury brand in men's fashion for high net-worth consumers in Europe, followed by Ermenegildo and Giorgio Armani (Luxury Institute, 2010). One Chinese cashmere brand, 1436 Erdos belonging to Erdos Cashmere Group, also performs well. Although Erdos is

well-known in China, it struggles to gain attention in the global high-end market. Thus, Erdos Group aims to establish a global brand. 1436 Erdos, named after its prestigious cashmere fiber, is known for developing top-quality cashmere products. By focusing on high-end markets and positioning itself as the world's leading luxury brand in China, Erdos implements various strategies to enhance its competitiveness in the international market. In 2008, Erdos cashmere products were presented as official national gifts to Mikado, the Japanese Prime Minister, and other ministers during China's national leader's visit to Japan. This occurred just one year after the brand was established (1436 Erdos, 2010). Additionally, according to Porter (1990), the driving force behind firms' participation in international competition is of significant importance.The driving force for industrial competitiveness can come from international demand, local competitions, or market push. The most important factor in gaining and maintaining a competitive advantage in the industry is strong competition. In international markets, successful industries have had to face intense domestic competition and undergo reforms or reforms to stay competitive. However, in China, there are more than 2000 cashmere products companies, with most of them lacking the ability to develop new products or research new techniques. These companies mostly produce inferior quality products by copying other brands' styles, leading to primarily price-based competition among them. As a result, the current state of the Chinese cashmere industry is characterized by excessive low-level production and chaotic competition. In contrast, Ballantyne cashmere serves as an example of how competition can drive improvements in competitiveness. Founded in Scotland in 1921, Ballantyne has been increasingly popular among consumers. Currently, stylish cashmere products developed by fashion

houses such as Ralph Lauren, Chanel, Christian Dior, and Givenchy are highly praised by consumers. Therefore, as a traditional cashmere manufacturer, Ballantyne is now facing new competitors.The president of Ballantyne, Alfredo Canessa, noticed that consumer demands were changing, so he decided to improve the product design by combining cashmere with other fabrics like silk cloth. Similarly, Erdos Group has also made changes to their cashmere products after receiving complaints about outdated designs. They hired Gilles Dufour, a former art director from Chanel, to develop new merchandise collections and create a leading luxury brand in China. The examples of Loro Piana, Ballantyne, and Erdos Group demonstrate the importance of strategic planning and competition in enhancing competitiveness for cashmere companies. However, there are barriers that cashmere companies need to consider when developing strategies. Not every strategy will work for every company, and many Chinese cashmere companies focus solely on price competition, which hinders positive competition awareness in the industry.

Decision

The objective of this paper is to explore ways to enhance the competitiveness of the cashmere industry in China. To achieve this goal, we have employed Michael Porter's National Diamond Model to examine the factors that impact the competitiveness of the Chinese cashmere industry. The Diamond theory identifies four primary factors, namely factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry. This paper primarily focuses on analyzing the performance of the Chinese cashmere industry based on factor conditions and firm strategy, structure, and rivalry. Additionally, several successful cashmere firms have been studied to gain insights from their business operations and provide reference for the Chinese cashmere industry. However, Chinese cashmere firms must also address

certain barriers to improve their competitiveness in the global cashmere market. It is crucial for the Chinese cashmere industry to develop in a sustainable manner in order to enhance its competitiveness globally.