International Baccalaureate

Business Management, Higher Level

Internal Assessment (IA)

Title:
Should Hi-Style invest in a new product line in order to increase
revenue?
Centre Number: 003257

School Name: Island School

Candidate Number: gnq265

IB Subject: Business Management HL

Session: May 2018

Word count: 1992

1
Acknowledgements
I would like to thank the following people for their help with this report:

 Mr. Ben Pawlyn (teacher) – for providing support and guidance throughout this project
 CEO of Hi-Style – for taking time out of his busy schedule to be interviewed as well as
providing important financial information
 Financial & Marketing Directors of Hi-Style – for contributing to the interview process
and providing me contact information for a few of Hi-Style’s customers
 Hi-Style’s customers Splash, Next, Pull & Bear and Primark for answering the
questionnaire

2
 Contents Page
Executive Summary……………………………………………………………………………Pg. 4

Introduction………………………………………………………………………………………Pg. 5

Research Question…………………………………………………………………………….Pg. 5

Procedure………………………………………………………………………………………….Pg. 5

Main Results and Findings…………………………………………………………………Pg. 6

Analysis…………………………………………………………………………………………….Pg. 10

Conclusion…………………………………………………………………………………………Pg. 13

Recommendations…………………………………………………………………………….Pg. 13

Reflection………………………………………………………………………………………….Pg. 14

Appendix…………………………………………………………………………………………..Pg. 15

3
Executive Summary
Hi-Style Manufacturing LTD is an apparel export company. In recent years, Hi-Style has been
suffering with reduced orders from customers due to economic downturns in one of their main
markets, the Middle-East, and increased competition in other markets. Hi-Style must increase
their revenue to increase their profit margin in order to remain competitive. This research will
determine whether investing into footwear will be beneficial to Hi-Style through the research
question “Should Hi-Style invest in a new product line in order to increase revenue?”

The analysis in this paper is based on primary research which includes an interview with the
CEO, the Financial Director, the Marketing Director of Hi-Style and a questionnaire answered by
Hi-Style’s customers. The secondary research includes annual reports and financial statistics of
the footwear market. Moreover, business tools such as ratios, investment appraisal and a
SWOT analysis were used in the decision making process.

According to the analysis of information acquired, Hi-Style should invest into the US footwear
market by 2019, as according to market predictions, their revenue will increase if they invest.
They should attempt to target premium retail chains and take out a long-term loan to fund their
investment.

Word count: 194

4
Introduction
Hi-Style Manufacturing Ltd is a business to business apparel export company that specialises in
sleepwear, sportswear and intimate apparel that manufactures their products in factories in
China Eastern and Northern China1. Since 2014 Hi-Style has seen a decline in total revenue due
to tougher competition and reduced demand from their customers in the Middle-East 2. The
Financial Director and Chief Executive Officer (CEO) of Hi-Style is dissatisfied with Hi-Style’s
recent performance and is looking for ways to increase the financial performance of Hi-Style 3.
This report will investigate if selling footwear in the United States (US) can improve their
financial performance by increasing revenue.

Research Question
Should Hi-Style invest in a new product line in order to increase revenue?

Procedure
Primary Research

 Interview with the CEO consisting of general questions about his business and his views
on the research title
 Interview with the Financial Director consisting of Hi-Style’s financial performance and
investment appraisal estimates
 Interview with Marketing Director consisting of what products Hi-Style should produce
and likelihood of customers purchasing them
 Questionnaire to Hi-Style’s customers about products they are interested in and
information on their product line

Interviewing the company Director’s and CEO separately should reduce any potential bias.
Furthermore, the questionnaire to Hi-Style’s customers will deliver information from an
external perspective.

Secondary Research

 Hi-Style’s website to determine their product variety and markets they sell to
 Statistics on trends in the apparel business such as footwear sales in the USA
 Statistics on the state of the economy and inflation rates in Hong Kong and the USA

1
“Hi-Style Manufacturing Company.” Hi-Style, www.hi-style.com/.

2
Refer to figure 3
3
Refer to figure 4
5
Main Results and Findings
Hang Seng prime rate = 5%4

Hang Seng overdraft rate = best lending rate + 8% 4 = 13%

Costs of the Investment5

Investment Forecast

Hi-Style’s Financial Director predicted this many units of footwear would be sold each year:

estimated revenue ÷ selling price

This generates the following costs:

Anticipated Revenue by year

Each unit selling price: $1556

7

Net Return=$ 26,000,000−$ 24,312,079=$ 1,687,921

Investment Appraisal
4
https://bank.hangseng.com/1/PA_1_2_S5/content/pws/personal/loans/pdfs/e_unsecured.pdf
5
Refer to figure 4
6
Refer to figure 4
7
Refer to figure 4
6
Investment appraisal is a decision-making tool that aims to establish whether a particular
business venture is worth pursuing and whether it will be profitable.

i) Payback Period

$ 728,187
×12 months=7.5 months
$ 1,127,517

Payback Period =3 years∧7.5 months

ii) Net Present Value

Discount rate = 4%8

NPV = $1,277,282

iii) Average Rate of Return

Net Return
No . of Years
ARR ( % )= ×100
Initial Cost

$ 1,687,921
5
ARR ( % )= ×100
$ 2,500,000

ARR ( % )=13.5 % 9

8
FocusEconomics. “Hong Kong Inflation Rate (CPI) - FocusEconomics.”FocusEconomics | Economic Forecasts from
the World's Leading Economists, www.focus-economics.com/country-indicator/hong-kong/inflation.
9
Refer to figure 4
7
Ratios
Ratios are used to assess Hi-Style’s financials to find out whether investing into the US market is
financially viable.

i) Current Ratio

Current Assets
Current Ratio=
Current Liabilities

$ 11,599,287.41
Current Ratio=
$ 6,649,727.65

Current Ratio=1.7410

ii) Gearing = 0%10 (No loans)

iii) Gross profit margin (GPM):

Gross Profit
GPM= × 100
Revenue

$ 11,757,862
GPM= ×100
$ 61,252,393

GPM=19.2 %

iv) Net Profit Margin (NPM):

Net Profit
NPM= ×100
Revenue

$ 618,735.15
NPM=
$ 61,252,393.78

NPM=1.01% 11

SWOT
10
Refer to figure 1
11
Refer to figure 2
8
Strengths Weaknesses Opportunities Threats
Experienced Difficult to acquire new Appreciation of USD Reduced sales in the
employees12 customers12 reduces production Middle-East16
costs13
Reliable repeat Narrow Product line12 Increased footwear High competition in the
customers12 demand in the US 14 US footwear market15

Good customer Very high expenses12 Strong economic Possibility of import tax
service12 growth in the US16 on Chinese products17

High Quality Low staff morale due Many premium retail More retail stores
products12 to many Lay-offs in the chains located in the working directly with
past year12 US18 factories12

Analysis
Ratios

12
Refer to figure 3
13
Shaffer, Leslie. “China’s Yuan Tumbles to Its Lowest in Nearly Eight Years as Dollar Jumps after US
Election.” CNBC, CNBC, 15 Nov. 2016, www.cnbc.com/2016/11/14/chinas-yuan-tumbles-to-nearly-eight-year-lows-
as-dollar-jumps-after-us-election.html.
14
“Footwear in the US.” Euro Monitor, Feb. 2017, www.euromonitor.com/footwear-in-the-us/report.
15
Phalguni Soni - Disclosure  | Jun 15, 2016 4:26 pm EDT. “Why Skechers Is Thriving in a Competitive Footwear
Market.” Why Skechers Is Thriving in a Competitive Footwear Market - Market Realist, 15 June 2016,
marketrealist.com/2016/06/skechers-thriving-competitive-footwear-market/.
16
Chafuen, Alejandro. “The U.S. Economy In 2017: Welcome Higher Growth.” Forbes, Forbes Magazine, 5 Jan.
2017, www.forbes.com/sites/alejandrochafuen/2017/01/03/the-u-s-economy-in-2017-welcome-higher-
growth/#16a311be38fb.
17
Wu, Wendy. “How Badly Could Trump's Threatened 45pc Tariff Hurt China?” South China Morning Post, 17 Jan.
2017, www.scmp.com/news/china/economy/article/2060555/just-how-badly-could-trumps-threatened-45pc-
tariff-hurt-china.
18
Refer to figure 5
9
Hi-Style’s NPM is low for an export company at just 1.01%, their target is 2% 19. A 1.01% NPM
means Hi-Style must maintain a high turnover rate to remain profitable. However, as said by
the CEO, revenue is declining and forecasted to continue to decline.18 A consequence of this is
their NPM will decrease because 66.1% of Hi-Style’s expenses are fixed 20 so 66.1% of costs do
not change when revenue does. On the other hand, if Hi-Style is able to increase revenue
through footwear, their NPM will increase towards their 2% target which is a large incentive to
invest as the CEO has been having difficulties reaching this target for the last few years. 18
Furthermore, if revenue continues to decline in the long-term, Hi-Style will be forced to
perform cost-cutting strategies to avoid negative cash flow. Cost-cutting strategies that Hi-Style
can employ includes lay-offs or salary reduction which can affect the motivation of Hi-Style’s
employees leading to lower productivity causing inefficiencies within company operations.

Hi-Style’s existing customers Next and Pull & Bear are both premium retail chains who are
willing to purchase products at higher prices in return for high quality products and good
customer service.21 This is because their strong brand image allows them to charge a premium
price to consumers. Since the USA is a developed country, there are many premium retail
chains similar to Next and Pull & Bear which gives Hi-Style many potential customers willing to
purchase at higher prices. Selling at higher prices will increase Hi-Style’s GPM and consequently
their NPM due to increased profit margins per unit.

Since Hi-Style’s gearing is 0%, they can easily attain a low interest loan to fund their investment.
According to Hang Seng’s prime rate, 5% is the interest rate for long-term loans and 12% for
overdrafts22. Thus, a long-term loan is less costly and more attractive than a short-term loan.

However, Hi-Style has $5,784,799 in cash assets23 which they could also use to fund their
investment. Since their initial investment is $2,500,000, Hi-Style will still have considerable cash
assets after investing which means the investment carries little risk. Moreover, cash assets is
interest free so it’s less costly than any loan so Hi-Style’s NPM will increase further than if a loan
was taken out.

A downside of using cash assets is that the CEO (sole shareholder) may be forced to withdraw
fewer dividends. In addition, using cash assets means Hi-Style cannot benefit from tax relief as
if Hi-Style took out a loan, a percentage of their profits will be used to pay off a loan reducing
their tax cost.

19
Refer to figure 3
20
Refer to figure 2
21
Refer to figure 6
22
“Hang Seng Overdraft Facility.” Hang Seng Bank, Dec. 2016,
bank.hangseng.com/1/PA_1_2_S5/content/pws/personal/loans/pdfs/e_unsecured.pdf.
23
Refer to figure 1
10
Investment Appraisal

Because Hi-Style is not facing nor near a liquidity crisis as their current ratio is 1.74, within the
recommended range of 1.5-224, a low payback period is beneficial but not necessary. Hi-Style’s
payback period of 3 years and 7.5 months is acceptable according the CEO as it is relatively low
for an export company due to the difficulties of securing orders25. Hi-Style’s ARR is also low at
just 13.5% because they have a large initial investment in R&D to ensure its product would be
affordable, attractive as well as meet its high-quality requirements of AQI 2.5 26. However both
the values for payback period and ARR are unlikely to cause any financial problems because Hi-
Style is not at risk of a liquidity crisis so they are able to continue normal operations while
waiting for the investment to start making a profit.

The 4% discount rate was calculated by using Hong Kong’s inflation rate which has been around
4% in recent years27. The high positive net present value of $1,277,282 shows that this
investment will increase revenue and still be profitable in the future regardless of the time
value of money. It is likely that Hi-Style’s revenue will continue to rise if their ventures in new
countries are successful as their brand awareness will increase. A stronger brand image will
reduce the difficulty of acquiring new customers which is currently their largest obstacle they
face in expanding.

Net present value is the most important factor in investment appraisal for Hi-Style as Hi-Style is
looking to increase revenue in the long-term while paying back the investment quickly is less of
a concern for Hi-Style which is what payback period and average rate of return would indicate.

SWOT Analysis

Hi-Style’s primary weakness is their narrow product line, by investing into footwear, their
product line will expand which will attract both customers who specialise in footwear as well as

24
Lominé, Loykie, et al. “Business Management: Course Companion.” Business Management: Course Companion,
Oxford University Press, 2014, p. 211.
25
Refer to figure 3
26
Refer to figure 5
27
FocusEconomics. “Hong Kong Inflation Rate (CPI) - FocusEconomics.”FocusEconomics | Economic Forecasts from
the World's Leading Economists, www.focus-economics.com/country-indicator/hong-kong/inflation.
11
existing customers who also sell footwear to repeat purchase from Hi-Style. Since trading
companies like Hi-Style find it extremely difficult to acquire new customers, increasing the sales
to existing customers is an easier and less costly way of increasing revenue.

Hi-Style’s strengths are good customer service and high-quality products, so Hi-Style must
target premium retail chains in the US who value these strengths as they can cater to their
wants and needs. In the US, footwear sales grew 6% in 2016 because of recent market trends 28
so retail chains need to find new suppliers which increase the chance of Hi-Style securing an
order. While Hi-Style finds it hard to acquire orders from new customers, 29 they may only need
to secure orders from a few premium retail chains because these stores are likely to have an
extensive footwear collection so they are expected to place large orders.

Moreover, the USD is appreciating against the RMB meaning that Hi-Style’s cost of production
will decrease since the HKD is linked to the USD. With a lower production cost, Hi-Style’s net
profit per unit will increase. Additionally, Hi-Style will have the ability to reduce selling prices
which can make them more competitive against other export companies based outside Hong
Kong.

Since, the USA is a competitive market, so Hi-Style directors have suggested to initially spend
$500,000 on marketing to raise awareness for their product and $2,000,000 on R&D to make
sure their products are high quality30. This large investment into a competitive market is risky,
but Hi-Style’s customers are usually premium retail chains31 who will usually repeat purchase.
As a result, attaining a purchase from a large US premium retail chain can result in several large
purchases of footwear over many years providing a steady and reliable revenue flow.

Conclusion
Given that investment appraisal shows that Hi-Style is able to greatly increase revenue as net
present value is overwhelming positive at $1,277,282 and their NPM is likely to increase, I

28
“Footwear in the US.” Euro Monitor, Feb. 2017, www.euromonitor.com/footwear-in-the-us/report.
29
Refer to figure 3
30
Refer to figure 5
31
Refer to figure 1
12
suggest that Hi-Style should invest into the footwear market in the USA. The USA is a country
with many premium retailers which is the type of company Hi-Style is able to attract due to
their good customer service and high quality products so there is little chance of the investment
being unsuccessful. Even if the investment is unsuccessful, they still have many assets to
support themselves so this investment will not risk Hi-Style falling having a liquidity crisis due to
their current ratio at 1.74. In addition, their revenue and NPM is expected to decline if they do
nothing which will result in negative cash flow in the long-term. Hence, according to the
analysis conducted, there are overwhelming benefits for this investment.

However, an area for further study for Hi-Style before committing to this investment is
performing additional market research into US retail firms to find out specific details such as
selling prices and product standards.

Recommendations
1. Hi-Style should invest into the US footwear market by 2019. This will give enough time
for Hi-Style to conduct market research and secure buyers.

2. The customers Hi-Style should try to attract should be large premium retail chains.

3. Hi-take should out a long-term loan in order to fund their investment into the US
footwear market because they have a high chance of securing a very low interest loan
due to 0% gearing. They can then keep their current cash assets in case of a financial
emergency.

Reflection
Although investment appraisal indicated that investing in footwear will result in increased
revenue for Hi-Style, it may not be completely accurate. Net Present value could be inaccurate
13
because the discount rate could slightly change depending on unforeseen economic
circumstances which would affect its final value.

While Hi-Style’s experienced employees made investment appraisal estimates, unexpected

incidents such as a recession or change in fashion trends could affect the accuracy of these
calculations. In addition, their estimates could be inaccurate so before committing to this
investment Hi-Style may want to consider performing additional market research.

Hi-Style may not have expertise in selling footwear. Customers who purchase footwear may
have different wants and needs to Hi-Style’s current customers. Therefore, Hi-Style may need
to conduct additional training or hire new staff which will increase the cost of the investment.

Appendix

Works Cited

14
Internet:

Chafuen, Alejandro. “The U.S. Economy In 2017: Welcome Higher Growth.” Forbes, Forbes
Magazine, 5 Jan. 2017, www.forbes.com/sites/alejandrochafuen/2017/01/03/the-u-s-
economy-in-2017-welcome-higher-growth/#16a311be38fb.

FocusEconomics. “Hong Kong Inflation Rate (CPI) - FocusEconomics.”FocusEconomics |

Economic Forecasts from the World's Leading Economists, www.focus-economics.com/country-
indicator/hong-kong/inflation.

“Footwear in the US.” Euro Monitor, Feb. 2017, www.euromonitor.com/footwear-in-the-

us/report.

“Hi-Style Manufacturing Company.” Hi-Style, www.hi-style.com/.

“Hang Seng Overdraft Facility.” Hang Seng Bank, Dec. 2016,

bank.hangseng.com/1/PA_1_2_S5/content/pws/personal/loans/pdfs/e_unsecured.pdf.

Phalguni Soni - Disclosure  | Jun 15, 2016 4:26 pm EDT. “Why Skechers Is Thriving in a
Competitive Footwear Market.” Why Skechers Is Thriving in a Competitive Footwear Market -
Market Realist, 15 June 2016, marketrealist.com/2016/06/skechers-thriving-competitive-
footwear-market/.

Shaffer, Leslie. “China’s Yuan Tumbles to Its Lowest in Nearly Eight Years as Dollar Jumps after
US Election.” CNBC, CNBC, 15 Nov. 2016, www.cnbc.com/2016/11/14/chinas-yuan-tumbles-to-
nearly-eight-year-lows-as-dollar-jumps-after-us-election.html.

Wu, Wendy. “How Badly Could Trump's Threatened 45pc Tariff Hurt China?” South China
Morning Post, 17 Jan. 2017, www.scmp.com/news/china/economy/article/2060555/just-how-
badly-could-trumps-threatened-45pc-tariff-hurt-china.

Books:

Lominé, Loykie, et al. “Business Management: Course Companion.” Business Management:

Course Companion, Oxford University Press, 2014, p. 211.

Figure 1 - Balance sheet Figure 2 - Profit & Loss account

15
Figure 3 – Interview with CEO
1. Can you give me a brief overview of Hi-Style?

Hi-Style is a private limited company and was originally founded by father in 1976. In the past
we’ve had up to 25 employees working, however recently our revenue has fallen so we
currently have just 12 employees. We are located in Sheung Wan, Hong Kong and we mainly
export products to Australia and the Middle-East but also have a few customers in Europe. I am
the only shareholder of Hi-Style

2. What do you think are the causes for your fall in revenue?

Our largest market is currently the Middle-East and their economy relies heavily on oil. Oil
prices fell in 2014 and since then there has been less garment sales which has led to less
demand from our clients. Furthermore, our clients in our other markets such as Australia and
Europe are now working directly with factories in China to produce products instead of buying
products through us and other garment exporters. They do this because they are usually able to
get cheaper prices which is why we need to further improve our customer service in order to
stand out. This has caused a revenue decline as we are unable to find new customers, I also
expect revenue to continue to decline if we continue what we are doing.

3. Why is your Net Profit Margin only 1.01%?

16
In the 2016 fiscal year, our net profit was just 1.01% because we have high expenses because
we are overspending on salary. Our salary takes up a large portion of our expenses and salary
has been increasing faster than inflation in Hong Kong since 2010. Also recently we have lost a
lot of business from large customers which has caused our revenue to fall while expenses have
stayed at a similar cost. In 2012 our profit margin was about 2.4% which is high for a trading
company like us. Since 2015 I have been trying to improve our net profit margin but so far have
been unsuccessful.

4. What is your target net profit?

We would be extremely happy if we can increase our profit margin to 2%.

5. How are you planning to reduce expenses in the future

I am thinking about laying off a few employees because workload has decreased since revenue
has decreased so I think we can operate just as efficiently with fewer employees.

6. Why have you lost business from large customers in recent years?

Our largest market is the Middle-East, mainly Dubai, and due to the drop in the price of oil in
the summer of 2014, there has been less purchasing of garments by consumers in the Middle-
East so our customers have been ordering much less than they used too.

7. What kind of customers do you sell too?

We mainly sell to large retail chains and department stores

8. What new product do you think will be a worthwhile investment into?

I think footwear might be a good investment as currently footwear sales are increasing almost
everywhere on the globe, however footwear is not a product that we specialize in and it isn’t
similar to any of our current products so I will have to conduct more research if we are to invest
into footwear.

9. Which country do you think will be a good country to sell footwear too?

As I said almost every country has increasing footwear sales but I think we should either focus
on the US or a developing country in Asia. If we were to sell to the US our profit margins would
be high but it’s a very competitive market. Asia might be a safer investment because they are
experiencing rapid growth in footwear sales so finding a potential customer and finalizing a deal
with them may be quicker.

10. What are the strengths of Hi-Style? Why should a customer choose you over another
trading garment exporter or factory?

17
At Hi-Style, we focus very strongly on the quality of our products. We do not provide the
cheapest prices however we make up for that with our personal customer service and good
quality products. We are very personal as we have an in-house designer that works with clients
to create a personal design. We also interact with clients on a personal level as if they are
visiting Hong Kong, I usually will take them out for dinner to get to know them personally as
well as professionally. If clients are able to afford the slightly higher price than our competitors,
they will usually making yearly or seasonal purchases if they are happy with the service we
provide. While it is extremely difficult to find new customers, if we do find one willing to work
with us, they usually make multiple purchases.

Most of our employees are quite experienced, in fact 2 of our current employees have been
with Hi-Style since it was founded in 1976. When we downsized, only our less experienced and
newer employees were affected because we wanted to make sure to keep our more
experienced employees so we could continue working efficiently and providing a good
customer service.

11. What are the Weaknesses of Hi-Style?

In our recent meetings, we’ve come to the conclusion that the range of products we sell is too
small and we are thinking of selling a new product. If you have a look at our website, you will
see that we only sell products from a few clothing categories.

Our reduced sales has resulted in our cost of sales per unit increasing, this has led to a fall in
gross profit in the recent past. Most of our expenses are fixed costs so the reduced demand has
led to expenses not falling that much. Our expenses are now extremely high and currently my
main focus is finding ways to bring down our expenses. Our recent lay-offs means we have less
manpower in the company so it is harder to find new customers as we have less employees
working on reaching out to potential clients. Also a few managers have expressed concerns that
morale of some of our employees falling. I think this is because many employees have been
laid-off.

Another weakness is that we find it hard to find new customers because they are usually too
picky as they have too many requirements and we cannot fulfil them all. However this is not
only us, but most apparel export companies also face this issue.

12. Where do you manufacture your products?

All of the factories we work with to manufacture products are located in China.

13. What are your views on the research question: Should Hi-Style invest in a new product
line in order to increase revenue?

18
I think if you can analyse this research question well, it will produce good results for us and we
may use some of your suggestions if they look good because this research question touches on
the problems we are currently having at Hi-Style.

14. Where do you manufacture you products?

We mainly work with factories in northern China, however we do have some factories in many
different locations in China.

15. After revenue and costs with the Financial Director, I calculated the payback period to
be 3 years and 7.5months if you were to invest into footwear. What do you think of
this?

This payback period actually looks rather promising. While the payback period isn’t that
important to us it is definitely better to have a shorter one. 3 years and 7.5 months is quite
good due to the difficulties we face as an export company.

Figure 4 – Interview with Financial Director

1. Are you satisfied with Hi-Style’s performance in recent years

In the past I have been, however in the last couple of years I am quite upset by the way Hi-Style
has been performing and I’m sure the CEO can agree. I am always trying to think of new ways to
improve performance but so far have not come to a conclusion.

2. What do you think are the reasons for Hi-Style’s fall in revenue?

Well first of all, we haven’t lost many customers, they have just been ordering less. This is
probably due to the economic downturn in the Middle-East so they have been purchasing less
from us because consumers in the Middle-East are spending less. Also since China is becoming
more international and with better standards of English, we can’t find new customers because
many of them are working directly with factories in China. We are most likely unable to match
their prices.

3. Can you give me a 5 year rundown of Hi-Style’s revenue if they invest $500,000 in
marketing and $2,000,000 in R&D on the US footwear market?

Year 1: $1,000,000 Hi-Style Will not receive any orders for around the first 6 months as that is
the average time to secure an order
Year 2: $4,000,000
Year 3: $6,000,000

19
Year 4: $7,000,000
Year 5: $8,000,000

4. How much will you be able to sell footwear to premium customers for?

Around $155

5. How much will it R&D for high quality footwear to be produced

After speaking to one of our factories, I think we can produce premium shoes at a high quality
with an investment of $2,000,000

6. What is the maximum initial investment Hi-Style can afford.

We don’t want to be too risky, so looking at our current financial situation, I think keeping the
investment under $3,000,000

7. Has Hi-Style tried anything similar to this before?

In 20010 we started selling socks and that was rather successful, which was the last time we
expanded our product line. Footwear may go well with socks as suppliers may purchase socks
and shoes together. It took a long time, around 2 years to start processing orders, but we
ended up getting a few large orders from existing customers.

Figure 5 – Interview with Marketing Director

1. If Hi-Style were to start a new product line, which product would they offer?

I think footwear is an attractive option because it is something that the factories we work with
can offer and also is very popular worldwide.

2. How much promotion should be spent on advertising footwear?

This will depend on whether we are trying to advertise this product to our current clients or if
we are advertising this to new clients.

3. To New clients?

If we are expanding to a new country, lots of money will need to be spent in order to make
ourselves known to customers. We will usually hire a marketing agency to cold call on behalf of
us but we also conduct targeted web advertising. I think spending $500,000 is a reasonable
amount.
20
 4. How much money should be spent on R&D?

Well we follow very strict quality standards, so since footwear is a new product for us, I think a
considerable amount of approximately $2,000,000 should be spent in order to get good quality
shoes that are attractive to customers.

5. How do you advertise you high quality products to customers?

We follow AQI 2.5. This means only 2.5% of our clothes can have minor defects. We always
inform clients we follow this standard as it is understood by almost all of them and usually they
are quite impressed.

6. What are Hi-Style’s current means of advertising?

We cold-call, and sometimes we hire a marketing agency to cold-call for us. We advertise on
the HKTDC which is a website where export companies and retail stores can advertise products.
Recently we have been using google adwords to advertise and it seems to be quite effective as
we our impressions are relatively high

7. What is a benefit to investing in the US market compared to other countries?

The US market has a high demand for these products, as well as an abundance of premium
retail chains. This means there are many possible companies we can sell too. However a
downside is that because there are so many retail chains, almost all the export companies are
looking to sell to US making the market very competitive.

Figure 6 – Questionnaire to Hi-Style’s customers

Splash Next Primark Pull &

Bear
Would you consider Budget Premium Budget Premium
yourself a budget retailer
or a premium retailer?
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Does your company sell Yes Yes Yes Yes
footwear?

If so what type of Cheap Mainly Cheap casual All kinds of

footwear? casual premium shoes shoes
shoes shoes
Is your footwear Limited Extensive Limited Extensive
collection extensive or
limited?
Do you value cheaper Cheap High quality Cheap prices High
prices or higher quality prices Quality
shoes?

How interested would Interested Very Not interested Very

you be if Hi-Style were to interested Interested
offer footwear?
What do you value most Quick High quality Affordable prices Good
when purchasing apparel shipping products customer
from an export company? service

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