1. Introduction

The business under consideration is a manufacturer and marketer of luxury handbags in the UK. They are looking to explore the possibility of investing in setting up a new operation in China to cater to the local market. This presentation examines the risks and the opportunities involved.

2. Opportunities

PESTEL analysis is used to study the external environment for the luxury goods market in China

- Political factors: China has a single-party political system and the country has a long history of communist regimes. Even though the political forces have traditionally favoured a closed environment, post the accession to the WTO, China has slowly opened up the economy in most of the sectors for foreign investments. The increasing openness in the luxury goods market has resulted in the steep increase in the consumption of luxury products in China.

Following chart shows that China is the fifth largest consumer of luxury goods in the world.

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Source: Economist (2013)

China consumes about 25% of the total luxury handbags in the world.

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Source: Economist (2013)

- Economic factors: Economic factors have significant impact on the demand for luxury products as the nature of demand for these goods is highly discretionary in nature. Following chart shows that the GDP growth of China.

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Source: Tradingeconomics (2014)

It can be seen that the GDP growth rate has slowed down significantly since peaking in 2010. However, even at the current rate of 7.7% China is one of the fastest growing economies in the world and the only one of its size to grow at this rate.

- Social factors: The increasing tendency of the Chinese population to adopt the international brands is a huge advantage for the luxury goods suppliers. A survey conducted by Bain & Company (2010) shows that the international luxury brands have seen