Roly International: Consumer Licensed Products in China

Tan, Eric Herschel I.

Teodoro, Maricar Joanne C.

Degamo, Zohr Philip D.

Roly International: Consumer Licensed Products in China

I. Summary

        Roly's licensed goods business in China, including Hong Kong, had been under threat from an economic downturn since 1996, i.e., before the Asian crisis. In that year, a government austerity program dampened consumer enthusiasm for premium-priced Western brands, and a crackdown on corruption also depressed the previously buoyant demand for branded items bought as gifts for the children of government officials. The regional financial crisis had only worsened a declining domestic economy, and by 1999 there was 3% deflation at the retail level in the key markets in China

II. Problem

        In April 1999, the senior executives of Roly International gathered in their Hong Kong headquarters office to review results for their licensed consider proposals on how to adapt the business to the economic downturn in the market.

        Since its 1992 entry into the licensed consumer products business, Roly had built one of the strongest and fastest growing such operations in China. As early as 1997, however, an unanticipated worsening in the Chinese economy tarnished the excitement of this rapid entrepreneurial growth. The downturn of the late 1990s had not only dampened consumer demand, but threatened to seriously damage profits, given the capital-hungry retail-based market penetration strategy adopted by Roly. The team now considered whether its retail strategy should be supported through the downturn, or whether the company should rationalize its investment in China retail and switch to a more flexible channel strategy on the assumption that renewed growth was unlikely in the foreseeable future.