Uniqlo’s joint venture with Grameen – What is the ultimate aim?

This is the seventh, and last installment of an article series looking into Uniqlo’s CSR track record, and specifically into the reasons as to why they want to do business with Grameen. (Read Part 1, Part 2, Part 3, Part 4, Part 5 and Part 6)
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Summary of previous posts:
Uniqlo – Japan’s largest, most dynamic, and fastest growing clothing retail chain – is investing into Bangladesh, notably by striking up a joint venture with Grameen bank. The question is: Why would they do that? This series of posts is looking at Uniqlo’s global strategy, their CSR track record, and what we can learn from that about their motives for the joint venture.
In the last posts, I had a closer look at Uniqlo’s CSR strategy’s three main strands: their Japanese hiring system, their Japanese diversity and inclusion strategy, their global recycling initiative, their supply chain monitoring efforts and and at how the JV with Grameen is structurally set up..
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Today’s focus: Uniqlo’s many reasons why to join forces with Grameen
Grameen already owns the knitwear manufacturing unit ‘Grameen Knitwear‘ that is capable of producing about 2000 pieces of garments and 2.5 tons of jersey per day, in addition to offering a range of finishing processes. And while Grameen Bank’s motivation behind the joint venture are quite evident – offering yet another gamut of products to Bangladesh’s poor and a new business line for the myriad of Grameen ladies, Uniqlo’s motivation is at first not quite as clear.

However, at a second look, a number of considerations lead us some qualified motives for the investment:

1. Uniqlo’s main markets are in Asia.
   They do have successful (flagship) stores in the US and Europe. Yet – given how harsh the competition already is in these markets, a push for larger market share in the Occident does not seem like a good idea. An expansion and investment strategy focused on the Asia-Pacific area seems more probable. This is in fact in line with the most recent business news on Uniqlo.
2. Uniqlo is already strong in those Asian markets that are somewhat akin to the Japanese market – Korea and Singapore. Interestingly they’ve found ways to be successful in China as well – as a rather expensive, upmarket brand.
3. Areas such as non-metropolitan China, India and Malaysia, Bangladesh, Indonesia, Philippines are dormant retail markets with a huge potential, and an evident need for quality, affordable clothing. (see e.g. this article on an estimate for food retailing. Note: clothing usually comes only second to food in terms of market potential and sales.)
4. Uniqlo already invested research and time to learn about those markets and the cultural bias’ (prohibited cuts, colours etc.) that the apparel industry is confronted with, thanks to their recycling program and collaboration with UNHCR. Their involvement with UNCHR specifically has made it clear to them, that there are some, if not much, funds available in poverty ridden areas, but that no adequate products are available.



5. Companies such has Hindustan Unilever and ICICI bank have very successfully ventured into doing business for and with the Base of the Pyramid (BOP)– the largest, but poorest socio-economic group, which in global terms, this is the 2.5 billion people who live on less than $2.50 per day. Not only have they opened up a new market to them, but they’ve also come up with innovative products, distribution strategies – and generated substantial benefit at their financial bottom line. In the case of Unilever, it is a concept that is now replicated across the world in countries where the GDP is very low, but economies of scale can be huge.
   How the business concept with the BOP looks like from Uniqlo’s perspective, can be seen in the illustration (left).
6. No other apparel retailer has so far ventured to try their luck with the Base of the Pyramid, despite the huge potential benefits. With a high degree of flexibility and innovation required, most retail fashion chains are not in a position to tackle this market to start with. Grameen has both, the knowledge of how to work for and with the people at the BOP, and also how to mass manufacture apparel in accordance to the quality standards of developed markets.
   Or in other words: Grameen has the technical knowledge – Uniqlo the cash and the need to look for new suppliers as well as markets outside of Japan.
7. Grameen Bank and what they do is hugely popular in Japan. As such, Uniqlo’s home market will support their activities in all aspects: media coverage, sales etc.

Round up
I am convinced that the collaboration that Uniqlo has stroken up with Grameen bank is in reality a clever strategic move. With their investment into Bangladesh and the local experts at hand on how to do business with the Base of the Pyramid, Uniqlo will concentrate on main 2 goals:

• First, the development of new business and distribution models suitable for countries where the Base of the Pyramid is uncatered for and lies dormant as far as their role as consumers is concerned. On the back of the experiences made in Bangladesh, is is to be expected that Uniqlo will start to sell into markets such as Indonesia, India, Philippines, Cambodia etc. – markets that are not substantially covered yet by their competitors on Western high streets such as H&M.
• Second, the establishment of a new, low-cost manufacturing base, that will withstand close up scrutiny, and circumnavigate the (human-rights, environmental) problems the company is facing with their current main manufacturing sites in India and China. .

Uniqlo’s collaboration with Grameen should worry other large global retail chains such as Zara and H&M. The competition among them has entered a new chapter, and the race for raising markets has officially been launched. The coming decade as all the potential to be an exciting one, with the chance that we’re gonna see a re-shift not only of how low-cost clothing is being produced, but also onto which local markets retail brands will focus their energy in order to penetrate the global market.

10 years ago, Uniqlo was barely stretching out its whiskers towards markets beyond Japan. I’m curious to see how the global fashion retail landscape will look like in 10 years time … will it be the same story as today, or will indeed the changes I see on the horizon become reality?
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This is the seventh, and last installment of an article series looking into Uniqlo’s CSR track record, and specifically into the reasons as to why they want to do business with Grameen. (Read Part 1, Part 2, Part 3, Part 4, Part 5 and Part 6)