By Cheng Qiu, Andreas Skiadopoulos, Dong Yang, and Yina Shi under the supervision of Professor Andrew Karolyi – 14 pages. Original version dated: 01/9/2012; current version dated: 04/08/2015.
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On May 4th, 2011, Fosun International, a large China-based holding company, agreed to purchase a 9.5% stake in the Greek luxury designer and retail group Folli Follie Group for €84.58M. Greek analysts had conflicting evaluations on Folli Follie Group’s stock price, raising the question whether Fosun paid a premium for its stake.
Folli Follie is a Greek luxury brand founded in 1982 by Dimitris Koutsolioutsos. The company started expanding in the Greek market through franchising, and opened its first overseas store IN Japan in 1995. Although Greece and Japan were initially the basic growth markets for Folli Follie, the founder did not limit the firm’s operations to these two countries. Driven by his vision for a globally successful firm, he decided to expand into several international markets, and approached Fosun Internation to facilitate the company’s entrance into the Chinese market.
Fosun International regards capturing “investment opportunities benefiting from China’s growth momentum” as an important task for building up its main business portfolio, and jumped on the opportunity to help Folli Follie expand into the Chinese luxury market. During the past decade, luxury consumption in China has been enjoying a rapid increase. With rising income, widely available luxury products, and shifting attitudes toward the display of wealth, Chinese consumers feel more comfortable buying luxury goods than ever before.
However, some challenges do face Folli Follie Group; there are several barriers to entry in the Chinese luxury market: experienced partners and distributors are hard to find, and many Chinese consumers are relativiely unfamiliar with luxury brands. The last couple of years have also been challenging for the company due to the impact of the financial crisis. While most global economies started to improve in 2010, the worsening effects of the crisis in Greece and Southeastern Europe were reflected in the financial performance of the Group. This poses a significant risk, as domestic sales in Greece account for 51% of the company’s total sales. Would Folli Follie Group continue to experience growth in the Chinese luxury market to offset its unsatisfactory performance in domestic market, and did Fosun International take too big of a risk investing in Folli Follie Group?
This case study provides students the opportunity to observe a company’s expansion into an emerging market in an attempt to offset floundering domestic sales. Through the discussion of overseas investment and financial valuation and risks, students are able to fully understand the risks and benefits companies face expanding into a volatile emerging market.
- Emerging Markets Corporate Strategy
- International Finance
- Investment Management
- Investment Risk Assessment
Supplementary Materials Available
Teaching Note (Upon request from the case supervisor)
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