Benetton Internationalization Strategy 2

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A cursory study of internationalizationstrategy followed by Benetton group. Sources - web resources

Benetton Internationalization Strategy 2

  1. 1. Internationalization StrategyPallav Vikash Chatterjee
  2. 2. Benetton• Incorporated: 1965 as Maglificio di Ponzano Veneto dei Fratelli Benetton, global luxury brand• Owned by Benetton family – 67% stake through Edizione Srl (holding company)• Based in Treviso, Italy• Total turnover of € 2.33 billion• 150 million garments sold every year, 6949 employees, 6000 stores, 120 countriesBrands – Playlife, Sisley & United Colors of Benetton
  3. 3. Products Core Business Area Clothing • Menswear • Womenswear • Childrenswear • Underwear Others • Cosmetics • Perfumes • Toiletries • Merchandise • Watches
  4. 4. Brands
  5. 5. Internationalization Efforts• Within 3 years of incorporation entered France (1968 – 1972)• Expanded to pan-Europe (1980s)• Expansion of sales network and production in target countries• Successes in Japan, followed by entry in USA• Entry in Asia-Pacific, with entry in China & India (1990s)• Failure in USA – led to re-look at international strategy Legal Issues Currency with Fluctuations Franchisee model
  6. 6. External Considerations• Need of greater political sensitivity in dealing with governments of different countries• Differences in franchisee laws, distribution environment across countries• Consumption of clothing, fashion accessories & sportswear – function of disposable income levels – different macro factors across countries.• Different social conditions, influence brand presence.• Competitive contexts
  7. 7. Global Competitive ContextBrand Global PresenceBenetton 120 CountriesInditex 45H&M 15Mango 70GAP 6Espirit >40Source – JP Morgan & OECD Retail Intelligence 2002- Verdict 2002 , OECD 2001 Morgan Stanley Research Key reason to internationalize – Matured Italian market, business growth through internationalization
  8. 8. Global Competitive Context Comparative Positioning – Fast Fashion Brands
  9. 9. Sources of Global CompetitiveAdvantage – Fast Fashion (Apparels)
  10. 10. Internal ConsiderationsStrengths Weaknesses• Casual wear business • Less profitable sports business• 20% profits from casual wear • High cash flow required in sports business business• Efficient production process • Comparatively lower• Innovative manufacturing – competitiveness in logistics with example delayed dyeing pure retailers (those who don’t• Company’s franchising network manufacture but source and retail) • Lack of clear target audience – its neither into business wear nor into sports wear. • Lacks trendiness as desired by youth
  11. 11. Global RevenuesYear 2010 2009 2008 2006 2007Revenues 2,053 2,049 2,128 1,911 2,049(million euro)Net Income 102 122 155 125 145(million euro) Sales by Brand Sales by Region
  12. 12. Global Capacities >40% production was based in Italy Large Capex Production Processes – (In-house)Small Capex Production Processes – Outsourced to domestic small suppliers Fabrica – Global Communication Design Centre (Marketing)
  13. 13. Benetton Global Production Evolution• Benetton has unique – in-house manufacturing process unlike other retail players in fashion industry• Production centres were distributed over a period of time to reduce lead times and increase speed to market which was a weakness previously due to in-house production• Benetton engages in subcontracting for small capex manufacturing processes
  14. 14. Benetton Global Value Chain Just In Time & Heavy usage of IT (EDC) to integrate information to ensure responsiveness
  15. 15. SWOT Analysis SWOT ANALYSIS Price Long TermBrand Positioning Major Competitors Growth Drivers Strengths Weaknesses Opportunities Threats Regaining momentum & Lost momentum versus Simple actions may Management poorUCB Mid Gap, Zara, Stefanel Market Share Powerful Global Brand competition give good results track record Strong Design, Good Quality Max&Co., Versus at affordable price than Almost unknown Significant investmentSisley Mid High D&G, Canali Expanding Abroad designers abroad Regional expansion necessary Expansion opportunities Distribution & Regional Designed for an attractive in Italy and then Volatility of teenagersThe Hip Site Mid Fornarina, H&M Expansion and important consumer Start up brand abroad purchases Expected superior Nike, Reebok,Sergio Distribution & Regional Good retail network and growth for lifestylePlaylife Mid Tachhani,Napapijhri Expansion investments already done Unclear positioning brands Tough Competition Expected superior Distribution & Regional Strong international growth for lifestyleKiller Loop Mid Reef, Quicksilver Expansion brand Lost heritage brands Tough Competition Immediate Candidates of Internationalization
  16. 16. Core Competence• Innovative operations management• Network organization of manufacturing• Network organization of distribution (agents) – each agent responsible for development of a given market area.• Megastores – a unique franchising formula
  17. 17. Benetton StrategySpread of production – increase in global capacities- Commissioning of production centres in India, China- Commissioning of production centres in Eastern Europe- Enhancing spread of production- Sourcing from Asia , to reduce costs (44% sourcing of raw materials, fabrics etc , currently)- Using local production bases in large markets (India for instance) for feeding domestic market , therefore increasing responsiveness
  18. 18. Benetton StrategyUnique Flexible Sales Channel Region Specific Agents responsible for market development & Direct Sales Channel
  19. 19. Benetton StrategyUnique Marketing Strategy- Image Advertising , identification with global social causes- Communication targeted at Corporate level, global message on causes – Racism, HIV, Food safety, Child Abuse etc.- Main Brand communication focussed on creating uniqueness no other brand has (as the company website says)
  20. 20. Benetton StrategyAdapting to Diverse Geographies through innovation- Product Innovation (unique global products, same design, same apparel sold through similar store formats across globe)- Process Innovation – delayed dyeing, postponement strategy to reduce lead times and costs- Organizational Innovation – Divisional structure, Unique Agents model for managing retail franchise, Dual Supply Chain structure, Quasi Franchising system for retailers (License approach instead of Franchise – resulting lesser legal complications, quicker operations and better control)
  21. 21. Benetton InnovationsIntegrated Supply Chain – using smart tools RFID , Central Intelligence CentreParallel -Sourcing & Designing Processes to reduce lead times across geographies
  22. 22. Risks With Globalization- Competitive Pressures (Owing to high competition in apparels and fashion industry)- Sales Network Buy-In, Due to high costs of incentives, network costs have gone up- Performance in Emerging Markets - India & China- Diverse Changes in Customer Spending Habits – Changes in business outlook, macro situations, etc- Owned Expansion – High cost of assets due to in-house production and Benetton owned stores- Foreign Exchange & Interest Rate Fluctuations – More rigid sourcing strategy due to fixed investments and less of subcontracting, there is high risk on profitability

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