International Business Plan for Levis Strauss and Co - Research Paper Example

?International Business Plan Executive Summary Since its inception in 1853, Levis Strauss and Co. has made rapid strides and is a global player in the apparel industry today. The company earns half of its revenue from markets outside the United States. As a business strategy, the company wants to increase its global footprint and is therefore looking to expand in foreign markets. Hungary has gained status as one of Central Europe’s most prosperous economies. Ever since the country has opened its doors to foreign companies, it has made rapid strides and is drawing an ever increasing quantum of foreign investment year on year. The present paper aims to analyze the suitability of expansion of Levis Strauss & Co. in the European country of Hungary. For this purpose, an assessment of the economic, social, political and legal environment of the country has been made. The paper also dwells on the requirements for success in the country from an individual’s perspective. Company Overview: About Levis Strauss & Co Levis Strauss & Co. made its humble beginning in 1853 when the Bavarian immigrant and founder of the company created the very first pair of jeans. At present, the company designs, markets and sells jeans, casual pants, tops, shorts, skirts, jackets, footwear et al. The company also has all related accessories for men, women and children in its product repertoire. The company boasts of popular brands like Levi’s, Dockers, Denizen, and Signature by Levi Strauss & Co. Over the years, the San Francisco headquartered company has grown steadily to become one of the global behemoths in the apparel industry. As on date, Levis Strauss & Co has operations in as many as 110 countries and generates close to 50 percent of its net revenues from markets outside the United States. Levi Strauss & Co conducts its operations outside the United States through foreign subsidiaries owned either directly or indirectly by it. The company’s global business is grouped into three geographic regions: Americas, Europe and Asia Pacific. The year wise (2009 through 2011) breakup of the net revenue earned by the company in these regions is shown in Table 1 below. Table 1: Region-wise Revenue for Levis Strauss & Co.* *Source: Annual Report of Levis Strauss & Co. The company’s brands are sold in 55,000 retail locations globally. Of these 2,300 retail locations house the brands of the company exclusively. As of November 27, 2011, the company had 498 company-operated stores located in 32 countries across the three regions. Of these there were 211 stores in the Americas, 178 stores in Europe and 109 stores in Asia Pacific. Additionally, there were another 1800 franchised, licensed, or other forms of brand-dedicated stores operated by independent third parties that sold Levis Strauss & Co. brands exclusively. Levis Strauss & Co has managed to build brands that people love and trust, in large measure, due to its responsible business practices. The company leaves no stone unturned to contribute to and respect the local communities in which it operates. As a business strategy, Levis Strauss & Co intends to grow its business profitably, spread out across consumer segments and price tiers and respond to marketplace dynamics while building on its competitive strengths. The company’s global footprint is a key factor in its long term growth and it must capitalize on it. Levis Strauss & Co has to focus on markets that provide lucrative growth opportunities. The company has to make full use of its massive global presence and local-market talent gain local market insights, adapt to local consumer trends and thus grow profitably. It is for this reason that the company is looking to expand in Hungary. Country Overview: About Hungary The history of Hungary dates back to as far as A.D. 1000 when the country became a Christian kingdom. It emerged as an independent country after World War I. It was in 1968; under the headship of Janos Kadar, that Hungary introduced the ‘Goulash Communism’ whereby it began to liberalize its economy and placed heightened focus on human rights. In 1990, Hungary held its first multiparty elections and 9 years later in 1999 it joined NATO. Hungary became a member of the European Union (EU) on May 1, 2004 (Barnes, Renderson 2007). The country is also a member of the World Trade Organization (WTO) and the International Monetary (IMF). Hungary offers umpteen business opportunities for organizations willing to take advantage of a market that has become extremely lucrative especially in the post reform era. Economic and Demographic Dimensions GDP Buoyed by a robust agricultural output and strong manufacturing sector, the real Gross Domestic Product (GDP) growth in the fourth quarter of 2011 was 1.4 percent year on year (YOY). The annualized real GDP growth is expected to be 1.7 percent, a shade higher than the real GDP growth of 1.6 percent witnessed in the entire EU. The expected euro zone recession in 2012 is likely to have an adverse impact on growth rates in Hungary in the short run. However, over the medium and long run the country is likely to achieve an average annual real GDP growth of 1.9 percent from 2013 through 2016. Fiscal Deficit In addition to securing a steady economic growth, Hungary is confronted with the challenge of consolidating the public finances. The threat of a large fiscal deficit looms large on the country’s future. Hungary has requested a bail-out from the EU and the IMF and a deal in likely to consummate in the near future. The expected bailout coupled with strong austerity measures by the government will help curb the budget deficit in the times to come. It is noteworthy to mention that the Hungarian government dismantled the private pension system in 2011. This exercise led to a budget surplus of 1.3 percent of GDP last year. If the effects of this transaction are ignored, the budget deficit would have been more than 6 percent of the GDP in 2011. Population, age and gender The total population of the country has remained steady at close to the 10 million mark for the last few years. Table 2 below depicts the age-wise and gender-wise breakup of the total population. Table 2: Age-wise, Gender-wise Breakup of Population* *Source: Adapted from Hungary: Population (2011). It can be seen that majority of the population falls in the age group of 15-64 which is the target market for Levis Strauss & Co. The male and female proportion in this age bracket is nearly the same; therefore the company can target both the genders for its apparel brands. Within this age bracket, the proportion of those aged 20-44 (a key segment) is estimated to be 35.6 percent of the population. Furthermore, some people from the 0-14 age bracket; say aged 10 and above, are also potential customers for the company. Ethnic groups While Hungarians constitute 92.3 percent of the population, 1.9 percent of the population consists of Roma while the rest of the 5.8 percent consists of varied ethnic groups whose roots are unknown. The country boasts of a 99.4 percent literacy rate which is defined as citizens aged 15 and above who can read and write. 68 percent of the total population lives in urban areas which is another good sign for Levis Strauss & Co. Region Spread over 93,030 sq km (35,919 sq miles), the Republic of Hungary is a land locked country. Located in Central Europe, it shares borders with Austria, Croatia, Romania, Serbia, Slovakia, Slovenia and Ukraine as shown in the map below. Ethics & Corruption This is one aspect which every organization has to be wary about while conducting business in Hungary. The country was placed 54th from amongst 182 countries in Transparency International’s 2011Corruption Perceptions Index (Eddy 2012). Thus corruption risks are higher in Hungary than in other countries in the Central Eastern European region. Levis Strauss & Co has to project itself as an ethical company and has to maintain this perception in every aspect of doing business. Trade Policy The present day Hungary is based on the three pillars; a parliamentary democracy, a social market economy and European integration coupled with transatlantic co-operation. As of today, Hungary is one of Central Europe’s most prosperous economies. The country has made rapid strides ever since it moved towards a free market economy and continues to draw an ever increasing quantum of foreign investment. The Hungarian government has actively pursued a policy of trade liberalization (BBC 2006). It has taken umpteen measures to, if not completely remove, but certainly lower various tariff and non-tariff trade barriers. This has, to a large extent, opened the Hungarian economy to foreign companies and has fostered competition. Foreign Exchange By virtue of its EU membership, Hungary is committed to joining the euro zone. However, the present euro zone debt crisis is giving little incentive to the country to adopt the common currency (Garnham 2008) . Hungary has been and is likely to, in the medium run; continue with its own currency, the Hungarian Forint. Graph 1 depicts the last 30 days exchange rate of Hungarian Forint vis-a-vis the US dollar. Graph 1: Hungarian Forint per one US Dollar The Forint had depreciated 21 percent against the euro between mid-2011 and January 2012. Any deterioration in the euro zone debt crisis is likely to increase downward pressure on the Hungarian currency given the country’s extensive financial and trade linkages with the bloc. A stronger forint can lead to a decline in exports from Hungary. At the same time, it may give rejoice to the importers. The cheap imports may allow Levis Strauss & Co. to import the apparel from countries that provide it cost competitiveness. Additionally the company will not have to incur huge expenses on setting up of it manufacturing facilities in Hungary. Government Dimensions Political stability The centre-right Fidesz-Hungarian Civic Union (Fidesz), with 263 of the 386 seats in parliament, has the strongest mandate of any government since the end of communism. The Hungarian Socialist Party (MSZP) is the second-largest party and has only 48 seats in the parliament. The Christian Democratic People’s Party (KDNP); Jobbik; Democratic Coalition (DK) are the other political parties in the country. In general, the opposition in this multiparty republic is weak and fragmented which thwarts its potency to act as a check on Fidesz’s power. Political experts opine that the present ruling party is likely to remain in power even after the next general election in 2014. While this position of strength enables Fidesz to throw its weight around and exercise clout without restraint, this political stability bodes well for doing business in Hungary as organizations are clear about the government’s policies, inclinations and attitude towards various industries. As an EU member, Hungary tends to benefit from comparatively developed governmental institutions as well as from the steadiness of a robust broad-minded democracy. The pro-EU political consensus is likely to remain strong which will provide political stability in the country and a congenial business environment to the businesses. Relations with neighbours Majority of Hungary’s neighbors are members of the EU and the NATO and therefore share the same set of values. These shared values provide a reliable basis for maintaining harmonious relations with neighboring countries. The worrisome factor however, is the unpleasant relations with neighbouring Slovakia. If these relations remain strained, it could reduce cross-border cooperation and possibly invite censure from Brussels (The Economist 2009). The positive aspect is that bilateral relations between the two countries could improve following the election in Slovakia in March 2012. Relations with United States Hungary enjoys good relations with the United States. The latter is Hungary's sixth-largest export market. At the same time, Hungary represents the 72nd-largest export market for the United States. Bilateral trade between the two countries is on the rise and so is the direct U.S investment in the country. The largest U.S. investors in Hungary include GE, Alcoa, General Motors, Coca-Cola, Ford, IBM, and PepsiCo. The aforesaid discussion points to the fact that if Levis Strauss & Co is able to strike the right chord with the Hungarian government, the company will reap success. The political stability coupled with good trade relations with the US make the political environment propitious for Levis Strauss to gain footholds in Hungary. Personal Strategy for Success It is imperative to understand the business culture of any place if one is to succeed there. Below mentioned are some of the important dimensions of staying and doing business in Hungary (Wise 2004). Individualism An average Hungarian citizen values independence, freedom and self-reliance. The country rewards and respects individual achievement. The Hungarian society has adopted many western business practices and strives for personal success. Respect and formality Respect and formality form the foundation of the Hungarian business culture. In businesses, first names are not used unless the caller knows the other person very well. In business context, it is safest to address people by their titles and surnames. Directly saying ‘no’ to somebody is considered as disrespectful. Hierarchy in organizations Strict adherence to hierarchy is observed in organizations. As such the flow of authority is top-down while the flow of responsibility is down-top. Invariably, decisions are taken by the top management without keeping the middle or the lower level management in the loop. Relationships Hungarian businesses thrive on personal relationships. It is for this reason that business should be conducted face-to-face whenever possible. It is critical to develop a personal rapport with the business partner. Punctuality The people of Hungary are very particular about time. They are, on most occasions, on time for meetings. At times, they may even be ahead of schedule. Not informing the other party that one would be late for a meeting is likely to be construed as having given little importance to the other party. Likewise, Hungarians tend to complete tasks within the stipulated or promised timelines. They tend to work overtime and meet deadlines. Language Most business dealings are done either in English or in German. Hungarian is considered to be one of the most difficult languages to learn, therefore a foreigner arranges an interpreter in case he has to negotiate with a local who does not speak or understand English and German. Contracts Hungarians prefer clear and precise contracts. At the same time they look for certain flexibility that can help in changing the terms of contract should circumstances so warrant. In general, Hungarians pay a lot of attention to detail before taking a decision. Likewise, they do not like euphemisms or vague statements. Hungarians do not mind interrupting, arguing and even criticizing during negotiations. Since I am going to lead the team in Hungary, I will ensure that directives flow to my subordinates in clear, unambiguous terms. At the same time, I have to be cautious about giving due respect to a person, say a channel member who is elder to me. In case, my team member does a good job, his achievement would be made known to all and would be appreciated. This will increase the overall motivation level of the team. I will accept as well as offer dinner and other cultural invitations from my Hungarian colleagues. These social events will provide a platform to develop a personal bond with them, which in turn will translate into better team work and camaraderie in office. I will ensure that all meetings begin and end as per schedule and all commitments, say dispatch to a local wholesaler, are met within the promised time-frame. Last but not the least, I will try and learn the Hungarian, the language that majority of locals speak. The major concerns with regard to repatriation are taken care of as I would be able to adjust socially as well as at the workplace. The other big apprehension is invariably related to food. With the presence of multinational food outlets having operations in Hungary, that too remains of little concern. Marketing Mix Levis Strauss & Co would sell its existing brands Levi’s, Dockers, Denizen, and Signature by Levi Strauss & Co in Hungary. The apparel industry is highly competitive and fragmented in Hungary. Since there are low barriers to entry there are many regional and local players in addition to the global competitors. Levis Strauss & Co. would follow a competitive pricing model so that customers do not shy away from the brand due to its high price. The company would develop products with relevant fits, finishes, style and performance features so as to develop and maintain a loyal set of customers. The company’s brand would be promoted through the print as well as the electronic media. The company would also employ out-of-home advertising wherein large billboards displaying the company’s prominent brands would be fixed on major streets and highways. Throughout the world, the Levi’s and Dockers brands of the company are sold primarily through chain retailers and department stores in the United States. Outside the home country, these brands are sold through department stores, specialty retailers and franchised stores. The company follows a multi channel distribution strategy for these brands as these are also sold through brand-dedicated online stores operated by Levis Strauss & Co itself as well as the online stores operated by its key wholesale customers and other third parties. On the other hand, the Denizen and Signature by Levi Strauss & Co brands are sold through mass channel retailers in the United States and Canada and through franchised stores in Asia Pacific. The same model would be followed in Hungary. Furthermore, the company would continue to enhance its online presence as well as seek opportunities for strategic expansion of its dedicated store model in Hungary. Exclusive retail stores are important for the growth, visibility, availability and commercial success of any brand. The company should look at operating such stores either on its own or through independent third parties such as franchisees in Hungary. This will enable the company not only to augment is distribution prowess but also to showcase the full breadth of its product offerings and thus enhance the brands’ appeal in the country. In addition to these stores, Levis Strauss & Co. could expand the network of dedicated shop-in-shops located within department stores in Hungary. This would provide the benefits of better control and at the same time curtail costs for the company. Conclusion Hungary appears to be an ideal destination for Levis Strauss & Co. The country has gone unscathed from the recent economic recession and is one of the most prosperous economies of central Europe. Of the total population, more than 35 percent of the population is aged between 20 and 44. That provides a substantial target market to the company. Political stability in the country coupled with good diplomatic relations with the United States act as further incentive for the company to expand business in the country. Hungary is following a liberal trade regimen and is welcoming foreign companies with open arms. The fact that Levis Strauss & Co. is earning a steady chunk of its revenue from Europe and is already present in Hungary suggests that it gauged the pulse of the market. The company would therefore, from a strategic standpoint, be successful in the country. References Acs, Z. J., OGorman, C., Szerb, L., & Terjesen, S. (2007). Could the irish miracle be repeated in Hungary? Small Business Economics, 28(2-3), 123-123. doi:10.1007/s11187-006-9027-9 Barnes, I., & Randerson, C. (2007). EU expansion and the political economy of former communist states accession: The case of Hungary’s convergence. Capital & Class, (93), 179-VII. http://search.proquest.com/docview/209703657?accountid=133056 Business in Eastern Europe: Hungary to learn. (1993, Mar 27). The Economist, 326(7804), 72-72. http://search.proquest.com/docview/224133419 Eddy, K. (2012). Hungary hit by hotbed of corruption. 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