Business Strategy Giordano Limited - Case Study Example

Giordano Limited was started in 1980 by Jimmy Lai.It began as a wholesale company of Giordano brand apparel. Within a span of five years, it had expanded as a chain of retail outlet to various countries and it was competing with other brands such as lacoste .By 1986, the company experienced massive losses and poor sales as was indicated by the retail in Hong Kong. From the past failures of the company, Lai replaced the management team with a new one which incorporated the best practices of various retailers. In 1989, he introduced the customer care service campaign. Due to the change in strategy, there was increase in financial results as there was both increase in its turnover and profitability. The retail business had grown in size by 1990 and it had even acquired two manufacturing companies in China. In 1991, Giordano was listed in the Hong Kong stock exchange as Giordano Holdings limited and this enabled it to incorporate Bermuda to become Giordano group. This was an opportunity for the company to expand especially in markets outside Hong Kong. The difficulties that the company experienced at the time were the Asian financial crisis, the outbreak of severe acute respiratory syndrome (SARS) and disruptions of operations in China. Despite all these, it had improved tremendously in its benefits and revenues. By the year 2004, the company was boasting of a multi-brand development, geographical and market expansion in Asia and Middle East. The economy grew and the company had increased property and stock markets. This made it to earn wholesale margins. In the year 2005, the company's net profit rose yet again but by the third quarter, it had dropped because of heavy rainfall, a spew of typhoons and warm temperatures in the region. In the same year, they signed an agreement with Walt Disney to improve their brand. The workers of this company were at the forefront of ensuring that the company's objectives were achieved. The employees were offered salaries that were higher than those in the market and they were also retained. From 1997 to 2003, Hong Kong revenues began declining after a significant drop in tourist activity. Giordano Company's primary markets are china, Singapore, and Taiwan. Other markets include Australia, Malaysia, Indonesia, Thailand, Japan, Korea and the Middle East. This company's main competitors are: Esprit holdings, Benetton, Uniqlo, Bossini, G 2000, Baleno and U-right companies. With the growing and changing global retail, there is need for this company to explore different strategies to counter the different markets and have a competitive advantage over their competitors (Needle, 2004). Question 1 Macro factors that affect business performance and profitability in this industry. The key macro factors that are brought out in this organization are the political, economic, socio-cultural, technological, legal, and the environmental influences. They are factors that have affected the performance and profitability of the organization. Political trend is such one factor that has manifested itself in the company. During the venture into the Chinese market, there was a fall out between a Chinese leader and Jimmy Lai because of the way he openly criticized his government which led to the closure of the company's outlet in Beijing. Jimmy Lai had to withdraw from the management of the company as the Chinese government continued to close the company's other outlets. As soon as his presence was no longer felt, Giordano Company introduced new policies that enabled it open new shops in China. Unemployment is an economic factor which has affected this industry. In Hong Kong, the market was doing well until there was a significant drop in the tourism industry. Within six years, the economy had experienced at least three economic recessions which led to high unemployment rates (Needle, 2004). Leisure is a socio cultural activity that is brought out in this industry. In Hong Kong, Giordano Company relied heavily on the tourist activities .When tourist arrivals increased, there was improvement in the economy and when there was a drop in tourist activities, there was a decline in the revenues collected. Information and communication also was used in this industry from the technological point of view. Giordano Company used promotional campaigns to attract the attention of its customers. From a legal perspective, Giordano Company had to use the current legislation of its home market .For instance, in their Singapore market, there were government directives that they operate from residential areas. Giordano Company had to weigh their consumers' attitude and values from an environmental perspective. Its management ensured that their goods were simple and fashionable and that they matched with the customers tastes and buying patterns so that customers felt the value for their money. At the retail stores, they also made sure that transactions were efficiently done. Key drivers in this industry Giordano Company ensured that that it was globally competing with other companies so that it could be at the same level with organizations like Benetton. Initially, the company performed well as the management had learnt from its previous mistakes and this implied that learning and experience were key drivers to this company. Critical analysis of the macro and micro level There is a big gap between the macro and the micro level. This is due to the fact that the macro environment has contributed much more to the outcomes of the company. Main trends and critical factors for the industry. Giordano limited has adapted a large scale and scope economy of scale .It also has transferable marketing approaches that are used in all their markets and potential markets. Contingency plans recommended. From the influences identified, I would recommend that business people should not interfere with the government of the day's policies as business environment largely depends on the current government. They dictate how businesses will run. Companies should not depend on one market for their businesses. This is because, if the business fails, employees suffer unemployment. They should adapt policies that will enable them to retain all their workers at all costs. I would also recommend that companies put a considerable amount of money for promotions in order to attract more customers. They should also follow government directives so that they have a good business environment. Companies should also listen to the needs of their customers and address them (Needle, 2004). Question 2 The underlying structure of the industry The underlying structure in Giordano limited lies in its relative position in which it is seen compared to other organizations. It has been noted that this company was at one time at the same level with other competing companies such as Espirit holdings. Key competitive forces. Some of the company's key competitive forces are well demonstrated by Porters five forces model. The buyer force is one force that is seen when the company was faced by other alternative sources of supply. Giordano Company lost its market share because of competition in the low-to mid-priced apparel segment. There was high competition between this company and other companies. The supplier power was also a competitive force. The competitors of Giordano Company had a powerful brand which made them compete favorably in the market. There is a tendency of competitive rivalry when competitors are in balance. Due to globalization, Giordano Company lost its market to competitors like Bossini which sold similar items (Montgomery 1996). The other force is the threat of entry which relates to government action. In the Malaysian market for instance, the market was not stable but the government intervened by funding the financial sector. The threat of substitute is another force of analysis. At Giordano Company, it is seen in the way the company substituted its products. It offered different products including accessories which came in various colors and it also sold individual items rather than collections. (Needle, 2004). Challenges. Some of the challenges facing this company are legislation and the capital requirement of entry.Singapore was one of the primary markets of Giordano limited. The legislation in this country allowed the company to operate its business in residential areas and this posed a major challenge because of the sluggish economy as compared to the city. Capital requirements of entry into this business were also a challenge to Giordano Company. The organization began as a wholesale outlet and later expanded to a chain of stores so as to compete with other brands. With this kind of expansion, heavy investment was required to fund even the purchasing of rental premises. Critical success factors. For Giordano to survive in the market, it is imperative that the managers select strategies that will assist in competing with other companies. The strategies should aim at maintaining long term profitability and also remain attractive in the market (Tracy 2000). Question 3 Strategic analysis of the case The business level model has been used to explain the strategic analysis. Initially, Giordano limited was threatened by the avian bird flu, competition from other organizations that offered the same merchandise as theirs and also increasing rents and interest rates.Inspite of all these threats, the company was able to make profits in 2004.The company's management also accepted and learned from mistakes they had done in the past and this made them have a competitive advantage over other companies. Within a span of 15 years, the company had expanded marketwise, geographically and it had a multi-brand development. This means that the company had the capacity to remain in the market for a long period of time and compete with other retailers. Giordano as a company had five business values which were instilled in employees through intensive staff training, continous cost cutting initiatives and the implementation of information technology. The company's competencies were maintained and this made it become a household name in Asia. From the way the Giordano Company applied the competencies, it was able to grow and this made it more competitive as other brands like Benetton. Much focus was laid on the quality of the customer goods in Giordano limited. With the economic downturn, it was still able to offer fashionable clothes which were of good quality. The company's products were distinct in their colors and they were also of classic labels. Promotional campaigns were incorporated to familiarize the customers with the brand. To attract customers even more, the company signed an agreement with Walt Disney Company to upgrade their brand. The company was able to attract and maintain its customers and this made it stay in the market for long (Needle, 2004). Giordano Company had factories which supplied to almost two-thirds of its output to the retail market. The manufacturing operations of the company did not start as expected because of some setbacks leading to the closure of some factories. The company is able to feed all its outlet market but it should consider external factors that may hinder its growth. Giordano limited had both tangible and intangible resources to start up their business as seen in the way it expanded its business from wholesale to a chain of stores. The company's infrastructure grew steadily but they did not consider its target market and that is why at some point it did not make profits as expected because of its high prices and high market strategy. Question 4 It is every entrepreneur's wish that his or her business grows from one level to another. Growth in a business is measured using profits, revenues and the business's assets. Organic growth is the rate at which a business expands with the aid of the business core competencies and sales. Inorganic growth is the approach whereby, the expansion of the objectives of a business is met through mergers and acquisitions. Growth is an element of corporate strategy. For a company to grow, it faces various choices of growth .The first one is the horizontal growth which is made up three components; the expansion of activities within an organization are extended to geographical areas, seeking of new customers and also the increase of their range of products and services. Vertical integration is the kind of growth whereby, a company takes over the functions that were previously performed by a distributor or supplier. In this growth, it can either be forward or backward. This strategy should not be applied when suppliers are weak. The costs and efficiencies involved may cause others to adapt economies of scale. Diversification is another type of growth and is composed of two types. Related diversification is the core of one's resource and capabilities. In this diversification, synergy increases because the related activity is likely to increase economies of scale and is likely to save money. In unrelated diversification, it is issued to lower the relative risks involved (Needle, 2004). A company may also grow through the network level strategies. It has to do with organizational relationships. A firm may grow depending on the relationships it experiences with other organizations in the periphery. There are also relational partners or actors. These are the firms with which a company can interact with and they come in four categories; upstream vertical and downstream vertical where a company partners with a single or many suppliers, direct horizontal where a company partners with potential competitors or rival and lastly, indirect horizontal where the organizations create relations outside the firm. In relational objectives, they are the objectives that are expected to be achieved in case an organization has an external relation. They are the factors that may be ignored by a company's management that may have an impact on the relationship that a company may involve itself. They are the factors that are present and were not foreseen. Finally, relational arrangement has to do with the mechanisms that have been put in place just in case a dispute arises. Question 5 Mergers and acquisitions are an aspect of corporate finance, corporate strategy and management that deals with the buying, selling and also the combining of different companies that finances or assists in the growth of a particular industry to grow rapidly without having to create a new business elsewhere (Needle, 2004). Challenges The first challenge is that of misappropriation of resources and capabilities. This occurs when a certain amount of money is set aside so as to fund a particular project but instead the management of a given organization uses the money for other purposes for which it was not intended .As for the intangible resources like capabilities, the people who are trained in a specific area may not be given a chance to work at a position for which they trained, but work in other departments. The management may also bring in people who are incompetent who may not be able to make proper plans and budgets for companies. The other challenge is that of poor contract management .This happens when a company signs a contract to complete a task and when given a chance to complete the task, it does not finish it on schedule. This leads to delays in other areas because the contractors are behind schedule. A company may be held hostage by making specific investments .In an alliance between two companies, one of the companies may exert pressure on the other to sign a contract with a given contractor. The said contractor may be slow in discharging his duties and therefore delaying programs of an entire company. One of the partners may feel the pressure and this may cause tension between the partners. There are also the challenges of failure of making complementary resources available. Organizations' should have many complementary resources apart from a single source. For instance, a company may rely on the land they have as the only asset they have to justify their wealth. Recommendations Managers of companies' should sit together and agree on how to use the resources that they have so as to avoid counter accusations. The managers should also ensure that the contractors that they agree upon are companies that are well known in performing their duties on time. When companies decide to make any investment, they should ensure that they do thorough consultations from all the stakeholders of the both companies. Organizations that aim at making alliances should ensure they have a variety to resources to assist them in their day to day running of the business. Question 6 The future of Giordano Company From the way this company started, the way it grew, to the position it is at the present, Giordano Company has the probability of developing in the future .There was a time when the management realized mistakes they had made and so they took steps to counter them. The company has future growth because at around the 1990s the company had faced many challenges and it was able to overcome them. By judging at the rate at which the company grew, Giordano Company has the potential of growing to all parts of the world including Africa bearing in mind the prices to set for developing countries (Needle,2004). Recommendations I would recommend the use of informal management. It may be difficult for the two companies to work together if they each follow their own management decisions. Informal management would be the best because it is cost effective rather than the way each company would engage in lengthy transactions. I would also recommend the use of complementary resources. This involves creating new stock which is not available to any of the companies' competitors. The use of complementary competitors would be a great advantage to them over the other competitors in the market. When companies make alliances, they encourage knowledge sharing. When managers of companies share knowledge that is consistent, they create a good rapport between themselves and they also enhance learning .This is important because it creates room for growth for both companies. I would also recommend that companies make joint ventures. The joint ventures have many advantages including increased returns. When two companies come together, they are required to make investments which if either company was working alone, it would not dare make the investments. Question 7 Comparison with main competitors. Giordano Company has not performed well compared with other companies. Though the company was faced by many threats of which it overcame, it sometimes made heavy investments which brought it down but this did not deter the company from losing its focus. Compared with its competitors, it had not grown expansively like for instance Benetton which had over 120 stores worldwide. This company also made mergers with company's whose brands were well known to help upgrade its own. This was imperative because, in that industry, there were many competitors and it had to compete well in its various markets. It was also doing well in the manufacturing sector. In 1990s, it had acquired three manufacturing plants and they used them in the supply of about two thirds of their output to their retail markets. The cooperation between the retail and the manufacturing led to the establishment of schemes such as the just- in- time scheme which made the company to compete well with the other companies in terms of their delivery of goods to the customers (Needle, 2004). Comparative Financial analysis of Giordano company performance and results From the results of Giordano Company, it performed well financially in its first fifteen years. In the 1990s, the results indicate an increase in turnover and profitability because of change in their marketing and overall strategies. As compared to Espirit Holdings, Giordano did not perform well because Esprit Holdings controlled a very large retail space and thus spread across to 40 countries. In terms of the products, innovation and quality, Giordano Company performed relatively well as it considered consumers needs during the financial downturn. At Espirit Holdings, their products were designed according to the customer attitudes and not age like in the case of Giordano Company. Advice to potential investors. I would advise the potential investors in this industry that in order to invest in the industry, massive resources must be set aside. For a company to succeed and still stay attractive in the market, the company must be willing to make constant innovations in their products and services at the same time maintain quality .On the side of services, the employees must be pleasant for the customers to have confidence in them. This means that the workers should be well remunerated so that they are motivated to work and at the same time work extra hard to meet the customers' needs. Companies are also required to implement the customer needs as they help in maintaining the current and potential customers who feel that their needs are not met according to their expectations. It is important to hold promotional campaigns for a company to succeed in the industry. When a company uses phrases in advertisements that are eye catching to the customer and are easy to remember, customers are easily attracted to them and they sometimes do not need to bargain because they see the products as of good quality. Reference Montgomery, C. A. (1996).Strategy: Seeking and Securing Competitive Advantage Edition: 6 United States of America: Harvard Business Press. Needle, D. (2004). Business in Context: An Introduction to Business and Its Environment Edition 4. United States of America: Cengage Learning EMEA. Tracy, B. (2000).The 100 Absolutely Unbreakable Laws of Business Success United States of America: Berrett-Koehler Publishers. Read More