The Business Strategy of Esprit - Case Study Example

The Business Strategy of Esprit Organization and Structure Esprit is a global youthful lifestyle brand offering smart, affordable luxury and bringing newness and style to life. The Group offers 11 product lines encompassing women’s wear, men’s wear, kids wear as well as shoes and accessories through over 630 directly managed retail stores and over 9,700 wholesale point-of-sales worldwide. Esprit licenses its logo to third party licensees that offer products bearing the same Esprit quality and essence to consumers. Esprit also operates the Red Earth cosmetic brand which includes cosmetics, skin care and body care products. Esprit is listed on the Hong Kong and London stock exchanges and is a constituent stock in the Hang Seng Index, MSCI Hong Kong Index, FTSE All-World Index for Hong Kong and S&P/HKEx LargeCap Index and S&P Asia 50 Index. The Board has ten Directors, including the Chairman of the Board, five of them being executive and the other five being non-executive Directors, of the latter three are independent. Of the five executive directors one is Chairman and in charge of the overall corporate direction and strategy of the Group; another is Deputy Chairman and Chief Executive Officer of the Group and looks after a variety of areas, including production, organization, marketing, strategy and brand positioning; third is the Deputy Chairman, Group Chief Financial Officer and Company Secretary and is primarily responsible for managing the Group’s financial and legal functions, including strategic planning and corporate finance, investor relations, accounting and tax, treasury management as well as company secretarial affairs; fourth is the joint Chief Operating Officer of the Esprit brand and the global head of wholesale operations of the Group and fifth is the joint Chief Operating Officer of the Esprit brand and the global head of retail operations of the Group. Thus, Esprit has a functionally divided organizational design at the top management rungs. Its senior management comprises of a Head of Global Licensing, an International Product Director Women of the Group, a Group Financial Controller, a Global Chief Organization Officer and a Global Image Director. The operational bias in the design of senior management is apparent. The Group employs both full-time and part-time employees and has approximately 8,000 positions worldwide after converting the part-time positions into full-time positions based on working hours (Esprit AR, 2004-05). Organization's environment Three groups of people form the environment of Esprit.Esprit ensures complete fulfillment of its Social Responsibilities in order to make a perfect gel with its environment. As a global company, Esprit believes in developing and maintaining sustainable relationships with all stakeholders. It exhibits this commitment by acting imaginatively and consistently in the communities where its employees, business partners and customers live and work (Esprit AR, 2004-05). Responsibilities to Employees Esprit recognizes the importance of human capital. It has the belief that its continued success depends on the commitment, enthusiasm and energy of its global staff. A positive and respectable working environment which enhances collaboration and cooperation between employees is sought to be developed at Esprit. Towards this end all internal communications channels are left free and open for ideas and feedback from staff. As an instance of this policy stance LIVE ESPRIT campaign was implemented in the year 2004-05 with the aim of promoting team spirit and creating a global culture for all employees located around the world. Group's quarterly newsletters and the global intranet help improve company-wide communications and connect employees around the world to the Esprit family. Culture is to be an attractive company for the talented and motivated. The Group places great emphasis on staff training and development in order to realize the potential of each employee. Esprit structures its remuneration packages around performance, taking into account business performance, market practices and competitive market conditions. Share options and discretionary bonuses are granted to outstanding staff. There is also an annual performance and salary review system to ensure staff members are rewarded on a clear and fair basis (Esprit AR, 2004-05). Responsibilities to Business Partners At Esprit, aim is to develop and nurture long-term relationships with business partners based primarily on openness, honesty and trust. Esprit always makes concerted efforts to understand their business needs and provides mutual support to ensure that sustainable business partnerships are established. This ensures that the conduct of the business is in a responsible and suitable manner. Esprit conducts regular social audits to ascertain if its suppliers maintained and abided by these standards. Esprit has enrolled as a member of the Business Social Compliance Initiative (BSCI) established by the Foreign Trade Association (FTA) in the year 2004-05 and has communicated to its vendors the significance of BSCI certifications as the appropriate accreditation to signify their compliance with human rights and minimum social standards (Esprit AR, 2004-05). Responsibilities to the Community Esprit and its employees, having numerous global presences, respond responsibly and with pride to community needs by making contributions in the form of grants, donations in kind and volunteering activities. During the financial year 2004-05, Esprit employees responded enthusiastically to a number of relief initiatives organized by charitable organizations. These included the participation of Hong Kong staff in “Walks for a Million” organized by the Community Chest, ribbons selling in stores to raise funds for the National Breast Cancer Foundation and financial support to charitable organizations. In response to the South Asian tsunami, Esprit launched a global fund raising campaign during FY2004/2005 calling for employee donations to help victims affected by the disaster. The Company also made matching donations to support and promote active anticipation in the campaign. Approximately HK million was jointly donated to local and international relief agencies, including the Red Cross and UNICEF, to help relieve suffering and to reconstruct permanent housing for tsunami victims(Esprit AR,2004-05). Organization's Strategic Focus Esprit's main focus in the year 2004-05 was to consolidate its existing markets and expand into newer ones while at the same time enhancing the operating efficiency of our company. Although its core markets continued to be in Germany and Benelux, strong growth was seen in France, Scandinavia and Austria. Furthermore, Esprit has established a firm footing in new markets such as Spain, Italy and the Middle East. Successful demographic diversification was further complemented by astute initiatives for enhancing operational efficiency. Esprit improved consumer awareness and increased productivity by offering new and stylish products with greater emphasis on diversified pricing, while maintaining the high quality of its products. Success was reflected in higher sales and improved margins. In order to improve margins even more Esprit is making a concerted thrust in its retail segment while consolidating and maintaining position in its bulk segment. With the right strategies in place, Esprit was truly able to outperform itself this year (Esprit AR, 2004-05). Cost reductions may increase operational effectiveness This can lead to a “new best practice” in the industry, which eventually might be adopted by competitors (Porter, 2001).Cost reduction, however, is not necessarily a long-term strategy; it may barely be a tactic (Porter, 1996). In contrast in a differentiation strategy main planning elements concentrate on unique and appealing attributes of products or services on offer. They can be unique taste, consumer use, design and performance, prestige, superior service, more for customer's money, spare parts availability, special features, quality of manufacture, state of the art technology, market leader image etc.Here strategic plans work to make the product or service non standardized and unique. In general, a unique selling proposition (USP) is essential to differentiate products from competitors (Boyd et al., 2002). In order to be successful, a USP should propose a benefit to the customer, it needs to be unique in a way that it cannot be easily replicated by competitors, and it has to be strong enough to attract new customers (Kotler, 2003). Thus, "differentiation is one of the most important strategic and tactical activities in which companies must constantly engage. It is not discretionary"(Trout &Rivkin, 2000).In fact Esprit is working to live its USP of global youthful lifestyle brand offering smart, affordable luxury and bringing newness and style to life. Organizational Control As on June 30, 2005 there were 47 subsidiaries under the control of the parent holding company Esprit Holdings Ltd which had the main business listed as investment. Subsidiaries were formed and incorporated in various jurisdictions such as Germany,Belgium,Canada,France,Hong Kong, British Virgin Islands,Denmark,Malaysia,Spain,UK,USA,Australia,Macau,Italy,Singapore etc.The principal businesses of these subsidiaries were organized according to the group strategic focus. These broadly comprised of provision of services; wholesale distribution of cosmetics, skin and body care products; retail distribution of cosmetics, skin and body care products; sample development; holding and licensing of trademarks; investment holding; retail distribution of apparel and accessories; wholesale distribution of apparel and accessories; Financial services; sourcing, purchase and sale of merchandise, distribution of merchandise and other logistic functions; design and image directions; conceptualization and development of global uniform image and management and control function. These are all entities over which the Group has control. Control is comprised in the power to govern the financial and operating policies and generally accompanies a shareholding of more than one half of the voting rights. The effect of potential voting rights is considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. Another group of organizations where some kind of control is needed are classed as Associates. Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognized at cost. The Group’s share of its associates’ post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in reserves is recognized in reserves (Esprit AR, 2004-05). Internal Control and Risk Management Esprit has a sound internal control system-a necessity to mitigate Group’s risk exposure while facilitating the effectiveness and efficiency of operations and ensuring compliance with laws and regulations. This system is independently reviewed on an ongoing basis so that practical and effective control systems are implemented to provide reasonable assurance in relation to protection of material assets and in identifying all significant business risks. The Group is committed to the identification; monitoring and management of risks associated with its business activities and has implemented practical and effective control systems. These include: a tailored organizational and governance structure with clearly defined lines of responsibility; budgeting and forecasting systems for performance measurement and monitoring of business units; a quarterly review of the Group’s performance by the Audit Committee and the Board; Protection of the Group’s trademarks globally with in house and outsourced legal excellence; Group-wide insurance programs; and a global cash management system deployed to enhance proper control and yield from cash assets(Esprit AR,2004-05). Work Cited Esprit Holdings Limited, Annual Report (AR) 2004-05. Porter, E. M., 2001, Strategy and the Internet, Harvard Business Review, March-April: 63-78. Porter, E. M., 1996, What is Strategy, Harvard Business Review, November-December: 61-78. Boyd, H.W., O.C. Walker, J.W. Mullins and J-C Larreche, 2002, Marketing Management: A Strategic Decision-Making Approah,, New York: McGraw-Hill. Kotler, P., 2003, Marketing Management, 11th edition, Upper Saddle River, NJ: Pearson Education, LTD. Trout ,Jack & Rivkin, Steve, 2000,Differentiate or Die, Retrieved August 06, 2006 from http://www.1000ventures.com/business_guide/differentiation_strategy.html. Read More