United Colors of Benetton - Case Study Example

Sur A Review on Benetton What is the common point between powerful brands like United Colors of Benetton, Sisley, Prince, and Rollerblades They are all under the blanket of Benetton Group. It was established in Italy relying firmly on the business acuity of Luciano Benetton and the crafty creativity of his sister Guiliana Benetton since 1965. The Benetton Group is a global corporation mainly concentrated on design, manufacturing, and distribution of personal effects ranging from basic clothing, undergarments, cosmetics, shoes, and accessories like timepieces. Relentless efforts are devoted to improve economies of scale, upgrade manufacturing capabilities, and pinpoint key future trends or fads. While those initiatives above enhanced competitiveness, Benetton is distinguished mainly on their unparalleled ability to develop "networks" and improve integration. Perhaps it can be said that they are one of the early adopters of strategic subcontracting or outsourcing. Almost all business processes are one way or the other outsourced except of course those areas sensitive and confidential to them. These are special skills on product design and manufacturing procedures related to cutting and dyeing. Still, their networking or outsourcing activities remain in the confines of their territory in Italy. Contrary to the prevailing business models in their industry at the given period, even their retail shops are outsourced in the form of informal licensing. By informal it means that most of their transactions whether in manufacturing or retailing are based on handshakes mostly with no written or formal agreements. Conversely, their major competitors Gap and Zara own and control their retail shops. It is estimated that about 85% of business operations are outsourced. Their vast networking strategy paved way for their tremendous growth not only in Italy but in other countries as well. These licensees played a significant role through financing other aspects of Benetton operations hence allowing the latter to focus their hard work and resources to their core competencies. The embodiment of their strategic outsourcing initiative is evidently shown in their five-stage process for their international expansion. The gauge of their successful expansion must result to buy out of their licensee or subsidiary and integrating it under Benetton management. Surname 2 In terms of retail operations, the Group is heavily dependent on basic manufactured clothing products contributing about 79% of the total revenues. The balance is distributed in other businesses like cosmetics, shoes, accessories, and intimate wear. In 1993, the global sales reached 2,752 billion lira with growth of 9.5% versus last year. In addition, the compounded annual growth for the ten years is robust at 17.3%. The global expansion must strictly adhere to the five-stage process set by the management. Benetton is currently operating in major countries in Europe (Germany, France, and Spain), Asia (Japan, Egypt, and India), and US. To depict clearly the growing global business, 1993 figures show that about 49% of core products sold were outside of Italy with Germany and France as primary markets. Their successful surge in Japan further supported their growing international expansion. However, the conflict with their subsidiary Seibu Group hampered temporarily their market performance. Benetton's entry to US can be viewed as one of the important expansions in their business. This move opened series of challenges that prompted them rethink their way of doing business and consider new alternatives in business operations. Suddenly, their long-standing business model is becoming obsolete as new business strategies employed by companies like The Gap and The Limited are gaining more advantages for their business. Particular areas of advantages are in inventory management and retail experience management. To the public's perception and mind share, Benetton's popularity rooted from their "United Colors" campaign showing different races and faces unified under one logo - Benetton. Their campaigns are all related to relevant global social issues like racial discrimination and AIDS. While this proved very interesting and catchy in the beginning, their overt misuse of this approach backfired in some markets like in US At the end of the case study, Benetton is torn between two major alternatives that will have a significant impact on their future business operations. On one side, there is a need to maintain the "Made in Italy" concept of Benetton giving them more control in the area of design, manufacturing, Surname 3 and distribution. On the flip side, the rewards of outsourcing in countries like India and China are very promising taking into consideration the weakening power of their currency. I believe this is not a case of choosing only one strategic move. The convergence of these two strategies will provide more business fusion. Eliminating fully the "Made in Italy" perception might possibly disappoint loyal patrons while maintaining wholly this concept will prove to be a business suicide. As part of the solution, Benetton must segment first their market and then proceed with their outsourcing initiatives. For instance, it is known that basic clothing products account for 79% of business then the starting point is to assess if major buyers in this category will deflect in case these products are manufactured outside Italy. If yes then it must remain within the manufacturing confines of Italy and Benetton must invest heavily in machineries and equipments to sustain the business. If not then it is wise to proceed with outsourcing to other affiliates like India or China. The same is true with the remaining 21% of the business. It must assess first the impact on customer satisfaction and loyalty before taking any step. Another way to reduce cost is to develop a more focused and lean manufacturing unit per country. Instead of manufacturing different products per country, the initiative is to develop each country to manufacture just one segment of the business. For instance, Japan will be assigned only in manufacturing of accessories like watches for the total Benetton Group. In short, Japan will be supplying all accessories to other subsidiaries in Asia, US, and Europe. Other countries, consequently, must also develop their core products to supply in other countries. This method will increase economies of scale, improve learning curve, and maximize capital investments. The Stockholders and Senior Management must be very careful not to alienate or offend big accounts and loyal customers in planning for their new strategic directions. While cost or expenses can be considered very important in improving the business, it is not the only perspective that must be studied and challenged. In the end, consumer perception and willingness to buy will still dictate the game. Surname 4 Works Cited Heskett, James L. "The Benetton Group." Harvard Business School. November 1995: 1-12 Read More