The International and Corporate Level Strategy of LVMH Group - Term Paper Example

Introduction LVMH Moët Hennessy -Louis Vuitton S.A or LVMH is a French Conglomerate offering Luxury Goods. It is a conglomerate of over 60 small subsidiaries which are run independently and are engaged in selling of the luxury goods and some of the world’s most prestigious brands. The current structure of the firm emerged after its merger between Louis Vuitton and Moet Hennessy in 1987. Employing more than 83,000 employees and having 2400 stores worldwide indicates that the firm has expanded itself globally in luxury market and is one of the leading brands offering luxury products to a very select group of buyers. The current business strategy of the firm is focused upon keeping the overall perception of the brands as high in order to heighten overall demand for the luxury goods. The products are mostly sold in the upper class markets located at the prestigious markets of the world including its own stores as well as stores like Harrods. The overall product and brand portfolio of the products includes wine and spirits, fashion and leather goods, perfumes and cosmetics as well as other selective retailing products. Since the firm operates at both the international as well as corporate level strategy to continue to function at the international level. The overall dynamics of the firm’s business requires it to operate a well-crafted strategy. This paper will analyse and explore the international and corporate level strategy of LVMH in order to understand as to how the firm competes at the international level. Structure LVMH’s international brand portfolio is diverse and many of its subsidiaries are engaged in selling different brands belonging to same category of goods. The overall activities of the company are focused on five core products which are managed and operated by various small subsidiaries of the firm. The overall range of product categories of the firm is: Wines & Spirits LVHM offers some of the best Champagne in the world and also holds Royal Warrant to supply wine to Queen Elizabeth II. It also operates famous brand of Dom Perignon- one of the best luxury champagne brands in the world. Fashion and Leather Goods LVHM also offers high quality fashion and leather luxury goods also and manages premium brands such as Fendi, Louis Vuitton, Donna Karen. All these brands are managed through smaller independent subsidiaries. Perfumes and Cosmetics This line of products also comprises of one of the most famous cosmetics and perfume brands of the world. Firm has been able to retain its character by offering high quality perfumes and cosmetics. Most famous brands include Christian Dior, Samsara, Vol De Nuit etc. Watches and Jewelry Bulgari, TAG Heuer and Zenith are some of the best and well-known brands which are part of the overall portfolio of watches and jewelry. Firm maintain these brands through independent subsidiaries which define their own business targets while following corporate level strategy of the firm. Selective Retailing LVHM also operates some of the premium retail shops including Sephora and DFA. Sephora is a French company with presence in more than 30 countries with over 1750 points of sales across all these markets. Competitive Strategy Porter’s Positioning School It is important to note that the products offered by LVHM are something which no one need but everybody desires. By leveraging the power of desire and convert them into the actual need of the customers to buy expensive luxury goods, LVHM focuses on delivering high quality luxury products. LVHM attempt to make fantasies of the individuals into real From the overall perspective of Positioning as defined under the Porter’s Positioning School, the overall strategy of LVHM is relatively different from other competitors in the market. Its overall differentiation as well as cost leadership strategy provides it relative distinctive competitive advantage over other firms in the market.( Thompson, 2001).  One of the key differentiation points for all the brands of LVHM is the overall authentic quality and uniqueness of the products. These two attributes provide the firm relatively stronger competitive advantage over many firms in the industry.( Rugman & Collinson 2006) Not only the products are of highest quality but they are unique too thus actually locking in customers for the firm for longer period of time. These products outline the creative expression of the company and suggest that LVHM focuses more on creating differentiation by adding more value for the consumers. LVHM has been focused on creating new brands while at the same time extending the existing brands. This strategy is being followed without actually caring for the short term results as LVHM focuses on deriving long term value from its products. It is also critical to understand that the firm also creates differentiation through its association with the celebrities as well as fashion and other shows. Celebrity endorsements play an important role in enhancing the overall perceptions about the products and also create further differentiation for the overall brand portfolio on offer.( Hill, 2009) It is critical to note that LVHM is following a focused differentiation strategy where its products and services are evaluated and used by a select and very narrow group of customers. For example, in some of the clothing products, LVHM increased the cotton count in order to create further differentiation and increase the overall quality of the product. By increasing the cotton threat count in the shirts, LVHM actually attempted to target successful and high income individuals who have achieved relative degree of success in corporate world.( Elliott, 2010)  LVMH also focuses on some of the core brands and attempt to leverage other relatively weaker brands through these core brands. With excellent differentiation through its core brands, LVHM actually focuses on enhancing overall value of such brands and make them relatively more attractively for select group of customers. It is also important to understand that the firm has adapted a diversification strategy in the leather goods market. Resource Based Theory Resource Based theory can also be used to define as to how LVHM has been able to rise against the competition by utilizing its resources in effective manner over the period of time. One of the key core competencies of the firm is its atypical structure which has allowed it to become flexible and adaptive enough to changes. LVHM is a conglomerate of smaller but independently managed companies thus providing the firm a relative advantage over other centrally managed companies. This corporate structure of the firm has resulted into the flexibility and creativity to more open to new ideas for product development. This resource of the firm is not only unique but relatively difficult to imitate also because most of the prestigious and large brands in the luxury goods market are already owned by the firm.( Henley Business Review, 2013) Another and relatively important core competency of the firm is the very large range of brands on offer. LVHM offers over 60 brands globally thus making it one of the well diversified organization. It is not only diversified at the product level but at the brand level also where subsidiaries in same line of business compete with each other through their own premium brands. It is also important to understand that the firm has the loyal customer base which itself serve as one of the key resource for the firm. Since the overall group of customers is narrowly defined therefore LVHM has been able to keep strong focus on their customers and fulfilling their desires and needs. In that process, it has been able to develop a dedicated and loyal base of very narrowly defined customers to which firm cross sells its other brands also. International Strategy One of the key attributes of the overall strategy of LVHM is its focus on expanding into emerging markets. Despite the fact that globally market for luxury goods has slowed down but LVHM has been able to achieve consistent growth even during the toughest economic conditions prevailing at the global level. There have been two important strategic moves made by the firm to vigorously pursue its international strategy. First, firm has focused upon expanding its overall product base globally whereas it has also been focused upon expanding into emerging and developing markets. It has been extensively involved in Chinese and Indian market with latest entry into countries like Mongolia and other Central Asian States. LVHM therefore is not only focused upon further penetrating into the Chinese and Indian market but also is experimenting with other less attractive markets at the global level in order to derive its overall international strategy.( WWD, 2013)  Globally, it has consciously chosen the strategy of entering into almost every market of the world. It has been successfully managing large and developed markets such as North America, Europe and Japan but is also focused upon delivering more value for customers in emerging markets. Initially, firm focused on the BRIC market however it has been expanding into other emerging markets also. Substantial portion of company’s revenue comes from Asian market with renewed focus on entering into other developing markets also due to consistently high demand from these markets. LVHM has also been able to create economies of scales at the international level also through effective mergers and acquisition strategy. It has continued the practice of consciously acquiring international brands and carefully managing them along with all other brands to develop a much diversified range of portfolio. At international level, firm has been able to cleverly acquire local luxury and premium brands and merge it with its existence range of portfolio. It is therefore running two different and parallel brands belonging to Italy as well as France and marketing them under the overall banner of LVHM. (Alexander, 2013)  Global Strategy with Local Integration LVHM has been able to create strong local integration with is overall global strategy. It has been successfully implementing the strategy of using country specific competitive images thus creating new values for the customers. It has been focusing on the strategy of creating and projecting modernity while at the same time integrating the same with the local traditions. LVHM however also has focused upon creating a global standardization for its products by creating highly recognizable motifs which differs them from other consumers. LVHM has to adapt to the markets such as China and India which have relatively different cultural identities. Firm has extensively used advertising to actually change the preferences of the consumers in those markets to make them more suitable to the needs of the organization. It has also been able to acquire local premium brands and make them part of its overall brand strategy to repackage and re-offer them under its own brand name. The overall international strategy of the firm is therefore focused upon entering into all the potential markets where any future prospects hold. Firm has deliberately adapted the international expansion strategy of acquiring foreign firms and aligns them with the overall international and corporate strategy of the firm followed at the global level. Corporate Strategy In order to critically analyze the corporate strategy of the firm, it is important to understand how different subsidiaries which it owns and operates fit into its overall corporate strategy and how they are managed. A more critical approach towards understanding the overall corporate strategy of the firm is to focus upon few of the core strategies it deploys in order to successfully move forward in a market which is relatively narrow. Narrowly Defined Market The overall corporate strategy of LVHM is driven by the fact it has a very narrowly defined market. In such a market, it is important to link all the brands together so that they can support the overall global network of the organization otherwise they may fail to deliver the required results. LVHM therefore has focused upon creating an extensive and well-knit selling and distribution network in order to properly operate in a narrowly defined market. It has however achieved this by creating strong synergy between different brands and the small subsidiaries maintaining those businesses.( Arnault, 2001) Synergy At the corporate level, LVHM has deliberately engaged into the policy of acquisitions wherein it has gradually acquired all the major and significant luxury brands in Europe and North America. One of the key reasons for this corporate strategy is to achieve the synergy while at the same time exploit the brand power of the individual brands. LVHM achieves this synergy by associating its name with these brands as well as a large global network ensures sales and premium positioning at other flagship stores also.( Businessoffashion.Com 2013) Another source of synergy for the firm at the corporate level is the overall size of the firm at the global level. Its presence in three continents has actually allowed it to become relatively stronger and generate synergies by focusing on blending its international corporate culture with that of the local corporate culture of those firms. One of the key aspects of the overall corporate strategy of the firm is also based upon prioritizing internal growth of the firm. Besides creating and maintaining synergies, firm has focused upon innovation and substantially invested in ensuring that its perfume products come out as most innovative on the market. Due to the overall innovative activity at the firm, it has been able to increase its sales especially in perfume brands by becoming more innovative. It is also important to note that the firm maintains strict and extensive control over the production and distribution process. Since the overall market is narrow therefore LVHM has to remain focused upon maintaining its capacity at the levels which are desired by the market. Since the overall production cost is relatively high too, therefore effective control over the distribution as well as production capacity is considered as necessary part of the overall corporate strategy of the firm.( Roberts, 2013) The external growth strategies of the firm are selective too wherein firm has chosen a deliberate strategy of only acquiring those brands which are already established and hold the long term promise for the firm. Conclusion There are two important strategic insights which can be gained from evaluating the overall strategy of LVHM. At the international level, it has focused upon entering into every market where there is a potential to grow. Following this strategy to grow, firm has entered into traditional as well as non-traditional markets also. The recent expansion into the Central Asian markets indicates that the firm is willing to expand into different markets in order to penetrate further and improve its overall brand image. At the corporate level strategy, firm is relatively focused upon engaging itself into controlled acquisition strategy. Over the period of time, due to its overall internal corporate size as well as the presence in the market, it has acquired prominent brands and has achieved synergies by aligning with all the brands. Further, LVHM has also been focused upon controlling its capacity as well as distribution network in order to ensure that quality luxury products are delivered to the customers. A tighter control on the capacity ensures that the firm serves only to the level of orders it receives because of the overall cost involved in the production process of all the luxury items. References 1. Alexander, E. (2013) Lvmh Confirms Maxime Simoens Investment. [Online] Available At: Http://Www.Vogue.Co.Uk/News/2013/02/21/Lvmh-Confirms-Maxime-Simoens-Investment [Accessed: 22 Feb 2013]. 2. Arnault, B. (2001) LVHM [Online] Available At: Http://Www.Lvmh.Com/Comfi/Pdf_Gbr/B_Arnault_Gbr.Pdf [Accessed: 22 Feb 2013]. 3. Businessoffashion.Com (2013) As Lvmh Sales Growth Slows, Will Bernard Arnault Go On A Buying Spree? - Bof - The Business Of Fashion. [Online] Available At: Http://Www.Businessoffashion.Com/2013/02/As-Sales-Slow-Will-Lvmh-Go-On-A-Buying-Spree.Html [Accessed: 22 Feb 2013]. 4. Elliott, S. (2010) Master Of The Brand: Bernard Arnault - Forbes.Com. [Online] Available At: Http://Www.Forbes.Com/Forbes/2010/1122/Fashion-Bernard-Arnault-Lvmh-Luxury-Dior-Master-Of-Brand.Html [Accessed: 22 Feb 2013]. 5. Henley Business Review (2013) Lvmh: The Strategy Of Style. [Online] Available At: Http://Henleybusinessreview.Wordpress.Com/2013/01/22/Lvmh-Strategic-Style/ [Accessed: 22 Feb 2013]. 6. Hill, C. (2009) International Business; Competing In the Global Marketplace 7th Edition. Mcgraw-Hill Companies 7. Roberts, A. (2013) Lvmh To Adjust Vuitton Strategy Amid Stable Leather Sales Growth. [Online] Available At: Http://Www.Businessweek.Com/News/2013-01-31/Lvmh-Full-Year-Profit-Increases-13-Percent-On-Gains-In-U-Dot-S-Dot-And-Asia [Accessed: 22 Feb 2013]. 8. Rugman A., & Collinson S. (2006) International Business 4th Edition. Prentice Hall, 9. Thompson, J. L. (2001). Understanding Corporate Strategy. London, Thompson Learning. 10. WWD (2013) Dissecting The Lvmh Strategy. [Online] Available At: Http://Www.Wwd.Com/Markets-News/Designer-Luxury/Dissecting-The-Lvmh-Strategy-3393296 [Accessed: 22 Feb 2013]. Read More