What Might Prompt Hilfiger to Sell on an International Basis - Example

Tommy Hilfiger: cloths make the man and vice versa What might prompt Hilfiger to sell on an international basis? Hilfiger might be prompted to sell on an international basis because of technological advancement (Onkvisit and Shaw, 2008). Information technology might prompt the firm to expand its ventures into the international markets. Recent advancements in information technology have enabled rapid data computation and storage (Madura, 2009). The ramification and augmentation capacity of telecommunication networks in connecting computing machines is now efficient. In addition, more reliable data exchange protocols have emerged that has increased reliability and efficiency in data exchange (Simchi-Levi, Kaminsky and Simchi-Levi, 2003). As consequence, this might enable Hilfiger to make financial deals securely and easily across borders. This has an advantage of lowering the distance barrier that has previously hampered firms like Hilfiger to trade on international markets (Doole and Lowe, 2008). Moreover, with advancement in technology, Hilfiger can now establish an online store that can sell its products on international scale at a reduced price. This might result in reduced costs of transport and data transmission from one sub subsidiary to another. Hilfiger might also be prompted to expand its operations in the international markets in order to increase its economic profits. In this case, search for economic profits refers to earning profits that are way above normal profits (Onkvisit and Shaw, 2008). Economic theory has suggested that when one gets closer to a competitive market, his or her profits diminishes (Naunheim, 2011). Thus since markets in the developed countries are largely competitive Hilfiger might be prompted to look for markets which are not yet competitive. Hilfiger might also globalize its operations in order to avoid excessive taxations and regulations in some countries. This will allow it to move to countries that have lower lower taxation policies and regulations. Euro zone markets are known to impress low taxation and regulation policies and as such Hilfiger might capitalize on this and increase its operations in the region as opposed to confining its operations in America where regulations are high (Carbaugh, 2010). According to economic theory, free flow of capital maximizes global welfare. Such free flow of capital is enabled by a friendly and facilitating environment. Based on this argument, several developing countries have been influenced, partly by International Monetary Fund (IMF) and World Bank, to adjust their economic policies to attract capital flows (Onkvisit and Shaw, 2008). With these policies in place in most developing countries, Hilfiger can take advantage of this and expand its operations in developing countries. In addition to economic policy adjustments, several countries have liberalized their exchange restrictions, controls on portfolio inflows, direct investments and portfolio outflows (Doole and Lowe, 2008). This deregulation of global markets is attractive to firms such as Hilfiger and hence they might prompt such firms to expand into international markets. Another factor that might prompt Hilfiger to globalize is the increased privatization of state owned firms especially in developing countries. Hilfiger can capitalize on this by acquiring state owned firms in most countries that deal with apparel production and transform them to start producing their preferred brands (Simchi-Levi, Kaminsky and Simchi-Levi, 2003). This will reduce the cost of initial investment. Moreover, the existing environment that allows firms to enter into joint ventures can prompt Hilfiger to internationalize its trade. This is because the firm can produce its brands jointly with existing firms in other markets at a lower price. This might allow Hilfiger to increase the presence of its products on the international markets faster and at a lower cost. The existing prudent macroeconomic management and economic growth in many nations might also prompt Hilfiger to expand its operations. For instance, the consistence economic growth in Asian countries might convince Hilfiger to channel its investments into these markets. This will enable it earn increased profits from such stable markets. Moreover, there has been increased political cooperation in different regions of the world (Doole and Lowe, 2008). For instance, the Asia Pacific Economic Cooperation (APEC) promotes open trade and economic cooperation. The large size of the region has resulted in dynamic and fast growing economy (Onkvisit and Shaw, 2008). As such, the consumers in the region enjoy high standards of living and have a higher purchasing power. Thus, Hilfiger might be prompted to expand its operations in areas with regional cooperation such as APEC to reap from the large markets presented by such trading blocks. The availability of cheap labour from various parts of the globe may prompt Hilfiger to internationalize its operations. Many countries have invested greatly in the development of their human resources. However, the development of human resources is not in tandem with the jobs created and as such, there is oversupply of human resources. This implies that the cost of human labour force is cheap in certain parts of the world (Simchi-Levi, Kaminsky and Simchi-Levi, 2003). Thus, Hilfiger can invest in such parts of the globe to cut down on cost of production and hence increase profit margins for its products. Changes in cultural diversity might also prompt Hilfiger to increase its presence in the international markets. Culture is a collective programming of the mind, which is a collective phenomenon that is shared partly by people who lived or live within a certain common environment where it was learned. This implies that culture is learned from one’s social environment and hence is not innate. Thus, culture distinguishes the members of one category or group from another. People have several mindsets that correspond to different levels of culture, which sometimes may be conflicting (Onkvisit and Shaw, 2008). Values, ways of life, ideas and contacts between people have been greatly increased via globalization. Globalization has enabled people to travel more frequently and widely. Many people around the globe are now able to access television globally even in inaccessible remote areas. People are being exposed to diverse cultural practices via media and internet. In some corners, this exposure to diverse ideas, values and ways of life is exciting and empowering while in some corners it if disempowering. It is thus argued that globalization might result in cultural universalism. This implies that world will arrive at a borderless world of tolerance (Doole and Lowe, 2008). This line of argument states that a unique culture identity will emerge due to globalization that will be a representation of the human gender. Thus, Hilfiger might capitalize on the fact that culture is influenced by the environment to influence different people from different parts of the world to take up their products. This might be attained through globalised advertisement via internet especially social media and other forms of media (Simchi-Levi, Kaminsky and Simchi-Levi, 2003). It is argued that developing countries have less capability of competing big firms from developed countries. For those, which can be able to survive in economic turbulent environment, are forced to adopt organizational culture adopted in the big multinational firms. This implies that Hilfiger being a large firm can compete effectively in global markets and influence the culture of people where it operates. Why Europe prices are higher than in the United States of America? Europe market has different in national preferences. This has forced Hilfiger to tailor its products to conform to the needs of consumers. This has come at an increased cost and as such has resulted in increased prices for Hilfiger products in European markets. Thus, increased production costs in Europe have prompted Hilfiger to offer its products at higher prices than that offered in the United States of America (Onkvisit and Shaw, 2008). Unlike products sold in USA that are mainly made of wool, Hilfiger products in Europe are made of wool mainly with those sold in Italy being made of leather. The use of wool and leather comes at increased cost that is in turn translated into increased product price. Another factor that makes the firm’s products to have a higher price tag in Europe than in USA is that consumers in Europe do not mind paying for higher margins in Europe as longer as the product conforms to the consumers’ quality (Simchi-Levi, Kaminsky and Simchi-Levi, 2003). Thus Hilfiger altered it designs in Europe to conform to consumer needs in order to increase perceived value of their products. As such, they are able to charge higher margins to final consumers in Europe than in USA. Moreover, in Europe, consumers perceive low priced products as being low quality and as such, Hilfiger had to charge premium price to attract these consumers. Hilfiger products are also high priced in Europe than in USA because the product development cost for its products sold in Europe is higher than that in USA. Product development cost is the cost incurred from research and experimentation (Doole and Lowe, 2008). In order to conform to consumer needs that are largely different from nation to nation, Hilfiger had to incur additional costs to research and experiment its products. This in turn increased the cost of production that forced the firm to have higher prices for its products in European markets. Unlike USA where the main target market of Hilfiger products is the young generation, in Europe consumers of Hilfiger products are older population (Onkvisit and Shaw, 2008). This target market older population in Europe is more willing to pay a higher price for quality products than the young generation in USA. This could be due to economic differences in the two target groups. The aged population in Europe is more affluent and hence does not mind paying a higher price. Consequently, the prices of Hilfiger products are higher in Europe than in USA. Hilfiger products are also high priced in Europe because of high operational costs. The firm had to set up many decentralized show rooms in Europe to enable it distribute to small retail outlets that are most preferred fro selling clothing apparel in Europe (Simchi-Levi, Kaminsky and Simchi-Levi, 2003). The decentralized show room and need for more small retail outlet meant that the operation costs in Europe are much higher than in USA and hence these costs had to be taken into account during product pricing. As such, the cost of products in Europe is much higher than in USA for Hilfiger products due to increased operational and distribution costs. Problems that might be encountered by Hilfiger by having higher prices in Europe than in the USA Hilfiger is likely to encounter gray market activity and image problems by having higher prices in Europe than in the USA. Grey market activity refers to unofficial, unauthorized or unintended distribution channels for commodity trading. Such commodity trading is not necessarily illegal. Imported manufactured goods are one of the main types of grey markets that would normally be unavailable or more expensive in a certain country (Onkvisit and Shaw, 2008). Thus, Hilfiger is likely to encounter grey market activity where some merchants might decide to export Hilfiger products from USA to Europe market and reduce profit margins for Hilfiger (Czinkota and Ronkainen, 2007). Thus, legal Hilfiger products will be sold outside its normal distribution channels by firms, which are unrelated to Hilfiger. Such firms might offer Hilfiger products in Europe markets at a slightly lower price that might impact negatively on profit margins of the firm. Image problems that might be encountered by Hilfiger may include increased anti-American products. Given the fact that country of origin (COO) effect is in play in European market especially as apparel market is concerned, Hilfiger image is likely to be distorted further by such price differentials (Dana, 2006). Researchers in the marketing sector have long been interested in how the country of origin affects the perception and purchasing intention of consumers. Most studies have indicated that COO impacts on consumer perception and behaviour through the image of the product’s COO (Simchi-Levi, Kaminsky and Simchi-Levi, 2003). The image relates to the representation, the stereotype or the reputation of a specific country that consumers associate with the products (Onkvisit and Shaw, 2008). The image of a country is a result of series dimensions, which positively qualify a nation in terms of its production profile. Dimensions, which influence the production profile of a country, include innovative approach, prestige, design and workmanship (Doole and Lowe, 2008). COO is defined broadly as a multidimensional construct whose main dimension includes factors that relate to the image of national versus imported products; the evoked image by the geographic origin of the brand; categories of merchandise that are known to derive from a certain country or provenance, the national image of producers and the influence of “made in” concept in the perception of the product. Research has shown that a strong brand name is not likely to overcome the negative effect of COO and hence marketers need to understand COO effect when marketing their products. Thus, by having higher prices in Europe than USA, the COO is likely to come into play and consumers might go back to products from France and Italy, which are more favoured in European up market. References Carbaugh, R. 2010. International Economics, 13th Ed. New York: Cengage Learning Czinkota, M., and Ronkainen, I. 2007. International marketing, 8th Ed. Sydney: Cengage Learning Dana, L. 2006. Handbook of Research on International Entrepreneurship. New York: Edward Elgar Publishing Doole, I., and Lowe, R. 2008. International marketing strategy: analysis, development and implementation, 5th Ed. London: Cengage Learning EMEA. Madura, J. 2009. Financial Markets and Institutions, 9th Ed. London: Cengage Learning Naunheim, V. 2011. Gaining Competitive Advantage – Strategies for an Internet Company to Succeed in an International Market. London: GRIN Verlag Onkvisit, S., and Shaw, J. 2008. International Marketing: Strategy and Theory. London: Taylor & Francis Simchi-Levi, D., Kaminsky, P., and Simchi-Levi, E. 2003. Designing and managing the supply chain: concepts, strategies, and case studies, 2nd Ed. London: McGraw Hill Professional Read More