Bernard Arnault and His Duality - Essay Example

? BERNARD ARNAULT AND HIS DUALITY PIONEERING ACT OF LVMH Table of Contents Page No Introduction............................................................. 3 2. Background of Bernard Arnault and LVMH.......... 4 3. Business Ventures in the Emerging Markets........... 6 4. Unique Management Style...................................... 9 4.1 Strategy in the Emerging Markets............... 11 5. Conclusion............................................................... 12 6. References............................................................... 13 1. Introduction It is often said that international companies which have become tools for globalization have made the world a marketplace where peoples and countries have no recourse but to buy what they do not want to buy. Globalization, despite its many setbacks, has also positive benefits. Due to globalization national borders are not very important now, and there is the interconnectedness of organizations and businesses, while countries focus more on deregulation, privatization and liberalization of industries, and the importance of world markets. Global firms have the whole world as its market field that they can offer a wide array of products and services - firms keep growing while others downsize or rightsize. One aspect of globalization is that firms can assign departmental functions, such as marketing, finance, operations, human resource management, and accounting to other firms – this is known as outsourcing. Global firms use many different structural forms in dealing with globalization. They can use the horizontal structure which is made easier with the availability of the internet and Information Technology. It is still possible with the old structure, i.e., the vertical structure where the top echelon of the organization can dictate or take hold of the reins of business even if they are in the other side of the world. Whether we see this as positive or negative, globalization has change the world in terms of commerce and trade and how we see the world in different perspectives. After the world economic downturn, some of Europe’s giant firms have continued to keep watch the playing arena of businesses in terms of acquisitions and mergers. They have turned their eyes on the emerging markets of China, India and other countries of Asia. This is because these emerging markets survived and made remarkable steps during the financial crisis. And this is one of the reasons why Bernard Arnault, who is believed to be Europe’s wealthiest man, has shifted business focus to Asia, particularly the emerging markets of China and India. Combine these two countries in terms of population, you have approximately one third of the world’s peoples who have the urge and the motivation to buy consumer products. In China, particularly Shanghai, the motivation is on luxury products, which is why Bernard Arnault has his own ambassador there in the person of John Galliano. Arnault has made business trips using his private jet to wherever he wants to promote the latest of his treasured bags and perfumes. He has made instant visits to places as far as Morocco not only to promote but to measure how much profits the company has earned there. 2. Background of Bernard Arnault and LVMH Bernard Arnault is not only Europe’s wealthiest businessman with an estimated worth of $39 billion, he is a multi-talented and product-oriented artist. He has acquired brands from bags to perfume and has made corporate acquisitions one after another. He describes his quest for perfection as a ‘duality’ which should be reinforced immediately with “timelessness and utmost modernity”. His desire to acquire businesses is not only motivated by finances but by his dream to infuse art on commerce (or commerce on art). And he is doing this because he believes he is doing it for France and the people who patronize LVMH. His modernity and art includes a collection of modern and contemporary art which will soon be housed in a grand museum designed by Frank Gehry, which Arnault has devoted $200 million for its building and set to open by 2012. It will be named Bois de Boulogne. They have formed the Louis Vuitton Foundation for Creation. (Adams & Elliott, 2010) His artistic skill and touch allowed him to combine art and commerce. According to Karimzadeh (2006), there is an ongoing romance between art and commerce at Louis Vuitton. His partners for promoting the arts include Marc Jacobs and John Galliano. Bernard Arnault was recently awarded the Corporate Citizenship Award from the Woodrow Wilson International Center for Scholars with no less than President Obama presenting the award at the White House. (Ellis, 2011) Another art collection is the “Eye See You” project which was displayed in over 350 stores of Louis Vuitton in Christmas of 2005. It has also been permanently displayed at the Fifth Avenue facility. (Karimzadeh, 2006) Arnault sees himself as competitive and always wants to be ahead of the competition. He is extra active, supervising to the smallest details Louis Vuitton and Dior products. He is unstoppable despite having experienced setbacks and lost corporate battles. His passion for fashion allowed him to transform his father’s construction company to a business of luxury goods like silk scarves, ties and Birkin bags, and fashion products of well known brands. Arnault’s acquisitive desires allow LVMH to take patience as a corporate virtue. Because of this, it has owned brands that include Moet & Chandon, Veuve Clicquot, Givenchy and Guerlain, and many other luxury brands. For Arnault, the brands represent French heritage. He has infused cutting-edge qualities to these brands. In 1990, Arnault took over Louise Vuitton by buying up the shares and amending some of its corporate laws. The company also owned Christian Dior, a company of fashion and luxury products, when the two companies merged. Arnault took over the reins of Vuitton and made major changes in manufacturing and distribution. From this start, Arnault conducted acquisitions after acquisitions, paying billions of dollars for fashion brands to include Fendi, Kenzo and Thomas Pink, not to exclude watchmakers Chaumet, Zenith and TAG Heuer. He also acquired retail giants DFS and Sephora and boutique company Berluti. (Economist, 2006) In 1999, Arnault bought Phillips, an auction house, for $97 million, but later divested his shares from Phillips after the negative outcome of the September 11 attacks against the United States. Arnault has also partnered with Stephen Sprouse and Takashi Murkami, including artists Robert Wilson, Ugo Rondinonel, Jean Larivire and a host of other artists, in infusing art to their handbag collections. (Karimzadeh, 2006) Arnault made the world of fashion and luxury more interested to his company because of the surprises and creative innovations he has introduced to his company. He used creativity to infuse labels with a sense of contemporary coolness coupled with a touch of quality. At Dior offices on Avenue Montaigne, Arnault’s daughter Delphine oversees Dior’s creative workforce, putting finishing touches of art to Dior’s haute couture, including gowns designed by international fashion designer John Galliano. (Adams & Elliott, 2010) Arnault reigns in an empire bigger than Xerox (Levenson, 2008) and is expanding up to the emerging markets of the world’s two most populous countries, China and India. 3. Business Ventures in the Emerging Markets The emerging markets of China and India have become his next destination - to bring haute couture to these far areas of the globe. And what could be farther, he also brought LVMH’s Fendi bags and Guerlain perfume to Mongolia, to its capital Ulaanbaatar, a city of over a million people, just more than a hundred miles from the Russian border. (Adams & Elliott, 2010) Arnault sees Asia and the emerging markets as driving the world economy, that’s why he has focused LVMH’s thrust to these areas. Retail stores have reached 2,500 and never stopping. He likes to continue the pioneering moves of Vuitton; its China entry in 1990 was the first in the industry, now with 35 stores, LVMH has been gaining profits and accolade there. Other stores which are on the forefront of profits are in Brazil, India and the Middle East whose growth and profits are more than what they are gaining in Europe and the Americas. (Adams and Elliott, 2010) Following the world economic downturn, luxury goods made a turnaround; the industry is coming back with a vengeance. The economies of the once stagnant Asian countries of Mongolia, Lebanon, Poland and Vietnam are improving fast, and Arnault and his business are taking advantage of the opportunity after the recession. In fact, it is the emerging markets in Asia and its fast growth that helped protect the luxury industry from the economic crisis in 2009. (Socha, 2010) Arnault is also exploiting other economies of the richer cities like Paris, London and New York. In these countries, LVMH earned a whopping profit of $1.4 billion in just the first months of 2010. China’s population, 1.3 billion people according to the latest estimates, is a great temptation for businesses and organizations wanting to expand and improve. China seems to be the center of economic growth in Asia. Asian sales in 2010 have registered a remarkable growth, and this was a separate happening from the Japanese market as the latter’s sales have been shrinking. In mainland China alone, every store has earned profits for Vuitton. Other areas such as Guangdong Province have made the Moet Hennessy's beverage products quite popular. Business in this part of the globe is growing as ever what with the entry of China into the World Trade Organization making it to reduce tariffs on foreign wine and spirits that sees an expected growth due to the entry of the female demographic in champagne consumption. (Adams & Elliott, 2010) LVMH acquired 17.1% of Hermes International shares, worth $2 billion, but it is still a long way to go because Hermes is owned by a conglomerate. The heirs of Thierry Hermes saw this as an intrusion but Arnault and his company have made their moves. Much has to be seen on this scenario. (Economist, 2011) In his report at the annual shareholders’ meeting in 2010, Arnault said that he was targeting expansion in the emerging markets and that 30 percent of LVMH’s business last year was focused in Asia while a steep decline registered in the United States and Europe. It was not only Arnault who saw the potential of the emerging markets in Asia as the new destination but also LVMH’s competitors. Although confessing that they should not make it too fast in these markets, he stressed that by the first quarter of 2010, there was an increase of 11.3 percent in revenues, and that even in the United States and Europe, the luxury demand was rising. Arnault saw the importance of a long-term approach for the luxury brands. The growth in the different business groups registered double-digit gains, with a 34 percent increase in watches and jewelry. (Socha, 2010) Christian Dior also registered a double digit rise in the China market. Dior CEO Sidney Toledano has high expectations for the Chinese market, saying that the growth is not only numbers but in terms of depth. The Chinese consumers well understand and demand their products. John Galliano of Christian Dior also had high praises for the Chinese market. He said he wanted to bring to China French-inspired collection. The Chinese young demographic are thirsty of new technology, especially apparels for women. Designer John Galliano is Christian Dior’s French ambassador to Shanghai. (Kaiser, 2010) The target demographic in China for Christian Dior has sifted a bit with the entry of the women demographic who have opted for luxury goods. 4. Unique Management Style Arnault’s style of management has made him on top of the competition. At present LVMH employs about 76,000 employees, but Arnault does not manage directly. He says his style is decentralization and taking the most qualified managers with inspired and effective teams. In most global firms, governance relationships among top managers and board of directors are managed in different ways. The CEO or Managing Director is monitored by a Board of Directors that numbers ten to fifteen people in the US but can be more in other countries. (Parker, 2005, p. 352) Louis Vuitton follows this structure but his management style is much different. He considers his employees as members of one big family, and keeping them for long, up until retirement. He regularly meets them, checks on their performance and plots some strategy for their teams. Arnault also supervises the progress of the Moet-Hennessy brands and its wineries which are in far-flung California, Australia and New Zealand. (Adams & Elliott, 2010) Arnault has made it known to his own heirs, Delphine and Antoine and three others in his second marriage, that whoever works hard and well will be his successor. But as he has always pointed out, competition for his children is out of the question. He is a family man who occasionally bonds with them during weekends in Paris and as his schedule permits. During their childhood though, he always took the chance to explain to them what he was doing. (Weinstein, 2007) Arnault’s management team is considered a family even including those who have been recruited and have stayed for quite a while. Antoine looks up 20 to 25 years beyond for their father to stay in top shape for the family business. Arnault grew up in the family business and he wants this to happen to his children. At a young age of 7, his grandfather would bring him along to construction sites. He took up engineering at Ecole Polytechnique in 1971, then came to join his father in the business, until he succeeded him. He went to the United States to learn more of the craft until they came back with Delphine and Antoine also learning the aggressive American approach to business. (Adams & Elliott, 2010) Arnault has applied every method possible to bring LVMH to the top. He saw the potential of ecommerce and so he invested $500 million in Internet business ventures in Europe. Some of these included the auction site icollector.com, the retailer boo.com, E-Loan Inc., and 30 other internet ventures. (Matlack, 1999) In a surprise move at the shareholders’ meeting in 2010, Arnault announced the acceptance of former President Chirac’s wife Bernadette Chirac to the board of LVMH. Another new entry to the board was Segolene Gallienne, daughter of Albert Frere, a Belgian financier. The new members of the board would further boast the company’s acquisition moves and the eagerness to penetrate more the emerging markets in Asia. The overall growth for the first half of 2010 registered 16% for all business areas of LVMH. Arnault’s report to the stockholders painted a bright future for their many plans ahead. He said that they have been choosy and discriminating in their products making sure that quality is on top and which makes Vuitton unique from the rest in the luxury industry. (Gimein, 2000) Cash flow has been considered excellent and debt-to-equity ratio has been lowered to 20%. However, their group has been cautious due to the global economic crisis that the world recently experienced. (Arnault, 2010) Again, Arnault stressed the importance of expanding in the emerging markets and investing much in distribution and production in China. It is a winning game for Vuitton as there is great demand for their products, which meant supply is less and their production capacity could not meet the big demand of their products. Other product improvement as reported by Jean-Jacques Guiony stated the remarkable performance of wines and spirit to 18%, fashion and leather goods, 14%; perfumes and cosmetics registered 10%; and watches and jewelry also registered 24% improvement. The sales improvement was in Asia and not in Japan, and Guiony remarked that the Asia market for LVMH is its strength. Asia has been driven by China which had a 27% increase in the early months of 2010. Other Asian countries also were reported to have double-digit growth. (Guiony, 2010) 4.1 Strategy for Emerging Markets A steep climb for revenues has been recorded in the US and Asia. More push is expected for Parfums Christian Dior and its classic lines because of its past performance. Advertising will be advanced for Miss Dior Cherie and Eau Sauvage. Arnault is also developing Capture Totale One Essential through R&D. Advertising will be more improved, sustained and added more funding for Parfums Christian Dior, Rouge Dior , Eau Sauvage and perhaps a slender figure for Miss Dior Cherie. Their anti-aging cosmetic will be further improved and provided advertising. Watches too will be given preference in the promotional sales for the brands Chronographer and the Rings. A new watch brand is the Leonardo DiCarpio. (Belloni, 2010) Improved visibility and promotions will be introduced for watches and jewelry in key cities of New York, Singapore and Paris. Other brands will be introduced in Hong Kong and in Abu Dhabi and Mumbai. The brand Sephora will be carried out more in China and the Middle East. 5. Conclusion The world experienced positive and negative outcomes as a result of globalization. As a whole, it experienced growth. In globalization, some firms centralize control, meaning decisions are made at headquarters. But other firms delegate some important decisions to overseas managers. Governance and structural arrangements are different in global firms. The relationship between top managers and their boards differ in a global basis, resulting in different structural arrangements among firms. It can be said that LVMH is a product of globalization, or, it has grown in the midst of globalization. Whichever is the case, LVMH will continue to reign the world of fashion and luxury goods – for Europe and the rest of the world, including the emerging markets of China, India, and the rest of Asia. It is not yet taking the reins of power. The right term may be ‘exploiting’, or ‘invading’. In his website message to stakeholders and customers, Arnault said that the company to which he has grown has inspired him to dream for the customers. They have continued to invest much in the knowledge and intellectual capital of their employees for the good and satisfaction of the customers. The commitment of LVMH is both financial and cultural, giving to the world the best of art and contemporary design. LVMH mission and vision is to continuously grow in value and to be a good model now and in the many years ahead. Arnault is dreaming LVMH will take control of the Asian markets. When there is a reigning power, there is a king. Who can that be but Bernard Arnault? References Adams, S. and Elliott, H. (2010). Master of the brand: Bernard Arnault. Forbes Asia [e-journal]. Retrieved from Business Source Complete database. Arnault, B. (2010). Q2 2010 LVMH Moet-Hennessy Louis Vuitton Earnings Conference Call – Final Fair. Disclosure Wire (Quarterly Earnings Reports), July 27, 2010 [e-journal]. Retrieved from Regional Business News database. Arnault, B. (2011). Chairman’s message. Available from: http://www.lvmh.com/comfi/pg_strategie.asp?rub=1 Bellony, A. Report. Disclosure Wire (Quarterly Earnings Reports), July 27, 2010 [e-journal]. 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