Louis Vuitton International Management - Essay Example

?Table of contents Introduction 2 Working internationally 2 Setting and implementing objectives 3 Culture differences 5 Currency exchange risks 6 Coping with risks 7 Conclusions and recommendations 9 References 12 Introduction Moet Hennessy Louis Vuitton is, as the company describes itself, a world leader in luxury (LVMH, 2010). The group was founded in 1987 and now possesses more than 60 famous brands in 5 different categories: wines and spirits, fashion and leather goods, perfumes and cosmetics, watches and jewelry, and selective retailing. The group operates internationally and employs more than 80,000 employees. Though The global financial crisis battered many European businesses, Bernard Arnault, the manager of LMVH, believes that his company will not suffer much in the long run, but will, on the contrary, continue growing in emerging markets; particularly China, India and Russia. This means the manager has faith in his strategy and, indeed, investing into further growth instead of cutting budgets in times of a financial crisis will provide the company with an advantage of getting new sources of income. LVMH’s management seems to understand the continuous need for development. As a result, the company will not lose its existing market share because of cost cuts (Pacek & Thorniley, 2007, p. 11). Arnault is setting realistic goals to achieve sustainable growth in the upcoming years. Working internationally Furthermore, intention to work in the emerging markets of China, India and Russia is very logical considering that in the emerging markets LVMH’s products will be filling large existing voids and, in addition, the company will have fewer competitors than in the developed markets (Miller, 1998, p. 148). So an emerging market is always a good environment for company’s success. Nevertheless, LVMH will face a number of challenges and risks entering the new markets. Among them are differences between cultures, political uncertainty, and currency exchange risks. As for all the other aspects, risks of domestic firms are basically similar to those of multinational ones and, hence, a decision of the company not to operate overseas may be caused only by these two mentioned above factors. At the same time, a multinational company, despite larger number of risks, has more advantages in comparison with a domestic one. The reason for it is the fact that while, exposed to some risks, the domestic office is working on the development of new profitable managing strategies, foreign subdivisions of the company are working and getting profits. At the same time a purely domestic company puts all its resources for solving the current problem and has no additional income. Nevertheless, a new business abroad will be exposed to a greater number of potential risks than a home-country one. Any multinational company is exposed to risks such as change of foreign currency exchange rate, commodity prices and interest rates because it denominates its transactions in foreign currencies. That’s why there is also some uncertainty in future earnings, liabilities and assets values. Therefore, before taking a decision on the country of entry, a profound analysis of its current political and economical situation is to be performed. Setting and implementing objectives One more important thing to consider is that there is always a possibility of risk influencing company’s strategic planning and strategy. Therefore, objectives should be flexible enough in order for the company to be able to adjust them to particular circumstances in case market environment or other factors influencing company’s operations change. Besides, not only management, but each separate employee of the company should be aware of such objectives, strategies and special programs in order to understand his/her particular part in their achievement better, and feel free to initiate actions aimed at their achievement. Every employee should have clear responsibilities and duties in this or that project in order for everyone to know and understand one’s role in its implementation. Hence, even though the resources might be limited, they should be focused on increasing of their value through the qualitative approach, which means that each member of the process should be committed to one goal – a qualitative product. Here important is to adequately balance the strategic and tactical work against the goals to be achieved. Therefore, each project should be analyzed considering not only the pure profit, but time, effort and other kinds of investments as well. The purpose of such an analysis is to define whether the value of the given project is still relevant. In case it is not, organization’s ability to grow, develop and transform may decrease. Durbin (2006) outlines four major criteria any investment can be analyzed after. They are: attributes, such as risk assessment or strategic alignment, measurement, which are financial values of a particular project, metrics, such as return on investment, net pay period, etc., and measurement group, which is a compilation of benefits the work brings. But one more important thing an organization should remember is presence of a strategic alignment which is necessary for the success of a business initiative. And for an initiative or innovation it is important to be realized and timely recognized as potentially successful and profitable. Benefits should be timely realized and a structured approach should be employed in order to transform the intentions into benefits. Therefore benefits realization results in organizational excellence and efficiency. A charted organizational course which includes goals, benefits, time-frame, cost, and risk will provide an organization and all its members with a clear understanding of what is required of them, how they can do it, and what will be the result of the activity. Hence, the initially set goals will be achieved through good planning and communication. Culture differences Culture of the country of entry is a determinant of entry strategy (Mead, 2005, p. 4). While organizational culture influences company’s operations from the inside, national culture of the country the company works in determines many organizational decisions from the outside. Furthermore, organizational culture is influenced by national culture. Therefore, understanding national culture is to help the company to successfully operate in the new market. In particular, such a problem as parochialism may be faced by LVMH in China, India or Russia. Parochialism refers to people’s belief that how something is done cannot be done in a different manner (Ahlstrom & Bruton, 2009, p. 42). For instance, if a person is used to buy a particular brand, it might be difficult to convince that person that LVMH’s products are as good. Similarly, ethnocentrism and polycentrism may lead to problems with employees – the natives might not wish to accept the new ways of doing something, wile company representatives might accept local manners instead of following corporate standards. Therefore, LVMH should take all the possible measures for minimizing such negative occurrences. This can be done with the help of, first of all, creating protocols. The protocols will define how in particular people within the organization be behaving and interacting with each other. For this reason it is important to study the target country in terms of its business habits and traditions. Such a research will help to avoid many culture-based problems. Furthermore, corporate culture will have to be aligned with national cultures. A well-designed and effectively supported corporate culture will, then, serve three major purposes: Reducing complexity of operations – corporate culture is to provide behavioral pattern employees should follow and, in such a way, ease the process of their decision-making. Providing meaning and motivation – corporate culture should be the basis for a deeper purpose of employees’ actions. Ensuring continuity – strong corporate culture will protect the company from sudden unplanned changes (Morschett, Schramm-Klein, & Zentes, 2010, p. 208). Therefore, what LVMH will have to do is create a strong corporate culture that will be able to effectively work in different national cultures. Global uniform standards may help in achieving this goal. It might useful to outline certain basic rules all the employees of the company should follow (Puffer, 2004, p. 281). Currency exchange risks A company operating overseas will certainly get interest and dividends from its international investments and realize capital gains. But the fact is that the firm won’t necessarily gain a positive total return, or that the return will be as strong as the return of a company making the same investment with euros, yen, or pounds. This happens because most currencies have no fixed value — that’s why currencies float one against another. Sometimes the euro is stronger than other currencies, sometimes it’s comparatively weaker. When the euro is strong, the company will have to spend fewer euros in order to get a particular amount of another currency, and, when the euro loses value, such an operation will be more expensive. In case euro gets strengthened and its value rises, LVMH’s product will become relatively more expensive to sell abroad and this may bring negative outcomes for the company. If, on the contrary, euro’s value decreases, the price of LVMH’s products may be lowered as well. On the other hand, if the price is fixed, profits in euros will be higher. If the interest rates of the European Union rise, the downward pressure on euro will be offset.  In such a case LVMH company will not be much affected.  Coping with risks Risk management options are usually cited as risk handling options subdivided as knowledge and research of risk factors, control of potential risks, their possible avoidance, assumption and transfer. Generally, all possible management options, solutions, and most of the necessary decisions must occur early in the project development, while everything is not adjusted and clarified well enough. However, when certain facts are being given to experienced professionals, only good decisions are likely to appear as a result for usually there is not a great number of available options, and the best one is likely to be chosen. The success of the chosen option or solution will depend mostly on schedule and financing. Avoidance usually refers to usage of some alternative approach which would not involve any risks. Of course, it is not always an option because there are many projects and programs that are definite to involve quite high risks, but bring success and achievement of high goals as a result. At the same time, avoidance of risk is one of the most preferable ways of risk management if there is an opportunity to use it. Control: The DSMC Risk Management Guide (RMG) defines this mode as: "Controlling risks involves the development of a risk reduction plan and then tracking to the plan" (Fox, 1994, p. 54). However, in this case it is very important that an experienced professional does the planning. In addition, the actual plan may as well potentially involve some parallel programs of development. Assumption: Simply accepting the risk and proceeding. However, in this case the manager should be aware of the risks and take all possible measures in order not to let risks become a usual and uncontrolled thing. Carelessness and lack of proper attention to risks being assumed may lead to crucial outcomes for both for the project and the organization. Risk Transfer involves passing the risk to some other element of the project. For example, if the company has no desire to be responsible for some program, it may pass it to the contractor together with all possible risks. This technique is often used by government agencies. There are some discussions in the DoD (DoD Directive 5000.1, 1996) acquisition literature that government agencies’ acting in such a way just reduces risk of the company while gives high profits to contractors. Knowledge & Research: The DSMC RMG cites this mode as not being "true" risk handling, but rather a way of strengthening all the other options (Fox, 1994, p. 56). From a management perspective the given approach may be considered to be an adaptation of the technique used by graduate students for their work: study associated with specialized testing. As a result, the student gets an opportunity to study and analyze his subject from several points of view: empirical, theoretical, and practical. Besides, the issue is being studied deeper, and all possible peculiarities are being considered. According to the theory of Christensen and Overdorf (2000), there are three ways the manager can use to cope with risk and, accordingly, with change that may be caused by it. They are: creation of new organizational structure within corporate boundaries in which new process can be developed; spinning out an independent organization from the existing gone and developing new processed and values within it required to solve the problem; acquiring a different organization whose processes and values close match the requirements of the new task. And, ideally, each company should tailor the team structure and organizational location to the process arid values required by each project. (Christensen & Overdorf, 2000) Conclusions and recommendations Entering a new market is always challenging and risky, no matter how large and powerful the company might be. Risks related to culture differences, currency exchange and political uncertainty, among others, will be continuously threatening the market entry process. Therefore, in order to avoid facing most of the problems, the company has to perform a profound new market research and carefully plan its further steps. Organizational culture should be used as a tool for managing culture differences risk. Therefore, before entering a new market, the company has to make sure its internal culture is strong enough and provides employees clear guidelines on dealing with specific situations. In addition, it might be useful for the company to consider creating new organizational structures to take care of operations in the markets. A deeper analysis of the target markets should be conducted in order to determine which mode of operations should be applied in each particular case. It should also be noted that careful examination of local legislation should be performed before designing market entry plans. The local governments’ requirements to foreign companies should be analyzed and met by LVMH. Many disputes and problems can be avoided or foreseen if proper attention is given to the peculiarities of the country’s legislation early in the project planning stage (Walter & Murray, 1988, p. 74). In addition, major differences between the three target countries should be identified in order for the company to deal with different challenges separately. Separate teams should be assigned to manage each of the three market entries separately. It will ensure the company’s assumptions and information about each of the countries is accurate and, therefore, right strategies are chosen for each particular market. If the company manages to effectively implement all the presented above recommendations it will achieve several objectives having entered the foreign markets: increased market share, obtaining economics of scale, improving return on investment, solving intellectual property concerns, obtaining favorable locations (Ahlstrom & Bruton, 2009, p. 166). So, corporate culture and corresponding internal structures are to support the new processes and help LVMH to successfully enter the new markets. References Ahlstrom, D. & Bruton, G. (2009). International Management: Strategy and Culture in the Emerging World. Cengage Learning. Christensen, C. & Overdorf, M. Meeting the Challenge of Disruptive Change. Harvard Business Review, 78: 66-76. DoD Directive 5000.1, "Defense Acquisition," March 15, 1996 (and associated documents). Durbin, P. (2006). Chart Your Course to Strategically Align Business and Technology. Information Management Magazine, January 2006. Retrieved from http://www.information-management.com/issues/20060101/1044664-1.html. Fox, J. R. (1994). Critical Issues in The Defense Acquisition Culture, Government and Industry Views from the Trenches. Defense System Management College-Executive Institute. LVMH (2010). LVMH Group. Retrieved from http://www.lvmh.com/groupe/pg_mot.asp?rub=2&srub=0 Mead, R. (2005). International management: cross-cultural dimensions. Wiley-Blackwell. Miller, R. (1998). Selling to newly emerging markets. Greenwood Publishing Group. Morschett, D., Schramm-Klein, H. & Zentes, J. (2010). Strategic International Management: Text and Cases. Gabler Verlag. Pacek, N. & Thorniley, D. (2007). Emerging markets: lessons for business success and the outlook for different markets. Bloomberg Press. Puffer, S. (2004). International management: insights from fiction and practice. M.E. Sharpe. Walter, I., & Murray, T. (1988). Handbook of international management. John Wiley and Sons. Read More