LVMHs Corporate Strategy - Case Study Example

Moet Hennessy is composed of several alcohol production groups and houses. These include Moet & Chadron, which is a champagne winery and Hennessy, a cognac production house based in France (Arnault 1). LVMH constitutes 60 subsidiaries each controlling several prestigious market brands. The company is interested in five services and product area that include leather and fashion products, jewellery and watches, cosmetics and perfumes, alcohol (spirits and wines), and selective retailing. The subsidiaries have independent management though the overall management influences operations.

LVMH’s corporate strategy is defined as a strategic merge of independent companies that produce different or slightly different products. The companies may be thriving in the same market region or different market region (Wendlandt & Denis 3).LVMH creation of valueLVMH seeks to create value in different ways especially by providing new value, adding value to the existing brands and providing quality value. Since the company emerged, it has continually sought to create new value by searching for companies with high-performance potential and signing them into the merger business.

The company dynamically gains recognition and market ground that allows it to create new value by seeking and purchasing new brands (Hannaford 95).The cost of producing each commodity reduces by merging different production and marketing entities. Negotiating for reduced advertisement charges, raw material costs, distribution cost and other similar operation become easier. As a result, the number of specific items can increase to lure customers. Another measure that LVMH strives to attain is setting standards that improve its brand items.

This ensures improved commodity quality. Apart from the above strategies, LVMH organizes exhibitions to showcase its products. Additionally, it participates in community activities to improve its image. The “LVMH Young Artistic Award” is an annual price for creativity competition for students sponsored by LVMH (Wendlandt & Denis 3).LVMH partakes indirect activities to ensure increased value by improving the quality of products. These activities include formulation of vision, training, boosting technical skills to improve service, consolidating resources and interviewing new recruits.

The newly employed recruits are initiated into their job environment immediately to evaluate their productivity. They later enrol in a training program to further their skill (Wendlandt & Denis 3)LVMH capacities that distinguish it from its competitorsSeveral advantages place LVMH above its competitors. The synergies associated with its subsidiaries’ financial portfolios provide a strong financial backing. The organization can determine the benefits of each subsidiary and sponsor them accordingly (Hoskinsson, Hitt and Ireland 95).

LVMH is strategically diverse especially in the market enabling the company to target and serve customers with different lifestyles. Each subsidiary provides a venture that targets different consumers. It caters for alcohol lovers as well as fashion-oriented people who do not drink. Diversification strengthens efficiency, parenting measures and increases market influence. Efficiency improves because each business benefits from links with the mother corporation. The corporation also gains from the relationship.

Each separate business has numerous partnership options for coordination during distribution, research, logistics and purchasing (Thompson 145).In the event that a business encounters challenges that are difficult to address, the mother corporation intervenes. It employs its vast resources to recoup and strengthen the entry. Diversification further provides the company with a wide market to influence market prices and business processes (Thompson 145).Why businesses are advantaged remaining in the LVMH corporation than striving independentlyThe various benefits of the LVMH corporate strategy lead to a conglomeration of businesses.

The benefits include cutting down on costs, improved scale economies, increased revenue and luring partnership with other businesses.Cutting down costsConsolidation of administration processes reduces the number of employees and material requirements. Additionally, joint operational activities reduce resources used at a given time. For instance, joint international distribution of goods can be done using a single cargo plane other than separate planes. Negotiation for raw material becomes easier due to the bulky nature of materials purchased by the company.

Acting alone, each business would have to pay for the entire cost (Hoskinson, Hitt and Ireland 35)Revenue increaseConsolidation allows each business entity to expand nationally or internationally. The expansion increases the market for the respective businesses, leading to increased sales and profits. The expansion also encourages a business to venture into new business lines, further increasing sales. Withdrawal from the corporation would lead to limited resources, market ground and reduced returns (Hannaford 145).

Luring partnershipAs a company expands, it commands a larger ground market and influences the industry regionally. Weaker competitors seek partnership because they fear failure. Breaking away from a corporation like LVMH exposes a business to increased challenges and risks of failure (Hannaford 145).