Cross-cultural Management at Moet Hennessy - Louis Vuitton - Case Study Example

Cross-cultural Management: LVMH & Career development Number Department Introduction Known by its full name LVMH Moet Hennessy- Louis Vuitton S. A., LVMH is a French multinational that deals in an array of luxury products and is headquartered in France, Paris. This firm was founded in 1987 and was a culmination of the merger between Hennessey (the manufacturer of cognac) and Moet & Chandon, the producer of self titled brand. The robust size of LVMH is underscored by the 60 subsidiaries that are under it. These subsidiaries control and direct a limited number of other prestigious brands. The subsidiaries are run independently and the oldest among them is Chateau d’Yquem whose origin dates back to 1593. Though the 60 subsidiaries deal in different products, their operations are limited to 5 different sectors which are wines and spirits, selective retailing, fashion and leather goods, watches and jewelry and perfumes and cosmetics. Because of LVMH’s strong and strategic brand development strategy, LVMH has managed to successfully expand its global retail networks, for which there are 3,000 LVMH stores distributed across the entire globe. It is because of these strategic development strategies that has enabled LVMH grow since its inception in 1987. Apart from the 3,000 stores to LVMH’s name, the organisation presently prides itself of 110,000 employees. 81% of these employees are based outside France but share in the LVMH’s values. LVMH also uses culture, humanitarian action and heritage as a way of extending itself into the rest of the world. Challenges Faced By LVMH Regarding International Mobility According to Enriques and Volpin, (2007, p. 130), despite numerous efforts that LVMH has expended to penetrate the market, there are serious impediments that it faces. One of the impediments is competence. Entering foreign markets means penetrating different geopolitical entities. These geopolitical entities have different cultures and rates of socioeconomic and political development. This means that educational levels and levels of competence may greatly vary. The import of this is that LVMH has always had to contend with human resources hat do not have adequate international skills and competence. Apart from the failure to possess managerial competence among international human resources, LVMH has had to seriously contend with language barriers and an insufficient knowledge on international markets. The crux of the matter herein is that a global manager needs proper training and experience in managing multicultural and multilingual environments to help a particular LVMH chapter in a specific market. The acquisition of such abilities and skills may therefore require experience in several countries and socio-cultural setups (Carbonara and Caiazza, 2009, p. 126). While the immediately foregoing may appear as a small matter at a casual glance, it is far more disconcerting. First, relative incompetence among international human resources compel LVMH to train its managers instead. This calls for additional funds, time and synergy and ultimately, increased operational expenses. The same also means that LVMH has to engage and specialise in matters that are of peripheral importance such as training programmes, workshop training and nurturing language competence. This adversely affects LVMH’s international mobility policy which only caters for limited time basis of training (LVMH Recherché Symposium, 2007, pp. 283-5). Again, it is important to appreciate the fact that LVMH heavily relies on its international mobility policy, and that in turn, this policy significantly depends on people who have been immersed in a number of cultural and ethno-linguistic backgrounds. It is especially expected of HP2 candidates to have traveled widely. Whereas HP1 candidates are likely to attain high management positions (such as regional presidents, subsidiary president or member of Board committee), HP2 employees have the proclivity to ascend two or one step upwards, hierarchically. The same candidates are also required to have open-mindedness and to polyglots speaking at least three languages. It is very hard to access these skills and talents, especially in countries that are nation-states (Whitelock and Fastoso, 2010, p 40 & Tagami, 2005, p. 37). LVMH’s attempts at maintaining its international mobility also means that the organisation has to heavily rely on foreign markets. These markets have varying degrees of political and legal frameworks which affect LVMH’s task and socio-cultural environment. These variations in political and legal frameworks affect LVMH’s international mobility policy since pertinent matters such as taxation, registration and terms and conditions also come into play. Importantly, most countries the world over have rules of employment which stipulate the number of locals who are to be employed in any multinational. Most countries state that 45% - 60% of employees hired by multinationals have to be locals. The import of this is that LVMH may be left with a deficit of employees. This is especially because LVMH’s international mobility policy is so specific and may therefore be too hard to fill. It is not hard to find open-minded polyglots who speak at least three languages, but when cultural competence, wide travel and professional skills are added, filling an organisation with 50% of its workforce with locals becomes a daunting task (Dawson, 2007, pp. 395-7 & Point and Dickmann, 2012, pp. 22-4). It is a fact that because of the perks and allowances that LVMH issues, LVMH employees seldom resist calls for international assignments. However, when spouses are involved, international mobility becomes impeded. LVMH is therefore forced to assess the willingness of an employee to accept an international assignment by using feelers. International assignments are then put on hold when it becomes apparent that there is reluctance on the side of the employee, the employee’s spouse or when it is clear that the designated employee may have problem delivering on his international project. This shows the extent to which LVMH encounters difficulties while attempting to exact its international mobility policy. Nevertheless, LVMH has sought ways to abate this problem by limiting international assignments to single young graduates. These young graduates have to have an understanding of the developmental purposes of the international assignment (Moffett and Ramaswamy, 2003, p. 238-39). LVMH’s practices may also be hindered by socio-cultural impediments. This is because countries are socio-culture-specific while LVMH has biasness for francophone cultures since it has its headquarters and origins in France. This means that while LVMH may be beholden to democratic and meritocratic ideals, other countries may not. This is especially the case in the Orientals. For instance, in Saud Arabia, strong restrictions on women abound. Women are not allowed into public places or to travel or drive alone in the absence of a male relative. This ideal is diametrically opposed to LVMH international assignments. Why LVMH Drew up its ‘International Transfer Policy’ Charter It must be remembered from the outset that LVMH has been a multinational. Therefore, LVMH’s drawing of its international transfer policy was not informed by the need to go global. On the contrary, LVMH’s international transfer policy charter was inspired by the realisation that its managers and workers in both HP1 and HP2 levels could not match LVMH’s operational demands. On the one hand, LVMH wanted to go global, yet on the other hand, it was apparent that most of its managers were not conversant with English and the English culture. LVMH’s international transfer policy was therefore introduced to ensure that LVMH’s HP1 employees are in possession of working knowledge and professional skills that are relevant in international market and are widely traveled, multilingual and can manage multicultural settings. Again, LVMH decided to draw up its international transfer policy charter as a way of strengthening its market strategies. This is because, LVMH believes that the best way of developing and expanding its market is by using international mobility in lieu of formal training. This market penetration strategy calls for geographical, horizontal and vertical mobility within an organisation (Rugman, 2005, p. 122 & Girod and Rugman, 2005, pp 355-7). Again, Jiun-Shiu and Al (2012, p. 56) contends that what made the drawing of the LVMH international transfer policy charter inevitable is the need to harmonise LVMH operations and functions with labour laws. Different countries have different labour laws which govern the operations and functions of any organisation, as it interacts with the general and task environment to actualise profit. LVMH acceded to the dictates which different versions of labour laws put in place to abate the exploitation of employees and to inculcate professionalism among employees because of the need to conform to the legal code of different countries and to eradicate confusion among employees (Gooderham, 2013, p. 205 & Johnson, 2012, p. 63). According to Strategic Direction (2005, p. 48), LVMH also needed to draw up a charter which contains the expatriate packages which are used by all LVMH subsidiaries. The charter in this light contains an array of rules and regulations that are stipulated by different governments and set the conditions for terms of employment. Thus, when a candidate is employed by LVMH, LVMH pays him, not according to the policies stipulated by LVMH’s subsidiaries, but according to LVMH’s charter (Enderwick, 2009, p. 15). The drawing of the charter also became necessary since it was used to draw training programmes for LVMH subsidiaries. Irrespective of the rank of new employees, all are subjected to the same charter as part of the training programme, so that all LVMH employees can understand companies they are going to work with and partners or subsidiaries of the same organisation. Therefore, LVMH’s international transfer policy charter became an indispensible factor because it ushered in the standardisation of LVMH’s strategies of international mobility. How LVMH tackles the issue of international adjustment LVMH tackles the problem of international adjustment by helping its employees locate the best place of residence and giving employees the best bargains for household property. This move saves employees from time wastage. LVMH also accords its employees with intercultural training so that these same employees are culturally competent and able to interact with the market they have been transferred to. This training is very important as it helps LVMH employees to adapt to the prevailing socio-cultural environment, apart from just interacting with it (Elen, 2013, p. 920 & Journal of cosmetic dermatology, 2007, p. 283). Again, the import of the intercultural training is that it shields LVMH and its subsidiaries from possible cultural backlash which may emanate from cultural misrepresentation. If an LVMH employee with European or American origins should for instance look at a Muslim woman in the eye and offer a handshake, he will have misrepresented LVMH as an organisation that disrespects people’s women and culture. It is obvious that from this point, LVMH’s products will not fare well in the market (Qaiser-Rafique, 2011, p. 73). How LVMH’s International Transfer Policy Is Different from Those of Other Multinational Organisations Several differences abound between LVMH’s international transfer policy and other multinational firms. For one, in the case of the latter, employees are recruited or/ and outsourced in their country of origin, in which the multinational is situated and operates. In this light, the executives of multinational companies will train employees who are also citizens of the foreign market being moved into. Upon successful training of these employees, the executive may return to the headquarters, leaving the company in the hands of employee(s) he has recruited and trained. The above is not the case with LVMH and its international transfer policy. In this case, employees do not necessarily have to work in the country of their birth. Instead, LVMH’s international transfer policy facilitates the movement of employees from one country to another, in order to foster their career development. To do this, LVMH trains its employees and provide conducive environment to help employees work in foreign countries well. Employees are helped to adjust to the new environment they will be working in (Spar, 2006, p. 208 & Raye-Carol and Kincade, 2014, p. 240). Again, LVMH’s international transfer policy differs from international marketing strategies used by other multinationals since LVMH provides its employees with more competitive packages, compared to those who work with multinationals from their home country. This difference is not brought about as an end itself. Instead, LVMH provides higher remunerations because it follows its international transfer policy charter which factors labour laws from relevant countries and harmonises emoluments of all its employees. This way, LVMH finds itself not only conforming to labour laws that have been spelt out by countries they are operating in, but also according higher remunerations and emoluments than other multinationals. Conclusion From the foregoing, it is clear that creativity in laying out business strategy pays. This creativity is seen in LVMH creating a very unique international transfer policy which defines the way LVMH employees are nurtured to serve ably in a foreign market and the way employees’ remunerations are competitively drawn. The gains that this creativity bring is exemplified by the level of success that LVMH and subsidiaries, the positive corporate and international image, the high level of professional and cultural competence among employee and the productivity which are attributable to LVMH. The profitability of LVMH’s international mobility is seen in it helping employees to adjust in countries they have been repatriated to work in. This not only aids the cause of the firm, but also ensures that LVMH’s employees are all-round: LVMH’s employees are widely travelled, multilingual and highly culturally competent. Again, LVMH’s charter helps avert pitfalls that are associated with industrial action such as strikes, go-slows and sit-ins due to poor remunerations. The charter also increases efficiency since it shields employees who have been repatriated to another country to settle easily and more conveniently through LVMH’s support and training systems. However, the drawback that is associated with LVMH’s international transfer policy is its muteness on career development policy. Reflection As a consultant, it is worth noting that some input are in order, so as to improve LVMH’s strategy of career development through international mobility. It is crucial that LVMH relooks its international transfer policy charter to re-modify it. This involves, amending LVMH’s charter so as to incorporate an elaborate career development policy. The introduction of a career development strategy will help LVMH achieve a more successful performance management strategy. The career development strategy should quantify and qualify the roles, duties and responsibilities that are due to every employee against the privileges and powers of the same. Supervisors and heads of human resource management should oversee the performance of an individual office against organisational clusters such as departments. The same career development policy should elaborate how desired skills and talents are nurtured and promoted and the benchmarks that are used to promote HP1 and HP2 employees. The same policy should also have elaborate exit and transition strategies, so that LVMH is not left with a deficiency of talents and skills following resignations, deaths or retirement. Every office, department and sector within LVMH’s rank and file must have performance target. The attainment of performance target is to be followed up with positive action such as salary increments, extension of extra allowances, bonuses, grants, scholarships, study tours or letters of acknowledgement. The corollary to this is that those who have sustained performance gap should be followed up with correctional (but friendly) mechanisms such as workshop programmes, training and conferences. By so doing, LVMH’s employees will always seek to justify their high rates of remunerations that LVMH accords them by working hard and more efficiently. References Carbonara, Gabriele and Caiazza, Rosa, 2009, ‘Competitive Advantage in Luxury Industry: Is It a Question of Size?’ The Business Review, Cambridge, 14 (1), p. 216 Dawson, John A, 2007, ‘Scoping and conceptualising retailer internationalisation’ Journal of economic geography, 7 (4), pp. 373 - 397 Elen, Riot, 2013, ‘Murakami on the bag: Louis Vuittons decommoditisation strategy’ International Journal of Retail & Distribution Management, 41 (11/12), pp. 919 - 939 Enderwick, Peter, 2009, ‘Large emerging markets (LEMs) and international strategy’ International Marketing Review, 26 (1), pp. 7 - 16 Enriques, Luca and Volpin, Paolo, 2007, ‘Corporate Governance Reforms in Continental Europe’ The Journal of Economic Perspectives, 21 (1), pp. 117 - 140 Girod, Stéphane J.G and Rugman, Alan M, 2005, ‘Regional Business Networks and the Multinational Retail Sector’ Long Range Planning, 38 (4), pp. 335 - 357 Gooderham, P. N., 2013, International Management: Theory & Practice, Edward Elgar Publishing Limited, London, p. 285 Jiun-Shiu, Chen and Al, S Lovvorn, 2012, ‘The Impact of MNCs Home Country Politics on Host Country Nationals Organizational Commitment’ Journal of Marketing Development and Competitiveness, 6 (3), p. 56 Johnson, Phillip, 2012, International M&A and Joint Ventures, International Lawyer, 46 (1), p. 63 Journal of cosmetic dermatology, 2007, ‘LVMH Recherché Symposium VII. Stem cells and skin: present and future Abstracts’ Journal of cosmetic dermatology, 6 (4), p. 283 LVMH Recherché Symposium, 2007, ‘LVMH Recherché Symposium VII Stem Cells and Skin: Present and Future’ Journal of Cosmetic Dermatology, 6 (4), pp. 283 - 297 Moffett, Michael H and Ramaswamy, Kannan, 2003, ‘Fashion Faux Pas: Gucci & LVMH’ Thunderbird International Business Review, 45 (2), pp. 225 – 239 Point, Sébastien and Dickmann, Michael, 2012, ‘Branding international careers: an analysis of multinational corporations official wording’ European Management Journal, 30 (1), pp. 18 - 31 Qaiser-Rafique Yasser, 2011, ‘Challenges in Corporate Governance - A Family Controlled Business Prospective’ International Journal of Innovation, Management and Technology, 2 (1), p. 73 Raye-Carol, Cavender and Kincade, Doris, 2014, ‘Management of a luxury brand: dimensions and sub-variables from a case study of LVMH’ Journal of Fashion Marketing and Management, 18 (2), pp. 231 – 248 Rugman, Allan, 2005, The Regional Multinationals: MNEs and Global Strategic, CUP, Cambridge, p. 122 Spar, Debora L, 2006, ‘Markets: Continuity and Change in the International Diamond Market’ The Journal of Economic Perspectives, 20 (3), pp. 195 - 208 Strategic Direction, 2005, ‘The magic touch (brand building at LVMH, owner of luxury brands such as Louis Vuitton)’ Strategic Direction, 21 (3), p. 48 Tagami, H, 2005, ‘A New Focus on Japanese and Asian Skin Tokyo, December 11, 2004 LVMH Recherché Symposium Organized by LVMH Recherché ‐ 45804 St Jean de Braye, France Chairman: Frédéric Bonté’ International Journal of Cosmetic Science, 27 (1), p. 37 Whitelock, Jeryl and Fastoso, Fernando, 2010, ‘Regionalisation vs. globalisation in advertising research: insights from five decades of academic study’ Journal of International Management, 16 (1), pp. 32 - 42 Read More