Luxottica's internationalisatoin and globalisation strategy - Essay Example

?Introduction This paper analyses the case of Luxottica's internationalisatoin and globalisation strategy. It delves into the various elements of thecompany's growth and expansion since the 1970s to present. It views various components of international management, international marketing and growth on the global scale. The paper begins by examining Luxottica's general international strategy. It views some of the core elements that marked the growth and establishment of the company's worldwide presence. It goes on to examine the specific marketing strategy employed. This will view certain aspects of marketing in general terms. After the general strategies are viewed, the paper will examine the elements of the gradualist approach used by the company in its globalisation strategy. It will examine the competitive strengths of Luxottica. This will be followed by a critical view of the distribution strategy used by the company to capture the markets in the various countries it operates within. International Corporate Strategy Corporate strategy refers to the long term, company wide plans instituted and implemented by top level management (Johnson, Scholes & Whittington 4). Luxottica began in 1961 as a small obscure Italian optical manufacturer. It was originally set up to provide spectacles for the local markets and this was the main strategy employed in the first first decade of operations. Within this time period, the strategy was focused on establishment of the brand in Italy. This means that the owners just sought to provide for the local customer base in the home country. Within the first decade, the company grew sufficient competency and skills in the manufacture of spectacles. Whilst the competencies increased, the brand became admirable overseas. In 1971, the company made major contacts outside Italy and began to export. This strategy was simply based on the production for a larger customer base who dwelt outside Italy. The corporate vision was still local in nature. The only variation was the increase in demand caused by the introduction of new customers outside the borders of Italy. In the early 1970s, the plan was simply to manufacture and sell to wholesalers in foreign countries. The wholesalers in these foreign companies had to find ways of selling the Luxottica products. Luxottica remained Italian in outlook. In the 1980s, the focus changed. Luxottica decided to pursue an international corporate strategy. In this drive, they quit the strategy of just producing for wholesalers. They rather sought to produce the spectacles and get some control in the sales and distribution of the product in foreign markets. This led to the growth in international distribution networks and channels. In the 1990s, the Luxottica went public. It floated shares on the New York Stock Exchange and later the Milan Stock Exchange. This led to a solid capital base which provided the funding to expand and capture a larger market share in foreign countries. The strategy again changed in the mid-1990s where the company focused on the acquisition of new brands in the spectacles industry. This complemented the expansion of the distribution channel which led to the acquisition of more retail outlets in USA, Asia Pacific and the Rest of the World. International Marketing Strategy In 2007, there were over Luxottica centers around the world. This was made up of over 6,400 outlets globally. Luxottica's international strategy brings the firm a sales of over $6.4 billion each year. This is quite large and can be credited to the marketing strategy that it has developed over the past years. The international marketing strategy used by Luxottica is similar to what Professor Piercy will call 'the process of going to the market' (Piercy 13). It involves three steps: value definition, value creation and value deliver to customers (Piercy 14). In this process, the company's top level management examines international demands and expectations. This normally involves the critical examination of marketing trends and other financial indicators studied over a period of time. When this is done, the top-level management can conclude on the needs of the consumers and identify the best services and products they can give to the markets. This leads to changes and evolutions in marketing strategies to support a firm. The first marketing strategy evolution was the transition from an export based company to a company that focuses on direct global sales and distribution. In other words, Luxottica change from just producing for companies that would buy in bulk and sell to a company that sells directly to customers around the world. This caused them to maintain direct control over their profits and earnings at different points in time. The second marketing strategy was the changes in the perception of customers. Normally, customers see spectacles as a corrective measure to enhance eyesight. However, Luxottica blended the concept of using spectacles with fashion and fashion trends. This led to the expansion of the range of spectacle brands they produced with licenses to eight popular global fashion brands. This provided a single shopping system through which consumers could acquire fashionable products that were related to the spectacles they needed. The change in perception and the expansion of the sales range increased the revenue base and supported in further expansion of the company. Thirdly, the company focused on the expansion of advertising internationally. The international advertising went quite easier because they introduced globally known brands like Dolce & Garbanna and Polo into local markets. This was complemented by the production of local spectacles brands that they acquired in local zones. Fourthly, the use of Hollywood stars and international stars for advertisements made it possible for local customers to appreciate the Luxottica brands in different parts of the world. This created a direct contact with customers in different parts of the world and helped to grow the Luxottica brands. Standardisation V Adaptation The idea of globalisation comes with some inherent issues. One of the is how to draw the balance between localisation and globalisation. In other words, a firm going global will have to examine whether to use local themes and systems to establish its international growth or use standardised international methods throughout its operations. The tension between the two concepts is quite dicey because it cuts across various situations and methods throughout the organisation and determines the success or failure of international growth and expansion (Keillor & Kannan 81). In the case of Luxottica, the two approaches were fairly utilised in the expansion and internationalisation of their brands. Inherently, the attainment of license for global fashion brands was a form of standardisation. This is because brands like Dolce & Garbanna are brands that are known around the world. This therefore meant that every bit of the expansion in this direction was to be international. Every kind of advert or promotion that was conducted could be expanded to other parts of the world with ease. On the other hand, there was a strong pressure to include some form of localisation because the expansion involved operations in different parts of the world. It is common knowledge that the United States comes with extremely different variables from China and India, so Luxottica had no other option but to vary its international strategy and adapt where the needs arose. One of the main purposes for the expansion approach used by Luxottica was to maintain a direct relationship with consumers. This means that Luxottica had to remain in touch with the dominant culture and business environments of areas that they expanded their influence into. Thus, the company had to vary its strategy to make the best in cases where the local markets were different. They therefore changed their marketing and operational styles in China and India. However, standardisation comes with the advantage of providing a consistent brand and promotes the quick and easy management of a company's brand (Raisinghan 105). This was brought to play in the fact that Luxottica maintained the same international brands throughout the areas and places within which it operated. This is evident in the fact that the brand names remained the same and the branches overseas were generally of the same structures as those maintained in other parts of the world. Adaptation in international management also gives room for diversities in culture and different political, and legal structures (Keillor 82). The management of Luxottica benefited tremendously from the variations in culture and systems. This is because it is not so easy to operate in China where the political and legal structures as well as culture is very different. So the strategy had to be varied. Luxottica invested more in retail outlets in China rather than other systems. Through this, each retailer unit could examine the best local opportunities and identify the best options available and take them with a view of minimizing negativity. The SunGlass Hut lines were already indigenous to the United States. Thus, the acquisition of this brand did not require so much of standardisation. Rather, the model was developed in the United States and replicated in other parts of the world. In the replication, there were some components that were retained. However, in China and India, they had to be modified slightly to meet local conditions. Justin (38) identifies several benefits for the standardisation of international brands. First of all, it provides economies of scale in terms of production and marketing and this leads to competitive advantage. The concept of SunGlass Hut was retained throughout Luxottica's Asian and global expansion because it was a viable brand and system. Other international fashion brands were also transferred intact. Through this consistency, there was no need to incur fixed costs that could inflate the costs of Luxottica. They could maintain local production systems and methods in order to meet the demands of the local markets. Secondly, Justin identifies that the unification of brands, distribution and production ensures that the purchasing and supply systems are retained. These related business activities are kept at bay and they are effectively prevented from bearing extra costs. In other words, Luxottica could just maintain its international partners by working with their overseas branches. It can be logical to infer that they maintained the administrative partners, logistics partners and similar business associates to maintain the same level of quality and assurance without extra costs. Standardisation also leads to the transfer of knowledge (Justin). This means that it is easier for staff members to be easily transferred to other parts of the world to do crucial jobs without having to train and retrain them excessively. Also, other foreign staff members could be sent to the home branch for training with little difficulty. This led to the maintenance of competency at different stages in the growth of foreign branches and units. So it is clear that Luxottica maintained a standardised relationship with its international branches. The standardisation brought a lot of positives to the company and helped in the expansion and growth of the company. However, some of the branches overseas maintained their nature. This includes some important branches in China and other units in India that maintained favoured and known brands. This diversified the portfolio of Luxottica and prevented the over-reliance on the American brands which became less economically viable after the financial crises began in the US. In conclusion, the standardisation aspects of Luxottica was fairly mixed. The company maintained some localisation elements like maintaining local brands and the operation in relation to local brands. However, for certain brands like SunGlass Hut and the international fashion brands it operates, Luxottico maintained the standardisation policy. Thus, these special units followed the trend of globalisation in all the units. Gradualist Approach The approach in entering a new market is very important. A business can either enter a new market gradually or use the shock therapy approach (Westernhagen 28). The shock therapy approach implementing a major change in a short period of time, usually under one year. On the other hand, the gradualist approach involves the implementation of global expansion activities over a longer period of time, usually seven years. In choosing an approach, they key factor to consider are the elements of the external environment (Tian 46). For an approach to succeed, there is the need for a firm to identify its internal capabilities and match them with the Political, Economic, Social, Technological, Environmental and Legal elements of the new environment. When the expansion drive of Luxottica began, the vision was to create and enhance a relationship with the local markets. This was because the traditional export contact was not good enough. So in the 1980s, the idea of exporting became insufficient. There was the need to expand and maintain a firmer grip on the international markets. This led to the expansion to control international markets around the world. Luxottica examined consumer information and and planned accordingly. This meant that the company had to take a strong and careful view of the various companies, particularly the United States which seemed to be a major export destination and begin planning it expansion drive. Eventually, Luxottica bought important companies and floated shares in the New York Stock Exchange to build the needed capital. This was done over a period of about ten years. Eventually, Luxottica embarked on another phase of expansion which involved the growth of market share and the introduction of fashion brands. This second phase was really important because it laid the foundations for the growth of the financial background of the company. Once sufficient funds were gathered, the firm was in for further growth at the end of the 20th Century. In the third phase, the company acquired other important retail outlets and various sales points in the United States. The growth was outstanding and the results were impressive. However, after the financial crises began at the wake of 9/11 there was the need to look outside the borders of America to invest. This led to the fourth phase of expansion which saw the opening of branches and outlets in Asia and Europe. This new move led to another lifeline to the company and its operations. In conclusion, Luxottica used a gradualist approach rather than a sudden therapy. This proved to be important because it sought to involve foreign investors and foreign penetration at strategic points in the growth and expansion of the company. The gradual system also allowed the company to build competencies in given areas whilst they studied other opportunities in different parts of the world. Competitive Strengths The competitive strength of Luxottica in turbulent financial times can be credited to four main things: 1. Direct link to consumers 2. Diversification of operations 3. Careful planning and gradualist expansion 4. Monitoring of consumer requirements Luxottica maintained a direct link with it customers. Instead of the traditional approach where manufacturers rely on third parties and middlemen to sell to their customers, Luxottica sought to maintain entities that had direct links to the consumers. Through this, they could maintain contacts with the consumers and benefit from every link in the chain from production to distribution. This kept the company in control during hard economic times. There were diversification of operations at crucial times. As a spectacles producing firm, Luxottica was able to acquire crucial licenses in the fashion industry that kept it operational and productive, even in tough times. This is because people would always purchase fashionable products from worldclass brands that Luxottica sells. Also, the careful planning and gradualist acquisition of economic rights in the proper areas was a major source of survival. This approach enabled them to move out of problematic areas and enter productive areas when the need arose. This meant that the company remained liquid even in times when things were going in the wrong direction. When they controlled a given economic interest in a nation, Luxottica continued to monitor their operations and change as and when necessary. Luxottica therefore remained responsive and changed its systems and structures as and when necessary this led to the consolidation of financial resources at different points in time. Distribution Strategy The core distribution strategy of the international expansion of Luxottica was through vertical integration. Vertical integration is defined as “the acquisition of business entities that can support a business in its core operations” (Smith 91). Luxottica concentrated on the acquisition of distribution and promotional channels that enabled it to expand into international markets. This approach meant that Luxottica controlled its relationship with customers directly without the use of third parties. This is because the acquisitions came with absolute control and this allowed them to assert themselves in different parts of the world. The most important element of the vertical integration approach lies in the fact that Luxottica was able to acquire customer information for planning. This enabled them to remain leaders in different parts of the world. Another option Luxottica could have used were franchising or licensing. Although they used franchising in India, it was advantageous because India came with very different conditions than what existed in the United States. Licensing involves the sale of patents, trademarks and rights to third parties (Cateora & Graham 301). This was not appropriate for Luxottica because the company itself relied heavily on licensing. In other words, they were selling under the license of international fashion brands. It would therefore be less profitable for them to sell that right to other companies. This would have been some form of circumvention and it would have been ineffective. Secondly, licensing meant abdication of authority and control. This meant that third parties would control operations and could decide what to do at material moments. Another element of licensing is that it creates a shortfall in profits. This is because licensees would always take a share of the profit and this would reduce the financial viability of a business. Thus, it was best for them to desist from licensing and maintain a direct control over distribution firms and channels. Franchising is described by Cateora & Graham as a special form of licensing arrangement where standard packages of products and systems were acquired by investors. In the case of Luxottica, franchising was problematic because the franchisees would maintain some level of autonomy which would make it difficult for Luxottica to implement its policies. So aside from India which was very different from the United States, franchising was not implemented anywhere. Conclusion Luxottica's international expansion drive was based on vertical integration which sought to incorporate businesses that could act as distribution outlets into its corporate structure. This led to the creation of several outlets to promote the products of the company as well as fashion brands that it produces. The company used various techniques like a gradualist approach and other competitive methods to remain profitable in the toughest times. The international expansion drive created a direct relationship with the consumers and allowed Luxottica to remain profitable over the years and maintain an international presence. Works Cited Cateora Philip & Grahama Jon. International Marketing. Boston: McGraw Hill. 2005. Print. Johnson, Gerry. Scholes Kenneth & Whittington, Robert. Exploring Corporate Strategy Financial Times: Prentice Hill. 2008. Print. Justin Paul. International Business. PHI Learning PVT Ltd. 2008. Print. Keillor Bruce & Kannan Vijay. International Business in the 21st Century Vol 1 ABC-CLIO. 2011. Print. Piercy, Nigel. Market-Led Strategic Change. Burlington, MA: Butterworth-Heinemann. 2009. Print. Raisinghan Mahesh. Handbook of Research & Global Information System Management Idea Group Inc. 2007. Print. Rugman, Alan. The Oxford Handbook & International Business. Oxford Handbook Online. 2009. Print. Smith, Alan. Core Principles of International Management. Mason, OH: Cengage. 2010. Print. Tian, Xiaowen. Managing International Business in China Cambridge University Press. 2011. Print. Westernhagen Natalya Von. Systematic Transformation & Economic Growth London: Springer. 2002. Print. Read More