Strategic Management - Assignment Example

Strategic Management Exam Question Internal and external growth strategies offer fast but different solutions for firms in a competitive environment. The strategies also vary in the definition. Each strategy has its set of advantages and disadvantages. Internal and External Growth Strategy Internal growth strategy entails the capabilities of a business such as product or service development with the aim of expanding customer base and market. The investments in internal strategies require revenues that give back to customers and markets. A firm leverages its strength aimed at differentiation and cost leadership. The external growth strategy is focused on gaining a customer base and market. A firm focuses on generating high revenues and increasing overall sales to customers. Companies seek to produce their net worth and boosting profitability. Firms focus on capacity building and acquisition of other related businesses. Advantages for firms within Italian Fashion Industry Italian firms can gain large market share and competency through acquisition. The acquisition is an external strategy that helps firm to increase market presence. According to Capello & Ravasi (2009) Aeffe acquired Calzaturificio to acquire the market for the shoes and leather goods. Companies gain customer loyalty when they use Porter’s strategy of cost and leadership methods for internal growth. Gucci acquired Bottega Veneta and Sergio Rossi to increase its customer reach but by revising its pricing strategy. The firms are known for high-quality goods in the Italian market and can withstand competition and price wars. Italian firms gain the power to withstand substitution or rivalry from related firms. Capello &Ravasi (2009) fashion companies engaged in core competencies when seeking external growth. The know-how on the business resides in the creativity in designs and clothing has given forms pace and energy to integrate other vital activities. Porters’ force of competitive rivalry and threat of substitution are conquered through competencies. Disadvantages Gaining cost leadership through vertical integration to steer external growth requires firms to forego costs to maintain competitive advantage. According to Capello & Ravasi (2009) fashion companies market or distribute their products through a variety of channels. A company cannot escape costs of conquering different markets. Additionally, cost leadership varies from one company to another. The internal growth of the company is overly dependent on the perception of customers. Italian Fashion Industry features multi-brand firms that require a collaboration of competencies, style and entrepreneurial strategies destined to impress the customers. Companies rely on the efforts of licenses and freelancers to boost marketing to customers. Gucci and Versace are charged with pursuing new customer targets every year. Network view theory holds that a firm exists in a connection of distinct of customers, institutions, competitors, suppliers and other rivals. The strategy that a firm decides to implement will depend on the legitimacy and resources have in the Italian Fashion Industry. Every firm gets to launch itself in the industry differently. In conclusion, internal growth strategy requires firms to use the unique abilities it has over rivals while external growth strategies offer customer base and market. There are merits and demerits that come with both, and every firm should be ready. Question 2 Key features I would incorporate into my business model There are key features that stand out among the leading firms in the Italian Fashion industry. The features would help to steer a new business model and increase the success rate. The success of Italian firms such as Gucci and Versace comes from the key features of the products released in the market that include designer house signature, multi-brand groups internalization, and core competencies. I would maintain a designer house signature in my business model. Capello & Ravasi (2009) argue that the success of companies such as Armani, Versace is maintaining designer houses called Maisons. Maintaining the signature gives a firm the ability to create new labels while incorporating new product segments to penetrate the market. The ability of a firm to gain new market is managing multiple brands under the umbrella of a group of firms. The total revenue generated from Maisons is higher than firms that operate as single brands in the Italian firms. Firms gain competitive rivalry for having a different stylistic identity. Retaining multi-brand groups would also become part of my business model. One of the methods that best for multi-brand groups in Italian Fashion Industry is an acquisition. The intent behind the acquisition is gaining market share and competency in specific segments. Mariella Burani Fashion Group strategized on coming up with synergies that focused on jewelry and leather goods. Multi brands help to reach more customers in the market than single product lines. Gucci Group involved eight different brands that generated at least 65.3 percent total revenues (Capello & Ravasi, 2009). Antichi Pellettieri has repeated multi-brand strategy for years and has realized landmark success. I would use stylistic, entrepreneurial and managerial competencies to create a long-term business model. Fashion companies in Italy long-term success are based on combining key competencies to gain competitive advantage. The firms do not depend on internal strategies to conquer the market but using other related firms to come up with potential ways of generating revenue. According to Capello & Ravasi (2009) a new designer requires creativity to take control of their companies and developing an array of collections. Armani, Dolce & Gabbana have identified complementary firms to create a designer team to maintain stylistic identities in the Italian market. Using internationalization can be used in pursuing success through my business model. The method has worked for Gucci and Dolce & Gabbana and Santa Versace that have complementary features. The international markets would also increase the source of raw materials and offer alternative manufacturing processes. Creation of distinct products is vital for a business model that seeks to increase sourcing and boosting international sales. Analysis and Opinion According to resource-based theory, every firm has capabilities and resources. Choosing the methods that work best for leading firms in Italy does not guarantee success but flexibility to turn each resource and capability into a strategic advantage. My business model would realize success if it exploited strategic value in each firm. In conclusion, a firm looking forward to making it in a fashion industry must create a network with other firms. A model that incorporates internationalization, multi-brand groups, and a house signature has high prospects of conquering the market. Question 3 Mapping main companies using Value Creation Frontier Italian Fashion Industry includes firms that belong to different sections in the Value Creation Model. According to Value Net theory, all players in a given industry are interdependent among them and give rise to a unique value net model. Main companies in the Italian Fashion Industry include Armani, Versace, Gucci and Dolce & Gabbana have used different business models to create value for their customers. The firms have become the most successful in the Italian industry by adopting particular strategies. Mapping the fashion firms would require innovation, excellence, responsiveness to customers, reliability, efficiency, and cost-leadership. Analysis and Opinion Armani used multi-business strategy to increase innovation and reliability. Armani is involved in sub-industries that specialize in underwear, beachwear, and hosiery. According to Capello &Ravasi (2009) the cost leadership capabilities for Armani comes from the extensions and acquisitions. Engaging in fashion and luxury has played a critical role in mapping Armani in the Italian market. Not only has the firm maintained originality but also create market price ranges that generate revenues from different customer segments. Therefore, Armani belongs to cost leader strategic group in the Value Creation Frontier. Gucci position in the Italian Fashion Industry uses core segments to create business and offer price ranges in the same market. The perceived position of the brand in the Italian market has worked for Gucci. Having high end clothing has produced the reliability that every customer looks up for in particular product line. Creativity is vital to the clothing innovation and has been the success factor behind the Gucci as a single brand and under the umbrella of its fashion group. Creativity qualifies Gucci for differentiation strategic group in the Value Frontier Curve. Versace has carved its niche in the fashion industry due to its high responsiveness to customers. The company has operated under a family brand to create a brand that can claim inevitable cost leadership. Brand collection for Versace has enabled it to achieve reliability and efficiency for customers who fancy jeans, sport and collection products. Maintaining a signature has played a crucial role in the collection of Versace products. Additionally, Versace achieves efficiency by seeking designer firms with complementary competencies in the Italian market. Therefore, seeking competency from other firms makes Versace an ideal candidate for Focus Cost Leader strategic group with balanced prices and costs for its products. Dolce & Gabbana success model is made up of linking up with firms with core competencies the same way as Versace and Armani. The value of Dolce & Gabbana lies in the ability to take control of their collection development. The cost leadership in Dolce & Gabbana’s product line comes from protecting their signatures. A signature firm competes with higher prices than companies with griffes. The company owes its glory to a variety of the accessories that do not have seasonality that create reliability on the part of the customers. Dolce & Gabbana features belong to both Differentiation and Focus Cost strategic leadership in the value creation curve. In conclusion, Value Creation Curve or value net map assigns a firm its respective role in the market depending on the strategies it uses to achieve cost leadership and differentiation. The best company puts in place measures that suit the market and the end users. Question 4 Product line extension for Gucci Gucci’s success comes from an array of products that grace Italian and global stores. Though Gucci has carved its niche in the market, it is susceptible to rivalry if it does reinvent itself. A product extension for Gucci would be the ideal move to adjust itself to the changing tastes and preferences of fashion customers. Gucci should use franchising to sell its clothing products and generate more profits than exporting overseas. Porter’s Five Forces require firms to create unique products that have undeniable quality and ability to withstand competition. Companies in the textile industry such as Loro, Marzotto and Zegna have transformed the textile industry due creating large and direct contact with customers. The franchises of Benetton and Stefanel have gained huge revenues to investment in franchise management (Capello & Ravasi, 2009). Gucci has a stable market in United States, Europe, and Japan and developing franchised products would create a greater customer base and reach in terms of revenues and management. Maintaining a vertical integration will be a relevant trend in the twenty-first century. The vertical integration works for companies that have embraced multi-brand strategies. Vertical integration will enable Gucci acquire companies that will help it gain more command in the fashion industry. The core activities and business operation is to take control of the distribution and costs. Gucci vertical integration will create room for the management of the financial resources. Gucci should consider using brand extensions to cement its multi-dimension structure in the international market. A company that has cut links with fashion houses and industrial groups will become relevant in the fashion market if it adopts business lines of complementary companies. Gucci should pursue luxury and premium brands by way of price segmentation. Placing product line extensions in the proper price segment will work best for Gucci. Gucci should weigh the brand value of other companies. Additionally, the wide range of products in the current Gucci product lines should be placed in the relevant price segments. Gucci can use luxury brands to conquer the best price segment products the same way Bulgari and Hermes. Many Italian companies in the fashion industry do not pursue multi-brand strategies but have not explored luxury brands (Capello & Ravasi, 2009). However, finding the right price segment for the product will be a taxing job for Gucci. Opinion A product extension that features vertical integration, franchising and premium brands has a future in the fashion industry. However, Gucci should conduct a PESTLE analysis to scan its environment properly. In conclusion, franchising, vertical integration and creation of premium brands are the possible extensions that Gucci should try and transform the fashion industry. Creating a pace, gaining new customers and generating profit is what will the firm afloat. References Capello, P., & Ravasi, D. (2009). The Variety and Evolutions of Business Models and Organizational Forms in the Italian Fashion Industry. Business Economic History ON-Line, 7. Read More