How Benneton Can Be Defined as Business - Essay Example

s Identification Benneton How would you define this company business Benetton can be defined as a business "centered around concepts of entrepreneurship (free enterprise), innovation, partnership and trust." Benetton's history dates back to 1965, to a town called Ponzano Veneto in Italy where four siblings, Lucianno Benetton, Giulianna Benetton, Gilberto Benetton and Carlo Benetton, started a small retail business "making and selling sweaters" in a wide range of vibrant and bright colors. The Benetton's were personally involved in the "cutting and dyeing" of sweaters produced by them. Sweaters " from a natural state were taken and dyed in bright colors" whereas their competitors first "dyed the yarn" and then made the sweaters. The Benetton's were at an advantage from using this technique since they could "produce on short notice sweaters in colors demanded by customers." Benetton started out on a shoestring budget. Although the first retail shop was a success, the lack of funds prevented the family from expanding. The problem was solved by appointing agents in territories to promote the Benetton products by approaching shop owners or individuals interested in opening up retail stores to buy and sell the company products. For their service, agents were paid "4 % of the value of goods shipped from the Benetton's warehouse complex in Italy." Initially, Benetton's chains of retailing clothing stores were restricted to only certain areas in Italy catering to the younger generation. As the family business grew, so did the expansion of its operations into new markets, which enabled the company to reach a wider clientele. Benetton was no longer only confined to merely "making and selling sweaters." The company began in the "manufacturing and distribution of clothing constructed from wool, cotton and other fabrics; undergarments; shoes; cosmetics; accessories; eye wear; auto accessories; and sports equipment." The success of Benetton can be attributed to the family's strategic business plan, which they initiated from the very beginning and continued to follow for the next 3 decades. One of the strategy's used was to attract investors to partner with Benetton's "on a 50/50 ownership basis and maximum latitude given to (and minimum structured imposed) on partners. Interested parties had to have an investment of $70,000 "(to buy fixtures for a 600- to 1000- square foot shop) and the right attitude to become a Benetton shop owner." Through the years the business evolved into an entrepreneurial culture. When the Benetton family signed up new stores, they didn't have the time or patience for formal agreements, instead they started with handshake agreements. The Benetton's didn't have time to oversee every detail of the retail stores, and gave the stores the freedom to make its own choices. Even in business partnerships, the agreements were often handshake deals and structures to give the partner as much flexibility as possible.Employees continued to work with minimal supervision and were given the freedom to "do the right thing". Unlike a traditional franchise where the franchiser dictates every detail about the business, Benetton stores were refereed to a licensee, and were given many freedoms that normal franchisee are not given 2) Is Benetton a global operation Benetton became one of the dominant forces in the international apparel retailing industry through its global operations. The company's success in the international market can be attributed to the "stage-five process." The stage-five process was created with the sole purpose of testing " the market potential and the ability of partners, agents and licensees to adopt the company's model before investing large sums of management time or capital." The Benetton family relied heavily on the stage five-process, to determine how effective and successful their business would be in a new market prior to entering it. The stage-five process can be defined as: 1) Appointing a Benetton agent in a "foreign country" to promote the Benetton trademark through a licensee in the same country. 2) Developing local production capability selling to licensees served to agent/co-shop owners. 3) Establishing a 50/50 partnership with a local organization for a further development in the market with or without local production. 4) After the proven success of the partnership, exercising an option to buy out the partner and consolidating the operation under Benneton management. (5) Integrating a foreign subsidiary in the global network by establishing local production capability to serve both the local and other markets: exporting and importing finished goods and raw material to and from the country. Benetton employed 83 agents worldwide to manage the affairs of its licensees and "each of who was given exclusive territorial rights to develop Benetton retail shops." Benetton's global operations expanded across the borders of Italy to Egypt, India, Turkey, Argentina, Mexico, France, Spain, Japan and the U.S.A. Benetton's did not achieve equal success in all ten countries because the " company's licensee's and partners varied from market to market and from currency to currency." E.g. Benetton expanded its operations into US territory with the help of their European agents. Thirteen agents assumed exclusive rights to nearly all of the country, which enabled Benetton to open the Benetton Services Corporation in New York City. The Benetton Services Corporation was responsible in providing public relations presence in the US; work with agents in the selection and display of new collections to licensees and help agents collect orders from licensees. The Benetton Services Corporation was a success and led to the opening of a factory "manufacturing cotton goods" in Rocky Mount, California. "Many agents and shop owners achieved substantial wealth from their ventures." But success did not last long and came at a cost. In 1987, due the devaluation of the lira "(from 2,170 lira to the dollar in August 1985 to 1160 in December 1987)" licensees and owners of Benetton shops were faced with a problem. Importing Benetton products into the US market was too expensive and there was no "price relief" granted to licensees when purchasing Benetton products even though the value of the lira had fallen. "Sales were declining." The Rocky Mountain factory closed. " Several owners/licensees had no other option but to close their shops." From the 800 retail shops in 1988, only 150 shops of the Benetton Group in the US market remained in 1994. 3) How does it make money Benetton made money with the help of agents; licensees; contractors and through publicity in order to increase production and sales because of the limited management time and limited capital the Benetton family had. E.g. (I) Appointing agents; licensees and contractors. - Agents were responsible for promoting Benetton products in their respective areas. Shop owners or anyone interested "in buying fixtures to open up a small store" to display and sell Benetton products were approached by a Benetton agent. Agents were also responsible for making sure that licensees made payment for goods they ordered from Benetton; show the licensees "each season's line of merchandise"; collect orders placed by licensees for products " according to the schedule required by Benetton." The agents were paid a "4 % of the value of goods shipped from the Benetton's warehouse complex in Italy for their service." The agents with the approval of the Benetton family appointed licensees. Shop owners were referred to as a licensee and not a franchisee giving them the freedom to use the Benetton logo without having to pay a "fee" and relieving them from any "formal written agreement". Agreements were sealed by a mere handshake with an agent or one of the members of the Benetton family. Prior to being appointed a licensee, Benetton expected a $70,000 investment that was to be utilized to buy " buy fixtures for a 600 - to 1000 - square foot shop." Merchandise was given on credit to a licensee. Payments for the order of the merchandise were to be made " an average of 120 days after the beginning of a new merchandise season." Licensees " could only sell Benetton products" in their shops and they " could not return any merchandise once it was delivered to them." A licensee had to place an order " about six months in advance of a new season." The order had to cover "70% to 80%" of merchandise that the licensee was going to purchase from Benetton. Under Benetton, a licensee must have "80% to 90% of ordered items in the stores at the beginning of the season." They must sell "85%" of the merchandise ordered and the balance 15% can be sold at the "end of season clearances at times suggested by the management."85% of Benetton's production was done in "Veneto' by "500 contractor organizations. During the season, contractor's were assigned batches of work every 15 days upon the completion of the previous batch." If they did not complete the given work, no future work would be given to them. The contractor's also have to agree to " to purchase the latest processing equipment; operate their factories on a 24 hour basis if required to complete orders; make available to Benetton any process improvements; check for quality and if merchandise produced is of poor quality, the cost of the merchandise will be charged onto the subcontractor's account." (II) Publicity - Other than through their chain of retail stores, Benetton reached new markets through advertising. Advertising was aimed at "conveying a one world theme befitting a global company and featuring photos that stimulated thinking about a number of social of issues imprinted only by the company's logo, Benetton." The publication of Benetton's "colors magazine" also made it possible for the company to get public status. The magazine featured Benetton "products and interesting and controversial articles." Benetton also received publicity and money through their "Formula One racing team; the sponsorship of professional basketball and volleyball teams and the new center Fabrica designed to introduce creative talents of participants around the world." 4) Which of the two strategies would you recommend The appointing of agents; licensees and contractors because no formal written agreements were required; each agent/licensee/contractor was given a specific duty and responsibility at Benetton and was responsible for the efficient functioning of the company activities in their given department. If mistakes were made they were held accountable for. Under this strategy, Benetton had the power to dictate terms such as the type of product that should be produced and in what quantity. Orders were the responsibility of the agents as well as making sure that licensees made payment on the merchandise they ordered. Sales were the responsibility of the licensees. Benetton did not have to encounter any problems such as an overstock of merchandise in their warehouses because licensees had a specific amount of merchandise they had to order for each season and once the merchandise was delivered to the licensee, they could not return it back to Benetton. The Benetton's exemplary style in running their company with little time and effort through the strategies they have used should be an encouragement to all businesses, big or small. Works Cited Page "The Benetton Group." Harvard Business School. Case number 9 - 396 - 177. 30 November 1995. 13 May 2006. Read More