Hilfiger to sell on an international basis rather than focusing purely on the domestic market?
Today’s international market is characterized by the customer loyalty and the competitiveness. Consumers need to buy such products or brands that deliver so uniqueness and difference based on quality, price and especially targeting the niche. Consumers of niche market are not concerned with the price, but they are much more concern with the quality of the product that they are buying.
Tommy Hilfiger, an American symbol of prestige founded in 1985. It is an American-based corporation that expanded its business into many places of the world. There are several factors that prompt Hilfiger to sell on an international basis that are the benefits of emerging opportunities that are available in the global market. Opportunities are based on the rising demand from the international consumers. Moreover, the competition among various brands made Hilfiger rush towards the international market (Doole & Lowe, 2008).
Hilfiger focused on the idea of one product for all. They dropped their name by Tommy Jeans in Germany because this brand name was focusing on only teenage segment, whereas Hilfiger’s aim was to target every single consumer all around the world. For any corporation it is difficult to expand its business without analyzing the global environment based on SLEPT (Social, Legal, Economic, Political and Technological). The culture all around the world is based on the social environment of any region.
Hilfiger came up with the idea of analyzing the environmental constituencies and then they review their idea of business expansion. It is not easy for any corporation or brand to successfully expand its business without facing any problems. Hilfiger faced problems posed on the external environment of the international market. However, the research before expanding business helps a lot in taking the right decision on the right time. In U.S. market, Hilfiger was very successful like other brands, but with the European market, this brand faced many of the problems. The SLEPT ANALYSIS is given below (See Figure 1)
SLEPT ANALYSIS
Social-Cultural Factors
The social and the cultural environment emphasize the social factor that includes the basic norms, values and practices of the local masses. The social environment and the culture of any place vary from region to region. Even in the European market, the culture of every area is different. The social environment and norms even in the same country may vary. It is the social factor that accepts or rejects the practices of any corporation (Henry, 2008).
Hilfiger focused on building the effective relationship with their supplier, business partner and contractors all over the world. In order to understand the local culture and their business practices, Hilfiger established an integrated network of suppliers. The social factors may involve the climatic preferences in various regions. Like the demand of Cotton sweaters are more in the U.S. market as compared to the European market, where the demand of wool sweaters are more. Whereas for Italian market the specification is more based on the small logos on shirts and promoting a more luxurious line of clothing.
The cultural differences are the major issues that are faced by corporations on a wider scale. The cultural norms and values vary from culture to culture. Especially for the clothing brand, it is important to understand the core culture of the place where they are expanding. Many of the researchers came up with various dimensions to cultures in which Hofstede’s dimensions are more applicable to the business practices (See Figure 2). There are five cultural dimensions that move in the range of high to low, depending upon the cultural practices of the country (Tian, 2004).
Legal Factors
Legal factors are based on the trade policies and sanctions that any country imposes on exporting and importing of goods and services. Legal factors may include the law imposed on the advertising and promotional campaigns that are followed by Hilfiger. It also includes the trading policies, the cost and various other factors that involve in the Internationalization of any product. There is much importance given to the legal issues by the English government. The trading policies in the European region are stricter than any other regions (Birkholz, 2007).
Economic Factors
Economic factors are based on the stability and the growth of the economy and the performance of the corporation in the outer market keeping in mind their economic condition (Birkholz, 2007). Hilfiger conducts its international operations based on providing benefits of employment to those who are un-waged in host market. They oppose child labor activities especially when they are not educated and their age is not accepted under the child labor act. They encourage the whole community performance rather than benefiting only one segment.
Considering the example of Germany, that is one of the largest and most expensive markets of Europe, where people never mind to pay $50 more than the price offered in the U.S., but they just can’t compromise on the quality of the material that they are buying.
Political Factors
Political factors may include the risk involve in the business expansion based on the local governing bodies. The legal and political factors in the European market are based on the European parliament. The parliament plays an important role in identifying what should be accepted for sale and what not. Whereas the local law and order situation also directs the decision of expansion decision to the particular region (Birkholz, 2007).
Technological Factors
Technological factors for Hilfiger may include its online business activities where they promote their brand on the websites to attract their consumer segment all over the world. Sill many regions are left to be explored for the purpose of expansion, but the potential demand could easily be projected by the interest of diversified customers all over the world. Moreover, using modern equipment for the textile of the company is another major concern.
The focus of Hilfiger on purely domestic market might limit their business activities. The business expansion brings lots of opportunities as well as threats too. It is not appropriate to say the ‘one strategy fits for all’. Likewise, for Hilfiger, their expansion towards the German market created a question for them regarding their Tommy Jeans brand. Moreover, the strategy of Hilfiger that they adopted in U.S. market failed in the upscale fashion market that is France and Italy that is the sign of fashion industry. The focus of Hilfiger purely on the domestic market could have limited their scope of the business, whereas the demand of Tommy Hilfiger is rising much more in the Asian – Pacific region. The growth of Hilfiger increased due to its expansion and it is expected that it will increase more in the near future (See Figure 2).
What factors have led to higher prices in Europe than in the United States for Hilfiger merchandise? What problems might Hilfiger encounter by having higher prices in Europe rather than in the United States?
Higher Prices in Europe than in the United States and Problems that Hilfiger Might Encounter based on the price issue
The factors that led to higher prices in Europe than in the United States are cost of supplies and the merchandises are more due to the concerns of distribution and logistics. The market in Europe is more upscale market that focuses on the quality of the product. Hilfiger revised their plan of expansion in European market based on the quality and prices. The quality used in the European market was different from the U.S. market and therefore, the cost of the production was increased. This increased costs of production augmented the overall operational cost in the European market.
The problems that Hilfiger might encounter are the higher prices offered in the European market are particularly the market of Italy, France and Germany. The Italian and French market is known for its fashion. They are more up-dated and buy such brands that have some uniqueness in it, whereas the German market is a more sophisticated market as compared to U.S. market. The products that are offered in U.S., like cotton sweaters, are not used in the European market. The consumers of Europe buy sweaters of wool. Moreover, the European market consumers tend to buy slimmer-looking jeans for which Hilfiger revised their branding concept in this region.
The trading and tariff policies in the European market are much tougher than any other market. For any Multinational Corporation (MNC), is it not easier to enter into the European market and start conducting business activities. However, the legal policies are always a barrier for MNC’s to conduct their business in this region. For the European market, it is essential for MNC’s to provide some value-added services and the business model of that particular MNC should be stronger in order to convince the local businesses.
The major difference in the U.S. And the European market is preliminary on the quality and then on the price. The consumers of U.S. emphasize much on the prices and then the quality. They prefer to buy such product that is of reasonable cost, whereas the quality is not the main issue. On the other hand, the European consumers prefer to spend more on purchasing of any product or service, but the quality is the main concern on which they never compromise (Goldberg & Verboven, 2005). European consumers are very inflexible in nature. They show no flexibility towards the quality of the product therefore, they tend to be more brand loyal. The reason for this is the quality, availability, durability, attractiveness, differentiation and price (Schmitz, 2004).
Another major factor is the use of sportswear especially in the segment of Europe than in the U.S. The consumers of U.S. do have interest in sports activities, but they spend their weekends usually by hanging out or by enjoying parties, whereas the consumers of Europe are much more interested in sports and do have their league teams in football, cricket and various other games too. They have a good choice of clothing brands that is difficult for Hilfiger to compete. Moreover, the competition within the European market is at an extreme therefore, it is difficult for any MNCs to enter into this region and start promoting their brand unless they have something unique in it (Top 10 Differences Between Europe and America, 2007).
Methods to Encounter these Problems
There are many problems that are discussed earlier. However, it is important to find out the solutions of those problems and to deal with them by adopting proper strategies. For the consumers of Europe, the strategy that fits best among the porters generic strategy are the focus and differentiation (See Figure 4).
Porters Generic Strategies
Focus Strategy — This strategy concentrates on the specification of any product or service within any particular region and organization based on the product line and the demand of buyers (Hilfiger, 2010). Focus strategy is the suitable strategy that could be adopted by Hilfiger in order makes its position in the European market by utilizing the resources from that region.
Differentiation — Differentiation based on the quality of the product and the uniqueness that any seller delivers in its product do attract the consumers (Griffin, 2010). Hilfiger could adopt the strategy of differentiation especially in the European market so that their business could compete effectively in this market.
Low cost differentiation — This is not the major issue for the European region, whereas for the U.S. region cost is the major issue.
Miles and Snow’s Typology
Hilfiger could use the typology in Miles and Snow’s that could help them in dealing with the complications of the European market (Griffin, 2010). This typology includes four types of businesses that are prospectors, analyzers, defenders and reactors (See Figure 5).
Prospectors — They are tending to be innovative, flexible and look for new opportunities.
Defenders — They stand in their own place and focus on maintaining the growth.
Analyzers — They study the current trends of the market and focuses on customer satisfaction.
Reactors — They only react when they see any environmental threat.
For Hilfiger, the suitable typology that they can adopt in the European market is of Prospectors. They need to first analyze the European market that would help them in studying the current market trends and the consumer buying habits based on their preferences. If Hilfiger is able to identify the requirement of consumers of the European market, then they would be able to perform successfully. This makes their position much stronger in the European market and improves their competitive advantage.
References
Birkholz, A 2007, ‘Business Analysis of Web’, De AG. GRIN Verlag.
Doole, I. & Lowe, R 2008, ‘International Marketing Strategy’, Analysis, Development and Implementation, Ed.5th, Cengage Learning EMEA.
Goldberg, P.K. & Verboven, F 2005, ‘Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market’, “Journal of International Economics,” pp. 65, 49-73.
Griffin, R. W 2010, ‘Management’, Ed.10th, Cengage Learning.
Henry, A 2008, ‘Understanding Strategic Management’, Oxford University Press.
Schmitz, H 2004, ‘Local Enterprises in the Global Economy: Issues of Governance and Upgrading’, Edward Elgar Publishing.
Tian, Q 2004, ‘A Transcultural Study of Ethical Perceptions and Judgements Between Chinese and German Businessmen’, Martin Meidenbauer Verlag.
Top 10 Differences between Europe and America 2007, ‘Leisure & Travel’ Available From: http://listverse.com/2007/11/25/top-10-differences-between-europe-and-america / [Access on 24th March, 2012]
Appendix
Figure 1: SLEPT Analysis
Source: Henry, 2008
Figure 2: Hofstede’s Dimension
Source: Tian, 2004
Figure 3: Growth Rate
20
13-2010
2010
Source: PVH Corporation, 2012, Available from: http://www.pvh.com/company_global_growth.aspx
Figure 4: Porter’s Generic Strategy
Source: Griffin, 2010
Figure 5: Miles and Snow’s Typology
Source: Griffin, 2010
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