Board of Directors – Benetton, Case Study Example

Recent developments of the apparel industry, the increased competition, and the appearance of low-cost manufacturers and retailers is calling for a new strategy at Benetton. The main focus of the management should be to maintain existing customer base, reduce operational costs, and gain traction in new, emerging markets, such as India and China. The author of the below memo recommends creating a strategy that focuses on exploiting new markets, investing in low cost technologies, maintaining positive relationship with suppliers, and creating a competitive advantage through improving the brand’s image internationally.

International Competition

Today, many clothing brands choose to outsource their production, establish regional hubs, and enter new markets. This way, they can maintain their profitability, reduce logistic costs associated with shipments, and have more control over overseas operation. However, Benetton seems not to follow the example of these companies, and is missing out on large, emerging markets, with a growing potential customer base, such as India and China. The cost of production in these countries is lower, while market is already present. Therefore, in order for Benetton to maintain its competitive advantage, it is necessary to increase market share in these countries. The company’s main competitors are defined by Benetton Memo are Nike, The Limited, and The Gap. All the above companies have a high profit margin, with Nike and The Gap having a higher Profit/Sales ratio than Benetton. This indicates that the company should work on reducing operational expenses, in order to remain competitive on the international marketplace.

The Importance of Emerging Markets

Based on the “strategic model” presented by some executives, emerging markets, such as China and India provide opportunities for both expansion and lower cost production (Benetton Case, 1). At the moment, business organization within Asia is only at Stage 3: “establishing a 50/50 partnership with a local organization… with or without local production” (Benetton Case, 1). This means that the headquarters have a limited control over sales of subsidiaries, and the overseas operation is not fully integrated in the global strategy of the company. As the analysis (Benetton Case, 2) states, the two countries (India and China) have a great potential for expansion and implementing Stage 5 operations. It is likely that as the spending power of customers in developed countries is increasing, markets for apparel grow. Without a strong presence in the region, Benetton would not be able to manage forces of markets, such as the bargaining power of customers and suppliers.

Expansion Strategy Suggested

It is recommended that Benetton completes the integration of Asian markets in its global strategy, by creating regional hubs of production, sales, and marketing. Learning from the example of moving into the Japanese market, it is important to consider creating a support center for agents, and implementing methods that successfully deliver the company’s culture to subsidiaries and agents, as well as collaboration that focuses on low cost production. In India, there is a room for growth, with Indian sales accounting for only half a percent of the total sold units within Benetton (Benetton Case, 12). At the same time, Benetton needs to speed up its search for partners in China, in order to create an expansion strategy in the region for both opening new retail units based on franchise agreements and taking advantage of lower manufacturing and cotton prices offered in the region.

In order to create a strong presence and an effective strategy in the region, the company should create regional centers of production and distribution in Asia.

Gaining Competitive Advantage

In order to gain competitive advantage, companies generally need to reduce operational expenses, offer higher value for customers, or increase its resources. The expansion to Asia would provide Benetton with the advantage of increasing its physical resources, facilities, and ability to generate profits, while making sure that the company creates value for suppliers and partners alike through providing increased support and training.

Recommendations for Strategy

• Expand to emerging markets, such as India and China in order to exploit growing customer base and build assets based on market share, presence, and brand reputation.
• Increase the profitability of the brand by maintaining close collaboration with suppliers and business partners, supporting business owners, providing overseas franchises with financial support in the form of a long term loan to maintain sales and marketing. This would create long term assets for the company in terms of loyalty of partners and brand image. Given the total assets of the company (3,394,019 Lira) and the total equity of 1,127,287 Lira in 1993, investing into increasing both market share and manufacturing capacity in China is supposed to have a high return on investment ratio.
• Re-assessing supply chains to make them more effective. Creating regional sales and manufacturing hubs would reduce the impact of currency fluctuation, and delivery costs associated with getting merchandise to stores. Investing into innovative logistics systems to support suppliers and store owners, making ordering and inventory management simpler. This way, the company’s overall effectiveness would be increased.

“The Benetton Group” Harvard Business School.1995. Print.