LVMH'S Contributions to Culture - Article Example

Running Head: LVMHs contributions to culture Discuss the ways in which LVMHs contributions to culture and the arts help to build its reputation. Whatare the Groups other distinctive capabilities and how [Name of writer appears here] [Name of institution appears here] Discuss the ways in which LVMHs contributions to culture and the arts help to build its reputation. What are the Groups other distinctive capabilities and how LVMH is an international group of companies that produces and sells luxury goods. It is associated with a number of product lines such as wines, cosmetics, fragrances, fashion, watches, jewellery and retail and with the most prestigious brands in those sectors. Since it conception in 1987, when Louis Vuitton merged with Moet & Chandon champagne and Hennessy cognac, LVMH was conceived to be a star group. Its business strategy was based on acquiring brands based on the premise that the reputation of such brands "would lead to a long-term corporate advantage" (Thompson, Strickland & Gamble 2005, p. C509). The rapid portfolio diversification took off when Bernard Arnault became president of LVMH in 1989. He expanded the company and acquired a number of specialty retail department stores in Paris. The luxury industry operates in a high competitive environment. The need to maintain desirability and uniqueness of each product/brand puts pressure on cost savings and product life cycles, creating a volatile environment where only companies with strong brands, financial resources and the ability to integrate their activities can survive. Advertising, communication and R&D expenses are very high. This is evidenced by LVMHs expenditure on this to be approximately 11% of sales in 2002 (Antoni 2003). Training manufacturing employees is another costly element in an industry where the quality is measured by the final consumer in terms of perfection. This last element calls for constant improvement in; however at the same time requires the maintenance of the old manufacturing processes. Key managers that can run each business independently but with a group vision are also part of the equation. Additionally the luxury industry is strongly dependent on tourism which is influenced by economy trends. The 9-11 events and the global economy slowdown have had a great impact on the industry. (Bartlett 2003, 1-7) Finally huge investments were done to win strategic position, having an important impact on revenues. The risk coming from new entrants is low, except perhaps, for the development of niche brands that can slowly earn a position. The strong financial resources and the "story" of the brand that is needed to succeed are two elements that create a barrier. Bernard Arnault explained that a brand needs a heritage; you can not cross cut and succeed (Thompson, Strickland & Gamble 2005 and Antoni 2003). Furthermore financial resources are very expensive since lenders perceive that the expected margins are difficult to get; thus it is hard for smaller companies to access financial markets (Colonna 2003). The "entrepreneur / designer" will need to look for a "godfather"the support from one of the big groups. As Muriel Zingraff, Harrods director, observed, "We may have more patience with smaller brands if they are owned by a parent company, such as LVMH or the Gucci Group."(Sherwood 2001, p. 6) Additionally the luxury industry is characterized for the need of becoming global from the very beginning. Brands can not survive relying on domestic markets. A worldwide distribution network is fundamental. The industry has its centre in 3 cities: Paris, Milan and New York, where any luxury business needs to be, making it difficult for start ups to develop their businesses in other parts of the world. The power of suppliers could be considered medium. The industry is 100% dependable on a supplier that can assure a supreme quality. However the supplier has limited choices since the market is controlled by few operators. Considering the buyer as the final consumer; where the decision to buy is nurtured by the fantasy and desire of style; buyers would only buy if all their expectations are fulfilled. In this context it is considered to be a medium competitive pressure since buyers can easily switch brands. However brand awareness and uniqueness can prevent the easy switching. In the case of retailers as buyers; the competitive strength is considered medium. Shelf space is a key element for luxury companies. Indeed in the 20th century the expansion of the retail industry to specialty stores, chain stores and retail centres has changed the business. Discounts, cooperative advertising, volumes and exclusivity are some of the elements that put pressure on the industry (Frings 2005; Bartlett 2003, 1-7). Considering the industry as a whole; the analysis should take in account the customers cost for each product. With a big range of prices (a perfume costing $100 to a jewel costing up to $ 100.000 or more), the substitutes would also be different for each category of goods e.g.: trips; furniture, cars, real estate. In addition there is the surge of best cost providers i.e. brands with a very high quality but with inferior costs, such as Zara, affecting the business when the global economy puts pressures on society. The above analysis describes an industry with a medium to high competitive pressure. The industry is attractive in terms of profits for players that are already in the field. Well managed companies with sound strategies can earn profits. The strength of a big company plus the flexibility and focus of a small business would be the rule. The ability to vertically/horizontally integrate and find synergies between the different sectors and the ability to maintain the energy and identity of each brand are two fundamental attributes of the future of the fantasy industry. In balancing the strengths and weaknesses against the opportunities and strengths it can be said that LVMH is in an overall strong position. However this is not to dismiss that it attractive strengths have yet to be developed into competencies. Major competitors also have these strengths that with time and the right management team are easy to copy. The companys must learn how to successfully run selective retailing and learn from the events of Sept 11 It must addressed the impacts such as a down turn in the economy leading to a reduction of revenues and shareholder value. Several opportunities present further growth and development for LVMH as long as it is able to respond to changes in consumer preferences influenced by societal changes, e.g fads and climax. Overall, LVMH has a strong brand name that represents a powerful strategic asset with competitive advantage. LVMH was in 2001 clearly executing a strategy that called for a diversified portfolio of luxury brands and the expansion into multiple regions. In this context the company described a semi-related diversification strategy, building the business around businesses whose value chains posses some competitively value strategic fits (Thompson, Strickland & Gamble 2005). LVMH mostly grew through mergers & acquisitions. It has been an option considered to be part of LVMHs growth strategy however it also a strategy that is used commonly when a company fails to get access to important resources and capabilities. Usually the companies hope to benefit from the mergers & acquisitions through the synergy which enhances cost efficiencies. However not all mergers are successful as literature indicates that failure rates are as high as fifty to seventy percent Stahl (2004, p.3). Failure is not solely about financial failure but is also about successfully bringing together two companies philosophies, styles, values and missions (Nguyen & Kleiner (2003, p.450). Stahl 2004, explained that more importance is often placed on financial and strategic aspects rather than in the human resources side. Swystun, 2001 noted that failure to focus on behaviour can sink a merger or acquisition. One fundamental problem with mergers is that management may neglect the core business while coping with the mergers. References Antoni, F 2003, LVHM in 2004: The Challenges of Strategic integration, Board of Trustees of the Leland Standford Junior University, 2003, pp 1-33. Bartlett, C.A., Goshal S. & Birkinshaw J., (2003), Transnational Management: Text, Cases, and Readings in Cross-broad Management, 4the Edtion, Singapor: McGraw Hill Colonna, A 2003 Dont give up on LVHM yet!, in Merrill Lynch, October 9, 2003. Frings, G 2005, Fashion, from Concept to Consumer, 8th edn, Pearson Education Inc, New Jersey, USA. Nguyen, H & Kleiner, B 2003, The Effective Management of Mergers, Leadership and Organisation Development Journal,. Vol.24, No.8, pp 447, 448, 450, 452. Stahl, G 2004, Getting it Together: The Leadership Challenge of Mergers and Acquisitions, HR Magazine, Vol.24, No.5, pp. 3 - 5. Swystun, Jeff (2003), "Building Brands in Mergers & Acquisitions", viewed 18th February 2007 <http://www.brandchannel.com/brand_speak.asp?bs_id=21> Thompson Jr., A; Strickland III, A & Gamble, J 2005, A Crafting and Executing Strategy, 14th edn, Mc Graw-Hill Irwin, New York, USA. Thompson One Banker Financial Reports LVMH, accessed online 17th February 2007 <http://banker.thomsonib.com/ta/> Read More