Presentazione Tesi - 23_10_2009

8/8/2019 Presentazione Tesi - 23_10_2009

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The Italian luxury companies and theBRIC opportunity: the entry strategy

of Giorgio Armani in Brazil.

Tesi di laurea specialistica di:Carlo A lberto Valentini

Universit Commerciale Luigi Bocconi Facolt di EconomiaEconomics and Management for Technology and Innovation

23 ottobre 2009


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Structure

Research questions

Literature review

The Brazilian luxury market The Brazilian luxury consumer

The Giorgio Armani case

Limitations


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Research questions

The subject of this dissertation falls into the International Strategy (IS) field ofresearch.

The work is expected to contribute to three main IS subjects, attempting to: analyse Brazilian market as an interesting opportunity for Italian luxury

brands; define which may be the optimal entry strategy; focusing especially in terms of the trade-off between global integration and

local adaptation.

The case of Giorgio Armani, one of the first international brands accessing theBrazilian market and currently among the most successful ones, has been used asa reference during the analysis.

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Brazil and the internationalisation

Despite the growing importance of emerging economies in the internationalisationstrategies, the literature has not been much developed yet, as Jansson (2007)clearly states.

Among emerging economies, China and India result the primary objects ofinvestigation.

The majority of the studies about the rationales for the internationalisation focus onknowledge and/or technology intensive sectors.

Regarding emerging economies, the issue of the internationalisation of theproduction process has been developed more than the internationalization in searchof new markets.

Once market internationalisation in emerging economies is under IS scholarsattention, business to business market results the major focus.

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The global localization issue

The trade-off between the strategies of cross-national integration and local adaptationis an emerging issue in IS and it has been extensively developed by Tallman and Yip(2009) and Grant (2009).

It is interesting how both the works conclude with the same recommendation to try

reaching a balanced compromise in order to meet both the challenges.

Citing Morita (1996), Grant called this compromise global localization.

Yet, Tallman and Yip assert that MNEs marketing programs are not adapted to fitemerging consumers characteristics.

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The Brazilian luxury market 1/3 Brazilian luxury market accounts for 75% of the whole Latin America region and

around 3.5% of the global sales (in 2006, it was just 1%).

From 2004 to 2007 the business grew 17% per year.

The credit crunch affected the performance of the segment: 2008 growth reached12.5% (US$ 5.99 billion).

In 2009 the business is expected to continue growing, thought at a slower pace,around 8%.

2 7%

17%

10%

10%

10%

10%

9%

9%

8%

8%

8%

7%

Fashion

Footwear

Cars

Jewellery

Perfumery

Watches

Hote lsF o o d

Alcoholic Beverages

Cosmetics

Dressmaking

FurnitureIn 2008, the number of international brandsincreased of six units (2 Europeans and 4 North-Americans).

Sectors in w hich companies in the Braz i l ian luxury

marke t opera te (2008)

Others

North-America

Europe

Brazil

53%34%

7%6%

(63% operating inthe service sector)

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Nat ional i t y of the f i rms in the Braz i l ian luxury market

(2008 t ota l number of f i rms: 295)

Sensible data, for more details please contact the author


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100

345

119143

123

415

136131

84

364

97120

0

50

100

150200

250

300

350

400

450

Brazil India China RussiaNumberof

HNWIs(000)

2006 2007 2008

+19.1%

+23%

+20.2%

+14.2%

-8.4%

-31.7%

-12.2%

-28,6%

The Brazilian luxury market 2/3

Expansion of HNWIs populat ion in the BRIC countr ies

(2006-2008) , w i th % grow th/decrease rate for the per iods

2006-2007 and 2007-2008.

(Est. pop. 2008) 198,739,269

131,000 HNWIs.

Approximately 30 millions of people earning more than US$2,400 permonth (Class A and upper tier of class B).

In 2008, nearly 20 million people became part of the C class in Brazil(people earning around US$ 600 per month), which now represents 46%of the population.

The luxury market in Brazil isconcentrated in So Paulo and Rio deJaneiro.

75% of all luxury purchases take placein the city of So Paulo.

95% of the luxury shopping in SoPaulo occurs in four places: ShoppingIguatemi, rua Oscar Freire, Villa Dasluand Shopping Cidade Jardim.

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The Brazilian luxury market 3/3

The custo Brasil: entering in Brazil meansto deal with organizational andbureaucracy issues. Taxation regime. Infrastructure and services.

Others

Import difficulties

Brand

communication

Human resources

Taxation61%

11%

9%

5%14%

Brazilian consumer behaviour: Brazilian consumption behaviour is characterized bysome peculiar traits. Spread payment. Atendimento: the Portuguese name for attendance, and more in general for the

customer service. Brand strength. Customers database. Luxury culture.

M a in o b st a c l e s f or t h e d e ve lo p m en t o f B r az il ia n

l u x u ry m a r k et

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26-35 years

36-45 years

56 years or

more

46-55 years

Up to 25 years

23%

31%

25%

13% 9%

The Brazilian customer of luxury

The typical Brazilian customer of luxuryis a woman (57%) between 26 and 45years.

93% of them are at least graduated.

Brazi l ian customers of luxury d is t r ibut ion per age

There is no correlation among age, gender and amount of money spent for luxurypurchases.

The research by IPSOS-Luxury Marketing Council shed lights on Brazilianspreferences in terms of luxury purchases:1. Autos2. Clothes3. Jewellery4. High-level services: hotels, travels, restaurants

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Brazil as an opportunity

Brazil represents a good opportunity for luxury brands, and it is likely to acquire evenmore importance in the future.

Although the credit crunch hindered its economic development in 2009, Brazilemerged as one of the most rapid countries in reacting to the crisis.

Brazilian luxury market results healthy.

Anyways, business growth is still affected by strong deficiencies in terms ofinfrastructure, public services, bureaucracy, taxation regime.

Also, Brazilian customers show peculiarities that deserve strong attention.

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Giorgio Armanis entry strategy 1/3

Giorgio Armani was one of the first international luxury brands to enter in the Brazilianmarket after the opening of import trade in 1992.

The entry strategy for the Brazilian market involved a franchise agreement with a localpartner that was already well-known by the management.

According to Grant (2009), the evaluation of the optimal form of market entry should

consider five key issues:1. The source of competitive advantage.2. Product tradability and barriers to trade.3. Firms resources and capabilities portfolio for establishing a competitive advantage

in the foreign country4. Return appropriability and rights enforcement.5. Transaction costs.

In the Brazilian market, the most relevant issues seem to be the need of country-

specific knowledge and capabilities and the importance of sharing the risk with a localinvestor.

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1997 The Brazilian franchise opens its first Emporio Armani store in the Jardinsdistrict in So Paulo. The choice to start with Emporio Armani finds its rationale in the lack of culture

about international fashion that characterized the Brazilian market at this time.

Communication about the label. Products are shown. The target is the whole market.

Mythology of the brand. Emotional and psychological approach. Strong institutional role, as the objective is to

create the desire (for all the labels), ratherthan give visibility to any product.

It must address GA customers but also who isaspiring to become one of them.

Concept

Emporio ArmaniGiorgio Armani

Same attention as GA, but due to the highernumber of customers, the commercial return isaround 45%.

Email is used, as the type of customer is more

casual in comparison with GA one. Events suit a younger and more casual public,

often with a Dj playing. Also, trunk shows areorganized.

The contact with the customers starts with thefirst purchase, when the customer registersinto the database.

The relationship with the customers is so

strong and close that the mailing of thecollection catalogue (whose cost is extremelyhigh because of the quality of the publishing)has a commercial return around 65%.

Email is not used. Events are very discreet, coherently with

customers' attitude, and closed to a smallnumber of guests.

Relationship marketing

Giorg io Arman i commun ica t ion s t ra tegy in Brazi l

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1998 Shopping Iguatemi (So Paulo) requests to host a shop.

2001 Five years after the entry in Brazil, the market shows to have developed itsown knowledge and perception about the brand: customers directly ask forcompanys top label Giorgio Armani.

2002 The Emporio Armani shop in Rio de Janeiro is inaugurated.

Actually, Brazil is the biggest market for Giorgio Armani in Latin America. TheBrazilian franchise runs five direct point of sales: 2 GA boutiques (So Paulo) 3 EA boutiques (2 in So Paulo, 1 in Rio de Janeiro) The other fashion labels of the brand are distributed to selected stores.

According to MCF-Gfks annual research Giorgio Armani is most important Italianluxury brand in the country: customers top of mind in the fashion sector (20% of the total citations, 32% of

the male sample); second after Louis Vuitton in the general top of mind ranking for international

brands; third brand after Daslu and Louis Vuitton in terms of customer service quality.

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Global localization in Brazil:the tropicalization

Brazilian luxury customers peculiarities and the custo Brasil challenge require thedevelopment of country-specific capabilities.

In order to meet emerging markets consumers expectations, a process of adaptation

is necessary.

In Brazil, executives working for international companies defined this processtropicalization.

It has been analysed how Giorgio Armani found its balance between global integrationand local adaptation in Brazil: Product: global integration is convenient especially considering the production

process.

Marketing: the design and ambiance of GA shops can be adjusted on nationalculture and tastes. Also communication strategy and CRM should be tailored.

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The focus on the analysis of the market and the customers forced to only cite theproblems affecting Brazils development, instead of describing them in detail.

Also, it must be considered that this thesis observes only the entry strategy in case thefirm planned solely to sell its goods/services.

Moreover, this analysis does not focus on a specific sector but rather offers a generaloverview of the luxury segment in Brazil.

Finally, the analysis of Giorgio Armani is significant, as the company is an importantreference in the market, but a comparison with other cases, being them not only otherItalian firms, but also non-Italian ones, is likely to provide useful insights.

Limitations

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Thank you.Carlo Valentini

Documents

Presentazione Tesi - 23_10_2009