FOREIGN TRADE UNIVERSITY FACULTY OF INTERNATIONAL ECONOMICS
FOREIGN TRADE UNIVERSITY FACULTY OF INTERNATIONAL ECONOMICS -🙣🙣🙣 - PRESENTATION SCRIPT THE INTERNATIONAL STRATEGY OF HERMES Class: KDOE307.1 Guide Teacher: PhD Nguyen Hong Tra My Group: Hanoi, September 2022 PART A: THANH INTRODUCTION Good morning teacher and class I’m sure that any Vietnamsese students here have heard the phrase “Hơ mẹc” or seen the color of orange or its logo But… you know that this brand is pronounced Hermès - a French luxury design house, the symbol and desire of every lady Do you know how much you need to pay to own a Hermès Birkin bag? (Ask the audience) -> ranging from $9,000 to $500,000 for a bag That’s why Hermes is known as a symbol of luxury and caste Are you curious how Hermès went from a workshop that made handmade bridles and saddles to the number one brand in the world for leather goods? Let's find out the brand's International Business Strategy through our presentation I Overview of Hermès Hermès’s Company profile Firstly, as you can see on the slide, here is Hermès’s Company profile History of Hermès Hermès International S.A, commonly known as Hermès or Hermès Paris, is a French luxury design house with a family-based shareholding structure Founded in 1837 by Thierry Hermès as a harness workshop in Paris, Hermès's original intention was to supply saddles, bridles, and other leather riding gears for the European noblemen as a wholesale business Before the turn of the 20th century, Thierry Hermès’s son, Emile-Charles Hermès, relocated the family business to 24, Rue Du Faubourg St Honoré, which would later become one of Paris's most valuable real estate, and began their retail sales (between 1880 and 1900) In the early 20th century, Hermès diversified its product lines into leather goods for travel and sports Here, the luxury brand slowly entered the fashion world with the introduction of the Kelly bag - "golden egg" of Hermès And since participating in the global market, Hermès has experienced Ups and Downs You can see the growth of the brand according to the flow of time (Show Slide) -> Starting as a company specializing in the production of saddles, but after 185 years, Hermès has gradually transformed itself into a prestigious fashion brand with an admirable heritage Today, the brand operates 306 stores across 45 countries over the world With revenue of USD 10.6 billion and earnings of more than USD 2.9 billion as of 2022, it is one of the biggest and most renowned luxury manufacturers in the world 3 Hermès’s core values What makes Hermès become a prestigious high-fashion brand is its core values If you need to find a global brand but still traditional, modern but still picky and meticulous, it is difficult for any name to surpass Hermès Throughout its 185-year development, Hermès has never forgotten its values of freedom, demanding craftsmanship, savoir-faire, quality, authenticity and responsible growth Products line Also, to maintain its stable sales among the upper class, Hermès offers a diversified portfolio of products with 19 types of products II Identify Hermès’ international business strategy In order to understand how Hermès has become a global fashion brand, we will find out its business strategy Under the high pressure of cost reduction and low pressures for local responsiveness, Hermès predominantly uses a strategy of global standardization High cost-reduction pressure Firstly, the main reasons that put Hermès under such pressure are related to its highquality material and complex production process Hermès is famous for its leather goods, especially leather handbags The luxury house utilizes expensive exotic genuine leather in the making of its exquisite handbags, including lizard skin, ostrich skin, alligator skin, calfskin, etc Beside material, the production process is another cause of Hermès’s pressure A Hermès bag is made in a highly precise manner under the skillful hand of professional artisans The process is shown on the slide -> In conclusion, you can see that Hermès' goods require a lot of time, energy, and money to produce -> great strain as a result to strike a compromise between cost-cutting and product quality without sacrificing manufacturing apparatus optimization Low pressures for local responsiveness Another motivation of Hermès’s international business strategy is Low pressures for local responsiveness Hermès positions itself as "creating demand" as opposed to "matching demand" from customers around the globe As a matter of fact, it is not easy for an individual to purchase a Hermès handbag Because, the entire Hermès production is limited to no more than 15 bags per month Moreover, Hermès is a high-class positioning brand The powerful fashion house targets the wealthy at the top of society, royalty, and celebrities The high-end brand is aware that people that fit that description exist anywhere in the world within their consumer base, so they concentrate on improving their products, setting trends, and ensuring customer satisfaction no matter where the customer comes from III Advantages and Disadvantages of Hermès’ international business strategy That is why Hermès predominantly uses a strategy of global standardization Now I will analyze Pros and Cons of Hermès applying Global Standardization Advantages of applying Global Standardization Firstly, here are advantages of the strategy: - Allows for mass production based on product uniformity - Allows Hermès executives to share their business experience and knowledge - Allows people all over the world to share in the value proposition that Hermès provides - Profit from the worldwide market - Improve product quality due to standardization - Taking advantage of the strong urbanization trend in developing countries around the world - Enhance the competitiveness of Hermès in the global market Disadvantages of applying Global Standardization Beside above advantages, this technique still has a few obstacles as following: - Once enacted, standards quickly become the status quo and may become ingrained in company culture, making them difficult to change when change is required - Employees at Hermès who focus on standardizing as many procedures as possible may believe they are taking an unwarranted risk by proposing new ideas or demanding modifications to longaccepted norms - It is difficult for Hermès to penetrate some areas due to high local adaptation requirements IV International business operations And now we move into International business operations Because Porter's value chain is widely used in business, we examined Hermès's international business operations using this model to gain a better knowledge of how the company grows in the worldwide market First of all, I want to talk about Primary Activities Primary Activities The group of activities has types And I will begin with Inbound Logistics 1.1 Inbound Logistics If Hermès does not consider inbound logistics, it may encounter a plethora of issues throughout the product development process Inbound logistics includes retrieving raw materials, storing inputs, and internally distributing raw materials and components to begin manufacture Hermès presently outsources the majority of its inbound logistical efforts 1.2 Operations Next, what about Operations? Operational activities include machining, packing, assembling, and testing Analyzing operational operations is crucial for growing output, improving efficiency, and ensuring Hermès' competitive competitiveness Increased productivity can help Hermès achieve sustained economic growth, higher profitability, and a significant competitive advantage 1.3 Outbound Logistics Thirdly, Outbound logistics refers to the actions that transport a product to a customer via multiple intermediaries Outbound logistics activities include material handling, warehousing, scheduling, order processing, transportation, and delivering to wholesalers and retailers Hermès might investigate and optimize outbound logistics in order to get a competitive edge and satisfy its firm expansion objectives 1.4 Marketing and Sales Then we move into another important activity - marketing and sales Hermès can only build value by supplying high-quality products with distinguishing qualities if it invests in marketing and sales operations Hermès' marketing and sales initiatives include sales force, advertising, promotional activities, pricing, channel selection, quoting, and building connections with channel members Marketing strategies that are effective and well-coordinated may help Hermès establish brand equity and differentiate itself from the competition 1.5 Services Finally, Hermès must provide after-sales services and maintenance for the product to be used successfully To avoid harming the firm's brand reputation, the company should analyze its support operations and instead use them to build positive word of mouth as a consequence of quick, responsive, and efficient support services 2 Secondary Activities (Support Activities) Beside Primary Activities, we can't skip Support Activities 2.1 Firm infrastructure The first type of this group is Firm infrastructure Effective infrastructure management may assist Hermès in maximizing the value of the entire value chain Hermès can minimize infrastructure operations to boost its market competitiveness 2.2 Human resource management Secondly, Hermès can evaluate different parts of human resource management, including recruitment, skill evaluation, selection, training and development, rewarding, performance management, and other people management operations Based on the motivation, dedication, and talents of its personnel, Hermès can lessen competitive pressure through good HR management 2.3 Technology development Thirdly, the importance of technical progress must be recognized by Hermès in its manufacturing, distribution, marketing, and human resource operations Activities like feature design, technology selection, component design, process engineering, and field testing may be included in Hermès Automation software, technology-assisted customer service, product design research, and data analytics are just a few examples 2.4 Procurement Last but not least, Hermès' procurement efforts include steps taken to purchase inputs required by the company's value chain It does not include the actual purchase inputs Due to its connectivity with various value chain operations, Hermès should carefully assess its procurement efforts in order to optimize the inbound, operational, and export value chains As previously stated, using Porter's Value Chain model requires understanding the importance of all activities After understanding the relative importance of specified value chain activities, Hermès should find areas where value may be created, cost efficiency can be achieved, a differentiating foundation can be developed, or procedures can be optimized I have presented about Hermès’ international business strategy And, now in order to help you understand more thoroughly, my partner, Huyen Vu, will analyze a specific example Hermès in China PART B: Huyen I Hermes in China: I believe that once China is mentioned, along with that is the term “Made in China” and fear of fake/copy production However, with China’s growing economy, it is no surprise that luxury brands are looking for ways to expand into China and cater to the needs of their growing Chinese customer base In 1975, Hermès opened its first store in China, Hong Kong and now in 2022, it has a total of 40 stores located throughout Hong Kong, Taiwan, and Mainland China Disposable income, the number of Chinese millionaires and super-rich individuals as well as the rising demand for luxury goods in smaller cities (population less than 1.5 million) are some of the reasons why Hermes can’t say no to their main target market Although being recognized as an iconic luxury brand with the renown for their exquisite craftsmanship and top quality, Hermes still needs to adopt the multidomestic (localization strategy) when entering this rich culture and high maintenance market Their first strategy is Product exclusive and personalization Of course, right? If a product or service is not exclusive, then it’s no longer considered luxury When first approaching China, Hermès employed one of the company’s core values: patience Hermes be like “Why need to rush?” flagship per year and all flagships communicate the ideas of exclusivity and French savoir-faire Chinese consumers gravitate toward heritage products that communicate craftsmanship and an elitist lifestyle They just love the idea of exclusivity Moreover, to better spread the value of luxury, Hermes even opened a sub-brand called “Shang Xia” for Chinese Shang Xia is a Chinese luxury fashion brand backed by Hermès offering high-quality products with a contemporary twist on traditional Chinese aesthetics and crafts Shang Xia has earned the moniker “Chinese Hermès” from its Chinese customers for successfully blending the Hermès philosophy of innovation with traditional Chinese craftsmanship and contemporary design From unique furniture pieces to yacht accessories and customized leather for luxury cars, Hermès offers unmatched luxury in every segment, which perfectly aligns with the needs of affluent Chinese buyers Once you are super rich, nothing could satisfy you but the idea of uniqueness and singularity Last but not least, Hermès emphasizes exhibitions and partnerships with artists For the Hermès Editeur collection, artists such as Gloria Petyar and Ding Yi have designed special editioned scarves, and the firm established exhibitions like Wanderland and Hermès Heritage, perfectly fusing the worlds of luxury and high art under one potent marketing message Second method of Hermes approaching the billion dollar market is service adaptation To mark the 20th anniversary of Hermes in China, the French luxury house has launched an exhibition called Harnessing the Roots in Shanghai The exhibition focuses on Hermes' origins as a harness maker and the way in which these origins have influenced the bags, garments and accessories throughout the brand's history Another thing worth mentioning is the Hermes Club which is an annual exhibition held in several cities in the world such as Paris, Japan In 2017 it was specially organized in Shanghai, called Hermes Shanghai Club, a one-night-only event designed to wow the brand’s Chinese clientele The event highlighted the joyful free spirit of Hermès’women Hermès turned the Long Museum of Shanghai into a quirky and joyous contemporary club Last but not least important approaching, the diversified marketing and distribution channel needs to be taken into serious and well-researched consideration One such method they have adopted is communication and marketing via the internet Not only is the website (http://china.hermes.com/) easy to access and navigate, it is also beautifully designed The website allows Chinese shoppers to read a simple description of each product in their native language, without the hassle of having to translate the descriptions from English Hermès has developed the Silk Knots and Tie Break mobile apps in response to the growing smartphone usage in China Videos on the Silk Knots app demonstrate twenty-four different methods to tie the renowned Hermès scarf Tie Break, which focuses primarily on men, offers a selection of GIFs, comics, and games in addition to interesting facts about the various Hermès collections over the years On top of that, Hermès has also built a strong relationship with its Chinese consumers via major Chinese social networkings apps: Weibo and WeChat One worth-noting fact about Chinese is that they have their own national social media platforms which are deeply rooted and have major influence on their shopping behavior The Hermès official account, highlighting couture runway shows, celebrity engagement, and exhibitions, is able to reach a wide and diverse Chinese audience II Justification of international business of Hermes Business environment recommendation 1.1 Threats of New Entrants: - In the luxury fashion industry (which is different from common fashion), the threat of new entrants is relatively low Although it is easy to create the product, the new companies will meet difficulties to make the market recognize them as a luxury brand The new companies also had to compete directly with luxury fashion brands that had been operated for decades - Hermès itself has operated for almost 180 years 1.2 Intensity of rivalry: - There are some brands that head to head with Hermès Namely, Louis Vuitton,Gucci, Chanel, Versace and many more - The target market of the luxury fashion brand is not sensitive to price The competition is about quality and customer ’s perception towards the brand image Hence, the intensity of rivalry is moderate Since Hermes has a firm brand image throughout the history and topnotch quality 1.3 Threat of Substitutes: - Customers of luxury fashion brands purchase one kind of good from several brands, just to be associated with the image of the brand Therefore, The threat of substitutes does not come from the direct competitors since every image represents a different image - In Hermès' case, the threat of substitution comes from the counterfeit product Hermès' customer base is the socialite Many of them purchase the counterfeit Hermès to increase their prestige but spend less money - Thus, it can be concluded that Hermèsexposed to moderate threat of substitute 1.4 Bargaining Power of Suppliers: - Since the required standard for materials in Hermes production is very high and exquisite, it can not easily change the suppliers Hermès established a supplier diversification policy to reduce the dependence and increase the bargaining power - Thus, the bargaining power of suppliers towards Hermes is moderate 1.5 Bargaining Power of Buyers: - What makes Hermès last until today is its exclusivity, which comes from handcrafted and highquality products, and premium price The harder to get will enhance the exclusivity that is associated with the brand Therefore, there’s little possibility that the customers could and would bargain for the lower price However, if the quality of the product is declining, it might drive the customer to switch to another brand - As a result, the bargaining power of buyers towards Hermès is moderate PESTLE ANALYSIS Political: Hermès is a luxury goods manufacturer company which has its operations around the world Due to its parent country’s trade policies with the EU and advanced economies, it can operate its business smoothly Economic: EconomicDue to the pandemic, the income of the people has decreased a lot Because of this its revenue has fallen from the past year But due to vaccination and many nations' economic policies, there is a hope to recover the growth and to increase the disposable income of the people Some interesting facts here are that the rich become richer in this period also Social Factors: Due to urbanization and socialization, the spending on luxury goods has changed tremendously in the past few years The perspective on the purchasing also changed Consumers are ready to spend more on the goods which have the best quality and durability The population of the millionaires is also increasing year on year which is a key factor for the business Technological: Due to change in supply chain networks, the business models have been changed The rise of the internet and change in customers' behavior towards the purchasing Legal: Hermès operates in many countries which have different rules and regulations It has to protect the new design of its goods and shouldn’t copy the others designs It also should be genuine with their statements in the promotion activities Environmental: Hermès faces the risks relating to rapid change in climate and biodiversity Due to climate change the intensity of the natural disasters has increased This might disrupt its supply chain and its operations on the global level To mitigate risk the company should incorporate the strategies which manage the risk and also aid for the reduction of the carbon footprint RECOMMENDATION The key success of Hermès in the international market, especially in Asia, is mainly contributed by the appropriate balance in keeping the brand globalized while localized in areas, specifically in China To achieve more positive outcomes, consistency in product quality, fashion appeal, and brand image should be carefully controlled Being a world-class and exclusively luxury brand having a long history, Hermès does not need to localize its brand image in order to be successful in the global market What the global consumers seek from Hermès is a European luxurious image and lifestyle which can enhance their status Therefore, Hermès should use the foreign consumer culture positioning as a European (or French) brand to market its products In order to maintain its image, product quality is a basic requirement for consumers to recognize the brand’s value Therefore Hermès needs to maintain high-quality products which are only craftsmanship in France In addition, the image of the brand is maintained by keeping up with the trends while enduring the prestige of the brand’s culture All these controls have emphasized Hermès’s consistent high-end image for Asian consumers Therefore, by using globalization and maintaining the original image, Hermès will make global consumers willing to accept the brand and achieve a large number of loyal consumers worldwide Justify international business strategy 2.1 SWOT analysis: - To evaluate the effectiveness of Hermes’s global standardization strategy, we should look at its position in the international market first - Mentioning the Strengths of Hermes, we must not ignore Strong association with quality, Brand recognition, Top celebrity endorsements, wide network and exclusive merchandise - Besides, high-end price, lack of sensitivity to foreign culture and excessive centralization might be one of their weaknesses - Along with that are opportunities such as growing market potential, environmental policies, extension of the product range and services and rise in income - Last but not least, Hermes is well-aware of the counterfeiting threat, the difficulty in managing multinational customization and threats from competitors 2.2 Justification of Hermès’s International Business Strategy: - Hermes has generally utilized it successfully Based on the following considerations: ●Feasibility: Hermes has control over the following factors: Organizational policies, Integration, Timing, Economies of scale, Linkages, Interrelationships, Capacity utilization, Learning and Spillover In short, Hermes still maintains their standard product quality, but at the same time, achieves global standardization by focusing on cost-saving through economies of scale and learning effects ●Consonance: Facing the cost-reduction pressure and growing popularity of luxury products, this strategy would help Hermes enter the new markets and possibly respond to the growing demand in developing countries Hermes could prevent the dilution risks for luxury products By reducing cost, Hermes can properly protect its customers from being absorbed by premium products and other mass-affordable luxury products that can dilute their value of luxury ●Advantages: maintain the exclusivity of their product while retaining a large profit margin per product This also creates a great advantage for Hermes to compete in the international marketplace with attractive prices 3 Conclusion - In its business procedures, Hermes principally adopts a global standardization strategy Hermes positions itself as "creating demand" rather than "meeting demand" of customers all over the world Thanks to this strategy, the brand has successfully gone global in over 45 countries and considered the world's most valuable fashion brand Thank you for listening Do you have any questions about our presentation? ... 1.3 Threat of Substitutes: - Customers of luxury fashion brands purchase one kind of good from several brands, just to be associated with the image of the brand Therefore, The threat of substitutes... manage the risk and also aid for the reduction of the carbon footprint RECOMMENDATION The key success of Hermès in the international market, especially in Asia, is mainly contributed by the appropriate... Hermes' origins as a harness maker and the way in which these origins have influenced the bags, garments and accessories throughout the brand's history Another thing worth mentioning is the Hermes