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The Internationalisation Strategies of LVMH
The Internationalisation Strategies of LVMH into Japan
MKIB335 – Independent Study Module (International Business)
Student ID:201003848
9th January 2017
Word Count: 6000
The University of Liverpool 1
The Internationalisation Strategies of LVMH
Contents
Abstract…………………………………………………………………………….…3
1. Introduction ……………………………………………………………....……4, 5
2. Company Overview …………………..………………………………..………6, 7
3. Literature Review3.1 Internationalisation Theories.……..……………………....................................8
3.1.1 Uppsala Model ……………………………..……………..…8, 9, 10, 113.1.2 Eclectic Paradigm ………………..……..………………………....11, 123.1.3 Demands for Luxury Goods in Japan …………..…………………..…13
3.2 LVMH in Japan……………………………….. …………………….13, 14, 15
4. Entry into the Japanese Market4.1 Concessions…………………………..…………………………………...15, 164.2 Exporting……………………..…………………………………………...…..164.3 Franchising…………………………………………………………….….16, 174.4 Foreign Direct Investment………………………………………….....17, 18, 194.5 Access to Supplier and Distribution………………………………………..…19
5. Strategies of International Business..……………..………………...…..20, 21, 225.1 LVMH International Strategy.………………………………………………...22
5.1.1 Management and Control…………………………………………...…235.1.2 Marketing………………………………………………………………235.1.3 Place Branding………………………………………………..……23, 24
5.2 Threats of New Entrants ………………………………………………....24, 255.3 The use of Technology in Internationalisation Strategies…………….….25, 26
6. Discussion………………………………………………………..……………27, 28
7. Conclusions……………………………………………………………...……29, 30
Bibliography……………………………………………………...…………31, 32, 33
Appendices…………………………..…….………………….................34, 35, 36, 37
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Abstract
Despite unsettling economic changes within recent years, the luxury goods market
remains a competitive, fast growing industry, with the likes of companies such as
Moet Hennessy Louis Vuitton (LVMH) remaining a trailblazer in the world of luxury.
Trade liberalization policies, such as the formation of GATT in 1947, meant that
many barriers to international trade were relaxed or abolished, LVMH pursued
strategies to gain entry into new markets. In this study, the internationalisation
strategies of LVMH into Japan will be explored and conceptualized.
This research study, which will include a review of existing literature coupled with
extensive research of internationalisation theories, will provide an insight into the
strategies of a luxury goods company who have successfully entered the Japanese
market, whilst still retaining their core values despite the considerable size of their
market.
As a result of the above, the aim of this paper is present recommendations and
conclusions that will contribute to the growing body of literature in this field.
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The Internationalisation Strategies of LVMH
1. Introduction
In spite of the growing research agenda in the field of luxury goods, little research has
thoroughly investigated one European firm and the strategies they adopt in order to
expand into Japan. The purpose of this research paper is to fill this gap, and in order
to further investigate the internationalisation strategies, a sufficient and deep
understanding of the LVMH business model is vital.
LVMH was established through a merger of the companies Louis Vuitton and Moet
Hennessy in 1987. The purpose of this was to enable Louis Vuitton to expand its
investments into the luxury business (The Economist, 1988). It remains the world’s
largest luxury goods conglomerate within an industry that remains to be one of the
fastest growing markets since the 1960s (Bain and Company, 2015). European luxury
brands have successfully capitalized on the increased growth by strengthening their
competitiveness across a global scale. The industry surpassed 1 trillion Euros in retail
sales value in 2015, and is delivering growth of 5% year on year (Bain and Company,
2015). Despite global economic uncertainty, it is evident the luxury market continues
to flourish. It is a vast, complex, and highly competitive space, pushing firms to
increase customer value across all levels of the value chain.
With regards to LVMH, although Europe has remained competitive as the key
supplier of luxury goods, it is important to analyse why Japan is a key outlet for large
consumption patterns in this industry, and how the conglomerate has crossed borders
to sell overseas. Emerging Asian markets have played a significant role for luxury
brands, with Japan becoming an attractive market from the1960s to 1990s (Donze´
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and Fujioka, 2015). This paper will be focusing on strategies and trends from the early
experiences of LVMH expanding into the Japanese market, although current
strategies and the impact of technological advances will also be studied. Through this,
the strategy that LVMH adopted at each point of their expansion into Japan will be
investigated.
This work is divided into the following sections: company overview, literature
review, LVMH internationalisation strategy and discussion.
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2. Company Overview
LVMH is a European multinational luxury goods conglomerate, and a world leader in
luxury. Established in 1987, it comprises 70 Houses from major sectors of the luxury
market that are split into five categories: Wine and Spirits, Fashion and Leather
Goods, Perfumes and Cosmetics, Watches and Jewelry and Selective Retailing
(LVMH).
For the majority of luxury brands, sustaining the brand long term is at the forefront of
the business’ philosophy. With regards to the product life cycle initially proposed
Raymond Vernon (Hill, 2014), analysis concluded that LVMH currently lies within
the maturity stage of the cycle.
During the maturity stage of the product life cycle, the product has reached
widespread acceptance in the market, and this is reflective of LVMH as their product
portfolio is well established across many global markets. However the concept of
whether a life cycle is applicable to brands is in dispute, and in practice there have
been a number of legal disputes regarding this. For example, “LVMH sued Morgan
Stanley for having expressed the opinion that the Louis Vuitton brand was now a
‘mature brand’, a judgment that carried implicit and explicit consequences for the
firm” (Kapferer, 2015, pp. 238).
Currently, the adopted organisational structure of LVMH is a global product structure,
whereby there are independent management teams for each diverse product category.
This global product division structure results in each subsidiary to be decentralized,
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offering increased control to the production and allocation of goods. As LVMH
operates in many markets worldwide, this structure allows for the different variants in
each market such as levels of demand and taste to be met (Frynas and Mellahi, 2005).
From a resource-based view of LVMH, the firm has gained competitive advantage
through acquiring a combination of tangible and intangible organizational
capabilities, shown in the table below.
Table 2. LVMH Assets
Tangible Resources Intangible Resources
Physical assets: factories, machinery Well known designers
Technological resources: trademarks,
patents
Reputation – image and brand name
Organizational resources: effective
control on distribution and sales
Appendix A shows a timeline of LVMH recording the key dates of when the firm’s
strategy changed within Japan.
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3. Literature Review
3.1 Internationalisation Theories
In terms of revenue shares in 2009, Japan was the largest market of LVMH.
Through internationalization theory we are able to study the methods multinational
corporations (MNC) adopt in order to enter new markets. The study of the
internationalisation pattern of LVMH highlights the controversial strategy the firm
adopted when entering the Japanese market.
The concept of internationalisation of firms can begin largely from the industry
structure and market conditions, such as a saturated domestic market, rather than
individual managerial factors. Those firms that have sufficient market power and the
ability to recognize exchange opportunities abroad attempt to increase profits by
entering foreign markets, as LVMH did by selling products outside of its domestic
field.
3.1.1 Uppsala Model
Johanson and Vahlne firstly devised the Uppsala Model of internationalisation from
the stages theory in 1977. The main purpose of this approach explains the way in
which a firm will gradually develop their activities overseas in an incremental fashion
based on their knowledge and development at each stage (Pandian and Sim, 2002)
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The model distinguishes four successive steps in the international expansion of a
firm:
1. No regular export activities
2. Export via independent representatives (agents)
3. Sales subsidiary
4. Overseas production/manufacturing
(Pandian and Sim, 2002)
To further explain this, Johanson and Vahlne devised the stage-change model of
internationalisation. The concept of this established a close link between stage
variables, such as market knowledge and market commitment of the firm, and change
variables, for example commitment decision and current activities. Through this
interaction, a path-dependent and recursive pattern of international expansion is
created. In addition to this is the concept of “psychic distance”. A key feature of the
framework, it explains the rationale of firms initially expanding into markets that are
psychically close before broadening their operations into distant markets as their
knowledge increased. Experiential knowledge is critical, particularly within
international marketing, and a vital component in the internationalisation process
(Eriksson. et al, 1997). As it can only be gained through personal experience, it is
country-specific and therefore cannot be transferred between businesses (Whitelock,
2002). However accumulating experiential knowledge requires collection and
transmission of the specific situation, and as this differs for each business, it is a
costly process (Carlson, 1974).
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The practical application of the Uppsala Model has been examined in many studies,
and as such this concept has received strong support in relation to the development of
exporting, from studies cited by Johanson and Vahlne of firms from Germany to
Japan whose international expansion reflects the stages of this framework, particularly
in the early stages of their internationalisation.
However, LVMH did not develop their internationalisation strategy in a gradual
manner through the use of psychic distance, but rather entered international markets
where they saw high demand for their products. Thus Japan was one of the first
overseas markets for LVMH. This is the opposite of what the Uppsala Model
suggests, therefore sparking debate as to the replication of this model.
Furthermore, LVMH does not globalize its manufacturing activities, but rather
produces the goods in factories within the domestic country, France (Donze´ and
Fujioka, 2015). This is different to what the Uppsala Model states. Much of the
criticism surrounding this theory is based on the observation that company behavior
has changed largely due to the accelerated technological development and increased
market integration, thus more competition (Mo, 2015). Some start-ups may decide to
internationalise soon after they are established, and as a result of this the
internationalisation process has become more rapid in recent years (Oviatt and
McDougall, 1994). Many academics are skeptical of the traditional view that
internationalising is a gradual process, and believe every firm should be global and
must rapidly go after the opportunities if they are to gain a foothold in the competitive
market (Govindarajan & Gupta, 2001). Further critique from Chetty et al. (2004, pp.
7) summarizes that the framework is “too deterministic, firms frequently skip stages,
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it oversimplifies a complex process, it ignores acquisitions and the impact of
exogenous variables”. Nevertheless, through a behavioral approach, the model helps
to explain how “firms follow a gradual internationalisation process via exporting
before heavily investing” (Vahlne, cited in Conconi et al, 2015, pp. 8).
3.1.2 Eclectic Paradigm
The Eclectic Paradigm, also known as the OLI framework after ownership, location
and internalization, explains outward foreign direct investment (FDI) patterns of
MNE’s (Rugman, 2010).
A firms ownership advantages comprise of two types of advantages: asset-based and
transaction-based. This refers to a firm’s ability to achieve and sustain competitive
advantage. Asset-based is the level of innovation and uniqueness of a firm’s product,
for example Louis Vuitton’s private label clothing and easily recognizable products.
Transaction-based advantages occur from activities within the business such as
volume buying, economies of scale and distribution advantages (Czinkota and
Kotabe, 2000).
As such, LVMH have a high level of asset-based advantages, due to the unique and
well-established print of their “monogram canvas” on trunks and handbags.
Furthermore, they have gained transaction-based advantages through recently
implementing modern methods on their factory lines. LVMH adopted a factory format
“Pegase”, which reaps benefits such as reduced assembly time of bags, enabling fresh
collections to reach boutiques in six weeks. Efficiently opening new factories in
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France allowed LVMH to meet the increasing demand. From the late 1970s the sole
factory couldn’t sustain growth, so the company bought factories and ateliers across
the region. On average it was able to open a new factory every year, and there are
now 13 factories alone producing accessories (Wall Street Journal, 2006).
After the ownership advantages are obtained, it is likely that the firm will then
transfer these to specific countries depending on the locational advantages. As a result
of this, the firms are able to internalize their ownership advantages.
Transaction cost analysis (TCA) offers an alternative approach to explaining the
behavior of international firms. Defined as “the costs of running the economic
system” (Arrow, 1969, pp.48), it begins by stating that markets are competitive due to
a large number of suppliers, and a lack of vertical integration is a consequence of this.
This analysis accounts for the hierarchical structure within a firm, with regards to the
economic activity, also known as alternative governance. Transaction costs are
different to production costs and arise due to uncertainties or impediments being
present leading to added costs. When applied to the management within a firm,
negotiating with local partners and monitoring these partnerships alongside the costs
associated with this will influence the decision on how the firm will enter a foreign
market. This theory is consistent with the experience of LVMH as they expanded into
Japan, as when the firm decided to enter Asia it was vital to negotiate with the
department stores in order to acquire a feasible rate to first sell their products.
3.1.3 Demands for Luxury Goods in Japan
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The demand for luxury goods in East Asia is a prominent topic connected to a
growing body of literature. Although there are several explanations that provide
reasoning for this, it has been argued that the initial growth of luxury exports to Asia
was primarily due to the favorable economic policy towards companies in these
countries. In 1961, Japan adopted a gradual import liberalisation policy, which saw
the end of quotas for imported watches (Donze´ and Fujioka, 2015). The 1985 Plaza
Accord led to the huge appreciation of the yen, enabling Japanese retailers to more
easily import European luxury products. Yet accessing the Japanese distribution
network before the 1990s remained difficult due to long-term semi-exclusive
relationship between domestic manufacturers and wholesalers and retailers.
Although said economic policies provided import liberalisation that gradually created
a more favourable environment for international trade, success in the Japanese market
for LVMH heavily relied on the growing disposable income of the former middle and
upper classes. Due to the economic boom of the Japanese economy in the mid 1980s,
rising disposable income of the former middle and upper classes meant Japan
remained an attractive market for expansion.
3.2 LVMH in Japan
Gaining access to the Japanese market was important for the early global expansion of
LVMH, not just within East Asia, but also to provide a footprint for future
international ventures. Japan provided a large base of potential consumers with the
luxury industry rapidly expanding. Japan was now a pillar of overall growth in the
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luxury market, and with the growth of exports of French leather goods continuing to
rise after the 1980s, LVMH capitalized on this surge in demand (Donze´ and Fujioka,
2015).
During this time, LVMH built up global supply chain systems by merging with
various other brands, contributing to their continuous growth within Japan. As Louis
Vuitton had large market power they were able to pursue a pricing strategy, and in
hopes of unifying its now global sales channels, the company set a single domestic
price for each of its goods throughout Japan. In order for LVMH to dominate its
supply chain from production to sales, a separate factory was built to fulfill the
demands of Japanese customers and to avoid supply shortages.
In 1981, Louis Vuitton opened its first store in Tokyo, and was the first luxury retailer
to operate independently (CBRE, 2015)
Since then, Japan has played a key role in terms of international growth for the luxury
company. With a high level of economic growth in the 1980s, Louis Vuitton saw
potential for a large consumer base. Between 1989 and 2004, Japan continued to
strengthen its position as the major outlet for French leather goods, with an average
market share of 28.4%. By 1997, LVMH owned two stores in Japan with annual
profits of US $10 million. (Kelley, 2012).
Furthermore, according to Luxury Import Brand Market in Japan 2008 (Yano
Research Institute Ltd. 2008), Louis Vuitton has the highest net sales of a single brand
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for FY2007 with sales of approximately 165.0 billion yen. This reflects Louis
Vuitton’s tremendous presence from data alone.
4. Entry into the Japanese Market
Market expansion into an untapped market can be challenging for firms, and the
market entry mode acquired is considered to be fundamental in the successful
internationalisation of a company. Choice of entry mode is dependent upon certain
variables; psychic distance, size and growth of market, past experience, resources and
the size of the company. The entry mode that was available to the firm at the time of
expansion was through concession.
4.1 Concessions
Originally, LVMH entered the Japanese market by selling their products in
departments stores such a Mitsukoshi, with displays of imported Louis Vuitton
products. The company distributed their products from France through an exclusive
distribution strategy, “in which focuses on offering products through only one
wholesaler or retailer in a particular market”. Furthermore, after the Plaza Accord in
1985, a strong yen made it easier for Japanese retailers to import European luxury
products (Donze and Fujioka, 2015). Once LVMH had gained a strong network
among department stores, they started a rapid expansion within the Japanese market.
Targeting the central cosmopolitan areas of Tokyo, Louis Vuitton opened its first
exclusive retail store in the fashionable district, Ginza, in 1981. This was part of a
strategy to expand their presence in Japan by building a larger Japanese clientele. The
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company continued growing at a fast pace within Japan, and by 2007 had 50 retail
stores, of which most were owned by the LVMH Japanese subsidiary, and the
company controlled more than 250 stores in Japan. LVMH continues to operate stores
and boutiques within department stores, as these remain to be significant sales
channels (Donze and Fujioka, 2015).
4.2 Exporting
In 1947 GATT was established, which aimed to “liberalize trade by eliminating
tariffs, subsidies, import quotas and the like” (Hill, 2014, pp. 209). This trade
liberalization was spread across eight rounds, with the Tokyo Round of 1973-1979
(Hill, 2014). As such, when LVMH opened their first retail stores in 1981, the
company capitalized on this reduction by exporting their products, from the
production facilities in the domestic market France, to Japan, rather than creating
production facilities in the new market. Consequently, transportation costs will have
increased due to the lack of production units in any neighboring countries, but
exporting meant that LVMH were able to maintain tight control on prices and
products exported from France to Japan. From a business model perspective, the
company was able to gain back the losses from transportation costs as the firm
charges premium prices for their brand.
4.3 Franchising
According to Alon, “franchising is seen as a means of obtaining scarce capital as the
franchisee is generally required to make a substantial investment in the business”
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(2010, pp. 13). Management of LVMH also ventured into opening more stores in
Japan through Franchisee mode. Since the Japanese market alone accounted for 16%
of the revenue for LVMH, there was large potential for growing demand. As a result
of this, the firm started using franchising as a means to further expand into the
Japanese market. The use of flagship stores was implemented as a market entry
mechanism for LVMH. Japan accounted for 34% of all LVMH fashion and leather
goods sales in 2003, therefore the development of said stores, commencing with a
flagship store in Tokyo, was a strategic decision to a long term commitment within
the Japan market (Hines and Bruce, 2006).
4.4 Foreign Direct Investment
Once a firm has successfully experienced the foreign market through modes such as
exporting, they may then decide to internationalise through FDI. This is defined as an
“investment made to acquire lasting interest in enterprises operating outside of the
economy of the investor” (Blaine, 2009, pp.7). In a bid for continuous expansion into
new markets, LVMH pursued growth by acquisition strategy, in order to increase their
visibility within Japan. Acquisition FDI represents cross-border merger and
acquisitions (Ferrett, 2003), and this was the chosen method as it provided the firm
with existing branding of a new company they would acquire and issued one less
competitor within the market. This started when the company acquired Kenzo in
1993, a luxury fashion house established in France but founded by Japanese designer
Kenzo Takado in 1970 (Som and Blanckaert, 2015).
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Thereafter, LVMH pursued further acquisitions in order to build a portfolio. The
conglomerate now operates in most major categories for luxury items in the Japanese
market, including fashion, Jewelry and watches. With regards to benefits of FDI, it
can provide a firm with new markets by widening the scope in which the business
operates in, exposing the goods to more consumers. In addition to this, FDI allows the
business to access new sources of technology, production, and skills, providing new
capital and products. As such it can therefore give the firm the opportunity to expand
and grow, providing a strong impetus to economic growth (Blaine, 2009). Operating
across a large range of domains will have give LVMH the potential to reach out to a
larger consumer base.
“In 2012, LVMH had a total of 58 outlets in Japan, 80% of which were within
department stores” (Donze and Fujioka, 2015).
Table 1. LVMH Store Composition (2012)
Boutiques (Department Stores) 46
Independent Retail Store (wholly owned
subsidiary)
9
Shopping Centres 2
Airport 1
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The table above reflects the composition of LVMH’s store allocation in Japan in
2012. Although a significant amount of sales channels are accumulated from
department stores, LVMH have worked to establish their brand through many
different sales channels, creating large exposure for the firm.
4.5 Access to Suppliers and Distribution
Throughout the early stages of the internationalisation process of a firm, access to
suppliers and distribution is key in order to allocate products into the market.
However, it is often the case that companies will be using the same suppliers and
distributors as competitors, and furthermore with the dynamic nature of the market
rising supply costs can rapidly change the overall logistics of a firm. In order to
protect competitive advantage and insulate against future rising costs, brands seek to
acquire suppliers. For example, LVMH acquired a watch manufacturer, ArteCad
(LVMH, 2011).
The bargaining power of suppliers comprises one of the five forces of Porters model,
referring to the pressure that suppliers can exert on businesses, and furthermore
through determining the intensity of competition in an industry. For LVMH, this is
relatively low, as the company often purchase raw materials from suppliers in basis of
consignment. As such, leather, which is the key raw material for Louis Vuitton, will
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be acquired from suppliers with limited bargaining power, allowing LVMH to
potentially save costs. Additionally, the level of dependence on a supplier can often
lead to higher prices due to the lack of substitution. However in order to avoid this,
Louis Vuitton outsources some key components and materials in Japan. For example
their monogrammed leather is outsourced (Paul and Ferroul, 2013).
5. Strategies and Structure of International Business
In order to serve the global marketplace, firms must choose a strategic posture that is
appropriate for their business model in order to help them competing internationally.
This enabled companies to strategize in such a way that is relevant to their business.
When LVMH were looking for growth opportunities outside of their domestic market,
the company adopted certain strategies in order to expand beyond national
boundaries.
Expansion into an international market is executed by adopting one of the four
strategies; international strategy, localization/multidomestic strategy, global strategy
and transnational strategy (Hill, 2014).
Expansion Through Internationalisation
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The figure above illustrates the strategic postures with regards to LVMH. Source:
Hill, 2014.
Initially when LVMH expanded into Japan in 1978, they followed the international
strategy by taking products that were first sold and produced in their domestic market
and selling them internationally. The company had a low need for cost reduction
pressure, as luxury goods do not cut costs due to products being sold at a premium
price. Furthermore, as demand was high for Louis Vuitton goods among Japanese
consumers, the company were able to set a higher market price without altering their
cost structure. With regards to pressures for local responsiveness, LVMH firstly had
to establish the brand in Japan and gain a foothold in the global luxury industry before
tailoring their products to the local tastes of Japanese customers. For example, they
designed an exclusive Monogram Cherry Blossom line in 2003. According to this
matrix, the majority of firms who pursue this strategy ensure the head office retains
tight control over marketing and product strategy. As LVMH are stringent on
maintain strict control over quality and distribution, it further supports the notion that
Louis Vuitton adopted the international strategy when initially entering the Japanese
market.
Once LVMH were well established within Japan and had a good reputation, they were
able to customize the goods to match tastes and preferences of Japanese consumers as
explained above. The multi-domestic strategy was particularly appropriate for LVMH
as customers of designer goods have substantial differences across nations with
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regards to consumer tastes and preferences. By adopting this strategy later on, Louis
Vuitton’s products instantly increased in value within Japan. However, a downfall of
this is cost reductions from mass-producing become inhibited, as the company is no
longer making a standardized product for global consumption. Nevertheless, the
added value associated with local customization of products allows for higher pricing,
so therefore enables the firm to redeem higher costs.
An important strategy that LVMH adopted in order to internationalise was
diversification. According to Robert et al., “diversification refers to the expansion of
an existing firm into another product line or field of operation” (2012, pp. 241).
Bernard Arnault, CEO of LVMH commented, “We’re completely diversified in
luxury” (The Wall Street Journal, 2008), as LVMH currently operates within five of
the major luxury goods groups.
5.1 LVMH International Strategy
The luxury goods conglomerate entered an aggressive global expansion initiative, and
entered Japan as one of its first foreign markets. Post World War Two when the
liberalization of goods was imposed, it became an obsession within Japan to purchase
and own what were deemed as “prestigious Western Goods”, as this embodied
success among the Japanese consumers. This represents the rapid success of LVMH
during the 1980s in Japan, and the company currently generates a large share of its
sales in foreign markets, particularly in Japan. Therefore the group has balanced sales
in each part of the triad. This has not only increased brand awareness for LVMH
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across global markets, but has created more diversified market risk, which helped the
group to overcome the Asian crisis in 1998 (Wall Street Journal, 1998).
5.1.1 Management Style and Control
In 1981, Kyojiro Hata was hired as president of the largest conglomerate of LVMH,
Louis Vuitton. His strict management style represented a level of high control over
quality and distribution, thus each subsidiary was autonomous to a certain extent. As
the profit margin on luxury goods is very high, control over production, distribution
and advertising are were central to the profitability of LVMH. Expanding strategic
business units both horizontally and vertically was a further strategic move during the
international expansion into Japan.
5.1.2 Marketing
Due to an aggressive marketing strategy in Japan in 2002, LVMH adopted guerilla-
marketing tactics in order to reclaim the brands image. As such, this involved the
opening of extravagant stores in the heart of Tokyo’s large fashionable districts such
as Ginza, Omotesando and Roppongi (see appendix B). During the opening of its
large store in Omotesando, consumers queued outside for the luxury goods, and
during the first few days sales exceeded initial estimations by 1 million yen (The
Economist, 2008).
This effective marketing strategy reflects Louis Vuitton’s attachment to the Japanese
luxury market.
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5.1.3 Place Branding
Place branding is a strategic tool used to meet the local tastes of consumers, and as the
name suggests, it consists of communicating a certain image to a target audience
within a specific location. This notion has helped LVMH to establish a product line
that allows Japanese consumers to relate to and interact with their products on a local
basis.
LVMH had established themselves as a frontier of luxury goods within Japan,
however in order to guarantee future success, the company worked on understanding
their local customers and adapting their products to these tastes. The conglomerate
executed this strategy through collaborations with famous Japanese artists such as
Takashi Murakami in 2003, where they designed an exclusive Monogram Cherry
Blossom line, through Louis Vuitton handbags being recreated with smiling blossoms
(See appendix C). This motif was inspired by the famous cherry blossom season in
Japan. This strategy appeared to be a success for the luxury goods conglomerate, as
the Murakami line increase Louis Vuitton’s profits by 10 per cent (Bain and
Company, 2015).
5.2 Threats of New Entrants
New entrants who are made up of new designers are more likely to become successful
if independently owned when they entered the market. As a result of this they are
likely to be acquired by a larger well-established brand to provide them with the
facilities and infrastructure needed for growth. However, if the new entrant was to
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remain an independent party, this could become a threat to LVMH by capturing
“middle market” consumers. Nevertheless, many customers will be attracted to an
already established name and perception that makes the new entrant less significant.
Furthermore “the barriers to entry are high, and customers loyalty for LVMH among
time, product service and quality are undeniable whereby a new entrant cannot be
compatible for short period of time” (LinkedIn, 2014). LVMH are able to gain
complete cost advantage in business key development as they have been functioning
in the luxury goods markets for a prolonged period of time and have built the
intangible image and perception around the brand.
5.3 The Use of Technology in Internationalisation Strategies
The digital revolution is profoundly changing the luxury goods industry, and with the
emergence of social media and e-commerce, it is becoming increasingly important for
businesses to embrace innovation throughout their international strategies. Due to
transforming consumer behavior, rapid changes in technology and shifting
geographical demands, LVMH are being forced to revise branding strategies, and
adopt new ways of creating goods that meet the demands of Japanese consumers.
One of the main differentiating assets of LVMH is that it prides itself on establishing
strong engagement with customers. One way in which the brand does this is to ensure
the “luxury customers” are highly connected through the use of digital platforms.
Particularly important to luxury firms, emotional engagement with customers is vital,
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The Internationalisation Strategies of LVMH
and LVMH have forged ways for customers to experience the luxury ambience of a
store through the use of electronic devices.
For the LVMH experience in Japan, Louis Vuitton offer a native brand site with full
translation into the Japanese language. This is an important feature for the company to
offer, as is allows Japanese consumers to shop at ease. Appendix D shows the e-
commerce website of Louis Vuitton. There is now a proliferation of communication
channels that both businesses and consumers are using, including mobile app and web
devices, and LVMH have pursued this new emergence of technology as a strategic
sales channel.
Furthermore, for the launch of the Takashi Murakami collaboration with Louis
Vuitton, a unique QR code was created in order to draw attention to the new
animations. The code was published in magazines, and this drove traffic to the Louis
Vuitton mobile website for Japanese consumers (Strategy Creative). This reflects a
digital strategy LVMH adopted to penetrate the luxury market but from a
technological perspective.
The growth of technology will continue to influence the entire value chain, and as
Louis Vuitton offer services such as customization and monogramming to their
products, this further adds to the experience a customer would have directly in the
store.
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The Internationalisation Strategies of LVMH
6. Discussion
In order to determine a clear analysis of the internationalisation strategies adopted by
LVMH, a comparison of the profit levels within Japan will be observed. The first
available data from the official LVMH financial reports for profit and revenue figures
are 2002, therefore the sample is taken from 2002 to present.
The revenue levels of the company in Japan resulting from analyses are illustrated in
figure 5.
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20022004
20062008
20102012
20140%2%4%6%8%
10%12%14%16%18%
Revenue by Geographic Region of Delivery - Japan
Revenue by Geographic Region of Deliver - Japan
27
The Internationalisation Strategies of LVMH
It can be established that revenue in Japan as a percentage of LVMH total revenue has
steadily decreased from 16% in 2003 to 7% in 2013, where it has remained stagnant.
The downturn in revenue levels of LVMH in Japan is largely due to the relative
importance of the Japanese market failing as the purchasing power in other nations
rapidly grows. Such nations include other East Asian markets such as China, where
LVMH experience a shift of market importance from 2000.
An implication of this is due to the decreasing significance of the Japanese market for
LVMH, the conglomerate must find new ways of attracting consumers through
alternative strategies and platforms.
Despite this change in Japan, analysts are confident of large growth potential for
Louis Vuitton, the largest subsidiary of LVMH. An analyst from Mitsubishi UFJ
Securities assessed “The Japanese market is not considered saturated yet; the strength
of Louis Vuitton is its high recognition among people of wide generations” (Louis
Vuitton, 2006).
Although consumers are increasingly knowledgeable and savvy due to rise of digital
platforms, it has been argued that this increase in technological advances has led to
the diluting of a brands uniqueness and exclusivity, particularly with regards to luxury
firms, as it tends to be mass market retailers who sell products online. Perhaps this
can account for the loss in demand of LVMH products in Japan. If this is the case,
LVMH should work to protect the brand heritage by integrating technology
throughout the entire value chain, not just limiting it to the marketing practices.
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The Internationalisation Strategies of LVMH
It is interesting to note, however, that despite the fall in total share of revenue for
Japan, the store network here has seemingly increased year on year. This suggests that
LVMH still identify Japan as a major target market for their products, ensuring that
throughout Japan, even in the smaller regions, consumers have access to the luxury
items.
7. Conclusions
This paper aimed to provide a coherent understanding into the internationalisation
strategies adopted by LVMH when expanding into Japan. The analysis extends the
existing literature by providing a detailed insight into a European firm expanding into
one overseas market in particular, and closely studying the strategies used from
modes of entry to marketing tools.
LVMH became more locally responsive the longer it was active in Japan, and the
ability of the firm to tailor products to the local market has been significant in
maintaining a. Whether it is responsible for the firms success to a large extent is in
debate, as the company experienced high growth throughout the early stages of its
experience in Japan. Needless to say, LVMH would remain successful within the
Japanese market due to a well-established brand image and loyal consumer base.
By examining the chosen entry mode at each stage of the internationalisation process,
we are able to gain understanding into the pattern of expansion LVMH adopted when
crossing borders to establish a brand and sell overseas. Further, the impact of
international strategies and the advances of digital platforms play an important role in
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The Internationalisation Strategies of LVMH
ensuring longevity of a brand once it is well established. After reexamination on the
choice of entry mode LVMH selected for their initial expansion into Japan, exporting
directly enabled the firm to become a pioneer in establishing its own subsidiary.
However if the firm had partnered with a Japanese distributor as an alternative means
of selling their products, logistical benefits such as an increased sales exposure and
retail network may have been established more quickly.
For alternative luxury brands that intend to penetrate new geographical markets,
capitalizing upon the benefits of selling through distribution, as a means of initially
entering a market, may deliver a broader range of opportunities with regards to
sourcing retail outlets for the firm and managing international trade laws and cultures
of a foreign country.
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Appendices
Appendix A:
This timeline reflects the key dates for LVMH within the Japanese market.
Date Strategy1977: LVMH enters Japan through concession1981: Louis Vuitton opens first store in Tokyo. Kyojiro Hata was hired as president of the
largest conglomerate of LVMH, Louis Vuitton.1993: LVMH acquires Kenzo2002: Louis Vuitton opens the extravagant store in Omotesando2003: Takashi Murakami collaboration, celebrating Japanese Cherry Blossom2013 Louis Vuitton renovates largest store in Japan, located in Ginza
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Appendix B:
These images present the extravagant stores of Louis Vuitton in Tokyo.
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Source: Google Images. Available at: https://www.google.co.uk/search?q=takashi+murakami+louis+vuitton&espv=2&biw=1658&bih=922&source=lnms&tbm=isch&sa=X&ved=0ahUKEwiJr7HC5LTRAhUlCcAKHTMKDyoQ_AUIBigB#tbm=isch&q=louis+vuitton+japan (Accessed: 6th January 2016).
Appendix C:
This image represents products from the Takashi Murakami collaboration with Louis Vuitton.
Source: Google Images. Available at: https://www.google.co.uk/search?q=takashi+murakami+louis+vuitton&espv=2&biw=1658&bih=922&source=lnms&tbm=isch&sa=X&ved=0ahUKEwiJr7HC5LTRAhUlCcAKHTMKDyoQ_AUIBigB#imgrc=C88eRkIg2xaNvM%3A (Accessed: 6thd January 2016)
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Source: Brag My Bag. Available at: https://www.bragmybag.com/limited-louis-vuitton-murakami-cherry-blossom-pouchette/ (Accessed: 6th January 2016).
Appendix D:
Images showing the Louis Vuitton website translated into Japanese.
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Source: Louis Vuitton Website. Available at: http://jp.louisvuitton.com/jpn-jp/homepage (Accessed: 2nd January 2016).
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