mikb335 independent study module - lvmh

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


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

The University of Liverpool


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.



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´



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.



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,



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.



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)



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).



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,



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



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



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



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



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



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”



(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).



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



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



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



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



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



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.



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



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,



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.



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.


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


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.



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



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.



Bibliography

Alon, I. (2010) Franchising Globally: Innovation, Learning and Imitation. Palgrave Macmillan.

Arrow, J. (1969) ‘The Organization of Economic Activity: Issues Pertinent to the Choice of Market versus Non-Market Allocation’, The Analysis and Evaluation of PublicExpenditures: The PBB-System, Joint Economic Committee, pp. 48.

Bain and Company (2015) Luxury Goods Worldwide Market Study. Available at: http://www.bain.com/Images/BAIN_REPORT_Global_Luxury_2015.pdf (Accessed: 20th November 2016).

Blaine, H. (2009) Foreign Direct Investment. New York: Nova Science Publishers.

Carlson, S. (1974) ‘International transmission of information and the business firm’, The Annals of theAmerican Academy of Political and Social Science, pp. 55-63.

CBRE (2015) Japan’s Rising Tide: Luxury Retailers Sailing in. Available at: http://www.cbre.co.jp/AssetLibrary/Luxury%20Retailers%20Sailing%20in_ENG.pdf (Accessed: October 29th 2016).

Chetty, S., & Campbell-Hunt, C. (2004) ‘A Strategic Approach to Internazionalization: a Traditional Versus a ‘Born Global’ Approach’, Journal of International Marketing, 12 (1), pp. 57-81.

Conconi, p. et al. (2015) ‘The Internationalisation Process of Firms: From Exports to FDI’, pp. 8.

Czinkota, M. & Kotabe, M. (2000) Marketing Management. Cincinnati: South-Western College Publishing.



Donze´, P. & R. Fujioka. (2015) 'European Luxury Big Business and Emerging Asian Markets, 1960-2010', Business History, 57(6), pp. 826-830.

Eriksson, K., Johanson, J., Majkgård, A. & Sharma, D. (1997) ‘Experiential Knowledge and Cost in the Internationalization Process’, Journal of International Business Studies, 28(2), pp. 337-360.

Ferrett, B. (2003) 'Greenfield Investment versus Acquisition: Positive Analysis', The University of Nottingham, pp. 1.

Frynas, J. & Mellahi, K. (2011) Global Strategic Management. New York: Oxford University Press Inc.

Govindarajan, V. & Gupta, A. (2001) Building an Effective Global Business Team. Available at: http://sloanreview.mit.edu/article/building-an-effective-global-business-team/ (Accessed: 23rd December 2016) Grant, R. & Jordan, J. (2015) Foundations of Strategy. New Jersey: Wiley.

Hill, C. (2014) International Business: Competing in the Global Marketplace. Berkshire: McGraw-Hill Education.

Hines, T. & Bruce, M. (2006) Fashion Marketing. United Kingdom: Butterworth-Heinemann.

Kapferer, J. (2015) Kapferer on Luxury. How Luxury Brands Can Grow yet Remain Rare. London: Kogan Page.

Kelley, J. (2012) Louis Vuitton in Japan. Available at: https://prezi.com/wexbfvnk4tvn/louis-vuitton-in-japan/ (Accessed: 10th November 2016).

Linkedin (2014) LVMH Strategic Analysis. Available at: http://www.slideshare.net/khattab303/lvmh-presentation-11182014 (Accessed: November 10th 2016).

LVMH, LVMH world leader in high-quality products. Available at: https://www.lvmh.com/ (Accessed 10th November 2016).

McDonald, P. (1981) ‘The Dimensionality of Tests and Items’, British Journal of Mathematical and Statistical Psychology, 34(1) pp. 100-117.

Mo, Z. (2015) ‘Internationalization Process of Fast Fashion Retailers: Evidence of H&M and Zara’, International Journal of Business Management, 10(3), pp. 218-220.



Oviatt, B. M. & McDougall, P. P. (1994) 'Toward a Theory of International New Ventures', Journal of International Business Studies, 25(1), pp. 45-64.

Pandian, J. & A, Sim. (2002) ‘Internationalisation Process: Revisiting the Uppsala Model in the Asia Context’, University of Wollongong Faculty Papers, pp. 3-4.

Paul, J. and Ferroul, C. (2013) ‘Louis vuitton in Japan’, Strategic Management, 13.

Rugman, A. (2010) ‘Reconciling Internalization Theory and the Eclectic Paradigm’, Multinational Business Review, 18 (2), pp.1 - 12

Som, A. & Blanckaert, C. (2015) The Road To Luxury: The Evolution, Markets and Strategies of Luxury Brand Management. New Jersey: Wiley.

Strategy Creative. Louis Vuitton: QR Buzz. Available at: http://www.strategycreative.com/projects/louis-vuitton (Accessed: January 3rd 2016).

The Economist (2008), Japan’s Luxury-Goods Market – Losing it’s Shine. Available at: www.economist.com (Accessed: 10th November 2016).

The Economist (1988). The Fashionable Takeover. Available at: https://www.highbeam.com/doc/1G1-6574536.html (Accessed: 1st January 2017).

The Wall Street Journal (2015) LVMH Revenue Rises by 16%, Helped by Euro. Available at: http://www.wsj.com/articles/lvmh-revenue-rises-16-1444669801 (Accessed: 20th December 2016).

The Wall Street Journal (2008) LVMH’s Diversification Pays Off. Available at: http://www.wsj.com/articles/SB120229487454947517 (Accessed: 20th December 2016)

The Wall Street Journal (1998) Despite 23% Profit Gain, LVMH Spirits Dampened By Asia Crisis. Available at: http://www.wsj.com/articles/SB890146472812046000 (Accessed: 20th December 2016).

Whitelock, J. (2002) ‘Theories of internationalisation and their impact on market entry’, International Marketing Review, 19(4), pp.342 – 347.

Yano Research Institute Ltd. (2008) 'Study on Luxury Import Brand Market in Japan 2008', Yano Research Institute.



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



Appendix B:

These images present the extravagant stores of Louis Vuitton in Tokyo.



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)


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



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




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.


https://www.bragmybag.com/limited-louis-vuitton-murakami-cherry-blossom-pouchette/

https://www.bragmybag.com/limited-louis-vuitton-murakami-cherry-blossom-pouchette/


Source: Louis Vuitton Website. Available at: http://jp.louisvuitton.com/jpn-jp/homepage (Accessed: 2nd January 2016).


http://jp.louisvuitton.com/jpn-jp/homepage

mikb335 independent study module - lvmh

Documents