Case Study Samsonite PDF

Preview

Summary

case study for internatonal business management in wintersemester20/21...

Description

1

Case Study: Samsonite Samsonite's Global Supply Chain Samsonite, the world's biggest luggage maker, which was founded in the United States and is headquartered in Luxembourg, manufactures and distributes luggage all over the world.' By the end of 2010, Samsonite products (under the Samsonite and American Tourister brand names) were sold in more than 37,000 points of sale in over 100 countries through a variety of wholesale and retail distribution channels. The company was founded in 1910 in Denver, Colorado, and it took many years for it to become a global company. In 1963, Samsonite set up its first European operation in the Netherlands and later, in 1965, began production in Belgium. Shortly thereafter, it erected a joint-venture plant in Mexico to service the growing but highly protected Mexican market. By the end of the 1960s, Samsonite was manufacturing luggage in Spain and Japan as well. In addition to its manufacturing operations, Samsonite was selling luggage worldwide through a variety of distributors. In the 1970s, business began to take off in Europe. In 1974, Samsonite developed its first real European product, called the Prestige Attaché, and business began to expand in Italy, causing the country to rival Germany as Samsonite's biggest market in Europe. Although the U.S. market began to turn to soft-side luggage in the 1980s, the European market still demanded hard-side luggage, so Samsonite developed a new hard-side suitcase for Europe called the Oyster case. At that point, soft-side luggage began to increase in importance, although Europe was still considered a hard-side market. In the 1980s, Samsonite opened a new plant in France to manufacture the Prestige Attaché and other key products. With the fall of the lron Curtain in the early 1990s, Samsonite purchased a Hungarian luggage manufacturer and began to expand throughout Eastern Europe. During this same time period, Samsonite established several joint-venture companies throughout Asia, including China, to extend its reach there.

The Quality Initiative To establish products of high quality, Samsonite embarked on two different programs. The first was an internal program in which Samsonite conducted drop, tumble, wheel, and handle tests to determine if its products were strong enough and of sufficient quality for customers. The second was composed of two different, independent quality-assurance tests:  The European-based ISO 9002 certification  The GS Mark, which is the number-one government regulated third-party product test mark (similar to brand) of Germany The GS Mark, Gepruefte Sicherheit (translated "Tested for Safety"), is designed to help companies comply with European product liability laws as well as other areas of quality and safety. To enhance quality, Samsonite introduced state-of-the-art CAD-CAM machinery in its plants. Samsonite also introduced a manufacturing technique in which autonomous cells of about a dozen employees assembled a product from start to finish.

2 As you can see in Map 17.1, Samsonite had three company-owned production facilities and two headquarters offices in Europe by the late 1990s. In addition, it had subsidiaries, joint ventures, retail franchises, distributors, and agents set up to service the European market. Although Samsonite initially serviced the European markets through exports, the transportation costs were high, and the demand for luggage soared in Europe, so Samsonite decided to begin production in Belgium in 1965. MAP 17.1: Where Samsonite Operates in Europe

FIGURE17.1 The Samsonite European Supply Chain (I): Decentralized, 1965-1974

3 In the early years, Samsonite had a decentralized supply chain, as illustrated in Figure 17.1, whereby it operated through different wholesale layers before it finally got the product to the retailers. As Samsonite's business grew, management decided to centralize its supply chain so that products were manufactured and shipped to a central European warehouse, which then directly supplied retailers upon request (see Figure 17.2). This centralized structure was put into place to eliminate the need to rely on wholesalers. Samsonite had to worry about transporting manufactured products to the warehouse, storing them, and transporting them to the retailers in the different European markets. The company invested heavily in information technology to link the retailers to the warehouse and thereby manage its European distribution system more effectively. Retailers would place an order with a salesperson or the local Samsonite office in their area, and the order would be transmitted to the warehouse and shipping company by modem. The retail market in Europe began shifting at the turn of the new century, so Samsonite responded by opening franchised retail outlets in October 2002, beginning in Antwerp and spreading to other areas. As the vice president of marketing and sales put it, "We are anticipating a shift in the market, in which the traditional luggage channel will no longer be at the forefront and a wide new retail opportunity will emerge."

R&D AND PRODUCT INNOVATION As noted earlier, Samsonite sold two basic types of suitcases: hard-side and soft-side. Most of the R&D was initially done in the United States, but the need to develop products for the European market led the company to establish R&D facilities in Europe. Samsonite invested heavily in R&D and in the manufacture of specialized machinery to help keep a competitive edge. To facilitate the transportation and storage of suitcases, Samsonite located its production facilities close to the centralized warehouse. FIGURE17.1 The Samsonite European Supply Chain (II): Centralized, 1975 – Mid-1908s

4 Soft-side luggage is less complex technologically than hard-side, and Samsonite purchased Oda, the Belgium soft-side luggage company, to enter that market. Then it licensed its technology to other European companies. By the mid-1990s, 48 percent of Samsonite's sales came from hard-side luggage, 22 percent from soft-side, and 30 percent from attache cases and travel bags, some of which were hard-side and some soft-side. However, by fiscal 2000, soft-side luggage comprised 51 percent of European sales. In 2001 and 2002, sales of soft-side luggage continued to increase as a percentage, and hard-side luggage sales declined.

OUTSOURCING As Samsonite expanded throughout the world, it continued to manufacture its own products and license production to other manufacturers. Then Samsonite entered into subcontract arrangements in Asia and Eastern Europe. In Europe, the subcontractors provide final goods as well as the subassemblies used in Samsonite factories. The trend to outsource more and more of its production has been steadily increasing. By 2007, Samsonite had shut down several of its plants in Europe and decreased internal manufacturing of soft-side luggage from 23 percent in 2004 to just under 10 percent in 2007. Although it still produces the majority of its hard-side luggage internally, the company now sources 90 percent of its softside luggage from third-party manufacturers to consolidate its manufacturing capacities and to achieve cost savings. Figure 17.3 illustrates Samsonite's coordination of outsourced parts and finished goods, along with its own production. FIGURE17.1 The Samsonite European Supply Chain (III): Globalized, 1996 – present

5

THE FUTURE OF SAMSONITE The slowdown in international travel and consumer spending in 2008 to 2009 nearly drove Samsonite under. It is owned by private equity firm CVC, and a deal between CVC and Royal Bank of Scotland (RBS) injected enough cash in the business to save the company. In addition, top management was forced to cut headcount 50 percent in the United States and 30 percent in Europe, closing 115 shops. In addition, Samsonite cut out some lines of business that didn't make much sense in a falling travel market. CVC's goal is to push Samsonite more aggressively into Asia, where a growing middle class loves to travel. As a result of this push and a global recovery in the travel industry, Samsonite saw a 45 percent increase in sales in Asia during 2010, which accounted for 42 percent of its group profits. Consistent with its focus on Asia, Samsonite also decided to list its shares as an IPO (Initial Public Offering) on the Hong Kong exchange in June 2011. This move resulted in Samsonite raising $1.3 billion in cash, which it could use to reduce its debt. CVS Capital reduced its ownership stake in Samsonite to 28.7 percent from 29.8 percent, and RBS reduced its stake to 15.2 percent from 15.8 percent. As Samsonite expands more to Asia from its original base in the United States and Europe, it will have to figure out how to organize its supply chain, as it did in Europe, but in a larger, more complex international environment. However, the experience in Europe should help the company as it establishes its supply chain worldwide.

Questions: 1.

What are the main drivers and motives of the international production strategy of Samsonite? How were they changing over time?

2.

What modes of production has Samsonite applied in the three stages I-III?

3.

How would you describe the factory roles of Samsonite in its foreign operations (according to Ferdow’s model) and how were they developing over time?

4.

Which risks may you see in a more and more intensified outsourcing and offshoring mode of production?...