International Business - Individual Essay - Christian Dior in India PDF

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Part I: Christian Dior – Background and competitiveness 1. Brief profile 2. A look into Christian Dior resources, capabilities and competitive advantage 2.1. Resources and Capabilities 2.2. Comparative Advantage Part II: A host country analysis of India 1. A current political situation in India 2. Opportunities and challenges for Christian Dior in India Part III: Christian Dior in India 1. CDC’s internationalization strategy and entry mode into India 2. Additional and Alternative action Part IV: References

I.

Christian Dior – Background and competitiveness 1. Christian Dior – A brief profile

Christian Dior (henceforth DC) debuted its first collection of clothing on February 12, 1947 in Paris and has since become one of the most respected fashion houses in the world (Tomes 2017). Starting from 2001 in the 478th position, the French company has steadily found its way up the Fortune Global 500 list and maintained a continuous 19-year appearance streak. More impressively, in 2019, CD ranks 187th on the prestigious list - the highest position of its respective Apparel industry (Fortune n.d.). The next paragraphs provide an overall look into this Parisian fashion empire. CD was established in 1946. The then 41-year-old Monsieur Christian Dior turned down the job as an Artistic Director to an existing fashion brand and insisted on opening a new company with his name and vision (Dior n.d-a). Since its conception, the House of Dior has extended its offers beyond just couture. According to CD’s 2018 annual report, ‘Christian Dior is the only groups that operates simultaneously’ in the six luxury sectors namely Wine and Spirits, Fashion and Leather Goods, Perfumes and Cosmetics, Watches and Jewelry, Selective Retailing, and Other Activities (Christian Dior Finance 2019, p.12). The report also shows that of the total 46.8 billion Euro revenue in the 2018 fiscal year, the Fashion and Leather division generated the highest revenue of almost 18.5 billion Euro, followed by the Selective Retailing division with a number of over 13.6 billion (Christian Dior Finance 2019, p.8). As one of the most valuable luxury brands in the world, CD has been exhibiting an impressive upward growth trajectory (Donzé & Wubs 2019). Donzé and Wubs (2019, pp. 83-84) also argued that the fashion empire’s impressive expansion is not surprising as the global luxury goods market has enjoyed continuous growth during the past two decades. As of 31 December 2018, CD is operating worldwide with a total store number of 4,592. Its largest markets are Europe, Asia and the United States (Christian Dior Finance 2019, p.9). 2. A look into Christian Dior resources, capabilities and competitive advantage 2.1.

Resources and capabilities

The Business and Management literature generally points to two frameworks when accessing a firm’s competitiveness: the industry-based view and the resource-based view. The

industry-based view asserts that a firm’s competitiveness should be accessed based on the industry-specific conditions and forces (Porter 1980, 1981). The resource-based view, on the other hand, argues that a comprehensive evaluation of the firm’s tangible and intangible resources should provide solid base for the evaluation (Galbreath 2005; Grant 1991; Wernerfelt 1984). The following part of the essay employs the resource-based view to assess CD Group as a multinational enterprise (henceforth MNE). The tangible resources of CD are extensive. The luxury goods giant boasts an impressive production and distribution networks alongside other kinds of administrative sites and investments properties (Christian Dior Finance 2019, pp. 46-50). Apparently, the MNE has an exceptional strong stand on tangible resources with a total asset estimation of almost 81 billion Euros in 2019 (Fortune n.d.). Intangible resources, on the other hand, are much harder to assess due to their being intangible. Even though there are arguments over the relative importance of the two resource types (see Galbreath 2005; Schriber & Löwstedt 2015), intangible resources are usually believed to have a bigger impact on firms’ competitive advantages since they are harder to be imitated (Barney 1991). This is the case for CD. There are no doubts that the longstanding power house has accumulated a respectable amount of industry knowledge, human resources, garment designs and patterns, all of which is of utmost importance to an MNE operating in the fashion industry. Having examined the group’s resources, one then needs to evaluate how Dior uses this ample pool to create and sustain its corporate capability. The MNE prides itself on its well-kept fundamental values and a complicated yet effective operating model (Christian Dior Finance 2019, p.13). These capabilities clearly have worked well in the group’s favour, evidenced by its continuous growth and admirable business outcomes. 2.2.

Competitive advantage

Among the resources and capabilities discussed above, I believe the core resource of CD is its global brand and its core capability is how it secures sustainable expertise. These factors are also the MNE’s main source of competitive advantage. There is little dispute that the global brand is crucial to most luxury goods companies (Donzé & Wubs 2019, p.84). CD is no exception. The brand Dior is perceived as a status

aspiration and beacon of excellence. This is something that is extremely hard to imitate which in turns create a sustained competitive advantage. Understanding this, the company invests much of its resources into maintaining the prestigious expert reputation it has been enjoying. Securing sustainable expertise is one of the six main pillars of Dior’s operating model (Christian Dior Finance 2019, p.13) and is a capability that is almost exclusive to industry leaders. This capability, as a result, is a crucial contribution to the global competitiveness of the company. II.

A host country analysis of India 1. The current political situation of India India has the second-largest population in the world with over 1.3 billion people which

makes it the world’s biggest democracy (World Bank 2019). The country is a federal parliamentary democratic republic with the incumbent (as of April 2020) is the Bharatiya Janata Party (BJP), one of the country’s two largest political parties (Zee Media Bureau 2019). Due to its large area as well as the enormous and heterogeneous population, the past and current political situation in India has been complex and even ‘volatile’ (Bhatia 2019). The most prominent feature of the current political situation in India is perhaps the shift towards a ‘dynasty politics’ in which a few powerful families have been gaining and maintaining power (Singh J 2017). This is in accordance with the common trend of rising autocratization in many democracies (Lührmann & Lindberg 2019, p. 1097). Another noteworthy political issue in India is the concerns of political unrest of its neighbours – Sri Lanka and Pakistan (Devlin 2019; Moneycontrol 2019). Consequently, the Indian people are having serious doubts for the country’s own stability. This political background, thus, poses considerable issues for domestic and international businesses alike. 2. Opportunities and challenges for Christian Dior in India There are numerous factors that need to be taken into consideration for any MNE in general and CD in particular when entering a certain host country. In order to succeed, companies need to recognize opportunities as well as challenges that are imbedded in the political situation. Some of the most notable factors that can affect Dior’s operations in India are (i) the bureaucracy-related issues, (ii) corruption levels, and (iii) its changing tax regulations, trade restrictions and reforms.

Due to the rising impact of autocratization in India (Lührmann & Lindberg 2019), international businesses have to work with the development plan of the incumbent. The dual political system of both federal and states governing bodies also require companies to adapt to not only federal laws but also each states’ regulations. This is a serious challenge for most businesses, especially international players such as Dior. The next important factor is corruption level. India is notorious for its corruption. Indeed, India’s corruption level is seen as one of the worst in the world which speaks volume in how foreign investors might be deterred from investing in the country (Bhatia 2019; Euromonitor 2011). For a company operating in such a distinctive industry which is luxury goods, one particular challenge for Dior is lubrication bribery. Lubrication bribes are payments that MNEs give to certain governmental entities to make or keep their businesses in the respective municipalities and countries (Gangone 2011, p.191). The propensity to provide bribes are found to be prevalent and even normalized in MNEs (Baughn et al 2010). To conduct an ethically sustainable and financially profitable business in India, CD needs to manage this issue properly. The changing tax and trade regulations in India presents both challenges and opportunities. Even though there have been ‘regulatory improvements’ to nurture competitiveness, the level of foreign investments in India is still quite low, and economy growth momentum has been slowing down (World Bank 2019). However, there are several recent reforms that are beneficial to international businesses. In September 2019, the Finance Minister delighted both new and current investors by informing on major corporate tax cuts in the hope of igniting the economy (Sonnenberg 2019). This is a clear opportunity for Dior to expand its distribution network in India and even consider opening new production facilities here. Trade restrictions in India has also been relaxed significantly after the economic reform in 1991 with lower tariffs, better non-tariff measures, higher domestic standards to match international requirements and so on (Singh HV 2017). These on-going efforts of the government in opening up trade should provide MNEs such as Dior a stronger incentive to expand operation in the country. Having set the scene, the essay takes a closer look at CD’s strategies in India. Since the scope of this essay does not allow for a full analysis of all the groups’ business lines, the next

sessions refer to only Christian Dior Couture (henceforth CDC) – the division which sells Woman, Man, Baby Clothing, Accessory, Watches (Dior n.d-b) - unless stated otherwise. III.

Christian Dior in India 1. CDC’s internationalization strategy and entry mode into India Drawing on the discussed core resources, capability and competitive advantage, it comes

as no surprise that CDC chooses the global strategy (standardization) as it internationalizes. Global strategy, as known as standardization, is one of the four most recognized internationalization strategies that were popularized by Bartlett and Ghoshal (2002). The seminal framework by Bartlett and Ghoshal builds on two dimensions which are global integration and local responsiveness. As a fashion power house with highly sought-after designs, CDC naturally aims to maintain a consistent standard of products around the world. Global integration pressure for CDC, thus, is high. The company employs a centralized R&D model which allows for mostly similar products in all its markets. CDC also prides itself in its effort to keep the goods made in established places with the most established expertise (Dior n.d.-b). For CDC, the world is essentially one marketplace and its job is to keep that huge market lace satisfied with consistently high-quality offers. Consequently, CDC is under relatively low pressure for local responsiveness. This is not only the case in India but also in most of CDC’s foreign markets. In the launch of its new store in Delhi, the Managing Director of CD for Asia reaffirmed this fact by saying ‘our designs are not country-specific’, albeit hinted at minor modifications to better fit the local tastes (Bhowmick 2013). The global strategy CDC chose has its pros and cons. The pros are mostly emotionally focused. Customers long for the brand’s products as it shows their status as a high-end global spender. Thus, nationally specific designs might even lower its aspirational value and distort the very image of the brand. This is with the cautious exceptions of few limited edition lines to celebrate New Year or other important events. Another clear advantage of this approach is the overall lower costs. Accordingly, the strategy’s disadvantage is lack of local responsiveness which might make the brand appear arrogant and distant to its local consumers. In addition, the choice to keep R&D as well as manufacturing in very few locations might be costlier in that aspect and manifest unhealthy centralised control (Bartlett & Ghoshal 2002).

As MNEs enter new foreign markets, they exhibit a hierarchical model of entry with two main branches: non-equity modes and equity modes (Pan & Tse 2000). Each branch has its pertinent sub-branches, all of which harbour different level of risks, return, control and integration. The entry mode an MNE chooses is highly relevant to its internationalization strategy and might change overtime - as evidenced by CDC’s entry into India. As standardization is CDC’s internationalization strategy, the brand mostly employs franchising as it first enters foreign markets (CPP Luxury 2009). The Indian market is no exception. On February 2006, Dior opened its first store in New Delhi through franchising just a month before the government ‘allowed single-brand retailers to own up to 51 percent of an outlet in India’ (Fashion United 2006). Soon after, in 2007, CDC converted its franchisee into a subsidiary and committed to further investments in retails (Chakravarty 2007). By that, CDC has clearly demonstrated the non-static nature of its entry into India and showed that it was quite reactive to legislation changes. CDC’s entry into India follows a path that is quite natural. First, franchising allows the company to test the market while keeping costs and risks low. Franchising, of course, has its disadvantages. For such a large market with relatively lower income and somewhat subpar laws system, counterfeit goods would be an extremely hard problem for CDC to control even in its own authorised franchised outlet. The limited engagement level of franchising also lowers the control the brand has over the franchisee’s operations and marketing strategies. Having realised the enormous reputational risks franchising presents on its competitive advantage that is the brand, CDC quickly changed into the wholly-owned subsidiary mode only a year later. This mode, despite the higher costs, allows the company to fully control its general operations in the country (Chakravarty 2007). 2. Additional and alternative actions India, with its population and economic stand, has clear potentials to be an important market for CDC. However, as of April 2020, CDC only has a mere 4 stores in Delhi and Mumbai (Khosla 2020). In addition, Parfums Christian Dior, another business division under the brand Dior, only opened its first Indian location in India in 2016 (Bhalla 2016). I personally find this rather disappointing. Indeed, Dior’s suffered a loss in the last fiscal year in India (Khosla 2020). This business outcome signals the needs for changes and improvements.

Firstly, the brand should pay more attention to this huge market by simply creating a dedicated website. The current Dior.com website offers no Indian site and has no Hindi language setting change. It is understandable that CDC has not justified creating a customised website for a mere 4 store market, but showing more ‘respect’ and attention to the local might help attracting and keeping potential Indian customers. Secondly, recent research has found that Indian consumers are quickly gaining more buying power and becoming increasingly open to luxury goods (Bothra 2013; Eng & Bogaert 2010). As a result, the luxury good market for CDC and its competitor is enormous. CDC should open more stores at least in major cities with more than 5 million people such as Bangalore, Hyderabad or Ahmedabad. Obviously, this would be costly and require more careful operational control, but it might very much be worth it in the long run. Another additional action to consider for CDC is opening a new manufacturing facility in India. This is admittedly a strange and risky suggestion considering the well-known policy of Dior to maintain its manufacturers’ exclusivity. However, due to India’s recent enormous tax cuts for manufacturing facilities (Sonnenberg 2019) coupled with the possibility that opening a production line in India might make the locals look at CDC in a more favorable light, the bold move is worth a try.

IV.

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