Bachelor in International Marketing
BI- The Norwegian School of Management
&
GGSB- Grenoble Ecole de Management 07.06.2010
A diploma thesis written by:
Birgitte Blix Werner, Martine Behrens and Martine Domaas Width
This market study is conducted as a Bachelor’s Degree at the Norwegian School of Management and Grenoble Graduate School of Business. This does not imply that the institutions approve the applied theories, findings or conclusions executed.
Acknowledgments
First of all we would like to thank the owner and manager of Lillunn AS, Vigdis Yran Dale. She has been very engaged, positive and patient throughout the whole
process. She has also contributed majorly to the internal information on Lillunn AS.
We would also like to thank our supervisor Pierre Hermant, from Grenoble École de Management. He helped us getting started on the project and has also been a great support during the process. Furthermore we truly appreciate that our program
administrators at Grenoble Graduate School of Business, Claudia Fackler-Hopf and Nancy Locatelli always have been available when we had questions and problems.
A special thank to all the participants in our research. This includes store managers and others for interviews and responders to our survey.
_______________ _______________
Birgitte Blix Werner Martine Domaas Width
______________
Martine Behrens
Executive Summary
The authors of this thesis have for the past six months conducted a comprehensive research for the Norwegian company Lillunn AS, regarding the French clothing market and the company’s prospects of export to the Rhône-Alpes region.
The aim of the thesis has been to detect Lillunn’s competences and capacity as well as possible barriers and impediments in the French market, in order to evaluate if the company may have prospects of succeeding as an exporter. Another target with the thesis has been to provide recommendations on the subject of possible strategies and directions that the company may wish to conduct.
Lillunn is a Norwegian company selling wool clothes, basically in Norway, but also in a small amount to some stores abroad. The major challenges for Lillunn in the
context of exports to France are its lack of experience and knowledge in international markets, its underdeveloped networks, as well as its low financial ground.
Furthermore, the French market itself will present obstacles for the company, especially in relation to competition and cultural differences.
However, the thesis will discuss ways to overcome these barriers and hindrances as Lillunn’s potential success as an exporter and the attractiveness of the French market will be assessed.
Enjoy reading!
Thesis Overview
Table of Contents
Acknowledgments...2
Executive Summary...3
Thesis Overview...4
Chapter 1: Introduction to the thesis...9
1.1. Setting...9
1.2 Objectives of the thesis ...9
1.3 Statement of Problem...9
1.4 Research Aim...10
1.5 Research questions...10
1.6 Limitations ...10
Chapter 2: Background information Lillunn AS ...11
2.1 History of Lillunn AS ...11
2.2 Company Profile...12
2.3 Values of Lillunn AS...13
2.4 Vision ...14
2.5 Mission statement...14
2.6 Company goals...14
Chapter 3: Doing business in France...16
3.1 Cultural differences ...16
3.1.1 Geert Hofstede...16
3.1.2 Richard R. Gesteland...18
Chapter 4: Research Methodology ...21
4.1 Aim and Research Questions...21
4.2 Design ...21
4.3 Data Collection...22
4.4 Secondary Data Research...22
4.5 Critical Evaluation of Secondary Data ...23
4.6 Primary Data...24
4.7 Interviews with store managers...24
4.8 Online survey ...25
4.9 Phone interview...26
4.10 Critical Evaluation of Primary Data ...26
4.11 Validity and Reliability ...27
Chapter 5: Internal Analysis...29
5.1 Internationalization Capability ...29
5.2 International Corporate Culture...29
5.2.1 ACE ...29
5.2.2 The Good Export Circle...31
5.2.3 The Bakka – model ...32
5.3 Market share in reference market ...33
5.3.1 BCG-‐matrix...33
5.4 Market Networks...35
Chapter 6: External Analysis...36
6.1 Industry Globality...36
6.2 International Competition Structure ...36
6.2.1 Porter’s five forces analysis...36
6.3 Globalization Forces...41
6.3.1 The PEST Analysis ...41
Chapter 7: SWOT...49
7.1 Merger of the internal and external analysis...49
7.1.1 Strengths, Weaknesses, Opportunities and Threats...49
Chapter 8: Strategic Problem Definition (SPD)...56
Chapter 9: Strategic Market Goals (SMG)...56
9.1 Operative (2-‐5 years)...56
9.2 Strategic (5-‐10 years)...57
Chapter 10: Critical Factors of Success (CFS)...57
10.1 Financial resources ...57
10.2 Organisational learning...58
10.3 Strategic relationships and networks...58
10.4 Market orientation ...58
Chapter 11: The Nine Strategic Windows ...59
Chapter 12: Alternative Strategies...63
12.1 Alternative Strategy 1...64
12.2 Alternative Strategy 2...66
12.3 Alternative Strategy 3...68
12.4 Alternative Strategy 4...70
Chapter 13: Choice of strategy...72
13.1 Overcoming the Obstacles of an Agent Entrance Strategy...75
13.2 Segmentation...77
Chapter 14: Marketing Mix...78
14.1 Product...78
14.2 Price...81
14.3 Place...82
14.4 Promotion ...83
14.5 The importance of country of origin ...85
Chapter 15: Conclusion ...88
Chapter 16: References ...91
Chapter 17: Appendix ...95
Part 1
Chapter 1: Introduction to the thesis
1.1. Setting
The assignment undertaken is the final part of the Bachelor program in International Marketing at the Norwegian School of Management and Bachelor in International Business through the Franco-Norwegian exchange program at Grenoble Graduate School of Business. The project is written in a group of three, on behalf of the Norwegian wool clothes producing company Lillunn AS.
1.2 Objectives of the thesis
This thesis embodies two main objectives with the second objective depending on the outcome of the first. The first and elemental objective of the analysis undertaken is to determine whether or not the French clothing market, more specific the market in the Rhône-Alpes region, is attractive for Lillunn to enter through export. With attractive we mean that the market represents impending customers, who can generate profits in favour of the company, and that the company can establish itself without bearing heavily risk or uncertainty. In relation to this first objective, the internal forces and resources of Lillunn must also be examined and evaluated in accordance to the potential market. The second objective is to determine an entrance strategy for Lillunn, if the market turns out to be attractive. If the market is not
appealing enough, alternative strategies will be considered.
1.3 Statement of Problem
Deriving from the guidelines, information and requests of Lillunn, the statement of the problem is defined as being:
“Is it attractive and possible for Lillunn AS to launch their products on the French market, and if so, what are the best entry strategies?”
1.4 Research Aim
A research aim is a single sentence derived from the statement of the problem, expressing the purpose and objectives of the research. 1
”The aim of the thesis is to decide if Lillunn possess the qualities required to enter the French market, if the French market in the Rhône-Alpes represents an attractive opportunity in this regard for Lillunn and if so, what the beneficial entrance strategies would be?”
1.5 Research questions
Six research questions are developed for the purpose of guide lining the thesis and reach the aim above and they will be addressed throughout the assignment.
1. Does Lillunn possess the capabilities required for expanding its business abroad?
2. Where is Lillunn in its internationalization process and is it ready for extensive exports in this regard?
3. What is the competitive situation in the French clothing market in the Rhône- Alpes?
4. What entry barriers might Lillunn encounter if exporting to the Rhône-Alpes and are they manageable in Lillunn’s state of affairs?
5. In the case of exports to France, what kind of entrance strategy and distribution channel is optimal for Lillunn to utilize?
6. What form of marketing-mix is appropriate for Lillunn to adapt in the French market?
1.6 Limitations
- Due to time and strict budget limitations the analysis has been limited to the clothing market of the Rhône-Alpes region with emphasis on Grenoble, and cannot be
generalized to the whole of France. The fact that the Rhône-Alpes and mainly Grenoble is the area focused on is reserved for the rest of the thesis.
1 Gripsrud, Olsson and Silkoset. Metode og dataanalyse, 2004. page 47
- Cultural factors and in this regard particularly the language barrier, have restrained the research when interacting with French shop managers, employees, potential customers and other relevant individuals and groups.
- Vigdis Dale did not want the thesis to pay much attention to the originally knitted wool clothes (the Marius-sweater etc.), because she wished to find out more about the French market for the “newer” collection.
- Limited the focus to the women’s collection, since this is the focal point of Lillunn’s production.
- Did not have extensive insight in the complete financial accounting concerning the business.
- Lack of interest from French managers, shop owners etc. to help concerning the research is yet another limitation.
Chapter 2: Background information Lillunn AS 2.1 History of Lillunn AS
Lillunn Design of Norway is a clothing company founded in 1953 by Unn Søiland Dale. The company is coloured by its history and a retrospective assessment is necessary in order to understand its position and values today.
Unn Søiland Dale was originally educated as a teacher, however she had a great interest in the more creative arts. Wool hand knits were one of her specialities and it turned out later that this would also become her livelihood.
It was in the 1950s that Dale’s carrier took on a new direction as she went to Grenoble in France to learn the native language. This trip led her to the decision about travelling to Paris, and from this point on the story about Lillunn really begins.
In Paris Dale was in the need for a job, and she was soon to be discovered as a model. Dale got to be a deputy model at the famous fashion house Dior, and later she acquired a permanent position in the respected Hardy Amies fashion corporation in England. Working in the fashion industry Dale got the opportunity to make
important contacts and learn about the industry from behind the scenes.
The experience from the international fashion world engaged her to start up her own business within the field. To begin with the production was modest, but in time it expanded. Some of her knitted wool sweaters were launched in exclusive sports
shops in London, and in Hermès and André Ledoux in France and she also sold to an American company. Attentions around Dale’s wool knitting increased, and famous people were photographed in her outfits. Some examples would be the Kennedy family, general Eisenhower and Soraya, the empress of Iran at that time. Dale also cooperated with a French designer, Castelbajac, at a later point in time, shifting from the traditional hand knitting to another technique still regarding wool. Yet, probably one of the major moments in Dale’s carrier as a designer was when she was designing haute couture for Dior and Givenchy. Dale’s designs have also been represented in magazines such as Vogue and Elle. In 2002 Unn Søiland Dale received the Royal Medasl of Merit in Gold for her pioneer work in relation to renew the traditional Norwegian Wool textiles. 2
2.2 Company Profile
In 2002 Unn Dale’s daughter Vigdis Yran Dale took over the family business. With her education from fine arts and design she continues the tradition of creating comfortable clothes that stand out, using only 100 % wool material based on Norwegian textile custom.
As noted earlier the initial collection consisted of Norwegian wool hand knits, but these days Lillunn Design of Norway produce everything from coats, jackets, waistcoats, scarf and hats, til blankets, pillows and other interior related products.
The company makes clothes for both women and men, kids and babies.
Lillunn has two shops in Norway where the clothes are staged, and besides these two outlets the company sells to twenty-two other shops across Norway. Lillunn also sells to a shop in Holland/Netherlands, one in Germany and three in Sweden, but experience and knowledge in the international marketplace is trivial. Contact and approach with markets outside Norwegian borders have been relatively random, with no marketing division, international department or specific plan concerning the critical process of expanding the business.
Previously Lillunn used an agent in the context of international trade. However, after the relationships with different boutiques were established, there was no real benefit in keeping the agent. Especially this was true because of the extra cost of having an
2 History of Lillunn; “To rette og en vrang” by Nanna Segelcke, Aschehoug 1994;
<http://www.lillunn.no/files/book/1000.php>
intermediary. For this reason, Lillunn decided to dismiss the agent and maintain the connection itself.
The main office of Lillunn is situated in Drammen in Norway and due to the fact that the size of the company is minor, Vigdis has undertaken most of the work herself.
Lillunn consists of 3 seamstresses in Norway and, when needed, 2 seamstresses in Latvia. Much of the production is customized and pre-ordered; hence a large
standardized stockpile does not exist.
Also the budget is limited and Vigdis has chosen not to operate with advertising. If all production had been moved to a less expensive country in this regard, most likely advertising would have been a more obtainable option. But Vigdis wish to enhance the Norwegian culture and tradition when making the clothes, thus the capital and venture is structured towards reaching this goal. The commercial part is less
important to Vigdis as she does not want to compromise quality work and history for cheaper labour. This leads us to the core values of the company, which will be explored in the next paragraph.
2.3 Values of Lillunn AS
What all of Lillunn’s products unquestionably have in common is the material and quality. The focus of Lillunn has been since Unn Dale’s time to utilize pure wool and excellent handicraft. Dale’s theory was that in order for a design to be regarded as good, it should last for at least 10 years. She even quoted Balenciga in this context:
“Une chose qui se démodé, m´a jamais eté élégante”. 3
Furthermore, Norwegian history, tradition and nature have influenced the design of the clothes and choice of material to a large extent. In this respect, the clothes reflect and embrace the past something in which differentiates them from fast changing fashion depending garments.
In other words, quality and Norwegian tradition are two aspects that are highly valued by Lillunn.
3 History of Lillunn; “To rette og en vrang” by Nanna Segelcke, Aschehoug 1994;
<http://www.lillunn.no/files/book/1000.php>
2.4 Vision
Lillunn’s vision would be to develop Norwegian wool-crafts and still keep the
production basically in Europe in the future. What is more, Lillunn wishes to express the quality of the material and healthy values with a focus on environmental friendly manufacturing at all levels. The company wants consumers to enjoy the warm feeling of utilizing wool, as well as the consumers should have a good conscience for
wearing the clothes. Furthermore, Lillunn intends to keep its position as a tradition bearer and also turn towards new markets.
Unn Dale’s philosophy was: “To dare to be national, but still be able to have international success.”4
2.5 Mission statement
According to Vigdis Dale, Lillunn’s mission statement is “To provide quality clothes to people while preserving the environment.”
2.6 Company goals
Vigdis Dale has articulated five goals, both short-term and long-term, for the company.
Short-term goals:
- Get in touch and present itself for interesting retailers
- Communicate that the clothes are of 100 % wool and the qualities of this material, both regarding the use of it and the impact on the environment Long-term goals:
- To develop the quality line
- Reach a broad audience in Europe that values what Lillunn offers - To increase sales in Europe
4 Lillunn, History/Designers
<http://www.lillunn.no/default.pl?showPage=171>
Part 2
Chapter 3: Doing business in France
When doing business in France, there are several things that one need to be aware off and one major issue are the cultural differences.
3.1 Cultural differences
3.1.1 Geert Hofstede5
Professor Geert Hofstede conducted a significant study of how standards in the workplace are inclined by culture. He analyzed a large database of employee standards scores collected by IBM between 1967 and 1973, which enclosed more than 70 countries. Furthermore the editions of Geert Hofstede’s work since 2001, scores are listed for as much as 74 countries and regions. This is partly based on replications and extensions of the IBM study on different international populations.
Geert Hofsted’s research gives an insight into other cultures and helps businesses to be more successful when doing international commerce.
The following section has made a comparison with Norway and France, using Hofstede’s four dimensions; Power Distance Index, Individualism, Masculinity, Uncertainty Avoidance Index and Long – Term Orientation.
Power Distance Index (PDI)
France has a lot higher power distance than Norway, which means that there is a greater divide between the members in an organization in France than in Norway. A French company is likely to have a bigger split between the boss and an employee than a Norwegian company. What is more, the French society will be more accepting to the fact that the power is distributed unequal than what would be the case in the Norwegian society, as Norway scores higher on egalitarianism.
Individualism (IDV)
The individualism dimension is quite parallel for both the countries and refers to the degree to which individuals are integrated into groups. The opposite of Individualism is Collectivism, however, both countries score high on individualism. This implies that the society expects individuals to look after themselves and also the representative’s families.
5 Geert Hofstede, Cultural Dimension
<http://www.geert-‐hofstede.com/hofstede_france.shtml>
Masculinity (MAS)
France has a more masculine culture than Norway, which denotes that it has adopted assertive and competitive values. Norway on the other hand, is defined as supporting a feminine culture and therefore embraces modest and caring values more extensively.
Uncertainty Avoidance Index (UAI)
France is claimed to score high on the uncertainty avoidance dimension, while Norway conversely is positioned in the middle of the scale. This dimension refers to the society’s tolerance to uncertainty and ambiguity. In other words, the French culture attempts to avoid situation that are unknown, surprising and abnormal. This objective is accomplished through strict rules, safety and security measures.
Moreover, the French culture believes in one absolute truth regarding the
philosophical and religion level and the French people are also more expressive and motivated by inner nervous energy.
Long – Term Orientation (LTO)
Norway attains a very low rank on long-term orientation, while France does not express any score at all and therefore communicates that it has a short – term
orientation culture. The French culture treasures traditions, fulfilling social obligations and protecting one’s “face”, while Norway does not mind of this as much.
3.1.2 Richard R. Gesteland
Another well-known professor, who has done a lot of research on cultural differences, is Richard R. Gesteland. He wrote the book Cross Cultural Business Behavior, in which includes some other sorts of cultural dimensions than mentioned above.
Gesteland asserts that the French business culture is moderately Deal – Focused, Formal, Variably Monochronic and Emotionally Expressive. 6
Deal - Focused
In a Deal – Focused cultures, business or deal come before relationship where as in Relationship – Focused cultures the opposite is experienced. Norway retains a Deal – Focused culture while France possesses, as mentioned earlier, a moderately Deal – Focused culture. A Norwegian company that desires to do business in France should be aware of this difference. This way, the company does not have to be surprised when the French wish to talk more personal and get to know the other party to a certain degree, before getting down to business. Subjects making a good impression on the French counterpart can be literature, art, cuisine and wine.7 Formal
The French culture is more formal than the Norwegian and hierarchy and status is therefore much respected in France. Level of education beside with family
background and wealth, establish one’s status in France. Furthermore French managers tend to run their companies in a rigid style and managers are expected to have all the answers to questions that occur. They are also often unwilling to
delegate authority as opposed to the Norwegian management style, which is structured relatively flat and with a democratic approach. 8
Monochronic
Monochronic cultures have a strict relation to the time, which means that business meetings are expected to follow a certain agenda, participants are expected to be on time as well as deadlines are demanded to be held. The opposite dimension is called Polychronic and in these cultures there exist no obsession with time or deadlines as loose scheduling is appreciated. Norway grasps a Monochronic culture where as in France it is more variable according to location and situation. Business meetings in
6 Gesteland, Cross Cultural Business Behaviour, p. 249
7 Gesteland, Cross Cultural Business Behaviour, page 149-‐253
8 Gestleand, Cross Cultural Business Behaviour, page 149-‐253
France do not always have a fixed agenda, however visitors are expected to be roughly on time for the meetings. 9
Communication
The French communication style is emotionally expressive, both verbally and non- verbally. The French tend to use a lot of hand gestures and exercises a high context behavior. High context behavior means that the French are less directly in their communication than the Norwegian, and they do not enjoy getting straight to the point. Another essential aspect regarding the communication is that the business language is French in almost every situation. Export marketers are most often
expected to speak French and written correspondence should also be in French. The French has a local sensitivity to their language, but advice foreign to speak French as much as they can, even if the accent is different. 10
9 Gesteland, Cross Cultural Business Behaviour, page 149-‐253
10Gesteland, Cross Cultural Business Behaviour, page 149-‐253
Part 3
Chapter 4: Research Methodology
The purpose of this part is to give the reader an understanding of the methodological approach in the thesis, explain the choices for collecting data and the background for these decisions.
The fundamental method undertaken throughout the thesis is based on various qualitative measures in order to increase the understanding of diverse social phenomena. Behind this theory is the clue that the phenomena cannot be broken down to separate parts, as the pieces themselves are involved in a bigger picture.
That is to say that one cannot interpret the pieces apart, and not the picture without the pieces. This is a typical hermeneutic approach rooted in a social constructivism and the intention is to understand how people in certain situations behave, create meaning and express themselves. 11
The research is conducted in accordance with the process presented by Gripsrud, Olsson and Silkoset, as displayed below. 12
4.1 Aim and Research Questions
The research aim and questions are already declared earlier in the thesis, and for that reason this methodology section will merely refer back to the previous part.
4.2 Design
There existed little prior adequate knowledge among the authors on the subject of the thesis and no relevant theoretical concepts or theoretical models was established beforehand. In other words, there was no real basic ground for the starting point of the evaluations and an explorative design is thus exercised. The explorative design aims at examining the circumstances based on the former research aims and questions, for the purpose of understanding and interpreting the current phenomena.13
11 Gripsrud, Olsson and Silkoset, Metode og dataanalyse, 1th edition 2004, page 36-‐38
12 Gripsrud, Olsson and Silkoset, Metode og dataanalyse, 1th edition 2004, page 53
13 Gripsrud, Olsson and Silkoset, Metode og dataanalyse, 1th edition 2004, page 59 Research Aim Research
Questions Design and Data
Requirements Data
Collection Data
Analyzis Conclusion
An accepted commencement in the case of this thesis in regards to the explorative design is to conduct secondary data from reliable resources and on own initiative collect primary data. 14
Qualitative methods are closely linked to explorative design and in the thesis this approach has been the most suiting in respect of understanding and explaining the environment and situations.15 Qualitative research is based on an inductive view, as theories derive from observations. 16 The qualitative research is forceful in the senses that it answers questions as “what”, “how” and “why”, which have been major
elements of importance to address in the thesis.
4.3 Data Collection
The research has focused on both primary and secondary data, in order to reach the research aim and answer the research questions. Pros and cons with these methods will be discussed further down in this part of the thesis.
4.4 Secondary Data Research
Secondary data is information collected by someone else for other purposes, however, which can be relevant when answering one’s own questions. The
advantage with secondary data is that the process of finding necessary facts is easy, relatively fast, convenient and often free, since someone already has done the job before. 17
The secondary data can be divided into internal and external sources with root in whether they have derived from the organization itself or from sources outside the corporation. Internal data may be sales numbers, information about costs for diverse activities, reports from customer visits and complaints. The external sources on the other hand, can be further separated into two groups; the public sources and the standardized surveys. Public sources are everything that is available for the public, while the standardized surveys are gathered by professional marketing research
14 Gripsrud, Olsson and Silkoset, Metode og dataanalyse, 1th edition 2004, page 59
15 Gripsrud, Olsson and Silkoset, Metode og dataanalyse, 1th edition 2004, page 97
16 Gripsrud, Olsson and Silkoset, Metode og dataanalyse, 1th edition 2004, page 19
17 Gripsrud, Olsson and Silkoset, Metode og dataanalyse, 1th edition 2004, page 78
firms for groups with common needs. The use of external sources has increased dramatically after Internet got a foothold. 18
Vigdis Yran Dale, as an internal source, has provided useful and constructive information about the company, its activities, interests and general business.
External information has mainly been collected through the Internet with public sources as a major contributor and other sources also used especially extensively have been the curriculum books. There often exist constraints regarding utilizing standardized surveys, as it in many cases is required payment to get a hold of them.
However, through Grenoble École de Management and BI Norwegian School of Management, some sites have been made available free of charge. Hence, the authors have accessed and exploited databases like Euromonitor, Datamonitor and Eurodata.
4.5 Critical Evaluation of Secondary Data
It should be pointed out that validity in regards to secondary data in some cases could be somewhat lower compared to research primary conducted. Validity is the extent to which a test or survey measures what it claims to measure.19 The reason for the statement above is that secondary data for a fact is not collected for one’s own purpose. Hence, it may be most correct to use it only with the intention of increasing insight in an area. What is more, as secondary data originally was
collected as primary data, secondary data will be exposed to the same weaknesses as primary data. One should also be observant that the data might have been processed or distorted. 20
Sampling errors is yet another problem that might occur with secondary data, as one may operate with a sample rather than the whole population. Also if for instance not all respondents from the sample are taken into account, some are counted double, the questions are imprecise, the questions themselves influence the responses etc., the validity will be decreased. 21
In order to reduce the risk of errors, the authors have utilized a very critical eye and chosen to focus on up-to-day resources. The origin of the sources has also been
18 Gripsrud, Olsson and Silkoset, Metode og dataanalyse, 1th edition 2004, page 80-‐81
19 About.com, What is Validity? <http://psychology.about.com/od/researchmethods/f/validity.htm>
20 Gripsrud, Olsson and Silkoset, Metode og dataanalyse, 1th edition 2004, page 78-‐79
21 Gripsrud, Olsson and Silkoset, Metode og dataanalyse, 1th edition 2004, page 79
evaluated before the information has been applied or possibly rejected. If the authors have been insecure about the quality of the material it has been eliminated.
4.6 Primary Data
In addition to the secondary data, the authors have conducted own research in the field. There exist different ways to collect primary data and the two most relevant are communication with target groups and observation of people. These methods can all provide both qualitative and quantitative data. Even though the authors have chosen generally to conduct a qualitative angle to correspond to the explorative design as previously discussed, quantitative data is also extracted from the research
undertaken in this part. 22
Several interviews with store managers have been carried out over the last couple of months, for the purpose of exploring the French market and its potential for Lillunn.
Furthermore, an online survey has been active for two months, as well as the authors have conducted a detailed phone interview with Innovation Norway.
4.7 Interviews with store managers
Interviews with store managers in France have been performed and helpful
information and facts have been extracted in this regard (see appendix 1). Also the authors decided to include an interview done in Austria for the reason that the markets might look somehow alike and can provide an interesting point of view (see appendix 1). However, this interview, as it is besides the target market, is not
incorporated in the thesis itself and no decision have been based on this research.
Some of the interviews where executed in English, while others required a translator.
All interviews are translated into English and are added to the thesis as appendix.
The main findings of the interviews where that mostly all of the managers asked, felt that Lillunn’s clothes would sell well in the Alps. That is to say, that the market for the clothes in larger cities like Grenoble, was not understood as being attractive. The explanations for why the clothes probably would be more appropriate in the Alps
22 Gripsrud, Olsson and Silkoset, Metode og dataanalyse, 1th edition 2004, page 97
were due to the low temperature in the area and the many tourists during the seasons. Furthermore, what seemed to be a general opinion was that the clothes were old fashion and did not possess an appealing design. What is more, the
participants in the interviews all associated Norway and Norwegian clothes with high prices, however, also good quality. There were some shops that were interested in Lillunn’s products, especially the manager of “Grand Air” in Grenoble who is planning to open another store with mainly Norwegian brands.
The interview of two store managers in Ehrwald in Austria concluded that both of the participants were more positive to Lillunn’s image and products, than what seemed to be the case in France.
4.8 Online survey
By using the web tool on SurveyMonkey.com an online survey was created. The survey was sent out to women who have a connection to France (see appendix 2).
The survey was sent to approximately 70 women in the age group from 20-60, and the survey was available online for two months. 31 answered surveys back were received back, which is a percentage on 42,9%. Over 80% of the answered surveys were from young women in the age group 20-29, and there were none representing the age group from 60 and above. Using e-mail and the online network society Facebook the survey was sent.
A reservation should be made in this regard, as the outcome of the survey can have been affected by the assumption that elder people spend less, if no, time online and especially on websites as Facebook, hence the survey has not reached them.
According to the results of the survey, the most important factors for customers when they buy winter clothes are trends & fashion, followed by factors like high quality, comfort and functionality. The women’s response to this survey illustrates that it is the price that is the least important factor when they are shopping for winter clothes.
On the questions 5-8 in the survey, the users were presented to 4 different products designed by Lillunn and they were asked to express their opinion about them in the form of a ranking system.
In this relation the respective values for each of the questions regarding some specific Lillunn products, have been calculated (see appendix 2). In this context, 4 selected items from Lillunn’s collection, which includes 3 different jackets and 1 scarf
are displayed (see appendix 2), because they are representative for Lillunn’s image, brand and clothes. Looking at the results of the calculations, it is evident that the numbers for the different items are quite similar. The average values for the four items are 3,5, which indicates that the expected value among the French customers is medium to low.
The two last questions concerned whether or not the clothes would fit in the Rhône- Alpes region in France and if the women would consider buying these clothes
themselves. Over 60% of the responders thought that the Rhône-Alpes region would be appropriate for these clothes, but there were not more than 12,9% that would consider buying them.
The calculations represent quantitative data and indicate characteristics in the French market.
4.9 Phone interview
On the 28th of May a phone interview with Fredrik Vestli, which is the Market Advisor for Trade in Innovation Norway in France, was arranged (see appendix 1.2). The topic for the interview was mostly related to trade between Norway and France, and his recommendations for Lillunn’s entry on the French market.
4.10 Critical Evaluation of Primary Data
The interaction with the respondent in an interview is crucial for the direction and the outcome the setting might take. The respondents might in some cases be affected by the very personality of the people who are asking, but also by the way questions are presented and structured.
Regarding the phone interview, there are some disadvantages. First of all, visual stimuli are not possible to observe as the person at the other end is out of sight.
Secondly, the respondent is likely to give rather short and less thought through answers, as opposed to having a face-to-face interview. One reason could be that the parties feel pressured to speak fast. Furthermore, it is hard to conduct
complicated scales and questions over the phone. Last but not least, the interview cannot be too long, as the respondent might get impatient. 23
23 Gripsrud, Olsson and Silkoset, Metode og dataanalyse, 1th edition 2004, page 164
In the view of online surveys, the respondent might be a very selected and limited group as for instance elder people do not utilize internet to the same extent as younger. Furthermore, as the respondents are faced with a computer and not a person, they may not feel too obliged to answer careful and with conscience. Hence, it may be hard to generalize the population and decide on valid data.
4.11 Validity and Reliability
The content validity concerns to the extent of which a measure represents all facets of a given social construct.24 Reliability on the other hand, refers to the consistency of a measure and a test is considered reliable if it gets the same result repeatedly. 25 Naturally, as discussed in this section, the approaches in regards of both the primary and secondary data have their weaknesses and may be criticized. However, for the purpose of this thesis, they are generally reliable and valid enough and as said before, the authors have been very consistent and critical when conducting research and evaluating resources and information. But, one must be aware of the traps that the methods may generate, in order to avoid them.
24 About.com, What is Validity? <http://psychology.about.com/od/researchmethods/f/validity.htm>
25 About.com, What is Reliability?
<http://psychology.about.com/od/researchmethods/f/reliabilitydef.htm>
Part 4
Chapter 5: Internal Analysis 5.1 Internationalization Capability
For the purpose of determining Lillunn’s ability and potential for internationalizing its business, the company’s corporate culture, market share in Norway and market network will be evaluated.
5.2 International Corporate Culture
5.2.1 ACE
The difference between an excellent exporter and a less successful often depends on the attitudes within the company, the company’s competences and the
embodiment of the strategies and engagement throughout the whole organisation.
The ACE-model is one way to describe these factors in a structured manner with the intention of evaluating the company’s prospects of export. 26
Attitudes
In order for Lillunn to be successful in the international market, the management must employ the right attitudes. Even though Lillunn is of a very small size with few employees, this theory still applies. Both Vigdis Dale as the leader and her three seamstresses need to think in a certain way do well in other markets.
Research has shown that the most successful exporters tend to have a lower risk version. Low fear of ambiguity can be the result of strong financial resources and a high level of knowledge and experience concerning international markets. However, in Lillunn’s case, the lack of a robust financial ground, experience and know-how might increase the risk rather than decrease it. This way, the risk will probably depend even more purely on the mentality of the manager and the manager’s determination and charisma.
Another factor proven to be relevant in relation to the degree of a business´ success abroad is market orientation. Market orientation involves the concept that the
manager seeks information from the market and customer and provides activities and decisions to support the gathered facts. As long as orientation towards the customers abroad is kept within some limits so that costs will not grow excessively, this
26 Solberg, Internasjonal Markedsføring, 8th edition 2009
approach is considered to be more beneficial than a solely focus on product
development. Even so, Lillunn’s production is anchored in tradition and history, with less emphasis on changing trends and not necessarily with a thought about the real overall customer need and demand. This can imply that the company will have an obstacle on its way towards expansion.
Whatever situation it is crucial to be prepared and research has indicated that successful exporters find barriers and hindrances to be less dangerous and
discouraging than other companies. In circumstances where things get difficult, these successful companies, instead of backing out, look for new solutions and
opportunities.
Competence
Studies imply that a successful exporter to a larger extent than those being less successful, “follow the book” and “go by the rules”. Skills and insights are necessary, but not critical when determining the success of an exporter. More importantly is sales technique and marketing, according to Solberg. 27
What separates a good exporter from the best is how they apply the marketing mix, that is to say product, price, place and promotion. Based on Kotler’s product concept theory, which claims that an overall product is built up of a core product, a physical product and an expanded product, the key for success is to focus on the last part28. The expanded product includes product development in line with cooperation with the customers, to add a certain emotion and bond between the customer and the
product.
Since Lillunn customizes its products to some degree, it can be argued that the company is good in this area. For this reason, Lillunn has a case to justify the price of its products, which can easily be interpreted as being overpriced if the customer does not feel any gain beyond the physical artefact.
On the other hand, concerning market influence, Lillunn is not very present in the markets as it is a small company with few employees. In other words, working with customers is more limited to specific affairs as opposed to being an overall strategy.
27 Solberg. Internasjonal Markedsføring. 8th edition 2009
28 Solberg, Internasjonal Markedsføring. 8th edition 2009. page 136.
Distribution channels do also seem to constrain the contact with customers in the sense that Lillunn has few own stores and generally sells through other retailers.
These issues might restrain Lillunn in its reach towards being a successful exporter.
Embodiment
Obviously if a company wish to be a successful exporter, the attitudes, competences and everything else relevant to this strategy must permeate the organization at all levels. For Lillunn, being the small company that it is, the manager needs to take on the bulk of the responsibility in this context and pass on the appropriate mindset to the employees. The clue is that everyone involved in the process have to seek the same aim and have the same perception and understanding of the situation. Vigdis Dale has the most extensive work regarding the embodiment, and her thoughts, commitment, strength and comprehension will lead the direction of the expansion.
5.2.2 The Good Export Circle
The internationalisation process for a company can be characterised as an ongoing progress in which attitudes, competences and embodiment influence each other.
First of all, the internal engagement and support is essential for further expansion and will in the next turn affect commitment and the step-by-step development of the organization towards internationalisation. For less experienced companies like Lillunn, many challenges must be expected which have to do with information, knowledge and operations.
Regarding attitudes, the manager seems to have a desire to develop the business across borders. However, as Vigdis Dale organize most of the functions herself in the company, a load of responsibility will be put on her shoulders. As a result of the fact that the workload is not distributed differently, her personal risk is likely to increase.
Also Lillunn’s lack of financial resources, knowledge, experience and market orientation policies increase the risk and consequently constrain a possible expansion.
Lillunn does not score high concerning competences either, due to its almost absent marketing. The business does not have a systematic plan for the marketing mix, and customers are approached more randomly than calculated.
As implied, embodiment of the ideas into the organization depends on a great extent upon the manager and without her commitment there will be no results.
To conclude the ACE model one can claim that Lillunn still has a long way to go before getting to the point where the company is a steady and successful exporter (see appendix 3).
5.2.3 The Bakka – model
The Bakka-model explains a company’s internationalisation process and divides it into distinct phases; from what is called trial export till the last stage of the process described as international marketing. Utilizing the model one can detect diverse factors assumed to influence corporate decisions in the various phases. 29 The first and basic step of the Bakka model is to identify Lillunn’s position in the internationalisation process, because this step needs to be in place before taking a closer look at the dynamics of the circumstances.
Lillunn sells at the moment to five stores abroad, one in Holland/Netherlands, one in Germany and three in Sweden. An agent was used in the start up phase of these affairs, but as the relationships to the foreign stores became more established and operations started to function as routines, there was no need anymore for the agent.
As a result Vigdis Dale has worked the connections herself since she dismissed the agent. In other words, Lillunn has no own sales office or department and it has not dedicated a division or employed specialized people just for the purpose of exports and sales abroad. What is more, Lillunn does not seem to have developed a detailed and professional plan for further expansion. Costs regarding export, marketing and related functions are kept at a minimum and, as far as market share and brand identity goes, the company is close to invisible outside Norway’s borders.
However, this is not abnormal thinking of the size of the company and the fact that drastic measures in the direction of larger expansion would be very expensive and demand huge attention and devotion from the manager. It only implies that Lillunn is in the first stage of the internationalisation process; trial export.
Companies at this immature stage in the internationalisation process often face a lot of challenges. Lack of knowledge is generally the reason why, as a result of the fact that the company has not built enough experience yet. Situations will be hard to
29 Solberg. Internasjonal Markedsføring, 8th edition 2009, page 119
predict and everything from simple to more advanced technical circumstances concerning export might cause unexpected costs.
Also, elemental events in the market can surprise the company, thus result in less attractive deals, relations, collaborations and so on. For instance, a small Norwegian exporter like Lillunn, might not know exactly who to address when entering another country. Consequently, the Norwegian exporter can easily fall into the trap of choosing the first opportunity that comes along, for then to be locked down in an unattractive relationship.
The deduction implies that there are tremendously many factors to keep in mind for Lillunn, but perhaps the most important issue is to ensure that the export plan is implemented at all levels in the organisation. This way, Lillunn can be responsive to the changes and problems that might occur. Small companies with relatively weak financial fundaments will usually have a harder time adopting and accomplishing this process, as it might take years to profit from the export.
5.3 Market share in reference market
5.3.1 BCG-‐matrix
A company’s ability to internationalize can be indicated by its market share in the reference market. The reference market may be recognized as the market occupying most of sales and consequently it normally provides the main income for the
company. Hence, the Norwegian market is Lillunn’s reference market as it is vital for the business.
It may be appropriate to employ the BCG-matrix when appraising the place of Lillunn in the reference market (see appendix 4). The model is based on the products’ life cycle, in order to determine future strategies for the company. The matrix decides the position of the products according to two different features, which are the growth in the market and the company’s relative market share. 30
Pure wool has always been the traditional material in Norway and is highly valued.
Wool breathes, is warm and light to wear, can be wet without loosing the capacity to keep the warmth and it is usually long lasting, hence it has been a preferable fabric
30 Solberg. Internasjonal Markedsføring, 8th edition 2009, page 146
for centuries. However, demand for products based solely on material of wool that has not been refined in any way, has decreased. The last couple of years have bid on an exciting development in materials, still with a fundament in wool for the winter season, which has changed the look, texture and functions of the fabric. Wool has for instance been mixed with other fibres to achieve discrete attributes that the
customers demand. The result of the development of wool-based materials has amongst others been more durable, softer, less expensive materials that may be easier to form. Of course, many will probably still favour the pure and natural wool for their clothes. Consumers concerned with environmental issues, animal treatment or just tradition are perhaps an example of people that fancy this kind of textile. But as a general trend in Norway the desire for products based on other materials than pure wool, is dominant these days. Even though quality wool of the kind that Lillunn offers is embraced by Norwegians as a part of their cultural heritage, it is probably not the most competitive material for clothes in the market. Thus, the niche market that Lillunn target is not in growth albeit the Norwegians value the material of Lillunn’s products.
Lillunn is a small company, as stated before, and its market share is corresponding with this size. It operates within a niche market, thus the company does not have a large market share on a general basis in Norway. Within the niche market
competitors appear to out weight Lillunn somewhat.
To give a short summary, the market is in low growth in Norway and the products also have a low market share. The conclusion drawn from the discussion then seems to be that Lillunn’s products are arranged in the matrix as “dog”. This implies that the company should consider to liquidate or in other ways try to avoid or minimize the dog position. However, Lillunn must be bewaring not to throw itself into expensive turnaround plans.
One should notice that the matrix has been criticized and that too much emphasis on the theory should be prevented. The criticism has been concerning the fact that a high market share is not the only success factor, market growth is not the only
indicator for attractiveness and also that “dogs” can earn more money than “cows” in some cases.31
31 Value Based Management, BCG Matrix
<http://www.valuebasedmanagement.net/methods_bcgmatrix.html>
5.4 Market Networks
Market networks are central in the process of working out a successful export venture. Well-developed networks will help reduce the uncertainty concerning decision-making and other manoeuvres, given that the information transmitted over the network is reliable. At the same time, market networks can improve a company’s ability to develop international strategies and as a result give the company a
competitive edge. 32
Lillunn had earlier quite a lot of contacts within the fashion industry through Unn Dale’s own extensive personal network resulting from her work as a model and countless travels around the globe. Many of these connections are however not part of Lillunn’s business network anymore, as they have faded away throughout the years.
But Lillunn is present at fairs both national and international, in an active search for new relations. Previously pointed out, Lillunn dismissed the agent working for the company in the international context. When cutting out the middleman, Lillunn risked loosing important present and future customers that the agent possibly has
knowledge of. On the other hand, Lillunn allowed itself to get closer to its customers and build stronger relationships with them. Further, this created an opportunity for Lillunn to learn more about the international market, due to the fact that information will not be altered, slowed down or held back by a potential not reliant agent.
Opportunistic behaviour among agents is often a risk running when a company utilizes a market attachment through a third person. Anyways, as Lillunn administers the relationships directly it gets a more straight and explicit information back from the markets it operates which eventually can generate a competitive advantage.
Within Norway, Lillunn sells to several stores and seems to have good relationships with them. But all in all Lillunn’s networks are not widespread and at the same time as the company needs to take care of its current contacts to keep them satisfied for future deals, it also needs to look for additional associations if aspiring the
development of the business.
32 Solberg, Internasjonal Markedsføring. 8th edition 2009
Chapter 6: External Analysis 6.1 Industry Globality
Lillunn’s competition arena can be described by exploiting Porter's five forces model, which provides an overview of the international competitive structure of the industry that Lillunn operates. The intention of the analysis is to assess to what degree the market is appealing or in a worst-case scenario, repulsive.
6.2 International Competition Structure
6.2.1 Porter’s five forces analysis
Porter’s s five forces analysis the industry by utilizing five factors to determinate the intensity in the field, thus the attractiveness of the market (see appendix 5). Michael E. Porter of Harvard Business School developed the framework in 1973, and his essential message was that where the forces are high the attractiveness of the market is most likely to be correspondingly low. The five respective forces are; the threat of entry into the industry, the threat of substitutes for the industry’s products or services, the power of buyers of the industry’s products or services, the power of suppliers into the industry and finally the extent of rivalry between competitors in the industry.
In this case the analysis naturally focuses on the clothing industry in the relevant area of the Rhône-Alpes.
The threat of entry - medium
Threat of entry principally denotes barriers to trade, hence if new entrants want to succeed in the industry they will have to overcome these obstacles. There are numerous barriers to trade and many are hard to detect before they suddenly and unexpectedly face the company. Everything from government restrictions and laws, capital requirements and learning curves to technical standardizations, new entrants and access to inputs can be regarded threats of entry. 33
As France is an attractive market in respect of the fashion and clothing industry, the danger of entrants looking for an opening to do business in the country, is evident.
Also, the fact that many tourists come to the Alps for skiing activities, pull competitors
33 Quick MCB, Porter’s five forces.
< http://www.quickmba.com/strategy/porter.shtml>
to the markets that Lillunn is targeting in this context. The market share of specialized chains keeps growing at the disadvantage of companies such as Lillunn, which will have difficulties keeping up with cost efficient, larger and experienced corporations.34 In other words, well-known brands and companies with a long proprietary learning curve and a focus on economies of scale will benefit. Thus, one can anticipate that Lillunn might meet some competition in France and especially in the Alps.
Other important factors in the business environment in Europe are trade agreements, which largely influence commerce across borders. France is a member of the EU and can trade easily with other countries that have signed this agreement. However, even though Norway is not a member of the EU it has consented explicitly regarding other arrangements in order to simplify trade. One of these agreements is the EEA
agreement (European Economic Area), which removes barriers to trade for the member states. In other words, the French market is less restricted for Norwegian companies such as Lillunn, than it would be for a non-member of either the EU or the EEA.
The closure of this debate argues that the threat of entry is medium.
The threat of substitutes – Medium to High
Substitutes are products or services that offer a similar benefit to an industry’s
already existing items and assistances, but by a different process.35 In other words, a substitute is a different alternative for the customer, which might cause a shift in demand for present products or services as they are being replaced.
Concerning clothes, the statement would be that there are few substitutes, if any, for the simple fact that clothes are the natural choice when wanting to dress up and stay warm. However, this is a general assumption and in the specific matter of substitutes for wool clothes, the situation might be poles apart. Referring back to the discussion on fabrics and technology in the BCG-matrix under the internal analysis, the
presumption is that there actually are substitutes to wool clothes. Materials that may replace wool can for instance be fleece or cotton, which are some of the most
common fabrics within winter clothes. Also different kinds of mixed fabrics developed
34 Johnson, G. Scholes, K & Whittington, R., Exploring Corporate Strategy. 2008. page 61
35 Johnson, G. Scholes, K & Whittington, R., Exploring Corporate Strategy. 2008.
