Question1:
Why did Burberry initially choose a licensing strategy to expand its presence in Japan?
Licensing is a crucial strategy to expand the business. Burberry’s operations in Japan were successful due to the effective implementation of this market entry strategy. Burberry selected licensing to contain the rapid expansion in Japan, and it created a positive impact on the overall net worth of the company. Sanyo Shoki managed the operations incredibly, and it paid $80 million to the company. Of course, apart from the financial benefits, the company initially adopted this strategy because it was better to increase sales and grab an immense range of customers. Partner Sanyo Shoki made this deal successful by growing the number of stores in different Japanese regions. The company wanted to reduce capital investment in Japan initially, and it is one of the most prominent reasons for this strategy and execution. However, the brand image was to be sustained by the company, and it was also a significant concern in this market.
Question 2:
What limitations of the licensing strategy became apparent over time? Should Burberry have expected these drawbacks to arise?
Some limitations of the licensing strategy became apparent over time. For Instance, Burberry aimed to increase or sustain the brand exposure by retaining the brand image. The company wanted to keep its prices high for effective positioning. However, it was revealed that Sanyo sold products at low prices to increase sales and revenues. It was beyond the firm’s strategy, and it was not more luxury for customers. Lack of control on operations and pricing strategy were two prominent limitations, which also made the brand controversial. Burberry did not expect these limitations or drawbacks in this market. In the contemporary business environment, competitive advantage is a crucial factor, which can enable business growth and sustainability. Burberry intended to keep its image alive, but Sanyo Shoki had its concerns. The difference between business ideologies made the difference, and it compelled the company to change its decision and strategy.
Question 3:
What terminating the Japanese licensing agreement and opening wholly owned stores the correct strategic move for Burberry? What are the risks here?
Terminating a licensing agreement and operation with wholly owned stores was the best strategy for the company to survive in the global market like Japan. The company wanted to create a brand image through high prices of its luxury products. By opening its stores, the company was in a better position to sell its product with the appropriate pricing strategy. Interestingly, this pricing strategy did not create a negative impact on sales and revenues. Selling at high prices through wholly owned stores created the opportunity to regain its image and target customers who wanted to pay high to get luxury products. Previously, the licensing agreement reduced the switching cost of customers, and it hit the company in the competitive market. It seemed a correct strategic move by the company to gain control of sales in foreign markets. The risk of customer conversion was also in the limelight, but retargeting customers by opening new stores was a right approach to meet sales targets and rebuild the brand image.
Question 4:
To what extent does internationalization theory explain Burberry’s experience in Japan?
The international theory explains the presence of Burberry in Japan. Burberry expanded the business or justified the internalization due to the imperfect intermediate product market. For \instance, in the United Kingdom, the company got the potential to maximize its production process to meet the needs of customers. Due to increasing competition and availability of substitutes for customers, the company moves to Japan to grab new customers and explore the market. The internalization theory also depicts some business risks such as unfamiliarity of new market conditions and trends. However, these risks are to be taken by the company to increase its global market share. The business partner sold products at low prices, which made the market imperfect for this firm. Now, containing the wholly owned stores in Japan is a part of the journey of making the market perfect for both customers and the business, and ultimately, it can create the favorable impact on profitability, brand image and competitive advantage.
