Business Management
The fashion industry has undergone significant developments in the marketing and production methods. Previously, the quality of the product was the vital factor of survival in the fashion industry. To gain international recognition and competitive advantage firms in the fashion industry are increasingly branding their products and investing in the foreign markets. Notably, they have invested largely in the selling and marketing through online platforms (Moore & Doyle, 2010). Crucially, the Prada rise is associated with the branding introduced by Miuccia Prada, who revolutionised the operations of the Prada. The Prada management introduced differentiated products that facilitated its recognition in the international market. Through the creation of unique stores designs, the introduction of brands like Prada, and Miu Miu and establishing connections in major parts of the worlds it has emerged as a very competitive firm in the international fashion industry (Moore & Doyle, 2010).
Advantages of globalisation
One of the advantages of globalization is the value of country of origin branding. Italy is among the best countries in fashion and apparel business, and thus this gives Prada Company an edge over the other companies in the international market. In the 20th century, most of the companies used to concentrate on domestic production of products with little regard to the international market (Roman, & Manolică, 2012). However, in the 21st century, the perception of domestic production changed and differentiation between the country of origin brand and the place of design became apparent. Consequently, the country of origin has both tangible and intangible factors that put some of the countries in a better position when compared with other countries in the international market (Thompson, 2007). Thus, the country of origin is a major driver of consumer choice.
Another advantage of globalization is the cost of production. According to the theory of mass production economy, the average cost per unit of good decreases as the amount of goods produced increase (Hitt, Ireland, & Hoskisson, 2011). Expansions in the international markets give Prada Company an opportunity to grow thus achieving the benefits of scale. Foreign direct investment adopted by Prada allows for mass production of goods and thus reducing the cost of production.
Furthermore, Globalisation provides multinational companies with an international system of production. These companies seize the opportunity of certain factors of production not available in their countries. One of the ways of tapping theses resources is through foreign direct investment (Perpelea, Dută, & Perpelea, 2014). Thus, foreign markets offer flexibility that allows modification of the strategies adopted.
Disadvantages of globalisation
Customer preferences in the international market provide a potential risk to multinational companies. Multinational companies, thus, skilfully decide the country to invest by analysing factors such as the political stability, the exchange rate, corruption, tariffs, the customs duties, copyright compliance and cost of adapting to the new environment (Thompson, 2007).
Bureaucracy is a barrier to the multinational corporations more so foreign capital investment. In this case, the representation of the local managers in the running of the company, the ownership of the local company in the share capital and the need for technology transfer (Riaz Mir, Mahnaz Hassan & Majeed Qadri, 2014).
Furthermore, global market results in high competition among companies. In the international market, the multinational companies face both the local companies and the global competitors. The local competitors have an advantage of the multinational companies due to the legal rules imposed by the countries invested (Perpelea, Dută, & Perpelea, 2014). Besides, some of the customers are loyal to their national brand aided by deep insight into the local psychology orientation.
Environmental Analysis
Economic environment
Some significant factors in the economic environment have a huge impact on the Prada business. China is economically stable, and the demand for the leather bags and logos in China is increasing. The economic stability in China is promoting the growth of the Prada while the business of other companies like Gucci and Louis Vuitton are decreasing (Hajrani, 2012). Elsewhere, the uncertainty in the Asian and the Europe market caused the company’s profit to decrease to €451 million from € 628 million. The sales had increased in Japan and USA, but there was a huge decline in the Asia and Europe markets that had the impact on the net income (Paton, 2015).
Prada had also faced economic challenges as a result of increased debt. In the year 2006, the company had to sell some of the companies it had acquired like Jil Sander, and Helmut Lang Brand. The company also had to sell 5% shareholding to the Banca Intesa. The debt has reached € 1.1 billion by the end of the year 2008 (Moore & Doyle, 2010). The changes in the exchanges rates have greatly affected the operation of the Prada. It has been forced to report growth assuming a constant exchange rate and the current exchange rate. The sales were also affected by the increased Value Added Tax in Japan (PRADA spa, 2014).
Legal-Political Environment
Political environment plays a vital role in the growth of the Prada business. In China, the president discouraged the huge spending in the luxuries, and the sales of the Prada had decreased by 6.3% in the year 2014. Also, the policies adopted by the government against the foreign company’s demands consideration.
There are legal constraints that hinder the Prada adoption of the Foreign Direct Investment strategies. For instance, Japan increased the Value Added Tax for the luxury goods from 5% to 8%. Other companies are increasing taxes for the investments made by foreign companies. To overcome the challenges, Prada adopted the strategy of forming mergers. However, unsuccessful mergers caused the debt to rise to € 1.1 billion to the Prada.
Social factors
The clothes worn by people signify socio-economic classes of the various people. This factor hinders the expansion of Prada products. The apparels display a person’s identity and thus social factor influences the type of clothing. For the luxurious products, the customer forms an emotional connection between the goods since their durability and the high price influences the customers purchase (Nguyen, 2004). The apparel business differentiates itself from the other industry due to the unique design and fashion that a company has to consider during the manufacturing process. Some of the factors that influence the design and the fashion include the sub-cultures, the dynamic changes and the designer preferences. The consumers have different factors that affect them and these include cultures, the norms and the population changes (Saeed, et al., 2013). All these factors have a great impact on the choice of clothing. For instance, the age dictates the apparel worn such that the older people prefer loose clothes and the younger generation prefers tight clothes. The same factor is further complicated in the international market and thus making expansion of Prada Products difficult. The preferences are different in different continents and countries.
Technological factors
Although the production technology in the clothing industry may not be a significant factor, the artisanship is paramount. In the emerging markets, the fashion and the clothing industries are shifting the focus to online markets. The emerging markets of online markets engage the clients and provide access to products on demand (Nguyen, 2004).One of the lines of products that Prada deals in is in the leather goods. However, some of the materials required are scarce forcing the manufacturers to use substitute materials. When old fashions are dropped and new ones introduced, some technology becomes obsolete and thus necessitating cutting off some of the workers.
Competitive Advantage
The Prada has gained a competitive advantage in the international fashion industry. The competitive advantage makes the firm survive in the international market over the other competitors.
Strong brand
Miuccia initiated the branding on the Prada in the 1980s. The branded products dominated the luxury market at that time. Moreover, the Miuccia applied the philosophical understanding to sell on the informed buyers against the other competing firms. There is crowding of the luxury market with many products and the introduction of the sophisticated utilitarianism and technical competence made the products of the Prada highly differentiated products. The introduction of the competitive brands such as Miu Miu and Prada increased the positive performance of the firm. Philosophy always supports the brands and the collections of Prada.
The brand of the company competes largely with other companies at the global level that include; Gucci, Chanel, Louis Vuitton, and Burberry. The companies make efforts to outdo one another in the trade. The Prada outperformed the performance of the subsectors growing at a 9% rate while the average growth of the sub-sector grew at a rate of 6%.
Connectivity
The firms have established strong connectivity in the international market. The Prada has major connections in Asia, Middle East, Europe, United States of America, Italy and Japan. Notably, 84% of the company sales are made through the retail trade (Power, 2010). Therefore, major sales of the company are made through the established stores (Aula, Khan & Guan, 2010). Thus, products are introduced easily in the market, and the promotions activities are cheap and made easily through the wholesalers (Visconti, 2014). The huge presence and the popularity in the market in the above areas help the company to compete effectively with other firms in the industry. The company has largely established its presence in London, Paris, New York and Madrid. Majorly, the company has a strong foundation in the major markets of the luxury goods that include USA and China.
Preference for Prada products in China
The market in China is increasingly becoming sophisticated with consumers demanding more quality products (Hajrani, 2012). The products mix introduced in China have been helping the company gain popularity (Hajrani, 2012). The demand for Prada leather bags and logos in China is increasing. The consumers are turning away from the products made by Gucci and Louis Vuitton. The products sold by the Gucci and Prada based on logos are becoming infamous in China. The customers have liked the new Prada products in China market. The competitors of the Prada are losing the market while the Prada growth and popularity is increasing (Hudders et al., 2014). Prada estimated to open eighty retails outlets in 2012 in the China emerging markets. The value facilitates production of goods that can highly compete with other globalised company goods in the world (Hajrani, 2012).
Value Chain
Prada identified the value chain as the key competitive strategy. The Prada would ensure full control of the value chain. The value chain is one of the great strategies that help the Prada to remain competitive through innovativeness, flexibility, and a clear understanding of the cost of the goods sold (Prada, 2014). The innovativeness encourages the company’s growth in the new and the current markets.
Strength of the amalgamation
The survival and the growth of the Prada have been hastened by the collaboration with other firms in the international market. For instance, after the company’s difficulties in acquiring Gucci in a conflict with Louis Vuitton Moet Hennessey (LVMH) they later merged (Moore & Doyle, 2010). They together purchased 51% ownership of Fendi. Later the company sought to acquire other companies independently. For instance, in 1999, the company purchased 51% shareholding in the Helmut Lang brand. Later in 2004, the ownership was increased to 100%. Moreover, the company had acquired the brand of the English Shoe Company and the Car Shoe Company. The acquisition has allowed the company to extend its market in the world at a faster rate than its competitors (Moore & Doyle, 2010).
Conclusions
Social factors have influenced the expansion of Prada products. However, despite the changing trends in the apparel business, Prada has done little in changing some of the products such as the handbags. Over time, the customer’s taste and the preference change and thus Prada need to change the marketing strategy. Currently, the company places more emphasis on the expansion of new shops without changing the products in the stores depending on the changing preference (Wendlandt, &Valentina, 2015). The space rented by Prada for its retail sale is expensive as most of the products experienced low growth rate. Furthermore, the effect of concentrating on the store has done little to ease the situation. The customer has lost the emotional attachment to the luxurious products since the innovation of the products have declined (Wendlandt, &Valentina, 2015). Therefore, the marketing strategy of Prada requires a change to incorporate the new trends and be more customers sensitive.
The company should adopt more strategies of investing in the foreign countries. The Foreign Direct Investments is faced by hindrances such as increased tariffs by the foreign countries. Other methods of investing in foreign countries such as exporting, licensing and joint ventures would favourably work in other countries (Jones & Wren, 2007). The joint ventures with the local companies may force the government to relax some of the bottlenecks and tariff barriers imposed on the foreign companies. Besides, the company should only be involved only in highly promising mergers. The company was challenged with increased debt as a result of unsuccessful acquisition.
The company should highly utilize the competitive advantages already gained in the international market to increase sales. There are markets with potential growth such as China. China is the second largest market for luxuries after the USA. The customers in China prefer the Prada leather products rather than competitors goods. Moreover, the value chain has made the company produce innovative products preferred by customers. The company has also established strong connection in the major countries such as Italy, China, USA, Europe, and Middle East (Tielmann, 2010). The company is already making huge profits from these areas. It should use the strengths in those markets to enhance its competitive advantage.
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