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International Management

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Introduction

BENETTON STM 160 - INTERNATIONAL MANAGEMENT Professor: Jane Salk Section 2, Tuesday (13:00-16:15) Cristina Merry del Val Mariategui Anna-Katharina Wittenstein Holger Breinlich BENETTON - HISTORY AND PRESENT STRUCTURE When Luciano and Giuliana Benetton, both grown up under the harsh conditions of war and post war Italy, founded Benetton group in 1965, they probably did never dream that one day their company would among the most famous in the fashion industry. Yet, 34 years later, Benetton is present in 120 countries and Edizione Holding, the holding company of the family is now making a yearly turnover of XXX billion Lira1. Not at least due to their controversial advertising campaigns which sparked strong reactions around the world, from outright ban to art awards, Benetton has become known worldwide. After the opening their first store in 1968 with a surface of only 40 square metres things were looking upwards soon. With the first successes, Luciano's and Giulinana's younger brothers, Gilberto and Carlo joined the business and since then Benetton has always relied on family and friends in their growing need for executives2. Thanks to an attractive design of their products with a bold choice of colors, a franchise system which allowed for expansion without large investments, a closely coordinated production and innovations in manufacturing techniques, Benetton rapidly conquered market shares, first in Italy, then in Europe and overseas3. In 1985, their annual turnover had reached 900 billion Italian Lira and their network included 3000 point of sales, mostly in Europe4. ...read more.

Middle

The site is responsible for quality control as well. The automated distribution center of Benetton is one of the most sophisticated ones in Europe, insuring quick delivery under four weeks to all Benetton shops around the world18. Outsourcing vs. Integration The organization structure described above is Benetton's answer to the question which activities of the value chain should be controlled within the company, in order to effectively and efficiently serve their markets. For Benetton, this was mostly a question of outsourcing vs. integration. Low value-added steps such as knitting were sourced out. This allows for low fixed and variable cost, as Benetton does not have to invest in the machinery that is used for knitting, and can benefit from the lower wages of those smaller companies. The strategically important functions such as design, dying and finish, and quality control and distribution are kept under the control of Benetton.19 Integration also meant that Benetton, in the face of complaints about high sales prices, had to rationalize operations to compensate for higher wages and lower all in all production costs. By integrating and automating logistics, Benetton was able to save 60% of the costs over the last ten years20. In the face of relatively high wages in Europe, another step in making production cheaper was to move production from the "heartland" Northern Italy either down to the south, where wages due to high unemployment are lower compared with the North, and increasingly to countries such as Brasil, China, Egypt, India, or Korea, where production is dedicated to local markets only, though.21 Sales Franchises Benetton sells its products through 7000 rather small stores in 120 different countries. ...read more.

Conclusion

and what kinds of mechanisms the company applies to coordinate its network: as any other company, Benetton developed its own mixture of centralization, standardization, and socialization: Centralized, and thus under direct control are strategically important areas (design, manufacturing, marketing); standardization is applied for information systems and ordering, but socialization is in our opinion most probably the mechanism of most importance. We derived this from the way Benetton deals with suppliers on a basis of trust and oral arrangements, and how the family's philosophy is promoted throughout the network. Personal relations, friendships, and shared values are a strong link that help keeping any organization together. And the future? But will it always be like this? We do think that also Benetton does and will have to change to respond to a changing environment, and to changes in the scale of its operations. The company may increasingly go abroad with its production in the clothing sector. On the one hand to lower production costs which is crucial in a competitive business such as the textile industry, and on the other hand to be more responsive to the new markets that develop in Asia and Eastern Europe. As these trends continue, and as production and sales of the sports equipment activities are already concentrated in Northern America31, the center of Benetton might eventually move away from Italy, thus forcing Benetton to become a truly, in terms of Hedlund and Kogut, "heterarchical" company32. This will, in our opinion, eventually influence the company's family- and friends-management approach, which in the long run might not be sustainable. ...read more.

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