Strategic management and planning Article writing assignment help online:: Article writing analysis on IT & Strategic opportunity for logistics

Competitive Advantage by Exploiting Entrepreneurial Traits and Core Competencies By: M.K. Rahatullah and Robert Raeside

 Strategic Recommendation: Franchising

This article explains the relationship between franchisor and franchisee. Factors affecting the relationship are identified and possible mitigation techniques and steps suggested. This discussion considers franchising as a distinctive strategy where two entrepreneurs work in a symbiotic relationship to attain business development. In a franchise relationship, franchisor exerts control and power bestowed on him by default and provides support to keep the franchisee motivated. The franchisee possesses local knowledge, managerial power and capital which provide him some amount of bargaining power. In our case, Lululemon would be the franchisor and the potential South Korean candidate would be the franchisee.

Control and co-operation have been identified as the two most important factors which affect the business relationship in a franchise operation. If one partner’s actions are misconstrued by the other, it can upset the relationship between the franchisor and franchisee which may impact the business performance. The motivations identified for franchisee are maximum help and assistance from the franchisor, whereas the franchisor wants to control franchisee behaviour to minimise shirking, opportunism and other behavioural uncertainties and secure the franchisee cooperation for its macro level goals. In this case, Lululemon would want the potential franchisee to be able to perform in line with their existing strategy for marketing and retail which is selling the brand as a lifestyle brand as already identified in the group paper.

This in turn would require some controls to be established by Lululemon which could be done through both coercive as well as non-coercive methods. Coercive power is generally exercised through franchise contracts as identified by the authors and is related to the finances of the franchisee. Non-coercive power is exercised through the support provided by the franchisor for operations. In this case it would mean the training provided by Lululemon to the sales force to build the same reputation as that of a lifestyle brand. Distinctive retail experience has been identified as a core competency of Lululemon in the group paper which implies that the franchisee should be prepared to face a lot of non-coercive control based on the definition in ₈ this article. This could skew the balance in the franchisor-franchisee relationship between Lululemon and the South Korean franchisee given the cultural differences and the geographic differences between Canada and South Korea as identified in the group paper. As already stated, co-operation between the partners is the other major factor identified. In this paper, the authors have established that commitment and trust are required to maintain a valued relationship.

Interestingly, Lululemon has decided to pull out of Japan citing managerial difficulties (CBC, 2008). Also, they have converted their franchise operations in Australia to a joint venture (Lululemon Annual Report, 2008). These events suggest that Lululemon prefers to have more control on its operations or has a very difficult franchise contract which inherently poses a risk to the franchise model based on trust and co-operation as proposed in this reading.

Although, the franchising approach reduces the risk associated with the investment for Lululemon but also results in lesser control on operations which can be disastrous as Lululemon has a strong brand loyalty and any deviations could erode the brand loyalty which has been identified as a core competency (Lululemon Annual Report, 2008). Given the nature of core competencies possessed by Lululemon and the past actions taken by the firm, franchising seems to be a disadvantageous proposition as per the constructs of this article.

When you shouldn`t go global

By: Marcus Alexander and Harry Korine

Strategic Recommendation: Do not enter

This reading provides a framework for justifying globalization based on three decision criteria. The three questions which need to be answered are:

Are there potential benefits for our company?

Do we have the necessary management skills?

Will the costs outweigh the benefits?

The potential benefits for Lululemon are defined in terms of the potential market share they can gain by entering South Korea and the strategic advantage they will gain from economies of scale across the value chain provided by the manufacturing unit already established in South Korea (Lululemon, 2011a). The South Korean apparel industry is highly fragmented with a large number of firms possessing very small market shares (Euromonitor International, 2010). Nike and Adidas have been identified as major competitors as per the group paper, so assuming that Lululemon is able to gain similar market share of 0.3% the volume of units sold will be 0.3% of the total volume of units sold in the apparel industry in South Korea (Euromonitor International, 2010). The projected number of units to be sold in 2012 in the apparel sector in South Korea is 654 million units which imply potential sales of 1.96 million units based on 0.3% market share (Euromonitor International, 2010). Given the consumer preference towards yoga apparel in South Korea this is a lucrative opportunity (Soni, 2010). Also, since Lululemon products are considered to be luxury products with high price points (Lululemon, 2011b) even a 0.3% market share could provide significant revenue. So, on the basis of the above arguments we can easily conclude that there are definite incentives for Lululemon to enter the South Korean market.

The second question that needs to be answered is whether the firm possesses the necessary management expertise. This question can be answered by looking at events in the firm’s history. Lululemon is currently operating only in US, Canada, Australia and China (Lululemon, 2011c). This shows significant management capabilities however, they also shut down four ₁₀ stores in Japan, citing overutilization of management time and attention (CBC, 2008). Lululemon exited from one of the most lucrative markets in Asia shows that management is a very high priority with the firm and has well defined criteria for measuring the effectiveness and viability of a business venture. As already identified in the group paper there is a huge difference in the culture of Japan and Canada which when coupled with the large geographic distance resulted in managerial difficulties for Lululemon. Given the fact that South Korea is located in a similar location geographically and has a very different culture as compared to Canada, U.S. and Australia one can safely conclude that Lululemon will face difficulties managing their operations in South Korea. Therefore, they do not possess the necessary managerial capabilities for sustaining operations in South Korea.

 The last question is based on the cost benefits of entering South Korea. The opportunity cost for not entering would be the loss of market share and potential sales as identified previously in this article. There could however be other costs associated with entering the market. For instance if the chosen method was franchising it would definitely entail a lot of support and training for the franchisee as Lululemon has to ensure that the franchisee provides the exact same service as the corporate owned stores because a distinctive retail experience has been identified as a core competency (Lululemon Annual Report, 2008). This would require significant resources on the part of Lululemon. On the other hand, if the chosen strategy for entry is joint venture it would reduce the training costs but the transaction costs for establishing the joint venture coupled with the difficulties posed by the geographic and cultural differences would definitely outweigh the benefits. Therefore, given the fact that the South Korean market is highly fragmented with the market leader having a miniscule share of 3.0% and the majority of the industry players hovering around 0.3-0.4% market share, it does not seem to be viable for Lululemon to enter South Korea (Euromonitor International, 2010).

The author has identified in the reading that mergers and partnerships are being pursued by the companies in the manufacturing sector aggressively to achieve economies of scale and reduce dependence on home markets, however as stated and argued in this article the South Korean market does not seem to be capable of offsetting the resources and costs associated with entering the market although it may still provide economies of scale to Lululemon given the fact that they already have manufacturing capabilities in South Korea as identified in the group paper.