The German and Austrian trimmings markets in the “middle to high” level sports wear segment.

(1)

The German and Austrian trimmings markets in the “middle to high” level sports wear segment.

Author:

M.Klaasen

Doetinchem, December 2003

(2)

The author is responsible for the content of this graduation thesis;

the author holds the copyright on this graduation thesis.

(3)

Preface

This thesis has been written to finalize my Master’s degree program in Business Administration at the University of Groningen in the Netherlands. This thesis is the result of conducting a research assignment for the management of Jonvoll AB located in Borås Sweden.

I want to thank Dr. A. Visser and Drs. H.C. Stek for their support from the faculty of Management and Organization. Gratitude goes also to Mr. J Wollin for his support during the research assignment and his great hospitality during my stay in Sweden.

I also want to thank the employees of Jonvoll AB for their support and the pleasant stay in Sweden.

Finally I want to thank my parents for their great support during all the years of my studies. Their confidence and assistance in different manners were very important for me.

Mark Klaasen

Doetinchem, December 2003.

(4)

Management Summary

(In brief)

This survey is the result of a research assignment conducted at Jonvoll AB in Borås Sweden. The survey will provide policy supporting information for the management of Jonvoll AB.

Jonvoll AB is a holding company that contains several business units which are trading in trimmings. The company expanded enormously the last 13 years and a “total package of trimmings” (Buttons, Labels, Zippers etc.) concept was developed due to improving sourcing capabilities. This concept flourished well on the Scandinavian, UK and Baltic markets. The management of Jonvoll AB wants to expand the concept into new markets like the EU to achieve growth, create brand awareness and obtain knowledge for further development of the concept. After having done some preliminary research on the EU market the management of Jonvoll AB came up with the following question:

Because the company is stronger in the fashion items of trimmings, (can be seen on the outside of the garment) as opposed to basic items in trimmings (can not be seen on the outside of the garment), the survey will be conducted on the sports wear segment. The garments in this segment need relatively large amounts of fashion items of trimmings, which support the decision to focus the survey on this segment.

The survey will be conducted on the markets of Austria and Germany because after preliminary research by the management of Jonvoll AB these markets seem to be attractive. Mostly because of there big home markets for sportswear due to the opportunities for many outdoor activities in the Alps and other regions. The countries also have together a big population, which both explain the presence of quite some brand- named sports wear companies in these countries.

Management question

What are the possibilities for further development of the “Total Package of Trimmings” on the European market?

(5)

The research will be conducted on “middle to high” level sports wear brands because these companies are probably willing to spend more on trimmings.

This led to the following survey question:

Survey question

In order to answer this survey question, an external and an internal analysis have been conducted:

The external analysis contains a(n):

• Customer Analysis

• Competitor Analysis

• Market Analysis

• Environmental Analysis The internal analysis contains a:

• Strategy Analysis

Based on these analyses conclusions can be pointed out for the German and Austrian trimmings market in the “middle to high” level sports wear segment.

Conclusions for the German market:

• The market for Trimmings is big enough to generate enough take-in orders and thereby creating the opportunity for Jonvoll AB to make profit on this market.

Next to this he sports wear market is also a growing market.

• The market is reacting positive towards the “Total package in Trimmings”

concept. This probably results in a positive attitude when approaching this market.

• The market is loosely organized and not hostile, which makes it possible to What are the profitability perspectives of the ” Total Package of Trimmings”

concept in the middle to high level sports wear segments into the Austrian and German markets?

(6)

• Flexibility a very important characteristic to be possessed by a brand-named sports wear companies’ supplier. This matches well with the characteristics of Jonvoll AB which can offer a “Total package of Trimmings”, is a relatively small company and obtains international presence. These characteristics make it possible to be flexible for your customers.

• The present suppliers of Trimmings in Germany apply a “focus” strategy, by offering one or a few items of trimmings, and have a strong brand-name, however the German brand-named sports wear companies do have a positive attitude towards a supplier that can deliver a “Total package in Trimmings”

concept. Therefore also a “differentiation” strategy should be applicable for this market.

• Price is a non-important characteristic to be possessed by a supplier for the German brand-named sports wear companies. Therefore can be concluded that a

“cost leadership” strategy is not suitable for the German “middle to high” level brand-named sports wear market.

• The Jonvoll AB holding has a good financial position, which enables it to invest in the new markets.

• The quality of the “Package of Trimmings” concept should be very high, because quality is very important for the brand-named sports wear companies in Germany.

Also the functions of the garment like durability, breath ability and waterproof ness demand high quality trimmings.

• The high demand in quality by the brand-named sports wear companies needs a good after-sales function.

In general can be concluded that the “Total Package of Trimmings” concept can become profitable into the German “middle to high” level sports wear segment.

(7)

Conclusions for the Austrian market:

• The market for Trimming is not big enough to generate enough take-in orders and thereby not creating the opportunity for Jonvoll AB to make profit on this market.

• The market is reacting positive or has no attitude towards the “Total package in Trimmings” concept. This probably results in an unknown attitude when approaching this market.

• The market is loosely organized and not hostile, which makes it possible to approach the companies easily without being afraid for a hostile attitude. It also makes it possible to approach different brand-named sports wear companies without being shut from the total market when turned down by one company.

• Flexibility is a very important characteristic to be possessed by a brand-named sports wear companies’ supplier. This matches well with the characteristics of Jonvoll AB which can offer a “Total package of Trimmings”, is a relatively small company and obtains international presence. These characteristics make it possible to be flexible for customers.

• The present suppliers of Trimmings in Austria apply a “focus” strategy, by offering one or a few items of trimmings, and have a strong brand-name, however the German brand-named sports wear companies do have a positive attitude towards a supplier that can deliver a “Total package in Trimmings”

concept. Therefore also a “differentiation” strategy should be applicable for this market.

• Price is a non-important characteristic to be possessed by a supplier for the German brand-named sports wear companies. Therefore can be concluded that a

“cost leadership” strategy is not suitable for the German “middle to high” level brand-named sports wear market.

• The Jonvoll AB holding has a good financial position, which enables it to invest

(8)

In general concluded can be that the “Total Package of Trimmings” concept cannot become profitable into the Austrian “middle to high” level sports wear segment.

Based on these conclusions the following recommendations can be made to the management of Jonvoll AB:

1. Enter the German middle to high level brand-named sports wear market with a

“Total package of Trimmings” concept.

2. Do not enter the Austrian “middle to high” level brand-named sports wear market with a “Total package of Trimmings” concept (at the moment).

VІ

(9)

5.4.2: Industrial culture characteristics for Germany. 72 5.4.3: Industrial culture characteristics for Austria. 73 5.4.4: Sources for the results on sub question 4 74 5.4.5: Environmental developments in Germany 75 5.4.6: Environmental developments in Austria 75 5.4.7: Sources for the results on sub question 5 76

5.5: Competitor Analysis 76

5.5.1: Competitors for the German market 79 5.5.2: Competitors for the Austrian market 86 5.5.3: Overview of the results in competitor’s strategies 86 5.5.4: Sources for the results on sub question 6 87

5.6: Internal Analysis 87

5.6.1: Present operations of Jonvoll AB 87 5.6.2: Sources for the results on sub question 7 91 5.6.3: Present strategy of Jonvoll AB 92 5.6.4: Sources for the results on sub question 8 94

Chapter 6: The Analysis 95

6.1: External results’ analysis 95

6.2: Internal results’ analysis 100

6.3: Results’ analysis evolving in a SWOT analysis 101

Chapter 7: Conclusions 103

7.1: Conclusions for Germany 103

7.2: Conclusions for Austria. 105

(11)

Chapter 8: Recommendations 107

8.1: General recommendations 107

8.2: Recommendations for further research 108

References 109

List of models and figures 111

Glossary 113

Appendix 114

(12)

Chapter 1 Introduction and management question

In this report the company Jonvoll AB, which is an international trading company in trimmings, will be the centre point. The company has a long trading history in trimmings and is located in Borås Sweden. The company will be portrayed and the motivation for this report will be pointed out. In this first chapter the management question will be pointed out and also the structure of this report will be provided.

1.1 Management Question

Jonvoll AB is a holding company that contains several business units which are trading in trimmings. The company expanded enormously the last 13 years and a “total package of trimmings” concept was developed due to improving sourcing capabilities. This concept flourished well on the Scandinavian, UK and Baltic markets. The management of Jonvoll AB wants to expand the concept into new markets like the EU to achieve growth, create brand awareness and obtain knowledge for further development of the concept. After having done some preliminary research on the EU market the management of Jonvoll AB came up with the following question:

1.2 Structure

In order to make the research more comprehensible, the structure of the research will be pointed out. The different elements of this paper will be presented in a figure. The steps will follow each other in a chronological way and also the titles of the different chapters will be presented in this figure. The figure will be presented on the next page.

Figure 1 Management question

What are the possibilities for further development of the “Total Package of Trimmings” on the European market?

(13)

Chapter 1:

Introduction and management question

Chapter 4:

Theoretical Framework and Conceptual Model

Chapter 2:

The company in an historical perspective

Chapter 3:

Problem definition

Chapter 5:

The research

Chapter 6:

Analysis

Chapter 7:

Conclusions

Chapter 8:

Recommendations

Past

Present

Future

(14)

Chapter 2 The company in an historical perspective

In this chapter Jonvoll AB will be presented in an historical perspective. Jonvoll AB is the Holding company which contains several business units that all use the brand name Rudholm & Haak. First a chronological outline of the development of the company will be pointed out. Secondly an organization chart will be presented which contains the present structure of the company.

2.1 Rudholm & Haak AB

Rudholm & Haak AB is a trading company in trimmings for production companies in many countries of the world. The company was grounded over fifty years ago in Borås Sweden. The company was a small company of only six people until 1990. At that moment the company came in hands of Mr. J. Wollin who until that moment was a salesman in the company. As from the moment Mr. J. Wollin took over the company, the company expanded tremendously.

In 1990 the turnover of the company was about 9 million Swedish crowns (1 million Euros) and grew to 135 million Swedish crowns (almost 15 million Euros) in 2002. The company started growing from 1990 in the basic items of trimmings which are the items you can not see on the outside of the garment. These are items like sewing thread and interlining. In 1993 the company opened an office in Estonia as a response to their vision that future production of garments would move towards Eastern Europe because of cheap labor reasons.

More investments were made in the Baltic States as offices in Lithuania (1995) and in Latvia (1997) were opened. These offices work close together and are united in a Business Unit called “Eesti OU”. These offices are still mainly selling basic items in trimmings.

In 1999 the company expanded even further in Eastern Europe by opening an office in Romania. This office is a part of the business unit located in Sweden. The office has mainly after sales activities and is dealing with basic items of trimmings as well as fashion items of trimmings. These are the trimmings you can see on the outside of the

(15)

The final expansion of the company took place in the United Kingdom and in the Far East. This was also because of Jonvoll’s management’s expectations that a lot of production of fashion and sports wear would move away from Europe towards the Far East. Therefore an office in Hong Kong was opened for sourcing and after sales activities. At the same time a new sales office had been opened in the United Kingdom in order to collect sales for the Hong Kong office. The Hong Kong office also installed agents in Indonesia and in Sri Lanka. These agents have only after sales functions.

These offices are combined in a third business unit called “Rudholm HK Ltd. Hong Kong”. This business unit is mainly operating in fashion items of trimmings like labels, buttons and zippers and was founded also in 1999.

Combined these three business units form the Jonvoll AB holding. All business units use the Rudholm & Haak brand name.

In this period of growth the company was able to expand its product portfolio from only basic items of trimmings to also fashion items of trimmings. This led to a development of a “Total Package of Trimmings” concept by the company. This concept includes a collection of trimmings that completes a peace of garment. So accept the fabric all the products needed to produce a peace of garment could be provided by Rudholm & Haak.

This concept is flourishing well on the Scandinavian, UK and Baltic markets so the company wants to achieve growth by developing this concept in new markets within the European Union, which will create a basis for the future.

2.2 Present Structure

After having pointed out the developments of the company, the present structure will be shown in figure 3. This organization chart is representing the company the way it’s presently organized.

(16)

Figure 3 Organization chart

Explanation:

The * in the Jonvoll AB box of the organization charts indicates the location from which the research will be conducted. Jonvoll AB is the management of the holding and they are also located in Borås Sweden. The management of Jonvoll AB is also the principal of the research.

* Jonnvoll AB

Rudholm HK Ltd Hong Kong Rudholm Eesti OU

Estonia Ruholm & Haak AB

Sweden

Rudholm Rumania

Norway Agent

Rudholmas UAB Lithuania

Rudholm Riga Lattvia

Rudholm UK Ltd.

England

Indonesia Agent

Sri Lanka Agent

(17)

Chapter 3 Problem Definition

After having introduced the company in an historical perspective and having pointed out the developments that led to the management question, now the process of coming to a survey question will be discussed.

To do scientifically based research, and so being able to deliver a knowledge product, a solid research design is needed. According to “de Leeuw” (de Leeuw, 2001) decisions have to be made about:

a) Survey question: What do you want to know and why?

b) Theoretical concepts: In which theoretical concepts do you want to contain the research? Which insights will help you conducting the research? Which conceptual model will be used?

c) Data sources: Where do you get the data?

d) Measuring and observing methods: How do you get the data from the source?

e) Analysis and reporting: How will the achieved material be analyzed and how will the results be presented to the customer?

In this chapter the process of coming to a profound problem definition will be pointed out.

3.1 Problem’s background

In order to come to a problem definition first the problem’s background has to be pointed out. By answering two questions (de Leeuw, 2001) the problem’s background will be discussed:

1. What do you want to know for whom and why?

(18)

Who

This section deals with the customer of the research. The customer of the research is the management of Jonvoll AB. After noticing that the “Total package of Trimmings” was becoming more and more successful on the Scandinavian, UK and Baltic markets, the management wanted to further develop the concept and create brand awareness on the European market. After several meetings and some preliminary research, the management decided that the concept should be further developed by expanding towards new markets on the European continent. The management contains three board members:

1. Mr. Jonas Wollin (general manager and owner) 2. Mr. Lars Nyberg ( business developer)

3. Mr. Jan Borghardt ( marketing manager)

What

After noticing the success of the “Total Package of Trimmings” concept on the Scandinavian, Baltic and UK markets, the company wanted to develop the concept and create brand awareness on the European market. Taking into account that many major brands are located on the European main land the company’s management formulated the following question: What are the possibilities for further development of the “Total package of Trimmings” concept into the European market?

Why

After doing some preliminary research the company noticed that a lot of major fashion brands where located on the European main land. Because decisions regarding standards for the trimmings suppliers are made by the major brands, the company’s management wanted to develop the concept by expanding into Europe and so gaining the knowledge for developing the concept. Also the wish for achieving brand awareness amongst the major clothing brands on the European market developed the wish for further development into Europe. This would also provide the company with knowledge for further growth into other new markets.

By developing the concept into new EU markets the company wants to become an

(19)

Restrictions

The research must be completed before the end of January 2004. Before this date the results have to be presented to the management of Jonvoll AB in Sweden.

Because the company is stronger in the fashion items of trimmings (Mr. Wollin) the research will be conducted on the sports wear segment. The garments in this segment need relatively large amounts of fashion items of trimmings, which support the decision to focus the research on this segment.

The research will be conducted on the markets of Austria and Germany because after preliminary research by the management of Jonvoll AB these markets seem to be attractive. Mostly because of there big home markets for sportswear due to the opportunities for many outdoor activities in the Alps and other regions. The countries also have together a big population, which both explain the presence of quite some brand- named sports wear companies in these countries.

The research will be conducted on “middle to high” level sports wear brands because the company does not seek to apply a cost leadership strategy. The middle to high level brand-named companies in the sports wear segment are probably willing to spend more on trimmings.

The research will be a policy supporting research (de Leeuw, 1997) in order to provide the management of Jonvoll AB with information on which policy can be based. So the research will be a market analysis and not a marketing plan.

(20)

3.2. Problem definition

A classical problem definition contains: survey objective, survey question, and restrictions (de Leeuw 2001). A survey objective records for whom the survey will be done and why the survey is important for them. The survey question formulates the main question which is connected to the survey objective. It should be formulated into assessable terms so it must fit the theoretical framework. The restrictions of the problem definition show the limitations which the results and methods will be subjected to. The restrictions can be divided in process restrictions and product restrictions.

The problem definition will now be formulated based on the problem’s background and the introduction of the company.

3.2.1 Survey objective

Figure 4 Survey objective

Explanation:

A number of terms are mentioned in the survey objective. To get the right interpretation of the survey objective, the terms will be explained. The term Profitability should be interpreted as the demand to make profit within two years after entering the new market.

The profit that can be made on the new markets will depend on the entry strategy. The fixed costs are much higher when choosing for a new sales office (direct investment) as entry strategy for the new markets, as opposed to supplying the new market from existing sales offices (exporting) abroad. These decisions will be based on this market analysis and pointed out in a marketing plan. The marketing plan is outside the boundaries of this To provide the management of Jonvoll AB with policy supporting information concerning, the possibilities to achieve profitability in the middle to high level sports wear markets of Austria and Germany, with the ” Total Package of Trimmings” concept.

(21)

The term middle to high level sports wear markets should be interpreted as the brand- named Sports Wear companies that are operating at middle to high price level. The term Sports Wear should be interpreted as: sports clothing like track suits, jogging suits, ski- suits, shorts, sports branded T-shirts and all other garments used during sports or outdoor activities. The final term that has to be explained is:”Total Package of Trimmings”

concept. This term should be interpreted as the total amount of trimmings needed to produce a peace of garment. This is of course the ultimate goal of the concept, but the research must point out what characteristics the trimmings portfolio should posses. So the meaning of the concept is: a wide range of trimmings that will complete or almost complete a peace of garment.

3.2.2 Survey question

Figure 5 Survey question

Explanation:

In order to assess the profitability of the new markets for Rufholm & Haak AB, which is the final goal, the attractiveness of the new markets will have to be assessed. To assess the attractiveness of the new markets, information has to be gathered. This will be done by answering a number of sub questions that contain the most important items for assessing a market’s attractiveness. Some of these subquestions will be divided in an A and B part. The sub questions will be discussed in the next section.

What are the profitability perspectives of the ” Total Package of Trimmings”

concept in the middle to high level sports wear segments into the Austrian and German markets?

(22)

3.2.3 Sub questions

I this section eight sub questions will be pointed out that will provide the needed information to asses the market attractiveness.

Trimmings portfolio

The first sub question will deal with the demand of trimmings requested by the German and Austrian markets. These different items of trimmings will together form the “Package of Trimmings”.

This leads to the first sub question:

1A What kinds of trimmings are in the present “Package of Trimmings” in Germany?

B What kinds of trimmings are in the present “Package of Trimmings” in Austria?

In order to asses the attractiveness of both new markets for Rudholm & Haak AB, it is important to find out the demand in trimmings coming from the new markets. What kind of items of trimmings do they want and what are the implications for the “The package of Trimmings concept”.

Because of these reasons it is important to get an answer on this first sub question.

(23)

Partners

To build a good buyer vs. seller relationship it is important to know which company characteristics will be required by your potential customers. This will be the content of the next sub question:

2A Which company’ characteristics are required by the German sports wear companies to build a strong buyer vs. seller relationship?

B Which company’ characteristics are required by the Austrian sports wear companies to build a strong buyer vs. seller relationship?

At the moment we can distinguish a development of changing relationships between the buying and the selling parties in business to business relationships. The focus is not only on price and quality anymore, but also on flexibility, innovative skills and long-term relationships (Nooteboom, 1994). So, in order to become successful with “The package of Trimmings” concept on the new markets it is important to find out which company’

characteristics are requested by the potential customers.

Size

Another important question deals with the size of the market. The sports wear segment needs to be large enough to become profitable for Jonvoll AB. This leads to the second sub question:

3A How big is the turnover in the sports wear market in Germany at the level of brand-named companies?

B How big is the turnover in the sports wear market in Austria at the level of brand-named companies?

Explanation:

(24)

Answering this second sub question is important because the goal is to make profit within two years after entering both new markets. Making profit will become difficult if the market is not big enough. So in order to assess the attractiveness, and thereby the potential to make profit in these markets, it is also an important question to answer.

Culture

Business cultures differ a lot over the world. Being internationally operative as a company, includes having to deal with many different business cultures. This leads to the next sub question:

4A Which industrial culture is present amongst brand-named Sports Wear companies in Germany?

B Which industrial culture is present amongst brand-named Sports Wear companies in Austria?

In order to successfully do businesses on the new markets the business cultures of the new markets have to be taken into account. A layer of a business culture is industrial culture. The specific characteristics of the industrial culture, amongst brand-named sports wear companies in Germany and Austria, have to be taken into account when developing a marketing plan. By answering this fourth sub question the assessment of the new markets‘s attractiveness gets further input.

Environment

In order to asses the new market attractiveness for the company the influence of the wider environment has to be taken into account. The company wants to be profitable in the new market after two years and desires to get a position in the new market which is a basis for continuity. This wish demands an environmental analysis to point out long-term developments in the environment.

(25)

This leads to the fifth sub question:

5A Which legal, demographical or environmental developments might influence the German sports wear companies?

B Which legal, demographical or environmental developments might influence the Austrian sports wear companies?

The clothing industry has some environmental influencers. These characteristics of the environment might also influence the strategy of the sports wear producers which also influences the demand in trimmings they have. So answering this fifth sub question is also important for assessing the attractiveness of the new markets.

Competition

The brand-named Sports Wear companies in Austria and Germany have their trimmings suppliers at the moment. This implies that, when willing to enter the new market, competition will have to be assessed. The current trimmings suppliers of the sports wear brands managed to achieve a “fit”.

This leads to the sixth sub question:

6A Which suppliers of trimmings are presently active on the German sports wear market and how do they behave?

B Which suppliers of trimmings are presently active on the Austrian sports wear market and how do they behave?

Assessing the competition in the new market is an important part when assessing the new

(26)

After the external analysis, which will be completed by answering the first six sub questions, an internal analysis of Jonvoll AB has to be conducted. This is important in order to find out if there is a possibility to apply the company’s strategy on the target markets.

Current operations

First the current operations of Jonvoll AB have to be pointed out, which leads to the seventh sub question:

7. How can the present international operations of Jonvoll AB be divided into different segments?

By answering this seventh sub question developments in operations will be pointed out so strengths and weaknesses in different segments might appear. These developments in the different segment will give an indication whether Jonvoll AB will be able to successfully enter the new markets or not?

Strategy

Also the strategy of Jonvoll AB has to be assessed in order to find out if the strategy is suitable for the new markets. This leads to the eight and final sub question

8A To which extend is the present strategy suitable for the German sports wear market?

B To which extend is the present strategy suitable for the Austrian sports wear market?

Answering this final sub question is important because the target markets might request a strategy, which differ the strategy of Jonvoll AB. Applying the right strategy when

(27)

3.2.4. Restrictions

The final part of the problem definition is the restrictions. These restrictions can be divided into product restrictions and process restrictions (de Leeuw, 2001).

Product Restrictions:

• The research for the management of Jonvoll AB will be conducted on the German and Austrian sports wear markets. Other countries will not be included in the survey.

• The company wants to become an important player on the European market by selling a “Total Package of Trimmings” concept. The company seeks to be unique in the sports wear industry by adapting its concept to individual customers.

So this implies a differentiation strategy and not a cost leadership or focus strategy (Porter, 1985). The company does not want to be investigated the possibilities for a focus or cost leadership strategy.

• The research report will not include a strategic marketing plan but will be a strategic market analysis.

Process Restrictions:

• The results of the research have to be presented to the management of Jonvoll AB before the end of January 2004.

• During the field research the identity of the research’s customer will not be revealed. The interviewer will introduce himself as a student from the University of Groningen who is conducting a research on the European sports wear industry.

This approach will improve the reliability of the answers and the willingness to participate by the target companies.

(28)

Chapter 4 Theoretical Framework and conceptual model

This chapter will be divided in two parts, part A and part B. In part A, a general overview on the different perspectives on strategy will be presented. First the different perspectives on strategy at a fundamental level will be discussed. After pointing out these different perspectives, an international point of view will be introduced. After having pointed out the different perspectives in strategy, this research will get a position in these fundamental perspectives.

In part B the different theories for answering the sub questions will be introduced and pointed out. Finally a conceptual model will be presented.

Part A:

In this section an overview on the different perspectives on strategy will be pointed out.

This survey will get a position within these general perspectives on strategy.

4.1.1. Business strategy perspectives

Within the field of strategic management basically two different perspectives on strategy can be identified. These opposing outlooks are the outside-in perspective and the inside- out perspective.

Outside-in perspective:

Strategists adopting an outside-in perspective (de Wit, and Meyer, 1998) believe that firms should not be self-centered, but should continuously take their environment as starting point when determining their strategy. These strategists analyze the environment to identify attractive market opportunities. They search for potential customers whose needs could be better satisfied than currently done by other firms.

In short, to the outside-in strategist the game of strategy is about market positioning and understanding and responding to external developments. Some proponents of the outside- in perspective argue that in each market a number of different positions can be yield sustained profitability.

(29)

For instance Porter (1985) suggests that companies focus on a particular niche (Focus strategy) or they strongly differentiate their products (Differentiation Strategy). Other companies have the lowest cost positions in the market (Cost leadership Strategy).

Other authors emphasize that the position of being market leader is particularly important like Buzzell and Gale (1987), because they can profit from economies of scale and have more bargaining power. Also “Abell”, “Biemans”, “Roberts & Berger” and “Nooteboom”

are proponents of this perspective. Abell’s (1980) elements of strategy are Who, How and What. These elements are all focused on the offered value for the customer and can therefore be placed in the outside-in perspective. “Biemans” (2000) is also a proponent of this perspective which he points out in his book Business Marketing Management. The segmentation model of “Roberts & Berger” (1989) is a model in which they segment the market from suspects to customers. This model can also be placed in the outside-in perspective. Also “Nooteboom’s” supplier pyramid (1994), in which he points out different suppliers with different characteristics, can be placed in the outside-in perspective. In this model he points out different characteristics that should be possessed in order to become a main supplier. The final proponent of the outside-in perspective that will be mentioned is “Mülbacher” (1999). In his framework he discusses different layers of business culture that should be assessed when entering a foreign market.

Proponents of the outside-in perspective readily acknowledge the importance of the firm’s resources for cashing in on market opportunities the firm has identified. If the firm does not have, or is not able to develop or obtain, the necessary resources to implement a particular strategy, then specific opportunities will be unrealizable. However the current resource base is not the starting point when determining strategy.

(30)

Inside-out perspective

Strategists adopting the inside-out perspective argue that strategies should not be built around external opportunities, but around company’s strengths (de Wit and Meyer, 1998).

They believe that organizations should focus on the development of difficult-to-imitate competencies and/or on the acquisitions of exclusive assets. Markets should subsequently be chosen, adapted or created to exploit these specific strengths. Authors like Prahallad and Hamel (1990) argue that building up unique abilities is a strenuous and lengthy process, which can have both positive and negative consequences. On the positive side it will be difficult for competitors to copy such a strength, but on the negative side it will become difficult to switch to other competencies once focusing on a particular strength.

In short, the approach is that of ‘market position follows resource base’. The market position selected is adapted to fit the organization’s resource base.

4.1.2. The research in a business strategy perspective.

As pointed out above business strategy has two opposite perspectives. Both strategies have different points of view on the development of strategy. Both views tread the environment in different ways. The outside-in perspective regards the environment as the basis for developing a strategy. The inside-out perspective considers the internal resources of the company to be the starting point for developing strategy. When looking at the general research question the company wants to expand its activities to new markets in order to improve the “Total Package of Trimmings” concept. This implies that the company is willing to adapt to the company’s environment in order to meet customer demands. It wants the attractiveness of the market to be assed, and see if there is any possibility for the new market to become profitable, before entering the new markets.

This approach resembles the outside-in perspective.

Because of this reason this research will be placed in the outside-in perspective. The framework used for this perspective is provided by Aaker (2001) in his book “Strategic Market Management”. This book emphasizes that the development of strategy should be driven by the environment and should not be internal orientated (Aaker, 2001).

(31)

In order to make strategic decisions, different alternatives have to be developed by the strategic market management. These different alternatives will be provided by conducting an external analysis and an internal analysis. These analyses will be the input for strategy development and the strategically decisions, which at the end will be the output.

In this research the framework will be used to assess the attractiveness of the German and Austrian sports wear markets.

The external analysis contains:

• Customer Analysis

• Competitor Analysis

• Market Analysis

• Environmental Analysis The internal analysis contains:

• Strategy Analysis

(32)

4.2.1. Corporate Strategy

At a corporate level also different perspectives on strategy exist. These perspectives deal with the development of the company and decisions for development are made at the corporate level. Different possibilities in development of a company are pointed out in a matrix provided by Ansoff (1987).

Existing Adjoining New

Existing

“Do Nothing”

or

Market Penetration

Market Development/

Product Development

Adjoining

Market Penetration / Partly Market

Development

Partly Product development/ Partly Market development

Product Development/ Partly

Diversification

New Market Development

Market Development/

Diversification

Model 1: Development Matrix by Ansoff (1987)

In this matrix nine different options for development of the company are pointed out.

These different options will be explained one by one:

Product

Market

(33)

1. Do Nothing /Market Penetration:

Both these options in the upper/left box of the matrix involve the same product on the same market.

The 'Do Nothing' strategy implies the continuation of an existing strategy. It may be appropriate in the short-term when the environment is static or when the firm is waiting to see how situations develop. However, in the long term such tactics are unlikely to be realistic or beneficial. They may reflect a lack of strategic awareness on the part of the management team.

Market penetration involves gaining market share as opposed to maintaining it (consolidation). When the overall market is growing, penetration may be relatively easy to achieve, because the absolute volume of sales of all firms in the market is growing and some firms may not be able to satisfy demand. In static or declining markets, a firm pursuing a market penetration strategy is likely to face intense competition.

2. Market Development/ Product Development

Market Development/ Product Development in the middle/ upper box of the matrix deals with partly new products for the already existing market for the company. This implies new variations of the same product will be introduced on the existing market which will also develop the existing market.

3. Product development:

Product development, in the upper/right box of the matrix, involves the firm in substantial modifications, additions or changes to its present product range, but it operates from the security of its established customer base.

(34)

4. Market penetration / Partly Market Development:

Market penetration / Partly Market Development in the middle/left box of the matrix involves launching products from the already existing product portfolio on adjoining markets.

5. Partly Product Development/ Partly Market Development:

Partly Product Development/ Partly Market Development in the central box of the matrix involves launching adjoining products on adjoining markets. For example:

selling new variants of existing fast moving consumer goods to a new supermarket formula. This supermarket formula can be located on the home market or a market abroad.

6. Product Development/ Partly diversification:

Product Development/ Partly diversification in the middle/right box of the matrix involves launching new products on adjoining markets. For example: Developing a new fast moving consumer good for a new super market formula on the home market or abroad.

7. Market Development:

Market development, in the lower/left box of the matrix, can include entering new geographical areas, promoting new uses for an existing product and entering new market segments. It is an appropriate strategy to pursue when the organizations distinct competence rests with the product rather than the market. For example:

selling a fast moving consumer good from the portfolio to a supermarket formula in another country.

8. Market Development/ Diversification:

Market Development/ Diversification in the lower/middle box of the matrix involves launching adjoining products on a new market. For example: selling new variations of an existing product on a new market abroad. This will lead to diversification.

(35)

9. Diversification:

This option in the lower/right box of the matrix involves new products and new markets. Diversification can be classified as:

• Horizontal

• Vertical

• Conglomerate

Horizontal diversification refers to the development of activities which are complementary to or competitive with the organization’s existing activities. It is often difficult to distinguish between horizontal diversification and market penetration because classification depends on how narrowly product boundaries are drawn.

Vertical integration refers to the development of activities which involve the preceding or succeeding stages in the organization’s production process. Backward or upstream vertical integration takes place when the organization engages in an activity related to the proceeding stage in it's production process. Forward or downstream vertical integration takes place when the organization engages in an activity related to a succeeding stage its production process.

Conglomerate diversification refers to the situation where at face value the new activity of the organization seems to bear little or no relation to its existing products or markets.

(36)

4.2.2. The research in a corporate strategy perspective.

After pointing out the different options in corporate strategy for development of a company, the research will be placed in one of the nine boxes of the development matrix.

As already mentioned the Jonvoll AB holding is active on different markets with almost the same products. Different adaptations on the trimmings collections are made for the different countries. So is the “Eesti OU” business units mostly selling basic items of trimmings (not seen on the outside of the garment) and is The “Hong Kong business unit mostly selling fashion items of trimmings (seen on outside of the garment). The Swedish business unit is selling a mixture of both trimmings items. The aim of the management of Jonvoll AB is to sell a package of trimmings to their customers. This implies that different items of trimmings can be offered to their customers, either basic items, fashion items or both. This concept is already initiated on their different markets and is growing.

The management of Jonvoll AB now wants to find out what the possibilities are for the trimmings package concept on the European market. This survey focuses on the German and Austrian markets as pointed out in the first chapter. The global market should be considered as the total market and the German and Austrian markets are a part of this total market. These German and Austrian markets can therefore be considered as adjoining markets for the Jonvoll AB holding Company, and the products which the company wants to sell are the same or almost the same because of customizing the concept for individual markets. Therefore we can’t speak about diversification.

Regarding these facts we can say that this research can be placed in the middle box of the matrix called Partly Product/ Partly Market development.

(37)

4.3.1 International Strategy.

When companies expand and enter new countries choices have to be made regarding their international strategies. To develop a worldwide advantage, a company must achieve three strategic objectives. It must build global-scale efficiency in its existing activities, it must develop multinational flexibility so as to manage diverse country -specific risks and opportunities, and it must create the ability to learn from its international exposure and opportunities and to exploit that learning on a world wide basis (Bartlett and Ghoshal, 2000, pg 241).In order to achieve these objectives a company has three fundamental tools for building a worldwide competitive advantage: exploiting differences in sourcing and market potential across countries, exploiting economies of scope, and exploiting economies of scale.

Both these objectives and tools can be combined in a following table:

National differences

Scale Economies Scope Economies

Efficiency in existing activities

Benefiting from differences in factor costs – wages and costs of capital.

Expanding and exploiting potential scale economies in each activity.

Sharing of investments and costs across markets and businesses

Multinational Flexibility

Managing different kinds of risks arising from market – or policy – induced changes in comparative advantages of different countries.

Balancing scale with strategic and operational flexibility.

Portfolio diversification of risks and creation of options and side bets.

Innovation, learning, and

Learning from societal differences in

organizational and

Benefiting from experience –cost reduction and

Shared learning across organizational

components in different Tools

Objectives

(38)

Companies that are operating in different countries in the world can have different strategies. These different approaches to managing the world are:

• Multinational Strategy:

The multinational strategic approach focuses primarily on one of the different means (national differences) to achieve most of its strategic objectives.

Companies adopting this approach try to enhance their economic efficiency primarily by focusing on the revenue side, usually by differentiating their products and services in response to national differences in customer preferences, industry characteristics, and government regulations.

• International Strategy:

Companies adopting this broad approach focus on creating and exploiting innovations on a world wide basis, using all the different tools to achieve this end. These companies have their headquarters located in large and technologically advanced countries to exploit home-country innovations to develop competitive positions abroad.

• Global Strategy:

Companies adopting the classic global strategic approach, depend primarily on developing global efficiency. They use all the different tools to achieve the best cost and quality positions for their products. As several of these companies have found, such efficiency comes with some compromise of both flexibility and learning.

• Transnational Strategy:

Beneath each of these traditional approaches lies some implicit assumptions am how best to build a worldwide competitive advantage. The global company assumes that the best cost position is the key source of competitiveness. The multinational company sees differentiation as the primary way to enhance performance, and the international company expects to use innovations to reduce costs, enhance revenues, or both. Companies adopting the transnational strategy recognize that each of these traditional approaches is partial: that each has its own merits but none represents the

(39)

To achieve worldwide competitive advantage, costs and revenues have to be managed simultaneously, efficiency and innovation are both important, and innovations can arise in many different parts of the organization. Therefore in stead of focusing on any subpart of the set of issues the transnational company focuses on exploiting every each and every objective-tools combination so as to develop efficiency, flexibility, and learning simultaneously.

After pointing out the different approaches on managing the world as a company we can say something about their strategic orientation and their configurations of assets and capabilities. This will be done in the following table:

Multinational International Global Transnational

Strategic orientation

Building flexibility to respond to national

differences

through strong, resourceful, and entrepreneurial national operations.

Exploiting parent company

knowledge and capabilities

through worldwide diffusion and adaptation.

Building cost advantages

through

centralized, global scale operations.

Developing global efficiency,

flexibility, and worldwide

learning capability simultaneously.

Configuration of assets and

capabilities

Decentralized and rationally self- sufficient

Sources of core competencies centralized, others decentralized.

Centralized and globally scaled.

Dispersed, interdependent, and specialized.

(40)

4.3.2. Jonvoll AB in an international strategic approach.

Jonvoll AB expanded their activities towards new foreign markets in the last decade. The Baltic business unit specialized in basic items of trimmings and the Hong Kong Business unit specialized in fashion items of trimmings. The business units are totally independent and base their business on national differences. They do this on the resource side and also on the sales side. Every region has its own characteristics in suppliers and in customers.

The flexibility of the business units is high because they adapt very fast to local demands.

So until recently the company international strategic approach could be characterized as a multinational approach.

As resource capabilities expanded due to the presence of the company in different regions, the company developed a “Total package of Trimmings” concept. This concept became more and more successful on the Baltic, Scandinavian and UK markets. This success urged the management of Jonvoll AB to research the possibilities for further development of the concept. The objective is to learn from the sports wear brands on the European continent which have high standards for Trimmings. This concept then can be customized for every market.

Next to the aim of the company to learn by conducting this research, it also wants to disperse the knowledge through the company. These urges for learning and flexibility are two of the three objectives for creating a worldwide advantage. The flexibility is provided by the structure of the company with its independent business units. The learning within the company is provided by the research on a “Total package of Trimmings” concept, which can be customized by every business unit. Also future investments in a communication platform and intensified meeting of sales forces of the different business units will improve company learning.

Both these developments indicate the development of a multinational approach towards a transnational approach. Also the third objective, efficiency is taken into account by the management of Jonvoll AB. The resources capabilities of the different business units are becoming more and more accessible for other business units.

So in general the company is moving from a multinational approach towards a

(41)

Part B:

In this section the different theories for the sub questions will be pointed out.

4.4.1. Theories for sub questions

In this section the different sub questions will be pointed out again in order to present the different theories that will be used to answer the different sub questions.

1. Sub question:

1A What kinds of trimmings are in the present “Package of Trimmings” in Germany?

B What kinds of trimmings are in the present “Package of Trimmings” in Austria?

As a supplier for brand-named sports wear companies the trimmings will be used to create value for the brand-named sports wear companies. How to create this value for the brand-named sports wear companies is one of the three elements of strategy according to Abell (1980). He divides strategy in Who, How and What.:

• Who are our customers?

• How do we realize our value proposition?

• What is the value proposition we deliver to our customers?

On which potential customers the company will focus will have implications for the demand of different items of trimmings required. The strategy of these potential customers will determine the portfolio of trimmings demanded. Their strategy is based on the value they want to create for their customers by using the different trimmings. So creating value for the potential customers will depend on meeting the demands derived

(42)

To determine which different items of trimmings should be in “The Package of Trimmings” the following questions have to be answered:

• Who are the main customers of the sports wear producers?

Who are the main customers of the sportswear producers and what are their demands regarding the garments?

• What value do they create for their customers

What different garments are produced by the sportswear producers?

• How is the value created for their customers Which functions have the different garments?

Figure 6: Structure sub question 1

The different items of trimmings requested are the result of the individual sports wear producer’s strategy. Because the retail’s demand, the type of garments, and the functions of garment determine the strategy of the sports wear producers, information will be collected about these elements. This will be done by visiting internet sites and by undertaking interviews at sports wear companies.

Retail demand.

Type of garments.

Function of the garments.

Strategy of potential custonmers

Demand in items of trimmings

(43)

2A Which company’ characteristics are required by the German brand- named Sports Wear companies to build a strong buyer vs. seller relationship?

B Which company’ characteristics are required by the Austrian brand- named Sports Wear companies to build a strong buyer vs. seller relationship?

To distinguish different kind of suppliers within an industry a pyramid of suppliers is developed by Nooteboom (1994). In this pyramid the suppliers are divided into three groups.

1. Main Suppliers: these are the most important suppliers because they fulfill additional demand in comparison to the other suppliers. They expand the product with services in logistics, coordination, assessment of quality and development.

2. Specialized suppliers: these suppliers have special products or competencies.

3. Non specialized suppliers: these suppliers deliver extra capacity or deliver standard components.

(44)

Model 4: Suppliers pyramid by “Nooteboom” (1994)

To become a main supplier the high demands of the brand-named Sports Wear companies will have to be met. If you are able to fulfill these high demands a long-term relationship can be created.

A number of characteristics will determine if you are able to become a main supplier (Nooteboom, 1994, pg 120):

1. Ability to integrate technology, including logistics.

2. Ability to coordinate different stakeholders.

3. Direct delivery.

4. Flexibility.

5. Ability to work as a team within the company and also with external parties.

6. Innovative capacity.

7. International presence

Main Suppliers

Specialised Suppliers

Non Specialised Suppliers

(45)

Knowing these characteristics, determined will be to which extend the potential customers value these different characteristics as important. Also will be determined if there are any missing characteristics. This information will be gathered by taking interviews at the brand-named sports wear companies.

Next to the question what characteristics are required by the Austrian and German brand- named sports wear companies also the attitude towards a “total concept in trimmings supplier” by the German and Austrian brand-named sports wear companies will be pointed out. A total concept in trimmings supplier means a supplier that can deliver: a wide range of trimmings that will complete or almost complete a peace of garment.

The attitude can be pointed out by asking the managers in the brand-named Sports Wear companies what they think of the appearance of those kind of suppliers during the interviews.

3. Sub question:

3A How big is the turnover in the Sports Wear market in Germany at the level of brand-named companies?

B How big is the turnover in the Sports Wear market in Austria at the level of brand-named companies?

In order to answer this third sub question the size of the brand-named sports wear market in Austria and Germany has to be determined. To determine the size of the German and Austrian sports wear markets Roberts and Berger’s segmentation mode (1989) will be used. In this model, which will be presented on the next page, the different steps in the process of coming to industrial sales are pointed out.

(46)

Model 5: Segmentation Model by Roberts and Berger (1989)

The brand-named companies in the Fashion Industry of Germany and Austria in general can be considered to be Suspects and the German and Austrian sports wear brands can be considered to be Prospects.

Firsts the amount of brand-named sports wear companies located in these countries will be determined which can be considered to be the Prospects in the segmentation model.

After having made a list of sports wear brands in Germany and Austria, has to be determined at which level they are operating. Is it in the low (cheap), middle (average price) or in the high (high price) level? This selection can be considered to be step of moving from Prospects towards Leads. This will be done by comparing advice sales prices for the retail if available, and checking the internet-sites of the prospects. After categorizing the companies on their, above or below the average advice selling prices for the retail and by judging the information on the websites, the potential customers will be

Customer

Qualified Leads

Leads

Prospects

Suspects

(47)

clear. The companies that will be interested in a “Total package of Trimmings” concept can be considered to be the Qualified Leads in the segmentation model.

To asses if the market will be big enough, the sales figures of the Leads (brand-named sports wear companies located in Germany and Austria operating on “middle to high”

price level) have to be added. By estimating the margins on the potential customer’s sales, the total production costs of the Leads can be estimated. Based on the knowledge that 8 % of the garments production costs are trimming costs (statement by Mr. Wollin), we can estimate the size of the trimmings market in “middle to high” level sports wear segment of the Austrian and German markets.

To summarize the following steps will be taken to estimate the market size:

1. Determine brand-named Sports Wear companies in Germany and Austria which will be the Prospects.

2. Split them up in cheap, middle and high price level companies by judging the information on their internet-sites and checking retail sales prices. .

3. Make target list of brand-named sports wear companies by taking the companies operating on an above average advice price level. These can be considered as a list with Leads

4. Estimate their total production costs. (turnover minus average margin)

5. Take 8 % of total production costs to estimate market size for trimmings in the selected segment.

In this approach is not chosen to determine the productions figures in the sports wear segment within Germany and Austria, because production is more and more moving towards cheap labor countries. However decisions regarding the trimming standards are still made by the brand-named companies located in these countries. Because of this reason production figures within the countries are not interesting but the production/sales figures of the individual brands located in Germany and Austria are. Also sales figures in

(48)

Next to this approach of estimating the size of the market for trimmings on the German and Austrian brand-named sports wear market also the managers’ opinion regarding the status of the market will be pointed out. The managers of the brand-named sports wear companies in Germany and Austria will be asked if the sports wear market is a decreasing, stable or growing market.

To collect these data a lot of desk research will be done by visiting many German and Austrian websites. Also during the interviews information about market sizes and status will be gathered.

4. Sub question:

The fourth sub question will deal with business culture:

4A Which industrial culture characteristics are present within the Sports Wear industry in Germany?

B Which industrial culture characteristics are present within the Sports Wear industry in Austria?

To answer this fourth sub question the theoretical framework of “Mülbacher” (1999), discussing different layers of business cultures, will be used. According to this theory business culture contains several layers. Embedded in the national culture are industrial cultures, organizational cultures and functional/professional cultures.

The German and Austrian trimmings markets in the “middle to high” level sports wear segment.