Global Business

Connecting Theory to Reality

Yongsun Paik, Dong Chen, Jong-Wook Kwon

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9781138222564
• eBook ISBN: 9781315404325
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This textbook is designed to help students understand the key issues of global business by connecting theory with reality. Divided into three parts, it covers critical issues of international business, introducing readers to topics they will connect with, and discussing core concepts.

With a user-friendly pedagogy and a host of helpful visuals, the authors offer a practitioner's perspective on global business knowledge, examining familiar theory on trade, direct investment, and political environment alongside fresh topics, like geopolitical conflicts, emerging markets, and sustainability. Over sixty case studies are included to illustrate the magnitude and complexity of global business involving different stakeholders.

Undergraduate students looking for an introduction to international business and graduate students looking to apply their knowledge will find Global Business stimulating, since it demonstrates how theories and concepts work in real-world business settings.

Part 1
The Content of Global Business

1
Globalization

Current Status and Future Prospects

Learning Objectives

1. Understand the key dimensions of globalization.
2. Identify the future trends of globalization.
3. Recognize the key drivers behind globalization.
4. Explain the benefits and costs of globalization.
5. Understand the business opportunities and challenges that globalization presents for companies.

Cases

• Case 1.1 Uniqlo: Uniquely Positioned in the Global Apparel Industry
• Case 1.2 Mexico Emerges as a New Attraction of Outsourcing

Case 1.1 Uniqlo: Uniquely Positioned in the Global Apparel Industry

Uniqlo, a successful Japanese apparel retailer often compared to the American brand Gap, has transformed itself into an extremely profitable enterprise. After dominating the Japanese market, it is now turning its attention to the global market. Fast Retailing, Uniqlo’s parent company, is Japan’s biggest clothing company. Fast Retailing operates more than 1,400 Uniqlo stores worldwide, including more than 850 in Japan and over 300 in China. The name Uniqlo, is an abbreviation of “unique clothing,” as the Japanese often do when they transform English words for their own convenience. The company has opened a vast number of flagship stores in Paris, New York, Los Angeles, Moscow, and Shanghai, which have been met with crowds of customers. The company projects $50 billion USD in sales and $10 billion USD in profit by 2020.

As CEO of Fast Retailing, Tadashi Yanai is the wealthiest man in Japan. Uniqlo, unlike other apparel companies that are trying to find and follow the latest fashion trends, thrives on technology and invests in the company’s long-term vision. Zara and H&M bring consumers the latest fashions quickly, ordering new lines multiple times a year. Conversely, Uniqlo sells approximately 1,000 items, far fewer than its competitors, and allow these items to have a longer shelf life. Mr. Yanai said, “In general, the apparel industry isn’t about continual process improvement or making the perfect piece of denim, it’s about chasing trends.” However, “We don’t want to chase after ‘fast-fashion’ trends,” explains Mr. Yanai.^a This approach allows Fast Retailing to secure lower-priced, higher-volume deals with suppliers and makes the inventory management process simpler and less expensive. While Mr. Yanai believes in the power of being innovative or cutting edge, he places more emphasis on longevity, stating, “At Uniqlo we’re thinking ahead. We’re thinking about how to create new, innovative products . . . and sell them to everyone.”

Uniqlo offers basic items such as fleece, slim-down jackets, synthetic thermal underwear, and denim. The company is convinced that their customers are more concerned with quality and value than quick responsiveness to changes in fashion styles. Rather than rushing to market, Uniqlo uses long development cycles, which require testing new materials and designs. Furthermore, instead of jumping from one vendor to another, Uniqlo develops long-lasting partnerships with material manufacturers. The firm believes these basic practices confer a greater benefit to the company. Uniqlo has been able to appeal to a much broader audience and demographic, unlike Gap, Zara, and H&M who are mainly targeting specific groups of consumers, such as the preppy Americana or faddish fashionista.

In a sense, Uniqlo’s strategy seems to be comparable to that of automakers. The product development cycle for car manufacturers lasts months or years. The product development process is time consuming as it attempts to create cars that will appeal to a wide range of consumers. Although some manufacturers produce cars according to certain trends, ultimately, in the long term, quality surpasses trendiness. The fashion industry may well be following a similar path as the auto industry. Between 1896 and 1930, more than 1,800 auto manufacturers existed in America because automakers wanted to develop customized cars that suited individual preference and taste. By the early 1940s, a large percentage of these companies had gone out of business and today we have a few major players in the U.S. automaker industry. Mr. Yanai operates Uniqlo comparably to a twenty-first-century automaker. He identifies long-term styles within product categories, differentiates these styles, and then establishes a supply chain to deliver these styles to the end consumer. Uniqlo has also applied a strategy used within the technology industry, known as “planned obsolescence.” The company drives consumers to update their wardrobes based on technological changes—changes that Uniqlo discovered and implemented—instead of updating their wardrobes in response to ever-shifting style preferences.

While Uniqlo is performing well at home in Japan; thriving in China, South Korea, and Taiwan; and developing in Europe; the U.S. is a different story. Uniqlo has been in the U.S. for ten years. But its presence with about 50 stores is not only smaller than that of its main global rivals, Zara and H&M, but also smaller than local casual-clothing chains, Gap and Forever 21, and even “off-price” sellers of designer labels, Ross and T.J. Maxx. Success in the U.S. is crucial for Fast Retailing if it wants to attain Mr. Yanai’s goal of overtaking Zara, H&M, and Gap Inc. to become the world’s number one clothing retailer by 2020. Unfortunately, the company has already scaled back on its American ambitions. Masafumi Shoda at one of the largest Japanese investment banks, states Uniqlo’s weakest branches are in suburban American shopping centers.^b

Uniqlo, Asia’s biggest clothing retailer, is struggling to offer a better fit for U.S. consumers. Yet, this presents Uniqlo with a unique opportunity that would allow the company to expand its customer base, in the world’s biggest market, and add more stores in its suburban areas. Mr. Yoshihiro Kunii, Group Executive Vice President, who oversees production at Fast Retailing, told Reuters in an interview:

This is going to be our next challenge in the United States: how to adjust our clothes for a more ‘3-D’ fit, particularly for women. There are many different ethnic groups in the United States, and this makes it tough to come up with the optimal range to match the fit.

Uniqlo has long marketed the “Made for All” concept, offering a universal standardized product rather than differentiated or customized products for individual markets. Uniqlo aims to sell high-quality clothes at medium prices, which is not an easy task. One consumer comments:

Uniqlo needs a more accurately targeted customer segment. If you compare it with Zara and H&M, there is no design and thus it is too boring. If you consider it to be one of the cozy, casual, athletic styles like Gap or Columbia, it should lower price more.

However, according to Kunii, in the future, Fast Retailing will develop and design roughly 10 percent of Uniqlo’s products with local needs in mind. It will adopt and implement a localized strategy focusing on market need with the possibility of selling those products to other markets if demand arises.^c

Takahiro Kazahaya, an analyst at Deutsche Bank, argues that Uniqlo should remain in the U.S. because brand recognition and winning consumer loyalty is a long and tough process. According to him, since the company is very profitable in Asia, it can afford to bear losses in America for a while.^d Additionally, if Uniqlo aspires to rise to the world’s top fashion brand, it cannot abandon the world’s largest clothing market. On the other hand, Toby Williams of Macquarie, another bank, believes that contrary to Mr. Yanai’s rhetoric, he may ultimately be satisfied with establishing a stable foothold in America rather than attempting to control the market at all costs. By positioning the company brand in American cities most visited by Asian shoppers, Uniqlo will improve its image as a global fashion success among this consumer base. Mr. Williams states that the overall outcome would be worth bearing modest losses associated with maintaining a few showcase stores in America. These stores will entice Asian consumers, creating major growth opportunities for the company.^e

Notes

1. Economist. (2010, June 24). Uniqlo: Uniquely positioned. Retrieved from www.economist.com/node/16436304
2. Economist. (2015, November 28). Chicago hope: Uniqlo is struggling in the world’s biggest clothing market. Retrieved from www.economist.com/news/business/21679223-uniqlo-struggling-worlds-biggest-clothing-market-chicago-hope
3. Ibid.
4. Ibid.
5. Economist. (2010, June 24). Uniqlo: Uniquely positioned. Retrieved from www.economist.com/node/16436304

Sources

1. Petro, G. (2015, July 17). The future of fashion retailing, revisited: Part 1—Uniqlo. Forbes. Retrieved from www.forbes.com/sites/gregpetro/2015/07/17/the-future-of-fashion-retailing-revisited-part-1-uniqlo/#76025bc564ec

2. Economist (2010, June 24). Uniqlo: Uniquely positioned. Retrieved from www.economist.com/node/16436304

3. Kim, C. and Shimiz, R. (2014, February 25). Uniqlo tweaks “Made for All” to give U.S. shoppers a “3-D” fit. Reuters. Retrieved from www.reuters.com/article/us-fastretailing-strategy-idUSBREA1O0CZ20140225

4. Economist. (2015, November 28). Chicago hope: Uniqlo is struggling in the world’s biggest clothing market. Retrieved from www.economist.com/news/business/21679223-uniqlo-struggling-worlds-biggest-clothing-market-chicago-hope

Questions for Case Discussion

1. How is Uniqlo’s strategy different from that of its main competitors such as Zara and H&M in the global apparel industry?
2. How does Uniqlo develop and sustain its competitive advantage?
3. Why is Uniqlo struggling in expanding its business in the U.S. market? Do you have any suggestions to improve its performance?

Case 1.2 Mexico Emerges as a New Attraction of Outsourcing

American companies have become hesitant about engaging in business with traditional hubs like India and China, especially in relation to Information Technology (IT). These companies are primarily concerned with the consequences or effects of outsourcing jobs and the risks inherent in sub-par quality. “When working with companies overseas, responsiveness and availability are crucial for creating an efficient work method,” said Michael Queralt, president of Queralt, Inc. “If you need something done in a timely fashion and are working on projects that require a lot of communication, your team, if they were in Mexico, is only a couple of hours behind you, rather than days. That’s one of the challenges when outsourcing processes to India, you don’t always have fast access to the people running your business processes there.” As a result, many companies have begun to leverage foreign supplier relationships, specifically in Latin America, for business support and to build new markets.

Latin America is changing the traditional mindset around outsourcing as it plans to return partnerships and superior quality back to U.S. soil. The continent possesses thriving IT industries in Chile, Mexico, and Brazil and is climbing the ranks as a major global player. American firms are also interested in establishing partnerships with Latin American countries due to cultural similarities, time-zone compatibility, and a tech-savvy demographic. Latin America’s emergence as a global player in IT and business has redefined how we view outsourcing. It’s no longer about having cost-efficient suppliers abroad support a certain IT function or service but it’s about the globalization of resources. Companies who figure out how to take advantage of this new trend, i.e. the integration of national economies into international economies, will reap unprecedented benefits. The idiom, “two heads are better than one” will hold true as countrie...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• Foreword
• Preface
• PART 1 The Content of Global Business
• PART 2 The Context of Global Business
• PART 3 Managing Global Business
• Index