Retail the Type of International Growth Strategy Essay

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Retail

The type of international growth strategy that Fast Retailing is planning if fast and inorganic. Organic growth refers to internal growth of the existing business; what Fast Retailing is planning is growth by acquisition, and this is termed inorganic growth (Investopedia, 2011). The company is also planning to grow quickly -- it has stated that if it wanted to grow slowly it would do so via organic means rather than by acquisition. Interestingly, in an interview with the Economist (2010), the company stated it wanted to grow organically. This does not correspond with its growth pattern thus far and its desire to seek a ¥1 trillion acquisition.

There are a few different characteristics of the ideal foreign partner for Uniqlo. To understand what these characteristics are, it needs to be understood what Uniqlo is trying to do with its international expansion. Although expressed in relatively vague terms, Uniqlo wants to move into Western markets with its brand, under the assumption that the Uniqlo brand will translate to Western audiences. The company's product line is not differentiated much, featuring fairly staple products. The brand is generic-sounding and difficult to pronounce, so again there are some significant obstacles that need to be overcome, and part of the role of the foreign partner is to help Fast Retailing overcome these challenges.

Thus, the first thing Fast Retailing needs for Uniqlo is a trusted Western brand to which the Uniqlo brand can be attached. Fan (2002) discusses how Western brands must be translated well in order to appeal to Asian audiences, and the reverse is also true. A clumsy, generic name like Uniqlo is unlikely to appeal in English-speaking markets, especially since the product is as uninspiring as leggings and tunics. Thus, the company needs to find a brand that is appealing to Western audiences as a partner. In addition, Fast Retailing has no distribution channels in the West. In order to penetrate Western markets quickly, it will need to acquire a partner that has strong distribution channels. When Mr. Yanai says that the acquisition target need not have the same products as Fast Retailing, this is what he means -- the acquisition is as much about the channels as it is about anything else.

If anything, the product lines should be complementary. Fast Retailing has a set product line that works well for it in Japan. There is a tremendous amount of competition in Western markets for this type of product line, however. Therefore, Fast Retailing should seek to acquire a company with a complementary product line that will help attract customers to the Uniqlo offerings. This will allow Uniqlo to gain a high level of market exposure. How Fast Retailing defines a complementary product is up to its management, but it could be any type of casual apparel, makeup or accessories. There is less likelihood that a complementary product line would be at a higher or lower quality point, as the fashion industry tends to be complementary only within the same quality level and price point. Consumers do not buy cheap leggings with their haute couture.

Fast Retailing has made some attempts at acquisitions in the past. It failed in its attempt to acquire Barneys New York. The reasons for this failure are not elaborated, but the company was a poor match for the Uniqlo brand. Barneys would have been unable to provide either a strong national distribution channel or a complementary product line for Uniqlo. The company has had success with smaller purchases, such as Theory, Princesse tam.tam and Comptoir des Cotonniers. It does not appear from the evidence provided that these brands have done much good for Uniqlo. They do not have strong distribution channels. While the lingerie brand is a complementary product that could work with Uniqlo, the French brand is not especially complementary. The result is that while these acquisitions have provided a moderate level of growth for Fast Retailing, none are the answer that the company has been looking for with respect to its overseas expansion plans.

Mr. Yanai has stated that the company that would be the best match for Fast Retailing is one that is controllable. Thus, the company is seeking a firm that either does not have strong management or a firm that will benefit significantly from the merger with Fast Retailing. If the company needs the Japanese parent as much as Fast Retailing needs it, then it will not have a substantial amount of bargaining power and will therefore be controllable. In addition, the company will need to be at least somewhat comfortable with Japanese management by the sound of things. Mr. Yanai does not appear to recognize that Japanese management, with its emphasis on hierarchy and autocracy, is unlikely to resonate well with a Western firm, as most favor individualism in their management (Geert Hofstede, 2009). So Mr. Yanai will be looking for an above-average cultural fit as well as for a complementary product line and strong distribution.

3. Based on the information provided, Fast Retailing has not demonstrated all that much learning. The company's experiences overseas have ranged from a rejected sale to some successful minor purchases. Fast Retailing at this point has, however, learned to have a sense of what it needs for Uniqlo, and the company will hopefully use this as a means of narrowing the pool of potential business partners down. The company has experimented with high end retailing, but this does not appear to be a key driver of its business. The Uniqlo brand is not congruent with high end retailing given that it is a cost leader in its industry. At this point, Uniqlo still does not appear to have learned that its best match is with a similar firm. With any luck, it has learned from is mistakes in the past and is now going to pursue a more appropriate partner than Barney's or Comptoir des Cotonniers.

The company has also tried to learn from the experiences of other Japanese firms moving overseas. It is unclear what relevance JAL has to this discussion as its financial difficulties stem mainly from domestic factors, but Fast Retailing has tried to learn from Toyota's experience. The company has suffered recently in some markets due to quality issues. Toyota had built international markets on the basis of delivering high quality at a low price, which is more or less the same business model as the Uniqlo brand utilizes. Thus, Uniqlo has to take from Toyota's experience that it must maintain production quality when it expands. For Uniqlo, however, the supply chain is quite different from that of Toyota. With apparel production already taking place overseas, the company can use the same facilities to produce goods for all world markets, something Toyota has not done in the past twenty years, contributing to its quality issues.

4. Uniqlo's case illustrates that there may not be any benefit to experimentation before moving overseas. The company's moves thus far have been minor, and it is difficult to extrapolate from minor moves what might happen if the company makes a major strategic move. The logistics and marketing that go behind operating a handful of international outlets are drastically different from operating a global chain. There are not very many lessons that Fast Retailing can learn from its attempts at expansion. One lesson that it can learn is to pursue partners whose businesses are congruent with your company's specific expansion needs, and that can offer complementary product lines. For Uniqlo, it should not partner with firms at the high end if it is a cost leader in Japan. The company needs to focus on finding partners that understand its business and are willing to allow Uniqlo to manage both its business and theirs. This lesson seems to have been learned by Mr. Yanai, although…[continue]

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