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Università Commerciale Luigi Bocconi – Facoltà di Economia

Economics and Management for Technology and Innovation

The Italian luxury companies and the


BRIC opportunity: the entry strategy
of Giorgio Armani in Brazil.

Tesi di laurea specialistica di:


Carlo Alberto Valentini

23 ottobre 2009
Structure

• Research questions
• Literature review
• The Brazilian luxury market
• The Brazilian luxury consumer
• The Giorgio Armani case
• Limitations
Research questions

• The subject of this dissertation falls into the International Strategy (IS) field of
research.

• The work is expected to contribute to three main IS subjects, attempting to:


– analyse Brazilian market as an interesting opportunity for Italian luxury
brands;
– define which may be the optimal entry strategy;
– focusing especially in terms of the trade-off between global integration and
local adaptation.

• The case of Giorgio Armani, one of the first international brands accessing the
Brazilian market and currently among the most successful ones, has been used as
a reference during the analysis.

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Brazil and the internationalisation

• Despite the growing importance of emerging economies in the internationalisation


strategies, the literature has not been much developed yet, as Jansson (2007)
clearly states.

• Among emerging economies, China and India result the primary objects of
investigation.

• The majority of the studies about the rationales for the internationalisation focus on
knowledge and/or technology intensive sectors.

• Regarding emerging economies, the issue of the internationalisation of the


production process has been developed more than the internationalization in search
of new markets.

• Once market internationalisation in emerging economies is under IS scholars’


attention, business to business market results the major focus.

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The “global localization” issue

• The trade-off between the strategies of cross-national integration and local adaptation
is an emerging issue in IS and it has been extensively developed by Tallman and Yip
(2009) and Grant (2009).

• It is interesting how both the works conclude with the same recommendation to try
reaching a balanced compromise in order to meet both the challenges.

• Citing Morita (1996), Grant called this compromise “global localization”.

• Yet, Tallman and Yip assert that MNEs’ marketing programs are not adapted to fit
emerging consumers’ characteristics.

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The Brazilian luxury market 1/3
• Brazilian luxury market accounts for 75% of the whole Latin America region and
around 3.5% of the global sales (in 2006, it was just 1%).

• From 2004 to 2007 the business grew 17% per year.

• The credit crunch affected the performance of the segment: 2008 growth reached
12.5% (US$ 5.99 billion).

• In 2009 the business is expected to continue growing, thought at a slower pace,


around 8%.

Nationality of the firms in the Brazilian luxury market Sectors in which companies in the Brazilian luxury
(2008 – total number of firms: 295) market operate (2008)
Sensible data, for more details please contact the author
Others
F ashio n 27%
North-America
6% F o o t wear 17 %
7% C ars 10 %

Jewellery 10 %

Brazil Per f umery 10 %


53% W at ches 10 %
34%
(63% operating in Ho t els 9%
Europe
the service sector) F oo d 9%

A lco ho l ic B ever ag es 8%

C o smet ics 8%

D ressmaki ng 8%
In 2008, the number of international brands
F ur nit ure 7%
increased of six units (2 Europeans and 4 North-
Americans).

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The Brazilian luxury market 2/3
• 131,000 HNWIs.
• Approximately 30 millions of people earning more than US$2,400 per
month (Class A and upper tier of class B).

• In 2008, nearly 20 million people became part of the C class in Brazil


(people earning around US$ 600 per month), which now represents 46%
of the population.
(Est. pop. 2008) 198,739,269

• The luxury market in Brazil is


Expansion of HNWIs population in the BRIC countries
Sensible data, for more details please contact the author
(2006-2008), with % growth/decrease rate for the periods concentrated in São Paulo and Rio de
2006-2007 and 2007-2008. Janeiro.
+20.2%
-12.2%
Number of HNWIs (000)

450
400 415
• 75% of all luxury purchases take place
350 +23% 364 in the city of São Paulo.
345
300 +19.1%
-31.7% +14.2%
-28,6%
250 -8.4%

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• 95% of the luxury shopping in São
150 Paulo occurs in four places: Shopping
143 136
100 120 131
100
123 119
97
Iguatemi, rua Oscar Freire, Villa Daslu
50 84

0
and Shopping Cidade Jardim.
Brazil India China Russia

2006 2007 2008

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The Brazilian luxury market 3/3

Main obstacles for the development of Brazilian


• The custo Brasil: entering in Brazil means luxury market
to deal with organizational and
bureaucracy issues. Others
– Taxation regime.
Import difficulties
– Infrastructure and services. 5%
14%

Brand 9%
communication 61% Taxation
11%
Human resources

Sensible data, for more details please contact the author


• Brazilian consumer behaviour: Brazilian consumption behaviour is characterized by
some peculiar traits.
– Spread payment.
– Atendimento: the Portuguese name for attendance, and more in general for the
customer service.
– Brand strength.
– Customers’ database.
– Luxury culture.

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The Brazilian customer of luxury

Brazilian customers of luxury distribution per age


• The typical Brazilian customer of luxury
is a woman (57%) between 26 and 45 56 years or Up to 25 years
more
years. 13% 9%
• 93% of them are at least graduated.
26-35 years
23%
46-55 years 25%

31%

36-45 years

Sensible data, for more details please contact the author


• There is no correlation among age, gender and amount of money spent for luxury
purchases.

• The research by IPSOS-Luxury Marketing Council shed lights on Brazilians’


preferences in terms of luxury purchases:
1. Autos
2. Clothes
3. Jewellery
4. High-level services: hotels, travels, restaurants

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Brazil as an opportunity

• Brazil represents a good opportunity for luxury brands, and it is likely to acquire even
more importance in the future.

• Although the credit crunch hindered its economic development in 2009, Brazil
emerged as one of the most rapid countries in reacting to the crisis.

• Brazilian luxury market results healthy.

• Anyways, business growth is still affected by strong deficiencies in terms of


infrastructure, public services, bureaucracy, taxation regime.

• Also, Brazilian customers show peculiarities that deserve strong attention.

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Giorgio Armani’s entry strategy 1/3

• Giorgio Armani was one of the first international luxury brands to enter in the Brazilian
market after the opening of import trade in 1992.

• The entry strategy for the Brazilian market involved a franchise agreement with a local
partner that was already well-known by the management.

• According to Grant (2009), the evaluation of the optimal form of market entry should
consider five key issues:
1. The source of competitive advantage.
2. Product tradability and barriers to trade.
Sensible data, for more details please contact the author
3. Firms’ resources and capabilities portfolio for establishing a competitive advantage
in the foreign country
4. Return appropriability and rights enforcement.
5. Transaction costs.

• In the Brazilian market, the most relevant issues seem to be the need of country-
specific knowledge and capabilities and the importance of sharing the risk with a local
investor.

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Giorgio Armani’s entry strategy 2/3

• 1997 The Brazilian franchise opens its first Emporio Armani store in the Jardins
district in São Paulo.
– The choice to start with Emporio Armani finds its rationale in the lack of culture
about international fashion that characterized the Brazilian market at this time.

Giorgio Armani communication strategy in Brazil

Giorgio Armani Emporio Armani


Concept • Mythology of the brand. • Communication about the label.
• Emotional and psychological approach. • Products are shown.
• Strong institutional role, as the objective is to • The target is the whole market.
Sensible data, for more details please contact the author
create the desire (for all the labels), rather
than give visibility to any product.
• It must address GA customers but also who is
aspiring to become one of them.

Relationship marketing • The contact with the customers starts with the • Same attention as GA, but due to the higher
first purchase, when the customer registers number of customers, the commercial return is
into the database. around 45%.
• The relationship with the customers is so • Email is used, as the type of customer is more
strong and close that the mailing of the casual in comparison with GA one.
collection catalogue (whose cost is extremely • Events suit a younger and more casual public,
high because of the quality of the publishing) often with a Dj playing. Also, trunk shows are
has a commercial return around 65%. organized.
• Email is not used.
• Events are very discreet, coherently with
customers' attitude, and closed to a small
number of guests.

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Giorgio Armani’s entry strategy 3/3
• 1998 Shopping Iguatemi (São Paulo) requests to host a shop.

• 2001 Five years after the entry in Brazil, the market shows to have developed its
own knowledge and perception about the brand: customers directly ask for
company’s top label Giorgio Armani.

• 2002 The Emporio Armani shop in Rio de Janeiro is inaugurated.

• Actually, Brazil is the biggest market for Giorgio Armani in Latin America. The
Brazilian franchise runs five direct point of sales:
– 2 GA boutiques (São Paulo)
Sensible data, for more details please contact the author
– 3 EA boutiques (2 in São Paulo, 1 in Rio de Janeiro)
– The other fashion labels of the brand are distributed to selected stores.

• According to MCF-Gfk’s annual research Giorgio Armani is most important Italian


luxury brand in the country:
– customers’ top of mind in the fashion sector (20% of the total citations, 32% of
the male sample);
– second after Louis Vuitton in the general top of mind ranking for international
brands;
– third brand after Daslu and Louis Vuitton in terms of customer service quality.

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“Global localization” in Brazil:
the tropicalization

• Brazilian luxury customers’ peculiarities and the custo Brasil challenge require the
development of country-specific capabilities.

• In order to meet emerging markets consumers’ expectations, a process of adaptation


is necessary.

• In Brazil, executives working for international companies defined this process


“tropicalization”.

• It has been analysed how Giorgio Armani found its balance between global integration
and local adaptation in Brazil:
– Product: global integration is convenient especially considering the production
process.
– Marketing: the design and ambiance of GA shops can be adjusted on national
culture and tastes. Also communication strategy and CRM should be tailored.

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Limitations

• The focus on the analysis of the market and the customers forced to only cite the
problems affecting Brazil’s development, instead of describing them in detail.

• Also, it must be considered that this thesis observes only the entry strategy in case the
firm planned solely to sell its goods/services.

• Moreover, this analysis does not focus on a specific sector but rather offers a general
overview of the luxury segment in Brazil.

• Finally, the analysis of Giorgio Armani is significant, as the company is an important


reference in the market, but a comparison with other cases, being them not only other
Italian firms, but also non-Italian ones, is likely to provide useful insights.

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Thank you.
Carlo Valentini

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