THE INTERNATIONALIZATION STRATEGY OF THE FIRMS
BENETTON CASE STUDY
Famous for its shocking advertisements, Benetton wasfounded in 1955 by Luciano, Giuliana, Gilberto, and CarloBenetton. Initially the family sold colored sweaters door-to-door in Treviso, Italy. Over time, a regional networkof family, friends, and agents set up a closely monitoredset of distinctive retail outlets. Over a 15-year period,Benetton built up 300 affiliated but independently ownedoutlets in Italy and a factory with new methods to dye andcondition wool. The company was not directly involved inthe retail outlets, which received high-quality products atlow costs. Part of the manufacturing savings was realizedby outsourcing to neighboring subcontractors.
Benetton has kept this loose network of independentproduction subcontractors and distribution agents buthas now built up to a global network of more than 5,000retail stores. Only a small fraction of these are flagshipstores owned by the group. The great majority of its retailstores are operated by independent entrepreneurs. About90 per cent of production still takes place in Europe,mainly in Italy, and the company is still 69.35 per centowned by the Benetton family. Yet the wool it uses toproduce its clothing line is now imported from foreigncountries. The parent company raises sheep in 900,000hectares of land in Argentina.
Benetton is one of those successful global companies that succeeded partly because their production and designconcept was built on a strong home base. It expanded themarketing end of its business through closely monitor(but not owned) independent stores, which were able touse the Benetton brand name and distinctive colors andwere supported by clever international advertising.
Benetton does not advertise its clothes directly.Rather, its ads target a "lifestyle." The "United Colors ofBenetton" ads are designed for a homogeneous globalconsumer interested in fast cars and a fast lifestyle.Benetton goes in for cutting-edge advertising that grabspublic attention. This creates an image of new-age awareness, as the company's advertising ads have featuredAIDS, capital punishment, inter-racial relations, high art, and "attitude." The firm also sponsors a top Formula 1team as well as teams in rugby, basketball, and volleyball,all of which contributes to the success of its brand name.Fabrica, Benetton's CommunicationResearchCenter justoutside Treviso is a mixture of philanthropy and advertising. The center sponsors 50 artists for a year and exhibitstheir work and publishes it in Colors, the company's art-focused magazine.
How well this plays out globally is uncertain. For example, Benetton had 700 retail stores in the United Statesin 1988, but only 150 by 1995. Is this because Benettonhas too European an image to succeed in Middle America?How can an Italian family firm understand the Americanlifestyle from its European bases? Indeed, 73 per cent ofBenetton's revenue originates in the Euro area, with another 8 per cent derived from Asia and only 6 per centfrom the Americas. The remaining 13 per cent originates in other regions. The firm is now looking to expand into emerging markets where potential for growth among the growing middle class is greatest.
- Make a SWOT analysis for Benetton entering the Romanian market and propose the best internationalization strategy.
- Choose other three emerging markets and, after applying the internationalization grid, decide the best market for Benetton internationalization. Justify your choice.
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Sources: Adapted from: Benetton SpA: Industrial Fashion (A), Harvard BusinessSchool Case No. 9-685-614, Benetton (B), Harvard Business School Case No.9-685-020: INSEAD-CEDEP Case No. 01/97-4520, 1996; David Still it. "Benetton:Italy's Smart Operator," Corporate Finance, June 1993 ; "Benetton's Network,"Ivey Business Quarterly, 1997; Benetton, Annual Report, 2003; Peter Crush,"CSR: Diversity Takes Central Stage," PR Week, April 18, 2005; "Benetton:Indigenes Rechazan Oferta," BBC.co.uk., November 10, 2005; and