Lululemon’s Expansion into Finland

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23/09/19 Business Strategy Reference this

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Introduction

This report discusses about the expansion of Lululemon Athletica, a Canadian apparel company, by moving into Finland. As we go along this report it will present a brief discussion about the company Lululemon athletica followed by a brief market analysis of Finland. We will then progress to talk about Lululemon’s international strategy and our expected mode of entry into the Finnish market. After carrying out a thorough country and company analysis of the Finnish apparel market, then we will discuss about the cultural aspects and work force available in Finland and then discussing about the company’s ethical standards.  Finally, the last chapter will discuss about the potential risk and rewards for lululemon by expanding to Finland.

PROJECT OVERVIEW

 

Lululemon Atheltica Inc. is a Canadian apparel retailer dealing mostly in women athletic clothes. Most people just refer it as “Lululemon”, it is known for its iconic yoga pants, the other products also include performance shirts, shorts and pants, also as fashion apparel and yoga accessories.

Lululemon was founded in 1998 by Chip Wilson in Vancouver, British Columbia, he originally started in the snowboard and surf and then moved on to yoga pants at right time and capitalized on the growing market trend. Since then lululemon has seen extra ordinary growth. Since its beginning, Lululemon has grown into an iconic brand, it basically pioneered “athleisure”, which is a term used for athletic and leisure clothing. Between 1998 and 2018, Lululemon has been able to expand its stores to 351 stores worldwide. Since its inception in 1998, lululemon has established its brand name to such an extent that it has a cult like following in North America. Over 95% of its sales are accounted from North America, but with increasing competition from other sports wear apparel and life style brands, the advantage to first moving into the women’s sportwear apparel has been decreasing. As a result the company has started to expands its products from men and children as well through its divisions: Ivivva (Men sportswear) and OQOQO (children sportswear).

The total sales of Lululemon Atheltica Inc. as of 2017 was about 2.6 Billion USD.  While the net profit of Lululemon Atheleica as of 2017 amounted was 520 million USD

Figure 1: Lululemon Athletica Inc Sales 2008-2016 (in millions of USD)

 

Looking at Figure 1, lululemon Atheltica Inc, over the eight periods, has been growing continuously, it continues to grow in 2018 as well. However, the company registered a decline in its net income by 31%, this was because in early first quarter of 2017 it was reestablishing its ivivva’s operations, this had declining effect on the net Income throughout 2017.

Lululemon Atheltica Inc. has over 13,400 employees working full time throughout its 351 stores worldwide.

Country Profile: Finland

As of 2014, Finland has a population of five and a half million(5.6million). However, approximately more than 3 million people out of the total population are in the age group of 15-64 which is basically more than half of the population.

Economic Conditions:

Finland is one of the most economically stable country in Europe with the GDP of 251.9 billion USD (2018) that is continuously growing since the US worldwide market recession in 2008. They rank 41 world-wide in terms of GDP out of 195 countries. Finland the main source of income is majorly from trades this serves as the resource to keep the country operations up. About 30% of income through exports are made through trade in Finland.

Finland also has several disadvantages as well. The Labor costs are high in Finland. However, by 2016, the labor costs have been declining (Appendix 1).  The expected labor costs are expected to stabilize by the first quarter of 2019. Another negative of the country, is the tax rate is one of the highest in the world. Finland ranks about 7th rank in the world out of 35 (OECD) countries in the world. The tax rate is seven percent higher than the average in OECD countries. The Sales and purchasing power of the people is affected directly. While the tax rate may be on the higher end, but Finland has a very low corporate taxes on the income, this makes it one of the most suitable places to start the business (Appendix2).

Finland as a country are encouraging Foreign direct Investments (FDI). The FDI restrictiveness of Finland is very low (0.019), a lot less than the OECD countries average. They are ranked in the top 10 for least FDI restrictive countries in the world (Appendix3).

Political conditions:

 

Finland boasts one of the lowest corruption rates across the world. According to TICP, it ranks 3rd in the world index. There has been change in relationship with Soviet Union due to their They have also other countries such as Spain, Portugal and Greece during their economic recessions. They are currently following the trend of Brexit to detach themselves from EU.

The law system in Finland is based on Civil law system. The most important key factor in Finnish market is that the both the domestic and foreign business are treated equally. There also strict laws to protect the patent and copyright laws. It is also relatively much easier to resolve the legal issues and other legal matters in Finland.

The high regulations on the companies to maintain the safety and hygiene at work place is one of the key elements of Finland corporate culture.

SWOT ANALYSIS OF LULULEMON

 

 

Strengths (Competitive Advantages)

●       Strong work culture

●       Customer loyalty

●       Steady financial growth

●       Fabric Innovation

Opportunities

●       Global expansion

●       Men sportswear

●       Growing Young population in Finland

Weaknesses:

●       Online platform

●       No international presence

●       Majority of sales in North America

Threats:

●       Highly competitive market

with new competitors entering frequently

●       Competition

●       Growing market for counterfeit

products(knockoffs)

 

 

LULULEMON’S STRATEGY:

 

Lululemon follows current strategy is home replication strategy. The company has different websites for different region like European, japan and US. For example, while in Canada there is a different website with Canadian (Appendix4)

 

Taking into consideration our current approach, we expect to use the same approach to the Finnish market and strict true to our values. We strive to provide the best service to our customers. Lululemon has a very niche market and hence it will be important to use a home replication strategy approach to gain its customer base.

Lululemon first started business in Canada and expanded to U.S. Progressively they have branched out into the China and recently have also transitioned into Europe. Thus, we believe our decision to expand into Finland is in line with the Lululemon’s current strategy of expansion.

GLOBAL MARKET ASSESSMENT

First and foremost, Western Europe oversees the greatest sales of coffee compared to any other lululemon depends heavily on its core market in North America that accounts for ninety-five of its international sales. At the tip of FY16, the corporate operated 296 lululemon stores and fifty-five ivivva stores, enjoying a powerful presence across the region. North America is predicted to be a continued focus for the corporate going forward because the market provides important growth opportunities notably among performance attire set to feature another USD6.8 billion over the subsequent 5 years. Lululemon has slowly begun to venture outside North America, notably therefore in Australasia wherever the corporate operated thirty-two stores at the tip of FY16. the corporate has additionally dilated in Western Europe and Asia Pacific. important growth opportunities do exist outside North America, most noticeable is Asia Pacific however additionally in Western Europe. China and Asian nation are expected to drive activewear growth till 2021 in Asia Pacific. And despite lackluster performance of attire and footwear in Western Europe, the region offers important growth opportunities thanks to the recognition of yoga, demand for performance attire and substantial high-income client base(Appendix5)

 

Competitors

 

Originating in practical yoga wear that sparked the athleisure trend that has formed abundant of world attire and footwear over the last 5 years, lululemon has continued to target design-led performance wear not solely restricted to yoga however additionally running and swimming driving growth well higher than the market average

 As yoga and Pilates quickly rises in quality in North America, lululemon makes its competitive advantage with premium-positioned purposeful yoga wear. the corporate establishes a close to cult-like following and sales virtually quadruple from 2009 to 2012.

Lululemon continues to outdo the worldwide average for attire because it ventures outside its core market in North America. the corporate expands into high income markets in Western Europe and conjointly Asia Pacific thanks to its scale and growth dynamics.
 

As athleisure dynamics stay sturdy, competition intensifies as everybody desires a chunk of the market, from attire giants like Greek deity to fashion giants like H&M. lululemon’s growth slows however its mechanical phenomenon stabilizes well higher than the worldwide average of attire.

lululemon’s outstanding sales growth has seen the corporate quickly establish itself among the leading attire firms worldwide. In 2016, lululemon hierarchal twelfth in attire globally, marking an increase of ten places since 2011, and in 2016 the corporate accounted for a tenth price share of worldwide attire. However, Nike and adidas are still the clear market leaders in attire because the firms accounted for seventeenth and tenth of worldwide attire sales, severally, in 2016. Years of being world innovation and style leaders in attire let alone aggressive worldwide enlargement supported by massive promoting campaigns has cemented the companies’ leading positions in sportswear.

 

MODE OF ENTRY

 

Over time, Lululemon has grown to become one of the most well recognized brands in the world. Lululemon normally enters markets through green field and then build in to wholly owned subsidiary. This has been a common practice throughout the years.

It has been argued that lululemon athletica adopts a holistic guerrilla selling model to dominate its selling techniques. the employment of holistic guerrilla selling by the corporate is by linking the sporting of their clothing/products to feeling like a part of a bigger community. Thus, buying their product and supporting their complete becomes an answer to a controversy. Consumers’ purchases from lululemon subsided concerning the industrial group action, and a lot of concerning however the individual feels the acquisition contributes to healthy lifestyle.


Lululemon Athletica, Inc. (LULU), a yoga and exercise attire company, has been successful at selling a specific modus vivendi instead of simply a product. The company’s strategy is predicated on promoting its “Lululemon Athletica” and “Ivivva Athletica”-branded merchandise as causative to a fun and healthy modus vivendi. Apparently, this has been a successful strategy for Lululemon because the company is ready to cost its merchandise at a premium. individuals are even sporting the company’s merchandise as fashion attire and not only for exercise functions.


 

Global Sourcing:

 

Sources of fabric: They owns no producing facilities of its own, nor will it operate any. It sources the required materials from a pick cluster of ~65 suppliers. Its proprietary Luon cloth is its largest cloth demand, creating up concerning thirtieth of the company’s total cloth use.


Manufacturer base: there have been concerning thirty-five makers manufacturing the company’s merchandise as of the year ending day, 2014. Of them, 5 makers created ~63% of the company’s merchandise. In terms of geographic, South and geographical area accounted for ~67% of production, whereas ~23% of merchandise was created in China. the corporate additionally maintained ~3% of its production in North America, primarily to make sure speed to promote for its merchandise. As we tend to mention earlier, the fashion industry is extremely seasonal and fashion trends predominate. It’s essential for companies to retort quickly to promote trends. peach plans to keep up production in North America to it finish.
Distribution facilities: the corporate has four distribution centers, placed in Vancouver (Canada), William Graham Sumner (Washington), Melbourne (Australia), and—its most up-to-date purchase—Columbus, Ohio.

CULTURE

 

Canada and European nation essentially share similar cultures. each Canada and European nation show pride in being have similar power scores which implies that each countries show pride in being freelance, like hierarchy just for the aim of convenience, believe equal rights etc. each the cultures judge team’s expertise instead of and individual manager’s expertise. workers and managers work hand in hand.
While not similar, each Canada and European nation are individualist societies. they like a “loosely knit” social framework wherever people are expected to require care of themselves and their families solely. Employer/Employee relationship is just contract primarily based and hiring and promotion selections are supported advantage alone.

Finland may be a additional female society than Canada and this, in our opinion, will work to our advantage as female countries highlight the importance of “working so as to live”, individuals price equality and that they expect quality in their operating lives that we tend to expect Lululemon to supply. However, workers can should persist with timings set by our franchise against their culture. Finnish culture like additional free time and adaptability in work hours.

However, their high uncertainty shunning score makes positive that individuals follow rules and need rules. Time is cash to such individuals and folks have AN inner urge to be busy whereas at the identical time projecting to their true values like operating exhausting and promptness.

Both Canada and Finnish culture may be delineated as normative. each cultures have a good deal of respect for traditions and have a transparent concentrate on achieving results quickly. each Canada ANd European nation conjointly scored on an indulgent culture, that means they take day trip to fulfil their dreams and needs and are optimistic in nature

 

CAGE FRAMEWORK

 

 

 

Figure 7: Cage Framework

ETHICS

 

Ethics is another vital thought to require for any business. This promotes future gain and property. atmosphere is another important issue to excogitate and value before getting into a brand

Corruption doesn’t cause a significant downside in our thought to maneuver into European country. Corruption itself isn’t a significant downside in European country. after you compare the corruption index of the 2 countries, i.e. North American country and European country, it will clearly be seen that gap isn’t that wide. victimization knowledge extracted from Transparency International, we have a tendency to discovered that European country ranks variety three within the world in terms of least corrupt countries within the world. North American country ranks variety nine within the world. Therefore,  we are able to} neglect the impact corruption will have. (Appendix6)

As a community, European country values the advantages of employment and fairness engaged practices. Finland’s contract Act states all the obligations that require to consummated. This includes worker coaching programs to extend their productivity at the work place, equal treatment, providing and meeting with health and safety standards during a work place, promoting healthy relations between employers and staff etc. The Finnish government additionally needs firms, whether or not domestic or foreign, to assist staff get part-take and involve themselves to raise a company’s operating atmosphere. Tim Horton’s company culture matches the views of the Finnish government. staff at Tim’s are seen as Associate in Nursing quality and that we additionally provide a learning and development program to assist our franchises perceive and develop a piece ethic faithful

Finland’s government additionally has strict rules and standards with relevance worker health and safety at work places (Occupational Safety and Health Act).

There are 3 business segments during which socially accountable investors wish to determine the proper moves from companies: production, distribution, and investment. For Lululemon, production happens abroad. the corporate produces its luon material in Taiwan and its merchandise are created during a range of states. Lululemon has not signed any of the foremost offer chain agreements that are issued since quite one,000 folks died last year within the collapse of an ad building in People’s Republic of Bangladesh, however instead has promoted its own seller code of ethics. That code states that “vendors are expected to uphold legal, humane and moral standards of production, whereas additionally caring for the surroundings.”
As for distribution, Lululemon is thought for building relationships with yoga studios and running introductory categories in its own stores. Those community-building efforts embody providing lower-cost merchandise to yoga studios and merchandising wear through the before gap company stores. Beyond production and sales, Lululemon provides funds to its store so as to support native organizations and efforts. The company’s Metta project has contributed to acquirement efforts in Kingdom of Cambodia, flood relief in Canada.

RISK AND REWARDS

 

As mentioned earlier, cultural variations clearly produce a risk for the company. this can be usually said as cross-cultural risk. the difficulty was tackled in chapter 4: Culture through the frameworks.

Small Political risk exists in Republic of Finland as there are variety of political parties in Finland. In traditional circumstances a choice is formed after reaching a joint consensus and also the policy is enforced by the coalition government in power in European nation. A multi-party democracy will guarantee higher stability and additionally helps in maintaining a stable political setting in European nation. European nation has perpetually tried to keep up peaceful and neutral policy to keep up sensible relations with its neighbors and different countries. Still, Russia remains a powerful ally and additionally a vital trade partner. European nation may be a comparatively stable and secure country and thus makes it a lot of enticing


Currency Risk is a vital issue to think about. rate of exchange fluctuations have an effect on each trade and investment. at this time several countries have a deficit in their accounts and therefore the result of devaluation and downward financial pressure is huge. With the prospect of European countries facing slow domestic growth, the EU members are attempting to stabilize the monetary unit against the dollar and not let the monetary unit depreciate. This creates a challenge to Canadian corporations wanting to enter their market.

Economic risk is another issue to contemplate. With the slow growth of gross domestic product of the country in recent years and increasing state, the economic risk of finance has accrued. however, the low tax on company profits, quick access to electricity, simple legislatives guarding the registration of property and businesses makes European nation a appealing destination to take a position. Republic of Finland additionally has associate AA+ credit rating that makes it even a lot of engaging (Appendix 10)

 

REWARD

 

Finnish people love living a healthy lifestyle. Through our operations, we expect to earn significant revenue provided our standards are maintained.Therefore, it is important for them to enter the market before other competitors enter the Finnish market. This will provide them a source to increase their revenue. This will also provide with the opportunity to expand further into Europe.

CONCLUSION

 

In Conclusion, this will provide lululemon to go to Finland through FDI which will provide high controllability of its operation, while it is important to remain cautious and hope to slowly gain enough market share. The first store is supposed to be opened in Helsinki, Finland. Finland also has a healthy lifestyle, which would be a good way to introduce our lululemon into the Finnish market and later move to Europe.

 

 REFERENCES

 

 

APPENDIX

Appendix 1

 

 

Appendix 2

 

Appendix 3

 

 

 

Japanese website


 

Appendix 4

                                                                                     Appendix 5

 

 

 

Appendix 6

               APPENDIX7

 

 

Appendix 8

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