Burberry Corporation Analysis
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Published: Wed, 07 Jun 2017
The multinational company Burberry was established in Wales in year 1856 and on their 150years anniversary they announced the shutting down of their company in Wales, and this shutting down affected 310 workers and this loss had a huge impact on the community. Therefore this report tried to examine the political, economic, social, technological and environmental factors influencing a major multinational company Burberry during the process of relocation to china. Another major issue for HR managers in a company such as Burberry is that any relocation must also take into account the effects on the employee morals and other pension costs in the local environment in UK. PESTE analysis has been conducted to examine all of these issues. All the HR issues have been examined in detail, leading to a comprehensive action plan for the HR manager at Burberry. One of the main conclusions was that the Chinese market presents companies with new opportunities, however also presents a number of challenges, which HR managers must take into account when devising future strategies.
The political scenario in china is such that there exist communism where the government exercises control over everything (Shafiq, 2008). There is a mindset that anyone working in china work for the nation and the government of china (Ban, 2011). Since the government in china is repressive, there could be a lot of unrest in china and this can pose as one of the threats for Burberry to operate in china. It can be argued that aspect of stability in china is due to the fact that the citizens do not have any involvement in government’s say (Bloom, 2011). At the same time there is industrial and business growth in china due to cheap labor (Ditmanson, 2011). It might be difficult for Burberry to enter into Chinese market because the government imposes strict regulations for businesses from other countries (Reny, 2011).
China has got a high income tax rate and at the same time its corporate tax rate is quite moderate (Campbell, 2010). Due to the prevalence of low corporate tax rate, it is an opportunity for Burberry to enter into Chinese market and run their business (Hui, 2009). But one of the problems that can be posed in terms of economic factors is that the government has direct control over its financial institutions by law which can be a threat in terms of how Burberry raise their capital (Kang, 2010). But on the other hand, the opportunity for Burberry to move in china is greater because there is no income tax on interest on bank deposits (Lin, 2010). The rate of inflation in china is quite moderate and hence in china there is a mixture of both free and controlled market (Turvey et al., 2010). From one perspective it can be argued that the in certain cases government intervenes to control the prices of goods and services and hence it can possibly affect Burberry in demanding sky rising prices (Wong et al., 2010). The inflation rate has dropped drastically in china from 2008 to 2009 due to stable currency of china (Wong et al., 2010).
It can be argued that demographic of china is such that there are many different types of languages that are spoken for communication. It can pose as major problem for Burberry because of the communication gap. One of the other problems for Burberry would be if there exist skilled labors in china already that can start the operation right away. One of the other problems could be convincing the available skilled labor in Britain to move to china for new operations. The company will have to incur high training cost in providing skills to the labor from china and get them acquainted to the operations and quality control measures of Burberry in Wales. One of the other threats for Burberry could be that with passing time, the living costs and standards in china is now rising and the company might have to offer better opportunities to attract the skilled labor.
Historically it can be seen that china has excelled in technological excellence and this can serve as one of the opportunities for Burberry to enter in a technologically competitive market (Gai et al., 2011). This excellence in technology in china has made life easier and quicker (Hubler, 2011). Due to the availability of efficient technology, Burberry can capitalize on the opportunity of operating at the economies of scale and hence will allow them to reduce their operations cost (Liu et al., 2011). The opportunity of entering Chinese market is attractive for Burberry because Chinese government is allocating lots of budget on research and development (Lu et al., 2011, MacKinnon, 2011, Shao, 2011).
It can be argued that the government of china is actively involved in passing regulations and laws to protect the environment (Bu et al., 2011). The government of china has passed many regulations to controlling the industrial pollution (Cai et al., 2011). In many instances the government of china has collaborated with NGOs to take measures to prohibit any pollution that makes the environment contaminated (Wang et al., 2011, Zhao et al., 2011).
One of the opportunities that Burberry can capitalize on in moving their plant to china is that the cost of labor in china is low as compared to their operating and labor cost in Wales. This will save Burberry a great deal of money. Since the general living, operations cost in china is much more cheaper than Britain, Burberry can take advantage of it and adopt a more cheaper supply chain, but on the other hand there is a risk that Burberry can end up distorting their reputational relationship with their current suppliers. The threats that Burberry will face with their move to china is that the customers perceive it as being a high class brand (with the thought that it’s a high end British brand) and moving to china can dilute its brand image, with people now been more skeptical about their quality control. The environmental health and safety control measures in china is not as good as in Britain and hence Burberry can suffer from reputational damage.
HR ISSUES AND CHALLENGES.
If Burberry makes the decision of shutting down their operations in Wales and move to china there will be subsequent HR related issues for the company in both countries. In having to move from Wales to china, Burberry will have the pressure of unions. It is evident from the case study that the unions in order to stop Burberry`s decision to move to china have resulted in strikes in many other countries where Burberry is available. Union campaign will resist this movement because it operates to guard the interest of employees working in Wales. One of the biggest loss associated to their movement is the redundancy and unemployment problem. If Burberry moves to china, it will leave many of the British unemployed which will affect the economy. Moving to china will involve many assessments for Burberry, because the reallocation costs will be too high.
On the other hand, if Burberry decides to make a move to china, one of the foremost problems for the HR manager would be the problem of allocating and arranging for skilled labor. Many of the workers or employees of Burberry might resist moving to china, due to comparatively high living standards and facilities available in Britain. It will be hard for employees to move because there is a problem of language. The communication gap that exists between the two cultures is quite high and in order for the HR to train their labor in order to get acquainted to Chinese language is a lengthy process. On the other hand, if Burberry hires employees from china, the amount of time and the cost of training the employees will be high. The HR manager will have the responsibility to design new remuneration plans for the new employees and rewards systems to motivate them.
After reviewing all the relevant literature available it can be concluded that Burberry will have to take into account a number of factors that will affect its operations in china. Moving Burberry’s operations to China will serve as an opportunity for the company due to its low labor and operational costs involved in China. Burberry will have an opportunity to capitalize on economies of scale due to high R&D investment in China. However, it should be kept in mind that Burberry can possibly have the threat of political unrest where the communist government exercises control over all the institutions of the country. It can be concluded that Burberry can possibly enter the Chinese market with fluctuating prices. The company can skim the market for the rich and sell at lower prices the middle class, which would be one of the key conclusions of this research. Another conclusion is that people related issues must be undertaken with utmost sensitivity, as any negative HR issues can be highly damaging to the reputation of a luxury brand.
As an HR manager an extensive plan of action that will be followed both for Wales and China is as follows
Action Plan for Wales
1 Information gathering on decisions made by the Company
The HR manager will hold meetings and conferences with the board of directors of Burberry to gather all relevant information on their decisions on what the company is intending to do in the near future
2 Employee information dissemination
The HR manager will disseminate all the relevant data among current employees on what the company’s decision will be on the closure of branch in Wales. This will be done through arranging meetings, seminars and focused groups.
3 Employee retention
The employees will be advised by the HR manager about any available opportunities within the company to move either to China and if otherwise the HR will advise them on other available opportunities in the market. This will be done through holding meetings and focused group seminars.
4 Pension and Benefits
The HR department will hold meetings on disseminating information on what benefits and pensions the employees are liable to redundancy.
Action Plan for China
1 Need gathering
This will be the assessment by the HR manager on how many employees are required and any particular skills are involved for the job. This will be done through advertisements in papers and trade magazines.
2 Evaluation of current employee
The HR manager will assess the number of employees that will remain with the company and will move to china. This will allow the HR manager to access any employee requirement. This will be done discussions with the current employees and mutually deciding on how many more labors are required to continue the operations in china.
3 Contracts and consultants
The HR manager will also decide here on whom to hire for the supply chain for operations purpose. The company may also indulge in hiring consultants to outsource their services
4 Recruitment strategy
HR manager will decide on what specific rule and procedures will be followed to recruit new labor. This will clearly state the eligibility criterion for application of the vacancies.
Through meeting and discussions the HR manager will put forth the motivation strategies and plans to labor for better performance.
6 Health and safety
HR manager is responsible for clearly stating the rules on health and safety measures. Meetings will be called for this purpose.
7 Equal opportunities
Meetings will be arranged to promote the equal opportunities for both women and monitory groups.
A number of recommendations have also been drawn out for HR managers at the company. The managers at the company must take a long term strategic view of cutting costs, as they need to be more competitive with similar brands who have moved to China. Another key recommendation for the managers is to involve the various employee representative actively during the relocation process, which may lead to less resistance and more proactive participant approach to the process. Burberry should have a limit to its maximum prices due to government’s discretion of intervene and control the prices. Moving of the company to China can dilute their image and the customers might associate the brand to be of a lower quality just due to the fact that is now manufactured in China. In order to overcome that the company needs to come up with more vivid marketing strategies in order to make their image stronger and to promote themselves as a high quality luxury brand.
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