Analysis Of Michael Porters Competitive Strategies Marketing Essay

This study provides a view of Porter’s competitive strategies and how it can be used as globalization impacts Levi Strauss and Co., a company in the industry of the world’s oldest item of clothing still worn in its original form today; denim jeans.

Jeans were initially created to be strong clothing for work-wear. It has even captured the eyes of the U.S. government in the World War II and was issued to employees and veterans of the defence industry for work (Lee et al., 2008). But today as globalization takes place, jeans are not only piece of clothing for work wear, but it has now become a wardrobe staple. There are lots of impacts of globalization to the jeans industry. Therefore, Levi Strauss and Co. has to undertake competitive strategies to go forward.

3.0 Problem Statement

The impacts of globalization may bring positive or negative impacts to companies in the jeans industry; may it be politically, socio-culturally, technologically or economically. Therefore, companies need to go forward to cope with these negative impacts. Levi Strauss and Co. were the creators of jeans, but due to the impacts of globalization and the emergence of new competitors like Calvin Klein, The Vanity Fair Corporation and Gap jeans, Levi Strauss and Co. needs to have new strategies to go forward (Levi, 2010).

All companies aim to cope successfully with the competitive forces, to achieve superior returns and a position that is defensible in the long run. This study aims to answer these following questions:

1. What literature and research has been previously done regarding the impacts of globalization on Levi Strauss and Co. and the competitive strategies that they have undertaken?

2. What are potential impacts of globalization on Levi Strauss and Co.?

3. What are the possible competitive strategies for Levi Strauss and Co. to go forward?

4.0 Research objectives

1. To identify literature and research has been previously done regarding the impacts of globalization on Levi Strauss and Co. and the competitive strategies that they have undertaken

2. To analyze potential impacts of globalization on Levi Strauss and Co.

3. To evaluate Michael Porter’s competitive strategies and how it can be used by Levi Strauss and Co. to go forward

5.0 Literature Review

5.1 Levi Strauss and Co.

Levi Strauss & Co. is a multinational corporation producing the world’s oldest item of clothing still worn in its original form today; denim jeans. It all started in 1853 in San Francisco, California when a man named Levi Strauss opened his dry goods business selling necessities such as clothing and handkerchief to the pioneers of the time. A tailor named Jacob Davies, who is a customer of Levi Strauss, had the idea of using copper rivets to reinforce points of strain in pants. Davis did not have the money to purchase a patent, so he approached Levi Strauss to form a partnership together. Agreeing with the partnership, Strauss and Davis received their patent (U.S Patent 139,121) on 20th May 1873 in making men’s denim work pants stronger with rivets and hard-wearing XX cotton denim “waist overalls”, as jeans were called (Levi.com, 2010).

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5.2 Globalization

Globalization is a process whereby regional economies, societies, and cultures have become integrated through worldwide network of communication, transportation, and trade. It is the integration of national economies into the international economy through foreign direct investment, trade, capital flows, migration, and the spread of technology. (Bhagwati, 2004, p.129). Through the lens of globalization, bureaucrats and bankers, lecturers and students, fashion designers and celebrities, hot-dog sellers and beer drinkers, people all over the world equally favour this sturdy American symbol. Being a symbol of America, yet this simple pair of pants called jeans are sought after in every part of the world (Quinn, 1978).

5.3 Positive Impacts of Globalization on Levi Strauss and Co.

Economic segment

The innovation of rivets is a form of product differentiation in the jeans. It has differentiated Levi’s jeans to any other because of its durability. Because of the patent of selling riveted jeans in 1873, the company has been granted monopoly rights for about 20 years. Over the years, it has become more popular because of the barriers to entry and product differentiation. These are competitive advantage the company has over others.

In 1935, the company begins selling blue jeans for women. The shifts in work and career preferences are an impact of globalization (Girard, 2003).

In 1974, the company’s sales reach $ 1 billion. In 1977, with successful results of their foreign direct investments, it has become the world’s largest jean manufacturers. Foreign sales increased, and we can see people all over the world wearing jeans. Departmental stores and boutiques sell Levi’s products, and are distribution channels for the company. Apart from jeans, Levi’s provide a wide range of products that target different segments in the market, which captures demand. The consumer demand shifts from durability of jeans to the fashion of jeans. This is a huge impact of globalization in the fashion industry (Lee et al., 2008).

Socio-Cultural segment

In the 1930s, the Levi Strauss & Co. survived the global depression when there was a drastic decline in the world economy resulting in mass unemployment and widespread poverty that lasted for 10 years. Due to the increase interest in Western culture, jeans were positioned as being worn by “cowboys”, which are American heroes. People have interest in the jeans (Lee et al., 2008).

In the 1950s and 1960s, Levi’s jeans became famous among a wide range of youth subcultures. The popular shrink-to-fit 501 product lines were sold in unique sizing arrangement, where the size indicated on jeans were referred to the size of the jeans prior to shrinking, and the shrinkage was substantial. The company still produces these uniquely sized unshrunk jeans, and they are still Levi’s number one selling product (Quinn, 1978) .

In addition, celebrity endorsement at that time has been successful in boosting the popularity of denim jeans. In 1956, Elvis Presley became the new face of Levi’s. A black denim known as the Elvis Presley jeans were released by Levi Strauss. It has made a huge increase in sales for the company that time (Freund, 2007). Today, as globalization takes place, we can see Shahid Kapoor being the brand ambassador of Levi Strauss’ Signature brand in India and Son Dam Bi for the Levi’s brand in Korea.

Historically, Levi Strauss is known as a corporately responsible company. After the 1906 San Francisco earthquake, the company continue to pay workers as it was rebuilding factories and buildings. During the Great Depression, instead of firing the workers, the company kept them busy by installing new floors. During the 1940s, the company desegregated its factories, bringing white and black people together. Apart from this, they are one of the first companies to extend healthcare to worker’s spouses. Today, companies all over the world extend healthcare to the worker’s spouses. This has made a huge boost to the company’s image at that time. The company’s approach to business is well-known as “profits through principles”(Lee et al., 2008) .

Political Segment

The durability of the jeans once captured the eyes of the U.S. government. During World War II, Levi’s jeans were issued to employees and veterans of the defense industry for work. After the World War II, veterans that went to college wore Levi’s jeans around the campuses. This has increased its popularity because World War II veterans are regarded as heroes. Jeans at that time begin to show it is suitable for casual wear, rather than work. The Baby Boomer era has shown a great change in the fashion industry, where more and more younger consumers begun to wear jeans (Lee et al., 2008). This is the beginning of globalization on the fashion industry.

To reduce the relative unit labour cost, like any profit-maximising corporation, Levi Strauss closed down many factories in the United States to the commonwealth island of Saipan. In 1999, Sweatshop Watch, Global Exchange, Asian Law Caucus, Unite and workers filed a class-action lawsuit for 3 times against 27 U.S. retailers. However, Levi Strauss & Co. was the only defendant to win the case (Strasburg, 2004).

Technological segment

Having new fashion and models, including the introduction of the latest bell-bottom jeans in the 1970s, the leadership of Jay Walter Haas Sr., Peter Haas Sr., Paul Glasco and George P. Simpkins Sr., expanded the firm’s clothing line. This shows how the company positioned its products with the changing times and changing in demands, keeping existing customers and capturing new markets. Thus, the increase in sales will increase company profits. In addition, through the acquisition of the Great Western Garment Co. (GWG), a Canadian clothing manufacture, stone-washed jeans has been introduced and is still in use by Levis Strauss and Co. today. An employee of GWG by the name of Donald Freeland invented the technique (Heinzl, 2002). The introduction of this new technology is a feature of globalization.

5.4 Negative Impacts of Globalization

Economic segment

However, as the company enjoys explosive growth, Levi Strauss and Co. was threatened by competition because of the low barriers to entry in the jeans market. The entrance of these competitors brings down Levi Strauss’ market share. The competitive prices of jeans have made a huge effect on the company. As we look into David Ricardo’s theory of comparative advantage, when a company can produce a lower opportunity cost than another, they will be the one who benefit. Being able to capture market segments, these competitors are able to bring down Levi Strauss’ market dominance. The VF Corporation captures the low-end jeans consumers, and Calvin Klein captures the high-end consumers (Lee et al., 2008).

Socio-Cultural segment

Branding was especially effective for companies like Calvin Klein, which advertise their jeans as “designer jeans”. These advertisements were spurious product differentiation, even though Levi’s and Calvin Klein may be the same physically. Consumer’s preferences are highly affected by Calvin Klein’s branding. As Levi’s largest consumer market were Baby Boomers, and by the time competitors increased in the 1980s, Levi’s jeans tend to be old fashioned. Therefore, more youthful perception of the other brands has been reinforced. Apart from this, Calvin Klein’s up-to-date European design widens their market segment in competing with Levi Strauss. Celebrity endorsement of the competitors was also a factor; like Calvin Klein and Brooke Shields. We see globalization takes place as the global jeans market continues to grow with new competitors entering the market (Lee et al., 2008).

Economic segment

People were given more choices in picking their jeans because of the competitors. This has increased the elasticity of demand of the product. This has lowered down the profits of the company.

Over the years, Levi Strauss has encountered serious declines in sales. From a high of $7.1 billion in 1996, sales were to $4.3 billion in 2001. (Heinzl, 2002) In addition, the market share for Levi’s jeans has dropped steadily. As a result of the drastic drop in sales, Levi Strauss closed six manufacturing plants in the United States and two plants in Scotland in 2002. The company is presently carrying a debt of $1.9 billion. To compete with prices, shifting production from the United States to other countries make sense, as the Relative Unit Labour Cost is cheaper (Lee et al., 2008).

Having these negative impacts, new strategies need to be undertaken to go forward.

5.5 Michael Porter’s concept of competitive strategy

Michael Porter’s concept of competitive strategy remains in widespread use today. He has set out concepts and analytical techniques for managers in any businesses to use in the competitive situation and ways to achieve competitive advantage. Porter’s approach is that the aims of a firm’s strategy are to decide its goals and the means by which they can be achieved. Porter puts the strategic business decisions of individual firms in the context of economics forces. Porter did propose a “structural analysis of industries” known as the Five Forces Model. The aim of this analysis is to identify the nature, strengths and impact of these competitive pressures so that companies can create strategies to defend them from these impacts or to influence them in their favour.

Source: Kippenberger, T. 1998. Strategy According to Michael Porter. The Antidote. 3(6) pp. 24 – 25

There are three ways in order to successfully cope with the competitive forces, to achieve superior returns and a long run defensible position, which Porter calls “generic strategies”.

i) Overall Cost Leadership

ii) Differentiation

iii) Focus

Porter argues that by concentrating on one of these generic strategies, companies can most likely succeed because they use different capabilities and are supported by different organizational structures and cultures.

However, industry structures change as industries evolve. Being able to predict or recognise such changes early is crucial in developing competitive strategy. Porter uses similar concepts in the industry life cycle, but concentrates more on the evolutionary processes that are driving change rather than on attempting to devise generic descriptions of the results. (Kippenberger, 1998, p. 24)

Looking through the lens of globalization, we have to analyse potential impacts of globalization on Levi Strauss and Co. so that we can evaluate Michael Porter’s strategies so that it can be used by the company.

6.0 Research Methodology

This methodology in undertaking this research is described below. The methodology has been described in two major phases: secondary data collection and theoretical framework.

6.1 Theoretical Framework

Information compiled in the literature review has been analysed with the help of a theoretical framework. Application of the theoretical framework assists in answering the questions and achieving the research objectives (Denscombe, 1998, p. 155).

PEST analysis is involved in identifying the ways of how political, economic, social and technological factors influence the jeans industry.

On the other hand, Michael Porter’s five forces analysis is carried out to provide a competitive analysis regarding the threat of competitors, substitutes, the power of buyers, the power of suppliers and new entries in the market. This analysis helps the Levi Strauss and Co. to develop new opportunities in the environment so that the company can go forward.

Like any other profit maximising companies, the major task is to build a sustainable competitive advantage.

Therefore, the theoretical frameworks adopted in this dissertation are PEST, Porter’s five forces, and Porter’s generic strategy.

6.2 Research Design

The research design is to identify and develop procedures and logistical arrangements. It is also vital to stress the importance of quality (Subijano, 2010). This descriptive research is strongly based on secondary data collection. By taking into consideration of the limited amount of time span and the costs of primary research level, it is more convenient in using secondary data collection. There are many advantages of using secondary data resources.

Secondary data collection may have fewer resource requirements. It saves time and money. It also enables in analysing larger data sets such as those collected in government surveys. In addition, secondary data tend to be of higher quality, than to be collected by an author own self, and provide unobtrusive measure (Stewart and Kamins, 1993, p. 78). For most longitudinal studies, time constraint means that secondary data is the most possible way of undertaking the research.

Apart from this, secondary data collection can provide comparative and contextual data. The author can place his own findings within a more general context or, alternatively, triangulate author’s findings; besides secondary data such as the census can be used to assess how generalise the findings are, in other words how representative these data intention of exploring any such relationship. The permanence of secondary data makes it convenient because of its availability and how it is relatively easy for others to check. It shows that the data and research findings are more open to public scrutiny (Denscombe, 1998, p. 212).

6.3 Data Collection Procedure

The search of secondary data is conducted in the KBU International College library, Emerald Full text, and other databases. The information search is by using computer and manual procedures on a variety of sources listed below. In collecting data more emphasis was given to the internet, as it allows faster information processing and accessibility to up-to date credible academic articles and information.

The secondary data sources are from

i) Journals

ii) Reference books

iii) Thesis and dissertation by other authors

iv) World Wide Web

Most of the journals are obtained from the Emerald online database and Anglia Ruskin University library.

Sampling techniques

There are no sampling frame in this case study. Sampling techniques of this descriptive research is not used, as it is not possible to answer research questions and achieve objectives statistically.

7.0 Scope and Limitations

As a student researcher, difficulties are faced in completing the research due to the limited access to journals and we had to rely on a few that Anglia Ruskin University subscribes.

The theoretical framework used in analysing the problem may not be fully conducted in the research. The unavailability of information and at the present moment and time constraints are limitations to this research.

Even though secondary data provides useful information, there are a few limitations that have to be aware of:

1. Outdated

Secondary data takes some time or years to be published. For example, year 2009 figures are the latest to be published. Even though it can still be used to reflect the industry as a whole, it does not reflect the current position of the jeans industry. (Subijano, 2010)

2. Inaccuracy

Some data obtained from journals or the World Wide Web may be biased due to the poor collection techniques or simply the journalist’s own personal perceptions are included in the reports (Subijano, 2010). Different cultural perspective may affect the secondary data.

Having no primary data is a disadvantage as secondary data are all prepared by other researchers which may not be accurate. For example, some websites like http://www6.conestogac.on.ca/~sfinlay/IMC/cases/LevisGWG.htm may not have accurate information and the data might be fabricated. This cannot assure the validity and reliability of the sources.

To ensure a successful dissertation is carried out, it is very important to eliminate the above problems. Relevant data from wider range of resource which are more reputable like Emerald library are collected. Regardless of this, substantial effort to retrieve and compile relevant facts is strived to make this dissertation more valuable.