Develop a licensing strategy
The initial decision of Burberry to develop a licensing strategy for the expansion of its activity in Japan was a beneficial solution from the perspective of challenges accompanying the process. The justification for this choice was related to the presence of such obstacles as culture, specific business regulations, and other non-tariff barriers (“Japan – Market challenges,” 2018). Since tariffs were not a problem for Burberry, other tasks were successfully delegated to Japanese partners accustomed to the country’s business environment (“Japan – Market challenges,” 2018). In this way, this solution allowed the company not only to reduce the costs of market research but also receive the intended profits.
Alongside the advantages ensured through the implementation of the mentioned strategy, Burberry managed to readjust its vision in accordance with the views of Japanese customers. Since this initiative requires the involvement of people familiar with the culture of buyers, the local partners helped the business eliminate the risks of inappropriate representation (“Japan – Market challenges,” 2018). Hence, the value inherent in the products realized on the market was successfully complemented by the consideration of this factor. Thus, it can be concluded that Burberry decided to elaborate the licensing strategy in order to reduce costs for market research and effectively promote the goods with regard to the customers’ perceptions.
The initiative of Burberry intended to establish partnerships with Japanese entrepreneurs was advantageous, but its implementation also implied particular limitations connected to the company’s image. It is clear that its success on the market was significant conditional upon the involvement of local businesses. Nevertheless, their collaboration resulted in a reduction in prices for the realized products. It increased the profits of Japanese partners while reducing the potential of Burberry for growth. Therefore, the principal limitation stemming from this policy, which became apparent over time, was the lack of further opportunities for expansion, implying the loss of control (“Licensing agreement,” 2018). It could have been expected by Burberry if it considered the financial outcomes in the long run.
Another issue deriving from the specified limitation was the accompanying change in the company’s image, which happened to be more severe since it had a predominant impact on profitability. As follows from the case study, the brand was not perceived by Japanese customers as a manufacturer of luxurious products due to relatively low prices. This circumstance adversely affected Burberry, especially when the buyers started comparing their prices in different countries. In contrast to the first limitation, this outcome was also possible to predict since it is connected to the consequences of Japanese partners’ measures, primarily affecting the perception of the company abroad.
Japanese licensing agreement
The termination of the Japanese licensing agreement and opening wholly-owned stores were the correct policies to eliminate the identified issues stemming from the partnership. The reasonability of this alternative is related to the need to ensure the future development of the company and the enhancement of financial performance. However, the advantages of the decision to improve Burberry’s image and profits will be accompanied by short-term financial losses. Such results of the prospective actions are explained by the loss of customers due to the increase in prices and the need to develop new measures to attract them. Since this initiative might take an extended time, Burberry will have to accept the temporary incapability to be competitive in comparison with other brands.
Even though the company is likely to successfully recover from the crisis following the implementation of the developed measures, there are specific risks, which cannot be eliminated. They include the potential lack of leading specialists working for Burberry in Japan under new conditions and the low levels of flexibility resulting from it (Ratanjee, & O’Boyle, 2020). The former implies the need for control, which is also expensive, and the training of new personnel to ensure they can make the essential decisions in the country of operation. In turn, the latter complements it by adding such a factor as the impossibility to manage the business in the case of crises in Japan during the transformation period. Thus, these risks might negatively influence the position of Burberry on the market.
The internalization theory
The internalization theory partially defines Burberry’s experience in Japan since it is applicable only to the period of time when it was operating with the help of licensing contracts. According to it, the existence of an organization in a specific form is reasonable only when the received benefits do not exceed the overall expenses (Buckley, & Casson, 2020). As can be seen from the history of Burberry’s partnerships with Japanese entrepreneurs, the situation was stable until the former started suffering significant financial losses.
They stemmed from serious deterioration in the company’s image due to the varying prices on products in different locations, which was a part of the policy conducted by the Japanese partners for their benefit. Since then, the mentioned collaboration became irrelevant and, what is more important, harmful. Therefore, it can be concluded that the internalization theory explains the feasibility of the initial policy of Burberry on the Japanese market only until the emergence of the specified obstacles to further business growth.
Buckley, P. J., & Casson, M. (2020). The internalization theory of the multinational enterprise: Past, present and future. British Journal of Management, 31(2), 239-252. Web.
Japan – Market challenges. (2018). Web.
Licensing agreement. (2018). Web.
Ratanjee, V., & O’Boyle, E. (2020). Manage strategic risks for an unpredictable future. Web.