Case Study Analysis: 'Michael Hill International: Controlled Expansion and Sustainable Growth'

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Case Study Analysis: 'Michael Hill International: Controlled Expansion and Sustainable Growth' Prepared by REAL ASSIGNMENT WRITING for Mahveen Khan Student of Southern Queensland University Australia. Email ID: [email protected]

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Table of Contents 1.

Introduction ........................................................................................................................................... 3

2.

Elements of Global Strategic Management in Initial Expansion into Australia ................................... 3

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Analysis of Michael Hill's Diversification into Shoes .......................................................................... 5

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Comparison and Contrast between Entry Models into Australia, Canada and the United States ......... 7

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Factors Included By Michael into the Feasibility Analysis to Move .................................................... 9

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Characteristics of Fragmented Industries and Recommendations for Competing In Such Industry .. 11

7.

Conclusion .......................................................................................................................................... 12

References ................................................................................................................................................... 14

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1. Introduction The essay presents a detailed analysis of the Michael Hill International: Controlled expansion and sustainable growth case study by focusing on multi-dimensional aspects of global strategic management. In this highly competitive era, no business can survive without appreciating the global industries and markets. However, in attempting to do so, expanding beyond the domestic boundaries and having a successful international strategic management study is highly crucial (Fleischer & Benoussan, 2003; Grant et al., 2013; Johnson et al., 2011; Lengen, 2012). Michael Hill, specialty retailer of jewellery in North America and Oceania have also considered the range of such issues in order to control its expansion in Australia, Canada and United States with aim to achieve the sustained growth. In the pursuance of the expansion and growth aim, company had to confront with the challenges like global financial and economic recession in 2008 along with the ambitious growth target First for the stepwise examination of case study, elements of global strategic management taken into account by strategic management for initial expansion into Australia are discussed (Grant et al., 2013).

2. Elements of Global Strategic Management in Initial Expansion into Australia In Australia, MHI focused on the result-oriented strategic management aspects, the core of which was its expansion model based on controlled, profitable growth. Michael Hill, owner of the business reflected greater level consciousness in developing an entirely new strategic plan for such expansion. According to him, “We have consciously kept warfare in mind when considering expansion – we systematically take one city at a time” (Grant et al., 2013, p.450).

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The expansion model selected by the company helped it in strategically analysing the market, developing a sustainable strategy and implementing it effectively. Rather than going for the maximum growth model, company opted for the ideal model, so that the growth of company is not too slow that it is unable to cope with the other competitors in the market rather than not too fast that it result in over extension (Heart, 2013). It can be examined that Hill’s strategy of opening one or two store at a time prior to moving in a new area resulted in the decentralised management and clustered expansion. According to the Hill’s global strategic management strategy, standalone stores can operate comparatively efficiently and in a profitable way. On the other hand, another element of global strategic management included selection of a strategic location or distribution interface. Company wanted to have a secured location at the Myer Centre, which was an upscale shopping mall. In fact, an agreement to pay more prices for the prime site was also taken into account by the strategic management of the company. Importance of global marketing plan was also considered as an important aspect of the company’s Australian expansion. It can be examined that Michael Hills International focuses on the television advertising heavily. Through the heavy investment on this aspect, company was successful in developing its brand name in different parts of Australia. The approach chosen by MHI in Australia was relatively unusual than the strategic marketing plan adopted by other jewellers in Australian market. Most of them were reliant on the print advertising models like catalogue and newspaper advertising. Through the differentiated marketing element of adverting, company was successful in creating novelty value for the business. It is noteworthy to find out that MHI, by using television advertisements advertised its valuable products like Diamond and Sapphire Rings on highly low prices leading to the loss, however,

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because of this smart tactics, company was successful in gaining a strong profile in the Australian markets. However, this competitive advantage was not present for the MHI after three months, when competitors replicated the television advertising and created some for their own products (Porter et al., 2014). Thus, these global strategy elements for Michael Hills International can be summarised as the integration of arenas, differentiators, vehicles, staging and pacing and economic logic as covered within the theoretical framework of the strategy diamond. The examination of all these elements can be helpful in the examination of the Michael Hill’s diversification into shoes.

3. Analysis of Michael Hill's Diversification into Shoes In analysing critically, Michael Hill’s diversification into shoes, it can be analysed that diversification in footwear industry in 1992 was also initiated by the company using the similar qualities and strategic approach as was used for the jewellery industry. Similar lines as the jewellery business were chosen by the business. The strategic management believed that the present infrastructure of the business would be helpful and act as a support for the new division (Grant et al., 2013). However, MHI did not take account of the impact of such interdependencies between two different strategic business units. According to Prahalad & Doz, (1998), interdependencies among the different organisational factors can result in critical business and management costs for the business like loss of top management focus on business, loss of flexibility, reduced innovation, high cost of coordination resulting in lower business profitability (Prahalad & Doz, 1998). Lack of consideration given to the influence

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of such interdependencies resulted in the reported loss of NZ$1.1 million in the second year of business. Additionally, case analysis of the Michael Hill International also stressed on the loophole in the diversification of business activity. It can be examined that with an attempt to purchase three high-end shoe stores in Christchurch from an established retailer John Craig NHI did not consider following the similar line of footwear and shoes as was formally operated by Craig i.e. expensive Italian shoes. Rather, MHI renamed and relocated the entire division by expanding the mid-range footwear in the mass market. Additionally, prior to gaining any experience in this context, MHI decided to open further six Michael Hill Shoes shops throughout in the New Zealand. It can be argued here that locating the shoes stores next door to the jewellery stores further resulted in high transaction cost of business and increased business complexity. MHI must have focus on the level of diversification at company level as well as business level. In the literature of Yeung, (2007), author has stressed on the significance of managing diversification in order to stay competitive. According to them, in a related diversified business firms, where different strategic business units are associated with similar related line of products, a company is required to operate in a cooperative environment while in an unrelated diversified company, it is very important for the business to operate on the competitive organisation. Case example of MHI also confirms the issues and challenges of diversification highlighted by the literature. Among the number of issues highlighted by Hill, the major one was associated with the distraction of the senior management from their key responsibilities after the shoe diversification. They were not able to concentrate on the basic jewellery business and suffered from the heavy opportunity loss. On the other hand, shoe business was unable to

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be aligned with the existing supply chain structure of the business resulting in operational inefficiencies (Grant et al., 2013). In contrary to the jewellery segment, MHI opened the shoe stores very quickly across the country. In their study, Colpan et al., (2010) have also emphasised on the fact that due to poor understanding of the diversification activities, companies are not able to coordinate with existing business opportunities. At the first year of diversification, MHI was aware about the fact that they need to perform a cost of entry test in order to assess whether their decision to diversify is worthy or not. In fact, practically, MHI diluted the strength of the jewellery brand and customer message by promoting both the product together (Grant et al., 2013). After gaining the lacking and strengths of the shoe diversification strategy of MHI, the next section compares and contrasts its different entry models in order to consider their comparative effectiveness and contribution in the overall success of the business.

4. Comparison and Contrast between Entry Models into Australia, Canada and the United States MHI selected different entry modes for different countries based on the market research and feasibility of the model in supporting the institutional infrastructures and arrangements of the business. Among the range of entry models highlighted in past studies such as export, contractual modes (licensing, franchising and strategic alliances), and foreign direct investment, MHI chose direct entry model for entering into Canada by establishing its stores in the country i.e. opening subsidiaries through foreign direct investment. The similar approach as used in Australia for initial growth was used. Through controlled growth and clustered-based expansion, company opened two largest jewellery chain stores named as

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People’s and Mappins. This was a very small portion of investment as compared to the other privately owned and independent business operating between 30 to 60 stores each. Moreover, because Canadian market was highly fragmented market as compared to the other two, brand recognition process remained slower for MHI there (Grant et al., 2013). Similar, entry model was focused by the company in Australia, where through direct method; company opened its profitable growth. However, the selection of Australian city for first opening i.e. Brisbane was effective as compared to the Canada. Strategic management used their knowledge about the New Zealand customers in targeting the 70,000 New Zealand residents in Brisbane, who would have the familiarity with brand. In contrary, understanding and knowledge about the tastes of the Canadian customers was not good of the company. Selection of high cost city, Vancouver for head office and opening sales without any brand recognition in the area, resulted in no translation of the business costs into heavy sales and increased margins. Heavy cataloguing was offered, but enough sales were not recorded (Wagner, 2009). In comparison, market of United States was highly complex and competitive and MHI was not able to enter it without any support from the existing player. The largest retailers were the corporations managing multiple chains at different price points. In such high competitive environment, MHI played carefully by focusing on direct expansion through acquisitions. To compete with the strong brand names like Zale, Sterling Jewellers and Tiffany, MHI purchased 17 shops for NZ$7 million from Whitehall Jeweller Holdings, which was one of the largest jewellery chains in the states. The US retailer had filed its bankruptcy at that time. It would not be wrong in stating that the attempt undertaken by NHI was a bold entry, which was aimed to test its retail model. According to the strategic management, the reasons behind

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adopting the different entry model for US were to go for an effective and profitable real estate play. However, trailing the product at initial stage was not likely to prove as a beneficial strategy because these acquisitions were nothing just testing (Grant et al., 2013). The effects of this acquisition strategy were also not effective and company announced to close its 17 stores due to impact of the global economic and financial recession 2009 on the real jewellery sales drop, real property issues and unfavourable unemployment outlooks. Thus, it can be examined that opening subsidiaries in Australia was successful entry model for MHI as compared to the similar mode chosen for entering Canada. This is so because strategic management failed to concentrate on other additional strategy elements like market feasibility, transaction cost, infrastructural facilities and competitors’ analysis. The next part of report emphasizes on the factors that might have been included by Michael Hill in the feasibility analysis while moving overseas.

5. Factors Included By Michael into the Feasibility Analysis to Move Based on the examination of case study, it can be stated that Michael Hill might have taken into account the range of factors in his feasibility analysis. These might include market entry models analysis, industry analysis as a whole, customer’s preferences, competitors’ analysis and international environment and culture. However, all these factors were not thoroughly focused and researched by the strategic management of the company. This can be evidenced from the example that despite of having complete knowledge about the fragmented American market and presence of giant retailers in the Jewellery industry of the states, MHI opted to acquire 17 Whitehall Jeweller Holdings stores just to test its retail model. Furthermore, it can be examined that company must consider the macro-environment analysis in-depth prior to

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enter into US market. But in the times of recession, where a large portion of medium to small scale companies in every industry were filling for their bankruptcy in 2008, unwisely the macro-environment factors were undermined by the strategic management of MHI. The key reason behind such negligence was the company’s approach in dealing its overseas markets interdependently. When in 2008, despite of global recession, Australian market remained buoyant for the MHI; company might have started assuming similar for the other overseas region too (Fitzroy & Hulbert, 205). However, from the case study, it was found that Michael Hill considered primarily its goal setting and business vision in order to align it with the needs of the different overseas markets. After it, financial arrangements were the key issue for the company and Hill probably have taken account of the financial sources available to it along with the sources that could be used for gathering the needed capital to expand (Johnson et al., 2011). These areas supported him in indentifying and measuring the total amount of finance needed. Moreover, consideration on effective strategic location and distribution centres was also a vital factor of the business. Moreover, although company focused on the fact that they should not overestimate or are overcommitted in offering their services to the overseas market but the practices were quite different (Grant et al., 2013). In the theoretical background focused in the research of Lengen, (2012, p.10), it can be analysed that author depicted the importance of three stages in the successful industry analysis for the business. These include: “Stage one: Assessment of alternative markets Stage two: Evaluation of costs, benefits and risks

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Stage three: The selection of the right choice.” MHI failed in Canada and Australia because, it did not concentrate on assessment of alternative markets and section of the right location to enter. Additionally, characteristics of fragmented industries were also not considered by Michael Hill in the feasibility report. Suggestions for important characteristics of fragmented markets given in the next section can assist MHI in competing in such industry in future.

6. Characteristics of Fragmented Industries and Recommendations for Competing In Such Industry Theoretical literature stresses on the importance of fragmented market characteristics. According to Sudi, (2003, p.125), fragmented industries contain a large number of very small firms selling a single product or a small range of related products. The markets they serve may be niche markets or geographically limited. They are often described as „mom and pop‟ business. These businesses may be selling mature products or they may be start-up firms. By applying the highlighted characteristics of fragmented markets on the North American market of MHI in case study, it can be examined that there were large number of smaller chains and independent jewellers like Tiffany & Co, JC Penney, Costa Wholesale Group and others. The fragmentation markets were also characterised based on U.S. distribution channels that helped the existing markets in selling their mature products through numbers of small distribution points and earning a large profit (Grant et al., 2013). In order to deal with such fragmented industries, it is very necessary for the investor to focus on the development of contractual agreements and clientele with their local markets. MHI should also go for indirect expansion and growth into North American or other highly

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fragmented markets. In addition, it would also be suggested to the company that specialization is a key aspect of the strategy when there is large number of firms. Those products, which can maintain strong process and are according to the exact tastes and preferences of the changing tastes of the customers, should be given high concentration. Another recommendation for such fragmented market can be the keeping transaction cost down enough. To deal with competition, MHI should understand that only those companies in such markets can survive that control their costs in relation to new competitors that will try to gain a competitive position by under pricing the product. Therefore, in case the cost of business is high in the fragmented market, it would be difficult for the business to cut back its expenses later and lower the price for sustainable growth and competition as sustainability is the key to success (Rogoff, 2007; Bonn, 2011).

7. Conclusion Thus, the above analysis of the global strategic management case study of Michael Hills International, it can be concluded that the management failed to cope up with its initial successful management strategy. When company pursued its controlled expansion and clustered growth in Australia successfully, it was imprudent to go for acquisitions of a bankrupt retailer. It was also found that diversification in the shoe sector was also not devised strategically as due to interrelation of the jewellery and shoe business units; MHI was unable to avoid the distorted attention of its top management. Likewise, cost of overseas expansion was identified as outweighing the cost. It was recommended to MHI to focus on characteristics of fragmented markets along with all the relevant factors of feasibility analysis before entering into an overseas market.

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