Master’s Degree programme Second Cycle (D.M. 270/2004) in International Management Final Thesis The Replication of Strategic Format as Internationalization Method Calzedonia Case Supervisor Ch. Prof. Vladi Finotto Graduand Federica Giarola Matriculation Number 855683 Academic Year 2016 / 2017 ABSTRACT Business organizations may expand internationally by replicating part of their value chain, such as products, prices, marketing and communication tools, organizational structures and stores design through the creation of a format. However, it is difficult for replicators to find the right format, to adjust it in order to adapt to local environments and to transfer knowledge abroad. To dicover these issues, I studied the organizational structure of Calzedonia, the firm leader of underwear apparel, involving interested offices with long interviews. I find that Calzedonia, after a period of exploration, proceeded in terms of replicating a format in a flexible manner, supporting an ongoing learning process aimed to adapt what is flexible to the market. The format, in fact, presents two fundamental characteristics: fixed features used everywhere without modifications and flexible ones able to adapt locally. Another finding is how Calzedonia uses the format in its internationalization strategy, through franchising network. I conclude the thesis with an overview of the future challenges just approached by the firm: US and China markets. 1 CONTENTS AKNOWLEDGMENTS ............................................................................................................ 4 INTRODUCTION ..................................................................................................................... 5 CHAPTER 1 ............................................................................................................................... 7 1. Replication as Strategy .......................................................................................................... 7 1.1 The theory ........................................................................................................................... 7 1.2 The process .......................................................................................................................... 8 1.3 Learning and Replicating ..................................................................................................... 8 1.4 Template and Arrow Core ................................................................................................. 10 1.5 Replicating successfully ..................................................................................................... 12 1.5.1 Successful Exploration ................................................................................................................ 12 1.5.2 Successful Exploitation ............................................................................................................... 13 1.6 Replication in International Context .................................................................................. 14 1.7 Financial Performance Implications .................................................................................. 16 1.8 Creating, Retaining and Transferring Knowledge .............................................................. 18 1.9 Knowledge Selection ......................................................................................................... 23 1.10 Replication Outcomes ........................................................................................................ 23 1.11 Evolution of Arrow Core .................................................................................................... 24 1.12 Retail Strategy Choices ...................................................................................................... 25 CHAPTER 2 ............................................................................................................................. 27 2. Franchising .......................................................................................................................... 27 2.1 Introduction ....................................................................................................................... 27 2.2 The franchising and the Socio-Economic Context ............................................................. 28 2.2.1 Franchise Business Index ............................................................................................................ 31 2.2.2 Outlook Summary ....................................................................................................................... 32 2.2.3 Establishments by Business Line ................................................................................................. 34 2.2.4 Employment by Business Line .................................................................................................... 35 2.2.5 Output by Business Line ............................................................................................................. 37 2.2.6 Franchise Businesses' Contribution to GDP ................................................................................ 38 2.2.7 Distribution by Sector ................................................................................................................. 38 2.3 Franchising ......................................................................................................................... 40 2.4 Master Franchising and Other Forms of Affiliation ........................................................... 41 2.5 Advantages and Disadvantages for the Franchisor and Franchisee .................................. 43 2.6 The Right Balance between Franchising and Company-Owned Stores ............................. 44 2.7 The Importance of Brand Valuation in Fashion System ..................................................... 47 2.8 The Importance of Technological Innovation .................................................................... 47 2.9 Risk Management and Franchising .................................................................................... 49 2.10 Firm Exposition to Risk ...................................................................................................... 50 2.11 Risk control Instruments .................................................................................................... 51 2.12 Risk Monitoring in Franchising Systems ............................................................................ 52 2.13 Monitoring Instruments for Franchising Network ............................................................. 53 2.14 Analysis Instrument to Franchising Network Monitoring .................................................. 55 CHAPTER 3 ............................................................................................................................. 57 3. Calzedonia Group ................................................................................................................ 57 3.1 The Growth in Numbers ................................................................................................... 57 3.2 The Brands ......................................................................................................................... 58 3.3 Corporate Success Story Entirely Told by Women ............................................................ 59 3.4 Environmental Attention ................................................................................................... 60 3.5 Internationalization Process .............................................................................................. 61 2 3.6 A Global OrganiZational Model .......................................................................................... 64 3.7 Production Process ............................................................................................................ 66 3.8 Costs, Time and Strategic Choices ..................................................................................... 68 3.9 Franchising Management .................................................................................................. 69 3.10 Risk Management .............................................................................................................. 71 3.11 SWOT Analysis ................................................................................................................... 73 3.12 Main Competitors of CalZedonia Group ............................................................................ 76 3.12.1 Yamamay ............................................................................................................................... 77 3.12.2 Golden Lady ........................................................................................................................... 78 3.12.3 Oysho ..................................................................................................................................... 79 3.12.4 Victoria Secret’s ..................................................................................................................... 80 3.12.5 Hanesbrands .......................................................................................................................... 81 3.12.6 Triumph International ............................................................................................................ 82 3.13 BCG Matrix ........................................................................................................................