Good Research Paper About How Victoria’s Secret Became A Tnc
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TNC’s or Trans National Corporations are companies, or entities, that conduct operations vital to their success, in two or more countries (Richet, Delteil, & Dieuaid, 2014). The growth and proliferation of TNC’s have coincided with the expansion of the free market economy as well as the growth and advancement of technology and the internet. Globalization has also contributed to the rise of these entities, which are sometimes also known as Multi-National Corporations or MNC’s (Richet, Delteil, & Dieuaid, 2014). Victoria’s Secret is one of these entities. The company, with operations in the USA, Canada, the United Kingdom, Mexico, China, and Israel, and franchises in places as diverse as South America, the Caribbean, and Asia, fits the bill perfectly. The company has had manufacturing operations in Thailand and Sri-Lanka, and some of its products are sourced from manufacturers with factories in India (Kumar, 2005). This is in keeping with global outsourcing trends in the world at present. Prior to 2000, however, the company only operated in the USA. It is after this period that the company expanded its operations to other countries, initially starting with Canada, before later expanding to its current global outlook. This paper looks at how Victoria’s Secret became a Trans-National Company. It investigates the reasons behind this expansion and the form that the expansion has taken.
When and Where
Victoria’s Secret is the largest retailer of lingerie in the USA ("Victoria's Secret", 1982). The company deals in lingerie as well as women's wear and also sells beauty products. This it does through various methods and these include catalogs, the company’s website and through physical stores. This model is replicated in its various areas of operation across the globe. However, in order to understand how the company came to be in its present form, it is important to look backwards and chart its progression. Roy Raymond, an alumnus of Stanford School of Business and Tutts University, together with his wife Gray, established Victoria’s Secret in June 1977. The company initially began its operations in San Francisco, California. The idea for the establishment of the company came eight years earlier born out of an experience that Raymond had when shopping for lingerie for his wife. While shopping for lingerie in one of the department stores that existed at the time, Raymond could not find anything appealing enough. Besides, attendants treated him like a person who was in the wrong place, and he felt rather unwelcome. Therefore, after an 8-year study of the lingerie market, Roy and his wife identified a niche market that they could profit from. The two borrowed a combined $80,000 from a bank and their parents, and opened Victoria’s Secret, a lingerie store where men could feel at home shopping for lingerie. This first store was in the Palo Alto area of California ("Victoria's Secret", 1982).
The idea proved to be a massive hit. In its first year of operation, the company had gross sales of half a million US dollars. With the amounts reaped, the company was able to fund the opening of four new stores and to open a new line of operation via mail order. In the initial three years of operation, the business continued to expand rapidly, operating six stores as at 1982, alongside a 42-page catalogue. At this particular time, the company had carved out for itself a niche male market. However, this niche market was proving to be the company’s undoing since it had limited itself to male customers only. This led to falling sales, and the model was proving increasingly unprofitable which drove the company to the verge of bankruptcy. This situation led to the 1982 sale of Victoria Secret, for $1million, to Leslie Wexner, Wexner was the founder of Limited Stores Inc., a company based in Ohio ("Victoria's Secret", 1982). This sale brought about the era of Victoria’s Secret, as we know it today. Since selling lingerie to male customers was proving to be a model of business that was making losses, Wexner decided to revamp and revolutionize the business. This resulted in a paradigm shift in operations from selling lingerie to women, to a more women-centered approach where the company would target female buyers. This the company would do by packaging the lingerie in a sexy and attractive manner. The change in strategy led the company to expand massively, becoming a nationwide retailer with 346 outlets within five years of the purchase. By the 1990’s, the company was the largest lingerie retailer in the USA. It had 350 stores and was recording sales volumes above $1billion. In 1991, the company ventured into new waters, launching its own brands of fragrances. The company also introduced its now famous fashion shows is 1995 as well as entering the cosmetics market in 1998. At this time, the firm was also grappling with quality problems, which were constricting margins and leading to lower profits. The company introduced the Miracle Bra, which helped to shore up sales. The era of the company’s globalization was ushered in by the early 2000 appointment of a new chief executive of Victoria’s Secret Direct. Her mandate was to turn around the flagging catalog sales. The new CEO, Sharen Jester Turney, oversaw a brand overhaul and decided to focus on a more upscale consumer segment (Gereffi, 2002).
Since then, the company has continued to adopt various methods and areas for its global expansion into a TNC. The first area in which it expanded into the global market was in 1995 when the company launched its e-commerce website. This was made possible by the revolution that was the invention of the internet (Richet, Delteil, & Dieuaid, 2014). The company had developed this website for a whole three years to ensure it came up with a perfect product. At this time, the company’s Fashion Show was also growing in prominence and was proving to be another frontier for expansion. This happened when the show was held outside USA borders for the first time, in the year 2000, when it was held in Cannes, France. Another place where the company transcended National boundaries in its operations is in the case of its stores, which are located in many places around the world. These overseas stores began in Canada when the company opened stores in various Canadian cities starting in Edmonton in August 2010. However, the groundwork for this had already been laid as far back as 2007 with the acquisition of a Canadian lingerie brand, La Senza. The company also has franchises in other parts of the world for example Venezuela and Colombia. One other area where Victoria’ Secret operates transnationally is in its production network. Victoria’s Secret main production partner is a Sri Lankan entity known as MAS Group. In fact, the Victoria’s Secret world’s largest bra making plant is located in Sri Lanka (Kumar, 2005).
The company had various reasons for wanting to expand its scale of operations beyond the boundaries of the USA. These reasons relate both to market access and sourcing efficiency. For a long time, in the years prior to 2000, Victoria’s Secret management expressed no desire to venture outside the US market. However, following the remake of the company and the decision to focus on a higher-end market, the company finally began to think of venturing overseas. This was occasioned by the desire to continue expanding, coupled with a shrinking domestic market. Whereas Victoria’s Secret dominated the USA lingerie market, being the USA’s largest retailer of lingerie and with a 14% market share of the intimate lingerie market as at 1998, the company was facing increased competition from cheaper brands that were in the market. Despite its introduction of new and revolutionary products such as the Miracle Bra, the company was ceding market share to rivals. An illustration of this was the competition brought on the Miracle Bra by the Wonder Bra by Sara Lee. Victoria’s Secret was also facing quality issues, which were again leading to shrinking market share. Hence, the company realized that an overseas market would have to be targeted (Gereffi, 2002).
Also related to market access was the increasing demand for the Victoria’s Secret products. The internet had revolutionized trade and hence through e-commerce, customers were increasingly able to place orders online. This led to a surge in popularity of the products and hence increased demand. The surge in demand necessitated new outlets. Hence, the company was forced to expand its operations and grow to other countries. This growth meant the company was responding to its growing consumer base outside its borders by bringing the goods closer the customers (Gereffi, 2002).
The decision to hold the 2000 Victoria’s Secret Fashion show in Cannes France can also be viewed from the market access angle. France is among the countries that are renowned as a fashion capital in the world. Hence, from a marketing point of view, the decision to hold the Show outside US soil for the first time was a masterstroke. This is because the brand would be marketed as a globally recognized brand, instead of as a local one. This in turn led to an improved market share, also created brand recognition for the product, and hence market share (Richet, Delteil, & Dieuaid, 2014).
The reasons for the transnational expansion can also be explained in relation to the need to bolster sourcing efficiency. Here, the first aspect of consideration is raw materials. Raw materials are one of the biggest elements of production costs. Therefore, for a company to be able to cut the costs of production, it must cut down on this crucial aspect. Victoria’s Secret has outsourced around 80% of its sourcing and manufacturing to a wholly owned subsidiary called MAST. The company has thus put in place a system known as strategic sourcing (Kumar, 2005). This company sources for materials from across the world, in areas where they will be cheap to obtain. This helps the company to cut costs. MAST single sources raw materials from one geographical region on behalf of the manufacturers. This lowers the cost of production and improves sourcing efficiency, which explains one of the reasons for the global expansion (Kumar, 2005).
Another element is the aspect of labor. In the lingerie market, Victoria’s Secret was facing competition from Chinese firms. Because of the high availability of labor in China, labor costs are low. Thus, Chinese firms can produce at low cost and sell at lower prices. This forced the company to respond since USA labor costs are rather high (Gereffi, 2002). Hence, the firm has outsourced manufacturing to firms in foreign countries, which have lower operational costs. A key partner in this is Sri Lanka. Victoria’s Secret has a third of its bra volume produced at factories in India and Sri Lanka. The Sri Lanka partnership, at a factory called Bodyline, dates way back and it operates two full day shifts while producing these bras for export. The reason for this foreign outsourcing is the expertise in production of intimate clothing held by Sri Lankan producers. Another reason is to take advantage of the investment in machinery and equipment in Sri Lanka as well as the availability of human resources on the island (Kumar, 2005).
The Victoria’s Secret management in its transformation into a TNC has employed various methods. These methods have incorporated both Foreign Direct Investment as well as Outsourcing. The company has also employed mergers and acquisitions. One prime example of acquisition as a global expansions strategy presents itself with the acquisition of Victoria’s Secret by the Limited Brands Inc. Company. This acquisition is what has enabled the company to expand itself and transform into a Trans National Company. Another example of acquisition is in the way the company entered the Canadian market. In 2007 as it was preparing to enter the market in Canada, Victoria’s Secret acquired a lingerie company in Canada known as La Senza. This both gave it a presence in the Canadian market and helped to eliminate competition. Another way in which it has expanded is through Foreign Direct Investment, and this is represented by the company’s ownership and presence in various countries the world over. The company has stores and boutiques in the USA, Canada, the United Kingdom, Mexico, Israel, and China. In addition to these countries, it has international franchise outlets in Venezuela and Colombia as well as in Puerto Rico. In the Middle East, the brand is represented in Kuwait trough a franchise held by M.H. Alshaya Co. This same company operates the franchise in Poland. In terms of outsourcing, the company has participated in various ways. For example, the firm has outsourced a large part of its bra production to Sri Lanka. A company known as MAST, which is wholly owned by the Limited Brands Company. This MAST handles all the sourcing on behalf of Victoria’s Secret, and it has entered into contracts with the Sri Lankan producers. This is a perfect example of a captive third party business model (Kumar, 2005).
In conclusion, it is evident that the need to go global cannot be understated. Globalization is the only way for a company to survive in the ultra-competitive business environment that is in the world at present. Victoria’s Secret is an example of how a hugely successful firm in the United States can transfer this success to the global front. Through a combination of shrewd planning and business modeling, the company has been able to maintain its position as the premier lingerie retailer for the upper end of the market both in the USA and globally. Use of market penetration strategies such as franchising has also seen the company able to access various world markets.
"Victoria's Secret". (1982, August 5). The Globe and Mail. .
Gereffi, G. (2002). Outsouring and Changing Patterns of International Competition in the Apparel Commodity Chain. Retrieved March 12, 2015, from University of Colorado at Boulde, Institute of Behavioral Science: http://www,colorado.edu/IBS/PEC/gadconf/papers/gereffi.pdf
Kumar, S. (2005, June). Supply Chain Strategies in the Apparel Industry: The Case of Victoria's Secret (Master's Thesis). Massachusetts: Massachusetts Institute of Technology.
Richet, X., Delteil, V., & Dieuaid, P. (2014). Strategies of multinational corporations and social regulations: European and Asian perspectives. Heidelberg ; New York: Springer.
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