Business Organizations and Environment in a Global Context: A Case Study of Armani in Japan

BUSINESS ORGANISATIONS AND ENVIRONMENT IN A
GLOBAL CONTEXT
1

Table of Contents
Introduction......................................................................................................................................3
Background to Business Organization.............................................................................................4
Business Environment.....................................................................................................................5
Porter’s Five Forces.........................................................................................................................9
Conclusion:....................................................................................................................................13
Reference List:...............................................................................................................................14
Appendix:......................................................................................................................................16
2

Introduction
In order to stay competitive in the market, it has become essential for the company to implement
effective plan to gain advantage over its competitors. The chosen company for this particular
project is Armani, Japan. Japan is considered as the third largest fashion apparel importer after
the European Union and the United States.
For the business expansion, it is essential to consider both the internal and external factors.
Additionally, the country is the trendsetter for the other Asian countries. E-retail is affecting the
fashion industry of the country. In order to deliver the best services to the customers, it is
essential to use the available resources in order to maintain the supply chain management in the
right way. The expansion of the trade is somehow is depended on the suppliers of the country.
This assignment will investigate the external factors affecting the business of the company in
Japan. Additionally, the assignment will display the PESTLE analysis and Porter’s Five Forces.
The assignment will also provide time plan for implementing the strategy effectively. This will
help the company to gain the competitive advantage over its competitors.
3

Background to Business Organization
Armani is an Italian fashion company, which also operates its trade in other international market.
The company was founded in the year 1975 by Sergio Galeotti and Giorgio Armani. The
company designs, manufactures, retails and distributes shoes, watches, house interiors, leather
goods, jewelry, cosmetics, eyewear and others. The brand markets its products under several
names such as Emporio Armani, Giorgio Armani Prive, Armani Jeans and others. Additionally,
the brand makes use of the association with the Armani name with high fashion and it benefits
from the prestige in the fashion industry. As per the reports, in the year 2016, the total revenue of
the company was estimated to be €2.9 billion. Over the years, the turnover of the company is
increasing at the rapid pace (Armani.com, 2018). In the year 2011, the turnover of the company
was estimated to be €1275 million and in the year 2015, the turnover of the company was
estimated to be €1701 million.
Figure 1: Turnover of Armani
(Source: statista.com 2018).
4

Business Environment
In order to run the business successfully, it is important for the company to understand the
business environment within which it is going to operate its business. The business environment
affects every aspects of the business. By analyzing the external factors, the company will be able
to develop and implement effective strategy, which will ensure smooth growth of the business.
In order to analyze the external environment, the management of the company has decided
conduct PESTLE analysis and Porter’s five forces.
PESTLE analysis:
 Political factor: Constitutionally, Japan is a monarchy. There is the limited power of the
emperor and it is restricted mainly to the ceremonial duties. The government in the
country involves Executive Branch, the Legislative Branch and the Judicial Branch. The
Executive power is given to the cabinet that is led by the Prime Minister. National diet is
vested the Legislative power (Ward and Rustow, 2015). The Political factor is comprised
of the labour law, restriction of the trade, tax policy and others. Japan also has good
relation with big and small countries, which enables the country to have strong business,
trading and corporate relation with the other countries. In order to operate the business
effectively, the company should follow the government law of the country.
 Economic factor: The economy of the Japan is very strong. It is also third largest
economies in the world after China and United States. In the year 2015, the GDP of the
country was estimated to be 4940.16 billion US dollars. Additionally, the value of GDP
of the country constitutes 7.97% of the world economy (Tradingeconomics.com, 2018).
From the year 1960 to 2016, it has been found that the average GDP of the country was
estimated to be 2664.7 USD. The economic factor of the country also involves the rate of
inflation. In the year 2018, the rate of inflation of the country is estimated to be 1.4%.
The rate of inflation has increased from 1 percent to 1.4 percent, which has maximized
the prices of the products and services in the country. Additionally, this has also led to
decrease in the purchasing power of the customers (Tradingeconomics.com, 2018). In
order to increase the market share in the country, the company has to consider the
5

inflation rate. The company has to analyse the per capita income of the customers and
based on this, they should set the prices of their products and services.
Figure 2: GDP of Japan
(Source: Tradingeconomics.com 2018).
Figure 3: Japan inflation rate
(Source: Tradingeconomics.com 2018).
 Social factor: The Company operating in the country should analyse the social factor of
the country, which will help in operating the business in an effective manner.
Additionally, the social factor of the country involves the growth of population,
distribution of age, cultural factor and others. The family system in the country is
6

monogamous and patriarchal. There is no particular religion in Japan and people are free
to choose any religion. Before developing and implementing the strategy, it is important
for the company to consider the social and cultural factors of the country. The company
should also ensure that they are not affecting the sentiments of the customers, as it can
decrease their brand value in the market. As the family lives together, the country should
provide offers and discounts that would benefit the whole family members. The number
of elderly people in Japan is increasing, which indicates that the company will face
problem to hire employees (The Japan Times, 2018). This can affect the business
operation of the company. On the other hand, the company should provide the products
and services that would attract elder people. This will help in increasing the revenue of
the company as well as the customer base.
Technological factor: Japan is considered as one of the most technological advance country in
the world. In Japan, there has been a great revolution in the technological sector. There are more
than 92% of the Japanese people accessed the internet connection (statista.com 2018). There is
great opportunity for the company to provide the products through online services and at the
same time, this will also ensure higher revenue for the company. Additionally, the country is also
known for the robotic technology, which enables the company to provide better products and
services to the customers. With the help of the technology, the management of the company can
also conduct the market research to identify the tastes and preference of the customers. This will
help the company to attract more number of customers (Turkle, 2017). The company can also
make use of the advance technology to create awareness of the products and services, which will
ensure growth of sales for the company. Technological advancement will also ensure the
company to enhance the research and development department, which will help in providing
better products and services to the customers. This will also help the company to compete with
its competitors.
7

Figure 4: Percentage of population using the internet in Japan
(Sources: statista.com 2018)
 Legal factor: In order to operate the business smoothly, it is important for the company
to abide by the rules of the government of Japan. Additionally, the company needs to
follow the employment law, advertisement law, health and safety law and others. The
management of Armani should understand what legal and illegal activities in the country
are. This will help the company to operate the business effectively. The country has also
enforced the corporation law and it is based on the corporation code. The company also
provides various legal formalities on the formation of the new companies.
The government of the country has also enacted the trademark law with the help of the
Trademark Acts of 1959. The company also needs to mention the condition of the
employment in the employment agreement and it should be comprised with minimum
wages law, working hours, leave rules and others (Kaufmann, 2017). The company
should not conduct unethical advertisement, which can hamper the interest of the
customers and at the same time, this can lead to decrease in the revenue of the company.
The company should follow the law implemented by the government or else the company
will not be allowed to trade in the country.
8

 Environmental factor: There are more than three thousand islands in the country.
Additionally, most of the lands in the country are mountainous, forested and they are not
suitable for industrial use. The country is also prone to earthquakes and as per the reports,
more than 1500 earthquakes occur annually. In order to protect the environment, the
government of the country has introduced environmental policy and the government
regulation is very strict in the country. In order to operate the business effectively, the
company has to mitigate the environmental issues. In addition to this, the company
should conduct the CSR activities for the benefits of the society. This will also help in
increasing the brand value of the company and at the same time, it will be able to attract
more numbers of customers.
Figure 5: PESTLE Analysis
(Source: Makos, 2015)
Porter’s Five Forces
Porter’s five forces are referred as the framework tool that can be used for analyzing the
competition in the market. Additionally, it can also be used to understand the forces that shape
the competition within the industry. The forces can also be used to measure the profitability and
attractiveness of the industry in the market.
 Bargaining power of buyers: Buyers determines the success of the company. There are
many fashion companies in Japan, which increases the bargaining power of the
customers. One of the main possible reasons for the high bargaining power of the
customers is the low switching cost. Additionally, the customers are always in search of
9

the best products from the companies in affordable prices. This adds pressure on the
company to maintain its profitability in the competitive market. In order to tackle with
this threat, Armani has to provide special offers and discounts, which will help in creating
strong base of loyal customers (Porter and Heppelmann, 2014). This will also provide an
opportunity for the company to streamline its production and sales. With the help of this,
the company will be able to reduce the bargaining power of the customers. This will help
the company to compete with its competitors in Japan and at the same time, they will be
able to operate the business effectively in the country.
 Bargaining buyer of suppliers: In order to operate the business effectively, suppliers are
considered as one of the important aspect of the company. In Japan, there are many
suppliers that supplies raw material to the fashion industry. The bargaining power of the
suppliers for Armani is medium, as the company has the high brand value in the market.
Additionally, the suppliers also look for the reputed company to supply their raw
materials.
There are many suppliers, so the company will be in a position to negotiate with the
suppliers. In order to operate the business effectively, the company needs to implement
effective strategy (Takata, 2016). One of the main ways by which the company can tackle
the threats, the company should focus in building strong supply chain with the suppliers.
Additionally, the company also focus in building dedicated suppliers, whose income wholly
depends on the business of Armani Company.
 Threat of substitutes: In order to operate the business effectively, it is essential for the
company to mitigate the threat of substitute in the country. There are many apparel
companies in the country and at the same time, the country is also the third largest
importer of fashion apparel. Therefore, if Armani does not provide effective products
then other companies will provide the same. In order to tackle the threat of substitutes,
the company has to focus on providing better quality products. The company should
conduct effective market research to analyse the tastes and preference of the customers.
Based on the market research, the company should aim at providing the goods and
services to the customers (Moreno-Izquierdo et al., 2016). This will attract more number
of the customers, which will also ensure competitive advantage over its competitors in
10

the country. In order to mitigate the threat, the company can increase the switching cost
of the customers.
 Threat of new entrants: In Japan, there are no government regulations to start the
business. Additionally, there is requirement of heavy investment for establishing new
business in the country. The company will also face building brand value, as it will take
much time. The threat of the new entrants in the country is medium.
In order to tackle with this threat, the company has to focus in identifying and
understanding the latest trend in the market. At the same time, the company has to focus
on the research and development, which will help in defining its standards in the market.
This will help the company in gaining the competitive advantage over the new entrants in
the market. The company should also develop and implement effective strategy, which
will ensure in minimizing the window of generating extra ordinary profit for the new
entrants.
 Competitive rivalry: There are many apparel companies in Japan such as Uniqlo, Comme
des Garcons, Issey Miyake, A Bathing Ape and others. More number of competitors in
market implies that there is lower of the profitability in the market. In order to increase
the market share, the company has to implement effective strategy. One of the main ways
by which the company can compete with the existing companies in the country is by
providing better quality products at lower prices. Additionally, the company can focus on
the marketing campaign, which will help in providing important information to the
customers. With the help of this, the company will be able to attract more number of
customers. Additionally, the company should also provide attractive offers and discounts
to the customers.
11

Figure 6: Porter’s five forces
(Sources: Porter and Heppelmann, 2014).
12

Conclusion:
This assignment has been conducted by considering Armani, Japan. Armani is planning to
expand its business in Japan and it is important for the company to analyze the external business
environment. From the above assignment, it can be stated that there are many factors that can
affect the business of the company. Additionally, from the above assignment it can be stated that
the company needs to build strong supply chain with the suppliers, which will help the company
to operate the business effectively. The company needs to follow the employment law of the
country in order to expand the business in the country. From the above assignment, it has been
identified that there are more elder people in Japan that can cause problem to Armani to employ
employees.
13

Reference List:
Armani.com (2018). Armani | Official Online Store |. [online] Available at:
https://www.armani.com/in/armanicom [Accessed 17 Mar. 2018].
Kaufmann, W., 2017. Going by the book: The problem of regulatory unreasonableness.
Routledge.
Makos, J., 2015. What is pest analysis and why it's useful. PESTLE Analysis.
Moreno-Izquierdo, L., Ramón-Rodríguez, A.B. and Perles-Ribes, J.F., 2016. Pricing strategies of
the European low-cost carriers explained using Porter's Five Forces Model. Tourism
Economics, 22(2), pp.293-310.
Porter, M.E. and Heppelmann, J.E., 2014. How smart, connected products are transforming
competition. Harvard Business Review, 92(11), pp.64-88.
statista.com (2018). Japan: internet penetration 2016 | Statistic. [online] Statista. Available at:
https://www.statista.com/statistics/255857/internet-penetration-in-japan/ [Accessed 17 Mar.
2018].
statista.com (2018). Turnover of Italian fashion company Giorgio Armani in 2011-2015 |
Statistic. [Online] Statista. Available at: https://www.statista.com/statistics/694400/turnover-of-
italian-fashion-company-giorgio-armani/ [Accessed 17 Mar. 2018].
Takata, H., 2016. Effects of industry forces, market orientation, and marketing capabilities on
business performance: An empirical analysis of Japanese manufacturers from 2009 to
2011. Journal of Business Research, 69(12), pp.5611-5619.
The Japan Times. (2018). Japan census report shows surge in elderly population, many living
alone | The Japan Times. [online] Available at:
https://www.japantimes.co.jp/news/2016/06/29/national/japan-census-report-shows-surge-
elderly-population-many-living-alone/#.Wqz7ctRua1s [Accessed 17 Mar. 2018].
14

Tradingeconomics.com. (2018). Japan GDP | 1960-2018 | Data | Chart | Calendar | Forecast |
News. [online] Available at: https://tradingeconomics.com/japan/gdp [Accessed 17 Mar. 2018].
Tradingeconomics.com. (2018). Japan Inflation Rate | 1958-2018 | Data | Chart | Calendar |
Forecast. [Online] Available at: https://tradingeconomics.com/japan/inflation-cpi [Accessed 17
Mar. 2018].
Turkle, S., 2017. Alone together: Why we expect more from technology and less from each other.
Hachette UK.
Ward, R.E. and Rustow, D.A. eds., 2015. Political modernization in Japan and Turkey.
Princeton University Press.
Appendix:
Time plan
Activities Start date End date Required
resources
Responsible
person
Conducting market
research
17/03/2018 22/03/2018 Financial funds,
employees
Marketing head
Planning the tools
and techniques that
can be used
conducting
marketing research
23/03/2018 29/03/2018 Financial funds,
experts and
employees of
marketing
Marketing
department
head
Selection of market 30/03/2018 06/04/2018 Financial funds,
experts and
employees of
marketing
Marketing head
Analysing external
business
environment
07/04/2018 15/04/2018 Financial funds,
experts and
employees of
marketing
Marketing head
Monitoring and 16/04/2018 24/04/2018 Financial funds, Marketing head
15

evaluation experts and
employees of
marketing
Documentation of
the findings
25/04/2018 30/04/2018 Tools and
techniques that can
be used for
documentation
Marketing head
Budget:
Activities Cost (Japanese yen)
Conducting market research 1500
Planning the tools and techniques that can be used
conducting marketing research
1200
Selection of market 900
Analysing external business environment 700
Monitoring and evaluation 950
Documentation of the findings 600
Total 5850
16