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Case Study of Michael Hill International

1. Introduction
Strategic management is a process of decision formulating, evaluating and implementing. It
is critical to a company for owners of the company must develop appropriate strategies
through this process in order to produce the largest competitive advantages for the company
(Nedelea & Paun, 2009). The three elements of global strategic management are global
strategic analysis, formulation and evaluation, implementation and control (Frynas &
Mellahi, 2015). Successful strategies require long-term, simple and agreed objectives;
profound understanding of the competitive environment; and objective appraisal of resources.
In this respect, global strategic analysis needs to be made to formulate successful strategies.
The purpose of global strategic analysis is to evaluate the companys current status, find out
the problems existing in the company, articulate a clear vision for the business, and develop
strategies that fit with both external and internal environments of the company. Therefore,
the strategic analysis should be sufficient and comprehensive.

First of all, the external environment including macro and micro environment analysis
should be made. The macro environment includes political, social, economic and
technological factors like national policies, economic trends and social needs in the broader
society; while micro environment refers to industry environment, including factors such as
suppliers, buyers, competitors etc. (Porter, 2008) The owner of the company can get to know
what surroundings the company is in and whether the changes in environment are
opportunities or threats to the company. Secondly, the internal environment of the company
including resources and capabilities requires analysis. The advantages and disadvantages of
the company should be made clear in order to formulate appropriate strategies. Then the goal
and vision should be made clear through analysis of the external and internal environments.
The goal and vision provide foundation for the formulation and evaluation of strategies
(Pearce & Robinson, 2000).

2. Case Analysis
2.1 Elements of Global Strategic Management in Expansion into Australia
All of the three elements of global strategic management are apparently shown in Michael
Hills initial expansion into Australia.

Michael Hill has made analysis of external environment and accordingly developed and
implemented successful strategies. (1) MHI opened a manufacturing arm in Brisbane to
shorten the supply chain and reduce the cost of shipment. Among economic issues, the cost
of production is of high priority to every company. (2) When he needed capital to expand to
Australia, he decided to accept the suggestion of making the company public in New
Zealand so that he could raise enough capital. Different countries have different rates for
borrowing money. The lending rate in Australia is higher than that in New Zealand. If he
raised money in Australia, the cost of raising capital will increase.

He has made analysis of internal environment and accordingly developed and implemented
right strategies. (1) The focus of Michael Hill's first jewellery shop was simplicity, selling
only jewellery rather than standard goods at that time. In the third year, he set the goal of
opening seven stores in New Zealand in seven years. It can be seen that he has made the
vision and the goal very clear for the company. (2) His opening of the head office in
Australia met the 1987 stock market crash; however, based on his analysis of the internal
environment of the company, Hill knew the crash would not affect the company too much
and made the right decision. (3) Some resources and capabilities with the potential to
contribute to a multinational companys competitive advantage can be transferred to other
places. Hill chose an office in the IBM building as new head office and the majority of head
office staff relocated. And some of his New Zealand jewellers relocated to Brisbane. All
these staff and jewellers are resources relocated to form the companys competitive
advantages.

He has also made industry environment analysis and accordingly developed and
implemented right strategies. (1) He decided to open a shop in Ipswich, which was
considered a socioeconomically disadvantaged area, after market research showing that
residents had disposable income. It is based on his analysis and research of the indust ry
environment (buyers) that he has made a right decision. (2) Preference of buyers is also an
important aspect of industry environment. Hill tailored jewellery to the taste of Australians, a
little different from New Zealand customer preferences. He made efforts to recruit
experienced Australian jewelers, and also relocated some New Zealand suppliers from
Whangarei to Brisbane to shorten the supply chain.

2.2 Michael Hill's Diversification into Shoes


Strategic management includes strategic analysis, formulation and evaluation, and
implementation. Michael Hill did not set appropriate goals and formulate appropriate
strategies for the company.

For a start-up business, this essay suggests that a conservative expansion mode be adopted.
In Hills entry to Australia jewellery market, he set the strategic cluster-based expansion
model. Only when the existing clusters are operating efficiently and profitably will he
expand to a new area. In this way, he builds up the jewellery brand step by step. However,
his opening of the footwear industry appears a little too aggressive, which is not appropriate
for a start- up division. Though his jewellery business has been improved and the brand has
been built up, the footwear industry is a start-up business requiring controlled expansion.
Hill does not adopt the former cluster-based expansion mode; instead, at the beginning of the
new footwear industry, he decided to expand the chain throughout New Zealand. Soon he
opened six more shoe shops throughout New Zealand, which is a really bold expansion
mode.

Besides, Hill did not make in-depth footwear market research before formulating plans of
opening stores. He believed that existing company infrastructure and office systems are
mature enough to support a new divisionfootwear industry. However, there is not much
relativity between jewellery and footwear industry. He wanted to supplement the jewellery
business and boost the profits by opening shoe stores. However, the situation was just the
opposite: the shoe shops were closed. The jewellery and shoe business differ in supply chain
infrastructure and seasonal turnaround. Shoes are more cumbersome than jewellery to ship
so the cost of shipment will increase, and shoes have a much faster seasonal turnaround. In
addition, the shoe business has distracted senior management from their key responsibilities
in the jewellery business, which leads to loss of opportunity in jewellery business. Hill did
not deal well with the relation between jewelry and footwear industries. They did not
complement each other; instead, the footwear industry has impaired the strength of the
jewellery brand.

2.3 Comparison and Contrast among Entry Models into Three Countries
Entry mode is the approach adopted to enter an international market, including exporting,
contracts, licensing, franchising , joint ventures, and establishing wholly owned

subsidiaries(Grant et all, 2014). In general, the approaches can be classified into three
branches: exporting, contracts, and investment. Exporting, the traditional and simplest entry
mode with the lowest risk, includes indirect and direct exporting; contracts are more flexible;
and investment refers to the local production and selling mode. Every mode has its
advantages and disadvantages. Successful entry to the international market results from a
careful analysis of both the external and internal environment of the company (Koch, 2001).
The owner of the company has to ponder over several factors before formulating successful
entry mode: the companys competitive advantage, resources and global development
strategies, the barriers of entry and trading costs etc. Only on such basis can the owner
formulate structured and successful entry model. Structured entry refers to a systematic
approach to formulate and implement an international market entry (Grant et all, 2014). The
process of making a structured entry includes four steps: assessment of the demand and
supply situation of the to-be-sold products, the setting of values and goals, the formulation of
entry mode, and the design of marketing plan(Grant et all, 2014).

In his entry into Australian market, Michael Hill adopted a start-up and sole investment
approach. He chose Brisbane as the first basis for his entry into Australian market. The
pattern of entry is: he first opened one or two stores at a time in an area, and then expanded
to a new area after each store was operating profitably. He first makes the customers aware
of his brand, and then improves sales and builds brand recognition through innovations and
advertising. When sales reach the breakeven point of setting up factories, he opened a
manufacturing arm in Brisbane so that stock did not have to be shipped from New Zealand,
and jewellery could be tailored to Australian tastes. In this respect, the supply chain is
shortened and costs are reduced. He also managed to find experienced local jewellers, and
relocated some New Zealand jewellers to Brisbane. The sales were successful.

In his entry into Canadian market, Michael Hill adopted a two-way trading approach, one of
the contracts approaches. Canada has a highly fragmented jewellery market, with low
barriers to entry and low risk as well as strong potential for growth. One of the dominant
characteristics of fragmented industry is the localized market of products and services. There
is difference in taste between customers in New Zealand and Canada; therefore, Hill altered
some existing stock and bought from local suppliers, which is more preferable to the local
customers. Risk and trade barrier are reduced at the same time. The cluster model was
adapted slightly to reflect the geographic dispersal of Canadian population, but the company
concentrated on one area within one province at a time.

In his entry into US market, Michael Hill adopted a mergers & acquisitions and sole
investment approach (Kim & Hwang, 1992). Because of the strong competition from
big- name jewellery chains, he directly bought 17 shops from one of the USs largest
jewellery chains, which is a really bold entry into the US.

The common and different points between these mode rest on the following aspects. (1) In
both Australia and US, he adopted sole investment approach, but in Australia it is a start-up
mode while in US it is mergers & acquisitions. Companies can only achieve success through
long-term efforts in this mode. The acquisition of techniques and knacks needed to develop
business requires long-term efforts due to the lack of partnership; therefore, it has a high
opportunity cost. Mergers & acquisitions mode has an advantage over Start- ups in the
respect that it avoids the long and slow construction of the brand and improvement of sales.
However, disadvantages accompany. It is difficult to seek perfect partnership, and the
merger requires a huge sum of money. Besides, the division of supervisory right is a
complex issue. (2) Expansion modes in Australia and Canada are both cluster-based ones
and both are moderate. They operated on a decentralized model, with separate support
functions and warehousing in each country. Later the New Zealand and Canadian warehouse
were relocated to Brisbane. It has an Australian subsidiary. However, in Canada the model is
slightly adapted to reflect the geographic dispersal of Canadian population. In US the mode
is direct and bold. Hill entered the market by direct investment.

2.4 Factors in the Feasibility Analysis to Move Overseas


Strategy evaluation is the appraisal of plans or results of plans that have an influence on the
company (Grant et all, 2014). In the strategy evaluation process, owners of company analyse
whether the formulated strategy will achieve the company's goals and values. The owners
should review the external and internal factors, and measure the companys performance in
his feasibility analysis. External factors refer to the situation of the target market, including
operational costs, growth potential and trade barriers. Internal factors mainly include the
objectives of the business, the accountability and value of strategies, resources (funding,
techniques, scale of company, leadership, time and information) and capabilities to
implement the strategy (Rumelt, 1979).

Michael Hill included external factors in his feasibility analysis. (1) In his entry to Australia,

he chose Brisbane as the starting place because it was a city with 70 000 New Zealand
residents who were familiar with the brand. Based on his analysis of the market, he put
forward a cluster-based expansion model suitable for a start- up business, which means he
has to build his brand step by step. In this instance, bold strategies must be avoided. He set
up a modest goal of opening seventy stores in seven years, which is a reasonable and feasible
goal. (2) In his entry into Canada, he conducted a feasibility study and he must have got to
know the highly fragmented market in Canada, with low entry barriers and risks, and without
competitors with strong brand recognition. Based on the characteristics of market, he
decided to start in Canada and set a new long-term goal to open 1000 stores in 20 years,
which was more aggressive than in Australia. (3) In his entry to US market, it is really hard
to build his brand step by step, for there are already strong jewellery brands in the market.
On this condition, Hill made direct investment thro ugh buying stores, which was a bold entry
(Grant et all, 2014)

Hill also considered internal factors in the feasibility analysis. (1) When he needed capital to
expand, he accepted Johnny Ryders suggestion of taking the company public. In this way,
he raised enough capital to enter overseas market. (2) Hill decided to set up a manufacturing
arm in Brisbane, for the company had advantages in techniques and innovation. After his
accumulation in New Zealand, MHI has developed to a large-scale company, which is more
able to go overseas. Hills success in New Zealand has proved his strong leadership, which
enables the company to go overseas. Besides, a large-scale company has open channels and
strong funding capability. From the above we can see that external factors, the realizability
of the goal and the effectiveness of the strategy are considered in feasibility analysis.

2.5 Characteristics of Fragmented Industries and Strategies


In Michael Hills case, the North American jewellery market is highly fragmented with no
single dominant chain. The largest two jewellery chains are owned by Zale Corporation, but
the two together hold only 3 per cent of the jewllery market. We can take "fragmented" to
refer to the industry where the top 3 companies hold the lowest share of the overall
market. Most of the market is made up of independent retailers and small regional chains.
There is no decisive company or strong brand recognition of a specific brand; therefore, the
market has low entry barriers, Hill decided to stock the Australia range of jewellery in
Canada shops, but Canadians have different taste from Australians; therefore, Hill made
changes in the stock and bought from local suppliers, which improved the sales. From this it
can be seen that localized products and services are also one of the characteristics of

fragmented industries.

To generalize, a fragmented industry is an industry where no single enterprise has large


enough market share to determine the industrys direction. In fragmented industries, the
largest components are small- and medium- sized firms, with no market leader with dominant
market share. There are few economies of scale. Barriers to entry are low, but there is also
challenge from manufacturing and local brands with strong brand recognition. There are
small quantities of customized products or the lack of need for standardization, with
localized market for products and services, in other words, diversified market demand. In a
fragmented industry, the company is place in an inferior position in bargaining with
suppliers (Schmidt, 1977). The formulation of fragmented industries results from high
transportation costs, the newness of the industry, and high need for trust and local companies
often inspire more trust in their customers. The most common fragmented industries are
restaurant, auto-repair and apparel industries.

To compete in a fragmented industry, there are some effective competitive strategies for a
company to adopt. (1) Set up franchise stores under strict control. Decentralize operations
and hire professional local managers. Companies should strive for a wider coverage of
business. Scale economy or national market can be achieved through chaining, franchising
and horizontal merger, e.g. in a fragmented restaurant industry, companies could open
franchise stores in sub-districts and allow them to operate alone under centralized
management of the company through the supply of raw materials and recipe. In this system,
coordination among each franchise store is undertaken by the company (Borch, 1999). (2)
Adopt unified facilities. Companies can achieve the goal of reducing costs and promoting
efficiency though the adoption of unified facilities. (3) Specialize by product type. While a
great variety of goods leads to industry dispersion, concentration on specialized products
will be of help to expansion and also increased companys ability to bargain with suppliers.
(4) Specialize by customer type. Due to the diversification of market demand, it is
impossible for a company to serve and cater to every potential customer. Tastes change
among different groups of customers; therefore, a clear positioning of products and the
selection of target customers are of vital importance to a company (Dess, 1987). (5) Services
play critical roles in successful management. Keep service personnel stable and provide
more service with added value to the customer. There is a high need for trust and long-term
relation between companies and customers will inspire more trust and loyalty in their
customers (Jarl Borch, 2003). (6) Become a low-cost producer to improve the ability to
bargain with suppliers.

3. Conclusion
Global strategic management is a systematic process of global strategic analysis, formulation
and evaluation, and implementation. Owners of the company develop appropriate strategies
through this process in order to produce the largest competitive advantages for the company.
Michael Hill varied his strategies based on analysis of different situations, which is critical to
a company. And that is why he has made MHI successful in jewellery.

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