ANSWER THE QUESTIONS

Answer the questions



Answer the questions

Tommy Hilfiger

1. What Might Prompt Hilfiger To Sell On An International Basis Rather Than Focusing Purely On The Domestic Market?

Tommy Hilfiger is a worldwide manufacturer and designer of a broad variety of accessories, apparel and routine creations. The company's tough brand image allows it to direct a premium worth for its products and allows it to expand into new lines easily.

The experience that Hilfiger got from going into Europe will help the company to start its business in other parts of the world. The company succeeded in the United States by first going into department stores, it put an early European emphasis on department stores as well. This led to its entry into retail leading chains. But most European clothing sales are in small boutiques, so Hilfiger planned to sell in about 4,500 of them—much more than in the United States. Further, it has decentralized its showrooms, by opening 21 of them, so small retailers can visit them more easily. (Frazer, 2005)

The Advantage Of Selling On An International Basis Rather Than Focusing Purely On The Domestic Market

By changing the price at which a transaction between two units of the same company located in different countries is accounted for, companies like Ford can realize a profit either in the country where a car part is made and sold to another subsidiary (by charging a high price), or in the country where the final car is assembled and sold (by buying the part at a low price). In principle, the subsidiary does not care if the price is high or low; its parent company will know how well the subsidiary did without being misled by a transfer price whose only purpose is to lower the total global taxes paid by the corporation. (Alon, 2009)

In short, the national diversity of its global operations has become a source of advantage. The simple hypothesis to explain this advantage is that firms learn better how to run multinational operations over time, and this learning makes subsequent investments easier. But learning how to operate a multinational corporation better does not constitute itself a competitive advantage. However, the idea of the firm as an arbitrageur suggests that multinationality creates the opportunity to exploit the flexibility in its international operations. In other words, multinationality provides a firm with embedded options to respond to profit opportunities. (Alon, 2009)

The theory of the multinational advantage as derived from embedded options was proposed by Kogut (1983, 1985) and formalized in Kogut and Kulatilaka (1995). Caves (1989) also noted that investments in a country set up subsequent investments. In this sense, it is useful to distinguish between 'within-country' and 'across-country' options (Kogut and Kulatilaka, 1995). An across-country option represents the value of multinationality that is recognized by arbitraging borders, such as by shifting production, exploiting tax regimes, or transferring innovations from one country to the next. A within-country option is the value of establishing a platform (brand label recognition, for example) that sets up later ...