Founded in 1965, the Benetton Group started with limited resources that necessitated the strategy that ultimately resulted in rapid international growth. Since the beginning, Benetton concentrated on devoting its skills to the design and manufacture of quality clothing instead of providing direct consumer retailing. Benetton established a competitive advantage by establishing its brand as the best-known Italian apparel manufacturer, concentrating mainly on fashion-conscious young consumers from their mid teens through mid thirties.
Since almost 85% of its production is subcontracted to approximately 500 contractors both in Italy and abroad, and most retail stores are independently owned, Benetton does not have direct managerial control over production and sales operations. Additionally, Benetton's in-house operations and manufacturing partners are largely centralized in Italy (as much as 82% of core manufactured products were produced in Italy), making them susceptible to exchange rate fluctuations.
On the retail side, Benetton utilizes contracted agents working on commission to establish and support retail outlets.
The entrepreneurial agency system helped Benetton to rapidly expand their retail network, and thus, push more Benetton products. However, the agency system does not provide the operational support to retail stores found in centrally controlled retail competitors, like The Gap, and cannot enforce any commonality in layout, stocking, or dÃÂ©cor from store to store. Additionally, the compensation structure for agents only encourages sales. There is little direct incentive to share best practices with other agents in different territories, to share business intelligence with Benetton, or to devote resources to helping build the Benetton brands. In other words, the agency system encourages the 'free-rider' effect.
It is recommended that Benetton alter its strategy in four steps to defend its core markets, and to prepare itself for future global expansion into new markets. In other words, Benetton needs to achieve globalization for its long-term growth, and...