Developing Strategic Capability Through Acquisition

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Strategic Acquisition in Luxury Globalization

Abstract
The strategic capability of a firm or an industry is about identifying, developing and using its unique resources and core competences to gain competitive advantages in specific market to achieve results. Luxury is as a unique sector and the “allure and exclusivity” are well sought after by consumers, heavily imitated by competitors. The six unique features and competency (heritage, quality, exclusivity, symbolism, aesthetics and price) of luxury brand has led to many successful brand stories and resulting high financial performances. Most importantly, it distinguished the elite few from the masses. Globalization has almost become ‘a must” for any profitable luxury brand. Mature markets such as Europe, North America and Japan are at the point of saturation, showing slow down in annual growth. Luxury business models are distinctively unique and cannot be replicated over a short period of years. It takes years and years to develop luxury brands with strong attributes such as know-how and heritage. In addition to that, every successful luxury brand should have unique brand story and values that cannot be copied by another brand. In view of globalization, desired brand exclusivity also limits excessive expansion into more market as it may lead to the mass consumption of these luxury brands. So how does one balance exclusivity and profitability in globalization? What are the practical global strategies for luxury? Is exclusivity still relevant in present context? For decades, acquisition of family owned luxury brands is one of key strategy adopted by luxury conglomerates to diverse their business portfolio, to strengthen control of distribution channels, and to adapt to the emerging market. Recent trends suggest that such acquisition pattern now has expanded into other sectors such as luxury hotels, online retailer and even premium lifestyle brands in domestic markets. What would be the strategy behind these strategic acquisitions? What are the possible synergies of luxury and lifestyle brands for the luxury conglomerate? This paper aim to explore the global strategies of luxury conglomerates through their strategic acquisitions and globalization in new sectors and mature/emerging markets. Key words

Luxury, strategic capabilities, key drivers, vertical acquisition, horizontal acquisition, conglomerates, lifestyle, emerging market, ecommerce, LVMH, Richemont, PPR, Swatch Introduction
“2011 was a pivotal for investment in luxury industry. Just in the early six months, M&A activities in Europe in luxury industry had approached $10 billion.” Conglomerates are the major hunters in LVMH acquired Bulgari, Richemont “was said to be sitting on at least $2 billion in cash”, PPR bought Brioni, and the Swatch Group cut the dividends in 2009 to “preserve cash to give it flexibility to acquire firms”. (“Luxury brands under merger & acquisition pressure”, article from www.moneycontrol.com) Comparing to the development towards European harmonization, the luxury industry has experienced profound structural changes, which are absolutely dominated by European companies, especially four predominant European luxury conglomerates. Besides the four major conglomerates, many of companies and brands were involved in acquisitions in the past 15 years. The major acquisition deals happened recently attracted the experts and luxury media, and inspired the discussion about the acquisition as a long-term strategic capability for luxury conglomerates and non-conglomerates in luxury industry.

Strategic capabilities of luxury companies
Brief introduction of luxury industry
Representatives of luxury industry always claim that their business is different form others. This is due partly to large amount of creative designers and craftsmen, and partly to the way brands communicate with customers. Luxury industry involves many segments that have the similar concept of exclusivity, craftsmanship,...
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