Abercrombie & Fitch (Essay Sample)

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Introduction
Abercrombie & Fitch is a multinational company founded in the year 1892 and based in New Albany, in the US, but has many other branches and stores worldwide. The corporation began as a clothing business but has since grown to a large multibillion dollar company operating in many countries like the U.K, Germany, Spain, Japan France, among others. Abercrombie is also a public company with its shares being traded in major stock exchanges. The company has specialized in making sports and casual wear for both kids and adults. It operates as a retailer with many outlets and strong chain of supply. The international market share has grown and in Europe, the market there contributes 12.8% of the total revenues while the home market, the US brings in a massive 81.3% of revenues. The rest 5% of revenues comes from other regions ()
The company is fast expanding to other parts of the world. As a result it has an approximately 9,000 employees who are employed on a full time basis and 76,000 employees on a part time basis, indicating the nature and size of this multinational. The garments industry and the market for clothing are largely driven by trends, weather, culture, personal tastes and preferences. This kind of demand for the clothing around the world makes the business one of the most profitable business ventures. Abercrombie is therefore able to capitalize on this fact that clothing industry is a high unique seasonal demand driven sector that only the earlier established firms can benefit mostly from (Oyewole, 1998). This has driven Abercrombie’s revenues to about USD. 3.469 million. During the financial year ended in mid 2011, the company’s net income was also about USD.150.283 million. The extent of profitability of the corporation is largely attributed by its export opportunities.
Factors motivating expansion of Abercrombie to the Turkey, Saudi and Egypt
Every multinational corporation faces a lot of opportunities and challenges in their continued growth. However, expansions to other markets that are perceived to be lucrative, is largely due to the exhaustion of their parent nations’ markets and secondly due to the opportunities available in the other markets that are less developed and unexploited.
The Saudi Kingdom is gearing up for growth especially in its two industrial cities, Jubail and Yanbu. Saudi Arabia has been wooing international investors through the Royal Commission of Jubail and Yanbu. The commission has been organizing investment forums that are meant to enlighten investors on new investment friendly laws in place, strategic location benefits and incentives to MNCs. A&F can capitalize on the investments friendly environment in Saudi Kingdom that lies strategically to connect the east and west through its coastal and sea shores at the Gulf and Red Sea, thus provide good connectivity (Feinberg, Gupta 2003)
It has also been noted that the Asian continent has been accumulating wealth from its vast resources like oil, and population increase providing ready labour and constant demand for goods and services. Over the years, wealth accumulation in many Arab states has led to strong income positions and strong demand. Purchasing power of consumers in countries like turkey, Saudi Arabia and also Egypt has risen to become some of the strongly growing economies in the Arab and Middle Eastern regions. Turkey specifically has been a key player in the region strongly driven by its growing industrial and the service sectors.
Egypt on the other hand is a famous tourist hub and a big player in both Middle East and African in terms of business. It is however a tricky choice for Abercrombie in the case of Egypt, which was a promising country in Africa. The strategic nation could have provided an anchor for expanded Middle Eastern and northern African markets for A&F but due to the political instability, A&F has to look for other alternatives. Egypt is now struggling to regain its stand and it will take time before the markets show promising signs in Egypt.
However, many opportunities may also encourage A&F to consider the Turkish emerging economy. The growth of the Turkish economy has been notably strong and given its strategic link to Europe, Middle East and larger Arab region, things are much promising there. The vibrant economy and cultural richness of Turkey is attracting both consumers and investors due to thriving industrial and service sectors. Vibrant tourism sector can be harnessed by A&F to get more markets for their clothing brands. Turkey is also has flexible regulations regarding foreign investors. Coupled with cheap labour, diverse cultural environment and a stable political regime, A&F would benefit more from expanding to Turkey (Buckley, Casson 1976).
Operational costs are also a major problem that drives companies like Abercrombie into other countries as they it seeks cheap and skilled labour. Labour in these countries is cheaper than in the US or Europe. This is why Abercrombie finds it easier to establish itself in Turkey in a way that will it will cost less to maintain an effective supply chain of export across the region. Turkey also provides a good footage for Abercrombie to market and sell its products in the Middle Eastern and northern African regions (Prahalad, Hammond 2002).
Finally, the three countries present different opportunities, however, Turkey seem to offer much higher payoffs than Saudi Arabia or Egypt. Turkey presents more opportunities and much needed ease for A&F to establish itself and its operations effectively
Options for expansions
Venturing into the Turkish market requires specific strategies in order to effectively set proper ground for profitable operations. One of the options is to have a completely owned affiliate. This is a viable option considering that most of the costs incurred will only be a one off expenses of when purchasing a new affiliate (Zaheer, 1995). Although it may seem expensive to acquire an affiliate, it is a worthwhile venture that will maintain the same pace of operations in a country like Turkey. Furthermore, Abercrombie will benefit from existing management, labour, the customers and other forms of goodwill the affiliate has managed to acquire and cultivated in Turkey. This however, can be a rigorous process; it can sustain operations for in a long term perspective of profitability (Prahalad, Hammond 2002).
Another option that Abercrombie has is to open up their wholesale and retail stores in turkey. This will also serve as an easier avenue for the clothing company to establish its presence in the region. Retail stores are easy to establish and require low capital investments compared to putting up a factory or acquiring a subsidiary. It is however hard to establish the brands easily since a lot of marketing has to be done to make the stores more attractive than other competitors operating in the same market. Getting the international brand of Abercrombie can be a task considering that the region may find the brand quite expensive since the price is still dependent on the factors of production in the parent country of the company. It also will include a lot of feasibility studies so that exports can get the necessary market. As much as it is easier to put up a direct importing wholesaler, practicability issues may arise due to unknown threats like cartels, and other forces determining the clothing markets. Exporting also means you still rely on expensive labour from home country which could have been minimized if labour was sourced in Turkey. International trade is a highly risky activity which is constantly affected by fluctuations in currencies, political conflicts and many uncertainties. This also poses a challenge to only relying on direct exports that Abercrombie would not wish to face (Tallman, 1991).
Thirdly, setting up manufacturing factory by Abercrombie can be viable but also very expensive in terms of logistics, legal frameworks and prices of other factors of production like land and a new set of labour force. The cost of having a fully owned subsidiary could be as much as setting up a factory. A manufacturing plant will require a lot of resources to establish and run however, it will have long term benefits of lowered costs of production and high volumes of fin...