GLOBALIZATION EFFECTS ON BILLABONG

GLOBALIZATION EFFECTS ON BILLABONG

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Globalization Effects on Billabong

Introduction

Globalization has made it possible for companies to have operations in different parts of the world. Companies can decide where they want to manufacture, produce, and sell their products. One may define globalization as the integration of social, political, and economic systems occurring in an international scale. This integration has made it possible for people across diverse regions to communicate, travel, trade, invest, and conduct other businesses. Globalization has been made possible by the quick advancements in transportation systems as well as electronic and communication systems. A multinational company is any organization, which is able to operate beyond its local borders (Cullen and Parboteeah 2013, p. 4). Multinational companies can conduct businesses regardless of location. This increases the competition within an industry. This forces companies to compete with the local domestic firms as well as with the international companies that have a presence in the country (Cullen and Parboteeah, 2013).

The Australian surf wear company Billabong has moved from conducting its business operations in a local environment to having a presence in four continents. The company has many stores around the world and it now sells its products in over sixty countries. Companies engage in different practices in a bid to become international. Some see acquisitions as the main way of expanding and increasing their product portfolio. This can be a good option, if it is well thought out and if the company has enough funds for financing. The company doing the acquisitions has to ensure that the companies or brands being acquired are worth the investment. It is necessary to evaluate the market and determine the current trends. This will ensure that the business makes informed decision before making the decision to become global

Internet technology has changed the way people operate and do business. The internet has especially revolutionized the world. It has made the world appear smaller because of people’s ability to connect and communicate in real time. People can know more about their area of interest through the internet. Many businesses have taken advantage of this. They have an online presence through their websites and by connecting with their consumers and potential clients through social media and other networking technologies. Those who have failed to take advantage of this revolution have had to suffer the consequences. Some of them have had to watch as their businesses declined while they insisted on doing business the traditional way. Others have seen new start-ups who were willing to take advantage of different technologies overtake them in their business. The new start-ups did not succeed because they had better products but because they were willing to move with the current trends and to meet the market demands.

Having a strong brand is beneficial for the business. Many businesses pride themselves in the fact that they have been able to maintain quality and realize growth since inception. However, many brands have fallen because they were unable to meet the current demands. The companies believed so much in their brands to the extent that they refused to make any changes. The current generation demands change quickly. Young people want to be able to buy good quality products at affordable prices. They are not afraid of venturing into new areas and they are willing and bold enough to try new ideas. They will not stick to a brand because they are loyal, especially if that brand does not consider their interest. Billabong has experienced market booms and busts. It has faced situations where it was the market leader and the pioneer for new products. Currently, the company is battling some of the negative effects of globalization. It faces competition from new companies that are able to meet the demands of their clients while offering their customers value for their money. Failure to incorporate wise strategies in its globalization efforts did not work in the company’s favour in the end. The company did manage to become profitable in the beginning but it is currently battling huge losses and trying to find ways of remaining relevant in the market.

Background

Billabong started by manufacturing board shorts in 1973, when Gordon Merchant and his partner Rena came up with the idea. Merchant was a surfer and a surfboard shaper and he use his experience to develop the boards. His creations appealed to the local surfers and interest soon grew in the rest of the country. The two partners worked on producing products that were practical, durable, and functional. Merchant invented a triple stitching technique, which made his products last longer compared to the ones in the market. The partners used the local surfers as part of the marketing strategy. They also engaged in other activities such as sponsoring contests and special events and this increased their brand awareness. The company decided to expand internationally during the 80s.

Company founder Gordon Merchant

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Expansion efforts began with the North American market and they were successful in their endeavours. They acquired licenses and permits to sell in other international and regional markets including Japan, New Zealand, and South Africa. By the end of the decade, they had managed to enter the European market. During the 90s, the company grew following the exponential growth in the industry. It increased its portfolio as it introduced other products such as skate and snow and wake. In the year 2000, the company listed on the Australian securities exchange.

Selected company products

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Billabong continued its expansion agenda by acquiring other companies and brands such as the Von Zipper sunglasses, the Element Skateboards, the Honolua Surf Company, Kustom Footwear, Palmers Surf, and Nixon watches and accessories. In 2007 and 2008, the company acquired Xcel and Tigerlily as well as Sector 9 skateboard and DaKine premium board sport. In 2009, the company acquired swell.com, a board sport company that is based in the US, and the Australian company Surfstitch.com, and it began selling online. It acquired other Australian companies in 2010 such as Jetty Surf, Surf Dive ‘n’ Ski, and Rush. This was in addition to expanding its North American presence by acquiring RVCA and West 49, which are based in California and Canada respectively.

The internet has changed the way people and businesses operate. It has had a major effect on globalization efforts especially in the retail industry. It has enabled the small business to become global companies. Established businesses can no longer live with the assumption that they will continue to thrive or survive by being successful in their local markets. The internet has enabled smaller unknown companies to become competitors because of their ability to reach the market (Cullen and Parboteeah 2013, p. 3). Businesses with an online presence recognize how much they are closer to the customers and they use this advantage to the maximum by ensuring that the consumers are able to get whatever they need. They engage in online marketing strategies, such as the use of social media, in addition to using their website to raise awareness concerning their products.

Companies that fail to realize the importance of having on online presence end up being losers. They end up losing their customers to companies who make it possible for consumers to purchase products at their convenience. Some Australian companies fail to realize that they will lose jobs to international companies who have taken the initiative of responding to customer demands. Billabong decided to invest in brick and mortar stores by acquiring other brands and opening stores when other companies were considering online ventures. Many companies had realized that they would get more profits and more businesses online, but this was not the case with Billabong. The company failed to read the signs of the changing times and the emerging trends. Getting the new brands required money and the company had to find ways of acquiring the needed funds. It resulted to borrowing, and this made it go deeper in debts.

Rapid Expansion Efforts

Businesses choose to expand their markets to get increased sales, revenue, and profitability. They can do so by exporting the products they manufacture to other countries or through mergers and acquisitions with other companies of interest. Mergers and acquisitions help companies to build their portfolio. If done well, acquisitions benefit the company because they enable it to diversify and increase its client base. The company has acquired many brands and companies since listing on the securities exchange. However, in all cases, it has chosen to retain the original brand names. This might not have worked well for the company, as some consumers are compelled to buy a product based on its brand. The company’s acquisition of the smaller brand may be seen as a strategy to buy off the competition while at the same time increasing its presence in the market.

Successful companies that are in a hurry to expand may soon realize that it is not in their best interest to do so. Unfortunately, they only realize their poor financial decisions when they have incurred losses that force them to re-evaluate their strategy. Billabong expanded its markets and portfolio quickly. It increased the number of products it offered at a very quick pace. It acquired many companies in different places around the world as a way of increasing its global presence.

Company’s growth and acquisitions

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This strategy did not work out well for the company. In 2013, the company reported a loss of close to $860 million and it realized a drop in its brand value. This was the biggest loss in the company’s history. The company has acquired many brands since 2004. It was able to finance the acquisitions it made soon after listing on the securities exchange because it had the funds to do so. In 2009, it spent a significant amount acquiring more brands. During this time, the company depended on debts to finance its acquisitions. This increased its expenses while there was no guarantee that the acquired brands were profitable. The debts were burdensome to the company and some of the acquisitions failed to meet the company’s expectations. Since its acquisitions in 2009, the most profitable brand was Nixon, which dealt with watches and other accessories. However, the company sold the brand in 2012 when it needed money on a short-term basis. As part of a restructuring strategy, the company has had to close some underperforming brands and stores. This is an effort to reduce its expenses.

The Global Economy

The company did not consider the recession that affected many places around the world when it was expanding globally. It failed to realize that consumers would be more interested in purchasing affordable products. Billabong had managed to become a reputable brand over the years and this enabled it to sell its products at premium prices. However, it did not respond to the market demands during the recession, as the consumers wanted cheaper products. This paved a way for other companies who were offering similar products at lower prices and it reduced the market share that Billabong had enjoyed since its inception.

Multinational companies need to consider the global economy and the effects that it will have on their financial performance. Europe was one of Billabong main market. However, many European countries experienced debt crises or other forms of economic downturns and this affected consumer spending. If a company relies on one or several market for revenue, then it will suffer if that market collapses. Billabong realized significantly low sales in the European market. The North American market was facing similar situation especially in the United States. The US is a major market for the company’s products. However, with the global financial crises, companies had to look for ways to stay afloat in the market. Many companies reduced and discounted their products. However, Billabong failed to respond to this, and it ended up losing its customers to the competition. In the Australian market, the company has had to deal with a strong Australian dollar, which has made the overseas ventures less profitable.

In their quest for expansion, multinational companies tend to forget their initial ventures as they expand in the global market. They become interested in their expansion and growth and this makes them neglect some business areas. This was the case with Billabong. The company founders had begun the business because they saw a gap in the industry. They were experienced in their trade because they were also professional surfers. However, they entered into other markets as they sought to expand their portfolio. By doing this, they forgot to focus on their initial interest. They lost touch with the market, especially on the fashion side. They did not keep up with the emerging fashion trends. The company is presently in a mature phase. It has not found ways of interesting the younger generation.

The youth do not want to wear the same surf gear as their parents, yet this is the message they get when they think of the company’s products. Billabong has managed to maintain a strong brand but the brand is currently weakening because it has not considered how it can differentiate to appeal to a wider market. This aspect means that the company lost business to its competitors in the industry, who were competing on price and quality. The current young generation wants to keep up with the times. They want affordable yet fashionable products. Therefore, they are least likely to consider a company that has been there for a long time but is not able to meet their demands and they are more likely to do business with a company that seems to understand the current market trends.

Some of the competing brands in the industry

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One of the negative effects of globalization is abandoning of a particular culture in an effort to fit in with the larger international market. When Billabong became a publicly listed company, most of its interests seem to have shifted to the shareholders. The company failed to maintain its surfing subculture, which had enabled it to grow well since its inception. The founders were part of that subculture and this means that they were aware of the consumer and market needs at the time. However, the global expansion and rapid acquisitions of other brands made them lose the focus they had. The consumers no longer felt that they had a genuine and authentic brand.

Re-evaluation of Strategy and Way of Doing Business

The company has had to re-evaluate its strategy following its dismal performance in the recent past. It has had to close more than 150 stores and lay off many workers. It would not have resulted to such measures had it taken the time to think about its expansion strategies. In addition, the company has had to reduce its suppliers significantly, as only 25% of them remain. The company has many debts despite selling off some of its assets and it has been the subject of many takeovers and refinancing deals. It has had to accept the refinancing deal offered by Oaktree Capital Management LP and Centerbridge Partners LP following the declining prices of its share and market value. Even as the company undertakes these measures in an effort to reduce operational costs, it has much to do to ensure that it continue registering growth in sales.

Billabong has to counter the effects of the ever-expanding fashionable apparel industry and refocus its attention and strategies on its core markets. It has to find ways of bringing the consumers back to its stores. The company already has strong brand awareness and it can capitalize on this by ensuring that it is able to get more consumers and build loyalty among its customers. There is a need to examine the market and observe the consumer purchasing behaviour. If the company had taken this initiative earlier, it would have realized that consumers are restricting the way they are spending and they are choosing to use their money on necessities and save the rest. This has led to the popularity of cheaper goods in the market. The company can decide to introduce an affordable and economical line of product that will appeal to the savers and those who do not have a lot to spend, instead of concentrating on a niche market.

Part of the company’s new strategy involves focusing on the three main brands. The company has announced that it will concentrate its marketing and sales efforts on the Billabong, Element, and RVCA brands. The three brands will operate differently, as they will have their own marketing, design, and merchandising teams, and each of them will have a president. The company has seen this as the most appropriate way of ensuring that the company remains authentic and it continues to appeal to the local market. This is in response to meeting the growing and ever-changing consumer needs. In addition, the company has come up with new designs that are intended to appeal to the younger generation (Rogers 2014).

The recent financial losses have forced the company to re-evaluate many areas of business operations. The company has found it necessary to improve its information technology systems. Previously, Billabong was divided in its operations although it is a global business. The company operates in three main markets including North America, which comprises of the US and Canada, Australasia, and Europe. The regions have their own systems of operations. This has largely affected their ability to cooperate and work harmoniously. The IT system in different regions was so different and complex to the extent that it affected people’s ability to communicate. The chief executive officer complained of the inability to send broadcast emails to the group. This led to a revision of information technology systems in the offices. As part of the new turnaround, the company is looking for a way to solidify its operations.

The fact that the organization is considering unifying the system does not mean that it will have one way of controlling all the business across the regions. Instead, the company aims at adopting a global mindset while at the same time looking for ways to implement local strategies. This will ensure that the business does not lose its focus. The new approach involves forming a team of eighty people from the company’s main areas of operations. This has enabled Billabong to capitalize on the strengths presented in every area and use the best resources available for the best interests of the business. For instance, it has taken advantage of the infrastructure management capabilities available in Australasia, impressive interface development in Europe, and the high quality e commerce capabilities available in North America. The improved framework can be applied in any of the regions and this has ensured that all the markets are able to progress well as far as information technology is concerned. The use of a single system will enable the company to collect all the data and information available, and this will help in streamlining business operations. The company hopes that the use of different information technology systems aimed at consolidating different aspects of the business will improve efficiency (Crozier 2013).

While the company has had to close some its brick and mortar stores as a way of reducing costs and expenses, it has not done with the traditional concept entirely. Brick and mortar stores are necessary for the type of business that the company is involved in since they enable the customers to have an experience when shopping and to be able to select the commodities they want. However, the company has taken the initiative of developing and advancing its e-commerce platform. This will ensure that it is able to keep up with the trends and satisfy market demands. In this end, the company is looking at a wide range of options including the wide adoption of the iPad mini technology that is already in use in North America. Customers can opt to visit the stores and select the products they want on the digital devices and they can have their goods immediately. Alternatively, consumers can select their purchases on their devices and have their goods delivered to them. The company intends to improve the experiences that customers can have while shopping in the stores or when conducting their purchases online (Crozier 2013).

The company’s recent efforts have not been in vain although it has not managed to overcome some of the problems it had in the beginning. Although the company has continued to register losses, it has recorded an improvement of more than 70% since last year. This is mostly because of the increased sales in Australia and Asian regions as well as market stabilization in Europe. However, North American markets have not improved their performance in any significant way. The company continues to invest on its brands. It attributes the recent poor performance to poor leadership, which has had a negative effect on the way the business operates. In addition, the changes and organizational turmoil in the recent past has had a negative effect on the business (Rogers 2014).

Improved performance of the billabong share price since July

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For the company to succeed in the industry and regain its stronghold, it has to go back to the basics. Billabong managed to become the market leader during its heyday because of innovation and creativity. It was able to beat other players in the industry because of its ability to create innovative products that had a mass appeal. Modern companies have to realize that they face intense competition from all regions around the world. They can no longer afford to apply simple local strategies as an answer to global business problems. They have to be creative in their approach. This helped Billabong to change the market perceptions concerning the surf wear industry when the company began. Following the trends will not help a company to become a market leader. A company that wants to stay ahead of the competition has to create the trends. They should use their local markets as a way of testing their product marketability and business feasibility (Cullen and Parboteeah 2013, p. 25). Starting on a small platform will be essential for any company intending to build a strong global brand. It will give the company a chance to improve its brand and strengthen customer loyalty.

Conclusion

Despite the many challenges it has encountered in the recent past, Billabong is a strong brand and it can improve its market position and financial performance. Globalization has affected the company in terms of increasing the competition in the industry. The fact that there are no limitations has made it possible for new companies to enter the market. Billabong is a multinational company and it has had an effect on the market as well. Its rapid acquisitions involved buying off the competition in the industry as it sought to have a wider geographical presence. The company is resilient because it continues to fight to remain relevant in the market. It has incurred many losses but it is trying to find ways of recovering. The company realizes that it cannot be able to make any significant developments without changing its business approach. It has realized the importance of innovation and it has demonstrated this by incorporating new designs. In addition, the company has incorporated new technologies. The use of information technology in its business will streamline operations and increase efficiency.

References:

Crozier, R 2013, Inside Billabong’s IT strategy, viewed 22 September 2014, <http://www.itnews.com.au/News/348588,inside-billabongs-it-strategy.aspx/0>

Cullen, J & Praveen PK 2013, Multinational management, Cengage Learning, New York

Rogers, J 2014, Surf giant Billabong struggles after hundreds of millions in net loss, viewed 22 September 2014, <http://www.goldcoastbulletin.com.au/business/surf-giant-billabong-struggles-after-hundreds-of-millions-in-net-loss/story-fnjc2dm2-1226834060631>