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The European Commission (2013) considers the fashion industry as a diversified industry that embraces an immense variety of fashion products, which are distinguished by the different types of clothing, footwear, and sportswear for all populations. In this regard, the diversity of products is considered to reflect a large number of industrial and marketing processes, companies, and market structures.
Fashion and clothing are considered one of the most internationalized sectors in the UK economy. Traditionally, labor-intensive, it has become, in just two decades, one of the most dynamic and entrepreneurial areas. The production of clothing, footwear, and sportswear has been increasing with a growing population and increased demand. However, recent developments in the global environment have necessitated the adoption of global strategies for maintaining profitability and competitive advantage.
In the era of increased globalization, companies need to focus beyond national markets to maintain growth and sustain their competitive advantage (Hessels & Parker, 2013). To this end, internationalization is a crucial element for business growth and sustainable development. This paper presents a study of Farfetch UK Ltd, a fashion company in the UK, analysing its external environment within the context of international marketing theory. The paper also proposes an internationalization strategy for the company in Dubai.
A secondary analysis of the company found that the company in recent years has not achieved the expected profitability concerning effective investments. Along with what has happened with the national economy from Brexit and the pandemic, the company is currently in a state of permanence, not requiring a return on investment, but rather, the permanence of invested capital without a return on capital gains, thus enabling future cash-flow's positive. Therefore, at this time, the company does not anticipate a growth situation but a decrease in its turnover. Taking into account the forecast of decline and the trend of regression of the company, and internationalization strategy presents an opportunity for the company to sustain growth by increasing its global market share.
Farfetch External Environmental Analysis
Farfetch is a UK company that was born from the visionary spirit of Portuguese entrepreneur José Neves and that today has more than 500 employees spread across seven offices around the world (Vadana et al., 2019). Farfetch is a technological and fashion company, that is, a marketplace for luxury items (clothing, shoes, accessories, beauty articles, among others), which bridges the gap between brands and multi-brand boutiques worldwide, selling from around 37 countries to customers in more than 190 countries. The company is valued at approximately 1 billion euros, sells more than 125,000 products from more than 1,500 brands, and has more than 450,000 customers (Vadana et al., 2019). The main markets (taking into account the volume of sales) are the United States of America, China, and Russia.
Farfetch is responsible both for the creation and maintenance of the online platform, as well as for the production of photographic materials on the website, and in the management of the value chain up to the end customer. The company's goal is to offer the whole family a product that meets the level of quality and comfort, updated by the latest fashion trends, and mainly accessible to the entire community at competitive prices.
The values identified by Farfetch UK Ltd include the following:
Quality and differentiation - The company always opts for the quality and innovation of the materials used in production. Guided by differentiation, even with stiff competition, the company tends to diverge in its choice of materials, in design, in detail, in difference and comfort, always following the latest fashion trends.
Equity and uniformity - All sales points have a very particular identity, the same elements of the brand, the same environment (lighting, sound, and decoration), to lead to greater memorability on the part of the public and to make the brand experience, purchase, and service, unique and remarkable. The online platform presents itself with careful and ambitious aesthetic designs within the international fashion trade. This strategy makes it easy for the customers to access and choose from among the various products available from across the many sellers, thus bringing the visitors greater functionality and comfort.
Social Responsibility - Over the years, the company has developed a posture of respect for all stakeholders and the community, at a social and environmental level.
Adaptation and Learning - The company sees the market as a process of permanent adaptation and learning of permanent improvements, where the focus is on customer satisfaction.
The analysis of the external environment will condition the natural course of the company's operation in the long run. The PEST analysis concerns categories based on the external level, in different contexts: political-legal, economic, socio-cultural, and technological.
In the political and legal context, it is also worth mentioning the high personnel costs, namely, the Social Security remuneration installments, which sometimes leads companies to subcontract or take advantage of current support and incentives for hiring new employees and, thus, enjoy some state benefit.
Regarding the economic context, the UK has a budget deficit expected to rise to £300bn in 2020. The economic imbalances concerning the external deficit and the chronically negative situation of the State accounts result to a negative impact on domestic demand, aggravated by the financing difficulties of companies and individuals (Oehler et al., 2017). Thus, in 2020 there has been a sharp drop in output and market share from Brexit and a worsening of the upward trend in unemployment. The weak economic growth presents a rate not favoring internal conditions and leading to a reduction in the demand for goods and services and, consequently, a contraction in business activity. However, the footwear sector is growing on the foreign market, and its production is almost entirely exported. The domestic market is, therefore, not a viable alternative for companies facing a recession.
Regarding the socio-cultural context, this aims to understand the behavior and culture of consumers. The UK has a population of over 67 million inhabitants. Compared with the estimate made in 2010, there was an increase of over five million individuals, which translates into an effective growth rate of 8 %. There is a trend towards an aging population, and it is estimated that in 2060 there will be three elderly people for each young person in the UK. However, all internal austerity has been holding back growth and bringing more poverty to the country, with a clear decrease in the middle class, which effectively loses purchasing power, thus causing a generalized reduction in consumption.
In the current context of the country, the crisis can still be considered the leading cause of the decrease in the birth rate, due to several factors, such as job instability and the increase in unemployment, the delay in entering the labor market, the difficulty of reconciling professional and family life and professional career progression. Such factors are decisive when thinking about having children.
The growing use of new technologies and permanent access to the internet, via Wi-Fi, triggered a change in consumers' purchasing methods, which replace the purchase in physical stores by virtual ones. The current consumer is hybrid, combining characteristics of the traditional consumer, who goes to the physical store, with the characteristics of a hi-tech consumer, who searches for information on the web, being much more informed, updated and demanding, requires information, whether physical or virtual, and several options to choose from. Therefore, companies have to adapt and follow innovations to compete.
Government research incentive programs and the existence of trademark and patent protection are technological factors to take advantage of, for example, name brands in the fashion industry are recognized externally for developing innovative technologies and equipment, where there is an increasing technological modernization and where there is a strong focus on internationalization, through the fashion, design and image component.
The company's business model is unique; thus, less competition exists within the UK market. The company's main competitor is Net-a-Porter. However, the lack of stock, unlike other fashion companies, including Net-a-Porter, allows it to stand out in the market and maintain growth. This business strategy is not easily imitated, which supports the firm's competitive advantage. Furthermore, according to Vadana et al. (2019), since Farfetch was created, it has grown almost 100 % every year, aiming in 2016 to surpass Net-a-Porter, the online leader in the designer clothing trade.
With regard to some of the major issues of the company's external environment, for instance, the current circumstances facing the global market, the economic crisis from the recently completed Brexit, the online presence shields the company from most of the negative impacts within the external environment.
Farfetch Internationalization Strategy
For Doole and Lowe (2008), business strategy constitutes a set of ideas, paths, and mainly management processes to be followed, including alternatives that aim to increase a company's success possibilities to reach its organizational objectives. Peng et al. (2008) define strategy as a pattern, that is, consistency in behavior over time.
Thus, business strategy is essential for companies to achieve their organizational goals and, consequently, their success. According to Porter (2009), the strategy is fundamental for the positive performance of companies. This, in turn, is the primary objective of all companies.
For Porter (2009), formulating a strategy is to adopt an exclusive and valuable positioning, involving a set of different activities. The essence of strategic positioning is based on choosing activities that are different from those of competitors.
The adoption of strategies is a fundamental instrument for the development of the company over time. Still, according to Porter (2009), the strategy can be seen as a defense mechanism against competitive forces. In a world of more open competition and unforgiving changes, the strategic approach is of paramount importance in organizations. Doole et al. (2008) reports that strategy is to seek path options, outlined in advance, intending to face known or even expected challenges for a given event. However, with the globalization process, important changes happen and must be analyzed by the company and transformed into competitive advantages in its business environment.
According to Porter (2009), one of the most powerful forces that affects organizations has been the globalization of competition. The consequence of this has been the marked growth in international trade and investment. The more ostensive the globalization of competition is, the more important the international strategy becomes. According to Bradley et al. (2019), the global strategy integrates the actions of a company in global terms, relating countries, and dealing with the whole world as a single market without borders.
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