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Why do some companies make luxury products abroad rather than at home?

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Outsourcing production

 


Why do some companies make luxury products abroad rather than at home?


 


Made in Europe

By Jo Johnson, Fred Kapner and Richard McGregor

Almost every fashion label outside the top super-luxury brands is either already manufacturing in Asia or 5 thinking of it. Coach, the US leather goods maker, is a classic example. Over the past five years, it has lifted all its gross margins by

10 manufacturing solely in low-cost markets. In March 2002 it closed its factory in Lares, Puerto Rico, its last company-owned plant, and

15 outsources all its products.

Burberry has many Asian

licensing arrangements. In

2000 it decided to renew

Sanyo's Japanese licence for

20 ten years. This means that


almost half of Burberry's sales at retail value will continue to be produced under licence in Asia. At

25 the same time however,

Japanese consumers prefer

the group's European-made

products.

Sanyo is now reacting to

30 this demand for a snob alternative to the Burberry products made in its factories across Asia by opening a flagship store in

35 Tokyo's Ginza, where it sells Burberry products imported from Europe.

In interviews with the FT, many executives say the top

40 luxury brands will continue


to be seen, particularly in Asia, as European. Domenico De Sole of Gucci says: 'The Asian consumer

45 really does believe - whether

it's true or not - that luxury

comes from Europe and must

be made there to be the best.'

Serge Weinberg, Chief

50 Executive of Pinault Printemps Redoute, which controls Gucci, says it will not move Gucci's production offshore.Yet some in the

55 industry recognise that change may be round the corner even for the super-luxury brands. Patrizio Bertelli, Chief Executive of

60 Prada, says: 'The "Made in Italy" label is important but what we are really offering is a style, and style is an expression of culture.' He

65 therefore recognises that quality fashion items may


not always need to be produced in Italy. Amitava Chattopadhyay,

70 Professor of Marketing at Insead, the business school, says: 'A brand is a set of associations in the mind of the consumer and one of

75 these is the country of origin. For luxury goods, the role of the brand is crucial. To damage it is a cardinal sin and no brand manager will

80 want to get the balance
between manufacturing

location and the brand image wrong.'

From the Financial Times


 


A Mother, baby and pushchair in Burberry.


Which of these statements are true? Correct the false ones.

1Coach no longer has a factory in Puerto Rico.

2 Coach, like many other companies, is outsourcing its products to reduce costs.

3 Some Japanese people choose to buy Burberry products made in Europe rather than in Japan.

4 Sanyo's store in Tokyo sells Burberry products made only in Asia.

5 According to Domenico De Sole, the best luxury products are made in Japan.

6 Gucci is planning to outsource some of its products.

7 Patrizio Bertelli believes that luxury fashion products should always be made in Europe.

8 Amitava Chattopadhyay says that companies need to pay careful attention to where they manufacture their products.





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