Billabong Operations- Essay

Billabong Globalisation Response

Globalisation is the movement across nations of trade, investment, technology, finance and labour. In the business world this refers to the process of businesses becoming transnational and locating and conducting their operations in foreign countries.

Nature and Trends of Globalisation:

Billabong is one of Australia’s smaller transnational companies, operating on four continents, and was established as a private company in 1973 – this was a time when the US still dominated the world market and Australian manufacturing companies where only just beginning to become more export oriented. In 2000 it was listed on the ASX and became a public company with shareholders. The process of globalisation has allowed Billabong to now be able to distribute their products in over sixty countries throughout the world, as well as having acquired a number of other businesses through the desire to diversify their products and services that they are able to offer to their customers.

There are a number of different drivers of globalisation, methods of international expansion, reasons for this expansion and influences on this global business that can be looked at when looking at the reasons for the globalisation of Billabong and the ways in which the management of the company has approached and carried out this globalisation.

Drivers of Globalisation:

One of the main drivers of globalisation is the desire to maximise shareholders funds, and this has spurred the globalisation of many of the worlds transnational companies (TNC’S) – including Billabong. The drivers of globalisation that have had the greatest impact on Billabong are:

The ever-growing uniformity of the world’s consumers has allowed Billabong to take its products to different countries around the world and sell them successfully to consumers from different socio-economic and cultural backgrounds. The fact that many consumers have access to pay TV and the Internet has made it easier for Billabong to be able to sell these products to foreign countries.

With the rapid improvements of communications and transport in the twentieth century, the world has in many ways become smaller and businesses are taking advantage of this. Things such as information technology (IT) are now revolutionising the way in which modern organisations such as Billabong perform their day-to-day operations and this has become a driving force in global change. Billabong’s production and communication methods have been significantly increased with processes such as the transfer of databases, which used to take a number of days, now only taking a number of hours.

The deregulation of markets by governments in order to achieve efficiency through greater competition and the regulations that are imposed by governments has had little effect on Billabong.

Methods of International Expansion:

The international expansion of Billabong has allowed the business to become more diversified and more competitive within the surf wear industry. It has also allowed the business to have improved access to foreign markets and access to the latest improvements in business technology. Billabong has used two main methods to expand internationally, there are:

Exporting occurs when a business manufactures its products in tis home country and then sells them in foreign markets. The main motivation for this is increased sales and profits but there are also accompanying benefits such as improved profitability for the business during an economic downturn in their domestic market. Billabong has used the direct method of exporting as a low risk way of expanding their business global markets to export its manufactured products to the United States and Europe.

The management of Billabong has used both the Greenfield Strategy and the Acquisition Strategy of Foreign Direct Investment (FDI) to expand their business internationally.

The Greenfield Strategy has been used the in the seeking out of cheaper sources for manufacturing in places such as Hong Kong and China, where they now have factories established which produce garments for sale in Australia. While, the Acquisition Strategy has been used in the acquisition of other businesses so that they become wholly owned subsidiaries of Billabong. This has occurred with Element and Von Zipper, which have retained their brand name, but are wholly owned and controlled by Billabong.  This strategy has also been used in the establishment of offshore operations in places such as the United States, Brazil, Canada and New Zealand. These operations are responsible for importing, distributing and wholesaling Billabong Products.

Reasons for Expansion:

The reasons for which businesses aspire to enter foreign markets are all ultimately linked to the desire for increased sales and profits. Billabong is no different and has taken the opportunity to expand in order to have access to the numerous advantages that this expansion will provide.

The management of Billabong identified a number of reasons for its domestic and international expansion. These reasons include:

The desire of Billabong in wanting to find new markets and increase sales has been influenced by the limitations of the domestic market, in terms of the limited size of the Australian population and surfing not being a sport that is suited to all members of a population. As a result of expanding into new markets, Billabong has been able to increase their profits and also increase the size of their product range and also the size of their worldwide operations.

The diversification of Billabong has occurred with the intention of minimising the risk of business failure. This diversification has occurred on two different levels:

Geographic diversification has been achieved by having operations in different countries and on different continents. This minimises the risk of business failure if sales and profits in one country or continent experience a downturn. This also allows the business to produce products for the summer season in the southern hemisphere and then use this same product range for the next summer season in the northern hemisphere – a cost cutting measure.

While product diversification has also been achieved through the business entering foreign markets and then developing new products due to the different influences that are experienced in those markets. This allows the business to have a degree of protection as they are selling a wide range of products.

Influences on Global Business:

There are four main influences on global businesses – financial, political, legal, and social/cultural. It is the specific strategies put in place by each business to effectively manage these influences that will largely determine the success of a businesses international expansion activities.

The main financial influences on global business are currency fluctuations, interest rates and overseas borrowing of funds. In the case of Billabong the major influence is currency fluctuations due to the business having operations in over sixty countries worldwide. These currency fluctuations have a relatively large impact on the accounting systems of Billabong with approximately $3 million being in net exchange differences. Billabong is also open to the risk of transaction exposure is currency fluctuations occur as they move goods around the world.

The political influences for a global business may include things such as tension between protectionism and free trade, trade agreements and regionalism, international organisations and treaties (World Trade Organisation) and civil unrest in foreign countries. Generally these influences have a minor impact on Billabong with tariffs and quotas on clothing imported into countries being the more prominent influences.

Legally Billabong is required to abide by the local laws and regulations that are set in each of the countries that it operates in, hence the management of Billabong need to have a sound understanding of both the common and civil laws of the different countries that they operate in. Billabong also has a considerable interest in protecting its intellectual property, which includes its brand name, patents, trademarks and copyright rights.

Due to the standardisation of many products within the surfwear industry, social/cultural influences upon Billabong tend to be minimal. Although there are still some products that are not suitable for sale in certain countries such as bikinis in a Muslim country, the company has overcome this. Billabong uses global packaging and marketing strategies in the effort to reduce costs. The varying business practices of different countries have been overcome by the purchase of distributors of the establishment of operations in the specific country or region.

Managing Global Business:

The managers of today’s global businesses have an increasing plethora of demands placed on them. They are not only required to cope with change now, they also have to be able to initiate it. They are also required to have a good understanding of how globalisation is likely to impact on their business operations and are able to communicate quickly and effectively, integrate technology into their work practices and appreciate the cultural diversity of other countries.

There are four different areas of management that need to be looked at when looking at the management of a global business – financial, marketing, operations, and employment relations.

Financial management in a global business is of special concern, due to the large number of factors that influence it – currency exchange fluctuations, methods of payment, credit risks and insurance. Billabong initially faced problems with their methods of payment and credit risks. Management responded to this problem by establishing operations and distributors in various countries and regions. Billabong uses a minimal amount of hedging but insurance is of prime importance to reduce risk of financial loss to the business if goods should be damaged or lost while they are in transit around the world. Billabong is also in such a position that if the need to borrow finance from overseas should arise this would be possible.

The marketing plan and strategies of a global business are adapted to suit the businesses markets both domestically and internationally. Billabong has adopted a global marketing strategy, which looks at the world as if it is one large market. To do this they have conducted a significant amount of market research in their effort to determine what their target market’s needs and wants are as well as their cultural and economic features. The global branding of Element and Von Zipper items has been integral to the success of these product lines. The standardisation of all products within the surfwear industry has allowed Billabong to gain economies of scale in production and marketing, and better research and development, resulting is a strong global presence.

As businesses expand and become global, they are forced to look at ways in which they will be able to improve their competitive edge. They are able to do this through cost reduction and product improvement. Billabong has done this through moving the majority of its manufacturing to China (a form of outsourcing), although there are still exceptionally strict procedures in place to guarantee quality control. By having offices in Australia, the United States, France, Japan, New Zealand, Canada, Hong Kong and Brazil and adopting a global web approach, as well as, using subsidiaries Billabong is able to move products more easily, avoid some government regulations, be closer to its markets and avoid some of the foreign exchange risks.

The employees of a business are undoubtedly the most important assets of the business, and so the quality control and composition of the available work force are important considerations when a business undergoes global expansion as well as establishing and maintaining effective employment relations. Billabong uses the polycentric approach to staffing – meaning that personnel from the host country manage the subsidiaries, while the parent company personnel fill the key roles at company headquarters. The company also places a great importance on adhering to variations in labour laws and pressures that relate to the minimum labour standards, this is especially important considering that they have operations in China – a country traditionally known for low rates of pay and employee exploitation.

With all of these strategies in place the management of Billabong is constantly evaluating the effectiveness of these strategies and looking at ways in which they are able to improve their performance, reduce costs and increase profits.

Ethical Practice:

As a business undertakes the process of globalisation, management must also be aware of their social and ethical responsibilities. By designing a corporate social strategy a business is able to achieve triple bottom line (social, economic and environmental) results.

Billabong has put in place a number of policies relating to such things as the environmental regulations of the different countries in which the business operates and also a supplier policy. To make sure that these policies are put into place and their obligations met they have also put into place a code of conduct.