Benefitting from beauty school dropouts (and graduates)

It’s always nice when a discussion from my classes quickly gets tested in the ‘real world’.

Source: http://www.npsetcosmetics.com/

A few weeks ago, as part of a discussion of diversification, I asked my students to identify related industries to various products and services. One of the services I mentioned was hairdressing, and among the suggestions was training schools for hairdressers, stylists etc.  We had a debate about whether this would also constitute vertical integration as it would serve to provide a supply of labour for firms in the industry.

In my old age, I’d forgotten an earlier blog post of mine on the diversification of Aussie make-up magnate Napoleon Perdis.

Well, Perdis popped up again in the news recently with a much more explicit discussion of the benefits to the firm’s salon franchising ambitions of also running ‘beauty schools’:

“The company should have a natural advantage in its franchising push thanks to the beauty training schools it operates. While these schools provide the company with direct source of staff and a strong network of brand advocates, they should also provide a steady stream of potential franchisees well-versed in the company’s processes and products.

“One of the biggest assets of the Academy in that it is a machine that does generate brand advocates. And it feeds itself, because the brand advocates pay to come and do courses, they purchase products and they go out there, advocating and indoctrinating others with the same fervour and passions and beliefs,” [said] Perdis…”

It really is a neat example of utilising corporate strategy to build an advantage beyond direct market-seeking.  The market for potential franchisees is tough.  Having such an effective mechanism to promote the firm (and screen franchisees) is a real boon for Perdis.

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A Boost Juice follow up

After posting last Friday about Boost Juice’s international expansion, I stumbled across this video of Janine Allis, the company’s founder, discussing their internationalisation process. It was recorded back in 2004, but is still highly relevant.

She offers insights into numerous international business issues, including:

– motivations for expansion (including overcoming domestic expansion, and seeking first mover advantages)

– mode choice (franchising versus foreign direct investment)

– country choice

– supply chain differences

– country differences

– adaptation of business models to international conditions

– learning from others about internationalisation.

The video comes from Business Essentials. They have done a follow up one recently, but I am still trying to find a copy.

Here’s another with Allis about the firm’s Australian expansion:

A juicy tale of international expansion

There is a nice little story in today’s Age about Australian juice bar chain, Boost, making a move into China.

Boost have been a big success down under with their flashy outlets and tasty drinks. While clearly (and openly) an adaptation of the California juice bars (such as Jamba), Boost has been very willing to take on internationalisation.

No doubt aware of the likelihood that they would eventually saturate the Australian market, and also of the scope to build a first-mover lead over other chains, the firm has sought growth across the globe, typically via master franchise arrangements.

It appears they now have stores in 12 countries (orange on map below) and have awarded master franchises in another six (they’re the green ones).

Sorry to harp on about it, but again we see little evidence of any strong home regional bias in expansion here. The firm will soon have stores on all of the inhabited continents. It certainly has not confined itself to the Asia-Pacific. Unlike most Aussie firms they haven’t even tackled NZ yet!

Expansion through franchising should, of course, be easier than through foreign direct investment, as the firm bears less direct risk. They can also tap into the adaptation expertise of other parties (local or international). In the UK, the Boost franchise is owned by Swiss multinational giant Nestlé. As noted in the story, Boost is working with an experienced US-based firm that has already taken the Subway and Gloria Jean’s brands into China.

So, where next for Boost?

Oh Harvey, Oh Harvey

It was somewhat disheartening to see the always candid Gerry Harvey (Australia’s richest retail tycoon) lamenting the poor performance of his firm, Harvey Norman, in Ireland.  A big box retailer of home electronics, furniture and white goods, Harvey Norman is one of the few Australian retailers to venture off shore in recent years (see my discussion of the few in a chapter I wrote last year for a book called The Internationalisation Strategies of Small-Country Firms: The Australian Experience of Globalisation).

The firm has chosen an odd mix of locations – Singapore, Malaysia, Ireland and Slovenia (along with the obligatory NZ). The international adventure now makes up 24 percent of the business on a simple store count basis.  As these stores are all company owned, whereas 98 percent of the Australian stores are franchised, they represent (potentially) a more significant source of revenue. The simple reason for the dramas is that the Irish economy is faring a lot worse than Australia.  However, there are still question marks over Harvey Norman’s ability to build sufficient competitive advantage in its international operations.

In Australia the firm benefits from enormous economies of scale in both purchasing and marketing (the firm is one of the biggest media spenders in the country).  Also, it utilises a distinct within store franchising system. A given store might include a furniture franchisee, a white goods franchisee, an electrical goods franchisee and a computer products franchisee. This allows appropriate specialisation from sales (and purchasing) staff and offers the usual motivation benefits of entrepreneurial franchisees.  The Australia operations also has a nice side-business in property management and leasing.

It looks like very few of these competencies have been transferred offshore, with all stores company owned, and limited scale in a given country (beyond NZ).  With troubles in the retail market at home, and Harvey Norman much more exposed to consumer timidity than their upstart competitor JB Hi-Fi (who sell a lot more software such as DVDs, video games and CDs rather than big-ticket hardware like TVs), it is hard to see Gerry and co diving into more international expansion any time soon. Looks like the paucity of Aussie internationalisers may continue, at least in the retail domain.