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University of Antwerp Centre for International Management and Development – Antwerp CIMDA Discussion Paper No. 1998/E/34 1998/E/34 The International...

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University of Antwerp Centre for International Management and Development – Antwerp CIMDA Discussion Paper No. 1998/E/34

1998/E/34

The International Supply Chain Management of Samsonite Europe by F. De Beule and D. Van Den Bulcke

Paper presented at the 23rd Annual Conference of the European International Business Academy, Stuttgart, December 14-16, 1997.

CIMDA Centre for International Management and Development – Antwerp CIMDA was established in 1989 as a ‘joint venture’, between the Institute of Development Policy and Management and the Faculty of Applied Economics of the University of Antwerp – RUCA, to foster activities and research in the fields of international management and economic development.

The International Supply Chain Management of Samsonite Europe Filip De Beule and Danny Van Den Bulcke∗

1.

Introduction

Samsonite is one of the world's largest manufacturers and distributors of luggage with sales of US$722.6 million for the fiscal year 1996. The company markets its products primarily under the Samsonite®, American Tourister® and Lark® brand names. The Samsonite brand enjoys world-wide recognition and is the leading brand of luggage products in the United States and Europe. Following the acquisition of American Tourister, Inc. in 1993, the company introduced the American Tourister® brand in Europe. The Lark® brand is well-recognised in the United States and competes in the premium segment of the luggage market. Samsonite's products are currently sourced through a global network consisting of 16 owned and operated manufacturing facilities and various third-party suppliers throughout the world. The company takes advantage of its global sourcing capabilities by opportunistically buying products from various countries when their product costs or exchange rates are particularly favourable. The Samsonite corporation distributes and sells its products throughout the world in more than 100 countries through approximately 23,000 retail outlets, including department and speciality stores, catalogue showrooms, mass merchant retailers and warehouse clubs. Samsonite recently started a program in order to diversify its product range



Respectively Research Assistant and Professor at the University of Antwerp - RUCA, Belgium.

4 through licensing agreements, based on the consumer awareness of the Samsonite brand, and its technical know-how. It has set up a special licensing department to check and inspect the products for the required design and quality. These products, meeting the requirements to carry the Samsonite label, cover a wide spectrum of articles from travel accessories, videocamera bags to small leather goods, handbags, umbrellas, computer bags and footwear (Samsonite, 1997). Before going into more detail about the activities of Samsonite Europe, the second section of this paper presents a number of theoretical considerations that will be used to clarify Samsonite’s sourcing, production and distrubution management. In the third section, the beginning years of Samsonite's development in general and its original decentralised distribution system are discussed as well as (the reasons behind) its switch to a more centralised logistic set-up and its evolving internationalisation of its distribution, production and supply networks into a more integrated chain. The fourth section consists of a number of conclusions.

2.

Theoretical Considerations

Dunning (1981, 1988, 1993a) has shown that firms expand abroad because they have unique advantages in products, processes, access to resources, or marketing. Individual countries are selected as location base on the specific advantages of these countries. Finally, firms invest in another country, rather than use direct export or license production due to the internationalisation benefits existing in multinational operations as part of a rationalised production network. While national companies limit their product markets and their production to a single country, multinational enterprises (MNEs) have a broader perspective. MNEs have the ability to organise and manage an international network that delivers product variety to every market with a high level of customer service at the lowest possible cost.

5 Managing this “supply chain” is vital for international business. The ultimate objective is not only to deliver the products to the market but to do this with variety, responsiveness, timeliness and efficiency. Corporate strategy must include organising, co-ordinating and executing the product flow as a competitive necessity and as a source of potential competitive advantage (Schary and Skjott-Larsen, 1995).

2.1.

Defining logistics and supply chain management

There are many different definitions of logistics coined either by academics, or consultants and practitioners. Logistics was for instance defined by the American National Council of Logistics Management (CLM) at the time of its establishment in 1962, as "a term employed in manufacturing and commerce to describe the broad range of activities concerned with efficient movement of finished products from the end of the production line to the consumer, and [...] the movement of raw materials from the source of supply to the beginning of the production line" (Törnroos, e.a., 1995). Logistics was concerned with managing a series of functional activities, beginning with transportation, inventory and information management but extending to all activities that involve the management of product movement. Logistics management has changed over time and the main thrust has been to link these activities together in an integrated system to provide service to customers and minimise costs. Logistics management has focused on both internal operations and external relations to customers and suppliers. The focus on co-ordination among the different logistical activities is apparent from the adapted definition of logistics of the CLM in 1976, i.e., "A term describing the integration of two or more activities for the purpose of planning, implementing, and controlling the efficient flow of raw materials, in-process inventory and finished goods from point of origin to point of consumption. These activities may include, but are not limited to, customer service, demand forecasting, distribution communications, inventory control, material handling, order processing, plant and warehouse site selection, procurement, packaging, return goods handling, salvage and scrap disposal, traffic and transportation, warehousing and storage" (Ballou, 1985).

6 According to Taylor (1997) logistics management and supply chain management are essentially synonymous terms. Logistics management consists of a systematic and holistic approach to managing the flow of materials and information across the whole supply chain from raw materials sources to end-user consumption. Yet, logistics management has historically been oriented toward the product flow process surrounding a single firm and indeed within an individual functional area of the firm. Supply chain management, however, encompasses more. It not only includes the materials flow and products flow to customers, but also incorporates the organisations that are part of this process and that cross organisational boundaries to link their internal operations as a part of this system (Schary and Skjott-Larsen, 1995). Individual firms are no longer considered as self-sufficient entities, making arrangements at arm's length with other firms, but as parts of a network. The basic characteristic of a network organisation is its confederate structure, i.e., a flexible coalition guided from a hub where the key functions are centralised, including the development and management of the alliances, the co-ordination of financial resources and technology, the definition and management of core competence, competitive advantage and strategy, the development of customer relationships, and the management of information resources that bind the network (Webster, 1992). Logistics management is driven by data. Managing operations of the global supply chain requires standardised data, organised and used as a basis for decisions and actions. The process involves suppliers, production processing, assembly, transport and distribution. The management of the supply chain processes is not feasible through formal organisations and results in a concept of co-ordinating product flows across organisational boundaries and through computer networks. This concept relies more on co-ordinating mechanisms more than on direct management co-ordination. In effect, information, which has become the central driver in supply chain management, has shifted the critical strategic issues to physical product movement. The complete network therefore includes connections between suppliers and production, movement between production stages and finally connection of production to the final

7 marketplace. Distribution and production may be separated activities, but they are both essential parts of the supply chain. Improved customer service and reduced costs are the end objectives of supply chain management. It is through the achievement of these two targets that logistics contributes to corporate performance (Taylor, 1997). First, in many industries customer service has become a key competitive advantage and there has been an increasing realisation that efficient management of the flow of materials through the supply chain is critical to achieving high levels of service. The second objective of logistics is to minimise costs. Logistics costs frequently represent a significant element of a firm's total costs. However, it is critical that the required customer service standards are clearly defined and safeguarded before cost reduction measures are implemented. Measures aimed at cost reduction usually result in more easily quantifiable benefits, particularly in the short run, while measures aimed at service improvement are more difficult to quantify and tend to have more long term outcomes, such as enhanced customer satisfaction and greater customer loyalty which eventually will increase profitability. The starting point for any logistics project should therefore be a clear definition of the customer service standards that are required to provide a competitive advantage to the company. Once those standards have been defined the most cost-efficient systems to achieve the service targets should be implemented. The traditional theories, e.g. the marketing channels theory and the logistics theory, thereby favour multiple warehouses, despite the increasing inventory and warehousing costs, in order to limit geographical distance to the customers. A decline in the number of distribution centres is supposed to negatively influence customer service and increase costs because of lost sales and increased transportation (see Figure 1.).

8 Figure 1: Traditional distribution costs Total cost

Inventory cost

Cost Warehousing cost Transportation cost Cost of lost sales

Number of warehouses Source: Coyle, Bardi and Langley, 1992 The 'time-based distribution concept', however, focuses rather on lead time instead of on geographical distance as a means to customer service. The optimum location of inventory is dependent upon the delivery time from stock (Abrahamsson and Brege, 1995). Traditional theories of distribution tend to suggest that holding inventory in a proximate location to the target market minimises transportation costs and promotes more efficient monitoring of demand. Operating within the market also facilitates information gathering. However, one local warehouse may have a shortage of a certain product, while at the same time another local warehouse has excess stock of that same item. Therefore, a time-based distribution philosophy favours a centralised distribution system instead of a decentralised structure. The centralised distribution centre stocks the entire product range and lost sales, because of unavailability in certain spread out locations in the decentralised system, are likely to be avoided. The transportation, inventory and warehousing costs can also be limited through the introduction and use of standardised methods and the search for more efficiency and economies of scale. Besides, transportation costs have declined drastically over the years, also favouring a centralised distribution system (see Figure 2.).1

9 Figure 2: Time-based distribution costs Total cost

Inventory cost

Cost Warehousing cost Transportation cost Cost of lost sales

Number of Warehouses Source: Abrahamsson, 1994

2.2.

Organisation of international activities

Internationalisation is a central element of corporate strategy. It has been studied intensively to understand the motivation for these decisions within the framework of global strategy. A firm eager to sell overseas must decide whether to produce at home and export to the foreign market, or to locate production overseas. The decision is based on a comparison of delivered costs, and is a function of the relative production costs of a domestic and foreign location, of transport costs, and of tariff and non-tariff barriers to trade (Hennart, 1990). If the firm decides to produce at home and export to foreign markets, it must chose between integrating forward into distribution, thus internalizing the market for distribution services, and contracting with independent agents and distributors. If it chooses to produce abroad, it can either sell or rent its advantages to local entrepreneurs (through franchising, licensing or management contracts) or exploit them itself by integrating horizontally into foreign manufacturing. The same analysis can be used for a firm that requires

10 inputs from abroad. It can either internalise the market for the input it needs (backwards vertical integration) or obtain it by spot purchases or long-term contracts (Hennart, 1993). Since its emergence in the mid-1970s (Williamson, 1975), transaction cost economics (TCE) has shown itself to be a very useful tool for explaining economic institutions, both domestic and international. Basically, TCE informs whether activities are organised through markets or firms. Transaction cost economics shows that prices and hierarchy (methods of organising) differ in efficiency because they use different methods to organise activities. The price system rewards agents on the basis of their output, while hierarchy rewards on the basis of behaviour (inputs). In a world of zero transaction costs, both would be equally effective (Coase, 1937). With positive organising costs, each technique will experience divergent levels of organising costs for a given transaction. The costs of organising a transaction through the price system, given the assumed conditions of opportunism and bounded rationality, is the cost of measuring outputs plus the residual amount of cheating that cannot be efficiently eliminated. The costs of using hierarchy are those of observing and directing behaviour and the unaboidable residual amount of shirking that results from imperfect monotoring (Hennart, 1993). The price system is the principal organising method used in markets. Firms exist because they are able to organise production at lower costs by using a different mode of organising than that used by markets. The combination of price and behaviour constraints defines a wide variety of institutional forms from pure spot markets to traditional hierarchical firms. Organising costs are minimised when the firm chooses the organising mode that is most efficient for a given transaction (Hennart, 1994).

11

3.

Samsonite Europe

3.1

Samsonite's early years and decentralised distribution system

Samsonite Corporation was originally established in 1910 as the 'Shwayder Trunk Manufacturing Company'. Jesse Shwayder started with the production of trunks, with a wooden frame and leather side panels, under the trade name 'Samson'. The company name was changed to 'Shwayder Brothers Inc.' in 1931 and to 'Samsonite', along with the trade name, in 1965 (Samsonite, 1992). During the second World War, Samsonite was required to work for the war industry and produce boxes for grenades, bombs and ammunition, which gave the company an opportunity to get familiar with metals such as magnesium and aluminium. This set the stage for Samsonite's growth to the top of the luggage sector. Samsonite introduced the magnesium suitcases in 1956 and the resistant ABS (acrylic butadiene styrene) suitcases in 1958. In 1962 Samsonite became a trend-setter in the business market when its classical attaché case was introduced. When the petrochemical industry introduced plastic materials, certain metal parts were replaced by plastics, although many of today's suitcases still have a magnesium frame. Samsonite was not only the first company to use such new materials, it also introduced new production techniques, such as injection moulding. Samsonite's entry into the international market began in Canada in 1956 with a plant in Stratford, Ontario. Seven years later, in 1963, Samsonite participated in a joint venture in Mexico originally with the Perez Alonso family, and presently with Vitro S.A. In 1964, Samsonite signed a licensing agreement with Ace Luggage Company, Japan's leading luggage manufacturer. In 1965 Samsonite started exporting suitcases to the European continent, because it did not want to incur high fixed costs, given the limited potential market at that time. However, the new concept of hard-side suitcases and

12 attaché cases caught on well in Europe. As the cost of transportation is substantial for hard-side suitcases ("transporting air"), Samsonite decided rather quickly to start with the production and assembly of hard-side suitcases in Europe itself. It invested in production facilities rather than in licensing due to the novelty of the products (Davidson and McFetridge, 1982).2 Belgium was chosen as the home base for the European market because of its central location and the investment incentives that were granted at that time. The production and assembly of hard-side suitcases was launched in 1966 in Oudenaarde (Belgium) in a disused textile factory with second-hand machinery. The various wholesalers in European countries were supplied either through wholly owned marketing and sales affiliates, as in France (1966) and Germany (1967), or through exclusive distributors (see Figure 3.). Traditional marketing literature based the integration of distribution channels on production cost, i.e. integration will take place when fixed costs can be spread over a large volume of business (Rosenbloom, 1987). Transaction cost analysis states that the firm will internalise activities that it is able to perform at lower cost and will rely on the market for activities in which other providers have an advantage. For instance, high-volume fast-food outlets in concentrated locations, which are easy to monitor, tend to be owned and operated by the firm, while small, dispersed outlets are franchised (Brickley and Dark, 1987). The objective is to minimise the sum of transaction and production costs in making forward integration decisions (Williamson, 1985). For Samsonite, this meant setting up wholly owned sales and marketing affiliates in familiar, large markets such as France and Germany, and using exclusive distributors in unfamiliar, limited markets such as Spain and Italy.

13 Figure 3: Samsonite's decentralised "supply chain" (1965-1974)

Factory Warehouse National Warehouse Wholesalers Retailers

In 1973, the production range in Europe was expanded into soft-side luggage by the take-over of a local Belgian firm Oda, located in Torhout, in order to quickly address the growing demand for soft-side luggage. In order to meet the growing demand for hard-side luggage, the production of hard-side suitcases was expanded by establishing a new plant in Oudenaarde in 1975.

3.2.

The centralised distribution system

In 1975 Samsonite also decided to change the organisation of its distribution system and to jockey the wholesale activity out of its supply chain and to supply the Samsonite products directly to its retail dealers in the different European countries from one central warehouse. The factory warehouses and the warehouses in the different European countries were closed down and one

14 central warehouse was established in Oudenaarde (Belgium) to serve the total European market. This reorganisation meant that products were transported from the different factories directly to the central warehouse, stored there and shipped to all its retailers upon request (see Figure 4.). Figure 4: Samsonite's centralised supply chain (1975-mid 1980s)

Factory

Central European Warehouse

Retailers

In the new system, each retail dealer in Europe could place his order directly to Samsonite either through a salesman or with a simple telephone call to the local office in his country that forwarded the order to the distribution centre. Samsonite invested heavily in information systems in order to manage its time-based European distribution network, because lead time is very much dependent upon an efficient administration. The salesmen and local offices transmit the orders to the central warehousing and dispatching company via modem, where a supercomputer processes the orders of retailers from the different European countries to the warehouse and the truck drivers who take care of the delivery of the orders to the retail dealers in the various countries.

15 The pooling of the orders originating from each local office allowed Samsonite to circumvent customs formalities for each separate retail order, to cut down on delivery time and to assure the supply to all its retail dealers within 48 hours. The local office was billed at transfer prices in local currency for the centralised order. The retailers, which constituted the centralised order, were billed for their part through the local office. As such, Samsonite was able not only to minimise the administrative burden of customs formalities, but also to centralise its currency exposure, to allow for better hedging operations, and to communicate directly with local retailers. This centralised distribution system also allowed Samsonite to improve on its operating profit margin with 25 to 30 percent, and to strengthen its brand through improved marketing and advertising. This logistical system created a real competitive edge for Samsonite as compared to other companies in the sector and strongly contributed to its continuous commercial success. In a way, Samsonite had set up a distribution system that somehow prefigured the Single European Market of 1992 in the particular area of its operations.

3.2

The internationalisation of the production network

Samsonite’s products can generally be divided into two categories: hard-side and soft-side products. In 1995, hard-side products represented 48 percent of its sales, while soft-side products accounted for 22 percent. Attaché cases and travel bags, that generally fall in the soft-side category, represented the remaining 30 percent of sales. 3.3.1. Hard-side products The sources of the competitive advantage for its hard-side products are based on extensive Research & Development (R&D), and its experience with difficult production processes of its high technological and capital intensive products. In order to take full advantage and protect these firm-specific advantages, Samsonite also perceives it to be in its best interest to internalise the production of these hard-side products within its organisation.

16 As the cost of transportation is substantial for hard-side suitcases, the location of the production facilities close to the warehousing and dispatching company in Oudenaarde (Belgium) is essential in a centralised distribution system. When Samsonite decided in 1984 to set up a second production plant in Hénin-Beaumont (France) for the production of hard-side luggage to avoid depending upon a single plant (Oudenaarde, Belgium) for the production of its hard-side suitcases, a major locational advantage of this new location in Northern France was the limited distance to the central warehousing and dispatching company in Oudenaarde (Belgium). Also the granted investment incentives played an important role. In order to sustain its competitive advantages, Samsonite was forced to almost constantly invest in modern, productive, efficient and flexible industrial infrastructure in order to respond to the ever changing market needs. Samsonite invested quite heavily in R&D of new products and purchased new machinery for the expansion of the production facilities in Oudenaarde. The production capacity and the employment in the French plant in HéninBeaumont was doubled over the years. 3.3.2. Soft-side products The production process for soft-side products does not require as extensive R&D or high technological and capital intensive production technology as for the hard-side luggage. Soft-side luggage is comparable to products in the textile industry, where the cost of skilled labour represents a higher proportion of the standard cost instead of capital and technology. Samsonite acquired the Belgian soft-side luggage producer ’Oda’ in 1973 in order to enter the growing soft-side luggage market. However, as there were apart from the brand name - only limited internalisation advantages, Samsonite decided to supply the different European markets through licensees, such as in Italy and Spain. As the European unification programme progressed, Samsonite wanted to take advantage of the growing locational advantages of this integrated market and impose its European distribution network on its soft-side products as

17 well. It decided to expand through investment in its soft-side production lines in European countries with lower wage levels. The Samsonite Corporation therefore set up a majority (60%) joint venture (JV) with the Italian family business ‘Saturn’ in 1985, which had been its licensee for Italy until then. The company's name was changed to ‘Samsonite Italy’ with its headquarters in Milan (Italy) and the production facilities in Porto Ceresio (Italy) at the Swiss border. Samsonite's presence in Italy also ensured a close contact with world-famous Italian designers. The entry of Spain and Portugal into the European Community (EC) in 1986 provided the necessary incentives for Samsonite to get a strong foothold on the Iberian peninsula and the Canary Islands. At the request of the Spanish government the Samsonite Corporation acquired its former Spanish licensee and state owned enterprise ‘Industrias Tauro’, the largest producer of suitcases in Spain, in 1985. The name of the company was changed to ‘Samsonite España’ and the production was started in Madrid. Samsonite also wanted to improve on the quality of the products and implement its own production processes. The plants were therefore equipped with state-of-the-art CAD-CAM installations. Also its World Class Manufacturing (WCM) method, i.e., each product being produced and assembled from start to finish by autonomous cells of about a dozen employees, was implemented. Samsonite later built a new and larger production plant in Saltrio (Italy) to replace the old factory in Porto Ceresio (Italy). And in Spain a new production unit in Tres Cantos near Madrid was added to the existing plant in Madrid. 3.3.3. Subcontracting Although it is more economical to relocate labour intensive production, i.e. soft-side luggage in countries with low wages, it does not necessarily mean that the production has to be organised within the Samsonite group. Because of the limited internalisation advantages (low transaction costs), Samsonite engaged in outside sourcing for the production of its low-end soft-

18 side product lines. It first subcontracted companies in South-Korea and Taiwan in 1979 and 1980. However, the contracts were terminated in the 1980s as both companies had fallen victim to the same rigorous policy of cost efficiency, that had first won them the contract. The increase of the labour costs in the Asian Newly Industrialising Countries and the difficulties with the foreign exchange management obliged Samsonite to put an end to its subcontracting operations in Taiwan and South Korea. Instead, Samsonite prospected Central and Eastern Europe as early as 1985. It contacted the Hungarian producer of luggage ‘Palota’ and signed a cooperation agreement in 1987 to produce and supply low-end soft-side luggage for Samsonite. Although the Hungarian company was a leading luggage manufacturer in the local market, it was not at all internationally competitive because of its lack of advanced technology and the low quality of its products. Although subcontracting arrangements linking purchaser to producer are in theory purely market based (pricing mechanism), in practice there is often an input from the purchaser to ensure that quality standards meet specifications and often advice on methods of production is given (Buckley, Pass and Prescott, 1990). Samsonite set up a separate department to cover the market needs and to source outside the regular Samsonite production facilities. This department also supplied management support (hierarchal mechanism) to the suppliers in order to attain the required quality levels and to fit these activities within Samsonite's centralised European distribution system. As the Hungarian company Palota proved to be an efficient subcontractor, Samsonite decided to enter into a majority (60 percent) joint venture with its partner in 1989 in order to upgrade the product and production technology, and introduce new logistics and accounting systems (increased internalisation advantages). Initially Samsonite contributed the necessary capital and technology to the new venture, while the local partner’s contribution consisted of land, buildings, and the workforce. The company was renamed ‘Samsonite Hungaria’ with the plant for the production of soft-side luggage located in Szekszàrd (Hungary) and its headquarters in Budapest.

19 In 1991, when Samsonite decided to increase its Hungarian production by upgrading its level of technology and adding new production lines, the local company was forced to sell its share to the Belgian partner because it could no longer finance its part in the new investment initiatives. In 1995 Samsonite Hungaria again enlarged its factory in Szekszàrd by investing almost US$2 million in buildings and US$ 150,000 in machinery, which resulted in an increase of production in Szekszàrd by 20 percent. The main reason for Samsonite to participate in the Hungarian production plant was to create a ‘low cost’ supply basis. The increase of the labour costs in Western Europe forced the company to seek new production sites for its labour intensive soft-side products. Samsonite's major locational advantage in Hungary was its low production costs, which were on average only about one tenth of the West European level. Even after adjustment for the higher inflation in most CEE countries, wage rates are substantially lower in Eastern Europe. After the fall of the Iron Curtain, Samsonite wanted to intensify its cooperation with Central and Eastern Europe, as these countries represented not only a low cost supply basis but also a growing consumer potential. Samsonite subsequently signed co-operation agreements for outsourcing with companies in Bulgaria (1989), the Czech Republic (1991), Slovenia and the Russian Federation (1994), and acquired another production affiliate - with which it was already familiar through its existing Hungarian venture - in Slovakia (1997). The motivations of Samsonite Europe in building up a supply network in CEE have to be seen within the context of European economic integration and the changing locational advantages within the strategic setting of the company as it is increasingly facing the globalisation of the world economy. Samsonite was also one of the first Western companies to open a store in the Goem shopping centre at the Red Square in Moscow. Besides, the company developed a dealer network with more than 500 companies in the former East bloc countries, such as Croatia, Poland, Bulgaria, Hungary, Romania, the Czech Republic, the Russian Federation, Romania, the Baltic States, and the

20 Ukraine. The turnover realised by these CEE dealers represented 7.5 percent of the total European sales in 1994. Given the growing globalisation, Samsonite Europe not only focused its attention on the former East bloc countries, but also decided to engage in some subcontracting in China and Vietnam. The Vietnamese subcontractor had formerly been Samsonite’s subcontractor in South Korea. He had closed his production plant in South Korea to start up again in Vietnam, illustrating the volatile wage conditions on a global and regional level. The company tries to select different third-party suppliers to take advantage of changes in manufacturing conditions, payment terms, exchange rates and shipping costs. Samsonite has therefore implemented a centralised and coordinated system of all outsourcing of finished products on a global level. The company wants to achieve maximum advantage from its purchasing leverage by aggregating orders from the company's different locations and by better planning and timing its requirements and purchases. On the whole, subcontractors provide Samsonite Europe not only with finished soft-side products, but also with semi-finished soft-side parts which are used in Samsonite’s own factories. Figure 5 presents an overview of Samsonite’s global supply chain. Samsonite, as the world-wide market leader in the luggage sector, produced and sold approximately 5.3 million pieces of luggage in Europe in 1994. The manufacturing activity was carried out either in wholly owned plants in Europe or through subcontractors. Outsourcing represented approximately 20 percent of total production in 1994. Since the last few years, the CEE countries have become the main basis of outsourcing for Samsonite due to their locational advantages such as its geographical proximity, low labour costs and favourable exchange rates.3. The wholly-owned production plants still produced the bulk of the Samsonite soft-side and especially hard-side products. The outsourcing for hard-side products is very limited and consists only of certain components, such as wheels for suitcases, from some Czech suppliers. Table 1 indicates the yearly production of Samsonite products in units for the various production facilities.

21 Figure 5: Samsonite's global supply chain (1996)

Table 1:

Sourcing by Samsonite Europe in 1994

Sourcing activities Intra-firm sourcing Belgium France Italy Spain Hungary Outsourcing Total Source: Van Nevel (1995)

Yearly production (units) 4,270,000 1,600.000 850,000 1,000,000 300,000 520,000 1,000,000 5,270,000

% 81 30 16 19 6 10 19 100

22

4.

Conclusion

The headquarters of Samsonite Europe were established in Oudenaarde (Belgium) back in 1966. Samsonite rationalised its European distribution system as early as 1975, which somehow prefigured the European single market in the particular area of its operations. Oudenaarde served as the hub of the cross-border value-adding network of Samsonite in Europe, as it assumed not only the ‘core’ production activities of hard-side luggage and took care of the logistics and warehousing for the Pan-European distribution system, but also did all of the research and development activities in Europe. Managing the flow of goods had become an exact and exacting exercise, justifying the investment Samsonite made in its computer systems needed to manage the supply chain and to track and trace consignments en route or in the warehouse. Samsonite's policy to get its products to the retailers as cost effectively as possible, led to the development of its production activities by means of international acquisitions, joint ventures, strategic alliances, licensing and outsourcing agreements. It implemented a policy of transferring the production of labour intensive product lines, as it was more economical to relocate and subcontract production to low wage countries. Samsonite was also forced to almost constantly invest in modern, productive, efficient and flexible industrial infrastructure in Europe. The regional integration allowed further rationalisation of manufacturing and distribution by breaking down internal barriers. Samsonite focused on manufacturing through specialisation in its different plants in order to realise large production volumes to achieve substantial economies of scale. Samsonite's drive for efficiency and economies of scale and scope, and its search for low-wage-cost production led to the development of its international supply chain. As a concept, supply chain management is central to corporate operations and a potential source of competitive advantage through management of relationships and operational co-ordination from supplier to customer. The supply chain has become a vital strategic focus for the organisation: delivering quality products to customers quickly,

23 responsively and efficiently. For Samsonite, supply chain management became one of its main competitive advantages in the global economy as it was able to reduce costs substantially and strengthen its brand through improved marketing and advertising.

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CIMDA-Discussion Papers English Series 1991.E.1

S. Plasschaert and D. Van Den Bulcke

Changing Dynamics of International Production: An Analysis of the Globalisation and Collaborative Developments of Multinational Enterprises.

1991.E.2

W. Winkelmans

Ports as Nodal Points in a Global Transport System.

1991.E.3

D. Van Den Bulcke

Internationalization of Doctoral Studies and Research Activities in European Business Schools and Universities.

1991.E.4

L. Cuyvers and Ph. De Lombaerde

Scenarios for Economic Growth in Europe after 1992: Growth, Trade and Investment Issues.

1992.E.5

D. Van Den Bulcke and The Belgian Metalworking Industries and the Large Ph. De Lombaerde European Internal Market: The Role of Multinational Investment.

1992.E.6

R. van Hoesel

Multinational Enterprises from Developing Countries with Investments in Developed Economies: Some Theoretical Considerations.

1992.E.7

D. Van Den Bulcke and H. Zhang

Belgian Equity Joint Ventures in China: Some Considerations and Evidence

1992.E.8

H. Theunisse

Financial Reporting in EC-countries. Theoretical versus Practical Harmonization: Two Case Studies.

1993.E.9

H. Zhang and D. Van Den Bulcke

Chinese Family Owned Multinationals in the Philippines and the Internationalization Process.

1993.E.10

J. Jablonsky

Multiple Criteria Decision Models in the Privatization Process of the Czech and Slovak Federal Republic.

1993.E.11

Zhu Jian, P. De Lombaerde and C. Van Herbruggen

A Macroeconometric Economy.

1993.E.12

D. Van Den Bulcke

The European Community and the Trials of Maastricht: An International Management Perspective.

1994.E.13

J. Annaert

Exchange Rates and the Correlation Structure of the International Bond Market.

1994.E.14

D. Van Den Bulcke

The Dynamics of the Multinational Company in the Triadic World Economy.

1994.E.15

L. Cuyvers, P. De Lombaerde and D. Van Den Bulcke

The Effect of the European Union Single Market on ASEAN: Trade and Investment Issues.

Model

for

the

Chinese

29 1994.E.16

E. Declercq and A. Verbeke

Strategic Alliances in the Global Telecommunication Industry.

1994.E.17

H. Zhang and D. Van Den Bulcke

International Management Strategies of Chinese Multinational Firms.

1995.E.18

N. Sammapan

Japanese Multinational Management in Thailand: Characteristics and Transferability.

1995.E.19

S. Lall

Changing Perceptions of Direct Foreign Investment in Development.

1995.E.20

W. Van Ryckeghem

Domestic Policy Variables and Foreign Direct Investment Inflows in Latin America.

1995.E.21

H. Zhang and D. Van Den Bulcke

Rapid Changes in the Investment Development Path of China.

1996.E.22

M. Goedhuys and D. Van Den Bulcke

Entrepreneurship and Growth of Manufacturing Firms in Burundi.

1996.E.23

H. Theunisse

Management Accounting in a Multinational Setting: An Overview.

1996.E.24

D. Bergen and L. D'Haese

A Stimulating Environment for Agricultural Production in Romania: Major Constraints and Policy Recommendations.

1996.E.25

D. Van Den Bulcke and H. Zhang

Foreign Equity Joint Ventures in China: Interactions between Government Policies and Multinational Investment Strategies.

1996.E.26

D. Van Den Bulcke

The European Works Council: A New Challenge for Multinational Enterprises.

1997.E.27

M. Tharakan and B. Kerstens

Contingent Protection and International Trade: An Analysis of the Antidumping Policy of the European Union.

1997.E.28

D. Van Den Bulcke H. Zhang and X. Li

Interaction Between Business Environment and Corporate Strategic Positioning in the Pharmaceutical Industry: A Study of the Entry and Expansion Path of MNEs into China.

1997.E.29

R. van Hoesel

Firm-level Determinants of Outward Foreign Direct Investment from the Korean and Taiwanese. Electronics Industry: An Econometric Analysis.

1997.E.30

J.H. Dunning

The Global Economy, National Governments and Supranational Economic Regimes.

1997.E.31

F. De Beule and D. Van Den Bulcke

Japanese Subsidiaries in the Belgian Manufacturing Industry: Changing Characteristics.

30 1997.E.32

L. Sleuwaegen and R. Veugelers

Competitive and Comparative Advantages: The Performance of Belgium in a Global Context

1997.E.33

J. H. Dunning

Resolving some Paradoxes of the Emerging Global Economy: Small Nations as Trailblazers

1998.E.34

F. De Beule and D. Van Den Bulcke

The International Supply Chain Managmeent of Samsonite Europe

Notes 1.

Although an analysis of the evolution of transport costs would lead us astray, a few quotations can be given: "In 1974, companies paid 2.600 BEF per cubic metre for road haulage from Tunisia to Belgium, today only 1.900 BEF per cubic metre. In 1974, Sabena and Tunisair asked 70 BEF per kilo, today less than 40 BEF." (Forum international competition and relocation, 1993) "The cost of maritime transport has decreased with 23 percent in current prices between 1985 and 1992, air transport costs have declined with 1 percent each year since 1984". (French National Assembly, 1993) "The transportation cost of a car from Japan to Cherbourg (France) is less than 1.500 FF, which is approximately the same price to transport it from the south of Spain to Northern Europe." (French National Assembly, 1993)

2.

In Japan, Samsonite did not invest due to the high cost, if not, impossibility of establishing an independent distribution system. It licensed its products instead of exporting them due to the high variable transport and tariff costs. In Canada, FDI won out due to the limited fixed costs and variable costs in comparison to either licensing and exporting (Buckley and Casson, 1981). In Mexico, FDI was also the preferred method of internationalisation, given the fact that they involved a local partner for market expertise. Everything else constant, the greater the cultural gap, the less likely it is that the firm will internalise the transaction (Hennart, 1990).

3.

The exchange rate is a very important factor in the decision making about outsourcing. For instance, Samsonite Europe at that time stopped all its sourcing from Asia, because of the appreciation of the US$ which is used to trade with Asian subcontractors. The outsourcing of the company was switched to CEE subcontractors as payments are made in DM.