Benetton Spa - Why Diversification Essay

602 Words Jan 4th, 2013 3 Pages
Benetton S.p.a
Why Diversification into Financial Services makes sense? HAIDER SADIK Mgmt. Policy, Rl June 30, 1995

The diversification into financial services may best be looked at as a reflex of the Benetton entrepreneurial sensibility to seek out profitable opportunities while addressing the long-term impact of global changes on its existing business. With the developed nations reaching saturation levels in industrial growth, and the developing markets experiencing a capital investment boom, the Benetton subcontractor network, primarily in Italy and Europe, will eventually get incapacitated based on cost competition. Thus, a critical element of the Benetton textile retail business will eventually go under. To hedge against this
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This is where the impetus for Benetton's retail growth exists, with ambitious expansion in the number of shops planned primarily to set the stage for realizing economies of scale to implement a global communication network for marketing and financial information, perhaps leading towards a vision of creating a virtual exchange that would respond in real time. The financing of these ambitious plans would require large funds, making relationships with banks critical for securing a line of credit. Moreover, diversification into factoring and leasing services would create opportunities to manage and channel funds to develop the franchise network. This will be critical for leveraging the newly acquired information systems capability while maintaining flexibility through joint-ventures and maintaining low overheads to immunize itself from recession. Thus, the financial services are an integral part of the revised Benetton strategy to manage the relationships in its functional chain. Maybe this is a case where necessity turns out to be the mother of invention, but the essence of the idea is not unfamiliar to the Benettons either. They have a history of managing their retail and subcontractors network, only now they need to form partnerships to manage these relationships. The financial services provides the most flexible approach for integrating its multiple function roles in its value-chain, only now it can charge money for helping its network of

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