Case StudyNoora Al Qassimi - @30693

Spring 2011

What may be the main motives for Polo Ralph Lauren to shift the entry mode from licensing to hierarchical mode in South East Asia?

When Dickson Concepts was a licensing partner, Polo Ralph Lauren received royalties on every product sold and this was subject to a minimum royalty requirement for the right to use the company’s trademarks and design services.

In addition, Dickson Concepts had to use their own revenue to advertise the products and share in the creative costs associated with the products. Dickson Concepts had to allocate more funds to launch new products or in new territories.

The licenses need to be renewed every three-to-five years and may have conditional renewal options All these options, though paid for by Dickson Concepts, will be overseen by Polo Ralph Lauren to ensure that the products are reaching the right audience.

What may be the main motives for Polo Ralph Lauren to shift the entry mode from licensing to hierarchical mode in South East Asia?

By switching to a hierarchical mode, Polo Ralph Lauren must pay $20 million and other consideration for direct control over the distribution of Polo Ralph Lauren products in South East Asia.

Polo Ralph Lauren switched to a hierarchical mode in South East Asia, Europe and Japan as part of their worldwide strategy. Polo Ralph Lauren has considered the risk of piracy in China as it has caused them to lose shares to their competitors.

In addition, net revenue in South East Asia has been decreasing every year. Their net revenue has gone from $11 million in 2007, to $10 million in 2008 and $9 million in 2009.

What may be the main motives for Polo Ralph Lauren to shift the entry mode from licensing to hierarchical mode in South East Asia?

The main motive for switching to a hierarchical mode is to include South East Asia in their worldwide strategy and to have direct control over their products. This will allow Polo Ralph Lauren to ensure that there is no wastage and to maximize revenue.

Would you recommend them to take all geographical licenses back in-house, and turn them into hierarchical modes? If not, why?

Yes, Polo Ralph Lauren has switched to in-house distribution in South East Asia, Europe and Japan.

The company already has direct control over products in the United States and Canada. They already have switched all their geographical licenses in-house despite the annual increase in net revenue in USA, Canada, Europe and Japan.

Hierarchical modes are expensive and risky but the company will benefit by having direct control over its own products. Direct control allows them to adapt their worldwide strategy to each region.