Global Environment of Management

This paper analyzes the different characteristics of Israel, which could affect the progress of Victoria’s Secret (VS) as it globalizes into the country. The paper discusses the political economy and trade regulations between Israel and the United States, Israel’s demographics, cultural lifestyle, and geographic characteristics. The paper identifies potential competitors in the apparel industry in Israel, and explains the social responsibilities, social environment, and labor policies which VS has to follow when entering Israel. Moreover, the paper examines the issues of transaction and translation costs comparing the Israeli currency, shekel, to the US dollar.

While examining the above factors, the paper argues in favor of the opportunities VS has in the Israeli country, largely because of various Free Trade Area (FTA) agreements signed in the last 30 years. In addition, the paper identifies two big Israeli textile manufacturers using innovative technology, and presents several statistics, which support the view that VS’s items should be sold in Israel. A few potential competitors are already in the market, but VS could make smart choices and benefit from the rivals’ operations. Social responsibility, labor practices, and social environment are protected in the Israeli law, but are not subject to interfere with the operations of VS in the country. At the moment, the exchange rate between the US dollar and the Israeli shekel is unstable, but should not have a major impact on the items sold by VS in Israel. Therefore, the analysis concludes with a recommendation for VS to positively consider entering Israel.

Introduction

Victoria’s Secret (VS) is the leading subsidiary of Limited Brands Inc. in the United States. The company is the best retailer of women’s intimate apparel, with a little over 1000 stores in the US and Canada, mostly placed inside malls. By offering American consumers bras, panties, hosiery, beauty products, swimwear, and sleepwear, VS had net sales of $3.7 billion in 2006 and $3.6 billion in 2007. Although “one of the most powerful, sexy and glamorous stores in the world,” VS does not operate in any other market other than US and Canada (Limited Brands Inc, 2008).

Today, the company is considering entering the Israeli market by making its products available at Israel’s largest chain department store, Hamashbir Lazarchan (Zomer, 2007). This paper analyzes VS’s opportunities and why it should enter the Israeli market. The paper covers the following topics: political economy and trade regulations, demographics and culture, geography and climate, potential competitors, social responsibility, labor policies, social environment, and transaction and translation costs.

In the last few years, Israel improved its textile and apparel industry. The Israeli textile industry overcame the obstacles of “small domestic customer base, distant export markets, and high costs” due to the emerging high-tech industry in the country. (Solomon, 2001). New manufacturing methods improved quality, increased productions, and lowered costs. The country also has a well-developed labor force, with a high level of education and human capital. With the achievements in the last 15 years in information and communication technology, “there is no reason that Israel could not grow much faster and become one of the most prosperous countries in the world.” However, the political issues Israel is facing with its Arab neighbors hinder the development of, otherwise, a promising market (Krawitz, 2006).

Political Economy and Trade Regulations In 1975, Israel’s government signed a Free Trade Area (FTA) agreement with Europe. In 1985 Israel also signed an FTA agreement with the US. According to the agreement, “all custom duties between the two countries have been eliminated.” The agreement reinforced the mutual trade between the US and Israel over the years. Today, Israel is the largest US export market in the Middle East, trading over $26 billion worth of goods in 2007 (U.S. Government Export Portal, n.d.).

Thousands of US companies are already operating in the small country, taking advantage of its growing economy. Besides, Middle East peace treaties with Egypt and Jordan (in 1979 and 1994 respectively) “enabled companies to move production to lower-cost countries in the region.” These policies caused import duties on textile and apparel to drop significantly (Solomon, 2001). The most successful apparel companies in Israel often choose to be export-oriented due to the small country market. The textile and apparel industry gains from the FTA agreements Israel has with the US, the EU, Canada, and Mexico, including low-labor countries such as Jordan, Egypt, Turkey, and the Palestinian Authority (Solomon, 2001). Therefore, VS can take advantage of Israeli textile factories that are already exporting items to the company in the US, and make profit in the Israeli market by selling its brand name items to Israeli consumers as well.

Made in Israel

Delta Galil Industries, an Israeli company, “is a global manufacturer and marketer of quality private label ladies’ intimate apparel, bras, leisurewear, and nightwear.” The company sells its products to different retailers in the world such as Wal-Mart, Mark ; Spencer, JC Penny, and VS. In the last few years, Delta Galil has shifted European manufacturing partners to low-cost countries in the Middle East. Delta Galil provides its customers with product line planning and design, high quality apparel using automated manufacturing processes. The company also offers marketing, packing, and distribution of finished goods customized to the requirements of customers in Europe and the US (Edgar Online, Inc., 2007).

Tefron is another Israeli company that has invested a lot in technology and R;D to develop major innovations in the apparel industry. The company uses “computerized robotic manufacturing methods that resulted in international recognition as a leader for new manufacturing technologies.” The company is a market leader for producing items to major companies such as VS, Gap, Banana Republic, and Cacharel and Dim (Solomon, 2001).

Sold to Brand Names

Having big manufacturing facilities in Israel with high quality products and innovative technology, which already established long-term relationships with VS, makes expansion to Israel an easy task. The different FTA agreements with neighboring countries, the US, and the EU, have also facilitated the process by having low labor costs. The Israeli companies have not established independent brand names, and “research by the Israel Export Institute shows that in the clothing sector, more than 90% of exports are sold under a different company’s brand name” (Solomon, 2001). VS is a brand name that Israeli clothing companies and chain stores would love to do business with.