Burberry

(Source: Kelly, P. (2009), International Business and Management, pp. 550-555).

Burberry

“A British company? Widely recognised as a British brand around the world…Burberry is a

luxury brand with a distinctive British sensibility, strong international recognition and
differentiating brand values that resonate across a multigenerational and dual-gender
audience. The Company designs and sources apparel and accessories distributing through
a diversified network of retail, wholesale and licensing channels worldwide. Since its
founding in England in 1856, Burberry has been synonymous with quality, innovation and
style” [1] Burberry Web site 2007.

Company Background
This public company was established in 1856 and celebrated 150 years of history as
it announced the closure of its Welsh factory. At the time of the closure, company revenues
were approximately £0.75 Billion. Through its operations, the group designs, sources,
markets, licenses and distributes apparel (clothing in general), accessories and other
lifestyle products for women, men and children. Burberry products are sold worldwide
through a network of 260 directly operated stores and concessions, 71 third-party operated
retail locations and a network of wholesale customers, which include leading prestige
retailers in each market. In the financial year to 31st March 2006, the Group generated total
revenue of £743m. Approximately 1/3rd of sales were made in Europe; 1/3rd in Japan and
almost 1/3rd in North America and Asia.

In their Annual Report and Accounts for 2005/6 they discuss initiatives to redesign
their supply chain (project Atlas). The company launched a major infrastructure redesign (5
yr) programme to enhance efficiency and effectiveness. The programme’s goals included
both cost reduction and sales growth. For the past five years the company has continued to
grow from revenues of below £0.5 to £0.75B.The company is dependent upon the strength
of its brand, trademarks and other intellectual property – “We believe that our trademarks
and other proprietary rights are fundamentally important to our success and competitive
position. Amongst other risks, acknowledged in their annual report, are manufacturing
problems in the supply chain and the related Atlas project. “Burberry continues to evolve its
sourcing strategy, refining its selection of suppliers to maintain and enhance product quality
whilst improving sourcing efficiency… this process may adversely affect relationships with
existing suppliers during the transition period”.

Employment and related policies

The company is committed to a policy of equal opportunity as stated in the annual
report 2005/6. The Group aims to recruit the most capable job applicants and develop
competent employees. All employees should receive fair and equal treatment irrespective of
nationality. With regard to Employee involvement, Burberry believes that employee
communication is important in building strong relationships with and in motivating
employees. With regard to remuneration, the company aims to provide competitive salaries.
Burberry has a Corporate Social Responsibility (CSR) committee which, in 2005 considered
items which included the supply chain – maintaining acceptable labour, environmental and
social practices in the Group’s supply chain. They recognised that “good workplace
standards, health and safety, fair pay and fair employment conditions together with care for
the environment are all elements of a successful and professionally run business”.
Commenting on their approach to the working environment they declare that they are
committed to providing a working environment that encourages everyone employed by
Burberry to contribute both to their own and the company’s success. Within this
environment, employees are rewarded in accordance with their contribution. Human
resource issues are managed by the head office HR team under the direction of the Human
Resources Director. Regional divisions also have similar HR functions and some of these
regions have “significant” local autonomy.

Redundancy and closure (2006-7)

In September 2006, Burberry announced the proposed closure of its factory at
Ynyswen, Treorchy in the Rhondda (Wales – UK). Closure plans affected 310 workers there
- roughly one-third of Burberry's manufacturing jobs in the UK. Through this factory there has
been an association with the clothing industry for 70 years. The loss posed a major blow to
the community [3]. “Burberry has a corporate social responsibility policy, committing itself
amongst other things to fair employment practices and acceptable employment practices in
its supply chain. But now it plans to export jobs from Britain to countries with much lower
wages and worse working conditions” [3]. Janet Street-Porter commented in the
Independent, “last week when it emerged that one of our most iconic brands, Burberry, is
planning to close its factory in the Rhondda Valley, in South Wales, because it costs about
£12 to make one of their polo shirts in the UK and about £4 in the Far East. To many,
Burberry is just as British as the Union Jack- it's up there with Marmite, bulldogs, beefeaters
and jellied eels” The Independent (2006).
Since the closure announcement a major campaign has been run by the unions,
principally the GMB but also Amicus, involving local politicians and local people [3]. The
Sunday Times (November 26, 2006 – “Charles joins rebellion over Burberry move to China”)
suggested that PRINCE CHARLES intervened in the row over plans by Burberry to shut
down its Welsh factory with the loss of 300 jobs. “He is understood to have contacted
government ministers to ask if there is anything he can do” [5]. 'Burberry workers from
Treorchy in the Rhondda protest about the closure of their factory outside Burberry's flagship
New Bond St store in London in November 2006' (picture courtesy Leighton Andrews AM)
Burberry managers were “feeling the heat” of a campaign to save a factory, First Minister
Rhodri Morgan said (Jan 30 2007). The high-profile campaign to save the jobs of 300 people
attracted the support of a string of celebrity backers including actor Ioan Gruffudd and singer
Tom Jones. “The fact that everybody knows now that they are contemplating moving
production to China is doing reputational and therefore market damage and therefore we
should be keeping the heat up” [6]. Early in 2007, the Sunday Telegraph ran with the
headline .…the battle to check Burberry goes global – “The GMB union, which is organising
the campaign to save the Treorchy jobs, has chosen St Valentine's Day to launch
simultaneous protests outside Burberry stores in Las Vegas, Paris, New York and San
Francisco… A Burberry spokesman said: "The factory in Treocrchy is just one of many polo
shirt factories around the globe. It is an issue of costing. It costs twice as much to make a
shirt in Treorchy as it does elsewhere” [7]. Pressure on Burberry continued as, ‘Workers
fighting to keep Burberry's south Wales factory open have taken their campaign to the
House of Commons. Before meeting MPs, the workers ceremonially cut a Burberry tie with a
pair of scissors to claim how the brand is "cutting ties" with its UK roots. The firm, which is
marking its 150th anniversary this year, has reported an 11% rise in half-year sales with pre-
tax profits of more than £70m… Burberry has said the factory is not "commercially viable",
[8].

Union campaign
 A Trade Union is a membership-based organisation with the primary aim to protect
workers' rights. According to their website [8] GMB (“Britain's General Union “) is a strong,
modern, dynamic trade union focused on one thing - protecting its members in the
workplace. GMB is a general union - which means that membership is open to all adults
rather than employees working in a specific commercial sector. They claim to have over
600,000 members working in every part of the UK economy. One in every 32 people at work
in the UK is a member of GMB. They state that their fundamental approach is that “together
we can achieve more than we can do on our own… Whether you're looking for better pay,
improved childcare, realistic work-life balance, a change to long working hours, the
elimination of poor health and safety or simply a desire for respect from your employer;
together our voices are much more powerful than one voice alone”. The GMB's stated
purpose is to improve the quality of life for all its members.
The GMB was successful in delaying the closure date of the Burberry factory and
warehouse in Treorchy from 4th January 2007 until 31st March 2007. GMB Senior Organiser
Mervyn Burnett, along with local Rhondda MP Christ Bryant, also lobbied members of the
Welsh Assembly to help bring the company to the table. On Thursday 7th September (2006)
a mass meeting of GMB members employed at the factory was held. The Company has a
legal obligation to consult with the workers' recognised Trade Union about any serious
proposal involving redundancies.

Scenario
Imagine you were the Burberry HR Director and were called to a strategic meeting before
the closure announcement. At the meeting, the Operations Director informs you of the
‘intention’ to move production from Wales to China, and a compelling argument for the action
is put forward.

Your Task
In groups, with reference to the case study, make a presentation of 20-30
minutes to the Board on the following issues:

a. Collect information and conduct a PESTEL Analysis of the host country

(China), assess the significance and impact of each factor
b. Explain the opportunities and threats facing Burberry in China. Include
Porter's Five Forces analysis as well.
c. Advise the Board on the HR issues and challenges that need to be taken into
consideration in relation to the move plan (in home and host country). Include
a SWOT analysis.
d. Draft a high level action plan of what you, as the HR Director, would want to
do to manage the people aspects of this problem both in Wales and China.
You should indicate the order of tasks and activities (you may draw two
separate action plans for each country).

Remember:
 Analyse and give rational, not just describe, and use relevant analytical
frameworks to help you in conducting a systematic and structured analysis.
 Support your analysis and arguments with evidence
 Relate what you are doing and why you are doing it to theory, where relevant to
argue points where there are different views