Health and Safety Standards in Chemical and Petroleum Industries

During the recent years the world community was shocked by numerous great disasters connected with improper operational management and the exposure of such disasters on the environment and people’s lives led to the logical strengthening of safety and health regulations imposed to multinational chemical and petroleum corporations. Accidents that have taken place in these sectors are potentially more harmful and their consequences can be observed in decades forcing the management of such companies to take a sharper look at their operational facilities, conditions and workplaces. With the pace of globalization some multinational companies have begun to implement their home countries’ safety and health standards to all their subsidiaries worldwide; others still apply different standards that vary from country to country and are adopted to specific rules and conditions inherent to each place where business is held. 

The main tendencies that prevail in the nowadays world is the combination of the increasing use of health and safety management systems unified and identical at all subsidiaries of multinational corporations driven by the increased social pressure and economic globalization on the one hand, and increasing integration of health and safety standards in the business planning and their adaptation to local conditions on the other hand. However, the core question remains the extent of which the home country’s health and safety standards should be adapted to the rules and regulations of the host country and the associated differences in language, perception, cultural difficulties, regulatory policies, acceptable levels of risk relationships and the necessity to take these facets into consideration.

Identical Health and Safety Standards

The unified principles and standards of safety and health in all operations introduced by multinationals in chemical sector and potentially in petroleum one carry a lot of benefits, that are among others the reduced risk of accidents and harmful exposures especially in developing countries, reliance on proved and tested norms that in the long-run mitigate operational risk dramatically, minimized risk to human lives and environment. The usage of identical standards increases the quality of each plant’s operations in several times, avoiding the trap of double standards and contributing to the good reputation of the ethical business conduct. 

Additionally, safety and health standards that are approved in developed countries and implemented in developing ones are supported by strong company’s hierarchy, where the question who bears the responsibility of safety issues is clear and the unified plan of emergency reporting and response drastically reduces lead-time of decision making and delivering information to those who can deal with it in the case of emergency that can eventually prevent the negative consequences. Top-down implication of safety and health rules from headquarters to all local operations limits the risk of applying lax safety standards of host countries and reduces excessive risk of violating home country standards locally and provides adequate protection from the industrial hazards in either petroleum or chemical industry. 

In contrast to numerous benefits the unified safety and health standards can themselves be a subject of risk. The primary risk is associated with the ignorance or violation of the identical rules at places based on the local management decision and their assurance of these rules uselessness rested on the belief that complex home standards can be simplified if afforded by the law. The other risk arises from the poor local infrastructure where some of the standards can’t be applied and supported. But merely the central question is the risk of misunderstanding of these concepts limited by the host country’s people ability to perceive the information and psychological differences.

These features are needed to be considered wisely before single system of standards in health and safety in chemical/petroleum multinationals is used, as the questions of culture, politics and safety laws, even lax and poor, can affect the initiative of identical standards implication. The example is the Union Carbide manuals written in English for its Indian subsidiary, or the necessity to provide additional training for local employees for them to understand the norms correctly otherwise the operational risk of dealing with more sophisticated equipment is not reduced but enhanced. 

From the economic perspective, the implication of identical standards can significantly reduce transaction and installation costs if the system is well-designed and was previously introduced by the company in other subsidiaries but only under the conditions that the subsidiary in question enjoys the same infrastructure to support and maintain new technical safety which is highly doubtful in developing countries otherwise necessary supplementary equipment or plant modifications will increase the capital costs that is negative for companies which transfer their operations to countries with lower economic development to gain the cost advantage.

Adaptation of Health and Safety Standards

Adapted to the conditions, rules and regulations standards conceal far greater operational risk as the costs of people or process losses and the physical damage to assets as the result of the lowered safety exceed the costs of additional expenses in the case of unified standards. Obviously, lower standards of workers and environmental protection provide only short-term savings, higher sickness rates, increased employee turnover, risk of defects and higher overall operational risk due to the abdicated norms, such as storage time, workers training and inadequate personnel safety gear. A great diversity of risks is faced by the management of a petroleum company that is running its operations based on the poor safety conditions dealing with ultra-hazardous and toxic materials, pollutants, fuel and other dangerous chemicals: risk of system failure, risk of accidents and higher rate of capital at risk. Simultaneously, such a company with lax safety issues if affected by the accident will suffer more from lawsuits and compensations, blamed for discrimination that can negatively influence the overall reputation. 

However, sometimes it’s difficult to conduct business in a particular country with your own standards for safety and protection because of the natural limitations. So when adapting these standards to each operational environment a company receives advantages of a more responsive system designed to operate in local circumstances and adapted to cultural and political differences, cost savings due to reduced environmental taxes and minimal requirements for occupational safety, local management responsibility for operational safety that requires the headquarters to provide only general corporate strategy and less people in subordination chain.

Chemical and petroleum companies in this case reduce the installation and operational costs but in the long run carry higher risk of incidents, environmental pollution, fines (if provided by legislation) and a higher rate of conducted repairs and equipment testing. 

Summarizing, after looking at the tragic experience of chemical companies that have ignored high safety and health standards of their home nations and were operating under lax and minimized requirements, suffered losses and the need of business termination as a result of accidents during the last decades petroleum multinational companies are, firstly, aware of the probable consequences of each approach, and, secondly, bear the moral responsibility to the society and environment. Evidently, higher safety and health standards will reduce operational risk and in the long run contribute to the profitability – the main aim of any organization.

Gucci Corporate Strategy

Gucci Group: Background

Gucci Group is one of the leading groups in the fashion and luxury industry and consists of several highly attractive and prosperous brands. Gucci Group brands are Gucci, Bottega Veneta, Yves Saint Laurent, Balenciaga, Alexander McQueen, Boucheron, Sergio Rossi and Stella McCartney. Founded in 1921 by Guccio Gucci in Florence, Italy, the company has undertaken several serious steps in its corporate strategy and development, considerably moving towards multi-brand approach creating the value and competitive advantage through diversification of its business and acquisitions with independent related brands. The target was to reach customers in the close high-end segments (inc. shoes, watches, jewellery), but with distinguish stylistic identity and broaden the consumer’s pool by operation in related fields within the luxury category.

These brands existing under one umbrella create and sell high-quality luxury goods, namely ready-to-wear, luggage, handbags, leather goods, shoes, watches, jewellery, scarves and ties. Gucci Group also began to enter under license such markets as cosmetics, fragrances, eyewear and skincare products. Well diversified portfolio of various brands strengthened by the managerial expertise has formed to the present days the valuable assets for its shareholders and a basis for future growth and development.

In 1999, the company started to adopt a multi-brand strategy with the acquisition of, amongst others, Yves-Saint Laurent and Sergio Rossi. The following year, a number of additional acquisitions and franchising deals were made by the group, including the acquisitions of Stella McCartney and Di Modolo (Gucci Group: Company profile (2008), http://favormall.net/clientimages/38996/fashleadcomp-guccigroup.pdf). Since 2000 when Gucci only included four divisions (Gucci, Yves Saint Laurent Couture, YSL Beaute, Segio Rossi) under the management of Domenico De Sole and Tom Ford it underwent a chain of acquisitions that resulted nowadays in several separate departments that operate very distinctively and discreetly being managed in an autonomous manner. Broad product range provided through high-end multi brands balanced portfolio with a strong parent supervision and coordination together with geographical expansion and market share gain in developing countries and countries with changing economy helped the company to remain its profitability, flexibility and to strengthen its position at the global luxury market. Furthermore, growing through acquisitions is a successful strategy if only several factors are taken into consideration and act as supportive facets:

  • A deep and comprehensive understanding and knowledge of fashion industry with all distribution, logistic, creative and administrative features and differences it includes;
  • Each brand autonomy and distinctiveness, its protection and positioning according to its own distinguishing identity and ability of this brand within the group to generate benefits and profits.

Related Diversification strategy

The chosen strategy of related diversification since 2000 has taken place in Gucci Group corporate strategy proving its reliability and making the Group one of the strongest and recognized luxury market players. External environment and conditions are favorable for diversified companies in luxury industry, as long as highly diversified business groups are able to hold the biggest market stake and core resources and capabilities are efficiently used among different divisions within one group supporting trends for diversification in the luxury world. The key idea to add YSL Couture in 1999 was the possibility to create value through more efficient transfer of capabilities and managerial resources allocation from Gucci parent company. With the acquisition of YSL Beaute and Sergio Rossi the company didn’t perform with a considerable growth and gross profit increase was 20% (in 1999). 

However, De Sole’s leadership position in the company was very important to contribute to organizational capabilities that were transferred within the company. His supervision position and readiness to solve problems, as well as his open-minded character to consider issues and perform centralized control throughout the whole organization was viewed by the personnel as management capabilities at corporate level.

Distinctive capability that was tried to be achieved in terms of general management of luxury brands created the competitive advantage in the businesses the company was operating in, thus Gucci Group was able to deploy the distribution, advertising and promotion, as well as retail management and quality guaranteed across all new brands it was acquisitioning with. YSL Beaute was considered a prospective product since its distribution could be held via Gucci’s already existing channels and gain benefits though Gucci’s experience in Asian market that was able to lead the sub-brand of cosmetics to success.

During 2000-2009 the strength of Gucci has been establishing and spreading to form a brand with strong international presence and economies of scope reached in tangible and intangible resources. Tangible resources were able to eliminate fixed costs for administrative and support services and sharing resources with other brands within Gucci Group can be referred as one of the company’s strengths. By this approach, the most success was reached in skills sharing, however HR and IT services are also shared as back-office functions. 

Moreover, by 2004 when Dutchman Robert Polet was appointed as the new chairman of Gucci Group many brands were actually losing money: the former strategy applied to raise the turnover led to the decrease in profitability and total operating profit of Gucci Group grew from 18% to 19% (2000-2007) only. Later on, under Polet’s management all brands went under control of each other own label CEO and designer, much more freedom was given to each label within the Group hence increasing the sales and giving autonomy for expansion. The increase in sales since 2007 in Gucci Group was positive: +8,4% (2007), +5,5% (2008) and +0,3% (2009).

The gain from concentrating intangible resources is much greater because corporate reputation of the raising company achieved by De Sole and Ford’s efforts and then of the stable company guided by Polet nourished all sub-brands, giving them powerful background and tough status, but still at the present moment the company is mostly over-depended on its main brand, Gucci, accounted for merely 66,8% of the total revenue. The smart steps undertaken by Polet aimed to raise the other brands awareness and recognition but positioning of younger brands in a multi-brand company raises difficulties of bringing the whole group to the next level. 

On the other hand, human resources – designers – also influence the intangible resources of the company in a positive manner enabling the company to transfer these resources from one division to another with the possibility to support internal entrepreneurship so that talented fashioners can start their own brands. 

Along with seeking external resources and capabilities to expand and capitalize its distinctive position and gain market share Gucci Group was able to create internal market of capital: Gucci Group allocated its financial resources between different brands which is more efficient and less expensive than carrying high indebtedness. The company also continued to reinforce its financial structure. PPR’s capital employed together with reduced by 20,7% net financial debt in 2009 creates an advantage of avoiding high borrowing rates to support new businesses and availability of prospective investments in fashion trends benefits from allocation of capital and, therefore, increases financial leverage and balances the capital structure.

Value creation

The related industries Gucci Group was entering were attractive to existing business and while the cost of entry was considerably low, investments in brand expansion and acquisitions were the right choice. If we look at Porter’s ‘better-off’ test we can see that combination of brands under one umbrella created competitive advantages to the original business, as well to the developing one. Generally, related diversification offered greater potential and value in forms of: 

  • Unique product features of each brand and strategic relatedness between businesses. Throughout its history Gucci has been developing a unique vision of luxury, a ‘dream’, a sustainable reputation successfully building the Group’s market share in the luxury industry. Positioning fashionable, innovative and high-quality products gained a remarkable market share for the main brand – Gucci, and has been striving for expansion of other brands. However, Gucci woman and, for instance, YSL woman are very different proving that each brand has its own ‘lowers’ and followers, serves different needs and, hence, widens the pool of clients and provides substantial brand recognition. Source that can be used as competitive advantage in the Group is the quality of goods because quality is one of valuable and significant characteristics of all brands in the Gucci Group. 
  • Management team. Here special mention should be made to Dominco De Sole, head of Milan office, and Tom Ford who replaced Dawn Mello as the creative director in 1994. This strong and appreciated team was capable to turn the company from bankruptcy, to start the internal trend towards diversification and create the strategic commonalities among the businesses included in one diversified group. The essence of the value brought by managerial skills of top-managers is the ability to apply operational control in corporation and to build linkages between business strategy and financial capabilities. Nevertheless, Polet adapted the company to changing market opportunities re-shaping the Gucci Group, so that the Group’s longevity is based on capabilities of core management.
  • Manufacturing and logistics capabilities. Gucci Group’s outstanding and innovative manufacturing and logistics network served the company for many years being its benefit in the world of competition primarily for its relativity and quality. Several programs with suppliers, as well as technical and financial support led to the increase of bargaining power with suppliers. Most production is concentrated in the hands of partner suppliers that is quite different to the competitor’s tactics. Integrated design and mostly subcontracted manufacturing for brands in Gucci Group because of manufacturing and operational similarities contributed to economies of scale. With the latest environmental issues and certification of its production Gucci Group is optimizing the usage of its raw materials for shoes, ready-to-wear, silks, leather goods and fine jewellery showing the ability of the group to generate these processes faster through its integrated supply chain and allocate resources and premises to better meet demands of each brand. The Gucci Group Watches manufactures its products in Switzerland and markets Gucci, BEDAT & CO and Boucheron timepieces worldwide. Lastly, YSL Beauté creates, manufactures and distributes fragrances and cosmetics for Yves Saint Laurent, as well as fragrances for Boucheron, Alexander McQueen and Stella McCartney (Goods activity: Gucci Group (2005), http://www.ppr.com/fr/DataUploadFiles/publications/7086/2_1_Luxe.pdf).
  • Parenting value added. This comes from the unique managerial skills and resources that can be possessed by the parent company to the business it’s diversifying in. In Gucci Group they include the brand name which is the fundamental pillar for most shareholders and which is hardly traded and top-managers’ performance; many companies are run now under the license of Gucci. These factors add value and attractiveness for the diversification to happen. We can see that from the beginning mainly parenting value added made the diversification a success representing now the greater benefit with lower internal transaction costs.
  • Exceptional Asian-Pacific distribution network is the single for all brands within the Group, making it comfortable to negotiate with wholesalers, advertizing companies and gain better deals.

Summarizing, strength of corporate government, consolidated financial planning and minimized upstream and downstream coordination costs together with the strong main leading brand (Gucci) made it possible for Gucci Group to compete with such big market player as LVMH and Richemont. With regard to Gucci Group as a whole we can see that together with the key diversification strategy applied in the company for its brands and multi-brand approach that has reached the new level for Gucci Group, the company was also aiming at some other diverse performance goals among all. Global learning, innovation, supply and distribution processes performed the potential for the growth, and combined with the other benefits enabled the company to reach more complex sources of competitive advantage. All this helped to support quite stable performance during the last years after crisis. Seven-year strategy of Polet is bringing fruit as long as sales performance increase since 2007 was 5,8%, yet the growth is sluggish but Gucci Group managed to overcome the financial crisis. This position is proved also by the stock market: year 2010 can be characterized as stable (see Exhibit 1).

After all, Gucci Group has the potential to grow even following the diversification strategy; however consideration should be made about unprofitable brands within the Group and future active expansion to Asian markets, especially Chinese.

Exhibit 1. Source: Bloomberg (3 year period).

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