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CAN APPLYING NEW BUSINESS MODELS FUEL THE GROWTH OF DANISH SMALL AND MEDIUM-‐SIZED COMPANIES IN THE FASHION INDUSTRY?

Kathrine Weicker

Student number: 2521568

December 2013

Dissertation submitted in partial fulfillment of the requirement for the degree of

MSc in International Business

London South Bank University, Faculty of Business, Computing and Information

Management

Kathrine Weicker of 147

TABLE OF CONTENTS

EXECUTIVE SUMMARY ......................................................................................................... 5

1. TITLE ................................................................................................................................ 7

2. BACKGROUND .................................................................................................................. 7

2.1 Focus of this report ................................................................................................................................... 10

3. REVIEW OF THE LITERATURE .......................................................................................... 12

3.1 General environment ................................................................................................................................ 13

3.2 Situation analysis; SWOT .......................................................................................................................... 13

3.3 Business model development ................................................................................................................... 15

3.4 Value chain ............................................................................................................................................... 18

3.5 Consultancy work; insider knowledge and understanding of the fashion industry .................................... 20

4. RESEARCH QUESTIONS AND OBJECTIVES ........................................................................ 21

4.1 Main research question ............................................................................................................................ 22

4.2 Partial research questions ......................................................................................................................... 22

4.3 Research objectives .................................................................................................................................. 23

5. RESEARCH PLAN ............................................................................................................. 24

5.1 Methodology ............................................................................................................................................ 24

5.2 Research approach and perspective .......................................................................................................... 25

5.3 Research design ........................................................................................................................................ 27

5.4 Data collection .......................................................................................................................................... 30

5.4.1 Primary research ................................................................................................................................... 31

5.4.2 Secondary research ................................................................................................................................ 34

5.5 Limitations of focus .................................................................................................................................. 35

5.6 Validity, reliability and generalisability ..................................................................................................... 37

6. ETHICAL CONSIDERATIONS ............................................................................................. 38


7. THE FASHION INDUSTRY ................................................................................................ 40

7.1 The European fashion industry ................................................................................................................. 40

7.2 The Danish fashion industry ...................................................................................................................... 41 7.2.1 Industry performance ............................................................................................................................... 41 7.2.2 Industry structure ...................................................................................................................................... 43 7.2.3 Segments in the Danish fashion industry .................................................................................................. 44

8. STRENGTHS AND WEAKNESSES OF THE SMES IN THE DANISH FASHION INDUSTRY ......... 45

8.1 Strengths .................................................................................................................................................. 46 8.1.1 An increase in attention ............................................................................................................................ 46 8.1.2 Outsourcing ............................................................................................................................................... 47 8.1.3 Creativity ................................................................................................................................................... 47 8.1.4 Price ........................................................................................................................................................... 47 8.1.5 Multi-‐channel operations .......................................................................................................................... 47

8.2 Weaknesses .............................................................................................................................................. 48 8.2.1 Funding gap ............................................................................................................................................... 48 8.2.2 Lack of business mind-‐set and company size ............................................................................................ 49 8.2.3 Relationship with manufacturers .............................................................................................................. 49 8.2.4 Vertical integration .................................................................................................................................... 49 8.2.5 Dependence on third party suppliers and manufacturers ........................................................................ 49

8.3 Opportunities ........................................................................................................................................... 50 8.3.1 International expansion ............................................................................................................................ 50 8.3.2 Growing importance of online sales .......................................................................................................... 51 8.3.3 Focus on sustainability .............................................................................................................................. 51

8.4 Threats ..................................................................................................................................................... 52 8.4.1 Excessive exposure to the European consumer ........................................................................................ 52 8.4.2 Fast changing fashion trends and product innovation .............................................................................. 52 8.4.3 Intense competition .................................................................................................................................. 52 8.4.4 International recognition .......................................................................................................................... 53

9. GROWTH AND DEVELOPMENT ....................................................................................... 53

9.1 Growth and development possibilities ...................................................................................................... 53

9.2 Barriers to growth and development ........................................................................................................ 56 9.2.1 Investor relationships ................................................................................................................................ 56 9.2.2 Manufacturer relationships ....................................................................................................................... 57 9.2.3 Retailer relationships ................................................................................................................................ 57 9.2.4 Intermediary relationships ........................................................................................................................ 58

10. THE FASHION INDUSTRY AND BUSINESS MODEL DEVELOPMENT .................................. 60

10.1 What is business model development? ................................................................................................... 60

10.2 The business model in Danish fashion companies ................................................................................... 65

10.3 Innovation in SMEs in the Danish fashion industry .................................................................................. 67


11. PRIMARY RESEARCH OF THE FASHION INDUSTRY VALUE CHAIN ................................... 71

11.1 Corporate Social Responsibility (CSR) ...................................................................................................... 74 11.1.1 Introduction ............................................................................................................................................ 74 11.1.2 The Development of CSR in the Danish fashion industry ........................................................................ 78 11.1.3 CSR today in the Danish fashion industry ................................................................................................ 81

11.2 Production .............................................................................................................................................. 84 11.2.1 Introduction ............................................................................................................................................ 84 11.2.2 The outsourcing of Danish fashion production ....................................................................................... 86 11.2.3 The outsourcing of production today ...................................................................................................... 88 11.2.4 Sourcing of producers ............................................................................................................................. 91 11.2.5 Fashion production in Serbia ................................................................................................................... 93

11.3 Online sales ............................................................................................................................................ 95 11.3.1 Introduction ............................................................................................................................................ 95 11.3.2 The Development of online sales in the Danish fashion industry ........................................................... 97 11.3.3 Online sales today in the Danish fashion industry ................................................................................ 100

12. RECOMMENDATIONS ................................................................................................. 105

12.1 Introduction ......................................................................................................................................... 105

12.2 Customer-‐driven business model development .................................................................................... 108

12.3 Offer-‐driven business model development ........................................................................................... 110

12.4 Resource-‐driven business model development ..................................................................................... 111

12.5 Finance-‐driven business model development ....................................................................................... 114

13. CONCLUSION .............................................................................................................. 115

REFERENCES ..................................................................................................................... 120

APPENDICES .................................................................................................................... 128

Appendix A – List of Conferences, Seminars and Master Classes ................................................................... 128

Appendix B – List of Programmes and Projects ............................................................................................. 130

Appendix C – CSR: Interview/ 14th August 2013/ Pia Odgaard/ Dansk Fashion & Textil ................................ 132

Appendix D – Production: Serbian fashion and textile producers/ Spring 2012 ............................................. 135

Appendix E – Production: SWOT analysis from interviews of twelve fashion producers, Serbia, 2012 ........... 137

Appendix F – Production: Interviews/ Nis in Serbia 2nd – 5th April 2012/ Representatives of the fashion and textile manufacturing industry in Serbia ....................................................................................................... 142

Appendix G – Online Sales: Interview/ 10th September 2013/ Rina Hansen/ Head of Digital at Hummel and strategic advisor for fashion companies ....................................................................................................... 145


Executive Summary The Danish fashion industry is one of the most vibrant and creative business sectors in Denmark today, but the economic crisis of recent years has slowed down consumer spending, and made it more difficult to run a successful fashion company. The Danish SMEs in the fashion industry need to adapt to the new situation following the financial crisis, and as a result must adjust the way that they are doing business as well as evaluate the set-‐up of the industry.

The basis and ideas for this report emerged from my interest in business development in creative industries and more specifically how SMEs in the fashion industry can use new business models as a way to grow and develop their businesses. This interest was raised through my consulting work to Danish fashion companies over a number of years, noticing how the focus and creativity was mainly on the development of new products and marketing initiatives and rarely on the overall development of the business. The creativity and innovative skills in the SMEs was not being put to use in the development of new business models.

This report investigates whether applying new business models can fuel the growth of the Danish SMEs in the Danish fashion industry. More precisely, the purpose is to critically identify the strengths and weaknesses of the SMEs in the Danish fashion industry, describe the current state of the industry and determine if strategically re-‐thinking areas in the industry value chain is the way to future growth and development.

This report takes into use the theories and ideas behind business models development and one theory in particular, Alexander Osterwalder’s Business Model Generation. Compared to other industries, little research has been done on the Danish fashion industry, and the focus has been on the more “sexy” aspects of the business, the branding and marketing, of the company. However, in order to create a fully successful and profitable fashion company, the company also has to look at and master other aspects of the business, and in


particular, at other aspects of the value chain. Therefore, this report evaluates new and competitive business models for the Danish fashion industry, and concentrates on how the business models can be applied to three areas of the value chain: Product Development, with the focus on Corporate Social Responsibility (CSR), Production, with the focus on sourcing, and finally Sales, with the focus primarily on online sales.

Also much of the research done on the fashion industry is done in a case-‐study manner, whereas this research is looking at the industry as a whole from the viewpoint of the common situation for SMEs in the industry and not by looking at a few individual fashion companies. The report is from an industry perspective and the research sample consists of the SMEs in the Danish fashion industry, and the logic behind such a selection is that the Danish fashion industry is made up of mainly SMEs, where the challenges and needs are more or less the same across the industry. The industry and business experts that were interviewed were chosen because of their knowledge and expertise and to give the report viewpoints and recommendations from many different angles and perspectives. An action research methodology is applied to this research because it is particularly appropriate for systematically improving organizations in an industry, bringing about practical transformation and advancing knowledge.

Finally, several business models focusing on the customer, the offer, resources and finance business model development were recommended, and the findings lead to the conclusion that by applying new business models, new opportunities for growth and development can be found, and companies can gain a competitive advantage over their competitors.


1. Title

CAN APPLYING NEW BUSINESS MODELS FUEL THE GROWTH OF DANISH SMALL AND MEDIUM-‐SIZED COMPANIES IN THE FASHION INDUSTRY?

“How can Danish Small and Medium-‐sized enterprises in the fashion industry

use new business models as a strategy to grow and develop their businesses?”

I will answer this question in the framework of aspects of the value chain, and I

will focus on three areas: product development, production and sales.

2. Background

In recent years, creative businesses have been growing and they are now

responsible for a higher percentage of the global economy than previously.

Denmark has an excellent starting point from which to generate growth in the

area of creative businesses, but there are also a number of challenges that must

be addressed. The competition is fierce and in order to compete in international

markets, a greater number of creative enterprises must enter a sound growth

process, exploit their potential and increase their size.

Around 85,000 people are employed in the creative industry in Denmark, and

creative businesses account for 6% of the total number of enterprises.

Moreover, they are responsible for just over 7% of Denmark’s total exports and

create value worth DKK 49.1 billion, equivalent to EUR 6.5 billion, annually. The

fashion industry has the highest turnover of any of Denmark’s creative business


areas and increased its turnover from DKK 35 billion to DKK 45 billion from 2001

to 2009 (Regeringen, 2013).

Figure 2.1 Size of Creative Enterprises in Denmark

The creative industries and therefore also the fashion industry has received

much political attention, and just recently, in February 2013, the Danish

Government released a growth plan for creative businesses and design. In the

press release The Minister for Business and Growth Annette Vilhelmsen stated

that “The creative industry has a huge growth potential, but many of the smaller

companies have challenges when it comes to business development…”

(Regeringen, 2013).

The growth plan states that Denmark should be an international growth centre

for creative business, among these the fashion industry, and for that to happen

there is a need to enhance the business competencies of the Small and

Medium-‐sized Enterprises (SMEs).

Creative Business

is 6%

Other Business

es 94%

Creative Enterprises Denmark

Creative Industry, € 6,50

€ 86,36

Export Value Billion Euro


The economic crisis of recent years has slowed down consumer spending, and

made it more difficult to run a successful fashion company. The Danish SMEs in

the fashion industry have to adapt to the new situation following the financial

crisis, and as a result have to adjust the way that they are doing business as well

as evaluate the set-‐up of the industry. It is also important to keep in mind that

the fashion industry is in a constant change. Trends and what is hot and not are

dynamic, and therefore the business models in the industry also have to develop

and adapt.

The focus in this report is on SMEs since the Danish fashion industry is made up

of many SMEs and a few selected large companies. Moreover, small companies

fuel much of the economic growth and they can make a significant contribution

to the economy by simply hiring one or two employees.

Finally, I have been a management consultant for creative businesses, and

mainly for fashion companies, for more than 10 years. I am currently working

for Væksthus, the Regional Business Development Center for Greater

Copenhagen, where we provide consulting for start-‐ups and SMEs with solid

foundations, established potential and clear ambitions to grow. The target

group for Væksthuset Greater Copenhagen is start-‐ups and SMEs, who wish to

enter new markets, develop new products and increase profits.

Through my work at the Væksthus, Greater Copenhagen, www.vhhr.dk I have

been in contact with many hundreds of SMEs in the fashion industry, and have

excellent knowledge of their challenges and growth potential. I help companies

with their business development, prioritising initiatives and organising and

structuring their business, and I have great admiration and a sound


understanding of owners of fashion companies and the industry that they work

in.

2.1 Focus of this report

Many fashion companies focus heavily on the branding and marketing aspects

of the business. I am of course fully aware of the need for all fashion companies

to create their own unique universe and special DNA of the fashion brand to try

to differentiate the brand from their competitors, and I daily help fashion

companies with their value proposition and mission statements. However, I aim

to show through this report that, while branding and the use of the marketing

toolbox are important, they are not the only ways for a fashion company to

excel and be unique. By applying new business models, new opportunities for

growth can be found, and companies can gain a competitive advantage over

their competitors.

Compared to other industries, little research has been done on the Danish

fashion industry, and here the focus is again on the more “sexy” aspects of the

business, the branding and marketing, of the company. However, in order to

create a fully successful and profitable fashion company, you also have to look

at and master other aspects of the business, and in particular, at other aspects

of the value chain. Therefore, this report will evaluate new and competitive

business models for the Danish fashion industry, and concentrate on how the

business models can be applied to three areas of the value chain: Product

Development, with the focus on Corporate Social Responsibility (CSR),

Production, with the focus on sourcing, and finally Sales, with the focus on

online sales.


The framework on which this report is built follows the structure of a strategy

process for the Danish fashion industry. See figure 2.2 for a conceptual

framework of the report.

Figure 2.2 Conceptual framework of report is built on the structure of a strategy process,

with the focus on three areas of the value chain

• Chapter 7/ The Fashion Industry External analysis

• Chapter 8/ Strengths and Weaknesses of SMEs in the Danish Fashion Industry Situational Analysis

• Chapter 9/ Growth and Development Goals and Objectives

• Chapter 10/ The Fashion Industry and Business Model Development Strategy Formulation

• Chapter 11/ Primary Research of the Fashion Industry Value Chain

Strategic Choices and Competitive Advantage

• Chapter 12/ Recomendations Implementation

Focus of Report on three areas of Value Chain

Product Development, with the focus on Corporate Social Responsibility (CSR)

Production, with the focus on sourcing

Sales, with the focus on online sales


3. Review of the literature

This report makes use of a variety of theoretical contributions related to the

Danish fashion industry: strategy, business model development and value chain

design. The theoretical foundation of the report is built on academic articles,

newspaper articles, books and reports, and these sources strongly contribute to

finding an answer to the research question and making future

recommendations.

The business model of a company must be managed and developed over time,

since managers and people on the inside and customers and competitors on the

outside continue to evolve. Resources must be acquired, activated, and

organised in a way that improves the cost and quality of a company’s offering in

relation to customer preferences and competitors.

It is essential to understand this strategic process – for an individual company

but also for the Danish fashion industry as a whole, if we want to understand

the factors of success and failure. The framework of the literature review is

presented according to where the sources are most relevant to understanding

the strategy process for the Danish fashion industry. The sources have been

described according to Figure 3.1

Figure 3.1 Sources as applied to the strategy process for Danish fashion industry

3.1 General Environment

3.2 Situation Analysis; SWOT

3.3 Business Model

Development

3.4 Value Chain

3.5 Consultancy Work; Insider Knowledge


3.1 General environment

The creative industries and therefore also the fashion industry has received

much political attention and just recently two significant and powerful strategy

plans for the industry have been launched (Regeringen, 2013) (European

Commission, 2012). The relevance and importance of the industry to the

economy was highlighted and as a basis and launch pad for this report it is

important to point out, that at the European level as well as specifically for

Denmark, one of the main points in the plan for achieving growth and

development for the industry is a focus on business model development.

This mentioned political attention and relevance for the economy has made the

literature on the current situation of the industry, and the facing challenges and

needs of creative industries in Denmark, plentiful and up-‐to-‐date. As examples

of reports used in the analysis of the environment are reports by Center for

Cultural and Experience Economy (CKO, 2011) (CKO, 2011/12) (CKO 2012),

together with several reports specifically on the Danish fashion industry from

the trade organizations (Dansk Fashion & Textile, 2013) and also consulting

firms (Deloitte, 2013). The downside to the added attention is that the fashion

industry has been mentioned in numerous articles, books and magazines, but

unfortunately in many cases the focus is not always on the business aspects and

at an academic level, but more on the hype and glamour of the industry, and is

often of a more emotional nature.

3.2 Situation analysis; SWOT

Much of the research done on the Danish fashion industry is case-‐based

focusing on one or more companies in the industry, and the SWOT analysis is


typically on the individual companies. The SWOT analysis is used here to identify

the internal resources and capabilities, together with the downfalls and

vulnerabilities, of the fashion industry as a whole. Instead of using it to compare

the companies of the Danish fashion industry to one another, in order to find

similarities and differences, resulting in formulating the future strategy of the

individual companies, the analysis in this report will provide a broad

characteristic of the companies in the industry as a whole.

The SWOT analysis, meaning the analysis of „key‟ or „critical‟ success factors,

belongs to the highest ranked set of techniques of strategic analysis used by

companies in empirical surveys (Glaister and Falshaw, 1999). Generally a SWOT

analysis is a list of statements or factors with descriptions of the present and

future trend of both the internal and external environment; the expressions of

individual factors are general and brief which describes subjective views, and

the analysis can determine a perfect foundation for successful strategy

formulation. The SWOT is pervasive, in large part, due to its simplicity, and for

this report it is a particularly good choice of methodology since the use has

proven developmental, and it is a results-‐oriented strategic planning tool, which

is well in line with the philosophy and thought behind this report.

However, the SWOT analysis has weakness in the measurement and evaluation

steps, as planning processes are often complicated and difficult by numerous

criteria and interdependencies. It may be that utilization of SWOT is insufficient

to assess the appropriateness of decision alternatives based on these factors.

Therefore, the SWOT analysis alone cannot comprehensively assess the strategic

decision-‐making process.


3.3 Business model development

The business model concept can contribute to the analysis of the business logic

of a company, and a business model outlines the essential details of a

company’s value proposition to its stakeholders. The business model clarifies

the system the company uses to create and deliver this value to them. Even

though a certain amount of effort has been devoted to the subject of business

models over the past twenty years, there is often a lack of a more precise and

shared understanding of what a business model is. One explanation why the

theory on business models is rather clouded is that a business model consists of

many different elements and can take many shapes and sizes. Within business

research, the concept is used sparsely, even if strategy research covers many if

not all of the theoretical components that are included in the business model

concept (Hedman and Kalling, 2003). In this report I examine many different

approaches to defining a business model in search of a common ground within

the subject (Chatterjee, 2013) (Lindgren, 2012) (Chesbrough, 2006) (Zott, 2005),

and in order to close in further on a commonly accepted definition, I have

reviewed the findings of a large study of many different business model types

(Osterwalder et al, 2005).

The business model literature provides the reader with the corner stones and

cement of which a business is constructed, and though business model

literature has its merits, little has been written on how to practically apply the

literature available. It also lacks the focus on the business model further

evolution and innovations. This report will attempt to provide a practical case in

point of how to put business model theory to use to illustrate potential future

trends and business model innovations in the fashion industry.


This report takes into use the theories and ideas behind business models

development and one theory in particular, Alexander Osterwalder’s Business

Model Generation (Osterwalder, 2010). Osterwalder focuses on the subject of

value creation, that is, it depicts the ways in which a company’s business model

creates value in its particular business, a subject that was neglected by previous

business model studies. This particular model was chosen because of its focus

on visual business design and expression together with practical approach, as I

have learned that creative people are visual people. People with different

cognitive approaches, belief systems and values, want concise, practical and

implementable solutions and recommendations. By using conceptualization to

capture business models, they can process graphical information through the

visual system, and this can substantially increases the degree to which

complexity can be handled successfully (Osterwalder et al, 2005).

Business model innovation has been considered a key determinant in business

growth in the fashion industry (Regeringen, 2013), and by understanding the

business model concept, assessing lessons from previous ventures, and taking

an in-‐depth look at the selected industry, one can make judgments about the

future trends and potential business model innovations. Therefore by focusing

on one particular industry, here the Danish fashion industry, more resources can

be devoted to exploring the industry specific business models and, as a result,

lead to more accurate analyses and more relevant findings and

recommendations.

One of the shortcomings in business model literature is that the different

authors rarely build on each other. Consequently, business model research as a

whole advances more slowly than it could and often stays at a superficial level.

Moreover, there is a valid scepticism as to what extent a company’s success can


be predetermined or even explained using the business model theory. Certainly,

business models are frameworks, and as such a simplified abstraction of reality.

That is, far from all factors that determine a company’s success or failure can be

depicted by means of business model studies (Berzina and Bommel, 2009).

Michael Porter has discussed the implications of business model theory, and

criticized both its functionality as its originality. Responding to the business

model literature, Porter finds it unclear, superficial and not theoretically

grounded, and has stated that having a business model is an exceedingly low bar

to set for building a company, and “a far cry” from creating economic value. His

conception of a business model, as found in the literature, is “a loose concept of

how a company does business and generates value”. According to Porter (2001),

a business model can be defined as an abstract representation of some aspects

of a company’s strategy.

Taking Porter’s criticism into account that there are limitations to insight when

solely analysing a company’s business model, this report takes the view that the

business model can provide a source of business success factors when additional

aspects, such as the business environment and the industry are considered. By

clarifying an industry’s business model and comparing it with other business

models across industries, the possibility to restructure business processes, or

identify business possibilities that had previously gone unnoticed, is created.

Finally, it is also important to point out that the focus of much of the research

done is on larger companies, multinational corporations, and one of the aims of

this report is to downsize the focus so that it fits the world of SMEs. The

research in other reports often takes theories from industries such as the airline

or automobile industry, and forces these methodologies to conform to the


Danish fashion industry. Although the research done is both interesting and

thought provoking, I want with this report to have a more practical focus, a

more hands-‐on approach, and provide the companies in the industry with a

sense of common ground, which is easy to relate to their everyday work. This

practical hands-‐on focus comes with insider knowledge and understanding.

3.4 Value chain

In linking other strategic tools and methodologies to the internal and external

analysis, an attempt is made to overcome the drawbacks and limitations of the

SWOT analysis, and in this report Michael Porter’s value chain is used to analyse

and assess whether the Danish fashion industry’s resources and capabilities are

utilised in the best possible way, taking the analysis to the next step of the

strategic management process. Therefore, in order to propose

recommendations for the future strategy for the SMEs in the industry, the value

chain analysis will provide the broad characteristic elements of the companies in

the industry, and therefore fits very well with the scope of this report,

establishing the uniqueness and the competitive advantage of the industry.

The value chain is divided into two types of activities; primary activities and

support activities. Primary activities are involved in the physical creation of the

products, sales, logistics as well as post-‐sale assistance. The value chain, which

focuses on the activities and functions of the company, highlights the underlying

factors that drive cost and differentiation advantages. Thorough control and

grouping of activities enable firms to utilise cost and differentiation potentials

through the reaping of scale advantages or the creation of innovative forums

(Porter, 2001). Previous research concludes that for the Danish fashion industry


operations, outbound logistics and marketing and sales are the most important

activities. Service is less important, because product and inbound logistics are

primarily a matter for the manufacturers (Kure, 2011). And although this was

true and to some extent still is the case, this report takes a revised look at the

supply chain and brings the value adding activities up-‐to-‐date.

The value chain is highly applicable to all manufacturing companies, such as the

Danish fashion companies. Since the entire manufacturing process is generally

outsourced, together with the fact that in most cases the whole production and

further distribution is inflexible due to the fact that the collections are made to

order, the operations activity provides an enormous challenge. Despite the fact

that this activity is of utmost importance, some research does not actually

consider it a part of the Danish fashion companies, since the production is

outsourced (Kure, 2011). I do not share this point of view, and the many years I

have spent consulting to the fashion industry have only confirmed that it is

indeed an integral part of the industry, an area where the company can gain a

significant competitive advantage. Indeed, one of the reasons why production

was chosen as one of the main focus points with regards to the value chain

perspective, is that I want to shed some light on production as a potential

strength. A further related reason is that SMEs tend to focus mainly on the

design aspect of the continuous product launches, and little thought is given to

the actually manufacturing, especially in the beginning of the life cycle of a

company

The theories on business model innovation and also value chain strategies

specific for the creative industries and the fashion industry is examined, and

since much of the research done on the Danish fashion industry is on the

marketing and branding perspective, this report focuses on other parts of the


industry’s value chain, and uses research projects and programmes like

(Negarandeh, 2008) (Tran, 2010) (Hvass, 2012) as a point of departure.

Given the challenges and complexities in the fashion industry, a theoretical

perspective has been adopted to suggest improvements, and consideration is

given to the appropriateness of current strategies to cope with growth and

development and business models (Jensen and Poulsen, 2012).

3.5 Consultancy work; insider knowledge and understanding of the

fashion industry

I have a thorough understanding of the mechanisms driving the industry, and

have over the years gained a valuable foundation for writing this report.

Presentations and discussions from seminars, together with conferences,

workshops and master classes that I have attended, arranged by different

organizations, such as Dansk Fashion & Textile and Danish Fashion Institute are

used to support the interviews, along with scientific reports about the Danish

fashion industry and the theories used in the analyses. This data makes the

empirical research more nuanced because my experience provides more details

to the picture, making the findings more reliable. This data also represents

knowledge I have gathered through interaction with the Danish fashion industry

over many years. However, the knowledge is considered as supporting

documentation of my findings, since it is not the main source for arguments of

the report, but rather arguments that confirm what is written.

Examples of relevant seminars, conferences, workshops and master classes that

I have attended are listed in appendix A.


I have also been involved, in project management and steering committees, on

several projects for the fashion industry and a description of some of the

projects are listed in appendix B.

I have also attended a focus group with companies in the creative industries,

focusing on their challenges and needs for further growth and development,

organised by Center for Cultural and Experience Economy (CKO) and Epinion, in

December 2011.

Finally, I am on an industry expert group working with Copenhagen Business

School (CBS) on a project to look at previous initiatives regarding

entrepreneurship, innovation and growth for the Danish fashion industry, and

from the knowledge and experience gained, the group aims to develop new

initiatives that can support the industry in its further development. The involved

professors at CBS are Lise Skov, Associate Professor of Creative Industries, and

Fabian Faurholt Csaba, Department of Intercultural Communication and

Management.

4. Research Questions and Objectives

The Danish fashion industry is under tremendous pressure as international

competition is fierce. Information and communication technologies are making

customers very knowledgeable and savvy, and the world economy is still

struggling to recover after the eruption of the financial crisis in 2008.

As a way of responding to emerging and changing customer needs and pressing

environmental concerns, business model innovation and development can


systematically invent, design and implement powerful new game-‐changing

methods, new competitive business models.

4.1 Main research question

The main research question is therefore:

How can Danish Small and Medium-‐sized enterprises in the fashion industry use

new business models as a strategy to grow and develop their businesses?

4.2 Partial research questions

Answering the main question involves answering these partial research

questions:

1. What is the current state of the Danish fashion industry in terms of growth

and development?

2. What are the strengths and weaknesses of the SMEs in the Danish fashion

industry (that influence the ability of the industry to grow and develop)?

3. What is business model development?

4. What factors in the value chain can assist Danish SMEs in the fashion industry

in their quest for growth and development?

5. What recommendations can be made to Danish fashion SMEs regarding new

methods and ideas to run their businesses successfully and profitably?


4.3 Research objectives

This again involves these specific research objectives:

1. To consider the factors that influence the growth and development situation

in the Danish fashion industry

This involves the objective of growth and development for the SMEs in the

Danish fashion industry by looking at the current situation and status of the

industry.

2. To critically identify the strengths and weaknesses of the SMEs in the Danish

fashion industry

This is done in the form of a strategic analysis, defining the factors that will have

an impact on the objective of the fashion industry.

3. To selectively appraise the overall aspects of business model development

This involves looking at the nature of business model development and how it is

adapted in the Danish fashion industry today.

4. To determine if strategically re-‐thinking factors like Product Development,

Production and Sales are a way to future growth and development for SMEs in

the Danish fashion industry

This involves looking at business model development and the value chain as it

provides the opportunity to change the way of doing business by re-‐considering

and re-‐establishing the position in the value chain and translating this into

business model development in the Danish fashion industry.


5. To decide on new possible business models for the SMEs in the Danish

fashion industry

Various recommendations are made to future business models for the Danish

fashion industry.

5. Research Plan

The phases of the research plan will be addressed as follows:

-‐ Methodology

-‐ Research approach and perspective

-‐ Research design

-‐ Data collection

-‐ Limitations of focus

In addition, I will discuss how the research plan meets the needs of validity,

reliability and generalizability. Also a sampling strategy is discussed, including

sample numbers, and how the data will be analysed and presented.

5.1 Methodology

The basis and ideas for this report emerged from the interest on business

development in creative industries and more specifically how Danish SMEs in

the fashion industry can use new business models as a strategy to grow and

develop their businesses. This interest was raised by consulting to creative

companies and in particular to Danish fashion companies over a number of

years, noticing how the focus and creativity was mainly on the development of

new products and marketing initiatives and not so much on the overall


development of the business. In a conservative manner, the creativity and

innovative skills in the SMEs was not put to use in the development of new

business models.

The focus of the research and report is, therefore, on the fashion industry and

the opportunities to the industry in terms of business model development. The

report will be based on desk research as well as field research and will

furthermore be influenced by skills obtained not only during my studies but also

understandings and perspectives acquired throughout the more than ten years I

have been a consultant for companies in the fashion industry.

The following is an introduction to the methodological basis of this report, and

will comprise of research approach and perspective, research design, data

collection, limitations and finally validity, reliability and generalizability.

5.2 Research approach and perspective

This section will explain the approach and perspective taken in order to get the

best understanding of the research field in question, and also it gives an

understanding of the thoughts behind it and the development of knowledge

throughout the process.

The interpretivist philosophy believes that people seek understanding of the

world in which they live and work, and that way develop subjective meanings of

their experiences. These meanings are varied and multiple, leading the

researcher to look for the complexity of views rather than narrowing meanings

into a few categories or ideas. The researcher relies on the participants’ views of

the situation being studied, and recognizes that their own backgrounds shape


their interpretation. The bottom line is that the researcher’s intent is to

interpret the meanings others have about the world (Saunders et al, 2009).

Research is rarely conducted in only one manner and a more pragmatic view is

therefore needed. The research approach used in this report is mainly based on

the interpretivist approach since it is believed to be most optimal for the

problem area of research in question. This point of approach has the effect that

the findings in this paper are based on the author’s view of reality, meaning that

if another researcher were to analyse the same field the outcome would be

different. Therefore my interpretation and recommendations are not to be

looked upon as neutral due to the fact that they are influenced by my socially

constructed reality.

It shall at this point be emphasized that the intention of this report is not to

make a scientifically proven, universally usable theory, but rather suggest a

number of new directions and recommendations on the basis of action

research. The approach of theory-‐building rather than theory-‐testing have been

chosen because the field of interest has not before been thoroughly

investigated, and current theory within strategic fashion management literature

could prove insufficient when explaining how Danish SMEs in the fashion

industry can use new business models as a strategy to grow and develop their

businesses.

Much of the research done on the fashion industry is done in a case-‐study

manner, whereas this research is looking at the industry as a whole from the

viewpoint of the common situation for SMEs in the industry and not by looking

at a few individual fashion companies.


An inductive research approach is taken, meaning that empirically based

findings are analysed and from that data analysis, new directions and

recommendations are presented (Saunders et al, 2009). The new directions are

based on the findings from the action research and if a proper research method

has been followed they will be relatively valid. Still, the method requires a

certain degree of interpretation of the findings and though the directions might

be empirically based, the inductive approach will not enable me to prove them.

The deductive process of testing and proving the theory is out of the reach of

this report, but others will be able to test the findings and the suggested

directions (Saunders et al, 2009).

5.3 Research design

The sources for data are multiple, both primary and secondary, such as

interviews, observations, industry documentation and articles. Since this study is

a qualitative one the evidence is found in words (e.g. interview transcripts) or

text and not in numbers or statistics as it would be in a quantitative one. The

report is from an industry perspective and the research sample consists of the

SMEs in the Danish fashion industry, and the logic behind such selection is that

the Danish fashion industry is made up of mainly SMEs and also the challenges

and needs are more or less the same across the industry. The industry and

business experts that were interviewed were chosen because of their

knowledge and expertise and to give the report viewpoints and

recommendations from many different angels and perspectives. The fashion

and textile producers interviewed in Nis, Serbia was chosen because the region

is known for its long and proud manufacturing history, and they have ties to


Denmark in the sense that they have produced fashion to larger Danish fashion

companies.

The action research approach is a useful method to investigate, when business

life and academics are co-‐interested in advancing knowledge about a specific

area or topic. The interest is twofold because traditional research became more

and more irrelevant in the eyes of practitioners of the business world, while an

increased desire arose amongst social scientists to conduct greater social

relevant research (Small, 1995). Small states that action researchers wish to

produce research that can address practical concerns at the same time as

contributing to the development of scientific knowledge. The collaboration

between practitioners and researchers is essential to the outcome of the

analysis in that; “While the action researcher brings to the research process

theoretical knowledge [...], the participant collaborators bring practical

knowledge and experience about the situations that are being studied” (Small,

1995).

So, action research is a participatory approach and indicates the researcher to

take an active part in the research topic and therefore to be involved with

his/her specific case(s), as opposed to observe and analyse a static situation of

previous actions (Sauders et al, 2009).

An action research methodology is applied to this research because it is

particularly appropriate for systematically improving organizations in an

industry, bringing about practical transformation and advancing knowledge. In

this case action research explains that I as a researcher has taken part in the

process and sought to improve and change processes, and not only been an

external observer of situations.


Action research is a future oriented approach that acknowledges the possibility

of data and even research scope to evolve and change over time. The action

undertaken from my perspective is therefore many years of consulting to

fashion companies and diagnosing the specific challenge of lack of new business

models for SMEs. Action is taken in the form of informing decision makers and

small fashion business owners of the necessity of and need for innovative

business development.

Research is about generating knowledge, and action research creates

knowledge based on analysis conducted within specific and often practical

contexts. The purpose of action research is to learn through action that then

leads on to some sort of development. However, the practical and action

aspects of the research method can be perceived as having a lower level of

quality, compared to other research methods. The issues of concern are for

example the partial objectivity, the drawing on own knowledge, the role

blurring, and the fact that there can never be one right way of doing action

research.

It is critical to ensure that the research in this report is sound. The extent to

which it reaches a standard of quality is directly related to the usefulness of the

research findings and recommendations for its intended audience, the Danish

fashion industry. One way the issues of quality can be addressed is in the

knowledge generation efforts and the degree of actionability will depend on my

experience with the process, perspective and credibility.

The research, which is based on theoretical inference as well as practical

studies, can be characterized as “explorative”, as the objective of part of the

research is to discover and understand a matter, which is unknown. In this case,


the issue that is being investigated is development of new business models as a

strategy to grow and develop companies in the case of SMEs in the Danish

fashion industry. In order to analyse an industry, it is imperative to have

knowledge about the current situation and status of the industry. Therefore, a

descriptive section covering the industry profile and situation is provided. The

research purpose of this report is both explorative and descriptive (Saunders et

al, 2009).

Finally, to improve, grow and develop SMEs in the Danish fashion industry,

research into business development is needed, and one outcome of this action

research and final report is likely to be relevant and immediately useful in

understanding and developing the Danish fashion industry. Another outcome is

that the research becomes both an input into and a stimulus for consultants, but

also for fashion business owners reflection and reflection is a necessary

component of personal and professional development. Conducting action

research, then, is of course one key way for me to develop myself as a

management consultant.

5.4 Data collection

The following section has the purpose of presenting the reports data collection

during the research process. The data used for this research consist of both

primary and secondary data, and the two approaches supplement each other

well and give a deeper insight to the field of study. Due to the inductive logic

and the aim of giving new directions and recommendations based on the

findings, it was important to have an open mind, which could allow a degree of

original thinking and insight into new angles to the subject. This would enable


me to conduct research without prejudices and to change direction within and

between the interviews and observations.

5.4.1 Primary research

Although the business model literature has sought to explain what constitutes a

good business venture, little has been written on how to practically apply the

literature available, and the available literature also lacks the focus on the

business model as regards to evolution and innovation. For this reason, the aim

of this report is to provide a practical example of how to put business model

theory to use in the Danish fashion industry, and the primary research has a

special focus on exploring the intricacies of taking the often complicated

structure of a fashion business apart and stipulating success factors within a

business model.

The primary data have been collected through interviews with people working

within business development from different perspectives, and also with experts

of the Danish fashion industry. These data will be used in the industry profile as

well as the analysis. The interviews followed the three areas of the value chain:

Product Development, with the focus on Corporate Social Responsibility (CSR),

Production, with the focus on sourcing, and finally Sales, with the focus

primarily on online sales. The focal points are not only selected to give the

research focus and structure, they were also chosen since they represent

important value adding activities, and they are areas that have up until now

mainly been giving the large fashion companies a competitive advantage. The

research done here takes a different view, in that the areas can be, and should

be, exploited by fashion companies of all sizes. The question is just how.


Therefore the interviews were conducted with different participants in order to

get the best possible grasp of the specific knowledge the interviewees have. By

giving insight into what has been the practice of the industry in the past and

what is carried out currently, the interviewees give insight into future ways of

adding value, and new ways of doing business.

Covering the Product development perspective, an interview with CSR Director

Odgaard at Dansk Fashion and Textile was carried out. See appendix C for the

questionnaire. Dansk Fashion and Textile is the trade association for Danish

textile and clothing companies, and represent 340 of the largest and strongest

players in the Danish fashion and textile industries, and Pia Odgaard is a highly

experienced and respected CSR expert and has since 1975 worked in and with

the fashion industry. Another reason why Pia Odgaard was selected is her

thorough and up-‐to-‐date knowledge of international developments in

manufacturing in general.

With regards to the focus area Production five interviews were carried out

already in 2009 using a questionnaire that was e-‐mailed to the chosen

respondents. The questions were closed-‐ended and it was carried out to get an

idea of the relevance, quality and commitment of the participants, and was the

foundation for organizing a specific research trip. Following this, twelve face-‐to-‐

face interviews were conducted during a visit to Nis in Serbia in 2012, and

information on why and how the Danish fashion industry should outsource the

production to Serbia was gained. The respondents are representatives of the

fashion and textile manufacturing industry in Serbia, and possible bias was

eliminated since they are of different sizes; they target different segments of

the fashion market, e.g. women and menswear, and embody different fashion

styles, e.g. European and Balkan styles. See appendix D for a list of the Serbian


producers and appendix E for a SWOT analysis of the garment industry in Serbia.

The interviews were on average lasting for approximately ninety minutes, and

were all carried out using an interpreter. Some of the interviews were audio

recorded and on site observations during site visit were documented by

photographs and diary notes. See appendix F for the questionnaire.

Finally the perspective of Sales was covered with an interview with Rina Hansen,

PhD Fellow at Copenhagen Business School, http://rinahansen.com See

appendix G for the questionnaire. Rina Hansen is an e-‐business expert and has

more than ten years experience in specifically researching and working within

online fashion business. Rina Hansen is currently working at the Danish sports

and fashion brand Hummel as the global Head of Online and Multichannel,

where she is responsible for setting up an online division, creating a global

brand site and launching ecommerce. Rina Hansen does not only understand

the situation in the larger fashion companies when it comes to ecommerce, but

was mainly selected for this report because of her current and all-‐round

understanding of the issues facing the SMEs in the fashion industry.

The interview type was guided and semi structured, as such they followed an

outlined of topics, issues and themes but the responses given by the

participants were open ended, so that despite the pre-‐planned questions as

conversation initiation the conversation can flow into many pertinent directions

(Sauders et al, 2009). The major advantage of such a format was that the

material gathered was systematic but allowed the interview to have a

conversational and informal tone.

As a supplement to the more formal interviews conducted, and a relevant

element of this report, I have been in numerous discussions regarding new


business models and the three focus areas in this report, with many different

people. The participants in these discussions have been owners of fashion

companies, industry experts, PhD students, trade organization representatives,

consultants and business experts. Taking the role of the devil’s advocate I have

been challenging a new line of thinking and points of view, gathering important

and valuable information on the way.

5.4.2 Secondary research

Secondary data was collected from varied sources such as business databases,

and consist of articles, reports and books on the topics of the Danish fashion

industry, business model innovation, SMEs, growth and development etc., and

have been used when making the theoretical foundation as well as the

description of the industry.

The business side of the Danish fashion industry has to a large extent not been

researched and the amount of information available is modest. Therefore the

empirical field has been somewhat of a challenge and in order to get a further

and deeper understanding of the research topic, in the form of interviews and

informal talks and discussions, has been needed. Also the validity of the

research is assessed in reference to the research and not to exclusively to follow

abstract academic criteria. Rather the criteria in qualitative research are

whether the findings are grounded in empirical material (Sauders et al, 2009).

This is done in this report in the form of using a combination of strategic

management research and theories as well as knowledge and understandings

that have been gained during years of work experience in consulting. Therefore

findings and conclusions from the different sources of data collection will be


compared, and the process is that when combined, recommendations of new

business models will be presented.

Therefore the focus has been to form recommendations and give an

understanding that is more consultant-‐based approach, doing applied research.

This has been done with the purpose of reaching a result that can be not only

useful for SMEs in the fashion industry, but also tangible and be understood by

the industry.

Action research has been used as a way to examine purposes and practices in

the fashion industry. You could argue that one way of conducting action

research in this research process has been to engage in participant observation,

which may be seen as a systematic attempt to discover the knowledge of a

group of fashion company owners and has been used to organize the fashion

industry’s challenges and needs. By immersing myself in the subject being

studied, over a long period of time, I presume to have gained understanding,

perhaps more deeply than could be obtained by using for example only

questionnaire items.

5.5 Limitations of focus

Due to the fact that the Danish fashion industry mainly consists of small and

medium sized companies, the report focuses on this segment, and therefore the

report will not elaborate on business development of fashion companies in

general, that is, in large and small companies. The recommendations are

therefore not applicable to the entire fashion industry.

The Danish apparel and textile industry includes many forms of manufacturers,


which include everything from work and industrial apparel to home textiles. The

scope of this project is to look at how new business models can fuel growth in

the Danish fashion industry, and come up with some recommendations, and the

focus of this report will be on the Danish fashion industry, referring to

companies, which design, manage production, market and sell clothing products

(Tran, 2008).

I have chosen to narrow down the scope and limit this report to only one part of

the creative industry; the fashion industry, and although the fashion industry is

embraced all over the world, the main interest in this report is in the national

market and not the international fashion market. This is done to provide a more

narrow investigation into the practices and developments and therefore, does

not consider a global perspective, with the exception of sources of production.

This report has taken use of the theories and ideas behind business models

development and in particular, Alexander Osterwalder’s Business Model

Generation. This particular model was chosen because of its focus on visual

business design and expression together with practical approach, since creative

people are usually visual people with a visual viewpoint, wanting concise,

practical and implementable solutions and recommendations. The new business

models have been considered from the aspect of Michael Porter’s value chain,

but only parts of the value chain have been covered, meaning that areas like

procurement and distribution are not taken into account when

recommendations are made.


5.6 Validity, reliability and generalisability

As the research is undertaken with an interpretivist philosophy of science, using

strategic management research methods and building on qualitative data, the

reliability, defined as the extent to which an experiment, test or measuring

procedure yields the same results on repeated trials, of the data in a statistical

sense is estimated to be low. It is unlikely that other researchers would come to

the same conclusions as I even if they could gain access to the exact same

material as I have used. This is again attributed to the interpretivist philosophy

of science, which predicates that interpretations are highly subjective in nature

(Saunders et al, 2009).

Since action research does not aim to increase knowledge, issues of research

reliability and validity can generally be downplayed in action research while

practicality and immediate usefulness become more important. Action

researchers are not required to validate research designs, rely on statistics, or

use concepts like triangulation and replicability. While these points are to some

extent true, conducting useful action research still requires serious devotion of

time and effort, and a lot of thoughtful consideration.

As such, reliability and generalisability are not really issues in action research.

Action research aims to generate findings that are useful within a specific

context rather than findings applicable across many different situations.

Similarly, the basis for judging validity in action research is different from that

used in research in general. In general research, validity is measured by the

extent to which the research actually investigates what it is supposed to

investigate, and because of this, research design and data analysis procedures

are important. On the other hand and in this case, the validity with action


research can be measured by the extent to which the research produces

findings, which are useful in developing the Danish fashion industry and the

consultant/ company relations. This shift in perceptions concerning the nature

and purposes of research means that action research, which may not be

publishable when judged by the criteria of research in general, is publishable as

action research (Saunders et al, 2009).

Since research on the different industries comprising the creative industry have

shown that the challenges and needs of the industry are more or less the same

across the line, one could argue that in some ways some generalisability can be

claimed for the findings of the action research in this report (CKO, 2011) (CKO,

2011/12).

Even though business model literature has its merits, little has been written on

how to practically apply the literature available. Therefore the aim of this report

is to give practical example of how to put business model theory to use in the

Danish fashion industry. Having gained valuable knowledge and a good

understanding of the past and looking for future insights, the SMEs in the

fashion industry were chosen to illustrate potential future trends and business

model innovations. Despite the fact that the focus is on the companies in the

fashion industry, the basic principles and lessons could also apply to other

creative industries.

6. Ethical Considerations

One of the disadvantages of significant pre-‐gained knowledge of SMEs and the

Danish fashion industry is that it can be a prevention from exploring issues that

would enrich the research, since assumptions and preconceptions can be carried


around. Familiarity is also a problem in the sense that simple and basic aspects

can be taken for granted and issues can be missed since the basic questions will

not be asked. All in all an awareness of the threats to the quality of data by

being too close to the research setting has to be taken into account (Saunders et

al, 2009).

For action research in this report the participants are professional managers and

staff in companies and other organisations, with interactions taking place within

the context of their business and industry. Therefore, the focus for research

interaction is the normal working environment and context. It is important that

the collaborating organisation and participants are made aware of the research

goals and activities, and how these might impact on the engagement. For

example, the issue of confidentiality should normally need to be addressed, and

how it impacts on the research outputs and recommendations should be

considered. Furthermore the research method used has ensured that the

participants could withdraw from the answering process at any time. As an

experienced consultant who has not only performed countless interviews and

assessments of needs, and has always worked within the guidelines of strict

privacy and confidentiality, I have made sure that the participants have not felt

rushed or stressed when answering the questions, and they have all been

treated with the utmost respect, gratitude and sensitivity.

It is also important to be addressing the potential conflicts of interest, and the

role switching and contamination from going from a role as a management

consultant to a researcher (Morton, 1999).

Also the relationship between the researcher and the collaborating

organisations and participants can give rise to ethical dilemmas relating to


participant selection since the researcher might focus the research on an

already established network, and as a result limiting the possible angles and

recommendation. There could also be conflicting and different needs between

the researcher and the participant, and this could be leading to a situation

where the working relationship could be harmed.

7. The Fashion Industry

7.1 The European fashion industry

The European fashion industry is a significant part of the economy. It forms

complex and strongly interlinked value chains, from design and manufacturing

to distribution and retail. The fashion industry creates a variety of clothes and

accessories, but it also creates jobs, supporting almost 850.000 companies, the

vast majority of which are SMEs, and 5 million jobs, not to mention another 3

million jobs in the supply chain. In 2011, the overall size of the textile and

clothing industry in the EU represented a turnover of EUR 179 billion and

investments of around EUR 5 billion. The industry is an important part of the

European manufacturing industry. It plays a crucial role on the economy and

social well being in numerous regions of the EU, and accounts for 3% of total

manufacturing value added in Europe. EU external trade was more dynamic

than the previous year with EUR 39 billion of textile and clothing products

exported and EUR 93 billion imported from Third markets (Commission staff

working document, 2012) (EURATEX, 2011).

In the current globalised world, it is becoming a challenge, if not impossible, for

Europe to compete with the emerging economies on price alone. An

increasingly knowledge-‐ and innovation-‐based industry, based on higher value


added products, processes and services, can however ensure that Europe’s

position, as global leader, remains intact. A number of actors in the EU fashion

industries are already on the right road, finding niches in mature markets,

developing new brands and business models, investing in creativity and

innovation, all of which makes the difference to increasingly demanding

consumers worldwide. However this transformation is not complete and new

market opportunities for the fashion industries need to be explored

(Commission staff working document, 2012).

7.2 The Danish fashion industry

The Danish fashion industry is one of the most vibrant and creative business

sectors in Denmark today. The industry has evolved since the 1950s: cycling

from strong production in the 1950s, creative design emergence during the 60s,

to commercial orientation during the 80s and 90s, and finally the re-‐emergence

of creative designers during the 2000s. The Danish fashion industry is much

more than designer fashion, encompassing, as it does, a complex web of

materials, textile production, clothing design, manufacturing, wholesaling,

marketing and retailing of a broad set of fashion products. The Danish fashion

industry that is the focus of this report refers to companies, which design,

manage production, market, and sell clothing products (Tran, 2008).

7.2.1 Industry performance For the Danish fashion industry, 2012 was characterized by continued restraint

in domestic consumption and large fluctuations in exports. The industry had a

turnover of DKK 38.6 billion, of which exports amounted to DKK 22.7 billion. In

2012 industry revenue fell by a modest 3.7%, which reflects a decrease in both


exports and sales in Denmark. This decrease should be seen in light of the surge

in exports the previous year, where the fashion industry saw a record turnover.

The industry employs across a wide spectrum of roles, and counts today 9,600

people, and if one compares this to pre-‐crisis levels, there has been an increase

in turnover of DKK 2.5 billion, while employment has fallen by approximately

1,800 persons. The fashion industry has therefore made great efforts to reduce

costs and adapt to a new economic world order (Dansk Fashion & Textile, 2013).

The neighbouring export markets continue to push sales of Danish fashion in a

positive direction. The Scandinavian countries especially continue to purchase

Danish fashion in an increasing manner, and exports to Sweden and Norway

rose by 8.7% and 7.3% respectively, which contributes to keeping up the

industry's total sales. Exports to Germany remained, on the other hand, at the

same level as in 2011, while sales for Southern Europe, France and the Benelux

countries saw export figures move in a negative direction. Not surprisingly, the

most serious problem was seen in Spain and Italy, where exports have fallen by

as much as 30%. Despite the difficult economic circumstances, a large number

of the companies in the industry are performing well. Firstly, the industry is

good at exporting and finding new customers and secondly, the companies have

been good at adjusting costs. At the same time, there is generally a strong focus

on Danish fashion from abroad, which further benefits the industry (Deloitte,

2013) (Dansk Fashion & Textile, 2013).

Even in the midst of a global financial crisis, there is an overall confidence in

future success and growth in the business, and generally, there is room for

optimism in the Danish fashion industry. The industry is experiencing an


increasing number of high growth companies, and within the industry, the most

profitable quarter of companies are doing very well, with large growth rates in

revenue and an impressive profit. Last but not least, the Danish consumers have

more money to spend, and, if the world economy permits, domestic

consumption and thus revenue will slowly turn around in 2013. However, the

overall profitability of the industry remains low. With a limited economic growth

rate in the domestic and neighbouring markets, a number of the industry's

companies face an uncertain future in fashion. This is especially true for the

smaller companies, if the economy does not follow the projected positive signs

(Bang, 2013) (Dansk Fashion & Textile, 2013).

7.2.2 Industry structure The dynamics of the fashion industry are of an international nature as the

outsourcing strategy has meant that the production process is no longer

restricted to Denmark but rather involves a range of countries. A new industrial

structure has evolved and a strong interrelatedness has been developed. The

motivation behind outsourcing has mainly been a minimization of production

costs and this has affected the competitive conditions of the industry.

Consequently many companies have expanded their horizons and have begun

seeking new markets. The outsourcing strategy of the fashion industry has

refined the roles of the actors in the value chain. The activities and functions of

the industry have been redistributed in response to the changes in the

competitive conditions for the industry (Maskell, 2005) (Nordisk Ministerråd,

2012).


The Danish fashion industry consists of approximately 650 fashion companies,

and is a fragmented industry dominated by small and medium sized companies,

about 90% of the Danish fashion companies have less than 50 employees. The

Danish fashion industry is characterised by a proliferation of SMEs that are very

fragile in their early stage, and figures shown that only half of the companies

survive after 4 years and after 5 years it drops to a mere 20% survival rate (Tran,

2008) (Dansk Fashion & Textile, 2013).

7.2.3 Segments in the Danish fashion industry When characterising the Danish fashion industry, it is important to make the

distinction between the brands that strive to define tomorrow’s design, the

companies that are innovation-‐driven, and those that build their businesses

upon established trends, the companies that are trend-‐driven. The trend-‐driven

companies first and foremost are tradesmen and the foundation of the

companies is on sound business principles. Trend forecasting and finding

inspirations in international design are important tools in defining their looks

and designs, and the innovation on the business side is done in the use of PR

and marketing techniques, supply chain management and so forth. Copenhagen

is the fashion capital of the innovation-‐driven fashion companies. These brands

are located in creative environments, always striving to develop their image and

their brand value amongst trend-‐spotters and the right endorsers. The

innovation-‐driven companies first and foremost consider themselves to be

designers with a focus on producing innovative interpretations of times and

trends with a strong individual profile and style. These trends underpin the

wider fashion industry, as well as adding value to many lifestyle and consumer


products that increasingly look to the innovation-‐driven companies for

inspiration and content.

Segments

There is no doubt that the trend-‐driven companies, with their business flair and

flexibility in management practice, by far make the best results in growth and

turnover and thereby represent the work and strategies behind the successful

export figures. Still, it is argued that impressive export figures of Danish fashion

would not be possible for the major players if it were not for the smaller

innovation-‐driven businesses. The innovative designer pool is to a great extent

the faces and names causing the great national and international hype and

visibility of Danish fashion through fashion shows, events and editorials. In

addition, the trend-‐driven businesses get their inspiration from trends brought

forward by the innovation-‐driven companies, Danish as well as international,

and often also profit from the design staff hatched and shaped in the creative

segment (Barbry, 2009).

8. Strengths and Weaknesses of the SMEs in the Danish Fashion

Industry

Whilst the interview process and networking activities are useful in highlighting

some of the less quantifiable benefits of the Danish fashion industry, it is also a

possibility to question stakeholders about the future outlook for the industry.

The preceding analysis is focusing on the current state of the Danish fashion

industry, and is drawn upon stakeholder response, and past studies together

with other salient points gleaned from daily contact and networking with the

industry.


SWOT analysis provides a simple but robust framework to assess current

industry trends and gain insight into key future risks that are likely to shape

market outcomes. Strengths and weaknesses refer to internal factors, which are

likely to affect the Danish fashion industry’s response to external threats and

opportunities.

Figure 8.1 SWOT MODEL

8.1 Strengths

8.1.1 An increase in attention There is a sense of quiet optimism in the Danish fashion industry, as the

companies are getting used to and adapting to the new situation in the


aftermath of the financial crisis. Positive development has placed the industry

on the international fashion scene, and especially the export possibilities have

meant that the industry has also been gaining political attention.

8.1.2 Outsourcing The industry has been very successful in outsourcing great parts of the

production, and is geared towards further outsourcing. This has meant an added

focus and strengthening on the design area.

8.1.3 Creativity A strength of the Danish fashion industry is the creativity of fashion designers,

with many products characterised by an edgy individual style, known for its

functionality and easy to wear for everyday life, which helps to differentiate

Danish design internationally.

8.1.4 Price Consumer spending has been depressed due to the economic downturn and

there has been an increase in the price sensitive customer base. Danish fashion

is known for its high qualitative and design content that can be purchased at a

reasonable price, and with presence in the value segment facilitate an increase

in the potential customer base.

8.1.5 Multi-‐channel operations The Danish fashion companies sell their merchandise through retail stores and

different digital channels. Through the e-‐commerce operations, the industry has

been able to increase its scope immensely and reach out to customers

worldwide. The digital strategy gives the industry the opportunities to maintain

a high level of interaction with customers and will enable the companies to drive

revenue growth as these channels are gaining in popularity. The e-‐commerce


market is growing at a fast pace and the trend is expected to continue, and

Internet retail has several counter recessionary characteristics like low

operational costs which can be passed on to the customers. Additionally,

customers might prefer online shopping, as it is convenient and easy. Focus on

the multiple channels coupled with positive trends in the digital markets will

drive top-‐line growth. As stated by Rina Hansen, “fashion companies need to

make sure to have the proper exposure both geographically, in the number of

eyeballs but also multi-‐channel wise so as many channels as possible are used.

Multi-‐channel customers buy for up to six times as much as customers who only

shop in one channel” (Interview, Hansen, 2013).

8.2 Weaknesses

8.2.1 Funding gap Cash flow is a major problem for the SMEs in the fashion industry and they are

facing barriers in obtaining funding. The funding gap for the SMEs stems initially

from their high level of intangible assets, since the value of a fashion company’s

products is concentrated in the design and brand, and in the “head” of the

designer. Protection of design is difficult, if not impossible and consequently,

investors face a particularly high level of risk. Furthermore fashion companies

may demonstrate a limited ability to translate innovative designs into

sustainable businesses, and a lack of formal organisational and managerial

competence deters potential investors.


8.2.2 Lack of business mind-‐set and company size Needless to say it is paramount that Danish fashion companies understand and

gain skills on the technical and design aspects of the business, but is also

important that they understand the reality of running a business. Unfortunately

the majority of fashion companies lack a sense of leadership, management and

international competencies. Fashion is also about business and the industry

needs improved fashion business education, and to attract more internationally

minded, credible skilled, experienced and higher educated commercial people.

The industry consists of many small companies that are run without the critical

mass needed to ensure operation, and the way of work is unstructured and

uncontrolled, not focusing on the commercial aspects, of optimizing the entire

value chain, and growing and developing the business.

8.2.3 Relationship with manufacturers The fashion companies generally view the relationship with manufacturing as

problematic and tense. Manufacturers and designers are critical of each other:

there is a mismatch in expectations; lack of understanding of each other’s

business operations, workflow, and financial restrictions.

8.2.4 Vertical integration Very few SMEs in the Danish fashion industry have vertically integrated design,

production, merchandising and retail functions. This means that the companies

find it difficult to quickly respond to changing fashion trends, reduce risk of

excess inventory, and produce distinctive quality products.

8.2.5 Dependence on third party suppliers and manufacturers


The SMEs do not own any manufacturing facilities and depend on contractors

and third parties for procuring their products. Furthermore, the companies do

not in most cases have any long-‐term contracts with any manufacturer or

supplier; it procures products and raw materials through individual purchase

orders. Though this strategy offers flexibility in some ways, it increases

operational risks for the fashion companies. Primarily, this creates two kinds of

challenges for the companies: timely delivery of goods and quality control. Since

there is no long-‐term contract, the suppliers may not prioritize orders in times

of shortage or resource crunch. As a result, the SMEs consignments may get

delayed or cancelled, which will almost certainly result in loss of revenue or

profitability or both. Moreover, the SMEs do not have complete control over the

quality of its products, as the company is dependent on external manufacturers.

Wherever this leads to poor quality products this could result in loss of revenue

and could lead to loss of customer confidence and repeat sales. Therefore, the

industry’s dependence on third party manufacturers and suppliers could impact

its revenue, profitability and customer retention.

8.3 Opportunities

8.3.1 International expansion The Danish fashion industry has a good understanding of the importance of

expanding its presence in the international market. There are plenty of

possibilities in countries far away from Denmark and where the growth in the

markets where the industry is normally exporting is expected to grow with 0,8

per cent towards 2016, then the expectations of growth rates in the BRIC

countries and other upcoming markets are at a level of 5-‐6 per cent. Given much


stronger growth prospects in emerging markets relative to more developed

countries, it is likely that sales growth will be increasingly export-‐led. (Deloitte,

2013)

8.3.2 Growing importance of online sales Online retailing has become increasingly important as a source of growth across

most industries, including fashion, and companies in the industry are aiming at

tapping the online channel to expand quickly into several countries across the

world, and since the main markets in the developed economies in Europe, and

also in the US, face low growth in retail markets, the emerging countries with

positive demographics will provide several growth opportunities for Danish

companies. The growth experienced in online channel in several countries will

further catalyze the industry's international expansion plans, and forays into

international markets will enable the industry to diversify the revenue stream

and also reduce excessive dependency on Denmark and Northern Europe.

8.3.3 Focus on sustainability Covering issues such as environmental externalities, ethical standards,

upholding of social norms and compliance with the law, the increased focus on

Corporate Social Responsibility goes hand in hand with Danish mentality, how

the Danes see themselves and how they are perceived from the outside. Such

issues that come under the umbrella term of CSR which, fundamentally,

concerns the extent to which public interest is built into corporate decision-‐

making, and according to Pia Odgaard, “by buying Danish fashion, the customer

should ideally at the same time buy into a set of values in line with good morale

and a democratic way of life” (Interview, Odgaard, 2013).


8.4 Threats

8.4.1 Excessive exposure to the European consumer The SMEs derive a large portion of their revenues from the Danish market

together with selected European countries. The industry’s revenues are highly

correlated to the discretionary spending patterns of the European consumer.

Europe is experiencing high levels of unemployment and low consumer

confidence, which is having a negative impact on the consumer spending and in,

turn the retail environment. Another key disadvantage is that the Danish fashion

industry competes in the market with companies who have global presence and

enjoy the advantages of scale. Although the Danish fashion industry has been

focusing on international expansion, it still suffers competitive disadvantage

compared to peers who have established operations in some of the fast growing

economies.

8.4.2 Fast changing fashion trends and product innovation For the Danish fashion industry it is important for companies to come up with

new designs in line with the changing fashion trends, and the life cycle of a

trend which lasted few years a decade ago, has come down to few months at

present. Product innovation by adding more collections each year is a significant

trend and market opportunity. However, activities for each of the fashion

calendar’s two seasons are already extremely compacted for the SMEs, since

the usually operate with small teams and they do not have the brand presence,

infrastructure or cash flow to expand into more collections on their own.

8.4.3 Intense competition The fashion industry is characterized by a high degree of competition. The


Danish fashion industry competes with numerous designers and manufacturers

in domestic and foreign markets. Many of these competitors are significantly

larger and have substantially greater resources than the Danish fashion

company. In addition, the industry has to keep track of changing consumer

demands in order to be competitive within the market. A failure to change

according to trends could adversely affect retail and consumer acceptance of

the products and cause loss of sales.

8.4.4 International recognition The Danish fashion industry has not gained international recognition, and even

though several brands are established internationally, the foothold is not

considerable on the international fashion arena. A global fashion brand closely

linked with Denmark will create a greater knowledge and clarity regarding brand

identity and positioning of Danish fashion, and this will have a spill-‐over effect of

positive associations to other fashion brands.

9. Growth and Development

9.1 Growth and development possibilities

Deciding to grow a fashion company is the beginning of a complex strategic

planning process. One of the most important decisions is where to look for

growth: in familiar areas that offer quick returns, or in aspects that represent a

departure and may take time to cultivate. When credit tightened and revenue

declined during the recession, companies in the Danish fashion industry worked

to extract value from efficiency and austerity. In many cases, those sources of

value have been wrung dry, and now fashion companies are once again turning


to growth. A new focused view of growth can help fashion companies set better

growth targets, identify new opportunities, balance investments and risk and

carry strategies into action with a clear eye toward expectations.

To be realistic and workable, a growth objective and target should emerge from

the interplay between internal and external factors and expectations.

Externalities may include the fashion industry’s overall momentum, investor

expectations, the state of the economy, the intensity of competition and wild

cards such as regulation, innovation or disruption. From within, a fashion

company should take into account its state of lifecycle maturity, its culture and

talent, the resources available, its risk tolerance and its own innovation

capabilities. These inputs create the context that helps determine whether a

fashion company can produce superior performance to create additional value

by surpassing investors’ growth expectations.

A comprehensive view looks at growth possibilities and options along a

continuum: In building the business of today, fashion companies will typically

turn to key areas of focus such as customer retention, pricing optimization and

improvements to existing offerings. When crafting a growth strategy and

creating new business models, it is useful to understand the different levels and

degrees of development, and figure 9.1 depicts the degree of newness in

the growth options.


Figure 9.1 Primary Growth Levers (Deloitte, 2011)

Moving along the scale toward choices that carry higher uncertainty and lie

farther from existing operations, fashion companies will likely start building the

business of tomorrow by designing new offerings, intruding into new markets

and geographies and creating entirely new business models therefore changing

the basis for competition.

A prerequisite for growth in the Danish fashion industry is a high productivity;

total value of output in a given time frame, strengthening the companies’

competitiveness compared to foreign fashion companies. Growth has especially

been favourable in parts of the fashion and clothing industry, where

productivity also is higher than generally in Danish companies (Regeringen,

2013).


9.2 Barriers to growth and development

The fashion industry is an important driving force in growth, innovation, and job

creation in Denmark. However, much more could be done to develop the

potentials of the fashion companies and, at the same time, enhance their global

position and competitiveness. The Danish fashion industry has evolved to a

stage where focus is upon design and management of the logistics of an

increasingly outsourced production, and this has facilitated a strong export

focus far beyond what should be expected from a fashion field in a relatively

small country. However, this evolution has also raised challenges and the future

value creation of the industry is paramount. The challenge is to build on the

success of the Danish fashion industry so far in order to achieve even more, and

investigating the key business relationships that are critical to the industry’s

success, gives a good understanding of the operations and provide evidence of

the barriers and challenges affecting the industry (Tran, 2008).

9.2.1 Investor relationships The Danish fashion industry comprises many SMEs that generate significant

media attention, but whose growth is impeded by lack of finance. The nature of

fashion design makes it harder to access finance: The assets of fashion

companies are intangible with copyright difficult to protect on new designs;

returns are uncertain; and product innovation does not easily translate into

formal business structures. Also a lack of formal organisational and managerial

competence deters potential investors, and even though cash flow is a major

problem for most fashion companies it can take designers years to recognise

that they need investment if they want their company to grow and develop.

When investments are done in the Danish fashion industry it is made by three


groupings; emotional investors, such as friends and family investors, strategic

investors, such as business angels or venture capitalists, and finally debt finance,

with banks and invoice factoring schemes (Regeringen, 2013).

9.2.2 Manufacturer relationships The Danish fashion industry has moved toward creative activities focusing less

on the production side, and one strategy has been to outsource production of

the work intensive processes in order to keep down production costs. The

relationship between designers and manufacturers is often international, in fact

many Danish fashion companies outsource completely with nothing but design

and a few administrative and managerial tasks remaining in Denmark. It is a

highly global industry, even for SMEs, and most fashion companies manufacture

in more than one country, and some of the fashion companies are even making

clothes in three or more countries. Moreover, these relationships tend to be the

most problematic of all the industry’s business relationships. Outsourcing also

entails less control with the conditions of production. CSR, therefore is a

somewhat new important trend in the Danish fashion industry. Companies

define codes of conduct for their entire production processes and put great

effort into ensuring labour rights at the work places that deliver to their

companies. More and more Danish brands market their designs as fair trade and

eco-‐friendly products (Barbry, 2009).

9.2.3 Retailer relationships The fashion companies covered by this report are predominantly wholesale

businesses that generate revenues largely through domestic and international

sales to key boutiques and stores. The Danish fashion industry was a late


adopter of new technologies including ecommerce, but today another new

route to market is online sales. Online retail is an area of growth, with many

companies leading innovation in this area, establishing and developing a loyal

global market. This should also be seen in the light that there are fewer

independent stockists in Europe so the fashion companies need to access new

emerging markets globally.

The fashion companies’ relationships with retailers are often easier. Stores often

want to be seen discovering and supporting emerging designers: as the brand

grows, these relationships become more professional. But, there are still

challenges and barriers inhibiting growth, like the fact that the companies often

hold back on their early sales expansion, in the hope of being picked up by one

of the top stores, which will enhance their credibility, resulting in lack of critical

mass. Also retailers increasingly want novelty from fashion companies,

expecting up to five collections a year compared with two annually in the past.

Limited finance and production management skills inhibit the SMEs from taking

advantage of this trend. This is not to mention that key buyers may not buy

from an emerging fashion company for fear of non-‐delivery or poor

manufacturing quality. Finally, outsourcing has also made it inexpensive to

produce clothes, for all segments. Therefore, the competition might increasingly

be moved to the retail industry, and more and more companies open own shops

exclusively for their own brands (Maskell, 2005).

9.2.4 Intermediary relationships The growth of the Danish fashion industry has created a clear spill-‐over effect


pushing and pulling growth dynamics in other experience fields including

advertising, styling, modelling, photographing, media and event organizing. The

industry has a dynamic network of intermediaries, people who help to influence

retailers and consumers in favour of particular designers and companies, and

intermediaries such as PR agents, licensing agents, sales agents and distributors

are integral to most fashion companies, particularly in communicating the brand

to final customers and securing access to the retailers. The three important

types of intermediary for fashion company growth are: aesthetic service

providers stylists, models and photographers. Stylists are particularly important

for managing editorial work and exposure, developing portfolios, advertising

and gaining access to retailers, sales agents, providing companies with sales

expertise as well as access to specific regional markets, PR agents and the press,

communicating the company’s brand to the trade and consumer. All these

influencers are important storytellers, playing a key and independent role in

building fashion brands and acting as brokers to help retail relationships (Tran,

2008).

The research and the years of consulting to the industry have shown that

different relationships present particular challenges for the Danish fashion

industry and that these challenges need to be addressed to strengthen the

industry’s growth and development potential. In giving insight into how

relationships within the value chain can be managed and improved, an

enhanced understanding of the industry and its barriers to growth will be the

result. This again will identify opportunities for intervention that could reduce or

eliminate barriers to growth, support the growth of fashion companies, and

contribute to creativity and expansion.


10. The fashion Industry and Business Model Development

10.1 What is business model development?

The popularity of the term "business model" is a relatively young phenomenon,

and rose to prominence only towards the end of the 1990s. Driving factors

include the emerging knowledge economy, the growth of the Internet and e-‐

commerce together with the outsourcing and offshoring of many business

activities. A business model describes how a company creates, delivers and

captures value. More precisely, a business model articulates the content,

structure and governance of the activity system that delivers a value proposition

to the customer and enables economic value creation for all activity system

exchange partners. Therefore whenever a fashion company is established, it

either explicitly, or implicitly, employs a particular business model that describes

the design or architecture of the value creation, delivery, and capture

mechanisms it employs. The essence of a business model is in defining the

manner by which the company delivers value to customers, entices customers

to pay for value, and converts those payments to profit (Teece, 2010)

(Osterwalder, 2010).

Short-‐term competitive advantage is created by exploiting existing business

models. However, in the long term, all markets mature, competition intensifies

and turbulence increases. Consequently, new sources of growth must be

explored, and fresh answers to enduring success must be found. The answer

used to be ‘innovate or die’, but research shows that pouring more money into

pure product innovation does not lead to improved performance. Companies

need to dig deeper. To succeed in innovation and to seize new opportunities,

the scope of innovation must be expanded to encompass the full business


model, and new processes must be mastered. In essences business model

development is about transforming key elements of a company or inventing

completely new ways of doing business (Hejlesen, 2012).

Deciding on what a business model consists of and what elements and

parameters that are being used is difficult as the demands of a business model

vary depending on many factors, such as the market it needs to function in, the

level of competition, the structure of the organization and the funds available.

In general many internal as well as external environmental factors are involved.

A company’s business model can be examined in different ways and many

different tools have been developed to analyse business model concepts. The

business model canvas gives any fashion company a simple, intuitive and visual

tool to describe and think through the different elements of its business models

in order to systematically challenge the way it does business and thereby be

able to create new strategic alternatives. The canvas tool consists of nine basic

building blocks covering four main areas of a business: product, customer

interface, infrastructure management, and financial viability. See Table 10.1


Pillar Business Model Building Block

Description

Product Value Proposition Gives an overall view of a company's bundle of products and services.

Customer Interface Target Customer Describes the segments of customers a company wants to offer value to.

Distribution Channel Describes the various means of the company to get in touch with its customers.

Relationship Explains the kind of links a company establishes between itself and its different customer segments.

Infrastructure Management

Value Configuration Describes the arrangement of activities and resources.

Core Competency Outlines the competencies necessary to execute the company's business model.

Partner Network Portrays the network of cooperative agreements with other companies necessary to efficiently offer and commercialize value.

Financial Aspects Cost Structure Sums up the monetary consequences of the means employed in the business model.

Revenue Model Describes the way a company makes money through a variety of revenue flows.

Table 10.1 Nine Business Model Building Blocks (Osterwalder et al, 2005)

The main role of the business model is to find and design a promising business

concept, and the business model canvas has a great strength as a visual planning

tool since it focuses attention on how all the elements of the system fit into a

working whole. The tool visualizes and allows designing and realizing the

business structure and systems that constitute the operational and physical

form the company will take. The business model as a system shows how the

pieces of a business concept fit together, and companies can look at other

companies’ business models to be inspired to do similar changes to their own

model or to design a completely new business model. Business models often

change gradually and do not necessarily imply fundamental revisiting of value


propositions, but of course the changes could also focus on improving

production processes or reconfiguring organizational structures. Business model

development is basically about improving the building blocks of the business

model (Osterwalder et al, 2005) (Bisgaard et al, 2012).

It is important to understand that a company’s business model is no substitute

for its strategy. The strategy covers overarching aspirations and positioning in

the industry and provides a framework for consistently making money in a

changing business environment. If the business model guides day-‐to-‐day

execution, the strategy should communicate how the change in the business

model is intended to take advantage of shifting markets and new opportunities.

Another difference between the terms is that strategy includes execution and

implementation, while the business model is more about how a business works

as a system (Osterwalder et al, 2005). The business model can be identical for

several fashion companies, but they will need a strategy to differentiate

themselves in terms of customers, markets, products and services as well as

value creation. Therefore you could say that the business model describes the

blueprint of how a company does business, and it is the translation of strategic

issues, such as strategic positioning and strategic goals into a conceptual model

that explicitly states how the business functions. The business model serves as a

building plan that allows designing and realizing the business structure and

systems that constitute the company’s operational and physical form (Magretta,

2002) (Osterwalder et al, 2005).

The business model as a source of value can help explain why some companies

outperform others, and its rationale for value creation and appropriation


differs from that of a company’s product market strategy. The concepts are

complements, however, rather than substitutes, and companies will get

significant effects on company performance when business models interact with

product market strategy (Zott and Amit, 2008). Strategy analysis is therefore an

essential step in designing a competitively sustainable business model. Unless

the business model survives the filters which strategy analysis imposes, it is

unlikely to be viable, as many business model features are easily imitated

(Teece, 2010).

A business model can take many shapes and sizes and can include many

different variables depending on what it is used for. The outlook of the business

model is highly dependent on the environment it is supposed to function in,

therefore making it hard to reach a general consensus about what a business

model should encompass. Different elements are in play such as strategy,

management and planning and organizational structure, but the only element

that there is a general agreement on is that a business model is about value

creation on all levels of the value chain. In many ways it builds upon Porter’s

concepts of the value chain, value systems, and strategic positioning.

A successful business model depends on the situation: where it offers unique

value, is hard to imitate, and is grounded in reality. Examples of the most

successful business models are the ones that create new markets, innovate

activity in existing markets, introduce an entire new layer in the value chain or

focus on few steps of the value chain and outsource others. Openness towards

trends, ideas and technology from the outside also has effects on performance,

just as the willingness to let internal resources engage outside of the company.


Furthermore it is also important to foster a dynamic attitude entailing a

constant experimentation with the company’s business model to ensure that

fundamental improvements are initiated whenever competition comes too

close (Hansen, 2013).

10.2 The business model in Danish fashion companies

The SMEs in the Danish fashion industry more or less follow a business model

that is focused on creativity, design, outsourced manufacturing and sales via

own stores or multi-‐brand retailers, directly or through distributors or agents.

Based on these features, they have been developing a successful branding

strategy focusing on Nordic flair, functionality and the value for money principle.

Based on art, symbolic value, culture and creativity, the business model of

Danish fashion companies is underpinned by somewhat continuous innovation,

a relentless focus on quality, highly skilled employees and strong export abroad,

which convey a certain status to the customers.

The SMEs in the Danish fashion industry are mainly design-‐led companies and

they typically offer two collections a year: spring/ summer and autumn/ winter.

The design process usually takes place a year and a half ahead of the real

season; samples are ready for fashion shows and selling a year ahead of the real

arrival of the products in order for stores to reach their customers. The

companies have a limited variety in terms of styles, for the scarcity and

uniqueness, but have high quality products. The element of design is supported

by an increasingly strong marketing orientation, and products and brand are the

key assets. The design identity and quality of products are the core

competencies for competitive advantage and differentiation strategy for these


companies. The value creation is done via high margins on the small volume

(Tran, 2008).

The fashion companies are furthermore focusing on managing costs by

organizing their sourcing, production, and distribution as efficiently as possible.

As a result, they may need as long as 12 to 18 months to design, produce, and

deliver a new line of clothing. That means they have to make big bets on future

customer preferences and demand, and bearing this risk has consequences for

the bottom line through inventory write-‐downs, if the clothes do not sell, or for

the top line through stock-‐outs, if people want more than the company made

(Tran, 2008) (Girotra, 2011).

In today’s highly competitive business environment many Danish fashion

companies choose to send out non-‐core operations to a supplier or

manufacturer to be able to focus only on core operations. Fashion companies

that choose to outsource are hoping to reduce the company’s costs by

specializing and making the company’s labour and resources more efficient. On

the other hand, other fashion companies constantly try to gain control over as

many sections as possible by analyzing its value chain, ultimately becoming a

vertically integrated retailer when every step of the value chain is controlled.

Companies that obtain control over the total production process by in-‐house

production can achieve shorter lead-‐times. The SMEs use a backward vertical

integration strategy not so much in direct ownership, but more in terms of a

tight quality control for ensuring quality (Tran, 2008).

Danish fashion companies are largely wholesale operations, enhanced and


underpinned by a wide-‐reaching supply chain and intermediary community. If

the fashion company sells to multi-‐brand retailers, the company usually follows

a selected distribution policy, that is the shops carrying the products need to

meet specific criteria regarding the store image, the prestige of the other brands

it sells, its geographic location together with the expected sales volume. These

criteria are set in order to maintain the brand image and make sure the

products are available to the target customers. The retailers used by the SMEs

are for the most part boutiques, department stores and concept stores.

Communication costs are high because of the importance of the brand image.

One way of communicating consists of having a strong presence at fashion

shows, which must to be outstanding and impressive, in order to attract

attention, have positive reviews and obtain editorial coverage in magazines and

newspapers. Advertising and PR is another important vehicle to communicate

brand identity and make it attractive to the public (Hansen, 2013).

10.3 Innovation in SMEs in the Danish fashion industry

Innovation is crucial to the future growth of the creative industry. Global

competition is increasingly focused on higher value activities, and the Danish

fashion industry must continue to innovate if it is to further develop its position

in the world of fashion.

Creating a successful company in any industry is a challenge, but the unique

characteristics and mindset of the fashion industry makes it particularly difficult.

There is no question about the fact that in the world of fashion, innovation is

derived from spotting the trend before anyone else and from sophisticated


exploitation of creative skills to create unique products. But unfortunately in

many Danish SMEs there is an unhealthy focus on product development and

many companies believe that creativity and innovation can only be explored

when designing new fashion products and not in business development in

general.

The Danish fashion companies have in the past been in charge and to some

extent spoilt, as they were able to push products to a trusted and emotionally

dedicated customer. Since there was no Internet, a company had full control

over the branding process and led in knowhow. Today many things have

changed, and excellence means more than just weathering a crisis. Relations

along the fashion industry value chain are continually adapting, relations

between raw material suppliers, producers, designers and retailers are

constantly being re-‐aligned in response to demand trends. Also customer

expectations influence changes in the industry and lines between brands and

retailers are becoming blurred; new e-‐channels and consumer pressure are

influencing relationships along the value chain. Selective distribution is today as

important as ever, and companies have to make choices between so-‐called “fast

fashion" and "slow fashion", depending on the time to market.

Looking at the Danish fashion industry today there are different distinctive types

of businesses, such as a Creative partnership, two creative people; Solo,

individual designer focused on growth; Designer and business partner, one

creative and one business partner; and Partnership with investor, designer in

partnership with a formal investor. The companies typically adopt these

business categories at different stages of their growth, and as the fashion


company develops and grows, it needs improved management skills, capital,

production capabilities and far-‐reaching distribution channels.

Each of these types of business has its own unique characteristics, but common

for most of them is that is that they are highly internationalized. Unfortunately it

is also common to have, together with a focus on product innovation, a fixed

view on market innovation and development, that more is better. Instead of

transforming a company’s core business model or designing new business

models to capture growth from new segments or markets, companies are

pushing the products to as many countries as possible, spreading themselves

thin and not gaining a solid foothold in each new market that they are entering.

A fashion company´s business model, the value proposition that it offers

customers and the operating model it creates to deliver that value at a profit, is

key to creating value in any economic environment. In times of instability, when

the potential for competitive disruption is high, business model innovation is

especially important. Business model innovation can provide Danish fashion

companies with a way to break out of intense competition, establish

competitive barriers around new markets, or create new growth opportunities

where none existed before (Lindgardt et al, 2009).

There is a widespread tendency of copying in the fashion world, and it is a

notoriously known fact that designers take inspiration from other designers and

it is really the nature of the business. Innovation in fashion is basically just

change. There is some innovation with fabrics, but most innovation in fashion is

about the design of clothes, and it changes over time but it is not conducive to

some kind of strategic goal. Figuring out how to capture value from innovation is


a key element of business model design, and business model innovations share

some unique characteristics that make the benefits from them more

sustainable.

Innovation is often in the company's processes that may not even be directly

visible to competitors; so while a new product design, a new fashion collection,

is launched with much fanfare, business model innovations remain relatively

hidden. Also copying a business model innovation from the competition is much

harder than imitating the competitor's product design. This is because the

business model innovations are often embedded in the fashion company’s DNA,

they define its core operating logic and for the competition to change and adapt

its business model is much harder. Therefore every new product development

effort should be coupled with the development of a business model which

defines its “go to market” and “capturing value” strategies (Girotra, 2012)

(Teece, 2010).

Given the high complexity of the fashion industry and its dynamic environment,

the existent business model governing the majority of SMEs in the Danish

fashion industry is no longer useful and sustainable to stimulate value creation.

A shift in business development and innovation strategy is what is required

given the particular set of environmental conditions, where a high focus on both

technology and market is needed.


11. Primary Research of the Fashion Industry Value Chain A value chain shows all the stages involved in adding value to a product and the

links between these stages. The stronger the chain, the more value will be

added in the process of production. This chain is the key to gaining competitive

advantage. The fashion industry involves a complex value chain, and there is a

set of processes which develop between actually picking of fibre in a cotton field

and being able to go into a local store and buy a fashion item which is liked,

which fits, is the right colour and has the right fashion appeal. It is the quality

which goes into the value chain that determines its effectiveness. To be

successful, the value chain needs to be driven by the market meaning it must

result in providing those benefits which customers demand and value.

The value chain shows the resources of the company and a company’s resources

are valuable if they lower costs or raise the price of a product. For Danish

fashion companies it is important to have an effective value chain configuration

(design, sourcing, manufacturing, storing and retailing) based on resources such

as design skills, supplier relations, sourcing networks, and sound business

practice. The same resource-‐base and value chain can produce different

products and therefore have a scope of different offerings, but at some point

during the growth and development of a fashion company, new activities are

needed and potentially also new resources, therefore forcing the development

of business models. See Figure 11.1


Figure 11.1 Six Components of a Business Model (Lindgardt et al, 2009)

The fashion industry is the quintessential example of a buyer-‐driven value chain.

Unlike producer-‐driven chains, where profits come from scale, volume and

technological advances, in the buyer-‐driven fashion industry value chain, profits

come from combinations of design, branding, and marketing of the products

that allow the retailers, designers and marketers to act as strategic brokers in

linking overseas factories and traders with product niches in their main

consumer markets (Fernandez-‐Stark et al, 2011).

Creating a new business model is a lot like writing a new story. At some level, all

new stories are variations on old ones and similarly, all new business models are

variations on the generic value chain underlying all companies (Magretta, 2002).

A"Business"Model"Typically"Consists"of"Six"Components"

Value&Proposi-on&Target&Segments&

Product&or&Service&Offering&

Revenue&Model&

Value&Proposi-on&

Value&Proposi-on&Value&Chain& Cost&Model& Organiza-on&

Opera-ng&Model&

Business"Model"


In that respect, interviews were carried out to gain insight into the strengths,

challenges and opportunities faced by the Danish fashion companies and to

identify ways to promote their sustainable growth and competitiveness.

Therefore the analysis looks at the past, the present and the future, with

regards to the development in the chosen areas in the value chain, in the Danish

fashion industry and then the recommendations takes a future perspective,

looking at new relations in the fashion value chain and promoting business

model development.

The fashion industry’s value chain is comprised of upstream, midstream and

downstream activities. Upstream activities include design and product

development. At midstream, the manufacturing processes such as cutting and

sewing are performed. Finally, sales, marketing, branding and distribution are

referred to as downstream activities (Jensen and Poulsen, 2012). The analysis

covers the following activities: Product Development, with the focus on

Corporate Social Responsibility (CSR), Production, with the focus on sourcing,

and finally Sales, with the focus primarily on online sales. The focal points are

not only selected to give the research focus and structure, they were also

chosen since they represent important value adding activities, and they are

areas that have up until now mainly been giving the large fashion companies a

competitive advantage. The research done here takes a different view is that the

areas can be, and should be, exploited by fashion companies of all sizes. The

question is just how.


11.1 Corporate Social Responsibility (CSR)

11.1.1 Introduction The fashion industry has a major impact on the environment, on supply chains,

on production, on manual labour and essentially on the consumer. It is regarded

as one of the most polluting industries, and the growing of cotton, bleaching

and colouring of fibres as well as the production of the finished garments are

associated with a very high energy consumption and large amounts of

wastewater and other forms of waste, imposing a considerable load on both the

local and the global environments. Serious health and safety issues also afflict

the entire supply chain in connection with the handling of chemicals, dust, noise

and monotonous, repetitive work. The fashion industry is one of the most

labour intensive industries, and with production based in countries with low

wages and no employee rights or opportunities for negotiation it becomes a

challenge to create decent and responsible working conditions. The social,

environmental and economic impacts along the clothing supply chain are listed

in Figure 11.2 (The Danish Ministry of Business and Growth, 2013)

(http://www.danishresponsibility.dk).


Figure 11.2 Social and Environmental impacts along the clothing supply chain (Forum for the

Future, 2010)

CSR is defined as “a concept whereby companies integrate social and

environmental concerns in their business operations and in their interaction with

their stakeholders on a voluntary basis” and is about managing change at

company level in a socially responsible manner, seeking to set the trade-‐offs

between the requirements and the needs of the various stakeholders into a

balance, which is acceptable to all parties (European Commission, 2001).

CSR is in many Danish fashion companies playing an integral role in shaping the

mission or driving force of the company. Emerging markets for greener products

on the one hand, and the rise of sustainability and green growth agendas in the

companies on the other, are increasingly leading fashion companies to integrate

non-‐financial metrics into their decision-‐making processes, to revisit the

concepts of value and profitability that drive their business models, and to


reconsider the balance between the dual objectives of short-‐term profitability

and long-‐term sustainability (Interview, Odgaard, 2013).

CSR activity occurs both through external factors, such as legitimacy and

reputation, and through internal factors, such as implementation and learning,

and covers issues such as environmental externalities, ethical standards,

upholding of social norms and compliance with the law. See Figure 11.3 below

for the different environmental, social and governance aspects. For the fashion

industry this for example means a focus on: consumer engagement and

behaviour change, transparency disclosures, improved environmental

performance based on life-‐cycle thinking, sustainable sourcing of primary

materials, and restrictions on harmful substances. See figure 11.4 for

sustainability as a strategic business imperative (European Commission, 2012).


Figure 11.3 (Koehler, 2013)


Figure 11.4 Sustainability as a strategic business imperative (Deloitte, 2013)

11.1.2 The Development of CSR in the Danish fashion industry Growth in the Danish fashion industry has for some time been centered on

continuously creating new brands, new product ranges and new products to

drive sales and growth. Season cycles have shortened, and some brands have


been branching out from the traditional two main seasons to shifting to

presenting new styles on a more regular basis. Customers have been responsive,

and the development has been coined “fast fashion” signifying a production and

consumption pattern according to which products are produced, consumed and

discarded – literally – fast. The business model is one in which efficiency in

sourcing and production in terms of costs and time to market is of essence to

drive and meet consumer demand for new styles at the right price (Deloitte,

2013) (Interview, Odgaard, 2013).

The search for lower production costs has led Danish fashion companies to

outsource production to less-‐developed countries. Due to such off shoring of

production and extended supply chains, business operations of international

fashion companies have become increasingly complex. These global supply

chains are causing significant challenges for Danish fashion companies to trace

the origins of raw materials and exercise control over environmental and social

impacts that arise at various life-‐cycle stages. At the same time companies are

often held responsible for environmental and social problems caused not

directly by themselves but also indirectly by their suppliers. The development of

outsourcing the production has entailed less control with the conditions of

production for Danish fashion companies and since this overall responsibility

can be damaging for the company in terms of social awareness, reputation and

popularity, Danish fashion companies have been turning to Corporate Social

Responsibility, CSR, to help create conditions favourable to sustainable growth,

responsible business behaviour and durable employment generation.


According to Pia Odgaard at Dansk Fashion & Textil the fashion companies are

still struggling and the financial crisis is still roaming and taking its toll. This has

resulted in a changed and more reluctant focus on the CSR aspects of the

business. On the plus side she believes, that the industry has already

demonstrated an impressive capacity to adapt and create space for change. Pia

Odgaard says “In reality CSR in Danish fashion companies started with a good

business sense. The companies understood the importance of the employees

and valued them highly. This then led to satisfied employees that again led to

good suppliers that in return led to satisfied customers”.

Following the first wave of adopting CSR principles companies for example

adopted Codes of Conduct, a set of rules/guidelines concerning CSR for their

business operations, many based on the principles set out in the UN Global

Compact, to end relationships with suppliers who exploited workers, and set out

to improve labour standards. Pia Odgaard continues, “companies defined Codes

of Conduct for their entire production processes and put great effort into

ensuring labour rights at the work places that delivered to their businesses,

unfortunately in many cases the codes of conduct were placed in a binder on

the shelf, but with further considerations and responsibilities they have been

dusted off and the companies again want to implement them. Responsible

business conduct is important for Danish fashion companies to help them create

and keep consumer trust and overall confidence in the industry”.

The increased focus on sustainability goes hand in hand with the Danish

mentality, how we see ourselves and how we are perceived from the outside. By

buying Danish fashion, the customer should ideally at the same time buy into a


set of values in line with good morale, equality and a democratic way of life. In

terms of development it was also pointed out that a growing number of

companies see CSR as a way of distinguishing themselves from their competitors

and gaining a competitive advantage. These Danish fashion companies have

made CSR a main part of their company DNA and have made a very conscious

strategic choice marketing their designs as fair trade and eco-‐friendly products.

The question today is rather how to develop new products and services in a

responsible and strategic way, a way that has to consider and meet the

increasing demands of various stakeholders with profound expertise and

knowledge (Interview, Odgaard, 2013).

11.1.3 CSR today in the Danish fashion industry Today Danish fashion companies are among the world leaders when it comes to

improving the work environment and introducing environmental management,

resource economy and cleaner technologies. The companies are increasingly

recognising that the greening of their own business or value chain by improving

resource productivity may increase both their short-‐term and long-‐term

competitiveness and create new markets. Some companies innovate their

business models and improve their resource productivity by substituting to

alternative and sustainable inputs, reusing or recycling resources, selling

sustainable products and services, while others implement cradle-‐to-‐cradle

elements in their business model or apply functions that may change

consumption patterns and practices throughout their entire value chain, like

offering their product as a service function while continuing to have ownership

of the products. In a broad sense this could all be characterised as greening of


the companies’ business models (Norden Nordic Innovation, 2012) (Interview,

Odgaard, 2013).

There is no doubt that the industry in general has come a long way, but as Pia

Odgaard points out “the Danish fashion companies are at very different stages

of CSR development and implementation, some are at the very beginning of

looking into the area and other companies are very far in the process”. CSR

issues need to be incorporated into the fashion company’s strategic way of

thinking, a clear strategy is vital to generate profit from sustainability since it

defines how a given innovation will add business value, otherwise the company

will not benefit fully from its CSR performance. Accordingly, there is no generic

way of conducting CSR. It has to be incorporated and adapted to the specific

nature of the company. Pia Odgaard continues “to have a place and purpose in

the market one of the company’s focus areas has to be on CSR. Actually it has to

be an integral part of running a successful and sustainable business”.

A sustainable supply chain within the fashion industry is demanding and can be

complex for many SMEs as it requires knowledge and skills throughout the

entire value chain and demands various resources such as time, financing and

staff management. In the development and production phases, companies lack

knowledge of what substances are contained in the materials they use,

alternative materials to use and how to use new materials when developing and

designing new products. Some customers are willing to buy more sustainable

products and services, but there is still a large group of customer that do not

have enough knowledge about what sustainability is and who are too

conservative to change their buying habits where price is the main purchasing


incentive. Another great barrier is the large costs of new machinery and new

materials or changes that must be implemented in new product development

and design. Furthermore, recycling and reusing materials require infrastructure

systems, which also are costly to develop and implement (Interview, Odgaard,

2013) (Norden Nordic Innovation, 2012).

Today different types of green business model innovation approaches has been

implemented in Danish fashion companies, and the supply chain sustainability

strategies that most companies focus on are based on the first generation

approaches looking to control suppliers and very few companies have so far

focused their CSR innovation on both their input side, pre-‐production and

production, and on their output side, use and after-‐use/ reuse. Analysis to

understand how the fashion industry manages the challenges of sustainability

has been carried out and showed that there are opportunities for the industry

to deepen and broaden management of sustainability to increase value, reduce

lead times, costs of raw materials, wastes and transport while increasing

customer engagement and loyalty. Management of sustainability in the fashion

industry is mainly focused on overall commitments to sustainability and less so

on acting on the commitment and showing the results. Bottom line is that there

is a wide gap between today’s reality and the industry’s opportunity to leverage

sustainability (Deloitte, 2013).

One of the most important drivers for companies to initiate CSR is increased

consumer awareness towards sustainability. Pia Odgaard says, “Customers are

demanding that fashion companies become more responsible about their

practices, and key words are transparency and traceability that are concepts


anchored in building consumer trust”. Transparency and traceability is the

disclosure of information relating to material sources, manufacturers and other

suppliers in order for all stakeholders, including the customer, to have a

complete and accurate picture of the ethical and environmental impact of a

product. It is not an easy journey for many SMEs as the business model most

fashion companies is built on is to have a sophisticated marketing strategy and

to manufacture in less-‐ developed countries, where they can make more profit.

This is a fundamental issue we still need to address. There is no doubt that

customer expectations have been rising, that customers are concerned with the

social issues or issues related to product quality and safety, but according to Pia

Odgaard since consumer behaviour plays a major part in the sustainability of

fashion Danish customers could demand more and request higher standards,

therefore driving the development of CSR even further, setting and even beating

world standards.

Today the fashion industry is at a crossroads. It is locked in a competition for

market shares to improve profitability amidst downturn in the global economy

and consumer uncertainty. All the while the industry is facing sustainability

challenges in the supply chain led by high price volatility as well as resource and

factor availability. The road that the industry takes today will significantly impact

the industry’s future growth path (Deloitte, 2013).

11.2 Production

11.2.1 Introduction The least glamorous, but possibly the most important aspect of bringing a

fashion product to market is production and manufacturing. Production


describes the process by which concepts are made into a saleable physical

product, and in most cases, this means going from a small set of samples or

prototypes to commercial quantities of the item or style, often across multiple

sizes, colours and patterns.

Danish fashion companies have moved towards creative activities focusing less

on the production side, and the outsourcing of the production is often

substantiated by the fact that the fashion companies are focusing on the value

adding activities in the value chain. As intangible aspects of the value chain

(such as marketing, brand development, and design) have become more

important for the profitability and power of fashion companies, tangible aspects

(production and manufacturing) have increasingly become “commodities.” See

figure 11.5 for the curve of value added stages in the fashion value chain.

Figure 11.5 Curve of value added stages in the fashion value chain (Fernandez-‐Stark et al,

2011)


On the other hand though, outsourcing of production has been shown to be a

progressive process, and more and more steps in the value chain have become

externalized. While this may enhance the share of value captured by fashion

companies in the short-‐term companies lose their industrial experience and

expertise. This eventually undermines their competitive advantage. Many I have

spoken to have the opinion that the value added in the value chain cannot be

segregated into activities, and this has to be looked upon as a whole. Pia

Odgaard from Dansk Fashion and Textile believe that innovation happens where

the production happens. She believes that when the designers are not sitting

close to the production, no innovation happens with regard to the design and

sourcing, since the companies do not get the benefit of insight into the latest

methods and technologies. ”Bottom line is that if Danish fashion companies are

loosing innovation on the product development side, what is there left. Since we

have already outsourced production, innovation was what we were going to

survive on” states Pia Odgaard. In my experience it is impossible to separate

production from the overall success of a fashion company, as great concepts can

be designed, developed and sold, but a fashion company will ultimately live or

die based on what is produced and delivered to the end customer (Interview,

Odgaard, 2013).

11.2.2 The outsourcing of Danish fashion production The Danish fashion industry holds a unique status being among the first

industries to outsource the greater part of their business activities. Production

was moved abroad, as early as the 1950’s and almost all of the production was

outsourced by the 1990’s, due to cost advantages offered by lower-‐wage


countries. The competition on the international market had changed and the

consequences of globalisation were being felt by the Danish fashion industry.

The production of fashion was moved to low labour costs countries and in order

to survive the competition the Danish fashion companies had to follow. Low

costs and price was now the new competitive parameter and the Danish

companies could only compete by moving from the high intensive salary driven

Danish market to markets where the manufacturing costs where much lower.

The production was first outsourced to Poland and the Baltic countries, but as

the economy of these countries grew during the 1990’s so did the wage level.

Production was therefore moved to Turkey, India and China, countries which

had the wage levels necessary to keep costs down and thereby enhance the

price competitiveness of the Danish fashion companies (Maskell, 2005).

The viewpoint that I have observed from different sources is that this

development has had several positive consequences, and that the outsourcing

of the production has meant that the Danish fashion companies have had do

innovate and reinvent themselves and the business environment that they

operated in. The outsourcing strategy has had a major impact on the structure

of the fashion industry, and the role of production companies changed as they

moved away from traditional production activities towards creative activities

such as design, marketing and sales. The changes in the industry lead to new

types of fashion companies, and these new fashion companies integrated the

design aspect with business and production expertise, becoming knowledge

companies based on an entirely different set of skills and knowledge. The

outsourcing of the production has resulted in the introduction of new business

models, and the Danish fashion companies have had to learn to adjust to the


international fashion scene and the market conditions focusing on other parts of

the value chain like product development, design, logistic, marketing, branding

and sales (Negarandeh, 2008).

On the other hand, I have come across a different perspective. The fashion

industry is characterised by an extreme combination of short product life cycles,

short time to market, and a high rate of new product development, really like no

other industry, in a densely populated market. In order to make a profit, fashion

companies have to focus on both increasing sales and cutting expenses. The

development of outsourcing in the Danish fashion industry and earlier times’

focus on the importance of low wages and material costs has according to some

observers of the fashion industry unfortunately made the companies very one-‐

sided in their view misleading fashion companies into focusing on less efficient

cost-‐saving initiatives. The interviewed producers that worked with Danish

fashion companies all stated that this has resulted in a weakened, and not a

strengthened position, since the fashion companies have missed growth and

development opportunities due to their tunnel vision. Instead, producers and

observers alike would like to see a significant shift in business strategy and

mindset where there is a continued focus on cost reduction, but combined with

a new emphasis on growth (Interview, Serbian fashion producers, 2012).

11.2.3 The outsourcing of production today Today, the Danish fashion industry is at the front with regards to outsourcing,

and most fashion companies outsource the production completely and have

shifted their focus away from production towards high value adding and


knowledge intensive activities, such as design and branding. Information and

communications technologies have made it easier for SMEs to coordinate with

their suppliers, and the fashion companies have successfully created value by

positioning themselves strategically in new, global production networks and as a

result, Danish fashion companies have a very high shareholder value creation,

indicating high competitiveness and considerable potential (Barbry, 2009).

Outsourcing today may benefit fashion companies in a variety of ways, and the

reasons for outsourcing that I often hear are; to save money, speed to market,

proximity to market, to get better products, to enter new markets, to focus on

their key competences. Fashion companies rarely consider if they should be

outsourcing but rather where to next. That said, many good practices are

relevant across industries and in my experience the fashion industry could

benefit from learning how to analyze and compare their existing and potential

market of suppliers.

Moreover many fashion companies still develop their products in a traditional

way, through CMT (Cut-‐Make-‐Trim, meaning that the producer does not supply

any of the fabric or components, and only carries out production with the

materials supplied) collaborations rather than testing opportunities in

collaborating with FOB (Freight-‐On-‐Board, meaning that the producer

manufacture according to customer specifications and design, and in many

cases use raw materials specified by the fashion company) suppliers, as a more

recent approach. This approach keeps key competences on design and

marketing in-‐house but outsource most of the traditional production

development processes to the supplier. The outsourcing and loss of competence


within production has led to competitive disadvantages, and some of the

companies that I meet are specifically not using a FOB or the so-‐called full

package business model, a full-‐package producers is a supplier that carries out

all steps involved in the production of a finished fashion item, since the fashion

company then will become increasingly dependent on suppliers who are taking

care of sourcing, coordination, quality control, code of conduct, and distribution.

The roles and relationships among fashion companies, producers, and

intermediaries have become increasingly blurry today, and the following trends

are closely tied to strategies and long-‐term objectives of the different

companies in the value chain. One trend is that fashion brand owners have

become specialty retailers, meaning that producers and fashion companies are

increasingly opening their own stores. In addition, fashion brands with existing

retail operations are likely to focus more on their own stores rather than

meeting the needs of their external customers. Another trend today is that the

full-‐package producers become intermediaries meaning that rather than

produce, they establish a network of global suppliers. Also the intermediaries/

agents have expanded their roles to include an array of services to companies,

including design, product development, and quality control in addition to

providing a network of suppliers and logistics. Benefits of using a third-‐party

sourcing agent include scale of operations, buying power, flexibility, and ability

to spread risk among suppliers. We have also seen an increase in private-‐label

brands, both in the volume and diversity of retailer private labels. Today,

retailers are expanding the range of private-‐label products offered and

developing higher-‐margin private-‐label goods. Finally fashion companies are

creating exclusive product lines with mass merchant retailers meaning that


retailers are striking agreements with fashion companies to develop and

distribute brands that are sold exclusively through the one retailer’s stores

instead of the traditional fashion company model in which products are sold via

multiple retail stores (Fernandez-‐Stark et al, 2011) (Jensen and Poulsen, 2012).

11.2.4 Sourcing of producers The fashion companies I have been in contact with over the years are finding

sources of production to be the most challenging element to get right, and

industry observers believe that the SMEs have a disadvantage since they are

smaller with fewer assets and less experience in/on the field. I have found that

the Danish fashion companies typically lack an overview of skilled and reliable

producers, and will frequently shift producer until they come across someone

who meets their expectations as to quality, flexibility in for example the

minimum amounts of products, styles, that needs to ordered, and in-‐time

delivery, communication skills, and service. Many of the producers stated that

the fashion companies are shifting between producers, since the companies are

lacking knowledge of production and also have unrealistic expectations with

regards to professional relationships (Interview, Serbian fashion producers,

2012).

Since finding quality suppliers is a complicated and cumbersome element of

running a fashion company, it is seen as a large competitive advantage when it is

done successfully, and as a result, many companies in the Danish fashion

industry tend to be secretive and protective of their production sources. For this

very reason the exact level of outsourcing in Danish fashion is not known.


When the production partner has been found the order of the SMEs, in small

and unpredictable quantities, may tend to get pushed to the back of the order

queue, because of lack of bargaining power of the fashion companies, meaning

that their deliveries may be later than large fashion companies, which can

negatively impact sell-‐through rates and retailer relationships. The SMEs are

therefore finding it difficult to negotiate and demand the need for changing

details, scaling up or down, re-‐ordering, or other distribution and payment

terms. The producers interviewed commented that the fashion companies are

not always communicating effectively, are often poorly organised and are

unrealistic in terms of their expectation to price, quantities and also turnaround

times (Interview, Serbian fashion producers, 2012). The limited order capacity

prevents the fashion companies from the ability to react to the market, and

places high pressure on right design forecasting, an event that happens a year

ahead of the real season. In contrast, companies with large orders can enjoy

very flexible production conditions, matching with the fluctuating market

demand, that is, scaling up and down the production, replenishing bestsellers,

or producing express collections with a very short time to market. Unfortunately

in most cases the producer’s skill and proficiency is only really made clear once

production has started, and this can end in high costs for both the fashion

company and the producer. Choosing the right producer allows the set up of a

supply system that is able to swiftly respond to changing market condition,

adapting to dynamic demands and innovation over time (Tran, 2008).


11.2.5 Fashion production in Serbia I have observed that, recently, some fashion companies have started to see the

benefits of producing closer to home, both in terms of reducing carbon

emissions through less travel, greater production flexibility and positive brand

association. Whilst there are challenges around price and capacity, the close

nature of the production facilities enable easier management of production.

Therefore after years dominated by the relocation of production activities to

low-‐cost countries, the fashion landscape may now be changing again. New

opportunities for European-‐based companies are arising as a consequence of

rising production and logistics costs in the emerging economies, their increasing

focus on domestic markets, as well as the steadily increasing pace of fashion,

which requires strict control of production and fast supply to the European

market (Bang, 2013).

Some of the possible European-‐based companies are based in Nis in the

southern part of Serbia. I visited the area, known for its long and proud

manufacturing history, in the Spring of last year, where I conducted interviews

with twelve different fashion producers. The producers there have ties to

Denmark in the sense that they have produced fashion to larger Danish fashion

companies. I prepared for the trip by already in 2009 to conduct five interviews

using a questionnaire that was e-‐mailed to the chosen respondents, and it was

carried out to get an idea of the relevance, quality and commitment of the

participants. I also spoke to local business organisations that are working with

and for the industry, and also an experienced Danish Sourcer, with around 20

years experience in sourcing and production from SMEs, and who is now


working at one of the largest fashion companies in Denmark.

Visits to the different producers were useful in identifying a number of common

issues and aspects. Many of the companies are run by highly skilled

practitioners, who have a solid foundation and knowledge of the garment

making industry. Through the series of factory visits I made observations

regarding the facilities, workspace and machinery in the manufacturing unit,

working conditions, range of services and capacity, quality and standard of work

and I asked about mindset and ambitions, operations and efficiency,

professionalism and business savvy, product awareness, knowledge of market

position, skills and accreditation schemes, health and safety, certification

systems and code of conducts. A SWOT analysis of my findings, together with

facts on the garment industry in Serbia, is in appendix E.

The choice of geographic location will have a heavy impact on the results, and

therefore fashion companies should carefully evaluate which countries to

consider for outsourcing. Some countries will have tradition for specific types of

production with a sub-‐industry to support these activities. Vast differences

apply between countries in taxes, political climates, and jurisdictions, and this

may be vital to the economic success of an outsourcing decision. Proximity may

benefit time to market and customer service offerings. Making a comparative

analysis of the producers and countries subject to consideration is of utmost

importance.

When it comes to the outsourced production, the fashion companies are alerted

to where the best opportunities are in form of the cost. The supplier selection is

a process which demands the SMEs to identify the key criteria for success,


qualitative as well as quantitative, in order to construct a competitive

advantage. In my experience though few fashion companies know the actual

costs of their activities and the financial impact of their sourcing decisions. Many

companies focus primarily on direct production costs, instead of minimizing

their true burden, indirect costs. I believe that in order to stay competitive,

companies should know their costs so that they may reduce them, and focus on

quality, delivery, and price of their products.

The conventional perception that I hear time and time again is that low

production costs are equal to the least expensive outsourcing. The research trip

to Serbia though highlighted the fact that fashion companies can improve their

profitability by unveiling the true costs of the company’s production related

activities, looking at macro costs (education, infrastructure, government, human

rights, politics of trade), indirect costs (days of credit, communication skills,

quality assurance, order minimums, delivery, reliability) as well as of course

direct costs (business model like CMT, materials, time to market) when making a

comparison between different producers and countries (Interview, Serbian

fashion producers, 2012).

11.3 Online sales

11.3.1 Introduction The fashion industry has always been very competitive, but recent innovations

and technological developments have made the battle even more intense by

adding a digital dimension to the competition. The growth of the Internet, has

raised anew, and in a transparent way, fundamental questions about how


fashion companies deliver value to the customer, and the Internet has caused

many “bricks and mortar” companies to rethink their distribution strategies if

not their whole business models. Luckily, the unique characteristics of virtual

markets; removal of geographical and physical constraints, reversal of

information flows from customers to supplier, and other novel information

bundling and channeling, make the possibilities for business model innovation

appear almost endless.

Globally, retailing is witnessing highly significant shifts, and the growth of the

Internet has powered upheavals in the retail landscape that are revolutionary in

scope, and unprecedented in nature. The emergence of online sales has

radically changed the business landscape, and new fashion companies are

capturing new opportunities in the electronic marketplace through innovative

business models and established companies are racing to transform and adapt

their old business models to the new environment. As a result, retailing practice

is increasingly encompassing a broader range of activities as retailers expand the

boundaries of their target markets and develop new ways for interacting with

customers and channel partners. Online sales continue to outpace overall retail

spending growth, and in 2011, Danish e-‐commerce sales totalled DKK 46 billion,

up 15% from 2010. Of this DKK 4 billion was spent on buying fashion online,

which translates into roughly a fifth of the total sales of fashion in Denmark. In

2012 total e-‐commerce sales was up 19% at DKK 54.7 billion (Sorescu et al,

2011) (FDIH, 2012).


11.3.2 The Development of online sales in the Danish fashion industry Online retailing is a relatively new and important direct sales route to reach the

customer, and it has been developing at a breathtaking pace. It has been

emerging as a new growth driver for the entire fashion industry, disrupting

traditional distribution models, and leading to the emergence of new players in

the industry. For years though, e-‐commerce suffered from capital inefficiencies

and complexities that pushed Danish fashion companies as well as investors

away. The unrealised, over-‐hyped expectations for online sales, at a time when

the market, technology and infrastructure were less evolved, and the

subsequent burns left many companies with bad experiences and no desire to

repeat the costly investment.

Even after the technology was in place and the mentioned difficulties and

threats were rectified, the Danish fashion industry was slow to catch the online

wave and according to Rina Hansen, Head of Digital at Hummel and strategic

advisor for fashion companies, it was very much due to the fear of the negative

attitude towards online stores by the retailers. The Danish fashion companies

were reluctant to launch their own webshops, and despite the growing trend of

online shopping, and the possibilities of reaching a larger segment than if they

limited themselves to only having physical stores, only but a few of the Danish

fashion companies had their own webshops, supplying the full collection.

Despite the many advantages of operating their own webshop, many companies

remained reluctant to do so. The advantages included, not least, a higher

contribution margin per unit, due to the fact that online retailers could cut out


the intermediary. Online retailers do not have the costly infrastructure that

comes with operating hundreds of physical stores along with employing an army

of salespeople. In addition, fashion companies could have direct contact with

the customer: make suggestions of how to use collections, give information

about the manufacturing process and the qualities of the fabrics, capture

valuable information about shopping habits and preferences, and the possibility

for customers to interact directly with the brand. Although this direct contact

with the customer would improve customer loyalty to the brands, and the larger

margins would give better results, companies remain unconvinced about

launching their own webshops.

So it was not only because of time and resource constraints of launching a

webshop, nor the concerns regarding payment insecurity from the customers,

or the fact that many fashion companies could not afford to invest in such a

project. Rather it was that the fact that retailers’ opinion about the fashion

companies own webshops was affecting their behaviour, since they expressed a

concern about the practice, called "showrooming", as customer behaviour

became more and more accustomed to using the in-‐store experience as a point

of research and brand experience, only to then purchase online. The retailers

also feared a cut in sales, because they assumed that the customers would turn

to the fashion companies’ own webshops. Rina says “Fashion companies were

almost afraid of the retailers, and it was scaring the companies from going

online, as they felt that they needed excessive amounts of documentation and

argumentation in place”. The fashion industry was dependent on the retailers

that controlled the access to the customers and a webshop strategy with direct

communication to the customers would make the industry less dependent on


retailers and secure the necessary feedback from the market, changing the

current push strategy to a pull strategy.

The retail industry was waking up to the fact that digital initiatives were no

longer at the periphery of business but was core to driving growth and engaging

customers. The retailers widely assumed that the Internet was cannibalistic, that

it would replace all conventional ways of doing business and overturn all

traditional advantages, and fashion companies worried about cannibalizing their

existing sales channels. According to Rina Hansen the risk of channel conflict

appears to have been overstated. states that “The research that has been done

after the companies have started their online sales using a business-‐to-‐

consumer business model has shown that, looking at the statistics on the actual

sales, the companies cannot see that any cannibalization is taking place”. She

continues, “Actually in the areas where the companies have wholesalers there is

an increase in sales. The higher density in the physical stores the higher sales,

and when new channels are opened, sales are increasing in all channels, also in

the physical shops”. According to Rina the reason for this is that customers are

more educated when they are entered the stores when there is an online

presence (Amit and Zott, 2000).

Many Danish fashion companies had concerns and were struggling to rethink

their traditional sales and marketing strategy to include the digital channels and

the online dimension to make their company fit for the future. Another reason

for their hesitation was due to the dilemma of involving the public and at the

same time maintaining exclusivity and brand control. They feared that

implementing interactive categories on their websites, where customers and


fans could interact, allowing their unfiltered feedback or customize products

could jeopardize and even make them loose control of their brand (Interview,

Hansen, 2013).

11.3.3 Online sales today in the Danish fashion industry Today the tides have turned in e-‐commerce. It has matured, and the fashion

industry is now competing strongly in the digital markets and promising new

business models, built around new ways of buying, selling and engaging with

fashion goods, are emerging. For one, customers are now acclimated to the

concept of online retail and major innovations and infrastructural advances have

also fundamentally improved the economics of e-‐commerce. The growing

importance of the digital environment and online sales has been creating many

new opportunities for the Danish fashion industry, and the companies have

moved from a focus on branding to a focus of sales. It has enabled fashion

companies, in particular SMEs, to reach new markets and offer consumers more

and better targeted choices and competitive prices. Moreover, a strong online

presence has helped to create a modern and dynamic image of the industry as a

whole.

Many actually believe that the retail industry is in the midst of a customer

revolution, and that the collision of the virtual and physical worlds is

fundamentally changing consumers’ purchasing behaviours. The customer

experience is changing as consumers are becoming more and more connected,

with the key drivers being the rapid adoption of mobile devices and digital

media. Customers expect to be able to shop anytime, anywhere, and are also


becoming more demanding. In fact, 60% of consumers in Denmark search

product information online before they make a purchase.

The advent of the Internet has further increased the efficiency of the shopping

experience by reducing customers’ search costs and by allowing them to

purchase products that were previously not geographically accessible. In

Denmark for example the online shopping in international webshops have risen

from DKK 9 billion in 2011 to DKK 12.5 billion in 2012, an increase of almost

40%. Fashion is the second most bought product category after movies, music

and books and the Internet has not only enabled selling in multiple channels

(e.g., online vs. stores), but also selling across channels, making it a more

stimulating and satisfying experience, by allowing customers to purchase online

and pick up at a store, or to access the retailer’s larger online assortment while

shopping in store where they can take advantage of customer support.

Customers are seeking an integrated, seamless and relevant shopping

experience across all channels, and expect retailers to deliver this experience. In

fact, in Denmark 42% have more trust to an online store if it also has a physical

shop and 52% of consumers expect to be able to exchange a product purchased

online in a physical shop. Fashion is actually the most returned product category

with a return rate of 62% (FDIH, 2012) (Sorescu et al, 2011).

The technological developments have also facilitated the prevalence of

customer co-‐creation, where customers participate in the design and creation of

their own fashion items, with high added value. Customer co-‐creation has been

embraced by SME’s, and according to Rina Hansen, this user-‐driven innovation

has become one of the driving forces in the fashion industry. She states “we


have been very focused and concentrated on getting brand control on the digital

channels, and have controlled the content in the different channels, where the

brand had to create the content and set the way, but now that the framework

has been set, and we know how to interact with the customers we therefore

now dare to let the customers in and engage in co-‐creation of products and co-‐

creating the actually brand”.

In recent years, the sales landscape has changed dramatically, and no longer are

fashion companies limited to wholesale and bricks-‐and-‐mortar retail channels.

Today, brands sell across multiple channels, including online retailers and the

fashion companies own webshops, moving from single, independent channels to

both physical and digital multi-‐channel retailing. The blurring line between the

physical and online world reflects a shift in consumer expectations, says Rina

Hansen. "We are in an omni-‐channel world," she points out. "Today you have to

be present in all channels to be successful, since the brand and the company has

to be where the customers are, depending upon their mood or lifestyles

demands”. Finding multiple points to connect with customers builds loyalty and

heightens the brand value and in an omni-‐channel world, the physical store may

become a marketing expense, a tool for generating buzz or a way to provide

service.

According to Rina Hansen, branding and presentation tend in some ways to take

precedence over product orientation in the fashion industry, and many times

there is a lack of awareness as to why a particular fashion item is an excellent

product for every day living, aligned with the customers interests and emotional

involvement and therefore fulfilling the customers expectations. There is not


enough direct communication with the final customer, since she regards the

Danish fashion industry to be based on a wholesale business model, meaning a

more business-‐to-‐business business model. There is much to improve when it

comes to offering customers a structured and intuitive shopping experience

which leads the customers to uniquely bond to the fashion company, and Rina

continues ”the strength is that it builds character, adds personality and a story

behind the company and the brand, it makes it easier for the customers to buy

it, since you are guided and you understand the brand. You get inspired and this

triggers the shopping gene”.

All this will develop the brand profile of the fashion company, as it will allow the

company to define its brand and the meaning that this brand carries in the

minds of the customers. Importantly, Rina Hansen points out “that there has to

be a good balance between high tech and high touch, and not only for the brand

but also for the customer. There has to be a feeling that you are connected

24/7, but just as well as there is high tech, there also has to be high touch so

that the customer can feel the company, and get the antidote to all the

technology. It is important to keep in mind that customers are still living in the

physical world”.

Social commerce is another critical part of the customer experience and the rise

of social media channels like Facebook, Twitter and blogs have also enabled

Danish fashion companies to acquire customers and accelerate growth far more

efficiently. People want to connect and be social, a since there is a need for

social interaction, and two-‐way communication communities based on lifestyles

and common interests are becoming more common. For fashion companies


social media channels like Facebook and Twitter are great social platforms to

connect with their followers. As users willingly express their opinions and

experiences, these sites become valuable tools to distinguish customer’s wants

and needs, making them a potential source of real time customer information,

knowledge and feedback, a never-‐ending focus group. Capturing the knowledge

of customers and using it, as feedback to direct the operations is one way to add

value. I often hear from fashion companies that allowing customers to tap into

the knowledge of other customers is the fastest path to solving customer

problems and creating customer loyalty (Opera Capital Partners, 2013).

On a more negative note it is impossible for fashion companies to control the

conversations which take place about their brand in the social media channels,

but according to RIna Hansen, they must become a part of the conversation and

engage with customers directly. She states, “in general, the fashion industry is

not so good at listening to the needs of the customers, but this of course has to

change and should change. One reason for this is the added transparency in the

social media environment, where there are no secrets anymore. If a customer

receives bad customer service then it will spread via Facebook so you have to

listen to the customers, whether you like it or not” (Interview, Hansen, 2013).


12. Recommendations

12.1 Introduction

Danish fashion companies should be seeking and considering improvements to

their business models, particularly improvements that are difficult to imitate

and that add value for customers. Changing the fashion company’s business

model literally involves changing the paradigm by which it goes to market, and

the elements of a business model must be designed with reference to each

other, and geared to both the business/customer environment and to the

direction of technological development in the fashion industry. There are many

reasons why fashion companies should prepare for the future, some of them

being; the impact of globalization, the adoption of new technologies, the

growing awareness of CSR and the diversification of channels, such as growing

effective use of the internet. Globalization is having a huge impact on how

customers shop and how the industry meets their needs. Technology is also

moving at a pace never seen before. Customer awareness of CSR is increasing,

so that companies can no longer ignore its impact. Finally, diversification of

channels, including the Internet, is redrawing the industry landscape. All these

forces, among others, have the potential to significantly alter the fashion

industry’s value chain in the future.

In this report, it has been argued that business model development is highly

relevant in the current environment of the Danish fashion industry. Several of

the possible areas of focus on in the value chain have been analysed, and in our

recommendations we will look at how fashion companies can develop a

competitive capability in business model innovation. The following


recommendations are intended to be possible, understandable and actionable,

with a clear reference to the nature of the fashion industry. They are not

designed to dictate what are the best and most innovative business models, but

to demonstrate the different ways in which the Danish fashion industry can

accomplish business model innovation. The recommendations follow the

building blocks of Alexander Osterwalder’s Business Model Generation, and are

meant to provide the SMEs with insight and challenge the fashion companies’

ideas, inspire them with new opportunities and help them plan for the future.

How a company goes about developing a new business model will depend on its

role in the industry and the circumstances; however, in general a few activities

are particularly important when striving for business model innovation. The

fashion company has to focus on uncovering opportunities, diagnose the current

model to understand its limitations, and assess the company’s current context,

the needs of its customers, and the models of its competitors. The company

should take an honest look at what is working, what is not working and what

might constitute a better value proposition. Properly implementing the new

business model is crucial, rolling out and scaling up the idea, and finally, building

the platform and skills to sustain a business model innovation advantage on a

continuous basis.

With reference to Osterwalder’s Nine Business Model Building Blocks, I will

present recommendations in all four pillars of the business, making

recommendations using six of the business model building blocks (See Table

12.1 below): Customer-‐driven development, focusing on the internet, multi-‐

channel sales, and engaging the customer; Offer-‐driven development, describing


how CSR should be integrated into the company’s value proposition; Resource-‐

driven development, highlighting how companies should pool resources and

build on suppliers knowledge by networking with both producers and other

fashion companies; and finally Finance-‐driven development, where companies

should manage costs by taking into account direct and indirect costs of

production.

Pillar Business Model Building Block

Recommendation

Product (Section 12.3)

Value Proposition Integrate CSR in company’s DNA, engaging consumers to change their consumption patterns -‐ use sustainability as a driving force for innovation

Customer Interface (Section 12.2)

Target Customer Describes the segments of customers a company wants to offer value to.

Distribution Channel Use Internet and multi-‐channel retail, Brick-‐and-‐click strategy

Relationship Strengthen customer relationships, focusing on co-‐creation, involvement and social innovation -‐ empowering customers

Infrastructure Management (Section 12.4)

Value Configuration Create a common platform -‐ share services, information and network, such as supply chain partners

Core Competency Outlines the competencies necessary to execute the company's business model.

Partner Network Expand cooperative agreements with producers and other fashion companies to efficiently offer and commercialize value, and capture production knowledge

Financial Aspects (Section 12.5)

Cost Structure Manage costs by taking into account direct and indirect costs of outsourcing production

Revenue Model Describes the way a company makes money through a variety of revenue flows.

Table 12.1 Recommendations Using Nine Business Model Building Blocks (Osterwalder et al,

2005)


12.2 Customer-‐driven business model development

Engaging customers, whether to adopt more sustainable behaviours or just

purchase more fashion products, will no longer be about just marketing and

communicating to customers, but will also be about connecting and socializing

with the customers. The Internet and technologies like mobile devices have truly

revolutionized the fashion industry, and with e-‐commerce, fashion companies

can sell and market directly to customers. Customers want to shop through all

the different channels, and since the risk of channel conflict and fear of

cannibalization appears to have been overstated, I recommend a business

model that involves multi-‐channel retailing. Danish fashion should be looking at

innovative ways to drive customers into stores and innovative ways of

improving the in-‐store experience through online. Fashion companies need to

be present everywhere the customers go, across different channels, and ensure

they have a positive experience at every point.

There has been an increase in online sales and recent advances in technology

are helping customers to fully embrace e-‐commerce and contributing to the

steady growth of the market. Most fashion products though are still purchased

from traditional stores and there are still barriers to overcome for the

companies like the inability to physically interact with the products. With that in

mind I therefore recommend a business model that combines both offline and

online part of business, a brick-‐and-‐click business model. This is a business

model that offers multiple and integrated points of shopping access, different

channels for different purposes. Interestingly enough introducing Internet

applications in one activity often places greater demands on physical activities

elsewhere in the value chain. Direct ordering, for example, makes warehousing


and shipping more important. Some of the advantages of this model include for

example strengthening brand name recognition, giving customers a physical

location to return or buy fashion products right away without having to pay

shipping costs, lowering promotional costs through cross-‐marketing and cross-‐

merchandising opportunities, and also expanding customer base. Besides, there

are always customers who enjoy the social interaction shopping provides and

who are still afraid to purchase online because of security issues, and finally

many customers prefer to try on the fashion products before buying.

Customers today have the power of information as their fingertips, enabling

them to make comparisons, access information and purchases anytime and

anywhere. Social media technologies and tools such as Facebook, Twitter, and

blogs, have provided customers with a huge platform for not just

communicating information with one another but for interacting and socializing.

In addition to multichannel retailing, companies should strengthen their

relationship with the customer. Due to the growth in Internet connectivity,

customers scrutinize products, services and companies, and fashion companies

have to be authentic. Customers will expect and demand transparency in the

sourcing and production of fashion products, in the quality and also in company

policies and procedures. Fashion companies will need to take a much more

active role in shaping the conversation with customers, and as an example

customers will expect to have input into the development of new fashion

products, especially with fashion companies to which they feel loyal. It is all

about listening, servicing and collaborating more than just pure selling. I

therefore recommend a business model that is focusing on co-‐creation,

involvement and social innovation. Danish SMEs have to expand their focus


from selling products to engaging and empowering customers, with the ultimate

goal of creating a rewarding customer experience. Social business models will

change the fashion industry and the behaviour of customers have and will be

changing immensely as they will not settle for a standardized product, but will

prefer to participate and take part in the design and in the very creation of the

product. Bottom line is that business models based on customer relationships

are needed.

12.3 Offer-‐driven business model development

There is no doubt that customers are becoming more active participants in the

creation of a more sustainable economy and increasingly aware of the broad

sustainability challenge facing the world. However, there are still some major

barriers to overcome with consumers. The reason for this is that while

consumers might want to buy sustainable products and live more sustainably,

the feel powerless to make a difference. Moreover, defining sustainable fashion

can be difficult for the average consumer and encompasses numerous aspects,

and most consumers are sceptical or confused about claims made by the fashion

companies regarding environmentally friendly products. As a consequence

consumers adoption of more sustainable lifestyles is so far rather limited, and it

is therefore highly likely, that sustainable consumption over the next years will

not be primarily driven by consumers themselves. Rather, I will recommend a

business model where the SMEs in the Danish fashion industry take the lead in

engaging consumers to change their consumption patterns and innovating to

meet future demands.


This will require a fundamental shift in the way that many fashion companies

think and operate, it will be part of the company’s value proposition, in that the

fashion companies will need to use sustainability as a driving force for

innovation in developing new products and services, in sourcing and production

and also in communicating with customers. It will not be enough to react to

customers needs and demands, leading fashion companies will look to engage

customers sooner rather than later to help accelerate a shift toward more

sustainable behaviours.

Many believe that there is a lack of information about impact and a difficulty in

finding sustainable products, and this is a very serious gap in the value chain

that needs to be closed in order to ensure that the products as well as the

fashion company ́s good intentions reach the consumer. Fashion companies can

for example document transparency and traceability, exposing sensitive and the

not always entirely flattering inner-‐workings of their production, in product

labelling and communication, which will help shape new norms and value sets,

positively influencing customer choice and usage. The companies should focus

on the business-‐to-‐consumer sales situation, and take charge of the situation

where the product and its storytelling change hands. This is to ensure a high

level of awareness about sustainability issues concerning the product and

related services.

12.4 Resource-‐driven business model development

Despite the importance of the relationship between the fashion company and

the producer, producers are often seen as a necessary evil by the fashion


companies, and are rarely seen as partners. Fashion companies generally view

manufacturing relationships as problematic and tense, and producers and

fashion companies are critical of each other: there is a mismatch in

expectations, lack of understanding of each other’s business operations,

workflow, and financial restrictions. Moreover, many fashion companies’

production timings are currently polarised within the two-‐season model,

compounding pressures within both the company and producers’ operations,

the production window is extremely condensed, and capacity is stretched to the

limit. Many fashion companies have complex supply chains spanning continents

and involving numerous suppliers and producers. This makes it more critical

than ever to invest in supplier relations and work collaboratively to promote

partnerships and that way solve sustainability challenges, improve efficiency,

information flow and value added processes, reduce costs, and promote

innovation. For these reasons I recommend a partnership business model where

the fashion companies are taking responsibility over the dynamics in the supply

chain, enabling the companies to gain better production knowledge. In addition,

many fashion companies are struggling with sourcing a producer with the

needed skills and reliability, and this challenge lends itself to creating long term

business partnerships that will benefit all parties involved, and will be a driver of

value.

Turning the vision of further development of the fashion companies into reality

will require that the industry focus on skills and experiences as opportunities for

growth and improved performance. Often though, a single company does not

have all the competencies needed to create new and more viable solutions,

therefore they need partners with complementary competencies. Many of the


challenges of the industry, like the issues of sustainable fashion, need collective

action to be overcome, and it is difficult for individual companies in the industry

to address them alone. Fashion companies need to have the ability to balance

operations with development of their company, and a broad and diverse

foundation of knowledge simply makes it easier to be both innovative and goal-‐

oriented. Individual companies cannot afford to wait for others to act. With this

in mind, I recommend that the industry embrace new alliances, and I therefore

see an opportunity for a different partnership and network business model.

Building the new value chain vision, either upstream or downstream, starts with

information sharing within and between fashion companies. Critical company

cultural and behavioural changes will include organisational development,

improved trust, and new ways at looking at the assumed competitors.

Companies should create a common platform and should be prepared to share

services, information and network, such as supply chain partners, between

partners in the platform, and work collectively to transform its businesses.

This will pose an opportunity for companies to lead the way with regards to

using complementary skills, creating awareness, understanding and trust by

sharing best practises on business cases, not to mention create the space for

others to act, and subsequently creating a stronger Danish fashion industry all

together. The companies must realize that there is a shared dependency

between the SMEs, to survive in the competitive globalized world of fashion,

and that this business model will result in an improved collaboration to better

serve the customer everywhere. The ownership of the common platform would

have to be decided and there are several options available to the participating

companies, more importantly though is that this is an opportunity for


pioneering companies to step up and lead the industry with new business

models, products and services that will thrive in the future.

12.5 Finance-‐driven business model development

All companies must manage their costs in a sensible manner, and for fashion

companies operating in a highly competitive market cost control is essential to

stay competitive. Even so, SMEs rarely have procedures for cost analyses since

this is not the primary interest of the designer who typically runs the business.

Fashion products have a lifecycle, which requires a continuous update of the

product range to maintain a relevant value proposition to the market and a

profitable operation for the company. The condition of doing so wisely and

professionally implies that fashion companies can map their cost and profit

landscape of individual products, product portfolio, as well as value interchange

in the product range. With that in mind, I recommend a cost management

business model with a focus on the cost structure of the fashion company,

supporting the outsourcing decisions. The reason for this is that fashion

companies can improve their profitability by including cost analysis, in

comparative studies between producers worldwide. Too many companies focus

only on direct costs when they make decisions about where to produce their

products, instead the cost analysis of macro cost, indirect cost as well as direct

cost should influence fashion companies in sourcing decisions. The benefit to

the fashion companies will be gaining information about all costs incurred to

operate the business model, and learning how to analyze and compare their

existing and potential market of suppliers.


13. Conclusion As stated in the focus of this report, many fashion companies focus heavily on

the branding and marketing aspects of the business. Even though it is indeed of

the utmost importance for all fashion companies to create their own unique

universe and special DNA of the fashion brand to try to differentiate the brand

from their competitors, the aim of this report is to show that, while branding

and the use of the marketing toolbox are important, they are not the only ways

for a fashion company to excel and be unique.

What is the current state of the Danish fashion industry in terms of growth and

development? What are the strengths and weaknesses of the SMEs in the

Danish fashion industry? What is business model development? What factors in

the value chain can assist Danish SMEs in the fashion industry in their quest for

growth and development? These are the research questions this work has tried

to answer. The objective of the report is to analyse how Danish SMEs in the

fashion industry can use new business models as a strategy to grow and develop

their businesses, and to give some well-‐founded recommendations to Danish

fashion SMEs regarding new possible business models, new methods and ideas.

The methodology used in pursuing this objective consists, first of all, in a review

of the existing literature about the fashion industry, growth and development

possibilities and barriers, business model development and value chain design.

This step was considered useful to understand and define the area of research.

The literature review highlighted one fundamental model and theory about

business model development that was considered more relevant for the

purpose of the report: Alexander Osterwalder’s Business Model Generation.


Secondly, the primary data was collected through interviews with people

working within business development from different perspectives, and also with

experts of the Danish fashion industry. In total fourteen semi structured

interviews were held and the data was used in the industry profile as well as the

analysis. By giving insight into what has been the practice of the industry in the

past and what is carried out currently, the interviewees gave insight into future

ways of adding value, and new ways of doing business. The interviews followed

the three areas of the value chain: Product Development, with the focus on

Corporate Social Responsibility (CSR), Production, with the focus on sourcing,

and finally Sales, with the focus primarily on online sales. The focal points were

not only selected to give the research focus and structure; they were also

chosen since they represent important value adding activities, and are areas

that have up until now mainly been giving the large fashion companies a

competitive advantage. The research done here takes the point of view that

fashion companies of all sizes can capture value in all the selected areas. The

question was just how. Finally, several analyses were performed: an analysis of

the information gained through the interviews and from my many years

consulting for the industry, a description of the Danish fashion industry, a SWOT

analysis of the industry, a review of the growth and development possibilities

and barriers, the implementation of Osterwaldere’s model and a look at the

industry value chain. These analyses formed the basis for the suggestions and

recommendations for new business models for the future.

It was recognised when appraising the Danish fashion industry that the

foundations for business model development were present, and there are


significant growth opportunities. The industry has several strengths, such as the

fact that there is a sense of quiet optimism in industry, as the companies are

getting used to and adapting to the new situation in the aftermath of the

financial crisis, making the timing right, and also the fact that the industry has

been very successful in outsourcing great parts of the production, and is geared

towards further outsourcing. These areas offer opportunities that can be further

developed so that the industry can realise its full potential. Furthermore the

growth experienced in online sales can further catalyze the industry's

international expansion and growth plans. Finally, the increased focus on

Corporate Social Responsibility goes hand in hand with the Danish mentality,

how the Danes see themselves and how they are perceived from the outside,

giving Danish fashion companies a large competitive advantage.

It has been argued that business model development is highly relevant in the

current environment of the Danish fashion industry, and there are many ways

by which fashion companies can create, deliver and capture value through their

business models. Firstly, since the risk of channel conflict and fear of

cannibalization appears to have been overstated, one recommendation is a

business model that involves multi-‐channel retailing. Fashion companies need to

be present everywhere the customers go, across different channels, and ensure

they have a positive experience at every point. A business model is

recommended that combine both offline and online part of business, a brick-‐

and-‐click business model. This is a business model that offers multiple and

integrated points of shopping access, different channels for different purposes.

Another recommendation is a business model that is focusing on co-‐creation,

involvement and social innovation. Danish SMEs have to expand their focus


from selling products to engaging and empowering customers, with the ultimate

goal of creating a rewarding customer experience. Since consumers’ adoption of

more sustainable lifestyles is so far rather limited, a recommendation was also

made to adopt a business model where the SMEs in the Danish fashion industry

take the lead in engaging consumers to change their consumption patterns and

to help innovate to meet future demands.

The next recommendation on how Danish SMEs in the fashion industry can use

new business models as a strategy to grow and develop their businesses is a

partnership business model where the fashion companies take responsibility

over the dynamics in the supply chain, enabling the companies to gain better

production knowledge. It has also emerged that the industry should embrace

new alliances, and therefore it is recommended that they create a different

partnership and network business model, building the new value chain vision,

either upstream or downstream, where the companies should create a common

platform and should be prepared to share services, information and network,

such as supply chain partners, between partners in the platform, and work

collectively to transform its businesses. The final recommendation is a cost

management business model with a focus on the cost structure of the fashion

company, supporting the outsourcing decisions. The reason for this is that

fashion companies can improve their profitability by including cost analysis, in

comparative studies between producers worldwide.

In conclusion, applying new business models can fuel the growth of small and

medium sized companies in the Danish fashion industry. While branding and the

use of the marketing toolbox are as important as ever, SMEs in the fashion


industry can create longstanding competitive advantage throughout their value

chain. This report has presented a structured view of the industry and the

supply chain, and proposed realistic and actionable recommendations for SMEs

to implement to realize their growth potential.


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Appendices

Appendix A – List of Conferences, Seminars and Master Classes

1. Masterclass: Joe Pine, Growth through Experiences, at Dare2Mansion, Copenhagen, Denmark, 22nd November 2013

2. Workshop: Design your Business Model, The Royal Danish Academy of Fine Arts, School of Design, Copenhagen, Denmark 20th/21st June 2013

3. Serbia Fashion and Textile Cluster FACTS Day, Embassy of the Republic of Serbia, Copenhagen, Denmark, 3rd June 2013 Mistra Future Fashion Symposium: Sustainability & Producer’s Responsibility in Textiles, Mistra Future Fashion, Malmø University, Sweden, 29th May 2013

4. Conference: E-‐commerce in the Fashion Industry, Danish E-‐commerce Association (FDIH), Århus, Denmark, 11th April 2013

5. Conference: Cross-‐Border e-‐commerce, Danish E-‐commerce Association (FDIH), Copenhagen, Denmark, 27th February 2013

6. Summit: Copenhagen Fashion Summit, Copenhagen, Denmark, 3rd May 2012 (The world's largest and most important conference on sustainability and CSR in the fashion industry)

7. Conference: Creative Encounters Open Day: creative disillusions?, Danish Centre for Design Research, DKDS and The Royal Danish Academy of Fine Arts, School of Design, Copenhagen, Denmark, 8th May 2012

8. Conference: Alexander Osterwalder, Innonet Lifestyle -‐ Interior and Clothing, Herning, Denmark, 11th September 2012

9. Workshop: Pit Stop Business Development, Innonet Lifestyle -‐ Interior and Clothing, Copenhagen, Denmark, 8th November 2012

10. Conference: Creative Business Cup, hosted by Center for Cultural and Experience Economy (CKO), Copenhagen, Denmark, 12th and 13th November 2012


11. Conference: Retail-‐ and etailconference, Danish Fashion Institute, Dansk Fashion & Textile, Copenhagen, Denmark, 11th November 2011

12. Master class: Alexander Osterwalder, at Væksthus, Greater Copenhagen, Copenhagen, Denmark, 3rd November 2010

13. Conference: Creative Encounters: New European Fashion Centres, Dreams of Small Nations in a Polycentric Fashion System, Copenhagen Business School, 20th January 2010


Appendix B – List of Programmes and Projects

1. “Fashion Accelerator”

Fashion Accelerator was a development program aimed at SMEs in the Danish

fashion industry that had growth potential and high ambitions, but lacked

knowledge about certain business processes. The purpose of the project was to

boost the growth of the participating companies and prepare them for

international markets, and offered a program that provided the participating

companies with knowledge, counselling and network activities, consisting of

master classes, workshops and individual mentoring through which the

companies’ development process accelerated. As part of the project I attended

a fashion management programme at European School of Economics in Milan,

11th – 15th October 2010 .The project involved 37 companies and lasted for

three years from 2009 to 2011.

http://www.fashionaccelerator.dk

2. “Fashion Zone”

In helping to put the Danish fashion industry on the map through the

introduction of fashion as the first Danish “experience zone”, the purpose of the

fashion zone was to promote Denmark as a global center for fashion, following

in the footprints of major fashion metropolises such as New York, London, Paris

and Milan. The fashion zone was made to ensure that the Danish fashion

industry continued to develop a solid network and a common platform, which

would strengthen the growth of the fashion business. The project involved the

entire Danish fashion industry and lasted from 2008 to 2011.


3. “Vækst i Kompetence Klynger” (Growth in Competence Clusters)

This project and educational programme was an introduction to cluster theory

and development. The extensive programme included working with a well-‐

tested cluster methodology, facilitating network and processes, cluster

scenarios and strategies together with branding a cluster. The programme

involved many different industry, among them the fashion industry, and lasted

from 2009 to 2010.


Appendix C – CSR: Interview/ 14th August 2013/ Pia Odgaard/ Dansk

Fashion & Textil

CSR is covering issues such as environmental externalities, ethical standards,

upholding of social norms and compliance with the law.

Aim of the interview

… By giving insight into what has been the practice of the industry in the past

and what is carried out currently, the interviewees give insight into future ways

of adding value, and new ways of doing business.

1. PAST

1. What kinds of questions are the fashion companies asking about CSR?

2. What are the SMEs asking about?

3. According to you how has CSR developed over time?

4. (Outsourcing of production = CSR = codes of conduct)

5. (New) focus areas?

6. What are the minimum requirements? Code of Conduct?

7. What do you see as the strengths and weaknesses of the SMEs in the

Danish fashion industry?


2. PRESENT

1. What is the current state of the Danish fashion industry?

2. Do you believe that the Danish SMEs can gain further growth and

development by focusing more on CSR?

3. Is a different focus needed?

4. How can the SMEs create an overview of the (most important) aspects of

CSR?

5. What tools can they use?

6. Are there any areas that offer quick returns?

7. Are the companies ready to strategically re-‐thinking factors like the

Product Development (CSR)?

8. Does public interest matter today? In what way?

9. What are the costs of CSR?

10. What are other cons to the company of CSR?

11. What are the pros to the company of CSR?

3. FUTURE

1. Is it realistic that the Danish fashion industry uses CSR as a competitive

advantage? Danish Design? Danish mentality? Values?, Good morale and

a democratic way of life?

2. What recommendations can be made to Danish fashion SMEs regarding

new methods and idea to run their businesses successfully and profitably?

3. Any new directions?


4. What is your view of international developments in manufacturing in

general? New supplier countries? The time issue? Expenses? Quality?

Transport?


Appendix D – Production: Serbian fashion and textile producers/

Spring 2012

Hajdi Baby – http://www.hajdi.rs/ Balextra – http://nistextil.com/company-‐4.htm?language=2 Novitet Zitkovac – http://www.novitet.rs/ Izvor – http://www.izvor.co.rs/nama.html Fashion Studio – http://www.facebook.com/pages/Pronto-‐studio/120086034673558 FKF – http://nistextil.com/company-‐13.htm?language=2 Pletex –http://www.ledib.org/index.php?section=companies&subsection=show_companies_details&company_

Sara Stil – http://nistextil.com/company-‐30.htm?language=2


Gruppo Fiorentino – http://www.fibre2fashion.com/news/industrial-‐textiles-‐news/newsdetails.aspx?news_id=90417 Cameleon – http://www.cameleon.rs/#/home Free Fashion – http://www.freefashion.rs/#/eng/srb David Konfekcija – http://konfekcijadavid.wsc.rs/


Appendix E – Production: SWOT analysis from interviews of twelve

fashion producers, Serbia, 2012

Facts about the Serbian garment industry

Employing 20.216 people

1.230 companies

Average gross salary: 275 Euro

Top 5 export destination: Italy, Germany, Russian federation, Bosnia,

Herzegovina, and Montenegro

Serbia, having no primary textile industry, import 90% of raw materials and

trimmings from: Italy, China, Turkey, Germany, Bangladesh

11 companies are still state owned and classified as large companies

15% of Serbian SMEs produce their own brand, established locally and export

Joint venture readiness

20% of the SMEs offer collection for the local market

65% SMEs produce CMT and OEM

Serbia has free trade agreements with the EU, Central Europe, Russia and CEFTA

making it a logistic hotspot

Good infrastructure

(Serbian Chamber of Commerce)


SWOT analysis of findings from interviews and visits to twelve fashion

producers in Serbia:

Strengths:

• The companies are not producing at full capacity

• No or low minimum orders

• The Serbian companies have a competitive advantage when selling to

stores in the Balkan states since they know the language, culture, fashion

sense and so forth

• Many of the companies have strong ties to the large Russian market, a

large growth market and a BRIC country. The access to emerging markets

is made easier because of the removing of technical barriers to trade

• The companies follow regulations and have good working conditions

• A very welcoming atmosphere and positive attitude at all the producers

that I visited

• Professional companies that really want to cooperate, and they showed

great flexibility

• Highly qualified labour with competitive wage rates

• Due to a good geographical position, close to Denmark, the logistical

issues are eased. It also offers Danish fashion companies an advantage in

that it is possible to visit the factory and check on production regularly.

This can be useful for picking up on any problems early on in the

production process, when they will be easier to rectify


Weaknesses:

• Many of the companies are not represented online, and they do not have

their own website. It seems like many of the companies are generally not

devoting time to marketing, due to lack of time, low levels of IT skills and

a lack of available finance. This makes it difficult for Danish fashion

companies to find the producers, except through referrals

• The language skills in the companies are poor when it comes to the

English language. The mindset of the companies is not very international

and ready for the tough international competition

• The price of the products seems too high despite the fact that the labour

wages are low. As a comparison the labour wages are at the same level as

wages in China, but the quoted price of the finished product is much

higher in Serbia

• Marketing and branding campaigns seemed like new grounds to many of

the manufactures visited

• Many Danish fashion companies want the producers to take care of the

sourcing of materials


Opportunities:

• Serbia is not yet a member of the European Union, but EU leaders have

agreed to open accession talks with Serbia in early 2014

• Many Danish fashion companies want to move production out of for

example China and India and closer to home, to Europe. Proximity to

market means fast reaction to changing trends

• For many Danish fashion companies Serbia is not known for its textile and

clothing industry, therefore it is an untapped market

• Some of the companies were fully aware of the benefits of technological

and non-‐technological innovation

• Existing industrial base, fashion and textile clusters

• Vertical cooperation, supply chain, manufacturing, retail, despite

globalisation all parts of value chain still present

• The producers are aware of Corporate Social Responsibility, sustainable

production and consumption and also health and safety aspects

Threats:

• The textile and clothing industry in Nis/ Serbia is characterized by a large

number of very small to medium size companies. The national industry is

up against a worldwide textile and clothing industry that is focusing on

fundamental competitive assets, an international textile and clothing

industry that is focusing on innovation and creativity, research &

technological development, education and skills preservation,

implementation of sustainable business processes, supply chain

cooperation, adoption of advanced information and communication

technology


• Economic slowdown in Europe and the companies have to survive in a

difficult economic climate

• The production of fashion is almost always labour intensive, due to the

difficulty of automating processes such as the sewing of garments.

Switching costs for Danish fashion brands are not very high: they include

the risk that choosing a low-‐cost supplier involves a more extended

supply chain that may not be able to cope with sudden changes in

demand in a market susceptible to changes in fashion. The Serbian

producers are further weakened by their lack of diversity

• Social awareness and public responsibilities in Denmark have increased

putting a considerable pressure on the competitiveness of the companies

in the fashion industry. Textile and clothing companies in Serbia has to be

willing to contribute actively to the global challenge of ensuring a more

sustainable and efficient industrial environment. This though is an

economic burden to the small and medium sized companies in Nis.


Appendix F – Production: Interviews/ Nis in Serbia 2nd – 5th April 2012/

Representatives of the fashion and textile manufacturing industry in Serbia

Production describes the process by which concepts are made into a

saleable physical product. In most cases, this means going from a small

set of samples or prototypes to commercial quantities of the item or style,

often across multiple sizes, colours and patterns. It is impossible to

separate production from the overall success of a brand, as great

concepts can be designed, developed and sold, but a fashion business will

ultimately live or die based on what is produced and delivered to the

customer.


… By giving insight into what has been the practice of the industry in the

past and what is carried out currently, the interviewees give insight into

future ways of adding value, and new ways of doing business.

1. Customer base

• What other customers does the company service?

• Can we get any references?

• What type of customers does the company serve (SMEs, larger

companies)?

2. Order size

• What minimums does the company have on the whole order?


• What minimums does the company have on each colour?

• What can we expect with regards to prices? (high, medium or low)

3. Production

• Is the company able to do FOB production?

• What machines is the company using?

• What is the company’s capacity per month/ per year?

• What is the number of lines?

• Is the company at all times open and accessible for announced and

unannounced audits for monitoring and evaluation?

• Is the company certified by the equivalent of BSCI in the Far East?

• What other certifications does the company have?

4. Code of Conduct

• Does the company support and respect the protection of

internationally proclaimed human rights?

• How does the company stand with regards to labour standards?

• Does the company have workers living on site? – If yes what

conditions are they living under?

• What is the company’s policy on working overtime?

• Is the company using environmentally friendly technologies? And

overall how does the company stand with regards to environmental

issues?


• Is the company working against corruption in all its forms, including

extortion and bribery?

• If animals are used in the production (for example in the production

of fur and wool) – how are such animals treated?

• Is the company working and seeking to be involved in local or global

charity working to the improvement of better social and living

conditions?

5. Your company

• Does anybody in the company speak English?

• How long has the company been in business?

• Where can I learn more about the company?


Appendix G – Online Sales: Interview/ 10th September 2013/ Rina

Hansen/ Head of Digital at Hummel and strategic advisor for fashion

companies

Online sales (and marketing) are covering the use of the Internet and

other electronic media to sell and promote products and services. These

marketers use a variety of Web sites, search engines, social media, and e-‐

mail to provide information to potential customers. Online sales (and

marketing) is considered an inexpensive format to reach buyers, so many

companies are using the medium to broaden the reach of traditional

marketing programs.


… By giving insight into what has been the practice of the industry in the

past and what is carried out currently, the interviewees give insight into

future ways of adding value, and new ways of doing business.


1. PAST

• What kinds of questions are the fashion companies asking about

online sales?

• What are the SMEs asking about?

• According to you how has online sales developed over time?

• (Branding = online sales = multichannel online sales = higher brand

value)

• (New) focus areas?

• What is the minimum online presence? Just a WWW?, Webshop via

other providers? Own webshop? Social media?

• What do you see as the strengths and weaknesses of the SMEs in

the Danish fashion industry?

2. PRESENT

• What is the current state of the Danish fashion industry?

• And in terms of growth and development?

• Do you believe that the Danish SMEs can gain further growth and

development by focusing more on online sales?

• Is a different focus needed?

• How can the SMEs create an overview of the (most important)

aspects of online sales and digital strategy?

• What tools can they use?

• Are there any areas that offer quick returns?


• Are the companies ready to strategically re-‐thinking factors like the

Sales (online sales)? Away from the traditional fashion business

model?

• Does customer needs matter today? In what way?

• What are the costs of online sales?

• What are other cons to the company of online sales?

• What are the pros to the company of online sales?

3. FUTURE

• What will the future hold for the Danish SMEs with regards to

online sales?

• Is it realistic that the Danish fashion industry uses online sales as a

competitive advantage? Because of technological awareness?

Internet access? Highest use of social networks in Europe?

• What recommendations can be made to Danish fashion SMEs

regarding new methods and idea to run their businesses

successfully and profitably?

• Any new directions?

• What is your view of international developments in sales and

marketing in general?

• Resale/ re-‐commerce?, transparency and traceability/ buying a

mystery is gone?, new technologies?, big data?, new interfaces

between fashion companies and customers?, online fashion shows?

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