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Evaluate the advantages and disadvantages of international brand licensing agreements and multi-brand strategies for a global sportswear brand.
Descente Ltd. is a multi-brand sportswear and performance apparel company headquartered in Osaka, Japan. Descente Ltd. was founded in 1935 by Taeko Ishimoto, the grandfather of Descente’s current president Masatoshi Ishimoto, under the name of “Ishimoto Shoten.” Initially Ishimoto Shoten specialized in the manufacturing and sales of baseball equipment. In its creation of cream-colored baseball uniforms in 1953 and windbreaker jackets for the skiwear market in 1957, Ishimoto Shoten became recognized as a fashion label that specialized in the manufacture and sale of performance sportswear (Descente Ltd. 2018a). In 1961, “Ishimoto Shoten” was rebranded as Descente, a word of French origin whose literal translation is “downhill skiing,” and adopted a “spirit mark” logo which represents the basic skiing techniques of “schuss,” “traverse,” and “sideslip” (Descente Ltd. 2018a).
Since its establishment Descente Ltd. has focused on the technical aspects of sportswear and was an early adopter of testing skiwear through wind tunnel tests in a laboratory and wear tests by downhill skiers in order to improve its performance. In addition, Descente’s sportswear brand incorporated fashion and styling aspects to racing skiwear. Descente’s technological advancements became well known to sport enthusiasts when they were applied to the uniforms of US speed skater Eric Heiden, who won five gold medals in the 1980 Lake Placid Olympics. Further technological advancements in performance wear by Descente have included the creation of protective clothing for mountain climbers, apparel designed to enhance speed for bicyclists, cold weather apparel that incorporates its own heating system, compression support layers for athletes, and protective clothing for firefighters (Descente Ltd. 2018a).
In 1964, Descente Ltd. entered into an exclusive licensing agreement with Munsingwear, the famous creator of golf apparel and parent company of “Original Penguin.” In this licensing agreement Descente Ltd. paid Munsingwear royalties to use its trademark on Munsingwear-approved products for a particular time period. Through these arrangements Descente Ltd. became the sole manufacturer and distributor of Munsingwear products in Asia (Descente Ltd. 2018b). This agreement with Munsingwear sparked a pattern of Descente Ltd. entering into licensing agreements with brands that were not traditionally based in Asia, the largest of which was signed in 1970 with German sportswear brand adidas. In the mid-1970s, Descente further acquired the production and sales rights from German swimwear brand arena, in 1980 they entered into a licensing agreement with French athletic shoe producer le coq sportif, and in 2003 they acquired licenses for Cutter & Buck and Lanvin Sport (Descente Ltd. 2018a). Licensing agreements such as these allow brands to become more international in their scope, as their products are manufactured and sold in regions of the world by local brands, often without accruing expenses from tariffs (import taxes) that would otherwise be levied on them.
This management strategy proved successful for Descente Ltd. until 1998, when adidas terminated their licensing agreement and caused Descente to lose 40 percent of its sales revenue (Koshikawa 2014). At this time most of Descente’s sales were focused in Japan; after losing their license with adidas, Descente Ltd. recognized that in order to recover they needed to expand into the international market. They first decided to target the growing Korean fashion market and, in 2000, established Korea Descente Ltd. (Descente Korea Ltd. 2018). Descente identified that there were differing consumer demands between Korea and Japan that required a different business strategy within Korea. For example, the sport system in Korean universities was not as developed as in Japanese universities, so Descente recognized that the interest in sportswear within Korea would not be as large. Consequently, rather than focusing on sportswear as they had within Japan, Descente decided to instead focus on selling footwear within Korea. By adapting their product offerings across different countries, Descente thus began to adopt a localization management strategy.
As well as branching into international territories, Descente Ltd. also took to reforming its Japanese business. In 2013 Descente Ltd. opened its first store for the Descente brand in Harajuku, Tokyo, which has been considered its flagship store. The Harajuku store was followed by more stores in Tokyo, Nagoya, Osaka, and other metropolitan areas in Japan. With a focus on Descente’s ALLTERRAIN lifestyle brand collection, it is estimated that approximately 40 percent of their customers are non-Japanese (Descente Ltd 2017; Koshikawa 2014).
Following the loss of the adidas license, Descente’s management also acknowledged the risk of the licensing agreement part of their business and decided instead to focus on building their namesake brand (Descente) and on acquiring trademarks rather than licensing agreements with other brands. Whilst they had touched on acquiring trademark rights a lot earlier in their development, as can be seen in the successful acquisition of trademark rights in Japan and other Asian countries for Munsingwear in 1984, this was not a key company strategy. With trademark rights Descente Ltd. were able to control the product development for all products of a brand within a region with no time restrictions.
Descente Ltd. has become a multi-brand company with ownership of its namesake brand Descente and regional trademarks for five other brands, which the company labels “housebrands” (see Table 1). Although Descente has continued to accrue some licensing agreements with brands, including Cutter & Buck and Lanvin Sport (see Table 1), as of 2017 housebrands comprised 92 percent of sales. Therefore, if these licensing agreements expire or are not renewed, Descente’s overall business performance is unlikely to be negatively affected.
Table 1. Descente Ltd. Brand Names
As Descente Ltd. has grown internationally, the company has created subsidiary companies (owned and controlled by Descente Ltd.) in primary markets. These companies include Descente Japan Ltd., Beijing Descente Ltd., Hong Kong Descente Trading Ltd., Singapore Descente Ltd., Descente North America, and Descente Korea Ltd.; within each company, Descente implements a localization management strategy. Descente Korea Ltd., for example, is a subsidiary company of Descent Ltd. that is operated by Hoon-Do Kim. Although born and raised in Korea, Kim earned his bachelor’s degree in Japan and therefore understands the consumer culture, trends, and mindsets of both countries. Whilst initially Descente Korea Ltd. sold products, such as footwear, that were already available in Japan, Kim’s background in Japan and Korea provided him with the insight that Japanese sports enthusiasts preferred performance sportswear whereas Korean consumers preferred casual sportswear, and therefore Descente Ltd. would need to localize their product offering within Korea in order to perform successfully. The Korean subsidiary company has consequently chosen to emphasize and develop a larger product offering within the casual sports fashion sector when compared with the performance-based focus of the Japanese subsidiary company. As a result, Descente’s running shoe has become more popular in Korea than Japan; in response to this popularity, the company has localized this product so that it is offered specifically in Korean shoe sizes. With a localization strategy Descente Ltd. are able to develop their product offering and therefore strategize and increase local sales within their subsidiary companies.
In 2018 Descente built a Research and Development Center in Busan, South Korea, in order to raise its competitiveness in the supply of both materials and design, to reach its goal of establishing itself further within the Korean footwear market (Nikkei Asian Review 2017). Descente Ltd. championed further localization within their Korean subsidiary company with a strategic planning effort (“VISION 2020”), in which they declared a goal of being the number one sports fashion company in Korea. Whilst this ability to strategize local sales and respond to local demands is an advantage of localizing businesses, doing so also has a large number of disadvantages. By focusing on products for Korean customers, for example, Descente Korea Ltd., is not necessarily contributing to the global growth of the company.
Descente Ltd. has been built on a multi-brand strategy, which involves producing and marketing its own namesake brand (Descente) alongside a multitude of US- and European-based brands within Asia (such as Munsingwear, arena, Umbro, and le coq sportif). These brands have different target markets, products, and price points. As such, separate marketing strategies and messages are required for each brand. For example, even within the same country the target customer for Descente’s performance skiwear is different to the target customer for Munsingwear golf apparel, and therefore each brand requires very different branding strategies and marketing messages. Managing the brand identities for fifteen brands in unique territories can be challenging. Moreover, while it is not uncommon for other global sportswear companies to offer multiple brands, these companies, such as Nike, frequently have a global following of their namesake brand. Descente’s namesake brand, on the other hand, is not very well known globally. As Descente Ltd. moves forward in the global market the effectiveness of their management and brand strategies must be continually assessed.
You have been assigned the role of overall manager for Descente Ltd. and are required to review the advantages and disadvantages of its current business structure in order to evaluate whether a change of strategy is necessary. Please evaluate the advantages and disadvantages of the following:
This case study is designed for students in courses on international management, international marketing strategy, and/or brand management. To successfully complete the case study, students should have a basic knowledge of marketing, management, and branding concepts and theories. With this case study students should be able to analyze advantages, disadvantages, challenges, and benefits of subsidiary companies that are headquartered in countries other than the parent company, and understand how to adapt to local needs appropriately and to build an optimal brand strategy in foreign markets. Students should also begin to develop an understanding of the concept of localization management and be able to apply this concept to not only the sportswear industry but also to other industries; they should also consider the relationship between localization and multi-brand strategies. Students may take on the role of the CEO of a subsidiary company or marketing manager and propose responses to the study questions before making a recommendation in response to the major questions.
The Business Questions can be used as prompts for out-of-class writing assignments. Students would be expected to research and respond to each of the questions. Grading of the questions would be based on their providing complete answers with justification. The out-of-class writing activity could then be used as the basis for in-class small group or full class discussion.
The case study could serve as a prompt to a larger discussion on target market analysis and the impact of the country or region of the world on consumer behavior. That is, what aspects of consumer behavior are unique to a particular country or area? What aspects of consumer behavior transcend the country or region of the world? Why?
Opening remarks can pose questions to the class about brand strategy, “multi-brand strategy,” and “Localization of Management” in relation to real cases in the industry to stimulate discussion: for example, what are the strengths and weaknesses of a multi-brand strategy and a single brand strategy?
Descente Korea Ltd. 2018. ”About Us.” Accessed October 2018. http://www.descentekorea.co.kr/about-us/descente-korea.php .
Descente Ltd. 2017. Interim Business Report 2018. Accessed October 22, 2018. https://www.descente.co.jp/en/ir/20171128interime.pdf .
Descente Ltd. 2018a. ”About Us.” Accessed October 1, 2018. http://www.descente.co.jp/en/company/history/ .
Descente Ltd. 2018b. ”Munsingwear.” Accessed October 1, 2018. http://www.descente.com.hk/new/html/en/index.php?page_id=16 .
2014. “Descente Trying to Adopt Korean Business Model.” Nikkei Asian Review, December 2, 2014. Accessed October 22, 2018. https://asia.nikkei.com/Business/Descente-trying-to-adopt-Korean-business-model ..
Nikkei Asian Review. 2017. ”Descente Suits Up with New Sportswear R&D in Japan, South Korea.” September 6, 2017. Accessed October 8, 2018. https://asia.nikkei.com/Business/Descente-suits-up-with-new-sportswear-R-D-in-Japan-South-Korea .
The author(s) wrote this case solely to provide material for class discussion and independent learning. The authors do not intend to illustrate either effective or ineffective handling of a situation. The comments and interpretation presented are not necessarily those of the company or its employees.
This case has been written on the basis of published sources only. The interpretation and perspectives presented in this case are not necessarily those of the company in question or any of its employees.
- Licensing Agreement:
- Localization strategy:
- Subsidiary company:
- Trademark acquisition: