RESEARCH METHOD OF MARKETING RESEARCH PROPOSAL

Retail Clothes Outsourcing in Peter Says Denim: Profit Maximization or Fair Trade?

Karunia Akbar (08311011) Fatih Setia Utami (08311389) Mahendra Dimas WSP (08311094)

MANAGEMENT DEPARTMENT INTERNATIONAL PROGRAM FACULTY of ECONOMICS ISLAMIC UNIVERSITY of INDONESIA 2012

I. Provisional Title The working title of the research is initially drafted as Retail clothes outsourcing in Peter Says Denim: profit maximization or fair trade? The study aims to explore what aspects of the clothing industry is commonly outsourced and whether outsourcing is a strategy which purports on maximizing profitability as well as economies of scope and scale and competitive advantage of is it a tactic to promote corporate social responsibility thereby sustainability not just of the organization but of the marginalized producers and workers. Owned by Peter Firmansyah, Peter Says Denim, on the other hand, is a clothing company originated in Bandung, Indonesia. Starting at the end of 2005, Peter, with his friends, made a band called Peter Say Sorry with a concept of music mixed with fashion. After that, he started his career making jeans designed and used by himself. There then became a lot of interest from people in making jeans from peter, including a local clothing company, and from the other countries, so he subsisted making the jeans for other peoples brands. At one time, Peter came up with an idea to make his own brand called Revenge Denim Killer, but it wasnt appropriate with what he really wanted. Its been a long time after Peter Say Sorry first started, when they had 8 demo songs, but once again Peter came up with an idea to make a brand with his band name, Peter Say Sorry, which then became Peter Says Denim. He started the new business by supporting local indie bands. Peter thinks that music is never far from fashion, theyre always connected. Peter Says Denim became popular from local brand to international brand. Nowadays, there are more than 10 authorized resellers across the world. Peter Says Denim start to spread its brand by endorsing international and local band. Peter Says Denim doesnt have its own store, but it is just a small office at Jl. Sidomulyo 25 Sukaluyu, Bandung. Most of the promotional, management, and designing activity are in here. Peter Says Denim only distribute their product on authorized reseller which is on selected store all over the world that must be fulfill the Peter Says Denim criteria. The question now is: Why does Peter Says Denim converge in the concept of outsourcing if it can do most of the work in-house? So, how outsourcing contributes to the success of Peter Says Denim? What is rationale behind Peter Says Denims decision to outsource some of the production process? Is it to lower manufacturing costs while also generating jobs for people living in developing countries? These and many other questions will be encountered though the research. The rationale behind the study is to establish

whether retail clothes outsourcing is mainly for profit maximization or fair trade. The study is significant to the field of retailing and outsourcing research and business management in general as it may unravel useful strategies for companies that belong in the clothing/apparel industry.

II Aims and Objectives The main aim of this research is to explore whether Peter Says Denim engages in retail outsourcing as efforts to maximize operational or financial performance or to empower marginalized producers, manufacturers, suppliers and workers. In lieu with this, the research seeks to accomplish the following research objectives: To establish the role of outsourcing in global companies like Peter Says Denim To examine the processes that Peter Says Denim outsourced and determine how it contributes to product optimization To analyse Peter Says Denims objectives in outsourcing of the manufacturing processes and understand why they have to do it To evaluate the companys commitment in outsourcing as a strategy that could boost competitive advantage In accomplishing these objectives, the following research questions will be given answer to: 1) Is outsourcing perceived as a strategy to acquire competitive edge or is it a strategy for enhancing the corporate image? 2) How does outsourcing strategically fit to Peter Says Denims value chain? in Peter Says Denims business model? 3) To what extent does outsourcing contribute in responsive capability of the company? 4) Under what circumstances outsourcing become a value-adding activity for Peter Says Denim? 5) Is outsourcing a must for Peter Says Denim? Why?

7) Hows the role of the retail business in the outsourcing process of Peter Says Denim?

III Research Purpose The purpose of this research is to find out how Peter Says Denim as developing brand gaining a success through the outsourcing strategy. This research hopefully can help new fashion companies to compete in the national market and the international market. The research finding also wil be usefull for the marketers to build a strategy for market their product.

IV Research Contribution This research is expected not only give theoritical contribution but also give practical contribution for the marketers. By doing these research, it will contribute for the marketers to find the usefulness of the relation within the company and the outsourcing business and how itll affect the company itself. This research will also give an example of the Peter Says Denim strategy in the term outsourcing their business when the still developing their brand and what are they gain when they use the strategy.

V Brief Review of Literature and Hipothesis This study will find out about the goals Peter Says Denim about their outsourcing strategy by examining the outsourcing of products, retail business, and the marketing of clothing and apparel. to facilitate the development of research hypotheses to begin discussion of outsourcing products as independent variables followed by a discussion of clothing or textile industry as a mediating variable and the retail business as an independent variable. 1. Products Outsourcing In the early 1980s, "outsourcing" typically referred to the situation when firms expanded their purchases of manufactured physical inputs, like car companies that purchased window cranks and seat fabrics from outside the firm rather than making them inside, but in 2004 outsourcing took a different meaning by the growth of the telecomunication industry, this segment become long distanc or according to what Bhagwati (1984) called "longdistance," purchase of services abroad, principally, but not necessarily, via electronic mediums such as the telephone, fax and the Internet. In February 2004, the members of President Bush's Council of Economic Advisers stated the following, Outsourcing of

professional services is a prominent example of a new type of trade" (Mankiw, Forbes and Rosen, 2004). The chair of the CEA, Gregory Mankiw, made a similar point in a press interview (Andrews, 2004) : "I think outsourcing is a growing phenomenon, but it's something that we should realize is probably a plus for the economy in the long run. We're very used to goods being produced abroad and being shipped here on ships or planes. What we are not used to is services being produced abroad and being sent here over the Internet or telephone wires. But does it matter from an economic standpoint whether values of items produced abroad come on planes and ships or over fiber-optic cables? Well, no, the economics is basically the same." Sabath (1995) claims that traditional supply chains can be problematic, stating that each step back in the supply chain, volatility of demand increases and forecast accuracy decreases.Because, traditional supply chain relies on at three inventory buffers to smooth the flow of goods through production and provide a reliable response to volatile consumer demand. The slow reaction of the supply chains is not effective againts consumer trends demand, as we know the fashion industry is not easy to predictable,they treat all items very much the same whereas in the integrated approach, the supply chain in linked organizationally and coordinately with information flows from raw materials to on-time delivery of finished products to customers. Sabath also assert that integrated, coordinated supply chain are extremely responsive and reacts quickly to support the companys rapid growth. OSD Comptroller iCenter (2006) outlines the advantages of integrated supply chain which includes quicker customer response and fulfillment rates; greater productivity and lower costs; reduced inventory throughout the chain; improved forecasting precision; fewer suppliers and shorter planning cycles; improved quality and products that are more technologically advanced; enhanced inter-operational communications and cooperation; shortened repair times and enhanced equipment readiness; and more reliable financial information. Because of this reasons, shippers' growing concern towards cost, service, focus or core competencies, experience, asset reduction, access to suitable information technologies etc. is perceived by LSP and this growing concern has compelled to venture new intrusion in to their offerings ([27] Gooley, 1994). [2] Bardi and Tracey (1991) and [44] Lieb and Randall (1996), surveyed firms using outsourcing services to determine the extent of logistics outsourcing penetration

Tracogna relates that outsourcing is a term coined to describe the practice chosen by several companies of contracting out to other companies some activities of the value chain that used to be carried out in-house. Companies have varying reasons for outsourcing. First is the search for flexibility wherein firms outsource production when there is high demand. When demands subside, outsourcing stops. Second is to lower costs, benefiting from suppliers economies of scale and specialization. Market forces are somehow driving firms to outsource everything but the core business ([17] Gupta and Gupta, 1992). And outsourcing makes it easier for these firms to focus on their basic competences ([16] Grover et al. , 1996; [19] Hayes et al. , 2000; [29] Lacity et al. , 1994; [40] Smith et al. , 1998; [48] Willcocks et al. , 2006). In the former, the supplier could integrate demand from a large number of clients and in the latter, the supplier could specialize in a single activity while also reaching a world class level of excellence. In outsourcing business processes, the contract manufacturer is responsible for managing the complete business on behalf of the client company. As a result, contract manufacturing is more often connected to provision of logistics services and management of orders.Muller(1991) also stated outsourcing all or part of logistics function in a logistical supply chain to logistics service providers (LSPs) has now become the norm across the industry. Supply chain management is regarded as the coordination of information, manufacturing and logistics flow. Gong back, outsourcing necessitates every company to face two opposing objectives. One is to exploit opportunities offered by existing markets for resources and the other is to limit strategic vulnerability in the event of the break-up of relationship with suppliers or the overall market failure. [65] Schultz (2005), suggested seven guidelines to keep healthy relationship which include "sharing the benefits, realistic request for proposal (RFP), going for hype-vs.-reality check, measuring everything, keeping accurate record, it is not an all-or-nothing game and nobody is perfect" H1 : Outsourcing in marketing process is a strategy that purpose to expand market in new area, and to acquire a share in competitive market. H2 : Outsorcing in marketing is a good tool for a developing brand, to penetrate current market and expand new market H3 : Company can react faster to delivering goods to the consumers by outouurcing their bussinesss in a specific area. H4 : Company can globalize their product faster by doing outsourcing.

2. Fashion/Textile Industry In todays high street fashion competition fashion industry are adopting strategies to compete and survive in order to capture and maintain market share. Being a seasonal and highly volatile market the fashion market is always vulnerable to the concept of fading-out. Everyday a new design, style, fad or fashion develops and becomes hype hence fading out the previous fashion (Hasan Gilani,2010). Fashion and clothing or apparel markets are synonymous with rapid change and, as a result, commercial success or failure is largely determined by the organizations flexibility and responsiveness. A study conducted by Christopher, Lowson and Peck (2004) disclose that responsiveness is characterized by short time-to-market, the ability to scale up (or down) quickly and the rapid incorporation of consumer preferences into the design process. They assert that conventional organizational structures and forecast-driven supply chains are not adequate to meet the challenges of volatile and turbulent demand which typify the clothing industry. Instead, the requirement is for the creation of an agile organization embedded within an agile supply chain. Shelton and Wachter (2005), moreover, trade agreements have influenced the production, manufacturing and sourcing of textile and apparel products whereby small- and large-scale restructuring of the industries of the world are required in response to the changes in trade of textiles and apparel. Strategic Direction (2003) states that in the last 30 years, fashion has changed from an elite accessory of the super-rich to a mass-market product, and Peter Says Denim is one of the key players. Since the late nineties, departement store in Indonesia are losing its fame to being the main shop for the consumers who thirst for new fashion because of the emergence high quality national product. Mazaira, Gonzalez and Avendao (2003) discovered that organizational culture and market orientation in particular have effects on the behavior and results of managerial organizations such as Peter Says Denim. Peter Says Denim, was build in Bandung. The main goal itself its to build competitive product which can be compete in high class fashion in international market. The development of market orientation inside the company is treated as a basis for the companys performance and competitive advantages. Strategic Direction (2005) maintains that the success of Peter Says Denim in the retail business depends heavily on its ability to meet demands and respond quickly to fluctuations and change.

H5 : The change of the market demands influenced by the trends push the company to react fast to delivering the goods to the consumers H6 : Competitive fashion industry require the company to react faster to gain the consumers

3. Retail Bussiness Much of the literature agrees on how important the retail environment is in terms of supporting and ensuring that product is available to the customer at the conclusion of the supply chain. Kent (2007), highlights the shift in emphasis to the consumer experience of the retail environment, rather than a focus on manufacturing and supply chain domination. Furthermore, the visual merchandising of the retail environment is considered to be key in the visual marketing communication of a retailer, acting as a promotional tool (Lea-Greenwood, 2009). Global retail sector has seen a tremendous growth in the last few decades. The global retailing industry group grew by 8 % in 2010 total retail sales (including food service and automotive) to reach a value of $4.7 trillion. (Data Monitor-2011). By History, retail operation has been limited to a national level, since every country have different system and law to operate the retail. However, due the expansion of the market because of globalization and rise in accessibility, the scope of retailing operation is becoming international. Cross country retail operations has been going on since long and as a result of international exposure, the Internationalisation of Retailing has become a known phenomenon. Although retail internationalisation has been in practice since a long time, the academic contribution and the socialization towards this subject are somewhat limited The retail environment is characterised by a number of physical elements which converge to create a distinctive image appropriate to the fashion merchandise in which a retailer specialises. [29] McGoldrick (2002) and [39] Varley and Raffiq (2004) agree that the retail environment is a combination of physical and emotional: tangible and intangible attributes. All of these attributes collectively contribute to the overall in-store communication of the product or retailer with an overarching aim to encourage purchase, however, the

physical attributes of the store are those that focus on the communication elements of the environment ([27] Kerfoot et al. , 2003). H7 : Retail business have a big role to the companies to market their product and for the measurement of consumers demand in specific area.

VI Statement of the Design and Methodology The research will operate within the cross-sectional design, as I will be collecting data using questionnaires, semi-structured interviews, structured observation, and document analysis. The benefit of this would be that would be able to focus on the breath of the research. Moreover, by exploring the breath of the topic, I am increasing my validity and the truthfulness of my research, and thereby minimize the confounding variables. Further, the research strategy that will be employed is case study. According to Robson (2002), a case study is a strategy for doing research which involves an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence. Interpretivism is the necessary research philosophy for this study because it allows searching the details of the situation to understand the reality or perhaps a reality working behind them (Remenyi et al, 1998). The research strategy to be used is exploratory research because it aims to know more about the phenomenon of outsourcing as applied in the clothing and apparel industry. Exploratory research will enable the study to look at the problem in both descriptive and exploratory manner. This approach is a preferred mean of finding out what is happening to seek new insights or to ask questions or to assess phenomena in a new light (Saunders et al, 2003; Robson, 2002). This study will use the principal ways of conducting an exploratory research, which include: literature search; talking to experts about the subject; participative observation and conducting survey and interview.

VII Sources and Acquisition The research will utilise both primary and secondary research. In primary research, the study will survey and interview representatives from Peter Says Denim. A semi-

structured questionnaire will be used as the survey tool for the study. Accordingly, semistructured interview questions will be developed to provide the researcher the opportunity to probe answers, which can be done in instances where there is a need or want for the interviewees to explain further or build on their responses. It is planned that the questionnaire will have open-ended, probing, hypothetical and reflective questions aside from the 5-point Likert scale ranking questions. A secondary research will also be conducted in the study. Sources in secondary research will include previous research reports, newspaper, magazine and journal content. Existing findings on journals and existing knowledge on books will be used as secondary research. The interpretation will be conducted which can account as qualitative in nature. The companys data will be collected. However, I will respect the commercial confidentiality of any information obtained. The respondents of the questionnaires will be able to choose whether to identify them or stay anonymous. I will establish with the data providers the use of my data and will ask their permission in case of publishing data. Before sending out the questionnaires and doing interviews, I will check them with my supervisor. Participation consent forms and interview consent forms will be also accomplished. And before getting interviews recorded, I will ensure if it is acceptable by person interviewed. I will ensure that the data will be kept confidentially. All the data collected by the researcher will be computed and saved into Thumb drive for future retrieval, which is accessible only to the researcher involved in this study.

VIII Method of Data Analysis Data gathered using these instruments will be collated for analysis. Data analysis will primarily be characterized by comparative and statistical approach. Initially, after gathering empirical data, contextual or thematic content analysis of the literatures will be adopted. Contextual analysis refers to the method of analysing the contents of literature and research and identifies how the themes relate to the study. Qualitative data analysis will be used to collect relevant themes from the interview responses and categorize them accordingly. From those themes, the study will develop insights regarding the subject. The following statistical formula will be used in thematic content analysis.

1. n

Percentage to determine the magnitude of the responses to the questionnaire.

% = -------- x 100 N

n number of responses N total number of respondents

2.

Weighted Mean f1x1 + f2x2 + f3x3 + f4x4 + f5x5

x = --------------------------------------------- ; xt where: f weight given to each response x number of responses xt total number of responses

VIII Timetable TASK Read Literature Finalize Objectives Draft Literature Review 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th

Devise Research Approach Review Secondary Data Organize Interviews Develop Interview questions Conduct Interviews Analyze secondary & primary data Evaluate data Draft Findings Chapter Complete remaining chapters Submit to tutor and await feedback Revise draft and format for submission Print, Bind Submit

IX References

Christopher, Mm Lowson, R and Peck, H 2004, Creating agile supply chains in the fashion industry, International Journal of Retail and Distribution Management, vol. 32, no. 8, pp. 367-376.

Cohen, S and Roussel, J 2004, Strategic Supply Chain Management: The Five Disciplines for Top Performance, McGraw-Hill Professional.

How Zara fashion its supply chain: Home is where the heart is 2005, Strategic Direction, vol. 21, no. 10, pp. 28-31.

Gemawat, P and Nuevo, J L 2006, HBS Case ZARA: Fast Fashion, Harvard Business School.

Mazaira, A, Gonzalez, E and Avendao, R 2003, The role of market orientation on company performance through the development of sustainable competitive advantage: the Inditex-Zara case.

OSD Comptroller iCenter 2006, Integrated Supply Chain Management, retrieved on 17 October 2008, from http://www.dod.mil/comptroller/icenter/learn/iscmconcept.pdf.

Remenyi, D, Williams, B and Swartz, E 1998, Doing Research in Business Management: An Introduction to Process and Method. Sage, London.

Robson, C 2002, Real World Research, 2nd ed., Blackwell, Oxford.

Sabath, R 1995, Volatile demand calls for quick response: the integrated supply chain.

Saunders, M, Lewis, P and Thornhill, A 2003, Research Methods for Business 3rd ed, Prentice Hall Financial Times, London.

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Shelton, R K and Wachter, K 2005, Effects of global sourcing on textiles and apparel, Journal of Fashion Marketing and Management, vol. 9, mo. 3, pp. 318-329.

Tracogna, A n.d., Introduction to Business Management. University of Trieste. Retrieved on 17 October 2008, from

http://www2.units.it/~logmaster/EN/doc/PROF..%20presentation.ppt#289,1,Introduct ion to Business Management

Zara creates a ready to wear business: Leading fashion label designs its whole operation to fit the customer 2003 Strategic Direction, vol. 19, no. 11, pp. 24-26.

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