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Grupo Denim Company’s High-Margin Product Strategy Essay


Introduction

Denim clothes are not an exclusive type of product. Many countries have facilities that manufacture large quantities of denim on-demand from Western countries. Grupo Denim is a Mexican company that provides more benefits in this field for American customers that organizations in other states. The balance of location and professionalism combined with the local economic policies make Grupo Denim a perfect manufacturing site that allows developing a long-term strategy for receiving products with a high margin.

SWOT Analysis

Grupo Denim’s evaluation depends on both internal and external factors. Strengths and weaknesses are the characteristics of the company itself. They are more flexible and may be changed by implementing new policies or technologies on a production site. External factors are the social and economic realities that influence business. These are the major processes that cannot be influenced by the company level. External factors typically include opportunities and threats faced by an organization.

Strengths

Grupo Denim has several clothing models that it can produce regularly. Apart from classic jeans, the company has the technology to manufacture slacks, dungarees, carpenters, shorts, skirts, and even workwear. The fashion clothing is also an option. Although this range is less than or similar to other companies, it is enough to satisfy the need in producing denim skirts, shorts, and children’s jeans, which is the primary target.

The monthly garment volume is also one of the company’s major strengths. Grupo Denim can produce up to 1,600,000 items every month, which is one of the highest numbers among the reviewed companies. Although the target number is only one million items per year, the manufacturing capacity of Grupo Denim makes it possible to develop strategies for the further growth of production or plan a possibility of extra orders during the high season.

Another strength of the company is that it can be easily accessible from the territory of the USA. It has an office in Colorado state, which customers may contact and receive support regarding any questions about ordering that they may have (“Contacts” para. 1). Of course, they can also travel to the production site and see how the processes are executed.

Grupo Denim has one of the biggest numbers of employees, which is 7000 people. There is a total of 7 facilities around the country. This helps the company to be more flexible than its competitors in switching from one type of item to another. Besides, all facilities are modern, which ensures a highly technological approach to each step of production. The quality of garments is claimed to be as high as other companies offer, yet several famous customers of Grupo Denim prove that this manufacturer can be trusted regarding this feature. Some of the top clients of the company include Lee and its subdivisions, Wrangler, Vans, and Hero.

Weaknesses

The main weakness of Grupo Denim that affects the company’s operating process is the high cost of transporting. Most items produced in Mexico are delivered by sea. They are mainly loaded on ships in the port of Altamira. Although the company has several production sites, all of them are far away from this location, which increases costs on transportation. The lead time in Grupo Denim is another factor that does not stand out in this industry. However, this factor can be improved over time through rethinking the process of manufacturing each item due to the high flexibility of sites.

Opportunities

Most of the opportunities for Grupo Denim are dictated by the beneficial location and special trade regulations with the United States. Besides, current economic processes in the world affect the company, as some countries recover from the recession, and others have a rising level of life of their nations.

The main opportunity for Grupo Denim as a Mexican company is its location. Being a neighbor of the USA, Mexico can ensure that products from its territory reach American customers faster than other countries can make it. Besides, it is easier to track orders and solve issues at any stage of the production process. American clients can travel to Mexico faster than to Asia. Moreover, the same time zones allow synchronizing the work of American customers and Grupo Denim representatives in Mexico. Although this feature does not allow to work ahead of the clock, all issues can be managed on the spot.

One of the most valuable opportunities for Grupo Denim is that there are no duties of trading between Mexico and the USA. Mexico is a member of the North American Free Trade Agreement (NAFTA). It is targeted at eliminating barriers for trade processes between the USA, Mexico, and Canada (“North American Free Trade Agreement (NAFTA)” para. 1). This means that Grupo Denim as a Mexican company will spend less time on transporting the items to the USA than manufacturers from other countries. The positive impact of the Agreement is that it has stimulated the growth of workplaces in all three countries.

The local political and economic situation in Mexico also supports the business of Grupo Denim. The industry of clothing production belongs to one of the most developed sectors of the country’s economy. It creates a reputation for the company’s professionalism. The workforce in the clothing and textile industry is highly skilled due to the Foreign Direct Investment (FDI) program exercised since the 1970s (United Nations 3). Besides, Mexico is a politically stable state, which eliminates the possibilities of frequent changes to the existing trade and production policies. Moreover, the country does not have any unresolved conflicts with neighboring countries. It is a peaceful place that has a little chance of entering an open war conflict, thus putting its production lines to threat.

Finally, the economy of other major industrial countries influences Grupo Denim as a Mexican company. For instance, China is known to have facilities for manufacturing almost every kind of item or technology in the world. However, the country’s economy has grown, and workers nowadays require higher salaries (Anbarasan para. 8). This fact, combined with the difficulties and costs of shipping, make Mexican companies more attractive in the eyes of American customers than Chinese ones. The latest reports show that the American market has more Mexican denim clothes than those from China (Russel para. 1).

Threats

Of course, some threats are associated with clothing production by Grupo Denim as a Mexican company. Firstly, it is the cost of labor in this country. Although it was mentioned above that one of the major industrial countries has increased the wages for its workforce, Mexican labor remains one of the most expensive among similar states. However, this is understandable due to the higher level of the economic development of this country compared to its main competitors like Egypt, Pakistan, and Bangladesh, which are known for their mass production of cotton items.

Another threat to the company’s business success is the fact that the Mexican economy is highly dependent on US financial stability. Once again, the business ties between these two countries offer some disadvantages. The poor economic situation such as the latest recession makes the American demand for clothing decline, which directly influences the number of orders for Grupo Denim, thus affecting its revenues.

Finally, although Mexico is a very stable and peaceful country, it may be affected by natural disasters (“Busy 2011 Fire Season in Mexico” para. 1). Fires and tornadoes are among the most frequent causes of environmental issues in the state. However, such force major events are not frequent and the company has several production sites that can operate independently.

Implications for Strategy

The cost of production done by Grupo Denim is the largest compared to its competitors in Egypt, Bangladesh, and Pakistan. The margin on most of the items that are planned for ordering is slightly less than that of competitors. Besides, the quality of items seems to be more or less equal in all cases. Lead times vary, with some companies offering more flexibility than others.

Nevertheless, Grupo Denim has one major benefit as a Mexican company that makes it stand out from other production corporations. The risks of dealing with this company are much lower than conducting business in Egypt, Pakistan, or Bangladesh. All three countries have a high level of terrorist attack possibility.

Works Cited

Anbarasan, Ethirajan. BBC News. 2012, Web.

“Busy 2011 Fire Season in Mexico.” NASA Earth Observatory, 2011, Web.

“Contacts.” Grupo Denim, Web.

“North American Free Trade Agreement (NAFTA).” United States Trade Representative, Web.

Russel, Judith. Sourcing Journal. 2015, Web.

United Nations. World Investment Report 2015: Reforming International Investment Governance. United Nations Publication, 2015.

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IvyPanda. (2020, October 30). Grupo Denim Company's High-Margin Product Strategy. Retrieved from https://ivypanda.com/essays/grupo-denim-companys-high-margin-product-strategy/

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"Grupo Denim Company's High-Margin Product Strategy." IvyPanda, 30 Oct. 2020, ivypanda.com/essays/grupo-denim-companys-high-margin-product-strategy/.

1. IvyPanda. "Grupo Denim Company's High-Margin Product Strategy." October 30, 2020. https://ivypanda.com/essays/grupo-denim-companys-high-margin-product-strategy/.


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IvyPanda. "Grupo Denim Company's High-Margin Product Strategy." October 30, 2020. https://ivypanda.com/essays/grupo-denim-companys-high-margin-product-strategy/.

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IvyPanda. 2020. "Grupo Denim Company's High-Margin Product Strategy." October 30, 2020. https://ivypanda.com/essays/grupo-denim-companys-high-margin-product-strategy/.

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IvyPanda. (2020) 'Grupo Denim Company's High-Margin Product Strategy'. 30 October.

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