Think for a moment about the brand names of high-end fashion and leather goods – names such as Louis Vuitton, Donna Karan, Fendi, Loewe, Céline, Marc Jacobs, Berluti, Rossimoda and StefanoBi; alcoholic beverage brand names such as Moët et Chandon, Hennessy and Dom Perignon; perfume brand names such as Christian Dior, Guerlain, Givenchy and Kenzo; and watch brand names such as TAG Heuer, Zenith and OMAS. The world’s largest luxury goods group, France-based Moët Hennessy Louis Vuitton (LVMH), controls all of these brand names. LVMH was created in 1987 as the result of a merger between Moët Hennessy and Louis Vuitton. As of 2021, the company was a highly internationalized conglomerate with annual revenue of 64.21 billion euros and an international retail network of more than 5,556 stores. Geographically, 6 per cent of its revenues came from France, 15 per cent from the rest of Europe, 26 per cent from the US, 7 per cent from Japan, 35 per cent from the rest of Asia and 11 per cent from other markets,[i] making it one of the world’s truly global companies in terms of geographic sales dispersion.
With more than 60 per cent of it 175,000 worldwide employees based outside of its French home base,[ii] LVMH has had to carefully design its international human resources management. A crucial component of international human resources management at LVMH is the management of international assignments, with expatriates occupying key strategic positions. Such assignments are often a steppingstone towards even more important jobs in the future.
In 2001, LVMH had 260 expatriates, and the number of expatriates is rising. In 2011, one fifth of all transfers within the LVMH group were to a different country. Additionally, 1500 executives were transferred to various brands across the LVMH portfolio.[iii] In 2022, LVMH still maintains expatriates all over the globe, often sending employees from core city centers to expanding locations across the globe. What is the approach to expatriate management at LVMH? How can LVMH improve further its expatriate management approach to facilitate its international expansion?
History and organizational structure
The 1987 merger that created LVMH combined companies from two different industries. On the one hand, Louis Vuitton founded his ‘House of Louis Vuitton’ Company in Paris in 1854, specializing in creating extraordinary quality bags. The Louis Vuitton Company had a tradition of using multiple marketing instruments, with campaigns that included the use of famous photo models and actresses, print ads in magazines and billboards in cities. Interestingly, counterfeit Louis Vuitton products have something of a cult-like following among (often middle-class) consumers. In 2004, counterfeit Louis Vuitton products made up 18 per cent of counterfeit accessories seized in the EU.[iv] The company is best known for its fashion and leather goods.
Hennessy, on the other hand, was started as a liquor trading business by Irishman Richard Hennessy in Cognac, France, in 1765. The successive generations of Hennessy continued to expand the business into brandy production and established the firm as the leading manufacturer of cognac. In 1971, Hennessy merged with Moët et Chandon, a leading champagne producer.
After the 1987 merger, LVMH expanded rapidly through both organic growth and acquisitions. For example, LVMH acquired Kenzo in 1993, the jeweller Fred and the perfume manufacturer Guerlain in 1994, Céline in 1996, and the world’s number one distributor of luxury products, Duty Free Shoppers, in 1997. The expansion resulted in the world’s largest luxury goods company with more than 75 major brands.
To manage this diversity of brands, LVMH emphasizes the importance of decentralization in its organizational structure. As stated on its website: “The Group’s organizational structure is decentralized, which fosters efficiency, productivity, and creativity.”[v] LVMH is organized into six business groups and around .[vi] The business groups are: wines and spirits, fashion and leather goods, perfumes and cosmetics, watches and jewellery, selective retailing and other activities. Each business group includes a collection of brands. The 75 companies represent the substantive foundation of LVMH, and manage around 450 subsidiaries around the world. With major responsibilities delegated to these companies and their subsidiaries, senior management expects entrepreneurial initiatives from managers at both the company and subsidiary levels.
Organizing human resources management[vii]
Human resources managers at LVMH operate at four levels: corporate, regional, business group and company. Corporate human resources managers mainly provide adaptable guidelines and procedures to be adopted by the business groups and companies. These guidelines are not strict rules, and business groups and companies normally have substantial flexibility to introduce the routines they see fit. At the regional level, regional human resources managers provide the guidelines for each region. The five regions at LVMH are France, Europe, the Americas, Pacific Asia, Japan, and Other Markets, with France and Japan (though only single countries) regarded as important zones because of their market size for the company. Employees are hired directly by either companies or subsidiaries.
From the time of its creation in 1987, LVMH realized that it needed a pool of managers with international skills and working knowledge of international markets. However, too many of its managers were not even fluent in English, and even less competent in terms of being multilingual or having an affinity with multicultural issues.
To develop a pool of competent managers with international skills, senior management decided to rely primarily on what they called ‘international mobility’ rather than formal training. ‘International mobility’ refers to the systematic expatriation and repatriation of individuals on a limited time basis. The International Transfer Department formalized an ‘international transfer policy’ charter in 2000, delineating all company routines to be followed in the context of the firm’s international mobility practice.
LVMH decided, however, that the implementation of these procedures had to be accompanied with sufficient flexibility to address the particular concerns of each expatriate. LVMH felt that flexibility was particularly important because its international assignments often involved senior managers.
Reasons to send people overseas
Each year, the brands under LVMH participate in developing the firm’s strategy and outline the impact it will have on the upcoming year.[viii] Human capital requirements are evaluated and development plans for internal employees are created to ensure that the requirements will be met. These development plans consist of internal mobility and training programmes to further advance employee growth. An annual evaluation for each brand was implemented in 2006 to help develop a more cohesive outlook for the company as a whole in the upcoming year.
Moreover, at monthly meetings each business group’s human resources director and the companies’ human resources directors within the business group identify the group’s need for expatriates throughout the world. The main reasons for sending people overseas at LVMH include the control of foreign subsidiaries and the development of expatriate managers’ skills. Most expatriates are responsible for operating a smaller subsidiary, infusing corporate culture in that foreign subsidiary and training local nationals. A need for talent in a host country may also drive expatriation. For example, it is sometimes very hard to find talented fashion designers in host environments and LVMH has had to expatriate some of these designers.
Most LVMH expatriates remain in the assigned host country for three years on average, with only a few of them staying longer, as LVMH does not want to disconnect expatriates from their home bases. Moreover, locating expatriates permanently in a host country is not cost effective for LVMH.
Whom to send abroad
As noted above, one major reason for expatriation at LVMH is to develop expatriate managers’ skills. Many expatriates are viewed as high potentials (HPs), likely to climb up the corporate ladder. LVMH has created two classes of high potentials, called ‘HP1’ and ‘HP2’. HP1 includes those elite individuals who may have the ability to move up to a top management position such as that of subsidiary/regional president or member of a board committee; HP2 comprises individuals likely to advance one or two steps above where they are now. LVMH also identifies individuals classified as ‘Ready to Move’, meaning that senior management views them as candidates for a new assignment within a year (not necessarily abroad).
The Organizational and Management Review (OMR) at LVMH reviews the main human resources management objectives annually and establishes the HP and ‘Ready to Move’ lists. Individuals on these lists receive development opportunities, including international assignments for career development. The OMR also reviews and evaluates the current performance of individuals included on the HP and ‘Ready to Move’ lists of the previous years.
While very few employees at LVMH turn down an international assignment, senior management take into account the willingness of employees to take on an international assignment. If senior management foresees reluctance or potential problems, it does not normally offer an international assignment to the employee.
LVMH has found over the years that some nationalities are more willing to take on international assignments. French, British, Italian and Spanish employees are typically keener to participate in internal mobility placements across borders.[ix] Integration amongst European countries is often more common given the closer administrative and cultural distances.
Preparing for expatriation
The preparation of LVMH’s expatriates for international assignments is largely limited to language courses, taken either before the expatriate leaves for a new position or immediately after starting the new job. LVMH also funds preparatory field trips before expatriates take on a new job. In some cases, subsidiaries provide some help, but expatriates cannot expect too much support, given the small number of human resources management staff at the subsidiaries. A few companies provide intercultural training after expatriates take on a position, simply because of their past experience with expatriates or because of the uniqueness of the host country. To put it simply, expatriates at LVMH are largely expected to learn by themselves.
LVMH provides this limited training for four reasons. First, all candidates for international assignments already have acquired some international experience, either through earlier professional assignments or their studies abroad. In other words, they are considered to be ready based on such prior experiences. Second, international vacancies must usually be filled quickly, thereby leaving little time for LVMH to train expatriates. Third, LVMH does not expect expatriates to demonstrate stellar performance immediately in the host country to which they are assigned. On the contrary, senior management feel that expatriates should be given sufficient time to adjust on their own. Fourth, expatriates at LVMH are usually assigned to cosmopolitan locations, such as Hong Kong, Tokyo, New York or Paris, where adjustment costs are assumed to be rather low.
On occasion, though, LVMH’s senior management provides more training for its expatriates and their families, so as to accelerate the adjustment process in the host country. Furthermore, although LVMH generally provides only limited support for intercultural training, it offers substantial logistical support when it comes to new accommodation searches, administrative procedures, finding experienced furniture movers, etc.
Repatriation
LVMH does not intend to create permanent expatriates. To prevent expatriates from losing contact with their home country, LVMH normally limits international assignments to three years. Usually, at least six months to one year before expatriates return home, the repatriation process kicks in to prepare expatriates’ positions to be taken up after their return, and to address compensation and career progression. In some cases, expatriates may be transferred to a third country after several years of an international assignment.
Compensation
LVMH’s senior management applies the ‘balance sheet’ approach as the main guideline to set compensation packages for expatriates, but compensation packages vary among business groups.
According to the balance sheet approach, expatriates should neither gain nor lose as a result of international assignments. When using this approach to calculate the expatriate’s salary in the host country, LVMH starts with the expatriates’ gross salary in the home country and then converts this gross salary into the host country currency, after which LVMH deducts home country taxes and pension contributions to obtain the net salary. LVMH then adds or deducts a cost-of-living allowance and family allowance differentials. Finally, LVMH adds taxes and social contributions in the host country to arrive at the expatriate’s salary in the host country.
A disadvantage of this balance sheet approach is that it fails to address salary differences among countries. For example, wages in France for senior managerial positions are systematically lower than in the US. Thus, French expatriates sent to the US would actually receive a low and uncompetitive salary compared to their US peers. While this may be fair in one sense, it nonetheless often leads to employee dissatisfaction. To minimize this problem, LVMH now adopts a hybrid approach by incorporating the host market employment compensation situation in its assessments.
Compared with other major MNEs, LVMH does not offer a competitive compensation package, especially regarding housing allowances, though it provides some benefits such as temporary housing and paid education for the expatriate’s children. The appeal of expatriation at LVMH is thus the fact that it is instrumental to career development and an increased salary at the time of a future promotion, rather than an advantageous compensation during the actual expatriation.
Employee development beyond international mobility
Beyond opportunities for employees to participate in international mobility placements, LVMH is dedicated to developing a more diverse and multicultural workforce.[x] With LVMH’s global consumer reach, having diverse employees is a valuable resource in understanding the needs of consumers. LVMH has increased its focus on gender equality, youth development, and staff development to become a “true learning organization”.[xi] In 2011, LVMH continued to send HR personnel to attend the annual International Human Resource Convention in Paris. This event focuses on challenges and understandings in the global community of human resource management. LVMH has also strived to improve the number of women in management positions, since over two thirds of its employees are women. In 2011, roughly half of all managers were women, however there was only one woman on the executive committee. LVMH is also developing its team by aligning with universities in France to unveil potential future talent. Scholarships and opportunities for students to work across the globe within LVMH are made available to further develop multiculturalism. Other continual staff development programmes include international forums, training sessions and the creation of the ‘LVMH Experience’.[xii] The ‘LVMH Experience’ involves collaboration between managers and creative leaders to foster multicultural integration throughout the LVMH group.
In 2022 LVMH decided, as part of its Human Resource and Corporate Social Responsibility policies, to recruit 25,000 individuals worldwide under the age of thirty. The positions offered range from internships and apprenticeships to permanent contracts. LVMH wishes to ensure important skills and crafts within the luxury company are preserved and passed on to a younger generation, and it hopes to do this by engaging more young people. Its online platform INSIDE LVMH is designed for exactly this purpose. It connects young people all over the world, regardless of their education level, to experts and provides training as well as a certification upon completion. The “Institut des Métiers d’Excellence” (IME) has a similar purpose as it aims to increase employability by transmitting niche skills to the younger generation. IME is continuously expanding its global reach, one recent location being in Germany, and is currently present in six countries.[xiii]
COVID-19
Although not taking as big a hit as firms in industries closely aligned with specific business cycles, such as oil and gas, the luxury industry had a difficult time at the beginning of the pandemic. Before 2020, LVMH was seeing an annual rise in sales. During the emergence of COVID, LVMH was hit with a decrease in demand, especially in high-growth regions such as China.[xiv] Despite the setbacks and stagnant growth incurred during the pandemic, LVMH seems to be recovering rather well. In the first three quarters of 2021, LVMH witnessed a growth of 46 percent in revenue, and this was after having a record 81 percent organic growth in the Fashion & Leather Goods business group. Even amidst the pandemic, the company invested in Tiffany, one of the world’s most well-known jewelry brands, which greatly reinforced and strengthened the company’s jewelry sector. In addition, in July 2021 LVMH officially opened the doors to La Samaritane, a historic Parisian department store, which required more than $800 million and 16 years of renovations to complete. This department store is meant to redefine and rejuvenate luxury shopping.[xv]
Future
LVMH now faces new challenges, especially given its dual focus on strengthening further its leading position in the luxury goods industry and on developing new markets such as Asia.[xvi] In the early 1990s, LVMH expanded to China and South Korea; a decade later, it entered India. Many of the Asian economies have been predicted to continue to grow at the rate of 7–8 per cent in GDP every year.[xvii] China is currently a major area of growth with Chinese consumers accounting for over 90 percent of the luxury market growth in 2019.[xviii] As LVMH continues to expand in Asia and especially China, it will face many challenges such as fierce competition from other brands that have dominated the market for longer periods. In particular, the expansion of LVMH’s affiliate Sephora into China will be threatened due to Alibaba.[xix]
A key challenge for LVMH is to continue to use its international mobility policy to support its international expansion. Such an international mobility policy should also fit with its administrative heritage. At the same time, LVMH should also keep pace with changes in the ‘market’ for expatriation.
QUESTIONS
- What is the administrative heritage of LVMH? How does the practice of international assignments reflect this heritage? What roles do expatriates play in LVMH’s organization?
- Does LVMH pay much attention to cross-cultural differences in its international assignments? What should it do to better prepare its expatriates for adjustment in the host country they are sent to?
- Does LVMH send expatriates abroad for the right reasons?
- How can LVMH further improve its international assignments strategy?
- What are other ways LVMH has managed to stay relevant? Use external sources if necessary.
- How can maintaining internal mobility aid LVMH in the future?
Notes
[i] LVMH, Annual report 2021 (2022), 4.
[ii] LVMH, https://www.lvmh.com/investors/, accessed on November 8, 2022
[iii] LVMH, Annual report 2011 (2012), 24.
[iv] Angus McCrone, ‘Special report: trying to stub out the fakes, counterfeiters sell £10bn worth of fakes – from cigarettes to scent – every year’, The Sunday Times (11 June 2006), http://business.timesonline.co.uk/tol/business/law/corporate/article673534.ece.
[v] LVMH, www.lvmh.com, accessed on 21 March 2007.
[vi] LVMH, https://www.lvmh.com/houses/, accessed November 7, 2022
[vii] Jean-Luc Cerdin, ‘LVMH career development through international mobility’, Groupe ESSEC (2003), Reference no. 403–050–1.
[viii] LVMH, Annual report 2011 (2012), 04/24.
[ix] Anonymous, ‘Why France’s LVMH sets common HR rules’, Business Europe 33, 43 (8 November 1993). 7.
[x] Paola Vee, ‘LVMH: Total luxury starspart 2’, Les Cahiers (01 August 2011).
[xi] Ibid.
[xii] LVMH, Annual report 2011 (2012), 05/24
[xiii] LVMH, ‘LVMH plans to recruit 25,000 people under the age of 30 by the end of 2022’, News (22 September 2021). https://www.lvmh.com/news-documents/news/lvmh-plans-to-recruit-25000-people-under-the-age-of-30-by-the-end-of-2022-and-is-launching-several-initiatives-to-provide-access-to-training-and-employment-for-young-people-from-all-backgrounds/
[xiv] Gautam Naik, ‘As glory days recede, fashion and luxury companies face a reboot challenge’, S&P Global (April 2020), https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/as-glory-days-recede-fashion-and-luxury-companies-face-a-reboot-challenge-58044770
[xv] Sophie Ding, ‘Why LVMH’s Future Looks Luxuriously Lush’, Nasdaq (November 2021), https://www.nasdaq.com/articles/why-lvmhs-future-looks-luxuriously-lush
[xvi] Ben McLannahan, ‘The luxury goods industry lost its lustre after 9/11. Now it’s posting nearrecord profits. What happened?’, CFO (November 2005), www.cfoeurope.com/displayStory.
cfm/5107936.
[xvii] Yigang Pan, ‘LVMH Moët Hennessy Louis Vuitton: Expanding brand dominance in Asia’,
Asia Case Research Center (2005), Reference no. 505–079–1.
[xviii] Ibid.
[xix] Yiling Pan, ‘Three Problems Overhanging Luxury Giant LVMH: Morgan Stanley’, JingDaily (January 2019), https://jingdaily.com/lvmh-morgan-stanley/