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In the situation shown above after conducting a PEST analysis, BRITISH MNEs can still grow by using Ansoff matrix tool. Below is the way showing how these British MNEs can make use of this tool in order to survive during this economic hardship. 6
I.Market Penetration 7
II.Market development 7
III.Product development 7
4. The benefits of new technology in R+D 9
5. Conclusion and recommendation. 11
6. Reference 12
7. APPENDIXES 15
Appendix 1 Multinational enterprises 15
Multinational enterprise (MNE) 15
The benefits of multination enterprise are: 16
The world is becoming a village no more boundaries and trade barriers are removed or reduce. This Pave the way for increase of MNEs where by companies does invest in another country to look for markets, resources or to reduce costs. Dunning and Lundan (2008, p 3) defined multinational Enterprise as an "enterprise that engage in foreign direct investment (FDI) and controls value-added activities in more than one country"
MNE brings more benefits to the economy and the nation as a whole.
It creates employment opportunity.
It creates customer on the product.
It create adds government revenue from taxes.
(More details on MNEs in appendix 1)
PEST analysis will be used as a tool to assess the UK micro and macro environment.
In the era of globalization innovation is the only way the British manufacturing MNEs can use to sustain their strategic capabilities (resources and competencies) through the use of advanced technology in R&D.
2. Environmental analysis of British manufacturing MNEs
PEST analysis is a business measurement tool that used to analyze the micro and macro market environment. PEST becomes more useful on the larger and complex businesses. PEST analysis tool looks at political, economic, social and technological factors (Williams and Curtis, 2006).
The political factors include legal issues, government regulations, rules and trading policies, which the company must follow.
It is so important to assess this factor as it has high impact on the conduct of the business. Governments can have good policies which supports investiment.eg. The UK Government supports the fair trading commitment for both the local consumers and foreign producers (News BBC, 2005).Â (Antonio, n.d)The political environment of UK is stable even during recession, though there is threat of terrorism to investors in and outside the country. British is still using her pound, any decision to use a single European currency will have impact to these MNEs
Economical factor affects business operation nationally and globally. The effect differs from one nation to another depending on the stability of the economy.
For a long period British has experienced a great economical growth having stable economy, enjoying a very strong currency (pound). At the beginning of 21st century the country experienced an economical downturn (Recession). At this time the economy is characterised by high unemployment, consumers tend to spend low especially in the luxury products, job security is low as many companies reduce cost through redundancy .This had great effect to British MNEs and a nation as whole as GDP fall. Low educated, young, low skilled labour suffered most to unemployment.
Businesses face a hard time and most of them start to cut back costs, the weakest close down.
E.g. British Airways was affected with recession. The figures in 2009 shows that the company got a pre-tax loss of 401m pounds in 2008. Almost 1000 employees have been working for a free to help the company to recover from the recession. Additionally 4000 workers were given an unpaid leave (Welham and Wang, 2009 and Peacock, 2009).
Social factors affect customer requirements:
Career altitudes ( Thornton's market analysis, 2010)
The living standards of people who depend on salaries and wages are more affected by recessions compared to those who rely on fixed incomes or welfare benefits. Unemployment is known to have a negative impact on the stability of families, and individuals' health and well-being.
Technological factor have had a high impact in MNEs when applied effectively in a period of recession. Technology changed the way of doing business many companies which applied it in recession survived. It improved them by helping them to respond faster to the changes and make adjustments to adapt costs effective strategies. This can be seen in Amazon and Dell, where the customer can do shopping online. The Internet banking is among the best and newest technology used in most of the banking in UK e.g. Lloyd bank.
Figure 1 the internet banking site for Lloyd's bank (Henry, 2008)
3. Ansoff's Matrix strategies to adapt in order for British MNEs to survive &Glow
In the situation shown above after conducting a PEST analysis, BRITISH MNEs can still grow by using Ansoff matrix tool. Below is the way showing how these British MNEs can make use of this tool in order to survive during this economic hardship.
Ansoff's matrix is a very useful tool used by most of managers when assessing the market and product Tuma et al. (2006).
Figure 2 (Source: Campbell and Craig, 2005)
In market penetration, the organisation grows through the use of existing product in existing markets. This strategy allows the business company to retain its existing customers than attracting new one (Campbell and Craig, 2005).
In market penetration, the company aims to increase the sales within existing markets. MNEs can apply this strategy by reducing the price of the products, advertising strategies, or Improving the quality of their existing products so that to allow the existing customers to use more of the company's products and services. Among the company that uses this strategy is Tesco. Tesco uses this strategy by changing the price of the product, using promotion techniques and the use of internet service. Ngfl Wales business studies a level (2009)
Campbell and Craig (2005, pg 107 p) defined market development as "the growth by means of placing business's existing product into new market" British MNEs can glow by offering the same products to new segments or new geographical locations because recession had different effects in different areas. This can be seen from Tesco Company, when they launch a baby wear. Tesco sells the children's cloth (existing product) in Sweden. Sweden is a new market. Ngfl Wales business studies a level (2009)
Market development occurs when a company introduce new products in the existing market Campbell and Craig (2005, pg 107).
This strategy is good in recession as it has a low risk.
MNEs can apply this strategy by:
Introducing completely new products, for example a vacuum in Cleaners Company start producing a washing machines.
Developing different version for the existing product, for example the diet Pepsi from the normal Pepsi. (Campbell and Craig, 2005, pg 107)
This strategy requires managers to be very innovative in creating new products in order to meet complex needs of customers. There is a great need to pay attention to customers to discover their hidden needs.
Companies can develop new product from the researches and design department.
The diversification strategy involves introducing new product with new market. Companies need to be very keen to use this strategy in recession as it has higher risk because the product is to be sold to different new customers while companies have limited resources. MNEs can diversify in different locations and different products. Companies can reduce the risk of diversification by entering in contractual agreement with well developed firms through joint ventures or partnerships.
E.g. Virgin group was related with music and recording. The company introduces new products and new markets. The new products and new markets include virgin cola, virgin megastores, virgin airlines and virgin telecommunications (anon, thinking made easy, 2010)
4. The benefits of new technology in R+D
In this era of globalization new technology is a major aspect for achievement of any multinational enterprise. This is because technology has a lot of benefits that can affect the firm positively. Recession had impact on productivity because many companies reduce their investment in R&D to reduce cost.
In early 1990s many European companies have increase their investment in technology in order to come up with new products and sustain their competitive advantage .US companies are leading (e.g. Microsoft) and other companies from Canada, Italy, German etc has improved the industrial sector and business as a whole through technology and investing in R&D.
The PEST is among the useful business tools. The PEST analysis is explained in section 3. It is found that the technological factor have had a high impact in business/industry. New technology are always introduced and implemented. Holdren (1997) said that "technological progress plays a central role in a modern economy ". The technology factors contribute more in the growth of economic and make the industry firm, either internationally or nationally.
OECD Fact book (2008) defines Research and Development (R&D) as the "creative work undertaked on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of the stock of knowledge to devise new applications". R&D comprises of basic research, applied research and experimental development. R&D costs are company's future investment. Most of the technology company gain profit from research and development. Most of the company spends only a same percentage on research and development costs. In United Kingdom, the telecommunication and software companies are among the top spender in Research and development. BT and Vodafone are among the big company that spending in IT R&D.
The new technology had been found to bring more benefit to the company and be able to cover the cost in R&D. This can be seen from Tesco. There are different new technologies used in Tesco. The technology include Tesco Website, heat-sensing technology, scanners, better self service tills, checkout cameras, self service checkouts and implementation of new software like ExpeTune performance management software ( King, 2008).
In 2008, Tesco was among the company that has increase in Research and Development. The increase in R&D expenditure reaches to 64 million pounds. The research was in food and drug. Tesco is among the largest company in the world. Tesco website is one of the famous online grocers. Tesco.com is first internet grocery in United Kingdom. The online grocer in Tesco did a business of 1 billion pounds in last year. Nick Lansley, the head of research and development (R&D) at Tesco.com said that "Every where you look, tesco.com has consistently retained its innovative spirit, and this pioneering approach has been critical success factor in the ultra-competitive internet retail environment. From the first day of launch, we have continually added an unrivalled blend of new products, services and functionality to the site; our competitors are forever playing catch -up" (Rebecca and Drayson, 2009).
Tesco also wants to open another "dot.com only" store for online orders. This new online store is going to be open due to the success found in Croydon online store. The Croydon online store trades at more than one million £ pounds a week (King, 2008).
Technology also improved the queuing system by using heat-sensing technology in monitoring tills and lines. Additionally, new scanners, checkout cameras and self service checkouts improve queuing system (King, 2008).
Furthermore, Tesco wants to invest more R&D and involving IT improvements to deliver savings of £ 450 million Tesco has started to implement ExpeTune performance management to uphold its servers (King, 2008).
The other company in Britain that leads in IT Research and Development spending is Vodafone and BT. Vodafone spends 280 million pound in R&D on mobile telecommunication sectors (Grant, 2010). The biggest telecommunication company has declared its profit increases to 100% more due to the growth of fixed broadband and mobile data (Bailey, 2010). Vodafone has used different new technology like HSPA + MIMO functionality to increase the download rates. The new technology allows the users to use mobile broadband services anywhere with a downloaded speed of 13Mbps (WiFi.co.uk, 2010). Additionally, the Vodafone improves downloaded spreads to 20 Mbps the use of new technology called 3G HSPA ('Latest technology news from Vodafone', 2009).
BT is the third biggest spender in Research and Development (R&D). The BT Company is among the company that is widely used in United Kingdom. The BT provides a cheap package. The package includes wireless internet connection, phone and TV (http://www.broadband.bt.com and grant, 2010).
5. Conclusion and recommendation.
British manufacturing MNEs should keep their eyes and ears open in order to tap the opportunities offered by economic recession, as weak industries close their businesses while new consumer needs emerge. This is possible through the use of modern technology.
There is a great need of companies to continue investing in R&D in order to bridge the gap of fast changing environment and changes of customer preferences. Innovation and technology is the source of competitive advantage when used effectively. Companies need to apply technology in R&D in order to compete successfully and effectively in this era of globalization so as to maintain its market position.