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This section of the paper analyzed the strengths, weaknesses, opportunities, and threats faced by General Cable. The strengths, weaknesses, opportunities, and threats are identified and evaluated to determine the ways to capitalize, improve, or avoid these factors to strengthen General Cable as a company. Each of the categories is explained in details to see how it will impact the business or give it a competitive advantage. Below is the SWOT diagram.
1. Geographically diversified
(may also pose as a weakness)
2. Wide product breadth
3. Lean & efficient operation
1. Geographically diversified
- Political instability
- Volatile foreign currency exchange
2. Excessive debt dependency
3. Over dependence on one key supplier
1. Expansion into emerging markets
2. Strong growth & Government support of alternative energy
3. Demand for greater communication bandwidth and global connectivity
1. Volatile commodity market
2. Stringent regulations
GCC operates in three geographical segments namely North America, Europe and North Africa, and the Rest of World (ROW). The biggest markets and contributors of income are the United States and Spain markets. With the focus of long term growth however, it is predicted that there will be increasing population and wealth emerge from the developing countries so GCC has been focusing on diversifying geographically.1 The recession in the United States and slow market in Spain proved that diversifying geographically has been an excellent move.
Earlier this year, GCC acquired a major stake of Phoenix Power Cables, a cable manufacturer in Durban, South Africa as one of the moves to further diversify its market and increase its business and presence in Sub-Saharan Africa. 2 GCC is also increasing its presence in its Rest of World (ROW) market by strategic acquisition of local companies and/or building manufacturing plant. This wide international presence allows GCC to have several sources of revenue and globalize GCC as a brand in different parts of the world. It also allows GCC to not depend on a certain geographic markets and helps reduce business risks considerably by spreading its revenue sources.
With a successful track record of overseas acquisition, combined with their technical know-how and expertise in the business, GCC is poised to leverage itself as a major global player amidst the ever changing business world. Even though geographic diversification is considered as a strength for GCC, this can also posed a weakness for the company. Detailed discussion of this is presented in the next section.
Wide Product Breadth
GCC has the broadest product offering in the industry. It offers wide variety of copper, aluminum and fiber optic wire and cable products which are sold to different markets and industries. These products are used not only in the cable industry but in other industries as well, such as, communication, construction, transportation, and oil and gas companies.
The wire and cable industry is highly competitive and by providing a wide variety of products is a competitive strength for GCC. This diversified product offering helps reducing the impact of market volatility in one particular product segment and provides economic stability.
Lean & Efficient Operation
GCC is a one of the leaders in the wire and cable industry and it strives very hard to be as lean and as productive as possible to give it a competitive edge. As an ongoing effort to reduce waste and costs, GCC spends considerable time and resources to educate its employees on how to reduce waste and cost and provide them with Lean Six Sigma manufacturing cost containment training. Talk about from the financial paper.
Operating income and gross profit were up in 2008 and GCC attributed some of these achievements to improved efficiency as a result of continued Lean manufacturing initiatives. With a leaner and more efficient operation than the industry, GCC possesses a competitive edge. It allows them to profit more from the operation with its lower cost structure or sell the products at a lower price than the competitors but still making the same amount of profit.
As mentioned earlier in the section, geographic diversification is a competitive strength for GCC. However, it is also a weakness for GCC. Geographically diversified means GCC operates in various parts of the world and exposed to different government rules and regulation, political instability in each country, as well as volatile foreign currency.
GCC has a significant investment in Thailand and is therefore subject to the political instability there. In late 2006, Thailand's elected government was overthrown which created a lot of unrest and instability in the nation. This inevitably posed as a problem for GCC to smoothly operate in Thailand and may negatively impact the financial health of Thailand's operation. Volatile foreign exchange rates can pose as an advantage or disadvantage. Favorable year-over-year foreign currency translation is a benefit while unfavorable translation means a loss that GCC has to bear and report in the financial statement. For example, Venezuelan government recently decided to devalue its currency for non-essential goods from 4.30 Bolivars to each US Dollar to 2.15 which means that $40-$45 million USD will need to be written off from the balance sheet.3
All of these factors may have negative impact on General Cable's financial numbers as it influences sales, growth and net profit. Unfavorable foreign currency and political instability are some of the factors associated with having a global presence. GCC has to find ways to overcome these weaknesses by constantly monitoring current and prospective rules and regulations in each country and assess the likelihood and impact of them on GCC. Foreign exchange futures can also be used to lessen the impact of volatile foreign exchange rates.
Excessive Debt Dependency
As mentioned in the earlier portion of the paper, GCC is highly leveraged by debt and this may potentially have an adverse effect on GCC's financial position. Talk about paper.
GCC competitive edge may be limited as it may be harder for GCC to obtain further financing due to the significant amount of debt it possesses. Net income may also be adversely affected when business is bad and cash flow is limited and there is a significant amount of debt repayments to be made.
Over Dependence On One Key Supplier
More than 90% of General Cable 2008 copper rod purchase was supplied by one key supplier. This posed as a high risk for General Cable if this key supplier fails or for any reason, fail to supply GCC with adequate material. GCC did not have any long term purchase agreements with this key supplier and it is extremely hard to find another key supplier that can supply raw materials in such a short notice.
Any unanticipated problems and interruptions with this supplier could have a material adverse effect on GCC. Be it natural catastrophes such as hurricanes and earthquakes or the supplier's own financial and company problem, all of this will have a negative impact on GCC's operation and financial performance.
To shield itself from this weakness, GCC has to identify new prospective supplier. GCC needs a supplier who is reliable, reputable, and has the ability to supply massive amount of raw material at the right time and price. However it seems that GCC is reluctant to do so, based on the statement in the 2008 annual report that identifying and accessing alternative suppliers may increase their costs. The likelihood that this key supplier will be problematic should be minimal considering that GCC has outweighed the benefits and cost of identifying new supplier.
Expansion Into The Emerging Markets
As there are massive growth and wealth coming from the emerging markets, GCC has been trying to expand further into these emerging markets and leverage their 150 years of technical expertise and One Company approach.
China and India are one the largest emerging markets right now and GCC has considerable investment and presence in both of these countries. Its expansion strategies include acquisition and building manufacturing facilities. GCC recently acquired a local specialty cable manufacturer as it plans to reach out to the Chinese automotive and industrial markets.4In 2007, GCC started its expansion in India by entering a joint venture with a local firm to leverage itself in the construction cables industry for the Indian market.5 GCC is vigorously expanding worldwide by leveraging opportunities in the emerging markets from building new world cup stadium in south Africa for the world cup to reaching into the local markets in China and India.
These projects, along with the recent acquisition and expansion in other emerging markets, further GCC's strategy to expand globally into economies that are building their energy infrastructure. This creates an opportunity for the company to increase its sales and brand presence by providing energy and electrical infrastructure cables in these emerging markets. The opportunity in the emerging markets will also help strengthen GCC as a company as it presents more revenue sources and also helps reduce business risks considerably by spreading its revenue sources.
Strong Growth & Government Support In Alternative Energy
With the ever increasing desire for energy independence and environmental concern, alternative energy such as wind, solar and hydroelectric power is poised to grow rapidly. General Cable is one of the leading cable companies that support alternative energy by creating products that provide solutions in the alternative energy sectors. In 2008, more than $400 million of industrial and energy cable is sold to the terrestrial wind farm market globally and this number will continue to climb in the future.1 Alternative energy such as biofuels, biomass, geothermal, hydroelectric, solar, and wind provided 11.37% of domestic U.S. energy production in June 2009. This is a gain from the half of 2007 where alternative energy represents only 9.89% of the domestic energy production.6
The government support in the alternative energy movement is also an excellent opportunities for GCC. The economic stimulus package passed by congress supports renewable alternative energy and this will enhance investments and thus increase demands for GCC products. Both strong growth and government support for alternative energy allows GCC to capitalize on this opportunity to further enhance its market position and financial performance.
Demand For Greater Communication Bandwidth And Global Connectivity
As the demand for bandwidth increases to support the increasing need for global connectivity and communication, the demand for GCC products will inevitably surge. An article from ‘IT News Africa' states that the demand for international connectivity has been much higher than anticipated, which proves there is a definite need for all the international cables global high-speed.7 Internet users will also increase as the emerging markets become more wealthy and require faster connection. This increase in demand is an opportunity that GCC has to capitalize on.
Successfully capitalizing on this opportunity will have a positive impact for GCC's financial performance and reputation. GCC has taken considerable steps to take advantage of this increase in demand. It invested in multi-billion dollar of submarine optic communications markets, the medium for faster global connectivity. It is also in a stage to acquire a patent for a newly introduced product which will be used in networking cable technology spectrum.
Volatile Commodity Market
GCC transforms basic raw materials such as copper, aluminum, petrochemicals and steel into highly engineered wire and cable products. Raw materials account for approximately 75% of the conversion cost which means that fluctuation in raw materials prices may adversely affect GCC cost of sales and in turn, its competitive pricing. The price of copper and aluminum, in recent months, has been extremely volatile. Another issue with the commodity market is that big increase in the prices will substantially decrease demand for wire and cable products and ultimately, will have a negative impact on GCC financial performance.
GCC has been involved in numerous commodity hedging programs to shield itself from volatile copper and other raw material prices. However, due to the nature of the financial hedging, it is still no guarantee that they will always be able to protect themselves from the volatility.
Operating in the wire and cable industry as well as having worldwide operation exposed GCC to numerous complex rules and regulations. The regulations range from import and export rules, individual government policies on the industry, environmental laws, to electronic or telecommunication rules. All of these factors are threats that may materially impact GCC's growth strategy, performance, and reputation. It is noted, however, that GCC is doing its best to ensure that the employees, subsidiaries, contractors, and agents comply with the rules and regulations.
By the end of 2008, GCC and its subsidiaries have been involved in 34,730 lawsuits, 1,275 out of the lawsuits are pending non-maritime asbestos cases.1 These litigation claims are worth millions of dollars combine. If GCC is found guilty in any of the lawsuits and subjected to hefty monetary fines and payments, it will materially impact GCC operation and financial performance.
However, GCC has been fighting these lawsuits for the past 20 years and therefore have the experience in defending itself against these lawsuits. In the past 20 years, GCC has had no cases proceed to verdict from those lawsuits and in many cases, was dismissed as a defendant. However, there is no guarantee in the foreseeable future that GCC will always have the upper hand in the lawsuits. Therefore the litigations faced by GCC is considered as a considerable threat.
GCC's global presence and lean operation put it at a competitive advantage in the industry. It allows GCC to have a wide spread of income source and avoid that economy cyclicality when one country is in recession. As it was discussed in previous section, however, global presence is also a weakness for GCC. Exposure to political instability and fluctuations in the foreign exchange market may have adverse effect on GCC's operation and financial performance. Wide product breadth is also another strength in that it helps reducing the impact of market volatility in one particular product segment and provides economic stability. In order to remain competitive in the industry, GCC has to not only maintain its strengths that give it a competitive advantage, but it also needs to capitalize on the opportunities available to the firm. The strong support and growth for alternative energy as well as increasing demand for greater bandwidth and connectivity are some of the opportunities that GCC has already capitalized on and will continue to do so. However, the rising raw material prices and volatility in the commodity market could pressurize the company's profit margins, thus posing a threat to the firm. Litigations that GCC is involved in is also a threat to the firm's operation and financial performance if and when it is found guilty.
It is crucial for GCC to continually analyze and assess its SWOT factors to see how it is going to impact the company. Doing so allows GCC to capitalize on its strengths and opportunities as well as take appropriate measure to decrease the likelihood of the threats and weakness from occurring.
1. Annual report. http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzMxNTkwfENoaWxkSUQ9MzEzNzYyfFR5cGU9MQ==&t=1