The Economies Impact On Business Strategies Commerce Essay


This assignment was undertaken with the intention of critically evaluating the above statement with the use of academic theory and factual data recorded over a four year period from 2005 to 2009 in order to analyse business strategies and how they link together function, structure and environment within the global car manufacturing industry and the global personal computer industry, within the car manufacturing industry it will look at KIA Motors Corporation who incorporate a cost leadership strategy and Toyota Motor Corporation who use a differentiation and cost leadership strategy also recognised as a hybrid strategy, and for the personal computer industry it will look at Apple Computers and their use of a differentiation strategy and Dell who use a cost leadership strategy. The information gathered will be based on how economic circumstances of the last three years have impacted on the company's business strategy, if there was any changes in the strategies throughout that time frame, if so what were the consequences of the change and why.

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It is not usually advisable to change business strategy but economic conditions sometimes force business to review their business strategic plans in order to stay competitive in an ever changing global economic environment.

This assignment will begin with some background information detailing the most significant economic events of the last five years that forced organisations to change their business strategy, namely the current world-wide economic downturn. This began with the US subprime mortgage crisis of 2006 in which many houses across the US were repossessed as mortgage owners were unable make payments owed on the properties, this in turn lead to a rapid flooding of the housing market and a crash in housing prices, this stems from neglect in the banking industry in assessing customers eligibility for mortgages, instead mortgages and refinancing of houses was given out freely to customers with bad credit ratings and low incomes so banks could inherit the fee that was offered for all mortgages then sold on to the bonds market, this also made it easier and more viable for bank to finance other investments. In turn this neglect has been the major catalyst in what has become one of the biggest global recessions of our times, halving the building industry which held a 15% share of the US economy, in turn millions of jobs have been lost throughout the world as small and large scale business linked and indirectly linked with the building industry closed, customers confidence in the banking industry fell and this saw the stock market plummet (BBC, 2007; Jaffee, 2009; Stock Market Investors, 2009).

Strategy is based on the long-term goals of a business, including but not limited to the range of activities: how the company differs itself from its competitors and also how a company uses its assets to betters position itself within the marketplace (Johnson et al, 2008).

Johnson el al (2008) states that there are three levels of strategy with the most important being corporate level strategy; this has to do with the decisions that are made for the entire business, identifying ways forward for all areas. Business level strategy is based on the different areas within corporate strategy; it is concerned with ways forward for these businesses within their identified markets, and within this area are strategic business units that are segmented businesses within an organisation that offer goods or service but differ from other business units within the same organisation, and finally is operational strategy which is to do with how the main mechanisms of a business work to deliver success from corporate and business level strategies as relates to the processes, people and assets of the organisation.

Looking at business-level strategies, Hitt et al (2009) identifies five types that companies can choose from to create and protect their position within the market, they are identified as differentiation, cost leadership, focused cost leadership, focused differentiation and integrated cost leadership/differentiation, each of these strategies can be used in gaining a "competitive advantage within their competitive scope". Competitive advantage is defined by Drummond and Ensor (2003) as "the process of identifying a fundamental and sustainable basis from which to compete" and Hitt et al (2009) identified two types of competitive scope as broad target (large industry base) and narrow target (narrow industry base).

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Coming back to the types of business-level strategies available to companies, Porter (1998) identifies three generic strategic that can be used competitively within an industry as Cost leadership, Differentiation and Focus. Overall cost leadership strategy is used to uphold an overall low cost which is achieved through forceful application of "controlling over-heads, economies of scale, cost minimisation in areas such as marketing and research and development, global sourcing of materials and experience effects," also the modernisations of older techniques and technologies offers other ways in lowering costs for a company, downside are this strategy can encounter competition from larger businesses due to high profits involved as most products associated with this strategy are "commodity type where discounting and price wars are common", because of this fact investment into this market typically incurs high costs. low cost identifies products with a mid-range cost and not specifically a lower than low cost, it can also offer some quality (Drummond and Ensor, 2003).

Differentiation strategy as detailed by Johnson et al (2008) are products or services in which the main focus has been in the quality and uniqueness gained over competitors, for this reason suppliers can demand a higher price for the product or service and even with this premium on the product or service customers still feel they are getting value for their money. The negatives of this strategy (Drummond and Ensor, 2003) would be more quality but at a premium also advancements in technology and innovation can be copied and used by others in the same market, also what is important to consumers one day may become redundant the next so progression and advancement are a continuous objective of this strategy which puts added pressure and costs on the research and development department to change regularly to keep up with consumers needs and wants.

Focus strategy on the other hand relies on identifying a target or niche market within a specific sector and concentrates on distribution within that sector, companies for example can focus on specific geographic locations, also advantages can also be derived from the use of differentiation and low cost strategies in these target or niche markets for example wine made in a specific location in France, this can also be helpful in deterring duplication from competitors as the product can only be produced in that specific area, disadvantages of this strategy could be a reduction in activity within the specific groups to which the strategy is targeting. Porter identifies the use of only one of his three strategies at any given time as a means for competitive advantage and that using more one at the same time can have a negative effect on the company and result in the company being "stuck in the middle" (Drummond and Ensor, 2003).

The first of the industries to be analysed is the car industry, an article by Milner and Clark (2009) states has identified a reduction in sales of "18% from 2007" going into 2008, which has accounted for the worst reduction in sales for the global car industry since 1992, this world wide economic recession has had a huge affect on companies such as Ford who saw a drop in sales figures of 32% in 2008 compared with the same period in 2007, Chrysler was down 53%, GM 31%, Toyota 37%, Honda 35% and Nissan 31%.

This has had a severe affect with the Economist (2009) identifying the new car marker to have contracted by 14% in 2009, Marketline (2009) A identifies annual growth rate of the global car industry in 2005 to stand 5.90% with a rapid decline every year since then, 2009 figures stand at -5.50% representing a 1% growth in the industry over the five years and demand increased by .7% over the same period.

Toyota Motor Corporation

KIA Motors Corporation

The second industry is the IT industry and specifically looking at the personal computer industry for this assignment, this industry is highly susceptible to changes within the economic environment; the internet has been the main driver behind the success of the IT industry through the 90's in reducing costs and widening the horizons within the IT industry. Drivers behind the launch of the PC industry include the advancements within technology and the rate at which competition is pushing other business to become more innovative. Dell is one of the leading producers of personal computers within the industry, by adopting a build-to-order production which resulted in lower costs, and direct-selling (offering the product solely from Dell through telephone or online ordering including the distribution of the product), Dell was able to cut out any middle retailers, these advantages better served Dell in increasing its market share whilst offering a discounted product to its customers (Dedrick & Kraemer, 2005), this system worked off a low cost strategy.

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Scheck (2009) has identified that mergers and acquisition are to become an inaugural part of Dell with 10 acquisition made since 2002, as the company is starting to take advantage of the opportunities that the current economic recession has left, regards devastating other businesses thus leaving them open for possible take-over, such as the "$1.4 billion acquisition of storage maker EqualLogic in late 2007", this acquisition has enhanced Dell's share of the storage market and identifies this as a key area for future investment. Since 2006 Dell has seen a huge reduction in growth so much so that profit dipped by 63% and revenue fell by 23% in April 2009. A broader business scope would make Dell more competitive within the global market and put the company in a better position to compete with businesses such as Hewlett Packard who currently hold the number one spot for the leading provider of personal computers on the world-wide market (Foresman, 2009). One such area which Dell is looking into is the Smartphone market and is currently in talks with companies in China regarding the development of this product and operating systems (Waters, 2009).

Dell is looking to adopt a mergers and acquisitions strategy based on the status it developed through its low cost strategy in previous years, this will assist in reducing costs for the consumer, with Dell providing the hard-ware, software and service it will be in a better position to compete more aggressively within the market. Dell is relatively new to the area of mergers and acquisitions so are planning on looking at medium sized businesses as integration on this level is less complicated (Scheck, 2009).

On the other hand Apple Computers applies a different strategy, one which focuses on innovative, quality and modernised quality development within the IT industry such as the iPhone, which was hailed as a radical piece of technology when it was brought into the market in mid 2007, this was followed by the iPod touch which although not as popular as the iPhone to begin with soon followed suite with sales of the iPod touch rising over 100% towards the end of 2009 followed closely by the iPhone with sales of 53%, popularity in both products have soared in the industry with both products having a reputation of being the "product to have" within the IT industry with people purchasing the iPhone for its mobile phone capabilities and then in some instances also purchasing the iPod touch for its benefited use of WI-FI anywhere anytime (Burrows, 2010).

The products categories offered by Apple are Desktops which include the iMac, Portables the MacBook, iPod products speak for themselves but also include iTunes Store and the Apple branded operating system and application software (Marketline, 2009) f.

Apple's CEO Steve Jobs as recently as January 2010 has stated that he sees no competition for Apple arising from other business within the industry for the force able future (Schwarz, 2009)

To conclude