(Johnson, Scholes and Whittington 2005), The PESTEL framework categorises the environmental influences into six main types: political, economic, social, technological, environmental and legal.
European Union enlargement e.g. many countries in Europe are adopting EURO as their currency, which may affect the exchange rates and import & export business. For example Estonia will join the euro zone on 1st January 2011. (Refer Political)
In U.K, current government party has decided not to adopt euro during its term which expires in 2015. (Refer Political)
In future if company wishes to expand the business in to Europe then we have to consider this Euro factor.
Another element is increase in VAT rate from 17.5 to 20 %, which will apply from 4th January 2011, this might affect the company's pricing policy.
National Minimum wages - which is reviewed every year, NMW increased from October 2010, rising to £5.93 an hour, and very likely to increase every year which will result in higher pay-out for the employee wages. (Refer Economic)
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Another factor is inflation which may lead to higher prices for raw material, demand for higher wages and subsequently higher cost of the finished product
As we trade latest technology and the high technology products are easily accepted by young and mid-age people, so the company has to target those age groups rather than old aged groups.
The pace of technological change is increasing and literally wiping out the businesses every day (David 2001). Example, Digital camera may phase out of the market because of better DSLR cameras, to counter attack we should be updated with the latest technological developments.
Another factor is the increased use of INTERNET. The Internet is saving companies billions of dollars in distribution and transaction costs from direct sales to self- service systems (David 2001), in other way company can use this as an opportunity and start a website to sell the products online which may increase the sales.
There has been emphasis on of global warming, and there has been increased importance on recycling of the products, so the company should promote the end uses of the product and emphasize on recycling. The firm should be in the compliance of various environmental laws such as KYOTO PROTOCOL, The Environmental Protection act 1990 and Controlled Waste regulations 1991.
It relates to the laws and regulations, for example the consumer union which protect the consumers against unfair trade practices, the company has to maintain the quality in order to meet the minimum standards, another example is of employment laws which comprises of working conditions, minimum wages. The salaries and the working place should be satisfying in order to meet the requirements of the laws.
1.2 Porter's Five Forces Model
This model of competitive analysis is a widely used approach for developing strategies. According to porter (cited by David 1995) the nature of competition in an industry can be viewed as a composite of five forces as shown in Appendix-1. The profitability of an industry depends upon the impact of these five forces.
There is high degree of rivalry, as there are seven equally balanced firms competing in the industry, with same resources and funds, there is cut throat competition, and high technological advancement as the products we deal in are mobiles, cameras, blu-ray player and e-reader.
Bargaining power of the supplier is very high as they may increase the prices or decrease the quality which may harm us and result in losing customers. The products provided by the suppliers are of extreme importance and we can't do without them which give the power to suppliers, and also the supplier industry has higher profitability margins than the trading industry of ours.
Bargaining power of Buyers - high as many other firms and substitute products are available, and buyers for electronic products are price sensitive and demand quality. Today the consumer is well informed and their size and concentration is also high. Moreover, online shopping has increased the power of buyers to a great extent; the switching cost is not that high which gives the power to the buyer.
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Threat of New Entrants is on a moderate level, as it requires substantial amount of capital to enter in the industry, the product differentiation is also very high due to technological innovations and we operate in a highly paced technological environment which will prevent the new entrants.
Threat of substitute products is very high as the substitute products are available at ease in the market for example a Blu - Ray, People may switch from blu-ray to CD's or DVD's because they may be cheap and deliver the similar purpose of watching a movie etc. or Movie Theatre may act as a substitute and Digital camera's substitute is a Film camera which is a lot cheaper but for the same purpose to click photographs.
This five sources framework helps to identify the sources of competition in an industry. These five forces are not independent of each other and pressures from one direction can trigger changes in another (Johnson and Scholes 2010).
It's a short term for Strength, Weakness, Opportunity and Threat. The swot analysis is used to identify the key issues in the business environment and the strategic capabilities of the organisation which may impact the organisation and its strategic development.
Strength - a characteristic or a feature which gives company an advantage over others in the industry.
Weakness - something where a company lacks, which acts as a disadvantage.
Opportunity - it refers to the potential area of greater profit and sales in the environment.
Threat - emerges from the external environment and can cause trouble to the business.
The swot analysis of our company is given in Appendix - 2.
1.4 Strategic group analysis
According toÂ K.J. and M.L. Hatten, (cited by Wheelen and Hunger, 1995), a strategic group comprises business units or firms that pursue similar strategies with similar resources. Strategic group analysis aims to identify the organisations in the same industry with similar strategic characteristics or competing on the same level. This framework helps us in identifying the direct competitors, it indicates the possibility for an organisation to move from one strategic group to another and the last one is to detect the threats and opportunities to the organisation. (Johnson and Scholes2005)
Appendix 3 states the strategic group analysis, which is done on the bases of the prices and the market share of the company
1.5 Strategic capability
Strategic capability is the capability of a business to survive, prosper and deliver future value. (Johnson, Scholes and Whittington 2005)
The strategic capability of a business depends on its resources and the competences.
Strategic capability is divided in to elements which consists
Threshold resources- the minimum requirements to make the organisation compete in the market, which for our company is the access to the electronic products to sell in the market and an efficient management team to take care of the business.
Threshold competencies which mean the activities to run a business effectively and our company include several such competencies like, specialized market research department, publicity and promotion. We have to give attention on the threshold competencies in order to stay in the competition.
Unique resources which are only available to the company and uses them to gain a competitive advantage and which are difficult to imitate, but in our case all the firms are equally balanced. Although company's strong image can be used as a competitive advantage.
Core competency which is used by the company to attain the competitive advantage. Core competency results when firm learn to harmonize multiple technologies (Prahalad, 1993). Our core competence lies in the clear communication, close relationships with suppliers and customers, dedicated research team and other employees and their involvement and deep commitment towards the organisational goals.
2. STRATEGY FORMATION
One of the determinations that separate businesses that succeed and businesses that fail is being able to analyze and develop a strategy for success.
Based on the above analysis of environment and strategic capabilities of our company, and the external and internal factors influencing the company, the next issue is do develop the business and corporate strategy.
In the strategy clock of competitive strategy adapted by Bowman (1995, cited in Johnson, 2010), there are eight different options, which is shown in Appendix 4. Route 1 and 2 are price-based strategies, and their features are low price and low quality compared to other options. In terms of products that the company sell, are electronic goods that need higher quality and after sale services than other products, such as food and social commodities. In the aspect of expectation and need, consumers desire better quality and service of products. For instance, the new message indicted that consumers considered most of products are far too expensive and with poor quality. Thus, the price-base strategies are excluded. The route 3, 4 and 5 are differentiation-based strategies, but the price decision is different. The price of differentiation and focus differentiation strategy are higher than hybrid strategy. As we mentioned in our mission precisely that we want to offer high quality products and also providing value for money to the customers at the same time, we can only achieve both of the things by hybrid strategy, as hybrid strategy states providing products at lower cost than the other competitors and also seeking differentiation at the same time.. Meanwhile, the message showed that the price/quality index is paid extra attention. We want to keep a low cost base and then reinvest in to differentiation However, Johnson (2010) indicated that hybrid strategy could be advantageous if : much greater volumes can be achieved than competitors; if cost reduction is available and when there is a potential market segment which also facilitates a low price approach. These are the issues that our company should consider and pay attention in the current and future operation.
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In the aspect of CORPORATE STRATEGY, there are five kinds of directions adapted by Ansoff (1988, cited in Johnson, 2010), which is showed in Appendix 5. According to products and marketing our company is conducting in, the product development and diversification are excluded. In the beginning of our business, the market share is equal with other six competitors, so obtaining more market share is one of our targets. Meanwhile, the risk penetration in current market is lower comparing with enter another market or new product. Thus, the market penetration is chosen as the strategic direction of our company. However, there are two issues that should be considered. The first issue is retaliation from competitors, and the second is the legal constraints (Johnson, 2010). For instance, other competitors launch price war in order to defend their share. Therefore, making the current strategies become a sustainable competitive advantage is the main issue for our company.
Our business strategy hybrid is a kind of differentiation based strategy, and the strategy direction is market penetration. Johnson (2010) indicated there are three ways to sustain advantage through differentiation: create difficulties of imitation; imperfect mobility; low cost position. Therefore, it is related with the company strategic capabilities. Hills &Jones (2007) argued in building block of competitive advantage, internal capabilities that deliver competitive advantage involves an integrated approach across all areas of the organization, concluding superior quality, superior customer responsiveness, efficient and superior innovation. In terms of our company, the more suitable points are quality, responsiveness and efficient, which means that we will provide customer more efficient phasing process, good after sale service and high quality, in order to satisfy their different expectation and needs. For instance, in aspect of the quality, we purchase products from suppliers based on customers' demand and provide them higher quality in the equal or low level price than other competitors. In aspect of efficient and customer responsiveness, we promise to provide convenient communication and services; especially we pay much in the human resource management to enhance the service quality. Meanwhile, our company pay more attention in the purchasing process, delivery, after sale service and so on to make sure customers have a good purchasing experience. In future we want to maintain good relations with our suppliers to maintain our low cost base and to attain competitive advantage. All of these activities our company undertake to create a dynamic capability and to meet the changing environment and customers' expectations.
3. SUSTAINIBILITY OF THE FIRM
After analysing the environment, the capabilities of the firm and developing a sound strategy for the firm, we want to analyse the sustainability of the firm's strategy in the long run, and we conclude that the strategy is quite sustainable in the company's future.As Porter(1998) has stated that the strategy wont lead to above average performance unless it is sustainable. We've chosen hybrid strategy and it is working well, there is high degree of competition in the market, and the customers in today's world want the best quality and differentiated products at an affordable or reasonable price. The company is provided with clear market definition, good match between corporate strengths and needs of the market, and also a superior performance in the key success factors of the business.
Since the company has started doing business, it has been doing well financially and always growing, after the first year of the company we ran in to marginal losses, but then after that we've learned from our mistakes and did well in the 2nd year when the profit was more than £17000 and which rose by almost 300 % to £70000, and then to almost £1,40,000 which is an indication of huge improvement and is consistent and which we have to do it in future as well, where as several firms ran in to huge losses.
The increase in profit has resulted from various cost cutting methods, like reducing the marketing budget, we've cut down out marketing budget by a great extent but still the marketing tools used by the company have been successful in providing the company with good image which will help throughout the life of the company. We've delivered better quality than what the customer expected from the product at the same price, which was clear when we did market research on quality and found out that the quality we offered in our product was almost double of the quality that the customers expected at that price.
In order to avoid loss resulting from the strikes and disturbances caused by the transportation industry and labour union, we are planning to buy a new warehouse which will help in reducing the transportation cost and will also protect us from the disturbances caused by the transport industry and the strikes by labour union.
For future if we want to expand our business then we can go global, or the other alternative is to merge with a firm with better capabilities and exploit their strengths in order to gain more market share and enhance the growth of the company. Merging with some other company will widen our scope of activities and will allow us to expand as a business, and will give us access to more market segments which may lead to higher market share. One more area which we need to capitalise on is Online Selling of our products, as online shopping industry is on high currently.
We would like to conclude that we've reasonable share in the market and also the company's image is perceived high by the customers. The hybrid strategy and market penetration has been successful for us. As if now where we stand, our strengths are dedicated employees, effective R&D department, high quality of service, and good brand name which have been and will be helpful in exploiting the opportunities in the environment in the future.
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Porter, M.E. (1985) Competitive Advantage: Creating and Sustaining Superior Performance. Collier Macmillan.
Ansoff, I. (1988), Corporate Strategy, revised edition, Penguin, Harmondsworth
Lynch, R. (2003), Corporate Strategy, 3rd ed., Prentice Hall Financial Times.
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APPENDIX - 1
Source: Adapted from M.E Porter, Competitive Strategy: Techniques for analyzing Industries and Competitors, 1980, Free Press, 1980, p.4
STRATEGIC GROUP ANALYSIS
STRATEGIC CLOCK FOR COMPETITIVE ADVANTAGE