The oil industry has always played a significant role in the economics of any given country. The industry is complex and occupies a substantial portion of the global market. The complexity of the supply chain caused it to be divided into three separate segments: upstream, midstream, and downstream. It is necessary to analyze all segments of the supply chain to clarify the differences between them.
Due to the complexity of oil and gas products production, transportation, storage, and realization the supply chain is divided into three segments according to the stage the product is at currently. Some companies include all three stages in their operations, but due to their complexity, most companies opt to focus on one or two segments (Lima & Relvas, 2016). Management of only one segment of the supply chain has its benefits and drawbacks: it is less financially burdensome for the company but is more prone to the volatility of the market and global competition.
The upstream segment of the supply chain focuses on crude oil extraction and its transportation. The process begins with an exploration of new areas for potential crude oil fields. Once a well is found, new drilling constructions are built and the oil is extracted to be later transported to refining factories. The process of refining is also known as the midstream segment of the petroleum industry. Midstream companies purify crude oil and natural gas making them into a product for the market. The downstream segment includes storage, primary and secondary distributions, and marketing of refined products. Logistics is one of the key assets of such companies since they rely on optimized routes to deliver final products to customers that are divided into two groups: wholesale and retail (Lima & Relvas, 2016). The wholesale segment is represented by power plants and large fuel consumers, while retail consumers use fuel for domestic purposes and transportation.
Due to the complexity of the petroleum industry, it has to be divided into three separate segments. Upstream and midstream segments focus on extraction and refining of crude oil and natural gas, while the downstream segments main focus is marketing and transportation. Petrol and natural gas are realized on the market for two types of customers, according to the number of products they consume.
Reference
Lima, C., Relvas, S., (2016). Downstream oil supply chain management: A critical review and future directions. Computers & Chemical Engineering, 92, 7892.
The given case study discusses the success and the decline of the Finnish multinational telecommunications company Nokia. This case makes us understand how a company could benefit from going global as well as suffer from it. For example, Nokia managed to achieve lower operational costs by opening plants in some Asian countries and closing a less efficient factory in Romania. The strong point of doing business internationally is that an entrepreneur might build a factory in any country he finds the most efficient in terms of regulations to reduce operational costs such as rents, and wages and pay fewer taxes. Besides, according to the presented case, in 2011, Nokia sold its wireless patents to the Canadian Mosaid Technologies. This decision allowed to transfer of the expensive process to another corporation and still obtain revenues from patent holders rights.
At the same time, as it has already been mentioned, an international strategy might bring certain drawbacks. The case of Nokia shows that a company that decides to become international should be ready to innovate quickly if it wants to sustain market competition. Nokia failed to develop at the same speed as Google and Apple and thus lost 75 percent of its market. It could be suggested that the failure of Nokia came as a result of the complication of the process of strategic management.
To conclude, an international strategy might also lead to challenges caused by different languages, religions, cultures, and values, problems with quality, protectionism, and tariffs, and the threat of natural disasters or terrorist attacks. Although Nokia escaped these issues, it faced difficulties with development speed and had to catch up with other large corporations instead of being a market leader. The experience of recent years shows that the drawbacks of Nokias global strategy outweigh the positive sides.
The use of various safety measures that promote vehicle automation reduces the number of human error-caused accidents, improving road safety and ensuring that both passengers and drivers are better protected. The creation, promotion, and use of cellphone hands-free technology, outside vehicle cameras, music volume control, and a censored brake system are all effective at reaching the stated goals.
Key Partners
The key partners for the business include the marketing agencies and advertising companies that will be tasked with the promotion of products, storage, and warehouse owners that the products will be stored at and social media managers that are responsible for cultivating a positive public image.
Key Activities
As per the identified key problem, the main activities for this project include the promotion and integration of additional assistive technology for moving vehicles. Research has shown that the use of external cameras on the body of the vehicle is extremely effective at enhancing safety and car coordination. Additionally, the use of hands-free technology for phone calls has not been associated with additional distractions and risks, making it the preferable alternative to traditional phone calls (Fitch et al., 2013).
Value Proposition
The current business proposition supposes that the efforts of enhancing vehicle safety while reducing the number of driver distractions can be used in combination to facilitate a more safe driving experience. With the average number of cases of traffic accidents, fatalities, and other car-related tragedies rising, it becomes increasingly important to take appropriate measures. Current statistics related that the number of car-related deaths in the US only surpasses 38.000, which is an absurdly high amount ( Road safety facts , 2021). To ensure that the customers of our business are protected from potential dangers and can lead healthy, successful, lives, an offering of assistive safety technology is made.
Customer Relationships
The main way that the relationship between the customers and the company will be established will combine a customer-centered work approach, and the use of social media as the primary method of engagement. Current research shows that using social media can be beneficial in building a positive, lasting image and retaining an audience ( Social media for business , n.d.). The creation of social media accounts on major platforms, such as Facebook and Instagram will be beneficial to the goals of the organization. Additionally, the use of customer-based marketing, communication, and development is the most effective tool for organizational development, as shown by a great number of other businesses (Vainstein, 2019).
Customer Segments
The main customer segments for the business are middle and upper-class car owners. This demographic is the one that regularly utilizes cars in their day-to-day life, as well as can afford the additional security measures for their vehicles.
Key Resources
Key resources for this project include the monetary resources to purchase the car safety technology for sale, hire marketing experts, social media managers, and other professionals to assist in both securing the products and leading the advertising campaign.
Channels
The main way for our company to communicate with potential customers will be through social media and TV advertising, as they are the most widespread and effective methods of promotion today. The advertisements will use evocative language and statistics to demonstrate the need for additional protection, as well as promote the companys social media resources and website, which will be further used to sell the products.
Cost Structure
The business venture includes a variety of costs, both fixed and variable. Fixed costs would include rent for storage, website hosting, social media management, and taxes. Alternatively, variable costs will be spent on advertisement and the acquisition of vehicle safety devices to sell.
Time and Expenses
Website hosting services must be taken into account, with the cheapest option being up to $15 a month. Car backup cameras have a bulk price of 10$. Starting with 100 cameras would bring the cost to a 100$. Hands-free call devices are also going to be purchased at the same amount of pieces, totaling up to ~250$ in bulk. These considerations bring up the initial costs for a business to 365$ for the first month and a supply of 100 cameras and 100 hands-free devices. The average consumer price for lower-grade cameras fluctuates from 70$ to 99$ which can be rounded up to 85$. The price for a hands-free consumer-grade transmitter is noted to range from 2.87$ to 3.79$, with 3.33$ being the average. Presuming that the company will be able to sell its entire stock in the first month, the company will be able to make 1183$, fully covering the initial costs and being left with 818$ profit. The initial costs will be either crowdsourced or paid out of pocket.
Revenue Streams
The main stream for company revenue will be extracted from direct sales of assistive technology and safety devices.
The hospitality business is a complex and multi-component economic environment. For the effective functioning of such an enterprise, it is necessary to consider many factors. To better understand how such a business can function, it is essential to review this area using a specific example. This paper aims to examine the hospitality industry using the Intercontinental Hotel Group pattern and examine Porters five forces with this company.
The lodging industry is a service centered around the provision of accommodation and temporary housing services. All other services are growing around this concept, and depending on their range, the hotel business can be divided into several categories. In general, hotel services are divided into limited, mid-range and full-service (Lock, 2020). For customers, the most familiar is the five-star rating system, which is an ascending scale. While five-star hotels are considered the highest class, places with only one star in the rating provide the most limited services in terms of quantity and quality.
Several critical indicators can be used to analyze the industry. Since the basis and the principal value for this business is precisely the provision of rooms, these indicators represent revenue per available room (RevPAR), occupancy, and average daily rate (ADR) (Lock, 2020). Given that travelers flow has increased lately as more people begin to consider travel as part of their everyday life, the hotel business thrives on this driver of change (Lock, 2020). Another additional trend is providing additional services that allow hotels to receive extra income by offering customers various optional means of comfort.
The British company Intercontinental Hotels Group (IHG) is one of the largest in the market, with many divisions and branches worldwide. At the moment, the corporation ranks fourth in terms of market capitalization (Lodging screener, 2020). Thus, IHG has a strong market position that allows the company to resist intense competition, which is the first of the Porter model forces (Scott, 2020). Although the number of hotels is growing steadily every year due to the increasing flow of customers, IHG manages to maintain its influence through a vast network of branches and equal impact at various business levels. The companys hotels provide services of all levels, from the most economical to the luxury, while focusing more on the mid-high price segment, unattainable for many start-up companies (Industry overview, no date). Therefore, even though the potential for the arrival of new companies, Porters second strength, is relatively high, they do not substantially impact IHG due to this corporations massiveness and stability.
The next factor in this model is suppliers power and influence, and IHG depends on them very little. First, since the companys hotels are distributed worldwide, they do not rely on any particular supplier. Secondly, the services required by hotels are always relevant in the market, and there is no exact and rigid dependence on a specific company. Therefore, in this context, IHG can also be considered sustainable. The fourth factor in Porters model is the number of customers, and while the hotel business is thriving, there are several problems. For example, the spread of COVID-19 makes travel problematic, thereby reducing the flow of shoppers. Hence, IHG will have to take countermeasures to combat external factors influence in the near future. This is especially true in light of the emerging alternatives on the market, which is Porters fifth strength (Scott, 2020). Recently, online rental services such as Airbnb have become increasingly popular, providing customers with the comfort and coziness of home at relatively low prices. The corporation may need to modernize its policies to meet changing market needs.
Thus, the hospitality industry is a complex and multifunctional sphere of service provision, for which it is necessary to take into account many factors to work effectively. Based on Porters models analysis, it can be concluded that Intercontinental Hotel Group is a stable company with a strong position in the market. However, due to changes in the world and new trends, even such a large corporation may soon need a strategy change.
The Arab region is one of the fastest in the world regarding telecom services penetration growth. The United Arab Emirates (UAE) telecom sector is the second-largest contributor to the UAE Federal Government budget after oil revenues (Ellam, 2008). Two major companies with comparatively equal share distribution represent the telecommunication market: Etisalat (Emirates Telecommunication Corporation) and Du (Emirate Integrated Telecommunication Company PJSC). While the sector is snowballing, there emerged policy-making and competition issues that affect service usage in the country. High prices, the government presence in ownership, and the lack of true competition negatively influence the telecom market in the UAE.
Market Structure
The telecom market of UAE consists of two major players, Etisalat and Du, taking up almost equal shares in the sector. The central characteristics of the market are high-level GDP per capita, a great level of mobile penetration, a swiftly growing internet user penetration, and a steady level of fixed-line penetration (Ellam, 2008). The market was a monopoly until Etisalatuntil the UAE government, issued a license to Du in 2006. By 2008 Etisalat commanded 80% of the telecom market, and its share continued to decrease until the present day (Ellam, 2008), as Dus overall market share reached 48.7% in 2012 (Ameet &Willis, 2016a). In short, the UAE telecom market is a duopoly relatively balanced between the two major players.
While the competition seems to be intact in the sector, it is based on special offers and promotions rather than on direct price competition. The price of the services provided by the companies is high; however, the fact is negated by the level of GDP per capita, as the UAE citizens can pay the price. The central reason for the situation is the high royalty fee paid by the service providers. Ellam (2008) states that A royalty fee of 50% of the pre-tax profit makes Etisalat the second largest contributor to the UAE government budget after oil revenues (p.11). Considering this factor, neither Etisalat nor Du can offer lower prices, making direct price competition impossible in the UAE.
Another characteristic of the market is the government possessing a large proportion of both players shares. According to Ellam (2008), the Ministry of Finance owns 60% of Etisalats share, and 40% are in free float. A similar situation can be observed in Dus ownership structure, where the Federal Government holds 40% of the companys shares (Ellam, 2008). The matter could be the second reason for the low level of competition between the two major players in the sector, as the government would not want to compete with itself. In short, the low liberalization level in the segment is a crucial component of the UAE telecom market.
The UAE telecom sector is considered the least liberalized due to the strict regulations in the sphere. The Telecommunication Regulatory Authority (TRA) is the body responsible for managing the frequency spectrum and elaborating policies and procedures in the matter. The authority is owned by the government and protects Etisalat and Du from all outside competition by limiting foreign investments and controlling the number of issued licenses (Ameet &Willis, 2016a).
The body even restricted the Voice over Internet Protocol (VoIP), making the citizens of the UAE unable to use Skype, Viber, WhatsApp, or FaceTime (Ameet &Willis, 2016a). This was made to ensure the duopoly of the two service providers in the telecom sector. In brief, the fact that both Etisalat and Du essentially belong to the government and the TRA protecting the telecom market with conservative policies makes the UAE telecom sector least liberalized.
Considering that the UAE Federal Government holds large shares of the two major players, one may deem the telecom market in the country a monopoly. Etisalat and Du recently received authorization to provide pre-paid packages without obtaining special approval (Ameet &Willis, 2016a). This fact allowed Mobile Network Virtual Operators (MNVOs) to enter the UAE telecom market. However, the two new service providers, Virgin and Axiom Telecom, cannot compete with Etisalat and Du in pricing, leaving the duopoly intact. However, Etisalat and Du essentially belong to the government, and there is no rivalry between them (Ameet &Willis, 2016a). Therefore, it would be rational to consider the UAE telecom market a Federal Government monopoly due to the absence of true competition in the sector.
The peculiar structure of the sector considerably affects supply outcomes and important businesses. First, the prices are very high, making telecom service a significant expense item for companies. Second, VoIP ban for outside use makes it challenging and costly to run an international business. Third, due to limitations in competition, enterprises cannot acquire adequate service plans spending even more money on the matter. Overall, customers are not satisfied with the level of service provided by Etisalat and Du (Ameet &Willis, 2016a). To summarize, the non-perfect market structure in the UAE makes businesses face apparent difficulties.
Projections
After the introduction of Du, Etisalats profits from domestic operations are projected to decrease; however, the fact does not overly concern the company. The earnings of the duopoly are expected to grow regardless of the introduction of competition. The first reason for the matter is that the Federal Government is a substantial shareholder of both companies and wants both of them to succeed. Second, according to Ellam (2008), Etisalat needs du to succeed for the telecom liberalization process to be viewed as a success (p. 13).
Otherwise, WTO may consider the market a monopoly and demand a harsher regime for the company. Moreover, while Dus objective is to establish high-quality domestic services, Etisalat aims at conquering the overseas markets and finding additional revenues from international services. In short, the profit of the two major players in the UAE telecom sector is expected to grow, as both of the companies have clear perspectives on their future development without interfering in each others affairs.
The mobile and internet connection markets are expected to grow in subscriptions and penetration levels. According to Ellam (2008), the penetration in mobile services was 166% in 2007 and was projected to increase to 188% by 2012. However, Ameet and Willis (2016a) stated that penetration level, while being the highest in the Arab states, reached only 178% in 2014. The number of mobile subscribers is also forecasted to grow from 9.2 million in 2007 to 11.9 million in 2012 and further (Ellam, 2008). The internet subscriber count is projected to increase from 0.9 million in 2007 to 1.15 million in 2008 and to 2.66 million in 2012 (Ellam, 2008). In summary, the projections for the UAE market are promising both for internet and mobile services.
Comparison of Telecom Sectors
The UAE telecom market structure is typical for the Gulf region due to the similarity of essential characteristics. According to Ameet and Willis (2016b), all of the Gulf countries have a high level of government control over the market and lack independent regulatory bodies, privatization, and true competition. At the same time, the prices of the telecom services are the highest in the United Arabic Emirates because the royalty fee is 50% (Ameet &Willis, 2016b). Moreover, the UAE shares leadership with Qatar in the number of unique subscribers in the mobile sector (Ameet &Willis, 2016a). In short, while sharing some similarities in the telecom market structure with other Gulf countries, the UAE is the front-runner of the sector in the region.
In European countries, the telecom sector is more advanced in comparison with the UAE, and it offers more exceptional services at a lower price. Mariniello and Salemi (2015) state that the central character of the European telecom market is true competition among numerous service providers and a high level of liberalization. Due to the progressive structure of the sector, the level of the services is superior to the one in UAE (Ameet &Willis, 2016a). Moreover, government interventions and interests in the matter are limited, which contrasts greatly with the issue in the UAE (Mariniello & Salemi, 2015). In short, the telecommunication sector in the European countries differs considerably from the UAE in key characteristics.
Conclusion
The UAE telecommunication market is a duopoly with a set of distinctive characteristics that include high pricing, considerable government presence, and lack of true competition. While the sector is trying to adapt to the rapidly changing demands of the customers, its structure still poses appreciable problems in front of the businesses in the UAE. The researches examined in the present paper show that the UAE government should follow the example of the European countries and offer policies that support liberalization of the sector. In conclusion, while the telecom market is growing steadily, the companies shareholders should focus on customers satisfaction as their primary goal.
References
Ameen, N., & Willis, R. (2016a). An investigation of the challenges facing the mobile telecommunications industry in the United Arab Emirates from the young consumers perspective. 27th European Regional Conference of the International Telecommunications Society (ITS). Cambridge, United Kingdom: International Telecommunications Society.
Ameen, N., & Willis, R. (2016b). Current and future challenges facing the mobile telecommunications industry in the Arab world. The 3rd World Congress on Computer Applications and Information Systems 2016. Dubai, United Arab Emirates: N&N Global Technology.
Stella McCartneys Falabella bags have become an iconic product despite the industrys scepticism regarding the reduction of the use of animal-sourced materials. Its success is attributed to the fact that the accessory was issued as an opposition to the traditional view of luxurious handbags and also introducing new materials that customers have never seen before. The Falabella bag, which has a minimalistic design with a distinct chain detail running along its edge, combines the ethical outlook of the brand with a unique design that would be recognizable long-term.
The choice to include Kate Moss as the model of the Falabella campaign was a strategic move that also made the bag appealing to a wide audience who recognizes Mosss contribution to fashion. This created a new and appealing product that customers supported by investing in it despite the high price.
Prescriptive or Emergent Approach for Stella McCartney?
The emergent approach is a better fit for Stella McCartney as a luxury clothing and accessories brand because it allows for the development and the adjustment of the strategy in the context of real events. Predicting trends in the fashion industry is near to impossible, and with new materials coming to the market each year, Stella McCartney will benefit from the emergent approach the most. This will make the brand more responsive and agile regarding the adjustment to the demands of the clientele. The approach does not mean that the brand should change its mission; rather, it creates opportunities for growth in instances when such growth has not been predicted.
The Falabella bag is an example of how the emergent approach has already worked for Stella McCartney. Being a Kering member (former Gucci Group), McCartney had to maintain the high standards of offering luxury accessories, but doing so meant preserving its main value of sustainability. Therefore, Stella McCartney adapted to the market demand for ecologically friendly luxury bags and small leather goods by implementing an emergent approach to strategy.
Capturing Full Value
The growing selectiveness of customers and the search for distinct features in the products they purchase present massive opportunities for Stella McCartney to capture the full value it creates. The distinctiveness inherent to the brands European model means that the company does not adapt itself to serve the masses but rather presents itself in a way that will make the masses adapt. Loyalty and the sharing of sustainability values make the relationship between the brand and its customers stronger. In addition to this, the marketing campaigns have never been focused solely on the message of sustainability in order to grow and expand as a fashion brand, Stella McCartney needed to capture an audience that will value its products both from the perspective of design and ethicality.
Motivation and Hindrance of Brand Collaboration
The key motivation behind the collaboration of fashion firms is getting exposure that is hard to achieve on ones own. In the example of H&M collaborating with Stella McCartney, the affordability of the former with the prestige of the latter created an explosion of craziness : customers were grabbing products off the shelf, making stores sell out in half an hour (Anat & Crener 2016, p. 9). Thus, if firms are motivated by bringing something new and exciting to the market, then the collaboration is highly likely to be successful.
The main hindrance to collaboration between fashion companies is associated with the lack of substance in the ideas behind the partnership. For example, despite the hype surrounding Beyoncés line with H&M, the collaboration failed (Choy 2013). It lacked attention to detail and did not capture the essence of H&M as an accessible fashion retailer and Beyoncés aesthetic.
Goals of Diversified Stella McCartney
When creating brand extensions and diversifying its business, Stella McCartney has the goal of capturing a wide clientele. This is possible by following a distinct set of characteristics inherent to luxury brands: consistently high-quality materials, craftsmanship, recognizable design and style, global brand reputation, exclusivity, and innovation (Anat & Crener 2016). What makes Stella McCartney unique in its diversification is the transfer of sustainability values to other aspects of the business.
In skincare and perfumery (Stella and Care), only organic, high-quality ingredients were used. In collaboration with Adidas, Stella McCartney wanted to bring women sportswear to a higher level. In bringing out female lingerie and a childrens collection, the brand used the best materials sourced organically. Thus, widening the target audience without compromising on the quality and design is the key objective of diversified Stella McCartney.
Creating and Destroying Value Through Diversification
For any business, including fashion design and production, diversification can result in both value-creation and value distraction. According to the study conducted by Galvan, Pindado, and De La Torre (2014), there is a direct connection between relatedness and the creation of value for a business. Related diversification has shown to positively impact the creation of value. This type of diversification implies the expansion of operations beyond existing products but still within the existing network of values. For instance, Stella McCartney diversified into skincare and preserved the value of the sustainable sourcing of ingredients, the same way in which clothing and accessories had been produced.
Unrelated diversification means that a business adds new product lines that do not align with the existing values of a business. For example, if Stella McCartney collaborated with an auto manufacturer in the same way that Gucci and Fiat worked together, then it would essentially betray its vision of sustainability. This means that the value that the brand usually offers to its customers will be destroyed, leading to the lack of consistency in corporate image and mission.
Related Diversification in Fashion Business
Related diversification in the fashion business is an opportunity for brands to create newness in an ever-changing environment. Companies do not have to go outside of their value systems while still trying to create something new. Examples of related diversification are vast, with the majority of fashion brands engaging in the strategy to at least some degree. For instance, Urban Outfitters, which has initially specialized in clothing and accessories, has gotten immense attention from customers with the help of the Music+Tech line of products.
Madewell, specializing in denim and casual clothing, diversified its selection of products through collaborating with Goop (Gwyneth Paltrows brand), P.F. Candle Co, ABC Carpet, and other lifestyle brands within the Everyday Denim Cover campaign. As seen from these examples and the extension of Stella McCartneys brand to include perfumes, skincare, childrens clothing, and womens sportswear, related diversification can serve as a tool for adding value to fashion brands that seek to widen their target audience.
Galvan, A, Pindado, J & De La Torre C 2014, Diversification: a value-creating or value-destroying strategy? Evidence from the Euro-zone countries, Journal of Financial Management, vol. 2, no. 1, pp. 43-64.
When planning to open a new branch in the market, it is important to monitor external environmental forces that may affect the level of success of a firm. Forrest et al. explains that the ability of a firm to sustain its operations depends on how effectively the management and all the relevant stakeholders use its resources and core capabilities to overcome external forces in the environment (45). In this case, ABC Company seeks to open a new brand in Jeddah, the Kingdom of Saudi Arabia.
The main products that this company offers in the market include bags, pens, and watches. It is important to note that these products are also available in different outlets within this market. It means that this firm will be facing stiff competition once it starts its operations. The management would need effective strategies that would enable it to convince its customers that its products are unique compared with what rival firms offer. It will need a strategy that would enable it lower its cost of operation while at the same time increasing its revenues in the market. In this paper, the researcher will discuss strategies that would enable this company to achieve success in the market despite the various challenges that it may face.
Discussion
Jeddah is one of the fastest developing business hubs in the Middle East. Its strategic location as a port city on the Red Sea has made it one of the best business hubs in the region (Saud 67). ABC Company selected this city as one suitable for its new branch because of its potential. However, it is important to appreciate the fact that the attractiveness of the market does not mean automatic success. This company must develop a unique market strategy that would enable it to penetrate the market despite the stiff competition. As Tynnhammar observes, it is not enough for a firm to gain new market share (35).
It is equally important for it to find effective ways of retaining its acquired customers. To achieve such a goal, it will need to find ways of meeting or even exceeding their expectations with the products that they offer. In this business proposal, the researcher focuses on issues that would enable the firm to realize success in the market.
Market Potential for the Product in the Target Market
The management has made the decision that Jeddah is the most appropriate city for the firm to set up its new branch. Prange explains that once a market has been selected, the next most important factor that the marketing team should consider is its level of attractiveness (34). One should analyze the potential of the market based on what the firm offers. It helps in determining if indeed the selected products will achieve success in the specific market. When analyzing the potential of the market for a given product, one must consider various factors.
The first one is the population of the market. Kim and Mauborgne note that it is critical to ensure that the population of the new market is large enough to create a meaningful pool of customers (78). Jeddah is the second largest city in Saudi Arabia, and the largest in the province of Makkah, with a population of about four million people (Sharma 38). Such a huge population makes the market attractive for the specific products that the firm offers. It means that there is a significant pool of potential customers that can sustain the operations of the company. The citys population has been growing significantly over the past decades, which means that the market is destined to be bigger than it is currently. It means that this company will have an opportunity to sell its bags, pens, and watches to a large customer base.
The second factor that defines a markets potential is its financial capabilities. It is one thing to have a huge population in a given region, and another to have potential customers who have the willingness and the capacity to purchase a specific product. In this case, the huge population in Jeddah should have the capacity to purchase products that the company offers. Saud explains that Jeddah is Saudi Arabias commercial center (90).
The city has focused on promoting trade as an alternative income source to the countrys oil and gas sector. The flow of cash witnessed from other sectors of the economy within the city means that its residents have the potential to purchase products that ABC Company will be offering. The government has been supporting trade in this sector, a move that has attracted local, regional, and international investors to the city. These factors assure the company of the potential of its targeted clients to afford its products.
The strategic location of the market is another major factor that defines the ability of the firm to achieve success in the market. Jeddah is the primary gateway to the holy city of Mecca (Alsharif 89). Every year, hundreds of thousands of Muslims from all over the world visit this city for Hajj, the annual Islamic pilgrimage. As such, the city of Jeddah is one of the largest tourists hubs in the region. When these visitors come to the city, they would spend on various items that they find relevant. They may purchase bags when they find them to be unique compared with what they have back at home.
Pens will be in high demand among these visitors during their visit. Watches will also be another item that some of the visitors would purchase, just in case they want to time activities they will engage in while staying in the city. The majority of those who come to the city have the financial capacity to purchase these items. The three factors analyzed above demonstrate that Jeddah is a highly attractive market for the company to start its operations in within the country.
Sales Forecast for the First 5 Years of Operations
When this firm starts its operations in Jeddah, the management should ensure that its sales revenue remain on an upward trajectory. During the first year, it is expected that the sales will be low, as shown in table 1 below. The lower sales revenue during the first year of operation is often attributed to various factors. The first factor is that the company will be struggling to create a pool of loyal customers. At such a time, its brand is not known in the market and most of the customers will resort to buying these products from familiar premises. Another factor is that the company will still be struggling with the problem of understanding its market.
The sales team will need to understand how to present the companys products in a way that is appealing to customers. The firm will also need to understand how to promote its products and brand in a way that is captivating to the locals.
The sales are expected to increase in the second year of operations. At this time, the firm will have a small pool of loyal customers who have tried its products and pleased with them in terms of their quality and approach of delivery. The massive campaign that the firm is expected to launch should also help in creating that large pool of customers in the market. These steps are expected to create an environment where this firm can achieve rapid success in the Jeddah market. The third and fourth years will be characterized with a significant growth in sales, as shown in the table below. It is expected that if the firm implements the plan effectively, it will have sales revenue exceeding seven million riyals by the end of its fifth financial year in the market.
Table 1: Sales forecast.
Year
Sales in Saudi Riyal
Year 1
3,850,000
Year 2
5,450,000
Year 3
7,330,000
Year 4
9,580,000
Year 5
105,120,000
Product Sourcing
When a company starts its operations in a given industry, it may opt to be a manufacturer, distributor, or retailer of specific products. It all depends on what the management feels the firm can do best. In the case of ABC Company, its main products are unrelated in terms of their mode of production. It offers bags, pens, and watches. The management must decide whether it will be a manufacturer of these products, a distributor, a retailer, or a combination of these. As such suggests, it is necessary for a firm to focus on what it does best and avoid what it feels may be costly or what it lacks the capacity to do in the most cost effective and efficient manner possible (Forrest et al. 88).
Some of the customers who come to this city as tourists are rich. As such, they would only purchase specific brands of watches. The complex process of developing a watch also makes it more advisable to source for these products from established manufacturers with popular brands. Rolex, Lange & Sohne, Patek Philippe, and Tag Heuer are some of the most popular brands of watches in the market today.
Bags are also affected by the same trend. The current global society has created a trend where specific brands of bags are considered superior to the rest. The rich often purchase the brand. They want to pass a message whenever they use a specific product. Some of the top brands for handbags include Channel, Gucci Jackie, Prada, and Christian Dior (Ozuem and Azemi 55). Instead of this company starting its own line of bags, it would be appropriate to select one or two top brands and specialize on their bags in the local market.
It would also be more advisable for the company to source for the pens instead of producing them. The reason why it is necessary for ABC to focus on sourcing for these products instead of producing them is that they are unrelated. As such, it will cost the firm more to produce these items than it would when it decides to collaborate with renowned producers.
When the management makes the decision to be a retailer for these products, the next important issue that the management would need to focus on is how to acquire them at the lowest price possible and in a convenient way so that customers have access to what they need at all times. Tynnhammar advises that it is often advisable for a firm to engage the producers directly instead of relying on the distributors or brokers (67). This direct engagement helps the firm to cut on the unit cost of the items. It also eliminates a scenario where the retailer has to rely on the efficiency of the distributer to have its products available in the market.
The retailer can engage the producers closely to understand when new products are to be released to the market so that they can communicate the same information to their loyal customers. ABC Company should negotiate with these distributors about the cost of transporting their products to the market. They can have an arrangement where the producer offers to transport these products to Jeddah at a discounted cost. Alternatively, the producer can lower its products prices further to ensure that the transport cost do not affect the bottom line for the retailer.
Estimated Costs of Operations
The cost of operation in the market is always done on an annual basis. When developing the budget for its first year of operation, ABC Company will need to take into consideration various factors that will facilitate its operations.
First, it will need to identify and pay in full the rent for the premises where it will operate. The online survey conducted of the available commercial premises show that this firm will need to pay slightly over one million riyal for a strategic location. The items that the company is selling require a strategic location. It is economically viable for the firm to pay a high price for the strategic location than to settle for a cheaper premise that people rarely visit. The company will rely on impulse buying, which means that the products will be displayed appealingly in strategic locations.
Employees salary is another important factor that the management should consider when developing its financial budget for the year. It is advisable for the firm to pay its workers a salary that is slightly higher than the market average to ensure that they remain motivated at work. Advertising expenses should also be set aside for the year. The company may need to spend a lot on awareness campaigns in its first year of operations to promote its brand and products. Before this firm can start its operations, it will have to pay all the relevant fees to the government for the permits. The cost of such fees should be part of the budget.
Market research, sourcing for the products in the market, and fixtures and fittings are the other costs that the company will need to take into consideration in its normal operations. As shown in table 2 below, it is estimated that the firm will spend slightly over four million riyals in its first year of operation. Compared with the sales revenue above, it is evident that the firm will spend more than it will generate in its initial year of operation. While the cost is expected to drop in the subsequent years, sales is projected to increase. As such, the business is expected to be self-sustainable within its second year of operation.
Table 2: Estimated cost of operations.
Item
Cost Per Year
Renting the business premises
1,043,000
Employees salaries
857,000
Advertising campaigns
450,000
Business permits
85,000
Market research
250,000
Sourcing for the products
1,200,000
Fixtures and fittings
350,000
Total
4,235,000
Competition Analysis
When ABC Company starts its operations in the market, one of its greatest concerns should be the level of competition in the market. According to Prange, competition is often a beneficial factor because it makes a firm to focus on meeting and exceeding customers expectations (78). Tynnhammar argues that the desire to outsmart rivals in the market forces companies to remain innovative, which is a positive factor in any given industry (56).
However, it is important to note that when the competition is too stiff, some firms may resort to using strategies that are counterproductive. When a rival company opts to use price wars as a way of edging out rivals, then it eliminates prospects of creativity in the market. Porters five forces model, shown in figure 1 below is often used to assess threats that a firm may face in a given industry.
As shown in the model below, one of the most important factors that the management of a firm should assess is the level of industry rivalry. When the rivalry level is very high, then chances of using undesirable business practices such as price wars may be high. It is important to note that the level of industry rivalry in the market is moderate. The number of companies offering bags, pens, and watches in Jeddah is significantly high.
However, if this company selects a unique niche, such as stocking some of the top brands of bags and watches, the level of industry rivalry will be lower. The threat of entry into the market is another factor that defines the level of competition. Majchrzak explains that when laws, regulations, and other external forces within the country makes it easy for new local and foreign firms to emerge, then the threat of entry would be high (78). It is important to note that the government of Saudi Arabia has been keen on promoting trade as a way of reducing its reliance on oil and gas sectors. As such, the threat of entry into this market is high as new firms can easily start operations in this market.
The threat of substitute is another aspect of competition analysis. Prange notes that when customers can meet their needs perfectly well using substitute products, then that would be a major competitive threat to a firm (112). The emergence of iPads and Smartphone is a direct threat to pens as a product in the market. Instead of using paper and pen, many people currently prefer using handheld devices.
It means that for the pens that this company offers the threat of substitute products being considered superior is high. It is also important to note that wristwatches have become more of jewelry than gadgets that people use to determine time. Many currently use their phones and tablets to know the time. As such, they also face stiff competition from substitute products. However, it is important to note that there is no effective substitute for handbags. In this case, the threat of substitute products is significantly low.
The model also focuses on two issues that may have a significant impact on the level of competitiveness of a firm. The bargaining power of suppliers is directly related to competition in the market. When suppliers have numerous customers that may want to purchase its products, then it would have a high bargaining power. The high number of retailing shops in Jeddah offering a wide range of products, including bags, watches, and pens means that the number of firms purchasing these products from the producers is high. However, it is important to note that the number of producers of these products is equally high.
As such, the bargaining power of the suppliers is relatively low. The bargaining power of customers is another factor. As Prange observes, when customers have numerous choices when they want to purchase a given product, they tend to be choosy, which gives them a high bargaining power (73). Unfortunately, ABC Company has to deal with this scenario in the market. It has to contend with a strong competition in the market.
Figure 1. Porters five forces model (Prange 62).
Main Barriers to Entry
The competitive analysis conducted above shows that threat to entry is one of the biggest concerns that companies face in the market. ABC Company must understand that it may also face the challenge of making a successful entry into a foreign market. Understanding these challenges makes it easy to design ways of overcoming them. One of the biggest barriers to entry into the new market is competition. Tynnhammar explains that when competition in the new market is high, a firm may find it difficult to make a successful entry into that country (98). The problem is that the new firm will have to create a competitive edge over its rivals. It will have to deliver premium products at the most competitive prices possible. ABC Company will need a unique strategy to overcome this challenge.
Government policies and regulations pose another major challenge. Policies that regulate a firms operations in the retail industry within the United Arab Emirates are significantly different from those in the Kingdom of Saudi Arabia. It will require the management to understand policies that this company will have to observe in the new market to ensure that it operates within the law. The ease with which this company can have access to the products discussed above at good prices may become a barrier to market entry.
Some of these top brands of bags and watches mainly focus on markets in Europe, North America, and parts of Asia. As such, it may be a problem for this firm to have access to these products at the right time (Majchrzak 88). Such a problem may hinder successful entry into the Jeddah market. The management needs to find effective ways of dealing with these risks.
Political Risks
When analyzing risks that a firm can face in a foreign market, one of the issues that should be given a serious attention is political risks. Forrest et al. observe that a countrys political stability has a direct influence on the business environment (74). Lack of political stability often leads to anarchy. In such a situation, the rule of law will be suspended and people will use their power to achieve selfish goals. A business cannot thrive in a lawless environment.
Most firms are often forced to close their operations when there is a political anarchy in the region, such as in parts of Syria where civil war is ongoing. The Kingdom of Saudi Arabia has enjoyed a prolonged period of political stability (Kim and Mauborgne 54). The Arab Spring that was witnessed in various parts of the Middle East and North Africa region did not significantly affect the country. In this aspect, the management of ABC Company is assured of a stable political environment in Jeddah.
The involvement and interference of the political class in the business arena is another factor that may affect the ability of a firm to operate freely in a new market. When politicians have power to dictate the business environment to meet their personal interests, then this company may find it challenging to operate in the new market. Although the ruling class in Saudi Arabia is very powerful, they have developed a policy of non-interference with the private sector. The country has rules and regulations that companies have to observe, just as it is the case in other countries around the world. However, the rulers have created an environment that creates a sense of freedom for local and foreign investors in the country operating within the law.
Favorable Attributes For the Product in the Target Market
When making an entry into a market where the level of competition is high, it helps to have products with unique attributes, which customers will find attractive. These attributes may help in ensuring that the product gains superiority in the market. One of the main attribute of the bags that this firm will be selling to its customers is that they are made of pure leather. Unlike most of the bags in this market made of synthetic materials, which are less durable, ABC Company will be offering high quality pure leather handbags. It means that these products will be appealing to the rich in the market, especially tourists keen on purchasing the best quality products.
Another unique attribute of these bags is that they are bearing unique brand names associated with luxury. Christian Dior is one of the most luxurious brands in the apparel industry. The fact that the brand is known globally will give this company an edge over its rivals in the market. These bags come in different shapes, sizes, and colors to meet the diverse needs of its customers. It means that any client with the financial capacity to pay for these products will find a suitable bag.
The watches will also have unique attributes compared with what rivals firms offer to their customers. The brand is one of the most important factors that customers often consider when purchasing a product. They need to ensure that they have a product that is associated with a class in the society (Majchrzak 50). As such, ABC Company will stock Rolex watches. Although these watches are expensive, they are known to be popular among the rich.
They are durable and are made of previous metals. These attributes make them unique when compared with other brands available in the market. The company will also focus on stocking unique pens that have attributes unmatched by some of the local brands available in Jeddah. The goal is to ensure that this firm offers its target market more than a pen. The pen should be capable of expressing their financial capacity and status in the society. It means that they will not only be buying a pen but also a status symbol in the society.
Anticipated Operational Problems after Entry
The management of ABC Company should anticipate various problems that may emerge soon after the firm has made a successful entry into the Jeddah market. Identifying potential challenges that may arise in the market makes it easy for the firm to have a proper plan of responding to them. One of the major anticipated problems after entry would be the emergence of another company offering similar products. The aim of this company is to ensure that its products are as unique from that of its rival firms as possible. However, it is possible that some new entrant will borrow the same business idea and start a business offering similar products. The problem with such a scenario is that this firm will now have a direct rival in the niche it has created in the new market.
The company should be ready to deal with the potential threat of political instability in the region. Although the Kingdom of Saudi Arabia has remained relatively stable despite the ongoing Arab Spring, it does not mean it cannot be affected by this problem. Egypt, which was one of the most politically stable countries in the region, was unable to overcome the Arab Spring. It means that one cannot predict, with certainty that Saudi Arabia will not be affected.
Such an event would have catastrophic impact on the business community. It will force this firm out of the country because of the potential violence and lawlessness that is associated with it (Tynnhammar 76). The management of this company should know how to respond to such threats.
The firm might be affected by high rate of employees turnover. It takes time and resources to recruit talented employees and take them through training. When they are lost to rival firms, the firm will lose important resources that would otherwise enable it achieve competitive advantage in the market. The difficulty in finding equally talented replacements for these employees may be another challenge. Majchrzak explains that remuneration is one of the main reasons why employees may consider moving from one firm to another (64). The management of this firm will need to ensure that it has attractive remunerations that would attract and retain highly skilled and talented workers.
Sources of Finance and Foreign Exchange Issues
When starting a new branch, some of the main issues that a firm has to consider are the source of financing for the new business and foreign exchange issues. As Forrest et al. observe it is a standard practice for a firm to fund its initial operations in the market (38).
As such, the parent firm in the United Arab Emirates will fund all the activities of the firm in its initial years of operation. The report has identified a budgetary allocation for different activities that will need to be conducted once the firm starts its operations. The parent firm will need to provide for funds that would meet all the expenses of the company. In its first year of operation, all the funds will come from the parent firm. In the subsequent years, it is expected that funds from sale of products will generate income that would sustain the business.
The management of ABC Company will need to exchange the United Arab Emirates dirham into Saudi riyal for it to have value in the foreign country. Foreign exchange may not be a major issue for the company. Banks in the United Arab Emirates and those in the Kingdom of Saudi Arabia offer these services. Some of the large regional banks in the region such as Samba Financial Group also operate in both markets. It means that the parent company can deposit the cash in dirham in Dubai and withdraw the cash in Saudi riyals in Jeddah. Although the process of changing the money from one currency to another is simple, the management should be careful to avoid losses often associated with foreign exchange trading.
Sales and Marketing Strategy
The sales and marketing strategy that the firm uses in its operations defines its ability to achieve success in the foreign market. As a new company, one of the most important factors that ABC should consider is to strengthen its brand. It should ensure that local customers in Jeddah associate this brand with top quality. As such, its positioning should reflect attributes associated with clients in the targeted market segment.
The message that comes out of its promotional messages should reflect expectations of its customers. After developing an effective promotional message, Forrest et al. note that the next important step is to define a platform through which it will be delivered to customers in the market (114). The platform should be reliable enough to pass the message to the targeted audience. Social media platforms present the best avenue through which the company will promote its products and brand to customers in Jeddah.
Studies have shown that an overwhelming majority of youths and young adults in the United Arab Emirates are active on the social media. Facebook and YouTube are some of the popular platforms that they use to share information. The management of the company should invest a significant amount of money meant for promotional campaigns on social media marketing. A small amount can be set aside for mass media marketing, especially for television and radio commercials, to ensure that a wide majority of the targeted customers are reached. The company should plan its sales strategies to be as appealing to clients as possible. The sales team should treat customers with respect and understand how to meet their diverse needs effectively.
Conclusion
Jeddah is one of the emerging business hubs in the Middle East, and the decision of the ABC Company to explore this market is informed by the emerging opportunities in the market. Hundreds of thousands of tourists who come to the city for pilgrimage have created a huge business potential for local and foreign companies. Bags, watches, and pens were identified as popular products among the local customers. The management of the company intends to import these products to sell them in the local market. The idea is present customers with the best quality products to outsmart competition in the market. In this report, the researcher has outlined the annual budget and projected sales for the next five years to enable the management to make the right decisions when making the entry into the market.
Works Cited
Alsharif, Fahad. City of Dreams, Disappointment, and Optimism: The Case of Nine Communities of Undocumented African Migrants in the City of Jeddah. King Faisal Center for Research and Islamic Learning, 2018.
Forrest, Jeffrey, et al. Managerial Decision Making: A Holistic Approach. Springer, 2019.
Kim, Chan, and Renee Mauborgne. Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant. Harvard Business School Publishing Corporation, 2015.
Majchrzak, Timo. A Discussion of Market Entry Strategies for Emerging Markets. GRIN Verlag, 2014.
Ozuem, Wilson, and Yllka Azemi. Digital Marketing Strategies for Fashion and Luxury Brands. IGI Global, 2018.
Prange, Christiane. Market Entry in China: Case Studies on Strategy, Marketing, and Branding. Springer International Publishing, 2016.
Saud, Mashael. Flood Control Management for the City and Surroundings of Jeddah, Saudi Arabia. Springer, 2015.
Sharma, Ajai. The Culinary Epic of Jeddah: The Tale of an Arabian Gateway. Notion Press, 2018.
Tynnhammar, Marcus. New Waves in Innovation Management Research. Vernon Press, 2018.
Over the past couple of years, Marriott Hotels has introduced several vital changes to its performance framework, outlining the special importance of its sustainability-driven approach. According to the 2020 report, the company has been changing its framework to show the progression toward greater social awareness, specifically, regarding the companys impact on the well-being of its stakeholders. Namely, in its 2020 Serve 360 Report, Marriott Hotels announced its readiness to reduce the level of plastic production, as well as support the causes associated with the management of human trafficking and poor workplace conditions ( Marriott International provides updates on sustainability and social impact progress, 2020).
Therefore, the effects of the companys sustainability framework on its economic performance have been quite positive since it has allowed to improve Marriott Hotels current brand image and gain the appreciation of new audiences. Likewise, the causes to which Marriott Hotels has subscribed allow improving the well-being of vulnerable groups of people, while also leading to waste reduction and, thus, the improvement of the state of the planet. However, there are still several issues that managers at Marriott Hotels must address. Namely, the company needs to update its technology to improve the quality of services, as well as adopt a culturally sensitive approach for catering to the needs of diverse customers. The lack of focus on diversity currently represents the greatest threat to the companys sustainable business strategy since it implies a partially inept approach to assessing socio-cultural factors as contributors to sustainable management of the supply chain.
To increase the extent of sustainability while maintaining the current performance rate, Marriott Hotels will need to introduce a greater variety of services into its current range of options available to its customers, while also maintaining a sustainable approach toward the use of resources. Specifically, apart from supporting the initiative mentioned above and encouraging a drop in the use of plastic, Marriott Hotels will also have to consider incorporating energy-saving technologies into its current supply chain. The specified tools should be deployed at all stages of the SCM process, including the transfer of data and the delivery of services to customers. Specifically, energy-saving and temperature-regulating appliances must be installed in every room (Marriott International provides updates on sustainability and social impact progress, 2020). Additionally, similar practices involving the sustainable use of water and other resources must be promoted within the hotel system.
For Marriott Hotels to utilize the suggested business practices, specifically, enhancing its sustainability focus while improving the quality of customer service, the company will need to shape its public image and improve its STP approach to increase the revenue flow and invest in sustainable solutions. Furthermore, it is strongly advised that Marriott Hotels should consider partnering with organizations that endorse eco-friendly approaches to SCM and the management of communication, service delivery, research and development, communication, and other vital aspects of the companys performance. For instance, the issues associated with logistics, namely, transportation strategies, will need to be revisited so that Marriott Hotels could reduce the extent of fossil fuel consumption and the resulting CO2 emission (Marriott International provides updates on sustainability and social impact progress, 2020). Combined with the current focus on recycling and the minimized use of plastic, the proposed technique is expected to help Marriott Hotels improve the levels of sustainability in its performance, while also addressing the existing gap in the use of technological advances within its SCM. As a result, the companys performance and eco-friendliness levels will increase.
Tehindo is a leading producer and marketer of tea products. Goteh is currently presenting more sales and profits. Fteh is primarily marketed through modern chains and it remains less competitive. Supply chains for this product are complicated and unsustainable. The company is keen to make a final decision regarding this product. This paper revolves around this key problem at Tehindo.
Flow: Information and Products
The presented diagram shows the flow of products from the companys sales centers and manufacturers. Finished products can be marketed to consumers directly, wholesalers, retailers, or distributors. Similarly, bottles for RGB products will be received for refilling and support the supply chain. Information is shared and exchanged as shown using the red lines. These approaches are essential towards supporting the success and effectiveness of Tehindos products in the market.
Challenges: Managing Supply Chain
Tehindo uses RGB for its Goteh and Fteh products. This model requires that the company pursues both downstream and upstream supply chain processes. Companies and manufacturers should consider the demands recorded in the market. Fteh presents more challenges since the company has to identify the existing demands and coordinate every flavor. However, the situation is different Goteh since it remains a common product that is marketed across all traditional markets. Additionally, Ftehs supply chain attracts additional partners, including commercial players and modern outlets.
Temporary Demand Causes
Tehindo has developed a model that requires wholesalers and retailers to exchange empties for filled bottled. This applies to orders made within the 2 weeks price change period. The organization communicates price changes to retailers and wholesalers to dictate their business practices. Tehindo requires its key wholesalers and retailers to exchange empties for filled bottled as a way of sustaining the supply chain process (Pujawan & Er, 2009). The approach is applicable to orders made within the 2 weeks price change period. Celebrations and holidays are known to dictate the recorded temporary demand. These issues explain why demand for Tehindos products tends to fluctuate.
Order Increases in Supply Chain
Wholesalers and modern outlets form a significant part of Tehindos business model. Supply chain processes are informed by the demands and predictions of these key partners. Throughout the year, orders in the supply chain will increase depending on the experienced factors. The first one is that wholesalers might order more when the company reports possible price increments. Such buying trends will be experienced during the two-week window period. The second one is when wholesalers anticipate more sales or demand from their respective customers.
Suggestions as the Supply Manager
Tehindo is presently operating in a competitive business environment. While the supply chains for the fruity tea variants remain unsustainable and complicated, desirable decisions are needed that can take the company to the next level. The involvement of all key partners is critical. The emerging number of stakeholders and modern outlets will require such fruity flavors (Pujawan & Er, 2009). These products are capable of transforming Tehindos profitability in the near future. The company needs to maintain such variants and consider the most appropriate ways to manage the supply chain process.
Continuation
The completed meeting revealed that the sales Tehindo made from Fteh were minimal. The company had a chance to identify new approaches to solve the recorded challenges and implement new supply chain procedures. The identification of the right manufacturers and distribution channels could support the entire process. Tehindo could also monitor most of the promotional initiatives different partners were undertaking and consider how positive outcomes could be recorded. Such measures will take Tehindo closer to its business goals.
Information Distortion
Information distortion is a challenging aspect that can affect the effectiveness of a supply chain process. The studied case has identified various sources of distortion. The key ones include the source and quality of information from supply chain networks, traditional market outlets, and promoters. The empowerment of manufacturers to support their supply chains makes it impossible for Tehindo to make the best decisions (Pujawan & Er, 2009). The current model has, therefore, led to additional challenges.
Suggestions
The best solution to address the recorded information distortion at Tehindo is for the supply chain players to collect data from all sources. All key partners should be part of the process. The collected data will be essential to support decision-making processes. The company can encourage all supermarkets and retailers to provide timely insights regarding the challenges in supply chain and support the companys business model. This approach will minimize the recorded gaps and take the organization closer to its business goals.
Vertical Integration and Outsourcing
Vertical integration is a term that refers to the ownership and management of the supply chain process. The organization will dictate the location of distributors and warehouses. Tehindo controls the supply chain processes and allows manufacturers to meet the demands recorded in the selected region. Such approaches are essential and capable of delivering timely results. Outsourcing measures are considered to ensure that timely results are recorded (Vural, 2015). The leaders identify opportunities and the demand for its tea products and flavors to develop the most appropriate supply chain process.
Advantages
The implementation of a vertical integration model for supply chain continues to make it possible for Tehindo to remain profitable. The outsourcing processes allow the organization to produce and deliver tea products to suppliers, wholesalers, and retailers. The organization is also able to acquire empty bottles and support the effectiveness of the supply (Anca, 2019). Such attributes have led to increased efficiencies, reduced operational costs, and sustainability. The leaders find it easier to identify possible challenges and engage in actions that can deliver timely results.
Disadvantages
The adopted supply chain model and relationship with suppliers and manufacturers delivers a number of benefits. However, the framework presents various disadvantages that might affect the recorded profits. First, the company finds it hard to compete directly with the players in the sector. Second, the vertical integration contributes to the problem of information distortion. The professionals find it hard to make informed decisions and deliver timely outcomes. The companys managers should consider these issues and implement powerful strategies to streamline the supply chain process.
Identification
Tehindo is presenting performing optimally in the selected industry. The supply chains are bringing together players from different regions to serve and meet the demands of the targeted customers. Currently, the management of supply chains and the desire the meet the orders made for some of the variants are affecting performance (Soleimani, 2018). Such issues explain why the leaders should be on the frontline to identify and implement an evidence-based solution that can help the company achieve its business aims.
Alternative Solutions
Several alternative solutions are available for Tehindo that might work synergistically to support the formulation of sustainable supply chains. Currently, the organization is recorded better gains from the sector. The professionals should begin by collecting information from the right sources and liaise with all key partners to streamline operations. The approach will result in a superior supply chain framework that resonates with the demands of all the targeted customers.
Recommendations and Justifications
The most appropriate recommendation is for Tehindo to maintain its line of fruity tea. This initiative will prepare the organization for future profitability. The stakeholders will consider better ways to transform the supply chain, solve existing problems, and make proper decisions based on all the available data. Such measures will make it possible for Tehindo to maintain its current position, attract more possible clients, and eventually become profitable.
Conclusion
Tehindo currently requires proper decisions regarding the issues surrounding Fteh tea. While the product is less competitive, the organization can identify additional measures that will deliver positive outcomes. The professionals involved will need to address the existing gaps and transform the supply chain process accordingly. The use of timely data will ensure that timely results are recorded.
References
Anca, V. (2019). Logistics and supply chain management: An overview. Studies in Business and Economics, 14(2), 209-215. Web.
Pujawan, N., & Er, M. (2009). Managing chain complexity in a tea manufacturing company. Operations and Supply Chain Management: An International Journal, 2(3), 167-171. Web.
Soleimani, S. (2018). A perfect triangle with: Artificial intelligence, supply chain management, and financial technology. Archives of Business Research, 6(11), 84-94. Web.
Varsei, M. (2016). Sustainable supply chain management: A brief literature review. The Journal of Developing Areas, 50(6), 411-419. Web.
Vural, C. A. (2015). Sustainable demand chain management: An alternative perspective for sustainability in the supply chain. Procedia Social and Behavioral Sciences, 207, 262-273. Web.
The global oil industry includes thousands of companies that are different in terms of size, revenue, strategies, and operations. Such types as international oil companies (IOCs) and National Oil Companies (NOCs) are often key players in the market, while the so-called hybrid companies are starting to play a more prominent role. Historically, these companies were involved in the production and distribution of such major products as oil and gas, but now they have reshaped their operations to enter the environmental sustainability paradigm (Silva Gutiérrez et al., 2021). At that, the primary products and services of IOCs, NOCs, and hybrids remain natural gas and oil, as well as associated goods and services. Some researchers believe that hybrid companies are likely to become leaders in the use of sustainable practices, while there are certain internal and external factors enabling IOCs to remain more sustainable than others. This paper includes a description of the key features of these companies, their advantages and disadvantages, objectives and strategic goals, as well as their role in the international gas and oil industry.
The Key Features of IOCs and NOCs
As the term IOC suggests, these companies operate across national borders, and some of the largest OICs include BP, Shell, ExxonMobil, Total, and Chevron. IOCs compete in the international energy market and can be characterized by a large size. These organizations often cooperate with National Oil Companies within national borders where the national company operates. IOCs are vertically integrated multinationals operating in the global energy market. As mentioned above, these companies are privately owned and governed by shareholders.
The major goal of these organizations is to generate revenue. As with any vertically-integrated companies, IOCs are characterized by a full cycle of operations, including exploration, production, transportation, and storage, as well as sales and marketing. Importantly, these organizations do not have government support and, on the contrary, often have to respond to the national governments attempts to limit their operation within their countrys borders. IOCs also have limited (if any) governmental support during economic crises and diverse financial fluctuations in the market.
National Oil Companies (NOCs) operate within the boundaries of one country, although they can compete in the international market (for example, as in the case of Gazprom or Statoil). The primary peculiarity of the NOC is that these organizations are controlled by their countrys government (Silva Gutiérrez et al., 2021). These companies tend to aim at managing the countrys resources, with such examples as Gazprom, Sinopec, or Petrobras. NOCs are mainly owned by the government, although some private investors can also have a part of the shares (Natural Resource Governance Institute, 2019). At that, NOCs are becoming larger, with facilities across the globe expanding their influence on the international arena; the difference between IOCs and NOCs is becoming less prominent. However, the type of governance in these companies still makes them distinct.
The role of NOCs has become more prominent since the 1970s. In the 1970s, NOCs controlled only approximately 10% of gas and oil reserves (Cabrales et al., 2017). In the 2000s, these companies controlled over 70% of oil reserves and about 65% of gas reserves (Cabrales et al., 2017). These organizations dominate in key oil-rich countries, such as Iran, Saudi Arabia, Mexico, and Venezuela. It has been acknowledged that, in many cases, NOCs are less profitable than IOCs, which can be explained by less effective policies related to employment and operations (Cabrales et al., 2017). Corruption and the pursuit of some political interests are the issues causing low financial success (compared to IOCs). According to Natural Resource Governance Institute (2019), many NOCs have substantial debts that can reach up to 10% of their countries national GDP. These countries governments have to provide considerable investments and even bailouts to save these companies from bankruptcies or major financial issues.
Hybrid Companies
Hybrids operating in the modern oil and gas market are quite few and refer to the organizations that bear the traits of both IOCs and NOCs. These are usually NOCS, operating in countries with small natural resource reserves. Such NOCs enter partnerships with IOCs trying to obtain their technologies and expertise. The most distinct features of these hybrids include governmental control, financial goals and pursuit of economic gains, the use of advanced technology and business strategies, and wide access to available resources in the corresponding country. On the one hand, governmental control is maintained, while business governance is mainly conducted by IOCS. On the other hand, the company obtains governmental support that enables it to access resources and operate in a favorable environment (such as taxation options) on the local level.
Such organizations started to emerge in the 2000s when countries faced the need to attract investment while IOCs acknowledged the need to seek innovative ways to adjust to the changing world with its price fluctuations. The Venezuelan oil company, Petróleos de Venezuela (PDVSA), was state-owned in the 2000s, but the new government needed to improve the economic situation in the country (Rosales, 2018). One of the ways to address the economic constraints the industry and the entire economy of the country faced was to attract foreign investment. The Venezuelan government reshaped the contractual cooperation between the PDVSA and foreign investors (Rosales, 2018). The rent became higher, but foreign companies were given more freedom and access to more resources. Although the governmental control was preserved, under the influence of foreign investors, the company adopted innovative strategies that enabled it to improve its operations and financial performance.
Although hybrids are still not numerous, this form of cooperation between the state and big business displays its benefits. The priorities of such organizations remain within the scope of social and political aspects. These companies are seen as the state asset that supports or contributes to the economic stability of the country. At the same time, profit and financial gains are becoming top priorities as well. In simple terms, hybrids are not entities providing employment to people and distributing available natural resources, as is often the case with NOCs. Hybrid companies pursue clear economic goals, such as generating a profit and competing effectively locally and globally.
Advantages and Disadvantages of IOCs, NOCs, and Hybrids
The key advantage of NOCs related to their governance and revenue is that they can rely on massive governmental support from their countries. During periods of major market downshifts and price fluctuations, NOCs are secured as their losses can be covered by the government. Moreover, governments create policies and regulations that create a favorable environment for these organizations. The advantage of the NOC is its compliance with major social laws and regulations, as these companies are often socially-oriented. Employees of these companies can feel secure as their rights are most likely to be safeguarded by the existing employment law.
The major disadvantage of NOCs is the lack of flexibility and quite strict governance managed by the government. In many cases, governmental control has an adverse impact on NOCs performance and their progress. The low interest in substantial innovation and easy access to resources makes these organizations less able to compete with other players in the international market (where governmental support is important but not decisive).
The advantage of the IOC, which is closely related to these companies revenue generation, as well as the development of the oil industry at large, is that these companies aim at profitability. This means that companies try to innovate, be flexible, and address the needs of their customers and changes happening in the market. This focus on constant growth enables IOCs to introduce new strategies and instruments that guide their followers and push the industry forward. However, the disadvantages of this type of oil company include their focus on optimization and profitability, which may come at the expense of employees. Workers of these organizations may be less secure as compared to NOCs and have worse social benefits. IOCs tend to have limited access to new sites, which limits their exploration opportunities. At the same time, due to these companies advances in technology, their increased access to resources would be beneficial for the industry and overall economic situation in the world.
The major advantage of hybrid companies is their more balanced strategic development compared to both NOCs and IOCs. Hybrids combine the primary features of the two other types of organizations, which is their important advantage. Remaining under direct control over the state, the company pays much attention to social aspects, such as proper employment policies, high investment into innovation, and high rents serving an important part of the budget. At the same time, these companies find themselves in a favorable position locally, which can often lead to gaining a competitive advantage and an opportunity to be more visible in the global market. The example of Singapores state policies regarding oil and gas companies is a good illustration of the benefits of the cooperation between NOCs and IOCs that form hybrids (McGregor & Coe, 2021). Thus, hybrid companies can be seen as potentially beneficial entities for the global industry due to their more sustainable policies and operations in different aspects.
However, these organizations also have certain disadvantages that have to be considered to develop the most effective framework for hybrids. One of these is related to the lack of stability in their host countries, which may lead to rather undesirable consequences. For instance, the situation in Venezuela can be an example exhibiting the possible adverse effects of the change of the government or fluctuations in its political agendas (Rosales, 2018). Companies that invested in the PDVSA saw substantial financial losses due to the changing regimes and the attempts of the countrys government to use the company and its vast reserves of oil as an instrument to achieve particular political goals. Thus, the sustainable development of hybrid companies is possible in countries characterized by political and social stability.
The Role Played by Such Companies in the International Gas and Oil Industry
Since IOCs heavily depend on customers and public opinion, they are often the primary innovators and pioneers. The slow but apparent transfer to the sustainable energy industry is also guided by these organizations. Under the pressure of shareholders and public opinion that is characterized by the sentiments related to environmentally friendly strategies, IOCs invest substantial funds in the reduction of their carbon footprint (Shojaeddini et al., 2019). These organizations try to produce energy simultaneously, trying to diminish the associated harmful emissions and make their resource use more effective.
These companies strategic goals are changing considerably as well because they aim at the utilization of renewable energy, further emission reduction, improving carbon storage facilities, and developing hydrogen technologies. For instance, according to BPs announcement, the company reduced its methane emissions to 0.2% of the amount of produced natural gas in 2017 (Shojaeddini et al., 2019). Other IOCs also move in this direction, shifting towards more sustainable practices. Chevron, for example, reduced the flaring of natural gas by over 20% over five years (from 2012 to 2017) (Shojaeddini et al., 2019). It is also necessary to note that governments of many countries introduce new laws and regulations aimed at reducing peoples footprint. Hence, IOCs and NOCs, as well as other players in the market, have to comply with these rules and contribute to the advancement of innovative sustainable technologies (Zhong & Bazilian, 2018). All companies operating in the global market have to adopt similar policies and approaches to remain competitive.
Another important role IOCs and NOCs have played recently are associated with the type of governance and strategic vision in the oil industry. The emergence of hybrid companies is a result of a certain competition between IOCs and NOCs and their attempts to adapt to the ever-changing environment. The new type of oil companies can become the basis of the new paradigm where social aspects and financial gains can be balanced.
The shift towards more sustainable practices in environmental and social terrains has been caused by the major changes that have taken place in society. IOCs seem to pioneer such socially-oriented and environmentally-friendly business practices, while NOCs remain concentrated on supporting the economic and social stability of the corresponding nation. Hybrids are based on the balance between these two priorities (Rosales, 2018). In simple terms, IOCs and NOCs have to transform and change to be more sustainable, while hybrids have an opportunity to build on these values and strategies. Rosales (2018) notes that hybrids can be important players leading the oil and gas industry to more sustainable practices. However, multiple obstacles to such progress and empowerment exist as governments tend to use their power over hybrids to attain goals that may not be associated with their peoples well-being or even economic benefits.
At this point, it is necessary to add that the roles of the three types of oil companies are largely shaped by international institutions as their policies regulate the global oil and gas market. The United Nations can be seen as one of the major drivers of sustainability in the global arena, and this institution creates policies, regulations, practices, and standards international organizations have to follow (Inkpen & Ramaswamy, 2018). The enhancing focus on environmental sustainability and the need to address the harmful effects caused by humanity marked the second part of the twentieth century and the twenty-first century. These concerns and inclinations were manifested in the development of various programs and standards to ensure sustainable operations of oil and gas companies. Hence, organizations operating in the global market have to adhere to the rules created by supranational entities.
Conclusion
To sum up, it is necessary to note that IOCs and NOCs that have dominated the global oil and gas market for over a century now have to compete with hybrid companies that mainly appear in countries with limited natural resources. The primary peculiarity of the modern oil and gas industry is the major shift of key players to more sustainable practices with a focus on the reduction of the environmental footprint. IOCs, being more flexible and dependent on public opinion and customers attitudes, have become pioneers in this area. However, NOCs being controlled by governments may be reluctant to adhere to some international standards but also have to adopt such practices to be competitive in the global market. These two types of oil companies are often in serious collisions, especially when it comes to local markets, and IOCs tend to lose the competition. NOCs are supported by local governments having unlimited access to resources and even funds during an unfavorable economic situation in the market. However, they lack flexibility, making them lose competition in the global market.
It is apparent that the oil and gas industry is undergoing significant transformations. Some researchers expect the rise of hybrid companies, which are seen as examples of sustainable organizations contributing to the development of solutions to environmental and social issues. However, due to the comparatively short period of hybrids functioning, it is unclear whether these organizations can remain competitive over a prolonged period of time. At present, it is possible to note that IOCs, irrespective of all challenges they have to face, remain leaders in the global oil and gas industry.
As far as the sustainability of the three types of oil companies is concerned, IOCs and hybrids seem to be more sustainable than NOCs. Although NOCs are controlled by governments and often aim at ensuring the well-being of their nation, these organizations often employ quite unsustainable practices. Nevertheless, in some countries, environmental sustainability is far from being their top priority, so NOCs are not required to follow strict standards and regulations. When they operate in the global market, NOCs have to adhere to the existing environmental laws. That IOCs and hybrids operate across borders in local and global markets, so their practices tend to be more sustainable.
Finally, it is necessary to note that IOCs focusing on economic gains and having access to the best talent and resources are likely to retain their role as sustainable innovators. These companies have to meet their customers and end consumers needs and expectations. Modern people value innovation, technology, and sustainability, so these principles are guiding IOCs. The rapid rise of electric vehicles in all parts of the world forces former oil and gas companies to focus on energy production rather than resource extraction. Since IOCs are most dependable on the trends reigning in society, they are more likely to adopt sustainable practices making them central to their operation. Thus, IOCs will remain leading sustainable organizations, followed by hybrids, while NOCs are likely to remain less environmentally friendly due to their lack of flexibility and limited access to talent.
Shojaeddini, E., Naimoli, S., Ladislaw, S., & Bazilian, M. (2018). Oil and gas company strategies regarding the energy transition. Progress in Energy, 1(1), 1-20.
