Category: Business Success

Costco: Prime Example of Successful Business Strategy

Costco’s business model is to generate high sales volumes and rapid inventory turnover by offering their members lower prices on a limited selection of national brands and some private label products in a variety of merchandise. Costco’s business model is built through customer memberships, who join their membership and renew on a yearly basis. With this model, it shows how customer loyalty is satisfied and that customers will renew. Costco’s business model is an amazing model to use, all customers have the ability to find good quality bargains and Costco is setup to keep their loyal customers.

Costco’s strategy is built on the chief elements of low prices, limited selection, and a national brand competitive price shopping environment. For example; Costco uses their brand Kirkland, which is designed to be similar or better than other high-end name brands such as Grey Goose. Along with this, contrasted with different retailers and stockrooms, Costco offers around 4,000 things to the common Walmart super center offering 150,000. With their ability to use treasure-hunt merchandising, Costco is constantly changing selection of luxury items on the floor enticing, shoppers to spend more than they might otherwise by offering better deals. Costco’s buyers purchase these items from wholesalers which enables them to offer discounts to their customers. Offering these discounts has shown Costco success in their business model and has kept their customers coming back.

When looking out how effective Jim Sinegal has been, I believe that he is an effective CEO as he leads Costco into strategic courses in preparing for the future. His job is more than just a title as he is a producer, director and knowledgeable critic. Sinegal exhibits extraordinary attention to detail and pricing, which leads a very active role in management as CEO. He would receive a high score in leading the process due to the fact that sales have continuously increased throughout the years, along with more customers becoming members.

With a current ratio of 1:05 shows that Costco should be able to meet its current liabilities. Along with this, profit is increased by not having to store inventory. With the Asset turnover of 11.54 shows that it is consistent with what was described by the case study, Costco holds onto inventory for nothing more than 12 days. When looking at profitability measures, Costco is doing well financially. At 2% profit margin illustrates Costco’s pricing policies and the ability to offer ultra-low prices. The 6% Return on Assets percentage shows that Costco’s assets are being well-used to accumulating more revenue. The ROE demonstrates $0.13 of profit for every dollar of net assets. Based on the data from the case, Costco is doing extremely well.

The data shown is a clear showing of how Costco would be success with taking a step towards the outside market. All of their revenue, warehouses and operating income have consistently increased since Costco went outside the U.S. The revenue to warehouse ratio has also increased, indicating another factor of how successful they have been thus far.

Costco offers their customers some of the lowest prices on a wide range of national and outside U.S. branded products and goods, as well as their own brand products in a variety of categories. The products and services that Costco delivers are reliable as their competitors as the company deals with the best available quality products at competitive prices. Costco pays attention to details and has numerous strengths that add own to their success. Some of these factors include running an efficient operating structure, rapid turnover of the inventory, reduced cost of handling of merchandise and generating high sales volume at each of their store. Costco’s main goal is to give their customers variety and satisfaction of a low price, which then provides them the best value for their money.

Other than offering competitive prices on best-quality goods and a range of convenience services, Costco does their best to be a valuable quality provider for every geological location. This includes providing good working jobs at good pay, continuous involvement in community activities and charities.

Another strength for Costco is that they are one of the top wholesale clubs in the United States. The company currently has buildings in 38 out 50 states, and still growing. Costco also operates several consumer and business services, differentiating from financial planning to their health insurance. By providing some of the top-quality goods and services available, Costco has been able to increase its market share a large amount over the years.

Costco’s business conditions are constantly changing due to their external and internal forces which force other competitors to change their course of action. The driving forces in this sector are the major underlying causes changing business and competitive conditions. When operating on a large scale such as Costco, they must consider the difficulty that comes with it such as the demand for newer products or a larger variety.

Costco is almost one of the first pioneering companies to have a growing revenue from internet shopping. They created a website to be used in the United States as well as website in Canada to be more effective and competitive in the internet market based era. This can give them a competitive advantage over their competitor’s due to their ability to have different selling sites.

With the company constantly working and thinking of new ways to make its distribution channels stronger, they will begin to enter new potential markets. An opportunity Costco can achieve would be by offering lower value and working more towards developing a strong loyal customer, such as rewards points or customer loyalty points to ensure the consumers continue to use their services.

Warehouse clubs not only compete in one sector or market but it competes with a wide range of other types of retailers which include Walmart, SAMS, supermarkets, general merchandise chains, gas stations and food internet retailers. Their competitiveness changes however, because of the different types of products they deal in. The industry of wholesale has a number of individual companies that are highly competitive and have very effective strategies. They have developed loyal customer bases and preferably with the competitor’s brand. Costco’s major competitors include Walmart’s, Sam’s Club, Target, Whole Foods.

Costco’s financial growth and capital structure evolved from the basic thought of selling large quantities for a cheap price. Selling items in a large quantity results in reduced operating costs at high inventory ratios. Most of Costco’s inventory items are placed on wooden pallets, which in return lowers their operating cost by a significant margin. Along with this, selling in bulk allows inventory turnover ratio to be higher than retail industry averages. Allowing Costco to achieve maximum potential with their merchandise.

Costco’s brand name that they have distinguished themselves in the market and finical success, gives them a competitive advantage for all of their strengths. They present professionalism, loyalty and competitive pay to their employees generating a low turnover rate. Costco has achieved an amazing brand name for themselves, which puts them amongst the wholesalers’ biggest names.

Costco’s reputation has evolved due to their high employee compensation and low compensation for executives. Among employees who have been with the company for at least a year, just 6% leave annually. With this statistic, it can easily be seen why their employees stay working for the company longer. Since, Sinegal believes if you compensate your employees well, you will get good production from them. This is why their employees stay with their company compared to their competitors where Walmart was at 21% early leave in 2019.

The main concern I would recommend make for Jim Sinegal would be to continue looking for opportunities or partners to help grow the overall quality of their merchandise. However, when adding new variables such as a new partnership or merchandise, they will need to be compensated with competitive pricing and overall excellent customer service.

Analysis of Costco’s Key Success Factors

Costco, the nation’s largest discount wholesale merchandiser, was founded in 1983 by Jim Senegal and Jack Brotman (Gamble, Peteraf, Strickland & Thompson, 2016). Since the company’s inception it has been a leader in the retail industry, and a shining example of the success of the warehouse club model. Costco debuted with a stellar financial performance that solidified their legacy within the national retail marketplace. Additionally, Costco became the first United States based company to generate $1 billion in revenue in less than six years of operation. Since then, Costco has expanded to a globally recognizable brand with nearly 700 locations worldwide (Gamble et al., 2016).

The legendary CEO of General Electric, Jack Welch once said:“Strategy means making clear-cut choices about how to compete” (Farfan, 2019). Considering Jim Senegal’s leadership style, and the business strategies that he implements within the company, one can argue that Costco’s business model is evidence that the aforementioned statement is true. It is evident that many of the decisions that Senegal has made regarding Costco were strategically designed to fit within the company’s mission statement. Costco, as a brand, has two goals. The first being to provide the highest quality products possible, and the second being to provide those products at the lowest competitive prices possible (Farhan, 2019).

Costco’s membership based services are what allows them to keep prices lower than their competition. Due to the fact that they are generating extra income upfront they can ensure that their customers are getting the best price for every item offered (Gamble et al., 2016). Early on, Senegal realized that people were shopping at Costco to save money, so he capitalized on it. In an effort to minimize the operating costs of the business, Senegal decided that all stores would have concrete floors, minimal decor, and all products would be displayed on pallets (Gamble et al., 2016). This approach allowed Senegal to provide his customers with a substantial amount of savings. Furthermore, limits were set company wide on the amount of profit that Costco was willing to make on each product. Costco decided they were willing to accept a 14 percent profit margin on nationally distributed products, and approximately a 20 percent profit margin on their private label brand (Gamble et al., 2016). Making strategic decisions that were aligned with the company’s two main objectives allowed Costco to choose how they wanted to compete, and what role they wanted to play in the discount retail marketplace.

Another aspect of Costco’s success can be attributed to the positive way that they treat their employees. Through the lens of Costco as a whole, the customer always comes first, but no task can be accomplished without a skilled and dedicated workforce. In terms of finances, Costco is known to pay more per hour than their closest competitor, Sam’s Club. Cashiers at Costco can expect to earn between $14 and $15 per hour, whereas cashiers at Sam’s club can expect to make about $11 per hour (Miller, 2020).

Costco also offers benefit packages for both full-time and part time employees, which is something none of their competition does (Gamble et al., 2016). At Costco, all employees are entitled to healthcare plans that include coverage for mental illness, substance abuse, and full dental coverage (Gamble et al., 2016). While Costco offers standard benefits they also offer enhanced options for their employees, which can be used to demonstrate what their workforce means to them. An important element that they offer is referred to as a dependent care reimbursement plan, which allows employees to pay for daycare with their pretax earnings, which can save families thousands of dollars per year (Gamble et al., 2016). It is evident that Costco puts forth an immense amount of effort into taking care of their employees, and those employees reciprocate with their dedication and loyalty. The fact that Costco has an employee turnover rate of under six percent, and an executive turnover under one percent is proof of their success (Short, 2017).

It seems as though Costco has a considerable competitive advantage over Bj’s Wholesale Club, which can be proven by comparison of their financial ratios. One can argue that Costco’s largest competitive advantage stems from the fact that they have the most stores nationwide. In 2019, Costco had 785 stores, while Bj’s had only 216 stores (Costco Wholesale, 2019). Having nearly four times as many stores means that Costco is accessible to nearly four times as many people. With that being said, consider Costco’s emphasis on customer satisfaction, and it can be deduced that four times as many people are having four times as many positive experiences. This is further reflected in the fact that in 2019 Costco had over 98 million paid members, while BJ’s only had 5.5 million paid members (Costco Wholesale, 2019).

The numbers above clearly have an effect on their respective companies’ finances. The current ratio of any company, which is current assets divided by current liabilities, essentially states a company’s ability to pay its debts within the next year. A ratio of 1:1 is considered the benchmark, and can be interpreted as the company will be able to stay in business for the next year. While it is only one of many financial determinants, it is a significant indicator of the health of a business. Since 2018 Costco has had current ratios that have been over one, but Bj’s has consistently come in at just under one (Macrotrends, 2014).

All things considered, Costco’s emphasis on following their internal Code of Ethics has had the greatest direct effect on their business’s culture. Costco’s Code of Ethics has Five Pillars, which are, obey the law, take care of our members, take care of our employees, respect our suppliers, and reward our shareholders (Gamble et al., 2016). Adhering to these Five Pillars has had an extremely positive effect on Costco’s organizational culture. Obeying the law forbids the organization from committing any fraud, and encourages team members to be law abiding. This way, the company will always be in good standing with the government and the marketplace. Taking care of their members and constantly trying to improve their experiences benefits them because they will always have the best chance of maintaining profitability and growth. If they can remain profitable, then they will be able to take care of their employees to continually higher degrees. This will then allow their employees to take better care of their paid members. By respecting suppliers, Costco suppliers will always do what they can to provide them with the best products at the best prices. If they can execute pillars one through four, then they will finally be able to reward their shareholders who will continue to invest in them, and perpetuate future success.

Overall, the revenue stream that is most vital to Costco’s continued success is the revenue they receive from their membership fees. Between the years of 2011 and 2015 their membership fees accounted for the majority of their net income. In 2015, Costco’s net sales were $113,666,000,000.00, and total membership fees were $2,533,000,000 for a combined total revenue of $116,199,000.00 (Gamble et al., 2016). Once Costco’s costs were deducted, they made a net profit of $2,377,000,000.00. Taking everything into account, the value that Costco offers their customers in the form of lower prices is a result of their membership fee. It is simple, Costco knows they will profit at the end of the year due to the membership fee, so they feel less pressure to make an outstanding profit on each individual product.

The Competitive Advantages of Costco Wholesale Corporation’s Activities

Costco is wholesale organization that is running a chain of warehouse clubs; the organization is providing the different services across the globe. The organization is ranked as number 5 in the fortune 500 companies. The organization is having 770 warehouses in the different countries across the globe. The organization is only started with few offices but after that as the time passed the organization is becoming famous and due to that the organization is now best organization but there are many processes that are needed to be optimized or improved. The organizational business can be improved well if the information system or the organization can be enhanced or implemented and that is possible if the organization is having better processes. According to some statistics, In April, Costco reported a 14% climb to its profit, bringing its quarterly payout to $0.65 or $2.60 every year. This gives Costco a profit yield of 1.06%, up from 0.94% before this expansion. Close by its profit increment, Costco’s governing body reauthorized a $4 billion stock repurchase program. Set to lapse in April 2023, the program replaces the past $4 billion program, which terminated in April of this current year.

The improvement is conceivable by having a one independent worldwide framework for the association and that framework ought to be utilized to deal with the procedures just as the administration of the assets or the material can be conceivable because of that framework. The association is expected to concentrate on the moral points of view to the association is expected to concentrate on the objective market so as to accomplish the objectives of the association generally the association can prompt face diverse issues that can prompt disappointment in accomplishing objectives of the association. The administration of the association is settling on choices dependent on the information that is accomplished from the distinctive segments so the information must be taken from the data framework and that framework ought to give the security or uprightness of the information also so the hierarchical administration can settle on best choices dependent on the authoritative information and the association can contend the clients of the association too.

The organization is needed to focus on the best business practices in order to fulfill the requirements of the organization and to manage the business operations effectively. I have been gone many stores like Kmart, BigW, target and Coles and I also have visited in Costco. I have bought many things from these stores but from once that I have visited Costco I found that Costco is the biggest warehouse which is expanded internationally on great levels. It has all the products and equipments of different cultures and countries but the stores like Target, BigW, and Kmart has less quantity of products as compared to the Costco. Now I really prefer to visit Costco rather than Kmart, Target and BigW, because there is a drawback in these stores. These stores have limited variety of products as compared to Costco. If we visit Target, Kmart or any other store we have to visit multiple stores to fulfill our necessities but Costco has everything available including electric equipments, products for the home, clothing section and other things. We can get anything of our type and need from Costco from the just one visit. As I have experience regarding this, once I want to get multiple products like electric equipment, garden equipments and clothes then my friend referred me to visit Costco as I’ll get everything product from that warehouse and this will save my money and time too. At that time Costco was offering 35% discount on all the products, I was really happy and appreciated my friend’s advice because this advice of him helped me most in saving my money and time which is the main factor for every consumer.

It is to be concluded that Costco is the only international brand/warehouse which capacitates numerous products with easy listing on the top of sections and offers cheaper products than Kmart, BigW and target and it also offers discounts on many products for the raising of customers and making their experience better.

Tesla’s Leverage Dynamic Capabilities to Succeed

Professor David J. Teece explains that ‘dynamic capability’ is “the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments”. The basic assumption of this framework is that core competencies should be used to modify short-term competitive positions that can be used to build long-term competitive advantage (David J. Teece). Ambidextrous organisations, such as Tesla Motors, are categorised by their capability to simultaneously explore and exploit existing knowledge. By using the dynamic capabilities of stakeholders, Tesla was able to leverage on opportunities for further knowledge in order to innovate and thrive until this present day. Indeed, disaggregating dynamic capabilities into three distinct capacities (1) to sense new opportunity, 2) to seize the identified opportunity, 3) the ability to realign available assets to capitalise on opportunity), we can understand how Tesla Motors has managed their knowledge to revolutionise the future dynamics of the global automobile sector. Through the three components of dynamic capabilities we will discuss; how Tesla’s CEO spotted and executed new opportunity that was neglected by other mainstream vehicle manufacturers, their ability to recombine and reconfigure assets as markets and technologies change, and explain the absence of cognitive inertia in Tesla’s top management team.

To identify an opportunity an ‘enterprise must constantly scan, search, and explore across technologies and markets, both ‘local’ and ‘distant’ (David J. Teece). Indeed, successfully sensing and seizing new product innovation opportunities, companies will be able to protect its intangible assets and sustain superior performance. Tesla’s CEO, Elon Musk, understood that for the ambitious project of developing electric vehicles, he must reinvent the existing automobile sector and create a new ecosystem, while competitors such as IBM, General Motors, Nissan and Digital Equipment Corporation were hindered by the perils of their cognitive boundaries.

With the rise of environmental awareness, Elon Musk identified a vacant niche in the market of companies manufacturing electric vehicles. He believed could radically change the automotive landscape by responding to consumer needs of sporty performance and socially responsibly vehicles. Undertaken with the aim to use infinitely scalable clean energy generation to stop relying on fossil fuels and move towards a zero-emission future.

Henderson (1994) notes that “Tesla’s competitors were not able to identify these opportunities as they became prisoners of the deeply ingrained assumptions, information filters, and problem-solving strategies that made up their world views”. Tesla’s competitors went to unsuccessful efforts to innovate and quickly abandoned the idea of electric vehicles. This is because they perceived that battery-operated vehicles would face limitations – one of which being the idea that low battery capacity would cause the electric vehicles to have extremely limited mileage.

However, it was not necessary to be innovative in this field – “Tesla has shown that you can take existing technology and make a successful product” (Financial Times, 2014). Here, Tesla identified and capitalised the ‘local’ opportunity, which is the idea of creating electric vehicles upon existing battery technology, and the ‘distant’ opportunity of implementing such technology into automobiles. Musk broke the innovation mould by proving that dominant conventions dictated by the automotive establishment could be both challenged and successfully overturned (Gibson R.).

Organisations need both exploration and exploitation of new and existing knowledge of technologies for superior performance in the long term. In Tesla’s case, this has been achieved through sensing ‘local’ and ‘distant’ opportunities, as well as changing the ‘rules of the game’ by starting the creation of a new car manufacturer ecosystem. Thus, we can argue that ambidextrous organisations who exploit existing knowledge and explore new knowledge will attain a short-term market share leading to long term competitive advantage, whereas those organisations who cannot exploit what they know efficiently will wither and atrophy.

Simply sensing new opportunities is not enough, without proper execution of this opportunity one cannot guarantee their company’s innovative and sustainable future. ‘Once a new opportunity is sensed, it must be addressed through new products, processes, or services’ (David J. Teece). Furthermore, in order to capture the concept of ‘seizing the opportunity’, it is imperative to intensely invest in specific technologies and devote considerable time to creating feasible ecosystems.

However, Elon Musk not only seized the technological aspects of these opportunities, but also undertook a second step in reshaping existing ‘rules of the game’. James Bessen (HBR, 2014) stated that “in order for Tesla to succeed, a lot of complementary knowledge and infrastructure needs to be developed”. A crucial obstacle for Tesla was creating the charging stations for his electronic vehicles as there was no infrastructure developed and no one was willing to develop it, apart from Tesla. Strategic thinking prompted Musk to disclose some of his company’s patents so anybody in the industry could use them in order to create a technological platform whose members would contribute by developing existed infrastructure. Sharing knowledge of technologies and innovations has explicit benefits for Tesla Motors, as the more car manufacturers will be involved in electric vehicle production, the larger the scale of specific car parts production will be, and in turn, electric cars will become more affordable.

From a learning perspective, leveraging resources through collaborative relations can help companies arrange existing skills and assets into new combinations that will create radical growth and new opportunities for long term stability. Chesbrough (2003) states that a successful company should work with people inside and outside of the company in order to make the best use of internal and external ideas.

According to Chiaroni et al. (2010), open innovation can be categorized into three processes; the inbound process, the outbound process and the coupled process, which is the combination of the other two. Tesla applies coupled innovation process by establishing three main strategic alliance types to facilitate sustainable growth: supplier alliances, R&D alliances and OEM alliances with other automobile manufacturers.

Supplier alliances showed Tesla that collaborative relations are a critical key to business longevity. The ecosystem designed around the release of the Tesla Roadster in 2008 was created with their strategic alliance, Lotus Cars. The collaboration of Tesla Motors and Lotus Cars enabled Tesla to reduce manufacturing plant costs and avoid costs of storing unsold vehicles, as Lotus was able to accommodate Tesla’s production rate at their manufacturing plants in England while maintaining their own operations. To support this, Tesla states in their 2012 annual report that the cost of producing their vehicles are beginning to decline due to a shift of focus towards cost reduction as a result of a more stabilised and improved operations process by producing their cars at a steady rate of production. However, Lotus is not the best car factory in the world according to Eberhand (2006), in terms of cost and exchange rate to the Pound Sterling, as it is more costly to manufacture when the dollar is extremely low.

Lecocq and Looy (2009) state that technological collaborative networks and R&D alliances are more effective strategies than mergers and acquisitions. Panasonic invested $30 million in Tesla Motors in order to collaborate in R&D to produce the next-generation battery cells which will optimise the efficiency of current electric vehicle batteries, and advance vehicle performance and value by promoting sustainable mobility. This new technology would be combined with Tesla Motors’ current electric vehicle battery expertise in order to create one of the most efficient electric vehicles, the Tesla Model S (Tesla Motors, 2011). The new battery cells achieved unrivaled range, increased energy density and longer battery life, which will in turn increase the range and performance of Teslas electric vehicles. The longer battery life will further ease concern on the fact that there are limited public charging stations. The efficiency of this collaboration resulted in Tesla’s R&D expenses to decline by 15% from $69 million in Q4 2012. From Q3 to Q4 2012, total gross margin rose from (17)% to almost 8%, as a result of a higher Model S production rate and efficiency of battery cells (Tesla Motors, 2012 annual report).

Tesla has also set up OEM alliances with Daimler who announced it took a 10% stake in Tesla estimated to be worth about $50 million. Through this investment, the two partners are enabled to cooperate on a greater scale in the developing of electric drive and battery systems as well as in individual projects. Through this partnership, Tesla Motors obtained a new production plan as well as financing and future revenue streams. “Beyond simply supplying battery systems, this partnership allowed Tesla to focus on its value proposition of bringing high performance electric vehicles to mainstream consumers” (Fraser et al., 2009:11). However, Tesla Motors must be careful with present partner, Daimler, who has recently become a rival on Tesla Motors. Therefore, inter-organisational collaborations can pose several risks to organisations as some company’s may be inclined to sabotage in order to gain market share.

According to Teece (2007:1335), A key to sustainable profitable growth is the ability to recombine and to reconfigure assets and organisational structures as the enterprise grows, and as markets and technologies change. The challenge that companies face today is to be able to manage the constant changes that take place in technology and in the industries and to be able to stimulate innovatively and creativity. It is critical that companies realign and re-evaluate their business model more frequently than before to adapt to radical industrial shifts.

Why didn’t other automobile companies such as General Motors pursue the same distant opportunity that was available to them? The term ‘cognitive inertia’ describes the phenomenon that managers might fail to re-evaluate a situation even in the face of change (Huff et al., 1992; Reger and Palmer, 1996; Hodgkinson, 1997; Tripsas and Gavetti, 2000). Technological change has proven particularly deadly for established firms, with numerous examples of established firm failure in the face of radical change (Tripsas et al, 2000).

Companies that do not invest in their value chain to enhance it can see themselves stagnate, while technological development continues to innovate the current market. Factors that may cause inertia for Teslas competitors may include that moving towards electric vehicles will destroy the value of its complementary assets, or the vast investments in current petrol-powered cars and current operation processes. This is called ‘sunk cost fallacy’ – “paying attention to historical costs that is not recoverable when considering future course of action” (Lovallo & Sibony, 2010).

Analysis of Toyota’s Business Strategy

Toyota Motor Company was founded in 1937, in 1950 Toyota Motor Sales was created and finally they merged into Toyota Motor Corporation in 1982. The headquarters of the company are located in Toyota City, Nagoya of Aichi Prefecture and Tokyo, Japan. Later on, in 1984 General Motors (NUMMI—the New United Motor Manufacturing Inc.) made a joint venture with Toyota, which was the first step for production of vehicles in the USA as well as the creation of new brand “Lexus” in 1989. Later on, the production was also established in the UK in 1992. This sort of internalization of the company influenced the company to start production of large variety of new types of cars, for example compact and luxurious cars, sport cars, huge pick-ups that were targeting American consumers, SUVs for eco-friendly consumers and lastly “Prius”, which is the one of the most famous and popular hybrid cars. In 2002, Toyota took part in “Formula One” championship.

Toyota are mostly famous for their automobile industry; however, the company actually provides are high range of products and services:

1. Cars manufacturing – production of cars that are recognized their comfortability and safety.
2. Environmentally protective technologies – as Toyota shows its concerns about environment it creates hybrid cars that use new types of engines, fuels as well as recycling technologies.
3. Robots – production of robots under the concept of “harmony with people”.
4. Financial Services – provision of crediting, leasing, insurance and other financial services.

Already by 2009 Toyota managed to have manufacturing plants all over the world, including counties such as Vietnam, Mexico, Japan, Columbia, USA, Czech Republic, Russia, Pakistan, UK and so on (overall in 28 counties by 2009). Same year in 2009 Toyota was recognized by Forbes (“The Global 2000”) as the third leading company in the world.

Nevertheless, despite so many outstanding achievements, Toyota as many other companies in the world had suffered from the financial crisis and as a result its global production fell by 39.1 percent (The Guardian, McCurry 2009). Moreover, in comparison with fiscal period of the previous year, in 2009 Toyota’s net revenue decreased by 31.3 percent; 137 billion yen fall in operating income and decline in 56 billion yen decrease in net income. Despite struggles mentioned above Toyota managed to have 17.2 billion yen increase in segment operating income (FY2010 2Q Financial Results 05/11/2009 in Toyota Motor Corporation, 2009).

Toyota Way

The company’s values and business style in terms of management are known as the Toyota Way, also known as “The Toyota Way 2001”, which aims to present fundamental values and features of the management style of the company (Hoseus and Liker, 2008). It includes: continuous Improvement and respect for people. Continuous improvement stands for: 1) challenge (long-term thinking, encountering various problems and risks, making up new ideas, and looking for solutions); 2) kaizen (permanent evolution, making innovations, continuous improvement of all aspects of the company); 3) genchi genbitsu (seeking for ways to make right decisions, agreements and doing your best to achieve organization’s purposes). Respect for people stands for: 1) respect (respect all people who surround you, try to avoid any misunderstandings, accept responsibilities and form mutual trust); 2) teamwork (motivate personal and professional improvement and development, work as a team).

Toyota’s global vision reflects its intentions to lead the way to the future of mobility via enriching lives around the world with the safe and responsible ways of moving people. They seek to achieve the mentioned above through commitment to quality, constant innovation and respect for the planet, exceeding expectations with a smile as a reward from customers. The company also emphasizes on involvement of those who are talented and passionate who seek better ways of achieving corporate goals. Tracing back to its foundation, the Toyota Company has changed the course of its products and services.

Industry Overview and Analysis

The demand for cars mostly depends on vehicle prices, disposable income, fuel prices as well environmental issues. Because of environmental problems, more and more consumers are shifting away from fuel-guzzling pickup to more fuel-efficient small cars. Even during the oil crisis in 1970s, many companies tried to respond to customer demand for small cars with better fuel economy, however, the Toyota produced cars of much better quality. Some companies saw in increasing fuel prices over last decade as opportunity to expand their small-car production as well as the production of hybrid electronic cars. After economic crisis in 2008, the total industry revenue fell around 15 percent in 2009. Throughout next years, income growth in the BRICS countries supported automobile industry due to increase in the demand from these countries. In addition, many Western brands decided to locate its factories and production facilities in the BRICS counties because of the low-cost production (mostly labor costs). In 2018 1Q the cumulative profit of top 23 automobile firms is around 223 billion dollars, which was much higher than previous expectations, however, expectations for 2019 period are not so great. For example, Toyota is expected to have increase to its revenue by 2.5 percent compared to previous year, meanwhile having a fall in production by 5.8 percent comparing to previous year.

On the supply side, vehicles prices mostly depend on the raw materials and equipment cost. Higher steel and plastic prices will lead to a raise in retail prices of cars. According to Nikkei Asian Review, due to the ongoing economics war between China and the USA, the price of hot-rolled steel coil, used in cars and industrial machinery fell by 10 percent over the year. ABS plastic, which is used in electronics, suffered even worth by dropping by nearly 30 percent from a year earlier. China is consuming nearly a half of global steel consumption – its crude steel production is extremely high and excess product being exported. As the result, steel imports from China to Japan felt by 73% in comparison to year 2008. This can explain fall in total production of Toyota cars.

Porter’s Five Forces of the Automobile Industry

Threat of New Entry (Weak): a) products are mainly differentiated by design and engineering quality; b) high import taxes to protect home markets and producers; c) legal barriers protect existing companies from new entrants; d) high level of capital required; e) all existing companies have established brand image and reputation; f) it is very hard to achieve economies of scale for small companies.

Supplier power (Weak): a) suppliers do not pose any threat of forward integration; b) companies use different type of material; c) large number of suppliers; d) some suppliers are large but the most of them are pretty small; e) raw resources are very accessible.

Buyer power (Strong): a) there are many buyers; b) most of the buyers are individuals that buy one car, but corporates or governments usually buy large fleets and can bargain for lower prices; c) buyers can start using other type of transportation; d) buyers can easily choose alternative car brand; e) buyers are price sensitive and their decision is often based on how much does a vehicle cost.

Threat of Substitutes (Weak): a) there are many alternative types of transportation, such as bicycles, motorcycles, trains, buses or planes; b) substitutes can rarely offer the same convenience; c) alternative types of transportation almost always cost less and sometimes are more environment friendly.

Competitive Rivalry (Very Strong): a) high number of competitors; b) industry is already matured; c) size of competing firm’s vary but they usually compete for different consumer segments; d) customers are loyal to their brands; e) threat of being acquired by another firm is moderate.

Toyota analysis

Strengths

1. Strong market position and brand recognition. Across the world Toyota has a strong market position in Central and South America, Africa, Oceania, the Middle East region as well as all around the world. For instance, according to Toyota FY2012 report combined share of Lexus and Toyota was around 45.5% in Japan, Asian market share was around 13.4% (excluding China), 12.2% and 4.3% in North America region and Europe respectively, however Toyota market share in China was around 7%. Nevertheless, Toyota managed to quickly catch up and already became 3rd largest automobile company in China. In the end, Toyota is one the most famous car producer company in the world and in 2018 Toyota had the largest market share in the globe at around 9.5 percent. The competitive advantage and the high economies of scale enables Toyota remain its strong market position and constantly expand in international markets.
2. Strong focus on R&D. Toyota is well recognized for its productions of high-quality cars with low cost, therefore providing best possible goods at a low price to consumers. This high quality was achieved by constantly improving and innovating production methods. R&D focus allows company constantly develop new products and improving the capabilities of already existing one. There are overall 14 R&D facilities worldwide. Moreover, every time entering new national market Toyota always make a deep market research in order to have better understanding of consumer preferences, law and environmental regulations and so on, constantly seeking for better strategies and methods. Toyota implements “right cars for the right markets” policy (Direction, 2008), for instance, hybrid cars were specifically invented for the customers who are concerned with the environmental issues. “Tundra” and “Highlander” were on the other hand targeting American consumers who prefer pickups (Direction, 2007). Overall, Toyota target every time entering new market is to make best possible product based on consumers preferences and low products cost without any decrease in quality.
3. Extensive production and distribution network. Toyota distribution and production networks are extremely wide and spread. Toyota production system (also known as TPS) is based on such innovative practices such as “Just in Time”, “Kaizen”, “Jidoka” and etc. Such production style helped Toyota to get competitive advantage as no other firm is enabled to use the as well as Toyota, which provided Toyota with recognized brand name. Toyota managed to surpass such companies as Ford and GM in production and costs. While Ford and GM can produce around 10 vehicles per employees, Toyota has around 15 vehicles per employee, which means that Toyota has lower fixed cost. Basically “Just in Time” is a concept, where all raw materials and other equipment are delivered on the same day they are being planned to use. Such system even more underlines for employees the importance of efficiency, forcing them to minimize wasted resources and decreasing the chance of slack resources as well. Moreover, consumers are being more satisfied, because the lead time is reduced and as the result response to customer demands is quicker. Jidoka is measure to detect any problems that occurs in the assembly line, if detected, the line stops and any problems will be fixed in order to prevail it from occurring again. The target is to make sure that fewer defective goods are produced, as the result, assembly line becomes more reliable, products have higher quality, the chance to receive defective goods by consumers fall and consumer satisfaction increases. Kaizen method is to generate ideas first, after tests them and if successful to apply ideas to the already existing production process. It allows methods of production constantly improve and for consumers get even higher quality goods.
4. Benefit from growing partnerships. In 2012 Toyota and BMW made a strategic agreement for collaboration in technology development, such as development of components for sport cars, fuel cell system, power-train electrification and R&D in lightweight technologies. This agreement helped to raise the technological equipment, production of new products and boosted revenues. In 2005 Toyota and Subaru made business collaboration, which enabled Subaru and Toyota factories to produce some vehicles of both companies. Such agreement helped both companies to better use their resources and quicker react to market changes and reducing costs in the end. Also, this partnership helped to develop new Toyota 86 and Subaru BRZ sports car models. In 2019, business and capital alliance between Subaru and Toyota was even more strengthened. Companies made agreement to jointly develop new battery electric vehicles, which going to use Toyota’s electrification technologies and Subaru’s AWD technologies. Lastly, Toyota’s equity stake in Subaru will be increased and that Subaru will buy more shares in Toyota.
5. Human Resources. One the many strong sides of Toyota is its human resources management, which aims to make employees to follow the principles of lean production and quality. In order to achieve this goal, all local managers and employees in the subsidiary companies are being taught by send kaizen instructors. This helps employees to better understand Toyota’s culture and get experience, the transfer of technology and skills and etc. It’s all part of the Toyota’s plan for continuous improvement and learning (Elsey and Fujiwara 2000). Fujiwara and Elsey made a questioner among kaizen and made some interesting facts. First, most of the employees worked for more that 10 years and that shows that firm has been successful in inspiring firm’s employees. 15% of employees were over 50 and the majority was in the age group from 30 to 50. In addition, working period in the firm directly affected the work position. In other words, experience and age are directly corelated with the promotions and work status. Second, most of the employees were enjoying their work in Toyota and were extremely proud of the quality of their work done. Another strategy implemented by Toyota is to retain its retired workers and employees and offer them a new overseas’ job. The experience gained by these managers is enormous and they will be very useful for training and teaching new workers overseas. That way helped Toyota retain professional staff as well as helped to reduce costs of finding new managers whose performance is questionable. Lastly, that creates more incentive for the employees to be loyal to the company and work in the company for a long time (Direction, 2008).

Weaknesses

1. Effects on brand image from product recalls. Toyota made a number of recalls in the past, which strongly affect the brand image and sales. When in 1989 some defects were found in new Lexus model and forced Toyota to made recalls and in some cases even come to customer’s homes to collect the cars. Another recall happened in 2011, over 111,000 Toyota and Lexus cars were recalled, because of the defects in elements of substrate and flaws in hybrid system (possible shutdown). Next year another recalls in Japan, the oil leakage and some abnormal noises in the vehicles, overall 181,000 cars were recalled. Moreover, the investigation by the National Highway Traffic Safety Administration in 2012 made a lot pressure on RAV4 and year 2007 Camry models, which all together combined resulted in significant financial losses to Toyota.
2. Declining sales in key geographic segments. The FY2019 report indicates that Toyota faced with a declined sale in some key geographic areas. Sales in Latin America decreased by 13.5%, which was caused by fall in sales of Toyota Yaris model. In Asia sales dropped by 6.3 percent. Despite of the successful sales of new Corolla Sedan and Lexus ES, sales in Chinese market fell by 3.8 percent. In Oceania regions sales dropped by nearly 8 percent. Even the sales in European market dropped by 0.4 percent and they can drop even more in the future due to the BREXIT. Overall, continuous decline in sales in some key geographic segments could greatly affect Toyota’s total revenue.
3. Natural disasters impact’s on production structure. Toyota’s operations and manufacturing facilities are located in Japan, which is one of the regions with high earthquake chance in the world. There had been many devastating earthquakes in Japan that affected Japanese economy. In 2011, Japan experienced one of worst earthquakes in history. Year 2011 Tohoku earthquake was that strong that it greatly impaired Japanese and Toyota auto manufacturing facilities. Unfortunately, same year floods in Thailand occurred and also halted Toyota operations and production (around 150,000 cars). Such natural disasters could severely damage the production of Toyota and revenues as well.

Recommendations

• ROE and ROA data indicated a sharp decline in 2017 that indicates need for a better allocation of resources, which is highly important for high shareholders value.
• Diversification of products. Toyota is financially secured and as the competition for consumers raises, Toya should try to look for new aspects and markets for faster growth. New markets provide good opportunity to increase sales and revenue.
• Concentrate on Asian markets: over the last decades the Asian region economic growth is the fastest, and despite economics growth slowdown in this region, Toyota must concentrate on Chinese, Indian, Indonesian and Thailand markets as a chance for faster growth. Especially Toyota’s presence in Indian market is not too high and it’s an excellent opportunity.
• Modern day Chinese preferences is going through some changes. More and more customers in China give preferences to luxury cars. Toyota could have a good chance to increase in sales in China by concentrating on production and marketing of Lexus cars. Also increase in manufacturing facilities in China will provide Toyota with cheaper delivery as well as provide employees more options to correspond consumers’ preferences.
• More and more consumers are aware of environmental problems and their preferences are shifting towards goods with low or zero effect on environment. Between homogenous products consumers will start to prefer the eco-friendly ones, even if sometimes they have higher cost or lower quality. As the result, there is need to increase image of Toyota as environmentally friendly firm by not only producing more electrified cars, but also by focusing on and developing eco-friendly value chain.
• One the main priorities should be risk reduction and safety. There are many factors such as BREXIT, USA and China economic factors, Eurozone political instability that are affecting Toyota’s performance in different markets. One the tasks for Toyota is to reform business and cost structures. That enables to get better management platform and increase it responsiveness to the economic and political market changes.

Overall, over last year’s Toyota showed an outstanding growth worldwide and increased its market share in all main regions. Toyota’s early shift towards the production of more fuel-efficient vehicles and HUV’s provided it strong competitive advantage nowadays. Toyota should strengthen its focus on improving and producing such types of vehicles, which will provide company with future growth.

Working Capital Management of Yudron’s Delight – ‘Everything is a New Delight’

In the economy of production, manufacturing, tourism and micro business industries, the management of working capital is out most important to maximize the profit or sales of the business. The management of working capital is the managerial accounting strategy designed to monitor and utilize the two components of working capital, current assets, and current liabilities.

The Objective of Working Capital

• Smooth operating cycle;
• Lowest working capital requirement;
• Minimize the rate of interest and cost of capital;
• Optimal return on current assets investment.

Importance of Effective Working Capital Management

1. Ensures higher return on capital;
2. Improvement in credit profile & solvency;
3. Increase profitability;
4. Better liquidity;
5. Business value appreciation;
6. Most suitable financing terms;
7. Interruption free production;
8. Readiness for shocks and peak demand;
9. Advantage over competitors.

The Benefits of Management of Working Capital

• To ensure the most financially efficient operation of business/company.
• Evades interruption in operation.
• To avoid the risk of blocking the capital without the yield.
• Sufficient liquidity and profitability.
• The better financial health of the firms.
• Competitive advantages.

Background of Yudron’s Delights

Yudron’s Delight bakery is one of the most popular bakeries among others with the speciality of café serving products such as pastries, drinks, bread and cheesecake which is located at Shaba on the way towards Paro and established in 2017.

Dawa is the proprietor of Yudron’s Delight bakery and she did hotel management from the University of hotel management in Kolkata. With her sole interest and determination in baking, she was interested to start baking business. Further, she was made more decisive on her ambition and her father was the role model to support and to begin with the commencement of her business. The establishment of her business begin with purchased the imported ingredients and the machinery that is required for the business as well as to encourage to earn more profit in the business and also to achieve her goals. Yudron’s Delight had a passion for learning to bake and come up with fashionable bakery products that suit the taste of Bhutanese economy.

Dawa, on the other hand, had gained much experience in the period of a year and has decided to open Yudron’s Delight in a bigger and more spacious location. Even with the change of the location, the people kept coming to the café as they have before and the consumer became larger in numbers with time.

She began to face challenges in the shop with the rise in consumer percentage, which she was not very prepared for. The delight shop gained much fame due to its quality of product and the reasonable price the products were tagged with. She began to bake much more and tried different recipes. Sometimes it turned out perfect in the first try but most of the times it never went as she has expected which would leave a profound mark of failure in her, but her father and the customers always encouraged her which would help her gain motivation to try new recipes even if it became an inevitable failure. As she ventured into new flavors and baking art she gained more confidence in herself and she began to expand her variety of pastries, which led to the incoming of more consumers who were mesmerized by her art and innovation in the bakery.

With the development of her business, Dawa began to invite orders for a cake for most occasions like birthdays, wedding anniversaries, new year, promotion and other traditional occasions. Her baking fame reached out as far as the national capital as the people from Thimphu also started ordering cakes from her bakery. The business became more busy day by day and Dawa decided to employ young recruits who were as passionate about baking as herself, she taught them the basics for the art of baking and with time she gained five employees who helped her with the baking and her father continued to bring in freshly imported ingredients. She faced many challenges like making time to bake for the list of orders she received most days by staying up late at times and preparing proper transportation to take the cake to its designated areas. At times the Bhutan Airlines also ordered many pastries to serve in the catering department at the airport. She says, “Although business is good she faced challenges in making the right amount of pastries and other delights as if it was not sold out in a day it would be a waste as the quality was the first priority of the business”.

Her assorted bakes became more famous as the people passing through the road became more accustomed to her pastries and took it as a gift to their families and relatives living in boarding schools and in dzongkhags elsewhere. The quality of her bakes became the foremost reason for the satisfaction of her consumers promising a visit again in her delightful shop.

At present Dawa has bought a bungalow worth Nu. 8.9 million with the money she has earned from Yudron’s delight and she now has a van for the transportation of the bakes to faraway places, which has made her job more approachable for most people who seek home delivery. Her monthly income has become more than enough to pay her rent that is a sum of Nu. 30,000 per month. Her pastries and delights have been recommended in renowned magazines of Bhutan like Yeewong in an article by Zhimmey the ultimate food guide of the country and her baking has gained more popularity with time. She also started advertising her bakes in social networking forums like Instagram and Facebook.

Dawa now has future plans to develop her Yudron’s Delight to make it homely for the customers and she also wants to open a baking institute for the many young minds passionate about baking and starting their own entrepreneurship journey. Meanwhile, Nima is content with her business that is enough to support her family.

“The success story of my entrepreneurship journey was not solely due to my baking like most people believe, but it was the combined encouragement and help that was rendered to me by my family, the support staff and the customers without whom I wouldn’t be the entrepreneur I am today”, says Dawa during the conclusion of her interview. Though her friends and family believe she has reached the pinnacle of her glory she believes that her road to success does not stop here and she still has a long way to go to improve herself and make her future dreams a reality.

The Analysis of Costco’s Business Model

Costco’s business model and overall strategy is very interesting, they only keep a selection of approximately 3,700 items in their store that could be provided at a lower cost. However, supermarkets like Walmart keep around 125,000 items stocked for shoppers, this is a large difference that I don’t think Costco can maintain and continue to be competitive with Walmart. Costco’s mission statement is “to continually provide our members with quality goods and services at the lowers possible prices”. They achieve their mission by following four rules throughout the organization, theses rules are to obey the law, take care of their members, take care of their employees, and to respect their suppliers. Costco has many strategic choices that makes it a well-known and competitive store. It tries to maintain the lowest prices possible and it has a membership warehouse club business model to separate them from competitors. I believe its strategic choices are aligned with their mission statement because they are providing their members with quality goods at a lower price.

A complete chain analysis starts with operational activities and ends with services. An operational activity that Costco encounters is, when material arrives to Costco, it needs to be launched it into the market, these activities include packing, assembling, and testing. After operational activities is distribution. Costco has distribution centers to help reduce delivery costs, they have also added packaging changes to help put more products on the trucks and send less trucks out. The next stage is marketing and sales. In this stage Costco can promote its quality value at a low price to its customers. Marketing examples include advertising, promotion actives, and building relationships. The last stage in the value chain is services. Costco needs to offer high-level services to develop a good customer loyalty and keep them renewing their membership. Some services offered by Costco are listening to buyers’ inquiries and complaints on items and customer service.

Costco has many strengths, one strength is the high volume of inventory turnover contributing to higher revenues, they have also been able to increase sales in the last several years by 6%-10% which are all higher than their goal of increasing 5% annually. Another strength is the number of website sales in the US, Canada, Mexico, the UK and Korea, this also brings in large amounts of income for Costco.

I think a big weakness for Costco is its membership-only warehouse style, this limits the number of customers that will freely shop there. Another weakness is they do not keep their store stocked with as many items as the supermarkets they are competing with, this could lessen their chances of members purchasing items. In my opinion one of Costco’s competitive advantages is its customer loyalty, however I am not sure if it is sustainable. Members pay a yearly fee to shop at Costco, they keep shopping with Costco either because they need to get their money’s worth of savings from buying the membership fee or because they know if they get the membership maybe they will do better next year on their savings.

The threats of new entrants is weak because it seems pretty much impossible for a North American warehouse club store to be able to compete with the existing, and very much thriving industry members that already exist. The three wholesale stores are not only flushing in the United States, but also internationally. New entrants would also have to market themselves and spend high on advertisements to take customers away from the already existing industry members. The Bargaining power of suppliers is weak because items being supplied are commodities that are available from many suppliers, therefore, if a particular manufacturer does not sell to wholesale clubs at a low price they can choose to purchase from another price competitive source. For example, all of Costco stock did not come from a single manufacturer. Threats of substitutes are strong because there are similar products at supermarkets that have comparable prices to wholesale stores. The range of selection at substitutes retailers is also greater and more convenient than wholesale stores. Customers may also think that the yearly price of a membership is not worth shopping at the wholesale stores and choose to shop elsewhere, losing potential customers to these stores. Bargaining power of buyers is weak because not one single member accounts for a large fraction of the wholesale’s store total sales. They also do not have any bargaining power over sale prices. Members may choose to drop their membership; however this will not affect the company and the bargaining power members have. The three competitors, Costco, Sam’s Club, and BJs are all trying to attract more members with their merchandise and customer service than each other, hence their competitive rivalry being strong. They are all know for their low-price products that keep members renewing membership every year. There is not much differentiation in the products sold from store to store, so members loyalty to one club may not be strong.

Opportunities for Costco is to focus on attracting younger customers to their stores. They could do this by having a pickup site for online grocery shopping, as well as younger clothes and items that are found at supermarkets. Costco is already internationally stable; however, they could continue to expand into new counties and continue to grow. Threats for Costco are the competition from their rivals, Sam’s Club and BJs. Large retailers like Walmart, are also a threat for Costco because they have low prices with the convenience and comfort for customers without having to pay for a membership fee.

Net sales has continued to increase from 2000 to 2015, from $31,621,000 to $113,666,000, with a growth rate of 3.36%. Total revenue has also increased from 32,164,000 to 116,199,000 in 2000 to 2015. Total return on assets in 2015 is 7.11%, net profit margin is 3.19%, and gross profit margin is 11.09%. These ratios all show that Costco is continuing to grow, however do seem to be slowing down from 2000. I think if Costco can continue to grow into other countries and manage their capital expenditure well they can continue to improve their financial performance.

As mentioned in the case study, Costco achieves its mission by following 4 codes of ethics; obey the law, take care of members, take care of employees, and respect suppliers and shareholders. Our text says that many companies have set four to eight core values on how they expect their mission to be displayed (The Costco Story, n.d.). In January 2019, Costco reported net sales of $10.71 billion, which was an 8% increase from the $9.92 billion in the previous year. “Costco currently operated 768 warehouses, including 533 in the United States and Puerto Rico, 100 in Canada, 30 in Mexico, 28 in the United Kingdom, 26 in Japan, 15 in Korea, 13 in Taiwan, 10 in Australia, 2 in Spain and once in Iceland and France”. Since the case date Costco has opened 70 mores stores worldwide, this is proof of how rapidly they are expanding (Costco Wholesale, 2019). Costco’s strategy includes: attracting customers, competing against rivals, responding to economic changes and more. Costco attracts customers by having low quality prices, it also competes with its customers by stocking on average 3,800 national brands and private label products. Costco responds to economic changes by keeping its brand strong no matter what country it is in (Meyersohn, 2018). Costco has a great marketing strategy by not only advertising themselves, but also their customers post on social media about the great deals they got and the free samples they get to try (Clifford, 2019).

My personal experience with Costco has always been good, I enjoy looking through all unusual items, sampling food, and buying things in bulk at a cheap price. I am not the only customer that enjoys this store however, one customer told Costco she made it her mission to visit a Costco store every time she goes out of town to see if they are the same everywhere, which they have proven themselves to be.

General Motors’ Competitive Advantage

GM is primarily engaged in the design, development, manufacturing, and marketing of automotive products worldwide. We employ 266000 people around the world (not including employee at joint ventures) and manufacture vehicles in 33 countries. In 2007 GM sold 9.4 million vehicles in 149 countries. GM industry continues to experience significant change, increasing complexity, and intense global competition in both mature and emerging markets. The key to winning under these circumstances is to consistently provide cars and trucks that customers will choose over those of GM competitors based on superior design, quality, fuel economy, safety, technology, and value. To remain a global automotive leader, in more mature markets to ensure GM’s ongoing competitiveness and rapidly grow their presence in emerging markets around the world. In GM’s competitive business environment, we must continue to attract, retain, and motivate leaders who can successfully navigate the complexities of GM industry and deliver business result for the benefit of GM’s stockholders and other key stakeholders. Fair and competitive compensation programs are an important element in GM’s ability to do this.

About General Motors

GM is an American company. The company was founded on September 16 1908 in Michigan as a holding company. Core businesses of the GM are designs manufactures and distributes vehicles and vehicle parts and sells financial services. General Motors produces vehicles in 37 countries under eleven brands, including cheviots, Buick, GMC, Cadillac, Baojun, Holden, Isuzu, Jie fing, Opel, Vauxhall, and Wuling. There are 212000 employees in GM. GM does business in 157 countries. Mainly GM divided in to five businesses GM North America, GM International Operations, GM South America and GM financial.

Logo Creation and Development

Logo is a symbol or special icon maybe it’s explain what company does or types of these products maybe not. A great logo explains the company values, culture and people. A great logo is not the end but the beginning of a great brand identity. A company logo is a recognition tool for the public to link their products to the company. A logo if designed effectively can bring to people’s mind the unique selling proposition of an organization.

The market of excellence is the original name of the logo of the General Motors Corporation. First introduced in 1966, the logo originally included the phrase “Mark of Excellence” at the bottom, and as a decal, it was installed on the door jambs of General Motors’ vehicles. This logo also was stamped on the release buttons of seat belt buckles on GM vehicles from 1967 until the mid-1990s, as well as being stamped onto the ignition and door keys from the late 1960s up until the early 2000s. Originally turquoise, the color was changed to a royal blue in 1968. In 2005, it was announced that small silver emblems of the logo would be applied to the exterior of every 2006 GM vehicle. This was continued into 2007. A decision was made in August 2009 to stop using the GM ‘Mark of Excellence’ badge on GM vehicle. It was agreed that with GM’s post-bankruptcy focus on four core brands and less of a focus on the GM brand the relevance of the badge has diminished.

The Shell Gas

The shell gas station brand logo started out in 1900 as a literal inked clamshell drawing but has gradually become a smooth red and yellow stylized shell. The colors and shape are so distinct, shell doesn’t even write its name on the logo anymore.

Microsoft

In 1992 the Windows 3.1 logo was a literal window with four panes and a black frame that broke in to tails on one side like a meteor. It remained the same until windows XP was released in 2001. The windows XP logo was minimalizes down to just the four colored windowpanes floatation with no frame – distinctly windows but much simpler.

Volkswagen

The original VW logo from 1939 featured bumped teeth around the circle to make it look like a gear, with logo arms rotating around the circle. The arms and gear bumps were eliminated by the time WWII ended and in 2000, VW colored the logo blue and silver.

BMW

Everybody knows a BMW automobile when they see ones. BMW logo meant to symbolize the movement of an aircraft propeller, of white blades cutting through the blue skies. It was first created in 1923, but the logo has pretty much retained its original features other than a few minor modifications to its fonts and colors.

Analysis of Vision and Mission

Over the past 100 years, GM has been a leader in the global automotive industry. And the next 100 years will be no different. GM is committed to leading the industry in alternative fuel propulsion. GM’s vision is to be the world leader in transportation products and related services. ‘We will earn our customer’s enthusiasm through continuous improvement driven by the integrity, teamwork, and innovation of GM people”.

GM is a multinational corporation engaged in socially responsible operations, worldwide. It is dedicated to provide products and services of such quality that our customers will receive superior value while our employees and business partners will share in our success and our stock-holders will receive a sustained superior return on their investment.

Market Growth and Market Share of General Motors

Global sales grew 3.6% to nearly 2.4 million vehicles as GM’s share of industry increased 0.2 point to 11.4%. A strong performance in North America spurred the result as sales climbed 8.2% to 761,616 vehicle and GM’s share increased 0.4 point to 17.1%. Growth was also strong in Asia, Africa and the Middle East where sales increased 6.9& to 992,234 vehicles, pushing GM’s share up 0.2 point to 9.6%. GM managed to expand its share in Europe by 0.1 point to 8.3% even as sales shrank 6.4% to 372,634 vehicles amid an industry-wide downturn in the recession-riddled bloc. Its South American operations were troubled, however, as sales fell 5.3% to 234474 vehicles and GM’s share shrank by 0.9 point to 17.2%.

General Motors recently announced second quarter earnings that topped market expectations. Besides improving in Europe, the automaker continued to perform strongly in the U.S. and China with sales higher by 8.4% and 11.5% respectively. China has become significant for GM and it now accounts for about 45% of the stock value according to our estimates. GM operates in China through 10 joint ventures although the SAIC-GM-Wuling JV accounts for almost half of the sales. SAIC-GM-Wuling Automobile is a joint venture between SAIC Motor, General Motors and Liuzhou Wuling Motors Co Ltd. General Motors Co sees growth of between 7% to 10% in China’s car market this year. In 2009 it grew 50%, 2010 it grew roughly 30%. General Motors said it had sold 240,244 vehicles in China during the month of September, up 15.3% from a year earlier. GM makes vehicles in China in partnership with SAIC Motor Corp and FAW Group. China’s overall vehicle market sizzled in 2010 with 18 million units sold. But it has now reverted to a more subdued growth pattern after the government ended tax incentives for small car sales and subsidies for van buyers in total areas.

Added Value of General Motors

In a business the difference between the sale price and the production cost of a product is the unit profit. In economic, the sum of the unit profit, the depreciation cost, and the labor cost, and the unit labor cost is the unit value added.

Quality is the value added given by the GM to the customers. Chevrolet has received more 2013 J.D. power initial quality awards than any other automotive brand. Chevrolet vehicles are giving GM’s consumers the quality they deserve. According to the 2013 J.D. power and Associates initial quality study, Chevrolet received five segment awards more than any other auto brand.

These results highlight Chevrolet’s commitment to quality. Customers want inventive designs, advanced features, exhilaration performance and great quality-without any sacrifices. At Chevrolet, quality is at the center of every decision that affects the development of every vehicle.

Strategy

General Motors Company (GM) has a generic strategy (Porter’s model) that ensures competitive advantage amid increasing competition in the global automotive industry. Michael Porter’s model indicates that competitive advantage is created through a generic strategy that the company effectively applies in relation to variables in the target market. In this case, General Motors’ generic competitive strategy emphasizes the benefits of economies of scale, which is one of the company’s strengths.

The firm also employs intensive growth strategies based on the business effects of such generic strategy. Each intensive strategy contributes to the growth of General Motors. However, these intensive growth strategies have different degrees of significance in the business. For example, General Motors benefits more from one intensive strategy compared to the other intensive strategies in terms of their effects on organizational growth and appropriateness to the target market for automobiles and related products.

The effectiveness of General Motors’ generic strategy has a direct link to the organization’s ability to address issues associated with competitive rivalry. Competition is a major external force that affects the company’s growth and development. The Porter’s Five Forces Analysis of General Motors Company shows the significance of competition in determining the performance of the automobile business. Thus, the generic competitive strategy must match the needs of the organization, while considering the external business environment. On the other hand, the effectiveness of General Motors’ intensive growth strategies influences how the business grows. The competitive advantage based on the generic strategy and the growth potential based on the intensive strategies contribute to the long-term success of General Motors.

General Motors Company’s Generic Strategy (Porter’s Model)

General Motors’ generic competitive strategy is cost leadership. Based on Porter’s model, this generic strategy creates competitive advantage based on the attractiveness of low costs and corresponding low prices of products. For example, General Motors’ automobiles are offered at prices that are lower than premium or luxury automobiles like Mercedes-Benz. The relatively lower prices attract customers, leading to GM’s competitive advantage. A strategic objective based on this generic strategy is to enhance manufacturing process efficiencies through automation and continuous improvement to support General Motors’ competitive advantage.

The differentiation generic strategy has a supporting role for General Motors’ competitive advantage. However, cost-leadership remains the company’s main generic competitive strategy. In differentiation, the strategic objective is to make products attractive on the basis of features, brand image, quality, and related variables. For example, the differentiation generic competitive strategy is applied through General Motors’ research and development efforts toward producing energy-efficient automobiles. The features of these products should also differentiate them from the competition, to ensure the company’s competitive advantage. This generic strategy supports the technological advancement and value emphases in General Motors’ mission statement and vision statement, respectively.

General Motors Company’s Intensive Strategies (Intensive Growth Strategies)

1. Market Penetration (Primary). General Motors uses market penetration as its primary intensive growth strategy. This intensive strategy contributes to the company’s growth by increasing sales in current markets. For example, General Motors expands its market reach by increasing the number of its dealerships. In this way, the distribution of GM automobiles increases, improving customers’ access to these products. General Motors’ cost-leadership generic strategy creates competitive advantage that facilitates the successful implementation of market penetration. Based on this intensive growth strategy, a strategic objective is to continue expanding the company’s distribution network to support business growth and development.
2. Product Development (Secondary). Product development serves as a secondary intensive growth strategy in the case of General Motors Company. This intensive strategy ensures growth through new product sales. For example, every new product or product line translates to a potential increase in GM’s revenues. This intensive growth strategy supports the differentiation generic competitive strategy by focusing on uniqueness in the design and features of new products. Thus, General Motors’ strategic objective based on product development is to achieve a high rate of innovation in new product development.
3. Market Development (Supporting). General Motors employs market development as a supporting intensive strategy for growth. In this intensive strategy, the company grows by entering new markets or market segments. For example, General Motors’ growth as a global automotive business has been significantly based on new market entry, such as when the company adds a country to its areas of operations and sales. However, considering the firm’s current worldwide operations, this intensive growth strategy now only serves a supporting role in business growth. Based on market development, a strategic objective is to enter new markets in Africa or develop novel products to enter new market segments for General Motors’ growth. The differentiation generic strategy can contribute competitive advantage needed to maximize the benefit of implementing the market development intensive growth strategy.
4. Diversification (Supporting). Diversification is another intensive strategy that has a supporting role in General Motors’ growth. The company has a low probability of using this strategy. Diversification supports business growth through new business. For example, General Motors could acquire a car rental services company in a domestic market to fuel business growth. This intensive growth strategy can contribute new business capabilities to support the differentiation generic competitive strategy. A strategic objective linked to this intensive strategy is to grow General Motors through new acquisitions of businesses outside the automotive industry.

References

1. Anderson, A.H., Barker, D., 1996, Effective Enterprise and Change Management, Oxford: Blackwell Publishers Ltd.
2. Flint, J., (2005), “Saving General Motors”, Forbes, November.
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The Strengths of the Costco’s Business Model

For those who are not familiar, Costco is a retailer know as a warehouse club or wholesale club where you can go buy items in bulk for a discounted price which ultimately saves customers a great deal of money. According to the case study, Costco’s business model is quite simple. Their goal is to generate high sales volume and rapid inventory turnover by offering fee-paying members low prices on a selection of nationally branded and selected labels in a wide range of categories. Almost everyone has experienced this type of business strategy at some point or another in their life, and personally (as a Costco Member myself) I believe that ultimately this business model gives customers the most for their money and provides some sort of ‘elite’ feeling as a member. I believe that this business strategy falls in line with the best-cost provider strategy for many reasons. This strategy by definition gives people and customers ultimate value for their dollar ultimately by selling them for a lower cost than other competing companies. This option is a hybrid strategy that blends elements of low-cost provider and differentiation strategies and the aim is to have the lowest (best) costs and prices among sellers offering products with comparable differentiating attributes. I confidently agree in saying that Costco’s business model is most certainly working to their advantage with one article stating that Costco’s business model is making the retail giant unstoppable. The article states that Costco has become the go-to location with customers ultimately choosing Costco over other providers such as Walmart, Target, and Amazon simply because they are the best option for product value. This is overall giving them the competitive edge over other locations and even online ecommerce stores.

Ultimately, I find the business model appealing because as a consumer, I’m always looking for the best deal for my dollar and the discounted prices and wholesale quantities wind up being cheaper in the long run. For example, If I can buy one Gillette razor from Walmart or Target for $10.00 that comes with two razor replacements or I can buy 14 Gillette razors from Costco for around $35.00 dollars, ultimately, I’m going to go with Costco. While it is more money up front, the better bargain comes from the bulk price and quantity from Costco.

The next thing we must analyze in the case study are the key elements of Costco’s strategy. There are three main elements that play into Costco’s business strategy include low prices, a limited selection of nationally branded and private-label products, a “treasure hunt” shopping environment, low operating costs, and an active expansion of new stores. The main and most important elements of Costco’s business strategy include the absolute lowest prices possible for its customers, a term that the company branded ultra-low pricing. This philosophy was to keep customers coming in to shop by wowing them with low prices and thereby generating big sales.

Another key aspect related to ultra-low pricing is that fact that they have permanently capped its margins to ensure that members can justify paying for a membership. By definition, a capped margin is a maximum price markup that an item has. While Costco doesn’t publish its capped margins, you can look through the company’s financial statements and see that they operate at a margin of 11.4% which means that for every $100.00 that Costco spends to buy its products, it’s selling them on average for $111.40. Costco also uses product selection as another key element in their business strategy. According to the case study, typical supermarkets stocked about 40,000 items and bigger chains may have had anywhere from 125,000 to 150,000 items to choose from, whereas Costco’s strategy was to provide members with a selection of approximately 3,700 active items that could be priced at bargain levels and thus provide members with significant cost savings.

Another key element also mentioned above was the element of treasure-hunt merchandising. Basically, this concept is the idea of certain items being on sale for a number or weeks or a specific time period and then going back up to a normal price after that time period. The most popular time of the year that we see this kind of merchandising is around the Christmas season and the biggest shopping event of the year, Black Friday and Cyber Monday. By using this type of merchandising, Costco takes this concept and applies it year-round, ultimately giving members deals and savings all year round on a variety of different products.

The final element of Costco’s business strategy is that of low operating costs in order to maximize profits and continue expanding their empire. They are able to do this with low overhead for example by using warehouse that are kind of industrial, but maintain low operating costs. This concept also takes effect by the way they display their product, essentially leaving all of their products on wooden pallets for display.

The Main Competitive Strategies of Costco Wholesale Corporation

Costco is one of the largest retail brands in the United States. Being a retail brand, it faces stiff competition from other players in this industry, such as Loblaws as well as Walmart among others. However, despite Costco having such a colossal success level, it doesn’t invest in technology, human resources, or even in advertising; instead, it focuses on customers’ satisfaction, employees’ growth, and it’s business model different compared to those of its competitors (Chuang, n.d.). Costco has implemented the following competitive strategies to remain relevant in the market.

Costco has been in a position to remain relevant through constantly rebranding, which can be classified as an offensive strategy. Branding has enabled Costco to establish high switching costs through innovation. This has been through a continuous process of focusing on the customers’ needs and delivering quality products hence leading to the development of the trust with their customers (Corona & Altamirano, 2010). Additionally Costco has also ensured that their reputation on quality and competitive prices as well as better payment scheme for employees through efficient human resource management has also remained solid hence leading to efficiency in production.

Another strategy that Costco has implemented is an efficient way of managing and growing its customer base both in the United States and the world, which can be classified as a defensive strategy. This kind of approach can only be realized by having a lead in the learning curve. It has been made possible through creating a portfolio for customers’ membership. Customers who are the members of the collection of the Costco enjoy certain privileges such as grants and discounts on various products occasionally. Corona & Altamirano (2010) state that the move is aimed at maintaining the customers’ royalty without losing them to the competitors within the market.

Another competitive strategy that Costco has implemented is the consistency in lowering of prices of the product at the same time maintaining the quality, thus leading to customer loyalty. Chuang (n.d.) states that Costco has been able to enjoy customer loyalty through efficient management of its retail chains hence leading to a reduction in the cost of operation, which translates to low prices of the various products. When customers are offered better competitive prices of quality products, they tend to stick to the brand as they become repeat clients.

Costco also applies a low pricing strategy, which falls under the category of defencive strategy. The policy relies mainly on the efficiency of the organization in terms of the management of resources, thus lowering the cost of production through efficient application of the cost and benefits analysis. Costco has been in a position to maintain economy pricing through buying goods in bulk for their direct lines, and hence they are offered goods at a lower cost, which translates to low pricing of the different products. Further, Costco has been in a position to streamline their process by ensuring that they are perfect and practical through proper management of the logistics, thus leading to low operation cost.

Moreover, Costco has also utilized the offensive strategy by creating its private brand, which is referred to as Kirkland. This has been achieved over time through benchmarking and constant innovation to improve on quality and hence, acts as an attraction to customers as well as it is a significant revenue generator to the company. Costco’s Kirkland brand encompasses of the apparel, organic and fresh foods; households essential, sporting goods as well as health and beauty products (Corona & Altamirano, 2010).