Verizon is one of the leading mobile phone service providers in the United States of America with more than 106 million subscribers, the second largest and most competitive telecommunication market in the world.
The main purpose of this report is to study and analyze the internal and external environments of the mobile phone services industry in America. The analysis carried out in this report will enable us to assess the past, present and future economic strategies of the company and come up with a new strategy if any scope of optimization from the strategies presently being implemented.
It has been realized from the study that Verizon Mobile Provider has successfully established and implemented ‘Focused Low Cost’ strategies and through providing supreme value for the subscribers’ money has simultaneously forced the rivals to follow on the same outline hence creating a competitive market mood.
Nevertheless, it was also recognized that over the years Verizon communications has maintained to be the best cost provider in the industry and possess the largest network infrastructure, therefore, is now proficient of focusing and explore new fields and technologies while maintaining its low cost as well as a high-quality image.
Additionally, the report founded that Verizon communication is the core owner of world’s largest infrastructure of next-generation information technology infrastructures, one of the telecom industry pioneer in providing CDMA and GSM wireless services in the United States, it has the largest number of subscribers of more than 106 million customers and the company which has the good sales and marketing strategies as it focus on cost-effective mobile services which are affordable within the common man.
Although the company had done its best to cope with the market it faces several challenges in its quality service delivery, which included relatively new company in telecommunication industry in the USA, creating a severe competition environment and it lost a bid to acquire tender to provide its services outside American jurisdiction.
After appreciating the fact that focused low-cost strategies was faced by a number of challenges and would not be the most appropriate strategy in the current market situation where the consuming habit of consumer have hugely changed, it is recommended for the company to adopt a ‘Focused Differentiation Strategy ‘ and put emphasis on data services packages using new technologies such as 4G, maintaining its corporate image of being pioneer in innovating revolutionary changes in the market, it would not be unpractical to think of a future where subscribers pay for the data services and not the voice services in the American telecommunication industry.
Finally, emerging of new technologies and aggressive strategies of new competitors has had a rigorous impact on highly competitive mobile service in America.
For any company to endure this uproar in the telecommunication market it has to establish additional competencies, discover new marketing areas by moving across the continent and the world where potential market exists and endeavor for the constant development. Verizon communication is not unique and it has to introduce new styles into the market and make the rivals to follow. Previous records have shown that Verizon has excelled in doing this regularly.
By observing and analyzing the enormous competence in aggressiveness and successful implementations of strategies that Verizon Communication has, we strongly recommend that it should focus ahead with assurance and set new styles in data services.
Verizon Communication being the only service provider to own 3G ready CDMA as well as GSM network infrastructure in the USA, is capable of establishing a new segment of providing high-speed data services using 4G technology if it makes use of the proposed strategies in this research.
Blue Nile Inc. has been one of the leading online diamond and certified jewellery seller for the last one decade. The company was found in 1999. However, it went public in the year 2004.
Since then, it has been experiencing a tremendous growth in its operations and activities. Blue Nile Inc. has managed to establish a strong brand name in the jewellery industry.
Through its high quality products and state of the art services, the company has been able to satisfy the needs of its customers. As a result, most of its customers have been loyal to the brand. This has not only enabled Blue Nile to maintain its customers but also to attract new ones.
This has in turn resulted to an increase in its annual revenue since the company was incorporated. In the year 2009, Blue Nile Inc reported annual revenue of $302 million. This is a great indicator of the growth of the company and the success it is enjoying. The company had reported an annual revenue of $169.2 million in the year 2004.
Despite the success that the company has been enjoying, it is yet to realise its mid-term and long-term goals. Blue Nile Inc. wishes to expand its activities into overseas markets. In addition, the company want to encourage customers to shop on line for diamonds and other related jewellery.
To achieve these goals, Blue Nile Inc has come up with several strategies. To determine if these strategies will be successful, a SWOT analysis shall be conducted to determine the chances of success that Blue Nile has.
SWOT Analysis
In the course of its operations, Blue Nile has a number of strengths, weaknesses, opportunities and costs. The main strength that Blue Nile Inc. has is a strong brand name.
The company has been renowned for its high quality products that are as per the consumers specification. Due to this, many customers have been attracted to the companys products. The company also has impressive turnover rations.
In 2009, the company had a fixed asset turnover ratio of 39.08 3.86 7.18 7.30. It also had a ratio 60% return on equity ratio. These figures are much higher than that of its competitors.
Furthermore, its products are valuable since are of high quality. However, there are a number of online companies and brick and mortar jewellers. Another weakness that the company faces is the availability of materials.
Blue Nile does not have a source of raw materials. Therefore, it relies on its suppliers for products. This reduces the ease at which the product can be acquired.
However, some opportunities may assist the company to achieve its goals. First, the United States has a stable political environment.
Therefore, there is no political interference that may affect the operations of the company. Furthermore, the countries that Blue Nile wants to expand into, like England, have good diplomatic relations with USA.
Despite the recession that has been experienced in USA since 2008, Blue Nile Inc. has been able to increase its revenue. This is as a result of the stability of the jewellery industry in the US and the world at large.
This has been supported by the increased demand of the society to purchase diamonds and jewellery not only for special occasions but also for everyday wear. The current trends in technological advancements have also supported the online operation of the Blue Nile.
This has resulted in an increase in online sales that the company is making. Information Technology has thus made it easier for Blue Nile to reach its customers and advise them on what to buy.
However, the company is facing a lot of threats from other online companies that sell the same products. Diamond.com, Whiteflash.com and JamesAllen.com are just but some of the companies that offer stiff competition to Blue Nile.
However, through its policies and strategies, Blue Line will be able to have a competitive edge over its rivals.
It needs to take advantage of it strengths and opportunities and improve on its weaknesses and overcome its threats to guarantee its success.
Evaluation on the organization’s market penetration strategy
The company used Europe-wide computerized reservation service (CRS) which made it have most preferred services as compared to other competitors within Europe. Then there was the formation of inter-airline association which led to the reinforcement of technical and operational services through the establishment of the maintenance pool.
This strategy enabled the airline compete with major airlines due to their up-graded and updated services. The company resorted to resolve on their timing and became one of the most punctual airlines within Europe.
Also the company’s strategized connection of all its flights to European and Asian hubs which helped in the process of facilitating passenger flights, SAS connected its flights to most of the secondary hubs which gave them connection with smaller domestic services within countries of operation.
Evaluation of the organization’s consolidation’s strategy
The company enjoyed successive profitable years which were ultimately threatened by increased competition from low-cost operators. This led to the company making subsequent losses which could be attributed to conservative management style.
As a result of this, SAS resorted to downsizing whereby they opted to centralize bureaucracy and at the same time removed most of the employees’ responsibilities. The strategies focused on installing enlightened leadership while keeping the company at its competitive level. This move had an impact on the human resource management since it helped in reducing pressure experienced on costs and margins.
Product development
SAS resorted to service business through engaging their frequent flights in foreign markets. Business travellers were initially not attracted to SAS; this made the company to modify their services by improving the company’s business class passenger services. The other move focused on staff training and motivation enabled their workers to work smarter.
In the process of developing new products, SAS resorted to changing management style which saw the introduction of new management system. The process of installing computer terminal within the manager’s office was aimed at improving on the punctuality level of the flights. The older jets were replaced by new and modern state of the art equipments.
SAS acquired hovercraft which could operate in all weather since they were impervious to water, land and ice. In order to subsidize on the company’s profits, SAS adopted new service concepts which included operation of business hotels and destination services. This made work easier for the passengers since they could make reservations and organize for other services from a central place through phone calls.
Market Development
The operations of SAS extended from Copenhagen Airport to the port of Malmo owing to the acquisition of hovercraft. It further expanded its flights to Bangkok via Europe and Asia. Then new market was later found in Tokyo where flights were directed from Bangkok to Tokyo. SAS management decided to up-grade their planes to accommodate business class passenger travellers.
From its inception, SAS only operated within Europe meaning that most of its flights were for short distances. This led to frequent services which were viewed as potential factor leading to increased usage of airplanes. Due to overcapacity, the flights were extended as far as Thailand and other Far East countries.
Development of international market was facilitated by making Copenhagen and Bangkok as the main points from which to supply services to European and Asian hubs. The territories within the domestic market were expanded through Oslo’s Fornebu and Arlanda which acted as points of connections for all local flights.
Diversification
SAS agreed on the process of teaming up with other airlines from other countries, this would improve on their level of coordination for scheduled flights hence assisting in fair utilization of the highly competitive markets. SAS resorted to marketing their newly acquired products to customers within European and Asian hubs.
In-terms of related diversification SAS focused on expanding their services within the industry to enable accommodation of many customers. This had been done through improvement in punctuality and also offering hotel and destination related services.
In-terms of unrelated diversities, SAS operates a number of subsidiaries which are not related to airline industry. These include ownership of a tourism firm known as Vingresor and service partners dealing with catering with their first class hotels within Scandinavia and other countries. They operate insurance company and air cargo Company.
References
Bartlett, A., & Sumantra, G., 2010. Managing Across Borders. The Transnational Solution. Foreign affairs. Web.
Gordon, W., 2006. Out with the new, in with the old. International Journal of Market Research, 48(1), pp 1-30.
Grant, R., 1991. The resource-based theory of competitive advantage: implications For strategy formulation. California Management Review, 33 (5), pp. 114-35.
This part of the project deals with the formulation of a business strategy that would drive ConocoPhillips’ next strategic investments in Alaska. The approach relies on the interpretation of the company’s mission and vision, in addition to the use of internal and external business analysis tools as summaries in the company strategy summation in the next section.
The plan analyses the potential of the company to triumph in particular circumstances, which leads to the recommendation of an appropriate generic, competitive business strategy that will serve ConocoPhillips’s growth and development intentions.
Business Strategy Summation
Analysis
External Analysis
Internal Analysis
Analytical Framework
PESTLE
Porter’s Five Forces
VRIO Framework
The Balanced Scorecard
Current Business Strategy
Differentiation
Differentiation
Proposed Business Strategy
Differentiation
Differentiation
Reasoning
The nature of business makes it easy for competitors to provide similar products.
Companies have limited ability to affect retail prices of oil and gas, but they can affect the cost of delivery through internal processes.
Integration within the supply chain allows companies to limit exposure to market forces
A strong brand is key to business partnership and long-term deal making
The market is growing and will support investment in efficient production and distribution of oil and gas by any player in the industry.
Wells that perform well give firms a sustainable revenue source, which makes well development a key resource.
Analysis
The VRIO framework analysis of the business revealed that it sustains its competitiveness by tapping into its global network of partners and clients. It also uses its global capacities in oil drilling and exploration industry to drive up its expertise in the Alaska region.
The company is also relying on its partnership with the local business community and commitment to the support of job creation in its projects to be in good terms with the Alaska government interests. In addition, the investments in technology and purchase of licensing resources have ensured that ConocoPhillips Alaska can sustain its operations.
It happens amid the threats posed by new entrants and increased competition from the existing players in the oil and gas market in Alaska (Brehmer, 2014). The performance of the wells drilled by ConocoPhillips Alaska has been a critical source of competitive advantage for the company.
It is due to investment in management and research and development, as well as technology and financial partnerships with its parent company (Brehmer, 2014). The research-centered investments contribute to ConocoPhillips’ brand reputation and builds on its experience. This makes many partner organizations commit to long-term projects with ConocoPhillips Alaska.
ConocoPhillips Alaska is keen on using the tax credits provided by the government as a tool for mitigating high corporate taxes. However, a reduction in the benefits enjoyed by ConocoPhillips will likely hurt the cost of doing business, especially on employee compensation. Eventually, it can erode the company’s ability to retain critical talent for its Alaska projects.
Another important external factor to consider is the small population of Alaska, which is unlikely to drive local demand for gas. It forces ConocoPhillips to concentrate more on the export market (Caldwell, 2013). The company has been strategic with its investment in pipelines and other technologies to ensure that it can take advantage of any trade agreements that the United States or Alaska has with the external markets, which allow the export of oil and gas.
The company relies on its financial muscle and investment in technology to deal with the threat of competitive rivalry. Being financially secure allows the company to respond to the developments of its rivals in a way that allows it to sustain its market leadership position.
However, the need to invest in a project for long periods before they become competitive exposes the company to sunken costs when it makes wrong bets on an investment opportunity in Alaska (Cama, 2014). In this regard, the business has to consider being skeptical with many possibilities. Any delay in making a decision also poses a threat to its profitability, as other companies can take advantage and gain a foothold in the Alaska oil and gas investment sector.
Nevertheless, the use of licensure has ensured that ConocoPhillips still maintains a competitive edge by holding production licenses as assets, even before making commitments to invest in the exploration of specific geographical areas (Irwin, 2013). The business has also been embracing environmentally safe strategies that ensure it retains a cordial relationship with various environmental stakeholders that have the potential to stop its investments and cause it to suffer losses due to incompleteness.
It is evident that the company would be well protected against all the threats in its external environment by going for a product differentiation strategy. The conclusion is based on the concerns outlined in the internal and external analysis using Porter’s five forces analysis and PESTLE analysis.
While the product made by the players in the industry is identical, there are important differentiation strategies that can help ConocoPhillips Alaska retain its leadership position in the business in Alaska. Part of that differentiation would be to concentrate on developing long-term development commitments with the local population and government.
It would ensure that the company does not succumb to the threats posed by changes in the ordinary competitive environment. As the case of tax benefits shows, relationships with relevant stakeholders have the potential to give ConocoPhillips the opportunity to bypass other business hurdles that can affect its competitors.
Besides, the relationship helps minimize the threats posed by buyers and sellers in the external environment of ConocoPhillips Alaska (ConocoPhillips, 2015). The opportunities for being a cost leader for ConocoPhillips are gaunt compared to the differentiation strategy. The commitments made by companies in the oil and gas industry in Alaska require assurances of future abilities for investments to have positive returns.
Going for a low-cost alternative will cause the business to limit its profit margin and expose itself to some threats affecting it externally. A narrow profit margin is also not sustainable because the oil and gas sector in Alaska does not allow easy scaling of a business. Therefore, pursuing such a strategy will cause the company to incur losses in the medium term when the projects only have a long-term perspective on their return on investment.
On the other hand, a big brand name and the current development in Alaska push the company towards differentiation. Its size, commitment to the state, and the ability to sustain attractive employment terms for Alaska residents remain its attractive core features for the Alaska government and business opportunity (DeMarban, 2015).
Also, the company’s chief weakness is in its nature of the enterprise, which exposes it to many pollution accusations. Unless the business comes up with policies, technologies, and operations that are cleaner for the environment, it will continue to face difficulties in justifying its investments.
In this regard, differentiation is the way to go as it allows the company the freedom to explore technologies, different work arrangements, and partnerships in its investments with other organizations that have the capabilities of handling its green investment and project sustainability concerns.
ConocoPhillips Timepieces
ConocoPhillips Alaska is moving to become differentiated from other oil and gas companies in Alaska. While its traditional competitors are still seeking deals, going for exploration, and drilling as different segments of the business, ConocoPhillips Alaska has increased its integration in the supply chain. It has obtained a distribution channel, ready with its pipeline investment.
The company is looking at developing sufficient export capacity for oil and gas. Also, the company is relying on technology to make cost savings in the transportation of petroleum. ConocoPhillips Alaska has been negotiating with the state and national agencies so that it can conduct business in the National Petroleum Reserve – Alaska.
Despite many regulatory hurdles, the company will finally be able to proceed with investments after meeting the many conditions set up by the relevant stakeholders (Dlouhy, 2014). It is another move towards differentiation, given the kind of deals that the company is concentrating on in the Alaska market and its approach to meeting its objective of becoming a leading player in the development of the oil and gas industry in Alaska.
Figure 1: An illustration showing the potential strategic paths for ConocoPhillips Alaska.
ConocoPhillips Alaska cannot go for focused differentiation because of the uncertainty of its investments. The business incurs significant risks in every project, with its exposure to the external environment conditions, such as prices of oil and gas globally and demand being the major influencers of success.
Therefore, the company has to keep several diversified projects at hand to cope with any upheavals in its market. It has embraced a directive by the Alaska government to consider exporting gas (Caldwell, 2013). The increased demand for sustainable extraction of non-renewable fuel resources will continue to affect the capabilities of the company in the future as its biggest threat.
However, ConocoPhillips Alaska is in a favorable position compared to its peers. It can get sustainable returns from its drilled wells that perform well. The company is also using technology and business partnerships to manage its risks. Also, it does not have a current project that places it in a non-sustainable possible, which would affect the success of other current or planned projects (Koroknowski, 2013).
The attractive tax regime that oil and gas companies have in Alaska can end, as the government is not seeing immediate gains in employment and other expected developments. ConocoPhillips Alaska and other players have to consider finding other ways that will enable them to continue earning the same margins for their investment, even when the tax subsidies by the Alaska government end.
In this regard, the company should be going on with its research and developments. It should find ways to bring in new technologies that can help it cut significant recurrent expenditures in the process of drilling and managing wells.
Conclusion
In the end, differentiation is the best strategy for ConocoPhillips Alaska to pursue as it currently does. The market is becoming competitive as the current rivals continue to explore different integration ways for their investments. On the other hand, the strengths, competitive advantages, and external environment for ConocoPhillips Alaska points towards greater success when using a differentiation strategy.
The focus for the company should be on increasing efficiencies in the current projects and finding internal market and export supply deals that will sustain its profitability.
References
Brehmer, E. (2014). ConocoPhillips targeting 62,000 new barrels by 2017. Alaska Journal of Commerce (5). Web.
The Clipboard tablet Co. has been selling three tablet models namely: X5, X6 and X7 for the past 5 years. The company’s organizational analysis through the use of CVP analysis shows the development of certain strategies aimed at making the company competitive.
As the company moves into the future, there is a need to review strategies deployed in the past to move the company into the future. As a result, this report intends to analyze past strategies used in time warp 4 and 5 to come up with a conclusive strategy for the future.
Analysis
Clipboard Tablet Co., in the year 2016, will have two models of tablets for sale in the market. This is because the company will have to come up with a new tablet model, which will most likely be the X8. This tablet model will aim at replacing the X5 and X6 models which will be phased out because of changing market dynamics. Based on the past CVP analysis and strategies deployed within time warp 3, we notice certain aspects of the company that will be greatly affected and reviewed as follows:
Product Development
In the process of undertaking CVP analysis under time warp 3, we notice that sales units of X5 and X6 phones were on the decline since the year 2012. These tablet models were performing dismally compared to the newly introduced tablet model of X7. The CVP analysis results indicated that the sales and popularity of the X5 and X6 models were declining and thus there was a need for development of a new tablet model.
Finances and resources used in the development of the old X5 and X6 models would be channelled into the development of new products. This is because the popularity and demand of the old models have been sluggish. For instance, in SLP 3 during the CVP analysis, we notice that the demand for X6 tablet dropped by 50% from the year 2013 to 2014 (Drury, 2011).
As a result, the company should develop a new clone model or a new tablet in order to recover sales lost through the dwindling sales of the X5 and X6 models. The tablet industry is a highly competitive and technological industry and therefore, trends do change swiftly and easily.
As a result, Clipboard tablet Co. needs to change its product line swiftly to meet with the changes occurring in the industry (Stice, 2010). Product development should be a priority in this industry and the company needs to come up with the new tablets to replace its ageing product line.
Revenues
Under SLP 4, the Clipboard Tablet Co.’s major strategy was to increase revenues in order to meet market demand and organizational goals. In terms of revenue increase, the company was advised to reduce expenditure and costs on X5 and X6 models, so as to price the tablets at a lower cost for consumers to purchase it.
Moreover, additional costs and finances should be dedicated to the marketing and sale of the X7 model so that the tablet can contribute significantly to the revenues of the company. Coming up with different pricing models will ensure that the company gets the best price for its tablets. For instance, due to increased demand, the company should increase the sale price for its X7 model and lower the prices for its ageing models of X5 and X6 tablets.
It is imperative that the company is shielded from unnecessary losses that occur due to loss making products (Cafferky, 2010). As a result, the company should cut down on its costs and increase costs only when revenue increases. Under SLP3, we noticed that the company’s revenue were declining at a fast pace compared to expenditure of the company. As a result, the company needs to undertake a lot of cost cutting measures.
For instance, in the year 2012, the company had expenditures to the tune of $ 546mn while revenues were $ 1.32bn. The same trend was witnessed in 2013, when the company spent around $ 664mn while the revenues of the company stood at $ 1.32bn.
Finances
The Company spent a lot of money on the development and production of the three tablets. For instance, in the year 2012, the company spent over $ 700mn as operational costs. The profits for 2012 stood at over $ 400mn and this figure did not change drastically in the year 2013 as profits stood at $ 356mn. The R&D expenditure for the company has remained unchanged in the last 4 years standing at $ 22mn per annum, despite the decrease in sales.
The CVP looks into the cost of financing the production of certain specified units of tablets. In this case, we witness that the cost of producing one unit of X5 tablet increased from $ 98.36 in 2012 to $ 145 in the year 2015. While in the case of X6, the costs increased from $ 194.6 to $ 260 by the end of 2015.
This was not the same case for the X7 tablet which maintained a cost of $ 60 for the production of X7 tablet in the years 2014 and 2015. In terms of financing production, the company’s expenditure increased while volume of sales dropped (Drury, 2011). The exception happened in the year 2013 when the unit cost of producing X6 tablet rose to $ 196.4 while the units sold also increased by around 9%.
Recommendations
Making use of both the SLP3 and SLP 4, we come up with an integrated strategy that could be used by the company in gaining competitive advantage. In the SLP 3 the main emphasis of the analysis was on the company’s performance in terms of profit and loss, product development and performance. While in the SLP 4 we make use of CVP analysis to come up with an optimum way of maintaining and increasing sales based on the expenditure and the product line.
However, in both strategies, we notice that the issue of cost has been emphasized and this makes it easy for the company to narrow down on the main issues that needs to be addressed by the company. From the year 2012 to 2015, the cost of producing one unit of either X6 or X6 tablet increased by 50% and 33% respectively. However, the volumes of production of the same tablets have been on the decline due to low demand and ageing product line (Cafferky, 2010).
As a result, the company needs to reduce its cost of production so as to save the company a lot of millions. In case the strategy of decreasing production costs does not work for the company, it will be prudent for the company to halt production on the X5 and X6 tablet models. Alternatively, the company could reduce the sale prices for its tablet brands as a means of spurring growth in revenue and sales.
When we look at the performance of the company, the Clipboard Company has been faced with declining product sales and losses from its sales in the year 2014 and 2015. The decline in sales should have been countered with new products being introduced into the market such as improved versions of the X5 and X6 tablets. The CVP analysis uncovered the problem of increased expenditure even though sales volumes were not enough to get to the break-even point.
As a result, there is a need to streamline production and introduce new tablets in the market that will ensure the company stays competitive in the market (Kinney, 2012). Outsourcing production or contract manufacturing would be one of the best strategies that the company could adopt. Through use of this model, the company will outsource tablet manufacturing to companies while the company undertakes sales and marketing.
This would ensure a fixed price and levels of production which could end up saving the company lots of money. For instance, through this model, the company would have suspended production of X5 and X6 tablets in the year 2015 (Stice, 2010).
As a result, the company would have been able to save around $ 280 million and other indirect costs related to X5 and X6 tablets production. Poor sales of the X5 and X6 tablets are also hurting the Clipboard brand since it means the company cannot use the success of these tablets to spur growth within its tablet range.
References
Cafferky, M., & Wentworth J. (2010). Breakeven Analysis: The Definitive Guide to Cost-Volume-Profit Analysis in Business. London: McGraw Hill Publishing.
Drury, C. (2011). Management and Cost Accounting. Boston, MA: Routledge.
Kinney, M., & Raiborn, C. (2012). Cost Accounting: Foundations and Evolutions, 9th ed.: Foundations. Chicago, IL: John Wiley and Sons.
Stice, J., & Swain, M. (2010). Accounting: Concepts and Applications: Concepts and Applications. New York, NY: Lippincott Williams & Wilkins.
Technological advancement has turned the world into one big village. Means of communication are so advanced such that it is not just possible to pass a message to a person thousands of miles away but also to hold meetings on a one to one basis with colleagues and partners when your physical locations are worlds apart. Business has never been this easy; global market has become like a local market place if not easier to access.
At the click of a mouse button you have stuff delivered to your doorstep hustle free; no long queues in the bank, no bounced checks, no loads of cash in the pocket just credit or debit card or easier still an email address and you are set to go. However, every good thing comes at a cost; the cost of this comfort and convenience is the willingness to sacrifice the old business culture that we are used to and learn to adopt the new culture.
In order to do this a lot of changes have to be made in the organizational setting and the way we run our day to day businesses. Organizations need to create room to accommodate the changes and this normally comes with restructuring and redefining duties. This does not sound scary does it?
Trouble comes when the change involves automation of the business systems; everyone is scared of being laid off when the management decides that his services are no longer needed as a single computer with one operator can do what he and a number of his colleagues were doing and do it more efficiently and accurately.
This together with other factors that will be discussed later bring about a lot of resistance from employees and Universal Agencies, a property management company is in such a situation where change is inevitable but getting the employees to accept is another problem altogether.
Problem Background
Universal Agencies has been in the Property Management business for many years. Having been started at a time when the industry was unexploited the firm commands a large customer and employee base. Recently, due to the growing competition and the tough economic times the firm has seen a reduction in its profits and the management has to devise ways to earn more profits. As part of the strategic plan, the firm is introducing fleet management into its business.
There are also plans to go international as part of the expansion process. However the localized management and running of business may no longer be applicable when the firm ventures into the global market. The business process needs to be automated to ease communication and monitoring. Most of the employees at Universal Agencies have been with the company since its inception and they have mastered their jobs far too well.
Also, they are accustomed to the working environment and culture that is practiced at the workplace. System automation may bring in lots of challenges to the employees who are used to the manual system which has been in use over the years. They mutual relationships that have been established are hard to break and the management understands this far too well, but again this change is for the good of all the players in the scene.
The employees are not aware of the proposed change but the management expects a lot of resistance from the employees. The question is how to effectively communicate the intentions, justify the change and manage the inevitable resistance that is anticipated. One of the senior managers came to seek my opinion as an organizational consultant on the way to go about it.
To achieve this I need to carry out a research on what the employees would expect if a change was to be implemented, the benefits and the challenges that are expected to come with the change.
Would they readily accept it? Why or Why not? Also I need to collect data on what the managers feel is most challenging in implementing the change and the reasons as to why they expect the employees to resist the change. With the research findings I will then analyze the situation in the context of the merits and demerits and come up with a viable solution.
Literature Review
According to Lewin’s force field analysis model there are three steps in the process of change. These are; unfreezing, changing, and refreezing. Lewin further states that all systems possess driving and restraining forces. During a change process the first stage produces an imbalance between these forces. This disequilibrium can be characterized by employees resistance to the change. Once the change has taken place, refreezing comes into play.
This is the process of consolidating the business process once again but this time in the new setting. By the end of this process everyone will have settled in their new positions and fit into the new system and business is back to normal. Organizational change may take place fast, like in these days, you are never sure when the next change will occur. The competition is growing at a pace that is so fast that organizations find it hard to keep up.
However, if you want to remain in business you have to device ways and mean of being able to change as swiftly as need may arise. After all, no matter the pace at which change occurs , it is still the movement from the present state towards a desired future state in efforts to increase efficiency and effectiveness, (Cummings and Worley, 2005; George and Jones, 2002). Although many changes have this common goal, the forces that trigger change are different.
Change of management, expansions by mergers and acquisitions, restructuring and reorganization are some forces that call for change in structure, strategy and culture as well as the processes, (Kieffer, 2005).Acts of terrorism leave people questioning their safety and examine their vulnerability closely, (Johnson 2002) and this is another driving force of change.
Change comes with many crises resulting from denial and dissatisfaction. These bring about a lot of resistance from the employees and this is the time when leadership skills come into play. The managers should lead by example (Bandura, 1986; Miller and Dollard, 1941) and communicate properly and effectively to make the employees understand what to expect and what is expected of them.
Introduction
As we all know, change is the only thing that is constant. Organizations in general change their business strategies and organizational structures in an effort to maximize the profits and cut down cost. However in many cases this is met with a lot of resistance from the employees. However with proper planning, change management techniques and communication, the process will turn out to be a smooth transition.
It is very difficult for a human being to let go of a culture that he has upheld for years and take up something else that is completely new. This forms the basis of change resistance in organizations. The fear of the unknown, the new organizational system and breaking of routines are some of the reasons why people resist change.
In the context of change management it is important to look at the benefits and shortcomings that are anticipated as a result of the proposed change. It is also important to look at the challenges faced by both the management and the employees during change over; and finally how can these be dealt with to ensure satisfaction and willful participation by all?
Problem Statement
This research paper tries to find the reasons as to why the employees of Universal Agencies are so opposed to the change in business strategy. Also after finding the problem(s) a practical solution or alternative course of action will be recommended.
Project scope
This study will cover change as a process
The challenges faced by the management and the employees.
The most viable and sustainable solutions to these problems
Methodology
Data for this study will be collected by informal interviews on a section of the managers and employees. The information will then be analyzed to determine the root cause of this problem. After data collection the results will be discussed and solutions formulated.
Results and Discussion
Change can be planned or unplanned. Planned change occurs when the management deliberately chooses to modify the organization. Unplanned change occurs when an organization is forced to alter its course of action by factors beyond its control. Such factors may include natural disasters, government impositions and the like. Changes that are as a result of fluctuations in the economy fall in this class.
The case for Universal Agencies was unforeseen; it has come as a part of the management’s effort to save the company from failure. In such a case swift flexibility and decision making are critical. Technological advancement, workforce diversity, and globalization are some of the external factors that necessitate change.
Reduction in profits, organizational crisis, new employee expectations and changes in the working climate are some of the internal forces that stimulate change. Every organizational change regardless of its type or cause is a part of the efforts to increase profitability while enhancing efficiency,
and is met with lots of negative reactions from employees. This resistance comes as a result of different factors as discussed in the following bullet points;
Uncertainty that comes about as a result of change may inflict a sense of fear in the employees. This feeling known as the fear of the unknown is a key factor that leads to the rebellious attitude from employees when a change is proposed. Normally people are more comfortable in environments that they are used to. It is no different when it comes to the organizational setting.
Employees would rather stick to the old culture at their workplaces than to have to adapt to new ways that come with such changes. Effective communication about the anticipated change is very important when it comes to reducing such resistance. The employees need to be made to understand why the change is important, the benefits that come with it and also whatever other impact that may be experienced as a result of its adoption.
The fear of loosing is another cause of resistance. Some employees fear loosing their jobs for instance when an advanced technology is about to be implemented a number of employees may fear replaced by machines.
The esteem and autonomy that comes with certain positions at work may be eroded by introducing new technologies to the job. IT experts for example enjoy the benefit of expertise in computing systems which makes them have the feeling of being in control. An easier to use interactive computer system may not be welcome by this group of employees.
Nobody wants to fail and this fear translates to some form of resistance; it comes as a result of employees doubts to succeed in the new setting. Many are not sure that they are capable of working desirably in the new environment and producing positive results as expected like they are performing in the old system. Another form of fear of failure may present itself when the employees have doubts concerning the anticipated change; they are not sure if it will be or not. This fear makes an employee to opt for the no-change option.
When people work together, they enjoy well-founded interpersonal relationships. These are disrupted by introduction of changes. For example system automation limits the one-to-one discussions concerning some issues or the movement from one desk to another or office to office in search of files or other materials. All these are accomplished at the click of a button. Discussions are either done through chat messages, electronic mails or over the phone while files are just retrieved from databases from wherever you are.
The personality of the change agent is a key influencing factor when it comes to resisting change. A friendly agent with a sense of listening and consideration of employees concerns will meet less resistance as compared to an insensitive agent.
When it comes to leadership, individuals who hold power positions in the current setting may feel threatened by the proposal. This may also attract resistance.
If the impeding change is based on an un-indigenous culture it is most likely to be resisted. People in different countries or regions hold on to particular cultural values; these values reflect in the way business is carried out and it heavily influences organizational culture. If a proposed change comes with a culture that is clearly distinct from the usual, then it will most likely be rejected.
Many of the employees who I interviewed broadly agreed that it would not be easy to accept a change especially if it comes with system automation. The major reason was that they feared loosing their jobs as most of the work would be taken over by machines. Another reason was the ambiguity that would be brought about by unfamiliarity of the new system. They felt that their performance would be greatly affected before they adapt to the changes.
They agreed that by venturing into the global market, the company is likely to be more profitable and most of them said that they would support that only if it did not interfere with their day to day running of their jobs. When asked if they would back the idea of introducing a new line of business, a majority had no problem reason being it would not affect them. The response from almost all interviewees was “I wouldn’t mind, after all it doesn’t affect me in any way”.
About the benefits that they would expect if such a system were to be implemented, they did not seem so sure but one thing that was common to all was a better pay. From the managers’ point of view, the most challenging issue is getting the employees to agree to support the change willingly not by coercion and also they feared the adaptation process as well since they were also used to the old system. The restructuring that would come with the new system may have them shift positions, which was quite overwhelming.
They expected the employees to resist the proposed expansion; and when I wanted to know why, the majority felt that if they in management were a bit scared of what to expect, when they fully understand the benefits of such a process, how about the employees? Weren’t they justified to be more scared? After closely analyzing these outcomes, I came to a conclusion that, what was lacking at Universal Agencies was effective communication.
This however does not guarantee 0% resistance but a significant reduction in the amount of resistive forces making it easier to handle. The management of the inevitable resistance that may arise calls out for the leaders to be equipped with excellent change management skills and a positive attitude to lead by example.
Management of resistance to change
Resistance to change should not only be viewed from the negative perspective; looking at it as an obstacle, but also as an opportunity to receive feedback. This feedback is an invaluable tool when it comes to managing the transition. Pre-planning for the anticipated resistance is one critical factor.
When something is expected, it is well received because the recipient was well prepared to receive it. This implies that, anticipated resistance to change is easily manageable, since the management would be well equipped with all that is needed to handle it. The proposed change should be well communicated to the employees before its inception. They should be made to understand what necessitates the change and what benefits will come with the change, (Kotter, 1998; McShane & Glinow, 2009)).
Also it is very important to discuss the possible challenges that may arise during the transition process and the means to overcome hem in the event that they arise. Another very important aspect is educating the workers on the new procedures that will be used after the modification, (Buchel, 1996).
As the saying goes, ‘knowledge is power’, once the employees are equipped with knowledge on how to go about new procedures, they are in a better position to accommodate the change. Training sessions that include practical lessons where applicable should be held prior to implementation. The empowerment that comes with knowledge acquisition helps eliminate the fear of failure.
Another tactic is involving the employees actively in the change process. If they are part of it, they own it and will definitely support it. They should be mobilized to come out in support of the change by holding free-form open-ended meetings as these will bring a large group of people together.
Employees need to be given support and help them find coping strategies to help manage the stress that comes with change. Some employees may find themselves on the loosing end when changes are made. There needs to be trade offs in such cases and these should be negotiated with the employees affected.
Another approach to change management is action-research. It is an open-systems approach that combines changing attitudes and behavior with testing theory. The process is problem oriented but is based on data. It works by change diagnosis, then introduction of an intervention and evaluation and stabilization of the desired change, (McShane & Glinow, 2009).
The idea of problem solving is what change is wrongly associated with. Appreciative inquiry tries to break this mentality and focuses participants on the positive and achievable thus appreciating the positive organizational behavior philosophy.
Parallel learning structures, is another approach to organizational change. It depends on social structures developed alongside the formal hierarchy with the intention of increasing the organization’s learning. They are highly participative arrangements, made up of people from most levels of the organization, who follow the action research model to produce meaningful organizational change.
Much of the resistance faced during a change process is as a result of emotional factors associated with change. There are four emotional phases in a change process. The first is Denial, where the employees find it hard to believe that things will be done differently. The second stage is resistance which is an outcome of denial. If something is not accepted, then it will be rejected.
The third stage is exploration which comes after the change resistance has failed to stop the change from taking place. Individuals scrutinize their new roles and in this stage all issues that crop up from the change are resolved. Finally we have employees commit to the change. It may not have been in their best of interest but since it happened they had to accept it. But, surprisingly, once it is done and learned, many will start to enjoy it and even prefer the new system to the old one.
Conclusion and Recommendations
Organizational change, for whatever reason is a very challenging process not only to the employees but also to the management. However, employees are worst hit and they view it as a threat to their job security and this is what brings about the resistance that is experienced. Effective communication should be the first consideration whenever there is a change underway.
Having collected and analyzed the findings it is evident that the employees will definitely resist the proposed changes due to some of the factors mentioned earlier. The key contributing factor is the fear of the unknown and the fear of loss. As we have seen effective communication goes a long way in alleviating these fears.
As one of the recommendations, I suggest that the management should organize sessions in which the process of change and its impacts are discussed openly in an open forum with the employees. They should let the subordinates air their views and interpretations of the new system as well as what they expect from it; the challenges and benefits. This will form a ground for the discussion.
As a second recommendation, training sessions should be held preferably at departmental levels. This will help focus on the changes that will affect the operations of the department in particular, hence understand them better. The employees need to be trained on the new work procedures and the use of the automated system that is about to be installed, (Burke, and Bill, 1996)
References
Bandura A. (1986). Social Foundations of Thought and Action: A Social Cognitive Theory. Englewood Cliffs, NJ: Prentice Hall.
Buchel, M. (1996). Accelerating Change, Training & Development.
Burke, W, and Bill, T. (1996). Traveling Through Transitions, Training & Development
Cummings, T. and Worley, C. (2005). Organization Development and Change. United States: Thomson/South-Western.
George, J.M. and Jones, G.R. (2002), Understanding and Managing Organizational Behavior. Upper Saddle River, NJ: Prentice Hall.
Johnson, J. (2002),.11th September, 2001: Will It Make a Difference to the Global Anti-Money Laundering Movement? Journal of Money Laundering Control, Vol.6, No.1, Summer 2002, p.9.
Kieffer, T. (2005). Feeling Bad: Antecedents and Consequences of Negative Emotions In Ongoing Change, Journal of Organizational Behavior, Vol.26, pp.875-897.
Kotter, J.P. (1998). The Leadership Factor, New York: The Free Press.
Corporate social responsibility is one of the modern tools used by corporations to promote their inimitable characteristics and brand name. As a result, the firm’s sales, customer dependability, and profitability are improved. In addition, CSR has been applied in the human resources management as well as in enhancing business operations (Cavett-Goodwin, 2007).
Thus, CSR as a management tool remains to be a crucial tool that corporations use to enhance their competencies. The increased capabilities will ensure sustained growth in terms of profitability as well as value creation. This research report critically examines business strategies particularly, CSR and how it influences value creation.
Besides, the paper ascertains whether Banyan Tree’s CSR initiatives, which are part of its global expansion strategy, will be helpful in value creation as well as profit maximization.
Banyan Tree Hotels’ entry mode strategies
Based on study literature, firms seeking to enter into the foreign market should choose the most suitable entry mode for that particular market. International expansion requires firms to make critical decisions pertaining to entry mode strategies (Anders, 2008). The reason is that the verdicts on the selections of the entrance approach have enduring repercussions on businesses like Banyan tree that yearn to globalize operations.
In other words, entry mode strategies in most cases are huge, irreversible and affect the firm’s performance in the end (Root, 1994). For services, business entities such as Banyan tree hotels have assorted preferences on the entrance approach plans to pick from for instance licensing, turnkey ventures, chartering, mutual speculation, and utterly held auxiliaries.
Nonetheless, the entrance approaches into fresh souks are subjected to countless dynamics including the domestic and peripheral factors. In fact, such imperative dynamics are habitually unusual in all business aspects. Moreover, the level of influence each factor has also depended on the country the firm targets (Root, 1994).
Therefore, managers should critically analyze these factors and come up with the most suitable entry mode strategy that will ensure maximum benefit to the firm. For services enterprises such as Banyan tree resorts, the expansion strategies into the international market should be low risk. As Root (1994) indicated, involvement into the foreign markets comes with increased risks. Therefore companies particularly services firms should consider low risk entry modes in order to survive.
Franchising
Banyan tree hotels can utilize the business knowledge of other resorts acting as a franchisee in host countries to expand the company’s business activities. Banyan tree hotels and resorts provide capital, technical skills, and business expertise. The firm can use this mode in countries where there is uncertainty in political and economic conditions (Chen & Mujtaba, 2007).
The uncertainty in the foreign markets makes this mode of entry more suitable for hotels and resorts. The major advantage of this mode is that the company does not need to bear the costs and risks related to development and entry into the new market (Chen & Mujtaba, 2007). The cutback in overheads and threats allied to charters enlarges the corporation’s efficacy in searching for the fresh bazaars.
However, the corporations hardly have any power over the trade dealings mostly where the bylaws call for the businesses to observe the eminence ideals. Moreover, in the circumstances that the franchisee does not strictly obey the agreed rules and regulations, the firm can easily collapse.
Joint ventures
This is the most commonly used entry mode by firms including hotels and resorts all over the world (Blomstermo et al., 2006). The entry mode requires that the Banyan tree hotels and resorts form an alliance with similar firm in the foreign country in order to attain the greater position in the market. In most cases, the joint venture involves equal share of costs and benefits (Arregle et al., 2006).
Nevertheless, the businesses functions of corporations are regularly detached bar the supervisory tasks are analogous and mutual by each corporation. In order to achieve stringent direction and have superior allocation entitlements, Banyan Tree must devote additional finance to the mutual schemes.
The advantage with this entry mode is that risks and costs are shared (Aulakh & Kotabe, 1997). In addition, Banyan tree hotels would gain market knowledge from the joint venture firm as well as explore the foreign market with the help of the other firm with political and economic issues put into consideration.
With little regard to the conflicts that might arise from the joint venture, Banyan tree can easily take advantage of the local firm’s capability of influencing the local government to allow the company to enter, establish, and dominate global markets.
Utterly held auxiliaries
From Arregle et al., (2006) report, these subsidiaries imply that Banyan Tree will have to cuddle a hundred percent allotment of the far-off units. For the firm to own a subsidiary, Banyan must establish a new entity with full operations into this market or fully acquire an existing firm (Arregle et al., 2006). The acquired firm must be well built within the industry.
Banyan tree stand to gain a lot from this mode as the company can easily promote the products and services. The reason is that the firm has tight control over business operations because of full ownership. In addition, compared with other modes, the firm can make and easily implement the own strategic plans and does not risk losing the competitive advantage as well as technical skills to other firms.
Apart from full control and reduced risks, the firm also enjoys full benefits of internationalization. However, there are increased costs associated with this mode of entry (Arregle et al., 2006). Compared with all other modes, fully owned subsidiary is the best entry mode for banyan hotels and resorts. This entry mode is in line with the company goals and ambition particularly as concerned with the conservation of the environment.
As indicated, the fully owned subsidiaries in the international markets will make the firm have control of enshrined competencies, pro-environment initiatives that forms the core of the business strategies. This mode of entry is in line with the expansion strategies of doubling resorts and spa worldwide. In addition, the strategy increases Banyan’s geographical diversity while reducing both political and economic risks associated with this expansion.
Cultural Influences on Management’s Decisions
Doing business in a different culture particularly using the fully owned subsidiaries could be challenging to the firms expanding into the foreign markets. The diversity and variety of the foreign business practice or country culture is always an important issue for firms considering operating in foreign markets (Hofstede, 1980).
As the company plans to double the resorts, worldwide cultural diversity is a critical consideration in the management decisions. The reason is that the company resorts will be operating in diverse cultures and environments hence must be in a position to understand the significance of cultural diversity in the realization of the business goals and objectives.
Merging cultural diversity and environmental sustainability is key aspect of the firm’s social responsibility. Most important is how the culture in which the firm operates keeps and sustains environment, which is Banyan’s core corporate social responsibility. In essence, understanding cross-cultural issues is very important in the realization of the firm’s goals (Belin & Pham, 2007).
For instance, the manager of the firm should understand that the host country local employees require different organization structure as well as human resource management policies and procedures. In this case, however, where acquisitions of fully owned subsidiaries are recommended, attaining the expected synergies will depend on well-established structures that will encompass both cultures in a more balanced manner.
In other words, operating in foreign countries needs cultural compromise. Therefore, for the firm to sell the products and services to foreign customers, Banyan needs cultural sensitivity and adaptations concerning the products and services, marketing strategies, and operations (Brouthers, 2002).
The firm will also tend to have diverse organizational as well as decision-making practices according to the way Banyan has evolved and what kind of cultures and subcultures the company intends to encompass (Hofstede, 1980). This consideration will enable the firm to succeed in the expansion strategies particularly on attaining corporate social responsibilities initiatives.
Furthermore, for the firm to build successful partnerships, alliances and to be successful through this entry mode strategy, the managers must understand the organizational differences that exist (Belin & Pham, 2007). This will include all elements of the corporate strategies from the structures of decision-making, systems, and labor management relationships to the individual employee’s behaviors and attitudes particularly towards work.
Banyan tree management must consider the fact that culture influences the preferences and behaviors of the clients. For Banyan to sell successfully in the foreign country, the company needs to adapt these services and products to meet the cultural needs of the diverse group of clients.
Further, the company should not forget to put into consideration the core competency aligned to the corporate social responsibility (Hofstede, 1983). The corporate social responsibility strategies should be incorporated in the marketing, services and product features. These should also be partly guided by the cultural differences.
Analysis of CSR as a business strategy and the impact on profit maximization
Corporate social responsibility in any organization emerges to be amongst the topics, which consistently hit the corporate headlines in the modern competitive industrial world. In fact, the symbiotic correlation amid trade and humanity gives rise to the approval of CSR strategies adopted by every accomplice in the fiscal world.
Studies show that ample confirmations exists depicting that consumerist actions implemented by Banyan Tree Hotel and Resort could possibly endure market competition when there is sustenance and approval from societal members.
Besides, the marketplace triumph determinants for the company shareholders and communal approaches appear to be manipulated by various collective requests that have intimate correlations with such aspects (Warwick, 2008). In fact, factors having direct impacts on the hotel and resort souks that is, societal, ecological and money matters depict the vital pose of the main shareholders in the strategic CSR plans deadlock.
CSR strategies incorporate the organizational invariable compulsion to operate honorably in order to persistently advance cost-effectively whilst enhancing the welfare of various Banyan staffs, relatives and the surrounding communities. McWilliams et al. (2005) suggested that corporations ought to assume philanthropic initiatives found in the neighborhood where such organizations carrying out their business to be triumphant and lucrative.
Further imperative commitments that uphold Banyan Tree Hotel and Resort CSR strategies incorporate profitable, legitimate, and ethical liabilities (Eliza & Pauline, 2003). The useful errands in line with the corporate social responsibility strategies incorporate the ecological concerns that have connections with the natural ambiance, financial, and public matters that will ultimately head for the progress of the neighborhood and the administration.
Via approving a range of corporate social responsibility projects, Banyan Tree Hotel and Resort might influence the varying civic outlook, corporation icon, industrial assets, and permissible rules. To remain competitive and profitable in the current highly competitive market, companies must initiate and implement appropriate corporate social responsibility.
Many scholars have argued that the relationship the business has with its stakeholders depend on its output in all aspects whether social or economical. in addition, decisions normally being made by various stakeholders are majorly being influenced by CSR programs initiated by the company and how such programs contributes to the well being of the society (The Economist, 2005).
According to Warwick (2008), CSR remains to be critical ethical obligations in all aspects the societies expect in any business organization. CSR practices mirrors the relationship the corporation has with the societies. Further, better CSR practices enables the company to succeed in the global competitive market. In other words, good CSR practices enhance the firm’s globalized activities.
Firms have realized that CSR remains critical to their growth and sustainability. International corporations such as Banyan Tree Hotel and Resort have realized that they can only sustain substantial growth through the provision of morally oriented services. In other words, all its operations must be based on ethical considerations as well as initiatives that are beneficial to the society.
Regardless of the resources needed to attain such initiatives, corporations’ must thrive to put in place practices that satisfy all its stakeholders including clients and shareholders. In addition, CSR activities must be geared towards enhancing the company reputation, brand image and competitive advantage (Ethical Corporation magazine, 2005).
CSR provides a framework through which companies build their reputation and image. The reason is that most of the consumers will tend to identify themselves with such companies. Better ethical practices will enable the firm integrate good cultural values that will ensure increased and sustained customer growth and alignment to the company products.
Moreover, good reputation built on moral values will enable the firm recruit and retain quality employees that are critical in the development of the company products and services (Ludescher, 2009). Banyan Tree Hotel and Resort can only create products and services that are competitive in the market only if it adopts CSR practices that are acceptable to all stakeholders.
CSR practices that are environment oriented will enable the firm become a market leader in the industry. The reason is that such practices are acceptable by all stakeholders across the board. Such CSR also enables the firms to create effective and sustained supply chain management with other companies that are of similar ideologies. The result is the reduction in the production cost.
CSR should be programmed in such a way that it enables free information flow. Free information is critical for the improvement of the company. Through acceptable CSR programs, companies are capable of reaching areas that has not been exploited by other companies thus expanding its market (Hohnen, 2007).
Warwick (2008) argues that CSR initiatives are founded on five basic elements. These includes value addition, the improvement of the products, projections that are long-term, public awareness as well as being sensitive to the goals and strategies that have been put in place.
An initiative that enhances continuous introduction of new products in the market increases the customers’ satisfaction and at the same time enable, the company remains competitive. The company activities must also be legitimate, that is remaining sensitive to the needs of all stakeholders including consumers. That is product and services must be created in accordance with the societal expectations.
Adding value remains critical element of CSR. Adding value to the product increases, the company merit and trust among the company clients thereby enabling the company expand its place in the market. However, this trust is not limited to the clients but also to other stakeholders including suppliers, investors, customers, and employees (McWilliams et al., 2005).
Taking these elements into consideration, business organizations like Banyan Tree Hotel and Resort should generate value through incorporating CSR initiatives in various global operations. Indeed, this corporation is working more willingly to deliver community services and this will enable it generate maximum profit that will enhance global competitive advantage.
This is essential in determining Banyan global market endurance (Porter & Kramer, 2006). As indicated, business development and growth depends on Effective CSR programs. Since many corporations are going global, they need a strong foundation on which they can anchor their growth. Adoption and integrating appropriate CSR practices will enable sustained development in businesses.
This includes continuous production and sales that will ensure continuous profitability. In the contrary, firms that ignore incorporate CSR particularly while making decision-making will likely be faced with problems that can take them out of business (Hohnen, 2007). The current increasing risks involved in business activities can easily be managed by putting into consideration those programs and activities that take into consideration all the stakeholders views.
All businesses organizations including Banyan Tree Hotel and Resort must have control measures that guard them against any external and internal risks. The control measures must be in line with guiding principles set by the regulating bodies. Additionally, businesses are supposed adopt practices that take into consideration the needs and expectations and interest of all the stakeholders (Gray et al., 1987).
Recommendations
From the study, it can be observed that firms in all sectors are adopting and implementing CSR strategies in order to remain competitive in the current world market. Therefore, banyan tree should come up with sustainable CSR strategies that will enable it remain viable within the highly competitive global market. These strategies should be aimed at building good relationship with the communities as well as clients.
That is, the company should adopt practices that will enhance sustained value to its stakeholders. As the company continue to grow it should implement those practices that not only add value to the customers but also provide it with a rare competitive advantage. In essence, the company should adopt CSR practices and enhance competencies that will ensure sustained profitability.
Conclusion
Currently, CSR plays critical role in the business management. As indicated in the Banyan Tree Hotel and Resort, CSR becomes an important business management tool in spite of the firm magnitude. The reason is that CSR is responsible for benefit of the company products, which in turn increases the company brand image and profitability.
Therefore, larger corporations such as Banyan Tree Hotel and Resort should compensate the societies in which they operate through initiatives that add value to the lives of people in the societies. These include pro-environment initiatives. It is also true that corporations and societies in which they operate are interlinked. Therefore, strategies that are initiated by corporations must be beneficial to both the company and the societies.
References
Anders, P. (2008). Strategy antecedents of modes of entry into foreign markets. Journal of Business Research, 61(2), 132-137.
Arregle J. Hebert, L., & Beamish P. (2006). Mode of international entry: the advantages of multilevel methods. Management International Review, 46(5), 597-611.
Aulakh, P. & Kotabe, M. (1997). Antecedents and performance implications of channel integration in foreign markets. Journal of International Business Studies, 18(2), 145-175.
Belin, J. & Pham, C. (2007). Global expansion: Balancing a uniform performance culture with local conditions. Strategy & leadership, 35(6), 44-73.
Blomstermo, A., Sharma, D. & Sallis, J. (2006). Choice of foreign market entry mode in service firms. International Marketing Review, 23(2), 211-213.
Brouthers, K. (2002). Institutional, cultural and transaction cost influences on entry mode choices and performance. Journal of International Business Studies, 33(1), 203 -206.
Cavett-Goodwin, D. (2007). Making the case for corporate social responsibility. Web.
Chen, L. & Mujtaba, B. (2007). The choice of entry mode strategies and decisions for international market expansion. Journal of American Academy of Business, 10(2), 322-344.
Eliza, T. S., & Pauline, N. (2003). Banyan tree hotels & resorts: Gauging investors views on corporate social responsibility. China: The University of Hong-Kong.
Ethical Corporation magazine, (2005). Business briefs. Web.
Gray, R. H., Owen, D. L. and Maunders, K. T. (1987). Corporate social reporting: Accounting and accountability. New Jersey, NJ: Prentice Hall.
Hofstede, G. (1980). Cultures consequences: International differences in work-related values. Newbury Park, CA: Sage.
Hofstede, G. (1983). The cultural relativity of organizational practices and theories. Journal of International Business Studies, 28(5), 92-99.
Hohnen, P. (2007). Corporate social responsibility: An implementation guide for business. Manitoba, Canada: International Institute for Sustainable Development.
Ludescher, J. (2009). Corporate social responsibility: From corporate strategy to global justice. Web.
McWilliams, A., Siegel, D. & Wright, P. M. (2005). Corporate social responsibility: strategic implications. Web.
Porter, M. & Kramer, M. (2006). Strategy and society: The link between competitive advantage and corporate social responsibility. Web.
Root, F. (1994). Entry strategies for international market. San Francisco: Jossy Bass, Inc.
The Economist, (2005). The importance of corporate responsibility. Web.
Warwick, M. (2008). The five dimensions of CSR. Web.
By analyzing the financial statements of competitors, a company is able to find new potential markets hence invest them. A company can determine the competitors’ weaknesses hence capitalizing on them. This gives it an upper hand in the market.
The financial statements provide financial benchmarks for the company. It becomes possible to make compare with successful competitors hence making appropriate strategies for success.
Financial statements give an insight into the output and operational costs of the competitors and it becomes possible to determine whether the production and operational costs are high or low when compared to the competitors. Adjustments are thereafter made where possible.
There are several ways to ensure sustainable cost advantage. This includes the raising of the prices so as to increase the profit margin, reducing the production and operation costs so as to minimize the expenses, including higher margin items in the sales mix, going for less costly yet quality raw materials and spending more on marketing so as to increase the sales.
The relative cost of goods and services is significant in determining the competitive advantage of the business. This is vital in determining the profitability of the business. A company can only supply its goods or provide services to the market if the prices are higher than the production cost.
Understanding the relative cost helps a company to compare its prices to the other competitors. It therefore becomes easy to predict the reactions of the competitors incase of an increase in prices. It also forms a basis for the prediction of price wars.
By understanding the relative cost, a business can know whether it has a competitive advantage in terms of cost and whether this is sustainable. It is possible to know how low to bid so as to win a contract against competitors. It also becomes easier for a business to make cost reductions without negatively impacting its profitability.
The cost structure constitutes the expenses that are incurred in ensuring that a product or service is available for consumption. By using cost structures, it is possible to prevent the product or service from being underpriced. The market trends are always changing hence the need to produce products and services that suit the changing market.
Through differentiation, it is possible to determine the quality of a product which is supposed to be proportional to its price. A high quality product might for instance have several features that low quality products lack. It is therefore highly priced.
The product differentiation strategy is not the best growth strategy because the differentiation does not always relate to the consumption of the product or use of a service as the perception of quality by the consumers might be biased. This could be attributed to advertisements and the need for social pleasure.
Market profitability analysis is important in determining the best markets. It helps in determining consumer behavior hence making decisions based on this. Through such analysis, it is possible to determine the most profitable markets. This determines the marketing strategies to be employed, the pricing and quality improvement.
Career Objectives
Period
Activity
First month
Take part-time classes in educational psychology and social work.
Second month
Get a certificate in career counseling,
Third month
Go for 60 hours of Masters degree coursework in professional counseling.
Fourth month
Register for an internship program in a Professional Counseling Firm.
Fifth month
Obtain a License for the professional counselor.
Sixth month
Start a professional counseling firm.
In the next 6-18 months, the main activity would involve starting a private professional counseling firm. This would help in the development of counseling skills and put whatever has been learned to practice. It also provides the required experience. It will also help in networking hence building a greater customer base.
One of the projects to be done at the current employment to meet the career goals would be to learn the day to day operations of this counseling center that is non-profit making. This involves understanding the counseling website which meets the counseling requirements of online clients who are not able to visit the firm.
The website is interactive hence enabling the clients to chat with the counselor online hence the right advice is given to the clients at the right time. This will help in the acquisition of the hands-on experience that is needed in professional counseling.
In the first stage, it would be necessary to determine the fees required for the classes. Such information can be found on the fees structure. It is also important to know the courses offered so as to select the right combination that would be required for the certification. This can be found from the time table.
While doing the masters coursework, it would be appropriate to find out whether there are any scholarship programs being offered. Such information might be difficult to find since scholarships are never guaranteed.. It would be important to note whether the place for the internship deals with professional counseling.
One has to know the fees charged before the license is issued. While setting up a private professional counseling center, the approximate cost for setting up the center should be calculated.
Such information can be obtained from the business plan of a similar project. It is also important to identify the registration processes to be undergone before setting up the center. Such information can be found from the offices of the relevant authorities.
References
Kumar, D. (2010). Enterprise Growth Strategy: Vision, Planning and Execution. London: Macmillan Publishers.
Meuleman, M. (2009). Sustainable development and the Governance of Long-term Decisions. Oxford: Oxfford University Press
Strategy refers to the “direction and scope of a firm over the long run”. It facilitates the creation of competitive advantages through configuration of the firm’s resources in a challenging business environment in order to meet the customers’ and stakeholders’ expectations. The strategy process begins with strategic analysis in which the internal and external environment of the firm is assessed.
This helps in identifying potential changes and the best responses to such changes. Having analyzed the environment, the firm must critically appraise all the strategic options at its disposal in order to choose the best strategy. The best strategy is usually implemented in order to overcome competition in the industry.
This paper will focus on the process of formulating and implementing business strategy. The first part of the paper focuses on the process of analyzing internal and external environment of the firm. In the second part, case studies will be used to illustrate the application of tools such as five forces in environmental analysis.
Steps in Environmental Analysis
The order in which environmental analyses are done is important. Analysis of the external environment should precede analysis of the internal environment. The importance of this order can be explained as follows. Analysis of the external environment serves three purposes. First, it facilitates understanding of the existing as well as potential changes in the business environment.
Second, it provides intelligence that informs strategic decisions of the firm. Finally, it facilitates strategic thinking within the firm. Internal environment analysis on the other hand, enables the firm to indentify its strengths and weaknesses.
Thus, it is apparent that external environment analysis serves as “an early-warning system” that enables the firm to predict opportunities and threats in its environment. This prediction enables the managers to formulate the best strategy to respond to the anticipated changes.
In order to respond to the expected changes, the firm must conduct an audit of its internal environment with the aim of identifying its capabilities or strengths and weaknesses. Consequently, the firm will be able to formulate the best strategy and utilize its resources as well as capabilities to exploit emerging opportunities. Additionally, the strategy will help the firm to mitigate the negative impacts of threats in the industry.
Thus, it is important to begin with external environment analysis in order to identify the factors that affect the competitive environment. The internal environment analysis should then be conducted in order to verify the firm’s ability to respond to the changes predicted by the external environment analysis.
Importance of Profits
As a manager of a large firm, I would focus on making superior profits due to the following reasons. To begin with, making profits is the main objective of every business. All other objectives of the business are meant to support the profit objective either directly or indirectly.
From the point of view of the stakeholders, profits represent returns on investments. All stakeholders invest their money in a company with the aim of realizing the highest possible returns. Non profitable businesses present a high opportunity cost to the investors. Thus, they are likely to channel their investments away from non-profitable firms, leading to the collapse of the business.
Profits are also fundamental for the sustenance of the business. They are used to finance implementation of strategies that improve the competitiveness of the firm. For example, a profitable firm will be able to hire the best talent in the industry in order to enhance its competitiveness.
High profits are also good for the employees. Hiring and retaining employees normally present high costs to the firm. Thus, when the firm is underperforming (financially), most cost-cutting measures are focused on reducing the number of employees or employees’ remuneration.
Thus, high profits represent some level of job security to the employees. A profitable firm will have the resources to invest in employee development in order to maintain its profitability.
For example, firms that make high profits are able to provide free staff training and mentorship programs. Besides, profitable firms tend to offer better pay in order to reduce staff turnover. Thus, it is in the interest of employees to work in profitable firms.
From the customers’ perspective, high profits reveals value received. In competitive industries, firms can only make superior profits if their products offer superior value to the customers. The high profits are normally used to enhance the firm’s marketing mix.
For instance, a profitable firm has the resources to produce high quality products and distribute them efficiently. Additionally, profitable firms are able to offer discounts and engage in promotional activities that offer valuable information to customers. Customers who receive value for their money are likely to be loyal to the firm.
High profit firms are good for the society. Good corporate citizenship requires firms to take care of the environment and societies in which they operate in. This objective is normally achieved through corporate social responsibility initiatives.
Such initiatives can only be undertaken if the firm makes high profits. Otherwise corporate social responsibility programs involve high costs that most firms can not afford. However, the corporate social responsibility programs are important since they enhance the image and acceptance of the firm in the society.
Five Forces Model
If several firms are aware of the threats associated with their competitive environment and make their strategic choices solely on this model, their performance is likely to be dismal. The low performance can be attributed to the following reasons. To begin with, the business environment can be categorized into three levels namely, the internal environment, the competitive environment and the external environment.
The five forces model provides only information about the competitive environment. In most cases, changes in the external environment usually affect the forces that shape competition in the industry. For example, regulation policies such as trade quotas can act as entry barriers to new firms.
In this context, it will be important to conduct an analysis of the external environment too in order to predict how the industry forces are likely to change in future. Additionally, the internal environment must be considered in order to formulate the best strategy, given the strengths and weaknesses of the firm.
Otherwise the information provided by the five forces model will be of little use if the managers are not aware of the firm’s ability to respond to industry threats.
As an analytical tool, the five forces model has its limitations which include the following. First, the model adopts an outside-in approach in strategy formulation. This means that analysis of the market dynamics precedes analysis of the firm’s capabilities. When several firms are using the five forces model, their strategies are likely to be more or less similar. Thus, they might not achieve competitive advantages.
In an industry with several firms, competitive advantage can only be achieved if strategy focuses on the core competencies of the firm. However, the five forces model does not allow firms to base their strategies on their core competence.
Second, the model focuses only on competition in the existing markets. It does not give firms the opportunity to develop blue ocean strategies. Blue ocean strategies are those that enable the firm to venture into markets that have not been exploited. Third, the five forces model “assumes relatively static market structures”. Consequently, the model can provide a framework for analyzing changes in the industry.
However, it does not provide valuable advice for preventive measures. In conclusion, the five forces model must be supported by other models such as the PESTEL and SWOT which analyses the external and internal environment respectively. This is because the external environmental factors affect the industry forces, while the internal environment determines the firm’s ability to respond to threats.
Consequently, different models must be used to obtain information from all levels of the business environment. Besides, the limitations of the five forces model can only be avoided by adopting supportive models.
Career Strategy
My career objective is to be a marketing director in the next five years. I particularly intend to work for a large firm within the fast moving consumer goods (FMCG) industry. The position of a marketing director is a challenging role, given the expected level of performance and the significance of the position.
The sales and marketing department of every company is very important since it determines the company’s ability to realize stable revenue streams. However, the position also provides exciting and rewarding opportunities to the holder. For instance, being a marketing director not only attracts a high pay, but also provides opportunities for gaining experience in handling marketing challenges.
I intend to pursue the following objectives in order to achieve the goal of being a marketing director. First, I intend to acquire more skills and knowledge in sales and marketing. Consequently, the objective will be to complete a Masters degree in Businesses Administration (MBA) in the next three years.
Second, I intend to gain more experience in the field of sales and marketing, especially, at managerial level. In this case, the objective is to move up the corporate ladder through promotions in the next four years. Finally, I intend to become a member of a recognized professional marketing body in the next two years.
Pursuing these objectives will enable me to acquire the necessary skills, qualifications and experience required for the position of marketing director.
How the Strategy Fits within my Capabilities, and External Environment
The external environment in the labor industry, especially, in the marketing field, is characterized by the following threats. Economic factors such as regulation, low economic growth, and high competition have resulted into poor performance of most businesses.
Consequently, businesses are reluctant to recruit new employees. As the business environment change, businesses also change, and thus, some roles are normally eliminated. Technological factors such as the use of computers and electronic linking of business activities have resulted into elimination of some roles.
For example, the use of e-commerce has reduced the number of sales staff needed in any sales and marketing department of firms that sell their products online. Finally, legal factors such as economic liberalization have allowed employers to hire employees on short-term contracts. Thus, job security is no longer guaranteed.
The competition in the job market is high due to the large number of graduates looking for jobs. Besides, employers have a high bargaining power due to the limited job opportunities. The opportunity in the labor industry is that the incumbent firms are constantly looking for talent in order to remain competitive.
Currently, my weaknesses include; lack of sufficient experience in marketing management, limited skills in marketing research and lack of recognition by a professional marketing body. My strengths include graduate training in sales and marketing, track record in achieving sales targets and experience in product promotion.
Thus, the objective of pursuing an MBA course and joining a professional marketing body will enable me to overcome the weakness of insufficient skills and lack of professional recognition. Seeking for promotions will enable me to overcome the weakness of insufficient experience.
Most importantly, these objectives will enable me to counter the competition in the job market. Given the threats presented by the external environment, gaining more skills, experience and new positions will enable me to adapt to the changing business environment. Consequently, I will not only stay employed, but also serve in positions in which I derive the greatest satisfaction.
Importance of Scenarios: South Africa Case Study
Scenarios are a “tool of analysis that improves the decision-making process, set against the background of a number of possible future environments”. Scenarios facilitate strategic thinking within organizations. Hence, it helps managers and business leaders to recognize possible changes in the business environment. The scenarios for South Africa were developed for the following reasons.
First, the scenarios were developed to facilitate strategic decision making by the government and business community. The scenarios provided the big picture of what the country’s future would be. This means that the leaders were aware of the looming changes in their country. Consequently, they were able to indentify the right strategies for each scenario. Second, the scenarios acted as an early warning mechanism.
The scenarios were a strategy for identifying possible crises and planning for a timely solution. For example, the icarus scenario was associated with unsustainable development. In this case, the country’s leaders were able to predict failure in time. This gave them ample time to mobilize enough resources and formulate the right strategies to prevent the predicted failure.
Third, the scenarios enhanced institutional learning. Since scenarios are based on past and current information, they enable leaders to avoid repeating mistakes.
In conclusion, the South African scenarios were meant to provide a context for decision-making. Additionally, the process of developing the scenarios facilitated communication throughout the country by bringing together various stakeholders to participate in strategy formulation.
Importance of Scenario Planning to Managers
Scenarios are an important tool for decision making under uncertain situations or environments. Several different possibilities are normally expected in uncertain business environments. Due to the underlying difficulty in predicting future changes under uncertainty, it is better to list all the possible changes and indentify a suitable strategy for each.
Additionally, scenario planning is important when capital and resources are likely to be adversely affected by uncertain risks. In this case, scenarios help in indentifying potential changes or risks that can lead to losses.
Comparative Impact Matrix Analysis: US Airline Industry
The above matrix indicates the environmental changes and how their impact on Delta Airline and Southwest Airline. The economic factors included the financial meltdown in United States and increase in jet fuel prices. The financial crisis had the effect of reducing demand for both passenger and cargo flights.
The high fuel prices led to an increase in operating costs. Consequently, both airlines experienced a reduction in sales, and reduced their capacities. Unlike Southwest Airline, Delta Airline did not manage to remain profitable. Delta Airline made losses and struggled to remain in the industry.
Stiff competition was brought about by the large number of competitors, high fixed costs, exit barriers and new entrants. Consequently, both firms merged with other airlines. They also retired their old fleets in order to reduce fuel costs. Like other legacy airlines, Delta Airline focused on outsourcing in order to reduce operating costs.
Legal factors included labor contracts between airlines and labor unions, deregulation and bankruptcy laws. Deregulation led to high competition in the industry. Labor contacts and bankruptcy laws served as exit barriers, thereby increasing competition.
Thus, both firms experienced high labor costs and reduced market share as more firms joined the industry. Non profitable firms such as Delta Airline found it difficult to exit the industry due to the exit barriers.
Technological factors included the use of modern information and communication technology to provide entertainment and ticketing services. These enhanced customer loyalty and reduced operating costs respectively. The introduction of video conferencing reduced participation in face-to-face meetings. This translated into a reduction in demand for passenger flights, especially, among the business class.
Porter’s Five Forces Analysis for US Airline Industry
The five forces analysis framework enables managers to understand the dynamics of the competitive environment in which their businesses operate. It is an important tool for investigating the forces that determine the level of competition in a particular industry.
Consequently, it gives the managers information that forms the basis of strategic decision making. The industry forces that led to the mergers and acquisitions in the US airline industry include the following.
New Entrants
The USA airline industry is characterized with high levels of product differentiation. Differentiation was necessitated by the stiff competition that was experienced in the industry, following its deregulation in 1978. The deregulation allowed many firms to join the industry thereby, forcing the incumbents to compete on the basis of product differentiation. Joining the airline industry is also capital intensive.
A lot of financial resources are needed, especially, for the purchase of the aircrafts. Besides, the high levels of regulation in terms of safety and service quality present high costs to firms that intend to join the industry. Thus, the high costs acts as an entry barrier to new firms that intend to join the industry. The switching costs are high in the airline industry and this also discourages new firms from joining it.
After the deregulation of the industry in 1978, the incumbents’ control of routes reduced. This is because all firms were allowed to serve any route of their choice, thereby increasing competition. The incumbents also have vast propriety knowledge in the industry.
For instance, the United Airlines as well as American Airlines have been in operation since 1930s. Thus, they have the experience and expertise to counter any competition from new entrants. We can, thus, conclude that the threat attributed to new entrants is low in the US Airline industry.
Power of the Buyer
This refers to the bargaining power of the buyers, airline companies. There are very many airline companies (151 firms as at 2009) as compared to the suppliers such as aircraft manufacturers. However, the suppliers of products such as fuel are very many.
The switching costs are very high due to the contracts entered by the airlines and their suppliers. For instance, the purchase of aircrafts is based on contracts that last for several years. Some airlines also enter into contracts with fuel suppliers in order to reduce fuel costs. Thus, breaching of these contracts leads to high switching costs.
The suppliers’ products are highly differentiated. The US airline industry has two types of airlines namely; the low costs airlines and the legacy airlines. Since these two types of airlines have different capacity needs, the suppliers make aircrafts that meet the specific needs of their customers.
Since most airlines compete on the basis of differentiation, the suppliers have had to include additional features such as entertainment equipment in the aircrafts.
There is low threat of backward integration in the industry. Most airlines are relatively small compared to their suppliers. Besides, most of them are straggling to remain profitable, especially, after the 2008/ 2009 financial crisis. Consequently, the airlines can not afford to purchase their suppliers or invest in the production of their own aircrafts.
Finally, the suppliers’ inputs are very important to the quality of services rendered by the airlines. All aspects of the flight such as foodstuffs, entertainment and comfort within the aircraft directly affect the customers’ flight experience. Thus, all suppliers’ products must be of high quality in order to enhance all the aspects of every flight.
This leads to the conclusion that buyers have a low bargaining power in the industry. Low bargaining power means that airlines can not easily negotiate for low prices for their supplies. Thus, they can be exploited through high prices or low quality products.
Power of the Suppliers
The suppliers of aircrafts are very few as compared to the airline firms. In the last two decades, the number of manufacturers of large aircrafts reduced from four to only two. Additionally, there are only two leading suppliers of medium size aircrafts. This means that there is a potential constrain in the supply of aircrafts, especially, if there is a backlog of orders.
There are no substitutes for the suppliers’ products. For instance, jet fuel can not be substituted by any other form of energy. In this case, the airline companies are heavily dependent on their suppliers. As discussed earlier, the suppliers’ products are highly differentiated due to the capacity needs of airlines and the quality of service offered by the airlines.
Despite the high concentration of the aircraft industry relative to the airlines industry, the later remains very important to the former. This is because airlines are the main customers of the aircraft manufacturers. This is explained by the discounts and favorable terms of payment offered by the aircraft manufactures. However, the threat of forward integration is very high in the industry.
Most aircraft manufacturers are large in terms of capital and asset ownership. Thus, they can easily purchase the airlines or establish their own. Consequently, the suppliers have a high bargaining power in the industry. The implication of suppliers with a high bargaining power is that, the suppliers can exploit their clients through high prices.
Substitutes
Substitutes refer to other modes of transport that can be used as an alternative to air transport. These modes include buses, train and personal cars. The threat posed by the alternative modes of transport is relatively little. For instance, trains and buses accounted for only a small percentage of journeys that were more than one hundred miles.
This trend can perhaps be explained by the low differentiation and service quality associated with the train and bus transport industries. In most cases, buses and trains provide standardized services that do not meet the specific needs of their customers.
However, the trains and buses tend to be cheaper as compared to air transport. The low threat of substitute is an advantage to the airline industry since the level of competition will be low.
Competitive Rivalry
The US airline industry is characterized with cut-throat competition due to the following reasons. First, there are very many airlines competing in the industry. The increase in the number of airlines is mainly attributed to the liberalization of the industry.
Second, the growth rate of the industry is low. The low growth rate is attributed to poor economic performance of the US economy, especially, after the 2008/2009 financial crisis. Additionally, the industry is at its maturity stage and this limits potentials for faster growth.
Third, there are high fixed costs in the industry. Hiring labor presents the largest fixed costs to the airlines. The average pay for employees in the industry is about $ 55950, which is at least 40% more compared to labor costs in other private industries. Besides, the strong labor unions in the industry prevent airlines from reducing wages or the number of employees during periods of low demand.
As fixed costs rise, firms are left with little financial resources to enhance their competitiveness through expansion and introduction of new products. Besides, the high fixed costs directly impact profits negatively. As discussed earlier, switching costs are very high in the industry. Buyers can not easily change suppliers in order to achieve cost competitiveness.
Finally, the exit barriers in the industry also perpetuate stiff competition. The old airlines as well as the non profitable firms can not quit the industry due to the high exit costs. For example, the contracts between labor unions and airlines require the later to pay large sums of money to employees as terminal benefits.
This represents high costs of exit. Besides, firms that have filed for bankruptcy are expected to continue in operation as they service their depts. Thus, the competition in the industry presents a great threat to the survival of most airlines. The high competition, not only reduces profits, but also reduces market shares of the firms.
In conclusion, the forces that led to the mergers and acquisitions from 1981 to 2009 include the threat attributed to competitive rivalry, low power of the buyers and the high power of the buyers. These forces adversely affected the profitability of the airlines, thereby necessitating consolidation.
For example, a merge between two airlines helped to reduce competition. Additionally, the mergers enabled the firms to ensure economies of scale. Firms that were not able to withstand the effect of the aforementioned industry forces were acquired by their competitors.
The Forces likely to Drive Change
Competitive Rivalry
The threat associated with competitive rivalry is likely to drive change in the US airline industry due to the following reasons. First, the economy of the United States of America is expected to recover in the near future. Thus, there will be an increase in demand for air transport. As the demand rises, most airlines are likely to embark on product and process innovation to attract customers.
Product innovation will involve improving the quality of existing products in order to make them attractive to the customers. Besides, new products are likely to emerge as airlines compete for customers. Since competition in the industry has always been characterized by price wars between the low cost airlines and the legacy airlines, most firms are likely to focus on cost reduction.
Thus, most firms are likely to embark on innovative strategies for reducing operating costs. Such strategies can include outsourcing non core business activities. As the demand for air transport increase within America and other parts of the world, new routes are likely to be introduced. The airlines are likely to deploy capacity to routes with relatively low competition.
New Entrants
As the industry grows in the future, new firms are likely to join it. With reduced regulation on entry, international flights are likely to join the industry, thereby, increasing competition. Currently, airlines from emerging economies in Asia and Africa are recording high profits. Thus, they are expanding both their route network and feet.
The Dubai-based Emirates Airline for example, has an ambitious plan of acquiring 90 new A380 jets. The threat attributed to new entrants will result into changes in the industry in the following ways. First, the incumbent firms are likely to work with the new entrants, especially, foreign airlines through airline alliances.
Such arrangements will not only enable the airlines to reduce costs, but will also enable them to maximize their profits. Second, competition is set to intensify in the industry as new firms join it. This has the implication of reducing the profitability of most incumbents. Thus, the airlines which are not able to survive the competition will either be acquired or they will merge with other firms.
Power of the Suppliers
The suppliers are likely to maintain a high bargaining power in the US airline industry. The high cost of joining the aircraft manufacturing industry is likely to discourage new firms from investing in the manufacture of aircrafts, especially, in USA.
However, the suppliers bargaining power might not be as high as it is at the moment. Newly industrialized countries such as China and India are likely to invest in aircraft manufacture. Besides, these countries have access to cheap labor and raw materials. Consequently, they are likely to manufacture aircrafts at low costs which will reduce the prices of aircrafts.
In this case, the competition from the low cost manufacturers will reduce the power of suppliers of aircrafts in the US airline industry. The suppliers of jet fuel are likely to maintain their high bargaining power through unions such as OPEC. As the power of suppliers reduces, there will be changes in fleet size and fleet age as more airlines find it easier to acquire new aircrafts.
Works Cited
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Daraban, Ben and George Fournier. “Incumbent Responses to low-cost airline entry and exit: a Special Autoregressive Panel Data Analysis.” Research in Transport Economics 29.1(2008): 15-24. Print.
Duvan, Daniel. “Public/ Stakeholder Perception of Airline Alliances: the New Zealand Experience.” Journal of Airline Transport Management 11.6(2005): 448-454. Print.
Feiler, George and Timothy Goodoritch. “Decline and Growth, Privatization in Middle East Airline Industry.” Journal of Transport Geography 2.1 (2009): 55-64. Print.
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Greener is a multinational corporation in the Argentina specializing in timber production. The company intends to enter the North American market to enhance their global trade. This article discusses the international entry strategies that can be employed by the company in order to enhance their chances of success.
Moreover, the paper discusses the reason for entry in the different market and how management deals with the different cultural practices of the new country. The paper also observes the organizational systems and the controls that the company may adopt to succeed in the new market.
Lastly, there is comprehensive discussion on how the company may use the technology adopted from the new market to enhance trading activities in their country of origin.
Background of the Study
With the increased competition and saturations in the domestic markets, it has become inevitable for companies to increase their market share by going global. For the companies to ensure that they survive, increase their income and grow, they are forced to exploit and find opportunities in newer environments.
However the process of invading, penetrating and the coming up with an internationally acceptable product is a tedious activity. A company entering into a new market faces a variety of challenges since it lacks a lot of the basic requirements that enhance success.
With no basic infrastructure such as marketing structure, organizational structure, organizational control and no prior knowledge of the new market the efforts required to penetrate are similar those observed in the early entrants.
Pan and Tse (2000) intimated that the entry of a firm into a new market is similar to an early entry strategy in a business. Greeners Company is faced with similar challenges when choosing to enter the market in Canada
Companies choose to enter the global market due to a variety of reasons. Usually the principle reason for seeking new markets is the observation that indicates there is demand in the new market. Besides this fact, companies may choose to enter the global market scene in a move to unsettle its competitors who have entered into such a market recently.
This move is usually made in order to disallow the competitor a chance to gain significant merit by trading alone in the new market (Brouthers and Brouthers, 2000; Singh, 1995). It is becoming a practice of corporations to enter new markets in order to learn from the different business culture.
Learning process can be induced through partnering with local distributors also referred to as joint ventures or establishing wholly owned ventures. Researchers have found that learning through partnerships is usually ineffective and tedious means of acquiring information (Aulakh et al., 2000; Kostova and Roth, 2002; Kuada and Sorensen, 2000).
Moreover, it does not contribute the process of a company establishing itself as a viable global competitor. Apart from the reasons mentioned above companies may choose to penetrate into the foreign markets in order to gain the advantage of receiving government aid.
Some governments offer incentives to companies that export in order to boost countries exports. This incentive may act as a source of drive to companies and lead to them entering international market (Fisman, 2001; Doh, 2000).
Companies employ a variety of methods and strategies to enter into new markets. Among the strategies used is a pattern known as ‘increasing commitment’ (Souvik, 2006). This pattern is used by companies to reduce the risk involved in entering a new market. Under this strategy, the company starts by exporting a negligible amount of its products to the target company.
Thereafter, the company may employ the services of a local distributor to enhance their knowledge of the market. After gaining sufficient knowledge of the prevailing market conditions the company may start operating a directly controlled branch since it can compete more or less equally with the other businesses in the industry.
Choice of modes of market entry strategy is generally determined by the degree of risk, amount of control required, costs and the amount of returns that a company expects from the new market (Dow, 2000; Davis et al., 2000). Companies that adopt a low profile entry strategy usually minimize their risks. These companies are not burdened with task of establishing offices.
Moreover, they have no responsibility of investing in distribution infrastructure, extensive staff recruitment and marketing campaigns. However, such companies will also have very little knowledge on most elements that are in existence in the market where they are operating (Eden and Miller, 2004).
Information such as the market share that they command, information on consumer behavior and information on prevailing prices will generally be missing in the database of such companies.
On the other hand, companies that choose a high profile entry strategy are faced with the problem of exposing themselves to high intensity of risk (Souvik, 2006). However, these companies have greater control of the information flow. Information on matters pertaining to consumer behavior, prevailing price levels, and the market share will be available for companies that choose high profile market entry strategy (Souvik, 2006).
Companies choose their market entry strategy depending on the amount of risk they can handle. Companies that have a low propensity to handle risk will choose the low profile entry strategy while companies with a high propensity to handle risk may decide on either of the two strategies depending on company policies and governance.
Risk is one of the factors that determine market entry strategy. However, firms experience risks in various forms (Salas-Porras, 1998). This paper concentrates on the role played by financial and marketing risks in choosing a market entry strategy. Most entities have the sole objective of maximizing profits. Therefore, the financial risk involved while entering a new market is one of the major considerations that companies observe.
Low profile entry minimizes the financial risks involved when entering a new market. However, in such a case the marketing risk increases since the parent company has no direct control over the subsidiary.
In order to beat the marketing risks companies have to be able to handle the financial risks presented by the market. Therefore, most companies that are not well equipped to handle the financial risks choose to ignore the market risks when entering via low profile market entry strategy (Hunt, 2000; Scott, 1999).
The general assumption among multinational corporations is that market entry strategies that served their purpose previously in one market may be equally good in another market. The strategies used by these corporations are usually for the purpose of enhancing their competitiveness by ensuring that the brand name, their suppliers and managers are well recognized in the market.
However, these strategies ignore the fundamental principles of marketing (Schlossberg and Deford, 1992). Each market is unique on its own way according to the principles of marketing. Therefore, to penetrate a new market, companies need to study the uniqueness of the market. This will enable the companies to identify the requirements that will lead to success.
Simple economics require companies to adapt their commodities to meet the market demands and conditions. Multinational corporations that are more experienced in penetrating new markets devise means of adapting to the local market conditions. This achieved by coming up with new brands, new packaging methods, and new distribution channels (Souvik, 2006).
Brief Background of the Company
Greeners Limited is a multinational company specialized in logging. The company is located in Mexico City and operates several wholly owned subsidiary companies in Malaysia.
The main activities in the subsidiary sawmills involves converting raw tree logs into high quality building grade timber to sell in the Malaysian market. Greeeners Limited releases timber products that are standardized in order to meet the market demands of the countries it is operating.
Each country has its own standards. Greeners Producer Limited has been operational for the last fifteen years with the subsidiary companies in Malaysia being operational for the last five years. Throughout this time, the company has been working effectively and efficiently by ensuring it incurred minimum operational costs to achieve maximum output.
To support the general activities in the company, Greeners has adopted a general organizational structure that is composed of a general manager who controls all the operations of the company including the subsidiaries.
Under the general managers are the junior managers who head the subsidiary companies within Mexico and those outside Mexico.
All the subsidiary companies are divided into four major departments: logging, production, packaging, and shipping and maintenance. Most of the timber products from the company are sold within the market of production and aggressive marketing is unnecessary due to the small difference in timber products.
The company’s major objective is to become a leading producer of timber products in the world. Moreover, the company intends to maximize its profits by minimizing operational costs and achieving maximum outputs.
Therefore, the directors and managers of the company are usually under pressure to exploit opportunities in new markets. With this in mind, the company is looking for options in different countries where it can expand its market and global power.
Market entry strategies and risks involved
For market entry strategy, Greeners Limited may choose either of the modes of entry (low profile entry or high profile entry). The low profile entry may be used to avoid financial risks. Since Greener Producer Limited originates from a Latin American country, the cultural business practices are different from those that operate in Canada (Dominguez and Brenes, 1997).
A direct entry into the market may be risky for the company. Therefore, to achieve their goal of getting a fully owned subsidiary without risking much of their finances the company may start by using foreign direct investment in a saw mill in Canada (Grosse and Trevino, 1996). Once it is able to grasp sufficient knowledge of the Canadian industry, then the directors can move to fully own the business entity.
Another method of entry into the Canadian market may be by the high profile direct entry. The company can choose to invest fully into the market in Canada and experience the market forces first hand.
However, entering the market via high profile entry requires a lot of commitment from the parent company. This is because the company may face a variety of challenges. Example of challenges facing a multinational that tries to penetrate a new market includes:
The challenge of choosing a location
Cultural challenge
Organizational structure
Technological challenges.
Therefore, a multinational that chooses to use high profile entry strategy has to consider these challenges in order to survive the market.
Factors Leading To Choice of Country
Recently the management of Greeners Limited has detected an opportunity to increase their global market share by penetrating the Canadian market. The major reason for the company’s decision behind investing in Canada is the availability of timber and ready market for timber products. The Canadian economy depends on its forests (Dufour, n.d.).
The forest covers an approximate of 418 million hectares that has been approximated to be 45% of the total area of Canada (Dufour, n.d.). This is approximately 10% of the world’s forest cover. The forest products earning in Canada exceed the amount of earnings generated by agriculture, automotive, and fishing industry.
Canada’s lumber industry has experienced stability in the prices and production after the world’s recession (John, 2008). Despite the fact that the lumber prices are still a bit lower than those in the previous prices before recession, these prices represent a significant increase in prices.
Therefore, the timber companies in Canada and the rest of the world are bullish about the prices of timber. These factors combined with the fact that the Canadian lumber sectors have undergone restructuring presents an attractive prospect for Greeners Limited to enter into the market.
However, while entering a new market a company requires a convenient location to set up their subsidiary. The best choice of a location is dependent on various factors. The most important factor to consider is the nature of business. Business entities should ask themselves questions such as
What are the company objectives?
What are the market demands?
Is labor available at the location?
is power/energy available?
With these questions in mind then the business entity is ready to choose a location. The best location for a timber processing company is near the source of raw material. This is because timber is a bulky product and transporting it over long distances may lead to incurring a lot of costs. When considering the second question about the market demands the company should consider the needs of their customers.
In some industries the customers come to the business to collect the products while in some businesses it is the responsibility of the producers to supply the goods. In cases where the customers come to the producer then the location of the producers can be located where they can minimize their costs. Availability of labor is also an important factor in determining the location of a business.
A business entity is usually located in areas where the company can obtain labor cheaply and conveniently. The prime objective of the organization being to minimize costs while having maximum output, the company should find a location that suits their goal. The location should be easily accessible and close enough the source of timber to minimize transport costs.
A good location to locate a mill in Canada would be Highland East Ontario. This location is ideal since it was once a mining community (HECP, 2011). This means that the area has enough labor to enhance the process of logging. Moreover, a highway passes close to the area (HECP, 2011).
This means that the means of transporting the logs from and to the market is available. The area is also close to the area where the logging activities take place is therefore an ideal place where costs of logging process and labor can be minimized.
Cultural challenges
Canada and Mexico are two countries with different business cultural practices. According to Doh et al. (2003), the Latin American business culture is affected by corruption. This is unlike the Canadian market where corruption may be considered negligible. Therefore, when management of Greeners Limited attempts to enter the Canadian market, the differences in business cultural practices may be a major barrier.
Whereas in Mexico and Malaysia corruption is high and multinational exploit the resources without consideration of the people (Adeola, 2001; Chandler and Werther, 2006). A good example is the case of Malaysia Penan tribe of Borneo rainforest. This tribe faces major social challenges due to invasion of the forest by the government and multinational corporations.
Corruption by the government and the multinationals is rampant and affects the indigenous people. Taking a multinational companies operating under these conditions, like Greeners Limited, and incorporating them into the Canadian market, they tend to find operations difficult. Another cultural barrier that Greeners limited may experience is the difference in language.
While Canada is an English speaking country, Mexicans speak Spanish. Therefore, the difference in language may pose a challenge to the parent company. Therefore, in order for Greeners Limited to penetrate the Canadian market, the company needs to overcome these cultural barriers.
The best way of overcoming the issues on corruption is by strictly adhering to the rules set by the Canadian government and regulations set by the forest authorities in Canada. On issues to do with language barrier, the company may use the force from within Canada and avoid outsourcing.
Moreover, their general managers can undergo training to ensure that they are well versed in English language. This enhances the process of communication between the parent company in Mexico and the subsidiary in Canada.
Organizational Structure and technological Challenges
When a multinational company enters into a new market, the organizational structure and control structures are bound to change (PRS, 2004). A company in a new market is faced by new challenges that require new ways to manage them. Experienced multinational corporations employ a small degree of change to their structure in order to adapt to the new markets.
Canadian lumbering industry, for instance, has adopted new structure to enhance the demand of their timber product. Unlike in Malaysia and Mexico where the marketing is not needed Canada has high competition among companies (Dufour, n.d.). Their timber products are differentiated by the packaging methods and the technology employed in processing.
The higher the quality of technology used the higher the quality of the timber products. Therefore, for Greeners Limited to maintain the quality of production and the degree of competitiveness, it must adopt the technology used by the companies in Canada.
These technologies can be exported back to the other subsidiaries and the parent company to ensure that the company can meet its objective of becoming a world leader in timber production. Moreover, Greeners Limited needs to change its organizational structure and incorporate a marketing department that is highly efficient. This would ensure that the company competes with the other companies in Canadian market.
Apart from these two factors, Greeners Limited is required to incorporate new control systems in their company structure. Controls ensure that the company assets are safeguarded. Moreover, controls ensure that the company can keep track of its labor force. Lastly, controls ensure that employee adherence to management policies.
Choosing the time of entry
Another challenge that faces Greeners Limited is the time of entry. Choices on time of entry into a market are affected by several key factors (Rodger, 1999). To analyze the most suitable time of entry, directors of Greeners may use the PESTLE model.
This model will enable the company to comprehensively determine a precise time to entry enter into the Canadian market. This model involves six important factors that may interfere with the time of entry, analyses them and provides the means of determining the time of entry.
To choose a comprehensive time of entry, Greeners Limited must gain knowledge on the political situation in Canada. Factors, such as the foreign policy between Canada and other countries, are usually determined on a political basis.
Moreover, the degree of government intervention in the markets may also be influenced by politics. Therefore, the most suitable time for Greeners to enter the Canadian market would be during the time when the political environment were calm and could accommodate a new entrant from different markets and countries. Since Canada is highly democratic and the country is not at war, Greeners may enter the market at any time.
Economic factors are also important in determining Greeners’ time of entry. Factors, such as the market interest rates, inflation and rates of exchange, may influence the time of entry as well. It is advisable for Greeners Limited to consider these factors before the company starts trading in a new market.
Higher interest rates reduce the level of investment; inflation, on the other hand, induces higher wages, thus the rate of exchange may affect the levels of profits (Rodger, 1999). Taking these into account, Greeners will be able to enter the market at a time when those factors do not greatly interfere with the company’s profits.
Social factors include tribes and social groups that segregate humans interfere with the market trends (Rodger, 1999). It is important to observe the social factors before entering a new business environment. This is because social structure determines the buying habit of consumers.
To maximize their profits, Greeners is supposed to enter the market after doing a thorough research on the society it is going to run business with. Therefore, Greeners Limited may only ether the market at a time when the company has sufficient knowledge on the society it is going to trade with.
To choose a suitable time of entry, Greeners is supposed to observe the technology advances in Canada. Thereafter, it must incorporate this technology into its production process. This will enable the company to compete with the other sawmills in Canada. Therefore, Greeners Limited can only enter into the Canadian market after adopting all the necessary technology.
In the lumbering business, environmental factors play a major role in determining the time of entry. This is because the growth of trees is highly dependent on the climate, and weather conditions. Moreover, the ease of timber is dependent on the weather.
Therefore, in case Greeners Limited wants to enter the Canadian market, the company should avoid the winter season. Legal reasons also play a major role in determining the time of market entry. A company may begin trading only if it acquires all the legal documents that allow it to trade in a given market.
Similarly, Greeners must obtain all the legal documents required in Canada to begin trading. Therefore, after taking all these factors into consideration, Greener Limited can decide to enter the market in a period of one year after scouting the market and ensuring it fulfills all the requirements that will enable the company to trade.
Recommendations
As discussed above, Greeners Limited is required to choose a location that will meet its objective of cutting costs. Preferably, Highland East Ontario, this is because this region posses all the characteristics of a good location for setting a business. On the case of cultural issues, the company should find a means of adhering to the laws and business culture in the Canadian markets.
Adoption of technology to enhance the activities of the multinational is a recommendation to management of Greeners Limited. In addition to this, the company ought to adopt new organizational structures and new control systems to enhance its activities in the global market.
Conclusion
The strategy used by a multinational corporation in entering a new market is crucial for its survival in the market. High profile entrants tend to expose their companies to financial risks while low profile entrants expose their companies to market risk. Therefore, before entering new markets multinational ought to consider the cultural barriers, technological barriers, and environmental barriers such as location.
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