In her speech, Marilyn Carlson Nelson says that the hospitality industry helps to make the world a smaller place through facilitating what she refers to as positive globalization. Indeed, globalization is a process where parts of the world and cultures that initially were far away from each other are brought together in an interaction that encourages them to collaborate instead of clashing. Through such cooperation, new collective identities are developed, the strict borders and misunderstandings between the nations become erased as their representatives grow closer to each other. This is what positive globalization means to me.
Making traveling and tourism easier, the businesses of the hospitality industry provide a larger range of opportunities for people all around the world to move around, learn about the world, expand their list of places where they feel comfortable and safe. This alters the perception of the world as a huge, strange, and hostile place and replaces it with the idea of global friendliness, accessibility, and security.
In my opinion, the outlook of a fresh college graduate is rather close to the one described by Marilyn, because a graduate perceives the world as a place with a lot of opportunities and open doors. A fresh college graduate feels free, inspired, and empowered to pursue various chances, and so does Marilyn when she speaks about using power for good.
The descriptions of her journeys and dialogues confirm that the Carlson Industries has embraced the three facets of sustainability and has been trying to preserve the global economic welfare, make a positive impact on the environment, and work on the side of social justice preserving the right values and addressing the current problems of the world.
Marilyn quotes the words of wisdom of Napoleon Bonaparte, who addressed his troops, offering each of them to obtain a new perspective and imagine themselves as the potential generals, so when the opportunity strikes, they are prepared to take over the leading roles and become the decision-makers. In my understanding, the wisdom of Napoleon emphasizes that there are no unimportant employees. On the contrary, each of them is to be a leader within their own field and be prepared to think outside the box and become an active leader in cases when there is no one else to take care of certain duties.
The specific stories considering the decision making of individual managers of the Carlson Industries shared by Marilyn illustrate that the workers of this company follow the guidelines described in Napoleons wisdom. In times of emergencies and disasters, individual managers took over the responsibilities and started to act as leaders providing help and shelter for thousands of other people. Most importantly, they did all that based on their own belief, their own initiative, empowered by their values.
Becoming a part of the solution instead of a part of a problem is rather hard at times because this requires certain emotional and psychological confidence, strength, and endurance. Taking over the role of a doer instead of the role of a watcher needs courage, and is a part of mentality which can be cultivated and exercised. In the world of business, such mentality can be taught within the organizational culture in order to raise leadership qualities in every single employee and build a staff consisting of proactive thinkers.
Marilyn Carlson Nelson mentions that Carlson Industries was founded in 1938 by her father who had a goal to build a company that would last. This way, the Carlson Industries is a privately held business. The difference between privately and publically held businesses is in the integrity behind their management. The main purpose of the managers of publically held businesses is to be financially successful and earn a lot of money quickly, whereas the goal of privately held businesses is to survive and be passed through generations. Such businesses are built thoroughly with the inclusion of managers who trust and know each other very well, the share owners are family.
Marilyn explains that after she became the CEO of the Carlson Industries she decided to introduce changes to the way the business operated. For example, she stopped the internally encouraged competition between the businesses of the company. She brought them together in collaboration and facilitated sharing of resources and opportunities for the common goals and for the competition with the peers outside of the Carlson Industries. Besides, Marilyn focused on the improvement of human capital of her business creating the working conditions attractive for the high-performing employees to maximize the quality of the working process and this way increase the revenues.
In my opinion, these changes had a positive impact on the structure of the Carlson Industries. Viewing the human capital as a very valuable resource is a modern perspective, attracting better professionals the businesses become more flexible and sophisticated and can compete and innovate on higher level. Another strong improvement increasing the integrity of the business was re-building the structure and removing the internal competition. The compensation system of the organization was changed.
Marilyn explains that the leadership model employed by the Carlson Industries is composed of several blocks which are the opposing components of the structure. They are put on the opposite ends of the schematic circle. Self-management and integrity are in the middle of the circle. Performance orientation and stewardship and one the left and right sides of the circle. Relationships and process discipline are at the top and bottom of the circle. This model is based on the balance between these elements. Representing very different spheres of influence they create equilibrium in the management.
This circle brings the Carlson Industries towards sustainability because it introduces the strong corporate and human values to the organizational culture emphasizing structure, trust and reliability, leadership and professional confidence, the use of power for good and also orientation at strong business performance. In my opinion, the company that is composed of interdependent and integratable services is a very strong competitor. It provides a range of services that can be used by the same customer. This way, if all of these services are of good quality one regular customer is capable of bringing quite a lot of income.
Besides, providing a full-coverage of services for a client the company has better chances to create high customer loyalty. In this care, the profit gained from the interaction with one customer can be calculated from the point of view of the lifetime customer value with better precision. Besides, gaining more regular customers the company does not only secure their future financial success but also creates strong reputation as a competitor.
The negotiation party involved five agents representing the interest of the five employees of Enterprise Corporation as the Salary Committee. I represented the interests of Max Eberly, who is the only design engineer for the company and has two years of work experience. The negotiation team had a difference in allocation of increment to the five employees because of differences in salary scale and number of experiences within the company. There need to negotiate for a fair settlement for the five employees, since each had a critical role within the Enterprise Corporation. To settle for an amicable allocation, we, as members of the salary committee negotiated by allowing each agent to present his or her case for why the employee being represented should have a salary increment.
Each negotiator was given two minutes to present his or her case. The negotiators then highlighted years of experience and responsibility at the company as the primary factors that will influence the amount of salary increment to be added to each employee. This decision was arrived at following a unanimous agreement that more experienced employees should get higher salary increments as a reward for loyalty and steadfast commitment to company production culture. However, there was disagreement on the scale to use in allocating increment based on responsibility in the company.
Specifically, as the negotiator for Max Eberly, I present my worries to the committee that should we allocate salary increments to this employee that is below the current offer by a rival company, we will lose the talented engineer. After the pro and anti arguments on job responsibility salary allocation formula, the committee agreed that for the sake of equality and designing a uniform increment basis at present, all the five employees will be awarded a similar increment of $2,100 on top of the same increment as attached in appendix 1. Conflicting interests almost hindered the settlement process.
Understanding some core aspects of negotiation
From the arguments of the salary committee members, I learned that a strategic negotiation process is completed through compromise and flexibility since I had to settle for an equal salary increment for Max Eberly, despite the fears him leaving the company. The eventual settlement challenged my previous knowledge of negotiation as a free-flowing process. Similar to the negotiation process I carried out alongside Khalid, I had to compromise after listening to the arguments of the other four negotiators. I am convinced that the negotiation unfolded the way it did because each agent was determined to get the best deal for their clients. If I was to be involved in a similar negotiation, I will become more proactive and persuasive to get a better deal since these principles put a negotiator in a strategic settlement position.
The use of video-conferencing media was better than the text-based media because each party had time to study the body language and instant feedback from each negotiator. However, the multiple-user video-conferencing was more challenging than a duo-video conferencing since I had to put up with multiple interruptions. As technological process advice when using video-conferencing for negotiation with multiple participants, there is a need to observe self-discipline among the participants, in terms of observing allocated time and staying within the negotiation premises. In terms of technology, there is a need to expand the video-conferencing interface to ensure that multiple users appear on the screen at once.
Being in charge of a division of Mountain Products Corporation, I have noticed that our company has faced a number of problems connected to several failures with meeting the deadlines. Such failures have a considerable impact on the companys profits as well as on the relations with vendors and popularity among the potential customers.
Our GPS products are already delayed by 6 months so that our competitors become able to present their own production, contact with our constant partners, and provide some of them with similar products within the shortest period of time.
In order to represent several good ideas on how to improve the situation and help the company to return expected profits and to take the same positions in the market, it is very important to evaluate the main causes of our current failure such as inventory shortages of the key parts, to develop a new program that helps to attract the attention of potential vendors and customers, and to introduce future innovations in the most attractive way and prove that our GPS production is still worthy of customers and vendors recognition and use even after this terrible failure is taken into consideration and analyzed from several perspectives.
The current situation of the company is not very pleasant: because of the inventory shortage of the major parts which are extremely important for our production, Mountain Products cannot introduce its goods on time. Several vendors have already rejected our services due to such serious delay of 6 months. It is also necessary to admit that our competitors have already reached the market 2 months ago, this is why their product is in demand right now.
In fact, the main causes of the problem under consideration are connected to poorly developed relations with our partners, lack of attention to the deadlines and strategic management of the activities, and inabilities to evaluate competitors possibilities under the same conditions which are still characterized by the better arrangement of relations at different levels. Fortunately, this situation is not as desperate as it would seem.
There are a number of steps that have to be taken in order to improve the situation, correct the mistakes and problems appeared, and prove the fact that all GPS products and other goods offered by the Mountain Products Corporation may be in demand within a short period of time.
Schilling (2008) suggests paying certain attention to innovation theory in action according to which any company is able to represent a line of innovative ideas and attract peoples attention. Of course, it is also necessary to remember about usual steps such as discounts for vendors and possible actions for consumers: the vast majority of people prefer to rely on sales and events where it is possible to buy a good cheaper in comparison to other companies.
Though such discounts may considerably influence the profits of the company, the idea to return our customers exists and can work. To succeed in this step, it is extremely important to evaluate the prices offered by our competitors and the ways of how their production is implemented by customers.
Another powerful step is connected to the guarantee limitations: the extension of the guarantee for consumers will hardly influence the profits, attract more people, and prove once again that time delays are connected to the improvement of the quality. Right now, our company is ready to present the products and provide customers with long-time guarantees without anxiety about the poor quality of the products.
Finally, it is necessary to admit that our company is working at adopting new GPS location logic that is developed for DOD applications. Unfortunately, our organization has already faced some problems connected to the resources which are important for these products: some of them are still unavailable. Consumers and vendors have to be warned about the possible improvements and innovations, and it seems to be a good opportunity to make use of some media advertisement.
This step should show that Mountain Products Corporations still wants to take care about its customers and partners who are eager to use our services: we remember about each one, share our ideas and prepositions, and inform everyone about changes and improvements which will be available for people.
Our competitors represent their goods on time; of course, it has a negative impact on our company. However, we have powerful grounds to explain our delays and instead, we offer good quality and constant communication with customers and vendors to consider their points and wishes for our future innovations.
In general, the case study under analysis is not an easy one. When a company delays production, many problems appear at different levels. To represent a good solution to the problem, it becomes necessary to consider the opportunities of the competitors, customers and vendors expectations, and the companys own possibilities.
It is wrong to give empty promises to people, and this delay of production has to be indemnified by means of quality, guarantees, and communications by means of which customers and vendors comprehend that such delay is justified.
Reference List
Schilling, M. (2008). Strategic Management of Technological Innovation. New York :McGraw-Hill/Irwin.
Chevron Corporation is one of the worlds largest energy companies that deals with the production and exploration of oil and gas. It was founded in 1879 and served many countries all over the world. Its main products are petroleum, oil, lubricant, natural gas, and fuel. As of 2008, Chevron Corporation had estimated revenue of 273 billion U.S. dollars and an operating income of approximately 42 billion U.S. dollars. Its success is contributed to its numerous assets that were estimated to be 161 billion U.S. dollars as of 2008.
Statistics taken in 2009 reviewed that, Chevron Corporation employs more than 67,000 employees all over the world with more concentration in the United States (Chevron Corporation Company profile: Providing Energy for Human progress 2010). Its headquarters is in California a city called San Ramon, and it operates in more than one hundred and eighty countries
Marketing and Legal Systems
Chevron Corporation has a wide marketing network that covers more than 84 countries, with about twenty-four thousand retail centers. Its daily operation includes producing, transporting, and marketing of energy resources. Most of its resources are found in America, Europe and some parts of South Africa. It has refineries distributed all over the world to serve a large number of its customers.
Chevron products are marketed under three main brands: Caltex, Chevron, and Texaco and its retail outlets are located in six continents that are the U.S., Africa, and Pakistan, among others. Oil, natural gas, and other refined products are transported through pipelines to the major markets such as the United States. It also has a shipping company that transports products to many parts of the world. Chevron Company operates in separate entities which are responsible for managing their business affairs.
However, its financial reports may include the use of certain terms such as, the company, us, our, among others which does not refer to any specific entity but all the subsidiaries of the company (Chevron Corporation. Marketing: Trusted by customers 2010). This ensures that all subsidiaries are treated equally with no superiority of one entity over another.
The company has an audit committee that is responsible for ensuring that, the financial statements are audited by independent accounts, financial risk is monitored, and corporate compliance is monitored by the board of directors.
Political Risks
The possible sources of political risks to the countries in which the company operates may result from global competition for the energy market. We all know that the oil and gas industry is the most profitable industry in the world with exports flooding the global market. Political risks may emerge from the ownership and control of oil and gas reserves that are available in the respective countries.
For instance, the collapse of the Gulf of Mexico oil resulted not only in economic impacts but also political issues regarding who should take the blame, which should be responsible for the clean-up, and whether other rigs should be drilled. The nature of the Chevron products and operations is also likely to be affected by political risks if individualism is given priority than the development of the whole nation.
These risks include drastic changes in the prices of oil and gas, chemical margins, technological developments, increases in exploration expenses, and the list is endless. If I were a political consultant for the company, I would suggest the company to restrain from involving itself in the political matters of the member countries and let them manage their political issues.
Stakeholders
Chevron Company involves itself in constructive discussion with all the stakeholders in identifying and managing issues related to the operation of the business. Its stakeholders include the government, nongovernmental organizations, stockholders, and communities.
To satisfy all these stakeholders, the company engages in annual meetings where annual reports are presented, stockholder proposals are discussed, the human resources are surveyed, contracts between the company and the government are negotiated, and supply from both small and large scale is surveyed. It also holds community outreach programs regularly.
This process may seem difficult for other international companies because it is not always easy to bring the stakeholders together, and many companies do not involve them in the decision-making process (Roberson, 2007).
Companys Code of Conduct
Chevron Company has a code of conduct that is followed by the employees when buying or selling its products. It is the responsibility of the Chevron employees to buy and sell energy resources according to the laid down rules and regulations that guide the companys way of doing business. They are also responsible for reporting the companys information regarding its transactions to the publishers of energy indices, which must be accurate.
Chevron companys transactions are reported consistently with the procedures set by the FERC (Anon. Business Conduct and Ethics code 2010). This includes the submission of trade data to the treasurers department by the Risk management group. The type of trade data submitted includes the transaction date, price, term, volume, and the buying or selling indicator.
Social Programs
Chevron Company has social programs in the countries where it operates. For instance, it collaborates on global initiatives (for instance, the extractive industries Transparency initiative) with the member countries for the welfare of the government and the communities as a whole. It also promotes road security through a program known as Arrive Alive and has offices for promoting support services to customers (Johnston, 2003).
The Future of the Company
There is substantial evidence that the company might monitor their investment and actions in the future reflected in its involvement of the key stakeholders. For instance, employees go through training and retraining programs where they are equipped with skills to meet the current demand and to help them advance with technology.
It also has programs that are aimed at the development of suppliers and for safety; it participates in the studies developed by the National Petroleum Council and engages in direct discussion with the governments where it operates from (Johnston, 2003). Chevron Company has embarked on research and development programs in the respective countries to look for ways of promoting business success to become profitable.
Reference List
Anon. (2010). Business Conduct and Ethics code. Web.
Chevron Corporation (2010). Company profile: Providing Energy for Human progress. Web.
Chevron Corporation (2010). Marketing: Trusted by customers. Web.
Johnston, D. C. (2003). Perfectly legal. New York: Penguin Group.
Roberson, J. (2007) Supplier Cobasys exploring more hybrid batteries. New York: Detroit free press.
Lexus Corporation was established in 1989 as subsidiary firm to Toyota Motor Corporation. The firm has its headquarters located at Toyota, Aichi in Japan. The corporation has attained global market recognition over the years it has been in operation. In 2009, Lexus cars were marketed in more than seventy countries globally. This is inline with the companys internationalization strategy. Some of the reasons which contribute to the firms success relates to manufacturing of luxurious and superior quality cars.
In addition, the firm is committed towards delivering a high level of customer satisfaction. Considering the changes in customer tastes and preferences, the firm undertakes continuous innovation on its car models. As a result, the firm has managed to develop a portfolio of car models which include sedans, convertibles, hybrids, luxury utility, F Performance.
The firms innovation strategy is aimed at ensuring that the firms products appeal to the global market. In an effort to improve its performance, Toyota Motor Corporation undertook corporate reorganization in 2000. As a result, Lexus attained autonomy to design engineer and manufacture cars which are solely for the division. The firms sedan models which include IS, LS and GS are designed as global models.
In an effort to expand its global market share, the firms management team has identified United Arabs Emirates [hereafter referred to as UAE] to be a viable market for its Sedan IS model. Therefore UAE forms the firms geographic basis.
In designing and manufacturing Lexus IS, the firms relevant market is the entry-level and mid-level sedans. However, the firm is faced from intense competition from other firms such as BMW, Mercedez and Audi.
In the process of formulating a marketing strategy, a firms management team is presented with two main choices. One of these relates to primary demand strategy while the other entails selective demand strategy. According to Pride, Hughes and Kapoor (2009, p.85), primary demand strategy entails increasing a firms market share in its relevant market. Alternatively, primary demand is present when potential customers portray interest to purchase a certain product or service.
Primary demand may arise from existence of a gap in the firms marketing communication strategy. As a result, the potential customers may not have information regarding the product. One of the ways through which this can be attained is by attracting non-users to consider the firms product in their purchasing patterns.
Selective demand strategy entail strategies aimed at stimulating demand for a particular brand. According to Pride, Hughes and Kapoor (2009, p.85), selective demand arises if consumers recognize the need to integrate a particular product or service in his or her consumption pattern. As a result of selective demand, an individual undertakes a comprehensive search of information regarding the product identified.
This arises from the fact that the individual understands that the product will aid in solving the particular need. In the process of searching information, an individual compares the product with other competing product on the basis of various aspects such as quality and value. The core objective of selective demand strategy is to enhance a firms competitive edge with regard to a particular product or service.
Lexus IS (Intelligent Sport) is one of the most popular Lexus car models. Initially, the car was launched in the market as an entry-level sport car model. Considering the competitive nature of the Automotive Industry, the firm has launched a number of Lexus IS generations with different characteristics from 2000 to present. The new models are an improvement of previous models. Lexus IS is fitted with safety features such as standard dual airbags both rear and front.
This minimizes both side and front impacts in the event of a crash. In addition, Lexus IS has side curtain airbags. In addition, the model is fitted with Vehicle Stability Control. The second generation which was the most prominent from 2005 to 2008 was fitted with luxurious interior features such as lightsaber, LED interior lighting and leather seats.
The model can also has a memory system which has the capacity of recalling positions of other components such as the side mirror, steer wheel and the drivers seat. It is also fitted with a backup camera, navigation system and Bluetooth. In 2009, the company improved ISs interior and exterior features so as to improve stability. In addition, the new model had hardtop convertible features.
In 2010, the firm introduced a new model, the IS 350 C-F Sport. The new model has got new features such as larger brakes, upgraded sport suspension. Later in the year, the firm upgraded the IS 350 C-F Sport to IS 220d which is currently considered to be the most efficient model. This arises from its features such as its engine retuning, additional interior and exterior features. In addition, the models all-wheel drive features were also innovated.
The purpose of this paper is to present a comprehensive marketing strategy which Lexus Corporation should adopt in marketing its IS model. The strategy covers three years, that is, 2011, 2012, and 2013. In order to identify and recommend the most appropriate market strategies on the basis of primary and or selective demand, a comprehensive market measurement is conducted. Finally, a summary and justification of the marketing strategy recommendations is outlined.
Market Measurement
UAE is one of the largest markets for luxury cars in the Gulf region. According to Maierbrugger (2010), there has been an increment in demand for luxury cars in the region. Most of the luxury car manufacturing firms which have ventured into the region have reported an increment in their level of sales in this region. UAE presents a viable destination for luxury car manufacturers to venture into. This arises from the social changes amongst the citizens with regard to lifestyle.
A large number of consumers are incorporating lifestyle in their purchasing patterns. Demand for luxury cars in UAE has increased because individuals want to stand out. Consumers are characterized by a high propensity of extravagance and opulence. The expatriates in UAE are the major luxury cars customers accounting for approximately 50% of the total luxury cars customers.
As a result of this trend, the sale of luxury cars in UAE has undergone a double digit growth (Goliath, 2010, para. 7). This means that behavioral market segmentation characterizes the market for luxury cars in the country. A study conducted by Synovate Survey revealed that 58% of all the respondents interviewed prefer consuming luxurious products (Baxter, 2010).
The 2007 financial crisis negatively affected the market for luxury sports cars in UAE. As a result, there was a shift in consumer behavior towards more affordable cars. In addition, there has been an increment in preference of small cars.
Despite these changes, the preference for luxury cars is still high. The luxury car market segment underwent a minimal decline compared to other car segments. There has been an increment in demand for luxury cars amongst the upper income earners. This arises from the fact that consumers are regaining confidence in their consumption pattern (Fuchs & Dokoupil, 2010, para. 6).
According to Goliath (para. 1), there is a direct correlation between the sales of luxury cars and per capital income. Considering the increment in demand for oil which contributes significantly to UAEs Gross Domestic Product (GDP), there has been an increment in the countrys per capita income. The countrys per capita income is $ 42,285. The increment in the countrys per capita income indicates that there is a high probability of a large number of consumers affording entry-level cars.
The increment in demand is motivated by the fact that the price for luxury cars was relatively low in 2009 compared to 2008. Considering the price sensitive nature of consumers, the low price encouraged a large number of customers to purchase the cars (Saleem, 2009).
According to Maierbrugger (2010), Lexus recorded an increment in its sales revenue with a margin of 7%. When asked their preference with regard to luxury sports car, 75% of the respondents said that they consider the cars features, size, price and speed. This indicates that there is a high probability of the firm to customize its car model to meet the customers requirements.
Despite the fact that the demand for luxury cars is distributed across the various sub-segments in the market, luxury cars in Gulf countries account for only 1-2% of the global sales. According to a report by HIS Global Insight, it is projected that car sales in UAE would increase from the expected 210,000 units in 2010 to 240,000 in 2011. In marketing Lexus IS, the firm targets males who are in their 30s and whose lifestyle is considered to be above average to enable them afford a Lexus.
From a market research conducted by MapXL Limited, in 2007, Dubais total population was 1,422,000. Of these, the males were 1,073,000 while the females were 349,000. In addition, it is estimated that expatriates and foreigners account for 71% of the total Dubais population. This means that there are approximately 1,009,620 expatriates (that is 71% of 1, 422, 000= 1,009, 620). Considering that 50% of luxury car customers are expatriates, it is estimated that luxury car users are 504,810.
Therefore, approximately 504, 810 expatriates are currently not luxury cars customers. In addition, the average age is estimated to be 27 years ( MapXL Limited, 2009). Considering the fact that UAE is a growing economy, there is a high probability of the countrys population to increasing. This presents a market opportunity for Lexus to increase its IS sales by marketing to these potential customers. This indicates that the market presents a viable market opportunity for Lexus to market Lexus IS.
Strategic Considerations for Determining Strategic Route
Market Measurement
From the market measurement conducted, it is evident that the market presents both primary and selective market demand. For example, there are a large number of potential customers who have not integrated luxury cars in their consumption patterns. Only a half of the expatriates, 504, 810, have currently considered purchasing luxury cars. The other half which forms primary demand has not thus increasing the market potential for primary demand.
Competition Analysis and Likelihood of Competitive Reaction
Considering the fact that UAE is an emerging economy, the country automotive industry is ranked as one of the most competitive in the Gulf Region with regard to luxury cars. The largest players in the industry which include Mercedes-Benz, BMW, Infiniti and Lexus account for 60% of the countrys luxury car sales. Due to the lucrative nature of the industry, other firms are implementing strategies aimed at challenging the firms dominance.
In addition, new entrants into the industry will result into reduction in the industrys level of profitability. This arises from the fact that the degree of rivalry amongst firms will be increased. From the environmental scan conducted, it is evident that the competitive degree of the industry will increase over the next three years.
The competitors reaction to develop their competitiveness will instigate the degree of rivalry in the industry. This presents a competitive threat to other established firms such as Lexus. Despite the increment in the industrys competitiveness, the firm has managed to develop its competitiveness.
One of the ways through which this is achieved is by increasing its sales incentives. Decision to implement this strategy arose from realization of the consumers price sensitive nature. As a result, the firm has increased its sales incentive from $1,476 in 2009 to $3, 124 in 2010 for every vehicle.
On the other hand, the competing firms BMW and Mercedes undertook a reduction in their sales incentives. For example, BMW reduced its sales incentives with a margin of 43% to settle at $ 3, 162 per vehicle while Mercedes reduced its sales incentive by 1% to $ 4, 195.
The findings of the environmental scan conducted has indicated that firms in the automobile industry in UAE are increasingly undertaking product innovation and new product development in an effort to attain a superior market position and increasing their sales. The large number of players who are venturing into the UAE luxury car industry means that there is a high probability of the number of substitute products increasing which presents a threat in the next three years.
In order for Lexus Corporation to position its brand effectively in the market in the next three years, it must develop strategies aimed at increasing its market share. One of the ways through which this can be achieved is through integration of primary demand strategies. For example, the firm should adhere to its continuous product development strategy.
As a result, Lexus will be able to improve some of the features and performance of its IS model. The resultant effect is that the models brand equity will be improved. This will culminate into the firm attracting potential customers in addition to retaining brand loyalty.
Resource and Capabilities
The firms success since its inception has resulted from incorporation of research and development. Considering the fact that pursuing primary demand is costly, the firms resource and capabilities will enable it to undertake the strategy effectively. According to UAE Today (2010), the Lexus models which were exhibited during this years Motor Show revealed Lexus to be a market leader with regard to technological innovation.
The firms innovative capability has enabled it to develop car models which fit various luxury segments. According to UAE Today (2010), the firm has been able to develop elegant car models which are increasingly appealing the customers. As a result, the firm has been able to break existing customer loyalty with regard to competing brands.
The firm has an experienced research and development team which has enabled the firm to effectively undertake improvement in its Lexus IS model. The firms efficiency in conducting research and development is also enhanced by the firms financial strength. Its effectiveness in research and development has played a significant role in enhancing its competitive edge.
The firms IS sedan brand which the firm has developed over the years is currently considered as the most firms significant resources. As a result of the firms commitment towards research and development, Lexus has been able to develop a pioneering advantage. This arises from the fact that firm has been able to introduce new segments with regard to luxury cars. According to UAE Today (2010), the growth in firms sales in UAE is as a result of new generations.
The firms management team has appreciated the fact that consumers are dynamic with regard to tastes and preferences. In an effort to create and retain customer loyalty, the firm undertakes continuous product innovation.
This is evident in the fact that the firm has developed a number of Lexus IS generations since its inception through improvement and incorporation of new features. The resultant effect is that the firm has been able to develop consumer brand equity. Over the years, the consumers are increasingly being appealed by the Lexus IS brand. The firms pioneering advantage has enabled it to attain its high level of customer satisfaction objective (UAE Today, 2010).
Lexus has witnessed a tremendous growth in UAE over the past 3 years. Despite the effects of the global economic recession on consumers purchasing power, the firm has experienced growth in its market share. As a result of increased popularity, Lexus gained entry into the top automobile brand index in UAE.
The above analysis gives a strong justification that the firm should pursue primary demand marketing strategy. Considering the fact that the two strategies are not mutually exclusive, pursuing primary demand will also influence the firms selective demand.
Marketing Strategies to Increase Primary Demand
In order to develop a high competitive advantage, it is paramount for the firms management team to consider stimulating the primary demand presented in the market. In order to achieve this, there are a number of primary demand strategies which the firm can consider. The strategies considered should mainly focus at the non-users.
Increasing the Consumers Willingness to Buy
In order to stimulate demand amongst potential non-users, the firm should ensure that there is a comprehensive market awareness regarding the benefits achieved by consuming the product. In this case, the firm should ensure that consumers understand the appealing characteristics of its Lexus IS model.
Some of the benefits which the firm should focus relate to the price of Lexus IS and its features such as size, safety features, its environmental friendly characteristic and oil consumption. Considering the fact that consumers are price sensitive, there is a high probability of the firm stimulating demand by focusing on the price of Lexus IS in comparison with competing car models.
Customizing Its Products
To ensure that the car model effectively address the market needs, the firm should conduct a comprehensive consumer market research. This will aid in the identification of the customers product requirements. As a result, the firm will be able to customize the entire process of new product innovation.
For example, customers are increasingly incorporating the concept of environmental sustainability. This is evident in the customers shift towards eco-friendly cars. This shift in consumerism will affect the demand within the automobile industry in the next three years.
Increasing Consumers Ability to Purchase
In addition, primary demand for automobiles in the next three years in UAE will be affected by the effects of the 2007 financial crisis. This arises from the fact that customers have become more conservative in their consumption patterns. There has been a shift towards consumption of necessities as opposed to luxuries.
In order to appeal to the market considering the economic changes, Lexus should ensure that it develops a positive consumer perception by integrating fairness in its pricing strategy. One of the ways through which it can achieve this is by setting the price point for Lexus IS at a relatively lower level.
Incorporating Electronic Commerce to Ensure Product Availability
The firm should also ensure that there is a sufficient accessibility regarding the vehicle. This can be achieved through incorporation of electronic commerce technology. As a result, a wide range of potential customers can be able to access the product.
Demonstrating New Benefits from Existing Products
In order for the firm to ensure that the potential customers understand the benefits associated with consuming the product, the firm should demonstrate these benefits. For example, the firm should create information regarding its new models. The key considerations in the new models should relate to the added features.
Existing Users
Encouraging Replacement
In order to stimulate demand amongst the existing users, the firms management team should encourage its existing customers to replace their cars from time to time. This will aid in stimulating primary demand considering the fact that Lexus IS model are usually re-launched leading to emergence of a new generation.
Strategies to Acquire the Competitors Customers
The firm should also consider increasing its market share by acquiring its competitors customers. Some of the strategies it should consider relate to differentiated positioning and head to head positioning. With regard to differentiated positioning, the firm should ensure that its Lexus IS model is unique. This can be achieved by capitalizing on features which are not offered by its competitors.
On the other hand, head-to-head positioning entails ensuring that a firms products are almost similar to competing products. In an effort to cope with the intense competition in the industry, the firm should ensure that Lexus IS competiveness is based on technology. Considering the dynamic nature of the technological environment, the firms management team should ensure that it continuously fine-tunes the Lexus IS functionalities. The resultant effect is an increment in the products competitiveness.
Upon stimulating the primary demand, the firm should ensure that the demand is retained and expanded. This can be achieved by ensuring that there is a high level of customer satisfaction through development of superior customer experience. In addition, the firm should incorporate relationship marketing. This can be achieved through incorporation of customer relationship management. This will culminate into development of customer loyalty.
Marketing Mix
Product
To enhance the competitiveness of Lexus IS, the firms management should ensure that it attains the three levels of a product. This arises from the fact that consumers consider the three levels in their purchasing patterns. A car has all the three levels which include the core product, actual product and the augmented product. The firms management team should ensure that the consumers achieve the desired benefit such as the speed upon purchasing the car.
On the other hand, the actual product should be delivered by ensuring that the product is affordable and easy to maintain. With regard to augmented product, it should be ensured that there is an added value associated with the car. For example, Lexus IS should have a warranty and other after-sales services.
The warranty issued on Lexus IS should extend for a considerable duration of time such as five years. On the other hand, free maintenance should also extend for a substantial period such as three years. In order to meet the diverse customer demands, the concept of product line extension should be incorporated.
Pricing Strategy
Considering the fact that the firm intends to sell Lexus IS at both entry and mid-level, it should ensured that its pricing strategy stimulates the market demand. This can be achieved by incorporating penetration pricing strategy which entails setting the price of Lexus at a relatively low level.
In addition, the firm should enhance its pricing strategy by integrating discounts. Considering the price consciousness nature of the consumers, the firms penetration strategy will enable consumers to develop a positive attitude towards the new generations of Lexus IS introduced in the market. This means that penetration pricing strategy will contribute towards the firm attracting new customers.
Promotion Strategy
Creating market awareness is one of the ways through which the firm can increase Lexus IS sales. In its marketing communication strategy, the firm should ensure that it dispels any market misconceptions regarding Lexus IS. The communication should focus on various aspects of Lexus IS such as its speed, features and safety.
To create effective market awareness, the firm should incorporate the concept of Integrated Marketing Communication (IMC). Various communications mix such as advertising, public relation and internet promotion should be considered. By conducting public relation, the firm will be able to entrench the concept of product reliability amongst the consumers through provision of in-depth information regarding Lexus IS compared to advertising.
Distribution Strategy
Lexus Corporation should ensure that its IS model is easily accessible in the entire market in UAE. In order to achieve this, the firms management team should integrate both direct and indirect channels of distribution. Direct distribution should be attained through establishment of outlets within the entire UAE. In its initial phase, the firm should invite established dealers within UAE.
Selection of the dealers should be based on a comprehensive criterion. The selected dealers should be able to cover the entire UAE market. The management team should ensure that there is a well established relationship between parties within the distribution channel.
Summary and Justification
The paper outlines the marketing strategy for Lexus Corporation for the next three years. The proposed marketing strategy employs primary demand strategies. The main focus is on potential customers. However, considering the fact that primary demand and selective demand are not mutually exclusive, the strategy also considers the existing users. The firms effort to stimulate primary demand is centered on a number of concepts.
These include increasing the consumers willingness to buy, customizing its products, increasing consumers ability to purchase, and encouraging replacement, incorporating electronic commerce to ensure product availability and demonstrating new benefits from existing products. In addition, the firm has also integrated strategies aimed at acquiring the competitors customers. These strategies relate to differentiated positioning and head-to-head differentiation.
Upon stimulating primary demand, the firms management team should ensure that the demand is retained and expanded. Some of the strategies through which this can be achieved include enhancing customer satisfaction and integrating relationship marketing. In addition, the firm should undertake continuous development on its Lexus IS model.
By integrating these strategies in marketing Lexus IS in UAE, there is a high probability of the firm improving its performance. For example, the firm will increase its customer base and hence its financial stability. In addition, the firms competitive advantage and market position will also be improved.
The paper also entails a number of recommendations in relation to marketing mix variables. To ensure a high level of customer satisfaction, the firms management team will ensure that the customers achieve the desired benefits. The pricing strategy adopted will enhance affordability of Lexus IS.
In addition, the strategy will contribute towards creation of a positive attitude regarding the product amongst the customers. Through its communication mix, it will be possible for the firm to create sufficient market awareness. On the other hand, the firms distribution strategy will ensure ease of accessibility of Lexus IS I the entire market.
UAE Today. (2010). Lexus reveals stunning showcase of technological innovation at the 10th Dubai international motor show including the regions first full hybrid vehicle. Web.
This case study revolves around John Parker, who has previously been working as a manager in Digimat, the United States-based corporation with subsidiaries in parts of Asia and Europe. John has had a successful career while at Digimat, whereby he has been posted to be in charge of subsidiaries in Australia, China and Singapore following his assignment as the Asia Pacific Sales Director. With his new assignment and his excellent academic credentials, John has been transferred to China as his career required him to spend most of his time in China. In China, he is warmly received by his subordinates. He views this as the converse of what he had earlier thought of the Chinese staff (Geert 2001).
John assumes that the way, his management style worked in America and other Asian countries where Digimat has subsidiaries, would be the same in China. John is autocratic; he notices that the Chinese teams are somehow sceptical to his leadership style and experiences too. The business environment requires close consideration of the cultures of different market segments; this is the key to success for any business (Geert 2001). John realizes that the working relationship between him and the Chinese sales teams is poor; he assumes all this and fails to put the Chinese culture into context. He uses his autocratic nature to deny the Chinese team platform for airing their views; he also fails to incorporate the Chinese culture in his leadership style. Subsequently, this leads to a demoralized working team among Chinese employees.
John believes that motivating a diversified workforce means using tangible rewards. He fails to understand the intrinsic and extrinsic motivation. According to Herzberg, the opposite of satisfaction is not dissatisfaction (Gummesson 2000). John doesnt put into perspective that the Chinese teams are resisting changes? So he fails to incorporate Chinese culture into the change management process and solely relies on his experience and working success outside China. At some point, he assumes that the knowledge transfer process will not have drawbacks in China since Digimat has launched a global ERP system. He fails to understand that the ERP system was not standardized to fit in the Chinese working environment as he was informed by one of the subordinates.
John faces numerous challenges while leading the Chinese employees working in Digimat subsidiary in China. Compared to John, Jeremy Lin from Taiwan, the head of research and development of Digimat Corporation in China, has a perfect working relationship with his Chinese subordinates. His success is owed to the fact that he understands the Chinese culture and always puts it in context while working in China. John envies Jeremys success. Later, Jeremy introduces John to his predecessor Bob Martin from Europe, who had a successful career in China. Bob shares his experiences with John on how he can incorporate the Chinese culture in the change management process. Bob urges John to spend time in building good working relationships and in developing trust, the same way he did while he was at the helm of Digimat in China. This will, in turn, encourage open-mindedness among the Chinese subordinates and at the same time, give John an edge while leading the Chinese employees.
Key stakeholders
In this case study, there are notable key stakeholders. They are the headquarters of Digimat Corporation in the United States, the employees of Digimat Corporation, the Chinese government, the subsidiary of Digimat Corporation in China, the Chinese Community, and, finally, the Chinese trade unions such as the sales or marketing societies.
Analysis of relevant theories
This case study touches two main theories. These theories are the motivation theories and the cultural theories (Hofstede 2010). Along with the entire case study, the main conflicts have arisen due to the failure of recognizing the culture and motivation. Hofstede (2010) developed a cultural framework using factor analysis. In his model, he noted that there are five dimensions of culture that are open for analysis. In his cultural dimension theory, Hofstedes notes these dimensions for analyzing cultural values. These include uncertainty-avoidance, individualism-collectivism, long-term orientation, power distance and masculinity-femininity dimensions. They form a framework for cross-culture communication. According to Hofstede (2010), culture is viewed as a source of conflict rather than synergy. Cultural differences are a nuisance and the cause of disasters (Hofstede 2010).
In the case study, John Parker failed to consider the cultural differences in different parts of the world. He assumed that the same way his leadership style was successful in America, Australia, and Singapore it would succeed in China. He failed to put the Chinese culture into perspective, and this, in turn, led to conflicts and sluggishness among the working teams. This was due to the fact that the aspect of culture was missing (Hofstede 2010).
Incorporating the Chinese culture in his management skills was very important for creating group cohesiveness and ensuring that the working groups worked towards a specific goal. Johns actions resulted in misunderstandings between him and the Chinese teams, and this was worsened by the fact that he was insensitive to cultural diversity (Hofstede 2010). Another aspect that John failed to incorporate was the motivation for his subordinates. He failed to understand that motivation is intrinsic and extrinsic. According to Gummesson (2000), high morale does not mean job satisfaction and the opposite of satisfaction is not discontent. Hygiene factors such as giving job titles, recognition, fair company policies and favourable working conditions are vital to the success of any venture. An employees morale is boosted through motivation (Springer, 2013).
This involves the use of both tangible and intangible rewards with the aim of increasing productivity. No statement in the case study indicated that John motivated his subordinates. This resulted in poor working relationships and mistrust as well. Actually, one of the employees is quoted to have preferred Johns predecessor to be at the helm of the China-based firm.
Key commercial learning as a benchmark for other organizations
This case study presents the following key information that can serve as a benchmark for other organizations venturing in a similar field. First, failure to recognize cultural differences within the different and diversified workforce is detrimental to the success of any organization (Minkov 2007). This is the cause of conflicts and often a nuisance at its best. The key to success is incorporating the culture of the market segments in an organizations plan (Petrakis 2014). Finally, the morale of employees is boosted by motivation (Springer, 2013). It should be two-way in order to satisfy both the intrinsic and extrinsic needs. This, in turn, leads to job satisfaction and increased performance.
References
Geert, H 2001, Cultures Consequences: comparing values, behaviors, institutions, and organizations across nations, Cambridge University Press, Cambridge. Web.
Gummesson, E 2000, Qualitative Methods in Management Research, Polity Press, Cambridge. Web.
Hofstede, G 2010, Cultures and Organizations: Software of the Mind, McGraw-Hill, New York. Web.
Minkov, M 2007, What makes us different and similar: A new interpretation of the World Values Survey and other cross-cultural data, Klasikay Stil Publishing House, Sofia. Web.
Petrakis, P 2014, Culture, Growth and Economic Policy, Pearson, Upper Saddle River, New Jersey. Web.
Springer, D 2013, Qualitative Research in Business & Management. Sage Publications, London. Web.
The adoption and implementation of IRV by Progressive Insurance have played an important role in enhancing its productivity in serving customers quickly and effectively. The use of communication gears such as printers, cell phones, and laptops in its fleet of vehicles that visit sites of accidents and offices has enhanced its ability to achieve more than merely working from the office (Anon par 4). Through IRV, Progressive Insurance has been able to keep the call volume of its customers elevated alongside creating high-quality customer service.
Data storage in UniFirst
The use of PDA and other similar technologies has allowed UniFirst to access, store data, conduct follow-ups, and make sales calls. Many companies have kept their huge amount of data on products, sales, and employees on papers and paperwork. Through PDA, the company has been able to effectively store its data which its customers or employees can access via mobile CMR application. Besides, the use of PDA has lowered operational costs on calendars and planners.
Growth
The use of modern and effective technology has been lauded as a method that allows businesses to grow and expand their operations. The use of PDA and IRV systems by both UniFirst and Progressive Insurance have enabled the businesses to expand, increase their output and customer base. For instance, at Progressive Insurance, the use of IRV has enabled improved customer retention, reduced labor cost, and enhanced both speed and number of customers is reached. Besides, through their technologies, UniFirst and Progressive companies have been able to enhance their customer relationships, ease access to files, speed up operational processes, and achieve quicker results.
Business challenges of using wireless technology
Loss of data and redundancies: PDAs and IRVs like other new technologies have caused problems to workers and employers in UniFirst and Progressive respectively. One important limitation for UniFirst is that the use of PDA is a major cause of loss of input data and layoffs especially for workers who carry out data entry duties. Besides, introducing and establishing IRV and PDA technologies require greater capital and may take time to integrate thus slow down business operations.
Also, due to layoffs and new technology, redundancies may occur when training fresh workers or retraining workers to use the technology. The computer system technology that Progressive Insurance can add to its IRV is the office automation system. This system uses a variety of software and computer machinery to relay, manipulate, store, collect, and digitally create information (Shelly and Vermaat 120). It can be useful for collecting data from the area of the accident and relay it to the office.
Besides, the company needs this system because it will provide it with easy management and full automation of insurance processes which include claims management, reinsurance, and management of the policy. Other important factors it will enable to enhance productivity will include the management of human resources, insurance agents, finances, and accounting. UniFirst should switch away from PDA and start using a laptop.
Even though some PDAs have propriety operating systems like Windows CE and Palm OS, all PDAs have less storage and memory space compared to laptops and are also less powerful. Using a laptop is beneficial over PDA as the former can be used outside the office to save large files, run complex applications, and to do tasks greater than spreadsheet duties.
Other possible substitutes for PDA
In the current digital age, several systems could be used to substitute PDA or pocket PCs. Such operating systems include Plan 9 which operates on IPAQ Familiar Linux and the NetBSD. Analysts think that these items are suitable alternatives to the Pocket PC and have unique and more advanced features like GPS, a higher storage capacity, and a good processor (Shelly and Vermaat 100).
New possible devices
Some of the new devices in the market that perform similar and better functions like the PDA include smartphones like the iPhone which has business applications and an on-screen keyboard, Android, and Palm.
Works Cited
Anon. Progressive Insurance and UniFirst Corp.: The business case for mobile computing system source. n.d. Web.
Shelly, Gary and Vermaat, Misty. First Look Microsoft Office 2010, Boston: MA: Cengage Learning Inc. 2010. Print.
Bayer is a multinational corporation with a history of over 150 years. Life science is a primary concern of the company. Once in its history, the company experienced a crisis at one of the plants which were passed due to sound management. The company changed ownership three times for seven months. The work was reduced more than twice during that period. The company was working at a loss. Then the task of the management was to return the company to the market and make it competitive again. The involvement of employees and HR made the changes possible and fruitful.
Changes at Bayer
According to Gibson, Ivancevich, Donnelly, & Konoposke (2012), the changes occurring at Bayer can be identified as empowerment. It dealt more with empowering individuals. The employees were suggested to answer some open-ended questions. Their analysis was supposed to reveal what was going on at the plant. They aimed to figure out the reasons why people leave the plant or continue working there. The feedback was analyzed, and it brought about thirty problems to deal with. Considering a generic typology of organizational change suggested by Kinicki & Fugate (2015), Bayer plant was experiencing innovative change. It was mainly addressing the treatment of employees and their participation in the process of change. The processes at Bayers plan also have the features of incremental change (Benn, Dunphy, & Griffits, 2014).
Employee Resistance to Change
Employee resistance to change is a common part of any company transformation process. Gibson et al. (2012) single out four major reasons for employee resistance to change. They are parochial self-interest, misunderstanding, and lack of trust, different assessments, and a low tolerance for change. In the case of Bayer, there were some reasons combined. First of all, self-interest was present. Employees were satisfied with the bonus system they had and were afraid to lose it. Secondly, misunderstanding and lack of trust were also involved. The company changed ownership three times within a short period. As a result, new management came. It is evident that at the initial stage of changes the workers did not know what to expect and did not favor changes. The new management realized that not only the business component of the company was changing. They had to consider hopes, fears, and dreams of the people working for the company. The efficient way is to involve employees in the process of change to see their reactions and make alterations in the case of necessity. The management should be aware that resistance is a normal process. It can be effectively managed if identified correctly (Cameron & Green, 2015).
Lessons to Learn
One of the positive lessons that should be remembered from Bayer changes is the involvement of employees. Often the transformation process of the company is conducted on the management level, and the workers are only informed of the results. It is not an efficient approach since employees know the working process from inside and may have ideas on its improvement. In respect of workers, communication is crucial. The employees need to be informed of the projects, the performance, and the plans. Thus the electronic newsletter introduces at the plant can be an example to follow. Besides, the workers shared their ideas about the possible reasons for past failures and the possible improvements to avoid their repetition in the future. Here the lesson to learn is that the employees of a plant work there much longer than the new managers and listening to them may increase the effectiveness. Another good idea implemented by Bayer is the consumers care division. A company can be competitive and profitable only when it has consumers. The negative lesson from the changes at Bayer is the loss of workforce. A fast thoughtless start of changes process led to employees uncertainty and resulted in staff reduction from 800 to 360 people within a year.
Organizational Behavior in the Process of Change
Organizational change is a complicated process touching financial, social, and psychological aspects. The concepts of organizational behavior should be implied to make this process past faster and with fewer losses. Change management involves the knowledge of change agents. Depending on the agent, internal, external, or mixed, a strategy of change management is developed. It is important to include resistance to change as one of the factors. It can be reduced through listening, investigation, and understanding of its causes (Gibson et al., 2012). Besides, a systematic approach can be used in the process of managing change. It should consider the forces for change, affect its outcomes, detect the problem, choose the solution, consider the conditions, implement the method, and make necessary alterations after its evaluation. It should also be considered that any change is stress (Kinicki & Fugate, 2015). Thus, stress management techniques are necessary.
Conclusions
In most cases, organizational change is a step forward to a more efficient work. Despite the problems that may arise, it is important to treat it positively. A change should be planned and discussed with the employees. It is necessary to provide adjustments in the change process since the practical implementation may differ from the theory. Finally, after probation and modification, the change process will give the desired results.
References
Benn, S., Dunphy, D., & Griffiths. A. (2014). Organizational change for corporate sustainability. (3rd ed.). New York, NY: Routledge.
Cameron, E., & Green, M. (2015). Making sense of change management: A complete guide to the models, tools and techniques of organizational change. (3rd ed.). London, UK: Kogan Page.
Gibson, J.L., Ivancevich, J.M., Donnelly, J.H., & Konoposke, R. (2012). Organizations: behavior, structure, processes. (14th ed.). New York, NY: McGraw-Hill.
Kinicki, A., & Fugate, M. (2015). Organizational behavior: A practical, problem-solving approach. Burr Ridge, IL: McGraw-Hill.
In 2007, the world suffered from a global financial crisis that was believed to have originated from the United States of America Mortgage industry. Two years down the lane, companies were struggling to meet their corporate goals and objective amidst the hard economic time. Nucor is an American Steel company headquartered in Charlotte, North Carolina; it is the largest steel recycler and second-largest steel company in the United States.
To remain competitive is the steel industry the companys management makes strategic decisions to address prevailing challenges. However, in 2009, the company made the largest loss in its history of $299 million; the loss was the first annual loss since 1966 (Nucor Corporation Official Website). This paper undertakes an internal and external analysis of Nucor; it will focus on the situation of 2009.
Background of the company
Nucor is the second-largest steel manufacturer in the United States; it was incorporated in 1955 as Nuclear Corporation of America and listed on New York Stock exchange. The company has the following subsidies: Nucor Building Systems, Nucor-Yamato Steel Company, Nucor Grinding Balls, Vulcraft, Nucor Cold Finish, Nucor Bearing Products, and Nucor Fastener. The main business approach/strategy adopted by the company is the drastic undercutting of the foreign and domestic markets.
To maintain a leadership position in the industry, the company has an organizational culture that motivates employees to be innovative, creative, and inventive. In the late 1960s, the company launched the steel minimill industry which focuses on recycling and the flat-rolled market. In 2009, Nucor made a sale of $11.19 Billion (the revenue was its consolidated revenue both from subsidiaries, and sub-subsidiaries) which resulted in an operating loss of $293 million.
According to the companys management, the result was the poorest the company has ever had; other than in 2009 the last year that the company had had an operating loss was in 1966. The number of employees in the company as of 2009 amounted to 20,400 up from 6,600 in 1997 (Nucor Corporation Official Website).
The external environment in 2009
The year 2009 is characterized by aggressive business policies aimed at mitigating the negative effects of the global financial crisis, during the period, the world was on a recovery track and individual countries and companies were enacting policies to recover. The following are some of the main external parameters that Nucor had to contend with:
Political Factors
The United States government enacted policies that facilitated the recovery of the economy; the policies involved giving incentives to domestic companies to facilitate exportation. In the international markets, countries tended discouraging exportation in the move to reduce competition to their domestic countries. The company suffered from discouraged international market trends; this leads to the reduction of its international market.
Economic Factors
The United States enacted monetary and fiscal policies to control the economy; on the international scene, there were nontariff and tariff barriers that were enacted by different countries to discourage importation. Although monetary and fiscal policies in the United State aimed at creating a conducive business environment, the net effect from tariff and non-tariff policies lead to a reduction of the companys sales and gross profit margin.
Socioeconomic Factors
With the challenging economic environment, the disposable income of the Americans among other nationalists reduced. When people have less disposable income it means they are likely to shy off from developmental activities like building among other steel products uses. The depreciated purchasing power parity of the people in 2009 is likely to have resulted in reduced income of Nucor. The 2007 global financial crisis is believed to have been caused by the housing sector (mortgage), with the discovery individuals and corporate were shying off from investing in the segment of the economy, the net result was reduced demand for Nucor products.
Technological Factors
The world is advancing fast in technology; there different products that are being invented and innovated through technology. One invention that was triggered by the need to manage cost during the 2009 economic crisis recovery period was the use of plastic materials to replace come functions that were previous done by metals. Nucor product demand was affected negatively by the existence of substitute products made of plastic. Plastic products are cheaper and are easily molded than steel; this made them a better choice than steel (Haller 1-12).
Internal Analysis
The internal analysis looks into policies and managerial decisions made by a company in the effort to create competitiveness in its operations. In 2009, Nucor made some internal interventions to improve its operations as follows:
Inbound Logistics
Nucor has a robust supply and logistics department that handles the matter of domestic and international supply of goods. In 2009, the company had to look for the best supply chain model that ensured the company delivered quality products to its customers at the most affordable time. To do this, the company decided to be hiring the services of transport and logistics companies instead of maintaining a fleet of vehicles for delivery. On the other hand, when buying products, the company preferred those companies that offered transport services either for free or at a subsidized cost; however, the approach did not mean that the company would opt for low standard supplies for the transport incentive (Mentzer, 123).
Operations
Leaders at Nucor had the challenge of developing effective operational strategies to cope with the rising competition and hand economic times of 2009. The management had two main approaches: reduce operational costs and increase product quality and quantity. To attain the objectives, the company adopted effective human resources management policies, total quality management, six-sigma, and customer management policies.
With the approach, the company was able to attain an increased number of customers and at least manage its operational costs. Although in 2008, the company has acquired Gulf States Manufacturers, Kirby Building Systems, and CBC Steel Buildings, it is notable that it did not acquisition in 2009; this is a strategic move to control the flow of funds from the company.
Outbound Logistics
Nucor markets are both international and national markets; to supply products and get raw materials from the international market, the company preferred water transport. Although the method of transportation takes some time, the company ensured it has procured at the right time that it does not suffer a lack of raw materials. On the other hand, the method was preferred as it is cheaper and efficient. When selling products to customers, the company used the CIF (Cost Insurance and Freight) method of costing to transfer any risks to third parties (Kotabe and Helsen 23).
Marketing and Sales
In the year 2009, Nucor had a robust marketing and sales team; the team aimed at creating new markets and retaining older customers. Before enacting certain marketing strategies, the company ensured it had worked closely with the research and development to give an insight into the right approach to marketing. During the time, the company put more emphasis on the creation of healthy relationships with customers (Rakesh 12-45).
Service and Quality
The services offered by a company and its product quality has played a large role in its competitiveness; recognizing this fact, Nucor management enacted service improvement policies. The improvement addresses the speed of delivery, how well the company handled customer demands, customer service, and policies that created customer loyalty. On the other hand, the company developed frameworks that improved its products to meet customer demand in the hard economic times; the policies included making products with alloys and use of recycled steel/iron to make products (Ahire 23-45)
Support Activities
To remain competitive in 2009, companies needed to have a close relationship with their customers. Nucor enacted various supportive activities they included a customer care desk to handle issues raised by customers. Information given at the desk was shared with the research and development department to give recommendations to the company.
Technology
In the contemporary business environment, technology is used to create efficiency, improve productivity, and reduce operational costs. Nucor information and communication department is mandated with the role of coming up with a recommendation to the management on the technology they should adopt to enhance competitiveness. In 2009, the company developed a social marketing strategy and computerized stock management systems; the adoptions were aimed at improving efficiencies in the departments (Nucor Corporation Official Website). After the loss incurred in 2009, Nucors management is hopeful that the enacted policies will address future challenges effectively.
Works Cited
Ahire, Sanjay. Management Science, Total Quality Management interfaces: An integrative framework. New Jersey: Wisley, 2006. Print.
Haller, Harold. Managing with profound knowledge: A management process based on the Deming management theory. New Jersey: Harold S. Haller & Company, 1993. Print.
Kotabe, Masaki, and Helsen Kristiaan. Global Marketing Management.New York: John Wiley & Sons, 2004. Print.
Saudi Arabic Basic Industries Corporation (SABIC) is the largest petrochemical company in the GCC and is ranked as the 4th largest chemical company based on its global sales. The main products of the company include chemicals, plastics, polymers, steel, and fertilizers. In addition to this, the company also has technology and investment management businesses. The company operates different businesses through its subsidiaries that are managed by its central management, which is led by the companys CEO, Yosef Al-Banyan.
The company was set in 1976, and its head office is located in Riyadh, Saudi Arabia. The ownership structure includes a 70% share of the Saudi government, and the remaining 30% of the companys equity is held by corporate and individual investors. The companys stocks are listed on Tawadul and its code is 2010. The group employs more than 40,000 employees ( SABIC Annual Report 2016, 2016).
Business Model
SABIC adopted a corporate business model in the 1990s. Before this, the company operated as a holding company. The business model of SABIC indicates that the parent company owns subsidiaries in different countries. The group has 25 subsidiaries include Saudi European Petrochemical Co., Arabia Petrochemical Co., Fiber Reinforced Thermoplastics BV, and Saudi Industrial Investments Company ( SABIC Annual Report 2016, 2016).
The company prepares financial statements on a consolidated basis and eliminates all transactions between the parent company and its subsidiaries. The company also has holdings in its associates in different countries. Saudi Industrial Investments Company is mainly responsible for managing the companys investments and joint ventures. In recent years, the firm has invested in new innovative companies and allowed young entrepreneurs to bring new ideas for the companys business.
The global business model of the company promotes diversity in culture and people who work for it. The company prepared its financial statements by generally accepted accounting standards issued by the Saudi Organization for Certified Public Accountants (SOCPA) ( SABIC Annual Report 2016, 2016, p. 98). However, the company has adopted the International Financial Reporting Standard (IFRS) and will prepare its consolidated financial statements for the year ending 2017 accordingly.
Profitability of SABIC
The Key Performance Indicators (KPIs) and ratios of SABICs profitability are provided in the following table.
Table 1. Profitability KPIs and Ratios.
2016
2015
2014
Sales
132,826,605
148,085,741
188,988,645
Gross Profit
40,910,071
43,027,760
51,477,157
Operating Income
26,778,322
28,519,321
37,731,269
Net Profit
17,838,843
18,768,690
23,347,114
EPS
5.95
6.26
7.78
Gross Profit Margin
30.80%
29.06%
27.24%
Operating Income Margin
20.16%
19.26%
19.96%
Net Profit Margin
13.43%
12.67%
12.35%
Return on Equity
8.48%
8.94%
11.11%
Return on Assets
5.63%
5.72%
6.87%
It could be indicated that the companys revenue declined in the last three years, which was due to the low oil price. The company suffered due to oil price volatility that affected its cost of sales. It is also noted that the companys operating income and net profit also declined during 2014-16. The low oil price affected the companys core businesses producing products including plastics, polymers, and fertilizers. Another factor, which affected the companys profitability, was the high cost of steel.
The management report of the company indicates that the company focused on managing its operational costs. It also merged different business units for better management and cost control. It was also reported that the company attempted to improve its resource management system and techniques and benefit from the governments decision to reduce subsidies for utilities ( SABIC Annual Report 2015, 2015).
From Table 1, it could be noted that the companys net profit margin fell in 2015, but its value increased in 2016. The reason for this was that the company focused on increasing operational efficiency by overcoming operational losses and better management of its activities. The return on equity also declined in the last three years as its net income and EPS fell. It must be understood that shareholders objective is to maximize their return on investment (Wahlen, Baginski, & Bradshaw, 2017).
Therefore, the company should be concerned with the situation and take the necessary steps to improve its profitability in 2017 and onwards. The return on assets also reduced from its high value of 6.87% in 2014 to 5.63% in 2016. It could be highlighted that the companys operations are highly capital intensive and the low value of the return on assets implied that it generates low sales in 2016 as compared to 2014 and 2015. Lowering sales and net income could severely affect the outcome of its investments and create problems for the company (Taylor, 2012).
Risk Analysis and Derivatives
The analysis of the companys annual reports of the last three years indicates that it faces different risks including credit risk, commission rate risk, liquidity risk, current risk, and fair value risk related to its financial instruments ( SABIC Annual Report 2016, 2016, p. 116). These financial instruments include cash and cash equivalents, short-term investment, accounts, and other receivables, derivative financial instruments, investments in securities, advances, short-term bank borrowings, accounts payable, accruals, long-term debt, and other liabilities ( SABIC Annual Report 2016, 2016, p. 116). The management including the risk committee oversees the companys exposure to these risks and undertakes steps to ensure that these risks are managed efficiently.
The company holds its cash in banks with high credit ratings ( SABIC Annual Report 2016, 2016). There are no significant commission-based assets. However, the company carries out commission rate swaps between fixed and floating rate contracts to manage its borrowings ( SABIC Annual Report 2016, 2016). The liquidity risk is managed by monitoring the companys current ratio and quick ratio values. It is also noted that there are many transactions between subsidiaries of financial value. It could be noted that the company also uses derivatives to manage currency risks ( SABIC Annual Report 2016, 2016).
There is a risk of exchange rate differential because these subsidiaries are located in different countries, and they are regulated by international laws and regulations (Drake & Fabozzi, 2013). The company manages this risk through current swaps and futures contracts. These ensure that the companys exposure to fluctuations in exchange rates remains within the acceptable limit (Brose, Flood, & Krishna, 2014).
The difference between historical cost and fair value of assets and liabilities is referred to as fair value risk ( SABIC Annual Report 2016, 2016). Since the company uses historical cost accounting for preparing its consolidated financial statements, therefore it assesses all its assets and liabilities for their fair values and makes provisions in its financial statements accordingly. It must be noted that any gain or loss due to fair value accounting is recognized and reported in the companys income statement. Therefore, all gains or losses from the companys hedging activities including derivatives are recorded in the income statement (Brose at al., 2014).
References
Brose, M. S., Flood, M. D., & Krishna, D. (2014). Handbook of financial data and risk information. Cambridge, UK: Cambridge University Press.
Drake, P. P., & Fabozzi, F. J. (2013). Analysis of financial statements. Hoboken, NJ: John Wiley & Sons.
SABIC Annual report 2015. (2015). Web.
SABIC Annual report 2016. (2016). Web.
Taylor, F. (2012). Mastering derivatives markets: A step-by-step guide to the products, applications, and risks. Harlow, UK: Pearson Education Limited.
Wahlen, J. M., Baginski, S. P., & Bradshaw, M. (2017). Financial reporting, financial statement analysis and valuation. Boston, MA: Cengage Learning.
