Samsung SWOT and PESTEL Analysis

SWOT ANALYSIS
Definition
This is part of a company’s strategic planning process that
connects the company’s objectives and strategies to tactics and actions carried
out by employees. Often SWOT is part of a company’s strategic planning process
that connects its objectives and strategies to actions and tactics carried out
by employees.  To better decide what
changes to be made in a company and know where it stands on four key strategic
areas it has to use a SWOT analysis.

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SWOT Basics
Strength, Weakness, Opportunity and Threats (SWOT) is an
acronym that identifies the four critical elements of this analysis.  Strengths usually explain in detail an analysis
of the company’s advantages over its competitors. Weaknesses evaluate areas in
which the company is at a competitive disadvantage and has a possibility of
failure. Opportunities are untapped markets or business developments that the
company could venture in and make profit. Threats transverse the external
environment that could affect the company, an example being technological,
environmental and regulatory factors.
Strengths and Weaknesses
The main reason for using the SWOT analysis is so as to be
able to evaluate and assess a company’s strengths and weaknesses. This helps
the company understand its main market advantages and areas that competitors
could take advantage of.  Companies take
advantage of its strengths by using them as marketing messages so as to
differentiate them from their competitors. 
By understanding their weaknesses companies can decide what areas need
improvement and what areas are deeply rooted in the nature of its business.
Opportunities
By exploring untapped opportunities company leaders are able
to consider ways to grow. Any strong company has to look for ways to improve
and elevate its growth curve because without growth means failure and lack of
utilization of opportunities, therefore, giving an advantage to the
competitors. Opportunities are areas that could create more sales and profits
to the company, and these can be the inclusion of new and emerging markets, new
business and product developments and lastly strategic business partnerships.
Threats
Though this is not fun at all, companies always need to have
an idea of what external threats they may encounter so they can always be
prepared and avoid being caught unawares. 
Government regulation changes may affect the level of competition or
costs companies face. Ways in which a company gets access and uses natural
resources can be affected by environmental or conditional changes.  Companies that do not incorporate new
technologies are always affected negatively. (Hill and  Westbrook
(1997).
WHAT IS PESTEL  ANALYSIS AND WHY IT’S USEFUL?
So as to be able to achieve maximum results and get to its
optimum performance a company has to consider some factors. The Pestel analysis
explains these factors in six categories. 
POLITICAL
These refer to the magnitude of government intervention in
the economy.  Most times the foreign
policy of a country plays an important role in determining the trade
regulations that could either lead to trade restrictions or trade incentives.  A company can be highly affected by specific
regulations imposed by the government.
ECONOMICAL
Future operation of a company/organization is highly
affected by economical factors. Also, the cost of imported and exported goods
are highly affected by the changes in exchange rates in different regions. The
expansion and growth of an organization are highly influenced by the economy
since there is a change in cost of capital. (Yüksel, I. (2012).
SOCIAL
The macro-environment of the organization is formed by
different social factors, cultural and demographic aspects of the Social
factors include attributes in one’s career, age distribution, growth rate,
population, how individuals are conscious about their health and safety. A keen
analysis of these factors helps one understand the PESTEL analysis and help
organizations understand the dynamics of existing and the availability of
potential markets and future customer needs.
TECHNOLOGICAL
With the speed at which technology is evolving and customers
becoming more acquired to it, organizations have no option but to keep up with
this pace.  New technology makes the old
one obsolete and outdated. An organization/company that is not ready to embrace
new technology is at a chance of lagging behind its competitors and losing its
market value.
LEGAL
These are factors that affect the behavior of customers and
the operation of businesses. Things which may be affected by legal factors are
product transportation, profit margins, and viability of certain markets just
to mention a few.
These factors help in knowing if there are any dangers
behind selling certain products like drugs and sharp objects and can also
affect how a company stocks their inventory or interacts with the customer.
Consumer law is used so as to protect consumers from
companies that are involved in fraud and also preserve their rights when in the
market. This affects business because they have to put aside resources so as to
give detailed information about their products and services. 
Employment law is also known as labor law, and it explains
how companies’ employees should be treated. This also helps protect children
from child labor and also it makes the firing of innocent employees a bit
harder.
SAMSUNG SWOT ANALYSIS
Samsung Electronics Co. Limited is the consumer electronics
subsidiary of the Samsung Group, based in Suwon, South Korea. Samsung is
popularly known as the world’s largest manufacturer of mobile phones,
smartphones such the highly popular and successful Galaxy as well as other
electronic devices like Television sets, LCD panels home theaters,
refrigerators and even cooking appliances.
Having a great and undisputed manufacturing and marketing
expertise, Samsung is regarded as the world’s second largest consumer
electronics company the first being Apple,Inc. its American rival.
STRENGTHS
•   It is the world’s
most successful electronics manufacturer of television sets, liquid crystal
display (LCD) panels, mobile phones and smartphones and other electronic
appliances.
•    By use of its
strategic marketing style Samsung is the world’s number one mobile phones
seller with the world’s largest market share of 21.4% in 2015’s second quarter.
Apple comes second  with 13.9%
•    By use of its
impressive research and design capabilities, Samsung has been able to create
and roll out a payment app with similar capabilities to Apple Pay, in less than
a year the Samsung Pay.  Also, the
company has been able to incorporate many of the capabilities of both Apple
phones and Google Android operating system to its mobile devices.
•    Samsung not only
has strong manufacturing capabilities but also have undisputed marketing
strategies that have led to the success of the company.
•    Samsung has been
able to sustain long-standing relationships with retailers in the United States
and Europe that have been able to provide a steady sales channel for its
products through out the years.
WEAKNESSES
•   It is quite clear
that Samsung has not been able to match Apple Inc.’s marketing capabilities for
smartphones. This is because  Its share
of the U.S. smartphone market fell by 2.3% between 2014 and 2015 yet Apple’s
share price grew by 34.9%.
•    Some Chinese
competitors such as Huawei and Xiaomi are catching up to Samsung in the
smartphone market. In the year 2014 and 2015 Huawei’s share grew by 48.1%, and
Xiaomi’s share grew by 29.4%.
•    Samsung’s
dependence on customer electronics sales in markets that have limited resource
for growth is dangerous. The company depends on these markets an example being
the United States and Europe, for much of its revenue.
•    The public has
not accepted the Android operating system in an equal manner like the tech
community. This is because many consumers view Android as an inferior product
to Apple’s IOS.  Samsung devices use the
Google source application system and this is a weakness because it is not
preferred by a majority of people. 
•    Apple products
are viewed as more technology advanced and dependable on than Samsung products
by a large number of consumers.
•   Samsung needs to
improve its marketing efforts and standards, so as to be in the same level as
Apple.
OPPORTUNITIES
•    Samsung needs to
grow its market for smartphones, tablets and other technological devices in
developing regions where consumers are not familiar with PCs.  This is because in 2015 sales of tablets
overtook sales of traditional personal computers. An example of these regions
is Africa and India.
•    Samsung should
seize the increased demand for tablet and smartphone-based solutions and market
some of its products that are not known to many such as Samsung Pay
•    The company
should venture into new technologies such as wearable tech
•    The growth of the
middle class in the developing world will increase the market for consumer
electronics
•    Sales channels
such as Amazon.com can be used by Samsung to grow its online market
THREATS:
•    Samsung has not
been able to outdo Apple. ‘This is because Apple has emerged as the dominant
smartphone and tablet brand in some markets, such as the United States.
•    The growth of
Apple’s reputation for quality, reliability, and sophistication is a threat to
Samsung because it seems to be lagging behind.
•    Samsung is most
popular for its Galaxy devices. We could even say that it depends on these
devices. The problem is, the Google Android operating system, which these
devices depend upon, is not as popular with average people as iOS that is in
most other devices incuding Apple is.
•   Key markets for
Samsung are North America and the United States.  The declining and stagnating of the
middle-class incomes in these areas could reduce consumer buying power and
therefore affect Samsungs sales.
•    Samsung is
experiencing rivalry from Chinese manufacturers such as Huawei and Xiaomi. This
is evident because the capital share of these companies rose and Samsung’s is
falling.
•    If Apple decided
to produce more consumer products like home appliances and cameras, Samsung
could be greatly affected.
Though Samsung has been able to maintain an impressive
research, design and manufacturing capabilities, its marketing strategies are
questionable. There is a need for the company to revisit and improve its
smartphone marketing and design efforts so as to be able to maintain its market
share in crucial arenas like the U.S.
If the Samsung wants to maintain its position as an industry
leader it needs to:
1. New capabilities like Samsung Pay
2.  learn to deal with
aggressive Chinese competitors like Huawei and Xioami
3.Compete with Apple’s reputation.
PESTLE ANALYSIS OF SAMSUNG
INTRODUCTION
Samsung is a global company that operates in the market for
consumer appliances and gadgets. Samsung is owned by a South Korean family and
has global aspirations to expand into newer markets. Since Samsung is not
content with operating in some markets in the world, it wants to cover as many
countries as possible. This analysis focuses on the external environmental
factors that drive the Samsung’s strategy.
POLITICAL
A large number of markets where Samsung operates have a
political environment that is conducive for business. This means that its
operations run smoothly and though there might be some minor distractions to
its operations in some of the foreign markets like India, Overall it can be
concluded that Samsung is operating in markets where the political factors are
not harmful. Samsung has faced significant political blows in its home country
South Korea because of the country’s tensions with North Korea. Due to this
instability, the company has had to take into account this political factor and
also the threat of war in the Korean Peninsula. In areas where the political
environment is unstable Samsung faces a lot of political pressure. This includes
areas in many African and Latin American countries where the political
environment is unstable and experiences frequent changes in the governing
structures.This is not yet a major cause for worry for the company because it
has factored the political instability into its strategic calculations.
ECONOMICS
Opening up of several markets in the developing world means
that Samsung can expand in the global markets. This, therefore, means that
economic factors are a critical consideration. The current global economic
crisis has affected the purchasing power of customers forcing the company to
seek profitable ventures in the emerging markets. The global environment in
which  Samsung operates in has a lot of
uncertainties and volatilities which means that the company has to keep on
adjusting its strategies. Through expansion of Samsung into emerging and
developing markets has made it possible for the company to adjust well to the
tapering off of the consumer disposable incomes in the developed world. This is
the main reason that Samsung has an aggressive push into the emerging markets
with hopes that it shall recover all its lost businesses in the developed
world.
SOCIO-CULTURAL
Samsung being a South Korean multinational owned by a family
means that despite its global footprint it still operates from the core of a
Korean company and culture. This means that among its global operations,
adapting itself to local conditions is paramount. Since Samsung is a global
company that has had to act locally, therefore adapting a global strategy makes
it possible to be productive in emerging markets. Together with this, Samsung
has had to tailor its products in markets it operates in so as to cater to
their customers whose preference changes so fast.  It is important to note that Samsung operates
in a market niche that is strongly influenced by the lifestyle preferences of
consumers.  The fact that socio-cultural
factors are different in each country; Samsung has had to reorient itself in
each market accordingly.
TECHNOLOGICAL
Samsung is considered to be among the world’s leading
innovative companies. Therefore, the company is at an advantage of controlling and
making use of the power of technology and driving innovation for sustainable
business. This has resulted into an obsessive mission by the company to outdo
its rivals and competitors when it comes to technology and innovations. The
company’s main goal is to be the first to reach the produce devices that are
preferred by customers and also be the first products of their kind in the
market.
LEGAL
Due to Samsung’s alleged imitation of the Apple’s iPad and
iPhone it has had to face substantial penalties and law suits. This affected
the company negatively on areas of public perception and consumer approval
strategies. From Samsung’s experience of having various lawsuits with its
competitors, other technology driven companies should know that having an
elaborate basis of a design or model is key rather than making a fast move so
as to be able to present a product to the consumers that shall, in the end,
ruin your reputation.
ENVIRONMENTAL
Samsung has to be on the lookout when making its products so
as to be able to satisfy its customers. When doing this, it has to take into
account its social and environmental responsibilities so as to make sure they
are both ethical.  Therefore, this means
that the company should ensure that it does not compromise on its staff wages
or their working conditions for they are all involved in producing the final
product. (Grade and Pestel)
CONCLUSION
As Samsung prepares to expand globally, it has to be sure of
what is expected of it. Technology changes so fast and customer preference even
faster. Therefore, with this analysis, Samsung has clear guidelines on what to
expect in the global consumer landmine.
REFERENCES
GRADE, G. B.
PESTEL Analysis Of The Energizer.
Hill, T., &
Westbrook, R. (1997). SWOT analysis: it’s time for a product recall. Long range planning, 30(1), 46-52.
Khan, U. A.,
Alam, M. N., & Alam, S. (2015). A Critical Analysis of Internal and
External Environment of Apple Inc. International Journal of Economics,
Commerce and Management, 3(6),
955-961.
Kim, M., &
Park, J. (2011, February). Demand forecasting and strategies for the
successfully deployment of the smart TV in Korea. In Advanced Communication Technology (ICACT), 2011 13th
International Conference on (pp. 1475-1478). IEEE.
King, R. K.
(2004). Enhancing SWOT analysis using triz and the bipolar conflict graph: a
case study on the Microsoft Corporation. Proceedings of TRIZCON2004, 6th Annual Altshuller Institute.
Yüksel, I.
(2012). Developing a multi-criteria decision making model for PESTEL analysis. International Journal of Business and Management, 7(24),
52-66.
 

Fitbit: SWOT and PESTEL Analysis

Overview
Fitbit was founded as Healthy Metrics Research, Inc. in 2007 by James Park and Eric Friedman. The first product by Fitbit was launched later in 2009—the Fitbit Tracker. It was a small black device that could be clipped onto clothing and tracked steps taken, distance traveled, calories burned, activity intensity, and sleep quality by combining an internal accelerometer with user data. A user could then upload their data to the Fitbit website, where they could see an overview of their physical activity, set and track specific goals, keep activity logs, and interact with friends. Initially, the Fitbit Tracker was only available online, but later was introduced into the retail store market through Best Buy.

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 Fitbit continued with the clip design type until later introducing the well-known wristband style commonly seen today which introduced even more features in 2013, and later introduced smartwatches beginning in 2015. By August 2015, Fitbit had two clippable activity trackers, four wristband-style trackers, and a smart scale on the market. Prices ranged from $99.95 to $249.95, depending on the product and its functions.
By the time Fitbit went public in 2015, Fitbit led the U.S. fitness-tracker market with a share of 76 percent (globally with a share of 35 percent), and revenue had been growing every quarter since 2011. In the first half of 2015 alone, Fitbit generated $737 million of revenue with 8.3 million devices sold, with 80 percent of Fitbit orders being placed on Amazon or Fitbit’s official online shop.
However, Fitbit was starting to face some strong competition, as more and more competitors began entering the market such as Garmin, Nike, Samsung, Xiaomi, and Apple. The most notable competitor’s product to enter the market was with the introduction of the Apple Watch in April 2015, which quickly captured the second largest global wearable device market share at 19.9 percent and caused Fitbit to fall from 35 percent to 24.3 percent global market share.
Analysis
            In order to better understand the situation that Fitbit is in, a SWOT analysis will be performed and a Porter’s Five Forces model will be created.
SWOT Analysis
Strengths: As one of the early movers in the wearable device industry, Fitbit was able to capture a commanding size of market share while they built their brand and established a solid user-base. Fitbit also offers many choices to consumers with their different types of products—namely the wristbands and smartwatches—but they were able to offer them in different colors and functionality as to be able to offer a whole range of products at different price points in order to maximize customer reach. Fitbit has also partnered with insurance companies in order to offer programs that emphasize physical activity while providing individuals that take advantage of the programs lower insurance premiums.
Weaknesses: Fitbit faces strong competition from competitors like Apple, Samsung, Nike, Garmin, and Xiaomi. As a relatively new company, Fitbit does not have the established customer base and brand loyalists like these other companies have, and as such are having to make up ground in order to effectively compete. Fitbit also only has one successful product line—their fitness tracking wearable devices—while the other companies have products like computers, phones, and apparel that lower their overall risk since they are much more diversified in their overall product mix as a company.
Opportunities: As mentioned in the Strengths section, Fitbit has some existing partnerships with health insurance agencies, but there is a tremendous amount of growth left in this area. Partnerships could also be created with companies for services for their employees as well as hospitals for patient monitoring and physical therapy. In the era of big data, Fitbit has an opportunity to be able to sell collected health and behavior data to health insurance companies and universities, but consumer privacy is crucial.
Threats: As mentioned in the Weaknesses section, Fitbit faces stiff competition in the wearables market. Apple has a cult-like following of people loyal to its brand, while Xiaomi has taken control of the Chinese market with a much lower priced alternative to Fitbit’s trackers. These all threaten Fitbit’s market position, and as such, Fitbit needs to stay on the cutting edge of technological offerings with its devices in order to maintain their industry leader status as the market continues to grow due to increased health awareness by consumers.
Porter’s Five Forces Model
Bargaining Power of Buyers: The bargaining power of buyers is at a high level, as there are many alternatives to Fitbit’s products which range anywhere from $34 to $850+, so switching costs are very low. This has forced Fitbit to drive innovation in their products in order to keep consumers engaged and for Fitbit to maintain their status as the leading brand in the industry.
Bargaining Power of Suppliers: The bargaining power of suppliers is at a low level, since Fitbit mainly outsources their manufacturing to companies in China and also buy product from them in bulk. Fitbit also has the ability to switch between any number of suppliers in China, and the entire design of the product is intellectual property of Fitbit with the software being written to the device by Fitbit employees themselves.
Threat of Substitutes: The threat of substitutes is at a high level, as smartphones are beginning to integrated many features of Fitbit’s wristbands and smartwatches. Smartwatches are also becoming more dominant in the wearables market, as they are also integrating features from Fitbit’s wristband product.
Threat of New Entrants: The threat of new entrants is at a moderate level, there are many barriers to entry in the wearables market—namely significant capital investment, as the products need to be manufactured and distribution channels need to be established. Since competition is high, a lot of human and monetary capital is needed for research and development as well.
Level of Competitive Rivalry in the Industry: The level of competitive rivalry in the industry is high. Fitbit has positioned itself as a premium brand in the industry, but other wearables offer much of the same functionality as Fitbit’s. Even though Fitbit has a tremendous advantage with being one of the first movers, Fitbit still needs to be able to differentiate itself from their competitors as the wearables market becomes more saturated.
Overall: From the Porter’s Five Forces model, buyer power, competitive rivalry, and threat of substitutes are all at a high level, which can make it challenging in the fitness wearables industry to be successful and also sustain a competitive advantage. In order to do this, Fitbit must continue to drive innovation within the industry in order to retain its leadership status.
Alternatives
The following are strategic directions Fitbit could
move in in order to capture more market share and/or increase profit.

As mentioned in the Overview, Fitbit in mid-2015 had a US market share of 76 percent, while their global market share was 24.3 percent. This shows that while Fitbit had a commanding lead here in the United States, it has tremendous potential for growth internationally. Marketing efforts may need to increase internationally in order to bring awareness to the brand, as Fitbit may not be as internationally recognized as their competitors since Fitbit is relatively young as a company.
However, since Fitbit has positioned itself as a premium brand, they may need to adjust product offerings for other countries that have vastly different cultures and living standards compared to here in the United States. There is also potential here to increase the total potential market share for the industry as a whole and drive industry growth as a whole.
Increase Brand and Product Awareness
Since Fitbit is a relatively newer company, they do not have the brand recognition that their competitors like Apple, Garmin, Samsung, Nike, and Xiaomi have, at least on a global perspective. Here in the United States, Fitbit is very much a household name and is pretty much synonymous with fitness tracking, as can be seen by its commanding 76 percent market share (per the case as of mid-2015).
Consumers may also not be aware of the range of products that Fitbit offers, so they may not know that a product may be available that fits their price and functionality needs. Even though Exhibit 7 in the case shows that Fitbit has double the next competitor’s percentage for consumers purchasing intentions for a wearable device within the next 12 months—42 percent compared with Apple’s 21 percent—it would be a good idea for Fitbit to be producing more surveys in order to better understand consumers’ preferences so that Fitbit can potentially better position itself within the market as well as understand how consumers view their brand and what features may increase usage.

In this industry, there is high buyer power, competitive rivalry, and threat of substitutes as shown in the Porter’s Five Forces model. In order to overcome these, Fitbit must continue to invest in research and development and drive innovation in the industry if they wish to remain the market leader, so this means continually offering new and unique features to their products in order to create value and increase customers’ willingness to pay.
Certain kinds of features, like a camera for instance, may necessitate being added to the smartwatch over the wristband in order to differentiate the products and offer multiple price points to consumers. Fitbit could also integrate their products more with social media like Instagram, Facebook, and Twitter in order to potentially restore some consumer interest, since consumers may be able to better track their friends’ activity as well as share their own.
Increase Focus on Health and Wellness
 Fitbit has a tremendous opportunity to grow in the health and wellness space by potentially integrating their product into hospitals for them to use to assist patients with health monitoring like glucose, blood sugar, and the heart in activities like physical therapy sessions. Alerts could even be set up for medications. This information could then be linked back to their healthcare provider for analyzing long term trends in a patient’s health.
This would be a completely new addition to the fitness tracking wearables industry and could drive high amounts of growth as Fitbit’s product transitions from that of a ‘want’ to more of a ‘need.’ This could also help Fitbit connect with older customers rather than just targeting and connecting with the young and fit customer segments.
  The downside of this is it could potentially be very costly and require high levels of research and development in order to deliver products that healthcare providers would require. This would also be dependent on establishing partnerships with healthcare providers.

In the era of big data, Fitbit has the potential to profit from selling user activity data that is collected when uploaded to their website by the user. The data could then be used by health insurance companies and universities for research. Using machine learning, patterns could be detected from user behavior data that could improve product positioning and customer targeting for Fitbit, provide health and activity insights that may not have been previously known, and also help health insurance companies establish health programs that could lower premiums after studying how certain levels and types of physical activity affected an individual’s health risks.
The key issue here, however, is customer privacy. According to the case, Fitbit announced that it was compliant with the U.S. Health Insurance Portability and Accountability Act (HIPAA) in September 2015, which indicates that Fitbit is already establishing protections for customers’ data and its security.
Analysis and Discussion
 This section will detail the recommended path for Fitbit, as well as discuss what I have personally learned about myself through the course.
Recommendation
Fitbit built its brand on providing a way for consumers to have a fun and engaging way to track their fitness goals, which also provides the background and experience needed to expand efforts into providing meaningful insights into an individual’s health. Fitbit has an incredible opportunity for long-term growth if they focus on what has made them into the market leader they are today, and focus their efforts on overall health and wellness by providing easier and more in depth ways for patients and healthcare providers to track an individual’s data. Fitbit’s style will also help to replace bulky devices that are not aesthetically pleasing.
Fitbit will need to conduct market research to understand what patients and healthcare providers require in order to better develop the tools they need and know the data that needs tracking. This effort will also require Fitbit to invest in research and development to meet those needs.
Partnerships could be created not only with healthcare providers, but with insurance companies and medical device companies as well. If Fitbit is able to integrate other medical devices into its app, then they would be able to gain a further edge over their competitors by offering more features and utility, which could be an incredible competitive advantage, especially with how high the competitive rivalry in the industry is as shown previously in the Porter’s Five Forces model.
According to the case, corporate clients account for less than 10 percent of Fitbit’s business, so there is tremendous opportunity for growth there as well. Especially if there is a partnership formed between the corporation, Fitbit, and the insurance company to be able to provide cheaper insurance premiums for employees as well as cut health care costs for the corporation.
This effort could also be combined with selling data uploaded through Fitbit’s app, and Fitbit is already showing they take data security seriously since they have become HIPAA compliant. If partnerships are being formed with insurance companies, they can use the data as mentioned previously to study how certain health habits can reduce certain health risks in order to form wellness programs that provide discounts to any consumer that uses a Fitbit device and willingly shares their health activity to earn the discounts.
Ultimately, these efforts will help Fitbit to position itself and its products as the go-to for health and fitness tracking by transitioning its products from that of a ‘want’ to more of a ‘need,’ which will build their competitive advantage and further differentiate Fitbit from their competitors.
 

Five Forces, PESTEL and SWOT

Introduction
The
report is compiled to understand the environment in which Marks & Spencer
(M & S) operates and detailed objectives of the report can be explained as
follows. Objective one of the report is to identify the external environment
factors that impacts M & S’s performance in a broader sense where a PESTEL
analysis will be used to explain factors. Objective two of the report is to
identify the industry environment in which M & S operates and to evaluate
the industry environment Micheal Porter’s Five Forces analysis will be used.
Objective three of the report is to come up with a SWOT analysis for M & S
in order to identify the strengths, weaknesses, opportunities and threats. In
the final section of the report, it aims at providing an overall conclusion about
the strategic position of M & S which can be used to develop future
strategies for the organization.

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M
& S is a large conglomerate listed in London Stock Exchange and it has
operations in more than 40 countries around the world even though the core
business is focused on UK. (M & S Corporate Website, 2012) The business
portfolio of M & S is diversified to an extent because it has ventured into
businesses ranging from clothing, furniture, home appliances, food and
financial services. (M & S Corporate Website, 2012) With a large business
portfolio in hand, M & S considered as a one of the strongest brands in UK
and due to the recent turmoil in the business environment, they are faced with
a challenging situation. Therefore, the report identifies the factors that
seriously affect the performance of M & S where findings of this report can
be used to take business decisions in the future. PESTEL Analysis
PESTEL
Analysis is a tool that is developed to identify the external factors that
affect the strategy of the organization and through the PEST analysis; decision
maker can identify the macro level factors which would give rise to
opportunities or threats to M & S. (Lorat, 2005) The PESTEL analysis for M
& S can be presented as follows:
(P)olitical Factors
Since
M & S is company with presence in more than 40 countries the global
political situation and the political climate of each and every country in
which they have operations affects the bottom line of M & S. With that
thought in mind, laws created by the European Parliament affects M & S as
it has presence in many European counties such as Spain and Green who are bound
by the law of European Union. (European Commission, 2011a) However, core
business location of M & S- UK is not severely affected by law making of EU
as UK has the option to decide whether to adhere to the law or not. (HM Revenue
and Customs, n.d) Considering the political climate of UK, there are many
reports that suggests that political climate of UK is positive with law
political risk involved as the present government operates in a stable manner.
Even though the political climate in UK is identified to be positive, the
global political climate is recognized as a negative force threatening M &
S due to the global political unrests. The political situation in Middle
Eastern countries involves high risk as there are war breakouts in gulf region
and Africa. The war in Iraq and Libya has a severe impact on M & S as they
have their presence in many Middle Eastern countries including Libya. There are
many business reports suggesting that M & S has made significant losses at
its Libyan business unit due to the war breakout. (Owen and Chester, 2012)
Further, there are sanctions imposed on certain countries in Middle East such
as Iran and Syria limiting trading with those countries which is considered to
be a negative factor for M & S as it limits the business opportunities of M
& S trade with those counties. (Saul, 2012)
The
trade policy of the government is developed based on the motive that UK
businesses should transform to multinational companies venturing into emerging
economies into around the world. It allows UK provides subsidies for UK
companies to make investments outside UK and transfer the profits back to UK
without charging any income tax or capital gains tax on it. (The Economic
Times, 2007) This policy is an opportunity for M & S to transform into
multinational and transfer profit back to its headquarters with no tax.
Further, trade policy of UK aims at helping developing countries in Africa to
by developing business relationship with them and UK companies are provided
subsidies for engaging in business with selected African countries. M & S
utilize this opportunity to venture into untapped African markets which would
facilitate the growth process. Further, trade policy of European Union has made
a provision for developing countries through Generalized System of Preference
(GSP plus) where the selected developing countries are allowed to trade with EU
countries at low or no tariff on imports. (European Commission, 2011a) This has
provided significant opportunity for M & S to build their supplier base in
chosen countries and they have entered into strategic partnership with those
chosen supplier. However, the poor diplomatic relationships and other political
pressures such as human rights claims have resulted in abolishing GSP plus
concession for certain countries such as Sri Lanka who were major suppliers for
clothing division of M & S. (Gunathilake, 2012) This has situation has
forced M & S to look for alternative suppliers as the prices of imports
from their major sourcing countries have become less competitive. (Gunathilake,
2012) Trade policies of other countries in which M & S also affect the
strategy of M & S.
(E)conomic Factors
Currently
many of the European countries are faced with a financial crisis which is
called the Euro crisis and it has led to poor performance of economies such as
Spain and Greece. (Lowrey, 2012) Due to the crisis situation in Ireland, Spain
and Greece which is caused by the defaults of debt, the economic activities
have slowed down leading to low performance by M & S as the revenue level
of those business units have fallen. (Lowrey, 2012) To cover up the poor
performing European businesses, there has been a significant economic growth in
emerging Asian countries such as China and India where China has accounted for
40% of the world economic growth and India has accounted for 15% of the world
economic growth giving a combined figure of 55% of the total world economic
growth arising from Asia. (The Indian Express, 2012) Hence, this can be
identified as an opportunity to further expand business operations in India and
China while making more money from the existing business units in those
countries.
Being
in the consumer goods business, M & S is significantly affected by the
income level of its potential customer. The consumer income level in UK has
been dropping significantly during past few years as a result of the recent
financial crisis where the disposable income growth in UK has fallen from 3.2%
in 2001-2002 to 0.3% in 2008-2010 time periods indicating that the purchasing
power of consumers has been stagnant during the last few years. (Jin et al,
2011) (Refer Appendix A for a detailed breakdown of income growth in UK) M
& S product range is a luxurious product range where consumer’s disposable
income is a factor that determines the purchase choice. When the consumer
income’s disposable income falls, the consumer’s consumption also falls as the
money that is available for consumption is limited. When there is limited money
available for consumption, consumers tend to avoid luxurious goods rather they
purchase substitutes products that are available for cheaper prices. This
situation could heavily affect M & S leading to fall in income as its
entire clothing line and the food sector is catering to up market with premium
prices.
Being
a global company exchange rate also has an impact on performance of M & S.
Considering the exchange rate for British Pound, it is apparent that currency
is not stable in the market where there are heavy fluctuations and during past
120 days the exchange rate for USD has it highest point in 0.65 and the lowest
point in 0.61. (X Rates, 2012) (Please refer Appending B for more details) These
fluctuations impact global business operation of M & S as the money earned
in other countries have to be transferred back to UK. Further, M & S is
also in to the currency converting business via M & S Money and severe
fluctuations in exchange rate significantly impact the margins of business as
they they are unable to predict future exchange rates.
(S)ocial and Cultural Factors
In
the modern world the the free time of consumers have been reducing over the
time where the consumers have been loaded with work at their workplace and
personal commitments. Therefore, the modern trade requires new methods to save
time such as no lengthy queues at the cashier, home delivery and extended
versions of the online store of M & S to increase sales by leveraging on busy
life styles of people.
The
clothing preference of people depends on the cultural and religious values
where the strategy of M & S needs to be adapted to suit the cultural and
religious values of the people. As an example, the clothing fashions in Middle
East is based on Islamic traditions where the women are required cover their
full body this would limit the opportunity for M & S to trade the
traditional set of items in middle east. Further, clothing traditions in India
are shaped by Hindu religious values and Indian culture which is identified
completely different to the UK clothing fashions resulting in a challenge for M
& S to market its standardized product range at India.
Not
only the clothing preferences, the food preferences of customers also depend on
the culture and religious values where the food preferences of customers change
from country to country depending on the local cuisine too. As an example, due
to the influence of Hinduism, in India the food sellers operate without beef in
their cuisine as majority in India who believe in Hinduism does not consume
beef. Similarly, Islamic nations such as Saudi Arabia, Oman and Middle Eastern
Countries require a food to prepared according to halal approved manner using
only halal certified ingredients as customers who believe in Islamic religious
value consume food that are prepared according to halal standards and operating
under halal standards require removing pork related items from restaurants.
Therefore, the cultural and religious values of consumers have a big impact on
the M & S food division and customization to the standardized products are
required to meet the demands in locales based cultural and religious values.
(T)echnological Factors
As
a multinational company looking forward to excel in its strategy, M & S is
significantly impacted by the changes in the technological environment which
changes at a rapid pace in current business environment. There has been a
significant increase in the mobile payment methods during the recent past where
the online payments are expected to hit USD 740 Billion in 2010 to USD 2700 in
2015. (Vertical Edge Limited, 2011) The increase in online payments are caused
by increased usage in credit cards/debit cards and change in the perception
about online transaction security where the customers have recently developed
trust on online merchants and online payment verification systems such as
Paypal to enter their credit card credentials. (Vertical Edge Limited, 2011)
This change provides a significant opportunity for M & S Money to increase
sales for their credit card divisions and the M & S online store to expand
its online sales targeting a larger segment of customers. In additional to the
online payments methods, mobile payment methods also emerge in the market
allowing a greater flexibility for customers to make their purchases via mobile
phones simply by disclosing credentials to the merchant on mobile phone and
simply order the goods. (Skoczkowski, nd) The growth projected in the mobile money field has been
significant where it was expected to have 2.7 transactions in 2007 37 Billion
transactions by 2011. (Skoczkowski, nd) Similar to the credit card
payments, running a mobile payment platform requires a supporting bank to
provide payment gateways and since M & S money can facilitate the banking
process it gives a strategic advantage for M & S to venture in to the
mobile payment methods for its clothing, gifts and food sectors.
(E)nvironment Factors
During
the recent past, there has been significant trend in companies going green due
to external pressures as well as businesses understanding the importance of
sustainability. (Wood, 2011) With the green initiatives, companies have adapted
strategies to minimize waste, save energy, create green manufacturing and
encourage suppliers to go green making it a trendy approach to position the
business as a socially responsible entity. (Woods, 2011) Therefore, it provides
an opportunity for M & S to improve their green initiatives and position
themselves as a green organization in customer’s mind which could impact the
buying decisions of customers on ethical grounds.
The
climate change and the seasonal changes caused by the natural environment have a
great impact on the clothing preferences of the customers. When the winter
arrives in UK and other European countries demand for winter clothes are
expected to grow whereas during the summer demand for summer clothes are
expected to grow. (Peacock, 2011) Further, clothing preference significantly
varies from countries with warm climates such as Saudi Arabia to countries with
a cool climate such as UK. This gives the opportunity for M & S to produce
clothes to suit the requirement of season and climate conditions of countries
and meet the demand.
In
the recent past, the world was exposed to many natural disasters such as
earthquakes, Tsunami, floods and cyclones and the recent reports suggests that
natural disasters could increase in the future leading to an uncertain future.
(CBC News, 2011) Recent earthquake/Tsunami situations in Indonesia and flood in
Thailand have negatively affected M & S business operations in those
countries and there is a significant threat identified as a result of predicted
increase in natural disaster in the future.
(L)egal Factors
Operating
in a global environment requires companies to be in line with the global legal
system as well as the local legal systems of countries in which they have
operations. As an example, as M & S venture in to China, labour policies
adapted in China should be within the labour regulations of Chinese government
and also it needs to comply with the standards of International Labour
Organization. Similarly, since M & S operates in the food and beverages industry,
the process in which the food business is carried out should be in line with
the food product standards that are enforced at local levels. Apart from the
labour and food product regulations, the companies starting businesses in other
countries also should comply with the companies law of those countries where
the entity needs to be duly incorporated in those countries according to
respective laws while ensuring that the reporting occurs as an when required. Micheal Porter’s Five Forces Analysis
Porter’s
Five forces analysis is a tool that is developed to identify the threats and
opportunities resulting from the task environment of the business which is
comprised of the forces that business closely interact with. (Henry, 2008) Five
forces analysis for M & S can be conducted as follows:
Buyer Power                                  
The
buyer power of M & S consumers is identified to be low as the customers are
unable to influence the prices. Prices are set high as the target audience is
high income earners seeking for luxurious life style. Further, since there are
a large number of buyers in the market, the power of individual buyer is very
low and as the revenue contribution by individual buyers is a very low, the
bargaining power of individual buyers is concluded to be low. Due to above
mentioned reasons; the low bargaining power of the customer is identified as a
opportunity for M & S as they can decide on the selling price.
Supplier Power
M
& S is a large scale buyer who is in a position to bargain and decide on
the price and therefore the supplier power is considered to be low. Due to the
large quantities purchased, M & S receive bulk discount and due to the
established the brand name it is easy for M & S to bargain with suppliers
to build business relationships. Further, suppliers are given other additional
benefits such as technology transfers by M & S, suppliers are under
obligations to give priority to produce goods for M & S reducing the
bargaining power of suppliers. Therefore, M & S has significant control over
its supplier base and it can be identified as a positive environment factor.
Threat of Substitutes
M
& S operates in the high street segment and there are ample substitutes
available for up market products where goods of similar nature are sold at
reasonable prices in normal shops. For example, substitute for luxurious food
items can be found at regular fast food restaurants such as KFC and McDonalds
indicating that there is a significant threat from substitute products. Threat of New Entrants
Except
for the banking industry, other industries in which M & S operates does not
have major entry barriers or major exit barriers. Entering into a restaurant
business or clothing business does not require major capital investments and
they are identified to have high level of margins making it attractive for new
entrants to enter the market. Therefore, M & S is faced with significant
threat from the new entrants to the market.
Rivalry among Existing Competitors
The
number of players in the up market clothing and food industry is large and they
compete with each other to increase/retain their market share. However, each
store tries to differentiate themselves from the competitors where they
concentrate on product value and brand values rather than price war. Since each
competitor reflects unique values of their brand, customers become loyal to
those stores reducing the cut throat competitions to somehow grab the customer.
This indicates an opportunity for M & S differentiate themselves using
their unique brand values. SWOT Analysis
SWOT
analysis is carried out to identify the strategic position of the organization
where it provides insights from the internal organizations by means of
strengths and weaknesses where external organization is evaluated as opportunities
and threats. (Dealtry, 1992)
(S)trengths of M & S

M
& S has presence in more than 40 countries giving it the opportunity to
cater to a larget customer segment and earn revenue. (M & S Corporate
Website, 2012)

M
& S employs 78,000 people in their business process
and these employees are well talented and given training to enhance their
skills to perform their tasks. (M & S Corporate
Website, 2012)  

M
& S has a large supplier base of 2000 suppliers
around the world providing best quality products at lower prices due to the
strategic partnerships. (M & S Corporate
Website, 2012)
(W)eaknesses of M & S

M
& S’s policy is to concentrate more on its UK business rather than
expanding its operations in other countries. Having its concentration in a
market which is affected by a financial crisis can be seen a weakness as the
market could collapse. (M & S Corporate Website, 2012)

The
reports suggests that Marks and Spence has high prices when compared to
competitors who are operating in the similar market and it has led them lose
the market share in the recent past. (Felsted, 2012) (O)pportunities of M & S

As
explained in the technology analysis the mobile money industry is growing at a
rapid pace and M & S could capitalize on it and
launch mobile stores.

As
explained in the economic analysis, Asian countries such as India and China
have reported high economic growth where M & S could expand its operations
in those countries to generate better results.
Cheap Sourcing due to trade policy
The
trade policy of EU and UK allows subsidies for developing business relationship
with developing countries and M & S has opportunity to utilize it to obtain
cheaper supplies.
(T)hreat of M & S
Reduction in consumer income
Induction
in consumer income has forced customers to look for cheap substitutes leading
to drop in sales for M & S.
Fluctuation in exchange rates
Significant
fluctuations in the exchange rate give rise to exchange rate losses when
operating in global business environment.

Political
unrest in Middle East and African countries increases the global political risk
where the operations in Middle East region as well as global operations are at
a risk of economies getting slowed down. Conclusion
An
in depth analysis of the environment in which M & S operates was conducted
and based on the PESTEL analysis it was identified that economic environment
gives rise to significant threats due to fall in consumer income. Technological
environment has given rise opportunities where M & S could capitalize on.
The Porter’s five forces analysis indicated positive signals except for threat
of substitutes. Based on the environment analysis and the internal analysis, a
SWOT analysis was compiled as the final section of the report which can be used
for business decision making. References
CBC News. (2011). Natural disasters will increase: British report. Available: http://www.cbc.ca/news/world/story/2011/03/28/disasters-paddy-ashdown-britain.html. Last accessed 20th June 2012.Dealtry R (1992). Dynamic Swot Analysis: Developer’s Guide. Birmingham : DSA Publications . p14.European Commission . (2011a). What is EU law?. Available: http://ec.europa.eu/eu_law/introduction/treaty_en.htm. Last accessed 21st June 2012.European Commission . (2011b). Generalised System of Preferences (GSP). Available: http://ec.europa.eu/trade/wider-agenda/development/generalised-system-of-preferences/. Last accessed 20th June 2012.Felsted A. (2012). Marks and Spencer loses Price to rival. Available: http://www.ft.com/intl/cms/s/0/5f21a30a-bc50-11e1-a836-00144feabdc0.html#axzz1yfTiwomx. Last accessed 20th June 2012.Gunatilleke M. (2010). Garment workers torn apart as GSP Plus is withdrawn. Available: http://sundaytimes.lk/100815/News/nws_44.html. Last accessed 20th June 2012.Henry A (2008). Understanding Strategic Management. New York: Oxford University Press. p68-69.HM Revenue and Customs . (n.d.). PE1100 – Partial exemption basics and the standard method: EU law. Available: http://www.hmrc.gov.uk/manuals/pemanual/pe1100.htm. Last accessed 20th June 2012.Jin et Al. (2011). Poverty and Inequality in the UK: 2011. Available: http://www.ifs.org.uk/comms/comm118.pdf. Last accessed 20th June 2012.Lorat N (2005). Market Audit and Analysis. Germany : Druck and Bindung. p6.LOWREY A. (2012). World Bank Warns Euro Fears May Slow Global Growth. Available: http://www.nytimes.com/2012/06/13/business/global/world-bank-warns-euro-fears-may-slow-global-growth.html?_r=1. Last accessed 20th June 2012.M & S corporate website . (2012). Company Overview. Available: http://corporate.marksandspencer.com/aboutus/company_overview. Last accessed 20th June 2012.OWEN J and LAURA C. (2011). British firms stand to lose millions in revolt. Available: http://www.independent.co.uk/news/business/news/british-firms-stand-to-lose-millions-in-revolt-2226895.html. Last accessed 20th June 2012.Peacock L . (2011). Cyber Monday to boost retailers as shoppers flock online. Available: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8920183/Cyber-Monday-to-boost-retailers-as-shoppers-flock-online.html. Last accessed 20th June 2012.Saul J. (2012). Iran’s sanction-beating grain trade seen ready to help Syria. Available: http://www.reuters.com/article/2012/06/01/us-syria-iran-grain-idUSBRE8500JU20120601. Last accessed 20th June 2012.Skoczkowski L. (n.d.). Mobile Money: Transforming The Wireless Paradigm. Available: http://www.billingoss.com/articles/mobile_money_a_global_opportunity_redknee.htm. Last accessed 20th June 2012.The Economic Times . (2007). UK-based MNCs may get to repatriate profits tax-free. Available: http://articles.economictimes.indiatimes.com/2007-04-12/news/28473863_1_mncs-consultation-paper-tax. Last accessed 20th June 2012.The Indian Express. (2012). India, China deliver half of world economic growth: report. Available: http://www.indianexpress.com/news/india-china-deliver-half-of-world-economic-growth-report/898480/. Last accessed 20th June 2012.Vertical Edge Limited. (2011). The Future of Online and Mobile Payments. Available: http://www.companiesandmarkets.com/Market/Information-Technology/Market-Research/The-Future-of-Online-and-Mobile-Payments/RPT858359. Last accessed 20th June 2012.Woods J. (2012). Adapting business for the green era. Available: http://www.telegraph.co.uk/sponsored/earth/the-age-of-energy/8876251/Adapting-business-for-the-green-era.html. Last accessed 20th June 2012.X Rates. (2012). Exchange Rate Graph . Available: http://www.x-rates.com/d/GBP/USD/graph120.html. Last accessed 20th June 2012.
Appendix A
Measures
of Income Growth in UK

Source:
Jin et al, (2011) Appendix B
Exchange
Rate Fluctuations

Source:
X Rate, (2012)
Introduction
The
report is compiled to understand the environment in which Marks & Spencer
(M & S) operates and detailed objectives of the report can be explained as
follows. Objective one of the report is to identify the external environment
factors that impacts M & S’s performance in a broader sense where a PESTEL
analysis will be used to explain factors. Objective two of the report is to
identify the industry environment in which M & S operates and to evaluate
the industry environment Micheal Porter’s Five Forces analysis will be used.
Objective three of the report is to come up with a SWOT analysis for M & S
in order to identify the strengths, weaknesses, opportunities and threats. In
the final section of the report, it aims at providing an overall conclusion about
the strategic position of M & S which can be used to develop future
strategies for the organization.
M
& S is a large conglomerate listed in London Stock Exchange and it has
operations in more than 40 countries around the world even though the core
business is focused on UK. (M & S Corporate Website, 2012) The business
portfolio of M & S is diversified to an extent because it has ventured into
businesses ranging from clothing, furniture, home appliances, food and
financial services. (M & S Corporate Website, 2012) With a large business
portfolio in hand, M & S considered as a one of the strongest brands in UK
and due to the recent turmoil in the business environment, they are faced with
a challenging situation. Therefore, the report identifies the factors that
seriously affect the performance of M & S where findings of this report can
be used to take business decisions in the future. PESTEL Analysis
PESTEL
Analysis is a tool that is developed to identify the external factors that
affect the strategy of the organization and through the PEST analysis; decision
maker can identify the macro level factors which would give rise to
opportunities or threats to M & S. (Lorat, 2005) The PESTEL analysis for M
& S can be presented as follows:
Political Factors
Since
M & S is company with presence in more than 40 countries the global
political situation and the political climate of each and every country in
which they have operations affects the bottom line of M & S. With that
thought in mind, laws created by the European Parliament affects M & S as
it has presence in many European counties such as Spain and Green who are bound
by the law of European Union. (European Commission, 2011a) However, core
business location of M & S- UK is not severely affected by law making of EU
as UK has the option to decide whether to adhere to the law or not. (HM Revenue
and Customs, n.d) Considering the political climate of UK, there are many
reports that suggests that political climate of UK is positive with law
political risk involved as the present government operates in a stable manner.
Even though the political climate in UK is identified to be positive, the
global political climate is recognized as a negative force threatening M &
S due to the global political unrests. The political situation in Middle
Eastern countries involves high risk as there are war breakouts in gulf region
and Africa. The war in Iraq and Libya has a severe impact on M & S as they
have their presence in many Middle Eastern countries including Libya. There are
many business reports suggesting that M & S has made significant losses at
its Libyan business unit due to the war breakout. (Owen and Chester, 2012)
Further, there are sanctions imposed on certain countries in Middle East such
as Iran and Syria limiting trading with those countries which is considered to
be a negative factor for M & S as it limits the business opportunities of M
& S trade with those counties. (Saul, 2012)
The
trade policy of the government is developed based on the motive that UK
businesses should transform to multinational companies venturing into emerging
economies into around the world. It allows UK provides subsidies for UK
companies to make investments outside UK and transfer the profits back to UK
without charging any income tax or capital gains tax on it. (The Economic
Times, 2007) This policy is an opportunity for M & S to transform into
multinational and transfer profit back to its headquarters with no tax.
Further, trade policy of UK aims at helping developing countries in Africa to
by developing business relationship with them and UK companies are provided
subsidies for engaging in business with selected African countries. M & S
utilize this opportunity to venture into untapped African markets which would
facilitate the growth process. Further, trade policy of European Union has made
a provision for developing countries through Generalized System of Preference
(GSP plus) where the selected developing countries are allowed to trade with EU
countries at low or no tariff on imports. (European Commission, 2011a) This has
provided significant opportunity for M & S to build their supplier base in
chosen countries and they have entered into strategic partnership with those
chosen supplier. However, the poor diplomatic relationships and other political
pressures such as human rights claims have resulted in abolishing GSP plus
concession for certain countries such as Sri Lanka who were major suppliers for
clothing division of M & S. (Gunathilake, 2012) This has situation has
forced M & S to look for alternative suppliers as the prices of imports
from their major sourcing countries have become less competitive. (Gunathilake,
2012) Trade policies of other countries in which M & S also affect the
strategy of M & S.
Economic Factors
Currently
many of the European countries are faced with a financial crisis which is
called the Euro crisis and it has led to poor performance of economies such as
Spain and Greece. (Lowrey, 2012) Due to the crisis situation in Ireland, Spain
and Greece which is caused by the defaults of debt, the economic activities
have slowed down leading to low performance by M & S as the revenue level
of those business units have fallen. (Lowrey, 2012) To cover up the poor
performing European businesses, there has been a significant economic growth in
emerging Asian countries such as China and India where China has accounted for
40% of the world economic growth and India has accounted for 15% of the world
economic growth giving a combined figure of 55% of the total world economic
growth arising from Asia. (The Indian Express, 2012) Hence, this can be
identified as an opportunity to further expand business operations in India and
China while making more money from the existing business units in those
countries.
Being
in the consumer goods business, M & S is significantly affected by the
income level of its potential customer. The consumer income level in UK has
been dropping significantly during past few years as a result of the recent
financial crisis where the disposable income growth in UK has fallen from 3.2%
in 2001-2002 to 0.3% in 2008-2010 time periods indicating that the purchasing
power of consumers has been stagnant during the last few years. (Jin et al,
2011) (Refer Appendix A for a detailed breakdown of income growth in UK) M
& S product range is a luxurious product range where consumer’s disposable
income is a factor that determines the purchase choice. When the consumer
income’s disposable income falls, the consumer’s consumption also falls as the
money that is available for consumption is limited. When there is limited money
available for consumption, consumers tend to avoid luxurious goods rather they
purchase substitutes products that are available for cheaper prices. This
situation could heavily affect M & S leading to fall in income as its
entire clothing line and the food sector is catering to up market with premium
prices.
Being
a global company exchange rate also has an impact on performance of M & S.
Considering the exchange rate for British Pound, it is apparent that currency
is not stable in the market where there are heavy fluctuations and during past
120 days the exchange rate for USD has it highest point in 0.65 and the lowest
point in 0.61. (X Rates, 2012) (Please refer Appending B for more details) These
fluctuations impact global business operation of M & S as the money earned
in other countries have to be transferred back to UK. Further, M & S is
also in to the currency converting business via M & S Money and severe
fluctuations in exchange rate significantly impact the margins of business as
they they are unable to predict future exchange rates.
Social and Cultural
Factors
In
the modern world the the free time of consumers have been reducing over the
time where the consumers have been loaded with work at their workplace and
personal commitments. Therefore, the modern trade requires new methods to save
time such as no lengthy queues at the cashier, home delivery and extended
versions of the online store of M & S to increase sales by leveraging on busy
life styles of people.
The
clothing preference of people depends on the cultural and religious values
where the strategy of M & S needs to be adapted to suit the cultural and
religious values of the people. As an example, the clothing fashions in Middle
East is based on Islamic traditions where the women are required cover their
full body this would limit the opportunity for M & S to trade the
traditional set of items in middle east. Further, clothing traditions in India
are shaped by Hindu religious values and Indian culture which is identified
completely different to the UK clothing fashions resulting in a challenge for M
& S to market its standardized product range at India.
Not
only the clothing preferences, the food preferences of customers also depend on
the culture and religious values where the food preferences of customers change
from country to country depending on the local cuisine too. As an example, due
to the influence of Hinduism, in India the food sellers operate without beef in
their cuisine as majority in India who believe in Hinduism does not consume
beef. Similarly, Islamic nations such as Saudi Arabia, Oman and Middle Eastern
Countries require a food to prepared according to halal approved manner using
only halal certified ingredients as customers who believe in Islamic religious
value consume food that are prepared according to halal standards and operating
under halal standards require removing pork related items from restaurants.
Therefore, the cultural and religious values of consumers have a big impact on
the M & S food division and customization to the standardized products are
required to meet the demands in locales based cultural and religious values.
Technological Factors
As
a multinational company looking forward to excel in its strategy, M & S is
significantly impacted by the changes in the technological environment which
changes at a rapid pace in current business environment. There has been a
significant increase in the mobile payment methods during the recent past where
the online payments are expected to hit USD 740 Billion in 2010 to USD 2700 in
2015. (Vertical Edge Limited, 2011) The increase in online payments are caused
by increased usage in credit cards/debit cards and change in the perception
about online transaction security where the customers have recently developed
trust on online merchants and online payment verification systems such as
Paypal to enter their credit card credentials. (Vertical Edge Limited, 2011)
This change provides a significant opportunity for M & S Money to increase
sales for their credit card divisions and the M & S online store to expand
its online sales targeting a larger segment of customers. In additional to the
online payments methods, mobile payment methods also emerge in the market
allowing a greater flexibility for customers to make their purchases via mobile
phones simply by disclosing credentials to the merchant on mobile phone and
simply order the goods. (Skoczkowski, nd) The growth projected in the mobile money field has been
significant where it was expected to have 2.7 transactions in 2007 37 Billion
transactions by 2011. (Skoczkowski, nd) Similar to the credit card
payments, running a mobile payment platform requires a supporting bank to
provide payment gateways and since M & S money can facilitate the banking
process it gives a strategic advantage for M & S to venture in to the
mobile payment methods for its clothing, gifts and food sectors.
Environment Factors
During
the recent past, there has been significant trend in companies going green due
to external pressures as well as businesses understanding the importance of
sustainability. (Wood, 2011) With the green initiatives, companies have adapted
strategies to minimize waste, save energy, create green manufacturing and
encourage suppliers to go green making it a trendy approach to position the
business as a socially responsible entity. (Woods, 2011) Therefore, it provides
an opportunity for M & S to improve their green initiatives and position
themselves as a green organization in customer’s mind which could impact the
buying decisions of customers on ethical grounds.
The
climate change and the seasonal changes caused by the natural environment have a
great impact on the clothing preferences of the customers. When the winter
arrives in UK and other European countries demand for winter clothes are
expected to grow whereas during the summer demand for summer clothes are
expected to grow. (Peacock, 2011) Further, clothing preference significantly
varies from countries with warm climates such as Saudi Arabia to countries with
a cool climate such as UK. This gives the opportunity for M & S to produce
clothes to suit the requirement of season and climate conditions of countries
and meet the demand.
In
the recent past, the world was exposed to many natural disasters such as
earthquakes, Tsunami, floods and cyclones and the recent reports suggests that
natural disasters could increase in the future leading to an uncertain future.
(CBC News, 2011) Recent earthquake/Tsunami situations in Indonesia and flood in
Thailand have negatively affected M & S business operations in those
countries and there is a significant threat identified as a result of predicted
increase in natural disaster in the future.
Legal Factors
Operating
in a global environment requires companies to be in line with the global legal
system as well as the local legal systems of countries in which they have
operations. As an example, as M & S venture in to China, labour policies
adapted in China should be within the labour regulations of Chinese government
and also it needs to comply with the standards of International Labour
Organization. Similarly, since M & S operates in the food and beverages industry,
the process in which the food business is carried out should be in line with
the food product standards that are enforced at local levels. Apart from the
labour and food product regulations, the companies starting businesses in other
countries also should comply with the companies law of those countries where
the entity needs to be duly incorporated in those countries according to
respective laws while ensuring that the reporting occurs as an when required. Micheal Porter’s Five
Forces Analysis
Porter’s
Five forces analysis is a tool that is developed to identify the threats and
opportunities resulting from the task environment of the business which is
comprised of the forces that business closely interact with. (Henry, 2008) Five
forces analysis for M & S can be conducted as follows:
Buyer Power                                  
The
buyer power of M & S consumers is identified to be low as the customers are
unable to influence the prices. Prices are set high as the target audience is
high income earners seeking for luxurious life style. Further, since there are
a large number of buyers in the market, the power of individual buyer is very
low and as the revenue contribution by individual buyers is a very low, the
bargaining power of individual buyers is concluded to be low. Due to above
mentioned reasons; the low bargaining power of the customer is identified as a
opportunity for M & S as they can decide on the selling price.
Supplier Power
M
& S is a large scale buyer who is in a position to bargain and decide on
the price and therefore the supplier power is considered to be low. Due to the
large quantities purchased, M & S receive bulk discount and due to the
established the brand name it is easy for M & S to bargain with suppliers
to build business relationships. Further, suppliers are given other additional
benefits such as technology transfers by M & S, suppliers are under
obligations to give priority to produce goods for M & S reducing the
bargaining power of suppliers. Therefore, M & S has significant control over
its supplier base and it can be identified as a positive environment factor.
Threat of Substitutes
M
& S operates in the high street segment and there are ample substitutes
available for up market products where goods of similar nature are sold at
reasonable prices in normal shops. For example, substitute for luxurious food
items can be found at regular fast food restaurants such as KFC and McDonalds
indicating that there is a significant threat from substitute products. Threat of New Entrants
Except
for the banking industry, other industries in which M & S operates does not
have major entry barriers or major exit barriers. Entering into a restaurant
business or clothing business does not require major capital investments and
they are identified to have high level of margins making it attractive for new
entrants to enter the market. Therefore, M & S is faced with significant
threat from the new entrants to the market.
Rivalry among Existing
Competitors
The
number of players in the up market clothing and food industry is large and they
compete with each other to increase/retain their market share. However, each
store tries to differentiate themselves from the competitors where they
concentrate on product value and brand values rather than price war. Since each
competitor reflects unique values of their brand, customers become loyal to
those stores reducing the cut throat competitions to somehow grab the customer.
This indicates an opportunity for M & S differentiate themselves using
their unique brand values. SWOT Analysis
SWOT
analysis is carried out to identify the strategic position of the organization
where it provides insights from the internal organizations by means of
strengths and weaknesses where external organization is evaluated as opportunities
and threats. (Dealtry, 1992)
Strengths of M & S

M
& S has presence in more than 40 countries giving it the opportunity to
cater to a larget customer segment and earn revenue. (M & S Corporate
Website, 2012)

M
& S employs 78,000 people in their business process
and these employees are well talented and given training to enhance their
skills to perform their tasks. (M & S Corporate
Website, 2012)  

M
& S has a large supplier base of 2000 suppliers
around the world providing best quality products at lower prices due to the
strategic partnerships. (M & S Corporate
Website, 2012)
Weaknesses of M & S

M
& S’s policy is to concentrate more on its UK business rather than
expanding its operations in other countries. Having its concentration in a
market which is affected by a financial crisis can be seen a weakness as the
market could collapse. (M & S Corporate Website, 2012)

The
reports suggests that Marks and Spence has high prices when compared to
competitors who are operating in the similar market and it has led them lose
the market share in the recent past. (Felsted, 2012) Opportunities of M &
S

As
explained in the technology analysis the mobile money industry is growing at a
rapid pace and M & S could capitalize on it and
launch mobile stores.

As
explained in the economic analysis, Asian countries such as India and China
have reported high economic growth where M & S could expand its operations
in those countries to generate better results.
Cheap Sourcing due to
trade policy
The
trade policy of EU and UK allows subsidies for developing business relationship
with developing countries and M & S has opportunity to utilize it to obtain
cheaper supplies.
Threat of M & S
Reduction in consumer
income
Induction
in consumer income has forced customers to look for cheap substitutes leading
to drop in sales for M & S.
Fluctuation in exchange
rates
Significant
fluctuations in the exchange rate give rise to exchange rate losses when
operating in global business environment.

Political
unrest in Middle East and African countries increases the global political risk
where the operations in Middle East region as well as global operations are at
a risk of economies getting slowed down. Conclusion
An
in depth analysis of the environment in which M & S operates was conducted
and based on the PESTEL analysis it was identified that economic environment
gives rise to significant threats due to fall in consumer income. Technological
environment has given rise opportunities where M & S could capitalize on.
The Porter’s five forces analysis indicated positive signals except for threat
of substitutes. Based on the environment analysis and the internal analysis, a
SWOT analysis was compiled as the final section of the report which can be used
for business decision making. References
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News. (2011). Natural disasters will increase: British report. Available:
http://www.cbc.ca/news/world/story/2011/03/28/disasters-paddy-ashdown-britain.html.
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Dealtry
R (1992). Dynamic Swot Analysis: Developer’s Guide. Birmingham : DSA
Publications . p14.
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2012.
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Commission . (2011b). Generalised System of Preferences (GSP). Available:
http://ec.europa.eu/trade/wider-agenda/development/generalised-system-of-preferences/.
Last accessed 20th June 2012.
Felsted
A. (2012). Marks and Spencer loses Price to rival. Available:
http://www.ft.com/intl/cms/s/0/5f21a30a-bc50-11e1-a836-00144feabdc0.html#axzz1yfTiwomx.
Last accessed 20th June 2012.
Gunatilleke
M. (2010). Garment workers torn apart as GSP Plus is withdrawn. Available:
http://sundaytimes.lk/100815/News/nws_44.html. Last accessed 20th June 2012.
Henry
A (2008). Understanding Strategic Management. New York: Oxford University
Press. p68-69.
HM
Revenue and Customs . (n.d.). PE1100 – Partial exemption basics and the
standard method: EU law. Available:
http://www.hmrc.gov.uk/manuals/pemanual/pe1100.htm. Last accessed 20th June
2012.
Jin
et Al. (2011). Poverty and Inequality in the UK: 2011. Available:
http://www.ifs.org.uk/comms/comm118.pdf. Last accessed 20th June 2012.
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N (2005). Market Audit and Analysis. Germany : Druck and Bindung. p6.
LOWREY
A. (2012). World Bank Warns Euro Fears May Slow Global Growth. Available:

Last accessed 20th June 2012.
M
& S corporate website . (2012). Company Overview. Available:
http://corporate.marksandspencer.com/aboutus/company_overview. Last accessed
20th June 2012.
OWEN
J and LAURA C. (2011). British firms stand to lose millions in revolt.
Available: http://www.independent.co.uk/news/business/news/british-firms-stand-to-lose-millions-in-revolt-2226895.html.
Last accessed 20th June 2012.
Peacock
L . (2011). Cyber Monday to boost retailers as shoppers flock online.
Available:
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8920183/Cyber-Monday-to-boost-retailers-as-shoppers-flock-online.html.
Last accessed 20th June 2012.
Saul
J. (2012). Iran’s sanction-beating grain trade seen ready to help Syria.
Available:
http://www.reuters.com/article/2012/06/01/us-syria-iran-grain-idUSBRE8500JU20120601.
Last accessed 20th June 2012.
Skoczkowski
L. (n.d.). Mobile Money: Transforming The Wireless Paradigm. Available:
http://www.billingoss.com/articles/mobile_money_a_global_opportunity_redknee.htm.
Last accessed 20th June 2012.
The
Economic Times . (2007). UK-based MNCs may get to repatriate profits tax-free.
Available:
http://articles.economictimes.indiatimes.com/2007-04-12/news/28473863_1_mncs-consultation-paper-tax.
Last accessed 20th June 2012.
The
Indian Express. (2012). India, China deliver half of world economic growth:
report. Available:
http://www.indianexpress.com/news/india-china-deliver-half-of-world-economic-growth-report/898480/.
Last accessed 20th June 2012.
Vertical
Edge Limited. (2011). The Future of Online and Mobile Payments. Available: http://www.companiesandmarkets.com/Market/Information-Technology/Market-Research/The-Future-of-Online-and-Mobile-Payments/RPT858359.
Last accessed 20th June 2012.
Woods
J. (2012). Adapting business for the green era. Available:
http://www.telegraph.co.uk/sponsored/earth/the-age-of-energy/8876251/Adapting-business-for-the-green-era.html.
Last accessed 20th June 2012.
X
Rates. (2012). Exchange Rate Graph . Available:
http://www.x-rates.com/d/GBP/USD/graph120.html. Last accessed 20th June 2012.Appendix A
Measures
of Income Growth in UK
Source: Jin et al, (2011)
Appendix B
Exchange
Rate Fluctuations
Source: X Rate, (2012)
 

PESTEL and SWOT Analysis: Starbucks in India

Starbucks is the number one specialty coffee retailer in the world. The company wants to deliver the finest coffee products and offers handcrafted beverages. Starbucks is not only about drinking coffee but about a unique experience. The company follows an international expansion strategy through strategic alliances. Starbucks wants to prevent competitors from having a head start, build upon the growing interest for Western brands and take advantage of the higher coffee consumption rates. After building a successful brand in Japan and China Starbucks wants to enter the Indian market. Starbucks found a local supplier for their coffee, Tata. However, the company has not yet found a partner to enter the Indian market with.

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In this report we will give an outline of some of the challenges Starbucks might face when entering the Indian market. We will give an analysis of the external environment in India. Later we will describe the strengths and weaknesses of the company and the opportunities and threats the Indian market offers. We will combine the internal and external analysis to propose four possible strategies to target the Indian market.
PEST(LE) Analysis
The PESTLE analysis is a tool which provides insight of the external environment in which organizations operate or will operate and aids the strategy formulation of those organizations. Considering the fact that Starbucks is planning to enter the market in India, the PESTLE analysis is going to evaluate favorable and unfavorable conditions in the country’s political, economic, social, technological, legal and environmental setting.

The political factors have strong influence upon the regulation and controlling of business and the spending power of consumers and other businesses. We must consider those factors as very important and even crucial depending on the political system of the country we are operating in and the political condition of the country as a whole.
The Indian economy has been subject to series of positive economic reforms since 1991 which had created a better working environment for foreign companies and has made it possible for foreign investors to operate in the country more easily. The reforms have also resulted in higher growth rates, lower inflation and increase and ease of the foreign investments. The current Indian government – United Parties Alliance (UPA), headed by the Indian National Congress party (INC) has shown more tolerance towards foreign countries in general and towards FDI in numerous economic sectors. These reforms have placed India in a favorable position in the world economic stage.
Taking into consideration the political environment in India as a whole, the bureaucracy complications and the regulatory FDI controls and regulations, it is safer for Starbucks to enter India via a joint venture or a strategic alliance with an Indian company that can provide a buffer from possible political tension. Furthermore, Starbucks can face some opposition from the existing competitors (CCD, Barista, etc.) through the use of political influence and delaying tactics. Although situations like these are possible to happen, the chance is low taking into account that the Indian market is large enough to hold more companies and the leaders in the Indian gourmet coffee industry will not be strongly affected by Starbucks’ entry.

In economic terms India is experiencing growing GDP with levels reaching 7.4% for 2009 and 8.3% for 2010. The GDP per capita has also been estimated to have stable growth in the last few years, reaching $ 3 500 in 2010.  Additionally, the high levels of inflation, which peaked at 11% in the beginning of 2010, reached stable one digit figures by the end of the year as a result of the India’s central bank interest levels adjustment.
Favorable environment for Starbuck’s entry are provided by the big cities in the country. Mumbai is regarded as the country’s financial center and accommodates many foreign financial organizations as well as many IT companies. Delhi and Bangalore, other major cities with population totaling just below 20 million, are centers of call-center hubs and international IT companies.
Apart from that, The Indian Government is still working on improving unfavorable factors such as widespread poverty, inadequate physical and social infrastructure, bureaucracy, limited non-agricultural employment opportunities, regulatory and foreign direct investment controls, insufficient access to quality basic and higher education, and the imbalance of rural-to-urban migration. Furthermore, the government strives to reduce its fiscal deficit in 2011 to 5.5% of GDP from 6.8% in previous years.

As one of the main characteristics of the company, the ethical approach towards internal and external stakeholders is almost a trademark for Starbucks. The company is widely known for its humane approach towards sourcing its coffee and related products and towards converting its employees to skilled baristas and dedicated brand ambassadors. In addition to that the company plays an important role as sustainable leader on the market and conveys all through its consistent business strategy.
This positioning as sustainable business player is important facet for the Indian market and its many socio-cultural dimensions. It gives Starbucks position with regard to an important cultural trend that with the growing employment rate of young people, their disposable income also grows and they become a very profitable target audience. According to sources the population of the country consists of more than 60% of the people between the age of 15-59. Also with the westernization of the social trends more and more young people trust western brands and prefer foreign goods. They also go for the same trends and try to mimic the same status of exclusivity young people in the US and Europe look for. This places Starbucks at a very dynamic position, where it has a good opportunity and much possibility to capture quick customers. The only problem is that they will not be the first on the market with specialty coffee offering and their otherwise leadership position could strongly be undermined and only sustained by their brand image.
Next to that, the culture and cuisine of India poses a very interesting challenge. The mix of traditional tea-drinking population together with the various differences between Muslim and Hindu and the growing difference among various regions of the country, make it extremely to divide and place is concrete consumer groups. Still the most obvious separation with regard to coffee consumption is visible in the city versus rural areas separation with the urban population having distinctly higher preferences for coffee. Still the numbers of coffee consumers remains low with slow negative growth figure between 2000 and 2005 – 6.7% and 2.0% respectively.

In 2004 Starbucks entered into a strategic alliance with Tata Coffee LTD., the largest coffee producer in India. With signing this agreement, Starbucks finally found the partner it needed. A company which met all the conditions and standards followed by Starbucks. Tata proofed its quality standard by winning a gold medal for the best Robusta coffee in the world.
The factor of quality is very important at the Indian market as high quality coffee beans are easily available. With this strategic relation with the Tata Group, the company, Starbucks, might be able to succeed with competitive pricing in India.
Another important technological factor is the lack of infrastructure in India. However, having such an experienced local partner, Starbucks does not face any problems with this issue.

The legal environment in India might not be viewed as positive as the one in USA or Europe in the eyes of global business. Corruption in the country is high and it raises concerns.
Starbucks has already experienced some drawbacks from the legal environment in India. The case of “Starstruck” is being mentioned as an example of weak copyright and trademark protection in the country.
Even though, the business opportunities still remain attractive since India has shown significant improvement in reforms towards international business and investment. Due to these improvements the country’s has attracted FDI’s. Lower tariffs and lower barriers to enter have made the Indian market extremely promising and willing to change.

The Starbucks coffee is for a large part dependent on the quality of coffee beans. Several environmental factures must be taking into account for growing coffee. Sufficient water and trees and a diverse flora and fauna are important for growing coffee beans.
The rapid growth of the population and economic development will lead to a number of environmental issues like uncontrolled growth, urbanization, industrialization, intensification of the agriculture and destruction of the forest. The growing population has an adverse effect on natural resources and the environment. Therefore, it is very important that India grows in a sustainable way.
External factors

Following India’s economic liberalization in 1990 the country experiences accelerated growth which reaches an average of 7% in the years after 1997. This, alongside with the increasing levels of GDP, results in growing disposable income of consumers. In a country where cultural trends play important role in society growing income and standards of living creates demand for western goods.
In recent years there has been a growing number of department stores. They accommodate mainly the high-income and the upper-middle segment, which happens to be the target group of Starbucks. Placing coffee-bars in such places is a big opportunity for achieving high profits and is definitely something that Starbucks has experience with.
Another opportunity on the Indian market is the growing size of Starbucks’ target group. In 2006 the middle class in India was estimated at around 250 million and it is growing in urban areas. All, these factors show that Starbucks has a large enough target group which is willing and able to pay premium price for a high quality western brand. Starbucks has the potential to skim the Indian market, because of its positioning and brand image.

The coffee retail market in India consists of mainly homegrown brands. The biggest ones are Coffee Café Day (CCD), followed by Qwiky’s and Barista Coffee. These companies are considered as threats to Starbuck’s entry in the Indian market because they are offering similar and sometimes identical products.
CCD, for instance, the company which pioneered the concept of specialty coffee in India, has wide range of café formats with almost identical concept used by Starbucks. Besides, CCD has presence all around the India. The same company also sells merchandise and is involved in heavy marketing, such as establishing relations with the Indian movie and television series industry. Furthermore, CCD’s best-seller – the cold Frappe – is a direct competition to Starbuck’s Frappuccino.
It is also mentioned that the infrastructure in India is weakly developed, which might result difficulties or larger amounts of costs incurred in the business operations of Starbucks. In addition the retail environment in India is largely unorganized and dominated by small and individually owned businesses.
The threat from substitute goods in India should also be considered. The Indian population is still heavy tea drinkers. The consumption of tea per person in 2000 was reported to 44 liters in comparison to 1.2 liters of coffee. Another good, which is considered a substitute, is the instant coffee. It is reported that 65 % of households bought instant coffee and only 18 % bought filter coffee.
Internal factors

Taking into consideration the size and market power of Starbucks as a leader in specialty coffee retailing, the brand equity of the company is one of the most valuable assets they have (Interbrand Top 100 Most Valuable Brands – N 97 estimated brand value $ 3.339 m). This strength also has the highest rate in the strengths section because through its consistent and innovative marketing strategy and exclusive product positioning Starbucks managed to maintain throughout the years its brand integrity and kept on its very consistent mission and vision. The strong joint ventures and strategic alliances that the company has establish all over the word made it possible for them to create and develop a sustainable supply chain of high quality.
 Moreover, Starbucks has also placed great attention to the well-being and satisfaction of their employees. The company ranks at N 98 Fortune`s 100 Best Companies To Work For. Another very important strength of Starbucks is their financial stability. Taking into account that the company`s total net revenues for 2010 increased 17.2%, compared to 2009, to $2.8 billion, the capital availability that Starbucks has is making it easier for them to manage their expansion in other new markets like India.

Because of the high – quality exclusive products that Starbucks is offering their price range is also very high compared to their competitors. It is a weakness of the company but at the same time it is not addressed heavily because it is part of their exclusive image.
Entering the Indian market, Starbucks are not the first movers in the coffee retail industry; there are already established leaders on the market and thus Starbucks are market followers. Because of this high competition Starbucks is also facing a problem regarding their suppliers. They signed a supply deal with Tata Coffee which is actually co-owner of the main competitor on the market.
Strategic factors

The TOWS matrix, serves as a framework for organizations to assess the combination of external and internal factors. The matrix helps companies to decide on approaches depending on the opportunities and threats the business environment has to offer and how the company is going to take advantage on them depending on their internal capabilities.

The growing Indian economy provides attractive opportunities for a company such as Starbucks. These favorable economic conditions create an environment in which exclusive and luxury products such as Starbuck coffee will be in growing demand. The international popularity of the Starbucks brand will help the company to position itself on the Indian market. Starbucks in one of the best known American brands in the world and it is also connected with positive affiliations on the market. With its strong and distinctive brand image the company is able to take advantage of the growing demand for branded, western and luxury products.
On the other hand, in order to gain market share, Starbucks can reduce the prices, but not below the competition’s levels and by maintaining healthy profit margins. This is possible since Starbucks has at its disposal coffee from a local supplier.
One way the firm could protect its position involves developing a marketing campaign emphasizing its superior customer service in comparison to its competitors.

The high brand equity and recognition of Starbucks` products is definitely the biggest advantage they have over their competitors. Taking into account the size of their Indian competitors and the size of the market as a whole, Starbucks has to put more emphasis on its marketing strategy and try to stress on the promotion of its exclusiveness and premium product portfolio in order to differentiate its brand in the consumer`s mind.
In order to grow and outperform its already existing competitors Starbucks must also emphasize on the company`s points of difference, which include the brand experience as a whole, the brand quality that they are offering and also the convenient access to their locations.
Starbucks is well known for its high quality and distinctive products, so substitute products can`t deliver to the customer the same exclusive level of high quality and cannot satisfy the customers` needs and wants as Starbucks does. In order to create and retain a position in the customers` mind Starbucks must extend their product portfolio so that it can match the local preferences. For example, they can offer special Indian tea and other typical for the region herbal mixes.

As a company that offers specialty coffee the limited portfolio of Starbucks, in terms of non-coffee products, can be considered as exclusive offering. Therefore, the company is in a good position to take advantage of the growing opportunity that the cultural “westernization” is offering and minimize the impact of their weakness. As exclusive product, Starbucks` specialty coffee can give the targeted consumers the desired social status.

Starbucks should keep its prices high as the alternative can undermine the exclusivity and top quality image of the coffee. Thus, Starbucks has the ability to minimize the impact of their high price weakness on the India market and deal the pressure from competition which is a definite threat. Even though, the main competitors have similar, and even more extensive product portfolios, Starbucks has the competitive advantage of its exclusive brand image.
Moreover, Starbucks should slightly try to extend their product line portfolio in order to answer the consumers` existing demand for instant coffee.
Summary
The Indian market offers a future entry possibility for Starbucks. The economy and the population are increasing and there is a growing interest for western brands. Some recent government reforms have been undertaken which made investing in India easier for foreign companies. However, India still has some FDI restrictions and there is a lot of bureaucracy.
Starbucks has three main competitors in India of which Barista and CCD are the biggest. They offer the same type and quality of products as Starbucks does. Also, India is a tea drinking country which presents a challenge for companies that mostly sell coffee. Furthermore, retailing is unorganized and underdeveloped in India.
Looking at external and internal factors various strategies can be identified for possible entry in the Indian market.
There will be a growing demand for Western products. Starbucks can use this trend to successfully introduce its product. The company should make use of its strong brand name and recognition as a Western product.
The products Starbucks is offering are in line with the growing westernization and coffee culture. Also, growing GDP per capita will lead to the ability to pay more for a premium product. Starbucks should market themselves as a high quality Western brand.
The exclusive product Starbucks is offering and the Western brand name is in line with the trend of “westernization” and a growing coffee culture. Starbucks should use their exclusivity and their brand name to target the specialty coffee market.
By keeping prices high Starbucks will keep its image of being an exclusive brand. By slightly altering its product offering Starbucks can serve local preferences.
 

PESTEL and SWOT Analysis of Homebase

Homebase is the UK’s second largest home improvement retailer and is recognised for choice, style and customer service across the wider home enhancement market. It has more than 300 large, out-of-town stores throughout the UK and Republic of Ireland, and is planning to add to its store chain with around 15 new stores a year. It sells over 30,000 products across DIY and decorating, home and garden ranges, and has a growing internet offering. Homebase serves over 70 million customers per year through its stores and offers customers the convenience of home delivery for bulky, high-value items. Its Ideas magazine is the number one home interest magazine in the UK, with a circulation of almost half a million. In 2006 Homebase won ‘Britain’s Best Superstore Manager of the Year’ at Britain’s Best Retailer Awards and in 2005 it was awarded DIY Retailer of the Year in the National Home Awards. Homebase was the first UK DIY retailer to achieve Forest Stewardship Council Chain of Custody certification. More information on Homebase can be found on
Situation analysis
With sales of nearly £6bn in the past financial year, Home Retail Group is the leading home and general merchandise retailer in the UK.
Although company is already the number one in many of its product categories, there is still potential to increase its market share. Our combined position accounts for just 10% of a market valued at £60bn. As many of these markets are fragmented and its market share has built quickly, there are further opportunities for growth. Homebase proves there’s ‘No Place Like Home’ for charities In August 2006 Homebase launched its first two year partnership with Marie Curie Cancer Care (www.mariecurie.org.uk) and the Irish Cancer Society in the Republic of Ireland (www.cancer.ie), under the banner of ‘There’s no place like home’ ; The charities were chosen in a company-wide staff ballot where 39% of Homebase staff voted to support them ; The aim of the two year partnership was to raise £500,000 to pay for 25,000 hours of home nursing. Homebase staff and customers have exceeded all expectations in the first year of the partnership, smashing the original target and raising an astonishing £785,000 already ; Over the past 12 months, the campaign has seen everything from head shaves and dress down days to staff abseiling down buildings for the charities. The money raised in the first year will help to provide a fantastic 39,250 hours of nursing.
External Analysis-Macro Environment
Political

Employment rate in UK is increased to 74.7% since the last year and it is suppose to increase as well at the end of the current year which could be beneficial for the company because the purchasing power of the customers has increased and at the same time it will increase the cost of the company by increasing the pay rate of their own employees.
Terrorism is also affecting the customer little bit but it increases the online sale.
If the company go in the developing countries for manufacturing, it may reduce the cost because the low pay rate in the developing countries at the same time it may affect the reputation of the company.

Economical

Consumer price inflation rose up to 2.2% in January 2008 influenced by the oil and food prices which can influence the price strategy of the organization as well as the promotion and distribution and also can effect the purchasing power of the consumer.
Oil prices are increasing rapidly in these days and the prices has been reached to its record which increases the cost and in return the high prices.
The value of dollar against Euro is decreasing which can affect the profit margin.

Social

The rate of population in UK is increasing dramatically which is a big cause of unemployment.
Increasing number of visitors especially on London Olympics 2012 can be a opportunity to sponsor time or individual and increase globally the company’s image and recognition.

Technological

Due to the increasing internet awareness among the customer the online sale is increasing day by day. It saves the time and cost as well.
52% of business suffered a malicious premeditated e-security breach during 2005 which can affect the customer data, as well as the customer trust to by online. It can affect the reputation of the brand.
After the introduction of the new security system PayPal the online payment from credit card has become more secure which increase the customer confidence on the brand which increase the reputation of the brand.

Legal

The World Trade Organization members countries have the right to impose the safeguard measures and it has a legal processing to imports. When the company goes to importing it should be aware and follow the changes in the regulations.

Environmental

By following the government waste strategy the company should increase the amount of recycling which strengthen the reputation of the company.
The public of UK is environment conscious and may be a burning issue of the world in near future so the company should improve its recycling policies.

External Analysis-Micro Environment
The micro environment also known as task environment are the internal forces that have a direct affect in the company’s strategies. These factors include buyers, suppliers, all type of competitors, new entrants and substitutes employees and marketing intermediaries (media).
Industry analysis
The following analysis is based on Michael Porter’s 5 Forces Model (1996) and it helps understand the competitive environment for HomeBase
Threats of New Entrants
Factors
Level of threat
implication
Product differentiation
High
Home products are very common products so the marketing of the company sells.
Capital requirement
Medium
A lot of capital require to introduce a new product to compete the existing products
Brand identity
Low
Home base has a strong brand name in whole US and UK
Distributional channel
Low
Franchisee will be consider the brand identity in the first step
Economies of scale
medium
New entrant have to entrant in a large scale to compete in the market
Threats of substitute products
Factor
Level of threat
Implication

Few substitute products
Low
In household products there are very few products which can be replaced
Bargaining power of customer

Factors
Level of threat
implication
Product quality
High
Some of the competitors claim to provide similar quality products to the customer
Type of customer
high
As the management of the store is responsible for a good sale so there is a strong customer bargaining
Brand identity
Low
Marketing strategy is strong that’s why the brand is recognized all over the US and UK
Bargaining power of supplier
Factors
Level of threats
implication
Cost of supplier
High
This company is in developed countries that’s why the labour cost quite high
Supplier concentration
Low
The company support community traders
Competitive rivalry
Factors
Level of threats
Implication
Brand identity
high
The brand value of each company as well as the target market makes the differentiation to the customer
Industry grown
High
Due to the recent growth in the household items the competition is very high
Cost of structure
High
Competitors follow the same scheme of economies of scale with relatively low cost and high profit
Diversity of competitors
High
Now a days there are some companies who are introducing the efficient products
Conclusion: after analysing the Porter’s 5 forces in this company it is noticed that the retail market is attractive for Homebase. Though Homebase is a leader in the market the company has to develop more technological and attractive products to compete the other companies as well as company has to improve its growth strategies to keep the customers and to fulfil their needs.
Market segmentation
Consumer market
The Homebase has become the leader in its market because it covers almost every household item like from gardening to decorating. Now a days due to development in technology the customer is becoming more and more aware of the quality so they demand for high quality products because they have choice.
Products
Homebase concentrate on household products and the is still trying to cover everything regarding home. Company deals with the following types of products.

Kitchen items
Bathroom products
Furniture and homewares
Lighting
Flooring and tiling
Decorating
Home electrical
Heating and cooling
Tools
Building and hardware
Gardening
Outdoor living

Main competitors
following are some principal competitors for the Homebase,
Home Depot, Inc.;
Eagle Hardware and Garden Inc.;
Hechinger Stores Co.;
Builders Square Inc.;
Payless Cashways Inc.;
Orchard Supply Hardware Corp.;
Lumbermen’s Building Centers.
Though Homebase has quite strong competitors but still it is leading the market and providing the quality products as well as quality service to its customer and also it is successful to keep its customers till now. The company has to continuo the performance to maintain the standard.
Brand
Since last few years Homebase has worked focused on customer favour by providing products in low rates with a shopping experience that combines excellent service with a comprehensive range of household items.
Homebase proves there’s ‘No Place Like Home’ for charities In August 2006 Homebase launched its first two year partnership with Marie Curie Cancer and the Irish Cancer Society in the Republic of Ireland, under the banner of ‘There’s no place like home’ ; The charities were chosen in a company-wide staff ballot where 39% of Homebase staff voted to support them ; The aim of the two year partnership was to raise £500,000 to pay for 25,000 hours of home nursing. Homebase staff and customers have exceeded all expectations in the first year of the partnership, smashing the original target and raising an astonishing £785,000 already ; Over the past 12 months, the campaign has seen everything from head shaves and dress down days to staff abseiling down buildings for the charities. The money raised in the first year will help to provide a fantastic 39,250 hours of nursing. After doing this Homebase has become a strong brand in all over the UK and Irish republic.
Internal analysis
Resources
Physical resources
Number of stores: 310
Countries operating: UK & IRISH REPUBLIC
2. Human resources
More than 8400 employees including stores and offices are working in Homebase
3. Financial resources
Pro forma of 52 weeks to
3 march 2007
4 march 2006
Sales
£1,594.2m
1559.0
benchmark Operating profit
£53.4m
£51.4m
Benchmark operating margine
3.4%
3.3%
Like-for-like change in sales
1.4%
3.1%
New space contribution to sales change
3.6&
3.1%
Total sales change
2.2%
0.0%
Benchmark operating profit change
4%
n/a
Number of stores at period end
310
297
Of which contain a mezzanine floor
165
144
Competences and capabilities
Using the 5M’s is possible to analyse the competences and capabilities of the company.
Market
The Homebase is the leader in the retail market and it is providing quality products in cheaper rates and due to this Homebase is being recognized all over the uk as well as Irish republic.
Materials
The company is investing a lot of capital to introduce new stores so that the customers can buy quality products from their locality. The key element to the new store design is part of the business strategy to make-up merchandising fixture.
Men
More than 8400 employees including stores and offices are working on Homebase.
Money
Financial resources
Pro forma of 52 weeks to
3 march 2007
4 march 2006
Sales
£1,594.2m
1559.0
benchmark Operating profit
£53.4m
£51.4m
Benchmark operating margine
3.4%
3.3%
Like-for-like change in sales
1.4%
3.1%
New space contribution to sales change
3.6&
3.1%
Total sales change
2.2%
0.0%
Benchmark operating profit change
4%
n/a
Number of stores at period end
310
297
Of which contain a mezzanine floor
165
144
Machines
Number of stores  310
Countries operating  UK & IRISH REPUBLIC
S.W.O.T Analysis
Strengths

Leverage purchasing scale
High loyalty
Strong brand name
Increase share in large product markets
Expand homebase store network
Extend and exploit multi-channel leadership

Weaknesses

More capital require for new stores
High supply cost
High operation cost

Opportunities

Further to go on importing
Opportunity to explore other overseas sourcing locations
Additional benefits to come from supply chain
Other cost reduction processes

Threats

Strong competition in retail market
Customers are becoming more and more aware of quality due to improvement in technology and want high quality products on cheap prices
Increase in the sales of competitors
Though there is competition in the market the Homebase has a strong brand name and the company is improving their performance as well as it is investing in the product quality and opening new stores. There are still lot of opportunities for the company.

Market plan
On the basis of the previous audit marketing and the company strengths the objectives and the targets of the company are as follows;
Objectives and targets

Reduce plastic bag consumption by 25% by the end of 2008
Attain ISO 14001 status for 5 Distribution Centres
Attain recycling rates of 50% across the Group

Energy

Achieve energy accreditation for the Group from the Carbon Trust
Reduce energy consumption by 2% KwH/sq ft
Purchase at least 30% green power

Products

Review current policy guidelines for product selection
Attain accreditation for sustainable paper sourcing
Maintain existing recycled paper content of catalogue at 13%

Community

Raise at least £1.6m for charity partnerships
Achieve ‘gold status’ for payroll giving ( at least 10% of workforce)
Establish arrangements for community investment
Establish a volunteering policy for the Group

Workplace and HR

Improve ’employee engagement’ scores.
Improve take up of share save schemes
Reduce average absence per employee
Reduce RIDDORS by 10%

Customers

Increase levels of customer satisfaction (reduce no of orders which generate one complaint)

Group growth strategies

Growth through leveraging purchasing scale
Growth through increasing market share in targeted large product market
Growth through extending and exploiting multi- channel leadership
Growth through expanding the store network (10 homebase stores in a year)

Marketing mix
To implement the above strategies the following points can be applied:
Product / branding
Homebase is working efficiently in these days by following their strategies and because of this it is leading the market in all over the UK and Irish republic.
Well I believe that regarding to the objectives of increase the brand image is recommended that the company is to associate the environmentally friendly image such as reducing the use of plastic bags. And further more the company should go on importing as well as explore the other overseas resources locations so that the brand can win the global recognition. Though the company has started its own recycling program in which some products are totally recyclable and some are partly, but in future environment will be a burning issue so organization should do some more for this which protect as well as beneficial for the brand in future.
Price
The differentiation strategy allows the company to implement a value-based pricing approach.
Place
Develop a multi-channel distribution has been successfully implemented in the company. On the other hand company should increase its online sale.
Promotion target
People concerning about environmental issues
House wives
Communication

To promote the product benefits
To make the product known
To increase online buyers

The massage
It is suggested to use the objectives that concern with the knowledge or awareness in the mind of the customer.
Media selection

Advertisement on the magazines which are usually being sent to the houses monthly or weekly
Attracting customers by making sales on special occasions
Online advertisement
Using the logo in other web sites to link with the company’s web site
Series of the press releases to be sent to magazines and access online
TV campaign to roll out nationality on terrestrial TV

Posters
People

To monitoring services online as well as make available news tools to the customer shopping online
To incorporate orders online, to store products and others
To help increase the sells and to ensure the customer service quality

Process
Products purchase online delivery with in a week
Credit card to be charged at time on the shipment of the order and confirmed by e-mail
Use the latest security methods such as PayPal
Return policy should be with in the existing 30 days after the purchase
Physical evidence

Receipts and inventory bills
Software to develop the e-commerce

Budget breakdown
To achieve the above marketing planning objectives it is set an overall cost of £8.5 million. And this overall cost is divided into the following categories;
Product
16% of the total cost is for the market research and for the development of the product, R&D. The estimate cost in £1360015.7
Place
8% of the cost is to be spend on the continuous refurbishment and maintenance of the stores, distribution and transportation, and the estimate cost is £680,000.
Promotion
60% of the total cost is to be used for the promotion of the product which includes the media advertisement such as advertisement in TV programs, magazines, posters in public transport, etc. The estimated cost is £5100,000.
People
10% of the cost is to be spent on HR, training, recruitment and IT outsourcing. The estimate cost is £850,000.
Process
4% of the total cost will be spent on the development of the operation processes and for this the estimate cost is £394400.63
Physical evidence
2% of total cost is to be spent on the reservation for the physical evidence and process to maintain the e-commerce. And the estimated cost for this is £170000
Total cost
The total cost for the whole process of the above marketing planning to achieve the mentioned objectives is estimated as £8500000.
 

SWOT and PESTEL Analysis of Seafood Restaurant

SUMMARY
Jack Sprat is the owner of seafood restaurant in a coastal town. He is 60 year old and doctor has advised him to take rest so he had appointed a Manager to look after the business operation and he use to come to see the business once in a week. But once he handed over the business to the manager his business is not doing well and there is continuous declining in the business.
So in order to find remedy owner has been approached to the author to analyse the case and suggest as what should be done to bring back the business of the restaurant.
Author has analysed the business with the tools of business (case) analysis-SWOT, and PESTLE and further financial data has also been taken into consideration to find out the declining trend and come to a conclusion as why business is going down.
In order to evaluate the business operation and put the findings in the report author has done extensive research-secondary research and analysed the case with his valuable suggestions.
ACKNOWLEDGEMENT
Author would like to convey his gratitude to those entire people who helped him to enhance his understanding of the case and analyzed the situation so that a valid conclusion of the case can be drawn. Author has completed this case successfully and has been presenting his findings with suggestion in this report. So author would like to thanks to the Module tutor for kind support and guidance.
INTRODUCTION
Jack Sprat is 63 year old owner of 60 seat licensed seafood restaurant that is situated in a costal town. Before starting this business Jack was simply a Manager at a local Bluebeckers Restaurant. But an inheritance left this restaurant to him. Since the opening of this restaurant business it has given very good return.
The belief of Jack towards success f this business is the Maintenance of high standards in fod production and presentation. Other fact is Menu and beverage list has been fairly constant since beginning of this restaurant. Jack did not change menu and beverage list because business was giving modest return since beginning.
But jack is not regular to the restaurant and he has appointed a Manager to manage the business operation and he use to come to the restaurant to see the business operation once in a week. This is because at this age (63) he has been suffering from health problem and his doctor has advised him to take rest. But business of this restaurant has gone down as soon as it was handed over to the manager. Absenteeism of the staff has been increased.
Keeping in mind the remedy of the situation author has established aim and objectives of this report, here are the aim and objectives written in detailed:
Aim of this report is to find remedy of the existing problem or discrepancies of the restaurant and give valuable suggestions to overcome from these problems so that business can be put on its old pattern-profitable.
Objectives are:
Finding most important problems
Identification of further information that would be helpful in making realistic plans for the future of the business
To list the priorities
Drawing an action Plan
The structure of this report is as follows: First of all main body has been presented wherein SWOT, PEST, and other detailed analysis has been done. Then conclusion has been drawn and bibliography (list of references) has been given followed by appendix section where additional informations has been provided.
MAIN SECTION
Aim and objective No.1: Finding important problems:
Before providing solution of anything one has to find the problems first. So to find problem related to any business it is very first step to conduct SWOT analysis and PEST or PESTLE analysis.
Before going for the SWOT analysis of the business concerned it is important to understand SWOT first. “SWOT ANALYSIS is the detailed search and listing of factors from situational analysis that might or will impact the business’s strategy. Strategic marketing is based on the SWOT analysis. The process by which SWOT factors are derived is to carefully review the internal analysis for strengths and weaknesses, and the environmental analysis for opportunities and threats, and to then record”. (Reich, Z.A, 1997)
According to (Morrison, J 2002) “The SWOT analysis is a commonly used planning tool, which assesses the firm’s strategic profile in terms of its strengths, weaknesses, opportunities and threats. Focusing on both internal and external environments, it serves to highlight a firm’s distinctive competences, which will enable it to gain competitive advantage”.
Based on the above information from the scholars it is true that business environment can be divided into two part-internal and external environments. Internal environment consists of all factors that is internal part of the business. These internal factors are within the control of the business. Strength and Weaknesses of the business can be found in the internal environment of the business. External factors are those factors which are not within the control of the business and to be into existence business houses has to change in their internal policy and adjust itself to cope with the external environment factors. Opportunities and Threats are the factors that are part of external environment of a business.
SWOT : Strength, Weakness, Opportunities and Threat Analysis of Seafood Restaurant Business of Jack Sprat:
STRENGTHS
WEAKNESSES
Earlier this business was profitable
It is established organization
Maintaining high standard in food and presentation
Staffs are familiar with their work
Customers feel that restaurant is conveniently placed and charges reasonable price
Owner is not able to give full time attention to the business
Manager is less empowered-as he feels less scope has been given to him for the development of this business
Number of staff has been increased-which is extra burden on payroll expenses of the business.
No refurbishment done properly & yearly
Maintenance and Hygiene problem
Insufficient fund/ resources for spending on maintenance and Hygiene
Menu choice is stale and boring
Improper management of food due to lack of proper forecasting of guests.
OPPORTUNITIES
THREATS
Restaurant is old so having established market
Market Image is good- reasonable price and consistent standard
Dilution of market share due to inability to refurbishment
Environment Health officer may not be informal in future and there will be time when formal notice will be issued.
PEST ANALYSIS
Before analyzing PEST or PESTLE factors from a business point of view it is important to understand these factors: (Political, Economical, Socio cultural, Technological and Legal).
“A PEST analysis is an analysis of an external macro environment that affects all firms. Such external factors usually are beyond the firms control and sometimes present themselves as threats. For this reason, some say that pest is an appropriate term for these factors. However changes in the external environment also create new opportunities and letters sometimes are rearranged to construct the more optimistic terms of STEP ANALYSIS. Many macro environmental factors are country specific and the pest analysis will need to be a performed for all countries of interest”.
“Political Factors
Tax policy
Employment laws
Environmental regulations
Trade restrictions and tariffs
Political stability
Economic Factors
Economic growth
Interest rates
Exchange rates
Inflation rate
Social Factors
Health consciousness
Population growth rate
Age distribution
Career attitudes
Emphasis on safety”
Technological Factors
R&D activity
Automation
Technology incentives
Rate of technological change
www.netmba.com/strategy/pest/ Accessed on 2/01/2011
Aim and objective No.2: Identification of further information that would be helpful in making realistic plans for the future of the business:
Information needed towards market segmentation-target market:
Information to the case is very important to analyze any business health or problem. It is equally important like medical tests are important for human body for remedy of any kind of complain of a patient.

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There are other tests or scanning is needed for business analysis. Market segmentation is one of them. Market segmentation: – “market consists of buyers differ in one or more ways. They may differ in their wants, resources, locations, buying attitudes and buying practices. Because buyers have unique needs and wants, each buyer is potentially a separate market. Ideally, then a seller might design a separate marketing program for each buyer. For example a caterer can customize the menu, entertainment, and the setting to meet the needs of specific clients. However, most companies are unable to offer complete segmentation. The cost of complete segmentation is high and most customers cannot afford completely customized products. Companies therefore, look for broad class of buyers who differ in their product needs or buying responses. The restaurant industry offers many examples of segmentation by a variety of variables”. (kotler,p 2004)
The reason behind knowledge of market segmentation is needed because until unless its not known that which segment is being targeted by the organization concerned (in this case Restaurant of Jack Sprat), it would be very difficult to compare the strength of that segment for the business. In this case its not given in the case so its important to analyse this business from its segment point of view.
Information Needed for competitor analysis:
“To get success of the business it’s needed to deal with customers, suppliers, employees, and others. In almost all cases there will also be other organizations offering similar products to similar customers. These other organizations are competitors. Objective of the other organizations is the same as yours – to grow, make money and succeed. Effectively, the businesses are at war – fighting to gain the same resource and territory; the customer. And like in war, it is necessary to understand the enemy: How he thinks; What his strengths are; What his weaknesses are; Where he can be attacked; Where the risk of attack is too great….. And so on. And like in war, the competitor will have secrets that can be the difference between profit and loss, expansion or bankruptcy for the business. Identifying these secrets is thus crucial for business survival’. (http://dspace.dial.pipex.com) accessed on 2/01/2011
Other information needed is about its competitors. Information of competitors is very important to know the business of competitors and further business concerned can be compared with the competitors. So competitor analysis is very important.
Aim and objective No.3: To list the priorities:
First of all instant action should be taken to solve Hygiene problem.
Proper forecasting of guests so that underproduction and overproduction both can be kept under control
Extra manpower has to be reduced so that there will be less burden on payroll cost
Choice of menu has to be increased
Manager should be empowered or can be changed (as information is not given properly and in detailed so it is impossible to say to change)
Somehow owner has to be in touch even over the phone to monitor the business operation and if possible frequency to visit may be increased.
Local bank should be approached for short term loan for the refurbishment activities.
Aim and objective No.4: Drawing an Action Plan:
Action plan is a process that includes assessments of own strengths, available resources and market opportunities. There must be idea about marketing objective of the organization concerned then a plan can be prepared and further implemented to achieve the determined objective. In other words these informations are basic and needed at very first step towards making action plan:
Market and trading environment of the business concerned
Decision about market business is targeting to
Knowledge about differentiation or advantage of uniqueness of own product and services
Deciding marketing mix
Estimation of Fund etc.
ACTION PLAN:
PRODUCT: Option in Menu list will be given
PRICING : May charge little higher than what has been charging
PROMOTION: There is need to promote the product and create awareness to remove the negative image of the organization. So it can be done through normal aids of advertisement-News papers or T.V Channels. Through T.V Channels it may little costly affair in that point of view daily is better.
Other Actions to be taken:
It could have opened even on Sunday to attract customers want to utilize their holidays. So it will be open all 7 days.
Fund should be managed instantly- It can be done by approaching Commercial Banks for short term loans.
Refurbishment will have to be done as soon as loan is approved.
Employees have to be re-motivated so that absenteeism of staff can be kept under control.
 
REVENUE (SALES) POINT OF VIEW:
Food sales has been increased in 2007-8 by 4.3% compared to 2006-7, and it gone down in the financial year 2008-9 by 3.95% compared to 2007-8 sales of food.
Liquor Sales has been increased in 2007-8 by 5.97% compared to 2006-7 and further it increase by 15.59% in the year 2008-9 compared to 2007-8.
Overall Total Sales has been increasing in the financial year by 4.67% in the financial year 2007-8 compared to 2006-7, and further increased by 6.57% in the financial year 2008-9 compared to 2007-8.
DIRECT COST POINT OF VIEW:
In the financial year 2006-7 food cost was 42.05% of its sales and in 2007-8 it became little favorable by going down to 41.16% of its sales figure and in the year 2008-9 in again gone up to 43.63%
Direct cost of Liquor is 59.72% of its sales in the financial year 2006-7, and 57.70% in 2007-8 and further 57.91% in 2008-9. So its favorable as its in declining trend.
Total direct cost is 54.01%, 55.11% and 52.88% in the financial year 2006-7, 7-8, and 2008-9 respectively which also seems favorable because in 7-8 it gone little up but again it gone down by good margin-around 2 to 3%
GROSS PROFIT POINT OF VIEW:
Gross profit of food is 57.95%, 58.84% and 56.37% in the financial year 2006-7, 7-8, 8-9. This shows increase in 7-8 and further decline in 8-9.
Gross profit of Liquor is 40.28%, 42.30% and 42.09% in the financial year 6-7, 7-8, and 2008-9 respectively. Overall it is in favorable trend.
Gross profit in the financial year 2006-7 is 54.01%, 55.11% in 2007-8 and 52.88% in 2008-9 which seems declining trend. In the year 2007-8 it gone up but in 208-9 it came down. This is because there was declining of sales of food in the financial year 2008-9 by 3.95%, otherwise sale of liquor in this financial year was good and direct costs were also behaving favorably.
INDIRECT EXPENSES POINT OF VIEW:
There are three component of indirect expenses-labour, overheads and operating expenses and maintenance expenses. Amount spent in labour is in increasing order i.e., 29.76%, 31.51% and 33.21% in the year 6-7, 7-8, and 2008-9 respectively. This shows restaurant is spending more % every year in its staffing.
Overheads and Operating expenses seems within control as its 8.78%, 7.21% and 8.36% in the year 2006-7, 2007-8, and 2008-9 respectively.
Maintenance expenses is 1.61% of sales in the financial year 2006-7, 1.40% in the financial year 2007-8 and 0.91% of sales of financial year 2008-9. This shows that organization is spending very less on maintenance expenses.
Overall total indirect expenses is 40.15% of its sales in the financial year 2006-7, 40.12% in 2007-08 and gone up in the financial year 2008-9 to 42.48%
NET PROFIT POINT OF VIEW:
Net profit is 13.86%, 14.99% and 10.40% in the financial years 2006-7, 7-8, and 8-9 respectively. This shows that Net profit has going down, and in the financial year its gone down with huge gap compared to previous years percentage.
Overall it’s a matter of discussion and management should pay attention to the indirect costs as percentage of indirect cost is very high. As gross profit is in 50% so almost 40% of sales are being spent for indirect expenses. Although management is not spending much in maintenance component of indirect expenses but other components i.e., overhead and operating expense, and payroll expenses are very high that is the reason Net profit of the restaurant is not attractive.
CONCLUSION
Author has analysed the case of Jack Sprat’s restaurant and found that major problem is its hygiene and maintenance and indirect expenses. These two of the factors has to be kept under control and converted into favorable mode only then this organization can earn profit like previous time.
There are other areas also that needs attention i.e., arrangement of fund, manpower management, empowering manager etc.
BIBLIOGRAPHY
Britton, C and Worthington. I (2003) The business environment, 4th Edition, UK:Prentice hall.
Hooley.G(2004) Marketing strategy and competitive positioning, 3rd edition: UK: Prentice Hall
Kotler, P. (2004) marketing for hospitality and tourism, 3rd Edition, Delhi:Person
Luck.D and Rubin, S.R (1996) Marketing Research,7th Edition, USA:Prentice hall
Morrison, J (2002) the international business environment, 1st Edition, New York; Pal grave.
Reich, Z.A (1997) Marketing Management for the hospitality Industry,1st Edition,: Wiley and sons Canada.
Wearne.N (2001) Hospitality Management, 1st Edition, New Delhi: Global
www.netmba.com/strategy/pest/ Accessed on 2/01/2011
http://dspace.dial.pipex.com) Accessed on 2/01/2011
 

EasyJet strategy: SWOT and PESTEL analysis

This report will provide a detailed analysis of EasyJet’s current corporate appraisal or SWOT analysis. This will identify its strength, weaknesses, opportunities and threats. This will help the companies decision makers understand where the organisation is now. A PESTEL analysis of the industry will examine the local, national and global influences of political, economic, social and technological factors to understand opportunities and threats well. This will provide an evaluation of the external business environment in which the company operates. This analysis will highlight the fundamental changes that the airline industry is undergoing, especially; in defence to the turbulent environment it faces from exogenous forces (terrorism, oil prices, SARS etc) and endogenous forces.

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Next we will use Porter’s Five Forces analysis of the industry and the increasing threat of other low-cost carriers (Ryanair, bmi baby etc) and also threats from the flag carriers (British Airways, Air France, KLM, Lufthansa etc). This will show how its critically important for EasyJet that strategic alliance, size and technological innovation have on its profitability. Overall the analysis will highlight the inherent threats and weaknesses suffered throughout the industry, and also the importance of innovation to maintain low cost advantage, alliances and size to success. Finally the report will examine the extent to which EasyJet’s current ‘no frills’ strategy is the appropriate strategic fit to its organisation both in terms of resource capability and business environment.
An Internal and corporate analysis in terms of strength, weaknesses, opportunities and threats (SWOT) will assist in gaining an understanding of where EasyJet is currently in terms of strengths and where improvement is required within the business and what outside environmental threats it may face as well as what new opportunities are available to the company in the short and medium term. We will start by looking at strengths:
EasyJet serves diverse ranges of European routes with principle activities in both Leisure and business markets, offering 60 key European routes. Its current cash flow position is also strong, with cash flow from operating activities increased by 61 percent between the six months ended 31st March 2003 to six months ended 31 March 2004. The business has also enjoyed an increase turnover and trading profits resulting in continuous substantial growth in underlying profitability over the last 7 years (see table 1). This has resulted in a strong Balance Sheet – the companies’ net assets reaching the record level of £724 million (aided by retained profit mainly).
EasyJet is also Europe’s leading low-cost airline having completed a merger deal with Go to create Europe’s number one low-cost airline. Brand Awareness is another strength that is attributable to the company – In November 1999, selected as a business super brand by the Super Brand Council, recognising EasyJet as an outstanding brand name. The company’s Online booking facility in October 1999 aided Internet sales to pass the one million mark. This has lead to EasyJet customers enjoying ‘ Ticketless travel’ – this reduces the cost of issuing, distribution, processing and reconciling tickets. EasyJet also enjoys internal strengths in its operations in terms of efficient use of airports – by reducing turnarounds to 30 minutes and below, EasyJet can achieve extra rotations on the high frequency routes.
EasyJet appears to have internal strengths in terms of brand awareness, cash flows, and operational efficiencies. But what are the internal weaknesses suffered by EasyJet? The primary weakness is the perception of low quality – low cost can also be seen as low quality service than that offered by the established national airline i.e. British Airways. Also, suffers weakness in the area of hospitality in terms of on board offer of ‘Free Lunch’, the eliminating of free catering on board may result in loss of potential customers. The existing competition also have strong brand image globally, EasyJet is recognised nationally and within the European markets, however, national airlines like British Airways is recognised worldwide and has stronger brand awareness.
EasyJet also operates a flat management structure, which may lack a formal discipline that is needed as the organisation grows. The idea of remote working can also result in co-ordination and control weaknesses. It is difficult to co-ordinate the individual employee because in principle they operate independently of each other. It’s also hard to monitor the performance of each individual.
So having considered the internal strengths and opportunities above, what are the potential opportunities available to EasyJet and what are the threats faced by EasyJet both from within the Airline industry and as a result of the world economy itself. Weaknesses identified earlier could also offer potential opportunities in terms of development of brand awareness globally. The EasyJet brand is established in the European market, but brand awareness is required outside the continent. There are potential opportunities in terms of new routes and expansion of services offered, EasyJet has already launched a number of new European routes, how about expansion into the Asian Pacific? Undertaking market shift to globalisation – expanding outside the European market will be key to continuous enhancement of business performance.
Follow on from market expansion will also create opportunities for new facilities or services ‘Free Lunch’ – offer on board catering facilities to compete with mainstream airlines. The increase growth of world tourism will offer opportunities in terms of undertaking joint venture with local/foreign travel companies; hence, Going places and Thomas Cooke are already providing such services to growing number of holidaymakers each year. Finally, opportunities may also exist in the area of innovation and alliances, how about a joint venture scheme with Ryanair to maintain and enforce the low cost competitive advantage.
Figure1: EasyJet SWOT Analysis

I
N
T
E
R
N
A
L

STRENGTHS

Diverse ranges of European Routes
Strong Cash Flow Position
Increase turnover and trading profits
Strong Balance Sheet
Europe’s leading low-cost airline
Brand Awareness
Human resources
Online Booking
Ticketless travel

Efficient use of airports
Capabilities to turn resources into advantages

OPPORTUNITIES

Develop brand awareness globally
New Routes
Market shift to globalisation
New facilities or services ‘Free Lunch’
Tourism growth
Innovation & Alliances
Customers demand change to more flexible schedules, comfortable and relevantly cheap services
Declining first class travel segment
Diversification

E
X
T
E
R
N
A
L

WEAKNESSES

Perception of Low Quality
No Free Lunch
Brand Awareness
Flat Management Structure

THREATS

New & existing competition
Volatility in Price of Fuel
Consequences of the oil crisis
September 11th
Economic recession
Market shift to globalisation
Takeover bids
Far-East airline companies expansion
Extremely high competition for customers and resources

Having considered the possible future opportunities what are the potential threats that EasyJet needs to bear in mind? Firstly, threats in terms of new & existing competition. Ryanair continues to lower costs, which enables it to persist lowering fares aggressively. Also, mainstream airlines are now lowering fares to engage in price competition. Another major industry wide threat is the volatility in price of fuel – ‘Oil price record high of $53 a barrel.’ this was the headline in the business pages of all the newspapers last November.
EasyJet also faces potential threats in terms of unprecedented tragic events like September 11th. Potential threats in terms of changing social trends like holidays outside Europe (many now want to experience the eastern cultures and travel to holiday destinations like China and Japan) and also travelling via the EuroStar to Paris etc. Potential threats of economic recession, since air travel is effectively a commodity product, it is recession prawn. And, finally threats of any takeover bids from national airlines.
Figure 2: Five Forces Model – ACCA Paper 3.5 (2001)

Threats from
Potential entrants

Suppliers
Bargaining power

Competitive
Rivalry

Buyers
Bargaining power

Threats from
Substitutes

Porter explains that there are five forces inherent in a market, which will jointly determine the intensity of competition and profitability of EasyJet and the airline industry. The first is the threat posed by new entrants, as with the European deregulation of commercial aviation and the emergent of low cost carriers. The second is the threats from substitutes, rail travel v air travel, the growing demand in Eurostar and cruses. The third force is the threats from the bargaining power of buyers, is this strong for both EasyJet and the entire airline industry with a large number of alternative suppliers, hence, the aggressive pricing strategy. This results in a very strong competitive rivalry in the industry. This is intensified as a result of little or no differentiation in the service offered. Finally the threats from the suppliers bargaining power, this is very strong in the airline industry for two reasons, one is highly skilled labour can command a very favourable terms and second is the price of oil.
All of those (political, economic, social, technical, legal and environmental) factors will to some extent apply to the airline industry.
POLITICAL – Following the European deregulation of commercial aviation, a fleet of low cost carriers are reshaping the local airline landscape. Ryanair uncompromisingly fought its way into the market with an aggressive pricing strategy.
ECONOMIC – the travel industry is vary recession prawn and also very sensitive to changes in oil prices. Since the events of September 11th the airline industry suffered heavily, stocks plummeted and ticket prices are at all time lows. The world economy is however, now on the up post September 11th. Consumers are optimistic and the travel and tourism industry are now booming again.
SOCIAL – changes in consumer taste and lifestyle represent both opportunities and threats for the industry. Opportunities in terms of worldwide destinations are now popular with holidaymakers and also the growing trend in international business ventures, e.g. major banks and insurance companies’ relocation call centres in Asia. The threats are in terms of alternative holidays Disneyland Paris via Eurostar (Euro tunnel) and P&O cruise.
TECHNICAL – Changes in retailing methods as such ticket sales via the Internet is now a common place in air travel, passengers receive an email containing their travel details and booking reference when they book online. Paperless operation, the management and administration of the company are undertaken on IT systems, which are accessed through secure servers; provide flexibility in the running of the airline. The development of the next generation aircraft will also lead to technological opportunities in term of fuel efficiencies.
LEGAL – The European deregulation of the commercial aviation provided both major strategic threats and opportunities, the national mainstream airlines faced severe price competition from discount carriers. Threats are also in terms of legislative environmental laws regarding pollution and use of more environmentally friendly fuel, which are at premium prices.
ENVIRONMENTAL – The energy sources used, namely oil has vast ecological/environmental implications. The threats are in terms of fines and rise in cost of raw materials.
A ‘no frills’ strategy is often associated with low cost airline companies like EasyJet. This form of strategy combines a low price, low perceived service benefits (no free lunch) and a focus on a price-sensitive highly competitive market segment. This strategy is focused on keeping costs down and EasyJet’s policy of ‘no free lunch’ and efficient use of airports by limiting turnaround to 30 minutes. Back in 1995 when EasyJet was lunched it was tipped by most to fail with its ‘no frills’ strategy. However, by year 2000 it has not only managed to survive but also increased its market shares and assets of aircrafts to 74 and servicing 105 routes and carrying over 20 million passengers a year. So the strategy has been very successful for EasyJet and appears to have been the correct strategic decision.
Beneath the surface of EasyJet’s cosmetic cost savings of not offering free in-flight refreshments or different first, business and economy classes, was a philosophy of cost saving that permeated through the entire organisation. The 2002/03 annual report reconfirmed this business model of the airline:

Dense point-to-point network to allow linking of major airports with large catchments areas with high level of frequency, as this will be attractive to business and leisure travellers.
A strong and visible brand to create a high level of awareness with consumers. Supported by innovative and effective advertising.
Dynamic fares with a simple structure and also ensuring that it are the cheapest fare on the route. Therefore, demand led with proprietary yield management system.
100 per cent direct selling of fares; over 90 per cent of sales are online. This eliminates the need to any commissions to external sales agency.
Highly utilised fleet of aircrafts that are large, modern, efficient and relatively environmentally friendly. This results in high levels of asset utilisation and reduced unit costs.
Finally, the key to sustaining high levels of growth is the scalability of the operations. This also reduces the marginal cost of incremental growth; increasing scale brings valuable economies (Johnson, G., Scholes, K., Whittington, R., (2005).

Another price-based strategy is the hybrid strategy this seeks to achieve an element of differentiation and a price lower than that of competitors. Implementing this strategy successfully depends on EasyJet’s ability to deliver enhanced benefits to customers over its competitors together with low prices. However, if EasyJet could significantly differentiate its service over its competitors then it could obtain higher prices. Therefore, the low cost strategy is the ideal strategic fit to its environment. Combining perceived low price with perceived added value can be a highly successful strategy but one that requires innovative thinking.
EasyJet’s competitive advantages via low prices are sustained in a number of ways. EasyJet in its pursuing of low-price strategies may be prepared to accept the reduced margin either because it can sell more fares than competitors. EasyJet may be prepared and has to a large extend engaged in price war with competitors via its lower cost structure (economies of scales due to its larger operations) and also has the financial resource capability to fund short to medium-term losses with the aim of driving out competitors in the longer terms. A prime example of this was the subsequent takeover of Go by EasyJet. Price wars are becoming more prevalent as traveller use the Internet to compare prices and ‘shop around’. EasyJet has cost advantages through company specific capabilities, which drive down costs throughout the value chain.
Porter comments on cost leadership as ‘the low-cost producer in its industry… must find and exploit all sources of cost advantage’ (Porter M.E (1980)). We will consider the value chain for EasyJet in more detail later in our discussion. Cost advantages might be achieved because of EasyJet’s efficient use of airports. This will require a mindset where innovation (in cost reduction) is regarded as essential to survival. EasyJet is an international example, The introduction of Airbus A319 aircraft, combined with the retirement of ‘old generation’ Boeing 737 aircraft, will result in a two-type ‘new technology’ fleet, which will commonality and lessen complexity and deliver high level of asset utilisation and reduce unit costs. Finally, EasyJet has sustained its price-based advantage by focusing on market segments where low fares are critical and valued by customers.
EasyJet’s first generic strategy is to achieve an overall cost leadership in the low cost airline industry. Therefore, it is vital for EasyJet to have a thorough comprehension of their costs and cost drivers. EasyJet is forever trying to attain a cost level that is low relative to its competitors.
EasyJet cost efficiency is achieved in a variety of way as shown in the following diagram:

The success of low-fare (cost) strategy is primarily dependent on the maintenance of a low cost base. This is critical for EasyJet having analysed the competitive rivalry position in the industry. With Ryanair maintaining high margins despite reducing yields through strict cost management. Lower costs are the only competitive advantage in the short-haul economy sector as air travel is effectively a commodity product. It is also anticipated that Ryanair will continue to lower costs, which will allow it to continue to engage in a price war, by lowering fares aggressively.
Managing for value involves managing both value activities and cost drivers. This involves EasyJet retaining funds from operations; hence, a healthy Balance sheet in terms of retained profits. Significant investment in assets and managing financing costs. Funding strategies developments is clearly important in that the nature of funding must be appropriate and compliments the low cost strategy of EasyJet, by ensuring that interest costs are low. Strategies are largely determined by the extent to which they deliver best value to both customers in terms of being competitiveness in the marketplace (leading low cost airline) and also to provide value to shareholders. EasyJet’s no frills strategy does not only mean a cut in Cabin crew and “denial of food”, but also allows for a faster pre-flight preparation, thereby reducing the time grounded as well maintaining fare.
As funding from operations are clearly a major contributor to value creation. In the long term, this is concerned with the extent to which the organisation is operating profitably. Table below provides an analysis of EasyJet’s sales revenue and profitability ratio since 1998. Investments in assets are also key consideration in value creation in that consideration of the extent to which assets and working capital are being utilised. EasyJet appears to have developed competences in supporting much higher levels of business from the same asset base than other rival airlines. This affects value creation as follows:

The cost of capital investment
The management of the element of working capital

Table 1: Sales and Trading Profit of EasyJet
Most theories argue that strategic success and improved wealth generation stem from two strategies. The first is to reduce the ‘bottom line’ costs of operation (low cost strategy) and the second is to increase the value of the organisation and its reputation to customers, so that they will demand more or pay more for what they receive (differentiation strategy) (ACCA Paper 3.5 (2001)). Porter through the use of the value chain illustrates how resources should be utilised to enhance least-cost production or differentiation strategies (the generic strategies suggested by Porter). The value chain analysis will show the total value added by the airline industry and EasyJet. All airline companies within the industry will have similar value chain, which will include activities such as obtaining fuel, designing fare structures, airport facilities, developing co-operative agreements, and providing customer service. Value chain analysis can provide important insights into what management need to focus on strategically.

In terms of analysis, EasyJet’s distribution activities are important in terms of e-commerce, as EasyJet like to consider itself as the ‘webs favourite airline’. Standardisation in its activities as an airline leads to both economies of scale and a simpler product, which is cheaper and easier to distribute. The price of EasyJet’s tickets various as a function of the number of seats remaining, the time until the flight, and historical trends. This is done in order to maximise the yield from a flight, as many of the costs associated with running a flight are fixed relative to the number of passenger on board. Yield management is a form of risk management and therefore, adds value. The sales process is efficient, as EasyJet sells directly to customers, instead of using external sales teams. It has been streamlines by using e-commerce, firstly by telesales and now through the Internet.
Marketing and sales will involve making customers aware of EasyJet’s services are price information and also selling. This will involve retention of best salespeople supported by HR management, engineering support in terms of maintenance of the web page supported by technology development to ensure that web site has the latest prices and route and flight information. This needs to be updated constantly as this will be a live system. EasyJet manages its sales process extremely efficiently, its sells its tickets directly. Previously it used telesales and now sales are through e-commerce web site. As Internet transactions have a lower cost associated with it EasyJet encourages its customers to book on-line by offering them a discount for on-line ticket reservations. Savings made from e-commerce is another source of value creation.
In terms of competitive advantage, the internet offers overall cost leaders new abilities to reduce costs in primary activities such as marketing (i.e. e-commerce) and support activities such as fir infrastructure (e.g. quick order processing). EasyJet through its use of an overall cost leadership strategy can use internet-based technologies to reduce value chain costs in a variety of ways: On-line bidding and order processing to eliminate the need for sales calls and decrease sales force expense. Another benefit of Internet technology is lower transaction costs at multiple levels in value chain activities. Such lower costs benefit EasyJet initially as innovation is rewarded. However the sustainability of competitive advantages may be problematic: as rivals copy successful strategies, EasyJet will loose its initial advantages. And finally, service, activities that ensure that customers enjoy their flight by providing friendly on board service and assisting traveller with any special needs requirements.
In terms of support activities, EasyJet takes advantage of technological developments in order to reduce costs. EasyJet also have a reputation for paying low wages in line with its low cost strategy. Procurement and firm infrastructure as a support activity does not add much extra value. In terms of strategy, many factors are outside the control of the company, such as use of high quality components and low defect rates for its aircrafts.
This analysis outlines for EasyJet’s management how individual activities may be altered to reduce costs of operation or improve the value offered to customers. Those changes will ensure that EasyJet sustains its current market share and position and also increase margin. EasyJet may be especially good at outbound logistics lined to its marketing and sales operations and supported by its technology development. It is possibly not as good in terms of operations and its inbound logistics. This will assist management to decide as to what EasyJet should be concentrating on and what requires de-emphasising or even outsourcing. EasyJet’s overall cost leadership strategy uses low costs at each point in the value chain to lower costs. The customers of EasyJet have been using the Internet for making bookings. In addition to that, EasyJet has been offering no in-flight meals, no in flight movies. Also, only one type of aircraft is used, in order to minimise maintenance costs.
The concept of the value chain is particularly useful in understanding an organisation’s strategic capability since its concentrates on value activities and the linkages between activities rather ran just resources. Therefore, capability is strongly related to the way that resources are used and controlled. The linkages with the value chains of channels and customers which are the essence of EasyJet’s capability and which can protect its market leadership and maintain cost leadership competitive advantage from competitors. This section we will investigate EasyJet’s resources as a means of assessing the organisation’s strategic capability.
Analysis of financial resources in order to understand the strategic capability of EasyJet will need examination of financial capability and performance. Table 1 shows that EasyJet’s sales has increase year on year since 1998, with profit and gross margins also experiencing a positive trends. The company has also grown in terms of its acquisitions of GO and also increase in purchases of its own aircrafts. EasyJet also has a strong cash flow position primarily from its policy to retain profits and reinvest it back to the business. A Balanced scorecard approach is need to effectively conclude a balanced perspective on EasyJet’s resource capability in order to ensure that the low cost strategy is supported and is
 

Mobile Phone Industry PESTEL and SWOT

1. INTRODUCTION
This report will critically analyse the external environment of the mobile phone operators industry with the application of appropriate strategy tools including PESTEL and Michael Porter’s five forces models. An immediate result of this would be the identification of opportunities and threats that may arise from change in environmental factors and assessment of the attractiveness of the industry respectively.
The report will also analyse critically, the strategic capability of Vodafone, also applying appropriate strategy tools resulting in the identification of key strengths and weaknesses of the firm. The aim here will be to identify and discuss the core competences the firm possesses.
To aid the analysis, the report will draw on information from various sources such as:
The Vodafone case study on page 557 in the main textbook by Johnson, Scholes and Whittington, Exploring Strategy 9th Edition, Prentice Hall, 2011.
Other sources include Keynotes, Mintel and Magazines.
2. QUESTION ONE: PESTEL, KEY DRIVERS AND MICHAEL PORTER’S 5 FORCES
2.1 PESTEL
The PESTEL framework is used for the analysis and according to Johnson, Scholes and Whittington (2011), “it provides a comprehensive list of influences on the possible success or failure of particular strategies”. Discussed below are a few issues of PESTEL, please see appendix for other issues.
(P)olitical/Legal factors
Government’s privatisation(through Ofcom) of the national telephone company, BT, compelling it to allow access to its network (via Openreach) for voice and broadband. This has helped to break down BT’s monopoly thereby creating an opportunity for mobile operators to operate and at competitive rates.(case study p.558)
(E)conomic factors

The UK economy has still not fully recovered from the financial crisis of 2008, recovering even slower than other countries amidst huge government resuscitation efforts and even consumer spending is expected to decline by 0.6 per capita in 2011(the Telegraph, May 2011).This is a threat to the industry as, the slower the economic recovery, the slower the market growth for the mobile operators industry.
Though the case study(p.558) says that personal disposal income growth as experienced between 2002 and 2007 was forecasted to resume in the future, recent developments suggest otherwise. Now the future is here, reports say household incomes are falling(NewStatesman, May ­­­­­­­­­­­2011 and Mail Online, May 2011 ). This is a threat to the mobile industry as it means less income at the disposal of households, hence less subscribers to its services.

(S)ocial factors

Consumer need for converged services, such as mobile telephony, fixed line telephony, television and broadband internet, was increasing(case study p.558). This means an opportunity for mobile operators to expand their market as more people are coming on board with this convergence need which could be a result of the plunge in disposable income so people want all services in one and pay a lower lump sum for all in a bid to ration their income.
A decline in UK fixed line telephone market as households were becoming “mobile-only” users. This is an opportunity for mobile operators to capture the market share of fixed line telephone operators in a bid to expand theirs.
Consumer perceived prestige that comes with owning smartphones is an industry opportunity. For example, everyone wants to have an IPhone, HTC or Blackberry because they are ‘cool’ or for other reasons, so operators in the industry can capitalize on this and increase their market share by offering cheap deals.
Consumer ‘hype’ for new and modern technologies as everyone wants to have the latest ‘thing’ in technology. This would create an opportunity for the industry to capitalize on and expand their market share.

(T)echnological factors

Development of new technologies, IP(Internet Protocol) for voice, data and video transmission(case study p.557). The dynamic nature of technology is posing a threat as operators may be stuck with obsolete technology thereby facing a challenge to be pro-active in order to retain market share and keep churn rates at bay.
Continued upgrading of speeds over mobile networks poses a threat as operators have to keep up with the upgrading of speeds because they might loose customers to service providers who can offer better speeds.

(E)nvironmental factors
As a result of advancement in telecommunications technology, mobile operators have to replace network equipments and hazardous wastes(masts, cables, construction waste etc)frequently. Mobile operators are then faced with the challenge of finding energy efficient ways of recycling which may also be capital intensive, altogether posing a threat.
(L)egal factors

Ofcom’s issuance of licences for additional mobile network operators will pose a threat to incumbent operators( as their market share is threatened) and be an opportunity to potential operators as this will lower entry barriers for them.
Elaborate legal contracts can also be a threat to the industry as lots of legal obligations have to be satisfied prior to and after entry. Drawing up different phone contracts for different mobile packages can prove challenging for the operators.

2.2 KEY DRIVERS FOR CHANGE
Socio-cultural issue:
Consumer need for converged services: Consumer needs(which has led Virgin Media to provide multiple services such as the ‘quad play and others providing the triple play) change from time to time and even some firms will try to create the needs for the consumers thereby pushing the industry towards finding ways to satisfy these needs as the market expands. This is one of the major drivers of change for the industry.
Technological issue:
Development of new Technologies: The dynamic nature of technology will keep operators findings ways to stay ahead of competitors by developing new technologies such as the IP, digitising high-speed distribution of voice, data and video over multiple networks.
2.3 MICHAEL PORTER’S 5 FORCES ANALYSIS
a.Threat of entry: (low)
The barrier of initial capital cost of entry may be daunting but the regulatory changes in the UK communications industry by Ofcom saw the issuance of licences to more mobile operators and also allowing MVNOs to lease network capacity without the capital cost of building their own hence reducing barriers to entry. This has also led to increase in the number of competitors.

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b. Threat of substitutes: (low/moderate)
Considering the advantages of mobile connections (make calls, sending messages/data, music etc), substitutes would be the fixed line connections, skype(or VOIP) on broadband, radio airwaves, phone booths or simply go without. With the fixed line connections, Ofcom reported that the number of lines dropped from 34.9million in 2003 to 33million in 2009. Call minutes had also decreased by 15% from 167billion to 138billion over the same period with mobile minutes expected to exceed fixed line minutes in 2010(Case study p.558). A report on Broadband news also says that mobile broadband will overtake fixed line connections in 2011.(Broadband Choices 2009). It is likely that the trend will continue in this way, considering the convenience offered by mobile connections, of being able to make a call on the move.
c. Competitive rivalry: (high)
One of the aims of Ofcom is to ensure healthy competition among operators which saw a rapid growth in the number of competitors. The major competitors in the industry are Vodafone, Telefonica O2, Orange, 3 UK and Tmobile plus lots of MVNO’s. According to the case study, wireless operator margins in the UK were up because of strong competition(p.559).
d. Buyer power: (moderate)
The main buyers from the industry are households(individuals) and businesses. According to case study(p.559), average churn(customer switching) rates in the market was 20% annually due to the introduction of number portability in 2007 and competitive tactics such as subsidising handsets for subscribers. Customers would switch operators for better offers or added value for their money. To counter this churn rate, most operators have found a way to switch post-paid customers to longer contracts of 18months or even 24months as at 2009. A recent 2011 report (Sim-only deals, 2011) highlights other reasons for low switching rates including provider’s loyalty programme and value for money SIM only deals which altogether gives them the power to make customers stay.
e. Supplier power: (moderate)
The main suppliers to the industry would be the handset makers and Ofcom. Major handset suppliers such as Nokia with 40% of UK handset market and Samsung,21%, supply handsets to the industry under global contracts(case study p.559). There are more suppliers today including Apple, which is another fast growing supplier as their phones
are deemed trendy and a must-have because of its innovative features. Sony-Ericsson, Samsung are among the loads of others. The case study p.559 says mobile handset sales had experienced a decline in 2009 as UK wireless operators started to offer sim-only plans which allow consumers to retain their current handset and pay lower monthly tariffs. Ofcom on the other hand is the sole provider of spectrum.
ATTRACTIVENESS: Based on the evidences from the five forces, the report concludes that the industry is attractive. This being that, though rivalry is high, but other threats and powers are low. Essentially incumbents or new operators can then focus only on competition and worry less about powers and other threats.
3 QUESTION TWO: STRATEGIC CAPABILITIES OF VODAFONE
According to Johnson et al.(2011), Strategic capabilities are capabilities of an organization that contribute to its long-term survival or competitive advantage made up of two components: Resources, which are assets the company has or can call upon and Competenceswhich are ways in which those assets are used or deployed effectively.
3.1 RESOURCES AND COMPETENCES
Human Resources
Vodafone has had a history of experienced CEOs including Arun Sarin(resource), who was skilled in achieving growth in developing markets(competence/strength). Also, Gary Laurence(resource), head of Vodafone UK, appointed CEO in September 2008 was known for his ability to identify strategic options(competence/strength) and the current CEO, Vittorio Colao(resource) who succeeded Arun in 2008 is known for strong reputation as cost cutter.(competence/strength). (Case study page 563)
Vodafone’s partnership with BT(resource) hosting BT’s MVNO, allowed it to provide services to corporations.(competence/strength). It started a joint venture with O2(resources) which enabled it to extend its fixed-line network.(competence/strength).
Vodafone, in its target of business travelers with passport services(resources), was able to offer home country voice rates while roaming in Europe and mobile data services for £10 a day(competence/strength).(case study page 563)
Financial Resources
Financial Performance of Vodafone:
(a) ROCE(Return on Capital Employed): measures the returns made from all forms of resources or capital employed in the business. Vodafone’s resources are the capital
employed and its competence is shown in the amount of returns generated from utilization these capital. Vodafone’s ROCE plunged by 3.73% to give a ROCE in 2010 of 19.85. This may be slightly better than industry average but it shows a weakness to efficiently utilise resources to yield maximum profits.

Vodafone

2010

2009

Industry

ROCE

19.85

20.59

19.48

Source. Morning Star Stock Report.
(b) Current ratio:  measures a company’s efficiency at meeting its short term obligations. A good ratio would be for current liabilities to be covered at least once but Vodafone’s current assets(resources) can barely cover 50% of its liabilities in 2010 though it improved from previous year. On the whole, this is a weakness as the company is low on liquidity and incurring too much liabilities in terms of its short term borrowings.

Vodafone Plc

2010

2009

Industry

Current Ratio

0.50:1

0.47:1

 

Source: Morning Star Stock Report.
(c) Net Gearing: shows the proportion of debt within a company’s overall capital. The table below shows that Vodafone’s net gearing has declined from 40.67% in 2009 to 37.76% in 2010. Overall for the industry borrowing is about 40% of total capital. The reduction therefore for Vodafone is good as its means a reduction in finance costs too.

Vodafone

2010

2009

Industry

Net Gearing ratio

37.76%

40.67%

39.40%

Source: Morning Star Stock Report.
(d) Interest cover: explains Vodafone’s ability to service its debt. From the table below, it appears Vodafone makes enough profits to service it finance costs as it has been able to increase its interest cover to 7.51times in 2010 from 7.03times in 2009. This may not be a core competence but it is a strength for Vodafone.

Vodafone

2010

2009

Interest cover

7.51 times

7.03 times

Source: Morning Star Stock Report.
Physical Resources
Vodafone makes heavy investments in the marketing of its Product brands (competence/strength) which includes, landline solutions and mobile telephony, mobile broadband and secure employee remote access(resources), making them well known.(Vodafone website). It invests also in the marketing (competence/strength) of 3G
dongles or cards(resources) for internet connection giving it the largest share of 3G subscribers. Vodafone used wholesale services to distribute its fixed voice and broadband
(resources) but its prices were too high giving it only a few customers(weakness). Another of its products is the Vodafone-at-home(resources), with which it competed with fixed line providers by offering fixed line prices when customers call from within or near their home(competence/strength).
Core Competences
For the sake of this report, the core competences identified are Vodafone’s CEO’s. They have been exceptional with what they bring to the table and how their expertise has been able to transform the company. Vodafone UK CEO, Gary Laurence has been formidable in terms of identifying strategic options available to the company such as successful alliances and joint venture with likes of BT and O2. Heavy investment in the marketing of its products giving it largest share of 3G subscribers is another core competence.
3.2 VODAFONE VALUE CHAIN
Primary Activities
Inbound logistics: Vodafone possesses its own network equipments, backbones and infrastructure to provide various communication services, and purchasing of handsets (Annual Reports 2010, p.21). Now, its in a network sharing agreement (sharing masts, sites and towers) with O2 covering the UK and 4 European countries,.(case study page 559, Guardian March 2009)., Another inbound logistic is the ownership of spectrum. Spectrum is of particular importance to the mobile phone and mobile broadband industry, which relies on it to carry information between customers’ handsets and mobile masts. Vodafone spectrum is 1800MHz. (Ofcom report, Feb 2011).
Operations: All Vodafone operations are based on in-house infrastructure. Vodafone’s operations is dependent on its people, infrastructure and financial resources. Its logistics operations (which provides a variety of value-added services), evolves from a single, purpose built site in West Midlands.(Unipartlogistics.com)
Out-bound logistics: Vodafone has consumer on-line purchasing systems in place that allow customers to purchase its services directly(Vodafone website). It also has its own billing system.
Marketing and Sales: Vodafone has several own branded and other retail chains that it uses in distribution. According to the case  study(page 563), Vodafone invests a lot in marketing in all markets whilst promoting its brand and also sponsors Formula 1 and England cricket sports.
Services: Its all encompassing website enables customer online ordering and feedback monitoring.(source).Vodafone has customer services helpline that offer after sales services and it also offers services to MVNO’s such as Lebara mobile, Asda mobile, Talk mobile(Carphone Warehouse) and BT mobile(http://ukmobilecoverage.co.uk/),
Support Activities
Infrastructure: Vodafone’s mode of expansion was the formation of a joint venture with O2(case study p.559) to manage its mobile network and share network covering 4 European countries and the UK. It also leases BT’s fixed line services and hosts BT’s MVNO.(case study p.562)
Human Resource Management: Vodafone depends on its employees for the quality of its services to customers. It ensures an inclusive working environment and encourages innovation, ambition and pro-activeness. Vodafone encourages enthusiasm, talent and commitment in its employees in order to build and maintain its success and stay competitive.(Vodafone, Our people).
Technology and Development: Vodafone owns internet portals which enables on-line ordering. Also, continuous R&D helps the company to incubate and deliver innovation to the business. (Annual Report, 2010. p.20)
Procurement: Vodafone, like other networks, purchases branded handsets from suppliers. Vodafone holds several training courses for its procurement team for efficient management of supplier performance.
CONCLUSION
SWOT MATRIX

STRENGTHS
1. Experienced CEO’s(UK CEO, Gary Laurence).
2. Partnership with BT and O2.
3.Offering home country voice rates abroad.
4.Heavy investment in marketing.
5.Vodafone at home
6. Good Interest Cover
7. Reduced borrowing

WEAKNESSES
1.Low level of liquidity
2.Inability to increase ROCE
3.High prices and inefficient channel of distribution for fixed voice and broadband.

OPPORTUNITIES
1. Government’s privatization of Ofcom.
2. Consumer need for converged services.
3. Decline in Fixed line telephone market
4. 2012 Olympics
5. Consumer demand for smart phones
6. Consumer hype for modern technology
7. Ofcom issuance of entry license

THREATS
1.Slow economic recovery from recession
2.Decline in disposable income
3.Immigration cap
4.Health issues in areas of mobile masts.
5.Customer switching rates.
6.Development of new technologies
7.Capital intensive recycling
8.Ofcom’s issuance of entry license
9.Elaborate legal contarcts

From all facts assessed in the report and also information from the case study and Vodafone accounts, it is indeed evident that Vodafone is struggling to develop a total communications strategy to enable it to secure leadership  in the rapidly growing market for high speed internet services in its UK home market due to the fact that it actually cannot improve its core activities in order to gain competitive advantage.
 

PESTEL Analysis of Nokia

Business is all about improving, adjusting and surviving and companies face with diverse environment which is beyond the control of the business such as Political, Economic, Social, Technological, Environmental and Legal, which is changing rapidly, rather than being rigid. It is very important for business organizations to be sensitive and aware of its business environment in which it operates. Business environment refers to those factors and variables that can influence and affect operation of a business organization.

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For instance, Nokia is one of the successful mobile phone companies that was affected by the technological environment and have experienced a significant fiasco. Big market leaders such as Apple and Android crushed Nokia, however it was recognized that Nokia is adaptive company and they try their force in another field. But all Nokia’s efforts to adapt wasn’t so powerful, so company fail in adaptation process. This example may show how Nokia encountered with technological environment and made effort to adapt that challenge.
So in this essay I am going to write about PESTLE analysis which could show diverse external effects on business and for the better understanding here is video about PESTEL analysis[1].
PESTEL analysis Francis J. Aguilar: In 1967, there was a mention of Aguilar in “Scanning the Business Environment”, where he discussed the environmental factors affecting a business. He gave them the acronym “ETPS” to indicate the “Economic, Technical, Political, and Social” factors. PESTEL analysis is a simple and effective tool used in situation analysis to identify the key external (macro environment level) forces that might affect an organization. These forces can create both opportunities and threats for an organization.
According to the research three main and essential business environments Political, Technological, and Environmental that managers should pay attention and adjust to them. The political environment could change as a result of the actions and policies of governments at all levels, from the local level to the federal level. It is becoming very important issue, which includes globalization and creates a risk. Businesses need to be prepared to deal with the fallouts of government politics.
As for example, aviation industry have been affected by Political environment, Malaysia airlines flight MH17 have been crashed in Ukraine with 298 passengers and crew. It is the second accident that happened after MH 370, which went missing. Day of the vision of accident Boeing 777 presented the Defense Ministry of Russia there have led a number of arguments in favor of the version that the plane was shot down by a Ukrainian military. According to the Office, Boeing, while over the Donetsk region, has deviated from the corridor of the airway and was at 14 km to the north. Further, flying past Gorlovka liner tried to return to the route, but the boundaries of his airway did not have time to get, and was crashed of its limits. Ukraine nowadays has political issues and civil war, and this all circumstances has impact on aviation industry in Malaysia, MH370’s disappearance had a “dramatic impact” on its first-quarter results, with cancelled bookings helping push the company to a loss of 443 million ringgit (US$140 million). State fund Khazanah Nasional, which holds the airline’s purse strings, said in June it would announce a plan to revive the carrier within six to 12 months. Malaysia Airlines had already raked in losses amounting to US$1.3 billion over the previous three years. So all this political games may arouse risk for aviation industry and bring considerable material losses.
All in all, technology has always been and continues to be the greatest change agent of our civilization. And technology is leading the most important revolution in business. It is changing at a fast pace and it´s creating new trends in the marketplace. (Australian authorities have demanded an explanation about the Russian plane crash in Ukraine, 2014)
According to Harvard Business Review 3D printers will change the world and business as well. 3D printer machine that produces objects of any shape, on the spot and as needed, really is ushering in a new era. Goods will be infinitely more customized, because altering them won’t require retooling, only tweaking the instructions in the software. Creativity in meeting individuals’ needs will come to the fore, just as quality control did in the age of rolling out sameness. These first-order implications will cause businesses all along the supply, manufacturing, and retailing chains to rethink their strategies and operations. And a second-order implication will have even greater impact. As 3-D printing takes hold, the factors that have made China the workshop of the world will lose much of their force. China has grabbed outsourced-manufacturing contracts from every mature economy by pushing the mass-manufacturing model to its limit. It not only aggregates enough demand to create unprecedented efficiencies of scale but also minimizes a key cost: labor. China will have to give up on being the mass-manufacturing powerhouse of the world. This new technology will change again how the business leans. (3D Printers Will Soon Change The World, If It’s Not Strangled In A Lawyered Up World, 2014).
Another factor as Environmental may affect to business and research shows that the environmental impact of doing business costs the global economy $4.7 trillion a year. For example, severe floods in Australia in 2010 to 2011 resulted in more than $350 million in claims to re-insurer Munich Re, which contributed to a 38 percent quarterly drop in profit for the company. The same period of extreme weather in Australia contributed to a loss of $245 million.
Furthermore water is one of the consequential environmental factor that impacts on business. Water management is of critical concern to business, from access issues that disrupt production, to tightening legislation over water quality and increasing costs associated with allocations. In a recent interview with theFinancial Times, Nestlé Chairman Peter Brabeck suggested water access and management now comprise a more urgent concern for contemporary business even than climate change, which gains so much political attention.
So, above mentioned macro environmental factors that is modifying swiftly will invent influences that could bring success or fail and different companies went over it in their own strategy.
There is examples of case studies, such as Amway in China, Jessop’s photographic retailer.
Following to the article in Harvard Business Review, the president of Amway Company Doug DeVos is reinventing the business to succeed in China. One of the biggest lessons that the company learned that as they have grown around the world is that a true understanding of the market- place, including culture, the economics, the politics, and the people, is essential. Amway entered Asia in 1974, with the opening of Hong Kong and by 1998 China was a $200 million operation and growing fast. However, Chinese government was becoming unhappy with the actions of some direct sellers. Issues related to product quality, reliability, and our trust were rampant. Chinese officials needed to protect consumers and to put a stop to unethical practices. But the action government pursued was extreme: outlawing direct selling and punishing legitimate as well as unethical sellers. And now it appeared that Amway could be put out of business, despite their commitment to and investment to China operation. However Amway started to change operations to accommodate Chine’s new regulations. Company created a physical stores, something that they had never done before. That meant selling products to people who came in off the street again not their usual way of doing business. Typically when Amway enters to a new country, they import products from United States. But for China they manufacture goods there, so company have changed their entire distributer compensation system. Also Amway couldn’t rely on word-of-mouth that drives direct sales, choosing to do brand advertising. In short they had to overhaul nearly everything. In 2005 legislation was passed that would allow Amway to return to direct sales business model. Company received new license to do business in China in 2006. And today China is largest market, with more than $4 billion in annual sales. From this we could recognize that Chinese political environment create risk and changed business structure. (“Amway’s president on reinventing the business to succeed in China”, 2014, p. 41-45).
Second, the company is the UK’s premier photographic retailer operating from over 200 stores around the UK. The photography and imaging business has experienced considerable change in recent years. Technology has beenat the front of this change. New digital cameras and digital media enable ordinary people to take high-quality photographs. These images can be quickly edited and altered. The digital camera market has expanded quickly as a result. For example, as more mobile phones come fitted with good quality built-in cameras, sales in standalone digital cameras have begun to fall. The development of the internet is also having an impact on the market. More customers are using the internet for shopping. Increasingly, people use social media to share images online on sites such as Facebook and Flicker. Many people upload images from their mobile phones onto a social media site. By consuming and sharing images in this way, there is less demand for print copies. Sales of digital prints are declining by 10% a year. Following to case study there some technological solutions that company has done: Jessop’s have come up with technological solutions in response to these changes. The company is responding by providing products and services that reflect the way that customers take, use and distribute photos:
Customers are now able to print images taken from social media or other websites.
These images can be printed in a variety of sizes and shapes. They can be compiled in photo books. Selected images can be printed on canvas, acrylic and aluminum.
Customers can incorporate their images in gifts such as calendars, posters and greetings cards.
Jessop’s has an integrated service for images created on mobile phones and loaded onto social media sites.
These developments, alongside a wider range of products, improved online functionality and consumer finance with an instant decision, have resulted in rapid growth of Jessop’s’ online business. In fact, its .com business has trebled in size over the last 3 years. By using wide-format printers, customers will be able to have wall art printed on site within the hour. New kiosk technology will enable customers to convert old videos and films to digital formats, with results saved to Blu-ray Disc or DVD. Finally, company abided technological environment and tried to stay in market.
In conclusion, market leaders and new organizations strive to build a strong and sustainable strategy which could yield prosper to their internal environment of business. While they should take into account external environment which is unpredictable and could ruin company’s future or establish benefit to new level of development.

[1] See video clip 1 at CD attached at the back
 

Porter’s Five Forces, and PESTEL Analysis

In order to recommend what strategy is needed for a company to follow is essential to analyze the competitive environment where they operate. When analyzing the competitive environment of Cadbury, the factors that should be considered are both factors from the confectionery industry and factors from the macro environment, which would have an effect on the successful operation of the company. I have chosen Porter’s Five Forces, and PESTEL analysis.
1.1 Porters Five Forces
Bargaining power of buyers: Porter (2008) stated that where the product is a small fraction of buyers’ costs or expenditures, buyers are usually less price sensitive.
Cadbury has to categories of buyers namely, consumers or retailer.
Retail buyers are the group that has the most effect for Cadbury and other confectionery producers. They are mainly large retailers like i.e. Tesco, Asda in UK. There is competition for shelf space and threat of backward integration especially with brand only products. That is a very important group, which is directly correlated with the revenue. It could have high effect.

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Bargaining power of suppliers: Group that has big impact on the final product, in terms of quality and price. The main commodities used by Cadbury are cocoa, milk, and sugar. Any change in the price of those commodities will affect directly the price of the product and the profitability. Confectionery manufacturers are facing increasing cost pressures as Cocoa prices hit their highest levels for 23 years due to fall in Cocoa production (BBC, 2008). Cadbury is using commodity derivative contracts for cocoa and sugar. ‘Cadbury Cocoa partnership’ is established to insure sustainable supply of Cocoa by supporting Cocoa farmers in Ghana, India, Indonesia and Caribbean (Cadbury, 2008). Another way perhaps to strengthen their position would be a backward integration, where they would acquire one or more of their suppliers to ensure that they have control over the commodity price (Johnson et al, 2008). Moderate effect.
Rivalry among existing competitors: Confectionary is an industry with stiff competition amongst its players. There are five major players competing globally in confectionery industry: Nestle, Mars & Wrigley, Cadbury, Ferrero Rocher and Hershey with about 42% share of global market (Cadbury, 2008). All of the major players in the industry have very sound brands worldwide. There is a high growth rate of 5% in the developed countries, and about 10% in the emerging markets, which makes the confectionery industry very attractive. Because of the high competition, there is possibility of competition of prices, which will cause the company to operate with lower margins. High effect.
Threat of substitute products: World Health Organization (WHO) (2008) estimates that in 2005 at least 400 million adults worldwide were obese and forecasted that this figure in 2015 will be 700 million. USA, UK, and Germany are among the countries with largest number of people that are obese, overweight, and have cardiovascular health problems on the other hand those countries are the largest confectionery markets in the world. Consumers are becoming more and more aware of healthy eating, so the snacking habits are changing. There are numbers of substitutes emerging on the market, products like cereal bars and fruit bars are threat for the chocolate industry, as health conscious parents especially, would opt for the healthier option. Chocolatiers try to add value to their chocolate, with vitamins or antioxidants or by removing fat and sugar from the confection (Scully, C., 2006). Moreover consumers want firms to avoid e-numbers or synthetic colours and require instead organic substances In this regard many people think of the possible health benefits from the chocolate they eat. Consequently a further development will start. Special groups like diabetics or allergy sufferers will rise in importance. (Vreeland, C., 2007). The other main direction in the confection industry is the tendency to pure black and high quality chocolate. Thus, the sweet is turning into a way in which people express their selves. Candy Industry (2006) clarifies this with the headline of one of their reports ‘Dark and Decadent vs. Milk and Mainstream’. The statement is underpinned by several data. In 2006 the sales of dark chocolate increased by 40%, every third chocolate released was a dark chocolate and the premium market was foretold to grow over 20% in the next periods. The bitter chocolate has the benefit of a low sugar rate and a lot of antioxidants that makes it much more healthy then normal sweets. A dark chocolate is a bit of luxury at a reasonable price, perhaps that’s a reason why this kind of sweet is so popular. The last point which supports the trend is that premium chocolate is for a multilateral use, for instance as a gift or decoration, optimally suitable (Rehan, 2007). The effect is high.
Threat of a new entry: – as the confectionery market is dominated by well established brands, as sated while analyzing the rivals, and they are Nestle, Mars & Wrigley, Cadbury, Ferrero Rocher and Hershey, with 42% of the market (Cadbury, 2008) for a new company is very difficult to enter the market, unless they come up with new interesting product, something to go in line with the healthy lifestyle perhaps, as discussed above. However, it will be difficult to take a considerable market share, as they would be competing against very well established companies, with also established brand names, distribution channels and high capital investment. Other barriers for new entrants are economies of scale and experience of major operators in production and distribution (Johnson, et al 2008). On the other hand those barriers might not be effective for a company that is diversifying, like Nestle, they used their strong position of the confectionery market to enter the ice cream market (Reader, 2006). The effect on Cadbury is low.
1.2 PESTEL Analysis
Political: Only 10 countries in the world produce more than 90% of the world’s cocoa (World’s Coco Foundation, 2007). The major problem in those countries is poverty. The main concern for the companies trading with those countries is political stability, as instability can have effect on the price, and the supply.
Economic: Recent fall in the value of the pound, is one economic factor that affects all the companies that operate in UK, and have business connections with other countries. Cadbury operates in more than 60 countries in the world. Cadbury’ suppliers of their main commodity cocoa are not British, as outlined above. The depreciation of the pound makes the prices of cocoa more expensive; even though Cadbury had future contracts to hedge against situations like that it will still affect the operation in longer run, when new future contracts need to be made.
On the other hand interest rates are very low in England at the moment. The base rate is only 0.5% (Bank of England, 2010). Companies can benefit with lower interest borrowing.
Social: Fair trade with cocoa farmers is a social factor, as affects how the company is perceived by the consumers. Fair trade means that a company buys a tone of cocoa at the market price and pays a social premium for the commodity. This benefits the planter because of a steady income stream, which is more independent from the volatility of the market price. Furthermore a company with a fair trade label pays a percentage of the selling price to the centralized fair trade organization. Corporations try to redeem these disadvantages through a higher quality of cocoa beans (Westen, 2006). Furthermore an enterprise could gain a competitive advantage because of their social commitment. The customer can see a fair trade certification on the package and this is becoming more and more important.
As outlined above Cadbury operates in more than 60 countries in the world. When a company operates in more than one country potential problems are conflicts between different cultural groups, language difficulties, stereotyping, and mutual misunderstanding (Greenhause, et al, 2010).
Technological: Availability of high-tech machinery enables the company to produce high quality product at lower prices, which helps the company to gain competitive advantage. Another point is the widespread of the internet and satellite television, makes it easier to advertise to bigger audience of potential consumers.
Environmental: The cocoa plant needs a stable climate. But the ideal conditions in Africa and South America are in danger because of global warming. The weather will be unpredictable and natural disasters are possible. Consequently the plants get hurt and the productivity decreases. Moreover disease destroys over 20% of the cacao beans that should be use for chocolate production every year (Ogodo, 2006).Therefore companies should search ways to secure a steady flow of cocoa in the required amount and quality. Cooperation with the World Cocoa Foundation could be a solution. Confectioners like Ferrero, Lindt, Thorntons and Nestle realise this potential and try to improve future expectations (World Cocoa Foundation, 2007)
Legal: Affecting the industry are two new legislations that came into force in 2003 in UK. Regulations concerning contaminants in food and organic products force firms to obey and perhaps change their own practices (Baxter, 2006).
 
The company had a very strong financial position with sales revenue growth of 14.6% compared with the previous year, which was due to increase in price, rather than increase in volume of sales, (Bonfield, 2009). Increasing price with no increase in the quality results in higher margins, however it is a very risky strategy to follow as the consumers might not agree with it, the company can lose market share (Johnson, et al 2008). The profit margins have increased from 5.41% in 2007 to 7.43% in 2008, and are higher than the average which stands at 6.42%. That is an indicator of successful cuts in cost. Main reason for that is cutting the number of employees, in 2007 the number of employees was 50,465, and in 2008 was nearly 4000 less down to 46,517. ROCE was nearly doubled in 2008 rising from 3.78% to 7.29%, and was much higher than the average ROCE for the industry, which was 5.53%. This increase in part can be from divestment of Americas Beverages in 2008 during 2008 that had lower ROCE than other companies in the group. According to Cadburys annual report (2008) In July 2008 Company issued new £350m sterling bond with a coupon of 7.25%and underlying interest rate for Cadbury in 2008 was 6.5%. This means that Cadbury is not producing ROCE much more than its current cost of capital. On the other hand Nestle’s ROCE is an impressive 21.5% that indicates that the operating costs in UK are much higher, like wages, rent, administrative expenses etc.
Current ratio which indicates the company’s liquidity is 0.86% for 2008 for Cadbury, which is an improvement from previous year when it was 0.58%. That indicates that their liability has decreased during 2008. Compared to the competitors is obvious that they are not as liquid as Nestle, with current ratio of 1%, however their performance for 2008 compared with the industry average which is 0.72% indicates that they are doing better than the majority.
Gering Ratio has decreased from 123.69% to 89.66% in 2008 mostly because of the demerger with the Americas Beverages which was financed by debt. At 2008 their gearing was lower than the average that was 106.6. That is an indicator that if the company needs to borrow, it will not be difficult to find a lender, as they are outperforming the average.
Return on shareholders’ funds is 11.36% nearly doubled compared to year before when it was 6.10%. Nestle’s return is again much higher at 14.76%. However Cadbury’s Return on Shareholders’ funds is again better than the average for the industry which seats at 8.73%. (Weetman, 2006) (Nestle, 2008) (Fame, 2009)(Cadbury, 2009)
CORPORATE STRATEGY CURRENTLY BEING PERSUED
Vision into action is the name of the strategy pursued by Cadbury. The main outcome of the strategy is to achieve mid teen margins by 2011, alongside with 4-6% organic revenue growth, and improved return on capital employed. If all of that is achieved Cadbury PLC is going to be in an excellent position financially and marketwise, and would deliver outstanding return for their shareholders and become the largest confectionery company in the world. Cadbury’s priorities stated in the strategy were: growth, efficiency, and capability (Cadbury, 2009).
In order to achieve the priorities cost reduction was very important, which resulted in increase in profit by 2.02% the de-merger of US Beverage happened in May 2008, as it was difficult for a British company to compete against American giants such as Coca Cola and Pepsi Co (Market Watch, 2008). And because it was an unrelated diversification from Cadbury’s main focus on chocolate, gum, and candy. Originally Cadbury wanted to sell the business, as Colley et al. (2002) suggests that a company may not have the time or resources to focus on particular division. Selling the units that lack long term prospects would bring in cash that can be used in what would be considered more advantageous ways. However a lack of interest from “cash shy” investors forced it to split the business instead. Instead of adding value to the Parent Company, if that given unit adds in management costs, adds to bureaucratic complexity and obscure financial performance, it is not feasible to continue with their operation (Johnson et al, 2008). The recent acquisition of Adam business is of immense benefit to Cadbury having gain number two position in gum business. They are focused in Integrating these recent acquisitions for sustainable growth.
In order to implement strategy successfully there should be match between strategy and organisational structure. Roquebert et al. (1996) argue that in essence the structure of the organisation and its fit to environment determines the relative degree of profitability. Alfred Chandler (1962) concluded that ‘structure follows strategy’. New group structure of seven business units instead of four was introduced and de-layering organization for faster decision making and reduction in administrative cost. “Strategic business unit is a part of an organization for which there is a distinct external market for goods or services that is different from another strategic business unit SBU” (Johnson et al, 2008). The definition for SBU by CIMA, (2006) adds that SBU has a significant degree of autonomy, typically being responsible for developing and marketing their own product. In the case of Cadbury there is no evidence that shows these business units will have any autonomy in developing their own markets and products.
Alongside what I have mentioned several other activities had been carried out in order to implement the strategy, such as the reconfiguration of production in Australia and New Zealand to reduce complexity of production, ant the closure of the nonperforming plants i.e. Barcelona and Turkey Gum plants and Somerdale Chocolate plant (Cadbury, 2009).
Cadbury is a large company that only concentrates in one industry. In a study carried out by Schmalensee in 1985 was found that the industry effect is very significant and accounts for at least 75% of the variance of industry rates of return on assets, which is directly correlated with the profit of the firm. He also found that market share effects exist it share has positive relation with profitability but its effect is negligible and industry and market share affects are negatively correlated. Within the industry this is competitive advantage that accounts for profitability of company. Cadbury at the moment does not have competitive advantage over its rivals. Profit target set for 2013 that is operating margin of 16%-18% (11.9%for 2008) shows that understanding this fact managers are trying to gain competitive advantage over other global players by focusing on performance and increasing profit (Hill and Jones, 2007).
RECOMMENDATION
Based on the findings regarding the competitive environment where the company operates, and on Cadbury’s financial performance and current strategy, l can give recommendations for a strategy to be followed, supported by a Balanced Scored Card provided in Appendix 1. The main goal as it was outlined in the existing strategy is Increase in Shareholders’ Value. For the goal to be achieved every department in the Company should be involved. I will explain the implementation of the strategy starting from implementation in the process of learning and growth, than the implementation across the internal processes, followed by what would the strategy mean to the customers, finishing with how will the strategy affect the financial perspective.
In order for a company to be successful the most important asset are the employees. Very important part of any strategy is how happy the employees are? Are they driving the business towards the goal set by the management? In order to achieve the points made is very important that the team fully understands the strategy and the underlying assumptions. The employees should work as a team with a successful communication between them, which contributes to faster decision making. For best results Cadbury should employ and retain high performers, for example high performing managers, or specialists in the field of R&D. Once those employees are on board is very important to retain them, by appropriate pay, safe conditions, training and development to achieve their full potential. After the Kraft take over, and numerous job cuts, the team morale is low (BBC, March 2010), and it is very important that they get the support needed, and understand the big picture.
Another crucial area of successes is investing in R&D. As outlined by the analysis using the Porter’ Five Forces, there is a threat of substitutes, to develop products in line with the changing consumer habits (WHO, 2008) healthier variety of snacks should be introduced. Consumers are becoming more health concern, and are happy to pay higher price for a good quality, example of that is Innocent, focused on healthy food and drink, 100% smoothies, packed fruits and vegetables, which in the nine years they exist has grown from just a three employees to 268, and is one of the fastest growing companies with revenue of over 120 million pounds (Innocent, 2009). As explained by Ansoff’s Matrix possible growth opportunities are found in this particular case by introducing new products in already existing markets (Richardson, et al, 2007). I think that Cadbury PLC should be one step ahead and introduce similar products as well. However, introducing new products is very costly and it will relate in lower growth prospects. There are two factors that the power of substitutes depends on: Relative Price/Performance; and The extent of switching costs (CIMA, 2007). By using Porter’s Five Force was found that the competition in the confectionery industry is fierce; in order for Cadbury to maintain their market share, or better to enlarge it, constant improvements of the products should be maintained. Black and Green line should be developed further, as the demand for dark chocolate is growing (Rehan, 2007). As Porter (1980) says “the goal of a competitive strategy for a company is to find a position in its industry where these competitive forces, will do it the most good or the least harm” The Cadbury’s brand is large and global. Kraft had done a lot of acquisitions in the past where the brand has been kept intact like Jacobs Coffee in Germany. The company should continue that with the Cadbury Brand, as that is key to success. In the long run that will result in improved sales revenues, and better profit margins.
In the Balanced Score Card I have outlined that Cadbury should be environmentally friendly. Ogogdo, (2006) had pointed that there is a threat to the cocoa trees in the long run, by the global warming. Cadbury should do their part and be involved in projects helping the environment, like using fair trade, or following their competitors examples. Nestle USA is helping to safeguard the environment through pollution prevention and control, energy conservation and recycling/solid waste management practices (Nestle Global, 2010).
Entering new markets is a way of driving the business forward. By acquiring Cadbury, Kraft had positioned themselves on the Indian market where Cadbury has a very strong position, on the other hand Kraft can help Cadbury to penetrate the Chinese market, where they have a solid position, and use their distribution channels (Riches, 2010). Being global as refered to in the PESTEL analysis comes with its negative sides. To overcome that Cadbury should work towards minimizing conflicts and have procedures in place to supplement the strategy.
Even though the current liabilities had decreased from the year before, there are still high. Restructuring the debt to a lower interest loan, would result in substantial savings. The interest debt on the existing debt is 6.5% (Cadbury, 2009).
As outlined from the financial analysis, the performance had been stronger year after year, where almost all of the ratios had improved. If all the recommendations outlined above are followed the financial performance can only get stronger. When all standards are met for quality and the product meet and exceed customer expectations, there are possibilities for higher margins and increase in profit. On the other hand when the profits increase after interest and tax, the shareholder’s return would increase as well, which makes the final goal achieved – increase in shareholder value.
Market Watch Drinks; Apr2008, Vol. 7 Issue 4, p14-14, 1p
Porter, M. E., (1980), Industry Structure and Competitive Strategy: Keys to Profitability, Financial Analysis Journal, Vol. 36, Issue 4, p30-41, 12p
Strategy in Action Applying Ansoff’s Matrix.Full Text Available By: Richardson, Mark; Evans, Carl. Manager: British Journal of Administrative Management, Summer2007, Issue 59, pi-iii, 3p