Maersk Line: Strategic Management - Case Study Example

Maersk Line: Strategic Management Table of Contents Maersk Line: Strategic Management Table of Contents 2 Maersk Line: An Overview 3 External Analysis 3 PESTEL Analysis 3 Porter’s Five Forces 5 2. Internal Analysis 7 SWOT 7 Financial Analysis 8 Reference 11 Bibliography 13 Appendix 14 Maersk Line: An Overview Maersk Line is a renowned global business enterprise in logistics and transportation services, based in Copenhagen, Denmark. The company was established in the year of 1904 by Mr. A. P. Moller and his father. The group operates in around 130 countries with more than 550 container vessels (Maersk, n.d). The company, being profitable, believes in sustainable growth and development. They have different strategies through out the business to achieve profitability and growth; the underlying were those values, anchoring operations, they have. 1. External Analysis PESTEL Analysis Political The country, Denmark, benefits from its well effective framework. The political environment in the country is quite stable. In the month of November, 2007, the ruling party was re-elected again, for the third term; but still it would have to work a bit harder to assemble a parliament majority. Moreover, the people in Denmark are well adapted to a political environment, which is consensus oriented. The government has a number of structural restructuring means, which have introduced flexibility in labor market (Finfacts, 2008). Economical The recent economic downturn has put a deeper and more horrible impact on US economy; and adding to that, it would be having a much slower recovery phase. The risk is much higher this time. There have been many changes in financial regulations. The fiscal policy has focused on surpluses with having the quality of public services. Social The population, in Denmark, is growing extremely slowly. A higher portion of the population has already participated in the job market; as well as there is also a tendency to retire at their early stages. This means the labor party would get squeezed in the coming years. Technical The industry needs a lot of research and development to improve the vessels; to improve the communication and transportation. For example the research is done to lower the maintenance cost of the vessels. Electronic communication system is very much essential for this kind of business, as most of the bookings are done by this means. Environmental The companies around the globe are now more concerned about the environment, they are operating in. Some of the issues in today’s environment are excessive carbon and Sulphur Di Oxide emissions in air. Global warming and acid rain are other two issues, industries should take care about. Legal The environment policies, in case of waste, water and pollution, are there to guide the operation of a business enterprise. Apart from that, there are a number of transportation and logistics laws, which would control the operational environment of these companies. Porter’s Five Forces Bargaining power of buyers In recent years the demand has been quite low for this industry. Even in the next year, demands seem to be on lower side. So, as of now, buyers seem to have more power than that of the industry. Bargaining power of suppliers Maersk Line believes in creating business partnerships with their suppliers and provides them with world wide opportunities in global business of Maersk. Even the company believes in investing substantial resources to make their products available through out their business units (Maersk, n.d). So suppliers would definitely like to work with this company, as they would get an exposure to the global business environment. The bargaining power of the suppliers is comparatively low for this company. Entry Barriers Entry barriers must be high for this industry. One of the reasons could be that a substantial amount of capital is required to enter in this industry. Another most important barrier seems to be the transportation laws. Getting access to the ports would be much difficult for a new entrant. Apart from that the industry has seen a drastic downturn in its demand in the past year. The forecasted demand for this year seems to be gloomy and will be so in next. So investors are quite not ready to invest in such risky business condition. Rivalry among the competitors Maersk have certain competitors as Mitsui O.S.K Lines Limited and Neptune Orient Lines Limited (Hoovers, 2010). There is competition in this industry; but rivalry due to competition seems to be low. Most of the companies compete based on efficient operations as well as safety records. Larger companies have their advantages of large fleet size and access to most of the major ports; while the smaller ones can transport many unusual cargos through smaller ports. Threat of substitutes Threat of substitutes can come in terms of more advanced technologies or transportation of unusual cargos. Large companies transport their cargos through larger ports; and hence can miss out on some products. The smaller ones can do the same with some smaller ports, where procedures might not be so stringent. 2. Internal Analysis SWOT Strengths The company has a number of strengths in the field they are operating in. Maersk Line has the experience to operate globally. It covers almost all the major ports world wide. Their fleet of vessels is most modern, safe as well as environment friendly. They have containers, ranging from simple dry boxes to contemporary atmosphere reefers. Weaknesses They can lose on to their small competitors in terms of port duty fees. Small companies operate through the smaller ports, from where they even may be able to transport unusual items which these large companies can not do through larger ports. Opportunities The company has seen less demand in the year of 2009, due to the economical turmoil. Now, as the economy is recovering slowly, situation is expected to get improved a bit. The company is expecting a bit stronger demand this time. As things are gloomy, the company can have a look at their research division to make more cost effective innovations. Threats US Economy has been seen in jeopardy during the recent recession. The demand dropped drastically. During this year the demand is expected to be slightly better, but that too in a sluggish way. Lager companies like Maersk Line operates on economies of scale; hence cost effectiveness. The lesser demand than the previous years can put an affect on their cost effectiveness. This could be a threat for this large company. Given a huge contraction in demand for the year 2009 and an insignificant growth in the year, 2010, Maersk is set for colossal over capacity for this year and the coming one. Financial Analysis Some key financial data for the last two years have been shown in appendix. No doubt, the economic downturn has hit this company badly. The revenue has seen an opposite direction last year, with a negative growth of 16.61%. The company has gone through huge loss in the past year. Almost 121.82% negative growth for the period. They have increased on their total assets as well as in equity amount; although they have lessened on their capital expenditure amount. Their liquidity position has worsened in the year, 2009. The debt equity ratio has decreased slightly; that is due to an increase in equity amount. Return on invested capital, return on equity, all being the proof of poor financial condition of the company. These are the weaknesses of this company Even they do not have enough current assets against their current debt, on which they can lay their hands in distress. This could be a threat for this company. So, this company has a number of strengths as well as a few weaknesses. As this is going to be a tough time for this company; it is the time to pull up one’s sleeves and work to strengthen their strengths, remove their weaknesses, and transform the threats into their opportunities. The company should work to improve their liquidity position up to a standard level as per the industry average. Maersk should seek for cost effective ways to cut on their excessive costs. The company should take a broader view in long term perspective. Their strategies were mainly aligned to meet the customer needs. The same thing should be kept ahead to maintain its leading position in the industry of ocean carriers. Maersk has built up their strategies, focusing on the customer needs. They dive to have sustainable growth and development through out the years. They continuously look for means to reduce cost and increase efficiency. This company believes in on time, secured delivery. One of the important elements in their strategy is to keep up their technology high. They keep their electronic booking system up to date as four out of five bookings are done by this media. Maersk believes in keeping long term relationships; be it their suppliers or be it the ports they are operating through. They carry on long term contracts with almost all the major ports world wide. For example, in the month of October, 2009, Maersk has signed a five years agreement with Port of Charleston (Charleston, 2009). No doubt, reliability and flexibility are the other two components of their strategy, through which they strive for excellence and innovation in their operations. 3. Challenges: Maersk would face in future No doubt that recent downturn has left all the companies in great turmoil. Maersk, too have lost on its business; hence profitability. A sudden contraction in demand in the year, 2009, has put Maersk in a greater jeopardy. As per the forecasts, the demand would be quite less in this year. The company would have set on huge unused capacity. Maersk would have to bear this cost of unused capacity. At the same time, they would have to bear loss on their economies of scale. In the process, they would have to lose on their cost effectiveness. With this situation, to recover from the huge loss incurred in last year would be a difficult task for Maersk Line. As the earnings per share as well as return on equity are negative for this company, there is a threat from the investors’ point of view. Investors may forego their trusts on this company. Moreover, Maersk do not have enough cash to pay off their debts. Even in trouble time, they will not be able to lay its hands on its cash or cash like assets to get out of it. Another important factor is the duty fees of the ports. Maersk have long term contracts with most of the major ports on the globe. Major ports would have higher duty fees than the smaller ones. Although, the business for this company would be not significant this year; but still they have to incur those costs. Incurring cost, without any significant cash inflow would only result in financial loss; so this can be a threat this time. Opportunities arise out of the threats around. For an example, larger vessels would have larger maintenance cost. In the tough time Maersk Line can use its smaller vessels, so that they can save on their maintenance cost. So, the company should look at the situation with optimism and shape up its strategies keeping the long term goals in mind. Reference Charleston. October 23, 2009. Maersk Line Commits to Port of Charleston. [Online]. Available at: http://www.crda.org/news/local_news/maersk_line_commits_to_port_of_charleston-1258 [Accessed on January 20, 2010]. Finfacts. April 24, 2008. Denmark remains top of the Economist Intelligence Units 2008 Business Environment Rankings. [Online]. Available at: http://www.finfacts.ie/irishfinancenews/article_1013403.shtml [Accessed on January 20, 2010]. Hoovers. 2010. Competitive Landscape. [Online]. Available at:http://www.hoovers.com/company/Maersk_Inc/rrrffti-1-1njea3.html [Accessed on January 20, 2010]. Maersk. No Date. About Our Group. [Online]. Available at: http://about.maersk.com/en/Pages/AboutHomeNew.aspx [Accessed on January 20, 2010]. Maersk. No Date. About Maersk Procurement. [Online]. Available at: http://procurement.maersk.com/en/AboutProcurement/Pages/AboutProcurement.aspx [Accessed on January 20, 2010] Maersk. 2009. A.P. Møller - Mærsk A/S interim report 2009. [Pdf]. Available at: http://shareholders.maersk.com/en/Announcements/2009/Documents/Interim%20report%202009.pdf [Accessed on January 20, 2010]. Bibliography Dess, Gregory G., Lumpkin, T. G. and Taylor, T. Strategic Management. New York: McGraw-Hill Irwin, 2005. Gladwell, M. The Tipping Point. Little Brown: New York, 2000. Hamel, G. & Prahalad, C. K. Competing for the Future. Harvard Business School Press: Boston, 1994. Hamel, G. Leading the Revolution. Penguin Books: New York, 2002. Appendix Table 1. (Source: Maersk, 2010). Table 2. Read More