Business Strategy in Corporate Giftware industry (PEST Analysis) - Essay Example

Business Management Strategy (Corporate Giftware industry) Giftware industry, in general, is an age-old industry. But the concept of giving away corporate gifts is a relatively newer one. Increasing competition, opening up of economies, liberalization etc. has made corporate houses more aware about keeping the concerned stakeholders in good humour. Corporate giftware is an industry, which caters to almost all the industries across the board, in varying degrees. Distributing products with the logos or messages about the product or company not only helps in promotional activities, but it also provides an opportunity to the company to say, ‘thank you’ to its customers, shareholders, patrons etc. Sponsoring sports and other events, organizing hospitality events also forms part of the corporate gift industry. Porter’s Five Forces for the Industry: The profitability of any industry, in general, depends upon five environmental factors enlisted by Porter as; Buyers/Consumers power: This is the power of industry’s buyers to secure discounts or negotiate added value to products. The consumer profile of Corporate gifts presents a two dimensional picture. Personalized Corporate gifts are procured by different companies like Intel, Microsoft, Tesco, Asda, Starbucks, Pepsi, Virgin airways etc. from the companies which are in the business of personalizing the promotional merchandise. This merchandise is then given away to the corporate clients, general customers, students, sales agents, company executives etc or on occasions like employee appreciation, retirement or special recognition etc. Therefore the actual buying power lies in the hands of companies which get such merchandise prepared with their logos/ messages. But to certain extent the ‘power’ is also exercised by the stakeholders, who are the end point receivers of such gifts. The power depends on buyer concentration, information and switching costs. The desires and tastes of stakeholder also keep on changing with times and they expect their companies to give away items which are in tune with the times. For example, if a company gives away a box of floppies to its clients instead of a pack of CDs or a flash drive, the gifts will be termed outdated and irrelevant. Moreover the alternatives available to the corporate buyer for patronizing its clients also form part of its ‘power’. The alternatives could include providing discounts, arranging holidays etc. But such alternatives prove to be quite cumbersome at times in arranging. Supplier’s Power: Since 4Imprint Group has to deal with corporate clients, as its main supply chain also includes the items like pen, wrist-watches, badges, calendars, caps, T-shirts, polo shirts, key chains, calculators, bags, mugs, jewelry items, Desktop accessories like mouse pad & pen holder, Ceramic and Glassware etc. which are all supplied to the company by different companies and corporate houses. Therefore the suppliers too are in a position to extract good amount of power in their hands. Therefore 4Imprint Group has to deal with suppliers/ manufactures of such items in order to fulfill the needs of its own customers. On account of cost and quality considerations, a significant amount of manufacturing for the giftware sector takes place overseas, as in order to lower the costs, such tasks are outsourced to countries like India, China etc. as many such unique giftware items are available outside UK at lower costs with high quality. Rivalry amongst Competitors: The degree of competition within the industry for market share. Since the company is into promotional activities, therefore its competitors are primarily in the Advertising & Marketing industry. Some of the competitors include Aquascutum Ltd, Antler Ltd, Firebrand Promotions Ltd, Portmeirion Group PLC, Signet Group PLC, Waterford Wedgwood PLC, Zippo UK Ltd. Competition takes many forms, it could be on the basis of price, quality, convenience, product differentiation etc. Today when marketing communication has become an integral part of any corporate strategy, promotional material too has become a necessity for the company to be regularly ‘seen’ by its loyal customers/ consumers and prospective customers. On this count the corporate giftware industry appears to be quite competitive. Threat of entry: This is the threat that new entrants will start up, increase capacity and competition and erode profits of the existing players in the giftware industry. But depending upon the amount of competition, economies of scale, patents etc. in the giftware industry presents barriers to the new entrants. The corporate giftware market in UK is very diverse and covers a wide range of products. Since there are not many patents, the main threat to entry is the economies of scales. Existing players have a long standing relationship with their suppliers and creditors for procuring the items, which are then personalized to suit the requirements of corporate houses. Since the profitability margins are drying up, the new entrants will therefore have to take into account this aspect before venturing into the arena. Threat of Substitute Products: The giftware industry is the kind of industry that presents a range of gift items, which keep on changing with the times. The range of products keeps on evolving with newer technologies, newer requirements, innovations etc. That’s something the Giftware industry in general and the 4Imprint Group in particular will have to think about. Different forms of Corporate hospitalities are the potent alternative of giftware. PEST Analysis It is a strategic planning technique, which helps the industry in analyzing the environmental factors affecting the industry and the company. PEST stands for Political, Economic, Social, and Technical. But there’s a more advanced version of PEST, which is called PESTEL. This includes analysis of factors like Environmental and Legal as well. A PESTEL Analysis can be particularly useful for industries and companies as it makes them aware about the conditions prevailing in their target market/ country. Political: The present government, since 1997, initiated the doctrine of the “Third Way”, characterized by a policy outlook that is business friendly but still sensitive to social welfare and a goal of greater democratization in the United Kingdom. Since 1979, over £60bn of UK business assets have been transferred from the state sector to the private sector1. The business friendly political leadership has been continuing with facilitation of the globalization. The corporate giftware industry has therefore been on a high as more and more companies come up on the scene and require promotional material to take forward their business interests. The government of the day has been facilitating more and more companies in their effort to firm up their foothold in UK market while many UK companies are being encouraged to go on the lookout for newer markets in far-east and other places. All such activities prove to be a big boost to the corporate gift industry. Economic: The economic environment in general all over the globe is undergoing through rapid changes, with modern means of carrying on the business activities. Concepts like E-commerce, M-commerce have given a new look to the way business is conducted. The economy in UK is about three-quarters the size of Germany. It has a fierce competition with the economy of France for being the fourth largest economy of the world. The real GDP accounts for about 2% with matching rates of inflation. About two-thirds of GDP in the UK is accounted for by private consumption. The services sector, is gaining more in importance and now accounts for two-thirds of GDP. In fact this sector believes more in patronizing the customers by giving always goodies in the form of corporate gifts. The figures for total UK Market for Corporate Giftware stands at 1050 (£m at rsp), with stationary items accounting for the maximum share. These figures are quite encouraging for the industry. One of the first crucial decisions of the Labour government in 1997 was to grant operational independence for setting interest rates to a newly constituted Monetary Policy Committee (MPC) within the Bank of England (the central bank). This helped in encouraging the economic activities in the country. Since emerging from the recession in late 1992, the British economy has enjoyed its longest period of expansion. Social: The number of consumers, their buying habits, their preferences etc. impacts the industry and the business. Internet has become the new hunting ground for business community as well as for the customers at large. Globalization has further made the customers aware about the availability of the alternatives, their costs, and their features. The customer has become very much quality conscious. The social fabric of the customer/ consumer base also affects the business. While in general almost all companies prefer to give away the promotional material during the Christmas festivities or the new year, but there are certain others which prefer to distribute such material during some other times or events celebrating the occasion. For example during the world cup soccer in Germany, there were many such activities, taken up by many companies and the ‘Corporate gift business’ got to touch newer heights during this time. Similar promotional campaigns are on to commemorate the world cup cricket being played in West Indies now a days. Marketing communication people from big companies become more active during such period. Integrated Marketing Communication (IMC) techniques are being used by corporate houses to make room for more business. IMC involves synchronized working of advertising, sales promotion, PR and direct marketing. Depending upon the following of the game or event amongst the masses, corporate gifts are prepared by these companies, which provide better business to companies like 4Imprint Group. Technological: Technology has become the real buzzword for the industry today. Technology has a crucial role to play not only in the manufacturing/ printing etc. but it has redefined the way business is done. With the help of internet a business deal could be sealed within minutes. UK has been a good example of technologically and industrially more conscious to the market needs. UK initiated structural reforms aimed at facilitating flexible and product markets in response to technology changes in the 1980s and shifted to a more services-oriented structure of demand. This has proved to be a good catalyst for the Corporate Giftware industry. Environmental: The prevailing environment in the country in general and the environment at some particular period of time also affect the corporate giftware market. There are seasonal trends, periods of sporting activities, periods of festivities, demand from overseas are the factors, which affects the market conditions. In addition the corporate gift industry is also dependent upon the countries other than UK for procuring the raw materials, outsourced manufacturing and other works. Therefore, the conditions prevailing in those countries also affect the overall scenario. Legal: The legal framework has a very crucial in encouraging or discouraging one particular industry or sector. What are the legal hurdles in carrying out the business, impacts the functioning of the sector. At the smaller scale the promotional and corporate giftware include numerous, relatively inexpensive give-aways, which are a prominent feature at seminar and exhibitions. But at the other end are the branded quality luxury items like as Waterford Crystal, electronics goods and Aquascutum leather goods. Gifting such items serve twin purposes of recognising the importance of association and also serves as a ‘request for being considerate towards the company’. At some places, exchange of such giftware is discouraged by the corporate houses, government officials etc. Some countries place such an exchange in the category of enticing the person, which may result in leveling the charges of corruption and bribery. Therefore such laws also affect corporate giftware market. In UK too there are strict laws dealing with corruption and bribery, but the position is quite lenient while the exchange of gift items is concerned. Therefore the overall legal environment is quite conducive to the corporate giftware industry. Threshold for the Corporate Giftware industry Threshold limit provides basic guidelines for better performance. It is the minimum operational requirement for doing a sustainable business in the corporate giftware market. Some of the thresholds could be; Constraint on operating margins Innovation in the printing, packaging and delivery techniques Orders in hand, so that the staff and machinery doesn’t remain idle, after completing one order. Leverage in delivery time. The giftware company cannot exceed the time limit given by the corporate house for it may turn the gift irrelevant. For example a Christmas gift will appear a suitable ‘gift’ if delivered near 25th of December. Core competencies for the Giftware industry Core competencies help in preparing competitive strategies and taking on the competition. Some of the core competencies for this industry are; i. Access to both domestic and international markets ii. Good rapport with the company executives iii. Good professional working relationship with suppliers and creditors iv. Quality at affordable prices v. An able marketing team vi. Technological edge over competitors. vii. Enough resources to fulfill the needs of the corporate customer viii. Ability to come out with unique products for unique occasions ix. Strategic tie-up with courier/ delivery agencies, so that, if required, once the gifts are approved by the corporate house, the giftware company can send across the items to the intended person. Critical Success Factors for the Giftware industry 1. Increasing competition and shrinking margins in the corporate world 2. Companies are now considering the customer as an important stakeholder. 3. Improved technologies for printing and embossing 4. Liberalization policies have made it simpler to procure the gift items like, glassware, jewelry, leather goods, handicraft items etc. from different sources all around have made 5. Timely delivery of the giftware, so that the items can further be distributed by the corporate house to the intended recipients. SWOT Analysis of 4Imprint Group Plc Such an analysis is helps in taking a comprehensive look at the company and helps in preparing better strategies and in taking on the competitors. This analysis includes enlisting the Strengths, Weaknesses, Opportunities and Threats for the company. Let us do such an analysis for 4Imprint Group Plc. Strengths 1. International Presence: 4imprint are an international network of wholly owned companies in the corporate giftware and promotional products industry. This network is closely knit with its offices in UK, USA, Hong Kong and Europe. This helps in company in studying the local markets in different regions, to execute its plans accordingly. The Hong-Kong office in particular caters to the emerging market in Asia. 4imprint Group can design it, print it, pack it, and ship it to anywhere around the world. 2. Strong Distribution Network: 4imprint sources and sells promotional merchandise through four well established distribution channels: direct marketing, corporate programs, premium promotions, and partner services. 3. Availability of a range of Products: 4imprint has been able to personalize a number of gift items with artwork, engraving, printing, design, and packaging. The items include badges, balloons, pens, bags, calculators, caps, card holders, CD holders, mugs, clocks, computer accessories, shirts, torches, umbrellas etc. Such a product profile helps the company to cater to different types of corporate clients. 4. Strong Brand Image: The Company is a well known name in personalized giftware category. It helps 4imprint in creating important intangible assets through the brand value. At present the company has amortised the brand value over a useful life of 20 years. This life continues to be reviewed. 5. Leading Market Position: 4imprint provides services to more than 200,000 customers worldwide, including all of the Fortune 100 companies. It is in a leading position in UK while holds the fourth position in world. In order to further consolidate its position 4imprint Group also acquired the Supreme Group. Weaknesses 1. Lower Returns: The corporate giftware market is in general very crowded and fiercely competitive. 4imprint has to come out with penetrative pricing strategies in order to remain in contention which results in lower returns. Though this is compensated to some extent with the sheer volume of work, but the lower returns are a cause of concern for the company. 2. Non-Uniform nature of demand: The demand for corporate giftware keeps on varying depending upon the overall economic conditions, economic activities and other events. Therefore at times 4imprint has to remain contended with lower number of orders, which quite often results in reducing the casual staff strength. 3. Dependency on outsourcing: 4imprint is not a producer or a manufacturer, it has to depend on different types of agencies for outsourcing the items and then has to personalize the items with appropriate logo or messages. 4. Dependency on UK market: Customers located in the UK make up more than half of the companys total sales. This means the company is dependent more for its businesses on the UK market. A slowdown or industrial slowdown may result in huge losses for the company, as it may not be able to make up for such losses from other markets. Opportunities 2. Spread of Globalisation: With the spread of globalisation in far eastern places like China in full swing, the industrial and corporate activities in these places are bound to increase. This presents still better opportunities to the company. Since 4imprint has its footprints already in the Asian markets, things would become much easier for the company for catering to clients in these markets. 3. Technology upgradation: With newer techniques of printing and publishing, the digital age provides opportunities for high resolution printing techniques. 4imprint can therefore make use of advanced technological capabilities to offer superior value. Moore’s Law states that, technology doubles its capacity and halves its cost every 18 months. Therefore to be in touch with the latest is necessarily. Threats 1. Increasing power of competitors: With more companies jumping in the advertisement market, the field is becoming more competitive. 2. Lowering Profit Margins: The profit margins have been declining for quite a while now. Though the customer as such remains in an advantageous position in a competitive scenario, but the company has to come out with innovative ideas in order to retain the customers and invite newer customers. Strategic Alternatives for 4Imprint Group Plc Diversification is one of the best strategies to fall back to alternatives, in case the core activities of the company are adversely affected. Therefore; 4Imprint can diversify in some related fields, in such a manner that it is able to make use of its existing contacts and resources. Business of antique items, which are used as decorative pieces in offices and homes, is a suitable alternative. In order to leverage the multi-location strategies, the company can also locate some (or all) of the specialized tasks at more than one location. The company can also locate such tasks in more than one country, near to the source of supply, logistics and distribution. This will help in reducing the cost of production. In addition, this will also help in warding off any threat at one site. Porter’s Generic Strategies for 4Imprint Group Plc. Porter’s generic strategic alternatives provide three main strategic options that are available for an organization to sustain a competitive position. Cost Leadership Strategy: Producing at lower costs will help in passing on the benefit to the customers, who in turn will feel strongly for the company. In today’s competitive environment lowering of production costs is possible only by judicious use of the resources. Such vital resources include, the material resource planning, the human resource planning, the supply chain planning and the distribution chain planning. Replenishing the inventory at the most appropriate time helps in materials management. 4Imprint Group must therefore try to lower the cost of inventory in such a manner that the company is never found short of items, without stuffing too many items in the inventory. Similarly the company needs people for sales and marketing, printing and packaging, finance and accounts etc. which are the mainstay of the company. Company must try to attract able employees with attractive and affordable costs. Periodic reviews of the supply and distribution chains are a must, to infuse fresh inputs into the chain for further strengthening it. Newer concepts like e-business, e-procurement, e-tailing have helped the industry in the recent past. 4Imprint Group should therefore keep exploring such options. Differentiation Strategy: Product differentiation is what a gift recipient always desires about the gift. Nobody loves to stack up a dozen mugs in his office or home. Differentiation strategies help in not only in providing a different alternative to the customer, but innovative ways and means of packaging and delivering also form part of the strategies. Therefore in order to take fullest advantage of the differentiation strategy for creating a better alternative 4Imprint Group will have to remain in touch with the days’ advancements in technology, must be able to attract skilled workforce, with the spirit of missionary zeal from the management team. An important element of differentiation strategy is to keep an eye on competitors. Sometimes, the competitor might be found moving ahead of us in using the latest technology, while at times, the competitor may try to imitate the techniques used by 4Imprint, thus minimizing the benefits from the strategy. Continuous value addition provides another crucial element for product and process differentiation. Differentiation strategies help in attracting customer from a wider spectrum. Focus Strategy: After taking note of the initial requirements spelt out by the corporate customer, 4Imprint Group requires focusing on the needs and the requisite value addition. The focus should also be towards satisfying the needs of a selected few, instead of generalizing it to include everybody. This calls for market segmentation strategies. Segmentation can be carried out on the basis of requirement and value of the deal. Company can also devise different strategies to focus on high-value/ premium customers, in order to retain their confidence. Read More