International Business Strategy - Essay Example

SETTING UP OF A NEW SOLAR PANEL MANUFACTURING PLANT Introduction On a day-to-day basis, managers are faced with certain situations of which, they have to apply their critical thinking skills since the decision they make usually has a big impact on the entire organisation, and it could be either in a positive or negative way. Therefore, managers have to undertake an essential decision-making process, which will explore all the pros and cons, and even offer risk mitigation tactics that can reduce the organisation’s vulnerability. Roberts (2007) noted that an effective decision making process will involve all the key stakeholders and it will look at issues from different and broad angles. Secondly, it will involve use of various analytical tools that test different parameters that can determine the viability of a business decision or option. Among such examples of crucial decisions that managers usually face in their line of work include which marketing strategy to apply or whether to venture in a new market or not. These two strategic decisions will require the manager to undertake a comprehensive decision making process to establish the best choice of action. However, according to the studies conducted by Lindstadt and Muller (2010) for managers to undertake any decision they are required to conduct a market research in order to establish the likely response of the market with the decision that they will undertake, and it is during the market research process that various analytic strategic tools are applied in the process. This present essay will look into a situation whereby a manager is faced with a decision on whether to set up a solar panel manufacturing plant or not. The study will incorporate various analytic strategic tools in order to establish whether setting up of the solar panel manufacturing plant is a viable option that will succeed in the current market or whether it is bound to be an instant flop or failure. The study will apply the use of Porter’s Five Forces, PESTEL, and SWOT analytic strategic tools. The Porter’s Five Forces According to Porter (1980), a business is usually influenced by the prevailing situation in the market, which can as well contribute to its success or failure in the market place. Thus, the Porter’s five forces provide a basic framework under which to investigate some of the industrial forces that affect a business. Threat of new entrants According to Porter (1980), new businesses entering the industry pose a threat to the already existing businesses because the competition level will increase, the market share of the already established businesses will also decrease, and there is high likelihood that there will be price wars, which will decrease the profitability of all the businesses engaging in the price wars. The solar panel manufacturing industry limits the number of new entrants who can venture into the industry because setting up of such a plant will require massive capital investment and highly qualified employees with engineering skills. These factors will limit new entrants because of limited access to massive capital brought about by the numerous requirements by financiers or banks; moreover, there is a small number of registered engineers who specialise in solar energy. Therefore, the new solar panel manufacturing plant will not face threats of new entrants. Bargaining power of suppliers Because of the limited number of solar manufacturing plants in the United Kingdom, suppliers do not have a strong bargaining power since they have limited customers and hence cannot risk losing any business with them. On the other hand, solar panel manufacturing plants are usually endowed with massive capital, which can enable them to source for raw materials from abroad at a cheaper rate. Therefore, the new solar panel manufacturing plant will be able to negotiate for better deals with the suppliers. Bargaining power of customers In the UK market there are less consumers of solar energy therefore, the few available customers have a stronger bargaining power over the solar panel manufacturing companies. However, if the new solar panel manufacturing plant focuses on producing quality products as well as introducing promotional incentives such as discounts or longer warranty period, it is likely to tame the power that customers have. Grant (2009) further stated that if a company is able to stay on top of other competitors within the market by producing superior products that surpass customers’ expectations and even meet their demands then such a company will have a stronger bargaining power over their customers. Threat of substitutes According to the writings by Porter (1980), the possibility of general substitution can lead to a decrease in the demand of a particular product since switching to a related product is easy. Solar energy faces an imminent threat of substitutes that include electricity, wind power, nuclear energy, geothermal energy, and bio-energy. All these are substitutes for solar energy and therefore, the new solar panel manufacturing company will have to ensure that its products are of superior quality and that they offer customers additional advantages. Bargaining power of competitors The energy sector in the UK has numerous competitors who are well established and have wide experience in the field. Therefore, for the new solar panel manufacturing plant to stay ahead in the competition they have to come up with products that are unique and offer additional advantages to customers, who in turn will become loyal to the new company. PESTEL analysis According to Yip (2004) in order to understand, the macro-environment in which a company operates in, it is essential to conduct a PESTEL analysis for the company. In this regard, some of the environmental forces that will be analyzed include political, economic, social, technological, legal, and environmental forces. The analysis will look into each of the six forces and then identify how each force will affect the business operations of the new company. Political force In the studies conducted by Dixit and Nalebuff (1991) they noted that political forces include government policies as well as the general political climate, which could create opportunities and/ or threats for businesses either indirectly or directly. The political force in the UK will favour the new solar panel manufacturing plant, because presently the government is advocating for renewable energy that will contribute in environmental conservation, and the government even offers incentives to parties that contribute to environmental conservation. Economical force According to Dixit and Nalebuff (1991) economic forces determine how easy or difficult it will be for Tesco to post good financial performance at any given time, since these forces affect the availability of capital, and they also influence cost, demand, and prices of goods and services within the market. The prevailing economic situation in the UK will favour the new solar panel manufacturing plant. This is because presently the economy is still recovering from the effects of the past financial crisis and the high taxes has reduced the disposal income of many people in the UK who are now opting on reducing cost/ expenses. Solar panels will enable people living in the UK to save on cost paid for high electricity bills and thus, the new manufacturing company will receive high demand for their products. Socio-cultural force Kaplan and Norton (2008) stated that the social environment mainly determines the current taste of consumers i.e. what consumers want. Presently, there are hyped discussions all over the media on the threat of climate change and the need to preserve the environment. Therefore, the socio-cultural force has made everyone to take up an active role individually to conserve the environment, and one of the ways to conserve the environment is the use of renewable energy such as solar energy that does not contribute to environmental pollution. Therefore, the prevailing socio-cultural force in the UK will favour the business of the new solar panel manufacturing plant because customers will buy solar panels to contribute to the conservation efforts, and because solar panels offer a cheap source of energy than hydroelectricity power. Technological force Grant (2009) noted that so far, businesses have used technology in order to gain a further competitive advantage within the market place; therefore, technological forces have a huge influence on the performance of businesses. The new solar panel manufacturing plant will be competing with other companies that use advanced technology to lower their operational cost and produce quality products. Therefore, the new plant will have to abide by or subscribe to the technological force prevailing in the industry, by also investing on high-end technology to be used at the plant, which will reduce operational cost, increase efficiency, and contribute in the development of high quality products. Environmental force As already noted over the past few years, there has been an increased attention on environmental issues particularly advocating for environmental conservation. This trend has resulted in various governments revising their environmental laws, in order to encourage the use of renewable energy and reduce consumption of energy of that pollutes the environment. The new solar panel manufacturing plant will benefit from this force because of increased awareness on the environmental dangers of certain sources of energy, which also contribute to climate change besides polluting the environment. Moreover, advocates of environmental conservation have been encouraging the use solar panels as a source of energy and this already boosts the business prospects of the new company. Legal force Kay (1995) noted that the establishment of new companies is usually faced with numerous legal requirements that can either hamper the establishment of the new company or encourage the establishment. The UK has a well-developed legal system for the establishment of new companies and they are no bottlenecks that can hinder or curtail the establishment process. Therefore, the establishment process of the new solar panel manufacturing plant will not face legal hurdles during its formation as well as registration stage. Furthermore, because the company will be developing products that will contribute to environmental conservation the legal force will offer an encouragement since environmental policies require the government to promote eco-friendly businesses. SWOT analysis Bernard (1981) described SWOT analysis as the technical appraisal mechanism that a business can apply in order to evaluate its opportunities, threats, weaknesses, and strengths. The focus for this analysis is to evaluate the internal and external factors that will affect the financial performance of the new solar panel manufacturing plant. However, it is of essence to note that it is impossible to analysis the strengths and weaknesses of the new company because it has not started its operation therefore, it is impossible to identify its areas of weaknesses as well as areas where it has strategic strengths (Barney and Clark, 2007). Opportunities The new solar panel manufacturing plant has an opportunity to tap on the increased awareness by consumers on environmental impact of hydro-electricity power, which is widely used in the UK. The increased awareness has created environmentally sensitive consumers who are opting on ways to reduce their own carbon emission and thereby contribute to the overall environmental conservation. Based on this increased awareness, the new plant is likely to experience a huge demand for their products because they are environmental friendly and reduce on cost. Furthermore, the new solar panel manufacturing plant will use the increased calls for environmental conservation as its marketing strategy citing that it promotes environmental conservation. Relying on such advocacies, the new company will be able to penetrate easily into the market. Threats Presently, there are numerous sources of energy or power and these numerous sources threaten to decrease the demand for solar panels. In addition, there are also numerous eco-friendly sources of energy or power such as the windmills and bio energy. These two sources equally contribute to environmental conservation and they are cheap. However, because solar panels involve fewer technicalities in their application or use as they are just fixed on the roof and connected to the electricity grid of the building. This will give them a competitive advantage over bio-energy and wind energy. This is because windmills can only be used in strategic locations unlike solar panels, which can be fixed on any building’s roof. While bio-energy is only enforceable, where there are livestock. Conclusion Managers are faced with the task of making key business decisions and in a timely manner however, if decisions are not made in a strategic manner and without the consultation of other stakeholders, this might result to a catastrophe for the business organisation. Therefore, it is necessary that managers apply strategic analytic tools in their decision making process so as to come up with well informed decisions that also highlight on the possible risks as well as their mitigation tactics. The study has looked into a situation whereby a manager is faced with a decision as to whether to set up a solar panel manufacturing plant or not. The study utilised three strategic analytic tools in order to come up a precise and well-informed choice or decision. From the Porter’s five forces it was noted that the new solar panel manufacturing plant will only face threat from other substitutes that are eco-friendly and equally cheap as solar energy. Secondly, through the PESTEL analysis it was established that all the six factors will favour the new company but under the legal factor, the company has to ensure that it applies ethical business practices such as paying corporate taxes on time, in order not to be affected negatively by the legal factor. In the last analysis, it was impossible to analyse the strengths and weaknesses of the company since it had not yet started operating. Conclusively, this study recommends that the manager should set up the new solar panel manufacturing plant in order to tap on the available opportunity, which has largely been created by the current situation of climate change. The climatic changes that lead to global warming have necessitated the need to adopt eco-friendly practices that have lower carbon emissions and one such practice is the use of solar panel. References Barney, J. and Clark, D. (2007). “Resource-Based Theory.” USA. Oxford University Press Bernard, B., (1981), Feasibility study of a new business, New York. Sage Publishers Dixit, A. and Nalebuff, B. (1991). “Thinking Strategically: the competitive edge in business politics and everyday life”, New York, Norton Grant, R. (2009). “Contemporary Strategy Analysis.” (7th Edition). USA. Wiley Higher Education Press Kay, J. (1995). “Foundations of corporate success.” USA. Oxford University Press Kaplan, R. and Norton, D. (2008). The Execution Premium: Linking Strategy to Operations for Competitive Advantage. Boston, MA. Harvard Business School Press Lindstadt, H. and Muller, J. (2010). Making Game Theory Work for Managers. The McKinsey Quarterly Porter M. (1980). How Competitive Forces Shape Strategy, The McKinsey Quarterly, pp.34-50 Roberts, J. (2007). The Modern Firm: Organizational Design for Performance and Growth. USA. Oxford University Press Yip G. (2004). Using Strategy in Change Your Business Model, Business Strategy Review, summer, 15 (12), pp. 17-24 Read More