Business Strategy of Cath Kidston Limited - Case Study Example

Cath Kidston Ltd Contents Contents 2 Introduction 3 L03: Strategy Evaluation and Selection 3 3 Alternative Strategies 4 3.2 Appropriate Future Strategy 8 8 L04: Strategy Implementation 9 4.1 Realistic Strategic Plan 9 4.2 Resource Requirements 10 4.3 Target Achievement 10 Conclusion 11 Reference List 13 Bibliography 15 Introduction Cath Kidston Ltd is a popular home furnishing retailing multinational organization of the United Kingdom. The headquarters of the company is located in London, United Kingdom and it was founded in 13th of April 1993 (Cathkidston, 2014). The original business promoter of Cath Kidston Limited is the popular designer, Cath Kidston. The case study shows that the company has considerably expanded the scale and scope of its business internationalization process over time. Its products are popular in some Asian economies such as South Korea and Japan. In order to augment its revenue and profitability in the long run, Cath Kidston primarily attempts to expand its business in the Asian marketplaces. In order to formulate and evaluate new prospective business strategies of the company, one needs to analyze the internal and external audit results of the organization (McEachern, 2012). L03: Strategy Evaluation and Selection Internal Audit Results Cath Kidston has a high brand value in the global market. The company has a long learning curve in business and owns a considerable share of industry demand. The products offered by the company are rare, unique and non imitable in nature. The aggregate revenue and economic surplus of the organization is steadily increasing over time. In 2013, the gross sale of the organization was worth £100 million (Cathkidston, 2014). The organization is experiencing increasing profit and revenue in both domestic and foreign markets. After growth of internet penetration rate in all the countries around the world, Cath Kidston Ltd has successfully enhanced the volume of its e-commerce sales (Cathkidston, 2014). The online retailing stores of the company are able to offer cost effective services to a larger strength of prospective buyers. Cath Kidston owns a strong supply chain management system. However, the products offered by the company are primarily targeted towards the young and middle aged women. Cath Kidston’s products are popular for its unique floral designs. The case study claims that the company manufactures women accessories such as hand bags and home ware products (Cathkidston, 2014). The company faces certain delivery and product quality related problems in its online trade. The foreign business of Cath Kidston is more prosperous than its native business status. The company has relinquished majority of its stake to a private equity firm, TA Associates. Cath Kidston is the owner of only 23% stake of the Kidston Limited (Cathkidston, 2014). The company sold majority stakes because of financial crisis in the business. The company will not be able to materialize its future investment plans without the financial contribution of TA Associates. Cath Kidston Ltd conducts its commercial operations in a highly competitive business environment. BT Expedite & Fresca and Aurora Fashions are some market rivals of Cath Kidston Ltd (Cathkidston, 2014). Increased rivalry has lowered the switching cost of the consumers within the industry (Brux, 2007). The level of economic uncertainty is considerably increasing in the global marketplaces (CIA, 2014). Sudden recession or price bubble can sharply lower the aggregate profitability of Cath Kidston in future. Being a multinational company, Cath Kidston Limited is exposed to high currency and exchange rate risks in the global market. Such outcomes can decline the market demand share and profitability of the organization in the long run (Brux, 2007). Despite of such problems, the new investment programs of the company can become successful for some business opportunities experienced by the company. After the emergence of trade liberalism, some emerging Asian countries such as India, China and Russia have adopted strict open economic principles in business. The liberal policies of the government authorities of these countries encourage the inflow of foreign investments made by foreign companies such as Cath Kidston (Kotler and Armstrong, 2013). With the essence of increased employability and rise in per person discretionary spending power, aggregate demand for comfort and luxury products have significantly increased over time (Cathkidston, 2014). Such outcomes have enhanced the global demand for Cath Kidston’s home furnishing products. The company can earn greater revenue through increased product diversification and process innovation in the long run. Strategy Evaluation From the above company internal strength review it would be correct to state that future expansion or business growth strategies of Cath Kidston Ltd, will be successful and sustainable in the long run. The organization has adequate amount of tangible and intangible resources to materialize these Asian growth plans in the long run. It would be correct to conclude that the future overseas business expansion projects of Cath Kidston will be financed by TA Associates (Cathkidston, 2014). While the differentiated product, price, place and promotional strategies of the company in the new markets will be formulated by its traditional owner Cath Kidston. In the new markets, company can introduce special product ranges for male customers (Cathkidston, 2014). The company must make greater investments in the emerging Asian economies of the world, such as Indonesia, India and China. This is because; the aggregate employability and domestic consumption expenditure of these countries are higher than the other Asian economies of the world. Cath Kidston Ltd can generate greater profits and revenue from these economically booming countries. 3.1 Alternative Strategies The future business goals and objectives of Cath Kidston can be achieved with the help of efficient growth strategies. The sustainable growth strategies of the company will help to augment its revenue and profitability without causing any harm to its external environment (McEachern, 2012). On the other hand, the limited growth schemes of the company will help to lower its business risks by maintaining low levels of profit. Finally, the company will be able to lower its economic costs in business through the retrenchment policies. Market Entry Strategies Cath Kidston can expand its business in Asia, through various types of market entry strategies. However, each entry mode will generate some advantages and disadvantages to the company. Organic Growth Through this process a company increases its aggregate sales and profitability, by escalating the number of its potential customers. Organic growth of a particular organization excludes any special economic impact of foreign exchange (Froot, 2008). This kind of a business growth is accrued from a company’s personal business investments and strategies (Froot, 2008). Advantages By following the principles of organic growth, the managers can guide the business expansion programs according to the customized goals of a company. Under this regime, a company can avoid problems relating to organizational cultural crash or disputes caused during an inorganic business expansion (Froot, 2008). Organic business growth often becomes cost effective, when a business experiences economies of scale in process or production. Disadvantages Organic growth is a long term business growth process. The returns on such investments involve long gestation period. Organic commercial growth involves high investment risks (Froot, 2008). If such growth outcomes are not favourable, then a company can experience massive loss in business. Merger and Acquisition Mergers and acquisitions are types of inorganic business growth processes. Both the concepts are aspects of strategic management. Mergers and acquisitions involve buying, selling, combining and dividing the assets of two or more companies (Voss, Tsikriktsis and Frohlich, 2002). It is a type of corporate restructuring process that helps to establish a new business for the purpose of achieving commercial growth (Voss, Tsikriktsis and Frohlich, 2002). Mergers and acquisitions are types of legal and corporate consolidations. Advantages Through such means of inorganic growth, two companies combine their productive factor services, for acquiring mutual business growth. This procedure of business involves lower degree of risk and helps to lower the cost of a single organization. It also facilitates in augmenting the brand value of a company in the market. Disadvantages Mergers and acquisitions often cause diseconomies of scale and hence enhance the cost of manufacturing. Internal policy disputes, legal issues and organizational cultural problems are often experienced after the establishment of a business merger or acquisition. The brand value of a company often declines or gets overshadowed after it mergers with a very large business concern in the market. Strategic Alliance It is a special type of agreement made between two or more companies, for executing a set of specific formulated objectives. Even after the enactment of a strategic alliance, two companies independently complete their commercial activities (Sandhusen, 2000). A strategic alliance can be established on the basis of products, manufacturing capability, capital equipment, expertise, knowledge, intellectual property or project funding. Advantages Strategic alliance helps to provide a competitive edge to an organization. It improves the productivity, efficiency and financial stability of a company (Sandhusen, 2000). The process facilitates innovation and creativity in a concern and also helps to improve its market demand share. Disadvantages Strategic alliances often results in future business acquisitions and takeovers. Such business associations often lower the employment opportunities generated by a company (Sandhusen, 2000). It often increases the business liability and risks in the long run. Licensing A licence is granted by the licensor to the licensee, as a document of agreement between either parties. Such agreements provide certain additional facilities to a company that would be available without its existence (Sandhusen, 2000). A licensor can grant a licensing agreement to the licensee, for providing an allowance regarding usage of its own technology or any other productive factor services. Advantages By following the overseas market entry strategy of licensing, an organization can considerably enhance its aggregate revenue and profitability in the market. By facilitating the business internationalization strategy, this approach helps to augment the brand value of a company in the market (Sandhusen, 2000). Disadvantages The process of licensing enhances the threats of competition faced by a company. The process often increases the disclosure of business confidentiality, production process and proprietary information, of the licensor or the licensee (Hesse-Biber, 2011). Franchising Franchising is a specialized business deal, through which a company leases its business model or brand name for a specific period of time. Through this process, a company can expand its chain stores or business practices in the foreign market with limited investment and liability (Hesse-Biber, 2011). Advantages It helps to improve the brand value of a company in the market, with the essence of the promotional activities conducted by the franchisee. It facilitates in increasing the productive resource base of an organization within a very short span of time (Kidston, 2007). Franchising also helps to improve the market demand share and potential customers’ strength of a company. Disadvantages The companies often incur massive costs for buying new franchisees from the market. It often increases the amount of restrictions imposed over an organization. Franchising lowers the business risk but also diminishes its profitability from the market (Hage, 1999). The franchisees often demand greater incentives than the direct employees of a company. Substantive Growth Strategies Vertical Integration Vertical integration explains the extent up to which a company owns its personal business supply chain (Hage, 1999). Each entity of the supply chain process of an organization produces a specific type of semi finished product. All the intermediate product parts are finally combined to form the final produce of an organization that is sold in the market (Triantis, 1999). Vertical integration helps to lower the cost of production experienced by a company. Horizontal Integration This is a strategy through which an organization acquires or creates manufacturing units for outputs. Such units are competitive or complementary in nature. Horizontal integration reduces the competitive threats of an organization and enhances the share of its industry share (Triantis, 1999). Related Diversification By implementing this strategy, a company tries to expand its existing markets and product lines (Moran, Graham and Blomström, 2005). However, problems relating to cultural differences between markets or management change are commonly faced by an organization after utilizing such strategies. Unrelated Diversification Under this regime, a company expands its business by entering in unknown markets or introducing completely new product lines (Terpstra and Sarathy, 2001). This strategy transforms the existing business nature of an organization. Such strategies are expensive but increase the growth opportunities of a company. 3.2 Appropriate Future Strategy Best Market Entry Strategy Organic growth strategy is the best market entry strategy for Cath Kidston. Under this regime, the company can make direct investments in the prospective Asian markets. The business and corporate level strategies of Cath Kidston Ltd will remain same in the new markets (Mankiw, 2011). Through the organic strategy, the company can grow according to its primary business goals. Furthermore, Cath Kidston Ltd has adequate finance to fund its Asian investment programs. The case study elaborates that the worldwide revenue of the organization has increased by 24% and its aggregate profitability is improving at a steady rate over time. The owner of its majority stakes, TA Associates has openly agreed to finance the future growth strategies of the organization. Thus, organic growth is the best market entry strategy of Cath Kidston. Best Substantive Growth Strategy In the existing Asian markets, Cath Kidston must expand business through related differentiation strategy. On the other hand, the company must implement unrelated differentiation strategy in the new Asian marketplaces (Mankiw, 2011). The company will be able to launch new products in the existing markets and existing products in the new markets, through such substantive growth strategies (Sherman, 2004). Attribute Implication Appropriateness Both the strategies will help to improve the revenue and profitability of the company Feasibility The company has adequate financial reserves to materialize such strategies Desirability These strategies will help fulfil the future growth plans of the company Alternatives The company can also expand its business in Asia through the strategies of franchising L04: Strategy Implementation 4.1 Realistic Strategic Plan Type of Project Team Role of the Team Targets Human Resource To recruit the appropriate employees and managers, who would execute the new Asian investment projects of the company To recruit highly skilled and productive workforce Operational To conduct all the administrative activities of the company. The logistics, production, marketing and distributional functions of the company in the Asian markets will be scrutinized by this team To ensure that the rare productive resources of the company are not wasted Marketing To formulate the product, price, place and promotional strategies of the company in Asia To induce high level of differentiation in the product and process of the company Information Technology To provide technical support to company’s new investment operations. To introduce new product and process related technologies in business To enhance the operational efficiency of the organization with the essence of rare innovative technologies 4.2 Resource Requirements Finance Cath Kidston will require adequate amount of financial resources to expand its business in the prospective Asian economies. However, the overall business expansion and operational cost of the organization will be low in Asia. This is because; the currency values of Asian economies are lower than that of U.K (Vaidya, 2006). However, millions of pounds will be required to finance the future Asian investment projects of Cath Kidston. Land In each Asia market, the company needs to purchase its own land for building the organizations’ personal factories, warehouses and retailing outlets (Wasserman, 2003). Labour In its Asian business divisions, Cath Kidston needs to appoint some local employees within its business. These workers will acquire adequate knowledge about the local taste and preferences of each market (Peng, 2010). Capital Apart from adequate amount of financial reserves, Cath Kidston also needs new machineries and infrastructure, for settling up its business in the Asian countries. Entrepreneurship The entrepreneurial leaders of the company should be highly skilled and efficient in Asia. These individuals should own transformational leadership qualities, by which they are able to govern the concern on grounds of individualized consideration, idealized influence, inspirational motivation and intellectual stimulation (Osland, Taylor and Zou, 2001). 4.3 Target Achievement SMART Objectives The business objectives of Cath Kidston Ltd in Asian markets can be evaluated in terms of SMART objectives. Specific The company will increase its revenue and profit from Asian business Measurable The organization will enhance profit by 10% and revenue by 20% Achievable It is assumed that profit and revenue targets of the company are achievable Realistic The achievable profit and revenue related targets of the company should be evaluated to be realistic Time The organization will earn the desirable profit and revenue within a span of 3 years Corporate Level Strategy Cath Kidston will expand its business in the Asian markets by increasing its business stock. The company will be gather investable funds from the markets by issuing equity shares, preference shares and debentures (Nelson, 1999). However 60% stake of the organization will be owned by TA Associates and 23% by its traditional owner Cath Kidston (Peng, 2008). Thus much of its investment plans will be funded by its financial business partner, TA Associates. Business Level Strategy Differentiation will be the primary business level strategy of Cath Kidston in Asia. In order to achieve sustainable growth in the long run, the company will utilize related and unrelated differentiation strategy in business (Mahajan, 2008). The related strategies will be implemented by the company, its existing Asian markets, while the unrelated strategies will be adopted in the new Asian economies (Peng, 2008). Thus differentiation will be the primary business level strategy of Cath Kidston Ltd. Conclusion The case study shows that Cath Kidston Ltd is a popular multinational consumer goods company of the United Kingdom. The organization primarily attempts to produce creative unique products for kids and women. The case study shows that the financial matters of the company are managed by TA Associates and aspects of innovation is handled by its conventional business founder Cath Kidston. After acquiring adequate amount of business growth from its native markets, the company is now planning to expand the scope of its internationalization in the prosperous emerging economies of the world (Kidston, 2007). The researcher states that direct investment must be the ideal Asian market entry strategy for the company. Furthermore, for experiencing substantive growth in business, Cath Kidston should rely on the strategy of differentiation in all its new markets. In the long run, the company can experience success in its Asian business with the help of an efficient implementation plan. 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