Analysing Strategic Position for SMEs: Van Elle Company - Case Study Example

ANALYZING STRATEGIC POSITION FOR SMES Introduction The year proved to be a decent year but somehow difficult formany SMEs. Three construction companies have been considered, their plans for the year ahead would be seen, and the challenges they expect to face as well as the opportunities they will exploit. The construction companies are; AR Demolition, Lakes mere, and Van Elle. As the year 2015 begins, many SMEs are looking forward to the year ahead with optimism that is cautious. In the paper, the Van Elle construction company will be discussed in detail (Johnson, Scholes, and Whittington, 2011). Part 1 Identifying and reflecting the company’s business direction and focus, Basing on the article the business direction and focus of the enterprise is positive which may be substantiated as discussed. From the Deputy Managing Director of the company Vic Handley, the ground-engineering specialist Van Elle is concentrating on infrastructure and rail as 2015 kicks. Having invested 14.5 million pounds in the past two years in the company’s rail division and 8.5 million pounds is an indication of company-improved performance (Green, Larsen, and Kao, 2008). The financial director of the business, Paul Pearson the rail sector is a recession-proof due to the budgets of the Network Rail. In addition, he adds that there is much to do in those markets that the company is trying to map their investment to their opportunities and growth. From that, it can clearly be that the company is focusing on planning their investment to their growth and opportunities that are good (March 2009). The company is also moving in a positive direction since regional expansion is on the minds of many SMEs, and Van Elle is the company is looking to expand into new areas. The company is also increasing their operations in the burgeoning area of Scotland due to the established services in Wales and England which is a right direction (Kao, Green, and Larsen, 2009). Part 2 Environmental Analysis (PESTLE) The PESTLE analysis is a detailed view of the environment a business is in. It can also be to a bird’s eye view where the company or a person tries to ascertain certain trends of the market from a macroeconomic perspective. The factors are a primary determinant of strategic development and define how conducive an environment is within which a business struggles to thrive. Therefore, it is important to construct an environmental analysis for Van Elle. The analysis may help to assess several factors in the macro environment and to identify how future issues might affect the company (Haberberg and Rieple, 2007).The primary questions to be for consideration in the Environmental Analysis include; Political Entails government influences that impact on the performance of the organization. According to Mr. Pearson, Van Elle is watching the unfolding build-up to the general election with interest. The run-up to May is going to be cautious time for contractors due to fear of governmental changes causing in decisions on projects. The five-year shelf life of governments may hinder the promised developments. Mr. Handley also adds that the next administration needs to maintain the confidence to go forward and stability for the industry is required as well as investment (Fahey and Narayanan, 1986). Economic It analyzes the economy as a whole and its performance owing to global trends and effects that are long term that may be evident. In Van Elle, the financial director says that the rail sector is recession-proof due to the Network Rail’s budget and there is much activity in those markets. In terms of economic growth, regional expansion is on the minds of many SMEs I 2015 and Van Elle is among the companies looking forward to growing into new areas. In addition to Van, Elle is looking forward to expanding into new sectors exchange rates will have an effect on the supply and the costs of exporting goods and the price of the imported goods. In addition, as it, tries to develop interest rates will affect the company’s cost of capital and to what extend the business will expand or grow (Gale, 1976). Social The factors include the cultural aspects such as the population growth rate, health issues, age distribution, career attitudes, and emphasis on safety. Trends in the social factors will affect Van Elle’s operation. For example, the existence of an aging population will lead to a smaller and less working force thus increasing the cost of labor. It will also force the company to change their management strategies to adapt to the trends that are social such as recruitment of older workers (Dole and Lowe, 2005). Technological The factors include technical aspects such as automation, R & D, technological incentives, and the rate of technological changes. According to the Deputy managing director of Van Elle, the ground-engineering specialist Van Elle is concentrating on infrastructure and rail as the year 2015 commences. The company has invested 14.5 million pounds for the past two years in its rail division, with a further 8.5 million pounds to come over the next biennium (Doole and Lowe, 2005). Legal The legal framework influences are operating activities of Van Elle. Legal institutions are mandated to come with policies and guidelines that are used to regulate the activities of business entities. The legal environment presents opportunities and threats to the organization. Leaders must, therefore, monitor trends in the enactment of laws that may adversely affect the development of the company or spur it to prosperity (Doole and Lowe, 2005). Environmental Environmental issues affect the operations of Van Elle. Much attention has been given to environmental protection in the current years. There has been a growing concern about the need for business activities to be environmentally sustainable. In addition, commercial activities have depleted natural resource. Consequently, environmental agencies have been established to regulate the activities of firms to protect the environment. The companies provide environmental standards that the organization must honor. In addition, the companies take strict measures to those organizations that fail to meet the standard outlined. The decisions of such bodies affect operations at Van Elle (Doole and Lowe, 2005). The Environmental analysis summary of Van Elle has been displayed in the table as follows Political factors The company is scrutinizing with keen interest the upcoming elections. The election held in the month of May is going to be a crucial time for contractors due to fear of changes of the government that will cause in decisions on projects. The five-year shelf life of states may hinder the promised developments. Economic factors . In terms of economic growth, regional expansion is on the minds of many SMEs I 2015 and Van Elle is among the companies looking forward to growing into new areas. In addition as Van, Elle is looking forward to expanding into new sectors exchange rates will affect the costs of exporting goods and the supply and the price of the imported goods. Interest rates will also affect the company’s cost of capital Social factors Trends in the social factors will affect Van Elle’s operation. For example, the existence of an aging population will lead to a smaller and less working force thus increasing the cost of labor. It will also force the company to change their management strategies to adapt to the trends that are social such as the recruitment older workers. Technological factors Van Elle is concentrating on infrastructure and rail as the year 2015 commences. The company has invested 14.5 million pounds for the past two years in its rail division, with a further 8.5 million pounds to come over the next biennium. Legal factors Legal issues that may affect Van Elle include new legislations, legal suits, trade barriers, and prohibitions. Environmental issues The organization has put measures in place to ensure that the operating activities of the business are environmentally friendly. (Doole and Lowe, 2005). Part 3 Analysis of the UK construction industry with a focus on SMEs Analysis of the UK construction industry with a focus on SMEs The UK construction industry is characterized by its fragmentation into large numbers of small-sized construction companies. In analyzing the UK construction companies with a focus on SMEs, it is important to use the Porter’s Five Forces framework. The Porter’s Five Forces technique is a tool that is systematically used to investigate the primary sources of competitive pressure (Porter, 1980). The five forces include; -The rivalry amongst competitors in the industry. -Industrial Entry threats by the competitors -The bargaining power of suppliers -The bargaining power of customers -The ease by which the consumers can make use of substitute products offered by the companies in the industry (Porter, 1998) Many SMEs in the United Kingdom are vulnerable since they operated in sectors where there were very few barriers to new entrants and where they had little power to dictate to the suppliers their needs. Porter set out the five forces model representing the impact of parties participating that led to the construction industry and the demands that are continually placed by every sector on one and another. One of the factors that threatened the potential new entrants’ affects the SMEs construction companies. The factors influence the new entrants have on the average levels of the profitability of the industry (Roy, 2009). The usual forms of barriers to entry into the industry are the scale and amount of investment required by an SME to enter the sector as an efficient competitor. The threat that the substitute products pose to the profitability of the industry is another factor that has many impacts on the small sized construction companies in the industry. The threat will depend on the relative price to performance ratios on the different types of services or products that customers can turn to satisfy the same essential needs (Schermerhorn, 2010). The bargaining power of buyers is another force that influences the appropriation of the value created by the industry, and it has an impact on the development and survival of an SME in the industry. The power of bargaining with the suppliers is on a higher side in the industry. The other factor is the supplier power. The analysis of the supplier power usually focuses on the size and concentration of suppliers in relation to the industrial participants. It also focuses on the participants degree of differentiation in the supplied inputs. The supplier power is also high because the size of vendors is significantly small (Harris, 2005). The other force that affects the profitability of the industry is rivalry among the competing construction SMEs. The competition has caused most of the SMEs to collapse since they cannot withstand the pressure from the existing competitors. The market is likely to be attractive for Van Elle since it has an enormous investment in infrastructure, and it will be able to withstand the pressure from existing competitors (Howes and Tah, 2003). Porter’s five forces model (Swaan and Waalewijn, 1999). Part 4 Analysis of the company’s strategic capabilities In analyzing the strategic capabilities of Van Elle, it is crucial to carry out a SWOT Analysis. SWOT Analysis (Böhm, 2009). SWOT analysis is a tool that analyzes the internal environment of the company that is based on its products. The components of the SWOT analysis may include; Strengths: It analyzes the strengths of the company in line with the products and services. The power of a business makes it stand out when compared with competitors. The Group development director of Van Elle says that the enterprise is successful since it has spread risks across many markets, and they have more than enough to keep them busy (Fine, 2009). Weaknesses: It accounts for all the defects that the company may have. It gives the company a viewpoint of their areas of lacking and then work upon them. According to Mr. Handley, there is instability in the industry and there is the need for investment in the company (Pahl and Richter, 2007). Opportunities: They are for the company to master, gain and then derive benefits. Van Elle is looking look forward to expanding into the new markets. It has established operations in England and Wales, and they are increasing their activity in the burgeoning area of Scotland. The company also has a high investment in infrastructure (Ahlstrom and Bruton, 2010). Threats: They include the risks that potential competitors pose to the enterprise and its products/services. They also analyze the barriers to entry. The run-up to the month of May is a crucial time for contractors due to the fear of changes of the government which will cause indecision on projects. The company’s financial director says that the five –year shelf life of states will hinder the promised developments (Hill and Jones, 2008). Part 5 Suggestions for the areas of growth Despite the instability in the industry, the company needs to increase their investment into more new areas. The company should also not put much confidence in the next government since the next administration might disappoint it thus affecting their growth. The company should also continue to spread risks across many markets and in the end; it will experience the anticipated growth (Hill and Jones, 2008). The company should also utilize the recession proof of the rail sector and try to map their investment as quick as possible to attain the company’s growth and opportunities. In addition to the survival and growth of the business, it should put into consideration the bargaining power of buyers by satisfying their needs (Hill and Jones, 2008). Conclusion In 2014, it was proved a challenging year for many SMEs. In the paper, the Van Elle construction company will be discussed in detail. The analysis of the business has been divided into five parts; Identifying and reflecting the company’s business direction and focus, Environmental Analysis (PESTLE). Analysis of the UK construction industry with a focus on SMEs, Analysis of the company’s strategic capabilities and Suggestions for the areas of growth. From the analysis, Van Elle is likely to survive in the industry (Swaan and Waalewijn, 1999). Reference List Ahlstrom, D. and Bruton, G. (2010). International management: strategy and culture in the emerging world. Australia Mason, OH: South-Western Cengage Learning. Böhm, A. (2009). The SWOT Analysis. München: GRIN Verlag. Doole, I., and Lowe, R. (2005). Strategic marketing decisions in global markets. London [u.a.], Thomson Learning. Fahey, L., and Narayanan, V. K. (1986). Macro environmental analysis for strategic management. St. Paul [Minn.], West Fine, L. (2009). The SWOT analysis: using your strength to overcome weaknesses, using opportunities to overcome threats. S.l: Kick It. Gale, J. D. (1976). 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