Internal and External Analyses of Lion-Nathan Ltd - Case Study Example

Running Head: INTERNAL AND EXTERNAL ANALYSES OF LION-NATHAN LTD Internal and External Analyses of Lion-Nathan Ltd In APA Style By Course Name University INTERNAL ANALYSIS A business organization should always be evaluated internally in order to keep up with its expected performance in relation to the trends and developments in its external environment. This portion of the report will conduct an internal analysis of Lion-Nathan Ltd by utilizing Porter’s Value Chain Analysis and Resource-Based View of a Firm. Value Chain Analysis Value chain is “a high-level model of how businesses receive raw materials as input, add value to the raw materials through various processes, and sell finished products to customers (What is Value Chain 2005).” Value chain therefore, categorizes the “value-adding activities of an organization (Value Chain 2005).” Michael Porter classified business activities as either primary or support activities. Primary activities include: inbound logistics, production, outbound logistics, sales and marketing, maintenance. Meanwhile administrative infrastructure management, human resources management, R&D, and procurement comprise the support activities. The value chain framework is being utilized by managers in assessing the overall situation of a business entity and aids them in the strategic planning. Through a value chain analysis, customer value is maximized while costs of operation are minimized (Value Chain 2005). The value chain of Lion-Nathan commences with the research and development of its product line. Then, it is preceded with the acquisition of inputs for the manufacture of the products in its line. The supplier delivers the order to the company’s plants for assembly. The company then transforms these inputs into finished products which it distributes to its customers. However, as opposed to Porter’s chain where customer service comes last in the company’s primary activities, this often comes first before distribution. Customers call the company for their orders through Lion-Nathan’s call center. Afterwards, the company’s logistics partner delivers the order straight to the individual, distributors, or industrial consumers. In order to support these activities, Lion-Nathan invests heavily in technology in order to have a functional platform which supports its primary business activities. It should be noted that the company recently spent $110 million in order to ensure its plants’ efficiency, flexibility, product quality, and environmental responsibility. Being very much conscious with being a premium brand in the market, Lion-Nathan is irrefutably doing its best in order to maintain a good image which makes it its product number one both in New Zealand and Australia. Looking at the value chain of the company, value is created each step of the primary activities. However, as most manufacturers can adopt what Lion-Nathan does in order to produce high quality wines and spirits, the extraordinary value is seen to be formed more in the company’s marketing and sales and services. It should be noted that being a premium brand, its customers are “drinking the label” as Lion-Nathan puts it. Thus, value is created not only through ensuring the manufacture of great tasting alcoholic beverages but by its effort in strengthening its image of superior quality and being premium. It should be noted that the company emphasizes this through all its “moment of truth” with the customers including ordering and post-purchase service. All of the primary and support process in Lion-Nathan generates cost which should be covered. Looking at its 2007 Annual Report, investment in technology in order to upgrade production facilities and advertisement appears to be on the top of the company’s expenses list. However, it should also be noted that these huge expenses in these processes are being compensated by their gigantic role in ensuring the success of Lion-Nathan in its markets. The link between outbound logistics and distribution is very important and can be forged with its logistics partners. The company’s distribution trucks should be able to preserve the quality of its wines and spirits through the proper temperature and condition. Instead of handling it on its own, Lion-Nathan could forge partnership with logistic firms which have gained the efficiency of delivering products from cellars to customers. This can possibly reduce cost and enhance efficiency in distribution while allowing the company to focus on its core competencies. Noting the increasing importance of workforce in the company’s delivery of customer satisfaction, support processes specifically human resources should be improved. Lion-Nathan should look into training its employees in order for them deal customers better. This will also ensure that as the bargaining power of customers increase, Lion-Nathan is able to complement its high quality products with excellent services. Resource Based View of a Firm In business terms, resources refers to the inputs that goes into the firms production process such as capital equipment, skill, individual employees, patents, finance and talented managers (Dess, Taylor & Lumpkin 2005). Resource can be classified as tangible, intangible, or organization capabilities. The resource-based view of a firm emphasizes that a “firm can earn sustainable supra-normal returns if and only if they have superior resources and those resources are protected by some form of isolating mechanisms preventing their diffusion in the whole industry” (Resource-Based View of a Firm 2007). Tangible resources are relatively easy to identify. This category typically includes the physical and financial assets used to create value for the customer. This report will single out the resources which are seen to be superior resources. It should be noted that Lion-Nathan’s financial and technological resources are valuable, rare, costly to imitate and are sources of competitive advantage. 1. Financial. During the fiscal year ended September 2007, Lion-Nathan reports total assets of $2.62 billion. The company also boasts of strong financial condition evidenced by its 3.8% increase in net operating profits and 6.6% jump in net revenue. 2. Technological. As mentioned above, Lion-Nathan allocates a huge portion of its resources in technology in order to ensure a state of the art process in order to come up with high quality products. The company recently spent $110 million for the purchase and installation of equipment for upgrading the air, refrigeration, and electrical systems, improving the energy management system, and automation of beer processes to packaging. These are only a few of the technological investments made the business organization which is rare, valuable, very costly to imitate, and expected to become a source of Lion-Nathan’s competitive advantage. Intangible resources, on the other hand, are difficult for the competitors and even Lion-Nathan itself to account for, or imitate, and have typically embedded on the different routines and processes which have evolved over time (Dess, Lumpkins, & Taylor 2005). 1. Brand. The Lion-Nathan brand has gained wide patronage in the alcoholic drinks industry as a premium brand. The brand has become identical with the company’s heritage in the provision of drinks for social gatherings. With a well-known brand, Lion-Nathan has been widely regarded and its products have been highly accepted in the market. Brand is one of the most important intangible assets of the company as it enables the business organization to charge a premium to its product in exchange for its commitment in delivering premium and high quality products. 2. Reputation. Identical with its brand, Lion-Nathan is distinct because of the good reputation of the company and its products. 3. Human Resource. Part of Lion-Nathan’s strategy is the provision of excellent service which are carried out by its highly efficient workforce. It should be noted that store employees are on the front-line, delivering the quality of service that customers require. Organizational capabilities refer to the competencies or skills that a firm employs to transform inputs to outputs, and capability to combine tangible and intangible resources to its desired end. 1. Product Development Capability. Due to its quest of introducing new products in a timely basis, Lion-Nathan has been imbued with the high capability for product development. The company’s products are all manufactured in-house which only shows the company’s adeptness in coming up with new wine and spirit additions. EXTERNAL ANALYSIS A business organization should always evolve in response to the changes in the industry where it operates. The interrelation among players in the economy indicates that when one changes, the affected players should always make a move in order to respond to the situation. The same is true with Lion-Nathan. It should adopt a strategy yet should be able to tailor that strategy according to the situation in its business environment. This portion will conduct an external analysis of Lion-Nathan using Porter’s Five Forces Model and PESTLE Analysis. PORTER’S FIVE FORCES MODEL The competitive forces analysis is concerned with the various stakeholders in the industry. According to Porter, there are five competitive forces in the environment of a business entity namely the suppliers, buyers, customers, potential entrants, and product substitutes. Thus, environmental analysis reveals the different internal influences which are faced by the industry or sector in coming up with its strategies (Thomson 2004). Barriers to Entry/Exit: HIGH Recognizing the maturity of the market, barriers to entry and exit is expected to be high especially in the premium sector. It should be noted that prospective entrants need to shell out huge amount of fund to start an operation. The presence of established players like Lion-Nathan also poses risks for entrants. Head-on competition with larger players is quite impossible for a smaller entrant who still needs to generate a good image and brand in order to succeed and even survive. Because of continuing investment of players in technological advancements, entrants would also need to allocate funds in order to match the expertise of the incumbents. As the level of investment is high and the capital and machinery involved in operations are specialized, barrier to exit is also high. Intensity of Rivalry: MODERATE Both the Australian and New Zealand alcoholic drink market presents growth opportunities to industry players. These markets still remain unsaturated because some specific niches are not yet served. The presence of established players in the market battling for market share is moderated by the fact that these companies are all committed in their strategies of differentiating their brands in the eyes of the market. The strong branding strategies of alcoholic drinks manufacturers had somehow become efficient in making their brands unique and are suiting to a specific market segment. Threats of Substitutes: MODERATE The differentiation strategy of players which makes labels them as unique in market makes substitution among brands likely unlikely. This is in addition to the high price of switching costs as a customer move up to a more premium product. Substitutes are quite unpopular in wines and spirits as customers often find a distinct taste in the product offering of each player. As each alcoholic drink doesn’t taste the same with the other offerings in the market, loyalty is often high making switching from brand to brand unlikely. Supplier Power: MODERATE The quality of the alcoholic drink produced by manufacturers is often determined by the inputs used in production. This is especially true for high end wines where the quality and variety of grapes used will strongly affect the flavor and the overall quality of the output. Because of this, the bargaining power of supplier is very considering that companies will want to have the best produce possible that they are willing to pay a premium in order to ensure the quality of their inputs. The high power of supplier is more pronounced in premium alcoholic beverages where manufacturers are not willing sacrifice the quality of their output. However, the strategic partnership between producers and manufacturers is somehow mitigating this high level of bargaining power. Partnerships allow the company and the suppliers to build a mutually beneficial partnership. Buyer Power: HIGH The wide range of available product choices in the market and stringent competition in among industry players enhances the power of the buyer. As players try to capture the drinking market, they empower the powers and launch specific marketing campaigns in order to widen their market shares. This heightens the bargaining power of consumer in the market. The availability of information about the products and prices of industry players facilitated by the wide popularity and acceptance of internet technology also enables convenient and more informed buyer choices. Through the internet technology, buyers are able to exchange information with their fellow buyers. Looking at the websites, reviews about alcoholic drinks are prevalent informing prospective buyers about other customers’ experiences. With this lower information asymmetry, buyers are becoming more discriminating and are harder to please. PESTLE ANALYSIS PESTLE stands for Political, Economic, Legal, Social, Technological, and Environmental which are the basic factors which affects business organization. In the case of Lion-Nathan, the following external changes and developments are significant. Political. Politically speaking, the move of the government to regulate the prices through taxes will make the company’s products more costly to customers. Economic. The rapid economic growth in China, India, and South America posts opportunities for the company as they provide new market for its products. Legal. No significant developments in the legal environment seemed influential to the company. Social. Customers are becoming harder to satisfy and are more demanding in product quality. The trend is also towards more consumer-centric where customers prefer products which shows off their individuality. Technological. Technological advancements fuels the growth in digital marketing and production efficiency. Through technology, companies are able to cut cost and reach a wider customer base. Environmental. As customers are becoming increasingly discriminating, companies also strive to become more environmentally responsible. SUMMARY AND CONCLUSION The table summarizes the company’s internal and external analyses. Through SWOT, Lion-Nathan’s strengths and weaknesses (internal) are highlighted while opportunities and threats (external) are identified. In summary, being a major player in the alcoholic drinks industry, Lion-Nathan has specific resources which enabled it to build a strong competitive advantage which insulates it from threats and risks present in its environment. However, as its business environment constantly evolves, it is also presented with a wider array of opportunities and threats that it needs to consider in its formulation of its strategies. References and Bibliography Adams, J. 2005, Analyze Your Company Using SWOTs, Supply House Times, Vol. 48 Issue 7, pp. 26-28. 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