A Resource-Based Approach For A Corporate Strategy - Case Study Example

A Resource-Based Approach For A Corporate Strategy Table of Contents Table of Contents 1 Customers segment(s) which Freecom should address with its present internal resources 1 Benefits and risks associated with product development, market development and diversification 4 Ethical issues do Freecom need to consider to retain the market position 6 Conclusion 8 Recommendation 9 Reference 11 12 Bibliography 12 Customers segment(s) which Freecom should address with its present internal resources At present Freecom has a well developed market in UK. The customs are well satisfied with the quality of the products offered by the company. Freecom has a plan to enter in new markets where they can start their business as a bank and the existing retail business. After the worldwide resection, financial market and banking sector is in quite bad (The World Bank, 2008). To identify the most feasible market segment and the target group “market segmentation and target customer analysis” was conducted. The results are presented in Appendix 6. While selecting the target market care was taken that the company can satisfy the requirement of this target market utilising its present internal resources in best possible way. After analysis it was found that BRIC countries have immerged as major drivers of world’s economy. China was initially considered as a potential market segment by the company but due to the stringent rules and regulation imposed by the government it is quite difficult to conduct business in China. India is the second fastest growing economy and with a huge population, seems highly attractive. The banking and insurance regulations are not so stringent so it is one of the most attractive market (Konstantinov, 2009). Other third world countries like Brazil and few South African countries are developing and the life style of the native people is changing, so there is a high demand for banks. The native banks are yet not that well develop to provide international level services, hence Freecom can develop loyal and satisfied customers. There is many other factors that assist the selection of above mentioned markets. For example due to globalization, the new generation wants a faster mode of money transfer process. The local banks of third world countries do not have such strong networks in other part of the world, so they have to collaborate with some other foreign bank. This reduces their profitability and the customers of local bank have to pay more. But if Freecom can develop its own bank that provides all the international level of services at marginally lower cost, they will soon have a big customer base. Freecom already have a highly satisfied customer base in UK and they succeeded in earning good image in market. If they shift to any other market, this good image will act as a strong point and will help to attract new customers as discussed in Appendix 1. The main competitors of Freecom are TESCO, ASDA and Sainsbury as analysed in Appendix 4. They have existence in almost all the part of the world’s top market; so Freecom will have to face a strong competition. The best strategy to enter the new markets is by following niche market policy. Keegan et al. defined niche market as “a small market that is not served by the competing products.” (Dalgic, 2006, p.5). The company should concentrate on need of those customers which have a moderate earning capability. It has been found that often the big player do not concentrate more on the need of such groups because they are not much profitable. So this will be good passage for the company to make an entry. Freecom will have to develop only those products which will be required to fulfil the demand of this group. With passage of time Freecom can widen their product range and can enter into other sectors to attract other potential customers. Till then the company will gain enough knowledge regarding banking business. Another reason for concentrating on niche market it lower financial requirement. If the company will concentrate on a smaller section, they will require lesser capital and they have to pay attention only on those products which have a high demand in the niche market. So the company have to put less capital and cost of operation will be low. Hence if the company maintains less profit, still they will be able to manage the business at initial stage. Benefits and risks associated with product development, market development and diversification While developing the product it is very essential that a well balanced New Product Development analysis should be conducted to determine how feasible will be the product in the target market (Gebhardt, 2003, p.11). NPD analysis for new financial and insurance products was planned and represented in the Appendix 6. Such analysis are of great importance as one can understand what products features are demanded by the customers to fulfil their demand. As many product ideas are generated during brainstorming phase it helps to find out the most feasible ones. Many a time the ideas which cannot be taken up due to certain reasons at present can be taken later when the conditions of market and the financial state of the company will improve. So such process will results into development of a pool of idea (Sandhusen, 2000, p.336-339). While selecting the ideas, they have to go through screening process. Such process helps the management to understand the conditions that should be taken under consideration while developing the products. So next time when the company have to go for developing any next product, they can directly concentrate on the required features which the product should posses. The prototype help in finding where the product can be actually produces with the desired feature in a profitable form or not. Financial analysis and other business analysis helps in determining where the present capital is sufficient in staring the new venture (Gebhardt, 2003, p.11). Through market test one can understand what will be response of customers when the new product will be launched in the market. These data are of vital importance as keeping them as base, future planning and future strategies are to be developed. So an idea can be developed that what might be the future reaction of customers. Through market development process one try to attract the non-buying customer and try to convert them in potential and regular buyer. This represents the marketing strategy which Freecom should adopt to launch its new financial and insurance products and other banking service. The benefit of market development is, the company can select its most feasible marketing policies. Only those strategies will be selected that will result in maximum awareness among the customers, hence the wastage of cost and man power can save. Diversification results in reduction of risk associated with the company. As Freecom will diversify the business area it will have an opportunity to capture new market and to fulfil different needs of customers. The company will be able to smother the return (ING, n.d.). There exists a possibility that the customer need on which the whole idea of product development was based might be incorrect, or it can happen while developing the business report company under estimated a point but when the product was commercialised, due to that particular fact the product failed to gain the levels of estimated sales. The other risk associated with NPD analysis is the sample population selected for the testing does not resemble the true population, so all the data collected from such test are useless and it provides wrong information. The same is true for market development where the risk remains that marketing strategy may fail and all the cost and effort goes in vain. Diversification also has a risk associated with itself. If the company diversify its business too much, there exists a possibility of losing the core competency. Freecom have to follow different corporate strategy for each of the business. Many a time the company cannot maintain the same levels of quality in all the products and services offered by the company, so the market image goes down and company’s other business also suffers. To avoid the above mentioned risks Freecom should conduct a marketing survey for better understanding of potential customers’ need. Ones the financial products are ready to be marketed they should be tested at each and every target market individual. The market test should be conducted for pretty long time so that enough data can be accumulated. The company should enter new market one after another, because it will help in concentrating on a particular market for longer phase of time and to understand the reaction of customer. Ethical issues do Freecom need to consider to retain the market position Freecom is at present engaged in food retailing, electrical goods and home furnishings production. The company is planning to diversify their business and to enter in banking industry. But during such diversification method, the company should analyse the ethical issues which they should undertake. The company have to enter in the markets where they have no idea about the culture issues related with new customers. Many a time it has been found that the matters which are appreciated in one market are strictly unexpected in other. If the company does not have a better understanding of the culture in which they are planning to introduce their product, the company will never be able to attract the customers and to enhance the market share (Cormier, 2008, p.41). To solve this problem Freecom can go for a joint venture where the strategic partner being a local bank already possess better understanding of the needs and requirement of the local population. As discussed in Appendix 7, Freecom have a better option to acquire a local company. Through this way Freecom don’t have to lose their ownership and decision making power and on the same way they will get the expertise of the local company’s experience. But if the company go for merger or acquisition, they have to undertake certain ethical issues. First of all the company should never discriminate between local employees and the original employees of Freecom. Both of them should receive common and fare treatment. The employees policies should be designed such, so that everyone gets the same opportunities. The employees should be motivated to participate in the decision making process. This will help them to feel more attached with the company. Freecom will have to take certain ethical issues toward the customers also. Banking business is solely based on mutual understanding between the bank and the customer. When someone invests money in any of the bank’s financial product, the customer should have an assurance that in future he or she will get the full amount back along with interest. A bank should maintain high degree of transparency in the policies so that one and easily understand reason behind different interest deducted by the bank. The customer should have a feel that the bank care for their cultural and ethical values; it care for the customer’s need and try to fulfil in the best possible manner. Freecom should maintain ethical business standards toward the competitors also. At present the three strong competitor of Freecom in its business are TESCO, ASDA and Sainsbury. These companies are already operating in banking and financial sector in different parts of the world. It might be that Freecom, by using unethical means, extract certain trade secrets of the rival company and then use it for business purpose. But such actions are highly unethical. It’s a common strategy in marketing field to prove the competitors’ products and services inferior so it can enhance own market share. Often this type of strategy is adopted by the new entrants who are trying to enter in market where many big competitors exist and customer loyalty is moderate to high. So until they break the bonding between the customer and the rival company, they go on doing negative advertisements. No doubt such negative publicity against the rival company is unethical. Freecom should adopt fare and transport financial policies without the fear of paying high tax to both the government (government of the foreign country as well as the government of UK). It might happen that company’s cost of capital will enhance, but on the same time it will earn a good name and a better image within the customers. Customer will have more faith in company’s policies and management. At present customers have less faith in bank and insurance companies. It’s a hard time for any company to enter if they don’t have a strong customer faith on them. Freecom is a company which is known for high quality and customer satisfaction. To retain the same image in banking business they have to adopt above mentioned ethical issues. Conclusion After conducting an in-depth analysis of Freecom’s current business and the market condition it can be concluded from Appendix 1 and 2 that Freecom has a strong market position. The customers are quite satisfied with the product and they have high loyalty toward the company. As per the analysis conducted in Appendix 3, banking industry has higher barriers for the new entrants so the numbers of competitors are low and customer loyalty is moderate to high. If Freecom enters the industry, it will a little tough to attain new customer which are highly satisfied with the existing banks products and services. Appendix 4 represents a comparison of the present competitors of Freecom in banking retail sector. The analysis of Appendix 5 explains there are certain target markets on which Freecom should focus. If the company concentrate only on these particular targets, it will be easy to enter the banking business and slowly expand the segment to capture new markets. After undertaking the different analysis it can be concluded, the company has a strong financial position, good market image & ability to enter in banking business and to explore new possibilities. Recommendation At present the market condition is quite down in majority of the developed countries. So Freecom should concentrate on BRIC and other developing nation to diversify the existing business and to start as a bank. As the banks have lost customers faith, Freecom can use its positive market position to attract the customers in target markets. The company try to attain knowledge regarding the requirement and need of target customers, a lot of time and effort will be wasted, so it’s better to go for acquisition or joint venture with local banks. Before developing the product and service portfolio, a well planned new product development analysis should be conducted. It will help to develop those products and services which are specific to the target customers. As the market conditions will improve, Freecom can use the banking experience to capture other markets segments. No doubt diversification reduces business risk, but on the same time it increases the risk of losing core competency. So Freecom should be careful that it fulfils the customers need and requirement in best possible manner. The products and services offered by the company should added value to the customers. Reference Cormier, S., Nurius, P. & Osborn, J. C. 2008. Interviewing and Change Strategies for Helpers: Fundamental Skills and Cognitive Behavioral Interventions. 6th ed. Cengage Learning. Dalgic, T. 2006. Handbook of niche marketing: principles and practice. Routledge. Gebhardt, A. 2003. Rapid prototyping. Hanser Verlag. ING. No date. Divide and conquer: the benefits of diversification. [Online]. Available: http://www.ing.com.au/downloads/13286.asp [Accessed on December 10, 2009]. Konstantinov, M. 2009. BRICs 2009 : Special Report. Allianz Global Investor. [Pdf]. Available at: http://www.grangefinancial.co.uk/images/upload/docum/2.pdf [Accessed on December 11, 2009]. Sandhusen, M. 2000. Marketing. Barron's Educational Series. The World Bank. December 09, 2009. Historic commodity price boom ends with slowing global growth. Data & Research. [Online]. Available: http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/0,,contentMDK:22004555~pagePK:64165401~piPK:64165026~theSitePK:469372,00.html [Accessed on December 10, 2009]. The World fact Book. 2009. United Kingdom. Central Intelligence Agency. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html [Accessed on December 10, 2009]. Bibliography Collis, j. D. & Montgomery, A. C. 2004. Corporate strategy: a resource-based approach. 2nd ed. McGraw Hill Professional. Grant, M. R. 2002. Contemporary strategy analysis: concepts, techniques, applications. 4th ed. Wiley-Blackwell. Appendix 1. SWOT Through SWOT analysis it can be determined what are the strength and weakness within the company and the strength as well as threat which the company faces from outside (from market). The SWOT analysis of Freecom is as follow: 1. Strengths: High quality of the products. A strong relation with the customers. The ability to understand changing needs of customers and market condition. A strong research and development team that has the ability to convert customers need into the product and services which adds value to the customers. Well diversified product portfolio which reduces the market risk. 2. Weaknesses High debt as the part of capital structure which enhances the financial risk. Poor financial performance in the last years due to economical slowdown. High expenditure on research and development that makes a negative effect on profitability of the company. 3. Opportunity The high customer satisfaction level and their strong loyalty toward company’s products. Development of the third world countries as new potential markets because they have emerged as the major participant of economy recovery. Improving economical condition in domestic market. A strong market image and high market share in the domestic market. 4. Threat High competition in the domestic market as well as in the international market. Changing needs of the customers and their tests toward existing products. Lack of previous knowledge in the banking industry. Does not have many idea regarding the culture, preferences and ethical issues of the country where the company is trying to diversify their business. 2. PESTLE With the PESTLE analysis it is quite convenient to understand what in the state of environment within the country. 1. Political: Political conditions are quite stable. Trade union have good amount of power. The country is campaigning for Nuclear disarmament as it is the followers of peace and harmony at worldwide level. The UK is one among the world’s most powerful country; it has membership in many groups like G-20, G-5, G-7, G-8, G-10, NATO, OECD, UN, WHO, WTO and many others. 2. Economical The country’s economical condition got affected by worldwide economical slowdown and the GDP growth rate declined from 2.6 percent in 2007 to 0.7 percent in 2008. Unemployment rate is 5.6 percent (2008) Population below poverty line 14 percent (2008) Inflation rate 3.6 percent Commercial bank prime lending rate is 4.63 percent (31 December 2008). 3. Social Population is 61,113,205 (2009 est) Population below 0-14 years 16.7 percent, 15-64 years 67.1 percent and 65 and above years are 16.2 percents. Urbanisation is 90 percent of the total population. Life expectancy 79.01 years on an average. Out of 92.1 percent of white 83.6 percent are English. 4. Technological The country is developed in terms of technology. The labour force is well educated and 80 percent of them are engaged in service industry. Use of advance technology is common in each and every sector. 5. Legal Legal systems are based on common law tradition with inflation of both early Roman and modern era. The constitution is unwritten where partly it is statutory and partly based on common low and practices. The government have strong influence on the corporate bodies often the legal rulers and regulations are modified to maintain a healthy economical state. 6. Environmental The UK government’s has introduced many amendments in existing Climate Change Act 2008. Company have to go through external as well as internal auditing as per the UK’s environmental auditing standards. The rate of carbon dioxide emission and other greenhouse gasses has reduced in the fast century. (source: The World Fact Book, 2009). 3. Porter’s Five Forces This helps in conducting industry analysis and finding what are the challenges a company is facing. 1. Threat to new entrant: The barriers to entrants are high There are economies of scale Product differentiation High capital requirement Cost of advertisement is high Government policies are strong to guard people’s money 2. Threats of buyers: The buyers are loyal to the company. Switching cost is low. Buyers’ threat of backward integration exists. At present they are satisfied with the company’s products and service quality. 3. Threat of substitute products: The threat from the substitute product is high. Switching cost is low. The quality of the substitute product might not be as high as maintained by the company. 4. Threat of suppliers: The suppliers are ample in numbers. Company has a good relation with them. A basket of suppliers exists 5. Threat from competitors: Threat from competitors is high The market is highly competitive. Both numbers as well as size of the competitors are large. The growth rate of the industry is low. 4. Competitor analysis Comparative analysis helps us to understand how the prevailing competitors in the industry in which it exist are. At present the major competitors for Freecom are Tesco, ASDA, and Sainsbury. Tesco ASDA Sainsbury Industry Retail &Finance and Insurance Retail & Finance Retail & Banking Sales year ending 2008-09 £59.4 billion US$ 404.16 Billion (Wal-Mart) £18,911 million Rank in the industry 1st 2nd 3rd Products Grocery and consumer goods, financial products and insurance, telecom Grocery, other merchandise and financial products Goods related to supermarkets and banking products Operating profit £3.128 billion £638 million £673 million Employees 440,000 (app) 143,126 148,500 (app) 5. Market segment and target market Market segment and target market helps in identifying the segment which should be focused by the customers. Geographical: BRIC countries, African countries and third world countries Demographic: population between age group 14-65 in moderate income group Psychology: risk averse, interest to save and invest the fund. Behaviour: having high product usage rate, have moderate band loyalty, readiness to save and invest. 6. Product development New product development follows the below mention steps to develop a feasible product. 1. Idea generation: a brain streaming section was conducted to identify the potential products for the selected target group. 2. Idea screen: undertaking the company’s strength & weakness and opportunity & threat ideas were screened. 3. Concept development & testing: the selected product development ideas were converted into prototype and market test was done in the small part of target market. 4. Business analysis: as per the data collected from tests different business reports were developed to find out what should be size of target market, requirement of capital, employees requirement, tax planning and other factors have to be taken into consideration. 5. Product development: different financial and insurance products were developed. 6. Test marketing: the developed products where introduced in the real market for a shorter span of time to understand the reaction. 7. Commercialisation: if the market test gives a positive response, it is a green signal for starting production and marketing activities in full form. 7. Alternative methods of entering the market Company can adopt different strategies to enter the target markets. 1. Developing subsidiary with 100 percent ownership. 2. Developing subsidiary in joint venture or collaboration. 3. Making investment in a local company which is already in the banking business after purchasing their shares. 4. Freecom can merge the business with any other company in the banking sector to develop a new entity. 5. It can acquire a local company that have good experience in financial and insurance products. Read More