SWOT Analysis of American Express - Assignment Example

American Express Introduction The company selected for the current assignment is American Express. The following discussion will provide a brief discussion of the company as a whole. The emergence of the company under consideration and how the company operates in the area of operation will be discussed. The social responsibility programs of American Express will not be ignored. The financial condition of American Express and the marketing mix of the company will provide a rough idea of the company. Finally, SWOT analysis will present the current scenario. The paper effectively reflects how the emergence of globalization has affected the operational parameters of American Express, a global travel and financial solutions provider company. It reflects on the gains and incentives of the company operating in the global markets and also on the different strategies used to gain control over the world market. Assignment 1 American Express Company is a multinational financial service provider headquartered in New York City, United States. The company was founded in the year 1850 and it is one of the 30 components of Dow Jones Industrial Average. The company is well known for the businesses in the field of credit cards, charge card as well as traveler’s checks. The company also known as AmEx accounts for around 24% of the total transaction in the country of United States in dollar volume. The company was ranked at 22nd most valuable brand in the world by Business Week and Interbrand while it ranked among the top 20 most admired companies in the world according to Fortune. The closest competitors of American Express are Visa Inc, Discover Financial Services and MasterCard Incorporated. The company started to operate in express mail business in New York. The company started operating as a joint stock company by the amalgamation of the express corporations owned by Wells, Fargo and Butterfield. In the year 1874, the company shifted the headquarters to 65 Broadway Street. The launch of the money order business marked the expansion of the company in financial services. The aim was to compete with the money orders to the Post Offices in US. With the objective of creating an investment arm, American Express initiated the effort to emerge as the super company in financial services sector in 1980. It acquired Shearson Loeb Rhoades in 1981 to form the Shearson/American Express. American Express is popular for the iconic cards of Gold, Platinum and Green. It offers cards of similar colors in many countries. American Express was able to attract a large consumer base with the introduction of first credit card in 1950s. In 1999 it introduced the Centurion Card which caters elite customers. In 2005 it introduced the service called ExpressPay. The new Plum card was offered in late 2007. The charge cards contribute in managing the expenses of small businesses. The commercial cards and services take care of the mid size or the large businesses to manage their travel and operational expenses. The company sponsored the development of the new soccer stadium at Falmer. The stadium is now commonly known as the American Express Community Stadium. American Express in due course of time has been able to gather the confidence of the customers and emerged as one of the most trusted brand in the arena where it operates. American Express features as a services company in the global context that contributes in rendering access to people to different products, concepts and rich experiences that in turn help in enriching the lives of many and in providing success to business ventures. The company operates as a global travel agency with branches spread in around 140 nations on a global basis. During 2010 the company gained success in processing total sales amounting to around $25.7 billion. The company focused on gaining the needed revenue through the use of joint ventures and partnerships agreements with other companies on a worldwide scale (American Express Company, 2012). Assignment 2 The emergence of globalization on American Express has made the company become more conscious relating to the issues of cost reduction and also in enhancing on the parameter of security and safety rendered to travelers. Moreover to meet the needs of globalization the parameter of decentralization has been rightly incorporated in the company to empower international branches to render potential business and travel solutions to local people. Thus globalization has also led to introduction of change management in the concern (American Express Company-a, 2012). The company operating on the parameters of globalization tends to gain a large amount of incentives from the world economy. In terms of revenue the company during 2011 gained a total of $30 billion. The total assets gained by the company operating in the global markets amounts to a total of $153 billion. Moreover the sales of its financial solutions like credit cards amounted to $822 billion during the financial year. The above facts reflect how the company tends to gain in an overall fashion from the global markets (American Express Company, 2012). The company focuses on the parameter of diagonal integration in enhancing the array of products and services offered to both domestic and business consumers on a global scale. Relating to the travel segment the company tends to work on acquisitions and joint ventures with leading global travel brands like Thomas Cook, Life Co and BBL Travel Amex to name a few. This strategy enabled the company to potentially expand its network base of setting a number of branches on a global scale to gain on revenues and market share. American Express also works through its financial arms like American Express Bank and other financial services to help render checks and other financial products and solutions to travelers worldwide. Focusing on the above strategies the company aims to gain a strategic leadership position in global markets pertaining to European nations like France, Germany to name a few and also in United Kingdom and United States. The company focuses on the aspect of integrating its internal people spread along its global branches to generate the best quality of product and service (Knowles, Diamantis and El-Mourhabi, 2004, p.222). Assignment 3 The New York multinational based financial service corporation, American Express strongly focuses on the process of developing highly valued relationships with its customers and stakeholders and thereby generating a positive impact as well as value in their lives. As a matter of fact, the America based multinational company engages in a host of corporate social activities that extends the humanitarian efforts of the firms to its stakeholders in times of need as well as criticality. The company has a bundle of social welfare activities that are designed in an effort to develop relationships with the masses and communities on the grounds of humanity. These social welfare programs have achieved tremendous success in various parts of the world. The activities comprises of a wide range of initiatives like disaster reliefs programs, employee driven philosophy, partnerships programs focused towards preserving and generating awareness for historical structures and the environment (American Express-a, 2012). The company also has a unique CSR initiative termed as Serve 2Gether Consulting, through which it motivates its employees to provide consulting services for various nonprofit organizations (Amercian Express-b, 2012). The company is also actively engaged in tackling various problems of the society through the process of active community service (American Express-c, 2012). The company, in an effort to increase the human connect with its stakeholders located in various parts of the world, has focused on developing the American Express Leadership Academy, through which the company grooms the nation’s finest emerging leaders who actively involved and dedicated towards contributing their service towards the nonprofit sector (American Express-d, 2012). It can be said that American Express is in the business of offering financial services to individuals, business and even government organizations in various corners of the world. On this particular note, it can be said that the corporate social responsibility initiatives taken by the company are mostly in an effort to provide humanitarian support to the masses. Most of the initiatives of the company are dedicated and associated with the not for profit sectors, that is existent in various regions of the world. However, on a separate note, it can be said that the company’s disaster relief initiative which also provides necessary services to stranded travelers, victims of card theft as well as other emergency services does in some extent aid in the process of value communication to the customers and consumers. As a matter of fact, it can be said that this particular CSR initiative has the power to influence the prospect of their services. There are various natures of CSR activities like ethical CSR, altruistic CSR as well as strategic CSR. However talking about the nature of CSR activities provided by the globally reputed financial service providing corporation it can be said that the organization’s CSR activities falls within the category of altruistic as well as strategic CSR. The altruistic CSR represents activities which are initiated by the company with the aim of promoting public welfare at the company’s expense. Strategic CSR represents activities undertaken and performed by the company for promoting social welfare, while providing value to the stakeholders as well as the company (Mullerat, 2010, p. 61). Assignment 4 Following table shows key financial figures of American express of last three years and growth of these during this period of time. Though, cost of revenue growth is higher than revenue growth but net income growth is more than five times than revenue growth. It indicates that the company achieved higher economies of scale. Earnings per share also have grew almost similar percentage as net income. Key financial statements Period Ending 31-Dec-11 31-Dec-10 31-Dec-09 (CAGR) Total Revenue 32,282,000 30,005,000 26,543,000 10.28% Cost of Revenue 528,000 546,000 425,000 11.46% Gross Profit 31,754,000 29,459,000 26,118,000 10.26% Net Income 4,935,000 4,057,000 2,130,000 52.21% EPS 4.17 3.39 1.82 51.38% Total Assets 153,337,000 146,689,000 125,145,000 10.69% Total Liabilities 134,543,000 130,459,000 110,739,000 10.23% Total Stockholder Equity 18,794,000 16,230,000 14,406,000 14.22% Analysis of key financial ratios of last three years of American Express will indicate the financial health of the company and its changes in last three years. This will help to identify the financial stability of the company in terms of four important financial parameters. These are liquidity, debt paying ability, profitability and investment potentiality. Following table shows the key financial ratios of the company of last three years. Ratio Analysis Ratios 31-Dec-11 31-Dec-10 31-Dec-09 Measures of Liquidity       Current ratio 1.34 1.46 1.81 Measures of Debt-Paying Ability       Debt to equity ratio 7.16 8.04 7.69 Measures of profitability       Gross profit margin 98.36% 98.18% 98.40% Return on Asset 3.29% 2.98% 3.40% Investor Analysis       Price/Earnings Ratio 11.32 12.64 22.28 Dividend payout ratio 0.17 0.21 0.40 Current ratio shows standard liquidity position of the company because it has almost one and half times more current asset than its current liabilities. Debt to equity ratio shows inefficient capital structure of the company as the company has 7 to 10 times more liability than its total equity. This is due the American Express is a financial institution and liability position of financial institutions are generally much high than equity. Gross profit margin ratio indicates high profitability and cost effective nature of the business. Return asset ratio shows quite good efficiency of asset management. Though, price to earnings ratio has decreased in last two years from 2009, still it shows high profitability of the investors. Dividend payout ratio indicates good return of the shareholders in terms of dividend with respect earning per share though it has been decreasing since 2009. Key financial parameters of American Express have been compared with industry leaders to identify its position or rank in the industry based on those parameters. Following table shows comparative analysis of the firm with the industry. AXP vs. Industry Leaders Statistic Industry Leader   AXP AXP Rank (out of 141) Price to Earnings Ratio Nikki Global Finance Ltd. $34500 $13.2 33 Market Capitalization Provident Financial plc $1.79 B $63.85 B 6 Revenue Growth Aravali Securities & Finance Ltd. 201.6 % 0.8 % 43 PEG Ratio Global Cash Access Holdings, Inc. 1.3 1.2 11 Growth Rate NewStar Financial, Inc. 25 % 11.1 % 16 EPS Growth Ashirwad Capital Ltd. 1398 % 5.8 % 32 Debt to Equity - - 309.6 - ROE RIFCO Inc. 56.9 % 26.8 % 8 Dividend Yield Fifth Street Finance Corp. - 1.4 % 12 Assignment 5 Target Market The company’s target markets comprises of various markets around the world. In a more specific manner, it can be said that the company focuses on concentrating their attention to customers who indulge in a large amount of travelling as well as consumer purchases on a frequent basis. Marketing Mix The marketing mix is a core activity of marketing which focuses on the process of value generation, value distribution, value communication as well as value capture for the organization’s product or service. The different variables of the marketing mix are product, place, promotion and price. Product It can be said that the company’s main product offerings are financial services. The company focuses on the process of value creation through the process of various kinds of providing the clients and customers with various kinds of financial lending and spending cards, which helps them to conduct purchases and financial transactions all over the world. The company is highly reputed for its products like Travelers’ Check, Credit cards etc. (American Express-e, 2012). Place The company’s presence is multiple countries all over the world provide the opportunity to go for value communication in the emerging as well as the established markets. Promotion It can be said that the financial corporation is focused on the process of acquiring businesses by targeting individual customers as well as large business clients. As a matter of fact, in an effort to establish customer connect with the desired target audience, the company focuses on providing advertisements in various prime channels in the television, which has high target rating point (TRP). The company also focuses on promoting various offers on different consumer based purchases by getting associated with various business organizations. This helps them to motivate consumers to indulge in more financial transactions (American Express-f, 2012). Also the company keeps on promoting various values based offers on their different category of consumer cards on a regular basis. For promoting to the large clients, the company focuses on providing various agreements that provides significant amount of value to both the parties involved. Price Since, the company’s main product offerings are mostly financial spending and lending cards, hence it can be said that prices of the services varies widely on a customer to customer basis. However, the company focuses on generating revenue for its financial services to the customers by capitalizing on the consumer spending as well as the business driving potential provided to various merchants all over the world Segmentation The company focuses on the process of segmenting its customers on the basis of their income, purchasing power, frequency of travel, shopping preferences as well as lifestyle traits. The company provides a range of financial service based credit cards that have varying limits of credit, which is always predetermined by the company, through set agreements and standards. SWOT analysis for American Express Strengths Globally reputed brand. Presence in various countries around the globe. World’s largest issuer of various kinds of financial cards. Has a premium network of high spending card members. Highly reputed customer service provider all over the world. Serves as a gateway to diverse range of services all over the world. Weakness Possibility of slow growth from customers of Euro zone as the credit crisis is affecting all segments of customers and businesses in European markets. Opportunity Analyzing power of millions of global transactions provides tremendous insights to consumer behaviour, thereby providing the opportunity to achieve future growth. World wide exposure provides opportunity to diversify in other businesses. Threats Prolonged existence of the Euro zone credit crisis. Slowing down of emerging economies References American Express Company. (2012). Who we Are. Retrieved from: http://about.americanexpress.com/oc/whoweare/. American Express Company,-a. (2012). News: Press Lease. Retrieved from: http://about.americanexpress.com/news/pr/2011/global.aspx. American Express-b, (2012). Serve 2Gether Consulting. Retrieved from: http://about.americanexpress.com/csr/serve2gether.aspx. American Express-c, (2012). Encouraging Community Service Where Our Employees and Customers Live and Work. Retrieved from: http://about.americanexpress.com/csr/comm_serv.aspx. American Express-d, (2012).American Express Leadership Academy. Retrieved from: http://about.americanexpress.com/csr/nla.aspx. American Express-e, (2012). What Makes Us Different. Retrieved from: http://about.americanexpress.com/oc/whatmakesusdifferent/#. American Express-f, (2012). FAQ. Retrieved from: https://www.americanexpress.com/us/content/prepaid/american-express-for-target-card/faqs.html?vgnextchannel=95ddb81e8482a110VgnVCM100000defaad94RCRD&appInstanceName=default&name=targetfaqpage&type=intbenefitdetail. American Express–a (2012). American Express Partners in Preservation. Retrieved from: http://about.americanexpress.com/csr/pip.aspx. Knowles, T., Diamantis, D., and El-Mourhabi, J. (2004). The Globalization of Tourism and Hospitality: A Strategic Perspective. United Kingdom: Cengage Learning EMEA. Mullerat, R. (2010). International Corporate Social Responsibility: The Role of Corporations in the Economic Order of the 21st Century. Great Britain: Kluwer Law International. Read More