Strategy in Real Estate Business - Your Move - Case Study Example

Strategy in Real E Business Part Internal and External Analysis Introduction You Move brand have been planning to enter a foreign market to launch its real estate business. For do so, the firm will prepare a strategic analysis, including a business plan, external and internal analysis of the foreign environment and appropriate recommendations will be provided at the end of the report. Business Model The business model for Your Move has been explained below. This diagram is an exhaustive analysis of the important elements such as, key activities and partners, customer segments, relationships and value propositions. From the model, it can be said that the company has established itself as a high-value real estate brand, which attracts customers based on its high value proposition (Johnston and Bate, 2003; Berkowitz and Rudellius, 2000). At the same time, increasing maintenance costs, construction costs as well as depreciation value of properties might create hassles in future. Table 1: Business Model for Your Move Real Estate Key Partners 1. Land owners and contractors 2. Insurance partners 3. Construction agencies 4. Raw materials and equipments supplier 5. Franchisee partners Key Activities 1. Buying 2. Renting 3. Selling 4. Mortgages Value Proposition 1. Easy and effective database for home search 2. Planning, quotes and consulting for the customers 3. Loan preapproval and mortgage consulting 4. Title transfer and community information 5. Property preparation 6. Appraising and comparative market survey for sellers. Customer Relationships 1. Customer support forums on Your Move websites as well as other social media sites 2. Regular after sales service 3. Fixed guarantee and warranty period for fixing damages and other housing issues. Customer Segments 1. Residential Properties 2.Commercial Properties Key Resources 1. Established property base across the UK 2. High brand value 3. Experienced marketing and sales professionals providing services 4. Highly valued security system Channels 1. Online website 2. personal sales executive 3. Social media sites such as Facebook and Twitter Cost Structure 1. Operating business costs 2. R&D costs on innovation and design 3. property maintenance costs 4. Marketing and advertisement costs Revenue Schemes 1. Sale of property 2. Sale of accessory housing products such as, furniture and decoration 3. Reference and word-of-mouth advertisements. (Source: Author’s Creation) Transition Model (Source: Author’s Creation) Pestle Analysis Political: A real estate business is affected by various political factors. Instability and political chaos may deter companies from investing in those nations. Also, overall political power of the government over such foreign entities determine the level at which such businesses can flourish in a particular country. Economical: Economic factors play a critical role in establishment and development of real estate business in any region. For instance, the interest rate on house loans influence purchase intentions of the customers, thereby determining growth in business. Other economic factors influencing the business are bank loans provided to real estate firms, impact of variations in foreign currency exchanges, income level, price inflation (Figure 1) and economy of the nation and level of growth occurring in that economy (Ferrell and Hartline, 2010). Figure 1 Price Inflation from 1980-2013 Source: Pettinger, 2013 Social: Availability of vacant land space and population growth are important demographic factors deciding growth and development of real estate business in a nation (Balmer and Gray, 2003). For instance, while the real estate business is flourishing in developing countries such as, Indonesia and China, lack of space in the UK has resulted in slump in real estate business (Figure 2). Other demographic factors include age distribution, career attitude and income distribution. For instance, countries such as, Indonesia, which are populated by younger generation, prefer flats rather than country houses (Yip and Hult, 2012). Other influencing factors are family structure and popularity of the construction business among workers. Figure 2 Changing trends in UK housing prices Source: Pettinger, 2013 Technological: Availability of technology factors such as, safety equipments for houses, are important for establishing a good housing business. However, labour facilities can be a proper substitute for the absence of technology in some countries. For instance, technological firms are in an established stage in the developing nations such as, Indonesia and are continuously adapting to changes occurring in the environment (Bogner and Thomas, 1995). Environmental: Environmental factors such as, climatic conditions and geography, are important while establishing real estate business. For instance, recycling as well as pollution is becoming a global issue and local NGOs are compelling international firms to minimize polluting the surrounding environment. Legal: The legal framework controlling the real estate and housing development affects overall development of real estate business. Law such as, Building Construction, impact the habitation of private as well as commercial real estates. Real estate laws tend to change frequently and it is critical for real estate firms to keep up with these changing laws and policies (Williams and Cutis, 2012). Porter’s five forces The elements of Porter’s five forces have been implemented for creating a need, variety and assessment based positioning strategy for Your Move real estate. Variety based positioning strategy Need Based Positioning strategy Access based positioning strategy 1. While industry rivalry is not as fierce as that in other sectors such as, FMCG and automobile, ranking of the real estate firms affect overall competition as well as perception among buyers. Your Move has gained a huge popularity in this sector and is easily considered as the largest brand dealing with single estates (Hammond, 2009). As such, it is positioned well in the real estate industry. Rivalry is either price based or non-price based. While it is difficult to establish price based differentiation due to fixed price of raw materials, land and construction, Your Move has achieved variety based differentiation through innovation such as, providing home services, insurance and relocation facilities, apart from the house (Haberberg and Rieple, 2008). 2. Your Move will have to minimize its overall construction costs as well as improve its brand value in order to break from the housing clutter and establish itself as a unique real estate firm (David, 2011; Rose and Hinings, 1999). 1. At present, market supply of real estate is more than the demand. This is mainly due to recession and economic downturn, which have forced buyers to avoid big investments. As a result of the excess supply, commissions have reduced and profits have declined. Also, buyers seeking expensive or high-value properties have higher bargaining power compared to sellers. This situation can be utilised by Your Move by launching new affordable segments for budget customers as well as those customers who are seeking average to high-prices houses and other properties (Barreto, 2010). 1. While it is difficult for a small firm or a start-up business to grow in this industry due to constraints such as, control over suppliers and huge capital base, bigger companies can easily venture in the real estate sector. Few big companies control the entire market. In the UK, Your Move has successfully established itself and is planning to enter the foreign market which has become the company’s major access strategy (Janet, 2002; Johnson, Scholes and Whittington, 2005). 2. As the real estate industry is dominated by few major players, rivalry is comparatively low and profit margins are almost similar for these firms (Jeannet and Hennessey, 2004). Even so, while entering into a foreign region, Your Move will have to consider factors such as, concentration of firms and presence of branded and unbranded firms, so as to determine the entry and growth strategies. Core competence of Your Move real estate Core competencies enable a firm to stand out in every activity performed for adding value to the organization. Critics have confirmed that core competencies are a major source of competitive advantage. While markets and products change over time, core competencies remain as the fundamental building blocks (Ferguson, 2008). The core competencies of Your Move include its primary expertise in functions such as, finance and operations as well as distinctive customer focus. A detailed analysis of the core competencies of Your Move real estate can be understood through VRIN analysis. VRIN Analysis Valuable Rare In-Imitable Non-substitutable Competitive advantage Capital Yes No Yes Yes Sustainable competitive advantage Infrastructure Yes Yes No Yes Sustainable competitive advantage Technology Yes Yes No No Temporary competitive advantage Marketing Yes Yes No Yes Sustainable competitive advantage Service Yes Yes No Yes Sustainable competitive advantage Valuable: You Move is one of the most respected real estate brands across the UK, offering high value products with innovative designs and distinguished features. Hence, offerings and properties associated with the firm are considered as valuable (Wheelwright and Clark, 1992). Rare: Though the brand is viewed as slightly high-priced, features and design offered are considered rare as such offerings will be extremely difficult to avail at lower price range. In-Imitable: A combination of extensive features and offerings and extensive pricing targeted at high-end segments renders the real estate brand in-imitable to the competitors. In addition, the company is known for high-end technology used in security and maintenance services, which is considered as in-imitable (Prahalad and Hamel, 1990). Non-substitutable: Although the high-end property business is non-substitutable by smaller competitors, many properties are being used for multiple purposes, which might hamper commercial and mid-segment real estate businesses of Your Move (Drejer, 2002). Part 2: Strategies Ansoff’s Matrix Ansoff’s matrix is used for portraying alternative growth strategies for corporate. Your Move will apply this matrix in order to evaluate the present and potential markets, products and customers. Four possible combinations of market and product can be reviewed through this matrix. Below is a representational image for Ansoff’s Matrix whereby Your Move’s strategies will be explained. Table 2 Ansoffs Matrix for Your Move Existing Product New Product Existing Market Market Penetration Strategy 1. Increase sales in the existing region or market 2. Increase penetration into the already established market Product Development Strategy 1. Develop new product for the existing markets New Market Market Development 1. Sell existing product to new markets Diversification 1. Sell new product in new markets (Source: Author’s Creation) Selection of the growth strategy The fundamental question concerning this research is to evaluate whether or not internationalization of business is a good option. Looking at the above analysis as well as Porter and Pestle analysis involving Your Move’s external environment, it can be said that best strategy for the firm will be market development. In this growth strategy, while Your Move will have the opportunity to move into a new market, it will not have to incur any cost for new products. The UK market is saturated with many big players and competition is becoming intense; as a result, Your Move needs to venture into new and potential markets outside the UK. As such, the only differentiation strategy, which the real estate firm can implement, is innovation strategy. However, while penetrating into other international nations, the firm will have the opportunity to promote its original and tested business strategies such as, pricing, location and infrastructure (Bradley, 2002). Market Entry Strategy Strategies for market entry can be described as processes implemented with the objective of distributing services or goods in a pre-planned manner. The various market entry options for Your Move and recommended entry strategy are mentioned in detail below. Market Entry Strategies for Your Move: Your Move can enter the new market through various entry strategies. Some of the popular strategies implemented while entering into developing nations are licensing, franchising, joint ventures, Greenfield project, direct exporting or establishing subsidiaries (Barkema, Bell and Pennings, 1996). Nonetheless, considering the current market conditions as well as future opportunities, establishing a joint venture will be ideal for the brand. Recommended choice - Joint Venture: A joint venture is defined as “an enterprise owned and operated by two or more businesses or individuals as a separate entity (not a subsidiary) for the mutual benefit of the members of the group” (Ford and Lundsten, 2011, p. 61). Participation in joint ventures is more strong and extensive compared to other entry strategies such as, partnership. Though Your Move has been implementing franchising as a strategy to target customers, a joint venture will be more appropriate while entering into international market. Joint ventures are regarded as the most apt entry strategy when a company lacks resources or skills in any manner (Anderson, 1997). In this situation, Your Move lacks sufficient market knowledge about Indonesia. If the firm enters though direct exporting, time required to comprehend and acknowledge the local market as well as prepare strategies will be longer. On the other hand, partnering with a local real estate firm will help Your Move gain faster access to market knowledge and critical data about customers (Fox, 2011). A joint venture between Your Move and the host real estate companies will also provide both with various other advantages such as, access to greater or newer networks for distribution, intellectual property, purchasing capacity, market resource, finance and technology. In the current situation, Your Move will provide its advance technology and unique offerings and the host company will give access to its huge market and distribution network (Barney, 2006). Conclusion and Recommendations SWOT analysis of Your Move real estate Strength 1. High brand value across home country will help in establishing contracts and partnership with the host firms during international penetration (Simonin, 2004). 2. Overall capital base of the real estate firm is strong, which will ensure a strong position while negotiating with suppliers and other partners (Baker, Jones and Nichols, 1994). Weakness 1. Your Move is perceived as slightly overly priced in the home nation, which might create negative brand image in the host country. 2. Indonesia is still a developing nation and customers are reluctant towards spending money on luxurious apartments (Marieke, 2004). Opportunity 1. Your Move has a market opportunity of introducing new product segments in order to suit needs and requirements of potential customers. The government of Indonesia has been welcoming international companies to invest in the country, which will minimize political and legal restrictions. Threats 1. Threat will come from other international real estate firms that are planning to enter the country. 2. Economic downturn might force high-end customers to restrict their real-estate budget and hamper the sale of luxury apartments (Lasserre, 2003). Recommendations 1. Your Move should ensure that the partner chosen for joint venture partnership shares the same long-term objectives, marketing logics and cultures. A similar approach to market will help in minimizing friction between the two firms and will ensure effective implementation of the joint venture strategy (Harvard Business Review, 2014). 2. Certain risks are associated with joint venture such as, cultural problems, internal organisational issues and long-term objectives. To minimise these risks, Your Move can enter through a contract based joint venture partnership, which can be upgraded as and when business flourishes with the host nation firm (Desai, Foley and Hines, 2004). 3. After successful establishment of the joint venture, Your Move can expand into the nation by way of introducing other segments to Indonesian customers. 4. Long-term market can be established in the country by collaborating with industries that will support Your Move’s business therein. These can be banks, financial institutions and real estate agents providing customers for a fee. This will help in market penetration as well as expansion of Your Move’s business in Indonesia. Reference List Anderson, E. and Coughlan, A.T., 1997. International Market Entry and Expansion via Independent or Integrated Channels of Distribution. Journal of Marketing, 51(1), pp 71-82. Baker, H., Jones, W. and Nichols, M., 1994. Using core competences to develop new business. Long Range Planning, 27, pp. 13-27. Balmer, J.M.T. and Gray, E.R., 2003. Corporate brands: what are they? What of them? European Journal of Marketing, 37(8), pp. 972–97. Barkema, H. G., Bell, J. H. J. and Pennings, J. M., 1996. 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