Mature Market and Its Constraints - Case Study Example

Corporate restructuring is vital in an organization that requires to enhance its efficiency and profitability as well as expertize. It entails dismantling or reorganizing areas within a company which require to be keenly attended by the management. Generally, corporate restructuring involves staff reduction after a portion of the company is sold. It may be as a result of buyout, bankruptcy or corporate acquisition as well as due to decision of the management to reposition the organization. Mature market represents markets that are stagnated in terms of innovation and growth. In this regards, business enterprises are faced with a dilemma since competition increases without matching opportunities for growth. More often than not, business organization result to corporate restructuring since they have to reposition themselves in the market. Thus the constraints of these mature markets result to use of various corporate restructuring strategies. Mature Market and its constraints A mature market is one that is in “a state of equilibrium” and where there is lack of both innovation and growth (Kent, 2007 & investorwords.com). Usually, enterprises in a mature market are characterized by established brands, tremendously full-grown industry standards, and accustomed customer relationships. For instance, industries such as finances, aerospace, health care and government services are considered as mature industries. Therefore, products such as checking accounts, personal computers, and coffee would be categorized as mature products. More importantly, mature markets are explained by complicated infrastructure, a definite state, entrenched relationships, a static productivity status, stable customer base, domination by established businesses, and anchored outsource partners. All in all, mature markets are characterized by various constraints. In mature market, organizations are faced with the task of constantly inducing innovations and adding value to products and services. Moreover, they are forced to be creative as well as flexible where they must acknowledge the niche provider and understand their customer responses. The small and medium businesses are, furthermore, faced with the challenges of establishing external and internal processes as well as relationships, and lack of or limited external knowledge. Other challenges includes benchmarks, metrics and resources, time for conducting market, and sustained profitability. Symptoms of mature market Mature markets are characterized by the following: stagnation of market growth with unchanging competition. Moreover, margin pressures chaperon diminishing returns. Furthermore, lack of differentiation and pricing pressures push organizations – against their wish - to get involved in price war such that business enterprises focus on cutting down expenses. Internal dialogue features the changing loyalty of customers and the demand for low prices by customers. That is customers look for alternative brands of the same commodities where price becomes a deciding factor due to the fact that they have information about these products and services; furthermore, the products becomes less distinct. Dialogue between customers and sales executive shifts. In markets segment that are less mature the product differentiation and innovation is remarkable. Thus, the benefits and uniqueness of the products form the focal point of communications. However, after some time, the focus fades away from product quality to non-product attributes such as service and price. There is emergence of dominant suppliers. Moreover, realizing the economies of scale becomes an issue, especially, where price is critical. It is worth to note that realizing the scale economies is more viable in growing markets than in mature ones. Corporate restructuring strategies Organizations employ various corporate restructuring strategies. According to a survey titled, Outline of the Results of the Survey Concerning Corporate Restructuring and Employment (2007), labor-saving and rationalized investment is number one in the list of strategies. In addition, companies consider development and improvement of new services and products, mergers, business closures as well as withdrawal from areas that are not profitable. Furthermore, most organizations adopt a multifaceted approach that aims at reducing costs while increasing profits. Corporate restructuring that is driven by a mature market pressures is also characterized by the following: the retention as well as alteration in corporate management. Skills that are considered to be highly beneficial to the organization are retained while redundant ones are eliminated. In addition, the repositioning may entail selling off the underutilized assets including such things as brands and patents. Again, organization opt for outsourcing of various operations like technical support and payroll to a third party who is more specialized. This ensures efficiency in addition to reducing operation cost; the outsource must, of course, be reliable. Businesses also choose to shift operations like manufacturing to locations that are associated with low costs. Although, the relocation may be costly, organization look at the longterm benefits. Furthermore, they also embark on reorganization of marketing, sales, and distribution functions. Other approaches that ensures businesses stay afloat in time of mature market pressure include redrafting of labor contracts so as to minimize overhead, repositioning the organization with consumers through public relation campaign, and forfeiture of part or all of the ownership share though pre-restructuring stockholders. According to Outline of the Results of the Survey Concerning Corporate Restructuring and Employment (2007), these characteristics represents the essential factors that companies need to consider in the face of mature market constraints. Furthermore, mature market pressures make up to fifty percent of reason for organization restructuring. Mergers and acquisition are corporate restructuring strategies aimed at aiding an organization to grow rapidly without the necessity of creating a different entity. Mergers are done by many organizations to expand their businesses with an aim of increasing profit margins. According to Straub (2007), the history of mergers indicates that they have failed to achieve the intended objectives, However, organization employ this strategy with an aim of countering market competition, reducing taxes, cutting down on cost as with laying off the workforce and using more efficient technology, and removing management King, et al., 2004). Market competition is one of the dominant features in a mature markets (Kent, 2007). Corporate restructuring is the modern solution in management of change. It addresses economic, environmental and social issues which cut across transnational scope. In the nineteen nineties, corporate restructuring was a major feature in the European economies. At present, as well, organization must adapt to market pressures, including in mature markets in order to remain competitive (European Foundation for the improvement of Living and Working Conditions (2003). Traditionally, organizations resulted to downsizing, layoffs and outsourcing; while in recent times, companies are considering sabbaticals, training breaks, remote working and job-sharing schemes. Hewlett Packard restructuring Hewlett Packard is one company that has engaged in major corporate restructuring. For instance, the The Hewlett Packard-Compaq merger must have been fueled by the market challenges. This is because the company considered non product attributes such as generation of cost synergies which were approximated at $2.5 billion per year as the main reason behind the merger (Hewlett Packard, 2008). Furthermore, the Institutional Shareholder Services (2002) recommended that “strong integration planning” would reduce the risks attached to failures. However, the company considered other reason for its restructuring which included product oriented factors such as offering “open systems and architectures” its clients (Hewlett Packard, 2008). Burt (2002) agrees that the Hewlett Packard-Compaq merger considered cost cutting measures that describes the direction organizations go in time of mature market condition. One of the cost cutting measures was job cuts to a tune of nine thousand layoffs. In addition, the company targeted supply chain and procurement synergies as well as closure of administrative offices and manufacturing facilities as other cost-cutting measures. According to Webster (2005) most of the products such as open systems that are manufactured by Hewlett Packard and Compaq have a mature market. In this regard customers have already bought them, such that vendors find it difficult to get new customers. The strategies is thus to get new customers where restructuring becomes vital. Webster (2005) also notes that the enterprise application have a mature market. This has accounted for the twenty five percent in application licenses meaning that sales are mostly conducted on the existing customers. As a result, according to IDC report (2005), the enterprise application industry recorded between 1st January 2004 and 31st March 2005 one ninety one buyout deals valued more than $ 30 million among two thousand and five hundred organization. Conclusion Corporate restructuring is important for a company to remain competitive and efficient, especially in a mature market. A mature market is characterized by customers who already have or know about the product such that innovations and growth seem to be stagnant. Most of the corporate restructuring strategies that companies use are dictated by the characteristics of a mature market. Mostly, these characteristics are seen as constraints by business enterprises. For instance, competition is so rife that businesses are forced to reduce price of commodities so as to remain competitive. In this regard, some emerging enterprises may fail to establish themselves in terms of making profits due to the low pricing of commodities. Organization apply non product attributes such as cost cutting to remain afloat in business. These approaches include mergers and acquisition, laying of employees, and many other strategies that are aimed at reducing the running cost of businesses. It worth to note that these are traditional methods of cross cutting but which are applied by businesses in a mature market scenario. A point of reference is the Hewlett Packard-Compaq merger case. This merger shows an example of a corporate restructuring strategies that is fueled by the constraints of a mature market. The merger was aimed at reducing the operation costs of Hewlett Packard company as well as increasing the market share of the company. Alternatively, the company would have opted for such measures as introducing more innovation and conducting a thorough marketing and advertising. However, the market in which it targets for its products is mature while at the same time, there is exhaustion of innovation. The customers already have the products such that advertising measures would make a very big impact. Therefore, the corporate restructuring of Hewlett Packard is an example of strategies that are used due to pressures of a mature market. References Brada, C. Josef, Singh, Inderjit. 1998. Corporate Governance in Central Eastern Europe: Case Studies of Firms in Transition. NY: M.E. Sharp Burt, Jeffrey. 2002. HP: Merger could Net $3 Billion in savings. Retrieved from http://www.pcmag.com/article2/0,1895,50045,00.asp on 7th March 2008 Donna J. Kent. 2002. Competing and winning new customers in a mature market. Retrieved form www.outsource-world.com/newyork/pdf/1030B-CompetingandWinningCustomersina.pdf Institutional Shareholder Services. 2002. Company Restructuring. Mako, P. William. March 29, 2001. Mako Corporate Restructuring Strategies:Asian Regional Seminar on Financial Reform and Stability. Mathieson, J. Donald, Garry, J. Schinasi. 2000. International Capital Markets: Developments, Prospects, and Key Policy Issues. International Monetary Fund. Mature Market. Retrieved form http://www.investorwords.com/3016/mature_market.html Mosch, P. George. 1994. Marketing Strategies for the Mature Market. Greenwood publishing Group Webster, S. John 2005. Merger mania. Retrieved from http://www.infoworld.com/article/05/10/31/44FEmergers_1.html on 7th March 2008 Read More