Comparative Business Analysis of Blackmagic Design, Picture Perfect and Creative Shot Company - Example

A Comparative Business Analysis Report

Introduction

Background Information

Sometimes it is odd to compare Blackmagic Company (B) to Picture Perfect Company (A) and Creative Shots Company (C) since both have unique size as well as the trend in growth. But to most people, these three companies remain direct competitors in digital camera industry with company A, Picture Perfect remaining the biggest competitor with the largest market share (GLO-BUS Statistical Review, 2016). These firms manufacture electronic equipment designed for video broadcasting and production. Among their products, include cinema cameras and video cameras. They manufacture equipment for the acquisition of video, editing as well as conversation and have several offices and retail stores in Asia, Europe, Africa and the United States. Blackmagic has grown at a tremendous rate resulting to revenues rising to almost $5, 445, 000 in year 11. On the other hand, Picture Perfect has remained in a focused and faster growth path making it the largest holder of market share with net revenue of almost $39, 027, 000 in year 11. Creative Shots, on the other hand, has grown rapidly, but it remains relatively the smaller company with revenues of about $ 867, 000 in year 11 compared to Picture Perfect and Blackmagic Company. Therefore, to identify both defensive and offensive mechanism of these three companies to reveal potential threats and opportunities, it is important to carry out a comprehensive comparative business analysis. The comparative business analysis, therefore, is an important corporate strategy used in assessing the strengths and weaknesses of the current potential company's' competitors.

Looking at the general market performance of these three industries over the past eleven years, a clear indication of perfect competition is evidenced with all companies dominating all market area by engaging in different competition strategies such as price reduction hence making them aggressive competitors. The increasing scale of operation and price reduction strategies have resulted to Blackmail incurring increased production costs, leading to the slower growth rate in operating profit per unit. Therefore, the basis of this performance comparison will be operating profit and production cost of Blackmagic Company versus Picture Perfect and Creative Shot.

Statement of the Problem

Looking at the rate of growth of Blackmagic's main competitors (A and C), it can be said that without appropriate marketing strategies, Blackmagic might risk losing all its established markets in the coming years. For Blackmagic to remain effective and efficient in the market, it needs to come up with effective strategies to combat these looming threats so as to utilize opportunities to build a better market position that will ensure that it fetches reasonable profits. Among these strategies to combat threats include a reduction in Blackmagic operating costs per unit, reduction in price, increase expenditure on advertisement and promotion by the percentage that will not damage the general financial position of Blackmagic in the markets. Therefore, this Report analyzes Blackmagic production cost and operating profit variables over the past twelve years and comparing them with those of its main competitors (A & C) using data gathered from GLO-BUS Statistical Review, 2016. The Report will also recommend various actions to improve operating profit as well as ways of reducing operating cost per unit with the aim of increasing its credibility, market share, profitability as well as eliminating excessive competition pressure.

Assumption

With an effective management team and marketing strategies, it is assumed that Blackmail Company still stands a chance to improve its market share to the level that shall exceed that of Picture Perfect, its biggest competitors.

Discussion

Performance 1: Operating Profits

Operating Profit represents a measure of earning that informs the investors the part of the revenue that eventually shall become profit for the company. It is the profit received from the company normal business operations. Looking at the values of the operating profit for Blackmagic and itS competitors from the income statement data provide by GLO-BUS Statistical Review, 2016, much can be said. Operating profit for Picture Perfect still stands at greater figure compared to that of Blackmagic. For instance in the year 11, Picture Perfect earned $57,945,000 while Blackmagic earned $10,379,000. Creative Shot, on the other hand, received the lower value of operating profit compare to Blackmagic with creative shot earning $6,754,000 less than that of Blackmagic in year 11.The operating profit for Blackmagic represents 4.2% of its net revenue compare to 12.7% value of Picture Perfect and 2.2% of Creative Shot. Looking at this percentage ratio of 4.2%, it can be seen that Blackmagic net revenues still runs at two times lower than that of Picture Perfect as shown in figure 1 and two below. Blackmagic's revenue is evidenced to be three times greater than that of Creative Shots representing an opportunity for Blackmagic to acquire it to increase its market share.

Figure 1: Income Statement Data

Source: GLO BUS Statistical Review, 2016

Figure 2: Selected Financial and Operating Statistics

Source: GLO BUS Statistical Review, 2016

From the geographical benchmark data, Entry level operating cost per unit for Blackmagic runs at a negative value in most of its market area (Europe Africa and Asia Pacific). This implies that a lot of money being lost on every camera sold in term of marketing and administrative cost. About the Multi-featured geographical benchmark, it is clear that the Blackmagic operating profit run at the low benchmark as shown in the figure below. Administrative cost in all the market areas runs at the highest benchmark indicating that company B operates at high administration cost that erodes its operating profit. If the trend increases, there is a higher probability that company A might remove company B in the market if B continues to operate at the current administrative and marketing cost.

Figure 3: Geographic Benchmark

Source: GLO BUS Statistical Review, 2016

Another reason for the big difference between the operating profit of Blackmagic and Picture Perfect is a reduction in sales that is caused by a reduction in warranty period, promotion number, length and discount and price. A decline in operating profits directly relates to declining in sales. From the company B analysis data from four market areas, it evidenced that the number of chain stores and online sites had been declining from year19 to year 11. For instance, the number of chain stores in the fourth quarter of year 9 was 31 and the number at the last quarter of year 11 is 25. Reduction in the number of marketing outlets represents a reduction in the number of sales leading to a decline in the annual $ per unit sold as shown the figure below.

Figure 3: Company B Analysis for Latin America

Source: GLO BUS Statistical Review, 2016

Despite the increase in the number of local shops in all market segment, reduction in sales represents an unexpected trend. The major reason for this trend is a reduction in online marketing sites. Currently, majority of shoppers focus on online ordering, thus does not need to travel to the local shop to buy this product since they can still get them online. Therefore, an increase in the number of local shops will not translate to increased sales if online marketing is not practiced since it will increase the cost of goods sold. Creation of stable price, reduction in administrative and marketing cost will present opportunity for increase operating profit for Blackmagic Company

Performance 2: Production Cost

Previous studies define production cost as direct labor, direct material and manufacturing overhead cost. They also represent manufacturing cost, manufacturing inventory cost as well as other cost occurred in the company. Looking at the differences between net sale revenue and the production cost, it is clear that Blackmagic incurs higher production cost compared to company A and C. The difference for Blackmagic in the year 11is $61,692,000 ($246,832,000-185,140,000) representing 75% of the net revenues. This percentage value is greater than that of Company A, and C with production cost expressed as a percentage of net revenue being 67.2% and 67.7% respectively as shown below.

Figure 4: Company B Analysis for Latin America

Source: GLO BUS Statistical Review, 2016

The analysis reveals the major reasons for high production cost for company B with major concern lying on the cost of labor. From the direct cost analysis, it is clear that Blackmagic operates at the high benchmarks of cost for Entry level, and as well multi-featured cost. For Entry level design and cost, Blackmagic uses all core component (image resolution, LCD, and lenses) at high benchmark. The company assembled cost for company B are around the high industry benchmark with some components such as special facility features running at the highest rate as shown in figure 5 below.

Labor cost is extremely high running at 13.55 that is only 2.25 less than the recommended industry level of 15.8 indicating that PAT pay is relatively above productivity. The high cost of core components, assembly cost, outsourced unit, and assembled units result in high production cost for company B compared to company A and C, which operates at a lower production cost. High production cost, therefore, represents a major threat to the company B that can erode its profit levels thus lowering its market share and financial position. Care need to be taken and the Company management team need to come up with various strategies to utilize the opportunities identified as well as combatting major threats.

Company B still stands a chance to revise its profit levels to higher values like that of company A. Being number two in the industry, Company B need to develop various management and marketing strategies that shall result in a high operating profit as well as low production cost. From the analysis, it is open that company need to reduce its production cost the way its competitors do to lower level of operation to gain from economies of scale.

Conclusion

The paper provides that three companies remain direct competitors in digital camera industry with company A, remaining the biggest competitor with the largest market share. The paper provide that Company B receives a lower operating profit compared to company A. The analysis also provides that the value of operating profit for company B is significantly greater than that of Company C. the major reason why Company B earns lower operating profit compared to company A are reduced volume of sale over the past eleven years, high administrative and marketing cost as well as reduction in online sites as a marketing strategies. Analysis of performance on production cost indicates that Company B incurs the high cost of production compared to its competitors' companies A and C. The major reason for high production cost from the analysis includes the high cost of the core component, assembly cost, labor cost, outsourced unit and assembled units. Despite these problems identified, there still room for improvement for the company especially if they will consider reduction of production cost by 10% as well as increasing their unit sales by 20% through various strategies that will not error its market and financial positions. The report, therefore, recommends the management team of the Blackmagic Company to consider the following option to combat their threats from competitors and be the leading firm in the digital camera industry:

• Blackmagic Company should consider entering long-term cooperative purchase agreement such as vertical integration with a supplier to negotiate for long-term supply contract that shall enable them to gain stronger buying muscles thus lowering cost of materials.
• Blackmagic Company should, therefore, consider cost leadership strategy to achieve its effectiveness and efficiency for the same products since this will widen the gap between perceived value and cost hence leading to greater profit margins
• The firm should continue to differentiate its products to target some customers around the world. It should focus on products, people, image, quality as well as innovative differentiation which shall focus on increased online marketing activities. These will help in increasing sale volumes that that shall increase operating profits.
• Finally, it is recommended for Blackmagic to acquire some firm such as Creative Shot and Digital Revolution to gain greater market share. The acquisition will, therefore, increase its sale volume, increase the number of customers and ensure the realization of economies of scale that shall help in reducing the cost of productions.