Strategic Management in a Global Environment - Case Study Example

Strategic Management in a Global Environment Porter’s 5 Forces Model Intensity of rivalry: the major rivals include Carlsberg, Heineken, Budweiser, Guinness, Stella Artois, and Fosters. There is also the extensive competition from the medium size and the micro breweries companies. There is also the skimming of customers from competitors in order to keep market share. Differentiation is practiced through the different flavors of beers. The competitors have different beer varieties with different ingredients in order to diversify their markets. Brand marketing is another effective tool which companies incorporate in order to build their brand and foster customer loyalty (Ahlstrom & Bruton, 2010). Bargaining Power of Buyers The majority of buyers usually come from the distributors. Majority of the on trade sales is mostly undertaken in pubs and discos while the off trade is commonly done in supermarkets. The retailers also play a part in marketing special brands that have a niche market share. The brewers can reduce the retailers’ bargaining power by the use of end-consumer marketing. However, large pub chains and wholesalers can impact pressure on the brewers due to their huge purchasing numbers. Marketing can be enhanced to foster consumers brand loyalty (Ahlstrom & Bruton, 2010). Bargaining Power of Suppliers The costs of raw materials from the suppliers affect the overall cost of the beers. The suppliers can fix the prices which will have to be adhered by the brewers. However the brewers can overcome this challenge by changing the suppliers. The suppliers bargaining power can also be affected by the change in costs of the agricultural produce (Ahlstrom & Bruton, 2010). Threat of Entry New companies that have economies of scale can affect the company’s operations. New technologies can also favor the new entrants and affect the market share of the existing company. The government policy can also prevent or favor new breweries into the industry (Hill & Jones, 2010). Threat of Substitutes Reduction of beer prices from the competitors can affect the company’s profit margins. Differentiation by the rivals for example branding can pose a shift in the company’s market share. Extensive advertising of the rivals’ beers can affect the company’s popularity (Hill & Jones, 2010). b) The global brand by the Interbrew was significantly important because it necessitated economies of scale and greater market shares globally. This is because most of its products like the Labbatt Blue had huge export sales but less export countries; while Stella Artois had a bigger global share but relatively lower sales volume. Therefore Interbrew had to maximize on this brand name in order to penetrate other countries and prioritize their markets (Hill & Jones, 2010). c) Stella Artios was the best brand choice because at the time, it had a global market presence. The critical problem was that it had not realized its potential profits; but which was later backed by global campaigns in the foreign countries. The brand was also easy to market due to its economies of scale (Hill & Jones, 2010). d). Majority of its sales were from outside markets than its local market. The divisional structure fitted well with the local markets than the global markets. The strategy had cheap implementation costs. The market strategy marked its position upon the acquired local area. Interbrew also wanted to develop its brands regionally upon the acquired markets. The company also wanted to increase their profit portfolio in the short run (Hill & Jones, 2010). Its disadvantages are: the avoidance of home market could affect its brand image in the local distribution firms. The home market substitutes would replace its market-share due to avoidance. The overreliance on one global market poses unconditional risks. There are potential uncertainties of some nations for example Russia and Indonesia (Hargroves & Smith, 2013). 2a) Economic Perspective Foreign Direct Investment (FDI) The USA is believed to have an open economy and minimal barriers in FDI. In 2014, the total FDI was 1.6 trillion dollars. The country receives an increasing number of foreign investors annually from different parts of the world. Out of the total FDI in US, 85% of the investors came from eight powerful nations namely Canada, United Kingdom, Germany, Switzerland, Japan, Netherlands, Luxembourg and France. From the foreign investments, the real estate was the most favored industry by the investors followed by the financial markets (Hargroves & Smith, 2013). Economic Stability Through the free trade that exists in the US, there is the benefit of economic growth and economies of scale. USA boosts of successful global companies that promote employment, high per capita income of 54,678.17dollars, increased financial incentives especially for domestic and foreign investors and high end technologies that favor productivity (Hargroves & Smith, 2013). Political Perspective Political Parties The political environment in the US plays a big role in promoting equality and economic growth of the citizens. The opposition for example; Republicans, push for better economic standards of the citizens like income and leadership equalities (Itzer, 2010).  Non-Governmental Institutions The USA provides home for various supranational and non-governmental institutions for example EU, World Trade Organizations, UN; that champion for the publics’ welfares. The institutions can change or replace the government’s functions in order to meet international standards (Itzer, 2010). Cultural Perspective American’s Values USA is defined by unique values that are prevalent globally. They include individualism, competitiveness, liberty, strong work-ethics, equality, the rule of law, individualism, democracy; which highly influences the peoples’ interactions (Itzer, 2010). Culture The “American dream” is a common perception by foreigners where they have a view that Americans enjoy significant social mobility. The socio-economic mobility attracts many foreigners in order to take advantage of this opportunity to uplift their status too (Itzer, 2010). B) Foreign Direct Investment FDI) Impact The country having a huge financial FDI base, can determine an efficient fiscal policy of the Insurance industry. An efficient fiscal policy will promote the firm’s operations by providing efficient insurance products (Itzer, 2010). Economic Stability’s Impact The country having a strong per capita income can influence the management’s decision in providing customized products for the social upper-class, and at a specific competitive price in order to improve their efficiency (Ones, 2010). Political Party’s Impact The political parties can affect the business operations in a major way. For example, the Republicans pushed for the ban of micro beads to be used in soaps due to their damage to the fisheries and general food chain (Ones, 2010). Non -Governmental Impact’s The supranational companies like the European Union, UN and the World Trade Organization (WTO) can implement policies that can affect the business operations. The WTO can impact policies that enhance fair trade between nations (Ones, 2010). Values Impact The Americans believe in strong work ethics, rule of law and democracy. Therefore a foreign company will have to adjust its values to meet these concerns so as to avoid legal suits in the long run (Ones, 2010). Culture’s Impact A foreign company should learn the country’s culture in order to plan for its operations. Failing to uphold such cultures could lead to work disputes and serious repercussions like bans from the local country (Ones, 2010). 3. a) A strategic group is a cluster of companies within an industry that follow similar strategies along their strategic goals. The concept is used to analyze the firm as a single unit and also analyzing every company separately. The concept explains the differences in profitability and performance between firms in a broader perspective (Ones, 2010). b) According to Porter strategic groups that have high mobility barriers, have higher profit capabilities than the strategic groups with lower mobility barriers. Porter adds that strategic groups and the mobility barriers do change with time. The strategic groups have the limitation of forecasting the impact of multiple variables on the company’s performance. For example in specialization grouping; a company can be illustrated as low or high in its manufacturing costs or low or high in its customer service experience. Therefore, Porter’s model can be descriptive rather than quantitative in its analytical process. The method is only effective if there are two predominant dimensions to be compared. For example in the food industry, product specialization and the manufacturing division are the significant strategic dimensions that are supposed to be compared across the companies (Steger, 2013).  However, strategic groups can use their derived power to pursue mobility barriers. The derived power is achieved by being a subsidiary of a large organization, being a member of a conglomerate or even a respected organization especially by the government. The accessibility to external power can promote the company to shift strategic groups with less effort for example Tata Motors can initiate superior steel by the virtue of Tata Steel it has in its conglomerate portfolio (Steger, 2013).  c) Airline Industry Strategic groupings Using the scatter-plot quadrants, the first quadrant recognizes differentiation and cost leadership variables. In Quadrant I the American, Delta and United Airlines can be grouped under this quadrant because they pursue differentiation in terms of exquisite service quality and they also have huge costs both on average and individually (Orcullo, 2008) In Quadrant II USAir, TWA and Northwest airlines are grouped under this section of ‘stuck in the middle.’ The companies have high costs and low quality ratings below the averages of the industry. In precise, the companies’ strategic directions as compared to cost and differentiation are distinctively ambiguous. In Quadrants III and IV Southwest, Continental and America West Airlines pursue the low cost strategy and subsequently, the companies’ quality ratings are low. Under Focus, Southwest Airline follows a focus strategy due to its low cost, differentiated and focused market segment. This can be confirmed by its primary focus on the Southwestern US routes (Hill & Jones, 2007).  Quadrant I companies have a better competitive advantage due to their distinct qualities and extensive costs. Other companies planning on the high cost: high quality provision would find it difficult to operate in this segment due to the high risk factors involved (Hill & Jones, 2007).  References Ahlstrom, D., & Bruton, G. D. (2010). International management: Strategy and culture in the emerging world. Australia: South-Western Cengage Learning. Hill, C. W. L., & Jones, G. R. (2010). Strategic management theory: An integrated approach. Boston, MA: Houghton Mifflin. Hargroves, K., & Smith, M. H. (2013). The Natural Advantage of Nations: Business Opportunities, Innovations and Governance in the 21st Century. London: Earthscan. Itzer, G. (2010). Globalization: A basic text. Malden, MA: Wiley-Blackwell. Ones, A. (2010). Globalization: Key thinkers. Cambridge, UK: Polity. Steger, M. B. (2013). Globalization: A very short introduction. United Kingdom, Oxford University Press. Hill, C. W. L., & Jones, G. R. (2007). Strategic management: An integrated approach. Boston, Mass: Houghton Mifflin. Orcullo, N. A. J. (2008). Fundamentals of strtegic management. Manila, Philippines: Rex Book Store. Henry, A. (2011). Understanding strategic management. Oxford: Oxford University Press. Read More