Overview of the Photography Industry, Challenges Facing the Company - Essay Example

Managing Strategy Managing Strategy Introduction Company X was initially managed intuitively or spontaneously before its operations progressed. An analysis of the developing two different strategic directions that separated the sales of entry-level and multi-featured cameras shows that it helped the growth of the company but, however, more could still have been done. This is specifically with the knowledge that competition in the camera (or photography) industry exists from other established players. The entry-level strategy may have been intended to increase market share by outcompeting rivals and increasing profitability, but it must also be noted that the rivals were also aware of competition and developing their own strategies. On the other hand, the multi-featured cameras were given a strategy focused on differentiation, with an emphasis on providing high-priced but unique products. This can generally be viewed as a successful strategy because rival companies did not produce such products at such prices, but the marketing could have been improved. Increased competition especially in the entry-level segment demanded more innovation. This was mainly by competitors who manufactured entry-level cameras that offered affordable alternatives. More importantly, environmental concerns from authorities and activists raised the issue of shifting towards clean energy. To survive, the company will be forced to pay more attention to the concerns of environmentalist in order to appeal to consumers in ways that are ahead of competitors. First, this report will present an overview of the photography industry. Then, it will present an analysis of the industry as well as an internal analysis of Company X with a focus on the issues and challenges the company faces from which it will generate strategic growth options. The selected option will then be described in order to clarify its suitability to the company. Overview of the Photography Industry This section will provide for the understanding of where the industry is heading by giving an insight of the trends and challenges it faces globally. Although Company X is not directly involved with taking photographs since it is not a studio, it is directly affected by trends of the industry because it supplies the key elements of the industry. The industry is agreeably undergoing a lot of change especially in the digital age, where mobile phones, tablets and other mobile devices are creating a new trend with their high resolution cameras. Essentially, this means that selling cameras (and consequentially taking photographs) is not an easy way to earn a living and needs strategising like any other business. With their ability to capture videos and photos, smart phones are consistently becoming the greatest challenge to the appeal of the traditional point-and-shoot digital cameras. This has created a shift in the market’s preferences as well as what is important to them. Statistics indicate that in 2012, more than 35 million digital cameras were bought in Europe alone but, in 2013, less than 14 million were bought (Schewe 2014, p 103). Although this drop was attributed to the growing sales of smartphones, there are also other real threats to the industry. Major players such as Sony, Canon, Olympus and Nikon have built factories and employed thousands of workers to satisfy customer needs, but the drop in sales has presented challenges in maintaining the infrastructures and employees. It is acknowledged that while digital cameras are owned by most individuals across the demographic divides, the competition provided by alternatives especially in the form of mobile devices cannot be ignored. External Analysis Company X developed strategies to survive and grow in a harshly competitive industry. The PESTEL and SWOT models will be used to carry out an analysis of the external environment in which the company operates. Politically, with operations in North America, Europe-Africa, Asia-Pacific and Latin America, Company X will be faced with challenges posed by the diverse political policies of different countries. Most importantly, applying PESTEL shows that taxation policies and import duties will present key challenges. The critical success factors in the industry, therefore, will entail the company knowing its market, adapting sales strategies and building a brand by taking a long-term view of its market and products. Responsible leaders will have to create coherent strategies that support organisational goals and involve people who can drive the business towards them. In the countries in which Company X has a presence, cameras are owned by over 90% of individuals ranging from teenagers to adults, while developing countries are rapidly picking up the trend. Therefore, in economic terms, factors that will ensure the survival of the company will largely be the markets’ degree of disposable income and, more importantly, the value for money that the company can offer. The case study shows that the company operates in four jurisdictions. From the cases study, it is also indicated that 40% of the company’s unit sales are in North America, which makes it the company’s strongest strategic position. However, since it is a European firm, it is critical for the company to consider the fluctuating exchange rates outside the European Union and develop strategies that will drive growth within the union. This is because the single European market (SEM) will ensure that there is free movement of capital, apart from labour, goods and services. The strategy developed in the case study does not reflect this emphasis. Further, within the bloc, efforts to have one economy, inflation rates, interest rates, disposable income and money supply will have considerable effects on the company’s operations and profitability and also determine the most efficient strategies. In the other non-European Union countries, the economic factors will be unique for each and, essentially, have unique impacts on the company’s survival and profitability. Currency exchange rates are expected to be volatile outside the European Union, dictating that the company will need to consider them before the implementation of strategies. Social factors are embedded in how cameras are perceived in the modern world, which is more than just a convenient means of sharing images, but a way of preserving moments. While the category of multi-featured cameras has increasingly been subjected to high costs, there has also been a significant growth in the sector of entry-level cameras. Socially, this implies that camera owners can range from the wealthy citizens, mid-income earners, low-income earners and even teenagers, all brought together by the primary need to preserve images and moments (Witt & Dunbar 2005, p. 91). Seen as one of the trend in the photography industry, technological advancements and the growing global consumerism are mutually beneficial to each other. Technological advancements are producing sophisticated, multi-featured cameras for the market at the top of the social classes. At the same time, they are also producing affordable ones for those much lower in the stratum. The mutual correlation between social and technological factors indicates that technology is paving the way for the need of cameras and photography and hence the growth of the industry. However, the campaigns towards environmentally sustainable technologies may have initial negative impacts on the economical factors, but technology itself is getting more affordable in the long run. Most noticeably, the need for the use of recyclable materials in the manufacture of cameras is emphasised by environmentalists. While this aspect is not mentioned in the case study, environmental factors include aspects such are reducing the use of non-rechargeable batteries and shift towards, for example, lithium-ion batteries. This factor is also supported by the prediction that the long term use of alternative energy in cameras will reduce the disposing of traditional batteries and contribute towards a sustainable environment. The new strategies need to be based on global environmental concerns that are not only biased towards environmentalists’ concerns but also consider the support photography can offer the greening initiative. Traditional batteries have a finite life and become useless after a while. It is also acknowledged that lithium-ion batteries also a period through which they perform optimally, but the ability to be recharged will ensure they are in use for much longer than the traditional carbon-rod batteries. This has a positive impact on the environment because there will be less batteries disposed of after completing their useful life. Further, it portrays the company as a socially responsible organization, which directly appeals to the market. In the European Union, legal factors will mostly place European companies at an advantage. Although individual member states are still allowed to have their own legal provisions and procedures with regards to trade so long as they adhere to European Union directives, the laws developed for the union are for the trader’s general good. Although not mentioned in the case study, the most significant aspects of the legal factors that will affect the company’s operations will be in the form of environmental laws and regulations, safety policies and financial and/or insurance services. Outside the European Union, these are expected to vary and will have different impacts as within the bloc and the company must design its strategies accordingly, preferably with the services of a legal consultant. Possible Opportunities Company X’s key opportunities as identified from the analysis of the external environment lie in the expansion of the SEM. With the taxes abolished within the bloc, if the company develops specific strategies for that market, it can leverage on its current strengths and resources. It must also be noted that the strategies developed are meant to bear positive results over time hence they are long-term strategies. The reason for this kind of long-term strategising is informed by the fact that the advent of smartphones and the harsh competition that they provide must be approached aggressively but cautiously by the photography industry. Company X does not have a convincing presence within the European Union, although the sales are not negligible. Therefore, the sales can be enhanced by targeting the market segment that does not only view cameras as additional features on smartphones and other mobile devices. Further, the case study shows that consumers are not exactly willing to switch to substitutes. It is true that an increasing number of camera users find it more convenient to share images via tablets or smartphones, but it is also true that less users are looking for low-end products. Therefore, the strategy to market entry-level and multi-featured cameras is one that is expected to bear positive impacts. This is because it will emphasise the significance of targeting high-end users while at the same time catering for markets that seek affordable products. The competition may also be viewing the market from such perspectives, but it was established that none are exclusively dealing with multi-featured cameras. Therefore, with the appropriate strategies in place, the company will effectively respond to their competitors’ tactics. Among the opportunities that the Expansion of the European Union presents is the ability of companies to move their operations to any member state of the bloc. This opportunity in itself presents another one in the sense that the company will be able to realise growth driven by the fact that they will satisfy the social factors of the jurisdictions in which they will establish operations. Possible Threats Company X’s key threats are in the form of substitutes, new entrants and, especially in the European Union and the US, consumers’ bargaining power. Although the past seven years have been successful, the entry of smartphones and tablets placed it directly in the path of substitutes and their threats. The company is also exposed to relatively high and fixed labour costs. More importantly, it also implies that the ability to reduce labour costs by closing down facilities in markets adversely affected by alternatives is also potentially limited. Essentially, strategies offering reduced prices on mobile devices that have more functions than taking photos will negatively affect the company’s ability to maintain profitable operations. While sales volumes are expected to grow since the case study shows that buyers are not readily willing to shift to substitutes, this is not a true representation of the views held by new buyers. It may be true for repeat buyers, but the number of first-time owners is increasing. Therefore, if this market segment is not targeted appropriately, all the potential opportunities they present will be lost to competitors. Regulatory requirements and pressure will also increase, especially in terms of patents and intellectual property as technology in the electronics field advances. This means that the company will need extra efforts in innovation and, by extension, extra budget for research and development. As environmental and safety regulations are also expected to get tighter, there is the threat of cost increases. Diverging markets will force the manufacturer to adapt to the changes in segment and regional patterns of demand and supply, which is a direct implication of additional operational costs. This will have to be done with consideration to product portfolios, supply chains and supply and production coverage. More importantly, it must be considered that competitors are also capable of adopting similar strategies. Internal Analysis Internally, the case study shows that the company invested heavily on healthy working environments, higher salaries, marketing and promotions. It was also shown that the administrative staff is highly experienced and provides direction and purpose to the company, but this also means they are paid highly. However, this translates into lower operational profits since the company also tries to make its products affordable hence price them lower than competitors. Further, although the company has differentiated its products into two categories, their entry-level cameras are not quite cheap as compared to those provided by competitors. This is because even though they are marketed as entry-level products, the innovators at the company have taken full advantage of technology and added extra features, driven by their attitude towards risks, their values and preferences. It can further be stated that the internal weaknesses at the company stem from its high-cost structure, mainly due to its size and bureaucratic nature. Then, the short warranty periods the management insists on, especially in Europe, means that while they know their market, they do not adopt strategies that build the company’s brand with long-term objectives of its products and markets. The management does not develop coherent strategies, such as objectively pricing products that are able to support organisational goals. With added focus on research and development, the company can ascertain the existence of a market that is not satisfied by and cannot afford smartphones in Europe and Africa. In this sense, affordability is with regards to both the company and consumers since treaties, policies and laws within the bloc will contribute towards accessible markets and potential profits. The company’s most prolific internal strengths include large teams each with different expertise as their decisions not only offer leadership within the company but also provide technical support and cover the marketing budget. The case study also indicates that although the research and development budget was increased, no new products were introduced nor were changes made to the existing ones. This is not advisable because the purpose of research and development is to increase innovation even if not necessarily through new products. Innovation can also include changes and improvements to existing products, but that was not done. Then, even the outcome achieved by the increased research and development was only marginal, which does not justify the increased budget. Issues and Challenges Facing the Company The immediate issue the company faces is surviving the harsh competition that smartphones present. Therefore, the threat of substitutes is the most challenging external issue the company faces. Demographic changes and shifting economic powers around the globe have also been seen to cause demand upheavals (Kotler, Keller & Hansen 2009, p. 93). Globally, consumer expectations are radically changing, which places the company against a challenge in remaining profitably innovative, especially in terms of short-term consumer requirements. Then, even with financial constraints. Therefore, it does not make economical sense to increase the research and development budget yet no new products are brought in to fight the competition presented by smartphones. Essentially, while the company only researches on market trends and develops its advertising and promotion strategies, no changes are made to products. The issue arising from this aspect is the high cost of promotions and low cost of products. The management fails to see this, which also means they are not making changes to strict bureaucratic means through which they run the company. Strategic Growth Options The company must know its market and design strategies that will guide it towards building a brand. New models must be designed in shorter cycles and target the expanding European and African markets. Further, the management must abandon the strategy of pricing their multi-featured cameras much lower than the competition. Since it is insisted that their multi-featured cameras are high-end products, they must be marketed as such even if it will mean charging consumers a premium. After all, that was the underlying reason for product differentiation. Therefore, consumers will still have an option to buy entry-level cameras if they cannot afford the multi-featured ones. The new models should be targeted to compete specifically in Europe with an aim of taking full advantage of the SEM. Although it may be forced to retrench in markets characterised by slow growth, the company must also consider alliances with global suppliers in order to penetrate global markets (Donald, Closs & Cooper 2012, p. 18). The other option is for the company to be the first that is fully dedicated to delivering products that target the extreme ends of the market. This may present further risks but the potential for smartphones and the innovation of other mobile devices that have cameras as additional features cannot be ignored. By targeting the two market extremes, the company can use entry-level cameras to support multi-featured cameras or vice versa. By specifically targeting the expanding European market with its two categories of cameras, the company can effectively deal with the threat of smartphones and mobile devices. The technology the company chooses must not only enable it to integrate its operations but also to present a consistent look to the market and the global supply chain, which will effectively build a brand that can compete with smartphones. Evaluation of Strategic Growth Options The first option advocates for better understanding of the market and charging a premium for new models of multi-featured cameras. The appendices on the case study indicate growth in earnings per share, stock price and return on equity, but these can be improved significantly if the company prices the multi-featured cameras accordingly. The purpose of developing the strategy in this report is growth; hence risks must be taken albeit with a degree of necessary caution. External financial aid may be necessary to develop new and innovative products, since the company is already putting much of its budget on research and development, marketing and salaries. The second option is more viable because by targeting the two extreme ends of the market, the company has limitless options of reaching the entire globalised market. The needs of professional and active photographers will be addressed more specifically than they can be addressed by smartphones, which are not primarily meant for photography. On the other hand and equally important, passive photographers will also be catered for by the entry-level cameras which the technical innovations at the company have developed to give them competitive advantages of conventional entry-level cameras. The strength of this option lies in the fact that the company has integrated technological advances to both categories of cameras, which means that even the entry-level cameras can effectively compete with some models of smartphones. The Selected Strategy The second option suggests that the company pays more attention to the global market and target two diverse market segments. It has been shown in the case study that it has large teams of employees, which means that different teams can be assigned and dedicated to the diverse markets. This concept is already in place at the company, but it needs to take a new direction. For example, it is meant to target the competition presented by smartphones, but it does not mean that the company creates marketing strategies that portray smartphones negatives. Rather, this strategy will effectively bring out the strong points of its two categories of products and direct them to both professional and passive photographers. Marketing literature and strategies strongly recommend market segmentation, but that does not mean that a company only targets one segment of the market (Cadle, Paul & Turner 2011, p. 69). This strategy will enable it to target consumers across the global demographics and social classes. Conclusion It was found that the industry is growing but at the same time faces challenges from alternative products and more specifically smartphones. Economic powers around the globe are also shifting alongside consumer expectations, all driven by technological advances, which gives consumers more bargaining power. However, there are also opportunities especially in the expanding European and African markets, where it is recommended that the company enhances its focus on two diverse market segments, since it has the internal capacity in terms of employees and management. The greatest challenges expected are from the threats that are posed by substitutes, especially the highly sophisticated and affordable mobile devices. The company may already have significant presence in several jurisdictions, but alliances with other established players are recommended in order to grow further and expand market share beyond North America. References Cadle, J, Paul, D & Turner, P 2011, Business analysis techniques, The Chartered Institute for IT, London. Donald, B, Closs, D & Cooper, B 2012, Supply chain logistics management, McGraw, London. Kotler, P, Keller, K & Hansen, T 2009, Marketing management, Pearson, London. Schewe, J 2014, The digital negative: raw image processing in lightroom, camera raw, and photoshop, Peachpit Press, Carlifornia. Witt, B & Dunbar, T 2005, The humanities, cultural roots and continuities, Houghton, New York. Read More