Competitive Strategy and Innovation - Maersk Group - Case Study Example

Competitive Strategy and Innovation Contents Introduction 3 Brief Discussion about Internal and External Factors 3 Strategic Models 9 Strategic Options and Recommendations 12 Appendix 14 References 17 Introduction Maersk Group is a Danish company which mainly involved in transportation and energy business sectors. It was formed in 1904 and started its container ship operations from 1996. The company is based at Copenhagen, Denmark. The company spreads its business more than 135 countries and it has more than 1, 00, 000 employees. In the year 2010 it has ranked 147 in Fortune Global 500 list. Maersk Group has conglomerate with A. P. Moller and famous as ‘Maersk.’ It generally operates terminals, inland services, global port etc. and it has container terminals in 36 countries and also in five continents. It has built network with 57 ports in world wide. Port and terminal operations are in Europe, Middle East, Asia, Africa, North America and South America. It has 155 inland services operations in total 48 countries. In the year 1972 Maersk started its oil production in North Sea and at that year Maersk Drilling was established and starts its business. In the year 1994, Maersk Oil started its oil production in Qatar. The tagline of this company is ‘Easy for our customer; efficient for us’. Brief Discussion about Internal and External Factors Discussing about the internal and external factors which have affected the organization and influenced the strategies it has employed to date is as follows: SWOT analysis of the company Analysing the strength, weakness, opportunity and threat this can be observed that there are so many points in the part of its strength and opportunities rather than its weaknesses and threats. Strengths It is the largest container ship operator in the world It is the largest supply vessel operator in the world Its operation spread in more than 130 countries It has the workforce of more than 1, 00, 000 employees Shipping is not the one and only operation of this company. Apart from shipping the company is involved in retail, offshore, manufacturing, transportation and energy businesses (Passenheim, 2010). The company has reputation of top business player It has strong, famous and well known brand name in the world market The company can be recognized as experienced business unit It has strong and existing sales network as well as distribution channels Its high amount of revenue and healthy profitability give the financial strength and create further scope of reinvestment for growth of the business (Andersen, 2013). It is very well known company in domestic market and able to hold maximum market share in that market. The skilled manpower workforce of this company is it’s another point of strength. The high growth rate of the company attracts investors and influence shareholders to invest more money in this business for getting high rate of return. Monetary assistance provided by the company is another point of strength of this company (Böhm, 2009). Weaknesses Company’s fluctuated profit margin is a matter of concern of its management. Company’s presence and visibility is relatively low in the air transportation and road transportation market. Less investment in research and development make the company least updated as per the increasing and changing demand of the market (Cullen and Parboteeah). Taking loan at high interest rate is another point of weakness of this company. Small business units of the company will hamper the work of expansion of the business. Future profitability is depends on the fixed profit margin and high visibility or strong presence in the market. As here profit margin is fluctuating and company’s visibility and presence in the market is very low so this is a big weakness for the company (Davis and Davis, 2010). Opportunities Available technological development and innovation such as implementation of TriGen Power Generator is one of the big opportunities for this company. The number of customers is increasing through the geographically expanded market and new line of services. Growing demand of transportation and other services of the company give a huge opportunity to expand its business. New acquisitions will be another source of opportunities. If the business will acquire another reputed and existing business in the market then the current business will be enhanced and the number of customers will be increased. It will generate more profit margin and revenue in the business. Rapidly growth rate and existing profitability of the business will bring more new opportunities for the betterment of the business. Threats Cost of production, transportation and services is increasing day by day which will be threat for this business. The rules and regulations are changing frequently in various countries. As the business of this company is expanded across more than 84 countries in the world and as the company is involved in shipping and transportation business so this change in regulations will affect the activity of business (Wetherly and Otter, 2014). Current condition of economic slowdown is another reason of threat of this business. Increasing prices of raw materials such as crude oil is a huge threat for this company. Constantly increasing rate of interest in case of taking loan is creating a difficult situation for making strong the financial condition of the company. Changes in tax, changes in price, external bunnies risks, weak financial capacity of the company and other unexpected problems are become threat of the company. Existing strong competitors are another threat for them. These competitors are CMA CGM, China Ocean Shipping Company, Mediterranean Shipping Company etc (Pahl and Richter, 2009). Segmenting, Targeting and Positioning The company is segmented its business in such a way that the business which requires transportation and logistics services will come under this company’s business segment. The targeted group of customers are those companies which use shipping services and there is high demand of these services to run their businesses. The company Maersk is want to position its business as world’s largest shipping business. PESTLE Analysis PESTEL framework is one of the most important strategic tools and it is used to analyze the impact of external business environment factors. Among the six factors of PESTEL framework, some might have positive impact i.e. opportunities for business and some might negatively affect the business i.e. threats for the business. This analysis will evaluate the basic feasibility of a business in terms of macro environment perspective. This strategic model keeps a bird’s eye view on the business environment of a business (Allen, 2012). Following is the detailed analysis of each of the factors of PESTLE framework that have either high or low and positive and negative effect on Maersk. Political Factors The political environment in Denmark is quite stable. The government of this country has implemented structural regulations which is introduced a flexible situation in the labour market. Local people are also well adapted to the change of political environment which is a positive side to run the business without any political disturbance. Economical Factors There is high risk in case of economical factor of this business. The recent economic downturn has put a horrible and deep impact on all the existing businesses in the US market and it is now in recovery stage. The changes in fiscal policy and financial regulations will affect the activities of the business. Social Factors The company will go to face the labour problem in near future as because the population of this country is increasing in very slow way. Unemployment rate is also very less and there is a tendency among people to take retirement at early age. So if the company wants to expand its services then unavailability of labour will be a big problem to them (Slamanig, 2013). Technological Factors This company needs a lot of research to develop the technology for improving vessels. It will also improve the transportation and communication procedure. Electronic communication is needs to be developed as most of the orders and booking are done through it. Research is also needed to reduce the maintenance cost of these vessels. Legal Factors There are so many logistics and transportation related laws which will control the pollution of environment and wastage of water in the country. The company has to maintain those existing guidelines to run the activities of business (Sadler, 2001). Environmental Factors The company should take care about the acid rain and global warming of the environment and also should conscious to reduce the level of Sulphur Di Oxide and excessive carbon from the environment. Strategic Models The company should use some strategic models which will utilize the resources and capabilities of organization in an efficient way. Figure 1: Five important task of strategic planning These are few steps to develop a strategy that will reduce the risk factors of the business and utilize the capacities of organization. The 5 tasks are included in this model. 1st task is management has to develop a strategic vision which is related to mission of the business. After that required objectives need to set off. Then draw the separate strategy to achieve the individual objectives. After that implementation and execution of those strategies are required and last but not the least performance evaluation, doing necessary adjustments and monitoring new developments are needed (Rao, Rao and Sivaramakrishna, 2009). Figure 2: Porter’s Five Forces Model Porter’s 5 force model also can be applied to measure the risk and threat factors of this business. Porter five forces model is framework that is used to analyse the business strategy and the situation of industry. These five forces are threat of new entrants, threat of substitute products or services, bargaining power of customers, bargaining power of suppliers and intensity of competitive rivalry (Dransfield, 2001). Bargaining Power of Buyers The demand of such logistics and transportation services are quite low at the present days and in coming two three years the level of demand will also be decreased. So the purchaser has high bargaining power in this industry. Bargaining Power of Suppliers Maersk believes to involve their suppliers in the business activities. Suppliers of this company also take part in the partnership of this business. The company provide them a wide range of opportunities. They also invest in substantial resources to maintain the availability of their products in the market throughout their business unit. So the bargaining power of suppliers is less as they are very much interested to work with this company (Saxena and Bharadwaj, 2009). Threat of New Entry Every firm would be interested to invest money in logistics, transportation and shipping business as a huge profit can be earned from these businesses. But earning this profit is not so easy way as because there is huge amount of capital is required to start such kind of businesses. Purchasing vessels and container procurement involved huge amount of money and there are several risks in operating vessels. Maersk has taken more than 100 years to establish themselves at the top most companies in the market and now this company expand its business at various region of the world. So it will be difficult for new entrant companies to invest huge capital at a time and compete with the Maersk (Jeffs, 2008). Threat of Substitution Threat of substitution is high in such case. Many governments have influenced businessmen to build substitute business in the industry. If availability of the substitute is high, quality, service, performance will be high, cost, price factor and switching cost will be less than a company face such kind of threat in the market. Here the same scenario has been observed. For example it can be said that if price of oil will be increased then delivery charges also will be increased. When the delivery charges will be increased then people automatically will move towards the airline services. Again if the company will not be capable to reach goods on time to the destination then people will choose the wagon services for fast delivery medium (Hasan, 2013). Rivalry among Existing Players Maersk, MSC and APL are three big players in this industry and theses three has very stiff competition in the market. Maersk dominates the market due to better connectivity, wide area coverage, cost control activities and best business practices. But its non flexible and strict policies sometimes create disturbance and make the procedure more complex. The high technological advancement is not required at each and every level especially lower educated market. On the other hand MSC has developed competitive pricing model and better connectivity of services at required technology. So this can be stated that there is high threat of rivalry among existing players (Sekhar, 2009). Strategic Options and Recommendations Strategic options are the results of strategic planning that is practiced by top management. A company develop business strategies in a planned, budgeted and organized way to run the business effectively to achieve preset goals. Developing few strategic options usually helps a company to face any critical internal and external factors or situations and enjoy the effectiveness of most suitable strategy. The company Maersk should develop multiple strategies for each of their business goals. The detailed explanations of these strategic options are as follows. The company can take sustainable profitable growth strategy which is concerned with specific actions to make Maersk the best container shipping company in accordance of performance and not by the size. For this growth they should use all types of technology, not only the high technology to attract all types of customers. Finish and Foundation strategy can also be adopted by the company. Through this strategy management can control all the initiatives related internal organization factors to overcome the declining performance level of the company (Cheverton, 2005). Short term financial result strategy is another appropriate strategy the company can take for the betterment of its business. The aim of this strategy is to restore profitability within one year. Now at the part of recommendation this can be stated that the company can increase the revenue level and decrease the costs by using above strategies. This will help to enhance the level of profitability. Management can focus on the long term under performance areas by using these strategies. Planning and operating system will be more integrated and structured. This will also helps to reflect the current and potential changes in the industry. Management can get a clear picture about how the business should be structured and plan should be implemented by using the above strategies (Griffin, 2010). These help in getting organizational long term success. New product should be introduced by the company for smaller scaled transports. In this way the company will be a strong competitor in the market and get more competitive advantages than its main rivalry MSC. Customer satisfaction is the vital issue in such case and the company has to look after in this field. As the company involved in supply chain management so it should concentrate on delivering the goods in proper time (Thompson and Martin, 2010). Otherwise customer will move to other existing substitutes in the market. Service process should be selected in proper and appropriate way. According to product type, process of transportation should be selected. Quality should be maintained otherwise trust of the customers will not be raised. The company should design an excellent inventory management program to reduce holding cost and through this way the company will be more benefitted (Ferrell and Hartline, 2012). Appendix Danish shipping company Maersk Group has variety of services. The company primarily involved in energy sector and transportation. It is also known as largest supply vessel operator and container ship operator. The company started its container ship operation and supply vessel operation from the year 1996. The company has around 108, 000 employees. Container ship related activities provide half of the total revenue to the company. This part of the business flourished from 2008. The company provides logistic and container services, terminal activities, forwarding solution under the brand names Damco, Maersk Line and Safmarine. Maersk Line is the largest operating unit by revenue and employees both. Around 25, 000 employees working in this section only. It is the world’s largest overseas cargo carrier. Revenue earned from this section is 3.8 million. 600 vessels are operated by the Maersk Line. Safmarine is the independently operated shipping company in the Maersk Group and its roots are in Africa. It operates more than 40 container vessels and more than 20 vessels which are used in multi purposes. Under the brand name of Damco the company operates its logistics activities. Previously this brand was known as Maersk Logistics and Damco. 10, 800 employees are working in this sector. It has offices in more than 93 countries. Maersk Line Limited is US based subsidiary of this group. US flag vessels are managed by this sector and it also helps to US government agencies and their contractors by providing logistics and transportation services. The company also do offshore, tanker and other shipping activities and earned 8.8% revenue of the group. Maersk Tankers, Maersk Drilling, Maersk Supply Services are involved in it. Maersk Tankers is involved in transportation of oil based products and gas products. Maersk Drilling is involved in drilling activities such as drilling rigs and production wells. Maersk Supply Services involved in offshore activities. Maersk Line decided to capture the intra American market. Sea land of North, Central and South America are their target area. The expansion of market will fulfil the demand of customers throughout all the regions. The company also built 7 strings from Asia to North Europe. In Thailand they provided best high class coverage with improved and reliable connection and communication. It also helped to reduce layover from transhipment hub. The company also provides competitive transit time to European countries. The company also wants to expand their business in Indian market and for starting their business in the Indian market they will offer attractive rates only for the Indian customers. In 2012, the company has done well and financial satisfactory result is observed in the business. Net profit was improved by 51% in the first quarter. All the business units earned profit except Maersk Drilling. The production of Maersk Oil is continuously increasing and Maersk Line is fully utilized. APM terminal is also increasing the volume of the business. In the year 2012 net revenue of the company was 27, 118 USD million which was quite higher than the previous year because in the previous year 2011 the amount of net revenue was 25, 108 USD million. Net profit in the year 2012 was 461 USD million whereas the company faced loss in the previous year. In the year 2011, net result of the company was -553 USD million. The company issued bonus share and dividend to its shareholders in the last year. Net interest bearing debt decreased at the end of the year 2013. This debt decreased from USD 11.6 bn to USD 9.3 bn. Profit before amortization, depreciation and incurred losses etc was 12, 581 USD million in the year 2012. In that same year, profit before tax was 7, 338 USD million, profit including financial item was 8, 093 USD million, gain on sale of non current asset, sale etc was 636 USD million, depreciation, amortization and impairment losses was 5, 346 USD million. Cash flow from operating activities was 7, 629 USD million, cash flow used for capital expenditure was – 6, 320 USD million [in this sector company faces loss], return from invested capital excluding tax was 8.8%. Depreciation, amortization and impairment losses were slightly decreased than the previous year. Profit before tax, profit before financial items, gain on sale of noncurrent assets also reduced than the previous year. Apart from these items all the other aspects are increasing than the last year which shows the growth of the business. From the above results it is clearly analyzed that the company is strongly determined to achieve its goals. References Allen, M. 2012. Analysing the Organisational Environment. 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