External and Internal Environment of Reynolds American Incorporated - Case Study Example

Reynolds American Incorporated (RAI) Student’s Name: Instructor’s Name: Course Code: Date of Submission: Introduction RAI is a company in the US that is basically in the production line of manufacturing tobacco related products. Some of the company’s products include the smokeless tobacco, cigars, free tobacco and nicotine. The company was founded in the year 1875 and has been among the major producers of tobacco in America (Reynolds American Incorporated 2012). Up to date, RAI is the second largest producer of tobacco products in the US and some of its brands include the Pall Mall, Kool and Salem and these brands have among the best preferred cigarettes brands in the US. Despite the stiff competition in the market by other companies which also manufacture cigarette products, RAI has maintained its market positions by clearly applying conducting the external and internal environment analysis and applied various strategies in the market. In this regard therefore, this report will focus both external and internal environmental analysis of RAI Company. The report will also focus on stakeholder analysis and aspects which raise issues on ethics and social responsibility. Analysis of external environment of RAI The success of Reinhold American Incorporated greatly depends on the analysis of external and internal environment. The tools that RAI Company has manage to successfully implemented are the PESTLE analysis, the five forces of analysis and the competitor analysis. To start with, PESTEL comprise the factors such as political, economical, social, technological, environmental and legal factors (Golubkov 2000). The RAI Company has managed to be among the best suppliers of cigarette products in the market, because of the political advantage. There was no restriction on the consumption of the cigarette products and this made the company to increase their sales tremendously than the competitors. In this regard, it can be said that the company has the political advantage (Golubkov 2000). In addition, the rate of taxation by the government is not too high which ensures that RAI enjoys huge profits made. Reynolds American Incorporated has also maintained its lead in the market because of the economical factors. These factors include the inflation rates, the interest rates, the rates of exchange and the rate at which the economy is growing. For instance the interest rates have been low which has reduced the cost of capital for Reynolds American Incorporated and therefore the company managed to grow tremendously. For instance the total sales for the company has been on the increase like in the year 2008 the sales were 45% which increased to 46.75% in the year 2009 and finally 46.9% in the year 2010. This clearly indicates that the economic factors in the US have been good and that is why the company is experiencing some growth each year of production (Reynolds American Incorporated 2012). On the other hand, social factors have also enabled the company to remain competitive in the market. These factors include the age, population growth and cultural aspects (McDonald, M 2004). These factors have been favorable for example the cigarette products initially were being consumed even by the minor which led to huge market. However with the discouragement from the American Medical Associate, the sales dropped slightly but increased again the introduction of variety of the brands like Camel. There also technological factors which include the rate at which the technology is changing and the Research and Development (McDonald, M 2004). RAI Company applies the most appropriate technology in its production which reduces the cost of production and increases the quality of the tobacco products. Through improved quality of the products, the company has been able to gain competitive advantage in the market hence it has a larger market share than other firms in the same line of manufacturing cigarettes. Finally, there are the legal factors which have favored RAI to remain competitive in the market. These laws include the discrimination law, employment law and health laws. In the US the government has not illegalized the manufacturing of the cigarette products and thus RAI Company is freely operating in the market. On the other hand, RAI has successfully analyzed the five forces of analysis which are the bargaining power of the suppliers, the bargaining power of the customers, threat of new entrants, threat of substitute products and the intensity of competition. The first force of analysis is the bargaining power of the customers. When the buyers are few in the market, they will put pressure on the seller (Porter & Kramer 2011). RAI has many customers and therefore the company has more strength than the buyers because its reputation is good. This has made the company to standout in the market despite the competition. The bargaining power of the suppliers of RAI is also low. There are many suppliers of raw materials in the market which has enabled the company to have a better say than the suppliers and the trend is likely to continue even in the future (Armstrong & Peter 2007). Were it that the suppliers had power than the company, then they could have supplied the materials at high prices which will lower the profits reaped by the company. High prices of materials increase the cost of production. The intensity of rivalry in the cigarette manufacturing industry is not too adverse. In some industries, firms compete unfairly to an extent of driving some other firms out of the market. RAI has not faced extensive rivalry which will lower its prices and revenues (Porter & Kramer 2011). The degree of competition available is only for sustainable competition. In this effect, the company is still enjoying the good reputation and continues to have a larger share of the market. Threat of new entrants is another force that favors RAI Company. With the increasing number of deaths in the US and the related complications, there have been restrictions of new firms entering into cigarette manufacturing (Porter & Kramer 2011). There are restrictions before the company is registered to start trading in the cigarette business. This has barred many organizations from entering into the industry hence the existing ones including RAI enjoy making the huge profits because the rate of new firms entering the industry is low. Finally, there is the force of threats from substitute products. So far there are no substitute products to substitute the cigarette products (Armstrong & Peter 2007). In this regard, the Reynolds American Incorporated continues to enjoy the dominance in the market despite many other firms in the same industry. If there were substitute products, the number of customers will decline because some will go for the substitutes to satisfy their needs. The RAI Company has managed to excel in the market because of the effective analysis of the competitor analysis. To start with, the company has been innovative in the market thus up with new products than the competitors. The company has been able to analyze its competitors and has managed to manufacture unique products in the market (Clow & Donald 2007). The company has been able to advertise their products better than their competitors. They started using the direct mail communications and using magazines and newspapers which were not restricted by the government. This increased the company’s competitiveness despite the government restricting the advertisement of cigarette products to young people. In this regard therefore, it can be said that the RAI Company is growing tremendously. From its financial statistics, we can see that its growth is like one digit annually. For instances in the year 2008, the growth was 45% and grew to 46.6% in the year 2009 showing a growth rate. It can also be said that RAI is at the maturity stage of its life cycle (Reynolds American Incorporated 2012). This is because the company has been in the market for a long time and has managed to lead the market in terms of market share for a long time. Internal environment analysis RAI Company has also maintained its competitive advantage through the internal analysis. This comprises of internal factors of the organization and they include financial, management, the organizational culture and the skills available (Sidorchuk, R 2009). The management of the company is qualified and is able to design various strategies which have enabled the company to gain the competitive advantage. The management has the experience to run the company effectively. For instance, Delen has experience from the previous positions held. The organizational culture has also been strength to the company’s performance in the market. There has been a culture of motivating the employees of RAI Company through rewards and other compensations which encourages them to be innovative and thus offer their best skills in the manufacture of the products (Clow & Donald 2007). This ensures that the products manufactured are of high quality hence and can compete effectively. The skills of manufacturing the cigarette products by the company are also competitive. The employees are well trained to accomplish their various tasks which promote good relationship between the management and the employees (Clow & Donald 2007). This is because the employees and the management find easy time because the tasks allocated have been achieved successfully. This leads to good industrial relations. On the other hand, the strategies and procedures set by RAI are appropriate and have enabled the company to satisfy the customer demands. For instance, there are various strategies for evaluating the manufacturing process of the products. Through the evaluation programs, any defect can be identified at an early stage and various measures taken to correct hence produce quality products that can be accepted by the customers. This has helped the company to compete effectively in the market. The financial resources of RAI Company also give it the strength to perform well in the market. The company has been experiencing growth each year despite the heavy competition in the tobacco industry (Clow & Donald 2007). In the year 2010, the company’s total revenue was $8.6 million. The total sale of the company in the previous year that is 2009 was $8.4 million. This showed an increase in revenue from sales of about 1.6% and this indicates significant improvement in the total revenue of the company (Reynolds American Incorporated 2012). In addition, the net income increased from $ 962millions in the year 2009 to $1,113millions in the year 2010. This is a clear indication that the company’s performance in the market is good because of the increase in the net income. Furthermore, the dividend per share increased from $ 1.73millions in the year 2009 to $ 1.84millions in the year 2010 (Reynolds American Incorporated 2012). In this effect, it can be concluded that the company is improving its financial management and takes care of the shareholders expectations. According to this financial analysis, it can be argued that, RAI has gained competitive advantage through financial resources. It has managed to raise more capital and diversifying its products and that’s why the company is maintaining its competitive advantage. Stakeholder analysis and their expectations The stakeholders of Reynolds American Incorporated include the shareholders, the employees, the management and the suppliers. To start with, the expectation of the shareholders is to get better dividends because the organization is experiencing growth annually (Reynolds American Incorporated 2012). This will improve their trust in the company raising more revenue for the company. This will be achieved through good management of the company. The employees’ expectations will be to get the best compensation in terms of salaries and wages. Because RAI is the second largest company in the tobacco industry, it is expected that it will pay its employees better than other firms so that they will continue offering their best skills towards achieving high quality products (Danielle 2006). As a result of this, the employees are well paid when compared to other firms in tobacco industry. On the other, the expectation of the customers is to get best quality products and variety. Due to the changing lifestyles, the customers expect that the RAI Company should meet their needs by manufacturing different brands of the cigarette products (Danielle 2006). The company has achieved this through manufacturing different brands available to consumers like Camel Crush and Camel sticks. The suppliers also expect that the company buys the materials at the right price because it makes good profits. The suppliers have done this by forming various associations to advocate for their needs like the American Tobacco Association (Reynolds American Incorporated 2012). In order for the company to satisfy its suppliers, the company has chosen a few suppliers and signed contracts with them to supply the materials according to the signed agreement. This has enabled the company evade the demanding expectations from the suppliers. Finally, the management of the organization also expects that the employees offer their best skills towards enabling the company to achieve and maintain the competitive advantage. After the management has compensated rewarded the employees well, their expectation is to see the employees improve their productivity and innovativeness (Reynolds American Incorporated 2012). This has been successful in the organization as the employees undergo regular trainings to develop their skills. Aspects that raise ethical issues From the case study, there are various aspects which raise ethical issues and the social responsibility. The first aspect that led to ethical issues is the advertisement of cigarette products (Sander & Zhou 2004). The company used to advertise the products to children who are considered underage to consume the cigarette products. This led to ethical issues among the children who are not aware of the effects of using the tobacco products. This is unethical because any product should be sold to appropriate age groups and not everybody including children. Another ethical issue is lack of environmental concern. Despite the company leading in the market and making huge profits, it has not taken any measures to preserve the environment (Sander & Zhou 2004). The cigarette products greatly affect the environment and if no appropriate measures are taken, the environment will have some adverse consequences and it will affect the lives of other human lives. Therefore, the company should take appropriate measures which will help to preserve the environment. Recommendations In order for the company to remain competitive in the market, the company should appropriately apply the product mix so that it can meet the expectations of its stakeholders. The RAI Company should also be able to differentiate its products properly so that each market segment can be satisfied. It should do proper pricing by charging different prices to various market segments so that it can consider the various customers’ requirements. Finally, the company should invest more on conducting research and development so that it will continue coming up with new products to meet the changing demands of the customers. Conclusion Reynolds American Incorporated is a company based in the US and is the second leading company in the manufacture of tobacco products. Having founded in the year, the company has maintained its market share despite the stiff competition from other firms. It has managed to achieve this by applying various strategies both internal and external environment to gain competitive advantage. The external environment includes the political, environmental, social, technological and legal factors which the company has successfully analyzed. The internal environment that has enabled the company to remain competitive includes the management skills, the financial resources, organizational culture and the procedures applied by the company. The company’s stakeholders include the shareholders, the suppliers, the employees, the management and the customers. References Armstrong, G & Peter, K 2007, Marketing: An Introduction. Upper Saddle River, NJ: Prentice Hall. Clow, K & Donald B 2007, Integrated Advertising, Promotion and Marketing Communications. Upper Saddle River, NJ: Prentice Hall. Danielle E 2006, Ethics Initiatives: The Problem of Ethical Subgroups, Oxford, Butterworth Heinemann. Golubkov, E 2000, Marketing research, Moscow, FINPRESS. McDonald, M 2004, Marketing plan, Moscow, Publishing house Technology. Porter, M & Kramer, M 2011, Creating Shared Value, Harvard Business Review, Vol. 89, No. 1, p. 62–77. Reynolds American Incorporated 2012, Retrieved on August 13th 2013 from http://investing.businessweek.com/research/stocks/people/person.asp?personId=3263120 5&ticker=RAI Sander, L & Zhou, X 2004, Smoke: A Global History of Smoking, London, Reaktion Books. Sidorchuk, R 2009, Marketing aspect of creating the optimal industrial range of products For small business, Marketing in Russia and abroad, Russia, Moscow. Read More