Strategic Management - Fielmann AG - Case Study Example

Strategic Management: Fielmann AG Name: Course: Instructor: Institution: Date of Submission: INTRODUCTION Fielmann AG is a Germany operated company that deals in the optics of eyewear. The company sells its products externally using its business branches in countries such as Italy, Netherlands, Poland, Austria, and Switzerland among many others. The company has about 695 branches in Europe. The stocks of the company are listed in the German MDAX index and they are also listed in the regional HASPAX index in the Norther German. The business operates as a retailing business. The business has about 586 stores in Germany with a market share of 52% in the industry. The sales market share of the company are around 21%, which brands the business as the main market leader in Germany in retailing of optical chains in eyewear (Bloomberg, 2017). The founder of the company is Gunther Fielmann, who is an approved master of optometrist in the state of Germany. He is the main/ and major shareholder in the company. The company operates in the industry of healthcare through retailing, it is traded as FWB or FIE. The main services it has include the ophthalmic opticians, eyewear prescription, and retailing of sunglasses. The report below evaluates the corporate strategy of the company, presents the SWOT analysis and relevant financial ratios of the business. Corporate Strategy of Business The corporate strategy of a company can be presented as an expanding, or reducing company scope, and an evaluating corporate strategy. Business Strategy (VIDEO) The expanding scope presents that the concentration of the business can be in a single industry. That is; it focuses in one market industry. Fielmann AG focuses on the optics industry alone, where it retails the eyewear products in the industry. Other characteristics of an expanding company scope perceived in the company is expanding the reach of the company in many markets. The evaluating corporate strategy involves evaluating the corporate level of the organization, the business and the functional levels of strategy. Thus, the corporate strategy helps identify the industry or other industries that it should participate in to maximize the long-run profitability’s (FMEAE, 2017). Fielmann AG is the main shareholder with over 50% shares in the industry. The optics industry in Germany is significantly successful and profitable, thus, using all of its assets in the single industry leads to increase in expertise in the market including identifying the market needs and developing solutions to meet the needs. For instance, in 2014, the revenue generated from the industry in Germany was €51, 63 billion. This was with a 14% increase from the year 2013. The demand for optical products from German is high, not only in German but in other countries as well. The business strategy is narrow in terms of product as it concentrates on one product, the eyewear products. However, in terms of the geographical broadness, the business operates in many countries, which also increases its profits. Thus, the business strategy is narrow in product and broad in geographical nature. Global Strategy of Fielmann AG EVALUATION: PORTERS FIVE Competition in the industry: In the industry businesses compete intensely. However, they cannot compete with the Fielmann AG since it dominates the industry and directs the pricing in the industry. Thus, competition in the industry though intense among other small businesses, does not compete with Fielmann. Thus, it dominates the market. Potential Entry Barriers: Entry in the business is easier. However, since exiting the business is challenging, many avoid entry into the market. Smaller businesses either close up through been acquired or losses. The lack of effective exit strategies leads to the potential barrir of entering the market. Bargaining Power of Suppliers: The Fielmann AG manufactures its products, this gives the company a high bargaining power. They do not only manufacture its products and supplies but distributes them too. This presents that the company has a high bargaining power in the industry. Bargaining power of buyers: The bargaining power of the buyers is low. That is; Fielmann AG offers unique products that has given it a high market share and loyalty from the market. The company has more than fifty percent of the industry, which makes it determine the setting of pricing in the industry. As such, the buyers do not have any bargaining power in the industry. Threat of Substitutes: The Fielmann AG currently performs very well in the eyewear retail market. However, due to current technological improvements, the company will be threatened highly. That is; the technological advances threaten the industry through the ophthalmic engineering that leads to the development of new materials such as lenses, and frames. Technological advances such as titanium frames, and the development of extended wear contact lenses including disposable contacts. Thus, the financial performance, market dominance and customer loyalty is highly threatened by the threat of substitutes due to technological advances in the industry. COST OF ENTRY TEST The cost of entry cannot capitalize of future profits. Based on the financial results of the company given by (Fielmann, 2015); and (Fielmann Group, 2013). In 2015, the business revenue was more than the expenses they encountered in the year, as well as the 2013 and 2014 annual results. The profit in 2015 was 1,300,954 (€ 000) and the losses and expenses of the business entry according to the profit/loss income statement were 1,174,947 (€, 000). The expenses do not surpass the profits, which stipulates the cost of entry is positive (Fielmann, 2015). In 2014 the profit was 1,228,741 while the expenses were at 880,513 (€, 000). The profit was more than the expenses, which supports the entry for the business (Fielmann, 2015). 2013 was at 1,159,897 (€,000 for all values) and the expenses from the profit and loss statement were at 972,841 (Fielmann Group, 2013). Thus, the cost of entry in the business was positive throughout the year 2015 2014 and 2013 since the expenses of entry do not surpass the profits. The fielmann AG had a high profit as it does not interfere with the future profits. BETTER OFF TEST The new units in the business should have competitive advantages. The Fielmann group operates in the single industry of optics. It performs better in the concentrated industry, while operating better in many countries. The new units in the Fielmann industry include different segments. In Germany, the profits have been high constantly while in other countries they are increasing as well at a slower rate (Fielmann, 2015). The global strategy of the business is diversification. That is; it focuses on eyewear products and promotes and sells the products in different geographical locations. For instance, besides Germany, it operates in Switzerland, Austria, and Italy among many others. Fielmann AG diversification is perceived in the focus on two main different products, which include the eyewear products and eyewear insurance products. Thus, based on this industry information, one evaluates the corporate strategy of Fielmann AG as successful through focusing in one single market in various countries through the eyewear products and insurance products. That is; the Fielmann AG operates in the optics industry only though it diversifies in the products and markets it operates in, in the market. The corporate strategy of the Fielmann AG is presented through the expanding company scope. As stated earlier, the expanding company scope strategy is characterized by three main characteristics, which for the Fielmann AG include the single industry concentration, and diversification (Jones & Hill, 2011). Thus, Fielmann AG corporate strategy is evaluated using this characteristics. Fielmann AG is concentrated on the optics industry, which deals with healthcare products through retailing (Fielmann, 2016). The optics industry in Germany support the performance and corporate strategy of the company through its market shares and sales in the company. The figure presents that despite having a fewer stores in the market, the unit sales make-up more than half of the sales in the entire industry (Fielmann, 2016). The concentration strategy is advantageous through focusing its strengths and capabilities in the business, which leads to a competitive advantage of the business. More importantly, the business leads to increased expertise in the market that cannot be imitated leading to the increase in the business success (Bloomberg, 2017). SWOT ANALYSIS SWOT Analysis presents the strength, and weaknesses the business has as well as, the potential opportunities and threats that the organization faces providing a competitive advantage in the organization. Strengths Weaknesses High market demand and domestic market Lack of product diversification High bargaining power of the suppliers Poor competitiveness in the industry High profits due to increase in sales revenue Increased customer satisfaction and loyalty Opportunities Threats Market diversification success and product demand The cash flow are threatened by weaknesses in the business and industry No dominant competitor in the market   Technological advances may threaten the business Barriers in entering the market for small businesses Increase in the cost of materials in the business. Low buyer bargaining power The table above presents that the economic, financial, and business performance of the Fielmann AG is positive. The market demand for its products is high mainly in Germany. The company has many strengths and opportunities that favor the expandable company scope, which guides the corporate strategy of the organization. The objective of the company can be achieved easily through the given strengths and opportunities it has, which can compete with the weaknesses and possible threats the business may encounter (Rothaermel, 2015). It could diversify and include the technological threats in its operations to tackle the possible threat of substitutes. The strengths presented above show that the business will have an advantage of the lowered operating costs, while increasing the bargaining power of the Fielmann AG. On the other hand, the strengths also support the differentiation of the products and its brand in the industry market (Jones & Hill, 2011). Vertical integration presents how businesses expand into other industries that produce other inputs to sell and distribute their outputs. Thus, Fielmann AG through retailing does not practice vertical integration. Without engaging in vertical integration the Fielmann AG misses an opportunity that would increase its profitability in the market. However, through developing the raw materials it increases its profitability as seen in the market. The Fielmann AG does not operate through diversification in the industry since it operates in a concentrated single industry (Jones & Hill, 2011). RELEVANT FINANCIAL RATIOS The relevant financial ratios to determine the strength/ performance of a company’s corporate strategy are many. However, in this report, the relevant financial ratios of the Fielmann AG to be analyzed in the profitability ratio, which gives the sales growth ratio, operating self-sufficiency ratio, net profit margin, and gross profit margin ratio. The financial information to be used is the annual financial report of Fielmann AG from 2013 through to 2015. The annual financial tables of Fielmann AG are given in the section marked appendix below. The information used in the calculation below, derives from the tables thereof. Profitability Ratios a. Sales Growth Ratio Sales growth ratio = Current period sales – previous period sales / previous period sales (€,000) 2013 SALES = 23, 509 2014 SALES =156,769 2015 SALES = 160, 643 2015 Sales growth ratio = 160, 643 -156,769 / 156, 769 = 0.025 = 25% From 2014, the sales increase in the year 2015 with a 25% increase 2014 sales growth 156, 769 – 23, 509 / 23, 509 = 5.67 = 57% From 2013, the sales grew in 2014 by 57%. This presents a major increase in the business sales from the year 2013. b. Operating Self-Sufficiency Ratio Operating self-sufficiency sales = Business Revenue / Total Expenses 2015 1,299.9 / -1,270 = -1.02 = 10.2% 2014 1,226.5 / -1,702 = -0.72 = 7.2% 2013 1,157.1 / -1, 482 = - 782.7 = 0.78 = 7.8% The operation sufficiency of the Fielmann AG has increased from 7.2% attained in 2014 to 10.2% attained in 2015. However, in 2014, the sufficiency had decreased with a 0.6% from 7.8 in 2013 to 7.2 in 2014 (Fielmann Group, 2013). However, in 2015, the sufficiency increased highly (Fielmann, 2015). c. Operating Margin Ratio Operating Margin ratio = Operating Income / Net sales 2015 (From the Cash flow statement) 160,643 / 1, 300, 954 = 0.123 = 12.3% 2014 156,769 / 1, 228,741 = 0.126 = 12.6% 2013 23,509/1,159,897 = 0.020 = 20% The operating margin has been decreasing, presenting that the expenses in the business are reducing, which supports the growth in profitability of the company. The Net profit of the company has been increasing continuously from 2013. For instance, the ratios above present that in 2013, the net profit margin was at 9% while in 2014 it grew to 10% and in 2015 it also increased to 11%. Thus, the company has been profitable in the market. (Fielmann AG, 2017) The graph above supports the financial ratios that have been calculated above. That is; it presents that the growth in sales has been rising as shown above as well as other ratios calculated. The graph shows the increasing operating profit, net income and operating margin among others. The relevant financial ratios are important in providing the strength of an organization. The information used in the section above is provided in the sheets below at the appendix.The cashflow statement provides an outline of the financing, investing and operating activities. Comparing the results given, one perceives that the cash flows have been increasing steadly. Other important ratios of the Fielmann AG are given below. Financial Ratios 2013-12 2014-12 2015-12 2016-12 TTM (Morning Star, 2017) The revenue of the company has been growing steadily as shown above. More importantly, all other factors measuring the financial performance of the company as shown above have been growing (Morning Star, 2017). The graph below presents the increase in the financial performance of the orgaization. (Morning Star, 2017) The graph above presents that from January 2008 to September 2016, the financial performance has been growing. Fielmann as presented above has a higher financial performance. In stocks shares the MDAX has the highest financial perfomance, followed by TecDAX, SDAX and it is followed by the DAX shares. The graph presents an increase in the dividend amounts of the company. (Fielmann AG, 2017) The graph above presents that the cashflow of the Fielmann AG has been growing steadily. This depicts a contant finncial performance of the business including an increasing in th profitability, operating sufficiency and netprofit margin as depicted above. Conclusion The Fielmann AG Company uses a concentrated (Expandable Company Scope), corporate strategy. The market share, performance and demand of Fielmann AG products is high, both locally and in the global economies it operates in, which stipulates the corporate strategy supports the goals and objectives of the business. Based on the SWOT and financial analysis provided above the Fielmann has a high capacity of been successful in the concentrated industry through financial and business performance through the increased profitability. References Bloomberg. (2017, 3 8). Bloomberg. Retrieved from Company Overview of Fielmann AG: https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=881949 The source provided information on the market share of the company in the industry, which is how we see that the company is the dominant leading optics company in Germany. The information also provided some insight on the financial performance and overall growth of the business. Fielmann. (2015). Annual Report 2015 . Fielmann, 1-139. Retrievd from: http://www.fielmann.eu/downloads/fielmann_report_2015.pdf This source helped find the information used to calculate the financial ratios. That is; the source has all annual information on the performance of Fielmann AG. It consists the 2015 and 2014 annual results among many financial statements that show how the company has advanced over a series of years. Fielmann AG. (2017). 4-Traders. Retrieved from Fielmann AG (FIE): http://www.4-traders.com/FIELMANN-AG-436069/financials/ The source was used to provide some of the Fielmann AG financial graphs showing the performance and productivity of the company financially. Fielmann Group. (2013). Annual Report 2013. Fielmann, 1-129. The source was useful in providing information regarding the financial performance of Fielmann AG in 2013. The information was used to calculate some of the financial ratios as provided above. The ratios depict the performance of the corporate strategy of the Fielmann Group and its financial performance. Fielmann Grp. (2016). Interim Report as at 30 September 2016. Fielmann: 3rd Quarter 2016, 1-8. This source was used to depict the financial performance of Fielmann AG at a glance. The information presents that there was high probability of the sales and profits of the company increasing from the ratios given in 2015. FMEAE. (2017). Precision Engineering and Optics. Retrieved from Federal Ministry for Ecoconomic Affairs and Energy: http://www.make-it-in-germany.com/en/for-qualified-professionals/working/industry-profiles/precision-engineering-and-optics This source was useful in identifying the characteristics and performance of the industry that Fielmann AG concentrates in. The source is useful in also presenting the SWOT Analysis of the Fielmann business in relation to the optical industry and corporate strategy of Fielmann. Jones, R. G., & Hill, W. L. (2011). Strategic Management Esentials. New York: Cengage Learning. The book was a useful source of information on strategic management. It was used to identify corporate strategies used in businesses and the corporate strategy of Fielmann AG. Morning Star. (2017). FIELMAN AG Financial Growth Ratios. Retrieved from Morning Star: http://financials.morningstar.com/ratios/r.html?t=FLMNF This source was useful providing additional information on the relevant financial ratios, and performance of Fielmann AG. Rothaermel, F. T. (2015). Strategic management. New York, NY: McGraw Hill. The book was used to give insight on strategic management to provide an overview of some of the issues to evaluate in the report. Appendix (A). Annual 2017 and 2016 Financial statement (1ST January to March 31st) (Fielmann Group, 2017) (B). As of 30th September 2016 and 2015 Cash Flow results (2015 and 2016 as of 30th September) (C). 2014 Financial Statement of Fielman AG http://www.marketwatch.com/investing/stock/flmnf/financials/cash-flow Read More