Strategic Management free essay sample

SP Singh for their guidance and constant supervision as well as for providing necessary information regarding the project amp; also for their support in completing the project. I would like to express my gratitude towards my parents amp; member of Rai Business School for their kind co-operation and encouragement which help me in completion of this project. I would like to express my special gratitude and thanks to industry persons for giving me such attention and time. My thanks and appreciations also go to my colleague in developing the project and people who have willingly helped me out with their abilities. ITC has also leveraged the exponentially growing potential of branded packaged food market in India. In addition the different segments of its business such as FMCG products such as (Cigarettes, Life Style Retailing, Greeting, Gifting and Stationary business, Safety matches), Hotels, Paperboards, Paper and Packaging, Agri Business including Agri commodities has allowed the firm to ensure that the business risk of being in the tobacco products does not hamper its growth. THE INTERNAL ANALYSIS THE CORE COMPETENCIES â€Å"Core competencies relate to those resources and capabilities of the firm, that when combined, enable the firm to attain a competitive edge in the market(s) in which it serves. † (RDI 2009b:2) Core competencies differentiates an organisation from all competitors and this is always difficult to imitate. The core competencies in an organisation helps to create value for customers and explore new market opportunities. The core competence in Yum is the development of the support structure for the whole business and not just the developments of formats since the organisation is in the consumer sector. Another Core business is to feed people and not just making food. Repackaging of what people wanted by making it interesting and not under estimating taste, making various products available at affordable prices by putting all the values of quality into consideration. â€Å"Core competencies enable a firm to gain long-term competitive advantage in the Market place. Core competencies lead to levels of performance that are better than competitors. Core competencies are difficult to imitate (by competitors). Core competencies should be long lasting and relate to human intellectual capital† (RDI 2009c:3) The value chain analysis can be used on the core competencies through the process of making the raw materials into finished product and service that is valuable to the customer. The value chain analysis shows the core competencies that can be used as competitive advantage over other organisations. THE EXTERNAL ANALYSIS – The Situational Analysis For Yum to operate profitably in the Chinese market, all the external factors affecting it politically, economically, socially, technologically, legally and environmentally must be considered. This will give the organisation the basic knowledge about the actions outside its environment. This may lead to threats or opportunities. â€Å"A PEST analysis is concerned with auditing the external environment in which the organisation operates to identify the key changes that are taking place. In particular, key changes that will influence the organisation in the future. † (RDI 2009d:4) PEST consists of different macro-economic factors with its usefulness for an organisation to be successful. It is a tool for planning business strategy and understanding all the external factors affecting a business but the business does not have control on. This may include government policies, current and future laws, tax rate, demographics, lifestyles etc. THE POLITICAL FACTOR The political and legal factors include legislative, monopoly, political and employment policies etc. In China, the antitrust law 2008 or the anti-monopoly law was given to foreign organisations trying to acquire or merge with local organisations. The local level of the Ministry of Commerce with different departments in government must critically analyse and certify this merger or acquisition. The political stability in China is good for business and growth in the economy. THE ECONOMIC FACTOR The economic factor includes interest, tax and exchange rates, inflation etc. One of the four key strategies at Yum was to build brands that is leading and significant in China by using its rapid growth in economy and population. China’s economy was the 3rd largest with GDP of around $3370b with regions, provinces and municipalities. There was growth in the annual earnings. THE SOCIAL FACTOR This include demographic (age, population etc. ), education, lifestyle change. The pattern of food consumption in China changed due to more money and prosperity in which suppliers were not able to meet this demand. There was also change in the taste of consumers as a result of tourism. Increase in educated and skilled workforce. The young, affluent, professionals and expatriates pattern of eating also changed as it is viewed as a link in knowing more people and building business relationships. THE TECHNOLOGICAL FACTOR The effect of using the new modern technology will affect the expected results in Yum! with the online presence of Yum where consumers can make orders. A large portion of the population has access to computers and mobile phones etc. THE LEGAL FACTOR This include the laws governing tax and trade in China. This involves all the laws governing China’s environment with social responsibilities. THE SWOT ANALYSIS S – Strength W – Weakness O – Opportunities T – Threat INTERNAL ENVIRONMENT STRENGTH Yum has support structure and not just formats for the whole organisation. It has its distribution system to support the organisation i. e. the management team is strong. The organisation is stable financially by having a formidable position in the market place (leader in market share). Continuous development of unique products and services by repackaging what customers want and not under estimating taste. Product diversity for various customers (strong brand) with the choice of KFC and Taco Bell or Taco Bell and Pizza Hut in a particular location. WEAKNESSES Yum has no online presence i. e. customer cannot make orders on the internet. Slowing down of US sales i. e. underperformance. Small or low market share in US and Europe. There is also the volatile bargaining power form suppliers and buyers (customers) OPPORTUNITIES Continuous expansion through innovative processes e. g. online presence. The expansion of its products and services. Availability of expansion abroad i. e. strategic merger and acquisitions by increasing its growth in China THREATS The issue of Chinese government protecting its brands. The issue of threats from competitors like Macdonalds. Low costs from competitors. The rise in the cost of manpower. The safety of foods. Government modification on laws and tariffs on foreign investments and imported commodities THE COMPETITIVE ENVIRONMENT PORTER’S FIVE FORCES MODEL This model is to know where the power is within the business environment. It shows the current and future positions of an organisation within the competitive environment. The Porter’s five forces Rivalry within existing competitors The threat of new entrants The threat of product or service substitute The bargaining power of suppliers The bargaining power of buyers Fig 1: Porter five competitive forces (Adapted from RDI 2009e:7) Rivalry within existing competitors – This is very high with competitors like Macdonalds, AFC Enterprise, Biglari Holdings Inc. , Bloomin Brands, Inc. etc. The threats of new entrants – this is low as it involves high entry cost for new entrants The threat of product and service substitute – this is very high due to competitors already in China market place. The bargaining power of suppliers – Profitability of Yum depends on this. The bargaining power of buyer – The power of buyers is very high within any organisation as customers have various products to choose from. Yum! has various products which customers can pick from at different locations. . 2. A merger or acquisition occur when two or more organisations come together to form a brand new company or when one organisation acquires others (this or these organisations will cease to exist after the acquisition). Merger and acquisition can be used when penetrating into a new market, expanding business and to have an edge over competitors. ADVANTAGES OF THE MERGER AND ACQUISITION OF LITTLE SHEEP BY YUM It will strengthen Yum! brand in China and bring Little Sheep to different international markets Porter (1987) cited in Hitt et al (1990: 30) discovered that acquisitions often resulted in unsatisfactory performance that in turn led to a large number of post-acquisition divestitures. RISK AND CHALLENGES Increase in competition among restaurants in China Increase in food and health problems with clean environments The problem of raising money for this expansion The problem of verifying and auditing revenues and costs There is also the risk of different culture and mismatch of human resources in the workplace Laying off many employees especially people with similar job function. 3. FACTORS THAT AN ORGANISATION SHOULD INVESTIGATE WHEN CONSIDERING ENTRY INTO EMERGING MARKET The internal factors to be considered are the structure and culture within the organisation STRUCTURE The structure within an organisation affects strategic planning. Function, product, geography and customer based are some structures to be considered. FUNCTION BASED – There should be different departments with different specialisations working together to achieve the corporate aim of the organisation. GEOGRAPHY BASED – The local needs are taken into consideration based on a particular location. CUSTOMER BASED- there should be attention on what people want by repackaging and making it interesting. CULTURE â€Å"Culture defines the way that people are chosen, developed, nurtured, interrelated and rewarded. The culture within the emerging markets should be considered ORGANISATIONAL POLICY The policies with the mission and vision of the organisations in the emerging market must be known STAKEHOLDERS Both internal and external stakeholder’s input should be put into consideration. Internal stakeholder include business owners, shareholders and all employees while external stakeholder include customers, suppliers to the organisation and the government. EXTERNAL FACTORS TO BE CONSIDERED Business Strategy Strong Average Weak Long-term marketattractiveness Highsize of market Medium Low Fig 2: The directional policy matrix (Adapted from RDI 2009g: 2) The long-term market attractiveness and the business strength are the two axes on the directional policy matrix. MARKET ATTRACTIVENESS SITUATION OF INDUSTRY The situation of the industry must be put into consideration. Within some market place, new entrants enter and leave without barriers whereas in others, it is not so as there are barriers making it difficult for new organisations. This is shown in Porter’s framework. There are 3 types of barriers namely artificial (import duty, legislative laws etc.), natural (accessibility, distance and culture) and the competitive barriers already present within the organisation. Factors such as the market size, buyers bargaining power etc. should be considered when entering into an emergent market. ECOMOMY AND CULTURE WITHIN THE INDUSTRY – This should be considered as different economic climate (such as the rate of economic growth, inflation etc. ), human factors affects business. TECHNOLOGY The technological infrastructures should also be considered. INTERNATIONAL COMPETITION – this should be considered to know the different types of competitors and the number.