MBA

Strategic Analysis of International Business (SAIB) Assignment 2

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Overall summary of our performance

Our adherence to strategy

Our initial strategy was to increase market penetration in the areas that we served. We kept to this strategy by increasing both consumer and product advertising. We felt that as the market was still new in terms of the products offered it would be more beneficial to sell our existing products by creating awareness instead of making any drastic changes from the start to the products that were in our stable. This strategy worked as our net income rose slightly for first 3 periods, see Figure.1.

Figure.1 Net Income for Industry

We also made minor price changes to our economy class vehicle Alec by lowering it and did some minor upgrades to our family class vehicle Alpha to keep the product attractive amidst rising competition and lowering sales. In doing so we did not raise the price for our improved

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product as to keep in line with our more for the same strategy to increase our competitive position.

Our first 3 years were quite straightforward as we kept to our pre-planned strategy. The next few years moving forward were the challenge as our initial strategy was to develop a new product for the B2B market. When it was time to utilize this strategy the market news indicated that the truck segment was a potential new segment. We did a concept test and found out that the truck segment was only indicative and might not materialize. Hence we did not carry out our intended development as the concept test results had us spooked. We hence deviated from our horizontal integration plans and decided to continue our initial plans of market penetration. This did not offer any reprieve from our sales results which were literally nose diving due to our product range which was getting outdated in comparison to the competition who at this stage were full steam ahead in their plans with new developments.

Our next part of the strategy for the last few years in the market we wanted to look at the Luxury class segment. When it came to this strategy we were financially strapped and had too much inventory hence we could not make the decision to start any development partly due to the high cost we faced with.

On the whole we only followed our initial strategy of market penetration during the early years of the business. As the market developed and presented various new challenges we altered our strategy to match the market conditions. Hence overall there were major deviations of strategy on our part.

Reasons for not following initial strategy

After some self reflection we realized that the main reason for not following the initial strategy was due to our less risk adverse nature, our own capabilities. In fact we were both of similar character in terms of taking on risk which was minimal. This when coupled with the massive losses we could potentially face were the main reasons for us not following the initial strategy plans.

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The first few years the strategies we wanted to deploy were also affected by factors influencing the business environment such a reduced GDP, high gas prices and high inflation. Using this information some decisions were made to counter these development. For example we reduced vehicle prices when we though purchasing power of our target customers would be reduced when GDP was affected.

During period 5 we were faced with a major reduction in net income. At this point we only wanted to consolidate our position after evaluating the reasons for the losses. One major factor was declining sales leading to excess inventory. We had to decide if we wanted to do any development. This is when we realized that each development would take 3 years and massive amounts of money. Hence we were faced with time and financial constraints. We then had to stop our production for our Alec model in order to move our excess inventory. All this meant we had to alter our strategies as constant new market developments and industry movements meant that our well laid strategies had to move in tandem response as well.

As new developments were out of the question we then changed tact and decided to stick to our initial products and do major upgrades to them so that our inevitable losses would be kept to a minimum. These reason led to us not keeping to our planned strategies.

Reasons for not achieving anticipated and desired performance

Of course the desired performance for our company was one with great profits but we were lucky to get away with lesser losses at the end of the simulation. Although our net income (Figure. 1) was positive towards the end, our cumulative net income figures were less then stellar, refer to Figure. 2. The main reason for not achieving the desired performance was due to the non-development of new products as our competition had mostly all went into some form of development and had fresh products to offer end users as well as corporate customers. All we had were our totally upgraded products which were up rated on specs and with price tags kept low to remain competitive. This also meant lesser margins for us as the upgrading had increased our base costs. We were trying to adopt our cost leadership strategy but we had neither economies of scale or were in a position to reduce input costs. We now

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had to move more units in order to remain profitable. Although this proved mildly successful that was not the performance we had initially planned for our business.

Another reason was during the initial stages of our growth we had not realized that our dealers were practically non-existent. We were growing steadily and then we started to stagnate, this is when we realized we had made a grave mistake in not establishing more dealerships and this led to lost of market share and sales volumes. This mistake which took awhile to reverse had also hurt our planned future strategies and sales volumes. Hence deviation from the plan and fluid market changes with stiff competition led to us not achieving our dreams for our business.

These factors meant that the only viable strategy for us was of continued market penetration and to consolidate our position in the industry. Although we did finance our upgrades through the issue of bonds and selling of our shares this was done at a minimum when excess inventory had to be written of due obsolescence. When compared to other companies in the industry our debts were manageable which in our view would have been repaid had the simulation continued. Hence using the market penetration strategy while being a viable strategy, it is not for the long term to reap huge profits in an intensely competitive environment.

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Lessons we have learnt

On hindsight we should have better planned our strategies and stuck firmly to it without deviations. During the first few years when the business was making some income it would have been better to use the generated funds to start development of a new class of vehicle right away. Doing so would have meant we could have developed new products in time to market and reap potential profits over the course of the simulation. As the simulation progressed we realized that a substantial amount of funds would be needed to start development and chose to be safe and not take unnecessary risk. The development time frame of 3 years was also another factor in not pushing ahead of development during midway. This was exactly what we should not have done but rather take the risk and start early regardless of the concept test results.

The lack of decisive actions on major decisions meant that we lost the momentum in the market which was building the first 3 years. Once we crossed the 3 years it was fated that without the new strategies deployed we were definitely going to go downhill. This was proven with our nose dive in year 5. From that point on we were in recovery mode with various issues like lack of funds, excess inventory and poor distribution planning and poor sales. All this could have been averted if we had started our expansion strategy much earlier and looked at the details like distribution.

We learnt that the market was fluid in nature with real inputs from our competitors derailing our attempts to recover. They were eating into our market share with better products, better distribution and marketing. A more detailed study of each competitor at each decision stage would have been more effective in combating their moves.

Moving forward

In future having a strategy on paper is just not enough. There must be fallback plans for each strategy during each time frame. Once there is a strategy in place we have to stick to the

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strategy and take on more risk especially when the market is at its infant stage. We did not take the first mover advantage and surprise the market which some of our competitors did.

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KEY SUCCESS FACTORS We segmented the wants and needs of customers according to the 5 consumer segments:

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Consumer Segments Traditionals Moderates (largest segment) Fashionables Achievers Enterprisers Go for low price

Wants/Needs

Traditional suggesting loyalty to brands. Do not change easily Like to upgrade to new models. Brand conscious. Look for enhanced features Open to change. Brand and quality conscious. Price not an issue Business users who are price conscious and keen on economy

Table 1: What consumers want

Keeping this in mind (table 1), we determined that for automobile manufacturers to survive competition they will need to: 1. Have adequate financial resources to offer competitive pricing strategies 2. Adopt strategies to meet local demand, especially for the traditionals and moderates who make up the larger segment. 3. Create a superior brand image and reputation to achieve customer loyalty and market share The Key success factors for the industry can thus be summed up to be: 1. Economies of scale to be able to achieve lower costs and offer lower prices. 2. Have strong relationship with vendor to ensure that there are no delays upstream 3. Speed of responsiveness of firms to market changes will be crucial in achieving competitive advantage

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Figure 6: External Strategic Factor Analysis Summary for Amazing Cars A Total weighted score of 2.675 clearly indicates that Amazing Cars have opportunities that need to be explored and threats to be taken seriously to remain profitable or increase market share. FINDINGS OF THE EXTERNAL ENVIRONMENTAL ANALYSIS Amazing Cars will have to be mindful of the macro factors, especially opportunities and threats when they formulate their strategies. The Automotive Industry offers medium to high attractiveness in terms of profitability and the recipe for success in the industry are Economies of Scale, Vendor relationship and Speed of response to market changes. FINDINGS OF THE INTERNAL ENVIRONMENTAL ANALYSIS Despite not having enough information and data to identify Strengths and weaknesses, as well as core competencies, Amazing Cars market share of 33% and internal resources puts it in a strong competitive position.

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PROPOSED STRATEGY

Figure 7: Strength/Industry attractiveness convergence

Figure 8: Corporate Position/Direction

In the above figures, we see that Amazing cars is in a strong competitive position in a medium to weak industry with the corporate direction geared towards Growth. We recommend the following Growth strategies for Amazing Cars: 1 to 3 years Increased Market Penetration through Marketing Mix Improvements, especially in the North and West regions of china where Amazing Cars has very poor market share at 1% each.. Here the focus will be to increase its competitive position in the China market by looking at offering more for the same, greater investment in advertisement and promotions, as well as in technology enhancements to improve performance and features. 3 to 5 years Horizontal integration by expanding its model range to take advantage of the untapped B2B market which includes taxi companies, parcel carrier fleets and freight businesses. 5 10 years Expansion into the Luxury market in China. This class/segment seems to have less intense rivalry and offers an opportunity for greater profitability and reaches out to the Fashionables and Achievers.

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As presented in Figure 9 above, we recommend Cost Leadership as the business strategy so as to be able to offer more for the same Value proposition, ie seeking to reduce costs for the Alec and Alpha model of cars. This can be achieved by Economies of scale by having greater production. Reducing input costs

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