Business Strategy Essays

Business Strategy Essays Business Strategy Essay Business Strategy Essay Liberalization and the context of business strategy 2. 1 What is liberalization? Liberalization refers to the relaxing of rules and regulations or policies of a government in a country. According to the scenario, in 1991, the Indian economy has been opened as a result of liberalization. 2. 1. 1 How did it affect the Indian automobile industry? The Indian government continued to have a closed economy until 1991. By then Maruti Suzuki was the market leader of the automobile industry acquiring a market share of nearly 83. %. But however the government decision of opening the economy in 1991 had significant affects on Indian automobile companies such as Maruti Suzuki. The main affect was the entrance of foreign competitors that made the industry very competitive and the situation made it difficult for domestic companies such as Maruti to retain its market share, which is clearly reflected by the drop of market share from 83. 1% to 60. 8%. This will lead to decline in the growth of India’s automobile industry. However there will be certain advantages on the Indian automobile industry such as the entering of resources from foreign countries which are cheaper than the resources in India. More access to technology will be another advantage to the Indian automobile companies from liberalization. 2. 2 Defining the context of business strategy The prime aim of a business strategy is to provide superior value, differentiation, and core competencies for an organization. (http://jobfunctions. bnet. com/abstract. aspx? docid=90501). Business strategy is a long term plan which adds value, differentiates and identifies key capabilities and capacities of an organization to make the best use of them. 2. 3 Importance of Business Strategy The strategy shows a direction to the organization to reach company’s vision. Gives an understanding about rapidly changing environment. Helps in overcoming problems. 3. 0 Significance of stakeholder analysis Any organization operating in the real world influences the environment or the people related and unrelated to it. Also certain individuals or groups of people also might have impacts on the organization. The individuals or groups of people who are interested or are influenced by an organization’s activities is called as stake holders. The stakeholders can be categorized as internal and external. According to the case study, Maruti Suzuki has started losing its market share after the liberalization. Therefore it is necessary for Maruti to carryout an analysis on different interests and impacts on interests of its stakeholders. An analysis of stakeholders, their stakes and impacts of liberalization on each of these stake holders are shown below: 3. The stakeholder analysis of Maruti Suzuki Government Interest: tax, sovereignty and prosperity The government decision to liberalizatio0n led competitors to enter the market and this will lead to a loss in sovereignty and prosperity of country. The government intention to collect tax would be affected as Maruti’s profits might now come down due to increase in competition. Competitors Interest: effective competition, gaining d ominant power The competitor organizations which were seeking for competing opportunities were effected favorably from the government action of liberalization. They made it an opportunity to enter the Indian automobile industry and compete effectively. This strategy of competitors was successful as they were able to capture Maruti’s market share by attracting most of its customers. Customers Interest: quality, variation, low prices, customer care The buyers, as they always look into new variations that are low priced and last for a long time have well preferred the foreign cars leading to a great fall in Maruti’s market share. (i. e. by 83. 1% to 60. 8%). Employees Interest: salary and other benefits The setting up of competing foreign automobile companies would have given job opportunities at better packages which might have led some employees to leave Maruti Suzuki and join its competitors. Japan based Suzuki Interest: company image, profits, growth This is the mother company of Maruti Suzuki. After the loss of Maruti’s market share and decline in profits, Suzuki’s image will be affected and in turn the profits will go down. Suppliers Interest: long lasting relationship, profits The suppliers of Maruti Suzuki will gain the advantage of higher customer base. They will also be able to sell the resources at a much higher price to foreign competitors than Maruti Suzuki. Therefore this will lead to a loss of some suppliers or Maruti’s competitors producing the same standard products. 2. 3 Internal environment 2. 3. 1 Corporate analysis Strengths Being the dominant market leader in Indian automobile industry acquiring a market share of 55%. Strong brand name of Maruti Suzuki. Increase in net sales to Rs. 90. 81bn. Increase in net profit from Rs. 3. 46bn to Rs. 5. 42bn. The capabilities of employees in Maruti Suzuki and their knowledge and ideas about new technology. The availability of new technology to manufacture and design cars. Established distribution and after-sales networks, and supplier base. Understanding of the Indian market and the agreement with the government. Contemporary technology of Japanese Management practices Early mover advantages Maruti Suzuki was the first company to have brought in the technology in Ind ia in 1983. Good promotional strategy is adopted by MUL to transform its thoughts to the people about its products E. g: Alto: â€Å"Lets Go† The fuel efficient and affordable car. The ability of Maruti Suzuki which helped in identifying its downfall and the application of restructuring strategy to overcome this situation. Weaknesses Difficulty in competing with other global car manufacturing companies due to the availability of insufficient resources and technology. Maruti Suzuki is a subsidiary of Japan based Suzuki Motor Corporation which means it is dependant and has less freedom of working as an individual body. For Maruti to perform better, it needs to convert the weaknesses within the organization to strengths. The weakness of insufficient resources and lack of advanced technology could be overcome by investing more on advanced technology. Further the existing workforce in Maruti can be outsourced in order to sharpen their tacit knowledge as they may now come up with new ideas. This factor might create core competencies in Maruti. However investing in new technology can only be done in the long run. Maruti Suzuki is a subsidiary of Japan based Suzuki Motor Corporation. Therefore it has certain disadvantages such as less freedom of decision making and etc†¦. ut however this might also have certain advantages such as being a part of a leading company Maruti Suzuki can maintain its market share, gain publicity, can get aware of and grow into new markets and etc†¦. the weakness of insufficient materials and less access to new technology could also be overcome by having a good relationship with Japan Suzuki Motor Corporation. Opportunities The increasing demand for cars in the global markets. Improvement in infrastructure will encourage consumers to purchase automobile. Indians’ preference to Indian products Reduced interest rates on automotive loans. Increase in purchasing power of Indian economy. The joint venture agreement between the Indian government and Maruti. Growing population in India provides Maruti with cheaper labour which help them to achieve the objective of producing low cost cars. Threats The improvement in concerns on environment protection will however create negative impacts on companies like Maruti Suzuki. The opening of economy to other countries caused foreign competition to enter Indian economy. Conversion of threats to opportunities would direct Maruti towards its success. The concern on environmental protection is a factor, which has a rapid increase globally. Car manufacturing companies are said to be creating major impacts on environment especially because of global warming which takes place due to air pollution and extraction of resources from the environment. To avoid this, Maruti Suzuki can carry out with effective CSR projects. This might increase its goodwill further. The opening of economy has helped new foreign competitors to enter the market. But however Maruti can make this an advantage as it is now easy for Maruti to aware about the strategies foreign companies are using. Also with the opening of economy, better imported resources might come to the Indian market with high quality and at a lower price. 2. 4 External environment 2. 4. 1 PESTEL analysis Political factors and legal factors Government policies on car industry. The introduction of ‘New industrial policy’ impacted Maruti Suzuki by increased foreign competition but however, it brought in new technology which was beneficial to Maruti Suzuki. Taxes which might be already existing and may be implemented in the future. The joint venture agreement between the government and Maruti has effected the company favorably in 1981. The improving economic stability in India would help Maruti Suzuki in improving its performance. Economical factors Liberalization The opening of economy to other countries caused foreign competition to enter Indian economy, which dropped down Maruti’s market share by 22. 3% (i. e. from 83. 1% to 60. 8%). The Economy of India is the eleventh largest in the world by nominal GDP and the fourth largest by purchasing power parity. The countrys per capita GDP is $3,176 (IMF, 127th) in 2009. (source: http://en. wikipedia. org/wiki/Economy_of_India). Further the GDP of India proves to be increasing from 1960 to 2009 which in turn means that Maruti Suzuki will have an increasing demand for cars, as cars are prestigious or luxury products. The State Bank of India reduced interest rates on automotive loans in February 2009 (source: http://en. wikipedia. org/wiki/Automotive_industry). This means that Maruti Suzuki will gain an advantage of borrowing further loans at a low cost of borrowing in turn leading to expansion of the organization. Socio cultural factors Indians’ preference to Indian products The Indians usually prefer truly Indian products rather than imports, therefore Maruti Suzuki being an Indian car manufacturing company will be preferred by most of the Indians. Taste and fashion The preference of markets for latest designs and long lasting variation and colors will increase demand for cars produced by Maruti Suzuki. The busy living styles of people in each part of the world would persuade them to have their own vehicle which is fuel efficient and easy to handle. This would be another great opportunity to Maruti Suzuki as it is specialized in producing fuel efficient and cost effective cars. Technological factors Use of upgraded technology to manufacture cars E. g. CIM (Computer Integrated Manufacturing) To compete effectively Maruti redesigned its structure and the major changes took place was the upgrading of manufacturing using new manufacturing techniques and use of information technology which brought back the declined market share to 55%. Improved technology in designing E. g. CAD (Computer Aided Design) and CAE ( Computer Aided Engineering) The technological advances in designing cars has helped Maruti Suzuki to come up with new designs to meet up with customer requirements. Environmental factors Improvement in infrastructure will persuade markets to purchase automobile. The improvement in concerns on environment protection will however create negative impacts on companies like Maruti Suzuki. 2. 4. 2 Porter’s five force analysis [pic] Threat of substitutes The major threats of substitutes to an automobile company like Maruti Suzuki can be identified as other types of vehicles such as vans, jeeps and bikes. E. g. : Motorcycles as a segment have grown at a CAGR of 17. % during the last 16 years, while other two-wheelers (scooters, mopeds) have been virtually stagnant, growing at a meager CAGR of 1. 8%. (source: indiaautomotive. net). Considering the above example it is much clear that there is a growing demand for substitutes of cars which will affect Maruti Suzuki. Threat of new entrants Threat of entry refers to the entry and exit barriers of an industry. Maruti Suzuki is an already established company which has been operating since 1971 and it is the market leader in the Indian automobile industry. This would be a threat for the new entrants. However to a great extent, Maruti will not be affected due to an entry of a new organization as entering to automobile industry requires high initial capital and include greater sunk costs. These factors might avoid new entrants but Maruti need to continue with its market research and use new strategies to retain its market share, in case if a new entrant comes to the market. Bargaining power of customers Customers can not directly control the price of a product. But however, according to changes in prices they can vary their demand. Cars are usually considered as luxury products in the economics context, therefore they have inelastic demand. So an increase in price would not lead to a huge fall in demand, but however it is necessary that Maruti Suzuki controls its prices as competitors might make advantage of unstable prices. The responsibility of making low cost fuel efficient cars may be an advantage at this point. Bargaining power of suppliers Bargaining power of suppliers can be considered as a very powerful factor in this scenario. Maruti imports most of its components from other countries and the prices of these components are set up to global standards which might be quite expensive for Maruti. Further Maruti would be a small customer to its suppliers in comparison with other large automobile companies. Therefore, here, the suppliers are seem to be having greater control or bargaining power over prices and other conditions compared to Maruti Suzuki. Competitive rivalry within the industry This is the extent of competition between car manufacturing companies. The competition seems to be very high in the industry as Maruti Suzuki has loss a significant amount of its market share due to rivalry. [pic][pic] [pic] According to the above diagram, it is very much clear that Maruti Suzuki acquires the 11th place in the global automobile market. 10 large competitors have greater shares of market are operating effectively in the global market. Therefore, the rivalry in the market can be said as very high and it would be difficult to Maruti to compete with them. However, the rivalry within the Indian automobile industry can be considered as favorable to Maruti Suzuki as it is the market leader having more than 50% of market share. [pic] 5. 0 Growth strategies 5. 1 BCG matrix [pic] BCG matrix of’’ Maruti Suzuki’ According to the above BCG matrix, it could be seen that Maruti Suzuki operates in all the 4 grids which are namely stars, question mark, cash cow and dog. The new models of cars introduced by Maruti Suzuki ( Grand Vitara and etc†¦. ) are said to be positioned as stars since they have an increasing rate of growth and high market share due to increasing customer demand for new models of cars. Selling stocks or the cash cow grid indicates products with low growth and high market share. These would be cars, which are already being existing in the market for a long time and have reached their maturity to have high market share and low growth rate. E. g. Maruti Alto, Swift and etc†¦. ) The question mark, which shows the products with high growth rate and low market share, would be the extra stocks of cars. These products would not help in increasing market share but would increase the growth rate through increase in sales if the stocks were sold at a reduced price. The dog would classify cars, which are outdated or old models, which have a declining trend. For example, Maruti WagonR, an old model that was existing in the market for a long time is now slowly reaching its exit. These products have low market growth and low market share due to less profits and declining sales. . 0 Positioning techniques 6. 1 The position of Maruti Suzuki in the market Maruti Suzuki has its major resources such as cheap components, fuel efficient cars, strong relationship with customers and employees, use of developed technology and etc†¦. It further leads the Indian automobile market with a market share of 55%. Maruti Suzuki operates both in domestic and global market . Globally it acquires a market share of 0. 7% being a part of the 11th largest automobile company, Suzuki. Operating systems in the organization for the purchasing and selling process is highly monitored by its management. This will allow making more profits by reducing wastage and unnecessary costs. This is an added advantage to Maruti Suzuki when comparing with the other competitors in the market. Considering all the factors which were mentioned above it could be seen that Maruti Suzuki has built up its position in the market at a stable level and need to improve further with new strategies. 6. 2 strategic positioning 6. 3Ansoff’s Matrix [pic] Ansoff’s matrix on Maruti Suzuki The activities involved in market penetration are to improve the business performance with existing products while operating in the existing markets. The necessary steps Maruti can use to achieve this is to use effective advertising, promotional techniques, increase quality, minimizing costs and increasing output and sales volume. Maruti Suzuki already operates in a number of countries with its successful product ranges. However the organization could further expand by identifying the opportunities to enter both foreign and local markets with its existing products- Maruti Baleno, Maruti Esteem, Maruti Swift, Maruti Zen, Zen Estilo and etc†¦ Use of effective research and development would help Maruti Suzuki in achieving this growth strategy. The third criterion to be used is product development, which necessitate Maruti Suzuki to come up with new ranges of small cars with new designs and brands. Finally, the fourth grid, which is diversification, allows Maruti Suzuki to come up with new brands while targeting new markets such as substitute markets and, foreign and local markets. Maruti Suzuki has already used this strategy as it has come up with new substitutes- vans and jeeps. These can be considered as the positioning strategies of Maruti. 3. 0 significance of stakeholder analysis Any organization operating in the real world influences the environment or the people related unrelated to it. Also certain individuals or groups of people also might have impacts on the organization. The individuals or groups of people who are interested or are influenced by an organization’s activities is called as stake holders. The stakeholders can be categorized as internal and external. An analysis of stakeholders, their stakes and impacts on Maruti Suzuki are shown in the table below. 3. 1 the stakeholder analysis of Maruti Suzuki |Internal stakeholders |External stakeholders |Stake/ interest |The effect on Maruti | | |Government |Sovereignty and prosperity of |The government decision to pass | | | |country. down the responsibility of building| | | | |low cost, fuel efficient cars for | | | | |the Indian market was favorable to | | | | |Maruti. | | | |The government intention to collect| | | |Tax advantages. |tax from Maruti will increase the | | | | |cost of Maruti. | | | |Government decision of | | | | |liberalization too created negative| | | | |impact by making the market more | | | |Being more competitive among |competitive. | | |foreign countries. | | | |Competitors |Capturing the Indian automobile |The entrance of foreign automobile | | | |industry. companies from 1991 created an | | | |Compete effectively with Maruti |adverse effect on Maruti by | | | |(the market leader) |creating a downfall in Maruti’s | | | | |market share. | |Buyers |Modern designs. |The buyers, as they always look | | | |Low prices. |into new variations that are low | | | |Long lasting cars. priced and last for a long time | | | | |have well preferred the foreign | | | | |cars leading to a great fall in | | | | |Maruti’s market share. (i. e. by | | | | |83. % to 60. 8%). | |Employees | |Job security. |Well-trained employees who could | | | |Considerable pay and other |easily adapt to new technology | | | |benefits. |would have directed Maruti towards | | | | |the recovery of market share. The | | | | |effect of their interests would be | | | | |increasing costs to Maruti. | 4. 0 Environmental audit These can be considered as factors leading to environmental stability. They are as follows: Technical change The improvement in technology and discovery of new technology based principals (CIM, CAD, CAE) have helped Maruti in improving its product quality and design. Competitive products and prices The competitive automobile companies such as Toyota, Honda, General Motors, Ford, Mitsubishi, Nissan and etc would affect Maruti by introducing price and non price competition. Price competition techniques could be analyzed as new products with various designs, improved after sale services and price competition can take place through cutting down prices, tax allowances and etc†¦Ã¢â‚¬ ¦ Therefore Maruti can keep low margins and less their cars at a very low price while designing cars which attracts customers. Inflation [pic] Source: ( property-investing. org/images/India) The inflation rate of India is expected to fall in the next few years. Therefore, this would show a positive signal to Maruti Suzuki as certain resources, which would be bought from the Indian market, would be available at a low price than before and the organization would now be able to cut down some of its costs. Therefore, the final product produced would be cheaper allowing Maruti to compete effectively. Also the purchasing power of Indian citizens would then increase leading to higher demand for cars. Demand variability There will not be much change in demand, as cars are not seasonal products. However, due to other factors such as increase in inflation rates, increase in GDP, changes in living styles and changes in taste and preference, there will be a slight change in demand for cars. However, Maruti Suzuki can overcome these problems with the continuous production of low priced cars with various designs. Elasticity of demand El asticity of demand for cars is said to be price inelastic as they are luxury products. Therefore, an increase in price would not create a major impact on demand for Maruti. However, the unsold cars could be sold at reduced prices in markets where economy is under development. E. g. , the car prices dropped down in Sri Lanka during the financial year 2010 Barriers to entry Economic forces that slow down or prevent entry into an industry or market are known as barriers to entry. Capital requirements, product differentiation, switching cost, brand identity, access to distribution channels are some of the common barriers, which slow down organizations from entering into new markets. Capital requirements, switching costs and access to distribution channels are some of the main barriers for Maruti Suzuki. However the company is already established in the Indian market therefore technology, plants and assembly lines which are already owned by the company can be used to grow into new markets. Access to distribution channel would be easy, since Maruti Suzuki is a subsidiary of Japan based Suzuki Motor Corporation. Substitute products The substitute products of Suzuki can be classified as other types of vehicles. This factor has been overcome by Suzuki through the production of a van which has already being introduced to the markets. 7. 0 Process of strategic planning The strategic planning process of a company includes its mission, objectives, internal environment, external environment, corporate analysis or strategic formulation, strategic implementation and analysis of results while reviewing and controlling. [pic] (Source: google. lk/images20planningtbs) 7. 1 Vision â€Å"The leader in the Indian auto mobile industry, creating customer delight and shareholder’s wealth, a price of India† . 2 Mission and objectives The modernization of the Indian automobile industry. Developing cars faster and selling them for less. Production of fuel-efficient vehicles Market penetration, market development, product development and diversification. Partner relationship management, value chain, value delivery net work. 7. 3 Internal environment i. What are Maruti’s resources? Mate rials Use of imported resources to manufacture cars. Reduce wastage due to application of techniques such as TQM and use of advance technology. Human resource Skilled and experienced employees in the industry. Special training is provided to improve the capacities and abilities of human resource. Management An effective and well specialized management. Easily adaptable to market changes. Risk takers. Brief knowledge about customer preference and their buying patterns. Fixed assets Maruti Suzuki own many fixed assets such as plants, machinery, buildings, factories equipment and technical assets. Working capital According to the statistics,75% of company’s components are outsourced. Manufacturing is undertaken on JIT inventory principals. Finance Obtaining loans from banks at a low interest rate as the interest rates on automotive loans has fallen. Increasing profits and sales revenue. Intangible assets Maruti Suzuki’s highly performing staff and the strong b ond with customers are form of intangible assets. Company goodwill. Organization and culture Employees from different cultures, religions and races with different attitudes are employed in Maruti. Maruti Suzuki takes over many CSR projects to meet up with the ethical requirements. The organization has a 360degree view which means it considers customer views, employees and other involved parties when making decisions. Knowledge The knowledge of the employees are improved through outsourcing them and giving them special training. This benefits the organization by gathering a pool of new ideas and creating core competencies. ii. Current positioning in the market ( please refer to page 7. 4 External environment (please refer the PEST analysis and porter’s 5 forces on page 7. 5 Strategic formulations ( please refer the SWOT analysis on page 7. 6 Strategic implementation Strategic implementation is a process by which strategies and policies are put into action through the development of programs, budgets and procedures. The main corporate resources of Maruti Suzuki can be classified as materials, human Resources, management, fixed assets, technology, working capital, finance, intangible assets, organization and knowledge. Maruti Suzuki is involved in both manufacturing and selling its cars. Components, human resources, fixed assets, working capital (inventory) and technology are certain factors, which need to be allocated effectively in the production process. Components should be purchased after the selection of low priced, quality component suppliers in order to keep up with Maruti’s objective of low cost cars. The other factors such as management, intangible assets, and knowledge could be used in areas where planning is involved. Management needs to prepare strategic plans such as restructuring whenever needed. Intangible assets such as customer loyalty and company goodwill are factors, which will be considered by the customer when purchasing the product. The knowledge of employees about the company and other operation should be broad, especially when it comes to customer handling. Therefore proper training should be given to employees. 7. 7 Strategic choice Strategic choices involve understanding the underlying bases for future strategy at both the business unit and corporate levels and the options for developing strategy in terms of both the directions and methods of development. (Source: Johnson, Scholes and Whittington, 2008). Maruti Suzuki outsource more than 75% of its components. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, and cost of re-structuring. The designs of the products should be improved and augmented regularly to make advantage of effective competition. The application of this strategy could be supported with effective marketing research. 7. 8 Review and control Review and control is important to strengthen the strategies that are being implemented. Assessing actual performance to budgeted performance can be described as review and control. The expected work level of strategic level can be considered as much higher than tactical level normal employees. This is due to management’s engagement in planning, coordination and risk taking. Maruti Suzuki will have to bear a large cost on giving training to employees which might drop down its profits by a certain amount. But the improvement in employee performance after the training would bring back the investment cost. The positive effects on restructuring were shown by increased sales and profits. However if the restructuring was not successful Maruti needs to have a backup plan for its safety. This would be the carrying out of effective advertising campaigns and promotional activities or investing more on advanced technology. 8. 0 evaluation of alternative strategies . 1 substantive growth 8. 2 limited growth 8. 3 retrenchment 9. 0 selecting an appropriate future strategy Cars with new models E. g. new version of Grand Vitara Outdated stocks E. g. Maruti 800 Selling stocks E. g. Maruti Alto, Maruti splash, Maruti Swift Excess Stocks of cars Developing new brands of cars Moving into new foreign markets with existing cars Vans and jeeps E. g. Maruti Omni micro van, new range of Grand Vitara, Maruti Versa, Maruti Gypsy. Cars E. g. Maruti Baleno, Maruti Esteem, Maruti Swift, Maruti Zen, Zen Estilo.