Managing Strategy: Pestel Analysis Of The Firm’s Macro Environment

MANAGING STRATEGY
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Managing Strategy
Introduction
Strategy is integral to businesses of all types and sizes. This report covers the competitive strategy of our company, industry overview, company overview, and decisions made. Our company is Company E. Also, the report describes the final results and my reflection of the exercise. The underlying strategic principles and key learning points about strategy are also discussed.
Competitive Strategy
In attempting to achieve real competitive advantage, the generic competitive strategy that our company has pursued is cost leadership strategy, also known as a low cost strategy. This generic strategy generally entails reducing the cost to the company of delivering products (Morgan 2014, p. 1013). The firm offers a comparatively low price for its footwear products with the aim of stimulating demand across the regions in which it operates and gain market share. Our company has adopted attractive pricing in order to be competitive against its rivals and enhance sales volume. Through the cost leadership generic strategy, our company strives to pursue a competitive advantage which is keyed to operating in a more cost-efficient manner compared to its competitors and seek to earn attractive profits by selling its footwear products at prices that are below those of its rivals. Charging a wholesale price that is lower than a region’s all-company average serves to put the firm at a price-based advantage as it competes against its rivals.
Industry Overview
PESTEL
The PESTEL analysis was utilized in analyzing the firm’s macro-environment.
Political: our company’s operations are greatly influenced by the political environment of the countries in which it operates. A stable political environment and an open-minded government present better opportunities for the firm and allow the business to thrive. Political instability in some parts of the world is unfavorable to business performance. Also, our company is impacted by manufacturing regulations and rules, as well as taxation in the markets in which it operates (Dockalikova & Klozikova 2014, p. 419). Export and import laws of the countries could affect how it distributes footwear products in different regions.
Economic: our company is affected by changes in exchange rates and tariffs. Economic growth in different countries around the globe means that people’s incomes are increasing which may result in an increase in demand for the firm’s footwear products as disposable incomes increase (GregoriД‡ 2014, p. 556). At the moment, the economic environment is booming which enabled our company to post huge revenues of $238 million last year and profits of $25 million. Our company has located its footwear factories in Latin American and Asian-Pacific nations due to the availability of cheap labor there considering that the compensation levels of workers in these regions are roughly twenty percent of the yearly compensation levels in North America and Europe-Africa regions. However, the wages of workers in Asia-Pacific and Latin-America is gradually increasing, which may compel our company to increase the prices of its footwear products.
Social: all over the globe, people are becoming increasingly health conscious and are shifting gradually toward better lifestyles. These people would certainly purchase lots of sports shoes and leisure footwear for engaging in activities such as jogging and exercises. This will make our company happy. Also, different countries have different cultures, meaning that the firm will have to develop different ads for different countries taking into account their unique cultures.
Technological: technology is of great importance as it enables organizations to innovate in various ways, from designing new products, to improving manufacturing, to interacting with clients, technology indeed provides value to companies (Fifield 2012, p. 43). At the moment, no company in the in the footwear industry has a technological advantage over other footwear producers that gives them an edge. The process of manufacturing comprises cutting materials and fabrics to size and design, stitching the different pieces of the footwear together, moulding the soles and gluing them, and binding the shoe top to the sole. The companies have adopted online sales which allow buyers to purchase online.
Environmental: with the increase in environmental consciousness worldwide, the impact of environmental factors on the profitability and performance of businesses has also increased. In essence, sustainability has become an important trend in the corporate world as companies are gradually putting more focus on decreasing their impact on the environment and conducting business in a sustainable manner (Yu, Eshleman & Soileau 2017).
Legal: law is a significant factor that affects the operations of footwear companies globally (Dockalikova & Klozikova 2014, p. 422). Our company must comply with all laws in the countries in which it operates. Nonetheless, while many countries, especially those in Europe and North America generally have laws which are by and large business-friendly, some countries have local laws and red tape that hinder profitable business operation.
Five Forces of Competition Framework
Bargaining Power of Customers – High: the customers include wholesale retailers and individual consumers who buy online. Large independent wholesale retailers can exert some bargaining power since they could increase their partnership with our company’s rivals or offer their own private labels so as to earn higher profits. In addition, end-customers can easily switch different footwear brands depending on breadth of product assortment of companies, S/Q ratings, and comparative prices.
Bargaining Power of Suppliers – Moderate: there are about 250 suppliers all over the globe who can furnish high strength thread, plastic and rubber materials for soles, interior lining fabrics, waterproof materials for external use, and shoelaces. There is high competition amongst the suppliers for orders from footwear manufacturing firms. No single supplier has a considerable bargaining power. There are significant switching costs in changing material suppliers (Grundy 2011, p. 214).
Threat of New Entrants – Low: the requirement for research investments as well as high capital investments limits the entry of new companies into the footwear industry. In addition, there is a threat from new electronic commerce companies. Setting up a footwear factory in addition to marketing and hiring workers necessitates a huge amount of financial capital.
Competitive Rivalry in the Footwear Industry – High: there is intense rivalry amongst the existing among the 4 to 12 footwear companies in the industry. This can threaten the market share growth of our company. The efforts of the competitors to compete in an effective manner and attract customers revolves around various factors including product quality and styling, pricing, advertising, endorsement by celebrities, breadth of product assortment, efforts to boost customer loyalty to make repeat purchases, sales efforts at their websites, mail-in rebates, amount of promotional, and merchandising support offered to footwear retailers.
Threat of Substitutes – Moderate: substitute products present a notable threat against the performance of our company (Dobbs 2014, p. 33). The moderate availability of substitute products poses a moderate force against our company given that clients have alternatives to the firm’s footwear products.
Opportunities and Threats
The main opportunity is an excellent prospect for a long-term increase in sales of our company’s shoe products. This is because sporty footwear has become the daily shoes of choice not just for young people and adolescents, but for children as well. In addition, adult consumers purchase sporty footwear for leisure and casual use, in addition to recreational activities. They are attracted by lower prices, easy-care features, and greater comfort than shoes made of leather. Furthermore, athletic footwear has proven to be extremely appealing to older persons who have foot problems and to individuals who spend a lot of time on their feet. It is expected that the combined effect of these factors would produce a seven to nine percent yearly growth in demand for athletic shoes worldwide for Years 11 – 15. The other opportunity is to adopt the use of technology in its factories to improve the manufacturing process and decrease worker error. The threats include increasing competition; retail sector across the globe being highly price sensitive; and company affected by adverse changes in exchange rates and tariffs.
Company Overview
Our company is an athletic footwear firm with two factories that manufacture footwear products: a four million-pair facility located in the Asia-Pacific and a two-million pair facility located in North America.
Company mission: to be a leader internationally in the footwear industry with products designed for leisure and a passion for a sporting lifestyle and sports in general. The firm is dedicated to strengthen its products and brands continuously in order to improve its competitive position.
Company vision: to be an international company that is both environmentally and socially responsible, monetarily rewarding to the shareholders and staffs, and embraces diversity and creativity. To be committed to delivering exceptional fiscal results time and again. To be consumer focused and constantly improve the overall image, feel, look and quality of our company’s products to meet and surpass expectations of customers and offer them the highest value; and to be a leader in the design and innovation of footwear products.
The markets/regions in which the firm operates include Asia-Pacific, Latin America, Europe-Africa, and North America. At the moment, there are four to twelve companies that compete in the industry. These companies are equal in terms of size considering that they have equal regional and global market share, sales volume, prices, footwear quality and styling, profits, revenues, costs as well as retailer networks. Our company’s competitive positioning per product type for the North America geographic region is best product in terms of design; for the Asia- Pacific geographic region is best product in terms of style; for the Europe-Africa geographic region is best product in terms of performance; and for the Latin America geographic region is best product in terms of quality and packaging.
The main potential strengths of our company include various models offered; product available in many retail outlets; strong brand portfolio and extensive product line breadth; strong brand name internationally; company is in sound financial position considering that it made $238 million in revenues in the past year; low-cost manufacturing; products are well-regarded by consumers; company is performing well internationally as it sells more than five million pair every year; enjoys customer loyalty; and uses multi-channel approach by distributing its products through various retail channels including physical stores and online. It sells in wholesale to various independent retailers, online to customers at its Web site, and private sales to big multi-outlet retailers. The main potential weakness is unfavourable S/Q ratings; does not offer free shipping; and lack of celebrity appeal. Another weakness is that the firm is heavily dependent upon the Europe-Africa and the North American markets given that unit sales in these regions were roughly fifty percent larger compared to the units in Asia-Pacific and Latin America regions. Another weakness is high reject rates on pairs of shoes produced owing to errors made by workers.
Decisions Made
For Year 11, the key decisions made include maintaining a high number of models availability, that is 200 models in North America region; and maintain a large number of retail outlets utilized, that is 3,000 in total (See Appendix A). These decisions were made in a competitive environment in which other footwear companies in the industry were reducing their number of retail outlets utilized and the number of models available. The results our company was hoping include increased sales, acquire new customers and retain existing ones, and gain market share. The demand increased from 1,282 pairs sold in Y10 in North America to 1,369 in Y11 for the wholesale segment. In addition, market share increased from 12.5% in Y10 to 19.2% in Y11. Even so, the expectations of investors were not met given that ea...