Business strategic management
Executive summary
A company may experience rapid expansion following increased demand for its products. This has resulted in globalization, and increased revenues realized from market advantages. Typically, the development of an organization to explore international markets requires research on a macro and microenvironments. Thus application of PESTEL analysis as well as Porters Five Forces framework helps in understanding the two environments of an organization. Other tools applied to understand a company’s position in the market is the Porters Value chain analysis and identification of competition through potters generic strategies. The directions of the market are then realized from the appropriate application of these tools.
Introduction
Lolas’ Cupcake Limited is confectionery manufacture located in London, United Kingdom. This company was established in 2006 by Victoria Josser and Romy Lewis, who identified the existing market with limited suppliers. During the company, market-entry, operations were subsistence marked by a collection of orders from the neighbourhood then baking from their parents’ kitchen. Since the products were of high-quality meeting the consumer demand, the market opened up to extended adjacent towns then saw the production exercise shifted to the Promise Hill for increased production.
Since the formation of the company, there have been drastic changes in activities carried out by Lolas’ Cupcake Limited. Firstly, the number of employees has increased from 2 to a total of two hundred working in two shifts to meet the market demand. On the other hand, the assets of this organization have improved from $20,000 to $1.5 million within two years of existence. The company has also realized an increase in the total sales of birthday cakes as well as bread and biscuits. Brand demand has thus increased, leading to the establishment of departmental stores in different streets of London within the first year of market operations. Consequently, the second year of trading encountered the opening of new retail shops in London, thus indicating an increased demand for the good. A review on the consumers’ profiles showed that both local and foreigners from Hong Kong have a taste for the company’s products.
Although trading activities have proved to be a success for this company, a review has indicated challenges faced. Firstly, entry into some local streets has remained to be a nightmare following dominance from companies that have been in this industry for decades. The establishment of retail shops in such areas is impossible following extreme conditions for renting shops. Contrarily, demand for Lolas’ Cupcake has been on the rise in such areas, and there is a need to consider this matter. The second challenge is faced on consumer profiles reviewed. The Hong Kong nationals enjoy the organization’s products citing that it meets their cultural practices. Therefore they would prefer to enjoy a continuous supply both in the UK and back in Hong Kong.
Human resource management is another issue affecting the company. About 60% of the employees are Hong Kong nationals who have helped to meet the market needs by considering consumer tastes and preferences. However, the reliability of these employees in questionable as the company is unable to retain them for a longer duration. Consequently, the last winter faced reduced sales when the human resources were reduced following travels by Hong Kong employees to their home country. The market demand was never addressed, leading to some consumer surviving from rivals products as the company faced production limitation.
The understanding of legal requirements for the Food and Drug Act is not adequately understood. The company has faced two lawsuit cases challenging the nature of employees working conditions as well as protection against hazards that may occur. Limited capital resources contribute to the fundamental explanation behind legal issues faced by the company for meeting additional expenses. Capital constraints have a further limited purchase of machinery and other products for productive production activities. Currently, the entire production process is centralized in the Promise Hill despite posing a risk of stagnation of company activities to address the market demand. The possible consequence that can arise from this state includes losing key market to competitors.
In the last annual general meeting, the committee resolved on expanding the size of the market served. This was to be attained by the establishment of production plants in Hong Kong since there is a demand for the organization products. Before the establishment of the Hong Kong branch, there is a need to understand the macro and micro environments that this organization will operate in. Secondly, there is a need to identify the existing competitors’ activities in the international market and formulate strategies directions that will be used in the proposed expansion process. Among the key issues to be considered are resources and management plans. The research was thus conducted, and the finds are presented below.
External environmental analysis (opportunity and threats)
The external environment analysis for Lolas’ Cupcake analyzed its opportunity and strength. According to Kor et al. (2020, p11), this analysis must evaluate the political, socio-cultural and economic considerations as well as the legal struts of operations and the technological interventions used. In the same way, the microenvironment was evaluated based on the Five Forces Framework analysis for industries. The challenges analyzed from operations of the company in an external environment determined strategic planning and possible adjustment to implement the proposed expansion in Hong Kong.
PESTEL analysis
Review on political factors indicated political stability and low tax policies for international investors in Hong Kong. The country offers tax relief to Britons willing to invest in their country (Demvich et al., 2020, p53). On the other hand, the region is open to both local and international trade. Hong Kong poses as one of the fastest-growing economies with an annual margin of 9.4 in a population comprising of the working class who have a better purchasing power. Consequently, the association between the British and people from Hong Kong has been remarkable, leading to bilateral trade among citizens of the two countries. The further social attribute of Hong Kong citizens indicates their willingness to interact with foreigners.
Technological interventions have seen the establishment of numerous companies in Asia, making Hong Kong be a second class country in innovations. Trading activities have thus been done online where consumers enjoy direct interactions with the company (Certo, 2020 p12). Social issues in this region are marked by security for business entities arising from individual discipline. Another consideration is on the legal factors influencing business activities. Hong Kong has not revised its labour terms, and thus the cost of production is relatively cheaper in this region. Health and safety rules have also been put to place for the protection of both organizations and consumers. Understanding of such laws will enable smooth market activities by the company even when exploring the foreign markets.
Five Force Framework
Use of Porter’s Five Force framework analyzes the industry performance, and possible revenues realized. According to the structure, rivals actions should have motored in addition to considering other factors in the business environment (Dobbs, 2020 p9). Application of this framework indicates that Lolas’ Cupcake can understand consumer needs and offer better deals than the rivals who have been in existence for decades. Supplier power is realized form available alternatives which are willing to transport factors of production in both local and international markets for this company. Since the formation of the company, suppliers have been ready to be part of the growing success that has seen an expansion in the UK.
An increasing population presents buyer power in Hong Kong, characterized by willingness and ability to purchase. From the market-based customers who have subscribed to the organization’s product, there is the possibility of gaining power over them (Narayanan & Fahey, 2005 p78). Another consideration is on limited outsourcing that is done by local investors dealing in similar products. Customers will thus be loyal to products and experience they are offered, leading to increased sales in the foreign market. Similarly, there have not been recorded threats to newcomers in this market-leading to increases international investment. Further considerations reveal that there are reduced threats to entry since the entry into the market will require little capital, and acquisition of production permit is also more straightforward.
The analysis of the macro-environment presents unexploited scenarios that can lead to the success of the company’s activities in the foreign land. There is local protection from the Hong Kong government as well as international trade regulation that will ensure the success of the organizational activities. In the same way, the five force analysis presents a limitation to external interference that can limit market activities by Lolas’ Cupcake limited while seeking to expand its operations.
Internal environmental analysis (strength and weakness)
Evaluation Lolas’ Cupcake internal environment applies the use of VRIO model that is considered a section of Resource-Based View (RBV) that associate performance to internal traits of the company. Thus, this analysis found additional factors beyond Porters Five Forces to determine the organizational performance (Vargas et al., 2020 p205). Just like in five forces, this framework provides a classification of corporate resources into tangible and intangible as well as humans and or organizational resources that cannot be transferred. For the understanding of VRIO model in organizational research, evaluation is conducted on available valuable, rare and inimitable VRIO together with the organization’s comprehensive support.
Valuables
The company has human resource who are from Hong Kong, the proposed expansion country in Asia. This is a strength that can build the organization’s reputation by limiting incidents of possible discrimination or philanthropism. However, there is a threat expressed on the changing nature of labour requirements, mainly when the international labour laws are applied. On the other hand, conducting the business operation in Hong Kong may face challenges when the target source of labour turn out to reject employment slots offered. Interventions to this situation may be achieved by lowering the prices of goods and services by the company.
Rare
The company has been in operation for two years from its first operation. Consequently, intensive growth has been realized leading to the establishment of other departmental stores as well as a retail shop in London. This is a rare ability that predicts possibilities of future expansion and market control when operating overseas. However, there has been an inability to determine the actual strength that has enabled the company to expand and gain a vast market served. Drawbacks that can arise from this situation includes differentiated products by other players in the industry-leading to reduced market performance. Thus it is essential to develop an internal structure that is only owned by the company.
Inimitable
The company has been in operations for the last two years resulting in an enormous market served. Speculation to this outstanding performance is likely to arise from social complexity of strength, interpersonal relationship and culture employed for incorporating individuals from different races. Even though organizations in this industry may opt to imitate our production strategy, this may last for decades before realizing by these organization. Another aspect of inimitability can be associated with ideal sites in Hong Kong, where consumers will be able to acquire goods and services with limited constraints.
Organization-wide supported
Lolas’ Cupcake limited has not required adequate resources when compared to competitors from their market activities. Additionally, the company has not conducted its operations under formal reporting, strategic planning and budgeting systems. Surprisingly, lack of organized resources in this company can affect the effectiveness of rare, inimitable and as well as the valuable resources that leads to success in market activities. It can, therefore, be concluded that this company lack distinctive competence in both local and foreign markets despite their progress within the past two years of operations. Addressing such issues is essential for an elaborate restructure process that may lead to survival in the market despite competition levels. Thus, additional considerations were conducted to realize the impacts and type of competition.
Identification of competition strategies
Business entities do not survive in isolation but in a competitive market where there are different producers. Except for monopoly that is majorly created by government investment to control critical resources, various industries experience competition leading to different tools applied to maintain their existence in the market (Eicher & Steiner, 2020 p54). Application of Porter’s Generic strategies brings in cost leadership, differentiation and focus on helping in managing competition in different industries. The scope of this approach is presented from a broader perspective analyzing cost leadership and differentiation while the narrowing down, the strategy considers cost and differentiation focus as the sole sources resulting in competitive advantages.
The cost leadership strategy
Local business activities gain the edge when they gate sales by taking them away from competitors. Consequently, this strategy has been expertly applied by Lolas’ Cupcake limited to increase profits as the cost of production goes down. On the other hand, the company has maintained fair prices of the products to ensure there is a maximum gain in profits. Reasons behind this approach are tagged to a limited capital base that has affected some critical production practices that may lead to the attainment of crucial market position. Capital constraints are reasons to delay of the company to reach the pick of production in the local market. Exploration of a foreign exchange heavily rely on capital since there are more players seeking control in Hong Kong
Differentiation strategy
Differentiation strategy entails the production of products that are more appealing than those of the competitors. The company has been keen on hiring employees with competitive skills for designing birthday cakes and biscuits. On the other hand, products supplied in the market have been reported to be of high quality according to customer experience. However, the company have based its activities on loyalty, where satisfied client refer to others without any sales and marketing intervention. Being a small company that has decided to globalize its operations, research has proved that the production of new products has been the fundamental idea of full entry into London markets.
The focus strategy
Focus strategy is characterized by a concentration on a single market to understand the specific needs of customers. In reviewing activities by Lolas’ Cupcake Limited, the market has been sustained by the understanding of types of customer profiles and specification to address them effectively. In the extension of this practice, some customers have ended up developing brand loyalty and seek our services even while in other regions, according to the analysis of the geographical area of demand distribution. Studies have proved that this brand loyalty is developed by differentiation offered to meet specified needs in the local markets (Gnizy 2020, p78). However, revelations from distinction show that there are no extra additives applied while producing goods and services by the company. A deeper understanding of customer needs can help in ensuring extras are provided.
Selecting the right generic strategy
Taste and preferences differ from one customer to another to another, leading to difficulty in deciding to meet specific needs. Explanations against the selection of the right generic strategy appeal on different products vary from one individual to another (Coccia, 2020 p58). Attaining this step requires a detailed that incorporates various aspects to determine varied demand and creativity needed to produce quality goods. Comparing the cost of differentiation and understanding of the overall cost for making the selection for customers to get particular products is too expensive to attain. Lolas; Cupcake limited has a financial resource that is unable to carry out all these processes to meet the selecting correct generic system for production.
Strategic directions and expansion mechanisms
Upcoming companies tend to increase their operational market activities. Typically, they apply varied methods in implementation of expansion needs (Prollochs & feurriegel, 2020 p103). Expansion of a company is influence by capital, levels of competition and as well as government interventions applied. The critical strategies employed are market penetration, market development and strategy of expanding production, additional methods are considered for diversification in extended market and acquisition of existing organization where the intended expansion is expected to take place. The following illustration explains how Lolas; Cupcake limited has performed in using these strategies.
Marketing penetration mechanism
Lolas’ Cupcake Limited had intensively applied market penetration strategy in marketing of previously produced goods when it was in its starting face. On the other hand, the company was realized to possess about 43% of shares based on the units of dollars sold during the first quarter when compared against the key competitors. Generally, this process was attained by offering goods attached to specific discounts based on the total volume purchased. Secondly, the company applied differentiation, having created awareness among consumers in the regions served.
Product expansion mechanism
From the existing market, the company managed to expand its operations using the product development strategy. This was influenced by technological development where the organization opted to apply online selling of products. Similarly, the company settled on the introduction of new products as the existing become obsolete. This process was enhanced by several departmental stores as well as several retail shops established closer to target institution such as schools and hospitals. However, some retail shops were not strategically placed, resulting in slow product expansion.
Growth by diversification
Diversification entails the introduction of new products to new markets. Typically, this practice has been realized in small companies seeking to gain market control. While taking Lolas. Cupcake limited to considerations, this process has not been thoroughly done, but plans are underway so found foreign markets in Hong Kong Asia. However, such strategies have turned out to the failure of some companies leading to their complete exit in the market. Overcoming product fail can be attained through conducting intensive research, followed by thorough planning to ensure that every aspect is taken into consideration. This planning process entails an understanding of consumer needs in the new markets to like the new products produced by a new producer.
Acquisition of existing organizations
The acquisition is a strategy applied for growth by some organizations. Operations by Lolas’ Cupcake Limited have not experienced any purchase despite being on entry state. However, exploration of the new market can be attained by adopting the acquisition strategy (Coen & Vannoni, 2020, p640). Caution should be taken when settling on acquisition agreements to ensure that future problems are taken into considerations. Since the company to be acquired is already in existence, the acquiring company must conduct a study to establish reasons for poor performance based on products handled.this can also help in meeting the production objectives while understanding competition of the new region.
Conclusions
Lolas’ Cupcake Limited is a small company committed to expanding business activities to Hong Kong from the original establishment in the UK. From the information presented, this company has expressed strength, weakness as well as opportunity and threats in different areas. Additionally, these findings indicate that both macro and the microenvironment influences operations both locally and in international markets that the company seeks to explore. Therefore several conclusion has been realized from PESTEL analysis and Porters Five Forces analysis in the mode of operations. Additionally, evaluation of Jay Barney’s VRIO indicates areas of strength and weaknesses facing the company. Therefore the following explanation provides findings of this company.
PESTEL analysis reveals that Hong Kong experiences political stability as well as tax relief among foreign investors. On the other hand, the economy of this country is fast-growing, thus encouraging more international investors. There has been an existing mutual relationship between Hong Kong and Britain, therefore, promoting exemption of some tariffs even when in the global markets. Business activities are influenced by the ever-growing population in this region, leading to a variety of taste and preferences that can avail ready market for our company. PESTEL evaluation further reveals that Hong Kong can adopt technological advancements as well as innovations to meet market demands.
Review on five force framework indicates that the company can understand market demands and adjust according to taste and preferences. This is indicated by differentiated products produced shortly after market entry. Similarly, this tool demonstrates that more suppliers are willing to transport their products to the company’s premises. Market control is illustrated by several buyers from both local and international markets ready to subscribe to the company’s products. More subscribers are willing to purchase commodities from this company. Additional market demand in the foreign exchange is indicated by the willingness to buy surplus to consume where goods are not available.
Considerations to internal environment indicate that this company has valuable resources mentioned by available human resources from Hong Kong. However, there is no rare resource by this company that may not be acquired by competitors in the market. Further evaluations show that inimitable resources are exhibited in this company through complex strength, interpersonal relations and inclusive culture applied in marketing and production strategies. Organization-wide supported resource experience constraints due to limited capital base.
Competition strategies identified during the study indicates that the company has effectively applied this principle. Additionally, differentiation strategy has been effectively used by the company as well as focus method. However, the selection of the right generic has been impossible following variation in demand from consumers. Strategic direction has been applied partially as market penetration, and expansion growth is planned. The company has never implemented any form of acquisition.
Recommendations
From the above conclusion, the first recommendation is on outsourcing of adequate capital to facilitate entry into international markets. Secondly, the company should have a work breakdown structure as well as assigning roles to team leaders for venturing into the Hong Kong market. Since entry face may encounter social issues, the company management should analyze organizations that are willing to merger or partner as a form of understanding the foreign market in terms of labour laws, competition and accumulated cost of production. After entry into the Asian market, there is a need for restructuring employees training to improve the internal environment.
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