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Business Transformation Strategy
GE Capital Woodchester is a leading provider of motor car, equipment, and personal finance in the country of Ireland. They offer the most flexible packages for diverse financial needs and as such, have earned the position of leading the personal and capitol acquisition financial services. GE Capital Woodchester also provides specialized financing and services and they focus on niches including equipment and car leasing, hire purchase and loans to businesses and individuals across Ireland. Headquartered in Dublin, GE Capital Woodchester services the financial needs of its customers through its regional sales centers and extensive dealer and partner network.
GE Capital Woodchester is a wholly owned subsidiary of GE Capital. With assets of more than U.S.$425 billion, (gecapitol.ie, online) GE Capital is a global, diversified financial services company with 28 specialized businesses worldwide. GE Capital has had an enviable record of growth over the past decade delivering value added services in equipment management, mid-market financing, specialized financing, specialty insurance and consumer services. GECW is part of one of the largest financial services companies in the world with over 60-year's experience. GE Capital has one of the strongest capital positions world-wide with an AAA credit rating, all of which help us provide powerful benefits to our customers. (gecapitol.ie, online)
The company has raised to its position thorough a unique market strategy. Because there are not auto manufactures in Ireland, all vehicles are imported and sold through dealerships and small business operations. The cost of financing the inventory is carried by GECW. The company carries the expense of purchasing and shipping the vehicles to the country, and in return they have the first rights to the commercial paper through which the dealerships sell the vehicles to the customer.
This strategy has been very successful. It has allowed GECW to b e a partner in creating businesses which could not have paid to import and sell vehicles with their own resources. GECW has taken the position in the business relationships of making the success of the car dealers possible. This benefactor relationship has helped the company build solid relationships during the past 2 decades, and is just as responsible for the company's success in Ireland as the business practices of loaning money at interest.
However, two significant pressures are affecting GECW, and eroding the company's profits. The first is the outside influence of competitors entering the marketplace. While GECW is the market leader in point of sale auto finance, the smaller competing firms have begun to offer the same financing programs. Some of these smaller firms are owned and operated by former GECW employees, and their personal understanding of the market strategy have allowed them to compete and win with the now large and slower moving GECW company.
The second pressure making it difficult for the company to continue to lead the marketplace is that their strategy is 20 years old, and the business world has significantly changed during the last half of the 90's. During the 1980's interest rates spiked, and interest on inventory costs became a significant item on resale business' balance sheets. Because of double digit inflation rates in the U.S.A., interest rated soared in the states and around the world the concept of buying and warehousing the needed inventory became too expensive for businesses. It was impossible to buy and hold inventory when the company was paying 12-14% on the money used to purchase the goods.
This economic cycle lead to a global shift toward a just in time deliver system for inventory. This situation also opened the door for global giant like GE finance to forge creative solutions to financing needs, and offer the kind of programs in Ireland which built its business foundation. Now that global interest rates are again low, (in the States interest housing interest rates are the lower than they have been in 30 years), the availability of money is a factor which has allowed competitors to establish a beachhead in the Ireland market.
The strongest force driving the marketplace today is the speed at which businesses can operate, and the amount of control, convenience and selection which consumers expect. Access to global competitive information via the internet has changed the consumer's expectations. When it was previously permitted to operate slowly, and have a limited selection of products at regionally determines prices, the consumer expects to be services immediately with the widest selection of products available, and they can compare prices geographically. Businesses who do not adjust their operations, and change the very nature of their corporate culture to attend this significant market shift are perceived by the consumer to be slow, inflexible and bureaucratic. Indeed, these labels are being attached to GECW's reputation, which is further evidence that the company needs to make transformational changes in order to remain the market leader.
In order to more clearly evaluate GECW's position, a SWOT analysis and application of Porters 5 Forces will be applied. From these tools, this paper will seek to determine a new vision, as well as an implementation strategy for the company to make steps to maintain their position as the dominant market leader in financial services.
Porters 5 Forces
The model of the Five Competitive Forces was developed by Michael E. Porter in his book Competitive Strategy: Techniques for Analyzing Industries and Competitors in 1980. Porter's model is an expanded addition to the traditional SWOT analysis, and focuses a business attention toward a corporate strategy that should meet the opportunities and threats in the organizations external environment. Specifically, Porter believed that competitive strategy should base on and understanding of industry structures and the way they change. This expansion on the SWOT helps businesses break the static view of a single analysis, and take into consideration the dynamic forces in the marketplace. Porter has identified five competitive forces that shape every industry, and determined a thought process to measure both his existence and intensity of competition.
Through this process, GECW can take steps to modify these competitive forces in a way that improves their market position. Porter's model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry. Porters 5 competitive forces are typically described as follows:
Bargaining power of suppliers
Bargaining power of customers
Threat of new entrants
Threat of substitutes
Competitive rivalry within the industry
For the purposes of this evaluation, factor #1 will not be considered at This time, because the chief influences of GECW's marketplace are the power of the customer to uses different vendors, the threat of new entrants and the competitive rivalry within the industry. The supplies are at the service of GECW, who is making it possible for their products to be displayed in the Irish market, and there is not feasible substitute for the automobile.
Bargaining Power of Customers
The bargaining power of customers determines how much customers can impose pressure on margins and volumes. Of the many factors which give the consumer power in a situation, their influence on the organization is likely to be high when:
The supplying industry comprises a large number of small operators
The product is undifferentiated and can be replaces by substitutes,
Switching to an alternative product is relatively simple and is not related to high costs. (Recklies, 2001)
In the case of GECW, the supplying industry is being crowded with other, smaller operators, and whether the customer purchases their loans from GECW of one of its competitors, the customer is purchasing the same product, so price and availability become more significant factors in the buying decision than brand loyalty.
Threat of New Entrants
In the current low interest environment, the competition in the marketplace is higher, and it is easier it is for other companies to enter this industry. As discussed, the new entrants are changing major determinants of the market environment (e.g. market shares, prices, customer loyalty. The threat to GECW of these new entries depends on the extent to which there are barriers to entry. Some of these barriers are typically:
Economies of scale (minimum size requirements for profitable operations),
High initial investments and fixed costs,
Cost advantages of existing players due to experience curve effects of operation with fully depreciated assets,
Brand loyalty of customers
Protected intellectual property like patents, licenses etc.,
Scarcity of important resources, e.g. qualified expert staff (Recklies, 2001)
For GECW, none of these barriers exist. The Irish market is already small, and individual dealer's stock relatively small numbers of vehicles, so the economy of scale, high investment costs and cost advantages for existing players do not exist, leaving the doors open for competitors to enter this already small marketplace and make the pieces of the pie even smaller.
Threat of Substitutes
While there is not threat of customers finding a substitute for the automobile, there exists the real threat of finding another vendor to supply the loan for the purchase, and this is GECW's business.…[continue]
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