Identify four factors that affect whether an industry does or does not present a company with a good business opportunity?
The business environment has become highly complex and challenging for firms due to various macro-environmental factors. These factors directly impact the operational and financial performance of firms in one way or another (Sharp, Bergh, & Li, 2013). The economic, political, legal, social, cultural, competitive, and technological forces collectively form the external business environment for business organizations (Hill & Jones, 2010). However, the four leading factors that drive the performance of organizations whether their industry does or does not present them with good business opportunities include: globalization, technological advancements, consumer behavior, and competitive intensity (Thompson, Peteraf, Gamble, Strickland, 2013).
Globalization has a significant influence on the performance of local and international firms operating in a country. Now firms not only have to compete with their domestic competitors, but also with the multinational companies in targeting potential customers and availing attractive growth opportunities (Johnson, Scholes, Whittington, & Pyle, 2011). The increasing globalization factor has made it easier for firms to target customers beyond their geographical boundaries, achieve economies of scale through cost control, and gain competitive advantage (Hitt, Ireland, & Hoskisson, 2013).
When a domestic firm has sufficient resources, capabilities, and competencies to increase its production capacity and effectively meet the demands of customers in local as well as international markets, it confidently pursues international expansion strategy. The major globalization factors which impact its operations in international markets include political conditions, trade barriers, legislative requirements, environmental protection laws, labor laws, quality standards, etc. (Sharp, Bergh, & Li, 2013).
2. Technological Advancements:
Technological changes are the second most important factor that distract performance as well as create attractive opportunities for firms at the same time. A firm can become technically competitive against its industry rivals if it is able to bring innovation in its manufacturing capabilities and general business processes. Technological innovation enables it to manufacture better quality products at lower costs (Thompson, Peteraf, Gamble, Strickland, 2013). However, it has significantly increased the competitive intensity among market leaders. Now firms compete on the basis of product differentiation, business process automation, enterprise resource planning systems, and more innovative ways to serve customers. Technological innovation can also be seen in the way firms promote their products on different mediums. Now firms have various cost-efficient techniques to communicate with the outside world (Thompson & Martin, 2010).
3. Consumer Behavior:
Due to the two major factors discussed above, i.e. globalization and technological advancements, consumers have become more knowledgeable and conscious in their purchase decisions. Now they choose only those brands that can not only satisfy their needs, but also meet their expectations regarding quality, taste, reliability, social status, and purchasing power parity. Consumer behavior largely dominates the strategies and tactics which firms follow to compete in the marketplace (Batra & Kazmi, 2008).
4. Competitive Intensity:
Competitive forces have always been a major threat for business organizations. Irrespective of its scale of operations, sales, customer base, or operational strength -- every organization faces competition from local and international competitors. There are five forces of competition which collectively form the competitive environment for business organizations in an industry. These forces are: rivalry among existing competitors, threats from the new entrants, threats from the substitute products, the bargaining power of customers, and the bargaining power of suppliers. In order to operate in the most competitive and profitable way and avail attractive opportunities from the market, a firm must encounter these forces using its major strengths, distinctive competencies, competitive advantages, and human capabilities (Thompson, Peteraf, Gamble, Strickland, 2013).
Q. No. 2: What are the advantages of strategic alliances and collaborative partnerships with key suppliers?
Cooperative strategies, i.e. strategic alliances and collaborative partnerships with supply chain members are used as alternative choices by those organizations which do not have sufficient financial resources or operational capabilities to engage in horizontal mergers, acquisitions, outsourcing, or vertical integration projects. Mergers, acquisitions, and vertical integration projects are carried out in order to achieve competitiveness and stronger market position in the industry (Hitt, Ireland, & Hoskisson, 2013). However, they require heavy initial capital outlay. Therefore, companies which cannot afford to undertake these projects choose to build strong relationships with their suppliers, distributors, and marketing agencies or business development firms in order to control their heavy supply chain expenditures (Thompson, Peteraf, Gamble, Strickland, 2013).
In many cases, organizations enter into strategic alliances or collaborative partnerships for the purposes of lowering investment risks and operational costs. By making joint ventures or partnerships with their key suppliers, organizations purchase raw material at attractively lower prices. Similarly, they make long-term contracts with the largest and most reliable distributors from the industry. In this way, they are able to achieve cost competitiveness against their top-notch rivals. Some organizations make strategic alliances in order to avoid the risks associated with outsourcing. By taking the services of well-recognized supply chain members, they confidently move forward in the industry and strengthen their business network (Thompson & Martin, 2010).
Moreover, there are various advantages which organizations can realize from strategic alliances and collaborative partnerships with their key suppliers. For example, these relationships help both the parties in achieving certain strategic objectives which were difficult or impossible to be achieved alone due to financial constraints or lack of sufficient capabilities. Manufacturing organizations can produce better quality products at lower costs by making strategic alliances with their raw material suppliers. They can make long-term agreements with these suppliers and ask them to provide the highest quality of raw material on continuous basis and at lower prices than the market. In this way, they mitigate the risk of raw material shortage which directly affects the production operations of a manufacturing company (Johnson, Scholes, Whittington, & Pyle, 2011).
Strategic alliances and collaborative partnerships between manufacturers and suppliers also make them stronger against competitive threats. By gaining a competitive advantage through these strategic relationships, they are able to beat the competitors in various aspects of business operations; like scale of production, quality and manufacturing excellence, cost control, sales and profitability, geographical reach, etc. In this way, they are able to target a larger customer base in new domestic and international markets. Moreover, by entering into collaborative arrangements with key suppliers, organizations are able to strengthen their bargaining power against these suppliers (Thompson, Peteraf, Gamble, Strickland, 2013).
Other major advantages of strategic alliances and collaborative partnerships include risk-sharing, improved supply chain efficiency, better marketing capabilities, and greater market access due to reputation of the other party. These cooperative strategies also shorten the time period required for the introduction of a new product in the market. Moreover, both the parties complement one another in manufacturing processes, innovation projects, marketing and promotional efforts, and better understanding the business environment. They also support one another in making strategic decisions for their businesses (Hill & Jones, 2010).
Q. No. 3: Under what circumstances might an already diversified company choose to enter additional businesses and broaden its diversification base?
Diversification is one of the major corporate strategies business organizations pursue to grow in the market and become stronger and more competitive against their industry rivals. Generally, organizations choose to diversify their business when they have sufficient resources, capabilities, and competencies (Thompson & Martin, 2010). An already diversified organization further chooses this strategy when it feels that its resources, capabilities, and competencies can support new business ventures without affecting its current business operations and market standing. Sometimes, there are attractive opportunities available in the market in the form of merger or acquisition, joint venture, or potential target market for new business line. These opportunities can give a competitive advantage to the organizations. In order to gain this competitive advantage, organizations avail these opportunities and broaden their diversification base (Hitt, Ireland, & Hoskisson, 2013).
An already diversified organization also chooses to diversify into additional businesses if it finds that its current industry segment has gone mature and does not have potential for future growth. In such cases, the organization goes for related or unrelated diversification in order to expand its operations in new attractive segments. The biggest motivation behind broadening the diversification base into new businesses is the attractiveness of industries. When an organization feels that its industry is gradually losing potential, it decides to transfer its capabilities and resources into new industries in a view to make attractive revenues and increase its market share (Thompson, Peteraf, Gamble, Strickland, 2013).
Another major reason is the changing consumer preferences, market conditions, technological advancements, or legislative requirements that implicitly force or create opportunities for organizations to enter new industries in order to survive and grow. For instance, a firm may wish to enter additional businesses in a view to extend its product line or offer complimentary products that can support the sales of existing products. In this way, the firm is able to boost up its sales performance and gain a higher market share relative to its competitors (Thompson & Martin, 2010).
International business expansion in another option…