The economy is chief among threats to 3M's growth and profitability, although its diversification and innovation strategies help to mitigate that threat somewhat. There is a significant threat in the optical film business. This product line, which was 16% of the firm's revenues in 2006 (Jayson, 2006) has suffered a slowdown since that point. The company is transitioning this division towards the LCD market. Competitors represent another significant threat, especially in fast-paced technology-driven markets like optical film (3M 2007 Annual Report). Another threat is increased costs of inputs. In 2007, raw materials costs increased significantly as global commodities prices increased significantly. This in turn squeezes 3M's margins.
Five Forces
It is difficult to analyze 3M's competitive environment, given that the firm is a diversified conglomerate. 3M has strong buyer power, a function of their size and purchasing capacity. 3M also has strong seller power, given the quality of their goods and 3M's size and distribution capacity. Availability of substitutes is generally high for 3M products, and they face strong competitors in many categories. The threat of new entrants is moderate. In any given category, new entrants are a possibility but 3M's businesses are often in segments where R&D expenses are high, keeping new entrants down. The intensity of rivalry is low to moderate, as for many segments there is moderate concentration, low exit barriers, moderate growth, and high diversity of rivals. Overall, the competitive environment faced by 3M is moderately favorable, made more so by the company's internal strength.
Recommendation
It is recommended that 3M continue to pursue its acquisition strategy during the next year or so. The company's financial situation is sufficiently strong that it can afford to make such purchases. Unlike other conglomerates, 3M easily absorbs new businesses into its fold, and the complexity of its matrix structure does not appear to be an impediment...
Asset values have fallen significantly this year, providing significant opportunity for 3M to invest in quality firms at bargain prices. This strategy will help to build 3M's existing strength in intellectual property and provide for more opportunities for growth. Diversification also helps to insulate the company from the adverse impacts of economic downturn, which is the greatest threat currently facing 3M. Furthermore, new acquisitions can help 3M develop new ideas that will help them with some of their other issues, such as improvements to their supply chain.
Conclusion
Multinational conglomerate 3M is in excellent position to weather the global economic downturn. They are one of the best-run companies anywhere, seamlessly adding new businesses to their complex structure. They have a rock solid balance sheet and their diversification insulates them from economic weakness. 3M should leverage their financial strength to add quality businesses to their portfolio and build their competitive advantages in innovation and intellectual property.
Works Cited
3M financials from Reuters. Retrieved December 15, 2008 at http://www.reuters.com/finance/stocks/incomeStatement?stmtType=INC&perType=INT&symbol=MMM.N
3M 2007 Annual Report. Retrieved December 15, 2008 at http://library.corporate-ir.net/library/80/805/80574/items/283949/2007_Annual_Report-lowres.pdf
Chernikoff, Helen. (2008). 3M Slashes 1800 Jobs. Reuters. Retrieved December 15, 2008 at http://www.reuters.com/article/businessNews/idUSTRE4B70KW20081208?feedType=RSS&feedName=businessNews
Jayson, Seth. (2006) 3M's Weakness of Display. Motley Fool. Retrieved December 15, 2008 at http://www.fool.com/investing/value/2006/07/07/3ms-weakness-on-display.aspx
Marcial, Gene. (2008). Stick with 3M. Business Week. Retrieved December 15, 2008 at http://www.businessweek.com/investor/content/dec2008/pi2008125_440641.htm?chan=top+news_top+news+index+-+temp_investing
