Office Depot started its operation five years after Staples. The company has aligned its business strategy to target increasing its market share through business policies similar to those undertaken by Staples Inc. The company is locally owned and faces difficulties in capital expansion to be able to roll more distribution outlets similar to Staples. This has incapacitated the company in acquiring economic of scale in operation. The company currently controls 27% of the total market shares in regions where Staples operates. Office Max is a foreign company that has been in operation for the last 8 years. The company traces its roots in Australia where it controls the largest proportion of office paper supply. In the region, the company has captured 8% of the market share in distributing paper products majorly. The company targets to acquire the market for paper distribution this being where the larger proportion of stationary demand comes from.
The strategic merging of two companies targets to resolve their challenges and come up with a formidable force to challenge Staples dominance in the market. The two competitions will gain capital advantage and market aspect familiarity. The combination of these two aspects will place the new company inches closer to capture a sizable market in the industry. The market is dominated by one supplier. However, the measures used to capture the market and retain existing customer base by Staples can be replicated. The market is influenced by a company's commitment to their well-being and that of their surrounding community. These factors have placed Staples in a good position to control the larger size of the market.
Product and Services Pricing Strategies
Product prices in the market have not to a large extent influenced company performance in capturing the market. However significant price reduction may influence the demand of small upcoming companies. The products dealt in are homogenous with remarkably little differentiation being exhibited as a result of the suppliers own initiatives. The suppliers depend on local and foreign manufacturers to produce the products they distribute. This means that product differentiations are out of reach for the stationery suppliers. The service delivery in the industry has concentrated in trying to alleviate the hustle in sourcing for office supplies by potential and existing buyers. The companies have developed elaborate web sites and communication channels that facilitate order placing by their customers. The aspect of service and product delivery improves in customer preferences as well as the affiliations the company has with the community at large (Born, 2009). Staples has to a large extent entrenched in their service delivery the need to ensure customer satisfaction by engaging customers to show them their desires. Owing to the known knowledge on the market demand as less price elastic other non-price measures must be considered to retain exiting and obtain new customers.
The costs outlay for Staples Inc. include cost of distribution, labor costs, cost of renting and maintaining stores and the cost of advertising. The company plans to reduce its unit fixed costs out lay by distributing it across a large volume of product distributed. The target in this case is to reduce the number of stores in the globe and concentrate on building a strong online marketing base. This measure will reduce for the company the direct and indirect cost of opening and operating branches globally. The higher opportunity cost of opening branches in many regions will significantly reduce allowing for lower product price that result from lower cost of operations. The company has made significant efforts to facilitate online marketing that requires a more elaborate delivery mechanism. Where it is considered economically expensive to make delivery, outsourcing is done to conveniently serve customer needs. Outsourcing for delivery service is considered where the company has not set up a distribution channel. In this case, the cost of running outlet for the company will reduce from 2,436 million dollars to 1,245 million (Sargent, 2005). This will also release funds to facilitate the company's development of a delivery channel for the market.
Regulation or Deregulation
The regulation on mergers in the region may stand as a barrier to the looming competition. This is the case to the extent that merging companies will fail to meet the minimum set standards or registering a merger. The regulation of mergers in this case requires a proportion of the merging company be local based and the merger should not lead to likely creation of a monopolistic competition. In the current state of affairs, there are a number of players and the merging companies do not control a sizable proportion of the market such that they will bring about unhealthy competition. The regulation requirement of proper licensing of the business interested to merge and their presentation of books of account are not a probable barrier to their merger. In this industry, the degree of regulation is minimal also since the products traded in are regulated in the industry level of output.
Risk management entails a detailed assessment of the potential risks associated with the looming development considering the appropriate course of action (Kenny, 2009). In the case if Staples its proportion of the market is likely to be lost with the two companies merger and acquisition of advantages they previously did not have. The capital and the local familiarity Staples Inc. enjoyed is likely to be reduced with the successful creation of the merger. The company should use the survey on customer preferences to assess those needs and preferences likely not to be replicated exceptionally fast. The assessment of the customer preferences is likely to reflect a customer need for customized service that is reflective of the technological advancement (Prince, 2002).
The Company (Staples Inc.) target to incorporate the trends in customer need for customized services by adding value to the standardized stationery products. Initially, the company will acquire rights from stationery producing company to customize stationery product by adding company logos or repackaging the product to customer's needs. This perspective will require collection of a customer's preferences and construction of an assembly where the value addition can be undertaken. The constructed assembly will serve as a product development department that will fall under the director of business and director of customer service. The value addition perspective will work as a barrier to entry to potential competitors, product diversification and differentiation measure as well as a measure for client retention measure. These will intensify the competition increase the potential for the company to dominate the market, increase company's sustainability and dilute potential competition risk (Rose and Sylvia, 2010). The product advancements need to reflect the needs of specific clients. This will be in line with the observed market need for customized product need in the industry given the advances in technology.
Capital Structure and Budgeting
The company's capital is 8.15% financed by borrowed funds from banks, 5% financed by trade debts from office stationery suppliers and 76.25% financed from common stock held by stock holders (Sargent, 2005). This capital structure displays a healthy capital outlay that allows the company the flexibility to make substantial investment decision without being tied down by their creditors. The company intention to reduce its outlets and concentrate on delivery channel can be facilitated by the capital structure and allow the company to set up the product customization for corporations
Staples maintains an accounting standard that allows them to set aside a proportion of their annual earning for development purposes. The company has in the past few years accumulated substantial reserves for development purposes an amount that will be allocated through budgeting to product development. Earnings reserve is an amount set aside at the discretion of a company to cater for the company future unplanned needs and development (Wysocki, 2009). The company directors will seek approval from the company stockholders to allocate the reserve funds towards construction of a product assembly and store. The budgeting function of the company will be the responsibility of the finance department where it will assess the expenditure needs for the assembly plant. In planning, the finance depart will consider the machinery needs the workforce required and the space needed for operation and storage purposes.
Corporations and schools as the key market for stationery items have continued to rely on preferred distributors of their stationery needs owing to the convinces that come with it. In various circumstances the duty to source and deliver the preferred office equipment and consumables are transferred to the stationery suppliers. With this in mind, Staples Inc. targets to lessen the burden for consumers and add value for its supply products will elevate its importance to their customers. Additional barriers created through customized product development and acquisition of licenses will look out the potential risk in market loss and increase market dominance (Melvin, 2011). The considerations on the customers' needs through the market survey will also reduce the risk of inappropriate investment thus minimizing cost. The company will also attain economies…