COMPETITION AND BUSINESS RISK- AN ANALYSIS OF BUSINESS STRATEGY

GAME

ABSTRACT

In this competitive business arena it is crucial to strategize and come up sound management
solutions in order to stay afloat in the market. This is an individual report of Imperial
Company which showcases all the key management decisions that were taken to maintain a
competitive edge in the global market operations of its products. It will be sequenced in the
following format:

1. Introduction to the Athletic Footwear Industry

2. Thorough Business Environment Scanning

3. Evaluation of Competition Forces

4. Strategic Analysis from years 11-15

5. Conclusions

1. Introduction to the Athletic Footwear Industry

The current scenario for global athletic footwear industry depicts a very competitive picture
as 12 organisations are striving to get a competitive edge in the market. With the increasing
needs of business each organisation must ensure that it increases its Net profits, Stock price,
Earnings per share (EPS) and their Image and Credit ratings are improved. The areas where
this industry operates are North America, Europe Africa, Asia Pacific and Latin America and
athletic footwear has become of use to all age groups right from children, teenagers, middle-
aged and old age groups. Each athletic footwear product is distinguished by the level of
comfort and its styling features. There is demand for both type of athletic footwear products:
that is a percentage of consumers are willing to pay a premium price in order to get very good
quality and brand name and there is an obvious percentage of consumers who are looking out
for low price satisfactory quality footwear. Hence, to make sure a right balance is maintained
in order to either produce a low cost product or a high quality product the organisation
follows either Differentiation or Cost Leadership or Focus strategies. At times, the
organisation also develops Hybrid strategies to suit the business and market requirements.

2. Thorough Business Environment Scanning

In order to ascertain the factors surrounding the business environment of the global athletic
footwear industry, a PESTEL analysis can be performed
Political

The global footwear industry sees different government policies in different countries hence
the duties, tariffs and taxes vary from location to location. The trade policies in North
America are quite liberal when compared to the other areas of operation such as Latin
America and Europe.

Economic

In this industry, the financial factors such as valuations in capital, stock market, exchange
rates of different currencies, bank interest rates etc affect the functioning of the industry.
Financial decisions cannot be taken if the above mentioned factors are ignored and the
industry has to be well versed with the above mentioned factors.

Socio-Cultural

Athletic footwear cannot be designed to cater to a large group as in general. It has to produce
its products with a distinct difference keeping in mind the age groups or usage groups it is
intending to target.

Technological

Technology plays a crucial role in this industry. Every organisation always strives for look at
new technological solutions in order to come up with a distinct product. Technology plays a
role in production as well as marketing activities in this industry.

Location

The location of apt areas of production is what determines the overall cost per unit or quality
of the product. For distribution and logistics the factors such as payment of tariffs and taxes
are always considered.

Environmental

The global footwear industry has to be always concerned about optimal utilisation of energy
resources. After that it is generally noted that the recycling of useful material is done.

3. Evaluation of Competitive Forces

The global athletic footwear industry is faced by the following factors of competition which
can be explained by using Porter’s Five Forces of Competition:

Threat of New Entrants

As the initial investment costs are high the chances of new entrants in this sector are low. The
initial setting up process in this industry for a new entrant is a complex process and even if it
does this possibility can be taken as a least risk.

Bargaining Power of Buyers

As there are several noted organisations which operate in this sector, the buyers have a series
of choices to choose from. It can be noted that some consumers are loyal and stick to a brand
for a period of time. Since, there is a bigger supply picture in front of the buyer, this factor
can be taken as a high level of risk.

Bargaining power of suppliers

As there is a great demand for athletic footwear, the suppliers have the option of switching
from one brand to another as there many prominent brands already operating in the market.
This factor can be considered a moderate risk as the suppliers do have a certain level of
command in demanding their desirable prices in the market for athletic footwear.

Threat of substitute products

The possibility of substitute products in this industry can be through locally produced similar
looking cheaper products which might not appeal to the brand conscious consumer.

Intensity of Rivalry

The competitive spirit in this industry is quite high. Every organisation is looking to have a
substantial part of the market share and looks at providing either best in line price products or
premium quality products.

Buyers

Substit
New utes
Entrant
s

Competi
tion
Forces

Other
Rivalry
Forces

Supplie
rs

Source: Dess, Lumpkin and Eisner (2007)

 4. Strategic Analysis

Year 11- The year we took over

In the year we took over, we decided to take up the Cost Leadership strategy in all the four
operating regions. We decided to lower the price of our products in the market. The extent to
which we lower the price was kept at keeping it at slightly lower than the existing market
average price. This decision making process of lower price providing meant that our average
price in the wholesale segment dropped to 41 when the industrial average was 47.32 that
year. Thus, we strived to maximise our sales as much as possible in all the markets.

In order to implement the Cost Leadership strategy it was important for us to reach out to
large number of customers. Thus, we decided to make optimum utilisation of all our retail
outlets in order to spread out our product to a larger consumer base. We were able to do so
and the number of outlets which kept our products was 12% higher than what the industrial
average was that year. For example: In Asia Pacific, our retail outlets utilisation was 1467 but
the competing industrial average that year was 1315 signifying a higher utilisation of retail
outlets. This strategy did not give good results as was expected but made sure that we were
able to gain a fair amount of market share in all the four regions.

The results of undertaking the Cost Leadership strategy was we attained Net Revenues of $
256466 (000’s), our Return on Equity (ROE) was 17.7% and our Earnings per Share was
$2.75 which took Stock price to a healthy $43.87. The other results were our Image rating
amongst our stakeholders was good at 72 and our Credit Rating also stood at A-. The
resulting outcome of taking up the Cost Leadership strategy in Year 11 was just satisfactory
but not good enough to attain market leadership. Too much focus on Cost Leadership took
away the impetus from offering more varieties or models of products to consumers. Our
wholesale and internet segment sales took a toll with our primary concentration on retail
outlets. The average industrial average for number of models offered in all regions on the
internet was 157 but we offered only 104. Likewise, in the wholesale segment too we offered
a total of 104 models whereas the industrial average was much higher at 210. As this was
observed that we presented the least models (-48.7%) in comparison to our competitors this
year, we decided to offer more models and focus on the wholesale segment too.
Year 12

After observations and learning from year 11 we opted to go in for Cost Leadership
strategy again as the results in comparison to our competitors suggested that we were able to
capture a fair market share in spite of not offering many models in the market. It was inferred
that this strategy was followed by most competitors in the market as well, as the trends in
sales suggested that. So this year, we decided to step up on our advertising initiatives and at
the same time offer more models than compared to last year. Additionally, it was decided that
we give more retailer support as all of these mentioned factors would improve our S/Q rating.

Advertising

In order to attain Cost Leadership in the market, it was important to popularise our products
to a large number of people rather than focusing on a niche segment of the market. Hence, the
advertising budgets in all the operating regions except North America were increased. The
reason for not doing the same in North America was our supply capacity was estimated to be
lower than the market demand.

Retailers Support

It was noticed that we utilised more retail outlets in year 11 which made us decide that we
should offer better retailer support this year. By enticing retailers to display more of our
products we had a better chance of enhancing our sales.

S/Q Rating
It was decided that our company will strive to maintain good quality standards in spite of
offering a low price in the previous year. Thus, we were able to maintain good quality
standards (5 Stars) increasing our image rating amongst the stakeholders.

Finishing outcome and learning from the strategy taken

The strategy helped us boost our wholesale segment sales compared to the previous year and
also the overall sales. This was because of the initiative of retailer support and intensified
advertising. The overall revenues went up by 16.7% and the Stock price doubled at 108.23%.
The EPS and ROE improved too at 57.77% and 33.97% respectively. All of the above
mentioned numbers suggest that our company had done better this year than the previous
year; however, market leadership was still not achieved giving room for improvement in the
upcoming year.

Year 13

With the onset of year 13, we opted to shift to Differentiation strategy because we needed to
offer more models in the market which was our weakness in the previous years. The
advertising budget needed to be increased as more number of models were planned during
this year, hence it was better to drop the strategy of cost leadership. Latin America was on
our top priority for advertising as it was noted in the previous years that our sales were quite
low in that region.

Models Availability

It was noted in the previous year that our competitors were offering more number of models
in the market which was ensuring that they were reacting to the athletic footwear market
better than our organisation. Hence, this requirement was fulfilled this year and we offered
more models in the market in all regions and the eventual results showed that our company
had offered higher than the industrial average in all regions.

Delivery Time

As we had undertaken the differentiation strategy, it was crucial for us to offer something
different in the market when compared to our competitors. Hence, we decided to provide
faster delivery of products in all the four regions. The time gap between the ultimate
customer and the production place would be closed faster with the use of better logistics. The
results were good as our company did well and our average delivery time was the fastest in
Asia Pacific and overall it improved substantially when compared to the previous years and
the industrial average.
As the strategy undertaken was the Differentiation strategy this year, it meant that our
production levels had to be dropped. The Private-label segment did considerably well as our
company bid with success in all operating regions. This strategy also meant that our
Revenues dropped this year by 2.3% as a result of ensuring faster delivery and more variety
provided. But the silver lining was that our ROE and EPS did not get affected much and went
up by 15.5%, 33.15% respectively. Even the stock price stood at a respectable $35.57 and A+
Credit was achieved. All this showed positives for our company for the upcoming year.

Year 14

It was noticed that good results were obtained from the Differentiation strategy taken up in
the previous year hence we decided to stick with it. It was decided that similar decisions of
more models and faster delivery time will be followed this year too.

Models Offered

Since it was noticed that we were capturing the market better by offering more number of
models, this year too our company went on to launch new products. The industrial average
from our competitors for number of products offered lower than our company by 28.33% in
all markets.

Delivery Time

The delivery time was bettered this year when compared to the previous year in spite of the
fact that more products were also launched by our company this year. Again, we were the
fastest in delivery time in the Asia Pacific region and in all other regions too our company did
very well.

Finishing outcome and learning from the strategy taken

This year, our company was not able to capture a large market share in the four regions in
spite of the fact that more models were offered and a faster delivery system was available.
This can be attributed to the fact that we concentrated primarily on faster delivery which in
turn created ignorance on usage of good quality raw material. Our S/Q rating went down by
one star and our overall product quality decreased. This meant that the revenues decreased by
12.22% when compared to the previous year as higher costs were incurred. The after-effects
were showing on our EPS and ROE as well as they fell by 27.77 and 33% respectively. The
biggest blow came in the form of Stock price which plummeted by 57.7% meaning that this
year was not a good one for the company in terms of gaining financial competitive advantage.

Year 15
As the previous year was not good for the company in terms of financial gain, we decided to
swap to Focus strategy by which we could concentrate on particular market segments and
investing lesser. Lesser investment meant that we had to look at selling our products online;
hence the Internet segment was looked at as it was noted that our competitors were
prospering with more internet sales than in retail outlets. We dropped the prices in the
internet segment to 8.3% lower than the industrial average in all our four operating regions.
As it was estimated, fruitful results were obtained in terms of capturing a good market share
in all regions which was close to double when compared to the previous year 14.

Finishing outcome and learning from the strategy taken

A greater concentration on the pricing policy in the internet segment meant a degree of
ignorance on our wholesale segment. Our pricing in the wholesale segment was the highest in
all the four operating regions which resulted in least sales in the number of pairs sold during
the year. Our overall market share in all segments dropped drastically to be the lowest
amongst our competitors as a result of focus on internet segment which meant that our initial
motive of market leadership was not achieved in this year too.

5. CONCLUSION

During the decision making process of these 5 years shown in the report it is clear that we did
not react to the competition aptly. In none of the 5 years did our company reach a market
leadership position. This can be because of improper implementation of the right strategy at
the right time. The strategic process was not in sync with the segments in which we were
offering our products and this was clear in year 15 when we went for a Focus strategy in the
internet segment only ignoring or virtually not altering it in other segments. The entire
simulation experience with respect to competing in a global market scenario has accentuated
the importance of the basic generic business strategies. The management is often faced with
different business situations and has to react accordingly without having any fixed notions
pertaining to theory. It is important to react with both the theoretical and practical case
scenarios in mind with the best possible plan. Coming to our company in our industry, we did
not understand the inter-linkage of each strategic position of our company when as
competently as our competitors and hence were unable to alter it proficiently enough each
year. We shifted from the initially followed Cost leadership strategy to Differentiation then
finally to Focus without knowing their implications thoroughly. Overall, the simulation
experience has helped in brushing up on business competition strategy skills greatly with
duplicated real time handling of management problems.
6. REFERENCES

• Anderson D and Dawes S (1994), “Strategic information management: conceptual

framework for the public sector” pages (335-353), New York: McGraw Hill
• Boyne G and Gould-Williams (2003),“Planning and performance in public
organizations” pages (115- 132).
• Dess, Lumpkin and Eisner (2006) “Strategic management: International edition” 23-
48, New York: McGraw Hill.
• Dess, Lumpkin and Eisner (2007) “Strategic Management: Creating Competitive
Advantages” , New York: McGraw Hill.