COMPETITION AND BUSINESS RISK- AN ANALYSIS OF BUSINESS

STRATEGYGAMEABSTRACT
In this competitive business arena it is crucial to strategize and come up
sound managements o l u t i o n s i n o r d e r t o s t a y a f l o a t i n t h e m a r k e t .
T h i s i s a n i n d i v i d u a l r e p o r t o f I m p e r i a l Company which showcases all
the key management decisions that were taken to maintain acompetitive
edge in the global market operations of its products. It will be sequenced
in thefollowing format:1. Introduction to the Athletic Footwear
Industry2. Thorough Business Environment
Scanning3. Evaluation of Competition Forces
4.
Strategic Analysis from years 11-155 . C o n c l u s i o n s
1. Introduction to the Athletic Footwear Industry
The current scenario for global athletic footwear industry depicts a very
competitive pictureas 12 organisations are striving to get a competitive
edge in the market. With the increasingneeds 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 andathletic footwear has become of
use to all age groups right from children, teenagers, middle- a g e d a n d
old age groups. Each athletic foot wear product is distinguished
b y t h e l e v e l o f 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 goodquality and brand
name and there is an obvious percentage of consumers who are looking
outfor low price satisfactory quality footwear. Hence, to make sure a right balance is
maintainedi n o r d e r t o e i t h e r p r o d u c e a l o w c o s t p r o d u c t o r a h i g h
q u a l i t y p r o d u c t t h e o r g a n i s a t i o n follows either Differentiation or Cost
Leadership or Focus strategies. At times, theorganisation 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 athleticfootwear industry, a PESTEL analysis can be performed

Political
The global footwear industry sees different government policies
in different countries hencet h e d u t i e s , t a r i f f s a n d t a x e s v a r y f r o m
location to location. The trade policies in NorthAmerica are quite
liberal when compared to the other areas of operation such as
L a t i n America and Europe.
Economic
In this industry, the financial factors such as valuations in capital, stock
market, exchanger a t e s o f d i f f e r e n t c u r r e n c i e s , b a n k i n t e r e s t r a t e s
e t c a f f e c t t h e f u n c t i o n i n g o f t h e i n d u s t r y. F i n a n c i a l d e c i s i o n s
cannot be taken if the above mentioned factors are ignored and
t h e 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 produceits 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 atnew technological solutions in order to come up with a distinct
product. Technology plays arole 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 qualityof 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 energyresources. 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 whichcan be explained by using Porters 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. Theinitial 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 seriesof choices to choose from. It can be noted that some
consumers are loyal and stick to a brandfor 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 switchingfrom one brand to another as there many prominent
brands already operating in the market. T h i s f a c t o r c a n b e c o n s i d e r e d
a moderate risk as the suppliers do have a certain level
o f 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 asubstantial part of the market share and looks at providing either
best in line price products or premium quality products.Source: Dess, Lumpkin and
Eisner (2007)
CompetitionForcesNewEntrantsOtherForcesSuppliersRivalrySubstitutesBuyers

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 towhich we lower the price was kept at
keeping it at slightly lower than the existing marketaverage price. This
decision making process of lower price providing meant that
our averagep r i c e i n t h e w h o l e s a l e s e g m e n t d r o p p e d t o 4 1 w h e n t h e
i n d u s t r i a l a v e r a g e w a s 4 7 . 3 2 t h a t 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 tolarge number of
customers. Thus, we decided to make optimum utilisation of all our
retailoutlets in order to spread out our product to a larger consumer base.
We were able to do soand 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 butthe competing industrial
average that year was 1315 signifying a higher utilisation of retailoutlets.
This strategy did not give good results as was expected but made sure
that we wereable 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 $2 5 6 4 6 6 ( 0 0 0 s ) , o u r R e t u r n o n E q u i t y ( R O E ) w a s
1 7 . 7 % a n d o u r E a r n i n g s p e r S h a r e w a s $2.75 which took Stock price
to a healthy $43.87. The other results were our Image rating a m o n g s t
our stakeholders was good at 72 and our Credit Rating
a l s o s t o o d a t A - . T h e resulting outcome of taking up the Cost
Leadership strategy in Year 11 was just satisfactorybut not good enough
to attain market leadership. Too much focus on Cost Leadership
took a w a y t h e i m p e t u s f r o m o f f e r i n g m o r e v a r i e t i e s o r m o d e l s o f
products to consumers. Our wholesale and internet segment
s a l e s t o o k a t o l l w i t h o u r p r i m a r y c o n c e n t r a t i o n o n r e t a i l outlets.
The average industrial average for number of models offered in all
regions on theinternet was 157 but we offered only 104. Likewise, in the wholesale
segment too we offereda t o t a l o f 1 0 4 m o d e l s w h e r e a s t h e
i n d u s t r i a l a v e r a g e w a s m u c h h i g h e r a t 2 1 0 . A s t h i s w a s observed
that we presented the least models (-48.7%) in comparison to our
competitors thisyear, we decided to offer more models and focus on the wholesale
segment too.

Year 12
After obser vations and lear ning fr om year 11 we opted t o
go in for
Cost Leadershipstrategy
again as the results in comparison to our competitors suggested that we were able
tocapture a fair market share in spite of not offering many models in the market. It
was inferredthat this strategy was followed by most competitors in the
market as well, as the trends insales 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 thatwe 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 productsto a large number of people rather than focusing on a
niche segment of the market. Hence, theadvertising budgets in all the
operating regions except North America were increased. Thereason for
not doing the same in North America was our supply capacity was
estimated to belower than the market demand.
Retailers Support
It was noticed that we utilised more retail outlets in year 11 which made
us decide that we s h o u l d o f f e r b e t t e r r e t a i l e r s u p p o r t t h i s y e a r . B y
e n t i c i n g r e t a i l e r s t o d i s p l a y m o r e o f o u r 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
qualitystandards (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 andalso 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%.T h e E P S a n d R O E

i m p r o v e d t o o a t 5 7 . 7 7 % a n d 3 3 . 9 7 % r e s p e c t i v e l y. A l l o f t h e
abovementioned numbers suggest that our company had done
b e t t e r t h i s y e a r t h a n t h e p r e v i o u s year; however, market leadership
was still not achieved giving room for improvement in theupcoming year.
Year 13
With the onset of year 13, we opted to shift to
Differentiation strategy
because we needed too f f e r m o r e m o d e l s i n t h e m a r k e t w h i c h w a s
o u r w e a k n e s s i n t h e p r e v i o u s y e a r s . T h e advertising budget
needed to be increased as more number of models were planned
duringthis year, hence it was better to drop the strategy of cost
leadership. Latin America was onour 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 modelsi n t h e m a r k e t w h i c h w a s e n s u r i n g t h a t t h e y w e r e
r e a c t i n g t o t h e a t h l e t i c f o o t w e a r m a r k e t better than our organisation.
Hence, this requirement was fulfilled this year and we offeredmore models
in the market in all regions and the eventual results showed that our
companyhad 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 somethingdifferent in the market when compared to our competitors.
Hence, we decided to provide f a s t e r d e l i v e r y o f p r o d u c t s i n a l l
t h e f o u r r e g i o n s . T h e t i m e g a p b e t w e e n t h e u l t i m a t e customer
and the production place would be closed faster with the use of better logistics.
Theresults were good as our company did well and our average delivery
time was the fastest inAsia Pacific and overall it improved substantially
when compared to the previous years and the industrial average.