Strategic Plan - Assignment Example

?Strategic Plan for MINI Australia Company background MINI is an automobile value brand manufactured by the BMW Group. It is manufactured in Australia by MINI Australia, a subsidiary of the BMW conglomerate which is based in Germany. MINI is marketed as a brand that encompasses an entire lifestyle; it highlights minimalism, lower consumption and emissions, and a use of smart technologies and fuel efficient engines. Its brand is also marketed in its Lifestyle Shop, which offers consumers a line-up of shoes, bags, and fashion accessories that embody the MINI lifestyle look. It also has a clubsport series known as the MINI Challenge, which features duels and “go-cart” type events Presently, MINI Australia would have experience in retail goods marketing through its Lifestyle Shop. It has background in events sponsorship through the MINI Challenge. However, so far, MINI Australia has not yet had exposure to the gym and fitness industry. This report explores the possibility for the creation of the MINI chain of gyms throughout Australia, and analyses the potential success of this project for the purpose of securing the participation of other investors in this long-term undertaking. Analysis of external environment Prior to considering the company’s internal capabilities, it is necessary to look at the Australian automotive industry as a whole. The automotive industry is comprised of two sectors, namely the automotive manufacturing sector and the automotive retail, services and repair sector. The automotive manufacturing sector is dominated by three large vehicle manufacturers (i.e. General Motors, Ford and Toyota), as well as three large truck manufacturers (i.e., IVECO, Kenworth, and Volvo Commercial Vehicles). The automotive manufacturing sector produces for both the domestic market as well as for the export market; in 2008, production totalled 324,684, or which just slightly over 50% (162,728) vehicles were sold locally, and the remaining 161,956 were exported. In that year, automotive industry exports rose by 14%, with the largest target export market being the Middle East, accounting for 38.1% of export sales. (MSA, 2009). PESTLE Analysis Political Australia is a mature democracy supported by a stable economy. While it has a stable party system, the ruling parties have not historically enjoyed clear majorities in the Senate (Parliament’s upper house). This disadvantage may cause some barriers or introduce delays in having important bills passed. Furthermore, in the recent 2010 election yielded inconclusive results that ushered in once more a coalition government, casting widespread doubts on the ability of this administration to remain in power for the full extent of its three year term (BMI, 2011) Economic Australia enjoys a modern and stable economy backed by a sound financial system and a workforce with a high level of education. There is continuity in policy making, which reduces investors’ risks as well as the vulnerability of the economy to regime change in the government. A measure of economic weakness is introduced, however, by the relatively high current account deficit. This increases the economy’s vulnerability to capital flows and tends to induce greater fluctuations in the currency exchange rate. This in turn causes fluctuations in the prices of commodities and increased apprehensions among the buying public. (BMI, 2011). There are likewise opportunities presented by the country’s economy, as a result of the rapid, region-wide expansion of Asian economies. The region has proven itself resilient to the recent economic recession triggered by the U.S. subprime crisis, and its strong position has created new impetus for diversification of trading ties from the core EU markets. Furthermore, Australia has a relatively lower level of government debt than most developing and developed countries, allowing it greater flexibility in the determination of fiscal policy, in order to provide support for local consumers and business until the global economy recovers from the recent downturn (BMI, 2011). The following table presents the key market and economic indicators for Australia, with the actual, estimated, and forecasted data as of midyear 2008. The second table following provides updated statistics on the key economic indicators for Australia prepared in 2010 and including data up to 2009. Material changes are seen from the forecasts made in 2008 and the data recorded as of 2010 for the year 2009. Forecasted GDP growth for 2009 was -1%, whereas actual GDP growth was 1.3%. Forecasted inflation for 2009 was 1.8% and actual inflation was 2.1%, ideal for providing incentive for production expansion and continued growth. Population was projected at 21million for 2009 to actual 22 million, contrary to the trend in other developed countries which had to import labour. Exports were projected to decline by -6.7%, but actual data shows exports growing by 1.5%. These are all signs of a stronger than expected economy. Social Australia’s society has gradually grown in girth – that is, more adults and more recently a significant number of children have become not merely overweight, but obese. Many health and consumer organisations have sounded the alarm particularly for future generations, and emphasized the need to promote health and fitness consciousness among parents and their children (Fitness Australia, 2009). Furthermore, the benefit to society by keeping the older adult generation healthier and productive longer has been underscored. Current trends suggest that the number of people older than 65 years will rise by 60% by the time 2035 comes around. However, while people live longer, they are not necessarily healthier. On average men will live 6.8 years of their lives, and women 9.1 years, with a limiting long-term illness that results in decreased mobility and independence. Thus, the increasing need for more health and fitness services particularly for the elderly (Srivastava, 2010). Technological Australia enjoys a relatively advanced level of technological development, and the high educational level of its workforce is complemented by the country’s modern transport infrastructure. (BMI, 2011). The standard of living such a level of technology supports enables the establishment and growth of urban centres, to which gyms and physical fitness centres are well designed to cater to. Legal The country enjoys a liberalized trade regulatory framework; the openness of the economy was underscored by the award bestowed by the International Monetary Fund (IMF) on Australia for garnering the highest rank on the trade restrictiveness index. However, corporate taxes for foreign investors are higher in this country than in other states. As for bilateral trade agreements, Australia has recently opened negotiations with China, ASEAN, Malaysia, the Gulf Cooperation Council, Japan and South Korea for the enactment of a free trade agreement (FTAs), and is likewise about to launch FTA initiatives with India and Indonesia (BMI, 2011). Environmental The global climate change has made Australia vulnerable to droughts that have increased in severity in recent years. (BMI, 2010) Global and local environmental phenomena have likewise impacted on greater pollutants in the air, water, and on land, causing greater incidences of disease. Porter’s Five Forces Analysis The assessment of an industry is best carried out through an analysis of its competitive scenario according to Porter’s Five Forces Framework. The five elements in this model include: the competitive structure of rival firms in the industry; the strength of suppliers’ bargaining power in determining the price of materials; the strength of buyers’ bargaining power in determining the price of output products or services; the threat of substitutes in attracting market share away from the industry; and the threat of new entrants into the industry that could crowd out existing firms from their market share. Competitive rivalry The fitness industry in Australia is fragmented, being largely dominated by private small and medium-sized businesses. The franchising business format appears to be gradually gaining ground, consistent with the trend in other countries. The market continues to expand, with demand reaching 1.73 million Australians who used fitness centre services in 2009, thus leaving greater room for new businesses (Fitness Australia, 2009). There were an estimated 974 fitness centres in 2004-2005, which rose to about 1,570 fitness centres throughout Australia (Fitness Australia, 2009). Bargaining power of suppliers Presently, the bargaining power of suppliers is high. This is because of the fragmented nature of the industry. Large suppliers of fitness equipment would generally have a greater influence over prices of capital equipment and supplies over the number of small and medium-scale businesses that run the gyms and fitness centres. Bargaining power of buyers Likewise, bargaining power of buyers is relatively high. The present fitness membership is estimated to comprise only 10% of the potential market, because the need for regular physical fitness regimens is still not prioritised by a greater number of the population. Furthermore, there is little differentiation among the services offered by gyms and fitness establishments. Fitness centres that could provide more value (i.e., more types of services) for the customers’ money would tend to gain the greater proportion of the market. Threat of substitutes For some, the purchase of equipment for home use presents a more economic alternative to memberships in gyms and fitness centres. The industry has a high potential of overcoming the threat of substitutes by providing services that are more effective when performed in the establishment, i.e. spa services and massage treatments, other weight loss treatments with the use of high tech machines, aerobic or dance classes, martial arts or defense classes, yoga or pilates sessions, and so forth. Barriers to new entrants Entry barriers are relatively low for new businesses, thereby encouraging the proliferation of small and medium scale enterprises. There are no major licensing or registration requirements for the industry, and there is little differentiation among the services provided by these establishments. (a) The term is used to describe gross product by industry and by sector (Chain Volume Measures reference year 2007-08). Industry breakdown based on ANZSIC 2006. (b) Derived from seasonally adjusted data on an annual average. (c) As a share of GDP at basic prices. (d) Basic principles are amounts received by producers, including the value of any subsidies on products, but before any taxes on products. GDP at purchasers’ (market) prices is derived by adding Taxes less subsidies on products to gross value added at basic prices. (e) Production approach. Based on ABS catalogues 5206.0, 6202.0, and 6203.0. In Australia, a study was conducted by the University of Queensland to determine which among the country’s physical activity interventions proved to be the most effective when measured in terms of financial cost vis-a-vis health benefits. Six national intervention programmes promoting physical activity in adults were identified to be most effective: TravelSmart, a programme promoting the reduction of car use, by providing information to households concerning walking paths, bus timetables, and other incentives to encourage the reduced reliance on cars; Prescription by general physician of increased physical activity; Referral by general physician to an exercise physiologist; Internet advice on physical activity; Promotion of the use of pedometers in the community; and Mass-media campaign aimed at promoting physical activity. Of these six interventions, two were considered as the most cost-effective. These are the pedometer programme, and the mass-media marketing campaign. On the other end, the least cost-effective is referral to an exercise physiologist. This notwithstanding, the research findings emphasised that the six interventions combined would have much better cumulative effects. The overall delivery investment is estimated to total AUS$940m; however, the amount it is expected to save in terms of cost of disease treatment is AUS$1.4 billion, thus resulting in real savings and reduced incidences of illness (Barnes, 2010b). Analysis of internal environment SWOT Diagram STRENGTHS WEAKNESSES MINI Australia is backed by the financial strength and management expertise of MINI Germany and the larger BMW Group. This provides a greater staying power and resiliency among other small and medium scale competitors during the period of economic weakness. MINI is a brand name associated with a youthful and dynamic lifestyle, combined with the class and elegance of BMW and Rolls Royce (BMW Group’s two other brands). This image may well be supported and enhanced by the chain of gyms and fitness centres. As a large company, MINI may be able to attract the more experienced workforce in the industry with an offer of regular employment, in an industry largely characterized by part-time and casual employment. By virtue of its size, MINI Australia will be able to enjoy economies of scale advantages over its competitors. MINI Australia has not as yet engaged in the fitness and gym industry. Its relative inexperience in this field may result in inefficiencies in the early phases of the new business. While the brand may have a strong following in the automotive industry, its attachment to a chain of gyms and fitness centres may not be well received by a discriminating market. OPPORTUNITIES THREATS The economic slowdown is creating an advantage for value-oriented brands such as the MINI (BMI, 2010). There is a market for older adults. In developed countries, the overall median age rose from 29.0 in 1950 to 37.3 in 2000, and is expected to reach 45.5 in 2050. Retirement age is expected to rise beyond today’s 65 year benchmark. Furthermore, the ageing population has the money to spend, based on Office of National Statistics estimate of ?100 billion annual spending of over-65s (Barnes, 2010a). Opportunities for maximizing revenues through secondary revenue streams abound. These include personal training, food and beverage, retail, spa treatments, group classes for an additional fee (Hofmann, 2010). The government has prioritized spending for health care, particularly for the elderly (Srivastava, 2010). There has been strong industry growth in the past decade, averaging 7% year-on-year. Some imported brands are gaining market share at the expense of locally produced brands, which may lead to a reconsideration of domestic production operations. (BMI, 2010). Volatility in currency exchange rates tends to introduce cost uncertainties in the imported equipment, goods and supplies. (BMI, 2010). The fitness industry remains highly exposed to domestic economic conditions. Indications point to the slowdown in the growth of the industry in recent years (Fitness Australia, 2009). The continued economic slowdown may impact upon increasing unemployment and lower earning power among the populace. This would impact negatively on gym memberships and the demand for fitness services. Strategic Options Strength-Opportunities The economic slowdown which threatens the industry has caused a degree of consolidation in the industry, thereby opening up opportunities for a big company such as MINI Australia to explore economies of scale advantages in running a chain of gyms. The entry of MINI into the business of managing gyms would enable it to gain ownership of factors of production in this industry at a relatively low cost, because of the economic recession. Strength-Threats The strong MINI brand meets the threat of demand depletion by presenting an image of value for money. MINI has already built a name for itself for quality and value in the automobile industry. Its image is therefore associated with reasonable pricing among its class. At the same time, the association with BMW may be explored by niche marketing. MINI may consider targeting a particular class of the market, likely the A-B and upper C levels, and provide quality service at a slightly elevated price in order to maintain its brand desirability. By doing so, MINI gyms would enjoy higher than average profit margins while at the same time catering to that market demand which tends to be constant in spite of inflationary pressures. Weakness-Opportunities MINI’s main weakness is its relative inexperience in the management of gyms and fitness centres. Many of the existing gyms show a willingness to sell out as an alternative to closing down; MINI may take advantage of purchasing these small gyms, which come already fully equipped and with a complete line-up of personnel. MINI may, as a start, operate these gyms under another brand for a start, being satisfied with narrow profit margins while it gains competence in the management of these gyms. When the company has had sufficient experience to more confidently run this business, then it may open a line of exclusive fitness centres, gyms and spas under its MINI brand. Weakness-Threats It is possible that, despite careful planning and implementation, the chain of gyms may succumb to the threat of market contraction and demand weakness. It may then resort to strategic moves such as second revenue streaming and retention management. Second revenue streaming includes personal training, food and beverage, retail, and spa treatments, as well as offer group classes for an additional fee (Hofmann, 2010). Retention management may be undertaken through email and personal messaging, to keep customer interest in the gym’s services. Likewise, participation in the earlier mentioned national intervention programmes may prove useful to MINI in the form of additional services, not principally as a profit-generating ploy, but as a means to build a name and develop its clientele base. Conclusion The foregoing analysis points to several advantages for MINI Australia’s entry into the business of running a chain of gyms. Firstly, consistent with the services sector as a whole, there is a relatively high proportion (roughly 80%) of staff who are employed on a part-time or casual basis (Fitness Australia, 2009). This may be addressed by a large chain of gyms which has the conserving power and economies of scale that small enterprises do not have. The labour market in the fitness industry has low bargaining power, enabling MINI to attract the best personnel with the promise of regular employment. Secondly, Australia’s fitness industry contributes presently about $880 million to the national economy in one year. This represents a direct value added of approximately $490 million, $375 million of which is paid in wages, and about $115 million in the form of profits to the equity holders (Fitness Australia, 2009). MINI would be able to deliver a higher level of direct as well as indirect value added to the national economy by its greater cost efficiency. Finally, it is estimated that current demand comprises only 10% of the possible market for the fitness industry. With further market penetration, the market shows strong growth potential in attracting the rest of the 90% not yet tapped. Furthermore, the scale of potential health benefits that Australia’s fitness industry could additionally contribute would be substantial (Fitness Australia, 2009). Bibliography Anon 2007 ICON Health & Fitness, Inc. SWOT Analysis. ICON Health & Fitness, Inc., Aug 2007, p1, 8p Australian Government 2010 Trade at a Glance 2010. Department of Foreign Affairs and Trade. Bally Total Fitness Holding Corp. 2004 Bally Total Fitness Holding Corporation SWOT Analysis. Bally Total Fitness Holding Corporation SWOT Analysis, March 2004, p1-9 Barnes, K 2010a “The Grey Market.” Health Club Management. April 2010, p. 24. Accessed 15 April 2011 from http://tourisminsights.info/ONLINEPUB/HEALTHCLUB/Health%20Club%20Management_2010_Issue4.pdf Barnes, K (ed.) 2010b “Market Value” Health Club Management. April 2010, p. 24. Accessed 15 April 2011 from http://tourisminsights.info/ONLINEPUB/HEALTHCLUB/Health%20Club%20Management_2010_Issue4.pdf Fitness Australia 2009 Let’s get physical: The economic contribution of fitness centres in Australia. July 2009. Fitness Australia 2010 Annual Report 2009-2010. Hoffman, H 2010 “Money Makers” Health Club Management. April 2010, p. 35. Accessed 15 April 2011 from http://tourisminsights.info/ONLINEPUB/HEALTHCLUB/Health%20Club%20Management_2010_Issue4.pdf Loy, S L; Brown, S M; & Case, M 2009 “Australian Dream: An American Dream.” Allied Academies International Conference: Proceedings of the International Academy for Case Studies (IACS), Oct 2009, Vol. 16 Issue 2, p32-34 MINI Australia Website. Accessed 15 March 2011 from http://www.mini.com.au/index.html Srivastava, S 2010 “Exercise & Ageing: Gym’ll Fix It”, Health Club Management. April 2010, p. 35. Accessed 15 April 2011 from http://tourisminsights.info/ONLINEPUB/HEALTHCLUB/Health%20Club%20Management_2010_Issue4.pdf SWOT Analysis. Australia Infrastructure Report, Q3 2008, p7-8 Woodard-Chavez, K 2008 “Now Is the Time to Position For the Upcoming Year.” Fitness Business Pro, Sep 2008, Vol. 24 Issue 9, p46 Read More