Business Strategy Company Analysis - Assignment Example

?Introduction Foster’s Group is one of the leading beer and wine-making firms in Australia with interests in other countries of the world also. Started in 1854 by Two American Brothers, Foster’s Group evolved over the period of time as its management and ownership kept on changing during that time. (Foster's Group, 2011). Firm has adapted the strategy of entering the domestic market through its multi-brand market presence whereas at the global level, it has confined itself to global wine and global beer business. Firm’s global strategy is based upon developing local brand awareness while at the same time ensuring that firm is able to sell both its premium as well as non- premium products at the global level. Over the period of time, Foster’s Group has expanded into its existing as well as current markets by acquiring new businesses and developing its existing business lines. Due to this, firm has been able to launch different brands of beer, wine and soft drinks in Australia and other parts of the world. It is also critical to note that the Foster’s Group’s wine business specially in US is not doing well and it has also written down the value of the division in order to recognize the losses incurred. Firm has also been charged for the violation of the occupational health and safety Act of Victoria, Australia and was fined heavily due to the death of one of the workers. This report will present an external and internal analysis of Foster’s Group besides identifying three important strategic issues faced by the firm. This report will also identify two important strategic actions which firm can undertake beside presenting the recommendations. External Analysis Two of the most important tools for performing external analysis include PESTLE and Porter’s Five Forces Analysis. PESTLE Analysis of Foster’s Group Political Factors Australia forms one of the two countries in Australia continent and is a democratic country with stable political institutions and environment in place. (Smith, 2001). The overall political structure of the country is considered as conducive for conducting private business and owning private property. As such political factors do not pose greater threat to the firm. Economic Factors Australia is considered as an advanced and competitive market economy in the world with close business ties with China. Australia has one of the richest sources of natural resources and it is because of this reason that most of the foreign investment comes in the mining and minerals sector. During the current financial crisis, Australian economy remained well guarded due to the fact that majority of its trade takes place with China. (Economy Watch, 2011) Social Factors Total population of Australia is over 21 million1 with majority of population falling in the age bracket of 15-64 years. Such large population chunk therefore provides a really available market for the beer and other associated products manufactured and marketed by Foster’s. 92% of the population of the country is based upon White Population whereas 7% are Asians and 1% of the population comprises of aborigines. These statistics suggest that the social factors may be conducive for the firm to conduct its business with ease. Technological factors Industry for Beer, Wine and Soft Drinks does not particularly depends upon the technological changes however, technology can play its part in terms of advertising and marketing the products. Legal Factors Courts in the country are independent and put a real check over the unethical and illegal practices of the companies. Legislations such as occupational health and safety as well as anti-trust laws are in place to ensure that health and constructive competition exists within the economy. Environmental Factors Environmental factors in this industry does not directly affect the industry however, the overall impact of the industrial waste as well as the dumping of empty beer cans can pose significant threat to the environment. Porter’s Five Forces Threat of New Entrants This industry is not dominated by any non-price related entry barriers and as such entry into the market is relatively easy. New entrants can enter the market however, considering the overall brand power of the existing players in the market; it may be difficult for new entrants to compete on long term basis. Threat of Substitute products There is a renewed focus on the health and people have started to realize the overall impact of drinking on health. Due to better research in health sciences, consumers are now making alternative choices for products like green tea, vegetable and fruit juices. As such considering this, the overall threat of substitute products may be relatively high due to increasing demand for substitute products. (Alonso & Liu, 2010) Bargaining Power of Suppliers Suppliers held relatively weak power in this industry as most of the firms are vertically integrated. Considering the overall nature of the product i.e. beers, wine and soft drinks, suppliers do not have relatively large bargaining power. Bargaining Power of Buyers Due to availability of various brands, products and substitute products in the market, buyers have relatively higher bargaining power in this industry. 2It is also because of this reason that many firms often engage into price wars in order to continue to attract new customers. Foster’s Group has adapted the policy of achieving consumer led growth wherein consumer tastes and preferences are continuously tracked and mapped and new brands and flavors are regularly introduced. This suggests that the buyers can affect the firm’s decisions in terms of introducing new products in the market. Industry Rivalry Considering above factors, the overall industry rivalry is high in the industry owing to low entry barriers and availability of diversified range of products. Due to fragmented nature of the industry, the overall level of competitiveness in higher and firms attempt to engage each other based on the price and non- priced based marketing and promotional tools. (Strategic Direction, 2010) Internal Assessment Internal assessment is always performed in order to identify the key resources and capabilities of the firm which can be applied to create and sustain the competitive advantage of the firm. internal assessment therefore shall be focused upon performing the analysis of firm’s own internal environment to understand and exploit its core competencies to achieve competitive advantage in the industry. Resources, Capabilities and Core Competencies Firm has following resources, capabilities and core competencies to exploit the opportunities arising in the external environment: 1. Rich and Diversified history which has allowed the firm to develop its strong brand image. 2. Firm is a multi-beverage business with many renewed brands under its operations 3. Firm has developed a superior customer network and a focused service model giving it a unique advantage over other players in the market. 4. The overall competitive advantage of the firm is based upon low cost business model allowing it to become more robust and flexible. 5. Firm has adapted the Blue Ocean strategy wherein it has focused on sustaining high performance through creating an uncontested market space across different markets. (Foster's Group, 2005) 6. Firm can face the threat from global players in the industry and can therefore become a second tier player in markets like US and UK. The above points suggest that the core competencies and strengths of the firm lie in its ability to develop the low cost business model. Further, it has focused on those markets where there is little competition so that it can sustain its high performance. What is also important to note that the firm has a multi-beverage business thus allowing itself to diversify and minimize the risk of failure in one particular product? However, since the industry is same therefore such diversification may not be able to provide relative advantage to the firm. Foster’s Wine business has been performing weakly in the global markets. Due to this reason firm has also made some restructuring of its Wine business to remain profitable at the global level. Strategic Issues faced by the firm Firm may be following three important strategic issues 1. One of the key issues faced by the firm in the recent past is the poor performance of its wine business at the global level. The global wine subsidiaries of the firm specially in US are not performing well due to strong competition faced.3 2. Higher degree of competition in US market is making the firm a second tier player in that market despite the fact that the firm has well defined strategy of penetrating the foreign markets by increasing the local brand awareness. 3. There is generally a lack of innovation and creativity in offering the new products in the market. This lack of creativity is not just limited to the new product offering but it is also in terms of designing, developing and executing effective advertising and marketing strategies. Above are three key strategic issues faced by the firm in terms of its overall strategic positioning in the global market. Increasing pressure from the local brands as well as lack of innovation is leading to the complacency within the market and as such Foster’s future growth strategy may not yield results if the firm fails to recognize important strategic issues it faced and how it can resolve them with the help of its core competencies. Strategic Actions In order to overcome above strategic issues, firm can take following strategic actions: 1. Market Penetration through fierce price cutting as well as innovative marketing and advertising. (Hit, Ireland, & Hoskisson, 2009). Since firm is facing stiff competition in US and UK market therefore in order to better seed these markets, firm need to further penetrate into these markets. Deploying innovative marketing and advertising campaigns can actually allow the firm to increase the local awareness about its brands and develop strong brand equity and recognition. Competing on price based factors can also allow the firm to become more competitive and take advantage of its low cost business model. 2. Focus and market diversification can also be executed as alternative strategic actions in order to ensure that the firm is able to cater to the needs of different segments of the customers. Since the overall demand in this industry largely depends upon the consumer tastes and preferences therefore developing different flavors as well as the new products would allow the firm to become more responsive to the changes taking place in the external environment. It is also critical to understand that focus on delivering value and reducing response time in reaching to the customers could also benefit the firm. This could be achieved by increasing the exposure of the firm’s products through advertising as well as pushing the products on the shelves of the major supermarket retail chains. Such actions can allow the firm to expose more its products and improve chances for generating sales. Recommendations Firm could achieve the market penetration through cutting down its prices as well as improving the advertising and promotional activities. Market penetration strategies require that the firm must be able to have a presence in an existing market and therefore should have developed the local knowledge and awareness about the market. It is also important to understand that the market penetration strategy could only be implemented if Foster’s Group is willing to compete on the basis of pricing factors. By further cutting its costs, its products can become more acceptable in the global market specially and thus can allow it to achieve the desired level of exposure. The focus and diversification strategy also requires that the firm must develop new products or make changes in the existing products. Changes in the existing products can be achieved through developing new packaging material in order to offer brand extensions to the existing market. Further, advertising and marketing can also play an important role in terms of creating the overall awareness about the new products of the firm and how they can deliver value to the customers. (Saloner, Shepard, & Podolny, 2001). Diversification also is achieved by adjusting the brand territory of different brands of the firm. by launching the existing products in new markets, firm can achieve the relative benefits of diversifying into new markets. This will not only reduce the risk but will also allow the firm to launch its products in new markets to create further opportunities for generating higher sales and profitability. Bibliography Alonso, A. D., & Liu, Y. (2010). Wine tourism development in emerging Western Australian regions. International Journal of Contemporary Hospitality Management, , 22 (2), 245 - 262. Economy Watch. (2011). Australia Economy. Retrieved May 18, 2011, from Economy Watch: http://www.economywatch.com/world_economy/australia/ Foster's Group. (2011). History. Retrieved May 18, 2011, from Foster's Group: http://www.fostersgroup.com/about/history.aspx Foster's Group. (2005, September 21). Strategy Briefing. Retrieved May 18, 2011, from Foster's Group: http://www.fostersgroup.com/common/files/FostersAustraliaJM.pdf Hit, M. A., Ireland, D., & Hoskisson, R. E. (2009). Strategic management: competitiveness and globalization : concepts & cases. London: Cengage Learning. Saloner, G., Shepard, A., & Podolny, J. (2001). Strategic Management. New York: Wiley. Smith, R. (2001). Australian Political Culture. Frenchs Forest NSW: Longman. Strategic Direction. (2010). Don't take sides against the family”: How Coopers Brewery achieved success in a concentrated market. Strategic Direction , 11-12. Read More