Macpacs Success in International Market - Case Study Example

Corporate Strategy Case Study Table of Contents Table of Contents 2 Reasons for Macpac’s Success in International Market in between the Period of 1973-2001 3 Analysing the Key Success Factors 3 Company’s Initial Growth/Development 5 The Maturity Stage or Decline in Sales Figure of Macpac Resulting in Losses in the Year 2001-2005 and Reasons for Such Losses 7 Change in Business Model 8 Survival 9 Recommendations 9 Strengths and Weaknesses of Macpac 10 Critical Issues 11 References 13 Bibliography 13 Reasons for Macpac’s Success in International Market in between the Period of 1973-2001 Macpac had become a successful company and a recognised brand in between the period of 1973-2001. They gained advantage in their business prospect and growth as they followed monopoly. The idea of outdoor equipments and tourism wilderness came into the mind of the founder, Bruce McIntyre. The company, Macpac was established in New Zealand. McIntyre found a group of young men from Canterbury Mountaineering Club who was proceeding towards South American Andees for an expedition at that time. The idea first came into the mind of Bruce McIntyre of making backpacks for them. Macpac became a leading manufacturing unit of outdoor equipments as there were no other manufacturing industries in New Zealand. The sound internal resources like technology, manpower, innovative ideas and machinery equipments paved the way for the impending success in the this period. Product innovation was another stimulus responsible for the growth. The enormous entrepreneurial energy displayed by the founder also made the success achievable and it was a strong impetus for the rapid growth in the initial stage. Analysing the Key Success Factors In the startup stage, the entrepreneur focused mainly in his vision and available resources. Bruce McIntyre did not make much of an effort on market expansion, market penetration or product development. He efficiently used his internal resources like people, expertise, technology and funding. The growth depended on the company’s ‘international strategy of exporting’. By using acquired skills, knowledge and experience Macpac grew internationally out of challenging conditions of New Zealand. The entrepreneur prioritized customer service which raised a huge demand among the buyers. In 1978, this led to 100% growth in sales figure. In 1987, the export market of Macpac took a new shape. Export in the countries like Holland and Switzerland followed and soon after Germany and United Kingdom markets also were developed. The key factors behind the international success were: The wide use of technology and market pull strategy New entry in the market along with the adoption of product innovation strategy Stronger focus on design out of technology and initially less overheads incurred ‘Innovation diffusion’ Macpac not only pursued a strategy to grow internationally but also concentrated on being a leading name domestically. Honesty and transparency was factor for Macpac’s success. Customers nowadays are very much cautious about what they buy. Many companies fail to prove their transparency and honesty in providing support and facts to the customers. But it was not the case with Macpac. Working as a powerful brand from the initial stage of starting up, Macpac never considered itself less than any strong brands. The attitude of being powerful was a significant determining factor. With high performance and accountability within a short space of time, the company had shown growth in its sales figure. Adventurous thinking benefited the company in bringing in most uncommon thoughts about its product. Excellence in design of the fabrics along with the use of technology attracted its end-users a lot. Macpac’s Competences as a Competitive Advantage The customer value acts as a real competitive advantage which Macpac already carries with it. The value creation process along with the business system is a major competency of the company. Other competencies are like-the ethical and social value. Good ethics always results in sound business results. Macpac has different arrangements for fun and celebration, which also acts as a core competency. This feature reflects the social image of a company. The other competency is manufacturing of customised products (Macpac, 2010). Company’s Initial Growth/Development The primary cause behind the initial growth of the company was the founder’s self-motivation. At the initial stage, the founder targeted a very niche market for his products. He gave much energy in product development and innovation at this stage. He kept away from targeting wider market segmentation and market strategy at the inception. Apart from this, the low capital requirement along with the easy availability of internal resources like people, technology, expertise and funding led to the initial success of Macpac. This was the scenario in its start up stage. In its growth stage, besides developing a sound domestic position through its acquired skills and knowledge, Macpac had successfully built an international competence .The company’s strategy of acquiring international competence was mainly based upon exporting. By the year 1980, Macpac’s sales figure amounted to NZ $300,000 from that of sales figures of 1973 which amounted to NZ $2,000. The company’s initial growth can also be accredited to the perfect mix of the international strategy and that of the domestic strategy. While the company focused on the international exports, also it had taken into consideration the factors like acquisitions of skill, knowledge and experience to make it big in the challenging conditions of New Zealand. The factors for growth, based on the Porters Diamond Model can be as follows: a) Factor Conditions – New Zealand is well known for its rugged environment and its world-renowned adventurous spirit. The country has scenic mountains, valleys and forests most suitable for outdoor adventures. Thus, producing a range of products to facilitate moving efficiently as well as effectively in the outdoors became the motivating opportunity for Bruce McIntyre. b) Demand Conditions – Macpac is one of New Zealands most successful export stories. Its initial growth in the early years in New Zealand and later in Australia has helped the company to venture in the global market. c) Firm Strategy, Structure and Rivalry – As Macpac started to grow beyond the regions of New Zealand and Australia, it started to face intense competition. Macpac was forced to be innovative and as well as cost effective. Its innovative design propelled further growth in recent years. d) Related and Supporting Industries – New Zealand Tourism Board promoting eco-tourism and other tour operators’ strategies to promote eco-tourism and adventurous tours will provide opportunities to Macpac. When the local tourism / sports / outdoor industry are competitive and global, Macpac may enjoy more cost effectiveness and innovative outputs. An evidence for the growth and success is seen in Exhibits 1 and 2 of the case study, sales and financial performance. This was a period when Macpac explored market opportunities beyond its traditional hard core outdoor enthusiasts and when it expanded its range of outdoor equipment and clothing considerably. The Maturity Stage or Decline in Sales Figure of Macpac Resulting in Losses in the Year 2001-2005 and Reasons for Such Losses Macpac utilised much of its financial resources for giving itself a globalised shape being a New Zealand based manufacturing and selling unit. This created a large financial stress on the company while facing a tough competition in the global markets. Besides, the September 11 in 2001 attack was another important cause which led to the fall in demand of its products in the global markets. With the 9/11 impact, the company had a drastic fall in market share. 30% of the total sales dropped overnight. Another 10% of the sales dropped in the immediate next year. After the occurrence of massive losses, Macpac decided to focus in its soft core business of fashion. Although the fashion business started growing but there was not much improvement as the hard core business of outdoor equipments collapsed. People stopped trekking, mountaineering and the adventurous travelling as a result of panic created by the 9/11 attack. As a result of which the market started crashing. During this time, in spite of producing the high quality products, people claimed Macpac’s products were not up to the standard and refused to pay high price for them. Thus, Macpac had a strategy of cutting down their price in order to carry the same flow of demand by mere cutting down the cost of production through job cuts of the employees. More over, the company failed to maintain the innovative strategies in the overall business which made it globally uncompetitive. Change in Business Model The founder Bruce McIntyre felt the need for highly professionalised management and change of its governance structures. The company introduced a very competitive cost structure. It introduced new quality control procedures. The founder’s shift in strategy from a traditional to a modern one led to the improvisation of the business condition in the period of 2001-2005. Bruce McIntyre provided much more emphasis on design of its products and marketing style of the company. The new business model had increased focus on the strategy of internationalization. The company established its manufacturing units at China, Vietnam and Philippines. This helped the company to reduce the cost of manufacturing by considerable extent. Though it had closed the New Zealand unit of manufacturing, the company employed largest number of staffs during the period. Also, it took many measures to enhance the living standard of its employees. These measures have made the company a name of repute in the international arena. Survival It can be said that for Macpac to survive since the drastic fall in the period of 2001-2005, the company had introduced an improvised business model which showed that Macpac had experienced growth with a new senior management team and new corporate governance structure. Macpac realised the need for repositioning its product. As there are no other specialised industries in New Zealand, thus the country is able to project itself globally as a place for manufacturing of outdoor equipments and wilderness tourism. Macpac took a strategy of branding itself locally and projecting globally. The company can survive in the challenging environment of today by having a proper mix of domestic and international strategy. It need not only to find inexpensive destinations to establish the manufacturing units but also needs to have global clients. In order to survive, Macpac needs to remain flexible to adapt itself with the ever changing business environment. Also, the company needs to focus on the various aspects of information technology that can facilitate the growth and survival of the company. Recommendations For the long-term survival the scenarios that can be recommended for Macpac might include improvement in financial condition of the company. This can be done in two ways. The process can be selling its shares publicly which would be a very healthy stimulus for the company financially. It may issue debentures since Macpac has a very good reputation since its inception both in business and ethics. With the assistance of FDI (Foreign Direct Investments), Macpac can strengthen itself internally as well as externally. Internally it can look to create a strong and stable financial resource for manufacturing and production. In terms of external scenario, they can improve their present business scenario with the help of FDI (Foreign Direct Investment), which would help it to market itself globally. Strengths and Weaknesses of Macpac The foundation of Macpac was based upon the founder’s strong focus, self motivation along with a vibrant energy and a clear vision about his objectives. This acted as the primary strength of Macpac. Other strong points about Macpac are their transparency about their vision and business. They also maintained good ethics from the very inception of the company. They have an efficient and powerful team management which believes in adventurous thinking and exploring in global markets. Excellence in design is also a major strength for the company. Innovative products like child career packs and sleeping bags have been prepared according to the needs of the consumers (Macpac, 2010). Arrangements for fun and celebrations like Coppermine Epic-mountain bike race is held in the months of January and February, XPD adventure race for the month of May and June, Recreation- outdoor adventure expo all has become associated with Macpac. Apart from these, the main strengths could be identified post 2005, when the new business model was introduced. The healthy finance structure, the offshore marketing strategy, human resource, and efficient operations and logistics have contributed to the Macpac’s strengths over the years. The implications that can be drawn out of these strengths are that with their good ethics they can have a positive support from financial houses as well as FDI’s (Foreign Direct Investments). Due to their excellence in design and sense of innovative product designing, they will have a greater exposure in the global markets. With the strong internal resources they can market themselves efficiently. The participation in fun and celebration programs will carry a good social image, which will again differentiate Macpac from its peers in future. Along with the strengths, also there are various weaknesses. Less innovative marketing strategies can become a set back for the company from going forward in the high competitive environment. The company’s inclination towards performing business internally compared to externally can hamper by making them unaware about the ongoing market scenario and competitors. Operating as a private limited company is another weakness of Macpac. After completion of the 2nd stage of product life cycle that is growth, any company requires a healthy funding to stabilise its impact in the maturity phase. Going into public may reduce this risk. Lack of professionalism was another weakness at the inception which if reoccurs could result in instability. The success of any business lies in formal structure and professional team management. Bruce McIntyre had always promoted his company in a family atmosphere sharing business profits with his staffs. These were some identified weaknesses which are could result in lack of revenues and other business losses. Critical Issues The issue related with the capital structure of Macpac has been a matter of concern for the owner. Macpac has been a privately held company and that has adversely affected the company with regard to additional capital as it could get funding only in lieu of debts. If the company is serious about it expansion plans, it needs to go public which would invariably change the capital structure of the company and the authority of Bruce McIntyre. The various initiatives that were taken by the organisation with respect to ethical business and social aspects of entrepreneurship have always been highly esteemed by the stakeholders and the industry. The company can use such measures as a social platform to gain competitive advantage. References Macpac, 2010. Macpac History. Company Info. [Online] available at: http://www.macpac.co.nz/company-info/macpac-history [Accessed September 07, 2010]. Macpac, 2010. Events. Fairydown. [Online] available at: http://www.macpac.co.nz/ [Accessed September 07, 2010]. Bibliography Benson-Rea, M. & Shepherd, D. Macpac gears up and gets out there. University of Auckland Business School, 2007. Read More