Example Assessment Distinction 1
Example Assessment Distinction 1
Analysis Report
By
NEFLA: Stay Close…!
1
Table of Contents
1. Introduction...........................................................................................................................................5
2. Market Analysis.....................................................................................................................................5
2.1 Competitors......................................................................................................................................5
2.2 Geography and Technology............................................................................................................5
2.3 Buyers preferences and Market Segmentation..............................................................................6
2.4 Sub-strategic Groups in Mobile Phone Industry...........................................................................6
2.5 Market Shares..................................................................................................................................7
2.6. Porter Five Forces Analysis...........................................................................................................8
2.7 Power of Complement Providers..................................................................................................10
2.8 Industry Lifecycle Analysis...........................................................................................................11
2.9 PESTEL Framework.....................................................................................................................14
3. Competitive Advantage.......................................................................................................................15
4. Outsourcing Manufacturing...............................................................................................................20
4.1 Definition and Scope......................................................................................................................20
4.2 Global Trend of Outsourcing........................................................................................................21
4.3 Trends of Manufacturing Outsourcing........................................................................................23
4.4 Outsourcing in Cesim....................................................................................................................24
Future Recommendations for NEFLA...................................................................................................25
Conclusion................................................................................................................................................26
APPENDICES.........................................................................................................................................29
2
1. Introduction
The United States Dept. of Justice, 10 years back decreed to major mobile phone manufacturers
to change and appoint new top management for improving mobile handsets industry. NEFLA
also hired new managers to compete with other reorganized organizations (Ego-phone, Orange
and Smart phone). Research and development (R&D), production, marketing and promotion
were the core operations of mobile phone manufacturing companies. At beginning sales revenue
was more than one billion dollars which was good starting point for NEFLA to compete.
This paper will give insight of performance analysis of NEFLA and its comparison with other
competitors. Focusing on market and industry analysis, competitive advantages and capacity
utilization, out sourcing and future recommendations for better performance.
2. Market Analysis
Market analysis was done by using following approaches.
2.1 Competitors
‘Competitive rivals are organizations with similar services and products aiming at same customer
groups’ (Johnson et al., 2014a). By considering this criteria there were 4 mobile companies in
cesim simulation competing each other and focusing same customer groups.
Named as:
NEFLA
Ego Phone
Orange
Smart Tech
3
demonstrates that markets are not static and still in growing phase (see Fig. 1). Though demand
for Tech 1 and Tech 2 is declining but at the same time it is uplifting for Tech 3 and Tech 4. It
means that customers will be more inclined towards higher technologies in future.
4
Figure 2: Strategic Grouping on basis of Investments on R&D and Promotion (Source: Adapted
from Johnson et al., 2014)
2.5 Market Shares
Market share is defied by percentage of sales by each company. (The Economic Times, 2017) In
year 10, the highest market share was gained by Orange (38%), followed by Ego Phone (25%),
Smart Phone gain20% whereas NEFLA had the least of only 17%.
Figure 3: Average Market Share (%) in all region by 4 companies (Source: Author)
5
Reasons: In year FY1, NEFLA had share of 32% of market globally. But later on due to
focusing more on Europe and Asia and leaving niche market of USA, market share went down
gradually. Aggressive pricing (extreme low pricing) and marketing by Ego Phone and Orange lift
them up and NEFLA start drowning and had loss of $65,133K in FY3 and market share was
reduced to 21%. In FY4, NEFLA changed its strategies of pricing and went towards stability and
had more profit than Orange in FY10.
2.6. Porter Five Forces Analysis
Porters five forces analysis help to describe stable industry structure which is attractive for new
entrants and make potential profit over the period of time. (Hill, Schilling, and Jones, 2014)
Figure 4 illustrate NEFLA’s competitive forces analysis. Five forces are as follows:
6
Figure 4: NEFLA Competitive Forces Analysis (Source: Adapted from Hill, Schilling, and
Jones, 2014)
7
2.6.3 Power of Suppliers
Bargaining power of suppliers would be higher if there is no substitute and material is essential
for companies. Suppliers can also threat to enter companies customers. (Hill, Schilling, and
Jones, 2014) Not enough information regarding suppliers in cesim.
2.6.4 Threats of Substitutes
No substitutes industry is competing right now but maybe there would be any industry (e.g.
landline phone) in future.
2.6.5 Competitive Rivalry
Rivalry states the competitive tussle between companies to achieve maximum market share.
(Hill, Schilling, and Jones, 2014) Competitive rivals of NEFLA includes Orange and Ego Phone
2.7 Power of Complement Providers
Some companies provide complementors, which add value to existing product and sometimes
necessary for the product utility. (Hill, Schilling, and Jones, 2014) In cesim, power of
complement providers is more, as network coverage is vital thing for functionality of mobile
phones. Providers of features also have power as well. They can rise selling prices of features to
force companies to buy it if there is no alternative provider. Fig. 6 show the network coverage
over the period of time. Scope of Tech 3 and Tec 4 is more in future.
8
2.8 Industry Lifecycle Analysis
Industry lifecycle comprise on five stages (Hill, Schilling, and Jones, 2014):
Mobile phone industry in cesim, is now in its maturity stage (Fig. 7) dominated by 3 big
companies (Orange, Ego Phone & NEFLA) and Smart Tech. Mostly, large companies determine
the nature of competition as they can easily influence six competitive forces. (Hill, Schilling, and
Jones, 2014)
Mobile Industry
Figure 7: Mobile Phone Industry Life Cycle Analysis (Source: Google Image)
9
Industry Size
Global sales revenue (Fig. 8) and profit (Fig. 9) tells about industry size in $. Trend is increasing
over the period of time, there is sharp increase after year 4. While there minimal increase after
FY7-FY10 which shows the industry is in mature stage. Growth rate was minimal only 1-3% in
USA and Asia in year 10, whereas it was 8-12% in Europe because of more demand of advanced
technology.
NEFLA EGO-Phone
Orange Smart Tech
Global Total Logarithmic (Global Total)
Global Profit
2,000,000
1,500,000
1,000,000
500,000
0
R0 R1 R2 R3 R4 R5 R6 R7 R8 R9 R10
-500,000
-1,000,000
-1,500,000
10
Capacity and Demand
Figure 10 and 11, give insights of relationship of global capacity and demand. One reason of
more global capacity than demand could be, the large number of production factories (63 in USA
and 42 in Asia) and increased capacity of outsourcing. So, companies should take wise decisions
regarding building more factories in future.
60,000
50,000
40,000
30,000
20,000
10,000
0
R0 R1 R2 R3 R4 R5 R6 R7 R8 R9 R10
18 USA ASIA
17
18 16
15
16 14 14
14
Number of Factories
12
10 8
8
6
3
4
2
0
NEFLA EGO-PHONE ORANGE SMART TECH
Companies
Figure 11: Production Plants by companies in USA and Asia (Source: Author)
11
Limitations:
12
3. Competitive Advantage
Competitive advantage is having more profitability than average profit of rival in the industry.
Maintaining this above average profit for a long time, is sustained competitive advantage. (Hill,
Schilling, and Jones, 2014)
3.1 Sources
Companies like Orange and Ego Phone took high competitive advantage due to aligning their
primary activities. They spent more on promotion and in-house production which towards the
major market share holdings. Figure 13, represents the spending on marketing. NEFLA and
Smart Tech spend even below the average, this thing provide leverage to Ego phone of having
more profit in FY10.
One reason of sustained profit of NEFLA was due to the less administrative and variable
production costs. Fig. 14 demonstrates clearly that variable production costs, deprecation and
administration costs of Orange were higher which lead to decrease in profit than NEFLA.
13
Tariffs Promotion
Production Network
Outsourcing
Legal, Financial
Figure 12: Value Chain of Mobile Companies in Cesim (Source: Smstudy.com, 2015)
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
R0 R1 R2 R3 R4 R5 R6 R7 R8 R9 R10
14
Figure 14: Costs Average over the period of time (Source: Author)
15
Figure 15: Global demand by company (Source D. Jones)
3.4 Innovation
16
Figure 16: Innovation Differentiation (Source: Author)
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
R0 R1 R2 R3 R4 R5 R6 R7 R8 R9 R10
17
Figure 18: Price vs cost (Source D. Jones)
4. Outsourcing Manufacturing
4.1 Definition and Scope
Strategic outsourcing is, company's decision to allow independent specialist companies to
perform their one or more value chain functions or activities. (Hill, Schilling, and Jones, 2014)
Outsourcing is becoming a vital component of global operational strategies that influence
effectiveness of supply chain. It helps organizations to control the flow of finished goods to
meet demands in both domestic and international markets. (Gunasekaran et al., 2015)
18
Outsourcing is not feasible when task is core activity and critical to company's strategy
Holdup: if company become over dependent on outsourced activity, supplier can
increase prices to take advantage
Limited in-house innovation and lack of learning opportunities (e.g. learning and
experience skills)
Risk of information loss especially if related to new innovation in technology
Backsourcing: Back sourcing is taking back of outsourced activities again in-house. When
companies especially telecommunication companies start declining due to lack of innovation and
over reliance on outsourced companies. It's better to backsource all activities and utility of own
internal productive capabilities and pervious successful integration experiences to control
activities accordingly. (Law, 2017)
Companies can outsource many activities including IT (e.g. servers, software or call centers),
HRM (e.g. recruitment services or preparation of job description, salaries, promotion, policies
etc) and project management service (e.g. hire specialist) for a specific project. Logistic services
has been widely outsourced by companies to increase flexibility and reduce costs. . (Zhu et al.,
2017)
It is estimated that, in 2017 outsourcing will be an approx. $565.0 billion (b) global industry.
(Plunkett Research, Ltd., 2017) In 2012, revenue generated from outsourced industry rose from
$45.6b in year 2000 to $99.1b.There was drop of almost 20% in 2013 but recovered again in
2014 and revenue reached to $104.6b. In 2015 and 2016 revenue declined to $88.9b to $76.9b
respectively. (See Figure 19) The largest share came from the Middle East, Europe and Africa
followed by America.
19
Figure 19: Global Market size of Outsourced services 2000-2016 (Source: Statista, 2017)
According to survey conducted by Deloitte in 2016, the most preferable outsourcing activities
will be finance, HR and IT support (see Fig. 20 ). (Deloitte United States, 2016)
Figure 20: Most preferred outsourcing services in 2017 (Deloitte United States, 2016)
20
4.3 Trends of Manufacturing Outsourcing
Manufacturing is becoming a national strategy around the globe to combat economic growth but
some countries faced high costs due to which they outsourced to countries with lower labor
wages. (Kazmer, 2014) Outsourcing trends in different industries in year 2008 to 2011 is shown
in Figure. 21 Manufacturing was the second highest in value after financial outsourcing in year
2011.
Figure 21: Comparison of total value in global outsourcing market by industry from 2008-2011
(Source: Statista, 2011)
Electronics
The most recent growth areas in manufacturing has been contract electronics manufacturing.
High tech machines manufactured thousands of miles far and then shipped to central locations
for assemblage. Outsourcing firms supplies variety of goods including computer components,
smart phones, tablets, laptops etc. One of the famous manufacturers of electronics is China’s
Hon Hai Precision Industry Co., Ltd. Demand of wireless devices increased this growth
worldwide. Taiwanese computer manufacturer Quanta Computer, Inc., is builder of laptops, they
collect assemble parts in Taiwan at low cost. Electronics contract manufacturing was estimated
at $412 billion for 2016. (Plunkett Research Ltd., 2017)
21
Wages
Increase in Chinese labor wages is changing global manufacturing focus towards Vietnam
because of cheap labor. In China, wages have been increasing by 10% to 18% annually.
According to ECA International forecast, in 2017 wage growth will be slow to 7% including
inflation rate of 2.3%. (Plunkett Research Ltd., 2017)
Other Facts
USA firms are thinking about domestic outsourcing to compete globally. But this will be
a challenge due to being first mover and vagueness. (Pearce, 2014)
For managing the conflict among suppliers in case of China can be sort out by formal
control and Chinese guanxi. (Lee et al., 2017)
Supplier selection is more important for performance improvement in outsourcing than
supplier collaboration in the make or buy decision. (Dabhilkar et al., 2009)
22
Future Recommendations for NEFLA
Options Recommendation Justification
Strengths Weaknessess
- Highest cash equivalents $8,45m -Losing market share in Asia
-Fair market share in USA (27%) & -Less capacity utilization, more
Europe (37%) outsourcing
- Tech 2 & Tech 3(10 features), Tech 4
(8 features)
SWOT
Opportunities Threats
-Acquisition of Smart Tech -Flat demand- mature industry
-Build new plants in Asia -Risk of entry of outsourcing suppliers
-Launch Tech 5
23
Figure 23: Cash equivalents of NEFLA (Source: Cesim)
Conclusion
Orange opted better strategies according pricing and took good decision of producing phones in-
house which gave the company competitive advantage among all other companies. Performance
of NEFLA was also satisfactory and had second highest profit after Ego Phone.
24
REFERENCES
Dabhilkar, M., Bengtsson, L., von Haartman, R. and Åhlström, P. (2009). Supplier selection or
collaboration? Determining factors of performance improvement when outsourcing
manufacturing. Journal of Purchasing and Supply Management, 15(3), pp.143-153.
Deloitte United States. (2016). Global outsourcing survey 2016 | Deloitte US | Service Delivery
Transformation. [online] Available at:
https://www2.deloitte.com/us/en/pages/operations/articles/global-outsourcing-survey.html
[Accessed 15 Aug. 2017].
Grant, R. (2015). Contemporary Strategy Analysis: Text and Cases Edition, 9th Edition. John
Wiley & Sons.
Gunasekaran, A., Irani, Z., Choy, K., Filippi, L. and Papadopoulos, T. (2015). Performance
measures and metrics in outsourcing decisions: A review for research and
applications. International Journal of Production Economics, 161, pp.153-166.
Hill, C., Schilling, M. and Jones, G. (2014). Strategic Management; Theory & Cases: An
integrated approach. 11th ed. Cengage Learning.
Johnson, G., Whittington, R., Scholes, K., Angwin, D. and Regner, P. (2014). Exploring
Strategy. 10th ed. Pearson.
Kazmer, D. (2014). Manufacturing outsourcing, onshoring, and global equilibrium. Business
Horizons, 57(4), pp.463-472.
Kumari, S., Singh, A., Mishra, N. and Garza-Reyes, J. (2015). A multi-agent architecture for
outsourcing SMEs manufacturing supply chain. Robotics and Computer-Integrated
Manufacturing, 36, pp.36-44.
Law, F. (2017). Breaking the outsourcing path: Backsourcing process and outsourcing lock-
in. European Management Journal.
Lee, G., Shin, G., Haney, M., Kang, M., Li, S. and Ko, C. (2017). The impact of formal control
and guanxi on task conflict in outsourcing relationships in China. Industrial Marketing
Management, 62, pp.128-136.
Pearce, J. (2014). Why domestic outsourcing is leading America's reemergence in global
manufacturing. Business Horizons, 57(1), pp.27-36.
Plunkett Research, Ltd. (2017). Outsourcing & Offshoring Industry Market Research - Plunkett
Research, Ltd.. [online] Available at: https://www.plunkettresearch.com/industries/outsourcing-
offshoring-bpo-market-research/ [Accessed 15 Aug. 2017].
Smstudy.com. (2015). What is Value Chain Analysis?. [online] Available at:
https://www.smstudy.com/article/what-is-value-chain-analysis [Accessed 13 Aug. 2017].
25
Statista. (2017). Global outsourcing market size 2016 | Statistic. [online] Available at:
https://www.statista.com/statistics/189788/global-outsourcing-market-size/ [Accessed 15 Aug.
2017].
The Economic Times. (2017). Definition of 'Market Share' - The Economic Times. [online]
Available at: http://economictimes.indiatimes.com/definition/market-share [Accessed 13 Aug.
2017].
Zhu, W., Ng, S., Wang, Z. and Zhao, X. (2017). The role of outsourcing management process in
improving the effectiveness of logistics outsourcing. International Journal of Production
Economics, 188, pp.29-40.
26
APPENDICES
Figure 1: Mean Expenses spent on Promotion and R&D by mobile companies (Source: Author)
27
IKEA UK STAKEHOLDER ANALYSIS
REPORT
28
Stakeholder Analysis of IKEA UK
IKEA Background
IKEA is a multichannel home furnishing retail industry working globally and offer variety of
products and services. IKEA was established in 1943 by Ingvar Kamprad in Sweden. IKEA
vision is 'creating everyday life better for several people'. Worldwide IKEA has 389 stores
visited by 915 million people last year. IKEA reached UK in 1987. IKEA has 19 stores in UK.
(IKEA.com, 2017)
Stakeholders Analysis
Stakeholder can be an individual or groups having interest or claim in company. (Hill, Schilling,
and Jones, 2014) Stakeholders are normally split into two groups.
Internal stakeholders: Shareholders and employees (e.g. managers, board directors etc.)
Both internal and external stakeholders of IKEA UK are listed in table. (See Table 1 in
appendix).
Stakeholder Matrix
Stakeholder matrix facilitate to understand the level of influence and interest of stakeholders on
the organization. There are 4 boxes in matrix named as:
Stakeholder matrix of IKEA is depicted in Figure 1. In case of IKEA's expansion in India, power
and interest of local communities maybe uplift due to resistance and conflict. That's why both
were rated high in Table 1.
29
Figure 1: IKEA Stakeholder Matrix (Source: Adapted from Mendelow, 1991)
Table 1: Power and Interest Rating of Stakeholders of IKEA(Rating: 1-Least and 5- Most)
Stakeholder Power Interest
A Shareholders 5 5
B Employees 4 5
C Customers 4 3
D Competitors 1 5
E Suppliers 2 5
F Financers 4 3
G Unions 2 5
H Government 3 2
I General Public 2 3
J Local Communities 3 4
30
Critical Evaluation
Agency Theory: Agency theory identifies the issues arise between management, shareholders
and other stakeholders (i.e. employees). (Hill, Schilling, and Jones, 2014) In case of IKEA,
managers are doing well for both shareholders and employees. In FY17, IKEA will pay €840
million to its owner Stichting Ingka Foundation. Despite of, paying dividend IKEA also invested
€3.2 billion in distribution and shopping centers, stores, renewable energy and ways to provide
better service to customers. For employees, IKEA has a lot of encouragement and support plans
e.g. Tack (workers given added contribution to pension funds). (IKEA.com, 2017)
Competitors: Potential emerging competitors of IKEA are DFS and Furniture Valley. Details of
other competitors along with their financial performance are given in Table 2. IKEA had highest
profit margin in comparison with its competitors but paid less dividends than Argos, because
IKEA is planning to expand in India and China (almost double the store numbers by 2020).
IKEA is also spending a lot on eco-friendly projects. According to Ben Dear, co-founder of
Osmosis, the greener (manage resource consumption efficiently) the company will be, the
greater the value will be for the share holders. (Flood, 2017) For CSR facts of IKEA in 2016, see
table 2 in appendix.
31
Figure 2: IKEA UK Key Financial Findings (Source: Endole.co.uk, 2017)
Real World Stakeholder Grid: This grid divided power into three types (voting, economic and
political) and then compare it with influencers, economic stake and equity stake. IKEA's
stakeholders positions would be different here accordingly to the situation.
Executives stockholders
Marginal interests
APPENDICES
32
Table 1: Stakeholders of IKEA UK (Source: (Fame.bvdinfo.com, 2017;
IKEA.com, 2017)
INTERNAL EXTERNAL
Shareholders Stichting INGKA Foundation Customers U.K. residents
INGKA Holding B. V. Families and young
SKANDIA AG couples
33
T.i. Group PLC
Social -Business for Social
Organizations Responsibility (BSR)
-Save Children
-UNICEF
-Building and Wood Workers'
International (BWI)
34
Environment Operate 327 wind turbines
730,000 solar panels on own buildings
165 MW wind farm project in Cameron
Texas
2 wind farm projects in Poland
Total production: exceeds consumption
of 500,000 standard European
households
Own 74,700 hectares of forest in
Romania and the Baltics States
Skapro Chairs are made of 100%
recycled plastic
Table 3: Abbreviations
ROSF Return on Shareholders Funds
SF Shareholder Funds
ROCE Return on Capital Employed
CS Credit Score
SLR Shareholder Liquidity Ratio
REFERENCES
35
Endole.co.uk. (2017). Ikea Limited - Company Information - Endole. [online] Available at:
https://www.endole.co.uk/company/01986283/ikea-limited [Accessed 2 Aug. 2017].
Fame.bvdinfo.com. (2017). Fame - Report. [online] Available at:
https://fame.bvdinfo.com/version-2017713/Report.serv?
_CID=166&contextD87ZE53V4UDAXFX&SeqNr=0 [Accessed 2 Aug. 2017].
Flood, C. (2017). Swedish pension scheme and Ikea back environmental funds. Financial Times.
[online] Available at: https://www.ft.com/content/2a730470-0fd7-11e7-a88c-50ba212dce4d
[Accessed 3 Aug. 2017].
Gin, J. (2011). IKEA’s Way to Eternal Life: A Deconstruction of the Furniture Giant’s
International Tax Practices. [online] The National Law Review. Available at:
https://www.natlawreview.com/article/ikea-s-way-to-eternal-life-deconstruction-furniture-giant-
s-international-tax-practices [Accessed 13 Aug. 2017].
Hill, C., Schilling, M. and Jones, G. (2014). Strategic Management; Theory & Cases: An
integrated approach. 11th ed. Cengage Learning.
IKEA. (2017). IKEA.com - International homepage. [online] Available at: http://www.ikea.com/
[Accessed 2 Aug. 2017].
IKEA Highlights 2016. (2016). IKEA facts and figures - IKEA. [online] Available at:
https://highlights.ikea.com/2016/ikea-facts-and-figures [Accessed 3 Aug. 2017].
Mendelow, A. (1991) ‘Stakeholder Mapping’. Proceedings of the 2nd International Conference
on Information Systems. Cambridge, MA.
Wit,
B. (2017). Strategy: An International Perspective. 6th ed. Croatia: Cengage Learning
EMEA, pp.157-8.
36