Discuss A Companys External Environment

Published Date: 02 Nov 2017

INTRODUCTION

Business environment is the combination of internal and external factors that influence a company’s operating situation. It includes competitors, customers, stakeholders, suppliers, industry trends, regulations, social and economic factors, other government activities, and technological developments. The assignment question of Business Environment subject T1 2013 consists of three tasks. A situation of choosing a new car with proper planning and analysis was given. Students are required to choose an organization and present critical internal and external environmental analysis based on the task. Nissan’s business strategy, external environment, Porter’s 5-Force analysis, PEST analysis, internal environment using value chain analysis and SWOT analysis should be given in the assignment. Besides, a better strategy for this company should be proposed based on available options as well. Below are my answers for the assignment’s question according to the tasks given with complete format and information required about Nissan Motor Company and its business strategies.

Task 1

Give a meaningful definition of the contexts of business strategy and discuss a company’s external environment using Porter’s 5-Force Analysis and PEST analysis.

A business strategy is different from vision, mission, goals, priorities, and plans. It is the result of choices executives make, on where to play and how to win, to maximize long-term value. "Where to play" specifies the target market in terms of the customers and the needs to be served. The best way to define a target market is highly situational. It can be defined in any number of ways, such as by where the target customers are, how they buy, who they are, when they buy, what they buy, and for whom they buy. Having a differentiated approach to a target market can be a source of great advantage. Southwest Airlines Company is a case in point. Early in its development, Southwest defined its target market to include regular bus travelers, people who wanted to get from point A to point B in the lowest-cost, most convenient way. In contrast to the industry’s hub-and-spoke standard, Southwest’s point-to-point operations and hassle-free service model offered a compelling value proposition for people who would otherwise choose bus travel. This gave the company a unique growth path compared to the traditional airlines.

Or consider Sir Brian Pitman, the former CEO of Lloyds TSB: He had a policy of defining the company’s target markets at one level of segmentation lower than the competition did. For example, Lloyds was the first "high street" (retail) bank in the U.K. to carve out "high net worth" as a separate business with its own unique target customer, value proposition, and system of essential capabilities. Similarly, it was the first British commercial bank to drop large companies as a target customer (with a few "flagship" client companies as exceptions). Sir Brian’s insight, that you could win by being sharper than the competition in choosing your target market , turned Lloyds from the United Kingdom’s banking laggard to its leading bank. In both the Southwest and Lloyds cases, "where to play" was an essential part of what made the company’s strategy so successful for such a long time. "How to win" spells out the value proposition that will distinguish a business in the eyes of its target customers, along with the capabilities that will give it an essential advantage in delivering that value proposition. Choices must be made because there is at least one way to win in every market, but not everyone can win in any given market. With good choices, a business gains the right to win in its target markets. The target market, value proposition, and capabilities must hang together in a coherent way. And good strategies call for the right amount of "capabilities stretch" not too much or too little change from the capabilities a business already has. Every company faces innumerable options for where to play and how to win. Often it has to sort out seemingly conflicting objectives, such as the need for both long-term growth and short-term profitability, to choose which options to pursue. To "maximize long-term value" means — when there are mutually exclusive options — to select those that will give the greatest sustained increase to the company’s economic value. We once heard a corporate leader ask, "But how can you ever know when you have maximized value?" The fact is, you can’t, because you can never know with certainty if there’s a better option than those you’ve considered so far. To "maximize long-term value" is to never stop looking for those higher-value options.

The term Business Environment is composed of two words ‘Business’ and ‘Environment’. In simple terms, the state in which a person remains busy is known as Business. The word Business in its economic sense means human activities like production, extraction or purchase or sales of goods that are performed for earning profits.

On the other hand, the word ‘Environment’ refers to the aspects of surroundings. Therefore, Business Environment may be defined as a set of conditions – Social, Legal, Economical, Political or Institutional that are uncontrollable in nature and affects the functioning of organization. Business Environment has two components that is internal environment and external environment.

CONTEXT OF BUSINESS STRATEGY:

Objectives:

Are the specific outcomes which an organization wishes to achieve by carrying out several activities. Objectives should always be stated precisely so it can easily be measured whether the objectives are been achieved or not. For example, there should be step by step ways so it than becomes easy to judge to how much is done and how much remains and whether the work is in time and good or not.

Mission:

It describes an organizations basic function in a society. It is done specifically to spread the knowledge and belief among the people. For example, it to become a top cellular brand, so society would know its reason for existence.

Vision:

The vision statement is concerned with how the future will look like if the mission is achieved. Some often say a vision statement imagines what success would look like. For example, as I mentioned above to become a top cellular brand globally, this is a vision.

Goals:

In every organization goals differ, but generally your goals can be regarding improvement in technology, or improving market share, or to improve the quality of the product or the expansion of the business or it can be these all at once. For example, to set an amount of market share in an particular time period can be regarded as a goal.

Core competencies:

A core competency is a specific factor that a business sees as being central to the way it or its employees works. For example, they can see their technological factor as their core competency.

Strategic control:

The practice of assessing the direction of the organization as evidenced by its implicit or explicit goals, objectives, strategies, and capacity to perform in the context of changing environmental and competitive actions. For example, to be able to have a strategy in place so that every department or different work runs smoothly all together.

Nissan company’s external environment using Porter 5-force Analysis and PEST analysis.

A porters five forces analysis of Nissan

Nissan is one of the leading companies and a premium brand in the automobile industry. It is known for its quality, efficiency and innovation. It is associated with high performance engineering excellence and services. It is one of the most competitive and powerful brands in the whole world with Nissan.

Porter’s Five Forces:-

Porter’s five forces model illustrated below helps to measure the industry’s attractiveness by examining the threat of new competitors and substitutes, the 13 bargaining power of buyers and suppliers and the degree of rivalry between existing competitors. (Porter 1984, 24) Porter’s five forces emphasizes the external scanning which indicates the opportunities and threats in the markets. An opportunity or threat could be events or trends that may affect the company in a positive or negative way when certain strategic actions are followed. These five forces shape the attractiveness of an industry and particularly that the company can make use of these five forces to gain sustainable competitive advantage in the market of competition. This influences the barriers of entry in the industry which includes issue like company’s economic size, the product differentiation, demand for capital, and access to supply chain etc. (Porter 1984, 25-48).

Substitutes:-

It is very hard for the customers and the market to think about the substitute for Nissan, because it is has a very strong brand image and is known for its reputation in the world. However the threat of substitutes may come from the manufacture of leading car manufacturing companies and sports bike companies. The threat may as well come from the Government with its awareness about fuel emissions and environmental issues. It encourages citizens to use public transport and reduce traffic issues. But the effect maybe low because due to Nissan’s strategic environment and most of them prefer driving Luxurious cars.

Competitors:-

Since the automotive industry has a very competitive environment, Nissan has so many global companies as competitors who are equally competitive. In the car manufacturing companies Audi, Mercedes Benz etc and the bike manufacturing companies like Ducati, Yamaha etc give intense competition. However now there is an increasing competition and demand over hybrid cars since there is a lot of technology development and factors such as increase in the fuel efficiency and environmental friendly cars are attracting the customers and developing the automotive market. Nissan is developing in the hybrid category, while Toyota is ahead and has a good share market in this category with its hybrid car "PRIUS".

Buyers:-

Marketing and advertising are the important aspects to influence and attract customers in this intense market and a lot of money is spent on these factors. Nowadays the customers depend on Reviews from magazines, websites etc. These reviews give a lot of information about the cars and they also compare the same segment cars and this information is widely useful for the customers and the information about pricing, features and models of the cars play a vital role on the customer’s decision of purchasing cars and most of them depend on these reviews. All these knowledge sources gradually increase the bargaining power of customers. The company designs attractive catalogues and brochures which attract many customers.

Suppliers:-

Suppliers play a major role in manufacturing the products of the company. The company needs raw materials, labor, parts and services. The delay in any of these may affect the delivery of the customers. The cost of supplies affects the profitability of the company and they may also affect the cost of the products and the distribution of the products. Not all suppliers can have an effect on the prices. In many parts manufacturers show a lot of interest in supply of the materials to such a reputed company which provides quality products. Nissan is very concerned about the quality of its products so it is very particular about the suppliers and their costs. The achievement of Nissan also directly influences supplier’s profits and their businesses.

PEST ANALYSIS

Introduction

When there prevails high level if dubiety due to intricacy or brisk changes, it becomes difficult to predict the external environmental that might affective the firm’s strategies. Thus scenario analysis is done to evaluate the likely views to predict the organizations future business environment. In order to reach this conclusion PEST analysis is done to identity the key drivers of change that can be used to predict the scenarios for the future.

PEST stands for political, economical , social and technological and forms of analysis of the macro-environment of the organization.

Political factors

Nissan outsources a great deal of their manufacturing outside the Japan in continents such as Asia, and South America. Due to these countries being considered as "booming economies", government may encourage local residents to try minimizing purchasing products from abroad, but instead use locally produced products in order to maintain the situation of the home market and make a higher value of the GDP.

Political factors highlight the probable government laws and regulations, security measures and restrictions that can apply to the industry as a whole. The probable factors that affect the automobile industry. Laws and regulations had affected the automobile industry since its outburst. These laws generally revolved around the environmental norms that were to be fulfilled by any car industry. Thus the car manufacturers had to take care of the environmental issues during manufacturing of cars. Taxes and government foreign policies are critical for the automobile industry. The foreign policies help to us decide the probability of success in the global market. Introduction of new schemes in the US and Europe automobile industry wherein regulations led to produce high mileage cars along with increase in automobile sales and production .

Economical factors

Economical factors related to the exchange rates, economic growth globally and the business setting prevailing in the industry. Economic factors for the industry. There was excess capacity of cars produced thus giving rise to high amount of revenue in marketing and new product designs. Thus there was lot of revenue withheld even though demand was less than supply. For example the UK auto market had excess 80% capacity in 2003 which freeze 1.3 billion euro of the automobile industry. Surplus capital and buying power in the developing economies like India and China and their personal emergence in the global market place.

Social factors

Social factors include the changes in cultures and demo graphics globally apart from change in buying pattern and capacity of the consumer. Social factors having an impact on the auto industry. Changes in the customer predilection from car being a status symbol to fuel efficiency and low emission cars. Changes in buying pattern of the consumers due to recession in mature markets. Environmental issues and awareness of the harmful emissions through automobiles

Technological factors

Above sentences proof that Nissan is consequently developing new technologies to make cars better, more ecological, more economical, more technology advanced and remaining affordable to every customer. Without doubts firm is one of the most leading if it comes to innovation in industry. Nissan Technology, Increase in use of technology to gain a clear competitive advantage. Use of new and sophisticated design to overcome the decreased margins in the industry. Modifications or restriction on technology causing environmental pollution.

TASK 2

Discuss the company’s internal environment using value chain analysis and SWOT analysis.

Value Chain Analysis

Inbound logistics:

Most components are generally available from multiple sources; a number of components are currently obtained from single or limited sources. Hardware products are manufactured by outsourcing partner primary in Asia. In general automotive industry right now is mainly using materials like steel, plastic, copper etc . By time going and constant innovation process and ecology care make this materials gets slowly substitute by other materials like aluminum, lithium and even cobalt. Nissan do not owe any mining subsidiaries therefore is addicted to suppliers. To secure production continuity company has to secure process of getting raw materials. That is why the manufacturer come up with raw materials strategy.

Operations:

Nissan out sources production to third party OEM partners to utilize their economies of scale while removing the burden of production management from the firm. An operation is the process of putting raw materials together and producing the final product. In this case Nissan operations process takes place in factories that company possesses. There are 63 production facilities in different locations. Company believes in systematic localization so productions plants can handle themselves the value added process. This process of international outsourcing allows reducing currency risks, transport and duties.

Outbound logistics:

Nissan continue to expand and improve its distribution capacities by expanding the number of its own retail stores worldwide in order to ensure a high quality buying experience for its product. This section focuses on delivering product to the retailers, outlets, stores or DTC. Firstly it is important to state that company has own logistics department called Nissan Co Logistics which deliver products to Nissan outlets. As it was stated before different productions facilities produces various parts and models. From those facilities cars are ready to be transported into outlets. Nissan Logistics uses mainly road transport and big trucks to transport ready to use products.

SWOT ANALYSIS

Nissan Company now has the largest market cap of any company. It is one of the most popular and recognized brands worldwide, although it seems to draw as much hatred from some as love from others. So let’s take a look at the iconic brand here a bit removed from the daily headlines.

The Nissan Group is the only producer of automobiles and motorcycles worldwide that ponders entirely on premium morals and outstanding quality for all its products and across all related segments. With the brands Nissan, the Group has been directing on selected premium sections in the worldwide automobile market since the year 1995. In the ensuing years, the launch of the Nissan destined an development of the model range in the premium segment of the lower middle class. An Internal and business analysis in terms of strength, weaknesses, opportunities and threats (SWOT) will assist in gaining an understanding of where Nissan is currently in terms of strengths and where development is required within the business and what outside eco-friendly threats it may face as well as what new occasions are available to the company in the short and medium term.

Strengths

Nissan has strong position in the Chinese market as it has a long experience in this market. Nissan has a strong brand portfolio; a good mix of luxury models are included in its portfolio and Japan engineering with competitive pricing will make a big difference. Nissan has a strong research and development department which continuously works for the improvement in the quality, functionality and environmental compatibility .Nissan design team can come up with the customize design which will suit the customers of Japan.

Weakness

Poor performance in Taiwan can be issue for concern for Nissan. Operational inefficiency and weaker productivity are other reasons for concern for Nissan as it has relatively low employee productivity compared to its competitors.

Opportunities

There is encouraging rate of growth in the Chinese car market. Chinese car market has reached $85 million in 2010. Market consumption has reached to 7.4 million units in 2010 which is an increase of 17.8% compared to previous year. The volume of market is expected to reach 13 million by year 2013.

Threats

Of course there are the macro-economic threats which are the same for all companies. Increase in the production cost due to the increase in the raw material prices. Increase in the government rules regarding the labor may also increase the prices. Increase in the competition may cause price wars due to which there will be fall in prices. There is enormous growth potential in the automotive industry in Japan and in the coming few years, various factors will derive the demand. There are enormous growth prospects in China’s car market, the rate of car ownership is low and financial industry for automobiles is immature. As Japan is a developing country, its economy is expected to increase rapidly, it is least expected that the car industry will grow in a steady or balanced way. The car registration rate rose in 2002 and 2003 was 63% and 70% which were not sustained and the growth rate was moderate in 2004 with 16% and further modest in 2005. This slowdown of growth coincided with the huge investment in the productive field which led to the decline in the prices. However automotive sector recovered very strongly with the growth rate of 30% in 2006 and 24% growth rate in 2007 respectively (Automotive Industry Report, 2009).

TASK 3

Review the existing strategy or strategies practiced by this company and propose a better strategy for this company based on available option.

When shoppers sleep outside of stores just to be one of the first to buy a car, it's obvious that is Nissan. is a company that enjoys fanatical brand loyalty. However, this brand success is not a result of dumb luck or forces beyond Nissan's control; it's part of a well-thought-out plan to deliver strong products and create a Nissan culture. Find out more about these and other strategies that Nissan employs to achieve its tremendous customer loyalty.

Nissan seems to understand this logic of the necessities for global marketing in an ideal manner to perform beautifully in the Japan market. In order to create a successful marketing plan, managers must configure the varying aspects of marketing mix and identify precise market segmentation to understand different patterns of customer purchasing behavior. Nissan implemented a different marketing mix to sell cars to different socioeconomic segments, aggressively emphasizing premium segments. Nissan initiated the goal of segmenting the premium market by optimizing the fit between the purchasing behavior of consumers and the marketing mix to maximize sales to that segment. Responding sensitively to unique values and purchasing behavior enabled Nissan to transcend intended performance.

For brand strategy of Nissan there is involvement of first P according to marketing mix is Product as described in model. The product in this model is defined as that combination of services and goods sell to the customers by the company or organization in target market. From analysis it is found that product is also a part of Brand name. Design and quality are the main product features that possess variety in them. Here an example can be quoted for a brand of Nissan Co that has been sold in China comprises of a package of seating, engine, breaks and engine etc. Hence for product strategy the company is equipped with variety and design in their products including warrant for them which in turn results in good response from the customers and make them satisfied and bring loyalty in them.

The second P in this model if marketing mix is price. Price is of a product or service is defined as that amount which is paid by customer to the organization or company for buying their products or services offered to them. While discussing the price strategy it has been found that there are 50 dealership offers high prices for the products to sell in China as compared to their rivals like Honda city and Ford, but there is variation that the company charge interest rate by 3.0 – 4.0 % instead of other rivals make with 6% or more as a loans given by banks or building societies of other rival car makers. This facility is attributed by the Nissan financial Services that aided to support the sales of the company to their customers.

There is next P for the marketing mix is Place that is also very crucial in Brand management. The place usually referred to that place where there is availability of products of company to their customers. As in concerned to Nissan the company involved in using dealers and distributors for the purpose of the sales of their products. There are two modes for the dealers to get authorized either through franchised or direct ownership of company. For the company their network related to their dealers is very important and is maintained in a proper way because the product of the company are introduced through them to the customers, hence it is very important.. At present the Volkswagen has fine relationship with their dealers in China.

The last and fourth one P is Promotion. The promotion has variance in their objectives that has to be achieved in market. The promotion is usually handled with the tool of advertisement. The promotions for customers are added through the advertisement that results in the excitement among them. The aim of promotion is to pull in target consumers. These promotions are based on the scheme of non-profitable but in turn results in the profit for the company (Nissan Co).. This promotion is for the purpose to establish the brand of company China. In China the company offered a variety of range of services to their customers and fro this company is getting profit from the promotions of the company brand.

CONCLUSION

The world continues to change at a rapid pace. In many countries, individual mobility remains a focus of political regulation and national industrial policy. The shift in society requires new mobility solutions. Volatility has long become a constant in our everyday business. Markets and consumers alike remain uneasy in these periods of economic uncertainty.

To meet these challenges we formulated our Strategy Number ONE, which aligns the Nissan Group with two targets: to be profitable and to enhance long-term value in times of change. And this applies to technological, structural as well as cultural aspects of our company. Since 2007, we have been implementing various initiatives in keeping with the strategy’s four pillars: Growth, Shaping the Future, Profitability and Access to Technologies and Customers.

To remain successful on the market company have to use winning strategy. No matter what are the circumstances, Nissan still have to put additional resources for research and development of the newest technology and maintain current labor power and structures within Human Resource Management. Make their products better and better in order to compete with other automotive companies. And finally deal with long term issues like how to substitute petrol.