Assessing Key Strategic Levels Of Electrolux Commerce Essay
|✅ Paper Type: Free Essay||✅ Subject: Commerce|
|✅ Wordcount: 3217 words||✅ Published: 1st Jan 2015|
There are usually three levels under which a strategy can be implemented and formulated in a company or an organization. They include the corporate level, business unit level and the departmental or the functional level. The corporate level is mostly concerned with the identification of the potential competitors in the market which must be considered in the daily operations of a business. At this level of strategy, the business is concerned with the reach, competitive contacts and business interrelationships coupled with managing activities of the business. The utilization and consideration of the managing practices which the business engages into is paramount of consideration at this level. Secondly is the business unit level of strategy in an organization which deals mostly with a single unit in a business tasked with specific assignment like cost, revenue or profits. Their responsibility is to devise a strategy that will propel the businesses to conquer and acquire large market area size bigger than its competitors while maintaining a competitive advantage in the market. Lastly, the functional level is fundamental since it determines the level of business operations within the independent units of a business (Thompson & Strickland 1995, p. 23).
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Their collective activities form the overall business operations. Electrolux identified three levels of their market practices that they needed to capture, improve and rectify in order to effectively compete in the international market. First in the corporate level is the globalization aspect. Since the global competition is strong and stiff, the company devised production procedures that are cost effective providing the clients with variety of products at lower prices. In identification of corporate behaviors in the manufacturing industry, the company concentrated with quality development of products, extensive efforts to build their brand name as well as thorough efforts to capture wider market area size internationally. Secondly, the business level unit of business strategy involved the study of the market polarization and its dynamisms. The change of consumer preferences were taken into consideration before implementation of any production process to only deal with the products that are preferred by the customers. Market polarization was due to strong international competition, changes in consumer preferences and the rapid growth of the retail chains in the international market (Thompson & Strickland 2001, p. 16).
Therefore a thorough scrutiny of the consumer trends in the market is basic for companies to venture in those fields that are profitable. Lastly, in the departmental level of business strategy, Electrolux identified the steps to consolidate their retailer outlets for fostering the market segments to capture an extensive market area size. Therefore, Electrolux has introduced large scale purchases of raw materials in the production department not only to save on costs but also benefit from large scale economies. This coupled with a wider geographical coverage it strives to capture will propel the profitability of the business to higher levels. With proper consideration of retailers across the global market especially in developed economies, Electrolux has been in a position to supply wide variety of household appliances at reduced prices a fact that has created wider market for its appliances. The adaptation of supply to large scale out lets has also been incorporated under this level of strategy to capture a large international geographical area (Hill, Jones, Galvin & Haidar 2007, p. 97).
Porter’s Five forces model
This is a business framework used by industrial stakeholders both manufacturing and service industries in their analysis and business strategy development. This concept utilizes industrial organization economies in addition to development strategies to identify and utilize the five market forces to increase company’s attractiveness in the market in terms of profitability. The unattractive market situation according to porter occurs when the combination of these forces reduces the profitability of a business. Among the five forces in porter’s model, three acts from the external perspective of the business. Factors beyond business control greatly influences the market practices. They are well studied when divided into two components; horizontal competition involving the threat of established competitors, threat of substitute products and the threat of new entrants into the market. On the other hand, the vertical competition involves the bargaining power of suppliers as well as the bargaining power of consumers (Porter 1980, p. 34).
The existence of substitute products ion the market encourages customers to switch to alternatives if the prime company does not satisfy their needs and preferences. However the substitute element is dependent on a number of factors like; he customer’s cost of switching, their propensity to substitute products and commodities, the ease at which substitution is possible and the quality of depreciation to which the substituted product infer. When the market provides good and favorable conditions for businesses coupled with profitability, the entrant of new competitors in the same field is inevitable. This trend results to reduced profitability and the market approaches perfect competition scenario. However, this may be prevented by introduction of barriers to entry, high cost of switching, improving brand name and quality, increasing capital requirements and introduction of government regulations. The threat of competitive rivalry in the market is very evident in many business set ups. A business can therefore prevent this by adopting appropriate competitive advantage through market innovations and creativities (Porter 1980, p. 39).
Other factors that determine the extent to which entry of potential competitors affects the business may include the advertising costs, strength of the competitive strategy, and the capital base of businesses. Bargaining power of customers which represents the market output of the firm or a business is paramount to existence of a business. The concentration of buyers and that of business should be proportionate to sustain the businesses; the buyers’ volumes should be substantial, the market information should be available to all participants and buyers should always be sensitive to price adjustments. Lastly the bargaining power of suppliers represents the market inputs for businesses. When the business has a good supply of raw materials, labor, components and services, it’s in a position to have a market command. For this force to work properly, the suppliers degree of product differentiation should be distinct, market should have input substitutes to be used in cases of shortage of prime inputs and the existence of supplier competition. Household appliances have also experienced several forces in the market not only for individual country but also in the international market (Porter 1980, p. 44).
The bargaining power force identified is the growth of domestic market demand for Electrolux’s products which witnessed the firm expands its operations to cover dishwashers and washing machines to satisfy the growing market. The threat of existing firms is evident when they introduced production plants in countries where the cost of production was low. This competitive force existing between dominant firms forces firms to venture to product development, brand building as well as improving marketing strategies. Household industry is also experience the threat of new entrants in the market especially from Asia producers of LG and Samsung the Unite States household appliance market. There has also been entry of new supplier of other household appliances which have forced Electrolux to venture also in the production and distribution of other appliances like dish washers and washing machines to remain competitively. There has also been supply of raw materials at lower costs in other countries like Mexico where existing competitors and new entrants have ventured forcing Electrolux to establish a manufacturing firm in Mexico as well (Porter 1980, p. 48).
Household appliances industry over the recent decade proved to be a very attractive industry in provision of household items. The bargaining power of customers has been increasing over time resulting to mare and effective demand. The bargaining power of suppliers has as well tremendously increased which has witnessed the profitability of household appliances industry to increase tremendously. This increased profitability has rendered the household industry to be most attractive industry not only in the country but also in the international market.
Strategic capabilities of Electrolux
Strategic capabilities are the methods that a business implements allowing it to have an advantage in the market. They are the business strengths that a firm enjoys over its competitors in the market. The composition of the executive leadership of a business has also substantial effects to the future progress of a business in the industry especially when the competition is stiff. Their leadership and managerial skills towards addressing market issues forms a substantial component of the business and determines the existence of the business in the market. Therefore the skill for identification and restructuring of a business activity in the market greatly determines the capabilities of a business in a certain industry. Electrolux have diverse and strong capabilities that enable it to work properly and preserve the strong competition in the market. It is the largest company for the manufacture of professional and domestic appliances in the world market (Johnson, Scholes, & Whittington 2005, p. 24).
Despite its wide market coverage, Electrolux manufactures a wide range of products from cookers, fridges, vacuum cleaners, chain saws to law movers. This diversification element presents it with an advantage over other businesses during tough economic periods. The wide market coverage also plays a vital role in the market diversification to secure from unprofitable regions which are compensated by other profitable ventures. This element allows the company to continuously remain in business. Its capital base is also strong a fact that makes it preserve strong economic conditions. Another notable capability that the company enjoyed is the able leadership of its presidents and Chief Executive Officers. Since early 1920s, the president of the company; Alex Wenner-Gren spreaheaded the growth strategy and created a wide pool of capabilities that the company relied on in its execution of duties (Johnson, Scholes, & Whittington 2005 p. 86).
The diversification plans the company explored to start production centers outside Sweden offered a proper opportunity for the company to stand a better chance to capture the market. Its establishment in UK, France, USA, German and Australia created a wide and large capital base for expansion and dealing with large scale economies of scale. The diversification strategy adopted by the company provided better grounds for expansion and capturing of new markets as well as sustaining the existing ones. The continued and able leadership the company enjoyed has provided a good platform for expansion both national and in the international markets. The company had also strong financial resources that allowed it to continue with numerous acquisitions not only in Sweden but also in other major trading blocks in America, Europe and Asia which further added to their strength of retaining a large market area size. These acquisitions were accompanied by disposal of non profitable ventures and subsidiaries of Electrolux in the international market. This step allowed the company to concentrate with the profitable branches and maximization of profit in other branches that were profitably. Lastly the company was in a position to heavily invest in marketing as well as building on the brand name which gave it a command in the international market (Johnson, Scholes, & Whittington, 2005 p. 89).
Strategies to strengthen competitive position
Household appliances since 1930s were a competitive venture in the internal market. Demand for household appliance increased effectively especially after the send world war, therefore, many companies invested heavily to this profitable business threatening the existing companies in the market. However, for the existing companies to remain in the widely and strong competitive market, they had to devise a strategy of operation. One such company was the Electrolux which adopted several strategies to competitively remain in the market as a leader.
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First, the company resolved to continually pursue plans of cost cutting in all its branches and further reduce all the procedurals in the operations to avoid complexities. This would propel the company to manufacture household appliances at lower cost hence provide finished goods in the market at a reduced price than its competitors. Therefore, Electrolux will increase sales and expand its market area size as compared to the other investors and businesses in the same field. Secondly, Electrolux resolved to rely on consumer insights and information to continually increase its product renewal rates (Thompson & Strickland 2001 p. 25).
This strategy will not only increase sales for its products but will also be in line with changes in consumer preferences and tastes which will make Electrolux products relevant in the market maintaining its competitive position in the international market. Manufacture of customer specific products and commodities not only increases sales but also assists the company to implement innovative ways in the production process. Lastly, to maintain its market leader position in a highly competitive market, Electrolux decided to be undertaking frequent market investment plans to have first hand information concerning its position in the market. These investments were also aimed at building its brand name in the market regardless of other competitors’ action which will consequently increase the company’s sale volume in the international market. The marketing investment will also assist the company to identify the under performing business units, identify low production units and destinations, identification of more efficient purchasing ventures as well as information containing activities of other competitors (Thompson & Strickland 2001 p. 35).
Corporate governance of Electrolux
Corporate governance involves a whole set of customs, policies, institutions, laws and processes which directly or indirectly affects how an organization or a company is controlled, directed and administered. It also includes the relationship between and among all the stakeholders in an organization or a company. The major stakeholders involved in a company to be included in the corporate governance include; management, board of directors and the shareholders. Other stakeholders included in the corporate governance are the customers, suppliers, employees, creditors and the wider community. The principal objective of corporate governance is to eliminate and prevent any form of malpractices in business operations while promoting transparency and accountability. While corporate governance is executed properly, it enhances economic efficiency of the company as well as improving on the shareholders’ and other stakeholders’ welfare. Due to the accountability and transparency achieved by corporate governance, the collapse of a company is not likely since there are checks and balances that occur among all the involved stakeholders (Hill, Jones, Galvin & Haidar 2007 p. 101).
Electrolux is governed under the statutes contained in the Swedish corporate governance, Swedish companies act, regulatory system of NASDAQ OMX Stockholm as well any other corporate Swedish and foreign law relevant to its operations. The company’s governing structure is composed of more than 160 companies operating in over 50 countries globally. The parent company is the AB Electrolux situated in Sweden among the listed companies in the country. The major stakeholders are the external auditors who are nominated by shareholders in the Annual General Meeting, internal auditors appointed by the board of directors who oversee their operations as well as those of external auditors in addition of remunerating them accordingly. The company is headed by a Chief executive Office besides a management board. Under them, there are several boards dealing with specific departments like risk management, pension, treasury, audit and tax boards in charge of administration in their respective departments (Hill, Jones, Galvin & Haidar 2007 p. 104).
Changing management in acquisition strategies
Companies undergo acquisitions and mergers to expand and avoid bankruptcy. Most of these mergers and acquisitions do not meet their objectives and the deal fails due to lack of proper consideration of the change management necessary in such exercises. These changes include; cultural cohesion that should identify the cultural back core of the involved companies. The cultural components of acquisition process of companies include the conditions, disciplines, and beliefs that form the internal component of a company reflected in the external traits of the company. Secondly is the persuasion of missiology processes which involves the convincing of another company to join with another. The persuaded company abandons its values, beliefs and practices to join those of the other performing the acquisition. Meritocracy acquisition forms the other forms of acquisition changes that are necessary for the company to consider before engaging into acquisition of mergers (Thompson & Strickland 2001 p. 24).
Under this processes, retention of any stakeholder in the new entity after acquisition is dependent on the contribution to the company as opposed to longevity of employment. Lastly, acquisition changes may be effected by consideration of mettle. This involves the strength, spirit, character and courage that exist within a certain group of people within a certain organization. When an acquisition occurs, the mettle components of the acquired company must be adjusted to fit to those of the parent company. Therefore, Electrolux should adopt the cultural cohesiveness in the process of acquisition of other companies (Thompson & Strickland 2001 p. 28).
While acquisition has already taken place, several adjustments are necessary to the management in order to include all the stakeholders’ interests. In the leadership and management field, changes are virtually important to foster and reflect the interest of all the stakeholders as well as those of the company. Secondly, the operations field in another context under which changes is paramount to harmonize the operations of the acquired company with the parent company.
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