The success or failure of a business largely depends on its management’s ability to implement success strategies. In practice, managers are always implementing new agendas and strategies of improving their business sales and image. Moreover, managers always consider the changes in both their internal and external environment and how it affects their business. This report will consider the marketing, corporate social responsibility, exchange rates, and number and location of plants in influencing the business performance. The paper will also examine the internal and external environment of the business. finally, this report will evaluate the impact of the business strategies in affecting the earnings per share, return on equity, credit ratings, scoreboard performance, stock price, as well as the company’s image among investors and customers.
Businesses always implement various competitive strategies in order for them to succeed. Generally, they counter the effects and strategies implemented by competitors, such as lower prices or increasing quality. In order to achieve this goal, businesses always form countermeasures such as establishing distribution channels and marketing their products. Some of the strategies that have been implemented by B Company include low dividend payments, corporate social responsibility, and marketing.
Low Dividend Payments
B Company has not been paying dividends to its shareholders from the time of its establishment in 2011. Generally, the company has implemented this measure in order to raise more capital for its operations. Accordingly, the company can now be able to invest in more income generating activities.
Community Social Responsibility
Company B has also implemented the strategy of allocating a sizeable share of its income for community social responsibility (CSR) service in order to improve its image. Generally, CSR enables customers to relate and connect with the services offered by a company. To elaborate, through CSR companies issue social services for free to customers, such as free medication. Moreover, they also train employees on how to attend to various needs of customers. In light of this, the use of CSR by B Company has enabled customers to relate with the company at a personal level since it serves their domestic needs.
B Company has implemented the strategy of using marketing in order to sell its products to more customers. Simply marketing entails the use of various strategies such as celebrity endorsements, website promotions, and use of promotions. The use of advertisements has enabled B Company to emerge as a strong and competent seller and distributor of footwear products in various markets.
The footwear industry is affected by both internal and external factors. Generally, these factors can be simplified into the six elements of PESTEL that affect business; political, social, economic, technological, and legal factors. In light of this, companies in this industry must understand how these factors affect and influence the operations of their business.
Political factors refer to the extent that government actions affect operations of a business. government factors simply factor to issues such as trade policies, taxes, labor law, environment laws, and bilateral agreements. For example, an increase in tax levels may lead to a reduction of B Company profits. In light of this, the company should always learn of the unique changes in government policies in their regions and establish appropriate strategies to cope with these changes.
Economic factors are issues such as interest rate changes, exchange rates variations, inflation rates, and disposable income. Generally, the knowledge of a population’s disposable income enables a business to understand how they should price their commodities. Where people have a high disposable income, the prices of goods are always high. On the contrary, if individuals have low disposable incomes, the prices of commodities are always low (Hill & Hult, 2015).
Social factors refer to the cultural, attitudes, as well as the demographical distribution of individuals in the society. In light of this, B Company should always consider the social factors when determining the most appropriate prices for its commodities as well as the type of products to sell. If the population is young and youthful, companies in the footwear industry sell official and leisure shoes (Nelson & Quick, 2012).
Technological factors evaluate how the changes in technology affect the performance of a business. Basically, these factors impact on the operational cost of a business, such as labor required to produce a certain number of shoes. Simply, they influence the efficiency as well as the cost of doing business.
Environmental factors refer to the operation condition of a business. Simply, these are factors such as access to raw materials, ethical standards expected in the society, and pollution. Importantly, consumers require companies to respect and abide by the environmental factors when producing commodities. For example, customers always want businesses in the footwear industry to treat their employees in a humane manner. Those that fail to abide by these requirements normally fail to attract enough buyers (Render, Stair, Hanna, & Hale, 2014).
Legal factors refer to the laws and regulations in a region. Generally, companies in the footwear industry must always abide by the rules and regulations in their jurisdictions. In this case, B Company must abide by the laws on employment, advertisement, product labeling, and product safety (Walker & Millins, 2013).
B Company manufactures shoes in its two manufacturing plants in North America and Asia Pacific. The company has not yet maximized on opportunities presented by various markets such as Latin America and European-Africa market. The company was established in 2010 and has since been able to establish itself as a formidable company in the footwear industry. The footwear industry is very competitive. The main competitors to company B are A, C, D, E, F, G, and H company. In light of this, B Company constantly establishes new strategies that enable it to remain ahead of the competition.
The main competitive position for B Company is its ability to attract customers to buy its products. In the evaluation of the weighted average earnings per share for the industry’s earnings per share, it had the highest average. B Company weighted average EPS was $6.13, the weight for the competitors A, C, D, E, F, G, and H were 2.05, 3.17, 2.71, 5.41, 3.17, 3.16., and 3.11 respectively. The company also had a higher weighted average return on equity which indicates that it has been more profitable than rival companies. Company B had a weighted average ROE of $23.3. Competitors in the industry, which were company A, C, D, E, F, G, and H had a weighted average ROE of 12.2, 16.5, 14.1, 21.8, 16.4, 16.4, and 16.2 respectively from 2011 to 2014 The main strength of B Company is its ability to have a high ROE and EPS for its shareholders. Generally, the allocation of these high returns to investors has enabled the company to have a positive image and reputation among them. Accordingly, the company can now be able to raise more capital for its investors since most shareholders have been impressed by its performance and would be willing to buy its shares. On the other hand, the company’s main weakness is its inability to understand the current market changes. The company’s earnings per share declined from $7.97 in 2013 to $5.24 in 2014, which indicates that its profits had declined during this period. A similar situation was witnessed on the ROE, which declined from $26.1 in 2013 to $14.1 in 2014. In light of this, B Company management should identify the causes of the decline in profits and undertake appropriate actions in order to ensure that it remains profitable.
A company’s management must always formulate prudent decisions to ensure that they attain their objectives. In this regard, the management must always evaluate both the internal and external factors that affect a business when they are formulating financial decisions. With this in mind, B Company’s management has established decisions on dividends, marketing, liquidity, and marketing in order to influence the company’s performance.
Marketing simply refers to expenditure that the company uses to promote its business. Simply, these are funds used in internet marketing, promotions, and advertisement banners. In 2014 for example, B Company had the highest expenditure on marketing when compared to other competing businesses. The company spent $ 69,263 while the nearest spender, A Company spent a paltry $41,352. As a result, the company made the second highest sales and generated $326,444. A Company, which was the highest earner in terms of revenue made $358,109. In light of this, B Company learned on the need of aligning its marketing campaigns to the needs of the target market so that they may have maximum impact in increasing the business’ sales.
The marketing campaigns during this period have enabled the company to excel in its projects of encouraging individuals to buy its products. The company has continuously earned high EPS, which is an indication of high profitability due to its marketing efforts. In light of this, the company should be able to align its marketing strategies in a manner that it will earn most profits for it. In fact, the company can achieve this objective by understanding how company A markets its products.
Generally, all businesses decide to allocate resources for their businesses in locations where they will have maximum benefits for their shareholders. In this case, a business evaluates the logistics of transporting the finished products to the intended customers. Moreover, the company also evaluates the cost of raw materials used in the production of products in various regions. Finally, it assesses the cost of labor and regulation in specific locations.
B Company decided to locate its plants in North America, Asia Pacific, and Latin America. Mainly, the company evaluated the cost of manufacturing products from these regions, the applicable transportation cost, and the ease of accessing various markets. B Company had a high and increasing demand for its products in all of these three markets. For example, the demand for branded products in North America market was $11,448 in 2011, as at 2013 the demand had increased to 12,862. In Asia-Pacific, the demand for branded products rose from 7,920 in 2011 to 9.583 in 2014. Similarly, in Latin America, the demand for these products rose 7,920 in in 2011 to 9583 in 2013. In light of this, placing plants in these regions had the overall effect of improving the distribution of these products to customers.
B Company initiated a strategy of not issuing dividends to its shareholders from the time of its inception. Accordingly, the company has been able to accumulate a lot of capital for its investments. As of 2014, B Company had the highest amount of capital that was $397,179. The only near competitor was company E which had $356,580. These high levels of capital indicate that the company can now be able to undertake various profitable investments using its own resources. In addition, it can also use its own capital instead of borrowing cash to achieve its objectives.
Interestingly, although the company was not issuing a lot of credit, the company’s image also improved. Basically, the availability of affordable capital, in the form of retained earnings made investors and various stakeholders to have confidence in the company. In the year 2011, the company had a score of 62, this score rose to 70 in 2012, and further to 71 in 2013. However, in 2014 there was a small dip in the profits to 66, which was mainly due to a slow-down in the business performance. On overall, however, the company has enjoyed a continual improvement on its image.
B Company has improved its credit rating from B in 2011 to A+ in 2014. The main cause of the increase in credit rating was due to the increased profitability and liquidity of the company. Importantly, the improvement in the credit rating of the company was due to the company’s decision to retain its dividends, which made it more liquid. As a result of this decision, B Company can now be able to access more credit and at a lower cost. Nonetheless, despite the B Company improved credit rating it has not accessed more credit financing for its activities.
Generally, companies always aim at improving their credit in order to have access to cheap financing. Simply, each source of finance has a cost. Even a company’s own capital has an opportunity cost associated with it. Therefore, the company’s decision of ensuring that it has high capital and it continuously makes enough profits so that its cost of accessing additional finance is appropriate and necessary for its success.
Focus simply refers to the decision of an organization to specialize in a certain market or on specific products. B Company has focused on two major markets, North America and Asia-Pacific market. In these markets, the company has been able to increase its market share by using aggressive sales strategies. In general, focus enables a company to focus its efforts in fields that it is familiar with. Better still, it enables a company’s capital not to be spread too thin since when it is allocated to many expenses (Krajewski, Malhotra, & Ritzman, 2015).
By B Company specializing in the North America and Asia-Pacific markets, it has been able to learn the tastes preferences, and culture of individuals in these regions. Simply, the company has learned its business environment. The benefit of focus for the company can be witnessed in the company’s ability to increase its revenues and become the second best seller in the industry. As of 2014, B Company had revenues of $326,444, while the highest seller had revenues of $358,109.
B Company has been enjoying a boom from 2011. The company’s visionary strategies have enabled it to become the second best seller in the footwear industry. As of 2014, the B Company had revenues of $326,444, while the highest seller had revenues of $358,109. In fact, due to the company’s high performance, its stock price has risen from a value of 16.34 in 2011 to 76.14 in 2014. Generally, this rise is an indicator of shareholders confidence in the company. This strong positive performance is also shown in the company’s return on equity. In 2011, the company had a ROE of 9.2, which shows that each share earned the company $9.3. In 2014, the company’s ROE had risen to $14.1 per share, which was almost double the 2011 figures. In light of this, the company’s profitability have been shown in its continuous positive returns.
The ROE was 9.3, 45.6, 26.1, and 14.1 for the year 2011, 2012, 2013, and 2014 respectively. These rates show that the company has been able to generate income for shareholders. Better still, the ROEs have been increasing during these periods, except for the year 2014, which indicates the increasing profitability of the business.
B Company had a strong and positive image during the year 2011, 2012, 2013, and 2014 period. In 2011, the company image rating was 62 in 2012, it rose to 70, in 2013 it was 71, finally it was 66 in 2014. This overall positive growth in the company’s rating was due to the company’s ability to generate consistent profits during the period. The slowdowns in the company’s performance lead to a decline in image rating from 71 to 66. In terms of credit rating, the company had a score of B in 2011, the positive returns in the company made this score to rise to A- in 2012, in 2013 and 2014 the company had a rating of A+ which was mainly due to increased capital for the business during this periods.
Since its inception in 2010, B Company has been enjoying a robust growth in its performance. In fact, this has been the reason why the company’s shares have improved during the period. B Company had the second highest revenues in 2014. As of 2014, B Company had revenues of $326,444, while the highest seller had revenues of $358,109. Since it was the second from the market leader, if the company was to engage in various promotion and advertisement programs it would emerge as a market leader. In order to achieve this goal, the company would have to introduce new tactics in its operations, which would aim at minimizing unnecessary costs and ensuring that its marketing efforts are effective in reaching the right market.
The company’s Earnings Per Share had increased during the 2014 period, specifically, B Company’s EPS rose from 1.49 in 2011 to 5.24 in 2014. The company’s EPS also declined slightly from a high of 7.97 in 2013 to 5.24 in 2014. Specifically, this slowdown was an indication of changes in the market due to tactics that were been implemented by competing businesses. As a result, the company should research on the market changes and implement the most appropriate strategies.
B Company return on equity (ROE) increased sharply from 9.3 in 2011 to 45.6 in 2016, it then started to decline in 2013 where it fell to 26.1, and it fell further to 14.1 in 2014. On overall, this decline in ROE indicates that the business was most profitable in 2012. In light of this, B Company should initiate rapid recovery strategies in order to avoid its performance from falling further. In order to achieve this goal, the company should conduct research on the market so that it may understand changes that are occurring in it, so that it may implement appropriate actions to improve its performance.
Underlying Strategic Principles
Formulation of various strategies is essential for the success of a business. in order to success in its business, B Company always formulates various strategies which it uses in its business activities. The company has formulated strategic principles that are about community social responsibility, marketing, and dividends payment.
The company aims at ensuring that it has employees who may offer high-quality services in all its activities in future. Through training of employees, as one of its CSR activities, the company is able to have a constant supply of the company’s requirements in an officer. In addition, training enables workers to provide services that match the tastes of workers. Accordingly, training strategy has the benefit of ensuring that the company has competent employees for the fulfillment of its objectives both currently and in the long term (Leonard & Trusty, 2015).
The strategic decision of not issuing dividends is the accumulation of retained profits, which enables the company to have more capital for investments. Retained profits in a business are used to increase the company’s capital, which in turn enables it to engage in more capital-intensive investments in future. Better still, retention of capital enables a business to have a higher credit rating, which makes it to access loans for a low cost as well as having the privilege of getting more credit for its activities. In light of this, the strategic decision of the company of not issuing credit today has the impact of improving the business long-term liquidity position.
Key Learning Points About Strategy
Macro environment refers to activities that affect an entire industry such as changes in tax rates. In light of this, understanding the Macro environmental factors has the benefit of enabling a company to match its strategies with the changing macro-environment. The changes in the macro environment may make it difficult for a company to achieve its objectives using past plans, therefore, if the business understands these changes, it will be able to modify its operations so that it can achieve its objectives (Ferrell & Hartline, 2012).
Understanding the behavior of a competitor is essential for a business since it enables it to form various important actions depending on their activities. In general, business decisions are at times countermeasures aimed at inhibiting the decisions of competitors from negatively affecting a business. Accordingly, the understanding of the decisions made by competitors enables a business to form appropriate countermeasures for their various competitive tactics.
The complexities of running a business mainly entail forming a right balance of the decisions to make regarding various stakeholders. On one side, the business wants to retain most of its dividends so that it may capitalize them in various profitable activities, at the same time; there is always a risk of disappointing investors by not giving them dividends. Similarly, the business has to constantly deal with employees who are always demanding for higher salaries and suppliers who always want more fees for their services.
Having a shared focus enables a company to easily deal with the various complexities in the business. Simply, all stakeholders know that their decisions have an impact on the company’s ability to attain its objectives. However, since all individuals have the purpose and will of ensuring that the organization attains its objectives, if all stakeholders are focused, they are always willing to sacrifice their current benefits for future benefits of the organization. In this case, shareholders are always willing to be paid a low fee while employees and suppliers are always willing to get low fees for their services so that the company can achieve its main objectives in future (Laudon & Laudon, 2015).
To sum up, the strategies that business forms have a direct effect on its future performance. As a result, companies must always examine how the internal and external environments in a business affect its overall performance. Simply, businesses must be constantly formulating strategies that maximize the welfare of their stakeholders depending on the changes in the market. From the analysis, B Company has been having a slowdown in its operations, mainly due to lack of knowledge of the changing dynamics in the footwear industry. In both cases, the company has had a decline in ROE and EPS, which is an indicator of decreasing profitability in the business.
In order to avoid this problem in future, the company’s management must always be proactive and try to understand the macroeconomic, business, and industry changes so that it can take appropriate actions based on them. Importantly, this tactic will enable the company to be a market leader since it will be influencing the market behavior rather than reacting to changes in it. On the same breath, the company will also be able to know on how to focus on both the short-term and long-term objectives for the company as well as how to align them with the changes in the industry to easily attain these goals.
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Hill, C., & Hult, T., 2015, Global business today (9th Ed.). McGraw-Hill Education, New York, NY.
Laudon, K & Laudon, J, 2015, Management information systems: Managing the digital firm (14th Ed.), Pearson Publishers, Upper Saddle River, NJ.
Leonard, E., & Trusty, K., 2015, Supervision: Concepts and practices of management (13th Ed.), Cengage Learning, New York, NY.
Krajewski, L., Malhotra, M., & Ritzman, L., 2015, Operations management: Process and supply chains (11th Ed.), Pearson, Upper Saddle River, NJ.
Nelson, D., & Quick, J., 2012, Organization behavior: Science, the real world and you (8th Ed.), Cengage Learning, New York, NY.
Render, B., Stair, R., Hanna, M., & Hale, T., 2014, Quantitative analysis of management (12th Ed.), Pearson, Hoboken, NJ.
Walker, O., & Millins, J., 2013, Marketing strategy: A decision-focused approach (8th Ed.). McGraw-Hill Education, New York, NY.
Company performance overview
Credit and Image Rating
Corporate Social Responsibility