Simulation: Fujian Quanzhou Adiwang Shoes Company
Adiwang’s performance has been continuously improving over the years. The company’s earnings per share rose from $2.72 in 2011 to $3.39 in 2014. The increase in earnings per share was an indication of increased profitability in the company. Adiwang’s profits rose from $-14,687 thousand in 2011 to $47,796 in 2014. This rise in profits is an indication of the effective marketing and managerial skills in the company which resulted in it making substantial profits and gains for its shareholders. The company’s retail image performed poorly. There was a fall in average retail image score from 67 in 2011 to 59 in 2014. Basically, this image indicated that the company was not undertaken community social responsibility activities, which portrayed it as having social concern for the public. Accordingly, the company should restructure its CSR kitty so that most of it is spent in external activities since it already spends more cash in CSR than the industry’s average.
In terms of market share, the unfortunate poor marketing skills at the start of 2011 made the company to lose its market share. At the start of 2010, the company had a market share of 12.5% in North America in all its categories- the internet, wholesale, and private label market. However, due to poor marketing skills the market share fell to 1.3% in the internet market. Its wholesale market share in the same region also fell to 0% in 2011. A similar fall was witnessed in the private label market where it fell to 0%. Nonetheless, 2014 showed that the company’s marketing skills were enabling it to increase its market share. Its market share in North America was 5%, which showed an increase in 5% from its 2011. Its wholesale market share also increased to 9.1%, which showed that the company’s sales and marketing efforts were increasing its performance. Nonetheless, the business had a markets share that was below the industry average, which was 12.5%. Therefore, its should increasing market in order to regain its market share. The increasing market share as well as profitability over the period from 2011 showed that the company competitive position had improved. Adiwang was ranked as the fourth most competitive company in 2014 in this industry. Better still, the company’s credit ratings increased from C- in 2011 to A+ in 2014, which increased its ability to access cheap and more credit for its operations.
The simulation analysis of Adawing showed various lessons that the company’s management should learn. To begin with, the business financial performance and profitability was shown to be affected by the management’s decisions and those of competitors. The profits were affected by exchange rate changes, marketing efforts, consumer social responsibility, and plant capacity (Pride, Hughes, & Kapoor, 2011).
On marketing, it was found that few marketing efforts were associated with low sales in the industry. In 2011 for instance, the company spent $8,673 thousand during this period it had a loss of $14,687 thousand. On the contrast, an increase in sales in 2014, in which it spent $19,037 resulted in the business making $47,796 profits. Accordingly, an increase in marketing efforts resulted in increased sales.
The business performance was also found to affect the business credit ratings. There was a slight decline in the business credit rating in 2011 due to the poor performance of the business, in which it made a loss. However, since 2012, when the business began to make a profit, its credit ratings rose from C- to A+. The exchange rate differences were also found to affect the business incomes. The exchange rates had an impact of either or decreasing the cost of manufacturing products, revenue, as well as shipping costs. In light of this, the business learned that it is important to adjust its production levels in countries depending on the impacts of exchange rates. In general, where there is an increase in revenue due to exchange rate differences, the plants in those regions should increase their capacity.
There was also learned the importance of allocating its resources in the customer relationships in a manner that earned the most benefit to both customers and the company. Although the company had a high allocation of CSR, it failed to allocate a significant proportion of its funds on direct activities that benefited consumers such as donations. Therefore, despite its high CSR allocation consumers did feel the impact of these allocations (Kotler & Keller, 2015). As a result, the business has learned the importance of prudently distributing its resources.
Understanding Strategic Principles
Understanding strategic principles is important for Adiwang because it will enable it to understand the market changes, make future strategies, and align its resources to the market changes. In particular, given that the footwear industry is affected by both internal and external factors such as the behavior competitors, government policies, as well as exchange rate differences, the company should always allocate enough time to understand strategic principles.
Understanding strategic changes will enable Adiwang to understand the market changes. To begin with, the company will be able to learn the changes in the tastes and preferences of customers. Accordingly, it will change and modify its products to match these changes. In addition, the company will also learn the behavior patterns of the competitors, as well as the impact of the exchange differences in the company’s resources (Bateman & Snell, 2016). In light of this, the company will always be ahead of its competitors when making essential business decisions.
In addition, the understanding of strategic principles will enable the business when allocating its resources. In order to determine where to allocate resources, the business must understand the emerging changes in the market and form appropriate strategies (Kotler & Keller, 2015). Indications such as changes in tastes and preferences of customers tell the company the kind of resources they should buy, as well as where to establish new plants in the world.
Finally, understanding of strategic principles enables an organization to align its strategies with the industry’s principles. For example, the understanding of these principles will enable the company to know of emerging trends, as well as marketing tactics used in this industry. Accordingly, the company will form strategies that match the industry’s principles (Griffin, 2015).
Key Learning Points About Strategy
Understanding microenvironments strategies are essential for the future success of a business. To begin with, changes in the macro environment such as government policies and exchange differences can positively or negatively affect a business. A policy such as minimum wage rate may increase the business operational costs and make it earn less income.
Understanding the strategies made by competitors are essential in enabling a business to understand the effects of these moves. For example, a strategy of reducing prices of commodities may have the impact of making a business’ customers shift to the competitor. Therefore, understanding how to react to moves by the competitors is essential for the success of the business (Grewal & Levy, 2016).
Running a business is tedious and hectic to the business owner. Therefore, understanding the behavior of employees, suppliers, customers, government, and shareholders is essential for the company. Customers always want to get the best quality products for the least cost, suppliers always want to be paid the highest fees possible and in advance, employees, always want to get the highest salaries possible and to have the most relaxing job, and investors always want to have the highest returns for their shares (Daft, 2015). Fulfilling these requirements is not practically possible; therefore, the skill of striking the right balance is essential.
A shared team spirit and focus are essential to managing and running a business to be less strenuous and expensive. Importantly, it enables the company to make its decisions quickly and to outdo its competitors (Certo & Certo, 2015). In addition, a team spirit and focus are essential for research and innovation needed to make a business succeed in its activities.
In order to maintain its competitive position, a business must constantly watch the behavior of competitors and make appropriate countermeasures. In addition, a business must be innovative and constantly produce high-quality products that match the tastes and preferences of competitors. Finally, it is always complex and difficult to meet shareholders’ interests due to their different objectives. Some shareholders always want to be paid high dividends and are less focused on the future performance of the company. On the contrary, some prefer to be paid fewer dividends and the company to invest re-invest its profits in long-term objectives (Laudon & Laudon, 2015). Striking a balance between these differing shareholders objectives is always difficult for the company.
To sum up, the simulation for Adiwang has shown how external and internal business environments, as well as the decisions made by the company’s management affect the business performance. In the simulation, managerial decisions such as marketing efforts, allocation of resources, and strategic positioning of manufacturing plants had various impacts on the company’s performance. Improper decisions on how and when to allocate resources, such as marketing resources, had a direct impact on the business performance. In addition to this, the decisions made in relation to the competitors’ actions have a direct impact on the company’s performance. For example, a reduction in the prices offered by competitors requires the company to make appropriate decisions to counter this move. In addition, the strategic position of the business in various markets is essential in influencing its performance. The positioning of manufacturing facilities has an impact on influencing the companies profits and costs of operating a business. Similarly, the company’s policies on how to react to its external environment have a direct impact on its performance. For example, the manner in which the business aligned its productivity to match the different exchange differences and their impacts on costs of raw materials as well as the amount of repatriated income earned by a business. Accordingly, a business should always evaluate its internal and external environment when making financial decisions.
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