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HRM for Successful International Strategic Alliances
Outline the importance of human resources management for the successful operation of international strategic alliances. Assess the significance of the major problems encountered by partners in the design and implementation of effective human resources management practices.
Introduction
In the ever competitive, challenging and dynamic business environment, businesses no longer able to stay alone or to compete effectively with other businesses in the ever globalized world. Today, competition is leveled to the extent whereby a network of companies is competing with another network of companies. A single entity or corporations is hard to survive or to fulfilled the ever demanding customers’ needs and expectations, while it is also not effective for only a company to compete against the well-established network of competitors. In fact, the competition between businesses had intensified in the recent years in an ever globalized and integrated world, whereby business cooperation or strategic alliances had extent beyond borders. Today, businesses are partnering with businesses from other nations, to form stronger partnership or collaborations between businesses of different countries for different types of benefits.
In the context of international strategic alliances, one highly critical issue to be aware of by senior management is the human resources management (HRM) practices or system to be applied in the organizations involved in the strategic alliances (Dessler, 2011). Although many HRM issues that is critical for an organization persist in managing people in the international strategic alliances context, the people management issues is more complex in an international strategic alliances arrangement, due to potentially distinctively different cross cultural and social factors. Thus, in this article, the importance of HRM for successful implementation of international strategic alliance will be discussed. Furthermore, the problems faced in the implementation and design of effective HRM practices that could be encountered by partners in the design and implementation of effective HRM will be discussed as well.
Importance of HRM for Successful International Strategic Alliances
In business management, human resources management is a very important area to be managed, as human are ultimately the key contributors towards the success or failure of an organization. In fact, in the ever competitive business environment, the requirements of human resources management are becoming more prevalent. Firstly, as the world enter into a knowledge based economy, people skills and competencies had now replace the other sources of competitive advantages, such as capital, machinery or other forms of business assets in determining the relative performance of a firm in the challenging world. Secondly, as the business landscape is becoming more competitive, businesses are competing to recruit and retain talents in the organization. Talent wars are not something uncommon today. Thus, all these are causing that HRM is increasingly important to an organization in the new economy system.
In such a scenario, the importance of HRM is becoming more obvious and prevalent as the businesses expand towards the global arena for bigger market shares, to growth and profitability, as well as to reach better economies of scale or stronger brand name in the world. In the context of international strategic alliances or partnerships, human capital has been the key criteria determining the degree of successfulness or effectiveness of cross countries collaboration or alliances (Ming, 2002). This is because cross cultural or cross nations expansion and collaborations are complex and complicated process, whereby the organization must become more changeable, adaptable, flexible and responsible in the different business environment, due to the differences and sometimes, even contradictory social cultural environment and consumers preferences, attitudes and behaviors. In facing with the challenges to operate or cooperate in a different business environment, it is becoming more important for the corporations to have smart, talented, dynamic and motivated employees to deal with the challenges troubling the firms in daily operations or decision making process. In such a scenario, HRM is very important in assisting a firm to become more effective and successful in the international strategic alliances process. Besides, from another perspective, HRM is also crucial to ensure effective and proper management within the organization. HRM is not only crucial towards achievement for success of competitive advantages of international strategic alliances in the external environment, but is also very important in coordinating smooth, responsive and effective operations internally. Within the firm, HRM is crucial to bring the people, primarily from different cultural background, of different behaviors, attitudes, beliefs and assumptions into a team (Dessler, 2011) that can focus and work together in the accomplishment of the corporation missions and visions.
In fact, the importance of HRM in international strategic alliances is nothing can be denied by the practitioners, as people have been observing that cross nations or cross cultural alliances have been hard to achieve success due to people issues (Berrell et. al., 1999). This can be witnessed by the abundance of literature of cross nation or international strategic alliances to be linked to the issues of human resources management. This is nothing hard to understand, as managing of people and workforce is complex, particularly in the context of managing people from different cultural settings. Besides, when people of different background and cultural settings interact, the psychological process due to the interaction can be complex, dynamic and hardly predictable. Thus, it is not hard to see that researchers are arguing that cross cultural management is a new topic to be taught to business students, and in the context of real world corporation business management, to the many employees. It is argued extensively that education, training and development of employees related to cross cultural issues, in terms of cross cultural interaction, and alliances is critical for any firms to become effective in collaborating with other firms from other nations.
Problems Faced in Implementation and Design of Effective HRM Practices
As argued above, the importance of HRM towards successful design or implementation of international strategic alliances is not something that can be denied. Nonetheless, although the importance of HRM is acknowledged, the challenges or problems usually faced by management in the context of international strategic alliances are something worth discussing. It is very crucial to understand and investigate these issues in depth, so that as the managers understand the potential challenges or difficulties, they can set their expectations accurately and plan in advance to deal with these problems or challenges.
Employee Selection Process. One of the key issues of international strategic alliances in the context of HRM is the staffing process to be employed in the joint venture or alliances. Staffing can be crucial as people may be highly sensitive to the appointment of people to fill the different positions in the joint venture. For example, one very sensitive issue is about who should take the leadership position, and in case of conflicts, who has the main say to deal with the difficult decision making process. Besides, the leadership of key management positions is sensitive as each partner will definitely want to appoint their personnel to safeguard their respective interests and well beings in the strategic alliances. Not only is that, it is also crucial to understand if the personnel appointed understand the cross cultural different and able to lead the people from diverse background, social cultural settings or mindset toward achievement of the goals set forwards in the international strategic alliances. In many joint ventures, the operations fail badly due to the fact that people from one side do not want to obey the order sincerely from the management, whom is appointed from the other partner. It is also not something uncommon that the key leader appointed simply unable to lead the diverse workforce, and had made deadly wrong decisions in managing the people.
Reward System. Apart from that, another common problem faced in international is about the promotional process in the alliances. For this issue, it tends to arise when the parent companies send certain personnel from the parent companies to work in the joint venture. As the career path design and the HRM system or practices in the parent companies may be distinctively different from that of the system employed in the joint venture, these personnel may face harder promotional issues in the newly formed strategic alliances. Besides, people may not be willing to try out new things, or to face the risk of uncertain career path or promotional opportunities when they are asked to join the new venture. Thus, overall, it is crucial to understand that the differences between promotional opportunities of the concerning promotional system or career path designed for the employees may be working against the senior management intention to send the relevant or best people to spearhead the joint venture. The system to attract good staffs to the new joint venture is critical and impactful towards affecting if experienced staffs are willing to take up the risks to participate in a new business venture under the international strategic alliance. It is crucial for the firm to understand how the reward system differ from the parents companies to that of the new joint venture. It can be reasonably expected that people may need time to get accustomed to the new rewards system and to make sense of that system. Besides, there are also questions if the reward system is relevant and effective in managing workforce. If the reward system is not designed properly, people simply may not able to work effectively (Ming, 2002), or to adopt different attitudes to gaming the reward system for personal benefits.
Performance Management System. Similar to the reward system, the performance management system in the newly formed joint venture between two companies in the international context may not be effective or accurate in managing the workforce. For example, it is definitely not easy to decide which companies’ performance management system to be used in the newly formed joint venture. Besides, it is also challenging to decide which companies’ performance appraisal or management system to be adopted in the new venture, and if these policies, practices or procedure will require adjustment or amendment to fit the local context. Negotiation between the two parents companies may be a long process. However, it is reasonable also to expect that if the agreed upon performance management system can effectively guide and lead the employee performance in the newly formed corporations. In this issue, the different cultural settings, or workforce mindset, assumptions, expectations and educational background may be great challenges to be handled (Thang et. al., 2007). In fact, it is also reasonable and mind boggling to ask if there really exist any effective or great performance management system to manage people of different cultural, experiences, educational or social background (Matveev et. al., 2004).
Employees’ Loyalty. Not only is that, there are also issues of employees loyalty in the newly formed joint venture under the theme of international strategic alliances. As people may be transferred from the parent companies to the new joint venture, it is uncertain if the staffs working under the new joint venture are loyal to the new company. Besides, it is also issues if the people from different companies can work together effectively, with trustful relationships among the many staffs in the new venture. This is important as the degree of trust will affect how people interact. For example, without trust within the people, people may not able to work effective for common goals, to share ideas, to support each other and to work in a team for better performance and attainment of certain organizational objectives. When trust does not present, conflicts between people can be more serious and frequent, and when that happen, people no longer able to work effective, or simply to concentrate on the work, but instead engage in detrimental or non-productive activities to deal with the tricky situations or non trustworthy staffs from the other parent companies.
Decision Making Process. When two different entity, particularly those with different corporate culture or corporate values, meet together, there is bound to have huge problems in the decision making process of the newly formed joint venture. For example, people from different corporations may have very different rules or practices in decision making process, as they are guided by different cultural factors of values previously. People are likely to get stunned when they found that the people from other side of the partner tend to have very different ideas, and judgmental rulers in the decision making process’ particularly one that is contradicting or opposing to their current beliefs or practices. Thus conflicts management within the organization between the staffs are crucial and indeed, not to be ignored. There must be proper ways to solve the conflicts between people in the organization, and how to utilize the different ideas, and the advantages offered by the diversity of workforce for better achievement and performance in the newly formed company. In fact, as we had discussed above, the decision to choose who is the key person that can make the ultimate decisions are crucial to the success of any joint venture. The practices or policies must be fair, and take the interests of both parties involved in the international strategic alliances into account before any materials decision is to be made.
Cross cultural communication. As discussed before, cultural differences between people in the context of international strategic alliances is the key barrier preventing effective or successful joint venture between many firms from the west to firms in the east. In fact, the culture between different regions of the world is so obvious that researchers have developed different framework to characterize the different cultural dimensions between people around the world. According to Hofstede (2003), cultural differences can be analyzed from four key dimensions, such as high or low power distance, individualism or collectivism culture, either masculinity or femininity, and lastly, either high or low uncertainty avoidance. All these will certainly affect the effectiveness of cross cultural communication, as people may not see eyes to eyes or able to understand the intended meanings to be conveyed by the counterparty of different cultural background (Harvey et. al., 2002). In fact, in many of the instances, people may simply not able to realize they the way they behave or communicate had already offended the other with different cultural beliefs or assumptions. Thus, it is important for management to understand the difficulties of communication within the joint venture, and to understand if the information technologies or communication channels available in the joint venture is effective and relevant. There are also challenges to which how the management can set up best practices to aid the accurate communication process between people from different cultural or social background. In event that the people are not able to speak a same language (Matveev et. al., 2004), the challenges in the strategic alliances is even more critical.
Unfamiliarity or cultural shocks. Depending on the location of the joint venture, there is bound to have unfamiliarity or cultural shocks of certain people in the new environment (Awang et. al., 2010). For example, when people working in the UK is sent to take up managerial expatriate roles in the new company in China, these expatriates will certainly faced some degree of unfamiliarity and challenges to adapt to the new business or workplace environment. Thus, it is important for the senior management to understand that such issues of unfamiliarity can be great impendent to proper performance from these employees, which definitely need certain time frame to suit the new business landscape or workplace (Dunbar et. al., 1990). The learning curve of these expatriates can be steep (Hogan et. al., 1990). Thus, it is crucial for HRM personnel to develop effective training and development program to assist these expatriate to become more culturally fit in the different environment (Caudron, 1991).
Conclusion
Overall, this paper had discussed the how the competition landscape in business environment around the world had evolved. Today, businesses are competing in a network manner, where companies are required to partner with other strategic partners for mutual benefits in the every challenging marketplace. This gave rise to the issues of international strategic alliances. As the competition is becoming more global, and the process of globalization is not expected to be reversible, international strategic alliances are not something that can be ignored by business managers or academicians. In fact, this article had also discussed extensively on how HRM are important in the context of international strategic alliances. In the first part of the writing, it is argued that human resources management is crucial for the success and superior performance of the joint venture. This is not hard to understand as people is the moving forces that work together in a team under a joint venture between firms from different culture or nations, towards achievement of the predefined company or cooperation objectives. In the second part, the challenges, problems, common issues as well as the difficulties faced by managers in international strategic alliances are discussed. All these are critical as it provide accurate awareness and expectation for managers to ponder upon before they enter into any strategic alliances across nations or culture.
References & Bibliography
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Monday, July 2, 2018
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6 Effective Styles of Leadership
By BMA June 2, 2016 Leadership
Leadership strategy illustrated by businessman playing chess game.Leadership involves guiding a particular group of people towards a common goal. Each organization and individual may use different styles of leadership at different times.
The style of leadership used should draw the best out of the employees. Leadership is more about the needs of the organization rather than the needs of individuals.
Here are 6 leadership styles and when to apply each.
Participative
Participative leadership is where the leader works hard for buy-in by seeking employee input. The leader encourages and involves the employees in management decision making, also ensuring they know their decisions have been heard and considered. Sometimes, the employees are rewarded for their team effort.
This style works best in a steady environment where employees are working together, and the staff has credibility and experience. It is less efficient in crisis or fast-paced situation where there is little time for meetings. The employees must be highly coordinated.
If an organization requires significant internal change, participative leadership is the best style. Workers play a role in the process of minimizing conflicts within the organization.
Affiliative
If the organization needs to bring about a feeling of belonging or bonding to the organization, an affiliative style is more suitable. It is meant to prevent conflict by creating harmony between teammates. It would translate to: people come first.
The style works best when there has been a trauma or any other stress associated with management. It is also effective when the performance of the employees is inadequate. Affiliative leadership complements other leadership styles.
Pacesetting
With pacesetting, the leader models self-direction and excellence. He or she expects employees to do the same. The leader sets a high standard and employees follow the example. The workers managed need to be a team of experts that require little or no coordination. The employees must be highly competent and motivated.
The style is least effective where workloads are heavy and assistance is required from outside parties. Pace-setting can stifle innovation and overwhelm team members.
Authoritative
Authoritative leadership focuses on end goals. The leader drives the employees towards a common vision leaving it up to each to attain. The authoritative style means “Come with me.” It requires the leader to be very firm but fair to the employees. The workers receive feedback on goal attainment as a way of motivation.
The leader should be credible, offering a clear direction and the standards needed. If the leader lacks credibility, the employees will not buy in to in his/her vision. The employees need to be sufficiently developed to require only limited guidance.
Coaching
Coaching is where the leader works on developing individuals with the aim of improving their performance. It is meant to develop the employees’ goals as well as those of the organization. The manager has a development role. Employee motivation comes from providing workers who perform well with greater opportunities.
The style works best for developing employees who need to acquire new skills. They shouldn’t be defiant or unwilling to learn. The leader, on the other hand, has to be an expert and proficient. The style should be applied with caution. Employee self-confidence can suffer, especially if they perceive their leader as micromanaging.
Directive
A directive style is about a manager setting clear requirements for the team. The leader closely controls employees by disciplining them or through the threat of discipline. It works best in times of crisis where deviations are risky. The employees need to be experienced since the style does not support learning and development well. Just like coaching, experienced employees might resent a lack of autonomy.
Adjusting Your Leadership Style
Each organization and leader has to be able to adapt leadership style depending on the situation. Successful leaders adjust to the circumstances, capitalizing on the relative strengths of each style.
CONTEMPORARY AND GENERAL MANAGERIAL ISSUES HIGH PERFORMANCE WORKING (HPW) PRACTICES
Introduction
In the recent decades, the business landscape around the world is becoming highly competitive, and dynamic in nature. Corporations, big and small, have no much choice but to become high performance organizations in the ever competitive business environment. Consistent with such trends and needs, companies are forced to become more performance oriented (Adams-Bloom, 2009). There are many theories and ideas on how to become a high performance corporation or organization, and one of these theories are through implementation of high performance work practices in organization (Etchegaray, 2011). In this article, the various examples and discussions on high performance work practices as well as its importance to organizational success, growth and performance in the competitive marketplace will be discussed. It will be argued that organizations, particularly manufacturing firms, must take the opportunity to adopt High Performance Working (HPW) practices in order to become more successful companies in the future.
Defining High Performance Work
Depending on the perceptions of the researchers or authors, the word ‘performance’ can be defined from various perspectives. In this article, a more comprehensive definition for high performance work practices will be adopted. Here, high performance work practices are referred to those work practices that can be implemented to significantly enhance organizational performance. However, it is also worth to mention that the general popular definition of high performance work practices is often referred to as a set of complementary practices that cover three of the following areas: (a) significant employee involvement practices, (b) the effective human resources practices, and (c) reward management practices (Connolly et. al., 2007). All of these practices in these areas are crucial for organizational performance, as it is not hard to observe that these practices ultimately affect the employees’ performance, commitment and motivation. When people are managed properly and allowed or leaded to perform at their best, to expect a high performance work organization is not something unreasonable.
Literature Review
‘Best-Fit’ versus ‘Best-Practices’
The theories, ideas and arguments about human resources and strategy are complex. In the field of strategic human resources management, there are various perspectives on how organizational success and performance can be achieved. Often, this lead to different school of thought in terms of best human resources management policies. One of the popular perspective on effective human resources management practices or policies are the ‘best-fit’ perspective. According to such perspective, it is argued that the many policies or practices in a firm should be designed in a way mutually supportive and internally consistent with the broad organization strategies, mission and vision. For example, when the human resources management policies are aligned properly to the organization strategies, the firm can attain competitive advantage as the organizational system and policies in the organization are supporting the implementation of intended strategies of that organization in the competitive marketplace (Kaarsemaker et. al., 2006). From another perspective, another perspective, namely the ‘best practices’ perspective suggest that there are certain human resources policies (which include the practices on reward system, employees affairs and many others), that when rightly implemented, can lead to motivated and committed workforce, which in turn will lead the organization towards better performance and success (Gittell et. al., 2010).
As can be seen above, both the argument, either the ‘best-fit’ or ‘best-practices’ are logical and make sense. Depending on the context, it is not hard to find the supporting cases to support the respective arguments. No matter how the arguments are structured, both the perspectives seek to explain the ways in which effective human resources practices and policies can be structured to superior organizational performance. However, there are distinctive differences between the two different ideas. According to the ‘best-fit’ perspective, the formulation of human resources policies and system should firstly consider the organizational strategy. It is highly important for the human resources strategies to match the intended strategies to be implemented, or the strategic directions of a particular organization. It is only after the human resources policies and system are linked to the organizational strategies, high performance is possible. Such a view emphasize on the importance of organizational strategies, because the strategic directions outlined by a firm will be influential towards the best policies and system to be implemented in a firm. In other words, business strategies will drive the other aspect of organization policies as well as human behaviors in a firm.
From another perspective, the ‘best-practices’ view argued that there are certain best practices that must be incorporated into the organization policies, for example, to the human resources management reward system to ensure effective policies being implemented for better organizational performances. Under such a view, organizational strategies are not being emphasized, in the formulation of best practices in organization. This is because when the best practices are being adopted, the talented people in the organization will be motivated and induced to perform at their best (Bae et. al., 2011), and ultimately formulating the relevant organizational strategies for the firm to compete in the complex and dynamic business environment. Ultimately, such a condition will contribute to the attainment of competitive advantages by the firm. Instead of ensuring the mutually supportive and fit between human resources practices to the organization strategies, the mutually compatibility of the various human resources practices are discussed instead (Young et. al., 2010). For examples, the many human resources management practices, such as employee selection, training and development, employment compensation, reward or punishment system, industrial relations, as well as performance management and appraisal system, must be congruent and consistent. When all of these practices are consistent and effective, people can be motivated and become more committed to perform at their best for organizational success and performance in the future.
At first glance, both the theories are contradictory in nature. However, common sense would inform us that both of the views are valid in the real business environment. Depending on the situations, different view may hold true and more viable to contribute to organizational performance. For example, when the management is very certain about the future and the corresponding organizational strategies to be implemented, the ‘best-fit’ view is relevant for the organization. However, when the business environment is too dynamic for any viable long term fixed strategies to be formulated, the ‘best practices’ may be more viable. Both perspectives can be conflict as well. Under the ‘Best Fit view, it can be assumed that the best human resources policies should change according to the organizational strategy. However, under the ‘Best Practices’ view, the respective human resources practices should be universal in nature, as the changes in organizational strategies should not change the already effectively implemented best practices in the organization. Anyway, it can be also viewed that both the ideas can be combined. In many instances, the human resources policies should not conflict with the overall organizational strategy, while at the similar time, should adhere to the best practices discovered by researchers or known to the practitioners. In deeper investigation, it can also be found that no matter which perspective it is, it is argued that congruency is important. Under the ‘Best-Fit’ perspective, both the organizational strategies and human resources policies should be congruence; while under the ‘Best-Practices’ perspective all the human resources practices should be consistent with each others. Thus, it can be induced that in the formulation of best and effective human resources system, policies and practices, the internally consistency and congruency of the various elements of organization strategies and system are crucial.
The Best Performance Work Practices
Under the theoretical framework of Best Performance Work Practices, the best human resources management practices can be separated into three areas, namely: (a) high involvement, (b) human resources practices, and (c) reward and commitment. In the following paragraphs, these areas will be discussed in greater depth.
High involvement. High degree of employee involvement is often perceived as good human resources practices, as employee involvement will enhance the employee commitment towards the job, as well as may well result in greater employees satisfaction (Camps et. al., 2009). Besides, high degree of employee involvement will also often enhance the trust between employees and management, through sincere and constructive communication process. In the era whereby the business environment is so dynamic in nature, high degree of employee involvement is often critical to the success of an organization as it will also empower the employees when they are highly involved in the decision making and implementation process in the organization (Wei et. al., 2010). Not only is that, if the human resources practices are properly implemented, high degree of employees involvement will definitely improve employee’s motivation in workplace. In order to implement the human resources practices for high degree of employee involvement in an organization, several human resources practices can be applied. For example, it is always good practices to circulate important information, such as organizational strategy and performance in a timely and open manner to the employees; having a staff suggestion scheme to collect feedback from the staffs; implementation of total quality management system; cultivating or training up self-development or self-directed team; encourage communication across functional teams; or to adopt the continuous improvement practices in workplace (Wood et. al., 2011).
Human resources practices. In the context of human resources practices, the widely discussed issues are about practices implemented or designed to develop human capital in the organization, in order to enhance the skills, competencies or the attitudes and behaviors of the people working in the organization. All these practices are closely related to the training and development function of the organization. It cannot be denied that developments of the employees are crucial because as the employees have become more competent, more capable and able to perform in a superior manner, the organizational performance will surely be enhanced (Bayo-Moriones et. al., 2010). For example, when the employees are trained to become more customers centric and adopt a better attitudes and mindset in serving customers, the services quality of the organization will be improved. As the customer service quality is enhanced, the organization performance, be it from the reputation or profitability perspective, can sooner or later be increased. Thus, it is very crucial to ensure that employees are well-trained and competent in delivering the proper services to fulfill customers’ needs, expectations and requirements. There are many human resources practices that can be implemented to enhance employees’ competencies as discussed above. For example, employee performance appraisal should be designed in a way to shape the intended employees behaviors and mindset (Zhang et. al., 2009). If the company require service oriented employees, management should appraise the service quality provided by the employees to the customers. When this is done, then it is possible for the management to shape the relevant desired behaviors among the workforce. Besides, having formal feedback session is also critically important. It is important practices to obtain constant feedback from the customers, and to ensure that the employees are informed on the customer’s perception on their services and attitudes. With such practices, employees will be guided by the customers to provide better services to fulfill the customers’ needs and requirements, which is a very important element to ensure better organizational performance in the future. Apart from that, the feedback session between employees with the management team is also very important; as such feedback session will provide the medium and opportunities for each others to understand each other’s expectations and opinions.
In fact, there are also arguments that one of the most crucial and important human resources practices is to have stringent employee selection and recruitment practices (Messersmith et. al., 2010). It is argued that for the organization to perform well, it is important to put the right people at the right place in the right time. Besides, it is also commented that by putting the right people in the right position is the essential art of leadership, as the right candidates will be able to perform the job in a satisfactory manner, with minimal supervision. This will effectively reduce the burdens on the management or leader in the organization. Apart from that, it is also very crucial to have best practices on training and development program in the organization, to enhance the employees’ skills, behaviors and competency under the dynamic business environment. Some other best practices in the context of human resources include: best practices on job design, workforce diversity, programs for continuous development, mentoring system in the organization, as well as any other sort of business models or practices to assist the workforce to perform at their best.
Reward and commitment. Reward system is one of the very important elements in terms of human resource management, as it will ultimately affect how workforce behave, and hence the competitiveness of the organization (Guthrie, 2009). There are many types of reward system. Generally, rewards can be separated into monetary reward or non-monetary rewards. Monetary reward will include salaries, bonuses, stock option, and performance related compensation or profit sharing scheme. In contrast, non-monetary rewards, often very powerful and effective in nature, can include recognition of good works by the employees, employees’ benefits and entitlement, as well as other sort of facilities provided to workforce in workplace. The best practices or effective reward structure is critical, as irrelevant or ineffective reward system will definitely affect the employees behaviors and hence their performance. For example, when employees are rewarded for meeting as much as new prospects, the employees may as well meet as much people as possible to be rewarded, instead of closing the deal, which is a more important and impactful event for the organization.
Apart from that, Pfeffer’s list of seven Human Resources practices for attaining competitive advantage via people management is also often cited ‘best practice’ theory. According to Pfeffer’s list, the seven best human resources practices include: employment security, selective hiring, self-managed team, high compensation contingent on corporate performance, extensive and comprehensive training, reduction of status differences and lastly, sharing of ideas and resources. However, as discussed before, some researchers perceive that best practices are too simplistic, and a common set of best practices can hardly be effective in human management across all types of organization. Thus, under the best-fit point of view, the best-practices are suffering from the following issues: (1) the human practices under the best-practices view may not be aligned with the workforce interests, or even consistent with the social norms or certain legal requirements in certain nations; (2) the best practices view is too simple guidelines, as the business landscape and the organization settings can be more complex (for example, to attain competitive advantage may not be necessary or can be done via those traditional strategy of innovation, cost reduction or quality enhancement); and (3) the best-practices view focus too much on enhancing existing competitive advantage, rather than to be responsive to ongoing situational changes.
Examples of Organizations Adopting High Performance Work Practices
In this section, several organizations, known to have adopted high performance work practices, which have been achieving remarkable organization success and performance, will be discussed. In order to illustrate the importance of High Performance Work Practices in the country, four organizations will be presented; whereby two of the cases will be from the services oriented industry, while another two companies selected are from the manufacturing industry. These companies will be discussed in the following paragraphs.
Aspect Capital. Aspect Capital is a financial services provider firm located in UK. There are a total of approximately 70 employees in the company. In UK, the company is famous for its ability to generate high level of returns on investment in the hedge fund category (McIntosh, 2006). The investment strategies employed by the firm is through quantitative investment techniques (Davis, 2008). The key reasons enabling the company able to achieve such a high performing status is through effective management of people and technology. For example, from the employee involvement perspective, the company has a people culture, which is implemented through a ‘cultural plan’. The company also has effective human resources practices, particularly in the job scope design and performance appraisal. The company has effective practices that demand employees to go all round in training. The company has a comprehensive training and development system, whereby employees are put under on the job training and to undergo job rotation to familiarize with the other areas in the operations of the company. The performance appraisal is also comprehensive. For example, the company appraises the employees against nine attributes, which are designed specifically to be consistent with the attributes the company demands off the workers. In fact, the nine attributes are used to shape the organization culture intended by the management. Besides, the nine attributes is designed to counter the hedge fund industry tendency to use only high pay to attract smart people. Besides, the company is also having unique reward system, which is the Quarterly Individual Bonus, or more specifically named as QUIB. Under the system, both financial and non-financial rewards are provided. For example, besides providing good pay to the employees, the company also recognizes the outstanding employees in meeting.
Bacardi & Martini UK. Bacardi-Martini UK is a famous drinks manufacturer (Mason, 2001). The company is one of the famous market leaders in the beverage segment, producing ‘ready to drink’ products. Accordingly, the company achieves great success through managing change as well as adoption of innovation (Maling, 2009). Besides, the company able manages the people effectively due to its value-based and people culture. There are many effective practices employed by the company. For example, the management consciously removes the communication barriers between senior and shop floor workforce, so that to enhance the trust and communication effectiveness between people in the organization. Besides, the company also has a value-based principles or guidance in the organization to guide and reward the employees. In many instances, the employees are expected to exercise some degree of maturity on decision making, with those organizational values as guidance on how to behave in the dynamic business environment. The organizational values are also used for recruitment purposes, whereby candidates are access if they able to cope with these values, before being selected to join the company. Not only that, the training programs are also tailored specifically, as all the materials are incorporated with the organizational values. Not only is that, the company also establish a profiling system that coordinate the recruitment, progression, training and career improvement of the employees in the organization. Overall, all the many human resources related practices are designed in a mutually supportive and internally consistent manner.
Timpson. Timpson is yet another great example on how best practices can enable organizational success in the dynamic and competitive business environment. It is a good example, to proof that even for business operating under the old economy, such as high street shoes repair and key cutting, one that Timpson is operating in, can still achieve extraordinary success through high performance work practices. Started with its humble beginning, Timpson transform itself from a family business into multi-product high street shop (Moules, 2007), through a people oriented strategy for excellent customer satisfaction and organizational performance. Timpson adopt the upside down management philosophies, in order to create strong leadership, for employees’ empowerment as well as outstanding customers’ services (Graham, 2009). In order to engage employees, the company employ company newsletter to recognize those outstanding employees; while at the same time create the internal competition between stores under the company. Besides, in house trainings are also provided for the employees. Not only is that, the company also has a strict performance related pay structure, to reward the workforce fairly and accordingly (Bridge, 2008).
WL Gore. WL Gore is the Gore-Tax manufacturer with approximately 400 employees. The company is famous for innovation of the globally used high performance fabrics; that are used in several industries, including industrial, fashion, leisure, electronics as well as medical related segment (Chubb, 2008). The company has a strong organizational culture, and with that organizational culture, the employees are managed effectively. In order to engage the workforce, the company has been utilizing autonomous team as well as adoption of kaizen improvement system. From another perspective, the company is also adopting many types so continuous improvement methods in order to define and enhance the best manufacturing as well as human resources related practices in the organization. Most important, in the performance oriented firm, the employees rewards and compensation is arranged to be 100% related to performance so that particular employees.
Business Performance and Other Factors
It is also worth to mention that the discussion presented above, on High Performance Work Practices may be simplistic in nature. In reality, there are also many other factors affecting the organization performance (Frenkel et. al., 2010). For example, the discussions above largely ignore the environmental or the external forces that may affect the performance of an organization. For instance, in the external environment, as according to the PESTLE framework, possible factors affecting the organizations including political, economic, social cultural, legal, technological and environmental factors. From a different perspective, as outlined by the famous Porter Five Forces framework, the five forces possibly affecting the organizational performance include rivalry among existing competitors, bargaining power of buyers, bargaining power of suppliers, threats of new entrants, and threats of substitute products. Thus, it can be seen that the analyses presented in section above are largely concentrated on the internal perspective of a firm. In fact, from the internal perspectives, other factors possibly affecting the performance of a firm include the marketing, financial management, strategic as well as operational management policies in the firm (McBride, 2008). Thus, it is crucial to understand that the determinants affecting organizational performance are a highly complicated one. Although human resources related best practices are one of the very important elements not to be ignored by the management for superior corporations’ performance, the other aspect that may affect organizational performance, as discussed above, should also never be neglected by the management.
Conclusion
As a concluding remark, it can be confidently commented that this essay has already demonstrate the importance of high performance work practices to organizational success and performance. It is shown that many academic researchers have been proofing or finding strong relations between organizational success and performance to the adoption of high performance work practices (Boxall et. al., 2007). Several examples are also provided. In many of the examples, it can be seen that the many high performance work practices can be implemented through a relevant and strong supporting organization culture, proper people management policies and practices, as well as the consistency of high performance work practices to the organizational goals and objectives. It can be see that the many factors of human resources practices should be linked to the performances of employees, which in turn determine the organizational performances. The many high performance work practices can be categorized as the reward practices, human resources practices as well as the practices to engage employees. All these indicate that the high performance work practices, once found and adopted, will be able to bring the company to greater heights. As shown in the cases above, different companies have different high performance work practices, depending on the organizational business nature as well as the management focus. However, several effective human resources practices are universal. For example, comprehensive recruitment, reward system and performance appraisal are not something can be missed. It is very crucial to select the best candidates, and to ensure the newly employed worker able to fit into the organization. Besides, it is also important to ensure fair and performance based reward system, so that employees will work in a more effective manner. All of these are high performance work practices worth researched by management for them to adopt in their respective organization, in the path to become a truly high performing organization in the every competitive and challenging business environment today.
References & Bibliography
Adams-Bloom, T. (2009). High Performance Work Organization (HPWO) Initiatives in Television News Operations. The International Journal on Media Management, 11(3/4), 135.
Bacardi-Martini rolls out two Metz variants. (2000). Marketing Week, 23(27), 8.
Bae, K., Chuma, H., Kato, T., Kim, D., & Ohashi, I. (2011). High Performance Work Practices and Employee Voice: A Comparison of Japanese and Korean Workers. Industrial Relations, 50(1), 1.
Bayo-Moriones, A., & Galdon-Sanchez, J. (2010). Multinational companies and high-performance work practices in the Spanish manufacturing industry. The International Journal of Human Resource Management, 21(8), 1248.
Boxall, P., & Macky, K. (2007). High-performance work systems and organisational performance: Bridging theory and practice. Asia Pacific Journal of Human Resources, 45(3), 261.
Bridge, S. (2009). Shoe repairer Timpson enjoys a good recession. McClatchy – Tribune Business News.
Camps, J., & Luna-Arocas, R. (2009). High involvement work practices and firm performance. The International Journal of Human Resource Management, 20(5), 1056.
Chubb, L. (2008). Strategic HR forms the fabric of Gore-Tex firm. People Management, 14(7), 14.
Companies and Markets: W.L. Gore & Associates, Inc. – SWOT Analysis. (28 June). M2 Presswire.
Connolly, P., & McGing, G. (2007). High performance work practices and competitive advantage in the Irish hospitality sector. International Journal of Contemporary Hospitality Management, 19(3), 201-210.
Davis, P. (2008). Quants in recovery from ‘meltdown’. FT.com.
Etchegaray, J., St John, C., & Thomas, E. (2011). Measures and measurement of high-performance work systems in health care settings: Propositions for improvement. Health Care Management Review, 36(1), 38.
Frenkel, S., & Lee, B. (2010). Do high performance work practices work in South Korea? Industrial Relations Journal, 41(5), 479-504.
Gittell, J., Seidner, R., & Wimbush, J. (2010). A Relational Model of How High-Performance Work Systems Work. Organization Science, 21(2), 490-506,588,590.
Gong, Y., Chang, S., & Cheung, S. (2010). High performance work system and collective OCB: a collective social exchange perspective. Human Resource Management Journal, 20(2), 119.
Graham, N. (2009). Running a business with heart and sole. Financial Times,16.
Guthrie, J., Flood, P., Liu, W., & MacCurtain, S. (2009). High performance work systems in Ireland: human resource and organizational outcomes. The International Journal of Human Resource Management, 20(1), 112.
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Mason, T. (2001). Bacardi-Martini’s leisure arm boss to handle events. Marketing,4.
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CHANGE MANAGEMENT ROLES AND IMPACTS OF STRATEGIC SUPPLY CHAIN MANAGEMENT
BusinessEssays.net
Executive Summary
In this article, the many concepts and management philosophies about strategic supply chain management will be applied towards an automotive company from Malaysia, namely, Proton Holdings Bhd (“Proton”). The applications of supply chain management is particularly relevant for the company because as a manufacturing companies, the government-related automotive company is facing a higher production or manufacturing costs; while at the similar time, lower quality cars. Before the relevant suggestions on specific supply chain management strategies are discussed, the importance or roles of efficient and strategic supply chain management are illustrated. Then, viable recommendations on how the company should move forwards in the ever globalized and competitive world will be discussed. The impacts from following the recommended strategies will also be outlined. As a concluding remarks, the importance of supply chain management to Proton will be reiterate, and it is argued that without serious attention and efforts being paid to strategic management of the supply chain, Proton will never able to compete with other more powerful and reputable automotive companies around the world.
Introduction
Proton is the Malaysian government linked automotive company, which is struggling hard due to intense competition of the global automotive industry, despite the company is obtaining a lot of governmental protection and supports in the past (Chacko, 2006). There are a lot of issues faced by the company, in which if unsolved, may threaten the long terms growth, profitability as well as survival of the company in the ever challenging industry and globalized world. Firstly, the company is too small in scale, if compared to other big automotive and established multinational corporations such as Toyota, Honda, Ford, General Motors and etc (Ahmed et. al., 2008). This is causing the company to lose out in terms of economies of scale. Secondly, the company is not having efficient and high quality management of supply chain management practices. As such, the costs of every vehicles produced by Proton is costly (Economist, 2005), and worst, the quality is significantly below average when compared to other leading automotive (Burton, 2005). Thirdly, in the increasingly globalized world, there are talks that Malaysian government is forced to provide lesser support to the company in the future, while ASEAN free trade agreement is forcing the government to lower the tariffs upon imported cars (Jayasankaran, 2004). Apart from that, the company is also struggling to return to profitability, after years of financial losses (Burton, 2007).
A viable and strategically relevant supply chain management for Proton is urgently needed, considering so many unfavorable factors threatening the survivability of the company in the future. In fact, in the ever globalized and competitive business landscape, competition is no longer between companies or corporations, but between supply chains. In order to lower the costs while at the similar time improving the quality of products produced by Proton, the management shall look seriously into viable supply chain management strategies and techniques for growth, profitability, and ideally, successful global expansion in the future.
Roles of Strategic Supply Chain
There are many important roles of an efficient supply chain for any organization. In fact, particularly in the automotive industry, the management of supply chain is often the source of competitive advantages for an automotive company (Tippayawong et. al., 2010). Firstly, an efficient supply chain enables a company to lower the production costs. This is because all of the unnecessary wastes can be eliminated through the continuous improvement process. Then, when the supply chain had been optimized (Quah et. al., 2010), the production process can be streamlined and the many procedures and process in the value chain can be adjust accordingly. Setup time can be reduced, and thus, the time taken for the production of every unit of vehicle can be shortened. In the context of the automotive industry, this means that every different car models can be introduced to the market at a shorter time frame. Thirdly, when the supply chain is optimized, the many defects or production problems can be identified, as the manufacturing process is lean (Bonin et. al., 2010). All these mean that the quality of the end products can be enhanced. In other words, with an efficient supply chain, Total Quality Management in an organization is possible (Vanichchinchai et. al., 2011). Fourthly, the inventory level in an organization can also be reduced. Consistent with that, the storages costs can be minimized, and that would means higher profits or returns for the shareholders or more capital for reinvestment in the company in the future. Lastly, the adoption of strategic and efficient supply chain managements means the adoption of many state of the arts management philosophies, such as lean manufacturing, just-in-time, continuous improvement, kanban, kaizen, and Total Quality Management (Mann et. al., 2010). All of the concepts and philosophies are crucial to enhance customer satisfaction, and in the long run, enable a company to build up strong reputation and brand name in the competitive industry landscape (Khan et. al., 2010). In the long term, a successfully and efficiently managed supply chain will enable a company to attain competitive advantage as well as growth and profitability in the future.
Recommendations
A review of the Proton situation found that the company is seriously losing out from both the costs and quality factors when compared to the larger automotive manufacturers. However, the single advantage of the company is its ability to obtain protection from the Malaysian government. From the strategic supply chain management context, there are three options for the company, which include: low cost strategy, responsive strategy as well as differentiation strategy. Among all of these strategies, only the low costs strategies are viable, because the company is seriously lacking of technical competencies when compared to the other well-established manufacturers. Although low costs strategies may not enable the company to compete with the cost structure of the bigger manufacturers with truly efficient supply chain and economies of scale, the company does have certain advantages. For example, due to geographical factors, the company can aim to serve the low costs segment of the South East Asia countries. As such, it is argued here that Proton should apply low cost strategies to prepare for potential pricing competition from other auto manufacturer when the Malaysian government reduces the tariffs or quota for imported cars into the country.
In order to apply a low cost strategy, it is crucial for the company to choose the most efficient suppliers for the vehicles parts. In order to do this, it is crucial for the company to choose the most reliable and lowest cost suppliers for the parts required in the car manufacturing process. Strong partnerships are important, and the suppliers must agree to adjust the process flow together with Proton so that truly efficient supply chain can be made. In return, Proton shall agree to long term sourcing for the few vital suppliers for vehicles parts in the future. Sharing of information is crucial and should be encouraged. All these are crucial for lowering the costs structure of the vehicles produced, while as the similar time, to reduce the inventory level across the supply chain.
The lean manufacturing or waste management philosophies should also be applied. Under such a theme, management should be aware on the wastes incurred in the manufacturing process, and through a customer centric paradigm, any non-value adding process or value offering should be eliminated. This is consistent with the low costs strategies to be adopted by the company. Besides, lean manufacturing should also be implemented for relevant cost reduction. The seven wastes concepts can be applied, whereby from time to time, the potential wastages can be analyzed and investigated. Employees shall be educated on how to reduce wastages in the corporations; and through the continuous efforts, cost savings can be tremendous.
Besides, consistent with the increasingly educated and environmentally conscious consumers, it is crucial for Proton to adopt green supply chain manufacturing practices. This can be crucial to improve the corporate reputations, as well as to exercise the Corporate Social Responsibilities in the context of CO2 emissions and containment of global warming issues. For example, the procurement, the logistics management as well as the product design should incorporate the useful ideas related to sustainability and green manufacturing practices. Creativity and innovation could be very important to define the value offering consistent with the sustainability and green movement (Mollenkopf et. al., 2010). One good example is the development of hybrid vehicles or petrol saving vehicles (Soylu et. al., 2010). Not only such products are beneficial to the consumers, they could be beneficial to the environment as well. Under the increasingly soaring oil prices in the recent years, it can be seen that the demand of hybrid, or petrol and energy efficient or savings vehicles are becoming more popular. Overall, by being innovative, and ability to deliver the environmentally friendly and yet costs savings vehicles to the market place, the company can slowly gain reputation as well as enjoy potentially positive financial rewards for the new and timely value offering to the marketplace.
Impacts of Efficient Strategic Supply Chain
From the applications of the recommendations suggested in the section above, the direct implication is that Proton shall be able to enjoy significant costs savings from a more efficient supply chain. The relationships with vital suppliers can be strengthened, whereby both Proton as well as the partners can be mutually benefited. From the lean manufacturing practices, extra financial resources can be churn out, and that will also prepare the company to face with increasingly competitive and pricing cutting business environment. Besides, the company can gain better reputation, as the costs are lower down, and the financial resources can be better spent on other areas, such a product and development, or marketing purposes. In the long run, the company will be able to return to profitability, and with stronger financial muscle, the company can then expand globally, to further enhance the economies of scale. By adopting the strategies mentioned above, it is also possible for Proton to derive better financial performance, such as higher return on equity, return on assets and faster payback period. Overall, the many shareholders can be rewarded. The growth of the company can be ensured and all these will enable to firm to survive in the challenging industry landscape even without government support in the future.
Conclusion
Overall, for Proton, and any other automotive companies, it is managerial imperative to adopt efficient and strategic supply chain management to become relevant and fit in the new era of globalization. The entire industry is in the mature stage, and companies shall adopt the best business model, by focusing on relevant supply chain management to compete with other networks of companies. The management concepts and philosophies of supply chain are well-recorded, and it is up to the management to find the best strategies that fit their organizational and situational context. The importance of an efficient and well-defined supply chain is nothing complicated to understand. As discussed above, the associated benefits from well-formulated supply chain include: lower costs, better product quality, better inventory management, better customer satisfactions, faster setup or production time, and in the long run, better reputation and enhanced brand equity of the organization in the marketplace. For Proton, all of these benefits are what the corporation required. There is no better way for the company to achieve these unless with serious attentions on how to make the concepts related to supply chain management work in the organization.
References
Ahmed, Z., & Humphreys, J. (2008). A conceptual framework for developing-country transnationals: PROTON Malaysia. Thunderbird International Business Review, 50(1), 45.
Bonin, J., & Cross, B. (2010). HOW TO MANAGE RISK IN A GLOBAL SUPPLY CHAIN. Ivey Business Journal Online, 15-23.
Burton, J. (2005, July 21). Future of national carmaker divides Malaysian government: [ASIA EDITION]. Financial Times,p. 2.
Burton, J. (2005, September 1). National champion faces a tough year AUTOMOTIVE: [LONDON 1ST EDITION]. Financial Times,p. 25.
Burton, J. (2007, January 18). GM sees stake in Proton as growth vehicle AUTOMOTIVE: [ASIA EDITION]. Financial Times,p. 20.
Chacko, G. K. (2006). Proton transitioning to Malaysian engine. Management Research News, 29(3), 139-151.
Economist. (1998). Business: Proton bomb. The Economist, 347(8070), 63-64.
Economist. (2005). Business: Malaysia’s motor mess; The car industry. The Economist, 376(8437), 62.
Jayasankaran, S. (2004, July 14). Malaysia’s Proton Faces Uncertainty. Wall Street Journal (Eastern Edition), p. 1.
Khan, M., Al-Mushayt, O., Alam, J., & Ahmad, J. (2010). Intelligent Supply Chain Management. Journal of Software Engineering and Applications, 3(4), 404-408.
Mann, H., Kumar, U., Kumar, V., & Mann, I. (2010). Drivers of Sustainable Supply Chain Management. IUP Journal of Operations Management, 9(4), 52-63.
Mollenkopf, D., Stolze, H., Tate, W. L., & Ueltschy, M. (2010). Green, lean, and global supply chains. International Journal of Physical Distribution & Logistics Management, 40(1/2), 14-41.
Quah, H. S., & Udin, Z. M. (2011). Supply chain management from the perspective of value chain flexibility: an exploratory study. Journal of Manufacturing Technology Management, 22(4), 506-526.
Shari, M., and Dawley, H. (1998, March). A Wrong Turn in Malaysia. Business Week, (3568), 50.
Soylu, K., & Dumville, J. (2011). Design for environment: The greening of product and supply chain. Maritime Economics & Logistics, 13(1), 29-43.
Tippayawong, K., Patitad, P., Sopadang, A., & Enkawa, T. (2010). Factors Affecting Efficient Supply Chain Operational Performance of High and Low Technology Companies in Thailand1. Management Science and Engineering, 4(3), 24-33.
Vanichchinchai, A., & Igel, B. (2011). The impact of total quality management on supply chain management and firm’s supply performance. International Journal of Production Research, 49(11), 3405.
Bibliography
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ABOUT THE AUTHOR
BusinessEssays.net
Executive Summary
In this article, the many concepts and management philosophies about strategic supply chain management will be applied towards an automotive company from Malaysia, namely, Proton Holdings Bhd (“Proton”). The applications of supply chain management is particularly relevant for the company because as a manufacturing companies, the government-related automotive company is facing a higher production or manufacturing costs; while at the similar time, lower quality cars. Before the relevant suggestions on specific supply chain management strategies are discussed, the importance or roles of efficient and strategic supply chain management are illustrated. Then, viable recommendations on how the company should move forwards in the ever globalized and competitive world will be discussed. The impacts from following the recommended strategies will also be outlined. As a concluding remarks, the importance of supply chain management to Proton will be reiterate, and it is argued that without serious attention and efforts being paid to strategic management of the supply chain, Proton will never able to compete with other more powerful and reputable automotive companies around the world.
Introduction
Proton is the Malaysian government linked automotive company, which is struggling hard due to intense competition of the global automotive industry, despite the company is obtaining a lot of governmental protection and supports in the past (Chacko, 2006). There are a lot of issues faced by the company, in which if unsolved, may threaten the long terms growth, profitability as well as survival of the company in the ever challenging industry and globalized world. Firstly, the company is too small in scale, if compared to other big automotive and established multinational corporations such as Toyota, Honda, Ford, General Motors and etc (Ahmed et. al., 2008). This is causing the company to lose out in terms of economies of scale. Secondly, the company is not having efficient and high quality management of supply chain management practices. As such, the costs of every vehicles produced by Proton is costly (Economist, 2005), and worst, the quality is significantly below average when compared to other leading automotive (Burton, 2005). Thirdly, in the increasingly globalized world, there are talks that Malaysian government is forced to provide lesser support to the company in the future, while ASEAN free trade agreement is forcing the government to lower the tariffs upon imported cars (Jayasankaran, 2004). Apart from that, the company is also struggling to return to profitability, after years of financial losses (Burton, 2007).
A viable and strategically relevant supply chain management for Proton is urgently needed, considering so many unfavorable factors threatening the survivability of the company in the future. In fact, in the ever globalized and competitive business landscape, competition is no longer between companies or corporations, but between supply chains. In order to lower the costs while at the similar time improving the quality of products produced by Proton, the management shall look seriously into viable supply chain management strategies and techniques for growth, profitability, and ideally, successful global expansion in the future.
Roles of Strategic Supply Chain
There are many important roles of an efficient supply chain for any organization. In fact, particularly in the automotive industry, the management of supply chain is often the source of competitive advantages for an automotive company (Tippayawong et. al., 2010). Firstly, an efficient supply chain enables a company to lower the production costs. This is because all of the unnecessary wastes can be eliminated through the continuous improvement process. Then, when the supply chain had been optimized (Quah et. al., 2010), the production process can be streamlined and the many procedures and process in the value chain can be adjust accordingly. Setup time can be reduced, and thus, the time taken for the production of every unit of vehicle can be shortened. In the context of the automotive industry, this means that every different car models can be introduced to the market at a shorter time frame. Thirdly, when the supply chain is optimized, the many defects or production problems can be identified, as the manufacturing process is lean (Bonin et. al., 2010). All these mean that the quality of the end products can be enhanced. In other words, with an efficient supply chain, Total Quality Management in an organization is possible (Vanichchinchai et. al., 2011). Fourthly, the inventory level in an organization can also be reduced. Consistent with that, the storages costs can be minimized, and that would means higher profits or returns for the shareholders or more capital for reinvestment in the company in the future. Lastly, the adoption of strategic and efficient supply chain managements means the adoption of many state of the arts management philosophies, such as lean manufacturing, just-in-time, continuous improvement, kanban, kaizen, and Total Quality Management (Mann et. al., 2010). All of the concepts and philosophies are crucial to enhance customer satisfaction, and in the long run, enable a company to build up strong reputation and brand name in the competitive industry landscape (Khan et. al., 2010). In the long term, a successfully and efficiently managed supply chain will enable a company to attain competitive advantage as well as growth and profitability in the future.
Recommendations
A review of the Proton situation found that the company is seriously losing out from both the costs and quality factors when compared to the larger automotive manufacturers. However, the single advantage of the company is its ability to obtain protection from the Malaysian government. From the strategic supply chain management context, there are three options for the company, which include: low cost strategy, responsive strategy as well as differentiation strategy. Among all of these strategies, only the low costs strategies are viable, because the company is seriously lacking of technical competencies when compared to the other well-established manufacturers. Although low costs strategies may not enable the company to compete with the cost structure of the bigger manufacturers with truly efficient supply chain and economies of scale, the company does have certain advantages. For example, due to geographical factors, the company can aim to serve the low costs segment of the South East Asia countries. As such, it is argued here that Proton should apply low cost strategies to prepare for potential pricing competition from other auto manufacturer when the Malaysian government reduces the tariffs or quota for imported cars into the country.
In order to apply a low cost strategy, it is crucial for the company to choose the most efficient suppliers for the vehicles parts. In order to do this, it is crucial for the company to choose the most reliable and lowest cost suppliers for the parts required in the car manufacturing process. Strong partnerships are important, and the suppliers must agree to adjust the process flow together with Proton so that truly efficient supply chain can be made. In return, Proton shall agree to long term sourcing for the few vital suppliers for vehicles parts in the future. Sharing of information is crucial and should be encouraged. All these are crucial for lowering the costs structure of the vehicles produced, while as the similar time, to reduce the inventory level across the supply chain.
The lean manufacturing or waste management philosophies should also be applied. Under such a theme, management should be aware on the wastes incurred in the manufacturing process, and through a customer centric paradigm, any non-value adding process or value offering should be eliminated. This is consistent with the low costs strategies to be adopted by the company. Besides, lean manufacturing should also be implemented for relevant cost reduction. The seven wastes concepts can be applied, whereby from time to time, the potential wastages can be analyzed and investigated. Employees shall be educated on how to reduce wastages in the corporations; and through the continuous efforts, cost savings can be tremendous.
Besides, consistent with the increasingly educated and environmentally conscious consumers, it is crucial for Proton to adopt green supply chain manufacturing practices. This can be crucial to improve the corporate reputations, as well as to exercise the Corporate Social Responsibilities in the context of CO2 emissions and containment of global warming issues. For example, the procurement, the logistics management as well as the product design should incorporate the useful ideas related to sustainability and green manufacturing practices. Creativity and innovation could be very important to define the value offering consistent with the sustainability and green movement (Mollenkopf et. al., 2010). One good example is the development of hybrid vehicles or petrol saving vehicles (Soylu et. al., 2010). Not only such products are beneficial to the consumers, they could be beneficial to the environment as well. Under the increasingly soaring oil prices in the recent years, it can be seen that the demand of hybrid, or petrol and energy efficient or savings vehicles are becoming more popular. Overall, by being innovative, and ability to deliver the environmentally friendly and yet costs savings vehicles to the market place, the company can slowly gain reputation as well as enjoy potentially positive financial rewards for the new and timely value offering to the marketplace.
Impacts of Efficient Strategic Supply Chain
From the applications of the recommendations suggested in the section above, the direct implication is that Proton shall be able to enjoy significant costs savings from a more efficient supply chain. The relationships with vital suppliers can be strengthened, whereby both Proton as well as the partners can be mutually benefited. From the lean manufacturing practices, extra financial resources can be churn out, and that will also prepare the company to face with increasingly competitive and pricing cutting business environment. Besides, the company can gain better reputation, as the costs are lower down, and the financial resources can be better spent on other areas, such a product and development, or marketing purposes. In the long run, the company will be able to return to profitability, and with stronger financial muscle, the company can then expand globally, to further enhance the economies of scale. By adopting the strategies mentioned above, it is also possible for Proton to derive better financial performance, such as higher return on equity, return on assets and faster payback period. Overall, the many shareholders can be rewarded. The growth of the company can be ensured and all these will enable to firm to survive in the challenging industry landscape even without government support in the future.
Conclusion
Overall, for Proton, and any other automotive companies, it is managerial imperative to adopt efficient and strategic supply chain management to become relevant and fit in the new era of globalization. The entire industry is in the mature stage, and companies shall adopt the best business model, by focusing on relevant supply chain management to compete with other networks of companies. The management concepts and philosophies of supply chain are well-recorded, and it is up to the management to find the best strategies that fit their organizational and situational context. The importance of an efficient and well-defined supply chain is nothing complicated to understand. As discussed above, the associated benefits from well-formulated supply chain include: lower costs, better product quality, better inventory management, better customer satisfactions, faster setup or production time, and in the long run, better reputation and enhanced brand equity of the organization in the marketplace. For Proton, all of these benefits are what the corporation required. There is no better way for the company to achieve these unless with serious attentions on how to make the concepts related to supply chain management work in the organization.
References
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Burton, J. (2005, September 1). National champion faces a tough year AUTOMOTIVE: [LONDON 1ST EDITION]. Financial Times,p. 25.
Burton, J. (2007, January 18). GM sees stake in Proton as growth vehicle AUTOMOTIVE: [ASIA EDITION]. Financial Times,p. 20.
Chacko, G. K. (2006). Proton transitioning to Malaysian engine. Management Research News, 29(3), 139-151.
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Mollenkopf, D., Stolze, H., Tate, W. L., & Ueltschy, M. (2010). Green, lean, and global supply chains. International Journal of Physical Distribution & Logistics Management, 40(1/2), 14-41.
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Sunday, July 1, 2018
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A STRATEGIC ANALYSIS FOR MERCEDES-BENZ
0
Introduction
In this article, a comprehensive company research will be performed for the Mercedes-Benz company. The article is arranged as follow. Firstly, the background of the Mercedes-Benz will be introduced. Then, relevant theoretical framework to analyze the company’s macroenvironment situation will be performed. Later, the automotive industry nature will be investigated. The article will then focus on the firm’s specific strategies and by using the SWOT framework, to deliver probable strategies for the company. The article end by providing several recommendations for the firm to achieve strong financial performance in the marketplace.
Background of Mercedes-Benz
Originated from a German car manufacturer, Mercedes-Benz is currently a manufacturer of various types of automotive, including buses, coaches, and trucks. Currently, Mercedes-Benz had become a division under its parent company, namely the Daimler AG group of companies. As early as 1901, the vehicles manufactured by Mercedes-Benz were marketed by Daimler Motoren Gesellschaft. Since then, the company has been introducing many technological advance and safety-oriented innovations that have become popular in the automotive industry. The company is a popular and branded one in the automotive industry – it is one of the most popularly known automobile company in the world, not to mention that it is also one of the world’s oldest automotive brand that are still in existence today (Bossink & Blauw, 2002).
Regarding its parent company, the Daimler AG group of companies is engaging in developing, manufacturing, distribution and sale of a variety of automotive related products – particularly in the passenger cars, trucks, vans and buses segments. There are five business segments under the parent company, namely: Mercedes-Benz Cars; Daimler Trucks; Daimler Buses; Mercedes-Benz Vans and Daimler Financial Services. Today, the company establishes its main operations and has significant market shares in the US, Germany, Western Europe, as well as Asia Pacific regions (Hessenberger et. al., 1997).
External Environment Analysis
PESTLE Framework for Macroenvironment Analysis of Mercedes-Benz
It is important for any analyst to carry out a comprehensive analysis on the macroenvironment before the various relevant and viable strategies can be formulated for Mercedes Benz. In order to analyze the macroenvironment the company is operating in, the PESTLE framework will be used. As the company is operating on a global scale, the relevant macroenvironment analysis will be focusing on a worldwide context. In the following paragraphs, the six factors to be discussed include: (a) political factors; (b) economic factors; (c) social and cultural factors; (d) technological factors; (e) legal factors; and (f) environmental factors.
Political factors. From a worldwide view, the political issues related to the automotive industry is complicated and complex. The political issues arising from the Western world is less of a concern for the leading car manufacturer because many of the leading car manufacturers are originated from the Western world. However, the political forces from the emerging countries are more complicated (Bossink & Blauw, 2002). Rules and regulations are generally set up to protect the car manufacturers from the emerging countries, to imposes extra taxes and tariffs against the car manufacturers from the other countries, and to demand the leading car manufacturers to shift their manufacturing plants and technologies to the emerging countries before these car manufacturers are allowed to penetrate the marketplace in the emerging markets (Apfelthaler et. al., 2002).
Economic factors. Currently, the entire world is seemingly entering into an economic era of turbulent and volatility. After the housing and financial crises happening in the United States as well as the Europe, the world had entered into a temporary recession. Although many of the emerging countries able to recover in a satisfactory pace, the economic picture and prospect of the world in the future will still be turbulent. This will definitely affect and impact the operations and marketing strategies of the leading automotive manufacturers around the world. Besides, it is also worthy to mention that the automotive industry has a huge multiplier effects on the economy of a particular country. In fact, there are researches indicating that the automotive industry is one of the major industry that consume a large volume of computer chips, steel, iron, copper, textiles, plastics, rubber and etc. It is even argued that in every one workers being employed in the automotive industry, there are seven other jobs being created in the other industries.
Social and Cultural factors. It cannot be denied that in every part of the world, people do have their respective social and cultural practices and beliefs. For example, the culture in the East and the West is significantly different. The cultural differences are something not to be neglected by the automotive manufacturer. Nonetheless, due to the globalization effects, the culture and consumers behaviors are seemingly becoming similar around the world. Be it in the developed or the emerging country, people nowadays are judging others based on the types of car that they are driving. Anyone who able to drive a high class vehicle is often considered as wealthy, noble and powerful (Jackson, 2001). In fact, consumers may simply feel better and become more confident when driving a good and nice car. Nobody in fact just want to be seen driving in a piece of junk metal. However, the consumers’ preferences on the style of car and the design of the vehicles may differ across the globe.
Technological factors. It is obvious that technological advancement is a critical and important element not to be ignored by the various automotive manufacturers. In fact, to capitalize on the newly discovered and designed technologies are the methods or strategies utilized by car manufacturers to achieve competitive advantages in the marketplace. Apart from that, another technological change that will affect the automotive industry seriously is the advancement of the internet. In fact, the internet is impacting various industries around the world. Such a trend is not something that can be ignored by the car manufacturers. For example, there are studies indicating that a total of 60% to 80% of the consumers visited the automotive web-portal before they go to the test driving session. From the other end, internet is changing the entire supply change management in the industry as well (Apfelthaler et. al., 2002).
Legal factors. In the automotive industry, the various relevant laws and government regulations have been affecting the entire industry since 1960s, particularly in the United States. The legal aspect of the automotive is stringent, as the consumers’ life is dependent on the quality and reliability of the vehicles. There are various standard required by the government authorities in handling the manufacturing of automotive. Nonetheless, this is less of a concern for the entire industry, as many of the leading car manufacturers are proactively improving the quality of their products to gain competitive advantages in the marketplace.
Environmental factors. Currently, there are huge concerns if the industries and businesses around the world is polluting and damaging the world natural environment. Environmental activists are becoming more active and aggressive. Besides, it is also discovered that consumers are seemingly becoming more environmental conscious, where they may even consider if the car manufactured by a particular company has the lowest CO2 emission (Bossink & Blauw, 2002).
Porter Five Forces for Industry Analysis of Mercedes-Benz
To investigate the industry structure the company is operating in, it is useful to adopt a famous and yet practical theoretical framework – the Porter Five Forces framework to analyze the industry structure as well as the competitive forces in the automobile industry. Specifically, five important competitive forces relevant to the analysis of the automobile industry landscape will be discussed as follow.
Rivalry among existing competitors. The rivalry among existing competitors in the automotive industry is very tough and aggressive. There are many powerful players around the world, such as General Motors, Ford Motor, BMW, Volkswagen, Toyota, Honda, Nissan, Kia, Volvo, and Mazda (Jackson, 2001). The challenging part is that all of these companies are powerful, ambitious, aggressive, and engage in continuously improvement to beat the competition. The competition is even worst in the developed countries, as the market for the automotive is becoming saturated in the recent years. Thus, to increase the market share, a particular car manufacturer must either drop the current selling price or to add value to it end products. However, there are also views commenting that the competition in the emerging countries is as competitive as those in the developed world. For example, China is a huge market and the potential customers buying a car are gigantic. However, the competition in the country is highly competitive. Overall, the rivalry among existing competitors is intense and will negatively affect the company. In the recent years, it is not hard to witness that there is significant market share variation in the automotive industry – a strong indication that the market players are fighting among each other in the marketplace (Hessenberger et. al., 1997).
Bargaining power of suppliers. It is a well-known fact that auto manufacturers often require various types of input materials, such as hardware parts, raw materials, and consultancy services from various parties. As the profit margin of the various auto makers are being squeeze by the ever competitive business landscape, any increases in the input prices can reduce the profitability of the auto makers seriously. From the other perspective, there are also many suppliers in the automotive industry. The analysis of the bargaining power of supplier in the automotive industry is complex matters. However, for those leading auto manufacturers such as General Motors, Ford Motors, Toyota or the Mercedes Benz, they have successfully built up a large network of suppliers in various countries around the world (Bogue, 2008). Overall, the bargaining power of supplier for the company is moderate.
Bargaining power of buyers. Bargaining power of buyers is referring to the ability of the consumers, or customers in negotiating the prices offered to them by the various car dealers. In the automotive industry, it is generally observed that most of the time, individual consumers have some degree of influence against the car dealers, but have little and indirect influence against the car manufacturers. However, that does not mean that the consumers cannot exert negative impacts towards a company performance in the automotive industry. In fact, consumers often play a significant role in determining the pricing and value added features designed on a car, as although the consumers have no direct influence on the pricing of a car maker, they can choose to switch to the competitor’s products. In the information era, this is becoming more prevalent, as consumers can perform direct pricing comparison on the internet in a few seconds (Apfelthaler et. al., 2002). Overall, it is pretty challenging for a manufacturer to maintain loyal customers and to simply increase the selling prices of a car. In a nutshell, the bargaining power of customers is high, and this is negative towards the various car manufacturers.
Threats of substitute products. While the Porter 5 Forces framework does not explicitly investigating the consumers demand in the marketplace, the framework does take the potential of substitutes or complementary products into account when investigating the various competitive forces affecting a particular industry. In the context of car manufacturer, the potential substitute is the public transportation services. To explain: when the public transportation services becoming highly efficient, people may choose to take bus and rapid transit instead of buying a new car (Apfelthaler et. al., 2002). However, it is observed that the public transport is not a direct substitute for buying a car, because to travel from a destination to another may not be the only reason for people to purchase a car. On the issues of complementary products, the relevant issues related to the automotive industry include: gasoline prices, batteries, tires and etc. For example, the rising petrol prices and gasoline prices around the world often have negative effects against the demand of new cars. In fact, there are studies discovering that rising petrol prices have the most significant effect against the big three’s performance in US and Europe, namely, the General Motors, Ford Motor and Daimler AG, as their car design is less fuel efficient (Bossink & Blauw, 2002). Overall, the threats of substitute products in the industry are weak, while the changes in complementary products to the demand of new cars are moderate.
Threats of new entry. Any new player entering the automotive industry will definitely force the prices down, which will impact the profit margin of the other car manufacturers negatively. Nonetheless, there are significant barriers to entry in the industry. Firstly, the capital investment outlay can be very huge (in order to achieve economies of scale and to turn profitable in a short time frame is highly unlikely), and secondly, the already competitive business environment in the industry is deterring any potential entry into the market in a large scale. Not only that, the new market player will have to fight aggressively for market share, and unless the new brand able to become popular and respectable in a short time frame, it is likely that the new market player will need to suffer some degree of operating losses before the company able to turnaround. Thus, it is reasonable to expect that the barriers for new entrance can be relatively high in the industry. In the other words, the threats of new entrance to the automotive industry are relatively low.
Company Resources Audit for Mercedes Benz
Mercedes-Benz’s Assets
As a famous car manufacturing company, Mercedes Benz is a firm with attractive and powerful assets. In fact, the key asset of the company is not merely about the car manufacturing plants available around the world, but rather is the corporate culture, the reputable brand name, and the human capital available in the company. In this section, these assets of the company will be discussed in details.
The manufacturing plants and machineries. It cannot be denied that as the top five auto makers in the world, the physical assets of the company are valuable and huge. In fact, the company has several manufacturing related plants and equipment across the United States, Europe and Asia Pacific. However, it is also important to point out that the hardware is not the key success assets possessed by the company (Bossink & Blauw, 2002).
The corporate culture that uphold the high quality and perfection in manufacturing process. Mercedes Benz is a corporation with strong focus on the quality of its products. The organization, undoubtedly, strive for perfection, a typical German-style manufacturing company (Bossink & Blauw, 2002). That is the core competencies of the company, where precision engineering, attention to details, and the spirit to strive for perfection is the leading success factors in the marketplace.
The popular and yet admired brand name. Perhaps, it is even agreed by many of the consumers in the marketplace around the world that Mercedes Benz primary and key assets is the reputable and yet respectable brand the company possess. The noble brand of Mercedes Benz is often associated and is being positioned as a symbol of luxury, status and comfort. The brand name is already more than 100 years, and yet, it is still a brand favored by young and elder professional and businessmen, all around the world. To replicate such a brand equity possessed by Mercedes Benz is very hard, and require huge capital investment as well as a long time frame (Jackson, 2001).
Core Competencies of Mercedes-Benz
Without significant core competencies, it is unlikely, it not impossible, for the firm to rise to such a powerful and respectable position in the car manufacturing industry. In fact, purely based on the highly favorable consumers’ perceptions on the car manufactured by Mercedes Benz, it is not hard to speculate that the company possesses several powerful and distinguishing core competencies in the marketplace (Bossink & Blauw, 2002). It is found that the company possesses several core competencies as follow.
Innovation. One of the core competencies possessed by Mercedes Benz to rise to such a famous and respectable position in the automotive industry is due to its ability to innovate. For examples, the internal combustion engine automobile was introduced by the company in 1886; the company spearheaded the replacement of fuel injection with float carburetor, the company innovation of the first automotive with four brakes on all of the four wheels, the invention of the safety cell concept, and first to market on the Electronic Stability Programme (ESO) brake assist system, and many others (Apfelthaler et. al., 2002).
Quality. It is widely known that Mercedes Benz has been able to maintain a reputation of high quality and durability in the marketplace. In fact, the quality of the cars produced by the company success to achieve various rewards in the industry. For example, under the J. D. Power’s Initial Quality Study in the year of 2007, the company achieves the 5th place, exceeding the quality leader Toyota for some of its car models. Not only had that, later in 2008, the company also received the Platinum Plant Quality Award for its assembly plant in German (Bogue, 2008).
Marketing and branding. As discussed before, ability to market and to build highly reputable brand in the marketplace is one of the core competencies possessed by Mercedes Benz. With in-depth understanding on the customers wants and needs the company able to craft a noble brand in the marketplace – an achievement envied by many of the other auto manufacturers (Jackson, 2001).
Strategic Analysis for Mercedes-Benz
In this section, various strategic related issues and analysis related to Mercedes Benz will be performed. Firstly, after a review on the macroenvironment, the industry structure the company is operating in as well as the available resources the company is having, the SWOT analysis will be carried out, to investigate the opportunities or threats relevant to the company. Besides, some of the corporate and business unit strategies currently employed by the firm will also be investigated. The analysis will extend further to incorporate an analysis on the company’s global business strategic approaches in the recent years. All these are highly important before relevant strategies can be recommended to the firm.
SWOT Analysis of Mercedes-Benz
Under the SWOT analysis framework, the strengths and weaknesses and the firm will be analyzed, and then the relevant opportunities and threats in the industry will be ferreted. In order to make the analysis more readable, the SWOT analysis will be presented in a table form as follow.
Strengths:
1. Quality, reliability and durability
2. Safety & precision engineering capabilities
3. Noble, respectable and high class reputation
4. Strong financial capabilities
5. Successfully attain significant economies of scale around the globe
6. Strong corporate culture
Weaknesses:
1. Cars designed are less fuel efficient compared to the Japanese cars
2. Relatively slow to introduce fuel efficient concept cars
3. Compete only in one of the niche market (i.e., in contrast, competitor such as Toyota has market share in several market segments)
Opportunities:
1. Able to capitalize on its brand name to tap into the other market segments.
2. The engineering and technological capabilities of the firm enable it to innovate and spearhead the revolution in the automotive industry
3. The strong corporate culture enable the firm to implement any strategic changes or direction easily
4. Huge profit potential from outsourcing operational activities to emerging countries, while tapping into the growing market size in the emerging countries
Threats:
1. The rise of environmentally-conscious consumers
2. The turbulent economic and financial system around the world
3. The saturation of market in the developed world
4. The intense competition in the industry
5. The ever demanding consumers preferences and demands
6. Protectionalism measures implemented by some of the governments in the emerging countries
Current Corporate and Business Unit Strategies Employed by Mercedes-Benz
Currently, there are various strategies formulated by the management of Mercedes Benz in continuously thriving in the challenging business environment. It is stated that the company will still continue to try hard in delivering the world best high-end automobiles. This will be achieved by maintaining the firm’s leadership in technology and design around the world (Bogue, 2008). New design concepts are being introduced. Some of these concepts include: (a) increasing the fuel efficiency of the company with a slight decrease in the end products’ recyclability, (b) design for robust and repair-ability as well as to (c) preserve technological edge in terms of design and development of automotive. It is thus obvious that the company is striving to maximize the company profitability while at the similar time to deliver benefits to the consumers, while not neglecting the concerns on preserving a better environment around the world (Jackson, 2001).
Recommendations for Mercedes-Benz
Judging from the many analysis frameworks applied in this article, several possible measures can be implemented by the company.
Firstly, the company should incorporate more concerns of environmental issues into its car design. The reason is that consumers are becoming more demanding and thus, any new concept car that able to deliver value to the environment will be favored. Currently, this is still the weak points for the company.
Secondly, the company should also strive to incorporate the concept of fuel efficiency into its design. As the petrol and gasoline prices are expected to be riding on an increasing trend, it is management imperative for the company to understand such an issue and take preventive actions to avoid the existing market share being taken by the other competitors.
Thirdly, the company can choose to form strategic alliances with other automotive manufacturers. The rationale is that today, the competition is intense, and to combine forces to compete effectively and successfully in the global market place is truly important. In order to penetrate to the emerging market, it is also important for the company to form partnerships with local parties from the emerging countries, as these local parties usually has more knowledge on the local market.
Lastly, the management should also consider developing a new brand to cater for the middle market. This can be done by forming strategic partners with some of the smaller scale manufacturers in the Asia Pacific regions. Many of these companies are suffering because they do not have the necessary technological edge to competitive with other large auto makers. Thus, Mercedes Benz can take over such an opportunity to link with these partners and provide technological assistance in return for a share in these companies income.
Conclusion
In short, the article has analyzed the macroenvironment, industry context and the firm specific issues related to Mercedes Benz in a comprehensive manner. As an overview, the automotive industry is highly competitive. The positive side of the story is that the Mercedes is one of the leading auto makers, enabling the company to achieve significant economies of scale. Besides, the company has a strong and respectable brand name. What is left for the company to pursue is to adapt to the changes in the market and to capitalize on the trend of globalization and information technology in the next decades.
References
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Apfelthaler, G., Muller, H. J., & Rehder, R. R. (2002). Corporate global culture as competitive advantage: Learning from Germany and Japan in Alabama and Austria? Journal of World Business, 37(2), 108-118.
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Bogue, R. (2008). DaimlerChrysler installs new robot-based flexible assembly line. The Industrial Robot, 35(1), 16-18.
Bossink, A. G., & Blauw, J. N. (2002). Strategic ambitions as drivers of improvement at DaimlerChrysler. Measuring Business Excellence, 6(4), 5-11.
DaimlerChrysler confronts the challenges of global integration. (2004). Human Resource Management International Digest, 12(2), 5-8.
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MERCEDES-BENZ: Mercedes-Benz leads industry in fuel cell research. (5 March). M2 Presswire,1.
MERCEDES-BENZ: Mercedes-Benz unveils A-class based roadster. (10 December). M2 Presswire,1.
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0
Introduction
In this article, a comprehensive company research will be performed for the Mercedes-Benz company. The article is arranged as follow. Firstly, the background of the Mercedes-Benz will be introduced. Then, relevant theoretical framework to analyze the company’s macroenvironment situation will be performed. Later, the automotive industry nature will be investigated. The article will then focus on the firm’s specific strategies and by using the SWOT framework, to deliver probable strategies for the company. The article end by providing several recommendations for the firm to achieve strong financial performance in the marketplace.
Background of Mercedes-Benz
Originated from a German car manufacturer, Mercedes-Benz is currently a manufacturer of various types of automotive, including buses, coaches, and trucks. Currently, Mercedes-Benz had become a division under its parent company, namely the Daimler AG group of companies. As early as 1901, the vehicles manufactured by Mercedes-Benz were marketed by Daimler Motoren Gesellschaft. Since then, the company has been introducing many technological advance and safety-oriented innovations that have become popular in the automotive industry. The company is a popular and branded one in the automotive industry – it is one of the most popularly known automobile company in the world, not to mention that it is also one of the world’s oldest automotive brand that are still in existence today (Bossink & Blauw, 2002).
Regarding its parent company, the Daimler AG group of companies is engaging in developing, manufacturing, distribution and sale of a variety of automotive related products – particularly in the passenger cars, trucks, vans and buses segments. There are five business segments under the parent company, namely: Mercedes-Benz Cars; Daimler Trucks; Daimler Buses; Mercedes-Benz Vans and Daimler Financial Services. Today, the company establishes its main operations and has significant market shares in the US, Germany, Western Europe, as well as Asia Pacific regions (Hessenberger et. al., 1997).
External Environment Analysis
PESTLE Framework for Macroenvironment Analysis of Mercedes-Benz
It is important for any analyst to carry out a comprehensive analysis on the macroenvironment before the various relevant and viable strategies can be formulated for Mercedes Benz. In order to analyze the macroenvironment the company is operating in, the PESTLE framework will be used. As the company is operating on a global scale, the relevant macroenvironment analysis will be focusing on a worldwide context. In the following paragraphs, the six factors to be discussed include: (a) political factors; (b) economic factors; (c) social and cultural factors; (d) technological factors; (e) legal factors; and (f) environmental factors.
Political factors. From a worldwide view, the political issues related to the automotive industry is complicated and complex. The political issues arising from the Western world is less of a concern for the leading car manufacturer because many of the leading car manufacturers are originated from the Western world. However, the political forces from the emerging countries are more complicated (Bossink & Blauw, 2002). Rules and regulations are generally set up to protect the car manufacturers from the emerging countries, to imposes extra taxes and tariffs against the car manufacturers from the other countries, and to demand the leading car manufacturers to shift their manufacturing plants and technologies to the emerging countries before these car manufacturers are allowed to penetrate the marketplace in the emerging markets (Apfelthaler et. al., 2002).
Economic factors. Currently, the entire world is seemingly entering into an economic era of turbulent and volatility. After the housing and financial crises happening in the United States as well as the Europe, the world had entered into a temporary recession. Although many of the emerging countries able to recover in a satisfactory pace, the economic picture and prospect of the world in the future will still be turbulent. This will definitely affect and impact the operations and marketing strategies of the leading automotive manufacturers around the world. Besides, it is also worthy to mention that the automotive industry has a huge multiplier effects on the economy of a particular country. In fact, there are researches indicating that the automotive industry is one of the major industry that consume a large volume of computer chips, steel, iron, copper, textiles, plastics, rubber and etc. It is even argued that in every one workers being employed in the automotive industry, there are seven other jobs being created in the other industries.
Social and Cultural factors. It cannot be denied that in every part of the world, people do have their respective social and cultural practices and beliefs. For example, the culture in the East and the West is significantly different. The cultural differences are something not to be neglected by the automotive manufacturer. Nonetheless, due to the globalization effects, the culture and consumers behaviors are seemingly becoming similar around the world. Be it in the developed or the emerging country, people nowadays are judging others based on the types of car that they are driving. Anyone who able to drive a high class vehicle is often considered as wealthy, noble and powerful (Jackson, 2001). In fact, consumers may simply feel better and become more confident when driving a good and nice car. Nobody in fact just want to be seen driving in a piece of junk metal. However, the consumers’ preferences on the style of car and the design of the vehicles may differ across the globe.
Technological factors. It is obvious that technological advancement is a critical and important element not to be ignored by the various automotive manufacturers. In fact, to capitalize on the newly discovered and designed technologies are the methods or strategies utilized by car manufacturers to achieve competitive advantages in the marketplace. Apart from that, another technological change that will affect the automotive industry seriously is the advancement of the internet. In fact, the internet is impacting various industries around the world. Such a trend is not something that can be ignored by the car manufacturers. For example, there are studies indicating that a total of 60% to 80% of the consumers visited the automotive web-portal before they go to the test driving session. From the other end, internet is changing the entire supply change management in the industry as well (Apfelthaler et. al., 2002).
Legal factors. In the automotive industry, the various relevant laws and government regulations have been affecting the entire industry since 1960s, particularly in the United States. The legal aspect of the automotive is stringent, as the consumers’ life is dependent on the quality and reliability of the vehicles. There are various standard required by the government authorities in handling the manufacturing of automotive. Nonetheless, this is less of a concern for the entire industry, as many of the leading car manufacturers are proactively improving the quality of their products to gain competitive advantages in the marketplace.
Environmental factors. Currently, there are huge concerns if the industries and businesses around the world is polluting and damaging the world natural environment. Environmental activists are becoming more active and aggressive. Besides, it is also discovered that consumers are seemingly becoming more environmental conscious, where they may even consider if the car manufactured by a particular company has the lowest CO2 emission (Bossink & Blauw, 2002).
Porter Five Forces for Industry Analysis of Mercedes-Benz
To investigate the industry structure the company is operating in, it is useful to adopt a famous and yet practical theoretical framework – the Porter Five Forces framework to analyze the industry structure as well as the competitive forces in the automobile industry. Specifically, five important competitive forces relevant to the analysis of the automobile industry landscape will be discussed as follow.
Rivalry among existing competitors. The rivalry among existing competitors in the automotive industry is very tough and aggressive. There are many powerful players around the world, such as General Motors, Ford Motor, BMW, Volkswagen, Toyota, Honda, Nissan, Kia, Volvo, and Mazda (Jackson, 2001). The challenging part is that all of these companies are powerful, ambitious, aggressive, and engage in continuously improvement to beat the competition. The competition is even worst in the developed countries, as the market for the automotive is becoming saturated in the recent years. Thus, to increase the market share, a particular car manufacturer must either drop the current selling price or to add value to it end products. However, there are also views commenting that the competition in the emerging countries is as competitive as those in the developed world. For example, China is a huge market and the potential customers buying a car are gigantic. However, the competition in the country is highly competitive. Overall, the rivalry among existing competitors is intense and will negatively affect the company. In the recent years, it is not hard to witness that there is significant market share variation in the automotive industry – a strong indication that the market players are fighting among each other in the marketplace (Hessenberger et. al., 1997).
Bargaining power of suppliers. It is a well-known fact that auto manufacturers often require various types of input materials, such as hardware parts, raw materials, and consultancy services from various parties. As the profit margin of the various auto makers are being squeeze by the ever competitive business landscape, any increases in the input prices can reduce the profitability of the auto makers seriously. From the other perspective, there are also many suppliers in the automotive industry. The analysis of the bargaining power of supplier in the automotive industry is complex matters. However, for those leading auto manufacturers such as General Motors, Ford Motors, Toyota or the Mercedes Benz, they have successfully built up a large network of suppliers in various countries around the world (Bogue, 2008). Overall, the bargaining power of supplier for the company is moderate.
Bargaining power of buyers. Bargaining power of buyers is referring to the ability of the consumers, or customers in negotiating the prices offered to them by the various car dealers. In the automotive industry, it is generally observed that most of the time, individual consumers have some degree of influence against the car dealers, but have little and indirect influence against the car manufacturers. However, that does not mean that the consumers cannot exert negative impacts towards a company performance in the automotive industry. In fact, consumers often play a significant role in determining the pricing and value added features designed on a car, as although the consumers have no direct influence on the pricing of a car maker, they can choose to switch to the competitor’s products. In the information era, this is becoming more prevalent, as consumers can perform direct pricing comparison on the internet in a few seconds (Apfelthaler et. al., 2002). Overall, it is pretty challenging for a manufacturer to maintain loyal customers and to simply increase the selling prices of a car. In a nutshell, the bargaining power of customers is high, and this is negative towards the various car manufacturers.
Threats of substitute products. While the Porter 5 Forces framework does not explicitly investigating the consumers demand in the marketplace, the framework does take the potential of substitutes or complementary products into account when investigating the various competitive forces affecting a particular industry. In the context of car manufacturer, the potential substitute is the public transportation services. To explain: when the public transportation services becoming highly efficient, people may choose to take bus and rapid transit instead of buying a new car (Apfelthaler et. al., 2002). However, it is observed that the public transport is not a direct substitute for buying a car, because to travel from a destination to another may not be the only reason for people to purchase a car. On the issues of complementary products, the relevant issues related to the automotive industry include: gasoline prices, batteries, tires and etc. For example, the rising petrol prices and gasoline prices around the world often have negative effects against the demand of new cars. In fact, there are studies discovering that rising petrol prices have the most significant effect against the big three’s performance in US and Europe, namely, the General Motors, Ford Motor and Daimler AG, as their car design is less fuel efficient (Bossink & Blauw, 2002). Overall, the threats of substitute products in the industry are weak, while the changes in complementary products to the demand of new cars are moderate.
Threats of new entry. Any new player entering the automotive industry will definitely force the prices down, which will impact the profit margin of the other car manufacturers negatively. Nonetheless, there are significant barriers to entry in the industry. Firstly, the capital investment outlay can be very huge (in order to achieve economies of scale and to turn profitable in a short time frame is highly unlikely), and secondly, the already competitive business environment in the industry is deterring any potential entry into the market in a large scale. Not only that, the new market player will have to fight aggressively for market share, and unless the new brand able to become popular and respectable in a short time frame, it is likely that the new market player will need to suffer some degree of operating losses before the company able to turnaround. Thus, it is reasonable to expect that the barriers for new entrance can be relatively high in the industry. In the other words, the threats of new entrance to the automotive industry are relatively low.
Company Resources Audit for Mercedes Benz
Mercedes-Benz’s Assets
As a famous car manufacturing company, Mercedes Benz is a firm with attractive and powerful assets. In fact, the key asset of the company is not merely about the car manufacturing plants available around the world, but rather is the corporate culture, the reputable brand name, and the human capital available in the company. In this section, these assets of the company will be discussed in details.
The manufacturing plants and machineries. It cannot be denied that as the top five auto makers in the world, the physical assets of the company are valuable and huge. In fact, the company has several manufacturing related plants and equipment across the United States, Europe and Asia Pacific. However, it is also important to point out that the hardware is not the key success assets possessed by the company (Bossink & Blauw, 2002).
The corporate culture that uphold the high quality and perfection in manufacturing process. Mercedes Benz is a corporation with strong focus on the quality of its products. The organization, undoubtedly, strive for perfection, a typical German-style manufacturing company (Bossink & Blauw, 2002). That is the core competencies of the company, where precision engineering, attention to details, and the spirit to strive for perfection is the leading success factors in the marketplace.
The popular and yet admired brand name. Perhaps, it is even agreed by many of the consumers in the marketplace around the world that Mercedes Benz primary and key assets is the reputable and yet respectable brand the company possess. The noble brand of Mercedes Benz is often associated and is being positioned as a symbol of luxury, status and comfort. The brand name is already more than 100 years, and yet, it is still a brand favored by young and elder professional and businessmen, all around the world. To replicate such a brand equity possessed by Mercedes Benz is very hard, and require huge capital investment as well as a long time frame (Jackson, 2001).
Core Competencies of Mercedes-Benz
Without significant core competencies, it is unlikely, it not impossible, for the firm to rise to such a powerful and respectable position in the car manufacturing industry. In fact, purely based on the highly favorable consumers’ perceptions on the car manufactured by Mercedes Benz, it is not hard to speculate that the company possesses several powerful and distinguishing core competencies in the marketplace (Bossink & Blauw, 2002). It is found that the company possesses several core competencies as follow.
Innovation. One of the core competencies possessed by Mercedes Benz to rise to such a famous and respectable position in the automotive industry is due to its ability to innovate. For examples, the internal combustion engine automobile was introduced by the company in 1886; the company spearheaded the replacement of fuel injection with float carburetor, the company innovation of the first automotive with four brakes on all of the four wheels, the invention of the safety cell concept, and first to market on the Electronic Stability Programme (ESO) brake assist system, and many others (Apfelthaler et. al., 2002).
Quality. It is widely known that Mercedes Benz has been able to maintain a reputation of high quality and durability in the marketplace. In fact, the quality of the cars produced by the company success to achieve various rewards in the industry. For example, under the J. D. Power’s Initial Quality Study in the year of 2007, the company achieves the 5th place, exceeding the quality leader Toyota for some of its car models. Not only had that, later in 2008, the company also received the Platinum Plant Quality Award for its assembly plant in German (Bogue, 2008).
Marketing and branding. As discussed before, ability to market and to build highly reputable brand in the marketplace is one of the core competencies possessed by Mercedes Benz. With in-depth understanding on the customers wants and needs the company able to craft a noble brand in the marketplace – an achievement envied by many of the other auto manufacturers (Jackson, 2001).
Strategic Analysis for Mercedes-Benz
In this section, various strategic related issues and analysis related to Mercedes Benz will be performed. Firstly, after a review on the macroenvironment, the industry structure the company is operating in as well as the available resources the company is having, the SWOT analysis will be carried out, to investigate the opportunities or threats relevant to the company. Besides, some of the corporate and business unit strategies currently employed by the firm will also be investigated. The analysis will extend further to incorporate an analysis on the company’s global business strategic approaches in the recent years. All these are highly important before relevant strategies can be recommended to the firm.
SWOT Analysis of Mercedes-Benz
Under the SWOT analysis framework, the strengths and weaknesses and the firm will be analyzed, and then the relevant opportunities and threats in the industry will be ferreted. In order to make the analysis more readable, the SWOT analysis will be presented in a table form as follow.
Strengths:
1. Quality, reliability and durability
2. Safety & precision engineering capabilities
3. Noble, respectable and high class reputation
4. Strong financial capabilities
5. Successfully attain significant economies of scale around the globe
6. Strong corporate culture
Weaknesses:
1. Cars designed are less fuel efficient compared to the Japanese cars
2. Relatively slow to introduce fuel efficient concept cars
3. Compete only in one of the niche market (i.e., in contrast, competitor such as Toyota has market share in several market segments)
Opportunities:
1. Able to capitalize on its brand name to tap into the other market segments.
2. The engineering and technological capabilities of the firm enable it to innovate and spearhead the revolution in the automotive industry
3. The strong corporate culture enable the firm to implement any strategic changes or direction easily
4. Huge profit potential from outsourcing operational activities to emerging countries, while tapping into the growing market size in the emerging countries
Threats:
1. The rise of environmentally-conscious consumers
2. The turbulent economic and financial system around the world
3. The saturation of market in the developed world
4. The intense competition in the industry
5. The ever demanding consumers preferences and demands
6. Protectionalism measures implemented by some of the governments in the emerging countries
Current Corporate and Business Unit Strategies Employed by Mercedes-Benz
Currently, there are various strategies formulated by the management of Mercedes Benz in continuously thriving in the challenging business environment. It is stated that the company will still continue to try hard in delivering the world best high-end automobiles. This will be achieved by maintaining the firm’s leadership in technology and design around the world (Bogue, 2008). New design concepts are being introduced. Some of these concepts include: (a) increasing the fuel efficiency of the company with a slight decrease in the end products’ recyclability, (b) design for robust and repair-ability as well as to (c) preserve technological edge in terms of design and development of automotive. It is thus obvious that the company is striving to maximize the company profitability while at the similar time to deliver benefits to the consumers, while not neglecting the concerns on preserving a better environment around the world (Jackson, 2001).
Recommendations for Mercedes-Benz
Judging from the many analysis frameworks applied in this article, several possible measures can be implemented by the company.
Firstly, the company should incorporate more concerns of environmental issues into its car design. The reason is that consumers are becoming more demanding and thus, any new concept car that able to deliver value to the environment will be favored. Currently, this is still the weak points for the company.
Secondly, the company should also strive to incorporate the concept of fuel efficiency into its design. As the petrol and gasoline prices are expected to be riding on an increasing trend, it is management imperative for the company to understand such an issue and take preventive actions to avoid the existing market share being taken by the other competitors.
Thirdly, the company can choose to form strategic alliances with other automotive manufacturers. The rationale is that today, the competition is intense, and to combine forces to compete effectively and successfully in the global market place is truly important. In order to penetrate to the emerging market, it is also important for the company to form partnerships with local parties from the emerging countries, as these local parties usually has more knowledge on the local market.
Lastly, the management should also consider developing a new brand to cater for the middle market. This can be done by forming strategic partners with some of the smaller scale manufacturers in the Asia Pacific regions. Many of these companies are suffering because they do not have the necessary technological edge to competitive with other large auto makers. Thus, Mercedes Benz can take over such an opportunity to link with these partners and provide technological assistance in return for a share in these companies income.
Conclusion
In short, the article has analyzed the macroenvironment, industry context and the firm specific issues related to Mercedes Benz in a comprehensive manner. As an overview, the automotive industry is highly competitive. The positive side of the story is that the Mercedes is one of the leading auto makers, enabling the company to achieve significant economies of scale. Besides, the company has a strong and respectable brand name. What is left for the company to pursue is to adapt to the changes in the market and to capitalize on the trend of globalization and information technology in the next decades.
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