Strategy that will increase profits and to go international - Free Essay Example

What is a strategy? Strategy is the determination of the basic long term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources for carrying out these goals (Chandler 1962) International Expansion This report is about a company which is a clothes manufacture based in the north east of England in Darlington. This company which is owned by my friends Father and has been established for well over 15 years. Mr Sandhu was employed by a family friend in the 1970s where he gained experience in the clothing sector, he picked up knowledge and skills on how to run the labour aspect of clothing manufacturing. After this he left this job and with his savings opened up his own clothing company in Darlington. At first the distribution channels was limited so they started selling their goods through market stalls. The company employed 20 people but then expanded to more. They specialise in manufacturing clothing for women and children. Their main distributing channel at this time after the market stalls was to small independent retailers across the England and supplying Yours Clothing and recently started producing garments for Lipsy London. At the start of 2011 Mr Sandhu decided to work on a strategy that will increase profits and to go international. The plan was to think of what country labour and materials would be cheap and the day to day running of the business. He had to take into consideration the amount of employees and if he was going to buy a new factory or rent one. He took a numerous amount of trips to India to see which one would be more cost beneficial for him. D S Fashions Ltd strategy is To produce unique high quality goods, through methods which involve cost efficient manufacturing , and enables us to retail our goods to reputable companies at cheap prices, ethically and fairly which benefits all stakeholders To achieve these objectives outlined in the statement above the company had to stick to a certain path, the business environment which affects the profits of the company such as the material, labour, machinery and tax all was considered before a strategic plan was thought about. The clothing manufacturing industry in the UK is chang ing where more companies are now going abroad to set up factories because the costs are lower to run and cheaper to produce garments. This means there is increased competition from competitors and the external factor needs to be considered, before the move to go international is considered. DS Fashions Ltd used this model to create strategic plan this is what the model looked like: Objectives External factors affecting business PEST Internal factors affecting business SWOT Plan to achieve objectives Implement Plan Review and Evaluate To investigate further and to get a broader picture of what issues can arise a PEST analysis was created which assessed the Political, Economical, Social and Technological factors which could affect the external influences on the international expansion. This is a PEST analysis on the external environment and external influences that could affect the expansion to India. Political War Changes in Import duties VAT rises Better relations between India and UK Economical Inflation Creates new employment opportunities therefore reducing unemployment Beneficial for the UK and Indian economy Social People might not want clothes from India New trends in fashion can contribute to extended clothing lines, which can cause expansion for factory Technological The use of the internet is beneficial because trips to India can be limited, designs can be emailed and video conference can take place from anywhere in the world New machines such as the Veti graph system which enables cut patterns and makes it accurate and cost efficient as it minimises waste of fabric After this PEST analysis it shows a balanced side of the advantages and disadvantages of the risks and opportunities to move abroad for DS Fashions Ltd, considered in the business environment externally. However even though these environmental risks have been established it is still necessary to do a SWOT analysis on international expansion strategy that could affect the strategic plan being implemented, that is why the strategy needs to be assessed DS Fashions Ltd SWOT is illustrated below. SWOT on DS Fashions Ltd Strategy Strengths Advertising to a new market Bigger market share Attracting new customers Offering something locals cant Weaknesses Different culture Different fashion trends Competing with loads of others competitors in India need to established Opportunities Cheap distribution costs Cheap labour Larger workforce with lower price which means mass productions Quality control which gives good competitive edge Threats Big competitors such as Primark and Matalan has a bigger market share and negotiate better deals as they mass produce garments Deadlines might not be met on time Other companies setting up business in India for fashion trade The analysis clearly outlines positive and negative outcomes on the strategy but the strategy looks more promising for the future, moving to India would be a positive outcome. As the strategy was a way of DS Fashions Ltd to expand to India which could be more cost efficient for them. The SWOT analysis suggests by doing this they can infiltrate a new market and could take a big market share of the fashion industry. Also it suggests by expanding to India they will be able to produce larger quantity of garments, using high quality materials and fabrics. As they will have a larger workforce they will be able to produce garments that need more lab our in production, because they will have a bigger and more powerful workforce they will have a bigger turn around period therefore attracting more customers. One of the weaknesses that the SWOT picked up was the difference in culture, however it can also be seen as strength because they could diffuse the two different cultures and create a new market, or they could also provide to the smaller minor Asian community within the bigger British western community, thus producing garments to cater for different cultures within the UK and other potential distributors. Opening the production unit in India would mean that they would get cheaper labour; therefore they would be able to invest more into the quality of the fabrics and the quality of the labour, so they would be producing garments of a more higher standard, so they may also be able to enter a higher level market within the fashion industry. Another beneficial factor is that they will be creating more jobs in the Indian communi ty. Michael Porter came up with a concept of a value chain; this chain was made to include the functions which would give core competences over its competitors. The links with suppliers are referred to as upstream linkages and the distributors and customers are downstream linkages. Different organisations have different value chains. Tesco will have a different value chain to Comet the electrical goods retailer. Having an analysis of the value activities helps the organisation identify where there is potential, finding this out they can change activities and improve the way they are run. The way it is analysed is not in isolation but with external linkages too such as distributors and suppliers. Primary Activities Inbound Logistics Operations Outbound Logistics Marketing and Sales Services Efficient links to suppliers Products. Large Shipments, massive warehouses Mass production to exploit economies of scale and experience effects to cut production costs Selection of bulk or large order low cost carriers. Tight controls on inventory levels Little promotion or advertising. Products priced to generate large sales volume Modest after sales service and maintenance. As you can see above these are the primary activities of the value chain, this in relation to DS Fashions Ltd, will have the same structure. Now we will look at the support activities. Support Activities Infrastructure Human Resource Management Technology Development Procurement traditional centralised managerial style with formal procedures and rigid hierarchy:emphasis on cost control Intensive training to emphasize cost saving:encourage employees to look for new ways to improve methods Economies of scale of RD and technology development: process innovation Seek low cost suppliers, use size in bargaining with suppliers The Risks Too much differentiation Buyers become better informed Dilution of brand identification Sustaining perceived distinctiveness Offering more features than customers desire, especially if this is reflected in a premium price Demand becomes more price sensitive, which limits any price premium that may be charged Offering lower priced product-line extensions may adversely affect quality brand image Imitation and product improvement by competitors, or changes in consumer tastes, or changes in technology can all undermine a differentiation strategy Conclusion After looking at DS Fashions Ltd strategy it is quite clear that it is a very positive move forward. This international expansion has been beneficial for the company as well as the consumer and also the workers. Sticking to their ethical and environmental efficiency DS Fashions have scrapped the image of moving to India as a sweat shop and taking advantage of labour to a fair way. Everything has been taken into consideration for this international move and the benefits and rewards are big.