Business Environment and Strategic Management — PRIMARK

Keywords:  Company/business environment analysis, internal and external environment analysis, SWOTS and PESTLE analysis, Competitive analysis Porter five forces, Analysis of company strategic capabilities, Resource based view, VRIO framework, Porter Value Chain, Porter generic strategy, Strategic management Assignment Writing Service

Introduction

Strategic management encloses the set of the actions and decisions which governs the long-term performance and future of the company. It encompasses internal and external environment scanning, formulation of strategy, implementation and evaluation of the strategy as well as deploys control in an organisation (Hitt, Ireland and Hoskisson, 2012).

Hill, Jones, & Schilling (2014) discussed that the strategic management process emphasis on the evaluation of the external opportunities and a threat to the company based on analysing the internal strength and weaknesses. Eden & Ackermann (2013) added that strategic management facilities the strategy implementation, re-evaluate the strategy to meet the new challenges based on the based on the economic, social, competitors and political changes.

This report focuses and assesses the strategic management of ‘PRIMARK’. The aim is to analyse the environment, assess and evaluate the strategic capabilities as well as appraise the strategies of the company to examine the competitive advantage of the company.

Moreover, based on the analysis and evaluation of the company resources and strategies, recommendations will be made to develop and maintain the competitive advantage.

Primark Profile

Primark is an Irish retailer which operates as a subsidiary of the Associated British food (ABF) in the UK.  Primark offers fashionable and innovative products to value seeker and establishes itself as the destination store for the low-cost clothing while delivering high fashion look.

Company stock includes a diverse range of products for everything for the men’s, women’s, kids, home-ware, beauty products, sportswear as well as accessories. The first Primark store was opened in the UK in 1973 and there are 161 stores in the UK. Primark operates as a chain of the departmental stores which offer wide range of product for customer of all ages and tastes (Primark, 2015).

Company outsource it production and procure its products from wide range of manufacturer mainly from the china. The operating profit margins of the company were 13.4%. The return on the capital employed was 33.2% and employ 54000 employees in the UK.

The prominent competitors of the companies are H&M, ASDA, Newlook and Matalan. The company launched Primark.com in October 2013 which offers services in multiple languages. Since its launch the outreach of website is has reached more than one million (ABF Annual Report, 2015).

Business structure, strategy and growth

Company business structure is based on five business segments and operational decisions of the company are made locally. The regional leaders have freedom and autonomy to make decisions in order to pursue opportunities. The company is managed in the portfolio to ensure the long-term stability and availability of the capital and resources. The company used the shared service centres and with local operations, it achieves cost-effective as well as efficient delivery of products and service (Primark, 2015).

The specialist services such as tax and treasury, pension and insurances are managed in one place. The value-added share services enable the local stores to develop capabilities which support local business units (ABF Annual Report, 2015).

Analysis of company environment

Harrison & John (2013) elaborated that the environmental scanning (internal and external) involves collecting, appraising and disseminating information for the senior management for the strategic decision making. The external environmental variables are customers, suppliers, competitors and internal environment is productivity, operational efficiency and effectiveness and responsiveness of the business.

Internal environment analysis

SWOT analysis

Pahl & Richter (2016) explained that SWOT (strength, weakness, opportunities and threats) is a useful tool to analyse the company strategic position based on the advantages, favourable factor and shortcoming for the company. SWOT is useful to analyse the internal strength and weakness and it is important how the company should responsd to external opportunities and threats to address the gap in resources.

SWOT model - Business Environment and Strategic Management

Strengths

Rao, Rao, & Sivaramakrishna (2015) described that the company has a long history of success and growth over the years. The company has remained profitable with net profit margins of 13.9%. The company have healthy revenues and financial and resources support from the group. In the UK, the company have 161 stores and employees more than 54,000 employees. The advantage of the company is that it offers an affordable product with fashion trends and quality product.

The e-commerce sales, the opening of new stores, capital availability as well as technical know-how has enabled the company to successfully operate in the local market. The autonomy and participative culture at the company have helped to improve and enhance the operational performance of the company (Hitt, Ireland, & Hoskisson, 2016).

Weakness

Johnson, Scholes, & Whittington (2015) highlighted that there have been a number of negative reports about the unethical trading practices. The sourcing of the goods and its manufacturing capabilities in china are associated with the use of the Child labour to manufacture its low-cost clothing. Moreover, it has criticised for the poor working conditions and disrespecting the right of the workforce.

The Primark does not invest in the marketing or advertising when to compare with its competitors such as Matalan and H&M. The critical problem with the company is that it launches the counter-attack for the products and service competitors offered rather doing own innovation of the products which help to achieve its own goals (Eden and Ackermann, 2013).

Opportunities

Grandori (2012) clarified that the marketing could increase the business opportunities and sales of the company. The significant opportunity available for the company is an enhancement of its market share. The company should on developing an effective marketing strategy which increases the market share of the company rather imitating the competitors. Company customer base is grounded on the blue-collar user but there are opportunities to evaluate different segment of the markets through analysing the strategic alternatives.

Threats

Carnabuci and Operti (2016) that the threat faced by the company is increasing the number of its own competitors. Company tackle various competitors through making the similar offering rather analysing the competitors. The competitor’s analysis would allow the company to understand the competitor’s strengths and weakness and offer products and service which help the company to achieve a long-term sustainable competitive advantage. The deployment of the state of art technologies, introduction of the wireless communication and improve advertising and communication would allow tackling the competitors.

Competitors analysis

Fleisher and Bensoussan (2015) examined that the competitors of the Primark are a peacock, Matalan, Newlook, TK Max and Next. The diagram below shows the market share of the UK clothing retailers. The business power and market share of the company are relatively lower when to compare with other clothing retailers in the UK.

Primark has a comparatively lower standard of quality as well as the low-level implementation of hi-tech. However, the strength of the company is its relatively strong financial position and high level of profitability. The poor marketing strategy of the company is an important factor behind lower shares of the company.

External environment analysis

PESTLE analysis

PESTLE (political, economic, social, technological, legal and environment) is useful to analyse the Marco environment of the company. This allows aligning the company resources to align with the external environment and fulfil needs of the various stakeholders (Grunig and Kuhn, 2015).

Political

Oliver (2017) debated that the political factors highlight the situation of the company to meet the government initiatives and actions. The government policies usually have a direct effect on the priorities and strategy of the company. The government changes in the fiscal and monetary policy which effect on the economy and consequently affect the business cycle of the company. The range of measure includes health and safety act, consumer protection as well as disability are few measures which company should consider and manage.

Economic

Fleisher and Bensoussan (2015) argued that the economic analysis highlights the impact of the different trends which impact upon the revenues and profitability of the company. The factors such as interest and level of the consumer spending have a significant impact on the business.

The gross domestic product is an important measure to understand the economic scenario as well as increasing income per capita highlights that business sales and growth is likely in near future. The UK economy is recovery and i.e. consumer confidence is increasing as well as exchange rate will have an effect on the import and export of the country (Schilke, 2014).

Social

The social challenges are based on the demographic and i.e. these changes affect the buyer perception of the customers. The social changes affect the future research and fashion trend which have a significant effect on the decision making for the business. The taste, as well as preference of the buying population, are important and consequently affect the market of the business. The new product should be developed on the basis of the social changes in order to fulfil the customer needs and respond to consumer (Grunig and Kuhn, 2015).

Technological factors

Surie and Reuter (2015) stated that technology represents the ability of the company to use the latest technology to improve the performance of the business as well as deliver efficiently and cost effective product to the customer. The technology helps to improve the transaction of the business. The technology drives the performance of the business, help to manage the social and economic changes as well as counter the unethical working behaviour through better control.

Legal analysis

The legal factors are trading policies, taxation, salaries which affect the operation and performance of the company. The health and safety act, labour laws, product standards have significant affect the product and operations of the company. The important of the customer relationship as well as supplier relationship is defined through managing the legal aspect of the business (Miller and Cross, 2012).

Environment

Weele (2015) explained that corporate social responsibility (CSR) is important which help the organisation to meet the social and environment concerns of the company. The social concerns are related to the ability of the company to meet the community needs whereas environmental concerns with the usage of the resources and how waste are managed.

Porter Five forces

Porter five forces are a useful framework to analyse the industry competitiveness and level of profitability that can be achieved by the company (Porter, 2008).

Bargaining power of customer

The bargaining power of customer represents the power the customer in terms of company ability to affect the sales and profitability of the company. Primark customers are the individuals who are like to buy small quantities and insignificant effect on the sales of the company. Therefore, customers are likely to have low bargaining power (Bischoff, 2013).

Bargaining power of the supplier

Van Egeraat (2012) described that the bargaining power of the supplier highlights the power of supplier to increase the prices which consequently affect the profitability of the firm. Primark supplier is based on a large number of suppliers and therefore, they are cannot affect the price of the raw material or finished goods. Therefore, bargaining power of supplier is low.

Threat of new entrant

Grandori (2016) stated that the threat of new entrant represents the ease for the new firm to enter the industry and consequently affect the profitability of the firm. The competitors entering the marketing are usually large supermarket chain such TESCO, ASDA and another retailer who diversify their businesses. Therefore, it easy for the new entrant to enter the market as it does not require large capital investment or specialist knowledge. Therefore, the threat of new entrant is high.

Threat of substitute

The threat of substitute means the availability of the alternatives for the customers and customer ability to switch to the competitors. The availability of the alternatives from the competitors is high and there are no switching costs for the customer. The dynamic nature of the fashion and rapidly changing fashion trends affect fashion industry. Therefore, threat of substitute is high in the industry (Schilke, 2014).

Conclusion

This section of the report analysed the internal and external business of the Primark to identify the factors which affect the company performance, profitability and long-term future. The internal analysis shows that company strengths are its financial and economical products offering whereas weakness is the lack of marketing activities. The company have poor use of technology and threats exist such as highly competitive industry and market share of the company is relatively small.

The external analysis highlighted that company is facing number of political and legal challenges such as new rule and policies which increase the compliance cost of the company. The changing economic situation represents new opportunities whereas social changes (demographics) have significant challenges for the company.

To understand the competitive scenario, the bargaining power of customer and supplier is low but threat of the new entrant and substitute is high for the company.

Analysis of company strategic capabilities

Resource based view (RBV)

RBV suggest that company have sustainable returns when it has superior resources and these resources are protected through the mechanism which prevents the imitation of such resources and competencies (Prahalad, 1990).

Moreover, Barney (1991) suggest that company resources can deliver sustainable competitive if company resources are VRIN (valuable, Rare, Imperfectly imitable and non-substitutable). VRIN is useful to analyse the internal resources and capabilities in order to understand whether company can achieve competitive advantage (Barney, 1991).

Value means it increases the efficiency of the company, rare shows that it cannot be possessed by the competitors, imitable means these resources have unique conditions and non-substitute there are no other alternatives available which strategically equivalent to firm resources. These conditions are important to achieve the sustainable competitive advantage (Schilke, 2014).

VRIO and Primark

The strategic analysis of the Primark has highlighted that company resources are not strong enough which could create and deliver the competitive advantage for the Primark.

Value

Kim, Lee and Shin (2015) elaborated that the important aspect is that whether resources add value to the firm and help to achieve the objectives of the organisation. This helps to determine the value of the resources. These resources are likely to increase the value of the customer and company. The resources processes by the Primark are valuable which increase the operational efficiency of the company. The employees’ skills and decentralised decision making has contributed to the skills of the firm.

Rareness

Knott (2015) highlighted that the resource processes by the few companies are considered rare. The combination of the rare and valuable deliver competitive advantage in the short term but cannot be sustained in the long-term. The numbers of firms processing the same resources mean there are competitive parity and firm copy each strategy and there is no superior performance of any firm in the industry.

Primark resources are imitated and do not require unique conditions in order to copy such resources. Moreover, there are a number of substitutes available in the market to manage the business processes and there is intense competition has made the substitute available for all players in the industry (Eden and Ackermann, 2013).

Imitability

Teece (2016) point out that the cost of the resource imitation is high if these are cannot be a substitute and there are two types of imitation which direct and indirect. The resources and capabilities processes are not VRIN which could help the firm to create and sustain long-term competitive advantage.

The reason resources are difficult to imitate based on the resource ambiguity (difficult to identify resource) or social complexity (resource based on the organisation culture) (Schermerhorn, 2016).

Organisation

Knott (2015) argued that the existing processes and resources of the Primark support the operation of the business and company has successfully managed to generate value from existing resources. The product offering and existing processes have important for the sustainability of the operation of the company but in the long-term; these resources are not enough to create the sustainable competitive advantage.

The existing arrangement does not have long-term or valuable enough which develop the competitive advantage. Primark should recognise as well as improve the processes to ensure it achieves the competitive edge.

Value chain analysis

To understand the activities of the organisation which help to develop and deliver sustainable competitive advantage as well as generate value for the shareholders can be analysed and evaluated through value chain analysis. The value chain framework is based on the primary and secondary activities. These activities are managed by the firm in an efficient manner to generate profit for the company (Porter, 2008).

Surie and Reuter (2015) discussed that value chain activities involve in the porter value chain. The margin of the firm is depending upon the efficiency and effectiveness of these activities. The activities represent the cost of the firm and the amount customer willing to pay in excessive represent the profit of the firm. Therefore, firms should reconfigure the activities to achieve better return and generate superior value.

Porter's Value Chain analysis
Porter’s Value Chain

Primary activities and Primark

Inbound logistics

This involves receiving and storing of the materials or products and further distributing to the business units. The relationship with suppliers is an important aspect to ensure sustainability and cost-effective management of the activities. The Primark import is products and supplies from the china and stores them in the centrally located warehouse (Shah, 2016).

Operations

Harrison and John (2013) explained that operations involve the process of converting the material into finished goods or delivery of the service. The service provision which is valued by the customer generates long-term value for the firm. The Primark operations involve testing of the material imports to ensure they meet the product and industry specification.

Outbound logistic

This involves the distribution and warehousing of the finished goods. Primark distributes good from the centrally located warehouse to the outlets which usually takes time. Therefore, efficient ordering system from the outlet could increase the profitability of the company (Harrison and John, 2016).

Marketing and sales

Surie and Reuter (2015) stated that the identification of the customer needs to generate sales for the business. Primark does not focus and invest in the marketing activities. In comparison to its competitors, Primark lacks marketing and advertising activities. Therefore, effective marketing strategy could improve the profitability of the company.

After Sales Services

The support provided to the customer after product sold and this could involve the warranties and refund. Primark operates refund policy and in case of problem customer can exchange the product and services. Therefore, after sales service of the company is efficiently and company actively address the problems of the customers (Fearne, Martinez and Dent, 2015).

Secondary activities

Firm infrastructure

Bischoff (2013) elaborated that firm infrastructure represents the organisation structure, culture control system of the company. Primark highly values its employees in the UK and they have the greater degree of freedom and autonomy to make the local operational decision. Moreover, support is provided by the head and shared-service centre reduce the cost for the company.

Human resource management

Weele (2015) explained that the firms’ activities to recruit develop and train employees which helps to achieve the value generated for the business. Primark has recruit experienced employees who have skills and expertise to achieve the objectives of the company. The company culture high value the employee and consider an important resource for the company.

Technology development

Pahl and Richter (2009) added that the technology deployment involves the use of technology by the company in order to create value for the stakeholders as well as improve the efficiency of the firm. Primark has the lower level of technology deployment when compare with competitors. There are number of opportunities exist for the company which could improve the performance and operations of the company as well as reduce the customer queues in the stores.

Procurement

This involves purchasing of the equipment and supplies to support the operations of the company. The procurement team actively managed the contract with the supplier and procure products and service in a cost-effective manner. The suppliers are audited on regular basis to ensure compliance with social and environmental concerns for the company. Nevertheless, there is negative news controversies for the company such as use of child labour and i.e. need to re-evaluate its supplier audit process (Harrison and John, 2013).

Summary of Primark strength and weakness

Company resource analysis has important implication for the businesses to determine whether sustainable competitive can be achieved. Primark resources are valuable and it adds value to the company as well as fulfils the customer’s needs. For example, Primark employees have a greater degree of autonomy which helps to serve the customers in a better manner.

Nevertheless, the weaknesses are that company resources are not rare and employee skills can develop by other companies through training. The cost of resource limitation is insignificant as well as resource organisation are designed in such way that it helps the company to develop a long-term sustainable competitive advantage.

Porter value chain has shown that efficient primary activities such input, operation and output. This has provided company to maintain its profitability and deliver according to customer needs and fashion trend.

However, value chain has shown that marketing and sales of the company are weakest among the competitors as well as company technology deployment and advancement is not on par with the competitors.

Evaluation of strategies

Strategic issues

There are a number of issues faced by the company which hamper the market share and growth of the company. The first issue is the unethical trading practices of the company supplier. The recent news has damaged the reputation of the company and therefore, procurement department needs to effectively manage the supplier audit and code of conduct. The next problem company is facing is a lack of its own product development and try to imitate the design and product offering made by the competitors  (Grandori, 2012).

Primark is focused on the narrow market segment of the market and could target potential new customer though offering a wide range of products. The technology readiness of the company is relatively lower as company operation lack the use of technology and this resulted in long queues in the stores and inefficient ordering system for the company.

There is a high level of competition in the industry which increased the need to manage its operation efficient to stay competitive in the market. The changing demographics and economic scenario needs to consider when re-evaluating the company strategies (Teece, 2010).

Strategic options – Porter generic strategy

Porter generic strategy is useful for the firm to understand how to compete in the given market. The level of competition is high and i.e. it is critical for the Primark to effectively choose a competitive based on its resources and capabilities.

Porter generic strategy is a useful tool when the profitability of the firm depends upon industry in which it operates and therefore, the position of the firm important determinant to impact upon the profitability of the firm. Porter suggests that the strengths of the firm exist into three segments which are the cost advantage, differentiation and focus. These strategies are useful at the business level and do not depend on the industry (Schermerhorn, 2016).

porter's generic strategies
porter’s generic strategies

Cost Leadership

Scheele (2014) explained that cost leadership strategy involves lower cost producer in the whole industry for given level of quality. Company sell the products at reasonable price to earn the higher profit or sell at lower price to gain the market share. In the case of the price war by the competitors, cost advantage helps the company to remain profitable while competitors suffer losses.

Cost leadership usually focus on the broad focus and it is achieved through improving the process efficiencies, optimal sourcing and using technology to improve processes. The critical element for the cost leadership is access to capital making efficiency investments. The two critical elements are improved manufacturing process engineering and efficient distribution channels (Grunig and Kuhn, 2015).

Differentiation

Schermerhorn (2016) described that differentiation strategy involves product and service which have unique attributes that are valued by the customers. The customers believe that company products and service offered better value than the competitors. The unique proposition helps the company to charge the premium pricing. The unique proposition helps the firm to create lock-in as there are no alternatives available for the company product. The differentiation factors are scientific research, high skills and strong team along quality reputation.

Stuck in the middle

Carnabuci and Operti (2013) argued that when company try to achieve both strategies then it stuck in the middle and do not achieve any advantage at all. For example, when a company tries to differentiate itself based on the quality but it challenges the quality then it became cost leader.

Therefore, company project the confusing image and i.e. porter recommend that company must follow one strategy in the long term to achieve competitive advantage. Primark strategy is seems stuck in the middle and company emphasis on the quality and lower cost.

Recommendations

Based on the strategic analysis of the company, the following recommendations are appropriate for the Primark to improve its profitability and operational effectiveness.

  • The company should pursue cost leadership strategy for improving profitability and increase competitiveness in the market. The products offered by the company will effectively align with cost leadership approach.
  • Company should re-evaluate its procurement strategy in order to avoid scandals as well as achieve economies of scale. The supplier relationship is important and involvement of supplier at design stage which help to reduce the company cost.
  • It is recommended that company should actively use the technology to improve it processes and increase efficiency of the operation and process. The stores and procurement processes should effectively use the technology to reduce and increase customer satisfaction
  • The company needs to develop and deploy effective marketing strategy to increase its market share. This would allow the company to penetrate the market and improve communication with the customer.
  • The company currently focuses on the value item and offers product certain segment of the market. However, based on the environment and social variables company should outreach and target another segment of the market. The changing demographics of the UK would help to capital and generate profits from new segments.

Conclusion

Primark operates as a subsidiary of the ABF which has provided the company addition technical expertise and capital investment. The company has grown over the years which local managers gave autonomy to manage the operational decision.

However, a recommendation made in the report needs to be implemented at the corporate level. The realignment of resource and pursuing of cost leadership would not represent an implementation problem as the company will implement new SOP and procedures rather bring the revolutionary change. The decisions to select the supplier and maintaining positive relationship would be effectively managed at the corporate level.

Moreover, the modernization of store through the deployment of technology as well as marketing strategy will be developed at head office which will increase the market share of the company. The development of new segment will also consider by the senior which will allow boarding the scope of the company product portfolio along cost leadership strategy.

 

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