Essay, Pages 17 (4172 words)
Dear Mr. Frank,
Please find enclosed an initial report on the current state of Skinclad’s operations for your perusal.
This report seeks to:
a) Reviews the macro and micro environmental factors which are likely to impact upon Skinclad’s business over the next five years
b) Identifies the Skinclad’d internal factors, structures, systems, strategies, skills, shared values and the marketing mix and identify possible areas where there might be a problem
c) Shows a SWOT analysis of the current situation
d) Indicates possible marketing relevant courses of action, both internally and externally, to profitably increase sales in the short term within Skinclad’s current production and financial constraints and suggests what might be the strength and weakness areas identified.
We trust the findings of this report will assist in charting a direction for your organisation. Read an essay establish and maintain a safe and healthy environment
Table of Content
Macro Economic Factors 4
Micro Economic Factors 5
Internal factors 5
Marketing Mix 6
SWOT Analysis 6
Courses of Action 7
Marketing Penetration 8
In order to analyse the operating environment of Skinclad, an audit of the performance of the organisation was executed.
This took the form of an environmental scan which assessed the internal and external environment of the company. The findings of this scan will provide an understanding and appreciation of the many factors impacting directly or indirectly upon the company’s operations. The report explores the macro and micro environmental factors which are likely to impact upon Skinclad’s business over the next five years, reviews the internal factors, existing marketing mix and highlights possible problems areas.
The Swot analysis lists the main strength of the business, its weakness and likely threats and opportunities the company may face in the future. Finally, the report identifies recommendations and possible options for improving production and the financial viability of Skinclad.
MACRO ENVIRONMENTAL FACTORS
PEST ANALYSIS A1
A PEST analysis is an environmental scan of the macro economic factors impacting on the operations of an organisation. It analyses the following factors and its relation to the UK Textile industry:
The relevance of this analysis is significant in gauging world trends and its consequent role in influencing social, cultural, technological, demographical and economical factors. The analysis notes with interest the current state of the UK Textile industry which has experienced a slump since the late 1990 (Figure 1). The figure shows that total output had declined significantly over the period and production has collapsed by 30%. This may be attributed to the effect of globalisation and a shift to importing clothing from cheaper Asian markets such as Philippines, Indonesia and Bangladesh. Many local manufacturers were affected by this move. A case in point was Marks and Spencer who were committed to local producers until the early 2000 when they were forced to source garments from cheaper suppliers outside of the UK to compete with the influx of European retailers. The establishment of the European Union and institution of the Euro dollar has further exacerbated the situation for local producers as a strong UK currency (ï¿½) has made exports more costly to other regions in the Euro and the US. Recent figure suggests that since 2002, the industry is on a slow growth. This is attributed to government policies to support the local textile industry 1, a commitment by local retailers (M&S 2002) to source products from local retailers and improvement in technology that allows more efficient output.
MICRO ENVIRONMENTAL FACTORS
SPICC FACTORS A2
The SPICC factors explore the immediate external environment within which Skinclad operates. These factors include:
Skinclad products caters to a ‘high end’ market that promotes quality leather and sheep skin jackets and coats to clients that can afford the price. Its twenty two year history have positioned the company on relatively good standing with its agents, suppliers and community. Though the market is concentrated with many producers, Skinclad products line may be a cut above the rest hence the reason they secured and maintained a lucrative contract with Modal fashion and shift from dealings with many agents to one agent. Skinclad attempt to supply their products to the Norwegian markets may have failed on principle mainly because of
> A lack of experience and skills in foreign trading
> Non-existence of a Skinclad brand although high quality
> Limited knowledge of Norwegian & trade policies that limits the quota of imports
to protect their local industry (Kotler 2002)
The environmental scan consists of a review of the internal factors that are unique to Skinclad. These internal factors identify eight S’s A3 that are significant in an internal assessment of an organisation and comments on the companies marketing mix. The eight S’s are classified in the following categories:
Sustainable Competitive Advantage
Notably for Skinclad, particular attention must focus on the structure of the organisation, its staffing compliment and skills bases and the notable absent of a clearly defined structure.
MARKETING MIX A4
The marketing mix is a set of marketing tools that the firm use to pursue its marketing objectives. Mc Carthy (1996) classified these tools into four broad groups, the four Ps of marketing:
For the purpose of this report, four additional Ps have been explored:
The marketing mix decision fro Skinclad is critical in influencing the trade channels of an organisation. Skinclad mix focuses on its product and price it little or no emphasis on place and promotion. The correct combination of P’s is necessary to form the basis of any strategic business decision that Skinclad may undertake in deciding its future direction.
The overall evaluation of a company’s strengths, weaknesses, opportunities and threats is called a Swot Analysis. Strengths and weakness are internal to the organisation while opportunities and threats are external. The Swot analysis for Skinclad is as follows:
* High quality product that promotes customer’s satisfaction
* Variety in types of products to cater for a diverse population – leather, sheepskin
* Flexible workforce
* Existence of business for 22 years creating trust and security among customers and stakeholders
* Established target market
* Direct link to retailers thereby guaranteeing sales of products
* Dilapidated premises not situated in the central hub of activities
* Lease for property expires
* Under utilisation of additional floor space and machinery that can be used to boost production
* High Bank overdraft and reducing credit facility that will intimately reduce production
* Lack of promotion of products
* Heavy dependency on one retailer and agent to purchase product ‘eggs in one basket’ syndrome
* Diversity in styles, twenty-two varieties may not be feasible for such a small operation
* Informal staff structure with one active director and no clear line of supervision
* Wider access to markets through globalisation and the European Union
* Ability to trade in Euro – may reduce the foreign exchange risk and make exports affordable from the UK to other European regions – Norway and
* Availability of cheaper raw material from outside of the UK
* Support from the UK government for the textile industry in the form of subsidies to local producers
* Pressure from support groups such as CAFOD3 protesting the working conditions (sweat shops and free zone) of Asian textile working producing for UK manufacturers
* Poor quality products from Asian territories forcing UK manufacturer to return to local suppliers
* E Commerce and catalogue buying can eliminate the need for agents
* Technological development of new cost effective material
* Cheaper labour from Asian and African territories reduces the competitive edge of UK producers
* Influx of European retailers into the UK marketing providing stiffer competition for local goods
* Strengthening of the UK pound against the Euro dollar causing UK export to become more costly
* Further economic depression in the US affects global trends
* Spiralling price of oil likely to increase the cost of supplies and utilities, thereby increasing the cost of production
* Free movement of labour within the EU may attract skills away from to UK and into other lucrative position with the EU
COURSES OF ACTION
In recommending possible strategies to improve Skinclad’s sales in the short run, within production and financial constraints, the combination suggested by Ansoff has been considered. To portray alternative corporate growth strategies, Igor Ansoff presented a matrix that focused on the firm’s present and potential products and markets (customers). By considering ways to grow via existing products and new products, and in existing markets and new materials, there are four possible product-market combinations.A5
The possible strategy that is recommended to Skinclad would be market penetration in the short run, however a recommendation is also made to explore the option of a product development due to statistics that support a shifting trend in men’s design.
This strategy was selected as it is the least risky since it leverages on many of Skinclad’s existing resources and capabilities. From the matrix, it engages the promotion of existing products in the existing market. The case highlights that Modal Fashion has receive complaint about poor quality clothes from its Asian suppliers. The basic assumption is that UK consumers are concerned about value for money and quality products. The company can increase its promotion strategies through the development of a marketing plan that will ultimately include the branding of the Skinclad name and advertising of its product to other ‘High Street’ retailers.
Statistics from the UK shows that manufacturers or designers branding has grown steadily in importance over the years, whereas the retail source used to be more important that the manufacturer brand, e.g. Marks and Spencer vs St. Michaels products (Research and Market 2002). This trend originated in jeans (e.g. Levi’s and Wrangler), shoes such as Reebok and Nike, clothing brands such as Calvin Klein. The Skinclad product has been in existence for over 22 years with an enviable reputation for quality. The product has however, been promoted only through agents and retailers and not as a Skinclad brand.
To effectively institute this branding campaign, Skinclad must consider eliminating some of its styles, especially those that are returning a profit of ï¿½1. This would ultimately free resources that can be utilised in the production of the remaining style, which should not number more that ten in the immediate short run.
A possible challenge in executing this strategy may be the present compliment and skills of the workforce. A human resource audit should be conducted to ascertaining employees’ suitability and willingness to implement the plan. This would include the development of a branding strategy, identification of possible business ventures and marketing and promotion of the products. There may be an immediate need to hired staff competent in accounting, sales and administration or Mr. Frank may choose to use the services of the two non active directors in the short run. An incentives system should also be introduced to provide the impetus for staff to implement the plan. This could take the form of an employee merit programme that is cost effective and incentive are given at the end of a year period.
Skinclad may also consider an initial pricing strategy that is competitive and covers overheads to launch its brand. Economic theory suggests that lowering prices in the short run can give a firm a competitive advantage while boosting revenue through increased sales. The success of this strategy is heavily dependent on an effective marketing strategy.
Skinclad should meet with its bankers to request a loan. At this meeting, the Skinclad management will present its marketing plan and submit a proposal for a debt consolidation to repay all outstanding debts especially to its creditors, suppliers and leasers. The existing machinery and equipment can be used as collateral to secure the loan. The weakness of this strategy may be a refusal by the bank, which would then require Skinclad to approach another financial institution.
The early month of 2003 brought yet more bad news for UK manufacturers, with numerous factories being slated for closure or a reduction in output and employment. Forecasts for 2003 – 2007 shows that the growth of the Textile industry continues on par with the previous five year, at 3% to 4% a year (Research and Markets 2004). However, the shift to sourcing will continue, and prospects are very gloomy for UK manufacturing. Skinclad must be mindful of this present scenario and in the shortest possible period, expand its supply of product into new market within the European Union, thereby benefiting from the trade liberalisation. Current global fashion trends indicate a shift towards more casual dress codes, including sports-based leisurewear. Skinclad can introduce a sport jacket line in the medium to maintain it competitive edge. The survival of Skinclad is dependent on the immediate turnaround of the companies operations and constant monitoring of global trends and possible restructuring where applicable.
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* The introduction of the National Minimum Wage – may have had some negative consequences for the international competitiveness of the sector. But it is important to realise that many of the remaining larger textile businesses in the UK pay average wages well above the NMW rate. The problems created by the high exchange rate and the downturn in Asian and US economies have been more influential than the national minimum wage
* The free movement of goods in the European Union -a member state cannot introduce new customs duties or increase existing one, cannot tax another member’s state goods in different way to its own or similar goods, cannot impose quotas on another member state’s good and cannot introduce trading regulation that discriminate against other members states.
* The free movement of capital – any restrictions on the free movement of capital between member states is prohibited
* The free movement of labour – Workers can move freely within the European Community, but only in their capacity as workers, that is, when they are working for someone for remuneration, and non-national workers are entitled to the same tax welfare arrangements as national workers.
* Adherence to the Employment Relations Act 1999 – section 20-part time work; code of practise with reference to article c – facilitating the flexible organisation of working time taking into account the needs of workers and employers
* Compliance to the Health and Safety Act 1974 – An Act to make further provision for securing the health, safety and welfare of persons at work, for protecting others against risks to health or safety in connection with the activities of persons at work, for controlling the keeping and use and preventing the unlawful acquisition, possession and use of dangerous substances, and for controlling certain emissions into the atmosphere; to make further provision with respect to the employment medical advisory service; to amend the law relating to building regulations
* The impact of the strong exchange rate – that has made imports of textile products much cheaper when priced in sterling. As a result, the scale of import penetration in UK domestic markets has risen. The high value of sterling has also led to a dip in textile exports from the UK. This loss of overseas market share has been hastened by the economic downturn in Asian economies.
* Trading in a single currency – the Euro Dollar -the single currency makes it easier to gain access to a market of 290 million customers. Using a single currency reduces the exchange risk, simplifies currency arrangements, facilitates borrowing in euros.
* Out-sourcing of clothing manufacturing by UK retailers – traditionally, the British clothing industry has relied upon a steady demand from leading UK clothing retailers to sustain their production levels. There has been a gradual erosion of this demand – not least from the decision by retailers such as Marks and Spencer to out-source their supplies from outside the UK. M&S has also come under extensive competition from the influx of European clothing retailers in recent years, A fall in their own sales has inevitably had a negative impact on the demand for finished textile output in the UK
* A Collapse in Textile Employment – At the end of the 1970’s, the UK industry employed over 800,000 people. Two thirds of those jobs have now gone. Currently, the industry is losing jobs at the rate of over 2000 per month. The chart below is taken from the August 2001 edition of Labour Market Trends.
Figure 1. Adopted from www.tutor2u.net/economics/content/topics/manufacturing/textiles.htm
* Reducing Interest Rates -the reduction in interest rates had been widely expected after two cuts, totalling 1%, in US interest rates last month. The US cuts were prompted by fears that the country’s economy, the world’s biggest, might be sliding into recession. While the impact of the US slowdown elsewhere is as yet unclear, analysts said that, with UK inflation having stood below its 2.5% target for almost two years, a cut in interest rates was unlikely to prompt economic instability.
o Inflation rate – 2.1% (2002 est)
o Unemployment rate – 5.2% (2002 est)
o Population below poverty line – 17%
o GDP real growth rate – 1.8%
* Diverse textile sector. Textiles cover the manufacture of items such as threads, yarns, lace, narrow fabrics, knitted fabrics, hosiery and knitwear. Clothing manufacture includes men’s and women’s outerwear and underwear, and items such as hats and clothing accessories. Leather clothing is also included, but all other leather goods (shoes, handbags etc.) are classified separately.
* Clothing sales are unevenly split with a bias toward women’s clothing – two third of all clothing sales.
* Diversity in market as the UK has a high migrant population from Asia, Africa, the Caribbean and other European countries
* Free movement of labour with the advent of the European Union
Population 60,094,648 (July 2003 est)
Age 0-14 years: 18.3%
15 – 64 years: 66.1%
65 years and over: 15.6%
Gender Male, female
Occupation Professional and technical, managers officials, proprietors, clerical, sales, craftspeople, farmers, retired, students homemakers, unemployed
Education primary, secondary, tertiary, technical
Religion Anglican and Roman Catholic: 40 millions
Muslims 1.5 million
Presbyterian 0.8 million
Methodist 0.76 million
Skih 0.5 million
Hindu 0.5 million
Jewish 0.35 million
Ethnic Groups English 81.5%
Asian, West Indian & others 4.6%
Social Class Lower class, upper class, working class, middle class
* Computerisation of most industries
* Introduction of legislation that supports home working especially person with children under five or disable children under eighteen persons
* Technological development of new materials (e.g Gore – Tex and Lycra) which have particular appeal of sporty and outdoor designs.
> High quality product range
> High prices that caters for a targeted market
> Credit facility with suppliers
> Access to raw materials, high quality leather
> Animal Right groups that may protest the use of ….
> Monitoring of companies activities by the Bank to control spending patterns thereby not exceeding the overdraft limit
> Target for Trade Union intervention is labour laws are deem to be violated
> Contribution to the local community in the form of goodwill and donations to communities groups, e.g sporting and cultural groups
> Sale of products (93%) affected through a single retail outlet, Modal fashion.
> Shift from several agents to an individual agent, thereby eliminating the hassle of dealing with multiple agents
> An abundance of outerwear manufacturers, approximately 1000 that competes in a single market
> Establishment of independent garment producers, e.g tailors who have lower overhead cost and satisfies a clientele that seeks personalised service.
> Lower pricing strategy from other producers seeking to (marketing mix) and maintain competitive advantage
> Market share – pie chart
> Middle to high income earners who can afford to purchase the Skinclad product
> Targeted to middle aged men
> The output of 400 – 500 customer per week limits the amount of customer who purchases the product
> Product may be seasonal, as jackets and coat are not necessarily worn in the summer month – Peak period during the winter, thereby justifying the need for flexible working
Peter Kotler (2000) notes that every business needs to evaluate its internal factors periodically, reviewing its marketing, financial, manufacturing and organisational competencies. The big question is whether the business should limit itself to opportunities where it might posses the required strengths or should consider better opportunities where it might have to develop certain strengths. George Stalk (sited Doyle 2002), a leading BGG consultant, suggests that winning companies are those that have achieved superior in-company capabilities, not just core competencies. Companies must manage some basic processes, such as new-product development and sales generation. Each process creates value and requires interdepartmental teamwork. This especially is of relevance to Skinclad whose diverse operations require a high level of coordination and teamwork to maintain efficiency.
> Flat organisational structure with three directors, one in the capacity of managing director and 50 workers reporting to the managing directors
> Flexible work force, works on a need to basis and in peak period
> Absence of formal communication structure with clearly defined lines of reporting and supervision
> Production line operations with specific tasks for different workers
> Managing director executes the negotiations on behalf of the company with suppliers, retailers and agents and oversees the daily operations
> Limited scope in marketing the company and its products
> Combination of skills; individuals that are capable and experienced in operating machines, designing, cutting and stitching, inspecting, sorting and packing, book keeping and administration, marketing and sales
> Workforce of approximately fifty workers with three directors
> Flexible working arrangements, most likely based on demand for Skincald production
> Leadership style not indicated in the case, basic assumption, informal type
> Production of high quality goods that appeal to a particular segment of the market
> Twenty two different style provide options to the consumer
> Sales executed through an agent and to a large retail store, Modal fashion
> This is not applicable to the case
Sustainable Competitive Advantage
> Has been in existence for over twenty two year
> Developed an establish network that includes, suppliers, retailers
* Jackets and full-length coats in twenty different styles
* Old dilapidated building in the old textile industry main district
* Basic assumption that product is high priced since product is high quality
* This information was not provided in the case. However, the need for promotion may be limited as there is a direct link to a retailer who purchase the majority of the product
* Profit has been eroded over the years with a net value of ï¿½1 on certain product
* Old rented premises in what used to be the hub of the UK textile industry
* This information was not available from the case
* Not accessible from case