Strategic Management Essay
In this time of great uncertainty, many organizations are wondering which changes will have the greatest impact on their businesses in the years ahead. What is certain is that the threats and opportunities facing any company as a result of change and uncertainty in the environment can have an impact on its profitability and even the very survival of the organization. A strategy is the direction and scope of an organization over the long term. It matches its resources to its changing environment and particular its markets, consumers so as to meet stakeholder’s expectations (Johnson G et al. 2011).
In this essay, the strategic management process will be looked at for Sacha’s cosmetics including an analysis of the macro environment, using the PESTLE framework, a SWOT analysis and Porter’s five forces.
Sacha Cosmetics was founded in 1979 by Kama Maharaj. Its core activities comprise of the development, manufacturing and marketing of cosmetics. It is the number one selling brand ons throughout the Caribbean market, and after three years in Wal-Mart Puerto Rico, Sacha is Wal-Mart’s fastest growing brand of cosmetics. From inception the vision was to build the Caribbean’s first ever truly global brand. The vision is of a brand that would compete worldwide, head to head, with the American mega brands.
3. THE MACRO ENVIRONMENT
A company cannot develop an effective strategy without first analysing the environment in which the company operates (Bartol K. 2006). It is suggested that environmental scanning of both the internal and external environment is a necessary pre requisite stage to strategic formulation. The PESTLE framework below evaluates the dynamic and unpredictable environment in which Sacha cosmetics operates by identifying the forces that have the most impact on the company’s performance.
3.1 POLITICAL/LEGAL FACTORS
In keeping with the strategic objective of Sacha cosmetics of becoming the Caribbean’s first ever truly global brand, Sacha’s strategy was to expand outside the region by exporting to the Latin American countries. However, this became an exercise of frustration for Sacha particularly with the restrictive non-tariff barriers of these countries. For example, there was a cost to register every simple shade of foundation, lipstick and nail polish. The company also had to get health registration, trademark registration and distributor registration before a single product was allowed to be shipped into these countries. Apart from the cost, the process was lengthy and by the time approvals were received, styles would have changed and the process of getting these new products had to be started again.
3.2 SOCIAL FACTORS
The culture of countries in which business operates can be of particular importance. The culture of a country consists of the values, attitudes and beliefs of its people (Worthington I. & Britton C. 2009). For example, with modern standard of living continues to improve and the level education get higher and higher, consumers now are demanding value for their money. Therefore, the demand for quality and effectiveness of cosmetics become higher and higher, especially with the availability of so many other brands.
The revolutionary platform we focused on to build global brand awareness was the Internet. Unlike the big guns with deep pockets, who could afford mass advertising, Sacha saw the Internet as the ideal vehicle to build global brand awareness on a shoestring. Today, www.sachacosmetics.com is one of the most powerful cosmetics sites on the Net, attracting over 3,000 visitors a day. The site is professionally designed, loads quickly, is easy to navigate and ranks impressively in the search engines. Search for “cosmetics” on the #1 search engine Google and you get 18 million results. Our website is ranked #6 in the world, ahead of multi-million dollar brands such as Revlon, Maybelline, L’Oreal, Estee Lauder and Avon.
4. SWOT ANALYSIS
Strategy formulation always begins with a situational analysis (Kotler P. & Armstrong G. 2012). It is the process of analysing a strategic fit between opportunities (external) and strengths (internal) in concern with the threat (external) and weakness (internal). A SWOT analysis should not only result in identification of a company’s core competencies, but also in the identification of opportunities that the company is not currently able to take advantage of due to a lack of appropriate resources (Barney J.B. 1995).
The ongoing success of Sacha Cosmetics lies in areas like research and development, innovation and understanding the needs of their customers. While its competitors focused on improving their current products, Sacha focused on reinventing the products. The founder of Sacha believed that in order to be successful you not only have to have the best quality, you have to have innovative products that differentiate you from the competition. Therefore, after years of painstaking research and development, the company succeeded in developing the first of its kind, a yellow based foundation.
Opportunities always provide a way to strengthen and consolidate the position of the company. For example, when Sacha hit a “brick wall” in exporting its products overseas, the company devised a new strategy to enter into the foreign markets. The internet provided the opportunity to significantly lower transaction costs and to facilitate new types of commercial transactions. More importantly, it is an excellent advertising medium. Sacha can deal directly with international buyers through the internet eliminating transaction costs and other barriers that usually make it difficult for smaller businesses to engage in long distance and international trade. As a result of this strategy Sacha was able to successfully negotiate with Wal-Mart Puerto Rico who is not only the largest retailer in the world, it is the largest corporation in the world to carry the Sacha brand in their stores. When Wal-Mart visited the website they were highly impressed, especially when they saw that Sacha’s website was ranked the number one site for Latin cosmetics.
These are inherent constraints, which are responsible for creating strategic disadvantage. According to Sacha cosmetics executives, problems continue to plague the company’s online initiatives. The company does not have the necessary expertise to assist with issues like maintenance of the website, and at times the website is slow and inaccessible.
Threats refer to conditions on barriers that may prevent the organization from reaching its objectives (Lynch R. 2009). Competitors are rapidly developing similar products with additional features and benefits particularly in the international market and it is very difficult for a local brand to get product placement in the major department stores.
5. THE COMPETITIVE ENVIRONMENT
Competitive advantage is defined as the superior position of the organization in comparison to its competitors. Competitive advantage serves as a support to the company’s strategy. Porter’s five forces will be used to examine Sacha’s competitive advantage (Porter M.E 1979).
5.1 THREAT OF NEW ENTRANTS
It is possible anyone could start a new cosmetics business the way Kama Maharaj did in 1979, but it would take considerable time and investment to compete directly with Sacha Cosmetics products. Creating a new brand within the current competitive environment would require significant investment, to either buy out a current producer or set up a new range of products in the beauty care sector. The threat of new entrants is therefore low.
5.2 INDUSTRY RIVALRY
The intensity of competitive rivalry in the cosmetics industry is extremely high. There are many alternative products available to those produced by Sacha, across a wide price range (from value ranges to designer products), creating intensive industry rivalry both within the different price brands and across all price brands. Sacha’s strategy is to differentiate its offerings from the competition in as many ways possible. The company continues to create products, services and strategies that are almost revolutionary.
For example, being the only producer of yellow based foundations. Also Sacha launched a new age look for their brand. In creating this line, they have utilized all their resources and over thirty of experience in the cosmetics industry. This product will factor a new cutting edge aspect and functionality to their existing products, thereby further enabling them to compete with their competitors in any market, anywhere in the world.
5.3 POWER OF BUYERS
The bargaining power of buyers is fairly high. In cases where products have a slight differentiation and more suitable to the consumers there is no cost to switch from one brand to the other. It has been proposed that consumers are attracted towards the low prices, and with the availability of online retail shopping, the prices and features of products are easily compared and thus selected. Although Sacha cosmetics are the number one brand within Trinidad and the region, it faces intense competition from the foreign brands, because it provides consumers with various choices.
From the above, it is recommended that the company continues to focus on increasing the sales and taking advantage of experience curve in order to reduce cost of product sold per unit. The main growth strategies it should focus on are concentration and diversification. Concentration is focusing on the profitable product line such as the yellow based foundation. Diversification strategy is a department form the present product line and present market structure (Lynch R. 2009).
Therefore, Sacha should continue its pursuit of market penetration, market development and product development by continuing to form strategic alliance with stakeholders including the Export and Import bank of Trinidad and Tobago which provides assistance of the pre-shipment, post facility and export insurance has been pivotal to the success to Sacha’s export thrust. Sacha needs to hold higher inventories to satisfy export markets and through the facilities of this stakeholder they no longer have to wait extended periods for collections, which at times posed a challenge to Sacha’s working capital.
In light of the above analysis, it can be concluded that Sacha cosmetics continues to hold its leadership position within the highly intensive cosmetics environment, where companies are required to pursue both cost leadership and differentiation strategies. Sacha has been able to achieve both with the help of continuous research and development, along with the strategic use of information technology. The core competencies of Sacha cosmetics have been seen to be aligned with the business environment, therefore highlighting a positive future outlook for the company.
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