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注会综合阶段英语水平提升班——第四单元6

t-admin154 网校老师 发表于 2017-10-29 16:17:35 | 评论:0  查看:473次 [注会英语]
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Unit4 Corporate strategy
四、Practice question
Introduction
MMM is a privately owned high technology company established in 1997 and is situated in a prosperous developed nation with a stable well established political system. Successive governments have promoted technology by providing grants(补助)and tax incentives(激励). Tax credits (税收抵免) are also provided to offset company investment in research and development. The government has invested heavily in a national telecommunications infrastructure(基础设施). However, in 2010 the country suffered an economic downturn (下滑)that led many companies to postpone technological investment.
By 2010 MMM employed 75 full-time employees in a new factory and office unit. These employees were a mixture of technically qualified engineers.
Product areas
In 2010, MMM had three distinct product/service areas - data communication components, network management systems and, finally, technical support.
MMM sells data communication components to original equipment manufacturers (OEMs) (代工生产), who use these components in their hardware. Both the OEMs and their customers are predominantly large international companies. MMM has established a good reputation for the quality and performance of its components, which are competitively priced. However, MMM has less than 1% of the domestic marketplace and faces competition from over twenty significant suppliers, most of who also compete internationally. Furthermore, one of the company’s OEM customers accounts for 40% of its sales in this area. The maturity of the technology means that product lifecycles are becoming shorter. MMM produces components in a relatively prosperous country where there is significant legislation defining maximum work hours and minimum wage rates. All new components have to be approved by an appropriate government approval body in each country that MMM supplies. This approval process is both costly and time consuming.
The second product area is network management systems. MMM originally supplied fault detection systems to a small number of large end-users such as banks, public utility providers and global manufacturers. MMM recognized the unique requirements of each customer and so it customized its product to meet specific needs and requirements. They pioneered (领先设计)a modular design which allowed customers to adapt standard system modules to fit their exact networking requirements. The success of their product led to it being awarded a prestigious government technology award for “technological innovation in data communications”. This further enhanced the company’s reputation and enabled it to become a successful niche player (利基市场) in a relatively low volume market with gross margins in excess of 40%. They only have two or three competitors in this specialist market. Unlike component manufacture, there is no requirement to seek government approval for new network products.
Finally, the complexity of MMM products means that technical support is a third key business area. It has an excellent reputation for this support. However, it is increasingly difficult and costly to maintain the required level of support because the company does not have a geographically distributed network of support engineers. All technical support is provided from its headquarters. This contrasts with the national and international support services of their large competitors.
Current issues
MMM currently manufacture 40% of the components used in its products. The rest of the components, including semiconductors and microprocessors, are bought in from a few selected global suppliers. Serious production problems have resulted from periodic component shortages, creating significant delays in manufacturing, assembly and customer deliveries.
MMM is still a relatively immature organization. There are small functional departments for sales and marketing, technical research and development, manufacturing and procurement (采购). The founder still personally undertakes all staff recruitment and staff development. He is finding the recruitment of the key personnel necessary for future growth a problem.
Required:
(a)Evaluate the macro-environment of MMM using a PESTEL analysis.
b)Analyze the industry or marketplace environment that MMM is competing in.
【Sample answer】
(a)The PESTEL framework may be used to explore the macro-environmental influences that might affect an organization. There are six main influences in the framework: political, economic, socio-cultural, technological, environmental and legal.(However, these influences are inter-linked. For example, political developments and environmental requirements are often implemented through legislation. )
1)Political
The political environment in which organizations operate is very significant. Political parties may encourage or discourage economic activity through taxation policies and legislative programs. MMM is based in a stable, prosperous country, where successive governments have valued and encouraged technology. Tax incentives and grants are given to companies that invest in technology and in research and development. Tax credits are also provided to companies that invest in research and development. These incentives are open to MMM, its domestic competitors and its domestic customers. The government has also promoted the use of technology through a well-publicized awards scheme. MMM is a recent beneficiary of such an award – “ technological innovation in data communications”. The current political environment wishes to protect its citizens who are employees, by enacting legislation concerning employment hours, conditions and reward.
2)Economic
The stage or phase of the economic or business cycle clearly affects customer buying decisions. The case study suggests that 2010 saw a downturn in the domestic economy which resulted in a reduction of customer commitment to long-term investment. Customers may postpone their buying decisions, although if innovative products bring cost and communication advantages then they will eventually have to invest in them. Despite worsening economic conditions, labor costs remain high and the company may have to re-consider their commitment to manufacturing in the country.
3)Socio-cultural
It appears that electronic communication and information exchange will continue to increase with implications for companies supplying products and systems to meet these growing needs. All evidence suggests that the social use of services on such networks will increase. Hence, although demand appears to be currently dropping off, new social uses for telecommunication networks might spark off a new wave of investment.
4)Technological
Technology is a significant factor in shaping the life cycles of existing products and the introduction of new ones. The technology sector is extremely innovative, with new and improved technologies constantly emerging. MMM must scan the external environment for such technologies and identify how they might affect the future of their current products. MMM must also consider how such emergent technologies might be used in their own products.
5)Environmental issues
Green issues have an increasing impact on organizations, particularly in prosperous developed countries. The reduction of emissions (减少排放)and improvement of re-cycling are likely to be reflected in socio-cultural trends and in legislation. The cost of waste disposal is also increasing. All these issues combine to increase the costs of manufacture and affect the competitiveness of the company in its market place.
6)Legal
MMM operates in a country where there are laws defining employer responsibilities and employee rights. It is likely that such regulation will continue and MMM has to evaluate the benefits and costs of working within such constraints (约束). Some organizations seek to gain competitive advantage by moving to countries where regulation is more lax and hence avoid the compliance costs (合规成本) incurred by their competitors.
Summary:
In the context of the case study scenario, it is political, legal and economic factors that significantly affect MMM. However, as a technology company with significant investment in research and development, MMM must continue to scan the technological environment to identify trends that could undermine, enhance or replace their products.
(b)Michael Porter provides, through his five forces framework, a useful way of analyzing the competitive environment of MMM.
1)Bargaining power of buyers
MMM is competing in two discrete market places. In the data communications component market where it has less than 1% of the market share. The customers are OEMs, large industrial buyers who are likely to demand a testing combination of low prices, high quality and reliability. They are unlikely to tolerate the late delivery of orders. It appears that alternative sources of supply are readily available and that switching costs (转换成本)are relatively low. This combination of circumstances suggests that OEMs have significant bargaining power in this market place. This is particularly true for the OEM who currently accounts for 40% of MMM’s current sales.  
In the second market place, where network management systems are supplied to large end users, the buyers appear to have less bargaining power. MMM is catering for each customer’s specific needs. This makes it much harder for buyers to compare products and prices of potential suppliers, unlike in the commodity like data communication component market. Alternative sources of supply are much more difficult to find as there only two or three companies in this specialist marketplace. Furthermore, the product purchase is likely to represent a relatively small part of the buyer’s overall investment in information and communication systems. Reduced bargaining power makes this product less price sensitive and so provides an opportunity to generate good margins. Large international customers are likely to be cautious about moving to new suppliers.
2)The bargaining power of suppliers
It seems unlikely that MMM will be able to exert much influence on its suppliers. They are purchasing semiconductors and microprocessors from major global companies, who probably have well-known and powerful brands. MMM, as a small company, will not have the power to exert buyer pressure on its suppliers, either in terms of price or delivery. Current problems associated with the delivery of components are having a significant impact on the company’s ability to meet customer deadlines and expectations. Clearly for a small company like MMM, the supplier appears to be in an excellent bargaining position. If labor is seen as a supplier, then evidence again suggests that MMM is in a relatively weak position. The scenario notes the difficulty of attracting the key personnel necessary for future growth.
3)Threats from new entrants
MMM is operating in an industry where the costs of entry are significant because it is capital and knowledge intensive. MMM has shown that there is a place for smaller innovative companies able to identify and exploit specialist market niches. Economies of scale compel new entrants to enter at significant output levels or suffer a cost disadvantage. The products are complex and there is likely to be a significant learning curve with costs only falling as volume builds up over time. The need for government approval of new data communications components creates an approval process that is both lengthy and expensive and so creates a significant barrier to new entrants. New entrants may be discouraged by the uncertainty surrounding the industry, in terms of technology, user acceptance and the R&D investment necessary to create components and systems compatible with OEM’s equipment and end user systems. Furthermore, the need to offer comprehensive after sales support, although a problem for MMM, does also create a significant barrier to new entrants. Finally, the exit costs and barriers to exit in the shape of industry-specific knowledge, skills and assets reduce the attractiveness of the marketplace to new entrants.
4)Threats from substitutes
High technology industries are, by their very nature, prone to new technologies emerging that threaten and then eventually replace the established technology. Hence it is very important that companies in such industries constantly scan the external environment to identify and anticipate such threats. There is evidence that large, successful, high technology companies are particularly vulnerable to ignoring the challenge from disruptive new technologies. However, the small size of the MMM may give it a competitive advantage in its ability to respond quickly and flexibly to change.
5)Rivalry amongst competitors
It is clear that the high volume, low-margin component business offers intense competition with buyers who are able to use their size to extract favorable prices. MMM has less than 1% of the home market and there are over twenty competing suppliers, some of whom have significant international presence, with a dedicated, geographically distributed support team. The ability of MMM to generate better market share and volumes through product innovation in this market seems highly unlikely. Competitive rivalry is high when there are many competing firms and the costs of leaving the industry are high.
The intensity of rivalry in the network management systems market is significantly less because there are only two or three competitors in this specialist market. MMM is dealing with a small number of large end users, designing products specific to their needs. In Porter’s terms, MMM are adopting a focused differentiation strategy. In these low-volume, high-margin market the emphasis has to be on increasing the volume side of the business, but at the same time making sure that they have the resources to handle new customers.

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