External environment of Singh’s Auto Rentals Company Limited Essay

Assignment Find an example of strategic management in an organisation in your country or region, from your own experience or from your reading. The example can relate to either a big or small business, or even to a public sector organisation. Which aspects of the example do you consider to be good or bad examples of some aspects of strategic management, using the principles covered in this subject as your guide? For example, you might discuss the good and bad examples in one or more of these areas: handling stakeholder expectations; communicating organisational purposes; external environment (PESTEL framework, five forces, opportunities and threats); strategic capability (value chain and value network, strengths and weaknesses); SWOT analysis; formulating a business’ strategy (bases of competitive advantage); implementing a business’ strategy (structural types, managing people); and/or corporate strategy (the two main portfolio approaches and extent of corporate diversity). THIS PAGE IS INTENTIONALLY BLANK Executive summary Singh’s Auto Rentals Company Limited (Singh’s) was established in 1972 with a small fleet of only five (5) vehicles for rental. Singh’s hybrid corporate strategy embraces cost and differentiation in a market that is highly competitive, having expanded its customer base to incorporate the corporate society, the international sector and the community sector. The company has grown and is now one of the preferred clients of the Ministry of National Security of Trinidad and Tobago, offering a wide range of high-end vehicles and SUV’s for rental, buses for tours and retreats, executive cars with drivers for wedding parties and seven (7) seater vehicles for the family oriented customer. Business level challenges have over the years forced Singh’s to refocus their objectives on their MOST, with intense market development and penetration orientation, in an aggressive attempt to win market share, increase volume gains and build position quickly. In this assignment the external environment encompassing Porter’s 5 Forces and PESTEL are examined along with its’ impact and influence on Singh’s SWOT and stakeholders expectation. Examples of the good and bad of the external environment will also be highlighted to describe how the company can increase their competitive advantage and profitability. Table of Contents 1.Introduction â€Å"The supreme art of war is to subdue the enemy without fighting.† ― Sun Tzu, The Art of War In discussing the positive and negative aspects of the external environment, the PESTEL, the SWOT and Porter’s 5 forces will be used to analyse where Singh’s Auto Rentals is at in the industry and where the company can hope to be in the next five (5) years. The car rental industry is a competitive industry and Singh’s competencies and capabilities will definitely keep them in the market and make them into leaders once they follow their objectives and tactics. â€Å"All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved†. ― Sun Tzu, The Art of War 2.Company overview: Singh’s 2.1 Vision We aspire to become the leading light in the Auto Rentals industry through continuous service innovation and the expansion of our distribution networks. 2.2 Mission Utilizing our group’s strengths we aim to become a major force in the Car Rentals industry by offering innovative products, effective processes, extensive networks, and the recruitment of the brightest talent, we strive to achieve impressive profitability. 2.3 Objectives From the vision/mission statements given, it would seem that the objective of Singh’s Auto Rentals is to become leaders in the industry. It can also be derived that this company seeks to achieve the following objectives; To increase market share Remain close to its competitors Increase clientele Increase the fleet of vehicles To establish leadership in the market 2.4 Strategies Singh’s strategy for achieving these objectives might be a business strategy. Business strategy is concerned with deciding which markets and activities  the business should be involved in; where it wants to be; and how it is going to get there. Singh’s strategies may include; Satisfying customers (meeting customer needs) Running the business (organising resources in the most efficient and effective way) Beating the competition (strategies and tactics to gain competitive advantage) Achieving corporate objectives 2.5 Tactics Methods this company uses to achieve strategies, as written in the mission, are the introduction of support and complimentary services they provide namely; 24 hr FREE Roadside assistance Guarantee competitive rates and seasonal discounts A wide range of vehicles to choose from including the economy and SUV range. Free maintenance on all vehicles Air conditioned comfort 3. PESTEL analysis of Singh’s Awareness of the external environment and how they impact on the company can be summarised using the PESTEL framework. The PESTEL can define the key drivers of change. These key drivers of change have differential impacts on industries, markets and organisations. 3.1 Political Singh’s is a privately owned company but because the company buys and rents vehicles they would be involved with few governmental organizations for various purposes. Ministry of Transport for licensing of new vehicles For vehicle transfers Ministry of Finance To approve any tariffs Duties or charges for purchases Taxes (including staff salaries) Customs and Excise Importing, duties and clearance of all vehicles Ministry of Legal Affairs To register the company legally To ensure all licenses to operate as a limited liability company 3.2 Economical As a private owned company, Singh’s has to watch for what affect his company financially from the external environment. Key factors can be; Fuel rates – have rates gone increased or decreased, this would determine how to price the rentals. Exchange rates for foreign currency. Salary negotiations in the country- would the employees demand high wages as a result of salary negotiations for government workers. Available and accepted methods of payment – cheque, cash, VISA, MasterCard. Unemployment rates in the country . 3.3 Social These influences the length of time a vehicle would be rented for. Singh’s offers long term rentals (6 months to 3 years) and short term rentals (1 day to 6 months). Social factors include; Changing cultures – peak periods for local rentals (wedding and carnival) and peak periods for foreign rentals (tourists are drawn to the Caribbean during winter and summer). Demographics – age groups of drivers. Community interests – lobby groups, charitable organisations etc†¦ 3.4 Technological In a business such as Singh’s one would encourage technology to play a role in the data collection, storage and distribution of the company’s fleet of vehicles. Technological factors include’ Computerised scanning of vehicles under maintenance. Computerised database systems used for documentation, data collection, billing, accounting and ordering. Communication methods have to be of the highest quality in order to reach out to customers (the business to customer approach). Updated websites, facebook pages or other social search engines used to advertise the company. 3.5 Environmental Influences from the direct environment that may affect Singh’s might be Waste disposal – for waste disposal from the garage (oil, parts etc†¦) Energy consumption –the amount of energy or power used in a process or system. Weather conditions- may only affect the infrastructural aspect of Singh’s in terms of weathering on vehicles which are not kept covered over a long period. 3.6 Legal The legal aspects of the company and how it influences the strategies and objectives. Governmental laws – a law might state that no one under the age of 18 is allowed to drive. Policies – policies put in place by the board of directors and the key shareholders to determine how the business is going to operate. Rental contracts have to be done up and signed by each party for every transaction. Insurance companies vying to insure the fleet of vehicles. 4. Stakeholders Stakeholders can exist both internally and externally. In an industry such as the vehicle rental industry the stakeholders are very important. The expectations of the stakeholders are equally important to the development of Singh’s (see appendix III) 4.1 Internal: Board Of Directors or Management Investors/ Shareholders Employees Suppliers-contractors Service providers – maintenance crews, specialist garage crew 4.2 External: Business to business Clients Domestic Clients International Clients Government and regulatory industries Industry Associations Local Communities 5. SWOT (Internal / External Analysis of Singh’s) In an effort to ascertain its competitive environment a SWOT analysis of Singh’s can assist to devise a sound strategic plan. The intent is to exploit and maximize the strengths and opportunities; avert threatening circumstances through tactical responses and provide institutional upgrade to lessen weaknesses; all these towards a position of profitability and value creation. As defined by (Alzoubi 2004) SWOT Analysis (strengths, weaknesses, opportunities and threats) is a general framework for directing and assisting strategic planners to identify the appropriate organizational strategies to achieve their goals. Managers look at SWOT analysis as a technique to help managers to identify and plan the business goals, and draw the strategies to achieve them (Alzoubi 2013 p.126). Internal Analysis Strengths Focused management and staff Location advantage Efficient customer service Skilled car care specialist and technicians. Weaknesses Lack of Human Resource best practices No clear strategic direction Lack of continuous training and development for staff Poor marketing skills External Analysis Opportunities To gain large profits To be a house hold name in the car rental business To serve a large customer group Potential for new services or products to be offered Threats Companies offering similar services coming on stream Turnover due to other companies offering better packages Loss of customers due poor service experience new and existing regulations new and existing competitors new technologies unstable political and legal systems in foreign markets External opportunities and threats can work both ways for the organisation for example new technologies can make one aspect of the company obsolete but enhance another aspect of the company all at the same time. 6. Singh’s Strategic Based Units (SBU’s) SBU’s allow large corporations such as Singh’s and SSS to vary their strategies according to the different needs of the various external markets they serve. For example- Corporate Leasing – leasing to companies on a special contract Short term and long term rental – to both corporate clients and immediate clients Executive driver services – airport to hotel and return, weddings, seminars Pre-owned vehicle sales- new to the company but very effective and brings in more profits Bus and driver tours for tourists 7. The effect of Porter’s 5 Forces on Singh’s Porter’s 5 forces analysis can be applied to Singh’s as a tool to analyse the competitive advantages of the company. According to Porter (1980), rivalry (competition) on the market is result of the five variables or main forces: rivalry level, bargaining power of customers and that of suppliers, the threat from new entrants and substitute products. The following was deduced from the analysis of the five forces: 7.1. Threat of New Entry Due to lack of policies to prevent new entry, the market is open for new entrants. Singh’s will now have to develop and maintain a cost advantage and differentiation of its services, to gain sustainable competitive advantage. Economies of scale – it would be expensive to for new entrants to match Singh’s because of the level the company has reached in the industry, it would be difficult for new entrants to match them. Experience – new entrants would be inexperienced in most of the ‘know how’ of this industry and that lack of experience can give Singh’s the advantage over a new entrant (See Appendix II). 7.2. Threat of Substitution Substitutes can come not only from within the industry but also from outside. Managers often focus on their own industry and neglect the threat posed by substitutes for the product or service. The price/performance ratio is critical. Even if the substitute is more expensive the substitute is still effective (see appendix II). 7.3. Buyer Power Singh’s needs to pay attention to the customers and the price they pay for the service. If the price is too high customers may seek to do business elsewhere which will force the company to drop prices, thus losing revenue (see appendix II). 7.4 Suppliers Power- It was recognised that the business can be adversely affected if suppliers drive up their prices, then the concept of low cost to gain competitive advantage will be affected (see appendix I1) 7.5 Competitive Rivalry- From the analysis it was evident that the company had rivals performing a similar service. To prevent customers from moving from Singh’s to the competitors, the company will need to provide unique services to its customers (see appendix II). 8. Competitors Singh’s entered the market as an entrepreneur in 1972, competitors from then to now would be companies established around or before that time penetrating the same market with similar objectives. One such example would be Southern Sales and Service Company Limited (SSS). Both companies entered the corporate market to try to gain market share. SSS has a larger vehicle fleet than Singh’s but SSS does not provide some of the tour guide services or 25 seat bus retreat services that Singh’s caters for. Even though they are in similar industries, they each cater to a different sector within the market. Refer to Appendix III for a visual on how competitive advantage works in an industry as Singh’s. 9. Competitive advantage Singh’s has over SSS: SSS Caters for company rentals and corporate rentals Provides car and driver services Provides maintenance for some vehicles and outsources the rest Cost- mostly high priced unit rental Energy consumption is high Singh’s Caters for tour groups and tourist transportation Provides car and driver services Provides transportation services from airport to hotel and return Provides rental packages for weddings with a driver Prices are relatively low and are negotiable Various branches throughout the country so customers can do business from any branch Customer service is ranked very high 10. Conclusion A strong networking capability (Strength) has lead to an expansion in the business activities of Singh’s (opportunity) and this has resulted in increased profits due to long term leasing by various ministries (strength). The strength of networking was cultivated over a period of time and once established, it can sustain Singh’s for the next five (5) years. Singh’s  external environment has room for new entrants and a lot of possible threats and opportunities that can arise, however, with proper strategic management and well trained staff this company can continue to push forward in this market and even make a breakthrough in a new one. Recommendations Continue to evaluate Singh’s regularly. Always know where the company is in relation to its competitors. Capitalise on new technologies and trade in old techniques. Monitor staff and their talents, do regular training to update them on the current techniques being used by competitors so that they can be brought up to speed or even one step ahead. Increase profitability by looking into marketing and advertising to the larger companies such as energy companies (BPTT and Atlantic LNG) to try to gain greater market share, this is an opportunity within their SWOT analysis. Consider upgrading the fleet and maybe adding some luxury type vehicles, look at the threat of buyers and see what the customers are asking for. Customers may be willing to spend their money on luxury cars from a rental company they trust. References Johnson, G, Whittington, R and Scholes, K 2011, Exploring Corporate Strategy, 9th edn, Pearson Education, London. Alzoubi, majed R. 2004, Strategic planning and building innovative organizations. Unpublished, PhD thesis, Amman Arab University for Graduate Studies, Jordan. Alzoubi, majed R. 2013, The Impact of Intellectual Capital or SWOT Analysis among Jordanian Banking Industry â€Å"Empirical Study† : International Journal of Business and Social Science, Vol. 4 No. 2 pp. 123-137. Singh’s auto rental company limited, viewed 7 July 2014, http://www.singhs.com/about.html Southern Sales and Service Company Limited, about us, viewed on 7 July 2014, http://www.southernsalestt.com/corp_history.php Tutor2U, viewed on 9july 2014, http://www.tutor2u.net/business/strategy/corporate_objectives_strategy.html Slideshare.com, http://www.slideshare.net/milesweaver/analysing-the-external-environment-of-business-ie-general-competitive, viewed on 12 July 2014