This report is about ITEC, an IT specialist company from Spain and its new franchise business in Spain, called ‘portal de tu ciudad’. The company wants to enter the UK market because of the success it has had in the Spanish market. The report analyzes ITEC, and the market it operates in, and leads to recommendations for a strategy that the company could undertake to access the UK market.
This report focuses on ITEC, a Spanish Information Technology company that has vast experience and long pedigree in the IT industry. The company trades as a franchise enterprise, which wants to extend its reach to a different country. Furthermore, the company needs to evaluate the UK market before emerging into a new market where competition is fierce. This report analyses the company by using frameworks and tools such as Porter’s Five Forces of competition and management systems including management functions.
2.0 Analysis of ITEC and its market
2.1 Porter’s Five Forces
The Porter’s Five Forces model was introduced by Michael Porter in his 1985 book, Competitive Advantage (Hill and Jones, 2009). In addition, Hax and Wilde (2001) reinterpret the five forces through the Delta model. Yeo and Huang (2003) explain the advantage of the five forces, which gives industries a ‘complete map about the level of strategic competitiveness’. The five forces comprise of: threats of new entrants, bargaining power of suppliers, bargaining power of buyers, threats of substitute products/ or services and rivalry among existing firms. ITEC should implement the Porter five forces of competition because it analyse its external competition to examine the marketplace, also the five forces shows ITEC how to be competitive in the marketplace.
Threat of new entrants refers to the impact of new businesses entering the market. The threat of new entrant implies that customers may not subscribe to their services and if ITEC enters the UK market, it is inevitable that new entrants could have an influence on ITEC sales and reduce ITEC customer-based. The new entrants bring new capacity to the industry while putting pressure on the existing firms to retain market share (Porter, 2008). However, Reid et al (1993) explain the principal barriers for new entrants which are scale economies, product differentiation, capital requirement and government policy.
Reid et al (1993) regard substitutes as an extended rivalry framework. However, Johnson et al (2008) point out the significant factors about substitutes and they are: price/or performance ratio and extra effects. The threats of substitute products/ services depends on the price range that ITEC charges its clients. The client will select another company if ITEC prices are unaffordable and they provide poor quality service. This will require the client to choose the substitute service available.
The existing rivalry of firms on the market can be hard for new firms to absorb. ‘The intensity of such competition is largely based on the extent of mutual dependence amongst firms in the industry’ (Reid et al, 1993, pg.17). Rivalry among existing firms means competition that already exists in the market that ITEC operates. In Spain, the market is controlled by ITEC , but in the UK, the competition is high because they will be competing against Yell, Thomson Local and Ponyt. The company will find it difficult to control the market while the competition is fierce in the UK market.
Stahl and Grigsby (1997) describes the bargaining power of suppliers as the capability of suppliers to dictate prices and the terms of supply. ITEC needs to ensure that suppliers supply the raw materials needed to carry out these services. The suppliers are powerful and they can dictate whether to charge more money for their raw material they supply. It will be difficult for ITEC to find new suppliers if they enter the UK market. However, Porter (2008) describes suppliers of labour as a way that powerful suppliers can ‘squeeze’ profit out of an industry.
Powerful buyers exist in every market and they can change their preference/or taste in product or services at any time. Porter (2008) and Reid et al (1993) describe the impact these powerful buyers can have, by forcing prices down, demanding better quality and playing businesses against one another. Porter (2008) explains how powerful buyers negotiate leverage if the buyers are price sensitive. The bargaining power of buyers does affect business because buyers can decide to change the product they consume. The power of the buyers can affect ITEC sales because the buyer can choose other services that provide quality service and reduction in prices. Most buyers choose services that are cheap regardless of the services it provides.
2.2 Management systems
The management system is vital to this assignment because ITEC need to implement this system in its business model in order to meet its targets. However, the management system is needed because it accounts all departments within the business and to be successful ITEC should use this system. The management systems help companies to set priorities, establish the ‘best practice’ and effective communicate knowledge (CQI, n.d.). The management system comes from management theories that have been in existence for centuries such as Scientific Management by Frederick Taylor. Lee et al (1999) explain the five key practices for integrated management system, which managers need to examine.
Nowadays, the management system have transform to a more systematic approach with software applications helping businesses achieve its aims and objectives. ITEC have to follow different international strategies if it intends to embarks in a new market, hence the multicultural settings in the UK are different whereby UK citizens are sceptical about continental businesses.
In addition, the language barriers will have an impact on the business settings in the UK because translation costs will be high. The management systems and international strategy determines whether ITEC can sell its franchise business to the UK market. ITEC should identify and manage the four functions of management because they are based on performance and allocation of resources if ITEC wants to implement the three corporate strategies on the international stage, which are multi-domestic strategy, global strategy and transactional strategy.
ITEC will need to implement two strategies out of the three; these are multi-domestic strategy and global strategy. The multi-domestic strategy enables ITEC to produce and sell unique products to different market. According to Ireland et al (2008) a firm sets operating subsidiaries and it develops as a specific product for domestic market, hence each subsidiary can promote its products and implement different operating technique to meet the local consumers’ needs and wants. As a franchise entity, ITEC can use this strategy to develop its business opportunities in the UK whereby ITEC allows other entities to use the trading patents.
The global strategy allows firms to develop product to sell across countries boundaries. However, the operating technique and marketing activities are directed from headquarter based in their home country. ITEC can use this strategy whereby they have established and developed their business in the international market but their headquarters are based in Spain. However, this strategy has been successful for Toyota, because they sell its products outside their home market.
However, Kahn et al (2009) explain perspective on internationalisation process that firms that enter a new market increase its ‘psychic distance’ whereby information flows are reduced between the market and the firm, and therefore transaction costs can increase. ITEC relies on knowledge management, because the nature of business depends on information systems and the knowledge management is facilitated by technology. CQI (n.d.) describes knowledge management as a way business generates value from its knowledge-based assets, this demonstrates that the knowledge management is taking over jobs because ITEC acquire vital knowledge assets which provides information about customers and suppliers. Green et al (1993) explain the generic strategies used in international setting by using studies from other countries.
Arguably, ITEC need to expand its domestic market, the company needs to implement the cost leadership strategy which means ITEC will become low-cost producers in its home market but emerging into the UK market will increase production costs. Porter (1980) describes the low-cost position which makes firms above-average returns even though there is a strong competition on the market. The Your City Portal franchise provides wide range of services, which differentiates this service from other services. However, buyers are willing to pay premiums because of the uniqueness and quality of the services. The Your City Portal have establish brand loyalty in its domestic market by increasing clients; however, ITEC have built brand loyalty in its home market whereby clients have more knowledge of the service but to emerge in a new market ITEC have to promote its brand effectively which will increase cost in promotion.
* ITEC can join the British Franchise Association (BFA) which will help the firm establish its franchise business in the UK. The BFA will promote and show ITEC the good and the bad on how to operate a franchise business in the UK. The BFA will advise ITEC on how Your City Portal will meet the accreditation criteria; furthermore the BFA membership brings ‘valuable credibility and recognition of standards and ethics’ (BFA, n.d.).
* ITEC can utilise the international strategy to extend its reach in UK, which are distinctive competence, scope of operations, resource deployment, synergy. (cited in Daft, Kendrick and Vershinina, 2010, P217). ITEC can introduce its well-established reputation, advanced technology and technicians in Spain to UK. The scope of operations in the UK can be divided into four regions that are England, Wales, Scotland, Northern Ireland. In terms of resource deployment, ITEC ought to take advantage of superior organizational practices and cutting-edge technology which has acquired in Spain. Besides, ITEC may attempt to cooperate with its competitors such as: Yell, Thomson Local and Ponyt.
4.0 Implementation Plan
To conclude, Your City Portal franchise has the potentials of becoming successful in the UK market; however, the company has to implement these strategies in order to evaluate the UK franchise market. The international strategy demonstrates the frameworks that ITEC must implement and integrate the management systems in its operations in order to access whether emerging into the UK market is manageable and profitable.
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