Assignment Sample for MMPC-012 Strategic Management

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Introduction

Strategic management is regarded as the crucial component within the business sphere. It is mainly referred to as the implementation and formulation of the goals and initiatives involved in the strategies. Effective decision-making through opting for appropriate strategic options is depicted as strategic management in simpler words. Strategic management entails the business strategies to attain business targets and goals. The central aim of the report is to reflect the significance of strategic management in the business. The case study of the Diageo plc, UK multinational company initiatives of strategic options consideration for successful marketing entry will be evaluated. The strategies will be reflected through which the business can successfully establish its roots in a new potential market Japan.     

Cause For Parent Company’s International Expansion

Company historical performance

Diageo Plc. is a recognized multinational company as one of the leading branded food and drink.  “The company was established way back in the year 1997 merger of beer and liquor gymnast Guinness plc and alcohol food power Grand Metropolitan plc”. The company’s current profitability rate is determined to be 9.84%. “The concurrent operating profit was determined to be €2,137m however in the prior year of 2019 the figures were  €4,042m. The net sales of the company in the concurrent year were €11,752m and  €12,867m”. “The total recommended division per share was determined to be 69.88p in the year 2020 while in the year 2019 was 68.57p”.  

Product and services range: The main product sold by the company includes alcoholic beverages, beer, and wines. 

Market share: It is reported that Diageo plc has successfully outperformed in the prior years and it still continues to do so (Green, 2021). The market share growth was evident in both UK off-trade and on-trade. The Diageo sale grew to  €12.1 billion although the operating profit increased by around 25\% to  €3.6 billion.  

Competitive positioning in the industry

Michael Porter’s Diamond model can be used to evaluate Diageo’s competitiveness by analysing its main core competencies. In order to determine the competitive nature of the company, the factors such as Firm strategy, rivalry and structure, factor condition, and demand condition will be analysed. Porter’s diamond model can be done as it complies with the 4 crucial determinant facets. 

Beginning with the strategy and rivalry, Diageo is operating in the highly competitive Beverages Wineries and Distilleries segment (Bhasin, 2021). The increasing rivalry by the existing competitors such as due to the presence of Bacardi, Carlberg, Molson Coors, Constellation Brands, and Brown Forman. The intense rivalry and aggressive market have the potential to drive down the price rate reducing the scope of making profitability for the company.   

Figure 1: Porters Diamond model 

Source: (Bhasin, 2021)

Further, the factor and demand condition assimilatedto the Porter’s Diamond model also tends to get fulfilled as the population of the UK or across the globe prefer the product of alcohol, scotch, and wine offered by the company (Bhasin, 2021). The Diageo is catering effectively to the customers’ needs with an innovative and affordable range of drinks that meets both local and international consumers taste preferences. Through this way the company is effectively responding to the customer demand through innovative drinks.

There are a number of various related or supporting industries that provide Diageo with the impetus of chances for business growth and development. The increasing trend of clubs, pubs, and customer preferences towards cocktails and mocktails is benefiting the company as a result. The increasing trend of partying or clubbing is increasing the sales rate of the company for gaining growth in both domestic markets and setting its routes in potential emerging markets.  

This prospect is likely increasing the demand conditions in the playing field for the company with the creation of plenty of business expansion scope. The increasing education and empowering of women have led to a new upsurge of trend women preferring consuming beers. It is the primary reason the company is able to target now both males and females with their product ranges. The female is offered well-packaged beers with more flavour options that have helped in effectively tapping into their preferences to expand customer acquisition power.      

Strategic Choices For Diageo Organisation

Cost leadership strategy: The Diageo is needed to develop the “edge” that allows increasing sales and takes away customers from the competitors. It can be done by reducing the pricing to increase the sales rate. Diageo can innovate new products that bring the scope of new customer acquisition in Japan by introducing subsidiary brand “United spirits”. Through the building of economies of scale, the company can lower the fixed costs by each unit. With the building of business capabilities and making a higher investment of research and development the chances of entry of new players will be reduced to compete with the strongly established company as Diageo (Choi, 2017). Further, the company needs to effectively comply with rules and regulations to reduce the likely chances of windows of losses and increasing exceptionally scope for new profit that discourages the competitors. Following these sets of strategies, the company can attain success in Japan marketplace.  

Differentiation Strategy: The differentiation strategy solely focuses on differentiating the offered products and making them more attractive in comparison to rival brands. This can be attained by effective research and development to innovate and develop new drinks that suit the preference of Japanese consumers (“Diageo plc Porter Five (5) Forces & Industry Analysis [Strategy], 2021”). It will increase the business’s capabilities to add value to the offered services and products by constantly meeting Japan’s customer needs and demand. Further, effective sales and marketing will allow selling and creating awareness regarding products. Further switching from product-oriented to services-oriented approaches will be beneficial in targeting the desired audiences (Huatenget al. 2021). 

It will allow the company to succinctly understand the customer need rather than investing in the experiential forms of business styles. By effectively understanding the core requirement of the customers the chances of increasing switching costs for the consumers will be higher (Tong, 2017). This sphere of change will allow the company to foster the aspects of sustainable differentiation. The building of scale will be effective so that Diageo can effectively compete with the existing rival brands. Further, collaborating with the competitors to increase the rate of market share rather than competing for the small scale, the market will be a strategic approach in benefiting the business. 

Rationale For Japan Location For The Subsidiary Expansion

Pest analyses of the liquor industry in Japan 

Population of Japan 

Figure 2: Japan’s Population

(Source: Data.worldbank.org, 2021)

Form the overhead diagram it is clear that Japan is the overtly populated nation with highest population. As per the image suggest in 2019 population level was 126,264,931(Data.worldbank.org, 2021).  According to United Nations’ population division the population prospect and other statistical publication it is clearly stated the demographic status of Japan. This paper sheds light on the strategic management of one of the most leading liquor brand DIAGEO in Japan. As Japan is the highly populated nation with great GDP and rate so it is good to open another company here for more profit and expansion. 

GDP growth  in Japan 

From the underneath diagram it is clear that the GDP growth of Japan is extremely exceeding. In 2020 the GDP rate is $4.9 trillion (nominal, 2020 est.) $5.2 trillion (PPP, 2020 est.), and the GDP rank is 3rd (nominal, 2020) 4th (PPP, 2020). Therefore, it is god to open a company and expand their business in this way in Japan (Data.worldbank.org, 2021). 

Figure 2: Japan GDP rate 

(Source: Data.worldbank.org, 2021)

Employment rate in Japan 

From the underneath diagram it is clear that Japan is extremely high that the [previous yea. It has increased into 60% more. In 2019 the employment rate reached around 60.6% (Statista, 2021). Japan is one of the leading countries with extremely powerful economic structure. The unemployment rate is lower than other countries. The key economic factor of Japan is showing the result compare to other emerging nations (Statista, 2021). 

Figure 3: Employment Rate of Japan

(Source: Statista, 2021)

As per the economist’s view the country’s tight labour market keeps the \unemployment rate low. Though Japan faced labour issues for some industries however, the overall growth analysis says the employment rate is excellent and the GDP rate is extremely high, so it is good for the company to open its subsidiary in Japan. 

Alcohol Industry in Japan and its Statement 

Figure: 4: Alcohol Industry in Japan and its Statement 

(Source: Tax Foundation, 2021)

From the above mentioned image it is clear that the consumption of tax from the liquor industry was 32.1% than the other sector like personal tax, VAT, social insurance and others. Japan is the largest market for the liquor industry. It is the tax structure for which alcohol is the cheaper in Japan. The total revenue that has been collect in 2021 from Japan is US$108620m (Tax Foundation, 2021).

Strategic Methods Of Entry With Outcomes

Market entry strategy

Market entry strategy is the planned and structured way of thinking of how to make an entry in the competitive market (Jimerson, 2018). This paper sheds light on the market entry strategy if Diageo and its subsidiary United Spirit in Japan market. As per the above evaluation and on the basis of the analysis it is found that Japan is the best place to open the channels business for the company.  Keeping in view of the population, economic growth, GDP rate, employment scale, and socio cultural climate it will be extremely beneficial for Diageo to open its subsidiary. There are many steps for the market entry strategy and the company may follow to open-

• Direct export
• Licences 
• Franchising (Adeola et al. 2018).
• Joint ventures
• Trunkey projects 
• Partnering

United spirit and Diageo

From the underneath diagram it is found that Diageo is the leading liquor brand who expanded the business globally. They are well known for their finest brand of liquor. The underneath images has shown their income and financial statement that the net sales is (£6.9 billion), and the organic growth is 1.0%, as per the beneath statement (Diageo, 2021). The organic net sales are up to 1.0%, it has a deep rooted impact from travel retails. As per the reported statement the operating profit is £2.2 billion, it declines   onto 8.3%. This rate has been derived from the decline in operating profit and unfavourable exchange (Diageo, 2021).

Figure 5: Financial Information of Diageo 

(Source: Diageo, 2021)

United spirit is the new brand invention by Diageo. However the share price of the brand has been depreciated form 2020 may. Diageo has the share of 54.8% in the brand (Diageo, 2021). Diageo has another brand name, United Brews (UB). In 2014 Diageo has purchased US (United Spirit) (Diageo, 2021). Now it is their primary concern to open thi9s market in a place where it has not yet started. So the target market for the company is Japan. Japan is one of the richest nations from all the aspect, economic, social-cultural and technological ground. Therefore, Japan will be best option for the company to open and expand in a consistent way.

Organisational And Managerial Issues For The Subsidiary Operating In The New International Environment

Organisational Problems

Diageo Plc, a multinational company is known for its world’s largest producers of spirits and beers. The parent company has set its foot to start its subsidiary company United Spirits in Japan, a new international environment (Eubusinessinjapan.eu, 2021). It is known for its alcoholic drinks such as beer and spirits. The work culture of Japan differs mostly from that of the UK. While Americans are required to have self-motivation the Japanese help themselves by group motivation and look forward to their superior parties. The alcoholic beverage industry is a major segment in Japan and the industry covers a broad area for the fermented and distilled drinks. However, the Diaego has no such outlets in japan and United Spirits would be a subsidiary in Japan. 

Certain organizational problems may persist while starting in Japan which are discussed as follows:

Productivity:  Japanese and UK have also been contradictory with their terms of productivity though both are well known industrialized countries (Gerpisa.org, 2021). As far as the productivity of liquor is concerned the Diageo Plc,  with subsidiary company United Spirits, would face problems in productivity. The population is less known for consuming spirits in comparison to beer and other alcoholic drinks. So the productivity of United Spirits may fall in this case.

Technology: The technological factors in Japan are well advanced but they are different from that of the UK. They are not much sound in the technical grounds as that of the UK and this may cause potential problems for the United Spirits to develop here. Many high tech start-ups are not much found in Japan and they are more attracted to work in the UK (Eubusinessinjapan.eu, 2021). In terms of spirits it can be different as the distillation procedures and other system are not muh found in the country that may affect the United spirits 

Workforce:  The food and beverage industry in Japan is huge and may be effective for the growth of the United Spirits. But the UK Company might face organizational problems within the case of workforce. The Japanese are mostly profound for their metals, ships, chemicals and other textile industries rather than the alcohol industry, this attracts most of the labour force. This can be a major problem for the United Spirits to grow; it will not have much labour force to work in the alcohol sector (Jun et al. 2019).

Innovation: From the innovation point of view, Japanese are more inclined towards the innovation of tea and other soft drinks rather than alcoholic beverages. This is another root cause for the organisational problem that may be caused within the United Spirits (Eubusinessinjapan.eu, 2021). It may not be able to prosper in Japan related to alcoholic beverages and this affects the productivity. Also the spirits being another factor that is not much consumed by Japan may act as a barrier for the company.

There may also rise certain managerial problems in the United Spirits while expanding in the Japan which are discussed below:

Communication Problem: Language can be a big barrier as the amalgamation of the UK in the Japanese market can have problems communicating. English is not much understood in Japan and in order to have an interpreter it can cost a lot to the United Spirits. It is mostly understood that the dialects, colloquialism, idiomatic and expressions are different from that of Japan. This may affect the development of United Spirits in Japan (Chathamhouse.org, 2021).

Time management: This is another factor that may be affecting the development of United Spirits in Japan. They are stricter than that of the UK. They are punctual and predict the reliability within the company. United Spirits coming from a UK background may be affected due to these factors within Japan as they are not much habituated for being punctual. 

Lack of teamwork:  Teamwork in the Japanese can also be affecting the growth of United Spirits as they might get effected from UK workers. It can be stated that the company might come across conflicts in communication which can develop a lack of teamwork. 

Cultural differences:  Cultures of the UK and Japan are also different as they are the professional capacity within the Japanese culture can be tough (Eubusinessinjapan.eu, 2021). They have different attitudes towards sign language and the dress code also matters a lot. This is also different than that of the UK and may lead to certain organizational problems in United Spirits.

Strategic Advice For The Subsidiary To Mitigate The Issues

In order to overcome the difficulties that the United Spirits might face in expanding in Japan they are supposed to undergo certain strategies. The strategies are discussed below:

Training session

Training sessions should be developed by the Japanese market so that they are able to provide the employees sufficient knowledge of the skills required for the distillation of spirits. This may also require the training of the technological advancement that will be implemented in the market (Jun et al. 2019).

Policies for the employees

Employee policies should also be bought out by the United Spirits so that they are able to attract more Japanese employees and develop their productivity. They are also required to administer the consequences of the policies being implemented.

Communication

To overcome the communication problem within the company, United Spirits is recommended to keep an interpreter that can be helpful for them to make their customers more aware of their products (Turner et al. 2018). This can also be beneficial as it can help employees to communicate amongst themselves. 

Resolve conflict

This should also be the concern of the United Spirits to resolve any kind of conflicts within the organisation between the Japanese and the UK employees as this might harm the productivity of the company (Jun et al. 2019). 

Conclusion

From the above mentioned evaluation it is derived that Japan is the best place to open subsidiary of Diageo brand. Keeping eye on the japans’ economic structure, socio cultural climate, habitants and their nature, governed of the nation, federal administration, liberal ambience, income growth, GDP arte and the company’s economic analysis, it is fixed that Japanese love to drink, and they can afford a fancy brand. Therefore, Diageo has taken up the market entry strategy to encourage their new brand invention. 

References

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Choi, G.G., 2017. The Beam Suntory Merger: Value Creation and Antitrust Effects. Journal of International Trade & Commerce, 13(3), pp.123-144.

Data.worldbank.org. 2021. GDP growth (annual %) – Japan | Data. [online] Available at: <https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=JP> [Accessed 21 March 2021].

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Jimerson, J.W., 2018. Oregon and Japan: The Beginning, Growth, and Future of a Trans-Pacific Connection (Doctoral dissertation, University of Oregon).

Jun, O.E., Kee, D.M.H., Wen, T.X., Chen, K.X., Qi, M.J. and AlDeehani, F., 2019. Issues of Entering New Market and Ways to Overcome the Issues Company: F&N Holdings Berhad. Asia Pacific Journal of Management and Education, 2(3), pp.29-36.

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