Friday, October 26, 2012

Selling Ideas: Brazil Mobile Services Company "Alternative Strategies"

In this paper we project a scenario to examine the impact of diversification and foreign expansion on Brazilian Mobile Services business. While prior papers have examined the strategy in the local environment this paper provides empirical validation of how external moves such as diversification and international expansion can could greatly increase shareholder value while spreading risk and increasing sales.
The first part presents the diversification strategy for Brazilian Mobile, based on the theory of Steiner (1964) diversification is defined while Cope’s Law supports the idea that the company must diversify or die. Further, the strategy of diversification on related business is presented where it is assumed that the company has very high technologic resources which could be used into leverage a cross-business value chain relationship strategy.
In the second part the foreign market penetration strategies of multicountry strategy defined by Thompson (et al 2010) are discussed as more appropriate for Brazilian Mobile Services to enhanced potential and to build a global brand name with significant power in the market place. In sequence the challenges to invest in a foreign market are discussed, the differences between traditional industry and the industry where Brazilian Mobile is inserted are pointed out. Based on Freeman (et al, 2012) theory the paper suggests actions that could minimize the impact of these challenges.
In the third part, a scenario for both diversification and expand to foreign market is drawn up. After reviewing the pros and cons, expanding in to a foreign market was considered too risky for the company. Therefore diversification would be the best strategy to greatly increase the company’s shareholder value.
Finally the paper describes how the business’ ethical environment is extremely important for the company to maintain profit and increase value in the market. Based on the studies of Prakash & Sama (1998) the paper assesses how the company can create a business environment conducive to ethical behavior.
Diversification Strategy
            According to Steiner (1964 pg. 11) diversification means: “entry into new product lines, processes, services, or markets” and its activity by a company in two or more of those classes. The range of diversification may be from new products or services in new markets to the extension of existing products into new markets. The fact is that diversification is as old as business history, since the eighteenth century with the great trading companies. However, the phenomenon has assumed striking dimensions in recent years and, unless impeded by applications of the antitrust laws, is likely to continue at a rapid pace. Cope's law (La Barre, 1954) assumes that business firms must diversify or die. This is because in the course of market evolution some companies concentrated too much on one characteristic to exploit a given environment. It resulted in their undoing. When the environment changed the animals could not adjust. Therefore they must, diversify to permit adaptation to new environments. If they do not, they will become extinct like dinosaurs.
            Brazilian Mobile Service is inserted in a rapid change environment principally because of lightning fast technological development and advancement. In this environment  the threat of product obsolescence drives company to improve present products and to develop new products to assure sales and profit stability. Therefore, as the sports application life cycles are completed, new life curves with other applications must be started. Additionally the company is experiencing growth and effective use of new managerial techniques which facilitate the development of, and planning and control in, multiproduct.
            Due to the fact that Brazilian Mobile Services already has very high technological resources the company could use this expertise to leverage a cross-business value chain relationship strategy. With this strategy the company will diversify into related business with important value chain, gaining more competitive advantage potential than companies that diversify into business whose value chains are totally unrelated (Thompson, et al 2010). Then Brazilian Mobile Services can transfer skills and technology from the applications with soccer teams to applications for another sport such as volleyball or just games in general. In this way the company could reduce costs via sharing use of common facilities and resources, and utilizing the company’s well know brand name and distribution muscle to grow sales.
            Once Brazilian Mobile diversifies into new applications the strategy will fit in to Thompson (et al 2010) R&D and technologic activities with great potential for cost savings from economy of scale in R&D and potentially reducing the  time of getting new product to market. In addition technology advances in the new applications will lead to increase sales for both the new and the existing products.

Foreign Market Penetration

            Since Brazilian Mobile Services is already inserted in South America the company should enter in one of the neighboring countries, especially countries like Argentina, Uruguay and Chile which are experiencing real GDP growths rate of 8%, 6% and 7%  in the few  last years and probably are going to maintain in the next few years (CIA, 2011). Additionally they also have very strong and well established soccer teams such as Boca Juniors in Argentina and Universidad in Chile, which can make it easier for Brazilian Mobile to transfer its business model. The strategy to be used would be a multicountry strategy (Thompson, et al 2010), where the company would vary a little in the company’s strategic approach in response to differing local market, competitive conditions and local preferences.
            With the whole business based on online applications, by entering in a foreign market Brazilian Mobile Service will be able to coordinate activities across different countries and therefore build competitive advantage. For instance, the Brazilian plant will still be the main developer of the product applications and can quickly communicate via internet with the other plants to coordinate the product schedule and adaptability. Additionally knowledge accumulated in marketing the company’s products in Brazil can easily be exchanged with company personnel in Chile, Argentina or Uruguay.
            Furthermore, as Brazilian Mobile Service becomes a multinational company by consistently incorporating the same differentiating attributes in its products worldwide the company will be able to enhance the potential to build a global brand name with significant power in the market place (Thompson, et al 2010). Actually the reputation for quality mobile applications established in Brazil and further in three other strong countries in South America can be the first step for Brazilian Mobile Service to reach the whole Americas inclusive of the United States.
            Foreign Market Challenges

            Brazilian Mobile Service operates in dynamic markets where the windows of opportunity open and close rapidly. The company’s very survival and success is determined by how quickly, efficiently and holistically they anticipate, and then act upon, foreign opportunities (Nordman and Melen 2008). Unlike other firms, Brazilian Mobile Service as a software company faces unique challenges in discovering and exploiting foreign market opportunities. Although language, different culture and preferences still have an impact because of company’s short history and accelerated pace of internationalization and technology development the company faces more difficulties and more competition. In fact, while the traditional companies entry in to foreign market emphasizes the importance of international knowledge (Johanson and Vahlne, 2006), software companies emphasize the importance of technological knowledge for foreign entry in order to be ahead of the competition (Nordman and Melen 2008).
            Another important challenge is the regulatory environment. Nowadays Brazil, Argentina Chile and Uruguay are under the Mercosul agreements which can pave the way for Brazilian Mobile Service to enter these countries. However, any changes in the future can make the company rethink their skills and capabilities and subsequently move into other markets which offer fewer barriers.
            In order to minimize the impact of these challenges the company should focus on the internal development of firm knowledge and other resources, in which merger or acquisitions to a local company could also help the company’s relations to that market. According to Freeman et al (2012) theoretical examination integration with local companies will serve to increase understanding about the chosen foreign market. First with respect to establishing a network and second with regards to the use of market assets such as knowledge of local competition and market conditions.

Scenario: diversify or expand into a foreign market.

            Expanding to other markets or diversification can be very challenging, unpredictable and a very high-stakes game, in fact there is little conventional wisdom to guide managers as they consider a move that could greatly increase shareholder value or seriously damage it. Although by expanding Brazilian Mobile Services to foreign markets the company might be able to enhanced potential to build a global brand name with significant power in the marketplace, this scenario seems to be much more risky than diversification. In fact changes in foreign politics, taxations and increase competition can have dramatic consequences in the business, especially if the company is not prepared to spread the risk among other business.
            Therefore diversification seems to be the better strategy to achieve a sustainable advantage which can result in the creation of enormous shareholder value. This is because Brazilian Mobile strengths allow the company to create something unique. By identifying company’s unique and unassailable competitive strengths the company can move beyond a business-definition approach and instead launch a diversification effort based on its strategic assets (Markides, 1997). Considering Brazilian Mobile’s main strategy concerns “sports and entertainment” the company can build on their excellent skills in technology and flexible payments to start new applications in games and launch similar applications for other sports. In this way the company will not be so dependent of the soccer teams and can consolidate their position in market before expanding into foreign markets.
Ethical behavior in the business environment
Ethics in the business environment is clearly extremely important. However, the given nature of the activity in which the business is engaged would temper and define the outer limits of ethical behavior and the mode in which it manifests itself, on the part of business institutions and their managers. Even knowing that the company is inserted in a highly competitive industry which according to Prakash & Sama (1998) also creates greater opportunities for unethical behavior, the company must behave ethically.
But the question is how? Given the existence of opportunities in order to create a business environment conducive to ethical behavior the company must be engaged in ethical behavior in the marketplace and these attitudes must flow from the top level managers to the low level.  In fact, managers’ ethical values serve as example to influence each employee’s choice of ethical/unethical behavior, while corporate culture supports each decision as the right thing to do.
Additionally the company must develop a minimum level of ethical business conduct such as norms and minimal conduct behaviors. It must consider a business conduct for the organization to conform to the prevailing societal norms, traditions, and culture of the relevant environment especially if the company decides to expand into foreign markets. For instance, as a Brazilian company their managers are likely to vary in their adherence to this level of ethical business conduct in response to external, competitive-economic factors, organizational imperatives, e.g., corporate culture, and institutionalized standards and values. Finally to create a business environment conducive to ethical behavior it is necessary to extend higher ethical standards of fairness (Prakash & Sama, 1998) through the way the corporation and its managers interact with its stakeholders in Brazil or around the world.

            This paper addresses the question of how diversification or expansion to foreign market can impact the firm’s performance. The hypotheses are tested through scenario analysis employing various studies to support the ideas. This particular study about diversification reveals that the company can save money in research and development expenditures which could increase firm’s performance. Also the fact that the company can spread the risk with diversification looks like the biggest advantage for Brazilian Mobile now, especially because now the company relies heavily on one customer. Therefore diversification was chosen as the best strategic move for the company at the current time.
            On the other hand the study of scenarios showed that expanding to foreign market can lead to a great competitive advantage. However it was consider that the company is still not well enough established in the market therefore going global could represent too much risk. Although expanding to foreign markets provides a lot of opportunities that are attractive to the firm, to engage in global markets there are still multiple challenges to be deal with which it was consider created too much risk.
            The determinants of diversification or foreign expansion are still an issue to be studied further and more comprehensive real perspectives should be developed for a better understanding. In addition, casting different approaches and data from various disciplines would strengthen the insights derived from the scenario. To sum up, whatever the company decides there are risks and rewards, it will depend on the management decisions to take the right approach in order to lead to success or failure.
            Finally independent of any issues for management team to bear in mind, the company must commit themselves to ethical behavior. While in Brazil or around the world the company must be engaged in ethical business conduct in their decisions in order to keep their image and consequently their profitability.


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Johanson, J., & Vahlne, J.-E. (2006). Commitment and opportunity development in the  internationalization process: A note on the Uppsala internationalization process model.  Management International Review, 46(2), 165–178
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Thompson, A. A., Strickland, A. J., & Gamble, J.E. (2010). Crafting and Execuing Strategy:      The quest for competitive advantage: Concepts and cases: 2009 (17th edition). New     York: McGraw-Hill-Irwin.
La Barre, Weston( 1954). The Human Animal. Chicago, Illinois: University of Chicago Press,    1954.

Selling Ideas: Brazil Mobile Services Company "The Environment"

            Strategic management has the crucial importance of providing a company’s long term success. Development of successful strategies is an essential and a complex task. Evaluation of company’s Strengths, Weaknesses, Opportunities and Threats (SWOT analysis) can help as an instrument for forming management strategies which can lead to a competitive advantage.  In this paper there are a number of strategies that are considered as well as a possible changes in the strategy after evaluating how those strategic moves can help Brazilian Mobile service overcome the competition and lead the company in becoming a successful business in the global market.
            The first part of the paper is an environmental scan for the company indicating the most significant environmental threats and discussing how the company should respond to each threat to ensure that the impact to the business is minimal. Based on the environmental scan, the second part evaluates the company’s strengths and evaluates how the company can leverage these strengths so as to yield a competitive advantage in the marketplace. In the the third part a significant competitor is identified and some strategies are considered to evaluate how Brazilian Mobile Services will compete against it in order to maximize profits and create value for stakeholders. The concept of Katz and Simanekto (1997) about merger or acquisition was chosen as a possible way to increase corporate diversification and overcome the competition.
            The fourth part assumes that the economy is in a state of decline or stagnation requiring modifications to the strategy and then evaluates how Brazilian Mobile’s strategy should be modified based on theThompson (et all, 2010) three strategic alternatives. It also provides a justification of how to use their strengths to reach the opportunities and therefore help the company continue to compete in the marketplace even in a declining economy. The last part of  the paper evaluates how global competition might impact the business strategy (Birkinshaw et al.  1995; Buckley and Ghauri 2004; Malnight 1996) and determines that the strategy of think Global and act Local is more appropriate to increase company’s competitive advantage.
Environment Scan

            Brazilian Mobile Services is a leading interactive entertainment software company for soccer teams in Brazil. The company develops, publishes, and distributes interactive software about Brazilian soccer team through mobile devices. The following SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis was drawn up to give a better idea of the Brazilian Mobile’s environment.
Figure 1: Analyze SWOT
·         Flexibility: High technology accessibility via mobile cell phone, combined  payment facilities provide superior value proposition
·         90 million Brazilian soccer fans(*)
·         Acquisition of one significant soccer team in the portfolio, attracting the customer base
·         Strong market position enhancing the brand image
·         Customer concentration increasing risks and reducing bargaining power
·         Only one team in the portfolio
·         Increased focus on online gaming services Growth in mobile spending will strengthen Company’s core market and revenues
·         Strategic partnerships with gaming developers can expand subscriber base and improve market share
·         Intense competition
·         Free and low cost alternatives
·         Short lifecycle of products
* Source: Rank Brasil

            Flexibility is one of the strengths of the company because the fact that Brazilian Mobile can provide high technology accessibility via mobile cell phone, combined with payment facilities given a superior value proposition. Also the company's portfolio includes Flamengo, which has more than 29 million fans (Rank Brasil, 2011). Flamengo strong market position gives it to Brazilian Mobile Services strength to enhance its brand image.
            However, as the only one team in the portfolio, it concentrates increasable risks reducing bargaining power for the company. In other hand, although Brazilian Mobile Service faces intense competition and free low cost alternatives in the software market which could lead to pricing pressures thereby adversely affecting the revenues and market share of the company. The market still shows a lot of opportunities as increased focus on online gaming services and growth in mobile spending can still strengthen Company’s core market and revenues.
            The following figure shows in which environment the company are inserted and how the competitors, new competitors, suppliers, consumer and substitutes interact with Brazilian Mobile in this environment.
New En free and low cost alternatives and media organization as 
FIGURE 1: Five forces Analysis   

Substitutes: such as motion pictures, television, social networking, online casual entertainment and music
he company operates in a highly competitive industry. It competes for the leisure time and discretionary spending of consumers with providers of different forms of entertainment, such as motion pictures, television, social networking, online casual entertainment and music. It also competes with numerous companies which develop and publish mobile applications locally and globally. These competitors include Activision Blizzard, Capcom, Eletronic Arts Inc, , LucasArts, Midway, Namco, Sega, Take-Two Interactive, THQ and FingerTips.
Diversified local media companies such as Globo TV, and Record News are also expanding their mobile software publishing efforts with information about soccer. Also, the company competes for license agreements and royalties for the device manufacturers’ platform. If the company is unable to renew its expired platform licenses with these device’s manufacturers due to stiff competition it will adversely impacts its future product development. Intense competition may lead to pricing pressures thereby adversely affecting the revenues and market share of the company.
In order to avoid this competition Brazilian Mobile Services will invest in marketing to increase awareness about the differentials of their applications and also work hard with the device manufactures to somehow create an exclusive channel with potential customers. Finally as a Brazilian base company the company has a shortage of employees to develop and provide technical support, given the low number of technologic schools those future employees are very difficult to retain in a company. Therefore the company is developing a training program in partnership with the best Universities to get in contact with potential employees before they go to the market.
            The company is subjected to threat form free and low cost alternatives such as other mobile applications that are sponsored by companies making the application free for download. Again the marketing plan is going to face this challenge to increase awareness about the technological advances that Brazilian Mobile Service can provide combined with exclusive information about their soccer team which makes Brazilian Mobile Services the best option among the competition.
            The interactive entertainment software market is characterized by short product life cycles and frequent introductions of new products (Day, 1981). However the key is to focus on the soccer team while the technological issues are being improved. For example the company might upgrade the game available in the app but the principal character will always be the soccer team.
Competitive Advantage
            The availability of the information thought mobile phones combined with exclusive information about a chosen soccer team can provide superior value proposition. With more than 29 million supporters, Flamengo has Brazil’s largest amount of soccer supporters. With this team in our portfolio the company has substantial competitive advantage while the service also has a potential base to grow and enhance the brand image. The company operates an internet based subscription model which has done away with many disadvantages experienced in the traditional outlet models. An increased number of customers opt for Brazilian Mobile application as it is convenient way to follow their team. Apart from this, the company enjoys additional competitive advantages. Brazilian Mobilize can provide a wide range of information about soccer teams which is not possible for other competitors as they contract with teams to access the information. For instance nowadays most soccer fan get their information about their team from newspapers or specialized web sites, however none of them provide exclusive information about a single team as Brazilian Mobile Service does while giving priority access to events and information. The company’s technology enables customers to sort through the events easily which is almost impossible to do  in the traditional model. In the applications customers have access to exclusive games and interactive channels with other supporters. Customers have to pay a fixed monthly subscription fee and there are no due dates attached, no late payment fees and other fees. Brazilian Mobile’s business model provides customers with the most convenient way to view games at the time they want and the ability replay any time. The business model that Brazilian Mobile operates gives it a considerable competitive advantage. Revenue sharing relationships with distributors reduced investments for content acquisition. The company has revenue sharing agreements with the distributors and content providers. Under these agreements, the company pays a low initial amount to obtain the content and then shares the revenues from subscription fees with the content providers or pays a fee based on content utilization. This provides the advantage of procuring content at a low cost and an additional amount has to be paid only if the subscribers use or view the product.
            The company offers a free trial period as a promotional offer to attract new customers. The company also provides content streaming through many consumer electronic items such as PCs or LG and Samsung devices. These consumer electronics partners are also engaged to assist in generating new subscribers. As the company gets more subscribers the acquisition cost can be reduced, therefore invest in marketing programs in acquiring new subscribers can reduce costs and increase revenues.
Profits and Stockholders
            Brazilian Mobile’s financial condition has been getting better since the start-up  of  2 years ago. The company reported increasing revenues; however, the company initial investments in operations had reduced net profits. The fact is that the company reported operating gains in the first two years, but due to the initial investments, the company reported net losses in the same period.  As a result of its strong operational performance, its cash and cash equivalents increased in 2011, compared to 2012. For the current period Brazilian Mobile strong revenue performance continued which combined with decrease of initial required investments has increased its investors’ confidence. With continued strong financial performance, and decrease in the initial investments, the company will increase net profit and start to look for acquisitions.
            The company’s high dependence on only one soccer team will reduce its bargaining power. Further, as a result of the economic downturn, retailers globally continue to take a more conservative stance in ordering mobile applications. The concentration of its sales in one, large customers (in this case Flamengo Soccer Team) leads to a short-term disruption if these team suffers any problem that make their supporters to significantly reduced their purchases or ceased to buy the company’s products. Customer concentration makes Brazil Mobile more vulnerable to collection risk if for instance Flamengo declared bankruptcy.
            Our biggest competitor and also leader in the Brazilian market is Fingertips, they were the first Brazilian company totally focused on the market for iPhone applications. However, Fingertips biggest competitive advantage is the fact that they boast Bradesco bank and the City of Rio de Janeiro as customers. Bradesco bank is one of the biggest Brazilian banks with more than 10 million costumers all over Brazil (Lipschulttz, 2000; pg 54), while Rio de Janeiro has population about 6 million plus tourists, (City Mayors, 2005).
            In order to overcome the competition Brazil Mobile is focused in areas that no other company has developed services. A partnership with another software company would open our portfolio and spread our risk through other market segments, basically Brazilian Mobile could experiencing a round of corporate growth via merger or acquisition. According Katz and Simanekto (1997), merger or acquisition could increase corporate diversification which is one of the most common methods firms choose when expanding. The first acquisitions could be made using short-term debt and latter the company could go public. Equity capital could provide a "war chest" of funds with which to finance other acquisitions. Additionally, those acquisitions could improve operations by bringing new, more effective management while increasing the portfolio and therefore generating gains in revenue and profits.
Modified Strategy
            Sometimes the even most promising strategies can face difficult realities of life in a stagnant or declining market. An appreciation of these realities is critical because strategies that run counter to them nearly always fail, while successful strategies are consistent with market conditions. Aware of the situation, the first thing we can do is to adopt a set of goals consistent with the market opportunities, and to measure company’s performance on the basis of return on investment. However the unpleasant reality is that competition is usually more intense in stagnant markets than in those that are growing rapidly, because company growth can be achieved only at the expense of others therefore competition increases. Also product improvements in the manufacturing process, design, quality etc can make possible the development of a new market and new demand.
            If Brazilian Mobile Services sticks with a declining industry then according to Thompson (et all, 2010), there are three strategic alternatives: Pursue a focused strategy aimed at the fastest-growing within the industry, Strive to drive costs down and become the industry low cost leader, Stress differentiation based on quality improvement and product innovation. Perhaps the best way to avoid some of the unpleasant realities in a stagnant industry is the first alternative which concentrates on growth segments. However, the question is how to identify the growth segment, and how to make sure that the company will not face increasing competition? Another alternative is cost reduction, which according to Hammermesh and Silk (1979)  the most common way to achieve lower costs seems to be by improving the manufacturing process. However in the Brazilian Mobile industry one of the challenges is the fact that the industry has many other alternatives that most times are free or in a very low cost. Therefore even if Brazilian Mobile Services strives to be a low cost leader the company will still face high levels of competition.
            Finally Stress differentiation based on quality improvement and product innovation seems to be the best alternative for Brazilian Mobile Service to deal with a declining and stagnant industry, because in this way the company will be allowed to align their strengths to the opportunities. In this way Brazilian Mobile Service’s strategy would change from providing solutions for Soccer clubs to participate in the mobile market to provide rich interactive game experiences with a Brazilian environment. For instance high-quality innovative games, offering better image quality and more Brazilian environment with flexible payments could grow rapidly and achieved the highest margin of all other applications. With technology also more expensive than traditional technologies most software producers will be unwilling or unable to invest in either the research or the capital equipment necessary to compete in this segment. Thus this innovation might provide higher margins in a segment with few competitors.            Further evidence that high quality and innovation are particularly important in stagnant industries comes from analysis of the 1,000 businesses in the PIMS [profit impact of market strategies) data base. For all these businesses, higher product quality is associated with a larger return on investment, but the relationship appears to be most significant in stagnant markets.
Global Competition
            The globalization of the world economy has pushed many organizations, particularly software and mobile applications companies, to rethink how they compete in this expanded market. The increasingly interdependent financial, product, and labor markets are all advancing at a different paces towards a “globalized” system (Buckley and Ghauri 2004).
Internet increasingly promotes a global environment putting Brazilian Mobile Service in  global competition. Company’s global strategy is largely driven by three structural forces: economies of scale, comparative advantage, and standardized markets (Birkinshaw et al.  1995). Therefore adopting a global strategy is crucial to create highly interdependent network. Brazilian Mobile Service global strategy is thus characterized as developing competitive advantage through operating in interdependent national markets by exploiting differences in national resource endowments, the flexibility of independent subunit networks, and economies of scale and scope, as well as learning (Malnight 1996).
            Based on the strategy of thinking Global and acting Local, the Local market orientation will be underscored by increasing depth of local market knowledge will lead to higher levels of global market penetration.  The company will continue working with sports team, in South Africa for example the focus maybe on rugby because of the games popularity in that country. Although the sport might change to a local environment the global strategy and the product itself will not change so much, thus the features will be pretty much the same changing only by language and local preferences. When coupled with the ability to adapt to cultural diversity  and affinity to the local market intermediaries’ aspirations to extract common denominators for many markets, this will likely lead to higher degrees of strategy effectiveness (Solberg 2000).
            To understand the company’s environment it is very important, however, more than that to understand how the strengths and opportunities convey to each other as well as how weakness can be treated can help to develop a strong strategies that can give a competitive advantage for the company. The company must use their strengths to overcome the competition and establish their position in a market. Therefore by doing so, the company will be able to increase market share and profits.
            However sometimes the initial strategy does not work very well and changes must be considered about continue in the business or not or even changing the focus of the business can help companies to overcome stagnation while they discover a more efficient way to run the business or even change the product by increasing technology and quality.         Nowadays companies are becoming more global, especially in software and applications development and everything is done on the internet through mobile services which are available worldwide. Therefore it is important to consider a global strategy even knowing that the company is now working only in a local Brazilian environment. Business is in a state continuous change therefore companies must evaluate their performances and their strategy constantly to go ahead of the competition and have successful performance.

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