Friday, October 26, 2012

Selling Ideas: Brazil Mobile Services Company "The Environment"


Introduction
            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
Strengths
Weakness
·         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
Opportunities
Threats
·         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
Rivalr
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).
Conclusion
            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.






REFERENCES
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