Question

WG is one of the world’s leading makers of mobile phones, with market share of approximately 20%.Unlike any of its major competitors, it is based in Narnia, a high-cost, developed country. Narnia has very limited natural resources, but has developed significant expertise over the decades in high-end precision engineering and efficient use of materials. WG is quoted on the Narnian stock exchange, where it is the largest company by market capitalisation. It has a wide shareholder base including most Narnian institutional investors and private individuals. Its largest three shareholders are institutions who each own around 2% of the company.WG was founded in the 1960s to make telephone equipment and in the 1990s managers made a strategic decision to focus on the then-tiny mobile phone market. This was partly attributable to the Narnian government being among the first to fully deregulate their telecoms market, which lead to lower call costs. Narnia and its neighbouring countries are also fairly rural, and its populations were enthusiastic early adopters of mobile phones. WG was given a particular boost in 1995 when the transmission standard they had pioneered was adopted as the basis for calls by the government in Narnia and many other governments around the world. Serving a rapidly growing market, WG quickly gained economies of scale that allowed cheaper production than competitors emerging later. WG then exploited these to open up export markets all over the world,enhancing their advantage further. Unlike many of its competitors, who subcontract their manufacturing to others, WG assembles most of its own handsets. Its factories are mostly in Narnia, where it benefits from the highly educated population and the presence of high-quality local suppliers to carry out increasingly high-tech manufacturing processes. Narnia has very good communication links, which helps suppliers to deliver rapidly. Technology is advancing all the time and WG regularly launches new, more sophisticated devices, most recently a suite of smartphones. However, the fastest-growing demand is for cheaper, basic models which just carry out voice calls and text messaging. This demand is driven by users in developing countries, who are concerned to keep costs down, but also want the status of using a well-known brand such as WG. WG has invested significant resources in building up a local sales presence in these markets, which allows it to spot trends and produce phones tailored to local tastes and languages. Competition in the industry is intense, and has become more so due to a recent global economic downturn. The Narnian government has also announced new anti-pollution measures that will result in large-scale manufacturers having to pay more than previously to dispose of their waste products. Shortly afterwards, WG announced that they will increase the proportion of handsets manufactured in lower-cost countries from 15% to 40% over the next three years. Component manufacturers announced plans to follow them to the new locations. This will involve cutting over 1,000 jobs in Narnia. A spokesman for the Narnian government called the decision “disappointing”. A trade union official said, “WG has increasingly been putting pressure on its suppliers to lower costs and respond more quickly to market fluctuations. This has made it unprofitable for them to operate in Narnia and lead to decisions like this”. Required:

(a) Analyse WG’s environment using two appropriate models

(b) Discuss the main stakeholders in WG and how management could try to retain their support as it seeks to reduce costs.

Answer 1

Answer a:

WG was established in 1960s and is a pioneered in making the phones according to the needs and the demands of the market in the customised manner. WG’s business increased rapidly when the transmission standard they had pioneered was adopted as the basis for calls by the government in Narnia and many other governments around the world.

In order to increase its market share, WG has adopted the model of economies of scale where it manufactured large number of products to serve a large market across the globe as it has started exporting its product to many customers of several countries and the many governments around the world. This has led to the reduction in the overall cost of making the product and thus registering huge amount of profit.

WG started the production of sophisticated Smartphone but ,in several markets, the demand for the basic phone which is used only for making the calls and text messages has been increased and keeping this demand of the customers in to consideration WG manufacture the tailored products and this has been achieved by WG through its local presence in the various markets of world.

WG has also used the outsourcing model as one of its tool in acquiring the more and more market share. Rather than outsourcing the requirements of the components needed for the assembly of its final product, WG has adopted ‘to make’ model, where it manufactures the basic component required for the production of phone in its own facility.

Since the Narnia government has announced the increase in the cost for disposal of waste arising out of the manufacturing activities, WG has announced that they will increase their production from 15% to 40% in those countries which are least costly.

Answer b:

The main stakeholders of WG are the government of Narnia, the Government of other countries where WG is having its local presence and the component manufacturers.

The government of Narnia has announced the policy of increasing the cost for disposing of the waste of the large manufacturing units as a measure of its anti pollution strategy.

Now there are two options left with the management of WG. Either to communicate with the government of Narnia about the side effects of its policy that if the cost of disposing of the waste would be increased and if it comes out to be larger as compared to the cost of manufacturing the product in the lower cost efficient countries than the WG has to increase the manufacturing of its product in those countries and this would impact the economy of the Narnia where 1000 Labour jobs will be effected and the component manufacturer will also move to the cost efficient countries. The management can assure the government of Narnia about the reduction in the accumulation of waste and its proper disposal by the company.

Otherwise the management of the WG has to increase its production in the cost efficient countries so as keep the economies of scale and profits and the market share in place by getting the support from the governments of other cost efficient countries and the component manufacturers of Narnia and other countries.