An Analysis of the External Environment of Billabong International Limited Based on financial Year 2002-2003.
An Analysis of the External Environment of Billabong International Limited Based on financial Year 2002-2003.
Presented to the Senior Management of Billabong International Limited
On Friday, 29 November 2002.
Report researched and prepared by Ergin Senses.
EXECUTIVE SUMMARY
This report analyses the external environmental situation of Billabong International Ltd., whose general profile, sectoral and current details need to be provided to demonstrate reliance on management processes.
In this report, a detailed analysis on company needs to see why analysis of the organisation's external environment is important and needs to be monitored. This report also analyses the external environment's elements from the company's point of view.
Based on this analysis it seems that Billabong Int. Ltd. may increase its profits by using detailed knowledge of external environmental elements. Thus made up of all the conditions and factors external to the company that may increase company's productivity, activity, and compete in its trade markets effectively.
Ergin Senses
TABLE OF CONTENTS
Title page
Executive Summary
Table of Contents
Pg.
. Introduction 1
2. Methodology 1
3. Discussion 2
3.1.Short View of the Company's History 2
3.2.Discussion of External Environment 2
3.2.1.Mega Environment 2
3.2.1.1.Technological Element 3
3.2.1.2. Economic Element 3
3.2.1.3. Legal - Political Element 4
3.2.1.4. Socio-Cultural Element 5
3.2.1.5. International Element 5
3.2.2. Task Environment 6
3.2.2.1.Customers and Clients 6
3.2.2.2. Competitors 6
3.2.2.3. Suppliers 7
3.2.2.4. Labour Supply and the Importance of Managing Diversity 8
3.2.2.5. Government Agencies 8
4.Conclusion 8
5. Recommendations 9
5.1. Recommendations of Mega Environment 9
5.2. Recommendations of Task Environment 9
6. References 10
Ergin Senses
. Introduction
This report analyses the external environment of Billabong International Limited. An analysis of the external environment must include several thorough investigations probing the various factors that influence Billabong International Limited through its industry and external environment. A look at the mega-environment will analyse the technological, economic, socio-cultural, legal-political, and international elements. Also a look at the task environment will analyse the company on direct sight. This analysis will touch on task environmental elements, such as customers and clients, competitors, government agencies, suppliers and labour supply.
This research is a snapshot of what Billabong International Limited encounters in its endeavours to sustain its competitive position in the clothing industry. Billabong International Limited might realise the dynamic nature of these factors, remould and reshape its business operations to better deal with external environment issues.
As we have seen time and time again a company that fails in its attempts to change as the situational changes finds itself in danger. The company will lose critical market share and continuously find itself uncompetitive against new entrants and companies that have kept up to date with their management approach.
In every strategic planning exercise, will help to gradually build up individual and institutional capabilities for approaching reality in a "systemic" way. At the same time, improving your ability to analyse problems and issues, the results of your actions and the dynamics of your organisational environment. It is important to remember that the strategic planning exercise requires that adjustments be constantly made on the basis of the environment.
Hopefully the following document will give you the opportunity to validate the soundness of the proposed process, and will show you the practical value of incorporating that process into your organisational context. It is understood that this guide cannot replace the contribution of a good facilitator who knows your environment well and can help you deal with your strategic planning process in a positive way.
2. Methodology
To review the external environment of Billabong International Limited, the author consulted the course textbooks, study guide and various class handouts. As well, the author analysed a number of journal articles, books and websites. All of these texts were analysed thoroughly and the pertinent information found in these texts was used to create this original report.
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3. Discussion
3.1.Short View of Company's History
Billabong International Limited was founded in 1973 and has grown into a global holding company employing over 500 people, involved in the design, production and distribution of surf and extreme sports apparel and accessories for male and female markets. The company's products are sold in more than 60 countries by its directly controlled operations in Australia, New Zealand, North America, Europe and Japan and through licensed operations and distributors in other areas. The company's product range comprises over 2,200 product lines in Australia, over ...
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3. Discussion
3.1.Short View of Company's History
Billabong International Limited was founded in 1973 and has grown into a global holding company employing over 500 people, involved in the design, production and distribution of surf and extreme sports apparel and accessories for male and female markets. The company's products are sold in more than 60 countries by its directly controlled operations in Australia, New Zealand, North America, Europe and Japan and through licensed operations and distributors in other areas. The company's product range comprises over 2,200 product lines in Australia, over 1300 product lines in North America and over 1200 product lines in Europe. These products include board shorts, swimwear, jumpers, pants and jeans, t-shirts, fleece tops, walk shorts and backpacks. Group earnings are composed 10 per cent from America, 12 per cent form Europe and 78 per cent in Australia and New Zealand. (Investor web, 2002)
3.2.Discussion of External Environment
Every organisation depends upon linkages with its environment to obtain the human, financial, technical and material resources it needs.
To be able to target the company's future strategies, Billabong has to be familiar with the factors in the external environment that are likely to affect its organisation. To do this, it is important that Billabong distinguishes between two levels of external environment. (Bartol et al.2001, pp.65-71) distinguish between the scopes of the impact of the forces outside the organisation, which comprise the external environment. The diffuse major forces are labelled the 'mega-environment' and the segment with which the organisation interfaces is called the 'task environment'.
3.2.1.Mega-Environment
The mega-environment is the external environment segment reflecting broad conditions and trends in societies within which an organization operates. The mega-environment consist of five major elements: technological, economic, legal-political, international and socio-cultural. (See fig. 3.2.1.0.) As a rule, the mega-environment does not have a direct impact on the organisation, but certain events may influence how the organisation changes over time. The organisation has little or no possibility to influence these factors. (Bartol et al. 2001, p.65) Events or trends favourable or harmful to the organisation may develop in the mega-environment. It is therefore necessary to know how to identify them, either to take advantage of them or to try to counter them.
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3.2.1.1.Technological Element
The technological element reflects current knowledge about production of products and services. Although specific organisations' technical knowledge and patents give them a competitive edge for a time, most organisations are affected, either positively or negatively, by technological progress. (Bartol et al.2001, p.65)
According to the research Billabong does not use the technological element effectively. Technological affect can be only on new machinery in the clothing industry for Billabong. To remain competitive, the organisation should understand current technological developments affecting their ability to offer desirable products and services. Many sources provide information about technological elements. Among these are major business periodicals, various trade journals aimed at specific industries, government publications, business services, and on-line services.
3.2.1.2. Economic Element
The economic element involves systems of wealth production, distribution and consumption. In a capitalist economy, market forces operate and individuals own the means of production, either directly or through corporations. In a socialist economy, the state owns the means of production, and economic activity is managed by plan. Economic wealth is another very important factor for organisations, which are operating in a variety of countries facing a range of economic ground rules. Within any economic system, of course, organisations are influenced by economic factors they have little control over, such as inflation, interest rates and recessions. (Bartol et al.2001, p.65)
In Billabong's case they are particularly affected by external economic factors like interest rate changes, inflation rates, consumer spending and growth forecasts. Interest rates are an obvious issue, since Billabong is a considerably leveraged company. With debt payment commitments tied to floating and fixed rates, an upward change in interest rates will push up costs and hence pull down profits.
Consumer spending and economic growth might determine the level of demand in the economy for Billabong's products. In favourable economic conditions of high levels of consumer confidence and hence high consumer spending, coupled with high economic growth, Billabong could see higher sales as the industry as a whole will be going through a growth period. This obviously would pull up profits for Billabong. In the situation of this not occurring, low consumer spending would mean that non-essential items like high priced fashion products, could see less demand and as a consequence lower profits for Billabong.
Economic volatility can also have adverse effects on Billabong, by providing unfavourable investment conditions. Yet this could also serve as an entry barrier to possible competitors, meaning that Billabong is protected by the external economic factors. Its market share under such circumstances could be sustained, provided Billabongs strategic management.
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Fig 3.2.1.0. Elements of the mega environment of the Billabong International Limited
(Bartol et al. 2001, p, 67)
3.2.1.3. Legal - Political Element
The legal - political element refers to legal and governmental systems within which an organisation functions. Trends in legislation, court decisions and politics and government regulation are important legal-political environment aspects. (Bartol et al.2001, p.67)
In this case we can say that Billabong International Limited operates within the general legal framework of over 60 countries in which they do business. Many laws specifically addressing their functioning govern them. Simultaneously, organisations are subject to growing numbers of lawsuits filed by interest groups, ranging from employees to clients. Juries awarding large sums of money, particularly in product liability cases, have motivated these.
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3.2.1.4. Socio-Cultural Element
The socio-cultural element involves attitudes, values, norms, beliefs, behaviours and associated demographic trends typical of a region. Socio-cultural variables are often raised when considering different countries. (Bartol et al.2001, p.68)
The clothing industry is a good example of an industry where external environment factors play a critical role in competition. Especially the socio-cultural environment is of prime importance. Since the firms in this industry primarily must bring out new designs they must keep good track of fashion developments.
Fashion is a cultural and societal issue that varies from culture to culture and from country to country. It also varies within a specific culture with time. Hence a company like Billabong International Limited must realise the importance of socio-cultural issues. Because socio-cultural aspects change, managers must monitor trends for new opportunities or threats.
3.2.1.5. International Element
The international element of the mega- environment includes changes in countries other than the organisation's home country with potential to influence the organisation. International issues greatly affect an organisation's conduct of business abroad. (Bartol et al.2001, p.68)
Billabong has directly controlled operations in Australia, New Zealand, North America, Europe and Japan and distributors in other countries sell Billabong's products in more than 60 countries. (Investor web, 2002) Currency influences an organisation's ability to compete globally. When the domestic currency's value is high against foreign currencies, companies find it difficult to compete internationally. In this case if the Australian dollar rises against the currencies in the company's trade area, Billabong will make extra profit. Its international operations could reduce earnings if the Australian dollar deprecates. Conversely, when the local currency falls against foreign currencies, new business opportunities arise.
Also the international element of the external environment means that Billabong must take into regard very different cultural, political and societal factors into its business plan. Operating in vastly different parts of the world, Billabong is faced with the challenge of bringing the correct management style, marketing viewpoint and interaction technique to the different regions in which it does business. Striving to be a truly international brand, Billabong endeavours to tackle these key issues in going forward with its business operations.
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3.2.2.Task-Environment
This environment depends on an organisation's products and services and the locations where it operates. Any organisation will have difficulty directly influencing the mega environment, but it may successfully affect its task environment. (Bartol et al.2001, p.70)
The term task-environment refers to all the external stakeholders that are in direct contact with your organisation: customers and clients, competitors, suppliers, labour supply and government agencies. (See figure 3.2.2.0.) These players influence the actions of the organisation. Some have a positive effect, either by creating demand or supplying resources, while others may have a negative impact by imposing constraints upon you or by being detrimental to your development. Unlike the mega-environment, the task-environment can be influenced by your organisation. Each organisation must look at its own situation to decide what its specific task environment is.
3.2.2.1.Customers and Clients
An organisation's customers and clients are individuals and organisations buying its products and services. Many organisations try to stay close to the customer. (Bartol et al. 2001, p, 70) Billabong Int. Ltd. should look to serve its customers better and also if they want to be effective, they should create much more attractive, good quality, fashionable clothes. Also, Billabong's customers consist of mostly the new generation young people and people who likes extreme sports. Organising activities for the new generation would make a great effect on customers. Due to Quicksilver and Rip Curl surfing, clothing companies, Billabong does not have many effective activities. Billabong should organise different surfing, summer entertainments. Thus, company may be impact its customer and clients effectively.
3.2.2.2. Competitors
An organisation's competitors are other organisations offering or potentially offering products or services. (Bartol et al.2001, p.70), In this case Billabong must be concerned with known competitors, which are quicksilver, rip curl, O'Neil etc. and monitor for potential new entrants. Also Billabong should be aware of the activities of its competitors.
As was mentioned in Customer and Clients section, a company must be aware of their surfing competitions and advertising activities. This could give a company a different point of view about their competitor. However, to know organisation's competitors fully has a lot of importance in any industry.
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Fig 3.2.2.0. Elements of the task environment of the Billabong International Limited
(Bartol et al. 2001, p, 70)
3.2.2.3. Suppliers
An organisation's suppliers are organisations and individuals supplying resources to conduct operations. (Bartol et al. 2001,p.72) The conventional view was that it is best to have many suppliers to reduce dependence on any one. Particular global competition is changing this. Companies find they can trim costs by reducing supplier numbers and contracting them.
Analysts have downgraded international sports and clothing brands because of an expected drop in sales due to slower global growth, with the result that the share prices of Quicksilver and Nike have dropped. Billabong has traded at a premium to these companies based on its different distribution strategy. It does not sell through department stores, enabling it to avoid discounting and maintaining control of its brands and helping maintain higher profit margins. (Geoffrey hill, 2002, Sydney Morning Herald)
There are still risks involved with companies such as Billabong. It has been a brand leader in Australia and recent publicity could damage sales.
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3.2.2.4. Labour Supply and the Importance of Managing Diversity
An organisation's labour supplies consist of people employable by the organisation. The ability to attract, motivate and retain human resources to provide products and services is crucial for organisations. (Bartol et al. 2001,p.72)
Billabong's chairman Garry Pemberton says: '...we've got very strong and specific views about how we manage the brand and how we control the company.' (Mark Todd, 2002, Sydney Morning Herald.)
From this speech, we might say that Billabong's manager and chairman G. Pemberton has managerial understanding of Douglas McGregor's theory X. Theory X managers assume, workers are lazy, must be coerced, have little ambition and focus mainly on security needs. In this case, Billabong might have not much ability to motivate and retain human resources. (Bartol et al. 2001,p.46)
3.2.2.5. Government Agencies
Various government agencies provide services and monitor compliance with laws and regulations at local, state or regional, and national levels. (Bartol et al. 2001, p.70) European Commission and its judgements have importance for Billabong Europe. Thus, Billabong's last full year in charge of Europe, sales increased 41 per cent and pre-tax earnings were up almost 57 per cent. Also Mr. G. Pemberton who is chairman of the company, reiterated the strong outlook for Billabong's US market, which some investors had started to doubt following mixed reports on the health of the market. (Mark Todd, 2002, Sydney Morning Herald.)
That information shows that Billabong has been affected by market fluctuations, which means regulations are making differences between different markets.
4.Conclusion
In conclusion, it seems clear that any organisation needs to analyse their companies because every sector or industry has its own distinct environment which changes on a regular basis. The organisation's external environment context is thus made up of all the conditions and factors external to the organisations that can positively or negatively affect the life, orientations, structures, development and the future of the organisation.
This report analysed Billabong International Limited's external environmental elements, which are mega environmental elements and task environmental elements, and tried to identify the most important elements for the company. These elements include: socio-cultural, economic, international, legal-political and technological elements. For the company, the most important three points are: socio-cultural, economic and international elements. Thus, by using these elements the company could reach high level of productivity and sales, and give their clients a better service and warranties.
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5. Recommendations
Based on the discussions and conclusions of this report the following recommendations are made as mega and task environment separately. (Strategic Planning, Section 4, 1997)
5.1. Recommendations of Mega-Environment
The Billabong Int. Ltd. should:
* Identify the principal phenomena that have an impact on the Billabong;
* Determine the trend for each phenomenon identified;
* Classify the observed phenomena as opportunities or threats;
* Evaluate the importance of the opportunities and threats;
* On the basis of the opportunities and threats that have priority for the company, identify its strategic targets.
5.2. Recommendations of Task Environment
The Billabong Int. Ltd. should:
* Identify the key players for Billabong;
* Assess the potential influence of each key player on organisation;
* Classify each key player in terms of opportunities or threats for organisation. It is possible that a phenomenon associated with a key player will be classified both as an opportunity and a threat;
* Evaluate the importance of the opportunities and threats;
* On the basis of the opportunities and threats that have priority for organisation, identify its strategic targets.
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6. References
Bartol, K.M., Martin, D.C., Tein, M. & Matthews, G.2001, 'Management A Pacific Rim Focus' 3rd edn, Mc Graw Hill, Sydney.
Geoffrey hill, November 13 2002, "Billabong International Limited", Sydney Morning Herald, [online]. Available at URL:
http://www.moneymanager.com.au/articles/2002/11/13/1037080774957.html [Accessed November 15 2002]
Investor web, November 22 2002, 'Billabong International Limited (BBG.AX)' Investor web, [online]. Available at URL:
http://au.biz.yahoo.com/p/b/bbg.ax.html [Accessed November 22 2002]
Mark Todd, September 12 2002, 'ASIC probes trades in Billabong but founder buys $2 m stake', Sydney Morning Herald, [online]. Available at URL:
http://www.smh.com.au/articles/2002/09/12/10316008278565.html [Accessed November 14 2002]
Strategic Planning: A Guide for Canadian NGOs (Part 1): Analysing the Organization's External Environment, Section 4, October 1997. Available at URL:
http://www.focusintl.com/strategy/planeng4.html [Accessed November 25 2002]
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