Social
The third aspect of PEST focuses its attention on forces within society such as family, friends, colleagues, neighbours and the media. Social forces affect our attitudes, interest s and opinions. Population changes in China which has a high population also have a direct impact on organisations because it makes manpower readily available if not cheap. Changes in the structure of a population will affect the supply and demand of goods and services within an economy and the Chinese population has been stable lately due to birth controls that have stabilized the birth rate.
Pestle analysis and the Marketing Mix
Industry Analysis
An external factor Evaluation will allow strategies to summarize and evaluate the external environment. This is achieved by developing the (EFE matrix)
Key External Factor Weight Rating Weighted Opportunities Score
Scrap material use as raw materials 0.05 3 0.15
Outsourcing of auxiliary services 0.08 4 0.32
Limiting the number of employees 0.08 3 0.24
Production of unique goods for niche market 0.07 2 0.14
High Premium prices for niche market products 0.09 1 0.09
Barriers to imitation 0.06 3 0.18
Value for employees through value creation strategy 0.03 2 0.06
Availability of highly educated employees 0.12 4 0.48
Threats
Highly expensive Capital loan from bank 0.06 2 0.12
Teething problems in coordinating production 0.06 3 0.18
Increased production costs and equipment breakdowns 0.04 3 0.12
Increase in selling costs 0.08 2 0.16
Difficulties in coordinating sales and distribution channels 0.04 3 0.12
Numerous numbers of small Sales orders 0.08 2 0.16
Sars crisis in 2003 0.06 1 0.06
Total 1.00 2.58
The average total weighted score indicates that the company is doing well, The score is above average and is 2.58 against a possible score of 4.0 which is regarded as excellent. The weighted score shows the company is responding well to existing opportunities and threats in regard to the management and the analysts’ assumptions. ZISCo strategies are effectively taking firm advantage of their opportunities and limiting the negative impact of the external threats.
The Internal Factor Evaluation (IFE) Matrix
This strategic tool summarizes and evaluates the major strength and weaknesses in the functional areas of a business. The tool provides a platform for identifying main strength and weaknesses in the functional areas of a business. It also provides a basis for identifying and evaluating relationships among those areas. Intuitive judgements or assumptions are required to make this strategic assessment.
Internal Factor Evaluation Matrix for Zhujiang Iron & Steel Co
Strength weight rating weighted score
Innovative 0.05 3 0.15
Compact Strip Production 0.07 4 0.28
Several new products 0.10 3 0.30
Advanced technology 0.05 3 0.15
Different Organisational structure 0.02 3 0.06
Facilitated communication, party and management 0.15 3 0.45
Employees hold university qualifications 0.05 4 0.20
Make products that are difficult to make 0.03 3 0.09
Better lead times to deliver 0.02 3 0.06
Weaknesses
Difficulties in the continuous casting 0.10 2 0.20
Product rolling process 0.15 2 0.30
Market penetration 0.02 1 0.02
Weakness weight rating weighted score
Financed by bank loans 0.02 1 0.02
Difficult to achieve economies of scale 0.04 1 0.04
New Product Development 0.05 2 0.10
Requires high level of production 0.03 1 0.03
Frequent changes in the production process 0.05 1 0.05
Total 1.00 2.50
The total weighted score is not below the
INDUSTRY ANALYSIS.
Industry analysis is a tool that facilitates a company's understanding of its position relative to other companies that produce similar products or services. The strength of challenge in the middle of firms varies across Industry and strategic analysts are interested in those dissimilarities. Michael Porter provided a framework that models an Industry as being influenced by five forces. "The collective strength of these forces determines the ultimate profit potential in the industry, where profit potential is measured in terms of long term return on invested capital," said Porter.
Competition
The Chinese Steel industry is deemed to have a tough competitive environment. ZISCo took a strategic direction by creating a differentiation strategy that created barriers to imitation and targeted niche markets. Changes in the Organisational structure and culture differentiated ZISCo from other State Owned enterprises management style. ZISCo also created a one stop service to beat competition in the supplying of all containers manufacturing material from one place. The Value creation strategy gave a firmer competitive advantage to ZISCo. Created value for customers through marketing and new product development and creating value for the company through cost reduction across the firm. This created value for the employees whom performance would be measured against value strategy success. ZISCo introduced the first CSP technology and had better relations with customers in the supply chain
Threat of Substitutes
Threat of Substitutes in the steel Industry in China is very limited. The Substitutes are the products that can be used in place of steel as they will be offering a better value for the money in relation to the actual product in most cases. The substitution only possibly comes from the change in leadership with the steel industry making available a huge number of competitive and educated employees across all functions. ZISCo is not threatened by any steel substitutes from any other industry.
Power of Suppliers
“The suppliers make available the raw materials for industry manufacturers in the supply chain.” ()Suppliers gain power when an industry relies on just a few suppliers, when there are no substitutes available for the suppliers' product, when there are switching costs associated with changing suppliers. Suppliers however in relation to Republic of China steel Industry do not have any bargaining power since ZISCo is able to stabilise supply sources through consolidating the supplier base. The supplier base for ZISCo was fragmented meaning scattered all over from different sources and hence a Material Supply Company was setup to deal with the numerous procurement processing. ZISCo actually changed their supply structure to procuring 80 % of their supplies from the top 20% among the fragmented suppliers. CSP producers however had power to determine what ZISCo could produce with their steel slabs that could not be used for thin steel sheet production and ZISCo could not control this or change supplier.
Buyer Power
This is when the bargaining power in the supply chain rests in the power of the Buyers. When buyers are too large for the suppliers and when they are substitutes for the produced commodities the buyers are able to determine services, price and quality of the products that they purchase. In the Republic of China steel Industry buyers are having a great extent of bargaining power. In September 2003 ZISCo was forced to look into the quality of their products, after sales service and lead times, delivery times by a major Chinese container manufacturer. The Buyer Power of the container manufacturers is huge and significant and controls the products ZISCo would produce. Due to the high bargaining power of manufacturers ZISCo was inclined o become a one stop shop for the major container manufacturing customers. This was a market oriented strategy driven by the market needs.
Threat of New Entrants
New entrants to an industry can raise the level of competition, thereby reducing its attractiveness. The threat of new entrants largely depends on the barriers to entry. Key barriers to entry include economies of scale, capital/investment requirements, customer switching costs, possible retaliation from switching customers. The steel Industry is a large Capital demanding industry that does not only require large financial resources to enter. There is also the need to have done enough research on the industry and gather enough manual and intellectual skill across a wide variety of functions.
There is a need for application of documents and operational certificates from governments and Industry regulatory bodies and in a market like China, one need to have the market knowledge and perception of the people. It was not easy for ZISCo at entrance level with the firm hardly breaking even until there was a change in strategy after an experienced manager came to the helm of the firm.
Critical Appraisal of Strategy
The steps and pattern of implementing value creation at ZISCo are identified by starting at a key function – production, then expanding to other functions. Hard issues (functional value creation activities) as well as soft issues (organisational culture and HR policies) are tackled in the implementation process. ZISCo implemented a "value creation strategy" and undertook a number of important functional reforms with active participation from its employees. Consequently, its financial performance improved substantially during 2004—2006. Nevertheless, ZISCo still encountered various challenges in 2007, particularly in the areas of cultural change, knowledge management, and development of organisational competence and learning capability.
Conclusion
The essay has managed to reflect the environment in which the steel Giant operates starting from the immediate environment which is the Republic of China going up to the global environment. The script then described the Industry in which the steel company operates and theories were used accordingly and then analysis was made on the organisation’s strategy since there was a new Director and also analysis of strategy and appraisal was finally done.
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