Environmental Analysis Of Blackmores Ltd: Internal And External Factors (essay).

Question:

Discuss about the Business Strategy of Blackmores.

Blackmores Ltd is a leading brand in the manufacture of natural health products in Australia. The company manufactures a wide product range including herbs and nutritional supplements, minerals and vitamins. In 2016, Blackmores won the award of Australia’s ‘Most trusted Brand’ in the manufacture of supplements and vitamins, an award it has retained in 8 successive years.

Started in 1932, Blackmores Ltd has attained strong reputation in both Australia and overseas global markets. Currently, Blackmore serves consumers in over 15 countries across the world. Nevertheless, a large percentage of its operations, sales and revenue come from the domestic Australian market. The company is a public company listed as an ASX 100 and has a market capitalization of $2.3 billion.

The aim of this study is to provide an environmental analysis of Blackmores Ltd. The paper will examine and internal and external operating environment, and make conclusions regarding its performance and future outlook.

Strategic business management is the process by which organizations examine, analyze and develop learning and insights from the internal and external operating environment. An environmental analysis is an important business activity that guides organization decision making regarding establishing a strategic direction, developing strategies for achieving set goals and executing strategies to achieve high performance, profitability, organizational objectives and meet the stakeholder expectations (Harrison & John, 2013). A typical environmental analysis includes an examination of the internal and external environment. The internal environment entails individuals within the organizations, including managers, employees, board of directors (Harrison & John, 2013). The external environment is further divided into the macro and microenvironment. The macro environment includes technological, legal, social-cultural, political, and economic factors. The microenvironment includes suppliers, competitors, customers, unions and activists groups, among others (Harrison & John, 2013).  

This section examines the internal factors and their potential impact on the performance of Blackmores Ltd. The internal environment comprises managers and employees, operational efficiency, profitability and mix and experience of the board of directors. 

Blackmores enjoys a strong management team committed towards attaining the organization vision and mission.  The leadership team remuneration is aligned with the with the shareholder benefits. The employees are committed and share in the values and culture of the organization enabling them to serve as brand ambassadors. Blackmores was recognized as one of the best employers in Australia through its various employee engagement programs and Aon Hewitt Best Employer Awards (Ronngard 2017).  Investing in employees has the potential of enhancing Blackmores competence and capacity, improving employee motivation and ultimately contributing to the overall productivity and profitability of the company.

Operational efficiency is an internal factor that directly influences organizational performance. Organizations with strong and efficient internal operations are able to lower costs, improve productivity, reduce wastes and ultimately lead to profitability (Dubey 2016). Blackmores enjoy high efficiency in its operations for the various market segments that it serves.

In 2016, Blackmore doubled its operational capacity, increased its production output, extended supplier base, installed new technology, invested in new roles at the organization and increased training of staff (Blackmores Annual Report, 2016).

Internal Environment Analysis

Blackmore continues to enjoy support of visionary leaders and board of directors who are committed towards ensuring the success and profitability of the company. The company has environmentally conscious directors who are also interested in spearheading the shareholder interests, thus ensuring continuous performance and profitability of the organization (Blackmores Annual Report, 2016).

This section examines the macro and micro environmental factors and their impact on the performance of Blackmores Ltd. The macro environment includes the political, socio-cultural, economic, and legal context. The microenvironment includes the competitive landscape and consumer preference, and suppliers.

Political environment

The political environment has significant implications on the performance of Blackmores Ltd. The political environment constitutes both threats and opportunities for the sustainability of Blackmores Ltd. The changing government with the assumption of liberals into power could create opportunities for the company since this would mean increased deregulation and lower taxes for the business. However, every new government has numerous uncertainties and potential changes arising from increased government involvement in business, which may result into unfavorable market environment. Political unrests, elections or any other changes in regimes in Australia, China and other markets in which the company operates may cause unfavorable environment hence hindering business operations.

Economic

The economic environment is very important for any business to thrive and remain competitive. According to the OECD economic survey report, Australia attained a significant economic growth suggesting the benefits of the strong macroeconomic reforms, commodity boom and structural reforms (OECD, 2017). A robust economic growth is likely to bolster consumer earning, lower unemployment and improve disposable income, thus enhancing the purchasing power of consumers of Blackmores products.

Legal

The legal environment also plays a significant role in shaping the operations and performance of Blackmores Ltd. Regulatory changes, including a shift in government policy, changing regulatory framework, may restrict the ability of the company to sell in one or more of its key markets (Blackmores Annual Report, 2016). Blackmores Ltd operates in key markets such as China, Australia, South Korea, Thailand, Malaysia, Hong Kong, Taiwan, Singapore, Hong Kong and New Zealand. Highly regulated markets, such as South Korea may hinder ability of the company to sell its products in the market (Blackmores Annual Report, 2016). Regulatory changes in the Chinese market, which represents the company’s key and strategic market, may have a significant negative impact on the company sales (Blackmores Annual Report, 2017).

Socio-cultural

The social cultural environment has a significant impact on the performance and profitability of an organization (Rothaermel, 2015). The social-cultural environment has a significant impact on the performance of Blackmores. There has been a change in demographics in Australia with the aging population, which continues to shift focus on healthy living. This has significantly increased demand for Blackmore products.

Competitive analysis

Porter’s five forces analysis is an effective framework for understanding the competitive landscape in which Blackmores operates. Porter identified five competitive forces in the market that affect the performance of the organization, namely the threat of new entrants, the threat of substitute products, and the bargaining power of suppliers, the bargaining power of buyers and the rivalry between the existing firms.

Operational Efficiency

Porter (2008) identified rivalry among existing firms as important contributor to competitive pressure in the industry.  Blackmores continues to experience aggressive competition from Australia and its global operations. In Australia, Blackmores continues to experience stiff competition from Swisse vitamins (Evans 2016). Moreover, the health segments in the markets that Blackmores operates are highly fragmented and this coupled with competition implies that the rivals are able to reformulate the products offered by the company. Blackmores continued to experience competitive challenges in established markets, such as Asia, Thailand, Malaysia, China and Korea.

Porter (2008) argued that the threats to new entry represented a competitive challenge for firms because it brought new capacity to the industry and rivalry for increased market share thus putting pressure on costs, prices and the rate of investment necessary for competing effectively in the market. The threat to new entry is relatively low due to the high capital expenditure (CAPEX) required to set up the business. Moreover, there are different legal requirements in the various markets that Blackmores has established strong footprint, which hinders entry of new competitors.  With the increased interest and expansion into the growing Asian markets, the threats of entrants are high as competing firms seek to cash into the growing demand (Blackmores Annual Report, 2016).

Moreover, Porter (2008) suggested that the threat of substitute products was a challenge for firms since consumers had a wide variety of products to choose. Nevertheless, Blackmores experiences low threat from substitute products due to a high trust that consumers have in its brand. Blackmores has been awarded as the no.1 most trusted brand in Australia for the last 8 years (Blackmores Annual Report, 2016). Blackmores’s acquisition of Global Therapeutics, an Australian firm selling Chinese herbal medicines, namely Oriental Botanicals and Fusion Health significantly removed competition in the market. This acquisition enabled Blackmores to take advantage of the market leadership of these brands, which has an approximately 80% share of the Chinese Herbal medicine market (Blackmores Annual Report, 2016).

The bargaining power of suppliers strongly influences a firm’s ability to compete in the market through influencing prices, quality and quantity of supplies, and influencing costs in the industry. The bargaining power of suppliers is relatively low, implying that they are not likely to pose a competitive challenge to Blackmores. Through an expansion to the Asian market, Blackmores has significantly increased its supplier base, hence ensuring multiple sourcing. In 2016, the company doubled its operational capacity thus addressing the supply challenges (Blackmores Annual Report, 2016). In addition, the company extended its supplier base by entering strategic supplier partnerships, hosting supplier quality awards and expanding its warehouse footprint.

Finally, bargaining power of consumers may have an impact on prices, quality of goods and services, and switching among competitors, which affect profitability of a firm (Porter, 2008).  The bargaining power of consumers is relatively high, creating competitive challenges for Blackmores. Besides selling online, Blackmores must maintain a good relationship with its retail and supermarkets that represents their highest buyers and distributors of its products (Blackmores Annual Report, 2016).

Board of Directors

Consumer preferences

There has been a significant and growing interest in consumer interest towards health products (Blackmores Annual Report, 2016). In 2016, Blackmores recorded an increase of 56% in sales compared to the previous year, which they attributed to the growing consumer demand for quality, and natural wellness health products (Blackmores Annual Report, 2016).

There has been a growing demand for health products across the Asian pacific market. This growth has been boosted with the increased expansions in the free trade policies in Asian and Chinese markets.    The company reported high sales margins from Asian consumers who accounted for 50% of the group sales (Blackmores Annual Report, 2016). This trend highlights a growing demand for the company products beyond Australia and suggests the importance of developing a growth strategy in the Asian market.

The growing demand in Asia pacific region suggests the future trends in the company, which is likely to expand in this region. Moreover, there has been a significant rise in healthcare costs in Australia (Coory, 2004). The rising costs of healthcare imply that many consumers are likely to consume more of the natural health products, thus widening the market for Blackmores.  The reality is that more people are aging in Australia and China, which drives interest and demand for personalized health and natural health products (Sun 2016).

The company has also been experiencing growth in sales and profits driven by operational efficiency, product innovation and growing consumer demand. Through its local and regional segments, Blackmores has been able to record significant profits and growth. The company fundamentals are positive and strong, giving it s competitive edge over its rivals. The figure below shows the company’s group sales for 2016.

Group sales in 2016

 The group sales for the year 2016 was $717.2 M compared to$ 471.6 M recorded in 2015 suggesting a 56% growth. From the above table, it is clear that Australia was still the leading market followed by the growth in Asian markets. Asia remains the company’s future growth market with high potential for long-term profitability.

Conclusion

This paper has explored the internal and external business environment that Blackmores operates. The conclusion drawn from this study is that Blackmores enjoys a relatively favorable and stable business environment that can guarantee its profitability and success. In the future, China and Asian markets will determine the sustainability and competitiveness of the company. Hence, its priorities to focus on the consumer, establish product leadership, expand into the Asian market and improve operational efficiency are timely and necessary for ensuring its continued performance and profitability. The future of the organization is bright and with the right strategies, the company will be in a better position remain the market leader and grow its profits through leveraging growing consumer demand and harnessing value of market segments that are yet to be exploited.

References

Blackmores Annual Report (2016). 2016 Financial Year. Retrieved from https://www.blackmores.com.au/about-us/investor-centre/annual-and-half-year-reports

Blackmores Annual Report (2017). 2017 Financial Year: 1H Financial Report for the Half Year ended 31^st December 2016. Retrieved from https://www.blackmores.com.au/about-us/investor-centre/annual-and-half-year-reports

Coory, M. D. (2004). Ageing and healthcare costs in Australia: a case of policy-based evidence?. Medical Journal of Australia, 180(11), 581-584.

Dubey, R. (Ed.). (2016). Strategic  Management of Sustainable Manufacturing Operations. IGI Global.

Evans, S. (2016). Swisse vitamins sales revealed to rival Blackmores. The Sydney Morning Gerald. Retrieved from https://www.smh.com.au/business/swisse-vitamins-sales-revealed-to-rival-blackmores-20160330-gnttry.html

Harrison, J. S., & John, C. H. S. (2013). Foundations in strategic management. Cengage Learning

OECD (2017). OECD Economic Surveys: Australia. Retrieved from https://www.oecd.org/eco/surveys/Australia-2017-OECD-economic-survey-overview.pdf

Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 86(1), 25-40

Ronngard, H. (2017). Blackmores and Bellamy’s Australia Jump More Than 5%. Moneymorning. Retrieved from https://www.moneymorning.com.au/20170321/blackmores-bellamys-australia-jump-5-asxu.html

Rothaermel, F. T. (2015). Strategic management. New York, NY: McGraw-Hill.

Sun, W. (2016). Regimes of healthy living: The reality of ageing in urban China and the cultivation of new normative subjects. Journal of Consumer Culture, 16(3), 908-925