The provided case study is about the Welspun Group which is not only one of the largest and fastest growing business organization of India, but also a well-renowned organization globally (Welspun.com 2017). In the past few years, globalizations has become the most discussed and major factor for the business organizations. According to Beck (2015), globalization is a method by which business organizations establish international influence or start operating on an international scale. Due to globalization, when the business organizations got an opportunity to expand their businesses to foreign countries, they grabbed it with both hands (Pieterse 2015). Welspun is also not an exception. From the case study it is clear that in order to make its presence in the international market, the organization expanded into several sectors such as pipe manufacturing, steel & manufacturing along with energy sector. It is true that after these expansions the organization is experiencing noticeable growth. However, it is also facing some challenges before them. The case study attempts to point out those challenges faced by the organization.
From the provided case study, it is clear that the organization has responded to the growing concept of globalization by entering into different and diversified business sectors. Until now, the business is running smoothly as it is seen that the company is gaining continuous profits and experiencing tremendous growth (Sheth 2016). However, as the opportunities in those markets are rising along with the demands of the consumers which are also rising, the chances are high that this diversified portfolio of the company will provide numerous challenges to Welspun Group. Therefore, currently business and product diversification which is the main factor of growth will become a major challenge for the organization. Some challenges that the organization will face while maintaining diversified business portfolio would be;
When compared with the other markets where Welspun Group is expanding their business, India is the biggest market in terms of opportunity. According to Khanna and Palepu (2013), India is one of the world’s biggest emerging markets after China where amount of competition is comparatively lower than any other country in the world (Joshi and Raichurkar 2016). On the other hand, legal and political rules and regulations are also negligible in the country. Welspun Group is now investing on their businesses in the UK and in the US where market competition is fierce and rules and governmental rules and regulations are also critical. Therefore, it can be stated that it is a risky decision taken by the management of the organization to expand in those countries.
Opening manufacturing facilities in foreign country offers an element of uncertainty. Welspun Groups is habituated to operate in countries where there is stability in terms of political leadership and governmental rules and regulations (Kar 2015). In this situation, a sudden regime change can lead to monetary upheaval that can jeopardize the organization’s long-term success.
Complexity in investment will arrive in from two areas. One is normal investment and the other is business related costs. Jumping into new business ventures will divide the investment opportunities of the organization. For example, if the company only had one type of business such as textile, then it could invest a random $200,000 directly to the textile business. However, as the organization has now expanded in 3 new markets, this $200,000 will split up in total four parts. Each business will have only $50,000 as investment. It means, complexity will be added to the portfolio along with new management teams and bureaucratic costs that must be paid to maintain the investments over the long term.
Business that operates in different product sectors requires different infrastructure, employees and training programs for those employees. The more diversify the organization will become; the more will decrease their ability to respond quickly and innovatively to the market changes (Dunning 2014). Besides, for each business, to develop and maintain different infrastructure, more capital will be invested. It will hurt the profitability of the organization in the future.
In order to deal with the up-coming challenges of the organization related to diversity in product and business sectors, the management of the organization can undertake two strategies which are geographic expansion and product diversification.
Doing geographic expansion is not enough as it should be done in a proper manner. Some proper steps to select a new market are hereby mentioned below.
Before expanding further in any country the management of the organization will have to conduct proper researches to find out the customer buying behavior, political conditions, constraints related to governmental rules and regulations, labor related rules and relations and other factors in a proper manner (Sarasvathy et al. 2014). It is true that research and development costs are high but expansion in a new market without doing proper research will become more challenging and expensive for the organization.
Uncertainty of strategy and trend is of the biggest drains on any organization. If the intentions of the organization are not clear, the employees will make up their own versions of the story. Besides, as the company operates in different markets, it will become more difficult for the employees to understand the vision of the organization (Dau 2013). Therefore, before expanding to a new market, it is important to develop a set of goals that all the employees will follow, does not matter in which department or in which business sector they are in.
As mentioned by Zismer and Schuh (2016), even with proper marketing strategy and due diligence, it is always risky to expand in a new country. Most of the organizations fail while tackling new markets because of market dynamics of supply and demand. One of the main strategies to avoid cash siphon of geographic expansion is to maintain transparency. Costly distractions can be neglected by delivering transparency to key employees about strategic and monetary intentions.
The management of the organization will have to set their objectives for product diversification. While expanding in a new market, it is recommended that the management of the organization can adapt a defensive approach to protect the business (Grant 2016). For example, if opportunity is limited in the new market and competition is high then it is required to take defensive approach. On the other hand if opportunity is high then the organization can undertake offensive approach to gather as much share as possible.
It is already mentioned that developing manufacturing units in foreign countries is a tough job to do (Berry?Stölzle et al. 2013). Therefore, the organization can consider other options such as distributing products from other suppliers.
While expanding business in a new market, the management of the organization will have to find new suppliers and will have to develop an effective working relationship with them. It is also necessary to review the sales and marketing resources.
Expanding in markets such as the UK and the US where a lot of organizations are successfully handling the demand of the consumers is risky for the business (Zismer and Schuh 2016). The management of the organization will have to expand in countries where the demand is high but existing companies are unable to meet the requirements.
In the end, it can be concluded that currently Welspun Group is experiencing serious growth in their business. Diversifying business is not an easy thing to do. However, the management of the organization is currently operating in diverse markets with ample amount of control. However, it is expected that due to extreme diverse products, the organization will several issues in the future. In this report, a detailed description is provided on the issues and challenges the organization is facing and will face in the near future. In the next part of the report, a recommendation is added for the management of the organization based on the challenges they are facing and their current business strategy. Currently the organization is expanding geographically and adapting product diversification strategy. Within both the strategies how the management can avoid risks and can achieve success are mentioned in the recommendation part.
Beck, U., 2015. What is globalization?. John Wiley & Sons.
Berry?Stölzle, T.R., Hoyt, R.E. and Wende, S., 2013. Capital market development, competition, property rights, and the value of insurer product?line diversification: A cross?country analysis. Journal of Risk and Insurance, 80(2), pp.423-459.
Dau, L.A., 2013. Learning across geographic space: Pro-market reforms, multinationalization strategy, and profitability. Journal of International Business Studies, 44(3), pp.235-262.
Dunning, J.H., 2014. The Globalization of Business (Routledge Revivals): The Challenge of the 1990s. Routledge.
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Joshi, V. and Raichurkar, P.P., 2016. Investment Opportunities in Decentralized Textile Industries-Cluster Development Approach: A Path Way. International journal on textile engineering and processes, p.13.
Kar, M., 2015. The Role of Foreign Collaborations in the Textile and Clothing Sector. In The Indian Textile and Clothing Industry (pp. 69-82). Springer India.
Khanna, T. and Palepu, K., 2013. Winning in emerging markets: A road map for strategy and execution. Harvard Business Press.
Pieterse, J.N., 2015. Globalization and culture: Global mélange. Rowman & Littlefield.
Sarasvathy, S., Kumar, K., York, J.G. and Bhagavatula, S., 2014. An effectual approach to international entrepreneurship: overlaps, challenges, and provocative possibilities. Entrepreneurship Theory and Practice, 38(1), pp.71-93.
Sheth, C.R., 2016. A Comparative Study on Cash Flow Statements of Welspun India Ltd. and Ghcl Ltd. Indian Journal of Applied Research, 5(7).
Welspun.com. 2017. ":: WELSPUN ::". Welspun.Com. https://www.welspun.com/index.asp
Zismer, D.K. and Schuh, D., 2016. Clinical service line strategy: managing the risks of geographic expansion. Healthcare Financial Management, 70(7), pp.50-58.
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