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External issues in PESTEL

Discuss about the Turnaround and Retrenchment Strategy for Pacific Brands.

As explained by Grant, et al., (2014), strategic management mainly encompasses strengthening of an organization to make it compete effectively with other groups. In the modern business environment, competition is a key factor in assessing the viability of different firms. Therefore companies must be able to formulate efficiently, competitive strategies that would ensure they remain profitable, (Schmitt &Raisch, 2013, p. 1216) In Australia, there is a stiff competition between firms. Therefore, different organizations come up with various strategies to ensure they retain their customers, acquire new customers or adopt a more efficient mode of operation. In its attempts to avoid being kicked out of the market, Pacific Brands formulated a turnaround and retrenchment strategy that saw it move its manufacturing operations from Australia to China. (Sharp & Zappone, 2009) This decision was influenced by several issues that may be classified as external and internal.

The external issues influencing business operations are always caused by the external environmental factors that exist in the business location, (Ahmed, et al., 2006, p. 168). The organization always have no control over such issues

PESTEL model can be used to analyze Pacific Brand’s surrounding. This model gives Political, Economic, Social, Technological Environmental and Legal factors that influence competitive strategies of a firm, (Anton, 2015). These factors relate to Pacific brands and are discussed as follows.

Political factors: Australia has not experienced major political conflicts. There has been peace in this country enabling most businesses to thrive. This has made the level of competition very stiff. Most companies have been developed producing and distributing similar products as Pacific Brands. This may contribute to loss of customers by this company, making it move some activities offshore.

Economic Factors: According to Tong &Wei, 2015, p. 750), economic trends are changes that occur in economic growth. They may be caused by changes in local tax rates, rates of inflation, and changes in trade cycles and declining markets. Cheap textiles and clothes produced by other companies from within and outside Australia and supplied to customers in Australia may have caused this company to lose the market for its main brands, making it move its manufacturing activities to China. This company may have also faced challenges caused by fluctuations in the Australian currency value as compared to the dollar, decreasing its profitability.

Social Trends: Changes in consumer behavior is a major determinant of profitability of an organization. A firm should always ensure it supplies products that suit consumer preference and tastes, (Cater &Schwab, 2008, p. 42). Most customers may have lost preference for the Pacific brands main productions, like Bonds, Sheridan, and Berley, necessitating relocation.

External issues in SWOT

Technological changes: Improvement in technology has enabled businesses to operate more smoothly. Organizations can quickly obtain customers from the internet, and social media, easily advertise their products and execute orders and quick delivery, Thomas, (2007, p. 14). This, in turn, has stiffened competition in the business industry. Pacific Brands may have been affected by stiff competition caused by improved technology, imposing difficulties pricing, market segmentation, and differentiation, as most companies obtain customers over the internet and execute online shopping.

Environmental trends: These are changes that occur in the overall surrounding of an organization. They may include changes in climate, and endless ecological variations, (Anton, 2015). Australia faces significant climatic changes, ranging from cold climates in the Southern parts to the scorching climates in Kimberley region, located in the North West. This may have caused changes in preferences to clothes produced by this company. Residents in the southern mountains of Australia would need warm attires, while those in hotter regions require light attires. Some suppliers of clothes may have used this knowledge to supply the right types of clothes to the residents, making them develop less interest on Pacific Brands’ products.

Legal variations: These are trends in the legal structure of the government. The Australian legal compositions may inhibit proper operation of businesses in the country. This could be caused by high and inflexible tax rates and policies. Pacific brands may have experienced this challenge making it move its manufacturing operations to China, where fiscal policies are friendly.

The external issues that may have affected Pacific Brands activities in Australia can also be analyzed using SWOT analysis.

SWOT analysis works to identify, the strengths, Weaknesses Opportunities, and Threats of an entity. An entity should capitalize on its strengths, improve on its weaknesses, determine the opportunities available and exploit them, and eliminate threats it may face, (Tuksel & Dagdeviren, 2007, p 3365).

Strengths: These refer to the business’ actual capabilities. They may include better technology, qualified staff and dedicated management, (Ahmed, et al., 2006, p. 162). Pacific brands may relocate its activities offshore to maximize its strengths. The administration of this company is entirely dedicated to ensuring its profitability is maximized. Continuous loss-making due to loss of market for its manufactured products is one of the reasons for its relocation of activities to China.

Weaknesses: These are aspects that are not fully developed in the entity. Competitors can take advantage of these weaknesses to kick out a company from the market, (Anton, 2015). Pacific brands have fully established brands. However, its pricing system may not be very flexible to take care of the cheap brands in the market. It has, therefore, experienced difficulties in pricing its products, resulting in loss-making. This may be a major reason why it has decided to move its operations offshore.

Internal issues

Opportunities: The Company has seen opportunities from untapped markets in other countries like China and UK. This may be the main reason why it has decided to move its manufacturing activities to China, where it would sell its products efficiently.

Threats: These are factors that may hinder proper operation of an organization. A company should eliminate its risks so as to conduct its activities properly, (Tong &Wei, 2015, p. 744). In Australia, companies are offering cheap and low-quality products. However, Pacific brands optimize on customer satisfaction and value maximization. This has made it price its products highly. It has therefore lost the market for its manufactured textiles in Australia, making it move its manufacturing activities offshore.

These are conditions that exist within the business that affects its ability to operate efficiently. These factors may include, management, employees, innovation, the culture of the entity, and financial factors, (Pretorius, 2008, p. 20). Pacific Brands is a textile company, with several employees and customers. Moving some of its operation offshore, caused loss of jobs for its workers in Australia. It also lost its loyal customers in Australia.

Management: poor management or lack of proper leadership in management may cause a company to make permanent losses. This results from poor operation mechanisms, (Pearce &Robbins, 2008, p. 122). Pacific Brands Company could have faced this problem making it unable to make profits in Australia.

Employees: Employees are significant determinants of business success, (Charkrabarti, et al., 2011, p. 7). Lack of motivation to work among the employees could cause the company to be unable to execute its manufacturing functions in Australia.

Customers: customers are major players in the marketing activities of any firm.  A business must meet customer preferences and taste to win customer loyalty for their products, (Need, 2006). The customers may have abandoned the company's products making it make losses.

Innovation: This mainly involves coming up with new ideas. Lack of innovative leadership may have caused the company to be less competitive as compared to other entities operating in Australia.

According to Helms & Nixon, 2010, p. 372) SWOT model is a structured planning matrix, which assesses the firm's Strengths, opportunities weaknesses and threats. This tool may be  utilized in analyzing the internal environment of Pacific Brands

Strengths and weaknesses in the internal environment

Strengths: These are the interior features in the business which make it work more appropriately as compared to its competitors, (Tong & Wei, 2015, p. 745). Pacific Brands is honest with its strengths. Its ability to produce high-quality products, and is not ready to jeopardize this culture as a weapon for winning the competition in Australia. It may have therefore moved its manufacturing operations offshore to guard its strengths.

Weaknesses:  These are areas which the company is required to improve on to compete fairly in the market, (Tong & Wei, 2015, p. 145). Pacific Brands, may have moved some of its activities offshore, as a way of finding an opportunity to improve on its weaknesses. Such defects may include, diminishing reputation, caused by low-quality brands in the market, loss of image, due to a continuous decline in profits, and deteriorating creditworthiness caused by low returns.

Stakeholders are people who are interested in the performance of a firm. They may be directly or indirectly affected by the operations of the organization, (Furrer, et al., 2007, p. 376). Stakeholders can be known to the firm or unknown and hostile or friendly to the entity. The organization must always scan the environment to identify and classify its stakeholders, (Furrer, et al., 2007, p. 376). Some of the interested groups found in the case of Pacific brands are as follows;

Customer: These are the people who act as a market for the firm’s products, (Beeri, 2009, p. 132). Loyal customers for this company’s brands will be adversely affected, by the shift to offshore operations as they will be unable to acquire the products of their interest quickly. The company will lose the customers in Australia for its manufactured goods.

Suppliers: These are people who provide raw materials and services to the enterprise (Beeri, 2009, p. 132). The original suppliers of raw materials for textile manufacturing plant of Pacific Brands in Australia will lose the market for their suppliers. They will, therefore, incur losses as their customer base will decrease.

The local community: The local communities benefit directly or indirectly from corporate social responsibility activities of organizations. The Local communities in Australia will negatively be affected by this decision, as they will benefit no more from the socially responsible adventures that were initially carried out by Pacific Brands.

Employees: Thousands of workers will lose jobs in Australia. This is a negative impact as these workers will be rendered jobless. The company will acquire new employees for its new manufacturing plant it will situate in China.

Competitors:  Competitors are a hostile group of stakeholders, (Charkrabarti, et al., 2011, p. 8). Since the company will abandon its Australian markets, the competitors will take advantage of this to increase their sales level.

The Government: The government benefits directly from companies as they levy taxes from them. Corporate social responsibility acts executed by entities also relieves the government from the costs it would incur in cleaning the environment and providing for the welfare of the community, (Anisimova, 2016). It will, therefore, suffer due to this move, as it will lose taxes and helpful services that were initially offered.

Although the company has moved its manufacturing activities to China, some jobs will remain in Australia. This is because other nonmanufacturing activities are still based in Australia. Retaining other nonmanufacturing activities in the original country of operation may be caused by several reasons. These may include;

The cost of operation: The cost of developing an entirely new plant for offshore operations may be expensive, (Beeri, 2009, p. 134). This may cause Pacific Brands to retain some of its operations locally

Qualified staff: The Company may be interested in keeping the qualified staff it originally had. This may make it keep some of its operations in Australia, making some employment opportunities retained.

The risk of failure: Offshore operations may fail to be profitable, (Chakrabarti, et al., p. 20). For this reason, the company may retain some of its operations locally, so as to prevent total loss.

The cost of hiring new staff: the cost of hiring new employees in the offshore activities may be expensive. This may make it necessary for the company to retain some of its local workers, and local operations. Therefore some employees may still get jobs locally from the enterprise.

Conclusion

In conclusion, this report has analyzed how Pacific Brands Company has used Turnaround and Retrenchment strategy in ensuring that it retains back its profitability and competitive advantage. These policies are necessary whenever competition is high, making the company to be less profitable. The company has therefore used an appropriate strategy, which can make it regain back its reputation, pride, market position and customer base.

References

Ahmed, A.M., Zairi, M., and Almarri, K.S., 2006. SWOT Analysis for Air China Performance and its Experience with Quality. Benchmarking: An International Journal, 13(1/2), pp.160-173.

Anisimova, T., 2016. The Effects of Corporate Brand Symbolism on Consumer Satisfaction and Loyalty: Evidence from Australia. Asia-Pacific Journal of Marketing and Logistics, 28(3).

Anton, R., 2015. An Integrated Strategy Framework (ISF) for Combining Porter's 5-Forces, Diamond, PESTEL, and SWOT Analysis.

Beeri, I., 2009. The Measurement of Turnaround Management Strategies in Local Authorities. Public Money & Management, 29(2), pp.131-136.

Cater, J. & Schwab, A., 2008. Turnaround Strategies in Established Small Family Firms. Family Business Review, 21(1), pp.31-50.

Chakrabarti, A., Vidal, E. and Mitchell, W., 2011. Business Transformation in Heterogeneous Environments: The Impact of Market Development and Firm Strength on Retrenchment and Growth Reconfiguration. Global Strategy Journal, 1(1?2), pp.6-26.

Filatotchev, I., and Toms, S., 2006. Corporate Governance and Financial Constraints on Strategic Turnarounds. Journal of Management Studies, 43(3), pp.407-433.

Furrer, O., Rajendran,  Pandian, J. and Thomas, H., 2007. Corporate strategy and shareholder value during decline and turnaround. Management Decision, 45(3), pp.372-392.

Grant et al. 2014. Contemporary Strategic Management: An Australian Perspective, 2nd edn. Wiley.

Helms, M.M., and Nixon, J., 2010. Exploring SWOT Analysis-where are we Now? A review of Academic Research from the Last Decade. Journal of strategy and management, 3(3), pp.215-251.

Need, W.C.D.H.P., 2006. Human Resource Management: Gaining a Competitive Advantage.

Pearce, J.A. and Robbins, D.K., 2008. Strategic Transformation as the Essential Last Step in the Process of Business Turnaround. Business Horizons, 51(2), pp.121-130.

Pretorius, M., 2008. When Porter's Generic Strategies are not enough: Complementary Strategies for Turnaround Situations. Journal of Business Strategy, 29(6), pp.19-28.

Schmitt, A. and Raisch, S., 2013. Corporate Turnarounds: The Duality of Retrenchment and Recovery. Journal of Management Studies, 50(7), pp.1216-1244.

Sharp, A., and Zappone, C., 2009. The Sydney Morning Gerald. [Online]
Available at: https://www.smh.com.au/business/pac-brands-exits-australian-manufacturing-20090225-8hei.html
[Accessed 5 January 2017].

Thomas, H., 2007. An analysis of the Environment and Competitive Dynamics of Management Education. Journal of Management Development, 26(1), pp.9-21.

Tong, J., Li, H. and Wei, Q., 2015. Development Environment and Strategic Choice for Rural Endowment Insurance Fee-to-Tax: An Analysis Based on PEST-SWOT Model. In Proceedings of the Ninth International Conference on Management Science and Engineering Management (pp. 743-758). Springer Berlin Heidelberg.

Yuksel, ?. and Dagdeviren, M., 2007. Using the Analytic Network Process (ANP) in a SWOT Analysis–A case Study for a Textile Firm. Information Sciences, 177(16), pp.3364-3382.

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