Strategic assessment requires the business to get to know its external environment, internal resources and the business culture. In getting a market niche in a given market, the organization in question has to get their strategy right in order to cope with other competitors in the field.
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Carrying out external analysis helps in understanding what might affect the business in the future from outside. External analysis is useful at three important levels. First level is the changes meant for the business environment, the next level is changes inside the business and the last level includes the activities of competitors known to the business.
The competitive forces in business reveal the drivers that bring about change in an industry. Business managers and investors need to understand the structure of an industry in performing external analysis (Tutor2u, 2011).
General Environmental Analysis (STEEP)
Implications of the STEEP analysis to circa
This determines how circa’s external analysis affects its business environment. Circa’s issues in STEEP analysis in terms of social environment should talk about; what ideologies does circa have for the market. This can be explained through the market prices that circa offers for its products.
An example is the ZMF specialty chemical, which is selling at 2750 Australian dollars. This price is inclusive of a given margin which caters for situations where circa has to buy back the ZMF from third party converters. Another implication can be highlighted is, what pace is the technological change? To answer this, circa has a vision of having several plants with an estimated fabrication cost of 2 million Australian dollars for each.
The next implication lies on the ecological factor. This asks questions as what recycling capabilities does circa have. This focuses on the feedstock that is used by circa if there is a capability of recycling them for use. This will enable unconstrained feedstock availability. An example to this is the availability of 0.75 – 1.5 million tonnes straw in the Malle/ Wimmera region. Another implication is how the income is distributed.
This will depend on the consumption by the process. As an example circa’s production process may consume 50 percent of the char produced as energy, hence the need to use more economical means such as to use grid electricity. The last implication is how does circa processes influence decision making?
This is possible since it can enable decision on feedstock costs. Circa approximate cost for a farmer is about 23 dollars per tonne delivered. This gives a selling price of char to be 3.6 time the price given by the government on carbon dioxide (Circa, 2009).
Circa have several top issues that affect the analysis of its general environmental which include among the following five issues. The first issue is the type of feedstock used for the processes. Circa has a design capacity of 37.5 tonne per day of wet straw feedstock for each modular plant.
The second issue is the yield produced by the processes. Circa’s main aim is to increase the yields through establishing more plants to be built while it addresses process bottlenecks. Thirdly, there is the issue that circa faces in the general environmental analysis is the availability of unconstrained feedstock.
Subsequently circa face the issue of percentage of available plants for production. The question that circa should be objective on is the need for an option of co-locating on a site with larger number of manufacturers. Lastly, there is the assumption that the entire liquid chemical can be sold.
Importance of each environmental factor
Analysis of the environments that circa has to interact with takes into consideration several factors in environmental analysis. This is because they have to interact with several players in the market including their competitors. The first factor is the social factor whereby circa partner with other companies to commercially develop levoglucosenone and an agricultural equipment supplier to maintain the plants that circa owns.
The social factor also determines how circa relates to the other competitors in the market. Secondly, is the technological factor whereby circa uses a technology that is able to yield three products in form of a C6 liquid chemical that takes up 15%, agri char, which takes up 40% and water that takes 45% of the total yield. This technology helps circa to get the market niche that circa requires for marketing its products.
Thirdly, is the economic factor that considers using technologies that are inexpensive like furacell and a market price, which is in excess of 2500 Australian dollars per tonne. Another factor is environmental whereby circa locates multiple reactors in locations where large quantities of feedstock are available.
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Lastly is the political factor whereby circa considers governments recommendations in comparisons to industry initiatives. This helps circa to mitigate the costs they use in transferring to new technological opportunities to commercial reality (Albert, 1994).
Porter’s Five Forces Model
This model is vital when assessing the competition strategy in an industry. According to Porter, in order to determine industries profitability and its attractiveness, five forces add to the competitive advantage of the business. The forces in consideration in this model include new entrants to the market, threats of substitute products, and the power of buyers, the power of suppliers and rivalry that exists between competitors (Porter, 2008).
Threat posed by new market entrants
New companies that enter the Australian industry market affect the industry by raising the level of competition. The entrants of more manufacturing industries will affect the already existing ones since there will be competition for raw materials.
In countering these factors, CIRCA needs to take note of what scales of economies exists in the market. Another issue to consider is investment requirements in order to thrive in the industry. Then there is the issue of the costs that are involved in switching of customers. Circa gets to account for the expenses in switching of customers between their competitors.
Threats posed by substitute products
Substitute products in the Australian industry make the industry less attractive. This brings about limits in the price of products since customers have substitute products.
Bargaining power of suppliers
The cost of buying items for production is significant to the company’s profitability. For the Australian industry, the bargaining power of the suppliers is limited since most of the raw materials in use are recycled. The industry becomes less attractive if the suppliers have a higher bargaining power. When the bargaining power of suppliers is high then
- Availability of many buyers with less suppliers
- The available goods are highly valued and are undifferentiated
- Buyers do not integrate backwards into supply (Porter, 2008).
Bargaining power of buyers
In order to create demand in an industry, buyers have to be present. The bargaining power of buyers is greater when the number of dominant buyers is less as compared to the number of sellers in the industry. Australia boosts of a wide market for its products, which includes other companies, hence this makes the market attractive. This is because there is the ready market for the products produced.
Intensity of rivalry
This depends mainly on the competition structure of the market. In the Australian industry, rivalry is minimal since the market is a leader in the products it provides. Another benefit to the Australian industry is that the products customers can clearly differentiate their products from other competitors. This makes the industry attractive since it is profitable, as most customers will prefer products from the industry.
From the above reasons, it is practical that the Australian industry is attractive, as most of the customers prefer their products hence making it profitable (Grove, 1996).
Who are CIRCA’s main competitors? How do they measure up against these competitors?
CIRCA’s main competitor is Biota Holdings Limited. This company deals mainly with the development of drugs and has a market capitalization in excess of 390 million Australian dollars.
In this regard, CIRCA needs to produce more products for the market. Another measure towards competitors is the use of mobile plants in the location of raw materials. This gives CIRCA an opportunity to reduce cost in some services, which would be available on site. CIRCA is employing a pricing technique depending on the number of units purchased (Circa, 2009).
This environment has a broad scope with long-term implications for the organization and the strategies for the environment. Circa achieves this through establishing of more plants and then identifies and addresses process bottlenecks. This environment helps CIRCA to know the boundaries of its market segment.
Circa intends to put up a number of projects that will improve their yields while driving down production cost. Circa’s strategy is to carry out the projects in two stages. Circa will run and own the first two plants of the first stage. The second stage in the projects implementation will target the performance capabilities of future plants.
This environment determines how attractive an industry is. Analysis of the external environment in regards to industry environment helps circa determine what profits the company most. Circa has set the market price for the ZMF specialty chemical at 2750 Australian dollars.
This pricing includes a certain a given pricing margin for circa that helps in situations where circa is buying back the ZMF from the third party converters. This environment helps CIRCA to know its economic strengths. It also gives CIRCA a leeway on how to go about marketing of the products in order to increase the profit margin.
This environment considers competitors who can be individuals or groups. The competitors’ environment is split into strategic groups, which are subsets that compete close to one another and exhibit same characteristics.
Circa plans to build, two plants next year in august and December with a fabrication cost of 2 million dollars for each. These will be based on mobile plants equivalents. This will later on provide reduction in the availability of low-grade heat on site thus making circa more competitive as compared to other companies (Circa, 2009).
Direct and indirect competitors for CIRCA in Australia & overseas
An example of a direct immediate competitor to CIRCA is Biota Holdings Limited, which is a company whose main activity is to develop drugs and is located in Australia.
Biota holdings limited company has a market capitalization that generates revenue totaling to excess of 390 million Australian dollars.
Biota Holdings limited has a good history in drug development as being a world leader. This is attributable to the fact that it is listed on the Australian Securities Exchange.
Biota Company supports new drug application in the United States by giving them a contract of 231 million US dollars in the year 2011. This gives this company the required market penetration that it needs and it helped the company expand its antibacterial drug interests.
For the impending competitors in the market that compete with circa, an example can be given of Starpharma Holdings, which deals with drug development. This is a direct competitor to circa because it is located in Australia hence share the same market niche.
Starpharma Holdings boasts of a market capitalization of about 176 million dollars.
Starpharma Holdings is emerging as a clear market leader in the biotechnology sector this is due to its maturing portfolio. Starpharma Holdings is positioning itself as a viable competitor to circa since it is expanding in their products and the clinical processes that it offers.
Starpharma Holdings has entered into partnerships with leading global companies that help in funding and accelerating its development programs. It has also reacted to the market by adding new internal development programs with potential to deliver value to shareholders in the future.
An example of invisible competitor to circa is Prima Biomed, which also specializes in drug development focusing majorly on cancer treatment.
Prima Biomed has a market capitalization of less than 100 million dollars.
Prima Biomed market positioning is their inclusion to the standard and poor’s ASX 300 index in 2011. This makes this company a growing threat to circa in the market niche.
One of the major reactions of Prima Biomed is implementing of a new technology known as CVac cell therapy that helps in the treatment of cancer. This makes it offer unique services to the market hence increasing its market share with time.
How competitive is the industry? Where is the power?
The Australian biotechnology industry is very competitive since it attracts more customers who look for the best products in the market. The ability of the industry to recycle the raw materials makes availability of materials easier. Due to this, the profitability of the industry will be positive hence attract more customers.
The power in the model is in the analysis of the Australian industry lies on the intensity of rivalry. This is because the industry is an establishment as a market leader the will of the customers to get the right items (Baden-Fuller, 1992).
In carrying out environment analysis, circa has to invest in their chemical industry presence globally since the potential non-fuel market for circa’s products can be measured in millions of tonnes. The furacell technology that circa uses is well suited for the industry since it yields three products.
This helps circa in capturing a larger market niche for their products. In order for circa to continue enjoying its market share, it should review the boundary conditions and success factors. This factor will ensure circa establishes more value added and biomass-derived business.
Another recommendation that circa can adopt is increasing the demand new manufacturing technologies that will improve their advantage with their competitors. In collaborating with several with other firms, helps circa in improving their commercial reality (Albert, 1994).
Albert, M. 1994. Unpublished talk at the Strategic Management Society’s Fourteenth Annual International Conference. Paris.
Baden-Fuller, C., and Stopford, J. M. 1992. Rejuvenating the Mature Business. London: Routledge.
Circa, 2009. VCAMM Innovation Centre. Burwood: Knoxfield Victoria.
Grove, A., 1996. Only the Paranoid Survive: How to Exploit the Crisis Points that Challenge every Company and Career. London: HarperCollins.
Porter, E., 2008. The Five Competitive Forces that Shape Strategy. London: Harvard Business Review.
Tutor2u, 2011. Strategy: Porter’s Five Forces Model: analyzing industry structure [Online] Available at: <https://www.tutor2u.net/business/reference/porters-model-of-industry-rivalry-five-forces>