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Esquel Group’s Strategic Management Case Study

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Updated: Apr 28th, 2021

How did bringing the different manufacturing activities in-house help Esquel to control the high quality of their product content and services?

The significance of maintaining high-quality standards in the target market cannot possibly be underrated in the realm of the global economy, where competition rates get increasingly higher every day. Therefore, to excel in its performance and build a strong competitive advantage that would help it stand out from the rest of the organizations, Esquel had to develop the unique characteristic that would make it instantly recognizable. The use of the in-house system helped the organization maintain its quality levels high due to the opportunities that the identified approach opened for the firm in terms of its supply chain management.

In retrospect, the choice of the in-house system was inevitable since it allowed addressing some of the most problematic issues in the Supply Chain Management (SCM) process, particularly the logistics-related concerns. The dependence on suppliers and other partners may come at a price for a company operating in the global economy realm due to possible misunderstandings and, therefore, a reduction in quality levels.

Indeed, even with the introduction of the latest technological advances into the company’s design, the information management system will remain imperfect because of the human factor and similar issues. Consequently, the more links are included in the supply chain (e.g., suppliers, partners, etc.), the greater the threat of a misunderstanding and a subsequent drop in product quality is. Shifting to the in-house framework, the company eliminated some of the threats to the quality of its products, e.g., the possibility of suppliers failing the deadlines.

However, it would be wrong to assume that the organization refused to use the assistance of suppliers entirely. Instead, Esquel established better control over the suppliers’ actions. As a result, the opportunities for increasing the competency rates of the latter and, thus, investing in the creation of a team of expert suppliers were opened for the firm. In other words, by refusing from the traditional relationships between a company and its partners, Esquel had a chance to improve its supply chain with the help of the open market options (Kosgei and Giatu 137-142).

Do you think Esquel was right in becoming a vertically integrated company? What do you think are the pros and cons of this strategy? In your opinion, what are the unique characteristics of Esquel business that made vertical integration their chosen strategy?

The choice of a vertical integration made by Esquel can be considered rather risky since it implies a deviation from the traditional SCM model, which, despite its flaws, still has proven to be quite efficient in the context of the global market. Indeed, by definition, vertical integration suggests that an organization should execute control over the areas that are typically viewed as the ones that should be managed by suppliers and similar partner organizations (Pakhi et al. 98-101). Given the responsibility and the need to coordinate an increased number of operations in the organization, the challenge is admittedly big.

Nevertheless, it seems that Esquel’s leaders had a valid point when switching to the identified framework of operations since it offered them much more freedom and, thus, flexibility in their decision-making. Furthermore, the fact that the control over the production processes and the associated issues had to be tightened meant that the foil for improving the quality of the end product was created. As a result, the company was able to get global recognition within a relatively short amount of time and gain a significant competitive advantage in the market that has been known for its rigid quality standards and a demanding audience.

It should be noted, though, that the choice of the vertical framework did not make the company entirely independent from the open market. Which is even more important, the application of the identified approach triggered an immediate and inevitable reduction in the product variety rates. Given the need for variety in the realm of the fashion and apparel industry, the threat to Esquel’s performance was considerably high.

However, even with the drop in the variety of the end product, Esquel managed to stay afloat due to the focus on the quality standards for which the vertical framework allowed. Indeed, according to the report, the model helped the organization meet the ISO standards that were viewed as a crucial element of success among the target customers.

Last but definitely not least, the chance of creating an immediately recognizable brand product and an instantly memorable brand image should be listed among the positive effects of applying the specified strategy to the company’s design. By taking tighter control over its production processes and other operations, the firm finally managed to design an appropriate resource management strategy. Consequently, the chances of investing in branding appeared.

It should be noted, though, that vertical integration is not the silver bullet that will help any company propel to the top of the target market. Only the firms with specific designs can consider using the identified strategy as the means of increasing their competitive advantage and gaining independence in the target market. When considering the characteristics that made Esquel compatible with the concept of vertical integration, one must mention the company’s propensity to focus on product innovations/. As explained above, reduction in product variability rates affects organizations greatly when they choose vertical integration. However, given the fact that Esquel concerned itself with the incorporation of disruptive technologies into the set of its inventory and the following design of innovative products, the application of vertical integration seemed a sensible step to take (Vu et al. 817-818).

What are some of the initiatives the company took to become more modern service-oriented? What are the benefits the company realized as a result?

The tendency toward designing innovative products that the organization displayed can also be viewed as a part of the strategy to become modern-service-oriented and, therefore, gain more recognition in the global market. Indeed, the global market requires that the firm should be able to produce unique goods that are ahead of their time. Furthermore, the fact that the company offers its customers the samples of innovations shows that Esquel has entered the domain of a customer-oriented approach. As a result, a rapid increase in customer loyalty levels can be observed. The latter phenomenon, in its turn, becomes the foundation for building an impressive competitive advantage in the apparel industry.

The improvement of Esquel’s operational efficiency and the subsequent redesign of the performance management tools should also be interpreted as an attempt to retain influence in the global market and take an even greater part in the development of the industry. The identified step can be interpreted as the extension of the firm’s quality management program. Last but definitely not least, the focus on the opportunities that the innovative IT tools have to offer must be viewed as one of the steps that the organization had to make in order to meet the needs of a diversified clientele. With the abolishment of the decentralized IT system and the adoption of a coherent set of IT strategies and tools that allowed for an improved communication process, Esquel built the foundation for a consistent improvement in quality. Indeed, the information management techniques included in the list of its tools helped acquire, assess, and transfer the relevant data within a short amount of time. Similarly, the customers’ feedback could be processed faster.

What are some of the initiatives Esquel took to improve their employees’ quality of life, to have a positive impact on society, and to conserve the environment? Do you think such initiatives would have been easy to justify had Esquel been a public company at the time it happened?

It would be wrong, however, to claim that Esquel’s leaders focused solely on financial opportunities. Instead, the company invested in all of its resources, including its personnel, therefore, building a sustainable approach to company management. It should be noted, though, that Esquel convinced the employees to focus on non-financial benefits, such as flexibility of their schedule, as opposed to the financial opportunities. The identified strategy would not have worked in the context of a public company, where the financial needs of the staff are also recognized. Instead of the approach described above, the company would have had to design the strategy that included both social support and financial rewards.

Indeed, a closer look at the way in which modern public companies operate will show that, due to the propensity for the specified type of organizations to have a higher turnover rate, it is more reasonable to use short-term incentives as the means of motivating the personnel Cremer and Tao par. 2-4). Nevertheless, the initiatives suggested by Esquel might also be considered legitimate in the context of a public company once the employee-oriented values were introduced and the focus was shifted toward increasing the company’s human capital.

The focus on sustainability, which Esquel’s new strategy can be characterized by, is bound to have a positive effect on the environment since it helps use resources sparingly. Furthermore, it allows reducing waste, which is also essential for keeping the environment safe. Seeing that the latter is linked directly to the health concerns and the well-being of the people living in the vicinity, Esquel’s approach can be defined as progressive as far as its effects on society are concerned.

Works Cited

Cremer, David De and Tian Tao. “Huawei: A Case Study of When Profit Sharing Works.” Harvard Business Review, 2016, pp. 1-5.

Kosgei, Rose Chepchumba and Robert Giatu. “Effect of Supplier Relationship Management on Organizational Performance: A Case Study of Kenya Airways Limited.” International Academic Journal of Procurement and Supply Chain Management, vol. 2, no. 2, 2016, pp. 134-148.

Pakhi, Shilpa, et al. “A Study of Evolution and Future of Supply Chain Management.” AIMS International Journal of Management, vol. 9, no. 2, 2015, pp. 95-106.

Vu, Zhuksin, et al. “Research on Scientific & Technological Achievements Transformation of Sichuan Provincial State-Owned Enterprises of China.” American Journal of Industrial and Business Management, vol. 6, no. 1, 2016, pp. 815-821.

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