International Assets Holding Company is one of the young firms, which are developing in an astonishing manner. Despite having commenced its operations less than three decades ago, its performance is overwhelming and worth recognition. The steady annual revenue turnover exemplifies its intrinsic potential.
This report strives to unravel the secret behinds International Assets Holding Corporation steady growth in international market. In addition, the report will briefly give historical perspective of the firms, its global strategy and its operational environment.
Finally, explicit analysis of challenges will be done and substantial recommendations presented on how to execute its strategic objectives while bearing in mind the limitations and challenges facing the firm.
International Assets Holding Corporation began its operation in 1981. Since then the corporation has recorded remarkable operational capacities, which is characterized by generic growth coupled with numerous acquisitions and mergers. Generally, International Assets Holding Corporation specializes in foreign exchange trading in merchandise such as precious metals and base metals, farm products, textile among others.
It also operates in capital markets and security markets as well as financial services and investment advisers. International Asset Holding Corporation became a public company in 1994 after rigorous operations with positive annual revenues.
International Assets Holding Corporation owns a subsidiary called FCStone, which is the most successful firm in risk-management and executive advisor from 1924. The firms started as farmers, company but later it was privatized, its main area of operation was production of farm produce and livestock products. Gradual expansion and acquisitions have reverberated FCStone with expertise and agility to cope with competitions.
Due to the accumulation of resources and operation dexterity, FCStone has managed to diverse its outlook internationally (INTLFCStone, 2010). Earlier this year the firm made two major acquisitions; first the Risk Management Inc (RMI) and Hanley Group of Companies.
According to the latest Fortune rank, International Asset Holding Corporation occupies 14th position; this is a reflection of the steady and bold steps in trade. (INTLFCStone, 2010).
Despite its stable functional positioning and operation prowess, International Asset Holding Corporation is not immune to challenges presented by the international market. The main issues it has to muddle through are an unpredictable market situation, complexity of administration and management, volatility of the market conditions and stiff competition in international markets.
PESTEL is an effective tool used to assess the performance of any firm in respect to five fronts, which represents external factors that work against any firm. PESTEL is an acronym for Political, Economical, Sociological, Technological, Environmental and Legal factors. A firm’s analysis through this method highlights how business operations are influenced by the external factors.
International Asset Holding Corporation is compelled to adhere with the political situation, laws and statutes governing corporations in UK. The firm derives the benefits of stable political environment existing in England, which encourages investment. The country has formidable democratic government; such a stable atmosphere promotes investors’ confidence and enhances mobility of factors of production.
However, the firm is faced with the obligation of paying corporation taxes on top of export levies and other taxes, which reduces revenues. International Asset Holding Corporation is subject to foreign trade regulation imposed in England against foreign firms. In addition, the firm has to adjust itself with the barriers imposed by the government to protect local metal firms against stiff competition.
Undoubtedly, every firm is manipulated by political environment in which it operates. Despite England being an economic powerhouse in Europe and an international business harbor.
The country has been devastated by economic financial crisis. As business cycle condenses economic agility, the International Assets Holding Corporation has not been spared as it has received reduced sales and sustained substantial losses. The other issue that infringes International Assets Holding Corporation is changing interest rates, which are equally affected by the business cycles.
Both inflation and changes in the foreign exchanges rates have made it difficult to project with certainty the future trends as well as the profit margins in future trend. To contain these problems the management of the firm is required to maintain high level of accuracy and adoption of deflated Gross Domestic Product to project future operations margins.
The other challenge that faces the Corporation is low unemployment rate in England, which pushes wage rates high. In addition, the labor mobility is low between firms and therefore forcing production costs to be high.
In order to contain the numerous economic problems, the firm has no option but to diversify its product lines to reduce being affected by the decline in one product line. It is also important to import labor from a country with relative low labor rates such as Brazil or India. In addition, the firm’s employees are not registered in any trade union and therefore the firm enjoys continual production (INTLFCStone, 2010).
All industries endeavor to serve human beings, to meet their diverse needs as defined by the diverse cultural dispensations. The sociological factors, which affect International Assets Holding Corporation, are consumer-purchasing patterns, population distribution and their tastes and preferences. Due to the sensitivity and the narrow customer base facing the Corporation, customer analysis remains to be core success factor.
Knowledge managers are bestowed with the responsibility of scheming the market to obtain fine customers’ details such as demographic change, ethic issues, income range and their lifestyle to determine the most appropriate advertisement criteria that best suits them.
Best et al (2005, p.5) describe the ability of understanding customer psychology as the key to any firms success. For International Assets Holding Corporation financial sub-sector, understanding the clients’ lifestyle enables the firm to discern criteria of inducing them to save, or even secure loans.
Therefore, understanding sociological factors of the business environment is not only crucial but also enables the management to unlock the hidden potential. It is also of dire importance to understand how each customer pool reacts to price changes-whether they are price sensitive or not.
Evolution of technology continues to determine the level of firm’s production. Moreover, technology also influences the extent of advertisement. Although technology is a strategic tool for development, technological misuse is deadly as it results to misfire in all areas.
Therefore, each firm has a challenge to adopt the relevant state-of-the art while considering the competing technology to avoid using obsolete technology (Afuah, 2009, p.271). As the technology is dynamic so are the customers’ needs, hence a clear connection between adopting latest technology should be accompanied by production of superior products.
International Asset Holding Corporation has invested heavily on research and development to develop new products and telecommunication channels to encompass the needs of their clients (INTLFCStone, 2010). Williams & Green (1997, p. 165) stress the need of innovation and automation of the systems; it is through automation that the firm has been able to streamline operations and lessen bureaucratic process.
Each firm’s operations are governed by the environmental factors and the law set by the government. International assets Holding Corporation being a producing firm is exposed to heavy taxations to compensate for heavy pollutants it emits. Apart from the local environmental issues, the firm has to comply with global environmental factors pertaining environmental preservation and protection such as the Kyoto Protocol.
The Corporation’s renewable fuels sub-sector is said to be adversely affected by the environmental issues rendering to its reduced output (INTLFCStone, 2010). Failure of any firm to comply with the set environmental law may force the government to issue operation ban accompanied by hefty fines (Choucri, 1995, p.221).
Inclination to profit maximization principle may lead a company to violate the workers right and the rule of law. To preserve and govern the firms’ operations governments set the minimum wage limits, under-age employment policy, working time and the general laws to govern firms. International Assets Holding Corporation can only operate in whatever it is mandated to do.
Failure to do so, the company is likely to attract government restrictions. Lamb et al (2009, p.89) add that all firms are required to label their products and provide product description. In other countries, the Corporation is required to honor workers right by granting them permission to join trade unions to champion for their rights.
Current External Environment
Political integration and development of economic unions has fostered a viable economic environment for multinational Corporations to operate. Integration of economic unions lifts barriers of entry for international firms therefore making establishment and operation easy.
The international environment has also been improved by adoption of single currency. For example, the European Union uses Euro, which reduces currency exchanges. Globalization of economical resources has increased potential of large firms to tap into resource internationally at reduced costs.
International environment has also been characterized by steady evolution of technology and production means. The other benefit derived by technology is telecommunication powers; technology has reduced the world into a small village.
With new technological dispensations International Assets Holding Corporation is able to receive orders from clients who are geographically far away and in return offer prompt feedback. On the same note, the emergences of new media ads, which transcend over geographical regions, have made it possible for an advertisement to appeal to global clients.
However, international environment is characterized by stiff competition from the world best. To be able to compete effectively the firm has invested heavily to meet the expectation to avoid being driven outside the market by stronger firms that are more aggressive.
Porter’s Five Forces Model
Firms employ Porter’s five forces model to develop business strategies to enhance their competitive advantages. The model helps firms to develop a strategic plan to overcome the challenges presented by new entrants, suppliers bargaining power, intensifying rivalry with existing firms, coping with substitutes products and dealing with bargaining powers of buyers.
Threat of new entrants
Arguably, multinational corporations usually undermine the impact of new entrants. However, this analogy has been found erroneous since some new entrants enter with a large impact especially where products are homogenous. International Asset Holding Corporation has played victim of the new entrants especially in financial sectors where mushrooming financial institutions have usurped a large portion of the market share.
Jones (1996, p.95) adds that multinational Corporation face a mountainous task when governments opt to enter a business especially in mining sub-sector, due to its huge capital base government involvement affect firms a great deal.
However, the new entrants have less impact on metallic products sector due to the huge initial capital required. The threat posed by new entrants can also be minimized by diversifying the products line. The other way of mitigating the impact posed by new entrant is by strengthening the brand name of the company as well as developing superior quality.
Powers of suppliers
The impact and the power of the suppliers is the other aspect which the firm should be ready to cope with. Considering that both the firm and the suppliers’ aims at maximizing profits thus price negotiation becomes a problem. The magnitude of this problem is aggravated if suppliers have capacity to switch from one client to the other (Henry, 2008, p.79).
Multinational Corporation uses their asset power to consolidate their potential by merging with suppliers to avoid price contest in the future. On its part, International Assets Holding Corporation integrates with suppliers to diversify their capacity and production bases.
Secondly, the firm strives to lock-in the suppliers to discourage them from switching to other firms. Overwhelming powers of suppliers may lead to absorption of the firm; hence, firm strives to depend on various firms to avoid such occurrences.
Threat from Buyers
Households are the most important constituents of every firm. Apart from purchasing the commodities the households’ also, supply labor to the firm. Consumers determine the growth rate of the firm because of the quantity of purchases that they make. Burton and Ahlstrong (2009, p.133) argue that if consumers bargaining power surpasses that of the firm, the firm’s profit margins start decreasing.
To avert such a problem International Assets Holding Corporation ensures that it locks-in consumers by offering high switching costs, also the firm ensures that its customers do engage in trade unions (INTLFCStone, 2010, 2009). Finally, consumer powers can be dealt by strengthening company’s brand name, enhancing the corporation reputation in its very nature generates customers’ royalty.
Threats of substitute products
Substitute products present mild type of competition to any firm depending on the price elasticity of the products. When the products of a firm are price elastic, changes in prices of the substitute products affects the firms demand (Pasinetti, 1998, p.99). When such a scenario arises, the firm should be more careful on prize changes because it may have adverse effects on its revenue.
Some products lines of International Asset Holding are susceptible to price changes especially the financial sector. Changes in interest rates force customer to secure loans from other financial institutions offering low interest rates.
Pasinetti (1998, p.103) acknowledges that the substitution rate differs from one product to the other, but he cites technological evolution to have stimulated the substitution effect. For instance, the money transfer is battling it out with mobile phone money transfer technology, which has taken the world with a storm.
Competition from existing Firms
With the modern state of technology, rivalry among large Corporations has gone beyond the wild imagination. Their stable financial base has helped them in dealing with stiff competition. As a result, new products are produced at regular intervals in a bid to bait customers.
International Asset Holding Corporation faces stiff competition from The Goldman Sachs Group Inc, Interactive Brokers Group Inc, and J.P. Morgan Clearing Corp.
All the four firms are located in USA and compete in terms of financial services provisions, security Brokerage, foreign exchange services and fixed-income business. Solid competition existing in local markets has forced International Assets Holding Corporation to consider investing heavily on research to simplify development of hi-tech customer centered products.
Three Generic Strategies
A successful strategic planning presents three alternative courses of action to strengthen their superiority in the market. The three fronts are product differentiation, low cost leadership and focus or market segmentation.
Porter (1980, p.35) argues that any successful and competitive minded firm adopts either low cost leadership or product differentiation to consolidate its position. He argues that only one of these strategies is practical at a time due to the high cost and level of commitment that is required to make it a success.
Low Cost Leadership
For a firm to assume low cost leadership, the firm needs to reduce it production cost as well as it operation costs. Porter (1980, p.36) describes a successful application of low cost leadership as a powerful tool to deal with consumers bargaining powers.
Further, Porter adds that low cost leadership also protects the firm against ambitious suppliers and threats exposed by the substitute products. He argues that low-cost leadership allows a firm to maintain above average revenue.
Uniqueness is commonly embraced by firms with the aim of taking advantage of psychological effects that bolster brand salience. However, differentiation may take many forms such as developing fresh brand image, or redesigning the existing brand.
Porter (1980, P.37) underlines that although product differentiation does not disregard cost but costs are given decreased attention. Far and above the advantages derived by low-cost leadership, product differentiation expands and solidifies a company’s market share (Porter, 1980, p.38).
Focus/ Market Segmentation
This involves directing attention to a particular group of customers, product assortment or a regional market. Market segmentation aims at providing more satisfaction to a particular market rather than providing a holistic approach to the entire market (Porter, 1980, p.41).
However, firms prefer carrying out product differentiation especially in a market, which has distinct characteristics. Narrowing the focus helps to developing closer customer linkage, this helps to develop customer loyalty and services.
Recommended Course of Action
To stimulate more revenues generation, International Asset Holding Corporation should employ various strategies to promote their competitive strength. Product differentiation is the most productive course of action for the financial sector whose clients are sensitive to new products.
This project is not only successful for existing clients but is also attractive to new customers. In addition, product differentiation is also useful in cultivation of customer loyalty.
Low-cost leadership is optimal for manufacturing and processing product lines as metallic and foodstuffs. These are attainable by reducing the cost of raw material by appointing several suppliers or making backward integration to control the supply.
The other way of reducing cost is through labor importation from countries where wage rates are relatively low. Reduction of cost presents the country with a strong opportunity to battle it out with other high profiled competitors.
On the other hand, it would be advisable for International Asset Holding Corporation to carry out market segmentation in the textile/fabric product lines. The diverse nature and the market density of textile industry make it the most optimal strategic tool for launching competitive advantage.
A thorough research should be undertaken to ascertain the specific components that makes up the market niche. Textile markets segmentation may be based on either gender or age, with further specifications to meet fine clients’ specifications.
Justification of the Strategy
Product differentiation is a viable venture for International Assets Holding Corporation given its large capital base. Differentiating some product line would not only increase revenues for the firm, but will also help strengthen the brand name of the firm.
Furthermore, differentiation would equally present the firm with rejuvenated agility to tap new potentials. The main limitation for differentiation is the time required to complete a single project.
Secondly, adopting low-cost leadership in the agricultural products is another method that holds more potential to the firm. Universal demand for agricultural products is worth to be given the attention it deserves. The firm has huge production capacity; by reducing the production cost, the firm stands a better chance of commanding large market share given its huge demand base.
Based on data from the World Bank (2010), the firm may import labor from countries with lower wage rates such as India $.066 and Bangladesh $0.33. Furthermore, demand for food stuffs are price elastic, once the firm lowers the selling price; the demand for the product will exponentially increase.
This will eventually results to the firm enjoying the benefits of economic scale of production. However, with the current green house farming technology, other firms may offer stiff competition by lowering their costs too.
Carrying out market segmentation will enable the firm to offer better services to its customers compared to their competitors. Although, market segmentation is an expensive venture, increased sales will eventual surpass the initial cost.
Far and beyond the sales increase, a single product differentiation will boost the inherent company image. Successful market segmentation will help it achieve the target of rising return to equity from 15 percent to 20 percent (INTLFCStone, 2010).
After an in-depth analysis of the firm, I recommend the following measures to help improve its production and competitive edge. First, the company has to embrace the latest state-of-the-art technologies to avoid obsolescence.
Secondly, the firm should restructure its management structure to streamline management process. The management should carry out regular market analysis of its diverse product line in order to liquidate the less profitable ones. Finally, the management should carry out benchmark analysis to understand the strategies adopted by its competitors.
Strategic planning generates a strategic plan while execution of the plan ensures a firm achieves its goals and objective with ease and more conveniently. In addition, a properly structured strategic plan provides a visionary perspective for the long-term goals of the firm while meeting the immediate obligations of the firm. However, implementation of the strategic plan is costly and a lot of interest and attention is required.
International Assets Holding Corporation being an international organization is obligated to adopt changes in the global market if it really wants to maintain future competitiveness. The global trend of international operations requires a proactive, brave and vigilant approach to decision making otherwise failure is inevitable.
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