Introduction
Mercury International Limited is a global company that engages in the design and marketing of sports and fitness products with its history dating back to 1974. The products include apparel, footwear and accessories. Mercury is the established brand name for the company which serves the product lines of Boost, Sweatless Apparel and Trailstep.
Mercury also engages in the licensing of its trademark and its intellectual property to third parties for use on apparel, sporting goods, equipment, accessories, health clubs and other fitness products and services for the reinforcement and capitalization of the brand’s reputation. The company has major competitors although it has established a substantive market share.
The issues of concern for the company include mainly its products and services due to the need for innovation, the value discipline based on the recommendable organizational structure, concern for the drop in the quarterly earnings, financial risks, competition in the industry, the expected trends in the industry and the process of realignment.
Analysis of key issues in footwear and apparel industries
The identification of the key issues facing Mercury Limited involves the macro environmental and micro environmental issues, the state and changes in the economy as well as their influence on spending, lifestyles, manufacturing and income levels.
Description of the Key Issues facing Mercury International Limited
Products and Services
Mercury Ltd holds the fourth position in market share in the worldwide apparel and footwear industries. The design and performance of the products form part of the competition base. The products and services also represent the brand strength. The analysis shows that following the rising of the quotas and tariffs, the prices are likely to rise and the apparel inventory reduce at the retail store.
This calls for increased new product development and brand strengthening through maintaining and improving the value and quality of the already existing products and services. The new product development will require substantial increase in research and development through assessment of the market, customer needs and use of updated technologies to improve production and marketing.
Further, as reports show, the industry is faced with the issues of quotas and thus there is need for product cycle reduction to reduce the durations of product delivery to the market. This is to meet the needs of the customers within stipulated time and maintain their loyalty (Schramm, 2006).
The redevelopment of proprietary exchangeable sole technology in 2009 needs reconsideration due to the fact that the insoles and apparel businesses have fallen short of the expectations of management. Further, the redevelopment of Boost in the current year is recommendable. As analysis shows, the manufacturers in low end cost countries such as China are likely to benefit from economies of scale and being able to increase product and service distribution (Shane, 2008).
The Value Discipline
Mercury Company has manufacturing plants in other countries and manufactures products for the market in the specific country thus saving on shipping costs. The organizational structure is the standard one whereby leadership and management are based on geographical location, product line and market.
Accordingly, the structure of the organization needs to be based on the strategy used (Wiersema & Treacy, 1997). Mercury utilizes the corporate strategy hence the product leadership strategy is recommendable. This will require increased innovation and improvement of the value and quality of the products and services offered.
It is based on the proposition that “We Have the Best Product.” This strategy will require a focus on encouraging employee creativity and innovation, use of modern technology to boost quality and maintenance of the quality (Wiersema & Treacy, 1997). This is an alternative of establishing a competitive advantage considering that the greatest competitor and market leader in the footwear and apparel industry, Nike, uses the strategy.
The implementation is faced with challenges of high technological costs, personnel costs for top notch work and the bottlenecks of maintenance of the standards throughout the countries since manufacturing is suited for local products with the standards differing from one country of manufacturing to another.
Global Expansion
It is worth noting that the footwear and apparel industries are global with the emphasis on style and performance. Mercury is likely to benefit through increasing its global market due to market changes whereby it can gain from one market when the other is declining and still remain competitive especially with the reported improvements in the European market and the reduction in the Asian market. The strategy requires global marketing and brand strengthening and recognition.
However, it is faced with the challenges of brand recognition due to the fact that it has established manufacturing plants in the global market which supply goods to the local market hence compromises on homogeneity (Foster, 2009). Additionally, global marketing and advertising require high costs but likely to generate greater benefits. This is also to be made possible by the increased spending and allocations on research and development mostly at the global scene.
The Drop in Quarterly Earnings
The financial statements show a decline in the quarterly earnings reported. This is an issue of concern due to the competitive nature of the industry and the need to increase returns for the improvement of the market share. The decline is caused by the decline in the Asian revenues while the European market has increased due to the sales of the Snowstep shoes but the American market has remained steady (Schramm, 2006).
There is need to consider research and development in the Asian market to produce products that suit the market and increase brand recognition. The Asian market is expected to change following the quotas and tariff changes which are likely to increase the profitability of companies manufacturing in places such as China thus increasing the economies of scale for Mercury.
Further, the costs of production need to be lowered in the market to maximize on returns while not compromising on quality through market research. The product innovations for the European market is necessary to enable it remain steady even during the warmer seasons of the year. The strategy improvements through new products innovation are recommendable though quality has to be top notch for effective differentiation (Foster, 2009).
The price earnings ratio is expected to move to the industry norm of 15 with the stock prices higher. This is also likely to improve due to the quotas and tariffs changes causing the reduction in retail stocks and to the advantage of countries manufacturing in such countries.
Financial Risks
Mercury Limited is faced with several risks such as geographical risks due to the fact that it relies on manufacturing in countries that are politically unstable such as Indonesia and Czech Republic. While this enables it to lower its production costs in the short term, the brand name and overall running faces the risks of failures in the long run (Wiersema & Treacy, 1997).
The Indonesian tax holiday poses a risk for Mercury since the profits are reported with the benefits of a tax holiday whose expiry period is the current year yet the management’s plans for the next action on this are not stipulated.
Further, the exchange rates are a risk since Mercury does not carry out hedging as is required in the global industry which could lead to material losses (Schramm, 2006). Mercury needs to consider its risks, prepare to deal with them and look for ways of risk evasion or minimization to maintain competitive advantage.
Competition
Although Mercury ranks in the fourth position in terms of market share in the footwear and apparel industries, competition is very intense. The challenge in maintaining a competitive advantage lies in establishing the brand name through improved quality of products and the introduction of new products. It is recommendable to focus on research and development of the products and services with flexibility for adjustments to market changes and inherent risk minimization (Wiersema & Treacy, 1997).
Industry Trends
The trends in the footwear and apparel industries are recommended to form the core foundation of new products as well as production decisions and changes to be made (Shane, 2008). The analysis of the industry shows the trend of shorter product cycles due to the fact that customers are ordering on close end.
This is an advantage to Mercury since it manufactures locally hence has the capacity to meet short orders. Further, this trend requires more research and development for the identification of the customers’ needs and flexible production strategies to meet this (Wiersema & Treacy, 1997).
The increased technological innovation is a trend that is likely to improve the quality of products. This is also in the marketing of products with increased collaboration between companies and retail outlets which minimizes bottlenecks but is quite expensive (Shane, 2008). Price deflation is a trend due to the increased importation, discount offers and retail promotions. This is likely to influence the performance of Mercury but it can benefit from established economies of scale especially in the America and China market.
Off-shore outsourcing seems to be the trend for the industry with the companies shifting their production to lower end countries. Mercury stands to benefit due to its involvement in such lower end countries through lower costs of production. The analysis shows that diversification is likely to reduce the risks of market failure in the product line.
Mercury is in line with this trend through its involvement in the footwear and apparel industries and multiple product lines. The aspect of buying into new markets seems to be catching up in the industry with the increased consolidations (Schramm, 2006). This poses a challenge for Mercury which requires it to build up its competitive advantage so as to remain relevant.
Licensing which Mercury Limited is also involved in seems to be catching up in other competitors and is a great way of building the brand strength. While the trends call for adjustments, Mercury needs strategies to counter the increased competition from these trends (Foster, 2009).
Conclusion
This summary represents the issues identified as crucial for Mercury Limited. The issues are based on its environmental factors, state of the economy, financial reports, industry trends and expectations as well as other influences on the company.
The issues have been identified as the need for innovation, the value discipline based on the recommendable organizational structure, concern about the drop in the quarterly earnings, financial risks facing it, competition in the industry, the issue of the expected trends in the industry, and the process of realignment.
Reference List
Foster, T. (2009). Managing Quality. New York: Prentice Hall.
Schramm, C. (2006). The entrepreneurial imperative: How America’s economy miracle will reshape the world (and change your life). Upper Saddle River: Harper Business.
Shane, S. (2008). Technology strategy for managers and entrepreneurs. New York: Prentice Hall.
Wiersema, F., & Treacy, M. (1997). The discipline of market leaders: Choose your customers, narrow your focus, and dominate your market. Washington: Basic Books.