2. 01/25/17 2
Contents
Introduction
Why is the subject of my study important?
What is the challenges at ABC Electric?
What is the objective of the study?
Approaches
PESTEL, Five Forces, industry life cycle, competition, value chain, VIRO,
benchmarking, SWOT
Findings
Recommendations
Conclusions
References
3. 01/25/17 3
Introduction
Why is the subject of my study important?
1. All organizations are faced with the challenges of strategic direction
2. Strategic analysis is critically important to top management
3. Electricity is known as the “Lifeblood of Modern Society & Economic Growth”
4. "Made in China 2025" strategy to upgrade the manufacturing industry
5. China to deepen SOE reform in 2016
6. Switchgear equipment is a vital input into the construction of strong & smart grid for
clean energy and China’s sustainable development
Strategy is the great work of the organization. In situations of life or death, it
is the Tao of survival or extinction. Its study cannot be neglected.
—SUN ZI(544 BC–496 BC), THE ART OF WAR
4. 01/25/17 4
Introduction
What is the challenges at ABC Electric?
1. Grid complexity is increasing
2. China’s economy is slowing
3. Bargaining power of key customers is increasing
4. Losing its advantage to faster-growing new entrants such as CHINT
5. Sales growth decline significantly
6. Profitability was below the industry average
ABC Electric’s business performance has underperformed to the public’s
expectations in recent years
5. 01/25/17 5
Introduction
What is the objective of the study?
Strategic analysis is a powerful tool for analyzing the competitive environment,
positioning and formulating strategic recommendations to maximize value.
The objective of my study is aimed to use a set of analytic tools to conduct an
integrative strategic analysis of ABC Electric and finally propose strategic
recommendations for ABC Electric.
6. 01/25/17 6
Approach
What is the approach of the study?
Conduct a strategic analysis of ABC Electric includes three-part analysis: (1) an external
analysis of the organization’s competitive environment, (2) an internal analysis of the
organization’s resources and capability, (3) a SWOT analysis for formulating a set of
recommendations
PESTEL environmental analysis, five forces analysis, industry life cycle analysis, competitor
analysis for analyzing the external competitive environment
Correlation analysis using the statistical data analysis software for forecasting industry trend
Value chain analysis, VRIO analysis, and benchmarking for internal capability
SWOT analysis to combine both external and internal analysis and generate the strategic
recommendations for ABC Electric.
Strategic analysis links the internal of the firm and its external environment
7. 01/25/17 7
External Analysis –PESTEL macro-environmental analysis
Political factors
Chinese government favored industry
The government investment in Smart grid by 2020 up to $560 billion
The investment in Grid upgrade by 2020 up to $323 billion
Economic factors -the "New normal" of China’s economy
Sociocultural factors –high growth on population, rising living standard, urbanization
Technological factors -the technology change is getting high
Ecological factors
Green energy generation like hydro power, wind power, solar power and nuclear power
“Electricity Replacement” of fossil energy
Legal factors-Laws and regulations set high industry entry barriers
The demand for electricity will keep growing with further industrialization,
rapid urbanization, and the increase in total population.
8. 01/25/17 8
Correlation analysis for forecasting industry trend
There is a strong correlation between total electricity demand, GDP, and
population.
the Pearson correlation is 0.993 the Pearson correlation is 0.994
Economic factor Sociocultural factor
9. 01/25/17 9
External Analysis –Five Forces & industry life cycle analysis
The threat of entry is low
The threat of substitutes is low
Bargaining power of suppliers is low
Bargaining power of buyers is high
The rivalry among existing competitors is high
The industry is in the phase of shake-out
The industry is moderately attractive but the growth is declining.
High voltage Low voltage
Assembly Breaker RMU ACB MCCB MCB RCD Contactor
CR4 7.8 12.6 23.7 51.5 30.7 20.9 16.1 47.8
CR8 12.6 14.6 26.7 65.4 45.1 41.3 27.7 57.6
Table 2.15 Concentration levels of Chinese switchgear industry in 2011
10. 01/25/17 10
External Analysis-competitor analysis
classify competitors into two strategic groups: large multinational companies and
Chinese local companies
Step 1, Identify competitors. Step 2, Gather the data. Step 3, Analyze rivals of strengths
and weaknesses
Chinese local companies were much smaller than multinational companies
in scale size
Characteristics of strategic group 1
-Multinationals in China
Characteristics of strategic group 2
-Chinese local companies
1. Market leader.
2. Pioneer of technology
3. Provides total solution to the costumers.
1. Low price
2. Relationship with local government
3. Technology follower.
11. 01/25/17 11
Internal Analysis-value chain analysis
Support Activities
M
argin
Firm infrastructure, including policies, processes and procedures
Human resource management
Research and development (R&D)
Supply chain
management
Operations Marketing & Sales Customer service
Primary Activities
SCM, operations, HR, and service are the sources of cost advantage
Marketing, R&D, infrastructure are the sources of differentiation advantage
Manufacturing cost ABC Electric CHINT SGEG SenYuan Average
Materials (percent) 88.6 93.35 92.98 89.31 91.06
Labor (percent) 5.88 4.34 3.41 3.89 4.38
Overhead (percent) 5.52 2.31 2.91 6.80 4.39
Table 2.11 Cost structure of switchgear products manufacturing
12. 01/25/17 12
Internal Analysis-VRIO analysis
Resources and Capabilities Value? Rare? Costly to
Imitate?
Exploited? Competitive Implication
Brand Recognition in China Yes Yes Yes Yes Competitive Advantage
FMS manufacturing system Yes Yes No Yes Temporary Competitive
Advantage
Government relationship, sales and
marketing channel
Yes Yes Yes Yes Competitive Advantage
Financial benefit Yes Yes Yes Yes Competitive Advantage
Consistency Yes Yes Yes Yes Competitive Advantage
Strong R&D capabilities Yes Yes Yes Yes Competitive Advantage
A strong knowledge base Yes Yes No Yes Temporary Competitive
Advantage
Brand, government relationship, sales and marketing channel, financial
benefit, consistency, R&D were competitive advantages
Table 3.1 VRIO Analysis of ABC Electric
14. 01/25/17 14
SWOT Analysis
Strengths(S)
1.Brand recognition in China
2.Sales and marketing channel
3.R&D capability
4.Financial benefit
5.Consistency
Weaknesses(W)
1.Geographic location
2.Weak R&D intensity
3.Low efficiency of administration
4.Low labor productivity
5.Talents retention
Opportunities(O)
1.Chinese incentive policies
2.Acceleration of building the Smart Grid
3.Increase in demand for electricity
4.Grid equipment replace and upgrade
5.Acquisitions opportunities
Threats(T)
1.Strict government policies on environment
2.Economy slowing down
3.The price competition
4.Multinational company penetrates in mid and
low segments
5.Increased high bargaining power of customers
15. 01/25/17 15
Strategic Recommendations
• Technological Innovation to establish differentiation advantage
• Focus on switchgear manufacturing industry and premium market segment
• Global expansion to achieve aggressive growth
• Alliances and acquisition to increase the economic scale
• Corporate restructuring to improve management efficiency
• Operational excellence to improve profitability
• Reducing input costs to improve profitability
16. 01/25/17 16
Conclusions
Reflections
The objective of my study is applying tools of strategic analysis to conduct a systematic
and effective analysis to make sound strategy recommendations.
A strategic analysis of ABC Electric used a set of analytic tools effectively explored the
external competitive environment, analyzed the internal resources and capabilities, and
finally proposes the strategic recommendations.
The tools used in my study provide the foundation to conduct a strategic analysis. The
key is to integrate these frameworks and tools into a compelling analysis.
One of the biggest challenges of any strategic analysis is gathering information, utilize
the right data in right tools
Next Step Work
Strategic management is a two-stage process: first, strategic analysis and formulation,
second, strategy implementation.
The next step work is the strategic implementation.
17. 01/25/17 17
Reference list 1
[1] World Energy Outlook: Energy and Climate Change. International Energy Agency, 2015.
p52, p54
[2] Les Worrall. Strategic analysis: a scientific art. University of Wolverhampton, 1998
[3] Jared Harris, Michael Lenox. The Strategist’s Toolkit.7th ed. Darden Business
Publishing,2013
[4] James Cadle, Debra Paul and Paul Turner. Business Analysis Techniques: 72 essential
tools for success. British Informatics Society Limited, 2010. 3-6
[5] Michael E. Porter. The five competitive forces that shape strategy. HBR’s 10 Must Reads:
On Strategy. Harvard Business Review press, 2011. 24-40
[6] Frank T. Rothaermel. Strategic Management. 2nd ed. McGraw-Hill Education, 2015. P83
[7] Robert M. Grant. Contemporary Strategy Analysis. 8th ed. John Wiley & Sons Ltd, 2013
[8] Frank T. Rothaermel. Strategic Management. 2nd ed. McGraw-Hill Education, 2015. P104-
105
[9] Ovidijus Jurevicius. Strategic Management Insight: Benchmarking. January 19, 2014
[10] Cui libing, A Case Study of the Correlation between Power Output and the GDP Growth,
Economics and management department of Southeast University, Nanjing(210089)
18. 01/25/17 18
Reference list 2
[11] Zhang Xiaohua, Liu Bin, Zhang Alin. Analysis of China’s Future Energy Demand. Journal
of Tsinghua University (Sci & Tech), Vol 46, No. 6. 2006
[12] Tan Zhongfu, Yu Chao, Chang Guangjuan, Research on the relationship between China's
economic development and electric energy consumption, Energy technology and
management, Apr 2007
[13] Li Xiang, Liang Yali, Comparative Study on Trend Decomposition of Electricity Demand
and GDP, Modern Electric Power, Vol 22, No. 5, Oct 2005
[14] IMF. 2016. World Economic Outlook, Too Slow for Too Long. International Monetary Fund,
April 2016, p19
[15] Lin Caiyi, Liu Yu. Effects of China’s Full Liberalization of Two Child Policy. Caixin.com.
2015.
[16] Karla Trost, The Evolution of Switchgear Dielectric Technology, G&W Electric, Feb 2015
[17] Michael E. Porter, ‘What is strategy?’, HBR’s 10 Must Reads: On Strategy, Harvard
Business Review press, 2011,
[18] Cheng Yingqi, Shan Juan, Rise of the robots, China Daily USA, Oct 7,2015
[19] Gerry Johnson, Kevan Scholes, Richard Whittington. Exploring Corporate Strategy. 8th
ed, Pearson Education Limited, 2008. P68-69
19. 01/25/17 19
Reference list 3
[20] Gregory G. Dess. Strategic Management: text and cases. 7th ed. McGraw-Hill Education,
2014.
[21] Ovidijus Jurevicius, Value Chain Analysis, April 25, 2013
[22] Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance
(New York: The Free Press, 1985), p. 36
[23] Ovidijus Jurevicius. Strategic Management Insight: VRIO Framework. October 21, 2013