StrategicManagement in a Global Context
StrategicManagement in a Global Context
Strategicmanagement entails the design and application of the primary goalsand initiatives undertaken by an organization’s top management. Theimplementation considers the resources and evaluation of internal andexternal environments which affect the company. In a global context,the corporation considers the dynamic nature of internationalmarkets. Melco Entertainment owns and operates casinos in Macau, Cityof Dreams, and Mocha. It gets its revenues through hotels, casinos,food and beverages, and entertainment as well as retail operations.This paper will analyze the strategic choice of the company. Itinvolves evaluation of the competitive strategy, that is,identification of the competitive strategies and their nature as wellas the benefits and challenges facing the company. The facets will bebased on Porter’s generic competitive strategies and Bowmanstrategy clock.
Natureof Competitive Strategies
Theglobal market is highly competitive due to a demanding customer base.As per the PricewaterhouseCoopers (PwC) estimations, internationalcasino gaming revenues across the United States, Europe, Africa,Middle East, Asia, Canada, and Latin America will experience a 10.2%growth by 2017. According to the projections, the Asian market is themost promising with many people involved in this activity (PwC,2015). Reports from the Casino News Daily suggest that after thelegalization of gambling in various states within the U.S., therevenues have been fluctuating. For instance, between 2013 and 2014,Indiana experienced a 17.3 percent drop in casino revenues. However,Ohio experienced the highest revenues of 19.5 percent. The entireUnited States had a mean annual growth rate of 2.3 percent over thesame period (PwC, 2015).
Thecasino industry in Africa is also on the rise. The most activecountries in Africa are Kenya, Nigeria, and South Africa. The Casinoindustries comprise of gambling, sports betting, the nationallottery, and bingo. The competitive nature of this industry mandatescompanies to adjust their operations to meet the various demands. Forinstance, making the odds quite enticing to draw the customers. Theindustry can be well evaluated utilizing porter’s genericcompetitive strategies. There are three core strategies described byPorter, that is, cost leadership, differentiation, and focus. He thensubdivided the two into cost focus and differentiation focus (Bolton,2015).
TheCost Leadership Approach
Accordingto this approach, a corporation can gain competitive advantage andheighten profits by minimizing costs, but vending at industry-averageprices. In other words, a company reduces its costs and maintains theprices of the goods and services thereby increasing the profits. Costleadership is also achieved through increased market share andlowering of prices. A company lowers the prices of the products andservices and increases its market share. In that regard, thecorporation maintains a reasonable profit margin. For this strategyto be efficient, a company must have very effective logistics, accesscapital with ease, and low-cost base, that is, labor, facilities, andmaterials [ CITATION MDF16 l 1033 ].
Acompany that utilizes this strategy must make sure its goods andservices are distinctive from the competitors. The services have tobe more attractive than fellow competitors to entice customers. Itmostly depends on the kind of industry. For instance, in the casinoindustry, a company can increase the range of games or chances ofwinning. In that manner, customers will be enticed by the prospectsof winning. A company practicing this strategy must guarantee theproducts and services are quite distinctive [ CITATION MDF16 l 1033 ].In addition to that, the organization mustensure:
Research, development, and innovation are efficient
Goods and services delivered are of high quality
The sales and marketing team is efficient
Inthis method, a company focuses on a particular niche market,comprehends their distinctive needs as well as the market dynamicsbefore developing unique products at favorable costs to fit themarket. The cruise ship industry is a key example, practicing thefocused approach (MDF Tool, 2016).
However,even with the above strategies, a company must incorporate othermeasures to attract customers. Due to this necessity, Portersubdivided the approaches to include cost focus and differentiationfocus. For broad market tactics, it is vital to choose betweendifferentiation and cost leadership after selecting a focus strategyas the primary plan.
Abusiness utilizing this method seeks a lower-cost advantage in asmall number of the market segment. Mainly, it lowers the cost ofother high-priced products offered by a different market leader. Forexample, a market leader could be selling its food products at highprices. A smaller company then comes up and sells the goods at lowerprices. Smaller companies mainly practice it in an attempt to reachcustomers who cannot afford the particular products [ CITATION MDF16 l 1033 ].
Itis regarded as the classic niche marketing approach. A company aimsto differentiate within a small number of target market segment.Before adopting this method, it is crucial to comprehend some facets,that is:
Clearly distinguishable customer wants and needs
A valid foundation for differentiation
Business capable of meeting the needs of the segment
Bowman’sStrategy Clock is an extension of Porter’s strategies. The elementsin this approach are eight.
Figure1: Bowman’s Strategy Clock
Positionone: Low Price and Low Value
Inthis category, firms do not choose to contest. It is regarded as thebargain basement bin and is an unfavorable position. The companiesare forced to be in this position due to a lack of differentiatedproducts. To survive, the companies must continue to attract newconsumers. The products at this level are normally too inferior toattract loyal customers. Customers are only drawn by the attractiveprices [ CITATION MDF16 l 1033 ].
Positiontwo: Low Price
Thecorporations at this stage are regarded as low-cost leaders. Thesecompanies drive the prices to minimum levels. If the low-pricedleaders have strong strategic methods or enough volumes for theposition, they can maintain the approach and become a force reckon inthe market. However, if they do not, they will initiate a price warthat benefits the customers. Walmart is a good example of howlow-cost competitors are persuaded to enter into the low price areawith promises of high volumes [ CITATION MDF16 l 1033 ].
Thesecompanies provide goods at minimum costs that are viewed to be ofhigher value than the low-cost players. Discount department storesare some of the enterprises that practice this strategy. Thecombination of value and quality can maintain customer loyalty [ CITATION MDF16 l 1033 ].
Brandingis the most crucial aspect of this strategy. The approach allows acompany to be synonymous with quality and pricing. Nike is anexcellent example in this category.
Positionfive: Focused Differentiation
Theyinvolve designer products. The value is high, and so are the prices.The customers purchase the goods and services based on value.
Positionsix: Increased Prices/Standard Products
Somecompanies raise prices without necessarily increasing the value. Ifthe new price is accepted, the company enjoys more profits. If theprice is not well received, their market share reduces untiladjustments are made. In a competitive market, the strategy onlyworks for a short period.
Positionseven: High Priced/Low Value
Thisstrategy is common in monopolized markets. Monopoly companies canregulate the prices without increasing value and still maintain thesame customer base.
Positioneight: Low Value and Standard Prices
Companiespursuing this strategy do not maintain a substantial market share.They only work to preserve considerable market share by selling theproducts at low prices.
Assessmentof the Competitive Strategy at Melco
Onlysix companies have gaming licenses in Macau. These are the keycompetitors of Melco. They include Las Vegas Sands, GalaxyEntertainment Group, SJM Holdings Limited, Wynn Resorts, MGM ResortsInternational. Since these companies offer similar high-end services,they are in the strategic group of Melco Crown. Melco Crown uses aMass-Market Focus technique to reach the anticipated target market.According to Porter’s five forces, Melco strives to outweighcompetitors in all aspects [ CITATION Sha15 l 1033 ].
Accordingto the first force, that is, bargaining power of customers, thefactor is lower since they do not have influence over the casinos.Customers have limited power over the actions of the casino, forinstance, they cannot control the odds of winning or manipulate theemployees. In that regard, Melco manages the odds in an enticingmanner to attract more consumers. However, if the odds are stillunfavorable, the customers cannot influence the results [ CITATION Sha15 l 1033 ].
Thebargaining power of suppliers is another key factor. In this case,the factor is moderate. Casinos cannot operate without dealers. Theyprovide the equipment used in the business. Melco has a strongrelation with its suppliers. Since the tools are almost the same, ifone of them does not provide the required supplies, Melco can switchto another without too much strain. Another force is the barrier toentry. The obstacle is quite high because of the high initial capitalrequired. As illustrated above, Macau has six licensed gamingcompanies and policies that prevent new entrants. The casino industryis an oligopoly, that is, several companies control the industry.Therefore, other companies are unable to venture into the industry [ CITATION Sha15 l 1033 ].
Thethreat of substitutes is another key factor to consider in the casinoindustry. This industry is quite distinctive since it has nosubstitute. Therefore, the threat of substitute factor is low. Theother fundamental force is the rivalry in the industry. There isextremely high competition in this industry with the companiesinvolved improving their products to outweigh their rivals. In thatrespect, Melco faces immense competition from rival companies [ CITATION Sha15 l 1033 ].
Whenmost Americans ponder gambling, Las Vegas comes to mind.Internationally, Macau has become the key destination. It is thechief source of revenue more than Las Vegas. Therefore, Melco Crownis more strategically placed to venture into the mass market thantheir competitors. It was one of the first companies to venturebeyond the VIPs to target premium markets. The company’s marketspectrum includes the city of dreams and themes such as Studio City’smovie that emphasize on other aspects apart from gambling. The gamingindustry faces challenges when it comes to policies and governmentcontrol. In that regard, Melco embarked on a strategy to attractdifferent kinds of consumers. The idea of mass-market was based onattracting a wider scope of customers. This approach has propelledMelco Crown to outweigh its competitors [ CITATION Inv15 l 1033 ].
MelcoCrown utilizes the differentiation focus to traverse into new areas.The company realized that there was an enormous potential in othercountries like the Philippines and reacted appropriately. The City ofDreams Manila Resort is one venture that has contributed to Melco’ssuccess in the Philippines. The aim of opening the property was toattract more tourists to the region. Before the venture, the area wasprimarily less appealing, yet it had potential. Melco Crown realizedthe opportunity and immediately ventured. According to the company’sstatistics, it made a profit of $52.7 million during the firstquarter of 2015. About 40 percent of the revenue was obtained fromnongaming activities. In that regard, the strategy of venturing innongaming activities places Melco Crown well above its rivals(Investopedia, 2015).
ThePhilippine market has not developed as much traffic as the companyhad anticipated. Though early performance indicates the company willsucceed in the region, there are doubts whether more tourists will beattracted to it. Apart from that, disputes between China andPhilippines has dampened the eagerness for travel between the twocountries. Such activities pose a huge threat to the success of MelcoCrown in the country [ CITATION Inv15 l 1033 ].
Anotherchallenge that has hindered the company’s progress is the declineof revenue and an uncertain casino concession renewal. The area haslost the VIP gamers thereby hurting the company. The impact hasreduced the gaming revenues. Apart from that, the supply and demandforces have impacted negatively on hotel prices in Macau. Forinstance, the prices of five-star hotels have fallen significantlydue to lack of VIP gaming customers who no longer reserve premiumrooms.
Thecollection of debts is another critical area Melco has to improve.High-rollers are permitted to gamble on credit which could lead toaccumulation of debts that impact negatively on the company’srevenues. Therefore, they should strive to collect outstanding debtsfrom their customers.
Anothermajor challenge for the casino industry is legalization. Manycountries have stringent laws restricting gambling. In that regard,expanding into the global markets may be hard for companies likeMelco. However, this challenge has been reduced significantly due tothe certification of gambling in many countries across the globe.
Worldwidecompetition is intense and people prefer not to travel to otherplaces in search of the casinos. Therefore, Melco should diversifyits products and services to traverse more countries. Investing highamounts in Macau alone is quite risky especially due to thefluctuating customer base. When the casinos in Macau are lessprofitable, Melco incurs significant losses. Therefore, it shouldventure more into other regions to counter any losses emanating fromone area.
Melcocan also do more regarding nongaming activities. As explained above,the nongaming activities in the Philippines are drawing more profitsthan the gaming events. In that respect, the company should venturemore on the same to provide a wide range of products.
Bolton, S. (2015, January 15). Melco Crown Entertainment: An Investor`s Essential Guide To The Company. Retrieved from http://marketrealist.com/2015/01/business-overview-melco-crown-entertainment/
Investopedia. (2015, March 27). How Melco Crown`s Mass-Market Focus Could Win Out (MPEL. Retrieved from http://www.investopedia.com/stock-analysis/032715/how-melco-crowns-massmarket-focus-could-win-out-mpel.aspx
MDF Tool. (2016). Strategic Options. Retrieved August 25, 2016, from http://assets.sportanddev.org/downloads/strategic_options.pdf
PwC. (2015). Global Gaming Outlook.