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2 Individual ProjectAppropriate Tools and Analysis of the Furniture IndustryKenneth C HolmesStrategic Management in Dynamic Environments MGMT690-1602B-01Professor Lance SpiveyColorado Technical UniversityMay 30, 2016(Portions of this document were submitted during MGMT690 -1602B-01)Table of ContentsAssessment of Discussion Post RecommendationsPage 4SWOT AnalysisPage 4PEST AnalysisPage 5Primo-F ModelPage 6Porter’s Five ForcesPage 7Porter’s Value ChainPage 7Interrelationship DiagraphPage 8BenchmarkingPage 8Chosen Analysis TechniquesPage 8Analysis and EvaluationPage 9SWOT AnalysisPage 9PEST AnalysisPage 9Porter’s Five ForcesPage 12Threat of New EntrantsPage 12Buying Power of Suppliers Page 12Buying Power of BuyersPage 12Threat of SubstitutesPage 13Competitive RivalriesPage 13ReferencesPage 14Appropriate Tools and Analysis of the Furniture IndustryManagement has been conducting their own research and discovered there are many tools available for business situation analysis, and a decision must be made as to the most appropriate tools for the expansion project assessment. Management has requested a determination of the most appropriate tools, why they are the best tools for this application, supporting evidence, and an explanation for why some tools are not necessary. This document discloses all research and findings.Assessment of Discussion Post RecommendationsThere are many recommendations from the group discussion posts, and they include: SWOT Analysis, PEST Analysis, Primo -F Model, Porter’s Five Forces, Porter’s Value Chain, Interrelationship Diagraph, and Benchmarking. SWOT Analysis. A SWOT Analysis is an essential technique for any business situation. A SWOT Analysis performs many essential functions including: Creates a picture of Ferrer Furniture’s current situation, and enables management to make the most educated business decision based on their current position and capabilities; Helps create a solid and viable business strategy for success; Will enable Ferrer’s Furniture to recognize, address and respond to internal and external environmental changes; and will help Ferrer’s Furniture stay on track for success by utilizing their strengths, address their weaknesses, minimize potential problems, take advantage of viable opportunities, and recognize and address threats they may face in the marketplace CITATION Tim16 \l 1033 (Berry, 2016).A SWOT Analysis is easy to create, traditionally uses a four-square template, but can be performed by listing factors by category. Strengths and weaknesses refer to internal factors a company can work to improve upon, and include: Personnel and their skills, industry reputation, production and delivery efficiency, etc. Opportunities and threats refer to external factors in the marketplace, that a company cannot change, but must address or overcome, and include: competition, legally mandated industry requirements, global events, and so on. Additionally, a SWOT Analysis can be performed internally, by a group of stakeholders with varying perspective, but requires a full understanding of the company’s true attributes, or can be performed by an independent outside party, who will provide unbiased and truthfully observed information CITATION Tim16 \l 1033 (Berry, 2016). PEST Analysis. A PEST Analysis is an essential structured technique, similar to a SWOT analysis, but identifies four categories of external factors (Political, Economic, Social and Technological) that affect a company’s business activities and financial performance. By using a PEST analysis, Ferrer’s Furniture can analyze all crucial external factors, determine potential future events through analysis of current events, take full advantage of current and future opportunities, avoid future threats, and in the process make the best decision at the best time CITATION Kat14 \l 1033 (Jurevicius, 2013). A PEST analysis is easy to create, traditionally uses a four-square template, but can be performed by listing factors by category. The four elements of a PEST analysis include political, economic, social and technological. Political, refers to government regulations and legalities including: tax regulations, patent law, political stability, trade regulations and tariffs, environmental and employment law, and safety regulations. Economic, refers to external economic factors including: Economic stability, currency fluctuations, interest rates, inflation, cost of resources, unemployment, availability of credit, etc. Social, refers to demographic and cultural factors of the marketplace, factors that determine customer needs and purchase decisions, and includes: demographics, age distribution, religion, changes in lifestyle, health preferences, education, and environmental factors. Technological, refers to the technologies used to produce and deliver the final product to the customer, and includes: Advances in technology, life cycle of current technology, application of the internet for business expansion, improvements in information technology, and so on CITATION Kat14 \l 1033 (Jurevicius, 2013). Primo-F Model. The Primo-F Model is simply an extension of a SWOT and PEST analysis, and provides a structure for comparing and benchmarking internal and external factors, previous and future periods, and the competition. Primo-F stands people, resources, innovation and ideas, marketing, operations and finance. Each category addresses specific areas that must be addressed, and evaluates how prepared Ferrer’s Furniture is in each area CITATION Mik10 \l 1033 (Morrison, 2010).The Primo-F Model is easy to create, and just lists factors by category. People, refers to management and employee experience and leadership, and established monitoring and controls. Resources, refers to funding, technologies and capabilities, physical assets, products and their lifecycle, and use of outside agents. Innovation and Ideas, refers to how new ideas are generated, considered, assesses, planned and marketed, and their originality. Operations-Control, refers to the IT infrastructure, ability to utilize and share information, appropriate planning and monitoring, extent of delegation, and performance assessment. Marketing and finance refers to the company’s strengths or weakness in those areas. Additional information includes: Experience, refers to the length of time in business, and management’s experience with finance, product design and development, determination of markets, experience with outside agents, and growth management. Leadership, involves top management, and refers to their experience base, their ability to align their personal ambitions with those of the company, and their education and training CITATION Mik10 \l 1033 (Morrison, 2010). Porter’s Five Forces. Porter’s Five Forces is a useful and powerful analysis tool, that provides extensive analysis of the five forces that determine an industry structure, and the level of competition within that industry. The five forces include: Threat of new entrants, which determines the ease at which new companies can enter the market. Fewer barriers to entry, the more intense the competition, and more barriers to entry, translates to less competitive market; Bargaining power of suppliers, determines how strong a hold suppliers have on an industry. The stronger the suppliers market share, the more they are able to charge higher prices, and reduce buyer’s profits; Bargaining power of buyers, determines the purchase price of supplies for the finished product. Buyers that purchase in large quantities, or leverage their size to negotiate lower prices, will obtain lower costs, and improve their profit margin. Buyers that cannot purchase in bulk, will be at the mercy of the supplier, pay higher costs, and reduce their profit margins; Threat of substitutes, is determined by the level of competition. More competition in the market place, makes finding suitable substitute products easy, and requires product and marketing differentiation to stand out from the competition; and lastly, competitive rivalries. More competition requires aggressive marketing and product differentiation strategies to maintain market share, and most often results in lower profit margins CITATION Ovi131 \l 1033 (Jurevicius, Porter's Five Forces, 2013).Porter’s Value Chain. Porter’s Value Chain is an analysis technique that looks at the processes, costs and systems involved, analyzes their connection to determine how they affect profitability, and create value for the company and the consumer. Porter’s Value Chain separates all activities into primary or support activities. Primary activities directly related to production, sales, maintenance and customer support, and include: Inbound logistics, which includes receiving, storing and internal distribution; Operations, which includes production activities that create the final product from raw materials; Outbound Logistics, which includes delivery of the final product to the consumer; Marketing and Sales, which includes advertising and selling the product to the consumer; and Service, which involves post purchase services to maintain the customers loyalty. Support Activities include: Procurement, which includes purchasing supplies, securing vendors, and price negotiating; Human Resource Management, which includes hiring, training, incentives, and employee retention; Technological Development, which includes information exchange, management and security; and lastly, Infrastructure, which includes all systems connecting all department, minimizing costs and maximizing efficiency CITATION NA1646 \l 1033 (N.A., 2016).Interrelationship Diagraph. An interrelationship diagraph is a technique that visually shows the relationship between variables, usually in sequence, and shows the cause and effect relationship of the variables for each scenario CITATION NA021 \l 1033 (N.A., Interrelationship Digraph, 2002).Benchmarking. Benchmarking is a technique which compare a company’s product and/or services to others in the industry. Benchmarking helps management determine how the company is performing in all aspects of their business, learn and instill best business practices, and provides a guide to improve overall efficiency in manufacturing, company structure and finance CITATION Lau161 \l 1033 (Hillstrom, 2016).Chosen Analysis Techniques. Each of the analysis techniques are useful for project analysis, and have their place the final determination of which country is best for global expansion, but SWOT, PEST, and Porter’s Five Forces are the most useful for researching the ideal location, and providing essential information for making the appropriate determination. The Primo-F Model is suitable for determining available project funding, creating the ideal product line, the ideal IT infrastructure, and establishing benchmarks for success. Porter’s Value Chain will prove essential when determining the ideal infrastructure for importing necessary raw materials, manufacturing efficiency, management expertise, product logistics, and providing the customer the best value for their money.Analyses and EvaluationSWOT Analysis.SWOT ANALYSIS FOR ITALY BUSINESS EXPANSIONStrengthsWeaknessesHave been in business for 14 yearsHas no experience with international marketsHave been nationwide for 10 yearsDoes not have longevity in the industryStrong reputation for exceptional customer service and qualityDesigns contemporary furniture that primarily caters to the young upper-middle classManufactures contemporary designsDoes not cater to middle market consumersAttracts mostly young, upper-middle class consumersPrimary source of sales is their websiteHigh-end quality and price structureOnly has two retail showrooms in the U.S.Vertical integration structure: Able to quickly design based on market changes?Has ten production facilities in the U.S.?Maintain strong sales from their website?OpportunitiesThreatsTo expand into European markethighly competitive overseas industryTo build strong reputation and brand recognition overseasWill be competing against well-established manufacturers To build strong relationships with overseas furniture agents, and a strong EU marketWill have to compete with Chinese and Philippines, lower cost importsPEST Analysis.PEST ANALYSIS FOR ITALY BUSINESS EXPANSIONPoliticalEconomicPolitically stable, democratic and U.S. friendlyResources are expensive since Italy lacks most natural resources including: wood, steel, oil and natural gas. Political corruption is an issueAverage power bill is 45% higher than the EU rateThe Italian mafia still operate in Southern Italy, and charges businesses protection money, but is losing ground every yearItaly is a major producer of renewable energyWelcomes foreign investment in Italian companies and banksItaly uses the Euro, and its value is set by the European Central Bank. The Euro fluctuates, is generally stable, and is currently valued lower than the U.S. dollar. Exchange rate currently € .873 = $ 1Investment information available online for foreign investorsNo restrictions on currency exchange, but must be reportedProvides national treatment to U.S. investors established in Italy and other EU countriesAll transfers over €1000 must be electronicNo double taxation on U.S. companies12.4% unemployment, especially high in Southern ItalyCorporate income tax 27.5%Equal wages established throughout ItalyCustoms duties same for all EU membersWork visas subject to annual quotasSummary declaration required for all imported goods, and must be in modernized custom codeEmployee hours not to exceed 8 hours per day, or 48 hours per week, and all hours over 40 are overtimeThe main free trade zone in Italy is located in Trieste, in the northeast. At Trieste FTZ, customs duties are deferred for 180 days from the time the goods leave the FTZ and enter another EU country. The goods may undergo transformation free of any customs restraintsFemale employees have special pregnancy and maternity leave protectionsCurrently, goods of foreign origin may be brought into Italy without payment of taxes or duties, as long as the material is to be used in the production or assembly of a product that will be exported.Minimum working age is 15, or at the end of compulsory educationCompliant with WTO trade investment regulationsItaly's current inflation rate based on consumer price index is (0.5%), and is sliding further into deflationAnti-trust laws enable review of mergers and acquisitions over a certain thresholdCurrent IR = 0%, and interbank rate = (0.25%)Member of the Paris Union International Convention for the protection of industrial property (patents and trademarks)Bank fees among the highest in EuropePatents granted for 20 years, and are transferableItaly maintains a 2.8% debt deficit, within the EU 3% capSubject to single-market directives mandated by the EUResource strong in cattle, pigs and sheep, for hidesIntellectual property rights not adequately enforced?Anti-piracy and anti-counterfeit laws enforced?Poor whistleblower protection?Has written and consistently applied commercial and bankruptcy laws?Legal system recognizes international law, and enforces property and contractual rights?Italy is subject to single-market directives mandated by the EU, which are intended to harmonize regulatory regimes among EU countries?Labor laws more flexible, can hire full time, part time, and contract employees?Company and creditor resolution encouraged to meet agreement in place of bankruptcy?Environmental laws are evolving, and include public health, pollution, the environment and natural resources?The Ministry of Labor and Health enforces OSHA requirements, provides legislative advice, supervision, promotes health, and assists business in complying with OSHA requirements ?SocialTechnological90% of the population is Roman CatholicItaly embraces and is a major global producer of renewable energyUses modern health care and specialists, as well as healers and potion makersEU and Italian furniture industry take technology and innovation seriouslyEducation is prized, and extensive government and private funding is available. There are numerous universities for all studies including: medicine, engineering, social work, and so on.Furniture manufacturers invest heavily in employee skills training, quality improvements, computer generated design technologies, and production efficiency innovationsArts and humanities are prized, and supported by public and private benefactorsFurniture innovations include: restructuring, technological innovations, and more efficient business model implementationMen and women treated as equals, and currently Italian women are the most liberated in Europe?Stores generally close at 8 PM?Italians live a slow lifestyle; they take their time?Italy is the largest wine producer globally?Environmental concerns more prevalent, and consumers interested in alternative energies and environmental conservation?Growing use of internet for product research and purchases by high income, highly educated men?Population: Urban 69%, Rural 31%?Gender ratio is 47% male and 53% female?Age distribution: 0 - 14 = 13.7%; 15 - 64 = 64.3%; and 65 and over = 22%?Mid income = € 45,770?1.4 million millionaires?Majority of wealth in Central and Northern Italy?Porter’s Five Forces. The following is a detailed analysis of the five forces that drive the European marketplace, and demonstrate their effects on the performance of the furniture industry. Threat of New Entrants. Because Europe’s furniture industry is labor intensive, depends on highly-skilled labor, the newest furniture production and design technologies, research and development, faces high environmental, sustainability and technical standards, and has high production costs, it is expensive to enter, and even the most established firms often have difficulty maintain a competitive edge, and keeping pace with the lower costs of Chinese imports. Additionally, EU manufacturers face duties on imported supplies and goods, and tariffs on finished exports. The result is an industry that is not easy to enter, and costly for research and innovation CITATION NA1647 \l 1033 (N.A., Furniture industry, 2016).Bargaining Power of Suppliers. With the EU furniture industry dominated by small to medium sized firms, suppliers have a great deal of power over the industry, and since many EU members have few natural resources of their own, importing supplies gives a great deal of power to the suppliers. The main suppliers of raw materials to Italy include: Germany, the largest in the EU, France, U.S.A, Switzerland, UK and Spain CITATION NA1643 \l 1033 (N.A., Italian Economy, 2016).Bargaining Power of Buyers. Because there are 130,000 furniture manufacturers in the EU, buyers power is not strong, and Italian furniture manufacturers rely heavily on their strong relationships with their supply trade partners, technology and design innovations to reduce costs and remain competitive in the global market place, and their global reputation for producing high-quality furniture, which affords Italian furniture makers a global market for their products CITATION NA1647 \l 1033 (N.A., Furniture industry, 2016).Threat of Substitutes. Since there 130,000 furniture manufacturers, from low to high end, and continued increase of lower cost products imported from China, the threat of product substitution is intense. To reduce the threat of substitution and costs, and entice younger skilled workers, many companies are investing in employee skills training, design technologies, and research and innovation to reduce costs, quickly adapt to customer changing taste, apply more profitable business structures, and build strong and loyal relationships with customers. Additionally, many EU furniture manufacturers are using more sustainable resources, in the hopes to attract environmentally concerned customers CITATION NA1647 \l 1033 (N.A., Furniture industry, 2016). Competitive Rivalries. Research found no information regarding specific competitive rivalries, but the issue that continues to arise involves the increasing levels of Chines imports. China has become the world’s largest exporter of furniture to the EU, and accounts for more than 50% of all EU imports. Chines Imports introduce to the European marketplace high-quality, and lower cost products, that force European manufacturers to implement more efficient systems of production to compete effectively in the EU marketplace, and forces them to seek new markets for their high-end, high quality products CITATION NA1647 \l 1033 (N.A., Furniture industry, 2016). References BIBLIOGRAPHY \l 1033 Berry, T. (2016). What Is a SWOT Analysis? Retrieved from Bplans: articles.how-to-perform-swot-analysisHillstrom, L. (2016). BENCHMARKING Productivity Measures. Retrieved from Reference for business: ? … ? A-BudJurevicius, O. (2013, February 13). PEST & PESTEL Analysis. Retrieved from Strategic Management Insight: , O. (2013, May 27). Porter's Five Forces. Retrieved from Strategic Management Insight: , M. (2010, January 11). PRIMO-F Model for Business Development. Retrieved from RapidBI: . (2002, March 31). Interrelationship Digraph. Retrieved from North Carolina Department of Environment and Natural Resources: quality.enr.state.nc.us/tools/interdigraph.htmN.A. (2012, June). 2012 Investment Climate Statement - Italy. Retrieved from U.S. Department of State: ? … ? Investment Climate Statements 2012N.A. (2016, May 12). Furniture industry. Retrieved from European Commission: ec.europa.eu/.../industries/forest-based/furniture/index_en.htmN.A. (2016, April). Inflation Italy – current Italian inflation. Retrieved from inflation.EU: inflation.eu/inflation-rates/italy/inflation-italy.aspxN.A. (2016, January 7). Italian Economy. Retrieved from The Economist: ics/italian-economyN.A. (2016). Italy. Retrieved from Countries and Their Cultures: ? Ge-ItN.A. (2016, May 31). Italy Interest Rate . Retrieved from TRADING ECONOMICS: italy/interest-rateN.A. (2016). National Labour Law Profile: Italy. Retrieved from International Labour Organization: ifpdial/information-resources/national-labour-law...N.A. (2016). Porter's Value Chain: Understanding How Value is Created in Organiztions. Retrieved from Mind Tools: ................
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