Introduction
Usha Martin is a prominent conglomerate, which produces and sells steel wire ropes, and telecom cables. In recent times, the company decided to undertake operations aimed at maintaining the previous performance. Some of the operations that the company performed previously include end-to-end vertical integration in areas such as coal mining and power plants. However, the changing economic environment initiated alterations on the performance of the company in the market. It is within this context that this essay analyses risks and benefits of vertical integration strategy and internationalization strategy, and proposes a five-year strategic plan for Usha Martin, the steel company.
Risks and Benefits of Usha Martin Vertical Integration Strategy
Risks
Wars and Economic Risks
Some of the risks associated with Usha Martin vertical integration strategy include uncertainties like wars and national unrest. Usha Martin is a conglomerate that operates in several countries such as the United Kingdom, Australia, and India. Since Usha Martin operates in various countries, the major risk associated with its operations is war in these countries. Therefore, as a business entity, the company is vulnerable to the risk of war and unrest in the countries where it executes its businesses. The war that occurred between India and Pakistan in 1965 is a good example that explains the vulnerability of Usha Martin to the risk of war.
Another risk associated with vertical integration strategy is the economic risk, which has an external challenge that affects nations globally, and includes issues like recession, boom, and inflation. These issues affect the overall production, supply, and demand of products from companies like Usha Martin, and as a result, it affects its profit margins.
Competition and Consumer Preferences
Competition is a risk that has an impact on the operations of Usha Martin and is associated with the strategy of vertical integration. The driving force behind the vertical integration strategy is the need to manage and reduce the impacts of competition. Usha Martin introduced vertical integration strategy due to reduced exports and purchases of its products by the consumers. The fact that Usha Martin operates in various countries implies that the company is subject to higher risks of competition as opposed to small-scale companies, which operate nationally or regionally. Therefore, competition is a risk that puts management and the workforce of Usha Martin to task in its quest to reduce the impacts of competition, manage product quality, and remain in the market.
Benefits
Protection from fluctuations
Vertical integration comprises of a state where companies own their subsidiaries or their retailing firms. Usha Martin engaged in vertical integration when it started manufacturing steel, mining coal, and developing power plants. Since steel is a major component used in production steel wires and telecom cables, which are the main products of Usha Martin, it becomes less expensive to manufacture the product and maintain its quality. Moreover, by undertaking coal mining, the company is able to control the supply and production of coal, which is a component used in steel production. Power plants facilitate effective processing of the required components of steel products. Therefore, the company is in a good position of controlling the amount of expenditure incurred in production and supply of steel products, and thus, reduce fluctuations in product prices.
Easy Management of Raw Materials, Total Control, and Stable Product Prices and Profits
Vertical integration facilitates easy management of raw materials in terms of their availability and supply since the company controls the delivery and production of steel products. Remarkably, some of the Usha Martin strengths relate to the fact that most of the activities involved in steel production, power plant activities, and coal mining are within a geographical area of 100kms. Another benefit associated with vertical integration is the total control of the products like wire rods. Total control transpires because the company has the ultimate control of supply and delivery of raw materials used in steel production. The total control of products is also beneficial as it stabilizes profits and product prices. Due to control of supply and delivery of raw materials, Usha Martin is able to design its prices in a way that best suits the needs of consumers without compromising quality of its products.
Risks and Benefits of Usha Martin Internationalization Strategy
Risks
Different Consumer Demands and Operational Risks
Internationalization strategy involves a situation where a company meets the demands of both national and international consumers. Therefore, Usha Martin qualifies as a company that uses internationalization strategy because it serves the demands of customers from countries such as Thailand, Australia, India, and the United Kingdom. Using internationalization strategy Usha Martin may not fully realize the needs of clients in different countries where they operate. As a result, Usha Martin is likely to apply the concept of one-size-fits-all, which is not effective in meeting customer requirements. Wars, natural calamities like floods, employee strikes, and changes in employment and operational laws are some operational risks linked to internationalization strategy. As a global company, Usha Martin is very susceptible to the impacts of these risks.
Communication, Transport, and Taxation Risks
Usha Martin conglomerate is subject to communication, transport, and taxation risks that arise from international nature of its operation. Moreover, these risks relate to internationalization strategy adopted by the company in executing its operations in the countries where it operates. The need to reduce the costs associated with communication and transport compelled Usha Martin to introduce gas in the manufacture of its steel products in processing plants such as the one in Thailand.
The implication of high communication and transport costs related to internationalization strategy is a risk that management and the employees of Usha Martin cannot underscore. Taxation is another risk linked to internationalization strategy because the company operates in various countries around the world. These countries have different taxes, which govern how industries and companies undertake its activities and change them regularly. Changes in taxes seriously affect the operations of companies like Usha Martin that operate internationally.
Benefits
High Market Share and Easy Management of Economies of Scale
High market share and advantage of economies of scale are some of the benefits that accrue from internationalization strategy adopted by Usha Martin. High market share rises due to the increase in the area of operations of Usha Martin. The fact that Usha Martin sells its steel products like telecom cables and wire rods to clients in the United Kingdom, Australia, and India means that the market base of the company is high.
Therefore, the sales volumes and purchases are relatively high among regional and international companies. Easy management in economies of scale occurs because the company can utilize its factors of production in a manner that facilitates effective production across the countries where it operates. Usha Martin can employ and use factors like land, labour, capital, and entrepreneurship in a way that best suits its success goals and objectives.
High Profit Margins, Brand Recognition, and Reduced Import Costs
Due to the increase in market share and sales volumes, the profit margins of Usha Martin are likely to demonstrate a corresponding increase. Therefore, the level of sales in the company increases, and thus, Usha Martin experiences an equivalent rise in the purchase of its products. Increased sales volumes transpire because the high intensity of recognition concerning Usha Martin’s brand results in the need for clients to associate with the brand. Brand recognition occasions since Usha Martin performs its activities in various countries of the world. The result is increased awareness among the potential consumers, and thus increasing the sale of steel products by the company and improvement of its brand. Import costs have reduced since sister companies of Usha Martin supply products used in the assembly and manufacture of steel products to its affiliate companies in other countries. As a result, the overall expenditure incurred in import of materials used in production reduces.
Proposed Five-Year Strategic Plan for Usha Martin
Marketing and Improvement of Product Quality
Evidently, Usha Martin is one of the successful conglomerates in India that supply steel products to countries like Thailand, Australia, India, and the United Kingdom. To maintain its successful productivity and market share in the competitive marketing environment, Usha Martin has to undertake various activities that will enable it to retain its market share in the next five years. Some of the strategies that Usha Martin can undertake include marketing, improvement of product quality, research on consumer demands, and an extensive survey on the uncertainties that can affect its operations.
Marketing facilitates increased awareness of steel products among consumers, and thus enabling Usha Martin to understand tastes and preferences of consumers. Furthermore, marketing does not only increase consumer awareness, but also increases the demand for steel products among target consumers of Usha Martin. Improvement of product quality makes the company achieve client loyalty and retention, which results in increased sales volumes and profit margins.
Research on Consumer Demands and Preparedness for Uncertainties
A good research on consumer demands leads to an enhanced understanding of the needs and preferences of consumers of steel products. In addition, a good understanding of consumer needs and preferences helps Usha Martin to supply products that are in line with the expectations of the target clients. Usha Martin also needs to prepare for uncertainties such as the global economic crises and wars, which are beyond its control.
Budgetary provisions are very vital in the management of unexpected occurrences that affect the overall performance of Usha Martin. Vertical integration strategy and internationalization strategy adopted by the company are practical in the achievement of goals and objectives of Usha Martin. The strategies help Usha Martin to reduce the costs associated with the purchase and supply of steel products. Effective employment of these strategies will facilitate achievement of goals and objectives of Usha Martin in the short- and long-term period of five years.
Conclusion
Usha Martin is a conglomerate that deals with the production and sale of steel products like telecom cables and wire rods. Recently, the company engaged in vertical and internationalization strategies as a way of ensuring that it retains its market share. The strategies are very crucial in improving product quality, sales volumes, and market base. Conversely, the strategies pose various risks on areas like operation, economic issues, and capacity to meet consumer demands. Some of the recommendations that Usha Martin can employ to achieve its objective include marketing, improvement of product quality, research on consumer demands, and extensive survey on the uncertainties that can affect its performance. Notably, effective implementation of these recommendations facilitates successful growth of Usha Martin in the next five years.