International Limited Based on financial Year 2002-2003 Essay
This report analyses the external environment of Billabong International Limited. An analysis of the external environment must include several thorough investigations probing the various factors that influence Billabong International Limited through its industry and external environment. A look at the mega-environment will analyse the technological, economic, socio-cultural, legal-political, and international elements. Also a look at the task environment will analyse the company on direct sight.
This analysis will touch on task environmental elements, such as customers and clients, competitors, government agencies, suppliers and labour supply. This research is a snapshot of what Billabong International Limited encounters in its endeavours to sustain its competitive position in the clothing industry. Billabong International Limited might realise the dynamic nature of these factors, remould and reshape its business operations to better deal with external environment issues. As we have seen time and time again a company that fails in its attempts to change as the situational changes finds itself in danger.
The company will lose critical market share and continuously find itself uncompetitive against new entrants and companies that have kept up to date with their management approach. In every strategic planning exercise, will help to gradually build up individual and institutional capabilities for approaching reality
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Hopefully the following document will give you the opportunity to validate the soundness of the proposed process, and will show you the practical value of incorporating that process into your organisational context. It is understood that this guide cannot replace the contribution of a good facilitator who knows your environment well and can help you deal with your strategic planning process in a positive way. 2. Methodology To review the external environment of Billabong International Limited, the author consulted the course textbooks, study guide and various class handouts.
As well, the author analysed a number of journal articles, books and websites. All of these texts were analysed thoroughly and the pertinent information found in these texts was used to create this original report. Ergin Senses 1 3. Discussion 3. 1. Short View of Company’s History Billabong International Limited was founded in 1973 and has grown into a global holding company employing over 500 people, involved in the design, production and distribution of surf and extreme sports apparel and accessories for male and female markets.
The company’s products are sold in more than 60 countries by its directly controlled operations in Australia, New Zealand, North America, Europe and Japan and through licensed operations and distributors in other areas. The company’s product range comprises over 2,200 product lines in Australia, over 1300 product lines in North America and over 1200 product lines in Europe. These products include board shorts, swimwear, jumpers, pants and jeans, t-shirts, fleece tops, walk shorts and backpacks.
Group earnings are composed 10 per cent from America, 12 per cent form Europe and 78 per cent in Australia and New Zealand. (Investor web, 2002) 3. 2. Discussion of External Environment Every organisation depends upon linkages with its environment to obtain the human, financial, technical and material resources it needs. To be able to target the company’s future strategies, Billabong has to be familiar with the factors in the external environment that are likely to affect its organisation.
To do this, it is important that Billabong distinguishes between two levels of external environment. (Bartol et al.2001, pp. 65-71) distinguish between the scopes of the impact of the forces outside the organisation, which comprise the external environment. The diffuse major forces are labelled the ‘mega-environment’ and the segment with which the organisation interfaces is called the ‘task environment’. 3. 2. 1. Mega-Environment The mega-environment is the external environment segment reflecting broad conditions and trends in societies within which an organization operates. The mega-environment consist of five major elements: technological, economic, legal-political, international and socio-cultural. (See fig. 3. 2. 1. 0.)
As a rule, the mega-environment does not have a direct impact on the organisation, but certain events may influence how the organisation changes over time. The organisation has little or no possibility to influence these factors. (Bartol et al. 2001, p. 65) Events or trends favourable or harmful to the organisation may develop in the mega-environment. It is therefore necessary to know how to identify them, either to take advantage of them or to try to counter them. Ergin Senses 2 3. 2. 1. 1. Technological Element The technological element reflects current knowledge about production of products and services.
Although specific organisations’ technical knowledge and patents give them a competitive edge for a time, most organisations are affected, either positively or negatively, by technological progress. (Bartol et al. 2001, p. 65) According to the research Billabong does not use the technological element effectively. Technological affect can be only on new machinery in the clothing industry for Billabong. To remain competitive, the organisation should understand current technological developments affecting their ability to offer desirable products and services.
Many sources provide information about technological elements. Among these are major business periodicals, various trade journals aimed at specific industries, government publications, business services, and on-line services. 3. 2. 1. 2. Economic Element The economic element involves systems of wealth production, distribution and consumption. In a capitalist economy, market forces operate and individuals own the means of production, either directly or through corporations. In a socialist economy, the state owns the means of production, and economic activity is managed by plan.
Economic wealth is another very important factor for organisations, which are operating in a variety of countries facing a range of economic ground rules. Within any economic system, of course, organisations are influenced by economic factors they have little control over, such as inflation, interest rates and recessions. (Bartol et al. 2001, p. 65) In Billabong’s case they are particularly affected by external economic factors like interest rate changes, inflation rates, consumer spending and growth forecasts. Interest rates are an obvious issue, since Billabong is a considerably leveraged company.
With debt payment commitments tied to floating and fixed rates, an upward change in interest rates will push up costs and hence pull down profits. Consumer spending and economic growth might determine the level of demand in the economy for Billabong’s products. In favourable economic conditions of high levels of consumer confidence and hence high consumer spending, coupled with high economic growth, Billabong could see higher sales as the industry as a whole will be going through a growth period. This obviously would pull up profits for Billabong.
In the situation of this not occurring, low consumer spending would mean that non-essential items like high priced fashion products, could see less demand and as a consequence lower profits for Billabong. Economic volatility can also have adverse effects on Billabong, by providing unfavourable investment conditions. Yet this could also serve as an entry barrier to possible competitors, meaning that Billabong is protected by the external economic factors. Its market share under such circumstances could be sustained, provided Billabongs strategic management.
Ergin Senses 3Fig 3. 2. 1. 0. Elements of the mega environment of the Billabong International Limited (Bartol et al. 2001, p, 67) 3. 2. 1. 3. Legal – Political Element The legal – political element refers to legal and governmental systems within which an organisation functions. Trends in legislation, court decisions and politics and government regulation are important legal-political environment aspects. (Bartol et al. 2001, p. 67) In this case we can say that Billabong International Limited operates within the general legal framework of over 60 countries in which they do business.
Many laws specifically addressing their functioning govern them. Simultaneously, organisations are subject to growing numbers of lawsuits filed by interest groups, ranging from employees to clients. Juries awarding large sums of money, particularly in product liability cases, have motivated these. Ergin Senses 4 3. 2. 1. 4. Socio-Cultural Element The socio-cultural element involves attitudes, values, norms, beliefs, behaviours and associated demographic trends typical of a region. Socio-cultural variables are often raised when considering different countries. (Bartol et al. 2001, p.68)
The clothing industry is a good example of an industry where external environment factors play a critical role in competition. Especially the socio-cultural environment is of prime importance. Since the firms in this industry primarily must bring out new designs they must keep good track of fashion developments. Fashion is a cultural and societal issue that varies from culture to culture and from country to country. It also varies within a specific culture with time. Hence a company like Billabong International Limited must realise the importance of socio-cultural issues.
Because socio-cultural aspects change, managers must monitor trends for new opportunities or threats. 3. 2. 1. 5. International Element The international element of the mega- environment includes changes in countries other than the organisation’s home country with potential to influence the organisation. International issues greatly affect an organisation’s conduct of business abroad. (Bartol et al. 2001, p. 68) Billabong has directly controlled operations in Australia, New Zealand, North America, Europe and Japan and distributors in other countries sell Billabong’s products in more than 60 countries.
(Investor web, 2002) Currency influences an organisation’s ability to compete globally. When the domestic currency’s value is high against foreign currencies, companies find it difficult to compete internationally. In this case if the Australian dollar rises against the currencies in the company’s trade area, Billabong will make extra profit. Its international operations could reduce earnings if the Australian dollar deprecates. Conversely, when the local currency falls against foreign currencies, new business opportunities arise.
Also the international element of the external environment means that Billabong must take into regard very different cultural, political and societal factors into its business plan. Operating in vastly different parts of the world, Billabong is faced with the challenge of bringing the correct management style, marketing viewpoint and interaction technique to the different regions in which it does business. Striving to be a truly international brand, Billabong endeavours to tackle these key issues in going forward with its business operations.