Sustainable competitive advantage
For WPP, China meets all the criteria, which are considered important with an objective of deriving sustainable competitive advantage. From short-term point of view, 2008 Olympic games present a great opportunity to companies to showcase their brands and create an association of their brands with Chinese masses. WPP can rake in big money during these campaigns.
From long term point of view, a fast growing market with a good double digit growth rate, a burgeoning economy with a consistent growth rate of over 9%, political motivation, opening up of a virgin market and a consumer base of over 1 billion makes it a mouth watering proposition for marketers. – Chinese market is valuable to WPP – Its unique considering size of the market and volumes – WPP had some holding in some companies in China, with changed laws; it has now acquired those companies and added more to the list.
Sheer volume of business offsets cost of entry. – Any other market can never compensate the loss of this opportunity. – The returns are above average as already depicted by the revenue figures. Hence China is the single most important key factor not just for WPP but in coming years, it is going to change the matrices of the industry. Strategic Options Analysis Evaluation- Chinese Market perspective Consistency Suitability Viability Business Risk Appeal to share holders New company No No Low Yes Low Equity participation Yes Low Yes Low Moderate
Need essay sample on "Sustainable competitive advantage"? We will write a custom essay sample specifically for you for only $13.90/page
Acquisition Yes Yes Yes High Yes Since WPP already has a sizeable market presence in China through group companies, therefore issue of coming up with a new company for China is a non-starter. Further, tapping different niche markets becomes difficult within same company. That implies opening up more than one company. Starting more than one company from scratch in a new territory is never a good strategy. Equity participation in China ensures WPP’s presence but doesn’t provide it the dominance in the market.
WPP has already lost one of its partner companies in China using second option. Therefore, this strategy is less likely to appeal the management and stakeholders. For short term, it may be considered but long-term strategy remains acquisitions. Giving immediate reach to the clients, with existing human resources and culture. This strategy is in alignment with the aggressive nature of the company. Further it ensures proper utilization of surplus cash available with the company. This by far has been a very successful strategy in the industry.
Analysis of Financial ratios of the company further strengthens the belief of strong financial fundamentals and might of the company. This was in spite of the fact that a considerable part payment of Grey Global’s acquisition was made in cash in the year 2005 Financial Ratios: Current Ratio = Current assets/current liabilities = 6192. 2/7342. 7 = . 84 Though in short term it might indicate a liquidity crunch for the company. But one must keep in mind the cash payout made for acquisition of Grey. Return on Assets= Net Income/Total Assets = 398/14389. 1 = 0. 027
The amount is in million pounds. With better utilization of assets and consolidations which have already started in some of the group companies, this ratio is bound to improve further. Return on Sale= (Sales-cost of goods sold)/Sales = 5373. 1/21300 = 0. 25 That is a healthy scenario indicating healthy business from revenue generation point of view. Return on equity=Net Income/ Shareholder equity =398/3985. 8 = 0. 099 There has been a 20% rise in the dividends for the shareholders and the share price that was 629. 0p in 2005, currently in 2006 has already crossed 681. 5p.