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Porter's Five Analysis of Ryanair and Wikimart

3415 words (14 pages) Business Assignment

6th Oct 2020 Business Assignment Reference this

Tags: Business AssignmentsBusiness

RYANAIR

Ryanair adopts a low-cost leadership strategy by imitating South West airline business model. Ryanair aims to become a leading low-cost carrier offering low fares services and at the same time establish itself in Europe.

Peng, 2016 emphasizes that strategy tripod is the backbone of the firm success. The industry-based view is derived by five forces framework (Peng, 2016). First, taking Porter five forces framework analysis into account, we can observe to what extent the degree of competitiveness of the airline industry.

Porter Five Forces Analysis

Rivalry among competitors

The intensity of competition in the industry is high. Many Ryanair rivalry trying to imitate their strategy as low-cost providers. Much important, the customer switching cost to change to another brand or firm is low rising the fierce competition in the industry. Notably, with the increasing number of rivals can open up and pose high threats to Ryanair.

The threat of potential entrants

The threat of new entrants is considered low due to government regulation, high barrier to entry, economies of scale and product differentiation. Ryanair, a first mover has successfully gained its competitive advantage that prevents the newcomers or late mover to enter. Apart from these, the new entrant also having difficulty in accessing to the distribution channel. Domestic and international airports may not be able to provide an additional slot for the newcomers.

Bargaining power of suppliers

The bargaining power of supplier is high. Because of the limited number of suppliers, leaving the firm no option for the aviation industry. The airline company cannot easily switch the supplier hence make the suppliers more belligerent to exert their power. Also, Ryanair facing high-cost pressure from monopoly supplier of airports and air traffic control.

Bargaining power of the buyer

There is a lot number of buyers in the aviation industry impact the bargaining power of the buyer. The group of buyers consists of the individual buyer and travel agencies. Plus, customers have a variety of options to choose the low airlines in the market that offering a low price but highly differentiated in the service offering. The more option the buyer has, the more sensitive the buyer to the price change. Ergo, the bargaining power of the buyer is considered high.

Threat of substitutes

Substitutes of Ryanair range from sea transportation and high-speed rail system. These substitutes offer a similar service and value to the customers that customer may choose to switch. However, train or ferry may inconvenient to choose due to the long journey as traveling by plane reduce the time taken to reach the destination. Thus, the threat of substitutes is quite low.

Overall, airline industry consideration seems to be tough for a new start-up company to enter. Airline's industry is highly unattractive, yet Ryanair still can soar profits. The only main priority to consider in the industry is the fact that the competitions are too intense that making it too aggressive and harsh to compete. Moreover, the bargaining power of supplier needs to take into account as suppliers exert high power to control the price they will charge and the buyer in a comfortable situation to fly because of availability of low-cost providers.

Next, according to Wennerfelt, 1984 resource-based perspective provides a basis for addressing main issues in formulating a strategy. Analyzing and identifying resources is an approach to determine the source of profitable and achieving high performance (Barney, 1991). Organization resources can be classified into three categories which are physical, human and organizational capital resources (Barney, 1991). Ryanair resources consist of technology, physical, financial, leadership, and reputation (refer to appendix 1). Besides, Ryanair value chain model proves to add value to the organization. European airlines provide a range of primary and support activities.

In primary activities, Ryanair negotiates and develop a good relationship with the supplier, for instance, airport and fuel supplier to allow price reduction. Also, Ryanair utilizes a single model of aircraft to minimize training, spare part, and maintenance cost. Moreover, Ryanair also implements point to point flight, quicker turnaround and more departure time enable the operation to be more efficient. Further saving also generated through marketing activities that take place via websites. On top of that, Ryanair delivers supporting activities such as customer service, low training cost for the workforce, employment contract based on performance productivity, usage of modern technology such as online booking and check-in that lead to huge savings. Besides, using the internet allow Ryanair minimizing information technology cost as the internet increase the speeds as well as increase company revenues. Porter argues that value activity is a source of uniqueness. Overall, combining the value activities create uniqueness to Ryanair. A firm can also differentiate itself by allowing differentiation from downstream activities that can be a source of uniqueness.

Institutions commonly "known as the rules of the game" (Peng, 2016). Within the institutional-based view, the Ryanair case exhibits strong formal and informal constraints that shape their strategy. Ryanair confronts governments laws and regulations regarding air transportation in Europe. Following this, Ryanair is subjected to Irish and EU regulations (case study, p4). Unfortunately, for example, EU 261 regulations require the airline's company responsible for paying compensation and any other incurred costs to the passengers in the event of flight cancellation. Next, the airline's company confronting fluctuations in airport and handling expenses, fuel and carbon dioxide fees. Truth, this situation will hurt and stifling the airline's businesses. Despite poor deregulation from the government, liberalization of the market around the globe prove to strengthen Ryanair position as a low-cost airline and leverage customer base. This institutional environment becomes more favorable for the airline company to tap into the emerging market. Supporting informal institutions, CEO Michael O`Lerry demonstrates unethical behavior that hurt the image of Ryanair. He is also known as an outrageous and outspoken person. His norms in doing the business which sometimes known for attention seeker from media. The question is how low can Ryanair budget airline go without provoking media outcries? In a nutshell, the role of institutions especially government policies have a greater impact on the industry structure.

As a conclusion, when looking at strategy tripods discussed above, Ryanair low-cost strategy. the company able to craft a better strategy for them, hence forging a bright future. The success of the strategy must harmony with external and internal environment and also industry attractiveness. Ryanair and other low-cost strategy companies such as Ikea and Aldi have been able to use their competitive advantage to grow their businesses.

WIKIMART

Wikimart is a Russian version of Amazon who ambitious to dominate e-commerce industry on the territory of the former Soviet Union. Start-up firm like Wikimart confronted with many challenges in growing and expanding their businesses.

To make a foreign entry decision, we must underlie each decision from three main perspectives (Peng, 2016). Porter five forces analysis to give a holistic understanding of the industrial competitiveness of Wikimart.

Porter Five Forces Analysis

Interfirm Rivalry

Wikimart has many competitors thanks to the attractive industry. Wikimart direct competition is Ozon.ru while Groupon and KupiVip indirect competition. These three big companies offering the same services as Wikimart. Other competitors such as Rambler offering search engine like Google and Vkontakte, social media services that imitated Facebook can be regarded as Wikimart rivals too. Neither both of these companies compete directly with Wikimart as they vary in nature Therefore, the intensity of rivalry among competitors can be considered high.

Entry Barriers

With the rapid growth of globalization, internet platform becomes ideal for a new start-up company to grow their business. In Russia, the internet consumption expected to increase by 10% per year (case study, p. 9). Starting a business in e-commerce market require a huge amount of capital investment especially in IT technology and supply chain. At this moment, most of the big company in Russia obtain their financial economies of scale by publicizing their company in an initial public offering (IPO) and from investors. Besides, it might be difficult to establish a brand name as it takes longer time to recognized and high cost may incur. For example, a new start-up firm needs to spend a massive amount of money to compete. Thus, the entry barrier is medium.

Bargaining Power of Suppliers

The influence of supplier in online retailer industry is strong due to significant amounts of suppliers. For example, products and goods offering in Wikimart can be found on Amazon websites which can be considered the products is not unique. Also, only a small amount of fee charged for the supplier for retailing their space.

Bargaining Power of Buyer

Consumers have an alternative to compare the products as there is high availability of information provided via the internet. In relation, there is low switching cost involved in the process make it easy for a buyer to switch to another retailer such as Ozon.ru. Next, consumers can also choose to go to a brick and mortar store selling the same product. As a result, the bargaining power of the buyer is strong.

Substitutes Product

Online retail industry such as Wikimart offers a wide variety of products. Example of substitutes of Wikimart is other online retailer company and physical stores. High availability of substitutes and low switching cost for a consumer to change to another retailer posed a high threat to the industry.

The VRIO analysis shed considerable light on entry decision (Peng, 2016). Tangible and intangible assets of Wikimart can be found in appendix 2. Refer to appendix 3 for the VRIO framework of Wikimart.

VRIO Analysis

Wikimart sustainable competitive advantages attained from financial assets, relationship with supplier and shareholder, skills human resource and brand image. From VRIO analysis most of the attributes that provide long term position come from core competencies of the organization. For example, a good relationship with suppliers and shareholders is valuable for running a business in the industry. Also, the capabilities of human resources are valuable, rare, difficult to copy and organized. To illustrate, Wikimart employees trained with Silicon Valley expertise for further development for the organization. Two founders of the company have a great ability to manage the organization from operations to development activities. Apart from core competencies, Wikimart able to attract big-name investors such as Tiger Global that allows them outperformed better than competitors.

The most critical part of the entrepreneur life cycle is the final phase of the investment process which is a harvest. Shareholders or owner may have to harvest to increase the value of a firm without jeopardizing the business`s future. Every entrepreneur must develop effective harvest plan. Wikimart is not an exception. Recall from an industry perspective, the intensity of competition in the retail industry is high and unfavorable for the company to grow its business. This environment leads to a higher collision between the interfirm industry. Online shopping is beneficial to start-up the firm as allow them to expand their market share quickly. However, because of the low entry barrier for newcomers to enter, the market becomes more competitive hence make it more difficult to collude.

 In Russia, there are laws by the government that limit foreign ownership such as Google or Amazon to invest in the country. With the formal institution constraints, it encourages and eases the entrepreneur to start their businesses.

Firm capabilities may influence competitive pressure between rivals if the firm possesses the necessary capabilities or resources to act (Zucchini, 2011). Wikimart may defend the competitive position from rival attack by sustaining their competitive advantage. At present, Wikimart sustainable competitive strategy failed to increase company performance. By 2012, the Russian firm unable to make a profit. Nevertheless, Wikimart able to secure the financing from the investor in the early stage of growing using their competencies. They did extremely well of adapting to the fast-changing market. Yet, they might have a higher potential to expand their market abroad by improving and manage resources such as improvise their business model or have differentiation in the service offering. In such a way can move your resources to be sustainable competitive advantages.

In a word, Wikimart position does not help to drive their objectives. The only harvest decision the founder have is to merge with other successful company. When business is not doing well, a merger will be the best choice for Wikimart. The company should stay in the domestic market. Based on the VRIO analysis and industry environment factor, Wikimart competitive advantage is not strong to go internationalize. I believe that horizontal merge benefits them such as partner with Ozon.ru as the oldest e-commerce firm already had a huge market share and high brand reputation in Russia. having a strong business presence is essential for business. Both firms can join forces together to conquer the e-commerce market thus prevent the newcomers to enter. Perhaps after merging with other company will help Wikimart to become more profitable and reduce the competitiveness pressure. Also, Wikimart might be able to overcome unreliable technology by having an expert from Ozon. Before choosing a liquidation of the firm, merging can be an ideal strategy lead to future development as financial synergy takes place. Online retailer industry is expected to get a boom in Russia. Therefore, it is a good platform for Wikimart to drive business sales and gain massive success.

APPENDIX

Appendix 1: Tangible and Intangible Asset of Ryanair

TANGIBLE RESOURCES

INTANGIBLE RESOURCES

Financial

  • government subsidies
  • healthy cash flows
  • airport low charge fees

Human

  • Leadership
  • employees

Physical

  • machines (the Boeing 737-800 aircraft)
  • headquarters office
  • secondary and regional airports
  • maintenance (spare part inventory)

Innovation

  • low fares
  • quick turnaround time
  • travel point to point
  • more departures time

Technology

  • popular websites

Reputation

  • brand name
  • a good relationship with suppliers
  • customer reliability
  • first-mover advantage

 

Appendix 2: Tangible and Intangible Asset of Wikimart

TANGIBLE RESOURCES

INTANGIBLE RESOURCES

Financial

  • investors fund

Human

  • suppliers
  • capabilities of two founders
  • employees

Physical

  • large product range (52,8000 products)

Innovation

  • software
  • IT Technologies
  • R&D Development

Technology

  • online websites
  • patents, copyright, trademark

Reputation

  • brand image
  • relationship with suppliers
  • relationship with shareholders

 

Appendix 3: VRIO Framework of Wikmart

Resource and capabilities

V

R

I

O

Value Creation

Large Product Range

Yes

No

No

-

Competitive Parity

Skilled Human Resources

Yes

Yes

Yes

Yes

Sustained Competitive Advantage

Brand Image

Yes

Yes

Yes

Yes

Sustained Competitive Advantage

Innovation

Yes

Yes

No

-

Temporary Competitive Advantage

Relationship with Supplier

Yes

Yes

Yes

Yes

Sustained Competitive Advantage

Relationship with Shareholder

Yes

Yes

Yes

Yes

Sustained Competitive Advantage

Business Model

Yes

No

No

-

Competitive Parity

Financial

Yes

Yes

Yes

Yes

Sustained Competitive Advantage

References

  • Barney, J., 1991. Firm resources and sustained competitive advantage. Journal of Management17(1), pp.99-120.
  • Peng, M.W., 2016.  Global strategy. 4th edn, Cengage learning.
  • Wernerfelt, B., 1984. A resource‐based view of the firm. Strategic management journal5(2), pp.171-180.
  • Zucchini, L. and Kretschmer, T., 2011. Competitive pressure: Competitive dynamics as reactions to multiple rivals. 

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