Introduction

In strategic planning, once direction is identified and before developing and introducing a new strategy, a company should analyze its position. Some useful tools for analyzing the strategy are SWOT analysis, PEST analysis and Michael Porter’s five-forces model.

SWOT analysis

The SWOT analysis is a planning tool, which assesses the firm’s strategic profile in terms of its strengths, weaknesses, opportunities and threats. Focusing on both internal and external environments, it serves to highlight a firm’s distinctive or core competencies, which will enable it to gain competitive advantage and competence mastery.

The SWOT analysis is usually expressed as a matrix:

Strengths	Weaknesses
Opportunities	Threats

Some of the key issues which are addressed in a SWOT analysis are:

External environment: opportunities and threats

• What are the main factors in the societal environment (political-legal, economic, sociocultural and technological)?

• What is the market strength of competitors?

• What new products or services, including those of the firm and competitors, are in the pipeline?

• What is the level of consumer demand and can it be expected to remain stable?

• What is the likely threat of new entrants in the market for the firm’s products?

Internal environment: strengths and weaknesses

• Does the organization have a structure that helps it to achieve its objectives?

• Does it have clear marketing objectives and strategy?

• Does the organization use information technology (IT) effectively in all aspects of its activities?

• Does its investment in R&D match or exceed that of competitors?

• Does the organization meet its financial objectives?

• To what extent does the firm have clear HRM objectives and strategies in areas such as employee motivation, staff turnover and provision of training?

►Perform a SWOT analysis for a business selling French and Italian wine online. Consider the advantages of online selling that compensate for the perceived drawbacks of this sort of a business. Strategic options should therefore emerge in your analysis.

Strengths	Weaknesses
Opportunities	Threats

►Compare two online retailers such as www.bolero.ru and www.ozon.ru by performing a PowerPoint SWOT analysis for each.

‘CASE-1’ POINT

Winiary soups in Poland

( 1) ‘We had a dream of our factory after privatization and that dream has been fulfilled,’ says Karol Madrowski, Managing Director at food manufacturers Winiary. His dreams have been realized courtesy of Nestle, which paid around $60 million for a 45 per cent stake (доля/участие в капитале акционерной компании) in Poland’s best-known brand producer in 1997. The Swiss company promised to invest a further $30 million and Madrowski’s plant, in Kalisz, western Poland, has enjoyed a transformation. By way of an example, he points to a flower bed (клумба) planted where the coal tip had been. ‘We don’t need the coal any more as our new energy installation is gas fired and employs 3 where once we had 39 people’, he says. Now employees sit watching computers put the right mix of ingredients into Winiary’s dehydrated soups and puddings. Once the same people in the same place had dragged (тащить) the same ingredients around by hand. Product quality and hygiene labs have been brought onto the shop floor to communicate to the employees how important these factors are. The red and yellow branding has been modernized so that products are instantly recognizable on shop shelves. And the walls of the plant have been repainted in the same colors to reinforce identification with the product.

(2) Consumers and employees alike are encouraged to come up with new ideas for products and recipes to encourage brand loyalty, a concept alien to (чуждый) the plant’s old masters, the central planners. The three-year investment program has consumed $50 million, which is more than Nestle originally promised it would spent on modernizing the plant. This is also more than the $40 million Nestle’s rival, CPC Amino (owned by Bestfoods, now part of Unilever), has spent. ‘Poles eat 300 instant soup servings a year’, says Nestle’s commercial manager. Nestle has been surprised at the size of the market given that instant soups came late to Poland. They were first brought to the market by CPC under their Knorr brand in April 1996. Sales have since grown dramatically, reflecting a society which is working harder and leaving itself less time for meals.

(3) Pre-1995, Winiary had begun to lose market share to CPC and, without privatization, the company would have begun to slide downhill fast. The Nestle investment has brought spending on new equipment and technology, as well as reorganization of the company and development of its distribution and marketing functions. It has invested in people, including MBA-style management training as well as courses in Switzerland, backed by language training.

►Case task:

What are the strengths, weaknesses, opportunities and threats relating to Winiary? Construct a SWOT analysis to illustrate them.

‘THEORY-3’ POINT

PEST analysis

PEST stands for political, economic, sociocultural and technological factors. The PEST analysis is a useful tool for monitoring and evaluating forces which affect the organization over the long term. Below are the headings with a few questions that arise under each one:

1. Political-legal environment

• Is the existing government a stable one, and what is the strength of any opposition to it?

• What constraints has the government imposed on business, or is likely to impose in the future?

• In the EU, what forthcoming legislation, such as antitrust and employment laws, is likely to affect the business?

2. Economic environment

• Is the economy growing, or is the recession looming?

• Are wages and consumer spending rising?

• Which sectors of the economy are growing and which sectors are not?

• Which regions of the country are experiencing the best growth?

• Is there high unemployment?

3. Sociocultural environment

• Is the society culturally diverse?

• What are the educational levels of the population in general?

• To what extent do women have educational opportunities and play an active part in business life?

4. Technological environment

• What is the level of technology education and training which would influence the recruitment of skilled staff?

• Is technological innovation encouraged?

• What funding is available, from government and elsewhere, for technology development?

• How computer literate is the society in general?

The PEST analysis does not cover all aspects of the business environment. There is an expanded version of this acronym which is LE PEST C. It allows including legal factors as a separate heading followed by ecological factors. Lastly, the competitive environment is added to provide basis of a more comprehensive scanning. Both SWOT and PEST are also used in marketing planning. So,

The figure below provides a summary of the key variables in the international environment.

►Question/Answer session:

1. Why is the PEST analysis particularly useful for strategic managers in international businesses?

2. How can the PEST analysis be useful for a Russian company if it is considering expanding to China, India and the Philippines? What questions does the PEST help answer?

3. According to the figure above, explain each of the key variables in much broader terms.

‘WWW.1’ POINT

► McDonald’s is famous for its blended ‘2-in-1’ (globalization and localization) strategy. Go to www.mcdonaldsindia.com, click on ‘West Zone’, surf ‘Overview’ section on ‘About us’ page, then move on to ‘Press kit’ section, where you can find info on McDonald’ blended strategy in files named ‘McDonald’s – a local company’ and ‘Respect for the customers we serve’. Be ready to answer (in detail) the following question:

• How does McDonald’s change or adapt its strategy in response to a local community?