PPQ Parts Strategic Plan
Introduction: Environmental Scanning
Environmental scanning is defined as the watchful and diligent monitoring of a company’s internal and external settings. It opposes to the concept of ‘surveillance’, which is restricted to a focused goal or a particular sector (Black's Law Online Legal Dictionary). The early detection of both threats and opportunities is crucial to underpin a company’s strategic planning.
Such growth is unlikely to be supported by its United States operations, where its 5,000-person workforce is employed. Management acknowledges such fact and has determined that new international facilities will be necessary. Furthermore, a high level of growth can only be achieved in emerging markets, as more mature economies have their car markets saturated.
Among all emerging economies, the BRIC countries – Brazil, Russia, India, and China – offer the largest markets to support PPQ Parts’ goal of reaching 9% of the world market share on small SUVs. Recent political and economic turmoil in Brazil and Russia advises against investment in those countries. Between India and China, the latter has a special economic relationship with the United States (where PPQ Parts headquarters and operations are located), as the two countries have developed a symbiotic relationship in the past decades. American funding fuels Chinese economic expansion, mostly in the manufacturing sector. The output of these factories is sold back to the United States and paid for in dollars. These dollars are used by the Chinese to buy United States debt, which is a ‘ballast’ to the value of the Renminbi (Kim, 2015).
The benefits offered by the Chinese location are evident: China is an excellent, growing market, with political and financial stability. China has had a long-running commercial relationship with the United States, from which PPQ Parts could benefit: its Asian factory could use some of the parts produced in America, and vice-versa.
Probably the most significant limitation is the Chinese government requirement of having a local partner. PPQ Parts would have to find a local Chinese company (most likely, a car parts manufacturer as itself) and establish a partnership to be allowed to build a plant and reap the benefits of the booming Chinese economy.
Internal and External Resource Analysis
Michael Porter proposed and advanced a framework for analyzing the known level of competition within any given industry, which is additionally used as a tool to develop company strategy. The Five Forces that christened Porter’s framework encompass two kinds of threats (New Entrants and Substitute Products), two "bargaining abilities" (stemming from both Customers and Suppliers) and intra-industry competition (Porter, 1998). An old industry – such as car parts manufacturing – tends to be less attractive to players, as some of these forces are strong, increasing the degree of competition among players. Furthermore, existing players are unable to command a high price for their products.
For PPQ Parts’ proposed partnership in China, the threat of new entrants is high: many American and European automakers and car parts manufacturers have an eye for the Chinese and Asian markets. As the Chinese government requires partnerships to enter the country, all of these players are prospective rivals to PPQ Parts.
The partnership will likely produce parts for many small SUVs, the largest planned market expansion, according to PPQ Parts’ management. Again, this vehicle segment is rife with competitors in the United States and China: there are many substitute goods for PPQ Parts’ products. PPQ Parts will have to provide innovation to differentiate from the competition.
The main customers for PPQ Parts are automakers. Car parts makers and automakers are usually locked in long-term contracts. The entry of PPQ Parts in the Chinese market will likely be met with resistance by local car parts manufacturers, but the automakers will be keen to sit with their prospective new supplier and see what PPQ Parts may offer. In other words, there will be many opportunities for PPQ Parts to do business in the new country.
As for suppliers, it is a well-established fact that Chinese supplies are notoriously cheaper than American. As competition among Chinese suppliers is intense, PPQ Parts will likely have high bargaining power with them.
The intra-industry competition will be fierce. PPQ Parts will find rivals in Asian, European, and American makers located in China. The company has to have a good working relationship with its Chinese partner to make the best of the situation and compete effectively against the many rivals.
In summary, many threats await PPQ parts, but there are good opportunities as well. Both will require a lot of work for the new partnership to fructify and support the needed expansion of the company.
Short-term and long-term strategic goals
A basic strategic management plan has to include quantifiable goals and measures. The interview with the managers allows us to determine and quantify proper long-term goals for PPQ Parts. Based on those, we will dissertate on actions and initiatives, and elaborate short-term goals.
Current stock price is $10 per share. Management’s goal is $22 a share (long-term goal). This can be attained in four years by reaping the profits from the Chinese plant. A short-term goal is $15 per share in two years.
PPQ profit margin shows a 3-year average of 6%, along industry standards. Management’s long-term goal is 13% in 4 years. The partnership in China is essential for this higher profitability. As the plant becomes on-line, in two years, profitability should jump to at least 10% (short-term goal).
PPQ Parts has 5% of the world share on small SUVs, and management has established the long-term goal of 9% in 4 years. The Chinese factory must be 100% dedicated to the production of small SUVs to achieve this aim. As the plant begins production, in two years, the 5% share should increase to 7% in year 3 and reach 9% in year 4.
PPQ Parts employees will increase from 5,000 to 10,000 in 4 years (long-term goal). Initial Chinese plant production should be at 80% after the first few months, so a short-term two-year goal should be 8,000 employees. Moreover, an aggressive profit-sharing compensation should reduce employee turnover from 28% to 23% in two years, reaching 17% in four years.
PPQ Parts contributes to charity 0.5% of total profits, and management has stated that they would like to increase to 5% in 4 years (long-term goal). Because of the profit-sharing compensation to employees, the short-term goal is to keep contribution at 0.5%. As profits roll in in year four, when the company has 9% of the small SUV market, this percentage can increase to 5%.
References
Black's Law Online Legal Dictionary. (n.d.). What is ENVIRONMENTAL SCANNING?
Retrieved July 27, 2016, from http://thelawdictionary.org/environmental-scanning/
Kim, S. (2015). The International Monetary System and the Available International Policy
Options for Emerging Countries. Seoul Journal of Economics, 28(2), 199. Retrieved
Porter, M. E. (1998). Competitive strategy: Techniques for Analyzing Industries and Competitors (1st ed.). New York, NY: The Free Press.
Rainey, D. L. (2016) Enterprise-wide strategic management: Achieving sustainable success
through leadership, strategies, and value creation. Cambridge, UK: Cambridge
