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Salim Group’s Company Analysis Since 1990

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Salim Group’s Company Analysis Since 1990

Chances of Success for Salim and His Group to Operate Flexibility

Introduction

Anthony and his group want to operate flexibly in order to take advantage of the opportunities that may arise out of the existence of an axis between Australia, ASEAN and China (Dieleman 2006, p. 2). Salim believes that business will be lucrative in the axis between those regions, and this is the reason why he and his group are considering strategic flexibility in order to take advantage of the opportunities arising in those regions (Dieleman 2006, p.16). In order to evaluate the chances of success for the group in using the art of flexibility and taking advantage of the opportunities, it is good to understand the history of the company, the business environment for Australia, ASEAN and China, the strengths, opportunities, weaknesses and the threats of the company.

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Application of PESTEL and Porter’s Diamond Theory in the Case Study

A PESTEL analysis is a tool used to provide an understanding of the environmental factors of a place. The tool looks at the political, economic, technological, ecological and legal factors (Sadler & Craig 2003, p. 45). The political factors are the legislation that affects the performance of the business, taxation provisions, political stability and general administrative ability of a country. The technological factors refer to a country’s investment in research and development and the general technical know-how available in a country. Ecological factors refer to cultural beliefs, population density and distribution and other social factors. The legal factors are the legal framework that regulates the operations of a business (Kono 1994, p. 62).

Porter’s diamond model shows the national and industry-level focus of the business strategy. Under this model, the success or effectiveness of a business model is dictated by the interaction of some variables. According to Porter (1998, p. 72), the diamond model is an improvement of Porter’s five forces model of competition, and it adds other factors to the competitiveness of a business. One of the factors is the availability of raw materials and other infrastructure that support the operations of an organization. The diamond model also puts more emphasis on the customers of an organization and seeks to eliminate the threat from new entrants and substitutes. According to this model, new entrants and substitutes can help an organization be competitive through the building of strategic alliances. This model also provides an aspect of chance due to uncertainties and related risks (Porter 1998, p. 83).

The political environments of the countries in which Salim and his group are venturing into are quite stable. There are no civil unrests, and this means that the countries provide a good business environment. The economies of the countries are quite competitive compared to the economies of other nations. Technologically, the countries are quite advanced. China is one of the leading countries in technological innovation. The countries spend substantial amounts on research and development; hence it is anticipated that the technology in the countries will get better. The countries are well-populated; hence although like in other countries, there are concerns that the population is ageing. The legal structures in the countries are favourable, and they encourage international businesses. The taxation in the countries is competitive; hence the countries are better choices for expansion (Kono 1994, p. 121).

Putting Porter’s diamond into the picture, the countries have strategic alliances with other nations. For instance, China is a member of the Asia community, and the country cooperates well with other nations in the region. Similarly, Australia and the ASEAN are also members of various treaties and trade agreements; hence they are good countries for business purposes. When the issue of chance is considered, many businesses have been able to succeed in the countries chosen for expansion; hence the chances of success for the Salim Group are better (Orcullo 2007, p. 34).

Conclusion

After consideration of the external environment, the internal factors of the business should also be considered in order to understand the strengths and weaknesses of Salim Group. One of the strengths of the group is that it has a good financial base. The organization also has good leadership under the leadership of Anthony Salim, and it has a flexible structure of ownership. Another strength is that the organization has diversified its investments in various sectors, which include the insurance sector, agriculture, real estate and food industry, among others. The weaknesses of the group are that it does not have up to date technology, as the CEO admits. The organizational structures of the group are informal and open (Pahl & Richter 2009, p. 81).

After the consideration of the environmental factors and the internal factors of the organization, the writer can conclude that Salim Group has better chances of success in exploiting the opportunities that might arise out of the Australia-ASEAN-China axis. This is because the political climate, economic conditions, legal factors and ecological factors provide a favourable business environment for the group (Porter 1998, p. 87). The group’s strengths outweigh the weaknesses, and therefore the company can take advantage of the strengths to develop strategies that help it to exploit opportunities that might arise. Salim explains that they don’t have the technology, but they are too close to the customer. This enables the group to reap from the opportunities that arise. Salim and his group can thus succeed in taking advantage of the opportunities that may arise out of the Australia-ASEAN-China axis if it places itself in a good strategic position. The company has the ability to place itself in that good strategic position; hence the chances of succeeding are better (Campbell, Stonehouse & Houston 2002, p.54).

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The Main Environmental Forces Which Have Influenced the Strategic Development of the Salim Group Since 1990

Introduction

For the strategic decisions of an organization to be successful, the organization has to understand well the environment in which it operates and also understand well its strength and weaknesses. According to Porter, the formulation of business strategies is only possible when an organization understands itself and the market. This is the reason why environmental analysis and SWOT analysis play a central role in the development of business strategy (Pahl & Richter 2009, p. 25). The effectiveness and success of a business strategy depend to a large extent on the understanding of the environmental variables.

It is, therefore, clear that any strategies developed by an organization reflect a big extent the environmental factors. In other words, environmental factors influence the strategic developments of organizations greatly. The crafting of companies’ strategies is also influenced by the competitiveness of the industry of operation of a company. These industrial forces can be determined using Porter’s five forces of competition (Porter 1998, p. 15-18). This section seeks to explore the environmental forces which have influenced the development of strategies by the Salim Group since 1990. The impact and strength of the influence by the environmental variables will also be considered.

Application of Porter’s Five Forces and Value Chain Analysis in the Case Study

This section calls for the application of the PESTEL analysis, Porter’s five forces theory and value chain analysis. Under the PESTEL analysis, the strategic development of Salim Group has been influenced by the political, economic, legal, ecological, sociological and technological aspects of the countries in which the group operates. One strategic decision was the transfer of some group assets and entities to the Indonesian government in order to clear the debts the group owed the government in 1992 (Dieleman 2006, p. 1). This decision was influenced by the change of political leadership in the country, and it was effective in clearing the debts of the company, which amounted to the US $ 5 billion. However, the decision left the group with a tainted image in the public since many people questioned the ownership and resale of the property by the Indonesian Bank Restructuring Agency (IBRA). Many people read ill motive in the move by the group, but overall, it was a good strategic move.

Porter’s five forces model is a model that is used to determine the level of competition in an industry. This model can be used to evaluate the competitiveness of an industry in which an organization operates hence enhancing analysis of the success of strategies adopted by the organization. The five forces of competition or rivalry, as pointed out by Porter, are threats or pressure come the newcomers, challenges from the already existing market players, the availability of alternative goods or services, bargaining power of providers or dealers and the demands from consumers (Porter 1998, p. 42). It is hard to carry out a comprehensive analysis of Porter’s five forces of competition of the Salim Group since this group is involved in several industries, which involve the agriculture industry, the food industry, the real estate, among other industries.

In the early 1990s, there was an economic boom in most countries in Southeast Asia. This led to the rise of many conglomerates in the Southeast countries and especially in Indonesia (Dieleman 2006, 5). There was, therefore, rivalry from existing firms and the threat from new entrants due to the boom. Most of the conglomerates in Indonesia were owned and managed by Chinese immigrants. These conglomerates became a threat to the Salim Group since they were new entrants in the market. In order to outdo the competition, Salim Group adopted some strategies such as aggressive expansion programmes, innovation, focus on customer demands, good management style and a positive organizational culture. The company was always looking for ways to improve on its products, and it sought to understand well the customer demands (Dieleman 2006, p.11). The group also pursued aggressive expansion and growth through the acquisition of subsidiaries, and this increased the turnover for the company. Another strategy was the positive organizational culture which was open and free, thus giving the employees a good environment for working.

These strategies were successful since they made the Salim Group stay top of the increased competition. Even under threat from new entrants and threat from existing firms, the Salim Group remained a big company, and it contributed almost 5% of Indonesian GDP in 1995. It also generated more revenue than other conglomerates, and it was one of the leading employers in terms of numbers in the country (Dieleman 2006, p. 5). It is therefore clear that the strategies adopted by the Salim group were effective and they had a big impact on the organization. They helped the company to remain top of the competition even with an increase in threat from existing firms and the threat from new entrants.

Since the economic boom and the Asian crisis, there have been little changes in the level of competition in Indonesia for companies. There are no new entrants in the market, but existing firms such as Unilever and GE are gaining momentum. To counter the competition, Salim Group has adopted a globalization strategy which is still being implemented. The group also wishes to consolidate control in the markets through maintaining holding in crucial companies. Strategic acquisitions are also the strategic option for Salim Group in its globalization strategy. These strategies will also lead to increased competitiveness of the Salim Group since they are well crafted and implemented.

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The value chain analysis is a method of improving the competitiveness of an organization proposed by Porter (Porter 1998, p. 112). A value chain involves the interaction of support activities and the primary activities in order to ensure coordination of the activities. Those services that come into play to support the firm include services such as company infrastructure, company human resource, expertise growth and procurement, whereas the key doings comprises of the processes, in-house logistics, exterior logistics, advertising or promotion and retailing’s and service. According to Porter, organizations can increase their competitiveness by reviewing their operation, enhancing the addition of value in the business processes and eliminating wastage by dealing away with unwanted processes (Porter 1998, p. 121).

The Salim Group has made efforts to improve on its business processes, and this is one major factor why the business has remained top of the competition. The business has adopted a pull strategy where it seeks to understand the market and then direct the activities towards meeting the market demands. This strategy helps an organization to concentrate on activities that add value to the products and services and ignore those which don’t. Good management of the value chain of the activities of Salim Group has thus helped the organization to focus on eliminating wastes in the value chain, making use of innovation, enhancing quick response to customer requirements and enhancing the good reputation of the company. This good management and understanding of the value chain by the Salim Group has led to the competitiveness of the organization over the years (Porter 1998, p. 124).

Conclusion

A good understanding of the business environment, industry competition and the value chain in an organization are some key elements to the success of a business. The interaction of the environmental factors and the industry competition provide threats and opportunities to an organization. An organization can thus make use of its strengths in order to take advantage of the opportunities available in the market. For Salim Group, there have been opportunities due to the ample business environment. However, there has been competition due to the existence of rival firms like GE and Unilever, the entry of new players and the bargaining power of both the suppliers and buyers. Despite this competition, the group has remained top of the competition in most industries and regions of operation. The main reason for this is that the company has used its strengths to develop core competencies hence increasing its competitiveness (Pahl & Richter 2009, p. 78).

Lessons That the Top Management Can Learn From “Late Movers”

Introduction

The Salim Group has been growing since the 1950s, and the top management in the company has remained in place throughout the Asian financial crisis. This has been attributed to the Group’s management capability and its ability to be resilient. These attributes have increased its likelihood to acquire capital gains and acquire more market share. Evidently, relationships between management style used in the organization and organization success in Indonesia and other parts are quite evident. The research argues that the application of proper management skills and techniques improve job performances and human performance (Becker & Gerhart 1996, p. 47). Definitely, there are lessons that the top management of the Group can learn from late movers. These lessons will be discussed based on Porter’s five forces of competition and value chain analysis. Late movers are defined as the companies which enter the global market later (Bartlett & Ghoshal 2000, p. 2). Salim group is in the category of late movers since it is one of the newest entrants in the global business arena.

Application of Porter’s Five Forces and Value Chain Analysis to the Case Study

The success of the management of Salim Group was mainly due to a good understanding of the environmental variables and the industry competition. This has led to the development of strategies that have enhanced the top performance of the management of Salim Group in the Asian crisis and even in the period after the Asian crisis. There are several lessons that the management of Salim Group can learn from late movers.

One of the lessons is that in the increasing competition and complexity of the business environment, human resource management has become a critical factor of success for an organization (Becker & Gerhart 1996, p. 53). Organizations must ensure that they continually train their human resources and keep them motivated in order to increase the efficiencies of the organization. This will have a positive impact on the value chain of an organization, and it will lead to more profitability hence competitiveness. Late movers in the global scene make use of a diverse workforce that can lead to innovation in the workplace. Organizations are competing on the ability to create a workplace that enhances positive organization culture and performance.

According to Sandler & Craig, the primary goal of an organization should be the development of a strategy that retains attractive markets and enables the organization to enter emerging markets (Sandler & Craig 2003, p. 103). Late movers seek to survive, grow and succeed in home markets before exploring new markets in other countries or regions. An organization that seeks to enter the international market by ignoring the home market has the wrong strategy and is deemed to fail. This is the reason why Salim Group is still consolidating its control in the home markets despite the fact that the company is exploring international markets.

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Late movers have also applied corporate responsibility in terms of observing business ethics in order to survive in the local markets and create a good platform for entering the global markets. Business ethics in organizations create good relationships with employees, customers, government and the general public. This will definitely affect the bargaining power of an organization’s customers positively and suppliers hence making a business competitive.

Good management information systems are essential for the management of the value chain for an organization. This is because a good management information system enhances detection of variations hence good control. The existence of good communication channels in an organization also impacts positively on the activities as well as feedback in an organization. This enhances the value chain analysis and thus helps an organization to enhance efficiency. Salim Group has employed the use of a good management information system that supports strategic decision making in the organization. Operation under different legal bases is also a strategy used by companies in order to penetrate the global markets. Salim Group used private ownership in order to acquire and manage assets well (Campbel, Stonehouse & Houston 2002, p. 23).

In their quests to remain competitive and penetrate the international markets, organizations employ the diversification strategy by investing in various industries (Bartlett & Ghoshal 2000, p. 7). The Salim Group has invested in the food industry, the retail industry, real estate and agricultural industry, among others. Diversification is one major reason for the success of the management of the Salim Group.

Conclusion

For organizations to be able to enter the global markets effectively, they should first build core competencies from their operation in the home markets (Waters 2001, p. 18). They should first eliminate or reduce their weaknesses and then work on improving or creating strengths. The strengths of an organization acquired in the home market are essential for a smooth entrance into the global markets. This is because entering new markets requires the organization to use its strengths and core competencies in order to exploit business opportunities in other countries or regions (Waters 2001, p. 76).

List of References

Bartlett, CA & Ghoshal, S 2000, Going global: lessons from late movers, Harvard Business Review, vol. 78, no. 2, p. 132-142

Becker, B & Gerhart, B 1996, The impact of human resource management on organisational performance, Academy of Management Journal, vol. 39, no.4, pp.79-80.

Campbell, D, Stonehouse, G & Houston, B 2002. Business strategy, Butterworth-Heinemann, Munich.

Dieleman, M 2006, The Salim Group: The art of strategic flexibility- Asian case, Research Journal, vol. 10, no. 1, pp.1-25.

Kono, T 1994, Changing a company’s strategy and culture, long range planning, Walter de Gruyter, Sydney.

Orcullo, N 2007, Fundamentals of strategic management, Rex Bookstore, Inc, Manila.

Pahl, N & Richter, A 2009, SWOT analysis -idea, methodology and a practical approach, Norderstedt, New York.

Porter, M E 1998, Competitive advantage: Creating and sustaining superior performance with a new introduction, Simon and Schuster. London.

Sadler, P & Craig, J 2003, Strategic management, Kogan Page Publishers, London.

Waters, M 2001. Globalization, Routledge, London.

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