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Strategy Aggreko Public Limited Company - Essay Example

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This essay "Strategy Aggreko Public Limited Company" is about improving the firm’s position towards its competitors. In fact, in order for the above target to be achieved, it is necessary that the firm is able to develop a competitive advantage over its rivals…
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Strategy Aggreko Public Limited Company
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? Aggreko plc Table of contents Introduction 3 2. Aggreko – Company Overview 3 3. Macroeconomic environment 4 3 SWOT analysis 5 3.2 PESTEL analysis 6 4. Competition 8 4.1 Porter Five Forces model 8 5. Competitiveness of the organization 10 6. Conclusion 10 7. Recommendations 11 References 12 Appendix 13 1. Introduction The development of business activities worldwide is related to a series of significant challenges; indeed, firms that are interested in expanding their operations worldwide have to face a strong competition, a result of the increase of globalization as a social and economic phenomenon. In any case, the expansion of a firm globally is considered as a strategy for improving the firm’s position towards its competitors. However, this is not always the case. In fact, in order for the above target to be achieved it is necessary that the firm is able to develop a competitive advantage towards its rivals. This issue is examined in current paper. Reference is made to a specific firm, Aggreko plc, a global competitor in the energy market; the ability of the firm to compete effectively its rivals in the global market is evaluated by analyzing its macroeconomic environment. It is made clear that the firm’s potentials to achieve a stable growth in the international market are many; however, the improvement of certain of its strategies is necessary in order to avoid significant market risks, in the context described below. 2. Aggreko plc – Company Overview Aggreko is a leading firm in the energy industry. The firm specializes in the provision of ‘temporary energy rental solutions’ (Aggreko 2011, Corporate Website); apart from the above sector, the firm also activates in a series of similar areas, such as ‘electronics, industrial manufacturing and machinery manufacturing’ (Hoovers 2011, Competitive Landscape). The firm was first established in Netherlands in 1962 but it soon started its expansion worldwide (Aggreko 2011, Corporate Website, History). Currently, the firm operates in 34 countries worldwide; its employees are estimated to 3,800 in the firm’s facilities internationally. Through the decades, the firm has managed to improve its position in the global market through a series of acquisitions; two indicative examples of the specific business strategy is the acquisition in 1986 of Electric Rental Systems Inc – through which the firm entered the US market and the acquisition in 1989 of Yeow Kong Electrical Company (Singapore) through which the firm entered the Asian Pacific market (Aggreko 2011, Corporate Website, History). The financial results of the organization reveal its strength, as a global competitor in the particular industry; indeed, in 2010, the firm’s revenues were estimated to ?1,156m (and ?1,023m in 2009), a profit that is significant if compared with the firm’s revenues in 2003, when the firm managed to reach a profit of ?324m (Aggreko 2010, Corporate Website, Investors, Strategy and Performance) – the increase in the firm’s profitability is clear and impressive; through the years, the overall improvement of the firm’s performance is also reflected in the difference of the firm’s ROCE (Return on Capital employed) which was estimated to 32% in 2010 – compared to 13% in 2003. The continuation in the improvement of the firm’s performance can be made clear in Table 1 – Appendix, where the key financial results of the organization for the years 2009 and 2010 are presented. At the same time, Graph 1, Appendix, shows the firm’s strategic performance globally; it is clear that there are regions (Africa) where the firm’s strategies need to be re-evaluated being aligned with the local social and economic conditions. Under these terms, the review of the firm’s macroeconomic environment could help to identify any weaknesses or failures, which significantly impact the organization’s plans. 3. Macroeconomic environment In order to evaluate the competitiveness of the firm within its industry, it is necessary to identify the key elements of the organizational environment, especially those elements that are likely to influence, directly or indirectly the performance of the organization. At this point, both the internal and the external environment of the organization should be analyzed. 3.1 SWOT analysis The SWOT analysis can be used in order for the organization’s key strengths and weaknesses to be identified and evaluated; at the same time, the specific model refers to the opportunities and the threats that the firm has to face within its industry; the above elements of the organizational environment can be analyzed as follows: a) Strengths: a1) the firm’s size: the firm already operates in 34 countries and has managed to acquire a high number of competitors in the global market; therefore, its position in the international market is not under severe threat, even if the potential entry of new competitors could decrease the firm’s profits, but such perspective cannot be regarded as standardized, as explained in the analysis of the organizational environment using the Porter’s Five Forces, in section 4.1 below; a2) the firm’s specialization; the firm specializes in the rental of equipment which cannot be easily identified, at least not of such quality, a3) emphasis on innovation, a4) valuing the relationship with customers and employees, a5) variety of products and provision of 24/7 service for facing cases of emergency (Aggreko 2011, About Aggreko); b) Weaknesses: b1) lack of a clear strategy in case of unexpected market failures; b2) lack of effective risk management plan for addressing various issues at local and international level, b3) need for further improvement of efficiency in operations (Aggreko 2011, Strategy and Performance), b4) need for further update of the firm’s facilities in terms of sustainability (Aggreko 2011, Strategy and Performance); b5) need for decrease of the time required for responding to customers’ orders/ i.e. for the delivery of products to customers; c) Opportunities: c1) the energy sector worldwide is continuously developed, meaning that the sector is quite promising in terms of the performance of the sector’s firms worldwide, c2) governments worldwide tend to invest highly on energy; the firm can choose to develop strategic agreements with organizations of the public sector in case that its revenues in the private sector are in risk, c3) new markets are currently developed worldwide – referring to the case of the BRIC countries but also to other markets which are still under development, such as Taiwan, Indonesia and so on; d) Threats; d1) the global financial crisis is still in progress; even if there are claims that the crisis was ended in 2009, there are many signs that its effects can be still identified in markets worldwide; in the context of the EU, the crisis can be reflected in the turbulences that the economies of member states face; also, in the US economy, the effects of the crisis are clear in the continuous increase of the country’s debt, d2) the energy sector is a sector that highly attracts the interest of investors worldwide; in the long term, the potential increase of new entrants in the sector could lead to the limitation of the firm’s profits – even if the reduction in the firm’s profitability is limited, still, the effects on its strategies may be significant. 3.2 PESTEL analysis PESTEL analysis is a strategic tool used commonly in order to examine and evaluate the macroeconomic environment of a particular organization. In accordance with Henry (2008) the PESTEL analysis can ‘help the organization detect and monitor those weak signals in the hope of recognizing the fractures shaping the environment’ (Henry 2008, p.51). Moreover, Lorat (2009) note that a firm should identify its strengths and weaknesses at an early stage, i.e. before realizing its plans, in order to avoid the risk of severe failures (Lorat 2009, p.7). Using the PESTEL framework, the firm’s environment could be analyzed as follows: a) Political: the global political environment is quite unstable; strong political conflicts are under development in many countries worldwide increasing insecurity for firms operating in the global market; b) Economic: Political instability worldwide has been followed by strong turbulences in the economies of many countries; still, there are countries, like the BRIC countries which can offer important profits to global enterprises; c) Social; the failures in fiscal decisions of governments worldwide have resulted to severe social turbulences which, is expressed either by conflicts among social groups – as in countries of Africa – or by conflicts between the society and the governments – as in the case of Europe; d) Technological; the development of technology in countries worldwide is continuous and significant; advanced technology could be used for further improved the firm’s products supporting the increase of the firm’s competitiveness in the international market, e) Environmental: the concerns of people internationally regarding the consequences of human activities on the environment are continuously increased; the firm has incorporated a series of strategies, such as’ the use of alternative fuels and the control of noise through the use of ‘noise attenuation technology’ (Aggreko, Environment 2011) for reducing the effects of its activities on the environment, f) Legal: The current legislation regarding the activities of firms operating in the energy sector is quite strict; however, differentiations can be observed among countries under the influence of different priorities when setting the national policies on environment; the firm tries to keep its activities aligned with the existing rules and ethics governed the particular sector (Aggreko, Corporate Social Responsibility 2011). In accordance with the issues discussed above, Aggreko should focus on securing its performance in the markets in which it currently operates; any plans for further expansion would be carefully reviewed regarding their potential risk. However, in case that the entrance or the expansion of the firm in a particular market is decided, then the firm would be ready to meet the requirements of such project, being appropriately prepared to develop such initiatives, as explained above. 4. Competition 4.1 Porter Five Forces model The position of the firm in the global market can be identified through the Five Forces model of Porter; in the context of the particular model, see Graph 2, Appendix, five major forces are likely to press the organization while developing its activities in the international market. These forces could be analyzed as follows: a) New entrants; as already mentioned above, the energy sector is a highly attractive sector, mostly because of its potential profits; entrepreneurs who would like to invest on innovative but also profitable business solutions would focus on the particular sector being influenced by the prospects involved (Money Morning, July 5 2010); especially regarding the field in which the firm operates – temporary energy rental solutions – the prospects for success are significant taking into consideration the high increase in prices of energy sources – reference is made particularly to the oil and the high increase of its price under the influence of the political turbulences globally (Coffey 2011); b) Customers: Customers could press Aggreko only in case they could easily locate products of the same quality/ characteristics – referring to the firm’s products – in the market; however, there is no such case; in fact, the firm specializes in a field which is still under development; therefore, customers who are interested in identifying products similar with those of the firm – especially in terms of quality – would meet many difficulties; for this reason, customers, cannot be considered as a potential force against the firm’s strategic choices, c) Suppliers: the firm’s suppliers could possibly press the firm, meaning that they could ask for the increase in the prices of their products, as arranged between them and the organization; the above potential could be based on the uniqueness of the firm’s products – not many suppliers could provide the products promoted by the organization; the fact that the specific sector is still under development (Electrical Monitor 2011) would limit the firm’s potential to agree with its suppliers a rather low – or at least standardized – price, d) Substitute products: the products of the firm are highly specialized in order to meet the customers’ requirements; moreover, since they are related to the management of energy, these products/ equipment have specific technical and quality characteristics; in this context, the appearance in the particular market of substitute products in lower cost would be quite difficult – these products would not be able to meet the standards of safety and technical characteristics set for the products of this category, e) Rivalry: the competition in the specific sector is extremely high; the high profitability that the sector can offer to investors who decide to get involved in such activities is a key incentive for businesses to decide their entrance in this industry; moreover, firms which are already well established in this sector are likely to fight for securing their position. Particular emphasis should be given on the following fact: ‘Energy demand in the developing countries of Asia, which includes China and India, is expected to increase by more than 100% by 2025’ (Energy Business Report 2011). As for the rental of energy equipment, the field in which the firm specializes, this has been quite perspective since its first appearance (Entrepreneur 2005). It is clear that the competition in the specific industry is expected to be further increased in the future, a fact which should be taken into consideration by the strategic managers in Aggreko when designing the firm’s strategic plans for the future. 5. Competitiveness of the organization The performance of the firm towards its rivals is significant; in a relevant report it is noted that the main competitors of Aggreko are the following ones: ‘Ashtead Group plc (London, United Kingdom), Caterpillar Inc. (Peoria, IL) and GE Energy (Atlanta, GA)’ (Hoovers, 2011, Competitive Landscape). The firm’s strategic managers try to secure the competitiveness of the organization by supporting the development of strategic alliances between the firm and other organizations operating in similar activities; an indicative example is the agreement between ‘Aggreko and Tokyo Electric Power Company Incorporated (Tepco) for the supply of energy for covering the local needs in energy (Institution of Engineering and Technology 2011). The competitiveness of the organization is also promoted through a series of projects/ agreements of particular value – not just economic but also social, meaning the increase of recognition of the firm’s brand name; the agreement between the firm and the administrators of the 2012 Olympic Games in London is an indicative example of the specific strategy (London 2012, Official Website); moreover, the firm recently (in October 2010) supported North America’s First World Equestrian Games (Aggreko North America 2010). 6. Conclusion The performance of Aggreko in the global market, as identified through the firm’s financial data but also through the analysis of its macroeconomic environment, can be characterized as quite satisfactory. However, the ability of the firm to keep its competitiveness in the long term depends on its readiness to face the market risks – reference is made particularly to the turbulences developed in economies worldwide, since the effects of the recent financial crisis have not yet extinguished. On the other hand, it could be noted that the firm is already well established in the international market, in terms of its share in markets globally. This fact increases the chances for the firm’s further growth in the future; however, it would be necessary for a series of measures to be taken in advance ensuring the firm’s viability in the long term – even under adverse market conditions locally or internationally. 7. Recommendations The development of a series of measures could secure the firm’s position towards its rivals – reference is made especially to the future position of the firm in the international market. The following measures would help the firm to keep its competitiveness at high levels: a) emphasis on employee motivation; even if the current relationship between the firm and the employees is quite satisfactory, still the employee motivation schemes used across the organization seem to be limited – if taking into consideration the organizational needs and challenges (Aggreko, 2011, Careers, culture and benefits), b) improvement of the firm’s relationship with the community; the firm’s current CSR strategy meets most of the firm’s needs, however the above strategy could be improved incorporating schemes which would support local communities; in this way, the needs of both the firm and the local people would be taken into consideration when the firm’s strategies in regard to its units worldwide are developed; as a result, the chances for failures of these strategies would be decreased. In other words, the key issue that the firm’s strategic managers have to address is the improvement of relationship with stakeholders, so that conflicts in the internal or the external organizational environment to be avoided, a problem which is not currently in progress but which could appear in case that the firm would try to proceed to key changes in its existing strategic operational framework. References Aggreko plc 2011. Corporate website. Available from Aggreko North America. 2010. Aggreko to Power North America’s First World Equestrian Games. Available from < http://www.aggreko.com/northamerica/news---events/press-releases/world-equestrian-games.aspx> Coffey, B. May 12 2011. How to Profit from Rising Energy Prices. Available from < http://www.cabot.net/Issues/CWA/Archives/2011/05/Rising-Energy-Prices.aspx> Electrical Monitor. May 12 2011. Renting power equipment is becoming increasing popular across industries. Available from < http://www.electricalmonitor.com/ArticleDetails.aspx?aid=920&sid=5> Energy business report. 2011. Where the Profits are in Global Energy Markets. Available from < http://www.energybusinessreports.com/shop/Global-Energy-Industry-Analysis-and-Trends.html?v=1&itemid=1179> Entrepreneur. March 2005. The rental sector in Africa: temporary power stations are becoming an increasingly popular solution to Africa's endemic power. Available from < http://www.entrepreneur.com/tradejournals/article/131332455.html> Henry, A. 2008. Understanding Strategic Management. Oxford: Oxford University Press Hoovers. 2011. Aggreko plc – Competitive Landscape. Available from < http://www.hoovers.com/company/Aggreko_plc/hkjxji-1-1njea3.html> Institution of Engineering and Technology. April 4 2011. Aggreko signs deal with Fukushima operator to supply emergency power. Available from < http://eandt.theiet.org/news/2011/apr/aggreko-japan.cfm> London 2012. Aggreko UK Ltd. Official Website. Available from < http://www.london2012.com/get-involved/business-network/oda-suppliers/aggreko-uk-ltd.php> Lorat, N. 2009. Market Audit and Analysis. Norderstedt: GRIN Verlag Money Morning. July 5 2010. The "New" Global Energy Sector: "The Profit Opportunity of Our Lifetime". Available from < http://moneymorning.com/2010/07/05/global-energy-sector/> Appendix Table 1 – Performance of Aggreko in 2009 and 2010 (Source: http://ir.aggreko.com/agk_ir/siteware/presentation-agm-22042011.pdf) Graph 1 – Regional performance of Aggreko in the international market (Source: http://ir.aggreko.com/agk_ir/siteware/presentation-agm-22042011.pdf) Graph 2 – Porter’s Five Forces model (Source: http://tutor2u.net/business/images/five_forces.gif) Read More
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