Segments Of The General Environment Essay Example
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Assignment 2: External and Internal Environments
General marketing environment of the company is composed of micro-and macro-environments. Microenvironment (internal environment) is presented by forces directly related to the firm itself and its ability to service customers, i.e. suppliers, marketing intermediaries, customers, competitors and contact audiences. Macroenvironment (external environment) is represented by forces of the wider social plan, which affect the microenvironment (demographic, economic, ecological, technological, political, and socio-cultural factors).
As any organization is located and operated in the environment, it is highly under the impact of external and internal environments. Founded by Charles Martin Hall Alcoa Inc., occupying the third position among the largest manufacturers of aluminum in the world, also faces different opportunities and threats while operating in the market.
The analysis of the factors, which mostly affect American Alcoa Inc., includes the consideration of the economic and technological factors, which rank the highest in their influence on the company. When choosing a particular market segment for servicing the company must come from the material conditions of its potential customers, i.e. effective aggregate demand of the market share. The economic environment is the total purchasing power of the population, which is related to the level of current income, prices, savings and credit availability, unemployment rate, etc. By studying the structure of income distribution between different population groups and the structure of consumption expenditure, the company receives the necessary information to take into account the factors of the economic environment (Kotler and Armstrong, 2012).
First of all, it is worth to mention that aluminum industry has shown positive results in 2014 growing by 7%. It is projected that till 2017 the overall demand for aluminum will increase to 5.9% annually (Metal, 2014). So, Alcoa Inc., the leading aluminum corporation in the United States, has seen sidelong progress in November 2014. Such market tendency will only provide the company with opportunity to improve its operation and increase global presence (O’Hara, 2014).
Secondly, inflation rate in the USA was 0.8% in 2014 (Trading economics, 2015), which had a weak impact on the aluminum market through a low general rise in prices. Aluminum prices can be considered as one of the extremely vital signs for investors. These prices have been stable during 2014. The international aluminum alloys market will continue to be driven by the rising demand for aluminum alloys in transportation and construction, quickly increasing customer segments, in the next few years (O’Hara, 2014). Therefore, Alcoa Inc. shouldn’t worry about consumers’ purchasing power, because it is under positive impact of the inflation rate indicator.
Thirdly, the USA reported a trade deficit equivalent to USD 39 billion in November 2014 (Trading economics, 2015), which shows great dependence on international trade, namely import. This means customers prefer foreign goods to national. This factor negatively affects Alcoa’s operation in the market, because being local company it can lose local customers, which is a major part of population in the world.
The next economic factor, which has an impact on Alcoa’s operation, is GDP growth of 5% in Q3 2014 (Trading economics, 2015). The United States GDP was worth USD 16800 billion in 2013 or 25.3% of the world economy, according to the World Bank. This is an indicator of high living standards of population, and customers can buy a sufficient number of goods. So, Alcoa is provided with the opportunity to operate in the US market.
The unemployment rate is another one economic factor, which affects company’s activity, meaning the dearth of labor force, and in the USA it was last reported at 5.6% in 2014 (Trading economics, 2015). High level of unemployment rate defines the inability of customers to purchase goods due to the lack of income.
Finally, the tax system in the United States is very complex and diverse. Since 2013, the United States has the highest among OECD-countries nominal corporate tax rate. Taking into account the regional dimension the weighted average nominal income tax rate is 39.2%, which undoubtedly affects the investment attractiveness and competitiveness of the US economy. However, according to Doing Business ranking 2015 the USA has the 7th position (Doing Business, 2015). So, Alcoa Inc. should go through the comprehensive taxation procedure in order to operate successfully .
Factors of scientific and technical progress should always be in the field of marketing. Any innovation threatens displacement of obsolete models, which is fraught with the most unpleasant consequences if the company does not exercise due diligence process research and development (Kotler and Armstrong, 2012).
As the USA is considered a high technology-using country, Alcoa has no right to stay away from the technological progress, because the market grows dynamically and competitors don’t sleep. Due to increased competition, Alcoa responded by the expansion of the capacity of its technical base, improving the technology, cost reduction, expansion of the range of products, markets and activities in different countries, as well as the unprecedented development of the natural resource base around the world.
Concerning Research and Development expenditure in the United States, it was reported at 2.79% in 2012, according to the World Bank. The scientific and technological progress especially increases the importance of implementing various improvements and innovations. The development of non-ferrous metals is closely related to scientific and technological progress, which greatly expanded the scope of non-ferrous metals, revealed the scope of their different species and implemented an effective technology for production of both old and new metals. Today, aluminum is preferred in the production of convenient packaging, new generations of aircraft and cars and thousands of other modern products that became stronger, safer and easier, their production – less energy and recycling – more efficient.
Therefore, economic and technological factors differently affect Alcoa’s operation in the market providing with opportunities and threats.
The Porter’s Five Forces
Porter’s 5-forces model is a way to examine threats to a company’s success – which was competition imposes through competitive rivalry, threat from new entrants, bargaining power of buyers, bargaining power of suppliers and threat from substitutes (Porter, 1998). In order to assess how successful Alcoa addressed Porter’s forces, competitive rivalry and threat from new entrants were examined.
Competitive Rivalry. Peculiarities of non-ferrous metals and finished products led to strong monopolization of the industry. Transnational corporations control all activities, all of its production from ore extraction, production of metals prior to their sale on the world market. Alcoa is the third world leader in the field of business management for the total production of primary aluminum and fabricated aluminum and alumina, which won these positions due to the active and constantly strengthened participation in the works on all major aspects of the industry. The most important players are Rio Tinto Alcan, United Co. RUSAL and Aluminum Corp. of China. All these companies are innovative with successful brand image that provide services of high quality and at different prices. All companies’ have strong opportunities to persuade customers in buying with their products.
Threat from New Entrants. It would be very difficult for a new company in the industry to have enough capital to compete with Alcoa Inc. on a lower level, to gain economies of scale, or cost benefits related to the large-scale manufacture, as the other major players in the industry already have done. But there are several threats from new companies: government policy as it supports the competition and product differentiation as the result of rivalry. The new entrants would have a rough time to fight the great market presence of these rivals.
The Porter’s Five Forces to Address in the Future
Alcoa makes very reliable and high quality products: to date, almost 70% of its produced aluminum is still in use. Alcoa serves the aerospace, automotive, packaging, building and construction, commercial transportation and other industrial sectors, offering its customers in order technological and industrial potential of Alcoa’s divisions (Alcoa Inc., 2015).
Such a large company like Alcoa cannot operate without business system based on the basic principles of manufacturing for use, reducing unnecessary actions and the value of employees for production. All these principles are customer-oriented, especially the first: it needs to produce goods as soon as possible to deliver to the customer, which should not lie around on the stock (Alcoa Inc., 2014). Alcoa needs to continually improve the cost price, speed and quality of the product through the introduction of small improvements to the already produced goods. Instead of risking, offering major innovations, many enterprises are engaged in small improvements in manufactured goods. The transformation of aluminum in the most popular non-ferrous metal contributed to the formation of a large metal fund. For example, Rio Tinto was the co-founder of Aluminium Stewardship Initiative. It is recommended to Alcoa also to become a part of such initiative or arrange similar by itself.
In order to avoid threat from new entrants Alcoa could spend more budgets on advertising & marketing, which will make it harder to enter this industry. The presence in the company’s pricing policy of sales discount system helps to ensure that the buyer will return again.
External Environment for Opportunities and Threats
Aluminum industry growth, GDP growth, high technology-using country, Research and Development expenditure and preference of aluminum can be used by Alcoa for the expansion of its product range and operation in other countries. Low inflation rate affects the cost of borrowing for investment or buying of expensive goods, which are also low. In this case Alcoa can attract investments for activity expansion. Companies operating in the US market cannot avoid paying taxes, but they have many opportunities to do business in the country successfully according to Doing Business ranking 2015. Such opportunities are trading across borders, getting credit (rank) and the cost of warehouse in case of construction (Doing Business, 2015).
Regarding threats in case of revaluation during export to other countries Alcoa will benefit, because its products will be of higher demand. For example, in China Alcoa can increase export. Dealing with the unemployment rate Alcoa can organize some training and attract employees. This action will increase company’s brand image. The company will deal with the tax system in the United States only in case of some benefits via providing tax incentives for R & D (reduction of the tax base for the calculation of income tax in the amount of R & D expenditures and the partial reimbursement of income tax paid in connection with investments in R & D) with permanent status, not temporary.
Internal Environment for Strengths and Weaknesses
Alcoa’s business system with all its strengths has helped the company achieve considerable savings, which represents a significant opportunity in terms of lower costs and in terms of the further expansion of the business. Alcoa should continue to use the accumulated experience of implementing its business system, faster systematic improvements and instantaneous transfer of knowledge across the company.
The global aerospace industry has a growing emphasis on improving efficiency and environmental performance of aircraft engines, which will help expand the use of high-quality aluminum parts. The unit of Alcoa on the production of aluminum products with high added value to the aerospace industry accounts for 57% of sales and 80% of operating profit. Therefore, considering increased competition and threat from new entrants due to the mere completion of the purchase transaction of Firth Rixson, one of the world leaders in the production of components for jet engines, aerospace unit’s revenue will jump by 20%.
Resources, Capabilities and Core Competencies
Innovative multi-component products of Alcoa, which include aluminum, titanium, and nickel, are used worldwide in the aviation and automotive industries for packaging, commercial transportation, construction, petroleum, oil and gas, defense industries, consumer electronics and industrial applications. The company belongs to the sector of raw materials. Alcoa management believes that the most important thing in its business is a qualified, motivated and worked in safety personnel, and all the rest will follow (Alcoa Inc., 2015).
Global macro trends continue to support and encourage the further growth of aluminum consumption. The fact that aluminum plays a significant role in the infrastructure of developing countries particularly demonstrates the great future of metal, including – while reducing the weight of transport equipment and other products, where aluminum is indispensable. Furthermore, such properties of aluminum, as lightness, strength and energy efficiency will continue to encourage its use as one of the most important features for solving the problem in the world climate change. Alcoa is not only one of the founding members of the American partnership to combat climate change, as well as a charter member of the Clean Energy Development World Resources Institute (Alcoa Inc., 2014).
Core competencies are those capabilities that are critical to a business achieving competitive advantage. The core competencies of Alcoa Inc. are mainly in production and human resources.
Aluminum Corporation Alcoa Inc. is one of the most ethical mining companies. Its values that outline the foundation of the company have remained powerful and unchanged. Employing 60,000 professionals, Alcoa produces innovative multi-component products. The further growth of aluminum consumption only confirms company’s success in the market. Its value chain includes dependable and reliable reputation, effective business system, high quality products and skilled staff.
The study of the marketing environment is a very important stage of the analysis of market opportunities. Relations developing between the subjects of the environment and the company are diverse, and by the nature of the impact on them by the company they can be controlled or uncontrolled. For example, a company cannot directly control its competitors, the state, etc. Consequently, the task of the company’s management should be to reduce to a minimum the uncontrolled environmental factors and seek opportunities for indirect influence on them.
Alcoa Inc. (2014). Annual Report 2013. Retrieved from http://www.alcoa.com/global/en/investment/pdfs/2013_Annual_Report.pdf
Alcoa Inc. (2015). About. Retrieved from https://www.alcoa.com/global/en/about_alcoa/vision_and_values.asp
Doing Business (2015). Economy Profile 2015: United States. Retrieved from http://www.doingbusiness.org/~/media/giawb/doing%20business/documents/profiles/country/USA.pdf
Kotler, Ph. and Armstrong, G. (2012). Principles of Marketing, 14th edition, Pearson Prentice Hall.
Metal (2014). Global Aluminum demand to advance by 5.9% annually through 2017. Retrieved from http://www.metal.com/newscontent/56878_global-aluminum-demand-to-advance-by-5.9-annually-through-2017
O’Hara, M. (2014). Key Trends And Indicators In The Aluminum Industry. Retrieved from http://marketrealist.com/2014/12/key-trends-indicators-aluminum-industry/
Porter, M. E. (1998). Competitive Strategy: Techniques for Analyzing Industries and Competitors, 1st Free Press ed., New York: Free Press.
Trading economics (2015). United States – Economic Indicators. Retrieved from http://www.tradingeconomics.com/united-states/indicators
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