ABC is primarily a cruise line operating company in Germany; the company is operating ships in Rhine, Main and Moselle rivers and provide a variety of services related to operations. The company has been able to see the revenue growth by 5.1% in 2015 compared with an expense growing around 0.7%, leaving them with a cost advantage. The analysis seeks to identify how they should adopt strategies that will assist them to continue to benefit from the market trends. The recommendations will indicate the direction the company should take to achieve beneficial results in the future.
The company has to identify as to how the environmental factors are changing; the appropriate environmental analysis will allow these aspects to be identified (Floyd and Sputtek, 2011). In order to evaluate macro conditions, PEST analysis can be used while for the purpose of industry environmental analysis, Porter’s five forces analysis has to be carried out.
These should indicate the macro factors and how they change; these changes should impact the total businesses that are operating in the region (Davies, 2000). The country in focus is Germany while the region is also specifically evaluated.
Political – Germany has a stable political system and it is a clear democracy; the parties while having different policies on many fronts agree on the economic system. It is highly unlikely that the laws will change against the interest of the business.
Economic – Being the largest of the economy in Europe, Germany’s economy was expected to grow at 2.0% in 2017, up from the previous expectations (Heller, 2018). This is also driven by the increased European economic growth aspects that increased from previous 1.7% to an estimated 2.2% in 2017 (European Commission, 2018).
Social – European markets spend highly on travel and leisure activities even during the times of economic downturn. The growth of the economy indicates these sectors are likely to see an upbeat in the future.
Technology – The role of technology is increasing and the development of the new markets in the region becomes easier due to these changes that are taking place in the markets.
This analysis indicates the conditions that the industry is operating under; this will indicate the nature of the pressures that the companies are under and how they will be able to position themselves (Bowman, 1995).
Bargaining power of customers – Medium – Germany has seen US$ 435 million revenue from river cruise in 2015, recording a year over year (yoy) growth of 9.8% (Statista, 2017). When compared with the European growth rate (16% yoy), this is still slow (Seatrade Cruise News, 2016). However, the companies are few for the customers to select from. Naturally, this places the customers with medium to lower power.
Threats from new entrants – Low – there is a relatively large investment needed and the players in the industry are already established. Further, specific knowledge required and difficulties to find skilled people are also factors contributing to this.
Threats from substitutes – High – there are many other leisure activities including travelling abroad, sea cruise and other such alternatives available.
Bargaining power of the suppliers – Low – the customer role is low as they are highly fragmented and do not have the ability to dominate these companies.
Internal rivalry – High – There is low differentiation and all the river cruise operators are operating in the same rivers. They also offer identical activities and this makes it difficult for them to develop competitive advantage.
Strategic position of the company can be identified by using Bowman’s strategy clock and Porter’s generic factors (Parnell, 2010). The following diagram indicates the position of the company in the strategy clock.
Figure 1 – Bowman’s strategy clock and company position (Tutor2u, 2018)
The company is seeking to provide the customers with low prices and value for money. This is the reason that they seek to minimize the expenditure and increase the value they offer to the customers. This is why the company has been able to increase revenue by 5.1% in 2015 while the expenditure only increased by 0.7%.
Similarly, Porter’s generic strategies also can be used to evaluate the position of the company (Piercy and Lane, 2006). When Porter’s generic strategies are taken into consideration, it is clear that the company is trying to become the cost leader.
It is important to identify as to how the company is positioned within the industry. For this purpose, Boston Consultancy Group (BCG) matrix is used (Feurer, Chaharbaghi and Distel, 1995). This will evaluate the position of the company relative to the industry position.
Figure 2 – BCG Matric position (Source: Henlon, 2017)
The company is placed in a fast growth market; in Europe overall, the growth potential is high. However, the current market share of the company is low. This shows that the company has to develop ways of expanding their operations with the view of reaching a much larger market.
In order to develop the right strategies, the company will have to identify the best growth strategies for them and use these strategies for growth. For this analysis, Ansoff’s product and market development matrix can be used (Allio, 2005). This shows as to how the company could make sure that they achieve the needed growth.
Figure 3 – Ansoff’s product and market matrix
The above indicates that the company could look to the penetration of the current market; when the company’s position in the market is considered, in 2015, the company accounted for 5.9% of the revenue generated (River Boat Trading, 2017). On the other hand, the internal rivalry is high due to the limited cruise ways and all operators are using these rivers for their cruises. Thus, the company finds it hard to develop new products and the services due to these tight conditions that they are operating in.
On the other hand, if the company is seeking to totally diversify, they will have to launch services in unknown regions and they have to develop their markets from the scratch. This is a high-risk option. This shows that diversification strategies to a larger extent might be considered as high risk for the company at the current context.
The above discussions have indicated that the company is faced with difficulties of expanding their activities in Germany due to the increased competition while diversification is also high risk that might not provide the desire outcomes. the company needs to enhance the market in order for them to grow and within Germany, this is not likely to be facilitated. This shows that it is best they expand to Europe region and increase the services they provide in the market.
This shows that they are recommended to follow the market expansion strategy in the Ansoff matrix. European market for river cruise is growing and it is important to note that German tourists account for 28.7% of the participants of river cruise activities in Europe. The company will find the regulatory framework for the businesses within European union region is almost similar in all the countries and they will be able to use their expertise and the knowledge to provide many cruise related services in the countries of Europe where there is less competition. This will make sure that they will be able to expand their services while mitigating of the risks that they are taking (European Travel Union, 2017). This will increase the market share of the company in the future.
The above case analysis related to ABC indicates that the company has to increase their market share and continue to grow in the future. It is very clear that this growth is likely to be facilitated by the expansion of the activities outside of Germany due to increasing competition of the country. Due to the economic growth of Europe, growth of tourism internally as well as externally is a clear fact and all these points to the fact that European markets provide lucrative ground for companies that are operating various tourism related services. Thus, ABC is likely to also benefit from the market changes.
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European Travel Union, (2017), European Tourism 2017 – Trends & Prospects (Q1/2017), http://www.etc-corporate.org/reports/european-tourism-2017-trends-and-prospects-(q1-2017), January, 2018.
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Heller, G., (2017), Germany to raise economic growth forecast for 2017 to 2 percent: source, https://www.reuters.com/article/us-germany-economy-growth/germany-to-raise-economic-growth-forecast-for-2017-to-2-percent-source-idUSKBN1CF1Z5, January, 2018.
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River Boat Trading, (2017), The Thinking Person’s Guide to River Cruise, http://riverboatratings.com/, January, 2018.
Seatrade Cruise News, (2016), European river cruise market grew 2.7% in 2016, http://www.seatrade-cruise.com/news/news-headlines/european-river-cruise-market-grew-2-7-in-2016.html, January, 2018.
Statista, (2017), Cruise industry in Germany – Statistics & Facts, https://www.statista.com/topics/3355/cruise-industry-in-germany/, January, 2018.
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