5. IMPLEMENTATION OF PORTER’S MODEL AT XARA INC.
The challenges confronted by the Xara Inc. before employing Porter’s model are summarised below:
• The financial meltdown in US excessively impacted the business growth of the Xara Inc. especially after the global economic crises 2008.
• Title insurance was a major vertical for the Xara Inc. However, title insurance industry was detrimentally impacted in the US. The existing customers had ample challenges and some of them filed for bankruptcy. Therefore, to grow an existing customer business was abstruse.
• Staffing was a major issue due to volume fluctuations and the customers were not ascertaining any minimum order commitment.
• 50% of Xara Inc.’s revenues were coming from a major banking client. This was a high risk situation as there was overdependence on one customer. Moreover, the banking industry was in doldrums.
• Rising employees and infrastructure costs were devouring from profitability.
• Employee retention.
• The company was dispensing a ‘me too’ service with no strong differentiators.
• There was no creaminess for the customers.
• Existing competitors were profoundly entrenched into client firms and new competitors were coming up fast as entry barriers were low.
• Acquiring other banking customers was difficult due to the current equity participation structure.
• There were regulatory concerns against outsourcing.
• Sentiments of nationalism.
Xara Inc. preferred to opt the Porter’s Model to cope up with the boosting competition in the industry, other issues and challenges confronted by the company. They analysed the five forces and constructed a draft model for implementation.
Summary of five competitive forces analysis is mentioned below:
5.1. Threat of New Entrants...
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...ever the major suppliers are in India, Philippines and China. In India, they are located in cities i.e. Bangalore, Chennai and Pune. Due to excess industry capacity, suppliers are always willing to diminish prices to retain or embellish their share.
Extensive exit barriers: No
The exit barriers are not extensive. If a company does not realise any profit, it can easily fold up business by laying off its employees and surrendering the office and infrastructure. However, this could lead to a loss of reputation. There is also an alternative to sell off the business to a competitor.
Intense rivalry: Yes
There is an intense rivalry due to lack of differentiation, excess capacity and slow industry growth. Once the quality threshold is reached, price becomes a major differentiator. This leads to zero sum competition and consequently, drives down industry profitability.
For the first 30 years of the company's existence it enjoyed huge profits from selling only automobile insurance. These large profits were achieved, due in part, to its targeted market which are generally people in the age range of 30-60 who are classified as a low risk "good drivers". The company's structure of selling insurance directly to the customer while providing excellent customer service is also a driving force to its success.
The major issues facing the company comprises of there being multiple businesses with different demands. There are separate levels of performance and success as well as growth chances for each of the sector and the firm needs to tackle with issues in each of these divisions (Dube, J.P., 2004).
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Threat of substitutes in market as best quality is not always a priority for some customers as they are price sensitive.
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In a world of free trade, growing competition and accessibility to foreign markets, the need for methodical market analysis and assumptions is steadily rising in today’s business environment. It is just a normal way of thinking to primarily intent to eliminate the financial before entering a new and foreign market. This suggests that enterprises have to develop an overall strategy for their business in order to gain competitive advantage and consequently market share. With the words of Michael E. Porter, professor at Harvard University and leading authority on competitive strategy, this desirable market success is indirectly linked to the individual structure of a market. The unique structure of a single market influences the strategic behaviour and the development of a competitive strategy within a firm. The competitive strategy finally decides whether a company performs successfully on the market or not. Referring to this interpretation of business success, M. E. Porter established his five forces framework that enables directives to gather useful information about the business environment and the competitive forces in industries.
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