Magoosh GRE

Exploring Strategy

| February 8, 2017

Abstract

This essay examines the state of the Hi-Fi sector utilizing the PESTEL and Porter’s Five Forces. This assessment illustrated that with factors depending heavily on technology there is a real opportunity in the Hi-Fi sector. Any researcher exploring this question will find value in this report.

1 Introduction

This essay examines the Hi-Fi sector utilizing the PESTEL and Porters’ Five Forces models in order to assess the current market environment. Identifying the primary opportunities and threats that are present in the field will create a capacity for anticipation and adaptation that can add significant value to any business strategy. Beginning with a PESTEL analysis followed by distinct opportunities, threats and key drivers for change, this essay illustrates the state of the Hi-Fi industry. Following this segment with a relevant Porter’s Five Forces evaluation including overall industry attractiveness will further enhance the illustration of economic viability in the industry.

2 PESTEL Analysis

This section utilizes the PESTEL model to evaluate market conditions.

2.1 PESTEL

Yuksel (2012) defines the PESTEL as an integrated analysis including the elements of political, economic, socio-cultural, technological, environment and legal in order to determine a sectors capacity.

2.1.1 Political

Politically, the Hi-Fi sector is supported in their effort to produce a superior product for a diverse international market (Jansson and Waxel, 2011). Politics influence the modern Hi Fi market to continually innovate and build, reflecting the Hi-Fi industry need for continuous technological input. Regulations and taxation play a direct role in how well the Hi Fi industry international trade statutes have the potential to promote positive development (Jansson et al, 2011). Companies including the advanced manufacturing firm Linn contribute a substantial amount in taxes and international revenue to their nations coffers, enhancing the political need to protect them (The Economist, 2014). Companys including Richer Sounds maintain 100 per cent UK operations, using this support as a means of positive branding (Sounds, 2014). The Telegraph (2010) article lays out the attractive tax cuts that the Chinese government utilizes to entice the emerging Hi Fi companies to set up operation there. With each tax rate adjustment companies including Acramm Quad and NAD among others will seek out tax havens that allow them to retain revenue (Telegraph, 2010). Decisions by the UK regulatory body, including the decision to take the nation digital has a great deal of influence on the continued development of the UK Hi Fi industry (Kessler, 2014). With figures illustrating that only one in 20 have receivers capable of this new transmission as well as only 40 per cent of new vehicles are equipped with the technology, there is a considerable gap to be addressed before implementation (Kessler, 2014).

2.1.2. Economic

Economic factors in for Hi-Fi firms have the potential to substantially assist nations in their economic recovery efforts (The Economist, 2014). This factor impacts the Hi Fi industry with through direct acknowledgement and support of technological advances (Macintosh, 2010). Lacking this opportunity for growth stagnates the market directly influencing production and development.. International statistics demonstrate a slow 1% growth rate in the industry over the past year (Euromonitor.com. 2014). Yet, long term country reports indicate a steady pattern of growth (Euromonitor.com, 2014). The Hi Fi industry has begun to focus on the high end products including Acram’s newest cinema receiver citing the argument that features are more important than fidelity (End, 2014). The economy can create issues for the industry by failing to provide consumers with the funding to buy products. Linn, another UK Hi Fi brand has used this same philosophy to become a leader in the audiophile streaming music hardware area, a very rapidly developing area (End, 2014). Yet, there is a real potential for a lack of innovation that fails to produce useful products. Further establishing this trend is Naim’s offering of hi resolution music products that appeal to the very high end market including the Nait 5si and the SuperNait 2 (End, 2014). However, the economic conditions can hinder the opportunity for these offerings to take hold.

2.1.3. Socio-culture

The very nature of the spread of technology is a benefit for the Hi-Fi industry (Andy, 1997; Macintosh, 2010; The Economist, 2014). Yet, if there is a perception of negativity surrounding any company or product, there is the opportunity for a diminished reach. With each new auditory advance, the Hi-Fi sector has an opportunity to utilize their technology to enhance that offering (May, Mason and Pinch, 2001). Yet, conversely, any misstep in the innovation process can set the entire effort back. The continuous advance in technology aids in producing new employment opportunities which enhances the entire system (Pratt, 1997).

There is a strong desire on the part of the consumer and manufacturers to create the very best auditory offering (The Economist, 2014). This element of complementary competition enhances the potential in the Hi-Fi industry, yet increases the price consumers feel at the retailer. As company’s including Acram, Linn and Naim compete to produce high end offerings, the entire range of development opportunities benefits (End, 2014). This adoption of hi tech equipment has an associated ripple impact on stores that sell these products, increasing their technology capacity (End, 2014). As new products emerge, the stores upgrade in order to implement the product, thereby changing the entire culture surrounding the offering.

2.1.4 Technological

There has been a historical shift from a Hi Fi industry based on individual components to a modern real market based on emerging technology (Sounds, 2014). This factor directly impacts the Hi Fi industries capacity to produce useable products. With the advances technology has created including the inclusion of LCD television, audiophile and multi room Hi Fi progress there is a perception of increasing value in the industry. The increase in complexity alongside reduction in size and integrateable capacity make Hi-Fi products critical components for many new technologies (The Economist, 2014; Macintosh, 2010). This is a clear indication of the support that each of these areas offers the Hi-Fi sector. Online advances including internet offerings have the potential to increase the utilization of the Hi-Fi product, thereby increasing the markets intrinsic value (Macintosh, 2010).
Today’s leaders in the industry including Rob Follis cite the fact that modern Hi Fi offerings are better than ever before (End, 2014). This fact includes the recognition that as technology continues to turn from individual components to integrated technology, the Hi Fi sector will continue innovate in order to remain relevant.

2.1.5 Environmental

Modern production concerns can have an impact on the manufacturing of any Hi-Fi product (The Economist, 2014). These concerns can significantly slow development and production of any product line. With aspects including pollution during production there is the potential for this aspect to create detrimental operating conditions. This contention supports the argument that a strategy that incorporates these elements benefits the entire effort (Jansson et al, 2011).

2.1.6 Legal

Multinational and international legalities have an opportunity to impact the Hi-Fi development and production capacity (Jannsson et al, 2011). As laws change as nations jockey for position and revenue causing a collateral impact for the companies involved. Competition between industry rivals can be fierce, requiring a strong a consistent legal awareness (The Economist, 2014).

2.2 Opportunities and Threats

There is a real opportunity to capitalize on emerging technologies in order to expand the Hi-Fi industry capacity (The Economist, 2014). Yet, there is a threat of poorly designed products that diminish trade. Real time examples including continued development of the IPod and Ipad based technology, tablets and personal computers integration lead the way for considerable opportunities in the industry (Macintosh, 2010). The economic factors support the argument of growing opportunities in the field of home audio and visual serve to drive the consideration of potential revenue gain in the market (The Economist, 2014). Companies such as Linn and Acram have a unique opportunity to harness emerging technology in order to reach the high end clientele (End, 2014). Conversely, the PESTLE confirms the threat that any overextension in an effort to remain competitive can diminish production and development potential (Jannsson et al, 2011).

Advances in the field of medicine provide ample opportunity for the Hi Fi industry to benefit from auditory related sales as well as building real brand awareness (The Economist, 2014). Elements of the Hi-Fi industry touch on the developing technology surrounding Wi-Fi and the internet, providing further opportunity for the industry to gain market share (Jannsson et al, 2011). Yet, the need for technology can slow a development process, diminishing a company’s revenue potential. An opportunity in the Hi-Fi industry rests in the field of cell phone and portable communication (The Economist, 2014).

The PESTLE demonstrates that national and international variances in regulations can become a substantial detriment for the Hi Fi industry (Moodysson and Jonsson, 2007). There is a real threat for established companies including Acram, Quad and Warfeldale among others to move to China in order to take advantage of the lower tax brackets (Telegraph.co.uk, 2010). Yet, each emerging market and technological advance is an opportunity for the Hi-Fi industry to further integrate (Macintosh, 2010). A balanced consideration must take place in order to successfully implement strategy.

2.3 Key drivers for change

Leading the key drivers for the Hi-Fi industry is the need for advances in production, marketing and development (Macintosh, 2010; The Economist, 2014; Jannsson et al, 2011). Every new change at each level will have a direct impact on the consumer and the industry. The second driver remains the political environment on where these companies choose to develop their products (Telegraph.co.uk, 2010). Lacking a positive environment, the capacity for the Hi Fi industry to operate will be further driven by the rate of revenue available in the market (End, 2014). These drivers will determine marketing efforts and production levels for every company in the market.

3 Porter’s Five Forces Analysis

3.1 Porters Five Forces

Huggins and Izushi (2011) define the Porter’s Five Forces model as efficient manner of market assessment including the element s of new entrants, substitution, bargaining power and competitive rivalry.

3.1.1 Threat of new entrants

The growth potential of the Hi-Fi industry makes the threat of new entrants substantial (The Economist, 2014). There is a clear opportunity for increased brand awareness accompanied by the potential to add a substantial revenue stream to any company’s income. With companies including Linn and Acram focussing on the high end market, there is recognition of value that will be emulated by others (End, 2014). These elements are consistent with the needs of many competitors in other areas of the technology market such as computers, tablets and personal electronics (The Economist, 2014). The Hi-Fi industry is highly attractive to evolving and developing entities as well as established companies (Jannsson et al, 2011). Established companies can easily expand and advertise, while new entrants can progressively build and promote themselves.

This area is of high concern due to the rate of new entrants.

3.1.2 Threat of Substitute products

The Hi-Fi sector is dependent on technology, the availability of copies, or similarities in products is high (Jannsson et al, 2011). With emerging nations, such as China, offering substantial potential for competition this is a significant concern for any Hi-Fi strategy. Expanding on this same threat of substitution is the fact that some nations allow for copies of a successful product based on their own design (Jannsson et al, 2011). Regulation s and their enforcement have the potential to play a key role in reducing or increasing the substitutions for any Hi-Fi product on the market. With companies recognizing that products including the Xbox and Playstation among others, can take on the role of other instruments, the threat rises (End, 2014).

Developing and competing products make this a category of high impact.

3.1.2 Bargaining power of customers

The consumer centred nature of the Hi-Fi industry makes it highly dependent on the perception and application of their products (Jannsson et al, 2011). Any faulty offering or substandard item will directly impact the company’s bottom line (The Economist, 2014). Modern consumers demand an integrateable produce that has the latest technology at the lowest prices, making their overall bargaining power substantial. There is a need to remain on the edge in the mind of the consumer in order to continually expand brand loyalty (Macintosh, 2010). Acram and Linn’s current move into the upper end market has been favourably received by the consumers, driving their position in the market higher helping to advance their market share considerably (End, 2014). Yet, any failure would provide amply incentive for these same consumers to seek another brand (The Economist, 2014).
Resting on the correct anticipation of needs this is an area of moderate to high priority.

3.1.3 Bargaining power of suppliers

The high number of competitors alongside the proliferation of technology diminishes the bargaining power of suppliers (The Economist, 2014). If one company is not willing or able to make a product, there are several others that will (Moodysson et al, 2007). However, the more advanced technology that the company possesses, the more likely that that effort will be successful in the market (Jannsson et al, 2011). Yet, in the case of specific technology there is the real opportunity to have a strong bargaining strategy based on the knowledge the company has (Jannsson et al, 2011). If one company does not possess a certain technology, their associated bargaining position will suffer. Linn, noting the potential available in the market, spent liberally to develop the audiophile music download label that propels their current sales strategy (End, 2014). This example has been emulated by companies such as Naim, which hope to become a prominent member of the market (End, 2014).

With many suppliers available, there is a low to moderate priority in this segment.

3.1.4 Intensity of competitive rivalry

The potential for revenue and sustainability make the Hi-Fi sector highly competitive (Jannsson et al, 2011; The Economist, 2014). This rivalry consists of companies including Linn, Acram and Niam, often accounting for the majority of the market share, provides a dynamic illustration of the desire of each company to provide the very best Hi Fi product (End, 2014). There is competition at every level of production, development and marketing in order to make the most of the emerging product (Macintosh, 2010). However, this intensity of competition allows for a consistent series of technological advances which is a clear benefit to consumers and manufacturers (The Economist, 2014). With each advance the opportunity to become a market leader will lead to an intense effort to be the first producer.

The competitive environment makes this element very high concern for the Hi Fi industry.

3.2 Industry Attractiveness

There is a real opportunity to gain both brand awareness and consumer loyalty with a quality Hi-Fi offering, making the market attractive (The Economist, 2014). The long term consumer trend of sustainable spending is a further indication of positive long term market potential (Euromonitor, 2014). Yet, the fact that this is a well-known fact encourages other manufacturers to maintain a position in the market, making competition fierce (Moodysson et al, 2007)). Each of these factors supports an illustration of a growing market that offers both a ripe opportunity for success and an equally dismal chance for failure. Naim and Linn both demonstrate a high degree of value in the area of Hi Fi industry innovation which in turn increases the overall attractiveness of the market (End, 2014).

This is a moderate factor in overall industry making the circumstances acceptable for continued expansion.

4 Conclusion

Both the PESTEL and the Porter’s Five Forces evaluations have illustrated the potential for both sustained revenue gain as well as increased brand awareness. This is a supporting argument for a strategy including the Hi-Fi sector. However, the very competitive nature alongside the nuances of technological innovation provides ample potential for loss. With factors depending heavily on technology there is a genuine opportunity for gain to be considered in the Hi-Fi sector.

5 References

David, F. R. 1999. Strategic management: Concepts and cases. Prentice Hall.
Euromonitor.com. 2014. Home audio and cinema market research, industry trends. [online] Available at: http://www.euromonitor.com/home-audio-and-cinema [Accessed: 2 Mar 2014].

End, B. 2014. British hi-fi companies seek sanctuary at audio’s new high end. [online] Available at: http://www.techradar.com/us/news/audio/hi-fi-radio/british-hi-fi-companies-seek-sanctuary-at-audio-s-new-high-end-1166158 [Accessed: 6 Mar 2014].

Huggins, R. and Izushi, H. 2011. Competition, competitive advantage, and clusters. Oxford: Oxford University Press.

Jansson, J. and Waxell, A. 2011. Quality and regional competitiveness. Environment and Planning-Part A, 43 (9), p. 2237.

Kessler, K. 2014. SoundStage! Hi-Fi | SoundStageHiFi.com | The British Tree Huggers Get it Right For Once. [online] Available at: http://www.soundstagehifi.com/index.php/international/soundstage-uk/674-the-british-tree-huggers-get-it-right-for-once [Accessed: 6 Mar 2014].

Macintosh, R. 2010. Evolution and Revolution in the Hi-fi sector. University of Glasgow, 1 (1), pp. 1-5.

May, W., Mason, C. and Pinch, S. 2001. Explaining industrial agglomeration: the case of the British high-fidelity industry. Geoforum, 32 (3), pp. 363–376.

Moodysson, J. and Jonsson, O. 2007. Knowledge collaboration and proximity the spatial organization of biotech innovation projects. European urban and regional studies, 14 (2), pp. 115–131.

Pratt, A. C. 1997. The cultural industries production system: a case study of employment change in Britain, 1984-91. Environment and Planning A, 29 (11), pp. 1953–1974.

Sounds, R. 2014. Richer Sounds – The UK’s Hi-Fi, Home Cinema & Flat Panel TV Specialists!. [online] Available at: https://www.richersounds.com/information/aboutus_culture [Accessed: 6 Mar 2014].

Telegraph.co.uk. 2010. UK hi-fi specialist Audio Partnership piggybacks China tech revolution – Telegraph. [online] Available at: http://www.telegraph.co.uk/finance/china-business/7956963/UK-hi-fi-specialist-Audio-Partnership-piggybacks-China-tech-revolution.html [Accessed: 6 Mar 2014].

The Economist. 2014. Streaming toddler. [online] Available at: http://www.economist.com/news/britain/21568425-prospects-upscale-hi-fi-maker-depend-music-industry-streaming-toddler [Accessed: 28 Feb 2014].

Waxell, A. and Jansson, J. 2013. Sound Affects: Competing with Quality in the Swedish hi-fi Industry. Industry and Innovation, 20 (4), pp. 316–335.

Wu, K., Tseng, M. and Chiu, A. S. 2012. Using the Analytical Network Process in Porter’s Five Forces Analysis–Case Study in Philippines. Procedia-Social and Behavioral Sciences, 57 pp. 1–9.

Uksel, I. 2012. Developing a Multi-Criteria Decision Making Model for PESTEL Analysis.International Journal of Business \& Management, 7 (24).

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Category: Business & Management, Essay & Dissertation Samples, Strategic Management