GM Holden Limited - New Venture - Case Study Example

GM’S Report Name GMS Report Course: Institution: Date: 1.0 Introduction This report offers a critical evaluation and analysis of the GM Holden Limited in the USA. The development of this critical review report is hedged on a request posted by the companies’ major shareholders. This is a result of the declining profitability levels in the organization that require innovative changes and improvements (Blanpain and Brulin, 2008, p.27). As such, the review offers a situational analysis of the company as well as a proposal for improvements. Finally, besides concluding, it provides a series of recommendations and changes that must be effected to supported the new proposed changes both in the present and into the future. This is mainly in the development of a suitable operational environment, resources, and capabilities respectively. 2.0 Current Situation In the evaluation of the GM Holden Company situational analysis, this section explores on two main aspects, namely operations and activities, as well as the overall market competition levels in the Australian automobile industry. An evaluation of the company operations indicate that the venture currently engages in the manufacturing of key body parts for GM vehicles as well as other spare parts and engines respectively. The process of developing and manufacturing the parts has offered the company key market credibility due to its operational quality and specialization reputation across the Australian market (Plunkett and Plunkett Research, 2008, p.24). However, as evidenced by the company profile and operations analysis, its activities are limited to the manufacturing and production of the key body parts. Consequently, it relies on the use of third party dealers to avail its products into the Australian market. The use of third party experts, although reducing operational costs, has its limitations. To this end, Gasper (2015, p.301) argued that the use of third parties, especially in the distribution process reduces the overall contact between a venture and its overall consumer base in the market. Finally, a review of the Australian automobile industry indicates a rising trend in competition. In this case, the rise of both domestic and international manufacturers’ has eroded the traditional GM Holden market base control. Thus, this serves as a strategic indication that the venture should focus on expanding and shifting its operations to other automobile industry segments rather than concentrating on merely the production component of the industry (Capital Cube, 2015). However, although a shift is imperative, it is vital to understand that the current venture remains viable and profitable in the foreseeable future. Thus, the proposed changes should ensure that the current operations are retained as the new paradigm shift is adopted. Most vitally, the proposed changes should add value and support the already existing company situation. 3.0 New Venture Proposal 3.1 Type of Venture and Market Opportunity The proposed venture is an SBU unit in the Holden Company. In this case, the proposed business venture is not expected to be an independent company. Thus, its strategic operations will be guided by the existing Holden Limited Company operations and structures in the global market. However, as an SBU, the organization will have the strategic plan and operational strategies of its own (Foss, 1997, p.335). The proposed SBU will be geared towards the supply and delivery of the Holden manufactured vehicles as well as the finished spare parts and engines across the nation. The proposal to develop this business venture as an SBU is informed by a number of the arising situational analysis issues. First, it is apparent that the venture relies on third party dealers to avail its products into the market. This has denied it both direct contact and relationships with the final consumers, as well as reduced its overall profitability margins for the supplied products. Secondly, a situational analysis in the market competition indicates a changing environment and market trend towards direct marketing strategies (Zikmund and D'Amico, 2002, p.84). Focusing on exploring this market emerging trend will be a vital support tool for the company and its future market operations and sustainability. In particular, the development and adoption of the proposed products deliver SBU to open up retail show rooms across the nation will ensure that the rising need for relationship marketing in the nation, as well as rising brand s competition is overcome. This will be achieved through the development of a strong positive brand equity resource in the automobile industry. 3.2 Resources Required and Earnings In order to establish a new venture approach in the Australian market a number of changes must be effected to the existing GM Holden Company operations. This means that a number of capabilities and resources will be additionally required for the new proposed SBU. The first key resource is the availability of financial resources to enhance its expansion strategy. In this context, the venture currently uses third party distributors and dealers across the nation. Thus, it has not invested enough in its supply chain and distribution infrastructure such as in delivery methods and show rooms among others. Hence, this proposal argues that the venture will require additional finances to develop and sustain the above expansion needs (Yescombe, 2002). However, it is vital to note that although the expected financial usage could be higher in the short run period, it is projected that in the long run period, it will establish a payback and the venture will earn profits’ and create a long term market sustainability. The second key resource required will be employee expertise in distribution and logistics management in the supply chain. This will ensure that the venture establishes a delivery plan and schedule that is not only efficient, but also cost effective and sustainable in the long run period. These skills will be supported by good marketing and customer service skills in the showrooms to encourage the use of relationship marketing as well as encourage customer purchases and re-purchases respectively (Smith, 2011, p.83). Finally, the venture will require increased ICT support systems to coordinate its operations with the developed distribution centers and show rooms across the Australian market. This will be a critical approach and management practice to ensuring the relaying of real time data as well as the formulation of critically informed decisions by the key players in the global market operations. 3.3 Building on Current venture operations One of the strategic questions that the shareholders could have is how the proposed SBU venture builds on the already existing resources and capabilities in the venture. Under this argument, two things come into play. First, the proposed venture will be an SBU and thus riding on the already existing company structures and systems (Hoovers, 2016). For instance, it will rely on the existing brand image and brand equity in the market to gain popularity and acquire customer confidence across the Australian market. Thus, this ensures that the new venture development is not required to re-invent the wheel by generating its own brand equity as a new venture into the market. Secondly, the proposed SBU offers to extend the Holden Company operations (Beck-Burridge and Walton, 2001, p.87). This provides an opportunity through which the venture can expand its operations horizontally by adding value to its already manufactured products’. Thus, this indicates that the proposed SBU will serve as an additional value addition tool to the Holden company products’. This is mainly through ensuring a direct connection and relationship between the company and the end consumers in the market. 4.0 Conclusions In summary, the above analysis indicates that in general, the GM Holden Company operations remain viable and profitable in the foreseeable future. However, the rising and changing market competition base in the manufacturing sector risks a reduction in the overall venture profitability in the long run period. Thus, this leads to the proposal for a new venture orientation that adds value to the existing business operations, and rides on the existing market goodwill and brand equity for the company. Thus, the analysis proposes the development of a new distribution SBU to replace the current third party dealers who reduce the company contact with customers as well as overall profitability margins in the Australian market. 5.0 Recommendations A critical evaluation of the above proposed distribution SBU development indicates the need to adjust and change a number of issues and resources in the venture. This is in line to the existing overall literature on organizational development, growth and expansion respectively. In this case, analysts such as Abernethy and Brownell (1999, p.191) and Knox (2004, p.108) argued that in the process of expanding or growing an organization, changes in the capabilities and the resources base are a necessity. Thus, this section offers practical suggestions on the process and manner through which the GM Holden Company can adjust its operations and resources base to fit into the new and proposed business SBU venture. 5.1 Change Financing Approach to Project Financing The first key adjustment for the venture operations is in its financing approach. Over the decades, the venture has specialized on financing its operations through two main approaches. On one hand, it finances its operations through liability based loans form financial institutions that are leveraged by the company balance sheet assets and often appear as a long term liability on the financial balance sheets (Finnerty, 2013, p.54). The second key approach is through shareholder equity, where the shareholders inject finds to support operational and expansion strategies. However, in the development of the proposed SBU, this analysis recommends’ a different financing approach (Kang, Kim and Choi, 2015, p.87). The project requires a substantial funding and including it in the organizational balance sheet would reduce the venture credit rating for other expansion and operational financing needs. Equally, this would be a major financial burden to the shareholders. This analysis recommends that a project financing approach be applied. Through this approach, The SBU strategic plan and potential for profitability will be the only loan guarantee. This will ensure that there is reduced risk of the SBU failure impacting negatively on the current venture operations, making it an independent and non-reliability risk to the existing operations (Lasserre, 2012). 5.2 Develop a Sustainable Supply Chain System The second evidenced requirement for the new venture is a well-developed supply chain system. In its current state, a value chain analysis on the company indicates a lack of invested infrastructure in the outbound logistics in the market. As such, this report recommends that one of the strategic approaches and practices to counter this would be to lease out the infrastructure and existing capital by the third party dealers who have offered the services over the years (Govindan, Palaniappan, Zhu and Kannan, 2012). This leasing and acquisition would extend where possible to the already established show rooms across the Australian market. The adoption and the use of this strategic approach will ensure that in as much as possible, the venture customers will not have to visit and access new stores across the market. Thus, through this strategic measure, the approach will ensure that there is minimal disruption of the offered services. Through retaining the already existing systems in the market as well as in the show rooms, the organization will ensure that its customer’s services are not disrupted. Govindan, Palaniappan, Zhu and Kannan (2012, p.207) argued that one of the main challenges in effecting organizational changes is the caused disruptions’. As such, the authors noted that with a high level of disruption of current level of services, there is a likelihood of increased customer dissatisfaction as well as loss of the customers. Consequently, Govindan, Khodaverdi and Vafadarnikjoo (2016, p.85) argued that in order to ensure that an organizational change and expansion process is effective, it should be hedged on the need to ensure minimal market alterations. Therefore, based on the above analysis, this report argues that by using a system similar to the already existing market systems, as well as retaining the existing show rooms through contractual agreements with the dealers, the venture will reduce its overall services disruption in the market, promoting a probability for the proposed SBU success in the Australian automobile distribution industry. 5.3 Create an Independent Recruitment System Although some of the employees already serving in the company can be extended to the proposed SBU, to ensure the retention and propagation of the corporate culture, there is need for additional staff. In this case, the required staff members will need special skills in distribution and supply chain systems. Thus, this report recommends that the venture should allow the SBU the autonomy to recruit its own technical staff. Through the application and adoption of this approach, the SBU will acquire the desired right employee base for its overall expansion and market penetration operations sustainability (Min, DeMond and Joo, 2013, p.63). References Abernethy, M. A., & Brownell, P. 1999 ‘The role of budgets in organizations facing strategic change: an exploratory study’, Accounting, organizations and society, 24(3), pp. 189-204. Beck-Burridge, M., & Walton, J. 2001, Sports sponsorship and brand development: The Suburu and Jaguar stories, Palgrave, Houndmills, Basingstoke, Hampshire. Blanpain, R., & Brulin, G. 2008, Globalization and employment relations in the auto assembly industry: a study of seven countries, Wolters Kluwer, Law & Business Austin Capital Cube, 2015, GM Earnings Analysis: By the Numbers [Online] Available at: [Accessed: 10th May 2016] Finnerty, J. D. 2013, ‘Project financing: Asset-based financial engineering’, London: John Wiley & Sons. Foss, N. J. 1997, Resources, firms, and strategies: A reader in the resource-based perspective, Oxford University Press, Oxford Gasper, M., 2015, Introduction to global business: Understanding the international. (2016). Place of publication not identified: Cengage Learning. Govindan, K., Khodaverdi, R., & Vafadarnikjoo, A. 2016’, A grey DEMATEL approach to develop third-party logistics provider selection criteria. Industrial Management & Data Systems, 116(4), pp. 67-78 Govindan, K., Palaniappan, M., Zhu, Q., & Kannan, D. 2012, ‘Analysis of third party reverse logistics provider using interpretive structural modeling’, International Journal of Production Economics, 140(1), pp. 204-211. Govindan, K., Palaniappan, M., Zhu, Q., & Kannan, D. 2012, ‘Analysis of third party reverse logistics provider using interpretive structural modeling’, International Journal of Production Economics, 140(1), pp. 204-211. Hoovers, 2016, GM Holden LTD Company Profile. [Online] Available at: < http://www.hoovers.com/company-information/cs/company-profile.GM_HOLDEN_LTD.1a4d127c40395175.html> [Accessed: 9th May 2016]. Kang, N., Kim, H., & Choi, J. 2015, ‘Effects of the contingent liabilities caused by project financing on financial status of the Korean construction firms’, Korean Journal of Construction Engineering and Management, 16(6), pp. 84-91. Knox, S. 2004 ‘Positioning and branding your organisation’, Journal of Product & Brand Management, 13(2), pp. 105-115. Lasserre, P. 2012 ‘Global strategic management, Palgrave Macmillan, New York,. Min, H., DeMond, S., & Joo, S. J. (2013, ‘Evaluating the comparative managerial efficiency of leading third party logistics providers in North America’, Benchmarking: An International Journal, 20(1), pp. 62-78. Plunkett, J. W., & Plunkett Research, Ltd. 2008, Plunkett's automobile industry almanac 2009: The only comprehensive guide to automotive companies and trends. Houston, Tex: Plunkett Research Ltd. Smith, M. 2011, The new relationship marketing: How to build a large, loyal, profitable network using the social Web, John Wiley & Sons, Hoboken, N.J Yescombe, E. R. 2002, Principles of project finance, Academic Press, Amsterdam Zikmund, W. G., & D'Amico, M. 2002, Effective marketing: Creating and keeping customers in an e-commerce world, South-Western, Mason Ohio Read More