Business environment.

“What strategies should Resene Paints adopt to prosper in the next five years?”

Introduction:

Many successful firms that exist globally including Resene Paints use their core competencies as part of their business expansion strategies in order to compete in the current ever-changing business environment. To do this successfully they need to understand the relationship between appropriate strategic actions and the achievement of strategic competitiveness in increasingly competitive environments. There is evidence that for the company to achieve its strategic competitiveness and earn above-average returns, it will need to analyse both its internal and external environments, identifies opportunities, and determine which of its internal resources and capabilities are core competencies, then select an appropriate strategy or strategies to implement (Hall & Wolff, 1999).

Body:

A company's “strategy” is defined as an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage over its competitors. Strategies are purposeful, precede the taking of actions to which they apply, and demonstrate a shared understanding of a firm's strategic intent and mission (Covin & Miles, 2000). It has been noted that an effective formulation of strategy marshals, integrates, and allocates the firm's resources, capabilities, and competencies so that it can cope successfully with its external environment. A use of effective strategy also rationalises the firm's strategic intent and strategic mission and what will be done to achieve them. Information regarding a number of variables, including markets, customers, technology, finance and the changing world economy must be collected and analysed to formulate and implement strategies properly.

In order for a firm to utilise most of its core competencies to satisfy its customers' needs, one will need to closely examine its “strategic inputs” gained through studying of both the firm's external and internal environments, these can guide in selecting the appropriate set of actions including both the formulation and implementation of value-creation strategies that will yield desired strategic outcomes. The best examples of a core competency that Resene Paints possesses is their alliance and joint development with a Norwegian sciences company, called Polymer Systems Ltd. of Spheromers which resulted in attracting international attention from other companies in this industry.

The Spheromers were perfectly spherical particles that produced an extremely tough, cleanable and burnish-resistant surface. These are dramatic improvements to prior inconveniences associated with low-sheen paints which plagued the industry over the years. Resene's innovative approach is likely to earn them a high reputation and increase their brand awareness ultimately leading to increased sales and further market gain. While it is clear that Resene Paints prefers to stick to their basic level products which means concentrating their R&D and manufacturing efforts on two types of paint, the water-based and the solvent-based paints. Water-based paint still holds advantages over the solvent type, such as being more popular, more environmentally friendly, cheaper to produce and easier to apply when compared to the solvent based one.

That being the case, the company had plans on further improving their water-based paints and this will be followed by potentially hundreds of other paint product types and colours, as well as numerous specifics for use on a wide array of surfaces where paints can be applied. Also included in their product range are primers, sealers, undercoats, and topcoats for use on wood, steel, concrete, plaster or any other building material. Their technology for batch manufacturing was not capital-intensive, in particular for the production of less complex paints therefore making implementation easily achievable.

A ‘business-level strategy' is defined as ‘an integrated and coordinated set of commitments and actions designed to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets'. Thus, a business-level strategy reflects a firm's belief about where and how it has an advantage over its rivals. The core belief of business-level strategy is to choose to perform activities that are different than its competitors. To do this, the company will need to ensure that all its employees will need to understand the firm's advantage over its competitors in the marketplace (Deephouse, 1999), and one of the key factors is to understand clearly the “customers” of the company which is a foundation of success in any successful organization including Resene Paints.

Customers and many time Suppliers are the foundation of any successful business-level strategy. Increasingly, firms are emphasizing the importance of the link between building relationships with suppliers and delivering a high level of service to customers, this eventually improves firm's financial performance. A CEO recently expressed this sentiment by observing that in his firm, “the central question is, what kind of initiatives will help us strengthen the customer relationships we have and encourage new ones to form?” (Smith, 1999). This emphasis is consistent with the perspective that, at its core, business-level strategy is “the ability to build and maintain relationships for maximum value creation, both ‘internally' (to firm representatives) and ‘externally' (to customers).” (Lowendahl & Revang, 1998).

Organizations need to satisfy their customers' needs in order to be successful. A fundamental reason behind this is that returns earned from relationships with customers are the lifeblood of all organizations (Afuah, 1999). Relationships with customers are strengthened when the firm is committed to providing superior value products to those it serves. Superior value is often created when a firm's product helps customers achieve their original purpose and this in turn enhances the business' own competitive advantage.

Since, Nick Nightingale became GM in 1999, Resene has improved, refurbished and relocated some of its existing retail arm of retail stores as well as added a further 9 ColorShop stores to complement its existing distribution channel.

This attempt came in consistent with its current advertising and the image of quality that Resene wishes to project to its customers and partners in order to expand its brand and market share within the paints sphere.

Evidence suggests that strategically competitive organizations in the 21st century - are those that focus on customers in selecting and implementing business-level strategies. Resene measures well and it has created its own database of customers where they specifically tailor their marketing to meet their customers needs as Resene's GM recently noted, the firm has grown its original client database from 2500 customers to over 12,000. One will seek to solve customers' problems with the goods or services they sell, as well as remain focused on the need to innovate continuously even when their current offerings are selling well. The company will also need to determine on how to use their core competencies in ways that competitors cannot imitate and to do this, they will need to design strategies to allow them to satisfy customers' current, anticipated, and even unanticipated needs (Bounds & Quick, 1999).

Resene Paints have always also placed great emphasis on the commercial segment of their market. Their primary phrase used in marketing (“The paint the professionals use”) seems to be effective and as proof they maintain close relationships with a significant number of builders, planners and architects and also via their developed ‘Total Colour Chart'.

Resene Paints will continue to dominate the commercial segment of the paints industry. To further support this achievement, their total employed sales representative's numbers 65 which is twice as many compared to their nearest competitors, Dulux (Ivy Thesis, 2009).

Further, to consolidate and improve their market position, Resene Paints will need to position its expansion strategies on ‘cost leadership' which is defined as ‘an integrated set of actions designed to produce or deliver goods or services at the lowest cost, relative to that of competitors, with features that are acceptable to customers' and compare well or are superior to those of its competitors. The ultimate aim of cost leadership strategy is to achieve low cost which is relative to that of competitors, while not ignoring means of differentiation that customers' value such as quality and environment friendly. Companies that are seeking competitive advantages through this business-level strategy often sell no-frills, standardized goods or services to the industry's most typical customers. Alternatively, the differentiation strategy should consistently be upgraded to a good or service's differentiated features that customers value without ignoring costs to customers. In addition, in order to successfully implement the cost leadership strategy, the firm will need to consistently focus on driving its costs lower relative to its competitors and Resene could easily achieve this by bundling all of its raw material purchases from one or two suppliers in order to increase volumes and drive down purchasing costs, they may even consider buying lower grade raw materials when creating a lower grade product when compared to their existing lines but which still retains enough qualities to make it a good product.

In order to implement the above strategies, the company will need to understand both the bargaining power of buyers (customers) and suppliers. Powerful customers can demand the cost leader (i.e. Resene Paints) to reduce its prices, but Resene's profit margin and price should not be driven below the level at which the next-most-efficient industry competitor is able to earn average returns. Although powerful customers could force the cost leader to reduce prices even below this level, they probably would not choose to do so, because of the quality associated with the firm's products, but by restructuring its purchasing and offering a lower cost product of still good quality, Resene should be able to manage and successfully answer any customer pressures. On the other hand, the cost leader (i.e. Resene Paints) currently assumingly operates with margins greater than those of competitors, most of the times this is due to producing its manufacturing locally and operating its own stores.

Among other benefits, higher margins relative to competitors' make it possible for the cost leader to absorb suppliers' price increases or a further reduction in price. When the company is faced with substantial increases in the cost of its supplies, the cost leader may be the only one able to pay the higher prices and continue to earn either average or above-average returns.

Differentiation approaches and in particular ‘branding' is a predominantly important factor that Resene Paints needs to achieve and maintain to sustain its competitive advantages in the current marketplace. Evaluating Resene's differentiation strategy to other firms within the same space and industry that usually rely on one dominant generic strategy for their success, i.e. Dulux, where this competitor brands itself mainly along its product line in its marketing efforts as opposed to marketing itself as a business, leads stakeholders to believe that a company that is capable of successfully using an integrated differentiation strategy should be in a better position to adapt quickly to an ever changing competitive business environment, learn new skills and technologies that quickly leverage its core competencies across business units and product lines. The fundamental rationale as to why Resene Paints should adopt this branding strategy (differentiation) going forward is that its successful implementation should allow the company to earn above-average returns and the best example here is to continue its pledge of creating and promoting new environmentally friendly paint products which are less harmful to end users and eventually the environment while maintaining the same pricing structure.

However, Resene quality paints have been recognized and accredited by the New Zeeland Consumer Institute and with the help of future well thought marketing campaigns and Resene's current sales force its customers will come to be acquainted with and identify Resene's products as resonant of quality. Consequently, this integrated strategy will allow the company to gain further competitive advantages by offering differentiated features of its products at relatively median costs to the market (Porter, 2008).

Furthermore, Flexible Manufacturing Systems (FMS) too have the potential to increase Resene's ‘flexibilities of human, physical and production resources' which are reflected in its products and ultimately have the potential to increase brand awareness though innovation and quality, these too need careful integration within its strategy to create distinctive products at low to medium costs. FMS is a ‘ computer-controlled process used to produce a variety of products in moderate and flexible quantities with a minimum of manual intervention' (Smale, 1999). The whole objective of using an FMS is to eliminate the low-cost-versus-product-variety trade off that is inherent in traditional manufacturing technologies where low cost does not offer variety.

The flexibility provided by an FMS allows a plant to change quickly, economical and easily from producing one product to making another one. If the system is used appropriately, it could help a firm become more productive and flexible in response to changes in its customers' needs, while retaining low-cost and market response advantages and consistent product quality. Resene has already initiated the use of FMS with the expansion of its existing facility in the town of Nae Nae in New Zealand in 2001 which initially saw the development of a sophisticated tinting technology which enables Resene Paints to produce durable colour option paints at low cost, these remain true to colour long after they have been applied, the Nae Nae plant also produces tinting of a wide range of textured and specialist coatings. The Resene Total Colour Systems provides innovative tinting options in an interlinked full range of decorative and protective coatings allowing for the same spectrum of colours to be achieved in a wide variety of products. The interlinked colour system was the first of its kind in the world.

Conclusion:

The above strategies seem compelling in cementing Resene Paints efforts at utilising their existing resources and core competencies in understanding their ‘customers' needs, creating awareness of its brand via research and alliances with other industry partners and suppliers and continuing their R&D efforts and various differentiation business strategies which includes the development of its commercial and residential business segments and cost leadership strategies,

Resene as a business seems to be in good understanding of its supplier and customer bargaining powers, maintain well and increase its branding and finally a good approach and execution of flexible manufacturing system (FMS) methodologies.

Resene's current and historic success is linked to its traditional roots of high quality products and more recently to a solid commitment to its product excellence and quality achieved through its R& D efforts.

Due to these commitments, their customers, suppliers and partners have been able to take advantage of more direct information, better quality products and lower pricing strategy that places Resene and their products at the competitive end in the market place.

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