Sample Essay on Precision Parts Strategic Expansion Plan

Abstract

Precision parts is an American automobile company that deals in small sports utility vehicles and a wide variety of spare parts. In recent years, the company has experienced sustainable growth in its businesses and as a result is looking to expand. This paper addresses various aspects that should be considered by the company while developing its expansion strategy. These include the geographical locations of plants and factories to be opened and creating demand for the increased production. The paper also addresses internal issues that the company will seek to achieve with the expansion as well as the financial position it aims to achieve. The company has had a history of corporate social responsibility and therefore the expansion will also mean increased charitable activities. The paper lays a brief blueprint of the company’s current position, the goals it intends to achieve with the expansion and the strategy to be used to achieve those goals.

 

 

 

 

 

 

 

 

 

Discussion.

Precision Parts is an American manufacturer of motor vehicles and spare parts with a sizeable market both in America and globally. It is one of the best performing companies and has managed to weather tough economic times in the automobile industry to sustain growth and profitability. As a result of the continued favorable performance, the company seeks to penetrate the market even further by increasing its capacity to meet global demand. Currently, Precision Parts commands roughly five percent of the world market in its respective industry. Although this may look like a vantage point for the company as it seeks to expand, the sports utility vehicle segment of the market is one of the most rigid markets in the world. It is characterised by intense customer loyalty largely due to the financing and other plans companies offer to their clients. Due to this fact, expansion of the market share will not be an easy task for the company. It will have to provide worthwhile incentives to the potential clients as well as high value additions in their products so as to improve the brand name and subsequently win over its competitors clients.

 

The American small SUV market is more of a luxury driven market than a utility market. The ease of access to most areas of the country with the exception of the extreme environments means that the utility market for SUVs is very small compared to the luxury market. As a result, the company should focus more on value addition in the US rather than abilities of the vehicle in extreme environments. The realization of this fact by competitors such as Land Rover, Toyota and General Motors has propelled them to new heights of success with their flashy Range Rover, Land Cruiser and GMC brands respectively.

A common concern for both the American and global market is safety and security. Most people feel most vulnerable to security lapses and attacks when they are in their cars. This provides a ready market for a luxurious car that would also provide a certain level of protection and security for the passengers. The armoured SUV therefore provides a solution to this market problem and the ability to provide the additional service at a relatively affordable price will turn out to be a gold mine for the company. Although armoured cars are not entirely secure, they increase the chances of survival for the passengers tremendously in case of an attack. Furthermore diversification into utility vehicles for the Asian and African markets could also prove to be a successful venture for the company due to the inaccessibility of most areas in the two continents.

To facilitate the projected numbers over the span on four years, the company’s best options lie in the increasing of dealerships within the US, opening of a fully equipped and capable manufacturing plant in China and an assembly line in South Africa. These facilities will require personnel and will see the workforce swell to the expected 10,000 workers. Furthermore, the expansion will push the company’s share price up as investors seek to capitalize on the growth to earn dividends. To achieve a higher share price, the company shall increase the dividends paid out marginally and offer favourable floating options for existing shareholders. One such plan is the issuing of a bonus rights issue that will increase investors’ holdings in the company.

The location of a fully fledge manufacturing plant in China is meant to capitalize on the available labour due to the high population and also the availability of cheap raw materials (Xin, 2012). The assembly plant in South Africa on the other hand is meant to fine tune vehicles intended for the African and Australian markets. These countries provide the ideal conditions for the reduction in factory costs thus improving the net profit margins for the company to the intended 13%. Fully fledged manufacturing in these countries is economically unsustainable in the long run due to unavailability of factors of production. The high rates of unemployment rates in the two countries provide readily available labor for the factories. Furthermore, it means the rate of employee turnover will reduce because of the unwillingness of workers to forsake their jobs due to the difficulty in securing another job. The two countries are also relatively stable politically and as such provide a suitable environment for investment and trade.

Most Chinese cities are heavily polluted and the company can take part in environmental clean ups as well as research and development on ways of preserving and improving the environment while retaining economic development (Kira et al, 2011). In South Africa, the company can fund education and health projects in its effort to give back to the community. These activities will undoubtedly increase the spending on charity from 0.5% of profits to 5%.

 

 

 

 

 

 

 

 

 

 

References

Kira M., Kyung-Min N., Noelle E. S., Lok N. L., John M. R., & Sergey P. (2011) Health Damages from Air Pollution in China. Massachusetts: Massachusetts Institute of Technology.

Xin M. (2012). Labor Market Outcomes and Reforms in China. Journal of Economic Perspectives, 26(4), 75–102