Table of Contents
- Price for an Essay
- Barriers to Entry
- The Power of suppliers
- Threat of Substitutes
- Customer powers
- THE DRIVING FORCES
- Major companies
- Industry Attractiveness
- SWOT ANALYSIS
- Strategy evaluation and Issues to be addressed
- Related Free Economics Essays
Sporting is one of the most important activities in the life of any human being. In the 21st century, sporting equipment and goods have been on demand all over the world, (Bensoussan & Fleisher 2007). This demand has necessitated the growth of numerous sport equipment and goods companies ultimately making the once little known sporting goods and equipment industry popular. Sporting industry has become one of the most lucrative business opportunities for private and public investors. There are, however, many facts that need to be understood before channeling investments to this industry. Issues of competition, ease of market industry, opportunities, strengths, weaknesses and threats are important forces to reckon with insofar as joining a new market or industry is concerned.
Like many other industries in the 21st century, Bensoussan & Fleisher (2007) observe, sport goods and equipment industry has been changed from a traditional and predictable industry into a more sophisticated and complex (yet practical) industry. Forces and globalization and technology have been rated highly as the major agents of change into this industry, (Joseph 2003). The general culture of sporting has penetrated to many areas of the world and the organization of world championships like World Cups and the Olympics have gone a long way in popularizing this industry.
To fully understand the nature and how operations take place in the sport goods and equipment industry, this research paper will study numerous sport goods and equipments companies. Fogdog, which is one of the most celebrated sport goods and equipment companies in the World will be at the center stage of this academic inquiry into the industry.
Fogdog was started in 1994 and launched its entry into the sport equipment industry under the name Cedro Group Inc. In this period, the company was basically concerned with Web development for sport equipment and goods. In 1998 the management of the company considered changing its business mode and in June the same year, launched its then very celebrated e-commerce activities under the website name Sportsite.com, (Joseph 2003).
Various goods and equipment for various sports have been produced and sold to lovers of various sports. They include soccer, baseball, basketball, water-sports, bowling, cricket, volleyball, darts, football, gymnastics, handball, just to mention but a few.
The sport equipment and goods industry is one of the leading industries in the economy of the US and beyond servicing the needs of many other vital entertainment industries. This industry has also been characterized by technological changes in the operating environment with the introduction of technologically innovative production methods such as the on-line sport goods and equipment platforms. The principal markets and customers for this industry are classical markets which comprise of growing and declining markets. The major customers are the fans and supporters of various teams, individual sportsmen and women, clubs of various games, governmental sport departments and ministries , institutions like schools, container.
The sport equipment and goods industry is the leading consumer of raw materials like leather, plastic, cotton (fabrics in general), wood, steel, rubber and such, given the fast growth that the industry is generally facing, (Donald 1989). This is closely followed by the textile and fashion industry which was initially the largest consumer of these raw materials.
This industry is considered as one characterized by slit throat competition given that the products are not differentiated. In order to produce the outputs, there are many high fixed costs and strong barriers to exit in that manufacturers will find it very expensive to exit and close shop. There is also cut throat competition coming from cheap imports from countries such as South Africa, Taiwan and China which have introduced high subsidies to enable entry into the market. The demand for sport equipment and goods is also highly cyclical and therefore competitors have to strategize to hit good sales.
Barriers to Entry
The integrated sporting segment in which Fogdog operates has relatively high barriers to entry but is worth to note that these barriers will be lowered with the entry of many mini mills due to the low costs, (Kotler, 1999). The other notable barriers are of legislative nature where the new entrants must comply with the industry standards and safety requirements.
The Power of suppliers
The main supplies for the industry are leather, plastic, cotton (fabrics in general), wood, soft metal and rubber. This industry has unionized employees who consequently have a high bargaining power in terms of labour supply. Given that the industry is highly cost competitive, the suppliers of raw materials and industry inputs are very powerful. However, this is likely to change given the recent modernization of the sport equipment and goods industry due to reduce the number of employees to work in the manufacturing plants, (Kotler, 1999). The other major factor that underscores this power is the scarcity of leather, plastic and rubber courtesy of exports which led to a marginal increase in price of inputs.
Threat of Substitutes
The industry faces some serious threats from substitutes such as plastics and aluminum which are moving very fast to take up a huge market share. For example, the latest trends in the reduction of leather in many textile and fashion industry due the increasing cognizance of animal rights are a clear indication that the same is threatened by substitutes which are being used in car manufacturing and accessories.
In this industry where there is no differentiation, the customers are highly price sensitive and therefore very powerful. The customers are known to make their buying decisions based on price considerations and can hence be said to be highly powerful. In a market like this, the buyers are key determinants of competitive advantage with the low cost producers such as Fogdog having a competitive edge. In addition, the over-supply and decreased demand for leather and plastic in the market also reinforces the fact that the bargaining power rests with the buyers (Kotler, 1999).
THE DRIVING FORCES
The sport equipment and goods industry in the USA is controlled by three major players: Fogdog, Global sport Inc., Equipment DE Sport USA Inc in Palm Desert and the Sport Inc. All of these have a considerable influence on the market trends and are strong players in the industry.
Fogdog, though it has been detailed in the foregoing introduction section, remains a great player in this industry. The company dealt with the then inherent fears of on-line shopping and purchasing to later grow as a renowned on-line sport equipment and goods company. In the month of November the company owners decided to change its name to Fogdog sports: a name that has stayed till today. Fogdod is entirely a play firm dedicated to availing a wide range of sport equipment options through a reputable and expeditious custom care base. Today, fogdog remains one of the most popular on-line sport equipment and Goods Company.
Global Sports, Inc. has become a main player in e-commerce sport equipment and goods industry. Their goods and equipment target specialty retailers, general sport traders, on-line sport companies and other related companies. Terms of supply and sale of sport equipment and goods by this company are aimed at establishing a long-term agreement. Its growth strategies and market penetration approaches have greatly contributed to its forceful and sharp competitive edge.
Equipment DE sport USA Inc. is leading sporting kit company that has been around the sport equipment and goods industry for over 29 years. Having been established in 1982, the company has steadily risen from regional based business enterprise to a more global firm endearing to many customers in the USA and the entire world. While it has not yet adopted on-line (e-commerce) operations, the company has registered high sales and huge profit turnovers. Its revenue according to recent records released stands within the range of 500,000 to I million USA Dollar, (Lewis & Lytton 1997).
Sports, Inc. has grown steadily to become one of the major players in Sport equipment and goods industry. The company does marketing campaigns on sports has well over 450 members for both outdoor and athletics. The company prides itself on various successes from its many outlets that exist in more than 49 states in the USA. The company has been in this business for over 45 years now. Its sharpened competitive edge has afforded it to have a fast growing business volume. The company besides the normal consumers of sport equipment and goods industry its ability to capitalize on the mutual trust built among its consumers has further enabled it to avail coveted buying experiences among its target clients.
This poses a major challenge to Fogdog Sport Inc. in that it produces quality sport equipment and goods which customers are very loyal to. The competitors and their market share are presented as below.
This is the source of competitive advantage for Fogdog since it has identified a niche in this market. From the analysis done and the information provided, the sport equipment and goods industry is not attractive given the high operational costs and the described market forces.
This industry is not attractive and therefore the prospects for growth are very low. Characterized by cut throat competition, high barriers to entry, high threats of substitutes and many entrants, the industry is purely unattractive and has little prospects for profitability for small scale investors.
The success in this industry depends on a company strongly dependence on the high market demand and the high investments in capital to adopt a low cost model which will give its sporting equipment and goods a high competitive edge. Although the challenge of the cheap imports is real, a company, just like Fogdog has done, is able to remain at the top of its competition by adopting various strategies, the main one being a low cost producer.
- A company can enjoy various strengths which have propelled many other companies, like those discussed in this paper, strength and market leadership. A company can adopt a low cost production mode in order to enjoy low cost leadership and financial commitments (Lewis & Lytton 1997).
- There are chances in the industry for a company to enjoy most efficient operatorship in the sporting industry. There is flexibility allowing companies in this industry to adopt technologically innovative production methods such as the use of online marketing tools.
- Just like a company like Fogdog has successfully paid dividends in 135 quarters consecutively through its profit making streak, any new company can easily defy market trends which have seen many operators making continuous losses in other industries.
- There are various strategic advantages in this industry that allow companies to put in place sound operational and strategic plans this will ultimately ensure that the company is able to beat odds and achieve its stated objectives
- The main players in this industry have enjoyed a high quality reputation from its customers pointing to the truth that customers in this industry are not very hard to please like those in other industries. However, having good customer base calls for rigorous quality systems which will ensure that customers receive quality end products and hence remain loyal to the new company.
- To fully enjoy advantages in this industry there is need for a company to adopt flat/lean organizational structure that is reflective of a sound managerial approach to the success of the business. There are only three layers to the structure which implies that there are few bureaucracies in decision making.
- Decentralized operations and empowered all divisions and their managers to be able to make critical decisions that affect their departments.
- High operational excellence capped by the minimum paper work that the Nucor operations enjoy.
- Sound employee relations and high productivity which play a pivotal role in the success of many businesses. For example, communication at Nucor is very good given the relatively flat management structure.
- The employees are constantly informed of the company progress though internal communication channels such as emails and correspondence.
- The employees have been given very good incentive plans at all managerial and operational levels.
- The employees are also well taken care of in terms of the benefits and involvement - profit sharing, 401k plans and offers reimbursement on tuition for academic costs ,the availability of service awards for the employees to recognize those employees who have positively contributed to the growth and success of the company over time.
- Nucor also enjoys good and close relationships with its clients who have propelled the company to achieve low cost operating advantage in shipping and subsequently low customer prices.
- This steel maker and recycler are able to offer superior quality products at very low costs, a business model that is unique in this industry.
- It boasts of superior financial performance having given dividends for a long consecutive period as indicated earlier.
- To underscore this, it is the largest recycler in North America which has been reinforced by the fact that in 2006, its cold finish wing was the largest producer in the US. It also has a wide range of steel products enjoying a wide range of product portfolio in the American market.
- The industry faces serious technological advances since there has been low evolution of technological commercialization of its goods and services. The existing online companies still face serious challenges in terms of customer attitudes, fears and such factors.
- The industry is also flooded with numerous small scale business enterprises that have made market prices hard to predict.
- There is no internal research and development activity mentioned in the case and therefore it is clear that the companies depend on suppliers, partners and customers to propose new technology and strategies in the business.
- Due to its sidelining in terms of research work, the industry faces serious challenges in terms of management training thereby allow duplication of tasks in sales and procurement of goods. This forms a great deal of the unexpected expenses and loses.
- Concerns in the recruitment and selection of employees since the many of the companies in the business like fogdog, uses referrals as a preferred recruitment source.
- There are no clear job descriptions and this may lead to duplication of tasks within the various divisions of a company that chooses to invest in this industry.
Just like fogdog, any company joining the industry has a wide range of opportunities which are available for exploitation given the wide range of market base that the US and many parts of the world present.
- Given the recent trends in globalization and technological advancements, Fogdog and other companies in the industry can take advantage and spread their wings to other operations such as Africa and Middle East - This can comfortably be done through mergers and acquisitions which can lead the company to the identification of a suitable operating partner in these untapped regions.
- There is a high demand exceeding the current global sporting equipment and goods capacity by the existing giants.
- Fogdog, other companies and the new entrants into the industry have to advance research and development wings with a view to identifying new sport products for new sports and more efficient production techniques.
- Regarding the logistics and coordination, enormous opportunities exist in the improvement of in and outward logistics given the above mentioned opportunities in emerging markets.
- This opportunity will eventually ensure that the companies in the new markets such as Russia and Brazil, in addition to the African market where the demand for sport equipment and goods is growing very fast
The future of this industry and its companies are threatened by various factors
- Globalization and the proliferation of competitors to the sport equipment and goods market - There are many small mills that are venturing into the sport equipment and goods market and therefore competition is becoming a major concern.
- The trends of mergers and acquisitions are equally posing a threat to the profitability of single unit companies since competitors are keen to acquire strategic partners in countries where their competitors are weak.
- Dumping of sporting equipment and goods across countries especially from developed to developing countries therefore presenting unfair competition to newer entrants.
- The rising cost of raw materials and the scarcity of the same have also threatened the future of newer entrants and existing but unstable companies in that this leads to high production costs and high operating costs.
- Many governments have also introduced tougher environmental laws and signed various free trade treaties which have opened the US sport equipment and goods market to a number of foreigners who enjoy low labour costs and cost advantages.
Strategy evaluation and Issues to be addressed
According to Cascio (2005), new and existing companies can adopt the following strategies in order to address the current gaps in the strategy formulation. On the management of Human Resources, the current strategies are working well and the various management teams need to streamline a few issues like recruitment, selection and the issues of job clarity as mentioned in the weaknesses.
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High performance culture in this industry will only be embedded in the employees together with the reward systems that many of the existing companies have overlooked. It is also advisable to continue building a strong leadership team through capacity building and management leadership trainings as a way of ensuring that the management has the requisite skills to drive the industry forward, (Cascio, 2005).
In addition to this, it is important that management teams and the employees are always productive and motivated to meet the growing diversity of the workforce in the wake of globalization, competition, mergers and acquisitions. The relatively flat organizational structure is also highly recommended since it fosters the spirit of innovation, creativity and ease in decision making. The only issue that needs to be addressed is the streamlining of the procurement and sales process to avoid the possible duplication of efforts and take advantage of the economies of scale in purchasing, promotions and sales.