Many external factors influence firm’s strategic direction, action and its internal processes as well as the organizational structure (Kearney, Hisrich, & Antoncic, 2013). These external factors can be categorized as those in the remote environment, industry environment and the operating environment. Avon is one of the leading multinational corporations that specialization in the production and sell of beauty products in Asia, Latin and North American and the Asian pacific. The company has a host of factors in its external environment, which influences its strategic directions.
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An analysis of the external environment within the Avon Inc. reveals that the company’s strategic decisions are influenced by factors in the remote environment such as technology, social, political, ecological and economic factors (David, 2010). The political situations in the emerging markets influence the firm’s decisions to invest in such markets. Moreover, the economic and social factors in the emerging markets form important factors that influence the firm’s strategic directions. These remote factors are beyond the control of the company and they exert great influence on the strategic direction that the company adopts. For example, political instability in the African market has witnessed less investment in such market by the company. The strong economic and social development in the North and Latin America and Europe has seen the company concentrate in such markets.
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The other external environmental factors that influence the strategic direction of Avon are the market competition and the firm’s competitiveness. The beauty products market is very competitive, with major competitors of Avon being Revlon, and Mary Kay Inc. However, the huge financial base and the specialization adopted by Avon offers the company a competitive advantage over other cosmetics players in the market. According to (David, 2010) the revenues of Avon exceeds those of its closest competitors.
SWOT Analysis- Threats and Opportunities
The major opportunities for Avon Inc. are the emerging markets in Africa, Eastern Europe and Middle East, the increasing demand for the anti-aging products, the strong research and development history of the company. Moreover, the 2005 restructuring allowed Avon to free more funds that were devoted to advertisement, which created an opportunity for the expansion of the company market share (David, 2010).
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However, the company faces numerous threats in form of other major players in the market such as Proctor & Gamble and Unilever (David, 2010). These companies have increased their market portfolio to include beauty products and thus threatening Avon market share. In addition, the economic downturn in the emerging markets threatens the company profitability. Other sources of threats include government regulations, for example the U.S Federal Trade Commission law of 2006 that regulated U.S businesses.
Five Forces Analysis
According to Porter, the nature of competitiveness in the market is influenced by five forces, the potential entry of new competitors, rivalry among firms, potential entry of substitutes, the bargaining powers of consumers and suppliers (David, 2010, pg. 74). The beauty products market is competitive and the countercyclical nature of the market has seen the entry of new competitors such as Amway. Moreover, the entry of substitute products, such as the “green” products threatens the demand for Avon products in the market.
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Strategic Group Map
The strategic group map is the analysis of firms that offer similar products in a particular industry (Short, Ketchen, Palmer, & Hult, 2006). Avon Inc. faces competition from companies such as Amway, Proctor & Gamble and Unilever. Despite the presence of these firms, Avon continues to be the leader in the market, largely due to its huge financial base, strong research and development and its adoption of specialization. This has allowed Avon to sustain its growth and profitability in the market for many years.
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