Sample Architecture Admission Essay on Strategic Analysis of Melco and Implications for Position of the Company

Strategic Analysis of Melco and Implications for Position of the Company

Introduction to the Company

The company (Melco Crown) is a developer as well as operator of casino gaming and entertainment resort facilities. The company’s amenities comprise guest rooms, top-notch dining space, as well as spacious and contemporary casino. The company also operates nightclubs, operating a number of hotel towers, including Dreams Manila. The company’s casino gaming holds different gambling activities, from which it derives most of its revenues.  This report seeks to conduct a strategic analysis of the company and determine the implications for the position of the company.

Overview of the Sector

The gaming industry has been fragmented until the late 90s, when the sector consolidation had started to take place. The last two years of the period brought about a torrid pace of different activities, as a number of firms merged and acquired others. During the same time, there emerged an endless amount of cheap debt and private companies embarked leveraging the strong and rapidly rising cash flows of the gaining companies. During the year 2007, the gaming industry took a turn into the worse. In essence, the market/industry was particularly split into three customer segments, which were different in nature.

            Macau was the only area within China in which gambling was legal. During the period 2006, Macau displaced Las Vegas for the first time as the world’s gambling destination. Macau’s gaming revenues exceeded 15.5 billion dollars for the year 2010, compared to 8.7 billion dollars in Las Vegas.

The Business Environment Analysis

Each day markets are particularly changing the way in its customers live. A number of new things are happening within a matter of seconds, minutes, or even hours and days. Among these happenings, there are those that can be controlled as well as those that are beyond human control. There are also different systematic happenings in the environment where customers reside, which can affect people in a considerable. Businesses are affected by the environment in which they operate and all the situational factors, which determine situations daily. It is therefore, because of this that businesses are required to keep track in addition to evaluating the environment in which they operate their business and within which the market is found. 

The PESTEL analysis consists of those elements, which influence the business’s environment, where each of these factors, either directly or indirectly affects the industry in which the market currently stands (Cadle et al, 2014). The general forces that affect the business include the political, economic, socio-cultural, legal, technological, and environmental forces.  The political factors often take into account the political situation of the nation as well as the world in relation to the country.  For instance, the type of government leadership, which affects the region’s decision-making, will pose a significant impact. Taxes, policies, laws as well as every tariff, which the government levies the business falls under this particular category. The economic force includes all the determinants of an economy as well as it conditions. Conditions such as the level of inflation, rate of unemployment, or exports affect markets.  The socio-cultural force differs in each country, each nation has a unique set of values, and cultural believes. These values can significantly affect businesses and level of sales.  Gender, social lifestyles, domestic structures are all factors that influence people into gaming activities.

Besides, the level of technology in a region also affects the business, since technology keeps on changing now and then. Furthermore, legislative changes also occur from time to time, which can also affect the business to a very large degree. The environmental factors similarly affect the business operation (factors such as the location of the business, the climatic situation, as well as weather changes have greater impact).  The gaming industry, where Melco operates has a number of competitors, each competing to outdo the other and become the market leader. Some of my key competitors in the industry include Sands China, MGM Holdings, Galaxy Entertainment Group, and Wynn Macau among other important market prayers.

Analysis of the Macro Environment

The PESTEL analysis often measures the market. It is particularly a very useful and important strategic tool for gaining a greater understanding into the market growth as well as decline, business position, potential as well as direction for business operations. It is a scan of the external macro-environment in which the business operates, which is always expressed in terms of factors including political, economic, environmental, social, legal, as well as technological factors. The following is the PESTEL analysis of Melco Company.

  1. Political Factors

The political factors comprise of the government regulations as well as the legal issues and often define both the formal and informal rules under which the company must operate. Some of these variables include tax policy, employment laws, environment regulations, trade restrictions and tariffs, regional integration of markets, as well improvement of governmental support for infrastructure.

The business’s operation is by a wide range of political factors such as the smoking ban, which influences the business both directly as well as indirectly. Particularly, the government has banned smoking in the casinos. Furthermore, neglecting such regulation will most likely lead to political pressures on the company.

  • Economic Factors

The economic factors usually affect the purchasing power of potential customers as well as the business’s cost of capital. The following are the variables affect the macro-environment of the company, include economic growth, interest rates, exchange rates, inflation rates, wage rates, cost of living as well as employment rates.

In particular, rising or decreasing costs in terms of labor costs presents a significant threat to the company. Furthermore, currency exchange rates are yet another significant economic factor for the business to deal with. Changes in the wage rates, inflation rate, exchange rates, and cost of living affect many of the customers in other nations considerably; therefore, affecting the company in significant way.

  • Social Factors

The Social factors comprise of the demographic and cultural aspects of the external macro-environment to the company. These factors will affect the customer needs in addition to the size of the company’s potential market. These variables include health consciousness, population growth, age distribution, career attitudes, as well as emphasis on safety. The increasing levels in terms of age distribution present an important opportunity for the business to exploit.

  • Technological Factors

Technological variables may significantly lower barriers to entry, decrease the minimum efficient production levels, as well as influence outsourcing decisions. Technological variables that affect the company include R &D activity, automation, technology incentives, rate of technological change, and innovations in the gaming equipments.

  • Legal Factors

The different legal variables that mostly affect the company include changes in legislation, customer protection, health regulations, as well as employment laws. Issues concerning gaming safety regulations are particularly demanding, since the company is required to offer gaming products that healthier and ones that ensure high levels of customer interests.  In addition, the growing employment regulations within the region also impacts on the way employees are hired  and remunerated. 

  • Environmental  Factors

There are different environmental variables, which affect the company. These include;

  • Business sustainability trends therefore, giving the company a good chance to excel in the industry
  • The growing popularity in support for responsible gaming
  • Increasing popular support for environmentally responsive technologies, which will ensure that issues to do with pollution are minimized

 Analysis of the Micro Environment

  • Analysis of the competitive forces (Porter’s 5 forces model)

The Porter’s competitive analysis model describes about the environment surrounding a company or an industry. The Five Forces comprises of the threats of entry, the bargaining power of suppliers, the bargaining power of the buyer, threats by substitutes, as well as the intense rivalries from the competitors. In the case Melco, it is in a difficult position in the regional as well as global markets because of many competitors. In addition, competitor companies have been dominant in this sector over the last few years. It is very hard for other companies to enter in this industry and compete against these numerous producers.

These firms are a big barrier for business in this industry. Furthermore, the rise in prices of gaming and gambling activities plays an important role in determining the bargaining power of suppliers. It is factual in marking to indicate that the many the competitors, the better the price becomes. The same thing goes with the buyers too. The bargaining power of buyer is determined through a large volume as well as increased cooperation.

In addition, there is a threat of the substitutes. When there is a new brand, which can substitute existing products, it would have a big impact on the market. For instance, casino and its associated gambling activities are becoming popular globally.  In addition, such products are growing with the steady increase of materials’ prices.

Competitor Analysis

The competitor analysis is very important to any particular business since it helps to understand the competitive advantages/disadvantages that are relative to competitors. It is also important because it helps in generating understanding of competitors’ past, present future strategies. Furthermore, competitor analysis will provide an informed basis for developing new business strategies in efforts to achieve competitive advantage in addition to helping in forecasting the success of new proposals as well as strategies for the business.

There are a number of companies, which present the greatest competition in market for Melco.  These four brands present a very challenging and high competition in the market, with each brands working hard in order to outsmart the other. These companies almost offer similar products and have significant market share in the gaming industry.

  • The Company’s SWOT Analysis

1. Strengths – Has a brand with substantial cash reserves and financial backing. Crown is diversified across geographic locations, cultural markets as well as is vertically integrated (accommodation, food & beverage) – all of which allow for a strong financial position and future growth.

  • 2. Weaknesses – Whilst well positioned to capitalize on tourisms, there are some risks in terms of a weak consumer environment and requiring significant capital expenditure to reposition.
  • 3. Opportunities – There is growing middle class of Chinese gambling customers and generate significant VIP revenue. Internal and market projections see Crown’s main competitors losing substantial market share to Crown.
  • 4. Threats – Crown’s Macau enjoy significant local government support. In the case where licensing requirements represent less of a barrier to entry , competition could increase putting pressure on Crown’s market share.

References

Cadle, J., Eva, M., Hindle, K., Paul, D., Rollason, C., Turner, P., Yeates, D., … Cadle, J. (2014). Business Analysis. Swindon: BCS Learning & Development Limited.

Appendix

Porter’s 5 forces model

SWOT Analysis

Strengths Offer unique products as well as have strong image diversified locations  Weaknesses Very strong level of competition in the market segment weak customer environment
Opportunities increasing middle class competitors likely to lose significant market shareThreats Stiff level of competition could arise