External Environment Analysis for Alamo Group
Alamo consists of a group of companies which are primarily focused in design, manufacture, distribution, and service of world-class equipment used in the agricultural and infrastructural sectors. With its headquarters in Seguin, Texas, the brand has operations in US, England, France, Canada, and Australia and employs over 2340 people. Alamo group is a respectable brand due to its world-class operations in different lines of productions.
The use of innovative technology and methodologies has enabled businesses to produce innovative products to its vast clientele for over four decades. The expansion strategy for this business is purely on merger and acquisitions of more than twenty-five businesses within its line of operation. So far, the company is well established.
1. Demographic and Economics
Demographic factors are those traits that influence the behaviors or preferences of consumers. When venturing into businesses most businesses consider the taste and preferences of their target market to maximize on the sales and profits. The economic factors are concerned with monetary value of a company. Alamo Group is influenced to a greater extent by these factors. Some of the demographic factors include income, age, and geographic region.
Income is one crucial demographic factor that dictates the spending habits of a target market. The target market for Alamo Group is that of medium and high-income earners. The brand produces high-end products d that are only affordable to middle and high level class. The machines for agriculture are expensive but not entirely out of reach for the farmers because the company allows anyone to rent them for a specific duration they need them. Additionally, the cost of maintaining and servicing the machines is not low. The fact that the business is able to quickly adapt to technology and innovation makes their products and services valuable to their customers.
Well, not everyone is cut for the farm because it requires a lot of labor and hard work. The age factor is very critical to this business. However, the tools of trade makes it easy and less tedious for those clients involved in various agricultural and safety businesses. The group is able to cater for young people and the elderly because of the diversity in the products and services manufactured at the firm. Additionally, homeowners who largely constitute the elderly require mowing services among others to keep their homes clean. Young people are energetic and very keen on how their homes look like. Therefore, they are a good target for Alamo Group. When selecting a good market for its merchandise, the company is likely to market them to the youthful age bracket. Besides, when people advance in age, especially after they retire, they are likely to stay at their homes. This category is also a significant target market for Alamo.
c) Geographic Region
Another critical demographic factor that is affecting the sales of the Alamo Group is the geographic distribution of its customers. For example, in the U.S region the group makes higher sales because the company can meet the demands of the customers here unlike in other areas. Although the business in Canada is growing, the growth is minimal compared to other regions. Further, the business is entirely well distributed to serve the specific demands of the people within its areas of operation hence making it convenient for both the customer and the firm to make more profits.
The macroeconomic environmental factors such as inflation, interest rate, foreign exchange rate, and economic cycle determine the aggregate demand and investment in any economy. The industry competition culture also determines the strategic position the business chooses in order to gain a competitive advantage. For the Alamo Group, the firm can use the country’s economic factors such as inflation, growth rate, and industry economic factors such as Farm and Construction Machinery growth rate, consumer spending, among others to predict the growth of the business and compare its performance to that of the competitors in the industry. Some of the economic factors affecting this firm include;
a) Government Intervention in the Free Market and Related Industrial Goods
Considering the different countries the Alamo Group operates in, it is evident that government policies in the host countries affect their operations. For instance, with a hope of lowering the production costs, the various governments might choose to subsidize the cost of agricultural machines through partnerships with the firm(s) in the agrarian sector hence reducing the profit margin of the companies. Additionally, the government can influence the currency value of the host country through currency inflation which ultimately lowers the cost of the currency making operations in the nation unbearable for investors.
b) Exchange Rates and Stability of the Host Country Currency
Multinational companies use the currencies of the countries they are situated in. Alamo Group is a multinational corporation with operations in several states, and this makes it susceptible to exchange rate effects. High exchange rate for the local money means the company will spend more to convert the money to dollars, which is an expense to the company. The vice versa is true, which ultimately adds to the profit margins of the corporation. Exchange rate differences also have an impact on job prospects. Falling domestic currency boosts economic growth through making imports costlier but exports cheaper. In such an occurrence, consumers will opt to go for locally produced commodities due to their low prices. Such a scenario is likely to spur growth of Alamo Group and enable it to employ more employees. A strong domestic currency will curtail employment prospects by making lowering the rate at which the economy is growing.
c) Efficiency of Financial Markets
The corporation enters new markets through mergers and acquisitions a strategy that enables the business to lower the impact the financial markets would have assuming the company was to raise capital through the public issuance of shares in the capital market (Erramilli 264). This factor does not affect this business to a greater extent. However, it cannot be ignored nonetheless its subtle impact.
d) Infrastructure Quality in Farm and Construction Machinery Industry
Infrastructure is a critical factor for companies in the farm and construction industry because the machines will require moving from one area to another to help serve different clients within different geographical distributions. For instance, the cost of servicing and maintaining the tools is high in areas where the road network is sparse, and hence the client bears the final costs as the firms transfer these extra costs.
e) Skill Level of Workforce in Farm and Construction Machinery Industry
Areas where the skill level of the workforce is low, the firm spends additional resources to train the workers, and this process consumes time another resource the business may not have in their budgets. However, before establishing the firm in an area, it is essential that the firm research the clientele so that they know if they will require new skilled workforce to help in the machine operations in their preferred areas of the establishment (Nahmias & Olsen 29). A business entity such as Alamo Group prides itself in skilled workforce and invests heavily on training of its employees so this factor may not heavily weigh in on the firm.
In conclusion, demographic and economic factors play a major role in the growth of a business. Factors such as age, income, and geographic region determine the kind of clientele the business acquires and if the business will be in operation for a long time. People with low income are very sensitive to prices unlike those with a high disposable income. The age bracket also determines the spending habits of the consumers. The Alamo Group has a broad age distribution clientele because anyone can choose to venture into agribusiness and other agricultural related activities despite their age. Economic factors such as inflation, interest rates, and government interferences among other factors also directly affect the management decisions to venture into new horizons. Taxes imposed on manufactured and processed goods and services can negatively or positively influence the profit margins of the business making it favorable or not. Therefore, it is important that businesses do thorough research before going to international frontiers.
2. Political and Legal Environment
Political factors often play a critical role in determining the factors that directly influence Alamo Group in terms of long-term profitability in their specific country or market of operation. Operating farm and construction machinery in so many countries, the firm exposes itself to different forms of political environmental system risks. One advantage of such operations however, is that the business achieves diversification of these risks. Some of the political factors that businesses such as the Alamo Group should consider include;
Political stability and importance of Farm and Construction Machinery sector in the country’s economy. The agricultural sector is a critical part of any country’s economy because every government endeavors to feed its population. Therefore, the political stability of the country will attract more investors into the sector to help in production of adequate food supply to the population. An unstable political climate raise the concerns for investors and most shy away because the country is considered very risky (Gupta 13).
Bureaucracy and interference in Farm and Construction Machinery industry by the government of the host country may influence the operations of the business either positively or negatively. Most firms do not want to invest in countries where the government often interferes with their activities by imposing too many regulations. While some processes are easy to follow others, make it hard for investors to venture into the market. A simple, straightforward bureaucratic system encourages more firms to enter the industry raising the level of competition, which ultimately guarantees consumers quality products and services.
Trade regulations and tariffs related to industrial goods can be a turn off for corporations such as Alamo Inc. too many tax charges and trade laws restrict the operations of the business and do not offer a thriving environment for businesses. For instance, cases, where the trade laws discourage mergers and acquisitions, would make it difficult for Alamo to venture into various countries because purchases are their entry strategy.
The legal framework for contract enforcement that controls the minimum wage and overtime employee payments and other employee benefits may not favor the business. In regions where companies spend so much on labor, the industry discourages growth and investor relations are weak. While the employees should be compensated adequately for their skills and time, most firms would prefer to operate in countries where such agreements are open for negotiations between the firm and the employees instead of the government imposing such contract terms to them. To foster loyalty on the employees, a corporation such as Alamo has invested in several employee growths benefits a factor that makes the company successful.
Industrial safety regulations in the industrial goods sector may be too stringent for companies to adhere negatively affecting the relationship between the government and the company. Every firm involved in manufacture and production of industrial products and services is required by the federal law to have some specific measures of safety in place for both the society and its employees. Laws that safeguard the environment against pollution among other negative influences should be taken seriously. Product labeling and other requirements in Farm and Construction Machinery are different vital rules that businesses within this sector should put in place to safeguard the stakeholders.
Legal factors influencing a firm’s decisions of operations include all regulatory and law determinants that can affect the results of market actions and decisions of the management. In most of the countries, the legal framework and institutions are not as robust as investors would want them especially in matters of protecting intellectual property rights of an establishment. Firms should therefore carefully consider before venturing into such markets as it can cause legal constraints on the overall competitive advantage of a company (Ho 6480). Factors such as anti-trust laws in Farm and Construction Machinery industry, discrimination law especially during the recruitment process of employees, consumer protection and e-commerce, employment laws, health, and safety law, data protection laws, among others are critical for the overall operations of a business such as that of Alamo Inc.
It is critical that a business willing to expand its operations understand the necessary legal requirements from governing authorities to avoid legal suits that can be derailing and costly to the establishment. Accounting laws, for instance, vary from country to country among other issues. The management should be aware of the tax requirements for both the company and the employees, the general economic policy of the state, and all the laws and regulations connected to employee protection.
As seen from the above discussion on the legal and political factors, it is very crucial that businesses understand the impact these forces will have on their companies before venturing into new markets. Some of the legal issues such as accounting requirements can bring a business to its knees if the financial statements do not adhere to the laid down procedures and a legal suit is filed against the firm. The political environment is another major factor that an investor such as Alamo Group should consider. A politically stable country encourages international investors as they offer a stable economy for businesses to operate and grow unlike areas frequently hit by army invasions.
3. International Environment
Alamo Group, being a multinational company, is affected by international factors. According to Jankovic, Mihajlovic, and Cretkovic, the success of a company is determined by how well it adapts to the environment which it operates in (32). The authors continue to give a scenario of successful companies having the ability to adjust to changes in government policies (32) quickly. Alamo Group has a global presence as it has multiple plants spread globally in North America, Europe, Australia, and Brazil. Reuters reports that by December 31, 2016, the total number of plants in the regions mentioned above totaled to twenty-four. Alamo sells a majority of its products through dealers in the agricultural sector and other contractors. Various marketing organizations are tasked with the critical role of marketing the products. They include Terrain King, Schwarze, Henke, Bomford, Twose, and Rivard trademarks, among a host of other trade names. Throughout its international operations, Alamo Group is affected by several global factors.
a) Trade Barriers
Many countries impose trade barriers on imports while trying to regulate trade or cash in from global business. Some countries try their level best to protect their local industries by imposing heavy tariffs on imports. The agricultural sector has quite a good number of players producing commodities such as machinery to increase productivity. In the quest to acquire as many clients as possible, Alamo Group has to deal with many barriers such as high tariffs, ban on importation of certain commodities, and other policies which are a hindrance to international trade. Raising of tariffs affects profitability level of a company. At times, when the duties are too high, there is a high likelihood that a company will make losses. Alamo Group has an objective of maintaining its growth pattern through selling its machinery in nations which offer incentives and have favorable trading policies. Trading blocs are increasingly changing the volume of global trade. They also affect Alamo Group’s operations since they shape the trade patterns among member states and in the long-run, the result in controlling the import of agricultural and industrial merchandise from non-member states. The United States of America is not a member of all trading blocs in the world. Therefore, Alamo’s products are taxed higher in countries where the country is not a member state in an attempt to regulate the flow of international trade.
b) Technological Advancement
Currently, technology is evolving at a faster rate. Some machines are becoming obsolete within a couple of years due to the rapid advancement of technology. For instance, the construction industry is rapidly changing as newer and more efficient ways to build are being developed. Technology is also evolving at different rates among countries. China economy has been growing tremendously since the Asian nation revamped its technological stock. Other Asian economic giants such as Japan are also coming up with newer inventions in some of the areas where Alamo Group engages in. For example, to keep up with the ever-changing building industry, Alamo Concrete Company has to keep on reviewing its technological capability such as inventing more efficient construction machinery. The same case applies to the agricultural sector. Alamo Group has to keep abreast with the changing technology by being more aggressive on innovations and inventions mainly due to the immense competition it faces from other developed countries. Technological development has a strong influence on international trade as it affects the business compatibility through the usage of different technologies such as accounting systems.
c) International competitiveness
Developed countries in Europe and America are a threat to Alamo’s operations as their industries have world-class status. These companies produce superior products that match the quality delivered by Alamo, and in several instances, surpassing it. The competitiveness of these products is very high in the international market and only companies that are quick to satisfy their customers are in a position to withstand to maintain their sales volumes. Alamo Group has no choice rather than improve the quality of its products and master its marketing tools. This external factor has forced the company to change its production strategies to suit the global market trends. Competition in the international stage ensures that only the most suited companies survive and to tolerate it, Alamo has been forced to spend large sums of money to make its production lines more efficient.
d) Emerging Markets
Inarguably, globalization has led to international commerce. Nowadays, most business operations are becoming more virtually interlinked. The result of this interlinking has led to an immense force of force of a huge borderless market. More businesses are gaining global foothold leading to contradictions. For instance, as financial constraints reverberates in certain regions of the world, there is a potential being created on the other end. Such scenarios have been compounded by emerging markets. The number of manufacturing industries is on the rise. Besides competition for customers, these emerging firms also have to compete for raw materials for their industries. Alamo Group is facing this challenge of emergent firms in its lines of production. For instance, the increasing number of food seasoning companies has led to Alamo Cattle Company innovating ‘a special formula’ after years of mixing and re-mixing ingredients, to remain top of other companies (Alamo Cattle Group). An increase in competitors has led to Alamo Group facing stiff competitors for materials used in the manufacturing of industrial goods for the agricultural market.
e) Sustainability and the Environment
The world’s advocacy for environmental conservation is gaining foothold each day. Many environmentalists are coming out strongly to push for zero emission of carbon by firms operating worldwide. The ‘Go Green’ campaign is coming at a cost to companies such as Alamo. This is because the companies are being forced to abandon production techniques which degrade the environment through adoption of newer efficient methods which come at a cost. Alamo is spending a sizeable amount of money through funding the Sierra Club which is concerned with protecting endangered species, air quality, and transport sprawl (Sierra Club 2).
4. Social and Cultural Environment
The most successful of the businesses are aware of the changes in the tastes and preferences of its clients. Society and culture are dynamic, and companies must adapt to this dynamism to stay ahead of their competitors and remain relevant in the minds of the clients. In creating a marketing strategy for any business, it is very critical that the managers consider the social-cultural factors. These factors often interlinked although albeit different influence on the buying behaviors of the target market. Additionally, they significantly influence the buyer preferences and choices of the products. Alamo Group is no exception when it comes to the above factors impacting on its operations.
a) Education and Language
Consumers’ interests and sophistication is significantly affected by the level of education of people in a specific society. For instance in areas where the high level of prospective customers has some form of post-secondary education; businesses will use more details and explanations during advertising and promoting their products and services (Iles, and Sutherland 91). The case of Alamo Group is such that a diversified investor who understands these needs and demands of its clients. Most of the customers for this business are homeowners who want to design their homes in a certain way, probably according to a new trendy design in the market. Therefore, the company does not require investing so much in advertising various configurations but promoting the machines and tools; they can avail to the customers to achieve the design of their interest. This capability of understanding the sophistication demands of their customers is what has made Alamo group expand its business.
A brand such as Alamo Group uses different languages in advertising for their services because the style of the community is a critical factor for decision-making. It is vital to consider foreign language skills in the society when making marketing strategies and plans. Additionally, advertising in a language people relate to makes the prospective customers had better understand the services, mission, and vision of the business. Therefore, they want to associate with “their” company.
b) Social Organization
Social organization is mainly concerned with how a group of people considers kinship, status system, social institutions, and interest groups (Doole, Isobel, and Robin Lowe 71). For instance, in some societies, it is the role of women to make decisions regarding shopping and kitchen matters. Therefore, when a marketing manager and the strategic management team of Alamo companies meet, they have to keenly consider that fact when developing an advertising and marketing strategy. Groups of interests such as oil companies in Australia can also influence the society.
The social organization in the areas of operation of Alamo Group is one where men are more involved in farming, construction among other “men” activities. If the marketing and strategic planning departments of the corporation were to gain market share, it would be prudent to build its advertising strategy on men, a specific group of interest, or a leader with a massive following in the community. Due to population growth, the land for agriculture is no longer big as it used to be in the past. As a result, Alamo Group’s team would consider partnering with the local community to avail land, and they provide the machines. This kind of partnership can only happen through understanding the social organization and set up in the local society.
c) Reference Group and Family
Naturally, people are social beings, and chances are almost everyone has that one person who influences their decisions. This fact plays a crucial role in buyer preferences and tastes too. The family plays a critical role in the way members of a group adopt certain behaviors. Family members have varying needs and necessities. It is therefore crucial for the business to understand these dynamics if they are to make successful business plans and market their products.
A sophisticated family will want to reflect their lifestyle on the environment they stay and hence giving Alamo Group an edge in selling their products. Old people want to feel a sense of relaxation and tranquility as they probably enjoy their retirement days. Alamo Group knowing this can capitalize on that to offer this group a right environment through their mowing services and help in building them relaxation areas in their compounds. However, the management should be careful because these preferences vary from family to family as already put above. Ensure they discover the critical reference groups or family structure in a community so that they build marketing strategies on them.
d) Role and Status in Society
Purchasing patterns are influenced by the role and status that a person has in the society that they live in. Everyone plays a significant part in the community depending on his or her groups of association. High income earners are likely to spend more money on luxurious products to maintain their social status. On the other hand, it is highly probable that the low income earners will spend their earnings on fulfilling their basic needs. According to Ahmed, Khan and Samad, “Some consumers like spending all of what they earn without considering any critical event in mind, while on the other hand some consumers plan ahead and try to remain prepared for any critical event that may arise at any time in life” (6681). Essentially, knowing the income information of potential buyers gives the company an added advantage hence allowing it to implement successful marketing strategies
Corporations such as Alamo Group use income data for their potential clients to define their target market and make marketing strategies that include everyone within the group. For instance, the high-income earners want something that reflects prestige and luxury while those of lower incomes can only afford the basics. It is, therefore, the role of the company management to know and understand the different demands of their prospective clients when making advertisements and tailoring various services and products. A farmer who has invested in a greenhouse farm should be assisted based on their needs and not those of the large-scale open land farmer.
In conclusion, Alamo Group has to deal with the external factors which have a great on the company. These factors have a significant effect on its growth and profitability patterns. The demographic trends have a substantial impact on market size; the legal considerations are more concerned with laws that may positively or negatively promote the company. The social and cultural factors affect the business operations through affecting the target market consumption behaviors. Since Alamo is an international company, it cannot efficiently shield itself from international factors affecting businesses.