Marketing Research
The cement market consists of any activity that is aimed at the manufacturing and distribution of cementitious material. Companies usually provided aggregates such as gravel and sand. Customer-specific products such as ready-mix concrete and asphalt are also part of the market. The market consists of several global manufacturers and distributors such as Cemex, Heidelberg, and Lafarge as well as regional power players (Allied Market Research, 2017). There are a lot of barriers to entry into the industry and new markets. The market is expected to annually increase in demand, thus exceeding available supply and capacity in emerging markets. The industry strongly relies on the construction and building activity since concrete and mortar are the most common cement products used for this purpose. However, the cement manufacturing sector is strongly influenced by government regulation and macroeconomic, financial trends (Transparency Market Research, n.d.).
External Environment Scan
Table 1. PESTEL Analysis. (self-generated).
| PESTEL Analysis | |
| Political | Governments control various critical aspects regarding the cement industry. Raw materials and energy sources such as coal are usually price regulated. Tariffs may apply during the transportation of copious quantities of material such as cement. The excise tax is applied to production. |
| Economic | The industry is dependent on the GDP and economic growth in a region. Infrastructure development is based on economic factors. Economic recessions and stagnation decrease market demand. |
| Social | The industry consists of a sizeable organized sector and small private companies. Low-level consumers may choose to buy from local businesses rather than branded cement. |
| Technological | New technologies are necessary to improve the quality of cement while decreasing energy use. Every aspect of cement manufacturing is technologically based. Impact on cost and value chain structure in the industry. |
| Environmental | Regulations and trends for sustainability require the use of alternative fuels and materials. Necessary to decrease pollution from cement production. Climate change calls for sustainable methods of production and changing attitudes towards cement usage in developed countries. |
| Legal | Government regulation may limit growth or force restructuring of assets during entry into new markets, particularly through acquisition such as when Cemex purchased Rinker in the U.S. Adherence to various laws regarding safety, quality, and anti-trust. |
Table 2. Porter’s Five Forces Analysis. (self-generated).
| Porter’s Five Forces Analysis | |
| Industry Rivalry | The industry is extremely competitive as global and regional corporations are seeking to maintain control of the cement market and compete for any arising demand. There is an insignificant variation to the product for companies to differentiate themselves. |
| Buyer Power | The cement industry is fully dependent on buyers of the material. Therefore, buyers hold a lot of influence and are strongly valued by cement manufacturers. It is common and profitable to hold close contractual relationships with major buyers that will use the cement for their construction projects. |
| Supplier Power | Many companies have independent limestone and coal reserves necessary for production. Suppliers usually do not have a significant impact on the industry other than the price of raw materials, which in turn may raise prices for cement products. |
| Threats of New Entry | There are significant barriers to entry on any noticeable or global scale since the market is oversaturated with competition for essentially a similar product. The economies of scale are difficult to achieve with numerous regulations in place. |
| Threats of Substitutes | Practically all cement is similar in substance and production techniques, available to any major companies and has not been modified for decades. There are minor variations in quality or materials used according to the customer’s needs. Overall, cement as a construction material has no direct substitutes (IBEF, 2017). |
Market Size and Growth
In the last several decades, the cement industry has experienced globalization. It is a competitive market in established and developed economies. Countries or whole regions may become more susceptible to the cement market growth due to the level of demand or the availability of raw materials. Emerging markets such as India, China, Brazil, and Eastern Europe are approximately 70% of the global cement demand with the other 30% being North America (Lafarge, 2007). The global market was valued at $6.56 billion in 2016 and is expected to grow to $8.3 billion by 2023 at 3.4% CAGR (Allied Market Research, 2017). The global Portland cement market is set to reach 5.2 billion tons in 2020 (Transparency Market Research, 2017). The U.S. cement industry has experienced growth in the last several years, due to increased demand by a slowly revived construction sector. In 2012, the U.S. customers purchased 76.6 million metric tons of cement for approximately $7.5 billion worth of shipments which is a 9.1% increase year over year (Portland Cement Association, 2013). This shows that the market offers the potential for increased growth but should be closely monitored for activity in the construction sector which is closely correlated to economic development.
Market Trends
Due to declining expansion in China and low oil prices, the construction industry has experienced stagnation in 2015. The cement market declined by 5.4% after experiencing a 4.3% growth in the previous three years. 2016 saw a modest 0.8% growth with a gradual increase in the following years (Cision, 2016). Cement is increasingly being used in a variety of construction applications including infrastructure and application. The importance of Portland cement in these applications will perpetuate growth on the global market. The need for grouts and mortars in the production of roadbeds, foundations, plasters, and screeds will increase demand (Transparency Market Research, 2017).
Environmental sustainability remains a key trend in the global cement industry. It is exemplified by several practices. The use of alternative fuels is encouraged to reuse and recycle waste during the cement production process which traditionally uses coal to operate the cement kiln. Innovative progression in terms of development is required to become sustainable. Large production volumes of cement produce significant air pollution. Therefore, the trend is to develop a type of cement with high-operating efficiency with a decreased environmental impact. Furthermore, there is an increased demand for “green” cement which is derived from alternative fuels and recycled materials, while adhering to environmental regulations for sustainability (Business Wire, 2017).
Target Market
Cemex’s global export strategy is focused on optimizing capacity utilization by diverting resources from markets showing signs of stagnation to ones experiencing demand growth, thus maximizing profits (Securities and Exchange Commission, n.d.). The company can be financially proactive by observing macroeconomic drivers be an early entrant as a supplier at a target location. Cemex maintains a strategy of differentiation by providing cement with a high-operating efficiency at a low cost. It positions its strategy as not merely as a provider of raw building material, but as an opportunity for development. Cemex should pursue emerging markets and locations as their target. There has been a significant focus worldwide on creating infrastructure in areas that have not been traditionally booming markets for cement. In the United States, that may be rural areas or locations with aging infrastructure that needs critical replacement.
The target market should be picked based on the most lucrative regional segment, using economic forecasts for growth and development. The interdependence of cement sales with the construction industry requires focusing on locations with rapid urbanization and socio-economic improvements which would drive up the demand. Large commercial projects that are tied to government contracts or events (such as Olympics) increase possibilities within a given target market. The Asia Pacific, as well as North America, are predicted to emerge as the most profitable market segments for Portland cement (Transparency Market Research, 2017).
Market Segments
Construction remains the primary sector of demand in the cement industry. It can be divided into major segments of civil engineering (industrial), residential and commercial projects, or renovation (Lafarge, 2007). The market is usually segmented by region and countries, with Asia-Pacific expected to see a 4.3% CAGR growth. The type of cement also segments the cement market. White Portland cement is the primary product, maintaining a market share of approximately 50%. White masonry cement has approximately a 30% market share with a CAGR growth of 2.6%. Other types such as Calcium Aluminate cement only hold a small share of the market since white cement is more applicable, both practically and aesthetically, at a lower cost (Allied Market Research, 2017).
Customer Analysis
The cement industry has a wide variety of customers, some of which include concrete producers, pre-cast concrete producers, contractors, and builders. There are also small-scale purchases by masons and renovators. Customers may have varying requirements for the cement performance and characteristics based on the type of construction or project. There has been an increasing trend for cement produced using energy-efficient methods with low environmental impact. Order purchases are usually placed in large volumes or per contract basis over some time (Lafarge, 2007). Cemex strives to meet customer demands according to their construction needs. Cooperation with clients is based on manufacturing and engineering expertise which the company provides so that the product will meet the requirements outlined by the customer.
References
Allied Market Research. (2017). White cement market by type (white portland cement, white masonry cement, and others) and by end use (residential, commercial, and industrial) – global opportunity analysis and industry forecast, 2017-2023.
Business Wire. (2017). Cement market – trends and forecasts by technavio.
Cision. (2016). The global concrete and cement market key trends and opportunities to 2020.
IBEF. (2017). Cement.
Lafarge. (2007). Information on Lafarge. Web.
Portland Cement Association. (2013). Cement industry overview.
Securities and Exchange Commission. (n.d.). Certain information with respect to Cemex. Web.
Transparency Market Research. (2017). Global portland cement market: Increasing infrastructure development projects to fuel demand, says TMR– 2024.
Transparency Market Research. (n.d.). Cement market – global industry analysis, size, share, growth, trends, and forecast 2016 – 2024.
JD Sports And Sports Direct Companies Financial Management
Introduction
This paper is divided into two sections. The first part will focus on the financial analysis of two companies, JD Sports Fashion PLC and Sports Direct International PLC. Both are based in the UK but have a presence in other parts of the world and both trade in leisure and sports apparel. As part of the analysis, ten ratios will be calculated for each company. These ratios will then be interpreted, and a recommendation will be made on which company to invest in.
Various ways of improving the performance of the poorly performing company will be suggested. Finally, the limitations of ratio analysis will be discussed. The second part of the paper will focus on capital investment appraisal. Three techniques will be used to appraise two projects, and a recommendation will be made on the most viable project to invest in. Finally, the limitations of using capital appraisal techniques will be discussed.
Financial Analysis
Ratio Analysis
Table 1. Calculation of Ratios.
| JD Sports Fashion PLC | Sports Direct International PLC | |||
| 2016 | 2015 | 2016 | 2015 | |
| Current assets | 510,695 | 400,259 | 1,311,437 | 878,297 |
| Inventories | 238,324 | 106,336 | 702,158 | 517,054 |
| Debt | 6575 | 36,789 | 333,832 | 138,053 |
| Current liabilities | 348154 | 232960 | 540,608 | 382,621 |
| Total equity | 400,825 | 444,078 | 1,384,728 | 1,161,551 |
| Cost of sales | 937,431 | 782,703 | 1,619,681 | 1,591,748 |
| Gross profit | 884,221 | 739,550 | 1,284,644 | 1,240,812 |
| Revenue | 1,821,652 | 1,522,253 | 2,904,325 | 2,832,560 |
| Operating profit | 133,406 | 92,646 | 223,178 | 295,581 |
| Profit for the period | 100,630 | 69,755 | 278,981 | 241,353 |
| Dividends | 13,820 | 13,260 | 0 | 0 |
| Ratios | ||||
| Current ratios | 1.47 | 1.72 | 2.43 | 2.30 |
| Quick ratios | 0.78 | 1.26 | 1.13 | 0.94 |
| Gross profit margin | 48.5% | 48.6% | 44.2% | 43.8% |
| Operating profit margin | 7.3% | 6.1% | 7.7% | 10.4% |
| Net profit margin | 5.5% | 4.6% | 9.6% | 8.5% |
| Gearing ratios (debt/equity ratio) | 2% | 13% | 24% | 12% |
| Earnings per share | 50.16 | 35.17 | 46.8 | 40.6 |
| Return on capital employed | 29.70% | 25.50% | 19.89% | 22.53% |
| Average inventory turnover period | 93 days | 106 days | 158 days | 119 days |
| Dividend payout | 13.7% | 19.0% | 0% | 0% |
Analysis of Performance
The liquidity of both companies will be evaluated using the current and quick ratio. These two ratios give information on the ability of a company to meet immediate obligations using short-term assets. They also measure a firm’s ability to manage working capital. The current ratio for JD Sports Fashion PLC dropped from 1.72 in 2015 to 1.47 in 2016, while the quick ratio decreased from 1.26 in 2015 to 0.78 in 2016 (Figure 1). This signals a decline in the liquidity level of the company.
On the other hand, the current ratio of Sports Direct International PLC rose from 2.30 in 2015 to 2.43 in 2016. Similarly, the quick ratio rose from 0.94 in 2015 to 1.13 in 2016 (Table1). The liquidity position of the company improved (Figure 2). A comparison of the two companies shows that Sports Direct International PLC has a better liquidity position than that of JD Sports Fashion PLC.
The second category of ratios that will be analyzed is profitability. This set of ratios gives information on the earning power of a company. That is how a company can successfully generate revenues and convert them into profit. Therefore, the ratio analyzes the efficiency of pricing strategies that are used by a company and the effectiveness of cost management. The ratios that will be analyzed within this category are returned on capital employed, gross, operating, and net profit margin.
The gross profit margin for JD Sports Fashion PLC dropped slightly from 48.6% in 2015 to 48.5% in 2016. This decline can be explained by the fact that the cost of sales grew by a higher proportion than revenue. A disproportionate increase in the cost of sales can be caused by factors that are exogenous to the company. The decrease in the value of the ratio indicates that the profitability level dropped. The operating profit margin for the company improved from 6.1% in 2015 to 7.3% in 2016.
This can be attributed to growth in both operating profit and revenues. It shows an improvement in the ability of the company to manage operating expenses and to generate revenue for non-operating segments. The net profit margin also increased from 4.6% in 2015 to 5.5% in 2016. Finally, return on capital employed rose from 25.50% in 2015 to 29.70% in 2016 (Table 1). The values were high, which imply a high profitability level.
This ratio gives information on the efficiency of the company is using the available resources to generate revenues and profit (Horner 2013). Thus, profitability ratios for JD Sports Fashion PLC had an upward trend except for gross profit margin (Figure 3). These findings signify an improvement in profitability.
In the case of Sports Direct International PLC, the gross profit margin increased from 43.8% in 2015 to 44.2% in 2016. This can be explained by the fact that the revenues grew by a higher proportion than the cost of sales. The growth signifies an improvement in managing pricing and costs of sales. The operating profit margin dropped from 10.4% in 2015 to 7.7% in 2016. This was mainly caused by a significant increase in selling, administrative, and general expenses as a result of an expansion program.
Recently, the company has been expanding into the upmarket segment. This has contributed to a significant increase in operating costs. This ratio is vital because it shows how profitable the core operating segment of a business is. The net profit margin dropped from 8.5% in 2015 to 9.6% in 2016. This signifies an improvement in profitability. The growth can be explained by the significant income that was earned from investments.
The return on capital dropped from 22.53% in 2015 to 19.89% in 2016. This can be explained by the growth in capital employed. The decline can be an indication that the company did not effectively use the available resources to generate profit. Thus, only the gross and net profit margin improved (Figure 4).
A comparison of the profitability ratios for the two companies reveals that JD Sports Fashion PLC had higher values of gross profit margin and return on capital employed. On the other hand, Sports Direct International PLC had higher values of operating and net profit margin. The profitability for Sports Direct International PLC seems to be erratic, while for JD Sports Fashion PLC they are increasing.
The gearing ratios give information on the proportion of debt and equity that is used by a company. They focus on the capital structure of a company. The ratio is important to investors and debt providers because too much debt can reduce the amount of profit that is attributed to equity providers. In addition, it can affect the solvency of the company. Therefore, a company needs to maintain an optimal balance between the two sources of funding.
The debt to equity ratio for JD Sports Fashion PLC dropped from 13% in 2015 to 2% in 2016. This shows that the amount of debt used by the company decreased. On the other hand, the debt/equity ratio for Sports Direct International PLC had an upward trend (Figure 5). The values rose from 12% in 2015 to 24% 2016. The increase was caused by a £700 million refinancing loan and £915 million that was borrowed for opening up new stores (Sports Direct International PLC 2017).
Thus, it can be observed that Sports Direct International PLC has a higher gearing level than that of JD Sports Fashion PLC. The two companies have a low debt to equity ratios. They still have an opportunity to expand their operations through borrowing.
The earnings per share (EPS) for the two companies improved during the two year period (Figure 6). The EPS for JD Sports Fashion PLC rose from 35.17 pence in 2015 to 50.17 pence in 2016. Further, the EPS for Sports Direct International PLC increased from 40.6 pence to 46.8 pence. This ratio gives information on the amount of profit that is assigned to each share. A higher value of the ratio is preferred to lower values because they indicate a higher profitability level.
The average inventory turnover period measures the efficiency in handling inventory. That is the rate at which a company restocks. A higher rate is often preferred to a lower one because it signifies an elevated level of efficiency.
Further, some goods, such as perishable commodities, are likely to have a high turnover rate. The average inventory turnover period for JD Sports Fashion PLC dropped from 106 days in 2015 to 93 days in 2016 (Figure 7). Thus, the duration it takes before the company refill stock reduced, signifying an increase in efficiency (Nobes 2014). In the case of Sports Direct International PLC, the value of the ratio grew from 119 days in 2015 to 158 days in 2016 (Table 1).
This shows a reduction in efficiency because the company took a longer period before it replenished stock in 2016. Thus, JD Sports Fashion PLC had a higher efficiency level in stock management than Sports Direct International PLC.
The dividend payout ratios measure the proportion of net earnings that is paid out as a dividend. A low ratio indicates that a company retains a large proportion of net income. The dividend payout ratio for JD Sports Fashion PLC had a declining trend (Figure 8). The values dropped from 19% in 2015 to 13.7% in 2016. This decline can be attributed to the fact that the net earnings increased at a higher rate than the total amount of dividend that was paid. Thus, the proportion of net income that was retained in 2016 grew (JD Sports Fashion PLC 2017). Sports Direct International PLC did not pay out any dividends in 2015 and 2016.
Conclusion
A comparison of the performance of the two companies shows that JD Sports Fashion PLC had a better overall performance than Sports Direct International PLC. The company had growing values of profitability. Further, the gearing level was low. In addition, earnings per share were high and increasing. The efficiency in managing inventory was favourable. Finally, the company paid dividends in 2015 and 2016. The liquidity ratios were low.
However, the company is still able to meet immediate financial obligations. Thus, if this trend persists, the company is expected to perform even better in the future. Sports Direct International PLC had erratic and unpredictable performance. Therefore, based on this financial analysis, an investor should consider buying the shares of JD Sports Fashion PLC.
Recommendations on how to Improve Performance
There are a number of ways the performance of Sports Direct International PLC can be improved. First, the management could come up with effective ways of managing operating costs. This should be done to ensure that adequate profit is generated from operating activities. In addition, the costs of expanding their operations should be managed to ensure that it does not distort the trend of the bottom line. Further, the use of debt to finance operations should be done cautiously so that it does not significantly affect the capital structure and profitability. Finally, the management of the company needs to review its inventory management policies.
This should be done with an aim of ensuring that the inventory turnover is improved. This can be achieved by reducing the reorder quantity. A high inventory balance increases storage costs and wear and tear. Therefore, there is a need for the company to understand its market segment and know the rate at which the stock moves. Thus, reorder levels and quantity should be set to match the speed of stock movement.
The Limitations of Using Financial Ratios
Financial ratios are appropriate tools for analyzing the performance of a company. They allow for comparison of performance from one period to another. They also enable an analyst to compare performance of various companies. Even though ratio analysis is widely used, it has a number of limitations. First, financial ratios only make use of quantitative data. Thus, it ignores the qualitative aspect of performance.
Therefore, it is not comprehensive. The second drawback of this technique is that the operations of various companies often cut across different industries. Therefore, it is difficult to come up with industry average ratios that can be used for analyzing these companies. Another limitation of ratio analysis is that inflation distorts the values that are reported in the financial statements. This limits the ability to effectively compare performance over a period.
For instance, if the inflation rate is 10%, profit can appear to have increased by the same percentage yet this is not an actual increase. Another limitation of this technique is that it ignores the fact that companies use different accounting policies to prepare their financial statements. This makes it impossible to compare the performance. For instance, if a company records net sales while another company uses gross sales, then the sales values of these two companies are not comparable. Another limitation is that if ratio analysis is not done thoroughly, then it may not unearth the possible use of ‘window dressing’ to manipulate the financial results.
A business owner can carry out some transactions at the end of a financial period with an aim of altering the anticipated results. Thus, an in-depth, considered ratio analysis should be carried out to provide any useful insights and information. Finally, interpreting the ratios can be a challenge. For instance, it is not easy to generalize a ratio as either good or bad because various factors need to be put into perspective in any analysis.
Capital Investment Appraisal
Investment Appraisal Techniques
Depreciation expense
Machine 1
- = (£170,000 – £20,000) / 6
- = £25,000
Machine 2
- = £170,000 / 6
- =£28,333
Table 2: Workings for Project A.
| Project A | ||||||
| Machine 1 | ||||||
| Net profit | Depreciation | Cash flows | Cumulative cash flows | Discount rate at 20% | Discounted cash flows | |
| 2017 | 65,000 | 25,000 | 90,000 | 90,000 | 0.8333 | 75,000.00 |
| 2018 | 65,000 | 25,000 | 90,000 | 180,000 | 0.6944 | 62,500.00 |
| 2019 | 65,000 | 25,000 | 90,000 | 270,000 | 0.5787 | 52,083.33 |
| 2020 | 55,000 | 25,000 | 80,000 | 350,000 | 0.4823 | 38,580.25 |
| 2021 | 55,000 | 25,000 | 80,000 | 430,000 | 0.4019 | 32,150.21 |
| 2022 | 45,000 | 25,000 | 70,000 | 500,000 | 0.3349 | 23,442.86 |
| Residual value | 20,000 | 20,000 | 520,000 | 0.3349 | 6,697.96 | |
| Total | 290,454.60 | |||||
| Initial investment | -170,000 | |||||
| Net present value | 120,454.60 | |||||
Payback period
- = 1 + (80,000 / 90,000)
- = 1 year and 11 months
Accounting rate of return
- = ((25,000 + 35,000 + 45,000 + 75,000 + 85,000 + 65,000) / 6) / 170,000 * 100
- = 55,000 / 170,000 * 100
- = 32.35%
Table 3: Workings for Project B.
| Project B | ||||||
| Machine 2 | ||||||
| Net profit | Depreciation | Cash flows | Cumulative cash flows | Discount rate at 20% | Discounted cash flows | |
| 2017 | 25,000 | 28,333 | 53,333 | 53,333 | 0.8333 | 44,444.42 |
| 2018 | 35,000 | 28,333 | 63,333 | 116,667 | 0.6944 | 43,981.46 |
| 2019 | 45,000 | 28,333 | 73,333 | 190,000 | 0.5787 | 42,438.25 |
| 2020 | 75,000 | 28,333 | 103,333 | 293,333 | 0.4823 | 49,832.80 |
| 2021 | 85,000 | 28,333 | 113,333 | 406,667 | 0.4019 | 45,546.11 |
| 2022 | 65,000 | 28,333 | 93,333 | 500,000 | 0.3349 | 31,257.03 |
| Residual value | 0 | 0 | 500,000 | 0.3349 | 0 | |
| Total | 257,500.07 | |||||
| Initial investment | -170,000 | |||||
| Net present value | 87,500 | |||||
Payback period
- = 2 years + 53,333.3 / 73,333.3
- = 2 years and 9 months
Accounting rate of return
- = ((65,000 + 65,000 + 65,000 + 55,000 + 55,000 + 45,000) / 6) / 170,000 * 100
- = 58,333.33 / 170,000 * 100
- = 34.31%
Discussion and Conclusion
The net present value of project A is £120,454.60 (Table 2), while for project B it is £87,500 (Table 3). A project is selected if it has a positive net present value. In this case, the two projects have met the threshold. Therefore, they are both viable. However, project A and B are mutually exclusive. Therefore, the project with the highest value of net present value will be preferred because it promises elevated returns.
In this case, Project A will be selected for investment. Project A has a payback period of 1 year and 11 months, while project B has a payback period of 2 years and 9 months. Based on such criteria, a project with a shorter payback period will be selected because it will ensure that the initial investment is recouped within the quickest amount of time. Therefore, Project A will be considered for investment. Finally, the accounting rate of return for Project A is 32.35%, while for Project B it is 34.31%. Project B will be preferred here because it has a higher value of the accounting rate of return. However, overall, Project A will be selected because it promises higher returns and it has a shorter payback period (Warren, Reeve & Duchac 2013).
The Limitations of Using Investment Appraisal Techniques
The use of various investment appraisal techniques has gained popularity in evaluating the viability of a project. However, the three techniques that are used above have a number of limitations. A major drawback of the payback period criterion is that it does not take into account the effect of the time value of money. Secondly, this specific criterion does not use cash flow that occurs after the payback period. Therefore, the risks of future cash flows are ignored, and there is no concrete decision rule on whether a project can improve the value of a company.
The accounting rate of return also has several of limitations. The first limitation is that it does not take into account the timing of receipts from a project. Thus, it assumes that a project will generate stable profit throughout its entire life. Secondly, the accounting profits are subject to different accounting policies. In addition, accounting profit is often affected by non-cash items such as depreciation. Also, this criterion does not take into account the idea of discounting. Therefore, the concept of time value of money is not used.
Net present value is also considered to be one of the more superior techniques for appraising projects. However, it also has limitations. First, the use of this criterion requires a prior determination of cost of capital. The net present values are quite sensitive to changes in the discount rate. For instance, the use of high discount rates can lead to low or negative values of net present values. Therefore, it is difficult to come up with the most appropriate discount rate. Finally, this criterion does not consider the timing of cash flow (Brigham & Ehrhardt 2016).
References
Brigham, E & Ehrhardt, M 2016, Corporate finance: a focused approach, 6th edn, Cengage Learning, Boston, MA.
Horner, D 2013, Accounting for non-accountants, 9th edn, Kogan Page Limited, Philadelphia, PA.
JD Sports Fashion PLC 2017, 2016 annual reports and accounts. Web.
Nobes, C 2014, Accounting: a very short introduction, Oxford University Press, Oxford.
Sports Direct International PLC 2017, Annual reports and accounts 2016. Web.
Warren, C, Reeve, J & Duchac, J 2013, Financial & managerial accounting, 12th edn, Cengage Learning, Boston, MA.
Selecting A Viable Foreign Market And TV Advertising
Selecting a foreign market
The ability to select a viable foreign market is a crucial undertaking whenever there is need to expand and diversify operational strategies. Before expanding to foreign markets, it is vital to consider the level of demand for products being marketed by an organization. Market demand is an essential selection criterion when diversifying into foreign markets (Hirt & Block, 2012). Both the world imports and domestic production in the targeted foreign market should be put into account when assessing demand level. When demand is evaluated appropriately, it is possible to understand both the growth rate and size of the targeted market in a foreign location. A decreasing market size may not be suitable for expansion purpose. On the other hand, a foreign market that has been growing for a number of consecutive years is bound to generate the much-needed demand for new products. In any case, a product receptivity into a new market largely depends on its demand.
Second, the level of competition matters a lot when seeking to diversify in a foreign market (Moen, Bakås, Bolstad & Pedersen, 2010). It is necessary for the management team in an organization to clearly understand the degree of competition in a targeted market before making the final decision. Some of the factors worth considering under this domain include loyalty of consumers, methods and channels of distribution used by competitors, quality of products supplied by competitors as well as their pricing strategies.
The team charged with the diversification task should also perform an assessment on how the selected country performs in various sectors of the economy. Some of the important indicators entail consumer demographics, per capita income and population. Other key factors to consider include trade barriers, political risk, distribution accessibility, climate and location, infrastructure, environmental concerns, intellectual property protection, currency convertibility, cultural knowledge, and the existing legal environment.
TV advertising
Although other modern forms of advertising have emerged, TV advertising is still vibrant in promoting goods and services in various targeted markets. Quite a large segment of the global population obtains information from Television sets. For instance, TV offers a ready platform for entertaining viewers who are spread across a wide geographical area (Kotler & Keller, 2012). In most cases, it is possible to bombard the audience with advertising news even when they are not prepared for it. Since TV advertising entails both audio and visual aspects, it remains as one of the most effective channel of advertising goods and services.
The advent of cable TV was once thought to be a major threat in effective TV advertising. However, this has never been the case. Since digital TV broadcasting has become mandatory across several nations in the world, the audience can still be reached through the cable TV just as it used to be with analogue broadcasting. It might not be true to argue that TV viewership is losing its value to the public because some households even prefer owning two to three sets.
Kotler and Keller (2012) argue that advertising through TV is a rather expensive undertaking. Nevertheless, embedded advertisements can still be incorporated in movies displayed in TVs. Movies that were once in theaters tend to attract viewership of TVs. In other words, when such theater movies are played on TVs, it is possible to attract and retain the attention of a large audience. To a large extent, TV advertising is the most appealing platform for marketing goods and services (Prakash, 2012). In regions where other forms of advertisements (such as billboards, internet and radio) are not accessible, TV comes in handy in marketing goods and services.
References
Hirt,G. & Block, S. (2012). Fundamentals of investment management. (10th ed.). New York, NY: McGraw-Hill Irwin.
Kotler, P., & Keller, K. (2012). Marketing management (14th ed.). Upper Saddle River, N.J.: Prentice Hall.
Moen, Ø., Bakås, O., Bolstad, A., & Pedersen, V. (2010). International market expansion strategies for high-tech firms: Partnership selection criteria for forming strategic alliances. International Journal of Business and Management, 5(1), 20- 30.
Prakash, S. (2012). A study on the effectiveness of advertising through TV channels. International Journal of Applied Services Marketing Perspectives, 1(2), 101-106.