Case Study: Business Model for HP Company
It seems we are getting you some old stuff, but old is gold. Below is part of the proposed answer by our social media manager to his MBA comprehensive exam in the AAST (Dr. Sherif Delaware) in May 2009.
Its case was a new e-business unit within HP company in Egypt - a company that belongs to IT industry and is about to start e-business operations locally here in Egypt. MBA students were asked to analyze the environment (PEST and Porter) and to recommend the way HP should apply in Egypt.
1. The case mentioned that HP had developed complete solutions (including hardware and management) for developing nations.
2. The case emphasized on e-solutions and internet-related activities in developing nations and was requested namely to investigate HP operations in Egypt.
a. Threat of New Entrants
3. Opportunities and Threats
4. Financial Performance Analysis
7. Structure (High Degree of Decentralization)
NUMBER ONE: PEST Analysis:
· HP could invest heavily in human assets (employees) which can be easily transferred (traveling) in the case of nationalization.
· However, Egypt has some nice indicators:
o PM and most of the cabinet are belonging to IT industry (i.e. computer & electronics engineers), so they can easily understand the industry needs. PM meets CEOs of IBM and Microsoft. President Mr. Hosny Mubarak does as well.
o Most of the top middle managers in government do not have a big idea about management and its role in increasing efficiency and satisfaction. However, they all agree that IT would modernize the way of doing things.
o The government spends on IT. We see E-Gov., ICDL, Scholarships, NTRA, ITI, and Computer Centers.
o Many of IT experts and professors in leading universities and global companies are Egyptians and they would welcome working in Egypt as permanent residents or visiting professors.
o If Mr.Gamal Mubarak applied for presidency elections and won, IT industry would be the most industries that would benefit from a young man used to use IT products/services (in the UK and in his work in financial markets).
· Due to the financial crisis, interest rates in the USA are almost zero, so HP can borrow from US banks to finance its operations in Egypt.
· While national GDP of Egypt has decreased due to the financial crisis, IT sectors enjoyed a growth rate of two digits. The financial crisis forced major companies to re-engineer their outsourced services including IT services. Businessweek listed Cairo (includes 6th of October City) as number TEN of the most promising cities to outsource IT there.
· While Egypt is known for the majority of low-to-medium purchasing power, IT sector (services provided by HP and e-commerce) usually target both governmental entities and business corporations. Hence, relatively high inelasticity of demand occurs especially with the presence of few companies.
· Egyptian IT Industry offers attractive salaries since it enjoys higher profit margins. It does not offer jobs for only language faculty graduates, but of course for engineering & computer science majors which are most popular among college students.
· Many Egyptians do not trust local internet website [in commercial transactions] unless it has physical existence representing the company. Even if you offered services online and allowed customers to enjoy them then to pay you, you will get the same result: Failure unless you established physical location with known address.
· 50% of Egyptian populations are below age 40. Almost 20% of the Egyptian populations are below 20. This is a very important factor.
· 1.3 million Egyptians (and foreigners living in Egypt) have accounts on Facebook.
· While infrastructure in Egypt is very competitive, it suffers in Upper Egypt.
· There are 6 million internet users of both phone lines and DSL.
· Increasing of submarine cables is currently occurring after the increase of both internet usage and contact centers.
· In Great Cairo, it is commonly seen to see luxury compounds suited with IT services including wireless TV & the Internet.
· Absence of copyright protection laws.
NUMBER TWO: Porter Five Forces:
The threat of New Entrants:
While the market has high growth potential, there are vacancies for new companies to enter. However, almost all large companies are here in Egypt. Egypt has unique criteria, that is E-solution customers are mostly governmental entities and large corporations. However, I predict that after a decade with the increase of e-applications and increase of users, many Malaysian & Chinese companies would compete in Egypt since they would offer lower prices.
Most of the provided services include a small portion of tangible products (i.e. PCs). However, since HP applies vertical integration, so its supplier in Egypt will be most probably HP itself.
We agreed that the services and products that would be offered by HP here in Egypt are having a relatively inelastic price of demand.
The threat of Substitute:
IT solutions for large corporations & gov. entities have no substitute. The only substitute is the paperwork which is not logic for the organization in the age of the flat world.
No rivalry among competitors since they have large growth potential. No price cutting is occurring at all.
1. Industry Governmental Support.
2. Financial Crisis (Outsource to Egypt).
3. No players in rural areas.
4. Competitive salaries (Attractive Industry).
5. Young population growth.
1. Political Instability.
2. The absence of e-commerce culture.
3. No IT knowledge in rural areas.
4. Weak copyright protection laws.
5. Relatively expensive prices IT systems for individuals and small companies.
ü Invest in human assets & rent premises to overcome Threat1.
ü Use Opportunity5 with awareness building to overcome Threats 1 & 3.
ü With growth, Threat5 will be eliminated.
ü Use Opportunity1 and public relations with lawmakers to involve in approving protection laws.
ü Invest in human assets to overcome Threats 1, 2 & 3 and to benefit from Opportunity3.
ü Use Opportunities 2 & 4 to re-locate some IT services to Egypt to be able to enjoy Opportunity6 (if feasible).
NUMBER FOUR: Financial Performance Analysis:
One page only for Both cash & profit ratios.
Due to very low cash ratios, R&D investments in Egypt are not advised to HP since it will absorb bulk amounts of cash.
NUMBER FIVE: Competitive Strategy:
Differentiation [Vertical Growth]; because of few competitors and high growth potential.
Short Term Goals (2009-2014):
1. Focus on governmental authorities and large corporations.
2. Initiate campaigns to build awareness.
3. Invest in human assets.
4. Involve in protection laws making via PR with government legislation.
Medium Term Goals (2014-2019):
1. Enjoy more e-projects.
2. Enjoy higher demand due to the growth of young and awareness.
3. Relocate non-manufacturing R&D activities to Egypt.
Long-Term Goals (2019-2024):
1. Move to Africa (if feasible).
2. Enjoy loyalty while competition increases due to population growth.
3. Consider relocating factories to Egypt.
Product: Quality, reliable & durable. Training for clients' employees is important because most of them are adults with little knowledge of IT.
Price: HP can charge premium prices. IT services are new to Egypt, so technical differences are relatively difficult to be found among competitors.
Web site (Section for Kids and Students)
Personal Selling to visit clients
NUMBER SEVEN: Structure (High Degree of Decentralization):
Layer 1-Regional Manager; Egypt
Support & Troubleshooting
Educational Institutes & Governmental Authorities
Clients' Employees Training Dept.
Generally, the growth of sales and market share.
For awareness department, I suggest that HP offers a certain popular product [i.e. mobile phones] of lower price ONLINE (with loss L.E 50/each unit) in order to encourage youth and people to practice e-trading viathe internett.
For sales department, I suggest to add watching science fiction movies that discuss electronics & IT applications to KPIs.
