External Analysis of Virgin Group

1 External Analysis of Virgin Group Introduction The Virgin Group is recognized globally for its success in diverse business ventures and industries. It is a conglomerate comprising over 200 companies in various countries and continents; the largest of which are Virgin Atlantic, Virgin Holidays, Virgin Rail and Virgin Cola, among others. The group was founded in 1979 by Richard Branson and has over the years continuously achieved growth and success due to its ability to acclimatize to its external environment as well as id ability to develop suitable strategies to ensure its growth and sustainability. This paper provides a report of Virgin Group’s external and industry influences which impact the strategy of the firm using the PEST and Porter’s Five Forces Model frameworks.

PEST Political Factors Political factors may either be conducive for the growth and success of a firm, or act as a barrier. Being a global venture capital conglomerate, the Virgin Group is required to follow the rules and regulations of the countries where it is based (Branson, 2014). This includes paying taxes as per the country’s tax rate, adhering to labor laws and trade regulations and restrictions of the host country. Some of the challenges with regard to political factors that the Virgin Group encounters are high tax rates, government bureaucracies, restrictive trade policies, high customs charges and political instability.

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Economic Factors Economic factors refer to the elements that affect the national and global economy, which ultimately, affect the financial performance of the organization. These factors include; inflaction rates, interest rates, economic growth or decline rate, foreign exchange fluctuation and the price of goods and services. Virgin Atlantic, for example, has been severely affected by the drastic increase in the price of fuel, which in turn, has caused it to have to scale down its operations in a bid to minimize its losses. Similarly, the growth and profitability of Virgin Mobile have declined in recent years due to competition from other mobile service provides such as T-Mobile, AT & T, Verizon, Comcast and Vodafone. Additionally, economic factors such as economic recessions and downturns have a significant negative impact on the performance of the firm. Additionally, for Virgin to perform optimally, factors of production such as land, labor and capital have to be reasonably priced in the countries in which the firm operates.

Social Factors To successfully operate in different countries globally the Virgin Group realizes that social and cultural factors play a crucial role in its performance. These factors include; the population and age distribution, education levels, cultural and religious values and the purchasing trends of the population (Branson, 2014). Social factors affect the marketing and communication strategies that the firm implements and the type of products and services it offers.

Technological Factors

3 In today’s fast-paced and globalized business environment, technological factors play a significant role in the performance of the firm due to their impact on the effectiveness, innovation and quality of the products and services offered by the firm. The Virgin Group strives to adapt promptly to changes and advancements in technology in order to remain competitive. For example, Virgin Mobile was one of the first mobile service providers internationally to eliminate hidden charges and offer affordable services.

Porter’s Five Forces Porter’s five forces is an efficient analysis method of examining the appropriate strategy to enhance the profitability of the firm. The Virgin Group operates different business in varous industries and sectors, therefore it is important to examine Porter’s five forces of the individual businesses when analyzing their viability.

Virgin Group faces the threat of new entrants in the industry gaining a significant market share, at the expense of its own. This is referred to as the threat of new entrants. The threat is especially high in businesses where the barriers to entry are low such as capital requirement and specialized skills. The Virgin Group on the other hand is able to enter new industries and markets easily because it has a large pool of capital and skilled labor. To counter this threat, Virgin should concentrate on enhancing the features of its existing products as well as developing new innovative products. The firm can also reduce the cost of its current product and service offerings to retain its current customers and keep them from migrating to the new entrants (Farabi, 2012). To develop its capacity to innovate and become more competitive, it is essential for Virgin to integrate research and development as a core element of its operations.

4 The Virgin Group also faces the threat of intensification of competition from the existing competitors. Due to factors such as globalization and the saturation of markets, the modern business environment is highly competitive and this poses a challenge to the firm since it is forced to increase its spending on marketing activities. To counter the issue of intense rivalry, it is essential for Virgin to develop a wider array of products and services for the market to choose from. The firm should develop products that are unique from those of its rivals in order to gain a competitive advantage. This threat can also be minimized by partnering with its competitive firms to widen its market size as opposed to each competing for a small segment of the market.

Thirdly, the Virgin Group faces a high threat of substitution of its products and services by competitors. Substitution poses a threat because it provides the market with a wider variety of options to select resulting in excessive competition. Substitute products and services reduce the profitability of a business by forcing it to reduce its prices, enhance the features of the product and intensify its marketing and promotion activities (Morden, 2017). The Virgin Group can counter this threat by understanding customers’ core needs and therefore creating more effective and innovative products, providing high-quality service and customer care, forging stronger relationships with customers and also through aggressive marketing.

The fourth element is the bargaining power of suppliers. The Virgin Group purchases the raw materials that are used for the production of finished goods from suppliers. When the supplier has a high negotiating power, the firm is at a disadvantage since it is forced to accept prices that lower its profitability. For Virgin to reduce the bargaining power of its suppliers, the procurement process should be made more effective (Verweire, 2014). This is achieved by

5 it sourcing for raw materials from a variety of suppliers to avoid relying heavily on one or a few suppliers, and thus obtain the most competitive prices. The bargaining power of suppliers can also be reduced by indentifying suppliers whose business will be solely dependent on the firm, therefore giving Virgin higher negotiating power.

The fifth element is the negotiating power of the market. Customers are often conscious about the price and quality of products and services. Their aim is to get the most value for their money by purchasing good quality products at the most competitive prices.

This has a direct negative impact on the performance of the Virgin Group since it has to increase its spending on developing high quality products and lower its prices (Branson, 2018). To reduce the bargaining power of customers, Virgin should concentrate on widening its customer base. Having a narrower pool of customers makes the firm heavily dependent on them, therefore increasing their bargaining power; the firm should therefore concentrate its efforts on increasing its market penetration. Virgin can reduce the buyers’ bargaining power by developing new innovative products and widening its product line. Customers have substantial bargaining power on products that they are used to, and by constantly innovating, it reduces their ability to influence the firm’s prices. Creating new and enhanced products and services will also attract and retain customers more easily.

Conclusion Virgin has over the years developed strategies that have made it one of the most recognized multinational companies in the world. Its success and competitiveness is built on its ability to innovate continuously and its entry into a broad array of profitable businesses and market segments. To enhance its growth, the most ideal strategy for Virgin is to form mergers and joint ventures with rival companies. This strategy is effective because it leads to an

6 increase in the firm’s share of the market and also causes the growth of its financial resources and expertise. By regularly analyzing the external environment and Porter’s five forces, the firm can develop suitable strategies.

7 References Branson, R. (2014). Business stripped bare. New York: Portfolio.

Branson, R. (2014). The Virgin Way. Penguin Group US. Branson, R. (2018). Finding My Virginity. Portfolio Penguin.

Farabi, Y. (2012). Analysis of Marketing Environment of Virgin Australia. Munich: GRIN Verlag GmbH. Morden, T. (2017). Principles of strategic management. New York: Routledge.

Verweire, K. (2014). Strategy implementation. Routledge.