Global Forces and Advertising Industry, Free Essay

There is high competition in the businesses environment today and this requires companies to develop strategic management when setting up goals. Managers are coming up with competitive strategies to ensure that business operations achieve all possible strengths. Advertising is one of the essential tools needed to create value for both the industry and clients. The players of advertisement industry operate in an integrated manner to bring together all the operations of the various units of the industry for the success of the organization. Environmental analysis is one of the important strategic management tools applied by companies to identify both the external and internal aspects influencing the performance of an industry. Strategic environmental analysis tools such as PESTEL, Porter's Five Forces as well as SWOT help in the assessment of external and internal environments of businesses or industries. Rocket Internet is one of the companies that are competitively growing because of strategic environmental analysis in assessing global forces as well as advertising industry. The discussion of this assignment has a focus on analyzing global forces and the advertising industry using Rocket Internet as the case study.

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Summary of Rocket Internet

Rocket Internet is one of the leading internet firms in Europe with its headquarters being in Berlin. The Company was established in 2007 by Samwer brothers (Kohler & Baumann, 2016, p.45). Rocket Internet deals with building online startups as well as owning shareholding in different models of businesses involved in internet retailing. Rocket internet also offers space to starting companies at the headquarters by providing support, IT, access to investors as well as marketing services. Currently, the company has over 28,000 employees in its global network of companies operating in more than 100 entities in 112 countries (Kohler & Baumann, 2016, p.39). Strategically, Rocket Internet strives to become the largest internet platform in the world. In spite of high competition from competitors like Alibaba of China, Rocket Internet had shown the ability to utilize growing opportunities in the globally emerging markets by adequately using advertisement techniques (Eckard et al., 2015).

PESTEL Analysis

PESTEL includes the economic, political, social, legal, technological as well as environmental issues that influence advertising industry. Rocket Internet together with the advertising industry faces economic, political, social, legal, technological as well as environmental issues.

Political Issues

The political issues include the changes in the political environment that can impact the advertising processes either negatively or positively (Turban et al., 2018, p.362). For instance, a change in political leadership may either create a condition favorable for advertising or even disadvantage the process. About the case study, Rocket Internet utilizes a change in political condition to advertise its services to customers. Concerning the case study, in 2017 Rocket Internet advertised its services using ads that appeared on articles having political news in the United States of America (Eckard, Eaton, Araujo & Smith, 2015).

Economic Issues

Economic issues refer to financial factors affecting the advertising industry as the publication of products involves financial expenditures. Incidences of financial recession can affect advertisement industry negatively through cut-downs because advertising has a consideration as an extra expense to be loaded off (Turban et al., 2018, p.388). Although, companies that invest in advertising experience higher ROI during financial recession. Concerning the case study, Rocket Internet advertising industry fetched high ROI in 2016 during the financial recession in Germany because of its high investment in various advertising techniques that ranges from social media platforms to Television. The other economic issue affecting the operation of Rocket Internet is high costs on taxes. In 2015, the company spent approximately $800 million which indicates high expenditures on tax (Kohler & Baumann, 2016, p.41).

Social Issues

Social issues refer to socio-cultural setups that determine the kind of advertisement methods used in business. Advertisers ought to follow the social and ethical standards of clients to show respect to diversity of customers (Turban et al., 2018, p.367). Moreover, advertising change with variations in ethics and social values based on different social settings. About the case study, Rocket Internet uses advertisement methods like television in Europe. On the other hand, the company uses social media platforms like Twitter and Facebook in Asia as a way of identifying itself with the ethics and social values of customers. The social issues also call for keen consideration when hiring the workforce to ensure representation of clients from different socio-cultural constructs. Rocket Internet has in the recent past increased the recruitment of females in consideration of gender as an essential factor in social values and ethics (Kohler & Baumann, 2016, p.44).

Technological Issues

Technological issues mainly involve the advancement and changes in the information, communication as well as technology affecting advertising industry. Advancement in technology promotes the industry of advertising by the growing use of the internet when marketing products to clients. The use of the internet helps in accessing clients from different parts of the world (Turban et al., 2018, p.370). Rocket Internet is utilizing technology to improve its advertising department by the use of the internet. Moreover, Rocket Internet adequately utilizes technology to adverse its service of building online startups using ads. The firm also has a website where it displays its services to clients. Also, the company has accounts in social media platforms like Facebook and Twitter where it advertises its service to customers from different parts of the world (Kohler & Baumann, 2016, p.32). In spite of the advantages of technology, it also negatively affects the Rocket Internet through technological obsolescence. Reliance on internet and technology requires frequent updating of the website to reduce the threat of technological obsolescence.

Environmental Issues

Environmental issues are based on the need for the natural resource conservation when advertising or choosing an advertisement technique. There is a reduction in the use of banners and posters because of the environmental concern of high paper wastage as well as energy consumption (Turban et al., 2018, p.371). Advertisers are currently using electronic advertisement methods like emails to reduce the energy consumption or decrease wastage of paper. Concerning the case study, Rocket Internet shifted from the use of posters and banners to the use of emails when advertising its services to customers as a way of protecting the environment (Kohler & Baumann, 2016, p.30). In 2016, the company shifted from the use of banners and posters to electronic advisement as a way of protecting the environment.

Legal Issues

Legal issues refer to how the set rules and regulations affect an advertising industry. The set legal aspects in a particular country change the kind of advertisement used. Failure to comply with the governing laws can cause legal implications when advertising (Turban et al., 2018, p.390). Rocket Internet faces the challenge of strict rules and regulations set by the Chinese government. Stringent rules limit advertisement processes leading to ineffectiveness in product marketing (Moriarty et al., 2014). The other legal issue facing Rocket Internet is contradicting international business laws. International trade laws hinder the operations of the company at the global level (Kohler & Baumann, 2016, p.33).

Porter's Five Analysis

Porter's five forces refer to the competitive environment in which business operations occur. These forces are supplier power, the threat of entry, threat of substitutes, buyer power as well as competitive rivalry. Rocket Internet like any other business operates within a competitive environment under porter's five forces.

The Threat of the New Entry

First of all the threat of new entry is low in the advertising industry. There is a trend of long-term contracts with advertising companies and clients will use the same advertiser (Turban et al., 2018, p.377). The advertising space is expensive and limited leading to difficulties for new players to access space. Also, the establishment of a market hold is not easy for newcomers because large Companies have long-term engagements with well-established advertising companies and with many clients. For instance, in 2007 during the establishment of Rocket Internet, it was difficult to penetrate to famous and well-established advertising companies because huge Companies like Amazon had bonded with advertisers (Kohler & Baumann, 2016, p.37).

Power of Suppliers

Power of suppliers is high in the advertising industry because limited advertisement space leads to high demand for advertising space. Premium advertising space is creating room for high prices from suppliers. Since the demand exceeds the supply, suppliers increase the price of the product as well. Some suppliers who are having high reach charge at high cost causing high expenditure for Rocket Internet (Turban et al., 2018, p.381). Also, seasonal campaigns cause pressure on suppliers, a situation that causes suppliers to charge higher. Rocket Internet has suppliers that supply products during seasonal campaigns like elections (Kohler & Baumann, 2016, p.39).The other reason causing supplier power is the less workforce having information and knowledge about online startup entrepreneurship. Suppliers used in the advertising industry are mainly entertainment channels, OOH advertising as well as public ad spaces. In most cases, product concentration is high with readiness to pay higher for the available premium spaces.

Power of Buyers

The bargaining power of buyers is high because of the rising number of players in the industry of advertising. Buyers are high information seekers, and they demand high-quality product (Eckard et al., 2015). Buyers choose agencies with good experience in business, and they seek long-term relationships with companies. Buyers can cause companies to change the pattern of the campaign, a situation that can lead to low pricing of products (Moriarty et al., 2014). The costs of switching from Rocket Internet to other products are high. There minimal chances for the buyer's backward integration. Also, consumers of Rocket Internet products are price sensitive, a situation leading to offering products at low prices. Also, Consumers are large with the capacity to demand concessions.

The Threat of Substitutes

The number of substitutes in the advertising industry is high which includes the use of TV, print media, radio as well as OOH. Currently, the available substitutes are very popular among consumers than in the past. One of the main substitutes is the shift to digital media from print media as seen in the past two decades. Rocket Internet has adopted digital advertising channels (Kohler & Baumann, 2016, p.40).

Competitive Rivalry

The intensity of rivalry amongst competitors is high because of the growing number of competition in the advertising industry. Advertising companies have no equal share to compete with one another in the sharing of advertising space. Big companies in the industry like Ogilvy & Mather have high profile customers who are loyal to them, unlike small firms. As a result, companies that rely on advertisers have a competitive advantage. For instance, in 2013 Rocket Inter...