Corporate Strategy at TOTTO Assignment Sample

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Introduction of Corporate Strategy at TOTTO Assignment

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Corporate strategy is considered the multi-level strategy that is mainly employed by a particular organization for defining such goals and structuring the approaches for attaining them. The aim of this report is to develop a corporate strategic plan for the Totto organization of Colombia. Founded in the year of 1987, the organization is considered one of the leading fashions multinationals in the entire world. As per the case study, at the end of the year 2021, it has been found that Totto had the “leading market share” in Colombia across its 240 outlets in the 38 cities and along with 277 chains and 794 distributors.

Focusing on the international operations of Totto, it is also observed that the internal operations accounted for the “40% of revenues” in which 214 stores are included that are operated by one of 18 franchises, 1637 distributors, and 64 chains. Contribution to internal operations is effective enough for Totto to maintain its high revenue percentage for the last 3 years such as 42%, 50%, and 60% along with high growth in Europe. In 2021, a record-breaking sale for Totto was also observed that helped to generate 62% of income for this brand (as per the case study). In this report, different frameworks are used such as PESTLE, Porter’s 5 forces, and others to develop an effective strategic corporate plan for this firm.

External analysis

In order to conduct the external analysis, both macro, as well as industrial environments, has been taken under consideration here.

Macro environment: PESTLE analysis

Political factors

Opportunity/threat

Score

Industry implications

Lack of political the stability

Threat

4

Can be able to affect the entire business industry strongly

In order to maintain the global presence, it is essential for Totto to follow up on the regulatory legislation of each country (Valencia et al. 2018)

Threat

3

It can be an opportunity to adopt new business contexts whereas concern of conflicts can be raised

Table 1: Political factors

(Source: Self-developed)

Economic factors

Opportunity/threat

Score

Industry implications

Lower GDP growth and as of 2022, the GDP growth is 4.3% (Tradingeconomics, 2022).

In comparison to previous years, the GDP rate is growing which can be considered an opportunity.

5

Able to affect the businesses 

Reduction in the interest rates by the “central bank of Colombia” (Ramos-Vidal et al. 2019)

Threat

4

It is also able to affect the business industries severely

Table 2: Economic factors

(Source: Self-developed)

Social factors

Opportunity/threat

Score

Industry implications

Presence of demographic advantage

Opportunity

5

can be an advantage to attract younger populations

Unequal distribution of wealth can be such a threat

Threat

4

This type of aspect is able to affect the customer base of Totto severely

Table 3: Social factors

(Source: Self-developed)

Technological factors

Opportunity/threat

Score

Industry implications

Lack of high investment in the research and development areas of business

Threat

4

It cannot be possible to adopt high technical advancements

Being a member of the ITA (Information Technology Agreement) can be helpful to facilitate the technological enhancements here

Opportunity

5

Rules and regulations of ITA can be followed up properly (McClanahan et al. 2019).

Table 4: Technological factors

(Source: Self-developed)

Legal factors

Opportunity/threat

Score

Industry implications

The corruption rate is observed as high enough whereas law enforcement is quite low

Threat

4

Better enforcement of the law is essential to protect businesses. For Totto, it can be a strong matter of concern to run the business with a long-term approach. 

Strong improvement is observed within the labour laws as well as regarding monetary freedom

Opportunity

5

Flexible policies need to be incorporated to enhance monetary freedom and it can be effective for Totto as well to run its business smoothly. Improvement in the labor laws is most fruitful to establish a better workforce and retain it within the organizations (Ayobamiji et al. 2022).

(Source: Self-developed)

Environmental factors

Opportunity/threat

Score

Industry implications

A strong focus on sustainability and promotion of biodiversity

Opportunity

5

Effective to adopt sustainable business practices and get better consumer support

Presence of the high levels of water and air pollution that are able to conduct nearly 8% of total deaths in the entire country

Threat

4

Increasing scarcity regarding the use of non-eco-friendly resources in the production of bags

Table 6: Environmental factors

(Source: Self-developed)

Strategic decision making

Based on the above analysis, it can be stated that most of the external factors are not appropriate for Totto whereas there is a strong need to develop the business contexts in such a way to gain positive outcomes (Acosta Castellanos et al. 2020). It is also essential for the government to take a strong look at this matter to resolve the issues such as high corruption rates, political instability, unequal distribution of wealth, and others.

Key opportunities

Presence of sustainable business opportunities

The presence of a sustainable business context is much helpful for Totto to run its business smoothly on a long-term approach as the firm keeps a strong focus to adopt sustainability to ensure environmental responsibility.

Technological modifications

Being a member of ITA, it can be possible for Totto to gain such cooperation from the government of Colombia to facilitate technological modifications.

Key threats

Covid-19 pandemic and the related trends

The presence of Covid-19 has affected the economic growth of the entire country and as an impact; the businesses are also going through financial instability (Acosta Castellanos et al. 2020). It can raise the concerns for Totto as a reduction in consumer demand, as well as changes in purchasing habits, are able to affect the revenue potential and sales percentage of this firm severely.

Lack of investment in R&D

Lack of enough investments in this area can affect the innovation consequences for Totto for which it will also not be able to gain such a high competitive edge.

Industry analysis: Porter’s Five Forces

Porter’s 5 forces framework is effective enough to conduct adequate industry analysis to evaluate the competitive position of Totto.

The threat of new entrants (Low)

The threat of new entrants for Totto is low enough as the organization is able to offer its products at the cheapest rates. Moreover, the organization is also able to maintain a low budget for its suppliers as well and these aspects are highly beneficial to limit the scope for new entrants in this market. As stated by Bruijl (2018), the threat of the new entrants needs to be low enough in order to gain a high competitive edge against the new firms or existing firms. Totto is able to grab the world market on a strong aspect and thus, the score that is considered here is 2. In this aspect, it can be stated that Totto is able to ensure highly competitive advantage through its low-cost strategy. As per the below figure, the increasing number of stores of Totto is also beneficial to develop a dynamic market situation in Colombia.

 Evolution of stores of Totto

(Source: Case study)

Threat of substitutes (Medium)

The threat of substitutes can be considered a medium one as the organization has good competition in markets of the developed economy. Totto targets the underdeveloped as well as the developing economy in order to enhance the level of sales of the products. Here, the score for this force can be considered as 3 and in order to deal with this fact, it is essential to enhance the level of innovations severely to sustain the competitive advantage.

Bargaining power of buyers (Very High)

Focusing on this force, it has been identified that customers play a strong role here, and in the case of Totto, the force is high enough. The presence of a large number of suppliers is responsible to enhance the power of buyers severely (Irfan et al. 2019). In this case, the score can be considered as 5 and it can limit the scope to gain a high competitive edge for Totto.

Barging power of suppliers (Very low)

This force is weaker enough as there are a large number of producers and suppliers of Totto providing them with items at a cheap rate. The score can be considered here as 1 and a weaker force reduces the switching power of suppliers. As an impact, the organization can be able to maintain a long-term connection with its existing suppliers.

Competitive rivalry (Very high)

Presence of a large number of competitors is responsible to raise such competitive threats for Totto. Competitors such as Permoda, “Saville Row” and others are there through which customers of Totto can be able to experience equivalent products at a cheaper rate in the market (Irfan et al. 2019). The score here can be considered as 5 and in order to deal with this, product innovations within an affordable price range are highly essential.

Further considerations

Based on the above-conducted industry analysis, it can be stated that Totto has a strong need to mitigate the competitive rivalry as early as possible to gain such effective outcomes. The presence of accurate financial resources, greener portfolios, and quick responses to the changing business trends can be relevant enough to facilitate the scopes to gain a high competitive edge.

Internal analysis

VRIO analysis refers to a technique of analysis for evaluating resources through which companies can get competitive advantages. The table shows different capabilities of the company namely Totto and their implications.

Capability

Valuable

Rare

Inimitable

Organised

Implication

Management of warehouse

Yes

No

No

Yes

Competitive parity

Existing leadership

Yes

Yes

Yes

No

Unutilised competitive advantages

Resources and growth strategies

Yes

Yes

No

No

Temporary advantages in market competition

Table 7: VRIO analysis of Totto

(Source: Self-created)

Analysis of Three Dimensional Strategies

Financial Strength

The company has total assets about 646011 USD and total current assets of the company are 326383 USD. Total recent liabilities of the company are 235155 USD and most of the company revenue comes from its market in Columbia [Case study].

Relative Market Share

The company namely Totto inaugurated its business in 1989 and the first item of the company was backpack. The market share of the company is highest in case of Columbia and the store in Columbia is also responsible for providing a huge amount of revenue. Nearly about 50% of the stores of this company are situated in Columbia which brings a high amount of company revenue [Case study].

Relative Market Strength

The company experiences a net cash flow of about 59550 USD in 2021 from its operating activities. On the other hand, it also possesses a net cash flow of nearly about -42622 from investing activities. “Net cash flow” of the stated company was around 22702 USD in 2021 from financing activities of the company. The company has experienced an increase of nearly about 39707 USD in 2021. All of these cash flows are measured as “relative market strength” of the company in recent years [Case study].

Future trends

The company named Totto is responsible for maintaining sustainability in its various business operations. The company is now focusing on following future trends such as utilising innovative and advanced technologies in its manufacturing. 

Contingent action plan

The term action plan in this case depicts the future action of the company to get competitive advantages over its rival competitors in market areas. The company is willing to maintain sustainability as well as implementing advanced technologies in future.

  • Value chain analysis

Value chain depicted by Michael Porter portrayed the way of gathering customer values along activity chain. This chain of activity can lead to finished services and products and value chain includes certain activities such as outbound and inbound logistics, operations, services, sales, and marketing as primary activities. The Totto Company sells backpacks, bags, clothes, suitcases, accessories, and others and is a multinational fashion company. In case of its inbound logistics, the company prefers to maintain good as well as effective relationships with its suppliers of fabric and other materials. Inbound logistics are related to storing, distributing, and receiving inputs internally and the company owns about 700 stores in 30 different countries (Co.totto, 2022). Operations of the company include transformation activities and operational teams are creating values in this segment of value chain. The company recruits 7000 employees in its business operations in different production stores, offices, franchises, and others.

 Value chain

(Source: Fonseca et al. 2019)

Outbound logistics are responsible for delivering products as well as services to different customers. Totto Company has developed the largest center of logistics in Columbia that helps the company to maintain different logistics-related activities smoothly and effectively. As per the Case study, the company has gathered nearly about 60% of revenue from outside Columbia in the last year. Sales and marketing of the company use certain processes and strategies to persuade consumers to buy from it. The company tries to provide a lucrative offer, affordable pricing, and high-quality products as well as services to attract consumers. Services of Totto Company include maintaining value of its services and products to its customers after purchasing products. According to Fonseca et al. (2019), support activities include procurement that is related to purchasing, HRM, and technological development. The organisation includes different activities to get required resources such as raw materials, fabric, and others. The company implements certain strategies to find suitable vendors and it also negotiates for good prices. The company has taken strategies to provide good quality services and products to its end users.

Management of human resources of Totto Company suggests that it effectively hires, recruits, provides training, and motivates employees to retain its workers. This company values people as well as employees and provides rewards to them and it implements strategies to motivate its 7000 employees in different countries. The company is responsible for valuing its employees and mitigating their issues effectively in its different stores. The HRM systems of the company provide it a competitive advantage over its private competitors in international market areas. On the other hand, technological development of the company is related to activities regarding processing and managing of information and data. Technological development in Totto Company helps it by providing an effective solution to maintain and formulate diverse information efficiently through the organisation. As stated by Baral et al. (2019), infrastructures refer to the support system of firms and companies as their functions allow companies to maintain regular activities. The aforementioned organisation includes various infrastructures to maintain its regular activities. Necessary infrastructure that the company has implemented is administrative, general, accounting, and legal management.

SWOT analysis

Internal environment

Strengths

Score

Weaknesses

Score

? Innovative products

4

? Shortage of raw materials

4

? Quality

5

? Lack of infrastructure

5

? Management of human talent

3

? Lack of access to innovative technologies

5

 Table 8: Internal environment of Totto Company

(Source: Self-created)

Internal environment of the company shows that Totto Company possesses certain strengths as well as weaknesses. As per the case study, the company is responsible for providing innovative products to its consumers that are appreciated by them. On the other hand, it provides quality services that also work as strength of the company. The organisation has the potential to manage human talent inside its different stores. The company lacks innovative technologies, infrastructure, and supply of raw materials that work as its weaknesses.

External environment

Opportunities

Score

Threats

Score

? Access to European markets

5

? Economic recession

4

? Good service and products

4

? High market competition

3

? Brand image

3

? Lack of Trade agreements 

4

 Table 11: External environment of Totto Company

(Source: Self-created)

As per the external environment of the company, it can be stated that Totto Company shows certain opportunities such as brand image, good service and products, and its access to international market areas. On the other hand, it possesses several threats such as economic recession, lack of trade agreements, and a high level of market competition.

GAP analysis

The term GAP analysis helps a firm and company to consider their recent position in ideal positions and competitive fields. These positions can be elucidated through mapping weaknesses, strengths, opportunities, and mean values of strengths on a specific graph. Additionally, after doing it companies can formulate different strategies to move forward in optimal positions that are achievable in their competitive profiles. In other words, according to Lawn et al. (2020), gap analysis refers to means through which companies recognise their recent states with the help of measuring capital, labour, and time. Comparing these factors to their target states provide a complete analysis of the gap in desired outcomes and recent activities. Additionally, by defining as well as analysing gaps, management teams of organisations can make action plans for moving forward as well as fulfilling performance gaps. Gap analysis requires assessing current situation of the company, determining goal states, as well as highlighting a gap between these two factors.

Gap analysis helps to make action plans for companies to bridge gaps between desired and current outcomes. Current state of the company shows that it possesses innovative products, quality services, and products. On the other hand, the company has certain weaknesses that need to mitigate to achieve desired outcomes. As stated by Cooper et al. (2020), action plans created with the help of gap analysis help the company to measure gaps as well as mitigate gaps. The organisation needs innovative technologies as well as adequate capital to mitigate gaps. The company needs certain competitive advantages that help it to minimise market competition. Gap analysis needs certain tools to measure gaps such as SWOT analysis, fishbone diagrams, PESTLE, and others. PESTLE and SWOT analysis show internal and external situations of the company and these tools are effective to know about the gap between desired and recent outcomes of the company.

Strategic recommendations

Strategic recommendations need to meet three different criteria such as acceptability, feasibility, and suitability. According to Rodríguez-Díaz et al. (2018), strategies need to resolve major issues as well as provide financial returns that are positive and effective. The aforementioned company needs to possess access to essential capabilities and resources for its application. Totto Company needs to focus on its sales, and operations, as well as efforts of vertical integration in different areas of business operations. Suitability depicts on global agenda towards minimisation of carbon footprint and carbon neutrality with the help of allocation of financial incentives regarding green solutions. US government and the government of Europe have taken an agenda about “2050 carbon neutrality” and the company needs to minimise its carbon footprint to align its business operations with this agenda. Various nations are allocating a significant amount of money to fulfill their sustainability agenda in near future. On the other hand, the company needs to implement strategies that benefit the company by minimising carbon emissions and carbon footprint.

The company is now facing a shortage of raw materials and in near future, this issue can give rise to quality-related issues in the company. Totto Company needs to focus on minimising over-exploitation of raw materials in its production and manufacturing departments. Focus on economy means USA and Europe can guarantee the access in case of alternative raw materials. The company can utilise alternative materials such as plastic wastes, wastes from other industries such as clothing industries, and others. This strategy can mitigate a shortage of raw materials in the company in near future and on the other hand, it can minimise overexploitation of natural resources (Al-Khaled and Fenn, 2020). Acceptability depends upon favorable dynamics of demand and supply in USA and Europe that can allow players of industries to charge significant premium charges on services and products. The company needs to focus on strategies that can allow the company to maintain good and suitable pricing of its services and products.

This strategy is also beneficial for the company as it can help it to achieve competitive advantages in international markets over its competitors. The external analysis of Totyto Company shows that competition in international market is high and it needs certain effective strategies to gain competitive advantages. Feasibility states that Totto Company has potential to implement this strategy in its business operations. The company also needs to implement sustainable strategies for gaining competitive advantages in market areas.

Strategy implementation: Balanced scorecard

Balanced scorecard helps to put strategy as well as vision at the center and it can establish goals. It is a strategic performance metric of management helping companies improve internal operations. 

Financial perspective

? Gross profit 212495 USD

? Revenue growth 60% in 2021

? Total assets 646011 USD

? Cash flow in operating activities 59550 USD [Case study]

Customer perspective

? Customer satisfaction is moderate

? Leading market share is in Columbia [Case study]

? Customer retention is low

? Brand strength moderate

Internal process perspective

? Sustainable resource allocation

? Good quality control

? Good inventory management

Learning growth perspective

? Employee satisfaction is high

? Employee turnover low

? Good employee skills

? Highly educated employees

 Balanced scorecard of Totto

(Source: Self-created)

Conclusion

The study includes external as well as internal analysis of a multinational company namely Totto. The study also highlights the macro environment, key opportunities, threats, and decision-making techniques of the company. It can be concluded that the company is in a reputed position in international market and has good customer satisfaction. On the other hand, the study also depicts gap analysis, strategic recommendation, and scorecard. It shows that the company needs to focus on maintaining the product as well as service quality. The company needs to implement strategies to minimise its carbon footprint and carbon emissions in business operations. 

Reference list 

Acosta Castellanos, P.M., Queiruga-Dios, A., Hernández Encinas, A. and Acosta, L.C., (2020). Environmental education in environmental engineering: Analysis of the situation in Colombia and Latin America. Sustainability, 12(18), p.7239.

Al-Khaled, A.A.S. and Fenn, C.J., (2020). The impact of strategic human resource management practices on organizational performance. BERJAYA Journal of Services & Management14, pp.53-60.

Ayobamiji, A.A., Mata, M.N., Ahmed, Z., Coelho, M.F., Altunta?, M., Moleiro Martins, J., Martins, J.N. and Taiwo ONIFADE, S., (2022). How do renewable energy, economic growth and natural resources rent affect environmental sustainability in a globalized economy? Evidence from Colombia based on the gradual shift causality approach. Frontiers in Energy Research, 9, pp.1-3.

Baral, N.R., Davis, R. and Bradley, T.H., (2019). Supply and value chain analysis of mixed biomass feedstock supply system for lignocellulosic sugar production. Biofuels, Bioproducts and Biorefining13(3), pp.635-659.

Bruijl, G.H.T., (2018). The relevance of Porter's five forces in today's innovative and changing business environment. Available at SSRN 3192207.

Co.totto, (2022), Totto, Available at https://docs.google.com/document/d/1MlnCflzXWHZEL9W1dw-clqCKdd2LLKk3Pl2pX9Aph0w/edit [Accessed on 12th February, 2022]

Cooper, M., Tang, T., Gho, C., Hart, T., Hammer, G. and Messina, C., (2020). Integrating genetic gain and gap analysis to predict improvements in crop productivity. Crop Science60(2), pp.582-604.

Fonseca, C.M.B., Coelho, J.C., Soares, F.B. and Correia, A.M.N.G., (2019). Value chain analysis: Overview and context for development. Journal of Agriculture and Food Science7(12), pp.356-361.

Irfan, M., Zhao, Z.Y., Ahmad, M., Batool, K., Jan, A. and Mukeshimana, M.C., (2019). Competitive assessment of Indian wind power industry: A five forces model. Journal of Renewable and Sustainable Energy11(6), p.063301.

Lawn, S., Oster, C., Riley, B., Smith, D., Baigent, M. and Rahamathulla, M., (2020). A literature review and gap analysis of emerging technologies and new trends in gambling. International journal of environmental research and public health17(3), p.744.

McClanahan, B., Parra, T.S. and Brisman, A., (2019). Conflict, environment and transition: Colombia, ecology and tourism after demobilisation. International Journal for Crime, Justice and Social Democracy, 8(3), p.74.

Ramos-Vidal, I., Villamil, I. and Uribe, A., (2019). Underlying dimensions of social cohesion in a rural community affected by wartime violence in Colombia. International journal of environmental research and public health, 16(2), p.195.

Rodríguez-Díaz, M., Rodríguez-Voltes, C.I. and Rodríguez-Voltes, A.C., (2018). Gap analysis of the online reputation. Sustainability10(5), p.1603.

Tradingeconomics, (2022). GDP growth. Available at: https://tradingeconomics.com/colombia/gdp-growth [Accessed on 9th May, 2022]

Valencia, G.E., Cardenas, Y.D. and Acevedo, C.H., (2018), November. PEST analysis of wind energy in the world: From the worldwide boom to the emergent in Colombia. In Journal of Physics: Conference Series (Vol. 1126, No. 1, p. 012019). IOP Publishing.

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