Competitive Analysis Business Valuation - Myassignmenthelp.Com

Question: Discuss about the CompetitiveAnalysisBusiness Valuation. Answer: Introduction: Drones a are pilotless aircraft, traditionally considered as a military weapon; has now developed various application in almost every field of life. Drones are around us in different forms since last one century. Drone is a rapid growing industry whose revenue is rising exponentially with each year and is now being regulated by Federal Aviation Administration (FAA). The strategic and competitive environment has been assessed via Porters model of five forces. Numeric data has also been collected to analyze cost advantages of using drone technologies. Background: UAV which is Un-manned Aerial Vehicle is a scientific name of the technology which we generally known as Drones. The concept of UAVs originated back in 1849 during the first Italian independence war against Austrian, when Austrian used pilotless balloons carrying explosive material to attack over Venice (Finding Dulcinea News, 22 August 2011). Although it was not a total success because of its reliance on mere air but it laid the foundation of the drones technology which we see now a day. First pilotless aircraft named Kettering Bug developed by US military, appeared on world map in 1916 which can be regarded as a cruise missile (Fortune, 9 October 2014). In 1930, US navy started their research on RC or radio-controlled aircraft which led to the formation of Curtiss N2C-2 drone in the mid of 1937. The very first massed production of RC aircraft is witnessed during world war-II by Reginald Denny who named its technology as Radio plane 0Q-2 and is considered as a breakthrough point in manufacturing and supply of drones (CONSORTIQ, 16 June, 2017). The first non-military use of drones appeared in 1993 when they had been used to monitor climate and environment changes (redOrbit, 25 May 2016). Moreover, general use as toys as well as camera shots gain popularity from mid-to-late 2000s when numerous companies shift their focus towards shipping and vehicular drones to replace human intelligence as well as errors (AirSpace, 19 May 2017). In 2010, French company Parrot manufactured and released first successful ready to fly consumer drone which established the connection merely via Wi-Fi. To gain a competitive advantage, online retailer giant Amazon; in the late 2013 announced its project to deliver parcels via drones (WIRED, 31 March 2017). Upon rise in the usage of drones; FAA established rules and regulations to manage drone flights without compromising public safety and security (Federal Aviation Administration, 21 December 2015). These regulations include maintain altitude under 400 feet and it is to be only flown by person havi ng remote pilot certificate and not allowed to operate beyond pilots line of sight (Goldman Sachs, 2017). Today we see drones equipped with state-of-the-art technologies like 3d-mapping, 360-degree professional cameras, sensors like UAV, Barometer, distance, heat, depth measurement etc. and have numerous applications in agriculture, construction, media, real estate, science, mining, private security, rescue operations and wildlife. Recent data shows a potential compound annual rise of 19% in the commercial and civilian drone sector by 2020, as opposed to just 5% growth in military market (Goldman Sachs, 2017). Competitive Environment: The dynamic external environment in which an industry or a business operates is, its competitive environment which includes direct and indirect competitors as well and more sellers of the identical product means high competitive environment. Factors like world economic condition, events, labor shortage and natural disasters affect the environment. The competitive environment facilitates the connection between organizational performance and organizational alignment and it is a prominent factor affecting its performance so, managers should take it into account while formulating strategic decisions. (Cao, Baker Hoffman, 2012.) Since the drone industry is still an emerging technology, it operates in a highly competitive environment and companies like Parrot France(62%), 3d robotics USA(56%), USA (26%) and Cyber Technology Australia (17%) are top key players giving stiff competition to each other (DRONEII, 20 July 2015). Five Forces Analysis: Model of Porters five competitive forces is an efficient tool to analyze industry structure of an organization in strategic processes. The central vision is that the corporate strategy must be able to meet the opportunities and threats that an organization face in its external environment. By knowing the most compelling and impactful force in the industry; will help the managers in categorizing the significant parameters affecting the firms performance and profitability in that specific domain and help them exploiting particular characteristics of their industry (Crain Michael, 2010). Threat of Entry of New Competitors: Barrier or obstacles in entry stops entrepreneur from entering into a specific market. They act as a warning against new entrants. There are several barriers to entry into drone industry including laws, rules, latest technologies, cost etc. Since the economies of scales assist manufacturers to reduce their cost by fabricating the next unit of output at comparatively lower cost. Meanwhile, when new rivals enter, because of the fact that they possess smaller economies of scale; they ultimately face a higher cost of production (South China Morning Post, 02 March 2016). In the case of drone industry, learning curve is high which requires new entrants to devote time as well as money to study the market thoroughly. Besides all these fact, since the drone industry is an emerging business making threat of new competitors real. Because of low cost of entry and accessibility of state-of-the-art technology to everyone allows the startup entrepreneurs to enter without significant hurdles. Regard less of stiff competition among existing companies, several beginners are availing the advantages of full potential drones proposal. For example, despite having revenue kings like Parrot, DJI and 3DR; a comparatively small German industry Air Robot gave a surprise upon winning the tender for becoming industry partner of US BSNF Railway inspection program (DRONEII, 15 October 2015). Bargaining Power of Customers: The market can mainly be divided among two main type of service providers i.e. generalists and specialists. Knowledgeable as well as well-informed customers are ready to pay any amount to get the supposed/desired quality presented by highly experienced and skilled manufacturers (Suwardy Ratnatunga, 2014). Since majority of the clients of drone industry which can be categorized specialists as they required customized product tailored to their operation for example construction, film industry, agriculture, media, military, oil gas refineries, coast guards; they are well educated and well informed. Moreover, use of drones to carry out operations significantly reduce their expenses. So, they are less sensitive to the prices and they end up paying even high amount. Thus, the bargaining power of the customers can be regarded as weak in this case and clients capacity to bargain is practically nullified by the structure of the industry. Threats of Substitute Products: As far as the substitutes are concern, customers may have a choice, they may be under some circumstances ready to accept alternative services for limited time if it suffices their needs or to save money for short term but in most of the scenarios these substitutes can not be used for long term (Ndanga et al, 2015). For example, if a company is required to conduct a field survey for single time, it might opt to conduct it manually than buying a whole batch of drones which will be of no use after single use. Although the drone industry is providing alternatives to several well-known industry procedures but still the possible threat of returning back to traditional products cannot be eliminated. As the price of alternate methods of doing things are high so there is a minimal threat of reverting back to them. As oil gas industries taking advantage of its thermal imaging and gas sniffer technologies to conduct their thousands of miles of pipelines as well as oil rigs. Sky future a drone manufacturer turned this into a competitive advantage and already invest $9.5m in projects with BP, shell, Conoco Philips (Harvard Business Review, 29 June 2016). Moreover, the need of the drones is rising every day; subject to the available technology in future, there is a little threat of substitute products. Intensity of Existing Rivalry: Collectively organizations rely on each other for success. A firm is comprised of several markets in which they are contending against numerous competitors. This multipoint rivalry is a proper demonstration of competitive network which infers the mutual interdependence of firms and in high intense rivalry senior management processes are focused on avoidance of errors (Xu, 2011). Policies defined by government can dictate the amount of rivalry within industry. Since it is a new industry and its revenue is rising swiftly so they are less probable to rival against each other because the overall size of industry is also growing. It allows several firms to flourish without stealing market share. Although competition among few drone giants rises in the past year. Chinese private drone manufacturer company DJI gained a stiff competitive edge in the market by the release of its marvelous model SPARK, on the other hand its closest competitor GoPro is recalling its Karma Drone after technical failures which resulting in a competitive edge to DJI (Dow Jones, 31 May 2017). Regardless of its large and free market structure, few zones of this industry are susceptible to high rivalry, especially in military applications. This part is in command of large developers of weapons or several government firms including defense contractors. This sub-industry is dominated by large weapons developers, defense contractors, or direct branches of various government organizations. In billions of dollars weapons industry, the innovations in this specific zone of industry are generally undisclosed. This freshly developed industry has left numerous arenas unexplored, restricting the intensity of rivalry from existing firms. As the new aspirants form the trust within customers they will ultimately result into strong competition in future. Bargaining Power of Suppliers: The case when suppliers power is high, industry tends to lowers the cost to get above average returns and cost reduction give them a competitive advantage over others; experience curves effects and economies of scale are helpful to generate cost based advantage (Fuentes-Fuentes, Llorns-Montes Albacete-Sez, 2007). Since as opposed to buyers; suppliers are in concentrated numbers and there is no reasonable substitute available in the market and buyers are disintegrated means there are several buyers but neither of them constitute a big portion of sales; this all make supplier power high (The Drone Industry, 2017). There is strong possibility that in future when drone industry is fully developed and rivalry amongst suppliers is high then prices tend to decline and low bargaining power will be observed. Quantitative analysis Investigating the statistical indicators of the quantitative analysis presented, it will be possible to consecrate the main prospects for the growth of the drones industry. The analysis promotes study of the market sustainability status and its business success both within countries and on the international scene. In addition, without a detailed quantitative analysis, it is unlogical to summarize the results and conclusions of this work. For starters, we should mention the costs of creating drones. The costs are determined by the technology, on the basis of which the drone is created and the development approach. These include: - Components, parts and materials - Machine tools Global market of Un-manned Arial Vehicle accounts for a significant growth on aerial platform. Today, defense ministry of several nations uses UAVs having several features across the world. The global demand is fuelled with successful use of UAV system in combating operation by Afghanistan and Iraq (Atwater 2015). The rapidly growing drone industry with use of intensively developed software and hardware takes an important place in different industry. These industries are agriculture, management of land, construction and energy industry. In the global aerial drone market, the lion share is captured by the defense industry. Figure 1: Global drone market (Source: statista.com 2017) Figure 2: Key Market segmentation in Drone industry (Source: statista.com 2017) Several factors play important role in the global payload industry of drone. Use of technologically advanced products such as cameras, mapping software, mapping covering multidimensional aspects and sensory application are major determinant of future growth of the industry. Arrangements for privacy or security and Use of high-resolution satellite imagery are other aspects in the industry. Countries like United States, United Kingdom, India, China, Russia and other countries make substantial investment for improving defense portfolios (Cho, Lee and Lee 2016). Overtime the monetary expense on unmanned system of land, water and air both by developed and developing nations. Major participants in the global drone market are North American countries such as U.S, Canada, Mexico, European countries like Germany, U.K, France and Rest of Europe, Asia-Pacific region including countries like Japan, China, Australia, India and rest of Asia-pacific nation and middle east, Latin America and African countries. Figure 3: Market share of importing countries in drone market (2010-2014) (Source: statista.com 2017) As shown from the figure, UK is the top importers followed by India, Italy, Azerbaijan, Germany and other. Figure 4: Ranking of countries by Military expenditure (2015) (Source: Atwater, D.M., 2015) United States has the largest amount of military expenditure and hence constitutes a significantly high demand for drone. Figure 5: Comparative analysis of regional market share in global Drone market (Source: Atwater 2015) In 2015, North America enjoyed 48.3% share in the market. The market share of North America projected to be declined in 2022 with gaining is share by participants such as Europe, Asia-Pacific and others. Figure 6: Trend analysis of global Drone Shipment (Source: statistica.com 2017) The statistics on global drone market in terms of revenue and shipment show an upward trend over the last few years. Coming to region wise specification, largest revenue share is channeled to the USA followed by Europe and China. Figure 7: Global share of revenue by regions (Source: Cho, Lee and Lee 2016) Some major players in the global drone markets are DJI, Parrot and 3D Robotics. The revenue share of these three players is given in the following figure. Figures 8: Major players in the drone market (Source: Cho, Lee and Lee 2016) USA is one of major users of drone. Different industries in US uses it effectively. Photo industry in US makes maximum use of this aircraft. In the global market, drones are available at different price ranges. Different models of Drones are found at cheap price, at middle ranged prices as well as at an expensive price. Cheap Drones Model name Price Hubsan X4 $30 Parrot Mini Drone $50 Syma X5C $50 Inguity XR micro hexacopter $45 (Source: mydronelab.com 2016) Middle-Priced Drones Model name Price Blade Nano RTF quadcopter $400 The Parrot Bebop $400 DJI Phantom 2 Vision+ $450 Cheerson CX20 $200 Walkera QR X350 $800 (Source: mydronelab.com 2016) High-Priced Drones Model Name Price Walkera Tali 500 $800-$1400 DJI Spreding wings S1000+ $1,500 DJI T600 Inspire 1 $3,000 DJI Matrice 100 $3,300 (Source: mydronelab.com 2016) The reason for different prices of drones are cost differential in manufacturing drones. The prices vary depending on basic cost structure and accessories used in building drone. The basic components needed for constructing a drone are frame, motor, ESC, Propellers and Transmitters and receivers. Basic cost structure of Drone Components Cost Drone Frame $100-$200 Motors $10-$100 ESC $30-$50 Propellers $50 Flight Controller $100-$250 Batteries $5-$20 Transmitter and Receiver $50-$400 (Source: mydronelab.com 2016) Apart from basic inputs, other accessories used by manufacturers are propeller guards, extra propellers, extra batteries, micro SD card, Flight Recorder, Led Light kit, camera gimbal and others. Cost of Drone accessories Components Cost Propeller Guards $4-$20 Extra Propellers $2-$8 Extra Batteries $3-$20 Micro SD card $5-$25 Flight Recorder $93 Led Light Kit $8 Camera Gimbal $10-$74 (Source: mydronelab.com 2016) Summing up The global drone industry is growing at a faster pace. The major regions participating in global drone market are North America, Asia Pacific, Europe, Africa and Middle East nations. Globally USA captures a significant market share. However, other countries are making investment in this industry and capturing an increasing share in the market. Hence, global drone market becomes highly competitive. Some major players are Parrot in France having 62% share, 3D robotics in USA with 56% share and Cyber Technology in Australia having 17% share. Five forces analysis of is made to examine competitiveness of the industry. In the drone industry, new entrants face barriers in the form of restriction in laws, cost, latest technology and others. The two main types of service providers are generalists and specialists. Customers of specialists drones have an inelastic demand and pay a high price. In the market though substitutes are available that can be used in short term but cannot be used for lo ng term. Intensive rivalry exists among the existing players. The suppliers of drone usually have a high bargaining power arising from factors such as low market power of buyers and low availability of substitute. Cost leadership, product differentiation and focus are vital aspect of any business strategy. Under cost leadership, firms are trying to reach at the level where production is made at least possible cost. Differentiation means adding some extra dimension to its own product while operating in a competitive environment. Focus means resting focus of the company at a narrow competitive space (Atwater 2015). Given the current state of global drone industry, the most optimal strategy for the drone industry is low cost and differentiation. More the companies invest in their research and development more they will be able to achieve a cost effective technology and hence, can offer best quality drone at a reasonable price. The low cost strategy allows DJI, a drone manufacturer having parent company in Hong Kong dominated the word market with its low cost strategy. DJI is able to provide drone with a better price and better technology. Another optimal strategy for the industry is make their ow n build drone as differentiated as possible. DJI has differentiated its product from its competitor using some unique materials. While other competitors use Go Pro type action camera DJI is focusing on aerial cameras. The industry future Today the global drone industry has accounted an incredible growth rate. With advent of technology and use of such advanced technology in manufacturing drone results in introduction of newer model on the global platform. Today various sectors have been using drone for serving different purposes. There are several new technology that are in progress and yet to be applied. The price of drone has fallen drastically with use of low cost technology. The trend has started by DJI. To compete with DJI other major players will try to reduce their price. 3D Robotics is trying to break the domination of DJI in the market. In future, it is expected that new companies will arrive at the market place with low cost technology leading to further decline in prices. The existing players can differentiate themselves by integration with other technology. There are significant scope for Parrots Drone to integrate with Oculus Rift and this allows the users to view first person in drone flight. With a redu ced cost and scope to serve different purposes, the single industry in future will likely to have a huge impact in industries such as agriculture, security, energy and insurance. The use of drone in the field of agriculture is expect to increase in future. The figure is expected to reach USD billions 4.3 by 2022 with an approximated rate of 27% CAGR in between 2016 and 2022. With diversified usages of drones in different industry, investors have become increasingly interested to invest in drone industry. To meet the increased demand, there will be an increase in direct spending by different industries and consequently this will have a strong economic impact in near future. References: AirSpace, 2017. A Brief History of Quadrotors. 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