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Business Environment Report

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Introduction to Assignment

This report discusses the potential growth of Space Airconditioning plc within the Airconditioning industry, by taking advantage of converged networks and how their implementation could result in a competitive advantage.

“Space's long term strategy has always been to develop the UK market from a position of strength via technical knowledge, experience and sound financial management, supported by Daikin’ technical expertise and long term vision.” (Space Airconditioning plc, 2007)

It is with this Mission Statement in mind and, in particular, trying to maintain an advantage by harnessing new technologies and adapting them to offer emerging applications, cost savings and productivity enhancements. This statement clearly communicates our raison d’Ð"Єtre and highlights our explicit objectives but whilst primarily important, there are further implicit objectives that Space Airconditioning strive to pursue. These being, the importance of being fair to our employees and act responsibly for them and for our customers.

One area that we can assist in acting fairly and responsibly, is by putting systems in place that aid employees and customers. For instance, offering the salesperson the ability to work remotely rather than commuting to the office every day. “implicit objectives do not oppose the primary objectives, they usually complement it and help towards its accomplishment” (Campbell et al, 2007:32)

Management at Space Airconditioning are challenged with maintaining (or even reducing) costs, whilst at the same time increasing innovation, capacity, employee productivity and security. A converged network can have a major role to play in delivering solutions to these key issues.


According to Porter (2004:6) the likelihood of firms making profits in a given industry depends on five factors, “Entry, threat of substitution, bargaining power of buyers, bargaining power of suppliers and rivalry amongst current competitors.”

In terms of Space Airconditioning, we are in a position where our supplier is also our competitor and we are continually striving to maintain an advantage where possible. By having an existing brand of such high quality such as Daikin’s equipment we are able to maintain this advantage and this limits the likelihood of a new entry who is able to offer a similar product to similar standard.

One area of concern though, based on Porter’ analysis, as cited by Manketlow (2007:148), would be the power of buyers. Because Daikin are also our competitor, this offers a buyer the choice of either acquiring goods from Space Airconditioning or Daikin UK. We need maintain the edge here and ensure that whilst the price of the goods or services may be the same from either distributor, they choose Space Airconditioning because of the additional value added benefits. If our business is more streamlined and efficient than that of our nearest competitor and if we adopt the latest technologies to ensure it remains so, we can reduce the power of buyer. “the efficiency of management and production systems in large and small companies can be greatly enhanced by exploiting new technologies” (BPP, 1998:134)

Porter argues that the stronger the power of a supplier in an industry means it is more difficult for firms within that sector to make a profit because they can determine the terms and conditions on which business is conducted.

Daikin being a supplier to Space Air and to themselves, however, means they are governed by competition regulations. Article 82 of the EC Treaty states “any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States.” As a result they are unable to directly or indirectly impose unfair purchase or selling prices or other unfair trading conditions. This means we can operate on a level playing field in that regard.

Whilst there is a degree of rivalry between Space Airconditioning and Daikin UK, there is a large market share within the airconditioning industry and both companies try to act within its best interest and not to devalue the product, In effect we operate as an oligopoly, with a high degree of market concentration with barriers to entry. There is also market interdependence in this type of structure and this means that each company must take into account the likely reactions of other company in the market when making pricing and investment decisions.

When Daikin industries began to adopt the policy of acquiring affiliates and distributors in the early 2000’s Space Airconditioning remained the only independent privately owned distributor. This forward vertical integration by Daikin, affected Space Airconditioning in the short term, with some customers choosing to purchase directly from Daikin but in the longer term, it has been proved that our Unique Selling Proposition (USP) that we offer has resulted in those customers returning to us and new ones being acquired. One of our USP’s has been in our efficiency and service. This is driven by, amongst other things, our technology infrastructure and systems. “technology is the application of knowledge into some practical form, typically applied to commercial use” (Brooks et al, 1999:141)

Technology offers business an opportunity to increase productivity and it is with this in mind that this report highlights the opportunity given by moving to a converged network. Put simply, “A single network capable of carrying a mixture of voice (telephone), video (production and training), and application data.” (One Unified 2006)

“Technology can help businesses accelerate processes. The more rapid transmission of information coupled with the mechanisation of man tasks means that decisions can be made faster and goods produced more rapidly” (Campbell et al 2005:248)

Space Airconditioning currently use a PBX telephone system with each of their offices having multiple analogue lines for calls and faxes. Each office employs a dedicated member of staff to route the incoming calls and we have in place a large network for our application data. One element of a converged network facilitates the combining of voice and data packets over the same backbone. Voice over IP (VoIP) refers to the management and



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