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Guest and Peccei (2001) have defined partnership as something that arises out an organisation’s joint venture which has three components; a set of principle, a set of practices and the promise of future benefits. From the perspective of organisation within a business, partnerships is especially viable if the business is a small or medium sized business (McIvor and McHugh, 2000). Some advantages of a partnership may be that, as Guest and Peccei pointed out, there are a set of rules and principles which all partners are obliged to follow. Additionally, consensus is a high priority while making decisions in a partnership. However, disadvantages of a partnership may include the lack of a legal entity of the business and the subsequent liability of the partners involved in the partnership (Informdirect, 27 August 2017).
In the past, studies on partnerships have largely ignored studying it in the context of internal organisation. This is a significant gap in literature as logically, a partnership significant divides the decision-making and capital cost burdens, which makes significant difference in the internal organisation of a business (MacDonald et al, 2019). The positive part regarding the operations of Little Dessert Shop is that both the partners are in agreement with respect to the long term goals of the bakery, that is branching out into organic food items. The dilemma they share is common as well; whether they would like to increase the costs of their operations by sourcing organic materials or not. The following sections will seek to elucidate on some of the possible strengths and weakness of the alternatives that the partners can consider while they are looking to expand their operations.
The Porters five forces framework is an important tool to analyse the competitiveness of an industry, and helps businesses achieve a competitive advantage by managing the relationship with its constituent forces (Porters, 2008). There are 5 market forces which constitute the model and they are:
Existing competitive rivalry: It refers to the number and strength of the companies or businesses already existing in that industry. The confectionery and desert industry is generally high as there are a number of large scale and medium scale businesses. Specifically in Sue and Mary’s case, there are a number of food venues in the busy Bullring centre, implying there exists competition for the consumer’s attention. Advice: Creating a niche environment, such marketing the shop as a place for teenagers to meet or having niche organic products will help target a specific consumer profile and create a niche for the shop which would reduce the competition
Power of suppliers: It refers to the ability of the supplier to unilaterally increase the price of drive up the prices for the inputs or raw materials, thereby decreasing profits. In Sue and Mary’s case, the power of suppliers is moderately high, as they source their raw supplies from large scale cash and carries, which have high bargaining power. Advice: Building an efficient supply chain with multiple suppliers will reduce dependence on a single supplier, thereby reducing the power of supplier. If they decide to buy more premium or organic ingredients from local organic farms, that would decrease the bargaining power of an individual supplier.
Power of buyers: It refers to the ability of customers or buyers to decrease the price. In Sue and Mary’s case, the power of buyers is high because with dessert products, they look for discounts, and for people who are shopping in the Bullring, the brand loyalty is low, and takes time to establish. Advice: One way is to build a loyal base of customers by marketing in the local community and advertising niche premium or organic products. The other way to reduce the power of buyers is to rapidly introduce new products, as customers tend to demand discounts for existing products, and thus new product lines can decrease the power of buyers.
Threat of new entrants: It refers to the threat of new competition entering the market. In this particular case, the threat is high because of the low capital required to start a small bakery shop. Advice: There are two ways to reduce the threat of new entrants. The first is to build economies of scale, to discourage new entrants. More important is to innovate new products, and products which cater to specific target consumers like organic products
Threat of substitution: This refers to the possibility of customers of customers finding similar goods and services in other places. The threat for that in this particular case is low because desserts are generally considered a luxury item and thus not prone to substitution. Advice: To decrease the threat of substitution, understanding what the consumer wants and creating a product tailored to it is essential.
The following section looks into the different aspects of external factors which may affect the business of the bakery. PESTLE analysis is used in order to examine these factors. To make the analysis as relevant as possible, three major aspects which have the most effect on the bakery’s business will be analysed.
1. Political Environment : This particular aspect has become important for the bakery’s business in the current climate. The political factors which will influence the operation of the bakery currently are mainly government regulations regarding restaurants and bakeries. The bakery had to remain shut for three months because of the governmental policies in the light of the pandemic. It is imperative for the survival of the business that the governmental policies remain favourable to the opening up of business and regulations favour customers visiting stores as well. To cut back on costs to offset the losses they have suffered when they remained closed, the owners can consider hiring employees on a freelance basis instead of permanent basis. An advantage of that would be that if governmental policies, in the current worsening situation, decides to restrict businesses once again, they will not have to bear the additional burden of providing monetary sustenance for permanent employees.
2. Economic Environment: The political and economic environment is intimately connected. It has been estimated that in the second quarter of 2020, UK has fallen into a state of deep recession whereby the GDP fell by 20.4% when evaluated comparatively with the earlier months (Partington, 12 August 2020). The UK expects a deep economic recession in the coming months and it will take a substantial amount of time for the economy to stand back up. Considering that, the purchasing power of individuals will likely fall and non-essential items like baked goods will see a decrease in sales. In the context of this, the bakery needs to develop services which it hasn’t offered before in order to gain an upper hand. For example, the bakery could profit from starting a home delivery service, whereby people can order baked goods to be delivered to their homes.
3. Social Environment: The bakery is already making strides in this regard by considering selling organic options for the more health conscious customers. However, this evaluation suggests that, based on the economic factors and scenario, it is not wise for the business to invest in this presently. The reason being that the purchasing power of consumers is bound to dip because of the economic recession. Hence, it will make sense for the owners to keep catering the items for which they became popular and keep their image of being a bakery which sells good quality items at an economic price. When market conditions improve, they could consider branching out into organic food items.
A very important external threat which needs particular attention presently is the threat of the pandemic on small business, such as Little Dessert Shop. Like most SMEs in the UK, profits of the store depend heavily on how much cash reserve has been kept by the business. If lockdown is extended in the country, the business will run the risk of liquidating its present assets and going bankrupt (Ross et al, 2020). Ligouri and Pitz (2020) suggest that one way for small and medium sized business to survive and thrive in this scenario is innovating their marketing strategy. By providing their customers the option to shop online, Little Dessert Shop will ensure that it reaches it retains its old customer base and is able to reach a new demographic. This is also the time for the business to experiment with different kinds of desserts and services like birthday cake deliveries to expand its customer base.
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