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From 1992 onwards, Pisces transformed itself into a diversified conglomerate. Examine to what extent did Pisces’ corporate-level strategies fulfilled its strategic direction.
Introduction
There are three different components we will be discussing about for this question. We will need to determine (1) What is Pisces’ corporate-level strategy? (2) What is Pisces strategic direction? (3) How fulfilled was the strategic direction on the strategies used.
Firstly, to understand what Pisces’ corporate-level strategy is, understanding the term of is vital. Corporate-level strategy is strategies undertaken by firms to gain competitive advantage through diversification of single business operation to multiple operations competing in different product market (Ireland 154). From the concept, we will realise that Pisces had also adopted the use of International Strategy. International Strategy is strategies taken by a company by selling goods or services outside its home market. In the case of Pisces, they expanded by diversifying their operation out of its home (Singapore) market to Saudi Arabia, China, Thailand and more. We will discuss about the multi-domestic strategy that I feel that was the strategy adopted by Pisces. Multi-domestic strategies are strategies in which operation decision are made by the strategic business unit of each country to allow customization of decision towards the local market. For these areas, I will be making use of the Value-Creating Diversification Strategies (Ireland 159) and the International Corporate Level Strategies diagram to help me to assess the types of strategies deployed by Pisces.
Secondly, we will be going into the understanding of Pisces strategic direction. Setting a strategic directions include stating the overall goals a company seek to achieve and as discussed in point 1, the strategies taken to achieve the goals. In addition, the main reason for the use of diversification by company is value creation. Broadly speaking, the strategic directions normally refer to the vision, mission statements and goals and objectives of the company.3 From the case study, it was indicated that Pisces’ interest was to turn from a family-owned interest it to a public company thus I believe that value creation is the one of the goal for Pisces.
Lastly, we will evaluate to what extend was the direction achieve by Pisces. Pisces decided to tap on the international market through diversifying into areas of businesses that are unrelated to its core retailing/garment industry. We will come to realise that the diversification that Pisces used is ultimately not favourable to them. We will learn that because of their over-diversification, its core garment business took a big profit plunge.
The scope of my discussion will begin from 1992 to 1996. 1992 was the year when Pisces first started their first overseas operation in Saudi Arabia.
The Businesses of Pisces
Before 1993, Pisces main businesses were garment and household retail and manufacturing. In June 1992, it’s started retailing in Saudi Arabia. From then on, they move into the China market through a series of partnership and strategic alliance with Chinese companies. During the period of 1992 to 1997, Pisces has many different businesses under its belt. These include trading and investment activities, technology, transportation, properties. Garments and retailing are the core business of Pisces.
The Level of Diversification – Unrelated Diversification
There are 4 quadrants in the model of Value-Creating Diversification Strategies. I have places Pisces under the quadrant of unrelated diversification in which it has the property of low operational relatedness and low corporate relatedness.
Due to the different nature of each business, there were very minimal levels of activity sharing whether in the primary of activity aspect. For primary activity, the nature of the different business such as transportation, garment manufacturing, properties have different output and thus cannot share inventory delivery system. For the support activity, the same reason applies and the different companies cannot share the same form of purchasing practices.
Corporate Relatedness refers to the aspect of transferring the core competencies from one business to another. I have termed it for low in the case of Pisces as even if Pisces do possess some form of core competency in the area of retail sector; it is very difficult to transfer the core competency from businesses that are very different in nature. Example would be like technology or transportation.
When firms like Pisces adopt the use of unrelated diversification, they seek to gain value through 2 types of financial economies: efficient internal market allocation and restructuring of assets.
International Corporate Level Strategy
As mentioned earlier, Pisces had used the business-level strategy jointly with the international-level strategy as it expands its business. In the context of Pisces, I believe the incentive for using the international strategy is due to the many limitation of Singapore market. Thus by expanding globally, Pisces was be able to expand their market size, taking advantage of low operations cost in China, transfer the knowledge and the experience of working in China as their competitive advantage
There are two types of International Strategies; International Business/Corporate Level strategy. (Ireland 217) International corporate-level strategy was necessary for Pisces as it operated in multiple industries and countries. The international corporate strategy is branched out into three different approaches. (Ireland 220) We will now look into how I determine that Pisces had adopted the Multi-domestic strategy which refers to the low level of global integration and the need of high level local responsiveness.
The use of multi-domestic strategy allows Pisces to focus on competition in each different country. The reason why Pisces decided to set up a transport and chartering business was most like because Pisces saw the potential of the transportation market in China. The strategy was important for Pisces as it has heavy investment business in China and the political and business practice greatly differs from Singapore. The need of global integration is towards the low end for Pisces as the only need for integration is mainly to lower production cost.
Evaluation of the Strategy
Pisces like any other firm used business and corporate level strategy with the expectation of increasing their firm’s value. We will now look at how Pisces fare in the implementing their strategies. Firstly, Pisces started from a retailer to a diversified conglomerate in a short time span of 5 years. From evening market stalls, Pisces had turned into a company with annual turnover of S$220. Through the merger and acquisition process, Pisces had penetrated quickly and effectively into the many sector of China. Pisces had the ready shareholders, investors who were “more than willing” to fund the projects that Pisces was interested to undertake. This meant the Pisces had earned itself the “investable grade” company. Throughout the years, Pisces had developed good guanxi with the authorities of China. This guanxi could be considered as a competitive advantage for a firm during the period of time as it can save firm time and money as it bypasses the length and complex approval system for working in China.
However if we scrutinise on the profit and loss statement, (Exhibit 1) we will see that the value of the Pisces had actually decrease.
I had calculated a few profitability ratios to analyse the profitability of Pisces through the years of diversification. From these calculations, we are able to see clearly that the profitability of Pisces had taken a decrease from 1994 to 1996. The biggest dip in profitability was their core business, Pisces Garment and Pisces Group even plunged into the reds in 1996. The result was most likely due to the fact Pisces had over diversified its business. Pisces had too many pies on hand and there wasn’t a team good enough to handle this diversified business. On top of that, Pisces Garment, which was their core, performed badly as they had lost focus of their business.
Conclusion
Based on my analysis, Pisces had not been very successful in their fulfilling their strategic direction. They might have expanded to many times when it first started out however the profitability were worst off from where they started.