Article summary
The article reviewed is ‘Lyxor looks to innovative strategies for global growth’ by Chris Flood written in the Financial Times in 2013. The article talks about Ines de Dinechin, the chairperson and chief executive of Lyxor, an asset management company and the strategies she is implementing to achieve global growth (Flood, 2013). The article indicates that Lyxor’s exchange traded funds (ETFs) are underperforming and Dinechin is faced with the challenge of rejuvenating the performance of these funds in the market. In terms of growth, the article indicates that Lyxor’s objective is to pursue organic growth (Flood, 2013). The company also intends to realize growth through acquisitions of smaller firms. But most importantly, according to the article, Lyxor is focused on offering customers more sophisticated investment strategies. In short, article indicates Lyxor is looking to grow by using multiple strategies that include joint ventures, acquisitions, and, most importantly, product innovations with the aim being to deliver performance to investors in various markets that include US, Europe, and Asia.
Background information about the company
Lyxor Asset Management Group is a wholly-owned asset management company. The company is a specialist asset manager and an expert in all investment styles, that is, active, passive, and alternatives. Lyxor develops innovative investment solutions that meet specific consumer needs and solve the investment challenges experienced by customers. Lyxor was established in 1998 and over the years, the company has been involved in alternative investing, active portfolio management and advisory management (Beursman, 2022). Throughout history Lyxor has developed and implemented customized investment solutions for a wide range of investors. The company has been running exchange traded funds since 2001, longer than any other provider in Europe. Lyxor has become one of the largest ETF managers in Europe and its products span all asset classes. The company currently offers more than 200 ways in which investors can explore the market (ETF Stream, 2022). In developing its investment solutions, the company combines search performance and risk management to ensure it provides the most profitable investment solutions while also ensuring that the solutions are not excessively risky.
Lyxor has offices around the world although it has concentrated its operations to European and Asian markets. The firm can be considered as the pioneer of ETFs in Europe. As early as 2000, the firm had introduced ETFs in the European. This was even before it acquired the name Lyxor (Beursman, 2022). Initially, the company focused its efforts on developing ETFs for the European market. However, it followed this quickly with ETFs for Asian markets and US. In 2014, Lyxor established an ETF Research Academy to research on ETFs in order to come up with more innovative ETF solutions (ETF Stream, 2022). This has allowed the company to stay ahead of competition as well as come up with solutions that meet specific consumer needs. The research academy has allowed Lyxor to revolutionize the ETF market.
A summary of the business case
The business case in the article is focused on the strategies that is Lyxor is supposed to use in order to realize growth. According to the article, Lyxor is first of all focused on using the organic growth strategy. This strategy involves a business organization using only its resources, without the need to borrow, to realize growth and expand its operations (Flood, 2013). This is probably aimed at reducing the firm’s risk level that most of the time comes with a lot of borrowing. The second strategy that Lyxor is focused on using based on the article is acquisitions. It is indicated in the article that while it is hard to achieve growth using acquisitions, the company is willing to acquire some asset managers provided they provide strategic advantage (Flood, 2013). But the most important strategy the company is looking to explore is development of innovative investment solutions. The innovative investment solutions are aimed to solve consumers’ investment needs and provide better investment options for customers (Flood, 2013). The aim is for the company to be unique and attract more customers in the various markets it has operations in. All these strategies are aimed to help the company to establish itself more in existing markets and be attractive in new markets.
Discussion
The business case above can be linked to the strategies of international growth topic. The business case highlights the possible strategies that companies use to achieve international growth. The selection of the strategies highlighted above can be explained by various theories and models. These models also provide insight into the possibility of these strategies being a success or failure. Two of them are Porter’s five forces model and the diamond framework.
Porter’s five forces model
The Porter’s five forces model highlights five competitive forces that shape an industry and determine the success or failure of a company in the industry. The forces are rivalry, potential of new entrants, power of suppliers, power of customers, and threat of substitutes (Grundy, 2006). Rivalry refers to the number of competitors in the market. This determines the level of competition in the market (Bruijl and Gerard, 2018). A high level of competition reduces the power of a company. This is because consumers can easily switch to other companies.
Potential of new entrants also affects the competitive advantage a company enjoys in an industry. If it costs less in terms of money and time for competitors to enter a market then the position of an established company is significantly weakened (Narayanan and Fahey, 2005). This is due to increased competition with entry of other players. An industry that has strong barriers is good for an existing company because it can charge prices and negotiate for better terms.
The power of suppliers involves how easily suppliers can increase the price of supplies. This is determined by the number of suppliers in the market, how unique are the products provided by the suppliers, and the cost of a firm switching from one supplier to another (Juliana and Nyoman, 2019). If, for instance, there are many suppliers in the market, competition among them will be high and this will reduce their power. On the other hand, if a supplier sells unique products, its power increases (Wu, Tseng and Chiu, 2012). A high supplier power drives up costs which negatively affects companies.
The power of customers, on the other hand, is the ability of customers to drive down prices. The power of customers is determined by the number of consumers in the market and how much it would cost a firm to find new customers (Grundy, 2006). A smaller consumer base increases power of customers, allowing them to negotiate for lower prices. Lastly, in relation of threat of substitutes, a company that produces goods that have no close substitutes have more power when compared to companies that produce goods which are similar to others in the market.
An examination of the growth strategies adopted in relation to five forces shows that the company intends to reduce the power of customers, the level of rivalry, and threat of substitutes. As indicated, one of the strategies adopted by the company is acquisitions. This strategy lowers the level of competition by removing some of the players from the market (Bruijl and Gerard, 2018). The other growth strategy adopted by the company is development of innovative investment solutions. These solutions are unique, meaning that while there are many firms in the market that offer investment solutions, they will not be similar to what Lyxor will offer. This will nullify the threat of substitutes and lower the power of customers since they cannot get similar solutions if they switch to competitors (Juliana and Nyoman, 2019). The impact of competition will also reduce because while there will be many competitors in the market, the fact that they do not offer similar solutions gives Lyxor a competitive advantage.
Diamond framework
The diamond framework attempts to explain why particular industries in a country are a competitive internationally while others are not. The framework also indicates that the ability of a company to compete internationally is based on five main factors which are firm strategy, structure and rivalry; factor conditions; demand conditions; and related and supporting industries (Smit, 2010). Firm strategy, structure, and rivalry focus on how firms are organized and the level of competition in the market. If the level of competition is high, a company is forced to innovate. The factor conditions, on the other hand, refer to capital, natural, and human resources (Kharub and Sharma, 2017). These factor conditions determine competitive ability of a firm. For example, a firm with highly skilled human resources has a competitive advantage. Demand conditions, on their part, determine the success of a firm. If the demand level in the market is high, it provides a firm with an opportunity to growth (Jhamb, 2016). Demand conditions required by customers, on the other hand, may push a firm to innovate and enhance the quality of its products and services. Lastly, the presence of related and supporting industries provide an avenue for a company to excel.
Examining Lyxor’s growth strategies in relation to the diamond framework shows that it is intention of the company to come up with firm strategy that will provide it with competitive advantage. The strategy, in this case, is focused on reducing competition in the market and providing investment solutions that are unique and very attractive to consumers (Smit, 2010). The development of innovative investment solutions is also possibly aimed at meeting demand conditions in the market.
Summary of major findings
One of the major findings of the article is Lyxor’s ETFs have been underperforming. The chairperson and chief executive, Ines de Dinechin, is thereby looking to revive their performance as well as elicit general growth of the company. Another key finding is the major strategies the company is adopting are joint ventures, acquisitions, and development of innovative investment solutions (Flood, 2013). Based on the strategies adopted, the company will perform well in future. One of the reasons why this is the case is reduction of competition in the market through acquisitions (Kharub and Sharma, 2017). The company is thereby likely to enjoy a larger market share. Another reason is unique investment solutions offered to customers. These unique solutions are likely to attract more customers to the company, thereby providing it with a competitive advantage in the market. This is particularly the case if the solutions offer better returns to customers.
However, the company is also likely to face problems particularly in relation to sustain competitive advantage over rivals. One such problem is imitation of solutions offered. Competitors may examine the solutions offered by Lyxor and develop similar solutions. This will significantly reduce the company’s competitive advantage (Jhamb, 2016). Another problem is high cost of operation. In order to stay ahead of competition, Lyxor may be compelled to invest significantly in research and development in order to come up with more sophisticated investment solutions. This will increase its cost, thereby lowering its profit levels.
Conclusion
Essentially, the article reviewed is Lyxor looks to innovative strategies for global growth by Chris Flood, written in 2013 in the Financial Times. The article highlights the strategies that Ines de Dinechin, the chairperson and chief executive of Lyxor was intending to use in order for the company to achieve global growth. The strategies highlighted in the article include acquisitions, joint ventures, and development of innovative investment solutions for its various markets. These strategies can be explained by various theories and models that include Porter’s five forces model and diamond framework. For example, Porter’s five forces model implies that by developing innovative investment solutions, Lyxor intends to provide unique services that are not similar to existing solutions. This will nullify the threat of substitutes, providing the company with competitive advantage. The question is, would the company succeed? Lyxor would succeed in the short-term especially when in relation to innovative investment solutions because other companies are likely to imitate these products. To sustain the competitive advantage, the firm will have to constantly reinvent its investment solutions where it will constantly offer better solutions to customers. This will help keep it ahead of competition. The company can also maintain a competitive advantage if it creates loyalty among customers. This can be achieved only if it continues to offer better solutions than competitors in the market.
