The U.S. Current Account Deficit SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Global Business
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of The U.S. Current Account Deficit
Investors and policymakers throughout the world were confronted with the risk of painful economic consequences arising from the large U.S. current account deficit. In 2007, the U.S. current account deficit was $731 billion, equivalent to 5.3% of GDP. The implications of the deficit were debated with intensity. At one extreme, it was argued that large deficits would eventually resolve themselves smoothly, even if they persisted for many more years. Former Federal Reserve Chairman Alan Greenspan was among those expecting a "benign resolution to the U.S. current account imbalance." Other analysts, such as economists at the World Bank, believed the large deficits raised the risk of a sharp and disorderly fall of the dollar and that necessary macroeconomic adjustment could be painful, for the United States as well as for the rest of the world. The Financial Times asked: "How long will foreigners be prepared to make such generous 'gifts' to the US?" In this environment, Berkshire Hathaway, run by legendary investor Warren Buffett, postulated that current account imbalances would lead to "some chaotic markets in which currency adjustments play a part" and announced to shareholders a plan to increase investment in overseas companies to protect against this risk. It remained to be seen what the short- and long-term implications of the current account deficit would ultimately yield.
Authors :: Laura Alfaro, Rafael Di Tella, Ingrid Vogel, Renee Kim
Swot Analysis of "The U.S. Current Account Deficit" written by Laura Alfaro, Rafael Di Tella, Ingrid Vogel, Renee Kim includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Deficit Account facing as an external strategic factors. Some of the topics covered in The U.S. Current Account Deficit case study are - Strategic Management Strategies, Economics, Entrepreneurship, Global strategy, Globalization, Government and Global Business.
Some of the macro environment factors that can be used to understand the The U.S. Current Account Deficit casestudy better are - – central banks are concerned over increasing inflation, technology disruption, there is backlash against globalization, challanges to central banks by blockchain based private currencies, talent flight as more people leaving formal jobs, competitive advantages are harder to sustain because of technology dispersion, increasing commodity prices,
increasing household debt because of falling income levels, increasing transportation and logistics costs, etc
Introduction to SWOT Analysis of The U.S. Current Account Deficit
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in The U.S. Current Account Deficit case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Deficit Account, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Deficit Account operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of The U.S. Current Account Deficit can be done for the following purposes –
1. Strategic planning using facts provided in The U.S. Current Account Deficit case study
2. Improving business portfolio management of Deficit Account
3. Assessing feasibility of the new initiative in Global Business field.
4. Making a Global Business topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Deficit Account
Strengths The U.S. Current Account Deficit | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Deficit Account in The U.S. Current Account Deficit Harvard Business Review case study are -
Digital Transformation in Global Business segment
- digital transformation varies from industry to industry. For Deficit Account digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Deficit Account has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Ability to lead change in Global Business field
– Deficit Account is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Deficit Account in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Successful track record of launching new products
– Deficit Account has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Deficit Account has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Strong track record of project management
– Deficit Account is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Sustainable margins compare to other players in Global Business industry
– The U.S. Current Account Deficit firm has clearly differentiated products in the market place. This has enabled Deficit Account to fetch slight price premium compare to the competitors in the Global Business industry. The sustainable margins have also helped Deficit Account to invest into research and development (R&D) and innovation.
Learning organization
- Deficit Account is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Deficit Account is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in The U.S. Current Account Deficit Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Operational resilience
– The operational resilience strategy in the The U.S. Current Account Deficit Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Diverse revenue streams
– Deficit Account is present in almost all the verticals within the industry. This has provided firm in The U.S. Current Account Deficit case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Organizational Resilience of Deficit Account
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Deficit Account does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Low bargaining power of suppliers
– Suppliers of Deficit Account in the sector have low bargaining power. The U.S. Current Account Deficit has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Deficit Account to manage not only supply disruptions but also source products at highly competitive prices.
High switching costs
– The high switching costs that Deficit Account has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Ability to recruit top talent
– Deficit Account is one of the leading recruiters in the industry. Managers in the The U.S. Current Account Deficit are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Weaknesses The U.S. Current Account Deficit | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of The U.S. Current Account Deficit are -
Workers concerns about automation
– As automation is fast increasing in the segment, Deficit Account needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study The U.S. Current Account Deficit, is just above the industry average. Deficit Account needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Need for greater diversity
– Deficit Account has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
High bargaining power of channel partners
– Because of the regulatory requirements, Laura Alfaro, Rafael Di Tella, Ingrid Vogel, Renee Kim suggests that, Deficit Account is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Products dominated business model
– Even though Deficit Account has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - The U.S. Current Account Deficit should strive to include more intangible value offerings along with its core products and services.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study The U.S. Current Account Deficit, it seems that the employees of Deficit Account don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Slow to strategic competitive environment developments
– As The U.S. Current Account Deficit HBR case study mentions - Deficit Account takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
Aligning sales with marketing
– It come across in the case study The U.S. Current Account Deficit that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case The U.S. Current Account Deficit can leverage the sales team experience to cultivate customer relationships as Deficit Account is planning to shift buying processes online.
Skills based hiring
– The stress on hiring functional specialists at Deficit Account has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Capital Spending Reduction
– Even during the low interest decade, Deficit Account has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
High cash cycle compare to competitors
Deficit Account has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Opportunities The U.S. Current Account Deficit | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study The U.S. Current Account Deficit are -
Developing new processes and practices
– Deficit Account can develop new processes and procedures in Global Business industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Low interest rates
– Even though inflation is raising its head in most developed economies, Deficit Account can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Deficit Account to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Global Business industry, but it has also influenced the consumer preferences. Deficit Account can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Deficit Account in the consumer business. Now Deficit Account can target international markets with far fewer capital restrictions requirements than the existing system.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Deficit Account is facing challenges because of the dominance of functional experts in the organization. The U.S. Current Account Deficit case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Building a culture of innovation
– managers at Deficit Account can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Global Business segment.
Manufacturing automation
– Deficit Account can use the latest technology developments to improve its manufacturing and designing process in Global Business segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Deficit Account can use these opportunities to build new business models that can help the communities that Deficit Account operates in. Secondly it can use opportunities from government spending in Global Business sector.
Loyalty marketing
– Deficit Account has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Deficit Account can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Deficit Account can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, The U.S. Current Account Deficit, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Deficit Account can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Threats The U.S. Current Account Deficit External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study The U.S. Current Account Deficit are -
Stagnating economy with rate increase
– Deficit Account can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Deficit Account with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study The U.S. Current Account Deficit, Deficit Account may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Global Business .
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Deficit Account needs to understand the core reasons impacting the Global Business industry. This will help it in building a better workplace.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Deficit Account can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study The U.S. Current Account Deficit .
Environmental challenges
– Deficit Account needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Deficit Account can take advantage of this fund but it will also bring new competitors in the Global Business industry.
High dependence on third party suppliers
– Deficit Account high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Technology acceleration in Forth Industrial Revolution
– Deficit Account has witnessed rapid integration of technology during Covid-19 in the Global Business industry. As one of the leading players in the industry, Deficit Account needs to keep up with the evolution of technology in the Global Business sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Consumer confidence and its impact on Deficit Account demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Deficit Account will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Deficit Account in the Global Business sector and impact the bottomline of the organization.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Deficit Account.
Shortening product life cycle
– it is one of the major threat that Deficit Account is facing in Global Business sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Weighted SWOT Analysis of The U.S. Current Account Deficit Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study The U.S. Current Account Deficit needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study The U.S. Current Account Deficit is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study The U.S. Current Account Deficit is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of The U.S. Current Account Deficit is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Deficit Account needs to make to build a sustainable competitive advantage.
