Case Study Description of Baidu.com, Inc.: Valuation at IPO
Since its official launch in January 2000, Baidu.com, Inc. (Baidu) quickly grew to become the leading Internet search engine in China. After three rounds of private funding, Baidu registered to go public on the NASDAQ Stock Market (Ticker Symbol: BIDU) on August 5, 2005. This case can be used for at least three types of courses: business valuation, entrepreneurship in emerging markets, or doing business in China. When used for a business valuation or corporate finance course, the case highlights issues involved in the valuation of early-stage companies in emerging growth industries and economies. When used for an entrepreneurship course, the case highlights the opportunities and challenges of starting and growing ventures in emerging markets; it also illustrates how a start-up company can take an existing entrepreneurial idea and proven business model from another country and successfully adapt it to the home market. Three steps in this successful adaptation are: (1) leveraging its local knowledge and expertise, (2) creating a unique competitive advantage for the venture, and (3) creating an entry barrier for its competitors. In a course on doing business in China, the case highlights the strategies for business success in China and the role of culture, government, economy, legal and financial systems, and consumer market in shaping these strategies.
Authors :: George Foster, Joseph Piotroski, Ning Jia, Martin Haemmig
Swot Analysis of "Baidu.com, Inc.: Valuation at IPO" written by George Foster, Joseph Piotroski, Ning Jia, Martin Haemmig includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Baidu.com Valuation facing as an external strategic factors. Some of the topics covered in Baidu.com, Inc.: Valuation at IPO case study are - Strategic Management Strategies, Emerging markets, Financial analysis, Financial management, Internet, IPO and Innovation & Entrepreneurship.
Some of the macro environment factors that can be used to understand the Baidu.com, Inc.: Valuation at IPO casestudy better are - – geopolitical disruptions, talent flight as more people leaving formal jobs, increasing commodity prices, challanges to central banks by blockchain based private currencies, there is backlash against globalization, increasing household debt because of falling income levels, increasing inequality as vast percentage of new income is going to the top 1%,
increasing transportation and logistics costs, technology disruption, etc
Introduction to SWOT Analysis of Baidu.com, Inc.: Valuation at IPO
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Baidu.com, Inc.: Valuation at IPO case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Baidu.com Valuation, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Baidu.com Valuation 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 Baidu.com, Inc.: Valuation at IPO can be done for the following purposes –
1. Strategic planning using facts provided in Baidu.com, Inc.: Valuation at IPO case study
2. Improving business portfolio management of Baidu.com Valuation
3. Assessing feasibility of the new initiative in Innovation & Entrepreneurship field.
4. Making a Innovation & Entrepreneurship topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Baidu.com Valuation
Strengths Baidu.com, Inc.: Valuation at IPO | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Baidu.com Valuation in Baidu.com, Inc.: Valuation at IPO Harvard Business Review case study are -
Training and development
– Baidu.com Valuation has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Baidu.com, Inc.: Valuation at IPO Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Sustainable margins compare to other players in Innovation & Entrepreneurship industry
– Baidu.com, Inc.: Valuation at IPO firm has clearly differentiated products in the market place. This has enabled Baidu.com Valuation to fetch slight price premium compare to the competitors in the Innovation & Entrepreneurship industry. The sustainable margins have also helped Baidu.com Valuation to invest into research and development (R&D) and innovation.
Successful track record of launching new products
– Baidu.com Valuation has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Baidu.com Valuation 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.
Innovation driven organization
– Baidu.com Valuation is one of the most innovative firm in sector. Manager in Baidu.com, Inc.: Valuation at IPO Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Ability to recruit top talent
– Baidu.com Valuation is one of the leading recruiters in the industry. Managers in the Baidu.com, Inc.: Valuation at IPO are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Organizational Resilience of Baidu.com Valuation
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Baidu.com Valuation does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
High switching costs
– The high switching costs that Baidu.com Valuation 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 lead change in Innovation & Entrepreneurship field
– Baidu.com Valuation 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 Baidu.com Valuation in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Digital Transformation in Innovation & Entrepreneurship segment
- digital transformation varies from industry to industry. For Baidu.com Valuation digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Baidu.com Valuation 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.
Analytics focus
– Baidu.com Valuation is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by George Foster, Joseph Piotroski, Ning Jia, Martin Haemmig can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Highly skilled collaborators
– Baidu.com Valuation has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Baidu.com, Inc.: Valuation at IPO HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Learning organization
- Baidu.com Valuation 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 Baidu.com Valuation is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Baidu.com, Inc.: Valuation at IPO Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Weaknesses Baidu.com, Inc.: Valuation at IPO | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Baidu.com, Inc.: Valuation at IPO are -
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Baidu.com, Inc.: Valuation at IPO, is just above the industry average. Baidu.com Valuation 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.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Baidu.com Valuation supply chain. Even after few cautionary changes mentioned in the HBR case study - Baidu.com, Inc.: Valuation at IPO, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Baidu.com Valuation vulnerable to further global disruptions in South East Asia.
High cash cycle compare to competitors
Baidu.com Valuation 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.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Baidu.com, Inc.: Valuation at IPO, in the dynamic environment Baidu.com Valuation has struggled to respond to the nimble upstart competition. Baidu.com Valuation has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Slow decision making process
– As mentioned earlier in the report, Baidu.com Valuation has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Baidu.com Valuation even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Interest costs
– Compare to the competition, Baidu.com Valuation has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Workers concerns about automation
– As automation is fast increasing in the segment, Baidu.com Valuation 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.
Capital Spending Reduction
– Even during the low interest decade, Baidu.com Valuation 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 bargaining power of channel partners
– Because of the regulatory requirements, George Foster, Joseph Piotroski, Ning Jia, Martin Haemmig suggests that, Baidu.com Valuation 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.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Baidu.com, Inc.: Valuation at IPO, it seems that the employees of Baidu.com Valuation 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 harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Baidu.com Valuation is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Baidu.com, Inc.: Valuation at IPO can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Opportunities Baidu.com, Inc.: Valuation at IPO | 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 Baidu.com, Inc.: Valuation at IPO are -
Buying journey improvements
– Baidu.com Valuation can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Baidu.com, Inc.: Valuation at IPO suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
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. Baidu.com Valuation can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Baidu.com Valuation in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Innovation & Entrepreneurship segment, and it will provide faster access to the consumers.
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 Baidu.com Valuation 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.
Creating value in data economy
– The success of analytics program of Baidu.com Valuation has opened avenues for new revenue streams for the organization in the industry. This can help Baidu.com Valuation to build a more holistic ecosystem as suggested in the Baidu.com, Inc.: Valuation at IPO case study. Baidu.com Valuation can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Using analytics as competitive advantage
– Baidu.com Valuation has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Baidu.com, Inc.: Valuation at IPO - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Baidu.com Valuation to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Baidu.com Valuation can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Baidu.com Valuation is facing challenges because of the dominance of functional experts in the organization. Baidu.com, Inc.: Valuation at IPO 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.
Leveraging digital technologies
– Baidu.com Valuation can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Innovation & Entrepreneurship industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Baidu.com Valuation can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Baidu.com Valuation can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Better consumer reach
– The expansion of the 5G network will help Baidu.com Valuation to increase its market reach. Baidu.com Valuation will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Baidu.com Valuation can use these opportunities to build new business models that can help the communities that Baidu.com Valuation operates in. Secondly it can use opportunities from government spending in Innovation & Entrepreneurship sector.
Learning at scale
– Online learning technologies has now opened space for Baidu.com Valuation to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Threats Baidu.com, Inc.: Valuation at IPO External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Baidu.com, Inc.: Valuation at IPO are -
Stagnating economy with rate increase
– Baidu.com Valuation 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.
Regulatory challenges
– Baidu.com Valuation needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Innovation & Entrepreneurship industry regulations.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Baidu.com Valuation business can come under increasing regulations regarding data privacy, data security, etc.
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. Baidu.com Valuation 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.
High dependence on third party suppliers
– Baidu.com Valuation 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.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Increasing wage structure of Baidu.com Valuation
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Baidu.com Valuation.
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. Baidu.com Valuation needs to understand the core reasons impacting the Innovation & Entrepreneurship industry. This will help it in building a better workplace.
Environmental challenges
– Baidu.com Valuation 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. Baidu.com Valuation can take advantage of this fund but it will also bring new competitors in the Innovation & Entrepreneurship industry.
Consumer confidence and its impact on Baidu.com Valuation 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.
Technology acceleration in Forth Industrial Revolution
– Baidu.com Valuation has witnessed rapid integration of technology during Covid-19 in the Innovation & Entrepreneurship industry. As one of the leading players in the industry, Baidu.com Valuation needs to keep up with the evolution of technology in the Innovation & Entrepreneurship 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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Baidu.com Valuation in the Innovation & Entrepreneurship industry. The Innovation & Entrepreneurship industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Baidu.com, Inc.: Valuation at IPO, Baidu.com Valuation may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Innovation & Entrepreneurship .
Weighted SWOT Analysis of Baidu.com, Inc.: Valuation at IPO 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 Baidu.com, Inc.: Valuation at IPO 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 Baidu.com, Inc.: Valuation at IPO 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 Baidu.com, Inc.: Valuation at IPO 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 Baidu.com, Inc.: Valuation at IPO 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 Baidu.com Valuation needs to make to build a sustainable competitive advantage.
