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, central banks are concerned over increasing inflation, technology disruption, talent flight as more people leaving formal jobs, increasing energy prices, increasing commodity prices, there is increasing trade war between United States & China,
wage bills are increasing, increasing household debt because of falling income levels, 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 -
Diverse revenue streams
– Baidu.com Valuation is present in almost all the verticals within the industry. This has provided firm in Baidu.com, Inc.: Valuation at IPO 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.
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.
Cross disciplinary teams
– Horizontal connected teams at the Baidu.com Valuation are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Operational resilience
– The operational resilience strategy in the Baidu.com, Inc.: Valuation at IPO 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.
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.
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.
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.
Low bargaining power of suppliers
– Suppliers of Baidu.com Valuation in the sector have low bargaining power. Baidu.com, Inc.: Valuation at IPO has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Baidu.com Valuation to manage not only supply disruptions but also source products at highly competitive prices.
Effective Research and Development (R&D)
– Baidu.com Valuation has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Baidu.com, Inc.: Valuation at IPO - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
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.
High brand equity
– Baidu.com Valuation has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Baidu.com Valuation to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
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 -
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.
No frontier risks strategy
– After analyzing the HBR case study Baidu.com, Inc.: Valuation at IPO, it seems that company is thinking about the frontier risks that can impact Innovation & Entrepreneurship strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
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.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Baidu.com, Inc.: Valuation at IPO HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Baidu.com Valuation has relatively successful track record of launching new products.
Slow to strategic competitive environment developments
– As Baidu.com, Inc.: Valuation at IPO HBR case study mentions - Baidu.com Valuation 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.
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.
Low market penetration in new markets
– Outside its home market of Baidu.com Valuation, firm in the HBR case study Baidu.com, Inc.: Valuation at IPO needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Aligning sales with marketing
– It come across in the case study Baidu.com, Inc.: Valuation at IPO 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 Baidu.com, Inc.: Valuation at IPO can leverage the sales team experience to cultivate customer relationships as Baidu.com Valuation is planning to shift buying processes online.
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.
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.
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.
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 -
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.
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.
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.
Loyalty marketing
– Baidu.com Valuation 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.
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.
Building a culture of innovation
– managers at Baidu.com Valuation 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 Innovation & Entrepreneurship segment.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Baidu.com Valuation 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, Baidu.com, Inc.: Valuation at IPO, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
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.
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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Baidu.com Valuation to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Baidu.com Valuation to hire the very best people irrespective of their geographical location.
Low interest rates
– Even though inflation is raising its head in most developed economies, Baidu.com Valuation 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.
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.
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.
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 -
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.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Baidu.com Valuation 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 Baidu.com, Inc.: Valuation at IPO .
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 Baidu.com Valuation.
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.
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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Baidu.com Valuation with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
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.
Shortening product life cycle
– it is one of the major threat that Baidu.com Valuation is facing in Innovation & Entrepreneurship sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Easy access to finance
– Easy access to finance in Innovation & Entrepreneurship field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Baidu.com Valuation can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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.
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.
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.