MercadoLibre (MELI) SWOT Analysis / TOWS Matrix / MBA Resources

Introduction to SWOT Analysis

SWOT Analysis / TOWS Matrix for MercadoLibre (United States)

Based on various researches at Oak Spring University , MercadoLibre is operating in a macro-environment that has been destablized by – central banks are concerned over increasing inflation, challanges to central banks by blockchain based private currencies, increasing government debt because of Covid-19 spendings, increasing commodity prices, technology disruption, increasing household debt because of falling income levels, supply chains are disrupted by pandemic , increasing inequality as vast percentage of new income is going to the top 1%, cloud computing is disrupting traditional business models, etc

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Introduction to SWOT Analysis of MercadoLibre

SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that MercadoLibre can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the MercadoLibre, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which MercadoLibre 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.

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SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix

SWOT analysis of MercadoLibre can be done for the following purposes –
1. Strategic planning of MercadoLibre
2. Improving business portfolio management of MercadoLibre
3. Assessing feasibility of the new initiative in United States
4. Making a Computer Services sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of MercadoLibre

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Strengths of MercadoLibre | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The strengths of MercadoLibre are -

Organizational Resilience of MercadoLibre

– The covid-19 pandemic has put organizational resilience at the centre of everthing MercadoLibre does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.

Digital Transformation in Computer Services industry

- digital transformation varies from industry to industry. For MercadoLibre digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. MercadoLibre 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.

Diverse revenue streams

– MercadoLibre is present in almost all the verticals within the Computer Services industry. This has provided MercadoLibre 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.

Training and development

– MercadoLibre has one of the best training and development program in Technology industry. The effectiveness of the training programs can be measured in – 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 Computer Services industry

– MercadoLibre has clearly differentiated products in the market place. This has enabled MercadoLibre to fetch slight price premium compare to the competitors in the Computer Services industry. The sustainable margins have also helped MercadoLibre to invest into research and development (R&D) and innovation.

Strong track record of project management in the Computer Services industry

– MercadoLibre is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.

High switching costs

– The high switching costs that MercadoLibre 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

– MercadoLibre has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled MercadoLibre to keep acquiring new customers and building profitable relationship with both the new and loyal customers.

Highly skilled collaborators

– MercadoLibre has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Computer Services industry. Secondly the value chain collaborators of MercadoLibre have helped the firm to develop new products and bring them quickly to the marketplace.

Successful track record of launching new products

– MercadoLibre has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. MercadoLibre 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.

Low bargaining power of suppliers

– Suppliers of MercadoLibre in the Technology sector have low bargaining power. MercadoLibre has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps MercadoLibre to manage not only supply disruptions but also source products at highly competitive prices.

Cross disciplinary teams

– Horizontal connected teams at the MercadoLibre 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.

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Weaknesses of MercadoLibre | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The weaknesses of MercadoLibre are -

High cash cycle compare to competitors

MercadoLibre has a high cash cycle compare to other players in the Computer Services industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.

Low market penetration in new markets

– Outside its home market of United States, MercadoLibre needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.

Products dominated business model

– Even though MercadoLibre has some of the most successful models in the Computer Services industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. MercadoLibre should strive to include more intangible value offerings along with its core products and services.

Skills based hiring in Computer Services industry

– The stress on hiring functional specialists at MercadoLibre 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.

High operating costs

– Compare to the competitors, MercadoLibre has high operating costs in the Computer Services industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract MercadoLibre lucrative customers.

Interest costs

– Compare to the competition, MercadoLibre 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.

Need for greater diversity

– MercadoLibre 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 dependence on MercadoLibre ‘s star products

– The top 2 products and services of MercadoLibre still accounts for major business revenue. This dependence on star products in Computer Services industry has resulted into insufficient focus on developing new products, even though MercadoLibre has relatively successful track record of launching new products.

Compensation and incentives

– The revenue per employee of MercadoLibre is just above the Computer Services industry average. It 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.

Lack of clear differentiation of MercadoLibre products

– To increase the profitability and margins on the products, MercadoLibre needs to provide more differentiated products than what it is currently offering in the marketplace.

Aligning sales with marketing

– From the outside it seems that MercadoLibre needs to have more collaboration between its sales team and marketing team. Sales professionals in the Computer Services industry have deep experience in developing customer relationships. Marketing department at MercadoLibre can leverage the sales team experience to cultivate customer relationships as MercadoLibre is planning to shift buying processes online.

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MercadoLibre Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The opportunities of MercadoLibre are -

Harnessing reconfiguration of the global supply chains

– As the trade war between US and China heats up in the coming years, MercadoLibre 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 MercadoLibre to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.

Redefining models of collaboration and team work

– As explained in the weaknesses section, MercadoLibre is facing challenges because of the dominance of functional experts in the organization. MercadoLibre can utilize new technology in the field of Computer Services industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.

Finding new ways to collaborate

– Covid-19 has not only transformed business models of companies in Computer Services industry, but it has also influenced the consumer preferences. MercadoLibre can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.

Using analytics as competitive advantage

– MercadoLibre has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Computer Services sector. This continuous investment in analytics has enabled MercadoLibre to build a competitive advantage using analytics. The analytics driven competitive advantage can help MercadoLibre to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.

Increase in government spending

– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, MercadoLibre can use these opportunities to build new business models that can help the communities that MercadoLibre operates in. Secondly it can use opportunities from government spending in Computer Services sector.

Building a culture of innovation

– managers at MercadoLibre 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 Computer Services industry.

Use of Bitcoin and other crypto currencies for transactions in Computer Services industry

– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for MercadoLibre in the Computer Services industry. Now MercadoLibre can target international markets with far fewer capital restrictions requirements than the existing system.

Reforming the budgeting process

- By establishing new metrics that will be used to evaluate both existing and potential projects MercadoLibre can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.

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 MercadoLibre 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.

Developing new processes and practices

– MercadoLibre can develop new processes and procedures in Computer Services 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.

Manufacturing automation

– MercadoLibre can use the latest technology developments to improve its manufacturing and designing process in Computer Services sector. 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.

Low interest rates

– Even though inflation is raising its head in most developed economies, MercadoLibre 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.

Remote work and new talent hiring opportunities

– The widespread usage of remote working technologies during Covid-19 has opened opportunities for MercadoLibre 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 MercadoLibre to hire the very best people irrespective of their geographical location.

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Threats MercadoLibre External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

The threats of MercadoLibre are -

High dependence on third party suppliers

– MercadoLibre 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.

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. MercadoLibre needs to understand the core reasons impacting the Computer Services industry. This will help it in building a better workplace.

Environmental challenges

– MercadoLibre 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. MercadoLibre can take advantage of this fund but it will also bring new competitors in the Computer Services industry.

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 MercadoLibre.

Stagnating economy with rate increase

– MercadoLibre 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 Computer Services industry.

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 MercadoLibre business can come under increasing regulations regarding data privacy, data security, etc.

Regulatory challenges

– MercadoLibre 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 Computer Services industry regulations.

Shortening product life cycle

– it is one of the major threat that MercadoLibre is facing in Computer Services sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.

Learning curve for new practices

– As the technology based on artificial intelligence and machine learning platform is getting complex, MercadoLibre may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Computer Services 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. MercadoLibre 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.

Easy access to finance

– Easy access to finance in Computer Services industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. MercadoLibre can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.

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 MercadoLibre in the Computer Services sector and impact the bottomline of the organization.

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.

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Weighted SWOT Analysis of MercadoLibre Template, Example

Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at MercadoLibre 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 MercadoLibre 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 MercadoLibre 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 MercadoLibre 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 MercadoLibre needs to make to build a sustainable competitive advantage.

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