MercadoLibre (MELI) SWOT Analysis / TOWS Matrix / MBA Resources
Computer Services
Strategy / 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 – cloud computing is disrupting traditional business models, increasing transportation and logistics costs, technology disruption, increasing government debt because of Covid-19 spendings, talent flight as more people leaving formal jobs, wage bills are increasing, there is backlash against globalization,
there is increasing trade war between United States & China, competitive advantages are harder to sustain because of technology dispersion, etc
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.
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
Strengths of MercadoLibre | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of MercadoLibre are -
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.
Effective Research and Development (R&D)
– MercadoLibre has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – MercadoLibre staying ahead in the Computer Services industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
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.
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.
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.
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.
Analytics focus
– MercadoLibre 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 Computer Services industry. The technology infrastructure of United States is also helping it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Superior customer experience
– The customer experience strategy of MercadoLibre in Computer Services industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
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.
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.
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.
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.
Weaknesses of MercadoLibre | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of MercadoLibre are -
Workers concerns about automation
– As automation is fast increasing in the Computer Services industry, MercadoLibre 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.
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.
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.
Capital Spending Reduction
– Even during the low interest decade, MercadoLibre 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 Computer Services industry using digital technology.
No frontier risks strategy
– From the 10K / annual statement of MercadoLibre, it seems that company is thinking out the frontier risks that can impact Computer Services industry. 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.
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.
Ability to respond to the competition
– As the decision making is very deliberative at MercadoLibre, in the dynamic environment of Computer Services industry it has struggled to respond to the nimble upstart competition. MercadoLibre has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
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.
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.
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 MercadoLibre supply chain. Even after few cautionary changes, MercadoLibre is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left MercadoLibre vulnerable to further global disruptions in South East Asia.
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.
MercadoLibre Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of MercadoLibre are -
Loyalty marketing
– MercadoLibre 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.
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.
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.
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.
Buying journey improvements
– MercadoLibre can improve the customer journey of consumers in the Computer Services industry by using analytics and artificial intelligence. It 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.
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.
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.
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.
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.
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.
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Computer Services industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. MercadoLibre 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. MercadoLibre 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.
Leveraging digital technologies
– MercadoLibre 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.
Learning at scale
– Online learning technologies has now opened space for MercadoLibre 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 MercadoLibre External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of MercadoLibre are -
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.
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.
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.
Consumer confidence and its impact on MercadoLibre 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 Computer Services industry and other sectors.
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.
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.
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.
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.
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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for MercadoLibre in Computer Services industry. The Computer Services 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.
Increasing wage structure of MercadoLibre
– 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 MercadoLibre.
Technology acceleration in Forth Industrial Revolution
– MercadoLibre has witnessed rapid integration of technology during Covid-19 in the Computer Services industry. As one of the leading players in the industry, MercadoLibre needs to keep up with the evolution of technology in the Computer Services 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.
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.
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.