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The Impact of rising oil prices for operation of Linea Aqua – MAS Holdings


The Impact of rising oil prices for operation of Linea Aqua – MAS Holdings

Word count -3301


Executive Summary

1.0 Introduction

2.0 Evaluating the direct implications of rising oil prices for Linea Aqua

2.1 Cost related implications

2.2 Demand related implications

3.0 How high oil prices will impact customers and suppliers

4.0 Overall value chain impact of the high oil prices

5.0 High oil prices and alternative energy supplies in Sri Lanka

6.0 Higher oil prices and other potential threats for the business and economy

7.0 Conclusion


Additional information


Executive Summary

The following board paper will analyze the company’s current strategic position and competitiveness with respect to the rising crude oil prices. The strategic implications have been identified to the current business model and sustainability. First, the report gives a brief introduction to the current strategy of Linea Aqua which is a leading export manufacturing company in Sri Lanka. Having identified their current competitive strategy and choices, the next phase of the paper discusses the potential impacts to their current strategic position in both cost and demand sides. A comprehensive value chain analysis has been carried out in understanding the cost impacts related to the scenario. Further, the report focused on sustainable energy sources which can be substituted to achieve better results. This aspect has been elaborated with the famous model triple bottom line by highlighting the potential benefits. Finally, the paper looks into the 2nd and 3rd order impacts related to the identified strategic issue whilst highlighting the overall impact towards the overall Sri Lankan economy and business confidence.

1.0 Introduction

The rising oil prices can be identified as a major concern in almost all commercial industries as it has a direct impact towards the operational cost and overall demand condition of the business. Many industry experts have predicted that price of the crude oil barrel will slowly reach the $100 mark towards the end of this year (The Guardian, 2018). There are several reasons behind this sudden increase in the crude oil prices. USA re-imposing sanctions against Iran contributed significantly towards the increase of oil prices. The current economic chaos faced by Venezuela with a hyperinflation over 50000% made another impact to the current crude oil prices. The postponement of floating 5% shares in Armco also hinted a further increase in world oil prices. Having witnessed the above dynamics in the world oil market, it’s important to identify how the current business model of “Linea Aqua” is getting affected as a result. Mas Holdings launched their swim wear division in the year of 2001 under the SBU “Linea Aqua” and this is a joint partnership model between Brandot International and Speedo International. The company offers a large range of swim wear products such as designer swimwear, leisure swim swear, competition swimwear and children swimwear. Today, the company deals with over 13 countries and has a good reputation within the country as an export oriented manufacturing company which has created over 6000 direct employment opportunities for the nation.
Before discussing the impacts of rising world oil prices to the company, it’s important to get an idea about the firm’s current business strategy and value definition. According to Porter (1996), strategy is all about deliberately choosing to be different by making right choices and trade-offs to optimize the overall value to the customers. Many global brands such as Nike, Victoria Secret, Adidas, etc. have outsourced their production to the Asian markets seeking cost benefits. When comparing with the other counterparts of the region such as Bangladesh and India, Sri Lanka has been able to secure a sustainable competitive advantage with the concept of ‘garments without guilt’. Many Sri Lankan apparel firms including Linea Aqua follow fair labor practices and better working conditions without exploiting the employees and this is one of the main reasons why global top end apparel brands select Sri Lanka over the Asian countries of the region. Producing at a lower cost is important, but it should be achieved ethically without exploiting the workers.