Business analysis of the Corel Corporation

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Corel Corporation is a leading developer of graphics software such as CorelDRAW, Ventura and Photo-paint. The company is in the high growth life cycle. The goal of Corel is to strengthen the company’s position in the graphic market. They think that their future success and future profitability is to grow through strategic investments and acquisitions. Financial health is becoming a central problem for Corel. CorelDRAW’s sales had been significantly lower than forecast during the past year . The company has suffered losses in recent quarters ( net profit is ($ 956, 000)) and failed to gain much in market share ( net profit per share is ($ 0.02)).

One of their objectives for the long-term survival and growth is product diversification. Therefore, Corel is recently facing the issue of whether to acquire WordPerfect from Novell Company or not. WordPerfect is an award winning product that has won all the major word processing reviews in publications. That’s why the top managers with CEO of Corel are seeing new opportunities from this acquisition.

However, acquisition of office products marks a new direction for Corel, a company which has thrived as a specialist in graphics software and clip art. WordPerfect has very broad penetration in the business market, but its market dominance has been seized by Microsoft.

Does this mean that the company is going to fight with Microsoft , which has more financial clout and marketing resources at hand and took over the lead in word processing with the Word software program? Does the company have enough resources to fend-off competitors of WordPerfect? Scrupulous analyses have to be done before the finale decision is made. Without these analyses, the result can be vital for Corel.

Opportunities:

1. New growth opportunities for the company

* The demand for graphics increases, so Corel can use its expertise in the graphics arena to capitalize on these opportunities.

* Corel is the dominant player in the documentdriven industries, namely in the legal arena as well as the federal and state and local government level, and that is not likely to change.

* WordPerfect’s creative products can provide the primary engine for revenue growth.

* There are untapped opportunities within its existing user base of dedicated WordPerfect customers ( over 20 million users ) and they could have access to new opportunities in Novell’s installed base (about 55 million users).

* Increase the product’s value for both retail and business users and go to the market for suites and standalone word processors.

* Offering the previous versions at discount has a remarkable effort on sales and propelled Corel’s revenue growth over 50 percent from 1989 to 1994.

2. New technological development at hand.

* Corel could potentially develop its network-based computer system, using capabilities of new Internet programming language , called Java. This system could significantly lower operating costs.

* Expanded its retail channel focus by broadening into major mail order account.

3. Increasing in international sales

* Corel ships its products through a network of more than 160 distributors in 60 countries worldwide . Their graphics software is available in over 17 languages.

Threats :

1. Competitors

* Corel competes in a number of different software markets

* The biggest competitor for Corel in case they acquire WordPerfect will be Microsoft. It is so powerful, that it is a major threat to the feasibility of the entire software industry.

* Try to attack Microsoft where it is the strongest – in the business of making applications for desktop computers – can be vital for whole company. ( In the PC operating system market Microsoft had over 90 percent market share).

2. Low barriers to entry

* Graphics market became popular . It can attract competitors to enter.

3. Acquisition Word Perfect can be very costly for Corel

* To transform WordPerfect into a growth company quickly can be a very costly approach.

* The thought of Corel buying WordPerfect has unnerved Corel Shareholders and has played a big role in the recent near 50% drop in the stock.

* Investors have been concerned that Corel cannot afford to take on WordPerfect in the center of a costly and risky bid to diversify its software line away from its main workhorse, CorelDRAW, the global leader in graphics software.

* The company doesn’t have enough resources to support and pursue all product of the company several times its size. To be able to compete in software industry WordPerfect needs to be upgraded and provide new features very often.

4. Changing preferences of customers.

* Customers were attracted to suite software because of its integrated capabilities and its cheaper price.

INTERNAL ANALYSIS

Strengths :

1. Great products

* Internationally recognized developer of award-winning graphics ( 230 international awards from major trade publications.)

* Great user interface.

* Corel’s industry-leading graphics software is available in over 17 languages

2. Unique marketing approach.

* Corel offers the previous versions at a discount.

3. Product Support and promotion

* Corel is well qualified to understand the problem of supporting complex products. It has reorganized its own support department to bring support back in-house and create a tighter relationship between support (and the customers ) and quality assurance and development.

* Success at managing promotional events.

4. Efficiency

* The speed of product development was very high and their development cycle was one of the shortest in the industry.

* Product development is relatively inexpensive.

* Fast and efficient at manufacturing and logistics.

Weaknesses :

1. Don’t have any strong secondary product

* It makes them more vulnerable before competitors

2. Latest DRAW version worked only on Windows 95

* This would limit the market potential.

3. Corel if unfocused

* There is a strong determination to buy everything in sight instead of marketing its core products

4. Mistakes in advertising and marketing .

* People don’t know what there are in the same package with CorelDRAW.

* Corel ships its products through a network of more than 160 distributors in 60 countries worldwide ,but mostly only by three top distributors.

* Primarily sold product through retail channels.

5. Organizational structure

* Flat organization with very few hierarchical levels, where all decisions – financial, technological and marketing were made by one person.

* Bureaucracy

* Most top managers are don’t have the breadth of business experience.

* Employment turnover

6. Corel focus on efficiency only rather than market sophistication

FINANCIAL ANALYSIS

Financial health is becoming a central problem for Corel. CorelDRAW’s sales had been significantly lower than forecast during the past year . The company has suffered losses in recent quarters ( net profit is ($ 956, 000)) and failed to gain much in market share ( net profit per share is ($ 0.02)). So that a detailed analysis is needed before acquisition.

RECOMMENDATION

After analysis of all advantages and disadvantages of acquiring WordPerfect we can conclude that buying this company might be a vital mistake for Corel. Corporate performance in the software industry often depends on a firm’s relationship with Microsoft Corp. Microsoft is so powerful, that it is a major threat to the feasibility of the entire software industry and that means that a way to survive is to come up with strategies for coexisting with Microsoft or staying ahead of it.

In the past year, several medium-sized software companies had gone under because of Microsoft’s encroachment on their market. And financial and other analyses show that Corel don’t have enough recourses and capability to fight with Microsoft. It is more right to tackle a software niche in which Microsoft is not yet a dominant force.

Moreover, the case analysis shows that one of the main Corel’s problem is that it is unfocused – it is all over the map with all kinds of products. Corel already acquired the rights to many different programs , but 90 percent of its revenue goes from the CorelDRAW. Analysis show that successful new product innovation, including market introduction is not the strength of Corel company. Thus it should play to its strength rather than trying to be all things to all people. They have to concentrate on this , implement a well running management and improve import and export functions. They have to offer clients something unique and offered nowhere else. To improve their financial situation they can lower prices and make their product affordable to anyone. They can also develop its network-based computer system, using capabilities of new Internet programming language , called Java. This system could significantly lower operating costs.

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