Business Strategy Based on Yeo Malaysia - Case Study Example

?Business Strategy: Company Case Report Yeo’s Malaysia Company Yeo Hiap Sang, also known as Yeo’s, is an investment holding and also a soft drink manufacturer based in Malaysia and Singapore. The company was founded in 1900 by Yeo Keng Lian and at its humble beginning, it was making soy sauce out of the city of Zhangzhou, Fujian Province. In 1936, it was established as a sauce factory. Yeo’s was the first company worldwide to package its Asian drinks in aseptic Tetra Brik containers using UHT process. As it gained popularity, the company expanded its product base to include more diversified beverage and food product’s under YEO’S brand. It was also the first company to offer the well-known curry chicken in a canned form that was convenient. Currently, the company produces a range of Asian and non-Asian beverages. The Asia drinks come in a range of soy drinks, juice drinks and ready-to-drink teas. Specific brands include soya milk, black soy drinks, Laichi, sugar cane beverage, lemon tea, Winter melon, Chrysanthemum tea, Herbal tea and Green tea. In addition to beverages, the company also produces a vast range of culinary sauces. This include canned curry, condiments, culinary paste, spreads, instant noodles and vermicelli, and canned and jar food. These sauces do not contain preservatives. Yeo’s Malaysia delightful selection of refreshing Asian drinks is cherished in every occasion naturally. The company’s authentic taste is inspired by traditional drinks brewed in Asia and its range of thirst-quenching drinks is a delight to customers in many Asian and non-Asian households. The major markets for the company are Malaysia, Singapore, China, IndoChina, Hong Kong, North Asia, South Asia/Asia Africa, Vietnam, US, Canada, Europe, Australia and New Zealand. Macro environment analysis of the industry using the PEST (Political, Economic, Social and Technology) model. The political environment in Malaysia provides a safe and stable environment for Yeo’s operate in. There are regulations, tariffs and requirements international businesses must conform to operate in Malaysia. Even though the government is liberalizing its tariff regime progressively, products that are in competition with products that are manufactured locally are still highly protected and the company benefits greatly from this. Malaysia is a high export oriented economy and this provides an ideal economic environment for Yeo’s Malaysia to operate in because the company relies both on local and export markets. The country’s economy is well performing and its business regulations, tariffs and requirements are more favorable for local manufacturers. The government also identified food and agribusinesses as the nation’s key opportunities and this has motivated large companies like Yeo’s to develop strong brands and distribution networks. These have led to the accumulation of large economic resources for the company. There are also bilateral trade agreements with between Malaysia and some of its major markets like Australia and this makes business more favorable to the company. The Asian community and the larger Yeo’s market are highly conscious about health and strongly emphasize on safety. In Malaysia specifically, foods and beverages undergo the strict inspection to ensure they comply with the stringiest standards. The company uses no preservatives in its culinary brands and the most minimal in its beverages. Soy products are identified as healthy food. This has favored the operation of the company in Malaysia and ensured company’s products are on the highest demand. Yeo’s Malaysia has made and maintained a courageous commitment to technology. The company has undertaken a notable computer development and training as one its major human resource agenda. Analysis of the beverage industry using Porter’s five forces model Porter (1998) identifies five forces that influence an industry. These are supplier power, threat of new entrants, threat of substitutes, rivalry and buyer power. One of the things that present a threat from substitutes in the beverage industry is packaging. Despite the contents remaining the same, customers are sensitive to the packaging of these products and so the Yeo’s company has had to stick to Tetra Brik aseptic packs and other health-friendly when packaging its beverages. Threat from substitutes is also higher due to low switching cost and higher price to ratio performance. This force is very strong in indicating to firms the impact of changing packaging materials and other things that impact on brand quality to its competitiveness. The beverage industry experiences a high threat of new entrants. it has minimal entry barriers due to common technology, easy access to distribution channels, little brand franchise and low scale threshold. It also has easy exit due to low exit costs and is characterized by saleable assets and independent businesses. New entrants normally come in when profits are high in an effort to benefit from the high profit levels. This force is fairly effective in determining the degree to which the company faces threat from new entrants. Buyers in the beverage company have a strong purchasing power because of high buyer concentration, low switching costs, buyers suffer from low profitability, and the risks and consequences of the product failure is low to them. Beverages also make up a significant percentage of the buyer’s costs and thus they are more likely to demand for bulk discounts. The buyers also have plenty of information regarding safety, quality and hygiene. This force is powerful in assessing the impact of pricing at the marketability of a product within the industry and other factors are more attractive to customers than prices such as the quality, safety and hygiene. Unlike the buyers, the suppliers of the beverage industry are weak. This is indicated by the presence of many competitive suppliers, purchase of commodity products, concentrated purchasers and purchase of commodity products. This force is fairly strong in predicting the impact of suppliers on the operations of firms in the beverage industry. Yeo’s operates in a very competitive environment as indicated by the low concentration ratio. The industry is full of direct and indirect rivals. A report from the Asia Pacific Economic Cooperation (APEC) Agricultural Technical Cooperation Working Group (2008) indicates that the company held only an average of 1.4% of the market share between 2001 and 2005. A few which are stronger like Nestle and Generics held an average of 14.8% and 13.6% respectively over the same period. The others range from an average of 0.1%-2.5%. Some of the ways of surviving in the industry has been achieving high levels of product differentiation and creating extensive distribution networks. Yeo’s strategic capability Yeo’s has a fairly strategic ability in terms of its resources and capability as indicated by an in-depth analysis of the company. The company produces a wide range of products that come in a wide range of flavors. The company mainly focuses on healthy drinks unlike its major competitors. This is important because a report from the Global Market Information Database (2006) indicates that its Malaysian customers have started becoming more conscious in creating happier and healthier lifestyles for themselves. This therefore gives the company a better competitive advantage. Yeo’s has a large distribution network and a highly skilled workforce. Its nationwide distribution network is characterized by warehouses, offices and depots throughout Malaysia, and a fleet of vans whose function is to service the company’s outlets directly. This is one of the driving force behind its success. Product innovation has always been a major focus for Yeo’s and the company produces its products with a strong authentic taste. This makes its products a favorite for every generation and variety of occasions. The company produces new product lines that reflect changing tastes among its consumers and demographics. For example, the company launched new exiting flavors for sugar free SoyRich high protein milk and Justea. This has helped to increase the depth of the company and increase its product lines. The weaknesses of the company are seen in its low product lines and less brands compared to those of some of its strong competitors. Low resource capacity has led to low brand awareness. This comes from less marketing communication and less advertising compared to its strong competitors. The company only advertises in TV commercial during festive seasons while its strong competitors advertise frequently. The company also produces less attractive advertisements, conducts few promotions and sponsors few events and experiences that are meant to increase the brand awareness of the company’s products. This also limits the understanding of the benefits offered by the company brands. This has led to a weak brand and corporate image. It has also limited the company’s awareness towards its customers and thus the company is limited in its ability to identify the needs of its customers. Yeo’s competitive advantage using the Porter Generic Strategy model The Porter Generic Strategy model identifies three strategies that any company can utilize in order to gain a competitive advantage. These are cost leadership/no frills, focus/offering a specialized service to customer in a niche market, and differentiation/creating uniquely desirable services and products. In cost leadership strategy, a company opts to minimise its costs and pass the savings to its and this is manifested in low prices. The focus strategy aims at maximising their customer experiences and in return, they command higher prices. They therefore target specific group pf customers. On the other hand, the differentiation strategy makes use of detailed knowledge to provide products or services that are cheaper or better than those of larger rivals. From this an analysis through this model, it comes out clearly that the Yeo’s basis of competitive advantage is differentiation. The company has specialised more in creating soy products that are uniquely desired. One of the benefits of the competitive advantages developed by the company is that it has enables it to capture the pool of customers that are sensitive to their health habits. This includes Malaysian and global customers who have started becoming more conscious in creating happier and healthier lifestyles for themselves. Such customers have a higher affinity for health drinks like soymilk among others. Soy products generally reduce cholesterol in the human body and this is very important in reducing chances of developing cholesterol-induced hearth problems. Differentiation has also enabled Yeo’s to attain a significant level of brand loyalty. Its product lines have become household items that many Malaysian homes would not like to miss during their cooking or meal times. The authentic taste of its soy products is inspired by traditional drinks and therefore and its range of drinks is highly liked by many Asian households. An example of this is Chrysanthemum Tea. This is a famous Asian drink is lightly infused with Chrysanthemum blossom’s fragrant aroma. Yeo’s brand has a delicate floral sweetness that leaves behind a memorable note. Yeo’s Corporate strategy The corporate strategy of a firm spells out the growth strategy developed by a diversified firm. The strategy provides answers to questions like “which businesses should the company be in,” and “how does being in the identified businesses add to the competitive advantage of the company?” There are five corporate strategies through which a company can acquire corporate culture. These are integration, diversification, alliance, joint venture and acquisition. Integration as an expansion strategy occurs when a company adds to itself businesses that produce similar products and produce at the same level as the business. This is called horizontal integration. Vertical integration occurs where a company acquires another company in the same industry but producing at another level, mostly a lower level. Like for example, a shoe manufacturer acquiring a shoe retailer (Collis and Montgomery, 1998). Diversification occurs when a company expands its production into areas that are differentiated from its current businesses. This can be related differentiation/concentric diversification where a company move into areas in which key capabilities and resources of the corporation can be shared. A company could also choose to undertake unrelated/conglomerate diversification by moving into areas that are very different from its present businesses and thus there are little or no opportunities to share activities across or leverage core competencies. Diversification is mainly aimed at reducing risks of a company by spreading them. Acquisition strategy is used when a company expands its current market share, products and markets by acquiring another company and uses its external resources to expand. Two companies therefore merge but one is completely incorporated and it becomes fully owned by another. A strategic alliance on the other hand is a involves coming together by two companies and making joint production. It involves collaborative agreements for combining and sharing of resources between two companies with an aim of achieving strategic outcomes that are mutually beneficial. Similar to this is joint venture. A joint venture occurs when 2 or more companies pool together their resources for purposes of achieving given business product or project. It enables companies do things they could not do separately while allowing the sharing of risks (Collis and Montgomery, 1998). The corporate strategy pursued by Yeo’s company is diversification. The company started by making soy sauce. As the company became more famous, it undertook conglomerate and concentric diversification by expanding its production into a larger selection of food and beverages. The introduction of beverages qualifies the diversification to be conglomerate since sauces and drinks require different core competencies and resources in their production. The traditional soybean milk was also received well and from then on, the company has expanded its brands of beverages to include many other brands of Asian beverages . The company has also undertaken another level of concentric diversification by expanding its production to include culinary sauces, sesame oil, chilli sauce, instant noodles. The company also applied strategic alliance, joint venture and acquisition at some point though it does not pursue. For example in 1993, the company entered the Thai market through the WY Co. Joint venture. In 2005, it formed a sales and distribution alliance with Hain Celestial, an organic foods and natural products company based in the US. In an effort to have American brands and thus attain globalization, the company is in the process of fully acquiring RJR Nabisco. Leadership styles There are six main leadership styles that can be applied by leaders of organizations. These are laissez-faire, bureaucratic leadership, charismatic leadership, democratic leadership, task oriented leadership and transformation leadership. In bureaucratic leadership style, rules are central in that it operates by some already laid rules and principles. Subordinates are expected to comply with these rules and procedures. If anything appears outside the context of this, leaders seek for guidance from their superiors. In democratic leadership, leaders invite other stakeholders and employees to contribute towards decision-making. However, the final decision rests on them. In Laissez-faire leadership, the leader avoids influencing the subordinates and therefore they enjoy a great deal of autonomy and authority. It is more applicable to a highly skilled and reliable workforce. A charismatic leader is a pacesetter who leads by providing an example and impacting enthusiasm instead of conducting direct teaching and direct staff development. They therefore lead because of want they can do and not because of leadership skills. A task oriented leader is mainly concerned on getting the job done because to them, the outcome is what matters. The leader’s role is to define the job to e done, the structure and the roles of subordinates. Such leadership therefore involves the application of other leadership styles like democratic, coercive or authoritarian just to get the job done. Transformational leadership is based on the assumption that people will follow what spires them. The leader is therefore very sensitive, communicates constantly with their teams with energy and enthusiasm. Their success depends on their ability to promote vision among the subordinates. He key personnel of Yeo’s that has had the greatest influence on the company success is Alan Yeo, the chairperson of the company. Yeo uses democratic type of leadership. This type of leadership has increased job satisfaction among staff, helped to develop personal skills among employees and improved production by encouraging innovative actions and ideas. Yeo treats them as a team not as workers. Conclusion Yeo’s is a strong company and it still has a chance to expand market. It has a strong market for its soy products in the local and global markets. However, the company needs to conduct extensive research to as to develop more products that are more aligned with customer needs. Such products will have a higher competitive power globally. The company also needs to conduct more advertisements over TV commercials, and activities meant to promote its brand and corporate image. These will also help to overcome the weaknesses and enable it maximise its strengths. Reference List APEC Agricultural Technical Cooperation Working Group (2008). Market Liberalization and its Relationship with Market Structure, Conduct and Performance of the Food Processing Industry in ASEAN Economies. Online: www.iadb.org/intal/intalcdi/PE/2009/03350.pdf. Accessed on 28th November, 2011. Collis David and Montgomery, Cynthia. (1998). “Creating corporate advantage.” Harvard Business Review. (3) pp 71–83. Porter Michael (1998).Competitive Strategy: Techniques for Analyzing Industries and Competitors. Free Press. New York. Global Market Information Database (2006) “Soft Drinks In Malaysia.” Online: http://www.nationmaster.com/country/au-austria/foo-food. Accessed on 28th November, 2011. yeo’s .com. (2011). Global Markets. Online: http://www.yeos.com.sg/Malaysia. Accessed on 28th November, 2011. Read More