Management Business Project for SEC Ltd - Case Study Example

Executive Summary SEC Ltd plans to enter Australian market with LCD TV. Porter’s Five Forces Model has been used to determine the competitive advantage that SEC has. The Australian market has tremendous growth potential but the government is considering restrictions on LCD TVs as they consumer high level of energy. Alternative product like laser TVs also available in Australia. To gain competitive advantage, SEC should strive to offer their products strictly online with extended warranty services. They should devise the strategy to eliminate the middlemen which will help them to keep prices low and render high profit margins. While picture clarity is the prime concern for buyers, price is not and hence SEC need not focus on price reductions, the strategy should be to deliver excellent service. The culture of the two nations differs on various counts and the only area where they have similarity is the strong work ethics. As far as employment is concerned, depending upon the analysis based on Hofstede’s cultural dimensions, suggestion have been made to have the local people in key positions as they would treat all as equal and be able to encourage innovation. SEC can attain success in Australia provided these suggestions are incorporated. Table of Contents 1. Background 3 2. Competitive strategy 2.1 Porter’s Five Forces Model 3 2.2 Recommendations 7 3. Cultural Dimensions 3.1 Importance of culture in managing overseas operations 8 3.2 Similarities and Differences in the two culture 9 3.3 Cultural Dimensions 10 3.4 Recommendations 12 References 14 1. Background Home LCD TV has globally become very popular and in recent years manufacturers from countries like China, Hong Kong, Taiwan and South Korea have been strategically marketing their products in different countries. LCD TVs accounted for 22 percent of the world’s TV market in 2006 and the market leaders are Sony, Philips, Samsung and Sharp (Foxnews, 2006). The LCD TV market is expected to touch 80 million units in 2008 and cross 100 million in 2010 (CRN, 2005). The LCD industry may suffer as heavy weights from South Korea are expected to bring new factories online. There has been fierce competition in the field of LCD TVs as the industry is flooded with manufacturers. Most manufacturers have been facing challenge of increasing costs in terms of material, components and labour (Global Sources, 2008). The supply in most regions remains volatile and to ensure that the delivery lead times are not affected, LCD manufacturers either stock up or have forging tie ups with a broad number of suppliers. SEC Ltd however remains unaffected as it is well established and financially strong. The LCD TV market has tremendous potential globally and SEC Ltd intends entering the Australian market. This report covers the challenges that SEC could encounter and the recommendations based on findings. 2. Competitive strategy 2.1 Porter’s Five Forces Model and Competitive Advantage Any decision in formulating a business strategy needs to be based on academic theory. Porter’s five forces model relates the average profitability of the participants in an industry to competitive forces. According to Porter, the collective strength of the five forces model determines the potential profit of an industry (Karagiannopoulos, Georgopoulos & Nikolopoulos, 2005). Each of the five forces for marketing LCD TV in Australia has been studied before suggesting the strategy. Force 1: the threat of entry Both existing and potential competitors influence the industry profitability. In Australia there are several well established and renowned global companies marketing LCD TVs. The well known names include the Samsung and Sony. An Australian-government commissioned report states that Plasma and LCD TVs consume more power and they have skyrocketed the energy consumption in the country (Conneally, 2007). There is a possibility that strict regulations would be placed on the sales of LCD TVs in Australia. Most LCD TVs sold in the country have passed the test or parameter laid down by the Report but with the worst rating and it is believed that when the system is tightened by 2011, it would be very difficult to achieve the barely-passing grade. Force 2: the degree of rivalry Rivalry determines industry attractiveness and helps to determine the extent to which the value created by an industry will be dissipated through competition. Apart from the well established brands already marketing in Australia, SEC faces threat from Kogan Technologies, which is a new LCD TV and consumer electronics brand in Australia (PRWeb, 2008). Kogan offers the best vale technology at a cheaper price. Dell had entered the LCD TV market in Australia in 2004 (CNet, 2004) but has exited the industry altogether now. Samsung offers a wide range of panel sizes in the LCD TV segment, particularly the small size for the bedrooms (Wong, 2006). Consumers are looking for slimmer, slicker products and Samsung has their designers and technicians working in different countries like the US and Japan. Their products are globally well received as their designs are innovative. Force 3: the threat of substitutes The threat of substitutes depends on alternative products with enhanced technology and cheaper prices but in the LCD TV market the most important criteria for the consumers is the picture clarity and the sharpness. Australia’s intellectual property laws are the best in the world which makes it very attractive for manufacturers to enter the country (Roche, 2006). This is the reason laser TV has been launched in Australia by Arasor which has production and R&D facilities in Silicon Valley, China, Japan and Australia. The laser TV is a cheaper product with enhanced technology consuming much less power. Force 4: buyer power The size of the consumers for LCD TVs in Australia is huge and is continuously growing as it is space effective. Most LCD TV manufacturers have online presence and today internet has changed the way businesses function. It has increased the buying power of the consumers as they can flip through different websites, take quotes, compare prices and then decide on the final product or brand (PRWeb, 2008). Kogan has also added a blog where existing and potential buyers can exchange views/opinions/experiences of the product or relate with a company employee. Consumers in Australia are researching brands and products across thousands of websites daily before they decide to purchase something (Hanchard, 2008). Force 5: supplier power Kogan has adopted a differentiation strategy as it has eliminated the middlemen and sells directly to customers online. This business model has been very successful. By cutting out the middlemen they are bale to pass on the savings to the customer which makes it much cheaper for the end buyer (PRWeb, 2008). Apart from selling online, Kogan also sells through auction sites like eBay where the market dictates the price. Studies suggest that manufacturers and retailers are unable to leverage benefit from their online presence as they are unable to meet the consumers’ needs. According to a PricewaterhouseCoopers study, Australian retailers are not yet ready to take advantage of using internet as a part of their multi-channel strategies (Hanchard, 2008). There exists plenty of scope to capture brand and product-related traffic through effective marketing practices. 2.2 Recommendations for SEC to gain competitive edge According to Porter ‘‘the internet technology provides buyers with easier access to information about products and suppliers, thus bolstering buyer bargaining power’’ (Karagiannopoulos, Georgopoulos & Nikolopoulos, 2005). This in itself does not mean that the supplies would be on schedule or without other problems. The Australian consumer does spend sufficient time on the web and hence SEC should have a very strong web presence. The latest technology used by consumers and companies is the use of corporate blogs which is widely used by the company officials as well as the consumers. SEC should have a forum for the existing customers and invite the potential buyers to read the reviews. SEC intends to enter the Australian market with large screen models with screen size larger than 40in. Most manufacturers are in the segment below this size and hence this segment would attract fewer competitors. In terms of screen size the maximum demand is for the 32in LCD TVs while 40in and above account for about 30 percent of the market and SEC should remain within this category. Manufacturers globally are shifting their focus to larger sized models where the profits are higher. SEC should seriously consider making its sets energy efficient to have an edge over the existing manufacturers keeping in mind the Australian regulations about the high energy consumption. Price is not the only consideration when consumers look around for buying an LCD TV. Factors like warranty, customer service, price, substitute products, picture resolution, and brand awareness are equally important. SEC should stick to a strictly online business and offer technical support online. The company website should be interactive and have an online support 24x7 to clarify details to the potential consumers. SEC would also need to maintain sufficient stocks so that there is no delay in delivery schedules. Their warranty clause should cover more than what others offer and they should be in a position to replace the TV set the next business day in case the technical problem in not resolved. Hence to gain competitive edge and to be sustainable, SEC should ensure an energy efficient model with low energy consumption or in other words they should be able to meet the stringent power requirements. They should have an interactive website, strictly sell online so that the middlemen costs are eliminated, market the larger models that bring in higher margins and ensure that service is guaranteed. Their products should carry the energy rating labels even before the government announces the conditions, which would be a step ahead of the competitors. 3. Cultural dimensions 3.1 Importance of culture in managing overseas operations Culture is “the collective programming of the mind which distinguishes the members of one group or category of people from another” (Hofstede cited by Hope & Mühlemann, 2001). Every society develops a common set of beliefs and a set pattern of behavior which allows them to live harmoniously and these are handed down from one generation to another. Additionally, the culture in which an individual is immersed since birth is likely to have a much stronger effect on him than the organizational culture. Different cultures imply different mental programming, which governs activities, motivation and values (Hofstede cited by Gilbert & Tsao, 2000). Hofstede suggests a strong co-relation between culture and performance, culture and economic results, culture and sustainability, culture and strategic growth, culture and recruitment, motivation and retention of human capital, including downsizing. Culture has a significant impact on perception, problem-solving and cognition and often leads to differences in satisfaction levels on the same product between global customers. These nuances would be difficult for the South Korean employees to understand when they work in Australia. This enhances the importance of employing the local people in Australia. 3.2 Difference and similarities in the Australian and South Korean culture South Koreans are nationalistic while Australia is not a nationalistic country (Convictcreations, n.d.). Even though Korean culture appears to be similar to Chinese, the Koreans believe and want everyone accept that their culture is a blend of tradition and modern and hence unique. Their culture originated and was shaped in Korea. Australians on the other hand openly express hostility to the notion that their nation might have its own culture. As far as work ethics are concerned, both Australia and South Korea have a strong work ethic. The motivation for the South Koreans to work hard comes from their desire to attain their goal, not to be declared weaker than other nations, and because of the hierarchical society, they believe that they need to work harder to gain a status through money and position. The motivation for the Australians has nothing to do with money and name as they give more importance to self-worth. For them the motivation to work hard stems from a sense of personal pride. 3.3 The five dimensions of culture according to Hofstede (Mind Tools, 2008)are: 1. Power distance (PD): this refers to the degree of inequality that exists and is accepted by people. While South Korea has a high PD score due to the hierarchical system where the society accepts unequal distribution of power, and people understand their place in the system, Australia is low on PD score because power is shared and well dispersed. The society members view themselves as equal. South Korea follows the hierarchical system in business and in personal life which is based on age, title and income. Australia does not have a class culture and they are all people relating to each other. Koreans believe in respect for the family, duty towards the elders and parents, humility, sincerity and courtesy. 2. Individualism (IDV): This refers to the strength of the ties that people have to others within the community. Australia has a high IDV score which indicates a loose connection with people. There is lack of interpersonal connection and little sharing of responsibility. South Korea on the hand scores low on IDV score which has a strong group cohesion and respect and loyalty for the members of the group. They show respect for age and wisdom whereas people in Australia are concerned with self efficacy and self development. They are not even nationalistic in nature and motivation to work comes from a sense of self pride. 3. Masculinity (MAS): This refers to the values in the society regarding the traditional male and female roles. In South Korea the male and female roles are defined where the men are expected to be tough, to be the provider, to be looked up to, and to be assertive. Women, even if they work outside the home, they have separate professions. In Australia, men and women can be found in the same profession, even competing with each other. Hence, in a low MAS society the roles are blurred. Hence if South Korea is opening office in Australia, they can appoint people with emphasis on the qualifications irrespective of gender. 4. Uncertainty Avoidance Index (UAI): This refers to the degree of uncertainty or anxiety that members of the society feel when in an uncertain situation. Nations with high UAI score avoid ambiguous situations. They liked to be governed by rules and order and they seek a collective truth. South Korea falls under this category whereas Australia has low UAI as people are self-centered and do not believe that they have any culture or values to abide by. 5. Long-term orientation (LTO): South Korea has a high LTO score as they believe in the Confucian philosophy and they act differently from the western cultures whereas Australia has complete influence of the west. Having a low LTO score implies that anything can be expected from Australia in terms of innovation and creativity. Since they do not have any value tradition, they can be expected to be fully cooperative in innovative ides as long as they are involved in the process. 3.4 Recommendations for SEC Culture plays a very vital role and given their values and tradition, South Koreans would find themselves in a very awkward position when they step into Australia. The approach, decisions and actions should hence be based on the scores as per the cultural dimensions. While employing local people, SEC can focus on the qualifications rather than on gender as male and female in Australia are considered equal and work shoulder to shoulder. It would be preferable for SEC to take only male employees from South Korea in Australia as the women of South Korea may not be able to adjust to the western culture. Since the South Koreans value hierarchy and seniority positions and would not relate with subordinates at an equal level, the senior positions in Australia should be left to the local people as they consider and relate to all as equal. Besides, if the South Koreans are in junior position, they would not mind turning to seniors for answers. Another advantage would be that Australians would be able to involve as many people as possible in decision making as they believe in team work. Australia being high in IDV would acknowledge accomplishments of the subordinates and encourage debates and discussions while the Koreans on the other hand would suppress feelings and emotions to work in harmony. For a market like Australia low MAS scores are essential where the roles are blurred and women have the same respect and position like the men. South Koreans should be prepared in advance or trained not to take decisions based on emotions. Having a low UAI score, austrlians are more prone to accept change and face risks and uncertainties. In business uncertainties and last minute change in decisions cannot be ruled out which the South Koreans will be ill-equipped for. They would like to avoid any differences and settle things or come to a compromise which is not beneficial for the Australian business environment. Since the Australian tend to be innovative and creative, as they have a low LTO score, they should be employed in positions of marketing, advertising or planning innovation in marketing. They would also understand the nuances of their people and their minds better than the South Koreans. The work culture is equally strong in both and hence this would be an advantage when the employees pool their talent even though the motivation for work differs for both the countries. Thus, to make SEC a success in Australia, SEC should decide the positions where Australians would fare better and where to employ South Koreans. References: CNet (2004). Dell launches LCD TV in Australia. [Online] Available at: http://www.cnet.com.au/tvs/lcd/0,239035307,240002820,00.htm [accessed 13 September 2008] Conneally, T. (2007). Australia May Restrict Plasma and LCD TVs. {Online] Available at: http://www.betanews.com/article/Australia_May_Restrict_Plasma_and_LCD_TVs/1192121953 [accessed 13 September 2008] Convictcreations, (n.d). Cultural Differences between Australia and South Korea [Online} Available at: http://www.convictcreations.com/culture/southkorea.html [accessed 13 September 2008] CRN (2005). Samsung, Sharp see LCD TV market of 100 mln in 2010. [Online] Available at: http://www.crn.com.au/News/20593,samsung-sharp-see-lcd-tv-market-of-100-mln-in-2010.aspx [accessed 13 September 2008] Foxnews (2006). LCD TV Sales Leap 135 Percent Worldwide. [Online] Available at: http://www.foxnews.com/story/0,2933,209811,00.html [accessed 13 September 2008] Gilbert, D. & Tsao, J. (2000). Exploring Chinese cultural influences and hospitality marketing relationships. International Journal of Contemporary Hospitality Management 12/1 [2000] 45-53 Global Sources. (2008). Home LCD industry charges ahead amid tight panel supply. [Online] Available at: http://www.globalsources.com/gsol/I/Home-LCD/a/9000000097990.htm [accessed 13 September 2008] Hope, C. A. & Mühlemann, A. O. (2001). The impact of culture on best practice production/operations management. International Journal of management Reviews. Vol. 3 No. 3 pp. 199-217 Karagiannopoulos, G.D. Georgopoulos, N. & Nikolopoulos, K. (2005). Fathoming Porter’s five forces model in the internet era. VOL. 7 NO. 6 2005, pp. 66-76 DOI 10.1108/14636690510628328 Mind Tools (2008). Hofstedes Cultural Dimensions [Online] Available at: http://www.mindtools.com/pages/article/newLDR_66.htm [accessed 13 September 2008] Hanchard, S. (2008). Leveraging online consumer behaviour. Inside Retailing Online. [Online] Available at: http://www.insideretailing.com.au/articles-page.aspx?articleType=ArticleView&articleId=1893 [accessed 13 September 2008] PRWeb (2008). LCD TV, Electronics Seller Thriving in Australia - International Expansion Coming Soon [Online] Available at: http://www.prweb.com/releases/kogan-lcd-tv/lcd-tv/prweb1004794.htm [accessed 13 September 2008] Roche, J. (2006). Laser TV unveiled in Australia. [Online] Available at: http://www.cnet.com.au/tvs/0,239035250,339271573,00.htm [accessed 13 September 2008] Wong, P. (2006). Samsungs Blu-ray and LCD TV plans disclosed. [Online] Available at: http://www.cnet.com.au/dvdpvr/hddvd/0,2000063776,339272355,00.htm [accessed 13 September 2008] Read More