Competitive Strategy for Two Companies, Smith and White, and Mukatame - Report Example

Competitive Strategy SWOT Analysis for Smith and White Corporation: Strengths: Excellent brand equity maintained through sustained advertising High demand for products from end users, which allows higher pricing of product Unified strategy across all product lines, both power tool and non power tool Availability of high profile shelf space and cross promotion of S&W’s products Dominant position in the market, which aides product sales Weaknesses: Old manufacturing plants, hence higher operational costs High labor costs because plants located in urban areas Negative perceptions of distributors about abuse of dominant market position No presence in the cordless tools market Huge size of Company makes it unwieldy in responding to rapid changes in market Opportunities: The opportunity to build upon brand equity to expand product range of all kinds of tools The opportunity to outsource or streamline some of its operations to reduce costs The opportunity to benefit from reversals in exchange rates, which had earlier been providing the advantage to foreign competitors The opportunity to utilize high end user demand to generate similar demand for new products The opportunity to consolidate its brand equity further by using the tools of technology such as the Internet to a greater degree Threats: Switch in user demand from products currently manufactured by S&W to cordless products Threats from potential competitor activity, especially since their products are lower priced Current recession in the US and world markets which may cause consumers to switch over to low price models offered by competitors Losses arising out of S&W’s failure to respond quickly to changes in the market The potential for loss of market share due to S&W’s failure to enter the cordless market. Recommended Strategy for S&W: S&W has become an unwieldy organization in terms of its size, therefore one of the first steps to be taken is to streamline operations and perhaps outsource some business processes in order to reduce costs associated with production of goods. Secondly, cordless products appear to be the trend of the future and it is vital for S&W to stay ahead of the competition by investing in R&D, so that it can successfully manufacture these products in the USA and grab a large market share before its competitors get the dominant share of the market. This will be the best way for S&W to effectively compete with the Japanese company, Makatume, whose primary advantage is its cordless products. Thirdly, S&W must also take steps to develop a competitive pricing strategy, rather than staying in the high priced range of the market, because with the current recession in the markets, it is the moderate priced sellers who will gain high levels of market share. Additionally, S&W must also take steps to address the concerns of its distributors and refine its image through promotional messages on its websites and in its interactions with them. SWOT Analysis for Makatume: Strengths: Caters to the fast growing cordless segment of the market and controls 70% of it Markets only professional tools and is able to focus on improving quality of one specific product range Benefit from the general impressions of quality associated with Japanese-made products Is able to achieve high levels of sales due to favorable exchange rates, which enable it to offer its products at lower prices New manufacturing plants in Japan, which help the Company to achieve high levels of efficiency at low cost Weaknesses: Locked into lower voltages in the cordless segment Lower levels of end user demand as compared to its competitors Does not have an aggressive enough advertising and promotional strategy to push its products in the U.S. market Is not able to benefit from cross promotion of its products Difficulties in understanding and adapting to the U.S. markets and customers Opportunities: The opportunity to be a market leader by develop cordless products with higher voltages The opportunity to expand market share through aggressive promotion of its cordless products The opportunity to build brand equity by focusing upon the quality of Japanese products The opportunity to strengthen its market position in professional tools and avoid market confusion by strengthening the niche it has currently cornered in the market. The opportunity to benefit from its compact operations in the United States to respond quickly to changes in the market and customer demands. Threats: Exchange rate reversals which may result in the Company losing its cost advantages Threat of potential growth in imports from China, which are lower priced and offer good value Threat of being locked into lower voltages due to the wide levels of acceptance of its interchangeable battery system Threats arising out of product saturation, when Mukatame’s professional tools cease to be a cash cow (Hendersen, 1979) and product range may need to be expanded Threat of consumer rejection of foreign products due to a rise in American nationalistic feeling, arising out of increased outsourcing of business processes. Recommended Strategy for Mukatame: Mukatame would do well to expand its product range to include more kinds of tools apart from only professional ones. While these tools are highly regarded now, it appears very likely that at some stage in the future, they will be supplanted by cordless tools, which could bring about a decline in the product life cycle of professional tools as presently marketed by Mukatame. The Company must therefore emphasize the broadening of the product line and avoiding price cuts (Wasson, 1974). It must start expanding its product range and improving upon them, especially to compete effectively with its competitors S&W as well as Chinese rivals. Secondly, the Company may also need to reconsider and revise pricing strategies in view of the projected exchange rate reversals likely to take place, otherwise it will be caught out with high priced products and an inadequate market for them. Thirdly, the Company may also need to develop a more comprehensive marketing network, building upon its successes in the market to gain access to some of the distributors of its rival S&W, who are disenchanted with that company’s use of its dominant market position. The higher voltages issue: Higher voltages appear poised to become the single factor that could contribute to a market edge. It is the development of the future and in the present knowledge economy which is characteristic of the global market, innovation in products enables a Company to gain a competitive edge (Johannessen et al, 1999). It is the Company that first breaks into the market with higher voltage cordless products that is likely to grab a significant share of it. While other companies may follow suit, there will be several advantages offered to the first mover in the market in this instance, such as technological pre-emption (Lieberman and Montgomery, 1998). Moreover, consumers are likely to make substantial investments in the purchase of high voltage, cordless tools, hence if a consumer makes an investment on one of Mukatame’s products, then it will be difficult for another company to persuade the customer to switch brands due to the higher costs involved. On this basis, it would be beneficial for Mukatame to capture the market first in production of high voltage cordless tools. But the Company’s interchangeable battery system has been widely accepted by its consumers in a lower voltage category and it has established a niche market for itself in this product segment. The dilemma now presented for the Company is whether it should be a First Mover in the higher voltage segment, or whether it should remain with its relatively stable and established lower voltage segment and allow its competitors to enter that market first? The strategy recommended in this case is for Mukatame to enter the higher voltage segment. Since innovation is vital in the knowledge economy, entering the market first will provide the Company with a greater advantage than it would gain if it waited for its competitors to test that market. For example, Mukatame will gain a head start in the business by being the first to deal with higher voltage cordless tools and will also benefit by capturing market share that later entrants into the market will find difficult to displace. One of the reasons why Mukatame’s interchangeable battery system is so widely accepted and appreciated is the reputation the Company has gained as the market leader in cordless products. Retaining that leadership position in terms of higher voltage products as well will consolidate the position of the Company as the leader in cordless products and enable it to gain a higher level of brand equity and recognition of its products as pioneering ones. This will also help Mukatame establish the brand equity it needs to counteract the potential threat from Chinese entrants into the market, while allowing a competitor to take over high voltage products would seriously weaken Mukatame’s existing position in the market as the leader in this category. References: * Hendersen, B.D, 1979. “Hendersen on corporate strategy”, Massachusetts, Abt Books. * Johannessen, Jon-Arild, Olaisen, Johan and Olsen, Bjorn, 1999.“Managing and organizing innovation in the knowledge economy”, European Journal of Innovation Management, 2(3): 116-128 * Lieberman, Marvin B and Montgomery, David B, 1998. “First Mover Advantages”, Strategic Management Journal, 9(S1) 41-58 * Wasson, C.R, 1974. “Product Management”, Illinois: Challenge Books. Read More