Core Competencies of Rodamas Group - Case Study Example

Core Competencies of Rodamas Group 1.0 Executive Summary The business environment affects the strategies of every organization. The case in focus of this paper is the Rodamas Group of Jakarta, Indonesia. The company has been in business in the country for more than fifty years. It has experienced the different political and economic changes of Indonesia, from Sukarno’s regime to Suharto’s rule and the Asian Crisis of 1998. The company has survived the tragedies of each government by maintaining a conservative business model of traditional partnership with Japanese firms. It has created a reputation as an efficient and trustworthy partner with the multinational companies. However, as Indonesia progresses into a more democratic nation with an open economy, the Rodamas Group faces new challenges that threaten their successful business model in the past. With the hopes of improving the sustainable growth and profitability of the company, the management is confronted with competition from multinational companies that establishes operations in the country. The paper identifies several strategic approaches for the company such as internationalization of operations, development of own business, focus in the distribution of products, and establishment of new partnerships with China. The different pros and cons are presented in the paper. As a final note, the paper communicates a two-fold strategy as a recommendation for Rodamas Group in sustaining its growth and profitability. The strategy involves a defensive strategy in the existing international market and a growth strategy in the Indonesian market. The paper further offers implementation activities in successfully accomplishing the recommended strategy. 2.0 Core Competencies The Rodamas Group had started as a trading company in 1951 in Jakarta, Indonesia. The company later embarked on joint venture partnerships with several Japanese firms to manufacture basic products domestically. As an agent in Indonesia, their objective was to become an efficient and trustworthy business partner of multinational companies who wishes to market their products in the country. The company has a well diversified business portfolio. Among the successful businesses are Asahimas, a glass manufacturing company with Asahi, Japan; Kao Indonesia, a personal care and household product manufacturing and distribution company with Kao Corporation, Japan; Sasa Fermentasi and Ajinomoto Indonesia, a food product manufacturing company; and Dai Nippon Printing Indonesia, a printing and packaging company with Dai Nippon Printing, Japan. The portfolio of Rodamas Group involves unrelated businesses. As of case date, the company has nineteen different businesses grouped into building material, food product, consumer goods product, chemical and other business. With the diverse range of businesses, the core competencies of the company lie in their style and attitude in handling joint ventures with international business partners. 2.1 In-depth Knowledge of the Local Market Rodamas Group has operated its business in Indonesia for more than fifty years. It has started as a trading firm that imports products that were not yet marketed in Indonesia. It has later built several manufacturing companies with the help of Japanese firms. The experience that the company has acquired through the years has made them proficient in the behavior of the local market. The company’s in depth knowledge of Indonesian consumer behavior creates a competitive advantage for Rodamas Group when it comes to dealing with potential investors and strategic partners. 2.2 Specialization in Local Regulations Aside from the market knowledge that they bring to every business ventures, the Rodamas Group also specializes in dealing with local trade regulations of the government. The large number of joint ventures and partnerships that they have acquired with international companies has made Rodamas Group an expert when it comes to government laws and policies. A multinational company who wishes to expand its business in Indonesia would prefer to have a local company that understood the political climate as well as the local culture. A business expansion in a country requires licenses and land, Rodamas has proven this competency by becoming a reliable partner that plays a key role in obtaining licenses and acquiring lands. Since Indonesia is an emerging nation with a government that has risen from the remnants of dictatorship, Rodamas Group has sustained the changes and endured the different storms that the country had faced while emerging as a strong organization today. 2.3 Solid Distribution Network and Infrastructure The Rodamas Group prides in their solid distribution network and infrastructure in Indonesia. The successes of their food products, Ajinomoto and Sasa, as well as their glass manufacturing, Asahimas, and other business ventures have created distribution channels all over Indonesia and the South East Asia. The logistics infrastructure that the company has built made them penetrate the local trade and established a fair share in the market. 2.4 Human Resource Management The management team behind the Rodamas Group is made up of long-term and loyal professional manager and partners. Even with rapid turnover of managers in the middle management level, the company’s core team remained dedicated and dependable. The human resource strategy of the company was to maintain a loosely structured organization with greater autonomy to managers. The company had a process of training its future managers internally. The Rodamas Group was proud of its management trainee program where most of its managers climbed the corporate ladder through the program. This culture and practice of succession made the company appealing to its employees and attractive to potential workers. It is the goal of the corporate management to improve the retention rate of its staffs. The human resource strategies and practices of the company in hiring and selecting personnel had created a positive impression towards existing and potential business partners of Rodamas Group. Indonesia has high variations in ethnicity, culture and behavior according to its geographic regions. Multinational companies who fail to recognize the importance of such variations will most likely fail to establish a strong foothold in the country. It is on this premise that the Rodamas Group gains competitive advantage against international companies in the country. 3.0 Business Environment The business environment that the Romadas Group engages in is evaluated and examined through a PESTLE analysis. The analysis involves identification of external factors such as political, economic, socio-cultural, technological and environmental factors. These factors influence the business environment where its impact may be positive or negative to the existence of any organizations like the Rodamas Group. [Phi03] 3.1 Political Factors The political climate of Indonesia has been unstable for the past few years. The Romadas Group has experienced a lot of changes in the government. When the company has started in 1951, Indonesia and its leaders had gained independence from the Dutch colonizers. President Sukarno had established the country on socialism and guided democracy where his policies were influenced by the ideology of communism. As a result of these policies, the economic growth declined and inflation soared. Business activities, such as industrial developments and production of basic goods, were restricted especially for the ethnic Chinese minority. Rodamas traversed the difficult and hostile setting carefully and established partnerships with foreign manufacturers in order to import products for the Indonesian market. In 1965, President Sukarno was replaced by Suharto after a bloody military coup. Suharto quashed socialism and started political and economic reforms by modernizing Indonesia. He opened up the country for foreign investment and stimulated local manufacturing. It is at this era that the Rodamas Group invested in manufacturing through joint venture partnerships with Japanese firms. With the new foreign and economic policies, the country became attractive to foreign multinationals such that they opted to expand their business in Indonesia. Rodamas was in the middle of the situation and was ready to exploit the opportunities with their international partners. In 1998, Suharto was ousted from power after thirty two years as dictator. During this time, the government has implemented a more democratic political system. However, the region was also greatly affected by the Asian financial crisis in 1998. A range of new presidents, who hold authority for a few years, came to power and instigated more reforms by opening up the economy, improving banking oversight, decentralizing power from Jakarta, and reducing trade protectionism. Tariffs and other trade barriers were decreased in order to make Indonesia more competitive in the Asian region. In 2007, the greatest threat that the Rodamas Group has faced was the policy of granting 100 per cent foreign ownership in certain trade sectors. The new presidential regulation allowed foreign ownership except in the sectors of public infrastructure and government-related activities. Multinational companies saw several opportunities in the new government and invested in the expansion of their manufacturing operations. With greater control over local marketing and distribution activities, the multinational companies were opting to establish business in the country without the help of local agents and business partners. As a result, the business environment that the Rodamas Group faced today has become more competitive and complicated. 3.2 Economic Factors Along with the political history of Indonesia come the different economic policies and practices in the country. With an unstable political climate in the country, the economic atmosphere becomes uncertain. The uncertainty has provided the Rodamas Group several opportunities as well as threats to their business. When Sukarno implemented socialism and guided democracy, the economy of the country has declined and the inflation has risen. Low economic activity means lower rate of return in investments. Furthermore, high inflation means lower consumer spending. As a result, investment in large businesses was risky such that industrial developments were frozen and the production of goods deteriorated. However, instead of seeing it as a threat to the business, the Rodamas Group saw an opportunity for growth by importing foreign products and commodities in order to sell to the Indonesian market. During the time of Suharto, economic activities were stimulated in order to modernize Indonesia and revive the economy. It is at this time that great opportunities arose for business entities. The industry sector of the country was developing and the manufacturing sector significantly benefited from the developments. As a result, people were getting better jobs with better wages. The spending of the consumers also increased along with the increase of their income. The business environment became more attractive as compared to Sukarno’s time. The production of goods and basic commodities intensified and the investments poured in. The Rodamas Group further exploited the opportunities by forming strategic alliances with multinational firms in order to establish their different businesses. The company built manufacturing facilities and created better distribution infrastructure to serve the demands. After Suharto’s fall from power, Indonesia was also hit by the Asian financial crisis in 1998. The aftermath of the crisis produced higher inflation and weaker currency exchange for the country. The local currency of Indonesia, the rupiah, declined dramatically from around 2,500 to the dollar to 10,000 to the dollar. As a result, companies who incurred debt denominated in U.S. dollars faced ballooning debts and bankruptcy. As most banks also collapsed, the financial sector had to be bailed out by the government. The shift of the financial resources of the country affected most of the economic activities as well as business investments such that developments were stalled. The Rodamas Group, on the other hand, survived the Asian Crisis relatively unscathed as a result of their prudent and conservative management practices. At present, the flow of economic reforms in the country has created an atmosphere of economic prosperity and attractiveness to investors. Consumer spending is picking up and development in the industry has boosted. The positive economic trend of Indonesia has made the country an emerging market with higher growth potentials. Along with this trend come the multinational companies who wished to establish a market presence and build a strong foothold in the domestic trade. The swarm of large multinational companies with bigger capital investments and better products creates a threat to the Rodamas Group in terms of its profitability, market share and sustainability in growth. 3.3 Socio-cultural Factors The persisting business culture in Indonesia remains seated on cronyism and corruption even from the time of Sukarno up to the time of Suharto and the present. Cronyism is the practice of granting special favors and treatments to select individuals in terms of business investments, opportunities and support. At the time of Suharto, business relations and opportunities were distributed to a limited group of families. Such business families created large conglomerates that spanned several sectors of the economy. They received monopolies and other incentives as long as they supported the Suharto government’s goals for the nation and for his family. Romadas Group, on the other hand, maintained a low profile and a conservative approach which made the company compatible with the Japanese culture. They quietly built a diversified portfolio of businesses and was not considered as a crony company. The rampant corruption coupled with weak infrastructure and ineffective law enforcement has generated a challenge in every aspect of business operation. Obtaining permits and licenses as well as acquiring new land was difficult such that companies allocate bribes constituted 15 per cent of the companies’ total costs of operations. Without the right connection and some protection, few companies could operate efficiently. Fortunately for Rodamas, they have established a strong connection through their sound business practices and reputation such that multinational companies seek their expertise in the local regulations. Indonesia has a diverse culture and language in the different regions and islands of the country. Unfamiliarity with the local conditions creates a challenge for companies to distribute and market their products outside the big cities. The country may still be one of the riskiest markets in the region but it is also the largest consumer market in Southeast Asia where expansion potential can be tapped by international companies. The Rodamas Group has instituted a good reputation as a trustworthy partner for multinational companies such that they have a competitive advantage over rival companies. 3.4 Technological Factors The developments in technology go hand in hand with the development of the industry. As investments pour in, the technological transfer from developed nations and domestic innovations also increases. During the time of Sukarno, industry growth was stalled because of socialism and technology was outdated. Companies like Rodamas prefer to import goods rather than produce them locally. When Suharto modernized Indonesia, industry growth increased such that influx of technology also increased. The business trend during this time was focused on investments on technology in order to produce basic goods and commodities. After Suharto’s regime, the industry was booming such that competition increases among rivals and new entrants like multinational companies. The technology infrastructure was invested on producing quality products and operating efficiently while increasing productivity. The onset of better and modern technology provided opportunities for Rodamas Group to decrease operating costs by investing in more automation and optimization. The company spent its resources in up to date accounting and information systems in order to become more effective and efficient in its operations as well as become compliant with international standards that their business partners practice. 3.5 Legal Factors The legal factors that influence the business environment in Indonesia include the different trade regulations such as tariffs and other trade barriers. During the time of Sukarno, protectionism was practiced where the country’s economy was not open. During Suharno’s rule and the presidents after him, the trade barriers were generally came down thus increasing competition in the industry from both domestic and international companies. Aside from trade regulations, business permits and licenses are required in order to start operations in the country. As previously mentioned, corruption is rampant in the government such that companies resulted to bribery in order to get fast approval from the government. Without permits and licenses, such companies had no legal basis for their operation. Financial scandals in the U.S. and in other developed nations also led to tighter laws on corporate governance and accounting rules. Proprietary rights and intellectual property rights such as trademarks must be registered in order to prevent conflicts between local and international brands. The case mentioned of an American firm who had a problem with registering its trademark in Indonesia such that the company spent resources on expensive lawyers to settle the issue and incurred two years of no sale penalty as a result of the problem. The business development of multinational companies to rely on lawyers and consultants threatens the business model of Rodamas as a local business agent and venture partner. 3.6 Environmental Factors Indonesia is a country with vast natural resources that remains untapped. Multinational companies and local businesses can benefit from these resources in order to increase their production in order to satisfy the demand in the world market and expand their business. Chinese companies, in particular, are interested in investing in natural resources in order to supply the needs of manufacturing firms in China. However, the Rodamas Group has no experience and expertise in this type of investment and is not ready to enter into this type of sector. 4.0 Identification of Key Issues The current business model of Rodamas is threatened with the external factors influencing the business environment. With the democratization of Indonesian economy and the introduction of economic policies providing 100 per cent ownership of foreign companies in domestic territory, the Rodamas Group faces stiff competition. Large multinational companies have bigger resources and better capabilities as compared to the Rodamas Group. As a consequence, the market share of Rodamas Group’s business dwindled and some of their business were losing its competitiveness in the industry. However, some opportunities also arise with the change in the business environment. One of which is the socio-cultural influence where the Indonesian market, regulations and labor force are greatly affecting the efficiency of the operations of some firms, in terms of cost, productivity and business relations. Another opportunity is in the potential market for the vast natural resources available in the country. The challenge lies on the capacity of the Rodamas Group and its management in utilizing their core competency in order to gain competitive advantage in the changing business environment. 5.0 Alternative Strategic Approach Several strategic approaches are available for the Rodamas Group in order to sustain its business growth and profitability. First strategic option is internationalizing with existing partners. Asahimas, a joint venture between Asahi and Rodamas in glass manufacturing, has proven to be successful in exporting their products to the other markets of the region such as Australia and Southeast Asia. The company’s reputation and domination in the glass market, Asahimas flat glass had become a leading brand in glass. Other successful export business includes monosodium glutamate with Sasa and detergents with Kao Company. Its printing and packaging products with Dai Nippon Japan were being exported to more than 20 countries where customers include Unilever and other large multinational companies. The advantage of this strategy is that the company has already established good business relations with their joint venture partners as well as created a brand reputation in the region. On the other hand, the disadvantage lies in the limited growth potential for the company because Rodamas Group will only have a minority share in the business venture. A second option for the company is the development of its own business in Indonesia. Developing a wholly company owned business would generate greater returns and profit that is essential for its growth. Indonesia is a likely candidate for multinational companies to source their suppliers if minimum price and quality are met. China is the regions greatest competition. Rodamas Group has gained the market knowledge and distribution expertise in the different businesses that they have ventured. However, most of their production technologies have proprietary rights which are owned by the international partners that bounds the company with non-competition clauses. The company also lacks the technology as well as research and development expertise that are needed to start an independent manufacturing firm. A viable sector to start an independent business is in the real estate and property sector such as office rental. The company owns office buildings and factory sites in the center of Jakarta. Such properties can be converted into office towers that can be available for the rental market. However, the sector is considered a volatile industry and Rodamas Group competes as a small player in a highly competitive market with less experience than the established real estate companies. Another strategic option for the company is to focus on the distribution of products of foreign companies as well as developing new partnership with from potential multinational companies from China in order to acquire direct investments. This is advantageous for the company since they have developed core competencies in joint ventures and dealings with the local market and government regulations. The reputation of the company as a trustworthy partner will make it attractive for foreign investors. The consumer product market in Indonesia is attractive and the company has already built strong logistics infrastructure and wide distribution channels in both urban and rural areas. However, the profit margin in the sector is currently low as compared to other countries where consumer spending and disposable income are high. Furthermore, the approach would involve a lot of bargaining and possible conflicts if Rodamas did better or worse. 6.0 Recommendations and Implementation .With careful analysis and evaluation of the company’s core competencies as well as the threats and opportunities presented in the business environment, the paper recommends a two-fold approach in order for the company to maintain, if not improve, sustainability and profitability. The first approach is a defensive strategy where the company would protect its market share and secure its sustainability. This defensive approach would require the company to internationalize its operation in foreign territories. Globalization is trend in today’s business. The company has garnered success stories with some of its products that were exported to other countries. It is a defensive approach because the company would be preserving its brand in the international market even if the growth potential is limited due to partnership with existing multinational companies [Por90]. The benefit of internationalization is the knowledge gained and business relations established in other nations that could be useful in the future. The company would be gaining new capabilities that would weigh more in the future than the profit margin it gives today [Nen04]. The second approach is a growth strategy in the local industry by investing on new independent business or manufacturing firm and emphasizing on the distribution infrastructure of the company. The recommended business is the office rental business because it provides potential revenues for the company that would be long-term in perspective. It would also require less technology investment which the company has no expertise. An extensive feasibility study and planning would be required in order to prepare the company in venturing in the business. Another recommended business is investing in glass manufacturing that is an off shoot from Asahimas joint venture. Asahimas produces flat glass products using the technology provided by Asahi Japan. The company can benchmark on this technology and produce other glass products such as automotive glass. The automotive industry is a big industry where multinational companies would require suppliers for their assembly plants in the Asian region. It is a non-competition business with the Asahi joint venture because the market for Asahimas is in the flat glass segment while the new firm will market in the automotive supplies. As for taking advantage for the distribution infrastructure, the recommended business is for the company to establish third party logistics service. The company has the capabilities and resources in logistics such that they can cater to foreign multinationals and local companies in distributing their products across the different islands and regions of the country. Outsourcing the logistics services has also become a trend in the global industry and Rodamas Group can tap on this demand [Str95]. In order to venture into the new independent businesses, the company would be compelled to finance the business through debt financing and public offering of company shares. Leveraging the company would create the needed capital to invest in the new ventures and both financing strategies would help in providing the working capital [Kim00]. Furthermore, the economic outlook of Indonesia and the Southeast Asian region is positive while the stock market for the country is thriving. 7.0 Bibliography Phi03: , (Sadler, 2003), Por90: , (Porter, 1990), Nen04: , (Pacek & Thorniley, 2004), Str95: , (Strategic Outsourcing, 1995), Kim00: , (Kimmel, Weygandt, & Kisco, 2000), Read More