Strategic Plan for the Indonesian Music Shop - Assignment Example

Strategic Business Plan for the Indonesian Music Shop Industry Background The Indonesian music industry has seen a gradual fall in the recent past time due to several reasons which have actively contributed in strengthening its fall. According to International Federation of the Phonographic Industry (IFPI) one of the major reasons behind the decline of music industry in Indonesia is piracy which has risen up to an alarming level of 80% of the total music industry of Indonesia. Piracy does not holds only for Indonesia but has became a debatable issue for the entire world with other nations such as Brazil, India, Mexico, Pakistan, and many other nations (ZDNet Research, 2005). The Indonesian recording industry has been so affected by the activities of piracy that the companies involved into the business of music and entertainment needed to take a major step in order to protect their business revenue and the business operations in Indonesia. Due to excessive piracy of music the Indonesian Recording Company Association decided to change their mode of storing the recording materials from CDs and other types of storage devices to the digital storage of the recording materials into digital files. Piracy resulted into fall in the sale of CDs, VCDs, and other recording materials. The concern for the loss of music industry due to piracy remained obvious because of the fact that the music industry of Indonesia contributed about 18% to the total revenue generated by the Indonesian government (Anonymous, 2009). Company Background The company named Indonesian Music Shop is an online music providing company which has a vast collection of music including the classical and artistic albums of Indonesian origin. The company also has a collection of tracks of commercial numbers which are more liked by the youth of Indonesia. The company gives more importance to the cultural and traditional music of the nation which is very much evident from their website where apart from the music categories proper literatures have also been provided by the company. Since the company does not have any shop floor it operates its business through internet and web communication mediums. Regarding the products and services offered by the company on its website it provides portal to its customers for placing their orders and specifications after getting registered with the website. The website also provides additional information on health issues, and food and spices, and offers spaces for advertisement to other companies (The Indonesian Music Shop-website, n.d.). Vision and Mission of the Company The company has a vision “to be the price leader in the e-business industry with an orientation towards quality customer service at an economic rate”. The vision of the company cashes on its mission statements which are to: Provide high quality genuine music with the widest range of choices. Have simultaneous focus on the additional services of the company by extensively utilizing the web and internet technologies and resources. Have a customer oriented approach. Promote the antipiracy activities through effective initiatives such as Ring back Tone (RBT). External Assessment The external environment of the location is needed to be assessed properly to develop the strategic plan for the company. To analyze the external environment of the company the strategic framework of External Factors Evaluation (EFE) matrix can be used which covers all of the external influential factors which have an impact on the business of the company. External Factors Evaluation (EFE) Matrix The EFE matrix holds for the assessment of the external factors which influences the business of an organization. The factors included under the EFE matrix are of variable nature such as economic, demographic, governmental, social, environmental, technological, cultural, political, and competitiveness level (Katsioloudes, 2006). All of these factors in the context of Indonesia and its music industry will be included and summarized under the external assessment of the company. Potential External Factors Weight Rating Weighted Score Opportunities 1. Better export opportunities by forming partnership with exporting companies and providing them with e-business platform and web technology. 10% 3 0.3 2. Music industry is a significant contributor of 18% in the total revenue of the Indonesian government. 10% 2 0.2 3. Preference for the traditional and folk music and its promotion to other nations through web and internet technologies. 10% 3 0.3 4. Lowered tax rates such as Corporate and personal tax rates from 30% to 28% by 2009 and would likely to fall to 25% by 2010. 8% 3 0.24 5. Encouragement for the small and midsized companies by reducing additional taxes imposed by the government. 8% 3 0.24 6. Better education system making them aware of new technological developments. 5% 2 0.1 7. Excessive usage of internet and web based technologies by the Indonesian government to administrate their official activities and support the citizens of Indonesia. 3% 2 0.06 Threats 1. The sluggish pace of development of Indonesian economy poses a potential threat. 5% 1 0.05 2. The nation comprises of multiple religion with Islam forming the majority of the total population. Different religions require different business approaches in context of their values. 8% 1 0.08 3. The country has a total population of more than 20.3 million with a growth rate of 1.136%. High population level impacts on the economic development of the nation. 5% 1 0.05 4. The economy of the nation has failed in attracting major foreign investors which supports in generating revenue for the economic development of the nation. 5% 2 0.1 5. The economy of the nation is market driven which results into governments control over most of the firms involved in the different sectors. 5% 1 0.05 6. The trend of online music business has gained pace due to exceptionally high level of piracy. 8% 4 0.32 7. Indonesia being the favorite location for business for both local as well as many of the newly emerged international brands poses a threat of high competition level among them. 10% 4 0.5 TOTAL 100% 2.59 (U.S.D.S, 2009) The ratings have been done on a scale of 1 to 4 where 1 represents the major weakness of the company while 4 represent the major strength of the company. The average score of the considered factors has came as 2.5 and the calculated weighted score is 2.59 which are slightly more than the average value. The slight increased value of the weighted score signifies that the company has responded fairly towards the external factors which have both opportunities as well as threats for the company. Porter’s Five Forces Analysis To have a competitive analysis of the company the strategic framework of Michael Porter’s five forces analysis have been used. Under this framework various factors which influence the business of the company can be analyzed critically (Day et al. 2004). Bargaining Power of Suppliers The suppliers of the company consist of mainly music and entertainment industry entities which provide them with required resources for their supply chain. Companies such as Sony and other entertainment companies have approached the company to promote their product through their website and selling them to all of its global customers (The Indonesian Music Shop-website, n.d.). The music industry of Indonesia has taken pace in recent days and most of its business partners such as music artists, and music creating companies have received better response from them which is a good indication (The Indonesian Music Shop-website, n.d.). Recently MTV has entered the Indonesian region and has received an impressive response from the nation which has also supported the promotion of the local music types and culture globally (Santana, 2003). Bargaining Power of Customers The customer group entertained by the company has its major portion belonging to the nation itself with several others in nations such as Asia, Africa, Australia, USA, and many other nations. These customers perform their transaction through the company websites where the customer does not get chances of bargaining. The pricing strategy of the company does not have proper involvement of the price differentiation which has resulted into different rates for different locations and its customers over their (The Indonesian Music Shop-website, n.d.). Piracy of music and other entertainment media has led the company to think upon the issue as the customers get their products by paying lesser amount to unauthorized entities involved in the music piracy. Business Rivalry among Existing Firms The music industry of Indonesia has gained enormous pace in last few years which has resulted into high level of competition. After the decision taken by the IFPI regarding storage of music tracks through digital applications and avoiding CDs, and VCDs for the storage purpose have ignited the piracy industry to take support of internet which serve as the medium for transferring pirated tracks from one point to another. This has drastically impacted the Indonesian music industry. Threat of New Entrant The increasing level of competition in the music industry of Indonesia has opened the door for other new competitors in the music industry. Stabilizing economic condition of Indonesia has also started attracting other nations to enter the nation with their business operation. This interpretation indicates that the company has a threat of facing new entrants in its sector of online music selling. Threat of Substitute The company has a major threat of substitute because of several other companies which have also entered into the market of online music selling. Since the nation and many other Asian countries are facing the problem of piracy which has offered a substitute product for the potential customers of the company at a comparatively lower prices. This particular act of piracy has become a major point of concern for the company. Internal Audit SWOT Analysis SWOT analysis is a comprehensive technique which analyzes various internal strategic components of an organization for the purpose of outlining its strengths, weaknesses, opportunities and threats. The findings of a SWOT analysis program are then used to design a sustainable strategy that supports the organizational goals (Pearce et al, 2008). Strengths The Indonesian Music Shop (IMS) follows the marketing mantra ‘customer is the king’. It guarantees superior service and satisfaction to all customers and for its entire product portfolio. In a highly competitive business environment it is obviously a strength which provides the company with sustainable competitive advantage. Moreover, IMS has a provision for full refund in case the customer is not happy with his purchase decision. IMS has carved a niche in the online music industry by offering RBT to its customers. This adds to the company’s strength as RBT is a profit generating service. Another strong area of IMS is its price advantage which it can easily maintain on account of being a cyber store. IMS have successfully tapped the potential of e-business and have done away with all costs pertaining to a physical shop. IMS has a reliable delivery speed which again accrues to enhanced customer satisfaction. IMS offer online sample tracks which allow the customers to evaluate their choices. This helps in minimizing post sales grievance. Along with these strong points IMS also offers a wide range of flexible payment options (The Indonesian Music Shop-website, n.d.). Weaknesses Shipping costs charged by IMS for South Africa, Asia and Africa are quite high as compared to those for Europe and U.S.A (The Indonesian Music Shop-website, n.d.). This might impede sales to those continents owing to the fact that though certain Asian economies are emerging giants, majority of the South American (especially the Latin America) and African economies are strangulated by vicious trends such as hyperinflation, etc. Strikingly, Indonesia itself is an economy whose population is mostly rural and underprivileged. Hence they can hardly spend their disposable income on a luxury like music (Dhanani, Islam & Chowdhury, 2009). IMS should rethink over its differential pricing strategy. Opportunities Indonesia is growing fast as a lucrative music market. Hence it is an obvious destination for local as well as international players. Indonesia’s business history validates its strong trade-links with China, India and Europe (Touwen, n.d.). IMS, therefore, has an immense opportunity to tap these markets in order to further its business. Indonesia’s relations with Australia are also favorable and it suggests that IMS can tap this considerable new geography as well. Additional probabilities are those of mergers and acquisitions in the Indian and Chinese markets where the segment has already flourished. Nearly 90% of Indonesians follow Islam (U.S.D.S. 2009). This hints at the possibility that IMS may also try to make a foray into Pakistan and Bangladesh for trade tie ups. Threats The Indonesian music market is characterized, like its other Asian counterparts, by piracy. Though RBT complies with anti-piracy laws, mainstream music should be sufficiently secured in order to avoid violations that may occur unintentionally. It will be a tough challenge for the company to maintain this standard because approximately 90% of music CDs that are currently in circulation in Indonesia is pirated (Anonymous, 2009). Apart from this, the market offers stiff competition as there are numerous music label companies. Though there is a recent trend of storing data digitally, there are hassles associated with it because security becomes a major issue is this context. SWOT based Strategy From the SWOT analysis, as has been outlined above, it can be observed that the company has inherent strengths and circumstantial opportunities that score over its weaknesses and the threats that it faces. Under such favorable distribution of security and risk it will be appropriate to suggest that the company must take rigorous measures in order to stay away from the zone of self deception. The management should carry out regular environmental scans to evaluate its degree of vulnerability. The price differential should be given a serious thought if it desires to maximize its market depth and cost leadership. Quality control and security should be taken care of as the market is plagued by piracy. These measures will be vital as the Indonesian market is a drawing international interest thereby increasing competition. Though storing data in the digital format is a safe practice, it comes with inherent security-issues. Thus, IMS needs to augment its security to maintain quality standards. Once the panic zones are taken care of, the company should take a look at its strengths and opportunities in order to enhance them. This will fortify its competitive edge. To start with, IMS may widen its current portfolio and at the same time implement an enhanced customer service program which is more interactive. Shipping time and charges may be reduced to expand the customer base. It should also utilize the foreign relations of Indonesia to tap more hunting grounds where it can extend its services. Though subject to feasibility analysis, it may be proposed that IMS, being an Indonesian company, may even consider the religious angle and speculate the prospects of tapping Islam nations where it may enjoy sentimental advantage. To conclude the SWOT analysis, it can be reiterated that IMS is a potent player in the online music business which is characterized by inherent and deep-seated drawbacks as well as remarkable prospects. IMS is already doing quite well in this segment, but the Indonesian market being an attractive pasture for other companies as well; it should work on its weaknesses to minimize the seemingly trivial and yet potent threats, while reinforcing its strengths with a focus on making the best use of the opportunities. Internal Factors Evaluation (IFE) Matrix The IFE Matrix analyzes the internal factors of an organization which influence its business strategies and overall performance. These factors are the strengths and weaknesses of a company. In the context of IMS, the IFE can be elaborated asunder Potential Internal Factors Weight Rating Weighted Score Strengths 1. Customer service of IMS is exemplary. 20% 4 0.80 2. Management is sufficiently dynamic to operate successfully in the highly competitive segment of online music. 25% 3 0.75 3. Implementation of new technology in order to provide RBT service has been successful and beneficial for the revenues of IMS. 20% 3 0.60 4. Cost efficiency is achieved through eliminating the necessity of shops. 20% 3 0.60 Weaknesses 5. Price differential should be taken care of in order to expand client base. 15% 2 0.30 TOTAL 100% 3.05 The ratings have been given on a scale of 1 to 4 where 1 represents the major weakness of the company while 4 represent the major strength of the company. The average score of the considered factors has been benchmarked as 2.5 and the calculated weighted score has been found to be 3.05 which are higher than the average value. The increased value of the weighted score signifies that the strengths of IMS are more than its weaknesses. Long Term Objectives Identification of the long term objectives follows SWOT analysis. This step is necessary for improvising the strategic options that would support the operational objectives of the organization and also align them with the overall corporate goals. It would be favorable for IMS to consider the following objectives: Developing a geography-specific distribution network to support differential pricing without hampering revenues. Acquiring a telecom company to utilize its security expertise and at the same time minimizing transactional costs for RBT. Widening the portfolio of products and services. Strategic Options With reference to the SWOT analysis of IMS, the strategic options that it might choose are as under: Owing to comparatively higher shipment charges in Africa and Asia, the company is losing potential customers. A vital strategy will be to work rigorously towards developing a geography-specific distribution network. This strategy will be helpful in attracting more customers from weaker economies. Since RBT service is provided through technical assistance with telecom companies, it involves some amount of cost which is in turn recovered from the end-users. IMS, being a provider of RBT, can integrate with a telecom company – preferably one within its supply chain – in order to minimize the costs and generate more revenues. Going by the normal trends of the service industry, IMS can even work towards achieving product-advantage by developing its current portfolio as well as making additions to it in the form of new products and services. It can also increase the number of music genres in its database. Extension of services to Islam nations following a differential pricing policy has a high probability being a success. IMS will have to factor in PESTEL variables for such nations before taking the decision. The ultimate strategic choice that will be finalized for implementation has to be the one that will promise the maximum future output in terms of growth, sales and revenue. The strategy should also minimize the weaknesses and maximize the strengths so that the company makes the best use of the opportunities and at the same time gets least affected by threats. Since most of the threats are common for nearly all the online music companies, it is advisable that the company’s strategic option should be minimizing them at the earliest behest through R&D and at the same time giving sufficient importance to differential pricing in order to achieve cost-leadership. Managerial Issues IMS is a completely online business that doesn’t have a single physically existing shop. This may make the reliability of the company questionable and this in turn may repel many potential customers. This issue may be solved through creating a human interface in the form of a customer grievance manager whom customers will be able to meet in person if the need arises. The financial planning will need attention for designing a differential pricing schedule. A major managerial issue will definitely be compliance. A competent manager should be designated with the task of ensuring that the operations of IMS are in complete compliance with the laws covering anti-piracy and intellectual property rights. As a mandatory requirement, the company should have a public relations officer to enhance the company’s image on a continuous basis due to the facts that this particular market is highly defamed on grounds of piracy and reliability is remarkably low. The management of IMS should take proactive steps to enhance its competitive advantage through addressing the above mentioned managerial issues. Implementation of Strategy The strategy may be successfully implemented through well planned coordination among the supply chain. Since the company possesses a supply chain which has got a complicated structure owing to its virtual existence, it needs to have a physically existing administrative facility. This will help in having a better control over customer related issues and vendor management. For implementing differential pricing strategy IMS should factor in the economies that it will be specifically targeting – it should consider the purchasing power parity and designate prices accordingly because most of the music-loving population in the comparatively weaker economies of South American, Asian and African continents may most likely be repelled by higher prices. The R&D issues should be immediately addressed to in order to overcome problems arising out of piracy. This will promise a technological advantage to the company and will directly influence its customer base. As a company having reliability of product, IMS will definitely earn profit as an effect of this move. The successful implementation of the said strategy will be achievable through high levels of integration within the company which will require all its representatives to work harmoniously towards a common goal which is enhancing the competitive advantage of IMS. Performance Measurement and Evaluation The performance of the company could be improved by focusing on certain aspects of the business operations. It should try to minimize its weaknesses such as reliability issues which the company faces due to its virtual existence. Some other weaknesses of the company are security issues which it faces during the transactions. It should try to enhance the security arrangements over internet with assistance of technical experts. The company could be benefited by maximizing its opportunities also which could be done by proper analysis for identification of the opportunities. Due to increasing stability of Indonesian economy more of the companies have shown interest in the location in recent years. This opportunity can be utilized significantly by the company. Simultaneous efforts on reducing the weaknesses and threats which are mostly of external nature could support the organization in improving its productivity and profitability at the same time. The company has worked on its customer service to make it more convenient for its customers and has provided numerous payment options to its client which has brought much flexibility in its operations. Apart from gaining expertise in operational activities and improved ales performances the company could have its dedicated team of research and development to bring more innovative approaches into its business operation and fight back the issue of music piracy. References Anonymous. 2009. The Music Industry Report- Piracy Forces Indonesia Recording Industry to Digital File Storing. [Online] Available at: http://musicindustryreport.org/?p=12235 [Accessed on January 16, 2010]. Day, G., Reibstein, D., & Gunther, R. 2004. Wharton on Dynamic Competitive Strategy. John Wiley and Sons. Dhanani, S., Islam, I., & Chowdhury, A. 2009. Industry and Labour in Indonesia. Routledge. Katsioloudes, M. 2006. Strategic management: global cultural perspectives for profit and non-profit organizations. 2nd ed. Butterworth-Heinemann. Pearce, J., Robinson, R., & Mital, A. 2008. Strategic Management. 10th ed. Tata McGraw-Hill. Santana, K. 2003. MTV Goes to Asia. [Online] Available at: http://www.globalpolicy.org/component/content/article/162/27623.html [Accessed on January 16, 2010]. The Indonesian Music Shop-website. No date. Indonesian Music Info. [Online] Available at: http://www.indonesianmusic.com/ind.htm [Accessed on January 16, 2010]. Touwen, J. No date. The Economic History of Indonesia. [Online]. Available at: http://eh.net/encyclopedia/article/touwen.indonesia [Accessed on January 16, 2010]. U.S.D.S. 2009. Background Note: Indonesia – U.S. Department of State. [Online] Available at: http://www.state.gov/r/pa/ei/bgn/2748.htm [Accessed on January 16, 2010]. ZDNet research. 2005. Top 10 countries for music piracy: Brazil, China, India, Indonesia, Mexico, Pakistan, Paraguay, Russia, Spain, and Ukraine. [Online] Available at: http://blogs.zdnet.com/ITFacts/?p=8613 [Accessed on January 16, 2010]. Read More