Strategic Planning for GOME Inc in China - Case Study Example

Strategic Planning for GOME Inc. in China Name: Tutor: Course: Date: Table of Contents 1.0 Introduction 4 1.1 SWOT Analysis 4 Table 1: SWOT analysis table 4 1.2 Macroeconomic analysis 5 Table 2: Estimated revenues in the Chinese online video industry 6 Table 3: Drivers of revenue in video streaming 7 Table 4: Popular Chinese video websites 7 Figure 1: Competitor ranking for popular video games and movies 8 1.3 Resources, competencies and distinctive capabilities 8 Table 5: VRIN description for GOME Ltd 8 1.4 Relevant strategy 9 1.5 Target market 10 Table 6: Target market description for the video streaming 10 List of Tables Table 1: SWOT analysis table 4 Table 2: Estimated revenues in the Chinese online video industry 6 Table 3: Drivers of revenue in video streaming 7 Table 4: Popular Chinese video websites 7 Table 5: VRIN description for GOME Ltd 8 Table 6: Target market description for the video streaming 10 List of Figures Figure 1: Competitor ranking for popular video games and movies 8 1.0 Introduction GOME Electrical Appliances Holding Limited (GOME) is a Hong Kong based consumer electronic and electrical appliances company employing more than 50,000 people in 1,223 stores. Listed in Hong Kong Stock Exchange, the company has a solid financial standing with annual revenues of $10 billion. The company has expanded into several countries including China and is seen as a leading omni-channel retailers of consumer electronic and home appliances products. GOME operates flagship, standard and specialized stores that are also involved in online sale of electronic products. The company operates an online B2C shopping platform, management services and value-added services. The consumer electronics market has audio and visual equipment being very lucrative in the overall market value. Although photographic equipment segment still exist, tablets and smartphones has seen its collapse in the recent years. This report identifies online video streaming as a new product to be launched into the Chinese market by GOME and evaluates it in terms of internal and external environment. 1.1 SWOT Analysis The SWOT analysis below describes GOME’s ability to maximize on its strengths and opportunities while recognizing that it has weaknesses at the wake of various threats that affects its business environment. However, the company is positioned to take advantage of its superior strengths to overcome its weakness. Table 1: SWOT analysis table Strengths Low-cost and efficient supply chain (MarketLine, 2015a) Sustainable total retail through strong linkage capabilities, new scenario and omni-channels (Samson et al. 2016, p. 130) Integrated ecosystem and scalable e-commerce platforms (MarketLine, 2016) Transformation to product application setting (MarketLine, 2016) High level of expertise that responds to the changing shopping preferences (Samson et al. 2016, p. 138) Strong brand value and position that provides competitive advantage, ($11,938.1 million) in 2015 (MarketLine, 2015a) Superior advertising and marketing communication strategies (MarketLine, 2015b) Weaknesses High dependence of domestic market for revenues (MarketLine, 2015a) GOME’s financial condition vulnerable to slow down in GDP growth (MarketLine, 2015b) Limited global presence and inability to offset concentration risks (MarketLine, 2015a) Huge dependency on few major suppliers (Samson et al. 2016, p. 128) Lack of sustained leadership position in its operational markets (MarketLine, 2016) Opportunities Exploiting internet to increase the penetration of the physical stores (Samson et al. 2016, p. 141) Consistency of profits for 10 consecutive quarters in 2015 (MarketLine, 2015b) Strategic initiatives for consumer electronics market globally (MarketLine, 2016) Planned shopping channels for its globalization initiatives (Samson et al. 2016, p. 135) Strategic approaches shows readiness for adopting the latest trends in the industry (MarketLine, 2015b) Growth in the household appliances in the Chinese market (MarketLine, 2015a) Positive market forecast for electrical and electronics retailers in 2019 (MarketLine, 2016) Growth in online sales, e-commerce and rise in disposable incomes (MarketLine, 2015a) Threats Highly competitive retail business from online and store retailers such as Netflix, Suning Appliance Group, JD.com and Alibaba Group (MarketLine, 2015b) Lowering retail product prices in the long run with affect the profits of the company (MarketLine, 2015a) Rise in rental expenses for administrative and general such as rental expenses (MarketLine, 2016) 1.2 Macroeconomic analysis Prevailing economic conditions: China has a population growth rate of 0.5% per year which represents a strong purchasing power for the 1.3 billion people. Moreover, the Gross Domestic Product (GDP) has been growing steadily at over 7% to the tune of $5.2 trillion per annum (MarketLine, 2016). Fortunately, the inflation rate has been reducing since 2010 to 2014 by about 0.5% while Consumer Price Index (CPI) has been increasing by a margin of 5 within the same period. Similarly, the exchange rate has been stable against the dollar (average of 6.5 $/CNY) and the euro (average of 8.5 €/CNY). Demand and supply forces: The Chinese electronics market is evidenced by low cost switching especially in the electronics retail market. In response to market conditions, companies are able to hire more staff and stock from a variety of providers quite easily. For example, the surge in large screen televisions has been driven by increase in global sporting events like Olympic Games and FIFA World Cup. Additionally, demand for audio and video streaming services is on the increase as a result of the internet and faster connectivity. However, GOME will have to face increased rivalry with some of the established competitors like Netflix and Alibaba.com (MarketLine, 2015b). Demand for music and videos among the youth are very high which triggers a certain demand for audio music and videos. Meanwhile, the supply is always low and cannot meet the demand for these products. Description of the industry: Online video streaming is closely related to TV industry and is one of the leading destinations for professionals seeing online video services and streaming of directories, articles, information and news. Hulu and Netflix make more money on online video streaming services annually compared to the US movie box office. In the US alone, the filmed entertainment industry is the biggest revenue earner compared to the traditional cinema box office (MarketLine, 2015b). While traditional TV viewing has dropped in the recent years, mobile video shows and live sports streaming remains one of the biggest drivers of online viewing. Despite the crackdown in China’s live-streaming, the estimated revenue has experienced a steady growth in China. Table 2: Estimated revenues in the Chinese online video industry Source: http://www.go-globe.com/blog/online-video-market-china/ In China, more than 450 million people have connections to the internet. By the end of 2016, it is expected that 700 million people will be accessing the internet. The drivers of revenue are mainly ads followed by copyright distribution and value-added video services. The future of video streaming is bright and offers many opportunities for players. Table 3: Drivers of revenue in video streaming Moreover, the most watched Chinese websites are as shown in the table below. Table 4: Popular Chinese video websites Competitor analysis: Most companies battling out in video streaming thrive on originality of content. Companies such as Netflix and Amazon have huge expenditure on TV shows and subscription of services. The latest to join the two are Apple and Hulu. The most buzz online is created by Netflix with nine out of ten viewers showing that is carries the total audience demand that reflects higher consumption of content, engagement and desire. Source: http://www.go-globe.com/blog/online-video-market-china/ Figure 1: Competitor ranking for popular video games and movies In China, video streaming is dominated by YY and Momo with the former being the current market leader. The two companies have been able to sustain growth due to increased demand for personalized and low-cost entertainment. 1.3 Resources, competencies and distinctive capabilities Resources: GOME prides in over 50,000 employees who have high level of expertise especially on retail and online sale of electronic products. Through GOME-on-line, the company has been able to leverage on B2C shopping platforms. The company, in 2010, launched online marketing programs and new e-commerce platforms which are some of the intangible resources that the company possesses. The organizational reputation that has seen it grow over time is intertwined with technological and intellectual resources (MarketLine, 2015b). GOME is keen on respecting and adhering to the copyrights and patents of other companies and develop its own under intellectual property rights. Over the past few years, the company has been running on the platform of greater innovation speed and capacity. Basically, it has acquired a certain reputation from its customers becoming a great goodwill to the organization. The VRIN characteristics for GOME are as shown in the table below; Table 5: VRIN description for GOME Ltd Resource characteristics Yes/No Nature of Advantage Resource view Valuable Yes Competitive advantage More than 50,000 employees with unique levels of skills, expertise and qualifications. Rare No Comparative advantage Competing firms like Netflix and Hulu already have the advantage of reputation and experience in online video services Inimitable No Sustained competitive advantage GOME has well established audio and visual equipment which enables it to create and edit content of videos. In category segmentation, the company boasts about 90% of the total market value based on Chinese content. Non-substitutable Yes Sustained Competitive advantage Most online videos are not substitutable with cinema shows and live bands since the dominant target market is averse. Competencies: GOME will have to compete with Hulu and Netflix in the international stage as well as YY and Momo at the domestic level. Already, the company boasts of huge experience and expertise on online sale of electronic products. Overtime, it has transformed into an information technology organization with the capacity to develop photographic, electrical and consumer electronic products. In fact, it is selling more than 300 million products in various categories such as cosmetics, clothing, drinks, books and food (MarketLine, 2016). This implies that the company has competitive advantage in online advertising and sales. Distinctive capabilities: GOME has broad experience in expansions, launches and mergers and acquisitions in strategic products and services over the past 10 years. With strong financial base and reputation, the company has greater competitive advantages in launching the video streaming services. Key employees are well remunerated implying that they are motivated and determined to oversee the success of the company in the long-term. Meanwhile, the company has invested heavily in research and development which makes it more sustainable and appropriate (MarketLine, 2015a). In fact, it is deriving more benefits from innovation, organizational reputations and architecture. GOME has good relationship with its stakeholders which are a recipe for better relationship between suppliers, customers, senior management and employees. 1.4 Relevant strategy As seen above, GOME has strengths in online product sales and distribution alongside a strong financial base. As well, it can maximize its human resource to increase and expand it online selling point to video streaming (MarketLine, 2015b). The most relevant strategy in this case would be the strengths-opportunity (S-O) strategy to win most of the online customers. Having a low-cost advantage and favorable access to distribution networks, the company can take advantage of loosening in regulations on video streaming and unfulfilled customer needs in online video streaming. Furthermore, the company enjoys good reputation and good-will from customers across the globe which makes it easier to advance a new product. By doing so, GOME will be able to pursue opportunities that will have a seamless fit with the strengths of the company. 1.5 Target market As mentioned before, GOME is introducing online video streaming to its online customers as a new product. This follows a number of successful launches and ventures that the company has engaged before in online dealings (Samson et al. 2016, p. 134). Based on marketing segmenting variables, GOME has an advantage of a massive Chinese population that is ready to purchase its online videos. Meanwhile, it can stream original content in Chinese language which makes it likeable in the larger Asian market. The target market description for online video streaming is as shown in the table below. Table 6: Target market description for the video streaming Market segmenting variables Description Age 18-35 years Occupation Working professionals, college/university students Gender Male/Female Income (per annum) $20,000-50,000 Education College or University Graduates Marital status Single/Married Religion All Psychographic factors Users are internet savvy with daily access to high speed internet. Own smartphones, laptops, iPads or tablets. Likes touring places and experimenting with new technologies. They prefer attention seeking and find new pieces of technology thrilling and exciting. They have very supportive parents who are willing to make sacrifices for them to excel in various fields and gain knowledge in new technologies such as social media and web 4.0 tools. Marketing mix for the target market: In this target market, online video streaming will carry original Chinese content which will make it more appealing and convenient to the users. The product range will range from thriller movies to fiction. Moreover, it will target the Diaspora Chinese in the larger Asian, European and American market. The product price range will between $2-5 in every two hours of viewership. In fact, the company will use psychological and bundle pricing to ensure that the product advances quickly in the market. For example, GOME will sell its videos at a price range of $1.98 and $4.95 with the individual who purchase the $4.95 getting free access to one more video stream of their choice. The distribution channels will be essentially online stores already owned by the company while promotional activities will involve billboards, online fliers and posters which will be present in the company websites and other ads sites. 1.6 Conclusion GOME is one of the leading technological companies in China with a good history in development and sales of electronics and audio-visual equipment. Given the competitive sphere that the company is facing, it has the benefit of developing video streaming products in original content and Chinese language to reach is massive customer base. The company has strong financial and human resource portfolio which makes it capable of introducing the new product to its existing client base. The drivers of revenue in video streaming are mainly from ads and copyright distribution which the company is ready to experience. Despite the huge competition from global companies like Netflix and Hulu, GOME is strategically placed to take advantage of the larger Chinese market and viewership to gain entry and command a sizeable market share. Most of the youthful followers of online video streaming are more likely to create a winning Strength-Opportunity (S-O) strategy for the company. References MarketLine, 2015a, MarketLine Industry Profile: Consumer Electronics in China. MarketLine. MarketLine, 2015b, MarketLine Industry Profile: Global Consumer Electronics. www.marketline.com MarketLine, 2016, Company Profile: GOME Electrical Appliances Holding. www.marketline.com Samson, D, Daft, RL, Hanson, D, Pitt, MA, Ireland, RD, Hoskisson, RE, Pride, WM, Ferrell, OC, Lukas, B, Schembri, S, Niininen, O, Emerson, L, & Linton, T 2010, Business Foundations 2nd Edition, Cengage Learning Australia Pty Limited. Read More