Corporate Strategy of HTC - Case Study Example

?Corporate Strategy HTC Corp in 2009: Case Study Question The HTC was founded by HT Cho and Cher Wang in May 1997. While evaluating its last 13 years’ operations, it is obvious that the company has achieved a greater position in the market within this short time span. The timely and fruitful management strategies are found to be the key factors that led the company to rapid growth. In addition, the top management is always willing to take reasonable degree of risk and this policy has largely contributed to the firm’s business efficiency. The HTC started its operation with the basic goal of developing small, handheld, computer-like devices. In order to achieve this goal, the company management decided to use the Windows CE as a basic platform. However, the HTC initially focused on the development of note books as a result of unavailability of skilled engineers to make handheld devices that time. Although the company succeeded to create the world’s first pocket-size PC with Microsoft a year later; high production costs, lack of brand recognition, and technical glitches put the firm’s main note book business into troubles. The ballooning loss figures persuaded the company to exit note book business and refocus on handheld devices. The HTC’s initial difficulties came to an end in 2000 when it manufactured a PDA, the iPAQ, for Compaq Computer. The Compaq commissioned HTC as an original design manufacturer with the purpose of engineering and designing the products for the company. In addition, the HTC also entered into ranges of other business segments such as mobile phone operator business. So as to accomplish its objective of international expansion, the HTC established a separate research and development team which can effectively design innovative models that would best fit with changing market trends. Recently, the newly appointed CEO, Peter Chou decided to brand and sell the products under company’s own name in order to overcome international growth limitations. Despite harsh comments from shareholders, HTC proceeded with its venture and the company faced stiff competition from the world’s biggest handset manufacturers. The company’s intention was to achieve a powerful global brand position as that of Nokia or Samsung Electronics. Although, the company could effectively confront with market challenges, the HTC brand still has a long way to go in order to accomplish its ultimate objectives. Question 2 From the case analysis, it seems that most of the issues that HTC faced emerged as a result of the strategic failure of the company management. Firstly, the company’s decision to brand and sell the products under its own name found to be a worse strategy since the HTC had not well established in the industry so that it struggled to defend the tough competition from global giants like Nokia and Samsung Electronics. The company’s different top executives possessed different views regarding market operations and it led to total disorder. For instance, Cher Wang, one of the founders of the firm gave more emphasis on market competition while the Chief Operating Officer Fred Liu and CMO John Wang focused on brand value building. The lack of conceptual coordination in the operation of the HTC management raised barriers to its rapid international expansion. Although, the company could perform well in Europe and Asia, its operations in US market were not satisfactory. The market surveys showed that the US had offered a potential market for mobile phone manufacturers. Therefore, the HTC could not adequately take advantages of the large and potential US market as a result of its poor brand promotion strategies. Increased cost of production was another potential issue that threatened the existence of HTC. An HTC sponsored survey reflected that 80% of the US consumers did not like to buy a phone that cost more than $200. However, HTC did not have the necessary scale to drive costs down and it gave opportunities to Nokia which had well excelled in the area. Moreover, it is observed that the company did not take any effective measure to survive 2009 global crisis. In order to resolve these issues, firstly, it is necessary to create a well brand image for the HTC in the market. For this purpose, it is advisable to maintain a brand promotion team that is capable of developing efficient promotional strategies on time. The tools of SWOT and PEST analyses can be effectively employed to explore the potentiality of opportunities at various market segments. It is also advisable to design some effective cost reduction strategies since the modern consumers are attracted toward products that offer high quality at lower prices. The large scale purchase production may benefit the company to minimize the cost of production. Question 3 Although, some challenges threat the expansional objective of the HTC, the company possesses a competitive environment that enables it to effectively vie with stiff modern market situations. The company already maintains two potential business segments such as ODM business and mobile operator business. These two business segments have assisted the HTC to establish a good relationship with many branded companies including T-Mobile and Vodafone. The mobile operator business has aided HTC to differentiate the company from other ODMs in addition to the benefit of better margins. HTC devoted about 5% of total revenues to research and development efforts in 2004 whereas the firm’s major potential competitors spent only less than 2%. This increased spending on R&D sector has assisted the company to design innovative products that fitted the timely market needs. The highly customized approach of the HTC also appeared to be a competitive advantage of the company. The case study reflects that the company maintains a strong bond with Microsoft Corporation which is the world wide provider of software technologies. The main strength of the HTC lays in hardware design and manufacturing; however, the relationship with Handspring offered an opportunity to the company to learn more about software and user-interface (UI) design. Effective coordination of these competitive elements with thoughtful future strategies would assist the company to dominate the mobile phone market and thereby contribute to its ultimate goal of international growth. Question 4 From the case study, it is identified that HTC also effectively performs the role of a corporate parent. Corporate parent concept refers to the higher degree of management above the business units and it does not involve direct interaction with buyers and competitors. It is identified that the HTC develops different types of component parts for varieties of companies. This strategy assists the company to eliminate different risk elements that emerge while interacting with buyers and suppliers. Similarly, it seems that the company has tried to keep improved leverage by raising funds with intent to increase the potential return of an investment and thereby add value to its objective i.e. international expansion. The HTC does not hesitate to compete with global mobile phone marketing giants such as Nokia because this strategy greatly assists the company to contribute to its competence building strategy. Since the company’s main intention is to expand globally, it largely deals with new innovations by creating separate lab facilities for such practices. The company always heeds its genuine concern to mitigating maximum risks. For instance, the HTC has exited its note book business and turned to handheld devices when it faced a loss of $18 million. The well established ODM business aided the company to get access to diverse business networks. At the same time, the efficient management team of the company could effectively coordinate and assess its various operations. In the opinion of the writers, “the traditional ODM business for non-operators involved little responsibility for sales, marketing, or inventory management for HTC”. The case writers continue that HTC was a contract manufacturer; and hence it did not have to interact with the ultimate consumers (Yoffie & Kim, 2010). Question 5 Before thinking about further international expansion, it is necessary to measure the company’s current performance. In my opinion, it is better to analyze the HTC’s performance on the basis of its financial data. There are certain elements such as return on capital employed (ROCE), gross profit ratio, operating profit ratio, and return on equity that give a better understanding regarding the performance of HTC. While assessing HTC’s financial statement for the fiscal year ending 31st December 2009, it is clear that the cash dividend and treasury share buyback has increased gradually during the last few years. It gives good signs of growth. However, the debt ratio of the company does not seem satisfactory since the HTC faces potential risks in terms of debt load. While analyzing other financial elements such as return on sales and return on total assets, it is clear that the company has been facing some potential threats since 2007. In addition, return on equity (ROE) also represents a gradual decline during the last three years. A decline in returns indicates a proportional decrease in the benefits to the shareholders and this situation would adversely affect the long term sustainability of the business. Although, the gross profit during the last several years seems satisfactory, the firm’s increasing expenses become a barrier to its better financial performance. Therefore, it is suitable for the top management to deal with sales promotion techniques also in addition to the product innovation practices. According to Worldwide Mobile OS 2008-2012-Forecast and Analysis 2008 (as cited in Yoffie and Kim, 2010), opportunities are arising in the field of smart phones. Hence, it would be appropriate for HTC to concentrate more on Smartphone business in the coming years. References Yoffie, DF & Kim, R November 4, 2010, “HTC Corp. in 2009”, Harvard Business School, Boston, MA, pp. 1-24 Read More