Strategy Management free essay sample

Since the end of XX century a lot of IT manufacturing companies appeared in the Global market, but not all of them managed to find and even less of them to sustain its competitive advantages. HTC Corp. s one of the companies of that period who successfully transformed its business from Original Design Manufacturer (ODM) producing complete products to famous brand-name companies into Original Brand Manufacturer (OBM) making its own product under its own brand. On its way into successful OBM transformation the company faced a lot of obstacles concerning its Boards of directors’ strategy and vision of company’s future. However, despite the fact that company has become famous recognizable brand, it has been facing a lot of issues concerning stiff competition, supply chain management, product line, finance and strategic partnership. The paper aims to define and justify strategic issues HTC Corp. encountered applying relevant theories and techniques from Strategic management and to recommend solutions for those issues. 1. HTC’s strategic issues evaluation HTC Corp. was founded in 1997 by Cher Wang and HT Cho as an Original design manufacturer company. Being excellent in design and engineering under HT Cho management it was very successful in ODM market producing laptops for HP, pocket PCs for Compaq and Palm and smartphones for branded handset companies and service providers T-Mobile, British Telecom, Orange and Vodafone (Yoffie Kim, 2009). Having already earned reputation as a reliable manufacturer, in 2006 HTC made decision to promote its own brand. At that moment most people in the board were ambiguous about this decision (Yoffie Kim, 2009). However, by the end of 2009 the company eventually quitted the traditional ODM business. New OBM business required from company management extremely important decisions concerning its old ODM business partners (Yoffie Kim, 2009). Changing direction from ODM business to own brand development involved rethinking its organizational structure, financial costs and marketing strategy in order to enter the global market (Tushman Herman, 2012). This implies the following strategic issues: organizational structure, financial, marketing and globalization issues. At the moment when the company made decision to enter smartphone market, the most companies had been at a growth stage of its lifecycle. Big manufacturers as Nokia, RIM, Samsung, LG, Sony-Ericsson and Motorola had already been fighting for the market share. Furthermore, each of them had competitive advantages over HTC in terms of cost advantage due to economies of scale (Samsung) and patents (Nokia). As a result, HTC had the following strategic issues: Competition, Partnership, Globalization, Marketing strategy, Operations. Although the mobile phone market was highly competitive, emergence of smartphone devices brought the biggest changes in the competitive environment on a global scale (Euromonitor International, 2011). It gave chance to HTC to gain advantage over incumbent market leaders Motorola, Nokia and RIM. However, along with HTC other players entered the market. In 2007 Apple introduced its powerful and innovative smartphone, LG and Samsung were quick enough to innovate as well not to lose its share of the market. Each of these manufacturers has its competitive advantage. Which are: -economies of scale for Samsung -hardware and software design for Apple -business customer orientation for RIM Looking at the financial statements of the previous years can be seen that despite of increasing in total revenue from NT$152,353. 20 in 2008 to NT$465,794. 80 in 2011 the operation profit margin had decreased from 19. % in 2008 to 14. 7% in 2011. It tells about poor efficiency of company’s operations. Figure 1 HTC Total Revenues (based on Appendix A) Figure 2 HTC Operational profit margin (based on Appendix A) Moreover, today widely held smartphones of different manufacturers have similar set of functions, design, quality with few distinctive features. Consequently, smartphone market today has a tendency to perfect or monopolistic competition. Therefore, the paper will be focused on a competition issue considering it as a core issue ? 2. Models and frameworks HTC corp. gained amazing success in a very short time. However, as long as the mobile phone market grows, technology changes and product lifecycles are getting shorter, competition will be the issue the companies in the market. 2. 1SWOT analysis Strengths RD and innovations Partnership with Microsoft and Google Opportunities Emerging markets in South America and Africa 4G technology and Cloud computing Weaknesses Weak brand image Dependence on third party providersThreats Competitor’s breakthroughs Drop in smartphone prices Table 1 SWOT analysis 2. 2External analysis The global market of mobile phones increased significantly and became mature. Whereupon growth shifted to developing markets. The shift of growth to less affluent markets accelerated unit price erosion commonly associated with product diffusion. Global average unit price fell from US$170 in 2002 to US$86 in 2010 representing an almost 50% drop (Euromonitor International, 2011). Figure 3 Mobile Phones: Biggest markets by volume (sourced from Euromonitor International) The shift of sales to emerging markets drove to growth in low-cost manufacturers. This has had a positive impact primarily on Chinese manufacturers who account for a majority of private label brand manufacturing contracts. The commoditisation of mobile phones was largely responsible for driving growth of low-cost private label brands. This may cause emergence of new entrance, especially from Chinese ODM market. Last few years Asia-Pacific markets had a significant rise largely due to growth in China and India. According to Euromonitor International (2011) the growth will continue reaching 3 billion subscribers by 2015. Figure 4 Mobile phone subscribers (sourced from Euromonitor International) Porter’s five forces analysis To make a qualitative evaluation of a company’s strategic position Porter’s 5 forces framework will be applied. Figure 5 Porters 5 forces model (source: author) Detailed analysis of each of Porter’s 5 forces is shown in Appendix 4. As it can be seen from the figure summary of competitive forces is more high than moderate. Therefore industry considered to be competitive. 2. 3Internal analysis Resource-based view approach Prahalad and Hamel (1990) state that in order acquire and sustain competitive advantage the company should consider its internal factors which are resources, capabilities and competences. To understand what constitutes HTC’s core competencies and distinctive capabilities internal analysis has been conducted. According (Stonehouse, et al. , 2004) four broad areas should be considered in internal analysis. Figure 6 Internal analysis (sourced from Stonehouse) Makadok (2001) defines capability as â€Å"a special type of resource, specifically an organizationally embedded non-transferable firm-specific resource whose purpose is to improve the productivity of the other resources possessed by the firm†. Whereas Amit and Schoemaker (1993) state that â€Å"resources are stocks of available factors that are owned or controlled by the organization, and capabilities are an organization’s capacity to deploy resources†. Tangible resources FinancialCapital NT$8,520,521,700 (USD 290,234,500) (Anon. , 2012) PhysicalEquipment, building, RD centres and principal subsidiaries TechnologicalPatents for data transmission in wireless devices that allow faster download in 4G LTE networks (Decker, 2012) Human resources16,746 employees (Anon. , 2012) Intangible resources Human? Experience and capabilities of employees ?Culture – Mix of eastern hard-working, flexible, risk-taking, strategic thinking with western marketing excellence and out-of-the-box thinking ? Managerial skills Innovation and creativity? Technical and scientific skills ? RD capabilities ?HTC Sense Innovative functions (Android OS add-on) Reputation? Brand name ?Reputation with customers for quality and reliability ?Strategic partnership with Microsoft and Android Table 2 Resource-Based View approach VRIO framework According to Collins and Montgomery (2008) those resources create value which are situated in the interplay of three market forces – Demand, Scarcity and Appropriability. Figure 7 Sourced from Collins and Montgomery (2008) To determine which of resources and capabilities of the firm considered being a competitive advantage, VRIO analysis should be applied. According to VRIO framework to each of the resources four question should be asked. 1. The question of value: Does a resource enable a firm to exploit an environmental opportunity, and/or neutralize an environmental threat? 2. The Question of Rarity: Is a resource currently controlled by only a small number of competing firms? [are the resources used to make the products/services or the products/services themselves rare? ] 3. The Question of Imitability: do firms without a resource face a cost disadvantage in obtaining or developing it? [is what a firm is doing difficult to imitate? ] 4. The Question of Organization: Are a firm’s other policies and procedures organized to support the exploitation of its valuable, rare, and costly-to-imitate resources? † Total summation of HTC’s resources and capabilities gives a company competitive advantage. However, due to highly competitive environment of smartphone market most of its resources are at the same level comparing with competitors. The only resource which can benefit in HTC’s sustainable competitive advantage is its software add-on to Android OS – HTC Sense. Therefore in order to sustain its competitive advantage in the rivalry HTC should further develop this feature. A graphic presentation of VRIO is shown in Appendix E. ? 3. Conclusion and recommendations Having applied analytical tools to examine internal and external environments of the company it can be said that Competition is the critical issue in HTC Corp. Porter’s 5 forces confirmed high competitive environment in the smartphone industry. Looking at financial statements and annual reports of the company (Appendices A and B) one can see that average per unit cost declined from NT$6,300 in 2008 to NT$5,653 in 2011. Figure 8 Average per unit costs (based on Appendix B) From the Figure 8 can be concluded that company followed Cost leadership strategy in Porter’s Generic strategies. Competing with Samsung HTC introduced 14 new mobile phone models in Taiwan alone (Chiang, 2012). Using one wave of new devices after another to wage a global battle, the biggest hurdles HTC has faced are branding and gross margin. Furthermore, consumers got confused about models of HTC. Emphasis on customization generated number of new models and a wide range of design specs. At the same time, customization reduced the number of common components used among the devices, increasing the average per unit cost. Taking into consideration that producing different models is not efficient, HTC should focus on narrowing its product line and increasing quality and at the same time decreasing average per unit cost. In this way the company will achieve economies of scale. From the point of view of Porter’s Generic strategies, HTC should follow Differentiation strategy paying more attention to promoting its Brand.