Mr.Abhishek Bhatia UNIVERSITY NUMBER: 3035214832 Rodamas Group: Designing Strategies for changing realties in Emerging Economies 2 . most companies went bankrupt as the value of the Indonesian currency plummeted and the cost of their loans (which they had converted to US dollar) had sky rocketed. This made the business landscape for Rodamas more competitive than before. land and other requirements Expertize in hiring capable local management and establishing efficient distribution channels in Indonesia Understanding and experience of working in a wide range of industries and product categories Breadth of experience in imports distribution as well as manufacturing through the various partnerships formed over the years - To analyze whether the above competencies are sources of competitive advantages a VRIO analysis of the company has been placed as Exhibit-1. This crisis led to the closure of several players and created opportunity for Rodamas in the market in terms of expansion and acquisitions.1) What are the core competencies of Rodamas? Are they sources of sustainable advantages? Some of the core competencies of Rodamas group in my opinion are: High Management competency of the management relative to other business professional in Indonesia which enabled THEM to understand international business and form partnerships Risk averse conservative management style which enabled the company to grow steadily without any financial risks and also stay under the radar of bureaucracy Image of an ethical efficient and trustworthy partner A holistic understanding of the Indonesian market in terms consumer demands. - The company should consider building on it core competencies or identify new opportunities in terms of probable new business ventures or opportunities for collaboration. in the near future in my opinion Rodamas group may face erosion of its current position if it does not alter its position in the market. regulators and local challenges Strategic connections to foreign companies across the globe as well as with the local government and businesses which helped smooth obtaining of licenses. The crisis also marked the end of Suharto which led to establishment of a new anti-corruption regime. regulations. we note that the company has a temporary source of competitive advantage on account of its exploitation of the business environment conditions that existed at the time. Post crisis. - Based on the VRIO analysis. 2) What are the main characteristics of the business environment before and after the 2008 Asia Financial Crisis? How do such changes affect Rodamas’ core competencies? The key characteristics of the market pre and post the 2008 crisis are as follows: The business environment was thriving in Indonesia before the crisis with strong growth and in terms of value of the Indonesian currency with respect to the US dollar. - However. It also moved the country towards a more open economy in which tariffs and trade barriers had come down. unmet needs for identifying suitable opportunities. 3) What are the different strategic alternatives for Rodamas and what are the Pro’s & Con’s of each? The following strategic options are available to the firm at this point: Enter the consumer product market of manufacturing for the local Indonesian market on its own for simple products like basic toiletries. The company was also facing high attrition in its middle management due to the above changes in the business environment which would make them loose vital human capital which is one of the key reasons for its success in the local Indonesian market. The foreign companies in Indonesia post the crisis enjoyed a dominant position and wanted to extend their control over the local partners’ responsibilities like local marketing and distribution. Service companies where thriving and started to replace the local partners. The source of temporary competitive advantage is now even easier to break into. The company may also need to consolidate some of its businesses due to expected competition & thus would loose out on its edge of having a foot-hold in a breadth of businesses. The group needs to focus towards building its own expertise in terms of design and manufacturing so that they can become self reliant. Rodamas still remains an efficient and trustworthy partner Although. There were tightening laws on corporate governance and stricter accounting rules which made multinationals to use lawyers and consultants for rectifying local issues rather than using local partners. 100% FDI was allowed into most sectors which allowed foreign players to directly enter the market. PROS CONS 3 . The crisis also led to the rise of multinationals from emerging economies like China and India. This policy had a direct impact on business strategy of Rodamas of forming ventures and could potentially alter the competitive landscape and market opportunities. Thus. This created a window of opportunity for Rodamas to form new alliances on favorable terms with the potential new parties interested in Indonesia. Through their services companies could actively consider managing their own marketing and distribution channels. The impact of such changes on the core competencies of Rodamas are as follows: Inspite of the above changes. This often led to friction between the partners as well and led to termination of several key alliances although the business was performing well in the market. the crisis created a shift in the companies towards consolidation and standardization. giving rise to competition as well as eliminating the need for a local partner if the company chose to. Many of the protective measures were removed. the role and say of companies like Rodamas was reducing in their ventures Additionally. there were noticeable changes in the governance practices in multinationals. This meant that it became difficult for partners like Rodamas to convince their venture partners to adapt a product to fit the local demand. The opening of FDI creates the need for Rodamas to create new competencies as the previous competencies may soon become irrelevant. direct FDI eliminates the need of any foreign partner the existing corruption and bureaucracy coupled with the need for deep market penetration still keeps the need for partners like Rodamas still alive. Post the crisis. Strong reputation Limited competition in most businesses Understanding of local market & Expertise in distribution Breadth of experience across a variety of product categories Limited investment & risk Limited stake in the business Dependence on foreign partner No R&D exposure Entering the real estate business through building and leasing of office property PROS CONS Experience in real estate Favorable land site available with the company in Jakarta Rapid expansion & potential demand in Jakarta expected Lack of strong brand name Existing connections with the local government officials Government regulations.In-house capability for end to end value chain management Success of many local firms Understanding of local market & Expertise in distribution Breadth of experience across a variety of product categories Non-competition clause in certain businesses High existing competition No starting base Low market entry barrier Enter the consumer product market & industrial products for new companies in Indonesia by forming strategic alliances. Getting further land sites would be a problem. High investment Labour intensive manufacturing by focusing on the traditional role of partnership with developing transnational corporations market like China 4 . Unfavorable tax regime Volatile industry High competition. industrial goods such as construction material. chemicals etc.) PROS CONS Highly experienced in alliances. (such as food & beverage. Rodamas would be a small player. Manpower. may pose a threat Limited financial risk No R&D knowledge/innovation required Success of previous foreign ventures Volatile nature of partnership. Regions could be unsustainable Limited power of the local managers in deciding alliance partner for new regions Extensive research required. high costs Dependency on bigger accounts to make business profitable Bargaining & business conflicts may arise Finding the right set of products for the business would be a challenge Acquisition of existing manufacturing businesses that already developed or licensed a technology PROS CONS 5 . Bureaucracy. distribution etc. Companies could walk out to another region Limited experience Small share and limited profits Entering the consumer products distribution & logistics business PROS CONS Experience in the sector in both urban & rural areas Increased market penetration Attractive consumer product market Low margins Can be outsourced to other multi-nationals as a service Poor infrastructure. PROS CONS Intent of multinational to diversify into different regions In line with company philosophy of forming alliances Direct competition from other low cost regions Internationalization with existing partners like Asahi in other Asian markets like Thailand PROS CONS Economic crisis created worldwide opportunities that could be captured Existing favorable alliance partnerships and products Limited knowledge of new regions. it is evident that a multitier strategy is required to cater to the changing dynamics of the market and ensure sustenance of the business. a focused approach towards the key businesses coupled with grabbing the current most favorable opportunities inline with the company strengths be should considered by the company for its long-term sustenance. research trends in Exhibit-4 have been used to evaluate future potential. Forward and backward integration should be considered for maximizing the companies position in profitable businesses like Asahi. Printing by Dai Pon. The SWOT analysis has been placed as Exhibit-2 Porter’s five force model along with the Diamond model has been used to evaluate the various strategic options. Since the consumer purchasing trend is increasing. Building materials.Access to developed technology or existing licenses Availability of Finances Advantage of additional/acquired channels Cost effective & limited setup time Finding the right business at the right price is a challenge. 6 . - In conclusion. the company has a good understanding of foreign partners needs and can tie up with new firm entering Indonesia and increase the scale of this business. it is vital to understand the strengths and weaknesses of the company and also critically analyze each opportunity. Based on the analysis presented in the exhibit. New capabilities may be required which could take time Clashes in corporate culture/philosophy 4) What strategy would you recommend Rodamas to take? For understanding the recommended strategy that the Rodamas group should take at this point. MSG etc. Divesting from its dependency on its partnerships by gradually building its own R&D capability should also be considered in the long term. Through the various alliances. The company should focus its core strength & vast experience in distribution to act as a distribution and logistics provider to business. Furthermore. These have been placed as Exhibit-3. construction material to cater to corporate demands as well). the company should consider relying on its second core strength by forming further alliances to allow companies to enter Indonesia for various consumer products (Food & Beverage and other industrial products like chemicals. However. This not helps open up the group to the world and thus. Although. Appendix: EXHIBIT-1: Resource Matrix Tangible Financial Availability of healthy cash with the firm to support existing business Physical Favorable manufacturing locations & distribution channels No patents. in my opinion the company should consider adopting the following measures: Exploiting the niches in the market by New strategic alliances and Forward / Backward Integration recommended above. the very nature of competitive advantage makes it prone to attack by other rivals in the industry and it may disappear over time. This will free finances to jumpstart the integration projects mentioned above and allow the group to have cash reserves in times of critical need. The company should recognize and celebrate achievements. The company should consider using IPO's to finance ventures mentioned above. Rodamas can should also consider “Technology Transfers” in their alliances thereby increasing their competence over time. The company should convert its core distribution competency into a strength by spinning off a Supply Logistics and Distribution Company to better manage the entire process. but also supplements employee retention in the company. or notable R&D skills Effective administration and strategies Technological Organizational 7 .5) What would it take to successfully implement this strategy successfully? For the success of any strategy it is vital to establish a competitive advantage. This would require a re-alignment of SBU’s and promotion of a positive collaborative environment between SBU’s to leverage on each others strengths. creates a brand name. expansion opportunities High demand of low tech basic products & real estate Opportunity to acquire businesses due to the financial crisis Exchange rate fluctuations High dependence on partnerships Conservative management style Lack of brand name High employee attrition THREATS Volatility in partnerships Intense competition EXHIBIT-3: 8 . capable local talent pool Limited scientific skills.Intangible Human Innovation & Creativity Reputation Experienced top management. reliant on partners Limited Brand awareness Valuable ? Rare? Costly to imitate? Exploited by the organizatio n? Competitive implication Yes Yes No Yes Temporary Competitive disadvantage EXHIBIT-2: STRENGTHS WEAKNESS Strong & experienced management High understanding of local market & distribution channels Strong consumer product experience Availability of Finances Strategic connections to the government & foreign partners OPPORTUNITIES Limited R&D/tech capability Emerging consumer markets. favorable connections. differentia availabilit tion of y of inputs. low perceived level of differentia tion between partners Relatively low bargainin g power of suppliers because of expected scale of operation s 9 Bargaini Bargaini ng power ng power of of consume suppliers rs High Low buyer degree of leverage. high level of perceived may be there by adopting a niche segment High volatility. cost advantage . Limited scope of sustainabl e competitiv e advantage through innovation Low intensity of competitio n. As products would mostly be imports currently Existing big players. high barrier for others to form similar alliances. new business model Relatively low buyer leverage Low degree of differentia tion of inputs Labour intensive manufacturi ng by focusing on the traditional role of partnership with developing transnationa l Existing alliances. opportunit y of spatial differentiat ion Low prevalent competitio n for this particular model of manufactu ring . Cost disadvant ages. Difficult to form alliances in a short time Low to moderate threat depending on type of business Low to moderate bargainin g power Low degree of bargainin g power Entering the real estate business through building and leasing of office property High cost barrier of entry. foreign firms may directly enter Strategic location. Number of products available in the market. low level of perceived differentiati on Enter the consumer product market & products High entry barriers. Low brand equity. low product differentia tion Low buyer switching costs.Strategy Threat of New Entrants Threat of Substitute product/Se rvices Enter the market of manufacturi ng simple products for the local Indonesian market Low entry barriers. substitute probable s high concentra tion of suppliers Intensity of competiti on Large pool of local manufactu rers. firms may move easily to other advantageo us regions for higher profits Ease of substituti on. deep penetratio n.corporations market like China International ization with existing partners like Asahi in other Asian markets like Thailand Entering the consumer products distribution business High entry barriers for other firms.mckinsey.com/insights/asia-pacific/the_archipelago_economy Retail Sector Projections: 10 . High cost of entry and profitabilit y Low threat from substitute products Low bargainin g power of consumer s Low to Moderate bargainin g power of suppliers Low intensity of competitio n expected in other Asian regions Low threat as company offers a deep knowledge and channels for distribution Moderate bargainin g power of consumer Low bargainin g power of suppliers Low competitio n expected from middle to small scale companies in need of services EXHIBIT-4: Consuming Class Projections: Source: www. already establishe d business and global presence of parent company Establishe d channel. mckinsey.Source: www.mckinsey.com/insights/asia-pacific/the_archipelago_economy Sector Wise Projections: Source: www.com/insights/asia-pacific/the_archipelago_economy 11 .
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