Strategic Management at DiethelmKellerSiberHegner Group - Case Study Example

STRATEGIC MANAGEMENT – DKSH By Name Course Instructor Institution City/State Date Table of Contents STRATEGIC MANAGEMENT – DKSH 1 Table of Contents 2 Abstract 2 1.0 Corporation Identification 4 2.0 Corporate Research 5 2.1.0 Business Unit Identification 5 2.1.1 Consumer Goods 6 2.1.2 Healthcare 6 2.1.3 Performance Materials 6 2.1.4 Technology 7 3.0 Corporation Revenue Centres 8 3.1 Identification of Revenue Centres 9 4.0 External Environment Analysis 10 5.0 Source of Sustainable Competitive Advantage 12 6.0 Strategic Direction 14 7.0 Conclusion 14 8.0 References 15 Strategic Management – DKSH Abstract In the prevailing business environment, nearly all business organisations are trying to make the most of the strategic fit relationship with the objective of gaining competitive advantage. When a business has a competitive advantage, it is slightly better than the competitors in commanding the competitive forces, attracting new customers, offering value to the customers that satisfy their expectations, enduring competitive pressures, and strengthening their position in the market. Therefore, the main objective of a strategic choice is to create a competitive advantage for the company in question. The organisations’ management are always tasked with shaping the future of their companies through strategic goals by identifying emerging threats, setting long-term organisational goals, handling the emerging issues, and utilising their strengths to exploit opportunities provided by the competitive world. This paper focuses on Market Expansion Services Group known as DiethelmKellerSiberHegner (DKSH) Group, which is headquartered in Zurich, but rooted deeply in different countries across Asia. 1.0 Corporation Identification A Corporation according to Maheshwari (1997, p.246) can be described as a form of business operation, whereby business as a legal entity is guided the board of directors. The identified corporation is DKSH, which provides different services such as after-sales services, research and analysis, sales, marketing, sourcing, and others. Currently, DKSH operates in 35 countries and has employed more than 27,000 people working in nearly 750 business locations. The company is believed to be one of the oldest multinational companies since it was started in 1865. The company has four business units: Performance Materials, Consumer Goods, Technology, and Healthcare (DKSH Group, 2014). The service portfolio has been defined by Bernard (2012, p.160) as a complete set of services, which is managed by the service provider. Therefore, service portfolio is utilised for managing all service’ entire lifecycle, and can be categorised into three groups; service pipeline, service catalogue, as well as retired services. Bernard (2012, p.160) posits that service portfolio depicts the investments made in the services of the organisation, and as well expresses the value realised by the service. AT DKSH, the organisation’s services are managed explicitly since services have turned out to be the focal units for creating innovation and customer value. As stated by Kohlborn et al. (2009, p.1), service-orientation is viewed as organisations’ holistic paradigm as well as inter-organisational networks. The DKSH’s services are driven by both business models and service strategies that influence the individuals and structures in the organisation. Furthermore, since there is a close association between technology and business, the DKSH service paradigm is the enabler and driver of the broadly advanced business and technology alignment. A product portfolio can be defined as a collection of products offered by the company, and it can offer differing views on the prospects of the company growth, stock type, and drivers of profit margin, as well as operational risk. The main focus of DKSH in the last 10 years has been to satisfy the customer needs, and this has led to new types of products as well as projects for product development. Therefore, the company has managed to create new product innovations, especially in the Performance Materials business unit. Tolonen et al. (2014, p.174) argue that diverse product portfolio is the best way of increasing sales as well as meeting the needs of the customers. This explains why DKSH has been introducing more products than those removed. Still, broad product offering according to Tolonen et al. (2014, p.174) results in product complexity, which negatively impacts the time of product development and productivity. 2.0 Corporate Research 2.1.0 Business Unit Identification A business unit as defined by Gupta (2009, p.127) is a subunit in the organisation acting like an independent business in every respect such as forming its own marketing strategy and strategic plans. Importantly, when the corporation's operations are divided into business units, it increases effectiveness as well as market focus and can develop a management structure that is strategically focused, which cannot be weakened by the corporation’s product portfolio. 2.1.1 Consumer Goods DKSH’s first business unit is the consumer goods, which focuses on food services, luxury goods, fast moving consumer goods, hair and skin cosmetics, as well as lifestyle and fashion products. The company offers a number of services in this business unit; customs clearance, product feasibility studies, invoicing, sales and marketing, warehousing, and many other services. In Asia, DKSH has 85 distribution centres offering fast moving consumer goods (FMCG) businesses direct access to healthcare outlets and retail channels. Besides that, this business unit serves over 500 brand counters, shops-in-shops and boutiques. 2.1.2 Healthcare In this business unit, the company focuses on over-the-counter (OTC) and consumer health, pharmaceutical and medical devices. The company offers different customised and integrated solutions, which include cash collection, invoicing, market entry studies, registration, sales and marketing, physical distribution and redressing. The healthcare business unit is operational in 12 Asian markets serving over 150,000 healthcare outlets and with approximately 9,590 specialists in healthcare matters. 2.1.3 Performance Materials This business unit focuses on food and beverage, personal care, specialty chemicals and pharmaceutical industries. The Performance Materials business unit is also tasked with developing innovative solutions and products in the company’s 26 high-tech innovation centres. As a result, the company has met its customers ever-increasing needs, generate opportunities for its customers as well as improve its competitive advantage. New value-added inventions and product ideas are researched, developed, and launched in this business unit. This has been made possible by approximately 970 specialised workforce located in 30 countries serving over 20,000 customers, 3,600 suppliers and 200 clients. 2.1.4 Technology The last business unit is Technology, which has approximately 1,370 specialists serving a customer base of more than 25,000 companies. The business unit is operational in 18 countries and has over 25 demo labs as well as showroom. Through high-tech customer relationship management system, DKSH integrates product and industry knowledge with a systematic and structured sales approach so as to increase the market share of the clients. In this business unit, customers are offered customised technology solutions and after-sales services. 2.2.0 The Separate Product and Service Lines of the Corporation A product line and service line can be defined as a set of related products or services in one single brand, which are sold by the company (Donohoe, 2000, p.516). DKSH sells multiple service and product lines under its various brands. One of the most noticeable product lines at DKSH is the Food & Beverage. The company distributes food and beverage ingredients to the dairy, beverage and food processing companies. Another product line is the pharmaceutical line, whereby the company supply pharmaceutical ingredients for synthesis and formulation to the companies in the pharmaceutical industry. Medical Devices is another product line at DKSH, whereby medial consumables, products and devices are supplied to hospital environments such as day surgery clinics, operating theatres and others. Other product line includes hair and skin cosmetics, specialty chemicals, personal care, and Fast Moving Consumer Goods, equipment (agricultural and hospitality), machinery and electronics. There are numerous service lines at DKSH whose objective is to create new opportunities for customers as well as clients. Sourcing is the main service line of the company, and there are close to 17 sourcing offices across that offers reliable raw materials sourcing by providing instant markets access for ingredients that are hard to find. Another service line of the company is Research and analysis, which is facilitated by over 26 innovation centres. This service line involves creating winning solutions that allow the company’s partners to become innovative. Sales and marketing is another service line of the company, wherein strategies for accessing the market are developed. In this service line, new marketing concepts and ideas are innovated with the goal of creating new market opportunities for the existing product lines. Other service lines of the company include after-sales services, client Management, distribution and logistics, and regulatory services. 3.0 Corporation Revenue Centres Revenue can be defined as the total amount that the company earns company after selling its goods or services for a certain period of time. Improving quality can result in increased revenue, but this depends on the company’s ability to trigger customer satisfaction as well as retention (Rust et al., 2002, p.9). DKSH revenues have been increasing progressively thanks to its business model that has yielded value propositions. Teece (2010, p.174) opines that when the company designs its business appropriately, and knows when to implement and refine its architectures that are commercially viable for costs and revenue, then it is more inclined to become successful in the market. DKSH’s sustainable profitability is attributed to its advanced products, services and technology, leadership as well as good governance. According to Noone et al. (2013, p.210), when a company incorporates the prices of the competitor into the revenue management models it would facilitate the responsiveness of the revenue management system to the company’s strategic policies on the price positioning. 3.1 Identification of Revenue Centres Nearly all products lines of the company are generating the greatest revenues; however, pharmaceutical line revenues increased more as compared to other product and service lines. Currently, this product line serves close to 160,000 drugstores, infirmaries, clinics and pharmacies in Asia. The company’s unrivalled expertise and capacities in Asia has enabled the pharmaceutical products to be distributed efficiently. The 2016 half-year results exhibits that the Performance Materials business unit, which includes pharmaceutical products and other product lines had a 12.3 % increase in net sales attributed mainly to the increasing demand on pharmaceutical products. Besides that, the Earnings before Interest & Tax (EBIT) increased by 54.0 per cent (DKSH Holding Ltd, 2016, p.10). In the other business units, the net sales of Consumer Goods dropped by 10.1 per cent while the EBIT increased by 5.8 per cent; Healthcare’s net sales increased by 10.6 per cent while EBIT decreased by 14.7 per cent; and finally, the net sales in Technology grew by 9.3 per cent (DKSH Holding Ltd, 2016). This shows that pharmaceutical have been more profitable compared to other products and services offered by other business units. Still, DKSH is facing the challenges of managing the various requirements of different market segments. Differences in products are created with changes in the underlying attributes of the products. The revenue in some of the business units such as Consumer Goods were attributed to the increasing costs of improving the product attributes’ quality as well as the extra cost incurred while trying to penetrate in other markets. Kumar and Chatterjee (2015, p.1585) maintains that the revenue generated will certainly decrease if the costs incurred is high than the volume sold. 4.0 External Environment Analysis Operating environment can be defined as an external environment where the business operates, and it includes aspects that could affect the business of the organisation (Ibrahim & Primiana, 2015, p.284). The dramatic change in business environment is attributed to competitive pressures; therefore, Adeoye and Elegunde (2012, p.195) posit that competitors are using different strategies so as to adapt to the unpredictable and dynamic nature of the business environment. PESTLE analysis according to Downey (2007, p.6) is a tool used to examine the external Operating environment of the business. It involves six factors: political factors (such as tax policy, political stability and employment laws); economic factors (such as interest rates and economic growth); social factors (like demographics, age, and population growth); Technological factors (such as technological change and automation); legal factors (such as labour laws, safety standards and consumer laws); and environmental factors (such as climate change and environmental laws) (Partridge & Sinclair-Hunt, 2005, p.77). PESTLE Analysis of DKSH’s Business Units External Factors Consumer Goods Healthcare Performance material Technology Political Most countries wherein the company operates have political stability. There is a high rate of Unemployment in countries like Cambodia and Myanmar. Poor healthcare services in numerous countries like Vietnam and Cambodia. Favourable employment laws Exemption of customs duty in some countries like Myanmar. Incentives from the governments. Most countries charge high tax rates to multinational companies like DKSH. Higher corporate taxation in countries like Vietnam. Social and political unrest in Cambodia disrupted the business operations Economic Most countries like Australia have a stable economy. Changes in taxation happen often. There is decline in levels of disposable income as well as household incomes. Decline in demand for luxurious items. Improved economic stability across Asia. The market for medical devices is growing. The demand for pharmaceutical products is increasing. Since the company operates in different Asian countries, the margins are impacted by exchange rates because they use different currencies. Increased labour costs. High exchange rates, especially in China. Social Customers are moving to one-stop and bulk shopping. Asian countries have different beliefs and attitudes. The demand for organic products is increasing. Different beliefs can reduce the demand for healthcare products. The rate of population growth is high across Asia. No specific relationship between customers and customers; thus, impacts the ability of the company to gain market share. Traditional beliefs can influence the use of food and beverage, personal care, speciality chemicals. Most Asians believe on traditional care products. Consumer spending is increasing. Concerns from socially-conscious consumers. Technological New opportunities brought about by advancing technology. There is an increase in online business and self-service checkout points Innovation and technological advancement in the health care industry has led to improved results. Automation of healthcare services Lack of innovative ideas resulting in imitation. Heavy investment in Research & Development. Competition from other technology companies. The increasing number of similar technologies. Legal Government policies and legislations affect the operation of the company. Privacy laws in the health care industry. The existence of consumer laws Many countries have introduced safety standards Chines Market is highly regulated. Increased insurance and regulation costs. Environmental Government laws requiring all businesses to reduce their carbon footprint. The need for reducing waste production Reducing carbon footprints and wastage. The company should adhere to the environmental laws introduced in different Asian countries. Disposal of nonworking or used electronic device is a major issue. Increase electricity rates. 5.0 Source of Sustainable Competitive Advantage While DKSH progresses into the hypercompetitive Asian markets, the need for innovate products is increasing; therefore, the company has adopted specialised generic strategies in order to attract customers in a different way and gain sustainable competitive advantage. A sustainable competitive advantage according to Vinayan et al. (2012, p.29) can be created through holdings sustenance in the current organisations. This argument is echoed by Hakkak and Ghodsi (2015, p.299) arguing that a firm can get a sustainable competitive advantage gaining higher returns in the market, which can be achieved by ensuring their products or services are valuable, hard to imitate, rare and non-substitutable. Competitive advantage as mentioned by Hitt et al. (2015) is a tool that offers companies the ability to be ahead of the current or future competition. Therefore, sustainable competitive advantage ensures market leadership. Sustainable competitive advantage (SCA) according to the resource-based view (RBV) may be achieved if the products or services offered by the company are valuable, rare, hard to imitate, and cannot be substituted easily (Saqib & Rashid, 2013, p.93). In this case, being valuable means that the product enables the company to formulate strategies that could improve effectiveness or efficiency while the rare factor connotes that it is not possessed by other companies. Being imitable proves that the product cannot be copied by the competitors while non-substitutable connotes that there is no ready substitute for the resource. Business Units Source of Sustainable Competitive Advantage Consumer Goods Strong marketing strategy Easy access to working capital Outstanding management team and operations Effective Branding Healthcare Difficult to imitate Superior pharmaceutical product and customer support Low cost of producing medical products and consumables Performance material Strong R&D capabilities Effective production system Ability to adopt new technology effectively Effective Leadership Technology Access to intellectual properties Exclusive rights to distribution or re-selling Effective knowledge management systems that facilitates the transfer of knowledge across the company 6.0 Strategic Direction The strategic direction as defined by Harrison and John (2013, p.78) is the combination of organisation's strategies, mission, vision, and its core values. Creating a persuasive vision as well as creating a strategy to realise it, should be DKSH main focus. The company management should understand that transforming the organisation’s core competence mission and vision into strategies does not translate to achieving organisational excellence. Therefore, leaders at DKSH should make sure that the implemented strategies bring about desirable return on investment by focusing on the high growth markets. Importantly, the strategies should offer comprehensive solutions to existing and potential customers and should enable the company to capture new market segments by expanding and extending the existing technologies. Imperatively, the company should expand and strengthen its industry relationships so as to improve its position for growth. Moreover, the company should innovate as well as develop its business information systems through continuous research and development process. The company can achieve a more competitive advantage by reshaping core competencies, identifying differential product strategies, and accumulating intellectual property. 7.0 Conclusion In conclusion, DKSH offers different services and products to its customers, and it has four business units: technology, Healthcare, Consumer Goods as well as Performance Materials. Basically, DKSH just like other businesses operates in uncertain and dynamic environments. The company has been successful because it has always been strategically aware and it understands how their competitive environment is changing and what must be done to remain competitive. It has been recommended that DKSH should start actively searching for opportunities in order to capitalise on their strategic abilities, improve all its business areas, and create understanding and awareness of the present strategies and achievements. 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