Over the past few years since the onset of the Asian Economic Crisis in 1997, the Indonesian government has issued various important decrees and regulations geared towards creating a favourable investment environment in an effort to overcome the aftermath of the crisis. Among the prominent regulations according to Muljadi (2002) are as follows:
- New Negative Investment List
Presidential Decree (PD) No. 96 Year 2000, was issued in July 2000 and then amended by Presidential Decree No. 118 Year 2000 dated August 16, 2000, establishing a new list of investment sectors.
The PD provisions apply only to direct investment, not to the purchase of companies’ shares listed on the stock exchange. Business fields not covered by the PD are open to foreign
investment unless otherwise specified by law. The PD is in force for three years unless revised earlier. The new lists opened several sectors previously closed to foreign investment, namely telecommunications and information technology.
- Law on Antimonopoly and Unfair Competition
In March 1999, the government signed Law No. 5 Year 1999 pertaining to The Antimonopoly and Unfair Competition Act. To implement and enforce the new law, the government of Indonesia established the Business Competition Supervisory Commission (locally known as KPPU).
The law forbids individual companies from controlling more than 50% of the domestic market and two or three companies from controlling a combined 75% of the market. Market share is determined by sales value rather than volume. The law also forbids oligopolistic practices, price fixing, price discrimination, cartels, geographic designations of markets by suppliers, and collusion in bidding.
The economic recovery programmes and some of the decrees and laws that the government recently enacted give a clear message that the Indonesian government is committed to reviving the economy and to creating an environment conducive to foreign investment.
STRATEGY FOR ENTRY: STRATEGIC ALLIANCE
A strategic alliance is a specific form of collaboration between two or more companies. Strategic alliances with overseas partners can provide a means of overcoming the problems of small size and lack of resources.
The term ‘strategic alliance’ encompasses a more specific type of company relationship than the joint venture or a typical exporter-distributor or licensing arrangement (Schnedler, 1986). A strategic alliance might be entered into for a one-off activity, or it might focus on just one part of a business, or its objective might be new products jointly developed for a particular market.
Generally, each company involved in the strategic alliance will benefit by working together. The arrangement entered into may not be as formal as a joint venture agreement. Alliances are usually consummated with a written contract, often with agreed termination points, and do not result in the creation of an independent business organisation (Strategic Direction, 2000).
The objective of a strategic alliance is to gain a competitive advantage to a company’s strategic position. With this, strategic alliance would allow the company to graft the whole business onto the superior manufacturing, marketing and distribution structures of an established international company (Friar and Balachandra, 1999).
In this case, a strategic alliance could be considered as the best market penetration option particularly for my company being a medium sized company dealing with computers and information technology. As opposed to a joint venture or other marketing methods, a strategic alliance may be an appropriate option for my company for the following reasons:
- We do not have the resource (financial, human, production) to develop associated "hardware" forms of our product, or to market the components of software directly.
- We have a strong technology-based software and component-type product. We need to get our product into the market quickly because the sector is developing so rapidly, but we have limited manufacturing capability.
- We are able to identify a firm in Indonesia which can provide us with a suitable production and distribution channel, as well as an established reputation.
- We have the time to commit to the relationship.
According to Doyle (1998), strategic alliances often have the following characteristics:
- Usually a non-equity, loosely structured relationship.
- Each partner retains its business independence.
- One company will take a lead role in any contract or marketing and the others will be "partners" in the work. They could work as sub contractors or suppliers to the main company.
- The alliance can be struck between companies which would normally be considered competitors.
- The relative size of the partners is not a significant factor.
- Each partner must contribute distinctive core strength, e.g. technology, manufacturing capacity, access to distribution.
Opting for a strategic alliance with an Indonesian computer firm would indeed be considered as an appropriate move as there are various benefits to be obtained from this partnership. According to Hill (1999), four key benefits can be expected from a strategic alliance, namely:
Strategic alliances would allow my company to gain greater results from its core strengths, namely its in-house developed software.
A strategic alliance with an international company will help to offset market exposure and allow both companies to jointly exploit new opportunities.
Strategic alliances can create the means by which small companies can grow. By integrating my company’s product to the other company’s distribution, my company would be able to expand our business overseas faster and cheaper than by other means.
By allowing the company to focus on developing our core strengths, strategic alliance would provide the ability to respond more quickly to change and grasp opportunities.
On the other hand, my company should be aware of the disadvantages associated with a strategic alliance. Entering into a strategic alliance requires commitment in hours as much as in dollars. It also takes time to build a strong alliance. Identifying and reaching an agreement with the right company can be very time consuming, and developing a strong relationship can take years (Bridges, Ensor and Thompson, 1992).
Besides that, my company should be prepared to bear the cost and ownership of market information, market intelligence and jointly developed products which could prove to be an issue in the event the relationship breaks down. My company should also be aware of the political risk in the country where the strategic alliance is based.
COMPETITIVE ADVANTAGE OF COMPANY
Michael Porter studied a number of business organisations and proposed that business-level strategies are the result of five competitive forces in the company’s environment (Porter, 1980). Porter’s framework, known as the ‘Five Forces Model’ is shown in Figure 1.
It is important to study Porter’s five forces model, as this would enable the policy makers of CC to analyse competitive forces in an industry’s environment in order to identify the opportunities and threats confronting the firm especially in the international arena.
Porter’s model focuses on five forces that shape competition within an industry, namely:
- the risk of new entry by potential competitors,
- the degree of rivalry among established companies within an industry,
- the bargaining power of buyers,
- the bargaining power of suppliers, and
- the threat of substitute products.
FIGURE 1: Porter’s Five Forces Model
Threat of new entrants
Industry
Competitors
Suppliers Buyers
Bargaining power Bargaining power
of suppliers of buyers
Rivalry among
Existing Firms
Threat of substitute
products or services
Substitutes
SOURCE: Michael E. Porter (1980), Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York, Free Press.
Porter argues that the stronger each of these forces, the more limited is the ability of the established companies to raise prices and earn greater profits. Within Porter’s framework, a strong competitive force can be regarded as a threat since it depresses profits. A weak competitive force, on the other hand, can be viewed as an opportunity for it allows a company to earn greater profits. With this, it is indeed possible for a company to alter the strength of one or more of the five forces to its advantage through its choice of strategy.
- The risk of new entry by potential competitors
Potential competitors are companies that are currently not competing in an industry, but have the capability to do so. Thus, a high risk of entry by potential competitors represents a threat to the profitability of established companies. On the other hand, if the risk of new entry is low, incumbent companies can take advantage by raising prices to earn greater returns.
The strength of the competitive force of potential rivals is largely a function of the height of barriers to entry. Capital requirements, brand loyalty and economies of scale are examples of potential barriers to entry that can keep out new competitors.
2. The degree of rivalry among established companies within an industry
The second of Porter’s five competitive forces is the extent of rivalry among competitors in an industry. If this rivalry is weak, companies have an opportunity to raise prices and earn greater profits. If rivalry is strong, significant price competition, including price wars, may result. Price competition limits profitability by reducing the margins that can be earned on sales.
Thus, intense rivalry among established companies constitutes a strong threat to profitability. The extent of rivalry among competitors is largely a function of three factors, namely:
- the industry’s competitive structure,
- demand conditions, and
- the height of exit barriers in the industry.
3. The bargaining power of buyers
Informed customers become empowered customers. Buyers can be viewed as a competitive threat when they are in a position to demand lower prices and better service from the company. Whether buyers are able to make demands on a company depends on their power relative to that company.
- The bargaining power of suppliers
The concentration of suppliers and the availability of substitute suppliers are significant factors in determining supplier power. Suppliers can be viewed as a threat when they are able to force up the price that a company must pay for its inputs or reduce the quality of the inputs they supply, thereby depressing the company’s profitability.
- The threat of substitute products
Substitute products are those of industries that serve consumers’ needs in a way that is similar to those being served by the industry. The power of alternatives and substitutes for a company’s product may be affected by cost changes or trends. The existence of close substitutes presents a strong competitive thereat, limiting the price a company can charge, and thus its profitability.
The only way CC can hope to differentiate its products is to define the vision of the company to be an information technology ally to our clients. We will not be able to compete in any effective way with the competitor by merely selling our products and appliances. We need to offer a real alliance.
The benefits CC sells include many intangibles, such as confidence, reliability, knowing that somebody will be there to answer questions and help at the important times. These are complex products, products that require serious knowledge and experience to use, and our competitors sell only the products themselves.
Nevertheless, CC cannot sell the products at a higher price just because we offer services for the market has shown that it will not support that concept. We have to sell the products as well as our service at a reasonable cost.
With the move to the new market, CC must continue to strive to remain on top of the new technologies, because this is our bread and butter. For networking, we need to provide better knowledge of cross platform technologies. Although we have a good command of desktop publishing, we are concerned about getting better at the integration of technologies that creates fax, copier, printer, and voice mail as part of the computer system.
MARKET SEGMENTATION
CC cannot survive just by waiting for the customer to come to us. Instead, we must get better at focusing on the specific market segments whose needs match what we have to offer. Therefore, we need to focus our marketing message as well as the products and service that we offer. We need to develop our message, and communicate it.
At CC, we have broken our markets into two groups, namely, home offices and small business. Home office customers tend to be heavy users who require high-end systems. Small business customers tend to be much less proficient on computers, much more likely to need and want more direct contact, and much more likely to pay for it.
The home offices in the cities of Jawa and Sumatera are an important growing market segment. For our target segment, the most important are the home offices that serve as the offices of professional firms. These are likely to be professional services such as accountants, consultants, lawyers, doctors and dentists. Our marketing focus consists of professionals and entrepreneurs who maintain a full-time office.
Our target home offices are on average as dependent on reliable information technology as any other businesses. They care more about reliable service and confidence than about the rock-bottom lowest price. They do not want to rely solely on their own expertise, so they choose instead to deal with service providers, in this case being CC, with our promise of service and support when needed.
Small business in our market includes virtually any business with retail, office, professional, or industrial location outside someone's home, and fewer than thirty employees.
The thirty-employees cut-off is arbitrary as we find that the larger companies turn to other vendors. Our target small businesses are very dependent on reliable information technology. They use computers for a complete range of functions beginning with the core administration information such as accounting, shipping, and inventory.
They also use computers for communications within the business and outside the business, and for personal productivity. They are not, however, large enough to have dedicated computer personnel such as the Management Information System departments in large businesses. Ideally, they come to us for a long-term alliance, looking to us for reliable service and support to substitute for their in-house people.
The main key to success with both the home office buyers and small business buyers is making the product and marketing positioning clear. Many potential buyers would much prefer our offering to the product-only offerings provided by the stores and mail order sources.
Word of mouth is critical to encourage repeat purchases. We will have to make sure that once we gain a customer, we never lose them. To help accomplish this, we must work to reinvigorate relationships through successful database marketing, among other means.
We must always remember to sell the company, not the product. The customers should understand that they are taking on a relationship with CC, and not just buying computers.
INDUSTRY ANALYSIS
It is important for CC to be aware of the competitors in the computer industry especially when considering the move to international business arena. There are various competitors in this industry, as follows:
These are store front computer resellers, usually less than 5,000 square feet, often focused on a few main brands of hardware, usually offering only a minimum of software, and variable amounts of service and support. Their service and support is not usually very good and their prices are usually higher than the larger stores.
- Chain stores and computer superstores
These include major chains and huge computer stores. They are almost always more than 10,000 square feet of space, usually offer decent walk-in service, and are often warehouse-like locations where people go to find products in boxes with very aggressive pricing, and little support.
This market is served increasingly by mail order businesses that offer aggressive pricing of products. For the purely price-driven buyers, who buys products and expects no service, these are very good options.
MARKETING STRATEGY AND IMPLEMENTATION
CC should be aware that the appropriate marketing strategy would serve as the core of the expansion. With this, CC should emphasize service and support, build a relationship business, focus on home offices and small businesses as target markets, and deliver and fulfil the promise.
- Emphasize service and support
CC must differentiate itself from the competitors who merely sell products. We need to establish our business offering as a clear and viable alternative for our target market, compared to the product-only kind of buying.
- Build a relationship-oriented business
CC should strive to build long-term relationships with its clients, and not single-transaction with customers. The customers need to be aware and understand the value of the relationship.
CC needs to focus our products and services on home offices and small businesses as the key market segment. We do not want to compete for the buyers who go to the chain stores or buy via mail order, but we definitely want to be able to sell individual systems to the smart home office buyers who want a reliable, full-service vendor. CC must also charge appropriately for the service and support we offer.
- Differentiate and fulfil the promise
CC cannot just market and sell service and support, we must actually deliver as well. We need to make sure we have the knowledge-intensive business and service-intensive business we claim to have.
CONCLUSION
As a conclusion, CC should strive to sell the company, not the product. We sell should sell Crusaders Computers, not Apple, IBM, Hewlett-Packard, Compaq, or any of our software brand names. We have to sell our service and support. The hardware is like the razor, and the support, service, software services, training, and seminars are the razor blades. We need to serve our customers with what they really need.
Our strategy hinges on providing excellent service and support. This is critical. We need to differentiate our service and support, and deliver the promises, as well.
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