Group 10

                

07 14650  Strategic Analysis Of Business

VSM Group

                Submission date: 31st October 2006

Contents

Appendix 3      Porter’s Value Chain        

VSM Group

        

1. Introduction

VSM group having been developed, manufactured and sold household sewing machines for more  than 130 years after its first sewing machine was launched in 1872. It became an independent company after it was divested from Electrolux and acquired by the investment fund, Industri Kapital in 1997. With the advent of the new CEO, Mr. Jorgen Johansson, the company carried out a series polices to survive and develop in the new circumstance.

Regarding the retailers as very important sales channel, VSM group adopted the ‘Dealer-Partner’programme which encourages the retailers to deal their products exclusively. This obtained a great success in the US market. VSM group also expanded after-market activity, such as installed new accounting system, improved software programme and set up e-business system. During this time it acquired Embroidery Networks Ltd (Emnet); a small British producer of software for PC controlled professional sewing.

Three years later, when VSM group executing its reviving plan, it stopped a while and acquired its former competitor, Pfaff, a German company with a powerful brand name in domestic sewing machines in 2000. To avoid any confusion with the groups brand names, the company was renamed the VSM Group. By this moment it hold two strong brands.

However, things are not optimistic to VSM Group, as a matter of fact the sewing machine market keeping declining in the past 20 years and VSM group encountered sharp competition from Asia manufacturers as well. In addition, the conflict of VSM group between the two brands was emerged.

This paper seeks to analyse the decisions taken by the VSM Group especially with regards to Pfaff and the challenges facing the group during 1997 to 2003. Porter’s five forces and SWOT analysis are used to better understand the industry and analyse the competition in view of the company’s resources and capabilities. In conclusion and recommendations are offered to possibly give solutions to the main problems identified.

2. Competitor analysis

There are three main competitors which are all from the Far East (see Appendix 1 for Strategic Group). Janome is the largest competitor by volume, and is specialised in the domestic sewing machines and obtained several important industry innovations. The second competitor is Brother which is famous for office machinery but it is also active in the sewing industry. Their total production was 1.3 million machines in 2003 and their innovative products’ prices were lower than those of VSM as much as 20-30 percent. The third competitor is Juki who manufactures both domestic and industrial machines as well as computer-controlled machines, but they did less for the product development. Porter’s Five Forces frame (Appendix 2) was chosen to do the competitor analysis in this case.

Threat of new entrant

 

The threat of new entrants is not high because intense competition and the demand for the sewing machine have been shrinking. The VSM Group and other three main competitors (Janome, Brother and Juki) have most of the market share. However, if new entrants come into the market, it is difficult to sustain in this market because of the brand identity. As the technology is changing very rapidly and the companies need to look at R&D as well. One more aspect of this field is that the companies are already working in the low labour market i.e. in the Far East, so it will be difficult for the new entrants to penetrate into this market.

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Competitive rivalry

As the market of sewing machine is declining, therefore the competition is becoming more intense. There were the smaller companies, which did not do well and got into trouble. For example, Pfaff went bankrupt in 1999 and was acquired by VSM. Almost all of these companies produced the same products. Fortunately, one of competitive advantages of VSM was the production of special models produced in Zetina plant which gives VSM a competitive edge over to its rivals.

Power of buyers and suppliers

Within the sewing machine industry VSM Group is a global ...

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