- Economy Outlook
Singapore’s economy is just recovering from the aftermath of Sept 11 followed by SARs in 2003 and consumers are still wary of spending. Singapore has re-bounce from recession and posted a positive growth in GDP and inflation rate for the whole of 2003 stands at 0.5 per cent partly due to the increase of 1 per cent point in Goods and Service Tax. (MAS, online)
The pressure of economic slow down has seen companies work on high volumes and low margins, AKIRA marketed itself as a value-for-money product and has successfully created a niche in the Singapore’s market as well as overseas as consumer buying power is matched by an increase in consumer awareness and cost is a major influencing factor in the consumer decision-making process.
Domestic interest rates have been low and stable in the recent years with interest rate on one-year time deposits now standing at just 1.5%. (MAS, online) This will enable businesses to enjoy a low cost of financing and thus aid in firms’ decision-making.
- Household Income
Household income has increased in real terms, given the low inflationary environment. Measured in 1990 dollars, the average household income rose from $3,080 in 1990 to $4,170 in 2000 by 3.1 per cent per annum. The median household income rose by 2.8 per cent per annum in real terms. (Singstat, online) With the higher households’ income, the consumers would be able to get more luxury products like DVD players and television which makes up AKIRA’s main core products.
- Infrastructure
Currently, a lot of improvements are being made in transportation, telecommunications and infrastructure for business activities. Continued improvements will occur in all areas, with a number of major projects either completed or nearing completion.
2.1.3. _ Socio-Cultural factors:
When examining the socio-cultural environment, many factors have to be taken into account. Population trends, shifts in value and culture, location, sex, life style trends are some of the forces that are critical when analysing consumer decision-making. They have a large impact on the types of products that the consumers demand and hence on the organisation’s strategy.
- Populations Trends
Singapore’s population has grown older over the years. The median age of the population rose from 20 years in 1970 to 35 years in 2002 and reflecting the middle-aging of the population, there was an increase in the population share of resident shared aged 35 and over. (Singstat, online) This is a major segment market that AKIRA is targeting as they have higher spending capabilities on households’ products.
- Households and Housing
The number of households increased by 3.4 per cent per annum during 1999-2000, the faster household growth was due to the combined effects of declining fertility and the continued prevalence of one-family nucleus households. (Singstat, 2004) As a result, households have become smaller. With the higher number of households, the potential market for AKIRA has opened up as every household would need to purchase electrical appliances.
- Lifestyle & Trends
Singaporeans, who are used to living in a shopping paradise like Singapore, are avid shoppers in which most of them are frequent shoppers that would not shop at any specific time. They also treat shopping as a leisure activity too. With this in mind, it is important for AKIRA to make the shopping environment aesthetically appealing to ensure that a pleasant environment is created. Naturally with shopping as a habit, consumers are also willing to spend time to get the best bargains, typifying Singaporean consumers as rather promotion-driven. (ACNielsen, 2004) In terms of what people are buying, the emphasis is on value, convenience and variety. Understanding the changing needs of consumers is critical to stay ahead. Success or failure often comes down to utilising market information effectively to meet consumer needs and hence drive sales and profit for AKIRA.
2.1.4. _ Technological factors:
Technology is vital for competitive advantage, and is a major driver of globalization. Also, changes in technology are changing the way business operates.
- E-Commerce
Singapore has been a major adopter of technology, pushing the use of internet and other technologies resulting in more then 70 per cent of Singapore having access to internet. (IDA, 2004) E-tailing, online sales, helps to reach specified customers and also un-reached customers and markets, AKIRA tapped on this online potential to launch an e-commerce enabled website boosting sales (www.myakira.com).
- Logistic management
Technological factor has helped in reducing the barriers of entry. It has also supplemented in the cost of capital in other areas, to enhance services. Good storage systems helps in maintaining proper outsourcing from other stores, and have effective supply chain management. The development of supply-chain partnerships by AKIRA have helped to improve competitiveness.
2.2. SWOT ANALYSIS
The SWOT analysis provides information that is helpful in matching the firm's resources and capabilities to the competitive environment in which it operates. (See Fig. 2) However, it is worth pointing out that SWOT analysis can be subjective; accordingly, SWOT analysis is best used as a guide and not a prescription.
2.2.1. _ Strengths
A firm’s strength is its resources and capabilities that can be used as a basis for developing a competitive advantage.
- Strong relationship with principle and customers
AKIRA has strong relationships with principals to offer to valued customers, thus able to achieve a comprehensive product mix and up-to-date market information. AKIRA also commits itself to reliable and premium-quality customer service which has converted at least 80% of our customers into repeat customers building a long term relationship with them. (AKIRA, 2004)
- Efficient warehousing and logistic system
AKIRA parent company, TT International, being in the logistic business is able to provide the expertise in storage of the products. By using the "Automated Storage & Retrieval System (ASRS)" - the state-of-the-art fully integrated and automated warehouse and inventory management system, together with the experienced operation team provided timely, better and more efficient services to our valued customers.
- Healthy financial growth
AKIRA has maintained strong like for like growth and margins healthy growth rate in the market despite concurrently expanding its operational expansion. This has kept the company on extremely good footing with its financiers.
- Local market support
AKIRA would have the support of locals due to growing sense of patriotism. This would be advantage in its up-hill fight against established imported brands.
- High brand value
AKIRA has carried out A&P activities advertising in bus and billboards as well as during national day in Singapore. This increase consumer’s brand retention and differentiation of brands, thus boosting brand loyalty.
2.2.2. _ Weaknesses
The absence of certain strengths may be viewed as a weakness
- Easily imitated products
AKIRA is a small player in a fragmented market. Their products are easily imitated; in fact most of ideas were copied from existing products and processes elsewhere in the world.
- Late entry to highly dominated market
The household electronics industry had been dominated by big brands like Sony, Panasonic, Fuji etc. which had been in the market for over a decade. It would need a lot of persuasion for consumer to switch to AKIRA.
- Thin margin and revenue volatility
Due to the low pricing scheme of AKIRA’s products, there is very thin margin and hence revenue is very prone to changes.
- Vulnerable to price battle
AKIRA products being seen as value-for-money low cost products are very vulnerable to price war by other brands like Enzer. This would eat into the already low profit margin.
2.2.3. _ Opportunities
The external environment analysis may reveal certain new opportunities for profit and growth.
- Cautious spending due to recession
The weakened economy caused by the aftermath of Sept 11 and SARs cause more consumers to be more cautious to spending. As with the research report by AC Nielsen, consumers are most likely to find the best bargain at the lowest value possible. This is an opportunity for AKIRA to gain more market share and increase profit.
- Increase in consumer affluence
The increasing affluence of Singapore’s consumers means that they have more disposable income on hand. This is likely to lead to more consumption of all goods in the economy.
- Growing sense of patriotism and support for local products
There is generally a growing sense of patriotism and increase support for local brands. This is especially so if quality products are manufactured and sold by locally grown company. Some of the brands which have succeeded in this are OSIM and CREATIVE which started locally yet expanding overseas.
2.2.4. _ Threat
Changes in the external environmental also may present threats to the firm.
- Major competitors
Major competitors in the market still posses a threat to our business especially ENZER which marketed and priced itself very similar to AKIRA.
- Improving economy
With improving economy, people would tend to have higher purchasing power and thus gradually lean towards products of higher functionality and shift away their preferences from value-for-money product.
- Eruption of price war
There is a possibility of a price war erupting due to the emergence of made-in-China products which has a lower cost and can afford to ‘dump’ their products in order to gain a larger market-share.
- Micro-environment Analysis
Micro-environment is the more company-specific forces reflecting the nature of the business, its suppliers, marketing intermediaries, buyers, competitors and its publics. (Dibb et al 2001)
3.1. Porter’s 5 forces
Michael E. Porter has developed a framework, the "five forces" model that analyses market structures as means to determine market attractiveness. The model tends to focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a single product or range of products. The assumption of the model is that the company will wish to protect and benefit their own interests first and develop their competitive advantage to defeat their rivals. (Fig. 3) It explores the following five forces:
3.1.1. The threat of entry.
It is not only incumbent rivals that pose a threat to firms in an industry; the possibility that new firms may enter the industry also affects competition. In theory, any firm should be able to enter and exit a market, and if free entry and exit exists, then profits always should be nominal. In reality, however, industries possess characteristics that protect the high profit levels of firms in the market and inhibit additional rivals from entering the market. These are barriers to entry.
Barriers to entry are unique industry characteristics that define the industry. Barriers reduce the rate of entry of new firms, thus maintaining a level of profits for those already in the industry. From a strategic perspective, barriers can be created or exploited to enhance a firm's competitive advantage. (Fig. 4)
There are some barriers to entry that we have had to face, which would also be applicable to any company entering the market. One of the most significant barriers to entry would be the high initial capital requirement to set-up the necessary manufacturing plant; this would discourage entrance to the industry. New entrants will attempt to break into the industry with low prices, innovative products, or new features. It is easy for customers/buyers to switch from one product to another. AKIRA will aggressively defend their market position against competition by cutting prices; AKIRA also has brand reputation, which a new company would have to establish.
3.1.2. The threat of substitutes
In Porter's model, substitute products refer to products in other industries. To the economist, a threat of substitutes exists when a product's demand is affected by the price change of a substitute product. A product's price elasticity is affected by substitute products - as more substitutes become available, the demand becomes more elastic since customers have more alternatives. A close substitute product constrains the ability of firms in an industry to raise prices.
For AKIRA, there is threat of substitute from all the other brands offering similar range of household products. Furthermore, household products repairmen serve as a substitute also as they extend product lifespan and thus lowered purchases.
3.1.3. The power of buyers
The power of buyers is the impact that customers have on a producing industry.(Fig. 5) In general, when buyer power is strong, the relationship to the producing industry is near to what an economist terms a monopsony - a market in which there are many suppliers and one buyer. Under such market conditions, the buyer sets the price. In reality few pure monopsonies exist, but frequently there is some asymmetry between a producing industry and buyers.
Customers for household products are, in general, quite price sensitive. Although they have some extent of brand loyalty, generally customers for household products should be considered as having quite high elasticity of demand because the products are similar although it’s the type of service that is offered that may vary. Therefore, bargaining power is relatively high.
3.1.4 The power of suppliers
A producing industry requires raw materials - labor, components, and other supplies. This requirement leads to buyer-supplier relationships between the industry and the firms that provide it the raw materials used to create products.(Fig. 6) Suppliers, if powerful, can exert an influence on the producing industry, such as selling its raw materials at a high price expropriating some of the industry's profits.
AKIRA, has a large portfolio of products and high sales volume. Therefore having high bargaining power to the suppliers and hence there is relatively low level of threat from the suppliers.
3.1.5 Competitive Rivalry
Glaister (1995) noted that the extent of rivalry is a function of numerous factors including: the number of competitors and their relative size; the rate of industry growth; the degree of product differentiation; and the height of exit barriers. In the traditional economic model, competition among rival firms drives profits to zero. But competition is not perfect and firms are not unsophisticated passive price takers. Rather, firms strive for a comparative and competitive advantage over their rivals.
The extent of competitive rivalry is quite high since the household products industry is quite competitive. Thus in pursuing an advantage over its rivals, AKIRA has chosen to lowering prices. The setting up of the research and development department would also enable features improvement and stands out from competitors. AKIRA also exploits relationships with supplier by setting high quality standard and required suppliers to meet the demands.
- Conclusion
By analysing both macro environment and micro environment, we have a greater understanding of the effect of environment in the mapping of AKIRA’s strategy. Through opportunities present in the market and usage of its competitive edge in manufacturing and logistic, AKIRA is able to market its products under value-for-money, increasing its market share and brand value.
