International Marketing 463-441Lecture 5
Formation of Market Entry Strategies
Types of Entry StrategiesAssessment of Threats and Opportunities
Strengths and WeaknessesProduct/Market Suitability
Assessment of Resources Required to Implement
Degree of Involvement
The Extent of International Involvement
Internet
Exporter
Importer
Distributor
Direct Sales
Licensing & Franchising
Strategic Alliances
Joint Ventures
Direct Foreign Investment
Exp
ortin
g
Contractual Arrangements
Strategic Alliances
Ownership
Greater Control
AndGreater
Risk
Cateora & Graham P. 323
Strategic Option Comment
1 Product and marketing practice extension
Using the same strategies everywhere
2 Product extension marketing adaptation
While using the same products everywhere, using marketing strategies according to local market characteristics
3 Product adaptation marketing extension
While using the same marketing strategies, adapting the product offering according to market needs
4 Dual adaptation Adjusting the product and marketing strategies according to market needs
5 Product and market invention Innovating a new product and developing a new marketing strategy for it in each market
Generic Global Marketing Strategies
Keegan, W., Global Marketing Strategies, Prentice Hall, NJ, 1999
High(Global Scale)
Minimum Size of Production
Low(Local Scale)
Similar(Global Segments)
Different(Local Segments)
Customers’ Needs Around the World
Global Product Standardisation Types
Global StandardisationAircraft
MicroprocessorsBasic ChemicalsPulp and Paper
Examples: BASF, Dell, Intel
Modular standardisation and multi-brands
ElevatorsIT services
Beer
Examples: OTIS, Heineken
Process standardisationCement
Examples: Siam Cement
Local AdaptationFoods
Consulting services
Example: McDonalds, Carrefour
Structure
Retail Distribution
Manufacturer Distributor
Wholesaler
Retailers
Distribution and Sales depend on third party
Very costly to undertake own distribution if limited number of
products
Retail Market
Supplier
Local International
Own Manufacturing
i.e., Bata Shoes
Retail Outlet
Variation: McDonalds, Pizza Hut, KFC
Consumer
Good Profit Margins
Limited by Geographical Locations
ManufacturerDirect
Marketing Company
Consumer
Dealer Consumer
Low Margin/High Volume
Lack consistency in
efforts
Rely on continual motivation and
getting new dealers
Good margins/rely on regular change in
merchandise
Direct Marketing
Limited by number of dealers and customers in
network
Cost 20
Margin % 55.50
Selling Price
45
Dealers & Discounts
(SLM) 45%
(MLM)65%
65
83
Consumer Price
100
(128)
Cost 20
Margin % 58.33
Selling Price
48
A&P
25%
48
Margin
20%
64
Store Price 80
Consumer Price
100
Direct Marketing Distributor Distribution
Cost 20
Margin % 47.11
Selling Price
37.82
Freight, Tax,
Landing 12%
37.82
Margin
55%
44
Store Price
80
Consumer Price
100
• Not including VAT etc.
Export Market
Product
Benefits and Technologies in Cleaning Clothes
Problem Dirty Clothes
Hand
Washing
Automatic local
Washer/Dryer Launderette
Machine
Dry
Cleaners
Electrical Technology
SolventsWashing Powders
Fabric Conditioners
Benefit Clean Clothes
Laundry
Powders
Liquid
Detergents
Actualisation
(The Artist) Self-fulfillment
Rice
Soap Fresh
Vegetables
Most Household Cleaning Products
Water Purifiers
Fashion Clothes (e.g. Jeans)
Chewing Gum
Car Air Fresheners
Travel & Vacations Fine Fragrances
Aromatherapy products Luxury cars
Nutraceuticals & herbs
Books Fine Dining & Processed Foods
Study after retirement Fresh vegetables (Organic)
Esteem (The Executive)
Achievement, prestige,fulfillment
Social (Worker) Family, relationships,
workgroups
Safety (The Farmer) Home, Security and stability
Physiological (The Hunter) Basic Biological Needs – Food, water, air
Staples: based on survival (fear)
Necessities: based on what is good (existence)
Community: (acceptance)
Responsibility: (hope)
Fulfillment: (dreams)
Some General Differences Between European and Asian Cultures
European AsianModes of Thinking
Causal, functional Network, whole visionLinear, absolutely horizontal Nonlinear, relatively vertical
Decision Making
To suit controls Based on trustIndividual free Group solidarityTo suit the majority Reaching Consensus
Behaviour
True to principals To suit a situationBased on legal principals To suit a communityDynamic, facing conflict Harmonious, conservative
Open, Direct, Self confident Restrained, indirect without assuranceExtrovert Introvert
Purchase Patterns
Individualistic Group InfluencesOpportunistic SystematicHorizontal Vertical communication
Demographics of Odour Communication
Perfumery
Marketing
Mix
Cleanliness
Softness
Citrus
Lemon
Herbal
Green
Psychological
Association
Objective: to reinforce the belief of the consumer in the desired and projected
image of the product
Synergy with product presentation: packaging, colour, advertising, corporate image
Product
Differentiation
http://www.brandingstrategyinsider.com/all_of_derricks_posts/index.html
Fragrance Attributes
Features BenefitsSignal
Attributes
BaseCover
Impact
Odour Profile
MalodourCounteractant
Substantivity
IngredientsEg essential
oils
Tangible
Benefits
Pleasant
Fragrance
Lasting
Fragrance
Offensive
Odour
Cover
Intangible
Benefits
Romance
Well-Being
Caring
Security
Lifestyle
Association
Strength
Performance
Variant
Indicator of Use
Life Status
Freshness
Structure of Attributes for a Fragrance in a Product
Product FormulationIngredients Examples Europe Japan USA
Anionic Surfactants
Alkylbenzene sulfonates Fatty alcohol sulphanates Olefin sulphanates
5-10% 5-15% 0-20%
Non-Ionic Surfactants
Alykyl polyethenglygol ethers Nonyphenol polyethyleneglycol ethers
3-6% 0-2% 0-17%
Suds control agents
Silicones, parafins 0.1-3.5% 1-3% 0-0.6%
Foaming Boosters
Fatty acid monoethanol amides
0-2% 0-5% 0-5%
Ion exchangers Zeolit A, polyacrylic acids
5-10% 10-20% 0-45%
Alkalis Sodium carbonate 5-10% 5-20% 10-35% Bleaching Agents
Sodium perborate, Sodium percarbonate
20-25% 0-5% 0-5%
Bleach activator
Tetraacetyl ethylenediamine
0-2%
Anti disposition agents
Cellulose ethers 0,5-1.5% 0-2% 0-0.5%
Enzymes Proteases, amylases
0.3-0.8% 0-0.5% 0-0.5%
Optical Brighteners
Stilbene-disulfonic acid
0.1-0.3% 0.1-0.8% 0.05-0.25%
Anti Corrosion Agents
Sodium silicate 2-6% 5-15% 0-25%
Fragrance 0.1-0.3% 0.1-0.3% 0.1-0.3%
Where in the Supply chain are you going to enter?
Small Holder Producers
Forest, Jungle wild plant Gatherers
Producers of Animal Extracts
Chemical Feed Stock
Manufacturer
Local Collectors Research
Institutes & Universities
Plantation Producers
Government
Aroma Chemical Manufacturer
Producers of Essential Oils as By-
Products
Trader & Exporter Producer
Associations
Broker
Specialty/Aroma Chemical
Manufacturer
National FDAs
FEMA
IFRA
RIFM
IOFI
REACH
SCCP
Trader, Importer & Exporter
IFEAT
Flavour and Fragrance House
Agent
Standards Associations Flavour and Fragrance
House (subsidiary) Agent
Cosmetic & Personal Care Manufacturer
Household Product
Manufacturer
Food & Beverage
Manufacturer
Other Food & Non Foods
Manufacturer
Wholesale Networks
Retail Networks
Consumers
Essential Oil
Production
Trading
Flavour & Fragrance
Compounding
End Product
Manufacture
Wholesaler
Retailer
Consumer
1.0 1.6 2-3.0 (6-9) 2-2.5 (18-24)
Relative and (Absolute) Value Added Through Chain
1.1-1.2 (19.8-28.8)
1.2-1.4 (23.76-40.32)
The Essential Oil Value Chain (Flavour & Fragrance Industry)
Av
ail
ab
ilit
y I
nc
rea
ses
Usefulness Increases
Media Reports
Ideas
Data
Information
Knowledge
Wisdom
The Continuum from media reports to wisdom in relation to availability and usefulness
The continuum from media reports to wisdom in relation to availability and usefulness
Market Requirements of an Essential Oil
Required Oil Yield, Quality for production/market Viability
Propagation and Planting Costs
Crop Management
Harvesting & Extraction Costs
Volume and Market Acceptance
Laboratory Research
Field Research
Weather
Land Suitability
Knowledge and Skills
De-stabilising Event –
competitor, regulation, new
substitute
Market Contacts &
Network
Actual Yields and Oil Quality
Other unforseen external factors – politics, disaster,
war, regulation, etc
Assumptions & Patience
Validity based on information & Judgement
Risk Environment in Essential Oil Development
Evaluation & selection of
suitable planting materials
Knowledge of specific crop management techniques
Knowledge of harvesting, handling
& extraction techniques
Economies of scale & correct business model, Market strategy
Plant physiology & propagation
protocols
All factors effect on yield & quality
Consumers
Wholesalers & retailers
Manufacturers
Flavour & Fragrance Houses
Traders & Brokers
Primary Producer
Essential oil as primary Product. Focus on market demand & supply
and meeting standard
Essential oil as an ingredient in
a product. Focus on uses
and applications research
Manufacture of end products. Focus on
formulation and end product
development
Technical Focus
General or Niche Customers
Vertica
l Integ
ratio
n A
lon
g th
e Su
pp
ly
Ch
ain
Application Focus
Technology Focus
IP Focus (?) Specific
Customer
Branding Theme Consumer
Marketing Reaching
Mass or selected Markets
New Product Development
Agro Industrial Consumer Orientation Orientation Orientation
Consumer Trends
Important
Technical Trends
Important
Demand & Supply, Buying
Criteria Important
Venture Focus Along Different Parts of the Supply Chain
Trader
Manufacturers
Wholesalers
Retailers
Consumers
Usually bulk oils to traders who do all distribution. Lowest price and little
control over market, but wide distribution
With differentiated product some flexibility
to sell to manufacturers, costs higher but increased
margin maybe compensate.
This part of supply chain for smaller packs and end products. Can be local, national or international. Value added method like
branding in use.
Usually branded item small packs, end product. Either selective (region or retailer
type), or general distribution. High value, low
volume with added distribution costs.
Usually direct to consumers through
internet and/or direct marketing organisation. Usually specialised end products with high profit
Need high volume due to
low margin unless
specialised product
Need differentiated product. Above average returns, higher marketing
costs
Need branded specialised
product, high margins volume
depends on coverage
Business focus
towards consumer marketing away from agricultural
production
Supply Chain/Product Focus
Bi-products to Other
Supply Chains
Essential Oil Producer
High Market Growth Low Strong Weak Relative Competitive Position
Crude Essential Oil Steam Distilled
Essential Oil under
CO2 extraction
Cosmetic production for international
market
Organic Cosmetic
production for international
market
Essential Oil Based Agro-
chemical
Where the business is
currently performing
The base potential for development
The process of product/market development
The Outcomes
(potential targets)
Siz
e an
d d
epth
of
chan
ge
Tim
e
Key internal influences on the development process
Key external influences on the development process
Strengths Weaknesses Personal and enterprise competencies,
knowledge & experience that can be utilised for the benefit of the enterprise
Facilities, infrastructure, financial backing & liquidity, long timeframe view
Ability to learn through research and experimentation
Any network connections with industry and access to the supply chain for both information and marketing
Ambition and vision (but not delusional), focus & commitment
Ability to innovate technically, market and organisational wise Any factor or group of factors that can assist the enterprise gain competitive
advantage over its competitors.
Competency gap Short term timeframe, no fall back position
if positive results delayed or there are technical or market failures
Poor infrastructure that hinders production or marketing
Shortage of funds to undertake project to completion
Qualified or lack of commitment by any key people within organisation
Lack of network, knowledge and access to supply chain
Any factor or group of factors that can hinder the enterprise gain competitive
advantage over its competitors. Opportunities Threats
An identified market where enterprise resources and competencies will be able to exploit
The potential opportunity will have a large enough market size to sustain the enterprise
The enterprise will be able to take advantage of this opportunity better than any other competitors
Outside elements in the supply chain will support the enterprise
Any factor or group of factors that will allow the enterprise to grow in a
sustainable manner from the market environment.
Competitors identifying the same opportunities and enacting upon them
The regulatory environment and potential changes within it
Inability to penetrate the existing supply chain and make alternative strategies
Dependence on survival from a single or very few customers
Depending on a single product for total revenue
Adverse acts of God, bad weather, drought, etc.
Any factor or group of factors that may potentially hinder enterprise growth in a
sustainable manner without any contingencies.
Depend on Location
Potential with Right Products and Correct
Distribution and Branding
Potential with Right Products and Correct
Distribution and Branding
Limited Unless a Specific Market Exists
Potential Large Market Dispersed Worldwide
Very Limited Unless Large Domestic Market
Local Market International Market
Essential Oil
Differentiated Product
Specialty/End Product
Much Larger Market with Competition
Diversification
Local or International Market Opportunities
Market Entry Strategy Typologies
General Competitive Strategies
Type Technique
Frontal Attack Meeting competitors head on
Outflanking Locating competitors weaknesses and attacking them
Encirclement Producing more types, sizes, colours, and styles of products at similar or lower prices
Bypass Ignoring competitors present markets and technologies and doing something different
Guerilla Warfare Using local dealers and distributors to attack certain products, product lines, or channels
Timing of Entry
Pioneers Early followers
Early
Majority
Late
Majority
Late
Followers
Product LifecyclePotential Profitability
Time
Concept
Risk Taking
Competitive
Risk Taking
IP Value &
NoveltyIP Value
Prof
it
First Mover Advantage
Information
High
HighLow
Low
Early Entry Late Entry
Trade Offs between Early and Late Entry
Cost AdvantageTechnology AdvantageBehavioural AdvantagePre-emptive Advantage
Igor Ansoff
Corporate Strategy
Ansoff
Red Ocean Strategy Blue Ocean Strategy
Compete in existing market space Create uncontested market space
Beat the competition Make the competition irrelevant
Exploit existing demand Create and capture new demand
Make the value-cost trade-off Break the value cost trade off
Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost
Align the whole system of a firm’s activities in pursuit of differentiation and low cost
Red Ocean Verses Blue Ocean Strategy
The Six Principals of Blue Ocean Strategy
Formulation Principals
Reconstruct market boundariesFocus on the big picture, not the numbers
Reach beyond existing demandGet the strategic sequence right
Execution Principals
Overcome key organisational hurdlesBuild execution into strategy
Risk factor for each principal
Lower search riskLower planning risk
Lower scale riskLower business model risk
Risk factor for each principal
Lower organisation risksLower management risks
The Four Actions Framework • Which of the factors that the industryTakes for granted can be eliminated• Which should be reduced below the
The industries standard• Which should be raised above the
Industry’s standard• Which should be created that the
Industry has never offered
A New ValueCurve
CreateWhich factors should be created that the industry has never
offered?
ReduceWhich factors should
be reduced well below the industry’s
standard?
EliminateWhich factors that
the industry takes for granted should be
eliminated?
RaiseWhich factors should be raised well above industry’s standards?
From Head to Head Competition to Blue Ocean Strategy
Head to head Competition
Blue Ocean Strategy
Industry Focus on rivals within the industry Looks across alternative industries
Strategic Group Focuses on competitive position within the strategic group
Looks across strategic groups within industry
Buyer group Focuses on maximising the value of product and service offerings within the bounds of the industry
Redefines the industry buyers group
Scope of product or service offered
Focuses on maximising the value of product and service offerings within the bounds of the industry
Looks across complementary product and service offerings
Functional-emotional orientation
Focuses on improving price performance within the functional-emotional orientation of the industry
Rethinks the functional-emotional orientation of the industry
Time Focuses on adapting to external trends as they occur
Participates in shaping external trends over time
The Four Steps in Visualising Strategy
1. Visual Awakening
2. Visual Exploration
3. Visual Strategy Fair
4. Visual Communication
• Compare your business with your competitors by drawing your “as is” strategy canvas•See where your strategy needs to change
•Go into the filed to explore the six paths to creating blue oceans•Observe the distinctive advantages of alternative products and services•See which factors you should eliminate, create or change
•Draw your “to be” strategy canvas based on insights from field observations•Get feedback on alternative strategy canvases from customers, competitors customers and noncustomers•Use feedback to build the best “to be” future strategy
•Distribute your before and after strategic profiles on one page for easy comparison•Support only those projects and operational moves that allow your company to close the gaps to actualise the new strategy
Buyer UtilityIs there exceptional buyer
utility in your business idea?
PriceIs your price easily
accessible to the mass of buyers?
CostCan you attain your cost target to profit your strategic price?
PriceWhat are the adoption
Hurdles in actualising your business idea?
Are you addressing them up front?
Commercially Viable Blue Ocean Idea
Yes
Yes
Yes
YesNo rethink
No rethink
No rethink
No rethink
The Blue OceanStrategy Sequence
Purchase Delivery Use Supplements Maintenance Disposal
How long does it take to find the product you need?
Is the price of the purchase attractive and accessible?
Hw secure is the transaction environment?
How rapidly can you make a purchase?
How long does it take to get a product delivered?
How difficult is it to unpack and install the new product?
Do buyers have to arrange delivery themselves? If yes, how costly and difficult is this?
Does the product require training or expert assistance?
Is the product easy to store when not in use?
How effective are the product’s features and functions?
Does the product or service deliver far more power or options than required by the average consumer? Is it overcharged with bells and whistles?
Do you need other products and services to make the product work?
How costly are they?
How much time do they take?
How much pain do they cause?
Does the product require external maintenance?
How easy is it to upgrade and maintain the product?
How costly is maintenance?
Does use of the product create waste items?
How easy is it to dispose of the product?
Are there any legal or environmental issues in disposing of the product safely?
How costly is disposal?
The Buyer Experience Cycle
Guerilla Strategy
Guerilla Marketing Strategy• Levinson identifies the following principles as the foundation of guerrilla marketing:• Guerrilla Marketing is specifically geared for the small business and entrepreneur. • It should be based on human psychology instead of experience, judgment, and
guesswork. • Instead of money, the primary investments of marketing should be time, energy, and
imagination. • The primary statistic to measure your business is the amount of profits, not sales. • The marketer should also concentrate on how many new relationships are made
each month. • Create a standard of excellence with an acute focus instead of trying to diversify by
offering too many diverse products and services. • Instead of concentrating on getting new customers, aim for more referrals, more
transactions with existing customers, and larger transactions. • Forget about the competition and concentrate more on cooperating with other
businesses. • Guerrilla Marketers should always use a combination of marketing methods for a
campaign. • Use current technology as a tool to empower your marketing.
Source Levinson, Jay Conrad and Goodin, Seth. The Guerrilla Marketing Handbook. Boston: Houghton Mifflin Company, 1994
Guerilla Activity Components Evaluation
Questions Feature Evaluation
How well is the dealer or distributor known?
How good is the dealer or distributor for entry?
How powerful is the dealer or distributor in penetrating the market?
Can the dealer or distributor focus on the products and provide the necessary attention?
Can the dealer or distributor change orientation, if necessary, to accommodate unexpected changes in the market?
What level of loyalty can be expected from the dealer or distributor?
A company must work with a seasoned dealer or distributor
A company must enter a particular target market effectively
A company must penetrate the market as deeply as possible
A company needs a concentrated effort from the dealer or distributor in order to enter the market and succeed
The dealer or distributor must be flexible enough to help a company to cope with changes in the market
A company must expect loyalty from the dealer or distributor – that the dealer or distributor will not abandon the partnership
Viral Marketing
• BusinessWeek (2001) described web-based campaigns for Hotmail (1996) and The Blair Witch Project (1999) as striking examples of viral marketing, but warned of some dangers for imitation marketers.
• Burger King's The Subservient Chicken campaign was cited in Wired as a striking example of viral or word-of-mouth marketing.
• In 2000, Slate described TiVo's unpublicized gambit of giving free TiVo's to web-savvy enthusiasts to create "viral" word of mouth, pointing out that a viral campaign differs from a publicity stunt.
• Cadbury's Dairy Milk 2007 Gorilla advert was heavily popularised on YouTube and Facebook.
• With the emergence of Web 2.0, mostly all web startups like facebook.com, youtube.com, collabotrade.com, myspace.com, and digg.com have made good use of Viral Marketing by merging it with the social networking.
• The release of the 2007 album Year Zero by Nine Inch Nails involved a viral marketing campaign, including the band leaving USB drives at concerts during NIN's 2007 European Tour. This was followed up with a series of interlinked websites revealing clues and information about the dystopian future in which the album is set.
• The film Cloverfield initially released one teaser trailer that did not reveal the title--only the release date. The subsequent online viral marketing campaign for the film is remarkably complex, making use of everything from fictitious company websites to MySpace profiles for the film's main characters.
• In 2007, World Wrestling Entertainment promoted the return of Chris Jericho with a viral marketing campaign using 15-second cryptic binary code videos. The videos contained hidden messages and biblical links hinting Jericho's return and were shown interrupting WWE broadcasts.[11]
Acquisitions
Acquisition Framework
AcquisitionDrivers
AcquisitionStrategy
AcquisitionPricing
AcquisitionImplementation
External Drivers
PoliticalEconomicIndustry
Technology
Internal Drivers
StrategicManagerialFinancial
Objectives
Value CreationVertical Integration
Industry consolidation
Bidding WarsReservation Price
NegotiationShares/Cash
Organisation structureCulture
IncentivesPace
RegulationsObjectives
Excess resources
Acquisition Integration Issue Successful Acquirer Unsuccessful Acquirer
Integration Speed and Decision Making
Uses integration terms to integrate rapidly, usually within 3 months. Layoffs and other painful measures are undertaken quickly
Does not use integration terms. Merge at slow rates. Layoffs and other decisions deferred.
Communication and Vision Communicate the new vision to acquired employees immediately with a clear definition of new roles
Does not establish a new vision or new roles immediately. Minimizes communication efforts with acquired firm so not to over burden new employees.
Networking and Socialisation Uses networking and socialisation to discover new opportunities in the acquisition.
Does not over actively network or socialise with employees in the acquired firm.
Who is in charge? Keeps the acquired firm’s senior managers, but only if they agree with the vision of the acquired company post-acquisition
Keeps all the acquired firm’s senior managers through a variety of fiscal and non-fiscal incentives
Integration Approach Integrates the acquired firm as a business unit in its own right, but with a tightly defined functional role.
Adopts a flexible policy to integrate offering each acquired company a unique structure as part of the acquired firm
Successful and Unsuccessful Acquirers
Michael E. Porter
Cluster Analysis, Value Chains & Competitive Strategy
Three Generic Strategies
Strategic Advantage
Uniqueness Perceived By Consumer
Low Cost Position
Str
ateg
ic T
arge
t Industrywide
ParticularSegment
OnlyFocus
OverallCost
LeadershipDifferentiation
Competitor Analysis
Competitor Response ProfileIs the competitor satisfied with its current position?
What likely moves or strategy shifts will the competitor take?
Where is the competitor vulnerable?What will provoke the greatest and
most effective retaliation by the competitor?
Future GoalsAt all levels of managementAnd in multiple dimensions
What drives a competitor?What the competitor is doing
and can do
Current StrategyHow the business is currently competing
AssumptionsHeld about itselfand the industry
CapabilitiesBoth strengths
and weaknesses
Porter, Competitive Strategy, P. 49
Bu
ye
r P
ow
er, e
g:
buyer choice
buyers size/num
ber
change cost/frequency
product/service im
portance
volumes, JIT
scheduling
Ne
w M
ark
et
En
tran
ts, e
g:
geographical factors
incumbents
resistance
new entrant strategy
routes to market
Com
petitive
Rivalry, eg:
number and size
of firms
industry size and trends
fixed v variable cost bases
product/service ranges
differentiation, strategy
P
rodu
ct/Tech
nolo
gy
Develop
men
t, eg:
alternatives price/quality
market
distribution changes
fashion and trends
legislative effects
Su
pp
lier P
ow
er,
eg
:
brand reputation
geographical coverage
product/service level quality
relationships with
customers
bidding processes/capabilities
Figure 7. Porter’s Five Forces of Competitive Position
Threat of New EntrantsThreat of competition from
new technology(in past from petrochemicals)
Bargaining Power Of suppliers
Restrictions on The supply of
beta-pineneThe required
feedstockOther producers of
geraniol
Industry competitiveness
Intensity of rivalry
Threat of substitutes
Possible reformulation with other rose materials eg.
Phenyl ethyl alcohol
Bargaining power of buyers
Concentration of usage into few major
compounders strengthen buyer
power
Adapted from Porter, M. E, Competitive
Advantage: Creating and Sustaining
Superior Performance, New York, Free Press,
1985
Porter’s Five Force Analysis for Gernaiol
Competitive Rivalries Lemongrass quick yield and straightforward to cultivate and distil – expect high elasticity of supply from both existing and new producers. Producers of substitutes very aggressive
Bargaining Power of Suppliers Collecting the most suitable planting material require effort. Extraction and harvest .technology needs to be acquired or developed Analytical equipment or service maybe expensive/remote.
Substitutes Citral (main constituents) can be produced from a number of chemical feed stocks. Alternative oils (litsea cubeba) cost much less to produce. Lemon myrtle oil much smoother and acceptable to end users Many alternatives to lemongrass in product formulations.
Trends & Technology Alternative technologies to steam distillation (CO2) can make much smoother oil but will increase capital needs greatly. Natural, exotic, organic, FAIRTRADE could increase oils popularity (?) if seen as exotic.
Substitutes
Tre
nd
s &
Te
ch
no
log
y
Bargaining power of buyers
Bargaining power of suppliers
Competitive Rivalries
Re
gu
lati
on
Regulation SCCP placed lemongrass oil under scrutiny as a cosmetic ingredient in EU.
Industry Competitors
Intensity of Rivalry
Bargaining Power of Buyers Currently small item of trade in flavour industry, strong relationships with established producers.
Industry Phase development of SAIPIndustry Phase development of SAIP
Ro
le & R
each o
f SA
IP
Ro
le & R
each o
f SA
IP
LOWLOW
HIGH
HIGHSNP
FRUITS
PRODUCTIVITY ADVANTAGEPRODUCTIVITY ADVANTAGE
VA
LU
E A
DV
AN
TA
GE
VA
LU
E A
DV
AN
TA
GE
FLOWERS
VEGETABLES
MARINE
LIVESTOCK
I
II
III
LOWLOW
HIGH
HIGHSNP
FRUITS
PRODUCTIVITY ADVANTAGEPRODUCTIVITY ADVANTAGE
VA
LU
E A
DV
AN
TA
GE
VA
LU
E A
DV
AN
TA
GE
FLOWERS
VEGETABLES
MARINE
LIVESTOCK
I
II
III
Phasing of SAIP in order to ensure a clear focus and fast cluster development!
Depending on Logistics Infrastructure Scenario SAIP could provide a wider reach -> Starting with only a 100 km radius to entire Sabah!
The Value Chain