Introduction
Smith & White Corporation (S&W), a very large and aggressive domestic manufacturer, and Makatume, a Japanese powerhouse, have identified their weaknesses and strengths. Smith and White markets both professional and consumer tools while Makatume markets professional tools only. Both have dominant market share the markets they operate. However, in spite of this, both has also experience difficulties and challenges in their operations.
This paper attempts to analyze the internal and external environment of the two companies using the SWOT analysis. The paper also attempts to identify the best strategies for each company on the identified internal and external vulnerabilities.
Smith and White
Smith & White is a very large and aggressive domestic manufacturer that markets a full line of moderate quality professional and consumer tools. It also markets such products as lawn and garden, hobby tools, and kitchen appliances, all under the same brand name as its power tools.
SWOT analysis
Strengths
Its strength lies in a unified strategy across all its product lines, power tool and non-power tool, of building and maintaining brand equity through massive amounts of national media advertising. The leverage gained through strong brand equity compels retailers, particularly the Big Boxes, to stock many of the S&W's products because of high end-user demand.
This demand-pull marketing strategy also has the synergistic effects of obtaining relatively higher prices, advanced placement, co-op advertising, high profile self space, and cross promotion.
Weaknesses
S&W does have some significant weaknesses. These include high costs due to old manufacturing plants located in high labor cost urban areas, market confusion between its professional and consumer tools, and negative feelings on the part of its distributors stemming from a perceived abuse of their dominant market position. It also doesn't have much of a presence in the fast growing cordless segment.
In addition, a major hidden weakness is S&W's huge size, which makes it unwieldy in reacting to market phenomena during periods of rapid change.
Opportunities
The company has its opportunities on its wide range of products that can serve a broad range of consumers in the market. It has also a dominant share in all the markets it operates. It has also a strong brand equity that compels retailers, particularly the Big Boxes, to stock many of the S&W's products because of high end-user demand. The company also has opportunities in its advanced placement, co-op advertising, high profile self space, and cross promotion which will lead to the continuous success of Smith and White.
Threats
The company’s major threat is on its inability to quickly react on market environment changes due to its large size. Their old manufacturing plants also holds threat to the manufacturing process of the company. It can be a cause of a slower production of the company. The negative feelings of distributors can also be a threat because distributors may stop distributing their products. And with its absence in the fast growing cordless segment, the company may loss its market share.
Strategy
Because of the huge size of the Smith and White company, it has the inability to response quickly to the rapid environmental changes. Thus, the company needs more flexibility. (1984) defined flexibility as an organization's ability to adapt to substantial and uncertain changes in the environment that require rapid reactions and that have a significant impact on performance. Nowadays, flexibility is considered an essential requisite for firms wishing to survive (1995). The concept of flexibility represents a fundamental development for environmental uncertainty management (1993). Emphasis is being placed on restructuring, reengineering, and reinventing in order to make the company flexible enough to respond to the ever-increasing and changing needs of the customers. The need for flexibility originates with the customer, but the customer asks for variety, quality, competitive prices, and faster delivery only when there is a high level of competition in the marketplace. Ansoff and (1971) pointed out that the rapid changes in client needs and product-process technologies called for organizations that were both flexible and sensitive.
Manufacturers and distributors alike will need to be sure they align their resources and invest in the market segments that are positioned to grow. They will need to study industry data, demographics, trends and news developments. They will need to become comfortable with the tools used to make projections so they can be proactive rather than reactive in addressing changing markets. They will need to move quickly as well, because some trends may move so quickly that those who wait to react will be left behind. In addition to market developments, distributors and manufacturers alike need to be positioned with the products and competencies needed to capitalize on areas of growth.
Large firms can be more flexible in their response to environment restrictions, because they are more capable of creating expectations with regard to improved future performance, which makes it easier for them to obtain mid- and long-term financing.
Implementation of this strategy may include:
- Developing alliances with other companies having complementary assets;
- Coordinating operations of subsidiaries closely and shifting production between plants when beneficial;
- Locating the plant in a country with the most volatile rate of exchange, and then use scheduling flexibility and multi-period flexibility to fill worldwide orders;
- Using uncertainty of domestic markets to achieve flexibility of operations and investments;
- Simplifying each type of requirement and attempt to make each input resource as flexible as possible;
- Being cautious about major investments in processes or in infrastructures. These investments are often long term, and may not always enhance overall flexibility;
- Achieving consistency between strategic and tactical objectives, while maintaining flexibility. Keep in mind that there should be consistency and congruence among tasks, system, and structure;
- Checking for a balance between the current flexibility level and the level of external uncertainty. Keep track of the flexibility levels of your competitors;
- Using reengineering approach to attain the needed flexibility for internal processes, but never lose track of your continuous improvement program;
- Taking advantage of the output flexibility in capital intensive industries when competing for business. With this flexibility, the companies can fight competition even when their profits are low;
- Promoting integration among hardware, software, and people.
- Integrating various stages of operations within and across organizations, processes, information, and materials;
- Clarifying the goals;
- Eliminating past practices of maintaining buffers in terms of inventories, excess capacity, and padded lead times.
Higher levels of flexibility invariably offer advantages under turbulent market conditions. With a large product differentiation, a company may be able to charge higher prices, or even monopoly prices. Flexibility can improve utilization and may provide substantial labor savings. In capital-intensive industries, or in volatile situations, the output flexibility can be of great help. Flexibility can be substituted for costly resources such as excess inventories, oversize capacity, and specialization of tasks. Flexibility may also be utilized to fight obsolescence. Regarding intangible resources, flexibility offsets economies of scale, reduces redundancies and the need for multiple interface relationships. In a flexible factory, scale and scope always reinforce each other.
Flexibility shortens cycle times, provides labor savings, offers enhanced manufacturing capabilities, and greatly advances the readiness for future installation of flexible automation.
Makatume
Makatume is a Japanese powerhouse which markets only professional tools.
SWOT Analysis
Strengths
The strength of the company’s products lies on the perceived value of the tradesman on their product for quality, robustness and durability. It also has its strong cost position with its new manufacturing plants in Japan. It also controls a dominant 70% market share of the professional cordless market. With its early entrance in the market, it has gained a dominant market share.
Weaknesses
With Makatume’s early entrance in the market, the company is now locked in to lower voltages due to wide acceptance of its interchangeable battery system. The company also offers only one line of products that makes the company more vulnerable to competition. The company is way behind technology.
Opportunities
The company’s greatest opportunity in the market is on the fast growing cordless segment market in which the company owns a dominant share of 70%. The company also has a dominant market share on the professional tools they offer. They are also the second biggest player in the US market.
Threats
Makatume’s threat is on competition. The growing strength of Far East imports from China, which are beginning to make their impact on consumer tools because of their low price and good value. There are also a growing number of domestic and foreign niche competitors. The yuan is the relevant currency affecting Chinese imports. Technology of battery efficiency also has progressed making the company behind technology.
Strategy
Having analyzed the internal and external environment of Makatume, a differentiation strategy is the best strategy that would suit the company with the growing number of its competitors.
Differentiation requires that business offerings have sustainable advantages that allow it to provide buyers with something uniquely valuable to them. A successful differentiation strategy allows the business to provide a product/service bundle of perceived higher value to buyers at a "differentiated cost" below the "value premium" to the buyers.
Differentiation usually arises from one or more activities in the value chain that create a unique value important to buyers. A business can differentiate itself by performing its existing value activities or reconfiguring in some unique ways. And the sustainability of that differentiation will depend on two things: a continuation of its high perceived value to buyers and a lack of imitation by competitors.
A differentiation competitive advantage prescribes that a firm achieve and maintain a means of making its product unique from its competitors' products ( 1983; 1989). The advantage of differentiation is based on the additional value the product possesses, for which the customer will pay a premium. While additional value may be created through a variety of means, such as quality, service, brand image, or distribution (1984), superior quality is the means of differentiation which is most often used (1983). Thus, successful differentiation permits a firm to command premium prices (1990) for this additional value. A differentiated product engenders customer loyalty, reducing customer sensitivity to price and protecting the business from other competitive forces which could reduce price-cost margins (1983).
Low Voltage Power Tools of Makatume
The power tool industry is heading for a shoot-out over the issue of cordless power, where higher voltage translates into better performance. High voltage products are increasingly more appealing to consumers, especially those tackling bigger projects, and a number of manufacturers are developing and expanding their consumer cordless tool lines with higher power ratings.
Because consumers demands for high power products, Makatume should be able to upgrade their power ratings to a higher one to be able to cope up with the rapid change in demand of consumer. The company should introduce its higher voltages to stay on the competition.
Forward-thinking manufacturers today are growing their businesses with new and innovative products that clearly establish brand value and differentiation. Product development is indispensable in rapidly translating market demands and industry trends into improvements to existing product lines. It's also critical in the creation of entirely new product classes that allow companies to dominate emerging markets.
Today, new product development is generally considered important for understanding a firm's entrepreneurial activities (1993;1991; 1990;1989; 1990;1989). Therefore, identification of the factors that influence product innovation helps to increase our understanding of one of the richest sources of firm-level entrepreneurship ( 1989).
It suggests that timely development and introduction of new products requires maintaining a flexible organizational structure (1986), frequent communication (1992), the use of multifunctional teams (1991), the leadership style of new product teams (1991), top management support and involvement (1990), interface with customers (1990), and the use of effective controls (1993). In addition, executives should also ensure that the number and timing of new product releases match their industry's conditions and their competitive strategy's requirements for success (1991).
Conclusion
From the situations given, it has been clearly understood that every company faces some weaknesses that should be emphasis in order to be strategically solved. The companies are facing competitive positioning in the market they operate. However, having identified these difficulties gives the companies the better ways to solve them.
Smith and White identified their weakness on their rigidity on reacting on changing phenomenon in the business environment. The best strategy recommended if to gain flexibility in their operations to be able to respond to the changes in the market. Makatume identified two weaknesses. One is its single product line that makes them vulnerable to competition. It has been suggested that differentiation is the best strategy. Moreover, it is also important Makatume to innovate since the demand of the consumers has evolved.
The best way to identify the best strategy for every problem of the business is to identify it problems and then prioritize and identify the best solution.
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