As Ong Biscuit Sdn. Bhd. foresee that their existing product range might fail to support such an interest rate of growth in the foreseeable future, they considered ideas for services as solution. Their product range addresses effectively the center price market section, which is the most important part of the entire market in value conditions.
A new product is adopted, biscuits for a slimming diets, biscuits with added nutrient and vitamins, fowl crackers - a hen flavoured savory biscuit
Although the business utilizes a dual brand coverage for its biscuits, these brands have not highly nor effectively included on tin brands nor on cheap packets. The only promotion has been around the form of special discounts and allowances to the route members as incentives to display, recommend and drive Ong Biscuits at the point of deal.
The company is struggling in attempting to break right into the central and north states of Peninsular Malaysia
a) Is the biscuit industry in Malaysia attractive? Justify your answer with reasons.
Attractiveness in this context refers to the entire industry profitability. An "unattractive" industry is one where in fact the combination of causes acts to operate a vehicle down overall profitability. A very unattractive industry would be one getting close to "pure competition". Taking a look at the market track record of biscuit industry in Malaysia, it could be considered as a stunning industry. A nice-looking industry is one in which firms are able to generate and claim or appropriate gains. The market for biscuit industry has generally grown over the period from 1963 to 1968. According to the department of reports, in 1963 total development sales in biscuit industry is RM28. 807 million but in 1968 the product sales biscuits by bakeries amounted to RM33. 5 million.
As attractive business are profitable as that profit is desired by other businesses, the biscuit industry in Malaysia been came into by new entrants. In fact, the biscuit market is extremely competitive. The industry is characterized by a large volume of small competitors with only five relatively big manufacturers in term of total annual turnover.
Biscuit industry in Malaysia is also considered as attractive because biscuit factories in Malaysia can produce almost the same quality of imported products. Despite the historical relationship of top quality biscuit with brought in products, there is definite growing reputation of quality in locally produced biscuit among consumers. This may boost the local factories' income.
Besides that, a good industry has a characteristic of having a sizable market to support the industry. Biscuit industry in Malaysia has this quality as the use pattern of biscuit is rather typical of mass-market convenience food products. Thus the buyer account corresponds broadly to the account all households on the market in terms old, socio-economic class and region. Almost a quarter of all housewives purchase biscuits in jany given month and ingestion is notable higher among homes with children.
There is also low reliance on uncontrollable variables in biscuit industry in Malaysia such as the weather, product prices and advanced systems. That makes the industry more attractive.
b) What are the factors that contribute to the attractiveness of the industry?
Micheal E. Porter has discovered five competitive causes that shape every industry and every market. These makes determine the strength of competition and hence the success and elegance of an industry. The aim of corporate strategy should be to improve these competitive pushes in a way that improves the positioning of the organization. Porters model supports analysis of the traveling forces within an industry. Predicated on the information produced from the Five Forces Analysis, management can determine how to influence or to exploit particular characteristics of the industry. Five makes that determine the competitive depth and therefore elegance of a market :-
i) Rivalry and competition among the list of factories
There are numerous companies around the same size,
Companies have similar strategies
There is very little differentiation between companies and their products, hence, there is much price competition
Low market expansion rates (progress of a particular company can be done only at the expense of a competition),
Barriers for leave are high (e. g. expensive and highly professional equipment).
Biscuit industry in Malaysia seem to be to be attractive as it's market is incredibly competitive. A biscuit company have to strive and battle to keep themselves in the business as competition intensifies on the market. Besides Ong Biscuit Sdn. Bhd. which once was amongst the very best five in the industry, the lifestyle of opponents such as Guan Siang, Khong Ghee, Tai Peng and Soon Kee have make the industry become more attractive. It affected Ong Biscuit Sdn. Bhd. 's rate of expansion. The depth of competitiveness among firms boosts whenever new company type in the industry.
For Ong Biscuit Sdn. Bhd. which was set up in 1955, the company grew at an exceptional rate during the first a decade of its life. Ong Biscuit Sdn. Bhd. became among the top five on the market once. However, it involved with rivalry by other biscuit factories that reduced the business's share of wafers and crackers in the market. For example, when rivals from smaller manufacturers lower ex-factory prices, Ong Biscuit Sdn. Bhd. 's rate of progress has declined. Rivalry increases when consumers can turn brands easily. In biscuit industry, generally, competitive products look very much the same in term of shapes and sizes and everything the factories sell their biscuits in three main kind of packaging namely big biscuit tin, present tins and covered polythene packets. Ong Biscuit Sdn. Bhd. needed great satisfaction in the business's wafer cream sandwich and unsweetened crackers which were successful almost when they were first sold in the past due fifties. However, both these best retailers are being manufactured by more and more rival factories.
The behavior of rivalry, could either reduce or increase industry profitability. As rivalry among competing organizations intensifies, industry gains decline, occasionally to the point where a business becomes inherently unattractive.
ii) Probable Development of Substitute Products
Threat from substitutes is present if there are alternate products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant percentage of market size and hence decrease the potential sales amount for existing players. This category also pertains to complementary products. The threat of substitutes depends upon factors like brand devotion of customers, close customer relationships, switching charges for customers, the comparative price for performance of substitutes and current fads.
iii) Bargaining power of suppliers
The market is dominated by the few large suppliers rather than fragmented source of supply,
There are no substitutes for this input,
The suppliers customers are fragmented, so their bargaining electric power is low,
The switching costs from one supplier to some other are high,
There is the possibility of the supplier integrating forwards to be able to obtain higher prices and margins. This risk is particularly high when
The buying industry has a higher success than the offering industry,
Forward integration provides economies of size for the supplier,
The buying industry hinders the supplying industry in their development (e. g. reluctance to accept new releases of products),
The buying industry has low obstacles to admittance.
In such situations, the buying industry often faces a high pressure on margins off their suppliers. The partnership to powerful suppliers could reduce tactical options for the organization.
iv) Bargaining Vitality of Customers
Similarly, the bargaining vitality of customers determines how much customers can impose pressure on margins and quantities. The bargaining power of customers is also described as the marketplace of outputs: the ability of customers to put the firm under pressure, which also influences the customer's awareness to price changes. Customers bargaining ability is likely to be high when
They buy large quantities, there's a concentration of buyers,
The delivering industry comprises a large amount of small operators
The supplying industry operates with high fixed costs,
The product is undifferentiated and can be replaces by substitutes,
Switching to an alternative product is relatively simple and is also not related to high costs,
Customers have low margins and are price-sensitive,
Customers could produce the merchandise themselves,
The product is not of strategical importance for the client,
The customer knows about the production costs of the product
There is the probability for the customer integrating backwards
v) Risk of New Entrants
Economies of range (minimum size requirements for profitable procedures),
High initial opportunities and fixed costs,
Cost benefits of existing players due to see curve effects of operation with fully depreciated resources,
Brand commitment of customers
Protected intellectual property like patents, licenses etc,
Scarcity of important resources, e. g. certified expert staff
Access to recycleables is handled by existing players,
Distribution channels are managed by existing players,
Existing players have close customer relationships, e. g. from long-term service agreements,
High switching costs for customers
Legislation and authorities action
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