Glassware manufacturing case study
Q: Next year, the Asean integration will start.
We’re in glassware manufacturing and are worried about the coming price
competition. We read, for example, that BDO president Nestor Tan said that it
would be like the PBA playing against the NBA. We’ll be no match. Just to show
how small we are, Mr. Tan said that if you were to combine our top 3 banks
(BPI, BDO and Metrobank), these will be only as big as Bangkok Bank, which is
the seventh largest in Asia.
Because
more competition means more choices for consumers, there will be just more and
more to choose from. That also means less differentiation. With growing
commoditization, consumers become more price sensitive and look for lower
prices. We’re speaking from experience. These have been, and are, all happening
to us. Our sales have been declining for several years now.
What
can we do about price competition? In glassware, we already face stiff
competition from cheap Indonesian glassware imports and from equally cheap
local glassware makers. With the coming Asean integration, it’ll be worse. We
expect prices to get even lower, threatening our very survival.
A: In any business situation, current or
future, there are always two sides to consider. There’s “light” and there’s
“shadow.” The light is where the discussion is focused. The shadow refers to
many other things “outside the agenda.” These are matters we tend to overlook.
We will not answer your appeal for help by preaching.
Here’s
one “shadow” to consider. I’ll assume that your declining sales come from your
glass tableware and ornamental products. It’s too bad you were not specific
about the type of glass of each of these products. So, I’ll assume that those
glassware lines of yours are from soda lime glass, lead crystal and/or
heat-resistant glass.
What’s
the point of doing this? It’s for you to see your sales or revenue split among
soda lime glass, lead crystal and heat-resistant glass. Check if your sales are
declining in all these categories. Remember, what is true of the total is not
necessarily true of the parts.
I
suspect that, because of the hard times, more and more housewives have been
spending more time cooking at home to save money than eat out. So, your
heat-resistant glassware sales should be an exception to declining sales.
Another
contributor to this exception is the ever-growing popularity of cooking because
of the multiplying TV channels and TV programs dedicated to cooking.
If it’s
true that sales from this product category have in fact been growing, then do a
quick financial projection to check by how much. Focus on the sales initiatives
concerning this product category and try to reduce or even stop the bleeding.
Of
course, don’t expect that this sales effort and focusing will reverse the
revenue decline. It won’t, but it will buy you time to consider other
revenue-generating option.
That
option can come from participating in another glassware market price segment
that you’ve probably overlooked—a shadow in your business-growing search.
Right
now, you’re in the economy price segment. How about going into the premium
segment with high-end glass tableware and ornamental lines? If you’ve been in
this industry long, you know what it takes to come out with higher priced
products.
The
business model here says that, even if you don’t get the volume, your much
larger margin will yield to you high or even higher total profit.
But you
may ask: “Will I be credible to the market as a high-end glassware maker when
it’s known that I’m an economy price glassware company?”
Generally
speaking, you will have a hard time. But if you have a reputation for quality,
even if you are in the economy price segment, the market will believe you. Your
years as quality glassware maker will count in your favor. This is why I tell
clients that earning awards from legitimate and respected award-giving bodies
is critical in occasions and opportunities such as what we’re now tackling.
I
understand that your apprehension is aggravated by the almost-here Asean
Integration 2015. When the integration takes place next year, the Philippines,
together with the other 9 Asean member countries, will become “an economic
powerhouse being the third most populous region, and the seventh largest
economy in the world.”
So One
Asean will be a big market. There’s light and shadow sides to a big market. The
light side is its positive aspect: big market, big opportunities. The shadow
side is its negative: big market, big competitors, some of whom may be
predatory.
You’ve
chosen to take a shadow attitude. But you don’t have to just stay there. Get
positive. There are opportunities for growing your business in this big Asean
market.
In a
big market, the benchmarking literature has more and more cases of mergers and
acquisitions (M&A) where it’s the small or medium company that acquires the
big one. Often this is facilitated by venture capitalists, particularly the
so-called “angel investors.” An angel investor is a venture capitalist who
provides the needed investment for a project primarily on the business merits
of the venture.
You may
want to benchmark on this reversed M&A and talk to an angel investor. One
of the many good angel investors I know is Ed Isidro. Go and seek his advice.
In
summary, my Marketing Rx is for you to combine three options.
First
is for you to see which of your product categories is still revenue productive
so you can find out how much time you’ll have in delaying the “fearsome
inevitable.”
Secondly,
participate in the high-margin, low-volume premium price segment of your
glassware industry.
Third,
with the coming Asean Economy Community, talk to an angel investor about
acquiring a large glassware maker in one of the Asean member countries.
Business & Investment Opportunities
Saigon Business Corporation Pte Ltd (SBC) is incorporated
in Singapore since 1994.
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