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Chapter 1 Introduction In this assignment, we have chosen OGAWA World Bhd to analyze its business, industry, competitors, strategic issues and the possible future action. OGAWA is involved in the development, design, and distribution of health and wellness equipment. 1. 1 Brief History OGAWA World Bhd is formed by Mr. Wong Lee Keong and Ms. Lim Poh Khian in 1986. They started up with Morwell Sdn Bhd and began their enterprise into the trading of household and electrical products in Malaysia.
They found that there is a potential market for health and wellness equipment market in mid 1996. Thus, this is the beginning of the venture into the brand name OGAWA. In 2006, OGAWA World Bhd launched a brand name — DEKI for the price sensitive market. The creation of Healthy World in 2001 has led OGAWA business growth rapidly. This strategic formulation was in line with the business strategy of strengthening the OGAWA brand name in the health and wellness equipment industry, locally and abroad.
Today, Ogawa World Bhd has successfully introduced various innovative designs under the OGAWA brand name. They have expended into China, Vietnam, Hong Kong Singapore, Indonesia, and Australia market. On 18 April 2007, they successfully listed on the KLSE Main Board of Bursa Securities. Chart 1. 1 Ogawa World Berhad’s Corporate Structure (Source: OGAWA World Berhad, 2008) Chart 1. 1 is OGAWA world berhad’s corporate structure. For further information of the OGAWA subsidiaries, please refer to 2. 4 corporate structure. 1. 2 Products
Ogawa products can be divided into five categories which are Relaxation, Therapeutic, Fitness, Diagnostic and Hygiene as shown in table as below. Under Relaxation, this product line has included high-end massage chairs like Sensual, middle-range massage chair like Mobile Seat, eye massagers, handheld massager and so on. For therapeutic product line, Ogawa has combined OSIM uPapa back massager and OSIM uSqueez foot massager to become Ogawa Chi Master. For detail please refer to the brochures that has been attached in Appendix. Products Line |Products | |Relaxation |[pic] | |Therapeutic |[pic] | |Fitness |[pic] | |Diagnostic |[pic] | |Hygiene |[pic] | Table 1. 2 Ogawa Products (Source: Adapted from http://www. ogawaworld. net/index. php) 1. 3 Competitors
Ogawa has a few competitors in Malaysia market. They were OSIM, Gintel and OTO. As shown in the graph beside, the largest and closer competitor of OGAWA is OSIM. Therefore, in this assignment, we will analyze OGAWA by comparison with OSIM. 1. 4 Vision, Mission and Objectives OGAWA executive chairman, Wong Lee Keong had noticed that the group’s vision is to become an international brand. To achieve this vision, their primary mission is to further entrench the products across all market segments, to expand their geographical reach both in domestic and overseas markets, as well as to introduce more new products to serve the existing and new customer. Objectives: To penetrate the second-tier townships on the East Coast of Malaysia and East Malaysia. • To explore new markets such as the Middle East, Thailand and India. • To embark on a franchising system under the OGAWA trademark to cover more geographical markets whilst minimizing the inherent risk. • To introduce at least five new products in different design, feature and functionality every year. 1. 5 Financial Highlight OGAWA Annual Report 2007 has stated that in the financial year ended 30 June 2007, OGAWA Group revenue increased 11% to RM146. 4 million from RM131. 8 million achieved in 2006. The Group registered profit before tax is RM22. 2 million which show an improvement of 27. 6% over RM17. 4 million recorded in previous year.
Profit after tax attributable to shareholders in 2007 amounted to RM14. 4 million, an increase of 39. 6% from RM10. 4 million previously. 1. 6 Corporate Social Responsibility (CSR) Ogawa main concern in CSR is promoting the importance of healthy living to everyone because they believe with health, comes wealth and happiness. They had joined the activities that organized by non-profit organizations and schools to enhance the quality of life of communities. Activities such as Malaysian Tsunami Disaster Fund, Donation for education study loan fund and so on. During year 2006, they have donated their products to various old folk’s homes throughout West Malaysia.
Beyond donating products, Ogawa also organize “My Family Showcase” to educate and reach out to individuals and the communities in need. Recently, they also had conducted a campaign name “OGAWA Close to You Pledge Campaign” which reminds the society of the importance of health, love and family ties. For detail, please refer in Appendix B. Chapter 2 Analysis 2. 1 Review the Financial Performance By looking at Ogawa financial performance, it can justify whether their company is growing or facing downturn. However, we need to analyze OSIM as well in order to be accurate when justifying the healthy and lifestyle industry. Table 2. 1 Initial overview of Ogawa’s corporate performance Year ended 30 June |2004 |2005 |2006 |2007 | | |RM’000 |RM’000 |RM’000 |RM’000 | |Revenue |52,006 |100,469 |131,851 |146,375 | |Profit before tax (PBT) |6,208 |13,245 |17,425 |22,241 | |Net Profit |4,322 |9,295 |11,502 |14,447 | |% Growth | | | | | |Revenue | |93% |31% |11% | |Profit before tax (PBT) | |113% |32% |28% | |Net Profit | |115% |24% |26% | (Source: Adapted from OGAWA Annual Report 2007) As Table 2. 1 shown that Ogawa’s corporate performance has grow rapidly over the past four year. The whole corporate had grown greatly in 2005, which revenue and profit had increased more than 90% due to market penetration in China. Since China market is successfully bring a lot of sales and develop their international management skills, they decided to expand their business to Hong Kong and Vietnam in 2006. According to The Edge Daily (2008), in the first quarter of year 2007, Ogawa incurred loss of RM192,000. However, Ogawa able to turn it into profit of RM627,000 in the second quarter year.
As the result, the growth rate of 2007 is slowing down compare to the previous year because Ogawa has affected by US economic recession. To place these result in context, we can compare Ogawa with OSIM, a global leader in branded healthy lifestyle products and has over 25 years of experience in developing innovative and reliable healthy lifestyle products while Ogawa just having enter to this industry for 12 years. Moreover, OSIM have 1,100 outlets in more than 28 countries in Asia, Australia, Africa, the Middle East, United Kingdom and North America compare to Ogawa which just start globalize its business in 2002 and having 152 outlets in 6 countries. Table 2. 2 OSIM’s Corporate Performance Year ended 30 June |2004 |2005 |2006 |2007 | | |RM’000 |RM’000 |RM’000 |RM’000 | |Revenue |787,077 |1,190,925 |1,476,273 |1,241,169 | |Profit before tax (loss) |83,661 |121,818 |103,332 |12,798 | |Net Profit |72,522 |110,679 |80,106 |7,347 | |% Growth | | | | | |Revenue | |51% |24% |-16% | |Profit before tax (loss) | |46% |-15% |-88% | |Net Profit | |53% |-28% |-91% | (Source: Adapted from OSIM Annual Report 2007) By looking at those figures, all measurements had shown that OSIM was outperforming Ogawa in years before 2007. However, by looking at the growth rate, Ogawa had grown faster and perform better than OSIM in the recent year. Table 2. 2 had shown that OSIM’s profit before tax and net profit tend to decline year by year. Especially in year 2007, although OSIM’s annual report still showing that its revenue was higher than Ogawa but OSIM profit was dropped dramatically and it was lower than Ogawa.
From our observation, we found that OSIM had developed a lot of products which do not adapt to the market demand during 2007. Moreover, due to economic recession, the purchasing power of consumer has decrease. So, it caused their return on investment might not be ideal as they predicted. All data had shown that Ogawa has the potential to grow and preempting OSIM once a day if Ogawa keep doing well in its strategic management. 2. 2 Review the External Environment 2. 2. 1 PESTLE Analysis Economic Environment Economic trends and events can affect the market. Markets require purchasing power as well as people. Recently, due to the higher cost of energy, especially the recent hike in petrol and electricity tariffs it has lead to erosion in consumer’s disposable incomes.
Coupled with increases in food prices, higher cost of energy would have a huge knock-on rise effects on prices of goods. Thus, there is a probability that the purchasing power in future becomes lower as the consumer spending which supported the gross domestic products (GDP) growth in the last couple of quarters may amid softer external environment; the moderation would hit the economy as well. In additional, the government also indicated that inflation might rise 4% to 5% this year, and the real inflation effect could be considerably larger. Due to this global market fuel price hike, it definitely has a major effect on all sectors including the inflationary impact on all inputs, and probable rise in staff costs.
This may have a strong impact for Ogawa revenue and earnings because the product that Ogawa providing is shopping goods. The demand for shopping goods may decrease if the economy of country is having inflation. Political-Legal Environment Malaysia is one of the countries in Asia with stable political situation. Malaysia government is headed by the Yang di- Pertuan Agong and politically led by Prime Minister Datuk Seri Abdullah Ahmad Badawi. Since independence in 1957, Malaysia government has been governed by a multi-party coalition known as Barisan Nationa l(BN). Currently, there is no Malaysian law or regulation that governs the retail of health and wellness equipment in Malaysia.
Moreover, the Ogawa health and wellness equipments falls under the household and personal goods which does not required to be licensed or certified by Malaysian authority SIRIM and also the Ministry of Health Malaysia. However, Ogawa do need to conduct safety and quality assurance by continuous monitoring during the manufacturing of the equipment as well as meeting the international safety standards such as the CE mark which show the full compliance with the European directive in regard to consumer confidence on the Ogawa product. Technological Environment a) Unlimited opportunities of innovation Technological advances in general at which the speed of progress continues forward.
For instance: the rate of development of computers and the progress in medical research, treatment, care, and rehabilitation which further enhanced quality of life. In order to hold the position as the market leader in Malaysia, Ogawa might be facing the challenges that there is a must to keep creating innovative products as well as improvement in their existing designs of products such as enhancing the aesthetic features or functions of their existing products. (b) Varying R&D budgets In the current market of health and wellness equipment, many companies have also developed massaging and slimming equipment of popular brands in an attempt to appeal to women. These associate the product with two key female aspirations: being slim and attractive.
So many companies are content to put their money into copying competitor’s products and making minor feature and style improvement. But increasingly research directed toward major breakthroughs. For example, some companies put capital and technical together on research in new product to satisfy the women’s need “as an ease to their leg pain after spending whole day walking at the shopping malls”. Because of the nature of competitiveness, companies did whatever they believed they had to do in order to boost profits and what better way than to feed into ‘feminine’ ideals. Thus, it’s a must for Ogawa to continue on their research & development in order to cope with the market demands. Natural Environment
In the world today, the deterioration of the natural environment has reached the dangerous level. The peoples are concern with the products that may harm the environment such as the air pollution due to the release of carbon dioxide from manufacturing processes as well as the green house effect. This is mainly due to the global warming which is one of the side effects due to the deterioration of the natural environment. Therefore, this is an opportunity for Ogawa to come out with some equipment that can further maintain good air, water, and natural environments. Besides that, the earth’s finite non renewable raw materials are deteriorating vastly.
Ogawa needs resources like zinc, silver, metal, and some other finite non-renewable resources to produce their products. Although the demand of natural resources has increased dramatically over years, yet there is still some shortage of certain resources. Thus, if there is an increment in energy cost it will definitely increase the cost of goods and the operational cost for Ogawa. Social Cultural Environment Malaysia is a multi-ethnic, multi-cultural and multilingual society, the estimated population as off July 2008 is 25. 27 million (CIA the World Factbook) consisting of 62% Malays, 24% Chinese, 8% Indians, the rest are others and indigenous people (Department of Statistics Malaysia, 2006).
According to market research, there is indication that Malaysian people are in greater stresses of a fast-paced society than ever before and this situation is increasingly being felt and as the elderly population grows. Moreover, peoples are becoming more health conscious due to their life routines and the exposure to health news, magazines, and articles from internet and advices by doctors has become a major influence on their daily workouts as well as their food intakes. Hence, It is an opportunity for Ogawa to introduce their product and services due to increase awareness of healthy life in Malaysia. Demographic Environment The demographic trends have direct impact towards Ogawa which produces health and wellness equipments.
According to the United Nations Report released by the World Health Organisation, the world average life expectancy will rise to 73 years by 2025, representing a 50% improvement on the 1955 average of only 48 years. The number of aged over 65 and over will increase around 4% by year 2025. Hence, the prospect of a healthy and extended old age is becoming a reality for more people than ever. They are not only living longer yet they are also living more healthily, with their rates of disability going down at the same time their life expectancy goes up. Thus, Ogawa can design and promote their products which will further enhance the quality of life, especially for the older and aging population. Besides that, we can divide group based on ethnic market in Malaysia. Each group of people has certain wants and buying habits.
For example, Chinese group contend to have an enjoyable lifestyle so Ogawa can set major target on this group. However, the Malays group tend to spend more on house decoration item, so Ogawa can create some product with creative design that makes their home looks nicer. 2. 2. 2 Portal 5 Forces Nowadays, people are more pay attention towards healthy lifestyle products which increase the competitive among the manufacturers in the market. Therefore, Ogawa must analyze their rivalry, threats of new competitors, substitute products, bargaining powers of buyers, and bargaining power of suppliers in order to gain more competitive advantage from competitors. i)Number of Competitors
In the health and wellness equipment manufacturer industry, there are many similar manufacturers but the closest rival for Ogawa is OSIM who provides similar products and services. When OSIM added new features in its products and services with new technologies, Ogawa will quickly followed and take similar actions to its products in order to keep abreast with changing consumers’ taste and preferences. Furthermore, Ogawa and OSIM are very powerful companies in this industry. The new entrants might not be able to compete with them. Therefore, the rivalry among existing firm is high. ii) Product or Services Characteristics In the health and wellness equipment industry, Ogawa and OSIM are providing the similar products and services characteristics therefore it increases the competition.
In order to gain competitive advantages and market share, Ogawa have to create more unique products and services characteristics to attract more customers to keep on competing head-to-head with its rivals. For example, Ogawa has evolved from using simple merchanics to sophisticated features including spine sensor and air bags mode of massaging in its massage chairs. iii) Height of Exit Barriers Generally, Ogawa is hard to exit from health and wellness industry. For instance, Ogawa is now become bigger international family which have 173 outlets in Malaysia, China, Hong Kong and Singapore and 44 sole distributors in Indonesia, Australia, Vietnam and Thailand. (Ogawa World Berhad, 2008). Ogawa also plays an important role in health and wellness equipment market where Ogawa has obtained 44. 8% of market shares in the industry.
On the other hands, Ogawa will lose huge amount if exit from the industry because it has invested huge capital into research and development process to come out with innovative product to compete with its competitors. Therefore, the rivalry among existing firms is high. Threat of New Entrants Firstly, the economy of scale in manufacturing the health and wellness equipment products might be a barrier to new entrants into this industry because they might not have the ability and capability to produce huge number of products. When the production cost is high, the cost of each single product becomes high. Ogawa who already has obtained the market share since year 2005 has achieved the economy of scale in producing the products. Next, the new entrants are requiring having huge capital when they invest into this industry.
It needs huge amount of capital in innovation which involved in research and development to come out with some new innovative and special products to compete with existing competitors. Ogawa has spent a lot of moneys in innovate new products in order to come out with some products that meet customers’ preference. Ogawa is able to spend so much capital because it wants to maintain its current market shares. Moreover, product differentiation also one of the barrier to the new entrants, however, there is not much different in the health and wellness equipment products in the market because most of the products are similar the same. Therefore, Ogawa has focus on its strategy to design and develop new products to expand its current range of product-models.
Thus, Ogawa has focus on its product expansion and diversification including designing and develop a new range of lower priced products in order to target at those customers who are more sensitive to pricing. Lastly, government policy is not strictly to the relaxation and therapeutic health and wellness equipment because it falls under the general consumer goods category. Therefore, there are no any specific government health regulations as well as other licensing or certification regulations by Malaysian authority such as SIRIM towards health and wellness equipment in Malaysia. However, consumers’ confidence towards the products will based on the international safety standards such as performance and safety requirements which set out by most developed countries such as Europe Union and America to protect consumers.
Besides, the health and lifestyle industry is in the growth stage in Malaysia Hence, there will be some possible new entrants to entry into the industry. In conclusion, threat of new entrants into health and wellness equipment industry in medium. Treats of Substitute Nowadays, we have been found that health and wellness equipment has played a very complementary role in relief of tension and stress or for general well-being. However, it has some possible substitutes which are fish health spa, massage services, hydrotherapies or a wide selection of essentials oils, mud, sea salt and foams for relaxation and therapeutic value that provided by human massage therapists.
Although there are many different types of substitutes, health and wellness equipment still has the advantage over its substitute. The health and wellness equipment provided profitability and the users can be enjoy the massage anytime and anywhere at their convenience compare with human massage services that users need to make appointments with the service provider and have to go to their shop. Moreover, the cost of the massage chairs could be spread over their usage and thus, will be comparatively less costly than the spa. Therefore the treats of substitute products and services are low. Bargaining Power of Suppliers Ogawa has appointed external manufactures for the manufacture of its health and wellness equipment products.
Ogawa do not create a long term contracts with the external manufacturers because they believe that is more flexible for them. Without the long term contracts, they can search or source for other manufactures in order to take advantage of any competitive offers made by the external manufactures. On the other hands, Ogawa has expand its current base of external manufactures’ by sourcing new manufactures to prevent over reliance on any external manufactures. Even though the switching cost between the suppliers is high but there is no guarantee in product quality. Therefore, the bargaining power of supplier for Ogawa is low in the current situations.
Bargaining Power of Customer Ogawa products consists of consumer items and mainly sold to the general public directly through its own retail outlets, permanent counters and road-shows, and indirectly through its sole distributors. Therefore, Ogawa products are known as shopping goods which consumers are not or must to buy the products. Consumers has alternative options to select what they actually prefer or desire shopping goods that would beneficial them after buying. However, the switching cost is high for the consumers because they can buy whatever they like and preference. Therefore, the decision of buying is at consumers but not for the company.
Hence, the bargaining power of consumers for Ogawa is high. |Porter 5 forces |Rating |Implication for Ogawa |Conclusion | |1. Rivalry among Existing Firm |High |Bad. |In conclusion, this industry is very| | | |The company might losing a lot of money if its |attractive for Ogawa. Therefore, | | | |exits the industry. |Ogawa should stay in the industry to| | | | |generate more sales in the future. |2. Threat of New Entrants |Medium |Average | | | | |The health and lifestyle industry is in the | | | | |growth stage where there is possible for new | | | | |entrants to entry into the industry. | | | |Low |Good. | | |3.
Threat of Substitute | |The cost of the massage chairs could be spread | | | | |over their usage so it less costly than the | | | | |substitute products. | | | |Low |Good. | | |4. Bargaining Power of Suppliers | |Ogawa has power and take advantage when deal | | | | |with the suppliers. | | | |High | Bad | | |5.
Bargaining Power of Customer | |Ogawa has to come out with many products to | | | | |meet different customer wants. | | 2. 3 Review the Internal Environment – Competitive Stance OGAWA World Berhad strategy is to entrench their products across all market segments. Therefore, they have established two brand names which are OGAWA and DEKI to cater the broad market. The brand name of DEKI is to target on lower income and price sensitive market segment. However, the brand name of OGAWA is mainly target to the middle and higher income market segment.
OGAWA brand has been marketing and positioning themselves as innovative and providing high quality of health and wellness equipment products at affordable prices. [pic] From their positioning, we get to know that they are using hybrid positioning strategy. This is the best strategic for the company if they are using it effectively and do not clutter the market. OGAWA are successfully using this strategy because they are providing higher value and lower price for their products comparing with their competitors — OSIM. For example, the new innovated product of OGAWA – CHI MASTER Foot and Back Massager (Refer to Appendix C) comparing with the OSIM U-Squeeze and U-Papa. OGAWA’s CHI Master is more innovative and having a better and unique design.
They adapt the product to the lifestyle of the consumer which is the favorable in convenience. Most of the people hope to use an easy and convenience massage machine to massage more part of their body especially back and foot. So, OGAWA is providing the customer more value of product but with the cheaper price. The price of a CHI Master is much cheaper than both U-Squeeze and U-Papa. Therefore, OGAWA is using hybrid strategy. Although OGAWA is successfully using hybrid positioning strategy, their positioning is not strong enough to compete with OSIM. Since OSIM is enter earlier than OGAWA into the market. So, the customer may not convince on the quality or value that provided is better than OSIM.
In other word, OGAWA still need some time and marketing program to strengthen up the positioning, so that they can create more reputation and strengthen their brand name. 2. 4 Review the Internal Environment –Value Chain and Resources 2. 4. 1 Value Chain Since OGAWA World berhad is manufacturing-style business, so it falls under the value chain for manufacturing-style organization (Chart 2. 4. 1). According to Michael (1985), Value Chain Activities is divided into primary activities and support activities. OGAWA may use selective approach to analyze the important element which is primary activities. [pic]Chart 2. 4. 1 (Source: Haberbeg and Rieple, 2001)
Table below showing that the value chain analysis of the primary activities for OGAWA: | |Resource | |Healthy World Lifestyle Sdn Bhd |Design, marketing and retailing of health care equipment and supplementary | | |appliances | |Fujiiryoki (Malaysia) Sdn Bhd |Marketing and retailing of health care equipment and supplementary appliances | |Ogawa Health Care Sdn Bhd | | |Ogawa Health Care (KL) Sdn Bhd | | |Ogawa Health Care (Selangor) Sdn Bhd | | |Ogawa Health Care (East Malaysia) Sdn Bhd | | |Ogawa Health Care Pte Ltd (Incorporated in Singapore) | | |Ogawa (Shanghai) Health Care Equipment Co.
Ltd | | |Ogawa Health Care International (HK) Ltd | | |Ogawa Care Service Sdn Bhd |Marketing, sales and servicing of health care equipment and supplement appliances | |Morwell Sdn Bhd |Ceased operation and dormant. | |Buzzard Event Sdn Bhd |Ceased operation and dormant. | Table 1. 1 Principal activities of the subsidiary business of OGAWA World Berhad (Source: OGAWA World Berhad, 2007 Annual Report) The core business of OGAWA World berhad is developing, designing and distributing the health care equipment such as massage chair, portable massager, slimming equipment, air purifier and many others. Basically, from the structure of OGAWA World Berhad, we found that OGAWA is distinguishing base on the location and functional. However, we found that, OGAWA’s corporate structure is very messy.
Due to the way they structure their business is base on both functional and geographical. It will cause confusing and overlapping. In additional, OGAWA World Berhad has separate too much of subsidiary companies for Malaysia market. There are Fujiiryoki (Malaysia) Sdn Bhd, OGAWA Health Care (KL) Sdn Bhd,OGAWA Health Care (Selangor), and OGAWA Health Care (East Malaysia) Sdn Bhd. There is not only waste of resources; there will be also potential conflicts among themselves. For example, there might be conflicts occurs while they were suggesting a new strategy. Each of the subsidiary company may have their own management system and team. They may have their own idea.
While conflicts occur, the parent company has to solve it and decide which strategy to implement would be better. Therefore, it might be burden the parent company. Since the company’s vision is to be international brand and expanding in domestic and oversea, mixture of excessive geographical and functional base corporate structure is not so suitable for a multinational company. At this moment, the corporate structure may still useable in short term. However, in the long term, the company may face a lot of human resources and decision problem. Therefore, corporate structure is one of an important issue to overcome. Without a good corporate structure, OGAWA face many problems while they are growing up. 2. 6 SWOT Analysis Strength |Weaknesses | |Good in controlling cost |Mass or clutter corporate structure | |Profitable Company |Narrow distribution chain stores | |Have huge capital |Positioning not strong enough | |Strong brand name |Varying research & development budget | |Efficient Branding Strategy |fewer product varieties | |Number of suppliers | | |Alliances | | |Opportunity |Threats | |Wider market |Susceptibility of economic downturn | |Future market |Direct competition between a number of brands | |Consumer behavior |High Transportation Cost | |Unlimited opportunity of innovation |High Rental Fees | 2. 6. 1 Strengths OGAWA World Bhd is one of the most profitable companies in Malaysia that required a huge capital to start this kind of business. They are the number one Health and Wellness Equipment in Malaysia in 2007 which create a strong brand name for them. The decision to divide the branding between OGAWA and Deki has brought efficiency in branding strategy so that it won’t clutter in the market. Other than that OGAWA World Bhd has one of the strongest strength whereby they have quite number of suppliers that are interested and have been cooperate with OGAWA for years. Thus, this strength would not make
OGAWA running out of raw materials when one supplier cannot deliver the material on time, and they also can get cheaper price since the bargaining power of suppliers is low. 2. 6. 2 Weaknesses The corporate structure of OGAWA World Bhd is very complicated in the way that different geographical area have different sub companies name. Their distribution channels are mostly located at shopping malls which make them left out a number of locations. Compare with its competitors, OGAWA has lesser product variety to offer to the market. 2. 6. 3 Opportunities Expansion to global market such as Asia and Australia gave OGAWA World Bhd a wider market to distribute their products. And their plan to distribute their products to Middle East and Thailand will allow them to have a new and bigger target market.
On the other hand, people nowadays are more concern with their health whereby they will aware with any new regarding health and often seeks for doctors or specialist for an advice to live healthier and longer. They also would not hesitate to spend more money to get a healthier life or spoilt their self after tired of working. In health and wellness equipment industry, there are unlimited opportunities for the company to keep improving their products either in features or function, and they also have the opportunity to produce any kind of products as long as it is harmless to living beings. 2. 6. 4 Threats Since the world oil price has increase, it caused an economy downturn and also inflation in everywhere including Malaysia.
This however will affect the sales of OGAWA since whatever things in market have increase in terms of price. The purchasing power of the customer will be low, increasing in employees’ salary, high transportation cost as well as the rental for distribution place. Other than economy, the direct competition from overseas brand because of the globalization can be big threat for OGAWA. Product from China for example, is the most threatening competitor because as we know mostly their products’ price is quite cheap. Chapter 3 Strategic Issues 3. 0 Strategic Issues [pic] After conclude all the analysis into SWOT, we can clearly identify OGAWA positive and negative issues and measure which priority come first as show in table above.
Priorities 1, 2 and 3 are three major negative issues in OGAWA current circumstance. However, Priority 4 is the positive issues that show OGAWA strength and OGAWA need to utilize this strength to recover its negative issues as well. Priority 1: Narrow Distribution Chain Stores The Distribution store for OGAWA is mostly in the prime shopping mall where there are high pedestrian traffic and close enough to their target market. However, this will not reach all of their target market since some people might lazy to go to a crowded place like a shopping mall, and it even worst for those who live in small city with less population and few smaller shopping mall.
And when OGAWA wanted to set up retail outlets in their new market outside their usual distribution place, it will be tough for them to find suitable location and it will cost more on rental fees. Other than that, OGAWA only have 152 outlets in 6 countries which are far behind from their competitor OSIM that has 1,100 outlets in over 28 countries. This is a big issues for OGAWA because whenever customers want to purchase the health and wellness equipment, they can find OSIM easily but not OGAWA. This will end up of customers switching their mind to competitors. Priority 2: Clutter of Corporate Structure Strategy Based on our analysis, the Corporate Structure in the current OGAWA World Bhd is quite complicated whereby there are too many SBU(s) available.
For example, there are three SBU(s) for OGAWA Healthcare in one place. And they also some SBU(s) that is not functioning, but the corporation did not even terminate it. It is good to have many SBU(s) to keep everything under control. But having too many in one particular area will make things even more complicated to be decide and settle down. Some more, OGAWA is planning to expand their market to Thailand, India, and Middle East. It will be high cost involved, huge of wasted, and slow in handling problems or issues. Priority 3: Susceptibility to Economy Downturn The global economy continues to grow despite high world crude oil prices has increased and monetary policy tightening in major economies.
As what had we explained in SWOT analysis, the economy downturn will affect the power of buyers in purchasing any kind of products. This is a problem that any company can’t escape from since the economist predicted that world crisis happen every ten years. And since price in everything is increasing, companies will find it hard to survive if they did not increase their products’ price as well. This economy downturn, inflation, increasing in products price will make customers manage their expenses carefully. Priority 4: Efficient Financial Control This is the survival issue that OGAWA have and also one of the good issue where OGAWA has to maintain and fully utilize it in future.
As what the Edge Daily has mentioned, OGAWA made lost at the first quarter in the early 2007 because of the economy recession in US. But starting from the second quarter until the end of the year they manage to earn huge amount of profit which make them one step further than their main competitor, OSIM. Chapter 4 Strategic Option Chart 4. 1 Strategic Option that can overcome the issues There are six strategic options to solve the strategic issues. The options are: Option 1 Restructure the corporate structure Option 2 Innovate more middle range products Option 3 Invest in E-commerce Option 4 Carry on as we are Option 5 Open up OGAWA Concept Store Option 6 Franchise to other people 4. 1 Option 1 – Restructure the Corporate Structure
Restructure is an option to overcome the issue of clutter corporate structure, efficient financial control and susceptibility to economic downturn. Since OGAWA has efficient financial control, they can take this as an opportunity to restructure their clutter corporate structure for their long run. OGAWA can reallocate the subsidiary company because there are too many subsidiary companies for Malaysia. Since Malaysia is not a huge country, therefore they can reduce the subsidiaries company in Malaysia such as OGAWA Health Care (KL) Sdn Bhd, OGAWA Health Care (Selangor) Sdn Bhd, OGAWA Health Care (East Malaysia), and OGAWA Health Care Sdn Bhd. They can group them into a subsidiary company as OGAWA Health Care (Malaysia) Sdn Bhd.
Restructuring would save a lot of resources and effective production. A main subsidiary company can share the resources and technology together. Relatively, restructuring can overcome the problems from susceptibility of economic downturn because it could reduce the cost of production and ensure OGAWA survive during the susceptibility of economic downturn. Besides, restructuring can also standardize the goals of each of the different subsidiary companies. This is because while OGAWA separate into few subsidiary companies, each of them have their own way and strategy to run the company. Although the vision is same, but there might be different objectives and ways to doing things.
Therefore, united, united them can increase the productivity. While the cost is reduced and the productivity increase, it will create a better competitive advantage for a company. Meanwhile, the more profit OGAWA can gain, the more value create for the shareholder. Relatively, it could overcome the problems of susceptibility of economies. So, restructure can also create value for the shareholder. There is an example of a corporate restructuring impact on the stock price valuation. [pic] (Source: Neilson and Sharma, 1998) To implement restructuring, there is a very high risk in terms of the employees that involved. Since OGAWA has to reduce the subsidiary company, there will many employees involved.
Therefore, according to Neilson and Sharma (1998), there are 4 requirements for the company before restructuring. The requirements are: 1. Specific and unify goals of restructuring for the support from stakeholders. 2. Action within a reasonable amount of time after announcement (1year ~ 3years). 3. Detail action to be taken. 4. Adequate program is in place In conclusion, restructuring could overcome the clutter of corporate structure, save resources, create efficiency productivity and create shareholder values if it is successful. However, to restructure successfully, OGAWA has to achieve requirement of Neilson and Sharma (1998) before restructure. 4. Option 2 Innovate More Middle Range Products In twenty-century, people tend to be more health-conscious and having a high consume in health-care equipment. At that time, it really pushed Ogawa from introductory stage into growth stage. However, recently, economic downturn had changed consumers’ perception toward the price and primary benefit. Now, they are consuming something that is selling in a low price but providing the same value as well as the other brands. D’Aveni (2007) also stated that finding paths of least resistance will help an organization to anticipate the new shift rather than play catch-up since consumers change their perceived value rapidly.
Therefore, Ogawa should innovate more middle range products to get into the bargain midrange as shown in Graph 4. 2. As shown in Graph 4. 2, Ogawa just has one product in the bargain midrange. So, it is necessary for Ogawa to dump in more money to innovate or develop the middle-range products like Ogawa Mobile Seat (Figure 4. 3) which has just launched recently to fit the consumer’s budget. This product provided basic value as its existing RM10k massage char but selling at a lower price which show Ogawa start slotting its products into bargain midrange—a new niche market that competitors might not aware of it. This is a massage cushion that is perfect for all chair surfaces and it also allows people to massage whenever and wherever they want.
It also advertised that although you just get your first salary, you also can afford to buy it for your parents. [pic] Figure 4. 3 Ogawa Mobile Seat (Source: Adapted from www. ogawaworld. net) By innovating more middle range products, Ogawa can solve current economic downturn. However, Ogawa still can use those middle-range products to target on the middle income group when the economic reverts. As we known, middle income group has the most proportion of the world’s population. Therefore, this option might not downgraded Ogawa brand image. In short term, it can also help Ogawa be well-prepared to expand its market to Thailand, India and Middle East.
Another reason that Ogawa need to be innovative to product more middle-range products is preventing its competitors being stronger and grapping all the market share from Ogawa. However, it does not mean that Ogawa will exist the high-end product range. So, it will not downgraded Ogawa’s brand image although economic revert. 4. 3 Option 3 Invest In E-Commerce A successful organization must improve its performance continuously. The option that Ogawa can choose is investing in e-commerce which can solve its narrow distribution chain stores and also effectively allocate the profit that Ogawa gained in financial year 2007. This option suggested that Ogawa should spend more money and time to develop its website by providing online purchase.
As we known, Ogawa always conduct road show to display their product, educate the consumer the way to use their product and try to persuade them to buy. However, health care equipment is high involvement product which means people tend to spend more time to recognize the needs, doing information search and evaluating Ogawa products with other brand then only decide to buy or not to buy (As Shown in Figure 4. 2-The Buyer Decision Process). However, if they have made up their mind to buy Ogawa but the nearest retail stores are far away from their house. At this time, if Ogawa’s road show has end at that place, they may go to our website place an order and make payment through credit card. It is very convenient for our customer.
The Buyer Decision Process for High Involvement Products Adapted from Principles of Marketing, 7/e by Philip Kotler and Gary Amstrong. Copyright©1996 Prentice-Hall, Inc As evidence, Michael Dell harnesses the power of the internet, introducing www. Dell. com which becomes one of the pioneers in Internet sales, earning approximately $1 million per day just seven months after the launch of www. dell. com. Online sales continue to grow to $50 million per day in 2000. This case indicated that e-commerce can bring a great opportunity to introduce Ogawa’s products to the whole world. Besides that, it can also helps Ogawa to save the warehouse cost and selling the products more effectively.
However, there are several considerations of doing e-commerce For instance, it might be a great challenge to Ogawa to manage the new supply chain model and deter customers from buying due to security or privacy concerns. Ogawa must make sure that once the consumers order the products, the company must deliver to them within certain period. Furthermore, Ogawa will offer “One2One” warranty for 2 months after the date of receiving of the product. It means that once the buyer found any broken of the products can exchange for a new one and valid for all outlets. Therefore, if Ogawa want to choose this option it needs to appoint an officially express transportation agency.
Ogawa will choose FedEx Express since they provide fast and reliable delivery to more than 220 countries and territories by using a global air-and-ground network to speed delivery of time-sensitive shipments, usually in one to two business days with the delivery time guaranteed. Besides that, it is time-consuming for Ogawa to educate the consumers to use web purchase and it also might not facilitate sale in short-term. But in long-term, we believe that it can benefit Ogawa. Therefore, Ogawa has to measure whether they want to solve the issue in short-term base or long-term base. 4. 4 Option 4 – Carry On As We Are Sometimes, carry on as we are can be an option to solve the lower priority strategic issues because of lacking of the resources or incorrect timing to solve it.
OGAWA can overcome the susceptibility to economic downturn, and clutter corporate structure by using Carry on as we are. Since economic downturn is temporary, and it can be recover very soon, therefore OGAWA can choose do nothing and focus on other strategic issues which may lead to their competitive advantage. Besides, do nothing are not require any resources. So, it may be an better option if there is no perfect option that will not lead to other issues. However, “carry on as we are” can also an option for clutter corporate structure because restructuring may cause many other problems such as disruption of harmony working environment and culture. Therefore, before restructuring there are so many things needed to consider.
In conclusion, Do nothing is a best option if there is no other better option that will not lead to other issues. 4. 5 Option 5: Open Ogawa Concept Stores [pic] Ogawa can open Ogawa concept stores as its competitive advantage to enlarge its narrow distribution channel in Malaysia. According to Wikipedia (2008), Concept Store describes a store which is identified by a special mix of brands and products. Besides, it is known as a modern experience of shopping, always in motion and highly innovative among the consumers. Lately, concept store is very famous in Malaysia because most of the consumers prefer to visit to concept store rather than outlets. For instance, the famous clothing company- Padini Concept Store has done it uccessfully in whole Malaysia. (Padini Holdings Berhad, nd) Ogawa can copy the idea to set up its own concept stores by providing full range of Ogawa products and brands to attract customers’ attention and generate more sales in the future. Ogawa should locate the concept stores in whole Malaysia such as Kuala Lumpur, Johor Bahru, Penang, Sarawak and Sabah. Through this way, Ogawa will create brand awareness and consumers will purposely travel and visit to the concept stores to get what they want. Besides, the retail outlet that Ogawa having now does not provided full range of Ogawa brands and products which do not convince and attracted to the consumers.
Thus, Ogawa is wasting money by setting up small outlet which does not perform well by only selling particular brands and products in Malaysia. On the other hand, having more outlets does not mean that the company will gain profits. For instance, Star Starbucks is going to close 600 stores in the U. S. in the year 2008 because mostly the stores are losing money. (Linn. A, 2008) Thus, Ogawa should open concept stores which provide full range of products and brands rather than open small outlets which is losing profit. Moreover, it is important for Ogawa to enlarge its distribution channel in Malaysia where this option is help in generating more sales and create brand awareness among the consumers.
Therefore, this option is creating Ogawa competitive advantage by open its own concept stores in Malaysia. Hence, shareholders and top managements will agree and accept the option as a solution for narrow distribution channel. 4. 6 Option 6: Franchising [pic] Ogawa can enlarge its distribution channel by franchising its brand name and products to others. Narrow distribution channel in Malaysia might limit Ogawa market shares compare with its competitors which has many outlets in most cities in Malaysia. Nowadays, consumers are more concern about their healthy life where consumers will look for health equipments. Therefore, Ogawa should not miss the chance to gain more sales with narrow distribution channel.
On the other hands, consumers might not bear in mind with Ogawa brand name because of its narrow distribution channel where consumers feel that is not convince to them. Moreover, Ogawa has to cooperate with law association to come out Ogawa Franchise Policy for franchising purpose in order to protect Ogawa benefit. Besides, Ogawa can avoid the franchiser to become competitor by copying Ogawa products and concepts by the protection of policy. Even though Ogawa has solved its narrow distribution channel problem by franchising, however Ogawa has gain low profit margin through franchising to others because Ogawa cannot earn 100% from every single products that sell by franchisees.
Therefore, this option is not accepted by shareholders and top management where Ogawa only generate low profit margin by franchising to others. Therefore, this option is fail to create competitive advantage for Ogawa. Chapter 5 Evaluation |Strategic options |Strategic issues |Resources |Acceptability |Consistency |Effective-ness |Sustain-ability |Overall evaluation| |Option 1 | |High: |Low: |Low: |High: |High: |High risk option. | | | |Save the overall |It may shake the job |Will disable or not |Will be an opportunity|Might create a |However, solves a | |Restructure the |1.
Efficient |operating cost, |positions; create the |maintaining some of |to be better prepared |better competitive |few issues at 1 | |corporate |financial |increases |insecure feeling among|the existing |to become an |advantage and |time. | |structure |control |efficiency and |the stakeholders and |strategies and |international brand by|create value to the| | |to reduce costs | |productivity such |shareholders. At the |policies anymore. |standardizing and |shareholder and the| | |and increases |2.
Clutter |as by sharing the |same time, many people|This may undermine |getting them united |company | | |efficiency |corporate |resources and |may lose their job |the motivation of |together when dealing | | | | |structure |technology among | |employees and |with huge market | | | | | |the subsidiaries | |peoples of the |around the world. | | | | |3.
Susceptibility to|company | |organization | | | | | | | | | | | | | | |economic | | | | | | | | |downturn | | | | | | | |Option 2 | |Medium: |High: |Low: |High: |High: |Can be a | | | |More resources are |It will help Ogawa to |It may not pursuit |This strategy may |Might give |considerable | |Innovate more of |1. Efficient |required than |continue producing |the cost advantage |continue generating |competitive |option to meet the| |middle range |financial |usual.
Although |products that are |which is also the |the sales during the |advantage if |purchasing power | |products to cope |control |financially |affordable by customer|central to Ogawa |economy downturn as it|economic conditions|of peoples. | |with the | |affordable but |even though economic |strategy |meets the purchasing |declines | | |purchasing power |2. Susceptibility to|there is a need for|downturn. Thus, it | |power of customers. | | | |of peoples |economic downt- |substantial |will help the | |Although conomy | | | |But it does not |urn |investment in new |organization to | |reverts, Ogawa still | | | |mean that Ogawa | |equipments, |achieve the financial | |can use it to target | | | |will go out from | |capabilities and |returns for their | |on middle income | | | |High-end product | |competences. |stakeholders, | |group.
It helps Ogawa | | | | | | |shareholders, and | |to target wider | | | | | | |peoples of the | |market. | | | | | | |organization | | | | | |Option 3 | |Medium: |Medium: |Medium: |Questionable |Medium: same doubts|Reject; too many | | | |If Ogawa had the |Overall it does not |This is the existing|if it works; otherwise|as for |doubt ness | |Investment in |1.
Susceptibility to|competences to do |shake the stakeholders|strategy |would waste time and |effective-ness | | |e-commerce to |economic downturn |this, they would |and shareholders | |money that might be | | | |fulfill the | |probably already |financial returns and | |used to pursue | | | |lifestyle of |2. Narrow |have done it |their job position but| |alternative | | | |growing dependence|Distribution |better. However, it|employees might be | | | | | |on information |channel |might be possible |worried if they do not| | | | | |technology. | |to cquire the |have the required | | | | | | | |skill from |skill and may lose | | | | | | | |specialist |their job. | | | | | |Option 4 | |High: |Medium: |High: |Low: |Low: |Basically, this is| | | |Capital and |It will be effective |This is the existing|Does not address the |No additional |a bet on economic | |Carry on as we are|1.
Narrow |resources obviously|if economy reverts to |strategy |key issue on the |contribution to |conditions | | |distribution |available |trend but not if | |probability of |sustainable |reverting to | | | | |economic remains tight| |declining growth in |advantage |’normal’ | | | | |as the internal | |sales due to | |conditions. | | | | |stakeholders and share| |decreasing purchasing | | | | | | |holders are not | |power as well. | | | | | |willing to involve in | | | | | | | | |more risk and not | | | | | | | | |achieving the | | | | | | | | |financial returns | | | | | | |2.
Clutter Corporate|High: |High: |High: |Low: |Low: |This option may | | |Structure |Capital and |If they carry on as |this is the existing|In long term, key |No additional |not improve the | | | |resources obviously|they are, the employee|strategy |issue such as |contribution to |overall | | | |available |may feel unmotivated | |productivity, time |sustainable |performance of the| | | | |and low productivity. |spent due to conflicts|advantage |company. So, | | | | | | |arising among | |rejected. | | | | | | |subsidiary companies | | | | | | | | |and wastage of