My Pet!

Your low cost competitors will not just nibble at your low price segment, they want
to eat your lunch

Many industry leaders are faced with a sea of changes in the marketplace, particularly the
onslaught of many low cost competitors. They are minnows and will grow to become
sharks if they are not nipped in the bud. Examples abound on the proliferation of the
Chinese products in the world market.

The way to handle these manufacturers is to try to nip them in the bud. It is like war.
You must not allow your competitions to establish a beachhead. For once they succeed
in doing so, it will be so much harder to dislodge them. You want to knock them out in
the waters where they are most vulnerable. When customers try the low cost products
and they like them, it will be very difficult and expensive to entice them to switch back to
your products. If you cannot beat the low cost competitors in the price game everything
else being equal, then better to identify another premium niche.

Johnson and Johnson the health-care multi-national company also faces stiff competition
and a long wait for the next drug blockbuster. As part of its strategies to hold off
competition, it has gobbled up 34 companies in the past 5 years and will keep acquiring.
Johnson and Johnson also put existing drugs to new uses - epilepsy drug Topomax now
treats migraine. Workers are made to cross the divisional lines to develop products and
drug-delivery systems including treatments for stroke, diabetes and schizophrenia.

Teamwork between pharma and device divisions led to the billion-dollar coronary stent.
Cost-cutting on the 200-plus units, merger of the back-office operations and centralized
purchasing helped to save $1 billion in two years - funds that it will use in the
development of badly needed new pharmaceuticals.

On the other hand, Hoover, which makes vacuum cleaners since 1907, has shrunk its
unionised staff strength from 1,800 just over 1,500 in 1994. The Chinese competitors
have been selling cheap vacuum cleaners at $79. Hoovers with price tags of $200 and
higher cannot compete and was caught unaware. These Chinese low-end models already
have 40% of the market. Hoover tried layoffs, new vacuum-cleaner features etc, but to
no avail. On the other hand, the market leader Whirlpool is up 38% in sales revenues and
just boosted its 2004 profit outlook. Whirlpool no longer sells vacuum cleaners and
diversified into other household appliances.

As mentioned earlier, the Port Authority of Singapore (PSA) also lost its competitiveness
when Tanjong Pelepas in Malaysia stole away PSA’s number one and two customers
with cheaper pricing. The Singapore government has learnt this lesson and is responding
quickly to the threats of low cost budget airlines and regional air hubs. Airlines can also
bypass Singapore Changi Airport and fly directly from Australia to Europe or Middle
East to US avoiding stop over in Singapore. Singapore Airlines is introducing the budget
airline Tiger to compete in this sector as well as to boost its premier airline image through
the offers of new planes and non-stop direct flights to the US. Singapore Changi Airport
is building a terminal for budget airlines. The Singapore government came down hard on
the Singapore airline pilots to ensure that the national airline is not dragged down by
labour disputes. The airport terminals are also undergoing renovation and upgrading. The
jury is still out as to whether all these proactive measures can effectively maintain the
competitiveness of the air transportation and aviation industry in Singapore. However,
this is better than waiting for the low cost competitors to gobble your lunch right under
your noses.

Another case in point is the ball-point and fountain pen competition. Ball-point pens
were much cheaper, easier and less messy to use. The fountain pens were beaten face
down and lost almost all the market share to ball-point pens. Then somebody thought of
making the fountain pen a luxury item. The fountain pen was sold for US$ 400 and
positioned as a prestigious and luxurious item, similar to the jewel wear. The
manufacturers of fountain pens such as Parker, Sheaffer and Mont Blanc have then
comfortably locked into the high-end segment which the ball-point pens cannot penetrate.

Today, both the fountain and ball-point pens co-exist each has its own market niches.
You need to be wary and be prepared to thwart off the moves of these low cost
competitors. This is why Howard H Stevenson in his book said: “Do lunch or Be
Lunch.”

http://www.corporateturnaroundexpert.com

Dr Mike Teng (DBA, MBA, BEng, FIMechE, FIEE, CEng, PEng, FCMI, FCIM, SMCS) is the author of the best-selling business book “Corporate Turnaround: Nursing a sick company back to health”, in 2002. In 2006, he authored another book entitled, “Corporate Wellness: 101 Principles in Turnaround and Transformation.” Dr Teng is widely recognized as a turnaround CEO in Asia by the news media. He has 27 years of experience in corporate responsibilities in the Asia Pacific region. Of these, he held Chief Executive Officer’s positions for 17 years in multi-national, local and publicly listed companies. He led in the successful turnaround of several troubled companies. He is currently the Managing Director of a business advisory firm, Corporate Turnaround Centre Pte Ltd, which assists companies on a fast track to financial performance. Dr Teng was the President of the Marketing Institute of Singapore (2000 - 2004), the national body representing some 5000 individual and corporate marketing professionals in Singapore

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The management mantra of the 1980s was product quality, and activities involving
Quality Control (QC) circles, Total Quality Management (TQM) and ISO 9000 were the
order of the day. Back then, consumers were willing to spend enormous sums for quality
products. However, product quality has significantly improved and today having a good
quality product is a mandatory requirement for the company’s effective participation and
survival in the marketplace.

Subsequently, the management slogan in the 1990s embraced technology as the cure-all.
Companies then tried to distinguish themselves from their competitors through the use of
technology, by offering better and more sophisticated features, use of the Internet and
communication systems. Huge sums were channelled into technology to build a better
mousetrap with more superior state-of-the-art features. Today, the world does not beat
down the door of the better mousetrap developer. The collapse of the high tech stocks on
Nasdaq in the early part of 2001 illustrates the vulnerability of technology.

The thrust in the new millennium is competition. Competition intensifies with the
emergence of a better range of products that are often of superior quality coupled with
attractive and affordable pricing. In such a scenario, many products become marginalized,
and like commodities, pricing becomes a key determinant in a shrinking market.

In today’s competitive environment, your margins for errors are also thinner. In the past,
three strikes or major mistakes and you are out, but today, one strike or major mistake
and you are history. Customers have many choices and they will switch their suppliers at
the turn of the dime if you make a major error in quality, delivery, etc.

Oftentimes, the elusive competition quietly sneaks in by the back door. You may have
been losing trickles of disgruntled customers and one day, you come to the sudden
realisation that even your major customers are gone.

PSA Corporation learnt too late to retain its number one customer, Maersk from
switching to Port of Tanjong Pelepas in Johore. After PSA Corporation rejected the
requests for better terms of AP Moller Group, parent of Maersk Sealand, the world’s
largest operator of container ships, the Copenhagen based company moved the operations
to Tanjong Pelepas and also took a stake in the port. This was a double whammy for
PSA Corporation as it not only lost its biggest customer, it has to compete against its
former ally. With the help of Maersk, Tanjong Pelepas is able to capture Evergreen, PSA
Corporation’s second largest customer. . PSA had tried to compete on efficiency and fast
turnaround of clients’ ships. But this could only justify for some price premium for up to
a point. Consequently, PSA Corporation has to downsize in order to stay competitive, a
tad too late as it has lost its top two customers within a short period.

Competition may lead to opening up new markets. For instance, with the advent of the
low budget airlines, more poor Indonesians are also able to travel overseas. This is the
market segment, which most major airlines such as Singapore Airlines will ever wish to
target. But one should never under estimate or take the competition for granted.

Competition is a silent and sudden killer like heart attack, it can creep up on you without
warning. However, just as an individual can prevent this disease by adopting a healthy
lifestyle, a company can stave off competition by remaining alert and adopting
appropriate strategies to combat it. When you are faced with increasing competition, you
may still survive, prosper and succeed, but it is no longer business as usual.

http://www.corporateturnaroundexpert.com

Dr Mike Teng (DBA, MBA, BEng, FIMechE, FIEE, CEng, PEng, FCMI, FCIM, SMCS) is the author of the best-selling business book “Corporate Turnaround: Nursing a sick company back to health”, in 2002. In 2006, he authored another book entitled, “Corporate Wellness: 101 Principles in Turnaround and Transformation.” Dr Teng is widely recognized as a turnaround CEO in Asia by the news media. He has 27 years of experience in corporate responsibilities in the Asia Pacific region. Of these, he held Chief Executive Officer’s positions for 17 years in multi-national, local and publicly listed companies. He led in the successful turnaround of several troubled companies. He is currently the Managing Director of a business advisory firm, Corporate Turnaround Centre Pte Ltd, which assists companies on a fast track to financial performance. Dr Teng was the President of the Marketing Institute of Singapore (2000 - 2004), the national body representing some 5000 individual and corporate marketing professionals in Singapore

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Peter Drucker said: “Every few hundred years throughout Western history, a sharp
transformation has occurred. In a matter of a few decades, society altogether rearranges
itself, its world’s views, its social and political structure, its arts, its key institutions.
Fifty years later a New World exists. And the people born into that world cannot even
imagine the world in which their grandparents lived and into which their own parents
were born.”

Unfortunately, for most people who live in a hierarchy, the speed of learning tends to be
limited by those at the top. If they were a smart Henry Ford or Thomas Watson Jr., the
organisation could learn faster than their world changed. If they were not that smart they
might get an initial foothold but eventually competition and change would weed them out.
We cannot learn faster than the world changes. Many outcomes/outputs especially for
business organisations depended on a much wider range of knowledge, skills, values,
technologies and competencies. This forces us to learn and grasp a broader range at a
faster speed. Why should Bill Clinton be so concerned over a cloned sheep? Why should
a commission be set up to investigate cloning? Only because they were surprised by news,
for what was assumed to be possible only in science fiction, and by the fact that no one in
the government has the faintest clue on the likely consequences. Today change is nonlinear
and not first order.

Otto von Bismarck, the German statesman (1815-1898) said: “Fools say they learn from
experience. I prefer to learn from others’ experience.” Therefore, you too can profit
from your competitors’ success and failure. The incandescent light bulb first emerged
some thirty years before Thomas Edison found the right filament. Henry Ford’s
revolutionary assembly line came emulated Singers sewing machine and Campbell Soup
meatpacking.

David Kearns former Chairman of Xerox in 1989 said: “We realize that we are in a race
without a finish line. As we improve, so does our competition.” But having done that,
one has to quickly outpace your competitors in learning. Successful organisations are not
only more profitable than their competitors but also grow faster than they are. Many
companies who are unable to learn faster than the competition degenerated from fast
track to derailment as their competitors overtook them.

It is insufficient for a company to be merely a learning organisation, particularly, if it is
learning the wrong things. During the pioneering days in China, some foreign investors
resorted to cheating the tax authorities on import duties and declarations because
everybody was doing it. It was easier for the local small operators to close down their
operations and disappear into oblivion to evade the authorities. It is equally easier for
them to sprout somewhere else in China. However in the case of the foreign investors,
they could not just disappear overnight as they had bigger investments and landed up
paying the hefty fines for their misdeeds. These foreign investors learned the wrong
things from their small local counterparts.

At times too, the company needs to unlearn some of its earlier erroneous philosophy and
lessons. In this fast changing world, the key question to survival is how fast this
company can unlearn and relearn the new models and policies that can ensure its survival.
Therefore it is also important to unlearn faster than your competitors.

Unfortunately, companies fall into the trap of learning the fads of management of
downsizing and re-engineering. The vicious cycle continues with staff downsizing
resulted in a skeleton force too weak to do anything then to further re-engineering of the
processes which results in the remaining staff being frustrated and leaving eventually.

These fads are much like your photos during your own teenage days and when you
reminisce, you wonder how in the world you ever got involved with that
Company CEOs need to understand the basics in running businesses remain unchanged -
handed down from our father, grandfathers and forefathers. CEOs should by all means
learn from the various new management theories but not to be mesmerised by them or to
blindly apply them.

Therefore, you need to learn faster than your competitors. Also ensure you stop unlearn
the wrong things and stop doing them.

www.corporateturnaroundexpert.com

Dr Mike Teng (DBA, MBA, BEng, FIMechE, FIEE, CEng, PEng, FCMI, FCIM, SMCS) is the author of the best-selling business book “Corporate Turnaround: Nursing a sick company back to health”, in 2002. In 2006, he authored another book entitled, “Corporate Wellness: 101 Principles in Turnaround and Transformation.” Dr Teng is widely recognized as a turnaround CEO in Asia by the news media. He has 27 years of experience in corporate responsibilities in the Asia Pacific region. Of these, he held Chief Executive Officer’s positions for 17 years in multi-national, local and publicly listed companies. He led in the successful turnaround of several troubled companies. He is currently the Managing Director of a business advisory firm, Corporate Turnaround Centre Pte Ltd, which assists companies on a fast track to financial performance. Dr Teng was the President of the Marketing Institute of Singapore (2000 - 2004), the national body representing some 5000 individual and corporate marketing professionals in Singapore

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