The SWOT Analysis and Development Strategy of China Tire ...
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I The SWOT Analysis and Development Strategy of China Tire Project Investment in Indonesia ---Case Study of PT. Eastern O’Green By Ai Chaofei ID: 014201000224 A skripsi presented to the Faculty of Business President University in partial fulfillment of the requirements for Bachelor Degree in Economics Major in Management February 2014
Transcript of The SWOT Analysis and Development Strategy of China Tire ...
I
The SWOT Analysis and Development Strategy of China
Tire Project Investment in Indonesia
---Case Study of PT. Eastern O’Green
By
Ai Chaofei
ID: 014201000224
A skripsi presented to the Faculty of Business President
University in partial fulfillment of the requirements for Bachelor
Degree in Economics Major in Management
February 2014
I
PANEL OF EXAMINERS APPROVAL SHEET
The Panel of Examiners declares that the skripsi entitled “The
SWOT Analysis and Development Strategy of China Tire Project
Investment in Indonesia” that was submitted by Ai Chaofei majoring in
Management from the Faculty of Business was assessed and approved to
have passed the Oral Examinations in February, 2014.
Ir. Yunita Ismail Masjud, M. Si
Chair-Panel of Examiners
Ir. Erny E. Hutabarat, MBA
Examiner 1
Dr. Erwin Ramedhan, DEA
Examiner 2
II
SKRIPSI ADVISOR RECOMMENDATION LETTER
This skripsi entitled ―The SWOT Analysis and Development
Strategy of China Tire Project Investment in Indonesia‖
prepared and submitted by Ai Chaofei in partial fulfillment of the
requirements for the degree of bachelor in Faculty of Business has been
reviewed and found to have satisfied the requirements for a skripsi fit to
be examined. I therefore recommend this thesis for Oral Defense.
Cikarang, Indonesia, February, 2014
Acknowledged by: Recommended by:
VinsensiusJajat K., SE, MM, MBA Erwin Ramedhan
Head of Management Study Program Skripsi Adviser
III
DECLEARATION OF ORIGINALLY
I declare that this skripsi, entitled “The SWOT Analysis and
Development Strategy of China Tire Project Investment in Indonesia”
is, to the best of my knowledge and belief, an original piece of work that
has not been submitted, either in whole or in part, to another university to
obtain a degree.
Cikarang, Indonesia, February, 2014
Ai Chaofei
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ABSTRACT
This study was about China tire project investment factors analysis and the business
development strategy in Indonesia. This case is using SWOT analysis method for PT.
Eastern O‘Green to research the company environment factors and the development
strategy in the Indonesia market. PT Eastern O‘Green is established in 2012 and also
can called new company in Indonesia. As a new company they mustanalysis the
company environment in the marketto know how to make development strategic. This
skripsiuses qualitative research method and is supposed to use the SWOT Matrix to
develop the strategies based on the SWOT Analysis. Based on SWOT Analysis,
researcher has helped make the strategies to develop the business as follow: 1.
through distributors to build the strong brand in Indonesia market; 2. improve the
service quality and production technology to compete with competitors and pay
attention to create of customer value; 3. take full advantage of Shandong O‘Green
headquarters‘ support; 4. develop the company culture and make good training and
recruitment plan; 5.build good brand image and product reputation to develop new
markets and at the same time maintain the core value and build the core competencies;
6. improve the R&D capability and enlarge the distribution channel and pay attention
to strengthen the HR management; 7. outstanding the financial management to face
the threat of currency exchange rate instability. The Indonesia tire market is attractive
and competitive for PT. Eastern O‘Green, and the government policy, the potential
market, the promising economy and so on are good for PT. Eastern O‘Green business
development in Indonesia.
Key Words:Investment, SWOT, Development strategy
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ACKNOWLEDGEMENT
Time flies very fast. It‘s still very surprising but the university life in President
University has almost come to the end. It has been a very rewarding experience for
me.Therefore, I would like to express my gratitude to all those who havehelped and
supported me to complete this thesis.
First of all, I would like to express the deepest gratitude to my advisor---Mr. Erwin
Ramedhan for his invaluable advice, support, supervision and useful suggestions
throughout this research work. His moral support and continuous guidance enabled
me to complete my work successfully.
Secondly, I would like to give my appreciation to my family who has always become
a blessing through their love, care and support.
Not to forget, I would like to give the thanks to the people in PT Eastern O‘Greenwho
have given me the opportunity to do the internship program there. Especially thank
those people who give me the useful informationin the communication team.
Finally, to all President University lecturers, staffs and other people who ever give me
a help, I cannot mention one by one, I am truly thank you all.
The author of this final project would like to thank all involved parties in President
University.And I believe that there is no perfection, but excellence. So, this thesis
report is constructed as one form of my best effort in arranging my research
experience starting October 2013 up to January 2014.
Cikarang, Indonesia, February, 2014
Ai Chaofei
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TABLE OF CONTENT
SKRIPSI ADVISOR RECOMMENDATION LETTER ..........................................I
DECLEARATION OF ORIGINALLY .................................................................... II
PANEL OF EXAMINERS APPROVAL SHEET ..................................................III
ABSTRACT ................................................................................................................ IV
ACKNOWLEDGEMENT.......................................................................................... V
TABLE OF CONTENT............................................................................................. VI
CHAPTER I. INTRODUCTION ............................................................................... 1
1.1 Background of study............................................................................................. 1
1.2 Problems Identification ........................................................................................ 2
1.3 Statement of Problem ........................................................................................... 3
1.4 Research Objectives ............................................................................................. 4
1.5 Significance of the study ...................................................................................... 4
1.6 Scope and Limitation of Study ............................................................................. 5
CHAPTER II. LITERATURE REVIEW .................................................................. 6
2.1Understanding of SWOT Analysis ........................................................................ 6
2.1.1 Background and History of SWOT Analysis ................................................ 6
2.1.2 Early Research on SWOT Analysis .............................................................. 7
2.1.3 SWOT Analysis Framework ......................................................................... 7
2.1.4 SWOT Analysis Definition ........................................................................... 8
2.1.5 Advantages of SWOT Analysis................................................................... 14
2.2 Understanding of SWOT Matrix ........................................................................ 15
2.3 Development Strategy Study .............................................................................. 18
2.3.1 Understanding of Strategy ........................................................................... 18
2.3.2 Development Strategy Planning .................................................................. 19
2.3.3 Development Strategy for Different Market Objects .................................. 19
2.4 Factors Influencing Foreign Investment............................................................. 20
2.4.1 Macroeconomic Performance...................................................................... 20
2.4.2 Human Capital ............................................................................................. 21
VII
2.4.3 Investment Climate...................................................................................... 22
2.4.4 Infrastructure condition ............................................................................... 23
2.5 Investors‘ Choice of Location ............................................................................ 26
2.6 Theoretical Framework ...................................................................................... 27
2.6.1 Explanations of SWOT Analysis................................................................. 27
2.6.2 The SWOT Matrix....................................................................................... 29
CHAPTER III. METHODOLOGY ......................................................................... 32
3.1 Research Method ................................................................................................ 32
3.2 Research Time and Place.................................................................................... 33
3.3 Operational Definitions ...................................................................................... 33
3.4 Research Instrument and Data Collection .......................................................... 34
3.5 SWOT Analysis and SWOT Matrix ................................................................... 35
3.6. The BCG Growth-Share Matrix Analysis ......................................................... 37
3.7. The PEST Analysis............................................................................................ 39
CHAPTER IV. DATA ANALYSIS AND INTERPRETATION OF RESULTS . 41
4.1 Indonesia Country Profile................................................................................... 41
4.2 Company Profile................................................................................................. 43
4.3 Data Analysis...................................................................................................... 44
4.3.1 The SWOT Analysis of PT. Eastern O‘Green............................................. 44
4.3.2 BCG Analysis of PT. Eastern O‘Green ....................................................... 68
4.3.3 PEST Analysis of PT. Eastern O‘Green ...................................................... 69
4.4 Interpretation of Results ..................................................................................... 69
4.4.1 S-O Strategies .............................................................................................. 69
4.4.2 W-O Strategies ............................................................................................ 71
4.4.3 S-T Strategies .............................................................................................. 74
4.4.4 W-T Strategies ............................................................................................. 76
CHAPTER V. CONCLUSIONS AND RECOMMENDATIONS ......................... 78
5.1 Conclusions ........................................................................................................ 78
5.2 Recommendation ............................................................................................... 79
REFERENCE ............................................................................................................. 81
VIII
APPENDICES ............................................................................................................ 85
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LIST OF TABLES
Table 2.1- The SWOT Matrix Analysis ................................................................... 16
Table 2.2- Key Determinants and Factors for Foreign Investment Inflow .......... 24
Table 2.3-The main foreign investment location factors and sub-factors ............ 25
Table 2.4 – SWOT Matrix ......................................................................................... 29
Table 4.1- Analysis of the total investment constitutes........................................... 46
Table 4.2- Tire price in the Indonesia market......................................................... 52
Table 4.3: Top Five Natural Rubber Producers 2011 ............................................ 61
Table 4.4- Indonesia Economic Growth statistics ................................................... 62
Table 4.5-The indicators of infrastructure in Indonesia, China and Vietnam..... 65
X
LIST OF FIGURES
Figure 2.1--SWOT Analysis Framework ................................................................... 8
Figure 2.2-SWOT or TOWS Matrix of Whirlpool ................................................. 17
Figure 2.3 –Theoretical Framework......................................................................... 27
Figure 3.1- BCG Growth-Share Matrix................................................................... 38
Figure 3.2- PEST Matrix ........................................................................................... 39
Figure 4.1- Average hourly wage, China, Vietnam, Indonesia and India (US$ per
hour) ............................................................................................................................ 59
Figure 4.2-Indonesia GDP growth from 1993 to 2012 ............................................ 62
Figure 4.3- The proportion of labor force with tertiary education in Indonesia . 66
Figure 4.4-The exchange rates between IDR and USD in 2013 ............................. 67
Figure 4.5-Distribution Channel............................................................................... 70
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CHAPTER I
INTRODUCTION
1.1 Background of study
Many companies have recognized the importance of conducting business activities
outside the home country. Industries that were essentially national in scope only a few
years ago are dominated today by a handful of global companies. In most industries,
the companies that will survive and prosper in the twenty-first century will be global
enterprise. When a company has decided to enter or expand overseas it must decide
the organizational nature of its operations in that foreign country. And the company
must know the investment condition and the competition environment of the market.
From the market environment factors to analysis the company‘s competitive strength.
That will be clearly to understand the company‘s business development direction. If
people have a well-known investment and market analysis and perfect developmental
strategy, they are determined to win. Firms nowadays are internationalizing much
more than before, they are also internationalizing faster than ever, more and more
company go to abroad to look for the good investment (Schill, 2012). Indonesia is the
largest economy in Southeast Asia and is one of the emerging market economies of
the world. The country is also a member of G-20 major economies. It has a market
economy in which the government plays a significant role by owning more than 164
enterprises and administers prices on several basic goods, including fuel, rice, and
electricity (Hollem, 2008). The Indonesia market was a very huge potential market, if
people have a well-known investment condition and market analysis and perfect
developmental strategy, they are determined to win.
Chinese tire industry is at an important break point. Developed countries in tires new
products, new technologies, new materials and other fields is one innovation after
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another, India, Brazil and other rising countries, the tire industry is rapidly growing to
become the hot investment place in the world. To content the growing of market
demand, adjust the product structure of the company, increasing production
proportion of heightening, in order to improve China environmental performance
semi-steel radial tire TBR tire technology, products and exports, actively develop
overseas rubber, steel and other resources, to learn foreign advanced tire
manufacturing technology, after extensive comparison site, thus China tires project
needs to move out and look for the new investment country. However, Indonesia has
abundant natural resources, the "tropical treasure island" said. Rich in palm oil, rubber
and other agricultural and forestry products, which palm oil production is the first one
in the world, natural rubber production in the world second. Indonesia's
industrialization level is relatively high, there are more than 30 different kinds of
departments of manufacturing, mainly are textiles, electronics, wood processing, steel,
machinery, automotive, pulp, paper, chemicals, rubber processing, leather, shoes,
food and beverage and so on. Among them, textile, electronics, wood processing,
steel, machinery, automobile are important categories of export for earning foreign
exchange. Currently, there are many companies into Indonesia for investment. And
some small and medium sized companies often start with ignorance about foreign
investment and markets condition, which makes the business decline. The investment
environment surrounds and impacts upon the organization.
1.2 Problems Identification
Tires as an important part for frequent replacement and consumables of the car , the
market prospects are inextricably linked with automotive industry and mechanical
engineering industry, the two production capacity determines the tire supporting
market, the holdings of the two industry determined tire replacement market capacity.
The automotive industry is one pillar industry of Chinese national economy, China
Association of Automobile Manufacturers statistics data show that in 2008 Chinese
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auto output close to 10 million, and in 2010 production of car is over 12 million. It is
predicted that within the next three years, China auto industry will remain around 15%
growth rate, China has become the largest automobile producers and market of the
world with annual sales of nearly 14 million vehicles in 2009.Whether it is from the
original import or from the replacement tires, the domestic tire market demand will
support the China tire industry and showed a trend of development, which is expected
to increase about 25%. In 2011, the Chinese tire industry is facing more uncertainty,
industry development restricted by resource, energy andenvironment factors, tire
exports facing the ordeal of more technical, trade barriers. Overall in tire capacity,
there is a structural excess of production capacity, same product qualitative
phenomenon prominent. In 2011, China tire production was 465 million and increase
8%, which is 375 million radial tires and radial rate of 81%. Chinese tire industry will
continue maintain high growth development. China is one of the largest tire producers
in the world (LIN, October,2013 ). According to the China Rubber Industry
Association statistics, Chinese tire production is the fastest growing market in the
world, the market size is about $ 8 billion, accounted for the world tire market share
of 9%. It can be seen Chinese tire industry in the certain condition of development
stage, not only to maintain high growth development, but also production and sales
both boom, profits also increased. Thus Considering the tires demand condition in the
future, more and more Chinese tire project has went abroad to invest.Thus it's easy to
understand and analysis the investment environment factors influence business
development.Based on the difference of China and Indonesia, that‘s why the
researcher needs to find out what are the strengths, weakness, opportunity and threat
for China tire project investment in Indonesia.
1.3 Statement of Problem
Based on the background of the above problems, then the problem can be formulated
as follows:
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(a) What are the strengths, weaknesses, opportunities and threats of PT. Eastern
O‘Green in Indonesia investment?
(b) What are the development strategies to make the investment expand well based
on the SWOT analysis?
1.4 Research Objectives
The purpose of this thesis was conducted with the aim of the SWOT analysis and
development strategy of China tire project investment in Indonesia; the researcher
will mainly study from the investment company's strength, weakness, opportunity and
weakness in Indonesia these four aspects to make the business development strategy
in the tire market.
Through researching the evaluation of the SWOT analysis of PT. Eastern O'Green in
Indonesia, it will further understanding for the Indonesia tire market condition, what‘s
more, it will help to make the business development strategy for the company.
1.5 Significance of the study
The research aims to contribute highly to the following institutions:
a). For the Company
This research can try to find out what are the advantages and disadvantages for
investing in Indonesia. Why the Chinese tire project do the investment in Indonesia.
After knowing the situation, this research will give some developmental strategies
based on the SWOT Matrix. Hopefully the company‘s performance can be better.
b). For President University
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This research is about the analysis of the Chinese subsidiaries in Indonesia. The
students will know much about the difference of business culture and management
between two countries and the economic growth trends. PU students can implement
the class knowledge into real research and get meaningful findings. It also can provide
some references to the following students and help them to make their thesis better.
c). For the Researcher
The research can use the knowledge of the researcher and enrich it. And the
researcher can be more familiar with the tire project and current market. By knowing
the result, researcher uses the company – PT. Eastern O‘Green . It can be true and the
reader will be more understanding.
1.6 Scope and Limitation of Study
Since this research is about the Chinese investment company which is in Indonesia.
The limitation of conditions is this research just can be done in Indonesia
headquarters office and the tire project investment in Indonesia which can‘t be
analyzed fully in one research, thus this research just focus on the SWOT analysis and
get the development strategy. In Indonesia, there are many tires investment company
to research the SWOT analysis, this thesis just focus on the PT. EASTERN O‘Green
as the example in Jakarta. So the results maybe will have some limitations.
Besides, the research is about tires project, it needs some data such as market
condition and investment environment. Actually the researcher knows the information
about the company is in the internship period. The researcher only can use the full
year‘s data from 2012 to 2013 to do the research. When the researcher finished the
internship, the researcher is out of some information. So the researcher just can use
the data which the researcher got during the internship to analyze.
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CHAPTER II
LITERATURE REVIEW
There should be a great deal of discussion about the factors and SWOT analysis that
influencing the tire investment conditions towards Indonesia. It‘s known that almost
every company, for their own product investment in another country, will have their
own stress. Whether the internal environment or external environment affects the
company‘s investment conditions and development, that's why the company should
pay attention to it. SWOT Analysis is widely used in the business operation and is the
usual tool to know much about the situation of a company or project development.
Because many conditions will have different influence on the project or company,
thus the investors need to know its strengths, weaknesses, opportunities and threats.
Thus the existing literature below is about the investments and SWOT analysis for
China tire project investment in Indonesia.
2.1Understanding of SWOT Analysis
2.1.1 Background and History of SWOT Analysis
The origins of the SWOT Analysis technique is credited by Albert Humphrey, who
led a research project at Stanford University in the 1960s and 1970s. The origins of
SWOT are believed to have started with the term SOFT, not SWOT. SOFT:
Satisfactory (good in the present), Opportunity (good in the future), Fault (bad in the
present), Threat (bad in the future).And now more and more company, especially the
top companies would like to use data from many top companies
(http://rapidbi.com/swotanalysis/).At that time, the questions which were about ―what
is good in the present is satisfactory, good in the future is an opportunity; bad in the
present is a fault and bad in the future is a threat.‖, it was asked by Albert Humphrey
and the original research team. They worked together and got the information from
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the authoritative institutions and the strong companies to try to prove the analysis was
available.
Some researchers reference the 1965 publication ―business policy, text and cases‖ by
Learned, Christensen, Andrews and Guth (from Harvard University) in which a
framework is used which closely resembles SWOT, however these words are not used
and certainly the framework is not described as simple as the company know it today.
If the company does the SWOT Analysis in detail, it also gets complicated. Because it
should be collected much information, both internal and external. It may waste our
time to do this, but it‘s a must in order to develop the company condition. Over the
past few decades one strategic management technique that has gained increased
acceptance or which has rather excelled in the field of strategic planning is the SWOT
analysis.
2.1.2 Early Research on SWOT Analysis
There were so many researchers choose SWOT Analysis to do the study research.
Early, this method was used by the Indigenous Australians in order to find out the
disadvantaged and advantages of creating a tourism micro-enterprise in Australia, this
research was done by Don Fuller (1931), Jeremy Buultjens (1764) and Eileen
Cummings (1946). Because the SWOT components give the researchers the clear
mind, the researcher can follow those components and compare with the data it needs.
It will be more correct. Actually, this method has grown in its credibility since it has
been used by many companies in their attempt to recreate themselves.
2.1.3 SWOT Analysis Framework
The SWOT Analysis framework is both simple and authoritative. It‘s easy to
understand for strategy development. However, like any planning tool, SWOT is only
as good as the information it contains. We can do the planning based on that
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framework before we make the market research. By the way, market research is
important to find the necessary information in the internal and external environment
for the SWOT Analysis. (http://rapidbi.com/swotanalysis/)
Strengths and weaknesses belong to internal environment. It focuses on internal
factors to meet what the company‘s target market needs. It has its own advantages and
disadvantages so that the company can find the market demand.
The External Analysis which is determined the opportunities and threats in the
external environment. Every company must have its opportunities and threats. The
company should consider what are the opportunities and threats that exist in its
external environment. If the company wants to find out the answer, it should analyze
external factors.
Figure 2.1- SWOT Analysis Framework
Source: http://www.quickmba.com/strategy/swot/
2.1.4 SWOT Analysis Definition
Situation analysis is in which internal strengths and weaknesses of an organization,
and external opportunities and threats faced by it are closely examined to chart a
strategy. SWOT stands for strengths, weaknesses, opportunities, and threats.SWOT is
an acronym used to describe the particular Strengths, Weaknesses, Opportunities, and
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Threats that are strategic factors for a specific company or certain condition. A SWOT
Analysis should not only result in the identification of a corporation‘s core
competencies, but also in the identification of opportunities that the company is not
currently able to take advantage of due to a lack of appropriate resources (Wheelen
Hunger, 1998, p.107).
Basically, the strengths and weaknesses are the factors relative to competitors. The
opportunities and threats are opposite factors that come from company‘s external
environment. The SWOT Analysis is used as a company‘s structured approach that
helps the managers to analyze the situation that affect the accomplishment of the
corporate‘s culture such as vision, mission, goals, and value. The SWOT Analysis can
easily evaluate the past, present, and future information to consider internal and
external environment.In this research, the researcher can judge SWOT Analysis is a
planning approach and developmental tool. SWOT is widely used in the part of a
strategic planning process. To list what the situation is now which includes the
internal and external factors.
a). Strengths
Strengths can show the advantage of a company. Strengths should be an important
factor that needs to focus on. By strengths it means the resources, products, and
capabilities available which enable to achieve a competitive advantage. Here are some
questions that can use to help determine company‘s strengths
(www.expertprogrammanagement.com):
1). Do you have strong organization support?
2). Do you have any production advantages?
3). Do you make use of exclusive distribution rights?
4). What do you do better than anyone else for your product?
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5). How is your distribution channel?
It‘s the positive tangible and intangible attributes, internal of an organization.
Understanding the strengths of the company, the company are investing in is a big
deal. For many companies, leveraging its strengths is what has made the company
successful over the years. Every company and every market will have different
strengths. Many tech and pharmaceutical companies rely on patent protection for its
products, however, these patents are granted because of people or research, or maybe
good acquisitions. It is important to know the whys and analyze the strengths.
Strengths are its resources and capabilities that can be used as a basis for development
a competitive advantage. Examples can include: patents; strong brand names; good
reputation among customers; cost advantages from proprietary resources; favorable
access to distribution networks. Strengths also can be the qualities that enable us to
accomplish the organization‘s mission. These are the basis on which continued
success can be made and continued/sustained. Strengths can be either tangible or
intangible. Strengths are the beneficial aspects of the organization or the capabilities
of an organization, which includes human competencies, process capabilities,
financial resources, products and services, customer goodwill and brand loyalty.
Examples of organizational strengths are huge financial resources, broad product line,
no debt, committed employees, etc (http://www.managementstudyguide.com).
b). Weaknesses
Weaknesses are the qualities that prevent us from accomplishing our mission and
achieving our full potential. These weaknesses deteriorate influences on the
organizational success and growth. Weaknesses in an organization may be
depreciating machinery, insufficient research and development facilities, narrow
product range, poor decision-making, etc. Weaknesses are controllable. They must be
minimized and eliminated. For instance - to overcome obsolete machinery, new
machinery can be purchased. Other examples of organizational weaknesses are huge
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debts, high employee turnover, complex decision making process, narrow product
range, large wastage of raw materials, etc. Weaknesses are the limitations that block a
company to develop. If the company wants to analyze the markets, it should start the
analysis from both strengths and weaknesses. Especially the weaknesses, the company
should not be weaknesses to customer requirements. Only those strengths that relate
to satisfying a customer need should be considered true core competencies. The
absence of certain strengths maybe viewed as a weakness, for example each of the
following maybe considered weakness: lack of patent protection; a weak brand name;
poor reputation among customers; high cost structure; lack of access to the best
natural resources; lack of access to key distribution
channels(http://www.managementstudyguide.com).
This is just as important as knowing the strengths of the company—the weaknesses
will tell the potential downfalls. Many times, it can be hard to figure out a company‘s
weaknesses because most work very hard to only show its strengths. A good place to
look for company weaknesses is in the annual report, especially the notes to the
financial statements. It is in this section that the company discloses their potential
liabilities, as well as where they see potential competition. With this information, the
researcher can gauge the company‘s weaknesses and make a more informed
investment decision Once again, depending on the market; every company‘s potential
weakness will be different. Take a look at utility companies; they don‘t have to worry
about competition because they have a monopoly over their service area. However,
regulation of utilities can impact financial strength, and can also create high liabilities
in areas such as environment or safety
(http://www.igrad.com/articles/how-to-use-swot-analysis- for- investments).
Weaknesses are obviously the opposite of strengths or even just the absence of
strengths in particular areas.Here are some questions that can use to determine a
company‘s weaknesses:
1). If you have a weak brand awareness in oversea market?
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2). What do your competitors do better than you?
3). What might your competitors see as your weakness?
Factors that are within an organization‘s control that reduces from its ability to
acquire the desired goal such as the lack of equipment operators in the ports so that
the company cannot provide the service as well as possible.
c). Opportunities
Opportunities are presented by the environment within which our organization
operates. These arise when an organization can take benefit of conditions in its
environment to plan and execute strategies that enable it to become more profitable.
Organizations can gain competitive advantage by making use of opportunities.
Organization should be careful and recognize the opportunities and grasp them
whenever they arise. Select the targets that will best serve the clients while getting
desired results is a difficult task. The external environmental analysis may reveal
certain new opportunities for profit and growth. Some examples of such opportunities
include: an unfulfilled customer need; arrival of new technologies; loosening of
regulations; removal of international trade barriers.
Opportunities are usually related to the company‘s advantage. So the company should
be better to find the opportunities as much as possible so that it can bring the company
much more benefit.This can be a hard one for individual investors to figure out. It
basically means determining what opportunities this company has to grow further, or
otherwise increase profitability for shareholders. Some companies can benefit from
macro-economic trends that are easy to spot, but for other companies it can be much
more difficult
(http://www.haukeborow.org/2012/04/how-to-make-a-swot-analysis-2/).
It‘s the external factor that represents the reason for an organization to exist and
develop. To know that what opportunities exist in the environment, which will propel
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the organization? If the company meets the high season of the goods, the volume of
incoming and outgoing cargo will be increased. That‘s a good opportunity to find
more customers.Opportunities may arise from market, competition, industry and
technology. Increasing demand for telecommunications accompanied by deregulation
is a great opportunity for new companies to enter telecom sector and compete with
existing companies for revenue.
Examining the external environment may result in identifying new opportunities.
Another way to approach this is to examine a company‘s completed strengths and
determine if any of them could evolve into opportunities. Additionally, the company
could examine its weaknesses to see if resolving any of them would lead to
opportunities. Here are some questions to help identify opportunities:
1). What are the trends in government policy?
2). Are there new markets for your opportunity?
3). How is the new market?
4). Why do you choose the Indonesia for investment?
d). Threats
Changes in the external environmental also may present threats to the firm. The
external factors, out of the company‘s control, which could affect the company‘s
operation. It‘s a risk. The company may be afraid that the competitors of surrounding
ports use the strategies such as pricing and promotion to attract customers.Some
examples of such threats include: shifts in consumer tastes away from the firm‘s
products; emergence of substitute products; new regulations; increased trade barriers.
That‘s why every investor needs to look at direct threats to their investments. This is
more than just the weaknesses of the company—these are direct impact items that
everyone needs to pay attention to. For example, a weakness of a toy company could
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be that it has high liability potential around selling toys to kids. However, the direct
threat to the company can be pending litigation around toy safety. Every company has
threats, and these external factors need to be carefully considered by potential
investors. Once again, the notes to the financial statements can provide great insights
into potential threats to the company
(http://www.igrad.com/articles/how-to-use-swot-analysis- for- investments).
Here is to list what changes in the external environment could pose a threat
(http://www.expertprogrammanagement.com/2010/07/swot-analysis-how-to/):
1). What‘s the threat from the competitors?
2). Is new competition coming?
3).What barriers are the company facing in Indonesia ?
4). Is the currency exchange rate instable impact your business benefit?
Threats arise when conditions in external environment jeopardize the reliability and
profitability of the organization‘s business. They compound the vulnerability when
they relate to the weaknesses. When a threat comes, the stability and survival can be
at stake. Examples of threats are - unrest among employees; ever changing technology;
increasing competition leading to excess capacity, price wars and reducing industry
profits; etc. (http://www.managementstudyguide.com/swot-analysis.htm).Threats are
uncontrollable. Threats also exist in the external environment. If the competitor exists,
the company must face the threats. The best thing it should do is try to avoid the
threats and think out the solution.
2.1.5 Advantages of SWOT Analysis
SWOT Analysis is instrumental in strategy formulation and selection. It is a strong
tool, but it involves a great subjective element. It is best when used as a guide, and not
as a prescription. Successful businesses build on their strengths, correct their
weakness and protect against internal weaknesses and external threats. They also keep
15
a watch on their overall business environment and recognize and exploit new
opportunities faster than its competitors
(http://www.managementstudyguide.com/swot-analysis.htm). It is commonly used in
business development and marketing, but it is a great tool to apply to long-term
investing strategies as well. When making any investment decisions about a company,
people should carefully analyze these points. As such, there are different aspects to
consider when making an investment in an individual company.
SWOT Analysis helps in strategic planning in following manner:a) It is a source of
information for strategic planning. b) Builds organization‘s strengths. c) Reverse its
weaknesses. d) Maximize its response to opportunities. e) Overcome organization‘s
threats. f) It helps in identifying core competencies of the company.
The main advantages of conducting a SWOT analysis is that it has little or no cost -
anyone who understands your business can perform a SWOT analysis. You can also
use a SWOT analysis when you don't have much time to address a complex situation.
Another advantage of a SWOT analysis is that it concentrates on the most important
factors affecting your business. Using a SWOT, you can: understand your business
better; address weaknesses; deter threats;capitalize on opportunities; take advantage
of your strengths; develop business goals and strategies for achieving
them.(http://www.business.qld.gov.au/business/starting/market-customer-research/sw
ot-analysis/benefits- limitations-swot-analysis)
2.2 Understanding of SWOT Matrix
The concept of determining strengths, weaknesses, threats, and opportunities is the
fundamental idea behind the SWOT model. To present the model in a more
understandable way, scholars came up with so-called SWOT matrix. SWOT matrix is
only a graphical representation of the SWOT framework.A SWOT Matrix is 2 x 2
16
matrixes which is basically divided by having one factor determine each axis of the
matrix. Once the factors are aligned within the matrix the SWOT matrix helps us
decide the strategies which an organization can use. SWOT Matrix gives a set of
strategies by analyzing internal capacity of the company and external environment of
the industry. It is a matching tool for constructing four types of strategies which are:
SO, WO, ST, and WT. Here it should be noted that there is no best set of matching
external and internal factors due to which analysis becomes difficult to some extent
(http://mba- lectures.com/management/strategic-management/1259/swot-or-tows-matr
ix-analysis.html).
Table 2.1- The SWOT Matrix Analysis
Internal
External
STRENGTHS WEAKNESSES
OPPORTUNITIES
Opportunity-Strength (OS)
Strategies: use strengths to
takeadvantage of
opportunities
Opportunity-Weakness
(OW) Strategies: overcome
weaknesses by taking
advantage of opportunities
THREATS
Threat-Strength (TS)
Strategies: use strengths to
avoid threats
Threat-Weakness (TW)
Strategies: minimize
weaknesses and avoid
threats
Source: http://www.markintell.com/swot-analysis-tools-templates/
17
Figure 2.2-SWOT or TOWS Matrix of Whirlpool
Source:
http://mba- lectures.com/management/strategic-management/1259/swot-or-tows-matri
x-analysis.html
SWOT Matrix for Whirlpool is provided in the above figure. SWOT Matrix contains
nine cells in which four are key factor cells, four strategy cells and one blank cell.
First of all, the four key factor cells are completed which are labelled as: S, W, O, and
T then the four strategy cells will be constructed which are labelled as: SO, WO, ST,
and WT.
It is important to note that not all the strategies developed in the SWOT Matrix will be
selected for implementation. The matrix only points out the possible strategies which
can be implemented. It does not help in determining the best strategies for
implementation(http://mba-lectures.com/management/strategic-management/1259/sw
ot-or-tows-matrix-analysis.html). A company should not necessarily pursue the more
lucrative opportunities. Rather, it may have a better chance at developing a
18
competitive advantage by identifying a fit between the company‘s strengths and
upcoming opportunities. In some cases, the company can overcome a weakness in
order to prepare itself to pursue a compelling opportunity
(http://timmermansconsulting.nl/en/overige-diensten/).
The SWOT is a very powerful tool in identifying the intenal and external factors that
affect peoples‘ business, it‘s useful to do one every 6 months and helpful in analyzing
the constant or dynamic aspects of the business. It‘snecessary in determining short
and long term goals for business, thus all of the SO, ST, WO, WT strategies can be
put into the goal and the business plan.
2.3 Development Strategy Study
Today‘s companies must face their strong competitors. So understanding customers is
the first step in the competition environment. We should build the good relationships
between the company and customers. If only to build a good relationship with the
customers for developing the company strategy is not enough. To get more
competitive advantage, companies must use this understanding to design market
demand so that we can win much more customers.
2.3.1 Understanding of Strategy
Strategy is a deliberate search for a plan of action that will develop a business‘s
competitive advantage and compound it. For any company, the search is an iterative
process that begins with recognition of where it is and what it has now. The
company‘s most dangerous competitors are those that are most like itself. The
differences between the company and its competitors are the basis of its advantage. If
the company is in business and are self-supporting, it already have some kind of
competitive advantage, no matter how small or subtle. Otherwise, the company would
have gradually lost customers faster than it gained them. The objective is to enlarge
the scope of its advantage, which can happen only at someone else‘s expense
(Montgomery and Porter, 1997, p.5). Look up ―strategy‖ in any d ictionary, or in
19
almost any of the thousands of books and articles on the subject. There is clear
consensus on what that word means, and it is not pattern, but plan, in one form or
another, that is, some intentions for the future (Henry Mintzberg, 2007, p.3).
2.3.2 Development Strategy Planning
Once having evaluated the affecting competition in an industry and their basis reason,
the corporate strategist can identify the company‘s strengths and weaknesses. The
important strengths and weaknesses from a strategic standpoint are the company‘s
attitude and development.
People can make a plan of action that may include:
a). Positioning the company so that its capabilities provide the best defense against the
competitive force‖ (Montgomery and Porter, 1997, p.22)
?
b). Influencing the balance of the forces through strategic moves, thereby improving
the company‘s position (Montgomery and Porter, 1997, pp.22-23).
c). Exploiting industry change (Montgomery and Porter, 1997, p.23)
2.3.3 Development Strategy for Different Market Objects
2.3.3.1 Development Strategy for Market Challenger
A market challenger must first define which competitors to challenge and its strategic
objective. The challenger can attack the market leader, a high-risk but potentially
high-gain strategy (Kotler, 2009, pp. 509-510)
There are several strategies available:
20
a). For the direct attack, improve the product in quality, advertise its product, make
some promotion activity. It can attack the competitor‘s strengths rather than its
weaknesses.
b). For the indirect attack, to cover the competitor‘s market with the competitor‘s
weaknesses.
2.3.3.2 Development Strategy for Market Follower
Challenges are easy to take by the leaders. If the challengers make the strategies with
low prices, good customer service or additional product, the leader can quickly follow
these strategies to reduce the attack. Market followers must balance to find out the
solution which can acquire the customers from the leader and try to avoid the
retaliation. Each follower tries to use its variable advantages to its target market such
as location, brand and good quality services.
2.4 Factors Influencing Foreign Investment
Given the complexity of global economy and the diversity of opportunity that firms
face in different countries, it is not surprise that numerous factors may influence a
firm‘s decision to undertake investment.
There has already been a great deal of discussion about the factors that determine the
investment flows towards countries. The existing literature includes a large number of
surveys and case studies, and a number of econometric studies, In general, they
conclude that the main factors, which have driven investments in countries here we
present some of that important studies:
2.4.1 Macroeconomic Performance
Until recently, there was a strong consensus in the literature that multinational
company invest in specific locations mainly because of strong economic fundamentals
in the host countries for example, large market size, stable macroeconomic
21
environment etc. (Dunning 1993, Globerman and Shapiro 1999; Shapiro and
Globerman 2001).
The literature on the determinants of multinational company decisions and foreign
investment location is quite substantial, though arguably still in its infancy. A more
recent body of literature has begun to frame such multinational company decisions in
a general equilibrium framework and generates predictions of how fundamental
country- level factors affect aggregate country- level foreign investment behavior. A
large body of literature examining determinants of foreign investment begins with a
partial equilibrium firm-level framework based in industrial organization and finance
to motivate empirical analysis. These studies then typically examine how exogenous
macroeconomic factors affect the firms foreign investment decision, and a small body
of literature focus on government infrastructure and multinational company strategies
in host countries. (UNCTAD 1998)
2.4.2 Human Capital
Borensztein et al. (1998) carried out a cross-section empirical analysis to examine the
effect of foreign investment on economic growth. Their results suggest that foreign
investment is an important vehicle for the transfer of technology, contributing
relatively more to output growth than domestic investment. However, the higher
productivity of foreign investment holds only when the host country has a minimum
threshold stock of human capital. Thus, they argue that foreign investment contributes
to economic growth only when a sufficient absorptive capability of the advanced
technologies is available in the host economy.
Labor costs depend on productivity as well as on wage rates. Productivity is highly
dependent on the educational level of the workforce and several papers find education
and skills of the workforce to be important in multinational firms‘ location decision.
The level of education varies, of course, with the type of production, but even
22
relatively simple manufacturing typically requires at least basic literacy and numeracy.
For more sophisticated production, the skill requirement of the workforce is higher.
For foreign investors, the host country policies on the repatriation of profits and
capital and access to foreign exchange for the import of intermediaries, raw materials
and technology are particularly important.
2.4.3 Investment Climate
Reportedly, foreign investments are increasingly pursuing complex integration
strategies. MNCs "Increasingly seek locations where they can combine their own
mobile assets most efficiently with the immobile resources they need to produce
goods and services for the markets they want to serve" (UNCTAD 1998). This is
expected to have two related consequences regarding the determinants of FDI. The
Host countries are evaluated by FDI on the basis of a broader set of Policies than
before. The number of policies constituting a favorable Investment climate increases,
in particular with regard to the creation of Location-specific assets sought by FDI.
The relative importance of FDI location determinants have changed. Even though
Traditional determinants and the types of FDI associated with them have not
disappeared with globalization, their importance is said to be on the decline. More
specifically, "one of the most important traditional FDI determinants, the size of
national markets, has decreased in importance. At the same time, cost differences
between locations, the quality of infrastructure, the ease of doing business and the
availability of skills have become more important" (UNCTAD 1996: 97).Brewer
(1993) discusses various types of government policies that can directly and indirectly
affect FDI through their effects on market imperfections. It is argued that same
government policy can increase and/or decrease market imperfections and thereby
increase and/or decrease FDI inflows. The review of host country determinants is
closely linked with the role of national policies and especially the liberalization of
policies, a key factor in globalization, as FDI determinants. Location specific
determinants have a crucial influence on a host country‘s inflow of FDI. The relative
23
importance of different location-specific determinants depends on at least three
aspects of investment: the motive for investment (e.g., resources, market or
efficiency-seeking), the type of investment (e.g., services or manufacturing), and the
size of the investors (small and medium MNEs or large MNEs) (UNCTAD 1998a).
2.4.4 Infrastructure condition
Wheeler and Mody (1992) conduct an early and important study of foreign investment
determinants and found that agglomeration – measured by infrastructure quality – is
an important determinant while taxes are not a significant determinant.
The cost of production is particularly important for location of vertically integrated
production networks, and the cost depends on a host of factors including wages,
productivity and infrastructure. The authors in Ando et al. (2006) pay much attention
on FDI environments in host countries, especially to the presence of supporting
infrastructure, including costly communications and coordination infrastructure.
Electronics has been the most important sector for international production networks.
International electronic firms were already in the 1960‘ and 70‘ looking at
possibilities to locate labor intensive parts of the production in foreign countries. East
Asian countries were the prime location for these firms. For instance, Texas
Instruments, and National Semi-conductors, located production in Singapore have
already existed in the 1960s (Sjöholm, 2003a). They were attracted to Singapore by
subsidies but also by an efficient bureaucracy that, for instance, enabled Texas
Instruments to start production 50 days after their investment decision (Huff 1994, p.
325). Table2.2 lists three key determinants and factors associated with the extent and
pattern of FDI in developing host countries: attractiveness of the economic conditions
in host countries; the policy framework towards the private sector, trade and industry,
and FDI and its implementation by host governments; and the investment strategies of
MNEs.
24
Table 2.2: Key determinants and factors for foreign investment inflow
Economic
Conditions
Markets
Size; income levels; urbanization; stability
and growth prospects; access to regional
markets; distribution and demand patterns
Resources Natural resource; location
competitiveness
Labor availability、cost、skill、trainability;
management technical skills; access to
inputs; physical infrastructure; supplier
base; technology support
Host country
policies
Macro policies
Management of crucial macro variables;
ease of remittance; access to foreign
exchange
Private sector
Promotion of private ownership; clear and
stable policies; easy entry/exit policy;
efficient financial market and other support
Trade and
industry
Trade strategy; regional integration and
access to markets; ownership controls;
competition policies
FDI policies Ease to entry/exit; ownership; incentives;
access to inputs; transparent and stable
policies
Multi
National
Enterprises
strategies
Risk perception
Perception of country risk, based on
political factors, macro management, labor
markets and policy stability
Location,
sourcing,
integration
Company strategies on location, sourcing of
products/inputs, integration of affiliates,
strategic alliances, training, technology
Source: by Lall(1997)
25
Table 2.3: the main foreign investment location factors and sub-factors
1 Market factors 1) Large size of host markets
2) Demand in host country
3) Level of competition in host market
4) Economic stability
2 Political and legal
factors
1) Political stability
2) International trade agreements
3) Tax reduction in host country
4) Benign environmental legislation towards FDI
3 Cost factors 1) Labor costs
2) Transpiration/ logistic cost
3) Low cost of raw materials
4) Return on investment
4 Infrastructure and
technological
factors
1) Level of infrastructure
2) High industrial concentration (Clustering)
3) Availability of well qualify of work force
4) Access to reliable and corporative suppliers
5 Social & Cultural
factors
1) Cultural distance
2) Attitude of the local community toward the firm
Source: by FawazBinsaeed 2009
26
2.5 Investors’ Choice of Location
Firms face many options when they extend operations abroad: FDI, exporting,
licensing or entering into a joint venture or strategic alliance. Traditional theories of
international business cite the advantages of ownership, location and internalization –
widely known as the OLI Paradigm, as described by Dunning in 1993 – to explain
why multinational enterprises (MNEs) choose FDI. Ownership advantages are those
assets of a firm that allow it to compete successfully in overseas markets, despite
having less knowledge of the local market than do local firms, and despite the costs of
setting up a foreign affiliate. Ownership advantages usually include superior
technology and management knowledge. Location advantages are those benefits that a
host country can offer a firm: large markets, low labor or production costs or both,
and a good infrastructure. Internalization advantages refer to transaction costs, and
occur when it is cheaper to exploit ownership and location advantages through FDI
than it is to export. While ownership and internalization advantages vary by the
investor, the location advantage is specific to the host country. However, this latter
advantage may have gained importance in investors‘ decision-making process as host
countries compete increasingly to attract investment:
Investment is an important source of capital and economic growth in developing
countries. It provides a package of new technologies, management techniques, finance
and market access for the production of goods and services. However, attracting
investment is a major challenge for host countries as it faces the challenge of
identifying the major factors that motivate and affect the FDI location decision. After
reviewing the literature we identify the most important major location factors for
investment, which are the cost factors, market factors, infrastructure and technological
factors, political and legal factors, and social and cultural factors.
27
2.6 Theoretical Framework
The SWOT framework can be used for an analysis of the internal and external
environment. Internal analysis includes strengths and weaknesses, that‘s the company
own characters. External analysis includes opportunities and threats. It effects by the
external environment which can try to grab or avoid. The framework (see Figure 2.3
listed) below shows how SWOT fits in to the environmental scan.
Figure 2.3 – Theoretical Framework
Source: http://www.bcelf.org/swot.htm
2.6.1 Explanations of SWOT Analysis
2.6.1.1 Strengths
Strengths are the company‘s internal factor. The company owns the strengths the
more the better. It can be used as a tool to compete with others. Strengths could
include:
a). Capital strength
28
b). Reputation/image
c). Brand awareness
d). Customers
5). Location
2.6.1.2 Weaknesses
Weaknesses are the things that bad for the company. But every company absolutely
has its weaknesses. It cannot be avoided but it can be minimized. Weaknesses could
include:
a). Poor or indifferent reputation/image
b). Lack of brand awareness
c). Lack of competencies/skills
d). High costs
e). Location
2.6.13 Opportunities
Opportunities are external. The company should find out the opportunities as many as
possible. That is an advantage for competition so that the company has the strong
position to stand in the market. Opportunities could include:
a). New markets
b). Monopoly market
c). New technology
d). Economic turn up
2.6.1.4 Threats
Threats are the factors that company should pay attention to. Threats like a symbol of
risk. The company cannot make some decision without knowing the current and the
future threats. Threats could include:
a). Competitor activity
29
b). European crisis
c). Economic turn down
d). Government policies
e). Cash flow problems
2.6.2 The SWOT Matrix
After the SWOT Analysis, the research can continue with SWOT Matrix to develop
the strategies. The SWOT Matrix (see Figure 2.4) can be used for analyze the
development strategy. The strategies should be discussed and developed.
Table 2.4 – SWOT Matrix
Strengths Weaknesses
Opportunities
S-O Strategies
Exploit
W-O Strategies
Search
Threats
S-T Strategies
Confront
W-T Strategies
Avoid
Source: http://www2.ifm.eng.cam.ac.uk/dstools/paradigm/swot.html
2.6.2.1 S-O Strategies
It‘s the best fit. This strategies need to leverage our strengths to benefit from our
opportunities.
Company uses such strategies to grab the external opportunities by using the internal
strengths. For example, a company has a strong financial position but it is losing its
market share; now with the help of strong financial position it can introduce
30
innovative products by investing in research and development sector. Organizations
always try to overcome major weaknesses and make them strengths. Similarly,
organizations try to avoid threats and concentrate on opportunities
(http://mba- lectures.com/management/strategic-management/1259/swot-or-tows-matr
ix-analysis.html). These strategies should take advantage of opportunities that fit the
strengths of the business. Explain how specific company strengths could help the
company take advantage of market opportunities. S-O strategies pursue opportunities
that are a good fit to the company‘s strengths.
2.6.2.2 W-O Strategies
To know how to ensure our weaknesses will not stop our development from the
opportunities.
W-O strategies overcome weaknesses to pursue opportunities. These strategies should
enable it to overcome the weaknesses of the business while the company utilizes the
opportunities. These strategies are used for the purpose of improving internal
weaknesses by using external opportunities. Explain how the company can minimize
its weaknesses to take advantage of market opportunities. It is possible that a
company has good external opportunity but cannot avail it due to internal weakness.
For example, a company may find an opportunity of increasing its production by
introducing new technology but the company may lack the skil led workers required
for the production. In such case, a possible WO Strategies would be to hire and train
people with the essential technical skills
(http://mba- lectures.com/management/strategic-management/1259/swot-or-tows-matr
ix-analysis.html).
2.6.2.3 S-T Strategies
S-T strategies are the ways that use our strengths to minimize the impact of threats.
31
These strategies are used by the organization for the purpose of reducing the impact of
external threats by using its internal strengths. For example, a company with strong
legal department (strength) can avoid external threats such as copying ideas,
innovations, and patented products. Similarly, an organization with strong line of
quality products may face the threat of low priced products of rivals. In such case the
organization can apply ST Strategy of mass production to reduce the unit cost of
production(http://mba- lectures.com/management/strategic-management/1259/swot-or
-tows-matrix-analysis.html). These strategies should allow the use of strength sides,
while eliminate or reduce the threats from the environment. Explain how specific
company strengths could be used to avoid or minimize external threats. S-T strategies
identify ways that the company can use its strengths to reduce its vulnerability to
external threats.
2.6.2.4 W-T Strategies
W-T strategies are the ways that need to fix weaknesses which can make threats have
a real impact. Try to decrease the weaknesses and avoid the threats as possible as it
can.
W-T Strategies are mainly used by those companies which are not in a good and
stable position. Basically, these strategies are defensive because organizations try to
reduce internal weaknesses while avoiding the external threats. For example, if an
organization has weak financial position (weakness) and the demand for its products
is reducing (threat) then the possible WT Strategies would be to retrench or merge
(http://mba- lectures.com/management/strategic-management/1259/swot-or-tows-matr
ix-analysis.html). These strategies should allow the elimination of weaknesses and
preventing external threats to reach exact those weaknesses of the business. Explain
how, acting defensively, the company the company can minimize its weaknesses and,
in the process, avoid or minimize external threats. W-T strategies establish a
32
defensive plan to prevent the company‘s weaknesses from making it highly
susceptible to external threats.
33
CHAPTER III
METHODOLOGY
This chapter enumerates different research methodologies in order for the researchers
to acquire information and necessary data in this study. This chapter includes the
research design, data collection procedures, the subject and settings of the study and
so on.. The Figure 2 below gives an overview of the headings of the chapter and how
these link together.
3.1 Research Method
Research method is important before researchers start the study. The researchers have
to figure out the research method which would be probably used later on. It is the tool
to ensure the whole study to carry out as planned, get the correct data they want,
prove the hypothesisand make conclusions as well. The research method in this study
is qualitative research method.
Qualitative research is a naturalistic, interpretative approach concerned with
understanding the meanings of certain observed phenomena or actions. It examines
analyzes and interprets observations for the purpose of discovering underlying
meanings and patterns of relationships in a manner that does not involve mathematical
models. On the other hand, qualitative research is more theoretical and provides
deeper understanding about the phenomena under deeper investigation, using tools
like personal or open interviews about a topic to acquire more detailed information, to
define and explain the problem. Qualitative research also provides explanation of
reasons and associations between social variables. The data in this type of analysis is
not in the form of numbers (Ritchie and Lewis, 2003; Royse 1999). Choosing
qualitative research, the researchers usually have to go to the people, setting, or
institution to observe or record behavior in its natural setting. It is mainly
34
demonstrated by the words and pictures. Definitely, this would be a huge work for the
researcher not only because collecting the data but also the analysis. Some examples
of data collection methods are through focus group discussions, interviews, field
observations, diaries, and memoirs, letters, reports, etc.
3.2 Research Time and Place
The researcher considers it is impossible to complete the research on a single day or a
short of time. So the study is repeated over an extended period of time. The source of
information and data which the researcher can get is from the internship. So it can be
said that the research time is from April 2013 until February 2014. But sometimes the
researcher needs more additional information if it‘s not too confidential, the
researcher also can ask the contact person in other city. And this study is about to
explore the factors that influence the company to do investment and developbusiness
in the Indonesian market. Due to the limitation, the researcher cannot come to these
cities to do the research. But the researcher can communicate with the contact person
in other cities‘ franchise stores who join PT. Eastern O‘Green. They can provide the
necessary information to finish the study.
3.3Operational Definitions
Investment is the accumulation of newly produced physical entities, such as factories,
machinery, houses, and goods inventories in economics and is the purchase of an
asset or item with the hope that it will generate income or appreciate in the future and
be sold at the higher price in finance. ("Investment Definition".Investopedia.Retrieved
31 March 2013).
SWOT is a strategic planning method used to evaluate the Strengths, Weaknesses,
Opportunities, and Threats involved in a project or in a business venture. A scan of
the internal and external environment is an important part of the strategic planning
process. Environmental factors internal to the firm usually can be classified as
35
strengths (S) or weaknesses (W), and those external to the firm can be classified as
opportunities (O) or threats (T). Such an analysis of the strategic environment is
referred to as a SWOT analysis. The SWOT analysis provides information that is
helpful in matching the firm's resources and capabilities to the competitive
environment in which it operates. As such, it is instrumental in s trategy formulation
and selection (SWOT Analysis, http://www.quickmba.com/strategy/swot/). In short,
SWOT Analysis is a strategic planning method that is often involved in ventures to
assess the Strengths, Weaknesses, Opportunities, and Threats. Prior to conducting
such analysis, it is essential that we focus on clear objectives of the ventures and
identify internal and external factors to achieve such objectives (Albert
Humphrey,1926).
Strategy Development, also known as strategic planning, is fundamental to creating
and running a business. Simply put, it‘s a game plan that sets specific goals and
objectives but like a game plan, it is capable of being changed in response to shifting
market dynamics. Do a SWOT Analysis, this enables you to honestly evaluate your
company‘s strengths and weaknesses, and based on the market data you‘ve gathered.
You will also be forced to evaluate opportunities and threats (http://www.ehow.com).
3.4 Research Instrument and Data Collection
Research instruments are tools used by the researcher to gather information, get data,
and analyze the target. Instrument that will be used to obtain data is list of question
(see Appendix 1), floppy disks, paper, and other documentation tools. The data will
be obtained from the relative persons of PT Eastern O‘Green in Indonesia who know
the company‘s entire information and market situation.
Interview as a method for a qualitative research involves a face-to-face meeting
between interviewer and interviewee to ask a series of questions. The qualitative
research interview is to describe and the meanings of central themes in the life world
36
of the subjects. The main task in interviewing is to understand the meaning of what
the interviewees say. There are seven stages of an interview investigation. They are
designing, interviewing, transcribing, analyzing, verifying and reporting (Kvale 1996,
88). Questionnaire, with a list of research, is one of a range of ways for getting
information from the people and collecting appropriate data when doing a soc ial
investigation. Researchers work out questions or tables to ask respondents for
opinions, suggestions, demands, feedback, complaints etc. according to the research
topic and objectives. (Gillham 2000, 16)
Besides from the questions interview to get the information, this research also uses
secondary data from the company during the researcher‘s internship period such as
daily report, weekly report, monthly report, minutes of meeting, financial statement of
every month, summary report, etc.
3.5 SWOT Analysis and SWOT Matrix
SWOT Analysis, method, or model is a way to analyze competitive position of PT
Eastern O‘Green in Indonesia. SWOT Analysis uses so-called SWOT Matrix to assess
both internal and external aspects of doing the business. The SWOT framework is a
tool for auditing an organization andits environment.In this research, the researcher
uses the method based on the project investment‘s strengths, weaknesses,
opportunities and threats to do this study. From the questions of Chapter II, the four
elements of SWOT research as below:
a). Strengths
The strengths of PT Eastern O‘Green in Indonesia are the resources and capabilities
that can be used as a basis for developing a competitive advantage as:
1). Owned asset advantage
2). Overseas investment advantage
37
3). Operation environment advantage
4). Product‘s quality and service advantage
5). Competitive price
PT Eastern O‘Green has these advantages above or more. These advantages will be
explored in this study. It‘s better to find out its strengths as many as possible. Because
the more strong and potential factor that exists in internal environment of the
company, the better, so that the company has the ability to compete with others.
b). Weaknesses
The advantages as listed above can be strengths and also can be weaknesses if the
company does not make use of them well. If the company is lack of resources or
capabilities that can prevent it to gain a competitive advantage, that‘s the weakness of
it. Moreover, PTEastern O‘Green was almost one year to run business in Indonesia
market; there exist the main weaknesses as below:
1) Lack of brand awareness in oversea market
2) Poor image of Chinese products
3) Labor problem/ HR management
c). Opportunities
There are some opportunities in PT Eastern O‘Green that provide the company with a
chance to improve its performance and its competitive advantage. These opportunities
may be forecasted, others may be unexpected. However, the key point is how to take
full advantage of these opportunities below:
1). Government policy
2). Market demand
38
3). Large population and cheaper labor force
3). Raw materials abundant and low cost
4). Indonesia economic development
d). Threats
The outside the company try to reduce the level of the company's performance, it
must be a threat in the business operation. Every company has its threats in the
business environment, so does PT Eastern O‘Green, the new company, the more
threats they have. The successful company always actively observes its threats and
gets the solution so that it has the strong position in the market. The threats of PT
Eastern O‘Green will be listed as follow:
1). Competitors have strong brand awareness
2). Poor infrastructure condition
3). Low educated labor force
4). Currency exchange rate instable
5). Tire importers‘ threat
After the researcher lists and explains the strengths, weaknesses, opportunities and
threats of PT Eastern O‘Green, then we will combine strengths and opportunities,
strengths and threats, weaknesses and opportunities, weaknesses and threats themself
to analyze. And exploit the development strategies based on the SWOT Matrix.
3.6. The BCG Growth-Share Matrix Analysis
The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce
Henderson of the Boston Consulting Group in the early 1970's. It is based on the
observation that a company's business units can be classified into four categories
39
based on combinations of market growth and market share relative to the largest
competitor, hence the name "growth-share". Market growth serves as a proxy for
industry attractiveness, and relative market share serves as a proxy for competitive
advantage (www.netmba.com, 2002). The growth-share matrix thus maps the
business unit positions within these two important determinants of profitability.
Figure 3.1-BCG Growth-Share Matrix
Source: http://www.netmba.com/strategy/matrix/bcg/
The four categories are:
Dogs - Dogs have low market share and a low growth rate and thus neither generate
nor consume a large amount of cash. However, dogs are cash traps because of the
money tied up in a business that has little potential. Such businesses are candidates for
divestiture.
Question marks - Question marks are growing rapidly and thus consume large
amounts of cash, but because they have low market shares they do not generate much
cash. The result is a large net cash con sumption. A question mark (also known as a
"problem child") has the potential to gain market share and become a star, and
eventually a cash cow when the market growth slows.
40
Stars - Stars generate large amounts of cash because of their strong relative market
share, but also consume large amounts of cash because of their high growth rate;
therefore the cash in each direction approximately nets out. If a star can maintain its
large market share, it will become a cash cow when the market growth rate declines.
The portfolio of a diversified company always should have stars that will become the
next cash cows and ensure future cash generation.
Cash cows - As leaders in a mature market, cash cows exhibit a return on assets that
is greater than the market growth rate, and thus generate more cash than they consume.
Cash cows provide the cash required to turn question marks into market leaders, to
cover the administrative costs of the company, to fund research and development, to
service the corporate debt, and to pay dividends to shareholders. Because the cash
cow generates a relatively stable cash flow, its value can be determined with
reasonable accuracy by calculating the present value of its cash stream using a
discounted cash flow analysis.
3.7 PEST Matrix Analysis
The acronym PEST is a scan of the external macro-environment in which the firm
operates can be expressed in terms of political, economic, social and technologicaland
used to describe a framework for the analysis of these macro-environmental factors. A
PEST analysis fits into an overall environmental scan as shown in the following
diagram:
Figure 3.2- PEST Matrix
Environmental Scan
/ \
External Analysis Internal Analysis
/ \
41
Macroenvironment Microenvironment
|
P. E. S. T
Source: http://www.quickmba.com/strategy/pest/
Political factors include government regulations and legal issues and define both
formal and informal rules under which the firm must operate. Some examples
include:tax policy, employment laws, environmental regulations, trade restrictions
and tariffs, political stability.
Economic factors affect the purchasing power of potential customers and the firm's
cost of capital. The following are examples of factors in the macro-economy:
economic growth, interest rates, exchange rates, inflation rate
Social factors include the demographic and cultural aspects of the external
macro-environment. These factors affect customer needs and the size of potential
markets. Some social factors include: health consciousness, population growth rate,
age distribution, career attitudes, emphasis on safety.
Technological factors can lower barriers to entry, reduce minimum efficient
production levels, and influence outsourcing decisions. Some technological factors
include: R&D activity, automation, technology incentives, rate of technological
change.
The PEST factors combined with external micro-environmental factors can be
classified as opportunities and threats in a SWOT analysis.
42
CHAPTER IV
DATA ANALYSIS AND INTERPRETATION OF
RESULTS
4.1 Indonesia Country Profile
Indonesia is considered as Republic country. It declared its independence on 17th
August 1945 from Japan so 17th August is the national holiday. Indonesia‘s legal
rules and regulations are based on Roman-Dutch law. Their constitution has abrogated
by Federal Constitution in 1949 and Provisional Constitution abrogated in 1950 which
restored on 5 July 1959. (Sunderasan, 2009, p.5). In Indonesia after every five year
election is being contested for president and vice president post by direct vote of the
citizenry. Last time it was held on 8 July 2009 (next to be held in July 2014)
SusiloBambang has elected as president and Muhammad Boediono is the
Vice-President. Similarly, Cabinet also appointed by the president. So for next 5 years
there are more chances of stability of the government. Indonesia labor forces by
occupation have 42.1% on agriculture, 18.6% on industry, and 39.3% on services.
Indonesia is considered as a developing country. Due to the government policies and
treasure of national resources, their GDP growth has been increasing rapidly from last
few years. They spend 23.5% of their GDP to develop their nation. According to 2007
announced budget they had revenues $92.62 billion and expenditures $98.88 billion in
2008. They have hub of natural resources such as in oil production, it has 23rd rank,
in natural gas production and in export it is on 8th position. (Sunderasan, 2009, p.7)
FDI is one of the most important factors for every country. It plays a vital role in
Indonesia growth rate. It is a developing country so they have good inflow of FDI. It
was $67.3 billion in2008 compare to $58.96 billion in 2007 and they are on 45th
43
position in FDI stock. Due to change in population, income, import and export in
Indonesia are increasing every year. The to tal import in 2008 was $125 billion
compare to $85.26 billion in 2007. The major import commodities are machinery,
equipment, chemicals, fuels and foodstuffs. The major import partners are Singapore
16.9%, China 11.8%, Japan 11.7%, Malaysia 6.9%, US 6.1%,South Korea 5.4%,
Thailand 4.9% (2008). In the same way due to economic growth improvement in
productivity, government policies, export is also increasing rapidly. It was $93.3
billion in 2008 compare to $83 billion in2007. The major export commodities are oil
and gas, electrical appliances, plywood, textiles and rubber. The major export partner
countries are Japan 20.2%, US 9.5%, Singapore 9.4%, China8.5%, South Korea 6.7%,
India 5.2%, Malaysia 4.7%. (Sunderasan, 2009, p.13)
Indonesia has a large population, which is increasing at a steady rate. It is on the 4th
position all over the world with total 240,271,522 populations which is growing at
1.13%. The birth rate in Indonesia is 18.84births/1,000 and the mortality rate is 29.25
deaths/1,000 populations. The total life expectancy rate is 70.76 years in which for
male its 68.26 years and for female its 73.38 years. 52% of total populations live in
urban areas which are increasing at3.2% every year.
Indonesia`s located between the Asian continent and Australia, the guards of out the
Pacific and the Indian Ocean as a gateway Malacca strait, occupies an important
strategic position in the world. Indonesia is the world's fourth populous country with
the population 237.6 million (source: census in Indonesia in 2010), among that nearly
60% of the population is concentrated in the island of Java. Through the view of
environment investment, the competition advantages of Indonesia is as following:
Political stability; Rich in natural resources; Promising economic growth and potential
market; The important geographical location and controlling of the important
international Marine traffic line; A large population, abundant and cheap labor; High
degree of marketization, financial markets are fully open. According to The world
44
economy BBS ―global competitiveness report 2011-2012‖, Indonesia ranks 46th in
the world's most competitive 142 countries and regions.
4.2 Company Profile
PT. Eastern O'Green is chosen as research objective, which is a branch company of
SHANDONG O‘Green Group and is a professional automotive tires manufacturing
enterprise for the producing, sales, and international trade of the truck tires, wheels
and tubes in China. It has six branches covering tires, wheels, tubes and international
trade and are now the first united enterprise for these three fields among domestic
companies. Now the production capacity of the company has significantly gone up:
the annual capacity of all-steel radial tires is two million sets, tubeless steel wheels
two million pieces, tube steel wheels one million pieces and tubes one million sets.
Especially, as the substitutes of the traditional tube steel wheels, the tubeless steel
wheels with a market rate only up to 15% is a potential large and promising market.
The five main brands of the company are "O‘GREEN", "LUGE","WOLUN"
"FLAMESTONE" and "TREAD LINE". In 2009, "O‘GREEN" was awarded as the
"Famous Brand of Shandong Province". Now the company has obtained certificates
of ISO/TS16949:2009, ISO9001:2008 and passed the national CCC authentication,
American DOT, European ECE, Germany TUV, Nigerian SONCAP and GCC. The
company has established more than 100 sales points network in China, which covers
more than 30 provinces and autonomous regions. The products not only meet the
domestic demand but also export widely to more than 50 countries and areas in
Europe, Mideast, Africa, Australia and South America. With excellent quality and
considerate after-sales service, O‘Green has won the trust and reputation from both
domestic and international clients. Even since the company‘s establishment, O‘Green
is always holding and developing the enterprise spirit: to develop with superior speed,
to pursue with superior efficiency, to devote to the superior quality and responsibility.
Following the philosophy of ‗scope decides space, competition decides position‘ and
45
relying on the excellent technology and innovation, O‘Green company is committed
to developing to be the best in the field of auto parts.
It‘s vision is ―to become a top-ranking tire production company in the domestic, and
even all the world, Meanwhile to establish more subsidiaries all over the globe‖, just
like French Michelin Company; and the mission is ―to provide the community with
quality products and high service, for employees to create a harmonious living‖;
and the objective is ―providing high quality product and service, making contribution
for the society and company, increasing the economic development‖; business
philosophy is ―deliberative pragmatic Dusing, innovation and development and
win-win‖; its management philosophy is ―to enhance the use of the system who
inspired people with the truth, there is cause to retain people, with the interests of the
people to maintain‖.
4.3 Data Analysis
4.3.1 The SWOT Analysis of PT. Eastern O’Green
1). Strengths
Strengths are one of the important factors to compete with other companies, thus the
company should try to find out all of its strengths. It‘s the advantages of competition.
Here are the strengths of PT Eastern O'Green below:
1. Headquarters strong support
a. Strong production ability and scale
PT Eastern O'Greenis one of the branch companies of Shandong O'Green Group,
which is established in July 2006, is located in one of the hundred-top-town:
Guangrao, Dongying, Shandong. The company, covering an area of 360000 square
meters, has a capital of two billion RMB and annual output of three billion RMB, has
over 1800 staffs and 260 technicians. O'Green Company is a professional automotive
46
manufacturing enterprise for the producing, sales, and international trade of the truck
tyres, wheels and tubes. Now they have six branches covering tyres, wheels, tubes and
international trade in the world and are the first united enterprise for these three fields
in China. The production capacity of the company has significantly gone up: the
annual capacity of all-steel radial tyres is two million sets, tubeless steel wheels two
million pieces, tube steel wheels one million pieces and tubes one million sets.
Especially, as the substitutes of the traditional tube steel wheels, the tubeless steel
wheels with a market rate only up to 15% is a potential large and promising market.
The company has established more than 100 sales points network across the country,
which covers more than 30 provinces and autonomous regions in China. The products
not only meet the domestic demand but also export widely to more than 50 countries
and areas in Europe, Mideast, Africa, Australia and South America. With excellent
quality and considerate after-sales service, O‘Green has won the trust and reputation
from both domestic and international clients.
b. Finance and project investment
PT. Eastern O'Green is funded by SHANDONG O'GREEN TIRE Co., Ltd. and
PT.VORICH WEALTHINDO Co., Ltd., which is a joint venture co-ways work and
Noted in the city of south Jakarta. Companies registered capital amount to
677,250,000,000 Rp Indonesia (U.S. $ 70 million), divided into 70,000,000 (seventy
million) shares, par value is 9,675 Rp Indonesia ($ 1). The investment in the project
include: production line civil works costs, equipment acquisition costs, installation
costs, other costs, contingencies and interest during construction and so on, which are
based on the relevant industry standards, regulations, standards; information about the
underlying data provided by the construction units; the information provided by the
relevant professional and text; Indonesia's main building material prices; Indonesian
construction budget related documents. After calculation, the total investment is
$ 270,970,000 (equivalent to RMB 1,703,859,400 yuan), of which: construction
47
investment is $ 225,543,300 (equivalent to RMB 1,418,216,300yuan), liquid capital
$ 37,526,700 (equivalent to 235,967,900 yuan), construction interest $ 7.9 million
(equivalent to 49.6752 million yuan).
This project investment constitutes analysis as follows:
Table 4.1- Analysis of the total investment constitutes
NO.
Project Name
Amount of Investment (ten
thousand U.S. dollars)
Accounted for the
investment ratio (%)
1 construction
investment
22,554.33 83.24%
1.1 construction fees 4,454.68 16.44%
1.2 equipment, tooling
acquisition costs
10,125.26 37.37%
1.3 installation costs 616.68 2.28%
1.4 Other expenses 6,081.01 22.44%
1.5 Contingencies 1,276.71 4.71%
2 Liquidity 3,752.67 13.85%
3 construction period
interest
790.00 2.92%
4 total investment 27,097.00 100.00%
Source: From PT. Eastern O‘Green Indonesian Project Investment
c. Equipment Asset
Companies focus on the new technologies and new products development, the
introduction of talent, and improve the quality level and technological content of
products effectively. Company equipment performance reached the international
advanced level, now; thecompany has 4500 sets of daily tire production capacity.
With the keen market insight and open up world vision, match wheel and tire two
48
leading products , supporting the production and sales aim at the high-end market of
domestic and abroad, realize the terminal supporting ; At the same time, strive for
innovation cooperation mode, focus on big foreign customers and high quality
customers, realize the mutual promotion of the domestic trade and foreign trade,
maintain the momentum of business make a spurt of progress, it has made gratifying
achievements ,gradually formed a pattern of the market that "tire /wheel assembly, the
domestic/foreign trade development, pay attention to foreign export, global sales
network". The project equipment selection principles are to meet production technical
requirements and ensure product quality fundamental, try to use mature technology
and stable performance domestic equipment what has passed the national acceptance.
Company equipment performance reached the international advanced level, now the
company has 4500 sets of daily tire production capacity. With the keen market insight
and open up world vision, match wheel and tire two leading products, supporting the
production and sales aim at the high-end market of domestic and abroad, realize the
terminal supporting; At the same time, strive for innovation cooperation mode, focus
on big foreign customers and high quality customers, realize the mutual promotion of
the domestic trade and foreign trade.
2. Product’s quality and service
a. product quality and technology certification
The radial tire technology of Shandong O'Green radial tire production are based on
the Italian Pirelli, USA Firestone, and Japanese Bridgestone Corporation, it's
combined with new equipment and new technology through digestion and absorption
to improve and enhance tire design and compound formulation and process conditions
for quality defects that occur during the tire using. Owning complete independent
property rights, now the company has more than 120 tire manufacturing experts,
including more than 60 professors and senior engineers, they enjoy a high reputation
in China and have a wealth of practical experience and theoretical knowledge. The
quality policy is constantly striving to ensure the highest quality of goods and based
49
on providing consistently high quality products and services in accordance to the
corporate objective and vision, and driving company growth and maximizing
customer satisfaction. Ensuring value for the customers is one of their top priorities.
Shandong O'Green Group achieves this by providing high-quality products and
superior services, throughout the world. O'Green strives to enhance the quality of life
at work and welfare of the communities, in which they operate every day. The
products not only meet the domestic demand but also export widely to more than 50
countries and areas in Europe, Mideast, Africa, Australia and South America. With
excellent quality and considerate after-sales service, O‘Green has won the trust and
reputation from both domestic and international clients. Their mission has five goals:
to remain a leader in customer satisfaction; to be one of the best tire brands in the
world; to consistently provide top-quality products; to maintain a highly
knowledgeable and motivated work force; to achieve significant growth and strong
financial results. Shandong O‘Green has their own R&D centers in the company and
continues to strive for new and innovative ideas in developing the highest quality of
products, their goal is to design and manufacture world-class tires for the customers.
The five main brands of the company are "O‘GREEN", "LUGE","WOLUN"
"FLAMESTONE" and "TREAD LINE". In 2009, "O‘GREEN" was awarded as the
"Famous Brand of Shandong Province". Now the company has obtained certificates
of ISO/TS16949:2009, ISO9001:2008 and passed the national CCC authentication,
American DOT, European ECE, Germany TUV, Nigerian SONCAP and GCC.Since
the company‘s establishment, O‘Green is always holding and developing the
enterprise spirit: to develop with superior speed, to pursue with superior efficiency
and to devote to the superior quality and responsibility. Following the philosophy of
‗Scope decides space, competition decides position‘ and relying on the excellent
technology and innovation, O‘Green company is committed to develop in the field of
auto parts to be the best.
50
b. Good service
Replacement Warranty: This limited warranty applies to the original purchaser of
any new tire manufactured by Shandong O'Green Group bearing Department of
Transportation prescribed tire identification numbers. Eligible tires shall be used on
the vehicle on which they were originally installed according to the vehicle
manufacturer's or company‘s recommendation. Casing of O'Green steel radial truck
& bus tires are warranted when tire becomes unserviceable or unretreaded due to
factors within manufacturer's condition, O'Green will provide predetermined casing
allowance. If customers have any question on product warranty, they can first contact
the nearest O'Green Tire Dealer. For dealer information, or if the question has not
been handled to customers' satisfaction, they can contact the O'Green Tire Technical
Department.
Quality Guarantee: the quality of O‘Green tire is based on providing consistently
high quality products and service in accordance to the corporate objective and vision
driving company growth and maximizing customer satisfaction. All the employees
adhere to the following: understand customer needs and reflect them in their
respective work; strive for constant improvement to prevent inferior products and
waste factors; strictly adhere to existing regulations while establishing a
self-managing system; grow with customers through development of new technology
and creation of high-value added.
Tire Care Guide: for the safety and protection against serious injury or death, the
following safety precaution and maintenance instruction must be observed at all times :
check tire air pressure periodically, inspect tire for uneven treadwear, cracks, bulges
or any sign of foreign material or trauma, remember & check your tire load carrying
capacity and speed ratings;inspect your tires frequently for uneven wear, scrapes,
bulges, separations, cuts, snags and other damage from road hazards; damage from
impact can occur to the inner part of your tire without being visible to the outside; the
51
load carrying capacity of the replacement tire must always equal or exceed the load
carrying capacity of the original equipment tire; tires that are loaded in excess of
allowable maximum will build up heat to cause sudden destruction of tire. When
replacing tires, consult the placard or the owner‘s manual for correct size and speed
rating.For improved overall performance and extended tread life under various
driving conditions and speeds, it‘s important that the tires are properly aligned. Poor
alignment occurs when the suspension and steering systems are out of adjustment.
Several factors may be involved with poor alignment. Many drivers replace tires
rather than correct the real problem-the alignment. For the best results, when buying
new tires or replacing one, always go to the dealer to get them properly aligned. On
most vehicles, poor alignment results in excessive or uneven tire wear. In fact,
improper alignment can reduce a tire's life by more than 70%.
3. Exclusive Distribution Rights
In the tire industry, there are two major markets: one is the vehicle matching market;
another one is the retail replacement market, which occupies 2/3 of the entire tire
sales volume. And the retail replacement tire market network coverage depends on the
sales network, ―the fastest, at most " has been chasing a moving target by tire
manufacturers.
Many manufacturers in the sale will also adopt several different channels, currently
O'Green Group sales channel can be divided into two modes: direct marketing
channels mode and indirect marketing channel mode. The direct sales channel model
simply is: Factory - distributor - end customers in the form of wholesale level. The
advantage of the direct marketing channel mode can build a close relationship with
manufacturers, coordinate and solve problems easily; vendors can control the channel
strongly and it's easy to control and prevent the price in the region; indirect sales
channel model is pyramid style: manufacturers - agents at all levels - various
52
distributors - end users, agents and distributors act as the bridge and link between
manufacturers and users in the indirect sales channel model, it's easy to pass and
spread the products to the user. The advantages of indirect marketing channel mode is
widespread distribution and the volume quickly, which can help companies quickly
grasp the market and can take advantages of the large market resources and reduce the
risk of market entry.
Shandong O'Green Group use the professional distribution channel to expanding the
market, they give the exclusive right to set the franchise stores in local market through
the effective cooperation, and make the franchise store operating to be as the company
organization system. Let the stores focus on the one brand to building the brand
awareness in the market. That makes the consumer get a different image with other
same industries product. This way makes the manager have an effective
communication in the business, also offers a good service level, reduces the customers‘
worried if there are some problem of products after they bought, and provides feeling
good for customers.The exclusive distribution for supplier can provides an big
advantage to the supplier because it permits the supplier to dictate some of the retail
strategies, makes supplier has more control of how they display the image. At the
same time, exclusive distribution gives the retailer a competitive advantage because if
the consumer wants to buy the product they must purchase it at that store. In return
retailers will provide the opportunity for the product to be displayed in a special
section. The franchise stores distribution are very fast way to branding the product
image and it can efficient management for the managers. Franchise stores operating as
company system distribution have a successful performance in China.
4. Good brand image and reputation
Since the company‘s establishment, O‘Green is always holding and developing the
enterprise spirit "to develop with superior speed, to pursue with superior efficiency, to
devote to the superior quality and responsibility". Following the philosophy of ‗scope
53
decides space, competition decides position‘ and relying on the excellent technology
and innovation, O‘Green company is committed to developing in the field of auto
parts to be the best. The products not only meet the domestic demand but also export
widely to more than 50 countries and areas in Europe, Mideast, Africa, Australia and
South America. With excellent quality and considerate after-sales service, O‘Green
has won the trust and reputation from both domestic and international clients. The
company has more than 2,000 employees, technical personnel more than 160 people.
O'Green brand was assessed as ―Shandong Famous Brand‖, and also many times was
assessed as" customer satisfaction" and ―Trustworthy‖ company. Since the company‘s
establishment, the company's development has been strongly supported by the
governments and the community.
5．Competitive price
Price is a critical element of the marketing mix and usually represents the value of the
product, the perceptions of customers and a relative position against other competitive
alternatives available in the market. Making sound pricing decisions is critica l for
business success.Once people know the customer base and the major trends in tire
industry, however, the pricing game becomes a matter of choosing a strategy and
moving on it for as long as it continues to yield a profit(Mark.s.Phd). there are some
data used to compare the product price in the Indonesia market between some brands.
Table 4.2- Tire price in the Indonesia market
Brand Type Price IDR
BRIDGESTONE TURANZAAR-10(SERI
60) 195/60 VR14
952.000
DUNLOP SP LM703 (HR RANGE
60) 195/60 HR15
878.000
54
FALKEN AZENIS RT-615
195/60 R14
1.178.000
GT RADIAL CHAMPIRO BTX 60
195/60 R15
577.000
MULTISTRADA ARAH
SARANA
CORSA 50 SERIES
195/60 R15
630.000
YOKOHAMA S DRIVE AA 01
195/60 R15
829.000
EASTERN OGREEN OGREENAG198
195/60 R15
850,000
Source: http://www.autocarprices.com/daftar-harga-ban-mobil.php
Many people concerned the price more when they buy something, PT. Eastern
O‘Green sell the product at a competitive price from the data people can see.
2). Weaknesses
1. Lack of brand awareness in oversea market
O'Green Group has developed the business many years in China, because Chinese
market was big and potential, and sometimes the supply quantity are not enough for
Chinese customers. In the beginning year, O'Green Group focuses on domestic brand
building and development in the market. Those results in the products have a blank
market in overseas. In the recently few years, the O'Green Group have a rapidly speed
to develop and expand the production scales and begin to enter the global market,
therefore the O'Green brand still has a weak awareness in oversea market, which is
difficult to build a strong brand in the new market. And the company must have a
outstanding strategy to reflect the oversea market.
55
For the oversea market, it is necessary to understand regional differences and
recognize people all over the world have different needs, the originations must accept
the differences in values, customs, languages and currencies, which means that some
products will only suit certain countries and that as well as there being global markets.
it's different from the domestic market, thus it will be more difficult to develop the
business in the beginning. Just as the marketing environment has to be assessed at
home, the overseas potential of markets has to be carefully scrutinized. The potential
market size, degree and type of competition, price, promotional differences, product
differences as well as barriers to trade have to be analyzed alongside the
cost-effectiveness of various types of transport.
2. Poor Image of Chinese Products
There are many Chinese products entered Indonesia market; they offer a low price to
get the profit and the products quality cannot ensure it‘s good. That makes the
Chinese products have low images in local customers mind. For the local customer,
they think the Chinese product have low price with low quality, which makes some
great Chinese products developing good reputation very hard. The big Chinese
company wants to build a good image, which will be a long time to change their mind,
and initial development will have many barriers for business operation.
3. Lack of human resource in the branch company of Indonesia.
PT. Eastern O‘Green is established at 2012, which still lack many human resources no
matter the management level or the work force level in the company, especially as a
manufacturing company. Many workers need to bring in especially in the beginning,
but according to the Indonesian labor law, for the investment company, they just can
bring in the professional technical staff and the common labor is not permitted to
bring in in order to protect the domestic peoples‘ work problem. The company is the
56
manufacturing company, thus muchequipment can‘t be stopped at all the whole day,
thus the work is divided into three times one day, and the worker needs to work at
turns according to the daily work regulations. The company is running in Indonesia,
there are also many communication problems, the translation work needs to employ
many translators in order to help the manager dealing with the daily work, because
many things need to report to the headquarter in China. At the beginning, the lack of
human resource is a big problem for PT. Eastern O‘Green developing the business.
3). Opportunities
1. Government Policy
Since January 1, 2007, 6 kinds of strategic materials VAT is exempted by the
Indonesian government, that is original or dividing machine and tool factory of capital
goods, the raw materials of animals, fish feed or manufacturing feed, agricultural
products, agricultural, forestry, animal husbandry and fishery seedling or seed,
through the water channel of drinking water, and electricity. In February 2007, to
attract foreign investors enter to Indonesia, cooperate with local companies engaged
in the fish processing industry, the Indonesian government prepared to take a number
of tax measures, including exempt domestic processing of fish products export tax,
reduce the fishery processing machinery import duties, breaks income tax and
value-added tax, in comprehensive economic development zone and the eastern
region, the investment enterprises can also access to breaks land and construction tax.
In 2009, the Indonesian government further clears with exempt import duties of
machines, goods and raw materials for industrial development. In 2010, give financial
rewards or tax breaks to some investment industries. The Indonesian government will
provide financial incentives for at least ten business department to support its
development, namely food and beverage industry, textile industry, electronics
industry, transportation industry, communications industry, information industry, base
metals and machinery industry, petrochemical industry, livestock products processing
industry, forestry and Marine product processing industry, creative industry. In
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addition, the Indonesian government also provides preferential tax breaks to
environmental protection enterprises, large-scale investment projects, investment in
backward area of infrastructure projects, as well as with more added value but provide
wide employment opportunities and using the advanced science and technology
industry, etc.
Due to the strong domestic consumption and the rising middle class, Indonesia now is
one of the fastest economy growing countries in the world. Experts believe that China
and Indonesia are rising abruptly developing countries, their economic structures have
strongly complementarity, strengthen mutual cooperation is the inevitable choice. At
present, the Indonesian government is committed to develop the economic, and they
implement a series of preferential investment policies, actively encourage Chinese
companies to investment in Indonesia.
Due to the joint efforts of two countries, China's investment field is continues
expanding in Indonesia, large-scale investment projects is increased obviously. At the
end of July 2012, the Chinese non-financial direct investment is more than 1.05
billion dollars. Especially from January to July, 2012, Chinese companies obviously
increased investment reach to $340 million in Indonesia, year-on-year growth is 341%.
Currently, Indonesia has become the second largest country for China investment of
10 ASEAN countries; the two countries have made great progress in cooperation in
project contracting, labor cooperation, industry, agriculture, tourism and other fields.
Even so, China's total investment accounted for only 0.5% of the in Indonesia‘s
foreign direct investment; there is a huge space for development. Indonesia's has
abundant in natural resources, and has a great potential for investment and
development. The direction of China‘s investment in Indonesia not only in the
mineral resources, but also in manufacturing, infrastructure construction, cleans
energy, Marine scientific research and fishery cooperation and so on. Analysts believe
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that the next 5 to 10 years, China will have a lot development of investment in
Indonesia.
2. Big and potential market size
Indonesia is also becoming a more interesting destination for investors thanks to
various factors, including government support. In 2010, Indonesia emerged as the
largest ASEAN market for the first time with sales of 850,000 vehicles. Indonesian
government designated itself as a major automobile manufacturing base for the
ASEAN region. It plans to produce 1 million vehicles per year by 2014 and 2 million
vehicles per year by 2020.Indonesia market is a very huge potential market, the
economic growth fast, the consumer have an increase tendency. That new market is a
good environment to building the valuable brand, and expands the performance in the
new market. Now there are many tire enterprises in Indonesia, most of them are
international tires brand investments. Mainly are Bridgestone, Pirelli, Michelin,
Hankooktire manufacturers, the currently total production of these tire enterprises in
Indonesia are: 3 million all-steel radial tire per year, 5 million half steel radial tire per
year. At present, every tire factory still focused on producing a lot of bevel nylon line
tire, which is about 70% of total capacity. However, in the global scope, steel wire
meridian tire replace bevel nylon line tire already is an inevitable trend, and Europe ,
the United States and other developed countries has been basically realize the
popularity of meridian tyre as early as the end of last century. China and other
developing countries were beginning to use tire radial tyre replace of nylon tyre after
2000. Indonesia as the largest Southeast Asia's developing country, limited by slow
development of domestic highway and other infrastructure, the prevalence rate of
radial tyre is less than thirty percent until now. But in recent years, the Indonesian
government increases the investment of domestic highway, ordinary highway
construction, to meet the needs of the present economic development of Indonesia.
Indonesia's highway traffic have been greatly improved, the new highway mileage is
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growing more than ten percent per year. Therefore, Indonesia tire market prospect is
broad.
Radial tires with its excellent performance replace bias tires have become the trend.
However, from the situation of each country in the world, currently the Europe,
Japan and other developed countries radial tire radicalization rate has reached 100%,
the radicalization rate of TBR has reached more than 90%, engineering tires,
agricultural tires radial rate of approximately 70%. In comparison, although the rate of
radial each maintained are high growth rate of Chinese tire, but the radicalization rate
still not high. With the expected for future, radial tire replacement bias tire and
product consumption structure developing, radial tire radicalization rate are increasing,
radial tire demand will continue maintain high growth in the world. Tires as an
important part for frequent replacement and consumables of the car, the market
prospects are inextricably linked with automotive industry and mechanical
engineering industry , they two production capacity determines the tire supporting
market, the holdings of the two industry determined tire replacement market capacity,
especially in recent years the automotive industry develop very fast in Indonesia.
With Indonesian highway and transportation rapid development as well as the
automotive market rapid growth in recent years, private car quantity soar, market
demand for radial tires are growing. To meet the growing market demand, adjust the
product structure of the company, increase production proportion of heightening,
improve the environmental performance of TBR tire technology, products and exports,
and learn foreign advanced tire manufacturing technology, it‘s deserved to invest in
Indonesia.
3. Large population and cheaper labor force
Indonesia is located in Southeast Asia, make up by 17,508 large or small islands
between the Pacific and the Indian Ocean, the land area of 1,904,443 square
kilometers, sea area 31, 661, 639 Square kilometers . Indonesian archipelago is 5,300
kilometers from east to west, 2100 km from north to south, of which 6,000 islands are
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inhabited. Indonesia`s location between the Asian continent and Australia , the guards
of out the Pacific and the Indian Ocean as a gateway Malacca strait, occupies an
important strategic position in the world.Indonesia is the world's fourth populous
country with the population 237.6 million after China、India and United States(source:
census in Indonesia in 2010), among that nearly 60% of the population is concentrated
in the island of Java.The United Nations Development Program predicts that the
population will reach 250.4 million by 2015. Like many developing countries,
Indonesia has a young population, with 30.6 percent of its people under the age of 15.
With the huge population, Indonesia has a greater labor pool to choose from. In
addition, it also provides a larger market for the investors to expend their market and
sell the goods it produces in Indonesia. Labor force with tertiary education is the
proportion of labor force that the labor who has a tertiary education, as a percentage
of the total labor forces. Labor force with tertiary education (% of total) in Indonesia
was 6.5% in 2007 and 7.10% as of 2008. Its labor force with tertiary education index
is 6.5% in 2007 ranked 108th among 121 selected countries which is far behind other
developing countries such as Malaysia got 20.3% ranked 59th and Mexico ranked
69th with 17.3%. Since advanced technology requires complementing human skills to
operate efficiently, it is often clear that skilled labor availability is one of the factors
that influence the location investment.
This is the average hourly wage among China, Vietnam, Indonesia and India ( US
$ per hour).
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Figure 4.1- Average hourly wage, China, Vietnam, Indonesia and India (US$ per
hour)
Source:
http://www.cfoinnovation.com/content/it-time- leave-china-vietnam-and-other- lccs
From the chart, people can see the average hourly wage in Indonesia is below USD
0.5 per hour which is much lower than the wage in China and Vietnam. There's no
doubt that Indonesia is the potential destination for locating manufactory industry
based on its lower-wage competitiveness.
4. Abundant nature materials
Indonesia has abundant natural resources, the "tropical treasure island" said. Rich in
palm oil, rubber and other agricultural and forestry products, which palm
oilproduction is the first one in the world, natural rubber production in the world
second. The main mineral resources are oil, natural gas, tin, aluminum, nickel, iron,
copper, tin, gold, silver, coal reserves are very rich.Rubber is one of the most
important parts in producing automotive tires, known for its elastic quality, is a
commodity that is used in many products and applications around the globe. The
rubber tree needs constant high temperatures (26-32 degrees Celsius) and a wet
environment in order to be most productive. These conditions are found in Southeast
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Asia where most of the world's rubber production is produced. Around 70 percent of
global production comes from Thailand, Indonesia and Malaysia. It takes seven years
for a rubber tree to reach a productive age. Hereafter, it can produce up to 25 years.
Due to the long cycle of the tree, any short term supply adjustments cannot be made.
It‘s the top five natural rubber producers 2011 with tonnes.
Table 4.3: Top Five Natural Rubber Producers 2011
1. Thailand 3,348,900
2. Indonesia 3,088,400
3. Malaysia 996,673
4. India 891,344
5. Vietnam 811,60
Source: Food and Agriculture Organization of the United Nations
As the second- largest rubber producer, Indonesia supplies a substantial amount of
rubber to the international market. Since the 1980's, the Indonesian rubber industry
has shown a steady increase in production. Most of the country's rubber production -
around 80 percent - is accounted for by smallhold farmers. Government and private
estates thus play a minor role in domestic rubber production. Most of Indonesia's
rubber production stems from the provinces:1, South Sumatra; 2, North Sumatra; 3,
Riau;4, Jambi; 5, West Kalimantan. Around 85 percent of Indonesia's rubber
production is exported. Almost half of this export is shipped to other Asian countries,
followed by North America and Europe. The top five Indonesian rubber importing
countries are the USA, China, Japan, Singapore and Brazil. Domestic rubber
consumption is accounted for by Indonesia's manufacturing industries.
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5. Promising economic growth
Indonesia's industrialization level is relatively high, there are more than 30 different
kinds of departments of manufacturing, mainly are textiles, electronics, wood
processing, steel, machinery, automotive, pulp, paper, chemicals, rubber processing,
leather, shoes, food and beverage and so on. Among them, textile, electronics, wood
processing, steel, machinery, automobile are important categories of export for
earning foreign exchange.
Figure 4.2-Indonesia GDP growth from 1993 to 2012
Source: Statistics Indonesia; *) Quarter III/2012
Table 4.4- Indonesia Economic Growth statistics
Year Economic growth rate
(%)
GDP per capita (us $)
2005 5.7％ 1308
2006 5.5％ 1663
2007 6.3％ 1890
2008 6.1％ 2245
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2009 4.5％ 2349
2010 6.1％ 3005
2011 6.5％ 3500
Source: BPS, BI, World Bank, Data Consult processed
As the ASEAN's biggest economic entity, Indonesia's economic growth is as high as
6.5% in the first half year of 2012, appears huge development vitality. Indonesia's
investment environment is continuous improvement, the Indonesian government
regard economic development as central goal, they will detrition the country's
medium and long-term development plans this year, included develop the six
economic corridors, develop six big island, also introduced some new measures to
attract foreign investment, so there are many opportunities for foreign investors.
In recent years, China and Indonesia have consolidated and developed the political
relations and economic cooperation constantly; the bilateral trade volume broke $62
billion in 2011, and is expected to break $80 billion2015. Indonesia has become
China's third largest trading partner in ASEAN countries. The project will be
constructed in Karawang industrial park, west Java, with large investment, high
efficiency, and has good interactions with local social.
4). Threats
1. Competitors have strong brand awareness
Indonesia has been a top priority for tire investment. Supported by rich natural rubber
resources, many global and local companies, such as Michelin, Goodyear, Gajah
Tunggal(GT), Achilles, Dunlop, Kingland, and Thunderbird, have built their own tire
plants in Indonesia, and most of which have good image and reputation in the local
tire market and have a long history in Indonesia. They have become the most major
suppliers to almost all the car-manufacturing companies in Indonesia. The Indonesian
made tires perform longer durability in many conditions a quality that has created
loyal customers around the world. There are at least 18 tire manufacturing
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companies with various types of production. Some of the companies produce tires for
automobiles, motorcycle while some others focus their production for one type of tire
only. Tough market competition, both domestically and internationally, has forced
some of these companies to cut down their business size, but some others remain exist
and even dominated the market because of the famous brand in the Indonesia market.
Global brand goodyear is the pioneer of the tire manufacturing in Indonesia, which
established a tire plant in Bogor in 1935 and has become one of the country‘s major
tire exporters. Conducive investment climate has attracted other global players, such
as Michelin, Bridgestone, and Sumi Rubber, to invest in Indonesia. All of them have
strong brand awareness in the Indonesia tire market, however, comparing with those
famous brands, O‘Green are still young and faces this serious condition in the market,
if PT Eastern O‘Green wants to have good business in this market, it has to build
strong brand image and make nice strategy to develop well. It still has a long way in
the future.
2. Poor infrastructure condition.
Extensive and efficient infrastructure is critical for ensuring the effective functioning
of the economy, and well-developed infrastructure reduces the effect of distance
between regions, integrating the national market and connecting it at low cost to
markets in other countries and regions. Indonesia‘s infrastructure, ranked 82nd,
requires improvements across many areas. It is well behind more advanced ASEAN
members Singapore (2nd), Malaysia (23th), and Thailand (47th), and also less
developed than China (69th). All large Asian economies are experiencing rapid
economic growth, massive urbanization, a rising middle class, and increased openness
to trade. These trends increase the demand for infrastructure and strain that which
already exists, creating bottlenecks and highlighting existing shortages. For instance,
the number of vehicles in Indonesia quadrupled over the past decade to reach 11.3
million.Theinsufficient supply and quality of transport, energy, and
telecommunications infrastructures seriously limit Indonesia‘s output capacity. The
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manufacturing and export sectors particularly suffer as this state of affairs translates
into limited connectivity and handling capacity, high costs, delays in shipments, and
production loss.Demand for infrastructure grows proportionally with the economy. In
order to meet this demand, investment must therefore increase.
A well-developed transport and communications infrastructure network is a
prerequisite for the access of less-developed communities to core economic activities
and services. Effective modes of transport, including quality roads, railroads, ports,
and air transport, enable entrepreneurs to get their goods and services to market in a
secure and timely manner and facilitate the movement of workers to the most suitable
jobs. Economies also depend on electricity supplies that are free of interruptions and
shortages so that businesses and factories can work unimpeded. Here are the main
indicators of infrastructure:
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Table 4.5-The indicators of infrastructure in Indonesia, China and Vietnam
NO Indicators Country Mean Score World rank
1 Quality of road Indonesia
4.0
3.5 83
China 4.4 55
Vietnam 2.6 123
2 Quality of
railroad
Indonesia
3.1
3.1 52
China 4.6 22
Vietnam 2.5 71
3 Quality of port
Indonesia
4.3
3.6 103
China 4.5 56
Vietnam 3.4 111
4 Quality of airport
transport
Indonesia
4.7
4.4 80
China 4.6 72
Vietnam 4.1 95
5 Quality of
electricity supply
Indonesia
4.5
3.7 98
China 5.5 49
Vietnam 3.3 109
Source: The Global Competitiveness Report 2011-2012, World Economic Forum.
Note: [1 = extremely underdeveloped; 7 = extensive and efficient by internationalstandards]
3. Low educated labor force
With the huge population, Indonesia has a greater labour pool to choose from and
provides a larger market for the MNC to expend their market. however, the
education is poor in Indonesia. The exception is enrollment in primary ed ucation
which was keeping increasing in the last few years. Enrolment in tertiary and
secondary education has been lower than in most other countries in East Asia.
Moreover, there are signs that the quality of education is relatively poor. Labor force
with tertiary education, as of 2008, is lower, on average, than in many of the other
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developing countries like Malaysia and Mexico. The proportion of the labor
population and over with no schooling is far above that in any other of the countries.
Only 7.1 percent of the total labor has completed tertiary education and it is ranked
108th among 121 selected countries, the lowest level among these countries. Labor
force with tertiary education is the proportion of labor force that has a tertiary
education, as a percentage of the total labor force.
Figure 4.3- The proportion of labor force with tertiary education in Indonesia
Source: International Labour Organization, Key Indicators of the Labour Market
database
Due to the skilled workers are not enough, it‘s a big problem for the future
development, after all, talent are everything in the competition market.
4. Currency exchange rate instability
Regarding the relationship between investment and exchange rate, when a country‘s
currency devalues, it is viewed as an opportunity for foreign investors to purchase
assets at a reduced cost. This is especially true when foreign firms have identified
specific assets in their targeted markets, and exchange rate volatility is one of the
contributors toward external uncertainty in the economy that have a major effect on
foreign investment inflow.
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PT Eastern O'Green in Indonesia account payment deal with US dollars to suppliers,
and account receive to Indonesia rupiah with agencies. From the currency exchange
rate between USD and IDR between 8/18/2012 and 2/13/2013 (see Figure 6), the
currency exchange rates are very instability. In Indonesia market, the currency
payment with Indonesia rupiah, the US dollars rate increase that make the company‘s
profit and the solvency decrease. The instability current exchange rates affect the
company profit strategy in the development. The graph below shows historical
exchange rates between the Indonesian Rupiah (IDR) and the US Dollar
(USD)between 7/5/2013 and 12/31/2013.
Figure 4.4-The exchange rates between IDR and USD from 7/5/2013 to
12/31/2013
Source:http://www.exchange-rates.org/history/IDR/USD/G/180
5. Tire importers in Indonesia
Indonesia‘s economy is growing very fast in recent years, it‘s a good market for
import and export business, Indonesia's imports in the first 10 months of 2010 were
valued at US$159.18 billion or an increase of 9.35 percent on-year. In 2011, imports
rise further to US$ 177.3 billion (www.thefreelibrary.com, 2012). Strong economic
growth and big population make the country a more attractive market for industrial
products; and the tire is very needed in the market with the development of
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Indonesian transportation, that‘s why there are many tire importers and tire
manufactures in Indonesia because of the huge and potential market.
4.3.2 BCG Analysis of PT. Eastern O’Green
Tire industry is very promising and competitive in recent years, and the investment
for PT. Eastern O‘Green in Indonesia is very huge, thus by way of the BCG matrix
analysis based on the SWOT, it‘s easier to know the company business condition in
Indonesia and the product condition in the local market. With the development of
Indonesian economy in recent years, the automobile industry is developing day by
day and the logistic company are also more and more than before, thus the amount of
the tires‘ requirement are also large, this market become more and more bigger, based
on the BCG matrix, the researcher can know the the tire product is in the cash cow
part with big market share, more and more people need it; and with the investment of
PT. Eastern O‘Greenin Indonesia, it‘s still a newcomer and just built in 2012, the time
is not so long, however, the tire investment is very potential and the market is
increasing very fast, based on the BCG analysis, PT. Eastern O‘Green is in the
question mark part with high growth rate and high amount investment, it‘s clear to
know the business condition.
4.3.3 PEST Analysis of PT. Eastern O’Green
For the political and economic condition, the researcher can know China and
Indonesia are very good no matter in political or economic condition, China is the
largest trade partner of Indonesia, and Indonesia is the largest economy in ASEAN
and attaches great importance to economic integration in East Asia, there is great
potential for China and Indonesia to further expand trade and investment cooperation;
for the social and technology condition, Indonesia is rather better than other ASEAN
country, the population is large and the social condition is better relatively, and the
culture in Indonesia is also very multivarious, and for PT. Eastern O‘Green
investment in Indonesia, the company also bring in many excellent worker and
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specialist in 2013. So, based on the PEST analysis, the researcher can see that PT.
Eastern O‘Greenis full of opportunity in the Indonesia market.
4.4Interpretation of Results
4.4.1 S-O Strategies
This strategy is using strengths to take advantage of opportunities and the explanation
is as below.
1). Build distribution network
A good distribution is a great opportunity that can accelerate the development in a
new market. If the distribution channel is successful to operation, it will be attract
others investor join it. Distribution has some advantages listed as follows: avoid the
unnecessary trial and error period in starting and operating a new business; lower
financial risk, compared to other ventures, because investment costs are lower and
profit margins are higher; business distribution format complete packages ensure a
ready to go ―turn-key‖ unit; managing a small business whilst depending on the
power of the company which has a bigger organization; the distribution also can
provideone opportunity to learn the latest developments and changes in the local and
global market and focus entirely on developing the sales revenues; by way of good
distribution, PT. Eastern O‘Green will have a good business development in the
future.
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Figure4.5 – Distribution Channel
Source: http://www.emeraldinsight.com/journals.htm?articleid=1550643&show=html
2). Make differentiation strategy
Differentiation strategy is a marketing technique used by the manufacturer to establish
strong identity in the market and calls for the development of the product or service
that offers unique attributes that are valued by customers and the customers perceive
to be better than or different from the products of the competition; by way of this
strategy, the manufacturer can introduce different varieties of the same basic product
under the same name into a particular product category and thus cover the range of
products available in that category. To satisfy different customers' requirement, each
type of tire can be directed at a different segment of the tire market, the full line of
products available will help to establish the company's name, and positioning the
brand in such a way as to differentiate it from the competition and establish a good
image that is unique.Many customers have highly expected in the purchasing products
or service. In generally, customers want purchasing the differentiation products with
good deal price and service. For this expectation, focus on the strong backward
manufacturing ability, the company can make a flexible manufacturing system to
improve the flexibility of people and differentiation product and service to meet
different customers' needs. Based on the differentiation strategy, PT. Eastern
O‘Green will have a good development in Indonesia tire market.
3). Create of customer value
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Customer value is the benefit that customers will get from the product or service in
comparison with its cost. This benefit can be measured in monetary terms but the
benefit also can be difficult to quantify, such as the enjoyment that the customer
receives from a product or service, and the product or service can provide value in
many ways. Along with helping the customer save money or providing enjoyment, it
also could save the consumer time, provide a benefit that could not be obtained
without the product or increase the value of something the customer already owns.The
customer value proposition can be developed based on the points of value that the
firm can create. In this respect, a customer value proposition must provide distinctive,
measurable, and sustainable value(Andersonet al., 2006). A distinctive value
proposition is superior to the competitor‘s offering, a measurable value proposition
allows customers to quantify value in monetary terms, and a sustainable value
proposition ensures that customers can continue to provide value to customers. A
customer value proposition can be constructed by identifying the barriers that limit
customers from getting a job done. The four most common barriers identified by
Johnson, Christiansen, and Kagermann (2008) are insufficient wealth, access, skill,
and time.If PT. Eastern O‘Green uses this strategy to develop its business, it will be
better for the market.
4.4.2 W-O Strategies
Overcome weaknesses by taking advantage of opportunities which is explained
below.
1). Build information system
For building good business, the successful information systems are a critical
component, which consists of the correct technologies, tools, methodologies,
processes and people; organization introducing information systems in an effort is to
improve efficiency and effectiveness; and the successful information systems can help
maximize the value for the organization and improve company's ability to compete in
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the rapidly changing markets of today and in the future.Information system can help
to integrate the information about the government, competitors, technology, culture,
finance and resources; by way of this, PT. Eastern O‘Green can have a good
understanding about itself and the rivals in order to make great achievements in the
future.
2). Develop the company culture and make good training and recruitment plan
―Company culture‖ is a broad term that is used to describe the general working
environment found within the business operation. Lots of factors can influence the
nature of this culture, including the policies and procedures developed for the
operation, the mission and vision statements of the business, and even the
personalities and management strategies employed within the company. Corporate
culture is vital to the life of the company and company culture is seen in the desire of
the company to grow. In order to do so, the ability to engage employees in capturing
the vision and devoting themselves to this goal requires understanding which aspects
of the company currently offer motivation and which ones tend to dampen enthusiasm
and lead to employees doing what they must and no more, and paying close attention
to management strategies, the type of benefits offered, and even the general attitude
that is cultivated on a manufacturing floor will provide important clues as to what can
be done to increase company loyalty and ultimately make it possible to pursue
growth.Good training and recruiting is very important not only to ensure find the right
person for a job opening, but also because the costs of bad recruitment decisions can
be very high in terms of both time and money.Recruiting people who are wrong for
the organization can lead to increased labor turnover, increased costs for the
organization, and lowering of morale in the existing workforce.Human resource is an
important resource for the company, that's why the company has to reduce and avoid
the lack of human resource. The manager must catch every opportunity to solve
human resource problems, make outstanding management p lanning and provide
training to increasing the employees‘ work ability. Only the company has a good
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human resource, the company can have a good operation and achieve the targets and
increase organization stability. Therefore, develop good company culture and make
good training and recruitment plan can help PT. Eastern O‘Green have a good
development in Indonesia market.
3). Build good brand image and product reputation
Brand is the idea or image of a specific product or service that consumers connect
with, by identifying the name, logo, slogan, or design of the company who owns the
idea or image. Branding is when that idea or image is marketed so that it is
recognizable by more and more people, and identified with a certain service or
product when there are many other companies offering the same service or product.
Good brand is a way to build an important company asset, which is a good reputation
and image. Whether the company has no reputation or less than stellar reputation,
branding can help change that condition. Branding can build an expectation about the
company services or products, and can encourage the company to maintain that
expectation, or exceed them, bringing better products and services to the market
place.Branding is one of the most important aspects of any business, no matter large
or small, retail or B2B. Effective brand strategy gives people a major edge in
increasingly competitive markets. Consistent, strategic branding leads to a strong
brand equity, which means the added value brought to the company's products or
services that allows people to charge more for the brand than what identical,
unbranded products command.The new market can be a good opportunity, but if there
have not to use the opportunity to build a new image of the product, the opportunity
well be a weakness of the company. That‘s why PT. Eastern O‘Green need to build
good brand image and product reputation in the oversea market.
4.4.3 S-T Strategies
Use strengths to reduce threats and the explanation is as below.
1). Maintain the core value and build the core competencies
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Corevalues are most important ingredient to maintain long-term successful
relationship. The essential core values which are used to maintain long-term
successful relationships are commitment, responsibility, trustworthy, kindness,
punctuality, persistence, integrity, gratitude and forgiveness in general.Core Values
are like the roots of a tree and foundation of a building. The stronger and deeper are
the roots of the tree, higher the tree can grow with stability.And the idea of "core
competences" is one of the most important business ideas currently shaping our world.
It is one of the key ideas that lie behind the current wave of outsourcing, as businesses
concentrate their efforts on things they do well and outsource as much as they can of
everything else. The starting point for understanding core competences understands
that businesses need to have something that customers uniquely value if the company
wants to make good profits. In their key 1990 paper "The Core Competence of the
Corporation," C.K.Prahalad and Gary Hamel argue that "Core Competences" are
some of the most important sources of uniqueness: these are the things that a company
can do uniquely well, and that no-one else can copy quickly enough to affect
competition. By building the core competences on both corporate and personal levels,
the company's business can get ahead of the competition and stay ahead. Based on the
strengths of PT. Eastern O‘Green, core value and core competencies are very
necessary to maintain and build for winning the market in Indonesia.
2). Improve the R&D capability
Research and Development (R&D) capability plays a great role in the development of
business in the company; especially the company leaders face many challenges as
pressure to maximize return on R&D investment escalates. R&D is confronted with a
balancing act of delivering on the demands of today while maintaining resource
allocation to realize R&D‘s innovation objectives. It needs to meet ever- increasing
goals and improve speed to market while resources flat line, demonstrate value and
alignment with the business, and ensure the highest regulatory and compliance
standards.According to Kalypso‘sR&D Management Framework, it provides a
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strategic cross-functional approach that identifies and integrates critical management
functions, processes, alliances, tools, and metrics that are crucial to develop an R&D
organization that cultivates success and delivers expectations. The R&D Framework
proportionally develops nine key dimensions of R&D excellence with balanced
strategic and organizational alignment: strategy; innovation; portfolio management;
project management; intellectual property management; talent management; sourcing;
operations management; regulatory and compliance. The R&D Management
Framework starts with an organization assessment and benchmarks the organization‘s
performance in each of the management functions. The expert team develops a
strategic roadmap of the improvement areas for each of these functions, detailing the
process, tools, organization and metrics for each to operate successfully. Therefore,
by way of improving the R&D capability, it‘s much better to integrate the
organizations‘ resource and develop the company business in the competitive market.
3). Enlarge the distribution channel
The company should continue to focus on franchise agency development, at the same
time build new sales channel to expand the market and try to contact with the
potential customers and develop the new customers in the market by way of new
channel.Distribution is one of the classic ―4 Ps‖ of marketing. It‘s a key element in
the entire marketing strategy which helps to expand company reach and grow revenue.
B2B and B2C companies can sell through a single channel or through multiple
channels that include: Wholesaler/Distributor; Direct/Internet; Direct/Catalog;
Direct/Sales Team; Value-Added Reseller (VAR); Consultant; Dealer; Retail; Sales
Agent/Manufacturer‘s Rep. Wholesalers, resellers, retailers, consultants and agents
have resources and relationships to quickly bring the product to market. If the
company sells through these groups instead of selling direct, treat the entire channel
as a group of customers – and they are, since they‘re buying the product and reselling
it. Understand the customer needs and deliver strong marketing programs; the
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company will maximize the revenue in the process. To face the market threat, PT.
Eastern O‘Greenneed to enlarge the distribution channel to get the maximum profit.
4.4.4 W-T Strategies
Minimize weaknesses and reduce threats. The explanation is as below.
1). Strength HR management
Human Resource department is responsible for employee selection, development,
evaluation, compensation and employee relations, the role of Human Resource
management is being increasingly affected and reshaped by the growing diversity of
the workforce, global and domestic compensation, and complex legal and ethical
issues, the Human Resource department of the organization is faced with balancing its
responsibilities towards the organization it serves as well as the society in which it
operates. Human Resources evaluate the Human Resource activities in the
organization with a view to their effectiveness and efficiency. It is done with a view to
improve those activities, uncover shortcomings and address the deficiencies. The
audit is a quality control check on the Human Resource activities within a division or
company and as to how well the activities support the organization's overall strategy.
(Biles& Schuler, 1986). Strength the Human Resource can serve to remind members
of the Human Resource department of their roles and contributions to the organization,
serve to create a more professional image of the department in the eyes of both
management and the employees. Its most important contribution to the organization
and its employees is that it can correct problems and ensure compliance with a variety
of local laws and the strategic plans of the organization concerned. Therefore, based
on the PT. Eastern O‘Green current situation, it‘s a good way to develop the
organization by way of strength the HR management.
2). Outstanding the financial management
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Financial management is very important because it is related to funds of company and
guides to finance manager to make optimum position of funds. A good financial
system enables people to accomplish important big picture and daily financial
objectives and make the operation more profitable and efficient.For those outstanding
account payable and account receivable, the relevant departments should make a good
financial plan in detail. It's a large amount. The company needs to talk to the
headquarters and remake the detail of account payable and payment method in the
contract in order to face the serious money market. The company may try the best to
collect the receivable and avoid these receivable become bad debt.I f PT. Eastern
O‘Greenhas a good financial management, it will help to improve the business better.
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CHAPTER V.
CONCLUSIONS AND RECOMMENDATIONS
5.1 Conclusion
Overall, Indonesia has a good investment environment. Chinese enterprises to enter
the Indonesian have to fully ascertain the situation and make full preparation before
making investments.Indonesian labor market is huge and has lower labor costs;
Indonesia‘s economy is in a period of steady recovery, resource potential is abundant,
has sustainable development enormous potential; Indonesian companies own
investment ability is relatively good and the foreign-funded enterprises to invest in
Indonesia are more than promising,Indonesia's investment market is highly
competitive and attractive.
By having the whole research on the SWOT analysis and development strategy of PT
Eastern O'Green in Indonesia, the researcher can conclude several things that need to
answer the research questions and thus achieve the objective of this research. The
strengths, weaknesses, opportunities and threats of PT. Eastern O‘Green in Indonesia
investment can be included as follows:
Strengths are the headquarters strong support; product‘s quality and service; exclusive
distribution rights; good brand image and reputation; competitive price.
Weaknesses are the lack of brand awareness in oversea market; poor image of
Chinese products; lack of human resource in the branch company of Indonesia.
Opportunities are the government policy; big and potential market size; large
population and cheaper labor force; abundant nature materials; promising economic
growth.
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Threats are the competitors strong brand awareness; poor infrastructure condition; low
educated labor force; currency exchange rate instability; tire importers in Indonesia.
The development strategies to make the investment expand well based on the SWOT
analysis can be included as follows:
S-O strategies are mainly building distribution network; makingdifferentiation
strategy; creating of customer value.W-O strategies are mainly building information
system; developing the company culture and making good training and recruitment
plan; building good brand image and product reputation. S-T strategies are mainly
maintaining the core value and building the core competencies; improving the R&D
capability; enlarging the distribution channel. W-T strategies are mainly strengthing
HR management; outstanding the financial management.
Even though the researcher sees the good aspects in the company from its strengths
and opportunities, there are still in a hard and longtime process to turn around the
people‘s mind of Chinese tire situation in terms of the threat and weakness.
5.2 Recommendation
Foreign investment enterprises are always full of risks and opportunities, they cannot
decide the investment country's political and economic situation, therefore, the only
thing can do for them is to averse approach and minimize its adverse effects. In this
research, the researcher analyzes the strengths, weaknesses, opportunities and threats
of PT. Eastern O'Green and gives some development strategies. Here are some
suggestions from the researcher as follow.
a) For Company
The S-O Strategies, W-O Strategies, S-T Strategies and W-T Strategies are analyzed
base on the S.W.O.T analysis of PT Eastern O'Green that the researcher exploits
during the internship program. Because it has the time limitation, those strategies only
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can be used in a short-term period; therefore the researcher suggests that the company
should connect its latest internal and external environments which are strengths,
weaknesses, opportunities and threats to search all the possible strategies. Meanwhile,
the company should have good assessment for investment country's political,
economic situation, try to focus on enhancing the core competencies, respect the local
customs, update and be familiar with the information from its competitors and
external business world so that it will have the strong status to beat others.
Furthermore, the manager in the company as the decision-maker should have the clear
and right direction to report to CEO and guide the employees, implement an internal
diagnostic system and improve the governance structure of foreign enterprises and
management structure, strengthen communication,strengthen the management of
foreign enterprises while maintaining its operational flexibility. What‘s more,
remember to motivate the employees, after all, employees are the main assets of the
company. Without reliable employees, Company strategies and programs could not be
executed well.
b) For Further Research
After finding out the strengths, weaknesses, opportunities and threats in PT. Eastern
O‘Green and combine them to develop the strategies, the researcher suggests the
further research to explore the factors deeper, the more the better. If the aspects are
more complete, the study and strategies will be more successful. Especially if one
aspect or factor to be researched, try to compare with previous years‘ data, may be the
researcher can find out more things to prove that aspect or factor. Moreover, it
recommends for the further research that may find another company which has the
familiar character in the same industry and do the comparisons between the two
companies. The research can be persuaded stronger.
83
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APPENDICE 1- LIST OF QUESTIONS
How about the tire industry trading situation currently in Indonesia? How about the market
competition?Can you give me PT. Eastern O‘Green product competitive advantage in the market?
Strong:
1). Do you have strong organization support?
2). Do you have any production advantages?
3). Do you make use of exclusive distribution rights?
4). What do you do better than anyone else for your product?
5). How is your distribution channel?
Weakness:
1). If you have a weak brand awareness in oversea market?
2). What do your competitors do better than you?
3). What might your competitors see as your weakness?
Opportunities:
1). What are the trends in government policy?
2). Are there new markets for your opportunity?
3). How is the new market?
4). Why do you choose the Indonesia for investment?
Threats:
1). What‘s the threat from the competitors?
2). Is new competition coming?
3).What barriers are the company facing in Indonesia ?
4). Is the currency exchange rate instable impact your business benefit?
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APPENDICE 2- TABLE OF INTERVIEW RESULTS
Strength
1). PT. Eastern O‘Green have strong organization support from the mother
company in China no matter from the production scale, technology and
finance support; 2). The product quality and after sale service is excellent
with advanced skills and long term guarantee; 3). The mother company
have abundant experience in the exclusive distribution rights; 4). The
product has very good reputation and competitive price in China and some
foreign countris; 5). The distribution network is very good in the mother
company.
Weakness 1). The product has a high reputation in China domestic market but the
oversea brand awareness is still weak because of the young age and the
China big market; 2). The competitors have strong brand awareness and
good product image in the Indonesia market ; 3). The human resource are
still not enough and complete now, it‘s still weak.
Opportunity 1). Indonesia has good policy to attract the foreign investors to come to
Indonesia; 2). Indonesia market is very big and potential; 3). Indonesia
population is large and labor force is cheaper. 4). Indonesia has abundant
materials for producing the tires, the Indonesia economy is promising.
Threat
1). The competitors have strong brand awareness no matter the foreign
brand or the local brand; 2). Tire importers are new competition apart from
the local manufacturing company; 3). Indonesia infrastructure condition is
poor and most of the labor force is low educated; 4). Indonesia currency
exchange rate is instability.
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