Business strategy- OSIM international Ltd
This paper provides a strategic management study in case of OSIM international ltd. It seeks to study the company in detail with regards to its operations in Singapore and China. The outline of this case study includes the strategic analysis, objectives, implementation and evaluation and management of the business strategies. A critical analysis of the issues hindering the company’s implementation of the strategies is discussed. Further, it includes the observation and identification of past and current trends of the company and on the other hand predictions and assumptions of future prospects are analysed.
Lastly, in accordance to the case study analysis, a few recommendations are provided. Table of Contents Introduction Strategic management is crucial for a company’s progress. OSIM is a global brand listed in the SGX having a wide point of sales network (OSIM Int’l Ltd, 2010). They have managed to sustain the competitive environment with international management, customer relations, brand name, internal strategies and adaption to the different environments.
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OSIM has established a niche in developing and selling healthy products. Large companies like OSIM International Ltd, also face challenges and difficulties.
This is where the company’s strategic management comes into action. Furthermore, it would be interesting to see how well the company has overcome the difficulties and how well it is going to use the strategic management tools. Therefore, this has made OSIM interesting for a case study analysis. Strategic Analysis External analysis General environment The economic environment of Singapore is a highly developed and a free market economy. The per capita GDP of Singapore is been higher than most of the developed countries (Find the Data, 2010). The economy depends on imports particularly in the consumer electronics (Find the Data, 2010).
Therefore higher manufacturing costs for OSIM are inevitable. In terms of the socio-cultural aspect of Singapore, OSIM needs to consider the tastes, preferences and lifestyle of the people. Particularly, peoples’ willingness to buy the technology based healthcare products in comparison with traditional Chinese medicines. But consumers have adapted to the advancement of OSIM’s innovation (Tan, 2011). For the technology side, OSIM is constantly developing its own technological and R&D capabilities in Original Design Manufacturing and Original Equipment Manufacturing.
In today’s world, company needs to cope with the technological advancements like e-business, which is an integral part of any business. Moreover, OSIM strives for originality of product designs and functions, while also developing hybrid products from existing offerings (OSIM, 2002). Opportunities and Threats OSIM is a strong organization; it means they occupy many opportunities in the market itself. The opportunities include market expansion and targeting low-income groups. OSIM would likely benefit from growing affluence and urbanization in China. However, OSIM also has many threats.
The decrease in economic growth will make power of purchase goes down. Foreign exchange risks also affect the profit of company because sales are mainly denominated in the respective local currencies in which the sales arise. Vulnerable to health epidemics and terror activities, subject to market competition and negative media publicity caused by imitators and price pressure from others competitor’s products are some of the threats that OSIM will face (OCBC, 2010).
Specific environment Their threats of new entrants are relatively low due to more barriers to entry in the healthcare industry, which include the requirement of capital investment, human resources, and most importantly technology. However, competitors like OTO, Ogawa and Panasonic have seen OSIM’s successful and lucrative in this market, has joined in, to become a notable player. The bargaining power of suppliers is high since OSIM is strongly dependent on three suppliers who are Oriental Export & Import Co. Ltd, Daito-Electric Machine Industry Company Ltd. (‘‘DEMI’’) and Red Time Trading Ltd (‘‘RT’’). The three suppliers provide 71% (approx.) of the materials for the equipment manufacturing. In failure to do so, the company will suffer unexpected losses and disruption (OCBC, 2000). There are high levels of substitutes for these products. The cost of transferring to other major health and lifestyle firm is relatively low. There are number of players in the global market which makes the substitution level high. With the notable player like OTO and Ogawa, where their product’s prices are much lower than OSIM’s products might attract the lower-income household. The healthcare products have a continuous change and a need for adaption.
The customers are aware of the OSIM-like products offered by other firms. Therefore the bargaining power of customers is relatively high. This industry has a stiff and aggressive competition, as there are competitors such as OTO, Ogawa and Panasonic. OSIM’s competitive position is an attractive industry with a high potential for above-average returns. In addition, OSIM’s turbulence model in this industry is complexity because they produce many types of products, which are launched in many markets in Asian countries. Customers are range from young working adults to elderly.
Hence the degree of interconnectedness is moderately complex environment with different culture in many countries (OSIM, 2012). In summary, strengths of OSIM are large network of outlets featuring diverse range of products across different geographical markets, proven track record of established brand and strong alliances with developers (OCBC, 2000). In the next 3-5 years, the profit of company depends on economic conditions and changes in consumer taste. On the other hand, threats of OSIM in the future could be pressure of other brands products with cheap price and strong competition. Internal analysis
The core competencies of OSIM are continuous product innovation keeping up with the technology, more points of sale networks which deliver a different shopping experience for customers. OSIM has extensive regional distribution network which more than 596 point of sales outlet in Asia, Middle East, Europe and United States. (info. sgx. com/webipo. nsf/… /$FILE/Osim. pdf) The strategic competitive advantage is sustainable. Although there are similar products in the market, OSIM constantly comes up with differentiated products which allows them have above-average returns (Refer to Appendix 2.1). OSIM has a strong position in this market even though the notable competitors like Ogawa and OTO have embraced OSIM’s specialty retail outlets (Maybank, 2012). However, there are also many factors that could affect the profitability. The standard of living is increasing, so people demand for higher quality of products and more health conscious. Therefore, consumers are more careful in selection. In addition, change in taste also affects the number of healthcare products purchased (Refer to Appendix 2. 2) (OCBC, 2000).
Overall, in the most 3-5 years, OSIM will become more famous in Asia. The largest opportunities of OSIM in the future are building brand in a sincere effort towards value and quality in products and services, and strive to consistently fulfil and deliver these attributes that come with company brand to their customers. Innovation OSIM has also been actively beefing up its product range by renewing its product line to cater to the changing needs of consumers through improving the aesthetic features such as the colors, designs, finishing, functions andfabric of their products. (OCBC, 2010). According to Singapore business review (2012), OSIM’s strategic focus for 2012 would be to continue its innovation drive and actively maximize value from its stores and staff. Management has embarked a pipeline of new innovative products to be launched in a bid to enhance its product offerings”. In addition of that, OSIM knows that iPhones are popular thus connect iPhone to massage chair to boost sales to high-incomer buyers (Chen, 2012).
Strategic Directions and Strategic Objectives OSIM’s Vision – “To be the global leader in healthy lifestyle product” (OSIM, 2012) OSIM is the brand leader and preferred choice for massage chair in five countries namely, Hong Kong, Singapore, Taiwan and China (Refer to Appendix 3. 1). However, the top most position of being the leader of lifestyle product is still open (Maybank, 2012). OSIM may already be the leader in one type of product but they still need to up their stakes in order to become the best in the area.
OSIM’s Mission – “Bringing healthy lifestyle to you” (OSIM, 2012) OSIM also lives up to their mission not just by their product, but also by promoting fitness and well-being to all people. For instance, OSIM’s support to Standard Chartered Marathon Singapore ties the commitment of promoting and bringing healthy lifestyle to people (Singapore Sports Council, 2010). Strategic Objectives OSIM’s main strategic objectives are product innovation, market expansion, profit growth and also having a good relationship with the employees (Singapore Business Review, 2012 & Wei Du, 2012).
Using stakeholder analysis to identify the strategic objectives of OSIM aligns with the demands of these stakeholders; shareholders, customers and the employees. Stakeholder Analysis Both shareholders and customers have a definitive salience while employees only have a dominant salience. The reason why employee only has dominant salience is because the demands of employees are not as urgent as those of shareholders and customers (Refer to Appendix 3. 2). The needs of shareholders that need to satisfy are profitability and business sustainability.
The strategic objectives to address the shareholder are product innovation and profit growth and market expansion. Shareholder is the main and primary stakeholder because shareholder is one of the main sources of resources to the company and to be used in doing more market research (Hillman & Keim, 2001). Customers’ needs that need to satisfy are innovative and high quality product. The strategic objectives that will satisfy the needs of the customer are product innovation (Chua, 2010). Even their newly introduced OSIM’s brand logo deems to be consumer-centric (Refer to Appendix 3.3). With their new mission of “Inspiring Well-Being” inspire customers to work towards of feeling great and good looking and taking control of their own well-being (Forbescustom. com, n. d. ). Their new retail layout enables customers to try out their product improving their shopping experience. OSIM also works with Interbrand to conduct study about consumers’ changing needs to understand customers and better in their speciality retail management and enhancing their products to tailor to different customer (Chua, 2010).
Employees’ needs that need to satisfy are having good communication with the company, getting good incentives from the company and being recognised of their works. The strategic objective that will satisfy the employees’ needs is having a good relationship with the employees (Forbescustom. com, n. d. ). OSIM office building provides their employees a range of facilities (Refer to Appendix 3. 4). OSIM headquarter designs to foster openness, building an environment to help employees promote their creativeness and imagination (Forbescustom. com, n. d. ).
Not only that, early this year, OSIM has just incorporated a subsidiary named OSIM Services Pte Ltd in Singapore mainly to provide training and development to their staffs. OSIM provides training for their sales employees and customer service employees because they know that the quality of the service is as important as the quality of the products itself (Reuters, 2012 & OCBC, 2000). Key Broad Business-Level & International Strategies Ansoff’s product/ market business level strategies Product development OSIM always come up with new products to satisfy the demands of shareholder and customers (OCBC, 2000).
OSIM implements product development strategy by introducing new products to the same market. Innovation is one way to introduce new product, for instance, new uDivine App massage chair (Refer to Appendix 4. 1). They also focus on researching and upgrading of their IT infrastructure and implement it onto their products to further upgrade them (OCBC, 2000). This will allow the user to have a better experience, which bodes well with the company as a market leader (Singapore Business Review, 2012). Innovation will result in increase on OSIM’s market share and create confidence to shareholders and customers in OSIM.
Product development in OSIM satisfies two of the organisation’s strategic objectives; product innovation and profit growth (Singapore Business Review, 2012). Market development OSIM is always in the lookout for new market with high potential for its product. This satisfies the organisation’s strategic objectives of market expansion and profit growth. By penetrate into a new market; they will be able to expand their market share to many different countries and opening more stores (Carver & Kipley, 2010). International Strategy OSIM use a global strategy to expand their market.
As a leading company in healthy lifestyle product, expanding to many different countries would be essential to be known internationally and increase their market share. OSIM now has many outlets in more than 222 cities but is now focusing on expanding their outlets in China. China has a very strong GDP but is not doing so well current which affects the number of outlets to be opened in the country (OSIM, n. d. ). Strategic Implementation: General Perspective OSIM has been playing in this market for long, knows what is needed to be done to works in this industry (Maybank, 2012).
Product and market development has been the reason for OSIM to be profitability. In this competitive and lucrative industry, OSIM’s well implemented strategies has enables them to remains sustainability and earning profit above-average. OSIM has been tapping onto the high-income earners in this market; however OSIM should start their second curve to growth in the untapped market like the low-income household. This is a good time for OSIM to start their second curve activity although their current strategies are still doing well to their business (Refer to Appendix 5. 1).
OSIM could look into starting a new business catering to the lower income household with similar products but at a cheaper price. This could allow the poor to enjoy the same health benefits as the rich. This allows OSIM to continue its longevity and growth. Under the BCG portfolio matrix, OSIM falls under the “Stars” where there are high growth and high market share. In such a competitive and growing industry, more and more players are tapping into this market because of its lucrative (Maybank, 2012). However, with strong competitors around, OSIM is still able to be the market leader in the healthy lifestyle industry (Refer to Appendix 5.2). Key Strategic Implementation Issues There are areas that OSIM has been doing well, for instances, strong alliance tools, creativity and innovation and specialised in specialty retail stores. As OSIM have been building strong relationship with the mall developers, like CapitaLand, which allows them to receive information about new shopping mall coming up (OCBC Investment Research, 2010). OSIM has been very creative and innovative in their products, incorporating Chinese medical massage “Tui-Na” into their new leg massage like uPhoria (Refer to Appendix 6. 1) (Koh, 2012).
OSIM also spent 2% of their revenue each year on R&D which helps them to be the No. 1 in the industry proven that their investment in R&D is not wasted (Koh, 2012). OSIM is also the pioneer in using specialty retail stores to market their product instead of distributors. Points of sales system are the key reason for their strong brand equity (Refer to Appendix 6. 2) (ibid). Even though OSIM is doing well in these areas but we have also identified the areas that hinder their strategic implementation. One of the issues identified in OSIM is poor CEO leadership.
Mr Ron Sim, the founder, CEO and major shareholder is also the brain master of OSIM International Limited that makes every important decision. However, according to Maybank Kim Eng Research, Mr Sim has no clear succession plan yet, believing that there is a substantial founder’s risk in the stock (ibid). As a CEO and managing director, Mr Sim should prepare and train his ideal successor early in order to prevent the business for falling due to any unforeseen circumstances. The other major strategic implementation issue that hinders OSIM is inadequate finance.
To finance acquisitions made, enhance corporate and working capital, and reduce existing debt, OSIM raised $120 million worth from issuing unsecured convertible bonds due in 2016 (Enriques, 2011). OSIM has also targeted to expand 50 outlets this year when they release their 1st quarter financial statement, however due to the debt turmoil in Europe and slow recovery in US, it has impacted consumer spending and demand and worsen downside risk to earnings (ibid). It have resulted the management scaled back in the net store opening. According to Maybank Kim Eng Research in October 2012, OSIM has expanded only 4 outlets thus far.
As an expanding international organisation, OSIM should reduce manufacturing costs and operating expenses. OSIM should also concentrate on exclusive outlets instead of diversify their stores to every shopping malls. Further, OSIM faces strategic implementation issue of failure to protect/use IP. Intellectual property rights are a major factor for a well-known brand like OSIM. OSIM’s products have been hit by imitations in the market. The unsubstantial product performance and inferior quality of those products has led to negative market segment.
This will have a severe effect on the sales and reputation of the brand. This mainly involves the Chinese made fakes in the China market (Cai, 2012). But a large market like China cannot be avoided, therefore the option that OSIM has, is to churn out the counterfeit to stay ahead of the imitators by continuous innovation and make the IP rights framework stronger. The key issues hindering OSIM’s strategic implementation are the poor CEO leadership and failure to protect/use IP as the former issue may affect the confidence, trust, and reliability that potential investor have on OSIM and ultimately impact the growth.
As for the latter issue may affect OSIM’s reputation which causes consumer confidence dreary due to imitation products and eventually losing the market share (Cai, 2012). Strategic Evaluation As mentioned earlier, the strategic objectives of OSIM are product innovation, market expansion, profit growth and good customer and employee relationships. So far OSIM has achieved some objectives successfully and some are in the process of accomplishment. The evaluation of the objectives can be done using balance scorecard approach (Refer to Appendix 7. 1). Conclusion: Current & Future Prospects & Recommendations
In this rocky economy no matter in Singapore or China, OSIM is still growing strong and enjoying being the market leader even though with strong competitions. Their new uDivine App and uPhoria has escalated their profit. In addition, OSIM has been focuses on improving productivity and performance and rationalising non-performing outlets allowing them to expand their net margin. As a leader in the well-known healthy lifestyle industry, with the innovation and ability to connect IT into their products, foreseeing that OSIM will still be able to soar in the coming future.
However, OSIM has to narrow their target setting with the consideration of uncertainty economy due to US and Europe market. OSIM has a group of experienced management team; however to bring OSIM to a higher level, OSIM should consider bringing new bloods into the management level. OSIM should continue with market development by using the phase-out product in untapped market to gain profit and new product life cycle. As OSIM has been targeting high-incomer therefore we would suggests OSIM to tailor their products caters for the low-income household as their new target market.
This would also allow the lower-class household to enjoy their products and inspire by their new mission of feeling great and looking good. So not only the rich enjoying massage, the poor can too. Appendix Background of OSIM International Limited OSIM International Ltd is about creating a perspective of the awareness of health. Company tries to encourage people to pay attention on their own health through daily of living by carefully designed and crafted trademark products.
OSIM was found in 1890 and started off as a retailer of household products. The name OSIM is based on founder, chairman and chief executive Dr. Ron Sim’s name. OSIM has developed into a strong global brand for healthy lifestyle products from the beginning. OSIM was first opened in Singapore. However, OSIM becomes international brands with nearly 596 outlets at Asia, Middle East, Europe and United States. Besides that, OSIM quite focuses on China market due to increasing in GDP lead to improve standard of living.