Profile Of Avs Private Limited

Published Date: 02 Nov 2017

The trading of specialized industrial products in Singapore has evolved greatly since the 1980s. It is noted that local trading companies today not only provide sales of products but also to offer value-added services, such as installation, at competitive prices. Such competitive advantage relate to the value seen by customers who either see specific attractive elements in the offering (differentiation) or feel that all their needs are being met in the best way by that competitor’s offering (focus) (Henderson, 2011). Modern and cheaper transportation and communication have led to increasing global trade and awareness (Grant, 2010). Technological development has led to accelerated changes in the global economy as inflow of knowledge on products and services are easily transmitted over the internet. As a result, the local market is now a more competitive market from an influx of new entrants and technology. Hence, there is an increasing need for existing local trading companies to re-position themselves to keep in pace with the new business environment.

Organizations have long engaged in head to head competition in search of continuous profit growth (Kim and Mayborgne, 2005). In this fast changing business environment, corporations are seeing the need to constantly devise their strategic management approaches for survival. This is especially so for Small-to-Medium Enterprise (SME) firms, who face both demand-side challenges in increased competition, as well as, supply-side operational limitations in capital funding (Asiaone Business, 2012).

Profile of AVS Private Limited

The organization chosen for this study is AVS Private Limited (AVS). It is a specialized trading SME company, with staff strength of 145, offering premium hi-technology industrial products in Singapore and six other regional countries (Malaysia, Thailand, Indonesia, Philippines, Vietnam and India). The company was established in Singapore in 1982 and its main business then was to provide sales and technical service for industrial high vacuum products in Singapore. The initial growth rate of company was slow due to its narrow product representation and limited relevant industry in the regions.

In mid 1990’s, the electronics industry in South East Asia boomed when multi-national companies moved their manufacturing facilities from USA and Europe to lower-cost Asia (Global Asia, 2008). During this period, the company’s sales revenue grew significantly and the operations expanded. However, profit has been declining for the last five years and business has become stagnant as the intensity of competition among rivalry in the industry increases. The niche markets seems continuously disappearing because of reducing trade barriers between nations and regions and the instant and global availability of the products and prices information online (Mintzberg, 2000).

The outcome of supply overtaking demand is evident. This situation has inevitably accelerated the commoditization of products and services, shrunk profit margins and the stocked price wars (Kim and Mauborgne, 2005). In order for AVS to compete and survive in the industry, it has to develop feasible strategies to enhance its sustainable competitiveness that have a huge impact on the growth of the company.

Research Aim

The aim of this study is to analyze the problems of slow growth and to identify the growth strategies for a specialized industrial products trading and services company in Singapore – AVS Private Limited (AVS).

1.2 Research Objectives

This research shall have the following objectives:

To examine the main underlying causes contributing to the slow growth in AVS

To establish the strategic position of AVS vis-à-vis other competitors

To identify and evaluate various strategic options for growth for AVS in the next ten years

To draw general lessons in solving slow growth problems, with appropriate literature review and findings from other similar companies and to consolidate strategic key success factors to achieve a higher turnover (S$40 million) for SME industrial product trading companies in Singapore

1.3 Statement of Research Problem

"Other trading companies of similar size to us are having turnover of S$50 million easily. However, our business still could not reach the targeted S$40 million turnover mark after 30 years in operation." – Managing Director, AVS Pte Ltd, 2012.

The above statement demonstrates the problem faced by the company. It defines the slow growth problem of not achieving the annual turnover of S$40 million after 30 years in the business. In this case, the annual turnover has been hovering around the S$30 million region for the last 5 years.

The intensity of competition among rivalry in the industry is increasing from the existing players, as well as new entrants. In order to compete and achieve its annual turnover target, AVS has to develop feasible strategies to enhance its competitive advantages by analyzing its current business environment that may affect the growth of the company.

This study is designed to examine the problem of slow growth and the strategic growth options will also be identified and evaluated.

1.4 Significance of the Study

Recommendations derived from the analysis, findings and conclusions could be of much interest and benefits to AVS as a whole. Top management would be able to understand its current corporate weakness and to implement recommended managerial strategies to meet company’s objectives.

1.5 Chapter Summary

This chapter has provided a brief background into the importance of strategic management within today’s fast changing business environment. This is especially so for a SME specialized trading company like AVS, whom has been experiencing slow growth and declining profit for the last five years. A brief overview of the research has been covered. It provided the information about the background of the study, the research aims and research objectives. The statement of research problem and the significance of this study are stated.

1.6 Dissertation Structure

In this study, the structure is organized as follows:

Chapter 1: Introduction

This introduction chapter introduces the current business background and the importance of strategic management on the targeted case study, AVS Pte Ltd. It outlines the scope of the project by stating the aims and objectives of this research study.

Chapter 2: Literature Review

This chapter examines the various relevant researches on the subject by other researchers and to carry out a related literature search.

Chapter 3: Company Profile of AVS Pte Ltd

This chapter presents the company’s background in which the cases study is set.

Chapter 4: Research Methodology

This chapter outlines the methodology and the sources of data employed for the investigation in the study. This includes the introduction of various theoretical business model and framework as tools for data-analysis. It focuses on the philosophies, approaches, methods, strategies and designs adopted for the research. It also provides information on the ethical considerations of the study.

Chapter 5: Findings and Analysis

This chapter outlines the findings and provides an in-depth critical internal and external analysis of the case study company.

Chapter 6: Recommendations and Conclusion

Growth strategies are identified and guided by the lessons learnt from this study with appropriate in-corporation of literature review to address the slow growth problems in AVS. This chapter also provides a concluding remark and suggestion for further study.

CHAPTER 2: LITERATURE REVIEW

2.1 Introduction

Digitization has made it easier for direct marketing nowadays (Hoffman, 2000). However, many manufacturers still use intermediaries to play certain basic functions in order for the products to be distributed effectively and efficiently to end-user. Singapore’s strategic geographical location has enable it to serve as a focal point for trading firms, which acts as channel intermediaries, to supply goods and services to global countries and ASEAN countries especially (Ministry Of Trade and Industry Singapore, 2002). To facilitate trade and promote the handling of transhipment cargo, there are six Free Trade Zones within Singapore’s port areas (Maritime and Port Authority, 2012).

Manufacturers use channel intermediaries such as wholesalers, agents, brokers, or retailers who help move a product from the producer to the consumer or business user (Hill, 2010). Figure 2.1 illustrates a typical physical distribution-channel of a product flow from the manufacturers to the ultimate enterprise or end-user.

Figure 2.1: Typical Distribution Channel

Source: http://www.jh-consultant.com/s--62/

Schellhase et al (2000) described an industrial distributor in the 1990s to provide an assortment of products to customers and to fabricate, assemble, and customize suppliers' products to meet customer requirements, as well as provide consulting, maintenance, and repair services to customers. Traditionally, manufacturers have utilized distributors in order to improve their operational efficiency under the assumption that distributors are able to perform the tasks at a lower cost per unit than the manufacturers could (Rosenbloom, 2004). With the changes of business market environments such as increased globalization continue to pressure and challenge distributors, reflecting the commonality of turbulence and volatility in markets (Rosenbloom, 2004). Rather than simply buying products from suppliers and reselling them to the customers, the majority of distributors now are offering customers an array of value-added services (Alliota, 2008).

AVS has a linear relationship between one manufacturer, one distributor and one customer, as that shown in Figure 2.2. Its tradition role of handling the physical goods may not be sufficient for continuing competitive advantage in today’s business landscape. Overall, the nature of business competition is changing to emphasize value chains rather than supply chains (Mudambi and Aggarwal, 2001). AVS has to look into adding values to the manufacturers and customers and protecting their value-adding investments in these relationships. These added values need to reflect their role as a source of cost reduction and as an impetus for business growth. To the manufacturer, this may take the form of increasing the customer base. To the customer, this may take the form of providing appropriate inputs to improve the competitiveness of the customer’s goods and services.

Figure 2.2: Traditional view of distributor relationship

Source: http://www.sciencedirect.com/science/article/pii/S0019850102001852

2.2 Industrial Products Marketing in Singapore and ASEAN

Many overseas manufacturers deal directly in specific countries and leaving the remaining countries to their appointed intermediaries as these middleman channels offer a cost-effective mean of doing business. There are inherent benefits to the international marketers of industrial products to go through channel intermediaries (Broda and Weinstein, 2006). These benefits include lower operation costs as opposed to using own sales force and business risks are lowered, especially in areas where there is political and economic instability. Efficient and more responsive service can be rendered to end-users, especially where local firms are conversant with the local cultures and geography. Channel intermediaries are sometimes needed to meet the local legislative requirements in countries such as Malaysia, Indonesia and Thailand. Most importantly, intermediaries use less financing overall.

Selection of intermediaries is important to overseas manufacturers as these intermediaries determine the success or failure of their business in an indirect market. Hutt and Speh (2012) have identified several selection criteria of manufacturers’ intermediary. It is important that the intermediary has a good market coverage and knowledge of the market. Manufacturers are best served by intermediaries who are able to administer distribution strategy by providing customers with products, prices, availability and convenience. How well intermediaries can perform the functions of sales, storage, delivery, credit provision, product and customer support and information gathering exerts an important influence on the selection decision. So too does the quality of the relationships that middlemen have with the next link in the channel.

In the case of an industrial product trading company like AVS, it is most important that the company possesses the highest level of technical know-how in order to support the hi-technology related business.

Prior to the 1970s, a product-oriented concept of marketing was vigorously applied within the business sector where emphasis was placed on convincing and/or encouraging customers (both actual and potential) to buy products. Marketing managers and strategists were preoccupied with creating a demand for their products. This changed, in 1960, with the publication of Theodore Levitt's classic article entitled "Marketing Myopia" in which he challenged the notion of traditional product-oriented marketing and called for consumer-oriented marketing (Levitt, 1960).

Marketing mix is not a scientific theory, but merely a conceptual framework that identifies the principal decision making managers make in configuring their offerings to suit consumers’ needs. The tools can be used to develop both long-term strategies and short-term tactical programmes (Palmer, 2004).

Market planning, market segmentation, and consumer analysis lay the groundwork on which the marketing ingredients - popularly known as the McCarthy’s 4Ps framework - are based. Kotler (2007) suggested that the marketing mix comprises of product, promotion, price, and place. Together, they form the basis of the marketing strategy of an organization to achieve competitive advantage. An effective marketing mix should be customer-oriented in terms of responding to customer needs and communicating such responses effectively to them. For service trades, peoples, physical evidence and process of service are added to form 7Ps (Kotler, 2007).

Product (or Service) is the goods-and-services combination the company offers to the target market (Kotler & Amstrong, 2010). New product/service development is one of the most important destabilizing tactics. Innovation, as opposed to imitation, is essential in a turbulent environment with short product life cycles (Simpson et al., 2006). Price is the amount the consumer must exchange to receive the offering (Solomon et al, 2009). The company’s goal in terms of price is really to reduce costs through improving manufacturing and efficiency, and most importantly the marketer needs to increase the perceived value of the benefits of its products and services to the buyer or consumer. Promotion includes all of the activities marketers undertake to inform consumers about their products and to encourage potential customers to buy these products (Solomon et al, 2009). Promotion is the sole marketing mix element that communicates explicitly with customers (Fisk et al, 2004) and is done through advertisement, branding etc. Place includes company activities that make the product available to target consumers (Kotler & Amstrong, 2010). It is the mechanism through which goods and/or services are moved from the manufacturer/ service provider to the user or consumer. Physical evidence relates to the environment in which the service is delivered and where the firm and customer interact (Zeithaml et al, 2008). It is any tangible components that facilitate performance or communication of the service. People are all human actors who play a part in service delivery and thus influence the buyers' perceptions; namely, the firm's personnel, the customer, and other customers in the service environment (Zeithaml et al, 2008) and people are the most important element of any service or experience. Process is the actual procedures, mechanisms, and flow of activities by which the service is delivered – this service delivery and operating systems (Zeithaml et al, 2008). It refers to the mechanism by which service is provided and implicitly communicates the business’ attentiveness, degree of customization and ability to execute tasks effectively.

The service marketing mix approach chosen should reflect the market segment and position in which the firm seeks to manifest itself (Fisk et al, 2004). As such, the 7Ps must complement each other in the total service offering in order to effectively achieve competitive advantage, either in differentiation or cost leadership. Marketing as a strategy is a relevant phenomenon that has been considered relevant factors to influence the performance of small enterprises (Gilmore et al., 2001). But in today’s contemporary turbulent environment, many new and emerging concepts have been added among strategy group likewise relationship marketing, network marketing, innovative marketing, standardization vs. adaptation and clustering.

Typically for an industrial distributor like AVS, products will often be adapted to meet the needs of the buyer. This adaptation may be in the form of modification in technical specifications to fit with the production methods of buyers. The final price is normally negotiated rather than fixed. This will depend upon quantity supplied, delivery dates and potential for future custom. Price may also be determined by tender, where a number of potential suppliers are required to offer their best price to the buyer of the goods. Promotion occurs through trade magazines and trade fairs. It is important to stay in contact with customers and for the supplier to show that they are always willing to listen to buyers and improve what they offer (Tellis, 2008).

Developments in Web based technologies make it necessary to rethink how firms should conduct their business and market their products as this new technology affects all aspects of marketing (Hoffman, 2000). Marketing success depends on the extent of market orientation of the business. Companies that fail to take the customer point of view in designing their Web strategy have only a slim chance of succeeding. One major effect of the Internet is the explosion of information that has resulted in more competition among firms and lower prices (Zettelmeyer, 2000). Although price is an important factor in consumer decision-making, it is not always the main criterion when people are making buying decisions. Other factors such as product quality, customer support, and timely delivery may be equally or even more important than price to customers and these will be examined in this research.

2.3 Competitive Industry Analysis of Industrial Distributors

The changing business landscape has created a strong international competition. Porter (1980) argued that strategy equates to how the company competes against other companies in its business. Porter has identified five competitive forces that shape every market and industry as shown in Figure 2.3.

These forces determine the intensity of competition and hence the attractiveness and profitability of an industry. An "unattractive" industry is being defined as one where the combination of the business forces act in an intense competition environment which results in a vicious cycle of overall reduction on the industry’s profitability. The Porter’s five forces of competitive framework is a basic tool to business manager to make qualitative evaluation of the company’s strategic position or assess industry’s attractiveness prior to entry. In order to stay competitive, firms need to constantly re-assess the marketplace in reaction to the dynamics of these business forces.

Figure 2.3: Porter’s Five Forces Model

Sources: Download from: Porter’s Five Forces; http://www.mindtools.com/pages/article/newTMC_08.htm

(a) Threat of Substitutes

This refers to alternative from other competitors which have direct influence to the demand of the product when there is a price change of the viable substitution. Most industrial products have specialized usage in specified processes and hence there is limited or no substitute for such products.

(b) Rivalry among Existing Competitors

This force describes the intensity of competition between existing competitors in an industry. Price competition, product innovation and advertising may be used as competition tactics. High competitive landscape nowadays has resulted in pressure on prices and margins among trading companies. This in turn affects the profitability for every single company in the industry.

(c) Barriers to Entry

New entrants to an industry often bring with them substantial resources and additional capacity and they require market share. This creates a destabilizing effect to the competitive market. In most cases, industrial product trading companies are expected to provide a certain level of after-sales technical support to the end-users. The more sophisticated is the technical skill involved, the higher is the barrier and this implies a potentially higher profit margin for the incumbents.

(d) Bargaining Power of Suppliers

This force is the capability of suppliers to decide the price and the terms of supply, such as prices, delivery schedule, quality etc. Porter’s model is based on the assumption that when suppliers are powerful, they can exert pressure on the producers to capture some of the industry’s profits. Most international industrial product suppliers have a certain degree of power in an industry as their products are differentiated through R&D.

(e) Bargaining Power of Buyers

This force refers to the ability of buyers of the industry to influence the price and terms of the purchase. Multinational corporations leverage on their size to negotiate directly with suppliers for an attractive global pricing. This deprives the local trading companies from setting their own prices and thus erodes their profitability.

Porter’s five forces model is not without critique. The model assumes a classic perfect market and it loses its insight as the industry becomes more regulated. The model is most suitable for an analysis of simple market structured but not easily applicable for an analysis of complex industries with multiple relations, product groups and segments. The model assumes a relatively static market structure which is hardly the case in today’s dynamic market. Technological breakthrough and the dynamism of market have changed the rules of doing business, especially in the context of industrial distribution. For example, the Internet is revolutionizing the way business is conducted and its use is becoming increasingly critical to the success of business firms. The use of the Internet empowers customers because they can go on the Web and quickly find out where to get the lowest prices for a particular product or service. Consumers benefit from the Internet because it reduces search costs for products and product-related information (Howard, 2002). Hence, though the model can be used to analyze a new situation, it cannot provide insight on preventive actions. The model is based on the idea of competition but lacked the consideration of strategic alliance.

Although there are limitations to Porter’s five forces framework, it is still useful for predicting industry profitability, determining overall effect of each force and indicating how the case company can influence industry structure in order to moderate competition and improve profitability. For example, if the same product is available through many suppliers in the market, the buyers will have more bargaining power over each supplier.

In this study, Porter’s five competitive forces model was chosen to analyze the micro environment of a SME industrial distributor and its impact on its competitive behavior. For many SMEs, the unpredictability of doing business and the complexity of procedures and regulations in many developing countries are perceived as major barriers. Furthermore, access to finance, new technology and good reliable infrastructure, especially for communications and logistics, are all special problems for growth-oriented SMEs (EIU, 2010).

It is important for a firm to analyze its competitors in the same arena. Doing so enables the firm to identify its own weaknesses, opportunities and threats from the industrial environment. A thorough competitor analysis must be in place during the formulation of the firm’s own strategies. It helps AVS’ management to understand their competitive advantages or disadvantages relative to competitors and devise winning strategies.

This analysis is key in positioning the company in the market and especially true in highly concentrated markets where each competitor’s move will affect the organization’s position. Davidson (1997) described how the sources of competitor information can be neatly grouped into three categories. Firstly, it is the recorded data. This is easily available in published form either internally or externally. Good examples include competitor annual reports and product brochures. Secondly, observable data has to be actively sought and often assembled from several sources, such as competitor pricing. Lastly, opportunistic data requires a lot of planning and organisation. Much of it is "anecdotal", coming from discussions with suppliers, customers and, perhaps, previous management of competitors

Once an organization has defined its relevant market, one relatively basic competitive analysis that can be completed is a SWOT (strengths, weaknesses, opportunities and threats) analysis. SWOT employs a multi-dimensional matrix approach to defining strategy that considers the firm’s internal and external environments. More traditional hierarchical approaches are linear and focus primarily on the internal environment. Strengths of an organization are used to exploit the opportunities and to define the organization’s weaknesses and threats.

In the case of AVS, its main strength lies in its strong technical support structure that the company has built up over the last 30 years in operation. Customers have placed much emphasis on after-sales support as an important criterion for the selection of industrial suppliers nowadays (Hutt and Speh, 2012). However, such added services have increased AVS’s final prices of goods to customers and hence is seen as a weakness in terms of its pricing strategies. The ongoing explosion in demand for smartphones and tablets (Today, 2012) provides an opportunity for AVS to grow as its electronics customers are increasing their production. With the economic slowdown in USA and Europe, the attention is on Asia’s developing economies (CNBC, 2012). Hence, many unauthorized third companies enter the market to compete against AVS’s business.

SWOT analysis is considered a matching approach, in that an organization makes strategic choices by matching internal analysis definitions. According to Aaker (2005), a key success factor is ‘any competitive asset or competence that is needed to win in the market place whether it is a strategic competitive advantage, actually representing a sustainable point of advantage or merely a point of parity with the company’s competitors. The competitor ranking uses KSF model to rank a firm against its competitors based on two parameters of a set of variables called KSF. The parameters are the importance of the KSF and the firm’s strength on each KSF relative to the other competitors being considered (Kim and Mauborgne, 2005). The set of KSF is unique to each industry and when coupled with a strategy canvas, it helps AVS to understand its current state, to understand that the industry is currently competing on and to understand what customers receive from existing competitive offerings.

The main advantages of SWOT analysis are its recognition of the important impact of the external environment and its simplicity relative to other models. The biggest limitation of a SWOT analysis is that it does not suggest how the firm should go about identifying and assessing its specific strengths and weaknesses and specific environmental opportunities and threats. The model also fails to define how the existence of a match can be determined or the implications of a match for strategic choice. Fleisher and Benoussan (2003) aptly summarize the benefits and concerns of using a SWOT analysis: "An appropriate analogy would be that the SWOT analysis only identifies the chess pieces on the board and the opponent’s possible moves. It is up to the analyst to calculate the series of moves leading to the ultimate winning chess move in the business world – that of achieving competitive advantage."

In this study, completing a competitor analysis and complementing it with SWOT analysis allows the subject company to recognise the risks associated within an environment and is therefore a significant tool for decision making (Schildhouse, 2006). Horwath (2009) highlights that this method is largely beneficial as it can aid an organization in changing its position from a reactive stance to a proactive strategy. However, it is important that the process is continually updated and improved so that managers are able to utilise the framework effectively (Mellahi et al., 2005).

2.4 Role of Human Resource Management in achieving sustainable competitive advantage in SME

Human Resource Management is the practice of aligning business strategy with that of HR practices to achieve the strategic goals of the organization. According to Porter (1985), the unique talents among employees, including flexibility, innovation, superior performance, high productivity and personal customer service are ways employees provide a critical ingredient in developing a firm’s competitive position. Since human resources are the distinguishing factor of successful and sustainable companies with failed ones, workers are also the most important part and the main input of the organization, other than being a part of organization’ customers. It now supports the company’s competitive advantage by providing high quality people and by helping business managers strategically plans the functions of the human capital within the organizations (Abtahi, 2010). This is the core element in sustaining competitive advantage and essential for organizational success.

De Kok et al (2006) provided the following important HRM practices that SMEs are making use of.

Recruitment: The use of a recruitment and selection office, temporary employment agencies, magazines, the internet, referrals by employees, references from other sources, and open houses

Selection: The use of written job descriptions, job analyses, psychological tests and interview panels

Compensation: The use of performance pay, competitive wages, and wages based on acquired skills, group incentive programs, individual incentive programs, profit sharing, annual bonuses, and other financial benefits such as insurance and savings plans

Training and development: The offering of training to employees, making a formal training budget available, formal in-house training of staff, external training programs, and use of management and development training

Appraisal: The use of rating scales, management-by-objectives, goal setting efforts, and having employee appraisals conducted by line managers

The SME sector plays the role of absorbing more labour-intensive production processes. Therefore, they can be seen to be contributing more towards the socio-economic development through reduction in unemployment. For instance, Singapore has shown significant strides for the last two decades and SMEs represent 99% of all businesses with total labor force employment contribution at 70%. Moreover, it accounted for 50% of the country's Gross Domestic Product (Spring Singapore, 2012).

An integrated HR development is important component of the firms operating in East Asia and the best case can be seen for Singapore. Jacobs (2005) studied the tactical advantage of the companies operating in Singapore in terms of trade and technological change. The most frequently used method is on-job training. Around 52 percent respondents were from the SMEs and on job training was the highest ranked method reported by firms to cope with technological change and majority of the companies used the services of foreign consultants and vendors to provide HR development expertise in order to disseminate global best practices (SAARC, 2011).

Managers working in SMEs sometimes do not appreciate the value of these HRM practices nor feel they have the time to carry them out. De Kok et al (2006) found that family-owned SMEs made less use of professional HRM practices. SME managers in Singapore emphasized on human resources as the most critical bottleneck amongst the other barriers preventing success of SMEs (Today, 2012). As a direct result of the small scale, each individual employee represents a substantive part of the SME’s workforce (Kotey and Folker, 2007), thus increasing the importance of every single HR-decision.

Many studies emphasize on the lack of managerial skills as an effective factor on the failure of SMEs in SE Asia. Consequences of this problem include lack of formal education, training expenses, inadequate training and ignoring the effect of education (Kye, 2006). So, the fact that government assigns subsidies or special assistances to ensure training SMEs is normal because SMEs, due to their small size and failure in their training markets, are unable to invest on human resources (Kye, 2006). In modern economy, intellectual capital and knowledge management are critical success factors (Abthai, 2010).

2.5 Strategic Growth Options for SME using Ansoff Product/Market Matrix Model

It is crucial in strategy development for a SME to have a dynamic rather than static focus. In doing so, Igor Ansoff presented a matrix that focused on firm’s present and potential products and markets. The framework provides all the strategic directions that the firm can adopt. There are four possible product-market combinations in Ansoff matrix (Figure 2.4) as it considers ways to grow via existing products and new products and in existing and new markets.

Figure 2.4: Ansoff Matrix

Source: Download from Ansoff Matrix: http://www.tutor2u.net/business/strategy/ansoff_matrix.htm

Today the definition and understanding of the term diversification is much more complex with authors offering diversification strategies which are based on external opportunities as well as strategies which create opportunities through internal development. It seems that any development of new markets or products can now referred to as diversification, almost ignoring Ansoff’s (1965) definition, but the way in which a firm identifies or enters those new markets is of greater importance.

Mintzberg (2000) argues that Ansoff reliance on planning suffers from three misleading notions: that events can be predicted, strategic management can be separated from operational management, and that data analysis and techniques can produce novel strategies. However, Meldrum and MacDonald (2007) suggested that the matrix can be used as a tool to provide alternate methods for the organization to go in the right strategic direction for achieving its final goal of growth. However, SME’s tend to have limited resources and are therefore more likely to diversify into related markets when expanding on internal strengths in order to reduce the exposed risk to the firm (Hussain et al, 2006).

AVS, being a SME, is experiencing the same limitation in resources. For example, the company is limited in its capital funding to establish offices in new market territories and hence a thorough analysis has to be done before committing any new capital investment. In this research, the growth options of AVS will be examined to create a sustainable competitive advantage against other similar industrial distributors.

2.9 Chapter Summary

The above literature review laid down the necessary tools to be used in our analysis of the slow growth in AVS and the strategic recommendations on how AVS is able to sustain or improve its competitive advantage to compete further in the industry. Industry analysis is an essential business tool which facilities the understanding on firm’s strategic posture relative to competitions. This analysis is done by applying Porter’s five forces and SWOT framework. The actual business strategy analyses the business’ KSFs and HRM used to create the competitive advantage and achieve the KSFs and the final marketing mix. Ansoff Product/Market matrix model is used to facilitate the strategic-management effort to achieve its objectives.

CHAPTER 3: COMPANY PROFILE OF AVS PTE LTD

3.1 Introduction

This chapter firstly presents the company’s background in which the case study is set. The corporate goals and objectives of the company are defined and its organizational structure is illustrated. AVS’s financial performance is presented as well for further discussion.

3.2 Company Background (AVS Company Profile, 2012)

AVS Pte Ltd head-quartered (HQ) in Singapore is a premier sales and service provider for high technology products in the fields of vacuum and bioscience related technologies. It delivers solutions for critical processes in the data storage, solar, optics, semiconductor, research & development institutions, biotech, pharmaceutical, environmental and the defence industries. It is strategically located in the Western Central part of Singapore, easily accessible to all industrial zones and is fully equipped with leading-edge test and service facilities covering a floor area of 30,000 square feet. Also housed within the Enterprise building is a specially designed 24/7 air-conditioned storage area and Class 1000 Cleanroom enabled with an intelligent computerized inventory control system to ensure ready availability of necessary stocks at all times.

The company was established in 1982 as a representative office for an industrial high vacuum manufacturer from Switzerland. The main business then was to sell spare parts and provide technical services to industrial customers in South East Asia (SEA), namely Singapore, Malaysia, Thailand and Indonesia. The business went on for several years without any significant change in operations and growth in revenue. One of the reasons for the initial lacklustre sales performance was that the birth of the company was more of an outcome of circumstance rather than plan. Hence, there was a lack of attention from its MD and there was neither a qualified managerial team to propel the business nor a distinctively spelled out company objective.

With the Singapore government’s effort to focus on the growth of hi-technology manufacturing in the 1980s, the nation had become the world’s largest producer of disk drives and parts in 1989 (Singapore Economy, 2010). Other related electronics products included the integrated circuits, data processing equipment, telecommunications equipment, and radio receivers. The founder could see the opportunity in this industry and decided to extend the sales of these vacuum products to a wider market apart from the existing captive customers. Related products were also added to its product line.

One of the company’s key milestone was the recruitment of its Marketing Manager (the current Sales Director), in 1991. His academic achievement and working experience have set him as the ideal candidate to grow the company. Within 10 years of his tenure, he has exceeded the company’s goals set in 1991 by achieving an annual growth of at least 15% and attained a turnover of more than S$20million. The component sales base company has extended to capital equipment sales as well.

Today, AVS has its own sales offices and service centres in Singapore and six other regional countries (Malaysia, Thailand, Indonesia, Philippines, Vietnam and India). The company represents more than 30 highly reputable product brands in their field of expertise, in which 10 brands are categorized as major brands with annual sales turnover above S$1million each.

3.3 Corporate Goals and Objectives of AVS (AVS Company Profile, 2012)

The company was successfully transformed from a small enterprise to a medium enterprise over the years and the top management has set the following corporate goals and objectives in 2001.

To achieve an annual growth rate of at least 10%

To attain a turnover of S$40million in the long term (next ten years)

To acquire more suitable related product agencies to speed up growth

To penetrate new market territories with growth potential

3.4 AVS’s company Organizational Structure (AVS Company Profile, 2012)

The job function of each department is well defined; where individual employee performs his assigned tasks and responsibilities in order to achieve the company’s goals and objectives. The pre-sales activities are handled by the Marketing Department and Application Department. The Sales Department is responsible for the "active" sales of components and equipments. The department is structured such that each sales person is Product-Oriented.

The Service Department is to provide technical support to the Sales Department, both in-house and out-field activities. It also contributes "passive" sales from service charges.

The Finance Department, Human Resource Department and Logistics Department make up the supporting roles of the operation. The company’s latest organization chart is shown in Appendix B.

The three main management staffs are:

(i) Managing Director (MD)

MD is a qualified engineer in profession and an experienced entrepreneur with majority interest in five companies (inclusive of AVS Pte Ltd). He is the main decision maker.

(ii) Technical Director (TD)

TD is the co-founder of the company. He has vast experience in vacuum technology from his earlier work experience and heads the technical team. He oversees the daily operation of the company as well, including inventory control and delivery.

(ii) Sales & Marketing Director (SMD)

SMD joined the company in 1991. His role is in-charge of overseeing the Sales and Marketing activities. He is instrumental in the transformation of AVS from a small 5 man company to a company of 145 employees today.

Generally, the management style is observed to be conservative from their attitude towards the operation of the company and willingness to take risk.

One key success factor is the company’s commitment to supply high quality of goods and services to customers.

3.5 Financial Performance of AVS (AVS Financial Report, 2011)

From AVS’s profit and loss reports, the company has been profitable ever since in business. It has achieved a steady growth rate of around 15% per annum from 1982 up to 2006. The annual sales turnover has increased significantly from a humble S$0.2million in 1982 to more than S$30million in 2011 (reference to Table 4.1). Table 3.1 shows the contribution of Singapore HQ against regional offices as well.

Since 2007, the company’s sales turnover was stagnant at the S$30million mark. There was almost no growth for the next 5 years. Moreover, profit has dwindled with the rising operating cost and lower sales margin due to market forces.

For the last 5 years, the average revenue contribution from Singapore HQ against regional offices was at 54%. This failed to meet the management’s aim of having a 40%-60% (Singapore vs Regional) contribution. Overall, regional performance is below par and is unable to keep up in momentum with HQ.

Year

Total Revenue (Million in SGD)

Percentage of Sales Composition

Singapore HQ

Regional offices

1982

0.2

100%

0%

1992

2.9

89%

11%

2002

20.3

69%

31%

2003

22.7

64%

36%

2004

25.1

60%

40%

2005

27.8

59%

41%

2006

29.4

54%

46%

2007

30.8

54%

46%

2008

30.0

52%

48%

2009

29.2

51%

49%

2010

31.0

55%

45%

2011

30.5

56%

44%

Table 3.1: Sales Revenue of AVS 1982 – 2011

Source: AVS Financial Report 1982-2011

3.6 Chapter Summary

This chapter has provided an insight to the company of the case study – AVS, in terms of the company’s background, corporate goals and management structure. The financial performance of AVS is presented to show the slow growth of the organization in the last 5 years of operation from Year 2007-2011.