Pre Class Assignment

REPORT ON REDUCING JT’S TOO DEPENDENT ON LOCAL TOURIST MARKET INTRODUCTION JT’s has recently encountered the competitive crisis that recent developments were threatening to undermine its hard-earned success. Bangkok’s increasing adverse environmental factors such as auto congestion, escalating air pollution, and soaring AIDS infection rate were causing foreign tourists- JT’s primary customers – to avoid the city as a travel destination that constitute a significant decline in its profit margin. Furthermore, JT’s shops were all located in Bangkok, its revenue and profitability was falling. To restore its sales revenue and profitability, I strongly proposed that JT’s should adopt the franchising system to prosper its business and expand internationally as well as on a long-term plan including changes in the company’s culture, changes to daily operation, employees hiring and training, store design, and so on. Purpose, Scope, and Limitation The purpose of this report is to evaluate the recent slowdown in sales and the accompanying rise in sales, and suggest the necessary strategies for ensuring that JT’s will offer the best solutions in restoring its sales revenue and profitability. Although the report outline a number of options that could resolve the competitive crisis, the actual impact of these measures is difficult to project, as it is just a theoretical win or “best guess” view of what JT’s can expect to do in improving the customer service as possible. Until the company actually implements these steps, however, we won’t know exactly how much the competitive crisis can be resolved as it require the fully support and involvement from all levels. Sources and methods In preparing this report, I have analyzed JT’s internal sales and transportation and shipping department's reports for the past few years including the past few years (19841993) that were being significantly affected by the competitive crisis. I also analyzed trends and suggestions published in a variety of business journal articles to see how other companies are coping with the similar competitive crisis. Report Organization This report analyze the possible strategies to improve its sales revenue and profitability as well as strategic planning on improving the changes in the company’s daily operation, employees hiring and training, and so on.

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SWOT Analysis A SWOT Analysis is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. Strengths and weaknesses are internal to an organization. Opportunities and threats originate from outside the organization. The SWOT analysis of Jim Thompson (JT) Thai Silk Company is as following: Strength •

JT’s has an outstanding reputation for design and quality of native silk and dyeing craft, and transformed it into a world-class designer brand. It become Thailand’s leading retailer of native silk in 1994, commanding an enviable 2/3 market share of the premium tourist market.

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JT’s has sound management practices and ongoing support and hard work from all its dedicated company management levels that yield favorable return.

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JT’s insisted on conserving many traditional elements of cottage industry silk weaving but also emphasis continuous on innovations and technology advancement that significantly raised the standard of silk production. This resulted in a substantial improvement in the quality of the silk woven as well as in the volume produced.

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JT’s had own expansion production activities in sericulture, spinning, weaving, printing, and sewing. It enable JT to meet the requirement of hotels, office building, apartment, and condominium from time to time need to replace wall covering and upholstery fabric and improving also its delivery capability.

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Frequent use of outside experts can be a source of competitive advantage, helping the JT’s provide customers with better goods and services as well as improve managerial decision making with variety of points of view and approaches to problems and opportunities that diverse outside experts provide.

Weaknesses •

JT’s is too dependent on Bangkok’s tourist market. Thus, any dramatic drops at Bangkok retail outlets may jeopardize the whole company.

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Sales to the domestic home furnishing market need to be further expanded and marketing effort should also be intensified into this segment.

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In Bangkok, the business may be more emphasis on personal relationship and “under table dealing”.

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JT’s had neglected some major market such as the condominium market, that their owner have plenty of money to pay for the very best, however, JT’s has garnered very little of this market.

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JT’s too dependent on a few people on decision-making and it is not a healthy sign as crisis may arise for the absence of them.

Opportunity •

The economy of Thailand is relatively free of controls on private enterprise that are common in other developing countries. The Industries Promotion Act of 1962 provides companies operating in designated industries guarantees against nationalization, and exemptions from import duties, export duties, and many taxes. This is beneficial to JT’s on-going expansion.

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Degree of differentiation – JT’s serves a native silk and dyeing craft, and transformed it into a world-class designer brand where their products can be differentiate from competitors.

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The Thai “baht” is freely convertible into foreign exchange. Its value against the dollars has remained very stable over a long period of time. For example: U.S. $ 1 = 25.28 baht (1993), 25.400 baht (1992), and 25.517 baht (1991). Thus, it is advantage to the JT’s international investment and expansion.

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JT’s export sales throughout the globe was expected to increase due to initiative planned for 1994 included international advertising program, larger than ever mounted before; a new show room scheduled to open in London; and increased effort in several growing Asian market including Korea, Taiwan, and the Philippines.

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Long-term marketing strategies may bring JT’s potential sales increase and profitability in the long run.

Threat •

JT’s was threatened as in the rival companies that began to spring up all over Bangkok. The entry of new competitors provides close substitutes for each other in silk industry.

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Dollars sales at JT’s flagship retail outlet had declined 11% since the peak level reached in 1990 and the company’s overall retail sales had dropped in recent year. From the annual report (April 1993), the net profit was $ 181 (baht in million), it was a decline compared with the previous years: $ 184 (1992), $ 195 (1991), $ 209 3

(1990). This may decrease its stakeholders’ confidence and reliability to the company. •

Bangkok’s increasing adverse environmental factors such as auto congestion, escalating air pollution, and soaring AIDS infection rate were causing foreign tourists- JT’s primary customers – to avoid the city as a travel destination that constitute a significant decline in its profit margin.

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Since mulberry leaves constitute a silkworm’s chief diet, the Chinese government, in the 1980s began to allow silk producers to cultivate other crops, led to reduction in output of raw Thai silk that increase the native silk’s cost of production that may affect the JT’s overall sales.

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With the advent of industrialization in the early twentieth century, ever-rising demand for cheaper machine-made textiles from factories in Europe and Japan, dealt a devastating blow to traditional silk weaving that JT always insisted.

Problem Solutions In light of the SWOT analysis and further development, the following four options for improvement were under reviewing on its pros and cons: -

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Develop a mail order catalogue displaying accessories such as neckties, purses, blouses, etc. It is an economical but effective way to distribute latest information to the current and potential customers. The customer may have chances of vision sensory of latest JT’s silk products that would stimulate and provoke their desire to buy those products. However, through mail order, some customer may feel that they don’t have the chances to inspect the products and sometimes the mail order catalogues may fail to reach the customers due to uncertain circumstances.

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Open a retail store in a major foreign city such as New York, Paris, or Tokyo. It is no doubt a good platform to expand into international market making JT’s silk product internationally renowned and of course gaining favorable profit margin to the company if successful. However, when enters a new market, the first issues faced are building brand awareness and learning about potential customers’ buying preferences and custom in order to meet local preferences. It is a challenging task to be completed especially the cross cultural issues in international business such as communication pattern, decision making approach, management style, approaches to complete task, attitude towards conflict and so on. Moreover, the project managers may feel tension and pressure when dealing with international crosscultural business issues.

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Open a retail shop at a Thai beach resort such as Puket, Samui, or Pattaya. All these three locations were growing very rapidly. The natural beauty of these three locations may attract many visitors both from local or foreign countries. This has served a mass market for JT’s to penetrate. Also, it may prosper the economy of these three locations and improve the living standard of these areas. However, these three locations, especially Pattaya was beginning to experience its own brand of environmental degradation and the potential tsunami may pose a threat to many foreign visitors as well as an alarming proportion of the bar girls, many of whom are in fact transvestites, are HIV positive.

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Expand sales to the domestic home furnishing market. It is a “safe and sound” way to prosper JT’s business because to penetrate a market that JT’s familiar with is always less risky in comparison with penetrations a foreign market as proposed in option 3. Meanwhile, it is save cost as less capital involved on in-depth investigation and exploration on international cross-cultural issues and marketing research that is essential in opening an international market. However, it may lead JT’s management board content with and dependant on the domestic home furnishing market in the long term, and thus limit JT’s further expansion into international market.

Best Option I Prefer Personally, I prefer the last option that expand sales to the domestic home furnishing market as this option no doubt is a most appropriate solution as refered to the earlier SWOT analysis. The domestic home furnishing market experienced little adversed effect from the city’s traffic congestion. Indeed, the market may have actually benefitted from such congestion, since an increasing number of people were moving from the outskirts of Bangkok to downtown condominiums near their work locations to avoid traffic jams during commuting hours. A heady construction boom was taking place in the city, and new units being built need furnishing. And JT’s reputation for creative design and good quality were highly prized by interior decorators who acted as prime decision makers in the market.

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Moreover, the home furnishing market presented JT with a major challenge, most home furnishing sales consisted of relatively low-priced cotton fabric produced by suppliers utilizing high-speed mechanical looms. JT’s weaving expertise, by contrast, lay in hand weaving. To compete more effectively in the home furnishing market, JT would need to significantly improve its skill in high-speed mechanical weaving. In an effort to improve its ability in this area, JT may purchase high-speed mechanical looms and sending its operators to Germany to receiving training from the firm which had sold it the equiptment. The technology transfer and frequent use of outside experts can be a source of competitive advantage, in improving JT’s effectiveness and effieciency.

Additional Recommendation I personally suggest JT’s should adopt the franchising system to prosper its business. Franchising System is concept that franchises the business to keen investor. JT’s may use franchised owner-operator to expand internationally as every franchised owner/operator in the JT’s system, he/she will benefit from systematic procedures to ensure successful opening of franchise store in the areas of site selection, building design and décor, purchasing, marketing, employee training and ongoing operation. Also, every owner/operator restaurant is locally owned and operated and thus the owner-operators have such a strong commitment to their community and they feel a responsibility to give back to their hometown communities and through their hard work. With franchised owner operator system, the numbers of franchised shops will be unlimited, and it may help JT’s to eclipse other competitors as the largest silk chain company in the world and to be the fastest growing quick service silk company made possible through the efforts of

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dedicated franchisees, sound management practices and ongoing support for its entire franchised owner operator.

Conclusion In conclusion, any effective strategic planning must include Competitor Analysis. JT’s needs to determine both the nature and extend of competition and appraise relative strength and weakness, in this assessment and it is little doubt that having systematic procedures and for collecting analyzing competitor intelligence is essential to strategic planning as competition continues to intensify. Also, we should always bear in mind that our customers are revolting! They are demanding more for less. They want world-class products and services. They want it all and they want it now. If we cannot provide what they want, they will find some one who can.

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