The Threat Of New Entrant Marketing Essay

The Threat Of New Entrant Marketing Essay Introduction Poh Kong Sdn. Bhd. was founded in 1976, by 3 Choon Brothers and their two brother-in-laws, which built in half of a normal retail store in Petaling Jaya. The company started to expand their business around the city in Petaling Jaya. On 1999, the company has reached 50 retail outlets around the Penisular Malaysia. Most of it located in Klang Valley, 3 branches in Johor Bahru, and one branch in each of these city: Melaka, Kuantan, Muar, Batu Pahat, Ipoh, and Sungai Petani. Poh Kong was listed on the main board of Bursa Malaysia Securities Berhad on 9th March, 2004, with 60 outlets and approximate 600 employees around the world. Then, the company started to expand the franchise division, and the first franchise outlet is in Complex Karamunsing in Sabah, to be part of the retail expansion in East Malaysia. As to date, the company has reach market capitalization of RM197millions and has more than 1200 of employees, with the total of 101 retail store and still expanding. The mission and vision of Poh Kong Group is to manufacturing and retailing the jewelries, while differentiates their products offered by achieving the four core business principles of value, quality, choice, and trustworthiness. Besides, they also try their best to serve their customers from the walks of life for many of their important moments. From setting the benchmark in retailing of jewelries in Malaysia, Poh Kong Holdings Berhad is known as a company with corporate successes in phenomenal growth over the years. The company also has several in-house brands such as Tranz, Happy Love, Anggun, The Art of Auspicious, and Bunga Raya Gold Bar. While, Poh Kong is also the licensee for Disney Collection, sole distributor for Schoeffel luxury pearls from Germany, Luca Carati and Verdi Gioielli from Italy, Angel Diamonds from Belgium, Cocoro from Japan, which that the company has variety of unique jewelries from around the world. Besides, the company also differentiate themselves by separate the retail concept store. Other than Poh Kong and Diamond Gold outlets, retail concept stores such as Diamond Boutique, Jade Gallery, Tranz Boutique and Oro Bianco are available. Besides, they also providing Gold Bar Buy-Back service to customer, its purpose is to letting the customer to trade back their Bunga Raya Gold Bar for jewelry or trade it for cash. While, they also helping customers to customize the design of the jewelries and also making of corporate awards and gifts, such as Gold emblem, gold plaque an d etc. The group mentioned that they will actively look for more business opportunities to expand, while grow its market share in the same time. Poh Kong is the market leader and will continue to stay on its market position as the largest jewelries retail store in Malaysia. Demand for gold is expected to be recovering over the long term due to its intrinsic values by Asian cultures of giving gold jewelries as customary gifts. Poh Kong also expects the retail sales will be boost due to the coming festive spending seasons and the purchase of gold jewelries and gold bars by customers as a hedge to against the global currency risks and inflation. On top of that, the group will utilize the loan proceeds raised from the ICP/IMTN Programme to grow its business by to finance group wide restructuring programme and the capital expenditure of the Poh Kong Group. Poh Kong will continue to drive and raise its market share by enhancing and differentiating its product to its targeted market segments. In addition, they are trying to attract new customers via introduction of new products and designs, while providing as good customer service as they can. Poh Kong provided different choices of retail concepts to meet the various needs and required of customers. They are also fully commits on the design of jewelries, its craftsmanship, and quality of their products with setting reasonable competitive pricing on them. Other than that, their retail sales teams are supported with advertising, promotions, events marketing and public relations. Strong retail network have been made to reach the mass market, while the image differentiation of its product brands and retail concept stores is performed to meet the needs of different customers. Recently, Poh Kong comes out with floral designs on the recent Hari Raya celebration and some new design and series such as the Anggun series and Melur collections. The well-crafted designs are combined with elements of tradition. Manja collection is designed for children to target new market others than targeting women only. They also teams up with the Italian jeweler, Moraglione 1922, which is one of the worlds finest brands being inspired by the Europes royal families. Customers who love fine jewelries can now have the opportunity to  obtain one of  the Europes finest  brands of gems. The collections available including Anastasia, Isabella, Grace and Sofia,  which comprise of diamonds and colourful precious stones. The executive chairman and group managing director said, Malaysians can now enjoy to wearing one of the best jewelries in the world. With the Moraglione 1922 collections, Poh Kongs customers can expect the best in terms of glamour and elegance. Poh Kong is now considering on the expansion outside of the Malaysia. The group is eyes on Asean marts by plans to open the overseas outlets in Asean before 2015. Research had been done and stated that Asean region especially Indonesia, Thailand and Vietnam are among the worlds key success gold markets, and they are taking opportunities of the setting up of the Asean Economic Community (AEC) by 2015. Moreover, the gold jewelry consumption are now mostly at China and India, and the company is also considering to expand on it in the future. Sales revenue is expected to rise by growth of 25% compare to this year. 2. Prospective and Strategies Products and services Poh Kong is selling different products in their outlets such as diamond and gem, Jade, Gold, and also Gold bar (Bungaraya gold bar). They also sell international products which consist of Schoeffel, Luca Carati, Angel Diamond, Cocoro, Disney and etc. Besides, wedding and Festive collection also available in the Poh Kong outlets, Chinese New Year and Hari Raya collection could be found on their outlets. Besides, they also providing Gold Bar Buy-Back service to customer, for customer to trade in Bunga Raya Gold Bar for jewelly or trade it for cash. Poh Kong Corporate Sales is also helping customers to customize in the design of jewelries andmaking of corporate awards and gifts, such as Gold emblem, gold plaque and etc. Missions and Visions Poh Kong Group, an integrated one-stop jeweller, from manufacturer to retailer of gold, jewelleries and precious stones, differentiates its products offering by meeting the four core business principles of quality, value, trustworthiness and choice. Poh Kong has served customers from all walks of life for many of their important occasions. Theres always something for everyone, from exquisite pieces to simple designs, from irresistible collections to dazzling custom-made orders are available to suit our patrons taste and budget. Setting the benchmark in the manufacturing and retailing of gold and fine jewellery in Malaysia, Poh Kong Holdings Berhad, as a public-listed company has earned a place in the countrys annals of corporate successes with phenomenal growth over the years. Milestone 1976 Poh Kong was established on March 26th, 1976, with its first outlet at Jalan 52/4, Petaling Jaya, more known as PJ Newtown or PJ State. It has been the Poh Kong Headquarters until today. 1982 First branch in SS2, Petaling Jaya, of retail space 1,500 sqft and 20 employees, was opened. 1983-1992 Poh Kong opened another 13 branches. 1993 Poh Kong upgraded all outlets with fully computerised point-of-sales and inventory systems. 1995 Poh Kong was made the exclusive distributor of Disney characters in gold in Malaysia. 1996 Poh Kong designer team won a gold medal for the Golden Design Awards 1996 organized by the World Gold Council Europe in Italy. 2001 Poh Kong invested RM12Mil to establish a 60,000 sqft modern manufacturing facility in Shah Alam. Poh Kong launched its first in-house brand, Tranz in collaboration with World Gold Council. 2004 Poh Kong was listed on the main board of Bursa Malaysia Securities Berhad on March 9th, 2004. Poh Kong opened its first Poh Kong Gallery-a stylish Italian Classic VIP lounge with 5,000 sqft, at the 1stfloor of its headquarters. Poh Kong reached 60th  outlet in Peninsular Malaysia. 2005 Poh Kong set up a franchise division. 2006 Poh Kong ventured into the diamond cutting and polishing, sales, import and export of precious stones in collaboration with Hong Kong companies. Poh Kong opened its first franchise outlet in Complex Karamunsing, Kota Kinabalu in September as part of its retail expansion into East Malaysia. 2007 Poh Kong was appointed as sole distributor for Schoeffel in Southeast Asia. Poh Kong Group participated in the International Trade Malaysia (INTRADE MALAYSIA 2007) exhibition organized by Matrade and supported by the Ministry of International Trade and Industry. 2009 Poh Kong and Luca Carati, one of Italys oldest and most prestigious jewellers launched the brand in Malaysia. Poh Kong is commemorated as the sole distributor in Malaysia. 2010 Poh Kong showcased in house brand products, Tranz and Anggun in Malaysian Pavillion at Shanghai World Expo 2010. 2011 Poh Kong reached 100th  outlet in Peninsula Malaysia. PEST Analysis Political As usual, government policies play an important role on the development of 1 industry. It can affect how well the industry can perform and influence the decision on consumer as well as the sellers. Based on the Malaysia Budget 2011, in order to promote Malaysia as a shopping haven in Asia, the import duty of approximately 300 goods is abolished and imitation jewellery is one of the listed goods. As effective from 1st January 2011, this imported as well as exported jewelry items will enjoy the tax free policy. The execution of this new tax policy has successfully transformed Malaysia to be a duty-free shopping paradise locally and internationally. The reduction on tax burden has encourages tourists and local buyers to spend more with lowest price and it is expected will bringing economic growth in the jewellery industry would expected to growth in both importing and exporting sector. In this gold and jewellery industry, there is an association which will govern the rule and regulation of the industry, which namely Federation of Goldsmith and Jewellers Association of Malaysia. This association was established in 25 April 1978 by 12 different goldsmith associations and today there is more than 1500 goldsmiths and jewellers are in the member list. As at year 2011, the group managing director of TOMEI Group, Mr. Ng YihPyng is the president of this association and the deputy president is served by Mr. Siow Der Ming, the executive director of Poh Kong Holding Bhd. The aim of establishing this association is to protect the interest of the member. They also dealt with lobbying with the government as well as standardize the retail charges of gold and other jewelry ornaments to prevent them from being distorted by competition among the goldsmiths and jewellers. In order to protect the member, the association will try to bargaining with the government on the taxation. E.g. In 1982 the Association bargained over the government for a free and open policy whereby gold bar imports would be exempted from tax, and eventually this had been executed in 1983. This execution had enhanced the performance of goldsmiths and jewellery industry. As mentioned, this association will standardize the retail charges of gold and other jewelry ornaments. However, starting from around October 2012, the standardization of the price no longer apply, which mean all the goldsmiths and jewellers can charges whatever the price of their product they want to. The abolishment of standardize gold price could cause the jewellers who achieved the economics of scale can charge for lower price of their jewellery compared to whose had cost competitive disadvantage. This brings up the more competitive in the jewellery industry and for sure, the larger size company with lower production will win the battle and the small scale goldsmiths and jewellery business will have to move out from the industry. Physical gold bullion is no longer a restricted item since 1987, which means general public can trade in gold like other merchandise. One can now buy and sell gold bullion at goldsmith shops which traditionally sells over-the-counter (OTC) gold jewellery and also at many gold trading companies which apply different trading model to attract business. This has been increased the confident of those investors which buy for the purpose for investment because the existing of physical gold is far better than a just a piece of paper prove that how much gold you have owned. This abolishment had further increased the growth of the industry. In recent the announcement of Malaysia Budget 2013 will also enhanced the lifestyle of the citizen especially of the medium range income receiver. One of the policies listed in Budget 2013 is that the tax rate will be has a reduction of 1 per cent for those chargeable income which currently fall into the category below tax rate of 19 per cent. This will increase the disposal income of those middle income ranges of household, which is 60% of Malaysia household and hence probably will increase the consumption of jewellery industry. Economic Jewellery industry in Malaysia from a very humble beginning of family-owned business transformed into one of the major exporters of jewellery in the Asian region. According to the industry write-up released on Malaysia External Trade Development Corporation (MATRADE), the Malaysian jewellery industry consists of 2 segments: Precious metals and gemstone jewellery Costume or imitation jewellery Jewellery sector was ranked the 13th largest contributor and accounted for 1.5% share of total exports of manufactured goods. Based on the trade performance from MATRADE (Appendix), the exports of jewellery in year 2011 grew by 1.7% compared to year 2010.   Malaysias exports of jewellery comprised three major product categories namely jewellery of gold, silver and platinum, which is the main export sector with 81.5% of total jewellery export and followed by is the articles of precious metals, which recorded 18.3 % share of exports and lastly is the imitation jewellery which has a share of 0.2%. According to the news reported in The Star on 13 July 2012, the growth rate of jewellery industry in Malaysia is expected to have a growth rate of more than 6% a year. In current economic condition, the increase of price of fuel, electricity and transportation and other costs has left companies no choice but to increase the price of their goods. According to the consumers of the industry, the prices for gold and jewellery have been increasing rapidly over the years. This has caused a drop in the demand for jewellery. If costs of gold and other precious metals such as silver and platinum continue to escalate, demand for jewellery would decrease and thus affect jewelers and the industry. Malaysia jewellery industry will continue to face keen competition from low-cost producers such as India, Thailand, Indonesia and China. However, the industry has the potential to successfully compete against the luxury goods industry and preserve its traditional domination of the consumers spending. Social In todays jewellery market, consumers preference seem has been changed. The traditional yellow gold jewellery can no longer attract younger customers which prefer their jewellery set in white gold and platinum. Most of the jewelers have changed their strategy to meet the demand of younger customers. One example can be found is the DeGemBerhad. In order to meet the preference of younger customer, one of the listed player in goldsmith and jewellery industry, DeGemBerhad, had purposely launched its division Diamond Platinum, which is more focuses on more trendy and fashionable designs to capture the demands of younger customers who preferred their jewellery set in white gold as well as platinum. Even though there are changes in customers preference in term of design and material the cultural may also affect the consumption level of jewellery industry. In this multi-racial country, the effect from different races can be greater than single race countries. In Malaysia, each race has its own new year, own festive, therefore the gold and jewellery industry performance can be further boosted by these festive. For example part of Chinese traditional culture, gold and precious stone jewellery will be the popular gift to their friend when they are get married or give birth. Furthermore, the Valentines Day, Christmas, and Mothers Day, and etc are also the main boost of the sales in the jewellery sales. Not only have those stated, most of the designs of jewellery in this industry are based on the different season. Different season the jewellers and goldsmiths will comes out with unique designs which use the seasonal theme as the basis. Therefore the innovation and creativity of the craftsmanship are crucial in this area in order to differentiate the product from the competitors and attracting the buyers. For Poh Kong, it used the spider and leaf as the theme for their autumn series design. Crimes affect the consumption of gold jewelry among the consumer. They afraid of being rob therefore they tend to not wearing the jewelry when going out. So the demand of gold will be affected as the crime of robbery increase simultaneously. Technology With today advanced technology, Internet had been effectively using and hence the increased the distribution channel for not only jewellery but also other product. Website has been a tool for the jewellers to list their precious jewellery and giving the information to the potential customers. Also with this technology, the imitation jewellery increased its position by offering the online buying the jewellery and shipping worldwide. The advanced technology in today jewellery industry had made the need of craftsmanship decreased. Before this, the responsibility of the craftsmanship are design the jewellery, supervise the jewellery making process (e.g. make sure the cutting is accurate.). Since the advancement of technology, the development of Rapid Prototyping and Tooling Technology in jewellery CAD (computer aided design) has made the jewellery process more precisely and less craftsmanship is needed. This new technology had simplifies the designing process, ease the adjusting processes if the design is not well designed hence it shorten the time of making a jewellery and increase the productivity. Not only that, the error rate of this technology has greatly reduced to only 0.0012 chances of error occurred. This technology is kept in improving and enhancing. Threat of New Entrant This industry needs very huge amount of capitals in order to operate the business, such as acquisition of shop lot, plant and machineries to manufacture jewelleries, high securities costs and so on. In consider that the inventory itself (gold material) is very expensive to afford compare to other industries (gold price as at 12 November 2012 2.34pm New York Time is USD1,234.87 per ounce, exclude the labour charges and other transaction costs). And of course, this industry will incurred a low exit cost, the disposal price of the inventory (gold jewelries) will be deducted 20% till 25% of the purchase cost and that is risky considered the fluctuation of the gold price. Whereas in terms of the government policys barrier, this industry is controlled by Bank Negara Malaysia, that not everyone can simply operate a goldsmith and jewellery business as there is a needed to get approval from the Federation of Goldsmiths and Jewellers Association of Malaysia, this create the barriers of entry a mong the jewellery industries in terms of capital investment, the rules and regulations and low exit costs. The threats of new entrance for jewellery industries is low because the high barriers of entry. Here, Poh Kong has managed to lower down the average cost by selling more product compare to the small-sized company, in order to utilize the fixed cost. Also, it is very unlikely for those small-sized companies to achieve these economies scale, considered that we need high cost of plant and machinery, and of course a high rental cost to expand the business in order to compete with Poh Kong. Threat of Substitute The more substitutes are available, the more elastic is the demand because customers have more alternative choices. When customers have more alternative choice to choose, the threat will become greater for a company. Jewellery actually is an item that is desired but unnecessary. Therefore only people with surplus income will buy precious metals jewellery. For those people who unwilling to afford a precious metals jewellery, they can choose to spend their money in buying imitation jewellery such as poly-plastic jewellery or non-precious metals jewellery such as stainless-steel jewellery and tungsten jewellery. And yes, there are many jewellers which are dealing with this kind of jewellery and target those low income consumers. All these jewellery will have very low relative price compare to precious metals jewellery such as gold and platinum jewellery. Not only the price, but consumers also can easily buy this type of jewellery through different channel, either from physical shop or b uy it online. Since this imitation jewelleries are cheap and customers usually will not examine them as they already know it is imitation. Therefore, the sellers can operate an online shopping which easier to reach to potential customers and provide free shipping service to attract those customers which unable to afford the precious metals jewellery. The implementation of online shopping by those jewellers has increase the availability of the substitution for precious metals jewellery. Other than that, jewellery market not only offers those precious and non-precious metals jewellery, there are also jewellery made of precious stone and gem which embed into the precious metal or ornament. For those people who do not like gold or any other precious metals but want something special or for collection, they also can opt for amber or crystal jewellery. Amber and crystal jewellery actually not cheap at all, some of the rare amber and crystal jewellery can cost more than a 4 carats diamond. If a person able to afford such expensive precious metal jewellery, it will be not a problem for that person to afford an amber or crystal jewellery. At the end of the point, its just depending on what is preferred by the consumers. The more choices of jewellery available in the market, the more option can the consumer choose from and the higher the threat. Currently the non-precious metals jewellery can be very easy to obtain from many goldsmiths and jewellers. Not all people will love jewellery. As mentioned above, jewellery is an item which desired but unnecessary, so it is considered as a luxury goods. Most of the people will first spending their money on daily necessities then only considers buying jewellery if there is a surplus. Those people who spend their money on luxury goods is try to enjoy better lifestyle. In todays world, those people who wearing or using a luxury product will giving a signal that the person is a rich man, should be more respect to them. So luxury goods in this world is not limited to jewellery only, there could have many other products, such as branded watches, designer clothes, branded hand bag and etc. These products can totally substitute the needs of jewellery for those people who wanting a better lifestyle. Furthermore, these products can also be very easy available, which has high distributional channels that easily distribute to potential customers, therefore the threat of substitute from these products is high. As the result from those many substitutions from the above, Poh Kong is facing a high threat of substitute. The direct substitution, amber and crystal, which will serve the same purpose as the precious metals jewellery, are the highest threat of substitute. It is because Poh Kongs does not sell these kinds of jewellery in its products range even though it is operating jewellery business. Threat of Buyers As an overall, the threat of buyers faced by Poh Kong will be considered as moderate to high. When supply more than demand, the threat of buyer will become higher. Poh Kong has no major customer and relies on this type of customer, which will rapidly purchase substantial amount of jewellery from Poh Kong for every purchase. This indicated that Poh Kong does not face any threat of major customer of discontinue get its sources from Poh Kong. Moreover, the switching cost of buyer is low as after they purchased the jewellery from Poh Kong, there is no restriction of law which disallowed the customers from resells their jewellery to other jewellers.(True?) In jewellery industry, products are differentiated mainly based on the design. When Poh Kong offered less variety of design can be chosen then its competitors, the higher the threat from the buyers as they can choose the preferred design from Poh Kongs competitors. This more alternative available to the customers has increase the threat of buyer for Poh Kong. Even though the jewelleries are served for the same purpose, however the designs of jewellery determine the preference of the customer. Therefore the uniqueness of the design is crucial to capture the customer demand. Human being is a weird creature, when there is a limited range of product can be choose from, they will only choose the best fit their preference from the limited range. Furthermore, Poh Kong actively comes out with different design based on different season, different festive as well as jointly design with foreign reputable company (who). Therefore no any crucial threat will face by Poh Kong in term of differentiation. In addition, most of the jewellers operate its outlets near to their competitors. Therefore, buyer can easily get the price and compare the price between them. If Poh Kongs jewellery prices higher than its competitors, buyer will try to negotiate with them. If they fail in negotiation, they can simply switch to Poh Kongs competitors. In this point of view, the bargaining power of buyer can be consider as high. Bargaining power of suppliers The raw material of jewellery of Poh Kong is mainly supply from gold bullion bank such as UOB Gold Bullion Bank, Al Rajhi Bank or Maybank. The price is set according to the market gold price and hence the supplier did not have any negotiate power for the gold price. The banks may earn the profit by charging the transaction costs and service charges against each transaction deal, therefore, the jewellery industries may negotiate with bank or choose the bank who offer the lowest charges. Therefore, the banks will very concern about these jewellery industries since they order in bulk quantity and they will try to retain the customer royalty and gain the market share. Another source of raw material also comes from the Pawnshop or Pawn Broker which the customer of pawnshop who fails to redeem their gold product such as jewellery, gold coin. This threat of supplier in this group also low because there have a lot of variety of pawnshop in Malaysia and they try to offer the lowest price to sell the failure redemption product. The minor supplies of gold are from individual through trade in or buy back schemes. The gold price is fixed and the price of trade-in is lower than outside by offering the spread. Therefore, the individual may negotiate with Poh Kong to reduce the spread and labour charges but the price cannot run away as the price set in market. Besides that, the gold bullion or gold is a homogeneous products and hence the only way to differentiation the gold bullion bank and pawn shop of industries can do is by good servicing and lower charges. Therefore, the threat of supplies basically is low because jewellery manufacturer may have variety of choices of firms which offer the best price and best services to them. In summary, the bargaining power of suppliers are low since gold is a homogenous product and the price is set in commodity market and also by BNM. Rivalry among the Competitors More than 1500 of goldsmiths and jewellers customer can choose from. The threat of new entrance is low, the bargaining power of buyers and substitutes are high while the bargaining power of suppliers are low There are only 3 listed companies in jewelry industry including Poh Kong, Tomei and DeGem. Poh Kong is not the only player in the jewelry market. Buyer can choose from many other goldsmith jewelrer. For eg: Tomei, DeGem, Habib, Wah Chan. Therefore buyer can choose from different jewelers can hence bargaining power of the buyer will be high because many alternatives can be chosen by the buyers. High industry growth rate The jewellery industry currently is expected growing by 6% per year hence, Poh Kong is able to continue expanding the jewellery market and generate the profit from there. Therefore, although there have an excited competition among the competitors such as Tomei, DeGem and etc, Poh Kong still can gain the profit from therecause the market is expanding. High fixed or storage costs There have a high fixed cost incurred in manufacturing process such as craftsmanship, rental, depreciation of plant and machinery, and there have need to incurred the high security costs to store the jewellery such as a special storage room, CCTV and security guards. This will encourage the rivalry among the competitors because the jewellery manufacturer and dealer will get the market share as much as possible to cover up those fixed costs. Low differentiation or switching cost There have low switching cost among the buyers because the buyers can change their suppliers anytime without incurred any compensation or legal fees (actually their switching costs is just learning costs, research costs). Therefore, these will cause the increases of bargaining power of buyers and threats of substitute. Degem, Tomei, Chow Tai Fook and other jewellery firm will try to lock-in the buyers through their innovation and marketing strategics hence increase the competitions among existing firm. High exit barriers There have low exit barriers for the jewellery industries, its actually just need to expose the risk of fluctuation of gold price when they dispose off their remaining stocks, hence these factor will weaken the rivalry among the competitions because the firms will not need to put the hard afford to stay in the market due to the high exit barriers. BCGs Matrix Attractiveness of portfolio Based on the information gather for each portfolio for Poh Kong, and the BCGs Matrix as at Appendix, trading division is star while manufacturing is question mark division for Poh Kong. For trading division, Poh Kong is a market leader among other competitor because it generates the highest external revenue among other competitors, which higher than the benchmark company is Tomei Consolidated Berhad, the 2nd