Strategy Formulation
Q is a famous auto and agricultural machinery parts manufacturing plant in China, have supplied spare parts to GE, DADA, Fiat etc. It main provide OEM service to those famous machinery company. Its main working process is making auto or agriculture machinery parts according to customer’s drawing, and then send samples to customer for assembling test before mass production. Last year, due to the coronavirus containment limitation and short of flow capital, Q rejected many orders. This year, with the support of local government, Q get a large amount of loan from bank and the boss now need to get more orders to take full advantage of its equipment and make the utmost earning. The basic turnover requirement is 0.15 billion RMB by the end of 2022, and 0.2 billion RMB by the end of 2023, all these have to be achieved based on their turnover 0.08 billion in 2021. The manager will provide salesperson with the upmost support in both e-commercial platform and sales after service.
We will analysis Q’s current situation with Porter’s five forces model and to determine what strategy we should adopt to help Q get a better development.
Bargaining power of suppliers
Bargaining power of suppliers is weak, Q’s main supplier is pig iron supplier and steel supplier, both pig iron and steel are bulk commodity. Their price usually very transparent, in most cases, Q can get the pig iron and steel at an average price.
Bargaining power of buyers of customers
Bargaining power of buyers is mediocre. Not too bad like garment industry which owns too many rivals and hold a bad bargaining power. The auto and machining machinery parts industry mostly owns a long-term cooperation relationship with customer due to its long-time developing period and OEM service model. But its bargaining power is not as well as those companies which own core technology such as chip industry. Due to the drawing and designing work is done by customer, Q is only responsible for manufacturing, customer will give Q some rooms for benefit to maintain the long-term supply relationship.
The threat of new entrants for an industry
The threat of new entrants for this industry is not very serious. Usually, this kind of plants must own a cupola or some electric furnaces to melt pig iron, due to the carbon pollution reduction scheme of Chinese government, less plants can get permission.
The threat of substitute products
The substitute products for Q are that most machineries are transfer its energy from oil to gas or electric due to the skyrocketing oil price. Some core parts maybe replaced by electric-driven machines.
The intensity of competitive rivalry
Q have two main rivalries in China, one is Z which located in Shandong province, this plant can provide assembling service to customer, sometimes, Z purchase spare parts from Q and other related parts from other suppliers and do some assembling work then sell the assembly parts to customer directly at a higher price. Z owns a young team, its salesperson is dynamic and hospitable, motivated in innovation. The other one is H which located in Hebei province of China, this plant is an old school plant, with more than 1000 staffs, its salespersons are veteran and preferred to market its product according to introduce by customer or face to face promotion, and don’t like to use email or online platform to marketing itself.
Strategy direction:
Focus on quality, due to the price of raw material is nearly transparent, and customer’s design cannot be replaced, Q must attach importance for quality, good quality can save cost.
Providing assembling service to customer. Q can pursue new chances to do assembly part, and then sell it at a better price.
To promote itself on omni-channel. Omni-channel marketing can let more potential customer know Q, enhance the opportunity of deal.