Jim Thompson Thai Silk Company
...s building in the hearth of Bangkok’s commercial district, three were located in the lobbies of luxury hotels, and the last was locate in Ground floor of Bangkok’s World Trade Center. • JT’s retail merchandise was typically priced 15% to 20% above levels charged by rivals. Home furnishing Sales • JT sold its fabric directly to local hotels, office buildings, condominium and housing projects. Its sales effort was focused mainly on interior designers who were chief decision-makers in this market • A sizeable portion of these sales consisted of cotton fabric, the bulk of which JT purchased from contract suppliers and sold under its own brand. Export Sales • JT’s export sales were handled by commissioned agents located in more than 24 countries throughout the globe. It initiated an international advertising program, which plans to open a showroom in London; and to expand market to several growing Asian markets. JT’s strategic position • JT has positioned itself as superb quality and innovative product with premium price. • Retail merchandise was set to higher than other competitor 15% to 20% E) Management Leadership Executive leadership was another factor cited as critical to the Jim Thompson Thai Silk Company’s success. Despite the fact that the textile industry is considered low tech by most Thai managers and their reluctance to question to higher ups, JT is lucky to have Pichet and Surindr as Senior Managers since they approach their jobs with a great deal of independent judgment which made them very capable, imaginative managers. Aside from being the Manager Director Booth plays many leadership roles; sometimes he is best to be perceptive listener and a compromising decision-maker and sometimes he is a coach and advisor in the proper role. Booth develop a broad network of contacts and sources of information, both formal and informal. The regular channels include talking with key subordinates, meetings, reviews of the latest operating results, talking to customers and so on. In addition, Booth is also use the technique of “ managing by walking around” (MBWA) which is practiced in a variety of styles. Such as Booth arrives early, and leaves late-seven days a week-setting a good model for the rest of management team to follow. Human Resources Management Send company personnel aboard for technical training. e.g. JT employees had been send to China to receive training at the Chinese Sericulture Research Institute Bring foreign experts to Thailand to train company employees Company’s Key Success Factors 1. Manufacturing-Related KSFs Since JT is the fully-integrated producer of native silk and remained strong in the industry in the following areas: • Low-cost production efficiency: reducing the volatility of raw silk price. • Ensure quality products: direct control to satisfy and precisely match the requirements of particular customer in home furnishing business. • JT’s reputation for superb quality and innovative design positioned itself strategically in the market . • The creative design serving the company to differentiate the firm from competitors and enabling it to command premium prices. 2. Willingness to Invest The company’s willingness to invest even in projects which did not appear to show adequate return on investment, such that of silk plantation, is a key factor in the company’s success. It gives protection in the event raw silk materials increase. 3. Outside Experts for technology transfer JT used the expertise in different area of production and continuously upgrade in technology. • In printing plant: Senior engineers, Mr. Czerny, of its joint venture partner was assiged to assist JT on a continuing basis. Mr. Czerny has helped JT in Identifying the most appropriate machinery Installing new equipment Adapting machinery to the particular needs • In sericulture operation: Two experts from the National Sericulture Institute in China had made numerous trips to Thailand to train JT employees in mulberry cultivation, silkworm rearing, and cocoon production techniques. 4. Continual Innovation JT had not merely duplicated technology brought in, but had often significantly adapted it to the company’s special needs. The knowledge was accumulated over time and continual modifications was made. For instance microprocessor was used to control the process of dyeing in reeling and weaving operations. Everyone are forced to continually improve, to compete with itself for greater efficiency and higher reliability. 5. Effective management team and leadership o Booth’s Leadership Contribution o Exceptional capability of the Senior Managers: Pichet (Deputy Managing Director) and Surindr (Production Division Manager) approach their jobs with a great deal of independent judgment. Their strong roots in Chinese culture, which encourages more independence of mind, fosters the quality that helped them develop into very capable, imaginative managers. II. S.W.O.T ANALYSIS Strengths 1. JT was Thailand's leading retailer of native silk: The company had grown to become Thailand's leading retailer of native silk, commanding an enviable two-thirds share of the premium tourist market. 2. Ability to take advantage from full integration: JT had gained competitive capability over its competitors after it expanded from retailer to a fully integrated producer of native Thai silks. The firm gained the advantage of technology transfer, ability to control volatility in price, and secure supply. 3. Reputation for superb quality and innovative design: The store’s reputation for superb quality and innovative design made it popular among tourists and foreigners stationed in Bangkok. JT’s products have a good creative design, serving to differentiate the firm from competitors and enabling it to command premium prices. 4. Excellent leadership: Booth being the company’s managing director played excellent leadership role in keeping a good relationship with the stakeholders. His “managing by walking around” type of management promotes close contact with other employees. Booth’s network relationship with knowledgeable foreigners helped the company obtain foreign expertise. The human resource in general is composed of a team who are creative and imaginative, and can perform independent judgment 5. The largest hand-weaving operation: JT has the largest hand-weaving operation in the country. It also has its operating satellite weaving mill containing 277 hand looms in a nearby village. 6. Progress on the technical front: JT succeeded in producing several highly resistant crossbreeds of Chinese white and Thai yellow silkworm species to counter the silk production problems occurring in Thailand. 7. Using retained earning as its source of fund: JT’s growth over the years had been financed largely by R/E which is the cheapest of the source of fund compared with other source of fund such as short-term or long- term debt or issue new stock. 8. Technology transfer: JT keeps up with its superb quality and constantly innovate its operations through technological transfer. Since expertise in the industry is not available in Thailand, the company formed strategic alliances and collaborating with many strategic partners, send company personnel abroad for technical training and bring foreign experts to Thailand to train company employees. 10. Good Financial Condition. The company’s financial statement shows a healthy status. It’s financial ratios are not alarming to the operations of the company. Weaknesses 1. Too dependent on the present market: JT has only 5 retail outlets, all located in Bangkok. It limited its distribution channel to this area. Since JT depends 80% of its revenue on retail, the adverse environmental development in Thailand caused the falling of its revenue and profitability. 2. Lack in Marketing Management Strategies: In the area of marketing, JT's marketing skills are not yet very well developed, especially in home furnishing market. There is a growing demand in the condominium home furnishing market, yet they only garnered very little of this. In addition, it did not make an effort to secure space in the World Trade Center not until the management of WTC made an intensive campaign. The results were promising. But they could have lost it, if not because of the efforts of WTC management. Its marketing is not aggressive in looking for new distribution channels where they can gain more revenue. 3. Cannot compete the technical production in the Home furnishing Market: There are numerous suppliers, many larger and more highly automated than JT, served the market. Most home furnishing sales consisted of relatively low-priced cotton fabric produced by suppliers utilizing high-speed mechanical looms. JT’s weaving in contrast, lay in hand weaving. JT needs to significantly improve its high-speed mechanical weaving capabilities. Opportunities 1. Free of controls on private enterprise The economy 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. Therefore, JT can freely operate in its business and take advantage of the privileges not only in Bangkok but in all parts of Thailand. 2. Low risk of Thai Baht The Thai “baht” is freely convertible into foreign exchange. It’s value against the dollar has remained very stable over a long period of time. 3. Growing Asian market JT’s export sales were handled by commissioned agents located in other countries. Most export sales consisted of home furnishing fabric. JT can gain more markets by entering to potential growing Asian Market including Korea, Taiwan and the Philippines. 4. Emerging new tourist spot in upcountry Puket were still relatively unspoiled. It is beginning to be a good tourist destination in Thailand. More Japanese are bypassing Bangkok and taking advantage of the increasing number of direct flights to Puket. Strong marketing by new Puket developments like the Pacific Islands club and the new Sheraton Grande are also diverting the Japanese from Bangkok. 5. Shopping is the tourist’s major activity From percentage of total tourist expenditures in Thailand, the highest percentage of tourist expenditure is shopping. In addition, shopping rate has an increasing trend,from 27.4% in 1986, to 39.0% in 1990 and 42.8% in 1993. 6. Increase in condominium demand There is an increasing number of people who 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 needed furnishing . These units need to be furnished, their owners have plenty of money to pay for the very best. The condominium market is a lucrative business for JT because of this increase in demand and high purchasing power (which means customers can afford JT’s design and quality). Threats 1. Adverse Developments in Bangkok Recent developments were threatening to undermine this hard-earned success, however. Bangkok’s increasing auto congestion, escalating air pollution, and soaring AIDS infection rate were causing foreign tourist-JT’s primary customers-to avoid the city as a travel destination. Rapid industrialization was destroying many of the charms which once attracted tourists to the city. 2. Uncertainty Volatility of raw material Shortages were caused in part by a decline in the acreage that Thai farmers devoted to mulberry cultivation. Total acreage devoted to this end fell from about 60,000 hectares in the mid-1970s to less than 40,000 hectares in the early 1990s. This decline was caused by migration of villagers from the depressed silk-producing regions in the Northeast to Bangkok in search of higher-paying jobs and by conversion on the part of many remaining farmers to other crops. Since mulberry leaves constitute a silkworm’s chief diet, declining mulberry cultivation led to reduction in output of raw Thai silk. 3. Recession in Japan and Europe Due to this economic condition, it somehow made an effect in JT’s revenue since they historically provide a large portion of the company’s supply of customers. III. THE PROBLEM: With the adverse environmental developments in Bangkok affecting the tourist arrivals and decline of the revenue, what strategies should JT implement to reduce its dependence in the present market? IV. EVALUATION ALTERNATIVE SOLUTIONS JT manager formulated four options in reducing the company’s dependence on Bangkok’s tourist market: 1. Develop a mail order catalogue displaying accessories such as neckties, purses blouses, etc., and target the catalogue to foreigners who had already purchased JT products during visits to Bangkok. Pros Cons • it stimulates awareness of its products, especially in updating customers of new products and promos like discounts or sale • expands JT’s distribution channel • Keeps customer relation and encourage repeat purchase • Additional cost • It is limited to the same target group. It doesn’t promote market expansion 2. Open a retail store in a major foreign city such as New York, Paris, or Tokyo. Pros Cons • expands JT’s distribution channel. • Gain access to the center of tourist in each major foreign city. • Reaching new customers in the new markets. • Use forward integration from the original export (using commissioned agents) to be establishing its owned retail store in foreign city. • High cost in construction and advertising at new retail store. • High risk from foreign exchange and political stability. • Lacking marketing experience in foreign country compared with having local commissioned agents. 3. Open a retail shop at a Thai beach resort such as Puket, Samui, or Pattaya. All three locations were growing very rapidly. Puket and Samui were still relatively unspoiled. Pattaya, however, was beginning to experience its own brand of environmental degradation. Pros Cons • increase JT’s distribution channel in retail. • Can take advantage of the increasing opportunity in the new potential market location. • For Pattaya, the market has a short life cycle. This tourist destination needs maintenance to constantly attract tourists. • Additional cost of investment. 4. Expand sales to the domestic home furnishing market. To compete more effectively in the home furnishing market, JT needs to significantly improve its high-speed mechanical weaving capabilities. Rohleder (the world’s eighth largest, and Germany’s second largest, manufacturer of upholstery fabric) is interested in establishing its own weaving facility in Asia in order to gain access to low-cost Asian labor and to better serve its growing base of Asian customer and inquired whether JT will consider joining it in constructing a jointly-owned weaving mill in Thailand. While Rohleder’s skill in mechanical weaving – the very capability JT needed to improve its position in the home furnishing market – made the proposed venture with Rohleder attractive. Pros Cons • This is an opportunity to cater to the increasing condominium market in Bangkok. • Rohleder has the reputation of quality and technical sophistication. Being an Asian partner, JT will have high speed mechanical capacity which makes it competitive enough to produce quality cotton fabric against low cost competitors. • Forming a product alliance with Rohleder is a big opportunity for the company to gain profitable return in the Asian market with the world’s eighth largest, and Germany’s second large...