In this fast accelerate business world, every firm should be pro-active in order to compete with their competitors. Thus, strategy management is the crucial process to assist the firm to fortify their position in this competitive environment.
The objective of this assignment is to develop and elaborate the strategy of the leading garment manufacturer company- HYTEX Incorporated Sdn. Bhd. Therefore in this assignment the first part is introducing the history of Hytex. The second part is to assist Hytex examine the external environment. The third part is the Michael Porter’s Five Forces competitive analysis. The forth part is to provide the recommendations for Hytex to perform better in the future.
Background of Hytex
In 1973, Hytex started operating as a small firm that does contract silkscreen printing in a rented shop-house. However through a deliberate plan of expansion and modernization, Hytex managed to move into its own factory premises.
Today Hytex is the largest automated T-shirt screen printer in Asia, which able to produce high quality plastisol prints. Hytex is a fully integrated garment manufacturer with in-house facilities and services such as designing, knitting, bleaching, dyeing, finishing, pigment dye, garment wash, cutting, screen printing, embroidery, sewing, pressing and packing service.
Besides doing contract manufacturing for both local and export market, Hytex also diversify into retail business under the name of American Athletics and World of Cartoons. Currently, Hytex owns 27 stores in three countries, namely Malaysia, Singapore and Brunei.
Since Hytex operates in the business environment and interacts with a lot of stakeholders, it is vital for Hytex to understand its business environment and pay extra precautious to those factors that strongly influences the performance of Hytex. Read about factors you should consider to understand the threat in your environment
Hytex main operation is in Malaysia thus the political and legal factors are not much of consideration for Hytex. Malaysia political and legal environment are very stable because for the past 44 years one single political party Barisan National rules the country. On top of that, our legislation system is very conducive for industry development because the country is gearing towards industrial country. For instance, Hytex is entitled for tax reduction in 2000 for sending the workers for training and development programme. Besides, Hytex also obtained tax exemption for exporting the company product to foreign countries for the first five years of operation. All these incentives do encourage the business operation.
The economic condition does have greater impact on the performance of Hytex compare to political factor. However, Hytex is more concerned about the global economic condition rather than the domestic economic condition. This is due to the major clients are mostly from overseas. Besides, the fixed currency regime does help Hytex a lot in reducing the risk of foreign exchange currency. Previously the fluctuation of US Dollars sometimes will cause the estimated profit to reduce. The low inflation rate in the country also stimulates the domestic retail sales of Hytex and maintains the wage at a reasonable rate. A reasonable rate of wage can ensure the cost of production is low and be more competitive in the international market. Besides, the loan interest in Malaysia is quite reasonable and this encourages business to borrow from bank for expansion plans.
The changes in the social condition will lead to the change in decision making in Hytex. The company regularly reviews the latest trend and consumers’ preference in the market to suit such changes. Despite the company also participants in a lot of social welfare events, for instances donation of garment products to orphanages and old folk’s home. In addition, Hytex also tries to eliminate all unnecessary pollution material to discharge from the company. This is to avoid the wrongly association of Hytex with irresponsible company.
Technology is the key concern for Hytex because the advancement of technology can assist Hytex to achieve economic of scale and enhance quality. Therefore, during last year alone, Hytex had invested 2.62 million in obtaining new machines. Furthermore, new technology can also reduce defect and lower production cost. As a result Hytex must constantly improve its technology or else the core competencies will be eliminated. This is so because the other competitors have cope with Hytex.
The last environmental factor that Hytex must consider is the global factor. Today the world economic is towards globalisation due to the advancement in telecommunication and transportation. In a few years time, the AFTA and MFA as well as WTO will force Malaysia to open its market. At that moment, more and more foreign company will come into Malaysia. This will in turn increase the level of competition. Therefore Hytex must be prepared for such challenge and be prepared for such changes.
Michael Porter 5 forces Analysis
The threat of new entrants into the textile and garment industry is not strong. This is because the industry is very capital intensive and requires large scale of production to lower the cost per unit. Above and beyond, the new entrant will face retaliation from the existing companies. This is due to the industry only consists of a few big players like Ramatex, Elba, DNP, Orlando, Tai Wah and Abrar. Besides, the connection between existing companies and their suppliers are strong, thus new entrants may face cost disadvantage independent of size. In the case of retail sales, the new entrants may face difficulties in penetrating into the distribution network.
However, AFTA 2005 might change the whole scenario because large established corporation might establish their operation locally to reach the South East Asia market. If this really happen the competition will be stiff.
The raw materials needed by Hytex are yarn and fabrics. Hytex obtains these raw materials from its suppliers. The suppliers of Hytex have been with Hytex for more than 20 years, thus the mutual understanding is very strong. Both parties do not bargain but work hand in hand to achieve synergy benefit. Besides, Hytex buys more than 45% -52% of the total product produces by our suppliers. Furthermore, Hytex also has a strong procurement process to monitor the price quoted by outsiders and keeps intensive information of pool of suppliers. In additional, the raw materials are quite identical, therefore the switching cost for Hytex is not very high. Thus we can say the bargaining power of suppliers is relatively low.
In the case of buyers, their bargaining power is strong. This is because these buyers not only can buy from Malaysia but from all the countries in the world especially China and India. The competitive advantages Hytex have against China and India competitors are the quality of product and on-time delivery. For example, when a client places the order with Hytex, the duration we normally take is around one and a half month. While the same order may take two to three months time if it is done in China. Besides, the buyers buy in a very large quantity, therefore these buyers can demand higher quality and pressure the company to give discount or other forms of price reduction. Furthermore, there is possibility that some of these buyers might undergo backward integration because these buyers are cash rich and they also have a mass distribution network.
The substitute effect for garment and fashion is very low at this present stage. Human still needs to wear clothes although more and more people are wearing lesser clothes. This fashion trend actually benefit company like Hytex because we use less material to produce the goods but able to charge for higher price.
There are only a few large-scale companies in the garment industry; all these companies are more or less equal in size and capability. There are Fulong, Elba, John Master, Tai Wah and a few more. However when the AFTA become effective in Malaysia in the coming year 2005, Hytex will face more unexpected competitors from foreign countries. Thus, at that time rivalry can be intense and cutthroat, or even be govern by unwritten rules and regulation. Therefore, competition will drive Hytex to produce high quality products, create differentiation and lower the cost of products. On top of all, since the exit barrier is high thus all the existing companies will have stiffer competition. Besides the economic condition for this year is unlikely to be good, therefore the demand for the product is growing slowly. When the demand grows very slow, the market competition will be stiffer. Another factor that drive competition stiff is the switching cost of consumers are very low. The product produce by all the producers are likely the same except they carried different brand names.