BSG Report, Part 1
Firstly, thank you very much respectful Professor, with all your valuable knowledge and cares, we have completed very useful course in Business Strategy Game, based on simulation which is interesting, competitive with lots of lessons and knowledge we gain for business, financial analytics, marketing, production, HR and also business ethics.
We have for the first time experienced making lots of big decision in business strategy, any of the decision affect company operation immediately, not only for the nature of decisions but also for the competitive decisions from competing groups. We have learnt a lots of lessons from the BSG game, also from the guides of teachers and strategies from other groups.
We now preparing this report to present in front of Board of Directors, to show what we have done, why we do so, to explain what we think are good decisions and also what we will change in the future to make better decision, and improving G-Company’s performance.
G-Company Vision and Strategy
We set the vision to become a leading company in foot ware industry, providing largest collections of foot ware products, with high quality and reasonable prices. We followed the strategies of high Style/Quality, largest models collection and competitive prices with production networks worldwide. We have pursued this strategy by applying from 5 to 7 stars, and 500 models at USD 63.00 for Internet market and USD 54, 56, 52 and 55 in NA, EA, AP and LA respectively.
G-Company original strategy
The G-company employed a global differentiation strategy that sets the company's footwear apart from rival brands based on such attributes as a higher S/Q rating, more models/styles, more advertising, greater celebrity appeal, higher mail-in rebates, or a bigger network of retail outlets carrying the company's brand. We selected this global differentiation strategy because we see the good potential in market shares, large market segments for high quality shoes, and with long term strategy of large scale production we can have good production costs which bring good margins. We also notice that production of good quality, above average S/Q bring good values for customers, good margins for retailers and more jobs, with factory capacity expansion regularly. Higher sales bring higher Net Profit which meet the demand from Investors and also increase market shares, strengthening Image of the company. We set the plan of increasing all the factors such as EPS, ROR and Stock Price and also Credit Rating and Image Rating higher than Investor Expectation for all the Years.
We followed the strategy over years, especially from Year 14-18, we provide the market with the best price for value, we maintain highest quality and style, keeping the price just 15% higher than market average. However, we focus on the Investor Expectation, the highest ROE or Return on Investment, also the Net Profit and other factors such as Credit Rating, Image Rating and EPS or Earning Per Share. The last but not least factor we keep increasing is Stock Price. That we cannot be seen until the results of each year. We keep other factor increasing so that Stock Price will be increased every years.
We applied the Price from 48, 49 and 51, 54 over the years. We just get 15% higher than Industry Average and also adjust the Price to get 5-6 USD of margin per pair of shoes. We also apply the S/Q of High End, keep it 1 star over Industry Average. We see that we can keep it moving up to 9 or 10 stars toward the end of the year 20. After bad results of Year 11, 12 and 13, we notice we need strong advertising to sell enough capacity, so we always spend 200% of Industry Average for Advertising, about 16.000 to 24.000 in Year 18.
In anticipation of market growth, also following the strategy of high end market, we upgraded the factory and borrow money to expand factory in A.P.
Looking back at 8 years, we still have more things that we could do better for long term strategy. The first thing is upgrading the factory in Option C, so that in later years, such as 16, 17 and 18 we could have more S/Q or Style and Quality advantage, because we follow High End markets.
The second thing we could do better is build a new factory in L.A, if we do so, when the exchange rate so high, we could save more cost in shipping from A.P to L.A. This is to take advantage of the absence of tariffs for shipping between these regions.
We have also contracted with several celebrity, always higher than average, with quite a large investment. We recognize that they help selling more products, we can get higher market shares and we can increase Image Rating.
The margins in Internet market is high, we notice this can bring higher than 10 million in Net Profit, each pair of shoes get higher than 15 USD margin, so that we keep lower price than Industry Average to sell more and get over 25% market share of each market.
We also expand factory to get market shares in Private Label market, we know that these Private Market is risky, and fluctuate high over the years. But we still keep 10% -20% for this markets, we can get market shares, some Net Profit, increasing Image Rating and also keep control of other companies bidding too high in this markets.
Quality: We continuously strive to improve our products to provide quality shoes great image and comfort.
We notice a big lesson from Quality management, even we lead the game for a few years, and stay top 2 in Year 18. We did notice the WRONG decision from early years that we cannot fix. We upgraded AP factory in B and D. We should have upgraded C – because we followed the High S/Q strategy in later years. But we have done well enough to get up from Year 13 and keep top to the end of the game. If we have more years, we could possibly have done better ! (In fact, we upgraded NA factory in A and D, factory in AP in B and D, we did that too early in Year 11 and 12, when we know the strategy better, we cannot change back).
Customer Centered: Our customers are at the center of our strategy and decisions. We intend to exceed the expectation of our customers and we can achieve this when our strategy is focused on our customers and we strive to provide our customers with quality product at affordable prices.
We offered higher number of models, 500 vs. 320 of Industry Average, and 7 S/Q vs. 6 of Ind. Avg. We also advertised strongly. At the same time, we applied reasonable prices with less than 15% compared with Ind. Avg. eg. 54 vs. 48 in NA; 56 vs. 50 in EA; 52 vs. 46 in AP and 55 vs. 52 in LA.
Employees: Our employees are one group of people who drive our company. Therefore, we are committed to retaining, develop and improve their performances to ensure sustained growth.
- We give annual Base Wages: + 1%
- Incentive Pay $ 0.5 per non rejected pair
- Best practice training Highest level of $ 5.000
- We believe that workers are key to quality of the company, and invest strongly in our people.
The Environment: Our Company places significant emphasis on the environment. As such, we ensure that our activities do not inflict any harm on the environment. We invested in the Use of Recycled Boxing/Packaging, Training Ethics and Workforce Diversity Program for all the years.
Flexibility: Over the years we have tried to develop our products to meet the requirement of our customers. We keep high Retailer Support all the years, keep high Margin per pair of shoes in all markets, from 13, 19, 13, and 16 in NA, EA, AP and LA respectively.
A Change in Strategies
During this first three years, from Year 11-12-13 we did not focus on a good strategy, we just keep 200 models, price up and down a little bit, e.g. 48, 52 and 49 per pair of shoes. We also did not have a clear advertising strategy, so we just give 7.000; 6.000; 8.000 with the hope of selling products. Therefore, after 3 first years, we get very normal Net Profit of only 26 million, nearly no change from Year 10. Which caused our G-Company down to 4th position, with only 70/100 Investor Expectation.
We noticed that we need to focus to get a good and strong strategy for Year 14 to get back the company performance and efficiency. We get the company up from Years 13 by several strategies at the same time, which proved very successful, we jumped up from 4th to 1st in Year 14, although, over all game we still number 4. We get up to Top in both Score boards in Year 15, and 16 and 2nd in 17 and back to top in 18. If we have 2 more years, we hope that we can continued with different strategies. We always look carefully at FOOTWARE INDUSTRY REPORT, Page 5: Financial Summary to see details of Financial Status after every Year, Net Profit of year 13 is only 26.075.000 is not so good, we stayed the same from year 11 when in charge of the company. At least we should get 15% of increase every year to meet the market growth and Investor Expectation. So, in Year 14 we should get 50-60 million of Net Profit to meet Investor Expectation. So, we changed the strategy to get higher margin, sell full capacity.
We applied a combination of many tactics and strategies to get the company up from 4th to 1st position, which included:
- Increasing model number to 350 then to 500
- Increasing the S/Q higher than Ind. Avg. at least 1 stars
- Keep price just higher then Ind. Avg. to get higher margin, but keep high Sales volume, so that we have high market shares, which increase Image.
- Apply very heavy advertising, often 200% of Ind. Avg. because we are in 4th position, so we need to advertise more than other top 3. Then we keep continue advertising strongly and one of the key strategy.