Saturday, 5 January 2013

Surviving under a fierce price war.



Ever since i took over the reins of the management of our company i never could imagine that in so short a time we would be confronted with a price war so fierce in our industry.This has been exacerbated by the entrance of refurbished cheap equipment into the market by those who believed there was a gold mine in the digital imaging business.Alas,i had predicted the slump sometime in 2009,but never in this magnitude.Change management texts often talk about responding to events in the external environment through adaptation and innovation in products and processes.However,nothing prepares us sometime for the magnitude of developments in the market place,something one would liken to a 'tsunami' and yet MBA curricular always try to lay emphasis on 'strategic outlining' of responses to changes in the environment.This strategic blueprints fail to live up to their billings.A case in point is our personal experience within our industry.Based on my prediction we outlined possible responses to the likely variegated scenarios  in the market and aggregated our strategic position visa-a-vis the outcomes.A price war was not anticipated,rather we postulated price upward movement.We were wrong and hugely too;the industry reels under very severe margin erosion.Before now margins were in the region of 25%-30%  before tax.Now it has dropped to less than 9% after tax.

We had considered exiting the market but the cost of doing that outweighs the cost of staying.Two,we also considered staff retrenchment in a harsh economic environment and felt less inclined to doing that.What to do then? Diversification into new categories?Create new line in existing market? Diversify into new geographic markets or region? We chose the later and it paid off in the first year.Sustaining it is the problem.Because no sooner than you settle down to harvesting your investment new threats will surface in the form of rivals entrying the region.Sounds familiar?

Which reminds me of that Harvard classic "What they did not Teach You at Harvard". Nothing prepares you for what to expect in the real world away from the classroom stuff Professors ram down .Its been a useful lesson this past five years;as i have indeed graduated with 'honours' from C.K.Prahalad's school of real life learning.Nothing is more rewarding than this .

End Note: This is has been a five year excursion of turning around the fortunes of a company newly started but badly run.It is said that the average life span of small businesses is three to five years.One needed to operate with that mind set in other not to let our situation become a self-fulfilling prophesy.The company is in its sixth year and growing.
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