SECTION B : CASE STUDY (20 MARKS) READ THE FOLLOWING CASE STUDY AND ANSWER ALL QUESTIONS.

SOFT GLOVE SENDIRIAN BERHAD

Jack Lee is the owner as well as the executive chairman and managing director of Soft Glove Sendirian Berhad, a medium-sized company that makes rubber gloves. Soft Glove has been struggling with the problem of declining sales volume and increasing competition in the glove making industry. Recently, Lee has been trying to turnaround his company and make it more profitable.

Company History and Products

Soft Glove Sendirian Berhad has for 15 years wholesaled plastic and rubber gloves to hardware stores and hospitals in the northern states of Malaysia. About five years ago, the company began to manufacture latex-based rubber gloves which include medical, specialty and clean-room gloves. These latex-based rubber gloves were initially sold to general hospitals in Kedah and Perlis, and later the sales expanded with the growth of the health, food, and electronic industries in Malaysia. Eventually, Soft Glove accounted for more than 50 percent of the northern Malaysia health market for latex rubber gloves. The company sold plastic gloves primarily through hardware stores and latex-based gloves mainly to clinics, drug stores, public, and private hospitals.

Two years ago, Soft Gove extended its business beyond its home territory and entered the highly competitive Penang market, selling latex rubber gloves to the clinics and hospitals in the territory. Within the two years, Jack Lee was able to make Soft Glove the areas leading supplier of latex rubber gloves. The company maintains a warehouse in Sungai Petani to which gloves are shipped from the manufacturing facility in Perlis. The business employs a total of three hundred employees. Jack Lee does the most of marketing for the company himself.

Soft Gloves sales to hardware stores, drug stores, clinics, and hospitals in northern Malaysia have been limited almost entirely to plastic and latex rubber gloves. Many of these hardware and drug stores, clinics, and hospitals are also getting their supplies from other glove manufacturers and dealers. Soft Glove has been unsuccessful in attempts to become the major supplier to the hardware and drug stores, clinics, and hospitals. The failure to market latex rubber gloves through this channel might be partly explained by relatively low dollar volume in hardware stores sales of latex gloves versus general hospitals sales of the same gloves and by the firms traditional strong emphasis on plastic gloves for the hardware market.

Current Market Conditions

Beginning early 2004, the health industry in particular experienced a severe slump. The slump was attributed to a number of causes such as high interest rates, tight money in particular, but also to market saturation, tightening health code requirements inspired by consumerism and the Ministry of Health, uncertainty over the Bird Flu affair, rising fuel costs, and so on. Whatever the causes, the health industry nose-dived and with it the primary market for Soft Gloves products.

As he watched nervously the drop in gloves sales, Lee realized that he faced the possibility of failing below his break-even point. At the existing overhead and selling expense levels, Lee estimated the break-even point for the Penang sales territory at RM250,000 sales per week. (A small portion of this amount represents prorated overhead of the Perlis plant). Even though Soft Glove had established itself as one of the leading supplier, its sales volume from the volatile health industry could vary from more than RM250,000 per week to less than RM10,000 per week. If sales fell below RM10,000 per week, which was a distinct possibility, the company would be losing money in its Penang territory.

In seeking to offset the effect of the health market drop in sales, Lee looked for other markets with potential. Markets that interested him included the sale of latex-based gloves to public and private hospitals in the Selangor, Kuala Lumpur Federal Territory, Negeri Sembilan, and Melaka areas. It seemed possible to duplicate the sales of latex gloves in the Penang market in these new market areas. Moreover, there was also major possibility that the rubber gloves might also be sold to the hardware and drug stores in the new proposed areas.

Market Survey

Before deciding to enter in the new markets, Lee agreed to conduct a modest market survey. The major part of this survey involved gathering data through interviews with officials of clinics, public and private hospitals, and owners of hardware and drug stores, who would be potential customers. He personally interviewed dealers and soon discovered certain important marketing information.

Market Potential

On the basis of his interviews, Lee estimated that the Selangor market-principally the Petaling Jaya area had a sales of potential for latex gloves of approximately RM600,000.00 per month. Lee suspected that the Subang Jaya and Shah Alam areas represented another RM400,000.00 potential per month. Private hospitals were thought to represent RM3000,000.00 or 30 percent, of this RM1,000,000.00 total.

Lee estimated that, in addition to the public and private hospitals, there were more than 250 private clinics in Petaling Jaya area and another 200 in the Subang Jaya and Shah Alam areas. There were also some firms that served as distributors to the hardware stores. The health industry to which Lee sold consisted of approximately 60 private and public hospitals, and the total latex rubber glove sales (of all suppliers) to this market was estimated at RM2,250,000.00 to RM3,300,000.00 per month.

Market survey

Based on a market survey, Lee was able to gather the following information:

1. There is no one source supplying all types of gloves. Many dealers were carrying two or more types. Soft Glove felt they could offer five popular standard products, giving the dealer the opportunity of buying all of his or her gloves from one source.

2. Prevailing prices were equal or higher than those obtained by Soft Glove in the health market.

3. Manufacturers supplied free storage racks to the dealers with a specified minimum order. They also supplied sample chains (containing samples of different colours and shapes of gloves), point-of-sale displays, and small pamphlets illustrating use of the gloves. Soft glove currently had none of these sales aids.

4. The standard minimum order quantity was approximately 100 cartons, but the cartons used in this area were much smaller than those used by Soft Glove in shipping to the hardware stores.

5. Standard credit terms were 2/10, n/45.

6. The quality of competitive brands did not appear to be superior to those of Soft Glove. As a matter of fact, Lee knew that the gloves that his company is making were much better than some of those he had seen stocked in hardware stores and drug stores.

7. Eight companies were currently splitting up the RM10,000,000.00 monthly business volume.

Inventory Requirements

As mentioned earlier, an inventory was maintained in the warehouse located at Sungai Petani for the health market in northern Malaysia. The amount of inventory ran from RM500,000.00 to HM800,000.00 depending on the sales level. However, if Soft Glove sold to hardware and drug stores, an additional inventory would also be needed for this purpose. If he sold directly to individual stores, Lee believed he would need an additional investment in inventory equal to the monthly sales dollar volume. In other words, he would need at least a RM1,000,000.00 inventory to support a monthly sales volume of RM5,000,000.00. On the other hand, he might reduce the inventory to a one-to two-weeks' volume level if he sold through a distributor.

Strategic Decisions to Make

Jack Lee attempted to evaluate his company's prospects on the basis of the information he had gathered. Although he was hoping for conditions to improve in the health market, he knew from the information collected from the earlier survey that his company could not count on this occurring immediately. In view of the uncertainty in the health market and the intensity of competition in the glove industry, Lee thought he needed to react urgently before things get worst for Soft Glove. He strongly believed that he needed to make some important decisions for the sake of the survival of the company he founded about 20 years ago. One of the decisions would be to decide whether the other markets held sufficient potential to justify his company's entry.

QUESTION 1 (8 MARKS)

Extract TWO (2) opportunities, TWO (2) threats, TWO (2) strengths and TWO (2) weaknesses for Soft Glove. (8 marks)

QUESTION 2 (8 MARKS)

Based on your answer in question (1) above, develop TWO (2) most suitable corporate level intensive strategies that Lee should make in order to sustain his 20 years old business. Support your answer with reasons. (8 marks)

QUESTION 3 (4 MARKS)

In view of the uncertainty in the health market and the intensity of competition in the local gloves market, decide whether Soft Glove should adopt a differentiation strategy, or a focus strategy. Support your answer with reasons. (4 marks)