Background and SWOT Analysis: The Towel Manufacturing Company (TMC) was founded in 1972 in Jakarta, Indonesia. The majority of its shares are owned by the family of Mr K, its managing director. This family also owns one of Indonesia’s leading fabric manufacturing concerns.
TMC has grown consistently over the years to become Indonesia’s largest manufacturer of towels for export. It employs a staff of about 400, the larger proportion of whom are engaged in the production of white terry towels carrying the brand name Sea Breeze. Its leading export market, with a share of 90 per cent of its total sales, is the United States. A number of European countries make up its other markets. TMC enjoys a reputation as a supplier of quality towels.
The company is facing increasing competition from smaller towel manufacturers with more modest overheads. Demand is growing for dyed towels. Mr.K is aware that some competitors are producing dyed towels to meet this demand. He is likewise aware that the United States is close to passing legislation that would reduce imports of towels from South East and Far eastern countries.
TMC produces solely for export. Management is not only fully committed it exporting but also has a decade of export experience behind it.
TMC has a current profit margin of 5 per cent on bleached towels. A margin of 15 per cent can be expected if it decides to produce uni-colored dyed towels. However, in order to do this, it would have to invest rupees 7.5 million on dyeing equipment.
This investment is needed to safeguard the company’s for quality. The managing director feels that subcontracting will not result in products of consistent quality. The Current Sea Breeze line is dependable, durable and is priced competitively.
TMC has plenty of factory space and access to labor and technical assistance. This will enable it to produce colored towels soon after the installation of dyeing equipment. Its concentration on production for export is another advantage, it has over similar companies in the country. Its links with the country’s leading fabric producers, enables It to obtain bulk supplies at lower prices; imported raw materials are also made available to it at favorable prices.
A recapitulation of the company’s weaknesses follows:
1. A number of small Indonesian companies have been operating with smaller overheads and have eaten into TMC’s market share.
2. Unlike a number of smaller companies. TMC does not produce solid-colored towels and is thus unable to meet demand for the product line. This is making it vulnerable to competition from the newer (and smaller) producers of towels in Indonesia.
3. The profit margin (5%) on Its current product line, white towels, is very low.
4. The United States, its main market, is considered imposing an additional quota on imports from Indonesia. Such quotas severely limit the company’s future potential its main market. Its heavy dependence on this market will also put the company in a precarious position if the market declines for any reason.
5. It will lose favor with United States importers if it cannot supply dyed towels to complement its current product line.
TMC has started experimenting with European markets. In the Commonwealth of independent States (CIS), profit margins are 5 per cent for white towels and 10% for the dyed (unicolored) ones. Barter as in past been the preferred method of payment in the area now covered by CIS. This and TMC’s limited marketing experience in the area are a disadvantage. As regards Western Europe, TMC’s total lack of marketing experience in the region is a major weakness.
TMC has several attractive options which Mr K can evaluate.
1. It can reduce its dependence on the United States by developing market in Asia and Europe. Its first product offer to these markets should be its white terry towel.
2. It can establish a joint venture with a company in a country that is not subject to quotas or tariff barriers in the United States.
3. It can implement a strategy of product adaptation and line extension. By offering white, solid color dyed designed towels, it will be much more competitive. It will also benefit from the higher margins that can be gained from dyed towels.
No matter what strategy is selected, TMC’s ultimate goal is increased profits and growth.