How to respond to low cost competition – A case study

Sammanfattning: Background Today many large corporations worldwide are facing new competitors that develop good enough products to a low price. This is a well-known problem for large companies and is not an industry specific problem. We have seen new entrants especially from Asia entering, ranging from the airline industry, grocery, retailing, wind energy market, banking to IT services. These are just examples and no industry is presumably immune to this issue. How have successful companies tackled these kinds of threats? Managers at traditional premium corporations are having a hard time to decide what strategy to use while responding to these growing competitors and the change in the business landscape. The company in this thesis, Tetra Pak, is threatened by low cost competitors due to some of its patents have expired. The largest low cost competitor is named Greatview Aseptic Packaging Ltd and is based in China. Greatview is a Non-System Supplier (NSS) and obtains its revenues through using a more focused business model concentrating on a limited product offering. Thesis Objective This thesis consists of two main objectives. The first one is to describe how companies in the B2B manufacturing industry have responded to direct low cost competition and to identify what factors in the market or within the company that has been significant, decisive and descriptive for the choice and outcome of the Companys strategy. These factors will be identified and presented in a normative schematic model. The second objective is to test the hypothesis if the criteria for not being stuck in the middle stated by Michael Porter are true for the case companies utilizing a dual strategy. In addition, the companies actions will be compared with Kumars framework. Research questions What strategy could a company use against low cost competition? Which factors caused the case companies to take action? Limitations This reports focus has been manufacturing companies within the global B2B industry. The report examines six different firms in the mature market, all except one in the B2B industry. The firm that was not a B2B company was requested from Tetra Pak. The numbers of case objects (six) chosen were depending on a time constraint. Furthermore, this thesis puts focus on direct competition in the aseptic packaging industry only. Greatview Aseptic is the leading NSS and therefore that company has been studied thoroughly in this report. Methodology This thesis is based on a comparative descriptive multiple case study. An abductive approach is used. The data consists of both qualitative and quantitative data such as literary books, dissertations, newspapers, databases, annual reports, websites and trade organizations. Conclusions The schematic normative model developed in this thesis is deemed to support management when responding towards low cost competition. Analysis of the empirical findings provided this report with identified factors, which will assist managers to strategize toward low cost competition. Management could then use the model when looking over the competitive environment on a particular market based on how the outside world changes and what internal capabilities the company possess. This can provide an important basis when planning to enter a new market and advise how to develop a strategy against low cost competition. The idea is to bring in new thoughts and assist management with a competition analysis and emphasize a new perspective to rethink and think new in order to improve old thinking patterns. What is interesting to note is that none of the case companies transformed itself to a low cost player. The criteria for not being stuck in the middle stated by Michael Porter are true for the case companies utilizing a dual strategy. Furthermore, the findings about the companies reactions to the low-cost players support Nirmalya Kumars theoretical framework.