Sei sulla pagina 1di 20

Moderna Textiles – 2010

Case Notes Prepared by: Dr. Victor Sohmen


Case Authors: Marina Apaydin, Nada El Marsafy,
Mohamed El Tannir, Ali Khadr, and Marina Zikry

A. Case Abstract

Moderna Textiles (www.newmoderna-eg.com) is a Syrian-origin, century-old


company started by the Kabbani family. Its factory located in Egypt is equipped with
fully automated jacquard, dobby and velvet looms that are part of an efficient and
high-quality production process. The company, under the leadership of Marwan
Kabbani, Sales and Marketing Director, is planning to expand abroad into Syria and
Jordan, as well as to update and improve the existing outlets and factory. Moderna
and all its competitors lie in the high-end segment, providing high-quality textiles to
high-income families and luxury hotels. Most of the companies in this segment
manufacture, promote, and sell their products without intermediaries.

B. Vision Statement (Actual)

“Moderna Textiles seeks to be a high-quality, higher-end industrial textile producer


at competitive prices in the Middle Eastern market.”

C. Mission Statement (Actual)

“Moderna Textiles is a high-quality producer of jacquard, dobby, and velvet textile


products, seeking expansion into Syria and Jordan from its present manufacturing
and marketing base in Egypt.”

Mission Statement (Proposed)

Moderna Textiles with its skilled workforce (9) is a high-quality (4) producer of
industrial and home usage textiles (2) directly targeted without intermediaries (6), to
high-income customers (1) in the Middle East (3, 5) who value quality, prestige, and
reliability (8), at reasonable prices well below that of European imports (8) without
compromising our century-old reputation for high quality (9).

1. Customer
2. Products or services
3. Markets
4. Technology
5. Concern for survival, profitability, and growth
6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees

D. External Audit

Copyright © 2011 Pearson Education Limited


CPM – Competitive Profile Matrix

The Competitive Profile Matrix (CPM) identifies a firm’s major competitor(s) and its
particular strengths and weaknesses in relation to the firm’s strategic position.
Moderna’s relative strengths and weaknesses based on the case details are portrayed
in the weighted scores. Warda’s weighted scores are educated estimates based on its
aggressive marketing posture, low price advantage, and international expansion
mode. Overall, it is seen that Warda would be a serious competitor to Moderna
unless the latter eliminates its weak areas, capitalizes on its strengths and
opportunities, and embarks on a market expansion drive as a price leader with a
low-cost advantage.

Moderna Warda*
Weighted Weighted
Critical Success Factors Weight Rating Score Rating Score
Price Competitiveness 0.14 3 0.42 2 0.28
Global Expansion 0.03 1 0.03 4 0.12
Organization/Management 0.07 3 0.21 2 0.14
Technology 0.09 3 0.27 2 0.18
Product Lines 0.06 2 0.12 4 0.24
Customer Loyalty 0.08 3 0.24 2 0.16
Market Share 0.12 3 0.36 4 0.48
Advertising 0.06 2 0.12 3 0.18
Product Quality 0.13 4 0.52 1 0.13
Product Image 0.12 4 0.48 2 0.24
Financial Position 0.10 4 0.40 2 0.20
Total 1.00 3.17 2.35
*Other direct competitors to Moderna also operate without intermediaries, and
target high-end customers with quality fabrics; however, none of them are expressly
identified in the case.

Opportunities

1. There is continued demand for high-quality industrial and high-income home


fabrics such as curtains and upholstery
2. The existing prices for European imports of upholstery and curtains into the
Middle East are much higher than the prices for similar products by Moderna
3. Prices in Jordan are much higher for the same quality products as in Egypt,
which is Moderna’s manufacturing and distribution base
4. Syria is as labor-intensive as Egypt, the original manufacturing base of
Moderna
5. Potential Syrian customers place high value on quality

Copyright © 2011 Pearson Education Limited


6. The Jordanian government encourages exports to U.S. firms through QIZ and
FTA
7. The textile industry in Syria accounts for 30 percent of industrial employment
8. The industry in Egypt constitutes 25 percent of the country’s non-oil exports
9. The textile industry in Jordan is focused on apparel, and imports upholstery
10. There is scope for expansion of the business and for improving production
efficiency

Threats

1. Global economic conditions are worsening


2. Regional geopolitical instabilities prevail in Jordan and Syria
3. There is real risk of imitations and trademark violations due to slack copyright
laws in Syria
4. Substandard factories exist for local manufacture in Syria
5. There is serious competition from Warda, an expanding Lebanese multi-
national textile manufacturer
6. There is competitive threat of economical production and export by China and
India
7. Italy is entering the luxury textile segment with high pricing
8. There is a trend towards modern fabrics, rather than classic, in Jordan and
Syria
9. Warda has already captured high-profile U.S. customers (Target, Liz
Claiborne, JC Penney, etc.)
10. Eastern European nations are poised to compete in the high-end textiles
market

External Factor Evaluation (EFE) Matrix

An External Factor Evaluation (EFE) Matrix allows strategists to summarize and


evaluate economic, social, cultural, demographic, environmental, political,
governmental, legal, technological, and competitive information. The socio-political
environment of Jordon and Syria are portrayed as somewhat unstable – and this is a
challenge to expansion plans by Moderna into these otherwise promising markets
from the company’s present moorings in Egypt, which appears to approach
saturation for the high-income segment.

Key External Factors Weight Rating Weighted


Score

Opportunities
1. There is continued demand for high-quality
industrial and high-income home fabrics such as 0.08 3 0.24
curtains and upholstery
2. The existing prices for European imports of
upholstery and curtains into the Middle East are 0.05 2 0.10
much higher than the prices for similar products by
Moderna
3. Prices in Jordan are much higher for the same
quality products as in Egypt, which is Moderna’s 0.04 3 0.12
manufacturing and distribution base

Copyright © 2011 Pearson Education Limited


4. Syria is as labor-intensive as Egypt, the original
manufacturing base of Moderna 0.03 1 0.03

5. Potential Syrian customers place high value on


quality 0.05 3 0.15

6. The Jordanian government encourages exports to


U.S. firms through QIZ and FTA 0.07 2 0.14

7. The textile industry in Syria accounts for 30


percent of industrial employment 0.04 2 0.08

8. The textile industry in Egypt constitutes 25


percent of the country’s non-oil exports 0.06 4 0.24

9. The textile industry in Jordan is focused on


apparel, and also imports upholstery 0.03 3 0.09

10. There is scope for expansion of the business and


for improving production efficiency 0.10 4 0.40

Threats
1. Global economic conditions are worsening
0.03 2 0.06

2. Regional geopolitical instabilities prevail in Jordan


and Syria 0.05 3 0.15

3. There is real risk of imitations and trademark


violations due to slack copyright laws in Syria 0.05 2 0.10

4. Substandard factories exist for local manufacture


in Syria 0.04 2 0.08

5. There is serious competition from Warda, an


expanding Lebanese multinational textile 0.08 4 0.32
manufacturer
6. There is competitive threat of economical
production and export by China and India 0.08 2 0.16

7. Italy is entering the luxury textile segment with


high pricing. 0.03 2 0.06

8. There is a trend towards modern fabrics, rather


than classic and traditional, in Jordan and Syria 0.04 3 0.12

9. Warda has already captured high-profile U.S.


customers (Target, Liz Claiborne, JC Penney, etc.) 0.03 2 0.06

10. Eastern European nations are poised to compete


in the high-end textiles market 0.02 1 0.02

Total 1.00 2.72

The average total weighted score is 2.5. A total weighted score of 4.0 indicates that
an organization is responding in an outstanding way to existing opportunities and

Copyright © 2011 Pearson Education Limited


threats in its industry. In other words, the firm’s strategies effectively take
advantage of existing opportunities and minimize the potential adverse effects of
external threats. A total score of 1.0 indicates that the firm’s strategies are not
capitalizing on opportunities or avoiding external threats. The total weighted score of
2.72 suggests that Moderna is aware of the opportunities and threats it faces, and
has embarked on a serious review of its potential for growth, its capabilities, and its
limitations. However, the response is still tentative, and firm action is needed.

Product Positioning Matrix

After markets have been segmented so that a firm can target particular customer
groups, the next step is to find out what customers want and expect. A serious
mistake is to assume that the firms know what customers want and expect.
Countless research studies reveal large differences between how customers define
service, and how producers view services. Many firms have become successful by
filling the gap between what producers see, and customers perceive, as good
service. Product positioning entails developing schematic representations that reflect
how a firm’s products or services compare to their competitors’ regarding dimensions
most important to success in the industry.

Two such matrices are presented below for Moderna and its rival, Warda.

Copyright © 2011 Pearson Education Limited


Positioning Matrix for Price and Product Image

Product Image
(High)

Moderna

Price (low) Price (High)

Warda

Product Image
(Low)

As depicted in the Product Positioning Matrix above for Price vs. Product Image,
Moderna has an advantage over Warda in terms of product image, as their products
are reputed for traditional and classic designs, quality, reliability, and direct access
without intermediaries. For Warda, its low-cost production in China does not
guarantee quality which has been the hallmark of Moderna’s products. Further,
Warda’s products are sold at high prices to harvest high profit margins through
transatlantic sales to customers in the United States. Even allowing for distribution
and logistics costs, Warda has a price advantage over Moderna as a result of
garnering high profit margins, which Moderna would like to emulate – without
compromising on quality. The challenge for Moderna is to relocate its manufacturing
base to countries such as China to effect low-cost production, yet maintain its
enviable product image at reasonable costs in order to enable market penetration
and expansion to Europe and North America.

Copyright © 2011 Pearson Education Limited


Product Positioning Matrix for Price and Quality

Quality (High)

Moderna

Price (low) Price (High)

Warda

Quality (Low)

It can be seen from the above Product Positioning Matrix for Price vs. Quality, that
Moderna has an advantage over Warda, as their products are traditionally focused on
high quality to meet discerning customer needs in the high-income market. Warda,
on the other hand, is able to produce at very low cost, in labor- and technology-
intensive countries such as China, and sell at very high profit margins to customers
in the United States. The challenge for Moderna is to relocate its manufacturing base
to countries such as China to effect low-cost production, yet maintain reasonable
prices for the premium market segments in Egypt, Syria, and Jordan. This would also
help them to compete favorably against Italy and other European countries which
sell at higher prices for similar products that Moderna markets in the Middle East.

Copyright © 2011 Pearson Education Limited


E. Internal Audit

Strengths

1. Moderna is a well-established company with 70 years’ experience


2. The company has a stable and well-trained workforce of 150
3. Sales are made directly to customers without intermediaries
4. Customers include five-star hotels and prominent personalities
5. It is one of the leading manufacturers of textiles, upholstery, and curtains
6. It is a price leader producing quality fabrics at a quarter of prices in Jordan
7. It enjoys unique strength in French-style fabrics, especially Damasks

Weaknesses

1. Production efficiency needs to be improved to combat competition


2. Current market is limited to Egypt with over 50 percent living below the
poverty line
3. Moderna, despite its name, is a traditional and classic textile manufacturer
4. The company caters only to premium customers, neglecting middle- and low-
income customers
5. Moderna is narrowly rooted in the Middle Eastern culture and economy
6. The company may be lacking in possible intermediaries to expand the market
7. Moderna’s production costs are not competitive with Warda

Financial Information (Income Statement only)

Summary Income & Expenditure of Moderna (Million US$)


Sales 13.952
Cost of goods sold -5.581
Gross Profit 8.371
Administrative Expenses -2.958
Exhibitions & Advertising -0.175
Utilities -0.089
Net Income 5.148
Profit Margins %
Gross Margin % 60%
Net Profit Margin % 37%

It is evident from the Income Statement results of Moderna that net profit is at a
healthy 37 percent due to conservative administrative, advertising, and utilities
expenditures. Distribution channels have also been conservative, with direct sales to
customers without intermediaries. However, with market expansion accompanied by
production and distribution efficiencies on the cards, these expenses can be expected
to increase considerably. To maintain a healthy net profit margin, Moderna needs to
increase sales by expanding its market geographically in the Middle East, Europe,
and in the USA, and across market segments to include middle- and lower-income
customers, while continuing to keep prices attractive.

Internal Factor Evaluation (IFE) Matrix

Copyright © 2011 Pearson Education Limited


A summary step in conducting an internal strategic-management analysis is to
construct an Internal Factor Evaluation (IFE) Matrix. This strategy-formulation tool
summarizes and evaluates the major strengths and weaknesses in the functional
areas of a business, and it also provides a basis for identifying and evaluating
relationships among them.

Key Internal Factors Weight Rating Weighted


Score

Strengths
1. Moderna is a well-established company with 70 0.12 4 0.48
years’ experience
2. The company has a stable and well-trained 0.06 3 0.18
workforce of 150
3. Sales are made directly to customers without 0.06 2 0.12
intermediaries
4. Customers include five-star hotels and 0.08 3 0.24
prominent personalities
5. It is one of the leading manufacturers of 0.09 4 0.36
textiles, upholstery, and curtains
6. It is a price leader producing quality fabrics at 0.10 4 0.40
a quarter of the prices in Jordan
7. It enjoys unique strength in French-style 0.09 2 0.18
fabrics, especially Damasks
Weaknesses
1. Production efficiency needs to be improved to 0.10 4 0.40
combat competition
2. Current market is limited to Egypt with over 50 0.04 2 0.08
percent living below the poverty line
3. Moderna, despite its name, is a traditional and 0.03 1 0.03
classic textile manufacturer
4. The company caters only to premium 0.06 2 0.12
customers, neglecting middle- and low-income
customers
5. Moderna is narrowly rooted in the Middle 0.04 1 0.04
Eastern culture and economy
6. The company may be lacking in possible 0.08 3 0.24
intermediaries to expand the market
7. Moderna’s production costs are not competitive 0.05 4 0.20
with its main competitor Warda
Total 1.00 3.07

Regardless of how many factors are included in an IFE Matrix, the total weighted
score can range from a low of 1.0 to a high of 4.0, with the average score being 2.5.
Total weighted scores well below 2.5 characterize organizations that are weak
internally, whereas scores significantly above 2.5 indicate a strong internal position.
In light of this, Moderna’s position with a score of 3.07 is stable and even strong
within its geographical market limitations which are confined largely to Egypt.

F. SWOT Strategies

Copyright © 2011 Pearson Education Limited


Any organization, whether military, product-oriented, service-oriented,
governmental, or even athletic, must develop and execute good strategies to win. A
good offense without a good defense, or vice versa, usually leads to defeat.
Developing strategies that use strengths to capitalize on opportunities could be
considered an offense, whereas strategies designed to improve upon weaknesses
while avoiding threats could be termed defensive. Taking into consideration the
above identified External Audit of the Opportunities and Threats (OT) and the
Internal Audit of Strengths and Weaknesses (ST), a SWOT Matrix can be compiled
and is presented below as: SO (strengths-opportunities) Strategies; WO
(weaknesses-opportunities) Strategies; ST (strengths-threats) Strategies; and, WT
(weaknesses-threats) Strategies. Matching key external and internal factors is the
most difficult part of developing a SWOT Matrix, requiring good judgment – and
there is no one best set of matches.

Strengths Weaknesses
1. Moderna is a well- 1. Production efficiency
established company needs to be improved to
with 70 years’ combat competition
experience 2. Current market is
2. The company has a limited to Egypt with
stable and well-trained over 50 percent living
workforce of 150 below the poverty line
3. Sales are made directly 3. Moderna, despite its
to customers without name, is a traditional
intermediaries and classic textile
4. Customers include five- manufacturer
star hotels and 4. The company caters
prominent personalities only to premium
5. It is one of the leading customers, neglecting
manufacturers of middle- and low-income
textiles, upholstery, customers
and curtains 5. Moderna is narrowly
6. It is a price leader rooted in the Middle
producing quality Eastern culture and
fabrics at a quarter of economy
the prices in Jordan 6. The company may be
7. It enjoys unique lacking in possible
strength in French-style intermediaries to
fabrics, especially expand the market
Damasks 7. Moderna’s production
costs are not
competitive with its
main competitor Warda
Opportunities S-O Strategies W-O Strategies
1. There is continued 1. Promote Moderna’s 1. Market expansion,
demand for high-quality high reputation over 70 particularly within the
industrial and high- years as a strength to familiar Egyptian base,
income home fabrics enhance customer could widen the scope
such as curtains and awareness of its to target all three
upholstery products market segments –

Copyright © 2011 Pearson Education Limited


2. The existing prices for 2. Continue to be price premium, middle-class,
European imports of leader in each market and low-income –
upholstery and curtains segment – especially as more than
into the Middle East are geographically and 50 percent of the
much higher than the structurally Egyptian population is
prices for similar 3. Establish and focus below the poverty line
products by Moderna manufacturing of high 2. Moderna could
3. Prices in Jordan are quality fabrics to advertise its name to
much higher for the Syrians who value market ‘modern’ fabrics
same quality products quality, and have a that are increasing in
as in Egypt, which is labor-intensive, demand in the Middle
Moderna’s industrial workforce East
manufacturing and 4. Establish manufacturing 3. Moderna could use
distribution base and overseas intermediaries to
4. Syria is as labor- distribution presence in expand the local
intensive as Egypt, the Jordan to benefit from Egyptian market, as
original manufacturing the Jordanian well as regional and
base of Moderna government’s liberal overseas markets
5. Potential Syrian policies for exports to 4. Production costs need
customers place high U.S. firms through QIZ to be minimized
value on quality and FTA (Free Trade consistent with quality
6. The Jordanian Zones) and competitive pricing
government encourages by outsourcing fabrics
exports to U.S. firms for the lower-income
through QIZ and FTA customer base, to
7. The textile industry in China
Syria accounts for 30
percent of industrial
employment.
8. The textile industry in
Egypt constitutes 25
percent of the country’s
non-oil exports
9. The textile industry in
Jordan is focused on
apparel, and imports
upholstery
10. There is scope for
expansion of the
business and for
improving production
efficiency
Threats S-T Strategies W-T Strategies
1. Global economic 1. To combat instability in 1. Production
conditions are global economic methodologies need to
worsening conditions and political be revamped in tune
2. Regional geopolitical situation in Jordan and with modern technology
instabilities prevail in Syria, establish a small 2. Use only trustworthy
Jordan and Syria but skilled and stable manufacturing
3. There is real risk of labor force composed locations,
imitations and mostly of locals in intermediaries, and
trademark violations these countries legal environments for
due to slack copyright 2. Due to the risk of cheap manufacture,

Copyright © 2011 Pearson Education Limited


laws in Syria duplicates, slack distribution, and
4. Untrustworthy factories trademark and marketing
exist for local copyright laws, and 3. Advertise Moderna’s
manufacture in Syria untrustworthy factories unique strengths
5. There is serious in Syria, avoid widely, especially in
competition from manufacture of high- new markets to
Warda, an expanding quality products in minimize imitation
Lebanese multinational Syria, and do not use 4. Consolidate Moderna’s
textile manufacturer intermediaries in Syria position in at least
6. There is competitive by selling directly to Egypt, Jordan, and
threat of economical premium customers Syria, before venturing
production and export 3. Target high-profile to Europe or U.S.
by China and India customers in Europe
7. Italy is entering the and U.S., to compete
luxury textile segment with Warda
with high pricing 4. Export high-quality
8. There is a trend fabrics at lower prices
towards modern fabrics, to Europe to compete
rather than classic and with similar products
traditional, in Jordan sold at much higher
and Syria prices from Italy and
9. Warda has already other European
captured high-profile countries
U.S. customers (Target,
Liz Claiborne, JC Penny,
etc.)
10. Eastern European
nations are poised to
compete in the high-
end textiles market

SO Strategies use a firm’s internal strengths to take advantage of external


opportunities. Moderna can capitalize on its high reputation for stability as a price
leader with high-quality products, and make concerted efforts to expand into
overseas markets.

WO Strategies aim at improving internal weaknesses by taking advantage of


external opportunities. Consistent with streamlining production costs and efficiencies,
Moderna could diversify and expand, starting from within Egypt to include all three
market segments (Al Azhar, Wekalet El Balah, and Premium), using efficient
intermediaries.

ST Strategies use a firm’s strengths to avoid or reduce the impact of external


threats. Moderna could use its strength in selling high-quality fabrics at relatively
lower prices to expand into Europe and within the Middle East against competitors
from Italy and other parts of Europe. Production and distribution in Syria needs to
have checks and balances to protect against infringement of trademarks and
copyrights, and from cheap imitations. Direct marketing to genuine customers, thus
avoiding intermediaries, could be ideal.

WT Strategies are defensive tactics directed at reducing internal weaknesses and


avoiding external threats. Moderna could take a defensive stance by consolidating its
position in the home turf (Egypt), whilst obviating illegal duplication and

Copyright © 2011 Pearson Education Limited


infringement of trademark laws and copyright violations through legal, political, and
strategic efforts.

G. SPACE Matrix

The Strategic Position and Action Evaluation (SPACE) Matrix indicates whether
aggressive, conservative, defensive, or competitive strategies are most appropriate
for a given organization. The axes of the SPACE Matrix represent two internal
dimensions (Financial Strength [FS] and Competitive Advantage [CA]) and two
external dimensions (Environmental Stability [ES] and Industry Strength [IS]).
These four factors are perhaps the most important determinants of an organization’s
overall strategic position.
FS
Conservative +7
Aggressive

+6

+5

+4

+3

+2

+1

CA IS
-7 -6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6 +7

-1

-2
Competitive

-3

-4

-5

-6
MODERNA
-7
Defensive
ES

Financial Strength (FS) Environmental Stability (ES)


Return on Investment 4 Unemployment -4
Leverage 5 Technological Changes -4
Liquidity 4 Price Elasticity of Demand -3
Working Capital 4 Competitive Pressure -4
Cash Flow 5 Barriers to Entry -3
Price range of competing products -4

Copyright © 2011 Pearson Education Limited


Financial Strength (FS) Average 4.5 Environmental Stability (ES) Average -3.6

Competitive Advantage (CA) Industry Strength (IS)


Market Share -1 Growth Potential 6
Product Quality -1 Financial Stability 3
Customer Loyalty -3 Ease of Market Entry 3
Competition’s Capacity Utilization -3 Resource Utilization 3
Technological Know-How -4 Profit Potential 5
Product Life Cycle -3 Technological know-how 4
Productivity, capacity utilization 3

Competitive Advantage (CA) -2.5 Industry Strength (IS) Average 3.9


Average

Y-axis: FS + ES = 4.5 + (-3.6) = - 0.9


X-axis: CA + IS = (-2.5) + (3.9) = +1.4

The directional vector of the SPACE Matrix above indicates that Moderna is in a high-
growth and reasonably stable industry. According to the results of the SPACE Matrix,
it is recommended that Moderna embark on a Competitive Strategy that balances all
extant external and internal realities impinging on the company. This could involve
backward integration (acquiring raw material for production of textiles); forward
integration (taking ownership of distribution channels and nodes such as warehouses
and retail store chains); or, horizontal integration (acquiring similar firms towards
oligopoly or monopoly). It appears from the overall strategic thrust of the various
analyses including the CPM, EFE, IFE, SWOT, Financial Information, and Product
Positioning Matrix, that Moderna is likely to adopt a backward integration strategy to
acquire raw materials for manufacture at competitive prices, rather than horizontal
or forward integration. Moderna will also need to embark on a market penetration
and market development strategy, together with product development to meet
quality, price, and demand for various market segments it could target in the Middle
East and overseas.

H. Grand Strategy Matrix

All organizations can be positioned in one of the Grand Strategy Matrix’s four
strategy quadrants. The Grand Strategy Matrix is based on two evaluative
dimensions: competitive position and market (industry) growth. Any industry whose
annual growth in sales exceeds 5 percent could be considered to have rapid growth.
Appropriate strategies for an organization to consider are listed in sequential order of
attractiveness in each quadrant of the matrix. Firms located in Quadrant I of the

Copyright © 2011 Pearson Education Limited


Grand Strategy Matrix are in an excellent strategic position. For these firms,
continued concentration on current markets (market penetration and market
development) and products (product development) is an appropriate strategy (see
SPACE Matrix above). It is unwise for a Quadrant I firm to shift notably from its
established competitive advantage(s). When a Quadrant I organization has excessive
resources, then backward, forward, or horizontal integration may be effective
strategies. When a Quadrant I firm is too heavily committed to a single product, then
related diversification may reduce the risks associated with a narrow product line.
Quadrant I firms can afford to take advantage of external opportunities in several
areas. They can take risks aggressively when necessary.

Rapid Market
Growth
Quadrant II Quadrant I

MODERNA

Strong
Weak
Competitive Competitive
Position
Position

Quadrant III Quadrant IV

Slow Market Growth

1. Market development
2. Market penetration
3. Product development
4. Backward integration
5. Related diversification
6. Forward integration
7. Horizontal integration

According to its Quadrant I location in the Grand Matrix, Moderna is in a strong


competitive position, and underscores the competitive stance reflected in the SPACE
Matrix, with the possible addition of ‘Related Diversification’ by branching into
various strategic business units located in various countries to optimize production,
market expansion, product diversification, and overall profits. When a Quadrant I
firm is too heavily committed to a single product, then related diversification may

Copyright © 2011 Pearson Education Limited


reduce the risks associated with a narrow product line. Quadrant I firms can afford to
take advantage of external opportunities in several areas. They can take risks
aggressively when necessary.

I. The Quantitative Strategic Planning Matrix (QSPM)

The only analytical technique in the literature designed to determine the relative
attractiveness of feasible alternative actions is the Quantitative Strategic Planning
Matrix (QSPM), which comprises Stage 3 of the strategy-formulation analytical
framework. This technique objectively indicates which alternative strategies are best.
The QSPM uses input from Stage 1 analyses and matching results from Stage 2
analyses to decide objectively among alternative strategies. That is, the EFE Matrix,
IFE Matrix, and Competitive Profile Matrix that make up Stage 1, coupled with the
SWOT Matrix, SPACE Matrix, BCG Matrix, IE Matrix, and Grand Strategy Matrix that
make up Stage 2, provide the needed information for setting up the QSPM (Stage 3).
The QSPM is a tool that allows strategists to evaluate alternative strategies
objectively, based on previously identified external and internal critical success
factors. Like other strategy-formulation analytical tools, the QSPM requires good
intuitive judgment.

The left column of a QSPM consists of key external and internal factors (from Stage
1), and the top row consists of feasible alternative strategies (from Stage 2).
Specifically, the left column of a QSPM consists of information obtained directly from
the EFE Matrix and IFE Matrix. In a column adjacent to the critical success factors,
the respective weights received by each factor in the EFE Matrix and the IFE Matrix
are recorded. The top row of a QSPM consists of alternative strategies derived from
the SWOT Matrix, SPACE Matrix, and Grand Strategy Matrix. These matching tools
usually generate similar feasible alternatives. However, not every strategy suggested
by the matching techniques has to be evaluated in a QSPM. Strategists should use
good intuitive judgment in selecting strategies to include in a QSPM.

Strategy
Strategy 1 Strategy 2 3
Expand Consolidate Compete
regionally Moderna’s with
into all position in Warda by
three Egypt, targeting
market Jordan, high-
segments: and Syria, profile
premium, before customers
middle- venturing in Europe

Copyright © 2011 Pearson Education Limited


class, low- to Europe and U.S.
income. or U.S.
Key Factors Weight AS TAS AS TAS AS TAS

Opportunities
1. There is continued demand for
high-quality industrial and high- 0.08 1 0.08 3 0.24 4 0.32
income home fabrics such as
curtains and upholstery
2. The existing prices for European
imports of upholstery and 0.05 1 0.05 3 0.15 3 0.15
curtains into the Middle East are
much higher than the prices for
similar products by Moderna
3. Prices in Jordan are much higher
for the same quality products as 0.04 2 0.08 4 0.16 1 0.04
in Egypt, which is Moderna’s
manufacturing and distribution
base
4. Syria is as labor-intensive as 0.03 2 0.06 3 0.09 1 0.03
Egypt, the original
manufacturing base of Moderna
5. Potential Syrian customers place 0.05 2 0.10 3 0.15 1 0.05
high value on quality
6. The Jordanian government 0.07 1 0.07 3 0.21 4 0.28
encourages exports to US firms
through QIZ and FTA
7. The textile industry in Syria 0.04 2 0.08 3 0.12 1 0.04
accounts for 30 percent of
industrial employment
8. The textile industry in Egypt 0.06 4 0.24 3 0.18 1 0.06
constitutes 25 percent of the
country’s non-oil exports
9. The textile industry in Jordan is 0.03 3 0.09 3 0.09 1 0.03
focused on apparel, and imports
upholstery
10. There is scope for expansion 0.10 4 0.40 4 0.40 4 0.40
of the business and for
improving production efficiency
Threats
1. Global economic conditions are 0.03 -- -- -- -- -- --
worsening
2. Regional geopolitical instabilities 0.05 -- -- -- -- -- --
prevail in Jordan and Syria
3. There is real risk of imitations 0.05 -- -- -- -- -- --
and trademark violations due to
slack copyright laws in Syria
4. Untrustworthy factories exist for 0.04 -- -- -- -- -- --
local manufacture in Syria

Copyright © 2011 Pearson Education Limited


5. There is serious competition 0.08 2 0.16 1 0.08 4 0.32
from Warda, an expanding
Lebanese multinational textile
manufacturer
6. There is competitive threat of
economical production and 0.08 2 0.16 2 0.16 3 0.24
export by China and India
7. Italy is entering the luxury 0.03 2 0.06 3 0.09 3 0.09
textile segment with high pricing
8. There is a trend towards modern 0.04 3 0.12 3 0.12 3 0.12
fabrics, rather than classic and
traditional, in Jordan and Syria
9. Warda has already captured 0.03 1 0.03 2 0.06 4 0.12
high-profile U.S. customers
(Target, Liz Claiborne, JC Penny,
etc.)
10. Eastern European nations 0.02 3 0.06 3 0.06 2 0.04
are poised to compete in the
high-end textiles market
TOTAL 1.0 1.84 2.36 2.33
Strengths
1. Moderna is a well-established 0.12 4 0.48 4 0.48 4 0.48
company with 70 years’
experience
2. The company has a stable and 0.06 3 0.18 2 0.12 2 0.12
well-trained workforce of 150
3. Sales are made directly to 0.06 2 0.12 2 0.12 2 0.12
customers without
intermediaries
4. Customers include five-star 0.08 -- -- -- -- -- --
hotels and prominent
personalities
5. It is one of the leading 0.09 3 0.27 3 0.27 4 0.36
manufacturers of textiles,
upholstery, and curtains
6. It is a price leader producing 0.10 4 0.40 4 0.40 3 0.30
quality fabrics at a quarter of the
prices in Jordan
7. It enjoys unique strength in 0.09 2 0.18 3 0.27 4 0.36
French-style fabrics, especially
Damasks
Weaknesses
1. Production efficiency needs to be 0.10 1 0.10 2 0.20 4 0.40
improved to combat competition
2. Current market is limited to 0.04 4 0.16 3 0.12 1 0.04
Egypt with over 50 percent living
below the poverty line
3. Moderna, despite its name, is a 0.03 -- -- -- -- -- --
traditional and classic textile
manufacturer
4. The company caters only to 0.06 1 0.06 2 0.12 3 0.18
premium customers, neglecting

Copyright © 2011 Pearson Education Limited


middle- and low-income
customers
5. Moderna is narrowly rooted in 0.04 -- -- -- -- -- --
the Middle Eastern culture and
economy
6. The company may be lacking in 0.08 4 0.32 4 0.32 4 0.32
possible intermediaries to
expand the market
7. Moderna’s production costs are 0.05 2 0.10 3 0.15 4 0.20
not competitive with its main
competitor Warda
SUBTOTAL 1.00 2.37 2.57 2.88
SUM TOTAL ATTRACTIVENESS 4.21 4.93 5.21
SCORE

J. Recommendations

Strategy #3: Moderna should compete aggressively with its Lebanese rival, Warda,
targeting high-profile customers in Europe and the U.S. by utilizing its high-quality
image and attractive pricing, with low-cost production based in China, and marketing
through Jordan with the benefit of the QIZ and FTA.

K. Epilogue

Moderna, a highly-regarded Egyptian textile manufacturer with Syrian roots, has


established a respectable base targeting the premium textile market with some
exclusive brands including the French-style Damasks, as well as Jacquard, Dobby,
and velvet products. Even though Egypt has a historically strong textile industry
blessed with cotton as well as high-quality silk and wool – with Egyptian cotton vying
for fame with its pyramids – it is haunted by over 50 percent of the population living
below the poverty line. Moderna has thus denied itself a massive low-to-middle
income market where volume of sales at low cost to the consumer would have made
the company a household name in Egypt across the spectrum of the economy.

Copyright © 2011 Pearson Education Limited


However, with its well-earned reputation for quality at reasonable prices, Moderna
stands poised to capture opportunities to consolidate its position and expand into
promising arenas where it can penetrate both the Middle Eastern and European
markets as a price leader. Alternatively, or in conjunction with this ambitious
potential, Moderna could also take a page from the success of its Lebanese rival
Warda by seeking to produce at the lowest possible cost in a labor-intensive offshore
country such as China – yet maintaining quality standards to safeguard its
reputation. This would yield the necessary economies of scale and a generous
cushion of gross margin. To tackle the complex logistics and tax regime of the
promising, transatlantic U.S. market, the Qualifying Industrial Zone (QIZ) and Free
Trade Agreement (FTA) provisions would be highly facilitative. With a population of
over 260 million, the U.S. market itself is vast and lucrative – as demonstrated by
Warda that has already captured high-profile U.S. corporate customers such as Liz
Claiborne, Target, and JC Penney.

Following a multi-pronged analysis using judgment and reasoning coupled with


numerical and graphical outputs, three strategic choices were presented:

(1) Expand regionally into all three market segments: premium, middle-class, low-
income.

(2) Consolidate Moderna’s position in Egypt, Jordan, and Syria, before venturing to
Europe or U.S.

(3) Compete with Warda by targeting high-profile customers in Europe and the U.S.

According to the comprehensive and decisive Quantitative Strategic Planning Matrix


(QSPM), the third choice, with the highest weighted score of 5.21, has emerged as
the best option among the three promising alternatives. It is therefore recommended
that Moderna embark on expanding its operations overseas to the USA, and in the
process, continue to market high-quality textiles at reasonable prices for the
currently high-priced Middle Eastern and European markets.

Copyright © 2011 Pearson Education Limited