NIM : 29120578

Name : Ayda Khadiva

1. Central Firm: Tepco

SOCIAL STAKEHOLDER
Primary Social Stakeholders
Shareholders and investors
Employees
Customers
Local Communities (Fishermen)
Local Communities (Residents affected by
Fukushima Daichii meltdown from
earthquake and tsunami)
Professional Affiliations (Olympic Committee)
Secondary Social Stakeholders
Government
Ministry of Economy, Trade and Industry
Social Pressure Group
Media and academic commentators
Competitor

NONSOCIAL STAKEHOLDER
Primary Nonsocial Stakeholders Secondary Nonsocial Stakeholders
Environment (the water healthy standard in Environmental interest groups
the ocean and sewage)
Future Generations Animal welfare organizations
Nonhuman species (particularly the fishery)

RESPONSIBILITY MATRIX
Stakeholders Economic Legal Ethical Philanthropic
Conducting Not conducting
business in a lawful business in an
Shareholders and Paying
manner as unethical way as -
investors dividends
corporate Tepco did with
responsibility Fukushima Daichii
Aids for
Giving
Not involving Consider employee’s employees
appropriate
Employees employees in rights under the affected by the
salary and
unlawful practices company Fukushima Daichii
fees
accident
Not making deals
under false
Giving services
pretenses like
Customers - which are lawful -
radioactivity levels in
and legal
the water because of
their nuclear plants
Releasing water Not scamming the
waste under the fishery industry by
Local Communities
- required standards releasing toxic water
(Fishermen)
from the into their source of
government income
 Rebuild the trust
Being responsible for
Local Communities by giving aids to
the lack of
(Residents affected people affected
appropriate action
by Fukushima Daichii by the meltdown
- - following the
meltdown from of Fukushima
meltdown of 3
earthquake and Daichii after
reactors of
tsunami) earthquake and
Fukushima Daichii
tsunami
Taking care of
Professional Making sure that the
water safety that
Affiliations (Olympic - deal is free from foul -
might endanger
Committee) play
the affiliated
Collaborate and
Government Get the radioactive report to the
(Ministry of levels below the government about
Tax paying -
Economy, Trade and standard their action plan to
Industry) regulations minimize the
radioactive levels
Media and academic Not spreading false
- - -
commentators news
Conducting
Competitor - business under Fair play
legal rivalry
Environment (the Getting the water
Clean up the mess
water healthy radioactivity level
- that has caused
standard in the to an acceptable
danger for the future
ocean and sewage) healthy number
Clean up the mess
Future Generations that has caused
danger for the future
Clean up the mess
Nonhuman species
that has caused
(particularly the
danger for the
fishery)
environment

Recommendations:

- Using an all-hazards approach – with optimization of radiological exposure done by taking

into account other risks
- Involving stakeholders where practical and appropriate – with stakeholder engagement
being integral to the policy decision-making process and key for defining acceptance or
tolerance
- Conducting structured analysis – proposing and comparing different options for protection,
their costs and their benefits
- Identifying and securing disposal options for the wide variety of identified wastes and, in
particular, the handling of the treated water held on the site; continued research on
 characterization of the unique and unconventional waste forms; and the safe and effective
extraction, removal, stabilization, and ultimate disposal of fuel debris.
- Establish and implement the compensation scheme necessary to respond to the Fukushima
Daiichi nuclear that affects the water treatment.

2. HIGH PROFIT: Tobacco Industry

A 2017 research estimates for the global tobacco market indicate a worth of approximately $785
billion U.S dollars. Over $700 billion, almost 90% of sales, of this stem from revenues from
combustible cigarettes. China is the largest cigarette market in the world, with a retail value in 2017
of US$212.3 billion (Euromonitor International, 2018). China, Indonesia, Russia, United States and
Japan accounted for 61.7% of the selling volume of all cigarettes in 2017. Between 2003 and 2017,
the retail value of the cigarette market increased from around $400 billion to $725 billion.

Thus, the tobacco industry has been, and still is, one of the most profitable industries in the world.
Since no significant player has challenged the five leading transnational tobacco companies,
frequently referred to as “Big Tobacco” in the industry for a long time, they have been able to enjoy
great cash flow return. The ability to generate such large amounts of cash is unique for the tobacco
industry. While an average S&P 500 company enjoys an FCF yield of around 4%, Altria, BAT and PMI
have all yield significant higher FCF yield levels of 5.7%, 6.6% and 6.7%, respectively. Most Big
Tobacco uses this cash to pay out dividends, often three times the S&P 500 average, making them
attractive stocks to buy in terms of dividend payments.

Players
There are primarily four tobacco companies that dominate the global tobacco market, excluding
China. These include PMI, BAT, Altria and Imperial Tobacco, with 2018 net sales of $29.6 billion,
$26.1 billion, $25.4 billion and $20.1 billion respectively.

PMI (Phillip Morris International)

PMI is a leading international tobacco company engaged in the manufacture and sale of cigarettes
and other nicotine-containing products in markets outside of the United States. The company is a
United States based 18 entity incorporated in Virginia with headquarters in New York City, USA, and
an operations center in Lausanne, Switzerland. PMI is the world’s largest transnational tobacco
company with net revenues of $29.6 billion, holding the world’s second largest market share after
China National Tobacco Corporation (“CNTC”). The Company serves 150 million customers
worldwide and employs approximately 77,000 employees, including 400 R&D scientists, engineers
and technicians working on reduce-risk products (“RRPs”). PMI’s vision is to build the Company’s’
future on such products and to ultimately replace these with cigarettes through multidisciplinary
capabilities in product development, facilities and scientific substation.
PMI estimates that the company has reported share of the international market (defined as
worldwide cigarette and heated tobacco unit volume, excluding the United States and China) was
approximately 28.4%, 27.9% and 28.1% in 2018, 2017 and 2016, respectively. PMI currently
manages its operations in six reportable segments, including the European Union (“EU”), Eastern
Europe, Middle East & Africa, South & South East Africa, East Asia & Australia, Latin America &
Canada.
Substitutes
- Vapes
- Heat-Not-Burn cigarettes
- Nicotine Patches
- E-Cigarettes

a. Threats of new entrants:

- High economies of scale in manufacturing, packaging, branding and distribution
- Demand-side benefits of scale leans towards established brands
- Customers switching cost are low
- Capital requirements ted to be not so high
- Incumbency advantages independent of size is not favorable to new players because
cumulative experience and established identities plays a huge role
- Unequal distribution channels access tend to be medium, depends on the country
- Restrictive policies may hinder new entrants

CONCLUSION: Threats of new entrants are low, which is an advantage to established players
(in this case PMI)

b. Bargaining Power of Suppliers

- Tobacco farms are abundant, leaving companies with many options and higher power
- Suppliers tend to come from lower income populations and there is a power dynamic that
favors companies, economically and politically
- There are lack of differentiation in raw material which is tobacco leaf, also lowers the
bargaining power of suppliers

CONCLUSION: Bargaining power of supplier are low, which is an advantage to established

players

c. Bargaining Power of Buyers

- Buyers have chemical dependence and brand loyalty, which makes it hard for them to
switch brands even though the switching cost is low
- However industry-wise, the price-sensitive nature of the product leaves room for buyers to
have bargaining leverage

CONCLUSION: Bargaining power of buyers are low, which is an advantage

d. Threat of Substitute Products

- With growing awareness about the harmful effects of tobacco, one can assume that the
demand for substitute products is increasing
- Switching cost is low
- JUUL, an e-cigarette brand is growing substantially
- However the habit and specific sensation of smoking still holds some leverage
 CONCLUSION: Threat of substitute products is moderate to low, which is an advantage but
PMI needs to beware of those threats growing gradually

e. Competitive Rivalry
- The market is highly consolidated with six multinational corporations controlling almost 81%
of total market share
- All of the other big players hold a relatively equal size. This results in an intense market
rivalry where the companies are continuously seeking ways to reach competitive advantages
over one another.
- Merger and Acquisition activity could also pose a threat to PMI if two major players where
to join forces at some point to create synergies in production, distribution and promotions.
This would force PMI to have to incur costs to drive its brand appearance among other
players in the new competitive landscape.

CONCLUSION: Competitive rivalry is high, which is a disadvantage

Summary of Porter’s Five Forces Analysis

To summarize, competition among industry players are deemed high, the threat of substitute
products is fairly manageable and the bargaining power of suppliers as well as threat of new
entrants are deemed low. Although customer bargaining power can be exerted at some levels, in
terms of them having no switching costs, customers would have a difficult time exerting businesses
to get them to provide higher quality products, better customer service and lower prices. Hence,
bargaining power of customers are deemed to be manageable. Overall, with most of the forces
being advantages, it is clear why the tobacco industry, in this case PMI, keeps growing profits for
the decade.

LOW PROFIT: Indonesian Airlines Industry

Air transportation industry is a business that has tight competition. This tight competition is one of
the implications of the deregulation of the domestic airline industry by the Government of
Indonesia since 2000, It certainly opened up competition and great access to get into the airline
industry in Indonesia. Tight competition marked by the increasing number of domestic airlines and
international airlines who operate and develop routes or air service in all airports in Indonesia.

Domestic airlines in Indonesia, such as, Merpati Nusantara Airlines, Indonesia AirAsia, Lion Air,
Kartika Airlines, BataviaAir, Riau Airlines, Wings Air, Trigana Air Service, Travel Express, SriwijayaAir,
Linus Airways, Republic Express Airlines, Cardig Air, Manunggal AirService, Indonesia Air Transport,
Kal Star Aviation, Megantara Air, Pelita Air Service, and Tri-MG Intra Asia Airlines. While some
international airlines including Singapore Airlines, Malaysia Airlines, Air Asia Malaysia, China
Airlines, Korean Airlines, and Thai Airways.

Back from eighties, after separated from the KLM Dutch airline company, Garuda Indonesia
received benefits from the government to do concession of monopoly in the aviation industry. As a
result, in 1982 Garuda Indonesia became the 2nd best airline in Asia afterJapan Airlines as well as
being the largest and influential airline in the southern hemisphere. However, since the Indonesian
government issued ministerial decree no.11/2011 and particular deregulation about air
transportation and initial operational procedures in 1999, the development of commercial aviation
industry is becoming increasingly widespread. Garuda Indonesia as national Indonesia airline can no
longer dominate the market for aviation services industry. A large number of private airlines
companies operating in Indonesia such as Lion Air, Sriwijaya Air, Adam Air and others automatically
enter and create a tight competition in commercial flight business sector. Indirectly, this case
affected the position of Garuda Indonesia in severe conditions. The situation was getting worse by
the Asian crisis that hit Indonesia in the last two decades, a series of accidents suffered by Garuda
Indonesia, and the ban on flights to the European Union in 2007. In contrast from the problems
experienced by Garuda, the air transport sector in Indonesia recorded growth turn out to be a very

promising business. This case then used by the other airline competitors including Lion Air to
take advantage of the Garuda Indonesia's bad reputation with a massive expansion plan to get
the majority of market share. Based on data from State-owned corporation that provides
services operator of airports in Indonesia, PT. Angkasa Pura, the number of air passengers in
Indonesia has increased year by year to over 25 million in 2005 and continues to grow.

a. Threats of new entrants:

- The airline industry needs huge capital investment to enter and even when airlines have to
exit the sector, they need to write down and absorb many losses. This means that the entry
and exit barriers are high for the airline industry
- As entry into the airline industry needs a high infusion of capital, not everybody can
enter the industry, which in addition, needs sophisticated knowledge and expertise on
part of the players, which is a deterrent.
- Moreover, the airline industry leverages the efficiencies and the synergies from the
economies of scale and hence, the entry barriers are high.

CONCLUSION: Threats of new entrants are low, which is an advantage to established players
(in this case Garuda)

b. Bargaining Power of Suppliers

- Suppliers are partnership with the airlines are those that supply the raw materials necessary
for the company to carry out the operational activities of the company. PT Garuda Indonesia
Tbk has some suppliers that support operations such as PT Angkasa Pura, fuel suppliers, and
manufacturers of aircraft and aircraft engines.
- Plane lessors hold a stiff agreement which restricts Garuda’s flexibility
- Garuda Indonesia using a fleet of two aircraft manufactured by Boeing and Airbus suppliers.
While the machines used by aircraft manufactured by CFM International SA (Joint venture
between Snecma (SAFRAN Group) of France and General Electric in the United States), and
Rolls-Royce Plc. The purchase of a fleet of aircraft and spare parts takes Garuda Indonesia
carried out in accordance with the purchase agreement. So that Garuda Indonesia may get
approval at a reasonable price with best quality spare parts with the suppliers i.e. Boeing,
Airbus, CFM International S. A, and Rolls-Royce Plc.
- Garuda needs a lot of customizations so the switching cost for them to change suppliers are
high
 CONCLUSION: Bargaining power of supplier are high, which is a disadvantage

c. Bargaining Power of Buyers

- There are a lot of similar services with lower price
- Buyers aren’t tied to travel agents anymore, enables them to be more flexible with their
choice
- Switching cost is low

CONCLUSION: Bargaining power of buyers are high, which is a disadvantage

d. Threat of Substitute Products

- Land and sea transportations does not share a substantial amount of Garuda Indonesia’s
target market
- High mobility needs is an advantage for airlines

CONCLUSION: Threat of substitute products is low, which is an advantage

e. Competitive Rivalry
- The market is highly competitive
- There are increasing numbers of companies offering similar services
- Competition from full service carriers and low-cost cariers
- Garuda’ schedule conflicting with main international competitors such as Malaysian Airlines
and thai airways

CONCLUSION: Competitive rivalry is high, which is a disadvantage

Summary of Porter’s Five Forces Analysis

To summarize, competition among industry players are deemed high, the threat of substitute
products is fairly manageable and the bargaining power of suppliers as well as threat of new
entrants are deemed high. in terms of them having no switching costs, customers would have a
difficult time exerting businesses to get them to provide higher quality products, better customer
service and lower prices. Overall, with most of the forces being advantages, it is clear why the the
airlines industry specifically looking at the competitive forces of Garuda Indonesia is very stiff with
low chances of getting ahead in profits.

3. Competitive Advantage
A competitive advantage is an attribute that enables a company to outperform its competitors. This
allows a company to achieve superior margins compared to its competition and generates value for
the company and its shareholders. A competitive advantage must be difficult, if not impossible, to
duplicate. If it is easily copied or imitated, it is not considered a competitive advantage. There are
many routes to competitive advantage, but they all involve either giving buyers what they perceive
as superior value compared to the offerings of rival sellers or giving buyers the same value as others
at a lower cost to the firm. Superior value can mean a good product at a lower price, a superior
product that is worth paying more for, or a best-value offering that represents an attractive
combination of price, features, quality, service, and other attributes.
 How do resources and capabilities relate to competitive advantage?
Delivering superior value or delivering value more efficiently—whatever form it takes—nearly
always requires performing value chain activities differently than rivals do and building
competencies and resource capabilities that are not readily matched. The key to success of every
organization is the achievement to deploy unique tangible and intangible resources, which cannot
be imitated by their rival competitors. The significance of these and interconnection of core
competencies is seen as an inseparable item into the process of competitive advantage.

What is the prerequisite of resources and capabilities that enable them to become the source of
competitive advantage?
The competitive power of a resource or capability is measured by how many of four specific tests it
can pass. These tests are referred to as the VRIN tests for sustainable competitive advantage —
VRIN is a shorthand reminder standing for Valuable, Rare, Inimitable, and Non-substitutable. The
first two tests determine whether a resource or capability can support a competitive advantage.
Resources and capabilities are considered valuable if they allow an organization to both exploit
opportunities and counter threats. Therefore, these resources should enable the organization to
meet the factors critical to success in their business environment. The rarity criterion is related to
the number of competitors that possess a valuable resource. Clearly, where a number of
competitors possess a valuable resource then it is unlikely to be a source of competitive advantage
and therefore is a suitable candidate for outsourcing. A valuable resource that is unique amongst
both current and potential competitors is likely to be a source of competitive advantage. Valuable
and rare resources can be a source of competitive advantage and should be performed and
developed internally.

How does core rigidity may affect a firm’s competitive advantage?

When a firm achieves competitive advantage, it sometimes falls into core rigidity, which is when the
firm gets too comfortable and stops trying to innovate. Each core competence could potentially
become a core rigidity if the firm crosses its arms and stops trying just because now it has already
has achieved a core competency. This is because many core competencies do not seem to last
forever. As time elapse, core competencies become vulnerable to the changes in the general
industry environment. Firms that do not acknowledge or indifferent to the changes, or refuse to
change, in their myopia are likely to suffer financially or from any other areas in the near or not-so-
long future.
Core rigidity can be explained as obsolete core capabilities that is revealed due to external events
when new competitors figure out a better way to serve the firm’s customers, when new
technologies emerge or when political or social events shift the ground underneath. To be able to
overcome capability turning into core rigidity, management need to seek for innovative ways in
order to cultivate dynamic capabilities before those competencies turn rigid.

4. Generic Strategies
Porter’s generic competitive strategy is a framework that is useful for planning the strategic
direction of a business that assists with gaining an advantage in the marketplace over competitors.
GCS is composed of three generic strategies: cost leadership, differentiation and focus. A company
may decide to select one of two types of competitive advantage. For instance, they may choose to
lower costs or differentiate based on what is important to their customers to demand higher prices
on products. Or a company may decide to choose between two types of scope. For instance, they
may focus on offering products to a select segment of their target market or offer products
industry-wide across many market segments.

Each strategy has different methods for business success. Many businesses within the same
industries may choose different strategies based on their strengths and desired outcome. To find
the best strategy, It is crucial to run a competitive analysis in that particular industry. If a firm does
not know what is out there and who the competitors are, it can be difficult to drive marketing
efforts for the optimum ROI (return on investment).

A company’s competitive strategy deals exclusively with the specifics of management’s game plan
for competing successfully— its specific efforts to position itself in the marketplace, please
customers, ward off competitive threats, and achieve a particular kind of competitive advantage.
The chances are remote that any two companies—even companies in the same industry—will
employ competitive strategies that are exactly alike in every detail. However, when one strips away
the details to get at the real substance, the two biggest factors that distinguish one competitive
strategy from another boil down to (1) whether a company’s market target is broad or narrow and
(2) whether the company is pursuing a competitive advantage linked to lower costs or
differentiation.

- A low-cost provider strategy —striving to achieve lower overall costs than rivals on comparable
products that attract a broad spectrum of buyers, usually by underpricing rivals.
- A broad differentiation strategy —seeking to differentiate the company’s product offering from
rivals’ products by offering superior attributes that will appeal to a broad spectrum of buyers.
- A focused low-cost strategy —concentrating on a narrow buyer segment (or market niche) and
outcompeting rivals on costs, thus being able to serve niche members at a lower price.
- A focused differentiation strategy —concentrating on a narrow buyer segment (or market
niche) and outcompeting rivals by offering niche members customized attributes that meet
their tastes and requirements better than rivals’ products.
- A best-cost provider strategy —giving customers more value for their money by satisfying
buyers’ expectations on key quality, features, performance, and/or service attributes while
beating their price expectations. This option is a hybrid strategy that blends elements of low-
cost provider and differentiation strategies; the aim is to have the lowest (best) costs and prices
among sellers offering products with comparable differentiating attributes.

In order to conduct the generic strategy analysis, we need to know about the cost drivers, value
drivers, and value chain of a product or firm.

Example: H&M

Hennes and Mauritz AB (H&M) is a Swedish brand founded in 1947 by Erling Persson in Vasteras,
Sweden, with the idea of offering affordable ‘ mode and quality at the best price. Its product
portfolio includes accessories, footwear and cosmetics for women, men, teenagers and children.
H&M has no factories, but its products are outsourced to around 800 independent suppliers in Asia
and Europe, with 16 manufacturing offices. Today, H&M ranks as the world’s second largest
clothing retailer based on annual sales, with a turnover of SEK (232 billion) including VAT, their retail
stores can be found in 75 countries, also a significant online presence with online shopping in 33
countries. H&M’s top competitors are Zara, the US GAP, Japanese Uniqlo, Benetton and UK
Topshop.

Cost Drivers

Economies of H&M sells mostly basic clothing products on a mega scale, achieving lower
Scale unit costs. H&M also outsource their production to more than 800 suppliers
across Asia (2 months lead time) and Europe (3 weeks lead time) that is
shipped to their 2 main warehouses.
Economies of Being in the market for a long time has shaped H&M into a brand that
learning utilizes technology to forecast their demands according to trends and other
activities in order to perform in an agile manner to minimize cost of
opportunity. They also has an established design team system &supply chain
management that enables them to minimize faults and errors.
Production H&M integrates both lean and agile process of manufacturing to reap the
Technique maximum benefits out it. In Lean production products take lower lead time
as basic and specific merchandises are produced for its customers with large
volumes and low variability, manufactured in their Asian suppliers (60%
production). Lean production is product oriented and aims at cost
optimization, elimination of wastages and efficiency. Whereas, in agile
production products take faster lead time as they are fashion sensitive
apparels and are made available at very short notice using market
knowledge and virtual corporation while maintaining the high standards of
quality. Lean production is manufactured in Europe suppliers and aims to
provide higher customer satisfaction with higher flexibility variety and
effectiveness.
Product Design H&M is headed by the team of 100+ designers working from H&M design
center in Stockholm, Sweden widely known as “White room”. H&M plan and
produce season after season collections accomplishing its two-fold design
process through long term planning which is done more than a year in
advance and real time design feedback deriving from customer driven
product strategy. H&M also works with Worth Global Styles Network
(WGSN) to forecast fashion trend and patterns in current times.
Input Cost H&M do not own any manufacturing plants and has outsourced its
production needs globally. Hence it relays on various suppliers to deliver the
necessary input on its behalf. H&M can secure stable, high-volume supplies
of top-quality materials at low cost by negotiating directly with materials
manufacturers worldwide and placing large-volume orders to low income
countries for 60% of production.
Capacity H&M follows both Centralized and Decentralized Inventory Management
utilization System. Centralized activities include quality Inspections & excess stock
keeping to prevent excessive damages as professional inventory managers
are hired for these tasks. Decentralized form of inventory management
system in the regional market is done in order to cater to the needs of the
 local customers and also helps them manage inventories effectively. H&M
stores do not keep back up stocks, once the stock is sold out, a request for
replenishment of goods is placed and products are delivered from regional
replenishment centers. H&M has now initiated RFID (Radio Frequency
Identification) in almost 1800 stores to take off the load of the excess
inventory.
Residual H&M has recycling centers in each retailers. For every garment recycled,
Efficiency H&M gives out discounts. They recently launched a new garment-to-
garment recycling system called ‘Looop’. Looop uses a technique that
dissembles and assembles old garments into new ones. The garments are
cleaned, shredded into fibres and spun into new yarn which is then knitted
into new fashion finds. The system uses no water and no chemicals, thus
having a significantly lower environmental impact than when producing
garments from scratch.

Value Chain

Inbound logistics H&M do not own any manufacturing plants and has outsourced its
production needs globally. The designs are sent to one of H&M’s 800+
manufacturing partners across the world. H&M also outsources the
procurement of fabric. Hence it relays on various suppliers to deliver the
necessary inputs on its behalf. Due to product variability, H&M has many
kinds of fabric materials, sewing thread materials and button materials,
which are in the level 4, up to level 3 there are apparel fabric, sewing thread
and button. These three items will be processed to garments, garments with
the size label and hang tags, which are in level 2. A combination of these
three will become the completed apparel product.
Operations H&M utilized a centralized in-house designing model, its design operation
located in its headquarters in Stockholm. with 200 designers and 100
pattern makers, they are able to churn out multiple fashion designs decided
by various markets analysis to meet the latest trends. Having direct
connection with the production office also allows immediate production
which enhances cost efficiencies.
Their manufacturing uses dual integrated supply chain meaning they have
two sources of suppliers producing the same products for the company.
H&M integrates both lean and agile process of manufacturing to reap the
maximum benefits out it. In Lean production products take lower lead time
as basic and specific merchandises are produced for its customers with large
volumes and low variability, manufactured in their Asian suppliers (60%
production).
Outbound H&M does not depend on third party for its logistics and uses its own
Logistics logistics services in the name of “H&M International Transportation,
Inc.” H&M mainly uses Railways, Waterways and Roadways as their
mode of transportation to minimize cost.
Produce goods from suppliers in Asia or Europe are transported
through Ship to the main warehouse in Hamburg, Germany. In case of
urgency, airways are preferred over waterways. Although, most part of
the production comes from the Asian suppliers, the goods need to be
transported to the main hub in Hamburg. The goods received in
Hamburg are then transported through Rail to the distribution centers
in the specific geographic area. Once the merchandise reaches the
distribution centers, they are then sent to the stores through trucks or
rail. The distribution centers are often located nearby to the stores
which makes transportation easier.