Guillermo Navallez has been making furniture for years in Sonora, Mexico. In the past, the area had good timber supply and relatively inexpensive labor. Due to the quality of his products, Guillermo priced the products at slight premium, and the profit margin was great. However, the entrance of competitors into Sonora’s furniture market marked the beginning of serious business problems to Guillermo. The profit margin drastically reduced and the prices fell due to competition and price war. The cost of labor also increased as a result the influx of people and jobs due to inexpensive housing, traffic-free roads, plenty of developments including an international airport, the beautiful scenery, and favorable weather among other factors. A research on the scenario left Guillermo with at least three options, one of which was to continue operating the way he has always been operating. The second option was the use of high-tech so as to produce more custom furniture at a low costs. The third option was to become a furniture broker for another company. All the three options had their merits and demerits; however, Guillermo had to select an option with the best competitive advantage. Described hereunder are these alternatives, their respective competitive advantage, and advice to the store owner on the most appropriate alternative.
When the store continues to operate the way it had been operating, no substantial change would be realized and the profit margin would continue to shrink. The store would not enjoy any competitive advantage and would still suffer from the price war. However, the store can slightly improve the quality of its furniture to make them superior. This can be achieved through differentiating the products by creation of stain resistant coating that would ultimately add value to the furniture. The store already has a patent process for creation of this coating. With proper marketing, customers would definitely love the quality, which in turn would justify the high price.
Adoption of improved technology in the production process is most likely to improve the situation at the store, now that the competitors also embrace it. To be at same level with the peers and to compete favorably, the store should purchase and use a computer controlled laser lathe in the manufacturing process. The store should also automate its manufacturing process so that little labor is employed. This can be achieved through the use of robots in the movement and assembly process. This would speed up the production process (Porter, 1985), and the store would be able to run on a 24-hour basis. It is important for the store to note that the initial cost for the adoption of advanced technology in the manufacturing process is greatly immense; however, it is cheap in the long run. The production output would greatly increase and the store would enjoy economies of scale (Porter, 1985). The production cost would therefore reduce dramatically and the store would be able to adjust the prices of its products to make them more competitive.
In my own opinion, the adoption if the second alternative can be the best option for the store.
Porter, M. (1985). Competitive Advantage. The Free Press. New York.
Wright, et al. (1990). Strategic Profiles, Market Share, and Business Performance. Industrial Management, May 1, pp23-28.