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Whereas the first goal of the company is to achieve the number one market share in copiers, th€ company must continue to consider the long - term development of its product line and positiOr in the marketplace. It may lose the Ricoh business at any time since it cannot influence th competitiveness of Ricoh machines. At the moment, Ricoh represents over 90% of Gilmar turnover, a precarious position for a distributor.
Chamchai has therefore developed a long range vision for Gilman: 'To be th best office equipment supplier in Thailand for service, quality-distinguished by exceptional responsiveness to customer needs'. He has broadened his description of the potential product mix to be anything that goes into an office'. He wiB consider typewriters, printers, computers, key telephones, even 0ffice furniture. He expects to look into the possibilfty of acquiring a computer distribution business within two years.
None of the company's growth outside of Ricoh has been worked out in detail. Charnchai seems to be struggling most with the copier business: what niche it will fill in the marketplace, how ft )\) will build upcountry sales channels, who its dealers/agents will be, how the company will bind
them to Gilman, what they will look like, what their range of products and ser.'ices will be. Longterm strategy may evolve in a number of directions. The company could get involved in the distribution of a number of unrelated products through lnchcape (i.e. check-handling and mall- handling equipment). It could move further into retail.
Fryett. like Chamchai, has as his first priority the mission to overtake the firm's competitors. However, he, too, is continually examining the long-range vision of Gilman and the formula for the entire Business Streams Group. Should ft invest fts resources to dominate the copier business, and plan on an eventual joint venture with Ricoh? Should it build a flexible distribution and retail network that will allow it to pick and switch among principals, as the dominant player in business machines marketing and distribution in all of the lnchcape Pacific countries?
Chamchai concludes: 'First we beat our competitors, then we beat Sahaviriya...'
'Be better than our competitors' is what Chamchai wants his staff to aim for. He has laid out tactical plan to encircle them' and 'pick at their business, one copier at a time'. Chamch evaluates his opportunities for competitive advantage over the market leaders in Thailanc Gilman has little control over its hardware: the price, availability, features and brand name c Ricoh. It has greater control over the consumables, namely the availability and breadth. It ha complete control over service and maintenance, and this is where it must choose to excel an distinguish its distribution network and retail concept. Many ideas come to mind, and Chamcha has to decide which activities should have priority.
Economists predict that the current economic expansion will continue, with Bangkok Bank the largest local bank releasing mid-year estimates placing total increase in the economy at 0%, with growth in the manufacturing sector of 14% and the agricultural sector of 4%. Inflation has not yet emerged as a significant concern, nor has pressure on wage rates, although and prices h
started to increase dramatically. The consumer price index is expected to increase by 6%
1990, up from a historical average of 2.2% for most of the previous decade.
The government has managed foreign debt well, and despite a historically low savings rate, t current account deficit is only 3.5% of GDP, the debt service ratio is 13.8%, and external d€ 39.6% of GDP. The government has run a balanced budget for the fiscal years 1987, 1988 a
1989, and is projected to run a small budget surplus in the fiscal year 199 I. There is therefore i external pressure for structural reform of the economy, or for a revaluation of the CUrreni Exchange rates are fixed to a basket of currencies, predominantly the dollar and the yen. 1] Bank of Thailand has been noted for maintaining a consistent policy, and exchange rates ha only moved within a marginal band around the dollar, mostly in response to changes betwei the dollar and the yen. Interest rates on deposits have been controlled, leading to an effecti cap on commercial lending rates of approximately 16 to l7%.
The most serious threat to the economy is the strain on the existing infrastructure, including r road and port facilities, industrial and municipal facilities, wastewater disposal ar telecommunications. Of equal concern, is the lack of skilled labour and educational facilities
However, foreign investment remains strong. Recent polls of japanese business indicate Thailar is the number one destination for foreign investment in southeast Asia. Over 1,000 forei investment projects in new industries were approved by the Board of Investment from 1988 1989, with only a few hundred having begun implementation. Total foreign investment in ne projects is expected to grow by 150%, with net direct investment in existing projects expandir by 45%.
Paralleling double digit growth in the economy for the past three years, and close to a S average over the decade, office automation equipment sales in Thailand have been boomir The largest categories of office automation (OA) equipment have included electronic machin (calculators, key punches, typewriters, computers, key telephones, mobile telephones, cornput systems, facsimile machines, data processing, data support services and local communicatiol exchanges) and accessories (stands, furniture, binders, laminators). Growth in office automatic equipment sales is expected to exceed 20% for 1989 - 90. This corresponds to projected grow in the USA, Europe and Japan of under 10%. On personal computers and related produci growth has exceeded 40% per year in recent years. In fact, Thailand is often referred to as
fastest growing OA market in the world.
Analysts expect this growth rate to continue for at least the next three years, and perhaf through to the end of the decade. These optimistic forecasts are based on projections draw from the new office space and plant construction planned to come on line qver this tim anticipated steady demand, and the ability of Thailand to continue to absorb this ne' investment.
All major principals are represented, either by distributors, joint-venture companies or fully owned subsidiaries. Some, like Kodak IBM and Philips, have been active in the Thai market for over 20 years through fully owned subsidiaries. Thailand has long-standing ties with the business communities of South Korea, Taiwan, Hong Kong and Singapore. Companies from these countries, especially in personal computers and telecommunications equipment, are well represented. As a result, in addition to being one of the fastest growing markets in the world, it is also one of the most competitive.
The government has yet to resolve issues surrounding protection of intellectual property rights, subscription to international copyright agreements arid breach of faith contract disputes. Pending resolution of government policy, a number of principals have avoided direct investment leading to technology transfer. At the same time, firms are pressing for the easing of government regulations on data communication.
A number of infrastructure problems, most notably the lack of available exchanges for both cellular and key telephones, is, to some extent holding back development of the market The waiting list for telephone lines is measured in years, not months. The government is taking a leading role in these latter concerns and is currently installing a nationwide network of fibre optic cable and microwave transmission/receiving towers, as well as state-of-the-art satellite data communication capabilities, in order to make Bangkok the service and information centre of the Indo-Chinese subcontinent, and to match many of the telecommunications features of Singapore.
Taxation on fully built-up electronic machines, running from 35 to over 70%, has restricted buyers to larger firms and to firms involved in international transactions. Following current GATT negotiations, analysts expect the government to lower taxes, possibly from between 20 to 35%. This will broaden the market, in all segments. most significantly in small- to medium-sized internationally competitive firms.
The industry suffers from a serious lack of skilled staff. Companies must be willing to invest in the use of expatriates (i.e. programmers, software and data support system developers) and overseas training of technicians, maintenance and repair people, as well as systems and applications installers.
A number of local firms have sought to build well-entrenched positions in the distribution of office automation equipment, through the development of applications and service staff, binding contracts with principals, extension into local manufacturing, and captive retail outlets.
The most powerful, Sahaviriya, although only eight years old, is projected to reach a turnover of 81 billion in 1990. Its total estimated market share in computers, peripherals and data communication devices is 15 to 20%. The company has taken a leading role in the development of standards for the Thai market, it has increased support staff to its 400 personnel and is currently building an extensive upcountry distribution network
lnchcape subsidiaries have operated in Thailand for over 130 years, and the Group is curr the largest multinational corporation in Thailand in terms of turnover. Because of its
standing presence there, and its establishment prior to most of the laws regarding foreign ownership of businesses and properties, it benefits from a number of privileges and exemptions under Thai law. Essentially it operates with both the benefits of a foreign company and the rights of a local company. It also has built up a deep in-house knowledge of the Thai business community and government machinery. lnchcape (Thailand) holds a few key advantages for Chamchai. One is the in-house management expertise. Where appropriate, lnchcape can introduce Western business practices and theory into local businesses, everything from mission statements and customer feedback to work scheduling and working capital management Where appropriate, it will encourage local and expatriate managers to adapt to local business practices. A second is access to capital. Gilman can turn to short- or long-term funds easily and quickly at the lowest prime rates. This is a significant advantage in Thailand where local money markets tend to be tight.
As part of lnchcape Pacific Business Machines Group, the company benefits from specific business streams expertise. Initially, this was fundamental in setting up the business, training sales and service staff, marketing, product knowledge, administration and compensation schemes. Gilman continues to benefit from lnchcape's ability to reach potential principals from around the world, to train staff at all levels and to share knowledge. At the moment, lnchcape distributes Mita copiers in Hong Kong, Konica copiers in Hong Kong and Singapore, and Ricoh copiers in Australia, Thailand and Hong Kong. They are in continuous contact with their counterparts in these companies, and are open to sharing new ideas and performance benchmarks (market share, profitability, sales per sales person, etc.). New products with which Inchcape has recently approached Chamchai include cheque-handling equipment for banks and letter-handling equipment for post offices and large corporations. As Fryett explains: We can benefit from being a part of lnchcape. We get together. They're good lads and we help each other out In Hong Kong, Gilman also distributes Ricoh copiers, and we can share ideas. Inchcape has other businesses we can take advantage of, like shipping. And they try to use our copiers. lnchcape (Thailand) is one of our biggest rental customers'.
In fact, while the Inchcape Pacific and Gilman philosophy is to support very entrepreneurial and locally driven country groups, they are seeking to bind the different companies in a cohesive, unifocused direction for the Business Machines Group. As Chamchai considers his options, he makes it clear that there are very few boundaries imposed by Inchcape Pacific
For the next five years, Chamchai feels in a relatively safe position as regards the Ricoh busines He believes he has successfully rebuilt the reputation of Ricoh copiers in Thailand, and ha developed a close network of agents and a dedicated customer base. However, although Rico is not likely to revoke the distribution agreement in the short term, he feels he must make Rico number one in the market to reinforce sustainability of the contract. Ricoh will remain highi committed to distributors who perform. But to date, Gilman has been unable to win th distribution rights for Ricoh facsimile machines. Under the previous tenure of Fantaract, PJcc awarded the facsimile contract to a competitor. As long as his competitor continues to perfon well, Chamchai does not expect to win this contract.
He ki-iows from experience that a distributor always runs the risk of losing the business. Shoi. Ricoh want greater control and greater stability over their product lines in Thailand, it may b to establish a subsidiary company of its own. lf Ricoh seeks to form a joint venture compar Gilman would be the most likely candidate for a local partner. At the moment though, Chamcl prefers the greater independence, flexibility and control over cash flow that Gilman enjoys as independent company, and he does not want to change the present situation. Should Ricoh c to start manufacturing locally, it is likely to turn to one of lnchcape's holding companies to act a local partner. Under current Thai investment promotion law, Ricoh, if deemed eligible by I Board of Investment, could only establish a distribution, sales and service subsidiary, oi manufacturing facility restricted to 49% ownership.
Ricoh has been one of the leading office equipment makers in Japan with the largest mar share in both copiers and fax machines. While it has done well in Hong Kong, it has failed match its domestic performance elsewhere in the world. Of its total 1989 sales of $5.2 bill 63% is in its domestic market Of its export sales 50% are to OEMs, although 100% of sale Asia are of brand-name products.
In November 1986, Gilman Office Automation was formed, specifically to take over if distribution of Ricoh copiers in Thailand. Although legally set up as a subsidiary company Anglo-Thai, itself a fully owned subsidiary company of lnchcape Thailand, Gilman Offi Automation reports to lnchcape Pacific in Hong Kong, through the Business Machines Grou Affiliate companies include Gilman Office Machines in Hong Kong, Dodwell Business Machines Hong Kong, Japan, DBE in Australia, and Repromac, also a distributor of office machines, in Hor Kong. lnchcape plc is an international services and marketing group with its headquarters London. It is the largest European trading company. Organized into 10 business streams ar regional sectors, Business Machines is one of lnchcape's smallest business streams. The Busine Machines group has its headquarters in Hong Kong, and operates in the Asia-Pacific regio marketing and distributing office equipment. The director reports to the chairman of lnchcap Pacific Limited, lnchcape's regional subsidiary (Exhibit CS I 2. I).
lnchcape corporate philosophy is to use local management wherever possible. However, in th case qualified Thai management was not available when Gilman took over Ricoh in Thailand. For this reason, Peter Bond was brought in. Gilman believed that it could capitalize on Bond's previous experience in copier products and shorten the time required to bring the company on line and to profitability.
in January 1987, Gilman sold the first Ricoh copier in Thailand in over a year, and in the following 12 months, they averaged an impressive 40 machines per month.
Most of the new staff were recruited from Fantaract Needing to build the business rapidly, Bond decided to leverage the already developed contact with customers and experience with Ricoh machines from the previous sales and technical service staffs. At the same time, they benefited from the introduction of a completely new line of Ricoh dry toner copiers. Ricoh had been late in matching competitors' switch to dry toner copiers. In the last years of Fantaract's contract, Fantaract had been forced to sell Ricoh's liquid type toner machines against competitors' dry toner machines.
Chamchai had been with lnchcape (Thailand) since 1971 and ran the Fuji Film distribution business for another Inchcape (Thailand) subsidiary, Borneo (Thailand) Co. Ltd. In June 1988, Chamchai was promoted to the position of chief executive of Gilman Office Automation. Bond returned to Hong Kong, since Inchcape now felt that the company could be run under local management. In June 989, Julian Fryett was recruited from Inchcape's management training programme. Although Fryett, half Thai and half English, had been raised in England since the age of three, he had visited Thailand with his parents on a number of occasions. At the time he joined the company he could not speak or read Thai. However, within one year, he could speak well and read marginally. Charnchai's initial strategy was to build up the leading service organization in the Thai market believing that service reputation sells machines, and that service contracts, including spare parts and machine maintenance, adds turnover. As business growth slows, service should represent a growing percentage of total revenues. In his first 18 months, Charnchai added Pitney Bowes facsimile machines, GBC binding machines and 3M overhead projectors to the product portfolio. He expanded his staff to 28 salespeople, 45 service engineers, and opened a sales and service outlet in Had Yai (approximately 800 km south of Bangkok). He has been rebuilding a network of agents throughout the country by improving communication and contacts with company staff, increasing the availability of spare parts and consumables inventory, faster delivery, improving point of sale and promotional support, and faster response time to service requirements. With Fryett, he met regularly with dealers, seeking to anticipate the evolution of distribution channels in Thailand. Many of these same agents had previously sold Ricoh machines in affiliation with Fantaract. However, in the later years of Far-rtaract's tenure, they had switched to other suppliers, because they had been unable to get spare parts. service or reliable deliveries. Chamchai and Fryett began to keep a close eye on shipments per dealer and accounts receivable. They actively supported those dealers who could move machines and pay their bills on time, paying close attention to their delivery, promotion and service requirements.
Chamchai and Fryett have been closely studying the performance of the sales force and technical service staff. They have charted the performance of the sales force, in unit and Baht sales per month, and that of the service staff, by the number of daily service calls, time per call, and the time to next machine failure after the service call. They release sales people and service engineers who consistently underperform, regardless of tenure with the company. At the sam time, they have been trying to instil a service and 'customer first' mentality throughout the organization, through example, training, reminders and reprimands. They are very conscio, targets, and are quick to rerd those staff who exceed these targets.
Gilman has also been seeking to improve communications with Ricoh. They are lobbying Fic aggressively for lower lead times on orders and lower transfer prices on certain models i! machines. With a view to the future, they are looking for unique characteristics of the m market which could be better served with modified products, including a high quality/low sped copier for copy service centres.
In 1990, Chamchai estimates that Gilman will deliver an average of over 120 machines p month, taking 14% of the market He expects Gilman's profit will continue to grow substanti (see Exhibit CS 12.2..
For over 20 years, Ricoh copiers had been distributed in Thailand by Fantaract Ltd, a tightly held, Chinese family-owned firm. Through the early 1 980s, under Fantaract distribution, Ricoh was the market leader. However, as both Fantaract's business and the copier business expanded, and the Thai market became more competitive, certain Fantaract management practices were no longer sustainable. Most notable was the inability of the family patriarch to trust outside family members, to accept distribution of power, or to share information about the company with non.f associates.
Unknown to Ricoh, in addition to picking up the distribution of Canon cameras, in itself business which had grown to sizeable volume, the company was also distributing Minofta copie through a wholly owned subsidiary company. There are indications it may have been involved a number of other questionable business distributorship arrangements. Under these sorts conditions, good management and good staff did not stay. Subsequently, although Fantara handled import logistics, it was never able to add real value to the distribution arrangemer Ricoh was the market leader only because of recuning advantages from early entry in tj marketplace and the technical leadership of Ricoh copiers over competitors. As both of the advantages eroded, so did market share. The Fantaract family began to lose control over its st and business procedures. By 1984, accounts receivable had grown out of control; often, tj company could neither find the buyer nor collect the invoices. Apparently, 'hiding buyers' was service being offered by some sales staff. Technical service staff had begun selling parts ar related consumables to Fantaract customers from non-Fantaract distributors for personal prof Many were selling imitation parts but charging the higher cost demanded for Ricoh parts ar consumables produced in Japan. By 985, Fantaract was facing bankruptcy. The number copiers sold had declined from 608 in 1982 to 273 in 1985.
Gilman Office Machines (Hong Kong), a fully owned subsidiary of the lnchcape group, had be successfully selling Ricoh copiers in Hong Kong for almost 20 years. Ricoh contacts alluded to t declining sales in Thailand and to the deteriorating financial position. Company representativ from lnchcape, aware of Fantaract's declining sales in Thailand and their deteriorating financi position, approached the firm and offered to buy the distribution rights for Ricoh copiers Thailand. Fantaract refused. In the first 10 months of 1986, Fantaract failed to sell a sing machine, and in October 1986, Fantaract filed for bankruptcy. In November 986, Gilm; acquired the distribution contract free of charge. Peter Bond, an expatriate manager from Hor Kong, was moved to Thailand to build up the business.
'Now that we have successfully rebuilt the business from the poor image it had assumed under the previous distributor, we need to move from number three to number one in market share
(29june 1990).
Chamchai Leelawatanasuk, 41 chief executive of Gilman Office Automation (Thailand), believes that gaining the market lead is the only answer for his business the distribution of Ricoh copiers in Thailand. His colleague, Julian Fryett, marketing manager, agrees: Vfith new companies continuing to enter the market, gaining market share is difficult However, we are expected to achieve at least the market share Gilman has reached in Hong Kong for Ricoh copiers. On top of this, Ricoh is the market leader in Japan'. At the same time, Chamchai must define the overall strategy for his company in the Thai market: We have to decide in which product lines we will be, with which principals we will work, and which network of agents and dealers we will use
We are approaching a 8250 million' company. Within five years, we must be 81 billion', Fryeft and Chamchai stated independently, both knowing that their promotion within the lnchcape Group will depend largely on their ability to create such a profitable company. Chamchai can expect a more important role in lnchcape Thailand, while Fryett can expect to continue to receive high profile assignments in Hong Kong and throughout Asia Pacific with lnchcape Pacific.