SEAGATE AND ITS PRT: QUEST IN THE GERMAN MARKET
Introduction
The purpose of this paper is to show how environmental scanning can be useful in preparing market-entry strategies and design appropriate marketing mix. This is what Seagate and its newly-discovered perpendicular recording technology needs for effective marketing using Germany, Japan and China as initial destination options. This paper will start with analysis of background about the company and its products and its current situation. This is to be followed by market analysis comparing the three destination countries and selecting one most lucrative option using extensively the attached appendix. After determining the most suitable country, its environmental factors will constrain the creation of entry-level and marketing mix strategies. This paper is limited to only three countries and appraising them through environmental variables excluding more intensive industry-, competitor- and strategic-analysis.
Background and Situation Analysis
The hard drive market is currently under breakthrough and transition with the development of perpendicular recording technology or PRT ( 2006). This is an innovative storage design that arranges memory bits vertically to provide wider space environment compared to traditional longitudinal drives. With improved storage capacity, both efficiency and reliability of hard drives will be enhanced. These features have favorable impact to the time and cost efficiency needs of household and business markets. The first developer of PRT was Seagate. The company is the leading independent maker of hard drives with strong niche in data storage ( 2007). It has 34.3% market share globally followed by Western Digital having 19.9% of the market.
With the manufacturing and distribution of PRT, however, Seagate will face challenges due to different technology needs of each geographical market. At least 70% of revenues of the company are received directly from computer manufacturers such as Sun Micro, Dell, HP, EMC and IBM ( 2007). The remaining 30% is derived from distributors and retailers with participation from online sellers such as Amazon and Best Buy. As Seagate’s main sales headquarters are mostly located to developed countries like US, UK, Canada, Japan, Australia and Middle East ( 2007), the high-end consumers are its priority. It does not have direct dealings with end-users of its products but it uses its website to inform the market about its newest innovation (e.g. PRT) as well as highlight marketing campaigns.
The marketing of PRT subsequently exposed the company to risks involved with its present relationship with its manufacturers, retailers and end-users. The level of innovation, even useful, may not be acceptable to specific markets. The segmentation strategy of the company is based on a portfolio that embraces paramount potentials for profit and growth. One evidence is its pioneering development of PRT. Having a growth market strategy demands Seagate to focus on innovation thus aiding its quest to maintain market leadership and setter of industry profitability ( 2000 ). It is also expected that its future plans is to focus on shipping transitional technologies such as PRT ( 2006). The targeting strategy of the company is based on differentiated approach in addressing the needs of its various target markets. As a result, its marketing mix tends to be costly because it does not capitalize economies of scale for all markets ( 1999 ). For example, manufacturing markets have greater need for cost-efficiency in the mix while retailers are after the warranties and service support due to high ambiguity of new products.
With regards to PRT, Seagate is positioned within the functional concept to product development. This is because PRT is developed and designed to address concerns of consumers stimulated by external factors ( 2000 ). As an illustration, the need of users for more efficient hard drives is triggered by increasing memory requirement and high internet traffic. With these, selling PRT to each geographical market requires environmental scanning to design appropriate marketing strategies. The marketing mix of Seagate is currently vague which when introduce to a particular market may aggravate. However, with geographical markets being applied with due diligence, the company can fit its marketing mix with the factors present in the chosen market and can easily implement its planned strategies from an environmental view.
Market Analysis
This part discusses environmental appraisals to the three countries; namely, Germany, Japan and China based on the situation of the product. In political area, three countries are unanimous in applying high degree of regulation to foreign firms. Although these governments highly protect local producers, Japan has less complicated policies to show their trade position. Japan has also higher stability than Germany who is governed by new leader with new policy ideology while China is still under transition to being a more market-oriented economy. German officials, on the other hand, are less corrupt even though financial obligations due to reunification are huge. Although three governments support foreign investments, China offers cheaper production environment. However, competition is stiffer in China due to relatively slower efforts to privatize compared to initiatives in Japan and Germany.
In the economic side, the three countries are ranked as the world’s highest consumers of IT products. China has clear direction to support the hardware industry while Germany lacks capital investments while Japan has shifting priority to software industry. Support to local hardware manufacturers in China still discriminates foreign firms especially in the aspect of financing. On the other hand, German manufacturers are highly protected by the familiarity of consumers to “embedded” firms while Japan producers have mere satisfying need for low margins. German’s reselling scheme can make the products in question more expensive especially if they are produced to low-cost countries and only sold by Germany to other nations. Quality workers are present in Germany but it is costly while these variables are reversed partly in Japan (less quality; cheaper) but highly reversed in China.
When it comes to social factors, Japan’s consumers are more unpredictable than the province-to-province and state-to-state similarities of Chinese and Germans. Largely unknown to German business environment are Chinese and Japanese high regards to relationships, hierarchy and seniority. Germans are also willing to purchase foreign brands if its quality and innovation are remarkable. However, Japanese are known to discriminate foreign brands while Chinese have no purchasing power to back their quality demands. Working culture in Germany is less attached to the mainstream culture and is largely objective (e.g. priority over quality more than anything else). All three economies have shown increased used and interests to information technology and the internet.
In the technological aspect, the support of the Japanese and Chinese governments to information technology infrastructure may discriminate foreign firms use of them. As the three countries cited hardware and computer industry as key growth areas, Germany has a less discriminate position to foreign firms regarding the claim. The three also have projects intended to propagate the importance of information technology to trigger local demand. China may have difficulties in supporting local consumption. Further, transportation and logistic links are apparently more robust and efficient in Germany than the two countries. The need for stricter privacy of Japanese can undermine the growth of hardware if no supporting software is available. This can also be true for the “controlling” government of China.
With regard to legal issues, discrimination of foreign companies for legal proceedings and complex laws is minimal in Germany. In addition, intellectual property rights are well established and exercised in Germany than the two countries. Transfer of technical know-how in China can impede the benefits of innovation eminent in the hardware industry. High tax rates are eminent in Germany and China but the discriminate global taxation for the profits of a foreign firm is more frustrating in Japan. Overregulation of labor market in Germany and unionism in Japan are key aspects of why foreign firms sourced cheap labor in China. Lack of experience in Japan and China threatened the competitiveness of a new foreign entrant against cartels and state-supported firms. Inexistent to China, licensing in Japan and standards regulation in Germany can impede foreign establishment and operations.
In the five environmental variables, Germany posted the most attractive investment in all variables except on the aspect of politics where Japan’s clearer and more stable government policies is favored. However, the fact that Germany has less corrupt government can fill the aspect of unstable and vague governance through equal-footing for local and foreign companies. Foreign firm’s unfamiliarity with German officials does not take bribery and get-to-know stage that can enhance start-up operations and protect ambiguity in the future. The German economy lacks capital to produce hardware and also has high financial demands for investors which can serve as big obstacle for aspiring entrants. However, for big companies such as Seagate, the capital requirements are less than being an issue. In addition, the quality workers of Germany are suited to the innovation-based and research-intensiveness at Seagate.
The social factors in Germany are also conducive to efficient production and transaction because culture is less a bottleneck. Further, like China, the preferences of consumers are easily depicted by geographical divisions which can simplify marketing plans. The potential demand in Germany is supported by purchasing power far from levels in China. Most importantly, German consumers are willing to patronage foreign brands when innovation is offered which is the current issue in Seagate’s PRT. In the technological side, Germany has a more supportive and unbiased government that encouraged both local and foreign firm technologies and more efficient logistics platform. Also, government priority is more long-term because of software shift eminent in other countries. Seagate can also address strict quality standards of Germany with PRT due to additional feature. The more competitive environment and protection from property rights can enhance and maintain the value of PRT.
Strategy Recommendations
1. On Market Entry
As noted earlier, the issues about geographical considerations with the introduction of PRT can post problems to the reaction of the markets. With the selection of Germany, the positioning, targeting and core concept used in marketing PRT are compatible with the target market. German consumers place premium in quality and innovative products that potential demand for PRT-supported hardware can be presumed. The problem, however, is that it has no current manufacturing/ sales office in Germany and will require addressing the entry difficulty. Diverting focus to the table of environmental factors in Germany, it is eminent that the country’s characteristics defeat direct investment attractiveness. Such adverse points include high-degree of government intervention especially favoring labor and local suppliers, lack of capital investment for production, strict safety/ environmental standards, high political risks in the advent of refugee outpour, high revenue demand for reunification obligations and high costs of doing business.
With regards to manufacturing customers, PRT licensing is the most appropriate entry-level strategy (; 2003 ). Merely exporting the product is costly and Seagate has no control regarding the use of manufacturers with PRT. The exports may only be resold to other countries wherein PRT functionality could be adversely affected as compatibility with electronic interface used by manufacturers is necessary. To protect the PRT patent and innovative features, a dedicated computer manufacturer who has production facility in Germany will be selected to be able to use PRT. Since the perspective of manufacturers is to acquire the capabilities of PRT and integrate such features as value-added in the entire computer definition, choosing a competent and also innovative manufacturer is required ( 2000). Alternatively, an exporter of computers to Germany can also be provided with license with respect to its criteria if it has no production plant in Germany due to high cost of doing business.
Through licensing, Seagate can avoid abrupt involvement in German environment which is under improvements (; 2003 ). This can also provide a good time for studying the nature of the market and industry without substantial investments in assets and operations. Hi-tech industry is putting primary importance in speed to market where Seagate can acquire through licensing. Creating new know-how (e.g. designing upgrades to PRT) can also be executed while negotiating under licensing agreements. As manufacturing licensees have already established operations in Germany, PRT can be easily accepted and compared to “embedded” brands. Invasion of markets from local supplier’s are relatively less problematic considering that the market is attracted to highly-innovative products. With this, Seagate is not only entitled to the price of PRT deliveries but also to royalties due to the use of the innovation.
Retail customers are primarily important when the market is reluctant to try the new technology or when considerable volume of PRT-designed computers is bought from manufacturers ( 2006). These purchases are merely upgrades to their current computing needs. Although computing needs are seemingly stagnant and system upgrades are not necessary due to high unemployment and less production activities, the role of Germany in reselling can increase the role of retailers. Due to these issues, Seagate must market PRT to retailers differently to manufacturers. Aggressive and direct exporting via Government agency is recommended since the numerous number of retailers may blind property rights authorities in preventing unintended transfer of PRT innovation to other countries (United Nations). For example, when PRT entered China, it can be easily imitated and sold which can defeat proprietary rights for the innovation.
As export requires collaboration of exporter, importer, government and transport, accessing the aid of German government will complete success in retail customers (United Nations). This can minimize the lack of control of Seagate to the operations and strategies of retailers. Aggressiveness is selective and active in granting the right to sell PRT. It is also characterized by well-defined plans and strategy that involves the interaction of four Ps (e.g. marketing mix) of Seagate. This stance would tend to protect the differentiation strategy of Seagate for being transformed by retailers to price-leadership strategy. The trade-off between price and the level of quality/ innovation will be streamlined down to the smallest retailer. To capitalize on this structure, Seagate must establish a sales office in Germany the same as the other offices in developed counties.
2. On Marketing Mix
Decisions relating to product should be according to differentiation strategy which is the current strategy of Seagate. Price is not an issue rather how the consumer perceives value in the product ( 1980 ). Throughout this marketing mix, it is important to note that excellent customer service (ECS) should be infused because German market is too conscious with quality and design. In definition, ECS is the ability of the firm to surpass the initial perception about its products in a sustaining manner (cited in 2006). Due to this, the product service should continue even after delivery and obvious quality markings in the product. As consumers will tend to test and re-test PRT and will place high expectations on performance, it is expected that before-sales such as free tests would be conducted. During the actual purchase, salespeople must be knowledgeable and experienced. This will be complimented with after-sales service and even installation if possible.
Price is related to cost-leadership strategy which can be a weak tool for the German consumers as quality is undermined by low price ( 1980 ). However, ECS can minimize the adverse effects of lowering price by making it non-price factor through integration with promotions. For example, corporate clients can have bundled discounts when they bought not just only PRT but also the entire computer to the benefit of manufacturers. Alternatively, the efficiency and cost-savings in licensing and aggressive export can actually make the price tags of PRT-dedicated computers lower than other brands. As a result, this can serve as discount for consumers who would buy the new and promising technology who can be feeling the risk of the unknown. To support this, production of PRT should be made more efficient to be able to sell them to manufacturers and retailers with a slim mark-up.
According to (2000), a strong distribution channel is a source for successful marketing (). For manufacturing companies, the right channels are through direct delivery of products and making appropriate contract quotations. For retailers, wholesale price must be offered. It is also advisable to target German states which have sufficient infrastructure and consumer preference to purchase the new technology. Stiff competition in Germany and being embedded of local suppliers can increase the role of retailers. When markets are already stratified according to their distribution components such as accessibility, security, interactivity and support, ECS demands the company to select appropriate medium (e.g. accessibility = retailers, interactivity = e-commerce). As it solves this bottleneck, terms of payment and staff attitude issues are shouldered by retailers/ manufacturers.
Promotions are essential to the success of the PRT. This will require changing the packaging of computers in the manufacturer’s current production line to highlight advertisements such as “PRT inside!”. As a result, additional discounts will be demanded by manufacturers. On the part of retailers, they can demand marketing paraphernalia from Seagate. This can post new costs. Press releases are important to the success of PRT introduction that can include aggressive advertising in which its competency is compared to the longitudinal model. However, the bottleneck imposed by ECS is that the promotions must be well-coordinated and must come from Seagate. This is because false hopes can destroy the image of the product and impede its market acceptance. As a result, strict collaboration with marketing policies of manufacturers and practices of retailers is essential.
The licensing agreement with manufacturers can minimize the problem of having an uncoordinated advertising and publicity campaign for the PRT. Seagate can include provisions that make them the head of designing the marketing programs for the technology. In doing so, it can also simply reduce the royalty fee that is due when manufacturers will produce new packaging according to the marketing campaign that Seagate had recommended. On the part of retailers, aggressive export minimizes their problem in getting appropriate promotion tools for PRT. The support from the government can help in providing media publicity of PRT. Further, as retailers are thoroughly selected with possible recommendations from the government, Seagate can avoid uncoordinated campaign and can simply send tools to market the new product.
Recommendations and Conclusions
Environmental scanning is helpful in evaluating the compatibility of a country’s key institutional factors and the capabilities of a firm. In this paper, the launching of Seagate’s PRT in Germany is strategic because the innovation-based capabilities of the company are supported by consumer demand and preference as well as effective and efficient legal system where proprietary rights of the company are protected. On the other hand, the design of appropriate entry strategy being licensing for manufacturers and aggressive export for retailers is in close connection with the advantages and disadvantages in the environmental variables of Germany. For example, patents is allowed and fostered by the legal system but reselling schemes can undermine the innovation inherent to Seagate’s PRT and ensuing product developments. Lastly, marketing mix is constructed within the framework of ECS because of the demanding German consumers with regards to quality and design. The market-orientation observed in marketing mix will be supported by regulatory merits of Seagate’s mode of entry.
In the long-run, when the company is already familiar and confident with the German environment, the lessons learned in the initial market entry can re-structure the market analysis conducted in this presentation. By doing so, succeeding market penetration strategies and marketing mix will also be changed. The German economy is under structural changes especially in minimizing unemployment and improving the business environment for foreign direct investments. The relationship of Seagate to manufacturers and retailers can also demand greater ties which may upgrade the initial entry strategies to penetration strategies. As a result, joint ventures can give Seagate the opportunity to earn more margins but with greater risks attached in shared resources. Leakage of technical know-how is also at stake. In adverse scenario, adverse future implications await the initial entry (e.g. inability to improve Eastern Germany). This can trigger going back to the market analysis in which initial entry strategies are pulled-out from Germany to reconsideration of Japan or China.
The shortcomings and absolutism of the internal and external analysis are resolved by the development of a system that highly believes in complexity, change and unpredictability (cited in 2002). Unlike the open systems approach, it cannot exist in a state of equilibrium and requires the organization to cope with the external environment. Another, there is a weak cause and effect relationship between organizations and its environment. It means that small changes can cause huge changes while large changes may have little effect. On the other hand, the value adding capabilities of internal activities is limited by the environmental characteristics. When a government policy does not allow a local firm to do business with foreign logistics company, suppliers raise their whole sale price due to high tariffs or competition, not only for customers, but also healthy business partners. Such examples can freeze if not diminish the value produced by a certain activity.
The characteristic of the complex adaptive systems model is highly confined with the ability of firms to predict a certain phenomenon within the industry or environment that can affect its operations, possibly its key activities. Consequently, they can develop contingency plans to respond and protect its competitive advantage and stay profitable. The dynamic nature of primary and supporting activities of the firm added by the effects of external factors enable their managers to develop systems such as forecasting to discern patterns to increase predictability of a given situation. Does it lead to a trend that follows specific past experiences?
From the analysis, a firm can formulate strategic plans to gain and maintain competitive advantage. The model keeps the firms aware of internal and external developments and disruptions. This transforms the inside-outside-the-box approach of the first two models into a more proactive one. Because of this, it can be inferred that the analysis of bought the internal and external aspects of the firm is a sufficient method towards sound decision-making. Although the model imposes a more complex and integrative approach to strategic analysis, the quality of the output is parallel to the complicated procedure which is flexible and versatile strategy. To be successful in German and other ventures, Seagate must conform to the requirements of complex adaptive systems methodology.
Bibliography
Books
Electronic Sources
Sources for the Appendix
GERMANY ENVIRONMENTAL VARIABLES
Political
Economic
Social
Technological
Legal
High-degree of government intervention
Largest consumer in Europe
Germans are responsive to high-innovative products with high quality and modern design
High-tech product have greater exports than imports
Overregulation in the labor market
Social market with generous social welfare programs
Venue of world’s largest trade fairs
Increasing number of Germans join the internet generation
Quality engineering and first-class infrastructure
High social insurance costs
There are initiatives to change current policies
Export-driven economy
Quality is preferred rather than price-based qualities
Leading sector includes software and hardware products and computer services
Strict safety and environmental standards with certification requirements
Complex policies that protect local suppliers
Costly production operations
Preferences are fragmented that varies from state to state
High and complicated tax rates
Prime destination of refugees
High long-term unemployment
Eastern Germany violence with reference to non-European foreigners
Recent increased of value-added tax from 16% to 19%
Strong supporter of United Nations
Improvements in employment records are directed to low-paying and temporary jobs
Violence to foreign businesses are rare
Courts are known of holding sanctity of contracts for direct investments
Government encourage direct investments
Highly-skilled and productive labor force
No discrimination for foreign-owned assets
Availability of investment incentives with reference to East Germany location
Strategic location for businesses at the heart of Europe
Transparent and effective laws
Continued pursuit for privatization
Biggest competitors are embedded local suppliers
Middle-ranked in corruption
Accounts for 1/3 of EU’s IT market
Financial obligations for reunification that accounts for annual transfer of billions of Euros
Resold of IT imports contributed to “export greater than import” condition
No restrictions in remittance of profits
Capital markets are modern but composed of bank consolidation and low profit margins
Weak investments in capital assets
Flat domestic consumption
JAPAN ENVIRONMENTAL VARIABLES
Political
Economic
Social
Technological
Legal
Stable government
Reinvigorated economy since 2005
Unbreakable business and personal relationships
Second world’s largest market for information technology peripherals and services
There are unique trade standards, requirement of prior experience in Japan, discriminatory arrangements against foreign companies and disadvantages of an outsider to cross-holding companies
Goal of connecting the telecommunications infrastructure of all domestic people until 2010
Japanese firms are known for having poor margins and inadequate return on capital
Sophisticated and large consumers
Although Japan has modern transportation infrastructure, cost of travel/ shipping is high while port operations are inefficient
Presence of cartels
Increasing application of deregulated economy
Increasing competition from China and Korea
Cultural and linguistic bottlenecks in doing business
Strict privacy law that led to high interest to IT securities
Licensing powers from associations with limited ownership
Protective stance against foreign direct investments in favor of key sectors
Labor is generally immobile and non-productive due to labor practices
Unique practices that prohibit acquisition of a Japanese-owned firm such as incomplete disclosure, cross-holding and low proportion of publicly-owned firms
Difficult-to-understand custom regulations
Shifting investments from computer hardware to software
High cost of office space in urban location
Prominence of alliances and exclusive supplier-buyer relations
Domestic firms are taxed on home-made income while foreign firms on their global income
Tariff is one of the world’s lowest including zero tariffs in computers
Foreign companies are widely known as hostile
Creation of intellectual property rights is well-recognized but can be too long or too expensive for processing
High costs of business entry and exit
A labor market that embraces lifetime employment, seniority-based wages and unionism
Also, patent protection is given to the first filer not the original inventor
There are no risks in conversion, transfer and expropriation policies
Over-regulation impedes business activity
High problems of corruption
CHINA ENVIRONMENTAL VARIABLES
Political
Economic
Social
Technological
Legal
Well-known corruption eminent in the current administration and also police officials
Due to WTO membership, support of funding is currently improving for foreign companies away from the usual state-owned company priority from Chinese banks
Building relationships is more useful than contracts
Favorable logistics structures are bias to specific regions
No dependable judicial system
There is still restrictions to personal freedom and media
Aggravating hindrance to creation of wealth, people are immobile to transfer to other cities/ provinces
Being humble is primary virtue while high status is becoming the new idealism
Sufficient transportation infrastructure
Entry of foreign investments is easy but heavy regulation from the government awaits once they are established
Politics affects legal decisions and structures
Most banks are state-owned
China is fragmented to regional interests and preferences
Major producer of computer and consumer of computer hardware
Complex legal system that requires actual interaction with authorities
Government supports computer industry that led to building computer-related infrastructures since 1950s
Education is not key to employment as long as relationship exists between the worker and employer
Gift is an act of sincerity but it giving gifts requires essential
knowledge to the background of the recipient
Developing communication platform with access to media channels and the internet
Lack of protection to property rights due to lack of enforcement for related laws
State-owned enterprises also competes in computer and hardware industry
Low working conditions are exercised
Seniority is important while being polite and sensitive to the beliefs of others are business norms
Strict border control
Government has strong desire to control key aspects of the economy and gradually minimize the role of foreign companies
Domestic PC makers target the low and middle markets
Strong pride with history and culture that necessitates foreign businesses
to understand Chinese values to become successful
As requirement for entry, foreign companies must transfer technological
know-how
Low tariffs for hardware market making PC less priced
Historical partnerships and ventures between foreign and local firms led to mostly disappointments due to inability to collaborate
Responses to ones and other’s reputation is important in maintaining relationships
Governments promote the use of computers to local people
Domestic computer manufacturers are supported by Asian partners of China against foreign firms
Punctuality is extremely important
Market socialist economy makes the interaction between private ownership and government policy intricate
Trust is the cornerstone of communicating and transacting business to others
Ceremonies and etiquette are vital as business values
Ranking and hierarchy is strictly implemented
Long-term relationships are preferred than abrupt acquaintances
Consolidation of decisions drive business negotiations
Negotiations may take much time and patience is required
Han culture and Mandarin language including government efforts tends to create a homogenous society
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