Introduction
Ditra is one of the leading firms in the UAE’s home and personal care industry. It was established in 1977 in the UAE as part of the Al-Batha group. The firm manufactures and sells various brands of home and personal care products using the most advanced technologies (Ditra 2012).
Ditra’s main products include chemicals, aerosols, detergents, disinfectants, and floor cleaners among others. In the last three decades, the firm has achieved organic growth, thereby joining overseas markets in the Middle East, the GCC region, and Africa. The firm has 100 employees and an annual sales turnover of $25 million (Ditra 2012). Ditra’s strategic objective is to double its growth in the next three years.
This paper provides a strategic analysis of Ditra. The analysis will focus on the firm’s macro-environment, competitive environment, and internal environment. Based on these analyses, strategic recommendations will be made to help the firm to achieve its growth plan.
Analysis of the Macro-environment
Political Factors
Tax policy and foreign trade regulations are the most influential factors in the industry. The federal government of the UAE does not impose taxes on corporate profits, personal income, and capital gains. Corporate taxes are only applicable to oil and petrochemical firms, as well as, foreign banks (Nyarko 2011, pp. 221-229).
The corporate tax exemption improves the competitiveness of local firms by enabling them to utilize a large percentage of their profits for expansion activities rather than paying taxes. Similarly, personal income tax exemptions increase the citizens’ disposable income, thereby improving the demand for home and personal care products.
Nonetheless, the government intends to introduce value added tax by 2014. As a member of the General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO), the UAE promotes free trade by eliminating tariff barriers. In this regard, the government levies only 10% importation tax on luxury goods and 4% on other imports (Nyarko 2011, pp. 221-229). Since the UAE is a member of the Gulf Cooperation Council (GCC), its companies can benefit from low import tariffs (5% import duty) in the region
Economic Factors
Rapid economic expansion is one of the most important drivers of growth in the home and personal care products industry. The UAE is the third largest and one of the fastest growing economies in the Middle East and North Africa (MENA) region. In 2011, the country’s GDP expanded by 4.2% (Nyarko 2011, pp. 221-229). Furthermore, it has been able to maintain an average economic growth rate of 4.6% in the last five years.
In 2011, the GDP per capita was approximately $48,158 and the unemployment rate was less than 1.4% (Nyarko 2011, pp. 221-229). These trends means that majority of the citizens have a high purchasing power. Hence, most of them can afford various home and personal care products.
Access to financial capital is relatively easy in the UAE due to low interest rates. In the last five years, the average interest rate was 1.4%, thereby enabling businesses to access credit facilities for expansion. In order to achieve its economic diversification plan, the government supports non-oil businesses through subsidies and development of transport and communication infrastructures.
Social Factors
According to the 2007 estimates, the population the UAE is 4.4 million people. The country’s annual population growth rate is 4% (Nyarko 2011, pp. 221-229). The factors that underpin this rapid growth include increased immigration, booming economy, and social policies that encourage large families.
The working class constitutes 78.5% of the population (Nyarko 2011, pp. 221-229). Thus, the level of dependency is very low. Furthermore, the percentage of the population that lives below the poverty line is negligible. Hence, consumerism is very high in the country. Unlike most Islamic countries, the UAE has little restrictions on citizens’ behavior.
The resulting increase in westernization has led to a high demand for personal care products, especially, among the women. The country’s literacy rate is as high as 90% among the adults. Consequently, most citizens are aware of the side effects of consuming various personal care products. This sensitivity to product quality presents production challenges to most manufacturers. Concisely, only high quality products can penetrate the market.
Technology
Technology is important in the home and personal care products industry. This is because it determines product quality and production efficiency.
However, investment in research and development (R&D) in the UAE is still low compared to other countries. For example, only 133 patents were registered in the UAE in 2010, whereas 804 patents were registered in Saudi Arabia in the same period (Nyarko 2011, pp. 221-229). Low investments in (R&D) and poor technological transfer reduces the competitiveness of local manufacturers.
Legal Factors
The UAE lacks effective anti-trust laws. The country’s regulations focus on controlling sharp changes in prices rather than monopolistic tendencies. There are no laws that prohibit firms from acquiring their competitors in order to gain dominant positions in the market (Nyarko 2011, pp. 221-229). Hence, the competition in the home and personal care products market is very high.
Analysis of the Competitive Environment
Threat of New Entrants
The threat of new entrants in the industry is moderate due to the following reasons. Most manufacturers have multiple production plants in the Middle East, which enables them to enjoy economies of scale. Consequently, most of the incumbents are able to sell their products at low prices.
This reduces competition from new entrants who lack economies of scale in production. Furthermore, product differentiation is very high in the industry (Accenture 2011, pp. 2-11). New entrants lack market experience, and the technology that is necessary for product differentiation.
Consequently, their products are less competitive. One factor that increases the threat of new entrants is lack of entry barriers in the industry. Free trade policies have led to the entry of numerous regional and international firms in the industry. The implication of the moderate threat of new entrants is that the incumbents have the opportunity to expand their operations in order to serve the entire market.
Power of the Suppliers
The suppliers have a low bargaining power due to the following reasons. To begin with, the industry has very many suppliers who are competing for the small number of manufacturers. This competition limits the suppliers’ ability to charge high prices for their products. Advancements in analytical and industrial chemistry have led to the development of several substitutes for the suppliers’ products. Consequently, monopolistic tendencies are not rampant in the suppliers’ industry.
In most cases, the suppliers’ products lack differentiation. Concisely, the suppliers sell products whose qualities are more or less the same. Finally, numerous small firms supply most of the raw materials (Accenture 2011, pp. 2-11). These firms lack the financial capital that can enable them to invest in the production of home and personal care products. Thus, the threat of forward integration is low. In this regard, the suppliers cannot exploit the buyers (manufacturers) through high prices or low product quality.
Power of the Buyers
The buyers (manufacturers) have a high bargaining power in the industry due to the following reasons. First, there are few manufacturers compared to suppliers. This increases competition in the suppliers’ industry. Hence, most buyers are price givers rather than price takers. Second, the buyers have low switching costs.
Concisely, they can easily shift from one supplier to another without incurring high costs. In this regard, manufacturers obtain their inputs only from suppliers whose products are cheap and meet high quality standards. Finally, the threat of backward integration is high. For instance, some manufacturers such as Falcon Pack are able to produce their own packaging materials (Accenture 2011, pp. 2-11).
Even though the suppliers’ products lack differentiation, they are very important since they determine the quality of manufacturers’ products. Thus, buyers’ bargaining power is likely to decline if they cannot find substitutes for the inputs that are fundamental in their production. The high power of the buyers means that Ditra and its competitors can easily negotiate for low prices and high quality for their inputs.
Threat of Substitutes
Lack of trade barriers has led to the entry of thousands of different brands of home and personal care products in the United Arab Emirates market. Most of the brands are from western countries where technological advancements and intense competition have led to high product differentiation (Accenture 2011, pp. 2-11).
Brands from China and India tend to be cheaper than locally produced products. Consequently, the rate of brand substitution is very high in the market. The substitution is based on price, perceived product quality, and the side effects of using the products.
For example, most women are substituting synthetic personal care products with herbal ones because the former are associated with high health risks. Hence, the threat of substitution is high in the industry. In this regard, companies whose products do not meet the expectations of the customers are likely to lose their market shares and make huge losses (Winer & Dhar 2010, p. 431).
Competitive Rivalry
The intensity of competitive rivalry is very high due to the following reasons. To begin with, the industry has very many producers who are competing for the same customers. Consequently, most producers are focusing on product differentiation in order to defend their market shares.
One factor that boosts the performance of the incumbent firms is the industry’s high growth rate. The industry’s growth rate averaged 8% in the last three years (Accenture 2011, pp. 2-11). Nonetheless, the benefits accruing from this rapid growth is likely to diminish as more foreign firms join the United Arab Emirates market. The high competition is likely to lead to price reductions, thereby reducing Ditra’s profits.
Analysis of the Internal Environment
Strengths
Ditra’s strengths include the following. The firm has been able to produce a wide range of products through research and innovation (Ditra 2012). This enables it to defend its market share. Furthermore, providing a variety of products has enabled the firm to join new markets.
Ditra has a strong brand image that is associated with high quality, reliability, and acceptable safety standards. The resulting improvement in brand loyalty has enabled the firm to retain its customers. Finally, Ditra has multiple distribution channels that consist of wholesalers and retailers in the UAE market. Consequently, the visibility of its products is high.
Weaknesses
Ditra has the following weaknesses. First, it has been able to breakeven with difficulty in the last three years (Ditra 2012). This means that the firm is not competitive in the markets in which it operates. Furthermore, it is not likely to have adequate capital to finance its expansion plan if it is struggling to breakeven.
Second, Ditra does not have its own distribution networks in foreign markets. It depends on third party firms to distribute its products in the overseas markets. Reliance on third party distributors is likely to reduce the firm’s control of its products in the overseas markets. Finally, Ditra over depends on the UAE market, which accounts for 60% of its sales. In this regard, any changes in the market that might have adverse effects on sales will significantly reduce the firm’s profits.
Opportunities
The low power of the suppliers is an opportunity for Ditra to negotiate for low input prices. The industry’s high growth rate also provides expansion opportunities (Accenture 2011, pp. 2-11).
Thus, Ditra can increase its production in order to earn high profits. Similarly, the low import duty in the GCC region is an opportunity for growth through exportation. Finally, rapid economic expansion in the UAE and the Middle East region will lead to rapid growth in the industry. Hence, Ditra can take advantage of the expected increase in demand for home and personal care products.
Threats
The high competition in the industry is likely to reduce Ditra’s profits and market share. Similarly, the high threat of substitutes is likely to reduce Ditra’s sales, especially, if the competitors are able to produce superior products. Finally, low investment in R&D is a threat to the firm’s future expansion plans (Nyarko 2011, pp. 221-229). Concisely, Ditra will not be able to develop superior products through innovation if technological transfer remains low in the industry.
Strategic Recommendations
Ditra intends to expand its operations by adding soap and personal care items to its product portfolio by 2013. The firm’s objective is to achieve a target of $10 million by selling the soaps. Additionally, it expects to earn a profit margin of 20% by selling the soaps. Based on the external, competitive, and internal environmental analyses, the following recommendations can help the firm to achieve its objectives.
Product
A clear understanding of the market needs that are to be satisfied will be necessary before launching the new products. Thus, it will be necessary to conduct a market research in order to identify the features that the customers are looking for (Winer & Dhar 2010, p. 231). Based on this research, the firm should manufacture soaps that meet customers’ expectations in terms of size, color, functionality among other features. The soap must be superior to its substitutes in order to overcome competition.
Place
Most customers usually buy soaps from retailers such as supermarkets and convenient shops. Consequently, Ditra has to establish an effective and efficient supply chain that links its production plants with the wholesalers and retailers. In this regard, the firm should establish its warehouses in strategic locations in order to improve distribution efficiency.
Furthermore, a sales team will have to work with the retailers in order to obtain customers’ feedback concerning the product’s quality and availability (Winer & Dhar 2010, p. 235). Establishing overseas distribution networks in terms of warehouses and sales offices will enable the firm to track the product’s performance.
Price
The industry is associated with high competition, and the customers are price sensitive. In this regard, adopting the penetration pricing strategy will enable the product to gain market share within a relatively short period (Winer & Dhar 2010, p. 240). Concisely, Ditra can increase the market share of its soaps by charging lower prices than its competitors charge. Additionally, the pricing strategy must take into account the customers’ perception of the value of the soap. The soap must not cost more than the customers are willing to pay.
Promotion
Promotional activities will help the company to create awareness about the soap. In this regard, it will be necessary to advertise the soap in print and electronic media in order to reach a large number of potential customers. Similarly, discounts and free samples will encourage customers to purchase the soaps. The promotional activities must be different from those of the competitors in order to achieve the desired results (Nyarko 2011, pp. 221-229). Promotional activities that lack differentiation are not likely to attract potential customers.
Conclusion
The opportunities in Ditra’s external environment include low power of the suppliers, high industry growth, low import duty in the GCC region, and rapid economic growth in the UAE. The threats include high competition and threat of substitutes, as well as, low investment in research and development.
Ditra has a strong brand image and ability to produce a variety of products. Additionally, it is able to increase the visibility of its products by using multiple distribution channels. However, it struggles to breakeven and over depends on the UAE market. By leveraging its strengths and minimizing its weaknesses, Ditra can successfully avoid the threats and take advantage of the available opportunities. Thus, it will be able to achieve its objective of launching new products in the market.
References
Accenture 2011, Achieving High Performance in Home and Personal Care, Euromonitor, London.
Ditra 2012, Company Profile. Web.
Nyarko, Y 2011, ‘The United Arab Emirates: Lessons in Economic Development’, Studies in Economics and Finance, vol. 24 no. 4, pp. 221-229.
Winer, R & Dhar, R 2010, Marketing Management, McGraw-Hill, New York.