Value Chain - Literature Review - 外商在台子公司發展策略之研究

2. Literature Review

2.2. Value Chain

The value proposition, commonly known as the value chain, is a model that describes a series of activities for diagnosing competitive advantage. The purpose of value chain analysis is to systematically identify appropriate means of differentiation for a firm so that it can provide superior delivered value to its customers (Porter, 1998).

When a company competes in any industry it performs a number of discrete but interconnected value-creating activities, such as operating a sales force, or delivering products, and these activities have points of connection with the activities of suppliers, channels, and customers. The value chain is a framework for identifying all these activities and analyzing how they affect both a company’s costs and the value delivered to buyers.

Porter also states that value chain (Figure competitive advantage and finding ways to enhance it

firm into its relevant activities in order to understand the behavior of costs and the existing and potential sources of

performing these importan

the existing and potential sources of differentiation.

by performing these important activities more cheaply or better than its competitors (Porter, 1998) competitive advantage and finding ways to enhance it. The value chain disaggregates a firm into its relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation. A firm gains competitive advantage by performing these important activities in order to understand the behavior

the existing and potential sources of differentiation. A firm gains competitive advantage by performing these important activities more cheaply or better than its competitors

In today’s environment, it is becoming ever more critical for firms to develop sustainable competitive advantages. In order for a company to develop this

must also understand its own resources and capabilities, as well as be able to evaluate these strengths and weaknesses in terms of competitive advantage. Value chain analysis a systematic technique for scanning their internal organizations. By focusing on competitively relevant strengths and weakness, a firm

al of these resources and capabilities for adding or subtracting value to the firm’s processes. This understanding can then lead to generic strategies that will most likely lead to sustained competitive advantage. (Duncan, Ginter

Figure 2.1. Porter's Value Chain by performing these important activities more cheaply or better than its competitors

it is becoming ever more critical for firms to develop to develop this advantage, well as be able to evaluate advantage. Value chain analysis technique for scanning their internal organizations. By a firm’s management can resources and capabilities for adding or subtracting understanding can then lead to generic strategies that competitive advantage. (Duncan, Ginter, Swayne,

7 2.3. Core Competences and Assessment

Traditionally strategic management approaches have focused on the analysis of products and markets as the key to competitiveness and good performance. The emphasis has been on how companies position themselves in relation to products, markets and competitors. In the 1990s, this traditional way of viewing strategy was becoming inadequate. Globalization, deregulation, fierce competition and rapid technological change were presenting problems this approach could not answer. It did not explain for example, how certain companies could diversify successfully into new markets and some not. It did not explain the significance of strategic asset stocks. An additional perspective was however available. This approach received a lot of endorsement by Prahalad and Hamel.

Prahalad and Hamel (1990) see the role of companies as identifying, cultivating and exploiting their core competencies to make growth possible. Competitiveness in the long run derives from an ability to build core competencies more efficiently than competitors and use them to create unanticipated products. Advantage comes from management’s ability to consolidate corporate-wide technologies and production skills into competencies that enable individual businesses to adapt quickly to changing opportunities. Corporate structure is a portfolio of competencies, core products and businesses. (Prahalad and Hamel 1990)

Duncan, Ginter and Swayne (1998) present a methodology for systematically analyzing a firm’s internal competencies which would best clarify relevant strengths and weaknesses. The methodology includes four steps: surveying potential strengths

and weaknesses, categorizing organizational differences, investigating the source of competitive advantage, and lastly, evaluating competitive advantage. By applying this model to VATECH Taiwan, I can better evaluate the relationship of components of the value chain as contributors to the company’s competitive advantage.

More specifically, the methodology involves four distinct steps: surveying potential strengths and weaknesses, categorizing organizational differences, investigating the source of competitive advantage, and lastly, evaluating competitive advantage. In Step One, a comprehensive list of strengths and weaknesses is compiled, regardless of relevance to competitive advantage. This is to enable analysts to cover all aspects of a firm’s strengths and weaknesses. Step Two involves categorizing these attributes into either resources or capabilities, and evaluating each on the basis of relevance to competitive advantage. Resources are those assets, either tangible or intangible, that a firm uses to perform work. Capabilities are those attributes that enables a firm to coordinate the above-mentioned resources to produce desired results.

The criteria used to judge an attribute’s relevance to sustainable competitive advantage involves evaluating each on the basis of its value to the firm, its rarity in the industry, the ease with which it is imitated, and its sustainability. Step three involves determining the source of competitive advantage, such as through cost leadership or differentiation, and finally, Step Four evaluates the firm’s competitive advantages in terms of possible strategies.

2.4. Strategic Roles of Subsidiary Companies

For the purpose of this study, it is necessary to say that a subsidiary company is defined as any operational unit of a multinational organization at company level, which is situated outside the parent country. Parent companies can attribute different roles to its subsidiaries. Aspirations of subsidiary companies are substantially supported or inhibited by its roles given by parent companies. In these situations, a subsidiary company can be assigned different kinds of management tasks. These tasks determine the role, and subsequently the strategic importance, of each unit or firm in the corporate structure. Due to an increased need for integration between subsidiaries, brought on by globalization, these roles become increasingly specialized. Some units are assuming the coordinating functions of (regional) headquarters, while others constitute arms-length operations. Several authors discuss these changes in the strategic role of subsidiaries in the light of growth in lateral relations.

In 1984, Perlmutter classified multinational corporations as having an ethnocentric (E), polycentric (P), regiocentric (R), or geocentric (G) philosophy. In terms of a subsidiary company, this corporate classification may well determine the subsidiary management’s views about home and host country nationals, and about structures and resources at HQ and subsidiary level. Ethnocentric companies view international operations as secondary to their domestic operations. A company that considers its national base as its top priority will impose its own language on its foreign subsidiaries. In Polycentric companies, strategic decisions are amended to suit the host country culture of each subsidiary, with the primary concern of host country legitimacy

often give more weight that short term profitability. A geocentric company considers its domestic market as belonging to the world market in the same way as any other domestic market. Strategy, product policy and organizational approach are set at regional level, and objectives are negotiated between regional level, and subsidiaries, and between regional and corporate HQs. Finally, geocentric companies attempt to integrate subsidiaries on a world-wide basis through a global systems approach to decision making. In geocentric companies, subsidiaries are not considered as satellites or independent entities but as parts of the whole organization, developed around a combination of local and global objectives (Taggart, 1988).

Another approach defined marketing satellite, ‘miniature replica’, rationalized manufacturer, product specialist, and strategic independent types of subsidiaries (White and Poynter, 1984). ‘Miniature replica’ is a unit that duplicates the layout of headquarters, while the strategically independent position is most beneficial to successful internationalization of subsidiary.

Christopher Bartlett and Sumantra Ghoshal divide subsidiaries into four categories: implementer, contributor, strategic leader, and ‘black hole’ (Bartlett and Ghoshal 1986). In terms of international embeddedness, subsidiaries, in positions of strategic leader or at least as contributor, are in a favorable situation.

In conclusion, when subsidiary companies have strategic capabilities and resources, they are much valuable to the parent companies by full incorporation into the framework of strategic coordination. Without competitive resources or/and capabilities, subsidiaries are more likely to assume the position of implementer, or a satellite.

11 2.5. Social Capital Theory

Social capital is rooted in economics, sociology, anthropology, and political science. It refers to social trust, norms, and networks that people can utilize for integration to assist the venture performance and internal resources (Stam, 2008).

“Social capital theory refers to the ability of actors to extract benefits from their social structures, networks and memberships” (Lin, 2001). The school of thought adopted for the purpose to analyze the development of VATECH Taiwan involves the studies gathered by Greve and Salaff. They believed that there were three phases to identify critical social network activities and characteristics of entrepreneurial firms.

The first phase involves motivation, where it is expected “that entrepreneurs first explore the possibilities of starting their own business within a small circle of close contacts” (Greve, 2003). The small circles of friends are selected carefully as the entrepreneur is not truly willing to commit to the idea until a sense of possible success is felt.

The second phase pertains to planning, where the entrepreneur starts to

“prepare for the new venture and acquiring information, new skills, resources, and business relations” (Greve, 2003). During this phase, the entrepreneur seeks to maximize the social network and social capital in order to ensure the success of the venture.

The last phase is split into two parts as it depends on the execution plan of the entrepreneur. It is called the establishment or taking over a firm phase. The

entrepreneur can either choose to start a new firm or take over an already existing firm.

Depending on their choice, the entrepreneur’s choices will diverge.

In the case of VATECH Taiwan, it has been established that Eun Hwan Cho chose to establish a new office rather than taking over an existing one. During the planning process, it was decided based on “exposure…to new and different ideas” that opening a new office would be preferable as there was not a company in the current market worthy of being taken over (Davidsson, 2003). According to Burt,

“Entrepreneurs require information, capital, skills, and labor to start business activities.

While they hold some of these resources themselves, they often complement their resources by accessing their contacts. The contacts that lead to successful outcomes are their social capital and they are a key component of entrepreneurial networks” (Burt, 1992).

3. VATECH Background

This chapter introduces company “VATECH”, which is the parent company of VATECH Taiwan. The general history of the company is described, and its current state of the parent company is presented. Finally VATECH’s value chain is briefly introduced.

3.1. General History of VATECH

Based in Yongin-Si, Korea, VATECH Co., Ltd. started out as an industrial X-ray and TFT-LCD business in 1992. In 2002, with the development of the dental digital panorama system, they transitioned their company into a different line of business, a professional dental digital medical device production company. This company developed the first implant and orthodontic detection digital panorama in Korea and launched the world’s first digital panorama, Cephalo, which is a CT combined Implagraphy.

When the company first formed, it was obviously with no knowledge that the Asian financial crisis was just about to grip much of Asia in a few years. This seriously affected the company, which resulted in their strategic and lucrative move towards the dental medical device. Their focus on research and development paid off as they developed cutting edge technology that shifted them from possible setback to definite comeback.

According to 2008 earnings report standard, weights of main products are 59.97% for dental digital panorama (PAX series), 16.44% for dental CT (Implagraphy, VCT, and DCT), 5.06% for dental oral sensor, and 18.53% for etc (software and service). While dental digital panorama offers 2 dimensional images for entire oral illness diagnosis and dental basic diagnosis, dental CT offers oral anatomical 3-dimensional formation as well as tomographic images and gives essential diagnosis information when operating implantation. Price range of main products is different depending on their version; dental digital panoramas are from 90 million won to 200 million won and dental CTs dental digital panoramas are 400 million won to 900 million won. As the company released its PAX series and Implagraphy (convergence type) with outstanding price competitiveness and high capability in 2004, it maintains monopolistic or oligopolistic status with 60% of market share.

Currently in the Korean market, VATECH held 95% of the Dental CT market share and 65% of the panoramic market. Their annual sales to one of their top customers resulted in 150 Dental CT unit exports. Their breadth stretched out to countries as close as Japan and as far as the Middle East and the U.S., adding up to 54 countries and counting (VATECH Co., 1992).

The key events of VATECH’s business developments are summarized as Table 3.1.

3.2. Current Status of

The company started 2009 w

International Dental Show 2009, held in Cologne, Germany, the president of

announced the new CI and vision of the company, whose purpose would be to increase the brand recognition.

The VATECH’s growth is fu is driven by:

• Increasing demand of Implant due to the aging of baby boomer generation

• Frequent release of new products including next generation (PaX-Primo) and 3D viewer program

• Through strategic alliance with Samsung Electronics, the commercialized the FPXD (Flat Panel X

VATECH’s growth of turnover and profit Table 3.

15 tatus of VATECH

The company started 2009 with aggressive marketing strategy. During International Dental Show 2009, held in Cologne, Germany, the president of

announced the new CI and vision of the company, whose purpose would be to increase

’s growth is fueled by increasing demand of clients abroad

Increasing demand of Implant due to the aging of baby boomer generation Frequent release of new products including next generation

Primo) and 3D viewer program (EZ3D 2009)

Through strategic alliance with Samsung Electronics, the commercialized the FPXD (Flat Panel X-Ray Detector)

’s growth of turnover and profit

Table 3.1. Key Events of VATECH’s Business Development

ith aggressive marketing strategy. During International Dental Show 2009, held in Cologne, Germany, the president of VATECH announced the new CI and vision of the company, whose purpose would be to increase

eled by increasing demand of clients abroad, which

Increasing demand of Implant due to the aging of baby boomer generation Frequent release of new products including next generation digital panorama

Through strategic alliance with Samsung Electronics, the company Ray Detector) which will drive Key Events of VATECH’s Business Development

• Applied technology to new business of FPXD is not only applicable to X-ray for human chest, but also applicable to X-ray for animal chest, mammography machine, movie sensor, and printer

• Better brand image with its aggressive marketing

In 2008, Korean government decided to support and invests a large amount of money into the medical industry including dental machine industry for next 5 years.

The official support from the government will dedicate to supporting the company’s growth strategy.

3.3. Value Chain of VATECH

A value chain represents a collection of activities that are performed to design, produce, market, deliver and support the development of a product. Value activities are the building blocks by which a firm creates a product valuable to the buyer. In order for a company to derive a competitive advantage, its value chain has to provide lower cost or better differentiation in product commercialization than its competitors. Therefore, a value chain can be used to compare a firm’s current position with the strategy selected in order to assess any strategic gaps.

A cost advantage for a firm can come from either reducing the cost of individual value chain activities or by reconfiguring the value chain. A differentiation advantage maybe achieved either by changing individual value chain activities to increase

uniqueness in the final product or by reconfiguring the value chain. The value chain is represented in Figure

nal product or by reconfiguring the value chain. The chain is represented in Figure 3.2.

nal product or by reconfiguring the value chain. The VATECH’s

F ig u re 3 .1 .

VATECH’s Value Chain

VATECH is a fully integrated dental X-ray company, which has a product commercialization process that encompasses the length of the value chain, including all support activities.

. Dental Digital X-ray Industry and Competitive Analysis

The company’s internal processes, including the strategic actions, need to be aligned to the company’s growth strategy as a reflection of the external environment. In this chapter, the external environment is analyzed to determine what types of strategic actions are needed. This chapter describes the characteristics of the external environment and how they influence the company’s strategic action plan.

First, this chapter introduces the industry environment and its characteristics.

Second, the level of intensity among competitors and other market players is analyzed using Porter’s Five-Forces Model. This analysis will clarify the nature of the competition and the forces shaping the industry. Third, this chapter includes a market analysis focusing on the trends in the industry and driving forces. Forth, a short description of the company’s competitors is provided, with the aim of analyzing their strategies and predicted moves. Next, the key success factors will be identified which seem to be critical in achieving sustainable competitive advantage in the dental market.

Finally, the chapter concludes by examining factors making the industry attractive or unattractive, and some industry issues / problems.

4.1. Dominant Economic Characteristics of the Industry Environment

The dental digital X-Ray industry not only includes fundamental studies like biology and medicine, but also IT, machinery, and information and communication technologies. Dental digital X-Ray especially needs semiconductor, device design, image treatment, applied S/W, and more technologies combined for the system device.

Therefore, to enter into the digital X-ray industry, it requires every feature of technologies and an expertise to combine all factors of technologies. A company without these technologies will be limited in their pursuit to develop digital X-ray products and will face a high entry barrier.

This industry has high profitability compared to the manufacturing industry.

Also, income elasticity of demands is high, so it is anticipated that high-growth like domestic medical expenses (1/2 level compared to developed countries) are increasing.

This is especially the case where digital X-ray devices are replacing pre-existing analog X-ray and this represents a potential for very high-growth.

The world dental X-ray device market size was $1.8 billion in 2005, but is anticipated to be $2.34 billion in 2009 with an average of 6.6% growth annually as you can see in the Figure 4.1. This is due to baby-boomers who have sufficient paying capacity and are in their aging stage. They have a more liberal view on cosmetic treatment and they accept surgery as an alternative to the aging process. The digital X-ray device market size has not yet reached its maturity stage; moreover, it is more convenient to store than analog film using X-ray storage devices. Its lower risk of being damaged allows for the adoption to grow within the double-digits. For example,

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