Vertical integration & Diversification

(I). Introduction

Figure 11. The value chain of 3:15 pm production

A. Inbond Logistic

With lots experience of plating tea leaves, most tea leaves are produced by themselves.

From the process of growing it, handling the leaves, processing to final product are totally manufactured by them.

In Shih-Chin, they have some outsourcing contracts with other farmers or companies in order to get the material which they can’t produce. First, their small farmers

included Guohui Ji, Meiyi Wu, Zengzhu Ji, Lian Ji who will provide different kinds of tea leaves. Second, one of their packages that foil wrapping paper is from Sui Rong company. The package jars are from GUANG HUA METAL INDUSTRIAL. The cotton tea bag is produced by CHUNG RHY SPECIALTY PAPER MFG. CO., LTD.

And also have some material such as coffee bean, flower tea leaves, casual drinks materials are not produced from own. All of them are contracted with other in order to save some cost.

B. Operation

Needless to say, Shih Chen is familiar with the tea making skills. Also they have own R&D. The operation of the tea bag’s contents is made by their company.

However, they still need some long-term contracts with others. Such as the operation of making any kinds of packages, all of them are from other company so that Shih Chen doesn’t need to buy lots machine or learn different skill.

C. Sales

In addition to selling product online by 3:15PM, they have the cooperation pathway.

They also contracted with Taipei 101, Korea and so on. For example, right now they cooperate with Korea agent to help them management their brand so that Shih Chen can focus on R&D.

D. Outbound logistics

Long-term contract

CEO of Taifoods (台湖食品開發股份有限公司) said that 3:15pm pay attention on their market management, and control the price between different sellers and Mr. Chu, their CEO ever said that: I won’t give as many as sellers want.

As mentioned above we can know Shih Chen Food Company keep their promise to protect their sellers from excessive competition, fluctuate price and maintain long-term cooperation with seller.

E. Marketing

Shih Chen Food Company establishes a long-term reliable relationship with their marketing strategy, separating into the domestic and foreign market. 3:15PM series of products have been keeping continuous innovation and providing variety of flavor tea powder. Shih Chen Food Company also export 3:15PM series of products to many countries such as China, Korea, and Europe etc. The Shih Chen Food Company adapt different ways and products to react to the rapid demand in the market.

F. Service

Shih Chen Food Company not only provide good tea products to customers also establish friendly service customers.

Shih Chen Food Company through separate ways to service customers like established the website of 3:15PM, Facebook fan page, provided their email and toll-free phone numbers. Hope customers can receive the latest news from their he website of 3:15PM or Facebook fan page, and if customers have any question, feel free to contact Shih Chen Food Company.

(II). Different Types of Vertical Relationship

Figure 12. Different types of vertical relationship

For Shih Chin, the Long-term contracts of package suppliers are higher formalization and less degree of commitment. But they have higher degree of commitment because compared with other small farmers Shih Chen have ability to sell tea leaves by their own brand. Their franchises’ formalization and degree of commitment are also higher.

Sales are less. Then the vertical integration has higher degree of commitment, because they can control it by themselves.

(III). Diversification Strategy

When talk about diversification, there are three brands for Shih Chen Food Company- 3:15pm; tea master, brewtiming. And these three brands are in different levels,

3:15pm is in lower level, its price is cheap that everyone can buy it easily and their target customers are focus on teenagers or young people; the price of tea master is in middle high, it can be bought from internet store only, and their target customers are different from 3:15pm. Focusing on people who love to drink original oolong tea, and their age are older than 3:15pm. When it comes to brewtiming, it belong to high level, its price is highest compared to the other two brands. And it can be bought in airport duty free store. They focus on the consumers who have picky mouth and their age are older than 3:15pm, too. In diversification strategy, we will also analyze two aspects- related, unrelated. As we knew that, this three brands are all tea brand, therefore we

can easily infer that they are all related. However, there are some exceptions.

As we knew that the most famous product of 3:15pm is milk tea, but they still have oolong flower series, coffee, chowder series, life cultivation series. There are nine series which included more than twenty commodities of this brand, as for product line, it is diversification. How about the problem of relatedness and unrelatedness. Shih Chen Food Company is a tea company, it is no denying they have plentiful experience on planting tea, thus the related one is milk tea and oolong flower tea. For this, we have economics of scope on operational relatedness. That everyone know Shih Chen Food Company plant tea in Nantou, but they don’t plant coffee, plum, corn, and so on.

They also don’t have experience on it. Therefore, these kind of products classified as unrelatedness.

Figure 13. Diversification of Shih Chen Foods Company

Figure 14. Relatedness and unrelatedness products of Shih Chen Foods Company