Value Chain Analysis

Bangladesh Online Limited, a Beximco company, is the leading Internet Service Provider in

the country. Since its launch from August 1998, BOL has been able to set an example of

excellence with its subscribers with the help of updated technology and dedicated support

service.

Responding to the information needs of the country, Bangladesh Online Limited (BOL) was

established with the sole aim of keeping the customers in the information super highway with

the fastest access to the net. BOL has succeeded as the best Internet Service provider of the

country, by using the latest technology available. We are a public limited company and our

shares have been traded in Stock Exchange since October 2001.

Value Chain Analysis:

One model help us to understand this network of processes and services of Bangladesh online

limited (BOL) calls the ‘Value Chain’. Porter’s work on competitive strategy suggests that

organizations should reconsider their value chain and focus on the operations that they can do

best. Other processes should ‘out-sourced’ by specialists. BOL offered a simplified product

offering with orders taken by mail/fax/telephone – a simplified service with wide reach.

Porter & Millar (1985) p. 151

Porter distinguishes between primary activities and support activities. Primary activities are

directly concerned with the creation or delivery of a product or service. They can be grouped

into five main areas: inbound logistics, operations, outbound logistics, marketing and sales,

and service. Each of these primary activities is linked to support activities, which help to

improve their effectiveness or efficiency.

Inbound Logistics:

Includes receiving, storing, inventory control, transportation planning. They have their own

skilled purchase department. If any input is required, they place orders to the suppliers. They

receive and store raw materials in the warehouse. If any transportation is needed to place to

any branch or to customer, they have their own transportation facility. Sometimes they also

outsource the facility to meet unexpected high demand.

Operations:

Includes machining, packaging, assembly, equipment maintenance, testing and all other

value-creating activities that transform the inputs into the final product. They have good

marching facilities to produce better products or services. The machine they use to add value

contains top quality and high longevity. They have packaging system that have imprinted

trademark to reflect their brand image. They have good assembly line at several SBU

(BEXIMCO Textiles Ltd, BEXIMCO Pharmaceuticals Ltd, Padma Textile Mills Ltd,

BEXIMCO Knitting Ltd.). They have quality control department in almost every SBU who

simultaneously test the performance of their product and services.

Outbound Logistics:

The activities required to get the finished product to the customers warehousing, order

fulfillment, transportation, distribution management. After the completion of their product,

they warehouse them in different store where only finished product. They have sufficient

customer relationship logistics where they receive orders through many different interfaces

(Web based, Telecommunication, face to face etc.). They have their own distribution

channels with transportation system to reach dealers, wholesalers, retailers.

Marketing and Sales:

The activities associated with getting buyers to purchase the product, including channel

selection, advertising, promotion, selling, pricing, retail management etc. They analyze target

markets in order to select specific and appropriate channel. According to that they do all

kinds of marketing activities and initiatives they take. They have skilled marketing executive

specialized in retail management to handle excessive supply or demand.

Service:

The activities that maintain and enhance the products value, including customer support,

repair services, installation, training, spare parts management, upgrading, etc. They employ

many employees who work day and night to feedback various customer query and give

sustainable solutions to them. They also provide efficient repaired service to their valued

customers. They install many things before customer starts using their products or services

for the sake of their convenience. They maintain big stock of spare parts to supplement

customer’s additional need. They also give training both to the employees and also customers

in order to make them user friendly with their product and services.

There are four main areas of support activities: procurement, technology development

(including R&D), human resource management, and infrastructure (systems for planning,

finance, quality, information management etc.). The chain consists of a series of activities

that create and build value. They culminate in the total value delivered by an organization.

The ‘margin’ depicted in the diagram is the same as added value which expresses the way a

business differentiates itself through configuration of its value chain.

Procurement.

Procurement of buildings, servicing, machines etc. BOL uses these staffs for obtain its

operations. As a service providing company, it s main instrument is server. I also do gateway

contract and installment of net connection for its customers. It also conducts setting up tower.

Technology Development.

Includes technology development to support the value chain activities. Such as: Research and

Development, Process automation, design, redesign. BOL do its research on marketing and

develop its findings in to implication to serve better. It also revises its design and process of

operations, so that they can be more automated and effective and efficient.

Human Resource Management.

The activities associated with recruiting, development (education), retention and

compensation of employees and managers. To maintain a good and sound environment in

BOL, the firm recruits best possible employees for performing the task and meet

organizations goal. This department also maintains its retention of the better man for them

and keeps motivating them by providing compensation for their extra and sound work.

Firm Infrastructure.

BOL’s firm infrastructure Includes general management. This management actually takes

care of general activities like maintain relation ship with other departments. It also provides

instructions about possible new business steps to other departments. Planning management-

does the plan foe BOL to gain advantage over other competitors by structuring unique plan.

Its finance and accounting department usually performs BOL’s transaction activities and

sanctions for new project. Public affairs and quality management are two interrelated

departments. Because BOL inquires about customer satisfaction by public affair dept and

implement those findings by quality management.

The drivers for product differentiation and value creation are policy choices (what activities

to perform and how), linkages (within the value chain or with suppliers and channels), timing

(of activities), location, sharing of activities amongst business units’ learning, integration,

scale and institutional factors. Porter and Millar (1985) argue that information technology

creates value by supporting differentiation strategies.

CREATING A COST ADVANTAGE BASED ON THE VALUE CHAIN

BOL creates cost advantage:

By reducing the cost of individual value chain activities, or

By reconfiguring the value chain.

Cost advantage can be created by reducing the costs of the primary activities, but also by

reducing the costs of the support activities. Once the value chain has been defined, a cost

analysis can be performed by assigning costs to the value chain activities which are given in

following:

1. Economies of scale.

2. Learning.

3. Capacity utilization.

4. Linkages among activities.

5. Interrelationships among business units.

6. Degree of vertical integration.

7. Timing of market entry.

8. Firm's policy of cost or differentiation.

9. Geographic location.

10. Institutional factors (regulation, union activity, taxes, etc.).

BCG Matrix

Introduction

Beximco Group is one of the largest private sectors in Bangladesh which has a turnover of Tk

16.5 billion and employs 22,000 people. Beximco has 152,000 shareholders and contributes

to 8% of the market capitalization of Dhaka Stock Exchange. In their operational activities

they have Six types industries which actually works as sister concern. Beximco sister

concerns are Textiles, Basic Chemicals and Pharmaceuticals, Jute, Marine Foods, Real Estate

and Development. Beximco services include Engineering, Media, Information Technology,

Trade and Financial Services.

But these companies are not in same position because their performance and their relative

market share is different to identify these things we selecting four sister concern of them and

we use BCG matrix do that.

BCG matrix is introduced by the Boston Consultant Group to make marketing and strategic

management decision easier for the companies consist of different SBUs. The matrix

basically is used to manage all SBU according to the need for leadership and growth. In other

words, to make the product life cycle longer. The matrix is a graph consists of relative market

share in the horizontal axis and market growth rate in the vertical line. Relative market share

indicates the leadership position of any SBU. Market growth rate indicates the attractiveness

of any SBU. According to the dimension of the coordinates of the SBU, the matrix is divided

into four parts.

Question marks: The SBU is not the leader in the industry but growth rate is above average

in the market. It is the introduction stage in the product life cycle.

Stars: The SBU is the leader of the industry and growth rate is still high. It is the growth

stage in the product life cycle.

Cash Cow: The SBU is still the leader of the industry but growth declines to below average

of the market growth. It is the maturity stage in the product life cycle.

Dogs: The SBU loses the leadership but still no improvement in the growth. States the

decline stage in the product life cycle.

Analysis Method & Limitations

Analyzing BCG matrix was not an easy job. Beximco group operates in many industries. We

were required sales revenue information for current year and prior year of the companies

different SBU's. Usually this sort of information is available in the annual reports. The

collection of all SBU's annual report was not possible. First, we tried to collect the SBUs'

annual report of the company we are concerned. If found, we collected all possible

competitors' annual report available against the correspondent SBU. We found 3 ISP (Internet

Service Provider), 4 real estate, 6 pharmaceutical and 12 textile companies’ annual reports to

analyze including concerned SBU's annual report. Primary findings of the analysis are

average market growth rate and concerned SBU's (BOL, Shinepukur Holdings, Padma

Textile Mills, Beximco Pharma). The basis and workings of the primary findings will be

given upon query. Average growth rate of the market is found 12.8%

BCG Matrix of Beximco Group

Analysis

The BCG Matrix that we have formed – reflects us an industry average growth rate of 12.8%

and the relative market share 1 reflects leadership position. Higher the position better is the

leader.

According to the BCG matrix, the four SBU from Beximco are on different plots. First of all

the ISP section- BOL, it’s in the question mark plot. With a growth rate of 16.16%- its

growth rate is high but he relative market share is as low as 0.9. It needs more investment as

it has opportunities by its industry.

In the pharmaceutical industry Beximco is not at all in a convincing position. As Beximco

Pharmaceuticals Limited is currently is in dog position, but still generating most part of the

cash in the industry, It is maintaining only 0.5 of relative market share and dismal 11.28% of

growth rate.

In the textile industry- Padma Textile Mills Limited is near to cash cow position. With a

negative growth rate of -12.74%, it is in lower side of the growth rate. Its relative market

share is also in low side and it is 1(app). The particular SBU requires supplementing other

SBU as it is generating second largest sales volume in the organization.

Another SBU in other industry is also needs to be divested as soon as possible, and it is

Shinepukur Holdings Limited. Its growth rate is -46.3% but its relative market share is only

0.5.

Conclusion

As a sum we can easily recon that Beximco is not in a very good situation to be on. They

have to think fast and effective as two of their SBU’s ( Shinepukur Holdings Limited and

Beximco Pharmaceuticals Limited) are clearly struggling and other one (Padma Textile Mills

Limited) is quiet likely to accept the fate of the previous two.

Porter’s Five Force Model

Introduction

Porter's five force model is used to analyze the attractiveness of a market segment. The

determinants of the market attractiveness are:

1) The competitors operating in the same industry,

2) Potential new entrants,

3) Attractiveness of substitute products,

4) bargain power of buyers,

5) Bargain power of suppliers.

This model is used to decide what strategy a firm should apply to meet its objectives of long

run.

Porter’s five force model

1. Threats of intense segment rivalry:

BOL face a huge problem in the dial-up service. It is not the case of any competitor’s strength

of market share but the declining market of the dial-up service. People trends to ignore the

hazards of using dial-up internet service. So this segment of customer and the service is

disappearing from the scene. This makes a big problem for BOL regarding their investment

and high exit barrier of the market. Another segment BOL concentrate is the broadband

service. BOL is not performing as well as dial-up service. But the criterion is different here.

Dial-up service is mostly in its exit part but broadband is still doing well. So, why BOL is not

doing here? The answer is the better performance of competitors. BOL simply can't catch the

attraction of the market, because the competitors have higher stakes than BOL. So BOL has

to fight with others price and advertising constantly. So, both of the segments are not in a

good shape for BOL.

Recommendation:

For dial-up service BOL simply should operate in small portion. Because they just can't leave

the segment because of high exit barriers. As they have to do little operation for dial-up they

have to perform rest of their resource for broadband service, because this segment got a good

future in hand. So BOL should concentrate on it. They should offer good service at a low rate

from its competitors to the market. In doing this they can invest more in upgrading their

technology and in their advertising.

2. Threats of potential entries:

BOL's business profit is low, risky in type because the market entry barrier is low due to the

pure market competition. This business needs a good investment with high fixed cost. As a

result it is also a problem to quit easily that means the entry barriers is low where exit barriers

are high. It creates another problem, the small competitors has to stay because of the high exit

barriers to cause a problem for big one's like BOL. So that BOL has to face extra competition

in the market.

Recommendation:

To face this thing BOL has to be large to its competitors, in the same time they have to be

good in their offerings and capturing market share. This will make sure that the profit will

still high though poorer competitors are still in the frame.

3. Threats of substitute products:

If there is any potential substitute product exists parallel with the actual product, then the

respected market segment becomes unattractive. The profit margins and prices become

limited by the substitute products. Sometime technological advancements yield convergences

of new substitute products industry. If substitute products industry is more attractive than the

actual product regarding to the aspect of competition, price and profits, the growth in the

main product segment is likely to fall. The market of main product may not grow more.

In the context of Bangladesh ISP (Internet Service Provider) and BOL online limited of

Beximco group the market of dial-up internet becoming unattractive day by day. It

contributes a substantial decline in the growth of dial-up internet service market in

Bangladesh. There might be some probable reasons for this consequences happening in the

industry. Internet service is one kind of market segment where differentiation is almost

impossible. In addition, technological advancement is used as a leapfrog strategic tool by the

substitute industry that outperforms dial-up internet service industry. Explaining the

technological leapfrog, the customers prefer faster internet at comparatively low cost. But

dial up service provides attractive low cost but its speed is not good enough to serve almost

no purpose of customers expected demand. But substitute products such as GPRS, EDGE,

Zip (High speed wireless connection) meet the expected need for high speed internet at

comparatively lower cost. For the past five years, dial-up internet service industry is severely

threatened by the local broadband service. Then the industry started a new trend that is price

dumping. As there was technological backwardness involved, the speed was not sufficient till

then. No competitors exiting the industry but dumping price to attract customers. On the other

hand, the service quality was so poor that customer percept spending any money to the

industry is a total loss. There was mass switching to the substitute service occurred as there

was opportunity and customers switching cost is low. Afterwards, for the past three years,

telecommunication and other large ISP developed their product and introduced wireless

internet that is faster substantially at lower cost. Those ensure the emergence of abundance of

backward technology and adopt new technology.

Recommendation:

There are low barriers to enter in the market for internet service because telecommunication

companies already have capital requirements, licensing and patents, other networks. On the

other hand, the struggling ISP companies face high exit barrier because there is pure

competition, increasing customer expectations do not expect low cost but better quality, and

low salvage value yields a chance of high capital loss. In this situation, profitability is low

and risky. Moreover, if the market growth is declining, the dial-up ISP should exit slowly.

4. Threats of buyers growing bargaining power:

The internet connection service is mostly undifferentiated in many ways. because lot of

competitors are doing their business in this sector so to provide customer a good package

every service provider tries to extend the service to the minimum profit limit . This makes the

products quality relatively undifferentiated. It’s only the types of service offering that might

be bit different. But that is not any more a big case to say the product or service is

differentiated.

There also a negative thing for BOL is that the switching cost of buyer's is not enormous.

Because it only cost them somewhere round about 1000tk or less to switch to other service.

So it is an advantage for buyer's creating concern for BOL.

Buyers who are opted to use internet seems to a standard class people in terms of their

earnings and spending. These people are trends to be price sensitive because there is many

service providers in the market, from whom they can chose their one. So this is another

problem or challenge for BOL to negotiate the buyer’s price sensitivity.

There is another thing that may bother BOL is that the service is associated with significant

fraction of buyers cost because to take an internet connection a buyer pays some or whole

amount of the cost of hub and ware cost. So here buyers also refer some power from the

service provider.

Recommendation:

It is very important for BOL to workout these problems associated with buyer’s power. To

do that BOL can chose the segment of buyer's who are not that powerful in terms of

bargaining power and less price sensitive. BOL also can offer superior offerings to get buyers

even though they are price sensitive.

5. Threats of supplier’s bargaining power:

BOL’s business instruments are mainly from United States. So it appears that the cost is very

high. The suppliers are organized and strong. As BOL is not a huge company from a huge

country it is not much of a concern for the suppliers to be price cautious when it is set. As a

small company it is difficult for BOL to be dominant for the suppliers. So BOL also has to

negotiate the challenge. Another problem is that the switching of suppliers is also expensive

because the foreign suppliers always demand a big deal to start. So might be it is not needed

for BOL to subscribe the large quantity of products.

Recommendation:

As the market share is declining for BOL is has to be cautious steps to be taken by BOL. In

this specific problem BOL should made the suppliers not one but multi. That means they

should take different suppliers for different products but concentrate only on major or one

supplier. This will enables them to switches easily and with less cost.

Barriers and profitability:

Above diagram is associated with the following three factors of Porter generic five forces.

Those are:

1. Industry competitors

2. Potential entrants

3. Threat of substitute products

Conclusion:

Analyzing porters five force model is very important for every company in every industry

regardless to their market position. Before entering into any industry companies must analyze

the attractiveness of intended industries. The attractiveness of substitute products must be

considered before starting any new business. Companies which are already operating in the

industry they must be concerned about the strengths of entry barriers to anticipate entrance of

new company. For profitability, companies must pay attention to the bargain powers of

buyers. If the key input is vital to add value to customers and the market expectation is low

cost then firms should focus on bargain power of supplier.

References:

Book:

Porter, M (1985): Competitive Advantage: Creating and Sustaining superior Performance 

N.Y. Free Press

Porter M, Millar VE (1985): How information gives you competitive advantage Harvard

Business Review Vol 63 Issue 4 Jun/July 1985 pp 149-160

Internet:

http://www.bol-online.com/about.php

http://www.12manage.com/methods_porter_value_chain.html

http://www.beximco.org/home/Home.asp

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bcg.gif&imgrefurl=http://www.decide-guide.com/BCG-

matrix.html&h=427&w=515&sz=14&hl=en&start=12&tbnid=J7Vi2wqI5wup7M:&tbnh=10

9&tbnw=131&prev=/images%3Fq%3DBCG%2Bmatrix%2Bpicture%26gbv%3D2%26hl

%3Den

Annul report of 2007:

Delta Spinners Limited

Prime Textile Spinning Mils Limited

Saiham Textile Mills Limited

Safko Spinning Mills Limited

Tallu Spinning Mills Limited

Monno Fabrics

Apex Spinning & Knitting Mills Limited

Sonargaon Textiles Limited

Metro Spinning Limited

H.R Textile Mills Limited

Libra Infusions Limited

Orion Infusion Limited

The IBN SINA Phamaceuticals Industry

Limited

BDCOM Online Limited

Shinepukur Holdings Limited

Daffodil Computers

Square Textiles Limited

Eastern Housing Limited

Square Pharmaceuticals

Delta Brac Housing Finance Corporation

Limited

National Housing Finance & Investments

Limited

Ambee Pharmaceuticals Limited

Padma Textile Mills Limited

Bangladesh Online Limited

Beximco Pharmaceuticals Limited