Harvard Case - Velong: Rethinking "Made in China"
"Velong: Rethinking "Made in China"" Harvard business case study is written by Krishna G. Palepu, Nancy Hua Dai, Billy Chan. It deals with the challenges in the field of Business & Government Relations. The case study is 23 page(s) long and it was first published on : Jan 17, 2023
At Fern Fort University, we recommend that Velong adopt a multi-pronged strategy to navigate the evolving "Made in China" landscape. This strategy should prioritize building a strong brand, diversifying production, and fostering innovation while maintaining a commitment to ethical sourcing and sustainable practices. By focusing on these key areas, Velong can mitigate risks, enhance competitiveness, and capitalize on opportunities in the global marketplace.
2. Background
Velong, a leading manufacturer of high-quality furniture, faces a complex dilemma. While China's manufacturing prowess has been instrumental in its success, the country's rising labor costs, environmental concerns, and political uncertainties pose significant challenges. The case study explores the potential of 'Made in China' as a competitive advantage and the strategic decisions Velong needs to make to ensure its long-term viability.
The main protagonists are:
- Velong's management: Facing pressure to maintain profitability and growth in a changing global landscape.
- Chinese government: Implementing policies to shift from low-cost manufacturing to higher-value industries, potentially impacting Velong's operations.
- Global consumers: Increasingly demanding ethical sourcing, sustainable practices, and innovative product designs.
3. Analysis of the Case Study
Applying the Porter's Five Forces framework provides a comprehensive understanding of the competitive landscape Velong operates in:
- Threat of New Entrants: High. The furniture industry is relatively easy to enter, with new players potentially leveraging lower labor costs in developing countries.
- Bargaining Power of Buyers: High. Large retailers and online marketplaces have significant leverage, demanding competitive pricing and high-quality products.
- Bargaining Power of Suppliers: Moderate. Velong relies on a diverse supply chain, but the availability of raw materials and skilled labor can impact its costs.
- Threat of Substitutes: Moderate. Consumers have alternative options, including locally-made furniture, DIY projects, and second-hand markets.
- Competitive Rivalry: High. The furniture industry is highly competitive, with established players, emerging brands, and global retailers vying for market share.
Furthermore, Velong needs to consider the following external factors:
- Globalization and Trade: Global trade agreements and tariffs can impact production costs and market access.
- Economic Cycles and Trends: Fluctuations in global economies can influence consumer spending and demand for furniture.
- Exchange Rates: Currency fluctuations can affect the cost of imported materials and the pricing of exported products.
- Environmental Sustainability: Growing consumer awareness and regulatory pressure are driving demand for eco-friendly furniture.
- Technology and Analytics: E-commerce platforms, digital marketing, and data analytics are transforming the furniture industry.
4. Recommendations
Velong should implement the following recommendations to navigate the evolving 'Made in China' landscape:
1. Brand Building and Differentiation:
- Develop a strong brand identity: Focus on quality, craftsmanship, design, and sustainability to differentiate Velong from competitors.
- Invest in marketing and communication: Target specific customer segments through targeted advertising, social media campaigns, and influencer partnerships.
- Build a strong online presence: Develop an engaging website, utilize e-commerce platforms, and leverage digital marketing tools to reach a wider audience.
2. Production Diversification and Strategic Sourcing:
- Explore alternative production locations: Consider establishing manufacturing facilities in countries with lower labor costs and favorable business environments.
- Develop a multi-source supply chain: Diversify suppliers to mitigate risks and ensure access to raw materials and skilled labor.
- Invest in automation and technology: Adopt automation and robotics to improve efficiency, reduce labor costs, and enhance production quality.
3. Innovation and Product Development:
- Invest in research and development: Develop innovative furniture designs, materials, and production processes to meet evolving consumer needs.
- Embrace new technologies: Explore 3D printing, virtual reality, and other technologies to enhance product design and customization.
- Collaborate with designers and architects: Partner with leading designers to create unique and desirable furniture collections.
4. Ethical Sourcing and Sustainable Practices:
- Implement strict ethical sourcing guidelines: Ensure that all suppliers comply with labor standards, environmental regulations, and ethical business practices.
- Adopt sustainable production methods: Use recycled materials, reduce waste, and minimize environmental impact throughout the production process.
- Communicate sustainability efforts: Transparency about ethical sourcing and sustainable practices builds trust with consumers and enhances brand reputation.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: Building a strong brand, diversifying production, and fostering innovation are aligned with Velong's core competencies and commitment to quality and customer satisfaction.
- External customers and internal clients: The recommendations address the needs of both consumers seeking high-quality and sustainable furniture and Velong's employees seeking a stable and ethical work environment.
- Competitors: The recommendations help Velong differentiate itself from competitors by focusing on brand building, innovation, and sustainability.
- Attractiveness ' quantitative measures if applicable: While specific financial metrics are not provided in the case study, the recommendations are expected to enhance profitability by increasing sales, reducing costs, and mitigating risks.
- Assumptions: The recommendations assume that Velong has the resources, expertise, and commitment to implement the proposed strategies.
6. Conclusion
Velong has a significant opportunity to navigate the evolving 'Made in China' landscape by embracing a multi-pronged strategy that prioritizes brand building, production diversification, innovation, and ethical sourcing. By focusing on these key areas, Velong can enhance its competitiveness, mitigate risks, and capitalize on opportunities in the global furniture market.
7. Discussion
Alternative options not selected include:
- Maintaining the status quo: This option carries significant risks, as rising labor costs, environmental concerns, and political uncertainties could negatively impact Velong's profitability and competitiveness.
- Relocating production entirely: While this option could reduce labor costs, it could also disrupt existing supply chains, impact brand image, and create new challenges in terms of logistics and regulatory compliance.
Key assumptions underlying the recommendations include:
- Velong has the financial resources to invest in brand building, production diversification, and innovation.
- The global furniture market will continue to grow, providing opportunities for Velong to expand its market share.
- Consumers will increasingly demand ethical sourcing and sustainable practices, creating a competitive advantage for companies like Velong.
8. Next Steps
To implement the recommendations, Velong should take the following steps:
- Conduct a thorough market analysis: Identify key customer segments, competitor strategies, and emerging trends in the furniture industry.
- Develop a comprehensive strategic plan: Outline specific actions, timelines, and resource allocation for each recommendation.
- Establish a cross-functional team: Bring together representatives from different departments to oversee the implementation of the strategy.
- Monitor progress and make adjustments: Regularly assess the effectiveness of the strategies and make necessary adjustments based on market conditions and performance metrics.
By taking these steps, Velong can effectively navigate the evolving 'Made in China' landscape and position itself for long-term success in the global furniture market.
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Case Description
Velong is a supplier of kitchen equipment and backyard grills for major global brands and store brands of large western retailers. In light of the COVID-related disruptions to the global supply chains, and the evolving trade tensions between China and the Western countries, Velong's global customers were pressuring the company to move 30% of its manufacturing from China to other locations. Velong was considering a number of countries to shift its manufacturing-India, Vietnam, Turkey and Mexico. At present, none of these countries seem to be able to match the cost structure and manufacturing quality that the company is able to achieve in China. Velongs co-founders, Jacob Rothman and Iven Chen, need to decide soon how to formulate a strategy to deal with the challenge.
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