Harvard Case - Dalian Xinhe Leather Clothing: Strategic Transformation in Response to COVID-19
"Dalian Xinhe Leather Clothing: Strategic Transformation in Response to COVID-19" Harvard business case study is written by Haifen Lin, Sun Zhou, Xiangtong Liu. It deals with the challenges in the field of Strategy. The case study is 8 page(s) long and it was first published on : Mar 26, 2021
At Fern Fort University, we recommend Dalian Xinhe Leather Clothing (DXLC) embark on a strategic transformation focused on digitalization, diversification, and international expansion. This transformation will leverage DXLC's existing strengths, address the challenges posed by COVID-19, and position the company for sustainable growth in the evolving global leather clothing market.
2. Background
Dalian Xinhe Leather Clothing is a Chinese manufacturer specializing in high-quality leather garments. The company faced significant challenges due to the COVID-19 pandemic, including disruptions in supply chains, declining demand, and increased competition. DXLC's CEO, Mr. Wang, recognizes the need for strategic transformation to navigate these challenges and secure the company's future.
3. Analysis of the Case Study
3.1. SWOT Analysis:
Strengths:
- Strong manufacturing capabilities: DXLC possesses a skilled workforce and efficient manufacturing processes.
- Strong brand reputation: DXLC enjoys a reputation for high-quality products and craftsmanship.
- Established distribution network: DXLC has a well-established distribution network in China.
- Experienced management team: DXLC has a team with deep industry knowledge and experience.
Weaknesses:
- Limited online presence: DXLC's online presence is underdeveloped, hindering its ability to reach new customers.
- Over-reliance on domestic market: DXLC's dependence on the Chinese market exposes it to economic volatility.
- Lack of diversification: DXLC's product portfolio is limited to leather garments, limiting its growth potential.
Opportunities:
- Growing global demand for leather goods: The global market for leather goods is expanding, offering growth opportunities.
- Increasing online sales: The shift towards online shopping presents a significant opportunity for DXLC.
- Emerging markets: DXLC can tap into emerging markets with high growth potential.
Threats:
- Increased competition: DXLC faces competition from both domestic and international players.
- Fluctuating raw material prices: Volatility in leather prices can impact DXLC's profitability.
- Economic uncertainty: Global economic uncertainty can impact consumer spending on luxury goods.
3.2. Porter's Five Forces Analysis:
- Threat of new entrants: The leather clothing industry has moderate barriers to entry, but DXLC's established brand and manufacturing capabilities create a competitive advantage.
- Bargaining power of buyers: Buyers have moderate bargaining power due to the availability of substitutes and the fragmented nature of the market.
- Bargaining power of suppliers: Suppliers have moderate bargaining power due to the availability of alternative leather sources.
- Threat of substitutes: Synthetic materials and other fabrics pose a threat as substitutes for leather.
- Rivalry among existing competitors: Competition is intense, especially from international brands and online retailers.
3.3. Value Chain Analysis:
DXLC's value chain consists of the following activities:
- Inbound logistics: Sourcing leather and other raw materials.
- Operations: Manufacturing leather garments.
- Outbound logistics: Distribution to retailers and customers.
- Marketing and sales: Promoting products and generating sales.
- Customer service: Providing after-sales support.
3.4. Business Model Innovation:
DXLC needs to innovate its business model to address the challenges posed by COVID-19 and capitalize on emerging opportunities. This includes:
- Digital transformation: Building a robust online presence, including an e-commerce platform, social media marketing, and digital advertising.
- Diversification: Expanding into new product categories, such as leather accessories, footwear, and home goods.
- International expansion: Targeting new markets with high growth potential, such as Southeast Asia, Europe, and North America.
4. Recommendations
4.1. Digital Transformation:
- Develop a comprehensive e-commerce platform: This will allow DXLC to reach a wider customer base and increase online sales.
- Invest in digital marketing: Utilize social media platforms, search engine optimization (SEO), and online advertising to promote products and build brand awareness.
- Implement data analytics: Track customer behavior and preferences to personalize marketing campaigns and improve product development.
4.2. Diversification:
- Expand into new product categories: Introduce leather accessories, footwear, and home goods to diversify revenue streams and cater to a wider customer base.
- Develop new product lines: Explore innovative designs and materials to differentiate products and attract new customers.
- Focus on sustainable practices: Emphasize eco-friendly materials and production processes to appeal to environmentally conscious consumers.
4.3. International Expansion:
- Identify target markets: Research and select markets with high growth potential for leather goods, considering factors like consumer demand, economic conditions, and market regulations.
- Establish partnerships: Collaborate with local distributors, retailers, and manufacturers to facilitate market entry and build brand recognition.
- Adapt products and marketing: Tailor products and marketing strategies to meet the specific needs and preferences of target markets.
5. Basis of Recommendations
These recommendations are based on a thorough analysis of DXLC's strengths, weaknesses, opportunities, and threats. They align with the company's core competencies in manufacturing and product design, while addressing the challenges posed by COVID-19 and capitalizing on emerging opportunities.
- Core competencies and consistency with mission: The recommendations leverage DXLC's existing manufacturing capabilities and brand reputation while expanding into new markets and product categories.
- External customers and internal clients: The recommendations focus on meeting the evolving needs of customers by providing a wider range of products, improved online experiences, and greater accessibility.
- Competitors: The recommendations aim to differentiate DXLC from competitors by focusing on digitalization, diversification, and international expansion.
- Attractiveness ' quantitative measures: The recommendations are expected to generate significant returns on investment through increased sales, market share, and brand recognition.
6. Conclusion
DXLC's strategic transformation, focused on digitalization, diversification, and international expansion, will enable the company to navigate the challenges of the post-COVID-19 era and achieve sustainable growth. By leveraging its core competencies and embracing innovation, DXLC can establish itself as a leading player in the global leather clothing market.
7. Discussion
Alternatives:
- Focusing solely on domestic market: This would limit DXLC's growth potential and expose the company to economic volatility.
- Merging with another company: While this could provide access to new markets and resources, it also carries risks associated with integration and cultural clashes.
Risks:
- Execution challenges: Implementing the recommendations requires significant investment and organizational change.
- Competitive response: Competitors may react to DXLC's moves, intensifying competition.
- Economic uncertainty: Global economic conditions could impact consumer spending and hinder growth.
Key Assumptions:
- Consumer demand for leather goods will continue to grow.
- DXLC can successfully implement its digital transformation strategy.
- The company will find suitable partners for international expansion.
8. Next Steps
Timeline:
- Year 1: Implement digital transformation strategy, including e-commerce platform and digital marketing initiatives.
- Year 2: Expand into new product categories and explore international expansion opportunities.
- Year 3: Establish a presence in key international markets and further diversify product offerings.
Key Milestones:
- Launch of e-commerce platform: Q1 2024
- Introduction of new product categories: Q3 2024
- Partnership with international distributor: Q1 2025
- Entry into new international market: Q3 2025
By taking these steps, DXLC can successfully navigate the challenges of the evolving global market and achieve sustainable growth.
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Case Description
Founded in 2000, Dalian Xinhe Leather Clothing Co. Ltd. (Dalian Xinhe) mainly produced men's and women's leather clothing; it had become the largest leather garment manufacturer in northeast China. At the beginning of 2020, in response to the COVID-19 pandemic, Dalian Xinhe began to produce medical protective clothing, which brought the company through the business challenges created by the pandemic and earned it wide recognition from the government and society. As the pandemic situation evolved, two opinions emerged within the company with regard to Dalian Xinhe's further development. Chun He, the chairman of Dalian Xinhe, needed to determine whether the company should continue to expand production of medical protective clothing or whether it should concentrate on returning to original garment manufacturing and developing the company's own brands.
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