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Chabros International Group: A World of Wood

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A class presentation of the Chabros case consisting of a VRIO Analysis, a swot analysis and other. The information is either gathered from the Harvard Case or the internet.

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Chabros International Group: A World of Wood

  1. 1. THE WINNING STRATEGY Andreea Nan
  2. 2. Agenda Introduction to Chabros International VRIO Analysis – The Competitive Analysis of Chabros Ansoff and The Different Choices Available to Chabros The Solution
  3. 3. 1. Introduction A little background info on Chabros
  4. 4. MAPS Headquarters The Chabro’s Offices/Subsidiaries
  5. 5. Founded in 1960s in Lebanon. Chabros is the leading wood company dealing with veneer and lumber. The first international attempt was in Dubai, then later in 2001 Riyadh subsidy opened. They extended their operations from wholesaling to include manufacturing. Chabros Cairo opened to have a market for “B” quality veneers for cost cutting purposes. Dubai brings in most of the revenue from sales even after the 2008 crisis. A little introduction on Chabros
  6. 6. ONLY 50%of sawmill capacity in 2009. Problem Since 2009, sales have been reducing. Dubai’s sales – the subsidiary bringing most sales – dropped by 30%. MENA SUBSIDIARIES BOUGHT
  7. 7. 2. VRIO Analysis A competitive assesment of Chabros
  8. 8. A basic model of VRIO
  9. 9. Is Valuable? Is Rare? Is difficult to imitate? Is organization organized around? Chami’s 25 years of experience YES YES YES YES More variety and more customized wood products than most competitors YES YES YES YES Distinctive strategic relationships with its key suppliers YES NO Strategic Flexibility YES YES YES YES Lower prices than competitors YES YES NO Brand YES YES YES NO Economies of scale YES NO Adaptability of employees YES YES YES YES Flexible Payment Strategy YES YES YES YES VRIO Analysis of Chabro
  10. 10. Chami’s 25 years of experience LONG-TERM COMPETITIVE ADVANTAGE The experience Chami has in picking and buying veneer is hard to gain or replicate. Such experience is gained from years and years of work and learning what people like or dislike. Not everyone has that. It is important because people do not buy the veneer for its quality but rather for the design and patterns. It was a competitive advantaged in Dubai and continues to be. Chami works to pass on his expertise to partners and top management.
  11. 11. More variety and more customized wood products than most competitors Seeing that Chabros operate in the wood industry which has plenty of small-medium competitors it is important to offer customers more variety. It is rare because it is hard to adopt such broad operations especially if you are a small- medium competitor of Chabro for instance. Thus this trait is fairly difficult and costly to obtain. Chabros takes advantage in its productive variety and customized works and the business is built such that these can be offered to their customers.
  12. 12. Distinctive strategic relationships with its key suppliers COMPETITIVE PARITY Seeing that Chabros operate in the wood industry which has plenty of small- medium competitors it is important to offer customers more variety. It is rare because it is hard to adopt such broad operations especially if you are a small-medium competitor of Chabro for instance. Thus this trait is fairly difficult and costly to obtain. Chabros takes advantage in its productive variety and customized works and the business is built such that these can be offered to their customers.
  13. 13. Strategic Flexibility LONG-TERM COMPETITIVE ADVANTAGE This is one of the most important competitive advantages that Chabros have. It ties in with the fact that they are both a wholesaler and a manufacturer after acquiring the Serbian sawmill. It is hard to replicate because you need enough capital to acquire or build a factory. It is incredibly rare for wholesalers to also be manufacturers and this provides Chabros with strategic flexibility over its competitors. The organization as a whole is organized after this dual ability.
  14. 14. Lower prices than competitors TEMPORARY COMPETITIVE ADVANTAGE This advantage comes from the previous Strategic Flexibility. The fact that they have a sawmill in Serbia allows them to have higher margins yet sell at lower costs than competitors. It is valuable and to a certain extent rare, however this resource on itself, is not difficult to imitate. There are high chances that other competitors can potentially lower their prices, this is not something Chabros can consider as a competitive advantage for long.
  15. 15. Brand UNUSED COMPETITIVE ADVANTAGE Generally brand and reputation are not what is considered a competitive advantage but in Chabros situation, the experience and the strategic flexibility the company has gained, makes their brand into a rare, valuable and hard to imitate trait. however, in this case there is no information on how Chabros are making this an advantage to themselves. It is clear that this is an unused competitive advantage. Their experience is the differentiators, however not a lot hear about the company because they are not utilizing this quite important advantage.
  16. 16. Economies of scale COMPETITIVE PARITY Economies of scale are valuable to Chabros in cutting costs and getting all the quality types of veneer they need and to be able to offer different types of products and customization. It is important but it falls under competitive parity because it is common for businesses that operate on the same scale as Chabros to have some sort of economies of scale.
  17. 17. Adaptability of employees LONG-TERM COMPETITIVE ADVANTAGE One of the biggest competitive advantages Chabros enjoys is that because of their Lebanese background, employees are at least bilingual and very adaptable to different environments. Their culture is a mix of European and Arab culture, putting them in a good place where their operations are located. They adapt to the European culture and speak the language spoken in the MENA region. As long as those employees are within the firm or the firm employs Lebanese, this is something that is rare, valuable, hard to replicate and the organization is highly influenced by the nature of their employees.
  18. 18. Flexible Payment Strategy LONG-TERM COMPETITIVE ADVANTAGE One of the strategies implemented by Chabros to help raise sales was to make the payment available to the customers more flexible. He did not ask for any letters or credit and did not take any legal action if the customers was late to pay – even by few months. This was contrary to his MENA region competitors, however customers loved to work with Chabros, gaining them loyalty and respect. This thus is a long-term competitive advantage as it is rare, valuable, difficult to imitate accounting wise and the organization is ran according to this mentality.
  19. 19. 3. Ansoff A look at the different strategies available
  20. 20. Problem : Profit dropped significantly in 2009. 6 6.50 6.80 6.70 4.20 0% 1% 2% 3% 4% 5% 6% 7% 8% 2005 2006 2007 2008 2009 Chabros Intl. Group's Net Profits from Sales (%)
  21. 21. ANSOFF Model Important strategies to increase sales.
  22. 22. ANSOFF Model Market Penetration Benefits: using this method can use the lower prices Chabros offers to increase market share. This is also an effective way at combating competitors, but Chabros does not worry for those. Disadvantage: With a low price you can potentially lower your brand image and miss opportunities. Product Development Benefits: Broadens Chabros scope and could potentially get more customers and hit new segments. Disadvantages: 50-80% of new products fail and a lot of money is spent on marketing and R&D.
  23. 23. ANSOFF Model Market Development Benefits: Chabros are very good with their products and they are known for it in the places they operate. This strategy takes their products to new markets. As long as there is a need, this is a less costly strategy that almost guarantees you increase in sales. Disadvantage: If marketing was biased or done wrong, and the new markets you chose is not optimal, then you can lose a lot in form of costs and the subsidiary would fail. Chabros have an a good history with new markets. Diversification Benefits: it stretches the capabilities of the company. It also spreads business risk and is efficient when the other markets are declining. Disadvantages: In this case, it can be too risky to undertake both new markets and new products. It could also be costly and take too long and seeing that it is just after recession, the best fit might not be found.
  24. 24. Different ALTERNATIVES TO BOOST SALES Closing Parts of the Serbian Sawmill Morocco Change product mix Expand within existing markets Market Development Market Penetration
  25. 25. Closing Parts of the Serbian Sawmill Benefits Reduce employees by half. Save $400,000 per year in salaries. Reduce excess capacity. Focus resources where needed more. Buy the same lumber from the lower priced supplier in Russia. Disadvantages The layoffs might demotivated other employees in the business. The 10 million investment put into it would’ve been for nothing. Firing so many employees, risks that they won’t be prepared when demand surges. They lose competitive advantage especially in non-MENA regions. Lose potential subsidiary in Morocco.
  26. 26. Morocco’s SWOT Analysis Page 14 Strengths Known EU standards Moroccans have a positive view of work done in Dubai Specialized labor force Opportunities No competent local rivals Big market High demand for Chabros Serbian lumber Very few sellers of veneers Morocco is not in recession Weaknesses Lacking relational networks. Chabros isn’t known in Casablanca Chabros does not know which customers are worthy of trust for not using L/C’s Threats Possible entry of new foreign competitors Possible changes in taxes and tariffs Some local competition Supply contracts exclusively awarded to historically well-established suppliers SWOT
  27. 27. Analysis of Morocco EU has initiated a free trade agreement with Morocco to strenghten relationships with North African countries. This benefits Chabros Serbian sawmill. The market size is 31,606 in terms of population which is a good number for the lumber products. It is a country with quite a high score at 128 of ease of doing business, which is good for opening a subsidiary there. The GNI is lower than most of the other countries (@4,190), which means that lumber would be a preffered product or type B quality veeners. There is a demand for such products, and thus Chabros could raise their sales by using the Market Development stage. The currency is also tied in with the Euro so it is optimal for avoiding FX problems between Serbia and Morocco. If transportation costs were about 10% of Total Cost between Serbia and the MENA regions, it will be approximately the same, thus something familiar to Chabros expenses.
  28. 28. Cultural Assesment - Hofstede As per the six dimensions, we see that Lebanon and Morocco have a lot in common and will be a potentially good fit. Both countries score high on power distance so hierarchy is common and accepted in both cultures, meaning that work ethic is very similar. They are both collectivist in nature and believe in team work. This is encouraging to see since we already know that Chabros employees are good at adapting, now we know that it will be equally easy for Moroccan’s to get used to the way Chabros operate.
  29. 29. Expand within existing markets Existing markets: Dubai (2 subsidiaries), Saudi Arabia (2 subsidiaries), Qatar, Oman, Serbia(2 operations), Egypt, Lebanon. Benefits In each market, Chabros already operates and thus knows the local regulations well. The experience in the market is valuable to penetrate the market in ways that will work. Operations already exist so costs won’t be that high. Already built profiles of what products are needed where Disadvantages Already within each market and demand is decreasing. No new knowledge is acquired. Most of the existing markets purchase high quality veneers, whereas Chabros need someone to buy lumber made in Serbia. Already established presence and positioning against customers, so it is hard to change that drastically to boost sales.
  30. 30. Change product mix Alternative 1: Focus on Lumber. Benefits There are more European countries that they could sell lumber to. It is cheaper to acquire. It is easier to pick and doesn’t need much experience and talent. It is a commodity. The Serbian sawmill has the capability to supply the lumber. Disadvantages It is not the core of the business. Their brand comes from supplying veneer. In the past Chabros bid against for huge projects in veneer, they would lose this edge. Restructuring costs will further decrease profits. Lose potentially important competitive advantages.
  31. 31. Change product mix Alternative 2: Focus on Veneer. Benefits Their reputation comes from veneer. They have extensive experience in the veneer market and Chami’s experience is one of their competitive advantage. The MENA region prefers veneer and a lot of current operations are in the MENA region. Dubai is still one of their biggest customers. Disadvantages Miss the opportunity of moving focus to European countries or Morocco. It requires more experience in the field of choosing. It comes in different qualities at different costs. It is not a commodity like lumber.
  32. 32. 4. Solution
  33. 33. MOROCCOSolution: The most prolific solution for Chabros is to open a subsidiary in Morocco. They will enter a completely new market, with new opportunities and low competition. Chabros can use the excess capacity of lumber from its sawmill to sell to the Moroccans since they have a demand for those products. It is one of the least costly but highest potential for increasing sales in the long-run. All the other strategies are short-term strategies, Morocco is a strategic choice for the long-run. In the future, it could open up the market to neighboring countries – Tunisia, Algeria. Culturally wise, Morocco is similar to Lebanon so the problems raised by culture could potentially be avoided completely. This decision helps Chabros sell its extra lumber while maintaining their competitive advantages from selling veneer to MENA regions.
  34. 34. THE WINNING STRATEGY Andreea Nan

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