case study.

1. Problem 1
THE CONSERVATIVE OKB
This problem covers the following topics:

Strategic Entrepreneurship (Chapter 13)

Strategic Management (Chapter 1)

The External Environment (Chapter 2)

The Internal Environment (Chapter 3)

The Business Level Strategy (Chapter 5)
Orang Kampong Sdn Bhd: The story for an entrepreneur
This case is about an entrepreneur who is rather apprehensive of innovation and
expansion…………….
Traditional Medicine has been in the declining stage of the Product Life Cycle since the late
eighties but is now making a fast comeback. Malaysian consumers are now very health
conscious and are very knowledgeable about the type of medicine that they choose to consume.
This is because of several health campaigns organized by both government & non-governmental
bodies. The internet is also a major source of knowledge and can also be said to be the catalyst
for consumers‟ choice for purchases. The information generated through the internet can either
entice or repel consumers‟ choices. The recent hype about the danger of chemicals has opened
doors for the flooding of traditional medicine into the country. Medical care via the more holistic
traditional methods have been regaining importance as an alternative to Western/Modern
medicine as more and more clinical reports from the West support the value of traditional
medicine.
The Traditional Malay Medicine (TMM) is also gaining momentum in this industry. Five reputable
chain retailers and hundreds of family businesses have been in operation for at least a quarter of
a century in the TMM in Malaysia. Among the reputable chain retailers is the Orang Kampong
Sdn Bhd (OKB) which competes on cost leadership business strategy. It has remained the most
renowned TMM provider since the 1980s and is the market leader for TMM. The other smaller
players in this market are made up of hundreds of small family businesses operating single
outlets in the villages („kampong‟) and along the streets of the wet markets in the smaller cities.
This phenomenon is about to change with the entrant of hundreds of health food supplements
and vitamins in the supermarkets, neighborhood pharmacies and also through direct selling.
Therefore, the bargaining power of the buyers has soared tremendously over the years, as they
are spoilt for choices.

2. OKB‟s medicinal products take long hours of preparation before the
buyers can consume the medicine. The medicines are in the form of raw
herbs and roots in their natural state, which need to be boiled for hours
using authentic clay pots for effective results. The taste of the medicine
is very bitter as no flavoring is added. Thus buyers have to prepare the
medicine themselves which may be cumbersome for most buyers.
OKB gets its raw materials from a supplier, Akar Enterprise, who gets the herbs and roots from
the forests of Perak. Akar Enterprise enjoys monopoly since it is the sole supplier of raw materials
for all the traditional medicine producers in the country. Akar Enterprise holds a strong bargaining
power of supply as it dominates the supplies of raw materials. The supplies of the raw materials
are becoming extinct, as most forests are cleared for residential development while some forests
have been gazetted as Forest Reserves. The cost of supplies from Akar Enterprise has increased
by three-folds over a two-year period. The cost of supplies will increase to another 50% if OKB
gets its supplies from neighboring countries like Indonesia.
The OKB‟s recipe for the medicinal product is a well-guarded family secret. OKB does not take a
particular interest in product packaging and advertisement since the OKB product is already a
household name among the Malaysian buyers. The herbs and roots are wrapped in transparent
plastic and each plastic package bears tiny printed OKB label, which does not state the
ingredients or the expiry date. OKB‟s product packaging does not have „product-appeal‟
compared to some of its competitors whose products are attractively packaged. Even with these
setbacks, from the latest market surveys conducted by Ministry of Health, OKB is still the first
choice of TMM among Malaysian consumers since users claim that it helps prevent the infection
of the H1N1.
OKB is happy about this survey and further believes that the medicine must be sold in its original/
natural state and therefore there is no need to further process the herbs and roots. According to
the ‘Tukang Ubat’ from OKB the herbs and roots will lose its medicinal effectiveness if they are
processed further.
The robust and often turbulent economic situation, the march towards globalization and the
competitive environment have brought about the increasing hectic lifestyles of the Malaysians.
The busy Malaysian consumers cannot afford the time for „the lengthy preparation‟ of the TMM.
Orang Kampong Sdn Bhd realizes this but is not willing to change its product feature, afraid that
by changing its product feature it may lose its famous product image of being traditional and
„pure‟. The management claims that they believe the medicine they sell does not have to be
ostentatious in nature, “The simplicity of the OKB product has taken us to where we are now. So

3. why do we need to change! It is this simplistic trait of the medicine which is our competitive
advantage. Furthermore our vision is to be recognized by our customers as the leader in
Traditional Malay Medicine and which everyone can afford. Furthermore, by just doing what we
do best that is, producing herbs and roots wrapped in transparent plastic we have already
achieved our goal as THE NUMBER! So why would we need to reinvent the wheel?”
The contented OKB management does not believe in undertaking environment analysis since
they are already a market leader.
In fact the management of OKB is very self-contained and
they have little concern for the stakeholders be it the capital market, product market or
organizational stakeholders, and even existing competitors and potential new entrants.
Recently, The Guardian, a well-known pharmacy, approached OKB and
would like OKB to supply its medicinal products to them. However,
Guardian would like OKB to revamp its product image into three distinct
product-mix of pills, capsules and liquid-compound forms that is easy to
consume and carry. They also insisted that OKB must package their
products in attractive boxes. Guardian is willing to advise them in
Research and Development and also production because they have the
expertise. Guardian wants OKB to strategize on a focused differentiation
business level strategy and not on the cost leadership strategy, which is
OKB‟s strength. Guardian will not be responsible for the packaging and
marketing and therefore, it is up to OKB to carry out its own marketing
and sales tactics if they agree to sell their products through the Guardian
outlets. The news of Guardian‟s offer spread like wildfire and upon
hearing this Watson‟s which is Guardian‟s direct competitor is offering to
buy (in other words acquire) OKB at a price that is hard to resist.
Over the years since its inception OKB‟s production process has always been carried out in small
huts in the villages where 95% of the work is carried out manually while the remaining; which is
the sealing of the product is mechanized. The raw materials are washed and dried out in the sun.
(However, these days with the unpredictable weather change and housing development in the
nearby town, OKB has problems of drying the herbs due to floods.) Once dried the herbs and
roots are weighed and packed in plastic bags and then sealed. The labor cost is cheap since the
„kampong folks‟ do not mind being paid below average wage. The labor force is made up of 90%
women folks while the other 10% are school dropouts. OKB‟s simple low cost value chain lends
credence to its cost leadership business level strategy.

4. Datin Timah, wife of Dato Penghulu
Kampong Megah, the CEO of the cashrich OKB is in a dilemma. She is very
conservative and holds strong to family
values. She is contemplating about the
offer from Guardian and Watson. She
does not believe in revamping traditional
medicine
into
modern
pills
and
capsules, because according to her the
purity of the traditional medicine will be
contaminated with the „toxic-chemicals‟.
Further more, she does not want to change the product image that has been OKB‟s trademark for
many generations. She is not willing to sell off her family business to Watson, more for emotional
than economic reasons.
Datin Timah‟s children who are university graduates claim that OKB‟s conservative management
style and lack of a clear vision into future business opportunities are weaknesses that may cause
their family business to go to the dogs! They want to see the I/O Model and the Resource-Based
Model put in place to help OKB form its vision and use them in pursuit of strategic
competitiveness and above average returns. They also feel that the management of the OKB is
too complacent in its comfort zone and they fear that this business would be eaten up by the
more daring and innovative Chinese Traditional Medicine. They want OKB to scan, monitor,
forecast and assess the externalities so that OKB can sustain future development.
Be Curious! Be a CAT! Meow………
There are numerous new terms in the case above. Read the case once
more & identify the new terms. Then identify the specific chapters that
would help you learn about those terms.