DeLaSalleUniversity

RamonV.DelRosarioGraduateSchoolofBusiness
StrategicManagement

INZPECTTECHNOLOGIES,INC.
RespondingtotheDownturnintheElectronicsIndustry

SubmittedBy:

Group3:STRAMAZING

DeLuna,Rochelle
Francisco,Marvin
Nito,Orenz
Siao,Limuel
Silva,AidaMay

SubmittedTo:
ProfessorJosephPangilinan

23January2016

I.
Introduction

CaseFactsandBackground

Inzpect Technologies, Inc.,isanoriginalequipmentmanufacturerthatprimarilyoffers

machines and electronic systems for product inspection and quality control. The company
customizes machines to meet the customers electronic and systems requirements. The
main product of the company is the vision system that utilizes the technology of Cognex
Vision Systems, Inc., an American company that provides a complete product line of vision
products, softwares, sensors, identification readers, and inspection technologies used to
read and inspect codes, detect items, sort products, and a number of inspection processes
invariousstagesofmanufacturing.

Inzpect was incorporated on 8 May 2003 by Mr. Rolando and Mrs. Maria Teresa
Laya, Mr.JoseandMrs.DignaSumalabe,andMs.ReginaMasilangwith apaidupcapitalof
PhP 100,000.00, alongwiththeequipmentreceivedbythetwohusbandsfromtheirprevious
employer, Autosys. The company is based in Taguig City, Philippines. The company has
grown from 11 employees in 2003 to about 75 employees in 2012. Mr. Laya handles
marketing and sales, while Mr. Sumalabe is incharge of research and design. Their wives,
Maria Teresa and Digna,handletheadministrativefunctions (humanresourcesandfinance)
in the company. The management once tried hiringasupervisorfromoutside.However,the
employees felt alienated because the supervisor has a different training background.
Thereafter, the management created a rule that all employees should be hired on an
entrylevelbasistoensurethateveryonehasthesametrainingbackground.

In the electronics industry, Inzpect decided to focus on machines and electronic

systems designed to inspect products and provide quality control. The companys products
are considered to be unique as every client has their own specific needs. The five
incorporators chosethebusinessbecauseoftheirlongyearsofexperienceintheelectronics
industry under Intel, Evertech, Semateq, and Autosys. With the knowledge they acquired
from their previous companies,the ownersdecidedtoestablishInzpecttotakeadvantageof
a niche in the market asmostofthespecializedequipment locallywerebeingimportedfrom
othercountries.

Because of the uniqueness of their products and services, the companys

management believes that they have no competitorsinthecountry.Internationalcompanies
can manufacture similar products, which make them direct competitors of Inzpect. These
international companies have already penetratedthecountryand placedtheirownbranches
in order to take advantage of thecheap laborin thePhilippines.Inzpectisasmallcompany,
but the owners believe that they can offer the same products at a cheaper price, which will
maketheircompanycompetitiveoverthebiggerones.

ThePhilippineElectronicsIndustry

According to Michael Porter, an industry is a group of firms producing products that

are close substitutes for each other and that satisfy the same needs and wants. (Porter,
CompetitiveStrategy:TechniquesforAnalyzingIndustriesandCompetitors,2004)

The Philippine electronics industry covers the following subsectors:semiconductors

and other components, electronic data processing, equipment, office equipment,
telecommunications equipment, communications and radar, control and instrumentation,
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medical and industrial, automotive electronics, consumer electronics, and

solar/photovoltaics.

The electronics industry in the country will continue to be the driver of growth of
merchandise exports. At an annual growth rate of 10 percent, electronics exports are
expected to hit more than US$50 billion by 2016. The priority subsectors in the electronics
industry include: (a) components/devices (semiconductors) (b) electronic data processing
(c)automotiveelectronicsand(d)solarpowerorphotovoltaiccells.

Inzpect Technologies, Inc. belongs to the electronics industry,

the business of
creating, designing, producing, and selling devices such as radios, televisions, stereos,
computers,semiconductors,transistors,andintegratedcircuits.

From 2002 to 2007, the electronics industry in the Philippines experienced a

sustained growth in performance. In 2008, however, the industry suffered as the financial
crisis hit most industries worldwide. By 2012, the industry was able to stabilize. After the
financial crisis, the company considered expanding since there was an opportunity in
supplying inspection machines in the local food and pharmaceutical industries. In line with
the expansion plan, theownerscontemplatedonputtingupbranchesinotherpartsofLuzon
andinothermajorcities,suchasCebuCityandDavaoCity.

II.

VisionandMission

The vision of the company is, to be the best in Machine Automation and the
foremost in Systems Integration. This vision enables to identify managements view of
where the company is heading, which is to be the best based on the framework of Collins
and Porras. Further,itenablesInzpects visiontobalance thecompanyscoredogma,which
is machine automation and systems integration with its envisioned to be the best in the
comingyears.

Moreover, the mission of the company is, to serve their customers with utmost
perfection with their completed projects and give them absolute satisfaction with their
services. Basing from the framework of Collins and Porras, Inzpect mission lacked some
necessary element unlike its vision. For a mission to be effective, it is important that it
includes the nine components which are 1. Customers 2. Products or service 3. Markets
4. Technology 5. Concern for survival, growth, and profitability 6. Philosophy 7.
Selfconcept8.Concernforpublicimageand9.Concernforemployees.

Construing its mission, it is not completely formed or developed in terms of

customers need, as well asconcernforpublicimage.Inzpectsmajorproductsandservices
are also notidentifiedin themissionanditdidnotgivethe companyanidentity.However,its
missionwasabletospecifyitswayinpleasingcustomers,whichisperfection.

III.
Problem

How should Inzpect Technologies, Inc. respond to the economic downturn and the
subsequentdevelopmentsintheelectronicsindustry?

IV.

PointofView

The group is taking the point of view of the owners of the company, particularly
RolandoLayaandJoseSumalabe.

V.
ObjectivesFramework

The group identifies the following objectives for the company as it respond to the
downturn and developments in the electronics industry. The group ensured that the
objectives are specific, measurable, achievable, realistic, and timed, following the SMART
frameworkincraftinggoals.

Forthenexttwoyears,Inzpectwillbeable:
To identify new products and services and tapprospectivenew clientsforexpansion
inthePhilippines.

Forthenextfiveyears,Inzpectwillbeable:
To become the leading Filipinoowned original equipment manufacturer in machine
automationandsystemsintegrationinthecountry
To remain a highly dynamic and diverse organization that values its human
resourcesandprovidesqualitytraining
To establish a global sales and marketing presence in key information technology
marketsinAsia,Europe,andNorthAmericainthenextthreetofouryearsand
To establish financial and quality control measures that will allow theorganizationto
remaincompetitiveinthelocalandinternationalmarketsinthelongterm.

VI.
Threats,Opportunities,Weaknesses,andStrengthsAnalysis

Threats

Strengths

Expertise in the
electronics/technol

Increasing
globalization,
which could lead
to a more intense
competition.
Semiconductor
companies
transferring their
operations
to
cheapermarkets.
Increase in labor
cost
in
the
Philippines
will
drive
investors
away.
Unreliability
of
power supply and
expensive
electricity rates in
thePhilippines.

S/T
Possible
international

O/T
Adaption
to
Technological
current
change in the
technological
electronics
changes
and
industry.
investing on high
Manufacturing
quality electrical
process
generators.
innovation.
Productinnovation Expansionoutside
the
Philippine
inthecompany.
through
ASEANintegration
international
allows for easier
partnerships.
expansion in other
Southeast Asian
markets.
Weakening of the
European
economy offers
opportunity
to
expand in the
region.

Opportunities

S/O
Increasingin force
on the high quality

SO/T
Inzpectexpertise
inelectronicswill

ogyindustry.
Able to adapt to
different demands
andchallenges
Fast
decisionmaking in
the company and
vibrant
management

team.
High
quality
product
customization
Fair compensation
policies
and
benefits.
Strong culture of
teamwork in the
company.

Weaknesses

Salary is lower
than
other
companies.
Size
of
the
company
is
relatively
small
compared to other
companies in the
electronics
industry.
Unable
to
massproduce
Financial
resources of the
company may not
be as deep as its
competitors.
It doesnt have
experience
operating in the
international
market.

partnership should
beconsidered.
Increase
promotion
on
Inzpects products
as ahigher quality
and customized
outputprovider.

W/T

Target
international
marketswhere
tariffsarelowso
astocompete
internationally

Studythe
satisfactionofthe
presentemployees
intermsoftheir
salariesthrough
survey,interviews,
andfocusgroup
discussionsand
reformatthe
compensationplan
accordingtothe
pulseofthe
workforce

S/W
S/WT
Leverage
on Competein
highquality
international
product
marketswhere
customization that
tariffsarelow
gives
maximum
satisfaction.
Strengthening
team
building
activitieswithin the
company among
itsemployees.

customized output
topromote Inzpect
as
a unique
company.
Inzpect willuseits
existing networks
to penetrate new
industries.

makethemeasily
adaptchangesin
technology.
Leverage
on
highquality
product
customization that
gives maximum
satisfaction.

W/O
O/WT

Exploit the usage Investinnew

of
new
technologiesto
technological
keepupdated
advancement to
make the process Investin
faster.
renewableenergy

likesolarenergy
By
considering
inlightofthe
international
energycrisis
partnerships, this
will increase profit,
hence, possibility
of
increasing
employee's
salary.

SO/W
Competein
international
marketswhere
tariffsarelow,
introducingnew
technologies
eitherthrough
manufacturingor
distribution

TOWS
Strengthenthe
workforcethrough
trainingand
improved
compensation
Investinnew
technologysuch
asrenewable
energy
Competein
international
marketswhere

tariffsarelow

VII.

Frameworks

The group used

Michael Porters Five Forces Model of Competition to analyze
the competitive environment of the case. Porter explained that there are five competitive
forces driving industry competition.Theseforcesare(1)rivalryamongcompetingsellers,(2)
potential entry of new competitors, (3) competitive pressures from substitute products (4)
competitive pressures stemming from supplier bargaining power and supplierseller
collaboration, and (5) competitive pressures stemming from buyer bargaining power and
sellerbuyer collaboration. All these forces combine to determinetheintensityofcompetition
in the industry. These forces serve as an important aspect in formulating shortterm,
mediumterm,andlongtermstrategiesforthefirm.

Essentially, applying the framework to the case, the nature of competition in the
electronics industry can be determined using the combined outcome of the competitive
pressures generated by the five forces. The owners of the companycanhaveanedgeover
rival firms if they can can use this model to better understand the industry context in which
thefirmoperates.

Figure1:TheFiveForcesModelofCompetition

PrevailingrivalryorcompetitionamongthesellersHigh

The competition, in general, consists of foreign manufacturers that integrate

inspection facilities into imported machinery. As of 30 September 2012, there are 428
electronic companies registered with the Philippine Economic Zone Authority(PEZA),which
is18%ofthetotalcompaniesregisteredwithPEZA.

ThreatcomingfromthepossibleentryofnewcompetitorsLow

Inzpect hascostandresourceadvantagesthatarenotavailabletopotential entrants.

These advantages includes capability to design, manufacture and integrate the Cognex
solutions into any local process,strategiclocation andexistingequipmentacquiredearlierat
lowercost.

CompetitivepressuresfromsubstituteproductsLow

It is difficult or costly for industrys customers to switch to substitute products

because it entails time and cost in testing the quality and reliability of the substitute,
paymentsfortechnicalhelpinmakingthechangeover,andemployeeretrainingcosts.

Competitive pressures from supplier bargaining power and supplierseller collaboration

Low

Inzpect tends to have less leverage to bargain over price and other terms of sale
because they are supplying major clients which are the semiconductor multinational
companies. The companys wellbeing is closely tied to the wellbeing of the major clients.
Inzpect then has a big incentive to protect and enhance their clients competitiveness via
reasonable prices, exceptional quality, and ongoing advancesinthetechnologyof theitems
supplied.

CompetitivepressuresfrombuyerbargainingpowerandsellerbuyercollaborationHigh

Buyers are strong competitiveforcebecausetheyexercisebargainingleverageover,

price, quality and service. The availability of information on the Internet is giving added
bargaining power to individuals as they arewellinformed aboutsellersproducts,pricesand
costs and it is relatively easy for them to compare prices and features of the products of
Inzpectfromothercompanies.


Figure2:TheCompetitiveAdvantageFramework

The group also used

Michael Porters Strategies for Competitive Advantage to
identify and analyze the companys business strategies. Basically, this frameworkallowsan
organization to focus on either the cost of producing its products/services or the
differentiation of its products/services from others. The main goal in cost leadership is to
drive the costs down, while at the same time, it is still producing quality products/services.
On the other hand, the main goal in differentiation is to make the products/services
completelydifferentanduniqueinorderforthemtostandoutvisavistheothers.

Costleadership

Under this setting, Inzpect will have to look into its production processes or
operational expenses and see if there are areas where the company could save up on its
costs. However, these efforts would have to be balanced to ensure that the quality of the
productsandserviceswouldnotbecompromised.

Productdifferentiation

Under this setting, Inzpect will ensure that no other electronics companywillbeable
to copy and manufacture similar machine automation and systems integration products. If
the company pursues this approach, it can put a premium on its products and servicesand
pricethemabovetheindustryaverage.

VIII. AlternativeStrategies

The group identified the following strategies that the company can implement over
thenextfiveyears.Thesealternativestrategiesinclude:

1. Local Geographic Expansion Under this strategy, Inzpect will begin expanding
outside Metro Manila. The company will initially put up offices and factoriesinselect
export processing zones in the Philippines in order to take advantage of fiscal
benefits and tax incentives that are being offered by the government. As part of this
7

strategy, the company will also set up branches in major business centers in the
VisayasandMindanao,particularlyCebuCityandDavaoCity.

Advantages

This will attract foreign direct

investments.
This will create employment within the
vicinity.
This will exempt them from taxes and
duties on imported equipment, raw
materials and supplies directly needed
forInzpectsoperation.

Disadvantages

Most of the export processing zonesare

farfromthemainofficeinMetroManila.
Hiring and training new people for the
vacancies will be costly and time
consuming.

2. International Geographic Expansion Under this strategy, Inzpect will set up

offices in countries where its foreign clients are based. The offices will largely be
focused on sales and marketing, promoting and selling the products and servicesof
the company to electronics firms and other related companies in the foreignmarket.
Among the target foreign markets include Japan, China, Hong Kong, Singapore,
Germany,theUnitedKingdom,andtheUnitedStates.

Advantages

This will allow Inzpect to train and

sharpen future leaders in the company,
who will be exposed to different foreign
markets.
This setup could beveryprofitableinthe
longrun.
It could bring in new clients /market for
thecompany.
Goodinternationalcompanyimage
Diversificationofbusinessrisk

Disadvantages

Itisverycostlyandtimeconsuming.
The company has no experience in
operatingabroad.
Thereareculturaldifferences.
Unstable exchange rates might lead
unfavorablereturnoninvestments.

3. New Industry Penetration Under this strategy, Inzpect will begin to penetrate
select industries and sectors outside the electronics industry. Manufacturing firmsor
enterprises in the food, beverage, and pharmaceutical industries will be the primary
target. Apart from these industries and sectors, the company can also look into the
garments, telecommunications, appliances, and even in transportation industries for
possiblepenetrationandexpansion.

Advantages

This will increase the customer base

while leveraging on their core
competencyofcustomization.
It will help gain customer trust and will
improveclientchoice.

Disadvantages

Needs more time to adjust, hence,

quality of the output may be sacrificed
duetotimeconstraints.
Unable to focus more on a certain
industry.
Itwillbecostlyandtimeconsumingfor
thecompany.

4. New Products and Services Introduction

Under thisstrategy,Inzpectwillstartto
develop new products and services related to machine automation and systems
integration. However, the company will not be limited by these core products and
services, as it will explore also other types of machine inspection andqualitycontrol
products or services that can be introduced to the market. As part of this effort, the
company can also offer quality assurance trainings and certification courses for
employeesofnewandoldclients.

Advantages

Launchingofnewproducts and services

can generate profit for Inzpect if it is
successfulandsellswell.
This can alsogeneratenew partnerships
orbusinessrelationships.
This will attract new investors in the
company.

Disadvantages

If this strategywillgo global, Inzpect will

needtocomplywitheachcountrysrules
regardingproductsimported.
It is also costly as the company would
needtoinvestmoreonproductresearch
anddevelopment.

5. Combination of All of the Above

Under this strategy, Inzpect will implement a
combination of geographic expansion, new industry penetration, and new
product/services introduction. However, the key difference of this strategy is thatthe
company will have to prioritize the strategies, implementing first those that require
less financial, operational, and logistical requirements. More importantly, under this
strategy, the company will identify shortterm, mediumterm, and longterm courses
ofactions.

Advantages

Generally,thisstrategywillgenerate
moreprofit.
This willcreatemorejobopportunitiesfor
theFilipinos.
This strategy will allow the company to
achieveitsvisionandobjectives.
This strategy will allow the company to
focusandprioritizeitsefforts.

Disadvantages

The most expensive and most time

consuming among the alternative
strategies.
Customization of its original productsmight
beneglected.
Many regulations will be considered such
asBuildOperate Transfer Law, Import and
Export Procedures, Export Development
Act, and other Presidential Decrees and
ExecutiveOrdersrelatedtothisstrategy.
Difficulttomaintainandmonitor.

IX.
Recommendation

DecisionCriteria

The group used the following decision criteria when assessing each of the alternative
strategiesforthecompany.

Financial
Thestrategywillbefinanciallyviableforthecompany.
Operational The company can have coherent policies, procedures, and activities
underthestrategy.
9

Logistical The company is ableto findastrategiclocationwhichfacilitatesefficient

transferofgoodsandservices
Human Resources
Thestrategywillrequirethecompanytohiremorepeople,train
itsexistingstaff,andcompensatetheworkforcesatisfactorily.
Profitability
Thestrategywillpotentiallybringinsignificantprofitforthecompany.
Sustainability The strategy willallowthecompanytosustainitsoperationsnotjust
intheshorttermbutinthelongtermaswell.

The group is giving equal weights to all criteria as every criterion pertains to an
indispensable aspect of the business as awhole. The groupassigns5pointsastheperfect
scoreforeverycriterion.Thus,thehighestpossiblescoreforanalternativestrategyis30.

Alternative
Strategy1

Local
Geographi
c
Expansion

Alternative
Strategy2

International
Geographic
Expansion

Alternative
Strategy3

NewIndustry
Penetration

Alternative
Strategy4

New
Products
andServices
Introduction

Alternative
Strategy5

Combination
ofAll
Strategies

Financial

Operational

Logistical

Human
Resources

Profitability

Sustainability

25

24

26

25

28

Criteria

TOTAL

Based on thedecisioncriteriaabove,thegrouprecommendsalternativestrategy#5:
Combination of All of the Above because this strategy captures all the criteria that were
set to ensure that it is the best choice to tackle the givenproblems.Underthisstrategy are:
expanding locally, internationally and penetrate another industry. In addition, the groupalso
suggeststhecompany todevelopnewproductsandservicestobeoffered tothecurrentand
future customers. All mentioned strategies are to be implemented accordingly at different
time periods and may overlap eachother(ShortTerm(12years),MediumTerm(35years)
andLongterm(610years)).

Given these, the following is the suggested time frame and a brief overview of the
actionrequiredtoensurethesuccessofthesestrategies:

1.)
Expanding Locally (Short Term)
The company will identify exporting and
processing areas and zones that the government has allotted toreapthefiscal benefitsand
tax incentives.These areasarealsowherepotentialcustomershavefactoriesandoffices.In
order for them to do this, the company should do a cost benefit analysis and compare all
potentialsitesthegovernmenthaslisted.
10


2.)
Expanding Internationally (Medium Term)
Thecompanywillcreateofficesin
areas deemed attractive for exporting such as China, Singapore,Germany, theUS,andthe
UK to be able to sell and market their products. The companyshouldresearchcarefullythe
methodsofhowtooperateinthesecountriesandprobablyfindagoodpartner.

3.)
New Industry Penetration (Short Term)
The company will look into other
industries that they currently dont serve like the manufacturing and pharmaceutical
companies and see if they can sell the products and services that they offer to these
industries. In order to accomplish this, they need to be able to familiarize themselves with
the operations of these firms and from there find potential products and services to be
offered. They should also ensure that they have the capacity to service these additional
industries.

4.)
Developing new products and services (Short Long Term)
Thecompany
should invest money on research and development in order to ensure that they are
consistentlyabletolaunchproductsthatisworking,usefulandofqualityfortheseindustries.

Generally, these strategies aim to enlarge and gather more customers inthemarket
to ensure profit and in turn combat the economic downturn and be proactive given the
subsequent developmentsintheelectronicsindustry.Havingmultipleprojectsandstrategies
to implement can beextremelyhardandtrickyforthecompanybutwiththeproperplanning,
implementation and attitude they can be successfulanddowhatisnecessarytoensurethat
thecompanyisabletocompeteintheindustry.

X.
LearningPoints

We can get inspiration from the path that the founders of the business took in
building theirsystemsintegrationcompany.Theyfirst
builtontheir expertiseintechnology,
acquiring knowledge and experience from company to company, until they learned how a
systems integration business is run. This expertise has been the solid foundation of their
business.

The founders also took advantageoftheir

networksfromwhomthey builttheirclient
base as well as financiers. The company was
quick to move and decide
, being able to
establish its secondbuildingaftertwoyearsandrecoveritsinitialcapitalinayear. Ithadthe
flexibility
tomovetothefoodandpharmaceuticalmarketsafterafinancialcrisis.

XI.
References

HarvardBusinessReview.HowCompetitiveForcesShapeStrategybyMichaelPorter.
Pages137145.MarchApril1979

Inzpectwebsite.
http://www.inzpect.com/aboutus/visionamission
.Retrievedon21January
2016.

PearsonEducationInc.StrategiesinOperationsManagementStrategiesforCompetitive
AdvantagebyMichaelPorter.

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Thompson,A.andStickland,A.J.(2003),13thEd.,StrategicManagementConceptand
Cases,pp73111

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