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CHAPTER 2 BUSINESS ISSUE EXPLORATION

2.1. Conceptual Framework


The goal for this final project is to find suitable strategy and implementation plan for Fruters.
By using conceptual framework, author can organized all ideas and aspects to achieve the
final project’s goal. The conceptual framework for Fruters depicted in figure below.

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Figure 2.1. Conceptual Framework

1. Problem Statement
The problem statement for this final project has been conducted and discussed in
chapter 1 by examining the company’s performance.
2. Data Collection
Data collection that used in this final project are observation, interview, and literature
study. Data collection is used to analyze the problem, determine current condition of
the company and to determine the strategy formulation.
● Observation
This final project is using observation method which is directly go to Fruters
to observe and examine the problems and to analyze the current condition of
the company.
● Interview
To collect relevant data and information, the author will give questionnaire to
interview with the owner of Fruters.
● Literature Study
Other information of this research also collected from written material from
references books and article related to the research.
3. External Analysis
External analysis involves identifying business opportunities and threats. In other
words, conducting an external analysis is helping formulate an effective strategy.
Identified opportunities and threats are to be factored in when developing strategies
and it will seek to take advantage of opportunities and reduce the risk of threats in
attempts to reach the business goals outlined in the mission. By knowing the external
environment, the results of this analysis are in the form of opportunities and threats
faced by Fruters. External analysis is divided into four components, which are
General Environment analysis, Industry analysis, and Competitor analysis.
● General Environment Analysis
PEST analysis is an analysis of the external macro-environment that affects all
firms. PEST is an acronym for the Political, Economic, Social, and

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Technological factors of the external macro-environment. PEST analysis can
be used to help detect trends in the external environment that will ultimately
find their way into the competitive environment (Henry, 2011:49). Such
external factors usually are beyond the firm's control and sometimes present
themselves as threats. However, changes in the external environment also
create new opportunities and the letters sometimes are rearranged to construct
the more optimistic term of PEST analysis. Many macro-environmental
factors are country-specific and a PEST analysis will need to be performed for
all countries of interest.
● Industry Analysis
Porter’s 5 forces model is a framework proposed by Michael Porter that
identifies five forces that determine the profit potential of an industry and
shape a firm’s competitive strategy (Rothaermel, 2013:150). The forces are
rivalry among existing competitor, threat of new entry, threat of substitutes,
bargaining power of supplier, and bargaining power of buyers. In analyzing
each market force, the question is whether it is sufficiently strong to reduce or
eliminate industry profits. The focus at this stage is at the industry level
because industry dynamics and profits of necessity dictate profits of other
firms that enter the industry.
● Competitor Analysis
In formulating business strategy, the strategies of the firm's competitors must
be considered. While in highly fragmented commodity industries the moves of
any single competitor may be less important, in concentrated industries
competitor analysis becomes a vital part of strategic planning. Competitor
analysis has two primary activities, which is obtaining information about
important competitors and using that information to predict competitor
behavior. Casual knowledge about competitors usually is insufficient in
competitor analysis. Rather, competitors should be analyzed systematically,
using organized competitor intelligence-gathering to compile a wide array of
information so that well informed strategy decisions can be made by Fruters.
4. Internal Analysis

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Internal analysis is conducted to know the strengths and weaknesses of Fruters.
Fruters should exploit and expand on its strengths and reduces its weaknesses to have
effective strategies. The internal analysis that author use in this research are VRINE
model analysis and current business model canvas analysis.

● VRINE Analysis
VRINE analysis is an analytical framework of resources and capabilities in a
member of elements, which are valuable, rareness, inimitability,
non-substitutable, and exploitable will gain a competitive advantage
(Carpenter & Sanders,2009:103)
● Business Model Canvas
A business model describes the rationale of how an organization creates,
delivers, and capture value (Osterwalder &Pigneur, 2009:14). There are nine
building blocks in business model canvas that is customer segment, value
preposition, channels, customer relationship, revenue streams, key resources,
key activities, key partnership, and cost structure.
5. SWOT
Analysis of the External and Internal Environment will obtained the Strengths,
Weaknesses, Opportunities and Threats from Fruters.
6. Strategic Positioning
Strategic positioning according to SWOT Analysis Diagram of Fruters is the process
of deciding what to do in business strategy formulation.
7. Strategy Formulation
This step, based on the result of the SWOT Analyzer Scoring would developed the
suitable strategy to get best solution to solve business issue
8. Strategy Implementation
In this step, the selected strategies are planned to be executed.

2.2. Research Methodology


2.2.1. Research Design

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John W Creswell in his Research Design book recommended that:
“A general framework should be adopted to provide guidance about all facets of the
study, from assessing the general philosophical ideas behind the inquiry to the detail
data collection and analysis procedures. Using an extant framework also allows
researcher to lodge their plan ideas well-grounded in the literature and recognize by
audiences that read and support proposal for research.” (2003:3)

This paper uses a mixed research method, which means both quantitative and qualitative
data collection are used:

“Mixed method approach is one in which the researcher tends to base knowledge
claims on pragmatic grounds. It employs strategies of inquiry that involve collecting
data either simultaneously or sequentially to best understand research problems the
data collections also involves gathering both numeric information as well as text
information so that the final database represent both quantitative and qualitative
information.” (Creswell, 2003: 18-20)

2.3. External Analysis


2.3.1. PEST Analysis
● Political Factor
There are several major variables that co-related to the Fruters business. Those
are fuel price hikes, import and export regulation, and changes in food and
beverage regulation. The fuel pricing policies will impact to the raw material
costs, operating expense, and purchasing power of buyer. Higher fuel price
will drive inflation to higher level. Under the new president, Joko Widodo,
the government at its early stage of leadership has already increase the price of
fuel by 10,45% from IDR 6,700/litre to IDR 7,400/litre .

The second variable is the import and export regulation. This import-export
regulation will also impact the supply of raw mango ​Mangifera indica as the
material for making the Fruters Mango Puree product. Since mango ​Mangifera
indica is currently one of the exported foods, and mango ​Mangifera indica

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farm are available in Indonesia (Majalengka and Cirebon), therefore the limit
to export food will also impact to supply and then to its price in the market.

The third variable is related to the changes in food and beverages regulation.
Based on The Ministry of Health (MOH) issued regulation No. 30/2013:
“Requiring producers of processed foods for commerce to provide sugar, salt,
and fat content information and a health message on the label. The rule will be
regulated by a Ministerial Regulation. This regulation will be implemented in
April 16, 2016. (FAIRS Country Report 2013: 2). Currently the packaging of
Fruters Mango Puree does not put the health message on the label. Once this
regulation is applied on the market, consumers will demand Fruters to follow
the regulation.

● Economic Factors
General economic growth has an influence on the food and beverage market,
but this occurs mainly over the long term. It is difficult to connect changes in
consumption with economic factors such as earnings or disposable income,
because so many other non-economic factors (such as changing lifestyles or
preferences for certain drinks) are involved.

Figure 2.2 GDP Per Capita Growth


(Source: NSR, link http:/www.nsr.com/)

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Based on The World Bank world development indicators, which is available in
Figure 2.2, the growth of Indonesian’s GDP is around 5.9% Year on Year
(YoY). Comparing the GDP between 2014 vs 2015 shows that the trend is
always increase. 2014 GDP using PPP method current International dollar
was $2,796 billion compare to 2015 GDP using PPP was approximately
$2,964 billion.

Figure 2.3 Percentage of Household Annual Earning


(Source: Frontier Strategy Group Analysis, link http:/www.frontierstrategygroup.com/)

Based on the Frontier Strategy Group Analysis in 2011, ​Indonesia is the fourth
largest country in the world in terms of population. Fast growing consumption,
powered by growing affluence of the middle class, is the main driver of
Indonesia’s economic growth. ​With a total population of 238 million,
Indonesia is the fourth most populous country in the world after China, India,
and the US. Indonesia has a favorable demographic profile with 60% of
population aged below 40. Private consumption is the biggest driver of
Indonesia’s economic growth, representing 56% of total GDP output. Private
consumption per capita is expected to double from its current level of
US$1,500 to US$3,000 in 2015. 50 million households in Indonesia have a
disposable income of US$3,000 or more, and this number is expected to reach

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150 million by 2015. 8 million scooters, a favored form of transportation
among urban residents, were sold in 2010, compared to 1.7 million in
Thailand. Consumer goods companies should look at Indonesia seriously as
the consumer spending boom is just getting started.

● Social Factors
The millennial generation is growing up, and they are going to have a huge
impact on the country’s economic future. There is no universal definition of
exactly when the millennial generation begins or ends. Goldman Sachs in
2014, in a recent set of reports, chose to set the cutoffs as people born between
1980 and 2000. Sociologists ​William Strauss and Neil Howe in 2014, who are
widely credited with coming up with the name millennial, define the
generation as people born between 1982 and 2004. There are 3 generations
that can be classified from the age such as millennials (15 – 35 years old), gen
x (35 – 50 years old), and boomers (over 50 years old). Millennials are starting
to age into their prime spending years. Millennials are coming into their
thirties and forties, which means they will be an increasingly important
consumer group, as seen in this Goldman Sachs chart:

Figure 2.4 Goldman Sachs Chart


(Source: BLS, link http:/www.businessinsider.co.id/)

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Based on that Figure 2.4, millennials are entering their prime spending years.
They are the smallest age cohort in spending today, but could be the largest
in five years consumer spending per person per year by age group on
discretionary and staples categories. Millennials generation are more
health-conscious than older generations. Based on survey (Aetna, 2013) there
are 4 categories definition of healthy such as eating right, exercising, not
falling sick, and the right weight for your height. The category of eating right
and exercising is millenials generation. So, millennials generation is more
health conscious than older generations.

Figure 2.5 Definition of Healthy


(Source: What’s Your Healthy Survey, link http:/www.businessinsider.co.id/)

Healthy lifestyle has become a growing trend in many developing countries


such as Indonesia. This lifestyle entered everyday life and one of them is a

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beverage. Now the beverage is not only judged on variety, convenience and
experiences but also be able to give health benefit. Beverage with the above
characteristics is appropriate, especially if targeted to medium low to
medium high. Today people are more health conscious. So, Fruters make
Mango Puree that based from local fruits with more vitamins, no
preservatives, no artificial colour and no artificial sweetener.

Figure 2.6 Growth of Netizen Indonesia


(Source: Tech in Asia, link http:/www.specommerce.com/)

Indonesia’s internet user base is slated to have a 20% year-on-year growth


until 2016, which will lead to 102.8 million users by then. This is due to the

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increasing spending power of the middle class. Fierce competition between
mobile companies is also driving mobile phone and subscription plan prices
down, making them affordable for more users. According to a survey by
MarkPlus, the number of Indonesian internet users grew steadily from 42.2
million to 74.6 million from 2010 to 2013. Netizens, who can be defined as
users who spend more than three hours a day online, have also grown during
the same time period from less than 20% to more than 40%. The survey also
revealed that almost half of these netizens were under the age of 30 years,
while those above the age of 45 years made up 16.7% of netizens in the
country. Most netizens access the web via smartphones (86%) and spend
between Rp 50,000 (US $5) and Rp 100,000 (US $10) every month for
internet access.

Figure 2.7 Classification Of Social Media User


(Source: Prosper Insight and Analytics, link http:/www.businessinsider.co.id/)

Social media have also becoming new trends; people use smart phones to
connect with their networks through Facebook, Instagram, Twitter, and other
applications. It is becoming a trend now for retail businesses to use social
media to be their marketing channels, or sales channels. As stated in the
opening paragraph, healthy lifestyle has also becoming the new trends. Many

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companies use sport activities as their marketing events. Organic market is
growing in big cities. It is filled with organic products mainly from other
countries. Malls in big cities are full on the weekends; this has becoming a
social trend as outdoor space is very limited and has been polluted due to
heavy traffic. Therefore, many retail business people put their branches in big
malls in order to get traffic and sales growth.

Between January to March 2014, Indonesia’s capital, Jakarta, contributed to


2.4% of the global total of 10.6 billion Twitter posts, making it the city that
generates the most tweets in the world. A Google study on Understanding the
Mobile Consumer in 2013 also supports that Indonesians are frequent social
media users, with 97% visiting social networks and 79% doing so least once
a day via their smartphones. Its highly active online social community has
gained the city its nickname, “social media capital of the world.” The
country’s most popular social media platforms are Facebook, Twitter and
Google Plus. In early 2013, Indonesia was ranked first worldwide in terms of
growth of account owners for Twitter. As of 2014, it has 69 million active
Facebook users, making it the fourth largest user in the world. It also had
36% of its population on Google Plus and is also the second largest user of
mobile messaging app Line as of September 2014, with 30 million active
users. With 26.4% of online transactions occurring on social media platforms
in 2014, it is evident that this high level of social media activity represents a
huge opportunity for global and regional brands to engage with their
customer base and ultimately drive sales in the social space. Businesses are
recognizing Indonesian’s affinity for social media and are using the
opportunity to connect with existing and potential customers. There are an
increasing number of accounts on social media being created purely to sell
products. The emergence of local startups like LakuBgt and Onigi, which
assist businesses to sell on these social platforms, is another indicator that
Indonesia’s social commerce sector is growing. Social media is also a great
platform for businesses to address customer concerns in a timely and

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personal way. An active and engaging online social presence is key for
online success in Indonesia.

● Technology Factors
Fruters focus on product diversification because in present era it is not
possible for any organization to exist in market for long by providing just one
product. So Fruters are diversifying according to changing demand of
customers and trends. Product innovation is becoming more necessary for the
organization because of globalization people are becoming aware about the
changes taking place around them. Fruters is focusing on product innovation
by introducing new variant product. Fruters also use new design packaging.
Analysis of the technology includes R&D, online and social media, and the
selection packaging of Fruters product. R&D in Fruters is for developing new
products with innovative flavors from local ingredients. Nowadays, the R&D
is a core part of the business. Main decisions in a business are based on R&D
factor. R&D is very important to know the level of competition, production
processes, and the methods that are rapidly improving. It is important to
follow the business trends and to analyze the consumers‟ needs in order to
satisfy their desires. If the business invest in R&D, it may achieve better
results.

2.2.1. Porter’s 5 Forces


● Rivalry among existing competitor
From the assessment, there are few existing competitors of juices product that
provided delivery service in Jakarta and Bandung such as Fruits Up and Mama
Roz. There are also many juices product that compete in the retail market,
those are Buavita, Floridas Natural, Sunquick and Berry. However, that
existing product can be classified to juices product and different with Fruter’s
product because it retains all of the juice and a large proportion of the fibrous
matter naturally found in the fruit (not concentrate). So, no clear market leader
is defined. The market is categorized as growing, all firms are able to grow the
revenues. All the competitors are pursuing high growth strategy. With the

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short time of expiry period and high storage cost, all firms must sell products
as soon as possible. This makes rivalry among healthy products firms is
increasing. The assessment tells that the rivalry among competitor is on
medium level.
● Threat of new entry
From the customer acquisition stand point, it is easy for new entrants to get the
customer. There is little brand loyalty to existing customer and the customer
switching cost is relatively small. In addition to the condition, Fruters does not
need to have a large capital to run the business, and it is relatively easy to get
the asset to support the business. However some of the aspects are balancing
the condition. New entrants will need to get the right composition to create
better products as well as the effort to get the customer. Combined with these,
new entrants will need to get cost efficient level of production so that they can
compete and enter the industry. So, the threat of new entry is low level.
● Threat of substitutes
Product substitution has always existed, but in different forms. For mango
puree, it actually can be substituted with mango juice from other brand such as
Mama Roz and Fruits Up. But the benefit is varied. The current products
offers more benefit compare to substitute products. Even the switching cost is
low, customers may have allergic to the substitutes products because Fruters
product are without preservatives, no artificial color and no artificial
sweetener it is based on local fruits and ingredients. It categorized as low
threats of substitutes.
● Bargaining power of suppliers
Fruters is currently dependent to one supplier for raw mango ​Mangifera indica
and two suppliers for packaging (PET bottle). This condition has created a
high bargaining power of the suppliers. Combined with the material purchase,
it represents a small portion of the supplier’s sales volume. Mango ​Mangifera
indica is basically local fruit, only several supplier are available for it in
Cirebon and Majalengka. Fruters needs time to find other suppliers to balance
the power of current supplier. It is easy for suppliers to enter the business.

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They only need the information on how to make the products, whilst the
network can be penetrated by doing some marketing efforts. The bargaining
power of the supplier is medium.
● Bargaining power of buyers
Losing one customer is not critical for Fruters. As they currently has some
customers and the market is growing. The volume purchase is weighed equally
among customers, which means Fruters did not have customers with dominant
quantity. Some customers are dependent to the Fruters’s products and some
are not. Customer is able to switch the product and buy from competitor
easily. Customer is also well informed about the products and market. In
addition to that, the amount spends to buy the product represent small amount
of customer’s consumption spending. There is always a possibility that
customers can make their own beverage from mango or other fruits. On the
products side, since it has different taste compared to competitors, it is hard
for customers to switch to other product. The bargaining power of buyer is at a
high level.

Figure 2.8 Porter’s 5 Forces Diagram


(Source: Porters, 2008:78-93)

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2.2.2. Competitor Analysis
Table 2.1 Competitor Analysis of Fruters
FRUTERS MAMA ROZ FRUITS UP
Critical Success Weight Rating Score Rating Score Rating Score
Factors
Innovation 0,042 4 0,168 3 0,126 4 0,168
Brand & Design 0,053 4 0,212 4 0,212 3 0,159
Selling 0,031 2 0,062 4 0,124 1 0,031
Distribution 0,27 2 0,54 3 0,81 2 0,54
Product Quality 0,045 4 0,18 3 0,135 4 0,18
Financial 0,217 3 0,651 3 0,651 2 0,434
Price 0,341 2 0,682 1 0,341 2 0,682
1,00 2,50 2,40 2,19
Ratings:
4 = very attractive
3 = attractive
2 = somewhat attractive
1 = less attractive

Companies that run in healthy juice product with delivery service is limited. Fruters
has some competitors who work the same business. The comparison of Fruters and
the competitors depicted in table below. In comparison to those, Fruters is the best
mango puree, winning through its innovation, brand and product quality. The
competitors strengths are in brand and selling. ​Competitive Profile Matrix (CPM)
was used to ascertain the strategic standing of different firms in the resourcing
market. These ranged from Fruters, Mama Roz, and Fruits Up. Fruters received
the highest score of 2.50, on the competitive profile matrix; slightly ahead of
Mama Roz. This score indicates that Fruters has innovation, product quality,
brand and design. Although it has the highest score compared to other companies,
it is in a tight competition with Mama Roz. By increasing the amount of branding
and product quality that Fruters can retain, Fruters will have larger competitive
edge than the other companies. By retaining innovation, product quality, branding
and design, Fruters will have larger selling distribution and market share than the

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other companies. The numbers in the Competitive Profile Matrix are used to
evaluate a company’s position in the current market place. The different rates can
range from 1 to 4, 4 is the highest value in this case. If a company has higher rate
than another company that means that they have a better position with the success
factor.

2.3 Internal Analysis


2.3.1. VRINE Model
VRINE analysis helps to evaluate the company whether it has sustainable
competitive or not. It also help companies to use its resources and capabilities to
differentiate its products or services in valuable ways that competitor cannot imitate.
Resource and capability analysis is a tool that used for sizing up the company’s
competitive assets and determining whether they can provide the foundation
necessary for competitive success in the marketplace.

Capabilities and Core Competencies


Capabilities are sources of a firm’s core competencies and basis for competitive advantage. They
are purposely integrated to achieve a specific task/set of task. Core competencies are capabilities
that serve as a source of competitive advantage for a firm over its rivals. They are distinguishing a
company from its competitors. To Fruters, healthy food image is very important. The challenge is
how to position a brand in a way that resonates with health-conscious customer. There are four
capabilities in Fruters:
1. Marketing Capabilities: this is the capabilities which can enhance ​the whole organisation to
excel at customer-centric marketing to deliver superior customer value and drive
profitable, demand-led growth.​ Marketing capabilities at Fruters have particular types:
● Communications Management and Brand-building capability

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Ability to create and manage customer value perceptions leading to high levels of brand
equity, using effective: ​positioning, advertising message delivery, personalized
communications, & integrated marketing communication
● Pricing Management : Ability to extract the optimal revenue & profit from customers through
price discrimination tactics, for example, using a sophisticated yield management system
capability. This is unrelated to the ability to charge a high price (which is a function of
product or marketing differentiation) or a low price (which is a function of cost leadership).
● Channel Management : Ability to establish and manage channels of distribution that
effectively and efficiently deliver value to end-user customers
● Customer Relationship Management: ​Ability to identify profitable customers and prospects
and initiate, maintain, and leverage relationships with these customers to create superior
customer-level profits. Requires d​ata collection & interpretation capability for individual
customers, individual customer targeting capability, and personalized communications
capability.
● Market Sensing & Customer Insight: ​Ability to learn about customers, competitors, channel
members and the broader market ​to develop actionable market intelligence and customer
segmentation and targeting schema
● Marketing Planning & Implementation : Ability to conceive and implement marketing
strategies that optimize the match between the firm’s resources (including multiple product
lines and brands) and the marketplace to achieve superior sales and profits
2. Product innovation capabilities: firms compete by emphasizing creativity and continuous
innovation and upgrading of products that provides greater value to customers. This form of
advantage thrives in (or creates) dynamic business environments that have an element of
unpredictability and succeeds by constantly examining the market in a quest for new
opportunities. These ​prospector organizations achieve success by promoting innovation,
coordinating diverse business activities (e.g., exploring new technologies and new customer
markets), encouraging collaboration among different departments and units, and they tend to be
decentralized, with few levels of management (e.g., Apple).
3. Customer Intimacy capabilities: firms use marketing capabilities and expenditures to create
unique positions in the marketplace and establish customer relationships and loyalty. This form
of advantage thrives in moderately dynamic business environments where customers value
variety and it succeeds by managing customer perceptions of value, balancing customers’ desire
for variety, reliability and incremental improvements. Where entry barriers and opportunities to
build economies of scope are low, a fragmented market with a large variety of offerings emerges

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that cater to distinct market segments (e.g., restaurants); where entry barriers and opportunities to
build economies of scope are high, an oligopoly emerges with ​analyzer organizations featuring
broad product lines
4. Human Resources Capabilities: this capabilities are how to builds organization and people
capability to meet the company objectives and challenge. In Fruters, there are 4 types of human
resources:
- Operation team
- Marketing team
- R & D team
- Quality control
The five criteria of sustainable competitive advantage of Fruters as follow:
● Valuable
Fruters have research and development specialist who is the human resource that has
ability to develop new healthy product. The company has human resource that has the
ability and background in food technology especially in the product development of
natural ingredients. The employee of Fruters especially Research and Quality must
have skill, knowledge and experiences to create new idea and innovation to produce
healthy products. Product research and development is important activity for new
healthy menu or improvement of the old ones. The research and development could
be based on the company’s own initiative or ideas, and also from co-creation with the
customer. New recipe can be developed by research and development. So, Fruters
can exploit product innovation capabilities and human resources capabilities
● Rare
The healthy product of Fruters is different from other beverages. Fruters is the only
healthy product in Indonesia using local fruits and ingredients without preservatives,
synthetic colour and artificial sweetener. Mango puree is not a generally consumed
beverage for Indonesian people. Those who do usually make the drink at home to
ensure the nutrients they get from a glass of mango puree and also ensure the quality
of the mango ​Mangifera indica​. ​Fruters use marketing capabilities and expenditures to
create unique positions in the marketplace and establish customer relationships and loyalty.
So, Fruters can exploit marketing capabilities to make healthy food segmentation
market.

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● Inimitability
Good technology and understanding health-conscious customer are unique and
valuable organizational cultures. Those are another competitive advantage in building
the trust of customer and relationship with customer, suppliers, vendors, distribution
channels and management.
● Non- substitutable
The competitors can built the production plant like Fruters. The competitors still can get
human resources. Easy for the competitors to use another capability to replace Fruters
advantage in this aspect, other competitor still can get raw material from any supplier and
there are other similar imported products. Raw material for healthy product is available at
large amount at market, So that, such healthy product like Fruters still can be substitute by
competitor. So Fruters ​should follow value-creating strategy and find more invisible
capabilities so that the competitors would be difficult to imitate.
● Exploitability
Resource and capabilities that exist in Fruters can still be exploited. The innovation
product of Fruters can be continually updated by the research and development
specialist. ​With the resources and capabilities possessed by Fruters, so the company can
compete in this industry and have potential to contribute to the normal profits. Product
innovation in Fruters, make it the only one in Indonesia that focused in the healthy
product based from local fruits and ingredients and make Fruters has a competitive
advantage compared to other competitors. However, Fruters can be imitated by other
companies so its competitive advantage is only temporary until there are other companies
who imitate its products. ​Marketing capabilities, product innovation capabilities,
customer intimacy capabilities and human resources capabilities can still be exploited
to increase profits for the company

Fruters has a core competence involving research and development specialist who is the
human resource that has ability to develop new healthy product. The company has human
resource that has the ability and background in food technology especially in the product
development of natural ingredients. The employee of Fruters especially Research and Quality
must have skill, knowledge and experiences to create new idea and innovation to produce
healthy products. Product research and development is important activity for new healthy

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menu or improvement of the old ones. The research and development could be based on the
company’s own initiative or ideas, and also from co-creation with the customer. New recipe
can be developed by research and development. So, Fruters can be consumed by everyone.
Fruters has a core competence involving its use of information technology to support its
operational activity. For example, Fruters has the technological capabilities to see how
individual products are performing local markets as well as online store. The use of
information technology has been an essential part of Fruters’s growth. Fruters’s unique
strategy was a point-of-sale system, a computerized system that identifies each item sold,
finds its price in a computerized database, creates an accurate sales receipt for the customer,
and stores this item-by-item sales information for use in analyzing sales and reordering
inventory. Aside from handling information efficiently, effective use of this information
helps Fruters avoid overstocking and excess inventory because the products has no long shelf
life (only 2 weeks) . They can avoid overstocking and only purchase what they need when
they need it. Being on top of their game when it comes to information technology only
furthers their other strengths in the sense that they can keep their best quality product and in
turn maintain their dominance in the market.

Resource or Valuable (exploits Rare (possessed by Inimitable (costly to Non-sub


Capability opportunities and one of a few firms imitate) (there is no equi
neutralises threats) in the industry) capability that
comp
Production Yes Fruters exploits Yes No. Initial investment to No. The competito
Plant maximum capacity of built production plant like production plant li
production Fruters does not require a lot
of cost.
Operation Yes. Fruters exploit Yes No. The competitors can No. The competito
team (QC, strong teamwork for the hire operation team like resources
Marketing, best result Fruters
staff)
Distribution Yes. Fruters exploits Yes Maybe No. Easy for the c
Channels this network effectively another capability
for local markets advantage in this a
Knowledge Yes Fruters has made it Yes. only Fruters No. Many experienced No. Other compet
and Recipes work to its advantage in has it research and development material from any
(R&D skills) specialist who developed a other similar impo
healthy product. So that, material for health

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many markets around such healthy product like available at large a
Jakarta and Bandung Fruters can be copied by that, such healthy p
competitor. still can be substitu
Information Yes Fruters exploit Yes. Only the No The competitors can No. Easy for the co
and online store, website customers who have make online store and another capability
Technology and social media to social media can get website for their customer. advantage in this a
increase sales and built all information and
relationship with promotion about
customer Fruters
Table 2.2 Core Competencies of Fruters

Resource/Capability Attributes Competitive Outcome:


Non-substitut Exploitable by the
Valuable? Rare? Inimitable?
able? Firm?
Yes Yes No No Yes Temporary
Advantage

This chart allows one to establish the links between these items as being cause and
effect before VRINE Model analysis.There are some questions to help analyzing the
VRINE in the companies (Carpenter & Sanders, 2009). Based on “​Barney, Strategic
Management & Competitive Advantage”,​ if a resource or capability is valuable and
rare but not costly to imitate, exploiting this resource will generate a ​temporary
competitive advantage for a firm. A firm that exploits this kind of resources is, in an
important sense, gaining a first-mover advantage, because it is the first firm that is
able to exploit a particular resource. However, once competing firms observe this
competitive advantage, they will be able to acquire or develop the resources needed
to implement this strategy through direct duplication or substitution at no cost
disadvantage compared to the first-moving firm. Over time, any competitive
advantage that the first mover obtained will be competed away as other firms imitate
the resources needed to compete. However, between the time a firm gains a
competitive advantage by exploiting a valuable and rare but imitable resource or
capability and the time that competitive advantage is competed away through
imitation, the first-moving firm shows superior performance. Consequently, this type
of resource or capability can be thought of as an organizational strength and
distinctive competence..

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2.3.2. Business Model Canvas Existing

Business Model canvas from Fruters is depicted in figure 2.6.

Key Partners Key Activities Value Preposition Customer Relatio

● Local supplier ●Product development ● Delicious to go puree specifically made ● Personal assistance
for healthy diet instant messaging
●Managing delivery service
and pre-order ● Healthy and delicious drinks with ● Personal assistance
pre-order and delivery service before purchase via
●Quality Control raw material,
center, email and so
production & finish goods

Key Resources Channels

● Human resource ● Marketing and inf


social media accou
● Intelectual : Fruters brand,
new recipe, customer database ● Sales: online sales
delivery service
● Physical : Gadgets, computer

● Machinery

Cost Structure Revenue St

● Fixed Cost (Marketing, network connection, COGS, salary) - Profit margin / revenue on sales

● Variable Cost (Fruit, other ingridients)

Figure 2.9 Business Model Canvas of Fruters


1. Customer Segments

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Customer segments defined as a group of people that the company aims to reach and serve.
Currently, the focus is on the health-conscious, middle-up economic class customers with
high mobility. Below are other customer segments that should be pursued. Self care and
healthy lifestyle should be introduced since young age. Based on the analysis of
complementary product or service, children are one of the factors that could affect the
purchase behaviour of the consumer.
3. Value Proposition

Value proposition defined as the bundle of products and services that create value for a
specific customer segment. Current value proposition of the company is various types of
healthy and delicious to-go puree. Below are value proposition alternatives that could be
offered to the customer by the company.
● Delicious to-go mango puree specifically made for healthy life style
Mango puree is not a generally consumed beverage for Indonesian people. Those who
do usually make the drink at home to ensure the nutrients they get from a glass of
mango puree and also ensure the quality of the mango ​Mangifera indica.​ This new
value proposition could be for current consumer segment and also one of the new
consumer segments, which is influencer. Influencers, which are healthy diet

48
instructor, could pass along the drink compositions that are included in their diet
program and the company could mix the drinks for their clients.
● Healthy and delicious mango puree with pre-order and delivery service
This value proposition is to enhance the existing value offered by the company. With
the development of technology, gadget can be used to enhance the existing value
proposition. Sometime, people feel hesitant to purchase something from counters or
takeaway kiosk because they have to scramble with a lot of people to order. Then they
have to wait with no place to seat, while the limited number of employees are
preparing the drinks for everybody else who orders before them. In this case, a gadget
application that supports pre-order option could be built. Customer could order their
drinks from their gadgets while they are still at home or office. Consumer could fill in
the online form to order the drinks, and then wait for their drinks at home.
4. Channels

Channels describe how a company reaches and communicates with its customer segments to
deliver value proposition. The channel that has been used to reach the customer is by direct
sales through counters. For marketing, website and social media accounts are used to
communicate with the customer. The channels that could be used:
● Marketing
- Social Media
With the increasing awareness of healthy living amongst Indonesians, social
media could be considered as one of the best marketing channels that could be
pursued. Information and promotion could be put up for customer to see,
including the benefit of the menu offered by the company with information about
various healthy diet program, monthly promotions, and also numbers of benefits
of consuming healthy food and beverage.

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● Sales channel
- Online sales and deliver service
Online sales here means the customer order the menu online and then it would
delivered to their address. The order will be processed by the nearest counter so
that the beverage would still be fresh when they arrive to the customer’s address.
5. Customer Relationship

Customer relationships describe the types of relationships a company establishes with


specific customer segments. The type of customer relationship that has been maintained until
now is through personal assistant such as a representative during purchase and
communication through social media, messengers (BBM, Whatsapp, Line), and email before
and after purchase. Below are other types of customer relationship that could be pursued.
Personal assistance through instant messaging with the development and the growing number
of users of instant messenger applications, companies in beverage industry could use it for
their advantage as instant messengers can be used as a tool for consumer relationship. With
instant messengers, companies and consumer could communicate in real time without having
to meet face to face. This form of communication is more effective than email because it
allows fast and real time response from both sides.
6. Revenue Streams

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Revenue streams represent the cash a company generates from each customer segment.
Currently, the only revenue stream is from asset sale, with transactions at counters. Tumbler
or jar (unique packaging) sales could also add to the revenue and help reducing the use of
plastic cup. ​Under the current business model, the revenue stream is only the profit margin
from​ ​sold products
7. Key Resources

Table 2.2 Resources and Capabilities of Fruters

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The resources and capabilities figure above shows tangible and intangible of Fruters that
categorized by the items listed above them. The resource is listed on the left and the capability
listed in the right side. Key resources describe the most important asset required to make a
business model work. Along with the new alternatives, there are also some new key resources
that the company gains and needs.
● Intellectual resources
- New recipe

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New recipe can be developed by research and development, either developed
through company’s research or based on co-creation with the customer, is one of
the important key resources.
- Customer database
Customer database obtained from member registration is also an important
intellectual asset for the company.
● Physical resources
- Gadgets
Gadgets are needed for managing delivery service from counters. Website admin
would get the order information and pass them via internal system to the nearest
counter from customer’s address.
- Computers
Computers are needed for website maintenance and managing orders from the
customer
- Machinery
Machinery are needed for production process to get maximum quantity of
products.
8. Key Activities

Key activities describe the most important things a company must do to make its business
model work. Current key activities involve research for good quality fruits, transportation and
distribution, fruit mixing and drink preparation, and service by employee. Below are other
key activities that could be developed for the new business model. Refer to Wheelen and
Hunger (2010), A value chain is a linked set of value-creating activities that begin with basic raw
materials coming ​from suppliers, moving on to a series of value-added activities involved in

53
producing and ​marketing a product or service, and ending with distributors getting the final goods
into the hands​ ​of the ultimate consumer.

Primary activities involve product’s physical creation, sales and distribution to buyers, and after
sales service. Those include outbond/inbound logistics, operations, marketing/sales and service.
● Inbound Logistics
Major raw materials of Fruters are mango puree from mango ​Mangifera
indica such from Majalengka and Cirebon. Fruters is being getting there
raw material from local market in Indonesia. Fruters mango puree included
their ingredient such as fresh fruit of mango, peach, lychee, orange, kiwi,
aloe vera included their fresh puree. ​Then, the raw mango puree are stored in
an jerican packaging to maintain the quality of the puree. Whilst the bottles
packaging are delivered by bottle supplier. The bottles then places in storage
room.
● Production
The maximum production output is currently at 100 bottles of premium mango
puree/day, 100 regular mango puree/day and 100 bottles of mango slush/day.
To minimize excess products, Fruters applied the just in time production.
Orders are received one day by the latest before production process is run. If
received orders are exceeding the maximum capacity, Fruters will let the
customers know that their orders will be delivered two days after the ordering
time.
Mango Puree - Production Process Flow

Production of mango puree is a standardized process and initial preparatory


processes for all fruits will be similar, as will be the last stages of
puree/pasteurization section and packaging, although differences in
handling mango puree composition arise in certain cases due to the nature
of the fruit and percentage of vitamin involved. Basically, preparation
process of mango puree involves the following steps:

● Boiling of mango puree


● Storage in Tank
● Ingredients mixing

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● Syrup Storage in Tank
● Mango puree Preparation
● Mango puree Storage Tank
● Filling and Packaging
● Cooling and Storage
Mango Puree Production Process
Fruits boiler where it is cooked and shifted to the plate heat exchanger. Then
stored in the storage tank. Then supplied to the mixing tank in the desired
quantity while in mixing tanks; any additives to the are made at this stage
before it is pumped to syrup storage tanks. Blended juice is then pumped
through pasteurizer; where it is heated to 90oC to inactivate enzymes and
living organism. After pasteurization the mango puree passes through final
filtration, before loading it into a mango puree storage tank. Mango puree
from the tank is ready for packaging
Packing and labeling then storage.
The finished mango puree is poured in specific bottle, each variants using
different bottle and different bottle size. Bottles are before and prepared by
washing them and then sterilised. The bottled mango puree is refrigerated to
maintain the freshness and reduce expiry time.
● Out Bond Logistics
Delivery time is starting from 9AM until 15PM. Other than the production
capacity, Fruters also take into consideration the scope of the delivery
location. Any order outside the scope within one day, will be deferred to the
next day. This will be subjected to the negotiation with the customers. The
delivery box is equipped with icepacks so that the cold temperature is
maintained within the delivery time. The delivery box is also produced
using insulated foam to bounce back the heat to the outer side of the box.
The risk in out bond logistics is the exposure to hot temperature, higher
temperature will likely to reduce the expiry time, especially for mango
puree.
● Sales and Marketing

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Improve activities completed to provide means through which customers can
purchase products. Develop advertising and promotional campaigns, support
the sales force
● Service
Improve activities designed to maintain a product’s value. ​Company
established the customer center via chat application like BBM, Whatsapp
Messenger and Line Messenger which means that if customers feel any
problem then they can contact through our help line.

Supporting activities provide assistance necessary for the primary activities to take place. They
include firm infrastructure, Human Resources, technologies development and procurement.

● Procurement
The procurement process covers negotiate and purchasing process from
supplier. The ​price has already negotiated in the first time. There are no
written contract between ​Fruters and its supplier. Each purchasing deal is
done through a phone call. Delivery ​will be handled by the in house courier.
The issues in procurement process are mainly ​about the stability of mango
Mangifera indica price which depends on the exchange rate fluctuation,
combined with the limited number of suppliers.
● Technology Development
Fruters have research and development specialist who is the human
resource that has ability to develop new healthy product. Product research
and development is important activity for new healthy menu or
improvement of the old ones. The research and development could be
based on the company’s own initiative or ideas, and also from co-creation
with the customer. The information technology department is currently
working on stored in database such as customer information and process it
into meaningful information that benefit to the marketing standpoint.
● Human Resources
Since the organization scope is still small, then simple human resources
management ​is applied in Fruters. Employee will received monthly salary at
Day 31 on the end of ​each month. Any expense paid by the employee on

56
behalf of Fruters will be covered ​using reimbursement process. Employees
received twelve month salary plus one for ​festive month. Fruters is also
committed to increase the salary each year using several ​parameters such as
inflation, expected profit before tax and employee’s performance.
● Firm Infrastructure
Fruters is new start up business, the infrastructure includes a reange of general
support activities production and finance that are required to support the
success of the company. Firm infrastructure in Fruters has good facility likes
the small lab for R & D activity, production area, packaging area, warehouse,
cold storage and have 2 motorcycle to deliver products to customer.

Figure 2.8 Value Chain Analysis of Fruters


9. Key Partnership

Key partnership describes the network of supplier and partners that make the business model
work. Current partners of the company are local fruit suppliers. There are other key

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partnerships that could be developed in the future in order to enhance current value
proposition and support the one ones. Under the current state, they only have one supplier of
mango ​Mangifera indica​, which means they have a risk of running out of stock.
10. Cost Structure

Cost structure describes all costs incurred to operate a business model. Current cost structure
of the company consists of variable cost, such as fruits and other equipment; and fixed cost
for employee cost and place. Below are the possible costs that would arise when developing
new business model.
● Fixed Cost
- Marketing cost for information and promotion in healthy living media

- Cost of network connection via mobile phone provider company for gadgets at
counters

- Production cost
● Variable Cost
- Fruit / other ingredients

2.4 External and Internal Issues


A scan of the internal and external environment issues is an important part of the strategic
planning process. Internal environmental factors to the firm usually can be classified as
strengths (S) or weaknesses (W), and those external to the firm can be classified as
opportunities (O) or threats (T). External and internal issues provides information that is
helpful in matching the firm's resources and capabilities to the competitive environment in
which it operates. As such, it is instrumental in strategy formulation and selection.

2.4.1 Internal Issues

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The internal issues are comprehensive evaluation of the internal environment's potential
strengths and weaknesses. Factors should be evaluated across the organization in areas such
as follows:
● Fruters has a high level of competence
The company has human resource that has the ability and background in food
technology especially in the product development of natural ingredients. The
employee of Fruters especially Research and Quality must have skill, knowledge and
experiences to create new idea and innovation to produce healthy products.
● Fruters has competitive skill
Competencies management allows companies to link the strategic objectives of their
organization with key human resources systems. By creating a true picture of the
technical and behavioral skills within an organization, companies can improve human
resources performance, deploy human capital more effectively and make better
strategic decisions regarding business processes. When it comes to landing new
customer, products and projects, the competition can be fierce. Fruters needs the
talent to do the work and a pitch that stands out in a crowd, as well as the skills to
navigate this increasingly technical world.
● Fruters has a good reputation with buyers
The first is collaborative. The customer of Fruters wants the supplier to add as much
value as possible and the supplier wants to establish the existence of benefits which
create a competitive advantage over the competition. When it comes to price, any
reduction the buyer negotiate with a supplier transfers profit from the supplier to the
buyer. In a commodity business where there is little or no differentiation, little time is
spent of the first question because buyer preference is won on price. A stronger buyer
will negotiate hard on the customer value elements and then claim that the
product/service combination is close to what’s available from competitors so a deal is
possible if “the price is right.”
● Fruters is good at creating new products
Product research and development is important activity for new healthy menu or
improvement of the old ones. The research and development could be based on the
company’s own initiative or ideas, and also from co-creation with the customer. New

59
recipe can be developed by research and development, either developed through
company’s research or based on co-creation with the customer, is one of the important
key resources to create new product.
● Fruters has superior / technological / technical skills
Analysis of the technology includes R&D, online and social media, and the selection
packaging of Fruters product. R&D in Fruters is for developing new products with
innovative flavors from local ingredients. Nowadays the R&D is a core part of the
business. Main decisions in a business are based on R&D factor. R&D is very
important to know the level of competition, production processes, and the methods
that are rapidly improving.
● Fruters has a poor track record in implementing strategy
Fruters is new start-up business that has been running for 2 years but it has been
getting tremendous response from the public by offering health products especially
the mango puree. Fruters is still learning and trying to be the best in its development
and therefore in implementing a business strategy that is needed to obtain maximum
results.
● Fruters is plagued with internal operating problems
Fruters faced several obstacles, especially in operations due to several factors
especially the lack of employees to each other concurrently with one another in doing
his job. The limited capacity of the means of production if there are orders in very
much that should maximize existing production tools
● Fruters has below average marketing skills
In terms of product marketing Fruters still have a problem that has not maximize the
role of social media to increase sales and direct interaction with consumers that
product sales is not maximized and education benefits to the public health drinks.
● Fruters is unable to finance needed strategy changes
In the face of a dynamic economic situation always required a change in business
strategy. Every business strategy created contains risk, especially in financial terms.
One of the weaknesses is Fruters has not had sufficient financial strength so that for
the future is necessary for investors to be able to fund the business strategy and can be
implemented either in accordance with the conditions of the company.

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Figure 2.10 Profit Growth of Fruters

2.4.2 External Issues


An opportunity is the chance to introduce a new product or service that can generate superior
returns. Opportunities can arise when changes occur in the external environment issues.
Many of these changes can be perceived as threats to the market position of existing products
and may necessitate a change in product specifications or the development of new products in
order for the firm to remain competitive. The external environmental issues may reveal
certain new opportunities for profit and growth. Changes in the external environmental issues
also may present threats to the firm. Changes in the external environment issues may be
related to:

● There are additional customer groups that Fruters could serve


Fruters make health products, especially drinks that can be consumed by all people
including children, adolescents, adults and the elderly. Along with the development
trend of health foods and all those concerned with health began to trigger the growth
of people who like to exercise, pay attention to appearance and measure the amount of
calories they consume. Fruters have the opportunity to create a product to its target,
especially the younger generation because it fits with what they need.
● There are new markets or market segments to enter
Healthy lifestyle has become a growing trend in many developing countries such as
Indonesia. This lifestyle has entered everyday life and one of them is a beverage. Now

61
the beverage is not only judged on variety, convenience and experiences but also be
able to give health benefit for customer. Today people are more health conscious, so
Fruters Mango Puree can identify this need of the people. They are also producing
health conscious beverage made from local fruits with more vitamins, no
preservatives, no artificial colour and no artificial sweetener.
● Fruters can expand products/service line to meet customer needs
Fruters can provide healthcare products for customers that pay attention to their
health. Fruters needs for branding and a strong impression on health products.
Innovation and development diversified health product is indispensable to increase the
number of loyal customers and create a product that the customer wants, especially
health products.
● The market is growing faster than in the past
With the development of technology, particularly social media, anyone can access any
information via smart phone. In the food industry the role of social media is very
important to gain interest of consumers to buy a desired product. Today social media
market can grow and move very fast compared to previous era. The influence of
social media is huge in creating great opportunities for Fruters, especially consumers
who focus on his health.
● Fewer regulatory requirements will make doing business easier
Governments can limit or prevent entry to industries with various controls (for
example, licensing requirements, limits to access to raw materials). Startups in highly
regulated industries will find that incumbents have fine-tuned their business according
to regulation. The government's role in determining business rules, especially for
start-ups and small and medium enterprises is especially important because protecting
the products in the country and to create jobs. Regulation little convoluted and not be
able to cut the cost of a product so that the offered price can compete with the already
existing products.
● There are new entrants entering to the market
The entry of foreign low cost competitors into market will create high
competitiveness, especially in terms of price. One of the challenges to be faced in the
future Fruters is the AFTA. The acronym of AFTA is ASEAN Free Trade Area an

62
agreement in other ASEAN countries to establish a free trade area. The goal is to
improve the competitiveness of the ASEAN region to the world economy. AFTA will
threaten Fruters and other start-up companies mainly because they with other
countries have to compete.
● Fruters customers and/or suppliers are enjoying growing bargaining power
The second challenge that is faced by Fruters is the customers and suppliers are
enjoying bargaining power. The basic idea is using their bargaining power as a
powerful buyer, some customers can capture a high proportion value of Fruters to
create by forcing down the selling prices and increasing the costs to serve them.
● It is easy to enter this industry (very low barriers to entry)
This threat applies to any business of any size, big or small. It can be particularly
damaging if market of Fruters is a fixed size. Fruters have to share it with a
competitor who has decided that they see an opportunity. Any indication that a market
is growing, that it is under-served in meeting customers specific needs or particularly
profitable will trigger interest from other entrepreneur who believes that there is
money to be made from taking part in the market. Products most likely to be imitated
and will invite competitors to compete with similar products and the entry of similar
imported products. Evidence that existing businesses are making good profits will
persuade other entrepreneurs that this as an opportunity too good to miss.

2.5. SWOT Analyzer Framework

The SWOT (Strength , Weakness, Opportunity, and Threats) Analyzer is a framework to


think about the business from a holistic perspective. SWOT Analysis is the tool for
assessment and analysis of the overall strategic position of the business and its environment.
Its key purpose is to identify the strategies that will create a firm specific business model that
will best support an organization’s resources and experiences to the requirements of the
environment in which the firm operates. In other words, it is the foundation for evaluating the
internal potential and limitations and the probable/likely opportunities and threats from the
external situation. It views all positive and negative factors inside and outside the firm that
affect the success of the firm. A consistent study of the surroundings in which the firm runs,

63
helps in forecasting/predicting the changing trends and also helps in including them in the
decision making process of the business.

A SWOT analysis is a very commonly used strategic framework in business. It is simple to


understand and provides a great starting point for considering strategic choices. A SWOT
analysis has both an external and internal component. The external analysis usually precedes
the internal analysis, as opportunities and threats are often appraised first.The external
analysis examines opportunities and threats which focus on the company’s environment.
There are two main types of external analysis:
● PEST analysis (PEST being an acronym for Political, Environmental, Social/Cultural
and Technology): this type summarizes high-level trends as they relate to the ​target
customers​, markets and technology; it captures changes on a macro level (that is, the
big picture)

● Industry analysis (also known as the Five Forces Framework): this type focuses on the
immediate environment surrounding the company, competitors, customers,
substitutes, suppliers and new entrants; it complements the PEST analysis

The internal analysis examines strengths and weaknesses which focus on the company’s
resources of Fruters.

Table 2.3 Internal and External Issues of Fruters

Internal & External Issues


Internal

Strengths: characteristics that give the Weaknesses: characteristics that give the
company an advantage over others company a disadvantage relative to others

Competence Strategy
Competitive Skill Facilities
Experience Curve Management
Financial Resources Key Competencies
Reputation Strategy Implementation
Market Leadership Internal Operations
Organizational Design R&D
Economies of Scale Product/Service Line
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Competititve Pressure Market Image
Proprietary Technology Marketing Skills
Marketing Effectiveness Financial Resources
Product Development Cost Structure
Management Profitability
Technical Skills
Cost/Price

External
Opportunities: factors that the company Threats: factors that can place the
can leverage to its advantage company's stability at risk
Prospects Foreign Competition
Markets Substitute Products
Product/Service Enhancement Market Growth
Product Line Expansion Foreign Trade Environment
Vertical Integration Regulatory Overhead
Foreign Trade Business Cycle/Climate
Rival Complacency Buyer/Supplier Power
Market Growth Market Requirements
Regulatory Overhead Demographics
Entry Barriers
Technology

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