Otis is one of the four major powerful international companies in the elevator industry, which not only produces and sales elevator globally but also maintain lift for its customers. Otis believes that manufacturing safe and energy-saving elevators by using advanced technology to make solution for practical problems from customers is its mission for all the time. In the recent years, elevator industry has been becoming more and more competitive. Thus, maintaining and expanding global market share and staying at the position of dominant player has become its strategy target. In this report, there will be the analysis for the environment and SWOT of Otis. External environment
In the modern society, not only the increasing global population and urbanization but also the aging people and income level promote the demand of the elevators. It is reported that the current number of elevators per 1000 people in developing countries including China and India is far less than that in America and Europe. With the process of the urbanization, there are more high-rise buildings to be built, which leads to the growing need for the elevators. In addition, in terms of the less ability to climb the stairs for the elders, there is no doubt the popularity of the elevators’ industry.
The condition of the nations’ economics will have an impact on the extent to the investment on elevators’ purchase and maintenance according to the decision of the architects and property developers.
Based on the law, it is required for either developed countries or developing countries to install the elevators in the multi-storey buildings for anti-discrimination and equal opportunity regulations. Many countries are more concerned about the problems, resulting in the spread of the elevator industry growing at a relatively brisk pace. Along with putting more
emphasis on the regulations and rights due to the progress, the elevator industry will more welcome.
It is evident that the elevators provided by the skyscrapers are highly technical in nature. The fast-paced revolution of the technology changes people’s lives by manufacturing the high-tech elevators which can talk be monitored and so on. In the domain of elevators, the higher technical quality means higher-storey building with more well-functioned elevators. The manufacturing business depicts the future high-tech elevators
According to the circumstances of the elevator industry, although the elevator industry has fully evolved in the developed countries, there are some markets and demand in the developing countries, such as China, India. On account of the ever-increasing demand in the developing countries, the elevator industry is able to gain the market as long as the market is not completely developed.
Otis, a famous brand in America, faces more challenges and opportunities as the world is turning into more and more vertical. With more population, urbanization and aging population, Otis gains more opportunity to increase the sales. How Otis applies the technology influence the working of the elevators. In 2012, 82% of business in Otis conducted outside the US, which presents larger market Otis owned outside the US.
The elevator industry is dramatic with high return, which is in the mature phase of development globally.
Threat of new entrants—low
Threat of new entrance for the elevator industry from Porter’s 5 forces is low on the basis of the high barriers to entry, which make a competitive market for new players. The four leading elevator companies have formed economies of scale. The capital requirement is high in the aspect of working
on advanced technology and maintenance. The high switching costs make customers difficult to choose another brand.
Bargaining power of suppliers—high
The suppliers have bargaining power in terms of the market dominated by four market leaders. It is crucial for buyers’ marketplace success to get suppliers’ goods.
Bargaining power of buyers—high
There are some large buyers purchasing a large portion of an industry’s total output. Buyers’ purchases account on a considerable part of a supplier’s annual revenues.
Threat of substitute products—low
There is no doubt that the elevator industry is not threatened by substitute products. With high switching costs, no other similar attribute products, industry faces low threat of substitute products.
Intensity of rivalry among competitors—moderate
On account of the large four companies with high barrier to enter, they will balance the intensity of competition. The elevator industry is in the fast-developed growth.
There are not strategic groups which companies in the same industry draw on the same or similar strategies. In addition, market commonality and resource similarity are high in the industry.
The threats of new entrants and threat of substitute products are low, while bargaining power of suppliers and bargaining power of buyers are high as for Otis. Otis’ products are differentiated from other companies, cultivating the loyalty of the customers. The low level of threats of new entrants indicates the four large companies have more advantages over others. The moderate intensity of the competition promotes not only Otis but also others developing.
The major three rivalry firms for Otis are Kone in Finland, Schindler in Switzerland and ThyssenKrupp in German, which compete fiercely in the oligopoly market. ThyssenKrupp is rated as a high rivalry, which the strong corporate backing and technical capabilities for the elevator divisions are excellent. Competitive advantage for ThyssenKrupp is sustainable progress. Schindler is rated as a moderate competitor, whose resources are five new factories and investment in employee expertise. The capacity of Schindler is to launch the largest investment program. In addition, Kone is a low rivalry for Otis, the capacity of which is to understand the needs of its customers to provide experience. Competitive advantage is to put emphasis on the comfort. Kone, Schindler, ThyssenKrupp are first movers, while Mitsubishi Electric are second mover.
Compared with other three businesses, the competitive advantage is innovation and internalization. Otis are capable of maintain the elevators at distance, resulting in shorter time-consumption and early discovering problems.
There are many opportunities and threats from the external environment. On the basis of the general environment, the demographic segment, the technological segment and the global segment are highly relative to the industry, benefiting the industry and make it more absorbing. According to the industry environment, high entry barriers, few threats of substitute and moderate rivalry leads to high profit potential make the industry attractive. From the competitor analysis, it is shown that despite the competitors are very strong, the revenue is strong. In general, although it is hard to enter into the industry of the elevators, it is still very attractive to make profit.
Financial resources: Otis’s revenue reached 12.4 billion US dollars in 2011,
of which 83 percent was gained outside America. Its revenue maintains in a stable trend in recent year according to table of sale/profit/ profit margin in UTC group, which expressed the excellent profitability and stability of operation in company. Organizational resources: Otis has its own formal reporting structure and formal planning, controlling and coordinating systems. Physical resources: Otis has founded its branch offices in hundred of countries, most of which are located in capital cities, which ensures the support of enough raw materials and the location for convenient transport. It also has a great number of plants around the world and advanced facilities with the major manufacturing facilities in Asia, Americas and Europe. Its engineering facilities in many countries such as Austrian, France and Germany, the company’s two tallest elevator test towers located in Japan and Shibayama. Therefore, the physical resources of Otis are abundant. Technological resources: Otis’s commercial projects are large in scale, high in technology, and strong in their industrial promotion. Its elevators have obtained national patent. The company has its own trademarks, a pattern of earth with red squiggles ‘Otis’ on it. Intangible resources
Human resources: Otis has about 61000 employees worldwide, they take ‘People, Safety, Quality, Integrity’ as their values which are principles guiding their work behaviour and deliver for their customers. Meanwhile, ‘Customers Foremost and Service First’ is Otis’s top priorities. Innovation resources: The history of Otis has witnessed the innovation and continued growth of Otis. In 1901, Otis produced elevators going more than 90 meters, which marks the revolution in elevator industry. With the time goes on, Otis has developed energy-saving elevators and battery-operated elevators, this embodied the scientific capabilities and capacity to innovate of company. Reputational resources: As a world leading elevator company, Otis enjoys high prestige in global market. The company is distinguished by its product quality, durability and reliability. Its major consumers are architects and property developers, where they keep efficient, effective, supportive and mutually beneficial interactions and working relationships. Capabilities
“The ability to…”
Establish and maintain effective relationships with suppliers and customers Develop and exploit retail property and locations
Operate a team-based corporate culture that supports its mission Effectively manage logistical elements in firms value chain
Innovate in customer service, store design, and product range Financial
The capabilities can be generated when resources mentioned before have been reasonably combined. The ability to establish and maintain effective relationships with suppliers and customers requires company to keep well-deserved reputation and foster a good enterprise image and trademarks. To do this, company should ensure the rational use of human resources and HR management as well as improve the controlling and coordinating systems. The ability to develop and exploit retail property and locations needs solid funding base, high profitability and formal structure to report the programs. To set up retail store also needs people to negotiate and authorize, provide equipment and technology. The ability to operate a team-based corporate culture that supports its mission asks for firm beliefs, common values and goals of employees. The organizational system should be promoted as well. The ability to effectively manage logistical elements in firm value chain needs complete managing system, good logistical services, specification of trademarks and qualified managers. The ability to innovate in customer service, store design, and product range requires technological creation, market survey, communication with consumers. It should supported by internal operation of companies, capacity to innovate and appropriate usage of people’s scientific knowledge. Core competencies
“The ability to…”
Establish and maintain effective relationships with suppliers and customers X
Develop and exploit retail property and locations
Operate a team-based corporate culture that supports its mission X
Effectively manage logistical elements in firms value chain
Innovate in customer service, store design, and product range X
For all the capacities of company, they can help Otis remove threats in its external environment and make opportunities to create value for customers. Except the capability to operate a team-based corporate culture that supports its mission, the others are rare because different companies may have same value or goal like consumer first, raise performance or increase sales. The relationships, property, value chain, innovation etc. are not replicable. However, the relationships and logistical elements can be imitated, the others are hard to imitate because of unique historical conditions, causally ambiguous and social complexity. In addition, the company culture and property can be replaced due to the lack of strategic value. Value chain configuration
Materials use to produce elevators handling, warehousing and inventory control—transport materials to construction site—dispatch personnel to install the elevator in building—pilot run after finishing the instalment—ensure normal operations and get consumer feedback (satisfied
or not)—provide after-sales services and periodical maintenance. In above-mentioned value chain, the instalment and maintenance is core. Since1932, Otis has taken maintenance as a revenue stream. Otis pays 2000 to 5000 US dollars per year for maintenance to avoid catastrophic accidents, of course, proper instalment is indispensable. Moreover, to improve productivity, development and research are outsourced. Summary
As one of the dominant elevator company, Otis takes advantage of tangible and intangible resource superiority to win the market. Such resource turns into capabilities are critical to the building of competitive advantages. These capabilities shape the core competencies measured in four dimensions. In value chain, core competencies are expressed in every process and make company gain more profit. Strengths, Weaknesses, Opportunities & Threats
In terms of strengths, Otis has advanced technology which can produce high-quality and long-lived elevator. Also, it is rich in resources including staff and resources for production to provide perfect service and maintenance. Except that, Otis has strong brand power and industry chain. Its factories spread all over the world, which becomes large-scale production. Compare to competitors, it has more completed enterprise advantages. For the weaknesses, the same grade products from Otis do not have price advantage comparing with others. Secondly, the company itself is too large, which leads to low management effectiveness and speed of solving problem, hence Otis is not good at catching out and responding the customers’ needs. In addition, many factories of Otis compete with each other and contend for a market, which forms internal friction. For example, in China, there are Tianjin Otis, Xizi Otis and several other Otis collaborators, which are in a violent competition. The major opportunity to Otis is the elevator industry still has large and rising number of market demand, especially in Asia countries. Apart from the elevator needs, there is a large market space for profitable elevator melioration and maintenance for the increased amount of policies and people that care about safety. Also, the costs of manufacturing elevator are reducing in recent years but the profit is stable. Refer to the foregoing analyse, the competition in the
industry is not too serious compared with other industry. However, in the elevator industry, there are still too many brands including Otis, Kone, Schindler, ThyssenKrupp, Mitsubishi Electric mentioned by the case and a lot of other small producers, which are threat to otis. Although the industry has high level of barrier to enter, the amount of new entrants is increasing. Over-competition makes against stable growth of profit in this industry. Another threat is that the speed of spreading new technology is too fast, so that it is difficult to keep on top of the technology for elevator production. SWOT Matrix to formulate strategy
1. Advanced technology
2. Plenty resource
3. Brand influence
1. No price advantage
2. Low management effectiveness
3. Internal friction
1. Large market space for sale
2. Much needs for maintenance
3. Stable cost and profit
Use brand advantage and many factory to extend more nearly market; and strengthen marketing on maintenance and transformation for old elevator to increase the maintenance market share W-O
Improve management effectiveness; promote quality of services and maintenance to extend market share Threats
2. High price elasticity
3. Hard to keep technology advantage
Use strengths to pay attention to marketing, take differentiation strategy and pricing strategy to build competitive advantage and keep price
competition space W-T
Timely introduce new products to keep competitive power; learn the lesson from competitors, low down the possibility of mistake
From the SWOT Matrix, it is clearly can be seen that Otis has its advantages and weaknesses, and also, there are some opportunities and threats for the elevator industry. Otis should take advantages of brand influence to catch the maintenance market and build price competition power. Except that, Otis must overcome its disadvantages to dodge the threats. Conclusion
In sum, Otis faces a lot of opportunities and threats from the external environment and internal environment. On the one hand, in term of the general environment, several segments are highly relative to the elevator industry and make the industry absorbing. On the other hand, the industry environment makes the industry attractive, which has high level barriers of entry, few substitutes and not too much rivalry. In addition, based on the competitor analysis, it can be seen that although the major competitors are strong and powerful, Otis own over half of market share and the revenue is strong, too. In term of internal environment, Otis has superiority in not only tangible but also intangible resource to exceed its competitors and win markets. Moreover, Otis makes efficient use of its resource to gain powerful strength and capabilities, which form the core competencies. According to the SWOT analyses, although Otis has been become one of the largest elevator producer and servicer, there are still threats exist. Otis must take some steps to make the most of the advantages and lessen disadvantages to achieve its strategy.