B2B Marketing Individual Assignment

Q1. MBIL is an OEM in the optical storage media industry. The optical media industry is a
cyclical nature and fast-changing industry, when new format come into the market, then the
old format will become outdated. Also, there are lots of market uncertainty about the third-
generation optical media. Therefore, diversification is necessary for MBIL to reduce risk.

There are some reasons why MBIL have to diversify into new business.

1. MBIL cannot do better than any of its competitors in its current market.

MBIL understood that the optical storage media is a fast-changing industry, the new format
products and technology coming to market every five years. When new format discs come
out, the price and demand of old format will decrease sharply. Its competitors invested lots of
money and resources in R&D capabilities and technological advancement to achieve
manufacturing efficiencies and differentiate its price and quality in this market. Although
MBIL has put resources on R&D for upgrading its product line from the second-generation
optical disc format (CD-R & DVD-R) to the third generation (Blu-ray discs). It is clear that
MBIL lacks Blu-ray technology & did not put resources on the further upgrade of fourth-
generation optical disc format (e.g. Archival Disc & Ultra HD Blu-ray).

- In this case, the new format discs of MBIL does not have product advantage in the current
market. In terms of product advantage, without further technological advancement, the new
format of MBIL has no product superiority in storage capacity & HD images compared with
its competitors. The current technology of MBIL cannot manufacture new format that other
competitors cannot provide, therefore MBIL doesn’t have product leadership. Also, MBIL
used LTH technology to manufacture Blu-ray for minimizing the cost, however, this
technology will result in a poor product quality compared with HTL technology. The disc
will be affected by light which makes it less reliable.

- Even if MBIL put resource on R&D and technological advancement for launching the new
format discs, the sudden exist of new technology and new format of discs from its
competitors will cause MBIL difficult to recover money from the investment. According to
the Diffusion theory, innovators (2.5%), early adopters (13.5%), early majority (34%), late
majority (34%) & laggers (16%). MBIL may only gain from innovators and early adopters in
the early launch stage, because once the new format come to the market, its technology will
become outdated. Then, the number of early majority, late majority and laggers buying the
outdated MBIL optical discs will reduce greatly.

- Without core competencies (technology that can manufacture new format discs with
greatest storage capacity, highest HD images & lowest cost), MBIL cannot sustain in the
optical storage media market with its obsolete technology and soon will be eliminated by its
competitors in the current market.

- Resources Allocation: MBIL needs to spread risks to other business in order to avoid
putting all resources and money to only one business with high risk and market uncertainty.
2. Demand for optical discs products decreases significantly.

Optical storage media is a sunset industry. Although the demand for DVD & CD is still exist
in the market, the exist of new format storage method become the substitute of optical storage
media. Nowadays, majority of people are using cloud storage (e.g., iCloud & Google Drive)
to upload and save videos, images and music in their laptops & smartphones. Also, the exist
of online music streaming platforms (e.g., Apple Music & JOOX Music) and online video
streaming platform (e.g., Netflix) has changed the habit of music lovers buying CD and
DVD. Therefore, the technological advancement causes the optical storage media business to
become less profitable. MBIL forecasted that the possibility of optical storage products will
be eliminated from the market.

Because MBIL is doing a market-driven business. The firm policy or strategy are guided by
market trends and customer needs instead of the firm productive capacity or current products.
The company understand that even if it put more resources on upgrading the technology of
new format discs, it is difficult for MBIL to recover or gain back the investment cost on
technological invention and R&D. Because the existing customer needs for CD & DVD has
decreased greatly.

- Resources Allocation: MBIL need to spread risks to other business in order to avoid
putting all resources and money to only one business with less profit and demand.

3. There are some opportunities for MBIL diversify into new businesses with its core
competencies.

Power Market

 Indian School of Business (ISB, 2014) reported the estimated industry turnover of PV
cells business increased from € 5.6 billion in 2004 to €24 billion in 2010. It shows that
PV cells market has great market potential and profit growth. Since manufacturing of
PV include the thin coating substrates, which is similar to the core competency of
MBIL in manufacturing of optical discs. Therefore, it shows that MBIL can have
attractive growth prospects in the PV cells business with relatively low capital
intensiveness. ISB (2014) mentioned that the estimated capacity of 6 GW is about 35-
40 billion USD in 2010. In 2007, MBIL set the target of creating a capacity of 80MW
with initial project cost of 58 million USD. It is obvious that diversify into PV cells
business can help MBIL to gain attractive revenue from 467million USD to 533
million USD with a relatively low investment cost.

Entertainment & Home Video Market

 ISB (2014) mentioned the total revenue of home video market in India is about 79
billion INR, which shows that this market is full of market potential and very
profitable. Since MBIL is the largest optical storage media company in India, it has a
wide distribution network and world-class production capabilities. These kinds of
resources can help MBIL to produce high quality movie at low costs across India.
Therefore, MBIL has price & product competitiveness in the India home video
market.
Q2. I think MBIL should pursue a strategic partnership with OM&T to create a win-win
situation for it and OM&T. For MBIL, it is in a fast-changing optical media discs industry
with high market uncertainty (e.g., new technology/ new format discs coming in the next
seconds). Collaborating with OM&T can help MBIL to reduce risks in this market. There are
some reasons why MBIL can be benefited from the partnership.

1. MBIL can gain benefits from OM&T’s core competencies to further upgrade the core
product.

 MBIL is an OEM that focus on low-cost manufacturing & lacks technological

capabilities. The major problem for MBIL is the obstacle technology (LTH) for
manufacturing optical disc (Blu-ray disc).

 OM&T is a long history optical R&D company that focus on the developing new
formats discs. It means that OM&T has complementary resources to help MBIL
increasing its core competencies and competitiveness through collaborating with
OM&T.

 Product Leadership: The core competencies of OM&T (e.g., HTL technology) can
ensure that MBIL lead in the Blu-ray disc technology and manufacture.

The core competencies of OM&T are the combination of advanced technologies and
market knowledge for manufacturing optical disc, including HTL, lithography,
electro-plating, replication, thin-film technology and system integration, and its
capabilities in thin film, etc. According to Gary Hamel, these kinds of technologies
provides potential access to the optical disc market. They contribute importantly to
customers’ perceived benefits of firm’s end products (i.e. high quality and reliable
Blu-ray discs with greatest data capacity & HD images). Thirdly, these kinds of
technologies are difficult for competitors to imitate, because OM&T patented their
invention and prevented their technologies to be disclosed to the public.

 Cost leadership & Product advantage : For new product success, OM&T can help
MBIL to have a sustainable product upgrade and new format launching in this fast
changing market. To sustain in the current market, MBIL needs OM&T’s
technological sharing in long term, otherwise MBIL will be eliminated by its
competitors.

OM&T focused on developing new concepts and production processes to improve the
energy efficiency and life of products at reduced manufacturing costs. Therefore, it
can ensure that OM&T can provide the most advanced technology and information to
MBIL for developing the launch of new format discs (i.e. 4 th, 5th &6th generation……)
that has product superiority & low cost performance.

2. MBIL can gain more profits from the technological upgrade.

 OM&T has the most advanced technological capabilities & strong expertise in the
Blu-ray technology (HTL). ISB (2014) reported Blu-ray discs are predicted to have
attractive growth prospects with the estimated demand reaching approximately 1.7
billion discs over the next 3 to 4 years. Because DVD & CD will become outdated,
then people will shift to use Blu-ray discs.
  MBIL can gain more profits if OM&T share the advanced Blu-ray technology to
MBIL for manufacturing high quality & reliable Blu-ray discs.

3. MBIL can increase its competitive advantage from the strategic assets of OM&T.

 Intellectual property (Patents): can use the advanced technology that patented by
OM&T to upgrade product.

 Customer Relationships: The core activities of OM&T were selling optical discs
technology to disc replicators & manufacturers worldwide and provide test-discs
service in the market. If MBIL form partnership with OM&T, the company can access
to these optical disc’s companies for business collaboration.

 Customer Data (R&D): OM&T has great success in specializing optical R&D,
which has expertise in collecting data on market and competitive trends and doing
marketing research on product features desired by the market segment. Through
forming partnership with OM&T, MBIL can access to these useful data and ask for
OM&T to provide technological support for new product development.

 Brand Value: OM&T is a well-known company that specialized optical R&D. By

forming partnership with OM&T, MBIL can change customer’s brand attitude
towards MBIL ‘s product from outdated to the most advanced.

4. MBIL can gain global competitive advantage from the partnership.

OM&T has the most advanced and high-quality Blu-ray technologies in the world. These
technologies are patented by OM&T and will not be disclosed to the competitors.
Therefore, OM&T has a very high bargaining power with the identity of Blu-ray
technology proprietary supplier in the optical media discs industry. If other OEMs wants
to buy the technology from OM&T, they will receive a high price from OM&T.

 The strategic partnership between MBIL & OM&T can reduce the high bargaining
power from OM&T. In other words, MBIL can get the Blu-ray technology with a
cheaper price compared with other competitors. As a result, MBIL can gain the cost
advantage with low operating costs of paying the cheaper patent fee. This can help
MBIL increasing their price competitiveness by offering the lowest price.

MBIL did poor in their R&D which has the problem of enhancing their capabilities to
meet the customer’s expected product quality.

 MBIL can gain capabilities advantage by improving their R&D through getting R&D
information from OM&T. Then, it helps MBIL to address unmet customer needs and
tailor products to local RDE markets (e.g., Brazil, Russia & China).

5. MBIL can gain benefits from OM&T’s core competencies in the new business.

 Apart from the technologies of manufacturing optical media discs, OM&T also has
expertise in inventing new technology of photolithography. The core competencies of
OM&T include the technologies of manufacturing PV cells, such as the filming
 coating technology & the trapping concepts of making thin-film solar cells. As MBIL
is still new to the PV cell business and lacks advanced technology for manufacturing
PV cells. Through partnership, MBIL can acquire the skills & technologies for
making PV cells in the new business.

Q.3 I think alliance with a minority equity stake in OM&T is the best form of partnership for
MBIL.

The partnership of MBIL & OM&T can generate reciprocal synergy to each other and help
MBIL to increase its competitiveness (the only company outside Japan shipping of Blu-ray
discs & being a global OEMs & media brand houses) in the optical disc market, which means
that OM&T needs to share all its patented technologies & strategic resources to MBIL. This
would be the best choice to help MBIL sustain in this competitive & fast-changing market.

However, there are some reasons why I prefer choosing alliance with a minority stake in
OM&T.

1. High Degree of Market Uncertainty

 ISB (2014) mentioned that there is uncertainty of the future format (between Blu-ray
disc & HD-DVD). The core competency of OM&T is Blu-ray disc proprietary
technology. The main reason why MBIL need to form partnership with OM&T is that
MBIL lacks advanced technology for manufacturing high quality & reliable Blu-ray
discs, while Blu-ray disc is predicted to be one of the future formats with great
estimated demand in the industry. If HD-DVD become the future format and demand
for Blu-ray disc is less, then it is unnecessary for MBIL to spend such a huge money
for acquiring Blu-ray technology. Because the technology of Blu-ray & MBIL Blu-
ray discs will become outdated soon.

2. High Uncertainty of using OM&T technologies for manufacturing PV cells

 Although OM&T has technologies that can be leveraged to manufacture PV cells, the
core product of OM&T is selling DVD and Blu-ray disc propriety technology. The
technology of energy efficient devices (e.g., photovoltaic and OLED) is just their
value-added product. Therefore, their technology used in manufacturing PV cells may
not be as mature as manufacturing optical discs. In other words, it is possible for
MBIL facing product quality problems when using OM&T technologies in PV cells
business.

In conclusion, acquisition of OM&T is a high capital and high-risk investment for MBIL.
With the market uncertainty & technological uncertainty, I recommend OM&T just get a
minority equity stake in OM&T to acquire the knowledge and know-how first. After MBIL is
sure that Blu-ray will be the future format of optical media & the technologies of OM&T can
manufacture high quality and reliable PV cells, then it is the time for MBIL to consider
acquisition of OM&T.

According to a research conducted by Dyer, Kale& Singh (2004), there are some factors why
alliance with a minority equity stake in OM&T is the best strategy, because:

1. MBIL can receive high value of soft resources, such as the optical R&D technology.
2. MBIL will just have low to medium amount of redundant resource (e.g., the overlap of
manufacturing and R&D department) when compared with the decision of acquisition.

3. MBIL can generate a sequential synergy: if OM&T invented new technology and MBIL
agreed to use this technology for production, then both companies will need each other to do
their contractual part for achieving profit success.
 References

Dyer, J. H., Kale, P., & Singh, H. (2004). When to Ally & When to Acquire. Retrieved from

https://www.researchgate.net/publication/8467182_When_to_Ally_When_to_Acquire

International School of Business. (2014). Moser Baer and OM&T—— Choosing a Strategic

Partnership Mode. Retrieved from https://learn.polyu.edu.hk/webapps/blackboard/

execute/content/file?cmd=view&content_id=_4666238_1&course_id=_89963_1

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