Carey 1130600063

Elaine 1130600099

Imme 1130600143

Tiffany 1130600122

Vivian 1130600098

2014/12/18

Leica---A “boutique” firm faces a world of change

1. Situation Analysis

1.1 Industry environment analysis

Leica is in the camera industry and its state of competition depends on the

competitive forces within the whole industry. The five forces analysis is helpful to

measure how profitable Leica will be in the future camera industry.

New Entrants:

In general, the threat of new entrants is relatively high. Nowadays, the capital

requirement to enter into a new industry is easy to achieve. Secondly, the proprietary

product differences are not explicit. Although all companies are pursuing brand

identification and Leica actually has its special high-end brand image, the manufacture

structure of cameras is similar and neither company has achieved the absolute cost

advantages. Additionally, there is no government policy that limits the camera industry

development. The access to distribution channels of cameral sales is also easy to hold.

Therefore, the cameraindustry is easy to enter. However, companies are not easy to

survive for long-term profitability if don’t catch up with the industry trend. The

increasing competition makes Leica possess fewer opportunities to perform superiorly.

Powerful suppliers:

The quality of the camera is essential for any company in the camera industry. Few

manufactures now have sufficient capability to manufacture qualified lens and models

for camera companies. Moreover, the product is relative unique so that it builds up

switching costs for companied in the camera industry. To avoid the reliance with third-

party suppliers, many companies build their own in-house production sector, such as

Canon. Nikon even built its manufacturing plant in Wuxi, China to take advantage of

cheaper labor costs. On the other side, the suppliers of the camera industry has not

aligned together to bargain with camera companies and their fortunes are still tied

closely to the industry. Therefore, the bargain power of supplier is medium.

Powerful buyers:

Customers in the camera market might have brand loyalty to one certain brand but

can also be easily attracted by other brands. After all, the cameras they purchase from

the industry are little differentiated and as individual purchaser, the consumer couldn’t

save money from purchasing any specific brand or any brand’s product actually has

little effect on consumer’s life.

As for Leica, it differentiates from other competitors for its high quality. So its

high-end purchasers will still remain loyalty to the high-quality camera equipment and

these consumers are less powerful because few other brands can provide products of

the same high quality. But as the digital technology spreading, more consumers

appreciate lower-price digital cameras. Consumers are also becoming price sensitive.

The strong bargain power of the consumer in the industry decreased sales of Leica.

Substitute products:

The camera industry as a whole has few substitutes. No other products can

substitute the function of camera. For instance, journalists need professional camera to

record, but no other equipment can take pictures in the same quality as a professional

camera. In short, although the products within the camera industry can easily be

substituted, the whole industry has a weak substitution threat.

In summary, the camera industry continues growing. The threat of potential new

entrants ishigh and the bargaining power of buyers is strong. Therefore, if Leica desires

to predict a long-run profitability, it is recommended to pay attention to the aspects of

buyers and new entrants who perform well in this digital trend.

1.2 PEST Analysis:

Leica could predict the industry trend and further establish its strategy based on the

remote business environment. In general, the political environment is stable in countries

where Leica mainly export products. It is therefore a good sign to go globalization.

Asian market especially Chinese market possesses considerable economic growth

potential because both consumption level and the spending habits have changed in

China. The increasing middle-class customers and rapid growing social network

nourish for a mass of amateur photographers and photo sharing has become a kind of

culture. However, as the world is becoming digitized, more and more people desire

digital camera. Thus, technology innovation is essential for survive of Leica in this

digital world.

1.3 Competitive analysis

Leica’s competitors

Leica is a European company in a camera-manufacturing industry. Important

companies in this industry include Nikon and Canon, Hasselblad and other smaller

players such as Pentax, Sony and Olympus. Nikon and Canon are leading in Japan

and Asia markets and Hasselblad is an important European company.

Competitive environment

Market share

Digital camera-manufacturing companies like Nikon and Canon’s market share

increased significantly after the camera industry moving to digital imaging in the

early 21st century; but Leica’s market size, especially for that of R systems of Leica,

did not increase and there was a loss in its share capital in about 2005.

Product quality

All of those major companies provide high-quality products.

Price

P EST

Political environmentstable &trade liberalization

Little trade and tariff barrier against cameras

Eurasian relationship development

Slow economic recovery in Europe

since economic crisis in 2008

Economic growth in China with

rising wealth

Developed camera market was

maturing

Fast development of internet and

social network & image sharing

become popular

Asian customers are wealthier and

drive tertiary industry growth

“Digital rules the world now”

Technological environment is complicated

Compared to Leica’s high-priced and high-end products, Nikon and Canon’s

products’ price is more affordable and the products become accessible to more

customers. Hasselblad provide high-end professional products without cost

limitation.

Customer

Leica’s products mainly attract the professionals, enthusiasts and hobby

photographers. While Nikon and Canon have more broader customer groups

including high-end purchasers who require commercial need, middle-segment

professional photographers and low-end buyers who are in entry-level. The

European competitor Hasselblad is still making high-end cameras and lenses for

serious professionals and collectors.

Core competence and competitive advantages

Nikon and Canon’ expertise is in digital products, which are less expensive and

easier to use, and they change agilely to changing markets and accelerate the

product development. Those products characters and companies’ competence allow

those companies to reach more consumer groups and increase profit.

Canon discontinued its film products in 2006 and continued its competitive

edge in interchangeable SLR camera lens segment. It well suited for innovation and

continue product development with a target to appeal to a broad range of

photographers.

Nikon is also a diversified company like Canon which was reveling in the rise

of digital cameras. It is a leader in its ability of compatibility among cameras and

lenses for a long time. Nikon consider more on the “middle class” and “popular

class” camera markets. Its efforts in cost-reduction made it increase sales and

operating income. Like Canon, Nikon is also focus on interchangeable lenses. In

addition, Nikon changed its design forced products to customer forced products.

Hasselblad is another company committed to promote research and

development in professional and academia focused products. Its longtime

relationship with Kodak and NASA gave it more chance to realize its mission.

Leica had a strong edge in glass expertise with world class quality and precision

lenses. Leica products’ characteristics-- high quality and high professional as well

as unique products --made Leica gain a brand image. In fact Leica is a culture in

collectors’ eyes.

A summary of above comparisons among these companies are provided here:

Leica Nikon and Canon Hasselblad

Location Europe Japan and Asia Europe

Market share Low High Low

Product quality High High High

Price High Middle High

Customer Professionals,

enthusiasts and

hobby

photographers

From professional

to entry-level

buyers

Serious

professionals and

collectors.

Core competence

and competitive

advantages

Glass expertise

High-quality

lenses&

maximum image

quality

Unique product

Strong brand

image

Represent a

culture

Do well in digital

products

Agile product

development

Innovation&

technology

Less expensive

Easier to use

Reach more

consumer groups

Greater

compatibility

Low cost

Interchangeable

lenses

Research and

development in

professional and

academia focused

products

Blueblood global

camera brand

Has relationship

with highly

skilled makers

Carl Zeiss

Competitive position

After analyzing major competitors in this industry, Leica should identify its

competitive position in order to design strategies that optimize its environmental

opportunities.

A positioning model is provided here.

2. Internal Analysis

2.1 Financial Analysis

Chart 1

Chart 2

Due to the different market positions of Canon, Nikon and Leica, Leica should focus

on their own internal financial problems and control. Therefore, comparing with

historical data of Leica is quite significant.

First and foremost, Leica’s net income and sales continually decreased from 2002

to 2004 in Chart 1. And net income became net loss after 2002, which indicated that

Leica’s strategy may not well fit the occurrence of digital camera market. On the other

hand, the huge difference between net income and sales of years from 2002 to 2008

indicates that Leica must have incurred tremendous expenses in the past years. Most

expenses probably are R & D expenses, which are quite necessary for Leica. Further,

the subtle increase in net income and sales after 2005 means that Leica must have

implemented new strategy, but the effects were not evident. However, after 2008 global

economical crisis, its sales and net income drastically jumped to high level. Since that,

the strategy took effects after all. Therefore, the return on equity ratio in Chart 2 shows

the same trend as the columnar chart.

Second, the total debt to total assets ratio continually increased from 2003 to 2005

and are above 0.5 in Chart 2. As Leica suffered huge loss from 2003 to 2005 and

incurred a lot of expense, it had to borrow money to finance their projects and

operations. However, from Chart 1, Leica’s cash flow was quite low which indicated

that Leica didn’t have ability to pay interest expenses. After 2005, Leica must notice

their problem and implement new strategy. The total debt to total assets ratio started to

decrease subtly which means Leica begun to finance their projects by issuing more

stocks, which don’t need to pay dividends every year. Also, after 2008 global

economical crisis Leica’ s total debt to total assets drastically decreased which is the

same as return on total assets.

We can clearly see that all of them provide high quality- and high price-products,

but Nikon and Canon are in the lowest place, Hasselblad is in the highest place and

Leica is in the middle.

2.2 SWOT Analysis

Strengths

Brand name：Leica is famous for exquisite workmanship and world class quality of

their products (camera and lenses). Its brand name is the synonym for quality. Leica

can be treated as luxury in camera industry, and ownership of Leica’s products is a

status symbol.

Good Reputation and image with professional consumers：The good reputation is

especially among professional purchaser. This group of consumers is the “die-hard”

fans and very loyal to Leica, because, from their point of view, Leica’s precise

mechanical and optical engineering is much more than just a container of image files.

Expertise in Lenses & Strict production process：Indeed, the above strength of Leica

is related to its experience in fields of microscopy. The strong edge in glass expertise

leads Leica becoming an expertise in making and developing best lenses. The most

important is that strict production process of Leica that ensure the quality of its products.

Weaknesses

High Cost & High Price: Although the strict production process is the core strength of

Leica, it also becomes the weakness. The standard Leica lens was consisted of around

100 individual parts, and required many techniciansskilled craftsmanship. It is because

the standard Leica’slenseshave to be inspected more than 60 times manually, and 30

production processes were done manually. The strict production process generated a

huge cost of manufacturing and is time-consuming, so Leica can only offer a very

expensive price, which is not affordable for most consumers (low-end group) in the

market.

Lack of capacity：As mentioned above, there is group of high-end consumers demand

for Leica’s product. However, the strict production processis very time-consuming and

also caused Leica could not put into mass production. The lack of

manufacturingcapacity of Leica can only let their customers on the waiting list.

Opportunities

• Rise in ownership (Penetration)

• Growing global markets: developing countries

• Limited investing resources

Threats

• Change of global trend: Cheaper and simpler digital cameras (affordable)

• Maturing camera industry

• Growing global competitors: Canon, Nikon and Hasselblad

• Rapid succession of product generation

2.3 Three Circles Analysis

Customers’Need: There are three categories of consumers in camera industry. high-

end buyers (commercial and professional), middle-segment professional

photographers, and low-end purchasers. Generally, customers are sensitive about price,

and they expect high quality of cameras or lens, warranty, after sales support,

compatibility with others cameras or lens and brand name. Customers have different

degree of needs among different group. For example, low-end purchasers use cameras

for consumer application as amateurs who can be satisfied with the onset of camera

equipments with an affordable price and less durability.

Company’s Offerings: Leica lens are guaranteed in “Made in German” and precise

hand-inspection with world-class quality. The brand “Leica” becomes a synonym for

quality, and gains very good reputation from professional photographers. In addition,

Leica has experience in microscopy field which leads it becomes a glass expertise to

make best lens. It offers precise mechanical and optical engineering. The standard Leica

lens require 30 production process by hand, which increase the time and cost of skilled

craftsman to produce. However, this leads Leica can only set a very high price and may

not be affordable for the group of low-end customers. Leica also provides camera-

specific adapters, which allow R lenses compact with almost all SLR cameras.

Competitors’ Offerings: The major competitors of Leica, Canon and Nikon, offering

high quality, interchangeable lens and cameras with affordable price for even entry-

level customers. Thus, their products can be put in mass production with lower cost,

and they can offer a more acceptable price for those low-end customer. Furthermore,

their agile product development can match with this rapid succession of product

generation. Hasselblad also produces high-end cameras and lens for professional

photographers with lifetime warranty.

Leica’s points of difference: Leica offers world-class quality with luxury brand name

and durability, and guarantees“lens made in Germany”. Nevertheless, the complex

production process increases the cost. Leica can only charge for an expensive price to

maintain their profit.

Their points of difference: Although Leica’s competitors can offer attractive price to

customers with good quality, their brand image is totally in a different level. Leica is a

luxury in camera industry. Its product’s value will not depreciate over time. The

competitors’ brand name, value of product and durability may not be strong as Leica,

even they develop and update new models rapidly.

3. Corporate Issue

1) Net income decreasing

2) Slow reaction to the digital trend

3) Lack of capacity

4) Excessively high price

Profitability is the mainstay goal of operating of business, the first priority should

be the “Net income decreasing”. Other issues should also be solved by implement

strategies, since those are related to the earnings and margins.

4. Strategies & Evaluation

Based on previous analysis of Leica’s core competency, such as unmatched

camera technology, advanced R&D and hand-made technique, and external threat,

such as the shock of the digital market, we recommend the company to take the

following strategies at the case time (2003-2008):

4.1 Generic Strategy:

There are three types of generic strategies: Low-cost leadership, Differentiation

and Focus. Leica should still maintain Differentiation, which is keeping producing

high quality, unique products, positioning in the high-end market and continuously

innovating new products.

However, Leica should lower the present price to be more competitive, which

would mean manufacturing changes. For example, Leica could build an Asian factory

to reduce the manufacturing cost. Because compared with Europe, Asia’s labor cost

and raw material cost are much lower.

4.2 Grand Strategy:

1) Product development: If Leica want to survive, they must change and retool some

of its production. Therefore, we recommend Leica a combination of multiple

positions.

Reinstate R series. R series symbols the“BOUTIQUE” image of Leica in the

old days, so they should continue to keep hand-made and keep the brand

image. But at the same time, they need to simplify the product process, cut the

unnecessary part to make R more sellable.

Move ahead on the M series and increase the compatibility. Keep developing

its rangefinder series (M) lens for mass production with interchangeable

feature, revise the product line and expand production capacity.

Develop the new product line and focus on digitalizing. Innovation is critical

in digital industry. To defend the market share and attract more customers, it is

necessary for Leica to develop new product lines using their independent

R&D.

2) Cooperation and joint development: Facing the financial difficulty and limited

resources, one way available for Leica is choosing to cooperate or joint with

others digital firms. For example, Leica could continue cooperate with Panasonic.

By using digital firms’ advantages or other firms’ strength, Leica might have

more chances to get through the crisis of the industry change.

3) Market development: Leica could move into Eastern European and Asian markets

to acquire new markets. But at the case time, the Asian market was still utility-

oriented, while Leica’s positioning was high-quality and luxury. This could be a

challenge when considering about the acceptance of the market and sales amount.

4) Reinsert its brand: although all of Leica’s product lines had strong followers and

they did have some brand heritage, Still, Leica should continue to innovate to

defend the brand. For example, Leica could do more advertising, bring in new

designers, and do more promotions.

4.3 Evaluation

Compared with the reality, Leica began to take action from 2005 and adopted an

overall Retrenchment Strategy for a short period. Because of the lagged response

and serious deficit financial state, Leica used a downsizing strategy overall. For

production, Leica directly reject and wash out the poor performance product line, such

as disposing R Series. Also, they streamlined product types and cut many unnecessary

expenses. For HR, they experienced a quantitative layoff, reduced the working hours

to reduce the staff cost. In addition, Leica issued short term bonds to repay the bank

loan and issued anonymous shares to finance and enlarge capital.

5. Case update & Recommendation

5.1 Strategic adjustment effect in short-term and long-run

Generally, the net income of the enterprise directly reflects the effect of the

implementation of a firm’s strategy. From the update we can see the effect of strategic

adjustment of Leica in short term is obvious. Table 1 Leica’s Net Profit (2005-2010)

shows that before 2008 the net profits were normally in loss, but from 2009, it began

to gain profit continuously, especially booming in 2010.

In 2011, Black Stone invested in Leica and became the biggest shareholder of Leica

(44% shares). This change pours into Leica massive funds, which indicates that the

investors have confidence of Leica’s future after the strategic adjustment.

5.2 Recommendation:

Based on the current development trends, we also recommend Leica to continuously

expand globally, continuously innovate and focus more on cooperation and joint

development in the future.

6. Conclusion

From a global camera market view, after the appearance of digital camera from

twentieth Century 90's, digital tide began to sweep camera market, especially from 2003.

Leica had a lagging response in digital process of the whole camera industry. They

began to take action until the financial state was in serious situation. But overall, they

realized the importance of the digital market, and used their competitive advantage to

adjust the strategy, and finally, made a success.