Develop a Strategy

Situation Recommendation Implementation
Primer: Developing a Strategy
Joyce CHIN, Vincy IP, Ray YIP

Situation Recommendation Implementation 1
181111 Primer: Developing a Strategy
 Topic: Develop A Strategy
 Context: Internal Strategic Meeting
 Audience: Management Team of the Company
 * Company Profile can be found in Appendix

Steadily decreasing no. of users sends strong warning signal to need
for strategic change
Situation Recommendation ImplementationSource: Team Analysis
0
20000
40000
60000
80000
100000
120000
140000
2008 2009 2010
No. of e-Marketing Services Users
Decreasing at an Average Rate of 11%

Decreasing profit margin threatens the future profitability and
financial health of the company
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2008 2009 2010
Profit Margin of e-Marketing Services

E-marketing services is currently a cash cow with slow growth but
high market share
Relative Market Share
High Low
Star Question Mark
Cash Cow Dog
E-marketing Services
Market
Growth Rate
High
Low

But within 5 years, e-marketing services will evolve into an
unattractive market with very low profitability
Relative Market Share
High Low
Star Question Mark
Cash Cow Dog
E-marketing Services
Market
Growth Rate
High
Low

How to develop a strategy
that can sustain our profitability at level of $12M
within the next 5 years?
Source: Team Analysis

Extension to online B2B services is the best possible alternative
with high profitability and less keen competition
7
Alternatives Extension to Online
B2B Services
Strengthened e-
Marketing Services
Advertising
Profitability
Less Fierce
Competition
Market Size
Fit with Current
Capability
Low development Cost
Overall
= The Most

Threat of Entry
• High upfront costs
• Large & Long R&D
Threat of Substitute
Porter’s 5 Forces Model shows B2B market is high attractive
Supplier Power Buyer PowerRivalry
• Hard to copy search engine
technology
• Considerable differentiation
among current market
offerings
• Medium switching cost
• Driven by popularity of B2B
websites
• Many server providers
• Self-owned technology
• Increasingly popular
• Moderately efficient means of
looking for business opportunities
Michael Porter’s Five Forces
Low
Medium
High
Key
181111 Primer: Developing a Strategy 8

Revenue from solely B2B services will grow at rate of 228% to
reach HK$28m by 2016
-5
0
5
10
15
20
25
30
35
2012 2013 2014 2015 2016
Revenue
Net Profit
10.9
9
HK$m
Revenue CAGR = 228%
Revenue = 28m

We have tremendous strengths in delivering the best B2B online
services
Priority
Listing
Unorganized
Results
Unverified &
Outdated
Account
Problems
Artificial Intelligence
Technology
Solutions
Competence
Customized Search Results
3rd Party
Authentication
To exceed our competitors To match our competitors
Lack of e-
Marketing
Services
E-Marketing
Services
e-Marketing
Platform and
Reputation

Case study shows SME is a high potential market for B2B services
Cloth Manufacturing SME
Revenue: HKD$2M
15 Deals per year
Difficult to find B2B Businesses

Target customer is the SMEs in Mainland China and Hong Kong of
2.7M
0.0
0.5
1.0
1.5
2.0
2.5
3.0
No. of SME
Total No. of SME in Mainland China and Hong Kong
Mainland China
Hong Kong

We expect similar strong users growth rate in future as our
competitors did in past 3 years
0%
10%
20%
30%
40%
50%
60%
2009 2010 2011
Growth Rate of Active Users of Alibaba
Source: Alibaba Financial Report Situation Recommendation Implementation

e-Marketing.com will reach a total of more than 2000 users at
average growth rate of 120% per year
Key assumptions: 1. $13300 Annual Return per User
2. 1 Deal in every 2 days (per salesperson)
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
2012E 2013E 2014E 2015E 2016E
No. of Users

e-Marketing.com will obtain a market share of 18% by 2016E
Key assumptions: 1. B2B SME market grows at a steady rate of 5%
2. Other competitors is assumed to carry on with the same average growth rate of past 5 years
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
2012E 2013E 2014E 2015E 2016E
Market Share (in no. of users)

A total spending of 80%, equivalent to HKD$8.5M, is on B2B online
services, while the rest is on existing e-Marketing services
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Capital
B2B
Online Services
e-Marketing
Services
(HKD$8.5M)
1. System Development
2. Sales Operations
3. Promotion
(HKD$10.7M)
1. Further Expansion to New Services
2. Increased Quality on Existing Services

Capital expenditure is mainly invested in first 3 years on
technology development, promotion and sales operations
3
2.5
1.5
0.1 0.1 0.1
0
0.5
1
1.5
2
2.5
3
3.5
2011 2012 2013 2014 2015 2016
HKD (in M)

Our top priority strategic initiatives are to recruit senior sales in
B2B industry and patent the AI search technology
High Impact
Low Impact
EasyHard
Impact / Ease of Change Matrix
2. Patent the AI Search Technology
1.Recruit Senior Sales in B2B Industry
3. Strengthen Existing e-Marketing Services
4. Carry Out Heavy Promotion
6. Initiate a Price War to win over users
5. Reduce Investment on Developing e-Marketing Services

To excel in the market, we have to develop a number of
capabilities along with our current strengths
20
High Reputation
as Online
Services Provider
Most Advanced
AI Search
Technology
Extensive
Experience in
Providing Online
Services
Current
Third-Party
Authentication
Large Customer
Base
Awareness in B2B
Market
To Be
Developed

There are a number of strategic key performance indicators to
measure our progress
• Evaluate the synergy between e-marketing and B2B services
No. of Integrated Accounts (User of Both e-Marketing and B2B)
• Evaluate the acceptance of the market
Customer Growth Rate / Market Share Growth Rate
• Measure the value of our services to customers
Annual Return Per User
• Measure the quality of our services compared to competitors
Customers Retention Rate

But we also foresee a number of implementation challenges ahead
Sales at initial stage
Heavy capital expenditure in initial stage
Attention of users
Scattered SMEs in China

We will provide discount to existing e-Marketing services users to
open an integrated account with B2B online services
Integrated Accounts
• First-hand experience of our services
• Basic authentication check to ensure quality
• Word-of-mouth effect
• Discount as incentives
• Leverage on own reputation

Net profit of a total of 31M from existing e-Marketing services can
support the initial capital expenditure on B2B online services
0
2
4
6
8
10
12
14
2012E 2013E 2014E 2015E 2016E
Net Profit of e-Marketing Services

We can reach a large group of users through different commerce
chambers
• Over 100,000 members
• Host of buyer conferences every 2 months
Hong Kong SME Association
• Over 1,000,000 SME members
• Host of regular SME luncheon gatherings in
Guangdong province
• Release of e-newsletter every month
China Commerce Chamber

We should first focus on marketing and sales efforts within
Guangdong Province
Dongguan:
- 1.6M SME
- High demand for
B2B services
Shantou:
- 0.3M SME
- 60% growth rate

The operation forecast will be impacted by lower adoption rate in
2012 and lower customer growth rate (2012-16)
Lower adoption rate than expected
Sales team headhunted by other firms
AI development takes more time than expected
Possible entry barrier imposed by large players
27

Base Optimistic Pessimistic
Annual Return (on
average)
+55% +125% -17%
2016 Net Profit (HK$m) 10.9 35.1 1.3
Payback Period (years) 4 3 8
Assumptions
User adoption rate (2012) 40% 60% 20%
User growth rate 40% 60% 20%
It is estimated to recoup the investment in 4 years with annual
return of 55%
28

The 3 take-away of today
Expansion to B2B Online Services
Utilization of Proprietary AI Search Technology
Most Comprehensive Platform
1. e-Marketing Services
2. B2B Online Services

e-Marketing.com (Hong Kong) I.T. Co. Ltd
Industry Online Marketing Services Providers
Target Customers SMEs
Market Size: HKD$26.7M (in sales revenue)
Share: 30%
Services 1. Website Production
2. Video Production
3. Photo Editing Services
Financials Revenue: HKD$8M
Profit: HKD$6.4M
Relevant News Recent Acquisition of a B2B Search Engine Provider
(SupBuyer.com)
Appendix: e-Marketing.com – online marketing services provider

31
SupBuyer
Sellers Buyers
Free
Registration
for half year
Attract
Payment
for listing
in database
- Best Matches
- AI Scoring System
- Third-party authentication
- Listing on database
-Add-on services
-> Multimedia production
-> Market Analytics Report
Link both
parties to do
businesses
Source: Team Analysis
Appendix: Business model of B2B online services

Appendix: First target group would be currently unsatisfied, case-
study-like B2B users of 0.5M
0.5M Current B2B Users18%

Appendix: Second target group would be unexploited, non-served
SMEs of 2.2M
Current B2B Users18%
Non B2B Users82%2.2M

Appendix: Users will rise at 192%, mainly credited to expansion
into PRC
160 224
672
1300
2177
0
500
1000
1500
2000
2500
2012 2013 2014 2015 2016
34
Revenue CAGR = 192%
Expansion
to PRC

Appendix: AI Scoring system accounts for both buyer and seller
behaviors
AI
Scoring
Min Order #
Past Production Exp
Buyers’ Feedback
Purchasing Power
Past Purchase Pattern
35
Buyers Sellers

Appendix: AI Scoring system benefits both buyers and sellers
AI
Scoring
Increased Contacts
Quality
More Business
Opportunities
Time-saving Browsing
Higher Search Relevance
36
Buyers Sellers
Authenti-
cation
Less Hassle to Get
Credentials
Credible Supplier Network

Appendix: Alternative uses of AI technology are not as attractive as
B2B search engine
37
Online Fitting for
Boutique shops
B2C Online
Stores
Online Restaurant
Guide
B2B Service
Search
Market Size
Competition
Profitability
Need of
Technology

Appendix: Past Milestones
20112009
38
Oct’09
Admitted as HK Science &
Technology Parks Incubatee
Feb’11
Admitted as HKUST Entrepreneurship
Center Partner Company
Partnership
Mar’11
Completed AI Development Phase 1
Oct’11
Acquired major clients
Generated 1st revenue
R & D
Operations

Appendix: Majority of SME is in PRC and the manufacturing/EXIM
industry
39
0.0
0.5
1.0
1.5
2.0
2.5
3.0
PRC HK Total Other IndustriesManufacturing/ Export&Import
mil

Appendix: Competitors are providing 3rd-party authentication
services
40

Appendix: We should first penetrate gift industry because of great
familiarity and also financial constraints
• 20 years of experience in gifts industry
• Honorary chairman of Gifts Association
• Past clients include Coca
Cola, Panasonic, Microsoft, etc.
Dr Jiang Jun
(CEO)

Appendix: We should also look into providing more services to a
larger group of customers if business exceeds expectation
Patent the AI technology to license to non-B2B business
Consider expansion to other emerging markets
Provide industry research reports based on database data
42
Widen
client base
Broaden
Product
Spectrum

Develop a Strategy

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