MACPAC CASE STUDY
Overview
Established in 1973 in Christchurch, New Zealand, Bruce McIntyre, a 19-year-old university drop-out, founded what is yet to be known in the outdoor equipment manufacturing industry – Macpac, that is. McIntyre simply envisioned his goal to make backpacks at par on what were available during those times. From a , 000 which he loaned from his father, he set up a makeshift manufacturing facility on their garage. This one-man team, which manages to make his own designs, collaborated with Canterbury Mountaineering Club. Many “firsts” was established in such collaboration, making the pioneering of the first internal frame climbing pack. Inspired by the ‘human movement nature’, the laws of physics in producing products by which impact on human body is minimized through good design. As an outgrowth of the collaboration, Macpac was able to penetrate Australia as well as Holland, Switzerland, Germany and the United Kingdom (UK).
Now specialising in quality outdoor adventure equipment, Macpac offers high quality fit-for-purpose equipments and clothing for those people who are seeking the challenges of outdoors, using the same design philosophy utilized between pack designer and experience mountaineers. The design philosophy at Macpac is ‘simplicity beyond complexity’ whereby products are founded on simple yet functional designs suitable for the environment which it was designed. Materials are carefully chosen as well as the job role fit for the duty. Afterwards, all the items that bears Macpac name was tested and re-tested in its intended usage environment. This is the part of the process unique to Macpac where they review, refine and resolve. For McIntyre, it is necessary to have a reliable product that don’t leak and blows away and so the necessity to refine the products to where it was equal to the environment.
Macpac joined a New Zealand Landcare Research project named EBEX®21 which seeks in reducing carbon emissions. True to its commitment to the environment protection, Macpac live by five environmental principles. Quality gear is a positive environment choice is the first principle to which people are encouraged to experience the true value of environment, and as supported by a quality gear that could provide ‘simple’ solutions. The purpose is to develop an appreciation of the environment. Quality gear means durability, the second principle. Fewer resources are required and these products would not have to be replaced frequently by cheaper, inferior products. Repairs and reduce, reuse, recycle are the third and fourth principles, respectively. After sales services is also inherent in Macpac, repair agents acts refurbishing roles for Macpac products. Further, throwaway mentality is non-existence at Macpac, and is considered as an offshoot of the durability principle. The fifth principle, which is return the favour to the nature, is dedicated to the renewing effort for sustainable environment; weeding and planting on a seasonal basis.
However, prior and the aftermath of 9/11 attacks, Macpac had its own share of complexities and issues. At the onset McIntyre lacked strategic planning before establishing the business though the founder had a well-crafted objective in mind, especially in marketing the products leading to unrecognizable product brand in the market. Given that he is also inexperienced in the business, there are dilemmas in terms of leadership and control as manifested by the almost downfall at three critical points: the merger with Wilderness Products, the changes of hierarchy and the new business model. Another issue that limits the continuous growth for Macpac is the challenges imposed by the weakening New Zealand dollars exacerbated by the changing customer habits, resulting to critical cost-cutting measures including price decrease and offshoring production. Manufacturing was the most affected, and Asia is the most appropriate place to transfer manufacturing. Macpac invested in quality of work, workplace standards and highly innovative technology in countries like the Philippines, Vietnam and China at the expense of home country nationals.
The global business environment is increasingly becoming instrumental for Macpac towards the realization of wider global strategies. Although there are challenges and issues confronting Macpac, the company continues to strive at having different systems and structure for the purpose of offering a portfolio of gears and equipments that are epitome of quality, performance and innovation. Because of the trends in the business environment, Macpac encounters problems that aggravate the market leadership position, considering that the industry to which Macpac belongs is clouded by fierce competition. In making a difference in this industry, Macpac has to evaluate first their position and status in the global supply chain and what are the complexities that will they will face in long-term. Herein, a PESTEL analysis and Porter’s five forces analysis will be discussed.
PESTEL Analysis
Political
For Macpac, there are three political issues that need to be addressed. These are the labour relations with laid-off workers, the labour relations with the Asian countries and the military contracts. The relationship with former employers does not end after laying off of workers but instead extends on the full materialization of contract especially for separation pays and other compensation which takes their previous identity as permanent workers into account. Committing to fair labor practices is specifically difficult since Macpac has to deal with three different political orientations for the Filipinos, Vietnamese and Chinese. Macpac, as the parent company, has a corporate responsibility in ensuring that people are working under acceptable working conditions. For the military contracts, supplying equipments, gears and clothing must carried out in a manner that bids are recognized at the costs that could be accommodated by military authorities and will not diffuse responsibility.
Economic
Like other businesses, Macpac is vulnerable with exchange rates and fluctuations and depreciation as well, specifically now that the company is establishing its brand on the domestic and international sphere. Exposure to this economic aspect generally changes the schema of the businesses due to the fact it can add up to the administrative, financial and operational risks of the company. Macroeconomic fragility is perceived to be a challenge for companies. Since the situation resulted in the rise of production in the home country, Macpac decided to relocate production into Asian communities in order to take advantage of the lower labor costs. Nonetheless, the emergence of markets in terms of costs and quality differentiation, or simply competition, is a threat for Macpac. The competitive disadvantage for Macpac is the concentration on high-end, hard core market; divergence is a necessity.
Socio-cultural
The most devastating effects of the September 11 terrorists’ attacks are the changed buying habits and traveling lifestyle of the people around the world, this has a profound effect on business like Macpac. Given that people are now conscious on putting priority on security and safety as well as insurances, Macpac had witnessed a trend shift to the lower end fashion business. Customers yearned for functional products at a cheaper price. However, this has an advantage for Macpac since they possess the reputation of quality, albeit the ‘elite’ image. Macpac resorted in widening the product portfolio by elevating the level of design pool and the target market including the students and universities thereby making Macpac a design-oriented yet product-led company.
Technology
Though Macpac recognizes that China is the most difficult to deal with, the country offers the benefits of taking advantage of technological advancements. For instance, the sewing machines could lead to improvement in materials but still embedded on the fit-for-purpose orientation. Through this, the products could acquire its style and aesthetic value without sacrificing the quality and reliability. Systems are also considered such as logistics planning, measurement and assessment and communication, all for the improvement of integration with outsourced manufacturers and for cutting air travel costs.
Environmental
Macpac takes full participation in reducing carbon emission footprints as a part of the global combat on global warming and climate change. In raising environmental awareness, Macpac considers five environmental principles such as – quality gear is a positive environmental choice, durability, repairs, reduce-reuse-recycle and return the favour to nature. The challenge for Macpac, however, is the changed traveling and adventure-seeking lifestyle of people and the more urbanized places not just for the climbing community but virtually for all the people worldwide.
Legislative
Closer Economic Relations (CER) agreement between New Zealand and Australia affects the import and export as well as tariffs and quantitative restrictions. Prior to the establishment of the agreement, the costs in Australia was high, and proved to be ineffective and costly for Macpac. Reducing trade barrier not just in Australia but also in gateway markets such as UK, France and Germany is the next best thing for such kind of business.
Porter’s Five Forces
The bargaining power of buyers
Making the outdoor equipment industry as more attractive, the customers, either hardcore or fashion-drive, have low switching cost. Although, Macpac is considered a leader and pioneer, we can never say that they obtain a monopoly in the industry domestically and globally. These are evidenced by the changing buying requirements of enduring, high quality products into much cheaper and with low quality equipments and gears especially in the future that players continued to enter the industry thus low bargaining power. In addition, Macpac has a rather weak network effects because of the traditional inclination for a niche market.
The bargaining power of suppliers
Same with the buyers, suppliers have love bargaining power mainly because of offshoring endeavors. Macpac outsourced to lower cost Asian countries like other competitors and benefited from abundance of raw materials especially in Vietnam. These Asian manufacturers, not to mention, acquires the capability for high degrees of customization where made to order is possible. Asian manufacturers are now a significant force in the global supply chain. Suppliers, on the other hand, have high switching barriers because of the fact that quality is difficult to control and assure. There are international standards are also regulating the conducts of suppliers.
The threat of entry of new competitors
Potential entrants is from high to medium; notably, because of the challenges impose by the 9/11 attacks and the fear for life of travelers. Important to note is that outdoor adventure equipments, despite the fact that they requires low technology requirement (labour-intensive, that is) and low investment requirement, are easy to imitate. Thereby, Macpac will face a relatively minimal number of small players which could challenge the position of the company in the long run.
Threat of potential substitutes
There are also a number of potential substitutes but this will be at a minimum number, particularly now that Macpac had converged with continuous innovation. As argued herein, general gears which are not purposely designed will not accommodate the changing behaviours of the environment as well as the actions of the serious climbers and outdoors enthusiasts. Nonetheless, there are established brands of fashion products already in the market and they offer the same product portfolio as with Macpac.
The intensity of competition
Needless to say, Macpac faces the same high levels of rivalry in the outdoor equipment industry. This is because as Macpac pursue its strategy to widen economies of scope and scale, more and more competitors of varying size will be encountered. They may have an edge when it comes to branding like Nike and Adidas, specialized segments or distribution channel. As such, Macpac must build its own competitive advantage. For instance, Macpac could take pride of the fabric used and the design philosophy that will set them apart from its competitors.
Credit:ivythesis.typepad.com
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