SC Johnson South Africa: A Strategy to Recover Declining Profits

This report addresses the strategic challenge of declining profits faced by SC Johnson (SCJ) in South Africa. It begins with an introduction to SCJ's value proposition and the triggers contributing to the profit decline, including increased price competition and the company's commitment to high-quality, environmentally-friendly products, leading to higher costs. The analysis involves a PESTEL framework to assess macro environmental factors and Porter’s Five Forces to understand industry dynamics. An internal analysis using the VRIO framework identifies organizational strengths and weaknesses. The report then explores strategic options such as vertical and horizontal integration, cost leadership, focus, and differentiation strategies, evaluating their implications for implementation. Ultimately, it recommends a suitable strategy for SCJ to improve profitability and shareholder value, considering the company's resources, capabilities, and the competitive landscape of the South African home-care industry. The report also highlights the importance of stakeholder engagement for effective business practices.

STRATEGY
STUDENT NUMBER:
WORD COUNT: 5979 excluding Table of Contents, Executive Summary and
Reference List
Abstract
WHAT IS A VIABLE STRATEGY TO RECOVER SC JOHNSON’S
PROFIT?

Contents
1. INTRODUCTION....................................................................................................................2
1.1.1 SCJ’s value proposition.............................................................................................3
1.1.2 The strategic challenge..............................................................................................4
1.1.3 Triggers......................................................................................................................5
1.2 Structure of the assignment...............................................................................................5
2. MACRO and MICRO ANALYSIS..........................................................................................8
2.1 PESTEL............................................................................................................................8
3. MICRO ANALYSIS..............................................................................................................12
3.1 Industry maturity curve...................................................................................................12
4. Market Analysis.....................................................................................................................14
4.1 Porter’s five forces..........................................................................................................14
4.2 Key success factors.........................................................................................................16
5. INTERNAL ANALYSIS.......................................................................................................18
5.1 Organisational resources and capabilities.......................................................................18
5.2 VRIO framework............................................................................................................19
5.2.1 Summary of Strengths of the resources and capabilities.........................................21
5.2.2 Weaknesses of the resources and capabilities.........................................................21
5.3 Organisational inertia and path dependency...................................................................23
6. RECOMMENDATIONS.......................................................................................................25
6.1 Strategic options..............................................................................................................25
6.2 Vertical integration.........................................................................................................25
6.3 Horizontal integration.....................................................................................................27
6.3.1 Option 1 - Cost leadership strategy.........................................................................28
6.3.2 Option 2 - Focus strategy.........................................................................................28
6.3.3 Option 3 - Differentiation strategy..........................................................................28
6.4 Evaluation of strategic options........................................................................................29
6.5 Implication section..........................................................................................................29
7. REFLECTION........................................................................................................................31
8. References..............................................................................................................................32
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1. INTRODUCTION
SC Johnson (SCJ) is a family business which is non-listed fast-moving consumer goods
company operatingin more than 76 countries with headquarters in the USA. In Africa, SCJ has
three main operations in South Africa, Nigeria and Kenya. The South Africa business, this
assignment’s focus, houses four business units namely, shoe care, home cleaning, air care and
pest control, manufacturing and marketing. The author is the South Africa customer manager.
Crafting a good strategy entails a diagnosis of the external environment to identify critical
obstacles, a guiding policy to overcome those obstacles and coherent actions to support the
policy (Sterling and et.al., 2020). The value proposition framework that entails, an analysis of
SCJ’s external environment, its aspirations and values, its value offering, and its resources and
capabilities is applied to analyse the company’s ability to sense and understand changes in the
external environment and the resilience and longevity of its resources and capabilities.
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1.1.1 SCJ’s value proposition
Figure 1. SCJ’s value proposition, adapted from
(Henley Business School, 2020)
The home-care industry offers mass market products that have become commoditised due to
external environmental factors of consumer affordability ina saturated market (Qin, Liu, and
Tian, 2020).SCJ offers environmentally-friendly products backed by research and specialised
resources which make its product prices high (Yang and et.al., 2020). SCJ has appliedpromotion
strategies to respond to the lack of consumer affordability and market saturation which has
resulted in its value declines, rather than a cost leadership strategy that drives profitability
(Bonaccorsi and et.al., 2020). Its deep strategic partnerships with retailers are questionable as
retailers’ main aim is to drive volume and value from competitor companies and its dealer-
owned products. SCJ’s research and development (R&D), technological and financial strength
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position the company to continue to create differentiated environmentallysafe products(Köseoglu
and et.al., 2020).
1.1.2 The strategic challenge
The respective company is not price competitive and it result into declining of profits as
well as market share. SCJ’s business in South Africa competes with threemajor players that are
Unilever, Rekitte Benkiser and local giant, Tiger Brands, its number one competitor.SCJ’s
brands have been market leaders with 71% share in shoe care and 30% share in air care and
second strong number in pest control and home cleaning, however for the past 3 years, has been
faced with declining share and sales year on year(Gong and et.al., 2021).
In 2020, SCJ lost 7%of its sales versus industry growth of 6% (Miroshnychenko and et.al.,
2021). This is a strategic challenge for SCJ South Africa because the home-care industry is
showing growth and is predicted to grow even more in the long term driven by external factors
such as population growth and urbanisation. Whilst its competitors are growing, SCJ is declining
in both share and value (Queiroz and et.al., 2020).
South Africa experienced a technical recession in the second quarter of 2018 (Kulshrestha and
Saini, 2020). This external economic factor has put pressure on consumer affordability, driving
consumers to trade down to cheaper alternatives (Harrington, 2020). Competitor industry
players have developed strategies focusing on consumer needs such as affordability and product
efficacy which have allowed them to thrive in this challenging environment(Barrail, 2020). This
has led to increase in consumer demand for quality at a low price profitability (Bonaccorsi and
et.al., 2020). Due to this industry being in a maturity phase, the market is characterised by
market saturation that drives low margins, resultingin the need for high volumes to drive
profitability as products are not differentiated (Qin, Liu, and Tian, 2020).
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2018 2019 2020
0
200
400
600
800
1000
1200
1400
1600 1500 1455 1353
SCJ SHOE CARE VALUE SALES
Graph 1: SCJ’s South African unit gross sales in rands millions. Source: (Finance SC
Johnson, 2021)
1.1.3 Triggers
The challenge triggers originating in the external context are an increase inprice competition as
competitors lower their margins to drive volumes, through increased value offerings, and
increased promotional activities(Qin, Liu, and Tian, 2020). SCJ has failed to respond to thislow-
price strategy because of the component quality it uses that result in costs being passed down to
the consumer.
SCJ is dedicated to manufacturing innovative high-quality products and has a long-term
commitment to the environment. SC Johnson prides itself as “a family company at work for a
better world” (SCJohnson, 2021). Its focus is to create a more sustainable world through its
innovative product-ingredient selection programme, choosing product ingredients and packaging
components that better protect human health and the environment (Gonçalves, Weaver and
Konetzka., 2020).
A value chain issue is that some imported SCJ product sare priced higher than those
manufactured by competitors in South Africa. The high-cost quality raw materials used by the
South African business unit result in its products having a base cost much higher than the
competition. In line with the global company’s strategy of centralised procurement to achieve
scale, this becomes unfavourable to the South African business unit as these products and raw
materialsresult inmultiple shipping costs from the United States of America, Indonesia and
Brazilandunfavourableforex rate driven by the recession. The business’s raw materialscontribute
to 4% of global procurement of 76 countries, making it a relevantcontributor to the
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organisation’s cost reduction. This is significant factor in order to reduce the cost of organisation
as well as developing high quality products. This is effective in order to increase the profitability
of business and increasing its revenues.
1.2 Structure of the assignment
In this assignment, reasons for the sales and market share decline are identified through an
analysis of SCJ’s external environment,assessingindustry opportunities and threats, andits
internal environment, to establish the organisation’s resources and capability that can combat the
threats or capitalise on the opportunities. A selection of possible strategies is identified leading to
the recommendation and implications for implementation of a suitable strategy for SCJ to deliver
shareholder value through increased profitability and return on investment.
Stakeholder matrix
This is significant tool that is consider analysing and evaluating the impact of stakeholder as
well as their engagement in order to successfully and effectively conducting business practices.
The stakeholder matrix is developed by John Jeston and Johan Nelis with the motive of
determining the impact of stakeholder business activities along their interest and power to take
decision. This is classified into different parts which are mention below –
 Keep satisfied – This includes all those stakeholders who have high power to influence
functioning of respective organisation but low interest in business practices. it is
important for SCJ company to satisfy their needs in order to smoothly conduct business
practices. it consist of government and legal authority.
 Manage closely – It consist of different stakeholder that have high power as well as high
interest in business activities (Porcherot and et.al., 2021). These stakeholders are
responsibility for managing all activities and task closely in order to attain desired goals
and objective. This includes stakeholder such as owner of the company.
 Monitor – This includes stakeholders who monitor the functioning and performance of
business. All those stakeholders who are included in this quadrant have low power to take
decision but high interest in business practices. This includes employees or customers as
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they have high interest in the activities of respective business but have low power to take
decisions.
 Keep informed –This consist of stakeholders who have low power as well as low interest
in business practices. for example media groups and so on. They do not have power to
change business decisions and not interested in business practices.
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2. MACRO and MICRO ANALYSIS
2.1 PESTEL
A PESTEL analysis of the South African home-care industry is conducted to assess
individual factors that have significant impact on the industry’s sales growth, costs, and profit
potential. Onlyrelevant and impact-bearing factors are considered.
Figure 2: PESTEL analysis of the home-care industry in South Africa. Source: Adapted
PESTEL Framework (Porter, 1997)
Political factors
This is one of the major factor of macro environment which will lead to have significant
impact on business performance as well as capabilities of organisation to conduct task and
activities in effective and efficient manner. It has been determined that political factor consist of
various elements such as stability of government, rules and regulation, taxation policies, trading
policies and so on. All of these aspects of political factor will lead to have direct or indirect
impact over SC Johnson company (Noor, 2020). This organisation is performing its business
practices in home care industry of South Africa. The government of South Africa is very stable
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which will lead to have positive impact on business practices(Gul and et.al., 2021). There is very
low intervenes of government that is significant for respective company to smoothly perform
business practices. The favourable trading policies assist SC Johnson organisation to increase
sales and profitability of business.
Economic factors
This is refer as the economic factor which includes various aspects of macro environment
such as economic rates, GDP rates, inflation rates, employment rates and so on. Home-care
industry in South Africa is highly affected by economic factors as it will lead to have significant
impact over performance and productivity of business. Economic factors are highly
unpredictable and volatile driven by the country’s state of full blown recession and the COVID
pandemic. This has a high impact on organisation which has probability of change(Thakur,
2021). Exchange rate fluctuations of up to10%, have had a negative impact on home-care
industry in South Africa as the cost of imported raw material and finished goods further drive the
already high base costs. The low gross domestic product rate of 3%which is predicted to remain
low (Worldbank, 2020). Due to this home-care industry in South Africa operations will be
affected. SCJ organisation needs to take business decision correctly by determining economic
factors in order to enhance business activities.
Social factors
This is one of the essential factor of external environment and it will lead to have major
impact on successful and effective performance of business. It is important for respective
company to correctly analyse the social factor in order to take correct and appropriate decisions
for business. Social factor consist of belief and perception of customer, culture values as well as
demand of products. Home-care industry in South Africa is providing different types of unique
and high quality products which is significant for full filling customer needs(Pestel, 2020). This
industry has developed effective perception of customers regarding its products which lead to
increase its sales. SCJ company is dealing in home-care industry in South Africa and it is crucial
for respective company to develop and create products which is according to the needs and
requirements of customers. The changes in customers’ requirements and trend is one of the
crucial factors that could negatively affect business performance.
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Technological factors
Technological factor includes new and innovative technology which is significant in
order to carry out business successfully and effectively. It is essential for respective company to
consider advance technology as it will lead to positive impact on business performance(Olaniyi,
2020). The rise in urbanisation has led to the increase in demand ininfrastructure for housing,
schooling, and hospitals, driving the growth of technology infrastructure in South
Africa.Thisincrease in technological infrastructure,exacerbated by lock downs during the
COVID pandemic have led to a 66% growth in ecommerce (Businessinsider, 2020).The overall
improvement in technological infrastructure will lead to increase practices of home-care industry
in South Africa. This is great opportunity for respective company that is SCJ to enhance its
performance as well as attain desired goals.
Environmental factors
This can be describe as the surrounding in which business in conducting its practices. The
elements of environmental factor will lead to have significant impact over home-care industry in
South Africa. This infrastructure provides SCJ with a variety of opportunities of a route to
market to reach its preferred market. The covid 19 prevention measures has driven growth in the
industry as this is providing products related to home care (Zenani, 2020). These products could
be used when people stayed home more, cleaned more and disinfected more with home cleaning
products. The adverse impact was seen in SCJ as its home-cleaning products areunaffordable to
the cash strapped consumer. SCJ’s shoe care category that declineddue to the reduce in consumer
demand, as people and school going children stayed home. Due to this, individual are not
purchasing new shoes (Fayissa and et.al., 2020). This factor will lead to have major impact on
successful functioning of business.
Legal factor
This is refer as the factor which includes different laws and regulation that is significant in
order to effectively perform business practices. The laws and legislation of South Africa will
lead to have crucial impact over home-care industry as well as functioning of SCJ
organisation(Lok, Pestel and Reboul, 2021). The industry is highly regulated with regulations
that control the types of chemicals that can be used. South Africa has fair legal system which is
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