Nextchip (92600) SWOT Analysis / TOWS Matrix / MBA Resources
Semiconductors
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for Nextchip (South Korea)
Based on various researches at Oak Spring University , Nextchip is operating in a macro-environment that has been destablized by – supply chains are disrupted by pandemic , there is backlash against globalization, technology disruption, increasing government debt because of Covid-19 spendings, there is increasing trade war between United States & China, competitive advantages are harder to sustain because of technology dispersion, challanges to central banks by blockchain based private currencies,
increasing household debt because of falling income levels, increasing inequality as vast percentage of new income is going to the top 1%, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Nextchip can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Nextchip, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Nextchip operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Nextchip can be done for the following purposes –
1. Strategic planning of Nextchip
2. Improving business portfolio management of Nextchip
3. Assessing feasibility of the new initiative in South Korea
4. Making a Semiconductors sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Nextchip
Strengths of Nextchip | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Nextchip are -
Innovation driven organization
– Nextchip is one of the most innovative firm in Semiconductors sector.
Sustainable margins compare to other players in Semiconductors industry
– Nextchip has clearly differentiated products in the market place. This has enabled Nextchip to fetch slight price premium compare to the competitors in the Semiconductors industry. The sustainable margins have also helped Nextchip to invest into research and development (R&D) and innovation.
High switching costs
– The high switching costs that Nextchip has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Ability to recruit top talent
– Nextchip is one of the leading players in the Semiconductors industry in South Korea. It is in a position to attract the best talent available in South Korea. The firm has a robust talent identification program that helps in identifying the brightest.
Organizational Resilience of Nextchip
– The covid-19 pandemic has put organizational resilience at the centre of everthing Nextchip does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Strong track record of project management in the Semiconductors industry
– Nextchip is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Learning organization
- Nextchip is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Nextchip is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Nextchip emphasize – knowledge, initiative, and innovation.
High brand equity
– Nextchip has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Nextchip to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Highly skilled collaborators
– Nextchip has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Semiconductors industry. Secondly the value chain collaborators of Nextchip have helped the firm to develop new products and bring them quickly to the marketplace.
Successful track record of launching new products
– Nextchip has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Nextchip has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Low bargaining power of suppliers
– Suppliers of Nextchip in the Technology sector have low bargaining power. Nextchip has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Nextchip to manage not only supply disruptions but also source products at highly competitive prices.
Ability to lead change in Semiconductors
– Nextchip is one of the leading players in the Semiconductors industry in South Korea. Over the years it has not only transformed the business landscape in the Semiconductors industry in South Korea but also across the existing markets. The ability to lead change has enabled Nextchip in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Weaknesses of Nextchip | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Nextchip are -
Low market penetration in new markets
– Outside its home market of South Korea, Nextchip needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
High bargaining power of channel partners in Semiconductors industry
– because of the regulatory requirements in South Korea, Nextchip is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the Semiconductors industry.
High cash cycle compare to competitors
Nextchip has a high cash cycle compare to other players in the Semiconductors industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Slow to strategic competitive environment developments
– As Nextchip is one of the leading players in the Semiconductors industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Semiconductors industry in last five years.
High dependence on Nextchip ‘s star products
– The top 2 products and services of Nextchip still accounts for major business revenue. This dependence on star products in Semiconductors industry has resulted into insufficient focus on developing new products, even though Nextchip has relatively successful track record of launching new products.
Employees’ less understanding of Nextchip strategy
– From the outside it seems that the employees of Nextchip don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Interest costs
– Compare to the competition, Nextchip has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
High operating costs
– Compare to the competitors, Nextchip has high operating costs in the Semiconductors industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Nextchip lucrative customers.
Skills based hiring in Semiconductors industry
– The stress on hiring functional specialists at Nextchip has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Compensation and incentives
– The revenue per employee of Nextchip is just above the Semiconductors industry average. It needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Ability to respond to the competition
– As the decision making is very deliberative at Nextchip, in the dynamic environment of Semiconductors industry it has struggled to respond to the nimble upstart competition. Nextchip has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Nextchip Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Nextchip are -
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Nextchip can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help Nextchip to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Better consumer reach
– The expansion of the 5G network will help Nextchip to increase its market reach. Nextchip will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Nextchip is facing challenges because of the dominance of functional experts in the organization. Nextchip can utilize new technology in the field of Semiconductors industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Creating value in data economy
– The success of analytics program of Nextchip has opened avenues for new revenue streams for the organization in Semiconductors industry. This can help Nextchip to build a more holistic ecosystem for Nextchip products in the Semiconductors industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Leveraging digital technologies
– Nextchip can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Nextchip can use these opportunities to build new business models that can help the communities that Nextchip operates in. Secondly it can use opportunities from government spending in Semiconductors sector.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Nextchip can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Low interest rates
– Even though inflation is raising its head in most developed economies, Nextchip can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Buying journey improvements
– Nextchip can improve the customer journey of consumers in the Semiconductors industry by using analytics and artificial intelligence. It can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Using analytics as competitive advantage
– Nextchip has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Semiconductors sector. This continuous investment in analytics has enabled Nextchip to build a competitive advantage using analytics. The analytics driven competitive advantage can help Nextchip to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Semiconductors industry, but it has also influenced the consumer preferences. Nextchip can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Developing new processes and practices
– Nextchip can develop new processes and procedures in Semiconductors industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Learning at scale
– Online learning technologies has now opened space for Nextchip to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Threats Nextchip External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Nextchip are -
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Nextchip business can come under increasing regulations regarding data privacy, data security, etc.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Nextchip.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Nextchip can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate Nextchip prominent markets.
Technology acceleration in Forth Industrial Revolution
– Nextchip has witnessed rapid integration of technology during Covid-19 in the Semiconductors industry. As one of the leading players in the industry, Nextchip needs to keep up with the evolution of technology in the Semiconductors sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Increasing wage structure of Nextchip
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Nextchip.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Nextchip in the Semiconductors sector and impact the bottomline of the organization.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Nextchip will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Stagnating economy with rate increase
– Nextchip can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the Semiconductors industry.
Consumer confidence and its impact on Nextchip demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in Semiconductors industry and other sectors.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Nextchip in Semiconductors industry. The Semiconductors industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, Nextchip may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Semiconductors sector.
Shortening product life cycle
– it is one of the major threat that Nextchip is facing in Semiconductors sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
High dependence on third party suppliers
– Nextchip high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Weighted SWOT Analysis of Nextchip Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Nextchip needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of Nextchip is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of Nextchip is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Nextchip to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Nextchip needs to make to build a sustainable competitive advantage.
