1 Arzum and the Value Chain Concept The Faster Fish Beats the Larger Fish Part 1 As We Begin AUDIO Arzum’s branding goes back several decades. In 1966, three brothers started trading electrical appliances and building materials. Later, they decided to start exploring partnership opportunities with some of the foreign brands they were importing. They were collaborating with a well-known German brand at that time. When the German company did not want its brand name to be used in Turkey, the brothers decided to take a different course of action. As a first step they got the brand name Arzum, as three brothers wish and registered it as their trademark (Arzum means “my wish” in Turkish). Although the Arzum brand name consists of only five letters, it has an entirely different meaning for us. Arzum is known as Turkey’s first electrical non-steam iron manufacturer. It has also produced a mechanical vacuum cleaner. Through these new products, Arzum started to gain recognition. How did this happen? The brand appealed to consumers by offering a variety of appliances for the home. It continued its long journey by producing Turkey’s first orange press, then the first heater, followed by the first fan. During this time, Arzum was actually part of a company called Güney İthalat, manufacturing as well as importing. They were VİDEO
20
Embed
Arzum and the Value Chain Concept The Faster Fish Beats ...Arzum, which had only 15-16 different products in its portfolio in 1996, has over 250 different products as of 2015. If I
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
1
Arzum and the Value Chain Concept
The Faster Fish Beats the Larger Fish
Part 1
As We Begin
AUDIO
Arzum’s branding goes back several decades. In 1966, three
brothers started trading electrical appliances and building
materials. Later, they decided to start exploring partnership
opportunities with some of the foreign brands they were
importing. They were collaborating with a well-known
German brand at that time. When the German company did
not want its brand name to be used in Turkey, the brothers
decided to take a different course of action. As a first step they
got the brand name Arzum, as three brothers wish and
registered it as their trademark (Arzum means “my wish” in
Turkish). Although the Arzum brand name consists of only
five letters, it has an entirely different meaning for us.
Arzum is known as Turkey’s first electrical non-steam iron
manufacturer. It has also produced a mechanical vacuum
cleaner. Through these new products, Arzum started to gain
recognition. How did this happen? The brand appealed to
consumers by offering a variety of appliances for the home. It
continued its long journey by producing Turkey’s first orange
press, then the first heater, followed by the first fan.
During this time, Arzum was actually part of a company called
Güney İthalat, manufacturing as well as importing. They were
VİDEO
2
selling electrical appliances in the midst of spices, right
behind the Spice Bazaar in Marputçular, Eminönü, in
Istanbul, Turkey.
Part 2
Creating Value Chain Through Local and
Overseas Manufacturers
In those days, Arzum had a limited product range that
included only 12 -13 different items. The line was not
expanded until 1996 – at which point, we had 16 different
products in our portfolio. In those days we were still
manufacturing in Turkey or subcontracting where needed.
The company was practicing Original Equipment
Manufacturing (OEM) back then. Looking back, registering
the brand in 1966 was a visionary move for that time. We
were also exporting our
products to subcontractors in Italy, Europe and the Middle
East, unbranded or with different brand names. In terms of
electrical appliances, certain production sites both in Turkey
and the rest world are very well known. For instance, there
was a strong production base in the Far East, especially in
China, back in 1992. Today, China is a significant production
base for the global trade. However, we can only differentiate
ourselves from the rest of the world’s products by creating
added value to our products. This could only be achieved
through brand design, innovation or R&D. The way to make
yourself stand out is to have a control over these concepts and
apply them correctly. Would it suffice to collaborate with
China alone? No, it would not! Because importing bulky
products also increase delivery costs. Therefore, we needed to
3
think analytically and determine which products should be
produced in the Far East, in Turkey and in Eastern Europe.
During the period from 1992 to 1997, we decided which part
of production will be undertaken in Turkey, which in China,
and which in Eastern Europe. This was done by assessing the
strengths and weaknesses of our supply chain’s different
parts.
Today, Arzum purchases nearly 3.5 million products from
different parts of Turkey as well as the world and makes sure
that consumers around the globe have access to our products.
Roughly speaking, Arzum purchases products from three
continents and sells products to four different continents.
Throughout this operation, timing is crucial, even more
important than costs. Because if you cannot deliver on time,
you will fail inevitably. Thus, logistics is critically important.
We choose to work with at least with one local producer in
each product category. This is how we acquire locally
manufactured products. In addition, we establish good
relationships with the best producers of each product group.
This approach gives us the upper hand in innovation and
differentiates us from the competition. Through these
collaborations, we are able to keep Arzum up to date, while at
the same time transforming it into a fast-moving company. In
addition, we make sure to purchase half of our products from
Turkey and the other half from international producers. This
enables us to disperse our risk. If we encounter a problem
somewhere -it may be related to a customs duty or an issue
regarding the product supply- we make sure that we have
alternatives. This is how we manage the entire process.
4
Arzum, which had only 15-16 different products in its
portfolio in 1996, has over 250 different products as of 2015.
If I need to tell you how we got there, we have to go back to
1990. Private TV channels had just entered the Turkish
market and “Wheel of Fortune” was a huge hit. We had
Arzum products placed on the wheel and whenever the wheel
stopped on an Arzum product, the presenter would announce
it as “Arrrzum”. Since the program was so popular, the Arzum
brand name became very well known within a short time
span. It reached a point that when we were conducting shop
visits, our customers would greet us by saying “Murat from
Arrrzum is here”. In 1992, we started our first long-term TV
campaign with the Arzum food processor. We achieved a
great momentum with that campaign, as our food processor
sold over 4 million units in Turkey. That initiative we have
taken with the food processor proved to be a significant
turning point for the Arzum brand.
The year 2001 was a milestone both for Turkey as well as for
Arzum. Turkey suffered a deep economic crisis in 2001,
bringing the whole economy almost to a complete halt
overnight. During those hard times, we became the first
company to offer a three-year warranty, so that the Arzum
brand would establish itself better and maintain its sales. This
move also differentiated us considerably from the rest of our
competitors. Our sales suddenly soared. As I mentioned
before, in 1996 we only had 15 products. Today, that figure is
over 250. During the 1996-2001 period, we continued to
increase our product portfolio, although it was not at today’s
5
rate. In those days, our production process was mainly based
on metal – either metal molds or aluminum molds were used.
These molds were more costly as well as requiring more time
to process compared to the plastic ones used today. The
revolution in the plastics industry reduced the cost of plastic
mold investments, allowing quicker response times and the
capacity to meet consumers’ demands faster. Thus, we
managed to differentiate ourselves in the market place by
keeping our costs under control, while at the same time
making higher quality and more functional products.
Arzum made the best use of this by outsourcing some of its
production. Because of this, we were able to implement the
best technological adaptations quickly that each producer was
making use of throughout the supply chain. Therefore, metal
and bakelite-based production technology (an early form of
plastic) has gradually transformed into plastic raw materials.
This gave us greater speed, allowing us to produce faster from
2001 onwards. Hence, we became more flexible in terms of
adapting new product processes that consumers were
demanding.
Part 3
Value Chain in Design − Being a “Fast Fish”
As you know, there are books written on this topic. When you
think about it, the faster fish always beats the bigger fish. We
were also able to move faster in the market place. We
answered the market demand better, while keeping product
costs down by working with different producers from Turkey,
6
the Far East or the Middle East as needed. As Arzum, we were
able to meet consumer needs, while providing high quality
service. This was especially the case in Turkey. Here, the
crucial question was to determine the specific product that
would give us a competitive edge. As we studied consumer
habits, Turkey’s tea culture stood out. Turkish people drink
nearly 250 million glasses of tea per day. However, in Turkey,
we brew tea differently than the rest of the world. With this in
mind, we launched Arzum Çaycı in 2002. Arzum Çaycı
(“Teamaker” in Turkish) had a headstart. It was conceived by
an Italian designer and was supported by a substantial
advertising campaign. Just as with the food processor I
mentioned earlier, Arzum Çaycı also sold in millions.
Although sometimes it may not be considered within the
value chain, the role of design is very important for our sector.
We know that while purchasing a product, the brand, price
and after sales services are all important factors affecting the
decision-making process. But a person’s kitchen also
represents his/her world and tastes. We decided not to work
with a group of in-house designers for our products, mainly
because once you have an assigned team of designers, this
may lead to a sort of color blindness. A designer who only
works on kettles may start to create similar kettles after a
while. However, a designer who may have recently designed a
motorcycle for a Japanese brand, for example, could bring in
a totally different perspective for our iron’s handle design –
possibly taking inspiration from the motorcycle’s handle bar
on the command panel and the hand-held gas grip. When you
are riding a motorcycle at 100 kilometers an hour, your right
hand is your only connection to the gas and maybe to life as
7
well. Similarly, the handle of the iron provides the most
important connection between you and the iron. An incorrect
grip or faulty design may tire your arm. For instance 60-
minute ironing job wear you out very quickly and you may
have to stop ironing after half an-hour. As we began to pay
more attention to such details and to design, we started to
differentiate ourselves more in the market. After 2001, we
started launching different products faster and continued
building upon our brand name. In 2004, we gained a different
momentum, thanks to the Arzum Onan campaign (Arzum
Onan was Miss. Turkey and Miss. Europe in 1993). As our
brand name and our celebrity merged together in the eyes of
consumers, all our products benefited from this synergy.
Following that campaign in 2004, we had another
breakthrough.
Every year since 2005, the Istanbul Mineral and Metals
Exporters’ Association (IMMIB) organizes an industrial
design competition. I was also a jury member in 2007 and
that year we began the production of the award-winning
toaster by Atıl Kızılbay. This was the world’s first toaster in
which the bread could be placed from the side, rather than
from the top. It brought us six separate design awards from
all over the world. This success truly belongs to Atıl as much
as to Arzum. That product really differentiated us. If I am not
mistaken, it is sold in 12 countries today and the demand for
it continues to grow. Arzum approached the traditional
toaster design from a different perspective, which really had
not been done until then. As a result, we can now toast the
middle slice of a giant Trabzon bread without having to cut it
8
into two. Once again, seemingly small details make a world of
difference for consumers.
We also produced a thermos bottle that has two parts,
allowing tea and water to be poured separately. This enables
our customers to make their tea light or dark, whichever way
they prefer. Another example was created when we listened to
our mother customers and made a chopper with two parts, so
that different parts could be used for different functions. For
example, mothers can chop onion or garlic in one part, while
making banana milkshakes in the second part, without
getting any complaints from their children. These all made a
difference for Arzum. Arzum listens to both its consumers as
well as its own employees. I would like to emphasize the word
‘employee’ here. We conduct think tank workshops which we
have created with our employees. If an idea generated here
gets approved and implemented, we pay our employee 1.5
percent of the profits arising from the sale of that product for
the first five years. The blender I mentioned earlier was
developed by Elif, one of our employees. Even more striking,
the original design was drawn by her son Berk. We took that
original design and revised it, made it compatible with
industrial design principles and in the end developed a new
product with added value. The number of such products will
gradually rise.
We label these products “Only at Arzum” since they are truly
unique to Arzum, in respect to original design and idea
generation. No other electrical appliance brands can have
9
these products. Thus, we aspire to develop them to
differentiate ourselves from competition, set ourselves apart,
creating innovation to get our customers’ attention. We strive
to do this, not only for consumers in Turkey, but also on a
global scale. That is why we want to increase the Arzum
product portfolio.
Following oil, coffee is the second most traded commodity in
the world, with a trade volume amounting to $20 billion.
Turkish coffee is at the center of this trade. This is because
coffee first came from Ethiopia to Yemen, then arrived at the
Ottoman Empire during Suleyman the Magnificient’s reign,
gradually becoming the everyday drink of the public.
However, today 1.2 billion cups of coffee are consumed daily
throughout the world; but the consumption of Turkish coffee
does not even account for10 percent of this total. With this in
mind, we have investigated why Turkish coffee is not popular
and realized that the major setback is in its preparation. This
is why we made the first electrical coffee pot. Another brand
soon followed us with its own machine. There was no other
machine for Turkish coffee other than these. So, that was
where we had to focus. Our idea was to promote Turkish
coffee to the world and to spread the culture all over the
globe. In this way, Turkish companies would benefit from
everything surrounding that culture: the coffee pot, the
machine and everything else that comes with it. Expanding
Turkey’s coffee culture could create a difference in the $50-
billion coffee machine market. Among the electrical
appliances, coffee machines have grown in the double digits
for the past decade, selling 100 million units annually
10
throughout the world. Even though espresso seems to be the
trend at the moment, we believe Turkish coffee has great
potential, as it is being consumed more and more every day.
Currently, the Turkish electrical appliances market is
estimated to be worth nearly 2.5 million Turkish Lira, and
Arzum has a good grip this market. As a result of a number of
initiatives, Arzum made it to the top 10 brands after 2004,
especially in the kitchen, tea, drinks and toaster groups. The
electrical appliances market is worth about $50 billion
globally.
Arzum created a significant difference by specializing in small
electrical appliances and by communicating the right
messages to consumers. In the event of any shortcomings, we
have always stood by our brand and products. The success we
achieved in 2004 and 2007 drew the attention of various
foreign investors. We always wanted to take the necessary
steps to move from a family-owned company towards an
institutionalized corporation. Naturally, we did this with the
consent of the family. Our desire was to go beyond being a
strong Turkish brand and open up to the world as a small
electrical appliances company born in Turkey. We wanted to
dedicate ourselves to this cause. Ashmore, a well-known
London-based private equity fund, invested in Arzum in
2008. We sold 49 percent of the company to Ashmore,
leaving us with the majority 51 percent. Up until that time,
Arzum worked through various distributors and agencies.
However, the company wanted to open its own subsidiaries.
Having Ashmore as our partner made us stronger financially.
11
In 2008, we opened our first office in Hong Kong. The first
store followed in Skopje, Macedonia. We ran that store for
about a year before handing it over to a distributor there. In
this way, we paved the way for a system where local
distributor would take over, looking after our brand once we
left. Later on, we established a company in Munich to take the
first step into Europe and the European Union. In the period
from 2008 until 2013-2014, we doubled our revenues with
Arzum-branded exports. We have also restructured during
these five years by exporting about 10-11 percent of our total
revenues with our own brand. During this time, Arzum had a
major transformation. It had subsidiaries abroad and doubled
its revenues. In 2013, Mediterra, another prominent private
equity company, sought to purchase Ashmore’s shares. As a
result, Mediterra became our minority partner, with 49
percent of the company shares, since the middle of 2014.
Part 4
Market Results
We strive as much as possible to take rational steps and offer
our consumers products and services that are produced
quickly and in a cost-effective way. For us, the process does
not end once the product is sold and delivered to the
consumer. That’s why we assign special importance to after-
sales service and offer a three-year warranty. We make every
effort to provide customer services around the clock. We can
even pick up a product, repair it and return it to the
customer’s home, when requested and in certain cities. We
aim to expand this service throughout Turkey. Because if you
want your brand to be ingrained in your customers’ mind and
12
even more important, in their hearts, you should not let them
down. If for any reason you cannot satisfy your customers or
meet their expectations, then you need to stand by your brand
and take responsibility for it. In my opinion, Arzum has done
this to a great extent, as it is the market leader in terms of
volume, while also maintaining fifth place in value share in
the Turkish electrical appliances market. Arzum became the
market leader in terms of volume share in the 2004-2007
period, becoming the most-selling brand. Roughly speaking,
we sell nearly 3.5 million products annually, meaning that one
in every four households owns at least one Arzum product. In
addition, during this period Arzum was placed in the fifth
position, in terms of value market share. Therefore, we fully
believe in our brand and continue to seek success in every
possible way.
Part 5
Q & A on “Value Chain”
Question 1: What is a Value Chain?
It was 1985 when Harvard professor Michael Porter published
his book, Competitive Advantage, which made its way to
the bestseller list. The business world heard of Porter’s name
for the first time in 1980, when his first book, Competitive
Strategy, was published. They have been closely following
him since then. Porter focused on the value chain concept in
his second book. Simply put, the value chain describes the
totality of all activities that a company needs to do, to be able
to produce valuable products and/or services. Porter argues