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Gillette in Indonesia

1.INTRODUCTION

BACKGROUND OF GILLETTE

Gillete was founded in 1901, by 1995 Gillete manufacturing operations were conducted at 50 facilities in 24 countries. The company´s products were distributed in over 200 countries and territories.

Gillete´s products:

-          Razors and blades

-          Writing Instruments (paper mate, parker, and waterman)

-          Correction products (Liquid paper)

-          Men´s electric razors (Braun)

-          Toothbrushes (Oral-B)

-          Shaving preparations

-          Oral care appliances (Braun, Oral-B plaque remover)

-          Pistol-grip hair dryers (Braun)

-          Hair epilators (Braun)

-          Hand Blenders (Braun)

Gillette managed its worldwide business through a combination of business and regional operational units.

Geographic expansion required the Company management to “think global, act global”.

For Geographic Expansion in the US and Western Europe new products are launched in, while in new markets the simple blades are launched. The country management decides the mix of products and marketing resources.

Sales from 1990 to 1995:

Sales grew 9% annually

Net Income: 17%

Earnings per share: 18%

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BACKGROUND OF INDONESIA

The Republic of Indonesia is an archipelago of more than 15,000 islands. In 1996 Indonesia had a population of 196 miilion people (35% towns, 65% rural areas). There are spoken 250 regional languages and dialects. The president has been Suharto since 1965 and there is no sign of change. The GDP has been 7% for more than 20 years. In Indonesia traditionally exported agricultural and oil petroleum products, but now has been a growth in non-oil related industries.

The foreign investment has been growing over the years:

1986: $826 million

1992: $10.3 billion

1994: $23.7 billion

Economic growth had not been consistent throughout the archipelago, Java and Bali had grown much faster than poorer regions such as Irian Jaya and East Timor; contribution of these poorer regions to country´s economy was minimal.

Four of the five major urban centres (Jakarta, Bandung, Surabaya, and Semarang) are in Java. The average standard of living on Java and Bali was much higher than in the rest of Indonesia.

GILETTE AND INDONESIA

Gillette entered Indonesia in 1971 with majority ownership of a joint venture with a local company. Gillette´s razor plant was built in 1972 and was located one hour from Jakarta. The focus of Gillette and Indonesia is to introduce the concept of shaving with basic Gillette products.

The Gillette brand name was synonymous with high-quality double-edge blades.

Shaving was still underdeveloped in Indonesia, but the incidence of shaving was increasing. There was increasing awareness of western grooming practices, college students and graduates entering the workforce were especially important trendsetters of the society.

60% of Gillette's sales are in 5 major cities

In 1993 Gillette held 28% of the blade market by volume, by 1995 had grown to 48% and was expected to increase to 50% in 1996.

In October of 1995, Chester Allan, Gillette´s country manager in Indonesia was developing his unit´s 1996 marketing plan.

Market research showed that consumer marketers launched their campaigns in and expected most of their sales from the top five cities (the four in Java plus Medan on Sumatra), which together accounted for 35 million of the population. About 60% of Gillette's 1995 sales were made in these five metropolitan areas.

Case Gillette in Indonesia provides us with a lot of general and numerical data concerning the situation of the company and the country in 1995. In Case text it is clearly stated that ~17% growth is anticipated and  questioned whether by sophisticated marketing strategy 30% growth could be achieved next year. From overall analysis we deduced that covering 35m people we are selling 69m blades (~2 per person covered). Using our strategy we would like to cover 83m people more and sell them 81m blades (~1per person covered). Some related calculations required for data analysis are attached (Appendix B).

Below are optimistic and pessimistic financial forecasts which determine our possible expenses and as a consequence marketing strategy.

2. DEMAND

FACTORS THAT DETERMINE DEMAND FOR BLADES

A few factors that influenced shaving incidence are stated below. These have helped us understand the market and have laid the ground works for our research on Indonesia.

  •          Increasing Awareness of Western Grooming practices
  •          Increasing number of MNC’s and overseas personnel
  •          Foreign Tourist
  •          Rate of growth of beard
  •          Rising influence of Western media
  •          Rising GDP
  •          Growing Population
  •          Culture and religion
  •          Gender ratio

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INCREASING THE DEMAND

In a country as big and diverse as Indonesia, and given the fact Gillette is already a strong force there, we decided our best bet was simply to increase demand for our products. However that was not an easy task and required multiple solutions in order to maximise our performance in the region. The next sections will describe in detail are our plan to make sure Gillette is the major player in Indonesia for years to come.

3. RESEARCH

SWOT ANALISYS

Strengths

  • Being 1st Gillette enjoys brand awareness and association with high-quality blades (97% Brand awareness)
  • 48% of market share for blades and 90% of the premium priced segment
  • Product differentiation allows Gillette to target different segments of the population
  • Manufacturing plant is highly automated, with efficient business processes
  • Unused capacity in blades manufacture of 62m

Weaknesses

  • Distribution issues including limited control over the distribution channels, weak communication networks, poor traffic conditions and lack of distribution service technology
  • Manufacturing capacity – scope to improve productivity is currently limited
  • Cultural practises impacting employee productivity and partner (distributor) relationships
  • Global marketing emphasis not suitable for the Indonesian market
  • Affordability - approximately 80% of the population earn less than 10,000

Opportunities

  • Population of nearly 200 million
  • Strong economic growth - average annual (GDP) growth of over 7% for more than 20 years in increased per capita incomes and improved standard of living
  • Liberalisation of foreign investment
  • Women’s shaving market in the initial
  • Stages of development
  • Shaving is still underdeveloped, but the incidence of shaving is increasing

Threats

  • Competition from cheaper brands.
  • Gillette’s retail prices were sometimes four times that of the competitive products
  • Cultural influences – low incidence of shaving
  • Any economical or political fluctuation can destroy 50% of profit (premium products manufactured outside the country)
  • Grooming products regarded as luxury items by many
  • Government regulation prohibits a foreign company from directly importing or distributing its products

PESTLE ANALYSIS

Political

Led by President Suharto who oversees all major economic developments and changes in domestic policies. Presents a political uncertainty should the political power shift to an opposing party since it has been incumbent govt for the past 30 years. Anything can happen!

The president is very unpopular.

Economic

Encourages a high export rate to aid the existing high population growth rate to increase the nation’s employment prospects.

FDI  for 1994 has risen to $23.7billion, up from $826 million 8 years earlier. In 1996 Indonesia’s FDI is expected to grow to 74%.

Approximately 2 million people entering the workforce every year with 80% of the population obtaining an annual income of < $10,000 per year.

Social

Spread across 15,000 islands with 35%

living in towns and 65% living in rural areas.

60% of them live on the islands of Bali and Java.

Large no of male population living in the cities.

Technological

Manufacturing improvements in 1995 saw increases of 57% in productivity reducing the time to produce their blades, which is an advantage.

Legal

President of Indonesia oversees all legal reforms.

Regulations prohibit foreign companies like Gillette from importing or distributing their products.

Environmental

Indonesia has environmental legislation as of 1996 dealing with disposal of waste products resulting from manufacturing (e.g. ammonia).

 

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LOCAL EXPERTISE

We decided that in order to understand the market better, we would have to know a lot more about Indonesia as a country, and the local customs and desires of the people.

Therefore, we devised a questionnaire that would enable us to get more insights into the mind of the typical Indonesian customer, supplier or wholesaler. The questionnaireon which we based our interviews may be found in Appendix A.

We presented this questionnaire to a few Indonesian students enrolled at Hult, as we thought they were our closest and most up-to-date (although the questions were asked as if it were 1995) source of information.

We now present our findings:

• Urban and rural areas are seen as completely different worlds.

• Target young women could work in urban areas but this will be difficult to do in rural areas.

• Jakarta has a huge population growth rate.

• Billboards, TV, Radio are effective advertisement tools.

• School and hospital events are very good means of promotion for rural areas.

• Education of merchants identified as crucial to our product distribution (kiosks, bicycle sellers) is powerful and is thought to work.

• Markets by the sea are rather popular.

• Indonesian people like to travel; traveling long distances for Indonesian merchants is not a problem at all.

• Every means of travel used (buses, boats, planes, cars, bicycles)

• Our estimated prices for bikes and kiosks are considered to be appropriate (see prices).

• Small shops work on credit - they are poor, but they can make lowest possible retail prices.

• Small merchants are still cheaper than supermarkets!

• Price is biggest selling point for rural areas > as a result, small packages (1 item) are preferred to large quantities even though that may reduce the price per item.

• If we manufacture in country we can count on government support

• People trust the national healthcare system and government affiliated test centres very much.

3. STRATEGY CREATION AND SYNTHESIS

When we analysed the case what stuck to our mind was how can a MNC like Coca-Cola capture so much of market which no other company has ever achieved and reach places where still proper drinking water has not yet reached. When we analysed Coca-Cola we saw that the strategy was broadly classified in three ways which we call it Coca-Colasation.

COCA-COLASATION

Real Time Data

The company collects the real time data from the market, feed it back into the product and turn it into a profit. With real time data one can keep a track of how many units of products are being sold at each level ranging from distributor to wholesalers to the supermarkets, kiosks and vendors. If something goes wrong at any level of the hierarchy one can intervene and rectify the situation.

Local Entrepreneurial talent

With transport service adversely affected by the geographical region and poor distribution chain, it was very much necessary to tap into the local entrepreneurial talent. Our main aim was to edify the local entrepreneurial talent and maximize their capabilities.

Aspirational Adverts

The adverts should be aspirational in nature with a tinge of local melody incorporated into the same. The national mood of the people should be felt and shown. Gillette should be the face the people want to be. It is a mirror of their aspirations. The mood of the nation during that time was rebellious. President Suharto was an incumbent president for more than 30 years. So Shaving could easily be promoted for the Muslim dominated region if we hit the right note with the advert campaign.

QUALITY IS GILLETTE

“Quality is Gillette.” Is how we thought was the best approach to enter the market and not the other way around because:

  • We want people to think Gillette whenever they think about quality, because we are the best.
  • We are no way putting ourselves on the same level as the cheap Chinese products in the market, when our strength lies in the quality.
  • We will get our product quality tested by a local health organization, WHO approved and even recommend Gillette as healthcare Hygiene product. This is possible because shaving is actually used in hospitals before any surgery.
  • We will run a paid news ad in the newspaper of using a quality blade and not the cheap one. (Blades are made of steel and cheap cuts can cause tetanus and various other infections.)

After analysing the case, the SWOT and the PESTLE analysis, and performing primary research, we got some points on which to base our strategy:

  • People consider Gillette to be a luxury. That basically means people want to have it but refrain from having it as it is with the other luxuries in and around.
  • Indonesia’s average growth in gross domestic product is 7% every year. That means people are getting richer and may be targeted with higher-margin products.
  • Government seeks to expand manufacturing by 9.4% every year. This can play in favour of Gillette if a production increase is needed.
  • There is a definite increase in per-capita income and improved standards of living. This means not only are Indonesians prepared to buy more products, but they are also more keen to idea of shaving (and shaving often).
  • Shaving rates are growing but aren’t up to Western standards.
  • Students and young professional are the trendsetters, so they need to be targeted.
  • Change the luxury item perception in Ad campaigns to show it is actually not a luxury to own Gillette razor blades
  • Combat dry shaving.

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DIVISION OF THE MARKET

Regarding the information we decided that the best approach is to create a strategy by dividing the market:

Urban Areas (Java and Bali)

  • 66% of population and 75% of GDP.
  • Higher standards of living compared to rest of country.
  • Influenced by media.
  • Students and young professionals are seen as trendsetters.

The idea of shaving here is quite developed. Therefore, less time and effort should be spent on developing the idea that shaving is good compared to other parts of the country. So our main strategy is to “Sell/Further penetrate the market”

As a result, in these areas the population is generally more subject to Western Standards, so our strategy will be based on the following:

“Be a Gillette Family”: A unique strategic plan that can spread like a forest fire. This will make people shift to us and have a big impact. In pestle analysis it is clearly stated that a lot more men than women live in cities though the overall ratio for the country is 1:1. Each distributor will be provided with product/products, he can use it for personal use or for selling it at the market price. The details for this strategy, including the financials are provided later on in this report.

Students and young Professionals – Universities/Hospitals/Schools: We will approach the students and professionals markets as they are seen as trendsetters and they are influenced by the media and by Western customs. Here is the most adequate market to change the customs and educate shaving. Education, seminars and free samples are part of this strategy.

Banks and Local Magazines: Changing human habits is not easy, Gillette has to spend more to increase consumer base. We are looking to make sure consumers use stuff once, because retaining a consumer is easier than changing human habits. Selling our products to banks and local magazines at our manufacturer´s price. Bank is a good target people because people have started earning and there are 2 million people entering jobs every year. This idea comes from the ‘Freeconomics’ in atom-economy. The bank can attract the customers by offering Gillette shaving systems for free. The Slogan used for the banks is ‘Shave and Save’

Supermarkets: Supermarkets are only prominent in urban areas. Gillette is already a dominant force in supermarkets: In fact, most of the high-end and more expensive products are sold there. Our strategy will be to further penetrate the supermarket area, and make sure our products are in the best position when it comes to shelf space. Promotion will be used for other shaving products, for example a free mini tub of shaving cream when buying a new razor. This should stimulate trial of the product and should convert the people who are still using knives for shaving.

Women: As a result of educational promotions demand for women shaving products will increase. Since we position shaving as a healthcare procedure which equally important for both genders women also will be attracted.

Rural Areas

  • 60,000 small kiosks.
  • Kiosk gets demand from customers àkiosk buys from wholesales à Gillette supplies wholesaler or they can be a part of the ‘Gillette Family Schema’
  • Customers need to be educated to the idea of shaving (and doing it with cream).

Distributors control the communication and delivery of Gillette products, in addition to knowledge of the regions, its customs and its regulations. In these regions the concept of shaving is with knives and not with blades. So our main strategy is to “Change the shaving Culture.”

As a result, our strategy will be based on the following:

Chain of franchise Distributors: As a result, a chain of franchise distributors with the proper training and educating customer will be effective. The franchise distributors will become our new associates, and best of them will be given a kiosk or bicycle. First sales will be forced by giving out free test packs. The money invested in the franchise business would be recouped by increased sales of products. Our new associates will also be part of the Gillette Family.

Students and young Professionals – Universities/Hospitals/Schools: We will approach the students and professionals markets as they are seen as trendsetters and they are influenced by the media and by Western customs. Here is the most adequate market to change the customs and educate shaving Education, seminars and free samples are part of this strategy.

Gillette Branded Boats: Given the structure of the land and the many islands, we will have tiny Gilette-branded boats. The Blue colour of Gillette would contrast with the colours from other tiny boats. The owners of these boats would get their boat painted for free.. The investment of this strategy will be small and this further can be a part of Guerrilla Marketing Strategy.

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4. IMPLEMENTING THE STRATEGY

BE A GILLETTE FAMILY (EVERYWHERE)

People consider Gillette to be a luxury. That basically means people want to have it but refrain from having it as it is with the other luxuries in and around. “Be a Gillette Family” is a unique selling point and will spread like a forest fire. This will make people shift to us and have a big impact. We will start it in the Urban area and this will trickle down to the rural areas. (In pestle analysis it’s clearly stated that more no of men live in cities though the average ratio is 1:1. When we brain-stormed about it, we could easily conclude that: `People go to cities in search of jobs leaving their families in rural areas’

The ‘be a Gillette family’ schema.

This schema asks you to invest $ 100 with our MNC. We will provide you with goods worth $200 at the distributor price which he/she can use it either for personal use or for selling it at the market price. But it is costing us $50 with the profits.

Now, our plan is something this way. As in the analogy given on the top, for every three customer or members you join into the Gillette family you get $30 back if you are the direct parent and if you are indirect parent you get $5 until 100 members under your tree and then it reduces to $5 for 100 members henceforth. The reason is after Adam reaches 100 members he can multiply exponentially and the amount of work he needs to do would be very less.

Basically Adam has got $40 from Gillette for his tree and Eve & Adam have got $30 each.

So basically when Adam has 1000 people under his tree he will get:

$30 + 33*$5+ 9*$5= $240

So:

When we make 100,000 i.e 50,000 to shell out

We shell out let’s say $150 on an average to 333 people of 1,000 we actually shell out around 49,000.

Every member must renew their membership card every year. Losing some money on roots of tree we earn money at the end, also train our "family members" to be disciplined in payments (here they work not on credit), teach new entrepreneurs our ideas and save some money on inflation.

This schema will be carried out by, ‘quality product’ which will be registered with the Indonesian Government which will distribute Gillette Products. The company will be owned by a Indonesian who the company has full faith on. This is to safeguard the legal issues coming out in the PESTLE analysis about foreign companies refraining from its own distribution chain.

SCHOOLS, UNIVERSITIES AND HOSPITALS (URBAN AND RURAL AREAS)

First we have to take into consideration that from the 80% of the over-18 men population that shave, only 20% use blades and the remainder use knives.

In a developing country this is a question of education. Elders are used to shaving with knives and therefore this is what their coming generations are learning from them. To expand our market, one of our targets is to approach new shaving beginners so they acquire blade shaving habits instead of using knives. Also to distinguish our products from competitors quality and proved health benefits will be highlighted.

In the urban areas our target clients are teenagers whom are starting to shave. We will approach them at schools (graduating year) and at universities. We will teach them shaving habits and we will encourage them to use disposable blades instead of knifes or double-edge blades as well as shaving foam. These teenagers live in the most developed parts of the country, they attend school and university therefore they are more open minded, and possibly many of them have a reasonable purchasing power. This is why we want to encourage them to use disposables rather than double-edge blades, due to their benefits (less dangerous, softer skin...).

We will also provide one-day lecture to nurses in the main hospitals of urban areas on shaving matters such as cuts, diseases, skin care.We will provide them with a package of shaving sets that they can hand out to their concerned patients. These packages will contain one disposable blade, a shaving foam sample and a brochure.

In rural areas we will target schools and village hospitals. At schools we will give an education seminar on shaving habits and care as well as shaving health. We will give shaving sets containing 2 double-edge blades. Knowing that country is poor and people might use one blade for several people we will mark each end of double-edge blade with different colours. We have to consider that these students are a high potential market because they can introduce their second spare blade at home to their bothers or parents and our market can be expanded. At hospitals we will also hold a one-day open lecture for hospital staff and for village people. We will highlight the benefits from using blades instead of knifes. We want to encourage this people of rural areas to use shaving blades which are available to them from local kiosks.

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We will reach the Indonesian shaving population in the following ways:

INSTITUTION

URBAN STRATEGY

RURAL STRATEGY

SCHOOLS

We will target 20 major schools in Java, 10 in Sumatra, 5 in Bali and 5 in Sulawesi.

Educational seminars from two of our young staff members to graduating year classes. (Hygiene, shaving techniques, shaving products...)

Sample package to each student containing: 2 disposables, a shaving foam sample and a brochure on how to shave.

We will target rural schools from the main villages of Java, Sumatra, Bali and Sulawesi.

Educational seminars from one staff member to 18’s and over (hygiene, shaving…).

Sample package to each student containing: 2 double-edge blades and brochure.

UNIVERSITIES

We will target 25 major universities in Java, 25 in Sumatra and 10 in Sulawesi.

Gillette stands in the main halls with two of our young staff members.

Hanging out promotion packages containing: 2 disposables, a shaving foam sample and a brochure on how to shave.

HOSPITALS

One-day lecture to nurses on shaving care. (Important matters: cuts, diseases…)

Shaving package containing: 1 disposable blade, a shaving foam sample and a brochure.

One-day lecture to nurses and village people on shaving care. (Important matters: cuts, diseases…)

Shaving package containing: 1 double-edge blade and a brochure.

CHAIN OF FRANCHISE DISTRIBUTORS (RURAL AREAS)

Background

Distributors control the communication and delivery of Gillette´s products, in addition to knowledge of the regions, its customs and its regulations. As a result, implementing a chain of franchise Distributors selling only Gillette products and educating customers in addition to their normal jobs as distributors could prove effective.

The Chain of Franchise will be effective, because Gillette will not only be recuperating the investment from the increased sales of products, but also, this chain of distribution will not be breaking the complicated law regulations of distributors in Indonesia.

Recruitment

We are looking for good sellers to our new chain of franchise distribution, but since our market is not an easy one, the main characteristic we are looking for is that our new associates understand perfectly the products and the way they are getting paid for their job. People who not matter their economical situation want to develop themselves.

Characteristics we are looking for in our recruitment:

- Describe the products perfectly

- Have clear their return policy

- How to convince people that they really need the product

- Don’t take no for an answer

- Make people gain trust

- Friendly atmosphere

- Good attitude

- Give more than what they are expected

Training Programme

The most important fact about creating this new chain of franchise is the training part, practically they will become our associates and they are going to sell our products. Dedication and motivation is what we are looking for from our new associates. Our training does not have to be expensive and long to be effective.. If we want the company to change, first we need the new associates to learn and develop new skills, but also to motivate and encourage them.

Operational/products Manual

Before the training program we are going to give the new associates an operational manual, which will explain all the product in detail, including costs.

Headquarters Training – Workshop

A one day training program giving new associates an “overall picture” of the company and how they, with their individual job fit into the business. Then, they will have a close explanation of the operational/products manual with a more detail approach and questions will be answered.  In addition to a very clear explanation of the way they are paid, their return policy will be given.

On-site Training

After the main training in the headquarters, each associate will be given the products, as well as best of  them will be given kiosks or bicycles in which they will operate in the point of sale where they will be established. This will take action at different moments depending the zone and the time to get the equipment on site. Since we budgeted at least 67 000 free test packages which contains 5 items of every type all dealers will benefit from at least 1 test pack to begin with.

Follow ups

Every month follow ups will take place, where not only the results will be analysed, but also a revision of each associate way to operate will be made. They will have a close look into their development and their improvements

Some of our new associates will be part of “Be a Gillette Family”, so this is the way they will gain their return.

GILLETE BRANDED BOATS (RURAL AREAS)

Given the structure of the land and the many islands, we will have tiny Gillette-branded boats. The Blue colour of Gillette would contrast with the colours from other tiny boats. The owners of these boats would get their boat painted for free and would receive a small compensation for this service. This should pose no problem as the people are generally poor there and any source of income is welcome.

If the owners of the boats also decide to sell Gillette’s products they will also become part of “Be a Gillette Family”, this way they will get compensated.

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COST ESTIMATION

After evaluating the demand, and the financial plans (see Appendix B) the conclusion that was made is that we have approximately $1.5 million available ($1,580,640)

$ 1.5 million available

Kiosk: $150

Bicycle: $40

No of Kiosks: 1000 =$ 150 000

No of Bicycles= 2000 = $80 000

No of Boats = 5000 = $20 000

Other Marketing Promotions = $250 000

Free test packages (Containing 2 Blue II Disposables and a packet of Shaving Foam)= $10000000. ( We can cater to 2.86 Million people)

Kiosks will be an incentive for the number of sales.

Note that the budget is subject to reassessment after half a year according the sales numbers. In case of high effectiveness fora particular part of strategy, its budget could be expanded by employing some of the profit as capital. It’s based upon Output Based Input.

5.  SUMMARY AND CONCLUSION

We have seen that Indonesia is a huge and diverse country, where different kinds of people, who in turn have different shaving habits, all come together. Gillette is a major force in the country already, but there is certainly room for improvements. The following table summarises the actions we have decided to take, and these form our marketing strategy.

Action

Consequence

In all advertisements and promotions we focus on:

  1. Educating people on shaving
  2. Emphasis on quality of Gillette products
  3. Proven health benefits from shaving
  4. Being the aspiration of the people.
  • Introduction of shaving concept
  • Beneficial brand distinguishing from competitors and USP
  • Psychological positioning as basic need product

Marketing strategy is based on:

  1. Education and brand establishment through promotions and lections in trendsetting institutions
  2. Establishing of strong small scale retail chain using local entrepreneurs via:
  3. Test packs
  4. "Gillette Family" program
  5. Franchise chain
  6. Bonus kiosks, bikes for best dealers
  • Spreading shaving habits through reliable sources
  • Increasing sales and revenues (by 30% against expected)
  • Improving retail chain
  • Improving trade practice (payments, client relations etc)
  • Competitors isolation

Relocating manufacture of Sensor to local plant.

  • Protecting ~50% of permanent revenue.
  • Benefiting from government incentives
  • Using idle plant capacities
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