Abstract
Naviga Real Estate Group, founded in 1997, is a leading commercial property developer and operator in X, Jiangsu Province, China. The Group focuses on retail-focused commercial complexes and specialized markets. The founder, Mr Xu, is one of the Wenzhou folks who are famous for their acute business sense, money-making skills and hardworking. After dropping out of school at 16, Mr Xu first worked as a carpenter and just in two years, he made himself a master from the apprentice. However, he was so eager to have his own business that he started a small wooden toy factory, from which he made a small fortune. Later on, he quitted the business and picked up building material wholesaling. Such an experience provided him with precious insight into the specialized markets. Due to multiple drawbacks of traditional specialized markets, such as low operating efficiency, he was thinking of building his own specialized market. He located his first specialized market in City X in Southern Jiangsu Province, a city regarded as a center for hardware exchange. The business soon came into fruition, which earned him a big fortune. And at the same time, he found another business opportunity. The City X had a booming economy not only in urban areas but in towns. People in towns here were rather wealthy and eager to spend their money. The problem was that there were not sufficient commercial complexes in the urban areas. And also commercial complexes were basically non-existent in towns of City X, in particular large-scale commercial infrastructure for shopping, entertainment and recreation. This was a precious opportunity an acute business man couldn’t afford to miss. Mr Xu made heavy bet by investing in retail-focused commercial complexes including urban and town complexes and tourism-oriented food & beverage centers. Things had worked out pretty well at first. After a period of decent profiting, there are now headwinds likely to hold back Mr Xu's business. Key developers in China were basically more focused on residential properties. However, as China takes tightening measures around residential real estate and restricts bank loans, those developers are reshuffling and shifting to a more balanced portfolio. They start to get more and more involved in commercial real estate and tourism in wealthy tier-2 and tier-3 cities. Besides, foreign investors are acting as a forceful competitor with abundant experience, standardized development and operation and easy access to a large pool of capital. They also invest in REITs for stable returns. Though their focus is currently in tier-1 cities, their interests in China50 cities are increasing. Most of Mr Xu's businesses in commercial complexes are located in the towns of City X and tier-3 cities in Northern Jiangsu, which now are not subject to fierce competition. In fact, Naviga is very competitive in those towns and tier-cities. For the time being, Naviga is temporarily safe. However, there is no guarantee of continuous easy life for Mr Xu. Teaching objectives: Competitive strategies focus on ways in which a company can achieve the most advantageous position (Pearson, 1999). In order to help industries achieve competitive advantage, it is necessary to understand that industry competition is a function of the threat of new entrants, the threat of substitutes, the bargaining power of suppliers and buyers, and rivalry among existing competitors. From Porter's 5 forces, three generic strategies are available for companies: cost leadership, differentiation and focus. The three generic strategies suggested by Porter (1980, 1985) can be effectively utilized to defend against competition in the business environment. This case is suitable for use in an early section of a strategic management course, which introduces the students to the topic of industry analysis. Porter's Five Forces Model can be applied using the information provided. The industry analysis will enable students to recognize the dynamic and variable forces affecting the industry and evaluate the industry's attractiveness. An analysis of the structure of the industry should be undertaken in order to find effective sources of competitive advantage (Porter, 1985). It is also expected from students to identify the generic strategies, ie the possible sources of competitive advantage introduced by Porter: cost leadership, differentiation and focus.