Statement of Purpose

Table of Contents

1. Case Overview: 2

2. Situation Analysis 3

3. Environmental Analysis: 8

4. SWOT Analysis 11

5. Problem definition: 13

6. Alternatives for OFC: 13

6.1. Niche market in specialty multimode products 13

6.2. Singlemode optical fiber 14

6.3. Froward integration - Cable manufacturing 15

7. Recommendations 17

Marketing Case: Optical Fiber Corporation

1. Case Overview:

Optical Fiber Corporation (OFC) is a manufacturer of optical fiber, which is a major ingredient in production of optical fiber cables used in a variety of communication technologies. OFC is one of the few companies that hold patent licenses to manufacture and market optical fibers and cables. It has specialized in producing multimode optical glass fiber for short-distance, high-speed data communications which it sells to cable manufacturers. Currently OFC produces nine varieties of fibers - six standard multimode fibers and three specialized multimode fibers - and its markets include military, aerospace, communications, computers, and process control.

1.1. Short History of OFC:

OFC was founded by four engineers in 1990 after obtaining the patent license to manufacture and market optical glass fiber with some restrictions on the production volume. In return, OFC promised to pay 7 percent of the sales of licensed product as royalty fee. Initially it was hard for OFC to make many sales because the product market was young and the cost of fiber optics as well as the electronic equipments to use optical fiber was expensive. However, as the communications systems became more data intensive and price of the product went down market for optical fiber began to flourish. Capitalizing on this trend, by 1998, OFC had reached sales level of more than $20 million and a workforce of 110.

1999 was an important year for OFC. The company had grown in terms of engineering and manufacturing operations, and it needed to achieve reduced manufacturing costs as well as technical breakthrough. Therefore in 1999 OFC moved to a larger facility in Minnesota and started to pursue R&D to attain higher growth levels. Their commitment to R&D was 2 percent of sales. This strategy was very successful and by the year 2000 OFC had applied for seven patents and the management was confident that all of them will be awarded within a few years.

In 2001, OFC successfully extended their previous patent license. The extension allowed for an immediate increase in manufacturing quantity as well as it provided for annual increase through 2010. The cost of this extension to OFC was a one-time payment of $3 million in 2003 and a royalty fee of 9 percent of net sales of products under the agreement.

Demand for OFC products had increased tremendously because of both growth in the fiber optic industry and high quality offerings. The year 2002 marked the expansion of manufacturing capacity by 30 percent as well as extension of product line with three new specialty optical fibers. Sales reached a level of almost $49 million while the company employed 250 employees. The data communications market was growing strong and so were the business opportunities for OFC. On the other hand, patents were about to expire attracting many competitors to the industry. It was a high time that OFC come up with sound corporate strategies to remain competitive in the market.

2. Situation Analysis

2.1. Company Standing:

OFC has grown in terms of both sales revenue and employment level. In 2002 the sales revenue increased by almost 1.5 times the sales of 1998 to reach $48,764,000 and employment level reached 250, an increment of 1.3 times to that of 1998 . The growth can be attributed to increase in demand of optical fibers, successful extension of patent license, and effective core competencies of the company such as high quality product, excellent customer service, responsiveness and valuable R&D. In 2002, asset turnover ratio reached 86 percent and OFC had a healthy profit margin of 10 percent. However, the negative retained earnings show that the company has lot more to achieve and grow before they can provide value to the investments of its shareholders.

Currently OFC stands strong in the Oligopoly competition market. There are only a few manufacturers of optical glass fibers due to limited licenses to produce and enter the industry. In 2002 OFC supplied 53 percent of the total multimode fibers demanded in the USA*. Also, OFC has more than 30 percent of US market share in local area network (LAN). However, the patents are going to expire soon and a number of new entrants are sure to enter the market. The competition is going to be tougher as OFC will soon lose the competitive advantage (that is being one of the few license holders).

*Note: We assume the demand of the products will grow by 20 percent from 2001 to 2002.

Even though OFC supplies more than 53 percent of the total demand, OFC has a huge backlog of orders from its customers. In 2002 the order backlog had reached $20 million dollar- almost 40 percent of the total sales - and was steadily increasing. From this we can infer that the demand for OFC's product is much greater than its supply. OFC can capitalize on this opportunity by expanding its manufacturing operations as well as its marketing efforts.

2.1.1. OFC Product portfolio

OFC produces nine different types of multimode optical fiber products. Six of these product types are the standard multimode fibers that are used in telecommunications, local area networks, electronic instrumentation, data links, and process control. Remaining three products are the specialized multimode products that OFC developed through its extensive R&D and these are generally installed in severe environments around chemical and petroleum plants, at military installations, and in equipment for defense and space programs.

Product Recommended Application Royalty fee obligation Percentage of sales (2002)

OFGI - 100, OFGI - 110, OFGI - 120, OFGI - 130, OFGI - 200, OFGI - 210 Telecommunications, LAN,

Electronic instruments, data links, and process control 9 percent of sales 85 percent