MGT430

Lira Joy Cafino

Candace Chong Muoz
Kathrine Cate Masilungan
Christnel Sawali
Mikee Yap
4MScM

A. Industry

A.1. Definition of Industry

The groups product is classified under the bags and luggage industry which can
be found in Page C-23 of PSIC. Furthermore, the industry can be found in Section C:
Manufacture of the PSIC. The subclassification of this industry is in Division 15:
Manufacture of leather and related products under group 151, class 1512.

Moreover, the product is specifically found under the manufacture of products of

leather and imitation leather. This class includes the: manufacture of luggage,
handbags and the like, of leather, composition leather or any other material (mostly
imitation leathers) such as plastic sheeting, textile materials, vulcanized fibre or
paperboard, where the same technology is used as for leather.

A.2. Size in terms of Peso Value

The bags and luggage industry in the Philippines had a significant increase in
terms of demands. Demand for bags increased as the travel industry thrived as well.
Support for local tourism and low cost airfares led to a strong demand for the bags and
luggages. This trend paved the way for easy to carry bags like the backpacks, duffel
bags, soft case luggages, and other bags that offered uniqueness and convenience for
short-distance or lightweight travelers. The demand that travelling brought to the
industry gave it a solid 7% current value growth in 2017.

For different types of bags, there are different percentages in the increase of
sales or demand per year. Business bags only increased by 1% in current value terms,
while the luggage increased by 9%, duffel bags increased by 8%, and handbags by 7%.
Small bags also increased by 5%, which can still be traced from the trend of traveling,
wherein people purchase small bags for their toiletries, water activities, and as well as
shoe bags for gym-goers, with the trend of healthier lifestyle. In 2017, with the 7%
increase in current value terms, the bags and luggage industrys value is at PHP24.9
billion.

A.3. Stage in Industry Life Cycle

Life cycle representations are indeed a phenomenon of the life sciences but still
unquestionably infuse an external domain as business industries also experience the
same cycle of life. Product lines and industries also metamorphose and shift from one
stage to another just as a living being enters stages of birth, growth, maturity, and
decline or termination. Industry life cycle then encompasses the fruition of a given
industry based on the features usually exhibited in each stage. These four stages of (1)
start-up stage, (2) consolidation stage, (3) maturity stage, and (4) relative decline stage.
Different industries share similar stages; however, every industry will most likely
undertake these stages in a diverse way for some will stay longer on one stage while
others pass swiftly. Knowing the stage in the industry life cycle of bag industry in the
Philippines accordingly results to development of apt marketing strategies for the
companies within the industry. This is on the basis that a companys general calculated
strategies or specifically its marketing plans are greatly influenced by the life cycle stage
at which the industry catches itself.

The start-up stage or the embryonic phase of the industry life cycle describes the
birth or introduction of an industry where new products are developed and introduced to
the market. It is in the growth stage where the results of the product awareness,
increased distribution channels, and significant investments are slowly paying off. In
terms of maturity stage, characteristics include little to no growth as there are high
barriers to entry. The players in this stage of the industry tend to have relatively efficient
cost structures and brand loyalty. In the decline stage however, growth turns negative
as excess capacity for production arises. The aforementioned specific characteristics of
each stage helps in the process of determining which stage the bags and luggage
industry in the Philippines belongs in. Based on the indicators provided and the current
data for demand and competition in the bags and luggage industry, the industry is in its
mature stage.

The bags and luggage industry in the Philippines is considered to be a mature

sector populated with industry players who are revealed to have been active in the
country for decades. On a more general basis, the market for backpack is projected to
propagate steadily over the next four years. In fact, the past few years perceived a
significant increase in the number of partakers in proactive business activities,
recreational activities and other educational undertakings. With the political and social
chaos that the Philippines finds itself in, Filipinos start to seek ways to do the
aforementioned activities while still experiencing a sense of safety. This safety can be
satisfied through innovative products that target this particular social need. A wide range
of industries therefore compete to provide the market what they need, even the industry
of bags innovate by developing smart bags. The exponential growth of demand for
these kinds of bags can be attributed to the fast-paced and hectic lifestyles of people,
where they are looking out for alternatives to travel efficiently and safely. Since there is
a growing pursuit for efficient and simple ways to travel, advanced technological
innovations in product features within the bag industry emerge. In order to attract more
consumers, companies in the bag industry are focusing on developing cost-effective
products with innovative designs. The consumers preference toward lightweight and
durable bags for better convenience and comfort also fuel the growth of the smart bags
markets. However, in the Philippines, a lot of established corporations already exist.

A.4. Trends Affecting the Industry

The bags and luggage industry in the Philippines is hugely affected by the trends
in different areas such as demography, society, economy, technology, government, and
environment. These factors affect the growth and profitability of the industry in different
ways and extent. The most important trend in the bags and luggage industry today is
social trends.
 During the review period of Euromonitor International (2017), there was a huge
demand amongst consumers for bags and services due to the rise of the travel industry
with their low cost airfares. The culture of supporting local tourist destinations was the
biggest factor that pushed the growth of the bags and luggage industry. The growth was
made possible by different sectors of the society such as the travel agencies offering
cheap promos, the social media influencers and opinion leaders who disseminated
information, and the government which promoted local tourism.

These social trends are closely related to the demographic trends, as the
consumer market is widely dominated by millennials today. The lifestyle trend of an
increasing desire to tour around the country is shared not only among the young
consumers but also among families, groups, and organizations. The advancement in
technology and the popularity of social media led to the growth of vloggers or video
bloggers who travel and inform their audience of different itineraries for easier travel.
While doing so, they promote places, products, and services. The concern for the
environment has also become a trend that is why some firms in the industry add the
value of sustainability in their products. These trends led to strong demand for easy to
carry and convenient for travel bags and luggage such as backpacks, duffel bags, soft
case luggage, contributing to strong 7% current value growth in 2017.

Another important trend affecting the bags and luggage industry is the economic
and government trend. According to the Hinrich Foundation (2014), the most
challenging difficulty facing the fashion accessories (including fashion bags) industry is
the high production costs combined with the depreciation of the person against the
dollar. The high manufacturing expenditure of goods is brought about by the expensive
electricity and labor in the country. Labor cast has also been rising since September
2013 and the daily minimum wage was further increased with the approval of the
Department of Labor and Employment. The daily minimum wage in the country is
significantly more expensive than Indonesias and Chinas. Therefore, handicrafts
produced in the Philippines are more expensive. This is the reason why the industry is
facing the concern of finding new export markets.
A.5. Porters Five Forces Model

Bargaining Power of Suppliers

When bag producers have less dependence on suppliers, the suppliers may
have less bargaining power on the producer which positively affects the product. High
number of competition amongst supplier may even cause further price reductions which
is greatly beneficial to the producer. Large number of substitute inputs may greatly
affect prices and competition arises amongst suppliers which is greatly beneficial for the
product.

Threats of New Entry

Entry barriers to the bags and luggage industry is moderate. This means that the
industry faces moderate threat of new entrants, too. The following factors contribute to
the moderate force of the threat of new entrants:

Existing companies in the bags and luggage industry have the advantage of
economies of scale. These companies act as barriers to entry since new entrants have
to try to achieve the same cost advantage. However, it can be said that they act as
moderate barriers only since it is easy to enter the industry with a moderate cost
requirement. There is only a small number of existing companies that control a large
share of the market. Moreover, the growing trend of online stores greatly contributed to
the increase of new entrants, each with a small market share. Profitability in this
industry does not heavily require economies of scale.

Considering the factor of differentiation, existing companies in the bags and

luggage industry have moderately differentiated products. This means that they act as
moderate barriers and new entrants can find it easy to enter the industry. However, new
entrants still have to invest in newer and unique features to surpass those offered by the
existing companies. The trend nowadays is focused on quality and style rather than the
brand.

The bags and luggage industry requires moderate initial capital investment that is
7why it is relatively easy for new entrants to enter the industry. New entrants take
advantage of social media marketing to introduce their product, requiring zero to low
costs. However, new entrants may face difficulty in matching the other cost advantages
of existing companies such as best suppliers and technical knowledge about the
industry.

The switching cost is often not a barrier for a new entrant in the bags and
luggage industry since new entrants usually sell less expensive products than those of
the existing companies. Most new entrants use price as their competitive advantage
against the established brands.

The distribution network factor is a strong barrier for the new entrants in the bags
and luggage industry. This is because existing companies have already established
relations with known and reliable distributors. Therefore, new entrants need to invest in
engaging distributors to expand their distribution channels.

Lastly, legal and government barriers may be a strong barrier to entry in the bags
and luggage industry. New entrants that operate online also need to prove their
legitimacy first before they can compete well with the existing companies.

Substitutes and Complements

Regardless of how innovative or useful the product is aside from its triple-
featured usability, if the product does not meet with the consumers wants and demand
the product will not sell in the market. The bags and luggage industry have plenty of
products that can be used as substitutes. Products that have no competitive advantage
or no brand retention may prompt consumers to find other products that satisfy their
needs. Moreover, there is a low cost of change involved with the bag industries because
buyers have many choices ranging from the lower-end mass market bags to the
designer and/or customized ones. Unless needed for specialized activities like sports
(mountain hikers for example), bags can typically be easily replaced by knapsacks,
carrying cases, briefcases, fanny packs, and the like. Therefore, the substitute
performance of the bags are very similar if not almost the same. Bags provide storage
while the user is in transit or traveling and keeps material possessions in place. This
function is found in all bags but the amount of material possessions that can be carried
vary from the size and type of the bag. Specialized bags are another story because they
exceed the basic function mentioned above by either insulating the users materials,
providing better accessibility in rough terrain, or have the ability to transform into a few
types of bags so it can carry either more or less materials.

Bargaining Power of Consumers

When customers are given personal product customization, they are less likely to
switch to product competitors who have difficulty in meeting their demands. Consumers
personal want for customization positively affects the product. There is a large number
of customers in the bags and luggage industry, more customers is beneficial as no one
customer has bargaining leverage.

Industry Rivalry

The bags and luggage industry has been present for a long time now and has a
large amount of products within the industry. Products that are made from advanced
technology or has great competitive advantage makes it harder for competitors to enter
the market. Patents limit new competition as the best methods used on a product is
always covered to make it difficult for competitors to enter. There is also a threat with
substitution, if the product itself cannot satisfy the customers and suppliers, they can
always substitute to a competitors product from our product.
 References

Euromonitor International. (2017). Bags and Luggage in the Philippines. Retrieved from
Euromonitor International: http://www.euromonitor.com/bags-and-luggage-in-the-
philippines/report

Hinrich Foundation. (2014). Philippines Sourcing: Fashion accessories Industry

overview. Retrieved from Developing Country Sourcing:
http://www.developingcountrysourcing.com/philippines-sourcing-fashion-
accessories-vertical/philippines-sourcing-fashion-accessories-industry-overview