Technology Management and Strategy

Technology Management and Strategy DUOBACK Case

Introduction 1.1 Company Overview 1.2 Core Technology of Duoback 01

1. Introduction 1.1 Company Overview Duoback Korea is leading ergonomic manufacturer of office furniture and services and Their motto is “Your Comfort, Our Happiness” Duoback Korea Introduction Leading ergonomic manufacturer of office furniture and services that create great places to work, live, and rest. Our Management Philosophy is “Your Comfort, Our Happiness.” and this pledge became the foundation of our company, passed on from decade to decade. International Brand Address: http://www.duorest.com CEO Jung Kwan Yong

1. Introduction 1.1 Company Overview Duoback Brand is for Ergonomic Chair and their brand power is much larger than others DUOBACK Brand Introduction Ergonomic Chair Brand That it apply prof. Bruning’s “Duoback Theory” to chair at first time in KOREA “A healthy world starts from your comfortable chairs” Overwhelming Brand Recognition Duo-Back Duoback (60%) High-pack Borneo Livart iloom others 0 10 20 30 40 50 60 (%) 70

1. Introduction 1.1 Company Overview Duoback Korea acquired Duo-back license in 1995 and then they could produce and sell Duoback chairs monopoly in Korea History of Duoback Korea Initiation Stage 1987.05 Established the Hae Jung in InCheon, Korea 1995.11 Acquired Duo-back license from GRAHL company Exercised monopoly production and selling rights to July, 2009 Paid EURO 701,111 in intallment during 15yrs as a royalty of rights 2002.08 • Acquired certifications ISO 9001/14001 2002.12 • Changed Company name as Duoback Korea, Ltd and became a sole distributor of Duoback chair in Korea. 2003.04 • Register Duoback chair as supply product in the Supply Administration Take-off Stage 2003.09 • Certificated as INNO-BIZ from the Small and Medium Business Administration 2004.01 • Acquired the patent of the Duoback chair from Prof. Brunig • Diversified Duoback product line such as Duo-school, Duo-seminar 2006.11 • Won 8th Ergonomic design award from Ergonomics Society of Korea 2010.10 • Certificated as Korean Company with Excellent Service Quality by the Ministry of Knowledge Economy 2009.07 • Signed the strategic partnership agreement with I-market Korea 2012.06 • Launched a new product – Duoplex Vine

1. Introduction 1.1 Company Overview There are 8 main categories as to Duoback user and usage and each has various sub-model on price level Duoback Products DUOBACK Chairman DUOBACK Leaders DUOBACK Smart DUOBACK Lady DUOBACK Kids DUOBACK Idea DUOBACK Seminar DUOBACK School

1. Introduction 1.2 Core Technology of Duoback There are 4 Core technologies of Duoback; Rucksack Effect, Dynamic sitting, Personalized Chair, Ergonomic Design. • 1) Rucksack Effect • Feel less fatigue as back muscles are supported and continuously massaged by the weight of the rucksacks. DUOBACK offers similar massaging effect on your back while you are sitting • 2) Dynamic Sitting • While sitting on a chair, people unconsciously move their bodies to lesson muscle strain and fatigue. DUOBACK are designed to support your back comfortably in all directions your body moves, enabling freer movement on a chair

1. Introduction 1.2 Core Technology of Duoback There are 4 Core technologies of Duoback; Rucksack Effect, Dynamic sitting, Personalized Chair, Ergonomic Design. • 3)Personalized Chair • To enjoy sitting comfort, adjust seat height, headrest height, backrest height and width, armrest height and width, tilt tension and tilt lock angle position DUOBACK parts can be easily adjusted to accommodate individual body requirements. • 4)Ergonomic Design • Designed to efficiently reduce fatigues on your back, spine and thigh, by dispersing pressures with maximized contact area between your body and chair. DUOBAKC’s ergonomically contoured and separate dual backrest and hip & thigh line contoured waterfall edge seat

Motivation of Duoback Innovation 2.1 Motivation 02

2. Motivation of Duoback Innovation 2.1 Motivation These day, Customer who use machine or work in office want to buy functional product and Duoback tried to catch that needs 21st Century Consumption trend Environment Necessity for developing sensitive product Customer oriented era Interaction Human Machine Needs for Functional Product

2. Motivation of Duoback Innovation 2.1 Motivation Most workplace of clerical workers is chairs and by this they are injured body parts; waist, trunk, legs, shoulder, etc. So ergonomics concept is emerged. Injury by Parts Workplace for Clerical Workers Others Chairs Ergonomics concept is emerged

2. Motivation of Duoback Innovation 2.1 Motivation Due to public interest in well-being culture and Ergonomics, Chair industry is moved from simple chairs Era to Technology-oriented chairs Era Transition Period Growth Period • Public interest in well-being culture • Raising Ergonomics concept • Increasing demand for functional chairs • Highlight on importance of chairs Formative Period • Drastic growth in demand as an attachment of desk • Success in OEM • Aggressive Sales • Housing Improvement business by government • Transition from “Sitting of the floor” culture to “Standing Culture” Technology-oriented Chairs Era Simple Chairs Era

2. Motivation of Duoback Innovation 2.1 Motivation Many motivations such as well-being trend, Ergonomic Design, Demand for functional chairs and duo-back theory make duoback innovation possible Public interest in Well-being Trend Ergonomic Design Increasing demand for functional chairs Highlight on importance of chairs Duo-back Theory in Germany Duoback innovation

Timing of Entry 3.1 First-mover Advantages 3.2 First-mover Disadvantages 3.3 Overcoming Disadvantages 03

3. Timing of Entry 3.1 First-mover Advantages DuobackKorea was the first-mover of the functional chair market in Koreaand it had first-mover advantages. Technological Leadership Brand Loyalty Brand Recognition Rate 17 44 37 Duoback Highpack Borneo Livart Design Patent Utility Model iloom others 0 10 20 30 40 50 60 70 (%) • These numbers are not less than the number of patent rights of the big conventional furniture companies. • ex) SIDIZ has 53 patent & utility model rights and 38 design rights • There are many egronomic furniture companies, but Duoback is overwhelmingly well known to customers.

3. Timing of Entry 3.2 First-mover Disadvantages DuobackKorea was the first-mover of the functional chair market in Koreaand it had first-mover disadvantages. R&D Expenses Undeveloped Distribution Channels Ignorance of New Technology • Chairs are almost • purchased from offices, but usually with desks, so Duoback can not sell its products to offices. • Distributors were reluctant to buy unproven duoback products. • Customers and distributors were familiar with conventional chairs and did not know the real value of this new technology. • There was no anthropometric data of Korean, so DuobackKorea collected the data by itself. • Nowadays, anyone can get the data provided by KATS from SizeKorea.

3. Timing of Entry 3.3 Overcoming Disadvantages DuobackKorea overcome customer ignorance by advertising during IMF crisisand it finally worked out. Subway Advertisement Home shopping Channel Newspaper and Magazine Advertisement Customers became curious about these Duoback products and it directly boosted its sales. Even though a new innovation or a technology is valuable, if customers do not feel the real value it will never last long.

Sources and Types of Innovation 4.1 Sources of Innovation 4.2 Types of Innovation 4.3 Innovation S-curves 04

4. Sources and Types of Innovation 4.1 Sources of Innovation DuobackKorea has retained several innovation sources since it was established Acquiring Exclusive License from Grahl License • Grahl is a furniture company in Germany. • Grahl required DuobackKorea to pay different amount of loyalties proportional to GNP growth per a product. • DuobackKorea had paid loyalties of EUR 701,111(1 billion Won) through 15 years. • The License permitted exclusive production and sales rights in Korea. • The license expired in July 2009.

4. Sources and Types of Innovation 4.1 Sources of Innovation DuobackKorea has retained several innovation sources since it was established In-house R&D • Headquarter • It is located in Seo-Gu, Incheon. • It consists of offices, factories, and laboratories. • Ergonomics Design R&D Center • It was recently established at Mok-dong, Yangchun-Gu, Seoul in 2006. • About 10 experts in furniture and industrial design work for • penetrating foreign market • customized products • and product diversification

4. Sources and Types of Innovation 4.1 Sources of Innovation DuobackKorea has retained several innovation sources since it was established. Collaboration with Universities and Other Laboratories • Inha University • DuobackKorea and Inha University collaborated to conduct several researches on • improving chairs in schools ergonomically in 2001 • aches in lower back of middle and high school students in 2002 • Based on these researches, DuobackKorea intended to penetrate school facility market. • Other Laboratories in Foreign Countries • It seeks to find new collaboration with labs in U.S., Japan, etc.

4. Sources and Types of Innovation 4.1 Sources of Innovation DuobackKorea has retained several innovation sources since it was established. Customers Customer opinions and suggestions are reflected to its product for improvement. • Auto-lock System • Many parents complain thattheir kids sitting on chairs with wheels easily get distracted. • When kids sit on the chair, it is locked automatically • and then wheels are fixed. • Replaceable Fabric Cover • Fabrics on chairs easily get stained and many customers wanted this problem to be solved. • It is sanitary and design-changeable.

4. Sources and Types of Innovation 4.2 Types of Innovation Innovation of Duoback could be categorized as four types: Product, Radicaland Incremental, Competence-enhancing, Component Innovations. Innovations in Duoback Kids DK-028N DK-028E DK-128A DK-028D DK-028LDS

4. Sources and Types of Innovation 4.2 Types of Innovation Innovation of Duoback could be categorized as four types: Product, Radicaland Incremental, Competence-enhancing, Component Innovations. A chair itself is a productnot a process. Its appearance was radical innovation, but it has been undergone incremental innovations. Product Radical &Incremental Duoback Competence-enhancing Component Innovations arebased upon itscore duoback technology. Components of a chairsuch as a back and armsare the target of Innovations.

4. Sources and Types of Innovation 4.3 Innovation S-curves Every new version of innovation replaces the older one, and disconnection of the replacement results in low growth rate. • Each S-curve means market saturation level of a certain version of a product and moving upward means performance improvement. • Functional chair market is easily saturated when it comes to a certain version of a product. • When DuobackKorea does not introduce a new product in time, that is when technology disconnection occurs and its growth rate becomes lower. • DuobackKorea should renew its versions before the market is saturated. Disconnected Connected Performance Time

Protecting Innovation 5.1 Methods for Protecting Innovation 05

5. Protecting Innovation 5.1 Methods for Protecting Innovation Licensed innovation was unsafe and DuobackKorea has been in trouble withother companies making clones, so it needed to protect the innovation. Buying Patent Rights from the Original Owner • Original owner is Dr. Bruning, a physicist in Germany. • DuobackKorea acquired the rights in January 2004. • It possesses the whole rights of duoback technology. • It receives loyalties from Grahl, reversely. • It can export duoback products to other countries, except for Europe. Suing Other Companies Making Clones • All Duoback-looking chairs infringe DuobackKorea’s Rights. • Suing other companies making clones, DuobackKorea won several cases. • It is also warning distributors to stop handle clones.

5. Protecting Innovation 5.1 Methods for Protecting Innovation Licensed innovation was unsafe and DuobackKorea has been in trouble withother companies making clones, so it needed to protect the innovation. Operating Certificate of Authenticity System • It is a procedure to ascertain if a duoback product is made by DuobackKorea using barcodes and serial numbers after a customer purchases it. • Customers who get certificates are given several advantages, and it can inducts prospective customers to purchase its products Extended warranty period Fast warranty service Special events Brand Marketing • Comparison between its product and clones was advertised on the newspaper. • Airing TV Advertisement was effective for maintaining brand loyalty.

Analysis of the Company 6.1 Current Market Situation 6.2 Financial Overview 6.3 SWOT Analysis 6.4 Five Forces Analysis 06

6. Analysis of the Company • 6.1 Current Market Situation Duoback patent has been expired by July, 2009. Many followers will copy the design and the competition is going to be tougher. There are too many copies. This is a big crisis!!

6. Analysis of the Company • 6.2 Financial Overview Sales and operating profit of Duoback has been decreased because of many copies and patent expiration. (억원) (억원) <Annual Data> <Quarter Data> Low operating profit • The price of the raw material has been increasing, so operating profit is low in this year. • Many copies and patent expiration have made sales and operating profit decreased “Financial Crisis!!”

6. Analysis of the Company • 6.3 SWOT Analysis Strength Weakness • Narrow product portfolio (only focused on functional chairs) • Decreasing sales • Expensive product • Powerful brand image • Diversified distribution channel • Many patents SWOT • Opportunity for B2B sales • Potentials for exports to east Asia including China • Well-being culture becomes powerful and powerful • Decreased brand power due to many copies • Competition will become severe after the patent expiration Opportunities Threats

6. Analysis of the Company • 6.4 Five Forces Analysis Potential Entrance • Existing Korean furniture companies • Foreign high quality furniture companies Bargaining power of suppliers Bargaining power of buyers Existing Rivalry • Copies(ex. Dualback) • Fursys, Hanssem, Iloom, Livart, etc. • Raw materials are easy to buy • Good relationship with suppliers • Many copies with cheap price • Other kinds of functional chairs Threats of substitutes • General chairs

6. Analysis of the Company • 6.4 Five Forces Analysis(cont.) Degree Low High Explanations Middle Forces • After patent expiration, more companies might copy Duoback design • Big furniture company made spinoff for functional chairs(ex. Fursys-Sidiz) Existing Rivalry • Any furniture companies can easily get into functional chair market • But, they are reluctant to do so because there are many competitors Potential Entrance • More and more people are highly interested in their health, so general chairs are not really threats to functional chair market Threats of Substitutes • Raw materials of Duoback are easy to get • Duoback Korea has a good relationship with its suppliers, such as 덕진하이텍, 듀오칼라. Bargaining Power of Suppliers • Customers can choose the product out of a variety of functional chairs. • Lots of copies cheaper than Duoback Bargaining Power of Buyers

Suggestion 7.1 Implications from Five Forces Analysis 7.2 SWOT Analysis(Revisited) 7.3 Strategies from TOWS 7.4 Priority of the Strategies 7.5 How to Implement the Strategies 7.6 Balanced Scorecard 07

7. Suggestion • 7.1 Implications from Five Forces Analysis Degree Low High Middle Forces Existing Rivalry Strategic Implications • Duoback should reinforce its “#1 company in functional chair market” image to mitigate the threats of competitors • It must not stick only to the technology, but to sales and marketing. Potential Entrance Threats of Substitutes Don’t worry about these Bargaining Power of Suppliers Bargaining Power of Buyers

7. Suggestion • 7.2 SWOT Analysis(Revisited) Strength Weakness • Narrow product portfolio (only focused on functional chairs) • Decreasing sales • Expensive product • Powerful brand image • Diversified distribution channel • Many patents SWOT • Opportunity for B2B sales • Potentials for exports to east Asia including China • Well-being culture becomes powerful and powerful • Decreased brand power due to many copies • Competition will become severe after the patent expiration Opportunities Threats

7. Suggestion • 7.3 Strategies from TOWS From TOWS analysis, we can obtain several strategic options. S-O (Offensive) (Risk Aversion) S-T • Focus on stabilizing its “high quality and luxurious” brand image through TV commercials • Strategic collaboration with main furniture producers • Penetrate Chinese market with “Korea #1” brand image • Active contact with many institutes and schools which are potential customers(B2B sales) • Diversify its product portfolio TOWS • Price competitiveness through B2B sales strategy • Minimize its R&D cost on new product and focus on sales and marketing W-O (Defensive) (Turn-around) W-T

7. Suggestion • 7.4 Priority of the Strategies Concerning current financial crisis and implications from five forces analysis, we can give priority to some selected strategies in TOWS analysis Financial Crisis Implications from 5-forces • Decreasing sales and operating profit • Should reinforce its brand power • Should focus on sales and marketing #3 S-O #2 S-T • Focus on stabilizing its “high quality and luxurious” brand image through TV commercials • Strategic collaboration with furniture producers • Penetrate Chinese market with “Korea #1” brand image • Active contact with many institutes and schools which are potential customers(B2B sales) • Diversify its product portfolio #1 TOWS #3 W-O W-T #1 #1 • Price competitiveness through B2B sales strategy • Minimize its R&D cost on new product and focus on sales and marketing

7. Suggestion • 7.5 How to Implement the Strategies Duoback should implement the strategies according to the priorities of the strategies. Phase 2: Brand Management Phase 3: Expansion Strategy Phase 1: Crisis management • Minimize its R&D cost on new product and focus on sales and marketing • Active contact with many institutes and schools which are potential customers(B2B sales) • Price competitiveness through B2B sales strategy • Focus on stabilizing its “high quality and luxurious” brand image through TV commercials • Strategic collaboration with furniture producers • Penetrate Chinese market with “Korea #1” brand image • Diversify its product portfolio Preparation for a jump Leap by using saving power Financial Stability

7. Suggestion • 7.6 Balanced Scorecard Vision Global ergonomic product company within 10 years Customers’ comforts equal to Duoback Korea’s comforts <Financial Perspectives> <Customer Perspectives> <Internal Perspectives> <Innovation and Learning>

Technology Management and Strategy