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Winners

Trend Micro Incorporated

2003 3rd Porter Prize Winner Anti-virus software services
Specialization in anti-virus software services in the broader area of network security, and its dedication to accumulating virus information and developing solutions faster and more effectively than any of its competitors, through the efforts of staff in development centers around the world, working 24 hours a day, 365 days a year.

Executive Summary

Trend Micro was established in 1988, and currently is the third largest anti-virus software vendor in the world. (Trend Micro holds a 14.3% share of the global market, while the industry leader has a 36.6% share, according to IDC Market Analysis.)

Unique Value Proposition

Computer viruses are unpredictable - they can breakout anywhere in the world without notice, and they spread very rapidly. Trend Micro provides anti-virus solutions, and aims to deliver them to the market faster than anyone else. It offers corporations and individual customers virus prevention and quick recovery services in the case of computer or network contamination.

The application of anti-virus measures at the gateway enables customers to avoid declines in business efficiency. Should contamination occur, a recovery can be quickly achieved, allowing for efficiency to be restored.

Unique Value Chain

Technology development
Trend Micro maintains teams of engineers in various locations in the world, including Japan, the U.S., Taiwan, Germany and China, and these teams all work closely together to develop new products through the real-time sharing of information over their network.

After-sales service
Over 250 research staff - carefully chosen for their skills - are stationed in the Philippines, Taiwan, California, Munich, Paris and Tokyo. They collect, research and analyze data on computer viruses 24 hours a day, 365 days a year.

Operations
Trend Micro provides products and extends services that range from the prevention of virus contamination, to isolation and recovery services. Even after the expiration of the guaranteed support period (one year from the date of purchase), a customer need only purchase the updated contents and support services rather than having to pay for the entire package again.

Marketing and sales
Trend Micro's sales approach varies for the Japanese and overseas markets, although the company always target major businesses. When entering overseas markets, Trend Micro targets large corporations that are on the "Fortune 1000" list. Such companies generally have experienced IT system management staff in-house, allowing Trend Micro to adopt a direct sales approach. In the case of Japanese companies, however, there is no guarantee of finding a capable IT manager working in-house. Instead, Trend Micro works with system integrators who are familiar with the networks of major companies. The company uses these system integrators as its sales channel, and provides system integrators with extensive support.

Fit among Activities

Trend Micro's activities share the single objective of developing and providing anti-virus measures faster and more effectively than anyone else. Although the staffs are dispersed across the globe, it manages to capitalize on the strengths of each location while striking a balance between local autonomy and central coordination for each function. Information gathering activities are conducted throughout the company's network and basically left up to each country. Solution development, however, is conducted in regional centers utilizing virus information fed in from each country. The actual provision of countermeasures is left up to the local operations in each country, as they would have the best understanding of the customers in each market. The method for cultivating customers is also left to each country.

Anti-virus software development is very complex due to the considerable number of OS platforms which must be accommodated, such as MS Windows, Unix and Linux. Trend Micro, however, can develop responses quickly because its staff focuses solely on the provision of anti-virus software without having to worry about integration with other network security software.

Trend Micro targets the most demanding customers in each country, and focuses on providing them with high-performance products and services. This market segment puts a high priority on performance. Once a product or service is found to be effective, its reputation is spread easily through target marketing and via word-of-mouth. Thus, there is minimal need for advertising. Consequently, Trend Micro, as a Japanese company, does not need to spend large amounts on advertising to improve its brand image.

Although Trend Micro's development activities and overseas sales activities target the major companies in Japan, they also actively develop and sell to small and medium-sized companies, local and national governments and agencies, as well as individual consumers. Trend Micro has successfully penetrated these markets, and has established itself as the market leader in these segments.

Please note, however, that the company has not sacrificed an effective fit across its activities for the sake of penetration in different segments. Because of product characteristics associated with software, increases in product variety do not require additional investments in manufacturing facilities or result in higher inventory costs. Changes in software content do not require much investment either. There is little need for advertising and other sales promotion activities as the company's brand recognition continues to grow. There is no need to build a large sales force because unlike other companies that sell directly to end users, Trend Micro conducts sales to small and medium-sized companies through system integrators.

(Please refer to the attached "Activity System Map" for a more detailed account of the relationship among these activities.)

Innovations that Enabled Strategy

  • Trend Micro succeeded in developing anti-virus software that functions on Internet entries and exits (gateway servers), and marketed this software earlier than any other company (with patents registered in 1996). Even today, its gateway products hold a 40% share of the global market, which is double the share of the closest competitor in distant second place.
  • Trend Micro's organizational management skills as a global corporation working across borders enables a rapid response to viruses that spring up in any part of the world and rapidly multiply.

Consistency of Strategy Over Time

Trend Micro has been focusing on anti-virus software since its establishment in 1988.

Trade-offs

  • Trend Micro does not develop products other than anti-virus measures in the broader area of network security. (This includes access limitation to network/fire walls, the monitoring of unauthorized access/IDS, etc.) (Cf. Other competitors are active in these areas that Trend Micro declined to enter. Their strategy is to package a number of solutions for several security areas into a single product, thereby enabling users to integrate operations and management of network security into one solution.) Trend Micro believes that it would not be able to fight the numerous viruses that spring up and rapidly mutate in a short period of time if resources had to be spread over many security areas and developed as an integrated package.
  • Trend Micro tries to minimize inconveniences to users, who are required to seek different products for each area, by cultivating alliances with other category leaders and making products compatible with those specialized in different areas. Trend Micro markets its products in a package with complimentary security products at a special price, as well as offering bulk-purchase discounts.
  • As Trend Micro emphasizes differentiation by function, its products sometimes fall short in terms of ease of operation and maintenance for inexperienced users.
  • Trend Micro does not actively invest in marketing or spend considerable amounts on consumer advertising to improve its brand recognition.

Profitability

Trend Micro's return on sales consistently surpasses the software service industry's average by a wide margin. Its return on invested capital is also higher than the industry average.

Trend Micro greatly increased its invested capital by listing its stock on the OTC market in Japan in 1998, listing on NASDAQ in the US in 1999, and also on the first section of the Tokyo Stock Exchange in 2000. In such a situation, return on invested capital usually declines, but Trend Micro consistently improved the return, and the gap with the industry average is widening.

Return on invested capital (ROIC)   (Unit = percentage point)
Difference from industry averag
over 5 year period
Difference from industry average, by year
1998 1999 2000 2001 2002
13.9%P 2.0%P 3.7%P 7.5%P 7.5%P 17.2%P
Return on invested capital = Operating income / Average invested capital

Return on sales (ROS)   (Unit = percentage point)
Difference from industry average
over 5 year period
Difference from industry average, by year
1998 1999 2000 2001 2002
27.6%P 20.0%P 27.1%P 30.1%P 26.3%P 28.3%P
Return on sales =Operating income / Net sales

Activity System Map

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