Important information of F&N.

EXECUTIVE SUMMARY

This report is about the strategic management tools in F&N business strategic planning, implementation and control processes. An overview of F&N is found at the beginning of the report to give a quick summary of the industry and also the important information of F&N.

The report includes an environmental scan covering the following:

  • A macro environment analysis with the aid of the PEST model to analyse the extend of the environment forces has or will affect the achievement of the F&N's missions and objectives focusing solely on Malaysia the major company in which its operates.
  • The Porter's Five Forces model is used to analyse the industrial level forces that will intimately affect the operations and profitability/cash flow of F&N.
  • With the assistance of the Porter's National Competitive advantage - diamond the attractiveness of the countries it operates in is evaluated.

A critical assessment of the strengths, weakness, opportunities and threats (i.e SWOT analysis) is included in relation to the internal and environmental factors affecting F&N in order to establish its condition prior to the preparation of the long term plan. The existing strategy in line with the vision and mission of the company will show how F&N will be able to sustain by focusing on their current resources.

An analysis into the different portfolio of F&N is done to evaluate the attractiveness of the different business portfolio. In addition, a balanced scorecard with both the financial and non-financial aspects are identified for monitoring and control purposes also to evaluate the efficiency and effectiveness in the utilization of the liabilities in funding the related assists of the business portfolio.

Recommendations to improve the portfolio performance of F&N and the profitability to enhance value maximization, both in terms of dividend flow and capital appreciation will be explored in this report.

Due to the limitation of information accessible this report will focus more on the soft drinks and dairy segments followed by the property segments of F&N. The report excludes the glass producing segments where F&N is the sole listed company with this portfolio.

ENVIRONMENT SCAN

Macro Level

Pest Analysis - Focusing on Malaysia as it generates the major portion of the company's revenue.

Political/legal

Government Policy

On April 21 2009, the prime ministerDatuk Seri Najib Tun Razakhas announced liberalisation of 27 services sub-sector by abolishing the 30% Bumiputera requirement. On June 30 2009, the premier announces further liberation moves including the dismantling of the Bumiputera equity quotas and repealing the guidelines of the Foreign Investment Committee, which was responsible to monitor foreign shareholding in Malaysian companies.

Third Industrial Master Plan (IMP3) which covers a period from 2006 to 2020. The industrial plans aim to make Malaysia a major trading nation and build up the country's economy and human capital.

Employment Law

Employment Law is the law which regulates the operation of the labour market in general and the employment relationship between employers and employees in particular. This is governed by the Malaysian Employment Act 1955.

Environment protection laws

Environmental auditing and reporting as a management tool is becoming increasingly important in the wake of numerous calls for sustainable development. Environmental reporting is basically about the company's disclosure related to the impact of its economic activities on the environment. The ISO 14001 is an internationally-accepted environmental standard set by the International Standards Organisation.[1]

Government stability

Before the general election the county's political atmosphere was easily predictable but since then the political situation in Malaysia has been wavering with the clashes of the different political parties. So far it has only been war of words.

Taxation Policy

In Malaysia, the government's decision to promote green technology across all sectors, especially building, energy, water and waste management, will see companies going "green" be provided with various tax incentives such as pioneer status.[2]

The affects on the achievement of the company's missions and objectives

The policies implemented by the government will affect the company's missions and objectives as the companies will have to abide to the regulations set by the government. For eg. the company will have to protect the environment as one of their company's objectives as it is required by the government. This may mean the company may also have to employ human capital to monitor the company's environment protection procedures which will incur more cost but will bring long term revenues as the consumers would prefer purchasing from companies that protect the environment. Furthermore, the company will also have to follow the employment laws set out by the Malaysian Government if it operates in Malaysia.

The taxation policy will also help the company reduce its cost through its tax exemption and allowances given by the government. By the ability to reduce its cost the company will then be able to meet its financial objectives easier that is to be cost efficient.

The government stability also affects the share prices of the company. If the country is stable it will attract overseas investors to invest, however if the country is in chaos the importing and exporting of goods may also be disrupted apart from discouraging investor. This will bring negative impact to the company's financial objectives and also from expanding further.

Economic

The economic policy that is set out by Bank Negara Malaysia which includes the fiscal policies, monetary policies, and supply-side policies is crucial to the business survival.

Business Cycles

The recession caused by the Global Financial Crisis is believed to have ended. The stock markets worldwide have already been gaining strength. This shows that the cycle has move to an upward trend. The economy is now in the recovery stage.

Unemployment

The unemployment rate in Malaysia is standing at 3.3% as of 1 January 2009 [3]which is relatively better than USA, UK, Australia. The unemployment rate in Malaysia has been improving since the government has setup up measures in its recent budget to counter the unemployment problem.

Inflation Rate

Inflation rate in Malaysia as at 1 January 2009 is at 5.5% [4] which is an increased from May 2008 where the inflation rate was standing at 3.8%.[5]

Exchange rate

Fluctuation in exchange rate results in transaction risk (where the company may need to pay more/received less than it has expected) and translation risk (where the company's investment may suffer depreciation on the value of investment). The Ringgit is 3.38 to 1USD now (4th December 09) which has strengthen since January where 3.48 equals to 1USD. [6]

Interest rate

Many countries cut back on the interest rate due to the Global Financial Crisis.

The affects on the achievement of the company's missions and objectives

The current financial crisis affects almost every company's revenue. The business cycles are a norm and something that each company will have to go through. By understanding the business cycles the company can cushion the impacts before it reaches the recession stage so that it will be able to recover from the crisis and thus the company can still its operations and continue its mission to expand its company.

The exchange rate fluctuation will affect the company's financial objectives as the company is subjected to the volatility in the rates and this may cause huge profits to result in lower profits due to the currency exchange.

The increasing of interest rates in debt to discourage companies from borrowing will affect the cost of gearing of the company and lower interest rates will reduce the cost of gearing. Thus, the rates will impact the company's financial goals.

During the financial crisis the Federal Bank tightened capital and money market which are investment resources. Thus, this investment became scarce and limit the ability of F&N to obtain finances to do major expansion.

Socio-cultural

Population demographics

The population growth rate of Malaysia is 1.723 and has an estimated population of 25,719,819. The growth rates in Malaysia in the urban areas are declining as many focus on their careers.

Lifestyle change

The increasing awareness of health has spurred the citizens to be health conscious. The irony is that the demand is still for fast services as the busyness of life forces people to rush through their meals. Therefore, a balance is sought by these health conscious and busy young adults and the business people.

Income Distribution (Appendix 2)

According to a survey done by the Statistic Department for the Economic Planning Unit recently, the Malaysian average monthly household income is RM3686, which falls in the RM3-4k group. The national poverty rate of Malaysia is 15.5%[7]

Environmental Protection

With increasing efforts by the environmentalist, people are generally more conscious towards the environment and we can see this through the trends of the people paying more for recycled goods and also environmental friendly goods.

The affects on the achievement of the company's missions and objectives

As the nation population grows, the market for F&N also expands. F&N will have more customers to reach out to. The urban areas population has been decreasing thus reducing the number of potential customers of F&N. This will impact the company's objective to increase revenues.

The purchasing power of the nation depends on the income distribution of the nation. Therefore, if the nation is doing well thus the citizens will be able to purchase higher price goods but if the nation's purchasing power is low the price of the products will have to be reduce thus reducing the profit margins of the company and this will lead to the company not achieving its objectives set.

Lifestyle changes also impacts the achievement of the company's missions and objectives as the company will now have to conduct research and development efforts to cater to the needs of their buyers. The company will have to come up with more health conscious products and also to make it their mission so that the buyers will know that the company's mission is aligned with their mission to be healthy.

Technological

Speed of technology transfer

In just this few years, the technology has changed tremendously. A company without a website or e-services will lose out tremendously in the market. The technology age has not ended and we see that Malaysia has begun having more players in the Internet Service industry, from a single player to multiple players. Better connection is a must.

Government and industry focus on technological effort

The Government of Malaysia is seeking to promote the applying of existing technologies more intensively and adopting new technologies in their operations, so that local manufacturing companies will be able to build on their expertise to become own design manufacturers and own brand manufacturers.[8]

New discoveries/developments

New discoveries and developments is a must to keep up to date with the demand of the people who is always looking for new things. In addition, new developments to improve the current technologies use in production such as the IT system, the machinery is needed to ensure that the company stays competent.

The affects on the achievement of the company's missions and objectives

The speed of technology transfer affects the company's objectives in terms of business strategy. If the company wants to remain as the market leader they will have to upgrade their services to the customers and clients not only through direct but also through the Internet. They will have to upgrade their databases in the company to meet the technology trends to stay efficient and above their competitors. More goods can be produced at a shorter time with the use of technology.

With the advancement of technology, more sophisticated products can be produced to meet the demands of the buyers. Being able to create products that are cost-efficient are the advantages of having technology. Hence, achieving the corporate objective of the company to maximise shareholders wealth as the company is able to reap more profits.

Conclusion

In a conclusion, the individual PEST forces each impacts the operation of F&N. As F&N operates in the global market, the Political force is important to the company apart from the economic volatility on future earning and the economic stability.

Industry Level

Porter's Five Forces

Bargaining power of buyers

The buyers referred to here are the chain supermarkets such as TESCO, AEON, GIANT, CARREFOUR.

Presence of substitute outputs

In this age where information is available to everyone, the buyers can easily get accurate information on the selling industry's costs and demand. This gives them a real edge during negotiations with F&N.

Switching cost to buyers

The switching cost to the buyers are relatively low they can easily switch from one seller to another. However, since F&N is a large producer in this industry there aren't many other types of products in the market. Furthermore, the switching cost may be high if the buyers love the taste of the product as it is different from the other competitors.

Threat of backward integration

There is a threat of backward integration. This is because hypermarket giants such as Tesco, Carrefour and also AEON have already started producing their own goods which is similar to the product but under their own brand.

Industry concentration relative to buyer concentration

There are many buyers in the industry of soft drinks and dairy from the hypermarkets to the sundry shops. The chain supermarket giant however, has a larger impact on the company if they choose to stop purchasing as they purchase large volumes of goods.

Bargaining power of suppliers

Presence of substitute inputs

Regardless of the cost of a supplier's input, if it is crucial to the performance of the producer's final output, suppliers will have power over producers. Therefore, in F&N production the ingredients such as acesulfame potassium which can only be bought from Nutrinova Nutrition Specialities & Food Ingredients GMbH is crucial for the production of Coca-cola.

Importance of volume to suppliers

F&N is the biggest soft drinks and dairy producers in the country. Therefore, the volume being sold to F&N is important to the suppliers and thus giving F&N a great deal of power over suppliers compared to the other smaller producers.

Information about suppliers products

The supply of raw materials and also maintenance services are of high importance to the manufacturer because a slight disruption could result in huge losses which include also the reputation loss. Therefore this increases the suppliers bargaining power.

Threat of forward integration

As there is a high entry barrier, threat of forward integration is low as it discourages suppliers of raw materials to forward integrate.

Threat of new entrants

Access to distribution

F&N have supplied to major hypermarkets, supermarkets and even local sundry shops for many years. However, the access to distribution is not restricted thus new entrants are also able to distribute their products to the different retailers.

Absolute cost advantages

F&N has been in the industry for 125 years. With the amount of years of experience they have managed to improve their methods of producing goods in low-cost design, and even begin to have their own factory producing packaging of glass containers. This gives them the cost advantage over their new entrants as they have some control over cheap raw materials.

Capital requirements

The branding activity is crucial in the food and beverage industry. Thus, this incurs huge costs to the company. Furthermore the machinery and also the factory are high costs. There is also a need to continuously introduce new products which will require research and development exercise which are also very costly.

Brand identity

F&N has a strong brand identity mainly because of the collaboration with the Coca-Cola Company. This has helped F&N to have a foothold in the Malaysian market. Today, F&N is a widely known and established brand in the Asian region.

Economies of Scale

There is a need for high large-scale production in this food and beverage industry in order to be cost-efficient. This not only reduces the cost of each unit but it will also reduce the cost of fixed cost and advertising as it will be spread out to a larger volume of units. Therefore having higher market share will deter new entrants. F&N is the market leader in Malaysia in the food and beverage industry.

Threat of substitute products or services

Possible substitute products are alcoholic beverages, coffee, tea.

Switching costs

While switching cost may be relatively low, a switch may lead to potential disruption and upheaval to purchasing and production schedules and changing operating conditions. Therefore, switching may not be a favourable choice.

Buyer propensity to substitute

It may make economic sense for buyers to switch but switching would mean the taste of the buyer would have to change. As we are moving towards a health conscious age, most of the buyers would not easily switch to alcoholic beverages, coffee or tea as they are bad for health.

Relative price/performance of substitute

Alcoholic beverages are relatively more expensive compared to the non-alcoholic beverages.

Intensity of rivalry among existing competitors

Existing competitors in the Soft Drink, Dairy and also the Property Segments.

Soft Drinks - Yeoh Hiap Seng, Diary - Dutch Lady, Property - Dijaya Corporation

Industry growth rate

There is a relatively low industry growth rate for the food and beverage industry in Malaysia. However, there seems to be and increasing trend in the growth rate of countries such as China, Thailand and Vietnam. Thus in Malaysia the intensity is high as growth of one company will be at the expensed of F&N while in China, Thailand and Vietnam there may be a low intensity. [9] In terms of the property industry, there is an increasing growth rate in Malaysia.

Exit barriers

There are high exit barriers as the costs to withdraw from the industry can be costly as it will not be easy to find buyers to buy the plant and machinery of the factory. In the property division there is also high exit barriers as it is a costly investment to begin with.

Brand Identity

Brand is a very important aspect to attract customers. Therefore, it generally reflects perceived product differences between competitors and this assists in reducing competition within the industry.

High Fixed Costs

High fixed costs will tend to lead to high rivalry. The introducing of a new product line and also the costs of continuing a product is high as it will require promotion and branding efforts.

Concentration and balance

There are relatively few major competitors in the soft drink and also the diary industry. Therefore, there are a few rivals only. However, in view of the separation with The Coca-Cola Company, The Coca-Cola Company is a major threat to the sales of F&N.

The effect of the 5 forces on the operations and profitability/ cash flow

Industry rivalry is moderately high due to the undifferentiated products and services and the major competitors but it is mitigated by the high growth rate and the high exit barriers. Therefore, to continue maintaining its profitability, F&N will have to be creative in their product development and also to be cost-efficient to continue being the market leader in the industry. Thus, having favourable cash flows for the company.

There is moderately low threat of substitutes. This threat will add additional pressure on F&N as the substitute products may eat into the revenues of F&N and reduces the profitability of F&N. The operating cost of the business will have to be cost-efficient and differentiating its products from the others in the market will be crucial to lower the threat of substitutes.

The threat of new entrants is moderately low as F&N has the absolute cost advantage and the huge cost of capital deters new entrants. However the access to distribution is not a restricted access where other entrants can also access to it. As long as the threat remains low, F&N would have a larger profitability as there are fewer entrants into the market. F&N will have to continue expanding its market share to maintain future profitability.

Bargaining power of suppliers and buyers are low therefore these threats have little influence on the operations of F&N. Hence, there will be minimal impact on the profitability and cash flow of F&N.

In summary, F&N's position as market leader has enabled it to reduce the power of each force. Therefore as all five forces are relatively moderate the industry profitability of F&N should be high.

Investing in Thailand, Vietnam and China enhances the competitive of F&N. F&N invested in Thailand as an access to the untapped Vietnam economy.

Operating in India has enhances the competitiveness of Unilever through:

  • Government lowers the cost of operation, thus helps to lower the total operating cost
  • Demand condition contributes to the total sales, thus enhances the ability of Unilever to achieve economies of scale
  • Factor condition regarding the availability of resources; thus ensuring that Unilever's operation in India is being run smoothly
  • The competent players of Related and supporting industry across the supply chain help to drive Unilever in becoming more competitive
  • The competitiveness of local and international players in India market helps to drive the competitiveness of Unilever. Thus with the increased competitiveness, it helps to make Unilever more competitiveness as a group.

SWOT Analysis

In summary, F&N will have to leverage on its strengths to overcome its weaknesses and to pay special attention to the threat quadrant as the problems may hinder F&N from being able to explore the opportunities as mentioned above.

Impact of the environment towards the Business Strategy of F&N.

Based on the PEST analysis, the noticeable trend is that consumers are more educated. Many of them are not only health conscious but also have the on-the-go lifestyle with many paying attention to the corporate governance which includes the environment policies of the company before purchasing. This has encouraged F&N to come up with product that are low in sugar, low calories, and going 100% original juice. Due to the increasing inflation rates in Malaysia, F&N has ventured out to countries with lower cost to achieve the cost advantage over their competitors.

From the Porter's Five Forces Analysis, F&N will have to continue to strengthen its own brand name and continue in its research and development efforts to come up with new products to continue maintaining its market position. F&N should differentiate its products not only through branding but also through quality and cost leadership for its food and beverage industry which includes soft drinks and also dairy products. F&N should acknowledge the roles played by the buyers and their significance.

F&N's Vision and Mission

Vision:"To become the leading total beverage company in Malaysia and the region"

Mission:"To be a world-class multinational enterprise providing superior returns to our shareholders, excellent value for our customers and a rewarding career for our employees"

Exiting corporate strategy of Unilever

In a press release[22], F&N Chief Executive Officer Tan Ang Meng said the launch of the new food and beverage corporate brand heralded the Group's overall plan to promote healthy enjoyment, maximize marketing efficiencies, leverage new platforms for product and financial growth and increase brand awareness. This shows that F&N existing strategy is differentiation. This is through product innovation (coming up with new products), brand name (Magnolia, Seasons, 100 plus), distribution channels (the Asian region and also soon the Middle East with its Halal certification)

Looking at F&N's group structure, it can be seen that apart from differentiating its products, F&N also acquires companies that are profitable to accelerate its current portfolio development. As the market leader in the food and beverage industry, F&N targets consumers groups by using its product differentiation to reach each of the groups.

From the analysis of both the macro-environment and the industry, the major drivers of competitive success in F&N are:

Branding

The establishment of major brands in the industry such as 100 plus which is the market share leader. [23]

Diversification in products and also markets

The research and development department of F&N will be coming up with more new products - tea, coffee, Asian soft drinks, water, lemon lime --

Diversification in soft drinks - carbonated, non-carbonated, Asian soft drinks, dairy products, glass manufacturing, and also property development

Different markets such as Thailand, Vietnam, China reaches a larger population of consumers.

PORTFOLIO ANALYSIS

BCG Matrix

BCG matrix of the business portfolio

BCG is an approach based on approach used in financial strategy and is intended to give guidance on where to invest additional funds. (CIMA's official learning system, Management Accounting - Business Strategy by Neil Botton, published by Elsevier). The reason why we choose to use this matrix to access is because F&N is pursuing low-cost leadership strategies based on the experienced curve and also the BCG matrix will help F&N manage their portfolio of diversified business.

Market Growth

Growth is seen as the best measure of market attractiveness. According to FnBNews.com the food and beverage industry is currently witnessing a 20% annual growth rate, the soft drinks and dairy products are listed under the food and beverage industry therefore the annual global growth rate for the food and beverage industry is 20%.

The growth rate for the property industry in Malaysia according to Bank Negara's Annual Report 2008 is 3%.

(Used the global rate because F&N competes globally in the food and beverage industry and the Malaysia growth rate for the property portfolio because the operations of F&N are all local)

Relative Market Share

Market Share is seen to be a good indicator of competitive strength. The relative market share is a value to measure the range between the market shares of F&N with the best in the industry and where F&N is the market leader to the second best. The competitor chosen has similar products and price range. It targets similar purchasing power customers. This is to ensure that F&N is benchmark to similar size companies.

Interpretation of the matrix

The primary assumption of the matrix is that the higher an organisation's market share, the higher its profitability and the lower its costs due to economies of scale, the experience curve and improved bargaining power.

The Soft drinks and dairy portfolio of the company has high relative market share of 3.30times and also 3.77times. These portfolios are stars which may be in a later stage of its product life cycle. A star may be only cash-neutral despite its strong position, as large amounts of cash may need to be spent to defend F&N position against competitors. Competitors will be attracted to the market by the high growth rates. Failure to support a star sufficiently strong may lead to the product losing its leading market share position, slipping eastwards in the matrix and becoming a problem child. It represents the best future prospects and can be maintained or increased through price reductions, product modifications, and/or greater distribution. As industry growth slows, star becomes cash cows. [24]

The property portfolio of F&N has only a growth rate of 3% and a low relative market share of 0.30times. It is unlikely that a dog can wrest market share from competitors. F&N can choose to continue its operations in the property segments if they do not incur negative cash-flow. However they may also choose sub-contracting the development out to other companies and gain a percentage of the profits from the sales later. The revenues of F&N in this segment have been increasing even though it may not be a competitor to the other property giants in the industry. Even though the likely decision of the matrix is to divest however, it currently still generates profits to the company. Furthermore the outcome could be due to the current economic crisis and the industry growth should improve when the economy is on an upward trend. Therefore, F&N should stay and increase efforts to improve its market share in the industry.

A portfolio's place in the matrix is not fixed for every as the rate of growth of the market changes. Thus in conclusion, the dairy portfolio is the most attractive followed by the soft drink portfolio. The least attractive portfolio is the property portfolio.

Balanced Scorecard

RECOMMENDATION

As a market leader F&N, needs to be always on alert. F&N will have to act on 3 fronts to improve their portfolio performance (shareholder value maximization, dividend flow and capital appreciation) which are:

  1. Expand the total market demand.
  2. Protect its current market share through good defensive and offensive
  3. Increase its market share further, even if the existing market size remains constant

The Ansoff Matrix will be used to aid the recommendation as it is a useful tool as it summarises the strategic options.

Ansoff's Product-Market Matrix

Risks increases from quadrant A to quadrant D (risk in quadrants B and C probably about equal)

Strategic options available based on the Ansoff Matrix:

  1. Market Penetration - company seeks to increase the sales of its present products in its existing markets. Involves cutting prices, more advertising, and minor product improvements.
  2. Product Development - Aims to increase sales by developing products for a company's existing market. Involves develop new products, create different quality versions of the product, develop additional models and sizes.
  3. Market Development - company seeks to increase sales by repositioning present products to new markets. Involves finding new market for existing products.
  4. Diversification - Vertical Integration: taking over a supplier or customer. Horizontal diversification: Development into activities that is competitive with or directly complementary to a company's present activities.

The different strategies involved are:

  • Market penetration; where companies increase its sales in its present line of business. It can be accomplished through price reductions, increases in promotional and distribution support, acquisition of a rival in the same market or modest product refinement.
  • Market development; where companies extend the product range available to the firm's existing markets. It can be achieved through investment in research and development of additional products, acquisition of rights to produce someone else's product, buying-in product and 'badging' it or joint development with owners of another product who need access to the firm's distribution channels or brands.
  • product development; where companies develop through finding another group of buyers for its products such as different customer segment, industrial buyer, new areas or regions and foreign markets
  • diversification; where companies are becoming involved in an entirely new industry, or a different stage in the value chain of its present industry

Savoury, dressing and spreads

According to the previous sections, this business portfolio is in Star quadrant. The high relative market share ensures that this business portfolio could turn to be highly profitably. Also, the business portfolio is utilising the capital more efficient to the competitor and that the efficiency has improved compared to the previous year.

Based on the BCG matrix, this business portfolio is a star quadrant and hence, the projects that are able to strengthen the leadership position in its existing market should be given higher priority. Among the strategies to improving the portfolio peformance, we recommend that Market Penetration and Product Development. In essence, both strategies are coherent with Unilever's existing strategy and critical success factors in building the market (refer to Corporate Strategy) which is to maintain leadership position through diversified products ranges (Product Development) and products at different price ranges (Market Penetration). At the same time, in evaluating the subsequent projects, Strategic Investment Option would be a favourable characteristic as Unilever may invest progressively. This will minimise the loss as Unilever is not abide to make subsequent investments when uncertainty over the future earning is high.

We recommend that the projects dedicated to entering into new market should be scrutinised due to the tightening of capital and money market.

Ice-cream and beverages

According to the previous sections, this business portfolio is in the question mark quadrant. The relatively low market share puts this business portfolio in a less favourable position to earn high profit. However, the efficiency in capital utilization of this business portfolio remains the highest in the industry; though the efficiency is less than the previous year.

Based on the BCG matrix, this business portfolio is a question mark and hence, management should consider whether to invest substantially to gain higher market share or to divest this portfolio. Due to the scarcity of capital resources, this quadrant is, in our opinion the riskiest portfolio of all due to the low market share and uncertainty over profitability potential. Our recommendations to improve the portfolio performance are as follow.

  • Re-evaluate the viability of keeping this business portfolio. However even if the decision is to divest, we don't recommend Unilever to divest this business portfolio as the possibility where possibility where Unilever may not be able to realise fully the Net Realisable Value is high due to the scarcity of funds that applies to potential buyers as well.
  • The portfolio should hold the existing position by protecting current market share
  • We recommend that Unilever should not invest in projects that require significant capital outlay due to the infinite capital resources
  • If Unilever decides to invest in the project for this business portfolio, higher priority should be given to the project that offers Abandonment Option. If unexpected adverse event occurs, Unilever can abandon the project, thus minimising the loss.

The strategies we would like to recommend for holding the existing portfolio are the strategies under Market Penetration and Product Development to increase the sales of products under this business portfolio. Similar to the explanation in Savoury, Dressings and Spreads, the proposed strategies are coherent with the existing Unilever's strategies.

Home and personal care

According to the previous sections, this business portfolio is in the question mark quadrant. This portfolio is ranked second in term of attractiveness where it has the potential to earn high profit if it is able to increase the market share. However, the efficiency in capital utilization of this business portfolio is lower than the main competitor, P&G and also previous year's efficiency level.

Based on the BCG matrix, this business portfolio is a question mark and hence, management should consider whether to invest substantially to gain higher market share or to divest this portfolio. Thus, to improve the portfolio performance, we recommend that Unilever:

  • Re-evaluate the viability of keeping this business portfolio, but not to execute the divestment now due to the scarcity of funds that will lead to suppression of disposal values
  • The portfolio should hold the existing position by protecting current market share
  • We recommend that Unilever should not invest in projects that require significant capital outlay due to the infinite capital resources
  • Should give higher priority to the project that offers Timing Option. Though there is potential to increase the profitability from this portfolio, however, there is still uncertainty over the ability of Unilever to overtake the leadership position. Timing option offers flexibility for Unilever to decide later whether to proceed or abandon in future.

BIBLIOGRAPHY

Books

  1. Neil Botten,'CIMA Official Learning System Management Accounting Business Strategy',CIMA Publishing, 2008.
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  8. Third Industrial Master Plan (2006-2020)
  9. http://www.indexmundi.com/map/?t=0&v=78&r=xx&l=en
  10. http://www.kwintessential.co.uk/etiquette/doing-business-china.html
  11. The Star Biz Week ' All roads lead to China' 5 December 2009
  12. Doing Business in China 2010. The International Bank for Reconstruction and Development / The World Bank
  13. The PricewaterhouseCoopers EM20 Index 2008
  14. http://blog.doingbusinessinvietnam.com/2007/10/great-5-year-outlook-for-vietnam.html
  15. Thailand Overview of economy, Information about Overview of economy in Thailandhttp://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Thailand-OVERVIEW-OF-ECONOMY.html#ixzz0YmWN5mnK
  16. http://blog.doingbusinessinvietnam.com/2007/10/great-5-year-outlook-for-vietnam.html
  17. http://www.austrade.gov.au/Food-and-beverage-to-China/default.aspx
  18. BBC News, 'Thai army moves to quell protests', 13 April 2009
  19. BBC News, 'Typhoon Ketsana blasts Cambodia', 30 September 2009
  20. BBC News, Hundreds of Taiwanese feared dead' 11 August 2009
  21. http://www.cnn.com/2008/WORLD/asiapcf/05/12/china.quake/
  22. 25 March 2008 F&N UNVEILS NEW FOOD AND BEVERAGE CORPORATE BRAND IDENTITY AND AIMS TO EXTEND FOOTPRINT OF FOOD AND BEVERAGE BUSINESS
  23. AC Nielsen Retail Audit
  24. KAPLAN PUBLISHING, 2006 CIMA Business Strategy

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