Academic Case Studies

Santilia.com – a business search engine for sellers and buyers

2011-11-20T03:07:00.000-08:00

Santilia.com is an online marketplace where buyers and suppliers can find each other by posting buying leads and selling leads and by searching on a very large database of almost all products and services of suppliers and buyers in Europe, North America and Asia.

Joining Santilia.com you have the opportunity to:

- Find potential domestic and international buyers or suppliers

- Post unlimitedly selling leads and buying leads

- Display unlimitedly your products and services

- Create freely your own Company Website and online Showroom

- Use Trade Alerts Tool to sell more and to buy easier

- Access to online library

- Get updated news, newsletters

Santilia.com is an effective marketing tool for sellers to expose their products and a good purchasing tool for buyers to reach sellers freely and rapidly.

Let's join Santilia.com and experience all services it offers to develop your sales or to buy better.

Just in time for the holidays

2010-07-25T01:48:00.002-07:00

Date: January 16, 2007

Problem: North Pole Workshops’ production capacity can not meet the surging demand for Timmy CDs on Christmas Eve. The management team gets stuck in mapping a solution to fulfill such demand because team members have their own solutions and they oppose the others’ solution.
Reasons:
- Weak demand forecast ability (the actual demand is 20% over the company’s assumption)
- Weak production planning ability
- No links between demand and production planning
- Do not have compelling product strategy, sales & marketing strategy, operation strategy
Suggested temporary solution:
- If the company can use current production lines of Meorwrrr or change them to produce Timmy CDs, the company should stop producing Meowrrr and produce Timmy CDs.
- If the company can not use other production lines to produce Timmy CDs, it should sell Moewrrr in the US market instead of Timmy CDs as proposed by Fiffledip.
Suggested long-term solutions:
Production strategy:
- Redesign products so that all products can share as many common components as possible. This will help the company use a production line to produce various products.
- Redesign production process to make it become flexible to produce many types of toys.
- Diversify product lines so various products can substitute each other when one product is not available on sales.
Operation strategy:
- Adopt a flexible manufacturing system such as cellular manufacturing to achieve mass customization and reduce production lead time.
- Outsource some unimportant components in the US.
- Outsource toy production with tight control over product quality to China. This will help the company fulfill surging demand in the Asian market, cut production costs and reduce pressure of over capacity.
Branding strategy:
- Create and maintain successfully a strong brand to deliver the “soul” of the company’s toys to children and make them understand the core brand values rather than a single product Timmy. A strong brand can make children feel happy with various toys from the companies and willing to buy other toys when the toy they want is not available.
Sales & marketing strategy:
- Improve demand forecast ability. The company should make demand forecast by using historical sales data and managerial judgment of the current market conditions. But the company should not make demand forecast by basing on the number of the letters received from children.
- Use letters from children as a source of information to develop new products that meet children’ preferences and predict future purchase trends
- Sell toys to the core values of the brand
- Create & develop a strong distribution channel that can sell the core brand values to children
- Use up-selling: encourage children to continuously buy upgraded toys. This strategy can motivate children to visit stores often and buy new products that bring the company greater profits.
- Use cross-selling: sell one toy to children and recommend them to buy other toys as complement toys. This strategy can encourage children to make their own collection of the company’ various toys, and create the desire to buy many types of toys.
- Urgent purchase strategy: create the feeling of urgency to buy the company’s toys when the items are available. This strategy can encourage children to buy toys around the year instead of waiting for Christmas. By doing so, the company can avoid the surge of seasonal demand and predict better future demand.

Internal Branding at Yahoo

2010-07-25T01:48:00.001-07:00

Date: January 23, 2007

What I am going to achieve?
I want to change successfully corporate culture aligned with new business model and corporate values.

Why?
• Solve communication problem between the management and the employee and between business units.
Why?
• Strengthen the relationship between leaders and employees.
Why?
• Unite the management and employee.
Why?
• All Yahoo’s people share the same values.
Why?
• Link corporate external brand to corporate culture and values.

Fundamental question
How to best link corporate external brand to corporate culture and values?

Test

• This question is strategic because this is a part of the implementation of the new business model.
• This question is explicit because it is clear and understandable.
• This question is executable because HR division and Yahoo’s people can do.
• This question is direct because it is a direction to achieve the goal.

• Will answering the question can solve the problem at hand? Yes
Yahoo has a strong external brand but the people inside Yahoo do not perceive the values of the brand that the external people perceive. Therefore, by answering the question, we can have Yahoo’s people perceive the same values.

• Will answering this question make you champion? Yes
If Yahoo’s people are united in purpose and know the direction of the company, Yahoo can implement successfully the new business model and become a ready-to-change organization.

The SEED question
How does Sartain link Yahoo’s external brand to the corporate values and culture?

Walt Disney Internet Group Japan’s Dimo Project

2010-07-25T01:47:00.000-07:00

Date: February 28, 2007

Most important question
How should WDIG increase the awareness of the Dimo brand among i-mode users?

Key drivers
• I-mode subscribers.
• I-mode providers (NTT Docomo).
• Strategic relationship-partnership with i-mode providers.
• Strategic partners with whom WDIG work with to develop character design and contents.

Competitive advantages

• ‘Living’ set of characters that can create different histories about the existence and therefore fulfill users’ need for self-image and identity.
• In-house innovation and technology enable WDIG to keep pace with fast changing Japanese mobile markets especially i-mode technology.
• Low operating costs.

Recommended strategy for WDIG

• Choose a product branding strategy, which is to create Dimo as a non-Disney brand exclusively to the set of Disney characters and to position Dimo brand as an individual brand that is totally separated from Disney brand.
• Continue to develop the power of Dimo set of characters as living characters by adding contents and histories characters can tell.
• Strengthen strategic relationship with NTT Docomo; continue to ask it for financial support for advertising and promotion campaigns; work closely with Docomo to develop new contents for future Docomo’s new series phones.
• Position Dimo brand as ‘self-image’.
• Target teenagers and adults in their early 20s who need self-image and identity to characterize themselves.
• Distribute Dimo set of characters via i-mode providers, especially via NTT Docomo.
• Communicate the positioning via Dimo Websites, ads on magazines and newspapers for teenagers and adults, TV commercials on channels for teenagers and adults, advertisement campaigns at places where teens and adults frequently come such as teenager shops.
• Register the trademark of Dimo set of characters and license the character set to expand business.

BRAND EXTENTION AT REAL MADRID

2010-07-25T01:46:00.000-07:00

Executive summary

Real Madrid (RM) has been worldwide-known as one of the best soccer club in the world. However, RM has experienced negative profits in recent years due to changes in the soccer environment. To achieve sustainable growth, RM needs to extent its brand worldwide in order to gain profits. To do so, RM needs to set up a new channel of communications and partnership-relationship with retailers, broadcasters and franchisees who are key drivers in enabling RM’s brand extension around the world.

1. Ask SEED Question

Initial Question
What are we trying to achieve?

We want to extent Real Madrid brand worldwide to gain profits.

“Why”
• To have stable profit growth in the future independently from field performance.
Why?
• To counter the stagnation of revenue growth from traditional channels (broadcasters, sponsors, match day).
Why?
• To sustain the profitability of the club in the long term.
Well, that’s obvious!

The SEED Question

How can Real Madrid gain profits while extending its brand worldwide?

(How Real Madrid can have the best profitability through expanding it brand worldwide).

Why is the SEED Question Important?

• The question is strategic because it is a part of the implementation plan to achieve RM’ new vision and mission
• The question is explicit because it states exactly what kind of brand development we are pursuing.
• The question is executable because RM’ marketing forces can execute an implementation strategy to answer this question.
• The question is because it addresses the declining profit problem that RM is facing.

• While answering this question, we can truly solve the challenge at hand. By extending the brand worldwide, RM can have stable and increasing incomes by selling contents and merchandise and therefore achieve sustainable profitability.

• While answering this question, we will become a champion. When the brand is extended, RM will have stable income sources, therefore RM will not totally depend on incomes from traditional channels which are depending on the team’s performance. By answering this question, RM will become the champion in the soccer business field.

2. Mapping Ecosystem

2.1. External factors

Law: RM has to follow the regulations in the business environment and the institutional rules framework of UEFA and FIFA without being able to influence them.

Media: RM has to be aware of the media’s influence in presenting a positive image and utilize it to achieve more visibility.

Market: RM needs to take into account market structure and conditions in different geographical regions where it extends its business.

2.2. Individual components

• Strategic partners: Sponsors and players are the strategic partners of RM because they bring RM incomes.

• Players’ sponsors: Sponsors bring incomes to the players, half of which are shared with RM.

• Real Madrid: RM’s management is the heart of the Ecosystem map. The management needs to utilize the other individual components in the map to extend RM’s brand in order to increase profits.

• Competitors: The competitors in the map include RM’s competitors in the field such as other soccer clubs and business competitors.

• Retailers: Retailers are RM’s distributors.

• Franchisees: Franchisees pay royalties to RM for using its assets such as logo and contents for business purposes.

• Broadcasting: The broadcasters show the club’s games to soccer fans all over the world.

• Customers: Customers are people or organizations who buy products/services from RM or RM’s franchisees.

2.3. Linkages and flows in the map

• RM and Sponsors: Money flows from sponsors to RM in exchange for advertising rights from RM.

• RM and Players: The most significant flow between the two in this case is the flow of money: RM pays the players for their services and the players give half of their advertising incomes to RM.

• Players and their Sponsors: The players have their individual sponsors who pay them for the right to use their image for advertising purpose.

• RM and Retailers: RM grants the retailers the rights to sell its products.

• RM and Franchisees: RM grants the franchisees the rights to use its assets such as logo and contents.

• RM and Broadcasting: RM grants the broadcasters the rights to air its games.

• Retailers and Customers: This is buying-selling relationship.

• Franchisees and Customers: This is buying-selling relationship.

• Broadcasting and Customers: The customers pay for the entertainment they get by watching the team’s games.

• Competitors and Broadcasting, Franchisees and Retailers: Competitors provide the broadcasting, franchisees and retailers money and information.

2.4. Evolution of the Ecosystem

Past

The main income sources were from gate receipts and broadcasting, which highly depend on RM’s performance in matches. While the incomes from gate receipts and broadcasting increased slowly, the expenses surged due to sharp increase in salaries paid to the players and quick augment in costs of buying the best players. When revenues were less than expenses, RM experienced negative profits in many years.

Present

To achieve sustainable growth in the future, RM needs to have stable independent revenue sources that are independent from its performance in the field. Given stagnant increase in traditional revenue streams, RM needs to leverage its brand into the global market to gain more revenues. The best way to leverage the brand is to extent the brand worldwide.

Future

If RM were unable to extent its brand worldwide to gain profits, it would continue to have losses and therefore unable to have the best players. If RM did not have the best players, its performance in games would not be better and therefore RM would not be able to gain championships. If RM lost games continuously, incomes from traditional sources would decrease. Therefore, RM would face deeper losses.

3. Key Drivers

From the Ecosystem Map, the Key Drivers are Retailers, Franchisees and Broadcasters through which RM can reach customers and extent the brand. The key drivers are the enablers for RM to extent successfully its brand.

4. Situation Summary

Real Madrid has been expanding its brand globally in the past few years. It has been increasing revenues from stable income sources such as merchandising by entering various international markets. The challenge in front of the club’s management is how to take the next step and extend its brand worldwide in a profitable manner.

In the case assignment we are asked to recommend the best strategy for the club to implement in order to answer the SEED question. However, we are not able to propose a strategy at this point because we need to follow the necessary steps to reach the conclusions. Still, if we were to provide basic guidelines, we recommend the following, hereby our situation summary.

1. In order to achieve its goal the club management needs to reach more customers.

2. In the end, the club needs to think of how to reach more visibility and extend its merchandise to new markets. Working within the framework of the ecosystem map and focusing on the key drivers and the SEED question, we will be able to pinpoint the right approach to increasing profitability in the long run and extending the Real Madrid brand worldwide.

3. We have identified three main channels for that, namely retailers, franchisees, and broadcasting. The connection of these channels with the customers and how Real Madrid will be able to utilize them is crucial for the success of the club in extending its brand worldwide in a profitable manner. If Real Madrid fails to utilize these channels, then other clubs, namely RM’s competitors, will do and the club will suffer losses.

The Global Branding of Stella Artois

2010-07-25T01:44:00.000-07:00

1. Ask SEED Question

Initial Question
What are we trying to achieve?

We want to develop Stella Artois as a strong global brand serving as Interbrew’s global flagship brand.

“Why”
• Global brand will be a base trend in brew industry and the beer industry will be internationalized in the next decades.
Why?
• To achieve synergies in global advertising and economies of scale to serve converging global beer market.
Why?
• To leverage low operating costs as a key competitive advantage.
Why?
• To expand globally and become a main player in the global beer market.
Why?
• To achieve sustainable growth by serving the global market.
Why?
• To be aware as a strong global brand.

The SEED Question

How to develop Stella Artois as a true global brand? (New)

How can Interbrew increase the awareness of Stella Artois as a true global brand, managing it consistently across countries? (old)

Why is the SEED Question Important?

• The question is strategic because it is a part of Interbrew’s corporate strategy to achieve sustainable growth in the future.
• The question is explicit because it states exactly what kind of brand development we are pursuing.
• The question is executable because Interbrew’s marketing forces can execute an implementation strategy to answer this question.
• The question is direct because it is a direction to achieve the goal.
• While answering this question, we can truly solve the challenge at hand. By increasing brand awareness, we can have people around the globe know about the brand. By managing brand consistency, we can successfully develop the brand as a strong brand identically perceived across countries and regions in the world.

• While answering this question, we will become a champion. If we answer this question, we will successfully develop Stella Artois as a global brand that helps Interbrew achieve the corporate strategy and leverage current and future competitive advantages.

2. Mapping Ecosystem

In the map, we consider subsidiaries, franchises and joint-ventures have the same relationships with media, press, advertising agencies, distributors and Belgian café in local countries.

Key drivers:
- Strategic relationship with franchises and joint-ventures.
- Local laws and regulations.
- Strategic outsourcing partnership with suppliers.

3. Competitive Advantages

3.1. Current competitive advantage is operation efficiency. This competitive advantage reflects:

- Economies of scale
- Production efficiency
- Capacity utilization
- Strategic outsourcing and partnership with best suppliers

Interbrew can have lower operating costs than its competitors

3.2. Future source of competitive advantage is global brand

Global brand will help Interbrew differentiate itself from its competitor. By positioning Stelle Artois as a super-premium beer, the company can charge premium price.

The current and future competitive advantages will enable Interbrew make higher profits than its competitors.

4. Objectives

- Increase brand recognition among beer drinkers in the markets where Stella Artois was launched by 10% in the next year.
- Increase brand perception as ‘sophisticated brand’ among beer drinkers in the markets where Stella Artois was launched by 10% in the next year.
- Increase brand perception as ‘premium brand’ among beer drinkers in the markets where Stella Artois was launched by 10% in the next year.
- Increase brand perception as ‘authentic brand’ among beer drinkers in the markets where Stella Artois was launched by 10% in the next year.

5. Relevant Strategic Options

6. Brand Strategy

We recommend that the 2nd strategy is the best for the companies because this strategy can help the company answer the most important question and achieve objectives while leveraging key drivers and competitive advantages.

BRAND ROADMAP - NIIGATA, ALL ABOUT EXPERIENCE

2010-07-25T01:39:00.000-07:00

A brand that captures your mind gains your behavior. A brand that captures your heart gains your commitment.
-Scott Talgo

CONTACT INFORMATION

950-8570
Niigata Prefecture
Department of Industry, Labor, and Tourism
Tourism Promotion Division

SYNOPSIS

CORE VALUES
Learning and involvement
Interaction with people
Harmony with nature

MESSAGE
All about experience

PERSONALITY TRAITS
A genuine and open-minded middle-aged man, ready to teach you unique skills and enrich your Niigata experience

ICONS
Sake
Rice
Crested Ibis
Snow Camellia

INTRODUCTION

Niigata is one of the forty-seven prefectures of Japan. It is very accessible from the Kanto region and has a lot to offer to tourists all-year round. It is famous for its rice, sake, spa resorts and beautiful nature.

This brand roadmap is written to serve international experiential tourists and tell them the story of Niigata. We believe that Niigata has a lot to offer to this group with its unforgettable learning experience.

In order to convey this message, Niigata produced this brand roadmap, which will set it apart from Japan’s other prefectures and establish it as the leading prefecture in experiential tourism in Japan.

BRAND COMPONENTS

A brand is made up of four components:

Core values: The values our brand is built on. Core values are the foundation of our company and the pillars of every message we deliver.
Brand message: The overall key message we’re trying to communicate. All other messages should support and add credibility to this message.
Brand personality: The overall tone and attitude we use to deliver our message. Brand personality is the key emotional component that determines whether we’re a likable brand.
Brand icons: The executional tools we use to deliver our brand message and brand personality: for example colors, typefaces, voice-over, logo, layouts, and music. Brand icons are the elements that make all our marketing materials uniquely us.

When these elements are delivered in a consistent and cohesive manner, we have the building blocks of a long-term, successful brand.

BRAND PERSONALITY

Our brand is:
Male
Middle-aged
Sophisticated
Local

It is best described as:
Genuine
Welcoming
Open-minded
Experienced

CORE VALUES

What core values are inherent to the Niigata experiential tourism experience?

- Learning and involvement
Niigata teaches new skills via rice cultivation and processing, as well as rice-based arts through special workshops
- Interaction with people
Niigata’s people are warm and welcoming and visitors can learn and experience Niigata’s traditions directly from them
- Harmony with nature
By experiencing rural life, the experiential tourists can learn how to live in harmony with nature

CORE MESSAGE

NIIGATA: ALL ABOUT EXPERIENCE

Niigata is all about experience and this is not just an empty statement. We offer experiential tourism to people looking to take a break from urban life and immerse themselves in nature, while at the same time enrich themselves through involvement in traditional activities and interaction with the local people.

Experience best describes Niigata tourism for tourists are directly involved in it through constant interaction with local people and cultural activities and gain personal enrichment through that. Experience is a strong word, which sets the level of tourists’ expectations for Niigata high, which makes us only happy to fulfill them. Because Niigata is exactly that: all about experience.

TUSCAN LIFESTYLES

2010-07-25T01:37:00.000-07:00

ACCESSING CUSTOMER LIFETIME VALUE

What is the average lifetime value of a customer whose initial purchase is less than $50?
• $2,20 (Refer to Appendix I)
• Even though the CLV for customers whose initial purchase was less than $50, the value growth of these customers grew in large increments (refer to the graphs below). It is our opinion, that while this number is low it is significant enough in the later years that it would be worthwhile for Tuscan to continue to pursue their business.

What is the average lifetime value of a customer whose initial purchase is $50 or greater?
• $63,21 (Refer to Appendix I)
• The CLV for Tuscan customers whose initial purchase was greater than $50 was significantly and consistently higher then the customers whose initial purchase was less than $50 (refer to the graph below).

Based on these expected lifetime values, what marketing plans might be advisable?
• Focus on customers whose initial purchase is $50 or greater.
- By focus, we suggest that special incentives become available to these costumers through mailings or a special loyalty program.
• Differentiate the catalogues mailings according to the results fostered from the CLV research.
- For example, the customers who are in the $50 or above category should continue to receive the traditional number of mailings.
- The lower category of costumers who initially spent less should receive less catalogues in the mail. As previously stated however, these customers are still a valuable asset and should not be completely ignored. These consumers should be lured back to the company through specialized promotions catered to their comparatively lower spending habits.

Do you agree with Joan’s assumption that 5 years is a reasonable time horizon? Why or why not?
• We agree with Joans assumption that five years is a reasonable time frame for determining certain customer characteristics.
• As our analysis the average lifetime duration is less than 3 years (refer to appendix I). Therefore, anything over the three year time period results in diminishing returns.
• Approximately 95% of the customers did order 1 item or less in their 5th year (again refer to exhibits 1 and 2 of the case).

Do you have suggestions for other ways to group customers for determining lifetime value?
• Product group
- Segregate customers in terms of the products they purchased. While in this specific industry it is unlikely that a customer will make identical product purchases on an annual basis. However, it is possible that the consumer will make similar product purchases and this is a possible strategy that Tuscan should pursue.
• Expand the denominations used to categorize Tuscan’s customer base. Two groups are too vague of criteria to use to truly determine accurate customer habits. It is our opinion, that two additional categories are added in order to add more depth to the information ascertained as explained by the graph below.

What additional information might be helpful to Joan?
• Additional demographics of customers: income, sex, age, etc….
- While some of this information was already provided to Joan and Tuscan through the response list, the information was seemingly neglected. Tuscan should further categorize the demographics of its costumers and utilize this information through overlapping it with the CLV results.
• Explore the possible advantages of applying an RFM model to the Tuscan data.

Appendix 1

Method to calculate CLV

Use formula:

In which:

- CLV is customer lifetime value.
- Ordersizet is the amount of purchase per order at time t.
- Margin is 42% given in the case.
- AC is acquisition cost: AC = ($0.85´1000 catalog)/23 new customers = $36.96.
- T is number of time period. T = 5.
- r is discount rate. r = 10%.
- 6t is annual catalog cost in year t. 6t = $0.75 ´ 8 catalog. In this calculation, we ignore the discounted value of $6 catalog cost per year because the discounted amount is so small.
- rt is retention rate, which is the number of customers in cohort buying in (t) and also buying in (t-1) / Number of customers in cohort buying in (t-1).
- The average customer lifetime value is the simple average of the customer lifetime mean values (CVL mean) in 5 years.

Average lifetime duration

Formula:

Average lifetime duration ={ Customers retainedt * Number of periods} / N

Where: N = cohort size = number of customer at the beginning period.
T = time period
Customers retainedt is number of customers retained in period t.

THE KING-SIZE COMPANY

2010-07-25T01:35:00.000-07:00

Executive summary
King-Size has long used traditional methods such as renting and exchanging names to attract new prospects. The test of a TV commercial shows that the cost of attracting by mail order is greater than the cost of generating prospects by cable networks. Therefore, the company should spend additional promotional budget and make marketing efforts to attract potential customers by TV commercials. Moreover, new customers acquired by cable seem to purchase more than the past customers. As the cost to maintain past customers is greater than the cost to acquire new customers, the company should study customer lifetime value and customer lifecycle to make appropriate strategy to develop its business.
Cost of generating new prospects and new customers
• Cost to generate a new prospect by mail order: $6.56 (Appendix 02).
• Cost to generate a new prospect by cable (Appendix 03):
- By the first commercial: $5.65.
- By each additional commercial: $4.90.
• Cost to generate a new customer by mail order under the assumption that a new customer places the 1st order after receiving a full catalogue: $7.26 (Appendix 04).
• Cost to generate a new customer by cable under the same assumption (Appendix 05).
- By the first commercial: $6.35.
- By each additional commercial: $5.60.
Remark:
1. If King-Size continues to run additional commercials, the cost to generate a new prospect will be reduced because it can get discounts for continuous broadcast and eliminate the cost of TV production.
2. The cost to generate a new prospect by mail order is more expensive than the cost to generate a new prospect by cable. This is because many mail receivers are not interested in King-Size’s products so the rate of people asking for the first catalogue over the total number of catalogue is very small. Moreover, the cost of obtaining names is expensive and printing ad did not reach target audience. On the other hand, commercial by cable reaches a very large audience and therefore can motivate many people interested in asking the first catalogue.

Past customers
• Sales per customer: $55.51 (Appendix 04).
• Gross profits per customer: $25.35.
• Cost of catalogue per customer: $6.27.
• Cost of maintaining a customer: $6.54.
As the cost to generate a new customer by cable is less than the cost of maintaining a past customer ($6.35 vs $6.45), King-Size should spend extra promotional budget to attract new prospects and new customers when allocating at least the same budget to maintain past customers.

Media strategy
Media effectiveness
The purpose of the TV commercial is to generate new prospects. Therefore, the criterion to measure media effectiveness should be the number of requests generated by each cable network. Because the amounts of money paid to different cable networks are totally different, we can not compare the effectiveness of the five cable networks by comparing the number of requests generated by each network. Instead, we should use the cost per request as a criterion.

According to exhibit 11, the cost per request of CNN-$10 off is the least ($1.11 per request), followed by the cost of CNN ($1.24 per request) and Family ($1.51 per request). Is seems that CNN-$10 gives the best results and ESPN has the worse results among the five networks. However, Family has the highest conversion and generates the highest total sales per media cost. Overall, Family gives the best results, then CNN-$10 and CNN. At a glace, ESPN seems to provide the best results because it has the largest number of request. Taking media cost into account, this network is not economically effective.

Choice of media
The exhibit 12 shows that people living in different geographic areas have different interest in watching TV and reading newspapers. People living in suburban prefer reading to watching TV. In contrast, people in towns and rural areas watch TV more than read newspapers. People in urban do not watch much TV and read much newspapers because those people are normally young and busy.

This difference helps King-Size use more effectively media to reach the target audience. King-Size should use printing ads to target suburban people and TV commercials to reach people in town and rural areas. The company should study the lifestyle and habits of urban people to find out the best media to reach them.

HILTON HHONORS WORLDWIDE LOYALTY WARS

2010-07-25T01:34:00.000-07:00

Executive summary
Hilton is running a loyalty program to create and retain loyal customers as its competitors do. Given the severe competition in the lodging industry, all major players are competing by introducing more generous loyalty programs. Hilton should not compete on what its competitors are doing. Instead, it should customize and differentiate its current loyalty program and establish a compelling brand strategy to create brand passion and brand loyalty and to reposition the Hilton brand so that customers are truly loyal to the brand. In doing so, Hilton chain can attract and retain more business loyal customers and create long term customer loyalty.
1. Loyalty program and better customer management
Loyalty programs can help property operators and brand owners manage better their customers by the following points:
• Retain and reward profitable customers
• Tracking customer behavior patterns (spending, characteristics, preferences etc)
• Customize unique rewards to profitable customers
• Strengthen brand and improve brand loyalty
• Encourage customer spending
• Attract new customers
• Create and retain loyal customers
• Segment customers and formulate customized services to each segment
2. Loyalty program assessment
Value of the program
Now Hilton runs above breakeven point at 68% occupancy (p.4). It means that Hilton already passes the zero-profit point and makes profits. Therefore, revenue at higher occupancy levels will generate profits for Hilton. HHW program helps Hilton to run at higher occupancy level and hence revenues generated by the program will contribute to make profits for Hilton.
From page 4, the breakeven point is 68% x 154,000room x 365nights = 3,8222,800 nights or 3,8222,800 nights x $158 = $6,039.2 millions. From page 8 and table B, number of nights actually paid by members is 7,015,000nights + 712,000 stays x 2.4nights – 180,000 claimed nights = 8,543,800 nights. Total revenues from members is $1,108million + $327million = $1,435million.
• Percentage of nights by members over nights at breakeven is 8,543,800/3,8222,800 = 0.224 or 22.4%.
• Percentage of revenues by members over revenues at breakeven is $1,435/$6,039.2 = 0.2376 or 23.76%.
• If we compare the revenue generated by the program with revenue at breakeven, we see that the program increases revenue by 23.76%. This revenue increase is greater than 20% revenue increase by management yield.
• As Hilton already runs above breakeven point, the revenue obtained from the program should be considered as profit generating revenue. Therefore, gross profit earned through the program should be ($158 per night - $750per year/365days) x 8,543,800 nights = $1,328.5 million (these nights above occupancy levels do not bear fixed costs which are costs to build hotel facilities). In other words, $1,328.5 million is the value the program generated to Hilton.
Cost of the program
HHW executes the program as a non-profit center but a service for its parents companies HHC and HIC. Therefore, the expenses of HHW can be regarded as the expenses of the program. As shown in the exhibit 4, the cost of the program is $69,438,000.
Compare value and costs of the program
As the value is $1,328.5 million and the costs is $69,438,000, we can see that the program generate huge value vs. costs. The value is greater than costs more than 19 times. Therefore, it is worth to continue the program.
3. Loyalty program from franchisees’ view
Based on the above analysis, we saw that the frequent-stay program generates huge value to the hotel chain. Franchisees also see the lower program costs than that of competing chains and the high value and business opportunities the program may create for them. They are willing to run their properties under Hilton’s brand.
If franchisees had the choice of putting Hilton or one of Starwood brand on their properties, they can assess the value of doing so by comparing the value generated by the frequent-stay programs under both brands. To evaluate the value of each program, first they need to check whether they are running above or below breakeven levels, calculate the value of incremental occupancy generated by each program and associated costs, then compare values and costs of two programs.
4. What should Hilton do in response to Stawrwood?
Four major hotel chains are competing on frequent-stay programs at the same points: rewards or cash value to customers, redemption choices, convenience of program use. Competing by loyalty programs, all these hotel chains tend to increase reward value while they can not charge higher prices. As a result, their profit margins will decrease. Hilton, therefore, can not compete with other chains by offering more attractive loyalty program. Moreover, offering a very generous loyalty program has some risks:
• Customers tend to be variety-seeking customers so they want to have different experience with various hotel chains.
• Loyalty is something that cannot be programmed or bought by rewards. The rationale reason why customers use loyalty program is that they want to make profits out of loyalty programs. If Hilton stops offering generous rewards through its loyalty programs, its repeating customers might go to other hotel chains.
• The more rewards Hilton gives to customers, the more expectation customers have. Rewards therefore tend to be ever-higher.
• Customers participate in the program for profits and they might not have to be loyal.
• Loyalty programs are in fact is discount programs. By offering loyalty programs, Hilton implicitly trains its customers to expect lower prices.
Based on the above arguments, I would suggest that Hilton should avoid such loyalty war by maintaining current rewards levels and further customizing redemption choices, convenience of program use. Further, Hilton should differentiate its brand by using brand loyalty to retain customers and improve customer loyalty. Here are some ways to do:
• Create a brand passion. When customers are passionate about the brand, they will stay and become truly loyal without participating in any loyalty program.
• Reposition the brand as a unique experience.
• Differentiate the brand from others by creating a unique experience that no other chains are offering or will be able to offer.
• Create brand loyalty and brand passion as competitive advantages.
5. How should Hilton spend the additional revenue?
First, Hilton should spend the additional revenue to customize and differentiate current loyalty program to attract more prospect, create and retain loyal customers. Second, Hilton can spend more money on the marketing efforts to reposition the brand, create brand passion and brand loyalty. By doing so, both Hilton and its franchisees can have benefits because:
• The loyalty program helps both Hilton and franchises build customers loyalty, lure more business customers and increase their spending.
• When customers are truly brand loyal, they will stay with the hotel chain and depend less on loyalty program to make hotel choices.
• The chain and franchisees can charge premium price because loyal customers are not price sensitive. When customers are passionate about the brand, what they want is experience and they will be willing to pay higher price to have such experience.
• Brand loyalty is long term. Brand loyal customers tend to stay longer with the chain and spend more. The loyalty program can encourage them to spend even more.
• Franchisees might not have to run their own marketing campaigns. When customers are brand loyal, they will come to any franchisees’ hotels to have the experience promoted by the brand instead of considering where to come to accumulate many more points.

Grey Worldwide

2010-07-25T01:33:00.000-07:00

Opportunities:
• No legacy system that requires conversion so Grey can introduce state-of-the-art CRM tools
• China is a huge potential market
• Focus on CRM will provide some business solutions
• Asian market will enter a customer service era

Threats
• Increasing competition
• New technology leads to new effectively competing business models
• Rising customer expectations
• Increasing cost of acquiring new customers
• Changing in the communications industry from generalization to specialization
• Pure online companies are able to produce competitive high quality products at lower prices
• Strong price pressure

Strengths
• Strong brand
• Existing customer database and knowledge

Weaknesses
• Lack of an integrated customer knowledge database

What’s CRM? How Grey pursue the development of CRM?
• CRM goal: an integrated approach to create, identify, evaluate, capture, enhance, share and apply Grey’ intellectual capital
• Use existing database in segmenting customers, predicting loyalty, analyzing market needs
• Need a specialized team to develop CRM
• Utilize the resources of Grey’ worldwide partners

Compare traditional customer service and CRM
• Traditional customer service:
Multiple customer databases or having no customer database
Used to satisfy customers’ needs and requirements
Not used for customer acquisition, loyalty, growth, retention, etc
• CRM
An integrated customer database
Used to segment customers, predict loyalty, analyze market needs, make business strategy, etc
Used advanced technology as enabler
How to redefine client value using CRM? Divide clients into 2 tiers
• Traditional clients who need assistance to assess their competitive environments and build brands
• Sophisticated clients who have strong marketing & brand strategies but want to develop a customer relationship vision and plant

How to interact back-end and front-end?
• Make a unique understanding of gathering data, optimization in the front-end and back-end
• Provide training in the entire company to make sure that all employees think and do in the same way
• Interaction is done via CRM technology
• Front-end people need to be able to think strategically and back-end people support them

Build a customer process blueprint to maximize the use of existing customer database
• Define CRM objectives
• Choose enabler: CRM technology such as data mining, customer profiling
• Choose implementing tools
• Brand Future +: use a Grey’s group partners’ marketing and communications specialists to create personalized strategies to meet customers’ needs
• GRM charter: use Grey’ worldwide knowledge of specialist companies
• Back office and front office applications

Build a framework to assess CRM strategy
• CRM strategy: enhancing brand equity, customer loyalty and customer retention
• Framework:
- CRM strategy: Is CRM aligned with business objectives
- Implementation: measured by ROI of CRM system
- Technology: is it suitable to make use of marketing intelligence of the company?
- Applications: is the company selecting appropriate applications to support CRM?

Criteria to measure CRM performance
• Brand equity
- Added value the brand brings to the company
- Financial value of the brand
- Market share
- Brand extension
• Customer loyalty
- Repurchase rate and repurchase value by customer
- Lifetime customer value
• Customer retention
- Retention rate
- Return on customer retention investment

CRM AT DOW CHEMICAL

2010-07-25T01:29:00.000-07:00

1. Introduction to Dow Chemical

The Dow Chemical Company (hereafter referrer to Dow) is a US-based chemical company with net sales of $46.3 billion and with more than 40 000 employees (source: Annual Report 2005). It offers more than 7000 innovative products and services to business customers in more than 180 countries. Plastics, performance plastics, performance chemicals and chemicals account for more than 50% of the company’s total sales value. Dow’ customers are business customers who use Dow’s products as raw materials or parts of their finished products. In other words, Dow serves as a supplier for its customers. As those products require lots of technical support, Dow needs to build and nurture strategic relationship with its customers around the world.
In chemical industry, helping customers gain competitive advantages in their targeted markets and growing with customers’ growth is the key to exist. Dow has nurtured strong relationship with customers by managing contents (technical support and services) and hence has achieved sustainable growth in both home and international markets. CRM is, therefore, a key competitive advantage for the company to be a lealer in B2B e-commerce in the chemical industry.

2. Situation Analysis

The chemical industry in early 1990s
• The early 1990s was the era of plastics and performance of plastics with promising growth all over the world.
• As long as plastic industry developed, customers required ever-increasing associated technical support and services in order to use plastics products. Therefore, customer relationship was vital in the industry.
• The industry was expanding fast in the U.S. and well as in international markets
• Customers expected chemical producers to help them develop their new products in which they would use producers’ products as raw materials or as part of their finished products.
• Chemical producers or distributors were expected to educate customers how to use their products.
• Competition was rising from Europe and Asia as many chemical companies were trying to develop plastics and super-performance plastics to fulfill increasing demand for plastics products and specialty chemicals.

Future trends in chemical industry
• Low operating costs would be a competitive advantage.
• Costs of acquiring new customers would be much higher as producers need to educate customers and pass customers’ screening process to choose best chemical suppliers.
• Customers would require better technical support and services and lower prices as competition would increase.
• Customer retention would, therefore, be of vital importance in the industry.
• The evolution of the internet would allow companies to manage better customer relationship and lower operating costs via e-business.

Given this situation, Dow revised its business strategy in order to take advantages of the future trends, stay relevant to changing business environment and fulfill customers’ changing needs and wants. Dow implemented CRM as a part of the strategy to better serve customers and strengthen relationship with them.

3. First CRM strategy

Dow first bought a Siebel CRM software package in 1995 to start its CRM strategy. The company deployed CRM strategy to its entire global sales force in 1996.

Components of 1st CRM system Functional strategy and specific business
Siebel software package for CRM (enterprise-wide solution) Used for customer-facing front-end functions:
- Sales administration
- Order processing
- Customer services and support
- Marketing

Why this strategy failed?
• Dow installed CRM software in the entire organization but its global sales force was not well prepared to use it.
• It was difficult to incorporate business processes in this system.

Lessons from this failure:
• We need to make our people understand the system and prepare them for using it.
• We need to align business processes with IT operations before using the system.
• We need to train CRM users and make sure that they have required skills before starting to use the software.

4. Second CRM Strategy

Dow implemented 2nd CRM strategy in 2001 in the entire organization. This time, Dow has learned from the failure of the 1st CRM strategy and prepared the entire organization for using CRM system which is still based on Siebel system and integrated new functions such as mySAP ERP, mySAP SCM for supplier chain management, mySAP APO for advanced planning and optimization.

Components of 2nd CRM system Functional strategy and specific business
Siebel software for CRM - Basic software for CRM that Dow first bought
- Used for front-end functions as described above
Centralized data warehouse
- Partner relationship management
- Customer relationship management-
New technology interface points that include MyAccount@Dow, Dow.com, which is the online interface for e-purchase and e-procurement. - B2B e-business online interface
- Web interaction with customers
- E-biz sales administration
- Enquiry response
- Online technical support & services
Company-wide integrated desktops and voice over Internet protocol plans.
- Customer call centers
- Customer support centers
- Telephone technical support & service
- Telephone sales
ERP (Enterprise Resource Planning) system from SAP AG
The system integrate all corporate functions:
- Front-end functions (sales administration, customer service & support, order processing, marketing)
- Back-end functions (purchasing, manufacturing, warehousing, transportation, HR management)
- Supply chain management
- Partner relationship management

Result of the new CRM strategy:
• 90% reduction of defects in Dow’s 1.2 million shipments in the first year.
• The target was that all of its global sales force would be using the system by 2003.

CRM brings Dow competitive advantages:
• Low operating costs. With CRM system, Dow is able to simplify its order management processes, shorten order time, reduce shipment errors and minimize sales force.
• Order efficiency. CRM helps Dow reduce defect in shipment and errors in sales administration.
• Differentiation. Dow differentiates itself from competitors by offering e-commerce options to its customers. E-commerce is an innovation in the chemical industry where traditional paper-based orders have been popular for long time.
• Strong partnership and relationship with customers. As chemical technology is getting advanced, customers require increasing support from Dow to use its products and develop their new products. If Dow can help a customer develop a new product, it can supply raw materials to this customer as long as this new product exists. Therefore, strong partnership and relationship with customers will help Dow expand its business.
• Higher customer profitability. The longer customers stay with Dow, the more they buy and the less they are sensitive to prices.
• Better customer service. Dow’ customers can access to the company’s technical support and services via its worldwide websites or by integrated voice internet and desktops system. This allows customers understand more quickly how to use Dow’ products in their production.

5. Challenges

IT infrastructure: Dow needs to develop a good IT infrastructure to ensure the integration and non-stop running of all IT solutions (CRM, ERP, e-commerce, desktops and voice over internet).

Alignment between business and CRM: A key challenge is align CRM system with corporate objectives. Managers are driven by business objectives and targets and the CRM system should enable them to achieve their given objectives and targets. Business objectives must be the drivers and CRM is an enabler to achieve those objectives.

IT staff: Dow should develop an in-house IT force to be in charge of the maintenance, updates and integration of the current IT system.

Sales force: Dow’ global sales force should be able to control touch points with customers via CRM system.

People at Dow: It is a true challenge to get all people in the entire organization into the IT system. As the new CRM solution is now linked with all other corporate function, suppliers and partners, Dow needs to train, encourage and reward its global workforce to use the system effectively.

6. Recommendations

• Build strong in-house IT infrastructure.
• Align business processes with such IT structure.
• Have good IT staff teams who are able to keep the system running properly (system update, maintenance, integration).
• Conduct training for the global sales force and others working at customer touch points.
• Implement individual modules of a new software package before using it in the entire company.
• Adapt current IT structure with new solution.

CAMPAING DESIGN @ AMAZON.COM

2010-07-25T01:20:00.000-07:00

The Test Mailing
In the initial phase we decided to send the test mails to 12 groups. 12 groups was in our opinion enough to get accurate results, because both ‘promo’ and ‘excerpt’ are tested with each review at least once. Choosing all 24 groups would have given us the most accurate response rates, but we thought it would be too expensive to conduct since the cost of one group (i.e. test cell) is $7000.

However, the marginal cost of e-mails is almost negligible so we decided to send as much e-mails as possible. Although 50 000 was the maximum number, dividing it by 12 gives us an uneven number (4166.666…) so we decided to go with even 4000. It is easier figure for the management to understand. The test mailing table is given below.

The Roll-Out
Before doing any thorough statistical analysis with STATA, we decided to do a simple analysis with Excel. This was only because our team was not so familiar with STATA and this way we were able to get some hints what the ‘actual’ results might look like. So, we calculated simple response rates for our test cells. You can find them in the tables below

So, we found out that the highest response rate for men was in ‘no-promo’-‘no-excerpt’-‘review = 2’ category and for women it was in ‘promo’-‘excerpt’-‘review = 1’ category. We found that Excel analysis was insufficient so we decided to do the analysis with STATA also.

First, we created the dummy variables as instructed in the case. Then we did the logistic regression and check the significant p-values. Everything else except ‘review = 1’ for men was significant. We later eliminated this problem by setting its odds ratio to 1.

After the logistic regression we imported the data to Excel in order to do the odds ratio table. You can find the two versions of tables below. The first one is the original with ‘review =1’ handled as significant and the revised is where it is set to 1.

So, we founded out that the best groups to send the roll out mails were for men ‘no-promo’-‘excerpt’-‘review = 2’ and for women ‘promo’-‘no-excerpt’-‘review = 1’.

For the final roll out we decided to focus on these two groups for two reasons. Firstly, the population is said to be almost evenly divided between men and women so we ‘have to’ send mails also to men. Secondly, fixed cost of sending mails to many groups is expensive and of course it is wise to focus on the most profitable groups. You can find our final roll out mailing strategy below.

Discontinuation of thi blog

2008-04-02T07:01:00.000-07:00

Dear my blog readers!

My blog have been viewed and read by thousants of readers and internet users, especially MBA students all over the world, from the launch in 2006 in Japan. I sincerely thank all of you for having enjoyed this blog.

I have decided to discontinue this blog in order to centralize my writings. You will still find solutions of case studies and real-world business experience through my new blog Business and Management: http://thuyha-management.blogspot.com/. However, this blog will always existe together with blog support from Google.

I am on the way to create my own blog in English, French, Japanese and Vietnamese. I will keep all case study solutions as many readers enjoy them so much. I will add travel experience and much more information about an international life and career.

Best wishes to all!

Pham Thi Thuy Ha

New York Against AIDS (A)

2008-03-24T02:05:00.000-07:00

- Marketing Communication -

Fall 2006

New York Against AIDS (A)

The Saatchi & Saatchi Compton Advertising Campaign

May Thet Win

Hung, Nguyen Viet

Ha, Pham Thi Thuy

Zha Li

Executive summary

The Saatchi Campaign, a multi-media educational campaign, was a voluntary effort to help New Yorkers especially targeted to heterosexual women to save from the deadly disease “HIV/AIDS". Delineated with a very direct, explicit, hard-hitting message with the highlight of recommending safer sex through the use of condoms, the Saatchi summed up the tagline “AIDS. If you think you can't get it, you're dead wrong." The aim and objective of the Saatchi Campaign is noble and somewhat very pragmatic. However, Saatchi might face with some resistances concerning cultural and moral values by society and religious groups, when broadcasting their advertisements. Even some news organizations refuse to run all of Saatchi's ads to air and others give poor placement and thus Saatchi only gets the time to air except the prime time. Get the networks approval and cooperation are fairly critical for the success of the campaign.

Situation Analysis

In 1991, there were 17,000 AIDS cases diagnosed and about 200,000 people are infected with HIV virus in New York City. The populations at risk are sexually active people that much likely to contact with semen, blood and vaginal fluids. Homosexual/bisexual men and intravenous drug users are the highest risk group which comprised about 90% of AIDS cases. However, according to our projection data (appendix 1), the number of heterosexual men and women at the highest risk will increase sharply to above 20% in 1994.

Saatchi campaign - Strengths and weakness

Saatchi campaign focuses on high potential HIV-infected heterosexual women but it should include heterosexual men. The campaign is aimed at heterosexual women, urging them to insist on the use of condoms as a way of avoiding the spread of the fatal disease. However, the percentage of male that are diagnosed as AIDS sufferer is above 2 times than female (appendix 2). In reality, women may be aware of what they should do to protect themselves, but are unable to take precautions because of powerlessness, economic dependence on their partners and fear of violence if they refuse sex. Moreover, the advertisements give too much responsibility to women in preventing AIDS and overlook the question of just what men's obligations should be. The feminists group might show their confrontations since the target group is only women. For these reasons, the target of the campaign should target both heterosexual men and women.

Ad messages might reinforce public fear of AIDS effectively by using a big tagline “If you think you can’t get it, you’re dead wrong” rather than awareness of precautions to take against it. These ads may succeed to attract attention by sexual appeals, but at the same time television stations find that the material is too explicit to handle by saying that “too sex oriented", “suggest promotion of sex”.

Although the advertisements were planned as public-service announcements and do not promote any particular brand of condom, condom sales might increased and it will probably emphasized to appeal women population. This also means to promote sex and condom manufactures might exploit the incidence of HIV/AIDS. Conservative politicians and some religious leaders might argue that AIDS education should stress abstinence and defend traditional moral values.

Major network television (CBS, ABC, and NBC) refused to broadcast TV advertisements because they found that the advertisings like “So can you” and “Going out”, overemphasizing sex and condoms and suggesting sex promotion. In networks’ view, they want to make sure that the advertisements, in the copy itself or the graphic portrayal, are not offensive to their subscribers, conservative politicians, religious leaders and feminists. Condom is a personal hygiene product and people generally tend to avoid motion it. Even though the advertisements have a good meaning of helping people avoid AIDS, the frank, direct and explicit messages in the ads do not convey this meaning to the viewers but rather offend them.

Appendix 03 shows the cost and benefits of Saatchi campaign.

Campaign evaluation

The purpose of this ad campaign is to encourage the use of condoms which are almost one-time-use product. Therefore, we would suggest measuring the effectiveness of the ad campaign by comparing the condoms sales before and after the campaign in New York City. We assume that there is no other advertising campaign, promotions and any other activities to increase the sales of condoms in that period of this campaign. By subtracting the sales after the campaign to the sales before the campaign, we can obtain the increase or decrease in sales and we can know how effective the campaign is.

Recommendations

To make the campaign successful, Saatchi needs to get acceptance and cooperation from the networks. It also needs to make the ads be acceptable to target audiences and the public, and the ad messages reach target audiences. Therefore, Saatchi should:

- Target both heterosexuals’ men and women and change the ad content to match it with new target audience.

- Change the ad message to an indirect, softer and less explicit message that mentions the role of both men and women in preventing HIV and AIDS. Do not use the word condom in TV ads

- Ad messages should be indirectly informative about AIDS as a fatal disease and an effective preventive action is using condom.

- Stress more about abstinence and defend traditional moral values. Avoid sensitive and controversial words and scenes. Be more cautious to avoid resistance from both public and the networks.

- Make the ad messages refer indirectly the necessity and benefits of the use of condoms to protect lives.

- Meet the criteria for advertising acceptability, which require ads about condoms to focus on reducing the risk of AIDS, not contraception or encouraging sexual activity.

- Negotiate with the networks, know their bottom lines, discuss the content of the advertisements with them and have them broadcast the ads.

Appendix 02: Adult AIDS Cases Diagnosed in 1998 by Gender and New York City Borough

	Bronx				Brooklyn		Manhattan				Queens		Staten Island			Total
		Number	Percent	Number		Percent		Number	Percent	Percent		Number		Number	Percent		Number	Percent
Male		841	63.6	909		63.0		918	76.4	588		74.9		66	68.8		3322	68.5%
Female		482	36.4	533		37.0		283	23.6	197		25.1		30	31.3		1525	31.5%

From: ADIS IN NEW YORK CITY2001-02 EDITION, New York State Department of Health,

Covering data reported through December 1999

Appendix 03: Strengths and Weaknesses of Saatchi Campaign

Strengths

Weaknesses

Message is clear, explicit, and direct

Message might offend to the viewers,

Benefit for Public Health

Sensitiveness to Public Morals

· Condom is tool for prevention HIV/AIDS and safe for sex

Condom regards as sexual stimulant, and sex-oriented, sex promotion

Women are increasingly at risk

Unfair if targeted only women for prevention of HIV/AIDS

Through vivid media support, public awareness leads to the prevention

Media will have to be against by the religious group and conservative politicians

Stressing abstinence and defend traditional moral values enhance the cooperation of opponent groups

The message is not plain enough; it will be vague and not hit the point.

Siemens Corporation (A) Corporate Advertising for 1992

2008-03-24T02:02:00.000-07:00

Siemens Corporation (A)

Corporate Advertising for 1992

May Thet Win

Hung, Nguyen Viet

Ha, Pham Thi Thuy

Zha Li

Executive summary

It is very difficult to be credible when talking about how friendly and helpful a big corporation is in the abstract. Siemens had some problems from setting objectives to implementing the ad campaign while trying to be perceived as a unified entity in the US and a leader in high-tech industry through a corporate advertising campaign in 1992. Anyway, it’s a necessary investment for the future in a very big and important market. Siemens’ corporate advertising should convince its stakeholders that it is a US-based unified entity and a leading company in high-tech. To achieve the objective, some modifications for Siemens to appropriately set objectives, plan and implement the campaigns are proposed. Rather than relying on one type of advertising, it should seek for a combination of methods available in marketing communication, especially cheaper but effective tools such as corporate advertising and PR to maximize return on advertising and the effectiveness of ad campaigns. If the can show how it touches people's lives it can make its advertising more relevant and credible.

Situation Analysis

Siemens might be seen as a foreign entity that comes to the US to exploit business opportunities and make profits. For those target customers, domestic suppliers such as GE, AT&T might receive some preferential. Siemens has put efforts to change the general public perception toward Siemens as a US-based company which brings benefits to the US and jobs to US citizens. The campaign message does include content in an attempt to solve this concern.

Siemens needs to build a strong image of a unified corporation with a solid base in the US. The matter is that US-based operations has largely various businesses in different industries with more than 50 Siemens companies but only more than a half of them carry Siemens’s name. The company awareness in business customers may be higher than general public but it might be the awareness of Siemens’s specific brands instead of the awareness toward Siemens as a multi-industry company with largely diversified businesses. The idea of positioning Siemens as a leader in high-tech might be helpful.

Analysis of the current campaign “That was then-This is now”

The campaign has 2 objectives: “to position Siemens as a strong, unified entity with a solid base in the US, to establish the company as a leader in high technology electrical and electronic engineering”. This support for the goal and intend to address political issue by stressing commitment in US market and expand awareness of Siemens’s businesses. In the 2^nd objective, the word leader shows an ambitious objective and electrical/electronic engineering might not bring benefits as well as good awareness to energy and transportation business area. The combination option like “to position Siemens as a strong, unified entity with a solid base in the US and as a leading company in high-tech” might be preferable.

These objectives of the ad campaign are translated to the goal of increasing awareness of Siemens’s businesses to its target audiences. However, this goal should have a specific measurement/target to evaluate effectiveness of the ad campaign after it is launched. For example, the goal should be “to expand awareness of the company’s businesses to its target audiences by 25%”. The goal also should be set based on primary data analysis, past experience review and budget constraint. The second goal is somehow abstract and the implementation in TVC and print ad does not express clearly what commitments Siemens take. For this goal, the implementation should be modified, otherwise, the goal should be revised (e.g: attached to a more concrete details such as job creation, US stakeholders’ benefit, pleasant workplace and safety environment for the public).

The corporate advertising campaign with positioning purpose should reach a selected target market, not the general public. Siemens has the specific target audiences and it seems to fit with the 2^nd objective of leading in high-tech. However, the target audience for the first objective Siemens has not determined well enough. If the assumption is that protectionism is applicable to general public also (e.g boycott against Siemens), then they should be included in the target.

Problems with mass media communication tools in details of implementation

The problem with TV ad is word choice. One of the objectives of the campaign was to offset protectionism in US. But at the end of the TV ad, it said: It’s just the one more way the people at Siemens are creating, the technologies to keep America, and the world moving on the right direction. This may arouse American’s antipathy if it be explained as that America and the world need Siemens to keep them moving on the right direction.

The print ad also has some problems. The brand name is printed in a small letter at the end of the text so it does not capture the attention of reader. The text reflects well the objectives but wordy and uninteresting to read. The pictures are not interesting enough to attract the readers’ attention. The pictures of a factory, a scan of skull and cars on the road can not effectively build a good image of Siemens as a high-tech company.

Measuring the effectiveness of the campaign

Readership and increase in awareness are suitable forms of measurement for print and TV ads. Based on the Starch Readership Score Report, the increase awareness in print ad is different campaign by campaign but never achieves more than 8% increase (Appendix 01) and the current campaign has a moderate performance. However, the TV advertising showed a better result in increasing awareness with netted 21% increase in awareness in 1988 and 32% increase over the initial benchmarks.

These methods are not suitable to measure attitudes toward Siemens, the main objective of the current campaign. We suggest that Siemens should do attitude survey for better measurement and conduct focus group studies by laboratory method to support corporate advertising’s effectiveness.

An investment for the future

As many other corporate advertising, this campaign does not ask for/lead to a purchase as well as not carry persuasion message to investor. The message carried by mass media communication tool in this campaign might not attractive to all audience. However, total expenses for the campaign are about 0.12% of sale. US is really a big market, at this moment, sales in US-based companies are 10% of Siemens worldwide turnover, and it deserves to be a strategic market with crucial role.

Anyway, there is room for improvement in the current campaign implementation and there are some other cheaper ways to effectively deliver the message to target audience and achieve the goals, objectives. The followings are some concrete recommendation for Siemens in order to be more successful in corporate advertising area:

1. Keep TV advertising but change the words used in TV ad as mentioned earlier.

2. Redesign/modify print ad (Details in Appendix 03).

3. Use public relations together with TV advertising (Appendix 04). Employ more public relations professionals and experts to make its ad campaign more effective and use effectively PR.

4. Sponsorships: keep the current sponsorship to PBS programs; increase sponsorship in events, charities, sports etc.

5. Launching CSR (corporate social responsibility) part.

6. Consider outsource art work, creative job from a high-quality ad agency to make ads more effective.

Appendix 01: Starch Readership Score Report Analysis

The exhibit 3 shows some report categories provided by Starch Readership Scores. Among those categories we choose the associated percentage to assess awareness because this is the percentage of readers who not only noted the ad but also saw or read some part of the ad that clearly indicated the brand name or advertisers. Overall, we can see that the increase of awareness is fluctuated dramatically overtime.

Campaign Name	Fiscal year	No. Ads Starched	Associated percentage	Change in associated rate vs. previous year
That was then	1989-91	34	47	+3
We’re Siemens	1988-89	8	43	-3
Statistical (new format)	1987-88	10	46	+8
Statistical (old format)	1986-87	16	38	-11
The Name is Siemens	1985-86	10	47

Appendix 02: Corporate Advertising Cost and Benefit Analysis

Costs

Benefits

- Costly

- Difficult to measure result

- People are not interested in this form of ad

- May generate a negative thinking that the company is in trouble

- People are not interested in corporate advertising

- Questionable effectiveness

- A waste of money if advertising is not effective

- Good vehicle to position the corporation

- Reach selected market

- Build corporate image when being used together with PR

- Used to attract employees

- May increase employees’ morale

- Establish an identity for Siemens

- May help to generate financial support

Appendix 03: Recommendations on redesign print ad

Add brand name and/or big logo in every picture; reduce context and just highlight the most important fact and numbers; use pictures which is easier to associate to the high-tech nature of Siemens like the pictures of high-tech products.

Appendix 04: Role of PR in Siemens’ ICM

- PR can help Siemens achieve the objective with much less expenses

- PR is more credible to solve the political issue

- PR can help to keep favorable relationships between Siemens and its general public for long time

- PR can help increase the effectiveness of TV and print advertising

- PR can influence the target audience such as opinion leaders, engineers, government official decision makers etc

- PR is a suitable vehicle for building corporate image

Developing Scope Advertising Copy

2008-03-24T01:51:00.000-07:00

Developing Scope Advertising Copy

May Thet Win

Hung, Nguyen Viet

Ha, Pham Thi Thuy

Zha Li

Executive Summary

The subsequent decline of Scope's share in Canadian mouthwash market calls for the new positioning towards the hybrid benefits segment. The Canadian mouthwash market is a mature and competitive market with about five leading brands holding about 90% of the whole market. The market is getting redefined with new positions by benefits and usage occasion. Due to the considerable variations in the prices of competing brands and their new positioning strategy, Scope positioning should be targeted towards hybrid benefits with the focus of competing approach from the basic of refreshment benefits.

Positioning toward hybrid market: Scope, which is currently targeted in refreshment segment, is a dominant brand with a 32% of market share. Among the five competing brands, Listerine and Private Label are the major threats. Listerine's therapeutic product attribute like germ-killing effect and gradually improved taste of Cool Mint and Fresh Burst as well as Private Label's effective promotional tool like large price discount enhance the two brands to grow their market shares in refreshment segment and consequently, Scope's market share and consumer's loyalty can be threatened.

Another serious threat is Colgate Total, emphasizes heavily on TV advertising and trade promotion with a strong product benefit claim. According to the market condition, competition in refreshment segment is intense. Scope therefore, should focus not on the consumer problem which its product cured, but on the consumer problem its competitor caused. Listerine's one vulnerable spot is the antiseptic smell and strong and bitter taste it left on the user's breath. If Scope could position itself in the minds of consumers as the "sweet breath" mouthwash, then it can sweep almost the entire market share into its pocket. Regarding this, Scope should reposition itself towards growing hybrid segment by practicing the perceptual positioning strategy in the (Figure-1, Appendix-1) to compete with Listerine and price premium strategy for brand like Private Label.

Advertising problems: Scope's past advertisements “Personal Question” and “Honeymoon Suite" are not effective spots for its target audience and its message. Although these 2 ads are memorable, and creative in terms of getting attention from the audience, they are unsuccessful in terms of relating the ads with product benefits. Both ads have a problem with message structure and ad technique. The kisses placed at the end of the ads drive the audience to memorize sweet kisses rather than remember brand name. The first ad uses the testimonial technique but it does not show the audience how well Scope can improve their life. Although the second ad uses slice-of-life technique romantically and emotionally, it might not reach Scope’s target audience because the target audience can be married or single or divorce or those not interested in marriage. Faced with serious threat from competitors and ineffective ad campaigns, Scope should be repositioned and advertised more effectively.

New ad campaign: The positioning segment now is for hybrid benefits. The advertisement should carry the main message of both for refreshment and therapeutic benefits to the target audience. Demonstration, comparison, testimonials, and slice of life are suitable kinds of advertisement for Scope if they really offer message of product benefits. In fact, comparison like before and after, and testimonials like real people in real situation using the Scope will be more effective and endured for a long time. The Scope ad should answer the questions suggested in the Appendix - 1 & 2. If Scope ad can answer all of these answers, it will be appealing emotionally, effectively and lasting long. Besides, Scope should consider point of purchase (POP) advertising like shelf talkers, floor graphics, sales promotions, and coupon dispensers because sales with POP advertising can lift sales twice that of advertising alone.

Focus group: The knowledge of consumers’ insights about the product is effective in developing the products that meet exactly their needs and in establishing brand awareness and brand loyalty. The "focus groups" containing frequent and potential users, victims of oral problem, and the dentists can easily help P&G in answering marketing questions about the serious situation of Scope. The group should focus on such issues as consumer perception of product benefits, brand perception, brand positioning statements and ad effectiveness. Some questions used in this group are suggested in the Appendix-2.

Recommendation: It can be recommended that Scope positioning should be hybrid. In order to achieve the largest market share, its ads should be effective in conveying both the message of refreshment and therapeutic benefits.

Appendix-1

Figure- 1: Brand Positioning Map

Questions should be answered by the Scope ad

What was life like before the problem was solved?

What kinds of problems were they faced with when life was like that?

Why did they want to fix the problem? What emotions come up when they think back to how life used to be?

What was the process they went through to find a provider?

Appendix-2

What was their criterion in choosing a supplier?

How has the problem been fixed? How did the process work?

How is life now when the problem is fixed forever?

What advice would you like to leave people who are experiencing the same types of problems you used to?

Step and procedures as well as questionnaire direction for focus group

Opening Questions: Focus on identifying characteristics the participants commonly share

Introductory Questions: Encourage participants to reflect on past experiences and connections with mouthwash product. Help to foster beginning conversations and interactions among the participants

Transition Questions: Helps participants gain an understanding of the depth and breadth of the topic about mouthwash product Scope wants to discover.

Key Questions: Move the conversation to the key questions that drive the needs analysis study such as features of mouthwash they expect, which attributes they want from Scope’s product. How does Scope improve your mouth conditions? When do they prefer to use the product? What kinds of advertising are suitable for Scope?

Ending Questions: Bring closure to the discussion. Encourage participants to reflect upon prior comments

SAP and the Evolving Web Software ERP Market

2006-07-13T19:26:00.000-07:00

Company Overview

SAP, established in 1972 by a group of five German software engineers, has emerged as the third world-largest software provider in collaborative business solutions for all types of industries and for every major market. SAP began with P/1, software of accounting transaction processing program, is now call Enterprise Resource Planning System or ERP. Before 1999, it focused of developing a powerful ERP system for the largest multinational companies and outsourced consulting service to external consultants for marketing, installation and implementation. It used to sell the whole ERP package and wanted to provide a superior software system. However, under the threats of changing technology and intense competition, SAP changed its business model and strategy in 1999 to become more responsive to customers’ needs by creating new business solutions to large, medium and small firms, breaking ERP package into separate modules and making them easier to use and maintain. The strategy move and organizational restructure, together with mySAP solution, have marked a great leap forward in SAP’s growth journey. Now SAP continues to add new solutions and customize mySAP to meet the needs of every customer in all industries.

By applying Five-force model and PEST, I analyze the external environment and determine threats and opportunities that SAP is and will face. Going deeply inside the company, I analyze SAP’s business model, strategies at all levels, resources, capabilities and value chain to determine SAP’s strengths and weaknesses. Then, I come to the conclusion with problems that SAP is and will face. Finally, I suggest some alternatives, analyze the costs and benefits of these alternatives and come up with some recommendations and their implementation plans. I suggest the use of Balanced Scorecard to measure our solution with described criteria.

I. Situational Analysis and Problems Identification

A. External Analysis

1. Five Forces (Appendix 1)
· Potential Competitor – High. Microsoft is now focusing on PC software but may become competitor in ERP software market because it has bought 2 companies that compete with SAP in small and medium size markets and it has competencies in a wide range of software products and resources and capacity to develop quickly and easily an ERP system with web-based solution.
· Power of Supplier – High but decreasing. Before 1999 SAP depended heavily of consulting companies to market and promote its ERP system to both local and overseas markets. After changing strategy in 1999, SAP focused more on developing in-house consultants and has became stronger in consulting service related to ERP solutions.
· Power of Buyer – Low because the switching cost is very high but this power is increasing due to complementors.
· Power of Substitute – High. Here substitute means modules or parts of ERP package because customers do not usually buy the whole ERP package but tend to buy some modules of ERP that fit exactly their needs.
· Rivalry – High because: 1) competitors catch up SAP technology in developing ERP by exploiting weaknesses of SAP software; 2) Oracle has became main competitor who can offer product nearly the same as SAP products; 3) Niche players (Siebel, Ariba, Marcum…) emerge as main players; 4) Competition in niche market is very intense; 5) IMB has changed its strategy to provide customized software that customers want.
· Threat of Complement – High. Sun has provided Java Platform and Free Linux Platform that enable computers to work with any software systems. This will decrease switching costs and buyers can buy ERP modules from any providers to run in their current system. Therefore, the power of buyers will increase.
Environment Analysis
· Political, demographic, social environment is favorable.
· Macroeconomic environment: in early 2000s, firms tend to spend less on IT system due to economic downturns in 1990s.
· Technology environment: fats growing web and internet technologies and software development capacity in the U.S and abroad may become a threat to SAP if it can not change its technology ahead of time.
Threats
· Oracle developed its own ERP that have features that SAP does not have.
· Competitors exploit weakness of SAP software and offer products more customized and less expensive.
· Development of the internet and broadband technology may make SAP’s P/3 be outdated.
· Development of new web-based software technology puts SAP under the threat of losing product advantages.
· Threat from compilementors like products of Sun.
· Niche competitors get stronger and more aggressive in competing with SAP.
· Microsoft may become a competitor in the future.
Opportunities
· Large market segments of small and medium-sized firms.
· Large untapped overseas markets.
· Large market segments for new industries such as insurance, food, logistics, public sector.
· Opportunities in current markets if SAP can customize ERP to customers’ needs and make it easier to implement and use.
· Large market segments for new solutions in ERP package that SAP has not yet develop like corporate governance, risk management, finance, compliance.
· Opportunities for consulting and maintenance service that comes along with ERP solutions.
5. Conclusion
SAP is vulnerable and risks losing market shares due to intense competition from Oracle and niche players and threats from fast changing technology and complimentors. Potential competitors might come from both red and blue oceans to challenge SAP technology. But SAP has many opportunities in all markets and industries. The question is that how SAP uses its competencies to develop its technology and create new solutions to offer such large markets.

B. Internal Analysis

1. Business model (Appendix 2)

Before 1999, old model

- Applied focused strategy to largest international firms
- Focused only on software development
- Outsourced marketing, installation, implementation and software maintenance

After1999, new model

- Pursued differentiation strategy to serve all customers
- Focused on software development, consulting service and software maintenance
- Outsourced implementation and maintenance
- Developed consulting and maintenance capabilities to reduce outsource
The old business model worked well because customers do not require sophisticated and customized products and competition was very low. However, this model was not sufficient for the new environment where there are many threats from competition and changing technology. The new model is a good and timely response to such new market environment and it helped SAP generate revenues and growth.

2. Resources

· Brand name and brand recognition
· State-of-the-art ERP system
· High skilled software programmers, talented and professional staff
· Control and reward system that motivate and retain employees
· Cross-functional teams focusing on customizing products
· Loose matrix structure that allows maximum capacity and competencies

3. Capabilities

· Management team with long term vision
· Culture of value and norms that emphasizes technical innovation
· Capability to innovate and develop technology
· In-house training and consulting capabilities
· Decentralized control that allows flexibility in work
SAP’s distinctive competency is product innovation.

Value chain (Appendix 3)

Before 1999, SAP had many weaknesses in its value chain because it ignored marketing & sales, outsourced customer service, human resource management and related consulting service. Its flat structure caused the loss of control over marketing, sale, installation and relationships with external consultants and its product-oriented culture made it less responsive to customers. The weak value chain did not allow SAP to transfer its competencies into value to customers and caused implementation problems.

Together with the change of strategy, SAP has strengthened its value chain through series of activities such as building its own HRM, centralizing marketing & sales, developing consulting capabilities, changing organizational structure from divisional to matrix structure, building a new corporate culture based on customer-oriented concept. The new value chain allows SAP to implement the new strategy. Please refer to Appendix 4 for further information about how corporate infrastructure affects SAP’s implementation plan.

Competitive advantages (Appendix 5)

· Quality: High. ERP system is highly reliable and added more attributes
· Superior innovation: High. SAP continuously add new solutions to its ERP system
· Customer responsiveness: low before 1999 but high from the introduction of mySAP
· Durability of competitive advantage: SAP’s high quality, superior innovation and high customer responsiveness competitive advantages are vulnerable because: 1) the barrier to imitation is high due to fast changing technology; 2) competitors such as Oracle and potential competitor such as Microsoft have capabilities to develop ERP system which has nearly the same features ad SAP’s ERP system. 3) companies in software industry are dynamic to changing technology and business environment.

Value discipline (Appendix 6)

· SAP focused on product leadership before 1999 because it believed that technical advances were competitive advantages and allowed it to charge premium prices. However, SAP changed the strategy to pursue both product leadership and customer intimacy and gradually achieve cost reduction.
Global strategy (Appendix 7)

Before 1999, SAP pursued international strategy because it was not under the pressure of cost reduction and was not well locally responsive. However, in response to intense competition and threats of changing technology and customer needs, SAP changed this strategy in 1999 to a transnational strategy to have more local responsiveness and cost reduction.

I think that the new global strategy is a timely and effective response to the fast change of business environment and will be successful in the future: 1) SAP will have deep understanding customers’ needs and therefore it can use its competencies to develop and current products and create new solutions to them; 2) SAP will enter new potential markets in terms of locations, industries and business processes before its competitors; 3) SAP can gradually reduce costs to offer cheaper products because premium prices will be eliminated by competition; 4) Through customization, SAP can build brand loyalty, increase brand awareness in every market and all industries; 5) SAP can surpass its competitors in technology, solutions, customer base. However, SAP needs to be able to change its strategy in response to changing environment.

8. Corporate level strategy

- Outsource strategy: SAP’s outsource strategy before 1999 allowed it to penetrate overseas market quickly while eliminating huge capital investment but brought it serious problems: 1) losses of high revenues from consulting service; 2) losses of contacts with customers so SAP did not have knowledge of its customers and understanding of changing needs of its customers; 3) less customer responsiveness because SAP did not contact directly its customers; 4) increasing complaints from customers regarding consulting service; 5) external consultants became more expert in installation, implementation and software service; 6) SAP became much more dependent on those consultants. However, SAP limited outsourced activities to implementation and service after 1999 to solve the above problems.

- Horizontal integration: SAP considers small acquisitions as important parts of its strategy to reduce costs, enhance functionality of its products and build its customer base. SAP also builds strategic partnerships with its niche and potential competitors to exploit competencies that it does not have and synergies across partner companies.

- Vertical integration: SAP builds strategic partnerships with external consultants to promote its products. This strategy is necessary since SAP still needs to expand market quickly with little capital investment, especially in overseas markets.

- Strategic partnerships: SAP not only builds partnerships with its competitors and suppliers but also builds partnerships with companies who provide complimentors such as Netscape and Sun to develop its products. The partnership strategy helps SAP reduce competition, increase market shares and develop its products. But there is a risk that SAP will lose its technology to its partners if it does not have effective control methods.

9. Business level strategy

Before 1999
Focused differentiation strategy
This strategy is suitable for the market situation at that time because technology was not changing fast and competition was not yet intense.

After 1999
Differentiation strategy but attempting to reduce cost
This strategy move was to respond to threats of changing technology, intense and new competition and is consistent with its global strategy.

10. Functional level strategy

11. Strengths and weaknesses

Strengths:
· Superior product innovation and development capabilities
· State-of-the-art ERP system
· Skilled, talented and professional employees
· Cross-functional product development teams
· Brand name and reputation
· In-house training & consulting service
· Loose matrix structure that allows SAP to be very responsive to customers’ needs

Weaknesses:
· Cooperation between subunits
· Control over external consultants
C. Problems Identification
· Coordination between and among subunits
· Control partner consultants
· Vulnerability of business model in intense competition and changing technology

II. Alternatives, Cost/Benefit Analysis

III. Recommendations and Implementation

A. Recommendations

I recommend SAP to choose all the above alternatives.

B. Implementation Plan

1. Build corporate culture to enhance cooperation between subunits and implement strategies in the entire company
- Hiring & Training: hire qualified people who fits SAP’s culture; create and maintain: learning corporation; environment of trust and nurture unconventional thinking and creativity; share values and behavior norms in the entire corporation; customer and service-oriented, performance-enhancing, unified, open and diverse culture. To do so, SAP needs to have in-house professional training centers to design and conduct training programs, good managers at all levels who can tell stories, become models, transfer the corporate mission, inspire passion, promote team-work spirit and experience sharing.
- Reward system: offer equal career opportunities to all employees; set up performance-related pay system; reward individual efforts; offer bonus plans, annual profit-sharing programs, stock options, equity saving package, capital saving programs, retirement and pension program; welcome package to welcome foreign nationals to work at SAP Germany and foreign subsidiaries.
- Organizational structure: flat and flexible structure.

2. Selective acquisitions (Appendix 8)

3. Develop consulting and maintenance as a main business
- Hiring: increase number of qualified consultants and software engineers
- Training: develop training packages for newly recruited consultants and software engineers; create training programs to upgrade consulting skills and maintenance capabilities
- Reward: reward systems to motivate, retain and develop staff in these two areas

4. Strategic alliances, network and partnership with external consultants and other software firms
- Choose strategic partners carefully. Partners may include niche competitors, potential competitors, external consultants and complement providers who have competencies and technology that SAP does not have or wants to improve.
- Create a learning environment to learn competencies from the partners while working with them
- Create an implementation plan so that SAP can acquire synergies of the network to reduce costs and develop its technology and service capabilities.

5. Non-competitive strategy to prevent new entrants, manage rivalry and seize opportunities
- Product development strategy: create new solutions to add in mySAP such as corporate governance, risk management, IT management, customer profitability analysis; develop mySAP solutions for new usage such as internet, mobile business, ebiz, on-line, broadband; increase consulting services to all business processes such as finance, strategy, risk management, corporate governance.
- Market development strategy: customize mySAP to new market segments such as insurance, public sector, food, textiles; customize mySAP for all size foreign customers; enter more foreign markets.

IV. Balanced Scorecard (Appendix 9)

SAP should use Balanced Scorecard as a measure of business performance. The Balanced Scorecard starts from SAP’s vision, mission statement and goes to four specific perspectives. Here I recommend only measures of the above recommendations and implementation plan.

Learning and growth: build a unique and open corporate culture that fosters a willingness to take responsibilities, help others and seize opportunities.

Internal process: reduce cost, develop products, service and technology, innovate new products.

Customer: help all customers win in every business environment.

Financial: satisfy investors’ expectations in terms of returns and sustained growth.

VIACOM EMPIRE

2006-07-13T19:25:00.000-07:00

1. Introduction

Viacom, established by CBS Broadcasting as an independent company in 1970 has now become world’s second largest media conglomerate. Bought by visionary Sumner M. Redstone in 1986, Viacom gradually emerged as an “entertainment colossus” and expanded its empire through a number of mergers and acquisitions, timely strategic alliances and product diversification. Most notable among them were the merger with Blockbuster in January, 1994 and the acquisition of Paramount in July, 1994. However, this transformation into a media giant did not come without its toll. The company incurred huge debt, structure and management challenges loomed and the fast-changing entertainment and media industry posed new threats to the company. In a very risky movie industry where past successes are no indication of future success, Paramount’s share of the box office dropped from 14 percent in 1994 to 10 percent in 1995. To compound the problem, the Blockbuster division was also not doing well.

By applying Five-force model, SWOT, PEST and value chain analysis we explored internal and external environment; then we used M&A evaluation method to get an insight of the company’s relative value. We also analyzed synergy applying discounted cash flow NPV analysis. Finally, we analyzed the costs and benefits of the alternative solutions and came up with some recommendations and their implementation plans. We suggest the use of Balanced Scorecard to measure our solution with described criteria.

2. Internal Analysis

2.1 Corporate-level strategy: global expansion strategy
2.2 Business-level strategy company pursuing: product leadership strategy. (Appendix 1)
2.3 Distinctive competencies
Resource: syndication right for some popular TV programs like Cosby show; product line proliferation; brand name; strategic alliance; knowledge and experience in product development; state-of-art production capacity in Orlando, Florida; good network and connection with other companies like telephone companies, wireless companies; opening of new channels.
Capabilities: keeping cost under control; good functional structure that enables company to manage cost and create profit center.
2.4 Value chain analysis: (Appendix 2)
Viacom has outstanding value chain to transform inputs to outputs that continuously create value to its customers. It has capability to lever resources to design, create and deliver new products to its customers. It also has efficient supporting activities that enable primary activities to be taken easily and timely.

3. External Analysis Through Five-Force Model

Although the industry demand is growing steadily, the intensity of rivalry is high owing to high exit barriers and consolidated industry structure. Because of huge capital investment and high risk of failure (difficult to predict whether a program/movie/song will be popular or not), the entry barrier is high. The bargaining power is low to moderate because the company can make it content in house. Owing to low switching cost and low brand loyalty, the bargaining power is high. The large number of existing and emerging entertainment channels cause high substitute threat. Complementors may become substitutes and the threat of complements is moderate. The environment is in the favor of the company as explained in the Appendix 3.

4. SWOT Analysis

Internal analysis

Strength

Clear mission and vision of future; brand name; management skills; scale and scope of business; copyrights; high market share in the US.

Weakness

Huge debt; often changes of top management; lack of international experience of management team; weak cooperation among business units;

External analysis

Opportunity

Globalization and growing markets (Asia, Western Europe etc.); Prices liberalization in cable TV industry; Market consolidation (increasing bargaining power, and non-price competition); Technology advancement

Threats

Deregulation that lowers the entry barrier; fast changes in technologies that might lead to potential entry with lower costs or create new substitutes; piracy; low brand loyalty of customers

5. Key Issues To Address
- Poor performance of Paramount and Blockbuster;
- Heavy debt
- Global expansion
- Difficulties in realizing expected synergy

6. Cost/Benefit Analysis of Alternatives:

7. Recommendations :

Based on above analysis, we recommend that Viacom should follow : first, restructuring organization; second, finding out possible acquisition & merger ; and third, following a global strategy.

8. Implementation plan (Appendix 4)

8.1. Restructuring: to lever the company’s resources to create value for its customers
- selling unprofitable business units such as Paramount Picture
- integrating properties to reduce cost by sharing resources of cross-business units
- combine value chain activities to achieve lower cost or collaborating to create new resource, strength and capabilities
- Cross functional team to lower cost and enhance productivity and efficiency

8.2. Acquisitions & Merger: Consider possible M&A that would benefit company with steps :
- Analyze the needs and right time
- Search for target companies
- Evaluate M&A by using the methods in Appendix 5
- Negotiation, deal execution
- Post-M&A restructuring
After restructuring and taking possible acquisition, Viacom will have better access to maintain a mixed strategy (combination of cost and differentiation strategy in the future (Appendix 6).

8.3. Global strategy: Move from multi-domestic strategy to transnational strategy (Appendix 7)
The choice of entry mode depends on different countries where it wants to enter because of some political reasons and responses from local communities. For example, in China, it should set up global strategy alliance with Chinese broadcasting partners since Chinese broadcast industry is under the control of the government.

9. Balanced Scorecard to Measure Performance

Kikkoman Corporation in the Mid-1990s

2006-07-13T19:16:00.000-07:00

1. Introduction:

Slow sales growth and underperforming stock price present new Kikkoman president Yuzaburo Mogi challenges as Kikkoman faces the end of the 1990s and the twenty-first century. The company, headed by 17 generations of the Mogi family and held 50% of US soy sauce market and 30% of the world market , faces a mature market and slipping market share in Japan for its soy sauce, as well as challenges for its diversified product line in the 94 other countries in which the company distributes. By using Five-force model, SWOT, PEST, value chain analysis we understand internal and external envronment; then we use ratio and ROIC analysis to realize strength and weaknesses in financial situation of company. After all, through evaluating cost/benefit of 2 alternatives and choosing a long-term global strategy for Kikkoman, we come to r recommendation with a plan and steps of implementation aiming to solve facing problems. At last, we suggest using Balance Score card to measure our solution with described criteria.

2. Key Issues to address:

Slow sales growth starting from the early 1996 ; Underperforming stock in Nikkei Exchange in relation to the market; Ongoing changes in taste preferences and dietary needs presented threats; How the company focus on and try to enhance US market while keeping hold of the Japanese market

3. Internal analysis

3.1 Corporate-level strategy: Kikkoman Focused on globalization keeping hold of the Japanese market with high assimilation and long term commitment

3.2 Business-level strategy company pursuing: Company follow a cost leadership strategy in Japan Continuous development of new recipes; Variations of its older products as well as development of new products (APPENDIX 2)

3.2 Distinctive competencies
Resources : Kikkoman has Expertise and more than 300 years of experience in production of soy sauce ; Know-how of esoteric technology developed by family; State-of-the-art laboratories ; A number of patents in Japan and US’ Non unionized dedicated labor force; Localized operation ; Economy of scale; Convenient location of the plant and closeness to main markets
Capabilities : Business network with wholesalers and distributors ; Harmony with society and local community; Good corporate citizen; Decisions made by consensus from the bottom up; Hard working mixed culture; Practice of rotating managers

3.3 Value chain analysis: Kikkoman has a long history of R&D (development of new recipes, number of patents), a family know-how and a marketing and distribution center for its product in the US (APPENDIX 4)

3.4 ROIC analysis / Profitability (APPENDIX 5, 6 )
Return on sales: Return on sales is the main factor that influences ROIC and has the same trend. The ratios of COGS to sales and SG&A to sales keep almost constant. We can infer that there is no big change on average prices of products compared to the cost of products. It is the change on amount of sales or market share that leads to the fluctuation of sales and ROIC. Market share and business strategy based on market share are vitally important to the development of the company.

Capital turnover: This rate has been decreasing in the last few years. Both the ratio of working capital to sales and the ratio of PPE to sales are increasing. We can infer the internal efficiency is decreasing.

4. External analysis through Five-Force Model:

· In Japan: Rivalry is intensive because mature market, Entry barrier is very low (commodity market; technology use is minimal, low capital needed, easy to establish production), Bargaining power of buyers is high (many brands with diversification and price variance, switching cost is low), Bargaining power of suppliers is low (materials are commodity and easy to supply), Complements power is high (cuisine culture).

· In US/Europe: Rivalry is moderate, because of consolidated market, Entry barriers are low (commodity market; technology use is minimal, low capital needed, easy to establish production), Bargaining power of buyers is high (switching cost is low, despite of the Asians consumers are early adopters), Bargaining power of suppliers is low (materials are commodity and easy to supply) . For details of External environment analysis, please see APPENDIX 1.

5. Evaluation of SWOT analysis:

Internal analysis

Strength

Brand name, management skills, long history, know-how, large market share, hardworking culture, good relation with community, R & D, advertising, Highest productivity in the industry

Weakness

Longer production process compared to technology based competitors, Production process more expensive, more cerebration needed; decreased efficiency

External analysis

Opportunity

Growing markets in USA and EU
Economic growth in USA
Increasing popularity of Orient cuisine
New emerging markets in Asia

Threats

Ongoing changes in taste preferences and dietary needs; highly sensitive to price
Competitors pressure at the retail level in Japan
Aggressive introduction of private brands
Country risk in foreign markets
Low entry barriers
Slowdown in Japanese economy
New automated chemical technology

· Evaluate SWOT analysis : Ongoing chages in taste create an opportunity to diffrentiate (product lines) and high sensitivity of demand to price will create a chance to differentiate product price. Keeping low cost at least in some products is an effective way to guard against external threats. And slowdown in Japanese economy makes an opportunity for Kikkoman to look for overseas markets to grow rapidly.

6. Alternative solutions:

6.1General strategy: Organizational structure: reform its corporate governance structure from a Japanese style to a more internationalized one.
Market strategy: apply blue ocean strategy, by expanding market boundaries to overseas markets. (APPENDIX 3)
6.2 Cost/benefit analysis of each alternative‘s actions
5. Recommendation: Based on above analysis, We suggest that Kikkoman choose Alternative solution #1 (total scores of alternative 1 > that of alternative 2).

6. Implementation plan:

7. Balance Scorecard to measure performance (APPENDIX 7)

Financial: to succeed financially and increase value of Kikkoman’s shareholders
Customers: to achieve Kikkoman vision, mission and strategies
Internal business process: to satisfy Kikkoman’s shareholders and customers
Learning and growth: to know how Kikkoman can sustain its ability to change and adapt to international environments

AMERICAN CHEMICAL CORPORATION

2006-07-13T19:11:00.000-07:00

1. Executive Summary

Dixon, an American specialty chemical producer, wants to buy Collinsville plant from American Chemical Corporation, another typical chemical company in 1979. Dixon wants to diversify its product line buy acquiring the aforesaid plant, which produces sodium-chlorate to supply to paper producers in Southeastern part of the US. This plant initially cost 12 mln. USD and additional 2,25 mln. USD needed to buy laminate technology to increase efficiency and profitability of the plant in order.

Dixon has conducted thorough marketing research for the industry providing cash flow analysis on purchase of the plant. The cash flow analysis based with and without laminate technology cases, where the company should decide whether it should go on further to buy that plant and technology.

2. Calculating of WACC

2.1 Assumptions for calculations in the case:
l Plant life is 10 years (p.4)
l Salvage value of plant is 0 (p.4)
l Book value of plant at end of 1979 is 10.6 million (=12 million purchase price - 1.4 million working capital)
l Tax rate is 48% (calculated from Exhibit 7)
l For the period from 1980 to 1984: all data of sales, depreciation and manufacturing and other costs are given in the case (Exhibit 8)
l For the period from 1984 to 1989 we use the below assumption:
- Price growth rate is 8% (p.4)
- Power cost growth rate is 12% (p.4)
- Net working capital is always 9% of sales (Exhibit 8, current asset and liability items remain historical to sales)
- PPE and depreciation are based on historical data in 1980-1984 period (Exhibit 8)
- Capital investment are based on historical data in 1980-1984 period (Exhibit 8)
- Variable and fixed costs: we use 4-year average growth rates calculated based on Exhibit 8. So non-power variable cost growth rate is 11%, fixed cost growth rate is 6%, selling expenses growth rate is 7% and R&D expenses growth rate is at 5%
- To use this 4-year average growth rates, we assume that the scale of operations of this plant is constant so we need to adjust such cost growths to account for inflation. If the scale increases we should consider growths in costs on percentage of sale basis

2.2 Cost of capital:

a. Calculate beta β of sodium chlorate:

The β of Dixon is 1.06 (Exhibit 7). This beta may be irrelevant to the project to buy Collinsville plant because Dixon produces specialty chemical products but never produce sodium chlorate. The systematic risk of the project could be the risk of the production of sodium chlorate in the industry.　Therefore, we calculate beta of the project based on the beta of the sodium chlorate industry.

We do not simply use the beta of Brunswick and Southern, 2 firms purely produce sodium chlorate, because they are small in the industry and their stocks might not be traded largely on the market. Hence, we decide to calculate the beta of all firms that produce sodium chlorate to see the trend of beta of all firms in the market since we believe that such trend can be a benchmark for calculating the beta of sodium chlorate for Dixon’s project.

The average beta is calculated from the formula: βasset = βequity / [1+ (1-t)*D/E], where D is debt, E is equity and t is tax rate. To simplify the calculation, we assume that all these firms have tax rate at 48% and βdebt is zero. The detailed calculation is provided in the Appendix 1. From the table, we notice that the betas of 3 diversified chemical producers American Chemical, Kerr-McGee and Int. Minerals and Chemicals (Ga is a paper company and Pennwalt is a large diversified chemical producer) is less than the market beta (1.00). We also observe that the two pure play firms (last 2 rows) have higher beta than the market beta. Thus, sodium chlorate may have higher beta than other chemical products. Because sodium chlorate is totally new to Dixon, we assume that Dixon plays the role of a pure sodium chlorate producer and consider the average of the beta of Brunswick and Southern as the beta for Dixon in this project. This beta is β=1.09. The beta 1.09 seems more reasonable as Dixon may have more risk to take the project than other companies who already produce this product for a long time.

Now, Dixon needs to re-lever this beta by using its own target capital structure (35%, p.4). The formula for re-levered beta is: βlevered equity = βasset * [1+ (1-t)*D/E] = 1.09*[1+(1-0.48) *0.35/0.65] = 1.40.

b. Weighted average cost of capital (WACC):

Cost of equity: in the case, the yield on Tbonds is 9.5% (p.4). We assume that it is the risk free rate. We use the historical equity risk premium 8.4% stated on the Table 9.2, page 247 of the textbook. According to the CAPM method, the cost of equity for this project is 9.5%+1.38*8.4% = 21.26%.

Cost of debt: because there is little information about Dixon’s debt provided on the case, we assume that all debt Dixon intends to borrow is used in the acquisition of Collinsville plant at 11.25%. We also assume that debt is issued at par. The after-tax cost of debt is (1-0.48)*11.25% = 5.85%.

WACC: we use Dixon’s 35% target level of debt-to-asset ratio in acquiring the plant to calculate cost of capital. WACC = D/V*After-tax cost of debt + E/V*Cost of equity = 0.35*5.85%+0.65*21.26% = 15.87% @ 16%. Therefore, the WACC for Collinsville’s plant cash flow is nearly 16%. We use this cost of capital to calculate NPV of the project.

3. Calculating NPV

To calculate the NPV for the project we have observed two cases during the investment: purchasing the plant without laminate technology and with laminate technology.

3.1 Without laminate technology
We have calculated NPV on the basis of the current cash flow provided in appendixes of the case and information provided in case material. So we have used the data in Exhibit 8 and projected cash flow from 1980 to 1984, and we have calculated cash flow to 1989 based on our assumptions aforesaid. For further details please refer to Appendix 2.

It had resulted on NPV being negative – 3,703 thousand USD.

3.2 With laminate technology
Case defines us some cost reductions and benefits such as graphite cost elimination, tax benefits and power cost savings, since 2,25 mln. USD worth of laminate technology is bought and installed. So we had calculated additional NPV, which has derived from cost savings and tax benefits we have out of buying the additional laminate technology. Our assumption is NPV with laminate technology = NPV without laminate + NPV additional savings.

From this approach we have calculated Additional NPV of 6,634 thousand USD in Appendix 3.

So NPV with laminate technology is -3,703+6,634=2,931 thousand USD.

4. Sensitive analysis

In order to see whether the project is viable in case of negative changes in variables, we have conducted sensitive analysis having one of major variables such as sales growth rate, which can be reflected by different reasons such as decrease in demand, production slowdown, economic recession and etc. We have tried other possible valuables, but they occasionally did not have much effect on the project outcomes.

We wanted to know what is the rate of growth rate should be in both cases (without and with laminate technology) so that the company will have Zero NPV. Using Solver function in Excel, we found that in case of Zero NPV without laminate technology sales growth rate should kept up around 14% and with laminated technology growth rate should not go down of around 2% level (Please see Appendix 4).

5. Strategic and economic benefits

Besides increasing shareholders wealth, company gets some strategic and economic benefits, such as:
- Increase in product range
- Larger market share in paper industry
- Opportunities to enter new market
- New market development and competition reduction
- Enhancement of relationships with current customers
- Development of new technology

By acquiring Collinsville plant, Dixon could complement its strategy of supplying chemicals products to the paper and pulp industry. It can use the existing sales force to market products to save selling costs. Dixon will add a new product in its existing product mix.

Laminate technology would allow company to considerably cut power cost and completely eliminate graphite costs. By gaining technological savvy, the company can use the same practices in other plants and reduce production costs.

Company has developed the relationships with Collinsville existing customers. It is 6 more times cheaper to retain existing customer than acquire a new one. Buying plant, company will not incur potential marketing costs in initial selling of new products.

The company is better off buying the plant than building from the scratch a new one. Usually, plants are costly to build. Also, the company can reduce competition in the market. Buying a plant would be the best entry strategy for company. Building a plant would take a year, and market is changing rapidly, so Dixon could lose market potential if it takes a long time to build a new plant.

Laminate technology makes the Collinsville plant acquisition attractive on economic grounds. In acquisition negotiation, Dixon should make a clause in the acquisition agreement, which protects the Dixon in the case that the laminate technology fails to produce the desired results. This clause should include that in the case the laminate technology fails, American Chemical Corporation should compensate Dixon for installation charges. 　

6. Recommendations

Based on our analysis, we would like to make recommendations as follows:

Most fundamentally, a firm that is operating in the interests of its shareholders should try to accept all projects that increase the wealth of the shareholders. In case of Collinsville, we use NPV to approach to our recommendations.

Based on our calculation, without the laminate addition, the NPV of Collinsville turns out to be negative (-3,703 thousand USD). Under this circumstance, we recommend not to invest in this project since it is against shareholders interests.

But at the same time new Laminate Technology would allow company to considerably cut power cost and completely eliminate graphite costs. Additional $2.25 mln. USD is needed to install this new technology. We consider this technology as a subproject attached to Collinsville and calculate its NPV. The NPV of this new technology is 6,634 thousand USD. That means, by using laminate technology, NPV of Collinsville will change to 2,931 thousand USD. Under this new circumstances, our recommendation is to invest in Collinsville because it will not only increase the wealth of the shareholders, but also complement its strategy of supplying chemicals products to the paper and pulp industry.

Distributorship Agreement and Copyrights

2006-06-22T20:25:00.000-07:00

International Business Law Final Exam

Date: June 15, 2006 Pham Thi Thuy Ha

1. Distributorship Negotiation with Grande Trade (GT)

Unlike agency agreement with Zeller, by appointing GT as a distributor in Germany, IUJ ill have more benefits and fewer liabilities. For example, GT will take all risks in distributing products; IUJ needs to enter only in sales transactions to GT; IUJ can not held liability to its distributor; GT has an incentive to sell IUJ’s product and increase IUJ’s market share; IUJ does not face any fluctuation in terms of prices and market conditions. However, IUJ may have disadvantages such as loss control over prices and distribution situation in Germany, price reduction to GT, limited understanding of market demand and customers’ preferences. Therefore, IUJ should consider carefully conditions of the Distributorship Agreement with GT.

In response to the 5 requirements of GT, IUJ should analyze these requirements carefully and consider counter-solutions. From the point of view of IUJ’s overseas sales department head, he or she should consider the analysis below before entering the distributorship agreement with GT:

Type of distributorship: GT wants to become IUJ’s exclusive distributor in Germany. This requirement is reasonable and IUJ should accept because:
1) GT will take all risks and responsibilities to distribute GIZMO within German territory.
2) This arrangement assure that there will be no competition in this territory for distributing GIZMO and thus GT has strong motivation to effectively promote this product and bring IUJ secure financial return.
3) The excusive distributorship will motivate GT to expand fast the market for GIZMO by using its nationwide distribution networks and marketing experience. Therefore, IUJ can capture huge market in Germany without any investment in building distribution channel there.
4) IUJ should appoint only one distributor in one territory and should not distribute GIZMO to other firms for use or resale. This point is to avoid conflicts of distribution of GIZMO, secure the rights to make profits for GT and motivate it to use its best efforts to develop business in, to promote the sale of, and to sell the product.
However, IUJ should impose some restrictions on GT such as: not to enter into any distribution agreements involving competing products; not to sell GIZMO outside the German territory; not to remove or repack the product in this territory; follow recommended retailed prices provided by IUJ; be able to provide sale & customer support and maintain sales staff to expand the market. These restrictions help IUJ prevent GT from selling competitive products, marking up prices so high that GIZMO is much more expensive than competitive products or reducing too much prices to enter unfair competition, selling outside assigned territory and being unable to develop markets.

Buyer-seller relationship: GT requests that the seller-buyer relationship should be the relation between IUJ and GTHK. This relationship might not have any effect on the distributorship agreement with GT. However, IUJ might face a high financial risk in selling GIZMO to GTHK since it owns no property and other assets with substantial value. The other risk is that GTHK can resell GIZMO to other GT’s group members even though it has no sales to other outside parties. Therefore, IUJ could accept this requirement when imposing other conditions: 1) GTHK, under any circumstance, will not be allowed to resell GIZMO to any other parties; 2) the payment shall be made in L/C in advance to IUJ’s bank account (to make sure that IUJ receives payment before producing ordered quantity by GTHK); 3) sales contracts shall be made under the Japanese commercial law; prices and all other sales conditions are agreed by IUJ and GT; 4) GTHK shall not be GT’s representative in working with IUJ. It means that GTHK shall automatically follow the agreement reached by IUJ and GT and shall not intervene in any discussion and negotiation between the two parties. This condition allows IUJ to control over GT in terms of prices and selling conditions.

Delivery: GT requests that the delivery should be made directly from IUJ to its warehouses or retail shops or business customers in accordance with its designation to be made from time to time. This requirement seems to be unreasonable and unrealistic because IUJ could not know the specific locations in Germany designated by GT. If IUJ can know these places, the delivery costs will be very high as IUJ needs to hire a freight company to do such specific deliveries and IUJ could not have necessary control over those deliveries. Under general international trade practices, international delivery terms are commonly FOB and CIF. Therefore, IUJ should reject this requirement. Instead, IUJ should propose FOB Tokyo, and the date of the bill of lading shall be taken to be the date of delivery of the product. IUJ shall not be liable for delays in delivery or failure to manufacture due to strikes, lock-outs, riots, civil commotions, insurrections, wars, acts of God, operation of law or any other causes beyond its control.

Duration and termination: GT’s request on duration and termination is reasonable and IUJ should accept this proposal because a 5-year agreement and possible renewals will build a long term business relationship with GT, generate its loyalty and devotion to work with IUJ in the long term and motivate it to become IUJ’s reliable business partner who is willing to distribute IUJ’s products in Germany. However, IUJ should impose conditions on the sales performance such as the minimum monthly sales GT needs to achieve. Otherwise, IUJ shall have right to terminate the agreement at any time if GT fails to achieve this target.

Non-competition after termination of an agency contract: Because the case does not provide detailed information about the agency contract between IUJ and Zeller, I suggest two options:
- First option: if the agency contract between IUJ and Zeller has already imposed obligations on non-competition for a certain time after the termination of the agency contract, GT’s request on prohibition against Zeller from selling GIZMO is not necessary. In this case, I guess that the non-competition should includes prohibitions to manufacture products of the same type as GIZMO; to sell under trade marks and refrain from altering the products or packaging; to maintain adequate stocks to meet anticipated demand after termination; to continue to provide after sale service after the termination; to inform his clients about the termination and to settle consequences of the termination such as to clear remained stocks and stop to sell GIZMO right after the termination. Hence, the request to prohibit Zeller from selling other similar handled computer games and software in Germany is not reasonable because Zeller has the rights to re-organize his business and to become an agent or distributor of other manufacturers after the termination of agency contract with IUJ. Therefore, IUJ should reject this requirement.
- Second option: If the agency contract between IUJ and Zeller has not imposed obligations on non-competition for a certain time after the termination, a non-competition agreement with Zeller upon the termination is necessary to avoid potential conflicts of distribution of GIZMO between GT and Zeller in future. However, it is quite difficult to persuade Zeller to enter into such agreement as Zeller needs to re-organize his business after the termination and he has no obligation to sign such agreement. Thus, IUJ needs to negotiate with Zeller and if necessary sacrifice by giving him certain compensation or letting him sell GIZMO in markets outside Germany if possible. In this case, IUJ only can accept GT’s requirement after successfully signing a non-competition agreement with Zeller. However, this option is quite rare because in general every company should have non-competition clauses in their agency agreements.

Besides, IUJ should impose obligations on non-competition after the termination of the distributorship agreement as discussed above. IUJ also should request other conditions on intellectual property, confidentiality, consequences of termination, arbitration, notification, legal jurisdiction, currency & currency fluctuation, competition law and force majeure.

2. Analysis of the relationship between IUJ and Zeller

The relationship between IUJ and Zeller is the legal relationship between a principal and an agent engaged in an agency contract. IUJ and Zeller, through consent, signed a 5-year agency contract in June 2001 in which Zeller is IUJ’s agent to sell GIZMO product in Germany. Under the agent agreement, both IUJ and Zeller have legal duties toward each other. For example, Zeller has the duties to obey instruction from IUJ, to hold personal liability to IUJ, to act with skill to promote GIZMO in the German market, to avoid conflicts of interests with IUJ, to protect confidential information, to notify IUJ all information that may be useful for IUJ to evaluate the matter at hand, and to account financial report to IUJ. On the other hand, IUJ has duties toward Zeller such as to compensate Zeller for his service and effort to sell GIZMO and to support Zeller in selling GIZMO. However, IUJ is liable for contracts made by Zeller to the third party as he acts in a fiduciary to IUJ. It has both direct and indirect liability for the torts caused by Zeller to the third party and Zeller also has personal liability for any torts he committed. In case of disclosed principal, Zeller has no personal liability for contracts made on behalf of IUJ. In partially disclosed principal situation, Zeller is liable for the contract and IUJ may be liable on the contract also. But in case of undisclosed principal, IUJ is liable on the contract.

The agency contract will expire in July 2006. Due to Zeller’s limited capability to expand the market in Germany, IUJ want to terminate this contract when it expires. This termination is by the act of IUJ and legally right. Both IUJ and Zeller have responsibilities to settle all consequences of termination.

3. Copyrights and the Production and Distribution of Pocket Monster in Germany

According to the information in the case, Pocket Monster is new software invented by a copyright holder in which he features the characteristics of a famous Japanese cartoon. Under the copy right law, he has the rights to reproduce the original, make derivative versions and distribute copies. IUJ has had his permission to produce and sell it in Japanese language and in Japan. The legal relationship between him and IUJ is that he grants IUJ the right to reproduce and distribute those copies of Pocket Monster in Japanese language and in Japan under a copyright contract or a copyright agreement. But he does not grant IUJ the right to make derivative versions such as translated Pocket Monster in German language and to distribute copies of the original outside Japan.

The copyright prohibits IUJ from distributing copies of Pocket Monster in markets outside Japan and making translated versions of this software. Therefore, to produce Pocket Monster in German version and sell it in Germany, IUJ needs to enter a new copyright agreement or a new copyright contract with him in order to have the legal right to do 3 things:
1) produce a derivative software in German version
2) reproduce this derivative software
3) sell it in Germany
Only after having such agreement, can IUJ start to make a German version, produce it and sell it in Germany.

Japan: Deficit, Demography and Deflation

2006-06-22T20:22:00.000-07:00

Date: June 12, 2006 Pham Thi Thuy Ha

The bursting Bubble and Globalization:

The performance of the Japanese economy in 1990s was poor with slow growth. Banks needed to merger to reduce nonperforming debts. Firms needed to restructure their business activities such as seek viable strategy, reduce loans, improve corporate governance and begin to compete. Deflation began due to excess capacity, falling asset prices and stagnant consumer demand. In 1996, Hashimoto announced a grand plan to restructure administration, deregulation, education system, social security and fiscal policy. Japanese financial markets were deregulated to become free, fair and global. The government started to cut budgets, long-term spending and reduce public works. Bank supervision of the Ministry of Finance was taken away. The primer minister was granted more power and his cabinet could have final control over fiscal policy.

Demographic Crisis:

Aging population is one of serious problems Japan needs to address. Due to decrease in birth rate and increase in life expectancy, Japan’s population is getting older, shrinking labor force and leaving a heavy burden in social security, pension and medical care funds.

Pension system: The first pension system was created in 1940s with a single layer, remuneration-based, proportional pension. It was revised in 1954 to two layer system. The 3rd version was created in 1961 to add national pension for self-employed workers, agriculture, forestry and fishery workers. The basis pension system was financed by fixed amount of insurance premiums. The problem with the pension system is that there are more people enjoy pension benefits while there are fewer workers.

Health care: health care funds need to be risen due to rapid aging and longevity. In Japan, almost all people are insured by health care and elder people go to hospitals more often than elder people in other developed countries. As a result, Japan will face a problem in raising health care funds in the future.

The Koizumi Reform:

Koizumi took office in 2001 with a four-part economic reform: 1) privatize the post office; 2) force banks to write off bad debts; 3) accelerate the implementation of structural reforms; 4) cap the insurance of Japanese government bonds. To implement this plan, Koizumi used the Council on Economic and Fiscal Policy, which is the cross-ministry organization. This council changed the decision-making process for preparing the government budget by coordinating the policies proposed by different ministries to control the overall spending in line with long-term goal of reaching the budget balance in 2012.

1) Privatization of post office: to break the postal service into 4 parts: mail delivery and post office management parts would be under the government control; a bank and an insurance company would be spun off through IPO.

2) Force banks to write off bad debts: the government used three-pronged approaches: accelerate the disposal of nonperforming loans; strengthen loan-classification and provisioning practices; reduce exposure to the price risks of equity by issuing regulations that banks should lower their equity shareholding to 100% or less of their tier-one capital.

3) Pension reform: The pension reform was approved by the Diet in 2004. This reform package includes 3 issues: premium levels, benefits and government subsidies. Premiums rates would rise from 2004 to 2007 and the contribution rate of 13.85% would rise to 18.3% by 2007. Benefits levels would decrease gradually through an adjustment level tied to the CPI. Government subsidies would increase from one-third to 50%

4) Fiscal reform: The government would cut public investment, limit or cut education and defense, eliminate subsidies to local governments, cut social security expenses. By raising taxes to hold government spending constant, the government hoped to reduce deficits toward the balance in 2012. At the same time, the government would apply monetary contraction by issuing more bonds thus public debts increase. To achieve deficit reduction, one-third of primary deficits could be reduced by expenditure cut, the two-third by VAT tax raise.
The prerequisites for Japan to get back its high economic growth are completing structural reforms, refinancing social security, controlling fiscal deficits and ending deflation.

Compare with reforms in Vietnam from late 1980s to 2000s:

The former Soviet Union started to cut aids to Vietnam in early 1980s and the country needed to find a way to grow itself. The Vietnamese communist party decided to change from the close to open economy and the government implemented a compete reform package. Same as Japan in fiscal reforms, Vietnam reduced the number of ministries, reformed pension benefits, cut long-term spending and issued government bonds. However, Vietnam has done different economic reforms. For example, the Vietnamese government changed currency in 1986, from 100 Dong to 1 Dong, privatized SOEs and agricultural collectives, deregulated all economic sectors, broadcast, publishing, telecommunications, established new laws and promote private sector. Reforms were also done educational privatization, electricity production, medical service, transportation, banking system.

In my opinion, the recent massive reforms in Vietnam have helped the country achieve dramatic economic growth in the right direction that fits the situation of the country. Vietnam is continuing reforms to boost the economy. Reforms are always necessary for economic growth because the local and international environments are changing fast.

Japan: Beyond the Buble

2006-06-22T20:20:00.000-07:00

Date: June 5, 2006 Pham Thi Thuy Ha

Fruits of the Miracle:

Although Japan was affected by the ending of the Breton Woods system of fixed exchange rates and the first oil shock, the 2nd the oil shock helped depreciate Yen so Japan gained export competitiveness at the end of 1980s. Due to the rise of U.S real interest rate in 1981, Yen was weakened again and Japan enjoyed export competitiveness and much cheaper imported materials to boost economic growth. However, under a threat of inflation and pressure of estate speculation, the Bank of Japan had to raise interest rate and cool off the economy in 1989. After a series of attempts to balance budget, the government implemented fiscal stimulus in 1992. As a result, deficit spending rose quickly but the economic growth was still stagnated. Then, the government lowered interest rate to 0.5% by 1995 and the Bank of Japan introduced a zero-interest rate policy in 1999 in order to have enough cash to raise price and reduce price deflation. The bank increased interest rate in august 2000 but implemented again this policy in 2001 to deal with deflation problem. However, the bank will gradually increase interest rate to turn monetary policy to normal.

Institutional Concerns:

The ministry of Finance (MOF) managed government fiscal policy and influenced over monetary and securities policy and therefore the Bank of Japan has not acted independently in monetary policy making. In the labor market, job security and seniority system were changed in the late 1990s due to recession. Labor costs were increasing. The bankruptcy of some companies forced employees to find alternative solutions. In the financial market, banks changed from book-value systems to marked-to-market accounting systems to increase their transparency. The government also changed its long-term policy not to allow banks fail to allow banks collapse in 1997. Still, individuals had limited opportunities in the capital markets and were limited in reporting foreign exchange transactions so their personal savings were held in personal saving accounts with very flat interest rates. As a result, unlike American firms, Japanese firms have had limited capital equity. Keiretsu, business groups, has been a dominant business practice in Japan. Keiretsu has 3 types: horizontal keiretsu, vertical keiretsu and satellite groups centered on banks for funds. Cross-holding of share is still common practice and thus, firms were not really under the pressure from shareholders. Japan also faced social issues such as aging problem, medical care, pensions, role of women, standard of living and education.

The Hashimoto Era and Structural Reform:

Hashimoto introduced a grand plan to restructure administration, education, the financial system, fiscal policy and social security among which the financial market reform was the most important reform. According to the plan, the administrative reform is to re-organize the governing structure to be more efficient and more responsive to the needs of the people by strengthening the power of the primer minister and cabinet, reducing number of ministries and limiting numbers of bureaucrats. The economic reform encompassed removal of restrictions on large-scale retailers, telephone deregulation, series of deregulations in 5 main areas: logistics, energy, petroleum and gas, telecommunications and trade/commerce. The educational reform was to reorganize educational system, cultivate a rich humanity, elicit prompt responses to changing social needs and increase schools’ cooperation with students’ families and communities. The financial restructure aimed at the financial market reform and disposal of the massive bad debts by lifting the ban on derivative and amending the Anti-Monopoly Law. The fiscal reform included five major principles: 1) reduce budget deficit; 2) devote to fiscal reform; 3) implement year-to-year reductions in general expenditures; 4) reduce all current long-term spending programs; 5) maintain the national burden below 50%. The social security reform received 5 different proposals and a pension reform bill was completed in 2000. This massive reform resulted in less power of MOF and the primer minister was granted the rights to submits policy proposals to the cabinet.

Structural Reform under Koizumi:

In early May 2001, Koizumi proposed structural reforms. The new reform agenda was: 1) force banks to write off all nonperforming loans in 2 or 3 years; 2) privatize the postal saving system; 3) a cap of government borrowing of $245 billion to halt Japan’ $5.6 trillion debts; 4) Reduce deficits by cutting government spending; 5) a government-subsidized unemployment plan to grant jobless benefits so that firms can lay off worker easily.

Lessons drawn from the case:

The government should change timely the policy in response to the changes of domestic and international macroeconomic conditions. In my country, a massive reform was done in late 1980s and 1990s in accordance with the change of the government’s policy from a close to an open economy after the collapse of the former Soviet Union. So far this reform has boosted economic growth at high rates and maintained political stability. The government continues reforms in all areas such as deregulation, legislation, education, health care, pensions, social security… and promotes privatization.

Foreign Exchange Markets and Transactions

2006-06-22T20:00:00.000-07:00

Date: May 31, 2006 Pham Thi Thuy Ha

Foreign Exchange Market:

Started in 1970s, the foreign exchange market first enables the conversion of other currencies to US dollars at fixed exchange rate. This market has grown over time due to the expansion of international trade and became the largest market in the world with 1.2 trillion average daily turnover in 2001. The largest trading center is in UK with 16% of US dollars, 9% of Japanese Yen. OTC is the most popular trading method and transactions include spot transactions, outright forwards and swaps. Euro and world-wide consolidation of in the financial sector have reduced traded volume of the market. There was a trend toward fewer banks with larger market share in the exchange market. Electronic brokering systems account for increasing share of turnover in spot market.

What is an exchange rate?

An exchange rate is the rate at which one currency can be exchanged for another. On other words, it is the price of a currency in the exchange market. Direct quotes are exchange rates listed in the form of US $ Equivalent and give the price of a unit of foreign currency in US dollars. Indirect quotes are rates listed in the form of Currency per U.S. $ and give the number of units of foreign currency required to buy 1 U.S.$. Cross exchange rate are exchange rates in terms of two non-U.S. dollar currencies. For instance, the cross rate between RMB and Euro. Bid/ask spread is the service fees that banks or brokers charge for each currency transaction. A quote is a bank’s buy price and an ask quote is a bank’s sell price. The spread is the difference between these two prices. Therefore, bank currency quotes are usually given in pairs with the first rate being the bid quote and the second being the ask quote.

Exchange rate movements:

Prices of currencies fluctuate quite often in the exchange market like the prices of goods fluctuate in the good market.
Currency appreciation is the increase in the value of a currency relative to other currencies. When the value is decrease, currency is depreciated. When a currency is appreciated, its purchasing power increases.
Exchange rate fluctuations are measured in percentage relative to some reference currency, for example Euro could appreciate 10% relative to US dollars. Three steps to calculate percentage of fluctuation: 1) convert exchange rates into a standard form; 2) determine whether the studied currency is depreciated or appreciated; 3) calculate the percentage of changes of the original exchange rate.

There are 2 reasons why exchange rates fluctuate: 1) according to purchasing power parity theory, exchange rate fluctuate because of the changes of purchasing power of a currency to another currency; 2) according to interest parity theory, exchange rates fluctuate because of the fluctuation of interest rates. In other words, potential holders of foreign currency deposits should not be different between two currencies.

5 types of foreign exchange transactions:
- Spot transactions are foreign exchange transactions based on spot rates, daily exchange rates quoted in the Wall Street Journal and other news sources.

- Forwards are transactions made sometime in the future at forward rates and forward contracts, an agreement between buyer and seller to trade a particular currency on a date in the future for a fixed price regardless of the changes in spot rates. If the currency is expected to appreciate in the future, forward rates will contain a premium. If the currency is expected to depreciate in the future, forward rates will contain a discount. Forwards end with the purchase of currencies.

- Swaps are a series of forwards under a contract that hedges long-term, sustained foreign exchange exposure. It differs from forwards in the sense that swaps cover multiple future transactions until the mature date while forwards deal with one transaction. Swaps are arranged by brokers and banks in favor of two parties who have complementary foreign exchange to pair up and trade their currencies.

- Futures are contracts that specify a standard volume of a currency to be exchanged on a settlement date some time in the future. Futures are similar to forwards except the fact that futures are standardized for trading on markets like Chicago Mercantile Exchange. They are often used as a tool for currency speculation rather than a hedging tool. Future contracts are traded on the market and the holder can have gains or losses depending on the movement of spot rate over time and changing expectation about the spot rate’s value on the settlement date.

- Options are contracts that allow their owners to buy or sell a currency at a designated price within specific period of time. A currency call option is a contract that allows its owner the right to buy a specific currency. A currency put option is a contract that allows its owner the right to sell a specific currency. Exercising an option is to take the right to buy or sell the currency. Options are sold in standard volumes.

Lessons drawn from the case

1. Companies using foreign currency should have different strategies of foreign currency against unfavorable movements of exchange rates before making decisions on any transaction relating to foreign currency.

2. Corporations conducting international business should consider currency options to cover the risks of unfavorable exchange movements.

3. Call options are suitable for companies that need future foreign currency and want to hedge against currency appreciation

4. Put options are suitable for companies who hold a large amount of foreign currency and want to hedge against currency depreciation

Singapore: Committee on Singapore’s Competitiveness

2006-06-22T19:59:00.000-07:00

Date: May 27, 2006 Pham Thi Thuy Ha

Economy overview from 1959 to 1998:

From 1959 to 1956, Singapore adopted import-substitution policy while it was a member of the Federation of Malaysia. But right after becoming an independent country in 1965, the country moved from labor-intensive exports to high value adding industries while shifting manufacturing facilities to lower-cost neighboring countries. In 1990s, it changed the policy to become an international business hub international financial center to turn the country in a knowledge economy and enjoyed fruitful economic growth (about 8%/year) until 1997-Asia-economic crisis. Since the country’s economy was largely regional focus, it was drastically hurt by this crisis and economic growth was less than 1% by the end of 1999.

The Committee on Singapore’s competitiveness (CSC):

In May 1996, CSC was formed with most members from private sectors to:1) evaluate the country’s competitiveness in the next 10 years in the context of rapid globalization and emerging competition; 2) to detect problems and propose strategies and policies to maintain the competitiveness of Singapore in the future. However, due to 1997-crisis, CSC added one objective which is to examine short-tern issues and recommend solutions to help Singapore overcome the economic downturn. CSC’s 1998-report presented short-term and medium-term solutions to help Singapore stay competitive. Those solutions are:
- Short-term recommendations: 1) reduce business costs and help businesses survive; 2) remain strong financial system; 3) Maintain investors’ confidence; 4) Push economic restructuring; 5) make Singapore’ economy stay resilient; 6) seek business opportunities in the region through partnerships; 7) implement cost-cutting and tax-cutting measures
- Long-term recommendations: 8 key strategies:
1. Promoting manufacturing and service as twin engines: develop manufacturing in the regional hub; attract multinational companies; develop services sector in a premier hub in Asia through fast-growth services.
2. Strengthening the external wing: Diversify market dependency beyond the region; invade into the abundant resources overseas.
3. Building world-class companies: Nurture stable world-class companies by broadening the corporate profile and economic base of Singapore for sustained and resilient growth.
4. Strengthening the base of small and medium local enterprises: Help them remain resilient and reach maximum potential; underpin their role as strategic partners of multinational companies and government-linked companies.
5. Developing human & intellectual capital as key competitive edge: develop a world-class work force by providing world-class education for youth, promoting life-long learning for life-long employability and encouraging management, innovation & technology.
6. Leveraging science, technology & innovation: lever science, technology and innovation; construct the existing IT2000 program to turn Singapore into an IT hub in Asia.
7. Optimizing resources management: optimize the allocation of scare resources to increase supply and encourage efficient usage of those resources.
8. Reinforcing Government role as a business facilitator: Support private sector by providing consistent policies & regulatory environment.

Besides the 8 keys strategies, CSC also recommended strategies for 5 sectors to enhance each sector. In manufacturing: develop world-class work force move to R&D, and nurture enterprises. In financial and banking: develop fund management industry, expand domestic capital market. In service: develop international trading, transport and logistics, business & professional services, media, communications and tourism. In domestic business: help local enterprises to optimize scare resources and develop business.

Responses from Government and Public: the report was warmly welcomed by the government and public and the recommendations were quickly adopted with immediate or nearly immediate effect.
Lessons drawn from the case
1. Build a competitive society is the core of the sustained growth in globalization context
2. Education is the core strategy that each government should take to build a world-class work force, lever science, technology and innovation
3. Private sector and small and medium enterprises play an important role in economic growth so it is deserved to receive full support and assistance from government
4. Effective integration in international markets is a strong wing of the national economy

In Vietnam, the government has formed policies and strategies that cover all above areas to build a knowledge－based and competitive society.

GDP Calculation

2006-06-22T19:57:00.000-07:00

Macroeconomics – National Economic Accounting: Past, Present and Future

Date: April 22, 2006

Student Name: Pham Thi Thuy Ha Student ID: 2A5026

Question 1: Three approaches to measure GDP:
- Value-added approach: GDP is the sum of the value-added at each stage of production, where value added is revenues minus material costs.
- Income approach: GPD is total income which is the sum of rent, wages and profits.
- Expenditure approach: GDP is total spending on final goods and services of a nation. In other words, GDP = C + G + I + X – M where C is consumption, G is government expenditure, I is investment, X is export and M is import.
Among three methods, expenditure approach is the most widely used because it provides policy makers with the most usefulness in formulating economic policies.

Question 2: In general the final results of these three approaches should be the same because GDP measures the value of output of a nation in a specific period of time (1 year). However, the results are not the same in reality. The reason is that the information on which the data is collected may come from different sources and inevitably contains inaccuracies and round-up data.

Question 3: Depreciation is a decrease in the value of a property as a result of wear and tear, obsolescence, accidental damage and aging. In macroeconomics, depreciation covers reductions of the capital stock by disasters. If the capital depreciation is very large, the investment might not be sufficient to support rapid growth in the long run. Therefore, the term Net Domestic Product (NDP), which is GDP minus depreciation, is used instead of GDP.

Question 4: According to Kuznet, the value of net output is the sum of Income Paid Out and Business Saving, where Income Paid Out is the sum of wages, salaries, rent and distributed post-tax corporate profits, and Business Saving is positive business saving (investment, reserves, additions to capital stock) and negative business saving such as depreciation, depletion of natural resources and withdrawals from reserves.
According to Keynes, the value of the net output is the sum of consumption, investment and government spending. This approach incorporates the relationship between employment, the quantity of money, the interest rate and aggregate expenditures.

Question 5: The reason why Kuznet was unhappy with the inclusion of government expenditures in the value of output is the double-counting problem in calculating the output value. Kuznet argued that most government spending was on intermediate goods crucial to the production process rather than on the final products. Therefore, if the government spending is counted, there would be double-counted products in the value of net output and the true value of output would be over-calculated.

Question 6: Challenges in accounting for aggregate output:
Inputting Output:
- How to count for new goods and services that were unsold in the formal economy or that were unpriced in the market. The challenge to count the value of unsold goods such as home-made clothes, unpaid household work and unpriced services like free bank services remains the most difficult challenge that each country faces in calculating their GDP.
- How to count the value of the informal economy. If a country has a big informal economy like Colombia, GDP would be under-calculated if this country ignores the informal economic sector.
- How to count the value of barter if the country still has barter systems.
- How to measure the quality of goods produced. The quality of goods is not fully reflected on the price.
Natural Resources:
- How and what to count the value and depletion of natural resources. Even though UN has provided guidance on how to estimate the annual value of natural resources used, this calculation remains inaccurate since natural resources are what we might not be able to measure accurately.

Question 7: Factors that should be considered:
- The value of non-tradable, un-owned aspects of the environment such as clean air, clean water and climate
- The value of non-market economy of household and community
- The value of informal economy
- Unpriced social cost associated with production such as pollution and environmental degradation

Question 8: Reasons for the importance of the traditional GDP: The traditional GDP suggested by Keynes reflects the relationship between employment, quantity of money, interest rate and aggregate expenditures. Therefore it is:
- An essential tool for analyzing and assessing the state of a nation’s economy.
- A valuable metric for short-term macroeconomic planning because the government can use fiscal and monetary policies to push or cool down the economy.
- An essential tool for formulating macroeconomic stabilization policies.
- An important indicator of the economic growth and potential for investors.

Question 9: Arguments for the environmental accounting:
- Economic growth must be sustainable, growth together with environmental protection.
- Sustainable growth is needed to ensure that our younger generations could have living standards at least as high as those of current generations.
- GDP will provide a more complete overview of economic performance and living standards than GDP without concerning about environmental matters.
- The value of output in environmental accounting (NNG) would be a better indicator of sustainable social well-being than traditional GDP.
- NNG would help policy makers make better decisions in planning the economic growth strategies for a nation.

Question 10: Reasons for “A higher GDP is not necessary mean a higher measure of welfare”:
- GDP might be over or under calculated, depending on the methods of collecting and interpreting data.
- GDP ignores the value of non-market economy of household and community such as recreation, intellectual capital, education…
- GDP treats depletion of natural resources, pollution, environment degradation, disasters as income because it measures expenses on those areas as economic gains.
- GDP takes no account for income distribution.
- GDP ignores the drawbacks of borrowing money from other countries.

Business Policy

2006-04-13T06:56:00.000-07:00

ANALYZING A CASE STUDY TO FORM CORPORATE STRATEGY INTENT

As just mentioned, the purpose of the case study is to let you apply the concepts you've learned when you analyze the issues facing a specific company. To analyze a case study, therefore, you must examine closely the issues with which the company is confronted. Most often you will need to read the case several times - once to grasp the overall picture of what is happening to the company and then several times more to discover and grasp the specific problems.
Generally, detailed analysis of a case study should include eight areas:

The history, development, and growth of the company over time
The identification of the company's internal strengths and weaknesses
The nature of the external environment surrounding the company
A SWOT analysis
The kind of corporate-level strategy pursued by the company
The nature of the company's business-level strategy
The company's structure and control systems and how they match its strategy
Recommendations

To analyze a case, you need to apply what you've learned to each of these areas. We offer a summary of the steps you can take to analyze the case material for each of the eight points we just noted.

1. Analyze the company's history, development, and growth. A convenient way to investigate how a company's past strategy and structure affect it in the present is to chart the critical incidents in its history - that is, the events that were the most unusual or the most essential for its development into the company it is today. Some of the events have to do with its founding, its initial products, how it makes new-product market decisions, and how it developed and chose functional competencies to pursue. Its entry into new businesses and shifts in its main lines of business are also important milestones to consider.

2. Identify the company's internal strengths and weaknesses. Once the historical profile is completed, you can begin the SWOT analysis. Use all the incidents you have charted to develop an account of the company's strengths and weaknesses as they have emerged historically. Examine each of the value creation functions of the company, and identify the functions in which the company is currently strong and currently weak. Some companies might be weak in marketing; some might be strong in research and development. Make lists of these strengths and weaknesses. The SWOT checklist gives examples of what might go in these lists.

3. Analyze the external environment. The next step is to identify environmental opportunities and threats. Here you should apply all information you have learned on industry and macroenvironments, to analyze the environment the company is confronting. Of particular importance at the industry level is Porter's five forces model and the stage of the life cycle model. Which factors in the macroenvironment will appear salient depends on the specific company being analyzed. However, use each factor in turn (for instance, demographic factors) to see whether it is relevant for the company in question.

Having done this analysis, you will have generated both an analysis of the company's environment and a list of opportunities and threats. The SWOT checklist lists some common environmental opportunities and threats that you may look for, but the list you generate will be specific to your company.

4. Evaluate the SWOT analysis. Having identified the company's external opportunities and threats as well as its internal strengths and weaknesses, you need to consider what your findings mean. That is, you need to balance strengths and weaknesses against opportunities and threats. Is the company in an overall strong competitive position? Can it continue to pursue its current business- or corporate-level strategy profitably? What can the company do to turn weaknesses into strengths and threats into opportunities? Can it develop new functional, business, or corporate strategies to accomplish this change? Never merely generate the SWOT analysis and then put it aside. Because it provides a succinct summary of the company's condition, a good SWOT analysis is the key to all the analyses that follow.

5. Analyze corporate-level strategy. To analyze a company's corporate-level strategy, you first need to define the company's mission and goals. Sometimes the mission and goals are stated explicitly in the case; at other times you will have to infer them from available information. The information you need to collect to find out the company's corporate strategy includes such factors as its line(s) of business and the nature of its subsidiaries and acquisitions. It is important to analyze the relationship among the company's businesses. Do they trade or exchange resources? Are there gains to be achieved from synergy? Alternatively, is the company just running a portfolio of investments? This analysis should enable you to define the corporate strategy that the company is pursuing (for example, related or unrelated diversification, or a combination of both) and to conclude whether the company operates in just one core business. Then, using your SWOT analysis, debate the merits of this strategy. Is it appropriate, given the environment the company is in? Could a change in corporate strategy provide the company with new opportunities or transform a weakness into a strength? For example, should the company diversify from its core business into new businesses?

Other issues should be considered as well. How and why has the company's strategy changed over time? What is the claimed rationale for any changes? Often it is a good idea to analyze the company's businesses or products to assess its situation and identify which divisions contribute the most to or detract from its competitive advantage. It is also useful to explore how the company has built its portfolio over time. Did it acquire new businesses, or did it internally venture its own? All these factors provide clues about the company and indicate ways of improving its future performance.

6. Analyze business-level strategy. Once you know the company's corporate-level strategy and have done the SWOT analysis, the next step is to identify the company's business-level strategy. If the company is a single-business company, its business-level strategy is identical to its corporate-level strategy. If the company is in many businesses, each business will have its own business-level strategy. You will need to identify the company's generic competitive strategy - differentiation, low cost, or focus - and its investment strategy, given the company's relative competitive position and the stage of the life cycle. The company also may market different products using different business-level strategies. For example, it may offer a low-cost product range and a line of differentiated products. Be sure to give a full account of a company's business-level strategy to show how it competes.

Identifying the functional strategies that a company pursues to build competitive advantage through superior efficiency, quality, innovation, and customer responsiveness and to achieve its business-level strategy is very important. The SWOT analysis will have provided you with information on the company's functional competencies. You should further investigate its production, marketing, or research and development strategy to gain a picture of where the company is going. For example, pursuing a low-cost or a differentiation strategy successfully requires a very different set of competencies. Has the company developed the right ones? If it has, how can it exploit them further? Can it pursue both a low-cost and a differentiation strategy simultaneously?

The SWOT analysis is especially important at this point if the industry analysis, particularly Porter's model, has revealed the threats to the company from the environment. Can the company deal with these threats? How should it change its business-level strategy to counter them? To evaluate the potential of a company's business-level strategy, you must first perform a thorough SWOT analysis that captures the essence of its problems.

Once you complete this analysis, you will have a full picture of the way the company is operating and be in a position to evaluate the potential of its strategy. Thus, you will be able to make recommendations concerning the pattern of its future actions. However, first you need to consider strategy implementation, or the way the company tries to achieve its strategy.

7. Analyze structure and control systems. The aim of this analysis is to identify what structure and control systems the company is using to implement its strategy and to evaluate whether that structure is the appropriate one for the company. Different corporate and business strategies require different structures. For example, does the company have the right level of vertical differentiation (for instance, does it have the appropriate number of levels in the hierarchy or decentralized control?) or horizontal differentiation (does it use a functional structure when it should be using a product structure?)? Similarly, is the company using the right integration or control systems to manage its operations? Are managers being appropriately rewarded? Are the right rewards in place for encouraging cooperation among divisions? These are all issues that should be considered.

In some cases there will be little information on these issues, whereas in others there will be a lot. Obviously, in analyzing each case you should gear the analysis toward its most salient issues. For example, organizational conflict, power, and politics will be important issues for some companies. Try to analyze why problems in these areas are occurring. Do they occur because of bad strategy formulation or because of bad strategy implementation?

Organizational change is an issue in many cases because the companies are attempting to alter their strategies or structures to solve strategic problems. Thus, as a part of the analysis, you might suggest an action plan that the company in question could use to achieve its goals. For example, you might list in a logical sequence the steps the company would need to follow to alter its business-level strategy from differentiation to focus.

8. Make recommendations. The last part of the case analysis process involves making recommendations based on your analysis. Obviously, the quality of your recommendations is a direct result of the thoroughness with which you prepared the case analysis. The work you put into the case analysis will be obvious to the professor from the nature of your recommendations. Recommendations are directed at solving whatever strategic problem the company is facing and at increasing its future profitability. Your recommendations should be in line with your analysis; that is, they should follow logically from the previous discussion. For example, your recommendation generally will center on the specific ways of changing functional, business, and corporate strategy and organizational structure and control to improve business performance. The set of recommendations will be specific to each case, and so it is difficult to discuss these recommendations here. Such recommendations might include an increase in spending on specific research and development projects, the divesting of certain businesses, a change from a strategy of unrelated to related diversification, an increase in the level of integration among divisions by using task forces and teams, or a move to a different kind of structure to implement a new business-level strategy. Again, make sure your recommendations are mutually consistent and are written in the form of an action plan. The plan might contain a timetable that sequences the actions for changing the company's strategy and a description of how changes at the corporate level will necessitate changes at the business level and subsequently at the functional level.

After following all these stages, you will have performed a thorough analysis of the case and will be in a position to join in class discussion or present your ideas to the class, depending on the format used by your professor. Remember that you must tailor your analysis to suit the specific issue discussed in your case. In some cases, you might completely omit one of the steps in the analysis because it is not relevant to the situation you are considering. You must be sensitive to the needs of the case and not apply the framework we have discussed in this section blindly. The framework is meant only as a guide and not as an outline that you must use to do a successful analysis.

CONCLUSION

When evaluating a case, it is important to be systematic. Analyze the case in a logical fashion, beginning with the identification of operating and financial strengths and weaknesses and environmental opportunities and threats. Move on to assess the value of a company's current strategies only when you are fully conversant with the SWOT analysis of the company. Ask yourself whether the company's current strategies make sense, given its SWOT analysis. If they do not, what changes need to be made? What are your recommendations? Above all, link any strategic recommendations you may make to the SWOT analysis. State explicitly how the strategies you identify take advantage of the company's strengths to exploit environmental opportunities, how they rectify the company's weaknesses, and how they counter environmental threats. Also, do not forget to outline what needs to be done to implement your recommendations

THE ROLE OF FINANCIAL ANALYSIS

Another important aspect of analyzing a case study and writing a case study analysis is the role and use of financial information. A careful analysis of the company's financial condition immensely improves a case write-up. After all, financial data represent the concrete results of the company's strategy and structure. Although analyzing financial statements can be quite complex, a general idea of a company's financial position can be determined through the use of ratio analysis. Financial performance ratios can be calculated from the balance sheet and income statement. These ratios can be classified into five different subgroups: profit ratios, liquidity ratios, activity ratios, leverage ratios, and shareholder-return ratios. These ratios should be compared with the industry average or the company's prior years of performance. It should be noted, however, that deviation from the average is not necessarily bad; it simply warrants further investigation. For example, young companies will have purchased assets at a different price and will likely have a different capital structure than older companies. In addition to ratio analysis, a company's cash flow position is of critical importance and should be assessed. Cash flow shows how much actual cash a company possesses.

Profit Ratios

Profit ratios measure the efficiency with which the company uses its resources. The more efficient the company, the greater is its profitability. It is useful to compare a company's profitability against that of its major competitors in its industry. Such a comparison tells whether the company is operating more or less efficiently than its rivals. In addition, the change in a company's profit ratios over time tells whether its performance is improving or declining. A number of different profit ratios can be used, and each of them measures a different aspect of a company's performance. The most commonly used profit ratios are gross profit margin, net profit margin, return on total assets, and return on stockholders' equity.

Gross profit margin. The gross profit margin simply gives the percentage of sales available to cover general and administrative expenses and other operating costs. It is defined as follows:

Gross Profit Margin
=
(Sales Revenue - Cost of Goods Sold)/Sales Revenue

Net profit margin. Net profit margin is the percentage of profit earned on sales. This ratio is important because businesses need to make a profit to survive in the long run. It is defined as follows:

Net Profit Margin=Net Income/Sales Revenue

Return on total assets. This ratio measures the profit earned on the employment of assets. It is defined as follows:

Return on Total Assets=Net Income Available to Common Stockholders/Total Assets

Net income is the profit after preferred dividends (those set by contract) have been paid. Total assets include both current and noncurrent assets.

Return on stockholders' equity. This ratio measures the percentage of profit earned on common stockholders' investment in the company. In theory, a company attempting to maximize the wealth of it stockholders should be trying to maximize this ratio. It is defined as follows:

Return on Stockholders' Equity
=
Net Income Available to Common Stockholders/Stockholders' Equity

Liquidity Ratios

A company's liquidity is a measure of its ability to meet short-term obligations. An asset is deemed liquid if it can be readily converted into cash. Liquid assets are current assets such as cash, marketable securities, accounts receivable, and so on. Two commonly used liquidity ratios are current ratio and quick ratio.

Current ratio. The current ratio measures the extent to which the claims of short-term creditors are covered by assets that can be quickly converted into cash. Most companies should have a ratio of at least 1, because failure to meet these commitments can lead to bankruptcy. The ratio is defined as follows:

Current Ratio
=
Current Assets/Current Liabilities

Quick ratio. The quick ratio measures a company's ability to pay off the claims of short-term creditors without relying on the sale of its inventories. This is a valuable measure since in practice the sale of inventories is often difficult. It is defined as follows:

Quick Ratio
=
(Current Assets - Inventory)/Current Liabilities

Activity Ratios

Activity ratios indicate how effectively a company is managing its assets. Inventory turnover and days sales outstanding (DSO) are particularly useful:

Inventory turnover. This measures the number of times inventory is turned over. It is useful in determining whether a firm is carrying excess stock in inventory. It is defined as follows:

Inventory Turnover
=
Cost of Goods Sold/Inventory

Cost of goods sold is a better measure of turnover than sales, since it is the cost of the inventory items. Inventory is taken at the balance sheet date. Some companies choose to compute an average inventory, beginning inventory, plus ending inventory, but for simplicity use the inventory at the balance sheet date.

Days sales outstanding (DSO), or average collection period. This ratio is the average time a company has to wait to receive its cash after making a sale. It measures how effective the company's credit, billing, and collection procedures are. It is defined as follows:

DSO=Accounts Receivable/Total Sales/360

Accounts receivable is divided by average daily sales. The use of 360 is standard number of days for most financial analysis.

Leverage Ratios

A company is said to be highly leveraged if it uses more debt than equity, including stock and retained earnings. The balance between debt and equity is called the capital structure. The optimal capital structure is determined by the individual company. Debt has a lower cost because creditors take less risk; they know they will get their interest and principal. However, debt can be risky to the firm because if enough profit is not made to cover the interest and principal payments, bankruptcy can occur.

Three commonly used leverage ratios are debt-to-assets ratio, debt-to-equity ratio, and times-covered ratio.

Debt-to-assets ratio. The debt-to-asset ratio is the most direct measure of the extent to which borrowed funds have been used to finance a company's investments. It is defined as follows:

Debt-to-Assets Ratio=Total Debt/Total Assets

Total debt is the sum of a company's current liabilities and its long-term debt, and total assets are the sum of fixed assets and current assets.

Debt-to-equity ratio. The debt-to-equity ratio indicates the balance between debt and equity in a company's capital structure. This is perhaps the most widely used measure of a company's leverage. It is defined as follows:

Debt-to-Equity Ratio=Total Debt/Total Equity

Times-covered ratio. The times-covered ratio measures the extent to which a company's gross profit covers its annual interest payments. If the times-covered ratio declines to less than 1, then the company is unable to meet its interest costs and is technically insolvent. The ratio is defined as follows:

Times-Covered Ratio
=
Profit Before Interest and Tax/Total Interest Charges

Shareholder-Return

Ratios Shareholder-return ratios measure the return earned by shareholders from holding stock in the company. Given the goal of maximizing stockholders' wealth, providing shareholders with an adequate rate of return is a primary objective of most companies. As with profit ratios, it can be helpful to compare a company's shareholder returns against those of similar companies. This provides a yardstick for determining how well the company is satisfying the demands of this particularly important group of organizational constituents. Four commonly used ratios are total shareholder returns, price-earnings ratio, market to book value, and dividend yield.

Total shareholder returns. Total shareholder returns measure the returns earned by time t + 1 on an investment in a company's stock made at time t. (Time t is the time at which the initial investment is made.) Total shareholder returns include both dividend payments and appreciation in the value of the stock (adjusted for stock splits) and are defined as follows:

Total Shareholder Returns=(Stock Price (t + 1) - Stock Price (t) + Sum of Annual Dividends per Share)/Stock Price (t)

Thus, if a shareholder invests $2 at time t, and at time t + 1 the share is worth $3, while the sum of annual dividends for the period t to t + 1 has amounted to $0.2, total shareholder returns are equal to (3 - 2 + 0.2)/2 = 0.6, which is a 60 percent return on an initial investment of $2 made at time t.

Price-earnings ratio. The price-earnings ratio measures the amount investors are willing to pay per dollar of profit. It is defined as follows:

Price-Earnings Ratio=Market Price per Share/Earnings per Share

Market to book value. Another useful ratio is market to book value. This measures a company's expected future growth prospects. It is defined as follows:

Market to Book Value=Market Price per Share/Earnings per Share

Dividend yield. The dividend yield measures the return to shareholders received in the form of dividends. It is defined as follows:

Dividend Yield=Dividend per Share/Market Price per Share

Market price per share can be calculated for the first of the year, in which case the dividend yield refers to the return on an investment made at the beginning of the year. Alternatively, the average share price over the year may be used. A company must decide how much of its profits to pay to stockholders and how much to reinvest in the company. Companies with strong growth prospects should have a lower dividend payout ratio than mature companies. The rationale is that shareholders can invest the money elsewhere if the company is not growing. The optimal ratio depends on the individual firm, but the key decider is whether the company can produce better returns than the investor can earn elsewhere.

Cash Flow Cash flow position is simply cash received minus cash distributed. The net cash flow can be taken from a company's statement of cash flows. Cash flow is important for what it tells us about a company's financing needs. A strong positive cash flow enables a company to fund future investments without having to borrow money from bankers or investors. This is desirable because the company avoids the need to pay out interest or dividends. A weak or negative cash flow means that a company has to turn to external sources to fund future investments. Generally, companies in strong-growth industries often find themselves in a poor cash flow position (because their investment needs are substantial), whereas successful companies based in mature industries generally find themselves in a strong cash flow position.

A company's internally generated cash flow is calculated by adding back its depreciation provision to profits after interest, taxes, and dividend payments. If this figure is insufficient to cover proposed new-investment expenditures, the company has little choice but to borrow funds to make up the shortfall or to curtail investments. If this figure exceeds proposed new investments, the company can use the excess to build up its liquidity (that is, through investments in financial assets) or to repay existing loans ahead of schedule.

WHAT IS CASE STUDY ANALYSIS?

A case study presents an account of what happened to a business or industry over a number of years. It chronicles the events that managers had to deal with, such as changes in the competitive environment, and charts the managers' response, which usually involved changing the business- or corporate-level strategy.

Cases prove valuable in a course for several reasons. First, cases provide you, the student, with experience of organizational problems that you probably have not had the opportunity to experience firsthand. In a relatively short period of time, you will have the chance to appreciate and analyze the problems faced by many different companies and to understand how managers tried to deal with them.

Second, cases illustrate what you have learned. The meaning and implication of this information are made clearer when they are applied to case studies. The theory and concepts help reveal what is going on in the companies studied and allow you to evaluate the solutions that specify companies adopted to deal with their problems. Consequently, when you analyze cases, you will be like a detective who, with a set of conceptual tools, probes what happened and what or who was responsible and then marshals the evidence that provides the solution. Top managers enjoy the thrill of testing their problem-solving abilities in the real world. It is important to remember, after all, that no one knows what the right answer is. All that managers can do is to make the best guess. In fact, managers say repeatedly that they are happy if they are right only half the time in solving strategic problems. Management is an uncertain game, and using cases to see how theory can be put into practice is one way of improving your skills of diagnostic investigation.

Third, case studies provide you with the opportunity to participate in class and to gain experience in presenting your ideas to others. Instructors may sometimes call on students as a group to identify what is going on in a case, and through classroom discussion the issues in and solutions to the case problem will reveal themselves. In such a situation, you will have to organize your views and conclusions so that you can present them to the class. Your classmates may have analyzed the issues differently from you, and they will want you to argue your points before they will accept your conclusions; so be prepared for debate. This is how decisions are made in the actual business world.

Instructors also may assign an individual, but more commonly a group, to analyze the case before the whole class. The individual or group probably will be responsible for a thirty- to forty-minute presentation of the case to the class. That presentation must cover the issues involved, the problems facing the company, and a series of recommendations for resolving the problems. The discussion then will be thrown open to the class, and you will have to defend your ideas. Through such discussions and presentations, you will experience how to convey your ideas effectively to others. Remember that a great deal of managers' time is spent in these kinds of situations, presenting their ideas and engaging in discussion with other managers, who have their own views about what is going on. Thus, you will experience in the classroom the actual process of what goes on in a business setting, and this will serve you well in your future career.

If you work in groups to analyze case studies, you also will learn about the group process involved in working as a team. When people work in groups, it is often difficult to schedule time and allocate responsibility for the case analysis. There are always group members who shirk their responsibilities and group members who are so sure of their own ideas that they try to dominate the group's analysis. Most business negotiations take place in groups, however, and it is best if you learn about these problems now.

WRITING A CASE STUDY ANALYSIS

Often, as part of your course requirements, you will need to present your instructor with a written case analysis. This may be an individual or a group report. Whatever the situation, there are certain guidelines to follow in writing a case analysis that will improve the evaluation your work will receive from your instructor. Before we discuss these guidelines and before you use them, make sure that they do not conflict with any directions your instructor has given you.
The structure of your written report is critical. Generally, if you follow the steps for analysis discussed in the previous section, you already will have a good structure for your written discussion. All reports begin with an introduction to the case. In it you outline briefly what the company does, how it developed historically, what problems it is experiencing, and how you are going to approach the issues in the case write-up. Do this sequentially by writing, for example, "First, we discuss the environment of Company X...Third, we discuss Company X's business-level strategy... Last, we provide recommendations for turning around Company X's business."

In the second part of the case write-up, the strategic-analysis section, do the SWOT analysis, analyze and discuss the nature and problems of the company's business-level and corporate strategy, and then analyze its structure and control systems. Make sure you use plenty of headings and subheadings to structure your analysis. For example, have separate sections on any important conceptual tool you use. Thus, you might have a section on Porter's five forces model as part of your analysis of the environment. You might offer a separate section on portfolio techniques when analyzing a company's corporate strategy. Tailor the sections and subsections to the specific issues of importance in the case.
In the third part of the case write-up, present your solutions and recommendations. Be comprehensive, and make sure they are in line with the previous analysis so that the recommendations fit together and move logically from one to the next. The recommedations section is very revealing because, as mentioned earlier, your instructor will have a good idea of how much work you put into the case from the quality of your recommendations.

Following this framework will provide a good structure for most written reports, though obviously it must be shaped to fit the individual case being considered. Some cases are about excellent companies experiencing no problems. In such instances, it is hard to write recommendations. Instead, you can focus on analyzing why the company is doing so well, using that analysis to structure the discussion. Following are some minor suggestions that can help make a good analysis even better.

Do not repeat in summary form large pieces of factual information from the case. The instructor has read the case and knows what is going on. Rather, use the information in the case to illustrate your statements, to defend your arguments, or to make salient points. Beyond the brief introduction to the company, you must avoid being descriptive; instead, you must be analytical.
Make sure the sections and subsections of your discussion flow logically and smoothly from one to the next. That is, try to build on what has gone before so that the analysis of the case study moves toward a climax. This is particularly important for group analysis, because there is a tendency for people in a group to split up the work and say, "I'll do the beginning, you take the middle, and I'll do the end." The result is a choppy, stilted analysis because the parts do not flow from one to the next, and it is obvious to the instructor that no real group work has been done.

Avoid grammatical and spelling errors. They make the paper sloppy.
In some instances, cases dealing with well-known companies don't include up-to-date research because it was not available at the time the case was written. If possible, do a search for more information on what has happened to the company in subsequent years. Following are sources of information for performing this search:

The World Wide Web is the place to start your research. Very often you can download copies of a company's annual report from its Web site, and many companies also keep lists of press releases and articles that have been written about them. Thoroughly search the company's Web site for information such as the company's history and performance, and download all relevant information at the beginning of your project.

Compact disk sources such as Lotus One Source and InfoTrac provide an amazing amount of good information, including summaries of recent articles written on specific companies that you can then access in the library.
F&S Predicasts provide a listing on a yearly basis of all the articles written about a particular company. Simply reading the titles gives an indication of what has been happening in the company.

Annual reports on a Form 10-K often provide an organization chart.
Companies themselves provide information if you write and ask for it.
Fortune, BusinessWeek, and Forbes have many articles on companies featured in most cases.

Standard & Poor's industry reports provide detailed information about the competitive conditions facing the company's industry. Be sure to look at this journal.

Sometimes instructors hand out questions for each case to help you in your analysis. Use these as a guide for writing the case analysis. They often illuminate the important issues that have to be covered in the discussion.
If you follow the guidelines in this section, you should be able to write a thorough and effective evaluation.

FINANCIAL ACCOUNTING

2006-03-23T17:55:00.000-08:00

Financial Statement Analysis
“Japan Airline vs Nippon Airline”

http://www.jal.co.jp/en/
http://www.ana.co.jp/eng/aboutana/corporate/ir/

Gangerel, Lkhagvajav
Pham, Thi Thuy Ha
Khakimov, Muzaffar
Tomiyama, Shota
Lim, Kustini

International University of Japan, 2006
https://www.iuj.ac.jp/

Executive Summary

Japan Airline Corporation (JAL) and All Nippon Airline (ANA) are two major players in air transportation in Japan. They are competing with each other in air transportation, travel services and airline-related businesses, which are their major businesses. Both of them face difficulties of the airline industry in general but JAL’s business has fluctuated much more than ANA has in recent three years. Even though the two companies have set up medium-mid term business plans to 2007 and stressed the priority to maximize the benefits of shareholders, it is risky to invest in their projects. Based on the financial statement analysis, we recommend investors to invest in ANA.

1. Business Overview

1.1 Japan Airline Corporation (JAL)
Being established quite recently, in 2004, JAL Group is a holding company, which comprises of 288 subsidiaries and 96 affiliates which are diversified into four segments: air transportation, airline-related, travel services, and others. The holding company develops Group’s targets and strategies, and defines the optimum allocation of management resources in order to maximize corporate value.

Air transportation:
The air transportation segment involves 11 consolidated subsidiaries, which are dislocated all over Japan’s important geographical areas and economic zones.

Airline-related business:
Airline-related businesses include passenger services and cargo handling, in-flight catering, aircraft and ground equipment maintenance, and aviation fuel supply, involving 105 subsidiaries and 74 affiliates.

Travel services:
A total of 53 subsidiaries and 3 affiliates are engaged in the travel services business, developing and marketing travel packages which include air travel on the 11 air transportation subsidiaries.

Other businesses:
• Hotel and resort business
• Credit card and leasing business
• Commercial, distribution and other business

1.2 All Nippon Airline (ANA)
Starting from 1952, All Nippon Airways Co., Ltd. (ANA) is the world’s 10th largest airline, with more than 48 million passenger turnover a year. Likewise JAL Group, ANA is functioning in following four main businesses.

Air Transportation:
Experiencing 865 flights a day on 132 domestic and 488 flights a week on 35 international routes ANA serves annually 44.5 million passengers and 4.1 million passengers accordingly. Company has a market share of about 50% in domestic flights and is a leading member of Star Alliance, the world’s largest airline alliance. ANA transports annually 510,000 tons of cargo and mail on domestic market and 250,000 tons internationally.

Travel Business:
ANA developed Hallo Tour overseas travel packages and ANA Sky Holiday domestic travel packages. It uses its advantage having hotel chains and transportation facilities.

Hotel operations:
The Company manages hotels, centered on major cities in Japan, and provides hotel chain management support.

Other businesses:
In other businesses, ANA’s operations are principally related to air transportation, including information and telecommunications, trading, retailing, real estate and building maintenance, ground transportation,　distribution and aircraft equipment repair.

2. Brief analysis of common sized financial statements

ANA plans to cut costs by ¥13.0 billion, and, to build a corporate constitution that is less susceptible to changes in the operating environment, so it will reduce indirect fixed costs and continue to maintain a strong focus on cutting costs where appropriate.(see Appendix 1)

Having analyzed key financial ratios of JAL Group we can see that situation in JAL Group is not financially stable. ROE and ROA fluctuates within 3 years rapidly as they had huge loss in 2004 amounting 84 billion yen. This loss also influenced on many other ratios as well. Although JAL Group has recovered from 2004 year’s loss and stabilized its EPS ratio, it is too early to decide whether we can invest in this company or not.

The situation with ANA looks promising. Also ANA acknowledges fall in sales, key ratios of the company look quite stable. Stability in growth and improvement are evidenced by recovering and constant increase in ROA and ROE ratios throughout three years. The Company managed to increase EPS to 17.26 and return on sales to 2.09%. Looks as though ANA is getting rid of bulky debt burden by constantly reducing its Debt-to liabilities ratio.

3. Revenue Growth

The revenue figures in Graph-1 come from the operating revenue figures in Consolidated Statement of Operations provided in JAL and ANA’s websites. For both airlines, the operating revenue includes revenue from passengers, cargos, and other revenues. From the graph, we can see that from 1995 to 2005 both airlines have stable and increasing trend of revenues. Although JAL seems to have more revenues compared with ANA, it doesn’t certainly mean that JAL has more profit than ANA. JAL has more assets than ANA; conversely JAL also has greater operating expense than ANA does. Please refer to Graph-1 in the Appendix 4.

In overall, JAL’s revenue increase from 1995 to 2005, except year 2002 and 2004. This fluctuation might be caused by decreased revenue from international air transportation business due to terrorisms on September 11(2001), SARS (2002), and war in Iraq (2004).

4. Cash flow analysis

4.1 Primary sources of cash and their stability
In terms of both companies, primary sources of cash and their stability are almost identical. Primary sources are: passenger revenue, and incidental and other revenues from investing activities; proceeds from sales of property and equipment and collection of long term loans receivable from investing activities; proceeds from long term loans and proceeds from issuance of bonds from financing activities. Moreover, JAL has one more additional primary source of cash from investing activities, collection of long term loans receivable.

Except proceeds from sales of property and equipment, these primary sources of cash are stable in terms of both companies. Primary sources of cash are illustrated in Appendix 3.

4.2 Primary uses of cash
Primary uses of cash are slightly different from each other in terms both companies.
1. JAL- Primary uses are: wages, salaries and benefits, aircraft fuel, landing fees and other rent, incidental and other expenses, interest paid from operating activities; purchases of property and equipment from operating activities; repayment of long term loans, redemption of bonds from financing activities.
2. ANA- Primary uses are: wages, aircraft and flight operations, flight control and ground handling, reservations, sales and advertising from operating activities; purchases of property and equipment from operating activities; repayment of long term loans, repayment of bonds from financing activities.
Primary uses of cash are illustrated in Appendix 4.

4.3 The main differences in cash flow statement between the two companies
As for JAL, it has been consuming relatively more cash in wages, salaries and benefits, and charged cash in redemption of bonds. As for ANA, it has been using relatively more cash in aircraft and flight operations, and charged cash in repayment of bonds as opposed to redemption of bonds, the case of JAL.

For further details of cash flow sources and uses in figures please refer to Appendix 5 and 6.

5. Accounting policy

5.1 Basic of Presentation
Basically, ANA and JAL have the same accounting policies on their major business (passengers and cargos). The differences between these policies do not influence the comparison of the two companies. The two companies have the same basic of the presentation policy of their consolidated financial statements. This policy includes:
- Consolidated Financial Statements (CFS) are prepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards
- CFS are complied with the Financial Service Agency as required by the Securities and Exchange Law of Japan
- Additional financial information are added for readers outside Japan
However, JAL has an additional policy, which states that the amounts less than 1 million Yen have been omitted on CFS.

5.2 Revenue Recognition, cash equivalences, depreciation
The two companies have the same revenue recognition policy, which states that Passenger revenues, cargo and other operating revenues are recorded when services are rendered. They also have the same cash equivalents policy, in which cash equivalents are defined as highly liquid, short-term investments with an original maturity of 3 months or less. They share the same policy on bond issuance costs, which are principally capitalized and amortized over a period of 3 years, and the same depreciation methods for main Property, Plant and Equipment.

5.3 Inventory
ANA’s inventory policy states that inventory includes aircrafts, spare parts, supplies and stock in trade of consolidated subsidiaries. This policy considers that cost-flow is determined by the moving average method for aircrafts and spare parts and the FIFO method for miscellaneous supplies. However, there is no information about the inventory policy and cost-flow assumption available on JAL’s annual reports.

5.4 Securities
Both companies also have the same securities policy that includes the main points below:
- Securities are classified trading, held-to-maturity, other securities
- Trading securities are carried at fair value
- Held-to-maturity securities are carried at amortized cost
- Marketable securities classified as other securities are carried at fair value with changes in unrealized holding gains or losses, net of the applicable income taxes, included directly in shareholders’ equity
- Non-marketable securities classified as other securities are carried at cost
Beside these points, JAL has an additional point stating that cost of securities sold is determined by the moving average method.

5.5 Other policies
The two companies differ in the policies on foreign currency, derivatives, pension and retirement benefits and leases because they have different minor businesses.

6. Risks

6.1 Business risk
Both ANA and JAL have the same business risks. The first risk they face is strong competition in international routes around the world in coming time. Since international routes are their major business, this competition will make their overall business vulnerable. Furthermore, they will face stiff competition from airlines in Asia such as Singapore Airline and Cathay Pacific Airways. Both have positioned China as the most profitable and major pillar of future growth. To achieve this goal, they need to compete more with Asian airlines who also want to tap prospect Chinese markets. Another potential business risk is unpredictable events such as terrorism, war, outbreaks of diseases and natural disasters. Recently, the airline industry has experienced serious losses due to SARS disease, the terrorism attack in America Sept. 11, 2001 and the war on Iraq. Those unpredictable events might happen any time and therefore make the airline industry go bankrupt if airline transportation demand falls down seriously. Thus, ANA and JAL should well prepare for such risks with solid operation strategies.

6.2 Operation risk
Both companies are facing and will face continuous increase in fuel price. The war on Iraq has made crude oil prices surge significantly in the past 2 years and the rise in fuel price is predicted to continue fluctuating in coming time. This fluctuation will be a serious effect on their operating activities because operation costs will increase in proportion with the increase in fuel price but the service price can not increase proportionally. Therefore, the fluctuation of fuel price is a major operation risk that they face and will face.
Beside, the two companies face a risk of foreign currency exchange rate fluctuations. Because the purchase of fuel is paid on foreign currencies, the depreciation on Yen will have significant effects on their profits. ANA faces a rise in landing, navigation and other airport usage fees.

6.3 Financial risk

6.3.1 Short-term solvency risk
There is a risk of short-term solvency at ANA because its current ratios have been decreased from 1.12 in 2003 to 1.05 in 2004 and 0.83 in 2005. While there is probably no risk at JAL since its current ration have increased from 0.86 in 2003 to 0.93 in 2004 and 1.20 in 2005 (see Table 1 and 2).

6.3.2 Investment risks
There are potential risks of uncollectible loans and losses on investments because both firms have very low ROA and return on sales ratios. The ROA of ANA in recent 3 years increased from -1.9% to 2.55% that of JAL fluctuated significantly. The return on sales of ANA in recent 3 years increased from -2.32% to 2.09% and that of JAL fluctuated dramatically. It means that these companies have a large assets, low earnings and intense competition. From lenders’ point of view, there is a high risk of uncollectible loans. The ROE of ANA in recent 3 years increased from -21.7% to 22.21% and that of JAL fluctuated significantly from year to year. Those low and fluctuated ROE indicate that shareholders take a high risk of losing money on their investment in JAL and might have potential risk in investing in ANA. In other words, it is risky to invest in JAL and ANA and even more risky to invest in JAL.

6.3.3 Long-term solvency risk:
There is probably no long term solvency risk at ANA and JAL. The long term debt-to-equity ratios of ANA in recent 3 years decreased from 0.69 to 0.55 and that of JAL increased and remained stable at 0.55. The long term debt + current liabilities over total assets of ANA in recent 3 years decreased from 0.91 to 0.86 that of JAL increased from 0.79 to 0.81. We can see clearly that JAL has lower long term debt-to-equity and long term debt + current liabilities-to-total assets ratios than ANA but both of them face no long-term solvency risk since their assets and equity are greater than their long term liabilities.

7. Strategy

7.1 JAL Group Strategy
Management Strategy:
JAL Group has prepared its 2005–2007 Medium-Term Business Plan laying out three strategies: restructuring its international passenger business, revamping cost structures, and aggressively expanding growth markets. The Group has defined clear setting in order to achieve corporate value and profitability.

Operations strategy:
The Group will focus resources on high-profitability and high-growth routes, while eliminating low profitability ones, reallocating resources to build a profit-oriented network. Also it will expand JAL’s ways, where operating costs are nearly 10% under JAL’s, from 120 flights per week (20%) in fiscal 2004 to 180 flights (27%) per week in fiscal 2007, thereby improving profitability on fast growing routes.

Fleet Efficiency:
JAL will fly fewer models and configurations, reducing the number of configurations in our fleet from 32 to 25. It will pursue fleet downsizing, reducing the percentage of Boeing 747s, 747-300s, and 777-300s from 62% to 54%.

Sources of revenues:
1. Restructure international passenger operations
According to the 2005–2007 Medium-Term Business Plan, JAL will restructure international passenger operations. The Group is recovering from recent falls in international passenger business. It will start a positive feedback loop involving restructuring, recovering funds, reducing debt, and speeding up fleet modernization, thereby further improving our cost competitiveness.

2. Revamp cost structure
The second restructuring initiative is on the cost side. It can be broadly divided into two categories: structural reforms that will yield ongoing benefits and emergency measures such as cutting salaries and general expenses. In fiscal 2005, emergency measures will contribute more than structural reforms, but as the effect of the structural reforms gradually make themselves felt we expect a ¥75 billion impact in fiscal 2007, growing to more than ¥100 billion.

3. Aggressively develop growth markets
In addition to the two structural reforms presented thus far, the 2005–2007 Medium-Term Business Plan calls for a focus on expanding growth markets. The Group believes it will tailor its strategy here for each segment of the business, aggressively expanding our business in China and other Asian countries, where rapid growth of the business is expected, improving convenience for domestic passengers by improving service, and aggressively developing growth markets within the cargo business.

Product Mix strategy:
In the airline-related business, the recovery in demand boosted sales at in-flight catering companies, and the Narita-area auxiliary power unit business performed strongly based on increased sales to foreign carriers. Revenues for the airline related business thus amounted to ¥293.7 billion, with operating income reaching ¥5.3 billion.

Demand for travel services rose sharply over the previous year for all regions with the exception of Europe and Oceania. Domestic tourism demand also remained strong. As a result, the travel services business reported sales of ¥424.5 billion, with a ¥0.2 billion operating loss.

Other businesses:
In other business segments, primarily hotels and duty-free shops, The Group has benefited from recovering demand. Credit card business revenue increased as the number of JAL Card cardholders grew, as did revenue at Blue Sky shops and restaurants at domestic airports. Revenues from related operations as a whole thus amounted to ¥268.0 billion, with operating income of ¥10.0 billion.

7.2 ANA Strategies
Financial Strategies:
ANA's profitability indicators such as ROA and the operating income margin, are aimed at bringing it to a level that will enable us to compete with the top airlines in Asia, such as Singapore Airlines and Cathay Pacific Airways. It will improve our balance sheet and accumulate profits so that our debt/equity ratio improves to about four times by the fiscal year ending March 2008. Also, it will work to meet the expectations of shareholders, further enhance ANA’s enterprise value, and continue to provide stable dividend payments in the fiscal year ending March 2006 and thereafter.

Operation strategy for international and domestic routes:
At Narita Airport, the company will leverage the opportunity presented by the likely increase in the number of slots over the next three years and bolster its own network. In the development of routes to Europe, the United States, and Asia, it will strategically select bases that are highly profitable and enable it to maximize the advantages of Star Alliance. And ANA will reinforce its China network to center on Narita, Kansai, and Centrair.

Under the new mid-term corporate plan, ANA assumes that demand on domestic routes will basically remain flat. To bolster its ability to compete with other companies, it will implement a range of differentiation strategy measures. One example is an integrated transportation strategy, under which the company will strengthen the tie-ups with ground transportation companies. In conjunction with the December 2004 opening of the second terminal at Haneda Airport, ANA began new services in line with the concepts of “simple,” “convenient,” and “focus on the individual” principles. Super Seat Premium, which enables passengers to experience air travel that is more comfortable and relaxing, is an ANA’s original service. ANA expects the effects of this differentiation, such as an increase in frequent flyers, to lead to a steady improvement in The Company’s results. By the end of March 2006, it will expand the number of Super Seat Premium available seats to 2.5 million, 2.5 times the number available currently.

Cargo services:
ANA will bolster cargo operations as its third core area of business, following domestic and international passenger services. In the fiscal year ending March 2006, it will expand to several Boeing 767-300 freighters and reinforce our operations on domestic and international routes. China has become Japan’s largest trading partner, and it is believed that the Chinese market will record further growth. ANA’s network of routes between Japan and China aims for ¥100.0 billion in revenues by the end of March 2008.

Cost cutting initiatives as part of operations strategy:
A key part of ANA’s efforts to reduce costs is the steady execution of our Fleet Strategy and Human Resource Strategy in the medium to long term. We will also trim variable operating costs by reevaluating the routes, and improving the productivity of ANA Group companies.

8. Recommendation for Investors

Based on the revenue figures, both JAL and ANA seem to have stable and increasing revenue. But, according to the financial statement analysis, we recommend investors to invest in ANA, rather than in JAL. Although JAL has better current ratio indicators, it is obvious that ANA’s income is more stable within last 3 years and its return on sales is increasing steadily. On the contrary, JAL’s return on equity is fluctuating significantly in aforesaid period of time. Because ANA’s coverage ratio is higher than JAL, the safety of investment money in ANA is better than that in JAL. Moreover, ANA’s market capitalization is approximately 1.5 times higher than JAL’s according to our independent research.

In conclusion, ANA has more stable business, better financial ratio growth and more favorable investment perspectives for potential shareholders. ANA also has better management quality and risk hedging strategies which may lead to more efficient operation cycle and cash flow. Therefore, we recommend investors to invest in ANA.

Dividend Policy at FPL Group Inc

2006-03-23T17:51:00.000-08:00

Dividend Policy is Irrelevant

http://www.fplgroup.com/

IUJ, Spring 2006
Pham Thi Thuy Ha

Why do firms pay dividend?:

- Firms pay dividends to balance their asset and capital structures when their earnings outstrip their investment opportunities.
- Firms pay dividends to mitigate agency problems when they have excess earnings.

Cons of cash dividend payment:

- A dividend policy is irrelevant or has no impact on the firm’s value because investors have the ability to create "homemade" dividends.
- Little to no dividend payout is more favorable for investors. This is because taxation on a dividend is higher than tax on capital gains.
- Dividends are taxed as ordinary incomes
- Dividends can reduce internal source of financing
- Once established, dividends cuts are hard to make without adversely affecting a firm’s stock price

Pros of cash dividend payment:

- Cash dividends can underscore good results and provide support to stock price
- Dividends may attract institutional investors who preferred some returns from dividends
- Stock price usually increases with the announcement of a new or increased dividends
- Dividends absorb cash flow so they may help reduce agency problems

Major issues of FPL in 1994:

- Negotiation between FPL and FERC (Federal Energy Regulatory Commission) to settle the lawsuit against FPL for changing excessive rates and denying fair access to its transmission system.
- Lower investment rate due to the fact that FPL probably does not raise dividends as discussed
- Suggestion of dividend cuts by FPL’s managers
- FPL’s stock price has fallen by 19.6% while the S&P index has decreased by 22.1%
- Rising interest rate and increasing competition in electric industry
From investors’ perspective, the current payout ratio is appropriate to some extent:
- FPL’s current payout ration =　cash dividend/net income = 461693/248749 = 107.7%. According to the exhibit 9, FPL has the highest payout ratio in comparison to other electric utilities in the same industry.
- For institutional investors who hold 36.9% of FPL’s total common stocks, this payout ratio may be appropriate because they likely prefers high payout ratio in seeking for high earnings from their investment. If FPL tries to maintain this ratio, it can satisfy those small investors but it has to increase this ration over time to satisfy these investors’ expectation.
- For individual investors who hold 51.9% of FPL’s total common stocks, the payout ration has little meaning because they can use homemade dividend strategy to obtain capital gains rather than receive cash dividends due to higher taxes imposed on dividends. Furthermore, they do not need dividends to convert shares to cash. FPL’s decision to cut payout ration does not really affect the value of these individual investors.
- In my opinion, FPL currently maintains an inappropriate payout ration. Given the situation that the new regulation will be soon implemented, FPL will face strong competition not only from Florida but also from all other possible states. FPL can not protect itself by restricting access to its transmission system since it was sued for doing so. To prepare for competition and sustainable growth in near future, the best way FPL can do is to use its excess cash to invest in new positive NPV projects. Therefore, FPL should not maintain the high payout ration at 107.7%. Instead, it should lower this ratio to or below the average ratio of the industry (82.9%) since the dividend cut does not lower the firm’s value.

Recommendations on FPL’s stocks:

- First, FPL should declare to cut dividends. The company should not worry about a lawsuit against its lower dividend policy as the dividend cut does not affect the majority of its investors (individual investors). Upon the announcement of dividend cut, the stock price can decrease so FPL should use its excess cash to buy back its stock to increase the stock price whenever it falls down.
- Then, FPL should use Buy and Hold strategy to repurchase its stocks and hold them regardless of market fluctuations. This solution as a long term investment can help FPL increase its stock price which has fallen in early 1994. By doing so, FPL can get rid of its excess cash of $150 million per year. FPL also can use this strategy to increase incentive compensation by granting stock options to employees and thus, increase employment commitment and recruiting attractiveness to have competent personnel for future growth.
- FPL should use its excess cash to invest more in new profitable projects, acquire new companies and profitable assets, and reinvest in financial assets.

Google

2006-03-23T06:42:00.000-08:00

IPO Policy

IUJ, Spring 2006
Pham Thi Thuy Ha

Google’s Business:

Google is an American-based internet company that provides 75% of web
searches in the U.S and has a large share in international markets. Its major business is paid-listing, business model that generate revenues by collecting fees of ads on web search engines. Google’s main paid-listings have 2 categories: Premium Sponsorship based on cost-per-click and Adwords based on click-through-rate. Google introduced Search by Location which focuses on contextual and local advertising in 2004.

Strategic threats to Google:

- Strong competition: main competitors such as Yahoo, Microsoft and MSN were investing heavily in in-house search solutions and develop new search technologies.
- Uncertain partnership: Google relies heavily on the partnership with AOL. If this partnership is broken, Google will lose a significant share of revenues.
- Business risk: the transparency of Google’s business is very risky because internet business has no real long-term entry barrier.
- Unsustainable growth: Google’s leadership position in web searches is unsustainable.

Benefits of going public:

- Access to increased funding: a successful IPO creates immediate access to the public market where a firm can get needed funds easily.
- Enhance profile and market leverage: public companies and their products draw much media attention than private companies, thus they have many more chances to get public awareness of their companies and products.
- Increase investor appeal to institutional investors locally and internationally: increased recognition of the company may stimulate greater interest in the company’s shares
- Greater employee commitment and recruiting ability: incentives such as stock options, directed shares programs can increase employee commitment and attract talents.
- Shares as a source of finance: a company gone public can use its common shares to finance acquisitions of other public or private companies.
- Liquidity for shareholders: shareholders can sell their shares easily through stock markets.
- Definitive valuation benchmark: public companies can finance acquisitions through exchanges of stocks.

Costs of going public:

- Spread or underwriting discount: the difference between the price the issuer receives and the price offered to the public.
- Other direct expenses: costs incurred by the issuer that are not part of the compensations of underwriters (investment banks). These costs include filing fees, legal fees and taxes.
- Indirect expenses: these costs are not reported in the prospectus and include management time on the new issue
- Abnormal returns: in a seasoned issue of stock, the price normally drops upon the announcement of the issue. Therefore, new shareholders are prevented from buying overpriced stocks.
- Under-pricing: for IPO, the stock rises after the issue date. This is a loss for the issuing firm because the stock is sold at lower price than its efficient price in the aftermarket.
- Green Shoe Option: the right given to underwriters to buy additional shares at the offered price to cover over-allotments. This is the cost to the firm as the underwriter only buys additional shares when the offered price is below the price in the aftermarket.

Roles of investment bank in IPO process:

- Provide advice
- Market securities
- Underwrite the IPO process
- Determine the correct offering price
- Accept the risk that the market price may fall between the date the offering price is set and the time the issue is sold
Earning of investment banks through IPO process:
- Under the best-efforts method, investment banks do not purchase securities from issuing firms and sell them for profits but act as an agent to sell a firm’s securities and receive commission for each share sold. In other words, investment banks’ revenues are commissions gained from helping an issuing firm to sell their securities

Reasons for Google to go public:

- Need to maintain the leadership position in web search business
- Need to be much more competitive, flexible, fats-response and dynamic in the market
- Need to develop new web search technologies to compete with its major competitors: MSN and Yahoo
- Need to develop new business and invade untapped markets
- Need to diversify its services by contents, communications tools, images, search sites…
- Need to market its products, develop brand awareness and invest more in R&D
All these activities need a lot of money so the best way to get funds is to go public. Google can take benefits of going public mentioned above to achieve its business plans.

Success of IPO in the long run:

IPO will be successful because Google can meet the expectations of its investors since it has:
- A good execution of business plans: for the purposes of an IPO, Google has already a comprehensive roadmap that defines and assesses its growth prospects: its products, markets, competitive arena, business strategies, capabilities and growth objectives to bring benefits (shareholders value) to its investors.
- Advantages in technologies and brand awareness: Google holds enormous traffics, solid engineering experience in web search engines.
- Distinctive competence: Google has capacity to develop superior search solutions and new products to invade in untapped market.

American Home Product Corporation

2006-03-23T06:39:00.000-08:00

Repurchase Stock Strategy

IUJ, Spring 2006
Pham Thi Thuy Ha

American Home Product Corporation (AHP), a highly growing American company, has four business lines: prescription drugs, packaged drugs, food products, housewares and household products. For a quite long time, AHP has applied a tight financial control and maintained an aggressive capital structure policy. Its mission is to make money for its stockholders and to maximize profits by minimizing costs. It has been able to finance internally its growth while paying a very high portion of its earning to its shareholders (60%).

Currently, AHP seems to have no business risk but may face a certain risk in the long run. Based on the ratios shown on the attached sheet, AHP should not worry about business risk since its working capital is very healthy ($1472.8 million) and cash excess $233 million. The high ROA, high profit margin, low current-to-asset ration and 49.71 collection days show that AHP can generate cash quickly, thus it can maintain current high growth rate. However, its decreasing annual sales growth from 14.1% in 1978 to 8.8% in 1981 (exhibit 1) shows that it faces future risk of losing market shares in all its business lines if it does not foresee competition and continue to focus on increasing stockholders’ value.

AHP’s current financial performance is very good since it has high ROE (30.3), high quick ratio (42.68), low debt-to-equity ratio (0.09) and low debt-to-asset ratio (0.01). However, the pro forma of different debt ratios show that if AHP increases debt ratio, it will face a financial risk of increased debt-to-equity and debt-to-asset ratios. In other words, it will face solvency problems in long terms. AHP also face liquidity problems since the quick ratios decrease when the debt ratios increase.

In contrast, shareholders’ value increases when debt ratios increase. EPS increases from $3.18 to $3.49. The dividend payout ratio also increases from 0.597 to 0.602. Similarly, the dividend yield from 0.063 to 0.070. It seems that the company can increase shareholders’ value by increasing debt ratios.
Even though AHP has a very good current financial performance, it should change the financial policy to increase debt ratio at a certain level. To meet the goal of increasing shareholders’ value, AHP should not use its excess cash flow to repurchase its stocks because this is only a temporary solution and may generate serious financial problems in the long run. Instead, AHP should use this excess cash to invest in profitable projects to improve its current products and launch new products that meet current market demands. By doing so, AHP can minimize the business risk, prepare itself for competition and increase sales growth. On the other hands, AHP should increase debt ratio to a certain level that is suitable for its business to increase shareholders’ value. This solution does not bring financial risk to AHP but enable it to minimize business risk. If AHP only concerns about how to increase shareholders’ value and ignores market threats, it might lose its business to its competitors.

In conclusion, AHP should change the financial policy to increase debt ratio at a certain level.

Pepsico Chanchun Joint Venture

2006-03-23T06:36:00.000-08:00

NPV and Project Evaluation

IUJ, Spring 2006
Pham Thi Thuy Ha

In considering Chinese’s positive political and economic outlook and continued commitment to economic reforms, Pepsico, a leading soft drink manufacturer in the world, decided to develop its market in China by signing a $10-million-agreement with the Chinese government. Among this money, Pepsico spends $4 million in investment in joint-ventures. Pepsico forecasts that the soft drink would grow at 12%/year through 2000 and sees a very potential growth in China. Its strategic goals are to close gap with Coca Cola and before 20th century and to leverage this into industry leadership beyond 2005. To this end, Pepsico developed a Joint Venture (JV) with 2 Chinese partners: The Second Food Factory Chanchun and Beijing Chon Yin Industrial & Trading Company where Pepsico controlled 57.5% interest in the JV, Second Food Factory held 37.5% and Beijing Chon Yin held 5%. Pepsico will sell concentrate to the JV and the JV will bottle and distribute final products.

The project was examined by calculating net present value (NPV) and internal rate of return (IRR) of this project in the view of Pepsico (with concentrate sales) and JV (without concentrate sales). For Pepsico, the net cash flow (NCF) is discounted at U.S. inflation rate. For JV, NCF is in RMB and discounted at Chinese inflation rate. The detail calculation is shown on the attached sheet.

In case including concentrate sales (for Pepsico) (million USD)
NPV: 14,090
IRR: 8.4%

In case without concentrate sale (for JV) (million RMB)
NPV: (14,030)

Based on this result we can see that in this case, the IRR rule is not applicable because the IRR of JV does not exist and Pepsico should reject the project since IRR = 8.4% is less than its huddle rate = 13%. However, according to the NPV rule, Pepciso should accept the project because the NPV is $14,090 million and JV should reject the project because it has negative NPV (-RMB 14,030).
In conclusion, the NPV method should be used to evaluate the project since this method uses cash flow and discounts cash flow properly. According to this method, Pepsico should accept the project because it has positive NPV and JV should reject this project since it gets loss (negative NPV).

Marriott Corporation

2006-03-23T06:34:00.000-08:00

Net Present Value and Project Evaluation

IUJ, Spring 2006
Pham Thi Thuy Ha

Marriott Corporation, an American firm, has 3 major lines of business: lodging, contract service and restaurants. Its growth objective is to remain a premier growth company. The four components of its financial strategy are consistent with this growth objective for the reasons:

Manage rather than own hotel assets: Marriott sold its hotel assets to limited partners to reduce assets and thus, it can increase ROA and thereby increase potential profitability.

Invest in projects that increase shareholders’ value: the discounted cash flow techniques to evaluate potential investments allow the company to invest only in profitable projects. Therefore, it can maximize the use of its cash flow to gain profits.

Optimize the use of debt in the capital structure: because firms with lower percentage of debt have higher value, Marriott uses this strategy to increase its value and thereby increase it profitability.

Repurchase undervalued shares: By buying back its undervalued shares, Marriott can increase PE ration when needed and can make its investors’ holdings more valuable because share prices will increase (increase in ROE). It also can appease investors and avoid pressure to increase dividend, thereby it can use its retained earnings to invest more in profitable projects. This strategy means that Marriott are confident in its future performance.

Marriott use the Weighted-Average-Cost-of Capital (WACC) method to measure the opportunity cost for investments.
WACC = (1-t)rD(D/V) + rE(E/V)
where D and E are the market values of the debt and equity respectively; rD is the pre-tax cost of debt; rE is the after-tax cost of equity; V is the firm value (V=E+D); and t is the corporate tax. This method is applied for Marriott as the whole corporation and for each of its three lines of business.　WACC is calculated based on its financial data of 1987 provided in the case.

1. Calculate the debt cost rD
- According to the summary of operation (exhibit 1) t = income taxes/income before income taxes = 175.9/398.9 = 44%
- According to Table A, D/V = 60%. Therefore, E/V = 40%
- Because Marriot is a high-quality rate company and it could pay a spread above the current government bond rates:
rD = S fraction of debt at floating for each line x US government interest rate + S fraction of debt at floating for each line x debt rate premium above government for each line
rD = [0.5x8.72 + 0.4x6.9 + 0.25x6.9] + [0.5x1.1 + 0.4x1.4 + 0.25x1.8] = 0.1041
Because lodging had long useful life, the long term interest rate for lodging line should be the interest rate of 10-year maturity bonds (8.72%). Meanwhile, restaurants and contract services are short term investment so the interest rate for these lines should be the interest rate of 1-year maturity bond (6.9%). 　　

2. Calculate the riskless rate
- First, calculate the weighted average
The weighted average of each business line is based on its profit contribution to Marriott’s total profits. On page 2, the weighted average of lodging is 51%, that of contract services is 33% and that of restaurants is 16%.
Marriott’s lodging line is considered to be in the same market with Hilton, Holiday, La Quinta and Ramada. Similarly, its restaurants and contract services are in the same market as Church, Collins, Frisch, Luby, McDonald and Wendy. To be more conservative and accurate in the estimation of market volatility, Marriott should choose geometric average.
- Second, calculate b
To calculate b, assume that the project has the same risk and the same leverage as the firm overall.
b = S weighted average x the average of equity Beta of firms in the same business lines = 0.51[(0.88+1.46+0.38+0.95)/4] + (0.33+0.16)[(0.75+0.6+0.13+0.64+1.00+1.08)/6] = 0.813
- Third, calculate Risk premium
To better evaluate the market volatility Marriott should choose the time interval of 7 latest years, from 1981 to 1987. Then Risk premium = (Geometric average of long term US government bond return from 1981 to 1987 + Geometric average of long term high-grade corporate bond return from 1981 to 1987 + Geometric average of Standard & Poor’s 500 composite stock index return from 1981 to 1987)/3 = [(1.1682)5x1.2444x0.9731]1/7 + [(1.1783)5x1.1985x0.9973]1/7 + [(1.1471)5x1.1847x1.523]1/7 = 0.1412
- Forth, Expected return or cost of equity is 0.214 (Exhibit 3)
- Fifth, calculate riskless rate (risk free rate) RF
Expected return = RF + b[Risk premium] so RF = Expected return - b[Risk premium]
RF = 0.214 - 0.813x0.1412 = 0.099

3. WACC
WACC = (1-t)rD(D/V) + rE(E/V) = (1 – 0.44)x0.1041x0.6 + 0.214x0.4 = 0.121

Business Communication

2006-03-23T06:31:00.000-08:00

Memo Sample

IUJ, Spring 2006
Pham Thi Thuy Ha

MEMO
To: All Weymouth Employees
From: Carl Weymouth
Date: September 10, 1990
Subject: Personnel Reduction at Weymouth in coming months

I am very sorry to inform you that our company will face serious difficulties in the near future. According to latest sales forecasts, the company’s revenues will probably decrease by 25% in the next eighteen months due to increasing competition from European and Japanese companies. To become more competitive, Weymouth needs new capitals to buy new equipment and restructure production processes at all mills. Moreover, the company needs to spend more money on controlling pollution levels within the state standards. Consequently, Weymouth must find effective solutions to save as many costs as possible.

Recently, our company has implemented several cost-cutting measures. The company has shut down several less efficient mills and processing plants, and delayed some plant modifications for those that do not meet environmental regulations. The company also has cut purchasing and supply costs, implemented restricted travel expenses and reduced operating expenses as many as it could do. However, these effective measures have not helped Weymouth meet its urgent need for capitals. Therefore, the last solution our company could take is to reduce our employment force by 1000 salaried positions at all levels in coming months.

The company will pay those who must leave the company and have one or more years of service a termination payment, unused vacation for 1990 and accrued vacation for 1991. Our company also pays one-month coverage insurance from the leaving date and a partial insurance at reasonable rates for the following months. The company’s managers will help those former employees search for new jobs.

On the other hand, the company will provide those who stay after this employment reduction with salary increases and improved benefit packages including provisions for retirement, vacations, medical and dental cares, life insurance and stock ownership. In return, those employees have to take more responsibilities and fulfill more job requirements. They also have to create more initiatives and work more effectively for the development of the company.

In coming months, supervisors will inform each employee individually his or her employment status and answer questions he or she may have.

I feel much regret to inform you this personnel reduction plan and look for your profound understanding of this solution. I will do my best to develop the company’s business and hope that former employees will have opportunities to work again at Weymouth.

Local and export processing enterprises – similarities and differences

2006-03-23T06:28:00.000-08:00

Compare and Contrast Essay

In Vietnam, there are two types of processing manufacturers: local processing enterprises (LPEs) and export processing enterprises (EPEs) I have experienced working for both of them for quite a long time. Someone may argue that there are many similarities between LPEs and EPEs. However, they are different in legal rights and responsibilities, the level of their technology and production, and the effectiveness of their management. EPEs are business models for LPEs to follow.

In terms of legal issues, each of them has different rights and responsibilities. LPEs are owned by Vietnamese nationals or local institutions. LPEs are also restricted to selling their products to local markets and to buying the main raw materials from overseas markets. Besides, LPEs are allowed to hire foreign employees up to 5 percent of their total workforce. LPEs have to pay value-added, import and export taxes. In contrast, EPEs are owned by foreign individuals or institutions. EPEs have to export all their products to overseas markets and to buy the main raw materials from foreign countries. Moreover, EPEs are allowed to hire foreign employees up to 10 percent of their total workforce. But EPEs are exempted from value-added, import and export taxes.

The two types of processing enterprises also differ in technology and production level. Being local companies with limited capitals, LPEs are not usually able to adopt new and expensive technology. The local workforce, which has limited English and technical skills, prevents LPEs from applying new technology from foreign countries. Therefore, LPEs can only produce simple, non-technological products such as garments and shoes. On the other hand, EPEs are usually technology-rich firms with modern production methods because they must satisfy the technological requirements set by the Vietnamese government in order to have a license to operate in Vietnam. Thus, EPEs normally have their higher level of technology and produce highly technological products such as color printers and digital cameras.

Another difference between LPEs and EPEs is the effectiveness of management. LPEs normally have old management systems, which are bureaucratic, inflexible and conservative. These systems slow down the decision making process, thus prevent LPEs from being able to improve fast their production performance, produce new products and grow in highly competitive environments. In contrast, EPEs have networked, flat, flexible, diverse and global management that allows EPEs to respond quickly to environmental changes and adjust their organizational structures to fit new situations. As a result, EPEs are able to operate across the borders, compete in international markets and build networks with international business partners.
Although the two kinds of manufacturers are different in legal rights and responsibilities, the level of their technology and production, and the effectiveness of their management, they do not totally contrast one with another. Having their higher technology level and effective management, EPEs are business models for LPEs to follow. On the other hand, LPEs learn from EPEs not only the new technology they bring in but also the way they manage their business and compete in international markets. Thus both EPEs and LPEs contribute to the diversity and development of the Vietnamese manufacturing industry.

Unilever in India: Hindustan Lever’s Project Shakti

2006-03-23T06:25:00.000-08:00

Marketing FMCG to the Rural Consumer

Marketing Management (MKG1010)
International University of Japan, Fall 2005

Nishino Kei
Pham Thi Thuy Ha
Suwannathat Sanpat
Tan Siew Siew
Zha Li

Executive Summary

HLL has enjoyed a competitive advantage as a sole provider of personal hygiene care products before the liberalization of India’s economy. However, with the entry of foreign MNC, HLL is suffering from stagnant growth and lower profit margin. Project Shakti was created to address these issues. The high growth of Shakti has created managerial challenges to the project management team. As Shakti grows, the current management structure has become inefficient to make it profitable with minimum costs. Thus, restructuring management measure is crucial to sustain Shakti in the long run and to provide HLL with competitiveness.

Challenges of Project Shakti

Rural market is already giving HLL a competitive advantage. But competitors are also tapping into the rural market with existing HLL direct channels. Thus to continue HLL competitive edge, Project Shakti is essential. Until 2004, Shakti is contributing 3.5% (pg 6 & 17: 15 x 20 / 85) towards HLL total revenues and it still has potential to continue growing. This is because personal hygiene awareness is in the increase. Shakti may be able to achieve the founder’s dream of 15%-20% of total revenues, assuming that Shakti can increase the usage rate of current consumer. However it will not achieve the market penetration of over 500 million rural population as this figure signifies that HLL will nearly monopolize the rural market with 80% penetration rate. The greatest challenges that Shakti face are costs and management control to make it profitable.

Managing Project Shakti in the long term

The Shakti system in the beginning of the project was good but not sufficient to handle the growth it had obtained. Thus changes are needed to make it more cost effective and profitable. As Shakti matures, there are a number of entrepreneurs who are more successful than the others. HLL’s RSP can organize a monthly gathering for all entrepreneurs in the same district, encouraging interaction and communication among entrepreneurs. By doing so, the experience and knowledge of the successful entrepreneurs will motivates others. This will increase the efficiency of each entrepreneur (profit increase) and also decrease the amount of time spent by RSP to visit individual entrepreneur, giving RSP more time to explore untapped villages in the same district. Thus the current 500 RSP is sufficient to manage 25,000 entrepreneurs. Also, HLL should be focus only in states with SHG movement to increase its cost effectiveness. HLL should also cultivate more successful entrepreneur from existing entrepreneur as organic growth of these entrepreneur is faster and easier to give profit. As HLL penetration to rural market is only a mere 16% (1 entrepreneur in 5 villages, pg 12), the market potential and market size is big enough to give a fair share to every player, thus the conflict between Shakti entrepreneurs and direct sales channel, if ever arise will be minimal. Moreover, a control measure can be applied by limiting the number of entrepreneur in each district thus minimizing conflict.

iShakti and Shakti Vani – survivals for Shakti

iShakti and Shahti Vani are Shakti’s initiatives created to provide rural India with access to information and social communication. Although the setting up costs for those two programs are quite high, Rs 150 million, funding is likely to be achievable because this cost occupies about 3.6% of Shakti’s revenues (150 / 3.5% x 120,000 (pg 2)) and therefore Shakti itself can finance these programs. Funding is also possibly receivable by persuading other profits centers to invest in the programs and by using the revenues of iShakti to finance Vani. Furthermore, iShakti will have high potential revenues from selling MR to the internal customers and to sell the channel to other interested, non-competitor parties, e.g: banks, insurance companies, farm equipment etc. Vani itself does not generate revenues directly, but it is a powerful tool to increase hygiene awareness in rural India, as a result indirectly increase HLL sales at long term. In short, iShakti and Vani will be workable and scalable to help Shakti success.

Social Impact and Role of Business

HLL should make a social impact on rural India. By involving in the improvement of rural living conditions, HLL can and will continue to enjoy the competitive advantages as the main company to participate in social development. The connection between business and communities will develop lifetime customers for HLL. This involvement may not be the typical role of business, but as long as it is profitable to HLL without compromising moral and legal issues, it will be a good move for HLL to increase its reputation as a socially responsible organization.

Conclusion

Project Shakti started to suffer from growing so big that the current structure needs to be adjusted. Restructuring the managing measure of RSP to entrepreneurs, focusing Shakti in selective districts and prioritizing efforts in existing entrepreneurs, Shakti will generate higher revenues with minimal increase in costs. Shakti should continue as it is providing HLL a distinct competitive edge and increase HLL’s profits and growth. Moreover, Shakti helps to position HLL as socially responsible organization.

IKEA Invades America

2006-03-23T06:20:00.000-08:00

Low Pricing Strategy

Marketing Management (MKG1010)
International University of Japan, Fall 2005

Nishino Kei
Pham Thi Thuy Ha
Suwannathat Sanpat
Tan Siew Siew
Zha Li

Executive Summary

The IKEA Group, one of the world’s top furniture retailers, has emerged as the fastest-growing furniture retailer in the US. To become one of the leading furniture retailers in such huge and promising market, it has set an ambitious goal to have 50 stores around the US by 2013. IKEA has 4 branches in Los Angeles alone. From 1997 to 2001, the revenues of IKEA doubled from $66 million to $1.27 billion in five years. Looking at the growth rate over the past decade, it seems possible for IKEA to reach this goal. However, IKEA faced several challenges: American’s mind-set, competition from established furniture retailer and different customer’s preference. To address to these challenges, IKEA needs to apply market leader strategy expanding total market size, defending and developing its market share to achieve this goal.

IKEA Brand: lasting advantage

One of IKEA’s lasting advantages is its brand. To many consumers, IKEA means low-priced furniture, Scandinavian design and style, shopping convenience. IKEA’s cheap furniture does not make consumers feel cheap but rather beautiful, convenient and well-designed. IKEA has a unique shopping culture that makes consumers feel a “real Scandinavian design and style” when they shop. Thus, brand awareness gives IKEA a great power in the US market. However, IKEA’s motto is “low price with meaning”. “With meaning” for US market is different from the other markets. If IKEA can not capture what US customers want, its offerings will become “low price and no meaning”. IKEA already listens to US customers’ needs but it should focus more on local market point of view.

Challenges in America

- Reluctance to change furniture: mind set of Americans
Americans typically have the mind-set that furniture should last a life time, which is not in-line with IKEA’s value that does not include durability in its products. Thus to increase market share in America, IKEA must change the American’s attitude towards furniture as something fun and disposable, furniture is something that add value to lifestyle without incurring too much cost.

- Value added in high-end furniture retailer
As in IKEA motto: low price, there is no delivery and credit services offered. Whereas a typical American furniture retailer (Wal-Mart excluded) offered free delivery service, on top of personal consultation, interior design, credit (easy payment scheme) and huge selection of products. IKEA has to compete not only in price, but also the value added services that these furniture retailers offered as a package together with the furniture purchased.

- Consumer preferences
Another challenge that IKEA faces in America is different consumer preferences and needs. IKEA originated in the Scandinavia has to modify its products to suit America’s furniture market.

Managing sustainable growth for the future

To achieve the 2013 goal, IKEA should apply market leader strategy by expanding total market size, defending and developing its market share. To expand total market size, IKEA should use both new market segment and market penetration strategies. First, it should segment the market to middle-upper class. This particular segment includes young, educated, high mobility home makers that reside in sub-urban America. They are typically open minded and technology savvy which suits IKEA’s brand image and offerings.

Second, IKEA should find new users, uses and increase usage volume of its current customers. To do so, it should encourage and cultivate a new concept of furniture as representative of life style. As life style changes furniture should change too. It should not compete with either high or low-end furniture retailers in U.S (price and quality), but instead use them as benchmark and focus on its niche. IKEA should benchmark its products against hi-end furniture retailers in the US. It should also avoid head-on competition against both high and low-end furniture retailers. Instead it should position itself as a market leader in its niche market.

IKEA should co-create value with customers by establishing “IKEA Club”. This Club is a platform to encourage interaction among IKEA’s consumers so they can teach each other how to buy, assemble and use its products. Beside that, the Club also works as a platform to exchange ideas and experience in using its products. Moreover, it should create a website for potential shoppers to mix and match its products online before visiting its’ stores. This will reduce the shoppers’ confusions and increase customer participation in designing home furnishing using its existing product offerings.

To protect and develop its market share, IKEA should endure IKEA brand by maintaining its company values and unique shopping culture at all stores such as keeping store design, decoration, structure, service. In this case, it needs to modify the product matrix according to US markets by maintaining the price range but increase number of styles that meet the needs and wants of the target market. IKEA also needs to position itself by changing US consumers’ mindset via various IKEA-consumer communication channels.

Conclusion

As mentioned in the case, America’s furniture market is very fragmented. In order to increase the market share, IKEA needs to focus on positioning itself as the one stop centre for all home furnishing needs. IKEA should target their marketing efforts on middle-upper, educated segment of America’s population as they are the one that will be more open to accept new ideas and concept that IKEA has to offer. Also IKEA should differentiate itself, focus on the experience it offers to shopper, not just the low price products. By doing so, the goal of 50 stores in 2013 is not far from reach.

Cumberland Metal Industries

2006-03-23T06:17:00.000-08:00

Pricing Strategy

Marketing Management (MKG1010)
International University of Japan, Fall 2005

Nishino Kei
Pham Thi Thuy Ha
Suwannathat Sanpat
Tan Siew Siew
Zha Li

Executive Summary

Cumberland Metal Industries (CMI), a company specialized in making of curled metal products, has develop a new product, metal cushion pad with health safety and long durability, to help contractors drive piles faster. Based on the successful tests, CMI now wants to launch this new product to the market. The main challenge CMI is facing is to price its new pads. Since the pad is totally new in the market, CMI should use perceived value pricing method and apply marketing mix programs comprised of advertising, education, and distribution channels to launch this product as well as develop it to get full market share in the future.

Perceived Value Pricing – strategy for future success

CMI should set the objective of this new business to be the monopoly and to maximize profits. However, the prerequisite for this objective is to get a patent to prevent this product from being copied and imitated. As long as CMI did not get patent for this product, CMI should not sell it as it would invite the entry of competitors because this cushion pad is not a high technology product and easy to be copied. Thus the following pricing strategy will be based on the scenario of getting patent protection.

To price the new product, CMI should apply perceived value pricing method to deliver its value to customers and CMI must make them perceive this value. CMI also needs to apply several marketing-mix programs such as advertising and roles of influencers to communicate and enhance perceived value in customers’ minds. The price calculation is as follow:

Normal a price of an 11 ½ inch asbestos pad is $3. A CMI’s pad lasts longer than asbestos pads 10 times (conservative estimate: p4). Thus speed and efficiency will be the top priority for marketing and pricing this pad. Based on product life, the pad will only have $30 value. However, based on the data from Colerick test, Corelick spent $1000 for asbestos pads; they use 6 CMI’s pads for the same job. So, it took $1000/6 = $166.67 worth of albestos pads to complete the same work by CMI’s pads. From the Fazio test, it took $400 worth of albestos pads. This has not take efficiency into consideration yet. Assuming that the users do care about speed and efficiency, CMI can charge additional price.

From the Colerick test, the job is to drive 50 feet in to the ground using 300 piles. The albestos pads spend 20mins (150ft/hrs: p.3) on driving and 400mins on set changing. The CMI’s pads spend only 15mins (200ft/hrs: p.3) on driving and 4mins on set changing. We do not need to take the hidden costs into consideration because it is not affected by reducing the driving time or pad changing time. So (420–19)min /60min = 6 hrs 41 min time saving. Because the contractors have to spend $100 per hour, Colerick probably save about $668/6 pads =$111.33 on equipment rental, labor and overhead costs for this work by using CMI’s pads. So the worth of CMI’s pad is $166.67+$111.33 = $278.00

CMI should choose the option to purchase the $50000 permanent tooling, because it will reduce cost per unit by $78.94. By this cost saving alone we can get back the money we invested in the tooling in less than 3 months. This will maximize profit in the long run. The total manufacturing cost will be $69.18/pad. The management wants 40%-50% contributing margin after all manufacturing costs, the price will be about $115 ~ $140 to satisfy the management’s profit expectation. Thus CMI’s should price the pads at $149.00, as this price will have 50% saving for the contractors.

Each CMI’s pad can save a huge among of costs for the contractors. If CMI can get the patent then no competitor can enter the market with the same product. CMI can charge the monopoly profit maximized price, but initially they should give promotional discount of 15% during the introductory phase, that is the first 2 purchases to make customers adopt the new pads because the price can look intimidating. (asbestos pad $3, CMI pad $149).
Marketing-mix strategy to launch and explore market share for new cushion pads

First, CMI needs to get the patent of this new product to protect from competitor entry. As CMI’s objectives is to be monopoly, patent is crucial.

Second, CMI needs to develop distribution channels. Direct channels to contractors who own pile hammers as they contributed high quantity and demand (50% of estimated market share). Also by having direct channels, CMI has more control on the education and monitoring of its clients. After that, CMI should sell to wholesalers and hardware stores to cover the small contractor. CMI should not be too concern about the equipment rental because as CMI’s pads gain popularity in the industry, customers will pressure the rental company to use CMI’s pads.

Third, CMI needs to develop promotional and advertising programs to make customers perceive the value of new pads. CMI needs to educate its consumers in terms of health benefits (no asbestos) and safety (no heating problem) and to add the brand quality by advertising in professional journals. CMI also needs to make the function and merit of the new product to be known by customers, especially the value the new product can create the aspect of health concern.

Fourth, CMI needs to establish a network of influencers or increase public relations. To do so, CMI needs to established networks in a new industry to the company and key influencers to endorse its product. The result from Professor McCormack will be of high value to gain endorsement from consulting firm.
Fifth, CMI needs to do market research, estimate the price elasticity of the new pad and the demand function and then adapt the initial price to the profit maximized price.

Conclusion

CMI’s pads definitely will be the market leader in the industry as it is innovative with high efficiency. Getting patent for this pad will ensure the growth profitability of CMI. In this case, perceived value pricing is used as the pad has more to offer than conventional asbestos. In line with this pricing strategy, marketing mix of advertising, education and distribution play a role in ensuring the success of this product.

Autobytel

2006-03-23T06:13:00.000-08:00

Marketing Strategy

Marketing Management (MKG1010)
International University of Japan, Fall 2005

Nishino Kei
Pham Thi Thuy Ha
Suwannathat Sanpat
Tan Siew Siew
Zha Li

Executive Summary

Autobytel is the first mover in the internet new car buying service in the US. It enjoyed miracle growth during its early stage but now is facing strong competition from many sources relating to car buying services. In such increasing competition, it has to reposition itself to differentiate from competitors by offering new services and products such as selling cars direct to consumers and increasing the numbers of dealers and reduce costs. Existing marketing mix should be reviewed to find a balance between efficiency and profitability by focusing on internet advertising and personal touch with dealers.

Facing strong competition in the internet new car buying service

As the number of dealers using online buying services is dramatically increasing, Autobuytel is facing intense competition with other online car-buying service providers such as Microsoft, Dell, who had entered the market, set up dealer networks in a short period, and are nearly catching up with Autobytel by using their brands and existing networks or partnership with companies which already have car dealer network bases. They are not only price-competitive, but also have a wide variety of services like car delivery service by CarsDirect.com. Car manufacturers and dealers also start direct online car-selling service. These competitions make Autobytel difficult to differentiate itself from other online car buying service providers in pricing and servicing.

Restructuring costs for revenue growth

Autobytel’s operating cost is extremely high in comparison with revenues, but increasing at slower rate. In 1996, revenues grew 1733% (Exhibit 1), but costs increased at 757%. In 1997, costs increased at slower rate. As the cost is increasing at a slower rate than revenue, it can still manage cost reduction. Competition will not get easier in the future as it has less than 1% market share. Therefore, it should implement cost control program by setting cost according to revenues. It should be very cautious regarding the budget spent on sales and marketing as the profitable and long lasting business should not spend more than its gain. For example, it should target a certain percentage as its net profit margin before spending on sales and marketing.

Offering new products and adding new dealers and services to grow revenues
Autobytel can sell cars directly to customer because this service will be more efficient and convenient to customers. As the internet purchase is the future trend, by doing so it will definitely becoming a market leader in internet car sales. Thus it can acquire more consumers and get more marginal profits than just as being a liaison. However, it should be cautious in launching this service as not to jeopardize business of existing dealers and also it should consider the cost incurred in this venture. It should first limit this service in area near to car manufacturer sites to avoid incurring inventory cost and increase efficiency of car delivery to customers.

Autobytel should explore its dealer network since 89% of its revenues come from dealer subscription fees. To do so, it needs to help dealers increase sales volumes by granting them a larger geographical territory than car manufacturers do. It also needs to give its dealers support (training services) so that they are not fired by having poor service quality. This will definitely help in increasing the number of dealers and position itself as the synergistic partner for dealers to venture into the new era for business through the internet. Providing training to sales persons will increase the efficiency of the dealer. This will not only strengthened the rapport between Autobytel and existing dealer, but also boost up its reputation as the premium.com company. However, it should restrict its dealers from signing up with competitors to protect its investment and to maintain its competitive advantage (Autobytel University).

Autobytel should add new features into its products and services. First it should develop the current consumer-to-consumer and business-to-business car sales markets into one of its major products and charge the successful transaction at a reasonable price. This is because this service can increase the number of business buyers and consumers via its websites. It needs to focus more on used car sales because these sales can give dealers more margins than new cars do. It should also offer truck, van and bus online buying service with the same system by focusing on business-to-business transactions. This new business is very potential since no one has done it. It should create a “buyer chat room” on its website where buyers can talk with its dealers and other buyers about purchasing decisions so that they feel that they make right choices.

Repositioning and marketing mix programs

Autobytel has to position itself as the complete car guide website which provides not only information on car purchase. The new position statement should be ‘More Than Cars’ where it offers simple way of getting all kinds of information and services related to cars. It should strengthen and maintain its competitive edge by referring consumer to reliable and low-price dealer and service centers. That is to brand Autobytel equivalent to other successful online companies like Amazon.com.

In order to achieve the new positioning, a new set of marketing mix is called for. Autobytel should focus on two ends: the consumer and the dealer. On the consumer, internet marketing and advertising should be continued as the target consumers are those pro-internet shoppers. Traditional advertising should not be continued as it was too costly.

As for the dealer, personal selling is the best way to maintain and gain new dealers. Mass advertising is not recommended as it is not cost effective for Autobytel. This is because Autobytel did not want to target all dealers, but only selected dealers in a certain area that is reliable and have a high reputation.

Conclusion

In short, to growth sustainablly in fierce competition, Autobytel needs to reposition itself to differentiate it from its competitors. To do so, it should take a course of actions to accelerate its revenues such as restructuring costs, offering new products and services, adding new features on its websites as well as exploring its dealer network. Moreover, it needs to change its positioning statement with a set of new marketing mix programs focusing on both customers and dealers.

Conflict and Negotiation Styles of Japanese People

2006-03-23T06:10:00.000-08:00

Conflict Handling Styles

1. Avoiding style: unassertive and uncooperative behavior
2. Forcing style: assertive and uncooperative behavior
3. Accommodating style: unassertive and cooperative style
4. Compromising style: behaviors at intermediate level of cooperation and assertiveness
5. Collaborating style: strong assertive and cooperative behavior. This will lead to a win-win solution

Negotiation tactics

Japanese have 3 keys to succeed in negotiating:
- Appropriate information
- Time to negotiate
- Feeling of power
They pay mush attention to personal relationships and ask questions that do not relate to matters in hand.

Japanese managers take real interest in their workers’ private life
So Japanese negotiation style is personal and culture-related

Carly Fiorina – Leadership Capability

2006-03-23T06:03:00.000-08:00

IUJ, Fall 2005
Pham Thi Thuy Ha

Sense-making

Coming to understand the context in which you are operating:
Fiorina has a strong sense of understanding the context to map the external terrain. At AT&T, she recognized the phone-equipment manufacturing unit’s potential for growth in emerging market such as Asia and the firm’s capability to supply a switch able to handle both wireless and long-distance traffic. At HP, she boldly declared her intend to merge HP with Compaq as she sees the merge will make the two companies be more efficient and cost effective.

Creating a map that represents the current situation of the group or organization:
She has a savvy approach to customers to understand what they want and how to fulfill their need and wants. That’s why she could always expand the business of her company.

Making sense of the environment:
She saw the market moving quickly and the pace of change accelerating. This sense-making distinguishes her as a great leader who can discover the new terrain for HP as the environment changes.

Relating - centers on the leader’s ability to engage in inquiry, advocacy, and connecting

Inquiry:
Fiorina does not always listen and understand what others are thinking and feeling. She ignores others while implementing her decisions without explicit reasons. She also does not care about the critics against her leadership style “management with flying around”. In this context, she is right to act like that to maintain her position as a female leader, strengthen her executive power and make her management more efficient to manage HP as a world-wide company.

Advocacy:
She is always clear about her own point of view and trying to influence others of its merits. She is able to tell the truth about what needs to be done and clearly define what is and is not acceptable performance. This ability helps her communicate broad strategies, deep knowledge of operations, visions and instructions clearly to her management team and employees.

Connecting:
She is able to cultivate her followers who help each other to accomplish their goals. She also developed a personal touch that inspired intense loyalty among her followers and the ability to build collaborative relationships with others to create coalitions for change. For instance, she has a strong ally with HP board members. The 51.4% vote of HP’ shareholders for the merge HP-Compaq is her success in building coalitions for change as she planned.

Visioning

Creating a compelling, shared and meaningful vision:
She changed the vision of HP from a stand-alone product/service provider to a company that provides an integrated suite of information appliances, highly reliable IT infrastructure and e-service, or to expand HP in a new direction at “Internet speed” and customer orientation. This compelling vision motivate HP’s people to change their current view and ways of working, and work hard to reach it. This shared vision enables them to act together, become bound together around a common identity and sense of destiny. This vision also provides them with a sense of meaning about their work and the difference they will make. Therefore, HP could offer its own e-services and develop e-speak, package online services tailored to customers’ needs during her first year at HP.

Inventing

Changing the way that people work together:
Knowing that the shift of this vision only can be achieved with corresponding changes in organizational structure, she changed the way people work by restructuring HP into four organizations: two focusing on sales and the others focusing on products.
Creating a whole new way of approaching a task: She recognized the need for a new leadership style and faster actions for the new vision. So she decided to change HP from a fully integrated, product-focused business to a more disintegrated approach focusing on product generation, customer-facing and support activities. She also changed her leadership style by using internal Web and message boards to communicate with workers instead of visiting and talking to them in person as the old leadership style.

Creating new approach, new solutions, new practices:
To achieve the goal, she changed the culture and work habit to make employees be more efficient. She encouraged research to explore new technologies and develop new products. She also created the “rules of garage” to motivate new and innovative ideas.

Inventing goes hand-in-hand with sense-making:
She blended sense-making with inventing. Together with the above initiatives, she developed HP’s brand by generating a branding campaign that sent new messages to customers, competitors and industry partners to build a lasting image of the company and brand awareness for its further sustainable development.

Her strong capability of sense-making, visioning, relating and inventing makes Fiorina become a powerful and talented female leader in the American corporate world.

Roussel-Uclaf

2006-03-23T05:59:00.000-08:00

IUJ, Fall 2005
Pham Thi Thuy Ha

Organizational set model analysis

Input set: Roussel-Uclaf (RU) has established cooperative R&D agreements with leading French universities and research organizations who provide RU with technology development and knowledge to create new products. This is RU’s advantage to be a leader among other pharmaceutical companies. RU also has a strong partnership with Dr. Baulieu who is a star on French medical research a prominent researcher in the world’s medical research community to acquire new knowledge for R&D.

Output set: RU’s customers of RU486 are women who prefer buying it because it provides greater privacy, les invasive and avoids anesthesia. RU cares about distributors in eastern Europe where it will not control black market if selling RU486. RU also concerns about poor medical conditions of customers in developing countries where RU can not estimate how big the market should be.
Regulatory set: The French government authorized RU to commercialize RU486. UK and Sweden’s governments also approved RU. But the US government under Reagan and Bush administrations did not favor RU486 so RU could not sell them in such huge market. Until the Clinton administration can RU receive encouragement to produce RU486 in the US.

Set of competitors: RU has almost no competitor who can produce the same product.

Stakeholder model analysis

Interests of stakeholders: RU faces strong conflicts of what its stakeholders want. Inside RU, executives and employees are themselves divided about the ethnics of marketing RU486. Outside RU, the same controversy arises among RU’s subsidiaries. RU’s mother company, Hoechst, has different interest with RU: while RU wants to launch RU486, Hoechst does not want to market it because of the fear that public opinion will destroy Hoechst’s economic power and reputation and boycott all its products. Furthermore, there are strong opposition of local, national governments and local communities in the US and in the rest of Europe where RU want to sell its product. These institutions are against abortion and therefore try to prevent RU from selling RU486. The reason of these conflicts is that RU does not mobilize the interests of these external stakeholders, co-build the acceptance of abortion between internal stakeholders and among external stakeholders. RU also does not co-opt these sets of stakeholders to accept RU486. RU has only a coalition-building with WHO by signing an agreement to conduct test in the developing world thus paving the way for RU to sell it in there. But this coalition is not strong enough since WHO depends on the US’s money.

Power and influence of stakeholders: The Health Ministry of France uses its power, influence and legal right to force RU to sell RU486. Therefore, after a long time of debates against public oppositions, RU486 can be is produced in France and soon occupies most of French abortion clinics. Without this intervention, RU could not be able to sell RU486 since public oppositions against the company are very strong.

Institutional field model to analyze the interactions between organizations and their environments:

Share beliefs: The French society share the belief that abortion is right with RU so it accepts RU486 as the most powerful tool for women for avoid undesired pregnancy. Then the UK, China and Sweden’s societies do too. The CEO of RU also believes personally that it is worth to launch RU486. Other groups in the US also support RU and push it to sell RU486. But the US and Singapore, people, anti-abortion groups and social wisdom are strongly against abortion because they believe in the right-to-life.

Shared values: in Italy, Austria, catholic countries of south Europe people and governments still do not agree whether abortion is right and women should have free choices to use RU486. They do not share with RU that RU486 is the right way to help women in abortion.

Mindsets: The change of mindsets against abortion is very difficult since they are well rooted in people’s mind, especially in America. So RU can not easily get social approval from the US and other countries.
Coercive isomorphism: RU is between two forces: the Clinton administration now urges RU to test and produce RU486 in there while abortion remains highly charged political and cultural issue and anti-abortion pressure rises to threat the boycott of RU’s products.

Isomorphism: Someone suggests RU to do the same way as IUDs, a pharmaceutical firm having similar process to RU had done earlier: give the license for technology for a non-profit Population Council and let it find a smaller company that is willing to produce RU486.

Normative isomorphism: Dr. Baulieu was awarded the 1989 Albert Lasker Award for Research in Clinical Medicine for his contribution to the knowledge of steroid hormones included RU486 in New York. This means that this professional organization has proved that RU486 is the right way to help women in abortion.