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Week 8 International Business Management: Managing International Operations – AnExperience from managing MNCs in the Telecommunication Business Sakda Siriphattrasophon, Ph.D. 25 July 2009
Biography of Guest Speaker • Educations: • วิศวกรรมศาสตร์บัณฑิต (ไฟฟ้าสื่อสาร) สถาบันเทคโนโลยีพระจอมเกล้า พระนครเหนือ • รัฐประศาสนศาสตร์มหาบัณฑิต สถาบันบัณฑิตพัฒนบริหารศาสตร์ • Ph.D. Candidate in Development Administration at NIDA • Experiences: • วิศวกรโทรคมนาคม องค์การโทรศัพท์แห่งประเทศไทย • ผู้จัดการฝ่ายวิศวกรรม บ. ดิจิตอลเพจจิ้ง เซอร์วิส จำกัด • ผู้จัดการฝ่ายขาย, ผู้จัดการฝ่ายขายอาวุโส, ผู้ช่วยรองประธาน, • รองประธาน บริษัท ซีเมนส์ (ประเทศไทย) จำกัด
Case Study EXAMPLE August 6, 2003
Topics Covered • Profile & Performance • StrategicCompetencies • GlobalizationAction • Recommendation
Part I • Profile & Performance • Competitiveness • Globalization
The Company Profile • Founded in 1978, CPF is the largest agribusiness company in Thailand • Two main categories: livestock and aquaculture that are vertically integrated from spanning feed production, animal farming to meat processing and distribution The company’s mission: to be the “kitchen of the world” CPF’s major shareholder is Charoen Pokphan Group Co., Ltd (CPG), the largest business conglomeration in Thailand CPF is regarded as the flagship agribusiness of the CP Group in Thailand
CPF Operations Livestock Operation • is the market leader in fresh chicken, holds a 25% and 19% share of domestic and exported markets • chicken operation is very competitive, resulting from economies of scale and reaching fully integration • Leader in in animal feed market with a 40% share • Increased export sales to the EU by 15%, whereas a 15% decline in overall Thai chicken exports resulted from 100% inspection mitigation Aquaculture Operation • Dominates the shrimp feed production with more than 50% share of the total market • The market for shrimp products is global • CPF’s Feed Conversion Ratio of 1.5 is better than industry average of 1.7
Company Rating • In 2003, TRIS Rating affirms the ratings of CPF and its debentures at "A+" for CPF#1/2001: Bt7,000 million senior debentures due 2006. • The ratings continue to reflect the company's leading position in Thailand's agribusiness industry, its product and market diversity, and its proficient management team. • The ratings also take into consideration the volatility in commodities pricing inherent in the company's business. • Rating has however concerns about the continuing deterioration of CPF's US chicken operation and the sustainability of the current strong prices in the domestic market (TRIS Rating, 2003).
Business Outlook Looking forward in the rest of the year 2003, there are many factors encouraging a positive outlook to CPF's operations (CPF Newsletter, 2003). CPF chicken exports are expected to continuously show impressive results because several of Thailand's competitors are at a competitive disadvantage when it comes to selling to the international markets. An outbreak of bird flu in China, together with widespread concerns about SARS, are hindering China from exporting foods to the EU, Japan and other markets. In addition, the discovery of a case of mad cow disease in Canada should boost chicken consumption, at least marginally. The projected improved situation in export markets, together with a supply cut domestically should improve the livestock business for the year 2003. Toward the future, CPF strongly believes that the company has a clear vision of how the global food system will evolve in the near future. Its strengths in understanding Asian cultures and the global foods system will enable it to maintain its leadership position in Asia and act as a partner between Asian countries and the countries comprising the rest of the global food system.
Global - Perception The reputation of CPF itself, CPF's major shareholders (CP Group), and its chairman (Mr. DhaninChearavanont) has been recognized globally. Far Eastern Economic Review: Review 200 - Asia - #1 Leading Company in Thailand, #1 in "Long-term vision", #1 in "Companies That Others Try to Emulate" for many consecutive years. Business Week: "Over the past three decades, Dhanin has helped transform what started as a modest feed mill business into a sprawling, $8 million industrial behemoth. Asia Week: "Openness to outsiders and their know-how is a Dhanin trait. His partners are among the best in their businesses". Leaders: "CP Group is Thailand's largest agro-conglomerate and is knows as an aggressive cross-border investor, especially in China, where it gets 60 percent of its revenues." Institutional Investor: "CP's relentless expansion into China has made it one of the most potent forces in that economy." Asia Money: "One of the Best Managed Companies in Thailand." Asian Business: "Asia's Most Admired Companies in 1998, Top Conglomerate, Top Thai Company." Finance Asia: "Asia's Top Performing Companies 2000." In addition, CPF's Chairman is one of the top most powerful persons in the world. With his vision and strategic capabilities, Mr. Dhanin is recently the one and only Asian businessman who is recognized as one of the top 25 of the most powerful persons in the world outside the U.S. (The Nation, 2003).
Going Global • CPF has been in a transition from multidomestic company to international company, starting from a low globalization index in terms of percentage of sales, assets, and investments outside Thailand, evidenced by the following ratios of; • • Less than one third of sales generated outside Thailand • • Less than one forth of total investments made outside Thailand • • Less than 10% of total assets located outside Thailand.
Part II • StrategicCompetencies • BestStrength • Biggest Weakness
Strength Message from the Chairman “… Globalization has brought about many changes and countries all over the world have rapidly developed new technology to successfully compete in business. Advances in biotechnology have greatly increased productivity as well as improved food quality. With this mind, the Company has placed significant importance on continuous Research and Development to maintain and strengthen its competitive advantage…” Message from the CEO “…Charoen Pokphand Foods Public Company Limited (CPF) has been and will continue to enhance our business efficiency through intensive research and development program. That is the main reason for our high production standard with global certifications, our top quality food products that are produced under the strictest controls to ensure hygiene and safety for the consumer… Equal importance is given to R&D particularly in the development of new aquatic breeds. More importantly is carrying out research aimed at further advances, to help reduce production costs and maintain competitiveness on an international level…” it is evident that “innovative” is CPF best strength in strategy competence. The survey by Far Eastern Economic Review in 2001 revealing that during 1996-2000, CP Group, the mother company of CPF, has been ranked as the top ten company in Asia for “Innovative in Responding to Customer Needs”. International Business: Strategy, Management, and the New Realities
Weakness CPF’s biggest weakness is in risk management. CPF has high-risk investments in business outside its core business. Even though it is clearly stated that CPF will invest only in core business or in the business related to the company’s core business (Charoen Pokphand Foods Company Limited.2002: 30), the CPF’ subsidiaries and affiliated companies in 2001-2002 reveals CPF’s significant investment in non-core business companies. Since many of these companies have suffered losses from their business operations, CPF’s operating performance has been negatively effected by these significant losses. Without losses from non-core investments, CPF’s performance would have been significantly more competitive. In sum, CPF has a poor risk management policy. The high risk investments in non-core businesses of CPF cause significant amount of losses to CPF which in turn have a negative effect on competitiveness of CPF ultimately. International Business: Strategy, Management, and the New Realities
Part III • GlobalizationAction • Choice of Entry • BiggestAdvantage • BiggestDisadvantage
Choice of Entry In going global, CPF has been mainly focusing on export-oriented expansion and set its sights on expanding regional platforms for food products usually by means of wholly-owned subsidiaries. Apart from marketing and trading offices opened in many countries, the company’s overseas operations comprised an integrated broiler operation in USA, a feed manufacturing and distribution business in China and Vietnam, and a restaurant business. It is interesting to notice that the revenue gained from such operation is only 6% of the total sales. While 94% of the sales, both from domestic and export, still comes from the operation in Thailand.
Advantage • CPF looked outside for companies to provide technology and then formed strategic alliances to facilitate the transfer (Harvard Business School Publishing, Case Studies, 1993). • CPF’s strategic alliances and partnerships can be analyzed as follows: • Strategic Partners Who Extend its Global Reach • Strategic Partners which Complement its Best Competencies • An Effective Process to Select Strategic Partners
Disadvantage • “Gaps and Standard” • as key weaknesses of CPF’s global actions. • Employee’s Performance at a Global Standard • The lack of employees who can perform at a global standard was identified as a source of CPF’s major failure in its US subsidiary. U.S. employees are not familiar with highly specialized skills needed in producing food products required by Japanese market. Five- year cumulative net loss of US$90 million in CPUSA raises concerns about the viability of the subsidiary’s operation • The Gap between Being Global and Where the Company is at Present • When an opportunity is open, the first approach at CPF is to look for a personal connection with the market while paying less attention on a feasibility of well-developed plans. In a fast-paced speculating approach, the company consequently lacks of effective mechanism to review its present position in global arena. CPF is confident that what it is doing at present can lead the company to its ultimate goal at global level in the future. However, the question of how long it will take to be there is less important than the matter of business growth in term of yearly revenue.
Part IV & V 4. Global Strategic Process - Strategic formulation - Corporate strategies - Strategy implementation & follow up - The most effective of the global strategy process - The least effective of the global strategy process 5. Conclusion and Recommendations - Conclusion of Implementation of Competitiveness and Globalization - Recommendations: To improve competitiveness and to improve globalization
Strategic formulation • For CPF, determining corporate policies is a responsibility of board of directors. • The board of directors will also determine financial, funding and risk management policies of the company. • The executive committee then will prepare goals and strategies of each CPF’s business including policies in human resource management and submit them to the board of directors for approval. • The company, then, would conduct executive workshops for the board of directors’ members to review mission, goals and strategies of CPF’s business before they approve these missions and strategies.
Corporate strategies Vision : Kitchen of the World Missions: To achieve sustainable growth for domestic products. To achieve world class production standard that provide high quality and safe products which meet consumer satisfaction and are friendly to environment.
Strategy implementation • After the mission and strategies have been approved from the board of directors, the strategies would then be carried for implementations by concerned business units. Hence, executive committee will conduct monthly meeting to follow up operational performances and progresses of investment projects. For the board of directors, quarterly meetings will be conducted to review operational performances and the appropriateness of corporate strategies. • Since the CPF’ corporate strategies have been generated from the company missions which are shared among members of the board of directors and executives, CPF’s strategies may be considered as intended strategies. Since the company executives have a clear direction of the company, shared missions and intended strategies have become strong points of CPF’s strategy process. International Business: Strategy, Management, and the New Realities
The Most & Least Effective of Strategic Process The most effective part: The clearly specified top-down strategy formulation process. According to CPF’s corporate governance policy, the strategy is set out from the board of directors and then to be modified into strategic action plan at the executive committee, together with the clear following up process are considered the most effective about CPF’s strategy process. The least effective part: A lack of clear and independent task force in managing strategy process within CPF’s organization is considered the least effective about CPF’s strategy process. This is due to the fact that CPF is a majority owned company by CP Group of companies. The significant business strategy will be formulated from central planning unit of CP Group of companies as evidenced by those direct and indirect investments of CPF in the losing money non-core business companies.