International Business Strategy, Management & the New Realities

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Week 8
International Business Management Managing
International Operations An Experience from
managing MNCs in the Telecommunication Business
Sakda Siriphattrasophon, Ph.D.
25 July 2009
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Biography of Guest Speaker

• Educations
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• Ph.D. Candidate in Development Administration at
  NIDA

• Experiences
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Case Study EXAMPLE
August 6, 2003
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Topics Covered

• Profile Performance
• Strategic Competencies
• Globalization Action
• Recommendation

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Part I

• Profile Performance
• Competitiveness
• Globalization

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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 companys mission to be the kitchen of the
world CPFs 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
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CPF vs Industry
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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
• CPFs Feed Conversion Ratio of 1.5 is better than
  industry average of 1.7

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5 Years Growth
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2002 Performance
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Company Rating

• In 2003, TRIS Rating affirms the ratings of CPF
  and its debentures at "A" for CPF1/2001
  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).

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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.
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Globalization - Sales
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Global Investments
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Global - Perception
The reputation of CPF itself, CPF's major
shareholders (CP Group), and its chairman (Mr.
Dhanin Chearavanont) 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).
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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.
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Part II

• Strategic Competencies
• Best Strength
• Biggest Weakness

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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
RD 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.
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Weakness
CPFs 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
companys core business (Charoen Pokphand Foods
Company Limited.2002 30), the CPF subsidiaries
and affiliated companies in 2001-2002 reveals
CPFs significant investment in non-core
business companies. Since many of these companies
have suffered losses from their business
operations, CPFs operating performance has been
negatively effected by these significant losses.
Without losses from non-core investments, CPFs
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.
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Part III

• Globalization Action
• Choice of Entry
• Biggest Advantage
• Biggest Disadvantage

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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 companys 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.
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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).
• CPFs 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

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Disadvantage

• Gaps and Standard
• as key weaknesses of CPFs global actions.
•   Employees Performance at a Global Standard
• The lack of employees who can perform at a
  global standard was identified as a source of
  CPFs 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 US90 million in CPUSA
  raises concerns about the viability of the
  subsidiarys 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.

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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
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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 CPFs 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 CPFs
  business before they approve these missions and
  strategies.

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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.
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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, CPFs 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 CPFs strategy
  process.

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The Most Least Effective of Strategic Process
The most effective part The clearly specified
top-down strategy formulation process. According
to CPFs 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 CPFs strategy process.
The least effective part A lack of clear and
independent task force in managing strategy
process within CPFs organization is considered
the least effective about CPFs 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.