MASTER OF BUSINESS ADMINISTRATION

MGT 6798

CASE METHODOLOGY:

An Individual Assignment

Submitted to: Mr. Ayub bin Hj. Khalid

Submitted by: Fakhrul Anour bin Abdullah G1136857

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CONTENTS

1- ABSTRACTS 2- INTRODUCTION 3- PROBLEM STATEMENT 4- SWOT ANALYSIS 5- CONCLUSION 6- RECOMMENDATION

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ABSTRACT

The cordial business is a competitive industry due to its easy entrant nature. Therefore, BBSB has many competitors, including both big and small competitors. Among BBSBs competitors were giant companies such as the Fraser&Neave (F&N) and Magnolia Company. These rival cordial companies could be easily found in the same outlets, with the most common type of outlet being the grocery store or the supermarket which served the need of home-consumption users. These cordials also went into the institutional-market segment such as the restaurants and other eating places. All these other brands, priced their products below the two previously mentioned giants, whose premium over price brands ranged from 4% to 13%.

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INTRODUCTION

Buah Bagus Sdn. Bhd./BBSB, a producer of non-alcoholic cordials was founded by Rosli bin Khaled and a friend with raised capital of RM20,000. The cordial product was an artificially flavored, non-carbonated drink packaged in plastic or glass bottles: o The pre-mixed ready-to-drink sizes were in sizes of 720mL, 2L, and 4.55L o A concentrate product (to which consumer had to add water and sugar to taste) was being developed and would come in a 1L package o 720mL package was a glass bottle o 1L packages were in plastic jugs o Each package carried a full color paper label which give the flavor, ingredients or contents, instructions for mixing and other product information o All the companys product have the BB name which had been adopted as its brand Because the cordial business was an easy entry business, there were many competitors vying for space in the retail outlets. At least two of BBSBs competitors were giant companies that had many other drinks and/or food preparations in their product line:
Fraser & Neave/F&N, has been many decades the franchised bottler for Coca-Cola. It also sold many bottled flavors under its label; both carbonated and non-carbonated drinks. The latter category included the largest market share in the fruit cordial business.

Magnolia is the second largest company in the beverages field which had dairy products, tetra pack fruit drinks and cordials in glass and plastic bottles.

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The first two years were the toughest for BBSBwhile his partner manually prepared the drinks with rudimentary equipment, Rosli would take the delivery van every day for six days a week and personally make deliveries, often staying consecutive nights away from home. Sales for the first two years of the company stayed just above RM100,000. At this level, BBSB was able to earn profit of RM4,900 and RM4,200 for the first two years. Sales began to grow rapidly once Rosli was able to sell to government agencies in 1983. The first was FELDA, a government agency developing land primarily for agricultural projects. FELDA had large plantations and other agricultural projects with rural communities that housed the agricultural workers and their families. To service the needs of these families, FELDA had established so called minimarkets which were retail outlets selling staple goods for the workers and their family.

Several other government agencies beside FELDA were like MARA and RISDA; created primarily to help the economic progress of Bumiputra (sons of the soil), the indigenous majority of Malaysias population before Chinese and Indian. In West Malaysia, the Bumiputra were almost entirely Malay people of the Islamic faith.

As a Bumiputra, Rosli had the advantage of dealing with government agencies. He began calling on FELDA in 1983 and was able to get trial order. As soon as FELDA found the first order satisfactory, more orders began to come in 1983 to 1984. By late 1985, BBSB was serving 50% of FELDAs 175 minimarketsserving the rest would bring BBSB an additional RM75,000 a year in sales.
With new order came from PERNAS Trading Company in 1985, Rosli discovered it would be willing to consider BBSB as a private label supplier, in other words, supplying its product under PERNAS label with additional sales expected of RM75,000 in the first year, RM150,000 in the second.

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PROBLEM STATEMENT

When sales began to grow in 1983, costs grew even faster. Salaries and wages in 1983 were 3.3 times over the previous year. The reason for this was that both partners for the first time drew regular salaries, an additional van salesman was hired and a secretary was employed in the office. BBSB had reached the limit of its capacity in mid-1985 with the unfulfilled potential both at FELDA and PERNAS. These government agencies were not interested in a few cases per week. They wanted a large volume shipment on a regular basis from suppliers. The increased sales volume had also called for expansion of its delivery capabilities. But related issues of expansion are: Purchase of materials done locally import raw material sources would save BBSB for 20%-25% of manufacturing cost (cost of sales) Supervision of expanded sales force lack of supervision on sales force lead to dishonesty and cheating By looking at other competitors and the demand from clients, and scarce supply from local, Rosli felt that expansion was a necessary act if he wanted to sustain the business for longrun. But he felt the expansion would require good operation management; better sales training, and supervision, and perhaps a review of the compensation plan. There are also alternatives that Rosli could look forward in order to expand: Move factory outlet to Kelantan (where owned 3 hectares of land right on the main highway of Kuala Krai) as half of its market was in northern state of Perak, Kelantan, Terengganu and Pahang Cost estimated: RM3000 a month Buy a land in Klang Cost estimated: RM20,000 a month

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SWOT ANALYSIS

OPPORTUNITES
1) Malaysia Government supports toward businesses by Bumiputra 2) Owner owned a land in Kelantan

THREATS
1) Industry of easy entry that easily raises high competition 2) Competition from international companies that produce same product 3) Short of supplies 4) Retails discrimination

STRENGTHS
1) Bumiputra business supported by the government agencies 2) Producing good product with high demand 3) Strong distribution network 4) Increasing sales 5) Low pricing strategy 6) Company started with its own assets 7) New entrant to the industry

S-O
Its a Bumiputra company, hence it has the opportunity to apply for much government assistance and could get apply for many related projects. Owning a land in Kelantan can be expanded into assets for the company to increase its financial value.

S-T
BBSB when compared to F&N and Magnolia considered a contrast image of market status. When BBSB is fully supported by government entities, F&N and Magnolia are the international commercial brand. It is not saying theyre not in competitive advantage, but to be precise of BBSB outgoing performance, it has only minor status at the commercial market to attract more trends.

WEAKNESSES
1) Rudimentary equipment 2) Lack of staff supervision/training 3) Only have local suppliers (even for imported material) 4) Lack of marketing strategy 5) High orders only came from government agencies 6) Limited budget to increase productivity 7) incompetence to the competitive market

W-O
The selling target of BBSB is considerably limited without much expertise in marketing and advertising strategy. But it has a secure network to be more established for a long run business. All BBSB needed to improve is its image.

W-T
As mentioned, competition is the close target to attack on the value of BBSB against other similar products. Packaging and promotion are the main area that BBSB needs to improve in order to expand its business while profit last. In order to achieve higher market, BBSB have to secure more potential for its revenue so to get investors.
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CONCLUSION

The question facing the company was whether to expand the business operations or not? By the year 1985, the several options were considered, on the back of higher sales order and the need for further expansion at BBSB. It is an obvious choice for the company to expand its operations, realizing that sales orders are coming its way and it will earn very high profits from these orders. Therefore the answer to first question is YES. BBSB should expand its business operations. The next question is about the location of the business and in regard to this matter, BBSB has the option either to maintain its current operation and expand its operation in Klang or expand his manufacturing operations in Kelantan, on his own land. In order to move to Kelantan, BBSB needs a total one-time investment of RM92, 000 with monthly cash payments of RM3000. When compared to buying a land in Klang that estimated cost BBSB a monthly loan of RM20, 000, the moving to Kelantan is considerably a better choice when it comes to saving cost. Moving to Kelantan would also save rental expenses at Klang of RM2, 100 per year. This rental figure was the portion allocated to administration after the bulk of the rent was charged to cost of sales. Roslis partner was also from Kelantan and had no objections to moving to the state. Rosli calculated that the additional expense of shipping finished product from Kelantan to the markets was probably insignificant because half of BBSB sales were delivered to the northern states of Perak, Kelantan, Terengganu and Pahang. The other half was delivered to outlets in Klang, Kuala Lumpur and southern states like Negeri Sembilan and Johor. In other words, BBSB would save on the freight costs on the northern half of the sales while there will be additional freight expense for the other half which was sold in the federal territory and points south.

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RECOMMENDATION

Moving the business to Kelantan at Kuala Krai is the better option for Rosli, considering BBSB expansion plan and Roslis intention to reduce cost of sales and create more potential savings for the company. Moving to Kelantan will involve a total investment of only RM92,000, as compared to the month payment of RM20,000 should Rosli decide to have the new plant in Klang. Hence, this is a much cheaper option. In addition, there is also the location advantage if Rosli moves the business to Kelantan, as the three hectares in Kuala Krai is already his own. This would means that the company will not have to spend or withdraw large sum of money to buy any new land in order to run its new and bigger operations. The land is strategically located on the main highway in the state. Thus transporting products would be easy for the company to consider the readily available infrastructure. This could also be an added advantage for the company in terms of its operations, as all BBSB products could be transported easily hence enable the company to meet market demand promptly. Another advantage of moving to Kelantan is the cost-saving factor. Rosli realized that there will be no significant additional expense of shipping the finished products from Kelantan to other markets because half of BBSB sales go to the north side of Malaysia, while the other half goes to the Klang Valley and the southern side of the country. There is only one concern facing Rosli, as the main owner of BBSB, he should be aware that BBSB is already an established business, especially after the company started to open the government accounts in 1983. Therefore, moving to Kelantan means that he must develop a properly executed two-pronged strategy in ensuring BBSB strong foothold in the industry, by developing a new and wider market and at the same time, maintain the old market. Considering the benefits and advantages of moving to Kelantan much outweight the option of buying an asset, in terms of a land and constructing a building in the Klang area, the option to move to Kelantan is the better location of the two locations.

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