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SWOT ANALYSIS

Opportunities

1. Strong outlook for the global oil crops consumption


2. Inorganic growth strategy
3. Robust outlook for the Chinese automotive sector

Threats

1. Competitor aggressiveness and intense competition


2. International Currency fluctuations is a risk
3. Unfavorable government and political conditions can affect brand and operational efficiency

Political
- A political factor is an activity having to do with government policy and its administration that
has the potential to change and influence a business.
- Trends in the political-legal part have a significant impact not only on the level of competition
within an industry but also on which strategies might be successful.
- Like all other business entities, political as well as regulatory developments in Malaysia or
foreign countries could have material effect on the financial performance of Sime Darby.
- Amongst the political uncertainties are changes in political leadership and environment,
expropriation, nationalization, unfavorable government policies such as import and export
quotas, currency exchange rates, and methods of taxation and repatriation of funds. All these
uncertainties are beyond the control of Sime Darby.

16 Economics
- Economic factor is set of fundamental information that affects a business or an investment’s
value. Various economic factors need to be taken into account when determining the current and
expected future value of a business or investment portfolio.
- Economic factors include economic growth, interest rates, exchange rates and the inflation
rates.
- In Sime Darby, the main economic factors that influence the operation are the oil price and
fluctuation in price of raw materials. These factors have major impacts on how businesses
operate and make decisions.
Sociocultural.
- Sime Darby has always considered good Health, Safety and Environment (“HSE”) practices to
be an integral part of its business objectives in the palm oil industry.
- Achieving a healthy and safe work environment is of utmost importance in striving for
operational excellence.
- Sime Darby consider it a responsibility that their owe to the employees, clients, stakeholders
and society at large.

17 Technological
- Technological factors include ecological and environmental aspects such as Research and
Development (R&D) activity, automation, technology incentives and the rate of technological
change.
- They can determine barriers to entry, minimum efficient production level and influence
outsourcing decisions. Furthermore, technological shifts can affect cost, quality and lead to
innovation.
- In term of service related to the offshore services, advancement of technology in palm oil
industry led to the improvement of quality services.
- For example, Sime Darby is well equipped with advance software for its design and structure
testing for its technology knowledge such as welding technology, non-destructive testing
technology.

Porter’s 5 forces Bargaining power of buyers


Threat of new entrants
Bargaining power of buyers
Threat of substitute products or services
Bargaining power of suppliers
Rivalry among competing firms

19 Low Threat of New Entrants


Threat of new entrants is fairly low as start-up capital for a palm oil plantation of palm oil
processing mill is very high. For a firm to enter a market, besides registering an entity in a local
country, the organization will need to obtain a series of approval and onsite inspection to ensure
that the organization follow the regulation of health, safety and environment. The regulation is
also subject to the individual country that the organization wishes to operate.
Low Bargaining Power of Buyers
As the demand for palm oil increases, and price being pre-determine, the buyer does not have
much bargaining power to demand for lower price. The major buyers are from European Union,
China and India and with little control over price so the bargaining power of buyer is low.
High Threat of Substitute
The threat of substitute is high for palm oil, as 80% of the palm oil is used for edible use as oil,
fats and shortening (World Growth, 2011). Though palm oil yields four times production
compared the closest yield which is rapeseed, there are many substitute in the market such as
soybean oil, sunflower oil, rapeseed oil, corn oil, peanut oil and olive oil. Among the substitute
product, olive oil poses the highest as it is recognized as the healthiest of all and touted and the
best of all edible oil.

20 High Rivalry among Competitors


Low Bargaining Power of Supplier
The raw materials needed for the cultivation are high quality seed, land and fertilizers.
Seeds for plantation could be taken from current plantation. Land for cultivation is available in
Borneo however there are certain issue’s on land ownership.
Sime Darby and only bought from supplier at rare occasion of shortages, the bargaining power of
supplier here is low.
Most players in the market are involved in both upstream and downstream activity and grow
their own seedling in their nurseries.
High Rivalry among Competitors
The market production size is limited to the geographical location but this does not limit the
market player.
The market is very challenging and stiff with fellow giant public listed companies. Even though
Sime Darby seems to be leading the competition, the market followers are very close behind.
Beside major players, there are many individual estate owners in the market, these estates or land
are of inheritance and the current owners either cultivates palm oil or the land for palm oil
cultivation

21 SWOT analysis Strength


SDP practises environmental friendly operation and sustainable plantation process. Besides
certifying it’s mill to be environment friendly, it also focuses on waste to wealth programme
whereby, the mill wastes is turned into organic fertilisers. It also has a Biogas plant in Carey
Island turning methane gas into electricity. SDP has a very strong presence both in the region
and in the industry as it a part of a huge conglomerate. It is also the world’s largest listed
plantation company by planted area.
Weakness
SDP is facing challenges on the development of palm oil industry and this is due to poor road
infrastructure in plantation plot to transport the CPO to the . Currently SDP is not utilizing the
wastes cakes form the milling process and the waste from unproductive palm oil trees. These
wastes are often being disposed to a waste management companies. The industry is also
vulnerable to unpredictable weather condition and the changes in weather pattern could lead to
lower yield of fresh fruit bunch. This a waste resulting from milling process and usually trapped
outside the mill to be specially disposed later on, but at times it over flows and pollutes the land
where the mill is due to either over production of heavy rain .

22 Opportunity
Increasing demand for CPO in European countries as well as China, India, South Korea and
Turkey proves the inevitable demand growth for palm oil.
Rising health issue in the world also promotes the usage of palm oil as it has the least amount of
cholesterol traces, contains carotenoids, an effective antioxidant to boost immune system, and is
trans-fatty acid free.
Besides having the perfect climate for growth and cultivation of palm oil and the surplus of land
the availability of low cost workers also do contribute the potential of business growth in this
region.
Subsidies by both governments are also favorable towards the expansion of business foe Sime
Darby. Indonesian government provides a tax exemption up to 30% for palm oil plantation and
cultivation where else Malaysian government provides subsidy in re-plantation of palm oil trees.
Threat
Price of CPO could lead to lower demand of palm oil and at times even result to cancellation of
orders also saw a huge financial meltdown, and this poses a huge threat to the industry. Limited
supply of high quality seeds also could disrupt the re-plantation process and establishing new
plantation estates. Land ownership issues is also seen as a huge risk when obtaining a new
plantation estates, lack of clarity on land status and legal ownership of the land leads to loss of
revenue due to inactivity of purchased land. Recently in Borneo, palm oil industry has faced
Ganoderma basal stem rot (GBSR) disease which is caused by the wood-rotting fungus

Build Company Capacity


Build company capacity within companies and government agencies. It will help 'reorganize and
speed up administrative procedures, increase the volume and speed of information and permit
greater collaboration and sharing of experience.
These functions are critical in the context of expanding opportunity because there is increasing
evidence that a dense and complex layer of networks it good for economy.
Expanding Used Of Technology
To get more information and get along to other country we suggest company need to expanding
its use of technology. It will help them to reduce transaction costs and improve productivity.
They will offer immediate connectivity in improving efficiency, transparency and accuracy. It
also channel of knowledge and information of all kind at the same time will knows by other
outside company about Sime Darby.

Opportunity

Increasing demand for CPO in European countries as well as China, India, South Korea and
Turkey proves the inevitable demand growth for palm oil (Palm Oil Prices, 2012). Rising health
issue in the world also promotes the usage of palm oil as it has the least amount of cholesterol
traces, contains carotenoids, an effective antioxidant to boost immune system, and is trans-fatty
acid free. Palm oil is also rich with Vitamin A, D, E and K (MPOC, 2012b). With the availability
of land in Indonesia, the government regulation has also been favourable to SDP as Investors are
allowed to hold 95% of the shares in the plantation (Pricewaterhouse Coopers Indonesia, 2010).
As the petroleum based fuel contributes to environmental hazard, many large organizations and
nation is switching to renewable energy which leads to a healthy demand for biodiesel (World
Growth, 2011). While biofuels are the most promising non fossil substitute, the availability of
commercial production is low (Ernst & Young, 2011). Besides having the perfect climate for
growth and cultivation of palm oil and the surplus of land the availability of low cost workers
also do contribute the potential of business growth in this region. Subsidies by both governments
are also favorable towards the expansion of business foe Sime Darby. Indonesian government
provides a tax exemption up to 30% for palm oil plantation and cultivation where else Malaysian
government provides subsidy in replantation of palm oil trees.

Threat

Price fluctuation of CPO could lead to lower demand of palm oil and at times even result to
cancellation of orders (Ming, 2001). 2008 also saw a huge financial meltdown, and this poses a
huge threat to the industry. Limited supply of high quality seeds also could disrupt the
replantation process and establishing new plantation estates. Land ownership issues is also seen
as a huge risk when obtaining a new plantation estates, lack of clarity on land status and legal
ownership of the land leads to loss of revenue due to inactivity of purchased land
(Pricewaterhouse Coopers Indonesia, 2010). Recently in Borneo, palm oil industry has faced
Ganoderma basal stem rot (GBSR) disease which is caused by the wood-rotting fungus (The
Star, 2012).

3.3 PEST ANALYSIS


Political

There are claims of palm oil plantation causing unhealthy deforestation. Besides being controlled
by local government, United Nations Development Program also regulates the guidelines of
plantation. Satellite images of deforestation in the Borneo attracted attention of environmental
organisation such as WWF, Greenpeace, and Rainforest Rescue. Both Malaysia and Indonesia
has had a healthy GDP growth for the last 10 years from 137 billion to 278 billion and 285
billion to 846 billion respectively (World Bank, 2011).

Environment

Palm oil plantation and cultivation poses threat to tropical forests, and wildlife habitats namely
Sumatran Tigers, Sumatran Orang Utan and Asian Rhinoceros. Environmental groups such as
Greenpeace states that over the last 20 years, more than 10% of deforestation in Malaysia and
Indonesia took place to make way for palm oil plantations (CNN, 2012). Indonesia has been
identified as the country with the fastest deforestation at 2% per annum. United Nation estimates
that 98% of Indonesia lowland forest may be destroyed by 2022 (Greenpeace International,
2008).More and more countries have acknowledged the dependence to fossil petroleum and is
looking for a renewable energy solution, Malaysia and Indonesia has identified palm oil based
biodiesel to reduce the petroleum dependency.

Social

By adhering to the Roundtable on Sustainable Palm Oil (RSPO) certification process, SDP is the
largest sustainable palm oil producer in the world (Sime Darby, 2011a).Sime Darby Foundation
is an initiative by SDP to contribute to the community and environment (Sime Darby, 2011a).
Recent project by Sime Darby Foundation are School Makeover Project, Save Our Waterfall
Project, Mangrove Reforestation Initiative and many more conservation, rehabilitation and
protection programme. Sime Darby also intends to improve the standard of living in Indonesia
by providing medical clinics, infrastructure enhancements such as roads, schools and religious
houses. To date, it has provided more than 15, 000 houses. (Sime Darby, 2011b)

Technological

Organization such as MPOB together with local government agencies and international research
institutes constantly strives to develop better technologies and environmental friendly techniques
in cultivating palm oil. Both Malaysia and Indonesia government provides institutional support
for research as well as policy formulation, (MPOB) Malaysian Palm Oil Board in Malaysia and
(IOPRI) Indonesian Oil Palm Research Institute. Recent successful researches are zero-burning
replantation techniques, biological weed control and pest control using domestic owls.

3.4 PORTER’S 5 FORCES


Appendix 4 shows the Porters 5 forces which will be explained below.

High Rivalry among Competitors

The market production size is limited to the geographical location but this does not limit the
market player. The market is very challenging and stiff with fellow giant public listed
companies. Even though Sime Darby seems to be leading the competition, the market followers
are very close behind. Besides major players, there are many individual estates owners in the
market, these estates or land are of inheritance and the current owners either cultivates palm oil
or leases the land for palm oil cultivation. Although these minor players do not pose huge threat,
they are potential ways of increasing market share and raw material by acquiring the land.

Low Threat of New Entrants

Threat of new entrants is fairly low as start-up capital for a palm oil plantation of palm oil
processing mill is very high. For a firm to enter a market, besides registering an entity in a local
country, the organisation will need to obtain a series of approval and onsite inspection to ensure
that the organisation follow the regulations of health, safety and environment. The regulation is
also subject to the individual country that the organization wishes to operate.

High Threat of Substitute.

The threat of substitute is high for palm oil, as 80 % of the palm oil is used for edible use such as
oil, fats and shortening (World Growth, 2011). Though palm oil yields four times production
compared the closest yield which is rapeseed, there are many substitute in the market such as,
soybean oil, sunflower oil, rapeseed oil, corn oil, peanut oil and olive oil. Among the substitute
products, olive oils poses the highest threat as it is recognized as the healthiest of all and touted
and the best of all edible oil.

Low Bargaining Power of Supplier.

The raw materials needed for the cultivation are high quality seeds, land and fertilizers. Seeds for
plantation could be taken from current plantation. Land for cultivation is available in Borneo
however there are certain issue’s on land ownership. And finally good quality fertilizer can be
produced by SDP itself .With seeds and fertilizer being produced by Sime Darby and only
bought from supplier at rare occasion of shortages, the bargaining power of supplier here is low.
Most players in the market are involved in both upstream and downstream activity and grow
their own seedling in their nurseries.
Low Bargaining Power of Buyers

As the demand for palm oil increases, and price being pre-determine, the buyer does not have
much bargaining power to demand for lower price. The major buyers are from European Union,
China and India and with little control over price; the bargaining power of buyers is low.