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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 Page 02
2- INTRODUCTION Page 03
3- PROBLEM STATEMENT Page 05
4- SWOT ANALYSIS Page 06
5- CONCLUSION Page 07
6- RECOMMENDATION Page 08


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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.





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.


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.


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 long-
run. 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




















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
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.

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.
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

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.
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.
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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.