CASE: REMAKING SAN MIGUEL CORPORATION

I. BRIEF DESCRIPTION OF THE SITUATION

San Miguel Corporation (SMC) became the Philippines’ largest company and a major

regional player through savvy acquisitions. San Miguel Corp. acquired National Foods Ltd.

(NFL), Australia, Berri, Australia in 2005. It also bought Del Monte Pacific King’s Creameries

and Guolene Packaging Companies, Malaysia. Over the past years SMC has acquired 18

businesses. From being a large Beer entity, SMC has become a food company. This reflects

SMC’s global vision and expansion schemes.

Domestic sales used to be 86.8% of total revenues for SMC. This has decreased since the

acquisition of companies in other parts of the world. SMC’s growing market has enabled it to

earn enough foreign exchange to buy raw materials for the domestic market.

In 2005, beverage accounted for 26% of sales revenue but 41% of operating profits

despite the sale remaining the same for 2004 and 2005 whereas, food and agriculture had 24%

revenue but provided only 10% of the profits. If SMC truly wants to become a food company

revenue and profits should be dispersed among the various acquired companies

II. STATEMENT OF RELEVANT CASE FACTS

San Miguel Corp. retained its title as the Philippines’ largest company in sales. The

Philippines has become a small market for a conglomerate like SMC that has global ambitions.

Over the past years SMC has acquired companies like NFL, Berri, Del Monte Pacific, King’s

Creameries, Guolene Packaging Companies etc. (a total of 18 companies) and formed joint-

ventures with companies like NutriAsia Inc. and acquired Del Monte Pacific Limited (DLPL) –

owners of Del Monte brand rights for the Philippines and the Indian sub-continent.
 These transactions enabled SMC to increase revenues 3.7 times, from Php 61.9 billion in

1998 to Php 226.7 billion. Assets increased 2.5 times from Php 137.4 billion in 1999, to Php

338.5 billion. Equity rose correspondingly by 2.5 times, from Php 55.7 billion to Php 138.1

billion.

Most remarkable is the change in the revenues, operating profits, and geographical mix of

the company. In 2004, 61.8% of total sales came from beverage (mostly beer and soft drinks).

Food had 35%, packaging 9.8%. In 2005, the ratios change dramatically. 47.2% came from

beverage, 48.9% from food and 88% from packaging.

Domestic sales used to be 86.8% of total revenues. This decreased to 67.8% in 2005. In

2005, beverage accounted for 26% of sales revenue but 41% of operating profits despite the sale

remaining the same for 2004 and 2005 whereas, food and agriculture had 24% revenue but

provided only 10% of the profits.

III. STATEMENT OF THE ISSUES

Major Issues: In order to become one of the 10 largest food companies in Asia, SMC revenues

and profits should be dispersed around its various subsidiaries and acquisitions.

The sale of beverages still accounts for the majority of operating profits although the beverage

sales are flat for two years. Sales revenue for food and agriculture increased dramatically but only

10% of operating profit was generated. Non-alcoholic beverages only accounted for 5% of profit

whereas packaging accounted for 14% of the profit. This shows that the potential of foreign

acquisitions still have to be tapped or the acquisitions have smaller profit margins. Domestic

market still accounts for a major portion of the revenues generated by SMC. The sales of SMC

subsidiaries should increase.

Minor Issue: SMC had to borrow money to acquire businesses. The interest charges (of Php 6.89

billion) limited the net income. The percentage increase was only 2%. Without the financial

charges, net income would have been up by 8%

IV. EVALUATION OF ALTERNATIVE COURSES OF ACTIONS (ACA)

ACA #1 SMC should try to Increase the profit margins of products. This can be done through

Product development techniques, innovative methods and reducing the production cost and

improving the efficiency of production plants and such.

 PROS: More revenues will be generated along with better operational profits. Innovative

products tend to attract a larger consumer market. Lower production cost

 CONS: Cost of Research and Development (R&D). Time required for conducting the

R&D. Time lost is opportunity lost.

ACA #2 To tap into the potential of all the acquired and joint-venture companies. Globalization

makes it imperative for companies to be more innovative, exact higher standards, cost-reduction,

and increased efficiency and effectiveness. These factors play a major role in exploring the full

potential of a market. Market penetration and Market development techniques are useful in such

cases. Polycentric Management Orientation should be utilized for marketing efforts.

 PROS: Profit Generation. Higher product standards. SMC will become globally

competitive and will be able to extend its reach to unexplored markets.

 CONS: Cost of marketing research is higher especially with a polycentric approach.

International competitive pressure makes it harder to develop and penetrate new markets.

ACA #3 Market segmentation and targeting strategies should be applied when it comes to

International markets. Example: Food products would sell more in the Indian Sub-continent

compare to beverage. Hence, a polycentric management orientation should be applied.

  PROS: Products can be marketed more effectively depending on the targeted segment.

Cost effectiveness increases because the transportation costs and other operational costs

decrease with segmentation.

 CONS: Cost of Research is higher. If research parameters are not defined properly the

segmentation and targeting become redundant.

V. SOLUTION TO THE PROBLEM / ISSUE

ACA #2 To tap into the potential of all the acquired and joint-venture companies. Globalization

makes it imperative for companies to be more innovative, exact higher standards, cost-reduction,

and increased efficiency and effectiveness. These factors play a major role in exploring the full

potential of a market. Market penetration and Market development techniques are useful in such

cases. Polycentric Management Orientation should be utilized for marketing efforts.

VI. RECOMMENDATIONS

To become a global giant SMC should strengthen their marketing efforts and

segmentation of market should be done more precisely.

Polycentric marketing orientations should be utilized.

Global market has divergent properties and a diversified customer base. Therefore,

Product innovation and cost – reduction methods should be used.