Professional Documents
Culture Documents
Synthesis
In 2007, during the annual stockholders’ meeting, Eduardo Cojuangco, the chief
executive officer (CEO) of SMC, made an announcement that the company
would reverse its international expansion plans and would shift its strategy to
diversify into non-allied businesses in the Philippines. This diversification strategy
includes investment in the energy, mining, infrastructure, and public utilities
industries. SMC then sold its international assets and acquired shares in power
distribution firm Meralco and oil firm Petron. SMC also forayed into
telecommunications industry. SMC’s management termed its acquisitions as
“reinventing,” but its new vision did not appease the analysts. This has resulted
into a decline of the company’s stock price. By the end of 2009, SMC’s
reinvention remained far from complete. The company’s successful acquisitions
masked its numerous failed attempts to expand and acquire other companies. As
CEO of SMC, Cojuangco now needs to evaluate whether or not SMC’s
aggressive diversification strategy into non-allied businesses was indeed the
right step for the company.
Point of View
What business strategy should SMC use in order to continuously increase its
market share and growth?
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Statement of Objectives
1. To revisit SMC’s goal and ensure that it continues to reflect the company’s
overall business strategy.
2. To assess and reinvent SMC’s overall business strategy, enhance and
continue vertical diversification athwart its interest for the growth of their market
share.
3.To expand SMC’s market share, multiply its current scope, grow its products-
services portfolio, and increase its sales.
Strengths Weaknesses
Opportunities Threats
1 BCA ISO 9000 Certification Scheme, available at: http://www.bca.gov.sg/Professionals/IQUAS/ISO.html, last accessed on July
01, 2013.
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officials. 3. Lack of knowledge regarding newly
3. New corporate strategy will lead to acquired businesses.
a more valuable and higher- 4. New aggressive player in the local
yielding business. market for beverages, packaging,
4. Its expansion will motivate its and food industries.SMC
employees, especially the young employees are increasingly getting
managers. younger, more aggressive, and
5. Expanding in other Asian countries less reverent toward the company
is less risky, more or less have the as an institution.
same business conditions with the 5. Will accumulate debts as SMC
Philippines and hence will not finances its business expansion.
require drastic adjustment. 6. Global financial crisis possibly
affecting the local economy.
7. Government interventions and
policies may pose market strategy
uncertainties.
Theoretical/Conceptual Framework
The BCG Matrix has four cells, with the horizontal axis representing relative
market share and the vertical axis denoting market growth rate (see diagram 1).
The midpoint of relative market share is set at 1.0. If all the Strategic Business
Units are in same industry, the average growth rate of the industry is used. If all
2 Value Based Management.net, Product Portfolio Management: Summary of the BCG Model, available at:
http://www.valuebasedmanagement.net/methods_bcgmatrix.html, last accessed on June 30, 2013.
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the Strategic Business Units are located in different industries, then the midpoint
is set at the growth rate for the economy.
Relating it to the BCG Portfolio Framework, SMC can easily evaluate which type
of business they should start to venture in or which they should maintain or let
go. This would help SMC to assess the status of their businesses with an
ultimate goal of maintaining and keeping their market value. The group made a
matrix of SMC in relation to BCG Model.
Diagram 1
The model of pure competition implies that risk-adjusted rates of return should be
constant across firms and industries. However, numerous economic studies have
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affirmed that different industries can sustain different levels of profitability; part of
this difference is explained by the industry structure. 3
3 QuickMBA, Porter’s Five Forces: A Model for Industry Analysis, available at: http://www.quickmba.com/strategy/porter.shtml last
accessed on June 30, 2013.
4 Id note 3.
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- High threat of substitute is recognizable in the industries of Food and Beverage and
Telecommunication given that switching costs are very low and buyers are inclined to
find alternatives should they find the products unsatisfactory.
1. SMC will continue its current business strategy of diversifying into non-allied
businesses in the Philippines and at the same time pursue those which complement
their current businesses.
Pros Cons
2. SMC should further enhance its core products and continue to penetrate the
international market and this time with their comprehensive strategy.
Pros Cons
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>SMC can introduce local food and >Needs high capital and no guarantee of
beverage of the Philippines to the positive revenue for new player in the
international market. international market.
>SMC can be the first Filipino >High risk to accumulate debts as SMC
multinational company. needs to finances its business expansion
abroad.
>Fails to adopt international culture.
3. SMC should divest company shares with small or minimal profit and continue to
diversify in the same industry of food, beverage, and packaging through regional
acquisitions and integration and eventually move globally.
Pros Cons
Recommendation
The group recommends the first alternative course of action; that is, for SMC to
continue its current business strategy of diversifying into non-allied and
complementary businesses in the Philippines.
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Recommending the first alternative course of action naturally will expose SMC to
a number of risks. The group, however, believes that the risks posed by a
business strategy focusing on diversification into non-allied and complementary
businesses in the Philippines are expected, accepted, and manageable. The risk
pertaining to “income” is expected since this diversification involves entry into
businesses that the company management has no prior experience. The risk
pertaining to “capital-intensive business” is accepted since this diversification
involves massive financial investment and consequently requires the company to
explore its financing options. The risk pertaining to “management’s administrative
capability” is manageable since this diversification involves a certain level of
management specialization, which other company executives (besides Eduardo
Cojuangco) can be able to cover. Having said these, all our set objectives will be
met fully.
Implementation Plan
Learning Points