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Corporation

-- A Global Business Simulation

Presented by: John Doe


Jane
Doe
Mary Jane

Company Background
DEEP BLUE INTERNATIONAL, INC
A multi-divisional firm operating in the

highly competitive information


systems industry

Company Background

Deep Blue International, Inc.


SBU#1
Hardware

SBU#2
Software

SBU#3
Integrated MIS

Company Background
Two level decision making process
SBU: President
Parent corporation:
CEO
Board of Directors

Mission Statement
To be the market leader in the
information industry through the
establishment of competitive
advantages so as to increase the
value of the company.

Strategy
Target on High-end product consumers
Strategic development on vertical

applications
Achieve competitive advantages by
Increasing marketing, operation
technology new product research and
HR investment.

Operation of SBU #1
Pricing Strategy: High end and keep increasing

because of market demand and lost sales.


Constant improvement and moderate more
expense than industry average in:
-Marketing Expenses
-Operations Technology
-Quality Budget
-New Product Research
-Human resource Budget

Export Strategy : Start export to ASEAN (Area 2)

in Period 4, based on competitive advantages


already set up and little competition in ASEAN.

Final Result (SBU #1)


Capacity: from 3610 to 3710 units (3% )
Book value: from $3500 to $3600 (3% )
Export: area 2, 15.1%
Sales: from $ 1879 to $ 2518 (34% )
Cost of sales: $913(49%) to $1053 (42%)
Profit: $198 to $426 (215% )
SBU profit/sales: from 11% to 17%
(All numbers in thousands)

Operation of SBU #2
Pricing Strategy: competitive in high end
Constant improvement and moderate

more expense than industry average in:


-Marketing Expenses
-Operations Technology
-Quality Budget
-New Product Research
-Human resource Budget

Operation of SBU #2
Capacity expansion Strategy:

- Constant moderate expansion based on


market demand increase
- Major expansion in Period 6 based on
competitive advantage, lost sales and
demand increase
Export Strategy:

- Export Area: MERSUR (4)


- Capacity availability
- Little competition in the market

Operation of SBU #2

Final Result (SBU #2)


Capacity: from 4750 to 5225 units (10% )
Book value: from $4253 to $4775(12% )
Export: area 4, 15.7%
Sales: from $2569 to $3239 (26% )
Cost of sales: $1237(48%) to $1421(44%)
Profit: $380 to $537 (41% )
SBU profit/sales: 15% to 17%
(All numbers in thousands)

Operation of SBU #3
Pricing Strategy: competitive in high end
Constant improvement and moderate

more expense than industry average in:


-Marketing Expenses
-Operations Technology
-Quality Budget
-New Product Research
-Human resource Budget

Operation of SBU #3
Capacity expansion Strategy:

- Conservative expansion from Period 1 based on


market demand increase
- sharp expansion in Period 2 based on competitive
advantages and lost sales
- moderate expansion in Period 4.
Export Strategy:

- Export Area: NAFTA (1) and MERSUR (4)


- Capacity availability
- Little competition in these markets

Operation of SBU #3

Final Result (SBU #3)


Capacity: from 5415 to 6545 units (21% )
Book value: from $5762 to $6355 ( 10% )
Export: area 1 , 12.7%

area 4, 12.8%
Sales: from $3376 to $3603 (7% )
Cost of sales: from $1631(48%) to $1594(44%)
Profit: $362 to $514 (42% )
SBU profit/sales: from 11% to 14%
(All numbers in thousands)

Result (SBU level)


SBU profit analysis
600
500
400

SBU1

300

SBU2
SBU3

200
100
0
1

Result (SBU level)


COGS percentage
0.49
0.48
0.47
0.46
0.45
0.44
0.43
0.42
0.41
1

Capacity Analysis

Capacity Analysis

Problem Areas
Cash management
Sales forecasting
Pricing

Corporate Decisions
Based on the SBU decisions

Sales forecast
Pricing

Immature market

Domestic
International expansion

Financial management

Capital Structure
Capital Needs:

Expand capacity for each SBU according


to sales forecast in 1st period
Aggressively expand capacity of SBU#3 in
2nd period
Constantly Increase marketing, operation
technology and new product research
budget
Human resource expenses
Export & marketing abroad

Capital Structure
Decision Criteria:

Increase shareholders value


Not dilute EPS and stock price
Keep reasonable D/E ratio

Plan of action:

Borrow 1000 bank loan in 1st period


Borrow 400 bank loan and issue 2000 bond in 2 nd
period
Pay back bank loan in the following period by using
internal generated cash flow

Ratio Analysis
Debt/Equity Ratio
2.50
2.00

1.94
1.69

1.50

1.67

1.51
1.21

1.13

1.00
0.50
0.00
1

Dividend Policy
In 1st period, we kept the previous dividend level
We decreased the dividend payment in 2nd

period
We decided to follow a constant amount plus
extra payment policy since 3nd period
We started by paying $.03 and kept increasing
the level of dividend according to our operation
profits increase.

Dividend Policy

Incident Report (E)


New Advertising Campaign in Period 5
Emphasizes our presence in the market

in terms of growth in sales and profits.


In major business publication and airline
or-board magazines.
Response: Key decision makers in major
corp. are reached, smaller businesses
are missed.

Incident Report (F)


New Business Tactics in Period 6
Host a party and provide image building

items in export areas


Cost: $ 15,000
Effective promotion
Legal promotion

Performance Evaluation
DEEP BLUE
INTERNATIONAL, INC.

Period 1 ----------- Period 6

Financial Statement
----balance sheet
Cash

909

Accounts Payable

1220

Accounts Receivable

2808

Annual Loan Payment

767

Annual Bond Payment

190

Current Liabilities

2177

Bank Loans due>12 months

6903

Short Term Investment


Current Assets

3717

Building & Equipment

21807

Bonds due>12 months

1712

Less Accum.
Depreciation

7077

Total Liabilities

10792

Net Fixed Assets

14730

Common Stock

4000

Retained Earnings

3655

Total Equity

7655

Total Liabilities & Equity

18447

Total Assets

18447

Financial Statement
---- income statement
Sales Revenue

9360

COGS

4068
Gross Margin

Operation Expenses

5292
3815

EBIT(SBU Profits)

1477

Interest Expense

363

Other Expense

46

Income before Taxes

1068

Taxes

320

Net Income after Taxes

748

Dividends Paid

40

Retained Earnings

708

EPS

0.94

Competitive Advantages
SBU#1

marketing

SBU#2

SBU#3

168

153

225

184

192

241

operation tech.

91

115

123

135

145

153

new product

79

81

96

135

119

136

sales person

2.5

2.5

1.75

1.5

1.75

employee
turnover rate

9.7%

8.4%

9.7%

9.0%

9.7%

7.7%

defective goods

2.4%

2.3%

2.2%

2.1%

2.1%

1.8%

service person

Evaluation: Profitability

Evaluation: Stock Price

Evaluation: EPS

Evaluation: Returns

Ratio Analysis

Strategy Adjustment
SBU1

SBU2

SBU3

Period

Profit

Expense

Profit

Expense

Profit

Expense

198

1681

380

2189

362

3014

224

1753

222

2631

356

3795

283

1771

395

2535

461

3577

182

2077

423

2736

366

3507

408

2006

549

2543

505

3199

426

2092

537

2702

514

3089

Total

1721

11380

2506

15336

2564

20181

Profit/Cost

15.12%

16.34%

12.71%

Strategy Adjustment
Initially, we wanted to strategically

expand SBU#3
Based on the profit/cost efficiency
analysis, we change the strategy to
follow a more balance expansion plan
In the latter period, we reduced the
capacity of SBU#3 by depreciation, while
kept the reasonable operation budget

Management Audit
Performance Summary
How many times the team have a zero cash balance,

requiring an overdraft loan


1
How many times was there an excess amount of cash
that was not invested
5
How many period did you have lost sales
6
Total number of lost sales units
4449
Total capacity for all SBUs in the last period
15480
Total amount spent on market research
186
What are your total profits
4021
What was your average stock price
16.49

Q&A

Thanks a lot!
Good luck in the real world!!