Masters in Business Administration

Advanced Corporate StrategyMGT 6266

Prof. Emeritus Dr. Sulaiman

CASEREPORT:TEXCHEM RESOURCES BERHAD

Prepared By:

Amro Adel Hassan (G1010877)Abdul Jamal Ismail (G0912239)Juliana Aryati Ramli (G0938988)Maryam Saiful Bahri (G1012160)Khairatun Amirah Kamaruddin (G1012716)

Graduate School of ManagementInternational Islamic University Malaysia

Table of Contents1.0 PURPOSE...................................................................................................................................32.0 BACKGROUND........................................................................................................................3

2.1 Company’s Overview.................................................................................................................3

2.2 Management...............................................................................................................................4

2.3 Board of Directors......................................................................................................................4

2.4 Company Performance...............................................................................................................4

3.0 MISSION, VISION AND OBJECTIVES..................................................................................54.0 ENVIRONMENTAL SCANNING............................................................................................7

4.1 Internal Environment..................................................................................................................7

4.1.1 Strengths..........................................................................................................................7

4.1.2 Weaknesses......................................................................................................................7

4.2 External Environment.................................................................................................................7

4.2.1 Opportunities...................................................................................................................7

4.2.2 Threats.............................................................................................................................7

5.0 COMPETITIVE ENVIRONMENT...........................................................................................75.1 High Potential of New Entrants..................................................................................................8

5.2 Moderate Bargaining Power of Suppliers...................................................................................8

5.3 Moderate Threats of Substitute Products/Services.....................................................................8

5.4 High Bargaining Power of Buyers..............................................................................................8

5.5 High Rivalry Among Existing Firms..........................................................................................8

6.0 GENERAL ENVIRONMENT...................................................................................................96.1 Demographic...............................................................................................................................9

6.2 Socio-cultural..............................................................................................................................9

6.3 Political/Legal.............................................................................................................................9

6.4 Technological.............................................................................................................................9

6.5 Economic....................................................................................................................................9

6.6 Global.........................................................................................................................................9

7.0 ANALYSIS OF THE STRATEGIC FACTORS........................................................................97.1 Problem Statement......................................................................................................................9

7.2 Strategy Issues............................................................................................................................9

8.0 STRATEGY ANALYSIS...........................................................................................................99.0 CONCLUSIONS AND RECOMMENDATIONS.....................................................................910.0 REFERENCES...........................................................................................................................9APPENDIX 1.........................................................................................................................................11

Breakdown of Texchem turnover and pre-tax profit by division (FY Dec 2007 – FY Dec 2009).. .11

APPENDIX 2.........................................................................................................................................12Segmentation of Texchem’s turnover by geographical segment (FY Dec 2007 – FY Dec 2009)....12

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1.0 PURPOSE

This paper seeks to examine the corporate strategy(ies) adopted by Texchem

Resources Berhad in light of both the internal and external environments. This paper

will also discuss and propose changes to the said strategies to be adopted for future

performance and growth of the company and its subsidiaries.

2.0 BACKGROUND

2.1 Company’s Overview

Texchem Resources Berhad (“Texchem”) is a public company listed on the

Main Board of Bursa Malaysia. Established by Tan Sri Dato’ Seri Fumihiko Konishi

in 1973, Texchem began its business as a trading company which supplied industrial

chemicals, packaging and plastic raw materials, dyestuff and textile auxiliaries. From

this initial base as a trading house, Texchem then diversified into other businesses.

These are all categorized as the following divisions:

IndustrialTrading of industrial raw materials such as plastic resins, silicone products, synthetic polymers, industrial chemicals, pharmaceutical and food additives, as well as dyestuff and textile auxiliary chemicals.

Packaging

Design, development, manufacture and sale of plastic packaging products which include thermoformed trays, embossed carrier tapes, extruded sheets and profiles, precision injection-moulded products, as well as expanded polystyrene products.

Family Care

Manufacturer of household insecticides including mosquito coils and mats, insecticidal aerosols, liquid and mat vapourisers as well as rodenticides. Brands sold by the Group include Fumakilla (Malaysia), Chang (Thailand), Jumbo (Malaysia, Myanmar, Vietnam, Cambodia) and Domestos (Indonesia).

Food

Operator of a Japanese restaurant chain under the Sushi King brand. In addition to this business, the division has subsidiaries involved in producing, manufacturing and distributing surimi, surimi based products, frozen marine products and fishmeal. Surimi is a minced fish meat processed into paste form, which is used as raw material for further downstream processing of fabricated seafood such as breaded crab claws and crab sticks. Fishmeal is a high-protein ingredient found in most animal feed. The surimi and fishmeal plant is located in Myanmar

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Apart from being listed in Malaysia, Texchem which was listed on 17 May

1993, has an investment holding company listed on the Singapore Stock Exchange

(“SGX”). This investment holding company, Texchem-Pack Holdings (S) Ltd

(“Texchem-Pack”) was listed on 2 November 2006 and holds companies in the

Texchem Group’s packaging division. Texchem sought, on 8 February 2010 to delist

Texchem-Pack from the SGX. However, due to the independent financial advisor’s

opinion that the offer was not reasonable, Texchem announced on 1 June 2010 that it

chose to maintain the listing status of Texchem-Pack on SGX.

2.2 Management Texchem is lead by its President and Chief Executive Officer, Lee Siew Khee,

Jeffrey who was appointed as CEO on 1 July 2009. He holds a Bachelor of Science in

Chemistry and first joined the company in 1979. He is also a member of the Executive

Committee.

2.3 Board of Directors

The Board of Texchem is led by its Chairman, Tan Sri Dato’ Seri Fumihiko

Konishi, who is also the founder of Texchem. He holds a Bachelor of Pharmacy and

was appointed to the Board on 20 February 1974. He is also Chairman of the

Executive Committee and a member of the Remuneration Committee.

The Board also consists of the following Executive and Independent Directors:

Executive Directors Independent & Non-Executive Directors

Wong Kin Chai

Yap Kee Keong

Brian Tan Guan Hooi

Dato’ Seri Nazir Ariff bin Mushir Ariff

Danny Goon Siew Cheang

Yong Yoon Fook, Dick

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2.4 Company Performance

3.0 MISSION, VISION AND OBJECTIVES

Instead of a definitive and clear mission statement containing the usual

mission, vision and objectives, Texchem has a self serving pledge and the following

commitment to its various stakeholders:

3.1 Our Pledge

We seek to build Texchem into a long term self-sustaining and self-growing organization that will last for many generations to come. We aim for steady, consistent growth irrespective of global economic cycle.

We will always be transparent in our business dealings, and will treat all our stakeholders with the utmost professionalism and respect.

We seek to make Texchem not just a good company but a great organization!

3.2 Investors

Value

We believe that the best way to boost shareholder value is to expand continually – but always within our financial means. Our strategy is therefore to concentrate our resources in certain core areas so as to dominate our chosen markets. This has led to steady growth in operational profits.

Innovation, efficiency and an ongoing programme of investment in the latest technology not only help us to achieve and sustain market leadership, but ultimately deliver higher dividends and better share value.

We strive ceaselessly to enhance our management skills, while constant streamlining keeps us fit and lean. Prudent financial management has enabled us to build substantial reserves and minimise borrowings, while efficient treasury management has strengthened the cash flow.

We always maintain the highest standards of corporate governance, transparency, integrity and professionalism.

3.3 Customers

Quality

The key to winning and keeping customers is quality. Quality of products. Quality of services. Affordable quality is what enables Texchem to stay ahead of the curve.

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To improve customer support, our operations are located close to our local and multinational clients. Our dynamic and far-reaching trading network is staffed by professionals, and provides superlative logistics, warehousing and inventory management.

In addition, we are always seeking to add value by introducing innovative products, systems and processes. We invest in state-of-the-art technology, which enables us to undertake high precision manufacturing; while also placing great emphasis on training and development to staff knowledge and skills.

3.4 Associates

Growth

Like a marriage, a business association only works where there is true partnership. Both sides must give unreservedly. There must be optimisation of expertise, effort and excellence.

Over the years, Texchem has forged close working relationships with multinational corporations in Asia, Europe and the USA to customise solutions for our varied and demanding clientele. New subsidiaries have been created, often through synergistic joint-ventures and technology transfer arrangements that enabled both parties to net a bigger catch.

Texchem’s relationships with its strategic allies are continuously strengthened through mutual support and the sharing of information.

Ours are genuine partnerships for growth.

3.5 Suppliers

Support

We work as a team, joining forces to achieve a common goal. We share our problems and our successes. We are all in the same boat and transparent in our dealings with our suppliers. In this way, we earn their trust and win their loyalty.

By sharing ideas and information we are all able to enhance our business relationship. Constant communication and regular visits form the bedrock of our relationship.

We are totally committed to the fair and ethical treatment of our suppliers. We honour our contracts and adhere to their spirits.

3.6 Staff

Opportunity

We recruit staff of outstanding calibre, and constantly strive to inculcate a passion for excellence. To enable our people to achieve their personal best, we provide

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comprehensive training, including intensive overseas training in the latest technologies.

We offer attractive remuneration packages, and motivate our staff by performance-based bonuses and promotions. Similarly, we encourage staff to make decisions and be accountable for them; while recognising and rewarding personal initiative and teamwork.

We develop career plans, supported by mentoring at all levels; and carefully hone leadership skills to facilitate succession planning.

We practice open communication; and build a strong family spirit via sports, recreational and social activities. We also follow a ‘Responsible Care’ programme, which aim is to provide safe and healthy workplaces and practices, and to protect the environment.

All these ensure that personal and corporate growth go hand-in-hand.

4.0 ENVIRONMENTAL SCANNING

In order to formulate the right and appropriate strategy for Texchem, it is first

imperative to carry out an environmental analysis of the its’ resources and

capabilities. This is often carried out using SWOT Analysis reviewing both the

internal and external environments.

4.1 Internal Environment

4.1.1 Strengths

4.1.2 Weaknesses

4.2 External Environment

4.2.1 Opportunities

4.2.2 Threats

5.0 COMPETITIVE ENVIRONMENT

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The most prevalent tool to ascertain the competitive advantage of the firm is

Michael Porter’s 5 Forces Model of Competitive Advantage. For this purpose, set out

below are the industry consideration of the said 5 Forces Model.

FIGURE 1: MICHAEL PORTER’S FIVE-FORCES MODEL OF INDUSTRY COMPETITION

5.1 High Potential of New Entrants Texchem is a big company that has four business segments which are industrial, Packaging, Family Care and food. At the same time, it has market in several Association of South East Asian Nations (“ASEAN”) countries. On the other hand, Texchem is not specialized in one division or industry that can make a big barrier for other companies to enter the market and compete with it.

Asian market is a huge market and too many companies are willing to have a market share in this market. Because of that, Texchem has a high potential of new entrants.

5.2 Moderate Bargaining Power of Suppliers

As we mentioned before that Texchem has four divisions. These divisions are respectively involved in the trading of industrial raw materials; the manufacture and sale of specialized plastic packaging

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HIGHINDUSTRY

COMPETITORS

RIVALRY AMONG EXISTING FIRMS

HIGHPOTENTIAL ENTRANTS

HIGHBUYERS

HIGHSUBSTITUTES

MODERATESUPPLIERS

products; the manufacture and sale of household insecticides; as well as the production and sale of seafood and restaurant operations. Due to this diversification in the divisions; they are dealing with different suppliers in order to have different component to each of these divisions. So, the bargaining power of suppliers will be moderate.

5.3 High Threats of Substitute Products/Services Because of the different products Texchem produce. At the same time, the different countries they are operating in. So, there must be substitute products that Texchem is facing specially in countries other than Malaysia. Be sides that, Texchem is producing two of the most important industries which are Family Care and Food. These industries have a lot of substitute products. For example, in Asian countries there are a lot of Japanese restaurants chains. At the same time the switching cost is low for the customers to change to another substitute product. To sum up, the treats of substitute product is high due to the variety of products the company produces.

5.4 High Bargaining Power of Buyers Texchem is dealing with retail and wholesale customers. Because of that, they can ask for higher quality or more service. In the industrial division for example, Texchem has to understand the customer needs in order to produce the products that can fit their needs. On the other hand, in the packing sector, the customers can ask for more quality or more attractive packing designs. If they didn’t make this, the customers will shift to another packing company. Family-care Division has a high bargaining power because the switching cost is low. So, customers can ask for higher quality or lower price. Food division has the highest bargaining power because for the Sushi restaurant; customers have a lot of alternative that they can switch to in case that they don’t like the quality or service Texchem is providing. The production and distribution of surimi, surimi-based products, frozen marine products such as fish, shrimps, squid, prawns and dried marine products, as well as fishmeal, on the other hand, is dealing with wholesale customers like the giant supermarkets which they purchases large volumes from Texchem. So they have high bargaining power with texchem to modify its products. Because of all these factors, the bargaining power of buyers in Texchem is high.

5.5 High Rivalry Among Existing Firms Because Texchem has good marketing research and planning. At the same time, Texchem is promoting the product by using tools such as public relations, advertising, and marketing communications. Be sides that, it Support from dealers and distributors to let the potential customers know about the product and making it available to them. Texchem’s edge also rests in its ability to provide customers with research-and-development (“R&D”)-based technical

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support, and the aptitude to broaden its range of services to cater to shifting market trends. So, Texchem has high rivalry among existing firms.

6.0 GENERAL ENVIRONMENT

6.1 Demographic

6.2 Socio-cultural

6.3 Political/Legal

6.4 Technological

6.5 Economic

6.6 Global

7.0 ANALYSIS OF THE STRATEGIC FACTORS

7.1 Problem Statement

7.2 Strategy Issues

8.0 STRATEGY ANALYSIS

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9.0 CONCLUSIONS AND RECOMMENDATIONS

10.0 REFERENCES

Texchem RAM Credit Rating Rationale September 2010

Texchem Annual Report 2009

Texchem Group website at http://texchemgroup.com/index.php

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APPENDIX 1

Breakdown of Texchem turnover and pre-tax profit by division (FY Dec 2007 – FY Dec 2009)

FY DecTurnover

2007 (restated) 2008 (restated) 2009 (restated)RM million % RM million % RM million %

Industrial 382.71 35.76 499.47 42.07 383.29 37.53Packaging 227.87 21.29 220.74 18.59 176.61 17.29Family Care 156.55 14.63 133.50 11.24 155.10 15.18Food 303.11 28.32 333.68 28.10 306.37 30.00Subtotal 1,070.24 100.00 1,187.39 100.00 1,021.37 100.00(inter-division sales)

(27.47) - (3.83) - (4.38) -

Total Sales 1,042.77 - 1,183.56 - 1,016.99 -

FY DecPre-tax Profit

2007 2008 2009RM million % RM million % RM million %

Industrial 13.41 38.07 12.59 60.33 9.36 77.16Packaging 11.02 31.28 1.62 7.76 (6.12) (50.45)Family Care 10.63 30.17 2.46 11.79 4.04 33.31Food 0.17 0.48 4.20 20.12 4.85 39.98Subtotal 35.23 100.00 20.87 100.00 12.13 100.00Exceptional items

6.21 - -

Investment holding

(10.67) (12.43) (15.26)

Share of results in associates

(1.34) (6.08) (2.08)

Total 29.43 2.36 (5.21)

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APPENDIX 2

Segmentation of Texchem’s turnover by geographical segment (FY Dec 2007 – FY Dec 2009)

Country FY Dec 2007 (restated) FY Dec 2008 (restated) FY Dec 2009 (restated)RM million % RM million % RM million %

Malaysia 478.10 45.85 562.13 47.50 472.67 46.48Thailand 180.44 17.30 131.40 11.10 113.02 11.11Singapore 52.94 5.08 112.13 9.47 73.97 7.27China 71.95 6.90 86.73 7.33 84.29 8.29Vietnam 51.33 4.92 52.42 4.43 52.20 5.13Indonesia 4.42 0.42 28.33 2.39 39.76 3.91Myanmar 6.96 0.67 7.16 0.61 5.99 0.59Others 196.63 18.86 203.26 17.17 175.09 17.22Total 1,042.77 100.00 1,183.56 100.00 1,016.99 100.00

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