Mgt 8002 - Strategic Management

MGT 8002

STRATEGIC MANAGEMENT

Assignment 1

Semester 2, 2011

Prepared for : Dr. Eric Kong

Prepared By : H. C. Irosh De Zoysa

Student No : 0050094422

Date Submitted : 4/09/2011

Introduction

Journey of Goodhope Asia Ltd.....

Palm oil is a popular, cheap commodity, which green activists are doing their best to turn into a commercial liability. Companies are finding them impossible to ignore

In 1907 a company call Carsons Comberbatch Ltd with a Sri Lankan heritage incorporated its first overseas rubber plantation in Malaysia. In 1969 the Rubber plantation was converted to an Oil palm plantation and it was listed in Colombo stock exchange in 1970. The group entered to Indonesia in 1996 incorporating PT Agro Indomas in order to develop 12, 500Ha of Palm Oil in Central Kalimantan. By 2003 the total development for the company was extended to 20,000Ha. In 2007 a new company call Goodhope Asia Ltd (GHAL) was incorporated in Singapore for Oil Palm plantation sector. End of 2010/11 the Organization has developed 100,000Ha of Oil Palm only in Indonesia while securing further 150,000 Ha. Initially the organization goal was to be significant supplier in Oil Palm upstream sector producing crude palm oil (CPO). However in 2009/10 the organization took a strategic move to increase its product range introducing Kernel Oil Mill (Kernel is a by product of CPO production) and enter in to Africa to develop another 200,000Ha and acquiring refineries in India and Malaysia which capable of producing refined palm oil speciality fat used as ingredient for many production processes. Currently GHAL is evaluating other options to set up refineries in Middle East and introduce its own brand of palm oil production to the market.

Overview of Global Palm Oil production and Market

Palm Oil is currently the most consumed edible oil in the world, with Indonesia is being the largest producer.

Production

In July of 2010 a little over 43 million metric tons (MMT) of palm oil have been produced in total with 87 percent coming from Indonesia and Malaysia. Currently, the largest producing country Indonesia is producing for 50% of the world's production. Malaysia comes in second and account for 38% of world production. Appendix I shows world palm oil production from 2005 (ABN Amro, 2010).

Imports

The three largest Palm Oil importing countries are India, China and the EU-27 which through July imported 8.2 MMT (22 percent), 7.2 MMT (19 percent) and 5.3 MMT (14 percent) respectively. India and China primarily use palm oil for cooking while the EU-27 imports palm oil for bio-fuels production. Appendix II shows imports dating back to 2005 (ABN Amro, 2010)

Exports

Malaysia and Indonesia are the two largest exporting countries of palm oil accounting for 89 percent of world exports. In 2009-10, Malaysia exported 15.9 MMT (42 percent), while Indonesia exported 19.0 MMT (50 percent). The only other notable exporters are Benin, Papua New Guinea and United Arab Emirates, which each export under 1 percent. Appendix III shows palm oil exports for the past five years (ABN Amro, 2010)

The external market environment is dynamic and challenging which urges organization to do strategic planning and to determine the direction to achieve the mission. In reality this is a complex process which demands a systematic approach for identifying and analyzing factors internal/external to the organization and matching them with the firm's capabilities. This paper examine the external environment GHAL compete, core resources and competencies and strategic choices chooses by the company. Also it argues strategic decision the organization taken recently, to move in to new markets with new product is the most acceptable, feasible and sustainable strategy for the organization to pursue.

External Environment

It is important to analyze the external environment GHAL is operates in to determine the industry structure and the nature of competition to shape the organization strategy. External environment consist domestic and global markets. Being one of the 4 top country with domestic consuming of palm oil - 11% of global consumption with EU-27 countries (CME Group, 2010), the industry structure GHAL primarily made up with Domestic and international sectors. The competitors also could be identified as domestic players and international players where domestic market is predominantly handled by government, semi-government and small players. Quality of the CPO offered to international market is comparatively very high in international market and most of the private and public own large organization compete in international market where there is high growth in existence.

When the examine the industry structure emerging for CPO it is required study the price determination process in international market. GAHL market exists in ASIA and Asian CPO prices are determined by the directions provided by BMD. Bursa Malaysia Derivatives Berhad (BMD), operates the most liquid and successful crude palm oil futures (FCPO) contract in the world. The prices are purely decided by demand and supply for CPO and various lows have been implemented to regularize the price determination mechanism. In BMD there are 20 trading participants have registered who represent all the suppliers and buyers (CME Group, 2011). There large number of suppliers and buyers are competing, however Wilmar group, Sign Darby group and Smart group are the market leaders in supplying and buying both market. Hence theoretically CPO market is a perfectly competitive market where no supplier or buyer has a power to decide price direction. However in reality world largest agricultural producer Wilmar together with few other large suppliers controls prices of future CPO. This indicates Oligopolistic market structure.

It is vital Understanding the competitive forces, and their underlying