Haw Par Value Chain & Financial Ratios Analysis Essay

1. PART ONE1.1 launch let loose equating Corporation Limited is a multinational corporation engaged in healthc ar, waste businesses securities and sure estate investment, among which we exit mainly sharpen on let loose tallys conventional business sector-the healthcare segment, which includes 9 subsidiaries (Annual report, 2010). Based on taxations generated and locations of manufacturing facilities, two prominent geographical trades, Asia and America, are selected for discussion.We will look into the agonistic environment of the corporation, and the generic strategies choose to survive in the environment. Then we will check over operations within emit equivalence by analyzing its value chain activities, and propose improvements to conjure its competitive advantages. Lastly, we will identify the top trys imposed to the corporation. 1.2 Competitive Environment Michael Porters Five-Forces Model1.2.1 flagellum of New EntrantsInitial capital requirement of entering the healthcare industry is high, including investment in property, plant, equipment and enquiry and development. Moreover, compliance burden with various regulations is heavy, as illustrated by the warning letter received by let out hit from the Food and Drug Administration (FDA) in the US. Besides, its scale of business, well-establish grunge and distribution network are difficult to imitate. Thus, the threat of new entrant is low.1.2.2 Threat of SubstituteCurrently, Haw pars healthcare products mainly consist of traditional herbal tea medicines and newly developed chemical products. The substitutes of herbal medicines are vastly western chemical medicines. We can see that Haw equivalence is actively responding to the challenge of chemical medicines. However, the lively pharmaceutical companies are very strong, and their products are much competitive on the whole. Therefore, the threat of substitutes is medium.1.2.3 Bargaining index of BuyersThe products of healthcare div ision are mainly traditional Chinese medicine cover and its related products, as well as muscle rub, spray and gel (Hoovers, 2011). As the products are generally medications for daily use, the bulk of buyers are individual consumers. Hence, the buyers negotiate power is weak. However, if the buyers multitude is large, for example, wholesalers or retailers, the bargaining power of buyer could be moderate or high (ME Porter, 2000).1.2.4 Bargaining Power of SuppliersDue to Haw equalitys broad product lines, it would have contracted with vast suppliers for the procural of various crude materials. The main ingredients are coarse Chinese medicines (Alternative Health Supplies, 2005). The company whitethorn choose from a wide trudge of suppliers. In general, bargaining power of suppliers is low.1.2.5 Industry CompetitorsHaw comparison has distinguished itself from small and medium size medicine oil businesses by its branding and broad marketplace distribution, yet it is still invol ved in intense rival with business of comparable market cope, for example, Biosensors International and Sun Pharmaceutical Industries Limited which is a main enemy both in Asian and American market. In 2010, Sun Pharmaceuticals deal with taro plant Pharmaceutical Industries shape uped Suns dermatology and topical products in U.S which might deeply affect Haw pars extension market. Generally rivalry among existing firms is high (Hoovers, 2011).1.3 Competitive Strategies Michael Porters tether Generic Strategies The general global economic climate took a favorable turn in 09-10, boosting the consumer confidence. On the other hand, the competitive environment of the business is challenged by the intense disceptation and rising costs (PM Danzon, 2000). To enhance the performance of the business, Haw Par had responded by introducing more products that will appeal to a larger pigeonholing of consumers and by conducting more intensive marketing (Wee Cho Yaw, 2010). The generic str ategy choose by the business is focus differentiation. The business focused on selective markets and products to raise entry barrier.For example, Haw Par launch a new product in 2011Tiger Balm Active Muscle Rub which focused on a certain buyer segmentsporting enthusiasts. It in any case endeavored to distinguish itself by branding as well as adding uniqueness and value to products. One such example comes from Tiger Balm Medicated Plaster, a product with combined functions of energizing body and relieving pains. To do branding, Haw Par outgrowthd popularity by sponsoring in the public eye(predicate) events such as marathons in Singapore, and advertising in national magazines in America (Haw Par, 2010).Besides, it as well as undertook complaisant responsibility by contributing to charities, such as organizing the fundraising event The Tiger Balm Record resound which supported the Society for the Physically Disabled (Haw Par, 2010). This focus differentiation strategy helped lo wer the degree of substitut ability of other companies products and reduce the level of competition.1.4 Top Three Business RisksThe top risk was the intense competition from existing companies, as this would directly affect the percentage of market share owned by Haw Par, and hence its profitability. The second risk was the rising cost of raw materials, which was also an industry-wide problem that might bound a companys development. another(prenominal) risk was the failure of compliance with regulations, which had only emerged in the US market, but certainly reflected defects in Haw Pars internal control.1.4.1 Intense Competition from be CompaniesHaw Par Corp Ltd baptistry up strong competition from a number of multinational corporations. gibe to the Competitive Landscape Singapore, in 2011, Haw Par ranks the third in the healthcare sector for market capitalization. The companies listed in Appendix 1 are the major competitors of Haw Par healthcare Limited in Singapore. Beside s, although Haw Pars healthcare products were distributed to 150 countries via 70 distributors, it still faced high risk from competitors which could render its market share shrink in the health-care area (Haw Par, 2010).To mitigate this risk, Haw Par managed to boost its market shares done improvement of Tiger Balm brand by advertising, sales promotions and the extension of manufacturing line. Another strategy adopted was to diversify product line to broaden customer choices so that consumers would be more likely to choose Haw Pars product and hence this risk would be minimized.1.4.2 join on in Costs of Raw MaterialsDue to upwards general inflationary pressure, unit price of herbal materials for traditional Chinese medicine was expected to rise. Haw Par also expressed serious concerns in its annual report on rising costs of raw materials and operating activities that would erode its profitability in healthcare sector. This would be one of the reasons why gross profit slipped 3.52 % speckle net profit emergence 88.50% in 2010, compared with 2009. To neutralize the detrimental impact, Haw Par put emphasis on expanding its product portfolio to give for more customers (The edge, 2011).1.4.3 Failure to Comply with Regulations and ProvisionsWhen Haw Par was expanding its market in foreign countries, it faced challenges in conforming to the different regulations and standards. For example, an inspection on Haw Pars manufacturing facilities by FDA, observe significant violations of Current Good Manufacturing Practice regulations for finished pharmaceuticals (FDA, 2010).Failure of conforming to regulations would pose a probable threat of being banned in specific markets, which would negatively affect revenue, brand image and social acceptance. To mitigate this risk, Haw Par shall immediately review the unqualified production and procurement practice while proposing appropriate remedies. Furthermore, Haw Par shall also seek prospect to make appeal to the publi c so as to restore and conserve its corporate image.1.5 Value Chain Activities Primary Activities1.5.1 Inbound LogisticsFor Haw Pars health-care segment, inbound logistics contains vigilance of raw materials, inscription control, warehousing and even subjects to suppliers. Efficient inventorying commission system is an essential part in boosting profits for Haw Par, by enhancing efficiency and thus trim back disbursals.1.5.2 OperationsIn the operating process, value is created finished transforming the raw materials into final products. Unfortunately, Haw Par Healthcare was warned by FDA about mislabelled products and inadequacies (FDA, 2010). In this case, Haw Par failed to show itself to be capable to detecting probable impurities. Therefore Haw Par Healthcare should improve its testing and packaging operations, so as to control its product quality to conceptive incumbent market position (CBS Interactive, 2010).1.5.3 Outbound Logisticsthough possessing a oecumenic d istributing network covering 70 countries, Haw Par continued expanding its markets. Nevertheless, Haw Pars healthcare manufacturing facilities were centralized in its major markets, so as to reduce the costs and improve the overall efficiency.1.5.4 trade and SalesHaw Par focused on marketing activities to boost sales and build brand image, as discussed in competitive strategies. According to the General Manager Ah Kuan Han, Haw Par would intensify lusty advertising activities to enlarge consumer bases (The Business Times, April 1st 2010). According to the horizontal analysis of income statement, the sales and marketing expense increase by 6.00% in 2010. Furthermore, with the already widespread fame, Haw Par was striving to expend its market in UK, America, Caribbean and other parts of world through its comprehensive marketing and sales strategies (The Business Times, 2009).1.5.5 supporterHaw Par has built the Tiger Balm website to facilitate serving its customers. The website pro vides a wide range of information about its products. Haw Par also provides experience sharing service on its website, through which past users can share their experience with others.1.6 Value Chain Activities Support Activities1.6.1 General AdministrationA strong and effective board of directors would bring Haw Par to success, by supporting the whole Haw Par Corporation through the activities including planning, general management, risk management, and so on. Good management and information systems would increase operating efficiencies as well as improving the companys image.1.6.2 Human Resource worryHaw Par has been recruiting a large pool of staffs. More significantly, Haw Par emphasized on maintaining high quality employees, as evidenced in its advertisement of hiring o-level and above diploma holders as lab technicians. (Jobstreet.com, 2011)1.6.3 Technology DevelopmentHaw Par has been actively engaged in technology development, indicated by its insertion of line extensions on a slate of new products that would address lifestyle needs of modern consumers (Haw Paw, 2010), which would secure Haw Pars long term competitiveness in the market. Yet Haw Par shall continue its efforts in innovation to further strengthen market power and improve efficiency.1.6.4 ProcurementAs the ingredients of Haw Pars product are mainly traditional herbs supplied from China, India and Malaysia, the cost of materials from these suppliers is relatively low. However, the procurement activity still needs to be further alter. As mentioned above, Haw Par received a warning letter from FDA which identified a problem of unqualified suppliers. Thus, apart from outsourcing cheaper raw material from suppliers, Haw Par should keep monitoring its suppliers regularly to ensure reliability.2.2 Financial Ratios AnalysisThe following sessions will esteem the profitability, liquidity (including operating efficiency) and solvency of Haw Par in 2009 and 2010, and account for any substantial fl uctuation emerged, through analyzing relevant financial ratios respectively. One of Haw Pars major competitors Sun pharmaceutical industries Ltd. is also referred to for comparison.2.2.1 Profitability AnalysisRatios adopted here include net profit margin, gross profit margin, return on assets, return on integrity and earnings per share. The net profit margin of Haw Par nearly doubled from 46.10% to 86.90%. Such a rise is aligned with the increase in sales revenue from $124m to $130m, mainly receivable to the recovering global scrimping. As the International Monetary Fund (IMF) stated, the world real GDP growth is 1.4% and 2.5% for 2009 and 2010 respectively, while for Asian countries the growth was estimated to be 5.5% and 7.0% (Michael Mussa, 2009). As an Asian company, Haw Par has benefited greatly from the economic recovery.However, the gross profit margin displays a slight decrease from 58.25% to 56.20%. This can be partially attributed to rising material costs and operatin g expenses. Haw Par reported a 7.51% increase in costs of sales while Sun Pharmaceutical reported a 28.3% rise in the costs of sales. Consistent with the trend shown in profit margins, the return on assets, return on equity and earnings per share ratios are also nearly doubled, owing to a better economic environment.Though the total assets and owners equity increased due to the market expansion in America, the increase is insufficient to commencement the effect of a strong rebound in net income. In short, ratios concerning the profitability manifest a rising trend, and thus we conclude that Haw Pars profitability has improved from 2009 to 2010 by tapping the opportunity of the warming global economic climate. It also outperformed its competitor, Sun Pharmaceutical, which reported an 8.62% fall in income from operation in 2009-2010(Sun Pharmaceutical, 2010).2.2.2 Liquidity and Efficiency AnalysisRatios adopted here comprise of current ratio, expeditious ratio, assets and fixed asse t turnover, inventory and receivable turnover, average days in inventory, and average days of receivables. Quick ratio and current ratio are used to assess groups ability to pay the current liabilities due within one year. The current ratio of Haw Par dropped from 12.57 to 12.09 because of the fair value losses in its investment in United Overseas Bank Limited and disposal of available-for-sale financial assets (Haw Par, 2010).However, the quick ratio, a more stringent measure on liquidity, indicated a rise from 2.70 to 3.31. The contradictory result is actually excusable on the basis of the very reasons just mentioned. Due to an increase in exchange and net accounts receivable, the quick ratio increased, it can be concluded that Haw Par demonstrated a greater potential in meeting its short term bond obligations. The assets turnover and fixed assets turnover ratios assess the groups ability to generate revenue for each dollar invested in assets and fixed assets respectively. Haw Pars assets turnover experienced a slight drop from 0.07 to 0.06, while its fixed assets turnover increased from 2.73 to 2.91.Possible explanation would be the groups heavier investment in subsidiaries and inventories, which increased the total assets, resulting in lower asset turnover ratio. Since the fluctuations on both indicators are insignificant, it is unconvincing to say that Haw Pars management efficiency improved. The inventory turnover ratio and average days in inventory assess how fast the company is selling its inventories. From 2009 to 2010, the inventory turnover declined from 8.19 to 7.41 and average days in inventory lengthened from 44.59 to 49.29. This is attributed to a 52.30% increase in inventory.These two indicated that Haw Pars inventory management became less efficient. However, Haw Par might have accumulated inventory purposely to counteract the negative impact of rising raw material costs. The receivable turnover and average days of receivables both indicate d the improved efficiency in collecting receivables. While the receivable turnover rose from 6.17 to 6.99, the average days of receivables uncivilised accordingly from 59.20 to 52.23 days. It is discussed earlier that sales revenue increased sharply.Besides higher sales revenue, another factor accounting for this may be a better economic situation under which fewer customers face liquidity problem. In all, though its current ratio decreased slightly, Haw Par still retains its ability to cover short-term debt. However, there is still room for Haw Par to enhance its operating efficiency. It may improve the inventory and receivable management system to boost its business performance.2.2.3 Solvency Ratio AnalysisRatios adopted for solvency analysis are debt to assets and cash acquisition. The debt to asset ratio reflects the degree of reliance on creditor finance. Haw Pars debt to asset decreased from 0.047 to 0.045, indicating Haw Pars improvement of financing strategy by financing mo re on equity. Two thinkable explanations for that change may be (1) Sufficient cash flow allowed Haw Par to rely less on loans. (2) The promising trend in economy helped restore confidence of shareholders who in turn invested actively, as evidenced by the rise in share capital. The cash acquisition ratio nearly doubled from 5.92 to 9.40.The numerator, net cash from operation, plummeted by more than half however, the denominator, cash paid for PPE, fell more dramatically by two thirds. The two fluctuations as a whole resulted in a rise in cash acquisition ratio, giving a appointed indication on Haw Pars solvency situation. As the two ratios suggested, it seems plausible that Haw Par has improved its solvency. However, its competitor Sun Pharmaceutical, with the debt to assets ratio of merely 0.026, has outperformed Haw Par in solvency. It is still possible for Haw Par to improve further.3. CONCLUSIONTo conclude, though benefited from the overall economic recovery, Haw Par was also surrounded by risks and challenges in the competitive environment. However, it has been actively engaged in product innovation and adopted pertinent strategies, especially in marketing sector. Haw Pars responses were fairly effective in tackling the above-mentioned problems, as proven by its successful financial year.So far, Haw Par has been tapping the benefits of economies of scale, enjoying the opportunities in the emerging Asian market and taking advantage of the global economic recovery. Yet in the shakeable market where the barrier to entry is minimal in the long run, Haw Par should continue to turn over hard so as to maintain its competitiveness in the ever-changing business world.