Case 1: San Miguel Corporation

1. Defining the Problem

San Miguel Corporation was concerned about the issues regarding their company. I have

encountered three problems. First is the company’s satisfaction in their ability to adopt or

respond to changing environmental conditions. How will they respond to the rapid changes in the

environmental conditions? Second, during their implementation phase, the planning process was

much time consuming which would really involve more work. And lastly, I have noticed that

there were some Business Family and Business Elements who were asking for “hand-holding” to

guide the process.

2. Developing a Model
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3. Acquiring Input Data

San Miguel Corporation has three core businesses: Beverages -- beer, hard liquor, soft

drinks, bottled water, fruit juices; Food & Agribusiness – chicken, feeds, pork and beef,

processed meats, dairy, oils and fats; and Packaging --glass, metals, plastics, paper products,

flexible pouches and laminates.

Its beverage sector is San Miguel’s largest business segment, comprising over 58% of its

total sales in year 2000. Its Food & Agribusiness sector contributed 27% and its Packaging

Sector contributed 15% of its total sales. In terms of operating income, the beverage segment

likewise contributed the largest, at 70%, with packaging coming in second at 22% and food &

agribusiness at 8%.

In 1999, it was ranked ninth in total revenues and registered the third highest reported

profit. Thus, it is not surprising to note that it is a major contributor to the Philippine economy,

accounting for 3% of the GDP.

weighed down by large-scale expansion projects in China. Its three breweries in the said country

were operating way below capacity.

To realize the much-needed cash-infusion, Cojuangco sold off SMC’s 45% stake in

Nestle Philippines in 1998. Additional cash was raised when its affiliate Coca-Cola Amatil

divested its Europe operations. These sales brought in a cash war-chest of about $1.2 billion

(P42.1 billion).

4. Developing a Solution

Under the leadership of Cojuangco and Ang as Chairman and President, respectively,

SMC has undergone a major strategic shift, streamlining and broadening its business portfolio,

reshaping and redefining the very nature of its core businesses.

The sale of both Coca-Cola and Nestle was part of the new management’s effort to

restructure the San Miguel Group and focus its technological, managerial and financial strengths

to ventures where it believed it could add the most value. The proceeds of the sale of these assets

provided it with a cash warchest that it later on deployed into substantial diversification program.

It also implemented cost-reduction efforts, including an organizational streamlining and

rightsizing program.

While the company has stayed in its traditional business of food, beverage and packaging

and expanded through regional acquisitions and integration, it also made inroads into nonrelated

businesses and non-core geographic markets.

When China and Taiwan were admitted into the WTO in 2002.Beer could now be compiled and

expended to the two countries.

The South Korea mostly brewed from rice.Only the Hite’s Max Prime brand contains

100% barley malt.San miguel beer could into Korean market with its rice made of harvest.

2. Political, Legal and Regulatory - Although foreign beers are popular within the country, the

Thai government seeks to shelter its domestic breweries through the imposition of import duties;

in addition, all imported beers must bear an import sticker on their bottle caps. As a result, Thai

brewers have struck partnership deals with western brewers, such as San Miguel Beer.

3. Socio-Cultural - The similar of the cultures around the Asia affect the sales of SMC.

4. Technological - The rapid technological advancement will affect the price of beer.

5. Natural or Physical Environment - Corporations that go beyond regulatory compliance are

rated favorably by most government offices. They are recognized for taking proactive measures

in preventing negative environmental, health and safety impacts. Recycling and recovery are key

factors which cut waste disposal costs. Reducing gas emissions that contribute to global climate

change also lower costs. Pollution prevention is a discipline practiced in SMC plants which

eliminates the generation of waste at the source.

SMC has pioneered a number of so-called trend-setting practices in its environment

program. It was the first Filipino company that published an Environmental Update in 1996, a

report which was well received by the local business community and its stakeholders, as well as

by business and environment groups abroad. The uniqueness of SMC’s environment program is

its dual focus on both the external and internal environment. The Corporation not only takes care

of the natural environment, but also of its own people and domain.
5. Testing the Solution

SMC’s Management has been explicit about its overarching goal and direction to

maximize the Company’s value and profitability. In the 2013 Annual Report, Chairman

Cojuangco rationalized and explained why it has aggressively pursued its diversification

program:

“As one of the country’s largest conglomerates, with a history that stretches back 124 years, we

recognize that the value of our business lies in sustaining the Philippines’ growth. It is precisely

for this reason that we have anchored our diversification on projects that will help improve the

lives of our countrymen and bring about progress.”

This is an explanation why SMC had ventured into infrastructure development and

concessions, power, oils and fuels, airlines, mining and banking. These are areas where SMC had

heretofore not engaged in as businesses prior to 1998 when the new management team came on

board. In the initial years following its diversification into non-core businesses, SMC showed

better financial performance.

6. Analyzing the Results

SMC’s initial foray into expansion in the 1990s after it divested itself of its holdings in

Nestle and Coca-Cola had been in Purefoods, a processed meats manufacturer. Based on the

resource-based view analysis, the acquisition is value-creating in all four aspects of the proposed

framework. This acquisition has resulted in SMC’s undisputed position in the food business with

market-leading brand names in its portfolio.

iconic processed meats brand creates synergy not only in terms of marketing and sourcing, but

also across SMC’s supply chain and distribution management. In addition, SMC executives and

staff are very knowledgeable in the food manufacturing and has linkages with its commercial

feeds business.

SMC’s subsequent entry and investment into non-core businesses are, on the other hand,

a different matter and requires a more thorough analysis and assessment

Structural Analysis using the Five-Forces Model

 Threat of New Entrants

The beer industry in the Philippines is almost monopoly by San Miguel Corporation.

There is a low competition in the market.

 Intensity of Rivalry among Existing Competitors

The competitors of San Miguel Corporation in the Philippines are low. Its main rival is

Asia Brewery Inc. The SMC is the leader in the beer industry in the Philippines.

 Bargaining Power of the Buyers

San Miguel has a significantly high bargaining power to its customers due to the

monopoly in the Philippines. Now in the modern life, there is heavy pressure from life and work.

As a result, the role of the San Miguel beer generally provides one way to slow the pressure.

 Bargaining power of Suppliers

The suppliers of the company hold a major role. Without its presence, the company could

not produce its products, and basically, could not offer anything to customers. The suppliers of

San Miguel to each country are being standardized, thus, it could not purchase its supplies

locally, unless it has been approved and has passed the company’s standards.
 Threat of Substitute Products and Service

With the local and multinational companies offering products and campaigning for a

fallow lifestyle to consumers, they can chat with each other during drink the beer and eat

something like peanuts, pork, and chicken.

7. Implementing the Results

Edith Penrose (The Theory of the Growth of the Firm, 1959) was one of the early

scholars who espoused the Resource-Based Theory in firm behavior and strategic management.

She argued that a business organization will seek to achieve the full potential from all its

resources. Penrose’s view was that firms possess excess resources, which can be used for

diversification purposes, and which then can fuel growth.

Firms grow as long as there are unused resources, diversifying when they can no longer

grow with existing products, services and markets. Growth continues until it is halted. Changes

can free the limit, and growth continues until the next limiting factor appears.

To create an International Division in the SMC, this office will attend to the needs and

problems only of the businesses outside the Philippines. The Manager of this Division will report

to the President. If he has problems or needs with a particular country, the time to find a solution

will be shorter because he will only refer it to the President.

To strengthen its business activities in the Philippines but try to build up businesses in other

Asian countries with good prospects and to maintain constant communication with its workers in

order to avoid strikes and work stoppages.