Javier Magnolia

Strategic Management Paper on Magnolia, Inc.
|i
University of Santo Tomas
MAGNOLIA INC.
A
Strategic Management Paper
Submitted to
Sir Real Carpio So
In
Partial Fulfillment
Of The Requirements
In
Entre 7 Strategic Management
Submitted By:
Louise Angeline A. Javier
4M3
17 February 2011
S t r a t e g i c M a n a g e m e n t P a p e r o n M a g n o l i a , I n c . | ii
EXECUTIVE SUMMARY
Magnolia Inc. was incorporated in the Philippines primarily to engage in and carry out
the business of processing, manufacturing, and marketing of cheese, butter, margarine
and other related products under the “Magnolia” trademark. With its well-established
leading brands, the company comprises over 90% of the non-refrigerated margarine
market and over 80% of refrigerated margarine.
San Miguel Purefoods Company, Inc. (SMPFC) is the company’s present company
while San Miguel Corporation is the ultimate parent company.
The macro-analysis resulted in identifying the following threats: (1) Continuous

innovation of the products by competitors; (2) Possible rise of new substitutes; (3)
Continuous penetration of substitutes in the market; (4) Lack differentiation against
competitors; (5) Prices of products are the same even with different brands.
The following opportunities were also identified which resulted from macro-analysis: (1)
Limited Industry entrants; (2) Increased Demand for dairy products by coffee shops; (3)
Development in the economic growth of the country; (4) Support given by the
government; (5) Continuous fondness for food by the citizens of the Philippines.
The strengths of Magnolia Inc. were also identified after conducting internal analysis
which includes the value chain. The following are the strengths of the Magnolia Inc. (1)
Intellectual product and brand patents; (2) Subsidiary of a large company; (3)
Established brand names; (4) Fast delivery of stocks.
Using internal analysis as the basis, the weaknesses of Magnolia Inc. were also
identified. The following are the weaknesses of Magnolia Inc. (1) Limited number of
marketing employees; (2) Lack in promotions; (3) Inability to stand alone.
The vision is difficult to attain without the set objectives. The following are the proposed
objectives that would match the vision statement of Magnolia: (1) To increase market
share by 80% in the next 5 years and have a continuous and upward trend for the
company’s sales and revenues; (2) To sustain and improve brand equity of the current
products the company have in the next 5 years; (3) To maintain company’s financial
stability and regain lead in the market with regards to the other companies in the diary
product food processing industry. The corporate strategies must be formulized as well
to achieve its objectives and these are the strategies to be implemented: (1) Develop a
more updated company website to provide information about the company and the
products; (2) Increase promotions for each product; (3) Reduce production cost of
products that provide decrease in Market Share and Profit. The essential tools used for
execution and implementation of these strategies are Mckinsey 7-s and the 8 – Sit
(Strategy Implementing Task) Framework.
S t r a t e g i c M a n a g e m e n t P a p e r o n M a g n o l i a , I n c . | iii
TABLE OF CONTENTS
CHAPTER ONE
1.1 Acknowledgements 1
1.2 Introduction 2
CHAPTER TWO: EXTERNAL ENVIRONMENT ANALYSIS

2.1 Definition of Industry 3
2.1.1 Overview of the Food – Processing Industry 3
2.1.2 Major Sectors in the Food-Processing Industry 4
2.1.3 The Philippine Food – Processing Industry 4
2.2 Analysis of Present Task Environment 5
2.2.1 Bargaining Power of Suppliers – MODERATE 5
2.2.2 Bargaining Power of Buyers – MODERATE 6
2.2.3 Intensity Rivalry Among Competitors – HIGH 7
2.2.4 Threat of substitute products – HIGH 8
2.2.5 Threat of New Entrants – LOW 9
2.3 Analysis of the Potential Changes in the Macro – Environment 10
2.3.1 Political and Legal Segment 11
2.3.2 Socio-cultural Segment 12
2.3.3 Economic Factors 12
2.3.4 Technological Factors 15
2.4 Threats and Opportunities 15
2.5 Industry and Competitive Analysis 17
2.5.1 Strategic Map 17
CHAPTER THREE: INTERNAL ENVIRONMENT ANALYSIS

3.1 Company Overview 18
3.2 Corporate Values
3.3 Value Chain Analysis 18
3.3.1 Primary Activities 18
3.3.2 Support Activities 20
3.4 Financial Analysis 21
3.4.1 Financial Ratios 26
3.5 Strenghts and Weaknesses 28
CHAPTER FOUR: STRATEGIC PLAN

4.1 Vision and Mission 30
4.2 Objectives 31
4.3 Evaluation of Present Corporate Strategies 32
4.4 Proposed Corporate Strategies 37
4.5 Competitive Advantage 43
S t r a t e g i c M a n a g e m e n t P a p e r o n M a g n o l i a , I n c . | iv
CHAPTER FIVE: FUNCTIONAL AREA STRATEGIES

5.1 Marketing 46
5.1.1 Identify target Marketing Segments 46
5.1.2 Marketing Objectives 46
5.1.3 Marketing Plan 47
5.2 Operations 47
5.2.1 Objectives 47
5.2.2 Plan 48
5.3 Finance
5.3.1 Objectives 48
5.3.2 Plan 48
5.4 Human Resource 48
5.4.1 Objectives 48
5.4.2 Plan 48
5.5 Information Technology 49
5.5.1 Objectives 49
5.5.2 Plan 49
CHAPTER SIX: IMPLEMENTATION

6.1 Analysis of Company’s Capabilities to Implement 49
6.2 Managing Internal Organization for Strategy Execution 54
CHAPTER SEVEN: FINANCIAL PROJECTION 56
Letter to the CEO 72

Strategic Management Paper on Magnolia, Inc. |1
CHAPTER ONE
1.3 Acknowledgements
In behalf of those who helped in the writing of this strategic management paper, I
would like to thank the following people:
Employees of magnolia who shared information about their company, namely:

Mario Mendoza – Marketing Manager; Jen Payawal – Product Manager; Vannie
Escano – Asst. Brand Manager; KC Calma – Marketing Assitant; Madz Javier –
Product Assistant; and to the rest of the Magnolia Inc. Marketing Department.
To my classmates who helped in checking and assuring that the formatting our
papers is correct. Also, in assuring that most of us is able to pass our papers on
time.
To my Family, who never failed to support the sleepless night for the completion
of this strategic marketing paper.
And to God, who never left us and guided us all throughout the completion of this
paper.
Introduction
In July 1981, San Miguel Corporation’s Magnolia, Inc. (formerly PDPC)

spearheaded some of the best power brands like Magnolia, Star, and Dari
Crème.
Through generations, we have earned your trust on the product quality and
service that has created a base of loyal consumers. In 1991, we provided the
needs of the food service industry serving the large share of the country’s butter,
margarine, and cheese requirements.
In 1995, a new processing plant was built in Cavite to serve the growing
consumer demands and fast food industry. In 1996, the company completed its
nationwide Distribution Selling System and the Magnolia products were made
available in all parts of the country.
CHAPTER TWO: EXTERNAL ENVIRONMENT ANALYSIS
2.2 Definition of Industry
An industry is a segmentation of firms based on their primary generic products or

sub-primary generic product, and etc. Companies or firms belonging to the same
industry are said to be on the same side of the market, or offer goods which may
be considered to be close substitutes, or even compete for the same customers.
2.5.2 Overview of the Food – Processing Industry
According to the United Nations Industrial Development Organization

(UNIDO), the main origin of the food – processing industry goes way
back during the ancient Egypt which used to symbolize the culture of
mankind. But presently, bread, with the use of yeast and wheat flour as
its raw materials is baked in all of the countries. Another origin to be
exemplified is the Beer. Its origin also went way back during the the
Babylon and Egyptian period from 3,000 to 5,000 BC.
The groundwork of the modern industry was established due to the

introduction of machinery and technologies which originated in
Germany. Now, the processed foods that can be found in the grocery
are modern processed foods and traditional foods but their
manufacturing technology, process control, manner of manufacturing
and packaging facilities have been developing rapidly over the 30
years. Because of this, the products produced can be considered to
have higher quality and uniformity. Basically, the advancement of food
science triggered the development plus with the influence of the
introduction of hygienic, applied microbiology, mechanical engineering,
chemical engineering, electronic engineering, and high-polymer
technology.
The significant development in the food-processing industry was the

convenience made by pre-cooked frozen foods; pouch foods; and
dried foods. The mass production of high quality processed foods
without having to use unnecessary food additives was made possible
in the last 30 years by inspecting properly the quality of the process
materials, processed foods, and advances in the technology and raw
materials.
The company to which this paper is focusing on is into the Dairy Goods
sector of the food-processing industry. It is because they offer butter,
cheese, margarine, milk, and etc.
2.5.3 Major Sectors in the Food-Processing Industry
It comprises the following sectors:

 Fruits and Vegetables
 Fish and Marine
 Meat and Poultry products
 Flour and Bakery products
 Beverage and Confectionery
 Dairy foods
 Food condiments and Seasonings
 Food Supplements
 Bottled water
 Snack food
 Fats and oils
2.5.4 The Philippine Food – Processing Industry
The said industry is said to be the most dominant industry in the

Philippines especially since it involves food and beverage processing.
In the year 2007, the industry had a gross added value of more than $2
billion and grew by 3.2 percent. A list was brought out by the Philippine
Bureau of Food and Drugs in 2004 which shows a total number of
11,601 food-processing establishments in the country.
In the country, most establishments are owned by a single proprietor

which common among small industries. Some establishments are
considered multi-product firms which operate in partnerships or
subsidiary of foreign or multinational companies. Local companies
such as San Miguel, RFM Corporation, Universal Robina Corporation
and some others leads the market or compete with foreign
establishments equally.
Local processors of food are faced with certain challenges such as

maintain market share and how to introduce new products in the
market due to the import of products from other countries for trade.
There is a contribution of 20 percent to the Gross Domestic Product

per annum by the industry. There was a noticeable improvement since
bigger companies with greater financial capabilities start supporting
expensive capital outlays. Some if the establishments even qualifies
for an ISO certification.
Dairy goods are the main sector to which this paper focuses on. In the
Philippines, dairy products are very much patronized by the people
since people living in the country are said to love eating bread with
butter and cheese, or even used to sauté rice with margarine to have
that tasty touch on their food.
2.6 Analysis of Present Task Environment

According to Michael Porter’s book entitled “Competitive Strategy”, there are five
forces to be considered in “determining the unltimate profit potential in the
industry.” Analyzing the five forces enables to determination of how strong the
competition and profitability is in the said industry.
The analysis of Porter’s five forces will be focusing on the dairy goods sector of
the food-processing industry. Below is a diagram of the summary regarding the
analysis if the present task environment using Porter’s 5 forces.
2.6.1 Bargaining Power of Suppliers – MODERATE

Bargaining power of suppliers may act as a threat or an opportunity to
the different establishments which offer dairy products. Suppliers have
a moderate bargaining power towards the companies. Suppliers by
which we mean those who provide the raw materials to the different
establishments who offer dairy products.
The bargaining power of suppliers was analyzed based on the following

determinants:
Presence of Multiple Suppliers or Supplier Groups
Even though the Dairy good’s main raw material is milk, there are still a
lot of suppliers to which these companies may get their raw materials
from. But since the Philippines is not able to raise cows in the country,
the milk that the dairy goods establishments primarily depend on the
importation of milk from other countries. Therefore, the bargaining
power of suppliers are moderate since even though the milk are
imported from foreign suppliers, the establishments still has the choice
on to which supplier or country to import their products from.
The supplier group’s products has built up switching costs
The establishments may switch anytime to other suppliers but may still
have the industry thinking on whether they are to switch suppliers just
because of the costs or because of the quality of the products.
2.6.2 Bargaining Power of Buyers – MODERATE

Buyers also compete with the industry of Dairy goods. What the buyers
do to compete is that most of the time, they try to lower the prices of the
products by trying to switch to other products with lower prices and
perceived by them as to have better quality.
The bargaining power of buyers in the dairy good product sector of the
food-processing industry is moderate due to the following determinants:
Buyers purchase in small volumes or in retail
The people who buy dairy products do not buy in bulk and prefer to buy
is small quantities. And since dairy products have expiration date or a
best before date which gives the consumers the way of thinking of not
buying too much since the products may become wastes. Most of the
time, consumers consider dairy products as a want because consumers
may live without consuming dairy goods for quite some time. Even
though consumers may switch to other brands, they still have the option
to just repurchase especially since they do not really buy in bulk. This
shows that the bargaining power of the consumers is weak.
Buyers have the ability to postpone purchases until later if they do

not like the present deals being offered by sellers
In this case, the bargaining power of the buyers is strong. It is because

they have the power to delay the volume of sales the industry may have
due to the purchase that they want. Some people may tend to postpone
their purchase if they find out that the products may be on sale the next
week or if they tend to lessen their interest on the offerings the industry
had to give. When the industry fails to provide something new such as
falvors, the consumers tend to wait until they are able to see that there
are innovations with the dairy products.
The products the buyers purchase from the industry are standard
Like the milk, some people perceive it to have a standard taste which
makes the bargaining power of the buyers high, but at the same time,
low. High because they can switch to any brand since they perceive it
as to have the same taste. But it may also be low because consumers
may tend to buy the same product because that is the product they’ve
known. Not because of the taste, but because of familiarity of the brand.
2.6.3 Intensity Rivalry Among Competitors - HIGH

Usually, intensity or rivalry among competitors is present due to the
fight over the market share and positioning in the market. This usually
occurs when one of the rivals feels pressure or sees the opportunity to
improve their positioning in the market.
The following determinants proved that the intensity rivalry among

competitors is high:
Buyer costs to switch brands are low
Products in the dairy products category tend to have almost the same
prices or if not, do not have a huge gap when it comes to the price.
Therefore, consumers tend to switch products anytime or are willing to
try new brands since they are not affected in a huge way.
One or more rivals are dissatisfied with their current position and
market share and make aggressive moves to attract more
customers
An example of which is Kraft and Magnolia. Magnolia offers in the

market the brand Quickmelt which is known for decades at the fastest
melting cheese. But with Kraft unsatisfied, they created a product such
as the Eden melt sarap and was introduced in the market. This product
was able to get from the market share Quickmelt had been holding on
on its own for so long.
Numerous competitors in the industry
Dairy products are offered by different establishments. Therefore, there

is the competition of the companies on the consumer’s repurchase and
loyalty. But not all consumers tend to patronize one brand or
sometimes, they do. Therefore, it makes the bargaining power of buyers
moderate because of the instability of the buyer’s behavior.
2.6.4 Threat of substitute products – HIGH

All firms that are present in an industry are competing with each other
which push some establishments to create substitute products.
Substitute products are products which can perform the same function
as the product of the industry.
Threat of substitute products is high based on the following

determinants:
Good substitutes are readily available
One good example is margarine. Margarine is a substitute for cheese.

Both products belong in the same industry but are substitutes of each.
Margarine is readily available even in retail store because it does not
need to be refrigerated anymore and does not have expiration date for it
to last long.
End users tend to grow more comfortable using substitutes
In the Philippine setting, people are more comfortable using margarine

instead of butter. First, since they liked the taste and it is practically has
a more volume as compared to butter which melts if not used properly
or stored properly.
Substitutes are attractively price
Margarine are priced immensely lower than butter. As mentioned

earlier, it comes in bigger packages as compared to butter which costs
more but consumers get only a bar of it.
Substitutes have comparable or better performance features
An example of which is margarine as well. Margarine is now offering

different flavor in the market such as sweet blend, garlic, classic, and
mantekeso. Unlike butter which only come in a single solid flavor.
2.6.5 Threat of New Entrants – LOW

According to Michael porter, entrants in an industry bring new capacity,
the urge to capture market share, and substantial resources. In this
industry, threat of new entrants is low based on the following
determinants:
High capital requirements
Companies which offer daily products are fully established and are
often subsidiaries or sub-business units of large companies. For a new
entrant to try to penetrate their market is quite hard because it will
require a huge amount of capital to be able to compete equally with the
established firms in the market.
Industry members will strongly contest the efforts of new entrants

to gain a market foothold
Even if the entrant is a small entity, large companies still see them as
threat which makes them able to do everything just to eat up the
company and prevent it from diving and lessening their market share. It
would be either the company will buy out the new product or compete
equally with the new entrant bye stooping down to the level of
marketing it does and providing a better one.
Summary of the determinants and how it affects Michael Porter’s 5 forces model:
Determinants of Competitive Analysis of Impact to Conclusion

Forces Determinant Competitive
Force
Bargaining Power of Suppliers Moderate
Presence of Multiple Suppliers or High Increase
Supplier Groups
The supplier group’s products has Low Decrease
built up switching costs
Bargaining Power of Buyers Moderate
Buyers purchase in small volumes Low Decrease
or in retail
Buyers have the ability to postpone High Increase
purchases until later if they do not
S t r a t e g i c M a n a g e m e n t P a p e r o n M a g n o l i a , I n c . | 10
like the present deals being offered

by sellers
The products the buyers purchase Low Decrease
from the industry are standard
Intensity Rivalry Among High
Competitors
Buyer costs to switch brands are High Increase
low
One or more rivals are dissatisfied High Increase
with their current position and
market share and make aggressive
moves to attract more customers
Numerous competitors in the High Increase
industry
Threat of substitute products High
Good substitutes are readily High Increase
available
End users tend to grow more High Increase
comfortable using substitutes
Substitutes are attractively price High Increase
Substitutes have comparable or High Increase
better performance features
Threat of New Entrants Low
High capital requirements Low Decrease
Industry members will strongly Low Decrease
contest the efforts of new entrants to
gain a market foothold
2.7 Analysis of the Potential Changes in the Macro – Environment

The macro environment is the world outside the organization’s industry. This
analysis will provide information of current changes and what may change in the
future with regards to the industry’s external environment. This may be used as a
threat or an opportunity for the different companies which belong in the same
industry.
The major categories of the Macro-environment analysis are the following:

 Political and Legal Segment
 Socio- cultural segment
 Economic Segment
 Technological Segment
2.7.1 Political and Legal Segment
Political stability is one of the main factors investors look for in a

country. With the new regime of President NoyNoy Aquino, there is a
sort of certainty for a stable politics in the Philippines. For so long, the
Philippines used to be known as the sick man of the Southeast Asia,
this means as one of those countries who fail to prosper together with
the other countries even though they belong in the world’s fastest
growing region. But now, economic analysts say that the nation is now
the new “tiger cub” of Asian economies. With the gross national product
growing by 5 percent annually, the Philippines has become a land of
opportunity for trade and investments due to the reflected sustained
economic growth.
There is a government act to which discusses how much the

government supports the Dairy industry in the Philippines. This was
prioritized by the Philippine Department of Agriculture.
The Following are the policies affecting the dairy category of the food-
processing industry:
 The Dairy Act’s statement of national policy upholds government

support for dairy development to alleviate rural poverty, to address
widespread malnutrition, to minimize imports and to ensure food
security.
 Priority is accorded to smallhold producers as suppliers for milk
feeding programs.
 Animal loan programs that provide credit for the acquisition of
animals are provided at rates slightly lower than commercial interest
levels.
 Tariff on dairy imports have been significantly reduced to the range
of 0 to 5% since 1998 exposing the local industry to pressures of
cheap imported milk products.
 There is an ongoing policy debate on how to balance the focus and
support for dairy buffalo and cattle-based dairy projects.
The Philippines’ dairy strategy is in four documents: the Medium-Term

Dairy Development Plan and the Dairy Industry Development Model
(DIDM) of 1989, the National Dairy Development Act of 1995 (Republic
Act 7884), the Dairy Road Map of 2004 and the Dairy Fast Track of
2008. Currently filed in the legislature are two dairy-related bills: one
contains amendments to the dairy law and a second one legislates a
milk feeding program for children.
2.7.2 Socio-cultural Segment

The Philippines is very reach in culture and tradition. The dominant

religion in the Philippines is Roman Catholic followed by Islam. Filipinos
are very fond of imported products especially with food. But they still
see to it that they buy local products as well. They are rich in different
exotic foods that can be only found in the Philippines. The people
produce local products and are still patronized by the people.
There are different dialects in the Philippines but the national language
of the country is Filipino. They are also knowledgeable in speaking
foreign languages, most especially English. Having been able to speak
English, it is easier for the people to trade with other countries or even
attract investors from the other parts of the world. Men and Women in
the society are treated equally. Such as women are not allowed to do
jobs which used to be only for men.
Nowadays, Filipinos are fond of hanging out in coffee shops to relax.

This proves that there is an increased demand for dairy products since
milk, cheese, butter, and so as the other products are being used in
coffee shops. Since there is a boost in those who patronize these coffee
shops such as starbucks, coffee bean, Gloria Jeans, and etc., the dairy
industry is affected in a good way.
2.7.3 Economic Factors

The Economy in the Philippines may be considered to be slowly
beoming stable. It is the world’s 47th largest economy as of 2008. The
unit of currency in the Philippines is peso. The country has undergone a
lot of transformations to being an industrialized country from being an
agriculture based country. The economy depends on the services and
manufacturing sector of the businesses in the Philippines. The country
has a total labor force of around 38.1 million and as of October 2009, its
foreign currency reserves stood at US$36.113 billion.
PHILIPPINE ECONOMIC STATISTICS

GDP (purchasing power parity): $320.6 billion (2008 est.)
$306.5 billion (2007)
$285.9 billion (2006)
note: data are in 2008 US dollars
GDP (official exchange rate): $168.6 billion (2008 est.)
GDP - real growth rate: 4.6% (2008 est.)
7.2% (2007 est.)
5.4% (2006 est.)
GDP - per capita (PPP): $3,300 (2008 est.)
$3,300 (2007 est.)
$3,100 (2006 est.)
note: data are in 2008 US dollars
GDP - composition by sector: agriculture: 14.7%

industry: 31.6%
services: 53.7% (2008 est.)
Labor force: 36.81 million (2008 est.)
Labor force - by occupation: agriculture: 35%
industry: 15%
services: 50% (2008 est.)
Unemployment rate: 7.4% (2008 est.)
Population below poverty line: 30% (2003 est.)
Household income or lowest 10%: 2.4%
consumption by percentage highest 10%: 31.2% (2006)
share:
Distribution of family income - 45.8 (2006)
Gini index:
Investment (gross fixed): 16.8% of GDP (2008 est.)
Budget: revenues: $26.75 billion
expenditures: $28.2 billion (2008
est.)
Fiscal year: calendar year
Public debt: 56.5% of GDP (2008 est.)
Inflation rate (consumer prices): 9.3% (2008 est.)
Central bank discount rate: 6% (31 December 2008)
Commercial bank prime lending 8.69% (31 December 2007)
rate:
Stock of money: $22.53 billion (31 December
2008)
Stock of quasi money: $65.85 billion (31 December
2007)
Stock of domestic credit: $65.66 billion (31 December
2007)
Market value of publicly traded $85.6 billion (31 December 2008)
shares:
Agriculture - products: sugarcane, coconuts, rice, corn,
bananas, cassavas, pineapples,
mangoes; pork, eggs, beef; fish
Industries: electronics assembly, garments,
footwear, pharmaceuticals,
chemicals, wood products, food
processing, petroleum refining,
fishing
Industrial production growth rate: 5% (2008 est.)
Electricity - production: 56.51 billion kWh (2007 est.)
Electricity - consumption: 47.04 billion kWh (2006 est.)
Electricity - exports: 0 kWh (2007)
Electricity - imports: 0 kWh (2007)
Electricity - production by source:fossil fuel: 55.6%

hydro: 17.5%
nuclear: 0%
other: 26.9% (2001)
Oil - production: 23,930 bbl/day (2007 est.)
Oil - consumption: 340,100 bbl/day (2006 est.)
Oil - exports: 41,160 bbl/day (2005)
Oil - imports: 355,800 bbl/day (2005)
Oil - proved reserves: 138.5 million bbl (1 January 2008
est.)
Natural gas - production: 2.2 billion cu m (2006 est.)
Natural gas - consumption: 2.2 billion cu m (2006 est.)
Natural gas - exports: 0 cu m (2007 est.)
Natural gas - imports: 0 cu m (2007 est.)
Natural gas - proved reserves: 98.54 billion cu m (1 January
2008 est.)
Current account balance: $2.687 billion (2008 est.)
Exports: $49 billion f.o.b. (2008 est.)
Exports - commodities: semiconductors and electronic
products, transport equipment,
garments, copper products,
petroleum products, coconut oil,
fruits
Exports - partners: US 17%, Japan 14.5%, Hong
Kong 11.5%, China 11.4%,
Netherlands 8.2%, Singapore
6.2%, Malaysia 5%, Germany
4.3% (2007)
Imports: $58 billion f.o.b. (2008 est.)
Imports - commodities: electronic products, mineral fuels,
machinery and transport
equipment, iron and steel, textile
fabrics, grains, chemicals, plastic
Imports - partners: US 14.1%, Japan 12.3%,
Singapore 11.2%, Taiwan 7.3%,
China 7.2%, Saudi Arabia 6.4%,
South Korea 5.9%, Malaysia
4.1%, Thailand 4.1% (2007)
Reserves of foreign exchange $36.15 billion (31 December 2008
and gold: est.)
Debt - external: $53.48 billion (31 September
2008 est.)
Stock of direct foreign investment $20.78 billion (2008 est.)
- at home:
Stock of direct foreign investment $5.564 billion (2008 est.)
- abroad:
Currency (code): Philippine peso (PHP)

Currency code: PHP
Exchange rates: Philippine pesos (PHP) per US
dollar - 44.439 (2008 est.), 46.148
(2007), 51.246 (2006), 55.086
(2005), 56.04 (2004)
Source:http://tagaloglang.com/The-Philippines/Economy/economic-
statistics-gdp-rates-debt.html
2.7.4 Technological Factors

The Philippines has been able to acuire certain machineries which
allows the different establishments in the industry to have a better way
of performing their jobs. Some companies even just have machineries
operating in thr production of their products. The country has been able
to cope up in the different changes in the technological aspects of
business.
Personal computer and laptops are also used in the Philippines to have
a better and faster way of communicating with regards to their business.
Cellular phones had been very much up to date. Even the internet, even
though the country was not yet able to apply internet 2.0 nationwide,
they are able to have a wifi access for the people.
Deliveries tend to be more on time especially since orders were also on

time because most of it are sent via the internet already.
2.8 Threats and Opportunities

Threats
These are considered to be dangers a firm faces from the outside of their firm
and should not be neglected.
Changes in Macro- Effect on determinants Conclusion

Environment
Continuous innovation of Substitutes tend to have Increase the threat of
the products by comparable or better substitute products
competitors performance features
Possible rise of new More people tend to grow Increase the threat of
substitutes more comfortable using substitute products
substitutes
Continuous penetration Consumers prefer good Increase threat of
of substitutes in the substitutes that are substitute products
market readily available
Lack differentiation Low switching cost Increase intensity rivalry
against competitors of competitors

Prices of products are the Low switching cost Increase bargaining
same even with different power of buyers
brands
Opportunities
These are things a firm must take into consideration because it may provide a
development in the different aspects of the company such as increased market
share or increased profit.
Changes in Macro- Effect on determinants Conclusion

Environment
Limited Industry entrants High capital requirements Decrease threat of new
hinders new entrants entrants
Increased Demand for Increase in the sales and Increase intensity rivalry
dairy products by coffee profit for the dairy of competitors
shops products
Development in the Increase in the volume of Decrease bargaining
economic growth of the purchase of dairy power of buyers
country products by the
consumers
Support given by the Stable and equal political Decrease bargaining
government governance power of buyers
Continuous fondness for Increase purchase Decrease bargaining
food by the citizens of the frequency of dairy power of buyers
Philippines products
2.9 Industry and Competitive Analysis
2.9.1 Strategic Map

High
Nestle
Price/
Performance/
Reputation Magnolia
Kraft Inc.
Low
Few Products Many Products

Product Variety
CHAPTER THREE: INTERNAL ENVIRONMENT ANALYSIS
3.1 Company Overview

Magnolia Inc. was incorporated in the Philippines primarily to engage in and carry
out the business of processing, manufacturing, and marketing of cheese, butter,
margarine and other related products under the “Magnolia” trademark. With its
well-established leading brands, the company comprises over 90% of the non-
refrigerated margarine market and over 80% of refrigerated margarine.
San Miguel Purefoods Company, Inc. (SMPFC) is the company’s present

company while San Miguel Corporation is the ultimate parent company.
The company’s office is located at 21st floor JMT Building, ADB Avenue, Ortigas
Center, Pasig City.
3.4 Corporate Values
3.5 Value Chain Analysis
3.5.1 Primary Activities

Inbound Logistics or the Supply Chain
Magnolia Inc. offers a variety of dairy products in the market. They have
Milk, Butter, Cheese, Margarine, and etc. They import their milk from New
Zealand and is brought in their Plant in Cavite, Philippines. It is there
where in they manufacture the dairy products out of the milk and some of
the little raw materials which acts as spices for the other products. They
also do the packaging in cavite plant which is stored there as well or
brought to Pasig warehouse for storage. In Pasig, clients may pick up
products from there or Magnolia delivers the products to the dirtributors
from Pasig Warehouse.
Afterwards, these distributors have market sellers or sometimes, they

distribute to large supermarkets. It is where consumers are able to buy
retail of the Magnolia Products.
Operations
Magnolia Inc. does their manufacturing on their own as mentioned in the

supply chain. They do outsourcing but for their promotional materials and
packaging as well. They also have their sales people, the SMIS or the San
Miguel Integrated Sales. They are the ones who takes care of the Modern
Trade accounts and the General Trade accounts. Modern trade are
accounts that are big such as supermarkets and etc. GT on the other hand
are smaller grocery stores.
Outbound Logistics
Magolia used to have a traditiona way of distribution. Once marketing or

sales orders stocks from Cavite plant, it is already considered as a
revenue. But early this year, they changed it into Virtual. The stocks that
marketing and sales will be ordering must be ordered from Pasig
Warehouse because all transactions must pass by pasig first. It only
means that all stocks must pass by pasig Warehouse before distribution.
Magnolia manufactures in cavite, then stores the products there for a

while. It is then brought to Pasig Warehouse. Afterwards, distributors
either picks up their stocks or asks for it to be delivered. Then it goes to
the market sellers who are the ones in charged of the small markets, and
we also have the SMIS for the larger markets. After distibution, it is ready
for the retailers to sell in I wholesale or retail.
Marketing and Sales
Marketing and Sales of Magnolia are two divisions under their company.
Marketing people which comprises of the general manager, marketing
managers, brand managers, assistant product managers, and product
assistants. They are the ones who take care on how they will increase
market share. They do the promotions and ex-deals for the products of
magnolia increase their share. They also assure that every product thay
they innovate or introduce in the market is patented.
Sales (SMIS) on the other hand, handles the transactions on how each
product will be able to reach its quota in earning revenues and profits. The
two divisions coordinates with eachother because the sales people are the
one in direct contact with the clients which is helpful for the marketing
people to know what the consumers or the clients want by asking the
wants and needs to the SMIS people.
Service
The service Magnolia Inc. offer is done by the San Miguel Integrated
Sales (SMIS). They are the ones who interact with the clients so that
Magnolia will be able to know the demands of each clients. SMIS see to it
that the clients and the company compromise at cetain demands to satisfy
both sides. SMIS do the sales talking with the big accounts.
Magnolis also have their market sellers who in return does to interaction
and transaction of small sales with the small retail stores in the market.
They are more hands-on with their clients because they see to it that they
meet them every once in a while to gain loyalty with the products the
clients purchase from the market sellers.
3.5.2 Support Activities

Human Resource Management
Magnolia shares their HR department with all of the sub business units of
San Miguel Purefoods. They are the ones in charge of hiring and taking
care of the needs of the employees.
They are the ones in charge of the compensations and benefits that the
company provides to the employees.one of the compensations that they
give is the christmas gift certificates. They provide the employees gift
certificates from the different sub businesses.
Product R&D, Technology, and System Development
Magnolia uses the SIF or the stock issuance form in creating orders for
their products. They have a software in each of the employee’s computers
which enables them to reserve their stocks. Once these orders are made
and reserved via the SIF, people who takes care of the stocks in Cavite
plant and Pasig warehouse may access and verify the orders made. This
also helps in knowing the sales made.
The use of the internet and computers is very helpful in being able to blast
easily news, announcements, and memorandum among employees of the
company. They have this so-called Lotus Notes which serves as their
email accounts. With it, they get easily connectef to the employees and
makes it easier and faster to communicate with each.
General Administration / Firm Infrastructure
Magnolia have their branch in purchasing and finance as well. They are
the ones who takes care of the procurement procedures of the company
and also manages the finances of the company as well.
The company have people who takes care of the quality management.
They have their employees go to the different stores wich offer Magnolia
products and discretely checks the quality and the condition of the
products in the said store.
3.6 Financial Analysis
This analysis is where there is transformation of data into a form that can be
used to monitor and evaluate the firm’s financial position, to plan future financing,
and to designate the size of the firm and its rate of growth.
BELOW ARE THE FINANCIAL STATEMENTS OF MAGNOLIA INC.:
Magnolia Inc.
(A wholly-owned Subsidiary of San Miguel Purefoods Company, Inc.)
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
BALANCE SHEET
(Amount in thousand pesos)
December 31
2009 2008 2007
ASSETS
Current Assets
Cash and Cash Equivalents 84,011 65,162 142,875
Trade and other receivables 743,360 837,062 1,008,009
Inventories - Net 523,580 1,123,764 791,579
Derivative assets 3,217 1,474 39,359
Prepaid expenses and other
current assets 157,663 138,275 63,201
Total Current Assets 1,511,831 2,165,737 2,045,023
Noncurrent Assets
Investments in shares of stock 254,424 254,424 312,405
Investment properties - net 8,751 11,865 3,700
Property, plant and equipment
- net 569,336 579,945 558,322
Computer software - net - - 2,950
Deferred tax assets - net 159,142 270,287 232,419
Other noncurrent assets 2,067 2,067 4,954
Total Noncurrent Assets 993,720 1,118,588 1,114,750
TOTAL ASSETS 2,505,551 3,284,325 3,159,773
LIABILITIES AND EQUITY

Current Liabilities
Loans payable 100,000 1,128,000 1,271,444
Trade oayables and other
current liabilities 1,392,360 1,398,767 1,163,290
Income and other taxes
payable 52,478 6,394 11,538
Total Current Liabilities 1,544,838 2,533,161 2,446,272
Noncurrent Liabilities
Retirement Liability 28,373 15,615 8,144
Total Liability 1,573,211 2,548,776 2,454,416
Equity
Capital Stock 728,399 444,711 444,711
Additional paid-in capital 525,927 409,615 409,615
Deposit for future stock
subscription - 400,000 -
fair value reserve on available
for sale securities 50 50 50
Deficit (322,036) (519,782) (149,019)
Total Equity 932,340 734,594 705,357
Total Liability and Current
Equity 2,505,551 3,283,370 3,159,773
Magnolia Inc.
CASH FLOW
Years Ended December 31
2009 2008 2007
Net Sales 5,283,294 4,808,379 5,160,909
Cost of sales (3,763,969) (3,990,726) (4,138,246)
Gross Profit 1,519,325 817,653 1,022,663
Selling and Administrative
Expenses (1,172,977) (1,089,821) (1,034,890)
Loss from operations 346,348 (272,168) (12,227)
Interest Expense and financing
charges (41,864) (72,841) (106,129)
Interest Income 1,251 2,005 3,731
Other income (Charges) - Net 33,318 (46,118) 3,450
Total Income charges (7,295) (116,954) (98,948)
Loss before income tax 339,053 (389,122) (111,175)
Income (loss) before income
tax 2,204,726 156,363 899,261
Income tax expense
(Benefit) 142,307 19,369 (77,184)
Net Loss (369,753) (188,359)
Total Net income
(Loss)/Total Comprehensive
income (Loss) 2,062,419 136,994 976,445
Magnolia Inc.
CASH FLOW
2009 2008 2007
CASH FLOWS FROM
OPERATING ACTIVITIES
Income (loss) before income tax 339,053 (389,122) (111,175)
Adjustments for:
Deprecieation 83,383 58,449 63,932
Interest expense 41,864 72,841 106,129
Fair value changes on
derivatives - net (15,519) 53,741 (14,893)
Impairment loss on investment
properties 3,114 5,359
Interest income (1,251) (2,005) (3,731)
Unrealized foregign exchange
loss (723) 395 616
Impairment loss on investment
shares of stock - 57,981
Gain on disposal of property,
plant and equipment - - (91)
Operating Income (loss) before
working capital changes 449,921 (142,361) 40,787
Provisions to reduce inventories to
net realizable value 0 net 10,808 22,302 14,049
Retirement expense 12,758 7,471 5,018
Provision for impairment losses on
recievables 4,160 11,000 11,590
Decrease (increase) in:
Trade and other recievables 89,541 146,423 (7,867)
Inventories 596,542 (363,701) 248,054
Prepaid expenses and other
current assets (19,387) (75,074) 52,652
Increase (decrease) in:
Trade payables and other
current liabilities (8,311) 219,205 50,140
Income and other taxes
payable 14,969 (23,698) 27,793
Pension Liability - (10,268)
Cash generated from (used in)
operations 1,151,001 (198,433) 431,948
Interest (32,629) (63,606) (114,266)
Interest received 1,251 2,005 3,731

Income taxes paid (24,436)
Net cash provided by (used in)
operating activities 1,119,623 (260,034) 296,977
CASH FLOW FROM INVESTING

ACTIVITIES
Additions to property, plant and
equipment (72,774) (47,073) (33,355)
Transfer from affiliates - (30,049) -
Decrease in other noncurrent
assets - 2,887 344
Proceeds from disposal of
property, plant and equipment 5,424
Net cash used in investing
activities (72,774) (74,235) (27,587)
CASH FLOWS FROM

FINANCING ACTIVITIES
Availment of loans 13,877,400 1,563,026
Payment of loans - net (1,028,000)
Deposit for future stock
subscription - 400,000
Payments of:
Loans payable (14,020,844) (1,938,232)
Net cash provided by (used in)
financing activities (1,028,000) 256,556 (375,206)
NET INCREASE (DECREASE) IN

CASH AND CASH
EQUIVALENTS 18,849 (77,713) (105,816)
CASH AND CASH
EQUIVALENTS AT BEGINNING
OF YEAR 65,162 142,875 248,691
CASH AND CASH
EQUIVALENTS AT END OF
YEAR 84,011 65,162 142,875
3.4.1 Financial Ratios
Investors seek for financial analysis every time they want to invest into
a new business venture. Financial analysis shows how enable a certain
company is to sustain profit. It is divided into parts, but shown below are
the profitability ratios, Liquidity ratios, and the leverage ratios of
Magnolia Inc.
PROFITABILITY RATIOS 2009 2008 2007

Gross Profit Margin 28.76% 17.00% 19.82%
Operating Profit Margin 106.56% 94.34% 99.76%
Net Profit Margin 39.04% 2.85% 18.92%
Return on Total Assets 0.8236 0.0423 0.3102
Return on Stockholder's
Equity 2.2121 0.1865 1.3843
Profitability ratios are financial metrics that is useful in assessing an

establishment’s capability to generate earnings as compared to its
expenses and other costs incurred during certain period of time.
Generally, if results in this ratio are high, it indicates that the company is
going well.
As seen with the gross profit margin, the company is able to cover
28.76% of operating expense but still incur profit. Even though it
decreased during 2008, it did boost up during 2009. The operating profit
on the other hand shows that more than a hundred percent is the
capability of Magnolia to profit with their current operations regardless
of interest and taxes. Net profit margin of magnolia also boosted in
2009 having a margin of 2.85% in 2008 to 39.04% in 2009.
LIQUIDITY RATIOS 2009 2008 2007

Current Ratio 0.9786 0.8550 0.8360
Quick Ratio 0.6376 0.4108 0.4963
Working Capital (33,007.00) (367,424.00) (401,249.00)
Liquitidy ratios are used in assessing a company’s ability to pay off its
shot term debts. Normally, it should have higher values. But in
Magnolia’s case, they tend not to be able to be stable in paying off short
term debts.
Current ratio of Magnolia shows that they almost are able to reach 1.0
which is the standard for a company to have to show that a firm is able
to pay current liabilities using assets that are convertible to cash. This
ratio shows that magnolia do not have the capability, or if it doea, ithey
only have a small capability to do so. Quick ratio shows that Magnolia is
paying current liabilities with the help of the sale of their inventories.
Working Capital of Magnolia showed a huge improvement in 2009 from
having a deficit of P401,2409 in 2007 to only P33,007 in 2009.
LEVERAGE RATIOS 2009 2008 2007

Debt-to-assets ratio 0.6166 0.7713 0.7742
Long-term debt-to-capital
ratio 2.95% 2.08% 1.14%
Debt-to-equity ratio 1.66 3.45 3.47
Long-term debt-to-equity
ratio 0.0304 0.0213 0.0115
Leverage Ratios are used to assess a firm’s ability to finance their

activities. Magnolia’s debt to asset ratios shows that there was an
improvement in lessening borrowed funds in financing Magnolia’s
operations. As years go by, Magnolia was able to lessen their debt to
asset ratio. Long-term debt to capital ratio shows that the balance sheet
of magnolia is more stable and stronger as compared to the latter
years. Debt to equity ratio on the other hand shows that magnolia has
excessive debt because it exceeded 1.0. But they still showed
improvements since they decrease the ratio from 2007 to 2009. Long
term debt ratio shows the capability of a firm to borrow additional funds
if values are low. Since the values for magnolia are increasing, it only
shows that they do not have the capability. It shows the balance
between debt and equity in the firm’s long term capital structure.
3.7 Strenghts and Weaknesses

Current Company Strengths:
Strength Description Basis

Intellectual product and Magnolia’s continuous Marketing department
brand patents innovation and files for patents for every
introduction of new product innovated or
products are being introduced.
monitored so that they do
not copy or be copied by
competitors.
Subsidiary of a large Magnolia Inc. is a San Miguel Purefoods
company business of San Miguel Company takes care of
Purefoods Company Inc. the human resource and
other administrative roles
for magnolia. Their parent
company is the San
Miguel Corporation
Established brand names An example of which are The brands are the first to
quickmelt, star emerge in the market
margarine, and jellyace. therefore they have the
strongest brand names.
For example, the
Magnolia quickmelt, it is
the first cheese to be
known as the quickest
melting cheese in the
market.
Fast delivery of stocks It is easy to order stocks Magnolia has their own
and be delivered at the plants for storage and
Pasig warehouse delivery trucks which
enables them to deliver
on time. Also, the use of
the internet and emails
enable faster
communication for
deliveries.
Current Company Weaknesses:
Weaknesses Description Basis

Limited number of Few employees takes Some products such as
marketing employees care of the marketing role the Star Margarine is
in the company which only handles by one
makes it hard to grow person, the assistant
faster. brand manager. This
makes it hard for her to
manage all the
promotions and
maintainace of the brand
in the market.
Lack in promotions They lack promotions as They do not have their
a company. own website. They still
share it with the other
businesses of San
Miguel Purefoods
Company.
Inability to stand alone Magnolia is still under the As per record in the
management of San securities exchange
Miguel Purefoods commission, they are still
Company. considered a subsidiary
of San Miguel Purefoods
and has San Miguel
Corporation as their
parent company.
CHAPTER FOUR: STRATEGIC PLAN
4.1 Vision and Mission
A company vision is usually created in accordance with the company core

purpose and core values. This does not change even if the strategies of the
company change caused by its environment.
The current vision of Magnolia Inc. is the same as to the vision of its head
company, which is the San Miguel Purefoods Company Incorporated. Its vision is
stated as,
“It is our fundamental belief that everything is loaned to us by our Creator, to

grow and multiply them for the good of everyone. As such, we value and take
care of what has been entrusted to us - malasakit. It is the core value that
permeates all other values that we espouse: Customer focus, Social
Responsibility, Passion for Success, Integrity, Respect for our People,
Innovation, and Teamwork.
It is in this spirit that we will look after the welfare and interest of our
stakeholders.
We will delight our Customers with products and services of uncompromising

quality, great taste and value, and are easily within their reach.
We will create value and provide fair returns on our Shareholders’

investments.
We will work hand-in-hand with our Suppliers and other Business Partners,
helping them grow with us and assuring them of reasonable returns.
We will develop and motivate our Employees to become best-in-class

through cognitive and affective programs, competitive compensation and
benefits, and diverse career growth opportunities. We will help improve the
quality of life in Communities where we operate.
Collectively, we will give and do what is right and become proponents of good
stewardship.”
As to the company’s current mission, they still apply what is used by the
company which handle them, the San Miguel Purefoods Company and it is
stated as,
“We will intimately understand our consumers, winning ther hearts by providing-tasting
and innovative products and services that anticipate and respond to their needs.
We will ensure that our products are of uncompromising quality and easily within reach.
We will be the leading provider of good nutrition for families, offering a wide spectrum of
products. And, to complete our portfolio, we will engage in nutraceuticals and organic
food segments.
We will revolutionize the foodservice and retail industries.
We will aggressively bring our products and services worldwide, spanning the Asia-
Pacific, Middle East, South Africa, and Europe.
We will develop a regional network of manufacturing capabilities that will provide us with
least cost advantage in raw material sourcing, production, and logistics costs.
We will develop a regional network of manufacturing capabilites that will provide us with
least cost advantage in raw material sourcing, production, and logistics costs.
We will become the benchmark of innovation, systems and technology, and people
development in the industry.
We will play an active role in improving the lives of the communities where we operate.
We will be the Filipino company that nurtures families worldwide.”
The company needs to have its own vision and mission statements for it to be able to
create more specific objectives and strategies for their company.
The proposed vision statement is,
“To take the lead in terms of being a dairy product food processing company in the
Philippines”
And the proposed mission statement is,
“To provide the consumers with the best dairy products that would satisfy their needs
and assure them of the great quality of the products produced by the company”
4.2 Objectives
The company objectives are important for the company in creating its strategies.
The company objectives must be aligned with its vision mission statement to be
more effective. These objectives must be specific, measurable, attainable,
reliable, and time-bound.
The proposed objectives for the company are as follows:
 To increase market share by 80% in the next 5 years and have a continuous
and upward trend for the company’s sales and revenues.
 To sustain and improve brand equity of the current products the company
have in the next 5 years.
 To maintain company’s financial stability and regain lead in the market with
regards to the other companies in the diary product food processing industry.
4.3 Evaluation of Present Corporate Strategies

Magnolia Inc. is currently using the broad-differention type of generic strategy. It
is because this strategy is defined as a strategy which seeks to differentiate the
company’s product offering from rivals’ in ways that will appeal to a broad
spectrum of buyers. The company is able to adapt this strategy by having a wide
product offering per category. Such examples are the Magnolia Quickmelt and
the Ques-O. These products are both handled by Magnolia but are marketed into
different market segments. They are differentiated but are still under one
company. Both are also under the category for cheese.
1. Product and Service Scope
Based on the product scope of the company, they offer a wide variety of products
categorized into cheese, butter, margarine, specialty oils, gel-based snacks and
desserts, and milk. They are able to offer products in the different categories
which make them versatile in terms of dairy food processed products.
Evalutation: Opportunity for improvement
Magnolia Inc must be able to continue on offering the different types of products
that they have as of the moment. They must be able tp continue to market each
product to its specific target market. Also, the company must be able to uphold to
the brand equity each of their products have, better yet, increase [promotional
activities to acquire more market share for each.
2. Geographic Scope
With regards to the geographical scope, Magnolia Inc is distributing nationwide to

provide better quality of supply to its consumers and users. Their distribution is
divided into GMA, North Luzon, South Luzon, Visayas, and Mindanao. But even
so, the company is more focused in GMA, Sount Luzon, and Visayas.
Evalutation: Opportunity for improvement
Magnolia Inc must take into consideration the number of consumers they have in
the Visayas and Mindanao Region. They may provide the same equal quality of
service they give to the consumers in GMA, South Luzon, and Visayas. Also, if
most of their competitors are already focused into marketing their products in the
said areas, they might as well try developing their product equity in Visayas and
mindanao to increase their market share and profits.
3. Specialization
Magnolia inc is specializing into the dairy products of the food-processing

industry. The company is also said to produce fast moving consumer goods,
these are goods that are frquently purchased. They target both wholesalers and
retailers to sell their products.
Evaluation: Continue
Magnolia is already known in the said inndustry and the products they offers are
a must to be in the fast moving consumer goods category.
4. Brand Identification
Magnolia inc as a brand is already known in the market, also for its products.
Such examples are Quickmelt, Dari Crème, Magnolia Fresh Milk, and Jelly ace.
These are already known to the consumers and is easily remembered. They
have already made a mark in the minds of the consumers. Also, San Miguel
Purefoods helped in adding up to the equity of the brand. This is because San
Miguel Purefoods is already a known subsidiary of San Miguel Company. These
are one of the largest companies in the Philippines owing numerous companies
as well.
Evalution: Opportunity for improvement
Magnolia inc have the opportunity to use the names of the big companiues
handling them in order for them to step up their brand equity. They may always
mention that they are a subsidiary or a company of the large companies
mentioned earlier. Magnolia inc may use this opportunity to acquire the
consumers of the large companies, especially the loyal customers of San Miguel
as a whole.
5. Push vs Pull
Magnolia Inc is using the Push strategy. Even though they are already a known
company, they are still pushing their products towards the consumers. They have
certain competitors, such as Kraft, that have greater market. That is why
Magnolia is pushing their products in order to acquire more market share.
Evalutaion: Continue
Magnolia inc must continue using this strategy for them to regain the market
share lost to the competitors. The company must push to the customers their
products and brands.
6. Channel Selection
As mentioned eariler, Magnolia distributes its products to GMA, North Luzon,

South Luzon, Visayas, and Mindanao. Their head office is at the 21 st Flr, JMT
Bldg., Ortigas Center, Pasig City and they are sharing it with the other companies
of San Miguel Purefoods such as Purefoods-hormel, Monterey, Magnolia Ice
Cream, and etc. They have warehourses in Pasig and Cavite, but their
manufacuring warehouse is in Cavite.
Magnolia inc may continue staying under the roof of their mother company in
order for it to provide guidance in terms of its profitability and equity. Also, it will
act as a support for the consumers to believe that they are really a company of
San Miguel Purefoods.
7. Product and Service Quality
Magnolia Inc had been able to provide godd service and great product quality to
its customers which made them sustain their current reputation in the dairy food
processed goods industry. They were able to provide to the actual purpose of
their products which inreturn satisfies their customers.
Magnolia Inc has already stayed in the industry for more than 20 years. This only
shows how they are able to provide satisfaction to their customers with the type
of service and quality of products that they have.
8. Technological Leadership
Magnolia inc is using technology to lessen time consuming orders and

inventories of products. They have a built in system which the whole San Miguel
Purefoods is using. The only problem is that they lack a website which is very
useful for most of the companies who want to gain leadership in their industries.
Magnolia does not have an IT department to take care of such matter, they are
also sharing it with the other companies San Miguel Purefoods is using.
Evalution: Opportunity for Improvement
Magnolia must be able to create their own website to provide information to their
customers. If they cannot afford to have an IT department, then they may consult
an outsider or outsource the production of their website.
9. Vertical Integration
Magnolia inc is able to acquire a vertical integration especially since they have
their own manufacturing site and they are also the ones who sell it. They have
acquired their own warehouses and have their own sales people to sell their
products as well.
The company had been able to improve product offerings which make their use
of the vertical integration useful and effective for the company. Magnolia is also
able to provide a more focused strategy in terms of providing satisfaction for the
company because of the more aligned integration that they partake.
10. Cost Position
Magnolia Inc is pursuing product minimization for their products which allowed
them to have low cost production of some of their products labeled with another
brand but still under magnolia Inc. An example of such is Ques-O. Magnolia was
able to minimize a minimized cost through Ques-O because of the low cost of its
production; they were able to price it lower to be more attractive in the eyes of
the consumers.
Magnolia is able to provide to a broad market through lowering their cost and
lowering their selling price as well. This enables to company to earn more profit
due to the volume sold of some of its products.
11. Service
Magnolia is also providing service through the SMIS (San Miguel Integrated
Sales) and through their Market Sellers. They are the ones who take care of the
sales and are the ones who transact with the clients. Market Sellers are in charge
of a more direct transaction with the consumers while the SMIS is in charge pf
larger accounts such as SVIs. Rustan’s, Robinsons, and etc.
Magnolia is able to capture the large markets and at the same time, provide to
the individual consumers who use or buy their products. This enables Magnolia
inc to have a wider scope of market to add to the increase in market share and
profits as well.
12. Price Policy
Prices of the products offered by Magnolia Inc differ from each other depending
on the cost of its production and its targeted market segment. Like for example,
the Magnolia Quickmelt with a target market of the Class ABC, then it enabled
them to price it higher than the likes of Ques-O. Also, the product has its own
brand equity being the first ever cheese to be known as the fastest melting
cheese.
Due to this type of pricing, Magnolia is able to penetrate different market

segments and provide to them. Also, they were able to acquire a larger market
share due to the different pricing of their products and different market segments
who consume their goods.
13. Relationship to both Home and Host Government
Magnolia Inc had been in the country for more than 20 years and was operating
since then. During the time that they have been operating the business, they did
not have any problems or whatsoever with the government. This implies that they
have been paying the right taxes and are abiding by the laws of the state.
Magnolia Inc must continue to abide by the rules of the government by as simple
as paying their taxes. Through this, it would be easier to implement projects and
introduce products. Good relationship with the state provides good business as
well.
.
Below is a summary of the strategic options presently used by Magnolia, Inc.
STRATEGIC DIMENSION EVALUATION

1. Product and Service Scope Change
2. Geographic Scope Change
3. Specialization Continue
4. Brand Identification Change
5. Push vs Pull Continue
6. Channel Selection Continue
7. Product and Service Quality Continue
8. Technological Leadership Change
9. Vertical Integration Continue
10. Cost Position Continue
11. Service Continue
12. Price Policy Continue
13. Relationship to both Home Continue
and Host Government
4.4 Proposed Corporate Strategies
A corporate strategy is defines as, the overall scope and direction of a

corporation and the way in which its various business operations work together to
achieve particular goals.
After being able to analyze the different strategic dimensions and evaluate the
overall strategy of Magnolia Inc., it is suggested that Magnolia impart the
following proposed corporate Strategies:
1. Develop a more updated company website to provide information about

the company and the products
2. Increase promotions for each product
3. Reduce production cost of products that provide decrease in Market
Share and Profit
The abovementioned will now be discussed according to the Description, Objective/s

addressed, and Basis of Corporate Strategy:
Strategy Number 1: Develop a more updated company website to provide

information about the company and the products
Description:
Company websites may lure consumers to try products of a company

especially if the websites are attractive ti their eyes
The three proposed company objectives were: To increase market share by 80%
in the next 5 years and have a continuous and upward trend for the company’s
sales and revenues; To sustain and improve brand equity of the current products
the company have in the next 5 years; and To maintain company’s financial
stability and regain lead in the market with regards to the other companies in the
diary product food processing industry.
The company has a current website but lacks the important information
consumers must know. All they have are the history, news about the company
which are not updated, an where to reach Magnolia Inc. It does not seem
attractive for anybody visiting their website.
Through this strategy, it will provide for all objectives. First, it will increase the
information that magnolia will share with the company and through that, more
people will be willing to try their products. Also, people will not believe that their
company is a stable company and it started about 20 years ago. Looking at their
current website, it is as if their company does not exist at all. Here is a sample of
their company website and its contents.
Proposed Company Website:
The company website must contain the product portfolio and important
information about the company. It must be able to provide at least the following
essential information:
 Company Vision and Mission Statements

 Corporate Values
 Product Portfolio
o Which includes the name of the products, SKUs, current Suggested
retail price
 Attractive pack shots of the products
 Updated News on the projects of the company
 Current Television and Radio Commercials
Strategy Number 2: Increase promotions for each product
Description:
Increased promotions help in retaining the products in the minds of the

consumers and help in increased market share and profit, therefore, all of
its products must increase its promotions equally.
Some of the products of Magnolia are not able to sustain or survive in the
market. An example of such is the jelly ace where in the management almost
eliminated it from the market last 2010 and finally gave it another year to be
tested on whether it will still provide profit for the company. Jelly ace is a well-
known brand but lack promotions. Its brand equity fell due to the increased new
entrants for gel-based snacks.
On the other hand, Magnolia focused too much on promoting STAR, Quickmelt,
and Milk for the past years. Yes it provided increased revenues and market share
for STAR and Quickmelt, but still did not provide a leap increase for milk.
It would be better if the company will be able to provide equal promotions for
each product. It would help bring up the company in terms of market share
because if consumers become more aware of their other products, then they can
acquire more targeted market segments to use their products.
Increased promotions will help all of their products to uplift its brand equity
especially if it would be known to be a product of magnolia which is a company of
San Miguel Purefoods. Through this, more people will engage into buying and
trying most of their products especially if these people are fond of the other
products of the company and its parent company as well.
Proposed promotions:
The company must make use of their SMIS and Market Sellers wisely. Magnolia
may ask them to bring merchandising materials to be given to their clients. Some
merchandising materials are the following:
 Posters
 Wobblers
 Cartondolas
 Leaflets
These merchandising materials must always contain the name of the company
and all of the products which the company had. With this, it will lessen the cost
for the company if all products are mentioned. If needed, that is the only time
they may produce merchandising materials per product.
But having the SMIS and Market sellers interact with individual consumers and
clients, then it would be of great help to provide these materials to add up to
promotions and viral marketing. If necessary, they may add up TV commercials.
Like for quickmelt, after a number of years, it was only this year that they made a
commercial for the cheese. Due to the long time it was not felt in the media, its
market share was low compared to Eden melt sarap.
Magnolia must be able to increase advertisements such as samplings, TVs,

bundling promos, radio ads, sponsorships, and etc. Here are some promotional
activities that must take place.
Strategy Number 3: Reduce production cost of products that provide

decrease in Market Share and Profit
Description:
Jelly Ace is one example of this type of product. The tables below show the
decrease in market share for jellyace in the different areas.
Source: Beginning of the year SMIS Cascade Emerging presentation

Jelly ace had been the leading brand in terms of gel-based snacks before. But
due to the increased penetration of other brands, jelly ace lost its lead. It was
said to be because of the production cost the product have. It cannot lower down
its product cost the same as to what the other competitors have.
Proposed reduction of cost:
Magnolia inc must be able to expand outlet penetration while rationalizing on
fixed costs. The company may continuously drive growth of product lines in
supermarket accounts, expand penetration of in supermarkets, improve display
and visibility in the shelves, strengthen products in downline Channels, and
reduce trade expenses.
In order to do so, Magnolia must re-run plus free pieces promos and even update
the packaging designs of some products. The company may also conduct
merchandising contests in supermarkets. They may reduce cost by implementing
wholesaler programs or trade deals wherein they will be able to provide good
relationship with the distributors. Then, the company may re allocate their budget
to more profit-generating activities.
4.5 Competitive Advantage

A competitive advantage is an advantage over competitors gained by offering
consumers greater value, either by means of lower prices or by providing greater
benefits and service that justifies higher prices. It is based on superior assets and
superior capabilities of a company. Below is the actual competitive advantage
cycle:
The competitive advantage of Magnolia Inc is that they have variety of products
with regards to the different categories a dairy food-processing company have.
They do not focus into marketing a single product category in the said industry.
Sources of Advantage
Superior Assets
 Distribution Coverage – Magnolia Inc is able to distrbute

nationwide in the Philippines.
 Cost of raw materials and purchased inputs – Magnolia Inc has
low cost in terms of raw materials and purchased inputs because
they have their own manufacturing warehouse in cavite and the
most prominent raw material that they buy is the imported milk.
 Number of Service and Sales People - Magnolia Inc have a
product manager, brand manager, and product assistants per
product to assure that each product is sustained. Also, they have
SMIS and Market Sellers to take care of the sales in every area.
 Geographic coverage – Magnolia Inc is able to provide their
products and services nationwide all over the Philippines.
 Brand Equity – Magnolia Inc is an established company since July
1981 and did not undergo any changes or problems with it. Also,
they have been able to produce products that were known in the
market up until today.
Superior Capabilities
 Accumulated employee knowledge and skills – Magnolia Inc

was able to hire employees that are well knowledgable into how to
market its product handled.
 Management System that exist to create and control – they
have a system in the computer where in they are able to input
orders. This is called the SAP. In this system, they are also abl to
see the budget for each pormotional activity of each brand or
product. This enables the company to keep track of certain
activities.
Positional Advantage Realizes
Magnolia Inc’s position of advantage is differentiation. They had been able

to differentiate their products in such manner that they were able to cater
to a larger market segment due to the different products and brands
offered by the company. As said earlier, they did not focus on providing a
single dairy food processed produc, but instead, provided a product or
brand per product category.
Being able to differentiate provided them with a stronger brand equity as

Magnolia.
Performance Reward
The performance rewards are profit, market share, customer satisfaction,

and customer loyalty.
The company, Magnolia Inc., was able to satisfy the market for more than
20 years and is still doing so. This resulted to the sustained reputation and
stand in the industry of the Company. In terms of profit, they had been
able to earn profits yearly which enabled them to improve and introduce
new products which lead them to have a wide range of products in their
product protfolio. Customer loyalty and satisfaction are acquired as well
especially since the company had been able to provide to the needs and
wants of their valued customers.
Competitive Dynamics that erode Advantages
There are certain factors that triggers a company from acquiring the aimed
competitive advantage. Such factors may be the economic situation in the
country which may be unstable anytime. Because of it, people may buy
less and might not consumer products that have higher prices. Also, If
more and more competitors are able to duplicate products of magnolia,
then it would be hard to achieve the Investment renewals needed.
Investments in Renewal
Magnolia Inc must be able to guarantee that all superior assets and
superior capabilities are used to its full. Magnolia is able to implement this
by creating new assets. Such example is that due to the profit reward, the
company is able to hire more knowledgable people to handle their
accounts. Another is that since the comapny was able to acquire
increased market share, they are able to conduct more product
innovations to satisfy the consumers.
CHAPTER FIVE: FUNCTIONAL AREA STRATEGIES
5.1 Marketing
5.1.1 Identify target Marketing Segments
Magnolia Inc.’s target market segment are those belonging in the

Class B, C, and D. It is because they are able to offer products
associated per income class. For the upper classes, they have
cream cheese, low fat milk, and etc. And for the lower classes, they
have the ques-O and the STAR margarine which can be a
substitute for butter. With butter, they have Gold butter for the
upper classes.
Some of the products of Magnolia, specifically Milk and STAR

Margarine are opted to be consumed or bought by mothers
because these products are most consumed by their children.
Therefore, magnolia is targeting these Mothers for them to buy and
let their children eat the said dairy products.
5.1.2 Marketing Objectives
 To be able to increase sales revenues by 50% in year 2015.

 To achieve atleast 85% customer satisfaction in year 2015
 Increase brand equity by becoming listed as one of the top 10
most profitable FMCG companies in the philippines
 Increase customer consumption by 50% in year 2015
5.1.3 Marketing Plan
4 P’s
Product
 Focus differentitation on their products must persistently
implemented. They have the edge when it come to quality but
disadvantage with regards to the cost of producing those
products.
 Try to eliminate or lessen the production and the cost for those
products which do not contribute well to sales and revenue of
the company.
Place
 Choosing where to put the products are critical. Analysis of all
ditribution channels and retailers is the best solution to find out
where to put their products. This analysis is composed of all the
costs, accessibility, and the type of retailers.
Price
 Pricing strategies for their products may come in any form. They
could initiate price wars or drive their products away from price
competition.
Promotion
 Promotion is very important for Magnolia. Magnolia brand is a
established one but it is commonly used by other
establishments since Magnolia has gone out the picture years
ago. Brand is still the same but the impact it has has been
diminished and the company’s goal is to reclaim that image that
originally belongs to Magnolia brand.
5.2 Operations
5.2.1 Objectives
Productivity
 To decrease operating expense by 30% in year 2015
Quality
 To attain 90% on-time delivery of goods in the year 2015.
5.2.2 Plan
Capacity
 Quality and quantity control should be monitored consistently to
prevent in unnecessary costs
 Quarterly check on operating procedures must be conducted
for evaluation and comparison
Scheduling
 Tracking devices or tracking system must be installed to
ensure on-time delivery of goods
 Choose reliable third-party alliance for logistics
 Check and monitor regularly time of delivery
5.3 Finance
5.3.1 Objectives
 To achieve a 30% increase in the working capital
 To decrease the debt-to-asset ratio to .3
 To achieve a quick-test ratio of atleast 3 in year 2015

5.3.2 Plan
5.4 Human Resource
5.4.1 Objectives
 To improve employee compensation in the year 2011 to have
increased performance
 To provide the employees with more knowledge in terms of the
quality of work their job title should perform in the year 2011
5.4.2 Plan
Performance Appraisal
 Employee assessment and evaluation must be conducted on a
regular basis
 Give training for employees for their career development
Perfomance Rewards and Incentives

 Employees who performed well will receive rewards and incentives
 Ensure that employee recognition is always on practice
 Offer Stock options
5.5 Information Technology

5.5.1 Objectives
 To improve the company website of Magnolia Inc. In the year
2011
 To enhance the system for inventories and deliveries of the
products of magnolia in the year 2011
5.5.2 Plan
 Develop system for Magnolia where in employees can interact

with one another
 Introduce a website for Magnolia coordinate with Magnolia’s
management about the updates and modifications
 Create a system for the inventories and deliveries of goods for
easier tracking and ensure safety and on-time deliveries
 Create a system for sales forecasting and purchasing
transactions
 Create a database for surveys, feedbacks, customer /
subscriber’s identification
 Integrate a team of help desk anaysts
CHAPTER SIX: IMPLEMENTATION
6.1 Analysis of Company’s Capabilities to Implement
7s Model
 Strategy: the plan devised to maintain and build competitive advantage

over the competition.
 Structure: the way the organization is structured and who reports to

whom.
 Systems: the daily activities and procedures that staff members engage
in to get the job done.
 Shared Values: called "superordinate goals" when the model was first
developed, these are the core values of the company that are evidenced
in the corporate culture and the general work ethic.
 Style: the style of leadership adopted.
 Staff: the employees and their general capabilities.
 Skills: the actual skills and competencies of the employees working for
the company.
Strategy Number 1: Develop a more updated company website to provide

information about the company and the products
Structure
To properly execute and achieve the first prosed strategy, Magnolia should study
and analyze first the existing plans for developing website for the company.
Magnolia Inc. should understand the advantage and disadvantage of creating
their own website since they are under one big corporation – San Miguel
Corporation.
Communication with the Head Office an initial move that needs to be done before
coming up with a decision on whether to pursue this strategy. Magnolia’s General
Manager must evaluate the pros and cons of the proposed project then estimate
the cost of the project before reporting to the head office. Coordination and
regular meeting between different departments including the most essential for
this strategy, the IT department must be done.
Systems
Magnolia’s managers and General Manager must do planning regarding this

proposal. Since Magnolia is a brand under a corporation, the internal or the
people in Magnolia should be knowledgeable and must have a concrete action
plan. Moreover, the IT department is the responsible in the execution of the said
strategy. The input will be from the Magnolia’s management team while the
output will be produced by IT department.
Shared Values
Vision and Mission should be included in the website that will be created. Aside
from product information and updates about the company, the values shared
inside the organization must be emphasize and highlighted. Allowing viewers see
the culture of Magnolia can also make good impression about the company
which may result into two positive outcomes; the increase in profitability or
increase in brand equity.
Style
Magnolia’s management team must continue to support the creation of the

website. The support that this team provides will be the foundation and source of
strength for this plan.
Staff
The upper management of Magnolia Inc. should not only the main responsible in
developing this strategy. Magnolia has a small unit working in the front desk
which means those are the people responsible for Magnolia’s product excluding
the outsourced or third-party affiliates and partners. These employees working in
magnolia have the right to recommend what to be posted on the web and report
all the updates to ensure continues improvement of the strategy.
Skills
San Miguel Corporation is a well-known company with a reputation of a home for

highly skilled professionals and employees. Even though Magnolia does not have
its own Human Resource department, the head office (SMC) assess and
evaluates every applicant then place them if qualified on the SBU they are most
fit in.
Strategy Number 2: Increase promotions for each product
Structure
Each product line has designated person in-charge or formally known as the
Product manager / Brand Manager. They are the responsible in formulating
concepts for advertisements and promotions for their respective products. Report
then will be submitted to Magnolia’s General Manager for approval before
sending it to the head office.
Systems
Product / Brand Managers work with their respective teams to come up with new
ideas in terms of promotions and advertisements. Researches are done by the
Product Assistants to be studied by the managers and analyze if the findings
were necessary and applicable. Managers will also assess the allocation of funds
and the distribution of marketing materials to have an equal share or
proportionality with regards to promotions and advertisements.
Shared Values
Corporate values are always on practice in Magnolia’s management. Magnolia

assures that company’s reputation and morale will not be damaged with the
types of advertisements they will produced. And since they are under one
corporation, every move concerning San Miguel’s brand are examine carefully
before launching it.
Style
During concept formulation, job positions and titles are do not matter most of the
time. It is more important to come up with greater ideas and concept rather than
allowing those who are in higher ops to have total control and come up with poor
outcome.
Staff
With the kind of culture Magnolia has, employees are more satisfied and at ease
to work. Magnolia management wants their employees to feel that they are
assets and important pieces on the puzzle. Though this, they can enhance their
capabilities on work even better on their weaknesses.
Skills
Magnolia workforce has a small unit but it is very competitive. Collectively they
can take the challenges given by the competitors with that such a small number
of people working closely together. The opportunity given to their employees
keep their self-esteem and allow them to excel in their work assignments.
Strategy Number 3: Reduce production cost of products that provide

decrease in Market Share and Profit
Structure
Managers of Magnolia must evaluate the sales and market share of their
products. Identify the products which are generating lowest profit and have the
least share in market. Study and analyze the following products, formulate
problem/s and make some recommendations then submit for approval.
Systems
Higher management should coordinate with the General Manager and consult
whether to continue the existing programs for those products that have higher
costs but generating less profit and lower share in the market.
Shared Values
The manner in which integrity and respect should be practice, the team working
with those products that do not contribute well on the profitability of the company
should not be blamed and misjudged at all cost.
Style
It is a major act that needs to be carefully studied. The decision naturally comes
from the head office. However, this could not be done immediately. The team
and the department must have a concrete decision because this will have a long
term effect on the management and company’s reputation is at stake.
Staff
Each member of the team per product has the responsibility with the product’s
status. It is not always that poor management by the people is the cause why
some products are not successful in the market. There are lots of factors that
need to be considered. Proper training with the employees can propel their
capabilities and may somehow avoid certain crisis when it comes to handling
products. Eliminating product in company’s portfolio is not an easy task to do and
it requires enough time and analysis before it can be done.
Skills
Skilled people might be effective for some companies and sometimes do not. If in
case it was proven that poor performance of employees causes negative effect
on the products status such as decrease in market share and profitability, it is the
time where employees need assessment and evaluation.
6.2 Managing Internal Organization for Strategy Execution
Building an organization with the competencies, capabilities and

resource strengths needed for successful strategy execution.
Staffing and Organization
1. The Web development program or the creation of Magnolia’s Website

is responsibility of Marketing and the IT department. Constant
coordination and regular meeting between the two should always be
practice to properly execute the strategy.
2. Intense promotion and advertisements are effective ways in promoting

products here in the Philippines. To come up with more promotional
activities on a yearly basis will definitely increase the brand recall of
Magnolia Products. Marketing and branding team should work together
to re-enforce better promotion and advertising.
3. Upper management must collaborate with another especially in

decision making.
Building core competencies and competitive capabilities
1. Openness for new ideas and give the employees the right to give
recommendations which can help Magnolia in achieving its objectives
and implement their strategies.
2. Choose good partners in doing the promotional activities. Expertise

and reputation of third parties involved in the promotion must be well
evaluated to avoid cost and to have a quality output.
Structuring the Organization and Work Effort
1. Continuously update the website and put necessary things needed on

the web since it is also a part of the promotion with lesser cost.
Marketing and IT must integrate and understand each other to come
up with a good web output.
2. The Product / Brand managers’ responsibility is to increase brand

identification for their products and increase brand recall as well.
Through these, profitability will follow.
Allocating ample resources to strategy-critical activities
1. Allocate equal funds for the marketing and promotion of different

products of Magnolia.
2. Web development needs some time and amount of money. Budget for
promotion and web development is necessary. Cut the cost of those
products which are not generating high return. Instead the cost for
producing those products might be transferred for promotional
activities.
Tapping other types of promotions such as trade shows and sponsorship

must also be considered under the budget allocation. Sponsorships might
be underrated tool but this can be a helpful and perfect fit for Magnolia
products.
Establishing strategy-supportive policies
1. Magnolia and SMC head office should imposed new policies that will
support Magnolia’s objectives. Both parties will definitely benefit from
the strategies for Magnolia brand because most of the consumers
knew that Magnolia is under SMC
Instituting best practices and pushing for continuous improvement
Implement open communication inside the company. Let every employee

feel that they have the right to share what’s on their mind and recommend
ideas if possible. This way people will be motivated and the bond between
the team members and leaders will grow positively.
Installing information, communication and operating systems that

enable company personnel to better carry out their strategic roles
proficiently.
1. Every employee should be knowledgeable about the company’s plans

and actions. IT department can create an intra-connection for Magnolia
aside from company e-mail for the employees to have an update for
what is
2. Happening inside and what are the future plans of the organization.
Tying rewards and incentives to the achievement of key strategic

targets
The rewards and incentives program has proven to be one of the most
effective ways in motivating people. Performance appraisal could be done
to assess whether employees had performed well and if the organization
achieved its goal.
Shaping the work environment and corporate culture to fit the

strategy
Continue to promote good working relationship with each other. Talking

during and after office hours might be a key to have stronger bonds
between team members. Promotional activities can be done in an informal
way or a casual one. It only needs good communication between parties
involved.
Exercising the strategic leadership needed to drive implementation

forward
1. Marketing Directors and Managers must have the initiative and be the
example for everyone on how to promote the company’s name and the
products attached to it.
2. Guidance and control over subordinates may help in driving the

strategies forward. There is a higher probability of success if the leader
itself served as an example for his people. Referent power is still
powerful that it can manipulate people’s mind and actions without
using any force.
CHAPTER SEVEN: FINANCIAL PROJECTION
Assupmptions:
 For the worst case scenario, the projections made were based on the trend from
the last two years of operations.
 For the best case scenario, as assuption of increase in sales every year is 10%
 Also for the best scenario, the operating expenses will decrease at 6% every
year.
 On the other hand, it is assumed in the probable case scenario that 50 percent of
the changes in the best scenario will take place.
 Therefore, the the sales for the probable scenario will increase by 5% every year
 Then the operating expense will decrease by 3% every year.
WORST CASE SCENARIO

Magnolia Inc.
BALANCE SHEET
31-Dec
2008 2009 2010 2011 2012 2013 2014
ASSETS
Current Assets
Cash and Cash Equivalents 65,162 84,011 102,860.00 121,709.00 140,558.00 159,407.00 178,256.00
Trade and other recievables 837,062 743,360 649,658.00 555,956.00 462,254.00 368,552.00 274,850.00
Inventories - Net 1,123,764 523,580 (76,604.00) (676,788.00) (1,276,972.00) (1,877,156.00) (2,477,340.00)
Derivavtive assets 1,474 3,217 4,960.00 6,703.00 8,446.00 10,189.00 11,932.00
Prepaid expenses and other current assets 138,275 157,663 177,051.00 196,439.00 215,827.00 235,215.00 254,603.00
Total Current Assets 2,165,737 1,511,831 857,925 204,019 -449,887 -1,103,793 -1,757,699
Noncurrent Assets
Investments in shares of stock 254,424 254,424 254,424.00 254,424.00 254,424.00 254,424.00 254,424.00
Investment properties - net 11,865 8,751 5,637.00 2,523.00 (591.00) (3,705.00) (6,819.00)
Property, plant and equipment - net 579,945 569,336 558,727.00 548,118.00 537,509.00 526,900.00 516,291.00
Computer software - net - - - - - - -
Deferred tax assets - net 270,287 159,142 47,997.00 (63,148.00) (174,293.00) (285,438.00) (396,583.00)
Other noncurrent assets 2,067 2,067 2,067.00 2,067.00 2,067.00 2,067.00 2,067.00
Total Noncurrent Assets 1,118,588 993,720 868,852 743,984 619,116 494,248 369,380
TOTAL ASSETS 3,284,325 2,505,551 1,726,777 948,003 169,229 -609,545 -1,388,319

Current Liabilities
Loans payable 1,128,000 100,000 (928,000.00) (1,956,000.00) (2,984,000.00) (4,012,000.00) (5,040,000.00)
Trade oayables and other current liabilities 1,398,767 1,392,360 1,385,953.00 1,379,546.00 1,373,139.00 1,366,732.00 1,360,325.00
Income and other taxes payable 6,349 52,478 98,607.00 144,736.00 190,865.00 236,994.00 283,123.00
Total Current Liabilities 2,533,116 1,544,838 556,560 -431,718 -1,419,996 -2,408,274 -3,396,552
Retirement Liability 15,615 28,373 41,131.00 53,889.00 66,647.00 79,405.00 92,163.00

Total Liability 2,548,731 1,573,211 597,691 -377,829 -1,353,349 -2,328,869 -3,304,389
Equity
Capital Stock 444,711 728,399 1,012,087.00 1,295,775.00 1,579,463.00 1,863,151.00 2,146,839.00
Additional paid-in capital 409,615 525,927 642,239.00 758,551.00 874,863.00 991,175.00 1,107,487.00
Deposit for future stock subscription 400,000 - - - - - -
fair value reserve on available for sale
securities 50 50 50.00 50.00 50.00 50.00 50.00
Deficit (518,782) (322,036) (125,290.00) 71,456.00 268,202.00 464,948.00 661,694.00

Total Equity 735,594 932,340 1,529,086 2,125,832 2,722,578 3,319,324 3,916,070
Total Liability and Current Equity 3,284,325 2,505,551 1,726,777 948,003 169,229 -609,545 -1,388,319
Magnolia Inc.
Income Statement
2008 2009 2010 2011 2012 2013 2014
Net Sales 4,808,379 5,283,294 5,758,209.00 6,233,124.00 6,708,039.00 7,182,954.00 7,657,869.00
Cost of sales (3,990,726) (3,763,969) (3,537,212.00) (3,310,455.00) (3,083,698.00) (2,856,941.00) (2,630,184.00)
Gross Profit 817,653 1,519,325 2,220,997.00 2,922,669.00 3,624,341.00 4,326,013.00 5,027,685.00
Selling and Administrative Expenses (1,089,821) (1,172,977) (1,256,133.00) (1,339,289.00) (1,422,445.00) (1,505,601.00) (1,588,757.00)
Loss from operations (272,168) 346,348 964,864 1,583,380 2,201,896 2,820,412 3,438,928
Interest Expense and financing charges (72,841) (41,864) (10,887.00) 20,090.00 51,067.00 82,044.00 113,021.00
Interest Income 2,005 1,251 497.00 (257.00) (1,011.00) (1,765.00) (2,519.00)
Other income (Charges) - Net (46,118) 33,318 112,754.00 192,190.00 271,626.00 351,062.00 430,498.00
Total Income charges (116,954) (7,295) 102,364.00 212,023.00 321,682.00 431,341.00 541,000.00
Loss before income tax (389,122) 339,053 1,067,228 1,795,403 2,523,578 3,251,753 3,979,928
Income (loss) before income tax 156,363 2,204,726 4,253,089 6,301,452 8,349,815 10,398,178 12,446,541
Income tax expense (Benefit) 19,369 142,307 265,245.00 388,183.00 511,121.00 634,059.00 756,997.00
Net Loss (369,753)
Total Net income (Loss)/Total

Comprehensive income (Loss) 136,994 2,062,419 3,987,844 5,913,269 7,838,694 9,764,119 11,689,544
Magnolia Inc.
CASH FLOW
2008 2009 2010 2011 2012 2013 2014
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) before income tax (389,122) 339,053 1,067,228 1,795,403 2,523,578 3,251,753 3,979,928
Adjustments for:
Deprecieation 58,449 83,383 108,317 133,251 158,185 183,119 208,053
Interest expense 72,841 41,864 10,887 (20,090) (51,067) (82,044) (113,021)
Fair value changes on derivatives - net 53,741 (15,519) (84,779) (154,039) (223,299) (292,559) (361,819)
Impairment loss on investment properties 5,359 3,114 869 (1,376) (3,621) (5,866) (8,111)
Interest income (2,005) (1,251) (497) 257 1,011 1,765 2,519
Unrealized foregign exchange loss 395 (723) (1,841) (2,959) (4,077) (5,195) (6,313)
Impairment loss on investment shares of stock 57,981 - - - - - -
Gain on disposal of property, plant and equipment - - - - - - -

Operating Income (loss) before working capital
changes (142,361) 449,921 1,100,184 1,750,447 2,400,710 3,050,973 3,701,236
Provisions to reduce inventories to net realizable
value 0 net 22,302 10,808 (686) (12,180) (23,674) (35,168) (46,662)
Retirement expense 7,471 12,758 18,045 23,332 28,619 33,906 39,193
Provision for impairment losses on recievables 11,000 4,160 (2,680) (9,520) (16,360) (23,200) (30,040)
Trade and other recievables 146,423 89,541 32,659 (24,223) (81,105) (137,987) (194,869)
Inventories (363,701) 596,542 1,556,785 2,517,028 3,477,271 4,437,514 5,397,757
Prepaid expenses and other current assets (75,074) (19,387) 36,300 91,987 147,674 203,361 259,048
Trade payables and other current liabilities 219,205 (8,311) (235,827) (463,343) (690,859) (918,375) (1,145,891)
Income and other taxes payable (23,698) 14,969 53,636 92,303 130,970 169,637 208,304
Pension Liability -
Cash generated from (used in) operations (198,433) 1,151,001 2,558,416 3,965,831 5,373,246 6,780,661 8,188,076
Interest (63,606) (32,629) (1,652) 29,325 60,302 91,279 122,256
Interest received 2,005 1,251 497 (257) (1,011) (1,765) (2,519)
Income taxes paid
Net cash provided by (used in) operating activities (260,034) 1,119,623 2,557,261 3,994,899 5,432,537 6,870,175 8,307,813
CASH FLOW FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (47,073) (72,774) (98,475.00) (124,176.00) (149,877.00) (175,578.00) (201,279.00)
Transfer from affiliates (30,049) - - - - - -
Decrease in other noncurrent assets 2,887 - - - - - -
Proceeds from disposal of property, plant and
equipment
Net cash used in investing activities (74,235) (72,774) (98,475) (124,176) (149,877) (175,578) (201,279)
CASH FLOWS FROM FINANCING ACTIVITIES

Availment of loans 13,877,400
Payment of loans - net (1,028,000) (2,056,000.00) (3,084,000.00) (4,112,000.00) (5,140,000.00) (6,168,000.00)

Deposit for future stock subscription 400,000 -
Payments of:
Loans payable (14,020,844)
Net cash provided by (used in) financing activities 256,556 (1,028,000) (2,056,000) (3,084,000) (4,112,000) (5,140,000) (6,168,000)
NET INCREASE (DECREASE) IN CASH AND CASH (77,713) 18,849

EQUIVALENTS 115,411.00 211,973.00 308,535.00 405,097.00 501,659.00

CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 142,875 65,162 (12,551.00) (90,264.00) (167,977.00) (245,690.00) (323,403.00)
CASH & CASH EQUIVALENTS AT END OF YEAR 65,162 84,011 102,860 121,709 140,558 159,407 178,256
BEST CASE SCENARIO
Magnolia Inc.
BALANCE SHEET
31-Dec
2008 2009 2010 2011 2012 2013 2014
ASSETS
Current Assets
Cash and Cash Equivalents 65,162.00 84,011.00 102,860.00 121,709.00 140,558.00 159,407.00 178,256.00
Trade and other recievables 837,062.00 743,360.00 649,658.00 555,956.00 462,254.00 368,552.00 274,850.00
- - -
Inventories - Net 1,123,764.00 523,580.00 -76,604.00 -676,788.00 1,276,972.00 1,877,156.00 2,477,340.00
Derivavtive assets 1,474.00 3,217.00 4,960.00 6,703.00 8,446.00 10,189.00 11,932.00
Prepaid expenses and other current assets 138,275.00 157,663.00 177,051.00 196,439.00 215,827.00 235,215.00 254,603.00
- -
Total Current Assets 2,165,737.00 1,511,831.00 857,925.00 204,019.00 -449,887.00 1,103,793.00 1,757,699.00
Noncurrent Assets
Investments in shares of stock 254,424.00 254,424.00 254,424.00 254,424.00 254,424.00 254,424.00 254,424.00
Investment properties - net 11,865.00 8,751.00 5,637.00 2,523.00 -591.00 -3,705.00 -6,819.00
Property, plant and equipment - net 579,945.00 569,336.00 558,727.00 548,118.00 537,509.00 526,900.00 516,291.00
Deferred tax assets - net 270,287.00 159,142.00 406,866.00 654,590.00 902,314.00 1,150,038.00 1,397,762.00
Other noncurrent assets 2,067.00 2,067.00 2,067.00 30,440.00 58,813.00 87,186.00 115,559.00
Total Noncurrent Assets 1,118,588.00 993,720.00 1,227,721.00 1,490,095.00 1,752,469.00 2,014,843.00 2,277,217.00
TOTAL ASSETS 3,284,325.00 2,505,551.00 2,085,646.00 1,694,114.00 1,302,582.00 911,050.00 519,518.00

Current Liabilities
- - - -
Loans payable 1,128,000.00 100,000.00 -928,000.00 1,956,000.00 2,984,000.00 4,012,000.00 5,040,000.00
Trade oayables and other current liabilities 1,398,767.00 1,392,360.00 1,385,953.00 1,379,546.00 1,373,139.00 1,366,732.00 1,360,325.00
Income and other taxes payable 6,349.00 52,478.00 98,607.00 144,736.00 190,865.00 236,994.00 283,123.00
- - -
Total Current Liabilities 2,533,116.00 1,544,838.00 556,560.00 -431,718.00 1,419,996.00 2,408,274.00 3,396,552.00
Retirement Liability 15,615.00 28,373.00
- - -
Total Liability 2,548,731.00 1,573,211.00 556,560.00 -431,718.00 1,419,996.00 2,408,274.00 3,396,552.00
Equity
Capital Stock 444,711.00 728,399.00 1,012,087.00 1,295,775.00 1,579,463.00 1,863,151.00 2,146,839.00
Additional paid-in capital 409,615.00 525,927.00 642,239.00 758,551.00 874,863.00 991,175.00 1,107,487.00
Deposit for future stock subscription 400,000.00 - - - - - -
fair value reserve on available for sale
securities 50.00 50.00 50.00 50.00 50.00 50.00 50.00
Deficit -518,782.00 -322,036.00 -125,290.00 71,456.00 268,202.00 464,948.00 661,694.00
Total Equity 735,594.00 932,340.00 1,529,086.00 2,125,832.00 2,722,578.00 3,319,324.00 3,916,070.00
Total Liability and Current Equity 3,284,325.00 2,505,551.00 2,085,646.00 1,694,114.00 1,302,582.00 911,050.00 519,518.00
Magnolia Inc.
INCOME STATEMENT
2008 2009 2010 2011 2012 2013 2014
Net Sales 4,808,379 5,283,294 5,811,623.40 6,392,785.74 7,032,064.31 7,735,270.75 8,508,797.82
Cost of sales (3,990,726) (3,763,969) (3,537,212.00) (3,310,455.00) (3,083,698.00) (2,856,941.00) (2,630,184.00)

Gross Profit 817,653 1,519,325 2,220,997.00 2,922,669.00 3,624,341.00 4,326,013.00 5,027,685.00
Selling and Administrative Expenses (1,089,821) (1,172,977) (1,102,598.38) (1,036,442.48) (974,255.93) (915,800.57) (860,852.54)
Loss from operations (272,168) 346,348 1,118,398.62 1,886,226.52 2,650,085.07 3,410,212.43 4,166,832.46
Interest Income 2,005 1,251 497.00 (257.00) (1,011.00) (1,765.00) (2,519.00)

Loss before income tax (389,122) 339,053 1,220,762.62 2,098,249.52 2,971,767.07 3,841,553.43 4,707,832.46
Income (loss) before income tax 156,363 2,204,726 4,613,572.64 7,066,806.79 9,570,218.46 12,130,095.60 14,753,278.74
Net Loss (369,753) 481,360 1,486,008 2,486,433 3,482,888 4,475,612 5,464,829
Total Net income (Loss)/Total
Comprehensive income (Loss) 136,994 2,062,419 4,348,327.64 6,678,623.79 9,059,097.46 11,496,036.60 13,996,281.74
Magnolia Inc.
CASH FLOW
2008 2009 2010 2011 2012 2013 2014
Adjustments for:
Deprecieation 58,449 83,383 108,317 133,251 158,185 183,119 208,053
Interest income 2,005 1,251 497 (257) (1,011) (1,765) (2,519)
Operating Income (loss) before working capital changes (138,351) 452,423 1,254,713 2,052,780 2,846,877 3,637,243 4,424,102
Provisions to reduce inventories to net realizable value 0 net 22,302 10,808 (686) (12,180) (23,674) (35,168) (46,662)
Inventories (363,701) 596,542 1,556,785 2,517,028 3,477,271 4,437,514 5,397,757
Pension Liability -
Interest (63,606) (32,629) (1,652) 29,325 60,302 91,279 122,256
Income taxes paid

Additions to property, plant and equipment (47,073) (72,774) (98,475) (124,176) (149,877) (175,578) (201,279)
Transfer from affiliates (30,049) - - - - - -
Decrease in other noncurrent assets 2,887 - - - - - -
Proceeds from disposal of property, plant and equipment

Payment of loans - net (1,028,000) (2,056,000) (3,084,000) (4,112,000) (5,140,000) (6,168,000)
Payments of:
Net cash provided by (used in) financing activities 256,556 (1,028,000)
NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS (77,713) 18,849 115,411 211,973 308,535 405,097 501,659
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 142,875 65,162 (12,551) (90,264) (167,977) (245,690) (323,403)
CASH AND CASH EQUIVALENTS AT END OF YEAR 65,162 84,011 102,860 121,709 140,558 159,407 178,256
PROBABLE CASE SCENARIO

Magnolia Inc.
BALANCE SHEET
31-Dec
2008 2009 2010 2011 2012 2013 2014
ASSETS
Current Assets
Cash and Cash Equivalents 65,162 84,011 102,860 121,709 140,558 159,407 178,256
Trade and other recievables 837,062 743,360 649,658 555,956 462,254 368,552 274,850
- -
Inventories - Net 1,123,764 523,580 -76,604 -676,788 -1,276,972 1,877,156 2,477,340
Derivavtive assets 1,474 3,217 4,960 6,703 8,446 10,189 11,932
Prepaid expenses and other current assets 138,275 157,663 177,051 196,439 215,827 235,215 254,603
- -
Total Current Assets 2,165,737 1,511,831 857,925 204,019 -449,887 1,103,793 1,757,699
Noncurrent Assets
Investments in shares of stock 254,424 254,424 254,424 254,424 254,424 254,424 254,424
Investment properties - net 11,865 8,751 5,637 2,523 -591 -3,705 -6,819
Property, plant and equipment - net 579,945 569,336 558,727 548,118 537,509 526,900 516,291
Deferred tax assets - net 270,287 159,142 247,997 336,852 425,707 514,562 603,417
Other noncurrent assets 2,067 2,067 2,067 2,067 2,067 2,067 2,067
Total Noncurrent Assets 1,118,588 993,720 1,068,852 1,143,984 1,219,116 1,294,248 1,369,380
TOTAL ASSETS 3,284,325 2,505,551 1,926,777 1,348,003 769,229 190,455 -388,319

Current Liabilities
- - -
Loans payable 1,128,000 100,000 -928,000 1,956,000 -2,984,000 4,012,000 5,040,000
Trade oayables and other current liabilities 1,398,767 1,392,360 1,385,953 1,379,546 1,373,139 1,366,732 1,360,325
Income and other taxes payable 6,349 52,478 98,607 144,736 190,865 236,994 283,123
- -
Total Current Liabilities 2,533,116 1,544,838 556,560 -431,718 -1,419,996 2,408,274 3,396,552
Retirement Liability 15,615 28,373 41,131 53,889 66,647 79,405 92,163
- -
Total Liability 2,548,731 1,573,211 597,691 -377,829 -1,353,349 2,328,869 3,304,389
Equity
Capital Stock 444,711 728,399 812,087 895,775 979,463 1,063,151 1,146,839
Additional paid-in capital 409,615 525,927 642,239 758,551 874,863 991,175 1,107,487
Deposit for future stock subscription 400,000 - - - - - -
fair value reserve on available for sale securities 50 50 50 50 50 50 50
Deficit -518,782 -322,036 -125,290 71,456 268,202 464,948 661,694
Total Equity 735,594 932,340 1,329,086 1,725,832 2,122,578 2,519,324 2,916,070
Total Liability and Current Equity 3,284,325 2,505,551 1,926,777 1,348,003 769,229 190,455 -388,319
Magnolia Inc.
INCOME STATEMENT
2008 2009 2010 2011 2012 2013 2014
Net Sales 4,808,379 5,283,294 5,547,458.70 5,824,831.64 6,116,073.22 6,421,876.88 6,742,970.72
Cost of sales (3,990,726) (3,763,969) (3,537,212.00) (3,310,455.00) (3,083,698.00) (2,856,941.00) (2,630,184.00)
Gross Profit 817,653 1,519,325 2,220,997.00 2,922,669.00 3,624,341.00 4,326,013.00 5,027,685.00

Selling and Administrative Expenses (1,089,821) (1,172,977) (1,102,598.38) (1,036,442.48) (974,255.93) (915,800.57) (860,852.54)
Loss from operations (272,168) 346,348 1,118,399 1,886,227 2,650,085 3,410,212 4,166,832
Interest Income 2,005 1,251 497.00 (257.00) (1,011.00) (1,765.00) (2,519.00)
Loss before income tax (389,122) 339,053 1,220,763 2,098,250 2,971,767 3,841,553 4,707,832
Income (loss) before income tax 156,363 2,204,726 4,349,408 6,498,853 8,654,227 10,816,702 12,987,452
Net Loss (369,753) 481,360 1,486,008 2,486,433 3,482,888 4,475,612 5,464,829
Total Net income (Loss)/Total Comprehensive
income (Loss) 136,994 2,062,419 4,084,163 6,110,670 8,143,106 10,182,643 12,230,455
Magnolia Inc.
CASH FLOW
2008 2009 2010 2011 2012 2013 2014
Adjustments for:
Deprecieation 58,449 83,383 108,317 133,251 158,185 183,119 208,053
Interest income 2,005 1,251 497 (257) (1,011) (1,765) (2,519)
Operating Income (loss) before working capital
changes (138,351) 452,423 1,254,713 2,052,780 2,846,877 3,637,243 4,424,102
Provisions to reduce inventories to net realizable
value 0 net 22,302 10,808 (686) (12,180) (23,674) (35,168) (46,662)
Inventories (363,701) 596,542 1,556,785 2,517,028 3,477,271 4,437,514 5,397,757
Pension Liability - - - - - - -
Interest (63,606) (32,629) (1,652) 29,325 60,302 91,279 122,256
Income taxes paid

Additions to property, plant and equipment (47,073) (72,774) (98,475) (124,176) (149,877) (175,578) (201,279)
Transfer from affiliates (30,049) -
Decrease in other noncurrent assets 2,887 -
Proceeds from disposal of property, plant and
equipment

Payment of loans - net (1,028,000) (2,056,000) (3,084,000) (4,112,000) (5,140,000) (6,168,000)
Payments of:
Net cash provided by (used in) financing activities 256,556 (1,028,000) (2,056,000) (3,084,000) (4,112,000) (5,140,000) (6,168,000)
NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS (77,713) 18,849 115,411 211,973 308,535 405,097 501,659
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 142,875 65,162 (12,551) (90,264) (167,977) (245,690) (323,403)
CASH AND CASH EQUIVALENTS AT END OF
YEAR 65,162 84,011 102,860 121,709 140,558 159,407 178,256
February 17, 2011
Mr. Regi Baylosis

General Manager
Magnolia Incorporated
Dear Sir,
I am honored to do Strategic Management paper with your company where I had my

OJT this 2nd semester. I would like to take this opportunity to thank you for giving me a
wonderful working experience and also to show my appreciation to our Professor Mr.
Real So for giving this project.
Associated with this letter is my Strategic Management paper that includes my humble
recommendations for the success of Magnolia Inc. for the future. The 7s framework and
8 - sit model were used as recommended by my Professor to show clearly how can my
proposed objectives and strategies help Magnolia Inc.
The external and the internal analysis, recommendations, proposals, and the different
strategic frameworks and models are outlined in each chapter of this paper.
Although it is not guaranteed that my recommendations and proposals using 8-sit

framework as my guide and basis for strategy execution, allow me to present to you the
analysis and finding I have done that might contribute to Magnolia Inc. success in the
near future. I hope that you and the committee will take be able to see and even modify
if you think this paper needs some changes and modifications.
Thank you once again, Sir. I hope that this paper is timely and would contribute to
Magnolia Inc. success.
Sincerely,
Ms. Louise Angeline A. Javier

Student, Business Administration Major in Marketing
University of Santo Tomas

Javier Magnolia

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Strategic Management Paper on Magnolia, Inc.

University of Santo Tomas

The macro-analysis resulted in identifying the following threats: (1) Continuous

CHAPTER TWO: EXTERNAL ENVIRONMENT ANALYSIS

CHAPTER THREE: INTERNAL ENVIRONMENT ANALYSIS

CHAPTER FOUR: STRATEGIC PLAN

CHAPTER FIVE: FUNCTIONAL AREA STRATEGIES

CHAPTER SIX: IMPLEMENTATION

CHAPTER SEVEN: FINANCIAL PROJECTION 56

Letter to the CEO 72

Employees of magnolia who shared information about their company, namely:

In July 1981, San Miguel Corporation’s Magnolia, Inc. (formerly PDPC)

CHAPTER TWO: EXTERNAL ENVIRONMENT ANALYSIS

2.2 Definition of Industry

An industry is a segmentation of firms based on their primary generic products or

2.5.2 Overview of the Food – Processing Industry

According to the United Nations Industrial Development Organization

The groundwork of the modern industry was established due to the

The significant development in the food-processing industry was the

2.5.3 Major Sectors in the Food-Processing Industry

It comprises the following sectors:

2.5.4 The Philippine Food – Processing Industry

The said industry is said to be the most dominant industry in the

In the country, most establishments are owned by a single proprietor

Local processors of food are faced with certain challenges such as

There is a contribution of 20 percent to the Gross Domestic Product

2.6 Analysis of Present Task Environment

2.6.1 Bargaining Power of Suppliers – MODERATE

The bargaining power of suppliers was analyzed based on the following

Presence of Multiple Suppliers or Supplier Groups

The supplier group’s products has built up switching costs

2.6.2 Bargaining Power of Buyers – MODERATE

Buyers purchase in small volumes or in retail

Buyers have the ability to postpone purchases until later if they do

In this case, the bargaining power of the buyers is strong. It is because

2.6.3 Intensity Rivalry Among Competitors - HIGH

The following determinants proved that the intensity rivalry among

Buyer costs to switch brands are low

An example of which is Kraft and Magnolia. Magnolia offers in the

Numerous competitors in the industry

Dairy products are offered by different establishments. Therefore, there

2.6.4 Threat of substitute products – HIGH

Threat of substitute products is high based on the following

Good substitutes are readily available

One good example is margarine. Margarine is a substitute for cheese.

End users tend to grow more comfortable using substitutes

In the Philippine setting, people are more comfortable using margarine

Substitutes are attractively price

Margarine are priced immensely lower than butter. As mentioned

Substitutes have comparable or better performance features

An example of which is margarine as well. Margarine is now offering

2.6.5 Threat of New Entrants – LOW

High capital requirements

Industry members will strongly contest the efforts of new entrants

Determinants of Competitive Analysis of Impact to Conclusion

like the present deals being offered

2.7 Analysis of the Potential Changes in the Macro – Environment

The major categories of the Macro-environment analysis are the following:

Political stability is one of the main factors investors look for in a

There is a government act to which discusses how much the

 The Dairy Act’s statement of national policy upholds government

The Philippines’ dairy strategy is in four documents: the Medium-Term

2.7.2 Socio-cultural Segment