ASSESSMENT COVER SHEET

Divine Word University

PO Box 483, MADANG, Madding Province, PNG
Telephone No.: (675) 424 1870 Fax: (675) 422 1312
Email Address: ffl@dwu.ac.pg
ASSESSMENT COVER SHEET

STUDENT NAME:
(Surname in CAPITAL Letters) Ivan Larry IVARAPOU
STUDENT ID NUMBER: M171305
PROGRAM/COURSE NAME: Master of Leadership in Business Administration

GROUP/COHORT: 2017-2018

UNIT CODE AND NAME: MB643 – Entrepreneurship and Small Business

ASSESSMENT TASK NO.: Task 3

DUE DATE: Sunday 30th September 2018

DATE SUBMITTED: Friday 28th September 2018

LATE SUBMISSIONS (Reason(s)):

APPROVAL FOR LATE SUBMISSION YES NO

GIVEN:
NEW DUE DATE:
LECTURER: Mr. Mike Yandit
STUDENT ADDRESS: Address: Email /Tel./Fax:
P.O. Box 7747 myandit@dwu.ac.pg ivanclarry@gmail.com
BOROKO, National Capital District

I acknowledge that the attached assessment is my own work and that no information contained
in this assessment has been plagiarized in any way.

To: The Assistant Registrar

Student’s Signature: Email: fflregistrar@dwu.ac.pg
_____________________________
Case Study Report on City Pharmacy Limited
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Table of Contents

Abstract ......................................................................................................................................................... 2

Introduction .................................................................................................................................................. 3

CPL LOCATIONS IN PAPUA NEW GUINEA ..................................................................................................... 4

Concepts and strategies of Entrepreneurship and Small Business Management as applied to CPL ............ 4

Product Development Strategy ................................................................................................................ 6

Market Penetration Strategy .................................................................................................................... 7

Market Development Strategy ................................................................................................................. 8

Marketing Strategy ................................................................................................................................... 8

Pricing Strategy ....................................................................................................................................... 10

Quality Customer Assurance................................................................................................................... 10

Financials................................................................................................................................................. 11

CPL CONSOLIDATED STATEMENTS OF PROFITS & LOSS AND OTHER COMPREHENSIVE INCOME ........... 112

Human Resource Strategy .................................................................................................................... 133

Corporate Social Responsibility ............................................................................................................ 133

Recommendations .................................................................................................................................... 166

Conclusions ............................................................................................................................................... 166
References ................................................................................................................................................ 188

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Abstract

City Pharmacy Limited (CPL) is one of the largest and leading retailers in Papua New Guinea

(PNG). The company was established in 1986. Together with its subsidiaries, the company

engages in retailing and wholesale activities in PNG. It is actively involved in the retail and

wholesale of the bakery and pharmaceutical products, supermarket goods, and the hardware

products. CPL also provides retail on clothing and provision of the duty-free products. CPL’s

customers are served through City Pharmacy, Hardware Haus, Stop N Shop, Jack’s Retail, Paradise

Cinema and Prouds retail brand names. As at 31st December, 2017, CPL operated 62 stores

country wide with approximately 2,600 employees. This study will evaluate CPL’s strategies and

make recommendations based on those strategies to ensure future growth.

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Introduction

City Pharmacy Limited (CPL) was established by Mahesh Patel together with his wife Usha

Patelin 1986. The company is currently one of the leading wholesale/retailer companies in Papua

New Guinea (PNG), with branches located across the country. CPL operates supermarkets,

pharmacies, Bon Café outlets and hardware supply stores. First listed on Port Moresby Stock

Exchange on 2002, the company has since grown to be one of the best performing stocks on the

bourse. As at December, 2017, CPL operated 62 stores national wide with over 2600 employees

of which 95% are from PNG. For more than 28 years, CPL has been responsible for many

achievements and innovations. For instance, in the early 1990s, CPL was the first company in PNG

to open its business on the island of Bougainville after the civil war and the subsequent crisis.

Also, CPL was the first company to declare its premises as “MERI SELF PLES” (safe place for

women) with an aim of protecting women against the domestic violence. CPL’s success as a

retailer is mainly attributed to its store layout and the merchandising concept that has never

before been tried out in the PNG. It’s considered as the central focus for the healthcare,

convenience and beauty in PNG. With its excellent interior layout, customer-based culture and

one stop convenience, CPL is now firmly entrenched in the daily lives of the people of PNG.

In today’s business environment, organizations must create strategies so as to grow

beyond their known scope. Majority of the SMEs use various growth strategies as a mechanism

of enhancing market viability so as to win competitive advantage as there is little to differentiate

the company’s products from the others. The objective of this study is to determine the nature

of CPL’s strategies with an aim of establishing recommendations for its continued growth.

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CPL LOCATIONS IN PAPUA NEW GUINEA

Source: CPL_Annual_Report_2017

Concepts and strategies of Entrepreneurship and Small Business Management as applied to

CPL

Starting a new business can be both frightening and exciting. There are various things that

should be considered; location, quality control, employees, and size among others. CPL’s journey

to success has never been a smooth one, the company has gone through ups and downs. Starting

with only 4 staff members, today the company is the fastest growing company in PNG and even

plans to open branches outside the country. With an exciting merchandise mix, CPL is focused on

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healthcare, beauty and convenience products to its customers. The company’s success is mainly

attributed to its founder and CEO, Mahesh Patel. He is described as a “smart and seasoned”

entrepreneur that is aggressively seeking new opportunities. Mahesh has a strong belief that the

company’s progress is mainly dependent in the community that it serves. His personal goal is to

make an impact and improve the lives of the people of PNG through community service and

business enterprise.

Entrepreneurship and Small Business Management make a vital contribution to the social

and economic development of any country. Consequently, the development and growth of any

SMEs sector has a direct impact on the performance of the nation. Indeed, the potential for small

business management in both the creation of employment and the generation of the income for

many families in PNG makes them a key element in the poverty reduction. Strategy which is a

key fundamental management tool in any company can be described as a multidimensional

concept that different authors have tried to define it in different ways. Porter (2006) asserted

that strategy is the creation of the vulnerable and unique position of trade-offs in competing,

encompassing a set of the activities that fit together, that are in fact consistent, reinforce one

another and ensuring optimization of the effort. Mintzberg and Quinn (2002) defined strategy as

a pattern that integrates the company’s policies, goals and actions into a cohesive whole.

Generally, strategy can be defined as a well-defined, deliberate and overall course of action that

is aimed at achieving specific goals. In the modern challenging business environment,

organizations must create strategies that go beyond their own scope. Most of the small

businesses use various growth strategies as a tool for enhancing their viability in the market so

as to be able to win competitive advantage.

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Starting and operating a small business includes the possibility of failure and success.

Owing to their small size, any small business management mistakes can likely lead to the failure

of the business. In fact, lack of proper financing, planning, and bad management have been listed

as the main causes of failure in the small business. CPL has received considerable attention in

PNG as a result of its importance to the people of PNG and the creation of the economic wealth.

The company’s ability to create, access and commercialize new knowledge on the retail industry

in PNG is fundamental to their sustained competitiveness. Through its growth strategy, PNG has

made various strategic decisions that are meant at widening the company’s range of products or

even expanding to new markets. Based on the two main dimensions, market and product, CPL’s

growth strategies can be categorized into 4 main types; intense growth strategy, modernization,

diversification and external growth strategies. The following are some of the growth strategies

that have been adopted by CPL;

Product Development Strategy

CPL has used product development strategy through its continued initiative to develop

improved products for its market. Watts et al. (2008) asserts that the best growth strategy for

the small businesses are those that are involving market development and product development.

Indeed, CPL’s growth is mainly attributed to the organization’s ability to identify new markets for

the existing products or through the development of the new products for the existing

customers. In this regard, CPL has been able to evolve from its core activity into the more complex

activities/businesses. For instance, CNP introduced a local PNG paper production using the

“kunal grass”-ecofriendly local grass. The product is currently used by the Paradise Foods in the

packaging of their chocolates. Also, through the company’s Stop N Shop, CPL introduced new

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private labels as well as innovative and new range of products. Additionally, CPL has pursued

product innovation strategies in the emerging markets in PNG and market innovation strategies

in the already mature markets.

Market Penetration Strategy

Market penetration can be described as a growth strategy that is aimed at increasing the

company’s existing share of markets and products. CPL has mainly used the market penetration

strategy to increase its sale of the present products in its present markets through aggressive

promotional activities. Having realized that the company cannot serve the whole market with

specific products or services owing to the fact that customer wants and needs are diverse and

unique, CPL has over time evolved to develop new retail brands that are meant to satisfy the

varied needs and wants of its customers. Some of the retail brands include; Hardware Haus, Bon

Café, Paradise Cinema, and Stop N Shop among others. Also, through the identification of the

various business segments, CPL has been able to meet the needs of its customers. A market

segmentation can be defined as having large identifiable groups within the market that have

same needs, wants, purchasing power, among other attributes. For instance, as purpose of

meeting the customer needs and reporting purposes, CPL identifies two main segments; Retail

and wholesale and lender.

Service positioning can also be aligned to growth strategy and in particular market

penetration strategy. Once the firm has identified the specific market segments to be served, the

company should then position the service or products in the market place. Importantly, the

manner in which the product is designed can negatively or positively impact the image of the

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product to the minds of the consumers. A product/service offering’s position is the manner in

which the product or the service is perceived by the consumers, especially in respect to the

competing offerings. CPL’s newest retail business, Jacks of PNG, albeit in the early stages of its

development, is widely perceived as offering well-designed, quality clothing and accessories to

its customers. This demonstrates the company’s continued initiative in its product/service

positioning.

Market Development Strategy

Market development strategy is when an organization responds to the new opportunities

in the market through the introduction of existing products to the new customer or new markets.

What this basically means is that the company will be aiming to increase sales through the sale

of its present products in the emerging or new markets. For organizations such as CPL that has

evolved through different stages of growth, it has identified diversification as one of the

marketing development strategy that is aimed at directing the company towards the introduction

of the new products and services to the new markets. Through the market development strategy,

CPL use the ongoing program of opening the new stores, revitalizing of the current outlets and

the introduction of the new merchandising concepts as the key to giving the customers new

experience while reaching out to the new markets.

Marketing Strategy

CPL is usually acknowledged as one of the marketplace leaders in the retail industry in

PNG. The organization has over the years managed to perceive a prominent brand picture in the

minds of its consumers. The organization’s advertisements mainly include distinguishing what

the customers need and endeavoring towards the satisfaction of those needs. CPL has started a

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sustained quality purposes of progressive programs and structures that are aimed at meeting the

needs of its customers. Porter (2004) asserted that, marketing is more efficient and effective

when it is an integral part of the business strategy, defining the manner in which the business

engages with its customers, competition in the market among others. CPL’s marketing strategy

has mainly focused on the upgrading its stores and refurbishment of the projects so as to meet

the needs of the customers.

As part of the CPL’s strategy, the company targets younger market through the

introduction of the new products and the introduction of the new ventures. This is based on the

fact that 50% of the PNG’s population is under 20 years old. The company believes that it has an

advantage over its rivals because it understands the market better. Also, as part of the company’s

marketing strategy, it has allocated funds for the capital expenditure, launching of the online e-

commerce platform in 2014 among others. The online platform serves as an opportunity for

increasing the product sales while at the same time improving the visibility of the company’s cash

flows. CPL’s goal of building on its existing chain of the supermarkets through the construction

of at least 2 new larger outlets reflects the company’s strategy of offering a greater variety of

products. As a core marketing strategy, CPL is focused on delivering value proposition to its

customers. Through this, the company is continuously expanding and building new marketing

infrastructures so that it is able to reach out to a vast number of customers. CPL focuses on

satisfying the needs of its customers.

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Pricing Strategy

Pricing strategy is where small and large businesses compete in the rating of the pricing

in the market so that they can win the customers. It’s a very integral part of the marketing. Most

SMEs are always competing in ensuring that they place favorable prices to their customers as a

way of ensuring that they retain as many customers as possible while attracting potential

customers. Though lower prices lead to the higher demand, and to some extent large market,

majority of the managers perceive this not to be an excellent strategy because some of the

customers might perceive products with lower prices to be of low quality.

CPL uses premium pricing as its pricing strategy. With the increased urbanization and

rising incomes in PNG, this suggests that the retail industry is expected to evolve gradually from

its traditional focus to the emerging trends on the luxury goods and modern supermarkets and

shopping malls. As such, there is strong demand in the retail sector is highly expected.

Quality Customer Assurance

Quality customer service can be defined as the customer’s expectation about the services.

High quality products and services leads to customer loyalty and satisfaction. CPL has strived over

the years to ensure that there is quality customer service by providing value for the consumer

money. This has led to the success of the company in PNG. Through relationship marketing, CPL

has been able to do business by focusing on improving its present customer base rather on

getting new ones. The company has a full realization of the fact that customers are their long-

term partners and that there is need of making the commitment of maintaining the relationship

through innovation and quality customer service. CPL believes that the setting of the excellent

review and setting of the products and service standards plays a critical role in achieving quality

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performance such as pay-off terms of the customer loyalty as well as excellent handling of the

customer complaints. Indeed, the setting of the quality service products is the start of the cycle

for the continuous business improvements.

Financials

Based on its conservative estimates, CPL expects to maintain a healthy financial position

in the next 5 years. Notably, the CPL’s profitability, as measured by its profitability ratios is good

and is expected to even get better in the future. The performance will likely be rewarded through

higher market pricing when the company decides to revise its product pricing. As part of its

funding arrangements, CPL plans to raise more funds through shareholders, receipt of the

insurance proceeds and selling of the properties so as to ensure normalization of the trading

terms, reduction of the level of the debts that is owed to the banks, and investment in the store

upgrades. In 2017, the CPL raised additional capital of K48 million through the rights issue thereby

raising the company’s liquidity. The company plans to use the extra funds in reducing the existing

creditor balances and fund the re-opening of supermarket outlets. Notably, the company’s strong

investor support in terms of raising capital is a clear evidence of the company’s bright future. In

particular, its ability to overcome the serious adversity has in fact bolstered its confidence.

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CPL CONSOLIDATED STATEMENT OF PROFIT & LOSS AND OTHER COMPREHENSIVE INCOME

Source: CPL_Annual_Report_2017

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Human Resource Strategy

In any organizational setting, people play a crucial role for its performance. In fact, no

organization can manage to divorce its customer contact, and employees from its marketing

strategy. Therefore, the ability of any organization to survive and succeed mainly rests with the

junior staff such as security guards, clerks among others. Zeithaml (1996) noted that contact

employees play a critical role in representing the company and can directly influence the

customer satisfaction, they are marketers. Taking this into mind, CPL has a well laid structure that

enhances careful recruitment, training and mentoring of its employees to ensure that there is

improvement in service quality and productivity.

Corporate Social Responsibility Activities

According to Caramela (2018) a company that has a robust Corporate Social

Responsibilities (CSR) program, demonstrates good corporate citizenship hence protecting itself
from outsized risks of social and environmental spheres that surrounds the company. She further
states that, according to Jen Boynton of 3BL Media, “Corporate responsibility is simply a way
companies take responsibility for both the social and environmental impacts of their business
operations”.

With any company’s success, responsibility towards its environs and the communities in
which it operates arises, responsibility, which the company itself perceives and which is also
expected, sometimes loudly demanded by its fellow citizens. It is responsibility, which ultimately
becomes a key factor for a truly sustainable prosperity of the company.

CPL’s co-founder and Managing Director, Mahesh Patel strongly believes that the
essence of CPL’s success lies in the community it serves. He reinforces that belief by making it his
personal goal to make an impact and improve the lives of every person in Papua New Guinea
through business enterprise and sincere community service. By giving back to the community it

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serves, CPL reflects that belief and demonstrates its commitment to one of the CPL Group’s core
values that ‘we care—for our community, customers and people’.

CPL’s corporate social responsibility activities are implemented through the CPL Foundation
which has three major areas of interest:

▪ The empowerment of women

▪ Education
▪ Community and grassroots sports

Lower revenues in 2017 as a result of the fire at CPL headquarters in Gerehu combined with
a sluggish economy resulted in the Foundation supported programs failing to achieve their
targets. The Pride of Papua New Guinea Awards, one such program that had to be cancelled. A
number of factors also influenced this decision besides budgetary constraints including the
delayed appointment of a new Governor General who is the patron of the awards and the impact
of the National Elections in mid-2017. However sponsorships of major partnered programs
continued in 2017, -

Buk Bilong Pikinini

CPL continues to support the Buk Bilong Pikinini program which is designed to give
children a clear head start when entering the formal education system. In the program children
are assessed based on four key learning areas: speaking and listening, phonics, reading and
writing skills. This will provide the.

Financial sponsorship for the Program on Tatana Island near Port Moresby continued in 2017
with the following results

▪ 72 children enrolled in the Early Childhood Program in 2017,

▪ 54 (three quarters) graduated.
▪ Improvement in graduates’ literacy of 58 per cent (Progressive Literacy Assessments from
February to November 2017).

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The library has also lent out books to both children from the library and other children in the
community. The children mostly used the library to read, borrow books: The library received over
6400 visitors in 2017. Of these, 45 per cent were boys and 55 per cent were girls. Special
programs are organized for children to attend including:

▪ BBP’s Anniversary
▪ National Book Week
▪ National Literacy Day
▪ Independence Day
▪ Universal Children’s Day
▪ BBP’s Graduation

Ginigoada Foundation

The Ginigoada Foundation’s Financial Literacy Skills (Bus 4) Program, continues its
programs in Port Moresby and Lae. With specific emphasis on women and youth the training is
specifically tailored to cater for those operating income generating activities in the informal
sector economy. The main topics the training covers include: Basic Business Awareness, Cash
Books, Income and Budgeting, Costing and Pricing, Business Plan Development, Health and
Hygiene, First Aid, Conflict Resolution and Planning, Set Up and Operating a Community
Enterprise Group (CEG).

In 2017, in the two cities 5570 people enrolled with 4403—78 per cent of participants—
graduated. Graduation is based on:
• Attendance - attending at least seven of the 10 training days of the program,
• Participation - participating in the discussions and
• Understanding - displaying a basic understanding of the materials presented.

One-off Donations

Meanwhile, one-off donations were comparatively small, apart from the assistance given
to the previous Pride of PNG award winners. There were, however, significant donations to the

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Morata Half Way House in recognition of their 30th Anniversary and their long term partnership
with CPL.

Recommendations

This paper recommends that for CPL to experience rapid growth, the company should

emphasize on the strategies set so as to ensure that they remain focused towards the company’s

goals while aligning themselves to the trending market needs. Likewise, the study further

recommends that, CPL should come-up with a way of repackaging or re-branding its products

based on the consumer tastes and preferences. By so doing, the company can increase the

customer base. Additionally, the study recommends that CPL should relook on its growth

strategies in reference to its branches so that it’s able to reach out to its consumers conveniently.

Doing so, will lead to the increased customer base and creation of the customer awareness of its

products. Finally, the study recommends that, for CPL to realize its growth effectively, the

company’s top management should identify the potential suppliers that have quality products so

as to ensure that its competitors do not outshine them in the market. This will promote the

survival of the business in the market as the company is vital in the job creation, encouraging

creativity and economic development.

Conclusions

Product development strategy is mainly observed by the entrepreneurs, targeting the

particular customer base resulting to the incredible growth of the business from the simple

business activities into the more complex ones. Inclusively, CPL’s success can be mainly attributed

to the company’s increased sales of the present products to the new markets through the

adoption of the market penetration strategy. To most entrepreneurs, market penetration can be

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achieved through re-branding, packaging and labelling of its products so as to attract more

customers as well as increasing the brand loyalty. For CPL, expanding the range of products and

expanding the business is a way of reaching out to the new customers while expanding its market

share. To the pricing, CPL uses premium pricing model as a way of attracting potential customers

through networking. Additionally, through the relationship management, excellent service

standards and customer retention programs, CPL has attracted and strengthened existing

customer relationships.

Despite these recommendable strides that CPL has made, the company still faces stiff

competition from the other large companies hence considerably hindering its growth strategies.

Notably, changes in the information technology, insecurity, inadequate infrastructure,

inappropriate structures in the PNG’s financial institutions to deal with SMEs financial aid,

negative perception among others hinders the growth and development of the CPL.

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References

Caramela, S (2018). What is Corporate Social Responsibility? Retrieved from

https://www.businessnewsdaily.com/4679-corporate-social-responsibility.html

CPL Group (2017). CPL Annual Report. Retrieved From; http://www.cpl.com.pg/index.php/cpl-

group

Mintzberg, H. & Quinn, J. B. (2002). The Strategy Process Concepts, Contexts and Cases.
Prentice Hall Inc., Engelwood Cliffs N.J

Porter, C. E. (2004). A typology of virtual communities: A multi-disciplinary foundation for

future research. Journal of computer-mediated communication, 10(1), JCMC1011.

Porter, M. E. (2006). Competitive Strategy: Techniques for Analyzing Industries and

Competitors, New York: Free Press.

Watts, G., Cope, J. & Hulme, M. (2008). Ansoff‟s Matrix, Pain and Gain, International Journal of
Entrepreneurship Behaviour and Research, 4(2): 101-111

Zeithaml, V. A. & Mary, J. B. (1996). Services Marketing. 2nd Ed. New York: McGraw-Hill.

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