K J Somaiya Institute of Management, Mumbai

International Business Society

Presents
ILLUME 2021
National Level Case Study Competition

Theme of the Competition: Changing Global Order

Investment Opportunities for Foreign Investors in Emerging Markets

Overview:

On the evening of 31st December 2018, while the world was getting ready to celebrate a year spent
well, Saumya and her team were busy going through a bunch of reports prepared by IBS Analytics.
They had been noticing a gradual plateauing in their sales revenue as well as growth across their various
segments. The report made by the consultants pointed out the reason that growth momentum had
increasingly shifted from their present market to the markets in the emerging nations.

Company Background:

Their Company A, a 100-year-old Conglomerate that had started as an oil and gas refiner, now
encompassed everything from Pharma to Textile to Electronics services to their very roots that is oil
and gas refining.

The company had mainly been active in the North American and European markets. They enjoyed
considerable brand presence and trust. However, it had started as an American company that took
advantage of the Texas oil boom and then powering the industrial efforts during World War II. In the
post-World War II era, the European Nations set out on a nation rebuilding spree. This created a great
demand for energy which was the company’s forte. With few European countries having the financial
muscle required for oil exploration at that time, the company made use of its expertise to establish a
foothold and is still counted among the top 3 players in the continent.

With the oil and gas industry stabilizing, the company in 1950, through impressive leadership foresight
acquired DenPharma, which was then a leading player in Britain. The 1956-1957 years witnessed
significant funding for the pharmaceutical industry as Britain established the NHS. Other European
countries, as well as the US, followed suit in establishing efficient public healthcare systems. This was
a significant development and their investment paid off as DenPharma already had a European Supply
Chain in place. The company used the expertise to establish the same in the US.

The company enjoyed smooth sailing as Europe and North American economies prospered. The several
wars fought in the interim also contributed to their success.

The company’s most notable acquisition came in 1970 with the acquisition of Pen Electronics. Seeing
the growth of Sony, the board decided to acquire Dutch Electronics major Pen. While Sony was making
waves in the music segment, Pen helped the company enter households via the television, which
although at that stage, was an instrument for the upper class of society, eventually became accessible
for everyone. Today, it sells refrigerators, washing machines and microwave ovens along with
Television under the Pen brand.

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 While the 70s was all about electronics, in the 80s having mastered the refining business, it ventured
into the textile industry. Using the Polyester generated from its refining operations, the company started
its clothing brand and engaged in mass manufacturing. It was priced in a way that even the lower middle
class could afford it. The company managed to rapidly expand as it could price its products lower than
its competitors on account of very low raw material cost.

The 1990s brought with it the miracle that is sometimes referred to as the beginning of the 4th industrial
revolution- The internet. The company quickly realized its potential and set about implementing the
digitalization and automation of its system. The company soon suffered a setback when it had to pay
millions of dollars to overcome the Y2K bug. This was the first serious setback that the company had
ever suffered in its history. It created an atmosphere of extra caution which continues to affect them
even today.

The company faced another significant setback when its investments in Iraqi oil went bust after the US
invasion of the country. The Iraqi army set fire to oil wells, several of which belonged to the company
while retreating. It led to losses of billions of dollars and a significant setback to the company’s efforts
to expand its operations by several years. This also dealt a major psychological blow and the
management became averse to expanding in any other Asian markets even when the rise of India and
China was visible and its competitors were rushing to get a hold of the pie.

Meanwhile, competition also rose for its electronics segment. Samsung and LG had started to gain
market share even in its traditional European and US markets at its expense as innovation in its products
kept declining. The pharmaceutical sector was also under pressure from Indian companies producing
the same medicines at half the price.

It suffered another setback during the 2008 financial crisis. Both of its key markets slowed down
dramatically while the Asian markets escaped relatively with some scratches. This enabled its
competitors to race ahead while it had to bear the brunt of slowing revenues and even flat growth in
2009 and 2010.

However, this wasn’t something that had happened overnight. The loss in market share and stagnating
revenues from other segments were only hidden by the record-high oil prices. With oil prices declining
post-2012, the problems began to be a lot more visible.

The Brexit chaos in 2016 only exacerbated its already worsening position. The board and investors
desperately started looking for a new face who could rejuvenate the company and recreate the magic of
old. The age when its management had great business sense and foresight. While the company had cash
reserves owing to asset sales of some underperforming businesses in the Polish and German markets, it
had to move fast to come out of this downward spiral

Present Day

As the team prepared for tomorrow’s board meeting, they knew that if they were to survive, they would
need to start moving to new markets. The Consultants they had hired gave three options based on the
expertise they had gained over the century and the segments that they already operated in.

They were as follows:

o Vietronix in Country Vietnam

o PetroGod in Country Indonesia
o Dr. Pharm in the Philippines

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 Now it was up to her team to present a compelling case about which company they should acquire and
why they should acquire it? Since these companies were facing different challenges, how can they help
overcome them to be able to get the most out of these companies? The company’s future could very
well be decided in tomorrow’s meeting.

Problem Statement:

1. Identify the company that should be acquired and give compelling reasons why it is the
optimum choice from the three options.

2. Suggest ways to overcome the challenges being faced by the chosen company and how they
will add value to the conglomerate.

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 Appendix 1:
Vietnam – Electronics:

Vietnam, an ASEAN nation, is a mixed socialist economy. It is the 15th most populated country in the
world, with a population of around 97 million. The working-age population in Vietnam amounted to
approximately 74.18 million. In 2021, it will be the world's 41st -largest economy by nominal gross
domestic product (GDP) and the 25th -largest economy by purchasing power parity (PPP). Foreign
Exchange Reserves in Vietnam increased to 101884.20 USD Million in July from 99822 USD Million
in June of 2021. U.S, China, Japan, South Korea are major trading partners of Vietnam, contributing to
almost 50% of Vietnam's trade.

Vietnam's GDP

Year Gross domestic product

2018 304.02

2019 329.54

2020* 340.82

2021* 354.87

2022* 389.75

Electronics market share in the GDP

Year GDP contribution

2015 13.69%

2016 14.27%

2017 15.33%

2018 16.00%

2019 16.48%

2020* 16.69%

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 Export and Import of Electronics Sector

Top E.I. Exports

Country Percent share

China 19.3%

U.S. 18.2%

South Korea 9.1%

Hongkong 4.9%

Top E.I. Imports

Country Percent share

China 33%

South Korea 31%

Japan 7.99%

U.S. 6.52%

Indonesia – Petroleum and Crude Oil

Indonesia is an ASEAN country with a population of around 280 million. It is an upper-middle-income

country with a working population of approximately 130 million. The country's Foreign Exchange
Reserves increased to 146900 USD Million in September from 144800 USD Million in August of 2021.
The current GDP of Indonesia stands at $1172.36 billion and is forecasted to reach $1433.69 billion by
2025. In 2018, Indonesia's main trade partners were China, Japan, the United States, India, and
Singapore for exports, and China, Singapore, Japan, Thailand, and the United States for imports.

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 Indonesia’s GDP

Year Gross Domestic

Product

2018 1068

2019 1121.7

2020 1104.8

2021 1172.4

2022 1234.4

Petroleum and Crude Oil Sector's market share in GDP

Year GDP contribution

2016 364.99

2017 391.45

2018 460.17

2019 439.6

2020 332.56

Top Exports of Petroleum and Crude Oil Sector

Countries Percentage Export

United 21.71 %
States

Japan 17.12 %

Singapore 12.73 %

Malaysia 10.87 %

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 Philippines – Pharmaceuticals:

The Philippines, officially the Republic of the Philippines, is an archipelagic island country in
Southeast Asia. The Philippines covers an area of 300,000 km2 (120,000 sq. mi) and has a population
of around 109 million people, making it the 12th most populous country in the world. The working-age
population of the Philippines is about 60% of the total population. The total FDI in 2021 in the
Philippines stands at 1300 million USD. The national government's fiscal deficit-to-GDP ratio increased
to 7.6% in 2020 from 3.4% in 2019.

YOY Growth in GDP of Philippines:

Years 2017 2018 2019 2020 2021

GDP $328B $346B $376B $361B $402B

YOY Growth GDP 3.09% 5.59% 8.64% -4.07% 11.35%

Growth of Pharma Sector in the Philippines:

Year Sales in billion USD Growth

2018 3.21 2.23%

2019 3.37 4.98%

2020* 3.46 2.67%

2021* 3.62 4.62%

2022* 3.83 5.80%

2023* 4 4.44%

2024* 4.17 4.25%

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 Pharma Sector's share in overall GDP of Philippines:

Years 2017 2018 2019 2020 2021 2022 2023

Pharma Sectors' share in GDP 0.96% 0.92% 0.87% 0.83% 0.79% 0.76% 0.73%

Major Countries and their contribution to total imports of the Pharma Sector:

Source Country Import (percentage)

India 13.60

Germany 11

United States 7.58

France 7.42

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 Appendix 2: Financials

PetroGod, Indonesia (in million USD)

Year Net Sales Profit before Tax

2015 2924 1176
2016 2495 857
2017 2770 1019
2018 3161 1339
2019 3033 1153
2020 2001.78 760.98
2021 2731 1051

Vietronix, Vietnam (in million USD)

Year Net Sales Profit before Tax

2016 10369 1031
2017 10554 1244
2018 13095 1440
2019 13361 1223
2020 8818 807
2021 11240 958

Dr. Pharm, Philippines (in million USD)

Year Net Sales Profit before Tax
2018 16.93 14.95
2019 18.71 -0.22
2020 12.35 -0.14
2021 15.99 4.86

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 Appendix 3:

Positive points of Acquiring Petrogod, Indonesia:

• Company A (Conglomerate mentioned in the case study) has a history of being an oil and gas
refiner. Thus, it has relevant experience in the field.

• PetroGod accounted for 10% of total national oil production in Indonesia (considerable market
share)

• PetroGod has a strong balance sheet and low debt-to-equity ratio.

Negative points of acquiring Petrogod, Indonesia:

• Established competitors present in the industry, such as Chevron Pacific Indonesia and
ExxonMobil Cepu Limited.

• High operational cost required for operating a crude and oil corporation. It also faces challenges
of maintaining production in aging oil fields

• PetroGods’s Operational performance is marred by (a) non-remunerative and uncertain

cashflows impacting long-term investments, (b) suboptimal performance in overseas
acquisitions

Positive points of acquiring Dr. Pharm, Philippines:

• Philippines Pharmacy Retail Market is expected to grow at a CAGR of 3.0% basis Revenue
during 2019-2025F

• The Philippines was evaluated as the 3rd most attractive for the pharmaceutical companies
among the ASEAN countries as of 2018

• Dr. Pharm is ranked no.1 Pharma company in Philippines.

Negative points of acquiring Dr. Pharm, Philippines:

• Pharma frauds are one of the major issues faced by the pharma industry in the Philippines.

• The Company is exposed to financial risks such as market risks which includes foreign
exchange risks, credit risk and liquidity risks.

• Long delays in registration for new pharmaceutical products which can go up to 3 years

• Workforce optimization required to create a leaner organization

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 Positive points of acquiring Vietronix, Vietnam:

• Total assets of the company are increasing from year 2015 onwards.

• The company achieved its highest sale in its history in 2018

• Despite its weak balance sheet Vietronix has been able to expand its retail network at an
adequate pace

Negative points of acquiring Vietronix, Vietnam:

• Risks related to economic downturns

• Risks related to our research and development

• Lower than required reinvestment in expanding product portfolio has led to subpar performance
in recent years

Guidelines for Case Study Submission:

1. The solution has to be submitted in the form of a Powerpoint Presentation. However,

participants can use any tool for analysis and submit the analytics in an excel format along with
the PPT.
2. Team Leader should submit their presentations via D2C. In case of any technical error/ glitch,
mail it to ibs.simsr@somaiya.edu within the deadline.
Submission Deadline: 12th November, 11:59 PM
3. The number of slides should not exceed 6 slides (excluding opening and thank you slide).
4. The naming convention is "TEAM NAME_COLLEGE NAME_ILLUME 2021".
5. Participants are not permitted to add their College Name/College Logo within their
presentations, failing to abide by this rule will result in immediate disqualification of the team.
6. In case of any dispute, International Business Society reserves the right to take the final decision
with respect to any or all participants, at any time, in the best interest of all the stakeholders.
7. Disclaimer: All of these companies are fictional in nature. Any resemblance to any actual
companies is purely coincidental.
8. Feel free to refer outside resources to add in the case analysis. However, the reference should
be added as a footnote in the same slide of the PPT.

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