1. MGT 6263
MANAGEMENT POLICY
AND CORPORATE
STRATEGY
STRATEGY CASE
Presented by:
Lujja Sulaiman G1217141
Sirin Alsarmini G1224192
Muhammad Afiq bin
Mohd Nordin
G1212639
Nuzaihan bin Majidi G1214123
Habib M.A. Abuomer G1214733
3. INTRODUCTION
The History of Palm Oil Industry in
Malaysia
• Palm plant has been grown for
over 1000 years in West Africa.
• In 1917 the crop was introduced
into Malaysia by the British
colonial rulers.
• Oil palm is one of the main drivers
of Malaysia’s agriculture sector
(71% of national agricultural land
bank).
4. 1885
• UP founder Mr. Aage Westenholz, served in the Danish Army as an
Artillery Officer living in Bangkok and formed Siam Electric Co.
1906
• Mr. Westenholz established Jendarata Rubber Estate of 809 hectares
followed by Corner, Raja Una and Westenholz Brothers Coconut
Estates in Selangor.
1911
• Mr. Westenholz retired and was succeeded by his younger cousin,
Commander William Lennart Grut,
1917
• all the above companies were merged to become United Plantations
Limited.
1918
• Commander Grut acquired 2,428 hectares above Bernam River, and
established Bernam Oil Palms, one of the pioneers of the Malaysian
Palm Oil Industry.
The History of United Plantations
5. 1932
• Bernam Oil Palms got listed on the Copenhagen Stock.
1966
• the two companies, United Plantations Ltd. and Bernam Oil Palms Ltd.
were incorporated into United Plantations Berhad.
1969
• United Plantations Berhad got listed on the Kuala Lumpur Stock
Exchange.
2004
• UP acquired Socfin’s Lima Blas Estate (totaled land bulk of 40,874
hectares).
2006
• UP acquired 2 Indonesian plantation companies, i.e., PT. Surya Sawit
Sejati and PT. Mirza Pratama Putra - 40,000 hectares of plantation land
in Indonesia.
The History of United Plantations
6. United Plantations’ Group Philosophy
“We strive towards being recognized as second to none within the
plantation industry, producing high quality products, always focusing
on the sustainability of our practices and our employees’ welfare
whilst attaining acceptable returns for our shareholders.”
7. BUSINESS MODEL
Company primary business is cultivation of oil palm and
other plantation crops and their processing.
How UP generates income?
• Production and sell of semi-finished goods e.g. CPO.
• Research and Development - high yielding palm
products.
• Derivatives trading e.g. CPO futures - hedge against
losses.
• Effectiveness and efficiency company - best quality
product - premium price.
10. PESTEL ANALYSIS
• ETP: 8 EPP to sustain Malaysian Palm Oil Industry
• Palm Oil Industrial Cluster in ECER
Political
• Global demand for oils and fat increased by an average of 7%
from 2000 till 2010. Palm oil increased by 10%
• FTA’s : Negotiations for TTP/ India-Malaysia FTA in 2011
Economic/Global
• Awareness about the benefits of palm oil is increasing
• Malaysian population base is small- fertility rate is -2.2 POI is export
oriented
• Government is building Iskandar Malaysia with a planned population
of 3mn
Socio-cultural
• Malaysia is recognized world wide for its R&D activities
• Patent laws are set by the MPOB; however, there’s a need for
stricter enforcement of intellectual property rights.
Technological
• Deforestation, pollution, threat of habitat to indigenous groups and
some animals
• RSPO: Roundtable on Sustainable Palm Oil (only oil with
sustainable certification)
• MSPO: Malaysian Sustainable Palm Oil certification expected in
2014
Environmental
• Well regulated by Malaysian Palm Oil Board
• MPOB serves as technical advisory and research institutions
• Tax incentives, strict labor law for foreign workers
Legal & Regulatory
11. THE 5-FORCES MODEL OF COMPETITION
Rivalry among
competitors
• Players competing for global share, come from different
countries with different strategies and objectives, doubled with
land scarcity , which makes the rivalry intense.
• KLSE-London Exchange Market- Singaporean & Indonesian Co
Substitute
products
• Awareness about the benefits of palm oil is increasing ( in the
U.S consumption increased by 38% for the past five years).
• CPO plantations are renewable assets and once the land is
mature it is a very cash generative business.
• CPO prices are competitive because of lower production costs
and high yield of oil palm.
Bargaining power
of suppliers
• Most buyers are vertically integrated they rarely buy from
suppliers.
• Pesticides & fertilizers : bulk purchasing decrease power of
suppliers, tendency to decrease use of chemicals.
• Engineering companies: their numbers is larger than
plantations, some plantations have their own Eng. Co.
• Funding is easy: many banks would offer loans (strong banking
system), this industry is less risky than others and profitable.
12. THE 5-FORCES MODEL OF COMPETITION
Bargaining power
of buyers
• Five main countries buys in trillion tons annually thus they can
exert bargaining power over plantations; however, demand is
on the rise, while supply is restricted which moderates the
power of buyers.
• Indonesia offers more competitive CPO prices.
Threat of new
entrants
• Scarcity of land.
• Palm oil is capital intensive and takes long time to achieve
economies of scale
• Vertical integration of the major players is a major hurdle.
• Technological and managerial expertise are not easy to be
obtained and takes long time to accumulate.
13. THE 5-FORCES MODEL OF COMPETITION
Rivalry among
Competitors
High
Bargaining
Power of
suppliers
Low
Threat of entry
Low
Threat of substitute Products
Moderate
Bargaining
Power of Buyers
Moderate
14. DRIVERS OF CHANGE
Industry's long- term
growth
Cost Efficiencies,
increases in
productivity
Product& Marketing
innovation
Technological change
& manufacturing
change process
Regulatory influences
& government policy
changes
Attractive
industry
15. STRATEGIC GROUP MAPPING
It is important to understand the complexity of this industry, many
ramifications are present through the manufacturing process, it starts
from preparing the land and nursing the seedlings, and then
harvesting the FFB, and it goes up until the production of palm kernel
Mature
harvested
Area
FFB
How many
fruit bunches
you can get
from a tree
FFB yield
How much oil
you can get
from a bunch
CPO
Production
From pulp of
the fruit
Palm Kernel
Production
From nut of
the fruit
Extracted
Value
22. SWOT ANALYSIS
Strengths
Higher Quality Production
Cost efficiency
Big emphasis on TQM, JIT
Good Corporate Social
Responsibility
Weaknesses
Difficulty obtaining skilled Sales
and Marketing Professionals
Inability to create better Sales and
Marketing Opportunities in
Malaysia
Small amounts of plantable land
Opportunities
Availability of land in Indonesia
and Africa
Market expansion to new markets
due to TPPA
Higher acceptance due to health
concerns
Threats
Environmental issues and Smear
campaigns
Climate change and natural
disasters
25. KEY SUCCESS FACTORS
Strong capital base
Managing significant investment
spending during the
planting/development stage
period
Strong management team
The complexity of industry
requires a strong management
team (chemical engineering, bio-
engineering, food technology,
agricultural science, finance,
product R&D, etc.)
Good logistics
Requires an efficient and well-
arranged and integrated system
of organizations, people,
activities, technology, information
and resources required to move a
product from supplier to customer.
Good Planning
development of new sites of
plantations and replantation plans
- feasibility studies and an
environmental impact assessment
(EIA) to determine potential
environmental and social impacts.
Size of plantation
Malaysia’s palm oil industry faces
a major threat of limitation of
cultivable lands due to concerns
of deforestation and
environmental degradation. -
expanding in Indonesia and
Africa.
Technical expertise
Require a strong expertise in the
technical know-how in the food
and health segment - Upstream
products comprise 81.5% of the
total palm oil exports.
26. COMPETITIVE STRENGTH ASSESSMENT
KSF Weights
United
Plantations
Genting
Plantations
Sime Darby
Plantation Size 0.30 5 1.50 5 1.50 9 2.70
Good Planning 0.20 7 1.40 6 1.20 7 1.40
Good Logistics 0.18 8 1.44 6 1.08 7 1.26
Capital Base 0.15 5 0.75 6 0.90 8 1.20
Strong
Management
team
0.10 6 0.60 6 0.60 8 0.80
Technical
expertise
0.07 6 0.42 7 0.49 8 0.56
1.00 6.11 5.77 7.92
1 = very weak; 5 = average; 10 = very strong
• United Plantation is in the middle not enjoying a competitive advantage
and not suffering the competitive disadvantage.
• United Plantation is competitive in 1) Good Logistics 2) Good Planning
• However, UP has to improve on these areas; 1) Plantation size, by
acquiring more land for expansion in Indonesia and Africa, 2) Capital base,
by raising more funds through selling more shares and bonds.
28. CORPORATE-LEVEL STRATEGIES
Related
Diversification
Vertical Integration Acquisition Strategic Alliance
• Unitata Berhad – Palm-oil refinery
• PT Surya Sawit Sejati & PT Surya Sawit Seberang (Indonesia) – Oil-palm plantation
• Butterworth Bulking Installation Sdn. Bhd. – Oil-palm collection and transportation
• Bernam Agencies Sdn. Bhd. – Sales and marketing
• Aarhuskarlshamn – Sales and distribution in Europe
Oil-palm plantation Palm-oil refinery
Manufacturing of palm-oil
based products
29. BUSINESS-LEVEL STRATEGIES
Broad Differentiation
Strategy
UP’s Quality
Philosophy:
To uphold the name and
reputation of United
Plantations as a top
producer of premium
quality palm products.
Product features and performance
Input quality
Quality control process
Customer service
Production R&D
Technology and innovation
Employee training, skill and
experience
Sales & marketing
30. FUNCTIONAL-LEVEL STRATEGIES
R&D and Technology Production
OPERATIONAL-LEVEL STRATEGIES
• Managers at the operational-level are required to engage in all aspects of
operation
• Operational activities are conducted in one integrated place in Jenderata
Estate, Perak
31. • PROBLEM AND CHALLENGES
• IMPLEMENTATION ISSUES
• RECOMMENDATIONS
• CONCLUSION
32. PROBLEM AND CHALLENGES
1) Issues concerning labor:
a. High turnover rate
b. Disciplinary issues for foreign workforce
c. Hiring talented workers
33. PROBLEM AND CHALLENGES
2) Issues concerning land:
a. Availability
b. Type/Quality
c. Irrigation
d. Transportation
34. IMPLEMENTATION ISSUES
• In solving the shortage of sales and
marketing professionals.
• Other processes are better than
competitors.
35. RECOMMENDATIONS
1. Hire talented sales and marketing
professionals.
2. Extend business operations to potential
new markets (e.g. Africa and the Middle East).
3. Acquire more of the plantable lands.
4. Seek more stable workforce.
5. Improve their R&D activities.
36. CONCLUSION
• Is UP’s strategy a Winning Strategy ?!
– Fit test
(In Harmony with External Environment, Good
management of Resources)
– Competitive Advantage test
(distinctive quality, excellent at TQM & JIT)
– Performance test
(financial strength / competitive strength and market
standing)
