SOCC stratma paper

JOSE RIZAL UNIVERSITY GRADUATE SCHOOL iii
ACKNOWLEDGEMENT
Writing this Strategic Management Paper is not an easy task, as I already
expected it to be, considering that this paper is for the capstone subject in MBA.
I am tackling challenges from both my career and personal life which made
writing more difficult. I needed all the help I can get; and I did.
To this end, I would like to thank our Almighty God and Lord who have
heard all my prayers to aid me in the compilation of this paper. I believe that God
gave me the intelligence and willingness to complete this paper professionally
and intellectually. I prayed for it and He provided.
I thank my colleagues Jennifer Jomero, Grace Nacion, Marlon Fampula
and Melvar Benedicto for assisting me by giving vital insight about writing this
paper. They never disappointed me every time I needed their assistance. They
also helped me brainstorm an idea on how to compile my paper.
Invaluable was the contribution of my graduate school, Jose Rizal
University, to my paper as they provided materials and study aid for its
completion. Thank you graduate school, most especially to the graduate school
library.
There were also contributions from my officemates in Sakamoto Orient
Chemicals Corporation. Thank you guys!

JOSE RIZAL UNIVERSITY GRADUATE SCHOOL iv
I am grateful for the considerations my bosses, Atty. Jaime Pascua and
Mr. Emmanuel Elpedes, had given me in my MBA endeavor. Although they
wouldn’t tell, I’m sure they considered my studies in assigning tasks to me.
And last, but certainly not the least, I thank my parents especially my
mother who supported me, financially and morally, in my graduate school
endeavor. This is for you, Mom and Dad!
I thank them all so much, that without them, this Strategic Management
paper surely would not have been completed.
I cannot repay them in equal terms but I do pray that our Almighty God
would provide the reward for all the help and assistance they gave me.
Thank you all!

JOSE RIZAL UNIVERSITY GRADUATE SCHOOL v
TABLE OF CONTENTS
Page
Title Page....................................................................................................i
Approval Sheet...........................................................................................ii
Acknowledgement......................................................................................iii
Table of Contents........................................................................................v
List of Tables..............................................................................................vii
List of Figures...........................................................................................viii
Executive Summary....................................................................................1
Chapters:
I Introduction...............................................................................................4
A. Company Background…………………………………….................…....….4
B. Products and their respective application………………..............……......5
C. Sales Revenue, Market and Profitability…………….................……….....6
D. Corporate Governance and Social Responsibilities................................7
II Research Design and Methodology....................................................9
A. Research / Data Gathering Methods......................................................9
B. Restrictions & Assumptions..................................................................10
III Vision and Mission............................................................................12
A. Current Vision and Mission Statements................................................12
B. Analysis on Vision and Mission Statements..........................................12
C. Proposed Vision and Mission Statements............................................14
IV Environmental Analysis.....................................................................15
A. General Environment............................................................................15
B. Industry and Competitor Analysis..........................................................21
C. Future Prospective................................................................................26
D. Summary of Opportunities and Threats and EFE Matrix.......................28
E. Competitor Analysis..............................................................................30

JOSE RIZAL UNIVERSITY GRADUATE SCHOOL vi
V Company Analysis.............................................................................34
A. Sales Trend...........................................................................................34
B. Market Share........................................................................................34
C. Present situation...................................................................................35
D. Horizontal & Vertical Analysis...............................................................39
E. Financial Ratios....................................................................................42
F. Audit Checklists.....................................................................................44
G. Summary of Strengths and Weaknesses..............................................44
H. Internal Factor Evaluation Matrix..........................................................45
VI Strategy Formulation.........................................................................47
A. SWOT Matrix.........................................................................................47
B. SPACE Matrix.......................................................................................49
C. Boston Consulting Group Matrix...........................................................51
D. Internal-External Matrix........................................................................52
E. The Grand Matrix..................................................................................53
F. Quantitative Strategic Planning Matrix for SOCC..................................54
VII . Strategic Objectives and Recommendation Strategies...................55
A. Strategic Objectives..............................................................................55
B. Recommended Business Strategies.....................................................55
C. Organization Strategies........................................................................56
D. Financial Projections............................................................................58
VIII. Actions Plans and Departmental Programs.......................................62
IX Strategy Evaluation, Monitoring and Control.....................................64
A. Evaluation Method................................................................................64
B. Key Metrics...........................................................................................65
ANNEX......................................................................................................68
BIBLIOGRAPHY........................................................................................78
CURRICULUM VITAE...............................................................................80

JOSE RIZAL UNIVERSITY GRADUATE SCHOOL vii
LIST OF TABLES
Tables Page
1. 2009 Sales Revenue per country of destination.................................6
2. United States Federal Tax Rate 2010...............................................16
3. Summary of Audit Checklists.............................................................44
4. Action Plans......................................................................................62
5. Proposed Balanced Scorecard Format...............................................67

JOSE RIZAL UNIVERSITY GRADUATE SCHOOL viii
LIST OF FIGURES
Figure Page
1. External Factor Evaluation Matrix.........................................................30
2. Competitive Profile Matrix.....................................................................33
3. Historical Sales figures for the past 7 years..........................................34
4. Horizontal Analysis of Balance Sheet FY 2010.....................................39
5. Vertical Analysis of Profit & Loss Statement 2010................................42
6. Comparison of SOCC and Kao’s selected financial ratios.....................43
7. Internal Factor Evaluation Matrix..........................................................46
8. SWOT Matrix.......................................................................................48
9. SPACE Matrix......................................................................................50
10. BCG Matrix.........................................................................................51
11. IE Matrix.............................................................................................52
12. The Grand Matrix...............................................................................53
13. QSPM Matrix......................................................................................54
14. Projected Profit and Loss Statement, 2011 to 2013..........................58
15. Projected Cash Flow 2011 to 2013.....................................................60
16. Balanced Scorecard...........................................................................65

JOSE RIZAL UNIVERSITY GRADUATE SCHOOL 1
EXECUTIVE SUMMARY
• Currently, Sakamoto Orient Chemicals Corporation’s export sales are
negotiated and maintained through its parent company – Sakamoto Yakuhin
Kogyo Company, Ltd. Any movement in sales will come from the parent
company.
• The company is a PEZA registered corporation that enjoys various
benefits of being so, such as, 5% gross income preferential tax rate and
exemption from import duties and taxes.
• The company’s production processes are ISO 9001:2008 certified and
chemicals produced are Halal and Kosher certified.
• The refined glycerin market is relatively small with global production of
around 2 billion pounds annually and a market value of $1 billion worldwide and
is expected to grow. Renewable fuel policy (mandates, tax incentives, and
subsidies) in developed nations ensures that biodiesel industries will continue to
expand well into the future. It is projected that biodiesel production will reach 8.2
billion gallons by 2020. This will contribute 5.9 billion pounds of crude glycerin,
meaning that the current production of glycerin will be nearly tripled by biodiesel
production alone.
• The market for glycerin is volatile and pricing is strongly dependent on
supply. Since glycerin is naturally produced primarily as a co-product of biodiesel
and soap manufacturing, supply is dependent on the demand for these primary

products. The recent sharp rise in biodiesel production has driven crude
glycerine prices to plunge.
• Decline in world economy during 2008 and 2009 adversely impacted the
epoxy resins market in Asia-Pacific.
• The top end-uses of glycerin are found in the food processing, cosmetics,
oral care, and tobacco industries. These markets are mature and demand growth
is slow. At the same time, the rising standard of living in developing countries,
especially in China, provides the greatest opportunity for growth in the traditional
uses of glycerin.
• The global Epoxy Resins market will reach 1.93 million tons by 2015,
according to an independent market analyst.
• Glycerine refineries are mostly located in UK, USA and South East Asian
regions.
• Competition with two closely-related industry players, Kao Corporation
and Cocochem, is considered friendly. A cut-throat competition from their end is
unlikely.
• Local sales is considered low in comparison with export sales.
• Acquisition of a Good Management Practice (GMP) certification is
imperative to sell glycerine to local pharmaceutical companies.
• The company’s export and import activities causes the company to be
exposed to foreign currency exchange fluctuations. Hedging should be taken
into consideration to significantly mitigate its effects.

• Although the company has a large outstanding loan balance, it still has an
available credit line for further loan availments. Capital expenditures, if
necessary, can be funded relatively easy.
• The company’s inventory turnover rate is low due to its present practice of
stocking-up on raw materials and finished goods with the belief that costs will rise
up eventually. But the truth is contrary to that.
• The results of the Comprehensive Strategy-Formulation Framework used
in this paper resulted in a need to implement a Market Penetration strategy.
• The ultimate strategy is to increase marketing efforts and achieve sales
growth for the coming years. This should be done by selling more to the market
currently served. Increase product awareness and emphasize the quality
standards of chemicals offered.
• The strategy is focused on increased sales effort but it entails
improvement of financial stability, maintenance of current ISO, Halal and Kosher
certification and product innovation.
• Improved profitability not only relies on increased sales but also on
efficient spending on overhead, selling and other administrative expenses.

CHAPTER I
INTRODUCTION
A. Company Background
Sakamoto Orient Chemicals Corporation (herein after referred to as
SOCC) is a joint venture partnership between Sakamoto Yakuhin Kogyo Co., Ltd.
(herein after referred to as SYKCL), and Tomen Corporation, both with principal
offices in Japan.
SOCC was established on December 15, 1988. Its main business is the
manufacture and export of Refined Glycerin (RG), Poly Glycerin (Poly-G) and
TBA Polymer products. The products are considered hard commodity.
At present, SOCC operates three (3) glycerin plants and one (1) TBA
Polymer plant.
With quality that compares with excellent standards, SOCC’s products are
continuously being distributed to different parts of the world. SOCC’s primary
customer is SYKCL. SOCC exports most of its glycerin and TBA polymers to
SYKCL and in turn, sells/exports them to various buyers at a mark-up.
SYKCL ships chemicals bought from SOCC to different countries such as,
China, Denmark, France, Hong Kong, South Korea, Malaysia, Taiwan, Thailand
and Vietnam.
At present, the company’s local sales are minimal in relation to exports,
but efforts are being increased to improve it.

Competitors are somewhat considered as “friendly rivals”. These other
sellers of glycerin are also SOCC’s suppliers of crude glycerin.
The company currently has some 127 regular employees working for it,
while about 10 to 15 people are contracted for manpower exigencies.
B. Products and their respective application
1. Refined Glycerin
It is a clear water-like viscous/hygroscopic liquid that is completely soluble
in water and has a sweet taste. Refined Glycerin is primarily used as additives
for food, pharmaceuticals and cosmetic products as raw material in the
production of paints (alkyd resin), as moisture retainer for tobacco production and
as lubricant. The raw material in the production of Refined Glycerin is Crude
Glycerin (CG), which is obtained initially from production of soap and fats splitting
(Hydrolysis) and now also from Biodiesel production (transesterification).
2. Polyglycerin
It is an odorless and viscous liquid that has four-hydroxyl group. The
product is used as moisturizer and viscosity modifier for personal care products,
perfume holding agent, surfactants, polyester, coatings, adhesive, and raw
material of organic and synthetic chemicals.
3. TBA Polymer
It is a brominated epoxy flame retardant, which was developed by SYKCL.
This product is used to interfere with combustion of the plastic material for
electrical and electronic equipment. For instance, TBA polymer is used for the

PBT resin (polybutylene terephthalate) manufacture, and is in turn used for
electronic parts such as in computers and mobile phones as connectors and
relay switches.
C. Sales Revenue, Market and Profitability
The Table 1 below shows the breakdown of exportations during the
company’s fiscal year 2008-2009.
Most export sales are to Japan followed by other Asian countries, such as
Malaysia, China, Korea and others. Exports to European countries are still
relatively low. Local sales are also significant although SOCC’s local customers
in 2009 only included Unilever (Unilever also produces glycerine in North
Table 1. 2009 Sales Revenue per country of destination
Japan P 794,785,196.42 74.15%
China /Shanghai 42,529,408.21 3.97%
Hong Kong 35,655,749.50 3.33%
Korea 32,383,303.56 3.02%
Malaysia 75,027,521.87 7.00%
Taiwan 497,900.00 0.05%
Thailand 28,622,631.33 2.67%
Vietnam 1,417,201.17 0.13%
Denmark 25,718,408.01 2.40%
France 2,588,577.48 0.24%
Local 32,706,539.67 3.05%
TOTAL P 1,071,932,437.22 100%
Source: Summarized from the company’s audited sales.

America), Kemwerke and Cocochem (also a local friendly competitor). There
were no export sales to the Americas to date.
The company just experienced a recovery from 2009 operation’s Net
Loss, which resulted from the global economic downturn. The company’s
chemicals are mostly used in end-user items that if their sales go down, the
demand of glycerine and epoxy resin directly follow.
D. Corporate Governance and Social Responsibilities
The company keeps in mind its stakeholders - customers, suppliers,
employees, community, environmentalists, government and stockholders, at all
times.
Buyers are assured of high quality products that meet their respective
specifications. A system of quality assurance is established to this end.
Processes are ISO 9001:2008 certified. The company acquired Kosher and
Halal certifications to assure certain demographic market that their requirements
are adhered to.
Prompt payments to suppliers are ensured to maintain good relationship
with them. Because of this practice, some suppliers give discounts or adequate
credit terms.
Employees are provided above industry average compensation package.
Their commitment and competence are recognized by the company and
rewarded accordingly. Some employees handling technical job are given special
trainings here or in Japan to further enable them to perform their functions well.

Length of service is also rewarded. Participation in various community program
is also within the company’s line of activities. Sponsorships and giving donations
during turbulent times are just some of the many generous acts done by the
company. It believes that an entity, whether natural or artificial, cannot be purely
separate from its community.
Maintenance of clean and safe environment will always remain a part of
the business. Waste produced by operations are disposed of as according to
rules implemented by the Department of Environment and Natural Resources
(DENR). A third party is contracted by the company to treat the wastes produced
(if necessary) before disposal. Aside from waste disposal, the company also
participates in tree planting around the Plant vicinity, which is also a requirement
by the DENR.
Necessary business permits and licenses (especially with regards to
production of glycerin, which is an ingredient in making explosives) are all
acquired by the company on a timely manner.
Taxes of all sorts are remitted by the company on time and with no
involvement of fraud.

CHAPTER II
RESEARCH DESIGN & METHODOLOGY
A. Research / Data Gathering Methods
Research methods were employed to gain understanding on what is the
present situation of and around the company in question. The objective of
research is to discern different internal aspects of the company and external
factors affecting it.
The writer’s current position as an Accounting Supervisor in SOCC gave
him an invaluable insight into the company’s background and prospective plans.
Interviews were made on company’s personnel to gain firsthand
information on company backgrounds.
Several company records, such as audited financial statements, are
acquired to determine the company’s financial standing.
The internet was widely used in this research. Independent studies about
glycerine and epoxy polymer were obtained through it. Websites of identified
competitors were browsed as well.
Government websites were visited to obtain information on several factors
affecting the company, such as Bangko Sentral’s website for information on
Monetary Policy and National Statistics Offices’ for data on inflation rates.
B. Restrictions & Assumptions
1. Assumption on competition

Major competitors identified are Kao Corporation (hereinafter referred to
as Kao) and United Coconut Chemicals (hereinafter referred to as Cocochem).
Kao is a Japanese chemical manufacturing corporation while Cocochem is a
PEZA registered domestic corporation.
Due to time and financial constraints, only the two mentioned major global
industry players are considered in this paper. The selection of these two is
based on their close similarity with SOCC’s operation, specifically in location and
organizational structure. The two are also suppliers of SOCC.
The largest competitor identified in the epoxy resin industry is 3M
Company; but the company is so diverse that its financial statements doesn’t
provide any basis of comparison with financial statements of SOCC. Therefore,
the financial background of 3M Company will not be used in this paper.
2. Assumption on substitute products
Since there aren’t any available information on substitute for epoxy resin
(a class where TBA Polymer is categorized), it is assumed that there is no
relevant substitute as of the moment that can significantly affect the industry of
epoxy resins.
3. Assumption on switching cost
Because glycerine is a commodity, it is assumed that switching from one
supplier of refined glycerine to another shall entail an insignificant cost. The
same goes for crude glycerine.

4. Assumption on Success Factors
Due to time constraints, only limited factors are identified. These factors
are assumed to be the most important to succeed in the industry.
5. Limitation on competitor information
Although revealing information are contained in competitors’ website, it is
not specific enough as to give exact details. Most competitors manufacture and
sell chemicals other than glycerine. Their annual financial statements are on a
consolidated format and don’t provide enough information particular to their
glycerine operations only.

CHAPTER III
VISION AND MISSION STATEMENTS
A. Current Vision and Mission Statements
1. Vision
“To be recognized as one of the top international leaders in the chemical
manufacturing industry.”
2. Mission
“To achieve consistent profitability by providing customers with chemical
products that meets their needs and expectations.”
B. Analysis on Vision and Mission Statements
1. Vision Statement
The company’s vision doesn’t state that they aim to be the number one in
the industry, although, it clearly states that they want to be among the best. It is
a clear and an unambiguous statement of what the company aspires to be in the
future. The vision gives the readers a visualization of a clear and bright future for
the company. The wordings used in the statement are engaging and there are
no jargons that may cause confusion.
I believe that the aspiration expressed in the statement is realistic,
considering the overall capacity of the mother company in Japan, SYKCL. Also,
the Vision Statement was able to present a criterion for long-term decision
making.

The statement, though, failed to connect to the general public on what is
the company’s relevance for existence.
2. Mission Statements
I don’t believe that the Mission Statement is effective because it lacks
many of the essential parts. It failed to unambiguously present what the
business of the company really is.
The customers are mentioned in the statement but it is ambiguous as to
who they are. There is also no mention as to where these customers are
located.
The Mission Statement is also silent if the company is concerned about its
employees and public image, notwithstanding the fact that it is.
It would also help if the statement provides a clear idea about the
company’s philosophy and what sets it apart from other companies, for the sake
of having a distinctive identity.
The statement was able to succeed in expressing on what products the
company is selling and that it is concerned about overall profitability. It could’ve
been better, though, if the technology used to produce their products is stated.
C. Proposed Vision and Mission Statements
1. Vision Statement
“To be recognized as one of the top international leaders in the chemical
manufacturing industry by providing high quality chemicals used in production of
top quality consumer products.”

2. Mission Statements
• To manufacture high quality chemicals using current processes that
are ISO compliant.
• To provide chemicals to local and international pharmaceutical
companies, manufacturers of personal care products and electronic equipments
that meets their distinctive specifications.
• To continuously benefit from global industry know-how and product
developments of Sakamoto Yakuhin Kogyo Co., Ltd.
• To maintain profitability by soundly anticipating any distress in the
industry.
• To hire only highly competent people with integrity, provide them
with opportunity for growth and reward them accordingly.
• To implement a management style that holds virtue, ethics and
integrity before profit.
• To play a vital role in betterment of society and environment by use
of only natural raw materials, implementation of proper waste management,
adherence to applicable rules of governing bodies, and participation in social
activities.

CHAPTER IV
ENVIRONMENTAL ANALYSIS
A. General Environment
1. Key Economic Factors
1.1. Inflation
Headline inflation rate in the country is used as a basis in determining
acceptable increase in costs of certain goods and services. Particularly for
SOCC, escalation clause for land rental, which is a significant part of overhead
expense, is based on inflation rate for the year. January 2010 registered
Headline inflation rate of 4.3% (year 2000 is the base year) while December
2010 registered a decrease to 3.0%.
1.2. Corporate Income Tax Rates
Governments of different countries impose different taxation levied on
corporate income. At present, the Philippine corporate tax rate for domestic
corporations is fixed at 30% of net taxable income.
Japan national corporate tax rate is 30% but only 22% is imposed on net
taxable income of below ¥8 million on condition that the total equity is less than
¥100 million. In addition to corporate tax (a national tax) there are two classes of
local tax paid by a Japanese corporation: Inhabitant Tax and Enterprise Tax.
These two classes of local tax significantly increase the rate of Japan corporate
tax, so that it may, in actual fact, reach 41%

The United States of America’s effective corporate tax rates imposed on
net taxable income are as follows:
United States Federal Tax Rate 2010
Taxable Income Tax Rate
0 to 50,000 15%
50,000 to 75,000 $7,500 + 25% of amount over 50,000
75,000 to 100,000 $13,750 + 34% of amount over 75,000
100,000 to 335,000 $22,250 + 39% of amount over 100,000
335,000 to 10 M $113,900 + 34% of amount over 335,000
10 M to 15 M $3,400,000 + 35% of amount over 10,000,000
15M to 18,333,333 $5,150,000 + 38% of amount over 15,000,000
18,333,333 and up 35%
Source: http://en.wikipedia.org/wiki/Corporate_tax_in_the_United_States
However, SOCC is a PEZA registered corporation that enjoys a Gross
Income Tax rate of 5% in lieu of all other taxes (including VAT and import taxes).
1.3. Monetary Policy
Bangko Sentral ng Pilipinas’ monetary policy settings remain appropriate,
given the favorable inflation profile.
The BSP’s efforts to promote low and stable inflation are therefore
consistent with the maintenance of supportive conditions for domestic economic
growth amidst lingering uncertainties surrounding global economic growth
prospects.

1.4. Consumer Spending Behaviour
Consumer spending improved in the United States during 2010.
Businesses are ordering more computers and appliances, and consumers are
spending with more confidence. Consumers spent more for the fifth straight
month in November. U.S. businesses, sitting on nearly $2 trillion in cash, are
parting with a bit more of it. Companies increased their orders for long-lasting
manufactured products, excluding volatile transportation goods, by the sharpest
amount in eight months in November. Demand rose for computers, appliances
and heavy machinery.
1.5. World Oil Prices
Oil prices are increasing which has a direct effect on total cost of
production. During December 2010, prices rose above $91 a barrel — the
highest point in two years. Gas prices have also jumped.
1.6. Foreign Currency Exchange Fluctuations
Forecasting the Philippine Peso to US Dollar exchange rates will prove to
be difficult. The exchange rate is determined by several factors such as,
economy, monetary policy and, most importantly, by its supply and demand.
Although it can be fairly described that the Philippine Peso is gaining strength
against the US dollar as of late.
2. Key Social, Cultural, Demographic and Environmental Factors
2.1. Waste Management

Manufacturing Plants, including SOCC’s, produce waste as part of overall
production. In SOCC’s case, the wastes produced are Dewatered Sludge, Spent
Activated Carbon, Immobilized Waste, and Pitch Oil. These must be treated and
disposed of properly as part of compliance to various environmental laws. Waste
disposal is costly considering that waste management is an integral part of
operations.
2.2. Jews and Muslim Demographic Market
Jews and Muslims represent a large demographic market for consumer
products such as personal care and pharmaceutical products. Both groups have
their own laws with regards to food and pharmaceutical consumption.
Islamic law prohibits consumption of pork and all its products, animals
improperly slaughtered, alcoholic drinks including all forms of intoxicants,
carnivorous animals, birds of prey and any food contaminated with any of these
products. In the same manner, the Jewish law also prohibits certain food items.
Manufacturers of consumer goods with Halal (meaning lawful) and Kosher
(meaning fit) labels will only procure raw materials from companies with Halal
and Kosher certifications. These manufacturers include Procter and Gamble and
Unilever, among others. For Glycerine, as raw material for various consumer
goods, to be sold to these manufacturers, the products must be Halal and Kosher
certified.

2.3. Pharmaceutical requirement
Pharmaceutical companies in the Philippines requires from SOCC a
“Good Management Practice” (GMP) certification to ensure the cleanliness of
refined glycerines.
2.4. Industry growth of end-user products
The personal care industry had an excellent growth rate in all the major
markets of the world. Since the past few years, people have become more
conscious about their appearance and look, leading to a huge demand for these
products in the whole world. The women’s beauty industry is growing at rate of
approximately USD 202.254 billion every year where as the global market for
cosmetics alone USD 30.33 billion. The global personal care products industry is
growing at a very rapid pace.
3. Key Political, Governmental and Legal Factors
3.1 Regulation of Biodiesel Industry
Various laws and tax incentives have been issued by governments of
different nations that promote increased production of biodiesel. The global
increase in biodiesel production will determine the future of the glycerine
industry. Demand for biodiesel is projected to be 8 billion gallons by 2020. This
would result in 5.8 billion pounds of glycerine entering the market from biodiesel
production alone. The incredible quantity of glycerine causes a glut.
4. Key Competitor Factors
4.1. Identified relevant competitors

The competitors Kao and Cocochem are both similar with SOCC. On one
hand, Kao is a Japanese company engaged in chemical manufacturing and has
a subsidiary, Pilipinas Kao (hereinafter referred to as Pilkao). On the other hand,
SOCC is a Philippine domestic company that has SYKCL, a Japanese
corporation, as its mother company. Cocochem is also similar with SOCC
because both are PEZA registered and even has its plant facilities adjacent with
SOCC’s.
Pilipinas Kao is a SOCC’s major supplier of crude glycerine while
Cocochem leases land area to SOCC.
The identified major competitors are actually closely related with SOCC in
terms of business transaction. Therefore, the rivalry with them is not a vicious
one. Each manufacturer has its own existing market and there hasn’t been any
recent acquisition of market share from any of the three. Also, Pilkao and
Cocochem, like SOCC, are members of United Coconut Association of the
Philippines (UCAP).
4.2. Identified relevant substitute products
Substitutes for Glycerine are already out in the market. These
commodities are Sorbitol and Propylene Glycol.
Sorbitol has several end-uses similar to glycerine and often they are
included together in the same formulations. Sorbitol is produced with sugar from
corn starch or invert sugar as a feedstock. By category, the uses of sorbitol are:
• Toothpaste and cosmetics – 35%

• Processed food – 30%
• Pharmaceuticals – 7%
Sorbitol prices range between $0.27 and $0.40 per pound for
pharmaceutical grades.
Propylene glycol (PG) has industrial uses similar to glycerine. By
category, the uses of Propylene Glycol are:
• Unsaturated polyester resins – 27%
• Functional fluids (anti-freeze, de-icers) – 20%
• Cosmetics and food industry – 20%
• Miscellaneous (paints, coatings, tobacco processing) – 33%
Prices range between $0.60 and $0.68 per pound.
Substitutes are often used when they are priced cheaper than glycerine.
Although, the chronic oversupply of glycerine has prevented market attacks from
substitutes.
B. Industry and Competitor Analysis
B.1. Description of existing industry conditions:
B.1.1. Market Size
Although the market for glycerine is global, it is still small. But as long as
there’s market for personal care goods, cosmetics and pharmaceutical products,
there will be buyers of glycerine.
The market of epoxy resin is relatively larger at an estimated $15.8 billion
worth of demand during 2009.

B.1.2. Product Life Cycle
Glycerine is already on the maturity stage of its life. Competition within
the industry is already present. Product differentiation (in terms of chemical
specifications) are pervasive to encourage customer loyalty.
B.1.3. Scope of competitive rivalry
Competition is not as cut-throat as that of the automobile or electronics
industry. In fact, SOCC’s competitors are also its suppliers. Rivalry is
considered friendly in the segment that SOCC belongs to.
B.1.4. Significant industry players
There are a number of large companies competing in the industry. They
are mostly located in United States of America, United Kingdom, India, Malaysia,
Indonesia and Philippines. All of them are large multinational corporations and
most of them produce chemicals other than glycerine.
B.1.5. Pricing
Since the glycerine market is small on a global basis, there is little market
information, making it difficult to establish a world “spot” price for the product.
B.2. Porter’s Five-forces model
B.2.1. Force 1 - barriers to entry
Competing in local and global glycerine market would require economies
of scale to operate competitively in terms of cost.

There is an abundant supply of crude glycerine that resulted from
unprecedented increase in biodiesel production. The glut in crude glycerine
allows easy/cheap procurement of raw material for refined glycerine.
Several government policies are to be adhered to in production of
glycerine. Applicable Philippine environmental regulations are as follows:
• PD 984 – Pollution Control Law
• PD 1586 – Philippine Environmental Impact Statement System
• RA969 – Toxic Substances and Hazardous and Nuclear Waste control act
of 1990
• RA 8749 – Clean air act of 1999
• RA 9003 – Ecological and solid waste management act of 2000
• RA 9275 – clean water act of 2004
High quality is also required from glycerine refineries. Assurance of
quality would entail adherence to international standards.
Selling glycerine as raw materials would only require refining crude
glycerine obtained from by-products in hydrolysis or transesterification.
Large capital is usually required for establishment of a refining plant that
can provide economies of scale. Working capital is also needed for a back-office
that will process exportations, importations and processing of various business
and legal transactions.
shipping companies are usually available for local and export shipments.
B.2.2. Force 2 - Threat of Substitutes

There are several substitutes for glycerine depending on the end-use
industry. Usually substitutes are used if it provides cost advantage. But a glut in
crude glycerine prevents attacks from substitutes.
It is assumed that there are no substitute available for epoxy resin.
B.2.3. Force 3 - Bargaining power of buyers
There are about 1,500 uses for glycerine. It encompasses various
products manufactured by different companies. Buyers are not concentrated.
Buyers, like Procter and Gamble, have produced glycerine as by-product
of their soap production. Therefore, it is expected that most buyers are informed
of the glycerine market.
SOCC’s customers have been patronizing its products for a long time
now. This customer loyalty has allowed the sales of SOCC to grow over time.
It is known that some buyers preferred substitutes if priced lower.
SOCC’s glycerine is differentiated in a sense that it is from a vegetable oil
source, Kosher and Halal certified and adheres to individual specifications of its
customers.
There should be minimal switching cost if buyers of SOCC decides to
procure refined glycerine from others.
There are no threat of acquisition by existing buyers.
B.2.4. Force 4 - Bargaining power of suppliers

SOCC currently has various suppliers of crude glycerine. Sub-materials,
like activated carbon and hydrochloric acid, can also be purchased readily from a
number of sources. Suppliers are not concentrated.
Switching from one supplier to another will not significantly affect the
specifications of SOCC’s finished products.
The glut in crude glycerine forces suppliers to sell at a low price.
B.2.5. Force 5 - Rivalry among existing players
Among the most relevant competitors identified, Kao Corporation would be
considered the largest in size.
The glycerine industry growth is determined by the growth in sales of
products utilizing glycerine as input. At present, the personal care products and
pharmaceuticals industry are growing steadily.
The continuing increase in biodiesel production causes the glycerine
industry to operate at a surplus. There are more crude glycerine being produced
than being refined. Meaning, the supply of crude glycerine cannot be solely
acquired by a small number of large industry players.
Existing rivalry between SOCC, PKI and Cocochem are considered
friendly. PKI and Cocochem are also SOCC’s suppliers of crude glycerine and
other cost of production.
Five Forces Model Conclusion:
Force 1: Barriers to Entry – Minimal Threat
Force 2: Threats of Substitute – Moderate Threat

Force 3: Bargaining Power of Buyers – Moderate Threat
Force 4: Bargaining Power of Suppliers – Minimal Threat
Force 5: Rivalry among existing players – Minimal Threat
C. Future Prospective
1. Outlook on Glycerine and Epoxy resin Industry
The increase in the Asian standard of living and substitution for petroleum-
derived chemicals will lead to slight growth in the demand for glycerine; however,
the increase in demand will not be enough to keep up with the supply of crude
glycerine from biodiesel production. Japan and the United States, two historically
large consumers of glycerine, only have an annual growth rate of two percent for
glycerine consumption.
In order to add value to glycerine from biodiesel, new outlets need to be
found for the by-product. The supply of crude glycerine has reached crisis levels.
Many view glycerine as a waste product instead of a versatile by-product. Prices
for crude glycerine have bottomed out in both the US and European markets.
The best means to improve the glycerine glut will be innovations that add value
and create new, strong demand for glycerine.
2009 was a most difficult year for the epoxy industry. The global sales
declined to the level of 2005, and the market size shrank by nearly 20% in some
regional markets. However the industry has regained strong confidence as
demand from overall downstream markets rebounds rapidly, particularly from
composite, automobile, aircraft/aerospace and E&E markets.

Positive growth is projected in epoxy industry thanks to the strong signals
of recovery overall, particularly in the U.S. and Germany. The market will reach
US$17.7 billion by 2012 and increase to US$21.35 billion by 2015 in the forecast,
following the annual growth rate of 3.5-4% in near future and more thereafter.
Strongest demand is expected from epoxy composite market and epoxy
adhesive market.
Asia-Pacific represents the largest as well as the fastest growing regional
market for epoxy resins worldwide.
2. Second Generation Biofuels
Dr. Ramon Gonzalez, a Chemical and Biomolecular Engineering professor
at Rice University, has identified a strain of E. coli which can convert glycerine to
ethanol in an anaerobic environment. The process yields ½ pound of ethanol for
every pound of refined glycerine. The other ½ pound can be used as a feedstock
for other industrial chemicals, thus adding even more value to the glycerine.
3. Livestock feed substitute
Another potential use of glycerine is corn replacement in cattle feed.
Several universities in the U.S. are researching the effectiveness of feeding
crude glycerine in beef feedlot and dairy cow operations. Other animal scientists
are investigating crude glycerine’s suitability as a corn substitute in swine and
poultry rations. The research has yielded very positive results so far, showing
that glycerine can be substituted for corn as an energy source with a 1:1 ratio.

The research indicates there is no sacrifice to milk, meat, or egg
production when crude glycerine is substituted for corn in livestock diets. This is
great news for the livestock and poultry industry which has been dealing with
high corn prices due to ethanol demand.
D. Summary of Opportunities and Threats and EFE Matrix
1. Opportunities
• Glut in crude glycerine inhibits market attack from substitutes
• Sales growth in products with glycerine requirements
• Competition between identified competitors are considered friendly
• Excess refined glycerine can be converted to ethanol which is highly
saleable
• Lower peso exchange rate against the dollar means lower purchase
amount
• Asia-Pacific is fastest growing regional market for epoxy resins
2. Threats
• Glut in crude glycerine
• Substitutes are preferred if priced lower
• GMP certification requirement of local pharmaceutical companies
• Most glycerine refineries are located in South East Asia, UK and USA
• Lower peso exchange rate against the dollar means lower sales amount
• Oil prices on world market is increasing
• There’s minimal switching cost for buyers of SOCC

3. External Factor Evaluation Matrix
This matrix summarizes the key external factors as opportunities and
threats surrounding an organization and each factors is given a weight on its
significance in the industry. Ratings are then given as to how the company
addresses these factors.
Figure 1. External Factor Evaluation Matrix
Key External Factors Weight Rating
Weighted
Score
Opportunities
Glut in crude glycerine inhibits market attack
from substitutes
0.03 4 0.12
Sales growth in products with glycerine
requirements
0.10 4 0.40
Competition with identified competitors are
considered friendly
0.05 4 0.20
Excess refined glycerine can be converted to
ethanol which is highly saleable
0.03 1 0.03
Lower peso exchange rate against the dollar
means cheaper imported raw materials
0.09 3 0.27
Asia Pacific is the fastest growing regional
market for epoxy resins
0.10 3 0.30
Threats
Glut in crude glycerine 0.15 1 0.15
Substitutes are preferred if priced lower 0.05 4 0.20
GMP certification requirement of local
pharmaceutical companies
0.10 2 0.20
Most glycerine refineries are located in South
East Asia, UK and USA
0.10 3 0.30
Lower peso exchange rate against the dollar
means lower sales amount
0.09 2 0.18
Increasing Oil prices in the world market 0.08 3 0.24
There's minimal switching cost for buyers of
SOCC
0.03 4 0.12
1.00 2.71
Ratings: 4 = excellent response, 3 = above average response, 2 =
average response, 1 = poor response

SOCC’s 2.71 score indicates an average competitive position in the
industry.
E. Competitor Analysis
1. Key Success Factors.
Product Quality – better quality ensures manufacturers of different end-
user products the best components for their products
Quality Assurance – achievement of certifications, such as ISO, Kosher
and Halal certifications, shall attest to the quality of chemicals offered.
Organizational size – Larger assets may produce higher revenues, all
other things held constant.
Product Differentiation – Different manufacturers requires different
chemical specifications of glycerine.
Costs of production –Advantages in cost of production, such as in labor
and overhead, contributes to overall profit.
Distribution – selling expenses such as freight and insurance coverage
contributes to overall pricing advantage.
Financial Stability – Liquidity, financial leverage and exposure to foreign
currency exchange fluctuations determine a company’s capacity to withstand
financial instability in the world economy.
Production capacity & efficiency – “Economies of scale” proves to be
important in achieving a competitive advantage against competitors and acts as
deterrent against would be competitors.

Location – Cost of distribution, whether exporting or importing, is
determined heavily by where the refineries are located.
Customer – This includes customer loyalty, acquisition of new customers
and retention of existing ones. This ensures a company’s inflow of revenues.
Pricing – Price competitiveness may not only acquire a competitor’s
market share, it will also prevent customers from switching to substitutes.
Industry know-how – Expertise in the industry is imperative to success.
This includes ability to proactively counter any changes in the industry.
2. Existing competitors
Identified competitors are Kao and Cocochem. Kao is identified as a
relevant competitor because its operating style is similar to that of SYKCL. Kao
is a Japanese corporation similar to SYKCL. It also has a Philippine domestic
company called Pilipinas Kao which operates similarly like SOCC. Kao is
recognized as a major player in the global oleochemical industry.
Cocochem is also included as a relevant competitor because of its size
and location. Cocochem is a Philippine domestic corporation operating similarly
like SOCC. In fact, SOCC leases land for its production facilities in Bauan,
Batangas. Cocochem is recognized as a major player in the global oleochemical
industry, like Kao.

3. Competitive Profile Matrix
Unlike the External Factor Evaluation Matrix, this matrix not only considers
key external factors but internal factors as well. The matrix then compares the
profiles of significant companies. In addition, the factors presented in CPM are
those that are considered “key factors”.
Figure 2. Competitive Profile Matrix
SOCC KAO COCOCHEM
Key Success Factors weight rating score rating score rating score
Product Quality 0.10 4 0.40 4 0.40 4 0.40
Quality Assurance 0.10 3 0.30 4 0.40 3 0.30
Organizational size 0.08 1 0.08 4 0.32 2 0.16
Product
Differentiation
0.07 3 0.21 4 0.21 1 0.07
Costs of Production 0.10 2 0.20 3 0.30 3 0.30
Distribution 0.06 4 0.24 4 0.24 4 0.24
Financial Stability 0.10 2 0.20 4 0.40 3 0.30
Production capacity 0.08 3 0.24 4 0.32 2 0.16
Location 0.07 4 0.28 4 0.28 4 0.28
Customer loyalty 0.08 4 0.32 4 0.32 4 0.32
Pricing 0.08 1 0.08 3 0.24 2 0.16
Industry know-how 0.08 3 0.24 4 0.32 3 0.24
TOTAL 1.00 2.79 3.75 2.93
Ratings: 1 = major weakness, 2 = minor weakness, 3 = minor strength, 4 = major
strength.

The CPM concluded that SOCC is in an average position in the industry.
Still, the identified competitors’ position is better than SOCC’s. The reasons for
SOCC’s lower CPM score is due to low score in organizational size, cost of
production, financial stability and pricing.

CHAPTER V
COMPANY ANALYSIS
A. Sales Trend
Shown below is SOCC’s graph of consolidated historical sales from fiscal
year 2003 to 2009.
B. Market Share
According to an independent study, the current global production of
glycerine is estimated to be about 2 billion pounds and is valued at $1 billion.
SOCC’s fiscal year 2010 sales from its glycerine variants amounted to some

$22,101,665. Assuming the independent study is correct, SOCC’s global market
share amounts to approximately 2.21%.
The global demand on epoxy resin was estimated at roughly US$15.8
billion in 2009 while SOCC had some $6,152,095 sales in the same year. If the
demand in epoxy resin in 2009, as projected by an independent study, is correct
then SOCC’s market share is about 0.04% only of the global epoxy resin
industry.
C. Present situation
1. Exposure to foreign exchange fluctuations
The company’s outstanding loan amounted to some ¥1.6 billion as of
Fiscal Year ended September 30, 2010. This amount is significant because any
fluctuations in the foreign exchange market will effect a foreign exchange gain or
loss for the company.
Aside from large loan outstanding, the company has high volume of
exports and imports which are all denominated in either Japanese Yen or US
Dollar. Those transactions also effect foreign exchange gain or loss.
2. Local sales
Amount and quantity of local sales are miniscule in comparison to existing
export sales. It is only recent that the company hired a sales personnel to
actually market the company’s glycerine to local companies. No formal
marketing techniques or models are currently in place.

Pharmacies in the Philippines are stern with it comes to cleanliness of
glycerine. Pharmaceutical companies require a “Good Management Practice”
(GMP) certification before any sale is done. The company is currently pursuing
this certification since 2007.
The company is successful in selling its glycerine to Lamoiyan, although
only 1 metric ton is purchased monthly.
3. Product Quality
The company’s products are Kosher and Halal certified which makes it
acceptable to these two demographic market.
Although SOCC itself doesn’t have an R&D department, the output of
SYCKL’s R&D are shared to SOCC. Operating under a policy of fusing
production, marketing, and technology, and working closely with the company's
R&D laboratory devotes itself to providing technical support for existing products
and creating new materials.
SYCKL’s R&D department has a section called “The Development Group”
which engages in developing new applications for glycerine, compositional
analysis and the search for new businesses.
4. Production Facilities
The production processes involved are ISO 9001 certified, which serves
as mark of production excellence.

Most glycerine refiners are located and concentrated in UK, USA and
South East Asia. That makes the refinery of SOCC here in the Philippines
strategically established.
The abundance of coconut, which is a source of glycerine, here in the
Philippines makes the refinery’s location even more appealing.
SOCC’s current production capacity, however, is in no way competitive
with large industry players across the globe.
5. PEZA registrant
The has received registration from Philippine Economic Zone Authority
(PEZA) since March 11, 1999. The fiscal benefits enjoyed are as follows:
• Income Tax Holiday (ITH) or Exemption from Corporate Income Tax for
four or six years, extendible to a maximum of eight years;
• After the ITH period, the option to pay a special 5% tax on modified gross
income, in lieu of all national and local sales;
• Exemption from duties and taxes on imported capital equipment, spare
parts, supplies and raw materials;
• Tax credit on domestic capital equipment
• Exemption from wharfage dues and export taxes, imposts and fees;
• Additional deduction for incremental labor and training expenses.
6. Customer base
Current export sales are for customers who have been purchasing from
the company for an extended time. It is fair to say that customer loyalty has

already been established from these existing buyers. In actuality, these are
SYKCL’s customers. What actually happens is that SOCC sells to SYKCL then it
will sell to outsider buyers at a mark-up. Most of the time, the shipment goes
directly to the customer without passing through SYCKL’s hands. That practice
greatly saves a lot of freight charges.
SYCKL also purchase its glycerine and TBA Polymer requirements from
SOCC for its other production requirements.
7. Inventory Levels
The company has been stocking up on more inventories than what it is
able to sell. It believes that prices will soon go up and it’s better to stock up on
raw materials now while the prices are still low.
Such practice causes the inventory turnover to be slower than its
competitor – Kao.
8. Finance
Currently, the financial structure of the company is that it has P0.72 of
liability for every peso of assets.
Some ¥561 million loan was acquired to finance construction of additional
plants for expansion purposes. The company is anticipating the increase in
demand of glycerine and glycerine-based products in the near future.
Some ¥1.019 billion loan was acquired for working capital purposes. The
company is experiencing difficulties in meeting short term obligations. Its current

ratio is only P0.50 for every peso of short term payables and its quick-ratio is only
P0.70 for every peso of short term payables.
The company just recently acquired some ¥80 million loan to the finance
rehabilitation of seawall that surrounds its refinery.
The company has an existing credit line with Bank of Tokyo Mitsubishi,
which makes borrowing, for working capital or long-term capital expenditures,
trouble-free.
D. Horizontal & Vertical Analysis
The company’s Balance Sheet provides the financial standing of the
company as of the fiscal year ended 2010. It shall be one of two sources used in
computation of various financial ratios, the other being the Income Statement.
The Horizontal Analysis shall provide the increase or decrease in key
Balance Sheet Accounts. The analysis shall make it easier to note any
significant changes in the company’s financial structure.
Figure 4. Horizontal Analysis of Balance Sheet FY 2010
2010 2009 Increase
(Decrease)
ASSETS
CURRENT ASSETS :
Cash on Hand & in Bank 10,606,992 115,246,068 -90.80%
Accounts Receivables 43,090,510 87,692,924 -50.86%
Inventories 328,447,347 227,051,999 44.66%
Prepaid Expenses & Deferred
Charges 6,562,399 5,113,333 28.34%
388,707,248 435,104,324 -10.66%

PROPERTY, PLANT &
EQUIPMENT:
Plant Cost 2,038,356,774 1,777,423,925 14.68%
Construction in Progress - 159,282,598 -100.00%
Less Accumulated Depreciation (1,007,902,058) (889,582,927) 13.30%
Net Book Value 1,030,454,716 1,047,123,596 -1.59%
OTHER ASSETS:
Deposits 6,125,056 4,109,056 49.06%
Investment in Stocks (PLDT) 27,500 27,500 0.00%
Long Term Receivable 4,652,884 3,847,636 20.93%
10,805,440 7,984,192 35.34%
TOTAL ASSETS 1,429,967,404 1,490,212,112 -4.04%
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Accrued
Expenses 125,127,113 106,437,434 17.56%
Income Tax Payable 5,367,198 2,252,171 138.31%
Notes Payable - [ Working Capital ] 236,115,000 237,690,000 -0.66%
Notes Payable - [ Seawall
Rehabilitation Project ] 10,494,000 - -
Notes Payable - [ Working Capital ] 298,758,904 300,751,769 -0.66%
Notes Payable - [ DG-2 Project ] 41,976,000 42,256,000 -0.66%
Notes Payable - [ RG-2 Project ] 44,307,767 44,603,321 -0.66%
Notes Payable - [ TBA/RPG Project ] 15,741,000 31,692,000 -50.33%
777,886,982 765,682,694 1.59%
LONG TERM LIABILITIES:
Pension Liability 29,219,744 33,390,715 -12.49%
Notes Payable - [ Seawall
Rehabilitation Project ] 31,482,000 - -
Notes Payable - [ DG-2 Project ] 125,928,000 169,024,000 -25.50%
Notes Payable - [ RG-2 Project ] 66,462,700 111,509,358 -40.40%
Notes Payable - [ TBA/RPG Project ] - 15,846,000 -100.00%
253,092,444 329,770,073 -23.25%
TOTAL LIABILITIES 1,030,979,426 1,095,452,767 -5.89%

STOCKHOLDERS' EQUITY:
Authorized - 8,826,000 shares
Subscribed and Fully Paid -
6,576,000 shares
Common Shares - 5,736,000 shares
@ P100.00 Par Value 573,600,000 498,600,000 15.04%
Preferred Shares - 840,000 shares
@ P5.00 Par Value 4,200,000 4,200,000 0.00%
Additional Paid-in Capital in Excess
of Par Value 79,861,250 79,800,000 0.08%
Deposit for Future Stock Issuance - 75,061,250 -100.00%
Retained Earnings (Deficit) (258,673,272) (262,901,904) -1.61%
TOTAL STOCKHOLDERS' EQUITY 398,987,978 394,759,345 1.07%
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY 1,429,967,404 1,490,212,112 -4.04%
SOCC’s audited Balance Sheet 2010 and 2009
Notable is the company’s decrease in working capital loans. The
decrease is so significant that it causes the company’s current liquidity problems,
as indicated by the decrease in Cash on Hand and in Bank Account.
The level of inventory increased as the result of the company’s current
strategy to stock-up on raw materials and finished goods.
The Vertical Analysis of Income Statement shall provide the composition
of a company’s operations for the year, in terms of percentage. The analysis is
useful for identifying relationship between items in the same financial statement
by expressing all amounts as a percentage of Sales.

Figure 5. Vertical Analysis of Profit & Loss Statement 2010
Net Sales 1,016,107,897 100.00%
Cost Of Goods Sold 913,528,399 89.90%
Gross Profit 102,579,498 10.10%
Operating Expenses 78,298,102 7.71%
Income (Loss) From Operations 24,281,396 2.39%
Interest & Others
Interest Expense (16,123,550) -1.59%
Interest Income/Others:
Interest Income On Savings & Time Deposits 184,123 0.02%
Interest Income On Employees' Loans 367,439 0.04%
Income (Loss) From Tba Trial Sale / Other
Sources
1,803,517 0.18%
Other Income (Salt Sale, Scrap, Di Water
Sales)
556,002 0.05%
Sub-Total Other Income 2,911,082 0.29%
Income (Loss) Before Foreign Exchange Gain & Tax 11,068,927 1.09%
Foreign Exchange Gain (Loss)
Realized Foreign Exchange Gain(Loss) 13,227,650 1.30%
Unrealized Foreign Exchange Gain(Loss) (10,466,843) -1.03%
Sub-Total Foreign Exchange Gain 2,760,807 0.27%
Income (Loss) Before Income Tax 13,829,734 1.36%
Provision For ( Benefit From) Income Tax 9,012,777 0.89%
Net Income (Loss) 4,816,958 0.47%
SOCC’s Audited Profit and Loss Statement 2010
The company’s high Cost of Goods sold ratio in relation to Sales is what’s
causing the low profitability. About 55% of the Cost of Goods is the cost of raw
materials.
E. Financial Ratios
Key financial ratios of SOCC are determined and compared with that of
the most significant competitor identified. Financial ratios are most relevant and
useful when compared with that of competitor’s or with industry standard.

Figure 6. Comparison of SOCC and Kao’s selected financial ratios
SOCC KAO
2010 2009 2008 2010
Return on Sales 0.47% -16% -9% 3.42%
Profit Margin Ratio 10% 6% 9% 58%
Operating Margin Ratio 2.39% -0.23% 3.25% 8%
Fixed Assets Turnover 0.99 1.02 1.22 4.70
Return on Assets 0.34% -12% -7% 3.80%
Return on Equity 1.21% -45% -26% 7.04%
Current Ratio 0.50 0.57 0.73 1.41
Acid-test Ratio 0.07 0.27 0.19 0.90
Inventory Turnover 3.29 3.09 3.29 6.42
Average age of inventory 111 118 111 57
Debt Ratio 0.72 0.74 0.74 0.46
Debt-Equity Ratio 2.58 2.77 2.83 0.85
Based on SOCC’s Company-wide/consolidated Financial Statements 2010,
2009 & 2008 and Kao’s Financial and Operating Review 2010
It is clear from the comparison that SOCC is far behind Kao in terms of
internal business process. Kao is far superior in terms of fixed asset utilization
and profitability. Kao also manages its inventory better than SOCC. One reason
for SOCC’s slow inventory turnover is due to management’s belief that costs of
raw materials may go up, hence the company is stocking-up on raw materials
while it’s relatively cheaper.
Another significant note from the ratio analysis is SOCC’s dilemma on
meeting currently maturing liabilities. The company only has a current ratio of
P0.50 of current assets for every peso of current liability. Due to this problem,
the company once in a while avail of bank loan from its approved credit line.

F. Audit Checklists
A set of audit check lists covering different internal aspects of the
company is accomplished to further discern company strengths and weaknesses.
The summary of checklists are shown below and the detailed checklists are
enclosed in the Annex.
Table 3. Summary of Audit Checklists
Satisfactory? Yes or No
Management Audit Checklist Yes
Marketing Audit Checklist No
Finance/Accounting Audit Checklist Yes
Production/Operations Audit Checklist Yes
Research and Development Audit Checklist No
Basically, the company has unsatisfactory Marketing and R&D efforts. On
one hand, the company has no formal marketing department to begin with.
SYKCL handles all export sales of SOCC. It is SYKCL that closed the deals with
export customers. Without a marketing department, the company finds it difficult
to compete in the domestic market. On the other hand, SOCC is purely
dependent on SYKCL’s R&D department for any developments in glycerine and
epoxy resin products.

G. Summary of Strengths and Weaknesses
1. Strengths
• Production processes are ISO 9001 certified
• Products are Halal and Kosher certified
• Enjoys benefits of being PEZA registered
• Refinery is located in South East Asia
• Can easily acquire working capital / long-term loan
• R & D of SYKCL is top-notch and is shared to SOCC
• Has Established loyal customer base
2. Weaknesses
• Low inventory turnover of 3.29 times
• High Debt Ratio of P0.72 for every P1.00
• Return on Sales of only 0.47%
• Fixed Assets Turnover of 0.99 times compared to Kao’s 4.70
• Current Ratio of 0.50:1.00
• Lower production capacity in relation with large competitors
• No formal marketing department
H. Internal Factor Evaluation Matrix
The identified key internal factors are summarized and presented in the
IFE Matrix.
The weights given represent their relevance in the overall internal
business operations.

The ratings given indicates if the internal factor is a major or a minor one.
Figure 7, Internal Factor Evaluation Matrix
Key Internal Factors Weight
Ratin
g
Weighte
d Score
Strengths
Production processes are ISO 9001 certified 0.10 4 0.40
Products are Halal and Kosher certified 0.10 4 0.40
Enjoys benefits of being PEZA registered 0.03 4 0.12
Refinery is located in South East Asia 0.07 3 0.21
Can easily acquire working capital / long-term
loan
0.07 4 0.28
R & D of SYKCL is top-notch and is shared to
SOCC
0.10 4 0.40
Has established loyal customer base 0.10 3 0.30
Weaknesses
Low inventory turnover of 3.29 times 0.05 2 0.10
High Debt Ratio of P0.72 for every P1.00 0.05 1 0.05
Return on Sales of only 0.47% 0.08 1 0.08
Fixed Assets Turnover of 0.99 times compared to
Kao’s 4.70
0.10 1 0.10
Current Ratio of 0.50:1.00 0.05 1 0.05
Lower production capacity in relation with large
competitors 0.10 2 0.20
1.00 2.69
Ratings: 4 = Major Strength, 3 = Minor Strength, 2 = Minor Weakness, 1 = Major
Weakness
SOCC’s score of 2.69 indicates that the company has an average internal
strength. The company garnered high points with regards to product quality but it
was partly mitigated by its financial troubles, especially in profitability and high
debt ratio.

CHAPTER VI
STRATEGY FORMULATION
Chapters IV and V comprised the Input stage of the “Comprehensive
Strategy-Formulation Framework”. To come up with the necessary strategies to
be employed, various analytical tools / matrices were developed during the
“Matching Stage”.
In this Matching Stage, the matrices utilized are the SWOT Matrix, SPACE
Matrix, Boston Consulting Group (BCG Matrix), Internal-External (IE) Matrix, the
Grand Matrix and the Quantitative Strategic Planning Matrix.
A. SWOT Matrix
The SWOT Matrix tries to find out how to address existing opportunities
and threats surrounding an organization with its present strengths and
weaknesses.
Each of the strategies presented in the said matrix are mutually exclusive
and doesn’t rely on achievement of the others for it to be feasible. Additionally,
the strategies are mere suggestions on what are possible actions to take and are
not imperative to be successful in the industry.

Figure 8. SWOT Matrix
Strengths
1.) Production processes are
ISO 9001 certified
2.) Products are Halal and
Kosher Certified
3.) Enjoys benefits of being
PEZA registered
4.) Refinery is located in South
East Asia
5.) Can easily acquire working
capital / long-term loan
6.) R & D of SYKCL is top-
notch and is shared to SOCC
7.) Has established loyal
customer base
Weaknesses
1.) Low inventory turnover of
3.29 times
2.) High Debt Ratio of P0.72 for
every P1.00
3.) Return on Sales of only
0.47%
4.) Fixed Assets Turnover of
0.99 times compared to Kao’s
4.70
5.) Current Ratio of 0.50:1.00
6.) Lower production capacity
in relation with large
competitors
Opportunities
1.) Glut in crude glycerine
inhibits market attack from
substitutes
2.) Sales growth in products
with glycerine requirements
3.) Competition with identified
competitors are considered
friendly
4) Excess refined glycerine can
be converted to ethanol which
is highly saleable
5.) Lower peso exchange rate
against the dollar means
cheaper imported raw materials
6.) Asia Pacific is the fastest
growing regional market for
flame retardantss
SO strategies
1.) Improve sales efforts for
Jewish and Islam market (O2,
S2)
2.) Ask assistance from
SYKCL about converting
excess refined glycerine to
ethanol (O4, S6)
3.) Concentrate marketing
efforts for TBA in Asia-Pacific
regions (O6, S4)
WO strategies
1.) Increase sales in growing
Asian countries such as China,
Hong Kong and Korea (O2,
W1)
2.) Convert excess refined
glycerine to ethanol (O4, W1)

Strengths
1.) Production processes are
ISO 9001 certified
2.) Products are Halal and
Kosher Certified
3.) Enjoys benefits of being
PEZA registered
4.) Refinery is located in South
East Asia
5.) Can easily acquire working
capital / long-term loan
6.) R & D of SYKCL is top-
notch and is shared to SOCC
7.) Has established loyal
customer base
Weaknesses
1.) Low inventory turnover of
3.29 times
2.) High Debt Ratio of P0.72 for
every P1.00
3.) Return on Sales of only
0.47%
4.) Fixed Assets Turnover of
0.99 times compared to Kao’s
4.70
5.) Current Ratio of 0.50:1.00
6.) Lower production capacity
in relation with large
competitors
Threats
1.) Glut in crude glycerine
2.) Substitutes are preferred if
priced lower
3.) GMP certification
requirement of local
pharmaceutical companies
4.) Most glycerine refineries are
located in South East Asia, UK
and USA
5.) Lower peso exchange rate
against the dollar means lower
sales amount
6.) Increasing Oil prices in the
world market
7.) There's minimal switching
cost for buyers of SOCC
ST strategies
1.) Consistently deliver raw
material requirements of loyal
customers (T7, S7)
2.) Compete with US glycerine
refineries & polymer producers
in terms of lower distribution
costs (T4, S4)
WT strategies
1.) Hedge Trade Receivables
from future export sales of
glycerine and TBA polymers
(T5, W3)
2.) Lower purchase of crude
glycerine to accomodate the
expected drop of its prices (T1,
W1)
3.) Take advantage of early
payment discounts of bunker
fuel oil (T6, W3)

B. SPACE Matrix
The matrix takes into account the company’s internal and external
strategic position. It’s basically a holistic approach to determine where a
company strategically stand in the midst of the industry.
The SPACE Matrix for SOCC resulted in recommendation of an
aggressive stance.
Figure 9. SPACE Matrix
Internal Strategic
Position External Strategic Position
(1 to 6) Financial Strength (-6 to -1) Environmental Stability
6 Sales Revenue -2 Inflation rate
3 Profit Margin -1 Taxation
2 Return on Investment -1 Technological changes
2 Liquidity -1 Competitive pressures
2 Working Capital -1 Access to financing
3 Inventory turnover -2 Monetary policy
3 Long-term debt -3 Foreign exchange fluctuations
3.00 -1.57
Total Y axis score = 1.43
(-6 to -1) Competitive Advantage (1 to 6) Industry Strength
-1 Technology utilized 5 Industry growth
-1 Industry know-how 4 Number of competitors
-3 Production capacity 4 Competitors' performance
-1 Customer loyalty 6 Barriers to entry
-1 Product quality 5 Potential Profit
-1 Production Plant Location 6 Demand
-5 Market share 6 Supply of raw materials
-1.86 5.14
Total X axis score = 3.29

C. Boston Consulting Group Matrix
the Boston Consulting Group (BCG) Matrix is designed specifically
to enhance a multi-divisional firm’s efforts to formulate strategies. It graphically
portrays differences among divisions in terms of relative market share position
and industry growth.

Figure 10. BCG Matrix
Division Revenues % Profits %
% Market
share
Percent
Growth
Glycerine 633,552,831 62% (6,796,149) -141% 2.21% +15
Resin 382,555,066 38% 11,613,106 241% 0.04% +5
TOTAL 1,016,107,897 4,816,958
The Glycerine and TBA Division of SOCC both appeared in Quadrant I
of the BCG Matrix. This means that both divisions have low global market share
but belong in a growing industry. Therefore, the cash generated in this quadrant
is low while the cash consumption needs are high.
The divisions under quadrant I are suggested to take Market
Penetration, Market Development, Product Development or Divestiture
strategies.

D. Internal-External Matrix
Using the EFE Matrix and IFE Matrix scores, the Inter-External (IE)
Matrix positions an organization in a nine-cell display. Cells I, II and IV means
strong position, cells III, V and VII means average position and cells VI, VIII and
IX means weak position.
Figure 11. IE Matrix
Both the EFE and IFE scores of SOCC suggested that it is in an
average position within the industry and against its competitors. The result, then,
of the IE Matrix placed SOCC in division V of the graph. “Hold and Maintain”
strategies are suggested for companies belonging in this division. Such,
strategies include Market Penetration and Product Development.

E. The Grand Matrix
Figure 12. The Grand Matrix
Both the Glycerine and TBA divisions are in a weak competitive position
against existing competitors but each respective industries are growing. To
make all matrices concur with the same result, the suggested strategies for
SOCC are Market Penetration, Product Development and Related Diversification.

CHAPTER VII
STRATEGIC OBJECTIVE AND RECOMMENDATION STRATEGIES
A. Strategic Objectives
• To continuously improve existing chemical products to be at par with
industry leaders in terms of quality.
• Develop new product variants to accommodate the different chemical
specifications of various customers.
• Maintain certifications in ISO 9001, Kosher and Halal by allocating funds
for Plant repairs and maintenance.
• To improve export sales by at least 5% per year in markets currently
served by acquiring competitors’ market share through increased product
awareness.
• To not only improve export sales but also compete aggressively within the
domestic market.
• Improve Net Income by at least 10% each year from preceding fiscal year.
B. Recommended Business Strategies
• Acquire the GMP certification required by Philippine Pharmaceutical
companies to be competitive locally.
• Allocate funds for capital expenditures on major repairs and maintenance
to maintain adherence to global standards.

• Receive research and development support from SYKCL to improve
existing chemicals and develop new ones.
• Search for new customers in the Asia Pacific region and stress out to
them the excellent quality of chemicals offered.
• Hedge foreign currency denominated transactions, where possible.
C. Organization Strategies
1. Logistics
Improve the current logistical practice of stocking up on raw materials.
Due to glut in crude glycerine, prices are expected to go down. Purchasing more
than what the company needs now would only tie-up working capital to idle
inventory. It will not only make manufacturing costs higher in the long run, it will
also cause liquidity problems.
Utilize ocean freight as much as possible and avoid selling through air
freight. The latter definitely costs more than the former.
2. Finance
Hedge all importation and exportation to significantly mitigate the
exposure to volatility of foreign exchange market.
Any further credit line availments, whether for short-term or long-term
lending, should be in local currency to avoid further exposure to foreign currency
exchange fluctuations.

Negotiate with suppliers for peso denominated crude glycerine purchases
when US Dollar is relatively stronger than Peso and, inversely, pay for the usual
dollar-denominated purchases when Peso is stronger than the Dollar.
3. Production
Ensure efficiency in overall production process. Production yield should
always meet the standard and if not, it should be reported and investigated.
Wastage should be monitored and corrected where discovered.
Quality controls should be tight. In no circumstances that a sub-standard
product shall be delivered to a customer. In case the undesired happen, the
chemicals should be returned with SOCC covering the entire cost of freight and
insurance.
Maintain adherence to international standards. Maintenance of ISO 9001
certification is imperative to success.
Efforts should be continued towards achievement of GMP certification.
4. Sales
Sales quotas should be established. These quotas will be based on target
increase in sales of 5% per year. The quota should be met on a monthly basis to
allow the production department to produce at the most efficient rate.
Export sales should be focused in the Asia Pacific region. This region is
closest to Philippines than any other region. Freight expense relative to these
sales destinations should prove to be lower than freight to farther regions.

Besides, the growing economy of China and other Asian countries is driving the
increase in demand of glycerine and epoxy resin.
Once the GMP certification is obtained, increase efforts to sell glycerine to
local pharmaceutical companies.
Start selling epoxy resin to electronics manufacturers in the country.
Negotiate for sales with FOB terms to avoid shouldering costly export
freight charges.
D. Financial Projections
Figure 14. Projected Profit and Loss Statement, 2011 to 2013
2011 2012 2013
Sales 1,066,913,292 1,122,939,004 1,182,249,652
Total Materials Used 510,663,144 591,801,044 623,072,345
Direct Labor 17,236,894 17,409,262 17,583,355
Depreciation 112,628,135 112,628,135 112,628,135
Other Overhead Cost 248,321,483 271,529,760 284,103,173
Total Manufacturing Cost 888,849,657 993,368,202 1,037,387,008
In process - Beg 6,651,530 7,433,674 7,763,080
In process - End (3,494,017) (3,904,873) (4,077,908)
Cost of Goods Manufactured 892,007,171 996,897,003 1,041,072,180
Finished Goods - Beg 137,095,040 77,624,569 78,789,247
Interplant Transfers (61,443,604) (68,668,669) (71,711,561)
Finished Goods - End (77,624,569) (78,789,247) (82,278,768)
Cost of Goods Sold 890,034,037 927,063,657 965,871,098
Gross Profit 176,879,254 195,875,347 216,378,555
Adminitrative & other expense 82,213,007 86,323,658 90,639,841
Income from Operations 94,666,247 109,551,689 125,738,714
Other Expenses:
Interest Expense (13,657,424) (11,915,424) (10,838,037)
Foreign Exchange loss (3,000,000) (3,000,000) (3,000,000)
Net Income Before Tax 78,008,823 94,636,265 111,900,677
Provision for Income Tax (8,843,963) (9,793,767) (10,818,928)
Net Income After Tax 69,164,861 84,842,498 101,081,749

Sales are projected to increase by at least 5% year after year. This is
feasible considering the company’s historical sales figures.
Raw materials used is based on actual Fiscal Year 2010 weighted-
average raw material cost per unit produced. Based then on projected sales, the
raw materials required are derived.
The ending Finished Goods Inventory is equivalent to projected safety
stocks required, which is one month worth of projected sales. This safety stocks
is lower than what is currently held by the company. This low safety stocks
should be sufficient to cover the next month’s projected sales and at the same
time, release resources that are currently tied-up in idle inventory.
The in-process goods are based on Fiscal Year 2010’s ratio of in-process
goods to Total Manufacturing Cost, which is about 0.39%.
Depreciation is expected to be fixed throughout the projected years
because there’s no projected capital expenditures for the covered years.
Interest Expense is based on projected outstanding loan amount during
the projected years. The outstanding loan amount, in turn, is based on actual
schedule of loan payments, as mandated by the lending banks.
Foreign Exchange Losses are assumed to be conservative. The actual
foreign exchange fluctuations during fiscal year 2010 actually proved to be
beneficial.
Provision for income tax shall be based on the Gross Income Tax rate of
5% as it is the preferential tax rate enjoyed by PEZA registered corporations.

All other expenses shall be based on preceding years expense plus an
allowance of 1%.
The projected profit and loss statement reflect both expenses that incurs
cash outlay and those that doesn’t. To this end, a Projected Cash Flow
Statement is prepared to see future cash movements.
Figure 15. Projected Cash Flow 2011 to 2013
2011 2012 2013
Beginning Cash Balance 10,606,992 49,012,538 103,089,463
Collection
from 2010 sales 43,090,510
from 2011 sales 960,221,962 106,691,329
from 2012 sales 1,010,645,104 112,293,900
from 2013 sales 1,064,024,687
Net cash inflow 1,003,312,473 1,117,336,433 1,176,318,587
Payments
from 2010 purchases (125,127,113)
from 2011 purchases (357,464,201) (153,198,943)
from 2012 purchases (414,260,731) (177,540,313)
from 2013 purchases (436,150,641)
Other Cash expenses (347,771,384) (375,262,680) (392,326,368)
Loan Payment (112,519,606) (96,777,767) (59,854,838)
Interest Expenses (13,657,424) (11,915,424) (10,838,037)
Realized Forex Losses (3,000,000) (3,000,000) (3,000,000)
Income Tax Payments (5,367,198) (8,843,963) (9,793,767)
Net cash outflow (964,906,926) (1,063,259,508) (1,089,503,965)
Ending Cash Balance 49,012,538 103,089,463 189,904,085
The beginning cash balance of 2011 projection is based on actual 2010
year-end balance. Collections shall be 90% of sales made during a projected
year and the last 10% shall be collected on the next projected year. Payments for

raw materials purchases shall be 70% of raw materials purchases during a
projected year and the last 30% shall be collected on the next projected year.
Loan payments are based on actual loan payment schedule mandated by
the lending banks. In the same manner, interest expenses shall be based on the
projected outstanding loan balances.
Realized foreign exchange losses are projected to be fixed throughout the
projected years. Although this doesn’t entail a cash outlay, it reduces the amount
of foreign currency held by the company or increases the amount of loan
outstanding through restatements. This account is actually used as a buffer to
be conservative in Projected Profit and Loss Statement and in Projected Cash
Flow Statement.
Other expenses shall be for payment of labor, cash overhead expenses
and other administrative cash expenses.

CHAPTER VIII
ACTION PLANS AND DEPARTMENTAL PROGRAMS
The following action plans are in random order; but it is imperative that the
company takes these steps to counter present and prospective problems in the
chemical industry and address existing opportunities.
Table 4. Action Plans
Actions required Responsible
department/s
Time
Frame
Compute for the economic
order quantity to release
excess resources that are
tied-up in idle inventory.
Production and Logistics
Implement
immediately
Implement strict adherence to
industry yield standard.
Production – Quality
Control Department
Implement
immediately
Maintain adherence to ISO
standards and other
certifications such as Halal
and Kosher, by spending for
necessary Plant improvement,
repairs and maintenance.
Production – Quality and
Systems and Finance
Department Implement
immediately
Budget and spend for
necessary plant expenditures
towards achievement of GMP
certification.
Production – Quality and
Systems and Finance
Department
FY 2011 to
2012
Prevent delays in delivery to
avoid utilizing air freights.
Production and Logistics Implement
immediately
Negotiate with suppliers for
peso denominated crude
glycerine purchases when US
Dollar is relatively stronger
than Peso.
Logistics in collaboration
with the Finance
Department.
Implement
immediately

Pay for the usual dollar-
denominated purchases
when Peso is stronger than
the Dollar
Logistics in
collaboration with the
Finance Department.
Implement
immediately
Hedge all import and export
transactions.
Finance Department Implement
immediately
Further borrowings should
be Peso-denominated.
Senior Vice
President – Treasury
in collaboration with
Finance Department
Implement
immediately
Negotiate for sales with
FOB terms to avoid
shouldering costly export
freight costs.
SYKCL marketing
department in
collaboration with
SOCC Sales
Department
Implement
immediately
Establish sales quotas that
reflect projected sales and
monitor its progress.
SYKCL marketing
department in
collaboration with
SOCC Sales
Department
Implement
immediately
Focus export sales in Asia-
Pacific region to take
advantage of its growing
economy.
SYKCL marketing
department in
collaboration with
SOCC Sales
Department
Implement
immediately
Upon acquisition of GMP
certification, increase efforts
to sell glycerine to local
pharmaceutical companies.
Sales Department
FY 2012
onwards
Start selling TBA Polymer to
electronics manufacturers
located within the country.
Sales Department
FY 2011
onwards

CHAPTER IX
STRATEGY EVALUATION, MONITORING AND CONTROL
A. Evaluation Method
To ensure that strategies developed are in place and implemented,
adhered to, and are delivering the expected results, a system of evaluation
monitoring and control must be established. The most common method of
performance monitoring is the Balanced Scorecard.
A Balanced Scorecard defines what management means by
"performance" and measures whether management is achieving desired results.
The Balanced Scorecard translates Mission and Vision Statements into a
comprehensive set of objectives and performance measures that can be
quantified and appraised. These measures typically include the following
categories of performance:
• Financial performance (revenues, earnings, return on capital, cash
flow);
• Customer value performance (market share, customer satisfaction
measures, customer loyalty);

• Internal business process performance (productivity rates, quality
measures, timeliness);
• Innovation performance (percent of revenue from new products,
employee suggestions, rate of improvement index);
• Employee performance (morale, knowledge, turnover, use of best
demonstrated practices)
The flow of how a balanced scorecard connects Vision and Strategy is
shown below .
Figure 16. Balanced Scorecard

B. Key Metrics
Proper evaluation, monitoring and controlling strategies would
entail an objective means of appraisal. Management shouldn’t base appraisals
on personal perception, otherwise, managers will have different opinions on the
progress of strategies implemented. The balanced scorecard shall provide the
system for objective appraisal.
The key metrics or criteria to be included in the balanced scorecard are:
Sales Growth, Target Net Profit Margin, Spending Efficiency, Product Quality,
Production Yield, Asset Utilization, Customer Loyalty, Market Share, Customer
Complains, Acquisition of New Customers, Employee Turnover, and Employee
Talent.
The Financial Category, which includes Sales Growth, Target Net Profit
Margin, and Spending Efficiency, is to address the key success factors Financial
Stability, Cost of Production and Production Efficiency.
The Internal Business Process Category, which includes Product Quality,
Production Yield and Asset Utilization, is to address the key success factors
Product Quality, Quality Assurance and Production Efficiency.
The Customer Category, which includes Customer Loyalty, Market Share,
Customer Complains and Acquisition of New Customers, is to address the key
success factor Customer.

The Learning and Growth Perspective Category, which includes Employee
Turnover and Employee Talent, is to address the key success factor Cost of
Production (Labor) and Industry Know-how.
The proposed Balanced Scorecard for periodic evaluation, monitoring and
control of proposed strategies are shown below:
Table 5. Proposed Balanced Scorecard Format
Category Metric Target Present
Financial
Sales Growth % of increase 5%
Net Profit
Margin % of Sales 7%
Spending % of variance < 10%
Internal
Business
Process
Product Quality
Number of defects
reported < 2
Production Yield % of input 99.50%
Asset Utilization % capacity attained 90%
Customer
Customer
Loyalty Retention rate 95%
Market Share % of global market 5%
Complaints
number of
complaints < 2
New Customers
number of new
customers > 3
Learning &
Growth
Perspective
Employee
Turnover Length of service 3 years
Employee
Talent Headcount growth 70%
Appraisal
Period: Appraiser:

ANNEX
Audit Checklist
Yes or
No
Management Audit Checklist
Does the firm use strategic-management concepts? Yes
Are the company objectives and goals measurable and well communicated? Yes
Do managers at all hierarchical levels plan effectively? Yes
Do managers delegate authority well? Yes
Is the organization's structure appropriate? Yes
Are job descriptions and job specifications clear? Yes
Is employee morale high? Yes
Are employee turnover and absenteeism low? Yes
Are organizational reward and control mechanisms effective? Yes
Marketing Audit Checklist
Are markets segmented effectively? Yes
Is the organization positioned well among competitors? No
Has the firm's market share been increasing? Yes
Are present channels of distribution reliable and cost-effective? Yes
Does the firm have an effective sales organization? No
Does the firm conduct market research? No
Are product quality and customer service good? Yes
Are the firm's products priced appropriately? No
Does the firm have an effective promotion strategy? No
Are marketing, planning and budgeting effective? No
Do the firm's marketing managers have adequate experience and training? N/A
Finance / Accounting Audit Checklist
Where is the firm financially strong and weak? No
Can the firm raise needed short-term capital? Yes
Can the firm raise needed long-term capital? Yes
Does the firm have sufficient working capital? Yes
Are capital budgeting procedures effective? Yes
Are dividend payout policies reasonable? Yes
Does the firm have good relations with its investors and stockholders? Yes
Are the firm's financial managers experienced and well trained? Yes

Production/Operations Audit Checklist
Are supplies of raw materials, parts, and subassemblies reliable and
reasonable? Yes
Are facilities, equipment, machinery and offices in good condition? Yes
Are inventory-control policies and procedures effective? No
Are quality-control policies and procedures effective? Yes
Are facilities, resources, and markets strategically located? Yes
Does the firm have technological competencies? Yes
Research and Development Audit Checklist
Does the firm have R&D facilities? No
Are R&D facilities adequate? N/A
If outside R&D firms are used, are they cost-effective? N/A
Are R&D resources allocated effectively? N/A
Are management information and computer systems adequate? Yes
Is communication between R&D and other organizational units effective? N/A
Are present products technologically competitive? Yes
Summary of Audit Checklists
Satisfactory? Yes or No
Management Audit Checklist Yes
Marketing Audit Checklist No
Finance/Accounting Audit Checklist Yes
Production/Operations Audit Checklist Yes
Research and Development Audit Checklist No

Halal Product Certificate

Kosher Product Certificate

ISO 9001:2008 Certificate

2009 Sales Revenue per country of destination
Japan P 794,785,196.42 74.15%
China /Shanghai 42,529,408.21 3.97%
Hong Kong 35,655,749.50 3.33%
Korea 32,383,303.56 3.02%
Malaysia 75,027,521.87 7.00%
Taiwan 497,900.00 0.05%
Thailand 28,622,631.33 2.67%
Vietnam 1,417,201.17 0.13%
Denmark 25,718,408.01 2.40%
France 2,588,577.48 0.24%
Local 32,706,539.67 3.05%
TOTAL P 1,071,932,437.22 100%
Source: Summarized from the company’s audited sales.

United States Federal Tax Rate 2010
Taxable Income Tax Rate
0 to 50,000 15%
50,000 to 75,000 $7,500 + 25% of amount over 50,000
75,000 to 100,000 $13,750 + 34% of amount over 75,000
100,000 to 335,000 $22,250 + 39% of amount over 100,000
335,000 to 10 M $113,900 + 34% of amount over 335,000
10 M to 15 M $3,400,000 + 35% of amount over 10,000,000
15M to 18,333,333 $5,150,000 + 38% of amount over 15,000,000
18,333,333 and up 35%
Source: http://en.wikipedia.org/wiki/Corporate_tax_in_the_United_States

Action Plans
Actions required Responsible
department/s
Time
Frame
Compute for the economic order
quantity to release excess
resources that are tied-up in idle
inventory.
Production and
Logistics Implement
immediately
Implement strict adherence to
industry yield standard.
Control Department
Implement
immediately
Maintain adherence to ISO
standards and other certifications
such as Halal and Kosher, by
spending for necessary Plant
improvement, repairs and
maintenance.
and Systems and
immediately
Budget and spend for necessary
plant expenditures towards
achievement of GMP
certification.
and Systems and
Finance Department
FY 2011 to
2012
Prevent delays in delivery to
avoid utilizing air freights.
Production and
Logistics
Implement
immediately
Negotiate with suppliers for peso
denominated crude glycerine
purchases when US Dollar is
relatively stronger than Peso.
Logistics in
Finance Department.
Implement
immediately
Pay for the usual dollar-
denominated purchases when
Peso is stronger than the Dollar
Logistics in
Finance Department.
Implement
immediately
Hedge all import and export
transactions.
immediately
Further borrowings should be
Peso-denominated.
Senior Vice
President – Treasury
in collaboration with
Finance Department
Implement
immediately
Negotiate for sales with FOB
terms to avoid shouldering costly
export freight costs.
SYKCL marketing
department in
collaboration with
SOCC Sales
Department
Implement
immediately

Establish sales quotas that
reflect projected sales and
monitor its progress.
SYKCL marketing
department in
collaboration with
SOCC Sales
Department
Implement
immediately
Focus export sales in Asia-
Pacific region to take advantage
of its growing economy.
SYKCL marketing
department in
collaboration with
SOCC Sales
Department
Implement
immediately
Upon acquisition of GMP
certification, increase efforts to
sell glycerine to local
pharmaceutical companies.
Sales Department
FY 2012
onwards
Start selling TBA Polymer to
electronics manufacturers
located within the country.
Sales Department
FY 2011
onwards

Proposed Balanced Scorecard Format
Category Metric Target Present
Financial
Sales Growth % of increase 5%
Net Profit Margin % of Sales 7%
Spending % of variance < 10%
Internal Business
Process
Product Quality
Number of defects
reported < 2
Production Yield % of input 99.50%
Asset Utilization % capacity attained 90%
Customer
Customer Loyalty Retention rate 95%
Market Share % of global market 5%
Complaints number of complaints < 2
New Customers
number of new
customers > 3
Learning &
Growth
Perspective
Employee
Turnover Length of service 3 years
Employee Talent Headcount growth 70%
Appraisal Period: Appraiser:

BIBLIOGRAPHY
Published Documents:
Sakamoto Orient Chemicals Corporation, Audited Financial Statements, 2010
Unpublished Documents:
3M, Annual Report 2008
Kao, Annual Report 2010
Kao, Financial and Operating Review 2010
Sakamoto Orient Chemicals Corp., Employees’ Handbook, 2010
Independent Studies:
ABG, Inc., Glycerin Market Analysis, 2006
Jordan Economic and Commerce Bureau, Sorbitol Production Project, 2005
Bromine Science and Environmental Forum, Tetrabromobisphenol A, for Printed
Wire Boards and ABS plastics, September 2010
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http://www.bsp.gov.ph/monetary/monetary.asp
www.chemie.de/news/e/more/57998/

SOCC stratma paper

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