Abbott Corporate Finance Case Competition

Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix

Presented By:

Kyle Nguyen | Chris Yamamoto | Jorrel Sto. Tomas | Nishaad Navkal

Overview

Case Objective

Assess if Precious Star should expand its operations into mainland China, Vietnam, both, or neither.

Secondary objectives:-If expansion is feasible, create the most efficient and profitable expansion plan.

-Explore potential opportunities for continued growth into the future.

Key Considerations

Competitive Landscape-What are Precious Star’s leverageable factors?-How can Precious Star out-perform its competitors?

Consumer Environment-How can Precious Star capitalize on consumer preferences?

Growth of Different Market Segments-Which markets have the highest profit potential?

Manufacture + Distribution Costs-How can we keep operational costs at a minimum?-What distribution channels keep costs at a minimum?

Future Prospects-How can Precious Star optimize its strategy to take advantage of future market trends?

Alternate Strategies-What further steps can Precious Star can take to grow its market share?

Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix

Recommendations

Mkt. Penetration Strategy

Target Markets + Segments

-ChinaPediatric PremiumPediatric Mid-tierAdult Complete & BalanceAdult Disease State

-VietnamPediatric PremiumPediatric Mid-tierAdult Complete & BalanceAdult Disease State

Result

-A cost of $952M for a projected profit of $717M

-Projected ROI of 75%

Future Prospects

-Allocate remaining $548M and reinvest portion of profits into the acquisition of Chinese competitors in target markets

Manufacture

-Build two production plants in Vietnam

-Pediatric with 40M capacity

-Adult with 40M capacity

-Ample capacity for future market growth

Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix

Qualitative Market Analysis

Situational Context

Qualitative Recommendations:

Manufacture in Vietnam:

-Labor cost is second to lowest in the region-Population generally cannot afford imports

Sell High Product Volume to China:

-High demand for foreign manufacturing-High demand for milk-based products-Growing middle class indicates more consumers

Leverageable Factors

Local brands are distrusted

Chinese Market:

Vietnamese Market:

Action

Most consumers cannot afford expensive imports

Domestic manufacturing is distrusted by consumers

Consumers seek foreign products at high prices

Base manufacturing operations in Vietnam

Emphasize product as a Chinese Brand for the

Vietnamese market

High demand for milk-based nutritional products and increasing middle class

Capitalize on high demand, sell high volume to Chinese

market

Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix

Market Value Observations● Despite rapid growth, Vietnam’s pediatric

market is still dwarfed by China’s, which is valued at over $1B.

● At $764M, China’s adult market is about seventeen times the size of Vietnam’s.

● The pediatric market presents a larger market value and therefore, larger production volume.

Analysis

Market Value Analysis Conclusions:

-Targeting the Chinese market results in the most market value.-Pediatric market is larger for both countries.

Market Value Analysis

Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix

Cost Analysis

Manufacturing Analysis-Fixed and variable manufacturing costs are significantly lower in Vietnam compared to China in both Adult and Pediatric Markets.

-The cost differential between the two options increases as capacity is increased.

Analysis

Cost Analysis Conclusions:Manufacturing:Basing production in Vietnam results in significantly lower costs.

Freight & Distribution:Cost differential between Vietnam-China and China-China F&D is offset by low manufacturing costs.

Freight & Distr. Analysis:-Most of the product will be sold in China.

-Producing in China will yield lower transport costs, though only by a small margin of about 59 cents per kilogram.

-Of the three costs (plant construction, production, transport) transport is the least significant.

Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix

Future Prospects

Future Growth Trends

Growth Trend Observations:

● All 8 strategically selected segments collectively show an upward trend in market value.

● Growth trends justify the construction of a 40M Adult plant over the cheaper 20M + 10M option.

○ 40M becomes more profitable once 25.7M volume is reached.

Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix

Future Prospects

Alternative Strategy

Acquisition Plan

● Allocate remaining $548M into the acquisition of smaller competitors in China.

● In addition to the $548M, reinvest a portion of yearly profits into the acquisition fund.

● Specifically target competitors with large operations in the pediatric sector.

Benefits

● Minimizes unused assets.

● Acquisition of crucial distribution channels.

● Cheaper to acquire existing distribution channels than to establish new ones.

● Grows Precious Star’s market share in its weakest (and most valuable) sector.

Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix

Summary

Manufacture

-Base production in Vietnam-Cheapest overall production and F&D costs.-Bypass Chinese consumers’ distrust of domestic manufacturing.-Keeps price affordable for poorer Vietnamese market.

-Construct (2) 40M capacity plants, one pediatric and one adult.

-Gives ample capacity for projected future growth.

Sales

-Target aforementioned 8 market segments.

-Slated for future growth, holds considerable market value.

-Market Segments are:-Pediatric Premium, Pediatric Mid-tier, Adult Complete & Balance, and Adult Disease State for both countries.

Future Expansion

-Establish an acquisition fund-Use remaining $548M plus a portion of yearly profits.

-Acquire strong competitors in China’s Pediatric sector

-Grows market share, increases distribution channels.

Result - (1st year ROI: 75%)

-Optimal positioning to capitalize on growing market trends in the future.-Growth of Precious Star’s market share in its most valuable sector.-Acquisition of established distribution channels and manufacturing operations.

Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix

Con Conclusion

Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix

Appendix

Appendix Table of Contents:

1: 40M Plant vs. 20M+10M Plants: The Breakeven Point

2: Condensed Market Value + Volume Trends (2014-2016)

3: Cost of Manufacture Chart, USD Standardized

When does the 40M plant become economical?

40M plant production = [20M plant production] + [10M plant production] (20M first)

250M + 4.1(Q) = [134M + 5.3(20M)] + [80M + 6.2(Q - 20M)]

250M + 4.1Q = 134M + 106M + 80M + 6.2Q - 124M

250M + 4.1Q = 196M + 6.2Q

54 = 2.1Q

Q = 25.7M

Appendix

Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix

First Year Q = 23,022,320 kgBreakeven Point = 25,700,000 kgBreakeven growth = 11%

Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix

Appendix

Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix

Appendix