Kao Corporation Executive Summary Essay, Research Paper
In this undertaking, I have chosen the Fast Moving Consumer Product industry as the subject of survey. First of all we will take a brief expression at how the industry started in the late nineteenth century as soap devising companies and easy germinating into some of the most successful multidomestic company of today. Following we will hold insight on the industry & # 8217 ; s outstanding features and highlight some of the major participants. We will besides acquire an thought of the attraction of the industry through the usage of Porter & # 8217 ; s 5 forces industrial analysis.
Included in this undertaking is an in-depth reappraisal of Kao Corporation, Japan. Kao Corporation is one of the major participants in the industry. Here we will take a expression at how the Japanese based company employs schemes to cut down cost and at the same clip distinguish its merchandise from its rivals to derive competitory advantage. We will besides analyze some of the cardinal fiscal ratios to help us in placing some of the company & # 8217 ; s strength and failings. Then a SWOT analysis is carried out on the company. From the SWOT analysis we can explicate suited schemes in order to better the public presentation of the company. By closely analyzing the company & # 8217 ; s internal environment to better understand the company & # 8217 ; s capablenesss and restrictions and so analyzing the alterations in the external environment that could impact the company favorably or adversely, appropriate schemes can be formed in order to guarantee high public presentation of the company. Then eventually we will look at other possible recommendation, which I believe would assist better the company & # 8217 ; s public presentation in the competitory fast traveling consumer merchandises industry.
Fast Traveling Consumer Product Industrial Brief
Fast Traveling Consumer Product are merchandises that consumer would utilize on a regular basis. The merchandise line of Fast Moving Consumer Products encompasses a broad scope of merchandises such as shampoo, organic structure froth and facial wash. These merchandises are classified as fast traveling due to the nature of its use and lastingness. While shampoos are non-perishables, the consumer would finally complete using it and would necessitate to buy another bottle of shampoo. Therefore, unlike merchandises like telecasting and wirelesss which consumers would merely purchase one time in a bluish Moon, Fast Moving Consumer Products are bought invariably from clip to clip by consumers.
The Fast Moving Consumer Product Industry has germinating since the nineteenth century. Many of the major participants today started of as a soap doing company. Colgate Palmolive began in 1806 as soap shaper in New York City. Subsequently in 1837, William Proctor and James Gamble, formed Proctor and Gamble which better known as P & A ; G. P & A ; G at that clip was merely a taper and soap bring forthing company based in Cincinnati, USA. Back so, there were non much invention in the merchandises. Soap was soap, everybody used the same soap but today due to the huge promotion in engineering and the ever-changing consumer demands. Today, companies like P & A ; G no longer merely bring forth soaps. It has expanded its merchandise lines into shampoo, organic structure froth and many others.
The industry underwent much development, non merely in footings of merchandise inventions but besides production methods. As engineering advanced, the tendencies in fabricating changed as good. In the 1910, the tendency of fabricating moved towards mass production. This is to enable the lowering of cost and the expansion of market range. Mass production is still being practiced. Some clip in the 1950s, fabricating began to under take a more thin attack. This is whereby merchandises were given more accent and were made possible through research and development. Quality betterment was facilitated by technological promotions. By implementing Just in Time systems, greater cost efficiency were come-at-able.
As clip progressed on, companies found that their several domestic markets were going saturated and that many Big Emerging Markets were engendering across the Earth. These New Big Emerging Markets opened many doors of chance for companies to travel planetary. As such begin the tendency of globalisations. Bodies such as World Trade Organization and GATT, which pushed for free trade on a planetary footing, farther facilitated these tendencies. As such began the tendency of globalisation. Today, companies likes P & A ; G Kao Corporation and Johnson & A ; Johnson have operations around the universe. Their operation could run from Foreign Direct Investments to Joint Ventures.
Now, the universe has merely moved into the twenty-first century and the Fast Moving Consumer Product Industry is fast altering. With the coming of the Internet and the rapid growing of e-commerce, companies are able to capitalise on this new frontier. E-commerce is able to make the consumers without the presence of jobbers. This cut downing both monetary value and cost.
Industry & # 8217 ; s Dominant Traits
In order to hold a better thought of the Fast Moving Consumer Products industry, we will take a expression at several outstanding traits in the industry.
The mark market of the Fast Moving Consumer Products is really broad. The merchandises are used by about every one of all ages irrespective of gender. Due to the big market size this tends to pull new rivals. This would do the strength of competition to increase.
Major Players in the Industry
1 ) Proctor & A ; Gamble, USA.
2 ) Johnson & A ; Johnson, USA.
3 ) Kao Corporation, Japan.
4 ) Colgate Palmolive, USA.
Scope of Competitive Rivalry
The major participants in the industry fundamentally competes on a planetary graduated table. Thus these companies have production workss all over the Earth. Plants are normally set up to function regional markets. However, there are many other minor participants who merely concentrate their selling attempts in specific part or state. Trade names such as Follow Me which was incorporated in Malaysia, concentrates its selling attempts chiefly in the South East Asiatic part.
Nature of Demand in the Industry
Due t the nature of the merchandise, the consumer would pattern the Habitual Buying Behaviour. This is because the merchandise is because the merchandise is in cheap and there is low engagement on the portion of the consumer. The consumer tends to purchase a trade name out or acquaintance or far assortment interest. As such the consumer might miss trade name trueness. Many companies such as Kao Corporation put attempt into constructing its trade name name to instil trade name trueness. The industry participants are really much dependant on the repetition purchase of the consumer to do long term net incomes.
The Fast Moving Consumer Product is made of a broad scope of Products. The followers are some illustrations: & # 8211 ;
1 ) Shampoo
2 ) Facial Wash
3 ) Detergents
4 ) Soap
Within these merchandise lines, there is farther distinction, for case, shampoo for oily, dry and normal hair types. As clip progresses on, companies undertake research to better fulfill the demands and wants of the market. Due to the huge differences between persons more and more merchandise lines are being introduced.
Industrial Life Cycle
The industry can be said to be of age. In most developed states, the industry has already reach adulthood and demand is saturated. However, in the Less Developed and Developing states, the industry is said to be in its growing phase. In order to avoid many of the merchandises to come in the diminution phase, many companies have modified bing merchandises in order to take a breath new life into it. This is a tactic used to pull both new and bing consumers. Even though the market is matured, the competitions continues to escalate, many houses are presenting new merchandises with new value or convenience in their command to win consumer support. This in bend causes the debut phase of the merchandise life rhythm to be shorter as rivals are fast to present new merchandises into the market. Merchandises are being designed to be more diversified into the individualism of consumers. As such, the tendency in the industry is that many new merchandises will be invariably introduced into the market at a much faster rate than before.
Industrial Competitive Forces Analysis ( Peter & # 8217 ; s 5 Forces )
Intensity of Rivalry
The strength of competition is high in the Fast Moving Consumer Product industry. This is due to several factors. First of wholly, there are many participants in the industry. Apart from the major participants, there are many local and regional rivals, which implement different schemes. Some trade names like Zaitun, which uses a spiritual attack to selling its merchandise. Zaitun & # 8217 ; s scheme proved successful in Islamic states is no longer sing rapid growing. In fact, many developed state & # 8217 ; s market is saturated. As such competition is ferocious, as they fight for the same piece of bar. Rivalry is farther intensified by the fact that consumers can exchange between trade names easy and incurring virtually zero cost. This fact causes companies to invariably contend over the same consumers. Firms use many different schemes to obtain competitory advantage runing from merchandise inventions to low monetary values. The scheme used would depend on the market place of the house.
Menace of Entry
The menace of Entry into the Fast Moving Consumer Product industry is rather high as new entrants would necessitate a considerable sum of capital in order to put up a production works and other disposal cost. More over, the bing houses, particularly the major participants, which are multidomestic companies, have considerable cost advantage due to economic systems of graduated table. As such the new entrants would hold a smaller net income border. In add-on, in order to bring forth good quality merchandises, houses have to set about Research & A ; Development attempts. These factors make the industry less attractive to new entrants. However, the industry does non necessitate high degrees of proficient know how in its production procedure and it is non subjected to many authorities ordinances. This eases the entryway of houses somewhat.
Menace of Substitution
The menace of permutation is non really outstanding in the Fast Moving Consumer Product industry. Although the exchanging cost of the consumer is really low, there is non many permutation for Fast Moving Consumer Products. Take for case, there is no existent replacement for utilizing shampoo to rinse hair. Although today, soap has much been substituted by organic structure shampoo, but the houses which used to bring forth soaps, besides produces organic structure shampoo now. Therefore it can be summarised that there is no existent replacement for Fast Moving Consumer Products.
Power of Suppliers
Much of the input required by Fast Traveling Consumer Product industry is in the signifier of chemical. Many of the major participants in the industry vertically integrate backwards in order to cut down the power of providers. For case Kao Corporation has raw stuff bases in the Philippines and Malaysia. These topographic points have ample supply of cardinal natural stuff such as coconut and palm oil. The decrease of power of providers non merely gives the house lower cost which translate into higher profitableness but besides better control of the quality of its inputs
Power of Buyers
In the Fast Moving Consumer Product industry, the chief purchasers are the hypermarkets and other High Traffic mercantile establishments. Due to the buying power of hypermarkets, there is considerable power of purchaser to order footings with makers. While many of the major participants have the resource to send on integrate but would happen it wasteful to open up a hypermarket merely to sell its merchandise to the consumer. However, with the development of the Internet, there lies a possibility for houses to cut down the Power of Buyers in this industry.
Capital Kao Corporation
14-10, Kayabocho 1-chome,
TOKYO 103-8210, JAPAN
June 1887, TOKYO, JAPAN
78.0 billion hankerings ( as of March 1998 )
( approx. US $ 590 million )
Mr Tomiro Nagase established Kao Corporation in June 1887 in Tokyo. Back so, Kao Corporation was merely a soap doing company. Today Kao Corporation has become a transnational company with operations all over the Earth. It succeeded in set uping itself as a taking maker of day-to-day usage family merchandises.
In Malaysia, Kao Corporation Japan chose joint ventures in order to derive entry into the local market. Kao ( Malaysia ) Sdn. Bhd. was formed on 20th March 1973 as a private limited company. The spouses consist of Kao Japan, Boustead keeping and Felda. Both Kao Japan and Boustead holds 45 % of the entire portions each, while Felda holds 10 % of the staying portions.
The capital construction is as follows: & # 8211 ;
TOTAL ( RM ) ORDINARY PREFERENCE OTHERS
Entire Shares 25000000 0 0
Divided into 25000000 0 0
Nominal Amount per Share 100 0 0
( in cents )
Cash 16000000 0 0
Others 0 0 0
The portion keeping is as follows: & # 8211 ;
SHAREHOLDER & # 8217 ; S DETAILS
Company NAME TOTAL SHARE
FELDA Trading SDN. BHD. 1600000
BOUSTEAD HOLDINGS BHD 7200000
KAO CORPORATION 7200000
Kao Corporation & # 8217 ; s mission is to guarantee the complete satisfaction and the betterment of the day-to-day lives of its clients. Developing merchandises of high value and quality for its clients does this. Kao Corporation strives to win the assurance and trust of its clients in the nucleus Fieldss of cleanliness, beauty and wellness. Due to the fact that Kao merchandises are sold internationally, it has to guarantee that its quality is maintained all around the Earth. As such Kao Corporation objectives is to guarantee that Kao merchandises is of tantamount quality as Kao merchandises in all parts of the universe. This is of import in order to keep Kao merchandise image and repute internationally. Through this standardization of quality, Kao is able to instil dependability in its client & # 8217 ; s head. While Kao Corporation aims to obtain profitable growing, it ne’er neglects its duty to the society and environment. Kao Corporation strives to be in harmoniousness with Mother Nature in the class of its human activities.
Management and Operational Schemes
Kao Corporation is presently a multidomestic company with operations around the universe. However, Kao Corporation has operations in 3 major parts, which is Asia, Europe and North America. Within each state, Kao Corporation sets ups its operation in the signifier of Foreign Direct Investments or Joint Ventures. For case in Malaysia, Kao Corporation formed a Joint Venture with Boustead Holdings and Felda to organize Kao Malaysia. The Joint Venture was seen as a necessary measure to get the better of entry barriers into the Malayan market. Due to political and legal environment, the Joint Venture was seen as a strategic move to derive entry. Furthermore, due to the huge difference between the Malaysian and Nipponese civilizations, a local spouse was indispensable in helping Kao Corporation to successfully market its merchandise in Malaysia. Local spouses know the local clime of the market and as such were in a better place to explicate appropriate selling schemes suited for Malayan market.
Economic Value Added ( EVA )
Kao Corporation recognises that in order to be successful in a competitory universe ; the company can non merely underscore on merchandise quality and dependability. The company now is traveling into cost efficiency. This means that Kao Corporation is traveling a degree up in the corporation & # 8217 ; s concern scheme subject. A theoretical account of Business degree scheme was introduced by Nakane-Hall and can be seen below
In order to accomplish better cost efficiency, Kao Corporation has decided to integrate EVA in its direction system. The aim of Eva is to maneuver the company towards sustainable net income growing. EVA was implemented as of April 1999 for the parent company. EVA was created by Stern Stewart which is a New York based confer withing house. The purpose of EVA is to give importance to cost of capital. EVA determines the sum of economic value created by the corporation. This is done by subtracting the cost of capital employed from the net operating net income after revenue enhancement. EVA is believed to promote its directors to happen more value making employment of capital. This in bend will do Kao Corporation more competitory.
In add-on, EVA is able to break the relationship between direction and stockholders. The involvement of directors and stockholders can conflict at times and this in bend could ensue in hapless public presentation of the company. EVA will be used as a agency to do determinations for day-to-day operations. Employees will be trained on the method of utilizing EVA to make higher consciousness of the importance of cost of capital and value creative activity. Furthermore, to guarantee the effectivity of EVA, directors will be compensated through an inducement system which will better actuate the directors to assist guarantee the success of EVA. In the long tally, EVA will be invariably innovated in order to guarantee invariably profitableness growing in the hereafter.
In 1986, Kao Corporation began an operational reform procedure which is still ongoing till present clip. The reformation was aimed at bettering work methods and be aftering procedure, which would ensue in the decrease of cost. To this terminal, Kao Corporate integrated Entire Cost Reduction ( TCR ) in its corporate civilization.
Presently apart from the execution of EVA to increase fight, Kao Corporation has undertaken structural reforms in the countries of production, gross revenues and distributions. As of 31 March 2000, the production works of the Kyushu will be changed into a distribution base in order to ease the distribution channels in Japan. In add-on, Kao Corporation aims to go the best in client service in the whole of Japan. In order to accomplish this, Kao Corporation has consolidated 8 of its gross revenues company about Japan.
On the international forepart, Kao Corporation seeks to construct strong partnerships with companies, which would complement the company. In a recent development, Kao Corporation formed a Strategic Alliance with Beiersdorf AG in order to beef up the gross revenues of Biore in Europe. In the US, Kao Corporation entered into an understanding with S.C. Johnson & A ; Son, Inc. , to market Kao & # 8217 ; s family cleansing kit in U.S. These are illustrations of the many reciprocally good partnerships, which Kao Corporation has undertaken.
In decision, Kao Corporation has recognised the demand for direction to implement cost cut downing schemes in order to better profitableness and fight on a planetary graduated table. Furthermore, Kao Corporation is invariably germinating and reconstituting its operation all in a command t make the company into a successful planetary company.
Consumer Oriented Approach
The consumers are the bosom of the industry. Therefore, it makes sense to set accent on the consumer & # 8217 ; s demands and wants. In order to function the consumers better, Kao Corporation undertakes many attempts to place their demands. To carry through this undertaking, the Kao & # 8217 ; s Business Divisions, the Product Development Department and the Research and Development Division will take an penetration into the day-to-day lives of the consumer in order to make advanced merchandises. In add-on, Kao & # 8217 ; s Consumer Information Centre gathers consumer & # 8217 ; s enquiries and remarks on a day-to-day footing. This is called the Kao Echo System. The Kao Information Centre provides information to all Kao & # 8217 ; s divisions. To farther increase the effectivity of the aggregation of consumer informations, Kao established an information oriented gross revenues administration. In 1994, Kao took portion in the Electronic Data Interchange ( EDI ) plan with the retail merchants. This plan became the foundation of the birth of the Efficient Consumer Response ( ECR ) plan. These plans served more than merely to supply Kao with gross revenues information on a existent clip footing. The information gathered by EDI and ECR were used as guidelines for new merchandise developments. Retail mercantile establishments are an indispensable contact with the consumers.
While the assemblage of information is important, Kao Corporation ever keeps in head the position of the consumers. In order to better understand the consumer & # 8217 ; s existent demands in their mundane lives merchandise developers and sellers would see places of merchandise trial users to transport out interview with them and obtain firsthand information about the merchandise use. Kao does non merely concentrate on doing finds on the merchandise but besides the method of use is given accent so that it is non inconvenient for the consumer to utilize. Merchandises that genuinely fulfill the consumers are the footing of set uping Kao & # 8217 ; s trade name.
Kao is an international trade name and as such it is imperative that attempts to implement consumer orientation must be on a planetary graduated table. By taking into consideration the different civilizations of each state, Kao Corporation will accommodate its merchandise to accommodate the local demands and penchants. Kao believes the consumer-oriented attack to develop new merchandises will strongly help the company in set uping a strong trade name in the planetary market.
Building Kao & # 8217 ; s Brand Power
Bing in the Fast Moving Consumer Product industry, Kao recognises the importance of trade name power. By increasing Kao & # 8217 ; s trade name power, its corporate strength can be significantly reinforced. Soon, Kao has succeeded in authorising its trade name. In 1997, the Nikkei Research Institute of Industry and Markets rated Kao Attack as the best merchandising trade name in Japan. This shows that consumers have a good perceptual experience and have high trade name trueness towards Kao.
Building Brand Power is a changeless ongoing pattern, undertaken by Kao. One of such attempts is to use Research & A ; Development to back up trade name edifice. Through the synergism of scientific cognition and technological cognize how, Kao is able to bring forth new and improved merchandises which would offer consumers more value. Take for case, Kao scientific research were the first to detect that furrows is due to a biochemical procedure. Therefore Kao came up with Sofina Seraty which was able to decelerate down this aging procedure. With changeless merchandise betterments and inventions, Kao is able to offer better merchandises to the consumers. This in bend strengthens Kao & # 8217 ; s Brand. As can be seen here Research & A ; Development is an indispensable portion of the company & # 8217 ; s scheme in constructing a globally recognised trade name. Research & A ; Development is able to back up the trade name merchandise inventions. With changeless merchandise betterments and inventions, Kao believe it is able to derive the trust of the consumers through strong trade name trueness. This in bend will lend to Kao & # 8217 ; s overall aim of accomplishing profitable growing.
In add-on to constructing a strong trade name, Kao purpose to fulfill its consumers all around the universe. As we know, Kao is dependent on repetition purchase and by fulfilling its consumer, Kao stands to profit from repetition purchase. A satisfied consumer would state 3 people about his/her bad experience. In line with Kao & # 8217 ; s globalization ends, Kao Corporation ensures that the quality of Kao merchandises all around the universe is of similar criterions. This is so that consumer can trust on Kao & # 8217 ; s merchandises anyplace around the universe.
The pricing aim of Kao Corporation has to co-occur with the company & # 8217 ; s concern scheme. In general, the Fast Moving Consumer Product industry is really monetary value medium. This means that rivals are really fast to react to any alterations in Kao & # 8217 ; s pricing and frailty versa. Kao Corporation monetary values its merchandise harmonizing to the merchandise & # 8217 ; s place in the market. Take for case in Malaysia, Kao Laurier is the leader in the healthful market. As such, Kao does lowers it monetary values even though the competition has decreased its monetary values. This is because Laurier is a choice leader and lowering of monetary values could do its image to be jeopardised. However in the shampoo market, Kao is the market rival of P & A ; G. In this instance, Kao would alter its monetary values harmonizing to alterations in monetary values of P & A ; G merchandises.
Overall, due to the sensitiveness in monetary values, Kao has to follow a follow the leader pricing scheme in order to avoid a broad monetary value war among rivals that would be really dearly-won to the industry as a whole.
Kao & # 8217 ; s Pricing scheme during the Asiatic Crisis
The Asiatic Crisis, which caused many reverberations in the part, has a important impact on Kao Corporations particularly several of its foreign subordinates. Kao Malaysia was really to a great extent dependant on imports for its natural stuff. However when the Asiatic Crisis struck the Malayan ringgit depreciated drastically. This in bend caused its cost to lift drastically. This left Kao no pick but to increase monetary values every bit good in order to last. However, should Kao Malaysia had increased it monetary values in proportion to the rise in cost, the Kao would hold faced the hazard of losing market portion to its rivals. In order to buffer the effects of the monetary value addition, Kao increased its monetary values bit by bit. Kao Malaysia increased its monetary values quarterly and each clip the addition would be an addition of 10 % & # 8211 ; 15 % . This would consumers would non experience the monetary value addition is excessively extortionate. The psychological consequence of this scheme on the consumers proved mostly successful. Today, monetary values have stabilised and Kao managed to draw through the crisis without losing its market place.
Kao Corporation established on information oriented gross revenues administration to transport out regional selling straight with retail merchants. In 1994, Kao incorporated the Electronic Data Interchange ( EDI ) plan. The EDI is an on-line processing of information between Kao and retail merchants to enable speedy and efficient distribution of merchandises. This co-operation therefore successfully minimised dealing and operational cost.
The success of EDI led to the development of Efficient Consumer Response ( ECR ) plan. This made it possible for Kao to invariably introduce its distribution and other selling activities.
Furthermore, Kao Corporation sets up regional production workss in order to cut down cost. States chosen would be one that has low production cost due to cheaper rent and labor. Regional workss make distribution within the part to be faster and cheaper. However, Kao Corporation still patterns the conventional distribution channel despite its attempts to cut down logistic cost. ( Refer to Appendix A ) .
The constitution of Kao merchandises in the market is Kao Corporation publicity aim. This is particularly of import due to the fact that in the Fast Moving Consumer Product industry, consumer pattern the Habitual Buying Behaviour. This is whereby the consumer would take a trade name based on acquaintance or convenience. Through the usage of Promotion, Kao aims to instil trade name trueness.
The media is besides really utile for Kao Corporation to make consciousness in market about a new merchandise. Through the usage of advertizements Kao can educate the populace about the being and the benefits of peculiar new merchandise it has launched.
The promotional tools used by Kao are as follow: & # 8211 ;
1 ) Ads
– Television, Radio, Newspaper and Magazines.
2 ) Personal merchandising
3 ) Gross saless publicity
Presently Kao Corporation uses the distinction scheme to fend off its rivals Kao has adopted a consumer orientated attack in order to better understand the demands and wants of the consumer. Kao is ever bettering its bing merchandise through Research & A ; Development in order to supply value for the consumers. At the same clip, Research & A ; Development enables Kao to present new merchandises into the market. Some of these merchandises are first in the market while others are new merchandise lines aimed at winning market portion from rivals. Take for case, in order to contend ferocious rivals such as P & A ; G in the hair attention market, Kao introduced Lavenus which is a new hair attention line. Lavenus has L-AHA expression to do hair softer and shinier. This is Kao & # 8217 ; s try to distinguish its merchandises from that of its rivals. By supplying superior quality and value for the consumers, Kao & # 8217 ; s scheme is to instil trade name trueness in its consumers to accomplish long term success in the market. Rivals such as Follow Me and Ginvera employs the low cost leading. These houses use monetary value to derive market portion by underselling Kao Corporation. In defense mechanism, Kao uses promotional attempts to emphasis on Kao merchandises superior quality and characteristics. With changeless Research & A ; Development activities to guarantee consumer satisfaction, Kao has been able to fend off the low cost manufacturers. However there are rivals like P & A ; G and Johnson & A ; Johnson who employ similar distinction scheme
. Both P & G and Johnson & Johnson carry out heavy Research & Development attempts in order to make value for consumers in their merchandise. In add-on Johnson & Johnson emphasise on merchandise dependability to derive the trust of the consumers. In order to remain competitory against these strong rivals, Kao has employed lower cost scheme to increase its profitableness. However, Kao does non compromise its merchandise quality in its battle to cut down cost. Alternatively it reduces cost through addition efficiency in direction and operational activities. This enables Kao to remain in front in the competitory environment of the Fast Moving Consumer Products.
Evaluation and Remark of the Implemented Schemes
Now that we have seen Kao Corporation & # 8217 ; s schemes, we can measure the grade of effectivity of these schemes. First of wholly, it is beloved that the company & # 8217 ; s current end is to increase profitableness. One of the methods Kao intends to accomplish this is through cost efficiency. Since 1986, Kao launched Total Cost Reduction Program to maneuver the company towards greater cost efficiency. Now in 1999, Kao & # 8217 ; s cost decrease attempts are still go oning with the execution of Economic Value Added Program which aims to increase the value creative activity capableness of the company by developing direction the importance of cost of capital in doing determinations. While this is by and large a good scheme, it remains to see how good EVA will execute particularly in the country of struggle of involvement between direction and stockholders see oculus to oculus in order for the company to prolong profitable growing in the long tally.
Looking at Kao & # 8217 ; s selling schemes, the company has managed to layout a well-designed merchandise with accent on Research & A ; Development attempts in order to fulfill the consumers better. The consumer is at the bosom of Kao Corporation & # 8217 ; s selling schemes. As such, Kao channels considerable attempts into understanding the demands and wants of the consumer. Merchandises are ensured to be of satisfactory quality and value for consumer. While merchandises are of superior quality, Kao does non monetary value its merchandise extortionately. In fact, all Kao merchandises are priced competitively in order to win market portion. However pricing is non everything. Kao & # 8217 ; s utilizations publicity in order to instil trade name trueness and increase company profitableness. However it is really difficult to accurately mensurate the effectivity of above the line publicity attempts. Furthermore, the cost of advertizement and other promotional tools could be significantly high. Once promotional attempts have been carried out, Kao has to administer its merchandise into the market. While Kao has adopted the EDI and ECR plans efficaciously to cut down logistic cost while rushing up the procedure. However, contradictory to Kao & # 8217 ; s attempt to cut down logistic cost, it still maintains the conventional methods of distribution. Kao & # 8217 ; s distribution channel still consists of many degrees, which consequences in higher distribution cost.
Presently Kao Corporation is a multidomestic company. However, the universe is traveling towards globalizations but Kao Corporation is non demoing marks to maneuver the company towards this terminal. There are no clear schemes that are taking at transforming Kao into a planetary company, which would profit Kao Corporation in the long tally.
For the fiscal twelvemonth ended 31 March 1999, Kao Corporation & # 8217 ; s amalgamate net gross revenues saw an addition of 1.9 % to? 924.5 billion. ( Refer to Appendix B ) . Despite the sulky Nipponese market, domestic gross revenues of family merchandises continued to increase by 1 % . This was mostly due to the company & # 8217 ; s ability to better its merchandises while presenting new merchandises into market. These were made possible through the Research & A ; Development attempts of Kao research squad. In the Asia and Oceania part, Kao Corporation was able to beef up its nucleus trade names that resulted in the addition in the part gross revenues. Despite the Asiatic crisis, Kao Corporation managed to spread out gross revenues. This proved that the company & # 8217 ; s scheme to construct trade name power was a right move. As for North America and Europe part, the strong gross revenues public presentation by Biore facial nucleus merchandises, Kao & # 8217 ; s gross revenues were well boosted. In add-on, Kao took several other strategic stairss to beef up its presence in the part. In May 1998, Kao Corporation acquired Bausch & A ; Lomb Inc, which is a tegument nucleus company founded in the United States. In the Europe, Kao Corporation formed a strategic confederation with Beiersdorf A.G in Germany to establish Nivea Usage.
Following are some of the cardinal fiscal ratios, which I believe would be utile to give us a better penetration of the company & # 8217 ; s fiscal standings: & # 8211 ;
Tax return on Equity ( Refer to Appendix C )
The return on Equity of Kao Corporation has been fluctuating between 5 % to 7.68 % in the past 5 old ages. The low was during the twelvemonth ended 31 March 1998 where the ROE was 5.77 % . This was likely due to the sulky economic state of affairs in the Asiatic part. However in 1999, the ratio rose to 7.68 % . On an overall, Kao Corporation has been able to keep profitable public presentation over the past 5 old ages. This shows that the schemes of Kao Corporation have been successful. However, while Kao has positive returns, if it is deficient to cover the cost of capital, so it is non sufficiently profitable.
Net incomes per Share ( Refer to Appendix D )
The net incomes per portion of the company has shows important addition over the old ages. The high was in 1999 with? 55.98 per portion while the depression was in 1995 with? 39.49 per portion. This shows that Kao has been successful in making value for the company. Kao has been able to protect the stockholder & # 8217 ; s involvement in the company. This means that direction does non merely look after their ain involvement but besides take into the consideration of the stockholders.
Inventory Turnover ( Refer to Appendix E )
Kao Corporation & # 8217 ; s Inventory Turnover has been maintained above 4 times per annum over the past 5 old ages. This means that Kao Corporations stock are traveling comparatively fast. The public mostly accepts its merchandises and the company does non confront the job of slow traveling stocks.
Acid Test Ratio ( Refer to Appendix F )
Kao Corporation & # 8217 ; s acerb trial ratio has been on the rise over the past 5 old ages. In 1995 the ratio stood at 55.41 % whereas by 1999, the ratio was at 101.67 % . This means that Kao & # 8217 ; s liquidness has been bettering. An acerb ratio of 101 % would intend that the company is able to run into any short-run duty and it has sufficient financess to cover all its current liabilities. This shows that the company is in no danger of settlement in the close hereafter.
Debt Ratio ( Refer to Appendix G )
Over the past 5 twelvemonth, Kao & # 8217 ; s debt ratio has been diminishing. Presently the debt ratio stands at 39.18 % . This means the company is cut downing its purchase. Lower purchase would intend less fiscal hazard and creditor committednesss. Furthermore lower purchase would interpret into less involvement payments. However, at present, 39.18 % of the company & # 8217 ; s assets are still financed through adoptions. This is still considered rather high and hazardous on the stockholders as in a instance of settlement ; creditors would be paid foremost.
Potential Internal Strength
Ability to detect consumers demands
Through the usage of consumer orientated attack in its selling scheme, Kao has been successful in satisfy its consumer. With specific attempts undertaken to obtain valuable feedback from consumers, Kao has invariably been able to maintain path of alterations in the consumer & # 8217 ; s gustatory sensation or demands and as such be the first to fulfill those demands in the market. Combined with Research & A ; Development attempts, Kao is able to capitalize on the chances and derive competitory advantage.
Superior Research & A ; Development
Presently Kao Corporation Research & A ; Development attempts encompass a broad scope of Fieldss such as surface scientific discipline, organic chemical science, polymer scientific discipline, biological scientific discipline and stuff scientific discipline. At Kao Corporation, Research & A ; Development work is on cutting border engineering which in bend enables Kao to develop new merchandises that provide value and comfort to run into consumer & # 8217 ; s demands. Furthermore, Research & A ; Development attempts is non merely focused on doing new merchandises but besides sing the merchandise design and the convenience of bundles through ergonomic betterments.
Strong Gross saless Force
In Japan, Kao Corporation has its ain gross revenues company system, which differs from other rivals. Kao develops close dealingss with the retail merchants. By co-operating and working together on many issues such as shop shelves to do convenient for consumers to take and purchase merchandises, and besides better logistic efficiency through the usage of EDI and ECR.
Effective Net income Management
Over a 5 twelvemonth period beginning in 1995, managed to prolong profitable growing. In 1999, the Return on Equity ratio rose to a high of 7.68 % . This continued profitableness would help Kao in its growing and enlargement ends. Net incomes in bend will supply Kao with the needed resources to develop superior merchandises. Over the old ages, Kao has shown stableness and sustain growing due to its effectual net income direction.
Established Brand Name
Kao Corporation has been in concern since 1887, and by today Kao & # 8217 ; s merchandise is being marketed all around the Earth. Kao & # 8217 ; s merchandise has managed to perforate many markets and has gained the assurance of the consumers.
Wide Product Lines
Kao produces many different types of merchandises. Kao has a really diversified merchandise line including family detergents, skin attention, and hair attention and facial cleansing agent. Not merely Kao & # 8217 ; s merchandise line diversified horizontally but besides vertically. This means that within each merchandise line would interrupt down into many other merchandises. Each merchandise is aimed at a different section of the market.
As of 31stMarch 1999, Kao & # 8217 ; s capital stood at? 451,776 million. This will enable Kao to set about any new profitable ventures. Large capital will supply the resources it needs to finance all enlargement and growing programs.
Since 1995, Kao Corporation & # 8217 ; s Acid Test Ratio has been lifting to make a high of 101.67 % in 1999. This shows that Kao & # 8217 ; s liquidness has been beef uping and presently really strong. Strong liquidness would intend that it is able to run into all short-run fiscal duties and in the short tally should any inauspicious events turn up, Kao Corporation would be in a better place to last the ordeal.
Reducing Financial Leverage
The debt ratio of Kao & # 8217 ; s Corporation stood at 39.18 % at 31 March 1999. Kao has been cut downing its debt ratio over the past 5 old ages. This move will cut down the company & # 8217 ; s fiscal committednesss and fiscal hazard.
Potential Internal Failings
Multiple levelled distribution channels
As discussed earlier, Kao Corporation still utilises the conventional distribution channel. This causes the distribution channels to dwell of more degrees. As such this could increase the logistic cost in the system. This in bend causes higher monetary values for consumers and lower profitableness for Kao Corporation. In add-on, more degrees in the distribution channel will do logistic slowdown clip to lengthen. Longer logistic slowdown clip could do lower reactivity and other stock out cost at the point of gross revenues.
Non Keiretsu Company
Presently, Kao Corporation is non a Keiretsu company like some of the successful Nipponese houses. Keiretsu are really big and are able to bask immense economic systems of graduated table. Furthermore Keiretsu have the ability to incorporate forward and backward to cut down the power of purchaser and provider.
Reliance on Imports
Many of Kao Corporation & # 8217 ; s subordinates outside of Japan depend on imports of natural stuff. This in bend makes these subordinates to be vulnerable to fluctuations in the Foreign Exchange Market. This is apparent in the instance of Kao Malaysia. When the Malaysian Ringgit depreciated drastically during the Asiatic Crisis, Kao Malaysia experienced important addition in natural stuff cost. As such Kao Malaysia experience losingss during the twelvemonth 1998. Furthermore imports are subjected to import revenue enhancement and this could once more do cost to lift should the local authorities decides to increase revenue enhancements.
Relatively high purchase
Even though the debt ratio is demoing a downward tendency, it is still comparatively high. At 31 March 1999, the debt ratio stands at 39.18 % . This means that about 40 % of Kao & # 8217 ; s assets are being financed by adoptions. As such this could do the company to be bogged down by heavy involvement and loan refunds.
Potential Environmental Opportunities
Many developing states such as Malaysia, Indonesia and Thailand are fast going tomorrow & # 8217 ; s Large Emerging Markets ( BEM ) . These markets have possible to turn and will lend a important part of the tomorrow & # 8217 ; s universe GDP. There could be an addition in demand in these states for Kao merchandises.
Downfall of Communism
In the 1990, the universe saw the ruin of communism. The Soviet Union broke up and China began to open up its economic system to the universe. New states such as Slovenia, Ukraine and China are new markets whereby Kao can market its merchandise. Previously under communism it was difficult for Kao to perforate these markets but now that communism has fallen and capitalist economy is taking over, Kao can capitalize on this chance to spread out its operation an a planetary graduated table.
Liberalization and Free Trade
Presently the universe is come oning towards free trade. Much of the attempts are being carried out by the World Trade Organisation ( WTO ) . Free Trade would intend less trade barriers among states. When duties and quotas have been removed, Kao Corporation will be able to run more productively.
All around the universe, the Internet is deriving popularity. The latest development in the Internet is E-commerce. Many believe that E-commerce will be the future manner of the concern universe. By selling merchandise straight to the consumers through the Internet Kao Corporation can significantly cut down its distribution cost.
Changing Age Structure
In many states, the population is said to be acquiring older. There is a slow down in birth rate but more significantly, Baby Boomers who were born merely after the World War II are now ageing. Taking over, as consumers of the hereafter are the Generation Xers. The coevals born between 1965 to 1976 and are poised to hold a large impact on the workplace and market place of the hereafter.
Population Growth in Developing States
Developing states like Malaysia is expected to see population growing over the following few decennaries. As such addition in population would interpret into increase demand for Kao & # 8217 ; s merchandises.
Potential Environmental Threats
Increase Power of Buyer
Today, there is a new tendency of major retail merchants coercing makers t industry merchandises, on the retail merchant & # 8217 ; s behalf utilizing the retail merchant & # 8217 ; s trade name. This is already go oning in U.K. where Tesco, which is one of the major retail mercantile establishments throughout U.K. is coercing makers like Coca-Cola to fabricate soft drinks utilizing Tesco & # 8217 ; s name alternatively of Coke. If Coca-Cola disagrees, so Tesco will non transport Coke in their shops. This will do a drastic doomed of market portion. Should this go on to Kao, so Kao would be forced to make another rival which would undersell Kao & # 8217 ; s monetary values or virtually no existing demand growing in Japan.
Competition in the Fast Moving Consumer Product industry is escalating both domestically and internationally. Kao is confronting ferocious competition such as P & A ; G and Johnson & A ; Johnson. These rivals are fast to present new merchandises into the market by set abouting heavy Research & A ; Development attempts. Furthermore, the figure of rivals are increasing, trade names such as Shokubutsu organic structure shower by Lion Corporation are contending for the same piece of bar that Kao is viing far.
As Kao Corporation expands its operation worldwide it faces the hazard of the foreign authorities exerting unfavorable policies such as domestication or expropriation of assets. When this happens, the house will stand to endure immense losingss. Iran one time expropriated all U.S. assets in the state. As a consequence, U.S. houses lost 1000000s of dollars.
Bing a multidomestic company, Kao & # 8217 ; s net incomes can be adversely affected by foreign exchange fluctuations. The Asiatic Crisis was a perfect illustration of this. Furthermore, over the old ages the Hankering has been beef uping. This makes Kao & # 8217 ; s merchandises to be less competitory in the planetary market.
External Factor Strengths
– Ability to detect consumer
– Superior Research & A ;
– Strong Gross saless Force
– Establish Brand
– Wide Product Line
– Large Capital
– Liquid Failings
– Many levelled distribution
– Reliant on Import
– High Leverage
– Emerging Market
– Free Trade
– Changing Age Structure
– Population Growth SO Strategic
– New Product
– Globalization WO Strategic
– E-commerce venture
– Vertical Integration
– Addition Power of Buyer
– Intensifying Competition
– State Hazard
– Forex Fluctuation ST Strategic
– Superior Merchandises
– Lower Cost/Price
– Vertical Integrate WT Strategic
– Strategic Alliance
Table 1: SWOT Analysis Schemes
Now that we have seen Kao Corporation & # 8217 ; s SWOT Analysis, we can now relates the 4 different elements together to organize effectual schemes for the company. Table 1 shows the cardinal factors in each component, strength, failings, chance and menaces. Basically the strength and failings makes up the company & # 8217 ; s internal environment. The external environment on the other manus, consists of chances and menaces. Internal environment is governable by the house where as the external environment depend on factors such as political relations, economic, societal and engineering. By utilizing the uniting internal and external environment, we can obtain a footing for scheme preparation. The followers are some of the scheme that we can explicate utilizing SWOT analysis.
As discussed earlier, there are many Big Emerging markets, peculiar in the Asiatic part, which are developing states. These developing states are sing population and economic growing. Therefore, these markets are great chances for Kao to spread out its market portion. Furthermore, with the freshly born states such as Slovenia due to the autumn of communism, Kao can spread out its operations into these markets. Kao has the capital and with its well-established trade name name, the company should be able to successfully perforate these untapped markets.
As for the alteration in planetary age construction and the upcoming of Generation Xers, this provides Kao an first-class chance to capitalize on the hereafter. As Kao already has the ability to detect consumers demands, Kao should set about attempts to understand the gustatory sensation, demands and wants of the Generation Xers. Accompanied by Kao & # 8217 ; s superior Research & A ; Development capablenesss to develop new merchandises particularly targeted at the Generation Xers. With the support of Kao & # 8217 ; s strong gross revenues force, Kao would be good place to obtain competitory advantage in the hereafter.
Another of import tendency is the liberalization of trade worldwide. With WTO, attempts to take trade barriers, it is a aureate chance for Kao Corporation to maneuver the company towards globalization. By traveling from a multidomestic company to a planetary company Kao Corporation can bask higher degrees of Economies of Scale. Free Trade will ease Kao & # 8217 ; s entry into states, which antecedently impeded while the remotion of duties and levies will increase Kao & # 8217 ; s profitableness.
As we know one of Kao & # 8217 ; s major failings is the many degrees in the distribution channel. This can be overcome through the usage of the Internet and its E-commerce capablenesss. E-commerce will associate Kao straight to the consumers and this in bend will do it possible for Kao to cut down its logistic cost, as there would be no more jobbers cost. In add-on, monetary values can be lowered due to no jobbers mark ups, therefore an addition in consumer & # 8217 ; s excess.
Kao is one of the oldest companies in Japan and yet it is non every bit successful as some of the Keiretsu companies like Toyota and Mitsubishi. These companies are really good diversified with high degrees of forward and backward integrating. Keiretsus experiences a batch of cost nest eggs and economic systems of graduated table. As the universe economic system is altering the hereafter is really unpredictable. Kao Corporation should look into appropriate variegation programs, which could be related or wholly unrelated to Kao & # 8217 ; s nucleus competences. It is ever a God thought non to set all your eggs in one basket. Furthermore, Kao has the capital to accomplish this in phases.
In the fast evolving universe today, many menaces can be obstacle in Kao & # 8217 ; s battle to accomplish ultimate success. First of all, in order to get the better of the menace of powerful purchasers, which can order unfavorable footings with Kao, Kao can capitalize on the exciting capablenesss of the Internet. By utilizing E-commerce, Kao can take the demand for retail merchants and as such cut down the menace of powerful purchasers.
Another menace is escalating competition. Increase competition means lower profitableness. With more rivals contending for the same piece of bar, Kao has to device ways of remaining in front of the battalion. One of these is to utilize Kao & # 8217 ; s superior Research & A ; Development capablenesss to develop new merchandises before the rivals do. In add-on, Kao should endeavor to take down its cost in order to increase its profitableness. Through the usage of Economic Value Added and Total Cost Reduction plan, Kao can efficaciously take down its cost. However, this might non be sufficient. Kao has big capital and big capitals need proper direction in order to obtain maximal net income for the company. At the same clip lower cost and monetary values can assist keep the fight of Kao & # 8217 ; s merchandises although the Yen continues to lift against the US dollar.
While the failings of Kao Corporation may non be on that is really serious, it can be significantly amplified with menaces from the external environment. Fluctuating Forex can do terrible losingss due to heavy trust on natural stuff imports by Kao foreign subordinates. In order T counter this reverse, Kao has to prosecute into fiscal hedge activities. Through the usage of forward contracts and put/call options, the hazard of Forex fluctuations can be significantly reduced.
As for the intensifying competition, Kao can seek to amalgamation or get a competitory house. The acquired house should be one that creates value for Kao Corporation. This would be particularly good if the acquired house has a competitory advantage over Kao Corporation. However, this scheme could be rather capital consuming. Another option is to organize strategic confederations with rival for a common benefit. The thought is & # 8220 ; if you can & # 8217 ; t crush them, fall in them. & # 8221 ; Strategic confederations can besides be used to cut down the menace of purchasers. By organizing confederations with major retail merchants, Kao and retail merchants can stand to profit from better apprehension of each other & # 8217 ; s demands and troubles. Then together happen a productive solution to the job. Sometimes, concern is non all about war, sometimes its about doing friends who we can trust on.
However, in the improbable instance of terrible economic convulsion and accompanied by terrible competition, Kao has to seek to use a turnaround scheme. Depending on the state of affairs, it could utilize violative schemes which would include low-priced or following a new distinction scheme. This scheme would necessitate important resources. In a worse instance scenario it could hold no pick but to reap what it has left and go out the industry every bit shortly as possible. These schemes are really negative in nature. In my sentiment, the best scheme is to guarantee that the company ne’er comes to this phase.
A portion from the schemes, we have obtain through the usage of the SWOT Analysis, there are other recommendation I would wish to do. First of wholly, the company should take stairss to look into its Financial Management. In sight of the company & # 8217 ; s optimum capital construction in line with the Kao & # 8217 ; s launch of the EVA plan. High pitching might supply inexpensive capital to the house. However the trade off is higher fiscal hazard. Higher fiscal hazard would do stockholders demand for an extra hazard premium. This is an addition to the cost of capital.
Furthermore, in Appraising undertakings merely sing cost of capital and the use of Net Present Value Method or Internal Rate of Return would be sufficient. Current there is a new method called the Project Wealth Creation Profile. The thought is that undertakings are viing for capital and undertakings should be awarded harmonizing to the undermentioned standards: & # 8211 ;
( a ) Financial Value
( B ) Cash Flow Profiles
( degree Celsius ) Strategic Value
( vitamin D ) Stakeholders Value
( vitamin E ) Hazard Profile
( degree Fahrenheit ) Management Motivation
As capital is scarce, the company should use careful stairss in make up one’s minding how to pass its capital.
As for the operation side of Kao Corporation, it has yet to implement Just in Time carrying system. A batch of Kao & # 8217 ; s Nipponese opposite numbers have already adopted JIT. JIT can supply Kao with stockholding cost nest eggs. This would be inline with Kao & # 8217 ; s ongoing operational reforms and Entire Cost Reduction attempts.
In the country of selling, Kao should develop a catchy jangle to attach to a alone advertizement, which will be shown repetitively. The purpose is to hold high Brand Recall Rate in the heads of consumers. Then at the point of sale or high traffic mercantile establishments, back uping promotional tools such as boosters and shelf flyers should be usage. By uniting high callback rate and back uping promotional tools at the point of sale, Kao & # 8217 ; s gross revenues can be increase. This is because most of the clip, the determination to purchase a fast moving consumer merchandise like shampoo is made at the point of gross revenues. Furthermore, as Muslim states like Malaysia and Indonesia emerge as the large markets of tomorrow, there is an chance for Kao Corporation to utilize its R & A ; D capabilities that would be specially designed for the Islamic society. Zaitun in Malaysia has proven that this scheme can be really successful.
In add-on to obtain farther cost decrease, farther merchandise standardization should be adopted. Standardization of merchandises can give the company more economic systems of graduated table. Presently Kao does non standardize its merchandises. Most new merchandises are first launched in Japan so subsequently brought over to the South East Asia part. By establishing its new merchandises at the same time worldwide, it can take advantage of greater economic systems of graduated table and faster market incursion.
One last country I would wish to do some recommendations on is to utilize cross-functional direction. Currently Ford carries out this practise. By uniting all the section of the administration to execute a undertaking, greater velocity and flexibleness can be achieve. There is besides cost economy in this method of undertaking direction. Better apprehension can be achieve among members of the different divisions and besides determinations are made faster with less bureaucratism.
Kao Corporation is fundamentally a strong and profitable company. It has sound fiscal basicss and has been mostly successful in marketing its merchandise both domestically internationally. The schemes that Kao Corporation employs in its command to accomplish profitable growing are admirable. However, Kao still has its failings. These failings can be overcome through the usage of an appropriate scheme.
Now, Kao Corporation is traveling into the new millenary with new challenges to face and new chances to hold on. The external environment is altering quickly. Changes are non merely led by the Internet but besides alterations in people and their manner of life. Peoples have new demands All of Kao & # 8217 ; s rivals are good cognizant of the external environmental alterations. Competition is escalating and in order for Kao to emerge successful, it has to carefully analyze and explicate the appropriate schemes