ABS Term paper Final LT9B- 25Nov13€¦ · ABS$Term$Paper$LT-9B$2013% 2"!!FERN!INCORPORATED!...

ABS$Term$Paper$LT-9B$ 2013%!

1" !!FERN!INCORPORATED!

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FERN INC.: GOING GLOBAL

Rakesh Kumar, the newly appointed Vice President for strategy and business development for the Fern-C and i-Fern divisions of the parent company Fern Incorporated, was sitting in his plush office, official working hours long over.He had been contemplating the launch of i-Fern, the company’s latest brand to venture into international markets, scheduled for mid August 2013. Additionally, as head of the joint venture plan with Fern Inc. and Singapore based DSM, he was wondering whether the board was partial to the benefits such a venture would attain: cost-cutting strategies through outsourcing of the Research and Development wing (along with a pilot run for manufacturing of the products) and economies of scale.

Rakesh had a comprehensive background having worked forvarious companies and industries. His educational background comprised of an undergraduate degree in engineering, a masters in business administration and another in development management, all obtained from prestigious institutes. In his previous work experience, he led several industrial, software, and business projects; however, hiscurrent task of leading the strategic and business development divisions was a different ballgame altogether. Several challenges lay ahead of him, the most pressing was analyzing, implementing, and setting the joint venture plan withDSM. The other was managingthe launch and expectations of the new brand, i-Fern. The company was currently experiencing accelerated growth in terms of revenue and market share, Rakesh was concerned whether the launch of i-Fern would complement this growth and reap the same success as previous Fern products.1

Health Care Industry

Health care is one of the world’s largest and rapidly growing industries. Contributing over 10 percent of the gross domestic production (GDP) of most urban and industrial nations, health care has the potential to significantly expand a country’s economy.2 Under the Global Industry classification standard3, the industry can be classified into two categories: health care & equipment services and biotechnology, pharmaceuticals and related life sciences.

Food & Dietary Supplements and Nutrition:

Dietary or food supplements are complex compounds made up of various vitamins, minerals, fatty acids, fiber, and amino acids and are used to supplement one’s diet, providing nutrients that are lacking or only present in small quantities in commonly eaten foods. Like normal pharmaceuticals, supplements can be found in pill, powder, and liquid form and can also be injected intravenously. Supplements are regulated differently from drugs as they fall under a category of food and are considered safe until proven otherwise. Manufacturing of these !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1Interview!with!Rakesh!Kumar,!VP!of!!Strategy!

2!February!2013.!Health!Care!Industry.!Wikipedia.!From!https://en.wikipedia.org/wiki/Health_care_industry!

3“The!Global!Industry!Classification!Standard!(GICS)!is!an!industry!taxonomy!developed!by!MSCI!and!Standard!&!Poor's!(S&P)!for!use!by!the!

global!financial!community.”!February!2013!Global!Industry!Classification!Standard!(GICS)!!

From!https://en.wikipedia.org/wiki/Global_Industry_Classification_Standard!



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supplements involves combining the constituent products depending on the decided formulation.4

Philippine Food& Dietary Supplements and Nutrition Industry:

The call center and software industries form a large part of employment in the private sector providing immense job and business opportunities, which has causeda rise in purchasing power, particularly for middle-income groups. The change in work culture and hours has also led to changes in consumption patterns and eating habits. The prevalence, accessibility and interest in processed, junk and fast foodshaveimpacted consumers’ health, leading to an increase in the number of obese, gastric, and cardio patients5. Exhibit 1 shows a report on major causes of death in the Philippines in the year 2010.

The report suggests that the majority of deaths in recent years were caused mainly by coronary disease, stroke, hypertension, and diabetes, all of which can be categorized under lifestyle diseases. One can conclude that the changing workplace environment influences the rise in these diseases, as seen in the service sector environment of odd hours and increased pressure and stress. The concerns caused by the susceptibility to develop such diseases heightened consumer awareness, driving preferences towards ways to adopt a healthier lifestyle in order to be efficient, productive, healthy, and enhance longevity in both their professional as well as personal lives. Thistrend was manifested in the use of herbal/traditional products, increased investments in preventive medication, and greater participation in sportsactivities. With more Filipino consumers looking to live a more active lifestyle, the demand for nutrition, vitamins, and dietary supplements also increased. However, 2012 reports show that vitamins and dietary supplements experienced a moderate growth of 4 %, much slower as compared to previous years. This is due in large part to the saturation of the potential consumer base.6 Thus, local manufacturers can capitalize on the opportunity to penetrate foreign markets.

Market reports and the Department of Health suggest that the current market for food dietary supplements and nutriproducts combined is worth about 75 billion pesos, which includes both locally manufactured as well as imported products. The wide range of products that is currently available is categorized into the following segments: children (multivitamin and mineral preparations), women (beauty and skin care, weight loss) and men (for vigor and vitality). Unlike past reliance on doctors’ recommendations, modern Filipinos show more interest and inclination towards self-medication and preventative measures, to avoid higher prices of pharmaceuticals and because of low coverage policies of insurance companies.7

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!4 June 2013. Dietary Supplement from http://en.wikipedia.org/wiki/Dietary_supplement!5!Ibid.!

6!May!2013!Vitamins!and!Dietary!supplements!in!the!Philippines.!From!Euromonitor!

7Stanton,!E.!March!2011.!The!Philippines’!Market!for!Functional!foods,!neutraceuticals!and!organic!foods:!An!introduction!for!Canadian!

producers!and!exporters.!Agriculture!and!Agri!Food!Canada!from!http://www.ats^sea.agr.gc.ca/ase/5843^eng.htm!!



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Major players in the industry are Unilab, Vitahart, Cogel, Cecon, Enervon, Spring Valley, Nature Made and Fern-C.

Distribution Channels:

Store-base retailers are currently the major distributors of dietary supplements and vitamins, the largest channels being drugstores and pharmacies such as Mercury Drugstore, Watson’s personal care stores, and Rose Pharmacy. These retailers can leverage their credibility as distributors because of their vast network of outlets and partnerships with manufacturers.8Imported dietary supplements are distributed through normal retail channels while locally manufactured ones are distributed through specialized organic markets as well as through direct means such as websites and door-to-door sales.9Apart from these specialized channels, dietary supplements are also distributed through supermarkets, although the share of these channels remained low in 2012.

Though retailers are increasing their direct imports, wholesalers still source most of the supplements sold by retailers. While online selling has become a popular channel for the sale of dietary supplements, growth has been quite slow, as majority of the Filipino population do not have adequate access to the Internet.10Exhibit 2 shows the Philippine distribution of Supplements.

Singapore Food& Dietary and Supplements and Nutrition Industry:

The Singapore retail market alone accounted for over USD $260 million of the total South East Asian health supplements industry. Singaporeans are deemed as discriminating consumers who are willing to pay for quality products at premium prices. Although its market is small and business costs are high, Singapore remains an attractive market for exporters because of its consumption trends. Interestingly, other ASEAN economies like Malaysia, Thailand, Vietnam, Indonesia and Brunei are also adopting Singapore’s consumption behavior.11

Apart from regular exercise and decreasing calorie intake, the importance of managing and improving overall health has also prompted Singaporeans to begin including nutritional supplements as a complement to their daily diets. This increasing trend has led to an expected 9% market growth in the coming years. Additionally, the use of Multi-level marketing has fueled awareness and acceptance of supplements as a viable source of nutrition and immunity strengthening. Other factors that strengthen the Singapore supplement and nutrition market

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!8May!2013!Vitamins!and!Dietary!supplements!in!the!Philippines.!From!Euromonitor!

9Mercury!Drugstore!currently!has!over!700!outlets,!while!Watson’s!has!170,!Rose!Pharmacy!has!140.!Non^traditional!outlets!are!chains!such!as!

Healthy!Options!and!Health!Express!10!2012!Philippine!Business!Environment!from!Euromonitor!

11Theseira,!L.April!2011.!Singapore:+Nutritional+Supplements+Market!

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include higher wages and standards of living and an increase in the number of small size households.12

Based on the Health Sciences Authority of Singapore, the country has categorized its health supplements into the following segments: dietary supplements, herbal and natural products (without medicinal claims), vitamins and mineral preparations as well as therapeutic supplements or traditional medicines. Among these various types of health supplements, Singapore only produces the “basic” routine vitamins such as B-Complex, Iron, Vitamin C and Multi-vitamins.

Figure 1

(in millions USD) 2009 2010 2011 (est.) 2012 (est.) Total Local Production

141 109 114.5 126

Total Exports 625 703.5 735 808 Total Imports 576 676 709.8 780

Source: Singapore Trade Statistics

Figure 1 illustrates that local production of these routine vitamins are significantly smaller in total value compared to both exports and imports. These local products which are usually used in the country’s own hospitals, clinics, etc. comprise a small portion of the health care industry as less than 10% of the vitamins and supplements sold in Singapore are actually produced within the country. The country then relies mostly on imported goods, where suppliers come from various sources such as the United States, the United Kingdom, France, Switzerland, Germany, Japan and Australia. There is also a booming export market wherein companies purchase vitamins and supplements in bulk, repackage them and re-export them throughout the region.

Health supplements indeed have a strong potential in a market such as Singapore. With the trend of a healthy lifestyle orientation and consciousness of overall wellness, both mind and body, the opportunities may seem limitless. However, like any business, with its own products/product line to succeed, companies should always be aware of their differentiation or unique selling proposition when compared to their peer competitors. One good example of this is the “Nutriceuticals’” a food substance or part of a food with “natural” or herbal components packaged in capsule form, which supposedly provides health benefits. The selling point of having natural ingredients gives it perception of being better for ones body.

Singapore’s buyers mainly come from two sources: retail customers and distributors/importers

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!12Ibid,!Pg.!



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“Retail customers- Chain Health stores, pharmacies, personal care stores, departmental stores and small scale medical halls. Marketing activities include word of mouth, advertisements and direct promotions.

Distributors/ Importers: consists of firms that import at distributor prices (and also operate retail stores or MLM programs), pharmacy/ personal care chain stores (have a dedicated department that sources for products that can be marketed under their own private label) and traditional distributors (that imports and negotiates with various retail stores to have products distributed).”13

Forging a partnership: Fern Inc. and DSM

FERN Incorporated:

FERN Inc. was established in October2003 by a group of successful business practitioners. The company was registered at the Securities and Exchange Commission as an entity that distributes products through direct selling and multi-level marketing (MLM).14This system of operations has been in existence for decades in many developed countries such as the USA, Europe, Australia, Japan, Singapore, Korea and Malaysia, and creating many successful, billion dollar companies. In the Philippines, network marketing has been around for almost ten years. 15

Recently FERN has shifted from a single product firm to a multi product company with the introduction of innovative products such as FERN Slim, an oil in water emulsion made from palm and oat oils. The appetite suppressant was created to address the rising trend of obesity.

In opting to distribute products via the network marketing system, the company’s management team headed by President and CEO Tommany Tan aimed to provide Filipinos with effective and affordable products, which can also serve as a sustainable source of livelihood. Subsequently, the company crafted the noble vision of:

“Bringing prosperity to every home by tapping the entrepreneur in every Filipino”.

A clear vision, a strong management team, superior products, and dedicated distributors, has allowed FERN Inc. to achieve phenomenal success since its inception. The company’s membership has grown staggeringly from 202 members in 2004 to over 800,000 in 2010. Apart from providing financial stability to its shareholders, members, and employees, the company is also involved in social development endeavors through its CSR initiatives. In particular, FERN

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!13Theseira,!2011!

14!MLM!is!a!strategy!in!which!the!sales!force!is!compensated!not!only!for!the!sales!they!personally!generate!but!also!for!the!sales!of!the!other!

sales!people!that!they!recruit.!Other!terms!for!MLM!include!pyramid!selling!and!network!marketing.!Wikipedia!from!

https://en.wikipedia.org/wiki/Multi^level_marketing)!15!All!information!about!Fern!Inc.!and!related!products!was!taken!from!published!material,!pamphlets!and!journals!provided!by!Rakesh!Kumar!

and!the!interview!with!the!same.!



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provides free daily medical clinics, donates millions of pesos to support charitable organizations and operates its own FERN foundation that helps the less fortunate with their health concerns.

The company’s commitment to product quality earned them various prestigious awards and certifications. In the year 2007, FERN achieved a major milestone by securing a position in the “Master Index of Medical Specialties (MIMS)” database that contains an exclusive listing of pharmaceutical products that meet safety, efficacy, and quality considerations. In 2008, FERN-C, one of FERN’s premiere products received the prestigious “Super Brands Seal”, a branding program that awards a particular country’s most recognized brand in the areas of dominance, customer loyalty, overall market acceptance, and goodwill. Exhibit 4 provides a full list of Fern Products.

i-FERN (Global FERN):

On the 7th of August 2012, FERN Inc. introduced its global brand “i-FERN”. The soft launch served as a milestone to the company as it is the first product to venture into the global market. I-FERN, will introduce new and innovative products through itshybrid-marketingplan, which will utilize both retail and multi-level marketing. Exhibit 5 provides a list of i-Fern products.

DSM-Singapore:

Dutch based multinational life and materials sciences company, DSM, has been providing its customers with a multitude of health and industrial products for over 40 years with products in nutrition comprising one half of its life science offerings.

The nutrition cluster deals mainly with food products and specialties that service the food, cosmetic, and pharma industries. Utilizing DSM’s global reach, their nutritional products have expanded their R&D activities to more than 40 locations and sales activities in some 60 locations, including Singapore. Besides R&D and sales, DSM is also involved in large-scale manufacturing, utilizing processes such as fermentation, distillation, and particle engineering.16

Utilizing its advanced infrastructure, excellent R&D, and innovative facilities, DSM, through vertical integration, is able to develop and create formulations designed specifically for the health interests of all its customers.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!16!June!2013.!DSM!Company.!Wikipedia!from!http://en.wikipedia.org/wiki/DSM_(company)!



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Figure 2: The value chain before synergies

Rakesh had mapped out Fern Inc.’s value chain in order to illustrate the current strengths of its Business model.

Challenges

Rakesh knew that penetrating the international markets with i-Fern posed several challenges for both Fern Inc. and DSM. Fern Inc. would have to consider the macroeconomic factors that affect the Singapore market- competition, supply, demand and consumption patterns, and population demographic. Apart from this, they would also have to consider regulatory, logistics, expertise and R&D, trade relations, contract laws and more importantly which distribution strategy to utilize.

DSM on the other hand would consider up scaling its presence in ASEAN nations from sales and marketing activities to manufacturing, testing, and expanding in the emerging southeast nations. At present, DSM had yetto venture into herbal and natural remedies- an opportunity that would combine traditional complementary medicine techniques with the current health system to enhance the wellness of industry. As a manufacturer and research and development expert foraying into the ASEAN market, DSM would also need to address the lack of resources and infrastructure in many nations, specialists and scientists, proper infrastructure to facilitate

Support"Activities!

Primary"Activities!

FIRMINFRASTRUCTURE:"General"Management,"Strategy,"Finance,"Govermental"Affairs,"Quality"Regulation

HRMANAGEMENT:"(Both"employees"and"MLM"product"sellers)"Recruiting,"Training,"Developement,"Compensation

TECHNOLOGY"DEVELOPMENT:"Process"Improvement,"Logistics"Optimization

PROCUREMENT:"Final"Product"from"Manufacturing"Partners

INBOUND"LOGISTICS V"Receiving

VWarehousi

ng VReturns

OPERATIONS

V"Quality"Control

V"Packaging V

Equipment"Maintenan

ce

OUTBOUND"LOGISTICS V"Order"

Processing"("MLM"

sellers"end"users)

V"Delivery

MARKETING"&""SALES

V"Advertising

V"Promotion V"Pricing V"Channels"(MLM)

SERVICE V"Seller"Training""

V"Customer"Service

Comparative

"Advantage"

!

!



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research on TCM, quality assurance and IP protection or counterfeiting. To further illustrate the feasibility of this partnership Rakesh asked his junior analyst Mary to create a SWOT analysis for each of the markets. Her analyses can be found on exhibit 3.

Options

Upon comparing each of the SWOT analyses and with each of the aforementioned considerations in mind, Rakesh came up with three viable options that could be utilized to expand into Singapore.

Option 1: Multi-level marketing distribution: Retain Fern’s MLM model to easily implement and adapt using current resources used domestically

Bringing Fern’s current model to Singapore seemed like the easiest and quickest way to enter the growing Singapore dietary supplement market. MLM had already been proven as a viable distribution strategy as it bolstered Fern into success in the Philippine market. This particular strategy could be easily adapted since the large community of Filipino OFW’s based in Singapore, could already be tapped as i-Fern’s potential distributer base. Additionally, many MLM companies such as Amway and Tupperware already had a presence in Singapore. Rakesh was confident that Singapore’s strategic location among ASEAN members as well as a close proximity to DSM’s manufacturing plant would aid future growth. His main concern was whether the Singaporean government would be supportive of such a venture. Previous legislation in Singapore, the Multi-Level Marketing and Pyramid Selling (Prohibition) Act, prevented the establishment of MLM companies. While this law was enacted to protect citizens from paying huge lump sums up front before joining or having incentives based on recruits over sales made, exceptions could be made at the discretion of the Minister of Trade. While Fern did not practice any of the questionable acts stated in this law, Rakesh was wary that this legislation lowered consumers’ perceptions of entering MLM firms, which would in turn limit the amount of distributors that Fern could recruit.

Option 2: Retail Distributors- change Fern’s domestic model and use a more retail oriented distribution system in order to utilize DSM’s reach, infrastructure, and R&D capabilities to enter Singapore with a more favorable position.

The second option involved completely changing Fern’s distribution patterns to one that utilized the more traditional channels in retail. DSM’s distribution network in Singapore was already large giving Fern an advantage as DSM products could be grouped with Fern’s in product placement and advertising. Taking advantage of DSM’s already established infrastructure and R&D would also allow Fern to get newer, more innovative products into the market faster and always have significant differentiation over its competitors. While this option showed potential, it too had issues that needed to be addressed. Products made in the US had a higher appeal to Singaporean consumers thus making brand loyalty more difficult to attain.



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Competition and cannibalization of DSM's products would also be a concern especially since Fern would be utilizing most of the same retail outlets.

Option 3: Hybrid Distribution- utilize MLM and retail in order to take advantage of the strengths of both companies and minimize the threats posed by entering Singapore.

The final option was one that tried to utilize the strengths offered by both MLM and retail simultaneously lessening the potential risks of each. By combining both retail and MLM, there would be less pressure on sellers to make sales targets as retail store sales could make up the difference. MLM distributors could then be free to concentrate solely on profit making rather than gaining more recruits, as retail store sales would lessen the number of people needed for MLM distribution. Also, lesser margins would be realized through solely retail as stores could demand for lower prices through economies of scale; thus, using MLM as well would allow Fern to have greater margins as individual sellers would have to pay more for the i-Fern product line. Finally, MLM would relieve the pressure of having formal advertising campaigns, as word of mouth through MLM sales would aid in building the Fern brand, especially during the early phases thus building more brand equity and awareness not only among retailers, but also with end users as well.

Rakesh then created a new value chain to illustrate the benefits of the synergies with DSM.

Figure 3: The value chain after synergies !

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Support"Activities!

Primary"Activities!

FIRMINFRASTRUCTURE:"General"Management,"Strategy,"Finance,"Govermental"Affairs,"Quality"Regulation

HRMANAGEMENT:"Recruiting,"Training,"Developement,"Compensation

TECHNOLOGY"DEVELOPMENT:"R&D,"New"Product"Formulation"and"Innovation,"Process"Improvement"

PROCUREMENT:"Raw"Materials"amd"Final"Product"from"Manufacturing"Partners

INBOUND"LOGISTICS V"Raw"

Materials V

Warehousing

VReturns

OPERATIONS V""

Manufacturing

VQuality"Control

V"Packaging VEquipment"Maintenanc

e

OUTBOUND"LOGISTICS V"Order"

Processing V"Delivery

MARKETING"&""SALES

V"Advertising

V"Promotion V"Pricing V"Channels"(retail)

SERVICE V"Tech"Transfer""

V"Customer"Service

Comparative

"Advantage"

!

!



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Having done a thorough analysis of the business intricacies pertaining to the synergies involved as well as their respective strengths and weaknesses (the micro factors), it was time for Rakesh and his team to look into the macro economic factors that would ultimately determine the course of their aspired expansion in Singapore and their collaboration with DSM. To zero in upon the macro economic factors, Rakesh came up with the idea of using the REDDING Framework that would give him and the stakeholders a holistic and complete overview of all the important aspects of the Business Systems in both the countries. The REDDING framework outline is depicted in Figure4.

Figure 4

Explanation of the Framework in context of Business System and its relevance to i-FERN and DSM business:

Business Systemscan be defined as set of complex adaptive systems that have distinct enduring ways of structuring market economies in different regulatory, institutional, and social environments. They are patterns, which after establishment develop intricacies that become more



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and more cohesive over a period of time and define how business is done in their respective countries.

In the REDDING framework, “Meaning” constitutes the bottom line of the framework for which the base is the country’s “Culture”. It helps analyze how the societies construct or build their ways in conducting their economy based on theiradopted rationale or reasons. Authorityimplies the power structure and how it is exercised and identitythat explains the role and its significance to the people that comprise the society.

In line with the Meaning component of the framework, Rakesh and his team were able to deduce certain important points about Singapore and the Philippines; on the cultural front, Singapore society follows the Confucian culture and comprises of hard working people who are highly performance oriented. Singapore is highly a service driven economy and over the years it has moved up in the value chain after the coincident growth of the Chinese economy and now the economy is trending more towards biotechnology R & D. The government serves as the highest authority with higher degrees of intervention, serving as the main facilitator. Currently, Singapore is ranked number one in the world in the ease of doing business index.

The Philippines’ society, or the culture is more based on the South Asian culture, which is “inward looking” with high orientation on humane aspects. Filipinos are generally courteous, reserved, and indirect as well as conservative. Business building in the Philippines requires and depends on interpersonal relationships. This inward looking culture in addition to strong intervention of national and state politicians often results in business systems to be highly dependent on existing fabrications of social and political institutions.This system where the economies are driven by political forces are mostly viewed in the context of opaque, corrupted, monopolized, and overall inefficient form of business system, as exemplified by other emerging nations like China and India.

Singapore thus presents a very favorable opportunity for a company like FERN in the sense that Singapore would prove to be an ideal solution in terms of location due to its vicinity for setting up research and testing facilities. The Philippines on the other hand, although rife with its complexities and concerns, does present an opportunity for DSM’s expansion; one such opportunity would be the reliance on interpersonal relationships for business building as this would be of pretty good advantage in carrying out business through the Multi Level Marketing model.

Order forms the middle layer of the framework that explains the roles and jobs of the institutions that standardize and regulate the conduct of societies and help them to act in a predictable manner in order to facilitate expansion of the socioeconomic system. The areas where establishment of order is most pertinent include human capital, financial capital, and social capital. Capital is the sourcing and allocation of cash for usage while human capital



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implies the identification and encouragement of talent and skills of a country’s inhabitants. Social capital explains the relative usage of personal trust.

On the financial front, Singapore is one of the largest economies in the world and is home to several of the world’s largest banks. The primary funding sources in Singapore include angel investments and bank loans, though private equity and venture capitalism is also catching up fast. The Monetary Authority of Singapore is the main regulatory body that governs the financial institutions. The labor force is highly skilled and consists of highly trained, proficient professionals holding expertise in high technology industries and financial services. However, there are certain points of concern regarding the population growth, which is progressing at negative rates; also the count of immigrants in the work force is on the rise, something that doesn’t bode well for Singapore natives.

The Philippines economy over the last decade or so has shown tremendous growth and has risen steadily in the service sector led mainly by the influx of BPO business. The banking sector is highly regulated with tight credit policies due to high volatility in interest rates and therefore for businesses funding and investments, people mostly have to rely on friends and family. Skilled labor is also showing growth and currently accounts for two thirds of the total workforce.

Because of ample funding resources and opportunities available in Singapore in addition to government support through tax benefits and liberal, hassle free procedures, Singapore can be viewed as the most lucrative overseas market for FERN. Another favorable point is that the Singapore market has an abundance of disposable income in households that have also begun to include healthcare products as part of their autonomous consumption due to a rising awareness of health and lifestyle issues.

The Philippines, on the other hand, could be thought of as a good scope for DSM to conduct business and increase its research activities. Many healthcare companies are now moving back towards hybrid and generic medicines with many comprising of traditional herbs and shrubsof which the Philippines has an abundant quantities. The only downside that may occur is that DSM may have to explore its own options for funding and investment activities.

Coordination lies at the top of the framework and constitutes the actual business system. It implies a consolidation of several resources to come up with processes that facilitate an efficient and progressive economic process thus enabling expansion. The process itself is achieved through the three components of the framework described earlier: Ownership, Network, and Management. Ownership helps determine the inception of firms and industries.In simpler terms, it explains the different ways of holding together assets along with their control in an economy.Network refers to the permutations and combinations of arrangement of relations amongst firms, which can be classified as preferential in some economies through the presence of alliances, cartels, and oligopolies.On the other hand, a pure economy would exhibit fair



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competition on a level playing field. Finally, management refers to the cooperation needed to bring together the human, financial, and technical aspects of a nation. Management style varies in different economies such as a top down style where there is maximum participation by key stakeholders (government) while others show a decentralized and uneven distribution of power.

Singapore is a state lead economy where the government is the primary stakeholder and holds intervention rights in all businesses and industries. In fact, the government (public) and private entities within the economy go hand in hand with each other, which has been a primary reason for the transparent and clean image that Singapore has achieved in the worldview.The Philippines on the other hand is marked by a democratic style of leadership, and the business/ industry sectors are marked by a presence of both public and private entities. The government’s role in terms of intervention is limited to policy drafting and enforcement as privately held companies are run by its corporate entities and board members.

Owing to its clean and corruption free image, Singapore as an overseas market represents an ideal playground for FERN to start with its overseas expansion expedition. Adding to these factors are further added advantages that include hassle free business and trade procedures, liberal tariff rates, and implementation of ASEAN Free Trade Area policies that would further bring down tariff barriers to a great extent.

In order to tap the growing potential of the fastest growing and highly dynamic economy of the Philippines, in the region with concerns such as a lack of transparency and strict business and trade policies, a joint venture through investment in a local company with good presence in the market would be the most viable option for DSM. FERN as a company has been growing steadily over the years mainly because of its unique and traditional multi-level-marketing model, and hence it wouldn’t be wrong to say that the FERN-DSM joint collaborative venture would help both companies to sustain, expand, cooperate, and compete in the ASEAN region.

Additionally, Rakesh asked Mary to prepare a Game Theory PARTS strategy to see how Fern Inc. and its potential partnership with DSM could gain an advantage in the Singapore dietary supplement market.



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Co-opetition Areas for FERN-DSM:

Mary then looked to see how co-opetition would play a role in Fern’s global expansion. Upon analyzing each company through her previous SWOT and PARTS analyses, Mary came up with a list of key activities/ attributes that would help and enable both the companies realize the benefits of the partnership:

a. Common Funding Pool- A common/reserve funding pool would be helpful to meet funding requirements for both the companies, thereby relieving them of their dependencies on banks and for short term funding

b. Sharing of Infrastructure- Both companies as a result of shared infrastructure agreement would help them achieve economies of scale with elimination of cost centers and overhead cost cuts. For example, FERN can use DSMs Singapore facility as temporary warehouse for storage of its products; DSM could use FERN facilities to carry out its research and development activities.

c. Knowledge Sharing and Information Management- FERN could help DSM with Philippines and other ASEAN member nation’s information that would help DSM to



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frame its strategy while DSMs technical or development wing could collaborate with FERN management/ manufacturing wing to come up with or suggest useful information about innovation and production of raw materials.

d. Sharing of Human Capital/ Resources: Sharing of human capital can help both the companies to exchange expertise through cross functional assignments, training programs, support services, and alsowould help the companies to inculcate a better work culture. DSMs strong sales force and its foothold could prove to be just the leverage FERN would have looked for, and FERN being a company from an ASEAN nation might help DSM explore and set its foothold in ASEAN’s soon going to be protected region of trade.

Apart from the above, other factors like third party engagements and vendor resources could be shared. The Philippines is a nation that has abundance of natural and varied sprawling beneficial shrubs and herbs with medicinal qualities, DSM would be able to benefit from this with FERN’s help for its exploration in the field of traditional complementary medication. DSM’s biotech venture and manufacturing units in Philippines would mean reversal of brain drain in Philippines.

Going Ahead:

With all these factors to consider, Rakesh had a tough decision to make. As he got up from his chair and readied himself to leave the office, he knew that the decisions he made now, would not only affect the livelihood of Fern Incorporated, but would also have implications that impacted their partnering nations as well.



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Exhibit 117

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!17/**Table/"Data"Source:Vhttp://www.worldlifeexpectancy.com/countryVhealthVprofile/philippines**/!

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Exhibit 218

Distribution Historic Retail Value RSP % breakdown

Research Sources:Consumer Health: Euromonitor from trade sources/national statisticsNote: 2012 data is provisional and based on part-year estimates.©2013 Euromonitor International

2007 2008 2009 2010 2011 2012PhilippinesVitamins and Dietary SupplementsStore-Based Retailing 92.9 92.6 91.5 91.1 90.8 90.3Grocery Retailers 11.5 14.8 14.8 14.9 15.0 15.2

Discounters - - - - - -Healthfood shops - - - - - -Hypermarkets 2.3 3.0 3.0 3.0 3.0 3.0Small Grocery Retailers - - - - - -Supermarkets 9.2 11.8 11.8 11.9 12.0 12.2Other Grocery Retailers - - - - - -

Non-Grocery Retailers 81.4 77.8 76.7 76.2 75.8 75.1Health and Beauty Retailers 79.4 76.0 76.0 75.5 74.9 74.3Chemists/Pharmacies 26.3 23.0 23.0 22.5 22.0 21.5Parapharmacies/Drugstores 36.6 37.0 37.5 37.5 37.6 37.7Other Healthcare Specialist Retailers

16.5 16.0 15.5 15.5 15.3 15.1

Mixed Retailers - - - - - -Department Stores - - - - - -Mass Merchandisers - - - - - -Variety Stores - - - - - -Warehouse Clubs - - - - - -

Other Non-Grocery Retailers 2.0 1.8 0.7 0.7 0.9 0.8Non-Store Retailing 7.1 7.4 8.5 8.9 9.2 9.7Vending - - - - - -Homeshopping - - - - - -Internet Retailing - - - - - -Direct Selling 7.1 7.4 8.5 8.9 9.2 9.7

Total 100.0 100.0 100.0 100.0 100.0 100.0

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!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!18!2012.!Consumer!Health:!Euromonitor!from!trade!sources/national!statistics!



!

Exhibit 3

SWOT Analysis- SINGAPORE Food and Dietary Supplement (for FERN):

STRENGTHS ! Strong consumer market with disposable

income. ! Trend to include dietary supplements for

healthy lifestyle ! Longer life expectancies of Singaporeans. ! Multi-level-marketing business framework

highly successful (w.r.t FERN). ! Government support and assistance. ! Customers willing to pay premium for quality

products. ! Efficient infrastructure and transport. ! Safeguard against counterfeits, IP

infringements

WEAKNESSES ! Low consumer loyalty even if a product is

more effective. ! Higher acceptance and preference towards US

products ! High costs of doing business ! Relatively small and saturated market. ! Lack of natural resources, like shortage of land

to cultivate or step up infrastructure for farming and lab purposes.

OPPORTUNITIES ! Growth predicted for food and dietary is about

9-10%. ! Consumers are being motivated and educated

to maintain healthy lifestyle through community based programs

! Strategic location of Singapore ! Increasing number of household and more

number of women joining the workforce. ! Steady growth in online retail business. ! Ease of conducting business with lower

hurdles ! Social networking sites as a potential platform

to increase visibility of products and the company

THREATS ! Highly competitive market ! US already has significant share in Singapore

market ! Only innovative and premium quality products

can survive ! Compliance with Health Supplement

guidelines. ! Vulnerability to environmental hazards due to

externalities (fire caused in Indonesia for causes haze in Singapore).



!

SWOT Analysis- Singapore Biotech Industry (for DSM):

STRENGTHS ! Democratic society, liberal laws, efficient

administration ! Lower tax rates in biotech ! Adequate government spending in new and

small companies ! Most updated hi-tech state of art infrastructure. ! Legal system that supports variety of research ! Robust IP protection systems ! Ability to attract foreign talents

WEAKNESSES ! Venture capitalists have still not ventured into

Singapore ! Government funding not sufficiently available to

private sector ! Biotech workforce has few scientists with

extensive experience ! Weak clinical trial sector. ! Lack of local scientists; poor track record in

research and patents; higher R & D operating costs; and weak university and industry collaborations.

! Excessive government intervention

! Fastest developing biotech hub in Asia, little competition

! Recent government allocation of funds of around $7.5 billion USD for both public and private sectors (R&D) over next five years

! Biotech sector has been identified as a key strategic sector

! Strategically located acting as gateway to major Asian economies

! Collaborative projects between multinationals are encouraged

! Relatively new to biotechnology investment ! India, South Korea, Malaysia, Thailand and

China, with their lower costs and economies of scale, could effectively undermine biotech endeavors in Singapore.

! Global race for ground breaking patterns and competition for knowledgeable workers



!

SWOT Analysis for Philippines Biotech industry (for DSM):

STRENGTHS ! Abundance of opportunities and scope due to

population and availability of resources ! Government Support ! Specialist hospitals, facilities, clinics that offer

medical services in wide range of fields, have increased

! Abundance of natural healing assets

WEAKNESSES ! Brain Drain where specialists tend to shift to

privates sectors and overseas ! Traditional & Complimentary medicine isn’t

organized or expanded ! No government support for TCM either for

funding or quality assurance ! Counterfeiting, lack of enforcement and poor

patent & data protection ! Reliance mainly on foreign drugs.

OPPORTUNITIES ! Awareness regarding importance of health and

fitness amongst the middle class ! Good scope and incentive for foreign

investment with high returns to make medicines affordable and accessible for poor and below poverty live families.

! Growing trend of “wellness tourism” under which they provide traditional and complementary medicine and wellness & rejuvenation services

! Health Tourism presents a big opportunity which the government can look to leverage upon through reformations in the regulations & policies

THREATS ! Disparities in terms of growth, income

distribution, population distribution ! Bio security and non socio-economical risks

arising out of higher rates of cross infections and pandemics

! Higher medical services fees and expenses ! Governments have self conflicting policies like

parallel imports and cost cutting at the same time along with rising prices of basic commodities and other economic issue



!

Exhibit 4:

FERN Products:

FERN-C: FERN-C is a pharmaceutical-grade sodium ascorbate (like Vitamin C), which strengthens the body’s resistance against illnesses such as the common cold, cough, fever and flu. It also helps boost the immune system and fights the effects of free radicals.

Studies have shown that Vitamin-C (ascorbic acid) is essential for an everyday healthy life. Apart from preventing and curing common diseases, Vitamin-C also helps haste the healing process of wounds and damaged cells. However, due to its acidic nature, excessive intake may prove harmful, as it would cause gastric irritations, bloating and intestinal bleeding. FERN-C addresses this problem owing to its non-acidic and alkaline properties.

FERN-i-Flex:

FERN-i-Flex is a natural, effective, and fast acting joint health dietary supplement. Joint pains are common ailments experienced globally. A common cause of this condition is Osteoarthritis (OA). The Philippines alone has around 6 million individuals suffering from OA and as the population ages, the affected percentage is expected to increase. Other day-to-day activities such as climbing stairs, strenuous exercise, even twisting doorknobs may also damage joints and cause discomfort. FERN-i-Flex contains high amounts of bioflavonoids, and has higher levels of Vitamin-C; the two components are highly regarded for their anti-oxidant and anti-inflammatory effects. It also contains an exclusive patented rosehip powder that is proven to soothe joints and is a unique, all-natural and safe ingredient that has been used in Europe for over 10 years.

FERN Coffee:

FERN Coffee contains eight vital vitamins and minerals. This unique mix, which includes Zinc and Calcium, tries to mitigate the undesired effects of excessive caffeine consumption such as calcium deficiency

FERN Slim:

FERN Slim is a food supplement, which contains “fabuless”, a patented dry emulsion made from naturally occurring lipids (palm oil with “galactolipids”). The galactolipid substance derived from oat oil, coats the stomach with palm oil, which is hard to break down. This slows down the digestion process and creates a feeling satiation. Fern Slim serves as a healthier alternative to crash diets and diet pills because it is all-natural.



!

Exhibit 5:

i-FERN Products:

1. FERN-D- affordable, clinically-proven, vitamin-D supplement 2. MilkCa- a bone health supplement that derives its calcium and minerals from milk. It is

easily absorbed and helps prevent bone deterioration. 3. Aurora- beauty and skin cream 4. FERN-ACTIV- supplements that increase energy levels, enhance mental alertness and

boosts immunity.

LT 9B:

John Orlina

Nitin Khanna

Gaayathri Murugan

Iya Nakpil Roxas

Shashank Singh



!

ABS Term paper Final LT9B- 25Nov13€¦ · ABS$Term$Paper$LT-9B$2013% 2"!!FERN!INCORPORATED!...

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