FPG - FINAL

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FORMOSA PLASTICS GROUP



FPG DetailsFPG Details

FPG was a diversified chemical company.FPG was a diversified chemical company.

Founded in 1954 with a capitalization of over Founded in 1954 with a capitalization of over

NT$5million. NT$5million.

FPG has grown over years into largest privateFPG has grown over years into largest private

company in Taiwan .company in Taiwan .

FPG was organized into 3 major corporationsFPG was organized into 3 major corporations

which contains several divisions and more thanwhich contains several divisions and more thana dozen other affiliated companies located ina dozen other affiliated companies located in

Taiwan & abroad.Taiwan & abroad.



FPGFPG -- OrganisationOrganisation

TheThe divisionsdivisions whichwhich werewere organizedorganized

functionallyfunctionally werewere reasonablyreasonably autonomousautonomous..

DivisionalDivisional managersmanagers werewere ableable toto makemake therethereownown plans plans andand arrangearrange allall production production andand

marketingmarketing decisionsdecisions..

ManyMany administrativeadministrative functionsfunctions areare centralizedcentralized

toto taketake advantagesadvantages of of economieseconomies of of scalescale..



FPGFPG -- StrategyStrategy

Being low cost producer in the marketBeing low cost producer in the market

segments.segments.

Automate production process to improveAutomate production process to improve productivity. productivity.

Making sizable investments to improveMaking sizable investments to improve

existing products, quality and efficiency.existing products, quality and efficiency.

Increasing investments to develop newIncreasing investments to develop new

products. products.



Objective ????Objective ????

TargetingTargeting growthgrowth of of companycompany by by continuouscontinuousrefinementrefinement of of existingexisting systemsystem by by

implementationimplementation of of newnew ideasideas..

ImprovementImprovement of of existingexisting products, products, product product

quality,quality, product product efficiencyefficiency andand toto prevent prevent

pollution pollution..



FPGFPG -- FinancialFinancial ControlControl SystemSystem

GroupGroup companiescompanies andand divisionsdivisions werewere measuredmeasured

onon ROIROI basis basis..

DetailedDetailed costcost accountingaccounting andand reportingreporting systemsystem.. CostCost standardsstandards werewere revisedrevised promptly promptly whenwhen

conditionsconditions warrantedwarranted..

PerformancePerformance relatedrelated bonus bonus plan plan werewere alsoalso ananimportantimportant part part of of controlcontrol systemsystem..



FPGFPG -- FinancialFinancial Control SystemControl System

TheThe returnreturn elementelement inin thethe ROIROI measuremeasure

includedincluded allocationsallocations of of allall corporatecorporate expensesexpenses..

TheThe investmentinvestment elementelement of of ROIROI measuremeasure diddid

notnot includeinclude corporatecorporate assetsassets allocatedallocated toto thethe

divisiondivision..



FPGFPG -- Financial Control SystemFinancial Control System

Within the divisions, classification divisionsWithin the divisions, classification divisions

were as follows:were as follows:

Plants and product groups : Profit centres;Plants and product groups : Profit centres; Production processProduction process

and group of machines : Cost centresand group of machines : Cost centres

Non production Non productionoriented units : Expense centresoriented units : Expense centres



FPGFPG -- FinancialFinancial Control SystemControl System

IndirectIndirect costscosts werewere allocatedallocated toto entitiesentities andand

products products usingusing aa varietyvariety of of allocationallocation basis basis..

TheThe companycompany produced produced anan extensiveextensive setset of of performance performance reportsreports onon aa monthlymonthly basis basis..

FPG¶sFPG¶s president president monitoredmonitored performance performance

closelyclosely..

EachEach month,month, hehe metmet withwith 3030 senior senior managersmanagers

inin aa detaileddetailed performance performance toto reviewreview meetingmeeting



S.

No.PLAN NAME SUMMARY

1. Bonus plan based on performance of the

corporation

Bonuses were usually in the range

of 3-5 years of base salary

2. Performance bonus plan (for all people

under section chief level and also for

service batches)

Based on their position & % of their

performance targets reached.

3. Annual bonus plan (for employees at and

above section chief level)

Based on individual performance &

performance of employeescorporation.

4. Incentive awards (for R&D staff) For sharing innovative ideas.

FPG¶s Bonus plansFPG¶s Bonus plans



FPG¶s Bonus plansFPG¶s Bonus plans

In all the above cases top management decidedIn all the above cases top management decided

subjectively the sizes of awards and the basessubjectively the sizes of awards and the bases

on which to give the awards.on which to give the awards.

The factors considered in making theThe factors considered in making the

performance evaluations and their relative performance evaluations and their relative

weightings varied across roles and divisions.weightings varied across roles and divisions.



PERFORMANCE STANDARDSPERFORMANCE STANDARDS

AND EVALUATIONAND EVALUATION

Profits, revenues and cost targets were set up yearlyProfits, revenues and cost targets were set up yearly

in which bottom up planning process was followed.in which bottom up planning process was followed.

The functional plans were reviewed and approved byThe functional plans were reviewed and approved by

division managers, corporate accounting departmentdivision managers, corporate accounting department

and corporate management.and corporate management.

Often the division managers had to revise their plansOften the division managers had to revise their plans

several times before top management approved them.several times before top management approved them.





At the corporate level, the annual plans had proved to beAt the corporate level, the annual plans had proved to be

quite accurate.quite accurate.

Further the corporate accounting department performed aFurther the corporate accounting department performed a

detailed analysis of each division¶s performance.detailed analysis of each division¶s performance.

Division managers were involved in the planning processDivision managers were involved in the planning process

to make some key planning assumptions.to make some key planning assumptions.





Uncontrollable factors for performance evaluation areUncontrollable factors for performance evaluation are::

Prices of products sold (Commodity divisions only).Prices of products sold (Commodity divisions only). Raw material prices.Raw material prices.

Effects of raw material problem.Effects of raw material problem.

Major problems deemed to be outside theMajor problems deemed to be outside themanagement¶s control.management¶s control.




ANDAND EVALUATIONEVALUATION

Because selling prices and raw materialBecause selling prices and raw material

prices considered uncontrollable, managers prices considered uncontrollable, managers

are evaluated on these factors:are evaluated on these factors:

Quality of productsQuality of products

Production quantityProduction quantity

Consumption of materialsConsumption of materials

Production efficiencyProduction efficiency



The Polyolefin DivisionThe Polyolefin Division

The Polyolefin Division¶s sales were notThe Polyolefin Division¶s sales were not

growing due to a shortage of ethylene supplygrowing due to a shortage of ethylene supply

from CPC, the only local ethylene supplier.from CPC, the only local ethylene supplier.

FPG was paying ethylene prices thatFPG was paying ethylene prices that

arranged, 4arranged, 4--5% higher than US prices.5% higher than US prices.

Ethylene also caused financial planningEthylene also caused financial planning problems because the Taiwanese ethylene problems because the Taiwanese ethylene

prices fluctuated significantly. prices fluctuated significantly.



ProblemsProblems

FPGFPG isis facingfacing difficultiesdifficulties of of

11.. ShortageShortage of of qualityquality labour labour..

22.. RisingRising wageswages..

33.. RadicalizationRadicalization of of environmentalenvironmental

movementsmovements..

AtAt timestimes somesome of of thethe centralcentral staff staff andand

divisionaldivisional dealingsdealings hadhad been been confrontationalconfrontational..

TaiwaneseTaiwanese labour labour costscosts werewere risingrising alongalong withwith

thethe country¶scountry¶s higher higher standardstandard of of livingliving



ConclusionConclusion

Shortage of quality labor can be reduced byShortage of quality labor can be reduced by

automation of production process.automation of production process.

Rising wages was due to increased standard of Rising wages was due to increased standard of living in Taiwan which is an uncontrollableliving in Taiwan which is an uncontrollable

economic factor and can be controlled at theeconomic factor and can be controlled at the

corporate level by framing inbound policies.corporate level by framing inbound policies.

Sizable investments should be made to preventSizable investments should be made to prevent

pollution . pollution .



ConclusionConclusion

Sometimes it is not possible to separateSometimes it is not possible to separate

controllable and un controllable factors for controllable and un controllable factors for

evaluation.evaluation.

It can be said now that interactive managementIt can be said now that interactive management

system and good planning can be used to facesystem and good planning can be used to face

the emergent strategy.the emergent strategy.

Managers should plan the resources andManagers should plan the resources and

manpower so well so as to adapt.manpower so well so as to adapt.



THANK YOU ALLTHANK YOU ALL

TEAM-9

Sampath

Nithin Uday R.Venkatesh

03/01/2011

FPG - FINAL

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