SIME DARBY DRAFT II.pdf

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1.0 Abstract This paper intends to create a strategic management plan for Sime Darby Plantation. The management plan also assesses the factors of profit declining in the company and set a few goals to achieve. The management plan addresses the constantly changing business environment, the financial crisis, price fluctuation, weather condition and government intervention into consideration. The tools used to assess the internal and external environment are SWOT, PEST, Porter 5 forces, EFE Matrix, VRIO Framework, IFE Matrix. The result from analysis will reveal how attractive the alternative strategies and enhance the quality of strategic decision of top management before making any decision which strategy that suit best to Sime Darby. Keywords: Palm Oil, Profit decline, Plantation, Environment 2.0 Introduction Demand for palm oil is growing up now. At the moment, many company need palm oil as material for their products, Malaysia and Indonesia addressed as the largest palm oil users in Asia region. Palm oil plantation cannot planted in any place, it must have appropriate climate. Tropical rain forest and peat lands in South East Asia become suitable area for palm oil plantation. Sime Darby Berhad was created in 2007 through a merger of Sime Darby Berhad, Golden Hope Plantations, and Kumpulan Guthrie Berhad Group of Companies. William Sime and Henry Darby was founder of Sime Darby in 1910. In 1981, In November 30th, 2007 synergy drive re-entered the stock market under the name of Sime Darby with a market capitalization of RM 59.5 Billion at the start of the merger process (Sime Darby History, 2013).

Transcript of SIME DARBY DRAFT II.pdf

  • 1.0 Abstract

    This paper intends to create a strategic management plan for Sime Darby Plantation. The

    management plan also assesses the factors of profit declining in the company and set a few goals

    to achieve. The management plan addresses the constantly changing business environment, the

    financial crisis, price fluctuation, weather condition and government intervention into

    consideration. The tools used to assess the internal and external environment are SWOT, PEST,

    Porter 5 forces, EFE Matrix, VRIO Framework, IFE Matrix. The result from analysis will reveal

    how attractive the alternative strategies and enhance the quality of strategic decision of top

    management before making any decision which strategy that suit best to Sime Darby.

    Keywords: Palm Oil, Profit decline, Plantation, Environment

    2.0 Introduction

    Demand for palm oil is growing up now. At the moment, many company need palm oil as

    material for their products, Malaysia and Indonesia addressed as the largest palm oil users in

    Asia region. Palm oil plantation cannot planted in any place, it must have appropriate climate.

    Tropical rain forest and peat lands in South East Asia become suitable area for palm oil

    plantation. Sime Darby Berhad was created in 2007 through a merger of Sime Darby Berhad,

    Golden Hope Plantations, and Kumpulan Guthrie Berhad Group of Companies. William Sime

    and Henry Darby was founder of Sime Darby in 1910. In 1981, In November 30th, 2007 synergy

    drive re-entered the stock market under the name of Sime Darby with a market capitalization of

    RM 59.5 Billion at the start of the merger process (Sime Darby History, 2013).

  • Sime Darby Berhad is a multinational company conglomerate involve in 5 core of business such

    as Plantations, Property, Industrial, Motors, and Energy & Utilities. Sime Darby Plantation (SDP)

    is plantations and agri-business arm of the Sime Darby Berhad which the division areas spread in

    3 countries which are Malaysia, Indonesia, and Liberia. Tan Sri Dato Abdul Ghani Othman as a

    chairman of SDP. The plantations involve the full spectrum of palm oil value chain, which

    divided in two operations. Its upstream operation, which consist of oil plantation & mills, rubber

    plantation & factories, and pink guava with the total 534,245 hectares spread over. Further,

    midstream & downstream operation, which consist of palm oil refineries, kernel crushing plants,

    production of edible oil and fats products, biodiesel production, oleochemicals production, pink

    guava juices, production of value added products from renewable based feed stocks,

    Phytonutrient Tocotrienol vitamin E, composting plants, and biogas plants with the total area

    860,454 hectares spread over. (Sime Darby Plantation, 2013)

    SDP is the largest Certified Sustainable Palm Oil (CSPO) in the world which noted 93%

    produced annual crude palm oil and 94% annual palm kernel production. The highest production

    CSPO in FY 2014 at 2.14 Million MT and followed by palm kernel at 0.49 million MT. In year

    2014 the amount of employed Sime Darby Plantation nearly 80,000 people with separated in

    many areas (Ernst &Young, 2014).

    3.0 Company Profile

    3.1 History

    The company brand has been around for over 100 years and was started in Malacca in 1910. The

    founders of the Sime Darby are Alexander Guthrie, Daniel and Smith Harrison, Joseph Crosfield,

  • William Sime and Henry dEsterre and Herbert Mitford Darby. In year 2007, the three big

    companies such as Sime Darby, Guthrie and Golden Hope are merged and were named Synergy

    Drive. Later, Synergy Drive was renamed as Sime Darby Berhad (Sime Darby Berhad, 2013a).

    From the information in Sime Darby 2014 annual report, Sime Darbys core businesses are

    plantations, property, motor, heavy equipment and energy & utilities. Thats why this company

    is being known as an international conglomerate. The number of employees in year 2014 was

    103,507 people. Sime Darby runs their operation in 26 countries and territories including Taiwan,

    Thailand, Germany, Liberia and many more. Total market capitalization of Sime Darby in year

    2014 is RM58.6 billion. The largest shareholder of Sime Darby is Permodalan Nasional Berhad

    followed by the Employees Provident Fund or EPF and others.

    3.2 Vision

    To be a leading multinational corporation delivering sustainable value to all stakeholders.

    3.3 Mission

    Sime Darby is committed to developing a winning portfolio of sustainable business

    We subscribe good corporate governance and high ethical values

    We continuously strive to deliver superior financial returns through operational

    excellence and high performance standards

    We provide the environment for our people to realize their full potential

  • 3.4 Company structure

    Source from : http://m.kinibiz.com/tag/sime-darby

    4.0 Industry profile

    Local competitors for Sime Darby are Felda Global Ventures and IOI Corporation

    Felda Global Ventures Holding Berhad is a private limited company and operating under

    Federal Land Development Authority. They are engage in 6 main business such as palm

    upstream, palm downstream, sugar, rubber, R&D and agribusiness services and transport,

    Logistics, Marketing and Others. IOI was located in Malaysia and they are committed to

    have a good palm oil practices. IOI was involved in 3 core business which is the plantation

  • that includes the cultivation of palm oil and palm oil extraction, resource-based

    manufacturing and property.

    International competitors of Sime Darby are Wilmar International Limited, Golden Agri-

    Resources Limited

    Wilmar International Limited was located in Singapore and one of the Asia's leading

    agribusiness groups. Business activities almost similar to Sime Darby such as oil palm

    cultivation, biodiesel and production of fertilizer. It was known as a company who provide

    high quality processed agriculture product for food industry. Golden Agri-Resources Ltd is

    the world's second largest palm oil plantation company and it was located in Indonesia.

    Primary activities include palm oil cultivation, palm kernel, palm oil and also involved in

    food industry.

    5.0 Analysis on vision and mission statement

    Vision statement :

    To be a leading multinational corporation delivering sustainable value to all stakeholders

    Based on the analysis of vision statement of Sime Darby, the vision is a good statement. It

    can answer the basic question of what do we want to become. The readability of the vision

    statement is also good.

  • Mission statement :

    Sime Darby is committed to developing a winning portfolio of sustainable business

    We subscribe good corporate governance and high ethical values

    We continuously strive to deliver superior financial returns through operational

    excellence and high performance standards

    We provide the environment for our people to realize their full potential

    Checklist for Nine (9) Mission Statement Components

    No Component Statement

    1. Customer NIL

    2. Product or Services NIL

    3. Market NIL

    4. Technology NIL

    5. Concern for survival,

    growth and profitability

    We continuously strive to deliver superior financial

    returns through operational excellence and high

    performance standards

    6. Philosophy We subscribe good corporate governance and high

    ethical values

    7. Self-concept We continuously strive to deliver superior financial returns

    through operational excellence and high performance

    standards

    8. Concern for public image Sime Darby is committed to developing a winning

    portfolio of sustainable business

    9. Concern for employees We provide the environment for our people to realize

    their full potential

    Table 5.1 : Checklist on nine components in mission statement

  • From the analysis of mission statement, Sime Darby meets five out of nine elements. The

    statement is lack of four components which are customer, product or services, market and

    technology. Sime Darbys mission doesnt mention about who are their customers, what type

    of product or service they want to offer to customer, where does Sime Darby compete in

    market and the current technology. Therefore, Sime Darby should revise and reexamine back

    their mission statement.

    6.0 External environment

    6.1 PESTEL

    PESTEL analysis focuses on the factors at the macro level (the external environment) include

    political, environment, social, technological, economic and legal. In general, all these factors

    have their own sub-factors and its own influence in the business world. According to Haim

    Hilman, basically companies need a good macro environment, like political stability, a growing

    economy, good socio-cultural, technological support the growth of industry, environmental

    issues that support the development of industry and industry-friendly legal. So that, important for

    Sime Darby Plantation to understanding PESTEL analysis.

    Politic

    The first factor of PESTEL is political. Political issues related to the SDP got a charge that the

    industrial oil palm plantations result in deforestation that are not healthy. Development Program

    of the United Nations guidelines also regulates the field. Satellite image of deforestation in

    Borneo has attracted the attention of environmental organizations such as WWF, Greenpeace and

    Rainforest Rescue (Tropical Forest News, 2015). For example, in 1967 and 2000, increasing

  • the total area of about 2000 square kilometers to more than 30,000 square kilometers of palm

    cultivation in Indonesia has become a cause of deforestation and illegal logging is rapidly

    increasing (Wikipedia, n.d.). In addition, Greenpeace states that one of the reasons of

    deforestation in Malaysia and Indonesia is because the process is needed for oil palm plantations,

    the burning of tropical forests for oil palm cultivation has also led to a massive increase in

    carbon leavers produces because large quantities of smoke into the atmosphere and it has become

    one of Indonesia became the third highest transmitter of greenhouse gases in the world (CNN,

    2012).

    Environment

    The second factor is related to the environment. Environment such as forests are vital to all life,

    especially human or animal because the forest is a place of residence, source of opinion, a

    watershed, shelter and so on. Therefore, the increase in palm oil production SDP has caused

    harm or negative impact on tropical forests and wildlife habitats. According to a report by the

    United Nations Environment Programme (UNEP) published in 2007 argued that the main reason

    of rainforest destruction happened in Malaysia and Indonesia are caused by the oil palm industry

    and also believes that perhaps by 2022 the forests in Indonesia by 98 percent would be destroyed

    because illegal logging and illegal, forest fires and the development of oil fields and refineries

    for biodiesel filter (The Environment News of UNEP, 2007). However, in recent years, the SDP

    has shown good commitment in preserving the environment. A variety activity have been

    undertaken by the SDP to preserve of environment and conversation of biodiversity such placing

    a biogas power plant for the purpose of reducing the carbon emission , zero burning replanting of

    the area, it is forbidden to clean the areas with high conservation value (Sime Darby Berhad,

  • (2014b). Furthermore, SDP has also introduced a replacement for petroleum oil biodiesel and

    will be used soon in the future (Malaysian Palm Oil Council, 2012). Therefore, the use of

    biodiesel is important as it can reduce environmental pollution compared to petroleum oil usage.

    Social

    Sime Darby Foundation is one of the SDP initiatives that established to share value and

    contribute to social and environmental. With this, there are various projects that have been

    implemented by Yayasan Sime Darby to contribute to society and the environment, such as the

    School Makeover Project, Project Save Our Waterfall, Bakau initiatives. (Sime Darby Plantation,

    2011a)

    In addition, social factors also can improve people's life and promote the wellbeing especially the

    community of Indonesia. Palm oil is a valuable cash crop and provides a human resource of

    society. It enables a small landholder to participate in the economy that can generate the cash and

    often leads to an increase in local infrastructure. From this, Sime Darby Plantation has improved

    quality of life of community in Indonesia by providing a medical clinic, improving infrastructure

    like highways, schools and houses of religion. So at this time, the improvements have been

    successfully providing more than 15,000 houses for local people (Sime Darby Plantation, 2011b).

    Technology

    For technology factor of SDP is have good cooperation between the two agencies in Malaysia

    and Indonesia, the Malaysian Palm Oil Board's (MPOB) and Indonesian Oil Palm Research

    Institute (IOPRI) will try and provide support to develop good technologies and techniques of the

  • eco-friendly in oil palm. For example, SDP also use a plug best agriculture technique such as

    biological control, pest control and zero burning to support the eco-friendly practices in palm oil

    plantation (Greenpeace International, 2008).

    Economic

    Economic factor is very important for a country because it can be improved or developed

    countries. Sime Darby Plantation greatly affected the Malaysia National Economic primarily

    because it is a major exporter of country and SDP at the fourth place for the largest contributor to

    the national economy because there are huge increasing in expected gross national income (GNI)

    from RM53 billion in year 2009 (Malaysia Economic report 2011). The performance of the oil

    industry in the country is seen to improve with some improvements, especially in the number of

    crude palm oil production of 11.3%, which is 18.91 million tones in 2011 compared to 16.99

    million tons in 2010. Malaysia's Economic Transformation Programme states are now actively

    promoting the country's palm oil after the commodity identified and is believed to be one of the

    national key economic areas (NKEA) to be transformed include the entire value chain and

    farming activities until the product is ready. In addition, the Economic Transformation Program

    aims to achieve a GNI palm oil as RM 178 billion by 2022 (Annual Report of the Economic

    Transformation Programme, 2012).

    Legal

    To successfully conduct business in other countries, SDP has always respected and have a high

    awareness of the law in all the countries they operate. SDP have a strict internal policies and zero

    tolerance for non-compliance standard for their operation. In order for SDP to meet the necessary

  • need of the Roundtable on Sustainable Palm Oil, SDP always regulates the guidelines of

    plantation with committed to operational sustainability (Sime Darby Berhad, 2014b).

    6.2 Porter 5 forces

    Michael E. Porter is the person who has organized the analysis of porter in 1980. The underlying

    concept of this theory is that there are five forces determine the competitive intensity and

    attractiveness of the market. In general, PorterS five forces strength is a simple tool to analyze

    the company, where the power of the business lies is located. It is very useful to understand the

    power of what you have on your current business and making it into consideration. To

    understand where of lies, you can take advantage of the strengths and weaknesses of your

    anticipation. In other words, it's helpful to understand the strengths and weaknesses of the

    company.

    Rivalry among existing competitor : HIGH

    Threat to the rivalry among excisting competitor SDP is quite high, because the limited number

    of production due to resulting its geographic area, while the number of player in the market very

    much. The highest number of player in the market can be separate in 2 part, major and minor

    player. Further, major player as follower close behind to SDP, Sample of this, another big

    plantation company, such as Felda Global Venture in Malaysia and PT. Golden Agri Resources,

    Wilmar International Group, and Perkebunan Nusantara (PTPN) IV in Indonesia. In the other

    hand, minor player played by private sector under corporate and personal keep increasing to

    taking chances and observing developments.

  • Threat of New Entrants : LOW

    Threat to the entry of new competition which is how they can get into the market. In general, the

    market has great profitability will attract new companies. It means that, the probability of new

    entrans keep increase. But, in SDP threat of new entry is quite low. The high of market

    profitability of oil plantation and rubber does not followed to the new entrans competition,

    because of the capital to start up oil plantation company and palm oil plantation mill are very

    high. SDP is a leader in Research & Development (R&D) that always introduce and develop

    their new technology which will be reference to others plantation company. Further, SDP also

    requires a series of approvals and inspections as government policy to ensure that the SDP

    follows the rules of health, safety, and environmental owned by the state. Based on this, the

    purposes are to maintain and built employees and public trust. So, the opportunity of new entrans

    will be diminish.

    Threat of Substitute products or service : HIGH

    Threat of substitutes for palm oil in SDP is high due to several factors. Open palm oil land

    needed extensive forest clearing, it can directly affect the state of the environment ecosystem.

    The production of palm oil often uses more fertilizer abundant waste product that can cause the

    flow of polluting local waterways. Moreover, threats arise from the conversion of peat land

    carbon-rich plantations, peat this terrible enormous release carbon dioxide into the atmosphere

    (wetlands of international Silvius, 2008) due to these factors, the high threat of replacement of

    palm oil. Although the results of palm oil quadrupled from other production, there are many

    other substitutes in the market, such as corn oil, soybean oil, sunflower oil, and olive oil. Among

    the products that substitute products, olive oil most nutritious and healthy.

  • Bargaining power of supplier : LOW

    SDP requires quality raw materials, namely seeds, fertilizers, and soil. To obtain seeds, SDP can

    take from existing ones today. This can reduce expenses, because it does not have to pay extra to

    buy seeds. SDP also can manage the rest of the fruit of which can be used as fertilizers.

    Therefore, SDP can produce seed and fertilizer from their own plantations. SDP make a good

    relationship to the supplier by provide commitment, SDP creates a networking bussiness to the

    future needs and determine how the suppliers provide satisfaction to the goods they need.

    Usually SDP buy from suppliers if they are experiencing a shortage, but this is rarely in the case.

    The nursery SDP, which is involved in this activity are the upstream and downstream are

    involved directly in the market.

    Bargaining power of buyers : LOW

    Demand for palm oil is increase from time to time, but the price has been determined. Increase

    demand cause of many company use oil plantation and rubber as raw material for their

    production. Crude oil prices have been defined and become the rule. SDP make a good

    relationship to the buyers by maintaing trust, SDP provide product according buyers needs and

    necessary technical assistance. Bargaining power of buyers in palm oil is very high, because in

    the market available difference price and quality of product. The major countries as major buyers

    of SDP are European Union, China, and India which has little control over price.

  • 6.3 EFE Matrix

    Table 6.1 : EFE Matrix

    The average total weighted score of EFE is 2.50. So the total weighted score of Sime Darby is

    4.02. Sime Darby can be considered as responding to existing opportunities and threat in its

    industry.

    6.4 Competitive Profile Matrix

    Key External Factors Weight Rating Weighted Score

    Opportunities

    1. Increasing Demand for CPO 0.13 4 0.52

    2. Rising health issue 0.12 3 0.36

    3. Availability of land in Indonesia 0.08 3 0.24

    4. Support by both government 0.11 3 0.33

    5. Emerging biofuel market 0.12 3 0.36

    Threats

    6. Price fluctuation of CPO could lead to lower demand of palm oil 0.11 1 0.11

    7. Land ownership issues 0.07 2 0.14

    8. Stiff competition related to plantation expansion 0.09 2 0.18

    9. Minimum wages enforce by Malaysian government 0.07 2 0.14

    10. Adverse weather 0.10 1 1.64

    TOTAL WEIGHTED SCORE 1.00 4.02

    CRITICAL SUCCESS FACTOR Weight Rating Score Rating Score Rating Score

    Product Quality 0.13 4 0.52 2 0.26 3 0.39

    Corporate social responsibility 0.12 4 0.48 3 0.36 2 0.24

    Strategic alliance and partnership 0.10 4 0.40 2 0.20 3 0.30

    expansion 0.08 3 0.24 1 0.08 2 0.16

    market share 0.09 4 0.36 2 0.18 3 0.27

    geographical coverage 0.07 4 0.28 2 0.14 3 0.21

    financial stability 0.10 4 0.40 2 0.20 3 0.30

    customer loyalty 0.09 4 0.36 3 0.27 2 0.18

    product development 0.10 3 0.30 1 0.10 2 0.20

    environmental friendly 0.12 4 0.48 3 0.36 2 0.24

    TOTAL WEIGHTED SCORE 1.00 3.82 2.15 2.49

    SDB IOI GAR

  • Table 6.2 : CPM Matrix

    For competitive profile matrix, Sime Darby is at first place followed by Golden Agri-

    Resources and IOI. This analysis reveals that Sime Darby is stronger than other competitor

    almost in all areas except for the expansion and product development which are not at fully

    efficient.

    7.0 Internal environment

    7.1 IFE Matrix

    Table 7.1 : IFE Matrix

    The average total weighted score of IFE is 2.50. So the total weighted score of Sime Darby is

    3.82. Sime Darby can be considered to have a strong internal position.

    Key Internal Factors Weight Rating Weighted Score

    Strengths

    1. Diversified business activities 0.13 4 0.52

    2. World largest listed oil palm plantation 0.12 4 0.48

    3. Environmentally friendly practices 0.08 3 0.24

    4. High skilled workers & talented team 0.07 3 0.21

    5. Top development in bioeconomy and biodiesel 0.10 3 0.30

    Weakness

    6. Declining in revenue and PBIT 0.10 1 0.10

    7. Shortage of workers in plantation industry 0.12 1 0.12

    8. Depends heavily on upstream operation 0.10 1 0.10

    9. Lack of skilled plantation labor 0.11 2 0.22

    10. Young field in Liberia produce no output and unstability in community 0.07 1 1.53

    TOTAL WEIGHTED SCORE 1.00 3.82

  • 7.2 VRIO Framework

    Resources and

    Competencies

    Value Rarity Imitability Organizati

    on

    Competitive

    Advantage

    Brand Name Yes Yes Yes Yes Sustained

    Research and Development Yes No

    No

    Yes

    Parity

    Certified sustainable palm

    oil

    Yes

    Yes

    Yes

    Yes

    Sustained

    Diversified Businness

    Activity

    Yes

    Yes

    No

    Yes

    Temporary

    Table 7.2 : VRIO Framework

    Brand name

    The first resource identified in Sime Darby is the brand name. Sime Darby Plantaton is

    consistently known as world's largest plantation. So SDP brand is valuable and quite strong

    within their rivals in the industry. In Malaysia, Sime Darby Plantation is the largest listed

    plantation company. Sime Darby brand can be considering as rare because when people thinking

    of palm oil, Sime Darby is typically the first company that comes to their mind. Brand name is

    imitable because not all palm oil company can compete with them due to well-known brand

    name in the entire world. There are high investment made and commitment to maintain the

    company's reputation for a long time. Besides that, the brand name owned by Sime Darby also

    had emulated by other competitors. Sime Darby uses brand value when entering the foreign

    markets to dominate their market share. So the company can organized this resource very well.

    Therefore, the impact of this resource is sustainable competitive advantage.

  • Research and development

    The second resource identified in Sime Darby Plantation is research & development activity. In

    order for Sime Darby Plantation to face the challenges of the palm oil sector is make a

    breakthrough in biotechnology and innovation investment (Sime Darby Plantation, 2014). As an

    industry leader in research and development, there is a high demand for existing products to be

    replace by healthier products. Biodiesel is one of the valuable findings that take many years

    before it was introduced to the public. So research & development activity can be considered as

    valuable because it also helps SDP in sustain their business and obtain the competitive advantage

    over other competitors. The resource is not rare because other competitor such as Golden Agri-

    Resources and Wilmar International Limited also spend huge money on the research to come out

    almost similar product at market. However, this resource is not considered as imitable because

    other palm oil company with good financial records could copy the strategy of SDP. SDP is able

    to exploit their market share by conduct an intensive research to improve their product and

    performance. SDP can organize this resource very well. Therefore, the impact of this resource is

    a competitive parity.

    Certified sustainable palm oil

    SDP is also highlight as a certified sustainable palm oil producers in the world and produce 2.4

    millIion tones of CPO annual output (Sime Darby Plantation, 2014). This resource is valuable

    because it allowed SDP to control large market share. These resources also can be considered as

    rare because it has always being observed by other competitor in term of standard palm oil

    production. This resource also considered as imitable because there are a lots of requirement

    which must be met and continuous certification assessment by regular body. Besides that, not all

  • competitors are able to comply with the requirement all the time like SDP. Obviously, SDP can

    organize this resource very well. Therefore, the impact of this resource is sustainable competitive

    advantage.

    Diversified Business Activity

    Sime Darby involved in 5 core sectors which are plantation, industrial, equipment, motors,

    property and energy & utilities. Sime Darby Plantation is divided into 2 business activity, the first

    downstream activity, and the second upstream activity. It is valuable because diversified business

    activity can reduce the business risk because company is not depending on one sector to generate

    the revenue. This resource is considered as rare because it helps in sustained their competitive

    advantage by having a highly diversified portfolio in market. This resource is not imitable,

    because other competitor can diversified their business like SDP if they are provided enough

    capital. SDP can organize this resource very well. Therefore, the impact of this resource is

    temporary competitive advantage.

    8.0 Strategy analysis and Choice

    8.1 SWOT Matrix

    Strategic analysis of Sime Darbys performance using the SWOT matrix.

    SWOT analysis is a tool used to have a better understanding of the Sime Darbys business. Most

    organizations use a SWOT analysis to make a strategic planning and it can be applied to

    individual organization, make a comparison between two companies and evaluate several

    companies (Helms & Nixon, 2010). The purpose of strategic planning is to ensure that the

  • employees and stakeholder are working to achieve the goals. Research by Wilson & Eilertsen

    (2010) has shown that organization that use the strategic planning in decision making during the

    economic crisis have a positive outlook on the future prospect of companys profit and growth.

    However, strategic planning will not give any benefit if it does not involve the financial

    sustainability and the situation of the company at that time. Strategic planning will be less

    effective if the organization fails to identify the obstacles that exist. It will become a stumbling

    block to the organization to be successful.

    Besides that, SWOT analysis has been used in identifying the main strategies by the bank to

    control foreign currency exchange market (Shariatmadaria, Sarfaraz, Hedayat and Vadoudi

    2013). A recent study by Boone (2015) has shown that SWOT is used to give a clear picture of

    the product and the service in the aspect of the competition and its external environment by

    identify the organization's strengths, weaknesses, opportunities and threats in order to improve

    the quality of service delivery of blended learning. For developing a benchmarking on supply

    chain, SWOT analysis can provide information to identify the barriers that exist for purpose of

    technology transfer (Kumar, Luthra, & Haleem, 2015). SWOT analysis can identify the potential

    crisis and give an early warning to the business. It is a first step in developing an effective

    strategy in organization. The positive and negative factor inside and outside of organization that

    could affect the performance are being view. It can help in identifying the competitive advantage

    by matching the strength and opportunity. By identifying the competitive advantage, it provides

    a new way for the organization to outperform their competitor.

  • However, results of SWOT analysis may be viewed from different perspectives. Some

    organization may see the arrival of new competition in the market is a threat to the business but

    for other organization it is the opportunity to explore a new world. As Shariatmadaria et. al (2013)

    advised, SWOT factors are not independent of each other, but it is clear that there is a

    relationship between them(p.887). Chaghooshi, Fathi, Omidian and Zarchi (2011) also agree

    that SWOT factor are not independent but the dependency on this factor can be determined from

    the result of internal and external environmental analysis. By having a better understanding of

    the factor that affect the business, it helps the organization to predict the trends and develop a

    strategy to achieve the goals.

    STRENGTH WEAKNESSES

    Diversified business activities

    World largest listed oil palm

    plantation

    Top development in bioeconomy and

    biodiesel industry.

    Environmental friendly practices

    High skilled and talented team

    Declining in revenue and PBIT

    Shortage of workers in plantation

    industry

    Depends heavily on upstream

    operation

    Lack of skill plantation labor

    Young field in Liberia produce no

    output and instability of community

    OPPORTUNITY THREAT

    Increasing Demand for CPO

    Rising health issue

    Availability of land in Indonesia

    Support by both goverment

    Emerging biofuel market

    Price fluctuation of CPO could

    lead to lower demand of palm oil

    Land ownership issues

    Stiff competition related to

    plantation expansion

    Minimum wages enforce by

    Malaysian goverment

    Adverse weather

    Table 8.1 : SWOT Matrix

  • STRENGTH

    i) Diversified business activities

    Sime Darby involved in 5 core sectors which are plantation, industrial, equipment, motors,

    property and energy & utilities (Sime Darby Berhad, 2013). The company does not rely on one

    type of business only to make a profit and maintain the business. Plantation sector was in third

    place in contributing the revenue in year 2014 and the first and second place was obtained by the

    motors and industrial sector (Sime Darby Berhad, 2014b). Research by Jiang, Ma, and An (2013)

    has revealed that by diversify the business over the emerging markets, there are huge benefit that

    can be gained for pursuing this type of strategy. Additionally, Mitton and Vorkink (2010) found

    that diversification can affect the companys risk by influence on stock prices and expected

    return. Therefore, the diversification strategy used by the Sime Darby by involving in five

    sectors of business can result in decreased risk of operation.

    Sime Darbys business spans include the palm oil industry from the upstream to downstream

    operation. Recently, Sime Darby has a new refinery in Pulau Laut Kalimantan in Indonesia and

    they have expected the contribution to be higher with this new facility, and for the industrial

    sector, Sime Darby involved in mining sector in Australia (Sime Darby Berhad, 2014b). In year

    2011, Sime Darby has acquired a portion of the former Bucyrus distribution business where this

    is a chance to strengthen their presence and provide product and service to customers who

    involved in the mining sector in Australia (Sime Darby Buys Bucyrus Distribution Business,

    2011). Sime Darby also a supplier of a heavy equipment and engine, provide a rental services,

    and purchased second hand machine (Sime Darby Industrial, 2013). For the motor sector, Sime

  • Darby got a place of KIA assembly and distribution in Taiwan, and involved in BMW operations

    in Brisbane, Australia and Vietnam (Sime Darbys Proposed Acquisition of NBPOL to Enhance

    EPS, 2015). For property sector, the higher profit contribution was generated from the Taman

    Pasir Putih and City of Elmina (Sime Darby Berhad, 2014b). Sime Darby were listed in one of

    the countrys top three property for the award of property excellence awards in 2014 and end up

    with the second best place in Malaysia (Sime Darby Property Secures Top Property Developers

    Award for the Fifth Time, 2015)

    ii) World largest listed oil palm plantation

    Sime Darby is the largest listed plantation company in Malaysia. Sime Darby Plantation is able

    to produce about 2.47 million tons which is 5% from the worlds crude palm oil annually (Sime

    Darby Plantation, 2014b). The palm oil has many uses so the plantation sector is capable of

    achieving high profit with appropriate strategy. Currently, the plantation sector generates

    revenue RM 10,953.5 million in year 2014 which equal to 24.9% from total of contribution

    revenue by all segments and with market capitalization of RM58.6 billion (Sime Darby Berhad,

    2014a). High market capitalization will attract the attention of investors because it gives an

    indication that this organization has a high value in market. However, this factor alone cannot be

    used in evaluating a business because the companys debt is not included in market capitalization

    (Kennon, 2015).

    Sime Darby plantation focus on research & development to improve the production of palm oil

    and to explore the biodiesel industries (Sime Darby Plantation, 2013a). For year 2014, the oil

    extraction rate has increased slightly compared to the year 2013 and has planted more oil palm

    tree in Liberia (Sime Darby Berhad, 2014b). Nowadays, land is a limited and it is a valuable

  • resources. However, the demand for land is keep growing and cause the price of land to increase

    too. Therefore, the production of palm oil needs to be improved in order to maximize the profit

    by using the limited resources. Thus, the establishment of Research & Development is to achieve

    those objectives.

    By holding a title of worlds largest palm oil producer, Sime Darby can get an advantage of

    economic of scale. This will help in the process of negotiating to get the best price. However, it

    does not depend on the size of the business alone. There are also other factors that should be

    considered too in order for Sime Darby to gain the advantage of economic of scale. This

    statement are consistent with the finding in Soirinsuo and Mkinen (2011) where they found that

    economies of scale exist in timber haulage sector but it depends on other factors as well. It

    depends on the profit of the company, works are performed by employees of the company itself

    and whether they use the resources wisely.

    iii) Top development in bioeconomy and biodiesel industry.

    Verdezyne and Sime Darby Berhad are involved in investment of $48 million for the purpose of

    technology development of Sime Darby Renewables and also invest another $30million in return

    for a 30% stake in Verdezyne company (Lane, 2014). Besides that, Sime Darby also involved in

    the operation of biodiesel. Sime Darby has taken the first step by introducing biodiesel and

    believed biodiesel will be used in the future soon (Malaysian Palm Oil Council, 2012). This

    statement makes sense because nowadays people are more concerned about the impact on the

    environment and the use of biodiesel is less polluting than petrol. When people began to realize

    the important of using biodiesel and the impact to the environment, the demand of the biodiesel

    will increase too.

  • iv) Environmental Friendly Practices

    Sime Darby is committed to have a best practice in plantation sustainability. Sime Darby

    believes that in order to maintain the business in the long run, the environment must be preserved.

    The effort can be seen through the Sime Darbys annual report where there are many initiatives

    that demonstrate their concern for the environment. One of the practices is focusing on carbon

    emission from agriculture.

    Sime Darby placing a biogas power plant for the purpose of reducing the carbon emission and

    the performance in 2014 was quite good in which Sime Darby managed to reduce 11% in

    plantations upstream carbon emission. Additional, Sime Darby show a strong commitment to

    conserve the forest. Some of the effort to conserve the forest is zero burning for areas replanted,

    prohibited from creating a new plant on peat land and also prohibited to clean the areas with high

    conservation value (Sime Darby Berhad, 2014b). Besides that, Sime Darby also preserves the

    ecosystem by held a program such as the plant a tree program and the Cirey Island wildlife

    sanctuary (Sime Darby Plantation, 2013).

    v) High skilled and talented team

    Sime Darby provides safety training and safety leadership training to its employee to reduce

    possibility of accidents at workplace. The effectiveness of these activities can be seen through

    Sime Darby annual report 2014 in which the lost time injury frequency rate showed a decline

    from year 2011 until year 2014. To retain skilled workers, Sime Darby monitors their

    performance two times in a year and identifies their weaknesses so that they can plan an action to

    close the gaps of the performance of each worker. Sime Darby also emphasizes on continuous

    learning by provide a leadership skill development program and excellent customer service to

  • their employees. Currently, the total number of employees in Sime Darby for year 2014 is

    103,507 people (Sime Darby Berhad, 2014b).

    WEAKNESSES

    i) Declining in revenue and PBIT

    There are many reasons why revenue is decline. Revenue has been decline from the year 2012

    until year 2014. One of the reasons is because of the commodity price is keep changing. Palm oil

    prices may rise sharply when other country such as Indonesia impose tax on the crude palm

    export but it is only temporary (Palm oil falls, 2015). As mention by Abdulla, Arshad, Bala,

    Noh, & Tasrif (2014), the purpose of impose tax on export is to raise the government revenue,

    encourage the downstream operation and any changes on the export tax rate could give effect to

    Malaysia and Indonesia. For example, if the rate of export tax in Indonesia is lower than

    Malaysia, then other countries would buy from Indonesia because the price is cheaper. The crude

    palm oil export tax are expected to increase to 4.5% starting on April 2015 and is believed to

    affect the volume of crude palm oil export when the importers switched to Indonesia that offer a

    cheaper price (CPO export tax tax to go up to 4.5% in April, 2015). This situation may reduce

    the volume of purchasing of palm oil from Malaysia and affect the financial performance of

    organization.

    Revenue recorded for Sime Darby in year 2012 is RM46,630.50 million, RM46,109 million in

    year 2013 and RM43,908 million in year 2014 (Sime Darby Berhad, 2014b). This situation

    clearly shows that Sime Darby has experienced a decline in revenue within these 3 years. If no

    changes we made by the top management of Sime Darby towards the strategy, the revenue will

    continue to decline for the next year. Profit before interest and tax or PBIT also declined by 9%

  • in year 2014 compared to the previous year. Lower plantation revenue is one of the factors that

    contribute to this decline.

    ii) Shortage of workers in plantation industry

    Labors can be considered as the backbone of the company to continue the operation. It is easier

    to blame the workers who do not have the skills compares to the labor shortages situation. If

    demand for palm oil increase in market, the demand for workers employed in this sector also

    increased too. Normally, the presence of foreign workers will fill the shortage of workers in the

    local market but it will cause a problem when all these workers return to their respective

    countries. Due to a shortage of workers, Malaysia planters face difficulties in making the

    decision to pay more in keeping their employees (Raghu, 2014). Labor shortages will cause

    delays in the process of cutting oil palm fruit and leaving fruits to root. This will result in low

    quality of palm fruit. Other reason why many Indonesian workers returning to their countries is

    due to better salaries offer to the planters in Indonesia (Chooi, 2012).

    iii) Depends heavily on upstream operation

    Sime Darbys upstream operation include the oil palm plantation where there are total of 525,290

    hectares planted, estates management, milling of fresh fruit bunches, pink guava and for the

    downstream operation, Sime Darby involved in the manufacture of oil and fat products, biodiesel

    based on palm oil, produce pink guava juice, biogas plant and oleochemicals (Sime Darby

    Berhad, 2014b). Some of the downstream activities require a different skills and knowledge

    compared to the upstream activities. For example, SDP still hire an Indonesian workers who do

    not have higher education to cut the oil palm fruit while for biodiesel processing, Sime Darby

    require a professional workers. This situation is testing the ability of companies to adapt with the

  • changes in environment and changes in labor market. Besides that, the Performance Management

    and Delivery Unit have made a statement and asked on the Malaysia plantation companies to

    engage in downstream activities (Choo, 2014).

    Depends heavily on plantation will bring a problem if the palm oil prices fall sharply. Sime

    Darby will only get a higher return from this sector when palm oil prices are high in market.

    However, among the main causes of the decline of revenue in year 2014 is because of sales

    volume of crude palm oil is weak, lower fresh fruit brunch, delay in peak cropping and dry

    weather (Sime Darby Berhad, 2014b).

    While upstream activities shows a declining in revenue, for the midstream and downstream

    operation, profit has increased by 40% compared to the year 2013 and this contribution has come

    from mills, new refinery in Indonesia and sales from segregated and traceable products (Sime

    Darby Berhad, 2014b). The midstream and downstream activities have a high potential for

    generating high revenue.

    iv) Lack of skilled plantation labor

    After Indonesian introduced an attractive wages to their citizen, there is a huge reduction in the

    number of workers who work in Malaysia. This is because the minimum wages in Indonesia is

    now almost equal to the minimum wages in Malaysia, and Sime Darby also provides other

    benefit such as house, medical services and current daily needs such as oil and rice in order to

    retain the Indonesian skilled workers (Chew, 2014). Normally, Sime Darby hiring workers from

  • Indonesia, Myanmar, Nepal and Bangladesh for their plantation sector (Choo, 2014). One of the

    reason why Indonesian workers has become the priority instead of other countries is because

    they are faster in cutting, harvesting and collecting oil palm fruit. The downsizing of Indonesian

    workers will affect the company performance especially in terms of quantity of palm oil that can

    be collected as local workers have less interest to work in plantation sector.

    v) Young field in Liberia produce no output and instability of community

    There is a high uncertainty in doing the business of plantation sector in Liberia. Based on the

    information in Sime Darby annual report in year 2014, total planted of oil palm in Liberia is

    10,035 hectare. However, this cultivation area does not give any benefit to Sime Darby because

    the trees are still in the immature stage. Additional, there is a community issue involving Sime

    Darby and Liberia (Siakor, 2012). At first, the community is agree to the governments proposal

    but changed mind at last minute so the impact of this instability in Liberia is most of the citizen

    are not working and forest have been cleared and planted with palm oil. Thus, this issue will

    affect the Sime Darby to implement their strategies in future.

    OPPORTUNITIES

    i) Increasing Demand for CPO

    Based on the source from MPOB, we can analyze that percentage of exports since 2010, the

    percentage of PPO export as compared to CPO production was at 98.1% with CPO production at

    16.99 million tonnes and PPO export of 16.66 million tonnes. In year 2011, the PPO export of

    17.99 million tonnes and CPO production at 18.91 million tonnes with a percentage of PPO

    export was at 95.1%. In 2012, CPO production showed that 18.79 million tonnes and PPO export

    of 17.56 million tonnes or represented 93.5% out of CPO production. Annual report 2014 also

  • showed that 5.8% increase in crude palm oil for year 2014 compared to the year 2013. Therefore,

    it clearly defined that CPO price behavior more independent on world demand factors as

    compared to the domestic factor itself. Actually, there has a reason why demand for CPO was

    increasing. It is because of the cost of competing vegetable oils such as soy oil, sunflower oil and

    maize oil. When the producer of this vegetarian oil lowers their production because of bad

    weather, so will help increase of CPO price.

    ii) Rising health issue

    Nowadays, we realize the rising of health issue because of the wrongly feeding method. People

    not concern about their nutrition. Every day the mortality rate caused by health problem occur.

    So, because of that, people should practice how proper nutrition. Firstly, they should know what

    kind of food that contributes to become a health issue. When they know about it, they will think

    about how to reduce the risk. Therefore, palm oil is the best way to take in their nutrition.

    Actually, the palm oil is likewise an important source of calories and a food staple in the poor

    communities. Still, particularly in relation to cardiovascular disease, the controversial and open

    to ongoing research are the overall health impacts. The reason why the palm oil consumed as a

    food because of to more oxidized rather than in the fresh state. Also, the oxidation appears to be

    responsible for the health hazard connected to the consuming the palm oil. (Wikipedia, 2015)

    Costa Rica was conducted the study that linked to palm oil and cardiovascular disease which

    indicated that replacing palm oil in cooking with polyunsaturated non-hydrogenated oils could

    reduce the risk of heart attacks, and a 2011 analysis of 23 countries which showed that for each

    kilogram of palm oil added to the diet annually there was an increase in ischemic heart disease

    deaths (68 deaths per 100,000 increase) though the increase was much smaller in high-income

  • countries. However, results from several studies indicate that palm oil provides health benefits,

    including increasing good cholesterol and reducing bad cholesterol, and that consumption of

    palm oil does not increase the risk of cerebrovascular disease (Wikipedia, 2015).

    All vegetable oils contain natural vitamin E in compounds such as tocopherols and tocotrienols.

    Palm oil has the richest known content of natural tocotrienols. Studies have shown that

    tocotrienol helps lower bad cholesterol levels and protects the brain against diseases. Palm oil is

    also high in carotenoids, a rich source of vitamin A. Carotenoids can be stored in the body and be

    converted to vitamin A when needed. Vitamin A stimulates the immune system and controls the

    growth and functions of body tissues. Red palm oil, or mildly refined palm oil, has seventeen

    times more carotenoids than carrots. Palm oil is cholesterol-free and fat free. It is composed

    mainly of triglycerides of fatty acid with a balanced composition between saturated and

    unsaturated fatty acids. The latter comprises 40% monounsaturated and 10% polyunsaturated fat

    (Sime Darby Berhad, 2014b). Therefore, the consumption of palm oil gave the benefit to the

    people that care about their health indirectly lead the demand of palm oil increase.

    iii) Availability of land in Indonesia

    Minimums Plantation was represented of Sime Darby Plantation in Indonesia, which was set up

    in April 2001 and headquarters in Jakarta. It has a presence in eight provinces with a total land

    bank of 280,274 hectares out of which 203,845 are planted with oil palm, representing

    approximately 73% of the companys total planted area (As of January 2015).Besides, with the

    71 estates and 23 SOUs (Strategic Operating Units) located in Sumatra, Kalimantan and

    Sulawesi, Minamas upstream operations produced 4.145 million metric tonnes of fresh fruit

    bunches (FFB) and 927,803 metric tonnes of crude palm oil in the 2013/2014 financial year. Out

  • of the 25 PTs in Indonesia, 24 PTs have received the Roundtable on Sustainable Palm Oil (RSPO)

    certification, while the rest were audited for certification. Today, Minamas Plantation produced

    869,912 metric tonnes of certified sustainable palm oil and 184,815 metric tonnes of certified

    sustainable palm kernels and the total of certified planted hectares are 201,476 Ha (Sime Darby

    Plantation, 2014c). So, with the availability of land in the Indonesia were given the opportunity

    for the Sime Darby Plantation to increase their profit in this sector.

    iv) Support by both government

    Based on annual report 2014, it showed the operational statistic that proved not only Malaysia

    that makes a production in this sector, but the support of the other government such as Indonesia

    and Liberia. As we know, Sime Darby Plantation is one of the agribusiness arms of the Sime

    Darby Group. As an integrated plantation company, Sime Darby Plantation is involved in the full

    spectrum of the palm oil value chain. The predominantly of oil palm cultivation, harvesting and

    milling is the current Upstream operation that spread across 534,245 hectares of plant areas in

    Malaysia, Indonesia and Liberia. The Companys land bank currently stands at 860,454 hectares

    across these three countries (Malaysia, Indonesia and Liberia). While, the downstream business

    involves the manufacturing of oils and fats products likes Oleochemicals, palm oil-based

    biodiesel and other palm oil derivatives, as well as the sales and marketing activities of these

    products. Alongside oil palm, the Company is also involved in other agribusiness activities, the

    cultivation of rubber as well as in the consumer goods sector, producing cooking oil and fruit

    juices, among others (Sime Darby Berhad, 2014b).

    Sime Darby Plantation is the worlds largest producer of Certified Sustainable Palm Oil (CSPO).

    It is a leader in plantation sustainability, with 93% of its annual crude palm oil and 94% of its

  • annual palm kernel production RSPO certified in FY2014. As a co-founding member of the

    RSPO, the Plantation Division is committed to implementing the independent, approved

    certification schemes in its Upstream (estates and mills) and downstream (refining) operations

    Worldwide. Plantation Division employed nearly 80,000 people in FY2014 (Sime Darby, 2014b).

    v) Emerging biofuel markets

    The important fact here is biofuel market is vital for economic growth. This factor has led to an

    increased demand of biofuel around the world. According to Kim and Isma'il (2014), one of the

    reasons why the demand for biofuels increased because this sector will create the job

    opportunities, assess to new markets, and also contribute to the improvement of agriculture

    technology. In extending this statement is that biofuel industry requires many workers to run

    their operation for examples workers in production position and management position. Thus, it

    will enhance the income opportunity for the citizen in that country. Kim and Ismail also stated

    that biofuel markets give a positive impact to rural area and promote a good local health

    environment. It is because some of the priorities in the policy of biofuel production are to reduce

    the level of greenhouse gases thus giving a positive impact to environment.

    THREATS

    i) Price fluctuation of CPO could lead to lower demand of palm oil

    There are several of the largest importers of palm oil such as China, India and Europe. The euro

    zone debt crisis and slowing food demand in India caused by the crisis that arises like global

    economic downturn and China will lead to a decrease demand of palm oil as these countries

    would spend less on imports during these times. The surplus of supply of palm oil in palm oil

  • producing countries like Malaysia and Indonesia caused of less demand and it will push the price

    of crude palm oil down.

    The price of crude palm oil affected because of import policies and laws of countries that import

    crude palm oil. Take an Australia as an example. They offered a measure to enforce labeling

    palm oil as a product ingredient instead of veggie oil. If this bill was reached, consumers who

    believe that palm oil is bad because palm oil plantations have led to deforestation, could easily

    avoid products that contain palm oil. This could lead to lower demand for palm oil-based

    merchandise, thus requiring the price of crude palm oil. (Futures, o. p., 2014)

    ii) Land ownership issues

    One of the main issues that faced by Sime Darby Plantation is a land ownership plantation. The

    issue in relation to the plantation area in Indonesia is conflict with local communities with regard

    to the ownership of the land caused by lack of clarity as to land status and the legal ownership of

    land. Despite effort taken by the government, communities and other stakeholder, this land

    problem has been a classic issue for years in Indonesia. Investor, therefore, will need to perform

    a careful check on land status prior to acquiring a piece of land to avoid possible land problems

    in the future.

    Another land issue is the limitation on the ownership of the land area of a plantation company.

    The Ministry of Agriculture through Article 12 of its Regulation

    No.26/Permentan/OT.140/2/2007 regarding Guidance of Licensing Plantation Business

    stipulates that a plantation company can have a maximum of 100,000 hectares in plantation area

    or twice that if the plantation area is located in Papua. In practice, however, the limit is subject to

    condition, especially in the case of a new plantation company needing to acquire a piece of land

  • for its plantation area. This is due to another regulation issued by the State Minister of

    Agriculture / National Land Agency, No.2/1999 in year 1999, regarding Location Licenses.

    Based on the above National Land Agency regulation, a plantation company must obtain a

    Location Licenses from the Land Office prior to acquiring land for the plantation area. This

    regulation, however, stipulates that a palm plantation company can only own / control a

    maximum of 20000 hectares in one province or twice that in Papua province and 100000

    hectares throughout Indonesia.

    Consequently, a plantation company that operates in one province can only have maximum

    20000 hectares based on regulation No.2/1999 instead of 100000 hectares is based on regulation

    No.26/Permentan/OT.140/2/2007. Furthermore, the limitation in regulation No.2/1999 applies

    not only to individual palm plantation companies, but also to other palm plantation companies

    which constitute a group of companies (Rianto, 2010)

    iii) Stiff competition related to plantation expansion

    Sime Darby faces an intense competition in market. Sime Darby has to compete with IOI who is

    also committed to have a good oil palm practices. Felda Global Venture also operating in highly

    diversified business such as palm upstream and downstream, rubber and sugar. International

    competitor of Sime Darby is the Golden Agri-Resources which is located in Indonesia. This

    competitor also put pressure on Sime Darby by having a similar operation and also put pressure

    of who have a better practice in environmental responsibility.

    iv) Minimum wages enforce by Malaysian government

  • Enforcement of minimum wages in Malaysia will increase the operational cost of Sime Darby. It

    means that, Sime Darby have to pay higher salary to their estate workers if previously they pay

    low wages to their workers. According to Cheah (2015), the enforcement of minimum wages

    could influence the production cost to rise as much as 5% and decreasing in earning as much as

    10%. So the minimum wages could be a threat to Sime Darby if the contributions and the

    quality of work provided by the employee are still at the same level despite an increase in total

    salary. This statement is consistent with the finding in Carpio, Nguyen, and Wang (2012) where

    they used firm-level data from the Indonesia survey and finds that minimum wages have a

    negative effect on employment and could lead to job losses. However, they also stated that the

    negative impact depends on the size of company and the impact is felt more by small companies

    instead of big company and workers who have less education will be effected when the

    enforcement of minimum wages is take place. Even though Sime Darby is one of the big

    company, but most of their estate workers are an ordinary person and have low education so the

    workers will also be exposed to the loss of jobs.

    v) Adverse weather

    Adverse weather condition could affect the number of harvesting and the growth of palm trees.

    According to US Department of Agriculture (2015), flood in Malaysia recently has affected the

    production of crude palm oil. It also stated that the production of crude palm oil has been

    declining total of 15% in December 2014. Kelantan, Terengganu and Pahang are not the largest

    contributor to the palm oil production but have been the most affected by this flood. Based on

    the information in US Department of Agriculture, the flood has delayed the collection of palm

    fruit and transportation infrastructures are damage. This situation will lead to low quality of palm

    fruits thus also affect the rate of yield.

  • 8.2 SWOT Analysis

    INTERNAL

    FACTORS

    EXTERNAL

    FACTOR

    STRENGTH (S) WEAKNESSES (W)

    S1 Diversified business

    activities

    W1 Declining in revenue

    and PBIT

    S2 World largest listed oil

    palm plantation

    W2 Shortage of workers in

    plantation industry

    S3 Environmentally friendly

    practices

    W3 Depends heavily on

    upstream operation

    S4 High skilled workers &

    talented team

    W4 Lack of skilled

    plantation labor

    S5 Top development in

    bioeconomy and biodiesel

    W5 Young field in Liberia

    produce no output and

    unstability in community

    OPPORTUNITY (O) STRATEGY SO STRATEGY WO

    O1 Increasing demand for

    CPO All activities, programs

    and products are being

    publicize for social

    awareness and to promote

    sustainability

    (S3 and O3)

    Conduct an intensive research and development

    to produce high quality of

    biofuel

    (S5 and O5)

    Build strong alliance with Indonesia

    (W1, O3 and O4)

    Provide additional training for the labours

    (W4 and O1)

    calloboration with local and outside employment

    agency

    (W2 and O4)

    O2 Rising health issue

    O3 availabity of land in

    Indonesia

    O4 Support by both

    goverment

    O5 Emerging biofuel market

    THREAT (T) STRATEGY ST STRATEGY WT

    T1 Price fluctuation Acquirer Indonesian plantation by buying their

    shares and make them as

    subsidiary

    (S2, T2 and T3)

    Explore new market and

    land availability to other

    South East Asian

    countries such as Thailand

    and Cambodia

    (W5 and T2)

    Retain workers by

    including better

    compensation, bonus,

    health & life insurance

    (W2 and T4)

    T2 land owvership issues

    T3 Stiff competition related

    to plantation expansion

    T4 minimum wages enforce

    by malaysia government

    T5 adverse weather

    Table 8.1 : Alternative Strategy based on SWOT Matrix

  • 8.3 QSPM

    Table 8.2 : QSPM

    bonus & insurance

    Key External Factors Weight AS TAS AS TAS AS TAS

    Opportunities

    1. Increasing Demand for CPO 0.13 4.00 0.52 3.00 0.39 2.00 0.26

    2. Rising health issue 0.12 - - - - - -

    3. Availability of land in Indonesia 0.08 4.00 0.32 2.00 0.16 1.00 0.08

    4. Support by both government 0.11 4.00 0.44 3.00 0.33 1.00 0.11

    5. Emerging biofuel market 0.12 - - - - - -

    Threats

    6. Price fluctuation of CPO 0.11 3.00 0.33 1.00 0.11 2.00 0.22

    7. Land ownership issues 0.07 3.00 0.21 4.00 0.28 2.00 0.14

    8. Stiff competition related to plantation expansion 0.09 3.00 0.27 4.00 0.36 2.00 0.18

    9. Minimum wages enforce by malaysian goverment 0.07 2.00 0.14 1.00 0.07 4.00 0.28

    10. Adverse weather 0.10 - - - - - -

    TOTAL 1.00

    Strengths

    1. Diversified business activities 0.13 3.00 0.39 4.00 0.52 1.00 0.13

    2. World largest listed oil palm plantation 0.12 3.00 0.36 4.00 0.48 1.00 0.12

    3. Environmentally friendly practices 0.08 - - - - - -

    4. High skilled workers & talented team 0.07 3.00 0.21 2.00 0.14 4.00 0.28

    5. Top development in bioeconomy and biodiesel 0.10 - - - - - -

    Weakness

    6. Declining in revenue and PBIT 0.10 - - - - - -

    7. Shortage of workers in plantation industry 0.12 2.00 0.24 1.00 0.12 4.00 0.48

    8. Depends heavily on upstream operation 0.10 3.00 0.30 4.00 0.40 1.00 0.10

    9. Lack of skilled plantation labor 0.11 - - - - - -

    10. Young field in Liberia produce no output & 0.07 3.00 0.21 4.00 0.28 1.00 0.07

    unstability in community

    TOTAL 1.00

    TOTAL ATTRACTIVENESS SCORE 2.07 1.81 1.61

    plantation & land availability including better

    STRATEGIC ALTERNATIVES

    1 2 3

    Acquirer Indonesian Explore new market Retain workers by

  • Based on the result in QSPM techniques, the analysis indicates that Sime Darby should acquirer

    Indonesian plantation with total attractiveness score of 2.07.

    9.0 Recommendation

    Based on the TOWS analysis, Strategy SO (Strength and Opportunity) have shown that all

    activities, programs and products Sime Darby are being publicize for social awareness and to

    promote sustainability. This because in recent years, Sime Darby has given committed to

    environmental concerns such as the focus on carbon emissions from farming. Therefore, to show

    that Sime Darby is concerned about the environment, they have protection of environmental and

    conversation of the biodiversity for the purpose of reducing carbon emissions and other activities

    such as forest conservation efforts with zero burning for areas replanted, prohibited establishing

    new plant in peat and the like. In addition, SO strategy is also focused on biodiesel market by

    conduct an intensive research and development to produce high quality of biofuel. As we know

    nowadays, people are more concerned about the use of biodiesel or biofuel compared to petrol

    because it is one way to minimize environmental pollution. Then this is an opportunity for SDP

    to increase plant and production of palm oil especially in Indonesia because of the availability of

    land suitable for oil palm.

    For WO strategy (Weaknesses and Opportunities) is to build an alliance partnership with

    Indonesia. Sime Darby Malaysia must build a strong relationship with Indonesia because

    Indonesia is a large land area and suitable for the palm oil exploitation that could have increase

    revenue palm oil products to Sime Darby. Besides that, the Roundtable on Sustainable Palm Oil

    also recognized and shows an acceptance of Indonesia under their program. In addition, the Sime

  • Darby also need to provide additional training for workers so that they perform their duties

    efficiently in order to produce palm oil, which is high quality and can produce products

    according to the request within the on specific time. Furthermore, Sime Darby will need to work

    with local and foreign employment agencies for skilled workers in the agricultural industry and

    have received its support from both the government of that country.

    For ST strategy (Strength and Threat) is Sime Darby can take over competitors in the Indonesia

    plantation companies by buying their shares and make them as subsidiaries. Although there is a

    threat in terms of the issue of land owners, especially in Indonesia, such as plantation area in

    conflict with local communities about the land owners and threats related with a variety of strong

    competition such as Golden Agri Resources and Felda Global Venture in the development of oil

    palm plantations but Sime Darby have power over other competitors because it is the largest and

    top listed oil palm plantation in the world. Then, when the Sime Darby to work with the

    Indonesian government and landowners in resolving the issue of property, then it is the

    opportunity to be an acquirer Sime Darby plantations in Indonesia with ease.

    For WT strategy (Weaknesses and Threat) Sime Darby may be trying to explore new markets

    and the availability of land to Southeast Asian countries such as Thailand and Cambodia for oil

    palm plantations. In addition, Sime Darby is also necessary to maintain workers by offering

    attractive salary or other rewards as compensation, bonus, health and a better life for workers and

    can also use the latest agricultural technologies for minimum dependence on human resource.

  • Based on the table QSPM above, there are three alternative strategies for consideration by the

    acquirer Sime Darby Plantation Indonesia, explore new markets and the availability of land and

    retain employees by including compensation, bonus, health and insurance. Based on QSPM table

    also shows that there are seven factors that could not affect the strategic alternative. There is

    rising of health issue, emerging biofuel market, adverse weather, environmentally friendly

    practices, top development in bioeconomy and biodiesel, declining in revenue and PBIT, lack of

    skilled plantation labor and while others affect the choices made. Refer to table QSPM, we can

    see that even the second choice have more score 4 of attractiveness scores (AS) compared with

    the first option, but the overall total attractiveness scores of the first choice is the acquirer

    plantation in Indonesia is highest, then the most appropriate strategic alternative for Sime Darby

    chose is the acquirer Indonesian plantations with a total score higher points is 2.07 compare with

    explore new markets where total score attractions is 1.81 and retain workers by including better

    bonus and insurance is only 1.61.

    10.0 Conclusion

    In a nutshell, Sime Darby Plantation operates palm oil and rubber plantation in Indonesia,

    Malaysia and Liberia. Sime Darby is one of the largest palm oil producer in the world but for the

    year 2014, SDB Plantation division faced with the declined issue by 6.2% if want to compared

    with the prior financial year primarily due to lower sales volume by 7.4% as a result of the lower

    fresh fruit bunch (FFB) production by 7.0%. Besides that, FFB production in Indonesia operation

    declined by 13.2%, mostly due to delays in peak cropping and prolonged dry weather. The

    impact of lower sales volume was partially offset by the 5.8% increase in CPO price realized. To

    reduce or avoid the problem that contribute to SDB issue for plantation division is a, they must to

  • strategies again what they have to do like acquire Indonesia plantation because based on the

    QSPM, its a most attractiveness compared to the others. Other than that, SDB also can increase

    their processing of biodiesel or biofuel in case of people nowadays more concern about healthy.

    Actually, SDB have a many ways to fix back their problem to make sure plantation division will

    become largest revenue generator to the company.

    11.0 Reference