1. Abbott Corporate Finance Case Competition
Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix
Presented By:
Kyle Nguyen | Chris Yamamoto | Jorrel Sto. Tomas | Nishaad Navkal
2. Overview
Case Objective
Assess if Precious Star should
expand its operations into
mainland China, Vietnam, both,
or neither.
Secondary objectives:
-If expansion is feasible, create
the most efficient and profitable
expansion plan.
-Explore potential opportunities
for continued growth into the
future.
Key Considerations
Competitive Landscape
-What are Precious Star’s
leverageable factors?
-How can Precious Star out-perform
its competitors?
Consumer Environment
-How can Precious Star capitalize on
consumer preferences?
Growth of Different Market
Segments
-Which markets have the highest
profit potential?
Manufacture + Distribution Costs
-How can we keep operational
costs at a minimum?
-What distribution channels keep
costs at a minimum?
Future Prospects
-How can Precious Star optimize
its strategy to take advantage of
future market trends?
Alternate Strategies
-What further steps can Precious
Star can take to grow its market
share?
Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix
3. Recommendations
Mkt. Penetration Strategy
Target Markets + Segments
-China
Pediatric Premium
Pediatric Mid-tier
Adult Complete & Balance
Adult Disease State
-Vietnam
Pediatric Premium
Pediatric Mid-tier
Adult Complete & Balance
Adult Disease State
Result
-A cost of $952M for a projected profit
of $717M
-Projected ROI of 75%
Future Prospects
-Allocate remaining $548M and
reinvest portion of profits into the
acquisition of Chinese competitors in
target markets
Manufacture
-Build two production plants in
Vietnam
-Pediatric with 40M
capacity
-Adult with 40M capacity
-Ample capacity for future
market growth
Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix
4. Qualitative Market Analysis
Situational Context
Qualitative Recommendations:
Manufacture in Vietnam:
-Labor cost is second to lowest in
the region
-Population generally cannot afford
imports
Sell High Product Volume to China:
-High demand for foreign
manufacturing
-High demand for milk-based
products
-Growing middle class indicates
more consumers
Leverageable Factors
Local brands are distrusted
Chinese Market:
Vietnamese Market:
Action
Most consumers cannot afford
expensive imports
Domestic manufacturing is
distrusted by consumers
Consumers seek foreign
products at high prices
Base manufacturing
operations in Vietnam
Emphasize product as a
Chinese Brand for the
Vietnamese market
High demand for milk-based
nutritional products and
increasing middle class
Capitalize on high demand,
sell high volume to Chinese
market
Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix
5. Market Value Observations
● Despite rapid growth, Vietnam’s pediatric
market is still dwarfed by China’s, which is
valued at over $1B.
● At $764M, China’s adult market is about
seventeen times the size of Vietnam’s.
● The pediatric market presents a larger
market value and therefore, larger
production volume.
Analysis
Market Value Analysis Conclusions:
-Targeting the Chinese market results in the most
market value.
-Pediatric market is larger for both countries.
Market Value Analysis
Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix
6. Cost Analysis
Manufacturing Analysis
-Fixed and variable manufacturing
costs are significantly lower in Vietnam
compared to China in both Adult and
Pediatric Markets.
-The cost differential between the two
options increases as capacity is
increased.
Analysis
Cost Analysis Conclusions:
Manufacturing:
Basing production in Vietnam results in
significantly lower costs.
Freight & Distribution:
Cost differential between Vietnam-China and
China-China F&D is offset by low
manufacturing costs.
Freight & Distr. Analysis:
-Most of the product will be sold in China.
-Producing in China will yield lower
transport costs, though only by a small
margin of about 59 cents per kilogram.
-Of the three costs (plant construction,
production, transport) transport is the least
significant.
Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix
7. Future Prospects
Future Growth Trends
Growth Trend Observations:
● All 8 strategically selected
segments collectively show
an upward trend in market
value.
● Growth trends justify the
construction of a 40M Adult
plant over the cheaper 20M
+ 10M option.
○ 40M becomes more
profitable once 25.7M
volume is reached.
Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix
8. Future Prospects
Alternative Strategy
Acquisition Plan
● Allocate remaining $548M into the
acquisition of smaller competitors in
China.
● In addition to the $548M, reinvest a
portion of yearly profits into the
acquisition fund.
● Specifically target competitors with
large operations in the pediatric
sector.
Benefits
● Minimizes unused assets.
● Acquisition of crucial distribution
channels.
● Cheaper to acquire existing
distribution channels than to
establish new ones.
● Grows Precious Star’s market share
in its weakest (and most valuable)
sector.
Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix
9. Summary
Manufacture
-Base production in Vietnam
-Cheapest overall production
and F&D costs.
-Bypass Chinese consumers’
distrust of domestic
manufacturing.
-Keeps price affordable for
poorer Vietnamese market.
-Construct (2) 40M capacity plants,
one pediatric and one adult.
-Gives ample capacity for
projected future growth.
Sales
-Target aforementioned 8 market
segments.
-Slated for future growth,
holds considerable market
value.
-Market Segments are:
-Pediatric Premium, Pediatric
Mid-tier, Adult Complete &
Balance, and Adult Disease
State for both countries.
Future Expansion
-Establish an acquisition fund
-Use remaining $548M plus a
portion of yearly profits.
-Acquire strong competitors in
China’s Pediatric sector
-Grows market share,
increases distribution
channels.
Result - (1st year ROI: 75%)
-Optimal positioning to capitalize on growing market
trends in the future.
-Growth of Precious Star’s market share in its most
valuable sector.
-Acquisition of established distribution channels and
manufacturing operations.
Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix
Con Conclusion
10. Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix
Appendix
Appendix Table of Contents:
1: 40M Plant vs. 20M+10M Plants: The Breakeven Point
2: Condensed Market Value + Volume Trends (2014-2016)
3: Cost of Manufacture Chart, USD Standardized
11. When does the 40M plant become economical?
40M plant production = [20M plant production] + [10M plant production] (20M first)
250M + 4.1(Q) = [134M + 5.3(20M)] + [80M + 6.2(Q - 20M)]
250M + 4.1Q = 134M + 106M + 80M + 6.2Q - 124M
250M + 4.1Q = 196M + 6.2Q
54 = 2.1Q
Q = 25.7M
Appendix
Overview Recommendations Situational Context Analysis Future Prospects Conclusion Appendix
First Year Q = 23,022,320 kg
Breakeven Point = 25,700,000 kg
Breakeven growth = 11%
