Current Expansion Strategy - QAF Limited

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Current expansion strategy

According to Hsu (2010), a company that is completely separate entity from parent company or holding company is known as wholly owned subsidiary. Gardenia Bakeries is wholly owned subsidiaries by QAF Limited. In such the Gardenia Bakeries is in each country runs on their own operations and QAF Limited holds all of the subsidiary's common stock. However, the parent company has the right to appoint board of directors for the subsidiary in order to control and guide the subsidiaries' actions. Hsu (2010), stated that the subsidiary will hire employee technically but not by the parent company. Therefore, wholly owned subsidiaries enable QAF Limited as the parent company to maintain procedures and guide the action of subsidiary in different geographic areas such as Philippines, Singapore, Malaysia and China, providing their own assortment of available product. Moreover, wholly owned subsidiaries may be part of the same industry as the parent company or a part of different industry.

QAF Limited takes advantage of the structure of a wholly-owned subsidiary for several reasons. The company faces difficulties to operate business in another country where the licensing and regulatory environment makes it hard to create a new company, so subsidiary would be more feasible in the particular country (Eicher & Kang, 2005). QAF Limited has the advantage of an existing company which controls the operation of Gardenia Bakeries in the particular location with such structure. Besides, there is no risk of losing technical competence to a competitor. Furthermore, Gardenia Bakeries can realize learning curve and location economies through wholly owned subsidiary. So Gardenia Bakeries is able to diversify its operations to be less susceptible to market fluctuations and it will have a patent on technology or processes that are valuable to the parent company. In addition, the profit or loss of all the Gardenia subsidiaries is consolidated into QAF Limited.

Gardenia may gain benefit from the financial strength of the parent company and its management expertise, but the management of the subsidiary may also be significantly handcuffed by restrictions on its operational decisions and autonomy enforced by the parent company. An exception occurs when the subsidiary management has knowledge or experience not readily available outside the subsidiary's operations (Hsu, 2010). The facilities of Gardenia were designed with expertise and it is using a computerized bread-making technology from US and Europe. Gardenia cooperates with equipment suppliers from Germany, Netherlands and United States to assure the standard in the production process. Moreover, Gardenia implements mass promotions to reach the market. For instance, it promotes its products through mass media such as television to ensure customers remember about their existing products.

Gardenia Singapore

Since 1986, there were no bread eaters in Singapore when QAF acquired Gardenia. Due to busy lifestyle of Singaporeans, bread has evolved as a healthy breakfast food for them. Besides, Singaporeans are more aware of health and nutrition and have excitement to try new things. Hence, Gardenia takes this opportunity to expand their business in Singapore as a wholly owned subsidiary. This is a great opportunity for the company to target consumers with high nutrition of bread since the citizens are trying to concern of their health and dietary needs.

Despite the challenging environment and intense competition from other manufacturers and the retail bake shops, Gardenia Singapore was able to deliver a good result with higher revenue and an improvement in profitability. The subsidiary is able to realize location and experience economies as it is supported by QAF Group’s good performance in a difficult economic environment. So Gardenia Singapore is able to strengthen its core competencies and maintain its top position in Singapore. Gardenia maintained its top leadership position in Singapore by releasing several new products and by launching a successful new branding campaign. It has expands its distribution network to 3000 distribution points which can help it easily to reach more consumers on a daily basis. It is committed to provide the Singaporeans with the finest quality bread with hard work distribution team.

Gardenia Singapore faces some disadvantages in Singapore too. It is risky and high cost for Gardenia Singapore launches its business in the country with high competition from other manufacturers. Due to Singaporeans are more aware of health and nutrition, the company has to import high quality milk-related products from Australia which cost it a lot in order to avoid melamine scandal. On the other hands, Gardenia Singapore riskily priced and marketed its products such as the branded loaf with the highest calcium content at lowest price to combat with competitors.

However, the financial advantages gain by Gardenia Singapore include simpler reporting and more financial resources as QAF Group will use Gardenia Singapore’s earnings to grow the business or invest in other assets and businesses to generate a higher rate of return (Cantwell & Narula, 2003).So both companies integrate their financial and other information technology systems to reduce cost and easier the business processes.

Gardenia Philippines

Gardenia Bakeries in Philippines is one of the most widely distributed brands in the country which is a wholly owned subsidiary of QAF Limited. After claiming leadership in the local bread market in just over three years in operation, the company is set for a large expansion in the Philippines with the help of financial resources from QAF Group. The company offers a wide range of bakery products Gardenia Philippines made some changes in its bread formula and process to meet the needs of Filipino as Filipino likes to have lighter color and sweeter taste bread. However, prices of the bread are adjusted according to the price of flour in the country.

Due to melamine scandal, Gardenia Bakeries in Philippines always concerns about freshness, food quality and safety. So this is a costly stage for the company to handle such scandal and improve its product quality by promising the consumers that it only uses high quality and standard ingredients such as milk sources which are ordered from USA, Australia and New Zealand. On the other hands, the company invests in another new production line in order to increase the capability of producing loaves with the help of QAF Group.

QAF Group usually maintains direct or indirect operational control over Gardenia Philippines. The parent company often initiates management changes at its subsidiary in order to negotiate better terms and conditions with suppliers. So Gardenia Philippines can take advantage of QAF Group’s management and technical expertise. Besides, the subsidiary can also reduce administrative overlap and have a better new product development and launch initiatives. However, risk and loss of operational flexibility are the disadvantages of operational control by QAF Group. The parent company only relies on Gardenia Philippines to develop a distribution channel, hire a sales force and build a customer base. In addition, the operational risk is focused in Gardenia Philippines rather than spread across multiple entities and depends entirely on Gardenia Philippines execution.

Furthermore, Gardenia Philippines also adopts joint venture as the alternatives structure to expand its distribution channel. In such, it can access to local partner’s knowledge and share development costs and risks with partner (Meyer, 2001). For example, Gardenia Philippines became business partner with Shell for massive distribution effort and costly projects. It shares the costs and participates in the profits. However, decision-making could be slow in partnership because of multiple management levels (Tang & Liu,2011).

References

Cantwell J, Narula R (2003). International Business and the Eclectic Paradigm: Developing the OLI Framework. Routledge, London. pp304

Eicher T, Kang JW (2005). Trade, foreign direct investment or acquisition: Optimal entry modes for multinationals. J. Dev. Econ., 77(1): 207-228.

Hsu, C. (2000). Capital budgeting analysis in wholly owned subsidiaries. Journal of Financial and Strategic Decisions, 13(1).

Meyer KE (2001). Institutions, transaction costs, and entry mode choice in Eastern Europe. J. Int. Bus. Stud., 32(2): 357-367.

Tang, J. A., & Liu, B. S. (2011). A Network Based Theory of Foreign Market Entry Mode and Post-Entry Performance.

Teixeira, A. A., & Grande, M. (2012). Entry mode choices of multinational companies (MNCs) and host countries’ corruption: A review. African Journal of Business Management, 6(27), 7942-7958.

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