JOHNSON TURNAROUND CASE
Johnson Pte Ltd is experiencing decline sales and increasing operating cost.
Background of the case
The case is about a company based in southern Indian region, named Johnson Pte Ltd, (JPL). It a non-public listed firm operating in Fast Moving Consumer Goods Industry, (FMCG). The company manufactures and distribute products which include frozen Chicken, Noodles, pastries, bread products, yeast and fat. Also the company owned a number of restaurants and retailing outlets and it deals in trading of oil products as well. It was initially owned by Government of India, has operated 20years in this industry (FMCG), before Hong Kong group of companies acquired 80 percent equity share to become its parent company. The acquisition was in line with the Hong Kong group of companies’ strategic objective of expanding their business operations globally and to reach it targeted customers in Middle East and Indian subcontinent states. In subsequent years after the acquisition, the company experienced steady decline in sales and increasing operating cost. In November 2009, Encik Azmi was employed as the chief executive officer (CEO) of JPL. His appointment was facilitated by the Chairman of the group with the task of salvaging the company by constituting a turnaround strategy that will facilitate the revitalizing and sustainability of the company’s before the situation get worsen. JPL is among the major players in FMCG industry in India, with other contenders like Nestle and Unilever dominating the market. In 2007, JPL controlled 30% market share while Nestle and Unilever shared the balance. These rival companies invest lot of resources for research and development, advertisement and promotion. Also they spend 2% to 3% of their revenues to maintain their market. The industry is flooded with multiple labels due to low entry barriers, also the consumers are knowledgeable as they patronise quality products and this has led the players in this industry to increase their search to continually improve their product quality and distribution network. The industry is highly competitive and the players are faced with rising price of raw materials which stands as a challenge to them. Encik Azmi discovered a lot of abnormalities in JPL’s management and operation activities which include poor management of account receivable as JPL’s account receivable showed average overdue of 90 days this led to inability of the firm to service its debt. Mismanagement of inventory, He also discovered obsolete spare parts left fallow, poor asset management, also he found out that most of the vehicles are more than 5 years old and had zero net book value. Lastly, he realized how weak debt recovery method practiced by the firm as debtors (dealers and wholesalers alike) where defaulting and are allowed to access more goods from JPL without providing adequate guarantee from banks. In response to the JPL performance, the head office has asked Encik Azmi to cut down the pay of senior management by 5% to 30%, reduce all unnecessary expenditure of the subsidiary firm and plan a turnaround strategy to revive the company’s performance.
Internal Factor Evaluation
1. The company has a range of product. JPL manufactures products ranging from frozen chicken, noodles, pastries, bread products, yeast and fats, as well as chain of restaurants and retailing outlets. 2. JPL is well established in the industry as it has operated in the market for more than 20 years. This will give the company’s new product an added advantage as consumers are familiar with it brand in the market. 3. The company still managed to control 30 percent regional market share in recent years, 2007. JPL was a key market player in the Asia-Pacific, regardless of their competitors Nestle and Unilever. 4. JPL product has the potential to compete. The noodles brand that was marketed with different flavours, showed the...
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