Formosa Plastic Group

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Formosa Plastic Group
FPG is a diversified chemical company headquartered in Taipei, Taiwan providing a broad range of products including plastic products, carbon fiber, processed PVC products among its many products. FGP is organized into three main corporations each is composed of multiple divisions responsible for a product line. The division managers were given autonomy to make production and marketing decisions of their business within the scope of approved authorization. However, administrative functions such as accounting, finance, legal and public relations were centralized to take advantage of the economies of scale. Formosa is in a rapidly changing environment where uncontrollable events such as prices of raw materials fluctuation and political/economic events (i.e. Golf War) affect the performance of the business. In its competitive market, FPG strategy was to be the low cost producer in their market segments and operate at full capacity Major Issue

The need to evaluate the performance of divisions and managers in the presence of uncontrollable factors (e.g. raw material price, fires caused by lightening) which obscures the ability to evaluate the desirability of the actions taken. In addition, it also faces the need to establish a reward system that will compensate managers for bearing the risk of operating divisions in a rapidly changing industry. Financial Control System

Divisions were measured on a return on investment basis
Plant and product groups were considered a profit center while production processes and group machines were cost centers •Detailed accounting and financial system with standard cost for each aspect of manufacturing as result the company manufacturing processes tended to be stable and had extensive historical records •Company produced extensive performance reports that allowed management to attack problems quickly •Performance bonus plans were given to compensate and motivate employees. For example bonuses were...
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