San Fabian Case Study

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Paul Cheng – founder of San Fabian; immigrated from mainland China in 1940; considered wealthy, with successful children and multiple lines of business (restaurants); 7% shareholder in MacDowell Corazon Aquino – newly elected President (Feb 1987) of the Philippines Carlos Valdez – Vice President of Sales (head of San Fabian’s salesforce) Luis Rabat – assistant sales manager in charge of retail sales in Manila Marcelo Amado – head of government sales in Manila

Toni Salgado – responsible for sales to the Department of Public Works Jean Brevett – new president of MacDowell Philippines; previously headed MacDowell’s Australian operations, where he had streamlined distribution and grown sales 20% annually in a flat market David Leong – previous president of MacDowell Philippines who had protested the aggressively grown capacity but had been overruled by MacDowell’s “experts”

Questions for San Fabian:

1)What does San Fabian bring to its relationship with MacDowell? Do you think San Fabian has been a good distributor for MacDowell? Why?

-Experience navigating heavy corruption through the Philippines’ political and economic system -National coverage that was partially built up to support the MacDowell product line -Strong brand name built on decades of high-quality service and products -Exclusive-only basis approach to distribution has allowed San Fabian to spend heavily on targeted advertising, consultations and customer support on behalf of MacDowell oCritical since MacDowell’s products, while high quality, have a lot of product-specific installation methods that need to be implemented to ensure customer satisfaction oSan Fabian uses a highly trained, technical workforce that would be difficult for MacDowell to replicate (San Fabian also compensates them extremely well, with significant potential for commissions to equal 50-100% of base) -Valuable relationships at all types of customers

oRetail: lists of architects and contractors that salespeople frequently call oWholesale: majority of dealers are Chinese, like Paul Cheng oGovernment: personal relationships with people at all levels across multiple departments (Public Works is example, where San Fabian employee used to be at the DPW and so can drive the sale and collection process) -Surrounds MacDowell’s products with complement of other building supply products that promote the sale of MacDowell’s offerings as a part of end-to-end solutions -Provides MacDowell with feedback on the state of the market in the Philippines and capacity for more product (however, this advice often goes unheeded) -One of the few dealers in the Philippines willing to carry MacDowell in inventory and provide shelf space to show to customers -Serves as a very timely customer for MacDowell, consistently paying within 60 days

2)How attractive is the MacDowell business to San Fabian?

Overall, San Fabian realizes margins on MacDowell products in line with its overall gross margins of ~19%. Specifically, San Fabian earns 15% margins (2% loss) on dealer sales accounting for 22% of total sales of MacDowell products, while it earns 20% (3% profit) on government and retail sales accounting for the other 78% of sales of MacDowell products. However, MacDowell serves an important function in that it helps San Fabian to become a solutions provider to the Filipino housing market.

There aren’t a plethora of replacements that San Fabian can pursue. -Permalite pipes
oThe only two other Filipino suppliers of cement-based pipe already have exclusive distributor relationships in place oCast iron pipes are significantly more expensive than Permalite at 8” below (which accounts for 85% of Permalite sales today) oNeither plastic pipes (not suitable for target market) nor imports (high duties) make sense for San Fabian either -Pyrolite corrugated sheets (roofing)

oTwo suppliers in the Philippines with cement-based solutions are the same as for...
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