Title: Bell Challange
1DragonCare Canada Ltd
The Ivey Gurus
Manoj Smita Saurav Ashwat
2Destination Canada!!!
3Why Canada??? -gt High GDP Growth
Canada led the G-7 in growth over the 2000-2003
period and is expected to remain a top performer
between 2004 and 2006.
Real GDP Growth 2000-2003
Forecasted GDP Growth 2004-2006
3.8
3.1
2.6
2.8
2.4
2.8
2.7
2.0
2.1
1.7
1.3
1.6
1.4
1.0
3
Source OECD Economic Outlook, Dec 2004
4Why Canada??? -gt Lowest Overall Business Costs
Canada is the least costly among 11 major
economies of the world. It leads the G7
countries in quality of life, business
environment, and cost of living. It has a
corporate tax advantage of 2.4 over the US
4
5Why Canada??? gt Macro Analysis
- Strong dollar value
- High per capita GDP
- Low taxes
- Low interest rates
- Low inflation
- Canada-Singapore Free Trade Agreement
- Increasing awareness of
- TCM products
- High Chinese immigrant
- population
6Industry Analysis
Attractive Market
- Total Canadian herbal medicine market size is
SG1048 million. - 20 annual growth
Low Barriers to Entry
Average Competitive Rivalry
Medium Threat of Substitutes
- Liberal government policies
- Growing demand for TCM
- No major brand
- Ayurvedic medicines
- Allopathic medicines
- Non-prescription drugs
- Kaiser Pharmaceuticals, Herbal Comfort Products,
A World of Good Health. - Market share lt 5
7Selection Criteria for Operating Model
PRIMARY
SECONDARY
Low Risk
High Feasibility
Fast Implementation
High Profit
Low Investment
High Control
8Evaluation of Entry Strategy
Joint Venture
Export
Direct Investment
Risk, Return and Control Filter
Direct Exports
9Evaluation of Manufacturing Alternatives
Production in Singapore
New production facility in Canada
PRIMARY
SECONDARY
10Evaluation of Distribution Alternatives
Selling to distributors
Selling directly to retailers
PRIMARY
SECONDARY
11Operating Model
DragonCare Canada
TCM Practitioners
Retail Pharmacies
Customers
Manufacturing Sites in Singapore/Malaysia
Canadian Distributor
Retail Pharmacies
Shipping By 3rd Party
Retail Pharmacies
Information Flow
Material Flow
12Implementation plan
Understand Licencing and Incorporation
Requirements
2005
2006
Top Management Hiring
Incorporation
Product Licencing
Site Licencing
Production of 1st Batch
Shipping from Singapore to Canada
Launch
Launch
Planning of Capacity Expansion
Shipping Supplier Sourcing
Sourcing Canadian Distributor
Marketing Planning and Promotion Activity.
Website Design and Building.
Capacity Expansion Activities
May 20
May 31
June30
July 15
Aug 31
Oct 31
Nov 15
Dec 31
Jan 15
Oct 15
13Long Term Expansion Plan
14Market Segmentation
Income gt 35,000
Gender Women
Users of natural health products
Age gt 15
5.19m
10.16m
4.7m
15.6m
Geography (BC and Alberta)
1.13m
Target market size SG213 million
15Product
- Womens healthcare products
- - For immunity
development and nutritional benefits - Packaging
- - Sturdy and heat sealed
- - Conforming to Consumer
Packaging and Labeling Act - - Consistent quality
- Labeling
- - Dual language
- - Safety instructions
16Price
Value Based Pricing Strategy
- Willingness to spend on herbal medicine is
increasing - Higher disposable income for alternative medicine
- Demand relatively inelastic to price
- High price aligns well with premium positioning
DragonCare prices - 32 to 35
Current price range in TCM industry - 21 to 35
17Promotions Pull Strategy
High-impact, low-cost pull-strategy vehicles
Advertising
Blogs
Public Relations
- Sponsorship of womens charity events
- Annual trade shows
- Budget 185,000
- Discussions of herbal products on blog websites
- Commercials on Cable TV
- Advertisements in womens health magazines such
as Chatelaine. - Billboards near womens health clubs
pharmacies. - Advertisements on radio and in newspapers
- Budget 1.37 Million
Budget 1.54 Million
18Promotions Push Strategy
In-store Promotions
Direct Mail
Sales Promotions
- Free samples to TCM practitioners
- Value packs
- Discount coupons (5-10) for the subsequent
purchase - Free DragonCare accessories key chains, pens
and mugs. - Budget 655,000
- Trade discounts
- Periodic campaigns
- Budget 150,000
- Focused direct mail campaign to target high
potential customers - Lists available from womens health clubs and
Chinese proprietary medicine societies - Budget 80,000
Budget 0.885 Million
19Distribution
Distributors
Channels
Natural Health Product Stores
Pharmacies
TCM Practitioners
- Primary distribution channel
- Tertiary channel to tap new adopters
20Organization Plan
Vision Statement
To be a global healthcare company specializing
in traditional Chinese medicine
Mission Statement
Caring for humanity by providing the traditional
route to a healthy life
Values
- Focus
- Quality
- People
- Research
- Style
- Position
- Reward
Our customers Superior products Very
caring Path breaking Strong teamwork.
Leader Recognition and security
21Management Structure
Group Chairman
Singapore Management
Direct Reporting
Managing Director
Functional Reporting
Chief Scientist
VP- Sales and Retail
VP- Finance
VP- Manufacturing
Canada Management
GM Canada
Finance Manager
Marketing Manager
RD Co-ordinator
Logistics Manager
H.R Manager
Logistics Dept
Finance Dept
Marketing Dept
C.R.M Dept
22Sales Projections
Sales Projections
Market Share Projections
(In 000s of SG )
16.6
36175.8
13.5
26796.8
8.7
15312.5
5.7
8750
3.9
5000
- Market share expected to steady at around 20-24
- Sales growth expected to slow down to 10 from
2010-2015 - 5 sales growth beyond 2015
23Net Profit and Cash Flow Projections
Cash Flow From Operations
Net Profits
(In 000s of SG )
(In 000s of SG )
724.8
693.2
1460.6
964.5
473.2
610.2
270.4
122.7
-646.4
-400.8
-405.2
-1117.2
- Assumptions
- Sales of 5 Million in 2006
- 75 yearly sales growth upto 2009 and 35 in
2010
24Sensitivity Analysis
Sensitivity Analysis
Worst Case
Best Case
Inference
- Profitable in 2007 even with low first year sales
and low growth rates
Reasoning
- Breakeven sales volume Only SG 5.3 million
- Breakeven market share Only 5.2
25Net Present Value
NPV of DragonCare Canada
(In 000s of SG )
- Assumptions
- Weighted Average Cost of Capital (WACC) 10
- NOPAT growth rate (beyond 2015) to calculate
terminal value 5
26How Much Money Will We Need ???
(In Millions of SG )
3.33
Funding requirement for Working Capital
Operating expenses.
2.72
1.9
Capital investment requirement - mainly for
capacity expansion investment in fixed assets.
1.45
1.12
1.08
0.65
0
0
0
0
- A total of 12.25 million SG over then next six
years in a phased manner. - However, bulk of the investment requirement is
in 2009 2010.
27Sources and Application of Funds
Sources
Applications
Working capital and operating expenses
DragonCare Ltds current excess cash balance
Capital investment
Bank loan from current bank
- Reasoning
- Leverage increases only slightly from 1.6 to 1.7
- Comfortable interest coverage (EBIT/Interest
4.6 to 4.7) - Interest Rates in Singapore have been stable at
5.3 5.5 - Phased funding requirement ensures that
DragonCare is not burdened - Ensures steady ending cash balance (14- 16
Million)
28Risks
Threat Level
Risks
Mitigation Steps
Focus on supply chain efficiency and inventory
management
High working capital requirements
High
Hire Canadians with experience in the herbal
products industry
New environment
High
Develop good relations with government and a
premium brand
Regulatory risks
Medium-High
Be the first mover and lock in major
pharma-retailers
Medium-High
Competitive risks
Financial risk
Medium
Acquiring loans in phases
Hedging
Forex fluctuations
Medium
29DragonCare Rules Canada
Market leader with 16.6 market share by 2010
Sales of 36 million 14 of global sales by 2010
1 TCM brand in Canada
31 ROI in 10 Years
Net Profits gt 0.6 million 7 of total profits
by 2010
30 Q A
31SLIDES FOR QA
32Competitive Analysis
Average Competitive Rivalry
- Kaiser Pharmaceuticals
- - Focus on USA
- - Spill over effect
in Canada - - Sells through
Golden Flower Chinese - Herbs (GFCH)
company in US and Canada - - GFCH sells only
directly to TCM - practitioners
- A World of Good Health and Herbal Comforts
Products - - Cater mainly to
Chinese immigrant population - - Limited products
- - Not specifically
targeting women - - Sell only through
online channel
33Market Size
Canadian NHP Market SG 2620 Million
Herbal Medicine Market SG 1048 Million
DragonCare to target this market with its TCM
products
34Why Canada??? -gt Low Labour Costs
Total Labour Costs, U.S.100
- Lowest labor cost among G-7 nations
- Total payments for Canadian statutory and other
benefits are 29 of salary and wages compared to
32 in the U.S.
160
139
134
140
120
101
100
96
92
100
80
Index
80
60
40
20
0
Italy
U.K.
Japan
France
U.S.A.
Canada
Germany
Source KPMG Competitive Alternatives G7-2004
Edition
Employee Benefits as a of wages
59
57
52
49
33
32
29
Other Benefits
Statuatory Benefits
Other G7
Canada/US
Source KPMG Competitive Alternatives G7-2004
Edition
34
35Why Canada??? -gt Low Production Costs
- Growing productivity, skilled workers, and low
labour costs make businesses competitive.
Source U.S. Department of Labor, Bureau of
Labor Statistics, September 2004
35
36Why Canada??? -gt Low Inflation Low Interest
Rates
Inflation
4
- Canadas targeted inflation rate is locked
between 1 to 3 and has been extended until
2006. - Over the past five years, Canadian inflation
averaged 2.4, lower than the U.S..
3
Year-Over-Year Change
2
1
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
Sources Statistics Canada and the Federal
Reserve Bank of St. Louis, January 2004
Long-Term Bond Yields
Daily Yields
10
10
8
8
- Canada's excellent fiscal situation and low
inflation has led to lower interest rates.
5
5
3
3
1999
2000
2001
2002
2003
2004
1999
2000
2001
2002
2003
2004
36
CANADA Government of Canada 10-Year Bond
December 24, 2004. U.S.A. U.S. Treasury,
Constant Maturity 10-Year Bond December 24, 2004
37Why Canada??? -gt A Tax Advantage
- Canadian locations compare well internationally
in terms of statutory corporate income tax rates. - Firms in Canada have a growing income tax rate
advantage over U.S. firms. - Elimination of capital tax helps increase tax
advantage to 3.4 percentage points by 2008.
Corporate Income Tax Rates
46.6
44.1
41.6
40.0
39.4
3.4
37.7
36.6
2008
2000
2001
2002
2003
2004
Combined average federal-provincial and
federal-state corporate tax rates including
capital tax equivalents. Excludes reduced rates
of provincial tax on manufacturing and processing
activities and the tax rate reductions for
manufacturing activities contained in the
American Jobs Creation Act of 2004.
37
Source The Federal Budget, Finance Canada, March
23, 2004
38Evaluation of Retail Alternatives
Use existing retailer network
Setup chain of retail stores
39Operating Expenses
40Product Positioning
41Promotions
Influence on Consumer Purchasing Habits
Promotions
36
Push
Pull
18
- Advertising
- Public Relations
- Blogs
- Sales Promotions
- In-store Promotions
- Direct Mail
5
Source www.ndmac.ca
42Promotions - Budget for Advertisements
Budget Allocation
Acquisition cost per customer in SG
Health Books
Online Ads
Newspaper
Billboards
Radio
Cable TV
Budget 1.37 Million
43DC
DragonCare
Leading Manufacturer of Traditional Chinese
Medicines
DragonCare has been at the forefront of
scientific research developments in the field of
TCM. Its state-of-the-art research laboratories
in Singapore are widely acknowledged to be among
the best in the world. DragonCares products are
scientifically developed and tested for safety
and efficacy. DragonCare is an ISO9000 certified
company and its products have been certified by
the Chinese Medicine Practitioners Association of
Canada.
Having established itself as the 1 brand in
Singapore, China, Hong Kong and Australia,
DragonCare Ltd is now introducing its
scientifically developed and tested traditional
Chinese medicines (TCM) in Canada. For the last
50 years, DragonCare Ltd has been a leading
traditional medicine manufacturer and retailer
based in Singapore. DragonCare markets over 200
different products under its brand name. Many of
these medicines are patented.
CMPA Certified
Singapore DragonCares Home
Research DragonCares Strength
Now in CANADA!!!
www.dragoncare.ca 1-800-TCM-SAFE
44Immune
TM
A Wellness Formula For Women
What do you want to be treated by Chemicals or
Nature ? If the answer is nature, then
IMMUNETM is what you need.
IMMUNE TM is a wellness formula for women from
the house of DragonCare, a leading manufacturer
of Chinese medicines. IMMUNETM is a 100
natural herbal product made from a variety of
Chinese herbs such as Ginseng roots and
flowers. IMMUNETM has been scientifically proven
to be effective in developing the immune system
of women and providing them nutritional benefits
making them more energetic.
Available at a Pharmacy /NHP Store close to you
A quality offerring from
DC
www.dragoncare.ca 1-800-TCM-SAFE
DragonCare
45Management Structure
Hiring Plan
Selecting GM Canada from within Singapore
division.
Hiring function heads for Canada.
Training newly hired function heads in Singapore.
Hiring Marketing, Finance, HR and Logistics teams.
Aug 1st
May 20th 05
June 5th
June 30th
Oct 15th
46Return on Investment
10 Year Return on Investment
(In 000s of SG )
47Ratios
Ratio Analysis for DragonCare Ltd
48Custom Duties
TCM products come under classification
3004.20.00.79
No custom duties apply
Only PST applies
Source 1) Departmental Consolidation Of The
Customs Tariffs 2005 2) Health
Canada Website