Canon may follow Xerox's Acquisition trail –Awaiting Disaster?

- related to P3 (BA)

P3 (Business Analysis, ACCA) Paper in action
Many businesses failed to ask a simple basic but paradoxically difficult question, “What business are we in?” using visions, mission statement and corporate objectives are mere tools to communicate but they fail when Board lacks the commitment and drive. Worse yet, according to Sally Yeung and Andrew Campbell, such statements made are mere ‘lip-service’.

The case study below shows how a distressed company, Canon, tries to re-identify itself. It didn’t want to sell boxes of Information Technology equipment but takes a step further in saying, “Why customers need us?”

In P3 (Business Analysis, ACCA) Paper, there is a real chance of this type of question tested. So familiarise yourself with this topic from the excerpt edited report. Enjoy...

Following the Joneses : Canon’s re-positioning process
Recall Porter’s critique that acquisitions generally destroys shareholders’ value. Well, despite empirical evidence, many firms never learn.

Canon operation in Singapore is "open" to opportunities to acquire suitable business process outsourcing (BPO) companies, as well as to strengthen partnerships to boost its imaging business, according to senior executives based here.

Alan Chng, South and Southeast Asia vice president of Canon's business imaging solutions, noted during a media gathering here Wednesday that the Japanese company "has intentions" to make market moves similar to its rivals in order to gain entry to the BPO market.

Following Xerox’s model
Competitor Xerox announced it would acquire BPO player Affiliate Computer Services for US$6.4 billion. The transaction helps Burns expand into a market Xerox values at about $150 billion and gives her a foothold in managing administrative operations for multiple arms of the U.S. government. The number of workers at the world’s largest maker of high-speed color printers will increase to about 128,000.

“With this combination, our tool box just got a lot bigger,” Affiliated Computer CEO Lynn Blodgett said in an interview. Blodgett, 55, will run the business as a unit of Xerox. Almost 90 percent of Affiliated Computer’s new business contracts last year came from outsourcing, or managing operations for other companies. Total sales rose 5.9 percent to $6.5 billion in the year ended June 30, 2009. Xerox has posted sales declines for three straight quarters, with analysts projecting a fourth, according to the average of estimates compiled by Bloomberg. Global spending on technology products will fall 8 percent this year, Goldman Sachs Group Inc. said this month. Xerox has about 54,000 employees, and Affiliated Computer has 74,000 workers. Xerox said annual cost savings from the deal will increase to as much as $400 million in three years.

Exam Note: The following highlights that must be in your answer script!
But the downsides are it doubles Xerox debts, cause Shareholders uncertain and selling off its shares, took over Affliated Computer much larger employees head count and causing internal integration problem. (please note that Porter’s famous Golden Triangle theories are much applicable here)


Canon’s expansion mode
"Definitely, it's time for us to go into this area," said Chng, adding that candidates suitable for acquisition could be businesses in Asia that have synergies with Canon.Lim Kok Hin, Singapore senior director and general manager of Canon's business imaging solutions and business solutions, added that the company may also strengthen or expand its partnerships to include such services in its portfolio. "At the moment it looks like we're wide open to [both] options," he said.

Customers, explained Lim, often do not expect a single company to do able to do everything, and are "comfortable enough" to approach Canon as a "turnkey operator".

The drive toward a "solutions" approach, or packaging software and services along with hardware, has been intensified over the last few years as companies were no longer interested in "buying a box". Instead, Lim said, they want to solve business problems. For instance, Canon recently worked with a large tour operator in Singapore to implement on-demand printing based on personalized customer itineraries. The initiative helped minimize wastage as it eliminates the need to store as well as produce standard travel brochures in bulk.
As part of its shift toward "solutions" rather than device sales, Canon officially unveiled a free audit service, where it provides a "health screen" of a customer's imaging environment, said Chng. The company has so far conducted an audit of its own office premises in Singapore, as well as a few other companies in the island-state. Canon will continue to expand the service to other markets in the region, he added.

Verdict: All the best, Canon. There are much divorces (de-mergers) but that didn’t stop people from marrying (Mergers exercise), did they?

Government's TOP 10 Recovery Strategies

Pic 01 (left) : Hmmm... is it Debit or Credit?
Pic 02 (Right): Boys, oh boy... you have a long way to go



Recession may not be a bad word. Japan, South Korea experienced economic disasters after World War II and Korean War respectively. WIth zilch and only armed with human spirit, both countries grew phenomenally over 3 decades since the 1950's.

TOP 10 Actions
Having seen all of the above, Malaysian Government can do wonders to turn around the economy:

1. At least a 9% budget deficit spending to compensate the weak aggregate demand of consumptions and investments. Note this must continue for at least 3 years, as threats of inflation is low due to liquidity trap situation which is an increase in money supply may not increase threat of interest rate hikes.

2. Keep interest rates low to below 2% ie many local banks offering rates at BLR less 2% with intention to stimulate loan demand.

3. Focus on infrastructure development in lagging states especially Penang, Johor, Kelantan and Trengganu. For eastern coasts states, consider high speed trains to link Johor Bahru to Mallacca and Penang mainland link to Kuala Lumpur. Conduct analysis of volume traffic taking PLUS highways in order to evaluate the feasibility of mammoth tasks.

4. Speed up development of internal cities Monorails or Multi-rails to improve public transport so as to substitute car purchases. Malaysians have the 3rd highest ratio of car per population in the world. Too much discretionary income spent on cars which leads to weak demand for other consumables like shopping, holidays, hairdos, fashion wears. Tap on local 27 million population leads to stronger domestic demand.

5. Offer 100,000 green cards per year to attract foreign talents from Indonesia, India and China. Please note its only 0.3% of population, so bringing in foreign nationalities will not bring political strains amongst races.

6. Liberalise SEVEN (7)states economy. Allow each state to focus on their areas of expertise in their own unique industries such as:

i. Selangor – focus on banking and finance
ii. Penang – focus on high end semi-conductors, fabless chips
iii. Kelantan – focus on Islamic Universities studies, don’t forget this is largely untapped market witn Muslim Population of 1.6billion worldwide
iv. Trengganu – bio-tech agriculture on tobacco, oil palm refineries
v. Johor – focus on Iskandar Project and ancillary industries supporting it
vi. Mallacca – tourism and patient-care tourism
vii. Pahang – resorts leveraging on virgin tropical jungle, have resorts living for high end customers. Open up and liberalise gaming-casinoes. Compete with Macau for Chinese tourists. Offer Air Asia free landbank in middle of Pahang as feeder line into its casinoes resort.

7. Note that Malaysian professionals overseas are reluctant to return. Offer ZERO tax income holiday for 3 years if they return, ZERO tax on car owned and ZERO stamp duties for homes they purchase above RM500,000. Malaysians likely to return for sentimental reasons like coming back because of Bak Kut Teh,Roti Chanai lepak corners, Satay.

8. Re-train and re-position 30% 1.1million civil servants to productive sectors like fisheries, cab driving. We have one of the highest civil servants:private section ratio in the world for a ‘free’ economy. A waste.

9. Offer licenses to foreign institutional funds to invest in Bursa Malaysia. Have in place, links to universities that supply Finance Graduates, Info tech capable of broad band communication worldwide, perks for foreign talents as expatriates.
The amount of economic turnaround is fantastic, but all go to waste with poor implementation! Thus governance is critical by setting up :
i) Economic –committee for each state. That will be 7states in Peninsular and still counting. Members should be from tycoons, university researchers with PhD in related fields – note special emphasis and invitation to foreigners to chair the meeting if no local PhD candidates (likely the case) are available.
ii) Transparencies in providing statistics. Beef up Economics Department and Bank Negara Malaysia to provide analysis. Make available online
iii) Interests rates decision should be based on at least 7 top economists in the country and by vote determine the direction.
iv) Everyday, and i repeat, everyday, share success stories of top entrepreneurs with heavy biased toward successful Bumiputeras. Change populace mindsets that its the people and not the government that make a difference in nation’s future. There are many, many successful Bumiputeras professionals and entrepreneurs, keep on if possible a million times a day to disemminate this news.

10. Stop politicking by making empty promises.

What it means for ACCA graduates?
To all my valued students of INTI College Subang Jaya, you see everything works for you and your future. You can capitalise on immense opportunities ahead when government stimulates the economy creating high value jobs. Its only YOURS when you become an ACCA graduate. The economy needs highly skilled intellectuals and professionals. So, work hard for 3 years and reap the rich rewards for next 30 years!

Invitation
All you ACCA candidates, your comments i.e. constructive comments on:

I) What the government can do?
II) Which industries are key?
III) What would you have done, if you are the CEO i.e. Prime Minister of Malaysia?

Nobel Prize-winning economist – Horrifying Prognosis

From left to right:
Pic 01 - 03 : Great Depression of 1930s. People lining up for food rations from USA government. We don't hope for this in Malaysia, which is only a developing nation. So shouldn't you ration your pocket money? Stretch it further?

Pic 04: Renown Economist, Paul Krugman


Nobel Prize-winning economist Paul Krugman said damage from the U.S. recession may persist “for a very long time,” with no clear engine for renewed growth.

“I’m really quite scared that we could muddle along,” Krugman said in a lecture today at the London School of Economics and Political Science. “I really do see the possibility of a global version of the Japanese ‘lost decade’ without the prospect of an export-led recovery. This could be unpleasant for a very long time.”

U.S. stocks erased a decline yesterday after Krugman said the economy will probably emerge from the recession by September. Recent reports showing smaller declines in housing and manufacturing and fewer job losses have reinforced forecasts that the slump may end this year.

“The ‘oh-my-God-the-world-is-ending’” phase of the economic downturn is over, and financial markets are “stabilizing,” Krugman said today. Still, “the employment situation is continuing to look bad and will probably get worse,” he said.
Krugman said he has “no idea” what will power the U.S. out of recession. The U.S. fiscal stimulus package, while not “trivial,” isn’t large enough to fuel sustained growth. Also, with the global economy in the doldrums, the U.S. can’t rely on a revival from a surge in exports, he said.

Even the end of a recession “doesn’t mean the same thing as it did in the old days,” said Krugman, a Princeton University economist. Unemployment may remain high longer than after the end of prior economic contractions, he said.
The National Bureau of Economic Research, based in Cambridge, Massachusetts, is the official arbiter of U.S. recessions and expansions. Robert Hall, the head of the NBER’s business-cycle-dating committee, said last week that it’s “way too early” to say the contraction is over.

What can and is Malaysian Government doing about it?
What is in store for upcoming ACCA graduates?

Coming soon...

Recession- What it means? Part II

(left to right)
Pic 01: You think this is tough, boy, wait until you reach ACCA level
Pic 02: Arrgghhh...This kids drive me up the wall.
Pic 03: To our happiness...Pic 04: Beautiful, Wonderful and Meaningful evening
Pic 05: President Obama's deficit spending is too little, too late

Recession Explained
Why do factories close down despite that high quality products are churned out? Why hardworking people are laid off from work, a waste of human talents that go unemployed? Why good location properties have few tenants? Puzzling as these questions are, but the economist will say it’s due to recession. Inspired and horrified by Economist Nobel Laureate Paul Krugman’s book – The Return of Depression Economics, allow me explain it in simple terms:

Romantic Couples and Babysitter Couples
Say in Singapore, there is this exclusive club where couples are of the upper middle income earners. These couples have children and they don’t trust hiring babysitters. This is inconvenient if couples want to spend romantic evenings out, we call them romantic couples. Since members are long friends and trust each other, they devise a system to help each other out. Each couple will be given fixed number of coupons. Romantic couples will use their allotted coupons to ‘pay’ babysitter couples. If romantic couples ran out of coupons, then they will have to offer other couples to babysit for them to earn their coupons. This system works fine if couples are regularly taking evenings out. One would expect it, if its Valentine Day, Anniversary Celebration, Engagement parties (normally wives have many ideas and occasions to celebrate).

What if couples decide that they need to accumulate the coupon by offering to babysit for others? The number is more than romantic couples? You will have more savings of coupons as fewer couples are taking romantic evenings. Since active romantic couples would quickly finish their coupons, then they need to stay home to offer to babysit. But since other couples in general are staying at home too, the coupons are not circulating. The frequency of evening out for romantic couples will fall as they are short of coupons. So they have to offer to babysit. Couples with surplus savings of coupons, seeing that there are fewer couples go out, may want to ‘conserve’ their precious savings and they too prefer to stay home.

We have most couples then staying home, causing a fall in frequency of romantic outings. There is a marked drop in demand for babysitting coupons even though couples are offering to babysit. This fall in demand compared to previous period is an output level receding, thus a recession.

Paradox of Savings
Here is the paradox, the more couples ‘save’ coupons the less the coupons are circulated, the lower the demand for babysitting services. However, the opposite is true, say each couple on average takes 4 times romantic outings to 9 times a month, then the coupons will circulate around from 4 to 9 times, creating more opportunities for couples to take evenings out.

The exclusive club may issue new coupons to ‘stimulate’ demand but the figure may be deemed too small to match babysitting couples.

Recession hits an economy, when spenders i.e. consumers, investors and government decide to spend less which translates to aggregate fall in demand. Even if McDonalds, Coca Cola and Steven Spielberg movies offer fantastic products or services, they will still have deteriorating business. Worst scenarios are once healthy firms face shut down risks. The speed of spending as dropped significantly causing less demand for goods and services.

In other words, we have healthy factories, hardworking people and good infrastructures, but a slow down in spending could not justify the use of these resources, causing unemployment and suplus resources.

Point to note is governments worldwide like America is issuing new ‘coupons’, by increasing money supply to boost demand. How? Allowing banks more fund to extend loans, credit and hire purchase. But there are few borrowers and spenders to use the new funds. Not giving up, President Obama led the spending by committing USA Government to projects worth US$797billion. This large in itself but is paltry compared to the trillions of dollars lost due to reduced spending from consumers and investors.

Malaysian Government pledged to spend RM1bilion (US$1=RM3.50) a month but compared to the size of loss output due to fall in demand or speed in spending, again its insignificant. Already Multi Nationals firms are announcing job cuts, investment postponements and cutting costs all of which worsen the already weakened demand.

Bright light at end of tunnel?
Like all recessions, they recover to healthy growth. Why not consider investing in upgrading?your qualifications? Buy good robust properties? Invest in businesses? all in anticipation of returning days where couples go out for romantic evenings.

In my next article, i will post analysis by renown economists who predicted darkening economic days ahead.

Recession- What it means? Part I

Pic 01: Late USA President on recession definition. (By the way, his previous occupation is an actor!)

“Recession is when your neighbour loses his job, depression is when you lose yours.” (Ronald Reagan, 1985)

Youths favourite hangouts -From Left to right:

Pic 02: Starbucks cafes

Pic 03: Papa Rich cafes

I observed many youths ever so frequently patronise Starbucks, McD, Kopitiam in Subang SS15 areas. I can’ help it but think, do these people know the concept of recession? Perhaps their pocket money is unaffected. Ignorance may not be bliss, as for the Law often use “Ignorantia (juris) non excusat” which translates from Latin “Ignorance is no excuse”. Recession is bad and scary, indeed!

Year 2008, you have undoubtedly heard the term "recession" mentioned on media (unless you are too busy indulging in Female, Cosmo, Male Fitness Magazines). You've probably heard of global recession starting in United States with sub-prime property crisis to financial meltdown that spread like an economic H1N1 virus across globe.

How destructive is the recession?
North America’s economy has loss US$750 billion in output of goods and services. The Stock market was badly hit with loss capitalisation of US$1.2 trillion. To add to the pain, property prices and financial crisis in the banking finance sector cost the largest economy another US$2.1 trillion and over US$1 trillion. President Obama tried to stemmed the losses by injecting a paltry US$797billion, all of which is too little and too late.

On home front, Malaysia’s economy shrunk by RM37.6billion (US$1=RM3.5) for year 2009 thusfar. That is equivalent of providing free electricity, telephone and Astro for the entire population for the whole year!

What exactly is a recession?

First off, to understand what a recession is, you need to understand that economies go through periods of growth and contraction.By textbook definition a recession is two consecutive quarters of negative GDP growth. GDP is "gross domestic product", which is defined as "the total market value of all final goods and services produced within the country in a given period of time." So say in one quarter of year, the economy sells 1,000 movie tickets, but the next 2 quarters it fell to say 900 and 750, then it is a contraction which is recession. GDP growth is measured, as well as real personal income, employment, industrial production and wholesale-retail sales.Second - based on that strict definition, in North America the 2001-02 recession technically wouldn't have been a recession, as there weren't two consecutive quarters of negative GDP growth. But it was difficult year where contraction happened in non-consecutive quarters

To be honest, there is no real rock-solid formula in terms of determining whether or not we are in a recession and for how long it has lasted. If there was a rock-solid formula, we wouldn't need the Malaysia Industrial Economic Research, Malaysia or National Bureau of Economic Research, USA to tell us that we are in a recession.

"A recession is a period of reduced economic activity. It is a contraction of the business cycle which is marked by a significant decline in economic activity which lasts more than a few months."Malaysia has suffered through a number of recessions since the beginning of 1980, 1985, 1997-98 and now the present recession in 2009.

Opportunities amidst threats
The Mandarin word ‘wei ji’ means there is opportunities amidst threats or bad news. This is something that youths should exploit, for that matter all of us. To the man on the street, recession is a time where jobs are scarce, money is tight and future is uncertain. To my horrified observation, then why are youths spending behaviour is so wild as if treating recession as nothing more than a road signboard? Youths should seek opportunities now by investing in say Stock Market or Properties when the interest rate on loans are low and prices are depressed.

Pic 04: Virgin Founder - Billionaire Sir Richard Branson

Pic 05: Virgin's latest succesful venture into Airline Industry.

Yes, now is the time to invest and pick up choiciest opportunities. Richard Branson, founder of Virgin Group said, “If I ever going to invest, I will only do so only during recessions.”

Conclusion
On another note, how can factories producing high quality products which normally enjoy high demand could shut down? Isn’t it logical that consumers reward the strong producers by voting i.e. buying their products that translates to ongoing demand? In other words, why would perfectly healthy companies not survive in recession? Based on above excerpt, is depression worse than recession? Can the government do something about it?

This I will discuss in my next article.

NEW VIGOUR, RENEWED CULTURE- I AM A BUMIPUTERA!

- Practice Question for P1 (ACCA) and sociological analysis

Pic 01: If I can do it (Succeed), so can anybody!

New generation of Bumiputera risk-takers (in a good way) as entrepreneurs are emerging in Malaysian Corporate scene. Read on to know an outstanding businessman. Also a question on Risk Assessment is included to pique and pick your mind- to test your knowledge and especially application which is so crucial to P1 (ACCA) Professional Accountant subject.

Empire Builder (Chandler)
IF WHAT has been said and reported about Tan Sri Syed Mokhtar Albukhary (Picture 01) is true, then he is worth RM971 million - on paper at least. Touted as the new `Bumiputera' corporate player in town, Syed Mokhtar rose to prominence last year. The 50-year-old tycoon is more heard than seen. He is said to be behind three public listed companies and the RM2.4- billion Port of Tanjung Pelepas (PTP) in Johor. Syed Mokhtar's interest is masked under myriad private companies with Seaport Terminal Holdings Sdn Bhd and Impian Teladan Sdn Bhd being the main ones. The latter owns a 19.9-per cent stake in Malaysian Mining Corporation Bhd (MMC). Seaport Terminal controls 52 per cent of Johor Port Bhd and 70 per cent of PTP. Recently, MMC acquired a 50.1-per cent stake in PTP from Seaport Terminal with combination in shares and cash.

With the deal, then Seaport Terminal will control 28.8 per cent of MMC. This will lead to Syed Mokhtar controlling 49 per cent of MMC directly and indirectly. Besides MMC and Johor Port, Syed Mokhtar is also said to own a substantial stake in second boarder Amtek Holdings Bhd. Syed Mokhtar's direct and indirect stake translates into RM733 million on MMC. Add this figure to Seaport Terminal's interest in Johor Port and his holdings, through nominees, in Amtek Holdings, and Syed Mokhtar is worth nearly RM1 billion. And these are only his listed assets. He has some valuable private projects on hand like the proposed RM7-billion power plant in Pulau Bunting, Langkawi. Nobody can ever tell conclusively the true worth of the self-made tycoon as his name is not found in the shareholdings of any of these companies.

Humble History
Syed Mokhtar rose from humble beginnings in Kedah. He had to venture into small businesses to sustain his education which went no further than secondary school. He was transacting almost anything in his early days to pay his school fees. After school, he found a niche in the rice milling business, which paved the way for his rise. He was peddling rice all over the country when he got to know Tan Sri Muhyiddin Yassin, then a high ranking civil servant in the Johor State Government. Syed Mokhtar's fortunes rose when Muhyiddin became the Menteri Besar of Johor.

A late bloomer, Syed Mokhtar only got married a few years ago to the daughter of Datuk Syed Kechik Syed Mohamed, who at one time was said to be one of the richest Malays. Based on the list of richest Malaysians, Syed Mokhtar may not be far from emulating the feat of his father-in- law.

Horrible prospects to Singapore’s logistics industry

Pic 02 (left) :Maersk switch port location to Tanjung Pelepas. Major impact on Keppel Port

Pic 03 (right) : Ever busy 24/7 Keppel Port, Singapore

Singapore’s Port – a hub is primarily dominated by Keppel Port Limited. It’s the main driver to Singapore’s port making it the 3rd busiest port in the world, using hub-&-spoke system where feeder ships come to Keppel Port and the ocean liners [huge ships] takes inter-continental routes. Dr. Mahathir, then Prime Minister of Malaysia, was never too pleased to see the neighbouring port’s success as he viewed that it’s nothing more than a middle-man specialising in trade. He opines that Malaysian companies should not take the full risks of investing and manufacturing only to let Singapore port benefit from importing from them and re-export to the rest of the world particularly 2 richest continents - America and European Union.

In response to reduce dependence on Singapore, three rival ports were built in Malaysia namely Johor Port, Bintulu Port and Tanjung Pelepas Port. Specifically to reduce Keppel Port’s dominance. Tanjung Pelapas, Syed Mokhtar’s cash cow have had a strategic alliance with Freight Forwarders Maersk. Shipping rates have increased 80% over 2 years and there is no sign of abating in early 2008.

Pic 04: Collaborative Opportunity with Chinese Government (Beijing)

Singapore government is considering developing a new port in China in alliance with the Chinese government (Picture 04) . It will rival the size of Shanghai port but it targets the northern part of China. Recent trends have indicated more investment up north and inner west are picking up, thus the need to justify port infrastructure.

Pic 05: Dr M - always in Action! Most powerful Bumiputera Leader

Required:
a) Prepare a Risk Map and classify the various risks that the company is facing giving reasons for your classifications. (8)
b) State the level of Board’s considerations for managing these risks. (4)
c) State the risk exposure, risk appetite, risk strategy, risk capacity and finally risk residual of the Keppel Limited considering its expansion into China. [13]