URC CASE STUDY

1. Trace URC‟s success story. What are the factors that contributed to its success? Trace URC‟s success story. Universal Robina Corporation (URC) traced its beginnings all the way back to 1954. John Gokongwei, Jr. was doing very well then as a trader/importer. He had learned the trade when his father died before the war, and had worked hard through the war and postwar years to prosper. However, while he thrived, he took a long hard look at his company, and correctly predicted that trading would remain a low-margin business. On the other hand, a successful manufacturer controlling its own production and distribution would command more profitable margins. Mr. John decided to construct a corn milling plant to produce glucose and cornstarch, Universal Corn Products (UCP), the first building block of the company that would become URC. For a time, business was good. However, Mr. John was still looking ahead, working with an eye towards the future. While the business was doing very well, it was producing essentially a commodity, which a customer could easily access elsewhere. To stay ahead in the game, Mr. John had to diversify by producing and marketing his own branded consumer foods, similar to the multinational companies in the Philippines like Nestle and Procter & Gamble. In a sense, he wanted to put up the first „local‟ MNC, borne out of their best practices. Thus, in 1961, Consolidated Food Corporation was born. Their first „home run‟ product was Blend 45, the first locally-manufactured coffee blend, dubbed as the “Pinoy coffee”. This became the largest-selling coffee brand in the market, even beating market leaders Café Puro and Nescafe. After coffee came chocolates. Nips, a panned chocolate similar to M&Ms, was a staple of Filipino childhood. In 1963, Robina Farms started operations, beginning with poultry products. This was also the beginning of the vertical integration of the Gokongwei businesses, as the farms would be able to purchase feeds from UCP in the future. Later that decade, Robichem Laboratories would be put up, to cater to the veterinary needs of the farms businesses. Robina Farms expanded as it entered the hogs business in the latter part of the 70s. 1966 saw the establishment of Universal Robina Corporation, which pioneered the savory snacks industry in the Philippines through its Chiz Curls, Chippy, and Potato Chips, under the “Jack „n Jill” brand. Other snack products would follow over the years, as the company successfully introduced market leaders like Jack 'n Jill Pretzels (pretzels), Piattos (fabricated potato chips), and Maxx (hard candy). The coming decades saw more acquisitions and expansion. In the early 1970s, the Gokongwei family entered the commodities business through the formation of Continental Milling Corporation, for flour milling and production. The late 1980s brought the acquisition of three sugar mills and refineries, under URC Sugar. These two businesses provided stable cash flows, and allowed for further vertical integration in the supply chain, to help URC weather any volatility in the cyclical commodities markets. In

line with this strategy, the late 1990s saw the entry of URC into the plastics business, through URC Packaging. As the businesses became more diversified, the companies were slowly integrated in order to streamline operations and minimize costs. In 2005, the present structure of the group was completed. All the different companies are now organized under Universal Robina Corporation, divided into three focused groups: 

the Branded Consumer Foods Group, composed of BCFG Domestic (including packaging) and URC International, for the production and sale of snacks, beverage, and grocery products,  the Agro-Industrial Group, composed of Universal Corn Products, Robina Farms, and Robichem, for the production and sale of animal feeds, day-old chicks, hogs, and veterinary medicine,  and the Commodity Foods Group, with the Sugar and Flour divisions, for the production of flour and sugar, and for sugar milling and refining services. URC is a core subsidiary of JG Summit Holdings, Inc. (JGSHI) which is one of the largest business conglomerates listed in the Philippine Stock Exchange.[1] URC owned the Philippine Basketball Association franchise Great Taste Coffee Makers which played from the inaugural 1975 season to 1992 when the company sold the team to Sta. Lucia Realty. The Coffee Makers won 6 PBA championships. What are the factors that contributed to its success? (1) Managing and developing people - People today want some direction and structure, but they also want freedom and encouragement to develop their skills and knowledge. Effectively managing people requires balancing constraining forces (providing direction, structure, organization, some rules) with liberating forces (encourage personal growth, development and creativity). If you as manager/leader err too much in one direction or the other, your organization will be either too rigid or too chaotic. To make it more complicated, each person has a different set of needs for structure vs. freedom, order vs. opportunity, logic vs. personal values, factual information vs. meaning and connections, and so on. Effective managers do not manage all people the same, except for some basic rules. They manage each person according to what he or she needs, what motivates them to do their best. This can be complicated but is essential for success.

(2) Strategic focus - In today‟s rapidly changing world, it‟s not just enough to have a purpose for existing. Leaders have to focus the organization‟s resources on the greatest opportunities, which shift with each new day. Just run through your mind what has happened in the world or your organization in the past year or two, and you‟ll understand what we mean by the reality of constant change. Doors open and doors close. Major customers or income sources can change or even go out of business at any time. So it‟s necessary for leaders to keep focused on the desired end results such as increased sales and profits, or more satisfied customers, while constantly steering the organization across the stormy waters of the marketplace. As the illustration shows, the job of focused leaders is to connect and align all the Success Factors for optimum performance. (3) Operations, or what people do all day - What the people in your organization do day in and day out to create value for customers, to earn or justify income, strongly determines whether you succeed or fail. Like the other Top 5 Success Factors, you can‟t separate operations from strategic focus which gives direction, people which do the work, customers who pay the money and physical resources to do the work. Effective operations ensure that customers get exactly what they want at the right time, the right price and the right quality. Thus effective operations management focuses on what is called cycle time (producing a product or service from start to finish), cost control, and quality control (which requires some form of measurement). Strategic focus is largely externally oriented, operations largely internally oriented. Both need to be totally in sync with each other – not something that happens automatically but rather requiring constant effort. This is why communication is the true lifeblood of a successful organization – a high flow of information so everyone and everything is connected. Easy to say, hard to do.

(4) Physical resources - Finances, facilities and equipment are the big 3 physical resources. If you don‟t have enough money, you can‟t start or sustain an organization. And one of the biggest expenses is providing adequate facilities and equipment for people to work in and with. Experienced managers learn that cash flow is king. It doesn‟t matter how much customers owe you, it‟s when their money enters your bank account so you can use it to sustain the organization. Failing to manage cash flow is the No. 1 reason for business failure. Too many business owners leave the money up to someone else and can easily get blind-sided when suddenly the money isn‟t there to keep the doors open. And in a few rare, unfortunate cases, the person tracking the money embezzles or cooks the books, then you really are in trouble. Likewise nice facilities can be energizing, something to feel proud about, but also very expensive. The economy is always cyclical, and if you buy or lease really nice facilities when times are good, paying for them can be difficult or impossible in a downturn. (5) Customer relations - Customers are where the money comes from, so in many ways this is the most important success factor. As the famous business guru Peter Drucker said years ago, The purpose of a business is to get and keep customers. Getting customers involves marketing – indeed this success factor includes all kinds of marketing and sales. The key to successful customer relations is to give them what they need, not just what you want to sell. Effective sales and marketing begins with asking existing and potential customers what they need, what problem they want solved or deficiency filled. By keeping in touch with customers and asking these questions often, you‟ll do a better job of developing customer loyalty and keeping competitors away. In the broadest sense customer relations can be considered the organization‟s relationships with the external world. It involves tracking competitor actions, analyzing changes in the market environment, and adapting according. This is closely linked to Strategic Focus. 2. Analyze the growing market base in Asia. How did Gokongwei take advantage of it? Gokongwei managed to succeed in his attempts to penetrate different industries because he is considered as one of the game-changers in various industries. What is common in his business tactic penetration is his offer of his products at a very low price with good quality. 3. Based on John Gokongwei‟s words of wisdom, how can the Philippines compete globally? Gokongwei believes that we can create our very own global brand. 4. Are there hindrances for the Philippines‟ inability to have its own global brand? Explain.

1. Lack of Voice Voice is a vital element to any brands success. Although one might associate voice with other professions such as writing and acting, however, according to Turner, a brand's voice is the message, and the essence of your business.

An organization may have interesting ideas, but if the message doesn’t resonate with audiences; the execution will suffer.

2. Too Much Thing, Not Enough Human Consumers want to interact with other people, not the company as a whole. Today, they have no desire to deal with a thing... they want to feel like they are interacting with a real, live person.

Brands that stress on human elements are more likely to experience success.

3. Too Much 'Sell' Ultimately, we all got to sell. However, hard core selling is not all that counts when marketing, we need engagement. Companies that go online and choose to merely tweet about their products suffer in the long run. Interact with your followers and offer them some interesting images and stories. After all, Social media is essential to help build relationships.

5. Identify Gokongwei‟s entrepreneurial traits which made him successful. 1. Change is inevitable and flexibility is the key. Entrepreneurs gladly accept change. If it is not happening, they stir up the status quo and make important changes. Change is inevitable. Instead of being the victims of change, entrepreneurs just look for opportunities to make the best out of important changes. The business strategy of John L. Gokongwei Jr. testify to this principle. When Gokongwei entered the manufacturing industry, he changed the rules of the game in the Philippines. In the telecommunications

sector, he introduced the Unlimited Texting and Unlimited intra-network calls that changed the Philippine cellular phone industry. 2. Personal stakes in the company encourage everyone to work hard. By involving subordinates and members of the organization, they will feel that they truly belong to the organization. As such, they will become stakeholders in the company and they will work for the improvement of the organization. 3. Mistakes and disappointments are inevitable. Failures are a part of life. Deal with it. Gokongwei faced a lot of odds in his business career. At one time, he did not succeed in breaking through a particular sector. Some of his businesses failed. Some even failed to take off the ground. Yet, Gokongwei learned a lot of things from all those experiences and he became a great business tycoon after. 4. Good brand building equals reputation. Gokongwei has a lot of brands to his credit—the budget airline company, Cebu Pacific Air; telecommunications companies such as Sun Cellular, and Digitel Philippines; snacks company Universal Robina Corporation; and shopping mall chain Robinson’s Place! He has succeeded in building these brands and in turn, his reputation soared! 5. Family support is crucial. John Gokongwei’s family has been crucial in building his empire. He was not able to finish his college degree, but he sent his younger brother James to the Massachusetts Institute of Technology to study and help him establish his empire. His brothers and sisters helped him in his early endeavors. Until now, family members such as his son Lance Gokongwei are very much active in helping him manage his business empire. 6. Never lose sleep thinking of business risks. Gokongwei knew how to enjoy life! Yet, he enjoyed the game of business, more than just the rewards with it. 7. Pausing to recharge brings new vigor. Even if he was very busy, Gokongwei tried to find time to rest and renew his spirits. This helped him keep thinking of new businesses and improvements in his operations. 8. Reading and traveling enriches one’s mind. When he was young, Gokongwei was not afraid to brave the open seas to sell his goods in Manila. When he was older, he also went to different places to enrich his mind. Reading was also a great part of his lifestyle as he was always on the lookout for good ideas. 9. Philanthropy is a personal satisfaction. When he became very rich, Gokongwei found ways to help others. His businesses already generated thousands of jobs in the Philippines. Because he values education, he has donated money to the Ateneo de Manila University to support business education in the Philippines. John L. Gokongwei Jr. is already 80 years old. Yet, he continues to make his mark in the Philippine business environment. His life is a shining testimony to the great benefits of an entrepreneurial life. - See more at: http://mightyrasing.com/nine-rules-of-business-success-of-john-gokongweijr/#sthash.C3INkslb.dpuf

John Gokongwei Jr. is considered as one of the big business tycoons in the Philippines. Gokongwei’s rise to fame and economic power came later than his Chinese peers such as Henry Sy and Lucio Tan.

John Gokongwei Jr. was the eldest child of second-generation Chinese immigrants. He was born in Cebu City, which is located in the Visayas group of islands of the Philippines. They started out as a wealthy family; his father owned the first and only movie house in Cebu. But things changed when his father died after receiving the wrong blood type during a transfusion. Entrepreneurs start early. Their family went from rags to riches. John Gokongwei Jr., being the eldest child became the breadwinner of the family. At an early age, he learned how to sell food and other goods in the streets of Cebu, competing with men and women who were at least twice his age. In his teenage years, Gokongwei bought his own bicycle so he can go to nearby towns and barrios to sell soap, thread, candles and other things that people need. His energy was boundless. He would wake up early so he can start selling early on. By the time the sun sets, he would be on his way home to bring food and money back to his family. Adversity and survival play an important role in the life of an entrepreneur. Gokongwei says that he “did not become an entrepreneur to help the country, create jobs, or even to profit from something in which [he] excelled. [He] became an entrepreneur to survive.” Filipino family values are also at play here. In the absence of the father, the eldest son usually takes charge in providing for and supporting the family. Gokongwei did just that and more! While the majority of people complain about events occurring in their environment, entrepreneurs create value and look for opportunities. After World War II, the economy of the Philippines was bad. The Americans suddenly gave freedom to the Philippines in 1946, which was but another way of saying we don’t have the money to rebuild your country. While everyone else was busy complaining, Gokongwei saw the opportunities that a recovering economy needed. He started importing goods from the United States. Between 1945-1955, he went to the United States several times to get goods for sale in the Philippines—clothes, tires, food, anything! Name it and he would have probably imported it!

Entrepreneurs tend to have that special optimism that makes them hardy and resilient in times of difficulties in their environment. This is probably one of the reasons why Gokongwei managed to play his game well. Entrepreneurs are not afraid to take the next steps. Entrepreneurs are often painted to be fearless people. But I would say that they merely understand the risks of the business and they choose which risks they want to gamble with. Gokongwei was not afraid to take the next steps to grow his empire. In 1956, Gokongwei started contacting banks to get loans that could finance his foray into the manufacturing sector. He was rebuffed by the first bank he applied loans for. But thanks to Chinabank, the second bank he approached, he got a five hundred thousand peso-loan! In those days, that was a very big sum of money! Yet, again, Gokongwei proved his worth by using every single peso for expansion of his business. Entrepreneurs are uncommonly lucky! The story about the Chinabank loan is incomplete. When the top brass of Chinabank, D.K. Chiong (bank president) and Dr. Albino SyCip (chairman of the board), saw him, they give him the loan! Dr. SyCip said that he knows a good man when he saw one. John Gokongwei Jr. certainly appeared such a man in the eyes of SyCip and Chiong. To this day, Gokongwei says that he owes his success to these two men who gave him the financial break he needed at that particular time! Entrepreneurs are probably lucky because they cultivate good countenance and intense credibility. When you keep on doing business honorably, you end up becoming more likable and luckier each time you need luck on your side. Entrepreneurship is a calling. Gokongwei says “what propels me is not the money I made, although that has been great. Nor is it even the satisfaction of helping my countrymen. Entrepreneurship, for me, is a path to a life lived to the fullest. It is a road strewn with challenges that constantly tested my character. For those who want a life of adventure, this is it.” As Gokongwei went through life, he did not actually finish a college degree. He learned on the road. Sure, he went to some Masters-level studies for business management in Harvard but that was later in his career. He was too busy pursuing his calling that he did not even had the chance to complete his schooling. Yet, Gokongwei’s schooling had been in the school of hard knocks. Through all his experiences and the difficulties he faced, he became stronger. He learned his lessons. And as he continued to expand his empire, he ended up changing a lot of the industries in the Philippines. To this day, Gokongwei is considered as one of the game-changers in various industries—whether in the budget airline sector, in telecommunications, real estate, manufacturing, retailing and banking among others. He has also given much to charities and educational institutions as a means of giving back to the country where he prospered as a business tycoon. - See more at: http://mightyrasing.com/john-gokongwei-jr-biography-lessons-inentrepreneurship/#sthash.HT2m7YNJ.dpuf

traits 6. Make a research on the acquisition of Sun Cellular by PLDT. Make your comments. Upon being presented with the option of selling Sun Cellular in return for a 12% ownership equivalent to a seat at PLDT, the Gokongwei’s are torn of whether to reject the offer and continuously think of strategies in order to maintain and improve Sun Cellular’s status in the telecommunication industry or on the other hand, accept the offer and earn

12% of the now improved PLDT upon acquisition. I cannot say that it is a gamble and the Gokongwei’s made a risky decision because in both options the Gokongwei’s will still earn profit in the telecommunication’s industry. In my opinion, in the long run perspective, the Gokongwei’s made a smart and strategic decision of taking the offer. PLDT is the number one telecommunication’s company and upon acquisition of the sun cellular it solidifies its position as the dominant telecommunications player in a capital-intensive and highly competitive industry. The Gokongwei’s, as the owner of Digitel, one of the dominant telecommunications player and one of the formidable competitor of PLDT will only have a once in a lifetime offer to be given a seat in another telecommunications company such as PLDT. One principle and business tactic that is often portrayed in telenovelas is that if you want to take-over a company it is easier if you are already on the inside, which somehow resembles to what the Gokongwei’s did upon selling Sun Cellular to PLDT. However, I ain’t sure if it works the same way in real life. Also, this decision of the Gokongwei’s proves their confidence on themselves and its employees that they can create another Sun Cellular. After all, the Gokongwei’s are renowned as one of the game changers in the industries. Creating another Sun Cellular is not easy but it is also not impossible.

PLDT-Digitel deal: What's in it for the Gokongweis? By Judith Balea, abs-cbnNEWS.com Posted at 03/31/2011 6:07 AM | Updated as of 04/04/2011 3:49 PM MANILA, Philippines - The deal between giant Philippine Long Distance Telephone Co. (PLDT) and Gokongwei-led Digital Telecommunications Inc. (Digitel), the operator of the Sun Cellular brand, is nothing usual. Two of the country's largest and richest companies in one of the most strategic industries have just sealed the largest buyouts in Philippine corporate history. The price tag: P74.1 billion. How PLDT will benefit from this swiftly executed deal is apparent: It solidifies its position as the dominant telecommunications player in a capital-intensive and highly competitive industry. But what's in it for the Gokongwei family, Digitel's controlling shareholders? Lance Gokongwei, the president and COO of Digitel's parent firm JG Summit Holdings, has said that they have been looking for a suitable partner for years. But he had shared that selling Digitel was a "very difficult decision." Cashless transaction The deal was structured this way: PLDT is buying 51.55% of Digitel and the latter's debts, including a bond convertible into Digitel shares, for P69.2 billion. It is paying the transaction cost with new PLDT shares priced at P2,500 each, making the deal a share exchange. In other words, the Gokongweis will not be laughing all the way to the bank at the close of this cashless transaction. Some say cold cash is what the Gokongweis should have demanded for a business that successfully carved a niche in the market through its popular bucket-priced offerings.

After all, they invested at least P40 billion (P34 billlion in advances, P9 billion in equity) in Digitel since they acquired it in 1993 and launched in 2003. It has been operating at a loss for years, but posted a modest P851 million net income as of September 2010. The deal will give Gokongwei a 12% stake, equivalent to one board seat, in PLDT. One seat There lies the rub. It wasn't long ago when John Gokongwei Jr., the family patriarch, launched an almost $1 billionworth aggressive bid to gain a seat in PLDT in 2002. But PLDT chair Manuel Pangilinan, who was then the president, was able to muster enough support from existing PLDT shareholders to block the elder Gokongwei's entry and keep his role as the goalkeeper of the company controlled by the Salim family of Indonesia. At the time, PLDT has lost market share to Ayala-led Globe Telecoms and a merger with Digitel, then the number two landline operator, was seen as a positive influence to PLDT's financial future. Nothing came out of that after PLDT management cited conflict of interest, and the lawmakers were wary of a dominant player in an industry that has already been liberalized. Nine years after, the cast of characters are the same but the situation is different. Smart Telecom, the mobile arm of PLDT, has made strategic moves -- focusing on the prepaid market, first to introduce over-the-airwaves credit loading, among others -- that allowed it to rake in billions of pesos in yearly profits, way more than Globe had been making. Smart's success bankrolled efforts of the PLDT group to pursue a convergence strategy. The group has established presence in other businesses -- such as media, outsourcing, etc -- that helped the group transcend from just being a utility company involved in traditional telecommunication products, to one with a diversified portfolio of businesses. But Digitel was a thorn on PLDT's side. Digitel's Sun Cellular offered the lowest bucket plans in the country, effectively dampening margins of both the top 2 players -- PLDT and Globe. The 2 were forced to offer similar cheap services, too, when subscribers signed up for Sun deals in droves. Smart subsidiary, Connectivity Unlimited Resource Enterprise, Inc. (CURE) started offeringRed Mobile brand in 2008 to go head-to-head against Sun. This strategy didn't work. Red saw its prepaid subscriber base fall by 752,313 to reach 381,477 in September 2010. Before the mega-deal between PLDT and Digitel, the latter has snatched from Globe the top post in the postpaid market. Why then would the Gokongweis agree to one seat in PLDT after they have proven themselves as a formidable player in the industry?

PLDT's prospects Analysts point to PLDT's rosy prospects -- and the Gokongwei's share in it. They said Gokongwei's true gain now lies in its ownership of PLDT, whose valuation is seen to increase significantly following the Digitel buyout. "There are very clear benefits for PLDT. Digitel has been instrumental in launching a lot of the unlimited text as well as unlimited voice products in the Philippine market. To the degree that they're taken out a bit as price aggressor, then we see firmer pricing across the board which is positive for both revenue growth and margins of PLDT," James Sullivan, head of Asia Telecom Research at JP Morgan Singapore, told ANC in an interview.

"We see a 300 to 500 basis point margin improvement at PLDT-Smart level," he said. Sullivan also cited another important benefit from the acquisition: capital expenditure savings. "Directionally, we're likely to see a reduction of capex at PLDT level. The capex savings is another key aspect to focus on because it will affect the free cash flow of PLDT moving forward." Sullivan also debunked some claims that the PLDT-Digitel transaction is "expensive." "Some people have suggested that this is a very expensive transaction for PLDT because of the implied value for Digitel. That's wrong." He said that aside from improved margins, Digitel has become a "significantly more profitable" unit for PLDT. "For Digitel, we will see immediate step change function in terms of the marketing structure of the company as it leverage a lot of PLDT's in-house systems. We'll also see a drastic reduction in interconnection payments paid by Digitel to PLDT on a consolidated basis. We see vastly improved margins for both companies moving forward." Nearest competitor Globe Telecom, meanwhile, is not at all at the losing end, Sullivan said. He noted Globe also stands to benefit from less competition. "Globe is put in an interesting position. On one hand, the industry structure has become far more stable which is positive for industry participants. One can argue this is positive for Globe because they get the benefits of an improved industry structure without having to pay the price." "The more interesting question is will we see significant changes in Globe's strategy. They have lost market share in the couple of years and now they're facing a PLDT, which is more dominant than perhaps it's ever been. The road ahead for Globe, I think is a bit difficult," Sullivan concluded.

MY COMMENT:

7. Is Gokongwei’s move a strategic one, with Sun being number 3 in telecommunications industry?

Read more: http://www.entrepreneur.com/article/200730#ixzz2oaDlY49X

References: http://en.wikipedia.org/wiki/Universal_Robina http://totalsuccesscenter.com/business-success/key-success-factors/ http://www.abs-cbnnews.com/insights/03/30/11/pldt-digitel-deal-whats-it-gokongweis http://www.entrepreneur.com/article/200730 http://www.mbda.gov/node/337