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International Business Strategy. Logistics in Asia

A Minority Share Holdings Proposal: Yamato Holdings Co. Ltd

Seminar Paper 2014 34 Pages

Business economics - Supply, Production, Logistics

Excerpt

Table of Contents

Executive Summary
Business Opportunity
Marketing Highlights
Operational Highlights
Financial Highlights

FINANCIAL PLAN
Aramex Balance Sheet
Income Statement Analysis (Comparative)
Cash Flow Statement
Free Cash Flow Scenario’s

FINANCING THE DEAL
Financial Intermediaries

Company Profile
Business Operations, Ta-Q-Bin Solutions
Business Description
Proposed Location

Industry Overview
Competitive Advantages
Industry Trends
Express Industry Key Success
Barriers To Fntering New Market's

Target MArket SYNERGIES

Competitive Analysis
Why Seek Growth Externally

Key Marketing Strategies

Operational Plan
Operations Regulations
Research And Development
Human Resources

Works Cited

EXECUTIVE SUMMARY

BUSINESS OPPORTUNITY

Yamato Co.Ltd has been an innovator and market leader in the express small package delivery industry of Japan for 30 years. Its strong domestic position opens up the possibility of international expansion to achieve sustained growth.

The business opportunity to develop an intranet of logistics in cities across Asia, Oceania and Africa is open but is time sensitive and relative to the following points:

1. Infrastructure (roads, traffic congestion, internet penetration, potential service and logistics partners, urbanization and density of population)
2. Overhead (human resource, fuel, electricity and other transport costs)
3. Political (stability, rule of law (safety of delivery), open to foreign investment)
4. Wealth (consumption rate, consumer price index)
5. Cultural (demand for convenience and reliability over cost, adoption of online retailing, attractiveness of point of deliver pay)

In this dissertation I argue that Yamato should focus on its core competency of small packages when formulating international expansion strategies and not its legacy services such as specialist freight forwarding and packing for Japanese manufacturing firms.

MARKETING HIGHLIGHTS

Yamato ’ s Service Distinctive Features

“Ta-Q-Bin” offers advanced and innovative services for a slight premium over traditional express package delivery. Yamato’s reliable Cool, Frozen, and Time delivery services are provided 365 days a year and are expected to suit the target market:

Target Market Summary

The target market discussed in this dissertation is the Gulf Cooperation Council, particularly the UAE. Members of GCC: UAE, Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia. This market is targeted due its geographical location in East Asia and the fact it meets the criteria deemed necessary (ibid) for Yamato’s products to be profitable:

1. Rapid adoption of e-commerce (growth rate 50% higher than OECD average at 35% p/a) (VISA International, 2013)
2. Harsh climates (suited to “Cool” and “Frozen” Ta-Q-Bin services)
3. Demographics (50% under 30 years old in GCC, 75% migrants in UAE)
4. High disposable income (the highest per capita income in the world, consumption per capita is 53% higher than Japan’s)
5. Cultural factors which restrict the ability of women to shop without a male chaperon.

Competitive Analysis

Companies such as Agility, KGL and Aramex dominate logistics industry in the Middle East. However Aramex is the market leader in express package segments with its only major competitor postal services throughout the region. This dissertation argues Yamato Holdings should target Aramex for minority share holding and eventually full acquisition.

OPERATIONAL HIGHLIGHTS

Regulatory Issues

Local investment laws limit holdings by foreign entities in business ventures to 49%. To acquire a share in Aramex greater than 49%, Yamato would first need to establish a 100% UAE owned subsidiary.

Management Issues

The two companies have differing managerial systems and corporate structures. Namely Yamato has a 20 man BOD (90% internal) while Aramex has a 9 man BOD (90% external). In terms of managerial systems, Aramex uses both expatriates and locals in its management structure where has Yamato relies primarily on locals to run its subsidiary businesses. Both companies are actively seeking expansion and growth through merger and acquisitions.

FINANCIAL HIGHLIGHTS

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Financial Forecast Assumptions

- 10 year cash flow growth 12%
- Purchase shares at estimated NVP value (1.02 Per Share)
- Depending on free cash flow scenarios a per share price premium between 18%~36% above the market value is considered acceptably
- A 49% minority share holding recommended to give Yamato maximum influence on the board of directors
- Notes:
- A share holding of 11% would make Yamato Aramex’s largest shareholder
- Aramex (at current growth rates) is currently undervalued by the market
- $729 Million USD will be raised by a combination of share swap, bank facility, cash and a bond issue.

FINANCIAL PLAN

ARAMEX BALANCE SHEET

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Figure 1 Aramex Balance Sheet

Chart 1 Aramex Balance Sheet Ratio's

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- Aramex has a healthy balance sheet.
- The balance sheet shows Aramex to be a company run primary on equity
- Aramex’s balance sheet shows the company can afford to take on debt putting it in a strong position to continue growth through mergers and acquisitions
- A current ratio of 2.1 shows that Aramex is in a position of financial strength
- Retained earnings growth (5 year average) shows the company is building significant cash pile, which could also be used to pursue growth.

Abbildung in dieser Leseprobe nicht enthalten.

Chart 2 Comparative Debt Ratios

Aramex is under no financial stress and is more than able to take on debt. Debt equity ratio is extremely strong meaning shareholders have a vested interest in growing the business. Yamato’s ability to access cheap capital for investment would assumedly be highly attractive to Aramex’s shareholders.

Abbildung in dieser Leseprobe nicht enthalten.

(see Figure 2)

Common-sizing the income statements of both companies shows that despite Yamato generating profits more than 5 times that of Aramex, overall Aramex is in a stronger financial position due to its higher margins, profit growth and low debt ratio.

Abbildung in dieser Leseprobe nicht enthalten.

Figure 3 Aramex Historical Cash Flow Statements

(see Figure 3)

We see that Aramex has historically had a positive cash flow and is generating strong profits from sales. The cash flow scenarios found below are very conservative and with only marginal improvements on cash flow assumed after a minority share holdings. If the cash flow growth rate increases significantly after a minority shareholding or merger Yamato stands to benefit handsomely from this proposal.

Abbildung in dieser Leseprobe nicht enthalten.

Table 1 Year on end profit growth by segment

We can see that Aramex receives excellent profits from international express something Yamato is targeting specifically (Yamato, 2012). These profits are also growing rapidly.

Chart 4 Regional Revenue

Aramex’s key market is the Middle East and Africa. However it does receive almost 30% of its revenue from external markets. This is comparable to UPL (UPL , 2012) and is something Yamato is targeting specifically in its growth strategy.

- In short Aramex has both a superior geographical and divisional spread of revenue

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Details

Pages
34
Year
2014
ISBN (eBook)
9783656961567
ISBN (Book)
9783656961574
File size
1.7 MB
Language
English
Catalog Number
v298228
Grade
HD
Tags
logistics business strategy m&A

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Title: International Business Strategy. Logistics in Asia