A Case Study on the Product Diversification of the Copra Business of Bato-bato Mana Corporation, Inc. in San Isidro, Davao Oriental

Date

6-2023

Degree

Bachelor of Science in Agribusiness Management

College

College of Economics and Management (CEM)

Adviser/Committee Chair

Arlene C. Gutierrez

Committee Member

Normito R. Zapata, Jr., Jennica Amielle M. Mora, Mar B. Cruz

Abstract

Bato-bato Mana Corporation, Inc. (BMCI) is a family-owned copra business in San Isidro, Davao Oriental, focusing on producing and managing coconut properties since 2004. In its 19 years of business, the company has already built an efficient co production system resulting in high outputs at low costs. However, even with BMCI’s efficient system, profit remains low due to the final product heavily relying general market price and demand of other processed copra products. This case study focused on the owner’s motivation for product diversification and the researcher’s ta on the company’s readiness to produce refined coconut oil.

The purpose of this case study was to evaluate the current performance of Bato-bato Mana Corporation, Inc. (BMCI) and assess if the company can enter a new market of processed products made from copra, specifically refined coconut Specifically, aimed to (1) Examine the external environment of the coconut industry the Philippines; (2) observe and describe the internal environment of BMCI; (3) assess the readiness of BMCI to expand its operations to Refined Coconut Oil production; a (4) recommend strategic action steps for BMCI to implement its chosen diversification strategy successfully.

The researcher employed a generic single case study design to present an in-depth business analysis through a qualitative case study design and a quantitative analysis of its financial performance. The researcher used primary and secondary data collect relevant information to answer the research objectives. An interview was conducted with the Operations Manager and Figurehead to obtain current business strategies, the business functions, challenges and issues the company faces, and motivation for diversification. For the secondary data, an external analysis of PEST and Porter’s Five Forces, the company’s history, profile, financial statements, opera records, and salary and wages were used to determine the company’s capability to enter the new market of producing coconut oil based on its current operations.

Based on the analysis of the collected data, the external environment shows that the coconut oil industry is attractive due to its versatility as a product but is competitive in nature due to its undifferentiated and standardized production process. On the oth hand, the current internal environment of the company was discussed through the four business functions. For the marketing 4Ps, copra is sold as a final product to local bu copra buyers in Mati City or Davao City, with prices depending on the daily commodity release by the Philippine Coconut Authority. Its current operations do not do any promotions but engage in buy and sell with small-scale farmers through word of mouth. In terms of operations, BMCI outsources its copra production activities, such as harvesting, hauling, dehusking, drying, and weeding, to contractual farmers, which amounts to a cost of production of PHP 6.27 per kilogram of copra. Its efficient operation system reflects the high outputs gained by the company through its locally grown talent. The human resources of BMCI revolve around the eleven regular employees that have been with them since the beginning. In its 19 years in the business, most of the employees have adapted to BMCI’s work culture and the work experiences provided to them. In the financial aspect, it is seen that even though BMCI produces yearly profit, financial ratio analysis shows that BMCI cannot cover its short-term obligations, t company does not efficiently use its assets to gain sales, and BMCI can cover operations from its assets, but stockholders have little control over it. The low copra market price affects the business’s gross profit and return on investment.

Moving to the business readiness assessment, the researcher created a similar content from the business functions to foresee the needed action steps for the proposed strategic direction of producing refined coconut oil as one of BMCI’s final products terms of the marketing 4Ps, the company must put in more effort into its branding, sal quotas, physical and online stores, and several packaging priced at a reasonable amount that is lower than the national average. For the operations, a 90 square meter factory will be built with a capacity of 700 liters of refined coconut oil per day located near BMCI office and copra processing plant in San Isidro, Davao Oriental. A forward integration will be adopted wherein 70% of the current copra production will be used for the refine coconut oil production, which will use approximately 60% of the refined coconut o plant capacity. To handle this production factory is seven new talents, with one person leading the operations and four labor workers that can be sourced from BMCI’s current talent pool. In terms of finances, the researcher computed the cost and revenue assumptions, projected initial investment, net cash flow, net present value (NPV), a internal rate of return (IRR) to determine the profitability of the product diversification. Based on the results, a PHP 194,139.64 NPV and a 22.17% IRR shows that the proposed strategic direction ensures that BMCI is expected to earn more than its expected costs.

Before discussing the best course of action for BMCI, the researcher also conducted a sensitivity analysis with two additional scenarios: maximum production capacity of refined coconut oil and potential copra increase in the future. The form scenario opts to outsource copra from other suppliers to attain 100% refined coconut oil factory capacity. With a cost of production amounting to PHP 30.79 per liter of refined coconut oil, this scenario resulted to a lower NPV and IRR compared to the base scenario of only 60% factory capacity. On the other hand, in looking at the probability of copra increase, profits will increase compared to the provided financial statements however the base scenario shows a much larger increase in net cash flow.

Based on the researcher’s findings and as an external analyst of the company, it is recommended that BMCI take advantage of the refined coconut oil industry by competing with a locally-made product that provides health value and is sold at a reasonable price. The go-to-market strategy for BMCI is to produce refined coconut oil with varying packages depending if it is intended for the direct or indirect channel.

In terms of recommendations, BMCI must hire a skilled and knowledgeable manager to spearhead the product diversification to pinpoint potential lapses in this case study. Also, the researcher recommends that a thorough market research is done to determine the lack of secondary data for market demand, consumption, and opportunities. In conclusion, BMCI is ready to enter the new market based on the economic, financial, and realistic implication that producing refined coconut oil is a sustainable and profitable move for the copra business of the company.

Language

English

LC Subject

Copra industry, Evaluation

Location

UPLB College of Economics and Management (CEM)

Call Number

LG 993 2023 M17 B37

Notes

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Document Type

Thesis

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