Case Methodology
Case Study 4 – Buah Bagus Sdn Bhd
Mirza Zia
G1213229
Company Overview

Buah Bagus Sdn. Bhd. (BBSB) is a Selangor, Malaysia based manufacturer and distributor of fruit based cordials. It began operations in 1983 under the leadership of Rosli bin Khaled. Prior to entering the cordial manufacturing business, Rosli was an employee of a firm the manufactured automotive safety belts. He left the firm to search of new challenge, in the course of which he founded BBSB. The firm sells its cordials in three sizes, namely 720ml, 2 liters, and 4.55 liters. The firm largely relies on government tenders with government owned or linked corporations such as FELDA, MARA, PERNAS and RISDA, and geographically serve the states of Pahang, Kelantan, Perak, Terengganu, Selangor and the Klang Valley region.
Problem Statement

The case study presents us with a situation where the firm has reached maximum production capacity, in the presence of ample market opportunities. At the present BBSB is forced to let these opportunities go as it cannot cater to the market demand. BBSB, and its owner Rosli bin Khaled are now faced with the choice of incurring costs and investing in moving to a new facility to take advantage of the opportunities or not. Additionally, the firm has also to decide where it will relocate its operations, in the Klang Valley or in its home state of Kelantan.
SWOT Analysis

Strengths 1. Strong growth in sales. BBSB has recorded double to triple digit growth well into five years in its operations. 2. Low costs and high profit margin. According to prices table provided, BBSB has a good cushion which allows it to earn profit margins higher than while at the same time keep its prices lower than its competition. 3. Strong and stable relation with its customer base. Majority of the firm’s revenues are generated from government tenders. This gives BBSB stability in revenues. Furthermore, BBSB has an established reputation as a quality cordial provider through its contract first with FELDA. This proves especially vital since it is a SME Bumiputra firm, and it is likely that the Malaysian government will allow it preference over other larger, multi-national competitors such as F&N. 4. BBSB in the form of Rosli bin Khaled has an owner who is driven by taking on new challenges. This can be seen by the fact that he chose to switch from being a Production Manager at a safety belt manufacturing plant to venturing into the cordial business, something he does not have prior experience in. As a result of this drive, there is a high probability that Rosli could lead the firm into a highly diversified FMGC company rather than just a cordial manufacturer.

Weakness 1. BBSB currently has limited capacity. As seen in the case, the firm is unable to take advantage of opportunities, where it has been forced to let go of nearly MYR150,000 of revenues. 2. The production process at present is very rudimentary. As a result, BBSB used tap water for its production process. While in the short run it may be cost-effective, in the long run it would be preferable if the firm switched to treated and filtered water to ensure product safety. 3. Weak administration. The firm lacks the human resource to operate an efficient and effective sale, logistics and delivery system. As per the case, the sales force has historically been unsupervised, making it susceptible to fraud and employee theft. This lack of administrative overview is likely to prove costly to the firm in the long run. 4. Since BBSB is not an established brand as its competitors. Thus, BBSB products are likely to be place further up a supermarket aisle. This makes it less likely that BBSB products would be sold at supermarkets. This is a sign of weak marketing on behalf of BBSB sales team. This can also be seen by the fact that established competitors such as F&N and Magnolia have much larger advertising budgets and market presence through advertising.
Threat
1. The cordial business has relatively low barriers to entry. The industry has low capital requirements and is not technology intensive. As a result, BBSB can face threats from new entrants into the market, who could easily replicate BBSB’s quality and product portfolio. 2. Established players such as F&N, given their long established presence in the market and larger scale of operations are more likely to take advantage of economies of scale, which could afford them the opportunity lower prices and eat into the market share of BBSB.
Opportunity
1. Lowering manufacturing costs. BBSB already enjoys comparatively higher profit margins compared to its competition. The firm could further improve on this by sourcing its flavor, coloring and ingredients from outside Malaysia. BBSB already charges prices lower than its competition, lowering manufacturing costs will give it the opportunity to lower its prices further and in turn attract the price sensitive segment of the market, subsequently allowing it to gain market share from its competitors. 2. Expanding on its currently facilities will give the firm the opportunity to take advantage of opportunities it is now missing due to limited capacity. This would allow BBSB to increase revenues by a significant margin.
Case Analysis

Leadership
The case introduces us to Rosli bin Khaled, a veteran in the automobile safety belt industry. After working for five years at the firm, Rosli opted to start his own business manufacturing and distributing cordial. It can be said that Rosli is of enterprising nature as he took the risk of leaving a stable job to start a business of his own. Furthermore, his enterprising drive can be seen in the fact that he was able to build up on the one government contract with FELDA and secure a number contracts from other government organizations.
Sales
Given the restriction of human resources, Rosli had always been aware of the fact that he would be unable to supervise and provide training to the sales force. As a result, the firm had to experience the first hand an incident of employee theft.

BBSB primarily caters to consumers residing in government owned and linked plantations. It distribution strategy mostly involves selling its cordial to minimarkets placed in these large plantations. As per the details in the case, it can be said that the government considers BBSB as a reputable cordial manufacturer, since PERNAS was willing to consider BBS as a private label supplier.

Sourcing
At present, given the small scale of operation, BBSB sources its raw materials from local suppliers, which are comparatively more expensive than foreign suppliers. As per the case, BBSB would be able to reduce its manufacturing expenses by 20% to 25% if it made the switch to foreign suppliers. In order to do this however, it would require Rosli to expand the firm’s capacity. Additionally, BBSB uses tap water in its manufacturing process. It would be wiser if the company switched to filtered or treated water as it would be of lesser health risk to its consumers.

Competition
BBSB competes with well-established, large firms such Magnolia and F&N as well as smaller manufacturer such as Red Horse, Double Lion and Seven Ring. In fact, as per the case, F&N and Magnolia are reported to be the largest and second largest players in the cordial market respectively. These two firms have a major advantage over BBSB in terms of advertising budgets. Both firms spend large amounts on advertising their products in the market, increasing visibility and brand image among the consumers. BBSB unfortunately cannot afford to undertake large advertising and publicity campaigns due to budget constraints.

Conclusion

In my opinion, it would be more apt if BBSB moved it operations to Kelantan. The main drivers for this decision are” 1. Majority of the demand is from Northern states of Kedah, Kelantan, Perak, Penang, and Terengganu. As a result, BBSB would be able to take advantage of lower delivery costs. A move to Klang Valley would increase the costs of delivery since it would have to devote a larger fleet to service the northern sector which is geographically vast, compared to the narrower central and southern regions of the peninsula. 2. It would allow both Rolsi and his partner to spend more time both at home with their family as well as attend to business needs. 3. IT will allow Rosli to take advantage of the prime location of the facilities located at the Kuala Krai highway.