BUS 317 Strategic Management

Management Report for
SMRT Corporation

By:

Subash S/O Tharumalingam

Table of Contents

1. Executive Summary 4
2. Introduction 5
3. Current Company Situation 5
3.1. Past Performance Assessment 6
4. External Environment Analysis - PESTEL 6
4.1. Political 6
4.2. Economic 6
4.3. Socio-Cultural 7
4.4. Technology 7
4.5. Environment 8
4.6. Legal 8
5. Industry Analysis 9
5.1. Porter's Five Forces 9
5.2. Competitor Analysis 9
6. Internal Environment Analysis 10
6.1. Financial Performance 10
6.2. Value Chain 11
6.3. Key Success Factors 12
6.4. Core Competencies 14
6.5. SWOT Analysis 15
6.6. Objectives 16
6.7. Key Issues Identified 17
7. Development Strategies 17
7.1. Strategies base on SAVED 17 7.1.1. Strategy One: 17 Venture into tourism by providing two-way transport services to Johor Premium Outlets, Legoland and Hello Kitty Land from Singapore for families and schools 17 7.1.2. Strategy Two: 19 SMRT to provide transport services mainly for tourists to send them to their hotels from airport and partnership with budget hotels chains and hostels. 19

8. Selection of alternatives 21
8.1. Chosen Alternative 21
8.2. How is the chosen alternative superior to the rejected alternative? 21
8.3. Weakness of the chosen alternative and how to overcome 22
9. Implementation 22
10. Evaluation and Control 23
11. Conclusion 23
12. References 24
13. Appendix 27
13.1. Appendix 1: SMRT Operating Metrics 27
13.2. Appendix 2: Porter’s Five Forces 28
13.3. Appendix 3: SMRT List of subsidiaries companies 29

1. Executive Summary
SMRT provides transportation to 5.5 million people (Department of Statistics Singapore 2015) and tourists and is one of the two major players in the transport network in Singapore. It offers a safe and reliable network of buses, taxis, Light Rail Transit (LRT) system and the Mass Rapid Transit (MRT). SMRT also provided consultancy and project management services in Singapore as well as overseas.

The Land Transport Authority of Singapore (LTA) is responsible for regulations, planning and development of Singapore’s transport system. Until 1988, LTA owned both the operating assets (e.g., trains, power supply equipment, cables, and signalling systems), and the non-operating assets (e.g., tunnels, viaducts, tracks, and station structures). Onwards, SMRT Corporation (SMRT) purchased and managed the operating assets from LTA. The Public Transport Council (PTC) controls the fares and routes of all public transport service providers therefore SMRT cannot compete in these areas with the other industry players. However they are still responsible for maintenance, repair and upgrading of the properties (LTA 2008).

This management report examined SMRT’s internal and external environments and explored opportunities that it can consider venturing into. With rising costs and changing demands, SMRT needs to diversify into other sources for revenue. Strategies were proposed and the team has included the strengths and weakness of the selected strategy as well as an evaluation for the organization.

2. Introduction SMRT is the second largest key public-transport operator in Singapore. The Group has extended their portfolios to leasing out its commercial and advertising spaces, project management, engineering consultancy services as well as operations and maintenance services (Momentum SMRT Corporation Ltd Annual Report 2014). Beside train services, SMRT also operates about 1200 buses in Singapore providing consistent bus services since its incorporation. SMRT has a total of 36,800 sqm of commercial space which are leased to dining, retails outlets and banks to provide a one-stop convenience shopping for commuters whist on transit. It’s funding of the road systems (i.e., replacement of key assets, building of new roads and extensions, and upgrade of existing ones) are financed from the capital budget given by LTA.

3. Current Company Situation SMRT enjoyed a steady growth in revenue of 3% and has sufficient liquidity according to a Standard & Poor’s research in 2014. The liquidity has been mostly used by the company for its debt repayment, maintenance and expenses and estimated dividend payments (Nakai and Vishwanathan 2014). From 2011, SMRT suffered many criticisms for its rail services and its fares hike exercises. The Group faced backlash from the public for its credibility in providing efficient transport services after a series of train breakdowns during peak hours; causing many commuters to be delayed or trapped in affected trains. The organisation suffered loss of public’s trust and was investigated by a Committee of Inquiry commissioned by the Government (Channel News Asia 2011). SMRT was fined $2 million for two of the most major disruptions (Land Transport Authority 2012). Its recent fare hikes was questioned by the public particularly because as oil prices have dropped globally. SMRT explained that they had to adjust the fares due to rising operating, maintenance and fuel costs. Based on a Philip Securities’ research, SMRT faced a rise in costs of 2.5% in overall operating and maintenance services (Fang 2014). This is a challenge for SMRT currently to cope with the rising costs as well as to be able to grow and manage its future operations sustainably (Nakai and Vishwanathan 2014). 4.1. Past Performance Assessment SMRT has total of route length of over 128km spread across the country and 78 train stations as of 2014. Ridership increased steadily (Refer to Appendix 1) since the opening of Circle Line which connects North-South and East-West lines to major train stations to the city thus cutting down travelling time. SMRT was one of the most experienced transport providers in Singapore with 25 years of experience in operations especially in railways (Momentum SMRT Corporation Ltd Annual Report 2014). 4. External Environment Analysis - PESTEL 5.2. Political
Historically, Mr Lee Kwan Yew, Singapore’s prime minister then, came up with the idea of building trains underground to cope with road traffic and human congestion (Momentum SMRT Corporation Ltd Annual Report 2014). It was with the government’s support that shopping malls are linked with MRT stations and bus interchanges are in close proximity so people are drawn to use public transport to travel due to convenience. In its latest addition, the government planned for SMRT to provide services into Kuala Lumpur, Malaysia. This proposed idea was welcomed by the majority as the number of tourist arrivals from Singapore reached 13.5 million in 2013 (Islamic Tourism Centre of Malaysia 2015). By providing the option of travelling on the MRT to Kuala Lumpur, it would ease the traffic congestion at checkpoints. The two governments saw benefits emerging from this deal which may even be extended to Indonesia in the future. Thus the political support from the government for SMRT is found evident through these initiatives.

5.3. Economic
The Monetary Authority of Singapore (MAS) has announced that a down payment of 40 to 50% of the price of a new car by cash is required for any new car purchase (Tay 2013). The loan payment period was reduced to 5 years instead of 10 thus making it more difficult for the average Singaporean to own cars. This created an indirect advantage for SMRT because travelling on public transport for daily activities becomes the next best option. In comparison, it is more cost-saving for the average Singaporean to use public transport. This was also the concept behind a five-year Land Transport Master plan of a transport system centred on its people (Today Online 2014) that focused on providing reliable, convenient services at affordable rates for the masses which will benefit SMRT in time to come.

5.4. Socio-Cultural
An ageing population is one of the socio-cultural problems that Singapore is facing. It is estimated that more than a quarter of the nation’s population will enter their silver years and the median age of Singaporeans was estimated to rise to 47 by 2030, compared to 39 in 2011 (National Population and Talent Division 2014). This poses many challenges for the transport industry, including the need for specific facilities that are elderly friendly (lifts, handrails etc.), and also concession fares for the elderly (OECD 2001). SMRT needs to ensure its transport facilities are elderly-friendly.

5.5. Technology
Mobile population penetration rate is at 156% as of 2013 (Department of Statistics Singapore 2014), which translates to a tech-savvy population. SMRT can reach out to travellers via smart phones and gadgets and that led to two mobile applications – “SMRTConnect” and “SMRT Tap-a-Cab” available for downloads (SMRT Corporation Ltd n.d.). “SMRTConnect” helps commuters check real-time SMRT buses and trains arrivals and even provide commuters the ability to book an SMRT taxi at their convenience. Through mobile applications, commuters plan their journeys better.

LTA is currently looking to install in-vehicle system (IVS) in buses with GPS systems that help drivers navigate routes and monitor drivers’ performance (R. Sim 2013). Enhanced Integrated Fare System (EIFS) was implemented in 2002, also commonly known as “Ez-link card” (Sim, Seow and Prakasam 2003). These cards eased the job of drivers in providing accurate fare information to commuters when boarding buses. The EIFS can generate reports of usage and traffic patterns, which allowed SMRT to adjust the frequency of their buses based on the public demand (Sim, Seow and Prakasam 2003). The system also reduced the incidents of commuters paying the maximum fare as some drivers are not entirely familiar and decided to ‘play-it-safe’.

5.6. Environment
SMRT has been consistent on its emphasis of sustainability, in line with government’s initiatives. SMRT won many awards such as the Singapore Environmental Achievement Award and also the "Most Energy Efficient Metro" in The Metro Awards in 2009 and 2010 (Ministry of the Environment and Water Resources 2011). According to SMRT’s website (SMRT Corporation Ltd n.d.), they were the first in South-East Asia to purchase Euro V compliant buses which had more advanced engines with standards set by the European Union (EU) for carbon emissions for sale in EU (European Commision n.d.). As such, SMRT is leveraging on this in taking control of air pollution in Singapore.

5.7. Legal
SMRT had to comply with strict government regulations as one of the key transport service providers. LTA has implemented fines on service providers for disruptions caused by delays or lack of proper maintenance. SMRT had been fined $1.6 million for the disruptions in 2014 (Tan 2014). These regulations ensured that industry key players like SMRT are consistent with providing quality and reliable transportation to the mass.

5. Industry Analysis 6.8. Porter's Five Forces
Porter’s Five Forces diagram is used to examine the transport industry and analyse the significant impacts on SMRT. (Refer to Appendix 2) Porter’s Five forces | Bargaining Power of Suppliers | * Consistent procurement from Kawasaki Heavy Industries since 1987 * Can get its train from Alstom, a French MNC, which supplies train to SBS | Bargaining Power of Buyers | * Little power | Threat of new entrants | * Low threat due to high set up cost | Threat of Substitutes | * No room to grow for private bus operators in land scarce Singapore * buying cars expensive, high COE (Land Transport Authority 2015) | Industry Rivals | * SMRT is one of the duopoly market * Rival SBS competes with bus services |

6.9. Competitor Analysis
Trains
SMRT owns 78% market share and is the largest rail operator in the Singapore. The average ridership for trains is 1.9million and for buses 918,200. SMRT runs the trains on the North-South, East-West and Circle lines as well as the LRT in Bukit Panjang with 14 stations. SMRT’s main competitor, SBS, runs the North East Line (NEL) and LRT in north east of Singapore. In 2013, SBS’s train ridership increased by 6.1% or 481,000 more commuters than 2012. LRT’s ridership saw an increase of 79,000 commuters in the same year. SMRT also saw an increase in train ridership to 690.9 million in 2013. Even though both are competitors, they complement each other as the designated stations of SMRT connect commuters to the next destination via SBS Transit’s NEL and buses. It is important to note that certain stations are shared between both public transport providers.

Buses and Taxis
SBS dominated the bus and taxis sector with a 75% market share and its 3326 fleet of buses running the roads (SBS Transit 2015). SMRT falls with 25% share (Investor-Relations: Annual Reports 2014). The key competitive factor is SBS buses cover routes where SMRT buses do not (SBS Transit 2014). In comparison, SMRT only owns 1200 fleet of buses that mainly covers the northern and western part of Singapore (SMRT Corporation Ltd 2014). In 2013, SBS buses brought in S$644.9 million in revenue while SMRT brought in S$220.4 million. However, due to traffic congestions, longer waiting time for buses and the limited carrying capacity of buses during peak periods, commuters tend to travel more often by trains than buses. In a 1996 white paper, it had been stated by LTA that buses was not the answer for a small but developing country like Singapore (Phang 2003). In terms of taxis, although SMRT owns more than 3300 taxis plying Singapore roads; this is pale in comparison with the largest taxi operator in Singapore, Comfort Delgro with more than 16,000 taxis.

Fares
Both SMRT and SBS are governed by LTA and Public Transport Council (PTC) (Public Transport Council 2014). PTC controls the fares and routes of all public transport service providers therefore they cannot compete in price wars.

6. Internal Environment Analysis 7.10. Financial Performance
The table below is an abstract of the financial report of SMRT in 2013 and 2014.

Table 2: Financial data of SMRT for comparison | FY 2013 | FY 2014 | Revenue ($m) | | | * Fare | 829.3 | 851.9 | * Non-Fare | 290.0 | 312.0 | Other Operating Income ($m) | 36.3 | 42.1 | PATMI ($m) | 83.3 | 61.9 | | | | Basic Earnings per share (Cents) | 5.5 | 4.1 | | | | Cash Flow ($m) | | | * Operating Cash Flow | 260.2 | 234.4 | * Free Cash Flow | 11.9 | (414.9) |
Source: SMRT Corporation Ltd Annual Report 2014

From the above, SMRT’s revenue has been increasing steadily for both Fare and Non-Fare sections. Non-Fares are driven mostly by growth in rentals of taxis, commercial spaces and SMRT’s engineering services. SMRT also generates income from other sources like investments in properties, plants and equipments. SMRT has a positive cash flow for FY2013. However, profits have decreased over the last two years, which led to lower earnings per share for investors (Refer to Appendix 3 for full report)

7.11. Value Chain
The team determined the key activities in the value chain of SMRT, using the model shown in Figure 2.
Figure 2: Model of the Value Chain

Source from:(Dess, et al. 2012)

Marketing and Sales
SMRT Media is the advertising arm of SMRT responsible for its advertisements and promotions. Through advertising, SMRT has marketed itself as one stop provider for shopping and dining options. This branding as a one stop solution has helped SMRT grow its revenue from collecting rentals from eateries and shopping tenants. SMRT Media also does advertising for other companies that expressed interest to advertise in trains, buses and taxis and take advantage of the 19 million commuters that use SMRT services.

Human Resources Management
The hiring of right people, appropriate staff training and adequate employee engagements are some of the important factors that have strengthened SMRT’s value chain. SMRT saw an increase in ridership of 690 million in 2013 which showed that commuters depended heavily on them for their daily travel. Customer service officers, technicians and engineers work hard to maintain the daily operations at each station to cope with the increase in ridership.

Procurement
Procurement is important to providing better quality vehicles for SMRT’s operations especially in terms of safety. Kawasaki Heavy Industries has been supplying SMRT with safe and reliable trains with the oldest batch dating back to 1987. The second generation of trains were from Siemens (SMRT 2011).

Technology and Engineering
Singapore Rail Engineering (SRE) is the technology and development arm of SMRT. SRE develops and invests heavily in building a strong core of engineering experts and highly skilled professionals. These skilled experts have a range of specialized engineering skills which are required to maintain and support the train networks locally and internationally (SMRT Corporation Ltd 2014). SMRT also sets a benchmark against the PAS 55 standard of good practices to ensure that operations of the trains are on par with British Standards Institution's (BSI) Publicly Available Specification for the optimised management of physical assets (Land Transport Authority 2012).

7.12. Key Success Factors
These factors helped SMRT stay competitive.
Organisational Excellence
An Energy Management Committee was set up to provide planning for energy efficiency and environmental sustainability across the organisation (Carey, Smale and Peterson 2008). Woodlands’ MRT Station and Esplanade Xchange were the first to receive the BCA Gold award for the nationwide ECO-shop project. SMRT continued their quest in improving their organisation’s business by setting up a Business Development Team to oversee future opportunities for SMRT. There are important markets in the Middle East and South East Asia that SMRT could consider.

Customer Service
SMRT embarked on improving on its customer service through an organization wide training programme, collaborating with NTUC Learning Hub and Disney Institute (Momentum SMRT Corporation Ltd Annual Report 2014). Through this programme, SMRT trained all employees to have a common vision, motivating them to “build trust and smile” with “everyone who journeys” with SMRT daily. The organisation’s complaint ratio dropped significantly after launching this programme.

Strategic Location of stations
The strategic locations of SMRT trains station played a key role to SMRT’s success. Many of the stations were built close to shopping malls and in centralized locations within a reasonable distance from housing estates. People need not travel far to shop. This makes travelling convenient for the masses while generating more sales revenue for SMRT. Ever since commercial spaces with retail and dining options were opened at Woodlands station, Raffles Place, Esplanade Xchange (Momentum SMRT Corporation Ltd Annual Report 2014), rentals from retail and eateries outlets added to SMRT’s revenue. Currently, SMRT are relatively successful in comparison to SBS Transit in maintaining tenant mix at their spaces and received substantial profits. SMRT also connected train stations to bus interchanges so commuters can move seamlessly (Kanako, Hiraoki and Ceravo 2013).

Operational Performance
The Organization recently embarked on rail renewal programmes to improve their service quality and reliability. They changed the sleepers of the parts of North-South line and completed the Circle Line power cable replacement works ahead of time. SMRT has plans to install a new signalling system to improve its headway by 100 seconds. As a result, train reliability was found to have improved by 33% in 2012 from 3.32 to 2.24. This further improved 1.87 in 2013 (Blanding 1999). A Technical Advisory Panel (TAP) was set up to provide an independent view in terms of technology and processes. TAP concluded that SMRT is on par with the best technologies and services and ensured a high sense of reliability.

7.13. Core Competencies
Services
Keeping the employees aligned with the organization’s vision and mission is a key factor to manage daily rider complaints and transport issues such as train break downs and delays. SMRT’s employees are professionally trained with its vision previously. The same vision motivates the employees to serve travelers with passion. Employees of SMRT are the ambassadors of the corporation when they were able to react professionally and in a timely manner when handling commuters’ issues. One such example was the amount of effort taken to retrieve a $50 note reported lost at one of SMRT’s train stations (Lim 2015).

Technology Development
SMRT’s Railway Engineering has been around for 25 years. Their strength lies in their knowledge and experience from operating North-South and East-West lines even before SBS Transit operated the North-East line. The knowledge and skills of the engineers have given SMRT an advantage when expanding their company portfolio into consultancy services for railway engineering in other countries such as South Korea and Dubai (Investor-Relations: Annual Reports 2014).

Marketing and Sales
SMRT diversified their business into retail and rental of properties earlier than its competitors. SMRT had been successful at profiteering from additional sources over the past decade with Woodlands Interchange and Esplanade Xchange. They are also more experienced in the area of marketing and sales which has given them a competitive advantage ahead of other transport providers.

7.14. SWOT Analysis
Strengths
SMRT coped well with many challenges since 1987 when it started. One of its key strengths is the corporate leadership that guided the company to success. Under this leadership, SMRT achieved many milestones such as attaining ISO 9001:2000 certification for its taxis services, diversified transit retail starting from the re-development of Raffles Place Xchange followed by Esplanade and Woodlands. The management also moved into global business through acquisitions of Shenzhen Zona Transportation Group Co. Ltd as well as providing engineering consulting services overseas (Momentum SMRT Corporation Ltd Annual Report 2014). The wealth of experiences of SMRT’s engineers is another key strength of SMRT (See Appendix 3).

Weakness
SMRT’s major weakness is the slowdown of growing its business. This is due to two factors - its dependency on the government and distractions due to too many train breakdowns. SMRT’s dependency on government as an organization is unhealthy as it needed to be more self-reliant in generating more revenue. As shown in section 6.1., their profits have decreased in the last two years. Secondly, for the last two years, SMRT has been dealing with complaints due to the frequent breakdown of trains. This caused SMRT to be distracted from focusing on how to grow their business effectively.

Opportunities
Over the years, more people are taking the trains because it was more convenient (Van Slyke 2008). From PESTEL analysis, the government increased the down payment to strongly discourage citizens from buying a car. This becomes a key advantage for SMRT as people need to use public transport and it is costly to own and maintain a car. The other opportunity for SMRT is to offer consultancy services to the neighbouring South East Asian countries. These countries are still backward in their public transport system compared to Singapore and a lot can be done to help these developing countries improve their transport systems. SMRT can offer assistance due to its knowledge and experience in managing transport operations. The third opportunity is for SMRT to diversify into tourism because it is a lucrative market for Singapore. Taking advantage of its bus services, SMRT can enhance travelling by offering tourism related products and services for locals and tourists as supported by the government mentioned in section 4.1.

Threats
The biggest threat for SMRT is SBS Transit’s buses. SBS buses are sometimes more reliable than trains as train breakdowns happened too often lately. People rather travel by bus after the negative experience of being trapped in trains. In the long run, SMRT may see a drop in ridership and revenue.

7.15. Objectives
This section aims to illustrate some of the objectives SMRT has undertaken to achieve better services for its customers and employees.

7.16.1. Long Term Objectives
The long term objective of SMRT is to provide a public transportation system that is safe, reliable and comfortable, through continuous upgrading of its current technology, processes and operations (SMRT 2013). SMRT also wants to establish itself as a world class brand not only in transportation services but also in leasing, marketing and advertising.

7.16.2. Short Term Objectives
One of the key short term objectives is to manage the crowd at peak levels, without compromising safety and service levels. To achieve this, train rides before 7:45a.m are free of charge (SMRT 2013). Additionally, the company has plans to revamp its signalling operations to reduce commuter’s waiting time by reducing the current frequencies of train from 120 seconds to 100 seconds (SMRT 2012). To yield better returns for its shareholders, SMRT will also maximize its land space, to generate returns based on rentals and advertising through further developing retail and advertising opportunities (SMRT 2014). 7.16. 7.17. Key Issues Identified The first issue is the importance to be profitable on its own and look for other sources for profits without relying on the government. SMRT needs to find more opportunities for revenue growth. It will be worrying when the government is no longer able to dump in funds for the increasing challenges faced by the organization. SMRT should also not continue to rely too much on government funds for its future expansion plans if it wants to stay sustainable. As SMRT is limited by the PTC’s capping of the industry’s transport fares, increasing fares is not the best long term option.

The second issue identified was the public’s confidence in their train services which have dropped tremendously due to several train disruptions. Unfortunately the issue had been further deteriorated with the recent fares hikes (Boon 2014).

7. Development Strategies
The second strategy is currently in place by LTA and SMRT (Land Transport Authority 2012). The aim is to help SMRT gain profits of 3 to 5% by 2017 but most importantly, to be more profitable on their own.

8.18. Strategies based on SAVED 8.19.3. Strategy One:
Venture into tourism by providing two-way transport services to Johor Premium Outlets, Legoland and Hello Kitty Land from Singapore for families and schools

Arenas
SMRT plans to enter the tourism industry through starting tour buses into Johor, Malaysia. SMRT can explore the possibilities of joint ventures with local travel agencies where SMRT will provide bus services into Malaysia’s theme parks and Johor’s Premium Outlets. SMRT can consider buying over small tour operators in Singapore to go under the SMRT banner. The organisation can introduce online booking of coach services as well as e-kiosks that will allow e-bookings at the user’s convenience. SMRT will speed up its expansion process by utilizing their buses and SMRT Media and Advertising to promote the new service to the public. SMRT can provide day trips to target group tours for family and schools interested in going to Legoland, Hello-Kitty land or Johor Premium Outlets in Malaysia. Its geographical scope will be the tourism industry of Singapore into Johor and Malaysians coming in to Singapore.

Vehicle
SMRT’s expansion would involve joint ventures or acquisitions of travel agencies to support the business in Johor. They can also explore the possibilities of acquiring smaller travel agencies that specializes in bus services domestically and start a new business under SMRT. Internally, SMRT will have to create a sales team to promote these coach services to inbound tour operators, companies and schools.

Economic Logic
SMRT will be controlling costs of start-up and setting the charges for such services to be competitive to other tour agencies while being affordable for the public. The local tourism industry is quite lucrative and will definitely create profits for SMRT once implemented.

Differentiator
To differentiate itself from the competition, charges offered by SMRT will be competitive compared to those by other travel agencies. SMRT will emphasize on convenience, time savings and hassle free travel for families and school groups with designated pick up and drop off points. SMRT tour bused will start from Woodlands interchange and proceed to the mentioned theme parks and Johor Premium Outlets. In view of SMRT’s objective in Section 6.6.1 to continuously upgrade its current technology, processes and operations, SMRT’s strong branding will help it in entering new markets quickly. It is important for them to react quickly before losing its competitive advantage if this is the direction they want to undertake.

Staging
This strategy will be implemented from 2015 to 2016 in stages. Stage One will be getting approvals from relevant groups and authorities in Singapore and Malaysia. Stage Two will be to look for interested partners in the tourism industry to fine tune the details. Stage Three will be to liaise with its different subsidiaries such as SMRT Media to promote awareness. Finally, HR will need to hire more bus drivers to operate the new ventures.

8.19.4. Strategy Two:
SMRT will provide shuttle services for tourists from the airport to their hotels in partnership with budget hotels chains and hostels.

Arenas
SMRT will provide shuttle services, known as SMRT Coaches for backpackers and budget travellers to their hotels from the airport at affordable rates. The main market will budget conscious travellers. SMRT Media and Advertising and buses will be the major partners involved. The new channel for SMRT will be to go into partnership with chain hotels such as Village Hotels and Fragrance Hotels as well as backpacker hostels around different parts of Singapore. The geographical scope will be Singapore. Currently, many backpackers and budget travellers are fond of using trains and buses to tour Singapore and as such SMRT Coaches will provide an alternative transport for them to explore Singapore and transporting them to their hotels. SMRT can also provide booths at the arrival and departure halls to sell EZ link cards for a nominal fee and creative Singapore designs which can be kept as souvenirs.

Vehicle
SMRT can collaborate with hotel chains that are popular with budget conscious travellers to transport their guests to and from the airport. SMRT can work with Changi Airport Group to advertise these services on their website. SMRT Media can assist in creating posters and brochures to promote awareness of this service. Coach timings and location of stops will also be included in the publications. Another source is to partner with Singapore Tourism Board to include SMRT Coaches in local maps. They may require a license from the relevant authorities such as Changi Airport Group (CAG).

Economic Logic
With over 15 million tourists visiting Singapore in 2014 (Singapore Tourism Board 2015), the tourism sector is a huge market that SMRT can diversify into. By providing this coach service to target these travellers, SMRT will have a new source of revenue in line with its external long term objective stated earlier. The charges of this service will be slightly higher than normal buses and train but definitely more affordable than taking taxis from the airport.

Differentiator
The key differentiator is the convenience that SMRT Coaches provide as travellers will be transported directly from airport to their respective hotels at affordable rates. This round trip service is specifically targeted for budget conscious travellers. SMRT offers competitive fares in comparison to taking taxis. SMRT will leverage on smaller private bus companies currently providing this service as a benchmark for price setting. The SMRT brand name will help create awareness and together with Changi Airport Group, this will ensure SMRT Coaches to gain popularity quickly among tourists.

Staging
This will begin with SMRT liaising with the several popular budget hotels, hostels and meeting with Changi Airport Group to draft the initial proposal. It will then be followed by concrete details such as how to gain awareness for the service to tourists and to purchase coaches with luggage compartments. Final stage will be to recruit more drivers and provide customer service training. The service is targeted to start mid 2016.

8. Selection of alternatives 9.19. Chosen Alternative
The selection criterion takes into the consideration of controlling costs, strengths and opportunities of SMRT (from SWOT) and the returns on investments in long run for sustainability. Based on the above, the team has chosen Strategy 1 from section 7.1.1.

9.20. How is the chosen alternative superior to the rejected alternative?
As the chosen alternative, a diversification strategy will serve to benefit SMRT in the long run as SMRT will now diversify into all forms of transportation both in the private and public sectors (SMRT 2014). SMRT currently adopts a concentric growth strategy which limits other sources of income for the company. It is already providing transport services currently in almost all areas so there is little or no new areas within the transport industry it can expand further. Through the first strategy, the diversification uses SMRT’s available resources such as buses that are already operating into Johor. Set up costs is low for strategy one’s conglomerate diversification and it enables SMRT to tap on its expertise and current resources to grow into other unrelated industries such as tourism. Additionally, buying a new fleet of coaches in terms of strategy two might not necessarily translate to higher revenues as it is highly correlated to the number of users for this service and the support from the government (Antich 2012). It is perhaps prudent to only increase its fleet of vehicles in tandem with the demands for such coaches. Strategy two, while financially practical and highly will be successful if implemented, will pose another threat for taxis drivers on a social level in long run. The competitive rates and services will draw large number of customers away from using taxis at airport and eventually forcing many taxi drivers to have lesser income (Litman 2013).

9.21. Weakness of the chosen alternative and how to overcome
Strategy one may cause SMRT to compromise its focus on its core businesses to provide a reliable and safe transport network in order to grow its revenue (SMRT 2015). However, this likely to have minimal impact as a separate team with experts will be set up and held accountable for the performance of its non-core businesses. Its main transportation services will continue to be run by its existing employees. Key to the recruitment of the new team is that there is a need to have a strong, capable and knowledgeable team to run its non-core businesses (Chua 2013). While there is an increase in initial costs for SMRT to hire such a said team, it will eventually be outweighed when SMRT gains profits from this business, resulting from an increase in its non-core business. It helps SMRT to find more avenues to grow its revenues and be more profitability by maximizing its current resources.

9. Implementation
To become a conglomerate, SMRT will diversify its focus on its core business operations. Humphrey and Schmitz (2002) emphasized the importance of value chain improvements to face the increasing competition in global markets. It is a necessity for SMRT to improve to compete globally. As mentioned earlier, Chua (2013) stated it is crucial to have a strong, capable and knowledgeable team to run its non-core businesses. Therefore hiring an experienced team to lay the foundation for Strategy one is important. It is advisable for SMRT to consider buying over an existing travel agency as this would mean saving time and effort. Next, the newly hired team should begin getting approvals from relevant groups and authorities in Singapore and Malaysia to set the boundaries and tackle business challenges. SMRT seek interested partners in the tourism industry to improve its chosen strategy and make its product more attractive. SMRT can utilize the use of technology and create more mobile apps and online sites for this venture. SMRT should begin maximise their marketing efforts to penetrate the markets. SMRT media will provide creative solutions for advertising and tapping into other platforms such as social media. With the exposure to this creatively intensive sector, hiring experienced teams to run its media business would also be beneficial for SMRT.

10. Evaluation and Control
Sustainability is one of the key factors for SMRT to have a new strategy so that the organisation could be financially independent in the long run. The decision to diversify into tourism industry will allow for more revenue less reliance on government for funds. The newly implemented Strategy one tapped into SMRT’s existing resources while taking advantage of the opportunities found within the lucrative tourism sector. Whilst PTC has a tight rein on SMRT’s fares, the new strategies will allow a speedier expansion for the organisation. This will further enhance the relationship between the Governments of Malaysia and Singapore.

A proper checks and balances system will need to be in place, subjected to a quarterly review by the departments to ensure measures that work continue to be used while processes that invite too many issues will be reviewed further.

11. Conclusion
Although SMRT has enjoyed a steady 3% growth in revenue, it suffered the loss of public’s trust and was fined for train disruptions. As the Government made it more difficult to own cars, this worked towards SMRT as the public will need an efficient transport system to commute. SMRT will need to ensure its transport facilities are also elderly-friendly as Singapore faces an ageing population.

Although SMRT and SBS Transit are competitors, they complement each other as commuters are widely connected through the transport network provided by both. Governed by LTA and PTC, both cannot compete in price wars. In the long run, it wants to provide a public transportation system that is safe, reliable and comfortable and to establish itself as a world class brand. In the short run, it wants to manage the crowd at peak levels, without compromising safety and service.

Two key issues were identified – non reliance on the Government and new opportunities for revenue growth whilst restoring the public’s confidence in their services. Hence, two strategies were proposed. The first looks are venturing into tourism by providing transportation and day trips to popular theme parks and shopping outlets in Malaysia to family groups and schools. The second is to provide shuttle round trip services to budget conscious travellers from the airport to their hotels.

The chosen first strategy means using of current resource which is its services operating into Johor. This strategy may cause SMRT to compromise its focus on its core businesses but this will have minimal impact as separate teams with expertise in the relevant field will be set up and held accountable. Initially, costs will increase for SMRT but it will be outweighed when SMRT gains profits from this business. Finally, a proper checks and balances system will need to be in place, subjected to a quarterly review by the departments to ensure measures that work continue to be used while processes that invite too many issues will be reviewed further.

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13. Appendix 14.22. Appendix 1: SMRT Operating Metrics
(Source: SMRT Corporation Ltd 2014)

14.23. Appendix 2: Porter’s Five Forces

Figure 1:
Poster’s Five Forces diagram

Figure 1

Bargaining Power of Suppliers
SMRT purchased their trains from Kawasaki Heavy Industries since it first started. Although it is the only current supplier of trains to SMRT, it is not the only train provider as Comfort DelGro, that runs the North – East Line (NEL), got their trains from Alstom, a French multi-national company. Bargaining Power of Buyers
As one of the two major public transport providers in a duopoly market, buyers have little bargaining power as they can only use either one of the service providers for public transport.

Threat of new entrants
The threat for new entrants in this industry is very low. As a public mass transport provider, SMRT has a major advantage over new entrants who may have to compete with providing low prices set by the government and accommodating the public.

Threat of Substitutes
Private Bus companies are the potential substitutes for SMRT and Comfort DelGro as both have taxis and bus services in land scarce Singapore therefore having another train provider is not an option. Private cars are also more expensive to own as Certificate of Entitlement (COE) are ever increasing and costing more than SGD$50,000 (Land Transport Authority 2015).

Industry Rivals
The nation’s transport industry operates in a duopoly market. While SMRT is the second largest transport provider, its main rival is Comfort DelGro Corporation which owns SBS Transit (SBS). SMRT has the higher market share in MRT while SBS Transit has 75% market share in bus services (SBS 2015). 14.24. 14.25. Appendix 3: SMRT List of subsidiaries companies

Source: MOMENTUM SMRT CORPORATION LTD ANNUAL REPORT. Singapore: Singapore, 2014.