1. Corporation -- A Global Business Simulation Presented by: John Doe Jane Doe Mary Jane

2. Company Background DEEP BLUE INTERNATIONAL, INC  A multi-divisional firm operating in the highly competitive information systems industry

3. Company Background Deep Blue International, Inc. SBU#1 Hardware SBU#2 Software SBU#3 Integrated MIS

4. Company Background Two level decision making process SBU: President Parent corporation: CEO Board of Directors

5. Mission Statement To be the market leader in the information industry through the establishment of competitive advantages so as to increase the value of the company.

6. Strategy  Target on High-end product consumers  Strategic development on “vertical” applications  Achieve competitive advantages by Increasing marketing, operation technology new product research and HR investment.

7. Operation of SBU #1  Pricing Strategy: High end and keep increasing because of market demand and lost sales.  Constant improvement and moderate more expense than industry average in: -Marketing Expenses -Operations Technology -Quality Budget -New Product Research -Human resource Budget  Export Strategy : Start export to ASEAN (Area 2) in Period 4, based on competitive advantages already set up and little competition in ASEAN.

8. Final Result (SBU #1)  Capacity: from 3610 to 3710 units (3% )  Book value: from $3500 to $3600 (3% )  Export: area 2, 15.1%  Sales: from $ 1879 to $ 2518 (34% )  Cost of sales: $913(49%) to $1053 (42%)  Profit: $198 to $426 (215% )  SBU profit/sales: from 11% to 17% (All numbers in thousands)

9. Operation of SBU #2  Pricing Strategy: competitive in high end  Constant improvement and moderate more expense than industry average in: -Marketing Expenses -Operations Technology -Quality Budget -New Product Research -Human resource Budget

10. Operation of SBU #2  Capacity expansion Strategy: - Constant moderate expansion based on market demand increase - Major expansion in Period 6 based on competitive advantage, lost sales and demand increase  Export Strategy: - Export Area: MERSUR (4) - Capacity availability - Little competition in the market

11. Operation of SBU #2

12. Final Result (SBU #2)  Capacity: from 4750 to 5225 units (10% )  Book value: from $4253 to $4775(12% )  Export: area 4, 15.7%  Sales: from $2569 to $3239 (26% )  Cost of sales: $1237(48%) to $1421(44%)  Profit: $380 to $537 (41% )  SBU profit/sales: 15% to 17% (All numbers in thousands)

13. Operation of SBU #3  Pricing Strategy: competitive in high end  Constant improvement and moderate more expense than industry average in: -Marketing Expenses -Operations Technology -Quality Budget -New Product Research -Human resource Budget

14. Operation of SBU #3  Capacity expansion Strategy: - Conservative expansion from Period 1 based on market demand increase - sharp expansion in Period 2 based on competitive advantages and lost sales - moderate expansion in Period 4.  Export Strategy: - Export Area: NAFTA (1) and MERSUR (4) - Capacity availability - Little competition in these markets

15. Operation of SBU #3

16. Final Result (SBU #3)  Capacity: from 5415 to 6545 units (21% )  Book value: from $5762 to $6355 ( 10% )  Export: area 1, 12.7% area 4, 12.8%  Sales: from $3376 to $3603 (7% )  Cost of sales: from $1631(48%) to $1594(44%)  Profit: $362 to $514 (42% )  SBU profit/sales: from 11% to 14% (All numbers in thousands)

17. Result (SBU level)

19. Capacity Analysis

21. Problem Areas  Cash management  Sales forecasting  Pricing

22. Corporate Decisions  Based on the SBU decisions Sales forecast Pricing  Immature market Domestic International expansion  Financial management

23. Capital Structure  Capital Needs: Expand capacity for each SBU according to sales forecast in 1 st period Aggressively expand capacity of SBU#3 in 2 nd period Constantly Increase marketing, operation technology and new product research budget Human resource expenses Export & marketing abroad

24. Capital Structure  Decision Criteria: Increase shareholders’ value Not dilute EPS and stock price Keep reasonable D/E ratio  Plan of action: Borrow 1000 bank loan in 1 st period Borrow 400 bank loan and issue 2000 bond in 2 nd period Pay back bank loan in the following period by using internal generated cash flow

25. Ratio Analysis

26. Dividend Policy  In 1 st period, we kept the previous dividend level  We decreased the dividend payment in 2 nd period  We decided to follow a constant amount plus extra payment policy since 3 nd period  We started by paying $.03 and kept increasing the level of dividend according to our operation profits increase.

27. Dividend Policy

28. Incident Report (E)  New Advertising Campaign in Period 5  Emphasizes our presence in the market in terms of growth in sales and profits.  In major business publication and airline or-board magazines.  Response: Key decision makers in major corp. are reached, smaller businesses are missed.

29. Incident Report (F)  New Business Tactics in Period 6  Host a party and provide image building items in export areas  Cost: $ 15,000  Effective promotion  Legal promotion

30. Performance Evaluation DEEP BLUE INTERNATIONAL, INC. Period 1 ----------- Period 6

31. Financial Statement ----balance sheet Cash909Accounts Payable1220 Accounts Receivable2808Annual Loan Payment767 Short Term Investment0Annual Bond Payment190 Current Assets3717Current Liabilities2177 Bank Loans due>12 months6903 Building & Equipment21807Bonds due>12 months1712 Less Accum. Depreciation7077Total Liabilities10792 Net Fixed Assets14730Common Stock4000 Retained Earnings3655 Total Equity7655 Total Assets18447Total Liabilities & Equity18447

32. Financial Statement ---- income statement Sales Revenue9360 COGS4068 Gross Margin5292 Operation Expenses3815 EBIT(SBU Profits)1477 Interest Expense363 Other Expense46 Income before Taxes1068 Taxes320 Net Income after Taxes748 Dividends Paid40 Retained Earnings708 EPS0.94

33. Competitive Advantages SBU#1SBU#2SBU#3 marketing 168153225184192241 operation tech. 91115123135145153 new product 798196135119136 sales person 2.5322 3 service person 1.7521.521.753 employee turnover rate 9.7%8.4%9.7%9.0%9.7%7.7% defective goods 2.4%2.3%2.2%2.1% 1.8%

34. Evaluation: Profitability

35. Evaluation: Stock Price

36. Evaluation: EPS

37. Evaluation: Returns

38. Ratio Analysis

39. Strategy Adjustment SBU1SBU2SBU3 PeriodProfitExpenseProfitExpenseProfitExpense 1198168138021893623014 2224175322226313563795 3283177139525354613577 4182207742327363663507 5408200654925435053199 6426209253727025143089 Total172111380250615336256420181 Profit/Cost15.12%16.34%12.71%

40. Strategy Adjustment  Initially, we wanted to strategically expand SBU#3  Based on the profit/cost efficiency analysis, we change the strategy to follow a more balance expansion plan  In the latter period, we reduced the capacity of SBU#3 by depreciation, while kept the reasonable operation budget

41. Management Audit Performance Summary  How many times the team have a zero cash balance, requiring an overdraft loan 1  How many times was there an excess amount of cash that was not invested5  How many period did you have lost sales6  Total number of lost sales units4449  Total capacity for all SBUs in the last period15480  Total amount spent on market research186  What are your total profits 4021  What was your average stock price16.49

42. Q & A Thanks a lot! Good luck in the real world!!