Harvard Case - The Far East Trading Company
"The Far East Trading Company" Harvard business case study is written by Michael Moffett. It deals with the challenges in the field of Finance. The case study is 9 page(s) long and it was first published on : Feb 20, 2002
At Fern Fort University, we recommend that Far East Trading Company (FETC) pursue a strategic shift towards asset management and investment management, leveraging its existing network and expertise in international business. This strategy involves:
- Diversifying into new markets: FETC should actively seek opportunities in emerging markets with high growth potential, focusing on sectors like infrastructure, technology, and consumer goods.
- Developing a robust investment portfolio: FETC should build a diversified portfolio of fixed income securities, private equity, and real estate investments, leveraging its strong relationships with international banks and financial institutions.
- Expanding its financial services offerings: FETC can offer investment advisory and wealth management services to its existing client base and attract new clients seeking access to international markets.
2. Background
The Far East Trading Company is a family-owned business with a long history of success in international trade. The company faces challenges due to the increasing competition and changing global economic landscape. The case study highlights the need for FETC to adapt its business model and explore new avenues for growth.
The main protagonists of the case are:
- Mr. Lee: The CEO of FETC, who is looking for ways to ensure the company's long-term sustainability and growth.
- Ms. Kim: The company's financial manager, who is tasked with developing a new financial strategy for the company.
3. Analysis of the Case Study
Financial Analysis: FETC's financial statements reveal a consistent profitability, but a limited growth trajectory. The company's capital structure is heavily reliant on debt financing, which exposes it to significant financial risk.
Strategic Analysis: FETC's core competency lies in its extensive network and expertise in international business. However, the company is facing increased competition from larger, more diversified players.
Market Analysis: The global trade landscape is evolving rapidly, with emerging markets offering significant growth opportunities. FETC's existing expertise in international business positions it well to capitalize on these opportunities.
SWOT Analysis:
Strengths:
- Strong international network
- Expertise in international business
- Strong financial performance
- Experienced management team
Weaknesses:
- Limited growth potential in existing markets
- Heavy reliance on debt financing
- Lack of diversification in business activities
Opportunities:
- Emerging markets with high growth potential
- Increasing demand for international investment services
- Technological advancements in financial services
Threats:
- Increased competition from larger players
- Global economic uncertainty
- Regulatory changes in international markets
4. Recommendations
Short-Term:
- Improve Financial Management: Implement a robust risk management framework to mitigate financial risks associated with debt financing.
- Optimize Working Capital: Improve cash flow management by optimizing inventory levels and receivables collection.
- Develop a Growth Strategy: Identify new markets and sectors with high growth potential and develop a business plan for expansion.
Long-Term:
- Diversify into Asset Management: Leverage existing relationships and expertise to build a portfolio of fixed income securities, private equity, and real estate investments.
- Expand Financial Services Offerings: Offer investment advisory and wealth management services to existing and new clients.
- Strategic Partnerships: Form strategic partnerships with international financial institutions to gain access to new markets and expertise.
- Technology Adoption: Embrace FinTech solutions to enhance efficiency and optimize operations.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies: The recommendations leverage FETC's existing expertise in international business and its strong network.
- External Customers: The recommendations address the needs of existing and potential clients seeking access to international markets and investment opportunities.
- Competitors: The recommendations position FETC to compete effectively with larger, more diversified players by offering specialized services and leveraging its unique strengths.
- Attractiveness: The recommendations are expected to generate significant return on investment (ROI) and enhance shareholder value.
6. Conclusion
By embracing a strategic shift towards asset management and investment management, FETC can unlock significant growth potential and ensure its long-term sustainability. This strategy leverages the company's core competencies, addresses the changing global landscape, and positions FETC for success in the years to come.
7. Discussion
Alternatives:
- Mergers and Acquisitions: FETC could consider acquiring existing asset management or investment management firms to gain immediate market access. However, this approach carries significant risks and may require significant capital investment.
- Organic Growth: FETC could focus on organic growth by expanding its existing business operations. However, this approach may be too slow to compete effectively with larger players.
Risks:
- Market Volatility: The global financial markets are subject to volatility, which could impact FETC's investment portfolio and profitability.
- Regulatory Changes: Regulatory changes in international markets could impact FETC's operations and investment strategies.
- Competition: FETC faces competition from established players with significant resources and expertise.
Key Assumptions:
- The global economy will continue to grow, providing opportunities for investment and expansion.
- FETC can successfully develop and implement a robust asset management and investment management strategy.
- FETC can attract and retain qualified personnel to manage its investments and financial services offerings.
8. Next Steps
- Develop a detailed business plan: Outline the strategic objectives, target markets, and financial projections for the asset management and investment management business.
- Recruit key personnel: Identify and recruit experienced professionals with expertise in asset management, investment management, and international finance.
- Establish partnerships: Form strategic partnerships with international financial institutions to gain access to new markets and expertise.
- Develop marketing and sales strategies: Create a comprehensive marketing and sales plan to attract new clients and promote FETC's new services.
- Monitor and evaluate performance: Regularly monitor the progress of the new strategy and make adjustments as needed.
By taking these steps, FETC can successfully transition into a leading provider of asset management and investment services, securing its future and creating value for its stakeholders.
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Case Description
Jan Karl Karlsen is the CFO of The Far East Trading Company, a 100-year old Swedish company with operations throughout Asia and Latin America. It is November 1997, and the firm has just issued its second official profit warning to its stockholders in Stockholm, its corporate home. The company is now feeling the effects of the Asian currency crisis, which began in July 1997 in Thailand, and then spread to the neighboring countries of Indonesia, Malaysia, the Philippines, Taiwan, Singapore, and Korea. As Jan Karl Karlsen pondered what specific actions were needed to navigate the treacherous waters of the market crisis, he focused on the "three C's of corporate financial management; control, confidence, and cash flow."
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