Siam Canadian Co Ltd's Business Philosophy - Case Study Example

Siam Canadian Co Ltd was founded in 1987 by James Gulkin. It is based in Bangkok, Thailand. This company is focused in trading frozen seafood, frozen poultry, fruits and vegetables worldwide. The company started in Thailand due to its natural resources and competitive pricing. Over the years, Siam Canadian set up a branch office in Ho Chi Minh City, Vietnam, in order to secure frozen seafood to fulfill the overseas markets. Gulkin neither had experience in trading nor in the seafood business before he invested his $130,000 CDN dollars in Bangkok. Due to his inexperience, Gulkin was not familiar with the Thailand seafood industry where the overseas Chinese community controlled the majority of the business. Gulkin neither had a comfortable knowledge of doing business with the locals in Thailand, nor trusted them. Since the role of Siam Canadian is trading seafood products to international markets as a food broker, Gulkin and his local processors/suppliers must have a trusting relationship so they ca be successful doing business together. Unfortunately Gulkin and his processors/suppliers never had confidence in each other. Siam Canadian enjoyed its first ever profitability record in 1991, and it has been profitable ever since. Its profit margin comes from 1.25% commission on sales contracts. In 1995, Siam Canadian’s trading volume was around $85 million US dollars, and 90% of the volume came from frozen seafood. This year alone, Siam Canadian made around $956,250 US dollars before taxes and expenses (Exhibit 1). Siam Canadian had to sign at least 11 million dollars of sales in orders to break even on the $130,000 CDN dollars starting capital (Exhibit 1). Siam Canadian’s current major markets for frozen seafood are the United States, France, Germany, and Canada. Gulkin has thoughts about investing in another branch office in Burma due to the untrustworthy local processors/suppliers in Thailand. He also sees a huge opportunity in exploring new resources of seafood. Gulkin is interested in Burma due to various factors such as geographic, natural resources, profit margin, investment opportunity, and expansion. Burma is known as Union of Myanmar, which is located between India in the West and Thailand in the East. Burma possesses a long coastline of over 2,830 kilometres of shore along the Andaman Sea and the Bay of Bengal. This country is believed to have rich natural resources from teak wood, oil and seafood, where resources output has not reached its potential output yet, due to poor infrastructure. The marine harvest of Burma has been increasing from the 1990’s 645.7 thousand tonnes to nearly 689 thousand tonnes. This figure indicates that Burma’s marine harvest is increasing to its potential level as infrastructure and business increase. Another major factor why Gulkin wants to move to Burma is the bigger profit margin. In Thailand as food broker, Siam Canadian is only entitled to 1.25% commissions. Since the seafood business in Thailand has matured, where buyer and seller know the market price, and business has been divided into big and small corporations, the trade rules and the business are pretty much stable. Siam Canadian can only compete within the rules of the market. If Siam Canadian could secure the seafood resources from outside the stable Thai market, the company would have its opportunity to expand and enjoy bigger profit margins, due to their extra tonnes of seafood and cheaper costs. The next factor is the new Burma Foreign Investment Law, which its main purpose is to attract foreign direct investment in Burma. The new law would allow foreign firms to hold 100% of ownership, which would pay a 30% flat rate tax on profits to Burmese government. However, there are some provisions that firms could use to reduce the tax burden in the foreign investment firms. If firms operate under all rules and regulations, they can benefit from a tax relief period of three years, exemption of tax on profit if money is re-invested into the firm, accelerated depreciation of capital assets, and exemption of relief from customs duties on equipment imported during start-up phase. The new law would allow foreign firms to be more competitive in costs and have larger profit margins, due to the lower costs in operating business in Burma, plus the tax relief of three years. This could benefit the smaller company hugely and allow company to compete with the major corporations under competitive markets. The last factor is expansion. Gulkin would like to secure more seafood resources in order to fulfill customers’ orders and to provide them with bigger quantities to make more profits and do more business. The seafood industry is highly competitive; especially major multinational firms hold a great deal of influence. For Siam Canadian to survive and be competitive, the company has to secure supplies of product and be competitive at the same time. The major problem that James Gulkin has to address is the decision of investing in the seafood business in Burma -where Burma’s political threat is still high- while the economy is blooming and the opportunity is still open. Siam Canadian has to consider this investment according to their business ethics and their current customers, in case their customers would be affected by the political risk, or simply in case the customers from the developed Western world would continue to do business ventures with Siam Canadian. In the case reading, Gulkin has thought in a few alternatives. They are investing in other countries, investing in Burma now, or assume a wait-and-see approach. The decision criteria that Gulkin has to consider are profitability, political risk and long term competitiveness. The first alternative is investing in other countries such as Indonesia, Malaysia and Cambodia. Those nations do possess long seashore and are surrounded by seas. They are also relatively close to Siam Canadian’s main office in Bangkok, Thailand. Cambodia is under control of Khmer Rouge, who has the country in a political unstable situation, where people are unsafe to travel to Cambodia and conduct business. Cambodia political threat is greater than Burma’s political risk, where Burma offers greater potential of seafood resources and business-friendly investment laws. Malaysia offers great seafood productions, but the seafood industry in Malaysia has been well-developed and it’s in the mature stages, where the opportunity for a new company is slimmer than in Burma’s seafood industry. Indonesia has its resources potential, but the country is far from Thailand, and the political situation is not stable either. The second alternative is investing in Burma now. Burma’s political threat has been high, but in Gulkin’s opinion the country is moving forward in terms of freedom and market. Other Southeast Asia nations have encouraged investing in Burma. Burmese government has also introduced the Foreign Investment Law to attract new investors. Meanwhile Siam Canadian has its goal in securing more seafood resources, exploring new markets and become more competitive. Even if political risk cannot be eliminated completely, Siam Canadian has to take chances in order to be successful when the entry barrier is still low. The last alternative is to assume a wait-and-see approach. Gulkin had taken this approach few years ago, when Burma’s political risk was very high, and the incentives were not high enough to undergo the risk. The situation in Burma has improved greatly. Risk has decreased but it hasn’t be eliminated. If Gulkin is still uncomfortable in investing in Burma now, the wait-and-see approach can be considered. Siam Canadian could wait until Burma’s political risk would have decreased a lot more, and other multinational corporations would have moved. This is the safest alternative among the three choices, and it has the least return on investment due to its lack of opportunity. Gulkin’s business philosophy is developing and managing diverse supply sources and product ranges in an ethical manner. Gulkin does not feel comfortable in bribing officials to do him favours, nor in violating human rights. Burma’s political situation and transition let Gulkin with confidence in investing as he believes economic empowerment will lead to better levels of living and freedom. Also this investment opportunity matches his business philosophy with possible greater return on investment. Siam Canadian has to stay away from the political risk and keep the company image as much as possible. One solution is to open a separate entity branch in Burma, where business can continue, resources can be secured, and customers will not find Siam Canadian to be unethical. Since Siam Canadian would not have direct relationship with the Burma office, then the customers would not be aware of the new business situation. This implantation would allow Siam Canadian to secure more seafood outside the Thai market with cheaper costs. Siam Canadian would still supply certain amount of seafood in case Burma faces economic restriction. Therefore Siam Canadian would operate without much problem. Burma could be Siam Canadian’s secret sourcing and customers would not be aware of the new situation, and it would also have greater profit margins. Seafood resources could be shipped to Thailand for inspection or repackage, and bundled for shipping to customers. Siam Canadian could merge with the Burma office in the future if the time would be right. This strategy could benefit Siam Canadian in the long run, production would not be stopped, and the costs would be cut down as a result of more competitiveness. Read More