Strategic Management and Marketing - Case Study Example

Company Analysis Fundamental company analysis of Dampskibsselskabet Norden A/S Table of Contents Introduction Dampskibsselskabet Norden literally means ‘Steamship Company Norden’ in English, this name had come from the first ship that its founder Mads Christian Holm owned, hence the name Dampskibsselskabet Norden A/S. When Mr. Holm founded the company on 11th February 1871, securing a place for DS Norden amongst the world’s earliest shipping companies (Falkensteen, 1996: ii, 1-7) (DS Norden, N.D.), no one at that time would have had a faintest idea that this small shipping company could one day churn out revenues worth more than 4 Billion dollars. The company operates in dry cargo as well as tanker cargo segments. The company is the foremost operator of Panamax vessels, Capesize vessels (both within the dry cargo segment), and Aframax Oil tankers; it is also amongst the topmost operators of Handymax bulk carriers (DS Norden, N.D.). DS’s business is quite complex and there are certain detectable unnatural patterns within the books, primarily because of the fact that a major chunk of the fleet operated by DS Norden is chartered. This report is being crafted to reach the following outcomes: Detect common and special causes within the company’s value chain so that a better view of its natural and unnatural patterns could be exhibited. Ascertaining the strengths, weaknesses, opportunities and threats for the organization (SWOT). Conducting a Stakeholders analysis and competency analysis. Crafting a value chain model which will ultimately give a better view of the natural and unnatural patters within the company. Calculating some chief ratios based on the financial statements of the company. Bench marking and auditing the company’s resources. SWOT Analysis The SWOT Analysis will enable us to review the strengths, weaknesses, opportunities, and threats for the company. (Griffin, 2007: 79-80) Strengths Company’s fleet is very contemporary and company policy allows it to constantly invest in updates to newer fleets. Long term tie-ups with numerous shipping companies for hiring charter ships, including some gigantic companies such as Interorient Navigation Co. Ltd. The company is the leading operator of Panamax vessels, Capesize vessels (both within the dry cargo segment), and Aframax Oil tankers. Offices and partners in Singapore, New York, Mumbai, Shanghai, Rio De Janerio, Annapolis, and of course Denmark. All of which are A grade export-import ports. High coverage area. More than a century and a half old brand-name. Weaknesses Results of the financial year ending 2008 were much poorer than expected, especially if we consider the surge in revenues, the profits were not even close to the initial expectations. The company blames it on the recession. More than 75% of its turnover is based on the dry cargo business, which generates lower revenues and the clients are much smaller in terms of capital and turnover as compared to oil companies. Competitors have been successful in churning out higher returns on sales than Norden, specifically its arch rival DS Torm, although revenues of Torm are much lower than Norden’s. Opportunities China has the largest and fastest growing export ratio, and DS Norden, which has an established base in China, may gain a lot if it should even be considered as an opportunity. Increasing GDP all around the globe, GDPs of many countries has been increasing since we have entered the post recession era and this would indirectly affect the spending capacity, which could directly impact the import trends of the developing and developed countries. Recession is about to end and most countries are showing signs of recovery, DS Norden may start re-marketing their services to old clients. Threats Recession not ‘completely’ over yet. Prices of the dry cargo transportation services have been constantly dropping, which has and will continue to make a big impact on Norden’s fleet as over 75% of its fleet is dry cargo based. The risk for Norden is higher than its competitors as a major chunk of dry cargo fleets is chartered. Countries transporting oil through pipelines rather than oil containers. In such businesses there’s always the risk of volatility in currency prices. Freight price fluctuations: DS Norden’s CEO Carsten Mortensen stated in a speech in 2009 that the rates of Capesize segment dry cargo vessel fluctuated amazingly making a low of USD 5,000 and a high of USD 100,000. (Mortensen, 2009) Core Competency Analysis Perhaps the most crucial factor that has helped DS Norden stay ahead of its competitors is its unique branding and promotional strategy, DS Norden mostly promotes itself through affiliations with various scholarship programs and its ‘go green’ focused messages; which is possibly the largest factor as to why DS Norden is a company that is known throughout the planet. Very recently the company has demonstrated this tactic again by signing the UN’s global impact in late 2009. (DS Norden, 2009) Another core competency of the company could be the fact that the company extensively promotes its services as the most secure and timely service amongst all other providers. DS Norden is undergoing a new restructuring process within which it has ordered 84 more vessels, which would take the total number of fleets to around 300 vessels. A majority of these fleets is also in the dry cargo segment, which could point out that the company is even more positive about its future in the dry cargo segment; this new restructuring will strengthen the name of DS Norden amongst the elite dry cargo carriers of the world. DS Norden might also be planning to increase their geographic regime with these new ships. (DS Norden, 2009) Next we will audit the resources of DS Norden… (Khosrowpour, 2003: 68-70) Resource Audit Stakeholder Analysis There are 2 categories of stakeholders in any company; primary and secondary. Primary stakeholders directly affect the organization and those entities directly working with or for the company, and secondary stakeholders have an indirect impact on the company. (Bryson and Alston, 2004: 59) Internal Stakeholders Stakeholders Concern Impact Interest Tanker Companies Manufacture Ships for Norden and provides spare support. + High Charter Companies Especially Interorient Navigation Co. Ltd, who charters and manages ships to Norden + High Oil Companies May choose alternative transportation such as oil pipelines - High Norient Product Pool A/S A subsidiary of DS Norden in affiliation with Interorient Navigation Co. Ltd., which has the 3rd largest product pool of the world. The company manages and audits about 50 dry cargo ships of Norden + High Table 1 External Stakeholders Stakeholders Concern Impact Interest Oil Prices Transportation charges are also included in the price of oil, and since it is a fixed cost, oil companies may object to the companies for charging same prices when the price of oil has fallen. Especially since the ships also use it as fuel. - Med Alternative energy sources The demand for oil may drop due to the increasing use of non-fossil based energy sources - Med Currency markets Without proper hedging, the company might lose margins due to fluctuations in the currency markets - Low Employee Union DS Norden’s policies ensure complete safety and financial security for their employees. They have a special training program for marketing and technical staff and are especially keen on hiring young managers + High BIMCO Maintains positive relations with Baltic and International Maritime Council + Low Intertanko The International association of independent tanker owners helps the company resolve many external conflicts. + Med Danish Government Being one of the largest companies, DS Norden gets some special privileges. + Med Table 2 Value Chain Analysis Value chain analysis of DS Norden is extremely complex as unlike other product based companies, Norden is a part of services sector and “raw materials” are of no concern to inbound logistics and outbound logistics, primary inputs used by DS Norden are mostly fixed assets and some maintenance equipment. (Schmitz, 2005) Primary Activities Supporting Activities Benchmarking Denmark is known as an elite business destination throughout the world thanks to its shipping companies such as A.P. Moller-Maersk and DS Norden. After all, A.P. Moller-Maersk is the world’s largest shipping company and stands on 106th position amongst the Fortune 500 list. In order to check best practices within the shipping industry, DS Norden will be compared to the colossal A.P. Moller-Maersk, in order to determine the effectiveness of DS Norden in terms of management, cost, productivity, and inventory turnover. That is, A.P. Moller-Maersk will act as a ‘best practice’/benchmark for Norden. At the outset, the basic numbers of both companies shall be compared. Noteworthy details Revenues (2008) 4.2 Billion USD 61.2 Billion USD Founded in 1871 1904 Net Income (2008) 708 Million USD 3.46 Billion USD Number of employees 570 119,500 Number of Offices for shipping business 7 50 Limitations of comparison Maersk is a diversified group, whereas DS Norden is focused entirely on shipping business. Although, since this is not a financial analysis, but a best practices analysis, Maersk has been chosen to represent the shipping industry. Table 3: (DS Norden, 2009) (A.P. Moller-Maersk, 2009) Ratio Based benchmarking A. Profitability Analysis (2008) (All amounts in USD millions, except for percentages) Revenues 4,246 61,211 Operating income 772.6 11,901 Net Income 707.8 3,462 Gross Profit Margin (OI/Revenues)*100 18.19 % 19.44 % Net Profit Margin 16.67 % 5.65 % Table 4: profitability (A.P. Moller-Maersk, 2009) (DS Norden, 2009) Figure 2: Profitability (2008) Undoubtedly, the revenues of Maersk are much higher than those of DS Norden’s, yet still, the net profit margins of both companies are quite idiosyncratic. After careful analysis of Maersk’s and Norden’s books, the scholar noticed the difference making factors, Maersk was spending too much on two factors: 1. Extremely high interest expenses of Maersk. 2. Colossal taxes on Maersk. Although the taxes on its container shipping businesses were equivalent, but the taxation of the total group were quite high. B. Return on Investments(2008) (All amounts in USD millions, except for percentages) Return on Equity 47 % 11.8 % Return on Assets 34.65 % 5.33 % Return on Invested Capital 89.5 % 10.1 % Figure 3: (A.P. Moller-Maersk, 2009) (DS Norden, 2009) The stake of Maersk is mostly distributed amongst group companies and its promoters, significantly diminutive shares (as compared to DS Norden) are held by the public, this along with the exceptional net turnover of the company accounts for lower return on investments. As for ROCI, Norden’s Revenues have been much higher within this financial year, which were almost 30% lower in 2007. This could amount for the exceptionally higher return on invested capital. C. Liquidity Ratios (2008) Current Ratio 4.484 1.684 Quick Ratio 4.391 1.407 Figure 4: (A.P. Moller-Maersk, 2009) (DS Norden, 2009) DS Norden is a company that primarily uses its own reserve fund for expansion projects, and this accounts for the reason why DS Norden has higher liquidity ratios. Whereas, Maersk is an extremely aggressive company that is constantly looking for opportunities to expand its businesses and increase revenues, which is the reason why it takes up so much money from the markets and maintains lower liquidity ratios. Although, the current ratio of 4+ is considered to be exceptionally superb, a ratio of 1.6 in a company that is primarily concerned with its fixed assets is great. D. Debt Utilization ratios Debt to equity ratio 0.20 1.166 Interest Coverage Ratio 18.91 0.82 Figure 5: (A.P. Moller-Maersk, 2009) (DS Norden, 2009) As mentioned within the previous segment, the interest rates of Maersk are exceptionally higher, especially in its power segment (the business is quite distinctive from the shipping sector), and therefore has failed to match the ratio of Norden. E. Asset Utilization ratios Fixed Asset Turnover 4.60 2.975 Total Asset Turnover 2.08 2.032 Figure 6: (A.P. Moller-Maersk, 2009) (DS Norden, 2009) Undoubtedly, DS Norden manages its assets better as it has been able to achieve a turnaround of 4 times, and especially since this is an industry that puts much more weight on the fixed asset of the enterprise, DS Norden has been able to live up to the mark. Conclusion Even though the revenues of DS Norden surged by almost 30% within the session of 2008, it still will not be considered an aggressive company, the framework of DS Norden is such that the company seeks to operate at minimal risk. Although, this may also be considered a positive factor as the company’s first priority is to protect the shareholders interests. Other companies such as COSCO Shipping and Maersk are operating and expanding with fierce aggression, but then again, these companies have a strong established base and have other interests in distinctive sectors, this holds especially true for Maersk, which has a company structure that allows for easy financing for its shipping businesses from other companies within which Maersk holds interest. Undoubtedly, DS Norden provides a great quality of service to its clients and supports them technically and legally throughout the value chain. This combined with DS Norden’s winning core competencies and its thorough staffing and training techniques provides hope for an extremely glorious future for the company. The SWOT analysis shows us that the threats to the company are weaker to its strengths and some of the company’s strengths also allow it to grab many opportunities easily. The view is extremely positive for short term as well as long term. Works Cited A.P. Moller-Maersk (2009) Financial Reports, [Online], Available: HYPERLINK "http://investor.maersk.com/financials.cfm" http://investor.maersk.com/financials.cfm [2 February 2010]. Bryson, J.M. and Alston, F.K. (2004) Creating and implementing your strategic plan: a workbook for public and nonprofit organizations, 2nd edition, Chicago: John Wiley and Sons. DS Norden (2009) CSR - A Systematic Approach, [Online], Available: HYPERLINK "http://www.ds-norden.com/profile/csr/systematicapproach/" http://www.ds-norden.com/profile/csr/systematicapproach/ [1 February 2010]. DS Norden (2009) Dry Cargo, [Online], Available: HYPERLINK "http://www.ds-norden.com/drycargo/" http://www.ds-norden.com/drycargo/ [1 February 2009]. DS Norden (2009) NORDEN in brief - Fleet, [Online], Available: HYPERLINK "http://www.ds-norden.com/profile/whoarewe/nordeninbrief/" http://www.ds-norden.com/profile/whoarewe/nordeninbrief/ [1 February 2010]. DS Norden (2009) Reports and Webcasts, [Online], Available: HYPERLINK "http://www.ds-norden.com/investor/reportspresentations/reportsandwebcasts/" \l "iid3185837" http://www.ds-norden.com/investor/reportspresentations/reportsandwebcasts/#iid3185837 [1 February 2009]. DS Norden (N.D.) History, [Online], Available: HYPERLINK "http://www.ds-norden.com/profile/whoarewe/history/" http://www.ds-norden.com/profile/whoarewe/history/ [1 February 2010]. DS Norden (N.D.) Home: DS Norden, [Online], Available: HYPERLINK "http://www.ds-norden.com/" http://www.ds-norden.com/ [3 February 2010]. Falkensteen, J. (1996) Dampskibsselskabet "Norden": 1871-1996 ; 125 years on the high seas, 1st edition, Copenhagen: Norden. Griffin, R.W. (2007) Fundamentals of Management, 5th edition, Cengage Learning. Khosrowpour, M. (2003) Advanced topics in information resources management, 2nd edition, New York: Idea Group Inc. Mortensen, C. (2009) CEO and President Carsten Mortensens speech of thanks, [Online], Available: HYPERLINK "http://www.ds-norden.com/investor/4866.html" http://www.ds-norden.com/investor/4866.html [2 February 2010]. Schmitz, H. (2005) Value chain analysis for policy-makers and practitioners, International Labour Organization. Read More