APRIL 2011

Question 2
a) In the above case the CEO seemed to be rushing to expand the Maju Bhds empire.
Explain to the CEO three problems that Maju Bhd may face after his gobble
acquisition.
There are three Problems that Maju Bhd may face after his gobble acquisition are
Maju Bhd has hurriedly acquired Rasa Bhd without undertaking any due diligence
process. This lead to the failure of analyzing the competitors (Rasa Bhd)
performances in term of their financial perspective. Second problems is Maju Bhd
had incurred a higher cost in order to acquire Rasa Bhd who is in the middle of
restructuring strategy. Because of the hostile takeover, Maju Bhd had to pay premium
to acquire Rice Flour Manufacturing (RFM). This may cause Maju Bhd to face an
excessive cash outflow. Lastly, Maju Bhd might face problem in its liability in the
future due to the high debt of its acquire, Rasa Bhd. Maju Bhd will be affected to this
problem and might affects its performance in the long run.

b) Discuss the intensity of existing rivalry and the bargaining power of buyers after
Maju Bhd acquired Rasa Bhd.
Intensity of existing rivalry
Since Maju Bhd had acquired its direct competitors of Rasa Bhd, Maju Bhd managed
to increase its market share to 90% which enable Maju Bhd to have control over the
wholesale market industry. By controlling the market, Maju Bhd has the power to set
competitive pricing which frighten off the smaller competitors in the market and
eventually make them disappeared. Thus, the intensity of existing rivalry is weak for
Maju Bhd.
Bargaining power of buyers
By conquering the market, the buyers will have less choice in purchasing the
product. Buyers have low bargaining power which mean they cannot demand a
higher quality of services or lower price as Maju Bhd has set the competitive pricing
in the market. The buyer faces few switching costs because Maju Bhd had eliminated
all its rivals.

c) Explain to the CEO one limitation of the vertical integration strategy that he
undertook.
One limitation of the vertical integration strategy is additional administrative costs
associated with managing a more complex set of activities by acquiring Rice Four
Manufacturing, which is the biggest rice flour supplier in the country, most probably
the administrative cost of the company is higher. For the long run, there might be a
possibility of competition for the rice flour industry which then will contribute to a
more complex set of activities in order to gain the competitive advantages. For
example, the company will incurred high production cost in order to improve the
quality of its product.